What is Indian Contract Act, 1872: Elements of a

valid contract; Capacity of parties; Free consent;

Discharge of a contract; Breach of contract and
remedies against breach; Quasi contracts?

Meaning and scope of business economics

The term contract is defined as an agreement between two or more

parties which has a binding nature, in essence, the agreement with
legal enforceability is said to be a contract. It creates and defines
the duties and obligations of the parties involved.

Process of Contract
First and foremost, an offer is made by one party to another, which
when accepted by the party to whom it is made, leads to the
agreement. If that agreement is enforceable in the court of law, it is
known as a contract.
Essential Elements of a Contract
1. Agreement: The primary element that creates a contract
between parties is an agreement, which is a result of offer and
acceptance, that forms consideration for the parties
concerned.

2. Free Consent: Consent of the parties is another important

aspect of a contract, which means the parties entering into the
 contract, must agree upon the same thing in the same sense.
The consent of the parties is said to be free when it is not
influenced by coercion, undue influence, fraud,
misrepresentation and mistake.

3. Competency: Competency refers to the capacity of the parties

to enter into the contract, i.e. he/she has reached the age of
maturity, he/she must be of sound mind, and he/she is not
disqualified from contracting, as per the law like the alien enemy,
foreign sovereigns, etc.

4. Consideration: It implies the price agreed to be paid for the

promisor’s obligation by the promisee. It must be adequate
and lawful.

5. Lawful object: The object for which the contract is created

must be lawful, or else it is declared as void.

6. Not expressly declared as void: The law should not

expressly declare the contract as void, such as contract in
restraint of marriage, trade or legal proceedings.

Other important elements of the Contract

▪ There must be at least two parties to constitute a contract, i.e.

one who proposes and another accepts the same.

▪ The parties entering into the contract must intend to create a

legal obligation for one another.

▪ It must be in writing.
 ▪ There must be certainty of meaning. the terms of the parties
must be clear to the parties, i.e. the party should not interpret
anything wrong, there must be a consensus ad idem.
▪ There should be a possibility of performing the contract.

So, these are some paramount elements of a contract, without

which it cannot be enforced in the court of law.
Types of Contract
▪ On the basis of validity
▪ Valid Contract: An agreement which is enforceable by

law, is a valid contract.

 ▪ Void Contract: The contract which is no longer
enforceable in the court of law is a void one.

▪ Voidable Contract: A contract in which one of the parties

to the contract has a choice to avoid performing his/her
part, then it is termed as a voidable contract. When the
consent of the party is not free, the contract becomes
voidable, at the option of the aggrieved party.

▪ Illegal Contract: A contract which is forbidden by law is

termed as an illegal contract.
▪ Unenforceable Contract: The contract whose substance
is good, but due to some issues, it is not enforceable, is
called an unenforceable contract.

▪ On the basis of formation

▪ Express Contract: When the terms of the contract are

expressed orally or in writing, it is known as an express

contract.
▪ Implied Contract: The contract which is constituted by

implication of law or action, is an implied one.

▪ Quasi-Contract: These are not a real contract, but are

identical to a contract, which is formed out of some

circumstances.

▪ On the basis of Performance

▪ Executed Contract: When the contract is performed, it is

known as an executed contract.

 ▪ Executory Contract: When the obligation in a contract,
is to be performed in future, it is described as an
executory contract.
▪ Unilateral Contract

▪ Bilateral Contract

To sum up, agreements are termed as a contract, if it comprises all

the essential elements that constitute a contract.

Indian Contract Act, 1872:

Indian Contract Act, 1872." Extent, Commencement.—It extends to

the whole of India 1 [except the State of Jammu and Kashmir]; and
it shall come into force on the first day of September, 1872.
(Saving) — 2 Nothing herein contained shall affect the provisions of
any Statute, Act or Regulation not hereby expressly repealed, nor any
usage or custom of trade, nor any incident of any contract, not
inconsistent with the provisions of this Act.

2. Interpretation-clause.—In this Act the following words and

expressions are used in the following senses, unless a contrary
intention appears from the context:— —In this Act the following words
and expressions are used in the following senses, unless a contrary
intention appears from the context\:—"

(a) When one person signifies to another his willingness to do or to

abstain from doing anything, with a view to obtaining the assent of
that other to such act or abstinence, he is said to make a proposal;
(b) 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;
(c) The person making the proposal is called the “promisor”, and the
person accepting the proposal is called the “promisee”;
(d) When, at the desire of the promisor, the promisee or any other
person has done or abstained from doing, or does or abstains from
doing, or promises to do or to abstain from doing, something, such
act or abstinence or promise is called a consideration for the
promise;
(e) Every promise and every set of promises, forming the
consideration for each other, is an agreement;
(f) Promises which form the consideration or part of the
consideration for each other, are called reciprocal promises;
(g) An agreement not enforceable by law is said to be void;
(h) An agreement enforceable by law is a contract;
(i) An agreement which is enforceable by law at the option of one or
more of the parties thereto, but not at the option of the other or others,
is a voidable contract;
(j) A contract which ceases to be enforceable by law becomes void
when it ceases to be enforceable.

3. Communication, acceptance and revocation of proposals.—The

communication of proposals, the acceptance of proposals, and the
revocation of proposals and acceptances, respectively, are deemed
to be made by any act or omission of the party proposing, accepting
or revoking, by which he intends to communicate such proposal,
acceptance or revocation, or which has the effect of communicating
it. —The communication of proposals, the acceptance of proposals,
and the revocation of proposals and acceptances, respectively, are
deemed to be made by any act or omission of the party proposing,
accepting or revoking, by which he intends to communicate such
proposal, acceptance or revocation, or which has the effect of
communicating it."

4. Communication when complete.—The communication of a

proposal is complete when it comes to the knowledge of the person
to whom it is made. —The communication of a proposal is complete
when it comes to the knowledge of the person to whom it is made."
The communication of an acceptance is complete,— as against the
proposer, when it is put in a course of transmission to him so as to
be out of the power of the acceptor; as against the acceptor, when it
comes to the knowledge of the proposer.
The communication of a revocation is complete,— as against the
person who makes it, when it is put into a course of transmission to
the person to whom it is made, so as to be out of the power of the
person who makes it; as against the person to whom it is made,
when it comes to his knowledge. Illustrations

(a) A proposes, by letter, to sell a house to B at a certain price. (a) A

proposes, by letter, to sell a house to B at a certain price." The
communication of the proposal is complete when B receives the letter.
The communication of the proposal is complete when B receives the
letter."

(b) B accepts A’s proposal by a letter sent by post. (b) B accepts A’s
proposal by a letter sent by post." The communication of the
acceptance is complete, The communication of the acceptance is
complete," as against A when the letter is posted; as against A
when the letter is posted;" as against B, when the letter is received
by A. as against B, when the letter is received by A."

(c) A revokes his proposal by telegram. (c) A revokes his proposal

by telegram." The revocation is complete as against A when the
telegram is despatched. The revocation is complete as against A
when the telegram is despatched." It is complete as against B when
B receives it. It is complete as against B when B receives it." B revokes
his acceptance by telegram. B’s revocation is complete as against B
when the telegram is despatched, and as against A when it reaches
him. B revokes his acceptance by telegram. B’s revocation is
complete as against B when the telegram is despatched, and as
against A when it reaches him."

5. Revocation of Proposals and acceptance.—A proposal may be

revoked at any time before the communication of its acceptance is
complete as against the proposer, but not afterwards. —A proposal
may be revoked at any time before the communication of its
acceptance is complete as against the proposer, but not
afterwards." An acceptance may be revoked at any time before the
communication of the acceptance is complete as against the acceptor,
but not afterwards.

Illustrations

A proposes, by a letter sent by post, to sell his house to B. A

proposes, by a letter sent by post, to sell his house to B." B accepts
the proposal by a letter sent by post. B accepts the proposal by a
letter sent by post." A may revoke his proposal at any time before or
at the moment when B posts his letter of acceptance, but not
afterwards.

A may revoke his proposal at any time before or at the moment

when B posts his letter of acceptance, but not afterwards." B may
revoke his acceptance at any time before or at the moment when
the letter communicating it reaches A, but not afterwards. B may
revoke his acceptance at any time before or at the moment when
the letter communicating it reaches A, but not afterwards."
6. Revocation how made.—A proposal is revoked— —A proposal is
revoked—"

(1) by the communication of notice of revocation by the proposer to

the other party;
(2) by the lapse of the time prescribed in such proposal for its
acceptance, or, if no time is so prescribed, by the lapse of a
reasonable time, without communication of the acceptance;
(3) by the failure of the acceptor to fulfil a condition precedent to
acceptance; or
(4) by the death or insanity of the proposer, if the fact of his death or
insanity comes to the knowledge of the acceptor before acceptance.

7. Acceptance must be absolute.—In order to convert a proposal

into a promise the acceptance must— —In order to convert a proposal
into a promise the acceptance must—"
(1) be absolute and unqualified;
(2) be expressed in some usual and reasonable manner, unless the
proposal prescribes the manner in which it is to be accepted. If the
proposal prescribes a manner in which it is to be accepted, and the
acceptance is not made in such manner, the proposer may, within a
reasonable time after the acceptance is communicated to him, insist
that his proposal shall be accepted in the prescribed manner, and
not otherwise; but, if he fails to do so, he accepts the acceptance.

8. Acceptance by performing conditions, or receiving consideration.—

Performance of the conditions of a proposal, or the acceptance of any
consideration for a reciprocal promise which may be offered with a
proposal, is an acceptance of the proposal. — Performance of the
conditions of a proposal, or the acceptance of any consideration for
a reciprocal promise which may be offered with a proposal, is an
acceptance of the proposal."

9. Promises, express and implied.—In so far as the proposal or

acceptance of any promise is made in words, the promise is said to
be express. In so far as such proposal or acceptance is made
otherwise than in words, the promise is said to be implied. —In so
far as the proposal or acceptance of any promise is made in words,
the promise is said to be express. In so far as such proposal or
acceptance is made otherwise than in words, the promise is said to
be implied."

10. What agreements are contracts.—All agreements are contracts

if they are made by the free consent of parties competent to
contract, for a lawful consideration and with a lawful object, and are
not hereby expressly declared to be void. —All agreements are
contracts if they are made by the free consent of parties competent
to contract, for a lawful consideration and with a lawful object, and are
not hereby expressly declared to be void." Nothing herein contained
shall affect any law in force in 1[India], and not hereby
expressly repealed, by which any contract is required to be made in
writing 2or in the presence of witnesses, or any law relating to the
registration of documents.

11. Who are competent to contract.—Every person is competent to

contract who is of the age of majority according to the law to which he
is subject,1 and who is of sound mind and is not disqualified from
contracting by any law to which he is subject. —Every person is
competent to contract who is of the age of majority according to the
law to which he is subject,1 and who is of sound mind and is not
disqualified from contracting by any law to which he is subject."

12. What is a sound mind for the purposes of contracting.—A

person is said to be of sound mind for the purpose of making a
contract, if, at the time when he makes it, he is capable of
understanding it and of forming a rational judgment as to its effect
upon his interests. —A person is said to be of sound mind for the
purpose of making a contract, if, at the time when he makes it, he is
capable of understanding it and of forming a rational judgment as to
its effect upon his interests." A person who is usually of unsound
mind, but occasionally of sound mind, may make a contract when
he is of sound mind. A person who is usually of sound mind, but
occasionally of unsound mind, may not make a contract when he is
of unsound mind. Illustrations

(a) A patient in a lunatic asylum, who is, at intervals, of sound mind,

may contract during those intervals. (a) A patient in a lunatic
asylum, who is, at intervals, of sound mind, may contract during those
intervals."
(b) A sane man, who is delirious from fever, or who is so drunk that
he cannot understand the terms of a contract, or form a rational
judgment as to its effect on his interests, cannot contract whilst such
delirium or drunkenness lasts. (b) A sane man, who is delirious from
fever, or who is so drunk that he cannot understand the terms of a
contract, or form a rational judgment as to its effect on his interests,
cannot contract whilst such delirium or drunkenness lasts."

13. ‘Consent’ defined.—Two or more persons are said to consent

when they agree upon the same thing in the same sense. —Two or
more persons are said to consent when they agree upon the same
thing in the same sense."

14. ‘Free consent’ defined.—Consent is said to be free when it is

not caused by— —Consent is said to be free when it is not caused
by—"
(1) coercion, as defined in section 15, or
(2) undue influence, as defined in section 16, or
(3) fraud, as defined in section 17, or
(4) misrepresentation, as defined in section 18, or
(5) mistake, subject to the provisions of sections 20, 21 and 22.
Consent is said to be so caused when it would not have been given
but for the existence of such coercion, undue influence, fraud,
misrepresentation or mistake.

15. ‘Coercion’ defined.—‘Coercion’ is the committing, or threatening

to commit, any act forbidden by the Indian Penal Code (45 of 1860)
or the unlawful detaining, or threatening to detain, any property, to the
prejudice of any person whatever, with the intention of causing any
person to enter into an agreement. —‘Coercion’ is the committing, or
threatening to commit, any act forbidden by the
Indian Penal Code (45 of 1860) or the unlawful detaining, or
threatening to detain, any property, to the prejudice of any person
whatever, with the intention of causing any person to enter into an
agreement." Explanation.—It is immaterial whether the Indian Penal
Code (45 of 1860) is or is not in force in the place where the
coercion is employed. Illustrations A, on board an English ship on
the high seas, causes B to enter into an agreement by an act
amounting to criminal intimidation under the Indian Penal Code (45
of 1860). A afterwards sues B for breach of contract at Calcutta. A
afterwards sues B for breach of contract at Calcutta." A has employed
coercion, although his act is not an offence by the law of England,
and although section 506 of the Indian Penal Code (45 of
1860) was not in force at the time when or place where the act was
done. A has employed coercion, although his act is not an offence
by the law of England, and although section 506 of the Indian Penal
Code (45 of 1860) was not in force at the time when or place where
the act was done."

