New Horizon College

Marathahalli Bangalore

Study Material of

3.5 Business Regulations

For

III Semester BBA

Compiled by

Sowmya.J, Asst. Professor

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 Contents

Page No. Title Sl.No.

3 Introduction To Business law 1.

6 Indian Contract Act 1872 2.

11 Offer and Acceptance 3.

17 Consideration 4.

21 Contractual Capacity of Parties 5.

25 Free Consent 6.

32 Legality of Object 7.

38 Performance of Contract 8.

42 Discharge of Contract 9.

51 Sale of Goods Act 1930 10.

58 Consumer Protection Act 1986 11.

65 Competition Act 2002 12.

77 Right to Information Act 2005 13

81 Right to Education Act 2009 14

92 Foreign Exchange Management Act 1999 15.

98 Environment Protection Act 1986 16

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 Introduction To Business law
As a social being man interacts with various people as part of his daily activities. In all of these
interactions he plays different roles such as a buyer, a seller or a tax payer. In all of these he is
supposed to observe a code of conduct and is guided by certain generally accepted principles and
rules. These rules are termed as laws

What Is Law?
Law includes the rules and principles which regulate our relation with other individuals and with the
state. The State regulates the conduct of its people by a set of rules. It ordains directly or indirectly,
implicitly or explicitly a general course of conduct to be followed by the people. Such rules of
conduct if recognised by the state and enforced by it on people are termed as law.

Business Law
Business law is also known a Mercantile law or commercial law. It is the body of law that applies to
the rights, relations, and conduct of persons and businesses engaged in commerce, merchandising,
trade, and sales. Mercantile law is used to denote that branch of law which is concerned with such
matters as are usually the subject of what may be called Mercantile Transactions i.e it deals with
contractual situations and the rights and obligations arising out of mercantile transactions between
mercantile persons. A mercantile person may be a single individual a partnership or a joint stock
company. The term Mercantile law is also used to denote the aggregate body of those legal rules
which are connected with trade industry and commerce.

Sources of Business Law

1. English Mercantile Law: this is the most important source of the Indian mercantile law. The
principal source of English Mercantile law is the common law of England. It also takes important
references from “Lex Mercatoria” a Latin expression for a body of trading principles used by the
merchant throughout Europe in the medieval. Meaning literally ‘law merchant’, it evolved as a
system of customs and best practice, which was enforced through a system of merchant courts along
with main trade routes. It functioned as the international law of commerce.
The English Mercantile law constitutes the foundation on which the superstructure of the Indian
Mercantile law has been built and is supplemented by
a) Common law : It refers to a system of law based upon English customs usages and traditions
which were developed over centuries by the English Courts. It is unwritten and its principles
are applied whenever subsequent disputes of similar nature arise.
b) Equity: It refers to that branch of English law which developed separately from the Common
law. It is based upon concepts of justice developed by the judges whose decisions became
precedents. These precedents now constitute Equity law.
c) Statute Law: The Statute law refers to the laid down in the acts of parliament. It is superior to
and overrides any rule of the common law of equity.

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 d) Case Law: It is built up on previous judicial decisions i.e on the principle that what has been
decided in an earlier case is binding in a similar future case, unless there is a change in the
circumstances
2. Statutory Law: Statutory law is written law set down by the legislature or other governing
authority such as the executive branch of the government in response to the need to clarify the
functioning of the government, improve civil order to codify existing law, or for an individual or
company to obtain special treatment. In context to India, all laws are statutory i.e when ‘Bill’ is
passed by the Parliament and signed by the President of India; it becomes an ‘Act’ or a ‘Statute’. The
bulk of Indian of Indian Mercantile law is a statutory law. The contract act 1872, the Sale of Goods
Act 1930, The partnership act, The Companies Act 1956 are all examples of Statutory Law.
3. Judicial Decisions: The past judicial decisions of courts are important sources of law. Sometimes
there is no statutory provision which can answer a legal question raised in a law suit. In such cases
the court will look into the previous court decisions on similar matters to find the relevant law. The
precedents set by the higher courts have a binding force on lower courts and the precedents set by the
same courts of the same status like High Courts of different states have persuasive value for each
other.
4. Customs and Usages: Customs and usages of a trade play an important role in business dealings
of that trade. Customs and usages established by long use and constantly put into practise become
binding on the parties entering into commercial transactions. A custom in order to be binding on the
parties must be ancient reasonable certain definite consistent with other customs and uniformly
recognised in the ordinary course of business. When a custom is accepted by a court and is
incorporated in a judicial decision, it becomes a legally recognised custom. As a matter of fact they
have a binding force on the parties, like by the mercantile usage prevailing in the Delhi Iron Market
among big merchants, no interest can be charged on the unpaid price for transactions before 1917. To
have a binding force, the custom or usage must be certain, reasonable and well known.

Scope Of Business Law

Some of the areas where business law applies include but are not limited to:
▪ Compensation
▪ Business formation
▪ Stockholders’ agreements
▪ Investigating business fraud
▪ Financial transactions
▪ Regulatory compliance (i.e. business license)
▪ Lawsuits
These are contained in laws such as
The Indian Contract Act,1872, The Sale of Goods Act,1930,The Partnership Act,1932, The
Negotiable Instruments Act,1881 The Companies Act,1956, The Patents Act,1970,The Trade and
Merchandise Marks Act,1958, The Consumer Protection Act,1986.

Important questions

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2marks:
1. What is Lex mercotaria?

2. Name the sources of Business law.

3. What is case law?

8 marks
1. Differentiate between case laws and judicial decisions
2. Explain the scope of Business Laws
3. What is statutory law? Explain its importance in the framing of laws.

15 marks
1. Describe the various sources of business laws.
2. What is business law? Explain its significance in the field of business.

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 Indian Contract Act 1872
The law of contract is that branch of law which determines the circumstances in which
promises made by the parties to a contract shall be legally binding on them. Its rules define the
remedies that are available in a court of law against a person who fails to perform his contract and
the conditions under which remedies are available.
The law relating to contracts in India is contained in Indian Contract Act, 1872. The Act was
passed by British India and is based on the principles of English Common Law. It is applicable to all
the states of India except the state of Jammu and Kashmir. It determines the circumstances in which
promises made by the parties to a contract shall be legally binding on them.
All of us enter into a number of contracts everyday knowingly or unknowingly. Each contract
creates some rights and duties on the contracting parties. It is of particular importance to people
engaged in trade commerce and industry as bulk of their business transactions are based on contracts.
The laws relating to contracts is contained in the Indian Contract act 1872. The first six
chapters of the Act embodies general principles, the different stages of formation, its essential
elements, its performance or breach and remedies for breach of contract. The remaining chapters deal
with some of the special contracts viz indemnity and guarantee (chapter VIII sections 124 – 147)
Bailment and pledge ( chapter IX sections 148 – 181 )and agency ( chapters X sections 182 to 238)

Important Features Of The Contract Act 1872

● The Indian contract act is not exhaustive as it does not profess a complete code for all types
of transactions. There are separate acts which deal with contracts relation to Partnership and
Sale of Goods.
● The Indian Contract act does not lay down a number of rights and duties which the law will
enforce; it consists rather of a number of limiting principles subject to which the parties may
create rights and duties for themselves which the law will uphold. So as long long as they
don’t infringe some legal prohibition they can make what rules they like in respect of the
subject matter of their agreement and the law will give effect to their decisions.
● There are several agreements which do not necessarily create a legal obligation but still they
are contractual in nature and they are enforceable. Ex. Torts or civil wrongs, quasi contracts
and judgement of courts .
● Law of contract creates jus in personam as distinguished from jus in rem.
● A social Agreement does not give rise to contractual obligation and is not enforceable in a
Court of Law. It is only those agreements which are enforceable in a Court of Law that are
contracts.
Definition Of Contract
A contract is an agreement made between two or more parties which the law will enforce.
Sec 2 (h) defines contract as “An agreement enforceable by law”. This definition is based on
Pollock’s definition “ Every agreement and promise enforceable by law is a contract”.

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Sir William Anson defines a Contract as a “Legally binding agreement between two or more persons
by which rights are acquired by one or more to acts or forbearances (abstaining from doing
something) on the part of others”.

Contract = Agreement+ Enforceability at Law

Other definitions

● Offer(i.e. Proposal) [section 2(a)]:-When one person signifies to another his willingness to do
or to abstain from doing anything, with a view to obtaining the assent of that other person
either to such act or abstinence, he is said to make a proposal.
● Acceptance 2(b):- When the person to whom the proposal is made, signifies his assent there
to, the proposal is said to be accepted.
● Promise 2(b):- A Proposal when accepted becomes a promise. In simple words, when an offer
is accepted it becomes promise.
● Promisor and promise 2(c):- When the proposal is accepted, the person making the proposal
is called as promisor and the person accepting the proposal is called as promisee.
● Agreement 2(e):- Every promise and set of promises forming the consideration for each
other.
In short agreement = offer + acceptance.
Essential Elements Of A Valid Contract
According to Sec 10, all agreements are contracts if they are made by the free consent of parties
competent to contract for a lawful consideration and with a lawful object and are not expressly
declared void.

In order to become a contract an agreement must have the following essential elements:
1. Proper offer and proper acceptance There must be 2 parties to an agreement based on a lawful
offer made by one person to another and lawful acceptance of that offer by the latter. The
terms of offer must be definite and the acceptance of the offer must be absolute and
unconditional. Sections 3 to 9 of the Contract Act, 1872 lay down the rules for making valid
acceptance.

2. Intention To Create Legal Relationships: When the two parties enter into an agreement, there
must be intention to create a legal relationship between them. If there is no such intention on
the part of the parties. There is no contract between them. Agreements of a social or domestic
nature do not contemplate legal relationship; as such they are not contracts.

3. Lawful consideration: An agreement to form a valid contract should be supported by

consideration. Consideration means something in return (quid pro quo). It can be cash, kind,
an act or abstinence. It can be past, present or future. However, consideration should be real
and lawful and not fictional.

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 4. Capacity of parties to Contract In order to make a valid contract the parties to it must be
competent to be contracted. According to section 11 of the Contract Act, a person is
considered to be competent to contract if he satisfies the following criterion:
▪ The person has reached the age of majority.
▪ The person is of sound mind.
▪ The person is not disqualified from contracting by any law.
5. Free Consent: To constitute a valid contract there must be free and genuine consent of the
parties to the contract. It should not be obtained by misrepresentation, fraud, coercion, undue
influence or mistake.

6. Lawful Object and Agreement The object of the agreement must not be illegal or unlawful. In
other words the object must not be a. illegal, b. immoral, c. opposed to public policy. If an
agreement suffers from any legal flaw it will not be enforceable by law.

7. Certainty, Possibility of Performance: the agreement must be certain not vague or indefinite
(sec 29) if it is vague and it is not possible to ascertain its meaning, it cannot be enforced.

8. Legal Formalities: A contract may be by words spoken or written. As regards the legal effects
there is no difference between a contract in writing and a contract made by words of mouth.
But there are some other formalities also which have to be compiled with in order to make an
agreement legally enforceable.

9. Agreement not declared void or illegal Agreements which have been expressly declared void
or illegal by law are not enforceable at law; hence they do not constitute a valid contract.
Classification of Contracts
Contracts may be classifies according to their (1) Validity (2) Formation (3) Performance
Classification According To Validity:

A contract is based on an agreement. An agreement becomes a contract when all the essential
elements reffered to above are present. In such a case the contract is a valid contract. If one or more
of these elements are missing the contract is either voidable, void, illegal or unenforceable.
▪ Valid contract: An agreement which has all the essential elements of a contract is called a
valid contract. A valid contract can be enforced by law.
▪ Void contract [Section 2(g)]: A void contract is a contract which ceases to be enforceable by
law. A contract when originally entered into may be valid and binding on the parties. It may
subsequently become void. – There are many judgments which have stated that where any
crime has been converted into a "Source of Profit" or if any act to be done under any contract
is opposed to "Public Policy" under any contract—than that contract itself cannot be enforced
under the law-

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 ▪ Voidable contract [Section 2(i)]: An agreement which is enforceable by law at the option of
one or more of the parties thereto, but not at the option of other or others, is a voidable
contract. If the essential element of free consent is missing in a contract, the law confers right
on the aggrieved party either to reject the contract or to accept it. However, the contract
continues to be good and enforceable unless it is repudiated by the aggrieved party.
▪ Illegal contract: A contract is illegal if it is forbidden by law; or is of such nature that, if
permitted, would defeat the provisions of any law or is fraudulent; or involves or implies
injury to a person or property of another, or court regards it as immoral or opposed to public
policy. These agreements are punishable by law. These are void-ab-initio.
“All illegal agreements are void agreements but all void agreements are not illegal.”
▪ Unenforceable contract: Where a contract is good in substance but because of some technical
defect cannot be enforced by law is called unenforceable contract. These contracts are neither
void nor voidable.
On The Basis Of Formation:

▪ Express contract: Where the terms of the contract are expressly agreed upon in words (written
or spoken) at the time of formation, the contract is said to be express contract.
▪ Implied contract: An implied contract is one which is inferred from the acts or conduct of the
parties or from the circumstances of the cases. Where a proposal or acceptance is made
otherwise than in words, promise is said to be implied.
▪ Quasi contract: A quasi contract is created by law. Thus, quasi contracts are strictly not
contracts as there is no intention of parties to enter into a contract. It is legal obligation which
is imposed on a party who is required to perform it. A quasi contract is based on the principle
that a person shall not be allowed to enrich himself at the expense of another.
Examples:
➢ claim for necessaries supplied to person incapable of contracting or on his account
➢ Reimbursement of person paying money due to another, in payment of which he is
interested
➢ obligation of person enjoying benefit of non gratuitous act
➢ Responsibility of finder of goods
➢ Liability of person to whom money is paid or thing delivered
On The Basis Of Performance:

▪ Executed contract: An executed contract is one in which both the parties have performed their
respective obligation.
▪ Executory contract: An executory contract is one where one or both the parties to the contract
have still to perform their obligations in future. Thus, a contract which is partially performed
or wholly unperformed is termed as executory contract.
▪ Unilateral contract: A unilateral contract is one in which only one party has to perform his
obligation at the time of the formation of the contract, the other party having fulfilled his
obligation at the time of the contract or before the contract comes into existence.
▪ Bilateral contract: A bilateral contract is one in which the obligation on both the parties to the
contract is outstanding at the time of the formation of the contract. Bilateral contracts are also
known as contracts with executory consideration.
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Important Questions

2 marks
1. What is the definition of a contract according to the Indian Contract Act?
2. List out the various classes of a contract.
3. Who is a promisor and the promisee?
4. What does plurality mean?
8 marks
1. Discuss the nature of the contract.
2. Differentiate between
▪ Executed contract and an executory contract
▪ Void agreements and void contracts
3. Classify contracts on the basis of formation of a contract
15 marks
1. Explain the various essential features of a contract
2. Describe the various classes of a contract in detail.

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 OFFER AND ACCEPTANCE
Offer
Proposal is defined under section 2(a) of the Indian contract Act, 1872 as "when one person
signifies to another his willingness to do or to abstain from doing anything with a view to obtain the
assent of that other to such act or abstinence, he is said to make a proposal/offer".
Thus, for a valid offer,the party making it must express his willingness to do or not to do
something. But mere expression of willingness does not constitute an offer. The rules regarding the
offer are The offer must show an obvious intention on the part of the offeror. For example "if "A"
jokingly offers "B" his scooter for Rs.10/- and "B" knowingly that "A" is not serious, says "I accept
"A"s proposal". This does not constitute an offer. Secondly, the terms of offer must be definite,
unambiguous, not loose and vague. For example "A" says to "B". "I will sell you a car" "A" owns
three different cars. The offer is not definite.
Mere declaration of intention and announcement is not an offer. A declaration by a person
that he intends to do something, gives no right of action to another. Such a declaration only means
that an offer will be made or invited in future and not an offer is made now. An advertisement of a
company for auction sale does not amount to an offer to hold such company for auction sale.
For example- an auctioneer advertised in a newspaper that a sale of office furniture would be
held. A broker came from a distant place to attend the auction, but all the furniture was withdrawn.
The broker thereupon sued the auctioneer for his loss of time and expenses. It was held that, a
declaration of intention to do something did not create a binding contract with those acted upon it
and hence the broker could not recover damages. An offer should be made to obtain the assent of the
other. The offer should be communicated to the offeree.
Unless an offer is communicated to the offeree by the offerror or his duly agent, there can be
no acceptance. The offer must be made with a view to obtain the assent of the other party addressed
and not merely with a view to disclose the intention to make an offer. The offer should not contain a
term that, the non compliance of which would amount to acceptance. For example, "A" writes to
"B", "i will sell you my horse for Rs.10,000/- and if you do not reply I shall assume you have
accepted the offer". There is no contract if "B" does not reply. However if "B" is in possession of
"A"s horse and he continues possession thereafter, "B"s silence and his continued use amounts to
valid acceptance. A statement of price is not an offer. A mere statement of price is not an offer to
sell. For example three telegrams were exchanged between "A" and "B". communication by "B" to
"A"- " will you sell your car?". Communication by "A" to "B". "The price of the car is one lakh
rupees". Communication from "B" to "A"- "I agree to to buy the car". These 3 communications does
not make a valid offer.

Classification Of Offer
1. General Offer: Which is made to public in general.

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2. Special Offer: Which is made to a definite person.
3. Cross Offer: Exchange of identical offer in ignorance of each other.

4. Counter Offer: Modification and Variation of Original offer.

5. Standing, Open or Continuing Offer: Which is open for a specific period of time.
The offer must be distinguished from an invitation to offer. Invitation to offer "An invitation to
offer" is only a circulation of an invitation to make an offer, it is an attempt to induce offers and
precedes a definite offer.
Acceptance of an invitation to an offer does not result in formation of a contract and only an offer
emerges in the process of negotiation. A statement made by a person who does not intend to bound
by it but, intends to further act, is an invitation to offer.

Legal Rules As To Offer

▪ Offer must be such as in law capable of being accepted and giving rise to legal relationship.
A social invitation even if it is accepted does not create legal relations because it is not so
intended. An offer therefore must be such as would result in a valid contracrt when it is
accepted.
▪ Terms of the offer must be definite, umabigious and certain and not loose or vague. If the
terms of an offer are vague or indefinite, its acceptance cannot create contractual
relationships.
▪ An offer maty be distinguished from a declaration of intention and an announcement; an
invitation to make an offer or do business and newspaper advertisements are not offers
▪ Offer must be communicated. An offer to be complete must be communicated to the person
to whom it is made. Unless an offer is communicated to the offeree by the offeror or by his
duly authorised agent, there can be no acceptance of it.
▪ Offer must be made with a view to obtaining the assent
▪ Offer should not contain a term the non compliance of which may be assumed to amount to
acceptance. Thus a man annot say that if the acceptance is not communicated by the certain
time, the offer would be considered accepted.
▪ A statement of price if not an offer.
Revocation Of An Offer
An offer comes to an end, and is no longer open to acceptance under the following circumstances:

1) By Notice
By giving the notice of revocation to the other party, the offeror can withdraw the offer, and the offer
comes to an end. But the fact is that an offer may be revoked any time before the acceptance but not
afterwards. Because once the offer is accepted there is a binding contract.
Suppose a proposal is sent by Sonali to Julia and is accepted by Julia by letter. However, the
proposal might have been revoked any time before the letter of acceptance was posted but it can not
be revoked after is posted.

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The notice of revocation does not take effect until it comes within the knowledge of the offeree.
2) By Lapse of Time

When the proposer prescribes a time within which the proposal must be accepted, the proposal lapses
as soon as the time expires.
3) After expiry of reasonable time

If no time has been prescribed, the proposal lapses after the expiry of a reasonable time. What is
reasonable time will depend on the circumstances of the cases.
4) By Failure of a Condition Precedent

An offer lapses by the failure of the acceptor to fulfil a condition precedent to acceptance, where
such a condition has been prescribed.
Example: Mr. Cotler says to Rabi, “I’ll sell my house at Banani, Dhaka to you for BDT. 2 crores if
you are married.” The offer cannot be accepted until and unless Rabi is married.
5) By Death or Insanity
An offer lapses by the death or insanity of the proposer, if the fact of his death or insanity comes to
the knowledge of the acceptor before acceptance.
6) Counter Offer
When the counter offer is given, then the original offer lapse.

7) By Refusal
A proposal once refused is dead and connot be revived by its subsequently acceptance.

Example: A offers to his farm to B for BDT. 50,000. B replies offering to pay BDT. 45,000. A
refuses. Subsequently B writes accepting the orginal offer. There in no contract because the orginal
offer has lapsed.

Acceptance
A promise or act on the part of an offeree indicating a willingness to be bound by the terms and
conditions contained in an offer. Also, the acknowledgment of the drawee that binds the drawee to
the terms of a draft.
Test of acceptance
For the acceptance, the essential requirement is that the parties had each from a subjective
perspective engaged in conduct manifesting their assent. Under this meeting of the minds theory of
contract, a party could resist a claim of breach by proving that he had not intended to be bound by
the agreement, only if it appeared subjectively that he had so intended. This is unsatisfactory, as one
party has no way to know another's undisclosed intentions. One party can only act upon what the
other party reveals objectively (Lucy V Zehmer, 196 Va 493 84 S.E. 2d 516) to be his intent.

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Hence, an actual meeting of the minds is not required. Indeed, it has been argued that the "meeting of
the minds" idea is entirely a modern error: 19th century judges spoke of "consensus ad idem" which
modern teachers have wrongly translated as "meeting of minds" but actually means "agreement to
the [same] thing".[11]
The requirement of an objective perspective is important in cases where a party claims that an offer
was not accepted and seeks to take advantage of the performance of the other party. Here, we can
apply the test of whether a reasonable bystander (a "fly on the wall") would have perceived that the
party has impliedly accepted the offer by conduct.

Rules Of Acceptance
▪ It must be absolute and unqualified
▪ It must be communicated to the offeree.
▪ It must be according to the prescribed or usual mode
▪ It must be given within the prescribed or reasonable time
▪ It must show an intention to fulfil the promise
▪ It cannot precede and offer
▪ It must be given bt the specific persons to which the offer is made. If the offer is general, it
may be accepted by the any person.
▪ It must be given before the offer lapses
▪ Mental acceptance is not real acceptance
Communication Of Acceptance:
There are several rules dealing with the communication of acceptance:
The acceptance must be communicated: 128. Prior to acceptance, an offer may be withdrawn.An
exception exists in the case of unilateral contracts, in which the offeror makes an offer to the world
which can be accepted by some act.
A classic instance of this is the case of Carlill v. Carbolic Smoke Ball Co. [1892] 2 Q.B. 484
in which an offer was made to pay £100 to anyone who having bought the offeror's product and used
it in accordance with the instructions nonetheless contracted influenza. The plaintiff did so and the
court ordered payment of the £100. Her actions accepted the offer - there was no need to
communicate acceptance. Typical cases of unilateral offers are advertisements of rewards (e.g., for
the return of a lost dog).
An offer can only be accepted by the offeree, that is, the person to whom the offer is made. An
offeree is not usually bound if another person accepts the offer on his behalf without his
authorisation, the exceptions to which are found in the law of agency, where an agent may have
apparent or ostensible authority, or the usual authority of an agent in the particular market, even if
the principal did not realise what the extent of this authority was, and someone on whose behalf an
offer has been purportedly accepted may also ratify the contract within a reasonable time, binding
both parties.

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It may be implied from the construction of the contract that the offeror has dispensed with the
requirement of communication of acceptance (called waiver of communication - which is generally
implied in unilateral contracts.
If the offer specifies a method of acceptance (such as by post or fax), acceptance must be by a
method that is no less effective from the offeror's point of view than the method specified. The exact
method prescribed may have to be used in some cases but probably only where the offeror has used
very explicit words such as "by registered post, and by that method only. However, acceptance may
be inferred from conduct. e.g.: Brogden v. Metropolitan Railway Company (1877) 2 App. Cas. 666;
Rust v. Abbey Life Assurance Co. Ltd
The acceptance of an offer cannot be implied from the silence of the offeree unless the offeree has by
his previous conduct indicated that his silence means that he accepts.
An acceptance subject to contract means that the parties do not intend to be bound until a formal
contract is prepared and signed by him
If the parties have not agreed upon the terms of their agreement but have agreed to agree in future
there is no contract.

