Business Laws(BBA 201)

Unit 2 : Sale of Goods Act, 1930

Prepared and Presented By:

Ms Roli Wadhwa
Assistant Professor
DME Management School

1
2
 Lesson Plan

2.1 Contract of Sale 1930

2.2 Contract of Sale

2.3 Meaning and Difference between Sale and Agreement to Sell

2.4 Conditions and Warranties
2.5 Caveat Emptor
2.6 Passing of Property in Goods

2.7 Transfer of Ownership in Goods including non owners

2.8 Unpaid Seller
2.9 Buyer Remedies
2.10 Consumer Protection Act

3
Introduction of the session:

Contract of Sale Act 1930

Contract of Sale
Meaning and Difference between Sale and Contract to Sale
Conditions

4
 2.1
Contract of Sale 1930

5
 Suggested Readings
Author: SN Maheshwari and SK Maheshwari
Title of the Book: A Manual of Business Laws
Name: The Sale of Goods Act, 1932

Author: MC Kuchhal and Vivek Kuchhal

Title of the Book: Business Laws
Name: Law of Sale of Goods

Research article link

https://www.indiacode.nic.in/handle/123456789/2390?view_type=br
owse&sam_handle=123456789/1362

6
 Sale of Goods Act, 1930

Section 4 defines a contract of sale as “a contract whereby the

seller transfers or agrees to transfer the property in goods to
the buyer for a price.”

• Came into force on July 1, 1930

• Extends to the whole country

7
Business Laws(BBA 201)

Unit 2 : Sale of Goods Act, 1930

Prepared and Presented By:

Ms Roli Wadhwa
Assistant Professor
DME Management School

1
2
 Lesson Plan

2.1 Contract of Sale 1930

2.2 Contract of Sale
Meaning and Difference between Sale and
2.3 Agreement to Sell
2.4 Conditions and Warranties
2.5 Caveat Emptor
2.6 Passing of Property in Goods
Transfer of Ownership in Goods including non
2.7 owners
2.8 Unpaid Seller
2.9 Buyer Remedies
2.10 Consumer Protection Act

3
Introduction of the session:

Contract of Sale Act 1930

Contract of Sale
Meaning and Difference between Sale and Contract to Sale
Conditions

4
 2.2
Contract of Sale

5
 Suggested Readings
Author: SN Maheshwari and SK Maheshwari
Title of the Book: A Manual of Business Laws
Name: The Sale of Goods Act, 1932

Author: MC Kuchhal and Vivek Kuchhal

Title of the Book: Business Laws
Name: Law of Sale of Goods

Research article link

https://www.indiacode.nic.in/handle/123456789/2390?view_t
ype=browse&sam_handle=123456789/1362

6
Essentials of a Contract of Sale:

Atleast two parties : A buyer and a seller to constitute a contract of

sale. The same person cannot be both buyer and a seller
Eg: A and B own 10 bags of cement jointly. A can sell to B his share in
the bags so as to make B the owner of the goods

Subject matter of the contract must be goods.

Contract of sale relates to goods i.e movable property. Transactions

involving purchase and sale of immovable property are out of the
purview of sale of goods act. They are regulated by the Transfer of
Property act. Similarly contracts for providing a service cannot be
taken as a contract for sale of goods
7
Price is the consideration of contract of sale.
Transfer to goods must be taken for some money consideration. When
goods are exchanged for goods, it is called barter and not sale. However,
when the consideration consists of partly of goods and partly of money, it
will be taken as a contract of sale

All other essentials of a valid contract as per the Indian Contract Act, 1872.

Transfer or agreement to transfer ownership of goods.

There must be a change in ownership from seller to buyer

8
A Contract of sale is of two types:

Sale: The property in goods is immediately transferred from the

seller to the buyer, at the time of making the contract.

Eg: On 15th March, A sells 10 bags of rice to B for a sum of Rs 100. It

is a sale since the ownership of 10 bags of rice has been transferred
from A to B.

Agreement to sell: The transfer of property in goods is to take

place at a future time or subject to some conditions thereafter to
be fulfilled

Eg: On 15th March, A agrees with B that he will sell to B when the
time elapses or the conditions are fulfilled subject to which the
property in the goods will be transferred 9
Business Laws(BBA 201)

Unit 2 : Sale of Goods Act, 1930

Prepared and Presented By:

Ms Roli Wadhwa
Assistant Professor
DME Management School

1
2
 Lesson Plan

2.1 Contract of Sale 1930

2.2 Contract of Sale
Meaning and Difference between Sale and Agreement to
2.3 Sell
2.4 Conditions and Warranties
2.5 Caveat Emptor
2.6 Passing of Property in Goods

2.7 Transfer of Ownership in Goods including non owners

2.8 Unpaid Seller
2.9 Buyer Remedies
2.10 Consumer Protection Act

3
Introduction of the session:

Contract of Sale Act 1930

Contract of Sale
Meaning and Difference between Sale and Contract to Sale
Conditions

4
 2.3
Meaning and Difference
between Sale and Contract
to Sale

5
 Suggested Readings
Author: SN Maheshwari and SK Maheshwari
Title of the Book: A Manual of Business Laws
Name: The Sale of Goods Act, 1932

Author: MC Kuchhal and Vivek Kuchhal

Title of the Book: Business Laws
Name: Law of Sale of Goods

Research article link

https://www.indiacode.nic.in/handle/123456789/2390?view_t
ype=browse&sam_handle=123456789/1362

6
7
Subject matter of Contract of Sale of Goods:

Goods:
Goods means every kind of movable property other than
actionable claims (debt) and money and includes
1. stock and shares,
2. growing crops, grass and things attached to or forming
part of the land which are agreed to be severed before
sale or under the contract of sale.

8
Classification of Goods:

Existing goods: Goods owned or possessed by the seller at the

time of making a contract of sale are called existing goods.

The Existing goods may be:

a. Specific/Ascertained goods are those goods which are

identified and agreed upon at the time of the contract of
sale; i.e., a particular painting by a painter, a horse pointed
out and recognised as separate from other horses in a
stable. The term Ascertained goods is used in the same
sense as Specific Goods.

9
Generic or Unascertained Goods :

Are those goods which are not specifically identified but are indicated
by description. If A agrees to supply one bag of wheat from his godown
to B, it is a contract relating to unascertained goods because it is not
known which bag will be delivered. As soon as a particular bag is
separated from the lot and making or identified for delivery it
becomes specific goods.

Example:
X has 10 cows. He promises to sell one of them to Y, pointing it out to Y
at the time of sale. Goods have been identified at the time of sale, and
therefore it is a sale of specific goods
If in this example, X only agrees one of the cows, but does not specify
which cow he will sell, it is a contract of unascertained goods.

10
 Future goods: Goods to be manufactured, produced or acquired after
the making of the contract are called future goods
• Eg1:
• A agree to sell to B all the oranges which will be produced in his
garden next year. This is an agreement for the sale of future goods.

• Eg2:
• A contracts on 1st January , to sell B 50 shares in Reliance Ltd, to be
delivered and paid for on the 1st March of the same year. At the time
of making the contract, A is not in possession of any shares. The
contract is a contract for the sale of future goods.

11
Contingent goods are those goods which the seller will
acquire on the happening of a contingency. An agreement
to sell contingent goods can also be made.

Eg1: A’s father has a rare copy of book which is out of print.
A hopes to get it on his father’s death. A agrees to sell it to
B for Rs.10,000 even before his father’s death. This is an
agreement for the sale of contingent goods.

Eg2: A agrees to sell 100 units of an article provided the

ship which is bringing them, reaches the port safely. This is
an agreement for the sale of contingent goods

12
The Price:
Price, which means money consideration for a sale of goods,
constitutes the essence of a contract of sale. It may be
money actually paid or promised to be paid accordingly as
the agreement is for cash sale or credit sale.
Modes of determining Price of Goods:
i. It may be fixed by the contract.
ii. It may be left to be fixed in an agreed manner.
iii. It may be determined by the course of dealing between
the parties.

