LAW

Definition of Law

Law is a system of rules and guidelines, established by a governing

authority, to regulate the behavior of individuals, organizations, and
society. It is enforceable through recognized institutions and ensures
justice, order, and protection of rights.

According to Salmond:
"Law is the body of principles recognized and applied by the state in the
administration of justice."

In simple terms, law provides a framework for resolving disputes,

protecting liberties, and maintaining social and economic order.

Classifications of Law

Law can be classified in various ways. The major classifications are:

1. Civil Law and Criminal Law

a) Civil Law

 Deals with disputes between individuals or organizations.

 Focuses on compensation rather than punishment.

 Examples: Breach of contract, property disputes, divorce cases.

b) Criminal Law

 Involves offenses against the state or society.

 Aims to punish wrongdoers and deter criminal behavior.

 Examples: Theft, murder, fraud, assault.

2. Public Law and Private Law

a) Public Law

 Governs the relationship between individuals and the state.

 Includes Constitutional Law, Administrative Law, and Criminal Law.

b) Private Law
  Regulates relationships between private individuals and
organizations.

 Includes Contract Law, Tort Law, Family Law, and Property Law.

3. Substantive Law and Procedural Law

a) Substantive Law

 Defines the rights and duties of individuals.

 Example: Right to free speech, right to own property.

b) Procedural Law

 Provides the process or mechanism to enforce substantive laws.

 Example: Rules for filing a lawsuit, conducting trials.

4. Constitutional Law

 Deals with the structure and functions of government.

 Defines the rights of citizens and limits on government power.

 Example: Indian Constitution, Fundamental Rights.

5. Administrative Law

 Governs the actions of government agencies.

 Ensures transparency, accountability, and legality of government

decisions.

6. International Law and Domestic Law

a) International Law

 Regulates relations between sovereign nations.

 Includes treaties, conventions, and agreements.

b) Domestic (Municipal) Law

 Applies within a specific country.

 Enforced by the government of that country.

Conclusion

Law is essential for maintaining peace, order, and justice in society.

Understanding its classifications helps MBA students and future managers
navigate legal environments, comply with regulations, and make informed
business decisions.

Definition of Justice

Justice refers to the principle of moral rightness, fairness, and lawfulness

in the protection of rights and punishment of wrongs. It ensures that
individuals receive what they are due—whether rights, protections, or
penalties—based on laws and ethical standards.

According to Plato:
"Justice is giving everyone what is due to them."

In society, justice promotes equality, fairness, and rule of law, and in

business or administration, it ensures ethical treatment and fair decision-
making.

Definition of Natural Justice

Natural Justice is a legal and moral principle that ensures fairness,

impartiality, and transparency in decision-making processes, especially
when rights or interests of individuals are affected.

Natural justice is not written in any statute but is a part of common law
and universally recognized as essential for fair procedure.

Principles of Natural Justice

There are mainly two core principles:

1. Nemo judex in causa sua – No one should be a judge in their own

case

o Ensures impartiality by avoiding bias or personal interest in

decision-making.

2. Audi alteram partem – Let the other side be heard

o Ensures fair hearing by allowing the affected party to

present their side.

3. (Optional third principle) – Reasoned Decision (Speaking Order)

 o The authority must give valid reasons for its decisions to
show transparency and allow for appeal or review.

Conclusion

While justice is the broader concept of moral and legal fairness, natural
justice is a fundamental part of it that ensures due process and protects
individual rights against arbitrary decisions. It is crucial in law,
administration, and management to uphold trust, accountability, and
ethical governance.

Definition of Judicial System

The Judicial System refers to the structure and mechanism through

which justice is administered in a country. It comprises courts,
judges, laws, and procedures that ensure the rule of law, protect
rights, resolve disputes, and uphold constitutional values.

In simple terms:
The judicial system is the machinery through which laws are interpreted
and enforced, and disputes are resolved fairly and impartially.

Objectives of a Judicial System

 To uphold law and order

 To protect the rights and freedoms of citizens

 To ensure equality before the law

 To resolve civil, criminal, and constitutional disputes

 To check misuse of power by other branches of government

History of the Indian Judicial System

India has one of the oldest and most comprehensive legal traditions
in the world. The evolution of the Indian judicial system can be divided
into key historical phases:

1. Ancient Period
  Justice was administered based on customs, moral values, and
religious texts like the Manusmriti, Dharmashastras, and
Arthashastra.

 The king was seen as the supreme judge, aided by councils (sabhas
and parishads).

 Village councils (panchayats) played a major role in local dispute

resolution.

2. Medieval Period (Muslim Rule)

 Islamic law (Sharia) was introduced during the Delhi Sultanate

and Mughal Empire.

 The Qazi (judge) was the key judicial authority under the emperor.

 Justice was a mix of Islamic principles and local Hindu customs.

3. British Period (1600s–1947)

 The British East India Company introduced Western legal

concepts.

 Establishment of Mayor’s Courts (1726) in Calcutta, Madras, and

Bombay.

 The Regulating Act, 1773 created the Supreme Court of

Calcutta.

 In 1861, Indian High Courts Act was passed, leading to formation

of High Courts.

 The Indian Penal Code (IPC) and Civil Procedure Code (CPC)
were developed.

 Dual judicial system: English law applied to Britishers, personal

laws for Indians.

4. Post-Independence Period (1947 onwards)

 The Constitution of India (1950) established a unified judicial

system.

 The Supreme Court of India was established as the highest

judicial authority.
  A single integrated judicial system with Supreme Court, High
Courts, and Subordinate Courts.

 Introduction of Public Interest Litigations (PILs) and Judicial

Activism.

 The judiciary acts as the guardian of the Constitution and

protector of fundamental rights.

Key Features of Indian Judicial System Today

 Independent Judiciary – Free from executive and legislative

control.

 Integrated System – Single hierarchy of courts for both state and

central laws.

 Supreme Court – Apex body with powers of constitutional

interpretation.

 High Courts – One in each state or group of states.

 District/Subordinate Courts – Handle local and civil/criminal

matters.

 Accessible to All – Anyone can approach the court for justice.

Conclusion

The Indian Judicial System has evolved over centuries—from traditional

community justice to a structured legal framework. Today, it stands as a
pillar of democracy, ensuring justice, equality, and protection of rights
for over a billion citizens.

Indian Contract Act, 1872

Introduction

The Indian Contract Act, 1872 is the primary legislation governing

contracts in India. It provides the legal framework for creating,
executing, and enforcing contracts. The Act defines what constitutes
a valid contract and lays down the rights, duties, and obligations of
parties entering into a contract.

Enacted on: 25th April 1872

Came into force on: 1st September 1872
Applicable to: All of India (except the state of Jammu & Kashmir prior to
2019; now applicable throughout India)

Definition of Contract (Section 2(h))

"A contract is an agreement enforceable by law."

This means a contract is a legally binding agreement between two or

more parties.

Key Elements of a Valid Contract

According to the Act, for an agreement to become a contract, it must

have:

1. Offer and Acceptance

2. Lawful Consideration

3. Capacity to Contract (age, sound mind, not disqualified)

4. Free Consent (no coercion, fraud, undue influence,

misrepresentation, or mistake)

5. Lawful Object

6. Not expressly declared void

7. Possibility of Performance

Structure of the Indian Contract Act

Originally, the Act had 11 chapters. Currently, it is divided into two main
parts:

1. General Principles Relating to Contracts (Sections 1 to 75)

 Covers the basics of contract formation, validity, performance,

breach, and remedies.

 Topics include:

o Offer and acceptance

o Consideration

o Capacity to contract

o Consent
 o Performance and discharge

o Breach of contract and remedies

2. Special Kinds of Contracts

 Covers specific types of contracts such as:

o Contract of Indemnity and Guarantee

o Contract of Bailment and Pledge

o Contract of Agency

Note: Earlier, the Act also included contracts relating to Partnership and
Sale of Goods, but these have been moved to separate laws:

 Indian Partnership Act, 1932

 Sale of Goods Act, 1930

Types of Contracts Under the Act

1. Valid Contract – Legally enforceable

2. Void Contract – Not enforceable by law

3. Voidable Contract – Valid until one party cancels it

4. Illegal Contract – Prohibited by law

5. Express/Implied Contracts – Formed through words or conduct

6. Unilateral/Bilateral Contracts – One-sided or mutual obligations

Remedies for Breach of Contract

If a contract is breached, the injured party may claim:

 Damages (compensation)

 Specific performance

 Injunction

 Rescission (cancellation of contract)

 Restitution (return of benefit received)

Importance in Business and Management

For MBA students and future managers, understanding this Act is essential
because:

 It ensures legal compliance in business agreements.

 It helps in drafting clear, enforceable contracts.

 It protects businesses from fraud and breach of terms.

 It facilitates trust and accountability in business dealings.

Conclusion

The Indian Contract Act, 1872 is the foundation of commercial law in

India. It provides clarity, certainty, and legal protection in all kinds of
business transactions. A solid understanding of this Act is crucial for
managers, entrepreneurs, and anyone involved in commercial operations.

Definition of Contract

A contract is a legally enforceable agreement between two or more

parties that creates mutual obligations. It forms the basis for most
business transactions.

As per Section 2(h) of the Indian Contract Act, 1872:

“A contract is an agreement enforceable by law.”

So, a contract = Agreement + Legal enforceability

Essential Elements of a Valid Contract

According to the Indian Contract Act, 1872, the following are the key
elements that make an agreement a valid contract:

1. Offer and Acceptance (Section 2(a) & 2(b))

 One party must make a lawful offer, and the other must give a
lawful acceptance.

 Acceptance must be clear, unconditional, and communicated.

2. Intention to Create Legal Relations

 Both parties must intend to create a legal obligation.

  Agreements of social or domestic nature (e.g., family promises) are
not contracts.

3. Lawful Consideration (Section 2(d))

 Consideration means something of value exchanged between the

parties.

 It must be lawful, real, and not immoral or illegal.

4. Capacity to Contract (Section 11)

 Parties must be:

o Major (18 years or above)

o Of sound mind

o Not disqualified by law

5. Free Consent (Section 13 & 14)

 Consent must be free and voluntary.

 No coercion, undue influence, fraud, misrepresentation, or

mistake should be involved.

6. Lawful Object (Section 23)

 The objective of the contract must be legal.

 Contracts for illegal activities, fraud, or opposing public policy

are void.

7. Agreement Not Expressly Declared Void

 Certain agreements are declared void under the Act, such as:

o Agreements in restraint of marriage or trade

o Wagering agreements

8. Certainty and Possibility of Performance

  Terms of the contract must be clear and definite.

 The act must be physically and legally possible to perform.

9. Legal Formalities (if required)

 In some cases, contracts must be in writing, registered, or made

in a prescribed form (e.g., property sale).

Conclusion

A valid contract must fulfill all the above conditions. If even one
essential element is missing, the agreement may become void or
unenforceable. For business professionals and managers, knowing these
essentials helps in making legally sound and enforceable
agreements.

Offer and Acceptance

Offer and Acceptance form the foundation of a valid contract under

the Indian Contract Act, 1872. Without these two elements, a contract
cannot be formed.

1. Offer (Proposal) – Section 2(a)

Definition:
"When one person signifies to another his willingness to do or abstain
from doing anything, with a view to obtaining the assent of that other to
such act or abstinence, he is said to make a proposal."