Counter-Offers And Correspondence

The "mirror image rule" states that if you are to accept an offer, you must accept an offer exactly,
without modifications; if you change the offer in any way, this is a counter-offer that kills the
original offer and the original offer cannot be accepted at a future time: Hyde v. Wrench (1840) 3
Beav 334.
However, a mere request for information about the terms of the offer is not a counter-offer and
leaves the offer intact: Stevenson v. McLean (1880) 5 Q.B.D. 346. It may be possible to draft an
enquiry such that it adds to the terms of the contract while keeping the original offer alive.
Under the Uniform Commercial Code (UCC) Sec. 2-207(1), A definite expression of acceptance or a
written confirmation of an informal agreement may constitute a valid acceptance even if it states
terms additional to or different from the offer or informal agreement. The additional or different
terms are treated as proposals for addition into the contract under UCC Sec. 2-207(2). Between
merchants, such terms become part of the contract unless:
a) the offer expressly limits acceptance to the terms of the offer,
b) material alteration of the contract results,

c) notification of objection to the additional/different terms are given in a reasonable time after
notice of them is received.

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Important Questions
2 marks
1. What is an offer? When is it complete?
2. What is a cross offer? Give an example
3. Who is an offeror and an offeree?

4. What is lapse of an offer?

8 marks
1. How is an offer revoked?
2. What are legal rules of a valid offer
3. What are the different types of offers?
4. What is the role of communication in an acceptance? Explain with the case of Carlill v.
Carbolic Smoke Ball Co.

5. What are the legal rules for a valid acceptance?

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 CONSIDERATION
Consideration is the concept of legal value in connection with contracts. It is anything of value
promised to another when making a contract. It can take the form of money, physical objects,
services, promised actions, abstinence from a future action, and much more.
According to Section 2(d), Consideration is defined as: "When at the desire of the promisor, the
promisee has done or abstained from doing, or does or abstains from doing, or promises to do or
abstain something, such an act or abstinence or promise is called consideration for the promise.
"Consideration" means to do something in return.
In short, Consideration means quid pro quo i.e. something in return.
An agreement must be supported by a lawful consideration on both sides. Essentials of valid
considerations are
● It must move at the desire of the promisor. An act constituting consideration must have been
done at the desire or request of the promiser. If it is done at the instance of a third party or
without the desire of the promisor, it will not be good considsration. For example "A" saves
"B"'s goods from fire without being ask him to do so. "A" cannot demand payment for his
service.
● Consideration may move from the promisee or any other person. Under Indian law,
consideration may be from the promisee of any other person i.e., even a stranger. This means
that as long as there is consideration for the promisee, it is immaterial, who has furnished it.
● Consideration must be an act, abstinence or forebearance or a returned promise.
● Consideration may be past, present or future. Past consideration is not consideration
according to English law. However its consideration as per Indian law. Example of past
consideration is, "A" renders some service to "B" at latter's desire. After a month "B"
promises to compensate "A" for service rendered to him earlier. When consideration is given
simultaneously with promise, it is said to be present consideration. For example "A" receives
Rs.50/- in return for which he promises to deliver certain goods to "B". The money "A"
receives is the present consideration. When consideration to one party to other is to pass
subsequently to the maker of the contract, is said to be future consideration. For example. "A"
promises to deliver certain goods to "B" after a week. "B" promises to pay the price after a
fortnight, such consideration is future.
● Consideration must be real. Consideration must be real, competent and having some value in
the eyes of law. For example "A" promises to put life to "B"'s dead wife, if "B" pay him
Rs.1000/-. "A"'s promise is physically impossible of performance hence there is no real
consideration.
● Consideration must be something which the promiser is not already bound to do. A promise
to do something what one is already bound to do, either by law, is not a good consideration.,
since it adds nothing to the previous existing legal consideration.

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 ● Consideration need not be adequate. Consideration need not be necessarily be equal to value
to something given. So long as consideration exists, the courts are not concerned as to
adequacy, provided it is for some value.
The consideration or object of an agreement is lawful, unless and until it is:
1. Forbidden by law: If the object or the consideration of an agreement is for doing an act forbidden
by law, such agreement are void. for example,"A" promises "B" to obtain an employment in
public service and "B" promises to pay Rs one lakh to "A". The agreement is void as the
procuring government job through unlawful means is prohibited.
2. If it involves injury to a person or property of another: For example, "A" borrowed rs.100/-
from"B" and executed a bond to work for "B" without pay for a period of 2 years. In case of
default, "A" owes to pay the principal sum at once and huge amount of interest. This contract
was held void as it involved injury to the person.
3. If courts regards it as immoral:An agreement in which consideration ir object of which is
immoral is void. For example, An agreement between husband and wife for future separation is
void.
4. Is of such nature that, if permitted, it would defeat the provisions of any law:
5. is fraudulent, or involves or implies injury to the person or property of another, or
6. Is opposed to public policy. An agreement which tends to be injurious to the public or against the
public good is void. For example, agreements of trading with foreign enemy, agreement to
commit crime, agreements which interfere with the administration of justice, agreements which
interfere with the course of justice, stifling prosecution, maintenance and champerty.
7. Agreements in restrained of legal proceedings: This deals with two category. One is, agreements
restraining enforcement of rights and the other deals with agreements curtailing period of
limitation.
8. trafficking in public offices and titles:agreements for sale or transfer of public offices and title or
for procurement of a public recognition like padma vibhushan or Padmashree etc. for monetary
consideration is unlawful, being opposed to public policy.
9. Agreements restricting personal liberty: agreements which unduly restricts the personal liberty of
parties to it are void as being oppposed by public policy.
10. Marriage brokerage contact: Agreements to procure marriages for rewards are void under the
ground that marriage ought to proceed with free and voluntary decisions of parties.
11. Agreements interfering marital duties: Any agreement which interfere with performance of
marital duty is void being opposed to public policy. An agreement between husband and wife
that the wife will never leave her parental house.
12. Consideration may take in any form-money,goods, services, a promise to marry, a promise to
forbear etc.
No Consideration No Contract-Exceptions

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Every agreement to be enforceable at law must be supported by valid consideration. An agreement
made without consideration is void and is unenforceable except in certain cases. Section 25 specifies
the cases where an agreement though made without consideration will be valid.
The exceptions to the maxim ‘No consideration no contract” are as follows:
1. Natural love and affection [Sec. 25(1)]: An agreement though made without consideration will
be valid if it is in writing and registered and is made on account of natural love and affection
between parties standing in a near relation to each other. An agreement without consideration will be
valid provided-
(a) it is expressed in writing;
(b) it is registered under the law for the time being in force;
(c) it is made on account of natural love and affection;
(d) it is between parties standing in a near relation to each other.
All these essentials must be present to enforce an agreement made without consideration.
Example: An agreement was made between a husband and his wife after referring to quarrels to pay
maintenance allowance. The court held that the agreement was not enforceable as it Was not made
out of natural love and affection and hence it was void being without consideration. [Rejlukhy v.
Bhoothnath]

2. Compensation for services rendered [Sec. 25(2)]

An agreement made without consideration will be valid if it is a promise to compensate
wholly or in a part a person who has already voluntarily done something for the promisor or
something which the promisor was legally compellable to do.To apply this rule, the following
essentials must exist:
(a) The act must have been done voluntarily;
(b) for the promisor or it must be something which was the legal obligation of the promiser;
(c) the promisor must be in existence at the time when the act was done;
(d) the promisor must agree now to compensate the promisee.
Example: A found B's purse and gave it to him. B promised to pay a reward of Rs. 50 to A. Later
on, B cannot refuse payment on the ground that there was no consideration.

3. Time-barred debt [Sec. 25(3)]

A promise to pay a time-barred debt is also enforceable. But the promise must be in writing
and be signed by the promisor or his agent authorized in that behalf. The promise may be to pay the
whole or part of the debt. An oral promise to pay a time-barred debt is unenforceable
Example: A owes B Rs. 1,000 but the debt is barred by the Limitation Act. A signs a written
promise to pay B the sum of Rs. 1,000. This is a valid contract.

4. Completed gifts [Exp. 1 to Sec. 25]

Explanation 1 to section 25 provides that the rule 'No consideration, No contract' shall not
affect validity of any gifts actually made between the donor and the donee. Thus if a person gives
certain properties to another according to the provision of the Transfer of Property Act, he cannot
subsequently demand the property back on the ground that there was no consideration.

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Example:A gave a watch as a gift to B on his birthday. Later on, A cannot demand his watch (gift)
back on the ground that there was no consideration (as A did not get anything in return for the
watch).

5. Agency (Sec. 185) There is one more exception to the rule. IT is given in section 185 which says
that no consideration is needed to create an agency.

6. Guarantee (Sec 127)

A contract of guarantee is made without consideration.

7. Remission (Sec 63)

No consideration is required for an agreement to receive less then what is due. This is called
remission in the law. For compromising a due debt, i.e., agreeing to accept less than what is due, no
consideration is necessary. In other words, a creditor can agree to give up a part of his claim and there need be
no consideration for such an agreement. Similarly, an agreement to extend time for performance of a contract
need not be supported by consideration.

Important Questions
2 marks
1. Define consideration.
2. What does the term quid pro quo mean?
3. Why is consideration important for a contract?
4. What does adequate consideration refer to?

8 marks
1. Discuss the types of consideration.
2. “A contract without consideration is void.” Explain this statement.
3. State exceptions for the statement “No consideration No contract”.

15 marks
1. What are legal rules for a valid consideration?

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20
 CONTRACTUAL CAPACITY OF PARTIES
As previously noted in the chapter on Introduction to Contracts, "contractual capacity" is a necessary
element of a contract. The concept of capacity means that an individual has sufficient understanding
in the eyes of the law to protect himself in the marketplace. “Capacity to contract” means the
competence or capability of the parties to enter into a valid contract.
Section 11 of the Contract Act says that “every person is competent to contract who is of the age of
majority and who is of sound mind and is not disqualified from contracting by any law to which he is
subject”
The rules on capacity been have created to protect people who were believed to lack such an
understanding. Historically, the eyes of the law had very narrow vision indeed, and only the
privileged few the lords of feudal England had full capacity to contract. The capacity to contract is
applicable to all except the following:
1. Minors
2. Persons of an unsound mind
3. Persons disqualified by any law which they are subject to.
The contract act provides clauses towards the competence of parties with respect to the above
mentioned exclusions.
MINOR

According to the sec 3 of the Majority Act 1875 – a Minor is a person who has not completed the age
of 18 years. However, a minor for whom a guardian has been appointed by the court or when his
property is managed by the court of wards, becomes a major only on completing 21 years of age.
Minors by virtue of their inexperience and lack of knowledge are prone to the harmful plans and
actions of more knowledgeable adults who might misuse the lack of awareness of children in an
inappropriate manner. Therefore minors are protected by the law and the Contract Act which acts as
a guardian of Rules governing a minor’s agreement. Effect of a minor’s agreement are as follows:
● An agreement with or by a minor is void. A minor is not competent to contract and a contract
by minor is void ab initio. (Mohoribibi vs.Dharmodas ghose)1903
● No ratification. A minor cannot ratify the agreement on attaining majority because a void
agreement cannot be ratified.
● Minor can be a promisee or beneficiary.Thus in case of goods sold by a minor he is entitled
to recover the price from the buyer. He can be a payee in a contract (Raghava Chariar
Vs.Srinivasa)
● No estoppel against a minor. A minor can always plead minority and will not be prevented
from doing so even when he has entered into a contract falsely representing himself to be a
major.

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 ● Contract by guardian. A contract can be entered into by the guardian or manager of a minor
only if a) the contract is within the authority of the guardian or manager b) it is for the benefit
of the minor.
● Liability for torts. Where the tort is directly connected with the contract the minor is not
liable, (Mohoribibi Vs.Dharmodas Ghose)but where the tort is independent of the contract,
the minor cannot escape his liability.(Burnard v. Haggis.1863)

● Doctrine of restitution. If an infant has obtained goods or property by misrepresenting his age
, he can be compelled to restore it as long as it is traceable in his possession.

● Beneficial contracts : Agreements entered into by a minor for his/her benefit are valid and
enforceable. They are –
a) Contracts of marriage- such contracts can be enforced against the other enforcing
party at the instance of the minor but the same cannot be enforced against the minor.
b) Contracts of apprenticeship- such contract can be made by the guardian on behalf
and for the benefit of the minor.(Roberts v. Gray)
● Minor as an agent- Although a minor is not entitled to employ an agent, he can be an agent
for someone else.

● Minor as a Partner- A minor cannot make a contract of partnership although he may be

admitted to its benefits with the consent of all the partners.

● Minor as a shareholder-A minor cannot be a member of a company because membership

arises out of a contract.

● Insolvency-minor cannot be declared insolvent as he is incapable of entering into valid

contract.

A minor is liable to pay out of his property for “necessaries” supplied to him or to anyone whom he
is legally bound to support (Sec 68). The claim arises not out of contract but out of what are called
Quasi Contracts. Again, it is only the property of the minor which is liable for meeting the liability
arising out of such contracts. He is not personally liable. The law has provided this exception
intentionally because if it were not so , it would be impossible for the minors to live.
Necessaries include

a) Necessary goods: this includes basic requirements like food and clothing and other needs like
a watch or a bicycle
b) Services rendered – services like education training for a trade, medical advice, legal advice
used for the betterment of the minor.
Persons of Unsound Mind
Section 12 deals with the question as to what is a sound mind for the purpose of entering into
contract. It lays down that, "A person is said to be of sound mind for the purpose of making a

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contract if, at the time when he makes it he is capable of understanding it and of forming a rational
judgement as to its effects upon his interest."
Unsoundness of mind may arise from:
(a) Idiocy. An Idiot is a person with no intervals of saneness. He is in capable. His mental powers of
understanding even ordinary matters are absent because of lack of development of brain. The
agreement with an idiot is void.
(b) Lunacy or Insanity. It is disease of brain. A lunatic loses the use of his reason due to some
mental strain or disease. He may have Lucid Intervals of sanity. He can enter into contract during
that period when he is of sound mind.
(c) Drunkenness. It produces temporary incapability till the man is under the effect of intoxication
creating impotence of mind. He stands on the same footing as a lunatic.
(d) Hypnotism. It also produce temporary incapability till the person is under the impact of
artificially induced sleep.
(e) Mental decay. It is on account of old age etc.

So, an agreement with person of unsound mind is void. But under Section 68, the property of such
person is always liable for necessaries supplied to him or to anyone whom he is legally bound to
support

Person Disqualified From Contracting By Any Other Law

It refers to statutory disqualification imposed on certain person in respect of their capacity to contract

1. Alien enemies.
An alien is competent to contract with citizens of the indian living in India. He can maintain
as action on a contract enter onto by him during peace him time. But if a war is declared, an alien
enemy cannot enter into a contract with the Indian citizen. Contract entered into before the
declaration of war are either stayed or terminated but contract into during the war are unenforceable.
2. Foreign sovereigns and ambassadors.

These person are immune from the jurisdiction of local courts, unless they voluntarily submit
to its jurisdiction. These persons have a right to contract but can claim the privilege of not being
sued. The rules regarding suits by or against foreign sovereigns are laid down in section 84 to 87 of
Civil Procedure Code.
3. Insolvent.
An insolvent cannot enter into a contract as his property vests in the official receiver or
official assignee. This disqualification of an insolvent is removed after he is discharged.
4. Convict.
A convict while undergoing imprisonment in incapable of entering into a contract. But this
disability comes to an end on the expiry of the sentenc

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5. Corporations.
A Corporation is an artificial person recognised by law. It exists only in the eyes of law. It is
competent to enter into a contract only through its agent
6. Married women.
A women is competent to enter into a contract. Marriage does not affect the contractual
capacity of a women. She can even bind her husband in cases of pressing necessity. A married
woman may sue or be sued in her own name in respect of her separate property.
7. Professional persons.

Doctors and advocates are included in the class. In england barristers are prohibited by the
etiquettes of their profession from suing for their fees.
Important Questions

2 marks
1. What does the term capacity mean? Define “capacity to contract” as per the Indian Contract
Act.
2. Define Minor.
3. Who is an insolvent?
4. List out the persons who are legally disabled.
5. What does no estoppel against minor mean?
8 marks
1. What is the effect of a minor s contract?
2. Who are termed as persons with an unsound mind? Explain why the contract made by them
are invalid.
3. What are the criteria for a person to be disqualified by the law t contract?
15 marks
1. Explain the legal rules as to capacity of contract

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24
 FREE CONSENT
Free consent of all the parties to a contract is one of the essential element of a valid contract
as per requirement of section 10. The parties to a contract should have identity of minds. This is
called consensus ad idem in English Law.
A contract which is valid in all other respects may still fail because there is no real consent
to it by one or both of the parties.
Consent defined
Two or more person are said to consent when they agree upon the same thing in the same
sense. It means that there is no contract if the parties have not agreed upon the same thing in the
same sense.
Absence of a contract may arise from a number of causes, namely (1) by reason of an error as
to the nature of the contract itself, (2) by reason of an error as to the identity of the party with whom
all the cases, there is no contract at all because in the law of contract consensus ad idem is a
condition essential to the formation of a contract.
According to Section 14, " two or more persons are said to be consented when they agree upon the
same thing in the same sense (Consensus-ad-idem).A consent is said to be free when it is not caused
by
(1) Coercion
(2) Undue influence

(3) Fraud
(4) Misrepresentation
(5) Mistake

Coercion:
According to Section 15 “Coercion is the committing or threatening to commit, any act
forbidden by the Indian Penal Code, or the unlawful detaining, or threatening to detain, any property,
to the prejudice of any person whatever, with the intention of causing any person to enter into an
agreement”
In simple words, coercion is the threat used by one party against another for compelling him to enter
an agreement. Section 15 of the Indian Contract Act defines coercion as the committing or
threatening to commit any act forbidden by Indian Penal Code or an unlawful detaining or
threatening to detain, any property of any person with the intention of inducing any person to enter
into an agreement. It is immaterial whether the Indian Penal Code is or not in force in the place
where the coercion is employed.
Coercion is said to have been employed when a person was forced to enter into a contract by use or
under the threat of use of physical force by the other person committing or threatening to commit any
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act forbidden by Indian Penal Code. It is important to note the intention o the person using the
coercion and against whom it is used. Ex: Ranganayakamma v. Alwar Setty. (1889).

Undue Influence
Sometimes the parties to an agreement are so related to each other that one party is in a position to
dominate the will of the other. One party is compelled to enter into an agreement against his will as a
result of “Undue Influence” exerted by the other party who is in dominating position.
Undue Influence is moral coercion as opposed to physical coercion mentioned in Section 15. It is the
domination of a weak mind by a strong mind to extent which cause the behavior of the weaker
person to assume an unnatural character. It is an influence which compels another person to do
something which he would not have done if he had been a free agent. A friendly advice or presuation
would not constitute undue influence.
According to Section 16 “A contract is said to be induced by undue influence where the relations
subsisting between the parties are such that one of the parties is in a position to dominate the will of
the other and uses that position to obtain an unfair advantage over the other”
Manu Singh V. Umadat Pandey. (1890)
Lloyds Bank V. Bundy (1975)

Distinction between Coercion and Undue Influence

Undue Influence Coercion

Consent is obtained by the dominant will of Consent is obtained under the threat of
another. offence.

It involves the use of moral or mental forces It involves the use of physical or violent
forces

There is no criminal liability in this case It attracts the provision of Indian Penal Code
(IPC).

There must be certain relationship between It may proceed from a stranger to the
the parties to the contract. contract.

Fraud
The term ‘fraud’ includes all acts committed by a person with an intention to deceive another person.

Fraud is the wilful representation made by a party to a contract with the intent to deceive the other
party or to induce such party to enter into a contract. It means made knowingly or without belief in
its truth or recklessly without caring whether is it true or false.
Accordingly to Section 17, fraud means and includes any of the following acts done with intent to
deceive or to induce a person to enter into a contract.

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 A False Suggestion as to fact known to be false or not believed to be true. A False statement made
recklessly without inquiring whether it is true or false would amount to fraud. But if a statement
which turns out to be false is made in the honest belief that it is true there is no fraud.
Case: - PEEK V. GURNEY (1873)
The Active concealment of fact by one having knowledge or belief of fact. If a person conceals a fact
which is material to the contract and it is duty to disclose it, it will be a case of fraud. Mere non-
disclosure is not a fraud, where there is no duty to disclose. ‘Caveat Emptor’ or ‘Buyer Beware’ is
the rule in contracts of sale of goods, but in contracts of absolute faith mere silence about materials
facts will be taken as fraud.
A promise made without any intention of performing it. The initial intention not to perform the
promise that is being made is a necessary element to constitute fraud. Thus, where a person orders
and obtains possession of goods with the intention of not paying for them, he commits fraud.
Any other act fitted to deceive. The intention to deceive and the fitness of the act for deceit must be
present. Thus, where a party, who by false impersonation includes another to enter into a contract
with him under the belief that he is somebody that he is somebody else, commits fraud.
Any such act or omission as the law specially declares to be fraudulent. It is fraudulent to conceive
of any act that attempts to deceive law. Thus, where a contract is based against the policy of
insolvency law, or a secret agreement is formed between the insolvent and the party, it is nothing
short of a fraud on insolvency law.

Effects of Fraud
When consent to an agreement is caused by fraud, the agreement is a contract voidable at the option
of the party whose consent was so caused.
A party whose consent to an agreement was caused by fraud has two remedies, namely :
● He may rescind the contract, or

● He may insist that the contract shall be performed and that he shall be put in the position in
which have been, if the representation made had been true.
Example: A fraudulently informs B that A's estate is free from encumberance. B thereupon buys the
estates. The estate is subject to a mortgage. B may avoid the contract or may insist on its carried out
and the mortgage debt repaid by A.
Apart from the above, the person defrauded may obtain rescission, restitution or damages. The
aforesaid remedies are subject to an exception. A contract cannot be avoided on the ground of
misrepresentation or silence amounting to fraud., if a party to whom an untrue or misleading
statement was made had the means of discovering the truth with reasonable diligence.

Is Mere Silence Is Not Fraud

A silence to the contract is under no obligation to disclose the whole truth to the other party.
'CAVEAT EMPTOR' i.e., let the purchaser beware is the rule applicable to contracts. There is no

27
duty to speak is such cases and silence does not amount to fraud. Similarly there is no duty to
disclose facts which are within the knowledge of both parties.
Example: H sold to W some pings which to his knowledge suffering from fever. The pings were sold
'with all faults' and H did not disclose the facts of fever to W. Held there was no fraud. [Word v.
Hobhs. (1878) 4 AC 13]

Misrepresentation
Misrepresentation refers to the misstatement of fact material to the contract. According to Section 18
of the Act “Misrepresentation means and includes –
1. The positive assertion, in a manner not warranted by the information of the person making it, of
that which is not true, though he believes it to be true
2. Any breach of duty which, without any intent to deceive, gains an advantage to the person
committing it by misleading another to his prejudice
3. Causing, however innocently, a party to an agreement, to make a mistake as to the substance of a
thing which is the subject matter of the agreement.”

Types of Misrepresentation:
Unwarranted Statements-When a party to a contract positively asserts that a particular fact relating to
the subject matter of the agreement is true, when his information does not warrant it to be so, he is
guilty of misrepresentation.
Breach of Duty – When a person commits a breach of duty without any intention to deceive the other
party, and thereby gains an advantage to himself to the prejudice of the other party, the person
committing the breach of duty is said to be guilty of misrepresentation. Oriental Banking
Corporation V. John Fleming (1879)
Inducing mistake about subject-matter: If a party to an agreement induces the other party, although
innocently, to commit a mistake as to the nature or quality of the subject-matter of the agreement, he
becomes guilty of misrepresentation.
Eg: Concealment of information relating to company in prospectus.
Essentials Requirements of Misrepresentation
1. There should be a representation or assertion ;

2. Such representation must relate to a matter of fact which has become untrue ; and
3. It was made before the finalization of transaction with a view to induce the other party to enter
into contract
4. It must actually have been acted upon by the party.
5. It must have been either by the party himself or by his duly authorized agent.

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Difference between Misrepresentation and Fraud
The basic difference between misrepresentation and fraud is that in fraud the person making
the representation does not himself believe in the truth of the statement he is making whereas in
situations of innocent misrepresentation the person making the statement may believe that what he is
saying is true. This is due to the fact that the person making the statement is simply repeating what
another person has asserted to be true. In cases of fraud, the person making the statement is a
complete liar and is making the statement to deceive others to enter into a contract. However this is
just the general rule.

Fraud Misrepresentation

The false statement is person who knows that it the person making the false statement believes it
is false or he does not care to know whether it is to be true
true or false.

The very purpose of the fraud is to deceive the There is no intention to deceive the other party
other party to the contract.

the contract is voidable It also gives rise to an the contract voidable at the option of the party
independent action in tort for damages. whose consent was obtained by
misrepresentation

Certain cases is a punishable offence under not an offence under Indian penal code and
Indian penal code. hence not punishable

Silence is not fraud except where there is a duty Under no circumstances can silence be
to speak or the relations between parties is considered as misrepresentation
fiduciary.

The party making a false statement cannot say The party complaining of misrepresentation can’t
that the other party had the means to discover the avoid the contract if he had the means to discover
truth with ordinary diligence. the truth with ordinary diligence.