Where the price is not determined in any of the above modes,

the buyer must pay the seller a reasonable price.
13
SELF CHECK TEST

(a) A agreed to sell to B oil, not yet pressed from seeds in

his possession. It is a contract of sale ?
(b) A changes with B a 100 rupee note with coins for 100
rupees. Is this transaction a sale ?
(c) A buys Victoria Rupees from a jeweller and pays for th
em in 10 rupee notes. Is there a sale ?
(d) A exchanges 32 bullocks for the entire crop of wheat h
arvested from B's land. Does this transaction
amount to sale ?
(e) A agrees to buy 100 bales of cotton from B and takes d
elivery after one week. He deposits Rs.100 with B as a
guarantee for performance by him of the contract. A fails t
o take delivery of the goods on the expiry of one
week. What are B’s rights?

14
Answer :

(a) Yes, it is a contract of sale of future goods.

(b) No, it is exchange and not sale.

(c) Yes, it is sale of victoria Rupees which are no more legal

tender, and can be treated as goods.

(d) No, it is barter.

(e) Rs.100 deposited by A with B is earnest money. It will be

forfeited by B for A's nonperformance of the contract. If the
contract falls through due to the fault of seller B, the deposit is
returnable. If the contract is performed, the amount of Rs.100 will
be counted towards the price.

15
Conclusion of the session:

Contract of Sale Act 1930

Contract of Sale
Essentials of Sale
Meaning and Difference between Sale and
Contract to Sale

16
Business Laws(BBA 201)

Unit 2 : Sale of Goods Act, 1930

Prepared and Presented By:

Ms Roli Wadhwa
Assistant Professor
DME Management School

1
2
 Lesson Plan

2.1 Contract of Sale 1930

2.2 Contract of Sale
Meaning and Difference between Sale and
2.3 Agreement to Sell
2.4 Conditions and Warranties
2.5 Caveat Emptor
2.6 Passing of Property in Goods
Transfer of Ownership in Goods including non
2.7 owners
2.8 Unpaid Seller
2.9 Buyer Remedies
2.10 Consumer Protection Act

3
Introduction of the session:

2.4 Conditions and Warranties

4
 2.4
Conditions and Warranties

5
 Suggested Readings
Author: SN Maheshwari and SK Maheshwari
Title of the Book: A Manual of Business Laws
Name: The Sale of Goods Act, 1932

Author: MC Kuchhal and Vivek Kuchhal

Title of the Book: Business Laws
Name: Law of Sale of Goods

Research Article Links

http://thelegalvoiceofindiaiil.org/volume-6/conditions-and-
warranties-with-refernce-to-the-sale-of-goods-act-1930/

6
Condition:
It is a stipulation-
i. essential to the main purpose of the contract,
ii. the breach of which gives the aggrieved party a
right to terminate the contract.

7
Condition

If a buyer contracts to buy a red-coloured saree for her

‘wedding’ which is to be held on a date mentioned to the seller,
then the time is the implied condition for the contract. Even if
the buyer doesn’t mention the date of delivery (but has
mentioned the date of the wedding or occasion), it is implied
on the part of the seller that the garment is to be delivered
before the mentioned date of the wedding. In this case, the
seller is bound to deliver the garment before the date of the
wedding as the delivery of the garment after the said date of
the wedding is of no use to the buyer and the buyer can refuse
to accept the same since the condition to the contract is not
fulfilled.

8
Warranties

9
 Suggested Readings
Author: SN Maheshwari and SK Maheshwari
Title of the Book: A Manual of Business Laws
Name: The Sale of Goods Act, 1932

Author: MC Kuchhal and Vivek Kuchhal

Title of the Book: Business Laws
Name: Law of Sale of Goods

Research Article Links

http://thelegalvoiceofindiaiil.org/volume-6/conditions-and-
warranties-with-refernce-to-the-sale-of-goods-act-1930

10
 Warranty:
It is a stipulation-
i. collateral to the main purpose of the contract,
ii. the breach of which gives the aggrieved party a right to
claim for damages but not to terminate the contract.
Eg: If a buyer contracts to buy a red-coloured saree for her ‘wedding’
and on receiving a timely delivery, the buyer realises that the dress is
not packed or ironed properly. In this case it is a warranty and not a
condition

11
12
The points of distinction between a condition and warranty can
be summed up as under :-

(1) Nature: A condition is a stipulation essential to the main

purpose of a contract while a warranty is a stipulation collateral
to the main purpose of contract.
(2) Remedies for Breach: Breach of condition gives the right to
treat the contract as repudiated while the breach of warranty
gives the right to claim for damages alone. The contract cannot
be repudiated because the breach of warranty does not defeat
the purpose of contract.
(3) Condition as warranty and vice versa: A breach of condition
may be treated as breach of warranty but a breach of warranty
cannot be treated as breach of condition.

13
Example:
Suppose A promises to deliver 100 bales of cotton to B on 1st
August, 2018. A delivers the bales of cotton on 10th of August
2018. Now in this contract, time is the essence of contract. B can
refuse to accept the delivery. But he can also waive this right. He
may treat this breach of condition as breach of warranty by
accepting the goods and claim damages instead.

Where A purchases 100 bags of wheat from B. Wheat must be fit

for human consumption. This is an essential stipulation. Hence it
is called as condition. Other stipulations like packing, etc., is a
minor one, hence called as warranty.
14
• So where a man buys a particular horse which is
warranted quiet to ride. The horse, turns out to be a
vicious one. Buyers remedy is to claim damages unless
he has expressly reserved the right to return the horse –
Warranty
• Suppose instead of buying a particular horse, he
specifically asks for a quiet horse-that stipulations is a
condition. Now the buyer can either return the horse or
retain the horse and claim damages – Condition

“Whether a stipulation in a contract of sale is a condition

or a warranty depends in each case on the construction of
the contract” 15
When condition to be treated as Warranty

Section 13 of the Sales of Goods Act mentions 3 cases in which

a condition sinks or descends to the level of a warranty. A
condition descends to the level of a warranty in the following
cases :
(1) Where the buyer waives the condition;
(2) Where the buyer treats the breach of condition as breach
of warranty;
(3) Where the contract is indivisible and the buyer has
accepted the goods or part of the goods.
16
Express and Implied Conditions and Warranties

They are said to be express when the terms of the contract

expressly, provide for them.

Example: A tells B, “this radio will get all the European stations” or
“this truck will do 15 miles on 5 litres”.

Example: The product will be delivered to you by 15th September

They are said to be implied when the law deems their existence in
the contract even if even if without having been put in the contract

17
Implied Conditions:

Implied Condition as to title

There is an implied condition on the part of the seller that,

in the case of sale, he has the right to sell the goods, and in
the case of an agreement to sell, he will have the right to
sell the goods when the property is to pass. Thus if the
seller has no title to the good, the buyer can reject the
goods, or if he has taken possession of the goods and is
deprived of it by the real owner, the buyer can recover the
full price of the goods even if he has made use of them.

18
Example: A bought a motor-car from B and used it for 4
months. B had no title to the car because he has obtained
the possession by theft and consequently A had to
surrender it to the real owner. A was entitled to recover
from B the full price even though he used the car for 4
months.

19
Implied Condition under a sale by description: Where there is a sale of
goods by description, there is an implied condition that the goods shall
correspond with the description. Goods are sold by description when
they are described by the contract by means of words, symbols, number
of grade, and the buyer relies on them when buying.
Goods must correspond with description

20
Implied conditions under a sale by sample
When the goods are to be supplied according to sample agree
d upon the following conditions are implied
(a) The bulk shall correspond with sample in quality.
(b) The buyer shall have a reasonable opportunity of compari
ng the goods with sample.
(c) The goods shall be free from any latent defects rendering
them unmerchantable which would not be
apparent on reasonable examination of the sample.