In simple terms, an offer is a clear expression of willingness to enter

into a contract on certain terms.

Types of Offers:

 Express Offer: Made through words (spoken or written).

 Implied Offer: Made through conduct or actions.

 General Offer: Made to the public at large (e.g., reward for lost
item).

 Specific Offer: Made to a specific person or group.

 Cross Offer: Two offers made to each other without knowledge of

the other—no contract forms.
  Counter Offer: When the original offer is rejected and a new offer
is made.

Legal Rules for a Valid Offer:

 Must be clear and definite

 Must be communicated to the offeree

 Terms must be certain and not vague

 Must show intention to create legal relations

2. Acceptance – Section 2(b)

Definition:
"When the person to whom the proposal is made signifies his assent
thereto, the proposal is said to be accepted. A proposal, when accepted,
becomes a promise."

In simple terms, acceptance is the agreement to the offer, forming a

binding contract.

Legal Rules for a Valid Acceptance:

 Must be absolute and unconditional

 Must be communicated to the offeror

 Must be made in the prescribed mode (if specified)

 Must be made before the offer lapses or is revoked

 Silence does not amount to acceptance

3. Communication of Offer and Acceptance (Sections 3–5)

 Offer is complete when it comes to the knowledge of the offeree.

 Acceptance is complete:

o As against the proposer – when it is put into transmission

(e.g., posted)

o As against the acceptor – when it comes to the knowledge

of the proposer

4. Revocation of Offer and Acceptance

  An offer can be revoked before acceptance is communicated.

 An acceptance can be revoked before it reaches the offeror.

Example:

A tells B: “I will sell you my bike for ₹20,000.”

B replies: “I accept.”
→ A valid offer and acceptance, resulting in a contract.

Conclusion

Offer and Acceptance are the core components of a valid contract.

Without a lawful offer and its unconditional acceptance, no legal
agreement can exist. Understanding these helps in drafting and
negotiating enforceable contracts in the business world.

✅ 1. Competency to Enter into a Contract

(Section 11 of the Indian Contract Act, 1872)

A contract is valid only if all parties are competent to contract.

Competency means legal capacity to understand and undertake
contractual obligations.

➤ According to Section 11, a person is competent to contract if

they are:

1. A major – Must be 18 years or older (or 21 if under a legal

guardian).

2. Of sound mind – Able to understand the contract and make

rational decisions.

3. Not disqualified by law – Examples include:

o Insolvents

o Foreign sovereigns

o Convicts

o Alien enemies

🚫 Persons Not Competent to Contract:

  Minors – Any contract with a minor is void ab initio (void from the
beginning).

 Persons of unsound mind – Includes mentally ill, intoxicated, or

delusional individuals.

 Disqualified persons – Barred by law (e.g., bankrupts, companies

acting ultra vires).

✅ 2. Types of Contracts (Based on Various Criteria)

A. Based on Validity

Type Meaning

Valid Legally enforceable contract

Void Not enforceable by law (e.g., illegal contracts)

Voidable Valid until one party cancels (e.g., due to coercion)

Illegal Forbidden by law (e.g., contracts to commit crime)

Unenforcea Cannot be enforced due to technical flaws (e.g., not

ble stamped)

B. Based on Formation

Type Meaning

Express Terms stated clearly in words (written/spoken)

Implied Formed by conduct or circumstances

Quasi- Not actual contracts, but obligations imposed by law to

contract prevent unjust enrichment

C. Based on Performance

Type Meaning

Execute
Fully performed by all parties
d

Executo Yet to be performed fully by one or more

ry parties
Type Meaning

Unilater One party has obligations (e.g., reward

al offers)

Bilatera
Both parties have obligations
l

✅ Conclusion

To form a valid and enforceable contract, parties must be competent,

and the contract must fall into a recognized type. Understanding these
concepts is critical for business managers to avoid legal issues and
form proper agreements.

✅ Companies Act, 2013

📘 Introduction

The Companies Act, 2013 is the primary legislation that governs the
incorporation, functioning, and regulation of companies in India. It
replaced the earlier Companies Act, 1956 to make company law more
modern, transparent, and in line with global practices.

✅ Enforced on: 1st April 2014 (in phases)

✅ Administered by: Ministry of Corporate Affairs (MCA)
✅ Applies to: All companies registered in India

🎯 Objectives of the Act

 Regulate formation and operation of companies

 Improve corporate governance

 Protect investors’ interests

 Encourage ease of doing business

 Enforce accountability and transparency

🏢 Key Features of the Companies Act, 2013

1. Types of Companies Recognized

 Private Company
  Public Company

 One Person Company (OPC) – New concept introduced in 2013

 Section 8 Company – For charitable or non-profit purposes

 Small Company – Less compliance burden

2. Incorporation & Compliance

 Simplified process through SPICe+ Form

 Mandatory Director Identification Number (DIN)

 Minimum directors and members required based on type

3. Corporate Governance

 Mandatory appointment of:

o Independent Directors (for listed companies)

o Audit Committee, Nomination & Remuneration

Committee

 Rotation of auditors every 5 years (for listed companies)

 Board meetings and AGMs to be conducted regularly

4. Director's Responsibilities

 Directors must act in good faith, avoid conflicts of interest

 Liable for fraudulent activities or mismanagement

5. Corporate Social Responsibility (CSR) – Section 135

 Mandatory CSR spending for companies meeting certain criteria

 At least 2% of average net profit to be spent on CSR activities

6. Audits and Financial Reporting

 Companies must maintain proper books of accounts

 File Annual Returns, Financial Statements

  Auditors to report fraud directly to the central government

7. Serious Fraud Investigation Office (SFIO)

 Established under the Act to investigate serious corporate frauds

📚 Important Sections to Remember

Sectio
Topic
n

Definitions (Company, Director,

2
etc.)

3–22 Incorporation of Companies

73–76 Acceptance of Deposits

135 CSR

149 Board of Directors

184 Disclosure of Interest by Directors

Removal of Company Name from

248
Register

📌 Conclusion

The Companies Act, 2013 brings a modern approach to company law

in India. It emphasizes good governance, investor protection,
transparency, and ease of doing business. Every manager or
entrepreneur must understand this Act to ensure legal compliance and
avoid penalties.

✅ Characteristics of a Company

A company is an artificial legal entity formed under the Companies Act,

2013. It has distinct features that separate it from other forms of
business (like sole proprietorships or partnerships).

Here are the key characteristics:

🔹 1. Incorporated Association

 A company is formed only through registration under the

Companies Act.

 It comes into existence by law, not by agreement.

📌 Example: A private limited company must be registered with the

Registrar of Companies (RoC).

🔹 2. Separate Legal Entity

 The company is independent of its members.

 It can own property, enter into contracts, sue and be sued in

its own name.

📌 Case: Salomon v. Salomon & Co. Ltd. – Established the principle of

separate legal entity.

🔹 3. Limited Liability

 The liability of members/shareholders is limited to the amount

unpaid on their shares.

 They are not personally liable for the debts of the company.

📌 Example: If a shareholder has paid ₹100 for a ₹100 share, their liability
is zero.

🔹 4. Perpetual Succession

 A company continues to exist even if members or directors

change or die.

 Its existence is not affected by death, insolvency, or insanity of

any shareholder.

🔹 5. Common Seal (Earlier)

 Traditionally, companies used a common seal as its official

signature.

 Under the Companies Act, 2013, it is now optional.

🔹 6. Transferability of Shares

 In public companies, shares are freely transferable.

 In private companies, share transfer is restricted, but not

prohibited.

🔹 7. Artificial Legal Person

 A company is a legal person, but not a natural person.

 It can own assets, borrow money, and be taxed, but it cannot

vote or marry.

🔹 8. Capacity to Sue and Be Sued

 A company can file lawsuits and also be sued in a court of law.

🔹 9. Professional Management

 Companies are managed by a Board of Directors, who are elected

by shareholders.

 Ensures expertise and separation of ownership from

management.

🔹 10. Regulation and Compliance

 Companies must follow strict legal and regulatory

requirements (e.g., financial audits, board meetings, filings).

✅ Conclusion

A company, as defined under the Companies Act, 2013, is a distinct and

structured business entity with its own legal identity, limited liability,
and continuous existence. These characteristics make it a preferred
form of organization for larger or more formal business activities.

✅ Types of Companies

(Under the Companies Act, 2013)

Companies can be classified on the basis of various criteria such as
liability, ownership, control, and purpose. Each type of company has
distinct legal features and compliance requirements.

🔹 1. Based on Incorporation

Type of
Description
Company

Chartered
Formed by a royal charter (not applicable in India today).
Company

Statutory Formed by a special Act of Parliament or State

Company Legislature (e.g., RBI, LIC).

Registered Formed under the Companies Act, 2013 by registration

Company with ROC. This is the most common type.

🔹 2. Based on Liability

Type of
Description
Company

Company
Liability of members is limited to the unpaid amount on
Limited by
their shares. Most common type.
Shares

Company Members’ liability is limited to a fixed amount they

Limited by agree to pay if the company is wound up. Often used for
Guarantee non-profit or charitable organizations.

Unlimited Members have unlimited liability. Rarely used due to

Company high personal risk.

🔹 3. Based on Number of Members

Type of
Description
Company

Private
Min: 2 members, Max: 200 members. Restricts transfer of
Company (Pvt.
shares. Cannot invite public to buy shares.
Ltd.)

Public Min: 7 members, No maximum limit. Can raise capital

Company
Type of
Description
Company

(Ltd.) from the public via shares or debentures.

One Person Introduced in the Companies Act, 2013. Allows a single

Company person to form a company. Has limited liability and a
(OPC) separate legal identity.

🔹 4. Based on Control/Ownership

Type of
Description
Company

Holding A company that controls one or more subsidiaries by

Company owning a majority of their shares.

Subsidiary A company whose control or composition of board is

Company influenced by another (holding) company.

Government At least 51% of paid-up share capital is held by the

Company central or state government (e.g., ONGC, SAIL).

Foreign Incorporated outside India but conducting business in

Company India. Must register with the Registrar of Companies.

🔹 5. Based on Purpose

Type of
Description
Company

Profit-making Formed with the intention of earning profit (e.g., most

Company private and public companies).

Formed for charitable, educational, religious, or

Section 8
social welfare purposes. It cannot distribute profits
Company
to its members.

✅ Conclusion

The Companies Act, 2013 provides flexibility to form various types of

companies based on the needs, liability preference, and purpose of
business. Understanding the types is essential for choosing the right
legal structure and ensuring proper compliance.
✅ Company Formation (Incorporation of a Company)

Company formation refers to the legal process of registering a

company with the Registrar of Companies (RoC) under the
Companies Act, 2013. A company comes into existence only after
registration and receiving the Certificate of Incorporation.

Stages of Company Formation

The process of forming a company generally involves four main stages:

🔹 1. Promotion Stage

This is the initial stage where the idea of forming a company is

conceived.

Key Activities:

 Identifying the business idea

 Arranging capital

 Appointing professionals (lawyers, CA)

 Choosing company name

 Drafting Memorandum of Association (MOA) and Articles of

Association (AOA)

Promoters are the individuals who perform these activities.

🔹 2. Incorporation Stage

This is the legal process of registering the company.

Steps Involved:

1. Name Approval – File name reservation using RUN (Reserve

Unique Name) or through SPICe+ form.

2. Digital Signature Certificate (DSC) – Required for directors and

signatories.

