Join CAIIB WITH ASHOK on YouTube & App

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
Join CAIIB WITH ASHOK on YouTube & App
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,
Join CAIIB WITH ASHOK on YouTube & App
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.
Join CAIIB WITH ASHOK on YouTube & App
➢ 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
Join CAIIB WITH ASHOK on YouTube & App
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
Join CAIIB WITH ASHOK on YouTube & App
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,
Join CAIIB WITH ASHOK on YouTube & App
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.
Join CAIIB WITH ASHOK on YouTube & App
➢ 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.
Join CAIIB WITH ASHOK on YouTube & App
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)
Join CAIIB WITH ASHOK on YouTube & App
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.
Join CAIIB WITH ASHOK on YouTube & App
➢ '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.
Join CAIIB WITH ASHOK on YouTube & App
➢ 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.
Join CAIIB WITH ASHOK on YouTube & App
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
Join CAIIB WITH ASHOK on YouTube & App
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 dishonoured 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
Join CAIIB WITH ASHOK on YouTube & App
possession of the goods and by waiver of Chapter 27A: DEFINITION, MEANING
lien. AND NATURE OF A PARTNERSHIP
➢ When the buyer becomes insolvent, the
unpaid seller who has parted with the
possession of the goods has the right of ➢ Partnership is the relation between persons
stopping them in transit. who have agreed to share the profits of a
business carried on by all or any of them
He may retain them until payment of the
acting for all. For example- A and B are joint
price.
owners of a car.
➢ Goods are deemed to be in course of transit
➢ It is not a partnership.
from the time when they are delivered to a
carrier or other bailee for the purpose of However, if they decide to give it on hire and
transmission to the buyer and the transit share the rentals it is a partnership between
ends, when the buyer or his agent takes the two.
delivery of them from such carrier or other ➢ Persons, who have entered into partnership
bailee. with one another are called individually
➢ The unpaid seller's right of lien or stoppage 'partners' and collectively a 'firm' and the
in transit is not affected by a further sale or name under which their business is carried
by other disposition of the goods, which the on is called the firm's name.
buyer may have made (unless the seller has ➢ It must always be remembered that a
given his permission). partnership is not a separate legal entity like
➢ Exception to this is when any person in good a company formed under the Companies
faith and for consideration takes documents Act, 1956/2013.
of title to goods from a buyer or transfer of ➢ The contract between the partners may be
goods is by way of pledge, where right of oral or written.
unpaid seller may get defeated.
➢ The partnership must be formed to carry on
➢ These rights arise out of breach of contract some lawful business.
and the seller can file a suit to claim
damages, claim the price of goods with ➢ There must be a mutual relation of 'agency'
interest and he can also repudiate (cancel) between the partners. This means that any
the contract. partner can by his acts bind all the partners
of the firm.

This is the meaning of 'business carried on

by all or any of them 'acting for all' in the
definition of partnership.
Join CAIIB WITH ASHOK on YouTube & App
➢ 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
➢ Business has been defined in Section 2(b) of March 2009. An LLP is a body corporate and
the act as "Business" includes every trade, a legal entity separate from its partners.
occupation, and profession..."
It has perpetual succession.
Join CAIIB WITH ASHOK on YouTube & App
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 ➢ A partnership is primarily a contract of
members the flexibility of organizing their 'uberrimae fidei' and Section 9 of the Indian
internal structure as a partnership based on Partnership Act, 1932 deals with the duty of
a mutually arrived agreement. 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
representative."
➢ The Central Government has powers to
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
the business of the firm."
➢ A firm, private company or an unlisted
public company is allowed to be converted ➢ Subject to the provisions of this Act Sec.
into a LLP in accordance with the provisions (11), the mutual rights, and duties of the
of the act. partners of a firm may be determined by
contract between the partners, and such
➢ The winding up of LLP may be either contract may be expressed or may be
voluntary or by the National Company Law implied by a course of dealing.
Join CAIIB WITH ASHOK on YouTube & App
➢ As per section 27 of the Indian Contract Act, ➢ Where a partner is entitled to interest on
1872, contracts between partners may the capital subscribed by him such interest is
provide that a partner shall not carry on any to be paid only out of profits of the firm.
business other than that of the firm while
➢ Interest at 6% on extra amount paid by the
he is a partner though strictly speaking the
partner.
agreement becomes an agreement in
‘restraint of trade”. ➢ The property of the firm includes all
property/rights in property originally
➢ A restraint of trade is any activity that tends
brought into the firm or later on acquired
to limit a party's ability to enter into
(by purchase, etc.) by the firm for the
transactions.
purpose of business of the firm and includes
➢ As per Section 12 “Subject to a contract also the goodwill of the business.
between the partners”: Every partner has a
➢ The property of the firm has to be held and
right to take part in the conduct of the
used by the partners exclusively for the
business (unless he or she is a sleeping
purposes of the business.
partner) and Every partner is bound to
attend diligently to his duties in the conduct ➢ If a partner derives any profit for himself
of the business. from any transaction of the firm or from the
use of the property/ business connection of
➢ Any difference arising as to ordinary matters
the firm/the firm name, he is bound to pay
connected with the business can be decided
it to the firm.
by a majority of the partners and every
partner has a right to express his opinion ➢ Also, if a partner carries on any business
before the matter is decided. competing with the firm, he is bound to pay
to the firm all profits made by him in that
➢ Every partner has a right to have access to
business.
and to inspect any of the books of the firm.
➢ The reason for this is that a partnership is a
➢ As per Section 13 of the Indian Partnership
fiduciary relationship (trust) and no partner
Act 1932 dealing with mutual rights and
is entitled to make any personal profit.
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.

➢ The partners are entitled to share equally in

the profits earned and liable to contribute
equally to the losses made by the firm.
Join CAIIB WITH ASHOK on YouTube & App
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
Join CAIIB WITH ASHOK on YouTube & App
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.
Join CAIIB WITH ASHOK on YouTube & App
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
Join CAIIB WITH ASHOK on YouTube & App
good faith, of powers conferred by contract ➢ 'Dissolution of a firm' means that there is a
between the parties. breakdown in the relationship between all
the partners in the firm. For example- An
The expelled partner is in the same position
example of reconstitution of a partnership is
as that of the retiring partner. (Section 33)
where there are 3 partners A, B and C in a
➢ If partner of a firm is adjudicated as an partnership firm and C retires.
insolvent, he ceases to be partner from the
➢ DISSOLUTION BY AGREEMENT: In terms of
date on which the order of adjudication is
Section 40 of the Indian Partnership Act
made.
1932, a firm may be dissolved with the
➢ An order of adjudication of a partner may or consent of all the partners or in accordance
may not dissolve the firm. with a contract between the partners.