21
Implied conditions in sale by sample as well as by description

Where goods are sold by sample as well as description, the

goods must correspond both with the sample and with the
description. In such cases, if the buyer has seen and approved
the sample and the goods are according to the sample, he can
repudiate the contract if these are not according to
description.
A agreed to sell B some oil described as“foreign refined olive
oil, warranted only equal to sample”. The oil tendered was the
same as the sample, but it was not “foreign refined olive oil”
The buyer could reject the oil.
22
• Goods must be of merchantable quality
• Condition as to wholesomeness
• Condition as to fitness for particular purpose

23
 Self Test
(a) A, while showing a piece of cloth to B, says “this is the best piece of cloth in the
market”. B buys thecloth. Does this settlement amount to a condition ?

(b) A tells B, “this radio will get all the European stations” or “this truck will do 15 miles
on 5 litres”.Are these representation conditions ?

(c) A ordered a certain quantity of a specified grade of leather. He plans to use it for
making suit cases. When he finds that the leather is not suitable for that purpose he sues
the seller for damages on a breach of implied conditions. Will he succeed ?

(d) A sold certain grain by description to B, a retailer. Part of the grain delivered by A
was wet and decayed. Was there a breach of condition ?

(e) R Ltd. agreed to supply 500 tons of coal to Manchester Liners for S.S. “Manchester
Importer”. The coal was found to be unsuitable for that particular ship. Has the buyer any
remedy ?

(f) A bought 100 bales of “Fair Bengal” cotton by sample and after having inspected the
bulk, the cotton proved not to be such as was known in the market “Fair Bengal”. Was
there a breach of condition.
24
Answer :

(a) No. the statement does not amount to any condition, but only an opinion or sales talk

B has no right against A.

(b) Yes, these representations amount to express conditions and their breach entitles the
buyer to repudiate the contract or claim damages.

(c) No, he will not succeed because he had ordered a specific grade of leather and there is
no implied condition as to fitness for a particular purpose in such a case.

(d) Yes, there was a breach of implied condition as to merchantability.

(e) The buyer can reject the coal or claim damages as the coal is not suitable for the
particular ship.

(f) Yes, there is a breach of implied condition as the cotton did not correspond to
description.

25
Implied Warranties:

Warranty as to quiet possession

If his possession is disturbed either by the seller or some other
person claiming superior title, buyer can recover damages from the
seller for the breach of an implied warranty of quiet possession.

For example, A buys a laptop from B. After the purchase, A spends

some money on its repair and uses it for some time. Unknown to
the parties, it turns out that the laptop was stolen and was taken
from A and delivered to its rightful owner. B shall be held
responsible for a breach and A is entitled to damages of not only
the price but also the cost of repairs. The breach of implied
condition as to title may also result in breach in breach of warranty
as to quiet possession

26
Warranty as to freedom from encumbrances

This warranty implies that the goods will be free from any charge or
encumbrance in favour of a third party not declared or known to the buyer
before or at the time when the contract was made. Buyer shall have the
right of action if the seller had disclosed the charge or encumbrance at the
time of contract.

Eg: A pledges his bicycle with C for a loan of Rs 100 and promises to give
him its possession the next day. Soon after he sells the bicycle to B, The
innocent buyer who does not know about the fact of bicycle being pledged.
B may either ask A to clear the loan or may himself pay the money and
then file a suit against A to recover this money with interest

27
Warranty to disclose dangerous nature of goods
When the goods are dangerous and the seller knows that the
buyer is ignorant about the dangerous nature of the goods , the
seller should warn the buyer about the probable danger
otherwise, he will be liable for damages for the buyer because of
the dangerous quality of the goods.

Example: A sold a tin of disinfectant powder to C. A knew that the

tin was to be opened with special care otherwise it might prove
dangerous. He also knew that C was ignorant about it. He did not
warn C. C opened the tin and his eyes were injured by the powder.
Held, A was liable as he should have warned C of the probable
danger

28
Warranties implied by the custom or usage of trade
An implied warranty or condition as to quality or fitness for a particular
purpose may be annexed by the usage of trade. In certain sale contracts,
the purpose for which the goods are purchased may be implied from the
conduct of the parties or from the nature or description of the goods. In
such cases, the parties enter into the contract with reference to those
known usage.

For instance, if a person buys a medicine the purpose for which it is

purchased is implied from the thing itself; the buyer need not disclose
the purpose to the seller.

29
Warranties implied by the custom or usage of trade
An implied warranty or condition as to quality or fitness for a particular
purpose may be annexed by the usage of trade. In certain sale contracts,
the purpose for which the goods are purchased may be implied from the
conduct of the parties or from the nature or description of the goods. In
such cases, the parties enter into the contract with reference to those
known usage.

A drug was sold through an auction and according to the usage of trade.
It was to disclose in advance any sea-damage, otherwise, it will be taken
as a breach of warranty if no such disclosure has been made and the
goods found to be defective.

30
Conclusion of the session:

2.4 Conditions and Warranties

31
Business Laws(BBA 201)

Unit 2 : Sale of Goods Act, 1930

Prepared and Presented By:

Ms Roli Wadhwa
Assistant Professor
DME Management School

1
2
 Lesson Plan

2.1 Contract of Sale 1930

2.2 Contract of Sale
Meaning and Difference between Sale and
2.3 Agreement to Sell
2.4 Conditions and Warranties
2.5 Caveat Emptor
2.6 Passing of Property in Goods
Transfer of Ownership in Goods including non
2.7 owners
2.8 Unpaid Seller
2.9 Buyer Remedies
2.10 Consumer Protection Act

3
2.5 Caveat Emptor

4
Doctrine of Caveat Emptor: (Section 16)

It means “let the buyer beware’.

This principle states that it is no part of the seller’s duty to

point out defects of his own goods. The buyer must inspect
the goods to find out if they will suit his purpose.

5
6
Exceptions to the Doctrine:

7
8
9
Conclusion of the session:

Caveat Emptor

4
Business Laws(BBA 201)

Unit 2 : Sale of Goods Act, 1930

Prepared and Presented By:

Ms Roli Wadhwa
Assistant Professor
DME Management School

1
2
 Lesson Plan

2.1 Contract of Sale 1930

2.2 Contract of Sale
Meaning and Difference between Sale and
2.3 Agreement to Sell
2.4 Conditions and Warranties
2.5 Caveat Emptor
2.6 Passing of Property in Goods
Transfer of Ownership in Goods including non
2.7 owners
2.8 Unpaid Seller
2.9 Buyer Remedies
2.10 Consumer Protection Act

3
 Suggested Readings
Author: SN Maheshwari and SK Maheshwari
Title of the Book: A Manual of Business Laws
Name: The Sale of Goods Act, 1930

Author: MC Kuchhal and Vivek Kuchhal

Title of the Book: Business Laws
Name: Law of Sale of Goods

Research Article Links

https://www.toppr.com/guides/business-laws/the-sale-of-goods-act-
1930/doctrine-of-caveat-
emptor/#:~:text=The%20doctrine%20of%20Caveat%20Emptor%20is%20
an%20integral%20part%20of,%E2%80%9Clet%20the%20buyer%20bewa
re%E2%80%9D.&text=This%20doctrine%20says%20that%20the,for%20t
he%20choice%20he%20made.

6
Introduction of the session:

Passing of property in goods

4
2.6 Passing of Property in Goods

6
 Passing of Property in Goods:
‘Property in goods’ means ownership of the goods. Transfer of
ownership or property in goods is in fact the main object of making a
contract of sale. It is important to know the precise moment of time
at which property in goods passed for the following reasons:

Risk generally passes with ownership

Incase of destruction of or damage to the goods, it is the owner who needs
to bear the loss. Payment of price or possession of the goods is immaterial

A buys goods from B. The goods remain in B’s warehouse. Before delivery of
goods to A, there is a fire in B’s warehouse and all the goods are destroyed.
A must pay the price of goods, to B, if he has not paid it so far.

7
A agrees to purchase B’s car for Rs 10,000. The ownership from A to B is
to pass on 15th January 2002, while the price is paid in advance on 10th
January 2001, On 11th Jan, the car is damaged in an accident. B will
have to bear the loss.