3. Director Identification Number (DIN) – For all proposed

directors.
 4. Preparation of Documents – MOA, AOA, declarations, affidavits,
address proof.

5. Filing with ROC – Submit the application through SPICe+ (Form

INC-32).

6. Payment of Fees – Government fees and stamp duty based on

capital and state.

7. Certificate of Incorporation (COI) – Once approved, the company

gets its COI and CIN (Corporate Identity Number).

✅ At this point, the company legally comes into existence.

🔹 3. Capital Subscription Stage (for Public Companies)

Applies only to Public Companies that raise funds from the public.

Steps:

 Issue of prospectus

 Receiving applications for shares

 Allotment of shares

 Minimum subscription requirement (90% of issue)

🔹 4. Commencement of Business

Private Company: Can start business immediately after incorporation.

Public Company: Must file a declaration (Form INC-20A) confirming
receipt of capital.

✅ After this stage, the company can legally start business operations.

📚 Documents Required for Incorporation

 MOA – Contains company’s objectives

 AOA – Contains company’s internal rules

 Declaration by Professionals (Form INC-8)

 Identity and address proof of directors and shareholders

 Registered office address proof

✅ Conclusion

Company formation is a step-by-step legal procedure that gives rise to

a separate legal entity. It ensures legal recognition, limited liability,
and perpetual succession for the business. A strong understanding of
this process is essential for entrepreneurs and business managers.

Promoter – Meaning & Role

📘 Definition:

A promoter is a person who conceives the idea of starting a

company, takes the necessary steps to bring it into existence, and
handles its initial formation activities.

🔹 As per Section 2(69) of the Companies Act, 2013, a "Promoter" is:

 A person who has been named as such in a prospectus or is

identified by the company in the annual return, or

 A person who has control over the affairs of the company

(directly or indirectly), or

 A person in accordance with whose directions or instructions

the Board of Directors is accustomed to act.

🎯 Functions / Role of a Promoter

Function Description

1. Discovery of Initiates the idea of a new business and assesses

Business Idea its feasibility.

2. Naming the Selects and reserves a suitable name with the

Company ROC.

3. Appointment of Hires lawyers, CAs, company secretaries, and

Professionals other experts.

Prepares key legal documents like Memorandum

4. Drafting MOA &
of Association (MOA) and Articles of
AOA
Association (AOA).

Plans for raising finance through share capital,

5. Arranging Capital
loans, or public subscription.

6. Legal Formalities Handles registration, document submission, and

Function Description

gets the Certificate of Incorporation.

7. Entering into May enter into agreements on behalf of the

Preliminary proposed company (e.g., property purchase,
Contracts vendor contracts).

🧑‍⚖️Legal Position of Promoter

 A promoter is not an agent or trustee, as the company does not

exist during the promotion stage.

 However, promoters have fiduciary duties (duty of loyalty and

good faith).

 They must not make secret profits or mislead investors.

⚖️Duties of a Promoter

1. Disclosure of material facts to the company.

2. Avoid conflict of interest.

3. No secret profit – Any benefit gained must be disclosed and

approved.

4. Must act honestly and in the best interest of the future

company.

💼 Liabilities of a Promoter

Type Description

Liable to compensate the company for losses due to

Civil Liability
misrepresentation or nondisclosure.

Criminal If found guilty of fraud or misstatement in the

Liability prospectus under Section 34 and 35.

Liability under Promoters of listed companies are regulated strictly by

SEBI Laws SEBI (e.g., lock-in period, disclosures).

📌 Types of Promoters
Type Description

Professional Specialist who promotes multiple businesses (e.g.,

Promoter Merchant Bankers).

Occasional
Promotes companies occasionally and then exits.
Promoter

Financial Institutions like ICICI, IDBI which promote and fund

Promoter companies.

Managing Remains involved in managing the business after

Promoter incorporation.

✅ Conclusion

Promoters play a crucial role in the birth of a company. Their vision,

planning, and legal compliance lay the foundation for a successful
enterprise. At the same time, they are bound by fiduciary duties and
must act with transparency and integrity.

✅ Rights and Liabilities of Promoters

A promoter is a person who conceives the idea of forming a company,

plans its structure, and initiates the legal process for incorporation. Under
Company Law, promoters have certain rights and obligations
because of the fiduciary relationship they hold with the company.

🔹 Rights of Promoters

Although the Companies Act, 2013 does not explicitly list promoter rights,
the following are generally recognized:

Right Description

Promoters are entitled to be reimbursed for all

1. Right to Recover
reasonable expenses incurred during the
Preliminary
formation of the company (e.g., legal fees, stamp
Expenses
duty).

If agreed in advance, promoters can receive

2. Right to remuneration for their services. But it must be
Remuneration authorized by the company (usually by board
resolution or shareholders).
Right Description

3. Right to Make Promoters can enter into pre-incorporation

Contracts (Pre- contracts, but these are not automatically binding
Incorporation) on the company unless ratified after incorporation.

If promoters act honestly and in the interest of the

4. Right to be
company, they may be indemnified by the company
Indemnified
against losses (subject to company approval).

🔻 Liabilities of Promoters

Since promoters occupy a fiduciary position, they are legally bound to

act in good faith, disclose all material facts, and avoid conflicts of
interest.

Liability Explanation

Promoters must act honestly and must not misuse

1. Fiduciary Duty
their position for personal gain.

If a promoter makes any profit (e.g., by selling

2. Duty to personal property to the company at a higher price),
Disclose Secret it must be fully disclosed to the company. Failure to
Profits do so may result in the promoter being forced to
refund the profit.

Under Sections 34 and 35 of the Companies Act,

3.
2013, promoters are liable for false statements
Misrepresentation
made in the prospectus. This may lead to civil and
in Prospectus
criminal penalties.

4. Liability for If a promoter acts against the interest of the

Breach of Duty company, they can be sued for breach of trust.

5. Pre- If the company does not ratify pre-incorporation

Incorporation contracts, the promoter remains personally
Contract Liability liable for those contracts.

In case of a listed company, promoters must comply

6. SEBI and
with SEBI regulations, such as disclosure,
Regulatory
shareholding limits, and insider trading rules. Non-
Violations
compliance leads to penalties.

📘 Relevant Case Law

Gluckstein v. Barnes (1900)
Promoters sold a property to the company at a profit without disclosing it.
The court held them liable to return the undisclosed profit.

✅ Conclusion

Promoters play a critical role in forming a company but must act with
honesty, transparency, and in the company’s interest. While they
have certain rights (like expense recovery), their liabilities are
significant due to the trust placed in them.

✅ Memorandum of Association (MOA)

📘 Definition:

The Memorandum of Association (MOA) is a legal document that

defines the constitution of a company. It sets out the scope of
operations, objectives, and relationship of the company with the
outside world.

🧾 As per Section 2(56) of the Companies Act, 2013:

“Memorandum means the Memorandum of Association of a company as
originally framed or as altered from time to time in accordance with the
provisions of the Act.”

🧱 Importance of MOA

 It is the foundation document of the company.

 It defines the limit within which a company can operate.

 Any act done beyond the scope of the MOA is considered ultra
vires (beyond the powers) and void.

📂 Contents/Clauses of MOA

(As per Section 4 of the Companies Act, 2013)

The MOA must contain the following 6 mandatory clauses:

Clause Description

1. Name Specifies the name of the company. It must end with

Clause “Limited” (for public companies) or “Private Limited”
Clause Description

(for private companies).

Specifies the State in India where the company’s

2. Registered
registered office is located. Important for determining
Office Clause
jurisdiction.

Most important clause. Specifies the main and

3. Object
ancillary objects for which the company is formed. The
Clause
company cannot act beyond these objects.

4. Liability Defines the liability of members – whether limited by

Clause shares, guarantee, or unlimited.

5. Capital States the authorized share capital and its division

Clause into shares (e.g., 1,00,000 equity shares of ₹10 each).

Contains the names of the first subscribers

6. Subscription
(minimum: 2 for private, 7 for public companies), along
Clause
with number of shares they agree to take.

⚖️Legal Effects of MOA

 Acts as a contract between the company and its members.

 Binds the company to its stated objectives and scope.

 Acts as a public document – anyone dealing with the company is

assumed to have knowledge of its contents (Doctrine of
Constructive Notice).

🔄 Alteration of MOA

The MOA can be altered, but only with strict compliance to the provisions
of the Companies Act, such as:

 Special Resolution passed by shareholders

 Approval from the Registrar of Companies (ROC)

 Central Government approval (in case of change in registered

office across states)

⚠️Doctrine of Ultra Vires

If a company performs an act beyond the powers mentioned in its MOA,
that act is void and cannot be ratified later. This protects investors and
creditors.

✅ Conclusion

The MOA is the charter of the company that governs its external
affairs and operational limits. It defines the company’s legal identity,
purpose, and authority, making it an essential document during
incorporation and day-to-day operations.

✅ Articles of Association (AOA)

📘 Definition:

The Articles of Association (AOA) is a legal document that defines the

rules, regulations, and internal management of a company.

🧾 As per Section 2(5) of the Companies Act, 2013:

"Articles means the Articles of Association of a company as originally
framed or as altered from time to time."

🧱 Purpose of AOA

 AOA lays down the internal rules and regulations for the
company’s governance.

 It acts as a contract between the company and its members.

 It governs management, powers of directors, shareholding

rights, and meeting procedures.

🧾 Contents / Main Provisions of AOA

Though there is no fixed format, typical contents include:

Provision Description

Types of shares, rights of shareholders, issue and

1. Share Capital
transfer of shares.

2. Calls on
Rules for calling unpaid share capital.
Shares

3. Lien on Shares Conditions under which the company has a lien (legal
Provision Description

claim) on shares.

4. Transfer & Procedures for transferring shares and for heirs to

Transmission claim shares after a shareholder’s death.

5. Forfeiture of Conditions under which shares may be forfeited for

Shares non-payment.

6. General Rules for convening, conducting, and voting in

Meetings meetings.

7. Board of Appointment, powers, duties, and meetings of

Directors directors.

8. Dividend and Rules regarding declaration and payment of

Reserves dividends.

9. Borrowing
Conditions and limits on company borrowings.
Powers

10. Winding Up Procedure and rules in case the company is dissolved.

⚖️Legal Status and Binding Nature

 Binding Contract: AOA binds the company and its members like a
contract (as per Section 10 of the Companies Act, 2013).

 Members must follow the AOA.

 The company cannot act against its AOA.

🔁 Alteration of AOA

AOA can be altered by:

 Passing a special resolution at a general meeting.

 Filing the altered AOA with the Registrar of Companies (RoC).

 In some cases, approval from Tribunal or Central Government

may be required (e.g., if conversion of public to private company is
involved).

🔸 Altered AOA must not violate the Memorandum of Association

(MOA) or the Companies Act.
🆚 Difference Between MOA and AOA

Basis MOA AOA

Defines external objectives

Scope Regulates internal operations
and powers

Alteratio Difficult (requires approval from

Easier (via special resolution)
n authorities)

Contain Name, objects, capital, liability Rules for management,

s clauses meetings, dividends

Supreme document of the

Priority Subordinate to MOA
company

✅ Conclusion

The Articles of Association serve as the rulebook of the company,

helping ensure efficient internal governance. It protects the interests
of shareholders and ensures the board functions according to established
procedures.