6 [16. ‘Undue influence’ defined.—

(1) A contract is said to be induced by ‘undue influence’ where the
relations subsisting between the parties are such that one of the
parties is in a position to dominate the will of the other and uses that
position to obtain an unfair advantage over the other. 1[16. ‘Undue
influence’ defined.—(1) A contract is said to be induced by ‘undue
influence’ where the relations subsisting between the parties are
such that one of the parties is in a position to dominate the will of
the other and uses that position to obtain an unfair advantage over
the other."
(2) In particular and without prejudice to the generality of the foregoing
principle, a person is deemed to be in a position to
dominate the will of another—
(a) where he holds a real or apparent authority over the other, or
where he stands in a fiduciary relation to the other; or
(b) where he makes a contract with a person whose mental capacity
is temporarily or permanently affected by reason of age, illness, or
mental or bodily distress.
(3) Where a person who is in a position to dominate the will of
another, enters into a contract with him, and the transaction
appears, on the face of it or on the evidence adduced, to be
unconscionable, the burden of proving that such contract was not
induced by undue influence shall be upon the person in a position to
dominate the will of the other. Nothing in the sub-section shall affect
the provisions of section 111 of the Indian Evidence Act, 1872 (1 of
1872). Illustrations

(a) A having advanced money to his son, B, during his minority,

upon B’s coming of age obtains, by misuse of parental influence, a
bond from B for a greater amount than the sum due in respect of the
advance. A employs undue influence. (a) A having advanced money
to his son, B, during his minority, upon B’s coming of age obtains,
by misuse of parental influence, a bond from B for a greater amount
than the sum due in respect of the advance. A employs undue
influence."

(b) A, a man enfeebled by disease or age, is induced, by B’s

influence over him as his medical attendant, to agree to pay B an
unreasonable sum for his professional services, B employes undue
influence. (b) A, a man enfeebled by disease or age, is induced, by
B’s influence over him as his medical attendant, to agree to pay B
an unreasonable sum for his professional services, B employes
undue influence."
(c) A, being in debt to B, the money-lender of his village, contracts a
fresh loan on terms which appear to be unconscionable. It lies on B to
prove that the contract was not induced by undue influence. (c) A,
being in debt to B, the money-lender of his village, contracts a fresh
loan on terms which appear to be unconscionable. It lies on B to
prove that the contract was not induced by undue influence."

(d) A applies to a banker for a loan at a time when there is

stringency in the money market. The banker declines to make the loan
except at an unusually high rate of interest. A accepts the loan on
these terms. This is a transaction in the ordinary course of business,
and the contract is not induced by undue influence.] (d) A applies to
a banker for a loan at a time when there is stringency in the money
market. The banker declines to make the loan except at an unusually
high rate of interest. A accepts the loan on these terms. This is
a transaction in the ordinary course of business, and the contract is
not induced by undue influence.]"

17. ‘Fraud’ defined.—‘Fraud’ means and includes any of the

following acts committed by a party to a contract, or with his
connivance, or by his agent1, with intent to deceive another party
thereto or his agent, or to induce him to enter into the contract:— —
‘Fraud’ means and includes any of the following acts committed by
a party to a contract, or with his connivance, or by his agent1, with
intent to deceive another party thereto or his agent, or to induce him
to enter into the contract\:—"
(1) the suggestion, as a fact, of that which is not true, by one who
does not believe it to be true;
(2) the active concealment of a fact by one having knowledge or belief
of the fact;
(3) a promise made without any intention of performing it;
(4) any other act fitted to deceive;
(5) any such act or omission as the law specially declares to be
fraudulent. Explanation.—Mere silence as to facts likely to affect the
willingness of a person to enter into a contract is not fraud, unless
the circumstances of the case are such that, regard being had to
them, it is the duty of the person keeping silence to speak2, or
unless his silence, is, in itself, equivalent to speech. Illustrations
(a) A sells, by auction, to B, a horse which A knows to be unsound.
A says nothing to B about the horse’s unsoundness. This is not
fraud in A. (a) A sells, by auction, to B, a horse which A knows to be
unsound. A says nothing to B about the horse’s unsoundness. This
is not fraud in A."
(b) B is A’s daughter and has just come of age. Here the relation
between the parties would make it A’s duty to tell B if the horse is
unsound. (b) B is A’s daughter and has just come of age. Here the
relation between the parties would make it A’s duty to tell B if the
horse is unsound."
(c) B says to A—‘‘If you do not deny it, I shall assume that the horse
is sound”. A says nothing. Here, A’s silence is equivalent to speech.
(c) B says to A—‘‘If you do not deny it, I shall assume that the horse
is sound”. A says nothing. Here, A’s silence is equivalent to
speech."
(d) A and B, being traders, enter upon a contract. A has private
information of a change in prices which would affect B’s willingness
to proceed with the contract. A is not bound to inform B. (d) A and
B, being traders, enter upon a contract. A has private information of
a change in prices which would affect B’s willingness to proceed
with the contract. A is not bound to inform B."

18. “Misrepresentation” defined.—“Misrepresentation” means and

includes— —“Misrepresentation” means and includes—"
(1) the positive assertion, in a manner not warranted by the
information of the person making it, of that which is not true, though
he believes it to be true;
(2) any breach of duty which, without an intent to deceive, gains an
advantage of the person committing it, or any one claiming under
him, by misleading another to his prejudice, or to the prejudice of
any one claiming under him;
(3) causing, however innocently, a party to an agreement, to make a
mistake as to the substance of the thing which is the subject of the
agreement.

19. Voidability of agreements without free consent.—When consent

to an agreement is caused by coercion, 1 fraud or
misrepresentation, the agreement is a contract voidable at the
option of the party whose consent was so caused. —When consent
to an agreement is caused by coercion, 1 fraud or
misrepresentation, the agreement is a contract voidable at the
option of the party whose consent was so caused." A party to contract,
whose consent was caused by fraud or misrepresentation, may, if he
thinks fit, insist that the contract shall be performed, and that he shall
be put in the position in which he would have been if the
representations made had been true.
(Exception) —If such consent was caused by misrepresentation or
by silence, fraudulent within the meaning of section 17, the contract,
nevertheless, is not voidable, if the party whose consent was so
caused had the means of discovering the truth with ordinary diligence.
Explanation.—A fraud or misrepresentation which did not cause the
consent to a contract of the party on whom such fraud was
practised, or to whom such misrepresentation was made, does not
render a contract voidable. Illustrations

(a) A, intending to deceive B, falsely represents that five hundred

maunds of indigo are made annually at A’s factory, and thereby
induces B to buy the factory. The contract is voidable at the option
of B. (a) A, intending to deceive B, falsely represents that five
hundred maunds of indigo are made annually at A’s factory, and
thereby induces B to buy the factory. The contract is voidable at the
option of B."

(b) A, by a misrepresentation, leads B erroneously to believe that

five hundred maunds of indigo are made annually at A’s factory. B
examines the accounts of the factory, which show that only four
hundred maunds of indigo have been made. After this B buys the
factory. The contract is not voidable on account of A’s
misrepresentation. (b) A, by a misrepresentation, leads B
erroneously to believe that five hundred maunds of indigo are made
annually at A’s factory. B examines the accounts of the factory,
which show that only four hundred maunds of indigo have been made.
After this B buys the factory. The contract is not voidable on account
of A’s misrepresentation."

(c) A fraudulently informs B that A’s estate is free from

incumbrance. B thereupon buys the estate. The estate is subject to
a mortgage. B may either avoid the contract, or may insist on its
being carried out and mortgage-debt redeemed. (c) A fraudulently
informs B that A’s estate is free from incumbrance. B thereupon
buys the estate. The estate is subject to a mortgage. B may either
avoid the contract, or may insist on its being carried out and
mortgage-debt redeemed."

(d) B, having discovered a vein of ore on the estate of A, adopts

means to conceal, and does conceal the existence of the ore from
A. Through A’s ignorance B is enabled to buy the estate at an
under-value. The contract is voidable at the option of A. (d) B,
having discovered a vein of ore on the estate of A, adopts means to
conceal, and does conceal the existence of the ore from A. Through
A’s ignorance B is enabled to buy the estate at an under-value. The
contract is voidable at the option of A."

(e) A is entitled to succeed to an estate at the death of B; B dies: C,

having received intelligence of B’s death, prevents the intelligence
reaching A, and thus induces A to sell him his interest in the estate.
The sale is voidable at the option of A. (e) A is entitled to succeed to
an estate at the death of B; B dies\: C, having received intelligence
of B’s death, prevents the intelligence reaching A, and thus induces
A to sell him his interest in the estate. The sale is voidable at the
option of A."

10 [19A. Power to set aside contract induced by undue influence.—

When consent to an agreement is caused by undue influence, the
agreement is a contract voidable at the option of the party whose
consent was so caused. 2[19A. Power to set aside contract induced
by undue influence.—When consent to an agreement is caused by
undue influence, the agreement is a contract voidable at the option
of the party whose consent was so caused." Any such contract may
be set aside either absolutely or, if the party who was entitled to avoid
it has received any benefit thereunder, upon such terms and
conditions as to the Court may seem just. Illustrations

(a) A’s son has forged B’s name to a promissory note. B under
threat of prosecuting A’s son, obtains a bond from A for the amount
of the forged note. If B sues on this bond, the Court may set the
bond aside.

(b) A, a money-lender, advances Rs. 100 to B, an agriculturist, and,

by undue influence, induces B to execute a bond for Rs. 200 with
interest at 6 per cent. per month. The Court may set the bond aside,
ordering B to repay the Rs. 100 with such interest as may seem
just.] (b) A, a money-lender, advances Rs. 100 to B, an agriculturist,
and, by undue influence, induces B to execute a bond for Rs. 200 with
interest at 6 per cent. per month. The Court may set the bond aside,
ordering B to repay the Rs. 100 with such interest as may seem
just.]"
20. Agreement void where both parties are under mistake as to matter
of fact.—Where both the parties to an agreement are under a mistake
as to a matter of fact essential to the agreement the agreement is
void. Explanation.—An erroneous opinion as to the value of the thing
which forms the subject-matter of the agreement, is not to be deemed
a mistake as to a matter of fact. Illustrations

(a) A agrees to sell to B a specific cargo of goods supposed to be

on its way from England to Bombay. It turns out that, before the day
of the bargain the ship conveying the cargo had been cast away
and the goods lost. Neither party was aware of these facts. The
agreement is void. (a) A agrees to sell to B a specific cargo of
goods supposed to be on its way from England to Bombay. It turns
out that, before the day of the bargain the ship conveying the cargo
had been cast away and the goods lost. Neither party was aware of
these facts. The agreement is void."

(b) A agrees to buy from B a certain horse. It turns out that the
horse was dead at the time of the bargain, though neither party was
aware of the fact. The agreement is void. (b) A agrees to buy from B
a certain horse. It turns out that the horse was dead at the time of
the bargain, though neither party was aware of the fact. The
agreement is void."

(c) A, being entitled to an estate for the life of B, agrees to sell it to

C, B was dead at the time of agreement, but both parties were
ignorant of the fact. The agreement is void. (c) A, being entitled to
an estate for the life of B, agrees to sell it to C, B was dead at the time
of agreement, but both parties were ignorant of the fact. The
agreement is void."

21. Effect of mistakes as to law.—A contract is not voidable

because it was caused by a mistake as to any law in force in 11
[India]; but a mistake as to a law not in force in 1[India] has the
same effect as a mistake of fact. —A contract is not voidable because
it was caused by a mistake as to any law in force in
1[India]; but a mistake as to a law not in force in 1[India] has the
same effect as a mistake of fact." 12 Illustration A and B make a
contract grounded on the erroneous belief that a particular debt is
barred by the Indian Law of Limitation; the contract is not voidable.
A and B make a contract grounded on the erroneous belief that a
particular debt is barred by the Indian Law of Limitation; the contract
is not voidable." 13

22. Contract caused by mistake of one party as to matter of fact.—A

contract is not voidable merely because it was caused by one of the
parties to it being under a mistake as to a matter of fact. —A
contract is not voidable merely because it was caused by one of the
parties to it being under a mistake as to a matter of fact."