Action against third parties

Incase the goods have been damaged by a third party, it is only the
owner who can take action against him

8
Rules for Passing of property:
1. Transfer of property in specific or ascertained goods
• When goods are in deliverable state
• Eg:
• B offers A for his horse for a sum of Rs 1000. The horse is to
be delivered to B on a fixed day and the price is to be paid on
another fixed day. A accepts the offer. The horse becomes B’s
property as soon as the offer is accepted

9
When goods are to be put in deliverable state
Eg:
X contracted to purchase timber from oak trees which belonged
to Y. X marked out the selected portion of the trees. Y had to
remove the rejected portions from the trees according to the
custom of trade. But before, this could be done, Y became
bankrupt. Held, X could not take the selected portions because
the property in the goods could pass to him only when the goods
were put in a deliverable state

10
2. Transfer of property in Unascertained or future goods

No property can pass from the seller to the buyer in the case
of unascertained goods until the goods are ascertained. In
case of unascertained goods, property will pass from the
seller to the buyer when goods of the same description, in a
deliverable state, are unconditionally appropriated to the
contract by one party with the consent of the other.

11
For example, B has 1,000 bags of wheat belonging to A lying
in his godown and if A agrees to give 100 bags of wheat to B
permitting B to select 100 bags out of the 1,000 bags of A
which are ready in B’s possession, the appropriation of the
goods to the contract would, in this case, be made by B, the
buyer. When the goods are destroyed before the
appropriation could be made, the loss has to be borne by the
seller as no property in them is deemed to have been
passed.

12
 Rule of Transfer of Title on Sale

The general rule is “ the seller cannot transfer to the buyer

of goods a better title than he himself has.”
The rule is expressed by the maxim, “nemo det quod non
habet”.

13
Conclusion of the session:

• Caveat Emptor – Concept, Exceptions (fitness for buyer’s

purpose, merchantable quality, usage of trade, consent
by fraud or concealment., sale by sample )

Passing of Property in goods

• Transfer of property in specific or ascertained goods
• Transfer of Property in Unascertained goods
• Rule of transfer in title on sale

4
Business Laws(BBA 201)

Unit 2 : Sale of Goods Act, 1930

Prepared and Presented By:

Ms Roli Wadhwa
Assistant Professor
DME Management School

1
2
 Lesson Plan

2.1 Contract of Sale 1930

2.2 Contract of Sale
Meaning and Difference between Sale and
2.3 Agreement to Sell
2.4 Conditions and Warranties
2.5 Caveat Emptor
2.6 Passing of Property in Goods
Transfer of Ownership in Goods including non
2.7 owners
2.8 Unpaid Seller
2.9 Buyer Remedies
2.10 Consumer Protection Act

3
Introduction of the session

2.4 Transfer of ownership in goods including sale by non owners

• Conceptual meaning
• Exceptional cases
2.5 Performance of contract of sale
• Conceptual meaning
• Kinds of Delivery
2.6 Unpaid Seller - Meaning and Rights of an unpaid seller against the
goods and buyers
• Conceptual meaning
• Rights of an unpaid seller

4
 2.7
Transfer of ownership in goods including sale by non
owners

5
 Suggested Readings
Author: SN Maheshwari and SK Maheshwari
Title of the Book: A Manual of Business Laws
Name: The Sale of Goods Act, 1930

Author: MC Kuchhal and Vivek Kuchhal

Title of the Book: Business Laws
Name: Law of Sale of Goods

Research article link

https://www.toppr.com/guides/business-laws/the-sale-of-
goods-act-1930/transfer-of-title/

6
Transfer of Title by Non-owners
The general rule is that only the owner of goods can sell
them. No one can convey a better title than he himself has. If
a person transfers some goods not belonging to him, the
transferee gets no title because how can one give what he
himself does not own.

A finds a ring and after making reasonable effort to discover

the owner sells it to B who buys without knowledge that A
was merely a finder. But B does not get title to the ring and
the true owner can recover the ring from B.

7
Exceptions to the General Rule:
• Sale by a Mercantile Agent
• Sale by a Co-owner
• Sale by a person in possession under a voidable Contract
• A, by coercion induces B to sell and deliver him a car. A sells the
car to C before B has rescinded the contract. C does not know
about the defective title to A. C gets a good title to the car and
B cannot recover it from him.
• Sale by seller in possession after sale
• A buys a picture from shop and leaves it with the shopkeeper.
The shopkeeper sells it to B who has no knowledge of the
sale to A. B gets a good title to the picture. A cannot get the
picture from B. His only remedy is to sue the shopkeeper for
damages

8
Sale by buyer in possession of goods over which the seller has some
rights
A sold 100 bales of cotton to B for a sum of Rs 1000. A had not received
payment of the price but he sent the railway receipt to B. B
immediately endorsed the railway receipt to C. B became insolvent
before the goods could reach their destination. A exercised his right of
stoppage of the goods in transit. It was held that goods could not be
stopped in the way since C had a good title over them

Sale under the implied authority of the owner or title by estoppel

Eg: A says to B in presence of C, the real owner of the goods that A is
the owner of the goods. C remains mum. Subsequently A sells the
same goods to B. C cannot recover the goods from B since by his
conduct he has accepted that A is the owner of the goods

9
Business Laws(BBA 201)

Unit 2 : Sale of Goods Act, 1930

Prepared and Presented By:

Ms Roli Wadhwa
Assistant Professor
DME Management School

1
2
 Lesson Plan

2.1 Contract of Sale 1930

2.2 Contract of Sale
Meaning and Difference between Sale and
2.3 Agreement to Sell
2.4 Conditions and Warranties
2.5 Caveat Emptor
2.6 Passing of Property in Goods
Transfer of Ownership in Goods including non
2.7 owners
2.8 Unpaid Seller
2.9 Buyer Remedies
2.10 Consumer Protection Act

3
Introduction of the session

2.8 Unpaid Seller - Meaning and Rights of an unpaid seller against the
goods and buyers
• Conceptual meaning
• Rights of an unpaid seller
• General Lien and Particular Lien
• Buyer’s remedies against the seller

4
2.8 Unpaid Seller - Meaning and Rights of an unpaid seller
against the goods and buyers

5
 Suggested Readings
Author: SN Maheshwari and SK Maheshwari
Title of the Book: A Manual of Business Laws
Name: The Sale of Goods Act, 1932

Author: MC Kuchhal and Vivek Kuchhal

Title of the Book: Business Laws
Name: Law of Sale of Goods

Research article link:

https://www.toppr.com/guides/business-laws/the-sale-of-goods-act-
1930/rights-of-unpaid-seller-against-buyer/#:~:text=view%20more-
,Rights%20of%20Unpaid%20Seller%20Against%20Buyer,seller%20be
comes%20an%20unpaid%20seller.&text=Such%20rights%20are%20t
he%20seller,against%20the%20goods%20he%20sold.

6
Unpaid seller:

The seller of goods is deemed to be unpaid seller:

i. When the whole of the price has not been paid

ii. When the payment was made by a bill of exchange or

other negotiable instrument and instrument has been
dishonoured.

7
What are the Rights of Unpaid Seller against Goods

• When goods are in existence and title has not gone to

buyer, Unpaid Seller can exercise the rights against goods.
These rights are categorized into three types. They are as
follows.

• Right of lien
• Right of stoppage in transit
• Right to Re-Sell
8
Rights of an Unpaid seller:

I. Rights against the goods (refer to book for greater detail):

• Right of lien

• Right to retain goods by unpaid seller till amount is recovered

is called right of lien. If unpaid seller wants to exercise right of
lien, he has to fulfill the following conditions.
• He must be unpaid seller
• There should be no credit terms in the Contract of Sale.
• After completion of credit period, right of lien can be
exercised.
• The unpaid seller should have obtained those goods lawfully.
• Amount must be due on those goods only against which right
of lien is decided.

9
General Lien
A general lien is a right of one person to retain any property or
goods which are in his possession belonging to another person
until the promise or liability is discharged.

It is a right to retain the property belonging to another for a

general balance of the account.

A general lien is available to bankers, factors, attorneys of High

Court and policy brokers.

9
Example of General Lien

A has two accounts in a bank. In the savings bank account, he

has a credit balance of $500.