➢ If the firm is not dissolved pursuant to a ➢ COMPULSORY DISSOLUTION: A firm is

contract upon adjudication of a partner, the dissolved If all the partners (except one) are
estate of a partner so adjudicated is not adjudicated insolvent.
liable for any act of the firm and firm is not
➢ Or By the happening of any event which
liable for any act of the insolvent partner,
makes it unlawful for the business itself to
done after the date on which the order of
be carried on or the event makes the
adjudication is made. (Section 34)
business unlawful if it carried on in
partnership.
Chapter 27E: DISSOLOUTION OF A FIRM ➢ A firm is also dissolved under the statute
(Sec. 42) under certain circumstances
detailed If the partnership is constituted for
➢ When there is a "Dissolution of a Firm" a fixed term, then by the expiry of that term,
there would be termination of the firm and If the partnership is constituted to carry out
end of business relationship among all the one or more adventures or undertaking,
partners whereas when there is a then by the completion thereof, By the
"Dissolution of a Partnership" there is only a death of a partner and By the adjudication
change in the business relationship among of a partner as an insolvent.
all the partners and the firm continues to
➢ Section 44 of the Act states that on the filing
run.
of a suit by a partner, the court may dissolve
➢ As per Section 39 "The dissolution of a a firm on any of the following grounds: that
partnership between all the partners of a a partner has become of unsound mind, that
firm is called the "dissolution of the firm". a partner has become permanently
incapable of performing his duties as
partner.
Join CAIIB WITH ASHOK on YouTube & App
➢ (Other than the partner suing for been shown in the Register of Firms as a
dissolution), that a partner(other) is guilty of partner in the firm.
conduct which is likely to affect prejudicially
➢ No suit to enforce a right arising from a
the carrying on of the business, that a
contract shall be instituted in any Court by
partner (other) wilfully or persistently
or on behalf of a firm against any third party
commits breach of agreements in relation to
unless the firm is registered and the persons
the management of the affairs of the firm,
suing are or have been shown in the
that a partner (other) has transferred the
Register of Firms as partners in the firm.
whole of his interest in the firm to a third
party and on any other ground which ➢ the enforcement of any right to sue for the
renders it just and equitable that the firm dissolution of a firm or for accounts of a
should be dissolved. (Section 44) dissolved firm, or any right or power to
realize the property of a dissolved firm, or
➢ Any or all partner of the firm must give a
the powers of an official assignee, receiver
public notice to the effect that the firm is
or Court under the Presidency-towns
dissolved.
Insolvency Act, 1909, or the Provincial
Insolvency Act, 1920, to realize the property
of an insolvent partner.
Chapter 27F: EFFECT OF NON-
REGISTRATION
Chapter 28A: DEFINITION AND
FEATURES OF A COMPANY
➢ A company is compulsorily required to be
incorporated and registered with the
Registrar of Companies under the
➢ The Indian Companies Act 1956 was enacted
Companies Act, 1956 (now ICA 2013).
to "consolidate and amend the law relating
However, a partnership firm is not required to companies and certain other
to be compulsorily registered with the associations".
Registrar of Partnership Firms.
This law related to Companies in India was
➢ The provisions of Section 69 states No suit amended and replaced by the Companies
to enforce a right arising from a contract Act 2013 which came into being on the 29th
shall be instituted in any Court by or on August 2013.
behalf of any person suing as a partner in a
➢ Section 3 of the Companies Act, 1956
firm against the firm unless the firm is
defined a company as 'a company formed
registered and the person suing is or has
and registered under this Act, or an existing
company'.
Join CAIIB WITH ASHOK on YouTube & App
➢ 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
➢ As a company is an artificial legal person, it
Section 3 of the Companies Act, 1956 or any
is not capable of signing documents for
previous Companies Act shall remain within
itself.
the precincts of definition of company under
the new act. It acts through natural persons who are the
directors appointed by the shareholders of
➢ A company has to be compulsorily
the company.
registered under the Companies Act, 2013.
➢ Any document bearing the common seal of
Companies registered under Companies Act,
the company is legally binding on the
1956 need not re-register.
company.
➢ A company is an artificial legal person which
It has to be affixed in the manner stated in
is created by law and can be dissolved by
the articles of association, e.g., in the
the law alone. It is invisible, intangible and
presence of two directors who shall sign on
exists only in the eyes of the law.
the document where the common seal is
It enjoys many rights of a natural person. affixed in their presence.

➢ Limitation of liability is an advantage of ➢ The corporate veil is said to be lifted or

incorporation of a company. pierced when the Court ignores the separate
entity of the company and directly concerns
➢ An incorporated company never dies unless
itself with the members or directors of the
wound up as per the applicable law.
company.
It is a legal entity with perpetual succession.
There is no specific law as to when this
The insolvency or death of members does should be done.
not affect the continued existence of the
➢ The Corporate veil is normally ignored and
company.
lifted by the Court when the persons
➢ On incorporation the company becomes the managing the company have indulged in to
owner of its capital and assets. fraudulent, illegal acts or have siphoned off
the funds of the company for their own
The company is capable of holding property
benefit.
in its own name.
Join CAIIB WITH ASHOK on YouTube & App
➢ Registration of a company is compulsory A partnership does not have a perpetual
under the Companies Act, 2013. Registration existence and may be dissolved on the
of a partnership is not compulsory under the happening of certain events or otherwise
Indian Partnership Act, 1932. even with the consent of all partners.

➢ Minimum of 2 and maximum of 200 in case ➢ A member/shareholder of the company can

of a private company. contract with the company.