✅ Articles of Incorporation (Also known as Certificate of

Incorporation in India)

The term "Articles of Incorporation" is primarily used in US corporate

law, but in the Indian context under the Companies Act, 2013, it is
equivalent to the Certificate of Incorporation and includes
incorporation documents like the Memorandum of Association (MOA)
and Articles of Association (AOA).

📘 Definition:

Articles of Incorporation are a set of formal documents filed with the

Registrar of Companies (RoC) to legally create a company.

🧾 These documents outline the basic information about the company,

such as its name, objectives, registered office, share structure, and
details of the initial directors and subscribers.

📂 Key Contents of Articles of Incorporation:

1. Company Name
 2. Registered Office Address

3. Objects of the Company (business purpose)

4. Type of Company (Private/Public, Limited by Shares/Guarantee)

5. Share Capital Structure

6. Details of Subscribers (Founders/Promoters)

7. Details of First Directors

8. Liability Clause (Limited or Unlimited)

9. MOA and AOA

10. Declaration by Professional (e.g., CA, CS, Advocate)

📋 Process of Incorporation in India (Key Steps):

1. Apply for Digital Signature Certificate (DSC)

2. Apply for Director Identification Number (DIN)

3. Name Reservation (RUN or SPICe+)

4. Preparation and Filing of MOA and AOA

5. Filing SPICe+ Form with RoC (Includes company details, PAN,

TAN, etc.)

6. Payment of Fees and Stamp Duty

7. Verification by RoC

8. Issue of Certificate of Incorporation

📜 Certificate of Incorporation

Once all documents are approved, the Registrar of Companies issues

the Certificate of Incorporation which is:

 Conclusive evidence of formation of the company

 Contains CIN (Corporate Identification Number)

 Mentions Date of Incorporation

⚖️Legal Significance

 The company becomes a separate legal entity.

  Can now enter into contracts, own property, sue and be sued.

 Becomes capable of commencing business (for private companies)

or after obtaining certificate of commencement (for some public
companies).

✅ Conclusion

The Articles of Incorporation are the legal foundation of a

company, marking its official existence. In India, this involves filing of
MOA, AOA, and other forms with the RoC and receiving the Certificate
of Incorporation.

✅ Public Offer

📘 Definition:

A Public Offer refers to the process by which a company offers its

shares or debentures to the general public to raise capital. It is
mainly used by public companies to get listed on a stock exchange.

🔸 As per Section 23 of the Companies Act, 2013, a public company

may issue securities:

 To the public through a prospectus (public offer)

 Through private placement

 Through a rights issue or bonus issue

📂 Types of Public Offer:

Type Description

Initial Public The first time a company offers shares to the public
Offer (IPO) to get listed on the stock exchange.

Follow-on Public A listed company issues more shares to the public

Offer (FPO) after the IPO.

Offer for Sale Existing shareholders (often promoters or

(OFS) government) sell their shares to the public.

📋 Key Components of a Public Offer:

  Drafting of Prospectus

 SEBI Approval

 Appointment of Merchant Bankers

 Marketing & Bidding

 Allotment of Shares

 Listing on Stock Exchange

⚖️Legal Framework:

 Regulated by SEBI (Issue of Capital and Disclosure

Requirements) Regulations

 Prospectus must comply with Sections 26 to 32 of the Companies

Act, 2013.

✅ Pledge

📘 Definition:

A pledge is a bailment of goods as security for repayment of a debt

or performance of a promise.

🔹 Defined under Section 172 of the Indian Contract Act, 1872:

“The bailment of goods as security for payment of a debt or performance
of a promise is called a pledge.”

🧾 Key Elements of a Pledge:

Element Description

The person who offers goods as security

Pledgor
(borrower).

The person who accepts goods as security

Pledgee
(lender).

Delivery of
Actual or constructive delivery is required.
Goods

Purpose For securing a debt or fulfilling a promise.

Examples of Pledge:

 A business pledging gold or inventory to a bank to secure a loan.

 Shares of a company pledged by promoters to raise funds.

🧑‍⚖️Rights of the Pledgee:

 Right to retain goods until debt is paid.

 Right to sell goods (after giving notice) if payment is not made.

🆚 Public Offer vs Pledge (Comparison):

Basis Public Offer Pledge

Raising capital from the

Purpose Offering goods as security
public

Nature Equity financing Loan security

Regulatio
SEBI, Companies Act Indian Contract Act
n

Involves Shareholders Borrower and lender

Ownershi No transfer of ownership in

Transfer of shares
p goods

✅ Conclusion:

A Public Offer is crucial for corporate financing and listing, while a

Pledge is a key financial tool to secure debts. Both play vital roles in
corporate finance and business law, but in very different ways.

✅ Directors – Company Law (Companies Act, 2013)

📘 Definition:

A director is an individual who is appointed to the Board of a company

to manage, direct, and supervise the affairs of the company.

🔹 As per Section 2(34) of the Companies Act, 2013:

“Director means a director appointed to the Board of a company.”

Directors act as agents, trustees, or officers of the company.

🧱 Legal Status of Directors:

Directors are considered:

 Agents of the company in dealings with third parties.

 Trustees of the company’s assets.

 Employees or Officers in some contexts, but not always.

🧾 Types of Directors (Section 149–172):

Type Description

Executive
Full-time director involved in day-to-day management.
Director

Non-Executive Not involved in daily operations; gives strategic

Director guidance.

Independent Appointed in listed/public companies; no material

Director relationship with the company (Section 149(6)).

Nominee Appointed by a stakeholder (e.g., government, financial

Director institution).

Alternate Appointed in absence of another director (for at least 3

Director months).

Additional
Appointed by Board till next AGM.
Director

Women Mandatory for certain listed/public companies (Rule 3 of

Director Companies Rules, 2014).

📊 Number of Directors:

Minimu
Company Type Maximum
m

15 (more with special

Private Company 2
resolution)

Public Company 3 15

One Person Company 1 15

 Minimu
Company Type Maximum
m

(OPC)

📂 Qualification of Directors:

 Must be an individual (not a company or firm).

 Must have a Director Identification Number (DIN).

 Not disqualified under Section 164.

 No educational qualification is mandatory under the Act.

⚖️Powers of Directors (Section 179):

 Borrowing funds

 Approving financial statements

 Issuing securities

 Investing company funds

 Approving mergers or amalgamations

All major decisions require Board Resolutions or Shareholder Resolutions.

Duties of Directors (Section 166):

1. Act in good faith for the benefit of company, employees,

shareholders.

2. Avoid conflict of interest.

3. Act with due care and diligence.

4. Not gain undue advantage.

5. Not assign their office.

Violation may result in fine up to ₹5 lakhs or disqualification.

❌ Disqualifications of Directors (Section 164):

 Declared insolvent
  Convicted by court for ≥ 6 months

 Not filed financial statements or annual returns for 3 consecutive

years

 Fraud or breach of duty

🔄 Appointment and Removal:

Process Details

By shareholders in the General Meeting or by the

Appointment
Board (if additional/alternate).

Retirement by 2/3rd of public company directors retire at each AGM

Rotation and can be reappointed.

Removal (Sec
Can be removed by passing an ordinary resolution.
169)

✅ Conclusion:

Directors are the backbone of a company's governance. They have to

balance profitability, compliance, and ethics, making decisions that
shape the future of the organization.

✅ Corporate Veil – Company Law Concept

📘 Definition:

The "Corporate Veil" is a legal concept that separates the company

from its shareholders or directors. It protects individuals from being
personally liable for the debts and obligations of the company.

🔹 Under the Companies Act, 2013, a company is a separate legal entity,

as established in the landmark case Salomon v. Salomon & Co. Ltd.
(1897).

🧱 What Does Corporate Veil Mean?

 The company has a separate legal personality from its owners.

 It can own property, sue or be sued, and enter into contracts in its
own name.
  Shareholders are liable only to the extent of their shares –
this is called limited liability.

 This protection is referred to as the corporate veil.

⚖️Lifting or Piercing the Corporate Veil

In certain cases, courts may disregard the company’s separate legal

entity and hold the shareholders/directors personally liable. This is
called lifting (or piercing) the corporate veil.

🔍 When Courts Lift the Corporate Veil:

Grounds Description

Fraud or
Improper If the company is used to commit fraud or evade law.
Conduct

During wartime, companies may be treated as enemies

Enemy
if controlled by enemies (e.g., Daimler Co. Ltd. v.
Character
Continental Tyre).

Evasion of Tax If the corporate structure is misused to avoid taxes.

Agency or If the company acts as an agent or cover for its

Sham Company members.

To Protect
For example, in cases of foreign control or public
National
interest.
Interests

🧑‍⚖️Important Case Laws:

1. Salomon v. Salomon & Co. Ltd. (1897)

o Established the concept of separate legal entity of a

company.

2. Gilford Motor Co. v. Horne (1933)

o Corporate veil lifted as the company was created to bypass a

non-compete clause.

3. Delhi Development Authority v. Skipper Construction (1996)

 o Veil lifted to hold directors liable for diverting investors’
money.

✅ Advantages of the Corporate Veil:

 Limited Liability for shareholders

 Separate Legal Entity

 Continuity even if shareholders/directors change

 Helps in raising capital

❌ Misuse of the Corporate Veil:

 Hiding illegal activities

 Evading taxes or liabilities

 Fraudulent practices

 Misleading creditors or the public

✅ Conclusion:

The corporate veil is essential for modern business, providing

protection and stability. However, misuse of this protection can lead
courts to lift the veil and impose personal liability. Courts use this
power to prevent injustice and uphold public interest.

✅ Winding Up of a Company

📘 Definition:

Winding up is the legal process by which a company is dissolved. It

involves selling off the company’s assets, paying its debts, and
distributing any remaining assets to shareholders.

🔹 As per the Companies Act, 2013, winding up refers to the process of

bringing an end to a company's life and administering its property for the
benefit of creditors and shareholders.

🧱 Modes of Winding Up (Section 270):

The Companies Act, 2013 provides for two major types of winding up:
1. Compulsory Winding Up by Tribunal

 Ordered by the National Company Law Tribunal (NCLT).

 Petition can be filed by:

o The company

o Creditors

o Registrar of Companies

o Central Government

o Any contributory (shareholder)

✅ Grounds for Compulsory Winding Up (Sec 271):

 Company unable to pay debts

 Special resolution passed by company

 Conduct against national interest, sovereignty, or morality

 Fraudulent or unlawful activities

 If the Tribunal thinks it is just and equitable

2. Voluntary Winding Up (Now governed under IBC, 2016)

 Initiated by the company itself when it is solvent.

 Requires a special resolution by shareholders.

 Earlier governed by the Companies Act, but now falls under the
Insolvency and Bankruptcy Code, 2016 (IBC).

✅ Key Conditions:

 Declaration of solvency by directors

 Approval by members and creditors

 Appointment of a liquidator

Steps Involved in Winding Up:

1. Filing of petition/resolution

2. Appointment of a liquidator

3. Realization of assets
 4. Settlement of liabilities

5. Distribution of surplus to shareholders

6. Final report to Tribunal/ROC

7. Dissolution order passed

8. Company struck off from the register

🧑‍⚖️Role of Liquidator:

 Takes control of assets

 Sells off assets

 Pays debts

 Prepares final accounts

 Files report with Tribunal/ROC

📋 Consequences of Winding Up:

Consequence Explanation

Cessation of Company stops all operations except those needed for

business winding up

No transfer of
Except with Tribunal's permission
shares

Management
Powers of directors cease; liquidator takes over
shifts

Debts paid off In order of legal priority

Company
After process completion, it ceases to exist
dissolved

⚖️Winding Up under IBC, 2016:

The Insolvency and Bankruptcy Code, 2016 now governs insolvency

and voluntary winding up for most companies:

 Fast-track process for startups and small companies

 Time-bound resolution (180–270 days)

  Involves Insolvency Resolution Professionals (IRPs)

✅ Conclusion:

Winding up is a crucial process to legally close a company. It ensures

that debts are settled, assets are distributed, and the company is
removed from existence. Proper winding up protects the interests of
creditors, shareholders, and the public.