In the current account, lie has an overdraft of $1,000. The bank

can exercise the right of lien on the savings account for the
amount due on the current account.
It should be noted that the right of the lien will not apply to
properties deposited for safe custody or a specific purpose.

9
1. This right can be exercised against any property belonging to
the other party in possession of the person exercising the
right.

2. This right can be exercised for a general balance of the

account, i.e., for any amount due.

3. This right is available only to bankers, factors, attorneys of

High Courts and policy brokers.

9
Particular Lien
A particular lien is available only against the particular property
in respect of which the bailee has expended labor and skill.

A bailee is entitled to a particular lien only.

9
Example of Particular Lien
A gives two cars – an Ambassador and a Fiat, for repairs to B. B
repaired only the Ambassador car.
A took delivery of the Ambassador car without making the
payment of the repair charges. B cannot retain the Fiat car for
the repair charges due in respect of the Ambassador car.
It should be noted that lien is possessory; hence if possession is
lost, the lien is also lost

9
Conditions for Exercise of Particular Lien
• To exercise a particular lien, the following conditions are
essential:
• The right of lien can be exercised only when the bailee has
expended his labor and skill on the goods bailed. Therefore,
mere custody of goods does not give a right of lien.
• The right of lien can be exercised only when the work has
been completed in lime. If the work has not been completed
in lime, the lien cannot be exercised.
• The right of lien can be exercised only if the payment is due.
In case the payment is to be made on delivery, but at a future
date, then the lien cannot be exercised.
9
Right of stoppage in transit
• Unpaid Seller has right to stop the goods in the transit itself. To
exercise this right the following conditions are to be fulfilled.
• He must be unpaid seller.
• Buyer must be insolvent.
• There should be no credit terms in the Contract of Sale. After expiry
of Credit period, this right can be exercised.
• Amount must be due on those goods only against which this right is
desired.

10
Right to re-sale
The unpaid seller can re-sell the goods for non-payment of price
by buyer. He can exercise this right when the goods are of
perishable nature while doing so it is beneficiary to the seller to
give a notice to buyer with regard to resale.

11
Rights of Unpaid Seller against Buyer
Right to sue for price
It is fundamental right of buyer to file a suit for recovery of
unpaid price. In the case of sale. Suit will be made for price
balance, but not for compensation.

Right to sue to interest

Right to sue for compensation for non-acceptance

When an agreement to sell is breached, the seller can seek only
for compensation for the breach of Contract. Under such
circumstances he cannot sue for price.
12
BUYER’S REMEDIES AGAINST THE SELLER

• Damages for non-delivery

• Right of recovery of the price
• Specific performance
• Suit for breach of condition
• Suit for breach of warranty
• Recovery of interest

13
Conclusion of the session

2.8 Unpaid Seller - Meaning and Rights of an unpaid seller against the
goods and buyers
• Conceptual meaning
• Rights of an unpaid seller
• General Lien and Particular Lien
• Buyer’s remedies against the seller

14
Business Laws(BBA 201)

Unit 2 : Sale of Goods Act, 1930

Prepared and Presented By:

Ms Roli Wadhwa
Assistant Professor
DME Management School

1
2
 Lesson Plan

2.1 Contract of Sale 1930

2.2 Contract of Sale
Meaning and Difference between Sale and
2.3 Agreement to Sell
2.4 Conditions and Warranties
2.5 Caveat Emptor
2.6 Passing of Property in Goods
Transfer of Ownership in Goods including non
2.7 owners
2.8 Unpaid Seller
2.9 Buyer Remedies
2.10 Consumer Protection Act

3
BUYER’S REMEDIES AGAINST THE SELLER

• Damages for non-delivery

• Right of recovery of the price
• Specific performance
• Suit for breach of condition
• Suit for breach of warranty
• Recovery of interest

13
Conclusion of the session

2.6 Unpaid Seller - Meaning and Rights of an unpaid seller against the
goods and buyers
• Conceptual meaning
• Rights of an unpaid seller
• General Lien and Particular Lien
• Buyer’s remedies against the seller

14
Business Laws(BBA 201)

Unit 2 : Sale of Goods Act, 1930

Prepared and Presented By:

Ms Roli Wadhwa
Assistant Professor
DME Management School

1
2
 Lesson Plan

2.1 Contract of Sale 1930

2.2 Contract of Sale

2.3 Meaning and Difference between Sale and Agreement to Sell

2.4 Conditions and Warranties
2.5 Caveat Emptor
2.6 Passing of Property in Goods

2.7 Transfer of Ownership in Goods including non owners

2.8 Unpaid Seller
2.9 Buyer Remedies
2.10 Consumer Protection Act

3
 Suggested Readings
Author: SN Maheshwari and SK Maheshwari
Title of the Book: A Manual of Business Laws
Name: The Consumer Protection Act, 1986

Author: MC Kuchhal and Vivek Kuchhal

Title of the Book: Business Laws
Name: Law of Sale of Goods

Research Article Links:

https://www.toppr.com/guides/business-
studies/consumer-protection/consumer-protection-act/

4
Introduction of the session:

• What is the Consumer Protection Act 2019

• Who is a Consumer
• Consumer Exploitation
• Practices to be followed by Business under Consumer
Protection Act
• Redressal under Consumer Act
• Changes in Consumer Act 2019

5
2.10 Consumer Protection Act,2019

6
Who is a consumer according to the Consumer
Protection Act, 2019?

A consumer is defined as a person who buys any good

or avails a service for a consideration. It does not
include a person who obtains a good for resale or a
good or service for commercial purpose. It covers
transactions through all modes including offline, and
online through electronic means, teleshopping, multi-
level marketing or direct selling.
7
Consumer Protection Act
The Consumer Protection Act was passed in 1986 and it
came into force from 1st July, 1987. It was replaced by
Consumer Protection Act 2019. The main objectives of the
Act are to provide better and all round protection to
consumers and effective safeguards against different types
of exploitation such as defective goods, deficient services
and unfair trade practices. It also makes provisions for
simple, speedy and inexpensive machinery for redressal of
consumer's grievances.

8
Salient Features
• It applies to all goods, services and unfair trade practices
unless specifically exempted by the Central Government.
• It covers all sectors-private, public or co-operative.
• It provides for establishment of consumer protection
councils at the central, state and district levels to promote
and protect the rights of consumers and a three-tier
quasi-judicial machinery to deal with consumer's
grievances and disputes.
• It provides a statutory recognition to the six rights of
consumers.

9
10
Consumer Exploitation

Consumer exploitation refers to taking undue advantage of

consumers or a group of consumers by the sellers for their
own benefit or purpose. Since consumers are large in numbers
and are segregated they often find themselves in a weak
position especially when there is a complaint regarding a good
or a service. Sellers never accept the responsibility of selling
bad quality goods or any other misappropriation. This is the
basis of consumer exploitation. There are various forms
through which consumers are being exploited.

11
12
Practices to be followed by Business under Consumer
Protection Act

If any defect found the seller should remove the mentioned

defects from the whole batch or the goods affected. For
example, there have been cases where car manufacturing
unit found a defect in parts of the vehicle usually they
remove the defect from every unit or they call of the unit.

They should replace the defective product with a non

defective product and that product should be of similar
configuration or should be the same as
the product purchased. 13
14
Redressal: Three Tier System Under Consumer Act
1986

District Forum: These are are set by the district of the state
concerned in each district wherein it consists of President
and two members of which one should be a woman and is
appointed by the State Government. In this, the complaining
party should not make a complaint more than 20 Lacs and
once the complaint is filed the goods are sent for testing and
if they found defective the accused party should compensate
and if the party is dissatisfied can make an appeal
with state commission within 30 days.

15
State Commission: This is set up by each state It consists of
President and two members. Complains should be at least
20 lacs and exceed not more than 1 crore. The goods are
sent for testing and if found defective are asked for
replacement or compensation. If not satisfied can make an
appeal within 30 days in front of the National Commission.

National Commission: Consist of President and 4 members.