In case of a One Person Company as defined A partner cannot contract with his/her own
in Section 2(62) of the Companies Act 2013, partnership firm.
means a company which has only one as a
➢ Except in case of a company with unlimited
member.
liability, the liability of the members of the
Minimum number of 2 persons is required company is limited to their shareholding.
to form a partnership.
The liability of partners in a partnership is
The maximum number shall not exceed 100. unlimited.
(ICT 2013)
➢ When shares of a company are transferred
➢ A company has a legal existence separate to someone, he i.e., the transferee becomes
from its own members and is viewed as a a member of the company and the consent
separate legal person from its members. of all members is not required to become a
member.
A firm does not have a separate legal
existence different from its own partners. A person can become a partner in a
partnership firm with the consent of all the
➢ The property of the company is owned by
partners.
the company itself and not its members as
the company has a separate legal existence. ➢ The death of any or all members of the
company does not determine (end) the
The property of the firm is owned by the
existence of the company.
firm through its partners as a firm does not
have a separate legal existence different Death of a partner dissolves the partnership
from its own partners. unless the partnership deed provides
otherwise.
➢ The company is managed by a board of
directors elected by the shareholders. A ➢ The members of a company are not the
partnership is managed by the partners agents of each other or of the company.
except the dormant and sleeping partners. Every partner of a firm is an agent of the
firm as well as other partners.
➢ A company has a perpetual existence.
Join CAIIB WITH ASHOK on YouTube & App
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
incorporated under the Reserve Bank of ➢ On the basis of public interest, companies
India Act, 1934. can be classified as Private Company,
Government Company, Public Company,
➢ Registered under the Companies Act, 1956
Foreign Company, One Person Company and
and also Companies Act, 2013: Such
Small Company.
companies are incorporated and registered
under the prevailing Companies Act ➢ A private company is defined under the
1956/2013, e.g. Tata Iron Steel Company Section 3 of the Companies Act, 1956 as a
Limited. company which under its articles of
association contains the following
➢ Where Companies are classified on the basis
restrictions:(a) Transfer of Shares: If a
of liability, they could be Company limited
private company has a share capital it
by shares, Company limited by guarantee
imposes restriction on the right to transfer
and Company with unlimited liability.
shares. (b) Restricts the number of members
➢ Company Limited by Shares: In such to 200 (As per ICA 2013).
companies there is a provision for 'share
Minimum Directors: 2
capital' divided into a certain number of
shares, which the source of funds to the ➢ A private company cannot issue a
Company, and each share has a fixed prospectus and cannot invite the public to
nominal value also known as the face value subscribe for any shares or debentures of
which the shareholder is bound to pay the company.
either at a the time of allotment or ➢ A private company cannot acceptance of
sometimes in instalments. deposits from persons other than its
member, directors or their relatives.
Join CAIIB WITH ASHOK on YouTube & App
➢ 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
such a government company.
➢ A public company is one which is not a
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
Heavy Electricals Limited and Hindustan
Minimum members: 7 Maximum Members:
Aeronautics Ltd.
Unlimited Minimum Directors: 3
➢ Foreign Company as per Sec. 2(42) of Indian
➢ No minimum paid up capital is prescribed
Companies Act, 2013, means any company
for a public company as per Companies Act,
or body corporate incorporated outside
2013.
India which Has a place of business in India
➢ A private company can have minimum two whether by itself or through an agent,
members and two directors. physically or through electronic mode; and
conducts any business activity in India in any
A public company has to have a minimum of
other manner.
seven members and three directors.
➢ As per provision of section 2(62) of the
➢ A private company need not obtain a
Companies Act, 2013, "one person
certificate of commencement of business
company" (OPC) means a company which
from the Registrar of Companies which a
has only one person as member.
public company has to obtain.
➢ Small Company: It means a company, other
A Private Company has to only get the
than a public company, Paid-up share capital
certificate of incorporation.
of which does not exceed 50 lakh ₹ or such
➢ A private company need not hold a higher amount as may be prescribed which
statutory meeting and submit a statutory shall not be more than five crore rupees; or
report to the Registrar of Companies while a Turnover of which as per its last profit and
public company has to do so. loss account does not exceed 2 crore ₹ or
such higher amount as may be prescribed
➢ The Companies Act, 2013 Sec. 2(45) defines
which shall not be more than 20 crore
a government company as any company in
rupees.
which not less than 51% of the paid-up
share capital is held by: ➢ A company is deemed to be a subsidiary of
another if that other company controls the
➢ The Central Government or
majority composition of its board of
➢ By any State Government or Governments directors with the sole objective of
or
Join CAIIB WITH ASHOK on YouTube & App
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
Chapter 28C: MEMORANDUM OF should clearly state the objectives for which
ASSOCIATION AND ARTICLES OF the company is established (incorporated) and
the nature of business it can undertake/carry
ASSOCIATION
on.

The Main Objectives clause must contain the

➢ The first step in the formation of a company main objectives which are to be pursued by the
is the preparation of the memorandum of company immediately on incorporation.
association, which is described in detail in The Other Objectives clause must contain other
Section 4 of the Companies Act 2013. objectives which are not included in the above
➢ Various clauses of the memorandum of clause.
association (MOA): ➢ D. Liability clause: If the company is to be
Name clause: A company is a legal person and incorporated with limited liability the
hence it must have a name to be identified. liability clause must state that the liability of
the members shall be limited by the unpaid
If the company is with limited liability the last amount on shares.
word of the name should be "limited" and in
case of a private company the last words ➢ E. Capital clause: In case of companies
should be "private limited". having a share capital this clause must state
that the amount of share capital which the
B. Registered office clause: This clause must company will be authorized to raise and the
mention the name of the State in which the number and the value of shares into which it
registered office of the company is situated. is divided.
Join CAIIB WITH ASHOK on YouTube & App
➢ F. Association or subscription clause: The association states the objects of the company
MOA concludes with a declaration of the beyond which the company cannot go.
subscription that the persons who have
➢ Clauses in the memorandum of association
subscribed their signatures intend to form
(e.g. change of registered office in another
themselves into an association.
State or the objects clause) can be altered
➢ The Articles of Association, usually called as only by a special resolution passed by the
‘Articles' is the second important document company and with the approval of the
of a company and is described in Section 5 Central Government.
of the Companies Act 2013.
Any terms of the articles of association can be
It consists of a set of rules/regulations and bye altered by a special resolution and no
laws made by the company for internal approvals are required from the Central
management of the company and for carrying Government or any other authority.
out the object or objective of the company
➢ If a company commits an act in
embodied in its Memorandum of Association.
contravention of the memorandum of
In terms of Section 5: the articles of a company association (e.g. a company having objects
shall contain the regulations for management only to manufacture biscuits starts activities
of the company. of bottling of milk without proper
amendments in the objects clause) then the
➢ The memorandum of association contains
acts done and liabilities arising there from
the fundamental activities (objects) for
are not binding on the company and the
which the company is incorporated.
same cannot be ratified by the company.
The articles of association are the internal
If a company does something in contravention
regulations of the company and they
of the provisions of its articles of association, it
provide the manner in which the company
is only a procedural irregularity and the same
will be managed.
can be ratified by the shareholders at a general
➢ The memorandum of association is a meeting and thus rectified.
dominant instrument as it states the
purposes of the company and the reasons
for which it has come into existence.

The articles of association are always held to

be subordinate to the memorandum of
association because the articles of association
are merely the internal regulations of the
company while the memorandum of
Join CAIIB WITH ASHOK on YouTube & App
Chapter 28D: DOCTRINES OF ULTRA company can get back the property if such
VIRES/CONSTRUCTIVE NOTICE/INDOOR property can be traced.