MISTAKE
Mistake may be defined under Section 20 of Indian Contract Act, 1872, as "an erroneous belief about
something". If the agreement is made under an erroneous belief it cannot be said that the parties
enjoyed free consent i.e. both the parties shall understand the same thing in the same sense.
Elements of Mistake

● Mistake must be bilateral. Unilateral mistake is no mistake.

● The mistake must be in relation to some fact.

● The fact concerned must be essential to the agreement.

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 As regards mistake of law, if there is mistake of about Indian Law then it is not considered as a
mistake of fact to an Indian. But a mistake of law of foreign country is a mistake of fact.

Effects of Mistake
If there is a mistake, the agreement is void. But as the mistake is subsequently discovered it is
called discovered to be void. When an agreement is discovered to be void then any party who has
received any benefit from the other party shall restore it to him or make compensation for it.

Types of Mistake
Mistake may be of two types.

● Mistake of law.
● Mistake of fact.

1. Mistake of law: Mistake of law may be-

A) A mistake as to a law in the country (India): It is a misconception that occurs when a person with
complete knowledge of the facts reaches an erroneous conclusion as to their legal effect; an incorrect
opinion or inference, arising from a flawed evaluation of the facts. Generally, a mistaken belief about
a law is no defense to a violation of that law. All persons are presumed to know and understand the
law, except minors, persons who lack mental capacity to contract with others, and, in criminal cases,
persons who are insane. There are, however, a few other rare exceptions to this general rule.
B) A mistake as to a law of foreign country: such mistakes are treated as mistakes of fact.
2. Mistake of Fact: Mistake of fact can be divided as bilateral and unilateral mistake.
Bilateral Mistake: According to Section 20 "where both the parties to an agreement are under a
mistake as to a matter of fact essential to the agreement, the agreement shall be void".
Various cases that fall under bilateral mistake are as follows:
▪ Mistake as to the subject matter: Mistake as to the subject matter may be ‑ regarding
existence of the subject matter, quality of the subject matter, quantity and price of the
subject matter.
▪ Mistake as to the possibility of performance: If the parties believe that the agreement is
capable of being performed when in fact it is not the case, then the consent is nullified.
The agreement is void on the ground of impossibility.
Unilateral Mistake: If the mistake is only unilateral, i.e. one party to the contract is under a mistake
of fact, the contract is not voidable. Unilateral mistakes do not affect the validity of the contract
unless they concern some fundamental fact and the other party is aware of the mistake.
A unilateral mistake may be: Mistake as to the nature of the transaction: A contract shall be void
if a party to the contract without any fault of his own makes a mistake about the very nature of the

30
contract. It may be because of blindness, illiteracy, or servility of the person signing the contract or
due to the trick or fraudulent misrepresentation as to the nature of the document.
Mistake as to identity of the contracting parties: The person or with whom the contract is to be
made must be identified correctly by the other party. It is a fundamental mistake on the part of the
other party not to recognize the correct person. The principle of the contract holds good only when
the identity of the contracting party is given importance.
Important Questions
2 marks
1. Define coercion.
2. When is a consent said to be free and genuine?
3. Define mistake as stated in the Indian Contract Act.

4. What is a fraud?

8 marks
1. What are the different types of Mistakes that happens while forming a contract?

2. Differentiate between misrepresentation and fraud.

3. Explain the term ‘consensus ad idem’. Why is it important for a contract?

15 marks
1. Explain the ways by which a contract is entered without the free consent of either of the
parties.

2. What are the different types of mistakes?

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 LEGALITY OF OBJECT
An agreement will not be enforceable if its object or the consideration is unlawful. The consideration
and the object of an agreement are unlawful in the following cases
1. If it is forbidden by law. If the object or the consideration of an agreement is the doing of an act
forbidden by law, the agreement is void. An act or an undertaking is forbidden by law when it is
punishable by the criminal law of the country or when it is prohibited by special legislation
derived from the legislature
Example: A promises to drop a prosecution which he has instituted against B for robbery, and B
promises to restore the value of the things taken. The agreement is void, as its object is unlawful
2. If it is of such a nature that if permitted, it would defeat the provisions of any law -If the object or
the consideration of an agreement is of such a nature that, though not directly forbidden by law, it
would defeat the provisions of the law, the agreement is void
Example: A’s estate is sold for arrears of revenue under the provisions of an Act of the Legislature,
by which the defaulter is prohibited from purchasing the estate. B, upon an understanding with A,
becomes the purchaser and agrees to convey the estate to A upon receiving from him the price which
B has paid. The agreement is void, as it renders the transaction, in effect, a purchase by the defaulter,
and would so defeat the object of the law
3. If it is fraudulent. An agreement with a view to defraud other is void
Example:A, B and C enter into an agreement for the division among them of gains acquired or to be
acquired, by them by fraud. The agreement is void as its object is unlawful.
4. If it involves or implies injury to the person or property of another. If the object of an agreement
is to injure the person or property of another it is void

Example: A borrowed Rs. 100 from B. He(A) executed a bond promising to work for B without pay
for 2 years and in case of default agreed to pay interest at a very exorbitant rate and the principal
amount at once. Held, the contract was void
5. If the Court regards it as immoral or opposed to public policy. An agreement whose object or
consideration is immoral or is opposed to the public policy, is void
Example : A, who is B’s mukhtar, promises to exercise his influence, as such, with B in favour of C
and C promises to pay 1,000 rupees to A. The agreement is void, because it is immoral.

Agreements Declared Void

Agreements Against Public Policy

An agreement which tends to be injurious to the public or against the public good is void as being
opposed to public
Some of the commonly accepted grounds of public policy

1. Trading with Enemy. All contracts made with an alien (foreigner) enemy are illegal unless made
with the permission of the Government. An alien enemy is a person who owes allegiance to a

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Government at war with India. Such agreements are illegal on the ground of public policy because
either the further performance of the contract would involve intercourse with the enemy or its
continued existence would confer upon the enemy an immediate or future benefit.
2. Agreements for Stifling Prosecution.: Contract for compounding or suppression of criminal
charges, for offences of a public nature are illegal and void.
Example : A, knowing that B has committed a murder, obtains a promise from B to pay him (A) Rs.
10,000, in consideration of not exposing B, there is a case of stifling prosecution and the agreement
is illegal and void
Agreements for the Sale of Public Offices and Titles. Traffic by way of sale in public offices and
appointments obviously tends to the prejudice of the public service by interfering with the selection
of the best qualified persons. Such sales, are, therefore, unlawful and void.
Example :A promises to pay B Rs. 5,000 if B secures him an employment in the public service. The
agreement is void.
Agreements in restraint of parental rights. According to law the father is the guardian of his minor
child; after the father, the right of guardianship vests in the mother. This right cannot be bartered
away by any agreement.
Example: A father having two minor sons agreed to transfer their guardianship in favour of Mrs.
Annie Besant and also agreed not to revoke the transfer. Subsequently, he filed a suit for recovery of
the boys and a declaration that he was the rightful guardian, the Court held that he had the right to
revoke his authority and get back the children
Agreement in Restraint of Marriage. According to Section 26 of the Contract Act, “Every agreement
in restraint of the marriage of any person, other than a minor, is void.”
Example: A promised to marry none else except Miss B, and in default pay her a sum of Rs. 1,000. A
married someone else and B sued A for recovery of the sum. Held, the contract was in restraint of
marriage, and as such void
Marriage Brokerage Contracts. A marriage brokerage contract is one in which, in consideration of
marriage, one or the other of the parties to it, or their parents or third parties receive a certain sum of
money. Accordingly, dowry is a marriage brokerage and hence unlawful and void.
In Venkatakrishna v. Venkatachalam 32, Mad. 185, a sum of money was agreed to be paid to the
father in consideration of his giving his daughter in marriage. Held, such a promise amounted to a
marriage brokerage contract and was void.
Contracts interfering with course of Justice. Any agreement for the purpose or to the effect of using
improper influence of any kind with judges or officers of justice is void. Contracts tending to create
monopolies. Such agreements are void being opposed to public interest.
Unlawful and illegal agreements: Unlawful agreement – a void ab initio– not enforceable by law –
affects only the immediate parties but does not affect the collateral agreements.

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Illegal agreement – void ab initio– taints the collateral agreements with illegality -void not only as
between immediate parties but also makes collateral agreements void.
Example : A enters into an agreement with B to manufacture prohibited goods – A takes loan for the
purpose from C who knows about the purpose of the loan – agreement between A and C is collateral
to the main agreement between A and B, which is illegal – collateral agreement is also illegal.
An illegal agreement is actually forbidden by law – but every void agreement may not be forbidden –
Thus, every illegal agreement is void, but every void agreement is not necessarily illegal.
Illegal agreements include acts opposed to public morals – e.g. agreement for illicit cohabitation,
agreement to defraud the revenue, agreement to commit a crime or agreement to do something which
endangers public safety – No action allowed on illegal agreement.

VOID AGREEMENTS
Sec.2(g) defines An agreement which is not enforceable by law is called a void agreement. The
following agreements are void ab initio
1. Agreements by incompetent parties (Sec.11)
2. Agreements made under mutual mistake (Sec.29)
3. Agreements with unlawful consideration or object (Sec.23 and 24)

4. Agreements without consideration (Sec.25)

5. Agreements in restraint of marriage (Sec.26)
6. Agreements in restraint of trade (Sec.27)

7. Agreements in restraint of legal proceedings (Sec.28)

8. Agreements the meaning of which is uncertain (Sec.29)
9. Wagering agreements (Sec.30)

10. Agreements contingent on impossible events (Sec.36)

11. Agreements to do impossible acts (Sec.56)12.
In case of reciprocal promises to do things legal and other things illegal, thesecond set of reciprocal
promises is void agreement (Sec.57)
Agreements the meaning of which is uncertain (Sec.29): Uncertainty may be as to – (i) existence of,
or
(ii) quality of, or
(iii) quantity of, or
(iv) price of, or
(v) title to,the subject matter.

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Example :(a). A agrees to sell to B ‘100 tons of oil’ - There is uncertainty about the kind of oil
intended - The agreements is void.
Guthyng Vs. Lynn -L promised to pay an extra £5 to G if the horse he purchasedfrom G proved
lucky – the promise is too vague to be enforced.(e) A agreed to pay a certain sum to B when he was
able to pay – the agreement is void for uncertainty

Wagering Agreements
A wagering agreement, says Sir William Anson, “is a promise to give money or money’s worth upon
the determination or ascertainment of an uncertain event.” Cockburn C.J. defined it as ‘A contract by
‘A’ to pay money to ‘B’ on the happening of a given event in consideration of ‘B’s promise to pay
money to ‘A’ on the event not happening.” Thus, a wagering agreement is an agreement under which
money or money’s worth is payable, by one person to another on the happening or non-happening of
a future, uncertain event.
Example: A and B bet as to whether it would rain on a particular day or not A promising to pay Rs.
100 to B if it rained, and B promising an equal amount to A, if it did not. This agreement is wager.
A principal cannot sue his agent for breach of a wagering agreement or recover anyamount paid on
its basis. However, the principal can recover the winnings received by his agent on successful bets
made on his behalf.
Essential of a wagering agreement :
1. Promise to pay money or money’s worth.
2. Uncertain event – generally contemplates a future event – but may also relateto past even provided
the parties are not aware of its result or the time of itshappening.
3. Mutual chances of gain or loss

Example 1: Babasaheb Vs. Rajaram- Two wrestlers agreed to play a wrestling match – condition
that party failing to appear on the day fixed was to forfeit Rs.500 to opposite party, and winner to
receive Rs.1125 out of gate money – defendant failed to appear in ring – plaintiff sued him for
Rs.500 – Held, in present case neither side stood to lose according to result of wrestling match –
stakes did not come out of pockets of parties, but out of gate money provided by public – wagering
agreement.
In Carlill Vs. Carbolic Smoke Ball Co., the company had no chance of winning, neither Mrs. Carlill
any chance of losing – not in nature of wager.
Narayana Ayyangar Vs. K.Vallachami Ambalam
- A chit fund does not come within the scope of ‘wager’ – some members stand a chance to gain, but
none of them stands to lose as getting back of actual amount contributed is assured, the interval of
time, however long it may be, is immaterial.
4. Neither party has control over the event.
5. No other interest in the event – it forms the difference between wager and contract of insurance -
Every contract of insurance requires for its validity the existence of insurable interest, which means
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the risk of loss to which the assured is likely to be exposed by the happening of the event assured
against - however, in wagering agreement, neither party is running any risk of loss except that which
is created by the agreement itself. Lottery, which is a game of chance, is a wagering agreement.
Exceptions – the following agreements are not wager :
1. Crossword competitions involving a good measure of skill for its successful solution – however,
where prizes depend upon a chance, that a lottery (awager).
2. Games of skill – e.g. picture puzzles or athletic competitions.
3. Horse races where the value of plate, prize or sum of money is Rs.500 or upwards.
4. Share market transactions in which delivery of stocks and shares is intended to be given and taken.
5. A contract of insurance.

Void Contracts
1.A contingent contract becomes void when the event collateralto it becomes impossible
(Sec.32.)2.A voidable contract becomes void when the party whoseconsent is not free repudiates the
contract.3.A contract becomes void by supervening impossibility or illegality.
Restitution - (Sec.64)
- When voidable contract is rescinded, the party rescinding itmust restore any benefit which he has
received under it to the person from whom itwas received.Sec.65 - When a contract becomes void,
the party who has received any benefitunder it, must restore it to the other party or compensate the
other by the value of the benefit.Sec.65 is not applicable to contracts void ab initio or to contracts by
incompetent parties.
State of Orissa Vs. Rajballav- agreement between government and contractor to construct a godown
– advance payment made to contractor – work not completed by contractor – government terminated
contract – Held, government could recover the amount advanced.
Contingent Contracts
Sec.31: A contract to do or not to do something, if some event which is collateral to such contract,
does not happen – conditional one – condition is of uncertain nature – e.g. contracts of insurance,
indemnity and guarantee.
Example: A contract to pay a sum of money on the destruction of a premises by fire is contingent
contract. – however, contract to pay a sum of money on the expiry of an term or on the death of a
person is not a contingent contract because these events are nof a certain nature.

Essentials of contingent contracts :

1. Performance depends on happening or non-happening in future of an event.
2. the event must be uncertain.

3. the event must be collateral, i.e. incidental, to the contract.

Contingent event includes happening or non-happening of a contingency depending upon the will of
a party –
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Example, a contract the performance of which depends upon the promisee’s marriage is a contingent
contract, though his marriage is a contingency exclusively within his control.

Rules regarding contingent contracts :

1. Contingent contract cannot be enforced until the collateral event hashappened.
2. In case contingent contract dependent upon happening of collateral event,such contract become
void when such event becomes impossible.
3. If contingent contract dependent upon non-happening of collateral event, performance of the
contract can be enforced when the event becomes impossible.
4.Where contract contingent upon an ‘act’ of a person, the event shall becomeimpossible when such
person does anything which makes it impossible for him to do the ‘act’ within a definite time or
otherwise than under further contingencies.
Example : 1. A agrees to pay B a sum of money if B marries C – C marries D – marriage of B to C is
now impossible although it is possible that D may dieand C may afterwards marry B
5. Contract, contingent upon a specified event happening within a definite time, becomes void if such
specified event does not happen or becomes impossible before the expiry of that time

Important questions
2 marks
1. What is a wagering agreement?
2. Define void agreements.

3. What does public policy mean?

4. What is a contingent contract?
5. What does legality of the object and consideration mean?

8 marks
1. State the legal rules for a lawful object and consideration
2. What are exceptions to wagering agreement?

15 marks
1. What are contingent contracts? State the rules for a valid contingent contract
2. Discuss the agreements that are opposed to public policy.

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 PERFORMANCE OF CONTRACT
Performance of contract is complete when parties fulfil their respective legal obligations arising
under the contract within time and manner prescribed in the contract. There are two ways for a
performance
➢ actual performance

➢ offer to perform or tender (attempted performance)

Tender of Performance (Section 38) :In cases of some contracts, it is sometimes sufficient if the
promisor performs his side of the contract. Then, if the performance is rejected, the promisor is
discharged from further liability and may sue for the breach of contract if he so wishes. This is
called discharge by tender. To be valid, a tender must fulfil the following conditions
▪ it must be unconditional;
▪ if must be made at a proper time and place;
▪ it must be made under circumstances enabling the other party to ascertain.
▪ that the party by whom it is made is able and willing then and there to do the whole of what he is
bound, to do by his promise.
▪ if the tender relates to delivery of goods, the promisee must have a reasonable opportunity of
seeing that the thing offered is the thing which the promisor is bound by his promise to deliver.
▪ tender made to one of several joint promisees has the same effect as a tender to all of them.

Who can demand performance?

Generally speaking, a stranger to contract cannot sue and the person who can demand performance is
the party to whom the promise is made. But an assignee of the rights and benefits under a contract
may demand performance by the promiser, in the same way as the assignor, (i.e the promisee) could
have demanded.
Effect of refusal of party to perform wholly
Section 39 provides that when a party to a contract has refused to perform or disabled himself from
performing his promise in its entirety the the promisee may put an end to the contract unless he had
signified by words or conduct his acquiescence in its continuance.
Example
(a) X, a singer enters into a contract with Y, the manager of a theatre to sing at his theatres two
nights in every week during the next two months, and Y engaged to pay her Rs. 100 for each nights
performance. On the sixth night X wilfully absents herself form the theatre. Y is at liberty to put an
end to the contract. .
(b) If in the above illustration, with the assent of Y, X sings on the seventh night, Y is presumed to
have signified his acquiescence in the continuance of the contract and cannot put an end to it; but is
entitled to compensation for the damages sustained by him through X's failure to sing on the sixth
night.

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By whom contract must be performed
Under Section 40 of the Act, if it appears from the nature of the case that it was the intention of the
parties to a contract that it should be performed by the promisor himself such promise must be
performed by the promisor himself. In other cases the promisor or his representative may employ a
competent person to perform it.
Example
(a) X promises to pay Rs. 1,000 to Y. X may either personally pay the money to Y or cause it to be
paid to Y by another. If X dies .before making payment, his representatives must perform the
promise or employ some proper person to do so.
(b) X promises to paint a picture for Y. X must personally perform the promise.

Devolution of Joint Liabilities

Under Section 42 of the Indian Contract Act, where. two or more persons have made a joint promise
then, unless a contrary intention appears from the contract all such persons should perform the-
promise. If anyone of them dies, his representatives jointly with the survivor or survivors should
perform. After the death of the last survivor, the representatives of all jointly must fulfil the promise.
Under Section 43 of the Indian Contract Act when two or more persons made a joint promise, the
promisee may, in the absence of an express agreement to the contrary compel anyone or more of
such joint promisors to perform the whole of the promise. Each of two or more joint promisors may
compel every other joint promisor to contribute equally with himself to the performance of the
promise unless a contrary intention appears from the contract. If anyone of two ore more promisors
make default in such contribution, the remaining join promisors should bear the loss arising from
such default in equal share.
Example
(a) X, Y and Z jointly promise to pay Rs. 6,000 to A. A may compel either X or . Y or Z to pay the
amount.
(b) In the above example imagine, Z is compelled to pay the whole amount; X
is insolvent but his assets are suffIcient to pay one-half of his debts. Z is entitled to receive Rs. 1,000
from X's estate and Rs. 2,500 from Y.
(c) X, Y and Z make a joint promise to pay Rs. 5,000 to A, Z is unable to pay any amount and. X is
compelled to pay the whole. X is entitled to receive
Rs. 3,000 from Y.

Under Section 44 of the Act, where two or more persons have made a joint promise, a release of one
of such joint promisor by the promisees does not discharge the other joint promisor(s): neither does it
free the joint promisor so released from responsibility to the other joint promisor or joint promisors.

Devolution of Joint Rights

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A promise may be made to two or more persons. The promisees are called joint promisees. For
example, X may give a promise to repay Rs. 1,000 given by Y and Z jointly. In such case, In the
absence of a contrary intention, the right to claim, performance rests with Y and Z. If Y dies, V's
representative jointly with Z may, demand performance. If Z also dies the representatives of Y and Z
may demand jointly performance from X
Reciprocal Promises :-
When one party makes a promise in consideration of the similar promise made by the other party is
called reciprocal promise.
1. Rules Regarding The Order of Performance :-
When performance of the promise of one party depends on the prior performance of the promise by
the other party, the promises are called mutual and dependent. If first party promisor fails to perform
its promise according the contract, then it cannot claim the performance of the reciprocal promise
and will also compensate the other party.
Example :- Mr. Naveed contracts with Mr. Aslam to construct the house for a fixed price. According
to contract Mr. Aslam had to supply the construction material. Such construction is being dependent
on the supply of material, the work cannot be started. The loss caused to Mr. Naveed will be
compensated by Mr. Aslam.
2. Mutual & Independent :-
In this case each party performs his promise independently without waiting the performance of other
party.
Example :- Mr. Candy and Mr. Shafi contract that Mr. Candy will construct a house for a fixed price.
It was also agreed by both the parties that payment will be made by Mr. Candy after the construction
of a house.
3. Mutual and Concurrent :-
In this case of two promises performed at the same time. The promisor may not perform his promise
unless the promisee is ready to perform his reciprocal promise.
Example :- Mr. Snak contracts with Mr. Alex that he will deliver the car to him only if he will make
the payment. Mr. Snak needs not to deliver unless Mr. Alex is ready and willing to pay for it. Mr.
Alex also no need to make the payment unless car is delivered to him.
4. Consequence To Prevent The Performance :-
In case of reciprocal promises if one party to the contract prevents the other party the contract
becomes voidable at the option of the prevented party. Prevented party is also entitled to
compensation for any loss, which he causes due to non-performing of contract.
5. Time and Place :-

It relates with the rules regarding the determination of time and place.
6. Specified Time :-
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If the time and place is prescribed in the contract then it should be performed at the specified time
and place.
7. Reasonable Time :-
In this case reasonable time depends on the circumstances of each case.
8. Proper Place :-

In this regard promisor must ask the promisee where he would like the contract to be performed.

Important Questions:
2 marks
1. What does performance of contract mean?
2. State the different types of performances.
3. What is the meaning of tender of performance?

8 marks
1. What are the legal rules for the devolution of joint liabilities?
2. What are the reciprocal promises?

3. Who can demand a performance? Explain with examples

15 marks
1. Discuss the legal rules for the performance of a contract.

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 DISCHARGE OF CONTRACTS
When the purpose of getting into a contract has completed, the contract requires to be terminated so
that the provisions and clauses mentioned in the contract cease to exist. The termination of a contract
is called as Discharge of Contract. The ways in which a contract is discharged may be classified as
follows:
● By performance or tender.
● By mutual consent.
● By subsequent impossibility.
● By operation of law.
● By breach

By Performance
The obvious mode of discharge of a contract is by performance, that is, where the parties have done
whatever was contemplated under the contract, the contract comes to an end. Thus where ‘A’
contracts to sell his car to ‘B’ for Rs. 85,000 as soon as the car is delivered to ‘B’ and ‘B’ pays the
agreed price for it, the contract comes to an end by performance.
Tender. The offer of performance or tender has the same effect as performance. If a promisor ten-
ders performance of his promise but the other party refuses to accept, the promisor stands discharged
of his obligations.

By Mutual Consent
If the parties to a contract agree to substitute a new contract for it, or to rescind it or alter it, the
original contract is discharged. A contract may terminate by mutual consent in any of the followings
ways:
1. Novation. ‘Novation’ means substitution of a new contract for the original one. The new contract
may be substituted either between the same parties or between different parties.
Examples A owes money to B under a contract. It is agreed between A, B and C that B shall thence-
forth accept C as his debtor instead of A. The old debt of A to B is at an end, and a new debt from C
to B has been contracted.
Notice that, the contract which is substituted must be one capable of enforcement in law. Thus,
where the subsequent agreement is insufficiently stamped and, therefore, cannot be sued upon,
novation does not become effective, that is, the original party shall continue to be liable.
2. Rescission. Rescission means cancellation of all or some of the terms of the contract. Where par-
ties mutually decide to cancel the terms of the contract, the obligations of the parties there under
terminate.
3. Alteration. If the parties mutually agree to change certain terms of the contract, it has the effect of
terminating the original contract. There is, however, no change in th parties.