23. What consideration and objects are lawful, and what not.—The
consideration or object of an agreement is lawful, unless— —The
consideration or object of an agreement is lawful, unless—" it is
forbidden by law; 14 or is of such a nature that, if permitted, it would
defeat the provisions of any law; or is fraudulent; or involves or
implies, injury to the person or property of another; or the Court
regards it as immoral, or opposed to public policy. In each of these
cases, the consideration or object of an agreement is said to be
unlawful. Every agreement of which the object or consideration is
unlawful is void. Illustrations

(a) A agrees to sell his house to B for 10,000 rupees. Here, B’s
promise to pay the sum of 10,000 rupees is the consideration for A’s
promise to sell the house and A’s promise to sell the house is the
consideration for B’s promise to pay the 10,000 rupees. These are
lawful considerations. (a) A agrees to sell his house to B for 10,000
rupees. Here, B’s promise to pay the sum of 10,000 rupees is the
consideration for A’s promise to sell the house and A’s promise to
sell the house is the consideration for B’s promise to pay the 10,000
rupees. These are lawful considerations."
(b) A promises to pay B 1,000 rupees at the end of six months, if C,
who owes that sum to B, fails to pay it. B promises to grant time to
C accordingly. Here, the promise of each party is the consideration
for the promise of the other party, and they are lawful
considerations. (b) A promises to pay B 1,000 rupees at the end of
six months, if C, who owes that sum to B, fails to pay it. B promises
to grant time to C accordingly. Here, the promise of each party is
the consideration for the promise of the other party, and they are
lawful considerations."

(c) A promises, for a certain sum paid to him by B, to make good to

B the value of his ship if it is wrecked on a certain voyage. Here, A’s
promise is the consideration for B’s payment, and B’s payment is
the consideration for A’s promise, and these are lawful
considerations. (c) A promises, for a certain sum paid to him by B,
to make good to B the value of his ship if it is wrecked on a certain
voyage. Here, A’s promise is the consideration for B’s payment, and
B’s payment is the consideration for A’s promise, and these are
lawful considerations."

(d) A promises to maintain B’s child, and B promises to pay A 1,000

rupees yearly for the purpose. Here, the promise of each party is
the consideration for the promise of the other party. They are lawful
considerations. (d) A promises to maintain B’s child, and B promises
to pay A 1,000 rupees yearly for the purpose. Here, the promise of
each party is the consideration for the promise of the other party.
They are lawful considerations."

(e) A, B and C enter into an agreement for the division among them
of gains acquired or to be acquired, by them by fraud. The
agreement is void, as its object is unlawful. (e) A, B and C enter into
an agreement for the division among them of gains acquired or to
be acquired, by them by fraud. The agreement is void, as its object
is unlawful."

(f) A promises to obtain for B an employment in the public service and

B promises to pay 1,000 rupees to A. The agreement is void, as the
consideration for it is unlawful. (f) A promises to obtain for B an
employment in the public service and B promises to pay 1,000 rupees
to A. The agreement is void, as the consideration for it is unlawful."

(g) A, being agent for a landed proprietor, agrees for money, without
the knowledge of his principal, to obtain for B a lease of land belonging
to his principal. The agreement between A and B is void, as it implies
a fraud by concealment, by A, on his principal. (g) A, being agent for
a landed proprietor, agrees for money, without the knowledge of his
principal, to obtain for B a lease of land belonging to his principal.
The agreement between A and B is void, as it implies a fraud by
concealment, by A, on his principal."

(h) A promises B to drop a prosecution which he has instituted against

B for robbery, and B promises to restore the value of the things
taken. The agreement is void, as its object is unlawful. (h) A promises
B to drop a prosecution which he has instituted against B for robbery,
and B promises to restore the value of the things taken. The
agreement is void, as its object is unlawful."

(i) A’s estate is sold for arrears of revenue under the provisions of
an Act of the Legislature, by which the defaulter is prohibited from
purchasing the estate. B, upon an understanding with A, becomes the
purchaser, and agrees to convey the estate to A upon receiving from
him the price which B has paid. The agreement is void, as it renders
the transaction, in effect, a purchase by the defaulter and would so
defeat the object of the law. (i) A’s estate is sold for arrears of
revenue under the provisions of an Act of the Legislature, by which
the defaulter is prohibited from purchasing the estate. B, upon an
understanding with A, becomes the purchaser, and agrees to convey
the estate to A upon receiving from him the price which B has paid.
The agreement is void, as it renders the transaction, in effect, a
purchase by the defaulter and would so defeat the object of the law."

(j) A, who is B’s mukhtar, promises to exercise his influence, as

such, with B in favour of C, and C promises to pay 1,000 rupees to
A. The agreement is void, becuase it is immoral. (j) A, who is B’s
mukhtar, promises to exercise his influence, as such, with B in
favour of C, and C promises to pay 1,000 rupees to A. The agreement
is void, becuase it is immoral."

(k) A agrees to let her daughter to hire to B for concubinage. The

agreement is void, because it is immoral, though the letting may not
be punishable under the Indian Penal Code (45 of 1860).

24. Agreements void, if considerations and objects unlawful in part.—

If any part of a single consideration for one or more objects, or any
one or any part of any one of several considerations for a single
object, is unlawful, the agreement is void. —If any part of a single
consideration for one or more objects, or any one or any part
of any one of several considerations for a single object, is unlawful,
the agreement is void." Illustration A promises to superintend, on
behalf of B, a legal manufacturer of indigo, and an illegal traffic in
other articles. B promises to pay to A a salary of 10,000 rupees a
year. The agreement is void, the object of A’s promise, and the
consideration for B’s promise, being in part unlawful. A promises to
superintend, on behalf of B, a legal manufacturer of indigo, and an
illegal traffic in other articles. B promises to pay to A a salary of
10,000 rupees a year. The agreement is void, the object of A’s
promise, and the consideration for B’s promise, being in part unlawful."

25. Agreement without consideration, void, unless it is in writing and

registered or is a promise to compensate for something done or is a
promise to pay a debt barred by limitation law.—An agreement
made without consideration is void, unless— —An agreement made
without consideration is void, unless—"
(1) it is expressed in writing and registered under the law for the
time being in force for the registration of 1[documents], and is made
on account of natural love and affection between parties standing in
a near relation to each other; or unless

(2) it is a promise to compensate, wholly or in part, a person who

has already voluntarily done something for the promisor, or something
which the promisor was legally compellable to do; or unless.

(3) It is a promise, made in writing and signed by the person to be

charged therewith, or by his agent generally or specially authorized
in that behalf, to pay wholly or in part a debt of which the creditor
might have enforced payment but for the law for the limitation of
suits. In any of these cases, such an agreement is a contract.
Explanation 1.—Nothing in this section shall affect the validity, as
between the donor and donee, of any gift actually made.
Explanation 2.—An Agreement to which the consent of the promisor
is freely given is not void merely because the consideration is
inadequate; but the inadequacy of the consideration may be taken
into account by the Court in determining the question whether the
consent of the promisor was freely given. Illustrations
(a) A promises, for no consideration, to give to B Rs. 1,000. This is
a void agreement. (a) A promises, for no consideration, to give to B
Rs. 1,000. This is a void agreement."
(b) A, for natural love and affection, promises to give his son, B, Rs.
1,000. A puts his promise to B into writing and registers it. This is a
contract. (b) A, for natural love and affection, promises to give his son,
B, Rs. 1,000. A puts his promise to B into writing and registers it. This
is a contract."
(c) A finds B’s purse and gives it to him. B promises to give A Rs.
50. This is a contract. (c) A finds B’s purse and gives it to him. B
promises to give A Rs. 50. This is a contract."
(d) A supports B’s infant son. B promises to pay A’s expenses in so
doing. This is a contract. (d) A supports B’s infant son. B promises
to pay A’s expenses in so doing. This is a contract."
(e) A owes B Rs. 1,000, but the debt is barred by the Limitation Act.
A signs a written promise to pay B Rs. 500 on account of the debt.
This is a contract. (e) A owes B Rs. 1,000, but the debt is barred by
the Limitation Act. A signs a written promise to pay B Rs. 500 on
account of the debt. This is a contract."
(f) A agrees to sell a horse worth Rs. 1,000 for Rs. 10. A’s consent
to the agreement was freely given. The agreement is a contract
notwithstanding the inadequacy of the consideration. (f) A agrees to
sell a horse worth Rs. 1,000 for Rs. 10. A’s consent to the
agreement was freely given. The agreement is a contract
notwithstanding the inadequacy of the consideration."
(g) A agrees to sell a horse worth Rs. 1,000 for Rs. 10. A denies
that his consent to the agreement was freely given. (g) A agrees to
sell a horse worth Rs. 1,000 for Rs. 10. A denies that his consent to
the agreement was freely given." The inadequacy of the consideration
is a fact which the Court should take into account in considering
whether or not A’s consent was freely given.
26. Agreement in restraint of marriage, void.—Every agreement in
restraint of the marriage of any person, other than a minor, is void.
—Every agreement in restraint of the marriage of any person, other
than a minor, is void."

27. Agreement in restraint of trade, void.—Every agreement by

which any one is restrained from exercising a lawful profession,
trade or business of any kind, is to that extent void. —Every
agreement by which any one is restrained from exercising a lawful
profession, trade or business of any kind, is to that extent void."
Exception 1.—Saving of agreement not to carry on business of
which goodwill is sold.—One who sells the goodwill of a business
may agree with the buyer to refrain from carrying on a similar
business, within specified local limits, so long as the buyer, or any
person deriving title to the goodwill from him, carries on a like business
therein, provided that such limits appear to the Court reasonable,
regard being had to the nature of the business. 16

28 Agreements in restraint of legal proceedings, void. — 17 [Every

agreement,—
(a) by which any party thereto is restricted absolutely from enforcing
his rights under or in respect of any contract, by the usual legal
proceedings in the ordinary tribunals, or which limits the time within
which he may thus enforce his rights; or
(b) which extinguishes the rights of any party thereto, or discharges
any party thereto, from any liability, under or in respect of any contract
on the expiry of a specified period so as to restrict any party from
enforcing his rights, is void to that extent.]
Exception 1.— Saving of contract to refer to arbitration dispute that
may arise. —This section shall not render illegal a contract, by
which two or more persons agree that any dispute which may arise
between them in respect of any subject or class of subjects shall be
referred to arbitration, and that only the amount awarded in such
arbitration shall be recoverable in respect of the dispute so referred.
18 Exception 2.— Saving of contract to refer questions that have
already arisen. —Nor shall this section render illegal any contract in
writing, by which two or more persons agree to refer to arbitration
any question between them which has already arisen, or affect any
provision of any law in force for the time being as to references to
arbitration. 19

29. Agreements void for uncertainty.—Agreements, the meaning of

which is not certain, or capable of being made certain, are void. —
Agreements, the meaning of which is not certain, or capable of
being made certain, are void." Illustrations
(a) A agrees to sell B “a hundred tons of oil”. There is nothing
whatever to show what kind of oil was intended. The agreement is
void for uncertainty. (a) A agrees to sell B “a hundred tons of oil”.
There is nothing whatever to show what kind of oil was intended.
The agreement is void for uncertainty."
(b) A agrees to sell B one hundred tons of oil of a specified description,
known as an article of commerce. There is no uncertainty
here to make the agreement void. (b) A agrees to sell B one hundred
tons of oil of a specified description, known as an article of
commerce. There is no uncertainty here to make the agreement void."

(c) A, who is a dealer in coconut-oil only, agrees to sell to B “one

hundred tons of oil”. The nature of A’s trade affords an indication of
the meaning of the words, and A has entered into a contract for the
sale of one hundred tons of coconut-oil. (c) A, who is a dealer in
coconut-oil only, agrees to sell to B “one hundred tons of oil”. The
nature of A’s trade affords an indication of the meaning of the
words, and A has entered into a contract for the sale of one hundred
tons of coconut-oil."

(d) A agrees to sell B “all the grain in my granary at Ramnagar”.

There is no uncertainty here to make the agreement void. (d) A
agrees to sell B “all the grain in my granary at Ramnagar”. There is
no uncertainty here to make the agreement void."

(e) A agrees to sell to B “one thousand maunds of rice at a price to

be fixed by C”. As the price is capable of being made certain, there
is no uncertainty here to make the agreement void. (e) A agrees to
sell to B “one thousand maunds of rice at a price to be fixed by C”.
As the price is capable of being made certain, there is no
uncertainty here to make the agreement void."
(f) A agrees to sell to B “my white horse for rupees five hundred or
rupees one thousand”. There is nothing to show which of the two
prices was to be given. The agreement is void. (f) A agrees to sell to
B “my white horse for rupees five hundred or rupees one thousand”.
There is nothing to show which of the two prices was to be given. The
agreement is void."

30. Agreements by way of wager, void.—Agreements by way of wager

are void; and no suit shall be brought for recovering anything alleged
to be won on any wager, or entrusted to any person to abide the result
of any game or other uncertain event on which any wager is made. —
Agreements by way of wager are void; and no suit shall be brought
for recovering anything alleged to be won on any wager, or entrusted
to any person to abide the result of any game or other uncertain event
on which any wager is made."

Exception in favour of certain prizes for horse-racing.—This section

shall not be deemed to render unlawful a subscription or
contribution, or agreement to subscribe or contribute, made or entered
into for or toward any plate, prize or sum of money, of the value or
amount of five hundred rupees or upwards, to be rewarded to the
winner or winners of any horse-race. —This section shall not be
deemed to render unlawful a subscription or contribution, or
agreement to subscribe or contribute, made or entered into for or
toward any plate, prize or sum of money, of the value or amount of
five hundred rupees or upwards, to be rewarded to the winner or
winners of any horse-race." Section 294A of the Indian Penal Code
not affected.—Nothing in this section shall be deemed to legalize
any transaction connected with horse-racing, to which the
provisions of section 294A of the Indian Penal Code (45 of 1860)
apply. —Nothing in this section shall be deemed to legalize any
transaction connected with horse-racing, to which the provisions of
section 294A of the Indian Penal Code (45 of 1860) apply."