MANAGEMENT ➢ If the company borrows money from a

lender beyond the limits which it is
permitted to borrow, say for the purpose of
➢ These three doctrines deal with the rights an objective which is not covered by the
and duties of the company with respect to memorandum of Association or Articles of
the members, amongst the members, and of Association, such borrowing would be ultra
the company with the outsiders. vires and the company may not be held to
be liable for the same unless the money has
➢ DOCTRINE OF ULTRA VIRES: The Doctrine of been used for the purposes of the company.
Ultra Vires is a fundamental rule of
Company Law. It states that the objects of a ➢ However, the lender can trace the assets
company, as specified in its Memorandum of created out of such borrowing and can
Association, can be departed from only to proceed against those assets for recovery of
the extent permitted by the Act. the money due to him.

➢ When a company exercises its powers to This is popularly known as 'Doctrine of

promote or realize any of its objectives Tracing' which is well recognized by Foreign
stated in the memorandum of association, it Courts as well as Indian Courts.
is intra vires (i.e. within the powers of) the ➢ If a company's money has been spent ultra
company. The company cannot sue on an vires in purchasing any property the
ultra vires transaction. company is entitled to the ownership of
Further, it cannot be sued too. such a property because that asset though
wrongly acquired represents the capital of
➢ An ultra vires transaction is void ab initio the company.
and therefore cannot become intra vires by
reason of ratification. ➢ If a director of a company makes an ultra
vires payment, he is personally liable to the
No company can be held liable for company and he can be compelled to refund
obligations arising out of such a contract. the money.
➢ If the rendering of a particular service by the ➢ Directors are the agents of the company.
company is ultra vires the company is Hence, they must act within the limits of the
entitled to recover the charges for such powers of the company.
services.
➢ The memorandum of association and
If the property of the company is delivered articles of association of a company are
to an outsider through an ultra vires act, the
Join CAIIB WITH ASHOK on YouTube & App
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 ➢ Every person holding shares of the company
whereas the doctrine of indoor and whose name is entered as beneficial
management seeks to protect outsiders owner in the records of the depository.
against the company.
➢ VARIOUS MODES OF BECOMING A MEMBER
➢ The doctrine of indoor management has the OF ACOMPANY:
following exception:
➢ The Companies Act, 1956 and The
➢ Knowledge of internal irregularity: Where a Companies Act, 2013 provides that a
person dealing with the company has actual subscriber of the memorandum of
knowledge of the internal irregularity of the association shall be deemed to have agreed
company, he is not entitled to claim to become a member of the company.
protection of this doctrine because he could Hence on registration of the company he
have taken measures for self-protection.
Join CAIIB WITH ASHOK on YouTube & App
shall be entered as member of the company be deemed to be a member of the
in its register of members. concerned company.

➢ A person may become a shareholder if he ➢ Every person who is competent to contract