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4. Remission (Section 63). Remission is the acceptance of a lesser sum than what was contracted for
or a lesser fulfillment of the promise made.
Examples
(1) A owes B Rs. 5,000. A pays to B who accepts in satisfaction of the whole debt Rs. 2,000 paid
at the time and place at which the Rs. 5,000 were payable. The whole debt is dis- charged
Accord and Satisfaction. These two terms are used in English Law. In England remission must be
supported by a fresh consideration. The ‘accord’ is the agreement to accept less than what is due
under the contract. The ‘satisfaction’ is the consideration which makes the agreement operative. In
other words, satisfaction means the payment or fulfilment of the lesser obligation. An accord is
unenforce- able, but an accord accompanied by satisfaction is valid and thereby discharges the
obligation under the old contract. Thus, in our above example (1) where B agrees to accept Rs. 2,000
in full satisfaction, the agreement is an accord and cannot be enforced under English Law but when
Rs. 2,000 are actually paid to B who accepts them in full satisfaction of his claim of Rs. 5,000 it is a
valid discharge, that is the bal- ance of Rs. 3,000 can never be claimed
5. Waiver. Waiver means relinquishment or abandonment of a right. Where a party waives his rights
under the contract, the other party is released of his obligations.
Example: A promises to paint a picture for B. B afterwards forbids him to do so. A is no longer
bound to perform the promise.
6. Merger. A contract is said to have been discharged by way of ‘merger’ where an inferior right
possessed by a person coincides with a superior right of the same person.
Example: A man who is holding certain property under a lease, buys it. His rights as a lessee vanish.
They are merged into the rights of ownership which he has now acquired, the rights associ- ated with
lease being inferior to the rights associated with the ownership.
By Subsequent Impossibility
Impossibility in a contract may either be inherent in the transaction or it may be introduced later by
the change of certain circumstances material to the contract.
Examples of Inherent Impossibility. (1) A promises to pay B Rs. 50,000 if B rides on horse to the
moon. The agreement is void.
(2) A agrees with B to discover treasure by magic. The agreement is void.
The impossibility in these cases is inherent in the transaction. Such a contract is void ab-initio. On
the other hand, where a contract originates as one capable of performance but later due to change of
circumstances its performance becomes impossible, it is known to have become void by subsequent
or supervening impossibility. We shall now consider this kind of impossibility in details.
Subsequent Impossibility in England is referred to as ‘Doctrine of Frustration’. A contract is deemed
to have become impossible of performance and thus void under the following circumstances:
1.Destruction of Subject-Matter of the Contract. Where the subject-matter of a contract is destroyed,
for no fault of the promisor, the contract becomes void by impossibility.
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Example
A music hall was agreed to be let out on certain dates, but before those dates it was destroyed by fire.
Held, that the owner was absolved from liability to let the building as promised.
2. By the Death or Disablement of the Parties. Where the performance of the contract must be
executed personally by the promisor, his death or physical disability to perform shall render the
contract void and thus exonerate him from the obligation.
Examples A and B contract to marry each other. Before the time fixed for the marriage, A dies. The
contract becomes void.
A, a singer, agrees with B to give his performance at some particular theatre on a specified date.
While on his way to the theatre A meets an accident and is rendered unconscious. The agreement
becomes void.
3. Subsequent Illegality. Where by subsequent legislation the performance of a contract is forbid-
den by law, the parties are absolved from liability to perform it.
Example A contracts to supply B 100 bottles of wine. Before the contract is executed, i.e., bottles
supplied, dealings in all sorts of liquor are declared forbidden, the contract becomes void.
4. Declaration of War. If war is declared between two countries subsequent to the making of the
contract, the parties would be exonerated from its performance.A contracts to take indigo for B to a
foreign port. A’s Government afterwards declares war against the country in which the port is
situated. The contract becomes void when war is declared
5. Non-existence or non-occurrence of a particular state of things. When certain things necessary for
performance cease to exist the contract becomes void on the ground of impossibility.
A and B contract to marry each other. Before the time fixed for the marriage, A goes mad. The
contract becomes void
Exceptions
1. Difficulty of Performance. The mere fact that performance is more difficult or expensive or less
profitable than the parties anticipated does not discharge the duty of performance.
Example
X promised to send certain goods from Bombay to Antwerp in September. In August war broke out
and shipping space was not available except at very high rates. Held the increase of freight rates did
not excuse performance
2. Commercial Impossibility. It means that if the contract is performed, it will result in a loss to the
promisor. Commercial impossibility to perform a contract does not discharge the contract.
3. The promisor is not exonerated from his liability if the third person, on whose work the promisor
relied, fails to perform. Thus, a wholesaler’s contract to deliver goods is not discharged because a
man- ufacturer has not produced the goods concerned.

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4. Strikes, lockouts and Civil Disturbances. Events like these do not terminate contracts unless there
is a clause in the contract to that effect.

By Operation Of Law
Discharge under this head may take place as follows:
1. By death. Death of the promisor results in termination of the contract in cases involving personal
skill or ability.
2. By Insolvency. The Insolvency Acts provide for discharge of contracts under certain circum-
stances. So, where an order of discharge is passed by an Insolvency Court, the insolvent stands dis-
charged of liabilities of all debts incurred previous to his adjudication.
3. By merger. When between the same parties, a new contract is entered into, and a security of a
higher degree, or a higher kind is taken, the previous contract merges in the higher security, for
exam- ple, a right of action on an ordinary debt which would be merged in the right of suing on a
mortgage for the same debt.
4. By the unauthorised alteration of terms of a written document. Where any of the parties alters any
of the terms of the contract without seeking the consent of the other party to it, the contract termi-
nates.

By Breach Of Contract
A contract terminates by breach of contract. Breach of contract may arise in two ways: (a)
Anticipatory breach, and (b) Actual breach.
Anticipatory Breach of Contract: Anticipatory breach of contract occurs, when a party repudiates it
before the time fixed for performance has arrived or when a party by his own act disables himself
from performing the contract.
Examples (1) A contracts to marry B. Before the agreed date of marriage he married C. B is entitled
to sue A for breach of promise.
(2) A promised to marry B as soon as his (A‘s) father should die. During the father’s life time, A
absolutely refused to marry B. Although the time for performance had not arrived, B was held
entitled to sue for breach of promise [Frost v. Knight L.R. 7 Ex. 111.]

Consequences of Anticipatory Breach.

Where a party to a contract refuses to perform his part of the contract before the actual time arrives
the promisee may either: (a) rescind the contract and treat the contract as at an end, and at once sue
for damages, or (b) he may elect not to rescind but to treat the con- tract operative and wait for the
time of performance and then hold the other party liable for the conse- quences of non-performance.
Example: A agreed to load a cargo of wheat on B’s ship at Odessa by a particular date but when the
ship arrived A refused to load the cargo. B did not accept the refusal and continued to de- mand the
cargo. Before the last date of loading had expired the Crimean War broke out, ren- dering the
performance of the contract illegal. Held, the contract was discharged and B could not sue for
damages

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Actual Breach of Contract
The actual breach may take place (a) at the time when performance is due, or (b) during the
performance of the contract.
Actual breach of Contract, at the time when performance is due. If a person does not perform his part
of the contract at the stipulated time, he will be liable for its breach.
Breach during the Performance of the Contract. Actual breach of contract also occurs when during
the performance of the contract one party fails or refuses to perform his obligation under the con-
tract.

Remedies For Breach Of Contract

(Sections 73-75)
As soon as either party commits a breach of the contract, the other party becomes entitled to any of
the following reliefs:
1. Rescission of the Contract.
2. Damages for the loss sustained or suffered.

3. A decree for specific performance.

4. An injunction.
5. Suit on Quantum Meruit.

1. Rescission of the Contract

When a breach of Contract is committed by one party, the other party may sue to treat the contract as
rescinded. In such a case, the aggrieved party is freed from all his obligations under the contract.
Example A promises B to supply 100 bags of rice on a certain date and B promises to pay the price
on receipt of the goods. A does not deliver the goods on the appointed day, B need not pay the price.
Party rightfully rescinding contract entitled to compensation (Section 75). A person who right- fully
rescinds the contract is entitled to compensation for any damage which he has sustained through the
non-fulfilment of the contract.
2. Damages: Damages, generally speaking, are of four kinds:
● Ordinary Damages,

● Special Damages,
● Vindictive, or Punitive or Exemplary Damages, and

● Nominal Damages
Ordinary Damages (Sec. 73). Ordinary damages are those which naturally arose in the usual course
of things from such breach. The measure of ordinary damages is the difference between the contract
price and the market price at the date of the breach. If the seller retains the goods after the breach, he

46
cannot recover from the buyer any further loss if the market falls, nor be liable to have the damages
reduced if the market rises.
Example A contracts to deliver 100 bags of rice at Rs. 100 a bag on a future date. On the due date he
refuses to deliver. The price on that day is Rs. 110 per bag. The measure of damages is the difference
between the market price on the date of the breach and the contract price, viz., Rs. 1,000
Vindictive Damages. Vindictive damages are awarded with a view to punish the defendant, and not
solely with the idea of awarding compensation to the plaintiff. These have been awarded (a) for a
breach of promise to marry; (b) for wrongful dishonour of a cheque by a banker possessing adequate
funds of the customer. The measure of damages in case of (a) is dependent upon the severity of the
shock to the sentiments of the promisee. In case of (b) the rule is smaller the amount of the cheque
dis- honoured, larger will be the amount of damages awarded
Special Damages (Sec. 73). Special damages are claimed in case of loss of profit, etc. When there are
certain special or extraordinary circumstances present and their existence is communicated to the
promisor, the non-performance of the promise entitles the promisee to not only claim the ordinary
dam- ages but also damages that may result therefrom.
Nominal Damages. Nominal damages are awarded in cases of breach of contract where there is only
a technical violation of the legal right, but no substantial loss is caused thereby. The damages granted
in such cases are called nominal because they are very small, for example, a rupee or a shilling

3. Specific Performance
Where damages are not an adequate remedy, the court may direct the party in breach to carry out his
promise according to the terms of the contract. This is called ‘specific performance’ of the contract.
Some of the instances where Court may direct specific performance are: a contract for the sale of a
par- ticular house or some rate article or any other thing for which monetary compensation is not
enough because the injured party will not be able to get an exact substitute in the market.
Specific performance will not be granted where:

(a) Monetary compensation is an adequate relief.

(b) The contract is of a personal nature, e.g., a contract to marry.
(c) Where it is not possible for the Court to supervise the performance of the contract, e.g., a building
contract.
(d) The contract is made by a company beyond its objects as laid down in its Memorandum of
Association

Injunction
Injunction means an order of the Court. Where a party is in breach of a negative term of contract (i.e.
where he does something which he promised not to do), the Court may, by issuing an order, prohibit
him from doing so.

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 Examples N, a film star, agreed to act exclusively for a particular producer, for one year. During
the year she contracted to act for some other producer. Held, she could be restrained by an in-
junction.
5. Quantum Meruit
The phrase ‘Quantum Meruit’ means as much as is merited’ (earned). The normal rule of law is that
unless a party has performed his promise in its entirely, it cannot claim performance from the other.
To this rule, however, there are certain exceptions on the basis of ‘Quantum Meruit’. A right to sue
on a ‘quantum meruit’ arises where a contract, partly performed by one party, has become
discharged by the breach of the other party.

Quasi Contracts
A quasi contract is an obligation invoked by law in the absence of an agreement. Its purpose is to
create a legal duty where, in fact, no agreement was entered into by the parties. Quasi contracts are
based on the principle of equity and justice. It simply states that nobody shall enrich himself unjustly
at the expense of another.
Example:
A is knocked down by a vehicle. B, a stranger, who found A on the road in unconscious state,
takes A to doctor. The doctor provides treatment to A, who is In a unconscious state. In such a
situation, there is no contract between A and doctor and A claims that he is not liable to pay for the
services offered by the doctor, as he was unconscious at the time of treatment and there is no
agreement between the two.
Application:
In such a situation, the theory of quasi contract applies. In this case the doctor has spent
his valuable time for the treatment of accident victim(A) and so, A is liable to pay for the services of
the doctor. If A fails to do so, the court can apply the doctrine of quasi contract and order A to pay.
This is to prevent the unjust enrichment of A at the expense of doctor.
Liability:
The main question that arises in such situations is the liability of the defendant. As the aim of
this doctrine is to prevent unjust enrichment of one party, at the expense of the other,
The damages are usually restricted to the value of services rendered or the cost of the goods
delivered. If the damages exceed that value, the whole concept of quasi contract will be defeated, as
it will be unfair for the defendant.
Under contract act 1872
Section 68 to 72 deals with “certain relations resembling those created by contract” under the
contract act 1872.There are five kinds of quasi contractual obligations for which brief discussion is
discussed below.

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1. Supply of necessaries (sec. 68)
If necessaries are supplied to a person who is incompetent to contract or to someone whom he is
legally pound to support, the supplier is entitled to recover the price from the property of the
incompetent person. The necessaries must be suited to conditions of life of the incompetent person.
Example: A supplies B, a lunatic, with necessaries suitable to his conditions in life. A is entitled to
be reimbursed from B’s property.
Example: A supplies the wife and children of B, a lunatic with necessaries suitable to their condition
in life. A is entitled to be reimbursed from B’s property.
2. Payment by an interested person: (sec. 69)
“A person who is interested in the payment of money which another is bound by law to pay, is
entitled to be reimbursed by the other.
The conditions of liability under this section are:
▪ Plaintiff should be interested in making payment to protect his interest. The interest should be
legally recognizable.
▪ It is necessary that the plaintiff himself should not be bound to pay.

▪ The defendant should have been ‘bound by law’ to pay the money.
▪ The plaintiff should have made the payment to another person.

Example: A holds land on lease granted by B, the zamindar. The revenue payable by B to the
Government being in arrear, his land is advertised for sale by the Government. Under the revenue
law, the result of such sale will be the annulment of A’S lease. A wants to prevent the sale and his
own lease, pays the sum due from B. B is bound to make good to B the amount so paid.
3. Liability to pay for non-gratuitous acts: (sec. 70)

Section 70 states ”where a person lawfully does anything for any other person, or delivers anything
to him, not intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter
is bound to make compensation to the former in respect of or to restore the thing so done or
delivered.”
Example: A, a tradesman, leaves goods at B’s house by mistake. B treats the goods as his own. He is
bound is bound to pay A for them.
Example: A saves B’s property from fire. A is not entitled to compensation from B, if circumstances
show that he intended to act gratuitously.
4. Responsibility of finder of goods: (sec.71)

“A person who finds goods belonging to another and takes them into his custody, is subject to the
same as a bailee.”
Thus in respect of duties and liabilities, a finder is treated as bailee.

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The rights of a finder of goods include the following:
▪ He can sue the owner for the specific reward announced for the return of goods and recover
the reward.
▪ He is entitled to recover his lawful charges incurred in preserving the goods and in order to
find the true owner.
▪ He can sell the goods if
a) The goods are perishable in nature.
b) His lawful charges exceed two third of the value of goods.

c) When after due search, the true owner cannot be found.

d) Even if the true owner is found out, but he refuses to pay the lawful charges to the
finder.

5. Mistake or Coercion (sec.72)

sec. 72 states, “A person to whom money has been paid, or anything delivered by mistake or under
coercion, must repay or return it.”
Example:A and B jointly owe Rs. 100 to C. A alone pays the amount to C, and B, not knowing this
fact pays Rs. 100 again to C. C is bound to repay the amount to B.
Money paid under mistake is recoverable whether the mistake is of fact or law.
Example: A railway company refuses to deliver up certain goods to the consignee, except upon the
payment of an illegal charge for carriage. The consignee pays the sum charged in order to obtain the
goods. He is entitled to recover so much of the charges as was illegally excessive.

Important questions:
2 marks
1. Define novation
2. What is the meaning of the term Quantum Meruit
3. What does rescission with respect to the discharge of contract mean?

4. Define a quasi -contract.

8 marks
1. What the different types of quasi contracts?

2. Discuss the important remedies for the breach of contract

3. What does mutual consent mean? In what ways a contract is discharged with mutual consent?

15 marks
1. Discuss all the methods for the discharge of a contract.

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 SALE OF GOODS ACT, 1930
Till 1930, transactions relating to sale and purchase of goods were regulated by the Indian Contract
Act, 1872. In 1930, Sections 76 to 123 of the Indian Contract Act, 1872 were repealed and a
separate Act called ‘The Indian Sale of Goods Act, 1930 was passed. It came into force on 1st July,
1930. With effect from 22nd September, 1963, the word ‘Indian’ was also removed. Now, the
present Act is called ‘The Sale of Good Act, 1930’. This Act extends to the whole of India except
the State of Jammu and Kashmir.
According to Section 3, the provisions of the Indian Contract Act, 1872, still continue to
apply to contracts for the sale of goods except where ‘The Sale of Goods Act’, 1930 provides for the
contrary.
Meaning of contract of Sale
According to Section 4(1) of the Sale of Goods Act, 1930, “Contract of sale of goods is a
contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a
price”. ‘Contract of Sale’ is a generic term which includes both a sale as well as an agreement to
sell.
Essential Elements of Contract of Sale

The aforesaid definition clearly indicates the essential elements shown below .

There must be a seller as well as a buyer. ‘Buyer’ means a person who buys or agrees to buy goods
[Section 2(1)]. ‘Seller’ means a person who sells or agrees to sell goods [Section 2(13)].
‘Good’ means every kind of movable property other than actionable claims and money.
Property means the General property in goods, and not [Section 2(11)]. General property in goods
means ownership of the goods.
There must be a price. Price here means the money consideration for a sale of goods [Section 2(10)].
When the consideration is only goods, it amount to a ‘barter’ and not sale.

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In addition to the aforesaid specific essential elements, all the essential elements of a valid contract
as specified under Section 10 of Indian Contract Act, 1872 must also be present.
DISTINCTION BETWEEN SALE AND AGREEMENT TO SELL
What does ‘Contract of Sale’ Include
The term ‘Contract of Sale’ includes both a ‘sale’ and ‘agreement to sell’ as shown below.

When does Agreement to Sell become Sale [Section 4(4)].

An Agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to
which the ownership in the goods, is to be transferred.

Distinction between Sale and Agreement to Sell

Agreement to Sell’ Sale Basis of distinction

Transfer of ownership of Transfer of ownership of goods 1. Transfer of ownership

goods is to take place at a takes place immediately
future time or subject to
fulfillment of some condition

It is an executory contract It is an executed contract 2. Executed contract or

because something remains because nothing remains to be Executory contract
to be done. done.

Buyer does not get such right
to enjoy the goods. It only
creates jus in personam
(Right against the person).
Buyer gets a right to enjoy the 3. Conveyance of property
goods against the whole world
including seller. There fore, a
sale creates jus in rem (Right
against property).

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 Transfer of risk of loss of
goods does not take place
because ownership is not
transferred. As a result, in
case of destruction of goods,
the loss shall be borne by the
seller even though the goods
are in the possession of the
buyer.
Transfer of risk of loss of goods 4. Transfer of risk
takes place immediately because
ownership is transferred. As a
result, in case of destruction of
goods, the loss shall be borne by
the buyer even though the goods
are in the possession of the
seller.

Seller can sue the buyer for Seller can sue the buyer for the 5. Rights of seller against
damages even though the price even though the goods are the buyer’s breach
goods are in the possession in his possession.
of the buyer.

Buyer can sue the seller for Buyer can sue the seller for 6. Rights of buyer against
damages only damaged and can sue the third the seller’s breach
party who bought those goods,
for goods.

Buyer cannot claim the Buyer can claim the goods from 7. Effect of insolvency of
goods even when he has paid the official receiver or assignee seller having possession of
the price because the because the ownership of goods goods
ownership has not transferred has transferred to the buyer.
to the buyer. The buyer who
has paid the price can only
claim rateable dividend.

Seller can refuse to deliver
the goods unless he is paid
full price of the goods
because the ownership has
not transferred to the buyer.
Seller must deliver the goods to 8. Effect of insolvency of
the official receiver or assignee the buyer before paying
because the ownership of goods the price
has transferred to the buyer. He
can only claim rateable dividend
for the unpaid price.

Meaning of Goods [Section 2(7)]

Goods means every kind of movable property other than actionable claims and money, and
includes the following:
(a) Stock and shares
(b) Growing crops, grass and thing attached to or forming part of the land which are agreed to be
served before sale or under the Contract of Sale.

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Types of Goods:
● Existing goods mean the goods which are either owned or possessed by the seller at the time
of contract of sale.
● Future goods [Section 2(6)] Future goods mean goods to be manufactured or produced or
acquired by the seller after the making of the contract of sale.
These are the goods the acquisition of which by the seller depends upon a contingency which may or
may not happen.

Conditions And Warranties

It is usual for both seller and buyer to make representations to each other at the time of entering into
a contract of sale. Some of these representations are mere opinions which do not form a part of
contract of sale. Whereas some of them may become a part of contract of sale. Representations
which become a part of contract of sale are termed as stipulations which may rank as condition and
warranty e.g. a mere commendation of his goods by the seller doesn’t become a stipulation and gives
no right of action of the buyer against the seller as such representations are mere opinion on the part
of the seller. But where the seller assumes to assert a fact of which the buyer is ignorant, it will
amount to a stipulation forming an essential part of the contract of sale.
Meaning of Stipulation [Section 12(1)]
A stipulation in a contract of sale of goods may be a condition or warranty [Section 12(1)].

Meaning of Condition [Section 12(2)]

A condition is a stipulation
(a) Which is essential to the main purpose of the contract, and

(b) The breach of which gives the aggrieved party a right to terminate the contract.
Meaning of Warranty [Section 12(3)]
A warranty is a stipulation

(a) Which is collateral to the main purpose of the contract, and

(b) The breach of which gives the aggrieved party a right to claim damages but not right to reject
goods and to terminate the contract.
When condition to be treated as warranty [Section 13]
In the following three case, a breach of a condition is treated as a breach of a warranty:
(a) Where the buyer waives a condition: once the buyer waives a condition, he cannot insist one its
fulfillment e.g. accepting defective goods or beyond the stipulated time amounts to waiving a
condition.

(b) Where the buyer elects to treat breach of the condition as a breach of warranty; e.g. where he
claims damages instead of repudiating the contract.

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(c) Where the contract is not severable and the buyer has accepted the goods or part thereof, the
breach of any condition by the seller can only be treated as a breach of warranty. It can not be
treated as a ground for rejecting the goods unless otherwise specified in the contract. Thus, where
the buyer after purchasing the goods finds that some condition is not fulfilled, he cannot reject the
goods. He has to retain the goods entitling him to claim damages.
Express and implied conditions and warranties
In a contract of sale of goods, conditions and warranties may be express or implied.
(a) Express Conditions and Warranties These are expressly provided in the contract. For example, a
buyer desires to buy a SONY TV Model No. 2062. Here, model no. is an express condition. In an
advertisement for Khaitan fans, guarantee for 5 years is an express warranty.
(b) Implied Conditions and Warranties These are implied by law in every contract of sale of goods
unless a contrary intention appears from the terms of the contract.

Meaning of the Doctrine of Caveat Emptor [Section 16]

The expression ‘Caveat Emptor’ means ‘let the buyer beware’. The doctrine of caveat
emptor has been given in the first para of Section 16 which reads as under:
“Subject to the provisions of this Act and any other la for the time being in force, there is no implied
warranty or condition as to the quality or fitness for ny particular purpose of good supplied under a
contract of sale”.
In other words, it is not part of the seller’s duty to point out defects of the goods which he offers for
sale, rather it is the duty of the buyer to satisfy himself about the quality as well as the suitability of
the goods.

Exceptions to the Doctrine of Caveat Emptor

The doctrine of caveat emptor is subject to the following exceptions shown.
● In Case of Misrepresentation by the Seller Where the seller makes a misrepresentation and
the buyer relies on that representation.
● In Case of Concealment of Latent Defect Where the seller knowingly conceals a defect which
would not be discovered on a reasonable examination.

● In Case of Sale by Description [Section 15] Where the goods are sold by description and the
goods supplied by the seller do not correspond to the description.
● In Case of Sale by Sample [Section 17] Where the goods are sold by sample and the goods
supplied by the seller do not correspond with the sample.

● In Case of Sale by Sample as well as Description [Section 15] Where the goods are sold by
sample as well as description and the goods supplied do not correspond with sample as well
as description.