31. “Contingent contract” defined.—A “contingent contract” is a

contract to do or not to do something, if some event, collateral to
such contract, does or does not happen. —A “contingent contract” is
a contract to do or not to do something, if some event, collateral to
such contract, does or does not happen." Illustration A contracts to
pay to B Rs.10,000 if B’s house is burnt. This is a contingent
contract. A contracts to pay to B Rs.10,000 if B’s house is burnt.
This is a contingent contract."

31. “Contingent contract” defined.—A “contingent contract” is a

contract to do or not to do something, if some event, collateral to
such contract, does or does not happen. —A “contingent contract” is
a contract to do or not to do something, if some event, collateral to
such contract, does or does not happen." Illustration A contracts to
pay to B Rs.10,000 if B’s house is burnt. This is a contingent
contract. A contracts to pay to B Rs.10,000 if B’s house is burnt.
This is a contingent contract."

32. Enforcement of contracts contingent on an event happening.—

Contingent contracts to do or not to do anything if an uncertain
future event happens, cannot be enforced by law unless and until that
event has happened. —Contingent contracts to do or not to do
anything if an uncertain future event happens, cannot be enforced
by law unless and until that event has happened." If the event
becomes impossible, such contracts become void. Illustrations
(a) A makes a contract with B to buy B’s horse if A survives C. This
contract cannot be enforced by law unless and until C dies in A’s
lifetime. (a) A makes a contract with B to buy B’s horse if A survives
C. This contract cannot be enforced by law unless and until C dies
in A’s lifetime."

(b) A makes a contract with B to sell a horse to B at a specified

price, if C, to whom the horse has been offered, refuses to buy him.
The contract cannot be enforced by law unless and until C refuses
to buy the horse. (b) A makes a contract with B to sell a horse to B
at a specified price, if C, to whom the horse has been offered,
refuses to buy him. The contract cannot be enforced by law unless
and until C refuses to buy the horse."

(c) A contracts to pay B a sum of money when B marries C. C dies

without being married to B. The contract becomes void. (c) A contracts
to pay B a sum of money when B marries C. C dies without
being married to B. The contract becomes void."

33. Enforcement of contracts contingent on an event not happening.—

Contingent contracts to do or not to do anything if an uncertain future
event does not happen, can be enforced when the happening of that
event becomes impossible, and not before. — Contingent contracts
to do or not to do anything if an uncertain future event does not
happen, can be enforced when the happening of that event becomes
impossible, and not before."

Illustration
A agrees to pay B a sum of money if a certain ship does not return.
The ship is sunk. The contract can be enforced when the ship sinks.
A agrees to pay B a sum of money if a certain ship does not return.
The ship is sunk. The contract can be enforced when the ship
sinks."

34. When event on which contract is contingent to be deemed

impossible, if it is the future conduct of a living person.—If the future
event on which a contract is contingent is the way in which a person
will act at an unspecified time, the event shall be considered to
become impossible when such person does anything which renders
it impossible that he should so act within any definite time, or
otherwise than under further contingencies. —If the future event on
which a contract is contingent is the way in which a person will act
at an unspecified time,

the event shall be considered to become impossible when such

person does anything which renders it impossible that he should so
act within any definite time, or otherwise than under further
contingencies." Illustration A agrees to pay B a sum of money if B
marries C, C marries D. The marriage of B to C must now be
considered impossible, although it is possible that D may die and
that C may afterwards marry B. A agrees to pay B a sum of money
if B marries C, C marries D. The marriage of B to C must now be
considered impossible, although it is possible that D may die and
that C may afterwards marry B."

35. When contracts become void, which are contingent on

happening of specified event within fixed time.—Contingent
contracts to do or not to do anything, if a specified uncertain event
happens within a fixed time, become void if, at the expiration of the
time fixed, such event has not happened, or if, before the time fixed,
such event becomes impossible. —Contingent contracts to do or
not to do anything, if a specified uncertain event happens within a fixed
time, become void if, at the expiration of the time fixed, such event
has not happened, or if, before the time fixed, such event becomes
impossible." When contracts may be enforced, which are contingent
on specified event not happening within fixed time.— Contingent
contracts to do or not to do anything, if a specified uncertain event
does not happen within a fixed time, may be enforced by law when
the time fixed has expired, and such event has not happened, or
before the time fixed has expired, if it becomes certain that such
event will not happen. —Contingent contracts to do or not to do
anything, if a specified uncertain event does not happen within a fixed
time, may be enforced by law when the time fixed has expired, and
such event has not happened, or before the time fixed has expired, if
it becomes certain that such event will not happen." Illustrations

(a) A promises to pay B a sum of money if a certain ship returns

within a year. The contract may be enforced if the ship returns
within the year; and becomes void if the ship is burnt within the
year. (a) A promises to pay B a sum of money if a certain ship returns
within a year. The contract may be enforced if the ship returns within
the year; and becomes void if the ship is burnt within the year."

(b) A promises to pay B a sum of money if a certain ship does not

return within a year. The contract may be enforced if the ship does
not return within the year, or is burnt within the year. (b) A promises
to pay B a sum of money if a certain ship does not return within a
year. The contract may be enforced if the ship does not return within
the year, or is burnt within the year."
36. Agreements contingent on impossible event void.—Contingent
agreements to do or not to do anything, if an impossible event
happens, are void, whether the impossibility of the event is known
or not to the parties to the agreement at the time when it is made. —
Contingent agreements to do or not to do anything, if an impossible
event happens, are void, whether the impossibility of the event is
known or not to the parties to the agreement at the time when it is
made." Illustrations
(a) A agrees to pay B 1,000 rupees if two straight lines should enclose
a space. The agreement is void. (a) A agrees to pay B
1,000 rupees if two straight lines should enclose a space. The
agreement is void."
(b) A agrees to pay B 1,000 rupees if B will marry A’s daughter C. C
was dead at the time of the agreement. The agreement is void. (b)
A agrees to pay B 1,000 rupees if B will marry A’s daughter C. C
was dead at the time of the agreement. The agreement is void."

37. Obligation of parties to contract.—The parties to a contract must

either perform, or offer to perform, their respective promises, unless
such performance is dispensed with or excused under the
provisions of this Act, or of any other law. —The parties to a
contract must either perform, or offer to perform, their respective
promises, unless such performance is dispensed with or excused
under the provisions of this Act, or of any other law." Promises bind
the representatives of the promisors in case of the death of such
promisors before performance, unless a contrary intention appears
from the contract. Illustrations
(a) A promises to deliver goods to B on a certain day on payment of
Rs.1,000. A dies before that day. A’s representatives are bound to
deliver the goods to B, and B is bound to pay the Rs. 1,000 to A’s
representatives. (a) A promises to deliver goods to B on a certain
day on payment of Rs.1,000. A dies before that day. A’s
representatives are bound to deliver the goods to B, and B is bound
to pay the Rs. 1,000 to A’s representatives."

(b) A promises to paint a picture for B by a certain day, at a certain

price. A dies before the day. The contract cannot be enforced either
by A’s representatives or by B. (b) A promises to paint a picture for
B by a certain day, at a certain price. A dies before the day. The
contract cannot be enforced either by A’s representatives or by B."
38. Effect of refusal to accept offer of performance.—Where a
promisor has made an offer of performance to the promisee, and
the offer has not been accepted, the promisor is not responsible for
non-performance, nor does he thereby lose his right under the
contract. —Where a promisor has made an offer of performance to
the promisee, and the offer has not been accepted, the promisor is
not responsible for non-performance, nor does he thereby lose his
right under the contract." Every such offer must fulfil the following
conditions:—

(1) it must be unconditional;

(2) it must be made at a proper time and place, and under such
circumstances that the person to whom it is made may have a
reasonable opportunity of ascertaining that the person by whom it is
made is able and willing there and then to do the whole of what he
is bound by his promise to do;

(3) if the offer is an offer to deliver anything to the promisee, the

promisee must have a reasonable opportunity of seeing that the
thing offered is the thing which the promisor is bound by his promise
to deliver. An offer to one of several joint promisees has the same
legal consequences as an offer to all of them. Illustration A
contracts to deliver to B at his warehouse, on the 1st March, 1873,
100 bales of cotton of a particular quality. In order to make an offer
of performance with the effect stated in this section.

A must bring the cotton to B’s warehouse, on the appointed day,

under such circumstances that B may have a reasonable
opportunity of satisfying himself that the thing offered is cotton of the
quality contracted for, and that there are 100 bales. A contracts to
deliver to B at his warehouse, on the 1st March, 1873, 100 bales of
cotton of a particular quality. In order to make an offer of
performance with the effect stated in this section. A must bring the
cotton to B’s warehouse, on the appointed day, under such
circumstances that B may have a reasonable opportunity of
satisfying himself that the thing offered is cotton of the quality
contracted for, and that there are 100 bales."

39. Effect of refusal of party to perform promise wholly.—When a

party to a contract has refused to perform, or disabled himself from
performing, his promise in its entirety, the promisee may put an end
to the contract, unless he has signified, by words or conduct, his
acquiescence in its continuance. —When a party to a contract has
refused to perform, or disabled himself from performing, his promise
in its entirety, the promisee may put an end to the contract, unless
he has signified, by words or conduct, his acquiescence in its
continuance."

Illustrations

(a) A, a singer, enters into a contract with B, the manager of a theatre,

to sing at his theatre two nights in every week during next two months,
and B engages to pay her 100 rupees for each night’s performance.
On the sixth night A wilfully absents herself from the theatre. B is at
liberty to put an end to the contract. (a) A, a singer, enters into a
contract with B, the manager of a theatre, to sing at his theatre two
nights in every week during next two months, and B engages to pay
her 100 rupees for each night’s performance. On the sixth night A
wilfully absents herself from the theatre. B is at liberty to put an end to
the contract."

(b) A, a singer, enters into a contract with B, the manager of a theatre,

to sing at his theatre two nights in every week during next two months,
and B engages to pay her at the rate of 100 rupees for each night.
On the sixth night A wilfully absents herself. With the assent of B,
A sings on the seventh night. B has signified his acquiescence in the
continuance of the contract, and cannot now put an end to it, but is
entitled to compensation for the damage sustained by him through A’s
failure to sing on the sixth night. (b) A, a singer, enters into a contract
with B, the manager of a theatre, to sing at his theatre two nights in
every week during next two months, and B engages to pay her at the
rate of 100 rupees for each night.
On the sixth night A wilfully absents herself.
With the assent of B, A sings on the seventh night. B has signified
his acquiescence in the continuance of the contract, and cannot
now put an end to it, but is entitled to compensation for the damage
sustained by him through A’s failure to sing on the sixth night."

40. Person by whom promise is to be performed.—If it appears from

the nature of the case that it was the intention of the parties to any
contract that any promise contained in it should be performed by the
promisor himself, such promise must be performed by the promisor.
In other cases, the promisor or his representative may employ a
competent person to perform it. —If it appears from the nature of
the case that it was the intention of the parties to any contract that
any promise contained in it should be performed by the promisor
himself, such promise must be performed by the promisor. In other
cases, the promisor or his representative may employ a competent
person to perform it." Illustrations

(a) A promises to pay B a sum of money. A may perform this promise,

either by personally paying the money to B or by causing it to be paid
to B by another; and, if A dies before the time appointed for payment,
his representatives must perform the promise, or employ some proper
person to do so. (a) A promises to pay B a sum of money. A may
perform this promise, either by personally paying the money to B or
by causing it to be paid to B by another; and, if A dies before the time
appointed for payment, his representatives must perform the
promise, or employ some proper
person to do so."
(b) A promises to paint a picture for B. A must perform this promise
personally. (b) A promises to paint a picture for B. A must perform this
promise personally."
41. Effect of accepting performance from third person.—When a
promisee accepts performance of the promise from a third person,
he cannot afterwards enforce it against the promisor. —When a
promisee accepts performance of the promise from a third person,
he cannot afterwards enforce it against the promisor."

42. Devolution of joint liabilities.—When two or more persons have

made a joint promise, then, unless a contrary intention appears by the
contract, all such persons, during their joint lives, and, after the death
of any of them, his representative jointly with the survivor or survivors,
and, after the death of the last survivor, the representatives of all
jointly, must fulfil the promise. —When two or more persons have
made a joint promise, then, unless a contrary intention appears by
the contract, all such persons, during their joint lives, and, after the
death of any of them, his representative jointly with the survivor or
survivors, and, after the death of the last survivor, the
representatives of all jointly, must fulfil the promise."

43. Any one of joint promisors may be compelled to perform.—

When two or more persons make a joint promise, the promisee
may, in the absence of express agreement to the contrary, compel
any 1[one or more] of such joint promisors to perform the whole of the
promise. —When two or more persons make a joint promise, the
promisee may, in the absence of express agreement to the contrary,
compel any 1[one or more] of such joint promisors to perform the
whole of the promise." Each promisor may compel
contribution.—Each of two or more joint promisors may compel
every other joint promisor to contribute equally with himself to the
performance of the promise, unless a contrary intention appears
from the contract. —

Each of two or more joint promisors may compel every other joint
promisor to contribute equally with himself to the performance of the
promise, unless a contrary intention appears from the contract."
Sharing of loss by default in contribution.—If any one of two or more
joint promisors makes default in such contribution, the remaining
joint promisors must bear the loss arising from such default in equal
shares. —If any one of two or more joint promisors makes default in
such contribution, the remaining joint promisors must bear the loss
arising from such default in equal shares." Explanation.—Nothing in
this section shall prevent a surety from recovering, from his
principal, payments made by the surety on behalf of the principal, or
entitle the principal to recover anything from the surety on account
of payment made by the principal. Illustrations

(a) A, B and C jointly promise to pay D 3,000 rupees. D may compel

either A or B or C to pay him 3,000 rupees. (a) A, B and C jointly
promise to pay D 3,000 rupees. D may compel either A or B or C to
pay him 3,000 rupees."