agrees to take shares in the company by (sui juris) can become a member of a
allotment. company. It, therefore, follows that a person
who is incapable of entering into a contract
➢ Allotment means an appropriation by
cannot be a member.
directors of shares to a particular person.
➢ Under the Indian Contract Act, 1872 minors
➢ If a person buys shares of a company in the
and persons of unsound mind are
open market and then applies to the
incompetent at law to contract.
company to register him as a member, he
becomes a member on registration of his ➢ As a company is a legal person it can
name. become a member of another company
provided it is so authorized by its
➢ On a death of a member, if the member has
memorandum of association. A company
not made a nomination for the shares then
cannot buy its own shares and become a
the surviving joint holder (if any) or his legal
member of it.
representatives have the right to register
themselves as members. ➢ Since a partnership firm is not a legal person
it cannot buy any shares in its own name
➢ A person is deemed to become a member of
and thus can’t become a member of a
a company if he allows his name to be put
company.
on the register of the members or otherwise
holds himself out as a member even if there ➢ A society registered under the Societies
is no agreement to become a member. In Registration Act, 1860 can hold shares in a
such a case, he is estopped from denying his company.
membership.
➢ A non-resident cannot become a member of
➢ When two or more persons hold shares in a a company without complying with the
company in their joint names, it is called a requirements of the Foreign Exchange
joint membership. In such a case the name Management Act, 1999 and the regulations
of the member appearing first is considered made there under that inter-alia may
to be the main member for the purpose of stipulate the permission of the Reserve Bank
sending notices, dividend, etc. However, of India.
they all shall be treated as a single member.
➢ A LLP, being an incorporated body under the
➢ Every person holding shares of the company statute, can become a member of a
and whose name is entered as a beneficial company.
owner in the records of the depository shall
Join CAIIB WITH ASHOK on YouTube & App
➢ An insolvent person may remain a member Chapter 28F: PROSPECTUS
of a company as long as he is on the register
of members.
➢ The Companies Act, 2013 Sec. 2(70) defines
➢ The membership in a company ceases in
a prospectus as any document described or
case if a member transfers his shares to
issued as a prospectus and includes a red
another person, if a member's shares are
herring prospectus (Sec. 32) or shelf
forfeited, if the shares are sold pursuant to a
prospectus (Sec. 31) or any notice, circular,
decree of a Court and If the member
advertisement or other document inviting
surrenders his shares to the company where
offers from the public for subscription or
such surrender is permitted.
purchase of any securities of a body
➢ The liability of a member of a company corporate.
depends upon the nature of the company.
➢ A red herring is a preliminary prospectus
➢ Statutory Rights: These are the rights filed with the SEBI, usually in connection
conferred by the Companies Act. with an IPO and it excludes key details of the
issue, such as price and number of shares
These rights cannot be taken away or
offered.
modified by the memorandum of
association or the articles of association. ➢ As per Section 32: A company proposing to
make an offer of securities may issue a red
➢ Documentary Rights: These rights are
herring prospectus prior to the issue of a
conferred upon the members by the
prospectus.
memorandum of association and the articles
of association of the company. ➢ Red herring prospectus means a prospectus
which does not include complete particulars
➢ Proprietary Rights includes: To be registered
of the quantum or price of the securities
as a member in the company's register of
included therein".
members.
➢ A shelf prospectus is a document filed by a
(Subject to a valid membership obtained by
company with regulatory authorities,
transfer, allotment, etc.), No personal
allowing them to offer securities to the
liability of a company's debts, to receive
public over a certain period without filing a
dividends (if declared by the board of
new prospectus each time, providing
directors and approved by the members at
flexibility in subsequent offerings.
AGM) and to participate in the distribution
of assets in case of liquidation of the ➢ Private companies cannot issue a prospectus
company. to raise funds from the public. It is
prohibited under the articles of association
of the company.
Join CAIIB WITH ASHOK on YouTube & App
➢ It is necessarily the public companies who expert, copy of contracts relating to
issue the prospectus. However, a private appointment and remuneration of the
company can issue shares without a managerial personnel, etc.
prospectus through a private placement.
➢ No prospectus shall be valid if it is issued
➢ However, in the following cases, even more than 90 days after the date on which a
though shares are offered to the public, copy thereof is delivered to the Registrar.
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
incorporation of the company. 2. He can claim the damage from 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. ➢ A suit for damages can be filed for
misstatements in the prospectus against the
➢ It is stated that a prospectus must be dated
promoters and experts who were
and this ensures prima facie evidence of the
responsible for or associated with the issue
date of its publication.
of the prospectus.
➢ A prospectus must be signed by every
➢ Criminal Liability: It is required that certain
person mentioned therein as a director or
matters and reports must be stated in the
proposed to be a director.
prospectus.
➢ Every application form for shares must be
➢ Section 34 provides that if prospectus
accompanied by a copy of the prospectus
contains an untrue statement, every person
except for the application forms issued to
who is responsible for the untrue statement
underwriters and existing shareholders and
in the prospectus shall be punishable with a
debenture holders.
fine or imprisonment or with both.
➢ Before the issue of a prospectus the same
must be delivered to the Registrar of
Companies for registration with the
documents which are stipulated under the
Companies Act, e.g. the consent of the
Join CAIIB WITH ASHOK on YouTube & App
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
minimum number of three directors in the the first director, the subscribers to the
case of a public company, two directors in memorandum who are individuals shall be
the case of a private company, and one deemed to be the first directors of the
director in the case of a One Person company until the directors are duly
Company; and (b) A maximum of 15 appointed and
directors:
➢ In case of a One Person Company an
➢ Every company shall have at least one individual being member shall be deemed to
director who has stayed in India for a total be its first director until the director or
period of not less than one hundred and directors are duly appointed by the member
eighty-two days (182) in the previous in accordance with the provisions of this
calendar year. section 152.
➢ Independent director: Every listed public ➢ No person shall be appointed as a director
company shall have at least one-third of the of a company unless he has been allotted
total number of directors as independent the Director Identification Number (DIN)
directors and the Central Government may
Join CAIIB WITH ASHOK on YouTube & App
under section 154 or any other number as ➢ Any person is eligible for appointment to the
may be prescribed under section 153. office of director at any general meeting, if
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
➢ Section 152(6) is applicable on public higher amount as may be prescribed which
companies which means private companies shall be refunded to such person or, as the
are out of the ambit of retirement by case may be, to the member, if the person
rotation. Applicable on Public company + proposed gets elected as a director or gets
Private Company which is subsidiary of more than 25% of total valid votes cast
public company. either on show of hands or on poll on such
resolution.
➢ It states that unless it is provided by the
articles of the company, 2/3rd directors are ➢ In the case of a public company or a private
liable to retire by rotation and 1/3rd are company (which is a subsidiary of a public
liable to retire at every general meeting. company) if there arises any vacancy in
Independent directors and Nominee office of any director (other than by expiry
directors are excluded from the calculation of term of office) then subject to the
of 2/3rd. articles, the board of directors can fill the
vacancy at a meeting of the board. Such a
➢ The retiring director can also be
director can hold office only up to the date
reappointed. This does not include
up to which the director in whose place he is
independent directors.
appointed would have held office if he had
➢ Every individual intending to be appointed continued as a director.
as director of a company shall make an
➢ As per Indian Companies Act, 2013 Sec. 152
application for allotment of Director
(5), in case of every public company and
Identification Number (DIN) to the Central
every private company (which is subsidiary
Government in such form and manner and
company of a public company), every person
along with such fees.
proposed as a candidate for the office of a
➢ The Central Government shall, within one director must sign, and furnish to the
month from the receipt of the application, company, his consent in writing to act as a
allot a Director Identification Number to an director.
applicant.
Join CAIIB WITH ASHOK on YouTube & App
➢ 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
Provided that the maximum number of
meetings of the board are ordinarily held if
public companies in which a person can be
the articles or a shareholder's resolution
appointed as a director shall not exceed ten.
have authorized the directors to make such
➢ In terms of Sec. 167 of Indian Companies appointments. The alternate director
Act, 2013, the office of a director shall vacates the office when the original director
become vacant in case: He incurs any of the returns or when the term of office of the
disqualifications as specified in Sec. 164 or original director expires (whichever is
He absents himself from all the meetings of earlier).
the Board of Directors held during a period
of 12 months with or without seeking leave
of absence of the Board.