✅ Definition of Partner

A partner is a person who enters into an agreement with one or more

persons to carry on a business and share profits and losses.

📘 Legal Definition:

As per Section 4 of the Indian Partnership Act, 1932:

“Partnership is the relation between persons who have agreed to share

the profits of a business carried on by all or any of them acting for all.”
Those persons are called "partners", and collectively they form a "firm".

🔍 Types of Partners

The Indian Partnership Act recognizes different types of partners based on

their role, liability, and involvement in the business.

1. Active Partner (Working Partner):

 Takes active part in the daily business.

 Shares profits/losses.

 Has unlimited liability.

 Known to outsiders.

2. Sleeping Partner (Dormant Partner):

 Invests capital and shares in profits.

 Does not take part in business operations.

 Has unlimited liability.

  Known to other partners but not to the public.

3. Nominal Partner:

 Does not contribute capital or take part in management.

 Only lends their name to the firm.

 Liable to third parties as if they were a real partner.

4. Partner in Profits Only:

 Shares only profits, not losses.

 May or may not contribute capital.

 Not involved in daily business.

5. Minor Partner:

 A minor (under 18 years) cannot be a full partner.

 Can be admitted to benefits of the partnership.

 Not liable for losses.

 On attaining majority, must choose to become a full partner or

not within 6 months.

6. Partner by Estoppel / Holding Out:

 Not actually a partner.

 But if a person represents themselves as a partner or allows

others to do so, they are liable to third parties who relied on that
representation.

7. Secret Partner:

 Participates in business and shares profits.

 Is not known to outsiders as a partner.

 Has full liability like an active partner.

8. Limited Partner (In Limited Liability Partnership or LLP):

 Liability is limited to their capital contribution.

 Not involved in daily management.

 Not recognized under traditional partnership but exists in LLPs and

Limited Partnerships.

📋 Summary Table:

Involvem Known to
Type of Partner Liability
ent Public?

Active Partner Yes Unlimited Yes

Sleeping Partner No Unlimited No

Nominal Partner No Unlimited Yes

Partner in Profits Profits

No Yes
Only only

Minor Partner No Limited Yes

Partner by Yes (by

No Unlimited
Estoppel conduct)

Secret Partner Yes Unlimited No

Limited Partner No Limited Yes

✅ Conclusion:

Partners differ based on role, liability, and legal standing.

Understanding these types helps determine the structure and
responsibilities within a firm as per the Indian Partnership Act, 1932.

✅ Test of Partnership – Indian Partnership Act, 1932

📘 What is the "Test of Partnership"?

The "Test of Partnership" refers to the set of criteria or conditions used

to determine whether a group of people are in a partnership
relationship as defined under the Indian Partnership Act, 1932.
🔹 As per Section 4, partnership is:
“The relation between persons who have agreed to share the profits of a
business carried on by all or any of them acting for all.”

🧪 Essential Tests to Determine a Partnership

1. Agreement Between the Parties

 Partnership must be based on a valid agreement (oral or written).

 No one can become a partner by status (e.g., by inheritance).

✅ Case law: M.P. Davis v. Commissioner of Income Tax

Mere co-ownership does not mean partnership unless there's an
agreement.

2. Existence of Business

 There must be a legal business (trade, profession, or occupation).

 A one-time transaction is not a partnership.

3. Profit Sharing

 There must be an agreement to share profits.

 Loss sharing is not essential but is often implied.

✅ Case law: Cox v. Hickman

Sharing profits is prima facie evidence, but not conclusive proof of
partnership.

4. Mutual Agency (True Test of Partnership)

 The most crucial test.

 Every partner must be capable of acting on behalf of others —

i.e., each partner is both an agent and principal.

✅ Mutual agency means:

 A partner can bind the firm by his acts.

 Others are bound by his decisions in business matters.

⚠️Important Note:

Not all people who share profits are partners. For example:

 Creditors receiving profit-based interest,

 Servants/employees receiving profit-based salary,

 Joint owners sharing income — these do not form a partnership

unless mutual agency exists.

📝 Summary Table of Tests:

Require
Test Importance
d?

Agreement ✅ Foundational

Business
✅ Essential
Existence

Indicative, not
Profit Sharing ✅
conclusive

Mutual Agency ✅ Conclusive test

✅ Conclusion:

The true test of a partnership lies in the presence of mutual agency,

not just profit sharing. All elements must point towards a relationship
where each person acts for and with others in a business. Courts use
these tests to distinguish partnerships from other relationships like co-
ownership or employer-employee.

✅ Test of Partnership – Indian Partnership Act, 1932

📘 What is the "Test of Partnership"?

The "Test of Partnership" refers to the set of criteria or conditions used

to determine whether a group of people are in a partnership
relationship as defined under the Indian Partnership Act, 1932.

🔹 As per Section 4, partnership is:

“The relation between persons who have agreed to share the profits of a
business carried on by all or any of them acting for all.”
🧪 Essential Tests to Determine a Partnership

1. Agreement Between the Parties

 Partnership must be based on a valid agreement (oral or written).

 No one can become a partner by status (e.g., by inheritance).

✅ Case law: M.P. Davis v. Commissioner of Income Tax

Mere co-ownership does not mean partnership unless there's an
agreement.

2. Existence of Business

 There must be a legal business (trade, profession, or occupation).

 A one-time transaction is not a partnership.

3. Profit Sharing

 There must be an agreement to share profits.

 Loss sharing is not essential but is often implied.

✅ Case law: Cox v. Hickman

Sharing profits is prima facie evidence, but not conclusive proof of
partnership.

4. Mutual Agency (True Test of Partnership)

 The most crucial test.

 Every partner must be capable of acting on behalf of others —

i.e., each partner is both an agent and principal.

✅ Mutual agency means:

 A partner can bind the firm by his acts.

 Others are bound by his decisions in business matters.

⚠️Important Note:

Not all people who share profits are partners. For example:

 Creditors receiving profit-based interest,

 Servants/employees receiving profit-based salary,

  Joint owners sharing income — these do not form a partnership
unless mutual agency exists.

📝 Summary Table of Tests:

Require
Test Importance
d?

Agreement ✅ Foundational

Business
✅ Essential
Existence

Indicative, not
Profit Sharing ✅
conclusive

Mutual Agency ✅ Conclusive test

✅ Conclusion:

The true test of a partnership lies in the presence of mutual agency,

not just profit sharing. All elements must point towards a relationship
where each person acts for and with others in a business. Courts use
these tests to distinguish partnerships from other relationships like co-
ownership or employer-employee.

✅ LLP – Limited Liability Partnership

📘 Definition:

A Limited Liability Partnership (LLP) is a hybrid form of business

that combines the benefits of a partnership with the advantages of a
limited liability company.

 Governed by the Limited Liability Partnership Act, 2008 in

India.

 It is a separate legal entity from its partners.

🧾 Key Features of LLP:

Feature Description

Separate Legal Entity LLP can own property, sue or be sued in its
Feature Description

own name.

Liability of partners is limited to the extent of

Limited Liability
their contribution.

LLP continues to exist even if partners leave,

Perpetual Succession
die or change.

At least 2 partners are required to form an LLP.

Minimum 2 Partners
No upper limit.

No Minimum Capital
Can be started with any amount of capital.
Requirement

Flexibility in Internal structure is decided by the LLP

Management Agreement.

Must be registered with the Registrar of LLPs

Mandatory Registration
(MCA).

All filings and registrations are done online

Digital Compliance
through the MCA portal.

🧑‍⚖️Difference Between LLP and Partnership Firm

Basis LLP Partnership Firm

Legal Status Separate legal entity No separate entity

Liability Limited Unlimited

Registration Mandatory Optional

Perpetual
Yes No
Succession

Number of Minimum 2, no Minimum 2, maximum

Partners maximum 50

Indian Partnership Act,

Act Governing LLP Act, 2008
1932

📜 Documents Required for LLP Formation:

 PAN & ID proof of partners

  Address proof of office

 LLP Agreement

 Digital Signature Certificate (DSC)

 Director Identification Number (DIN)

✅ Advantages of LLP:

 Limited liability for all partners

 Less compliance than a private company

 Ideal for professionals, consultants, startups

❌ Disadvantages of LLP:

 Cannot raise equity from the public

 Annual compliance and audit (if turnover exceeds limits)

 Penalty for non-filing is high

📝 Conclusion:

A Limited Liability Partnership is ideal for those who want the

flexibility of a partnership with the legal protection of limited
liability. It is especially popular among professionals, startups, and
service firms in India.

✅ Negotiable Instruments and Their Characteristics

📘 Definition:

A Negotiable Instrument (NI) is a document that guarantees the

payment of a specific amount of money, either on demand or at a
set time, with the payer named on the document.

As per Section 13 of the Negotiable Instruments Act, 1881,

“A negotiable instrument means a promissory note, bill of
exchange, or cheque payable either to order or to bearer.”

✒️Common Types of Negotiable Instruments:

 1. Promissory Note

2. Bill of Exchange

3. Cheque

Other examples (not defined under the Act but used in practice):

 Bank drafts

 Hundis

 Treasury bills (in some contexts)

🔍 Characteristics of Negotiable Instruments:

Characteristic Explanation

Can be transferred from one person to

1. Transferability
another by delivery or endorsement.

The transferee gets a better title than the

2. Title of Holder transferor, provided it's obtained in good
faith.

The holder in due course can sue in their

3. Right to Sue own name without informing the original
payee.

Law assumes certain things (e.g.,

4. Presumptions Under
consideration is given, signatures are
Law
genuine).

5. Unconditional Must contain a clear, unconditional

Promise or Order promise or direction to pay.

The amount payable must be certain and

6. Certainty of Amount
in money only.

7. Payable on Demand Can be payable immediately or after a

or at a Future Date specified time.

It must be a written document (oral

8. In Writing
promise is not a negotiable instrument).

Must be signed by the maker/drawer to be

9. Signature
valid.

10. Legal Recognition Recognized and enforceable under

Characteristic Explanation

Negotiable Instruments Act, 1881.

🧾 Examples of Use in Business:

 Used in trade and commerce for settling payments.

 Often used in banking (cheques, bills of exchange).

 Allows easy credit transactions and financing.

✅ Conclusion:

Negotiable instruments are crucial financial tools that enable

easy, secure, and legal transfer of money. Their unique
characteristics like transferability, legal enforceability, and
trustworthiness make them widely used in modern business and
banking operations.

✅ Bills of Exchange and Cheques – Definition and Comparison

📘 1. Bill of Exchange

✅ Definition:

As per Section 5 of the Negotiable Instruments Act, 1881:

"A bill of exchange is an instrument in writing containing an

unconditional order, signed by the maker, directing a certain
person to pay a certain sum of money only to, or to the order of, a
certain person or to the bearer of the instrument."