(b) A, B and C jointly promise to pay D the sum of 3,000 rupees. C

is compelled to pay the whole. A is insolvent, but his assets are
sufficient to pay one-half of his debts. C is entitled to receive 500
rupees from A’s estate, and 1,250 rupees from B. (b) A, B and C
jointly promise to pay D the sum of 3,000 rupees. C is compelled to
pay the whole. A is insolvent, but his assets are sufficient to pay
one-half of his debts. C is entitled to receive 500 rupees from A’s
estate, and 1,250 rupees from B."

(c) A, B and C are under a joint promise to pay D 3,000 rupees. C is

unable to pay anything, and A is compelled to pay the whole. A is
entitled to receive 1,500 rupees from B. (c) A, B and C are under a
joint promise to pay D 3,000 rupees. C is unable to pay anything,
and A is compelled to pay the whole. A is entitled to receive 1,500
rupees from B."

(d) A, B and C are under a joint promise to pay D 3,000 rupees. A

and B being only sureties for C. C fails to pay. A and B are
compelled to pay the whole sum. They are entitled to recover it from
C. (d) A, B and C are under a joint promise to pay D 3,000 rupees.
A and B being only sureties for C. C fails to pay. A and B are
compelled to pay the whole sum. They are entitled to recover it from
C."
44. Effect of release of one joint promisor.—Where two or more
persons have made a joint promise, a release of one of such joint
promisors by the promisee does not discharge the other joint promisor
or joint promisors, neither does it free the joint promisors so released
from responsibility to the other joint promisor or joint promisors. 21

45. Devolution of joint rights.—When a person has made a promise

to two or more persons jointly, then, unless a contrary intention
appears from the contract, the right to claim performance rests, as
between him and then, with them during their joint lives, and, after the
death of any of them, with the representative of such deceased
person jointly with the survivor or survivors, and, after the death of
the last survivor, with the representatives of all jointly.1 —When a
person has made a promise to two or more persons jointly, then,
unless a contrary intention appears from the contract, the right to
claim performance rests, as between him and then, with them
during their joint lives, and, after the death of any of them, with the
representative of such deceased person jointly with the survivor or
survivors, and, after the death of the last survivor, with the
representatives of all jointly.3"

Illustration

A, in consideration of 5,000 rupees lent to him by B and C, promises

B and C jointly to repay them that sum with interest on a day specified.
B dies. The right to claim performance rests with B’s representative
jointly with C during C’s life, and after the death of C, with the
representatives of B and C jointly. A, in consideration of
5,000 rupees lent to him by B and C, promises B and C jointly to repay
them that sum with interest on a day specified. B dies. The right to
claim performance rests with B’s representative jointly with C during
C’s life, and after the death of C, with the representatives of B and
C jointly."

46. Time for performance of promise, where no application is to be

made and no time is specified.—Where, by the contract, a promisor
is to perform his promise without application by the promisee, and
no time for performance is specified, the engagement must be
performed within a reasonable time. —Where, by the contract, a
promisor is to perform his promise without application by the
promisee, and no time for performance is specified, the
engagement must be performed within a reasonable time."
Explanation.—The question “what is a reasonable time” is, in each
particular case, a question of fact.

47. Time and place for performance of promise, where time is

specified and no application to be made.—When a promise is to be
performed on a certain day, and the promisor has undertaken to
perform it without application by the promisee, the promisor may
perform it at any time during the usual hours of business on such
day and at the place at which the promise ought to be performed. —
When a promise is to be performed on a certain day, and the promisor
has undertaken to perform it without application by the promisee, the
promisor may perform it at any time during the usual hours of
business on such day and at the place at which the promise
ought to be performed." Illustration A promises to deliver goods at B’s
warehouse on the first January. On the day A brings the goods to
B’s warehouse, but after the usual hour closing it, and they are not
received. A has not performed his promise. A promises to deliver
goods at B’s warehouse on the first January. On the day A brings the
goods to B’s warehouse, but after the usual hour closing it, and they
are not received. A has not performed his promise."

48. Application for performance on certain day to be at proper time

and place.—When a promise is to be performed on a certain day, and
the promisor has not undertaken to perform it without
application by the promisee, it is the duty of the promisee to apply
for performance at a proper place and within the usual hours of
business. —When a promise is to be performed on a certain day,
and the promisor has not undertaken to perform it without
application by the promisee, it is the duty of the promisee to apply
for performance at a proper place and within the usual hours of
business." Explanation.—The question “what is a proper time and
place” is, in each particular case, a question of fact.

49. Place for the performance of promise, where no application to

be made and no place fixed for performance.—When a promise is
to be performed without application by the promisee, and no place
is fixed for the performance of it, it is the duty of the promisor to
apply to the promisee to appoint a reasonable place for the
performance of the promise, and to perform it at such a place. —
When a promise is to be performed without application by the
promisee, and no place is fixed for the performance of it, it is the
duty of the promisor to apply to the promisee to appoint a
reasonable place for the performance of the promise, and to
perform it at such a place." Illustration A undertakes to deliver a
thousand maunds of jute to B on a fixed day. A must apply to B to
appoint a reasonable place for the purpose of receiving it, and must
deliver it to him at such place. A undertakes to deliver a thousand
maunds of jute to B on a fixed day. A must apply to B to appoint a
reasonable place for the purpose of receiving it, and must deliver it
to him at such place."

50. Performance in manner or at time prescribed or sanctioned by

promisee.—The performance of any promise may be made in any
manner, or at any time which the promisee prescribes or sanctions.
—The performance of any promise may be made in any manner, or
at any time which the promisee prescribes or sanctions."
Illustrations
(a) B owes A 2,000 rupees. A desires B to pay the amount to A’s
account with C, a banker. B, who also banks with C, orders the
amount to be transferred from his account to A’s credit, and this is
done by C. Afterwards, and before A knows of the transfer, C fails.
There has been a good payment by B. (a) B owes A 2,000 rupees.
A desires B to pay the amount to A’s account with C, a banker. B,
who also banks with C, orders the amount to be transferred from his
account to A’s credit, and this is done by C. Afterwards, and before
A knows of the transfer, C fails. There has been a good payment by
B."
(b) A and B are mutually indebted. A and B settle an account by
setting off one item against another, and B pays A the balance
found to be due from him upon such settlement. This amounts to a
payment by A and B, respectively, of the sums which they owed to
each other. (b) A and B are mutually indebted. A and B settle an
account by setting off one item against another, and B pays A the
balance found to be due from him upon such settlement. This amounts
to a payment by A and B, respectively, of the sums which they owed
to each other."
(c) A owes B 2,000 rupees. B accepts some of A’s goods in
reduction of the debt. The delivery of the goods operates as a part
payment. (c) A owes B 2,000 rupees. B accepts some of A’s goods
in reduction of the debt. The delivery of the goods operates as a
part payment."
(d) A desires B, who owes him Rs.100, to send him a note for
Rs.100 by post. The debt is discharged as soon as B puts into the
post a letter containing the note duly addressed to A. (d) A desires
B, who owes him Rs.100, to send him a note for Rs.100 by post.
The debt is discharged as soon as B puts into the post a letter
containing the note duly addressed to A."

51. Promisor not bound to perform, unless reciprocal promisee

ready and willing to perform.—When a contract consists of
reciprocal promises to be simultaneously performed, no promisor
need perform his promise unless the promisee is ready and willing
to perform his reciprocal promise. —When a contract consists of
reciprocal promises to be simultaneously performed, no promisor
need perform his promise unless the promisee is ready and willing
to perform his reciprocal promise." Illustrations
(a) A and B contract that A shall deliver goods to B to be paid for by
B on delivery. A need not deliver the goods, unless B is ready and
willing to pay for the goods on delivery. (a) A and B contract that A
shall deliver goods to B to be paid for by B on delivery. A need not
deliver the goods, unless B is ready and willing to pay for the goods
on delivery." B need not pay for the goods, unless A is ready and
willing to deliver them on payment. B need not pay for the goods,
unless A is ready and willing to deliver them on payment."
(b) A and B contract that A shall deliver goods to B at a price to be
paid by instalments, the first instalment to be paid on delivery. (b) A
and B contract that A shall deliver goods to B at a price to be paid
by instalments, the first instalment to be paid on delivery." A need
not deliver, unless B is ready and willing to pay the first instalment
on delivery. A need not deliver, unless B is ready and willing to pay
the first instalment on delivery." B need not pay the first instalment,
unless A is ready and willing to deliver the goods on payment of the
first instalment. B need not pay the first instalment, unless A is
ready and willing to deliver the goods on payment of the first
instalment."

52. Order of performance of reciprocal promises.—Where the order in

which reciprocal promises are to be performed is expressly fixed by
the contract, they shall be performed in that order; and where the
order is not expressly fixed by the contract, they shall be performed
in that order which the nature of the transaction requires. —Where the
order in which reciprocal promises are to be performed is expressly
fixed by the contract, they shall be performed in that order; and
where the order is not expressly fixed by the contract, they shall be
performed in that order which the nature of the transaction requires."
Illustrations
(a) A and B contract that A shall build a house for B at a fixed price.
A’s promise to build the house must be performed before B’s
promise to pay for it. (a) A and B contract that A shall build a house
for B at a fixed price. A’s promise to build the house must be
performed before B’s promise to pay for it."
(b) A and B contract that A shall make over his stock-in-trade to B at
a fixed price, and B promise to give security for the payment of the
money. A’s promise need not be performed until the security is
given, for the nature of transaction requires that A should have
security before he delivers up his stock. (b) A and B contract that A
shall make over his stock-in-trade to B at a fixed price, and B
promise to give security for the payment of the money. A’s promise
need not be performed until the security is given, for the nature of
transaction requires that A should have security before he delivers
up his stock."

53. Liability of party preventing event on which the contract is to

take effect.—When a contract contains reciprocal promises, and
one party to the contract prevents the other from performing his
promise, the contract becomes viodable at the option of the party so
prevented: and he is entitled to compensation 23 from the other
party for any loss which he may sustain in consequence of the non-
performance of the contract. Illustration A and B contract that B
shall execute certain work for A for a thousand rupees. B is ready
and willing to execute the work accordingly, but A prevents him from
doing so.

The contract is voidable at the option of B; and, if he elects to

rescind it, he is entitled to recover from A compensation for any loss
which he has incurred by its non-performance. A and B contract that
B shall execute certain work for A for a thousand rupees. B is ready
and willing to execute the work accordingly, but A prevents him from
doing so. The contract is voidable at the option of B; and, if he
elects to rescind it, he is entitled to recover from A compensation for
any loss which he has incurred by its non-performance."

54. Effect of default as to that promise which should be performed,

in contract consisting of reciprocal promises.—When a contract
consists of reciprocal promises, such that one of them cannot be
performed, or that its performance cannot be claimed till the other has
been performed, and the promisor of the promise last
mentioned fails to perform it, such promisor cannot claim the
performance of the reciprocal promise, and must make
compensation to the other party to the contract for any loss which
such other party may sustain by the non-performance of the
contract. —When a contract consists of reciprocal promises, such
that one of them cannot be performed, or that its performance
cannot be claimed till the other has been performed, and the promisor
of the promise last mentioned fails to perform it, such promisor cannot
claim the performance of the reciprocal promise, and must make
compensation to the other party to the contract for any loss which
such other party may sustain by the non-
performance of the contract." Illustrations
(a) A hires B’s ship to take in and convey, from Calcutta to the
Mauritius, a cargo to be provided by A, B receiving a certain freight
for its conveyance. A does not provide any cargo for the ship. A
cannot claim the performance of B’s promise, and must take
compensation to B for the loss which B sustains by the non-
performance of the contract. (a) A hires B’s ship to take in and convey,
from Calcutta to the Mauritius, a cargo to be provided by A, B
receiving a certain freight for its conveyance. A does not provide any
cargo for the ship. A cannot claim the performance of B’s
promise, and must take compensation to B for the loss which B
sustains by the non-performance of the contract."

(b) A contracts with B to execute certain builder’s work for a fixed

price, B supplying the scaffolding and timber necessary for the
work. B refuses to furnish any scaffolding or timber, and the work
cannot be executed. A need not execute the work, and B is bound
to make compensation to A for any loss caused to him by the non-
performance of the contract. (b) A contracts with B to execute
certain builder’s work for a fixed price, B supplying the scaffolding
and timber necessary for the work. B refuses to furnish any
scaffolding or timber, and the work cannot be executed. A need not
execute the work, and B is bound to make compensation to A for
any loss caused to him by the non-performance of the contract."
(c) A contracts with B to deliver to him, at a specified price, certain
merchandise on board a ship which cannot arrive for a month, and
B engages to pay for the merchandise within a week from the date
of the contract. B does not pay within the week. A’s promise to
deliver need not be performed, and B must make compensation. (c)
A contracts with B to deliver to him, at a specified price, certain
merchandise on board a ship which cannot arrive for a month, and
B engages to pay for the merchandise within a week from the date
of the contract. B does not pay within the week. A’s promise to
deliver need not be performed, and B must make compensation."