➢ A company can remove a director even

before the expiry of his period of office (not
Join CAIIB WITH ASHOK on YouTube & App
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
Companies Act, 2013 shall apply mutatis
liability partnership except He has been
mutandis for the said purpose.
found to be of unsound mind by a Court of
competent jurisdiction and the finding is in ➢ The responsibilities/liabilities of the
force, He is an undischarged insolvent or He designated Partner have been detailed in
has applied to be adjudicated as an Section 8 of the Act in terms of which a
insolvent and his application is pending. designated partner shall be Responsible for
the doing of all acts, matters and things as
➢ According to Section 6: Every limited liability
are required to be done by the limited
partnership shall have at least two partners.
liability partnership in respect of compliance
There will not be any limit to the maximum
of the provisions of this Act including filing
number of partners.
of any document, return, statement and the
Join CAIIB WITH ASHOK on YouTube & App
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
➢ As per Section 24 A person may cease to be
Registrar having duty to register companies)
a partner of a limited liability partnership in
of the State in which the registered office of
accordance with an agreement with the
the limited liability partnership is to be
other partners or, in the absence of
situated
agreement with the other partners as to
➢ The incorporation document shall State the cessation of being a partner, by giving a
name of the limited liability partnership, notice in writing of not less than thirty days
State the proposed business of the limited to the other partners of his intention to
liability partnership and State the address of resign as partner.
the registered office of the limited liability
➢ A person shall cease to be a partner of a
partnership.
limited liability partnership on his death or
➢ If a person makes a statement under clause dissolution of the limited liability
(c) of sub-section (1) which he knows to be partnership or If he is declared to be of
false or does not believe to be true shall be unsound mind by a competent court or If he
Join CAIIB WITH ASHOK on YouTube & App
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
for the limited liability partnership and fifty
with the provisions of the Second Schedule,
thousand rupees for designated partners.
the Third Schedule or the Fourth Schedule,
as the case may be, shall, register the
documents submitted under such Schedule
Chapter 30: TRANSFER OF PROPERTY
and issue a certificate of registration in such
ACT, 1882
form as the Registrar may determine stating
that the limited liability partnership is, on
and from the date specified in the ➢ As per Section 5 of the Act ‘Transfer of
certificate, registered under this Act: property' means an act by which a living
person conveys property, in present or in
➢ All tangible (movable or immovable) and future, to one or more other living persons,
intangible property vested in the firm or the or to himself and one or more other living
company, as the case may be, all assets, persons.
Join CAIIB WITH ASHOK on YouTube & App
➢ Section 54 of the Transfer of Property Act pay according to his contract, the mortgagee
defines sale as "Sale is a transfer of (bank) shall have a right to cause the
ownership in exchange for a price paid or mortgaged property to be sold and the
promised or part-paid and part-promised". proceeds of sale to be applied, so far as may
be necessary, in payment of the mortgage-
➢ A mortgage is the transfer of an interest in
money, the transaction is called a simple
specific immoveable property to secure the
mortgage and the mortgagee a simple
payment of money given by way of loan or
mortgagee.
to secure the performance of an
engagement which may give rise to a ➢ Where, the mortgagor ostensibly
pecuniary (monetary) liability. (apparently) sells the mortgaged property
On condition that on default of payment of
➢ The transferor is called a mortgagor. The
the mortgage-money on a certain date the
transferee is called mortgagee.
sale shall become absolute, On condition
➢ The principal money and interest secured is that on such payment being made the sale
called the mortgage-money. shall become void or On condition that on
such payment being made the buyer shall
➢ The instrument by which the transfer is
transfer the property to the seller. The
effected is called a mortgage-deed. (Section
transaction is called a mortgage by
58a)
conditional sale and the mortgagee a
➢ An executor is someone who has been mortgagee by conditional sale:
named in the will to manage your estate
➢ In terms of Section 58(d), "Where the
after you die.
mortgagor delivers possession, or expressly
➢ An administrator is someone who takes or by implication binds himself to deliver
charge of your estate if you die without a possession of the mortgaged property to the
will. mortgagee and authorizes him to retain such
possession until payment of the mortgage
➢ The mortgage referred in the Transfer of
money, and to receive the rents and profits
Property Act, 1882 is a mortgage of
accruing from the property and to
immoveable property and it has no
appropriate the same in lieu of interest or
application to moveable property.
mortgage money or both, the transaction is
➢ As per Section 58(b) of the Transfer of called a usufructuary mortgage and the
Property Act “Where, without delivering mortgagee(bank) a usufructuary
possession of the mortgaged property, the mortgagee."
mortgagor binds himself personally to pay
➢ Where the mortgagor binds himself to repay
the mortgage-money, and agrees, expressly
the mortgage money on a certain date, and
or impliedly that in the event of his failing to
transfers the mortgaged property absolutely
Join CAIIB WITH ASHOK on YouTube & App
to the mortgagee, but subject to a provision Institutions Act, 1993, (now called The
that he will re-transfer it to the mortgagor Recovery of Debts and Bankruptcy Act) for
upon payment of the mortgage money as recovery of debts of Rs. 20 Lakh and above
agreed, the transaction is called an English due to banks and financial institutions can
mortgage. (Section 58e) be commenced in the Debts Recovery
Tribunals (DRT).
➢ As per Section 58 (f) of the Act, where a
person in any of the following towns, ➢ If the banks and financial institutions
namely, the towns of Calcutta, Madras and advance loans below Rs. 20 Lakh, and if they
Bombay and in any other town which the were secured by a mortgage on the
State Government concerned may by borrower's immovable properties, the
notification in the Official Gazette, specify in lender has to file a civil suit for the recovery
this behalf, delivers to a creditor or his agent of his dues by enforcement of the mortgage.
documents of title to immovable property,
➢ The lender can also prefer recourse against
with intent to create a security thereon, the
the mortgaged property under SARFAESI Act
transaction is called a mortgage by deposit
for recovery of dues above Rs. 1 lakh
of title deeds.
irrespective of the type of mortgage by
➢ Anomalous Mortgage: A Mortgage which is following the laid down procedure.
not of any of the categories detailed above
➢ A lease is a transfer of a right to enjoy the
is called Anomalous Mortgage and is
property for a certain time (express or
generally a combination of the two types of
implied) or in perpetuity (that is forever), in
mortgages detailed above excluding
consideration of a price paid or promised or
Mortgage by Deposit of Title Deeds.
any other thing of value, to be given
➢ A mortgagee or any person acting on his periodically to the transferor by the
behalf has power to sell the mortgaged transferee.
property or any part thereof, in default of
➢ The transferor is called the ‘lessor', the
payment of the mortgage-money, without
transferee is called the 'lessee', the price is
the intervention of the Court, in the
called the premium, and the money or any
following cases namely Where mortgage is
other thing to be given is called the rent.
an English mortgage and neither the
(Section 105)
mortgagor nor the and mortgagee is a
Hindu, Mohammedan or Buddhist or a ➢ A sale is an absolute transfer of property. A
member of any other race, tribe as specified lease is a partial or limited transfer of
by State Government. property.

➢ After the enactment of the Recovery of ➢ In a lease, there is a transfer of the right to
Debts due to Banks and Financial enjoy such property. Thus, in case of a lease,
Join CAIIB WITH ASHOK on YouTube & App
there is a separation between ownership recognize as giving reliefs, whether such
and possession. debt or beneficial interest be existing,
accruing, conditional or contingent.
➢ In terms of Section 106 of the Transfer of
Property Act 1882: In the absence of a For example A lends money to B, and B
contract or local law or usage to the promises to repay the loan with interest. In this
contrary, a lease of immovable property for case, A has an actionable claim to demand
agricultural or manufacturing purposes shall payment of the loan and interest from B.
be deemed to be a lease from year to year,
➢ The transfer of an actionable claim whether
terminable, on the part of either lessor or
with or without consideration, can be done
lessee, by six months’ notice and
only by the execution of an instrument in
➢ A lease of immovable property for any other writing signed by the transferor.
purpose shall be deemed to be a lease from
➢ The transferee of an actionable claim can
month to month, terminable, on the part of
sue the debtor in his own name without
either lessor or lessee, by fifteen days’
obtaining the transferor's consent and
notice.
without making him a party to the suit.
➢ A lease from year to year or for any term
For example A owes money to B. B transfers
exceeding one year can be made only by a
the debt to C. A is not aware of the same. B
registered instrument. All other leases can
then demands the debt from A. A pays B. The
be made either by a registered instrument
payment is valid, and C cannot sue A for the debt.
or by oral agreement accompanied by
delivery of possession.