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Rules as to delivery of goods
1. Mode of delivery (Sec. 33). Delivery should have the effect of putting the goods in the
possession of the buyer or his duly authorised agent. Delivery of goods may be (1) actual, (2)
constructive, or (3) symbolic.
2. Delivery and payment - concurrent conditions. Delivery of the goods and payment of the
price must be according to the terms of the contract. Unless otherwise agreed, delivery of the goods
and payment of the price are concurrent conditions, that is to say, the seller shall be ready and willing
to give possession of the goods to the buyer in exchange for the price and the buyer shall be ready
and willing to pay the price in exchange for possession of the goods (Sec. 32).
3. Effect of part delivery. A delivery of part of the goods in progress of the delivery of the whole,
has the same effect, for the purpose of passing the property in such goods, as a delivery of the whole.
But a delivery of the goods, with an intention of severing it from the whole, does not operate as
delivery of the remainder (Sec. 34).
4. Buyer to apply for delivery. Apart from any express contract, the seller of goods is not bound to
deliver them until the buyer applies for delivery (Sec. 35). Where the goods are subsequently
acquired by the seller, he should intimate this the buyer and the buyer should then apply for
delivery. Unless otherwise agreed, the buyer has not cause of action against the seller if he does not
apply for delivery.
5. Place of delivery. Where the place at which delivery of the goods is to take place is specified in
the contract, the goods must be delivered at that place during business hours on a working day.
Where there is no specific agreement as to place, the goods sold are to be delivered at the place at
which they are at the time of sale. As regards the goods agreed to be sold, they are to be delivered at
the place at which they are at the time of agreement to sell, or if not then in existence, at the place at
which they are manufactured or produced (Sec. 36(1).
6. Time of delivery. Where under the contract of sale the seller is bound to send the goods to the
buyer, but no time for sending them is fixed, the seller is bound to send them within a reasonable
time (Sec. 36 (2). But where the contract uses words like “directly”, “without loss of time”, or
“forthwith”, quick and immediate delivery is contemplated. Demand or tender of delivery should be
made at a reasonable hour. What is a reasonable hour is a question of fact (Sec. 36 (4).
7. Goods in possession of a third party. When at the time of the sale the goods re with a third party,
there is no delivery by the seller to the buyer until such third party acknowledges to the buyer that he
holds them on his behalf. But where the goods have been sold by the issue or transfer of any
document of title to goods. E.g.. a receipt or a bill of lading, such third party’s consent is not
required (Sec. 36 (3).
8. Cost of delivery. Unless otherwise agreed. All expenses of and incidental to making of delivery
are borne by the seller, but all expenses of and incidental to obtaining of delivery are borne by the
buyer (Sec. 36 (5).
9. Delivery of wrong quantity (Sec. 37). The delivery of the quantity of goods contracted for should
be strictly according to the terms of the contract. A defective delivery entitles the buyer to reject the

56
goods. The three different contingencies which may arise in case of a defective delivery. I.e.,
delivery of a wrong quantity.
RIGHTS OF AN UNPAID SELLER
‘Seller’ here means not only the actual seller, but also any person who is in the position of a seller,
e.g., an agent of the seller to whom a bill of lading has been endorsed, or a consignee or agent who
has himself paid for the goods or is directly responsible for the price [Sec. 45(2)].

Important Questions
2 marks
1. Define the term contract of sale.
2. What is a condition?

3. What does price I the sale of goods refer to?

8 marks
1. State the legal rules for the sale of goods as stated in the act.

2. What are the essential characteristics of a Contract of sale of goods?

3. Differentiate between sale and an agreement to sell
4. What are the different types of goods?

5. Explain the characteristic features of Conditions and Warranties.

6. What is the doctrine of Caveat Emptor? What are the exceptions of this?
*******************************

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 CONSUMER PROTECTION ACT 1986
The Act has been passed to protect the interests of consumers and to establish the consumer councils
and other authorities to settle the consumers’ disputes and other related matters. Before discussing
the provisions of this Act, it is better to have an idea about the different terms used in this Act like,
consumer, consumer dispute etc. In this section, we will discuss some of the definitions as given by
this Act which is essential to interpret the provisions of the Act.
Consumer

According to Section 2 (1) (d) of the Act ‘consumer’ means any person who
i. Buys any goods for a consideration, which has been paid or promised or partly paid and partly
promised. It also includes
a) User of such goods who is using the goods with permission of the buyer or
b) Person who has obtained goods under any system of deferred payment. Person who has obtained
goods for resale or for commercial purposes is not covered under this section.
ii. Hires or avails any services for a consideration, which has been paid or promised or partly paid
and partly promised. It also includes
a) Beneficiary of services who has availed the services with approval of the person who has hired the
services
b) A person who has hired or availed services under any system of deferred payment.
An important aspect of this definition is that those persons who buy goods for commercial purposes
are not considered as ‘consumer’ under this Act. But if a person buys goods for self- employment
that will not be treated as commercial purpose and therefore, that person will be considered as
‘consumer’ under this Act. Therefore, a ‘consumer’ under this Act will include person-
1.who buys any goods for personal use or avails services for consideration;
2.who uses such goods or services with the permission of the buyer;
3.who obtains goods or avail services on deferred payment basis;

4.who obtains goods for self- employment.

Consumer Dispute
According to Section 2 (1)(e) of the Act, ‘Consumer Dispute’ means a dispute where the person
against whom a complaint has been made, denies or disputes the allegations contained in the
complaint.
If the person agrees to the complaint, there is no consumer dispute.

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Complainant
According to Section

2 (1) (b) complainant means

i. a consumer; or
ii. any voluntary consumer association registered under the Companies Act or under any other law
for the time being in force; or
iii. the Central Government or any State Government, who or which makes a complaint
iv. one or more consumers, where there are numerous consumers having the same interest.

v. in case of death of a consumer, his legal heirs or representative, who or which makes a complaint.
From the definition of ‘complainant’ it is clear that an individual consumer as well as consumer
associations can make a complaint.

Defect
According to Section 2 (1) (f) of the Act, ‘defect’ means any fault, imperfection or shortcoming in
the quality, quantity, potency, purity or standard which is required to be maintained by or under any
law for the time being in force or under any contract, express or implied, or as is claimed by the
trader in any manner whatsoever in relation to any goods.
Deficiency
According to Section 2 (1) (g) of the Act, ‘deficiency’ means any fault, imperfection or shortcoming
in the quality, quantity, potency, purity or standard that is required to be maintained by or under any
law for the time being in force or has been undertaken to be performed by a person in pursuance of a
contract or otherwise in relation to any service.
Services
Section 2 (O) of the Act defines ‘services’ as
“Service of any description, which is made available to potential users and includes any provision of
facilities in connection with banking, financing, insurance, transport, processing, supply of electrical
or other energy, board or lodging or both, housing construction, entertainment, amusement or the
purveying a news or other information, but does not include rendering of any service free of charge
or under a contract of personal service.”

Goods
‘Goods’ under this Act has the same meaning as per the Sale of Goods Act, 1930, which we have
discussed in unit 2 (Sale of Goods Act, 1930).

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The Act provides for the establishment of three consumer forums at three levels i.e.
1. District Forum at district level

2. State Consumer Disputes Redressal Commission at state level

3. National Commission at the national level.

District Forum
A District Forum will be established in each district and the responsibility of establishing district
forums lies with the respective State Governments.
Jurisdiction of District Forum

The district forum has jurisdiction to decide consumer disputes where the value of goods and
services and the compensation claimed does not exceed Rs. 20 lakhs.
Composition of District Forum

According to the provisions of the Act, each district forum shall consist of–
1. a President, who has been or is qualified to be a district judge; and
2. two other members, one of whom must be a woman. The members shall be of not less than 35
years of age ; possess a bachelor degree from a recognized university and persons of ability, integrity
and standing having knowledge or experience of problems relating to economics, law, commerce,
accountancy, industry, public affairs or administration.
The salary and other terms and conditions of the job of the members are prescribed by the State
Government.
Tenure of the members
All the members of district forum shall be in office for 5 years or up to the age of 65 years,
whichever is earlier. Any member can resign his office by addressing the letter to State Government.

3. State Consumer Disputes Redressal Commission

The State Consumer Disputes Redressal Commission or State Commission is established by the State
Governments in the respective states by notification [ section 9(b)].
Jurisdiction of State Commission
The State Commission has original jurisdiction to decide consumer disputes where the value of
goods and services and the compensation claimed exceed Rs. 20 lakhs but does not exceed Rs. 1
crore.
The Commission has appellate jurisdiction against the orders of the district forums within the state.
Revisional jurisdiction empowers the Commission to call for records and pass appropriate orders in
any consumer dispute that is pending or has been decided by district forum, if the State Commission
is of the view that district forum is exercising jurisdiction not vested in it or not exercising the
jurisdiction.
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Composition of the State Commission
According to the provisions of the Act, each State Commission shall consist of –

1. a President, who has been or is qualified to be a judge of High Court; and

2. two other members, one of whom must be a woman [section 10(1)]. The members shall be persons
of ability, integrity and standing having knowledge or experience of problems relating to economics,
law, commerce, accountancy, industry, public affairs or administration.
The salary and other terms and conditions of the job of the members are prescribed by the State
Government.
Tenure of the members
All the members of State Commission shall be in office for 5 years or up to the age of 67 years,
whichever is earlier. Any member can resign his office by addressing the letter to the State
Government [section 16(3)].

National Commission
The Central Government has established a National Commission at national level to redress
consumer disputes [section 9( c)].
Jurisdiction of National Commission
The National Commission has original jurisdiction to decide consumer disputes where the value of
goods and services and the compensation claimed exceed Rs. 1 crore.
The National Commission has appellate jurisdiction against the original orders of any State
Commission.
The National Commission has revisional jurisdiction to call for records and pass appropriate orders
in any consumer dispute that is pending or has been decided by any State Commission, if the
National Commission is of the view that the State Commission is exercising jurisdiction not vested
in it or not exercising the jurisdiction.
Composition of the National Commission

According to the provisions the Act, the National Commission shall consist of –
1. a President, who has been or is qualified to be a judge of Supreme Court; and
2. four other members, one of whom must be a woman. The members shall be not less than 35 years
of age, posses a bachelor’s degree from a recognized university and persons of ability, integrity and
standing having knowledge or experience of problems relating to economics, law, commerce,
accountancy, industry, public affairs or administration. Provided that not more than fifty percent of
the member shall be from amongst the persons having a judicial background (section 20).
The salary and other terms and conditions of the job of the members are prescribed by the Central
Government.
Tenure of the members
61
All the members of the National Commission shall be in office for 5 years or up to the age of 70
years, whichever is earlier [section 20(2)]. Any member can resign his office by addressing the letter
to the Central Government.
Appeal against original orders of National Commission can be made with Supreme Court.

Procedure of Filing a compliant

A complaint can be filed by a complainant within two years from the date on which the cause of the
dispute arose. However, the consumer forums i.e. District Forum, State Commission or National
Commission can accept any complaint even after such period, if sufficient cause exists for such
delay.
On receipt of a complaint, the District Forum/ State Commission/ National Commission sent a copy
of the complaint to the opposite party. The opposite party is asked to give his reply within 30 days,
which can further be extended by another 15 days.
If the nature of defect in goods is such that it can not be properly determined without laboratory
testing, the redressal agency will sent the defected goods to the appropriate laboratory.
If no laboratory testing is required in respect of the complaint, then the redressal agency will decide
the case on the basis of the evidence submitted by the complainant and the opposite party.
If the complaint is made to the District Forum i.e. when the value of goods and services and the
compensation claimed does not exceed Rs. 20 lakhs and if any of the party to the complaint is not
satisfied with the order given by the Forum, then the aggrieved party can make an appeal within 30
days against such order to the State Commission. However, the State Commission can extend the
period if sufficient cause exist for not filing the appeal within 30 days. The order made by the State
Commission in respect of the appeal is final and no further appeal can be made against the order of
the State Commission to the National Commission.
If a complaint is directly filed with the State Commission i.e. where the value of goods and services
and the compensation claimed exceed Rs. 20 lakhs but does not exceed Rs. 1 crore, then an appeal
against the order of the State Commission can be made to the National Commission. In such cases,
the order of the National Commission is final and no further appeal can be made.
If a complaint is directly made to the National Commission i.e. where the value of goods and
services and the compensation claimed exceed Rs. 1 crore, then an appeal against the order of the
National Commission can be made to the Supreme Court.
In filing a complaint, the complainant can personally file the complaint or it can be sent by post. The
complaint must contain names and addresses of the complainant and the opposite party, facts relating
to complaint, documents in support of such complaint and compensation being claimed. The
complainant is not required to pay any fee.
If the opposite party fails to give a written reply, he can make an oral representation of his case.
Consumer Protection Councils:

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Establishment of consumer protection councils is another important provision of the Consumer
Protection Act. The consumer protection councils are in addition to the consumer disputes Redressal
agencies. The Act provides for the formation of Central Consumer Protection Council at National
level and State Consumer Protection Councils in each state. The Councils are advisory in nature.
The principal object of the Councils is to protect the rights of the consumers like,

● Right of protection against marketing of hazardous goods;

● Right to be informed about quality, quantity, potency, purity, standard and price of goods or
services;
● Right to access to variety of goods and services at competitive rates;

● Right to be heard in appropriate forums; etc.

● Right to education and Right against exploitation.

The Central Consumer Protection Council

(1) The Central Government may, by notification, establish with effect from such date as it may
specify in such notification, a council to be known as the Central Consumer Protection Council
(hereinafter referred to as the Central Council).
(2) The Central Council shall consist of the following members, namely,-

(a) the Minister in charge of 1[consumer affairs] in the Central Government, who shall be its
Chairman, and
(b) such number of other official or non-official members representing such interests as may be
prescribed.

The State Consumer Protection Councils

(1) The State Government may, by notification, establish with effect from such date as it may specify
in such notification, a council to be known as the Consumer Protection Council (hereinafter referred
to as the State Council).
1[(2) The State Council shall consist of the following members, namely,-
(a) the Minister in-charge of consumer affairs in the State Government who shall be its Chairman;
(b) such number of other official or non-official members representing such interests as may be
prescribed by the State Government.
(3) The State Council shall meet as and when necessary but not less than two meetings shall be held
every year.
(4) The State Council shall meet at such time and place as the Chairman may think fit and shall
observe such procedure in regard to the transaction of its business as may be prescribed by the State
Government.

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Important Questions
2 marks
1. Define consumer.
2. What is a complaint?
3. Who is a complainant?

4. What are the different Redressal forums set up as per the Consumer Protection Act?

8 marks
1. State the objectives of the Consumer Protection Act.

2. Explain the consumer rights. Who is responsible for upholding the consumer rights?
3. What is the composition and functions of the District forum and State Commission?
4. Explain the composition and functions of the state and the central consumer protection
council.

15 marks
1. Explain the process of filing a complaint in the National Commission.

2. What are the functions of the Redressal forums?

********************************

64
 COMPETITION ACT 2002
A law was needed in India which ensure the implementation of free economic policies and free flow
of resources which protect the fair competition and restrict the anti-competitive practices. To
emphasis on this aspect the Competition act of 2002 was enacted . It extends to the whole of India
except the State of Jammu and Kashmir. It shall come into force on such date as the Central
Government may, by notification in the Official Gazette, appoint:
Provided that different dates may be appointed for different provisions of this Act and any reference
in any such provision to the commencement of this Act shall be construed as a reference to the
coming into force of that provision.

Definitions under this act :

acquisition" means, directly or indirectly, acquiring or agreeing to acquire—
(i) shares, voting rights or assets of any enterprise; or

(ii) control over management or control over assets of any enterprise;

(b) "agreement" includes any arrangement or understanding or action in concert,—
(i) whether or not, such arrangement, understanding or action is formal or in writing; or

(ii) whether or not such arrangement, understanding or action is intended to be enforceable by

legal proceedings;
(b)“Appellate Tribunal” means the Competition Appellate Tribunal established under sub-section (1)
of Section 53A”]
(c)"cartel" includes an association of producers, sellers, distributors, traders or service providers
who, by agreement amongst themselves, limit, control or attempt to control the production,
distribution, sale or price of, or, trade in goods or provision of services;
"Director General" means the Director General appointed under sub-section (1) of section 16 and
includes any Additional, Joint, Deputy or Assistant Directors General appointed under that section;
CHAPTER II

Prohibition Of Certain Agreements, Abuse Of Dominant, Position And Regulation Of

Combinations
Prohibition of agreements
Anti-competitive agreements
No enterprise or association of enterprises or person or association of persons shall enter into
any agreement in respect of production, supply, distribution, storage, acquisition or control of goods
or provision of services, which causes or is likely to cause an appreciable adverse effect on
competition within India.

65
 Any agreement entered into in contravention of the above said provisions, shall be void.Any
agreement entered into between enterprises or associations of enterprises or persons or associations
of persons or between any person and enterprise or practice carried on, or decision taken by, any
association of enterprises or association of persons, including cartels, engaged in identical or similar
trade of goods or provision of services, which—
● directly or indirectly determines purchase or sale prices;
● limits or controls production, supply, markets, technical development, investment or
provision of services;
● shares the market or source of production or provision of services by way of allocation of
geographical area of market, or type of goods or services, or number of customers in the
market or any other similar way;

● directly or indirectly results in bid rigging or collusive bidding,

● shall be presumed to have an appreciable adverse effect on competition:

Provided that nothing contained in this sub-section shall apply to any agreement entered into by way
of joint ventures if such agreement increases efficiency in production, supply, distribution, storage,
acquisition or control of goods or provision of services.

Explanation.— "bid rigging" means any agreement, between enterprises or persons referred to in
sub-section (3) engaged in identical or similar production or trading of goods or provision of
services, which has the effect of eliminating or reducing competition for bids or adversely affecting
or manipulating the process for bidding
Any agreement amongst enterprises or persons at different stages or levels of the production chain in
different markets, in respect of production, supply, distribution, storage, sale or price of, or trade in
goods or provision of services, including—
(a) tie-in arrangement;

(b) exclusive supply agreement;

(c) exclusive distribution agreement;
(d) refusal to deal;

(e) resale price maintenance,

shall be an agreement in contravention of sub-section (1) if such agreement causes or is likely to
cause an appreciable adverse effect on competition in India.
Explanation. "tie-in arrangement" includes any agreement requiring a purchaser of goods, as a
condition of such purchase, to purchase some other goods;
"exclusive supply agreement" includes any agreement restricting in any manner the purchaser in the
course of his trade from acquiring or otherwise dealing in any goods other than those of the seller or
any other person;

66
"exclusive distribution agreement" includes any agreement to limit, restrict or withhold the output or
supply of any goods or allocate any area or market for the disposal or sale of the goods;
"refusal to deal" includes any agreement which restricts, or is likely to restrict, by any method the
persons or classes of persons to whom goods are sold or from whom goods are bought;
"resale price maintenance" includes any agreement to sell goods on condition that the prices to be
charged on the resale by the purchaser shall be the prices stipulated by the seller unless it is clearly
stated that prices lower than those prices may be charged.
(5) Nothing contained in this section shall restrict—

the right of any person to restrain any infringement of, or to impose reasonable conditions, as may be
necessary for protecting any of his rights which have been or may be conferred upon him under—
(a) the Copyright Act, 1957 (14 of 1957);

(b) the Patents Act, 1970 (39 of 1970);

(c) the Trade and Merchandise Marks Act, 1958 (43 of 1958) or the Trade Marks Act, 1999 (47 of
1999);
(d) the Geographical Indications of Goods (Registration and Protection) Act, 1999 (48 of 1999);
(e) the Designs Act, 2000 (16 of 2000);
(f) the Semi-conductor Integrated Circuits Layout-Design Act, 2000 (37 of 2000);

(ii) the right of any person to export goods from India to the extent to which the agreement relates
exclusively to the production, supply, distribution or control of goods or provision of services for
such export.

Prohibition of abuse of dominant position

Abuse of dominant position

4. [3][(1)No enterprise or group] shall abuse its dominant position.]

(2) There shall be an abuse of dominant position [4][under sub-section (1), if an enterprise or a
group].—-
(a) directly or indirectly, imposes unfair or discriminatory—
(i) condition in purchase or sale of goods or service; or
(ii) price in purchase or sale (including predatory price) of goods or service.

Explanation - the unfair or discriminatory condition in purchase or sale of goods or service referred
to in sub-clause (i) and unfair or discriminatory price in purchase or sale of goods (including
predatory price) or service referred to in sub-clause (ii) shall not include such discriminatory
condition or price which may be adopted to meet the competition; or
(b) limits or restricts—

67
(i) production of goods or provision of services or market therefor; or
(ii) technical or scientific development relating to goods or services to the prejudice of consumers;
or
(c) indulges in practice or practices resulting in denial of market access [5][in any manner]; or
(d) makes conclusion of contracts subject to acceptance by other parties of supplementary
obligations which, by their nature or according to commercial usage, have no connection with the
subject of such contracts; or
(e) uses its dominant position in one relevant market to enter into, or protect, other relevant market.

Explanation.— (a) "dominant position" means a position of strength, enjoyed by an enterprise, in the
relevant market, in India, which enables it to—
(i) operate independently of competitive forces prevailing in the relevant market; or

(ii) affect its competitors or consumers or the relevant market in its favour.
(b) "predatory price" means the sale of goods or provision of services, at a. price which is below the
cost, as may be determined by regulations, of production of the goods or provision of services, with a
view to reduce competition or eliminate the competitors.
[6][(c)“group” shall have the same meaning as assigned to it in clause (b) of the Explanation to
section 5.]

Regulation of combinations
Combination

The acquisition of one or more enterprises by one or more persons or merger or amalgamation of
enterprises shall be a combination of such enterprises and persons or enterprises, if—
any acquisition where—

the parties to the acquisition, being the acquirer and the enterprise, whose control, shares, voting
rights or assets have been acquired or are being acquired jointly have,—
(A) either, in India, the assets of the value of more than rupees one thousand crores or turnover more
than rupees three thousand crores; or
(B)[7][in India or outside India, in aggregate, the assets of the value of more than five hundred
million US dollars, including at least rupees five hundred crores in India, or turnover more than
fifteen hundred million US dollars, including at least rupees fifteen hundred crores in India; or]
● the group, to which the enterprise whose control, shares, assets or voting rights have been
acquired or are being acquired, would belong after the acquisition, jointly have or would
jointly have,—
(A)either in India, the assets of the value of more than rupees four thousand crores or turnover more
than rupees twelve thousand crores; or

68
(B)[8][in India or outside India, in aggregate, the assets of the value of more than two billion US
dollars, including at least rupees five hundred crores in India, or turnover more than six billion US
dollars, including at least rupees fifteen hundred crores in India; or]
● acquiring of control by a person over an enterprise when such person has already direct or
indirect control over another enterprise engaged in production, distribution or trading of a
similar or identical or substitutable goods or provision of a similar or identical or
substitutable service, if—

● the enterprise over which control has been acquired along with the enterprise over which the
acquirer already has direct or indirect control jointly have,—

(A) either in India, the assets of the value of more than rupees one thousand crores or turnover more
than rupees three thousand crores; or
(B) [9][in India or outside India, in aggregate, the assets of the value of more than five hundred
million US dollars, including at least rupees five hundred crores in India, or turnover more than
fifteen hundred million US dollars, including at least rupees fifteen hundred crores in India; or]
● the group, to which enterprise whose control has been acquired, or is being acquired, would
belong after the acquisition, jointly have or would jointly have,—
(A) either in India, the assets of the value of more than rupees four thousand crores or turnover more
than rupees twelve thousand crores; or
(B) [10][in India or outside India, in aggregate, the assets of the value of more than two billion US
dollars, including at least rupees five hundred crores in India, or turnover more than six billion US
dollars, including at least rupees fifteen hundred crores in India; or]
(c) any merger or amalgamation in which—
● the enterprise remaining after merger or the enterprise created as a result of the
amalgamation, as the case may be, have,—
(A) either in India, the assets of the value of more than rupees one thousand crores or turnover more
than rupees three thousand crores; or
(B) [11][in India or outside India, in aggregate, the assets of the value of more than five hundred
million US dollars, including at least rupees five hundred crores in India, or turnover more than
fifteen hundred million US dollars, including at least rupees fifteen hundred crores in India; or]
● the group, to which the enterprise remaining after the merger or the enterprise created as a
result of the amalgamation, would belong after the merger or the amalgamation, as the case
may be, have or would have,—
(A) either in India, the assets of the value of more than rupees four-thousand crores or turnover more
than rupees twelve thousand crores; or
(B)[12][in India or outside India, in aggregate, the assets of the value of more than two billion US
dollars, including at least rupees five hundred crores in India, or turnover more than six billion US
dollars, including at least rupees fifteen hundred crores in India;]
69
Explanation.— For the purposes of this section,—
(a) "control" includes controlling the affairs or management by—

(i) one or more enterprises, either jointly or singly, over another enterprise or group;
(ii) one or more groups, either jointly or singly, over another group or enterprise;
(b) "group" means two or more enterprises which, directly or indirectly, are in a position to —

(i) exercise twenty-six per cent. or more of the voting rights in the other enterprise; or
(ii) appoint more than fifty per cent. of the members of the board of directors in the other enterprise;
or
(iii) control the management or affairs of the other enterprise;
(c) the value of assets shall be determined by taking the book value of the assets as shown, in the
audited books of account of the enterprise, in the financial year immediately preceding the financial
year in which the date of proposed merger falls, as reduced by any depreciation, and the value of
assets shall include the brand value, value of goodwill, or value of copyright, patent, permitted use,
collective mark, registered proprietor, registered trade mark, registered user, homonymous
geographical indication, geographical indications, design or layout-design or similar other
commercial rights, if any, referred to in sub-section (5) of section 3.
Regulation of combinations
(1) No person or enterprise shall enter into a combination which causes or is likely to cause an
appreciable adverse effect on competition within the relevant market in India and such a combination
shall be void.
(2) Subject to the provisions contained in sub-section (1), any person or enterprise, who or which
proposes to enter into a combination, [13][shall] give notice to the Commission, in the form as may
be specified, and the fee which may be determined, by regulations, disclosing the details of the
proposed combination, within [14][thirty days] of—
(a) approval of the proposal relating to merger or amalgamation, referred to in clause (c) of section
5, by the board of directors of the enterprises concerned with such merger or amalgamation, as the
case may be;
(b) execution of any agreement or other document for acquisition referred to in clause (a) of
section 5 or acquiring of control referred to in clause (b) of that section.
[15][(2A)No combination shall come into effect until two hundred and ten days have passed from the
day on which the notice has been given to the Commission under sub-section(2) or the Commission
has passed orders under section 31, whichever is earlier.]
(3) The Commission shall, after receipt of notice under sub-section (2), deal with such notice in
accordance with the provisions contained in sections 29, 30 and 31.