🧾 Parties to a Bill of Exchange:

1. Drawer – The person who writes/makes the bill.

2. Drawee – The person who is ordered to pay.

3. Payee – The person to whom the payment is to be made.

📌 Key Features:

 Unconditional order to pay.

 Involves three parties.

 Can be payable on demand or after a fixed period.

 Requires acceptance by the drawee.

 Often used in trade credit transactions.

🧾 Example:

A (drawer) orders B (drawee) to pay ₹10,000 to C (payee) after 30

days.

📘 2. Cheque

✅ Definition:

As per Section 6 of the Negotiable Instruments Act, 1881:

"A cheque is a bill of exchange drawn on a specified banker, and

not expressed to be payable otherwise than on demand."

It includes electronic cheques and truncated cheques as well.

🧾 Parties to a Cheque:

1. Drawer – The person who issues the cheque.

2. Drawee – The bank on which the cheque is drawn.

3. Payee – The person to whom the money is to be paid.

📌 Key Features:

 A type of bill of exchange.

 Always drawn on a bank.

 Payable only on demand.

 Used in banking and personal finance.

 Does not require acceptance.

 Can be bearer or order cheque.

🔁 Difference Between Bill of Exchange and Cheque

Basis Bill of Exchange Cheque

Governing
Section 5, NI Act Section 6, NI Act
Section

Any person or
Drawn On Always drawn on a bank
institution

Acceptance
Yes, by drawee No acceptance needed
Needed

On demand or after a
Payable Only on demand
certain period

Mainly in
Mainly for personal or
Use business/trade
commercial payments
transactions

Dishonour
Required Not compulsory
Notice

Crossing
Not applicable Yes – to prevent misuse
Allowed

✅ Conclusion:

Both bills of exchange and cheques are key negotiable

instruments that help in facilitating secure and efficient payment
systems. While a bill of exchange is widely used in commercial
credit, cheques are more commonly used in banking transactions
and everyday payments.

✅ Negotiation – Negotiable Instruments Act, 1881

📘 Definition:

As per Section 14 of the Negotiable Instruments Act, 1881:

"Negotiation means the transfer of a negotiable instrument to
any person so as to make that person the holder of the
instrument."

In simple terms, negotiation is the process by which a negotiable

instrument (like a cheque or bill of exchange) is transferred to
another party who then gains the right to receive the amount
mentioned in it.

🔁 Modes of Negotiation

Negotiation can happen in two main ways:

1. By Delivery (Bearer Instruments)

 If the instrument is payable to bearer, it can be negotiated

by simple delivery.

Example: Handing over a bearer cheque to another person.

2. By Endorsement and Delivery (Order Instruments)

 If the instrument is payable to order, it must be endorsed

(signed by the holder) and delivered to the transferee.

Example: Signing the back of a cheque payable to your name and

handing it to someone else.

🧑‍⚖️Key Terms:

Term Meaning

A person legally entitled to possess and receive

Holder
payment from a negotiable instrument.

A person who acquires the instrument for value, in

Holder in Due
good faith, and before it is overdue. Gains better
Course
rights.

The act of signing the back of the instrument to

Endorsement
transfer rights to another person.

📌 Features of Negotiation:

 Transfers legal ownership of the instrument.

 The transferee becomes the holder or holder in due course.

 Negotiation can happen multiple times.

 Negotiated instruments retain their negotiable nature.

✅ Importance of Negotiation:

 Facilitates free circulation of credit and money.

 Makes the instrument easily transferable like cash.

 Provides security and convenience in business transactions.

📝 Conclusion:

Negotiation is the core feature of negotiable instruments,

enabling them to act like cash equivalents in trade and
commerce. It ensures smooth transfer of payment rights from one
person to another, making it a powerful tool in modern financial
systems.

✅ 1. Crossing of Cheques

📘 Definition:

Crossing means drawing two parallel lines across the face of the
cheque, with or without additional words, to instruct the bank not
to pay the cheque in cash but through a bank account only.

It is a security feature that ensures payment is made to a

legitimate bank account.

🔍 Types of Crossing:

Type Description

Two parallel lines with or without "and Co."

General Crossing or "not negotiable".
(Sec. 123) ➤ Cannot be encashed directly, must go
through a bank.

The name of a specific bank is written

Special Crossing
between the lines.
(Sec. 124)
➤ Only that bank can collect the cheque.

Words like "Account Payee Only" or "A/C

Payee" are added.
Restrictive Crossing
➤ Can only be deposited into the payee’s
account.

Not Negotiable Reduces the negotiability of the cheque.

Type Description

➤ Transferee cannot have a better title than

Crossing
the transferor.

Purpose of Crossing:

 Prevents fraud and theft.

 Ensures traceable bank transactions.

 Adds a layer of security for the drawer and payee.

✅ 2. Dishonour of Cheques

📘 Definition:

A cheque is said to be dishonoured when the bank refuses to pay

the amount written on the cheque due to certain reasons.

It is governed by Section 138 to 142 of the Negotiable

Instruments Act, 1881 (introduced via the 1988 amendment).

❌ Common Reasons for Dishonour:

 Insufficient funds in the account

 Signature mismatch

 Post-dated cheque presented early

 Account closed

 Payment stopped by drawer

 Mismatch in amounts (words vs. figures)

 Cheque expired (valid only for 3 months)

⚖️Legal Consequences (Sec. 138):

If a cheque is dishonoured due to insufficient funds or exceeds

arrangement, it may lead to criminal proceedings:

1. Notice by Payee:
 o Payee must send a written notice to the drawer within
30 days from the date of dishonour.

2. No Payment in 15 Days:

o If the drawer doesn’t pay within 15 days of receiving

the notice, a complaint can be filed.

3. Punishment:

o Imprisonment up to 2 years, or

o Fine up to twice the amount of the cheque, or both.

📌 Important Case Law:

 K. Bhaskaran vs. Sankaran Vaidhyan Balan (1999): Clarified

procedural aspects of dishonour under Section 138.

✅ Conclusion:

 Crossing a cheque ensures safe and secure payment through

bank accounts.

 Dishonour of cheque attracts serious consequences under

law, especially when related to insufficient funds.

✅ Cyber Law & IT Act, 2000

📘 What is Cyber Law?

Cyber Law is the area of law that deals with legal issues related
to the use of the internet, digital communications, computers,
and networks. It covers crimes, contracts, and disputes involving
the use of digital technologies.

⚖️What is the IT Act, 2000?

The Information Technology Act, 2000 is the primary legislation in

India governing cyber law.
It provides legal recognition to electronic records and digital
signatures and deals with cybercrimes, e-commerce, and data
security.
The Act came into force on 17th October 2000, and was amended
in 2008 to strengthen provisions related to cybercrime and data
protection.

🌟 Key Features of the IT Act, 2000

Sl.
Feature Explanation
No.

Electronic data, emails, and

Legal Recognition of
1. documents are treated as valid
Electronic Records
legal evidence.

Digital signatures are recognized

2. Digital Signatures for validating authenticity of
electronic records.

Enables online filing of documents,

3. E-Governance Support
government forms, and payments.

Legal Validity for E- Facilitates legally valid e-contracts

4.
Commerce and digital business transactions.

Defines cybercrimes such as

Cyber Offenses and
5. hacking, identity theft, phishing,
Penalties
and provides punishments.

Empowers agencies to issue digital

6. Certifying Authorities
certificates (e.g., eMudhra, NIC).

Establishment of
To settle disputes related to cyber
7. Adjudicating Officers and
offenses and data breaches.
Cyber Appellate Tribunal

Provides safeguards against

Data Privacy and Security
8. unauthorized access to personal
Provisions
and financial data.

Internet service providers and

9. Intermediary Liability platforms (e.g., social media) have
responsibilities for illegal content.

Introduced terms like cyber

10. Amendment in 2008 terrorism, phishing, cyberstalking,
and enhanced penalties.
✅ Important Sections of the IT Act:

Section Focus

Section Compensation for unauthorized access and

43 damage to data

Section
Punishment for hacking
66

Section
Identity theft
66C

Section
Cheating by personation (phishing)
66D

Section Publishing or transmitting obscene content in

67 electronic form

Section Power to intercept and monitor online

69 communication

🎯 Conclusion:

The IT Act, 2000 is a landmark legislation that provides a legal

framework for digital transactions and cybercrime in India. With
increasing dependence on digital platforms, the role of cyber law
is becoming more critical in protecting users, businesses, and the
government.

✅ Sale of Goods Act, 1930

📘 Introduction:

The Sale of Goods Act, 1930 is an Indian law that governs

contracts relating to the sale and purchase of goods.
It came into force on 1st July 1930 and was originally part of the
Indian Contract Act, 1872. Later, it was separated into an
independent law.

⚖️Objective of the Act:

 To define and regulate contracts for the sale of goods.

 To lay down rights and duties of buyers and sellers.

  To provide legal remedies in case of breach of contract.

📌 Key Definitions (Section 2):

Term Definition

Every kind of movable property (except money and

Goods actionable claims) – includes stock, shares, growing crops,
etc.

Buyer A person who buys or agrees to buy goods.

Seller A person who sells or agrees to sell goods.

Price The money consideration for a sale of goods.

Delive
Voluntary transfer of possession from seller to buyer.
ry

🌟 Essentials of a Contract of Sale (Section 4):

A valid sale must include:

1. Two parties – buyer and seller

2. Transfer of ownership – from seller to buyer

3. Goods – must be movable

4. Price – must be paid or promised

5. Consent – free and mutual agreement

🔄 Types of Contracts under the Act:

Type Description

Immediate transfer of ownership of goods for a

Sale
price.

Agreement Transfer of ownership to take place at a future date

to Sell or after fulfillment of a condition.

Conditional Sale subject to certain conditions precedent or

Sale subsequent.
📦 Classification of Goods:

Type Meaning

Existing Goods Already owned or possessed by the seller.

Goods to be manufactured or acquired in the

Future Goods
future.

Contingent Goods whose sale depends on a certain event

Goods happening.

📋 Important Provisions:

Section Provision

Contract can be for existing, future, or contingent

Sec 6
goods.

Implied condition of title – seller must have the right to

Sec 14
sell.

Implied condition as to quality or fitness (only if buyer

Sec 16
relies on seller).

Sec 18–
Rules for transfer of ownership and risk.
25

Sec 27– Rights of unpaid seller including lien, stoppage in

30 transit, resale.

🧑‍⚖️Rights of the Buyer:

 To receive goods as per contract terms

 To reject defective or non-conforming goods

 To claim damages for breach

 To sue for specific performance

🧾 Rights of the Seller:

 To receive payment

 To retain goods until payment (right of lien)

 To resell goods in case of buyer’s default

  To sue for damages or price

📑 Conclusion:

The Sale of Goods Act, 1930 is a fundamental law that governs

the sale and purchase of movable goods in India. It clearly defines
the roles, rights, and duties of buyers and sellers, helping ensure
smooth and fair business transactions.

✅ Conditions and Warranties

(Under the Sale of Goods Act, 1930 – Sections 11 to 17)

📘 Meaning of Condition:

A condition is a fundamental stipulation in a contract of sale,

essential to the main purpose of the contract.
If a condition is breached, the buyer can reject the goods and
repudiate the contract.

🔹 Example: If you buy a car specified to be "brand new", and it

turns out to be used, you can return the car and cancel the
contract.