(d) A promises B to sell him one hundred bales of merchandise, to

be delivered next day, and B promises A to pay for them within a
month. A does not deliver according to his promise. B’s promise to
pay need not be performed, and A must make compensation. (d) A
promises B to sell him one hundred bales of merchandise, to be
delivered next day, and B promises A to pay for them within a
month. A does not deliver according to his promise. B’s promise to
pay need not be performed, and A must make compensation."

55. Effect of failure to perform at a fixed time, in contract in which time

is essential.—When a party to a contract promises to do a certain
thing at or before a specified time, or certain things at or before
specified times, and fails to do any such thing at or before the
specified time, the contract, or so much of it as has not been
performed, becomes voidable at the option of the promisee, if the
intention of the parties was that time should be of the essence of the
contract. —When a party to a contract promises to do a certain
thing at or before a specified time, or certain things at or before
specified times, and fails to do any such thing at or before the
specified time, the contract, or so much of it as has not been
performed, becomes voidable at the option of the promisee, if the
intention of the parties was that time should be of the essence of the
contract." Effect of such failure when time is not essential.—If it was
not the intention of the parties that time should be of the essence of
the contract, the contract does not become voidable by the failure to
do such thing at or before the specified time; but the promisee is
entitled to compensation from the promisor for any loss occasioned
to him by such failure. —If it was not the intention of the parties that
time should be of the essence of the contract, the contract does not
become voidable by the failure to do such thing at or before the
specified time;

but the promisee is entitled to compensation from the promisor for

any loss occasioned to him by such failure." Effect of acceptance of
performance at time other than that agreed upon.—If, in case of a
contract voidable on account of the promisor’s failure to perform his
promise at the time agreed, the promisee accepts performance of
such promise at any time other than that agreed, the promisee cannot
claim compensation for any loss occasioned by the non- performance
of the promise at the time agreed, unless, at the time of such
acceptance he gives notice to the promisor of his intention to do so.1
—If,

in case of a contract voidable on account of the promisor’s failure to

perform his promise at the time agreed, the promisee accepts
performance of such promise at any time other than that agreed, the
promisee cannot claim compensation for any loss occasioned by
the non-performance of the promise at the time agreed, unless, at
the time of such acceptance he gives notice to the promisor of his
intention to do so.1"

56. Agreement to do impossible act.—An agreement to do an act

impossible in itself is void. —An agreement to do an act impossible
in itself is void." Contract to do act afterwards becoming impossible
or unlawful.—A contract to do an act which, after the contract is
made, becomes impossible, or, by reason of some event which the
promisor could not prevent, unlawful, becomes void when the act
becomes impossible or unlawful.1 —

A contract to do an act which, after the contract is made, becomes

impossible, or, by reason of some event which the promisor could
not prevent, unlawful, becomes void when the act becomes
impossible or unlawful.2" Compensation for loss through non-
performance of act known to be impossible or unlawful.—Where
one person has promised to do something which he knew, or, with
reasonable diligence, might have known, and which the promisee
did not know, to be impossible or unlawful, such promisor must
make compensation to such promisee for any loss which such
promisee sustains through the non-performance of the promise. —

Where one person has promised to do something which he knew,

or, with reasonable diligence, might have known, and which the
promisee did not know, to be impossible or unlawful, such promisor
must make compensation to such promisee for any loss which such
promisee sustains through the non-performance of the promise."
Illustrations
(a) A agrees with B to discover treasure by magic. The agreement is
void. (a) A agrees with B to discover treasure by magic. The
agreement is void."
(b) A and B contract to marry each other. Before the time fixed for
the marriage, A goes mad. The contract becomes void. (b) A and B
contract to marry each other. Before the time fixed for the marriage,
A goes mad. The contract becomes void."
(c) A contracts to marry B, being already married to C, and being
forbidden by the law to which he is subject to practise polygamy. A
must make compensation to B for the loss caused to her by the
non-performance of his promise. (c) A contracts to marry B, being
already married to C, and being forbidden by the law to which he is
subject to practise polygamy. A must make compensation to B for
the loss caused to her by the non-performance of his promise."

(d) A contracts to take in cargo for B at a foreign port. A’s

Government afterwards declares war against the country in which
the port is situated. The contract becomes void when war is
declared. (d) A contracts to take in cargo for B at a foreign port. A’s
Government afterwards declares war against the country in which
the port is situated. The contract becomes void when war is declared."

(e) A contracts to act at a theatre for six months in consideration of

a sum paid in advance by B. On several occasions A is too ill to act.
The contract to act on those occasions becomes void. (e) A
contracts to act at a theatre for six months in consideration of a sum
paid in advance by B. On several occasions A is too ill to act. The
contract to act on those occasions becomes void."

57. Reciprocal promise to do things legal, and also other things

illegal.—Where persons reciprocally promise, firstly to do certain
things which are legal, and secondly, under specified
circumstances, to do certain other things which are illegal, the first
set of promises is a contract, but the second is a void agreement. —
Where persons reciprocally promise, firstly to do certain things
which are legal, and secondly, under specified circumstances, to do
certain other things which are illegal, the first set of promises is a
contract, but the second is a void agreement." Illustration A and B
agree that A shall sell B a house for 10,000 rupees, but that, if B
uses it as a gambling house, he shall pay A 50,000 rupees for it.

A and B agree that A shall sell B a house for 10,000 rupees, but
that, if B uses it as a gambling house, he shall pay A 50,000 rupees
for it." The first set of reciprocal promises, namely, to sell the house
and to pay 10,000 rupees for it, is a contract. The first set of reciprocal
promises, namely, to sell the house and to pay 10,000 rupees for it,
is a contract." The second set is for an unlawful object, namely, that
B may use the house as a gambling house, and is a void agreement.
The second set is for an unlawful object, namely, that B may use the
house as a gambling house, and is a void agreement."

58. Alternative promise, one branch being illegal.—In the case of an

alternative promise, one branch of which is legal and the other
illegal, the legal branch alone can be enforced. —In the case of an
alternative promise, one branch of which is legal and the other
illegal, the legal branch alone can be enforced." Illustration A and B
agree that A shall pay B 1,000 rupees, for which B shall afterwards
deliver to A either rice or smuggled opium. A and B agree that A
shall pay B 1,000 rupees, for which B shall afterwards deliver to A
either rice or smuggled opium." This is a valid contract to deliver
rice, and a void agreement as to the opium. This is a valid contract
to deliver rice, and a void agreement as to the opium."
59. Application of payment where debt to be discharged is indicated.—
Where a debtor, owing several distinct debts to one person, makes a
payment to him, either with express intimation, or under
circumstances implying, that the payment is to be applied to
the discharge of some particular debt, the payment, if accepted,
must be applied accordingly. —Where a debtor, owing several distinct
debts to one person, makes a payment to him, either with express
intimation, or under circumstances implying, that the payment is to be
applied to the discharge of some particular debt, the payment, if
accepted, must be applied accordingly." Illustrations

(a) A owes B, among other debts, 1,000 rupees upon a promissory

note, which falls due on the first June. He owes B no other debt of
that amount. On the first June, A pays to B 1,000 rupees. The
payment is to be applied to the discharge of the promissory note. (a)
A owes B, among other debts, 1,000 rupees upon a promissory
note, which falls due on the first June. He owes B no other debt of
that amount. On the first June, A pays to B 1,000 rupees. The
payment is to be applied to the discharge of the promissory note."

(b) A owes to B, among other debts, the sum of 567 rupees. B

writes to A and demands payment of this sum. A sends to B 567
rupees. This payment is to be applied to the discharge of the debt of
which B had demanded payment. (b) A owes to B, among other debts,
the sum of 567 rupees. B writes to A and demands payment of this
sum. A sends to B 567 rupees. This payment is to be applied to the
discharge of the debt of which B had demanded payment."

60. Application of payment where debt to be discharged is not

indicated.—Where the debtor has omitted to intimate, and there are
no other circumstances indicating to which debt the payment is to
be applied, the creditor may apply it at his discretion to any lawful
debt actually due and payable to him from the debtor, whether its
recovery is or is not barred by the law in force for the time being as
to the limitations of suits. —Where the debtor has omitted to
intimate, and there are no other circumstances indicating to which
debt the payment is to be applied, the creditor may apply it at his
discretion to any lawful debt actually due and payable to him from
the debtor, whether its recovery is or is not barred by the law in
force for the time being as to the limitations of suits."

61. Application of payment where neither party appropriates.— Where

neither party makes any appropriation, the payment shall be applied
in discharge of the debts in order of time, whether they are or are
not barred by the law in force for the time being as to the limitation
of suits. If the debts are of equal standing, the payment shall be
applied in discharge of each proportionably. —Where neither party
makes any appropriation, the payment shall be applied in discharge
of the debts in order of time, whether they are or are not barred by
the law in force for the time being as to the limitation of suits. If the
debts are of equal standing, the payment shall be applied in discharge
of each proportionably."

62. Effect of novation, rescission, and alteration of contract.—If the

parties to a contract agree to substitute a new contract for it, or to
rescind or alter it, the original contract need not be performed. —If the
parties to a contract agree to substitute a new contract for it, or to
rescind or alter it, the original contract need not be performed."
Illustrations
(a) A owes money to B under a contract. It is agreed between A, B
and C, that B shall thenceforth accept C as his debtor, instead of A.
The old debt of A to B is at an end, and a new debt from C to B has
been contracted. (a) A owes money to B under a contract. It is
agreed between A, B and C, that B shall thenceforth accept C as his
debtor, instead of A. The old debt of A to B is at an end, and a new
debt from C to B has been contracted."

(b) A owes B 10,000 rupees. A enters into an agreement with B,

and gives B a mortgage of his (A’s), estate for 5,000 rupees in place
of the debt of 10,000 rupees. This is a new contract and
extinguishes the old. (b) A owes B 10,000 rupees. A enters into an
agreement with B, and gives B a mortgage of his (A’s), estate for
5,000 rupees in place of the debt of 10,000 rupees. This is a new
contract and extinguishes the old."

(c) A owes B 1,000 rupees under a contract, B owes C 1,000

rupees, B orders A to credit C with 1,000 rupees in his books, but C
does not assent to the agreement. B still owes C 1,000 rupees, and
no new contract has been entered into. (c) A owes B 1,000 rupees
under a contract, B owes C 1,000 rupees, B orders A to credit C
with 1,000 rupees in his books, but C does not assent to the
agreement. B still owes C 1,000 rupees, and no new contract has
been entered into."

63. Promisee may dispense with or remit performance of promise.—

Every promisee may dispense with or remit, wholly or in part, the
performance of the promise made to him, or may extend the time for
such performance,1or may accept instead of it any satisfaction
which he thinks fit. —Every promisee may dispense with or remit,
wholly or in part, the performance of the promise made to him, or may
extend the time for such performance,1or may accept instead of it
any satisfaction which he thinks fit." Illustrations
(a) A promises to paint a picture for B. B afterwards forbids him to
do so. A is no longer bound to perform the promise. (a) A promises
to paint a picture for B. B afterwards forbids him to do so. A is no
longer bound to perform the promise."
(b) A owes B 5,000 rupees. A pays to B, and B accepts, in
satisfaction of the whole debt, 2,000 rupees paid at the time and place
at which the 5,000 rupees were payable. The whole debt is
discharged. (b) A owes B 5,000 rupees. A pays to B, and B accepts,
in satisfaction of the whole debt, 2,000 rupees paid at the time and
place at which the 5,000 rupees were payable. The whole debt is
discharged."
(c) A owes B 5,000 rupees. C pays to B 1,000 rupees, and B
accepts them, in satisfaction of his claim on A. This payment is a
discharge of the whole claim.2 (c) A owes B 5,000 rupees. C pays
to B 1,000 rupees, and B accepts them, in satisfaction of his claim
on A. This payment is a discharge of the whole claim.2"
(d) A owes B, under a contract, a sum of money, the amount of
which has not been ascertained. A, without ascertaining the
amount, gives to B, and B, in satisfaction thereof, accepts, the sum
of 2,000 rupees. This is a discharge of the whole debt, whatever
may be its amount. (d) A owes B, under a contract, a sum of money,
the amount of which has not been ascertained. A, without ascertaining
the amount, gives to B, and B, in satisfaction thereof, accepts, the sum
of 2,000 rupees. This is a discharge of the whole debt, whatever may
be its amount."
(e) A owes B 2,000 rupees, and is also indebted to another
creditors. A makes an arrangement with his creditors, including B, to
pay them a 28 [composition] of eight annas in the rupee upon their
respective demands. Payment to B of 1,000 rupees is a discharge
of B’s demand.
64. Consequences of rescission of a voidable contract.—When a
person at whose option a contract is voidable rescinds it, the other
party thereto need not perform any promise therein contained in which
he is the promisor. The party rescinding a voidable contract shall, if
he had received any benefit thereunder from another party to such
contract, restore such benefit, so far as may be, to the person
from whom it was received.1

65. Obligation of person who has received advantage under void

agreement, or contract that becomes void.—When an agreement is
discovered to be void, or when a contract becomes void, any person
who has received any advantage under such agreement or contract
is bound to restore it, or to make compensation for it to the person
from whom he received it. —When an agreement is discovered to
be void, or when a contract becomes void, any person who has
received any advantage under such agreement or contract is bound
to restore it, or to make compensation for it to the person from
whom he received it." Illustrations
(a) A pays B 1,000 rupees, in consideration of B’s promising to
marry C, A’s daughter. C is dead at the time of the promise. The
agreement is void, but B must repay A the 1,000 rupees. (a) A pays
B 1,000 rupees, in consideration of B’s promising to marry C, A’s
daughter. C is dead at the time of the promise. The agreement is void,
but B must repay A the 1,000 rupees."
(b) A contracts with B to deliver to him 250 maunds of rice before
the first of May. A delivers 130 maunds only before that day, and
none after. B retains the 130 maunds after the first of May. He is
bound to pay A for them. (b) A contracts with B to deliver to him 250
maunds of rice before the first of May. A delivers 130 maunds only
before that day, and none after. B retains the 130 maunds after the
first of May. He is bound to pay A for them."
(c) A, a singer, contracts with B, the manager of a theatre, to sing at
his theatre for two nights in every week during the next two months,
and B engages to pay her a hundred rupees for each night’s
performance. On the sixth night, A wilfully absents herself from the
theatre, and B, in consequence, rescinds the contract. B must pay A
for the five nights on which she had sung. (c) A, a singer, contracts
with B, the manager of a theatre, to sing at his theatre for two nights
in every week during the next two months, and B engages to pay
her a hundred rupees for each night’s performance. On the sixth
night, A wilfully absents herself from the theatre, and B, in
consequence, rescinds the contract. B must pay A for the five nights
on which she had sung."
(d) A contracts to sing for B at a concert for 1,000 rupees, which are
paid in advance. A is too ill to sing. A is not bound to make
compensation to B for the loss of the profits which B would have
made if A had been able to sing, but must refund to B the 1,000
rupees paid in advance. (d) A contracts to sing for B at a concert for
1,000 rupees, which are paid in advance. A is too ill to sing. A is not
bound to make compensation to B for the loss of the profits which B
would have made if A had been able to sing, but must refund to B
the 1,000 rupees paid in advance."