COMPETITION COMMISSION OF INDIA

70
Establishment of Commission
(1) With effect from such date as the Central Government may, by notification, appoint, there shall
be established, for the purposes of this Act, a Commission to be called the "Competition Commission
of India".
(2)The Commission shall be a body corporate by the name aforesaid having perpetual succession
and a common seal with power, subject to the provisions of this Act, to acquire, hold and dispose of
property, both movable and immovable, and to contract and shall, by the said name, sue or be sued.
(3) The head office of the Commission shall be at such place as the Central Government may decide
from time to time.
(4) The Commission may establish offices at other places in India.

Composition of Commission
[16][8.(1)The Commission shall consist of a Chairperson and not less than two and not more than six
other Members to be appointed by the Central Government.
(2) The Chairperson and every other Member shall be a person of ability, integrity and standing and
who has special knowledge of, and such professional experience of not less than fifteen years in,
international trade, economics, business, commerce, law, finance, accountancy, management,
industry, public affairs or competition matters, including competition law and policy, which in the
opinion of the Central Government, may be useful to the Commission.
(3) The Chairperson and other Members shall be whole-time Members.]

[17][Selection Committee for Chairperson and Members of Commission]

[18][9.(1)The Chairperson and other Members of the Commission shall be appointed by the Central
Government from a panel of names recommended by a Selection Committee consisting of –
the Chief Justice of India or his nominee ---- Chairperson;
the Secretary in the Ministry of Corporate Affairs ---- Member;
the Secretary in the Ministry of Law and Justice ---- Member;

two experts of repute who have special knowledge ---- Members. of, and professional
experience in international trade, economics, business, commerce, law, finance, accountancy,
management, industry,public affairs or competition matters including competition law and policy
(2) The term of the Selection Committee and the manner of selection of panel of names shall be such
as may be prescribed.]

Term of office of Chairperson and other Members

10. (1) The Chairperson and every other Member shall hold office as such for a term of five years
from the date on which he enters upon his office and shall be eligible for re-appointment:

71
[19][Provided that the Chairperson or other Members shall not hold office as such after he has
attained the age of sixty-five years]
(2) A vacancy caused by the resignation or removal of the Chairperson or any other Member under
section 11 or by death or otherwise shall be filled by fresh appointment in accordance with the
provisions of sections 8 and 9.
(3) The Chairperson and every other Member shall, before entering upon his office, make and
subscribe to an oath of office and of secrecy in such form, manner and before such authority, as may
be prescribed.
(4) In the event of the occurrence of a vacancy in the office of the Chairperson by reason of his
death, resignation or otherwise, the senior-most Member shall act as the Chairperson, until the date
on which a new Chairperson, appointed in accordance with the provisions of this Act to fill such
vacancy, enters upon his office.
(5) When the Chairperson is unable to discharge his functions owing to absence, illness or any other
cause, the senior-most Member shall discharge the functions of the Chairperson until the date on
which the Chairperson resumes the charge of his functions.
Resignation, removal and suspension of Chairperson and other members
11.(1) The Chairperson or any other Member may, by notice in writing under his hand addressed to
the Central Government, resign his office:
Provided that the Chairperson or a Member shall, unless he is permitted by the Central Government
to relinquish his office sooner, continue to hold office until the expiry of three months from the date
of receipt of such notice or until a person duly appointed as his successor enters upon his office or
until the expiry of his term of office, whichever is the earliest.

Restriction on employment of Chairperson and other Members in certain cases

The Chairperson and other Members shall not, for a period of [20][two years] from the date on which
they cease to hold office, accept any employment in, or connected with the management or
administration of, any enterprise which has been a party to a proceeding before the Commission
under this Act:
Provided that nothing contained in this section shall apply to any employment under the Central
Government or a State Government or local authority or in any statutory authority or any corporation
established by or under any Central, State or Provincial Act or a Government company as defined in
section 617 of the Companies Act, 1956 (1 of 1956).

Administrative powers of Chairperson

The Chairperson shall have the powers of general superintendence, direction and control in respect
of all administrative matters of the Commission:
Provided that the Chairperson may delegate such of his powers relating to administrative matters of
the Commission, as he may think fit, to any other Member or officer of the Commission.”]
Duties, Powers And Functions Of Commission
72
Duties of Commission
Subject to the provisions of this Act, it shall be the duty of the Commission to eliminate practices
having adverse effect on competition, promote and sustain competition, protect the interests of
consumers and ensure freedom of trade carried on by other participants, in markets in India:
Provided that the Commission may, for the purpose of discharging its duties or performing its
functions under this Act, enter into any memorandum or arrangement with the prior approval of the
Central Government, with any agency of any foreign country.

Inquiry into certain agreements and dominant position of enterprise

1. The Commission may inquire into any alleged contravention of the provisions contained in
subsection (1) of section 3 or sub-section (1) of section 4 either on its own motion or on
receipt of any information, in such manner and] accompanied by such fee as may be
determined by regulations, from any person, consumer or their association or trade
association; or
2. a reference made to it by the Central Government or a State Government or a statutory
authority.
3. Without prejudice to the provisions contained in sub-section (1), the powers and functions of
the Commission shall include the powers and functions specified in sub-sections (3) to (7).

The Commission shall, while determining whether an agreement has an appreciable adverse effect on
competition under section 3, have due regard to all or any of the following factors, namely:—
● creation of barriers to new entrants in the market;
● driving existing competitors out of the market;

● foreclosure of competition by hindering entry into the market;

● accrual of benefits to consumers;

● improvements in production or distribution of goods or provision of services;

● promotion of technical, scientific and economic development by means of production or

distribution of goods or provision of services.

(4) The Commission shall, while inquiring whether an enterprise enjoys a dominant position or not
under section 4, have due regard to all or any of the following factors, namely:—
● market share of the enterprise;

● size and resources of the enterprise;

● size and importance of the competitors;

● economic power of the enterprise including commercial advantages over competitors;

● vertical integration of the enterprises or sale or service network of such enterprises;

73
 ● dependence of consumers on the enterprise;

● monopoly or dominant position whether acquired as a result of any statute or by virtue of

being a Government company or a public sector undertaking or otherwise;

● entry barriers including barriers such as regulatory barriers, financial risk, high capital cost of
entry, marketing entry barriers, technical entry barriers, economies of scale, high cost of
substitutable goods or service for consumers;
● countervailing buying power;
● market structure and size of market;

● social obligations and social costs;

● (/) relative advantage, by way of the contribution to the economic development, by the
enterprise enjoying a dominant position having or likely to have an appreciable adverse effect
on competition;
● any other factor which the Commission may consider relevant for the inquiry.

(5) For determining whether a market constitutes a "relevant market" for the purposes of this Act, the
Commission shall have due regard to the "relevant geographic market'' and "relevant product
market".

(6) The Commission shall, while determining the "relevant geographic market", have due regard to
all or any of the following factors, namely:—
● regulatory trade barriers;

● local specification requirements;

● national procurement policies;

● adequate distribution facilities;

● transport costs;
● language;

● consumer preferences;

● need for secure or regular supplies or rapid after-sales services.

(7) The Commission shall, while determining the "relevant product market", have due regard to all or
any of the following factors, namely:—

● physical characteristics or end-use of goods;

● price of goods or service;

● consumer preferences;

● exclusion of in-house production;

74
 ● existence of specialised producers;

● classification of industrial products.

Inquiry into combination by Commission

20. (1) The Commission may, upon its own knowledge or information relating to acquisition referred
to in clause (a) of section 5 or acquiring of control referred to in clause (b) of section 5 or merger or
amalgamation referred to in clause (c) of that section, inquire into whether such a combination has
caused or is likely to cause an appreciable adverse effect on competition in India:
Provided that the Commission shall not initiate any inquiry under this sub-section after the expiry of
one year from the date on which such combination has taken effect.
For the purposes of determining whether a combination would have the effect of or is likely to have
an appreciable adverse effect on competition in the relevant market, the Commission shall have due
regard to all or any of the following factors, namely:—
● actual and potential level of competition through imports in the market;
● extent of barriers to entry into the market;

● level of combination in the market;

● degree of countervailing power in the market;

● likelihood that the combination would result in the parties to the combination being able to
significantly and sustainably increase prices or profit margins;
● extent of effective competition likely to sustain in a market;

● extent to which substitutes are available or arc likely to be available in the market;
● market share, in the relevant market, of the persons or enterprise in a combination,
individually and as a combination;
● likelihood that the combination would result in the removal of a vigorous and effective
competitor or competitors in the market;
● nature and extent of vertical integration in the market;

● possibility of a failing business;

● nature and extent of innovation;

● relative advantage, by way of the contribution to the economic development, by any

combination having or likely to have appreciable adverse effect on competition;
● whether the benefits of the combination outweigh the adverse impact of the combination, if
any.

Important Questions
2 marks

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 1. What is bid rigging?
2. Define cartel

3. What do the following refer to

i. tie-in arrangement;
ii. exclusive supply agreement;
iii. exclusive distribution agreement;
iv. refusal to deal;
v. resale price maintenance,
8 marks
1. What are the functions of the Competition commission of India?

2. What is combination as per the Competition Act? What are the legal rules for a combination?

15 marks
1. Discuss the Duties, Powers And Functions Of Commission.
2. Explain the Composition of Commission.
3. Discuss the contents of the Chapter ii of the Competition Act.

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 RIGHT TO INFORMATION ACT 2005
The basic object of the Right to Information Act is to empower the citizens, promote transparency
and accountability in the working of the Government, contain corruption, and make our democracy
work for the people in real sense. It goes without saying that an informed citizen is better equipped to
keep necessary vigil on the instruments of governance and make the government more accountable
to the governed. The Act is a big step towards making the citizens informed about the activities of
the Government.
What is Information
Information is any material in any form. It includes records, documents, memos, e-mails, opinions,
advices, press releases, circulars, orders, logbooks, contracts, reports, papers, samples, models, data
material held in any electronic form. It also includes information relating to any private body which
can be accessed by the public authority under any law for the time being in force.
Assistant Public Information Officer These are the officers at sub-divisional level to whom a person
can give hisRTI application or appeal. These officers send the application or appeal to the Public
Information Officer of the public authority or the concerned appellate authority. An Assistant Public
Information Officer is not responsible to supply the information.The Assistant Public Information
Officers appointed by the Department of Posts in various post offices are working as Assistant Public
Information Officers for all the public authorities under the Government of India.
Right to Information under the Act
A citizen has a right to seek such information from a public authority which is held by the public
authority or which is held under its control. This right includes inspection of work, documents and
records; taking notes, extracts or certified copies of documents or records; and taking certified
samples of material held by the public authority or held under the control of the public authority. It is
important to note that only such information can be supplied under the Act which already exists and
is held by the public authority or held under the control of the public authority. The Public
Information Officer is not supposed to create information; or to interpret information; or to solve the
problems raised by the applicants; or to furnish replies to hypothetical questions.The Act gives the
citizens a right to information at par with the Members of Parliament and the Members of State
Legislatures. According to the Act, the information which cannot be denied to the Parliament or a
State Legislature, shall not be denied to any person. A citizen has a right to obtain information from a
public authority in the form of diskettes, floppies, tapes, video cassettes or in any other electronic
mode or through print-outs provided such information is already stored in a computer or in any other
device from which the information may be e-mailed or transferred to diskettes etc. The information
to the applicant should ordinarily be provided in the form in which it is sought. However, if the
supply of information sought in a particular form would disproportionately divert the resources of the
public authority or may cause harm to the safety or preservation of the records, supply of information
in that form may be denied.
Guide on Right to Information Act, 2005

77
In some cases, the applicants expect the Public Information Officer to give information in some
particular proforma devised by them on the plea that they have a right to get information in the form
in which it is sought. It need be noted that the provision in the Act simply means that if the
information is sought in the form of photocopy, it shall be provided in the form of photocopy, or if it
is sought in the form of a floppy, it shall be provided in that form subject to the conditions given in
the Act. It does not mean that the PIO shall re-shape the information.
This is substantiated by the definition of the term ‘right to information’ as given in the Act,
according to which, it includes right to obtaining information in the form of diskettes, floppies, tapes,
video cassettes or in any other electronic mode or through print-outs provided such information is
already stored in a computer or in any other device. Everywhere in the Act, the word ‘form’ has been
used to represent this meaning. Some Information Seekers request the Public Information Officers to
cull out information from some document(s) and give such extracted information to them. A citizen
has a right to get ‘material’ from a public authority which is held by or under the control of that
public authority. The Act, however, does not require the Public Information Officer to deduce some
conclusion from the ‘material’ and supply the ‘conclusion’ so deduced to the applicant. It means that
the Public Information Officer is required to supply the ‘material’ in the form as held by the public
authority, but not to do research on behalf of the citizen to deduce anything from the material and
then supply it to him.
Fee for Seeking Information
A person who desires to seek some information from a public authority is required to send, along
with the application, a demand draft or a banker’s cheque or an Indian Postal Order of Rs. 10/-
(Rupees ten), payable to the Accounts Officer of the public authority as fee prescribed for seeking
information. The payment of fee can also be made by way of cash to the Accounts Officer of the
public authority or to the Assistant Public Information Officer against proper receipt.
The applicant may also be required to pay further fee towards the cost of providing the information,
details of which shall be intimated to the applicant by the PIO as prescribed by the Right to
Information (Regulation of Fee and Cost) Rules, 2005. Rates of fee as prescribed in the Rules are
given below:
(a) rupees two (Rs. 2/-) for each page ( in A-4 or A-3 size paper) created or copied;
(b) actual charge or cost price of a copy in larger size paper;
(c) actual cost or price for samples or models;

(d) for information provided in diskette or floppy, rupees fifty (Rs. 50/-) per diskette or floppy; and
(e) for information provided in printed form, at the price fixed for such publication or rupees two per
page of photocopy for extracts from the publication.

Format of Application
There is no prescribed format of application for seeking information. The application can be made on
plain paper. The application should, however, have the name and complete postal address of the
applicant. Even in cases where the information is sought electronically, the application should

78
contain name and postal address of the applicant. The information seeker is not required to give
reasons for seeking information.

Information Exempted from Disclosure

Sub-section (1) of section 8 and section 9 of the Act enumerate the types of information which is
exempt from disclosure. Sub-section (2) of section 8, however, provides that information exempted
under sub-section (1) or exempted under the Official Secrets Act, 1923 can be disclosed if public
interest in disclosure overweighs the harm to the protected interest. The information which, in
normal course, is exempt from disclosure under sub-section(1) of Section 8 of the Act, would cease
to be exempted if 20 years have lapsed after occurrence of the incident to which the information
relates. However, the following types of information would continue to be exempt and there would
be no obligation, even after lapse of 20 years, to give any citizen:
(i) information disclosure of which would prejudicially affect the sovereignty and integrity of
India, the security, strategic, scientific or economic interest of the State, relation with foreign
state or lead to incitement of an offence;

(j) (ii) information the disclosure of which would cause a breach of privilege of Parliament or
State Legislature; or
(k) (iii) cabinet papers including records of deliberations of the Council of Ministers, Secretaries
and other Officers subject to the conditions given in proviso to clause (i) of sub-section(1) of
Section 8 of the Act.

Time Period for Supply of Information

In normal course, information to an applicant shall be supplied within 30 days from the receipt of
application by the public authority. If information sought concerns the life or liberty of a person, it
shall be supplied within 48 hours. In case the application is sent through the Assistant Public
Information Officer or it is sent to a wrong public authority, five days shall be added to the period of
thirty days or 48 hours, as the case may be. Further details in this regard are given in the chapter,
‘For the Public Information Officers.’
Appeals
If an applicant is not supplied information within the prescribed time of thirty days or 48 hours, as
the case may be, or is not satisfied with the information furnished to him, he may prefer an appeal to
the first appellate authority who is an officer senior in rank to the Public Information Officer. Such
an appeal, should be filed within a period of thirty days from the date on which the limit of 30 days
of supply of information is expired or from the date on which the information or decision of the
Public Information Officer is received. The appellate authority of the public authority shall dispose
of the appeal within a period of thirty days or in exceptional cases within 45 days of the receipt of the
appeal.
If the first appellate authority fails to pass an order on the appeal within the prescribed period or if
the appellant is not satisfied with the order of the first appellate authority, he may prefer a second
appeal with the Central Information Commission within ninety days from the date on which the

79
decision should have been made by the first appellate authority or was actually received by the
appellant.

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 Right To Education Act
Following features provide the basis of implementation of the RTE Act, 2009.
 Every child in the age group of 6-14 has the right to free and compulsory education in a
neighborhood school, till the completion of elementary education
 Private schools will have to take 25% of their class strength from the weaker section and the
disadvantaged group of the society through a random selection process. Government will fund
education of these children.
No seats in this quota can be left vacant. These children will be treated on par with all the other
children in the school and subsidized by the State at the rate of average per learner costs in the
government schools (unless the per learner costs in the private school are lower).

All schools will have to prescribe to norms and standards laid out in the Act and no school that does
not fulfill these standards within 3 years will be allowed to function. All private schools will have to
apply for recognition, failing which they will be penalized to the tune of Rs 1 lakh and if they still
continue to function will be liable to pay Rs 10,000 per day as fine. Norms and standards of teacher
qualification and training are also being laid down by an Academic Authority. Teachers in all
schools will have to subscribe to these norms within 5 years.

 No donation and capitation fee is allowed.

 No admission test or interview either for child or parents.
 No child can be held back, expelled and required to pass the board examination till the
completion of elementary education.
 There is provision for establishment of commissions to supervise the implementation of the act.
 A fixed student and teacher ratio is to be maintained.
 All schools have to adhere to rules and regulations laid down in this act, failing which the school
will not be allowed to function. Three years moratorium period has been provided to school to
implement all that is required of them.
 Norms for teachers training and qualifications are also clearly mentioned in the act.
 All schools except private unaided schools are to be managed by School management
Committees with 75% of parents and guardians as members.
Children Benefited
Approx 22 crore children fall under the age group 6-14. Out of which 4.1% i.e. 92 lakhs children
either dropped out from school or never attend any educational institution. These children will get
elementary education. Local and state government will ensure it.

Monitoring
The National Commission for Protection of Child Rights (NCPCR) has been mandated to monitor
the implementation of this historic Right. A special Division within NCPCR will undertake this huge
and important task in the coming months and years. A special toll free helpline to register complaints
will be set up by NCPCR for this purpose. NCPCR welcomes the formal notification of this Act and
looks forward to playing an active role in ensuring its successful implementation.
NCPCR also invite s all civil society groups, students, teachers, administrators, artists, writers,
government personnel, legislators, members of the judiciary and all other stakeholders to join hands

81
and work together to build a movement to ensure that every child of this country is in school and
enabled to get at least 8 years of quality education.

Read About Anomalies & Challenges in the RTE Act

The Right of children to Free and Compulsory Education Act came into force from April 1, 2010.
This is was a historic day for the people of India as from this day the right to education will be
accorded the same legal status as the right to life as provided by Article 21A of the Indian
Constitution. Every child in the age group of 6-14 years will be provided 8 years of elementary
education in an age appropriate classroom in the vicinity of his/her neighbourhood.
Any cost that prevents a child from accessing school will be borne by the State which shall have the
responsibility of enrolling the child as well as ensuring attendance and completion of 8 years of
schooling. No child shall be denied admission for want of documents; no child shall be turned away
if the admission cycle in the school is over and no child shall be asked to take an admission test.
Children with disabilities will also be educated in the mainstream schools. The Prime Minister Shri
Manmohan Singh has emphasized that it is important for the country that if we nurture our children
and young people with the right education, India’s future as a strong and prosperous country is
secure.
All private schools shall be required to enroll children from weaker sections and disadvantaged
communities in their incoming class to the extent of 25% of their enrolment, by simple random
selection. No seats in this quota can be left vacant. These children will be treated on par with all the
other children in the school and subsidized by the State at the rate of average per learner costs in the
government schools (unless the per learner costs in the private school are lower).
All schools will have to prescribe to norms and standards laid out in the Act and no school that does
not fulfill these standards within 3 years will be allowed to function. All private schools will have to
apply for recognition, failing which they will be penalized to the tune of Rs 1 lakh and if they still
continue to function will be liable to pay Rs 10,000 per day as fine. Norms and standards of teacher
qualification and training are also being laid down by an Academic Authority. Teachers in all
schools will have to subscribe to these norms within 5 years.
The National Commission for Protection of Child Rights (NCPCR) has been mandated to monitor
the implementation of this historic Right. A special Division within NCPCR will undertake this huge
and important task in the coming months and years. A special toll free helpline to register complaints
will be set up by NCPCR for this purpose. NCPCR welcomes the formal notification of this Act and
looks forward to playing an active role in ensuring its successful implementation.
NCPCR also invites all civil society groups, students, teachers, administrators, artists, writers,
government personnel, legislators, members of the judiciary and all other stakeholders to join hands
and work together to build a movement to ensure that every child of this country is in school and
enabled to get at least 8 years of quality education.
Benefits of Right to Education Act, 2009
RTE has been a part of the directive principles of the State Policy under Article 45 of the
Constitution, which is part of Chapter 4 of the Constitution. And rights in Chapter 4 are not
enforceable. For the first time in the history of India we have made this right enforceable by putting
it in Chapter 3 of the Constitution as Article 21. This entitles children to have the right to education
enforced as a fundamental right.

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 Official Bill
• www.education.nic.in/Elementary/free%20and%20compulsory.pdf
• www.scribd.com/doc/26778778/Right-Of-Children-to-Free-and-Compulsory-Education-Act-

Recently both the houses of the Indian Parliament passed the Right of Children to Free and
Compulsory Education Act, 2009. Strangely it comes almost a century after the idea was initially
mooted by Gopal Krishna Gokhale in 1911 in the Imperial Legislative Assembly, where it was
turned down by the opposition of feudal elements like the Maharaja of Burdwan, Darbhanga and
capitalists like N.K. Wadia and the lack of interest of the colonial government. Incidentally the draft
of the bill presented by Gokhale had an important clause related to the banning of child labour which
prevented children from attending schools as an integral part of the bill, something which the present
Act does not even attempt to do.

There has been much debate about the present Act and its desirability and limitations. These notes
should be read along with the debates.

Looking at the present education scenario one can outline the following problem areas:

1. Access does not cover a large number of working children.

2. The Government school system is becoming highly dysfunctional.

3. As a result of 2, the entire education system is grossly reproducing social inequities

(gender/caste/tribe/region/class) rather than helping to reduce them.

4. The content and process of education remains poor across the board with a continued emphasis on
stressful rote learning and the suppression of creative abilities of children

5. There is a clear disjuncture between the broad liberal framework of education espoused by the
NCF 2005 and the ‘minimalist’ literacy and numeracy approach adopted by the education
departments which has in turn facilitated ideas of minimalist schooling and minimalist teachers.

6. Education cannot be isolated from a comprehensive childhood programme that should necessarily
include nutrition, health and acculturation.

7. While a child becomes a subject of education from birth to adulthood at 18 years, the formal
education system addresses them only during the age of 6-14, thus leaving the crucial 10 years
outside its purview.

While 2-4 have some bearing on 1, by and large working children are out of school due to the
compulsion to engage in family reproductive labour and has deeper economic causes. Breaking this
deadlock requires sustained and powered intervention by the state rather than mere ‘remedial action’.

Addressing the educational, nutritional and health requirements (5-6) of children from 0 to 18
requires basic structural changes in the institutional frameworks, financial outlay, etc. With the rapid
breakup of the traditional forms of life, the family may no longer be able to cope with these tasks and
they need to be socialised.

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One of the principal criticisms that can be made of the RTE Act is that it isolates formal education
from age 6 to 14 from the larger contexts and seeks to address it separately. Secondly it does not
show any promise with regard to the education of children who are outside the school system today
including the girls and other working children. What will be done to bring them to school and who
will be responsible to bring them to school is not clear. The term ‘compulsory’ begs the question
who will be compelled? The act absolves the parents, the children and the administration from this
compulsion. Then who will be answering for the out of school children? It only implies that children
who come to schools on their own will be given access.

Having made this general criticism of the self imposed limitations of the act we can now turn to the
provisions of the act to educate the children who are keen to get educated between the ages of 6 and
14.