📘 Meaning of Warranty:

A warranty is a less important term of the contract. It is collateral

to the main purpose of the sale.
If a warranty is breached, the buyer cannot reject the goods, but
can claim damages.

🔹 Example: If a seller promises free service for 1 year but doesn’t

provide it, the buyer can claim compensation but cannot return
the vehicle.

🔄 Difference between Condition and Warranty:

Basis Condition Warranty

Importan
Essential to contract Subsidiary to contract
ce
Basis Condition Warranty

Buyer can reject goods +

Breach Only claim damages
claim damages

Effect Contract may be voided Contract continues

Conversi A condition can be treated as A warranty cannot be

on a warranty (Sec. 13) treated as a condition

📑 Types of Conditions (Implied by Law):

Type Explanation

Seller has the right to sell the

Condition as to Title (Sec. 14)
goods.

Condition as to Description Goods must match the

(Sec. 15) description given.

Condition as to Sample (Sec. Bulk must correspond to the

17) sample shown.

Condition as to Quality or If buyer relies on seller’s

Fitness (Sec. 16) skill/judgment.

Condition as to Merchantable Goods must be fit for ordinary

Quality use.

🧾 Types of Warranties (Implied):

Type Explanation

Warranty of Quiet Possession Buyer will enjoy undisturbed

(Sec. 14(b)) use of goods.

Warranty Free from Goods sold are free from third-

Encumbrance (Sec. 14(c)) party claims.

Warranty as to Quality (Sec. Based on trade custom or

16(2)) previous dealing.

⚠️Conversion of Condition to Warranty (Sec. 13):

In the following cases, a breach of condition is treated as a

breach of warranty:
 1. Buyer waives the condition.

2. Buyer accepts the goods and does not reject them.

3. The contract is not severable, and the buyer has accepted

part of the goods.

📝 Conclusion:

Understanding the difference between a condition and a warranty

is crucial in business transactions. While a condition affects the
core purpose of a contract, a warranty deals with secondary
assurances. The Sale of Goods Act ensures that both sellers and
buyers are protected with clear legal remedies.

✅ 1. Rights of an Unpaid Seller (Sections 45 to 54)

📘 Who is an Unpaid Seller? (Sec. 45)

A seller is called unpaid when:

 The whole price has not been paid, or

 A bill of exchange or cheque given has been dishonoured.

🛑 Rights of Unpaid Seller

The unpaid seller has two broad categories of rights:

🔹 A. Rights Against the Goods

Right Explanation

Right to retain goods until payment is

Right of Lien (Sec. 47–49)
made.

Right of Stoppage in Right to stop goods in transit if buyer

Transit (Sec. 50–52) becomes insolvent.

Right of Resale (Sec. 54) Right to resell goods if buyer defaults.

Right to Withhold Delivery If goods haven’t been delivered yet.

🔹 B. Rights Against the Buyer Personally

Right Explanation

Seller can sue if ownership is passed and

Suit for Price (Sec. 55)
price unpaid.

Suit for Damages (Sec.

For refusal to accept and pay for goods.
56)

Suit for Cancellation If contract allows, interest on delayed

and Interest payment can be claimed.

✅ 2. Rights and Duties of Buyer and Seller

🧑‍⚖️Rights of Buyer

Right Description

Receive goods as per Goods must match quantity, quality, and

contract description.

Right to reject
If not as per contract terms.
defective goods

Right to examine the

Before accepting (Sec. 41).
goods

Right to sue for

In case of breach by seller.
damages

Right to specific
Can seek court order to compel delivery.
performance

🧾 Duties of Buyer

Duty Description

Accept delivery of
If they match contract terms.
goods

Pay the price As per agreed terms.

When no time is fixed, buyer must

Apply for delivery
request it.
Duty Description

Take reasonable
Of goods if delivery is refused.
care

Notify seller of Without delay if goods are not

rejection accepted.

🧑‍💼 Rights of Seller

Right Description

Full payment for goods

Receive payment
delivered.

Right to withhold
If price is not paid.
delivery

Exercise unpaid seller’s Lien, stoppage in transit,

rights resale.

Sue for damages or

On buyer’s breach.
price

📋 Duties of Seller

Duty Description

Must match description,

Deliver goods as per contract
quantity, time, etc.

Ensure right to sell Must have legal ownership.

Deliver goods free of

No third-party claims.
encumbrance

Provide reasonable opportunity Buyer can check before

for inspection acceptance.

As agreed in contract or as per

Deliver at proper time and place
usage.

📝 Conclusion:

The Sale of Goods Act, 1930 clearly outlines the rights and
responsibilities of both buyers and sellers to ensure fair trade.
The unpaid seller has strong legal protection, while both buyer
and seller are bound by duties to uphold the contract.

✅ Consumer Protection Act, 2019

(Replaced the earlier Consumer Protection Act, 1986)

📘 Introduction:

The Consumer Protection Act, 2019 is a comprehensive law

enacted to protect the interests of consumers and to provide
effective and speedy redressal of consumer grievances.

It came into force on 20th July 2020.

🎯 Objectives of the Act:

1. Protect consumer rights

2. Establish authorities for consumer dispute resolution

3. Ensure fair trade practices

4. Promote consumer awareness

5. Provide legal remedies for unfair practices

👤 Who is a Consumer?

A consumer is a person who:

 Buys goods or services for consideration, and

 Uses them for personal use, not for resale or commercial

purposes.

🌟 Consumer Rights under the Act (Section 2 & 17):

Right Description

Against hazardous goods and

Right to Safety
services

Right to Information About quality, quantity, purity,

Right Description

etc.

Access to a variety of
Right to Choose
goods/services

Right to be represented in
Right to be Heard
forums

Right to Redressal Against unfair trade practices

Right to Consumer Awareness of rights and

Education remedies

⚖️Consumer Disputes: Meaning

A consumer dispute arises when a consumer files a complaint

against a seller, manufacturer, or service provider for deficiency
or defect in goods/services and demands compensation or other
remedies.

📝 Common Consumer Disputes:

 Defective products

 Deficiency in services (e.g., internet, banking, education)

 Overcharging or unfair pricing

 Misleading advertisements

 Online fraud or e-commerce issues

Consumer Disputes Redressal Commissions (CDRCs):

Jurisdiction (based on value of

Forum
goods/services)

District Commission Up to ₹50 lakh

State Commission ₹50 lakh – ₹2 crore

National Commission
Above ₹2 crore
(NCDRC)

Consumers can file cases electronically (E-Daakhil).

📋 Remedies Available to Consumers:

1. Replacement or repair of goods

2. Refund of price paid

3. Compensation for loss or injury

4. Removal of defect or deficiency

5. Discontinue unfair practice

6. Punitive damages in extreme cases

🧾 Conclusion:

The Consumer Protection Act, 2019 is a powerful tool to ensure

transparency, accountability, and consumer empowerment. With
faster redressal mechanisms, wider definitions (including online
and digital consumers), and stricter penalties, the Act plays a key
role in modern consumer rights protection.

Unfair Trade Practice (UTP)

(Defined under Section 2(47) of Consumer Protection Act, 2019)

📘 Definition:

Unfair Trade Practice refers to a deceptive, misleading, or

unethical method or practice used by a trader or service provider
to promote sales or services, which harms consumer interests.

❗ Examples of Unfair Trade Practices:

1. Misleading Advertisement

o False claims (e.g., "100% cure", "best in India")

2. False Representation

o Selling used goods as new

o Claiming fake awards, quality marks

3. Bait Advertising
 o Advertising products at a low price to attract
customers but not actually selling them at that price

4. Fake Bargains or Discounts

o Increasing prices before offering a “discount”

5. Non-issuance of Bills

o Refusing to issue bills to avoid taxes

6. Offering Gifts/Prizes with No Intention to Deliver

o Schemes that are misleading or fake

7. Refusing After-Sales Service

o Especially when warranty is promised

8. Hoarding or Destruction of Goods

o To create artificial scarcity and raise prices

⚖️Legal Remedy:

Consumers can file a complaint in the Consumer Disputes

Redressal Commission (District, State, or National) and seek:

 Refunds

 Compensation

 Discontinuation of unfair practice

 Penalties on the trader

✅ Consumer Protection Councils

These councils are advisory bodies created under the Consumer

Protection Act to promote and protect consumer rights.

1. Central Consumer Protection Council (CCPC)

📌 Established Under: Section 3 of the Act

Constituted by: Central Government

👥 Composition:

 Chairperson: Union Minister for Consumer Affairs

  Members: Ministers from states/UTs, officials, experts, and
consumer representatives

🎯 Objective:

To advise the Central Government on promoting and protecting

consumer rights.

🔁 Meetings: At least once a year

2. State Consumer Protection Council (SCPC)

📌 Established Under: Section 6

Constituted by: State Government

👥 Composition:

 Chairperson: State Minister for Food, Supplies or Consumer

Affairs

 Members: District-level officials, NGOs, traders, and

consumers

🎯 Objective:

To advise state authorities and promote consumer rights in the

respective state.

🔁 Meetings: At least twice a year

🎯 Objectives of Both Councils:

To protect:

1. Right to safety

2. Right to be informed

3. Right to choose

4. Right to be heard

5. Right to redressal

6. Right to consumer education

📝 Conclusion:
The Consumer Protection Act, 2019 ensures strong safeguards for
consumers. The provisions on Unfair Trade Practices and the
functioning of Central and State Consumer Protection Councils
play a vital role in educating consumers, advising governments,
and promoting ethical business practices.

✅ Industrial Disputes Act, 1947

📘 Introduction:

The Industrial Disputes Act, 1947 is a central legislation enacted

to regulate industrial relations in India. It aims to provide a legal
framework for the investigation, settlement, and prevention of
industrial disputes.

🔹 Date of Enactment: 11th March 1947

🔹 Came into Force: 1st April 1947

🎯 Objectives of the Act:

1. Maintain industrial peace and harmony

2. Provide machinery for settlement of disputes

3. Promote collective bargaining

4. Protect the rights of workers and employers

5. Avoid illegal strikes and lockouts

6. Ensure social justice in industrial matters

🧾 Key Definitions (Section 2):

Term Meaning

Any business, trade, undertaking, manufacture, or

Industry service where work is done by employees (excluding
domestic services).

Disagreement between employers and employees (or

Industrial
among them) relating to employment, conditions of
Dispute
labour, or termination.

Workman Any person employed in any industry to do manual,

Term Meaning

unskilled, skilled, technical, or clerical work (excluding

army personnel and managerial roles).

⚖️Authorities under the Act:

Authority Role

Works Promotes good relations between employers and

Committee workers in large establishments (100+ workers).

Conciliation
Tries to resolve disputes through negotiation.
Officer

Board of
Temporary body to mediate disputes.
Conciliation

Adjudicates disputes related to standing orders,

Labour Court
dismissal, wages, etc.

Industrial Deals with complex issues like bonus, hours of

Tribunal work, retrenchment.

National Deals with disputes of national importance or

Tribunal involving multiple states.

🚫 Strikes and Lockouts (Sections 22–24):

 Strike: A collective stoppage of work by employees.

 Lockout: An employer prevents workers from working.

🔹 Prohibited in:

 Public utility services without prior notice

 During conciliation or adjudication proceedings

🔄 Lay-Off, Retrenchment & Closure:

Term Meaning

Lay-off (Sec. Temporary inability to give employment due to

2(kkk)) lack of resources or breakdown.