➢ The Lease agreement should be duly Chapter 31: THE RIGHT TO

stamped and registered. INFORMATION ACT, 2005
➢ A tripartite agreement may also be entered
into between the lender bank, the lessor
(owner) and the lessee (the borrower). ➢ The Right to Information Act, 2005 was
enacted for citizens to secure access to
➢ 'Actionable Claim' means a claim to any information under the control of public
debt. authorities, in order to promote
(other than a debt secured by mortgage, transparency and accountability in the
hypothecation or pledge). working of every public authority.

➢ Or to any beneficial interest in movable ➢ It extends to the whole of India.

property, not in possession, either actual or ➢ On 12.10.2005 the Freedom of Information
constructive, which the Civil Courts Act, 2002 was repealed.
Join CAIIB WITH ASHOK on YouTube & App
➢ The Act exempts disclosure of personal Chapter 32: RTI AND OBLIGATIONS OF
information which has no relation to any PUBLIC AUTHORTIES
public activity or interest or which would
cause unwarranted invasion of the privacy
of the individual. As per Section 4 of The Right to Information
➢ 'Information' (Section 2f) means any Act 2005,
material in any form, including records, ➢ Every public authority shall maintain all its
documents, memos, e-mails, opinions, records duly catalogued and indexed in a
advices, press releases, circulars, orders, manner and the form which facilitates the
logbooks, contracts, reports, papers, right to information under this Act
samples, models, data material held in any
electronic form. ➢ The information should be Published within
one hundred and twenty (120) days from
➢ ‘Public authority' (Section 2h) means any the enactment of this Act.
authority or body or institution of self-
Government established by or under the ➢ It shall be a constant endeavor of every
Constitution, by any other law made by public authority to take steps in accordance
Parliament and by any other law made by with the requirements of Act to provide as
the State Legislature. much information Suo-motu to the public at
regular intervals through various means of
➢ 'Right to inspection of work, documents, communications, including internet, so that
records. the public have minimum resort to the use
➢ Right to taking notes, extracts or certified of this Act to obtain information.
copies. ➢ PIOs (Public Information Officers) shall deal
➢ Right to taking certified samples of material with requests from persons seeking
of documents or records. information and where the request cannot
be made in writing, to render reasonable
➢ Right to Obtaining information in the form
assistance to the person to reduce the same
of diskettes, floppies, tapes, video cassettes
in writing.
or in any other electronic mode or through
printouts where such information is stored ➢ PIO, on receipt of a request, shall as
in computers or in other device. expeditiously as possible, and in any case
within 30 days of the receipt of the request,
either provide the information on payment
of such fee as may be prescribed or reject
the request for any of the reasons specified
in Act.
Join CAIIB WITH ASHOK on YouTube & App
➢ Fee for RTI: ➢ If the application relates to the public
authority receiving it, the information shall
➢ Application fee: ₹10/-.
be provided as expeditiously as possible but
➢ Fee for access: ₹2/- per page. within thirty days.

➢ Fee for inspection of records: No fee for the ➢ If the information sought, concerns the life
first hour and₹5/-foreach fifteen minutes or or liberty of a person, the same shall be
fraction thereof. provided within forty-eight hours of the
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
➢ Fee for CD: ₹100/- information within the period of thirty or
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
for such rejection, the period within which ➢ Third party means a person other than the
an appeal against such rejection may be citizen making a request for information and
preferred and particulars of the appellate public authority.
authority.
➢ Where a request has been rejected, the
➢ If information sought has been supplied by a Central Public Information Officer shall
third party or is treated as confidential by communicate to the person making the
that third party, the PIO shall give a written request the reasons for such rejection, the
notice to the third party within five days particulars of the appellate authority and
from the receipt of the request and take its the period within which an appeal against
representation into consideration. such rejection may be preferred.
➢ Third party must be given a chance to make ➢ The Act lists certain categories of
a representation before the PIO within ten information that is exempt from disclosure
days from the date of receipt of such notice. and is provided in Section 8 of the statute.
➢ As per the Right to Information Rules, 2005, (a) Information, disclosure of which would
the application shall be accompanied by a prejudicially affect the sovereignty and
fee of rupees ten which may be paid in cash integrity of India, the security, strategic,
against proper receipt or by demand draft or scientific or economic interests of the State,
a banker's cheque or by Indian Postal Order relation with foreign State or lead to
to the accounts officer of the public incitement of an offence.
authority.
(b) Information which has been expressly
forbidden to be published by any court of
Join CAIIB WITH ASHOK on YouTube & App
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 Chapter 33: INFORMATION
the State Legislature. TECHNOLOGY ACT, 2000
(d) Information received in confidence from
foreign Government.
➢ In May 2000, both the houses of the Indian
➢ The Central Information Commission (also Parliament passed the Information
the State Information Commission wherever Technology Bill. The Bill received the assent
it has the jurisdiction) has been empowered of the President in August 2000 and came to
to receive and inquire into a complaint from be known as the Information Technology
any person. Act, 2000.

➢ The appellate authority has the power to ➢ Cyber laws are contained in the IT Act,
condone the delay in filing the appeal if he is 2000.This Act aims to provide the legal
satisfied that the appellant was prevented infrastructure for e-commerce in India which
by sufficient reasons from filing the appeal involves the use of alternatives to paper
in time. based methods of communication and
storage of information and also to facilitate
➢ A second appeal will lie against the decision
electronic filing of documents of
of the appellate authority before the Central
Government agencies.
Information Commission (or the State
Information Commission) and the same shall ➢ Digital signature means authentication of
have to be preferred within 90 days from any electronic record by a subscriber by
the date on which the decision should have means of an electronic method.
been made or was actually received.
➢ Affixing digital signature means adoption of
➢ The Central Information Commission has the any methodology or procedure by a person
power to impose a penalty of 250Rupees for for the purpose of authenticating an
each day till the information is furnished electronic record by means of digital
subject to a maximum of 25000Rupees. signature.