The Government School System and Privatisation

While it may not be within the realm of the possibility to wish away the private sector, from the point
of view of both equity and quality the privatisation of education provision poses greater obstacles
and threats. This is because private schools go against the principle of common schooling and build a
hierarchy of schools catering to different strata of population. Secondly they lack an integrative
mechanism through which pedagogic innovations and academic norms can be implemented across
board. Thirdly, the monitoring mechanisms by the state are presently virtually absent.

Given these factors it would appear that any step that strengthens the tendency towards private
schooling would be inimical both in the short and long term.

However we need to balance this view by the reality of growing dysfunctionality of the government
school system. This can be seen as being fuelled by the neo-colonial policies of weakening the post
colonial nation states by reducing their roles in shaping the civil society. The publically managed
institutions have shown a remarkable vulnerability to political interference and this has generated
structural limitations for accountability. Given this larger background, it would appear that with the
state abandoning its responsibility for education, privatisation is today actually the only effective
means of achieving equity and quality in education.

The RTE Act needs to be seen in this highly paradoxical context.

One may explore the difference between the private and government schooling today to identify the
areas of advantage posed by the former over the latter. Private schools organised as an enterprise
function with a coherence, integration and purpose as defined by its management. An important
principle in most such institutions is the separation of academic and administrative work with at least
a minimal clerical and support staff. Most government schools no longer show this institutional
coherence. Single teacher or double teacher schools, at the beck and call of the CRCs, BRCs BEOs,
tehsildars, etc. cannot function as such. Even in multi teacher schools the headmaster is without any
leadership role, a mere clerk handling dak and not leading the school and answering for it. Separation
of administration and academic work only starts at the block level (or high school) in the government
system.

Secondly, the private schools appear to commit adequate person power to engage children in
teaching-learning tasks. The immediate problem thus seems not so much the quality of the teacher –
her training or qualification or salary or motivation – as the fact that there is a teacher at all to
actually teach the children in the class room. While such factors affecting the professionalisation of

84
teachers has long term consequences on the quality of education, in the short run, that takes a lower
priority compared to the need for any adult presence in the class at all. These two factors ensure the
edge of the private schools which appears as greater answerability and effective delivery of
minimum quality. The fact that actual delivery and effectiveness may be the result of parental
coaching – and also the fact that children without such back up anyway get filtered out in the private
schools – need not detain us.

In contrast to the private schools the government schools retain two crucial advantages of being
accessible to the remotest and the poorest of the poor and being a large integrated system with the
possibility of enforcing common norms, pedagogies and standards. However the latter advantage is
largely compromised by the lack of institutional memory and lack of professionalisation of the
system leadership which is largely in the hands of whimsical bureaucrats. The former advantage is
undermined by staff insufficiency; children have access to schools but not to teachers.

Given the complexity of the situation and the enormous inertia of the system, it is useful to take a
pragmatic approach. Radical advocation of restriction of private schooling and promotion of
government schools is fraught with danger as the government school system may not rise to the
occasion. So we need to identify measures that will make the private school system more responsive
to the goals of universal and equal education and ensure better functioning of the government school
system and adequate public expenditure on education.

The RTE Act and After

The single most important aspect of the RTE Act is that it will make educational issues justiciable.
This implies that its implementation can be forced to the extent that courts can force the
administration. Secondly, it will open up the possibility of reinterpreting and changing the meaning
of the act and its schedules in a court, especially the higher ones. This opens an avenue of policy
formulation not available earlier.

RTEA and Privatisation

The RTE Act as has been pointed out does not advocate a common school system or the abolition of
private schools but seeks to bring it within the ambit to serve the goal of universal ‘compulsory’
education. It seeks to do this by making it mandatory for private schools to conform to norms laid
down in law and by competent authorities. Secondly it makes it mandatory for private schools of all
descriptions to take children from deprived social backgrounds from the neighbourhood up to 25% of
their strength. As we had indicated above this can to some extent address the gross iniquity which the
emergence of the high end private schools has brought into the system by making them accessible to
deprived children too. While the Act leaves the question of fees being charged by the private schools
unregulated, the recent Supreme Court judgement brings it under government regulation.

What are the implications of the Act for the Private schools, especially the unaided ones?

1. All schools (old and new) should get a certificate for conforming to the Schedule mentioned in the
Act (with immediate effect).

2. They need to conform to the rules outlined in the Act no capitation fee, no screening, no detention,
no expulsion, no corporal punishment.

85
3. They will have to admit children from weaker sections, SC/ST/OBC up to 25% of the strength of
their class 1 or pre-school starting point and provide them education till they complete class 8. If the
schools are not already supported by the government through subsidised land etc, they will get from
the government a fee as per the norm of per child expenditure of the government.

The Schedule which we shall examine presently has been drawn up keeping in mind the present state
of Government schools. Most of the private schools will probably easily conform to them, except
when it comes to teachers, if the act requires conformity from the private schools too on this score.
This has special implications for teacher qualifications due to the condition that they conform to
nationally laid down norms. However the act is ambiguous on this matter – it is not clear if section
23 of the Act applies to private institutions too for it is not a part of the Schedule on schools.

This can also lead to greater government control over the curriculum and materials in use in private
schools: they can now be forced to conform to the curriculum and textbooks laid down by the
government.

Given the scale of privatisation, a separate department needs to be set up to certify and monitor the
private schools. Establishing transparency there will be a major problem given the enormous
opportunities for graft.

The provision for enrolling children of weaker sections up to 25% of its strength from the
neighbourhood is perhaps the most far reaching step. We can hope that the poorest children will now
have access to the ‘best’ run schools if they are lucky enough to be living in their neighbourhood.
Having at least one fourth of the class of such children may go a long way to change the complexion
of private school culture. Needless to say, this is also fraught with problems: to what extent they can
be culturally and socially assimilated within the school will depend upon a number of factors,
including the attitude of teachers and privileged fellow students and their parents. What impact this
will have on the relation between the children of weaker sections and their parents is also an
imponderable. It is one thing to study in a common government school, but quite another to be
admitted as a part of reservation in a private school which has a hidden implication that it is actually
meant for the elite. This is known to produce serious adjustment problems. All this means that a
small minority of such children will stand to benefit from this provision while the larger population
will be subjected to stress and rejection. It is not that this is a problem that cannot be overcome.
However it will not be possible without a concerted national effort and commitment percolating
down to the civil society to bring those marginalised into the mainstream. All efforts need to be made
to make it comfortable for the marginal children to participate in the school meant for their ‘social
superiors’. Whatever may be the merit of the matter, it calls for a serious effort to reorient the
teachers and schools to this task, without which it can create a mess for the children concerned. It
also calls for the creation of a task force at various levels with a commitment to the idea.

The Act is not clear yet on a number of questions on this issue. Firstly, it is necessary to clearly
codify the entitlements of the children admitted to the private schools that it will encompass all that
is required by the school to complete elementary education: this should cover not only fees, uniform,
mid-day meal, textbooks, notebooks, other ‘project materials’ but also charges for cultural events
like excursions etc. That the parents of such children will not be required to make any additional
payments, etc. Secondly, the nature of reimbursement of expenses by the state is not clear. If a
private school is to cover all the above requirements of the children free of cost, it would like the
government to pay for it failing which it will recover the cost from the other parents through fee
hike. The per child expenditure of a school will depend upon the nature of the school and
reimbursement through a common norm will be problematic. Thirdly the calculation of state subsidy

86
to such schools is not clear. Will it be the entire expenditure of the education departments divided by
the children enrolled?

Fourthly, while the caste categories are well defined, the ‘economically weaker sections’ may be
vague unless it is defined as those below the poverty line. Here again the definition of
neighbourhood will be important. Typically one can expect the government to define it as say 1 km.
radius in states like Madhya Pradesh but since the government only guaranteed Employment
Guarantee Scheme in that range, it may go up to 3 km. range. Now many private schools especially
in urban areas are concentrated in localities outside the town and there may not be sufficient
population of deprived children in their neighbourhood so defined. When such a situation arises
where the immediate ‘neighbourhood’ does not have sufficient number of children to cover the 25%,
children of other neighbourhoods not so well endowed should be enrolled and their travel expenses
taken care of by the school/state.

Will such provisions strengthen the secular trend towards privatisation or more specifically will the
state be now recognising and subsidising the mushrooming private sector by paying the fees of a
quarter of their students? On the face of it would appear that most private schools which have the
qualifying infrastructure may actually benefit from the fee subsidy. The large ‘international’ ones
may lose if they have to be satisfied with a loss of revenue on one quarter of their students. It is also
likely that they will fight back ferociously as their social exclusiveness will be broken. We can hope
for some orchestrated campaign and imaginative arguments on the matter.

The private school teachers are likely to be affected significantly by the act as most of the
unqualified teachers are there. This will fuel the D Ed and B Ed industry to a great extent as there
will be a race to get those qualifying degrees. This may also significantly raise the salary levels of
teachers.

All this only if we have an effective public authority to enforce the law, which is rather less likely.

RTEA and the Government School System

Understandably this provision of the Act for reservation in private schools will evoke more interest
than the provisions for strengthening the government school system. A sceptical interpretation can be
that by pooling such private resources the government is actually diluting its primary responsibility
towards universalisation. Let us see what it would do to the government schools.

Before we embark on this we need to keep in mind that the private schooling has a significant
presence only in the urban areas and in developed rural districts. The overwhelming majority of
children still go to government schools and there is no option available to them as private enterprise
will not be sustainable.

The Act has a vision of a school which is laid down in the Schedule and no school will be allowed to
function if it does not fulfil these conditions. What kind of a school the act envisages is to be seen in
the schedule ‘Norms & Standards for a School’.

1. Let us see the minimum required to qualify as a primary school:

2. 2 Teachers

3. 2 all-weather class rooms + one store cum office cum HM-room

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4. Separate toilets for girls and boys

5. Drinking water

6. Kitchen for midday meals

7. Playground

8. Library with newspapers, magazines and story books

9. Four hours of teaching every day for 200 days in a year (17 days a month)

We seem to have made little progress since the days of Adam’s Report on village schools of 18th
century! The poverty of conception of a school which prepares the future citizens of a country
aspiring to be a world leader is starkly evident here. A Lower Income Group Flat can now qualify for
a school building!

As is evident, the act far from ensuring that government schools conform to the norm established by
the poorest private school of giving one teacher per class and one room per class, only promises one
teacher for 30 students in case of small schools and one teacher for 40 children in case of large
schools.

In other words the Act does little to change the quality of the present government school which will
mean that the private schools will continue to attract parents as the only viable educational
institution. Read with the provision of support to them to the order of 25%, it will in actual reality
mean a clear push to privatisation of education. It may certainly be argued that during the last few
decades the government school system had managed to push down the norm considerably, to a single
para teacher, no building conception and that the act will ensure that the minimum outlined above
will be established now as the norm; that even this would mean a financial outlay which is far
beyond what the state is willing to commit to education. The act may be expected to make significant
difference to such schools. But this cannot override the fact that the expectation that parents place on
a school have gone far beyond those standards, especially since the minimum delivery of education
is critically linked to it.

Let us consider the issue of teachers. The act will provide for two teachers in a school. The service
conditions of the teachers will certainly ensure them a minimum of 45 days of leave; training
requirements, matters of national importance etc will at least require them to be absent from schools
for 15 working days. Assuming that the two teachers are not absent on the same days we can safely
infer that for 120 days out of the stipulated 200 days the school will function with just one teacher.

The Act provides for qualified and trained teacher, though the nature of qualification and training is
left to be defined by a centrally named authority. However it lays down that salaries and service rules
and terms and conditions are to be decided by the state government (see section 37, subsection 2, l,
m & n). This effectively puts a seal of acceptance on the process of decimation of teacher cadre by
several state governments.

If we agree with the initial premise that in the interest of both equity and quality it is imperative to
improve the government school system to the point which it becomes a viable and attractive option
for parents, then the minimum standards laid down in the Schedule needs to be urgently revised.

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Redefining a School

1. We should visualise an integrated elementary school catering to children from Anganwadi to class
8, and not just a primary school or a middle school.

2. The school as a whole should have an academic and administrative leadership with a Headmaster
and administrative staff (including cooking and cleaning) and teaching staff.

3. Besides qualified and trained teachers for each class and subject, the school should also have an
art/music and sports teacher; each school should have a medical consultant and at least two staff
members with para medical training. The total number of teaching staff should be such that it takes
care of absenteeism legally allowed (permitted leave and training and deployment for national work).
This may mean increasing the strength by at least 25%.

4. The building complex of the school should have a garden space for growing plants and trees, stage
and assembly space, playground which is adequate for different kinds of sports(Kho, kabaddi,
volleyball, cricket, football), all weather buildings with rooms for all classes, TLM store room, a
library, an art room/lab, an administration and record room, a room for principal and staff, a kitchen,
well-drained separate toilets for boys and girls.

5. Qualified and trained teaching staff with centrally laid down criteria, emoluments and service
rules.

One can go on with this exercise; but this has already been done by the central government
bureaucracy in defining schools for its own children, i.e. the Central Schools. The only important
difference here would be that most of the schools will not require such a large investment as the
Central Schools with their multi-section classes. Our conception of education too has become so
stratified that the meaning of education is different for the elite and the masses. We are not any more
thinking in terms of future citizens of the republic but in terms of children who will succeed to the
riches and those who will serve them. If anything in our body politic is manuvadi, this is.

Quite obviously those who framed the RTE were restrained by the overall financial allocation the
government was willing to commit. It appears that even to implement the watered down provisions
strictly would mean a very large financial outlay and also institutional support (in terms of teacher
training etc) which the central government is dragging its foot over. It has thus been argued that once
we ensure that education is brought within the rights framework we can slowly force the government
to increase its outlay and tone up the efficiency of the system in much the same way as the Right to
Information Act has been growing in its implication. This will require public action and elaboration
of jurisprudence on the subject.

The point at issue is that if we want to promote equity and quality in education we necessarily have
to develop the public schools as viable and attractive institutions. Unfortunately the RTE Act in its
present form does not assure us of this. On the contrary it further dilutes this promise.

Accountability and Redressal

Nor does the Act provide for a stricter accountability of the government schools system, which is by
now recognised by all as the bane of the system. A meek and toothless School Management
Committee has been provided for which has powers to monitor and recommend, which exist in most

89
places and is known to be non-functional. We are told that teachers unions resisted the idea of having
a more empowered SMCs.

As a result accountability is not within the system but outside of it within the judicial process. Let us
see how the Act deals with this process.

There are only two main punishable offences as per this Act, viz, charging capitation fee or screening
a child for admission to the school and establishing or running a school without a certificate of
recognition. As can be seen these apply mainly to private schools. Even such a prosecution can be
made only with the approval of designated officials. Beating children etc are to be dealt with under
service rules of the teachers.

The chapter on protection of the ‘right of children’ provides for ‘any person having any grievance...
may make a written complaint to the local authority...’ which has to respond ‘as early as possible’ by
instituting hearings. An appeal against its decision may be filed with the State Commission for
Protection of Child Rights.

We may presume from the above that a child or a parent deprived of the rights guaranteed by the act
may approach a court of law only after its disposal by the ‘local authority’ and the ‘State
Commission’. By such time the child would have grown into an adult! This is quite akin to the due
processes established under the Factory Act. Is this not a neat denial of the gains of the Unnikrishnan
Judgement? The legal pundits will have to unravel its implications.

In conclusion

The Right to Education Act promises much but ensures the delivery of very little. It does not ensure
any significant change in the condition of the government school system. On the other hand it seems
to enlist the support of private schools to fulfil its task, by forcing them to take poor and deprived
children and subsidising this process. As we have seen it also seeks to control the justiciability of the
right to education by outlining a complicated process. One may yet consider it a wedge in the edifice
of education; as an exercise by the state to accommodate and control the fall outs of the
Unnikrishnan Judgement. In many respects this can be compared to the NREGA which seeks to
ensure the right to life of the poor in this era of jobless growth. The NREGA seems to have been able
to make a much more radical break, thanks to the role of strong grass roots movements and NGOs.
The RTEA falls far short of this mark probably due to the weakness of the civil society organisations
and movements for mass education. It is to this that we must now turn. The extent to which these
organisations and movements use the foothold provided by the Act and mount an offensive and
mobilise the mass of the deprived will determine the direction in which the implications of the act
go. It can serve the dream of the bureaucracy to control the implications of the Right to Education or
it can open up radical possibilities to bring about equality of opportunities promised by the
Constitution.

The right to education is a universal entitlement to education. This is recognized in the International
Covenant on Economic, Social and Cultural Rights as a human right that includes the right to free,
compulsory primary education for all, an obligation to develop secondary education accessible to all,
in particular by the progressive introduction of free secondary education, as well as an obligation to
develop equitable access to higher education, ideally by the progressive introduction of free higher

90
education. Today, almost 70 million children across the world are prevented from going to school
each day. [1]
The right to education also includes a responsibility to provide basic education for individuals who
have not completed primary education. In addition to these access to education provisions, the right
to education encompasses the obligation to rule out discrimination at all levels of the educational
system, to set minimum standards and to improve the quality of education.

91
 THE FOREIGN EXCHANGE MANAGEMENT ACT, 1999
An Act to consolidate and amend the law relating to foreign exchange with the objective of
facilitating external trade and payments and for promoting the orderly development and maintenance
of foreign exchange market in India. It extends to the whole of India. It shall also apply to all
branches, offices and agencies outside India owned or controlled by a person resident in India and
also to any contravention there under committed outside India by any person to whom this Act
applies. It shall come into force on such date as the Central Government may, by notification in the
Official Gazette.
The Foreign Exchange Management Act 1999(FEMA) was an act passed in the winter session of
Parliament in 1999 extends to the whole of India, which replaced Foreign Exchange Regulation Act
1973(FERA).The main objectives of FEMA are :
01. To facilitate external trade and payments

02. To promote the orderly development and maintenance of foreign exchange market
FERA was the first statute/law passed by the parliament in year 1973 for governing foreign exchange
dealings in India. As FERA come into existence at the time when India was facing a severe
deficiency of foreign exchange, it was very harsh law and violation of this Law was always criminal
offence. Unlike other laws where everything is permitted unless specifically prohibited, under this
act everything was prohibited unless specifically permitted. Hence the tenor and tone of the Act was
very drastic. It required imprisonment even for minor offences. Under FERA a person was presumed
guilty unless he proved himself innocent, whereas under other laws a person is presumed innocent
unless he is proven guilty.
Since FERA had become incompatible with the pro-liberalization policies of the Government of
India (Reform policies introduced in India in 1991 which make our economy open for outside
business world to come and do business here) hence by perceiving the need of that time FEMA was
introduced by repealing/replacing FERA in India in year 1999.
Definitions as stated in FEMA

(a) "Adjudicating Authority" means an officer authorized under subsection (1) of section 16
(b) "Appellate Tribunal" means the Appellate Tribunal for Foreign Exchange established under
section 18;
(c) "authorized person" means an authorized dealer, money changer, offshore banking unit or any
other person for the time being authorized under subsection (1) of section 10 to deal in foreign
exchange or foreign securities;
(d) "Bench" means a Bench of the Appellate Tribunal;
(e) "capital account transaction" means a transaction which alters the assets or liabilities, including

92
contingent liabilities, outside India of persons resident in India or assets or liabilities in India of
persons resident outside India, and includes transactions referred to in subsection (3) of section 6;

(f) "Chairperson" means the Chairperson of the Appellate Tribunal;

(g) "chartered accountant" shall have the meaning assigned to it in clause (b) of subsection (1) of
section 2 of the Chartered Accounts Act, 1949 (38 of 1949);
(h) "currency" includes all currency notes, postal notes, postal orders, money orders, cheques,
drafts, travellers cheques, letters of credit, bills of exchange and promissory notes, credit cards or
such other similar instruments, as may be notified by the Reserve Bank;
(i) "currency notes" means and includes cash in the form of coins and bank notes;
(j) "current account transaction" means a transaction other than a capital account transaction and
without prejudice to the generality of the foregoing such transaction includes,
(i) payments due in connection with foreign trade, other current business, services, and short-
term banking and credit facilities in the ordinary course of business,
(ii) payments due as interest on loans and as net income from investments,

(iii) remittances for living expenses of parents, spouse and children residing abroad, and
(iv) expenses in connection with foreign travel, education and medical care of parents, spouse
and children;
(k)"Director of Enforcement" means the Director of Enforcement appointed under subsection (1)
of section 36

(l)"export", with its grammatical variations and cognate expressions, means

(i) the taking out of India to a place outside India any goods,
(ii) provision of services from India to any person outside India;

(m)"foreign currency" means any currency other than Indian currency;

(n)"foreign exchange" means foreign currency and includes,
(i) deposits, credits and balances payable in any foreign currency,

(ii) drafts, travelers cheques, letters of credit or bills of exchange, expressed or drawn in
Indian currency but payable in any foreign currency,
(iii) drafts, travelers cheques, letters of credit or bills of exchange drawn by banks,
institutions or persons outside India, but payable in Indian currency;
(o)"foreign security" means any security, in the form of shares, stocks, bonds, debentures or any
other instrument denominated or expressed in foreign currency and includes securities expressed in
foreign currency, but where redemption or any form of return such as interest or dividends is payable
in Indian currency;
93
(p) "import", with its grammatical variations and cognate expressions, means bringing into India any
goods or services;

(q)"Indian currency" means currency which is expressed or drawn in Indian rupees but does not
include special bank notes and special one rupee notes issued under section 28A of the Reserve Bank
of India Act, 1934 (2 of 1934);
(r)"legal practitioner" shall have the meaning assigned to it in clause (i) of subsection (1) of section
2 of the Advocates Act, 1961 (25 of 1961);
(s) "Member" means a Member of the Appellate Tribunal and includes the Chairperson thereof;

(t)"notify" means to notify in the Official Gazette and the expression "notification" shall be
construed accordingly;
(u) "person" includes

(i) an individual,
(ii) a Hindu undivided family,
(iii) a company,

(iv) a firm,
(v) an association of persons or a body of individuals, whether incorporated or not,
(vi) every artificial juridical person, not falling within any of the preceding sub-clauses, and

(vii) any agency, office or branch owned or controlled by such person;

(v)"person resident in India" means
(i) a person residing in India for more than one hundred and eighty two days during the course of
the preceding financial year but does not include
(A) a person who has gone out of India or who stays outside India, in either case

(a) for or on taking up employment outside India, or

(b) for carrying on outside India a business or vocation outside India, or
(c) for any other purpose, in such circumstances as would indicate his intention to stay
outside India for an uncertain period;
(x)"prescribed" means prescribed by rules made under this Act;
(y) "repatriate to India" means bringing into India the realized foreign exchange and

(i) the selling of such foreign exchange to an authorized person in India in exchange for
rupees, or

94
 (ii) the holding of realized amount in an account with an authorized person in India to the
extent notified by the Reserve Bank, and includes use of the realized amount for discharge of
a debt or liability denominated in foreign exchange and the expression "repatriation" shall be
construed accordingly;
(z)"Reserve Bank" means the Reserve Bank of India constituted under sub section (1) of section 3 of
the Reserve Bank of India Act, 1934 (2 of 1934);
(za)"security" means shares, stocks, bonds and debentures, Government securities as defined in he
Public Debt Act, 1944 (18 of 1944), savings certificates to which the Government Savings

Certificates Act, 1959 (46 of 1959) applies, deposit receipts in respect of deposits of securities and
units of the Unit Trust of India established under subsection (1) of section 3 of the Unit Trust of
India Act, 1963 (52 of 1963) or of any mutual fund and includes certificates of title to securities, but

does not include bills of exchange or promissory notes other than Government promissory notes or
any other instruments which may be notified by the Reserve Bank as security for the purposes of this
Act;

(zb)"service" means service of any description which is made available to potential users and
includes the provision of facilities in connection with banking, financing, insurance, medical
assistance, legal assistance, chit fund, real estate, transport, processing, supply of electrical or other
energy, boarding or lodging or both, entertainment, amusement or the purveying of news or other
information, but does not include the rendering of any service free of charge or under a contract of
personal service
(zc)"Special Director (Appeals)" means an officer appointed under section 18;
(zd) "specify" means to specify by regulations made under this Act and the expression "specified"

shall be construed accordingly;

(ze) "Transfer" includes sale, purchase, exchange, mortgage, pledge, gift, loan or any other form of
transfer of right, title, possession or lien.
In terms of size FEMA is a small act containing only 49 sections, among them few of most important
sections are as follows :
SECTION 3 of FEMA : Dealing In Foreign Exchange

It generally speaks that all below mentioned transaction in foreign exchange should be in accordance
with the Act, Rules and Regulation of FEMA, or with prior permission of Reserve Bank of India:
a) to deal and transfer foreign exchange to any person except Authorized Dealer.

b) for making payment of credit taken by Non Resident.

c) taking payment on behalf of Non resident from any person except Authorized Dealer.