66. Mode of communicating or revoking rescission of voidable

contract.—The rescission of a voidable contract may be
communicated or revoked in the same manner, and subject to the
same rules, as apply to the communication or revocation of the
proposal. 30
67. Effect of neglect of promisee to afford promisor reasonable
facilities for performance.—If any promisee neglects or refuses to
afford the promisor reasonable facilities for the performance of his
promise, the promisor is excused by such neglect or refusal as to
any non-performance caused thereby. —If any promisee neglects or
refuses to afford the promisor reasonable facilities for the
performance of his promise, the promisor is excused by such
neglect or refusal as to any non-performance caused thereby."
Illustration A contracts with B to repair B’s house. B neglects or
refuses to point out to A the places in which his house requires repair.
A is excused for the non-performance of the contract, if it is caused by
such neglect or refusal.

68. Claim for necessaries supplied to person incapable of contracting,

or on his account.—If a person, incapable of entering into a contract,
or any one whom he is legally bound to support, is supplied by another
person with necessaries suited to his condition in life, the person who
has furnished such supplies is entitled to be reimbursed from the
property of such incapable person. 31
Illustrations
(a) A supplies B, a lunatic, with necessaries suitable to his condition
in life. A is entitled to be reimbursed from B’s property. (a) A
supplies B, a lunatic, with necessaries suitable to his condition in
life. A is entitled to be reimbursed from B’s property."
(b) A suplies the wife and children of B, a lunatic, with necessaries
suitable to their condition in life. A is entitled to be reimbursed from
B’s property. (b) A suplies the wife and children of B, a lunatic, with
necessaries suitable to their condition in life. A is entitled to be
reimbursed from B’s property."
69. Reimbursement of person paying money due by another, in
payment of which he is interested.—A person who is interested in
the payment of money which another is bound by law to pay, and who
therefore pays it, is entitled to be reimbursed by the other. —A person
who is interested in the payment of money which another is bound by
law to pay, and who therefore pays it, is entitled to be reimbursed by
the other." Illustration B holds land in Bengal, on a lease granted by
A, the zamindar. The revenue payable by A to the Government being
in arrear, his land is advertised for sale by the Government. Under
the revenue law, the consequence of such sale will be the annulment
of B’s lease. B to prevent the sale and the consequent annulment
of his own lease, pays the Government the sum due from A.

A is bound to make good to B the amount so paid. B holds land in

Bengal, on a lease granted by A, the zamindar. The revenue
payable by A to the Government being in arrear, his land is advertised
for sale by the Government. Under the revenue law, the consequence
of such sale will be the annulment of B’s lease. B to prevent the sale
and the consequent annulment of his own lease, pays the
Government the sum due from A. A is bound to make good to B the
amount so paid."

70. Obligation of person enjoying benefit of non-gratuitous act.—

Where a person lawfully does anything for another person, or delivers
anything to him, not intending to do so gratuitously, and such other
person enjoys the benefit thereof, the latter is bound to make
compensation to the former in respect of, or to restore, the thing
so done or delivered. —Where a person lawfully does
anything for another person, or delivers anything to him, not
intending to do so gratuitously, and such other person enjoys the
benefit thereof, the latter is bound to make compensation to the former
in respect of, or to restore, the thing so done or delivered.1"
Illustrations
(a) A, a tradesman, leaves goods at B’s house by mistake. B treats
the goods as his own. He is bound to pay A for them. (a) A, a
tradesman, leaves goods at B’s house by mistake. B treats the
goods as his own. He is bound to pay A for them."
(b) A saves B’s property from fire. A is not entitled to compensation
from B, if the circumstances show that he intended to act
gratuitously. (b) A saves B’s property from fire. A is not entitled to
compensation from B, if the circumstances show that he intended to
act gratuitously."

71. Responsibility of finder of goods.—A person who finds goods

belonging to another, and takes them into his custody, is subject to
the same responsibility as a bailee. 33

72. Liability of person to whom money is paid, or thing delivered, by

mistake or under coercion.—A person to whom money has been paid,
or anything delivered, by mistake or under coercion, must repay
or return it. —A person to whom money has been paid, or anything
delivered, by mistake or under coercion, must repay or return it."
Illustrations
(a) A and B jointly owe 100 rupees to C, A alone pays the amount to
C, and B, not knowing this fact, pays 100 rupees over again to C. C
is bound to repay the amount to B. (a) A and B jointly owe 100 rupees
to C, A alone pays the amount to C, and B, not knowing this fact, pays
100 rupees over again to C. C is bound to repay the
amount to B."
(b) A railway company refuses to deliver up certain goods to the
consignee except upon the payment of an illegal charge for
carriage. The consignee pays the sum charged in order to obtain
the goods. He is entitled to recover so much of the charge as was
illegal and excessive. (b) A railway company refuses to deliver up
certain goods to the consignee except upon the payment of an
illegal charge for carriage. The consignee pays the sum charged in
order to obtain the goods. He is entitled to recover so much of the
charge as was illegal and excessive."

73. Compensation for loss or damage caused by breach of contract.—

When a contract has been broken, the party who suffers by such
breach is entitled to receive, from the party who has broken the
contract, compensation for any loss or damage caused to him thereby,
which naturally arose in the usual course of things from such
breach, or which the parties knew, when they made the contract, to
be likely to result from the breach of it.

—When a contract has been broken, the party who suffers by such
breach is entitled to receive, from the party who has broken the
contract, compensation for any loss or damage caused to him
thereby, which naturally arose in the usual course of things from
such breach, or which the parties knew, when they made the contract,
to be likely to result from the breach of it." Such compensation is not
to be given for any remote and indirect loss or damage sustained by
reason of the breach. Compensation for failure to discharge
obligation resembling those created by contract.

—When an obligation resembling those created by contract has

been incurred and has not been discharged, any person injured by
the failure to discharge it is entitled to receive the same compensation
from the party in default, as if such person had contracted to discharge
it and had broken his contract. —When an obligation resembling those
created by contract has been incurred and has not been discharged,
any person injured by the failure to discharge it is entitled to receive
the same compensation from the party in default, as if such person
had contracted to discharge it and had broken his contract."
Explanation.—In estimating the loss or damage arising from a breach
of contract, the means which existed of remedying the inconvenience
caused by the non-performance of the contract must be taken into
account. Illustrations

(a) A contracts to sell and deliver 50 maunds of saltpetre to B, at a

certain price to be paid on delivery. A breaks his promise. B is entitled
to receive from A, by way of compensation, the sum, if any, by which
the contract price falls short of the price for which B might have
obtained 50 maunds of saltpetre of like quality at the time when
the saltpetre ought to have been delivered.

(a) A contracts to sell and deliver 50 maunds of saltpetre to B, at a

certain price to be paid on delivery. A breaks his promise. B is entitled
to receive from A, by way of compensation, the sum, if any, by which
the contract price falls short of the price for which B might have
obtained 50 maunds of saltpetre of like quality at the time when
the saltpetre ought to have been delivered."

(b) A hires B’s ship to go to Bombay, and there takes on board, on

the first of January, a cargo, which A is to provide, and to bring it to
Calcutta, the freight to be paid when earned. B’s ship does not go to
Bombay, but A has opportunities of procuring suitable conveyance
for the cargo upon terms as advantageous as those on which he
had chartered the ship. A avails himself of those opportunities, but
is put to trouble and expense in doing so. A is entitled to receive
compensation from B in respect of such trouble and expense. (b) A
hires B’s ship to go to Bombay, and there takes on board, on the
first of January, a cargo, which A is to provide, and to bring it to
Calcutta, the freight to be paid when earned. B’s ship does not go to
Bombay, but A has opportunities of procuring suitable conveyance
for the cargo upon terms as advantageous as those on which he
had chartered the ship. A avails himself of those opportunities, but
is put to trouble and expense in doing so. A is entitled to receive
compensation from B in respect of such trouble and expense."

(c) A contracts to buy of B, at a stated price, 50 maunds of rice, no

time being fixed for delivery. A afterwards informs B that he will not
accept the rice if tendered to him. B is entitled to receive from A, by
way of compensation, the amount, if any, by which the contract
price exceeds that which B can obtain for the rice at the time when
A informs B that he will not accept it. (c) A contracts to buy of B, at a
stated price, 50 maunds of rice, no time being fixed for delivery. A
afterwards informs B that he will not accept the rice if tendered to
him. B is entitled to receive from A, by way of compensation, the
amount, if any, by which the contract price exceeds that which B
can obtain for the rice at the time when A informs B that he will not
accept it."

(d) A contracts to buy B’s ship for 60,000 rupees, but breaks his
promise. A must pay to B, by way of compensation, the excess, if any,
of the contract price over the price which B can obtain for the
ship at the time of the breach of promise. (d) A contracts to buy B’s
ship for 60,000 rupees, but breaks his promise. A must pay to B, by
way of compensation, the excess, if any, of the contract price over the
price which B can obtain for the ship at the time of the breach of
promise."
(e) A, the owner of a boat, contracts with B to take a cargo of jute to
Mirzapur, for sale at that place, starting on a specified day. The
boat, owing to some avoidable cause, does not start at the time
appointed, whereby the arrival of the cargo at Mirzapur is delayed
beyond the time when it would have arrived if the boat had sailed
according to the contract.

After that date, and before the arrival of the cargo, the price of jute
falls. The measure of the compensation payable to B by A is the
difference between the price which B could have obtained for the
cargo at Mirzapur at the time when it would have arrived if
forwarded in due course, and its market price at the time when it
actually arrived. (e) A, the owner of a boat, contracts with B to take
a cargo of jute to Mirzapur, for sale at that place, starting on a
specified day. The boat, owing to some avoidable cause, does not
start at the time appointed, whereby the arrival of the cargo at
Mirzapur is delayed beyond the time when it would have arrived if
the boat had sailed according to the contract.

After that date, and before the arrival of the cargo, the price of jute
falls. The measure of the compensation payable to B by A is the
difference between the price which B could have obtained for the
cargo at Mirzapur at the time when it would have arrived if
forwarded in due course, and its market price at the time when it
actually arrived."
(f) A contracts to repair B’s house in a certain manner, and receives
payment in advance. A repairs the house, but not according to
contract. B is entitled to recover from A the cost of making the
repairs conform to the contract. (f) A contracts to repair B’s house in
a certain manner, and receives payment in advance. A repairs the
house, but not according to contract. B is entitled to recover from A
the cost of making the repairs conform to the contract."
(g) A contracts to let his ship to B for a year, from the first of
January, for a certain price. Freights rise, and, on the first of
January, the hire obtainable for the ship is higher than the contract
price. A breaks his promise. He must pay to B, by way of
compensation, a sum equal to the difference between the contract
price and the price for which B could hire a similar ship for a year on
and from the first of January. (g)

A contracts to let his ship to B for a year, from the first of January,
for a certain price. Freights rise, and, on the first of January, the hire
obtainable for the ship is higher than the contract price. A breaks his
promise. He must pay to B, by way of compensation, a sum equal to
the difference between the contract price and the price for which B
could hire a similar ship for a year on and from the first of January."

(h) A contracts to supply B with a certain quantity of iron at a fixed

price, being a higher price than that for which A could procure and
deliver the iron. B wrongfully refuses to receive the iron. B must pay
to A, by way of compensation, the difference between the contract
price of the iron and the sum for which A could have obtained and
delivered it. (h) A contracts to supply B with a certain quantity of iron
at a fixed price, being a higher price than that for which A could
procure and deliver the iron. B wrongfully refuses to receive the
iron. B must pay to A, by way of compensation, the difference between
the contract price of the iron and the sum for which A could have
obtained and delivered it."