➢ The Commission has the power to ➢ The Telecom Disputes Settlement and
recommend taking disciplinary action Appellate Tribunal of the Telecom
against the Central Public Information Regulatory Authority shall be the Appellate
Officer (CPIO) under the service rules Tribunal for the purposes of this IT Act and
applicable to him when he is satisfied that the said Appellate Tribunal shall exercise the
the Central Public Information Officer
Join CAIIB WITH ASHOK on YouTube & App
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
the provisions of the Act or rules framed
the public key can verify a digital signature
there under.
created by the private key.
➢ The Telecom Disputes Settlement and
➢ Originator means a person who sends,
Appellate Tribunal established under section
generates, stores or transmits any electronic
14 of the Telecom Regulatory Authority of
message or causes any electronic message
India Act, 1997, shall be the Appellate
to be sent, generated, stored or transmitted
Tribunal for the purposes of this Act and the
to any other person.
said Appellate Tribunal shall exercise the
➢ Chapter III of the Act deals with electronic jurisdiction, powers and authority conferred
governance and gives legal recognition to on it by or under this Act.
electronic records (section 4) and electronic
➢ Every appeal under sub-section (1) shall be
signatures (Section 5).
filed within a period of forty-five days from
➢ CA means a person who has been granted a the date on which a copy of the order made
license to issue a Digital Signature Certificate by the Controller or the adjudicating officer
under Section 24.The Act envisages a is received by the person aggrieved and it
Controller of Certifying Authorities who
Join CAIIB WITH ASHOK on YouTube & App
shall be in such form and be accompanied ➢ The national nodal agency designated under
by such fee as may be prescribed sub-section (1) shall be responsible for all
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
being heard, pass such orders thereon as it ➢ In cheque truncation the physical movement
thinks fit, confirming, modifying or setting of a paper cheque issued stops and
aside the order appealed against. electronic flow begins while the electronic
cheque is issued electronically and no paper
➢ The appeal filed before the Appellate
is involved
Tribunal under sub-section (1) shall be dealt
with by it as expeditiously as possible and ➢ Further the Act (Section 88) also provides
endeavour shall be made by it to dispose of for the constitution of the Cyber Regulation
the appeal finally within 6 months from the Advisory Committee which shall advise the
date of receipt of the appeal. Government as regards any rules or for any
other purpose connected with the said Act.
➢ Chapter XI of the IT Act 2000 lists various
offences and how the said offences will be ➢ The First Schedule to the statute
investigated by the Police Officer not below enumerates the documents or transactions
the rank of Inspector of Police. These to which the Act does not apply are
offences include the tampering with negotiable instrument (other than a
computer source documents, publishing of cheque), A power-of-attorney as defined in
information, which is obscene in electronic section 1A of the Powers-of-Attorney Act,
form and hacking. 1882, A trust as defined in section 3 of the
Indian Trust Act and Any contract for the
➢ Critical Information Infrastructure means
sale or conveyance of immovable property
the computer resource, the incapacitation or
or any interest in such property. (with few
destruction of which, shall have debilitating
exception)
impact on national security, economy, public
health or safety.

➢ Any person who secures access or attempts

to secure access to a protected system in
contravention of the provisions of this
section shall be punished with
imprisonment for a term which may extend
up to 10 years and shall also be liable to
fine.
Join CAIIB WITH ASHOK on YouTube & App
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 shall also be liable
'Special Judges' to try cases under the statute. to fine.
➢ In terms of Section 3 "(1) The Central 7A Taking undue Punishable with
Government or the State Government may, by advantage to imprisonment for a
notification in the Official Gazette, appoint as influence public term which shall
many special Judges as may be necessary for servant by not be less than
such area or areas or for such case or group of corrupt or illegal three years but
cases as may be specified in the notification to means or by which may extend
try the following offences, namely:- Any offence exercise of to seven years and
punishable under this Act; and Any conspiracy to
commit or any attempt to commit or any
Join CAIIB WITH ASHOK on YouTube & App
personal shall also be liable such public
influence. to fine. servant.

12 Punishment for Punishable with

abetment of imprisonment for a
8 Where any person Punishable with
offences term which shall
gives or promises imprisonment for a
not be less than
to give an undue term which may
three years but
advantage to extend to seven
which may extend
another person to years Or with fine
to seven years and
induce a public or with both.
shall also be liable
servant to act
to fine
illegally etc.

9 Offence relating Punishable with

to bribing a public fine ➢ As per Section 13 subsection 1 (inserted in
servant by a amendment of 2018) "(1) A public servant is said
commercial to commit the offence of criminal misconduct If
organization he dishonestly or fraudulently misappropriates
or otherwise converts for his own use any
10 Where person in Punishable with
property entrusted to him or any property under
charge of imprisonment for a
his control as a public servant or allows any
commercial term which shall
other person so to do; or If he intentionally
organization such not be less than
enriches himself illicitly during the period of his
as any director, three years but
office.
manager, which may extend
secretary or other to seven years and ➢ As per subsection 2 a public servant who is
officer is found to shall also be liable found guilty of criminal misconduct is
be guilty of to fine punishable with imprisonment for a term which
offence. shall be not less than four years but which may
extend to ten years and shall also be liable to
11 Public servant Punishable with
fine.
obtaining undue imprisonment for a
advantage, term which shall ➢ Section 14 of the Act deals with the punishment
without be not less than six for a habitual offender, who, is a person
consideration months but which convicted initially of an offence under this Act
from person may extend to five and who subsequently commits another similar
concerned in years and shall also offence. Such a person is punishable with
proceeding or be liable to fine. imprisonment for a term which shall not be less
business than five years but which may extend to ten
transacted by years and shall also be liable to fine

➢ In terms of Section 15 which deals with

punishment for 'attempting' to commit an
Join CAIIB WITH ASHOK on YouTube & App
offence under the Act "Whoever attempts to the purpose of investigation or inquiry in an
commit an offence referred to in clause (a) of offence under Section 17 of the statute, it is
sub-section (I) of section 13 shall be punishable necessary to inspect any bankers' books.
with imprisonment for a term which shall not be
➢ In terms of Section 27 of the Act "... the High
less than two years but which may extend to
Court may exercise, so far as they may be
five years and with fine."
applicable, all the powers of appeal and revision
➢ As per Section 17 of the Act the persons conferred by the Code of Criminal Procedure,
authorized to investigate have been specified. 1973 (2 of 1974) on a High Court as if the court
of the special Judge were a 'Court of Session'
➢ No investigation against a public servant who is
trying cases within the local limits of the High
accused of committing criminal misconduct
Court."
under Section 13 by intentionally enriching
himself/herself illicitly during the period of ➢ The Prevention of Corruption Act was legislated
office, can be made without the order of a in 1988(amended in 2013, 2018 and 2021) with
police officer, not below, the rank of a the aim to combat corruption and other
Superintendent of Police. misconducts mainly in the Government and
Public Enterprises including Public Sector Banks.
➢ Section 17A states" No police officer shall
The Act presently has 30 sections.
conduct any enquiry or inquiry or investigation
into any offence alleged to have been
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
implementation for prior approval processes
under section 17A of the statute.

➢ The SOPs provide for Stage wise processing of

information received by a Police Officer and
specifying the rank of Police Officer to seek prior
approval under Section 17A, in respect of
different categories of public servants.

➢ Section 18 of the P.C. Act gives powers to a

police officer who has reason to suspect that for