95
d) Enter in to any financial transaction in India as a consideration for or in. association with
requisition or creation or transfer of a right to acquire any asset outside India by any person
SECTION 4 of FEMA : Holding of Foreign Exchange
Indian Resident shall acquire, hold, own, possess or transfer any foreign exchange/foreign security or
any immovable property situated outside India only in accordance with FEMA Act.
SECTION 5 of FEMA : Current Account Transactions
Any person can sell or draw foreign exchange through authorized persons for using it for current
account transactions. But Central Government can impose reasonable restrictions in public interest
with this regard.
SECTION 6 of FEMA : Capital Account Transactions
Meaning u/s 2(e): Capital Account Transactions means a transaction which alters the assets or
liabilities, including contingent liabilities, outside India of persons resident in India or assets or
liabilities in India of persons resident outside India, and includes transactions referred to in sub-
section (3) of section 6

Capital Account Transactions:-

Any person may sell or draw foreign exchange to or from an authorized person for a capital account
transaction permitted by RBI in consultation with central Government. RBI prohibits, restricts or
regulate the following,
(a) Transfer or issue of any foreign security by a person resident in India

(b) Transfer or issue of any foreign security by a person resident outside India
(c) Transfer or issue of any security or foreign security by any branch, office or agency in India of a
person resident outside India
(d) Any borrowing or lending in foreign exchange in whatever form or by whatever name called
(e) Any borrowing or lending in rupees in whatever form or whatever name called between a person
resident in India and a person resident outside India;
(f) Deposits between persons resident in India and a person resident outside India
(g) Export, Import or holding of currency or currency notes
(h) Transfer of immovable property outside India other than a lease not exceeding five years by a
person resident outside India
(i) Acquisition or transfer of immovable property in India other than a lease not exceeding five years
by a person resident outside India
(j) Giving of guarantee or surety in respect of any debt obligation or the liability (1) By a person
resident in India and owed to a person resident outside India; or (2) By a person resident outside
India

96
SECTION 4 of FEMA : Central Governments’ Power to make RULES
The Central Government may by notification, make rules relating to :

01. Current Account Transactions

02. Compounding of contraventions
03. inquiry by Adjudicating Authority

04. Appeal and filing fees

05. salary and the other terms and conditions of service of Members of the Appellate Tribunal and
the Special Director (Appeals)
06 or any other matters
SECTION 4-7 of FEMA : Reserve Banks’ Power to make REGULATIONS
The Reserve Bank may by notification, make regulations relating to :

01. Permissible classes of capital account transactions, the limits of admissibility

02. Repatriation of foreign exchange
03. limit up to which any person may possess foreign currency

04. or any other matters

SECTION 13 of FEMA : Contravention and penalties
• For any kind of contravention under this act defaulter is liable to pay up to thrice the amount
involved where it is quantifiable, or up to Rs. 2 lakhs where not quantifiable
• If such contravention is continued further penalty which may extend to Rs. 5,000 for every day
after the first day.

Important Questions
2 marks
1. Define foreign exchange as stated in FEMA.
2. Who is an authorized person?
3. What are the types of transactions that come under Capital Account Transactions?

8 marks
1. Explain in detail the powers and duties of the authorized person.
2. What are the measures taken by the RBI in governing the authorized person?

3. What is a contravention? What is the penalty awarded and who awards these penalties?
*******************************

97
 THE ENVIRONMENT (PROTECTION) ACT, 1986
No. 29 OF 1986
[23rd May, 1986.]
An Act to provide for the protection and improvement of environment and for matters connected
there with:
WHEREAS the decisions were taken at the United Nations Conference on the Human Environment
held at Stockholm in June, 1972, in which India participated, to take appropriate steps for the
protection and improvement of human environment;
AND WHEREAS it is considered necessary further to implement the decisions aforesaid in so far as
they relate to the protection and improvement of environment and the prevention of hazards to
human beings, other living creatures, plants and property;
BE it enacted by Parliament in the Thirty-seventh Year of the Republic of India as follows:-

CHAPTER I
PRELIMINARY
1. SHORT TITLE, EXTEND AND COMMENCEMENT

(1) This Act may be called the Environment (Protection) Act, 1986.
(2) It extends to the whole of India.
(3) It shall come into force on such date as the Central Government may, by notification in the
Official Gazette, appoint and different dates may be appointed for different provisions of this Act
and for different areas.1
2. DEFINITIONS

In this Act, unless the context otherwise requires,--

(a) "Environment" includes water, air and land and the inter- relationship which exists among and
between water, air and land, and human beings, other living creatures, plants, micro-organism and
property;
(b) "Environmental pollutant" means any solid, liquid or gaseous substance present in such
concentration as may be, or tend to be, injurious to environment;

(c) "Environmental pollution" means the presence in the environment of any environmental
pollutant;

(d) "handling", in relation to any substance, means the manufacture, processing, treatment, package,
storage, transportation, use, collection, destruction, conversion, offering for sale, transfer or the like
of such substance;

98
(e) "hazardous substance" means any substance or preparation which, by reason of its chemical or
physico-chemical properties or handling, is liable to cause harm to human beings, other living
creatures, plant, micro-organism, property or the environment;
(f) "Occupier", in relation to any factory or premises, means a person who has, control over the
affairs of the factory or the premises and includes in relation to any substance, the person in
possession of the substance;
(g) "Prescribed" means prescribed by rules made under this Act.

CHAPTER II
GENERAL POWERS OF THE CENTRAL GOVERNMENT
3. POWER OF CENTRAL GOVERNMENT TO TAKE MEASURES TO PROTECT AND
IMPROVE ENVIRONMENT
(1) Subject to the provisions of this Act, the Central Government, shall have the power to take all
such measures as it deems necessary or expedient for the purpose of protecting and improving the
quality of the environment and preventing controlling and abating environmental pollution.
(2) In particular, and without prejudice to the generality of the provisions of sub-section (1), such
measures may include measures with respect to all or any of the following matters, namely:--

(i) Co-ordination of actions by the State Governments, officers and other authorities--
(a) Under this Act, or the rules made thereunder, or

(b) Under any other law for the time being in force which is relatable to the objects of this Act;
(ii) planning and execution of a nation-wide programme for the prevention, control and abatement of
environmental pollution;

(iii) laying down standards for the quality of environment in its various aspects;
(iv) laying down standards for emission or discharge of environmental pollutants from various
sources whatsoever:

Provided that different standards for emission or discharge may be laid down under this clause from
different sources having regard to the quality or composition of the emission or discharge of
environmental pollutants from such sources;

(v) restriction of areas in which any industries, operations or processes or class of industries,
operations or processes shall not be carried out or shall be carried out subject to certain safeguards;
(vi) laying down procedures and safeguards for the prevention of accidents which may cause
environmental pollution and remedial measures for such accidents;
(vii) Laying down procedures and safeguards for the handling of hazardous substances;

99
(viii) Examination of such manufacturing processes, materials and substances as are likely to cause
environmental pollution;

(ix) carrying out and sponsoring investigations and research relating to problems of environmental
pollution;
(x) inspection of any premises, plant, equipment, machinery, manufacturing or other processes,
materials or substances and giving, by order, of such directions to such authorities, officers or
persons as it may consider necessary to take steps for the prevention, control and abatement of
environmental pollution;

(xi) establishment or recognition of environmental laboratories and institutes to carry out the
functions entrusted to such environmental laboratories and institutes under this Act;
(xii) collection and dissemination of information in respect of matters relating to environmental
pollution;
(xiii) preparation of manuals, codes or guides relating to the prevention, control and abatement of
environmental pollution;

(xiv) such other matters as the Central Government deems necessary or expedient for the purpose of
securing the effective implementation of the provisions of this Act.
(3) The Central Government may, if it considers it necessary or expedient so to do for the purpose of
this Act, by order, published in the Official Gazette, constitute an authority or authorities by such
name or names as may be specified in the order for the purpose of exercising and performing such of
the powers and functions (including the power to issue directions under section 5) of the Central
Government under this Act and for taking measures with respect to such of the matters referred to in
sub-section (2) as may be mentioned in the order and subject to the supervision and control of the
Central Government and the provisions of such order, such authority or authorities may exercise and
powers or perform the functions or take the measures so mentioned in the order as if such authority
or authorities had been empowered by this Act to exercise those powers or perform those functions
or take such measures.
4. APPOINTMENT OF OFFICERS AND THEIR POWERS AND FUNCTIONS
(1) Without prejudice to the provisions of sub-section (3) of section 3, the Central Government may
appoint officers with such designation as it thinks fit for the purposes of this Act and may entrust to
them such of the powers and functions under this Act as it may deem fit.
(2) The officers appointed under sub-section (1) shall be subject to the general control and direction
of the Central Government or, if so directed by that Government, also of the authority or authorities,
if any, constituted under sub- section (3) of section 3 or of any other authority or officer.
5. POWER TO GIVE DIRECTIONS

Notwithstanding anything contained in any other law but subject to the provisions of this Act, the
Central Government may, in the exercise of its powers and performance of its functions under this
Act, issue directions in writing to any person, officer or any authority and such person, officer or
authority shall be bound to comply with such directions.3
100
Explanation--For the avoidance of doubts, it is hereby declared that the power to issue directions
under this section includes the power to direct--

(a) the closure, prohibition or regulation of any industry, operation or process; or

(b) stoppage or regulation of the supply of electricity or water or any other service.
6. RULES TO REGULATE ENVIRONMENTAL POLLUTION

(1) The Central Government may, by notification in the Official Gazette, make rules in respect of all
or any of the matters referred to in section 3.
(2) In particular, and without prejudice to the generality of the foregoing power, such rules may
provide for all or any of the following matters, namely:--
(a) the standards of quality of air, water or soil for various areas and purposes;4
(b) the maximum allowable limits of concentration of various environmental pollutants (including
noise) for different areas;
(c) the procedures and safeguards for the handling of hazardous substances;5
(d) the prohibition and restrictions on the handling of hazardous substances in different areas;6

(e) the prohibition and restriction on the location of industries and the carrying on process and
operations in different areas;7
(f) the procedures and safeguards for the prevention of accidents which may cause environmental
pollution and for providing for remedial measures for such accidents.8

CHAPTER III
PREVENTION, CONTROL, AND ABATEMENT OF ENVIRONMENTAL POLLUTION
7. PERSONS CARRYING ON INDUSTRY OPERATION, ETC., NOT TO ALLOW EMISSION
OR DISCHARGE OF ENVIRONMENTAL POLLUTANTS IN EXCESS OF THE STANDARDS
No person carrying on any industry, operation or process shall discharge or emit or permit to be
discharged or emitted any environmental pollutants in excess of such standards as may be
prescribed.9
8. PERSONS HANDLING HAZARDOUS SUBSTANCES TO COMPLY WITH PROCEDURAL
SAFEGUARDS

No person shall handle or cause to be handled any hazardous substance except in accordance with
such procedure and after complying with such safeguards as may be prescribed.10
9. FURNISHING OF INFORMATION TO AUTHORITIES AND AGENCIES IN CERTAIN
CASES
(1) Where the discharge of any environmental pollutant in excess of the prescribed standards occurs
or is apprehended to occur due to any accident or other unforeseen act or event, the person
101
responsible for such discharge and the person in charge of the place at which such discharge occurs
or is apprehended to occur shall be bound to prevent or mitigate the environmental pollution caused
as a result of such discharge and shall also forthwith--
(a) intimate the fact of such occurrence or apprehension of such occurrence; and
(b) be bound, if called upon, to render all assistance,

to such authorities or agencies as may be prescribed.11

(2) On receipt of information with respect to the fact or apprehension on any occurrence of the nature
referred to in sub-section (1), whether through intimation under that sub-section or otherwise, the
authorities or agencies referred to in sub-section (1) shall, as early as practicable, cause such
remedial measures to be taken as necessary to prevent or mitigate the environmental pollution.
(3) The expenses, if any, incurred by any authority or agency with respect to the remedial measures
referred to in sub-section (2), together with interest (at such reasonable rate as the Government may,
by order, fix) from the date when a demand for the expenses is made until it is paid, may be
recovered by such authority or agency from the person concerned as arrears of land revenue or of
public demand.
10. POWERS OF ENTRY AND INSPECTION
(1) Subject to the provisions of this section, any person empowered by the Central Government in
this behalf12 shall have a right to enter, at all reasonable times with such assistance as he considers
necessary, any place--

(a) for the purpose of performing any of the functions of the Central Government entrusted to him;
(b) for the purpose of determining whether and if so in what manner, any such functions are to be
performed or whether any provisions of this Act or the rules made there under or any notice, order,
direction or authorization served, made, given or granted under this Act is being or has been
complied with;
(c) for the purpose of examining and testing any equipment, industrial plant, record, register,
document or any other material object or for conducting a search of any building in which he has
reason to believe that an offence under this Act or the rules made thereunder has been or is being or
is about to be committed and for seizing any such equipment, industrial plant, record, register,
document or other material object if he has reason to believe that it may furnish evidence of the
commission of an offence punishable under this Act or the rules made thereunder or that such seizure
is necessary to prevent or mitigate environmental pollution.

(2) Every person carrying on any industry, operation or process of handling any hazardous substance
shall be bound to render all assistance to the person empowered by the Central Government under
sub-section (1) for carrying out the functions under that sub-section and if he fails to do so without
any reasonable cause or excuse, he shall be guilty of an offence under this Act.
(3) If any person willfully delays or obstructs any persons empowered by the Central Government
under sub-section (1) in the performance of his functions, he shall be guilty of an offence under this
Act.
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(4) The provisions of the Code of Criminal Procedure, 1973, or, in relation to the State of Jammu and
Kashmir, or an area in which that Code is not in force, the provisions of any corresponding law in
force in that State or area shall, so far as may be, apply to any search or seizures under this section as
they apply to any search or seizure made under the authority of a warrant issued under section 94 of
the said Code or as the case may be, under the corresponding provision of the said law.

11. POWER TO TAKE SAMPLE AND PROCEDURE TO BE FOLLOWED IN CONNECTION

THEREWITH
(1) The Central Government or any officer empowered by it in this behalf,13 shall have power to
take, for the purpose of analysis, samples of air, water, soil or other substance from any factory,
premises or other place in such manner as may be prescribed.14
(2) The result of any analysis of a sample taken under sub-section (1) shall not be admissible in
evidence in any legal proceeding unless the provisions of sub-sections (3) and (4) are complied with.
(3) Subject to the provisions of sub-section (4), the person taking the sample under sub-section (1)
shall--

(a) serve on the occupier or his agent or person in charge of the place, a notice, then and there, in
such form as may be prescribed, of his intention to have it so analyzed;
(b) in the presence of the occupier of his agent or person, collect a sample for analysis;

(c) cause the sample to be placed in a container or containers which shall be marked and sealed and
shall also be signed both by the person taking the sample and the occupier or his agent or person;

(d) send without delay, the container or the containers to the laboratory established or recognized by
the Central Government under section 12.
(4) When a sample is taken for analysis under sub-section (1) and the person taking the sample
serves on the occupier or his agent or person, a notice under clause (a) of sub-section (3), then,--
(a) in a case where the occupier, his agent or person willfully absents himself, the person taking the
sample shall collect the sample for analysis to be placed in a container or containers which shall be
marked and sealed and shall also be signed by the person taking the sample, and
(b) in a case where the occupier or his agent or person present at the time of taking the sample
refuses to sign the marked and sealed container or containers of the sample as required under clause
(c) of sub-section (3), the marked and sealed container or containers shall be signed by the person
taking the samples, and the container or containers shall be sent without delay by the person taking
the sample for analysis to the laboratory established or recognised under section 12 and such person
shall inform the Government Analyst appointed or recognised under section 12 in writing, about the
wilfull absence of the occupier or his agent or person, or, as the case may be, his refusal to sign the
container or containers.

12. ENVIRONMENTAL LABORATORIES

(1) The Central Government15 may, by notification in the Official Gazette,--
(a) Establish one or more environmental laboratories;
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(b) recognize one or more laboratories or institutes as environmental laboratories to carry out the
functions entrusted to an environmental laboratory under this Act.16

(2) The Central Government may, by notification in the Official Gazette, make rules specifying--
(a) the functions of the environmental laboratory;17
(b) the procedure for the submission to the said laboratory of samples of air, water, soil or other
substance for analysis or tests, the form of the laboratory report thereon and the fees payable for such
report;18
(c) such other matters as may be necessary or expedient to enable that laboratory to carry out its
functions.
13. GOVERNMENT ANALYSTS
The Central Government may by notification in the Official Gazette, appoint or recognise such
persons as it thinks fit and having the prescribed qualifications19 to be Government Analysts for the
purpose of analysis of samples of air, water, soil or other substance sent for analysis to any
environmental laboratory established or recognized under sub-section (1) of section 12.

14. REPORTS OF GOVERNMENT ANALYSTS

Any document purporting to be a report signed by a Government analyst may be used as evidence of
the facts stated therein in any proceeding under this Act.

15. PENALTY FOR CONTRAVENTION OF THE PROVISIONS OF THE ACT AND THE
RULES, ORDERS AND DIRECTIONS

(1) Whoever fails to comply with or contravenes any of the provisions of this Act, or the rules made
or orders or directions issued there under, shall, in respect of each such failure or contravention, be
punishable with imprisonment for a term which may extend to five years with fine which may extend
to one lakh rupees, or with both, and in case the failure or contravention continues, with additional
fine which may extend to five thousand rupees for every day during which such failure or
contravention continues after the conviction for the first such failure or contravention.

(2) If the failure or contravention referred to in sub-section (1) continues beyond a period of one year
after the date of conviction, the offender shall be punishable with imprisonment for a term which
may extend to seven years.

16. OFFENCES BY COMPANIES

(1) Where any offence under this Act has been committed by a company, every person who, at the
time the offence was committed, was directly in charge of, and was responsible to, the company for
the conduct of the business of the company, as well as the company, shall be deemed to be guilty of
the offence and shall be liable to be proceeded against and punished accordingly:
Provided that nothing contained in this sub-section shall render any such person liable to any
punishment provided in this Act, if he proves that the offence was committed without his knowledge
or that he exercised all due diligence to prevent the commission of such offence.

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(2) Notwithstanding anything contained in sub-section (1), where an offence under this Act has been
committed by a company and it is proved that the offence has been committed with the consent or
connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or
other officer of the company, such director, manager, secretary or other officer shall also deemed to
be guilty of that offence and shall be liable to be proceeded against and punished accordingly.

Explanation--For the purpose of this section,--

(a) "Company" means anybody corporate and includes a firm or other association of individuals;
(b) "Director", in relation to a firm, means a partner in the firm.

17. OFFENCES BY GOVERNMENT DEPARTMENTS

(1) Where an offence under this Act has been committed by any Department of Government, the
Head of the Department shall be deemed to be guilty of the offence and shall be liable to be
proceeded against and punished accordingly.
Provided that nothing contained in this section shall render such Head of the Department liable to
any punishment if he proves that the offence was committed without his knowledge or that he
exercise all due diligence to prevent the commission of such offence.
(2) Notwithstanding anything contained in sub-section (1), where an offence under this Act has been
committed by a Department of Government and it is proved that the offence has been committed
with the consent or connivance of, or is attributable to any neglect on the part of, any officer, other
than the Head of the Department, such officer shall also be deemed to be guilty of that offence and
shall be liable to be proceeded against and punished accordingly.

CHAPTER IV

MISCELLANEOUS
18. PROTECTION OF ACTION TAKEN IN GOOD FAITH
No suit, prosecution or other legal proceeding shall lie against the Government or any officer or
other employee of the Government or any authority constituted under this Act or any member,
officer or other employee of such authority in respect of anything which is done or intended to be
done in good faith in pursuance of this Act or the rules made or orders or directions issued
thereunder.
19. COGNIZANCE OF OFFENCES
No court shall take cognizance of any offence under this Act except on a complaint made by--

(a) the Central Government or any authority or officer authorised in this behalf by that
Government,20 or
(b) any person who has given notice of not less than sixty days, in the manner prescribed, of the
alleged offence and of his intention to make a complaint, to the Central Government or the authority
or officer authorised as aforesaid.
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20. INFORMATION, REPORTS OR RETURNS
The Central Government may, in relation to its function under this Act, from time to time, require
any person, officer, State Government or other authority to furnish to it or any prescribed authority or
officer any reports, returns, statistics, accounts and other information and such person, officer, State
Government or other authority shall be bound to do so.

21. MEMBERS, OFFICERS AND EMPLOYEES OF THE AUTHORITY CONSTITUTED

UNDER SECTION 3 TO BE PUBLIC SERVANTS
All the members of the authority, constituted, if any, under section 3 and all officers and other
employees of such authority when acting or purporting to act in pursuance of any provisions of this
Act or the rules made or orders or directions issued thereunder shall be deemed to be public servants
within the meaning of section 21 of the Indian Penal Code (45 of 1860).

22. BAR OF JURISDICTION

No civil court shall have jurisdiction to entertain any suit or proceeding in respect of anything done,
action taken or order or direction issued by the Central Government or any other authority or officer
in pursuance of any power conferred by or in relation to its or his functions under this Act.
23. POWERS TO DELEGATE
Without prejudice to the provisions of sub-section (3) of section 3, the Central Government may, by
notification in the Official Gazette, delegate, subject to such conditions and limitations as may be
specified in the notifications, such of its powers and functions under this Act [except the powers to
constitute an authority under sub-section (3) of section 3 and to make rules under section 25] as it
may deem necessary or expedient, to any officer, State Government or other authority.
24. EFFECT OF OTHER LAWS

(1) Subject to the provisions of sub-section (2), the provisions of this Act and the rules or orders
made therein shall have effect notwithstanding anything inconsistent therewith contained in any
enactment other than this Act.

(2) Where any act or omission constitutes an offence punishable under this Act and also under any
other Act then the offender found guilty of such offence shall be liable to be punished under the other
Act and not under this Act.

25. POWER TO MAKE RULES

(1) The Central Government may, by notification in the Official Gazette, make rules for carrying out
the purposes of this Act.

(2) In particular, and without prejudice to the generality of the foregoing power, such rules may
provide for all or any of the following matters, namely--
(a) the standards in excess of which environmental pollutants shall not be discharged or emitted
under section 7;21

106
(b) the procedure in accordance with and the safeguards in compliance with which hazardous
substances shall be handled or caused to be handled under section 8;22

(c) the authorities or agencies to which intimation of the fact of occurrence or apprehension of
occurrence of the discharge of any environmental pollutant in excess of the prescribed standards
shall be given and to whom all assistance shall be bound to be rendered under sub-section (1) of
section 9;23
(d) the manner in which samples of air, water, soil or other substance for the purpose of analysis
shall be taken under sub-section (1) of section 11;24

(e) the form in which notice of intention to have a sample analysed shall be served under clause (a)
of sub section (3) of section 11;25
(f) the functions of the environmental laboratories,26 the procedure for the submission to such
laboratories of samples of air, water, soil and other substances for analysis or test;27 the form of
laboratory report; the fees payable for such report and other matters to enable such laboratories to
carry out their functions under sub-section (2) of section 12;

(g) the qualifications of Government Analyst appointed or recognised for the purpose of analysis of
samples of air, water, soil or other substances under section 13;28
(h) the manner in which notice of the offence and of the intention to make a complaint to the Central
Government shall be given under clause (b) of section 19;29
(i) the authority of officer to whom any reports, returns, statistics, accounts and other information
shall be furnished under section 20;
(j) any other matter which is required to be, or may be, prescribed.

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 BANGALORE UNIVERSITY
IV SEMESTER BBM EXAMINATION

BUSINESS REGULATIONS

MAX MARKS: 100 TIME: 3 Hours

SECTION A
1. Answer any 10 2x10=20
a) Define agreement

b) What is free consent?

c) Define deficiency as per the consumer protection act
d) What are goods as per the Sale of Goods Act?

e) Define complainant.
f) Expand FEMA and FERA
g) What is hacking?

h) Define the word Data as per the IT Act 2000,

i) What is a hazardous substance?
j) Define service as per Competition Act 2002.

k) Give the meaning of Breach of Contract.

l) What does void ab initio mean?

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 SECTION B

Answer any 4 4x8=32

2. Write a brief note on establishment of Competition Commission of India.
3. State the consumer rights as stated in the Consumer protection Act?

4. State the legal rules for an acceptance.

5. Who is a minor? Is he liable for necessaries? State the law relating to it.
6. Distinguish between coercion and undue influence

7. What is competition act? State the objectives.

SECTION C
Answer any 3 3x16=48
11. Explain the various sources of Business Law.
12. State the various ways by which contract can be discharged.

13. Who are the parties competent to Contract? Discuss who are incapable of contract.
14. State the functions, jurisdictions and composition of the Consumer Redressal Forum.
15. Explain briefly the contraventions and penalties stated in the Foreign Exchange Management
Act 1999.

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