The complaint must exceed an amount of 1 crore. The goods
are sent for testing and if found defective are asked for
replacement or compensation

16
Changes in Consumer Act 2019

• Rights of consumers: Six consumer rights have been

defined in the Bill, including the right to: (i) be protected
against marketing of goods and services which are
hazardous to life and property; (ii) be informed of the
quality, quantity, potency, purity, standard and price of
goods or services; (iii) be assured of access to a variety of
goods or services at competitive prices; and (iv) seek
redressal against unfair or restrictive trade practices.

17
Central Consumer Protection Authority: The central
government will set up a Central Consumer Protection
Authority (CCPA) to promote, protect and enforce the rights
of consumers. It will regulate matters related to violation of
consumer rights, unfair trade practices, and misleading
advertisements. The CCPA will have an investigation wing,
headed by a Director-General, which may conduct inquiry
or investigation into such violations.

18
Penalties for misleading advertisement: The CCPA may
impose a penalty on a manufacturer or an endorser of up
to Rs 10 lakh and imprisonment for up to two years for a
false or misleading advertisement. In case of a
subsequent offence, the fine may extend to Rs 50 lakh
and imprisonment of up to five years.

Consumer Disputes Redressal Commission: Consumer

Disputes Redressal Commissions (CDRCs) will be set up at
the district, state, and national levels.

19
Jurisdiction of CDRCs: The District CDRC will entertain
complaints where value of goods and services does not
exceed Rs one crore. The State CDRC will entertain
complaints when the value is more than Rs one crore but
does not exceed Rs 10 crore. Complaints with value of
goods and services over Rs 10 crore will be entertained by
the National CDRC.

Product liability: Product liability means the liability of a

product manufacturer, service provider or seller to
compensate a consumer for any harm or injury caused by a
defective good or deficient service. To claim compensation,
a consumer has to prove any one of the conditions for
defect or deficiency, as given in the Bill.

20
21
Conclusion of the session:

• What is the Consumer Protection Act 2019

• Who is a Consumer
• Consumer Exploitation
• Practices to be followed by Business under Consumer
Protection Act
• Redressal under Consumer act
• Changes in Consumer Act 2019

22
Business Laws(BBA 201)

Unit 2 : Indian Partnership Act, 1932

Prepared and Presented By:

Ms Roli Wadhwa
Assistant Professor
DME Management School

1
2
Lesson Plan

2.11 Definition of Partnership

2.12 Registration of Partnership Firm

2.13 Rights and Duties of Partners

2.14 Dissolution of Partnership and Partnership Firm

3
 Definition of Partnership

The Indian Partnership Act 1932 defines a partnership as a relation

between two or more persons who agree to share the profits of a
business run by them all or by one or more persons acting for them all.

Elements of a Partnership:

1] Contract for Partnership

2] Association of Two or More Persons
3] Carrying on of Business
4] Profit Sharing
5] Mutual Agency

Max no of partners- 50 under CA 2013

4
• A partnership is when two or more people work together and share
the profits from the business or profession. However, one must not
always assume that all partners participate in the work or profits or
even liabilities of the firm equally.

Active Partner/Managing Partner

An active partner is also known as Ostensible Partner. As the name
suggests he takes active participation in the firm and the running of
the business. He carries on the daily business on behalf of all the
partners. This means he acts as an agent of all the other partners on a
day to day basis and with regards to all ordinary business of the firm.

5
• Dormant Partner: Also known as a sleeping partner, he will not
participate in the daily functioning of the business. But he will still have
to make his share of contribution to the capital. In return, he will have a
share in the profits.

• Secret Partner: Here the partner’s association with the firm is not
public knowledge. He will not represent the firm to outside agents or
parties. Other than this his participation with respect to capital, profits,
management and liability will be the same as all the other partners.

6
• Nominal Partner: This partner is only a partner in name. He allows the firm
to use the name of his firm, and the attached goodwill. But he in no way
contributes to the capital and hence has no share in the profits. He does not
involve himself in the firm’s business.

7
8
Partnership Deed
• Now a partnership is when two persons form an association to carry out a
business with the motive to earn profits. They share the profits from such a
business. Such an association will be voluntarily entered into by the partners
based on an agreement between them.

• Such an agreement between partners can be written or can even be

oral. However, it is strongly advised for legal and practical purposes
that such an agreement or contract be in the written form. And this
written agreement between partners to form a partnership firm is what
we call a Partnership Deed.

9
10
• Terms and conditions of the retirement or expulsion of a partner, and the
terms to continue the partnership after such an incident
• The day-to-day functioning of the firm and the distribution of the managerial
duties among the partners
• Preparation of the firm’s accounts and the provisions for internal and
statutory audit
• Procedure for voluntary or forced dissolution of the firm
• Guidelines for solving any disputes and arbitration process to be followed

11
• As per the Partnership Act 1932, it is not compulsory to register a partnership firm.
The firm does not have a separate legal identity and registration will not alter this
fact. However, registration is the definite proof of the existence of the firm and its
legality.

• Non-registration of a firm has some real-life legal consequences for the partners
and the firm itself. So it is always advisable to draw up a written partnership deed
and register the firm with the Registrar of Firms. The consequences of not doing so
are as follows,

• The firm cannot file legal proceedings against any third party for any situation. For
example, if the client has not paid his dues to the firm, the firm cannot sue him if it
is unregistered.
• An unregistered firm cannot fail a case against a partner for any reason (like
mismanagement, theft etc)

12
Kinds of Partnership

The various types of partnership are based on two different

criteria.
With regard to the duration of the term of partnership:
• Partnership at Will
• Partnership for a fixed period
On the basis of the extent of the business carried by a
partnership
• Particular Partnership
• General Partnership

13
Process of Registration

14
15
16
Rights of Partners Inter Se
Partners can exercise the following rights under the Act unless the partnership
deed states otherwise:
1. Right to participate in business: Each partner has an equal right to
take part in the conduct of their business. Partners can curtail this right
to allow only some of them to contribute to the functioning of the
business if the partnership deed states so.
2. Right to express opinions: Another one of the rights of partners is
their right to freely express their opinion. Partners, by a majority, can
determine differences with respect to ordinary matters connected with
the business. Each partner can express his opinion to decide such
matters.
3. Right to access books and accounts: Each partner can inspect and
copy books of accounts of the business. This right is applicable equally
to active and dormant partners.

17
4. Right to share profits: Partners generally describe in their deed the proportion
in which they will share profits of the firm. However, they have to share all the
profits of the firm equally if they have not agreed on a fixed profit sharing ratio.
5. Right to be indemnified: Partners can make some payments and incur liabilities
through their decisions in the course of their business. They can claim indemnity
from each other for these decisions. Such decisions must be taken in situations of
emergency and should be of such nature that an ordinarily prudent person would
resort to under similar conditions.
6. Right to interest on capital and advances: Partners generally do not get an
interest on the capital they contribute. In case they decide to take an interest,
such payment must be made only out of profits. They can, however, receive
interest of 6% p.a. for other advances made subsequently towards the business.

18
Duties of Partners inter se
Now that we have seen the rights of partners let us see the duties the
Act has prescribed,
1. General duties: Every partner has the following general duties like
carrying on the business to the greatest common good, duty to be
just and faithful towards each other, rendering true accounts, and
providing full information of all things affecting the firm. etc
2. Duty to indemnify for fraud: Every partner has to indemnify the
firm for losses caused to it by his fraud in the conduct of business.
The Act has adopted this principle because the firm is liable for
wrongful acts of partners. Any partner who commits fraud must
indemnify other partners for his actions.
3. Duty to act diligently: Every partner must attend to
his duties towards the firm as diligently as possible because his not
functioning diligently affects other partners as well. He is liable to
indemnify others if his willful neglect causes losses to the firm.
19
5. Duty to use the firm’s property properly: Partners can use the firm’s
property exclusively for its business, and not for any personal purpose,
because they all own it collectively. Hence, they must be careful while
using these properties.