Retrenchment Permanent termination of employees for non-

Term Meaning

(Sec. 2(oo)) disciplinary reasons.

Permanent shutdown of a place of

Closure
employment.

👨‍⚖️Dispute Resolution Mechanisms:

1. Negotiation

2. Conciliation

3. Voluntary Arbitration

4. Adjudication by Labour Courts/Tribunals

📝 Conclusion:

The Industrial Disputes Act, 1947 plays a vital role in maintaining

industrial harmony, ensuring fair treatment of workers, and
providing a structured mechanism to handle conflicts in the
workplace. It supports both employee welfare and economic
productivity.

✅ Award and Settlement under Industrial Disputes Act, 1947

🔹 1. Award

(Defined under Section 2(b))

📘 Definition:

An Award refers to the decision given in writing by a Labour

Court, Industrial Tribunal, or National Tribunal in any industrial
dispute referred to it for adjudication.

Types of Awards:

Type Description

Interim A temporary decision given while the final

Award award is pending.
Type Description

Final
A conclusive decision that resolves the dispute.
Award

📅 Enforcement of Award:

 Becomes enforceable after 30 days from the date of

publication by the Government.

 Can be modified or rejected by the government within this

30-day period for public interest.

📝 Binding Nature:

 Binding on all parties to the dispute

 Includes present and future employees in the establishment

🔹 2. Settlement

(Defined under Section 2(p))

📘 Definition:

A Settlement means a written agreement between the employer

and workers arrived at:

1. During conciliation proceedings, or

2. Otherwise (i.e., mutual agreement without conciliation).

📂 Types of Settlements:

Type Description

Settlement During Arrived at with the help of a Conciliation

Conciliation (Sec. Officer. Binding on all parties, even future
12(3)) employees.

Private/Voluntary Mutual agreement outside conciliation.

Settlement (Sec. 18(1)) Binding only on signing parties.

📋 Contents of a Settlement Agreement:

  Names of parties

 Terms of agreement

 Date of effect

 Duration of settlement

 Signature of parties

🧷 Binding Nature:

Type Binding On

During All parties + future

Conciliation employees

Outside Only the parties to the

Conciliation agreement

🆚 Award vs Settlement – Comparison Table

Basis Award Settlement

Given by Made by mutual

Authority
court/tribunal agreement

Enforceabili After 30 days of

Immediate if signed
ty publication

Binding Limited (depends on

Wider (all parties)
Nature type)

Involvemen Employer &

Judge/Tribunal
t employees/union

Legal
Section 2(b), 17 Section 2(p), 18
Backing

📝 Conclusion:

The Award and Settlement mechanisms under the Industrial

Disputes Act, 1947 are essential tools for resolving conflicts.
While awards are judicial decisions, settlements promote
voluntary dispute resolution. Both ensure industrial peace,
employee welfare, and industrial productivity.
✅ Workmen Strike and Lockout, Layoff, Unfair Labour Practices &
Role of Government

🔹 1. Strike (Section 2(q))

Definition:

A strike is a collective stoppage of work by a group of workmen in

protest against certain employer actions or demands.

✅ Types of Strikes:

Type Description

General All workers stop work across an

Strike industry

Symbolic and short-duration

Token Strike
strike

Flash Strike Sudden, without notice

Go-Slow Deliberate slowing of work

Sit-Down Workers stay at workplace but do

Strike no work

Sympathy In support of other workers'

Strike cause

🚫 Illegal Strikes (Sec. 24):

 Without notice in public utility services

 During conciliation/adjudication

 In violation of court orders

🔹 2. Lockout (Section 2(l))

Definition:

A lockout is when the employer temporarily closes the workplace

or suspends work to enforce demands or due to an industrial
dispute.

❗ Common Causes:
  Retaliation to a strike

 Refusal by workers to follow rules

 Conflict over wage or policy

⚠️Illegal Lockouts:

 No notice in public utility service

 During conciliation or tribunal proceedings

🔹 3. Layoff (Section 2(kkk))

Definition:

A layoff is a temporary inability of the employer to provide work

to employees due to reasons beyond the employer's control like:

 Shortage of raw materials

 Machine breakdown

 Natural calamity

 Power failure

✅ Key Points:

 Worker is not terminated

 Worker remains on the roll of the company

 Eligible for compensation under certain conditions

🔹 4. Unfair Labour Practices

(Defined under the Fifth Schedule of the Act)

Definition:

Practices by employers or unions that are unethical, coercive, or

illegal, violating the rights of employees or employers.

🧾 Examples:

By Employers By Trade Unions

Victimizing workers Use of violence or threats

By Employers By Trade Unions

Creating false cases Forcing workers to strike

Intimidation of non-union
Refusing to bargain
workers

Interfering in union Instigating go-slow or

activities sabotage

5. Role of Government in Industrial Disputes

The Government plays a crucial role in maintaining industrial

peace and protecting the rights of both workers and employers.

🔧 Functions of the Government:

Role Description

Conciliation Officer For resolving disputes before

Appointment escalation

Government can refer disputes to

Referral to Tribunals
adjudication

Establishing Labour For resolving legal disputes in

Courts/Tribunals labour

To prevent illegal strikes and

Monitoring Illegal Activities
lockouts

Policy Making & To update and enforce labour

Amendments legislation

Encouraging Collective
Through mediation and dialogue
Bargaining

📝 Conclusion:

The Industrial Disputes Act, 1947 ensures peaceful resolution of

disputes between workers and management. Strikes, lockouts,
layoffs, and unfair labour practices are regulated to safeguard
industrial harmony, while the government acts as a regulator,
mediator, and policymaker to protect both productivity and
justice.
✅ 1. Strike and Lockout

🔹 Strike (Section 2(q))

A Strike is a collective stoppage of work by employees to express

a grievance, demand better conditions, or oppose employer
decisions.

📘 Types of Strikes:

Type Description

General
Involves all workers across sectors
Strike

Sit-down Workers stop work but do not leave

Strike premises

Go-slow Workers deliberately reduce

Strike productivity

Sympathy
In support of other striking workers
Strike

Token Strike Short-term strike as a warning

Conducted in violation of the Act's

Illegal Strike
provisions

🔒 Conditions When Strike Is Prohibited:

 During conciliation proceedings or 7 days after

 During adjudication or 2 months after an award

 Without giving 14 days’ notice in public utility services

🔹 Lockout (Section 2(l))

A Lockout is the employer's act of temporarily closing the

workplace, suspending work, or refusing employment to pressure
workers or break a strike.

📘 Key Points:

 Must not violate the law or happen during pending legal

proceedings

 Illegal if done in breach of provisions in Sections 22/23

✅ 2. Layoff (Section 2(kkk))

Layoff is the temporary inability of the employer to provide

employment due to reasons like:

 Shortage of raw materials

 Machinery breakdown

 Natural calamities

 Market downturn

📝 Conditions:

 Only for workers on the muster roll

 Employer must inform the appropriate government

 Layoff compensation: 50% of basic wages + dearness

allowance

✅ 3. Unfair Labour Practices (Schedule V)

📘 Definition:

Activities by employers or workers that violate the principles of

fair and just industrial behaviour.

🔹 By Employers:

 Interfering in trade union formation

 Discharging workers for union activity

 Employing bad-faith bargaining

 Victimizing employees

 Hiring during a legal strike to break it

🔹 By Workers/Trade Unions:

 Coercion or violence

 Forcing employees to join a union

 Illegal strikes

 Intimidating non-striking workers

✅ 4. Role of Government under Industrial Disputes Act

🔹 Central & State Governments play a key role in:

A. Preventive Role:

 Promoting collective bargaining

 Creating awareness and training

 Formation of Works Committees

B. Dispute Resolution:

 Appoint Conciliation Officers

 Constitute Labour Courts, Industrial Tribunals

 Refer disputes for adjudication

 Enforce settlements and awards

🚨 C. Regulatory Role:

 Monitor strikes, lockouts, layoffs

 Declare certain strikes illegal

 Ensure lawful retrenchment and closure

 Enforce penalties for unfair practices

🤝 D. Advisory Role:

 Labour Ministry gives policy guidance

 Promotes harmony through tripartite forums

📝 Conclusion:

The Industrial Disputes Act, 1947 provides a legal and peaceful

mechanism to handle labour unrest through regulated procedures
for strikes, lockouts, layoffs, and fair practices. The Government
plays a central role in maintaining industrial peace, protecting
worker rights, and supporting economic growth.

✅ Workmen Strike and Lockout, Layoff, Unfair Labour Practices,

and Government’s Role

(Industrial Disputes Act, 1947)

🔹 1. Strike (Section 2(q))

A Strike is a collective stoppage of work by a group of workers to

express grievances or enforce demands related to wages,
working conditions, etc.

⚠️Types of Strikes:

 General Strike – Mass protest across sectors

 Token Strike – For a short, symbolic duration

 Hunger Strike – Workers fast without working

 Go-Slow – Intentionally reducing work speed

 Sit-in Strike – Workers stay at the workplace but don’t work

🚫 Illegal Strikes (Sec. 24):

A strike is illegal if:

 No prior notice is given (in public utility services)

 It is during conciliation, tribunal, or arbitration proceedings

 It violates government prohibition orders

🔹 2. Lockout (Section 2(l))

A Lockout is a temporary closure of a workplace or refusal by the

employer to provide work, usually to resist trade union demands
or during disputes.

⚠️When Lockout is Illegal:

 Without notice (in public utility services)

 During conciliation or adjudication

 If it defies government prohibition

🔹 3. Layoff (Section 2(kkk))

Layoff means the temporary inability of the employer to provide

employment due to reasons like:

 Shortage of raw material

 Breakdown of machinery

 Natural calamity
  Market slowdown

🧾 Key Points:

 Worker is not terminated

 They remain on the payroll

 Eligible for compensation (usually 50% of wages)

🔹 4. Unfair Labour Practices (Fifth Schedule)

Any practice by employers or workers that violates fair labour

standards, causes victimization, or disturbs industrial peace.

❌ By Employers:

 Victimizing workers for union activity

 Dismissing workers without cause

 Refusing collective bargaining

 Interfering in union formation

❌ By Workers/Unions:

 Coercive strikes or gherao

 Using criminal force

 Preventing non-strikers from working

 Refusing settlement or arbitration

📜 Prohibition:

Unfair Labour Practices are prohibited and punishable under the

Act.

🔹 5. Role of Government

Central & State Governments Play Key Roles:

Area Role of Government

Appoints Conciliation Officers and Boards to

Conciliation
settle disputes peacefully

Refers disputes to Labour Courts, Industrial

Adjudication
Tribunals, and National Tribunals
Area Role of Government

Prohibition Can prohibit strikes/lockouts during proceedings

Powers or in public interest

Enacts and enforces laws for minimum wages,

Labour Welfare
bonus, social security, etc.

Frames industrial policies, sets up labour

Policy Making
commissions

Publication of Publishes tribunal decisions (Awards) and

Awards monitors compliance

Modernizes labour laws (e.g., Industrial Relations

Legal Reforms
Code, 2020)

📝 Conclusion:

The Industrial Disputes Act ensures balance between the rights of

employers and employees. It regulates strikes, lockouts, layoffs,
and unfair practices to maintain industrial peace. The
Government’s active role in conciliation, adjudication, and policy
ensures industrial harmony and economic growth.