LAW II

4. What are the different ways in which a contract can be discharged? Describe these
ways in details:
Ans
. Discharge: Discharge of the contract means termination of the contractual relationships
betweenthe parties. A contract is said to be discharged when it ceases to operate.
When the rights and obligations created by it comes to an end.
A contract may be discharged:
By performance
By agreement or consent
By impossibility of performance
By lapse of time
By breach of contract
By operation of law
A. Discharge by Performance

W h e n b o t h p a r t i e s p e r f o r m s t h e i r respective Obligations.
Discharge by attempted to performance: When the promisor offers to perform his
obligations, but the promisee refuses to accept the performance than the performance will be
equivalent to the actual performance.
B. Discharge by Mutual Consent:

Novation: Novation takes place when a new contract is substituted for an existing one between
the same parties or one party get replaced by the other party. Like, Mergers & Acquisitions.

Alteration: Alteration of a contract may takes place when one or moreof the terms of the
contract are altered by the mutual consent of the parties of the contract. In such the old
contract get discharged.

Remission: Remission means acceptance of lesser fulfillment of the promise made.

Rescission: It takes place when all or some of the terms of the contractget cancelled. It may
occur by the mutual consent of the parties or where one party fails in the performance of
its obligation.
C. Discharge by Impossibility:
Death

Natural Calamities

Change in Law & Regulations

Commercial Impossibility (Not an Excuse)

Performance Difficulty (Not an Excuse)

 Impossibility due to failure of third person (Not an Excuse)

D. Discharge by Breach:

Breaking of an obligation which a contract imposes

Occurs when a party to the contract without lawful excuse does not fulfill his
contractual obligations or by his own act makes it impossiblethat he should perform his
obligation under it

At the time when performance is due

During the performance of the contract

Can be Compensated: By Suing the Person/ Contractual Remedies/ Section 10 Specific
Relief Act
E. Discharge by Lapse of Time
Where time is of essence in a contract if the contract is
n o t performed at the fixed time, the contract comes to an end, and theparty not at
fault need not perform his obligation and may sue the other party for damages
F. Discharge by Operation of Law

Death of a promisor discharges the contract where the contract is of personal nature.

Merger: Where an inferior right contract merges into a superior right contract the
former stands discharged automatically.

Insolvency: A contract is discharged by the insolvency of one of the parties to it.

Similar to What are the different ways in which a contract can be discharged

1. A. Explain winding up of campany

Winding up is the process of selling all the assets of a business, paying off creditors, distributing any
remaining assets to the partners or shareholders and then dissolving the business. Winding up can refer to
such a process either for a corporation or for a partnership.

Winding up a company is most commonly used to describe the process of the insolvent liquidation of a

Company.
Insolvency of a company is most often shown by the inability of a company to pay those who it
owes money to when their payments are due.

The difference between winding-up a company and liquidation is:

Winding up a company: This deals with ending business affairs and terminating company
obligations before liquidation.

Liquidation: This deals with the sale of the companys assets once it has closed.

Winding up a company in the context of liquidation refers to the closure or winding up of the
affairs of a company.

Winding up a company can refer to a Creditors Voluntary Liquidation and also to Compulsory
Liquidation if the company is insolvent. When it is used to refer to the winding up of a solvent
company this may refer to a Members Voluntary Liquidation.

Creditors Voluntary Liquidation is an insolvent company winding up procedure voluntarily

started by the company directors.

Read more about Creditors Voluntary Liquidation.

Compulsory Liquidation is an insolvent winding up procedure which is generally initiated by
company creditors (those who are owed money by the company).

Read more about Compulsory Liquidation.

Company Liquidation for a solvent company will refer to a Members Voluntary Liquidation.

Members Voluntary Liquidation is started by the Shareholders of a company with a view to

distributing the value of the company assets to the Shareholders.

Read more about Members Voluntary Liquidation.

If you would like to discuss the above winding up procedures in more detail then please contact
us today. We have a team of 4 Insolvency Practitioners who are here to help answer any question
or query you may have.

B. Explain the alternative methods for winding up

 1. Winding up by Court.

2. Voluntary Winding Up.

3. Winding up subject to supervision of the court.

Winding Up by Court

The main bases for closing company by the help of court are as under:-

By special resolution

A company has been passed exceptional resolution to be wound up by the court.

Default in delivering statuary report

A Public Limited Company is wound up if it has not held statuary meeting and submitted
statuary report to the registrar or has not held two consecutive annual general meeting.

Delay in commencement of business

A public company may be wound up, if it does not start the business during the year from the
date of its amalgamation or for a whole year suspects the business, the court may order to close
company.

Number of Members

A public company may be wound up if its members are reduced below seven. In case of private
limited company less than two.

Failure to pay debt

If a public company is not in position to pay its debts, it may be wound up by the court.

Ceases to be a listed company

The court may wound up a company, if it ceases to be a listed company.

Voluntary Winding Up

It is further classified into two kinds.

1. Members Voluntary

In case of members voluntary winding up, the directors declares in the meeting of shareholders
that the company is fit for liquidation. The meeting then passes a resolution for voluntary
winding up and appoints liquidators themselves. The voluntary winding up of the company by
the members themselves may take place under the following circumstances:

Expiry of period

If the period fixed for the duration of the company in the articles has expired, the company may
be wound up voluntary by passing a resolution in the general meeting.

By special resolution

If the company resolves by a special resolution that the company be wound up, the company then
will be put to an end.

Declaration of solvency

If the majority of directors in a special board meeting resolve to wind up the company and
submit statuary declaration verified by the companys auditors to the registrar of the joint stock
companies that the company has no outstanding amount and disburse its over dues within a
required period of time.

Appointment of liquidators

The company in general meeting of the shareholders shall appoint one or more liquidators for the
purpose of winding up the affairs and disturbing the assets of the company. The shareholders fix
the remuneration to be paid to the liquidators. On the appointment to liquidator, all powers of the
directors and other officers of the company are ceased, except so far as the company in general
meeting of the liquidator sanctions the powers to remain with them.

Final meeting and dissolution

When the affairs of the company are finally wound up, the liquidator shall call a general meeting
of the shareholders and place before them the full accounts of the company and send its copy to
the registrar within one week of the meeting. The company shall be dissolved on the expiration
of three months on the receipts of the copy of account and other relevant documents from the
liquidators.

2. Creditors Voluntary

A winding up in the case of which a declaration of solvency has not been delivered to the
registrar is known as Creditors voluntary winding up. The company calls a meeting of its
creditors and appoints a liquidator. When liquidation gets completed, then liquidator calls the
final meeting of the company. A copy of his report is also sent to the registrar. The registrar on
receiving the accounts and other documents takes the action of dissolution of company as laid
down in the Companies Ordinance.

Winding up subject to Supervision of the Court

According to Companies Ordinance 1984, a voluntary winding up of a company can also be

carried under the strict supervision of the court. When a company has passed resolution for
voluntary winding up, the court may its own motion or on the application of any person, makes
an order that voluntary wining up shall continue, if company is no more able to pay its debts.