6. Duty to not earn personal profits or to compete: Each partner must

function according to commonly shared goals. They should not make any
personal profit and must not engage in any competing business venture.
They should hand over personal profits made to their firm

20
 Dissolution of a Partnership and Firm

Dissolution of partnership firm is a process in which relationship

between partners of firm is dissolved or terminated. If a relationship
between all the partners of firm is dissolved then it is known as
dissolution of firm. In case of dissolution of partnership of firm, the firm
ceases to exist. This process includes the discarding and disposing of all
the assets of firm or and settlements of accounts, assets, and liabilities

Dissolution of Partnership
When one or more partners cease to be partners of the firm but others
continue the business in partnership, it is called dissolution of
partnership

Example: A, B and C were partners in firm and A died. The

partnership would come to an end. But if the partners have decided
that death, retirement of a partner would not dissolve the fir, then 21
partnership would come to an end, but not firm.
Modes of Dissolution of a Firm
A firm can be dissolved either voluntarily or by an order from the Court.

Voluntary Dissolution of a Firm (without the order of the Court)

Voluntary dissolution can be of four types.

1. By Agreement (Section 40)

2. By Notice partnership at will
3. On the happening of certain contingencies
(fixed term, completion of task, death of partner, declaration of
insolvent)
4. Compulsory Dissolution
Dissolution by the court
22
 Dissolution of a Firm by the Court
a) Insanity/Unsound mind
b) Permanent Incapacity
c) Misconduct
d) Persistent Breach of the Agreement
e) Transfer of Interest
f) Continuous/Perpetual losses
g) Just and equitable grounds

23
 Consequences of Dissolution

Issuing of public notice- Public notice must be given of the dissolution

in order to absolve partners of the liability for any act done after the
dissolution of the firm. If it is not done, the partners continue to be
liable as such to third parties for any act done by any of them after the
dissolution, and in such case, the act of partner done after dissolution is
deemed to be an act done before the dissolution.

Right to an equitable Lien – According to the Act, after the dissolution

of the firm, all the partners or his representative are entitled to the
property of the firm as applied in the payment of debts and liabilities of
the firm and the surplus to be distributed among all the partners of the
firm.

24
Return of Premium:
Where a partner has a paid a premium on entering into partnership for
a fixed term and the firm is dissolved before the expiration of that term,
such a partner shall be entitled to repayment of ‘rateable amount of
premium’ for the unexpired period except where the dissolution has
been caused by
a) By the death of a partner
b) By the misconduct of the partner so admitted
c) By mutual agreement of all partners containing no provision

25
• Right to personal profits earned after Dissolution- Where any
partner has bought the goodwill of the firm on its dissolution, he has
the right to use the firm’s name and earn profit by its use.

• Right to restrain partners from the use of firm name or firm

property- After a firm has been dissolved, every partner or his
representative may restrain any other partner or his representatives
from carrying on a similar business in the firm name or from using
any property of the firm for his own benefit, until the affairs of the
firm have completely wound up.

26
27
 Rules for Settlement of accounts
• Losses, including deficiencies of capital, shall be first paid out of profits,
next out of capital and lastly, if necessary by the partners individually in
proportion in which they were entitled to share profits.
• Example: A and B were partners in a firm sharing profits and losses
equally. A died. The partnership account showed he contributed $1929 to
the capital of the firm where B’s contribution was just $29. The assets
amounted to $1400, it was held that the deficiency of $558 must be
shared equally by B and the estate of A

28
Application of assets
• The assets of the firm consist of any sum contributed by the partners
to make for the deficiencies of capital and shall be used in the
following order:

• First of all, any third-party debts will be paid. The third parties could
be creditors, bank loans, bills payable, etc..
• If any partner has provided any loan to the firm, it will be settled next
on a proportionate basis.
• If there is a residue amount after the partners’ loan account is settled,
it will be distributed among the partners on account of the capital
investment made by them.
• If there are still any remaining profits after settling all liabilities, they
shall be divided among the partners in their profit sharing ratio.
29
• A, B, C are partners in a business sharing profits and losses equally. The
accounts show that their contribution to the firm’s capital were 10,000,
5000 and 1000 resp. The assets of the firm after satisfying the outside
liabilities are only 7000. The Deficiency is therefore, a sum of 9000. A, B
and C will Contribute 3000 each totalling 16000
• A will get (10,000-3000)=7000
• B will get (5000-3000) = 2000
• C will be at net loss (1000-3000) = -2000

30
• Loss arising from insolvency of a partner
When a partner is unable to contribute towards the deficiency of his capital
account he is said to be insolvent, capital loss would have to be borne by
other partners.

31
• Sale of goodwill after dissolution.Previous Next
• (1) In settling the accounts of a firm after dissolution, the goodwill shall,
subject to contract between the partners, be included in the assets, and it
may be sold either separately or along with other property of the firm.
• (2) Where the goodwill of a firm is sold after dissolution, a partner may
carry on a business competing with that of the buyer and he may
advertise such business, but, subject to agreement between him and the
buyer, he may not--
• (a) use the firm name,
• (c) represent himself as carrying on the business of the firm, or
• (c) solicit the custom of persons who were dealing with the firm before its
dissolution.

32
• (3) Any partner may, upon the sale of the goodwill of a firm, make an
agreement with the buyer that such partner will not carry on any business
similar to that of the firm within a specified period or within specified
local limits, and, notwithstanding anything contained in section 27 of the
Indian Contract Act, 1872 (9 of 1872), such agreement shall be valid if the
restrictions imposed are reasonable.

33
Business Laws(BBA 201)

Unit 2
Limited Liability Partnership, 2008

Prepared and Presented By:

Ms Roli Wadhwa
Assistant Professor
DME Management School

1
2
Lesson Plan

2.11 Definition of Partnership

2.12 Registration of Partnership Firm

2.13 Rights and Duties of Partners

2.14 Dissolution of Partnership and Partnership Firm

3
• Forms of Business Organizations

Sole
Company
Proprietorship

Partnership Limited
Liability
Partnership

Which Form Will You Choose?

4
• COMPANY
• A business entity which acts as an artificial legal person, formed by a
legal person or a group of legal persons to engage in or carry on a business
or industrial enterprise.

SOLE PROPRIETORSHIP
Simplest, oldest, and most common form of business ownership
in which only one individual acquires all the benefits and risks of
running an enterprise.

5
• PARTNERSHIP
• A type of business organization in which two or more individuals pool
money, skills, and other resources, and share profit and loss in
accordance with terms of the partnership agreement.

• LIMITED LIABILITY PARTNERSHIP

• A limited liability partnership in which all partners have limited
liability. It has same elements as partnerships and corporations, although
one partner is not responsible for the misconduct of other

6
A limited liability partnership(Hybrid Structure with advantages of Partnership and
Corporate Entities) is a newer form of business partnership where all of the owners
have limited personal liability for the financial obligations of the business, but allows
its partners the flexibility for organizing their internal structure as partnership.
 Limited
Partners Liability
Partnership
LIMITED
LIABILITY Company

Directors not PARTNERSHIP

Less
required.
compliances
9
Nature of Limited Liability Partnership

1.Distinct Legal Entity

2.Limited Liability of the partners involved
3.Profit Sharing
4.Partners of Limited Liability Partnership
5.The Number of Partners in LLP
6.An Artificial person for legal purposes
7.Perpetual Succession and Continuity

10
BENEFITS AS COMPARED TO
CORPORATE FIRM
• Ea sy to Form

• Ea sy to Run & Ma nage

• Less C omplianc es

• Low c ost of Forma tion

• Minimum C ontribution of Rs. 1La kh.

• Less G overnment Intervention

• Less requirement a s to ma intenanc e of

statutory rec ords

• No Dividend Distribution Tax

• Ea sy to withdraw Profit and C apital.

• C a n distribute Remunera tion to partners.

• Ea sy to exit and wind up

BENEFITS AS COMPARED TO
PARTNERSHIP FIRM
• Highest no. of partners ( upto 200 )
• Limited Liability of Partners (except in
cases of fraud or where the no. of
Designated Partners is reduced to 1 and
LLP continues for 6
• months).
• No liability for the wrongful act of the other
partner.
• Less exposure to personal assets of the
partners.
• Easy Registration.
OVERWIEW OF LLP Perpetual
Succession &
continuity

No restrictions on
salaries,
No mandatory compensations,
meetings & distribution of
their profit to Partners.
compliances.
LLP

No restrictions on
Only with profit
withdrawal from
motive
capital account.

No upper limit
for number of
partners
 REQUIREMENTS FOR FORMATION OF LLP
:- there is no concept of any share capital but every partner is required to contribute
towards the LLP in some manner which he cannot withdraw ( i.e. fixed capital )
:-Every limited liability partnership shall have at least two
designated partners who are individuals and at least one of them shall be a resident in India
(Designated Partner’ means a partner who is designated as such in the incorporation d1ocuments
or who become a designated partner by and in accordance with the Limited Liability Partnership
Agreement)

at Least 2 Name (With its Meaning/ Reason of Name)

(After Incorporation Certificate)

1.Profit
2.Remuneration
3.Fixed Capital/Contribution

12
 Designated Partner Identification Number (DPIN) is a
registration required for any person who wishes to be
appointed as a Designated Partners of a Limited Liability
Partnership (LLP).

The documents mentioned must

be attested or certified by a
Gazetted Officer or Notary Public
or Company
Secretary or Chartered
Accountant or Cost Accountant.
 DOCUMENTS REQUIRED FOR FORMATION OF LLP

• A. Documents of
Partners B. Documents of LLP
i. PAN
1. Address of Registered Office
ii. ADHAAR
2. Proof of Registered Office
iii. Email id
iv. Mobile No.
3. LLP Agreement
v. Digital Signature
1. Identity Proof (Any One of Below)
a. Voter id
b. Passport
c. Driving License
2. Address Proof (Any One of Below)
a. Bank Statement
b. Electricity Bill (on Own Name)
c. Telephone Bill (on Own Name)
d. Mobile Bill (on Own Name) 14
 Who can be a
partner

Individual Body Corporate

Body Corporate Includes

1. Limited liability partnership registered under LLP Act
2.Limited liability partnership incorporated outside India and
3.Company incorporated outside India

Even Foreigners can form a LLP in India. Since a

partner need not to be resident in India except a designated Partner who should be resident
in India
Process of Incorporation of a
LLP.
STEPS FOR INCORPORATION OF A LLP
• Register a unique LLP name (applicant can indicate up to
I 2 choices)

• Appoint/nominate partners and designated partners.

II

• Obtain Digital Signature Certificates (DSCs) and to fill all

the Documents as mentioned above, electronically.
III

• Draft the LLP Agreement and file the same.

IV

• At this Stage Formation Process is complete.

V
 THE CONTENTS OF LLP AGREEMENT.

• Name Clause
• Names and addresses of the partners and designated partners
• The form of contribution and interest on contribution
• Profit sharing ratio
• Remuneration of partners
• Rights and duties of partners t
• The proposed business
• Rules for governing the LLP
• Duration of the LLP
 THE CONTENTS OF LLP AGREEMENT.

• Name Clause
• Names and addresses of the partners and designated partners
• The form of contribution and interest on contribution
• Profit sharing ratio
• Remuneration of partners
• Rights and duties of partners t
• The proposed business
• Rules for governing the LLP
• Duration of the LLP
 THE CONTENTS OF LLP AGREEMENT.

• Name Clause
• Names and addresses of the partners and designated partners
• The form of contribution and interest on contribution
• Profit sharing ratio
• Remuneration of partners
• Rights and duties of partners t
• The proposed business
• Rules for governing the LLP
• Duration of the LLP
23
24
 Financial Disclosures
• Similar to the Companies, LLP’s are also
required to submit details and information with
the Registrar on an annual basis and non-
compliance of such submissions may lead to
removal of name of LLP from the Registers of
LLP.
• Chapter VII of the Act states about Financial
Disclosures and Annual Filing of LLP whereby
LLP are required to follow the provision given
under respective sections.
25
• Manner of Accounting
• Section 34 of the Act, mandates LLP to
maintain proper books of account on cash
or accrual basis and as per double entry
system of accounting at its registered
office address.
• As per rule 24 of the Rules, LLP is
required to maintain proper books of
account that will reflect the accurate
transactions of LLP in such manner that it:
26
• discloses with reasonable accuracy, at any
time, the financial position of the limited
liability partnership; and
• enable the designated partners to ensure
that any Statement of Account and
Solvency prepared under this rule
complies with the requirements of the Act.

27
• What Books of Account LLP should maintain?

• As per rule 24(2) of the Rules, the books of

account of LLP shall contain

• particulars of all sums of money received and

expended: Profit & Loss Account

28
• a record of the assets and liabilities of the
limited liability partnership;Balance Sheet

• statements of cost of goods purchased,

inventories, work-in- progress, finished goods
and cost of goods sold; Cost Account

• any other particulars which the partners may

decide; Trial Balance, Reconciliation etc. 29
For how many years Limited Liability Partnership
should preserve its Record?

• As per rule 24(3) of the Rules, Limited liability

partnership is required to keep books of
account for 8 years from the date on which
they are made.

30
Is Audit of LLP mandatory?

• LLP Act has prescribed certain limits, if any LLP

exceeds the limit then it has to mandatorily
get its audit done through a qualified
Chartered Accountant in practice.

• As per rule 24(8) of the Rules, if any LLP

exceeds either of limits as given below than its
31
accounts needs to be audited:
• Turnover Exceeds Rs. 40 Lakh in any financial
year
• OR

• Contribution exceeds Rs. 25 Lakh

32
 Documents Required for
Conversion of Company into LLP
• The following documents have to be attached along with the
application to convert a Private Limited Company into LLP:

• Consent of each of the shareholders of the company for

conversion of the firm into LLP in the given format.
• Incorporation document in Form 2.

33
• Form 3- Form of application and declaration of incorporation
of an LLP.
• Clearance/no-objection certificate from tax authorities.
• Statement of assets and liabilities from the company.
• List of all the creditors along with their consent.
• Approval from any other country.
• Optional attachments, if any.

34
 Procedure for Conversion of
Company into LLP
• Obtain Designated Partner Identification Number

• Step 1: Obtain DPIN for those designated partners who don’t

possess DPIN already.

• Board Meeting

• Step 2: The board meeting will be required to be held to

consider the proposal of conversion. The board resolution is
to be passed for Conversion of Company into LLP and to
approve any director to Apply for Name of LLP.
35
• Application for Name Availability
• Step 3: The company will have to apply for a reservation of
the name of LLP and get the name approval certificate from
ROC.
• Attach Documents
• Step 4: File e-Form and then fill it with ROC along with the
documents mentioned above.

• Filing of Application for Conversion into LLP

Step 5: Form 18 is the form for the conversion of a company
into an LLP. But it needs to be filed with Form for incorporation
itself.
36
• Filing of E-Form-3

• Step 6: This form provides details about the LLP Agreement

entered into between the partners. This form is to be filed in
30 days from the date of conversion of the company into an
LLP.
• Certificate of Incorporation as LLP from ROC

• Step 7: After complying with all the formalities by the

company and approved by the Ministry.

37
 Foreign Limited Liability
Partnerships

A Foreign Limited Liability Partnership (LLP) is an LLP formed and

registered outside India based on the law of that country. After
establishing a business in India, a foreign LLP should register with
the Registrar in Form 27. It should be done within 30 days of
setting up of the business in India. A filing fee of Rs.5000 is
required to be paid. The following details and documents are
required to file with the Registrar

38
1. A copy of the certificate of registration or incorporation.
• A copy of instruments constituting or defining the constitution
of the limited liability partnership.
• The full address of the registered office or principal office of
the foreign LLP in the country of its registration.
• The address of the foreign LLP in India which is to be the
principal place of business in India.
• A list, detailing about the partners and designated partners (if
any).
• The list of the names and addresses of two or more persons
living in India. They should be authorized to accept the service
of process and produce any notices or documents required to
be submitted, on behalf of the foreign LLP. 39