(i) A delivers to B, a common carrier, a machine, to be conveyed,

without delay, to A’s mill, informing B that his mill is stopped for
want of machine. B unreasonably delays the delivery of the
machine, and A, in consequence, loses a profitable contract with the
Government. A is entitled to receive from B, by way of
compensation, the average amount of profit which would have been
made by the working of the mill during the time that delivery of it
was delayed, but not the loss sustained through the loss of the
Government contract. (i)

A delivers to B, a common carrier, a machine, to be conveyed, without

delay, to A’s mill, informing B that his mill is stopped for want of
machine. B unreasonably delays the delivery of the machine,
and A, in consequence, loses a profitable contract with the
Government. A is entitled to receive from B, by way of
compensation, the average amount of profit which would have been
made by the working of the mill during the time that delivery of it
was delayed, but not the loss sustained through the loss of the
Government contract."

(j) A, having contracted with B to supply B with 1,000 tons of iron at

100 rupees a ton, to be delivered at a stated time, contracts with C
for the purchase of 1,000 tons of iron at 80 rupees a ton, telling C that
he does so for the purpose of performing his contract with B. C fails
to perform his contract with A, who cannot procure other iron,
and B, in consequence, rescinds the contract. C must pay to A
20,000 rupees, being the profit which A would have made by the
performance of his contract with B. (j) A, having contracted with B to
supply B with 1,000 tons of iron at 100 rupees a ton, to be delivered
at a stated time, contracts with C for the purchase of 1,000 tons of
iron at 80 rupees a ton, telling C that he does so for the purpose of
performing his contract with B. C fails to perform his contract with A,
who cannot procure other iron, and B, in consequence, rescinds the
contract. C must pay to A 20,000 rupees, being the profit which A
would have made by the performance of his contract with B."

(k) A contracts with B to make and deliver to B, by a fixed day, for a

specified price, a certain piece of machinery. A does not deliver the
piece of machinery, at the time specified, and, in consequence of this,
B is obliged to procure another at a higher price than that which he
was to have paid to A, and is prevented from performing a contract
which B had made with a third person at the time of his contract
with A (but which had not been communicated to A), and is compelled
to make compensation for breach of that contract.

A must pay to B, by way of compensation, the difference between

the contract price of the price of machinery and the sum paid by B
for another, but not the sum paid by B to the third person by way of
compensation. (k) A contracts with B to make and deliver to B, by a
fixed day, for a specified price, a certain piece of machinery. A does
not deliver the piece of machinery, at the time specified, and, in
consequence of this, B is obliged to procure another at a higher
price than that which he was to have paid to A, and is prevented
from performing a contract which B had made with a third person at
the time of his contract with A (but which had not been
communicated to A), and is compelled to make compensation for
breach of that contract. A must pay to B, by way of compensation, the
difference between the contract price of the price of machinery and
the sum paid by B for another, but not the sum paid by B to the third
person by way of compensation."

(l) A, a builder, contracts to erect and finish a house by the first of

January, in order that B may give possession of it at that time to C,
to whom B has contracted to let it. A is informed of the contract
between B and C. A builds the house so badly that, before the first
of January, it falls down and has to be re-built by B, who, in
consequence, loses the rent which he was to have received from C,
and is obliged to make compensations to C for the breach of his
contract. A must make compensation to B for the cost of rebuilding
of the house, for the rent lost, and for the compensation made to C.
(l) A, a builder, contracts to erect and finish a house by the first of
January, in order that B may give possession of it at that time to C,
to whom B has contracted to let it.

A is informed of the contract between B and C. A builds the house so

badly that, before the first of January, it falls down and has to be re-
built by B, who, in consequence, loses the rent which he was to have
received from C, and is obliged to make compensations to C for the
breach of his contract. A must make compensation to B for the cost
of rebuilding of the house, for the rent lost, and for the compensation
made to C."

(m) A sells certain merchandise to B, warranting it to be of a particular

quality, and B, in reliance upon this warranty, sells it to C with a similar
warranty. The goods prove to be not according to the
warranty, and B becomes liable to pay C a sum of money by way of
compensation. B is entitled to be reimbursed this sum by A. (m) A
sells certain merchandise to B, warranting it to be of a particular
quality, and B, in reliance upon this warranty, sells it to C with a similar
warranty. The goods prove to be not according to the warranty, and B
becomes liable to pay C a sum of money by way of compensation. B
is entitled to be reimbursed this sum by A."

(n) A contracts to pay a sum of money to B on a day specified. A does

not pay the money on that day. B, in consequence of not receiving
the money on that day, is unable to pay his debts, and is totally ruined.
A is not liable to make good to B anything except the principal sum
he contracted to pay, together with interest upto the day of payment.
(n) A contracts to pay a sum of money to B on a day specified. A
does not pay the money on that day. B, in consequence of not
receiving the money on that day, is unable to pay his debts, and is
totally ruined. A is not liable to make good to B anything except the
principal sum he contracted to pay, together with interest upto the
day of payment."

(o) A contracts to deliver 50 maunds of saltpetre to B on the first of

January, at a certain price, B, afterwards, before the first of January,
contracts to sell the saltpetre to C at a price higher than the market
price of the first of January.

A breaks his promise. In estimating the compensation payable by A

to B, the market price of the first of January, and not the profit which
would have arisen to B from the sale to C, is to be taken into account.
(o) A contracts to deliver 50 maunds of saltpetre to B on the first of
January, at a certain price, B, afterwards, before the first
of January, contracts to sell the saltpetre to C at a price higher than
the market price of the first of January. A breaks his promise. In
estimating the compensation payable by A to B, the market price of
the first of January, and not the profit which would have arisen to B
from the sale to C, is to be taken into account."

(p) A contracts to sell and deliver 500 bales of cotton to B on a fixed

day. A knows nothing of B’s mode of conducting his business. A
breaks his promise, and B, having no cotton, is obliged to close his
mill. A is not responsible to B for the loss caused to B by closing of
the mill. (p) A contracts to sell and deliver 500 bales of cotton to B
on a fixed day. A knows nothing of B’s mode of conducting his
business. A breaks his promise, and B, having no cotton, is obliged
to close his mill. A is not responsible to B for the loss caused to B by
closing of the mill."

(q) A contracts to sell and deliver to B, on the first of January,

certain cloth which B intends to manufacture into caps of a
particular kind, for which there is no demand, except at that season.
The cloth is not delivered till after the appointed time, and too late to
be used that year in making caps. B is entitled to receive from A, by
way of compensation, the difference between the contract price of the
cloth and its market price at the time of delivery, but not the profits
which he expected to obtain by making caps, nor the expenses which
he has been put to in making preparation for the manufacture. (q)
A contracts to sell and deliver to B, on the first of January, certain cloth
which B intends to manufacture into caps of a particular kind, for which
there is no demand, except at that season.

The cloth is not delivered till after the appointed time, and too late to
be used that year in making caps. B is entitled to receive from A, by
way of compensation, the difference between the contract price of the
cloth and its market price at the time of delivery, but not the profits
which he expected to obtain by making caps, nor the expenses which
he has been put to in making preparation for the manufacture."

(r) A, a ship owner, contracts with B to convey him from Calcutta to

Sydney in A’s ship, sailing on the first of January, and B pays to A,
by way of deposit, one-half of his passage-money. The ship does
not sail on the first of January, and B, after being, in consequence,
detained in Calcutta for some time, and thereby put to some expense,
proceeds to Sydney in another vessel, and, in consequence, arriving
too late in Sydney, loses a sum of money. A is liable to repay to B
his deposit, with interest, and the expense to which he is put by his
detention in Calcutta, and the excess, if any, of the passage-money
paid for the second ship over that agreed upon for the first, but not
the sum of money which B lost by arriving in Sydney too late. (r) A,
a ship owner, contracts with B to convey him from Calcutta to
Sydney in A’s ship, sailing on the first of January, and B pays
to A, by way of deposit, one-half of his passage-money. The ship
does not sail on the first of January, and B, after being, in
consequence, detained in Calcutta for some time, and thereby put to
some expense, proceeds to Sydney in another vessel, and, in
consequence, arriving too late in Sydney, loses a sum of money.

A is liable to repay to B his deposit, with interest, and the expense

to which he is put by his detention in Calcutta, and the excess, if
any, of the passage-money paid for the second ship over that
agreed upon for the first, but not the sum of money which B lost by
arriving in Sydney too late."

74 Compensation for breach of contract where penalty stipulated

for:- 34 [When a contract has been broken, if a sum is named in the
contract as the amount to be paid in case of such breach, or if the
contract contains any other stipulation by way of penalty, the party
complaining of the breach is entitled, whether or not actual damage or
loss is proved to have been caused thereby, to receive from the party
who has broken the contract reasonable compensation not exceeding
the amount so named or, as the case may be, the penalty
stipulated for. Explanation.— A stipulation for increased interest from
the date of default may be a stipulation by way of penalty.]
(Exception) — When any person enters into any bail-bond,
recognizance or other instrument of the same nature or, under the
provisions of any law, or under the orders of the 35 [Central
Government] or of any 36 [State Government], gives any bond for
the performance of any public duty or act in which the public are
interested, he shall be liable, upon breach of the condition of any
such instrument, to pay the whole sum mentioned therein.
Explanation.— A person who enters into a contract with
Government does not necessarily thereby undertake any public
duty, or promise to do an act in which the public are interested.
Illustrations

(a) A contracts with B to pay B Rs. 1,000 if he fails to pay B Rs. 500
on a given day. A fails to pay B Rs. 500 on that day. B is entitled to
recover from A such compensation, not exceeding Rs. 1,000, as the
Court considers reasonable.
(b) A contracts with B that, if A practises as a surgeon within Calcutta,
he will pay B Rs. 5,000. A practises as a surgeon in Calcutta. B is
entitled to such compensation; not exceeding Rs.
5,000 as the court considers reasonable.
(c) A gives a recognizance binding him in a penalty of Rs. 500 to
appear in Court on a certain day. He forfeits his recognizance. He is
liable to pay the whole penalty.

37 [(d) A gives B a bond for the repayment of Rs. 1,000 with interest
at 12 per cent. at the end of six months, with a stipulation that, in case
of default, interest shall be payable at the rate of 75 per cent. from the
date of default. This is a stipulation by way of penalty, and B is only
entitled to recover from A such compensation as the Court considers
reasonable.
(e) A, who owes money to B, a money-lender, undertakes to repay
him by delivering to him 10 maunds of grain on a certain date, and
stipulates that, in the event of his not delivering the stipulated
amount by the stipulated date, he shall be liable to deliver 20 maunds.
This is a stipulation by way of penalty, and B is only entitled to
reasonable consideration in case of breach.
(f) A undertakes to repay B a loan of Rs. 1,000 by five equal
monthly instalments, with a stipulation that, in default, of payment of
any instalment, the whole shall become due. This stipulation is not
by way of penalty, and the contract may be enforced according to its
terms.
(g) A borrows Rs. 100 from B and gives him a bond for Rs. 200
payable by five yearly instalments of Rs. 40, with a stipulation that,
in default of payment of any instalment, the whole shall become
due. This is a stipulation by way of penalty.]
75. Party rightfully rescinding contract, entitled to compensation.—A
person who rightfully rescinds a contract is entitled to compensation
for any damage which he has sustained through the non-fulfilment
of the contract. —A person who rightfully rescinds a contract is entitled
to compensation for any damage which he has sustained through
the non-fulfilment of the contract." Illustration A, a singer, contracts
with B, the manager of a theatre, to sing at his theatre for two nights
in every week during the next two months, and B engages to
pay her 100 rupees for each night’s performance. On the sixth night,
A wilfully absents herself from the theatre, and B, in consequence,
rescinds the contracts. B is entitled to claim compensation for the
damage which he has sustained through the non-fulfilment of the
contract. A, a singer, contracts with B, the manager of a theatre, to
sing at his theatre for two nights in every week during the next two
months, and B engages to pay her 100 rupees for each night’s
performance. On the sixth night, A wilfully absents herself from the
theatre, and B, in consequence, rescinds the contracts. B is entitled
to claim compensation for the damage which he has sustained
through the non-fulfilment of the contract."
76. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
77. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
78. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
79. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
80. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
81. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
82. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
83. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
84. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
85. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
86. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
87. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
88. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
89. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
90. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
91. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
92. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
93. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
94. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
95. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
96. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
97. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
98. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
99. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
100. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
101. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
102. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
103. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
104. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
105. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
106. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
107. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
108. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
109. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
110. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
111. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
112. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
113. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
114. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
115. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
116. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
117. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
118. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
119. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
120. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
121. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
122. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]
123. Sale of Goods.— [Rep. by the Sale of Goods Act, 1930 (3 of
1930) sec. 65]

124. “Contract of indemnity” defined.—A contract by which one

party promises to save the other from loss caused to him by the
conduct of the promisor himself, or by the conduct of any other
person, is called a “contract of indemnity.” —A contract by which
one party promises to save the other from loss caused to him by the
conduct of the promisor himself, or by the conduct of any other
person, is called a “contract of indemnity.”" Illustration A contracts to
indemnify B against the consequences of any proceedings which C
may take against B in respect of a certain sum of 200 rupees. This
is a contract of indemnity. A contracts to indemnify B against the
consequences of any proceedings which C may take against B in
respect of a certain sum of 200 rupees. This is a contract of
indemnity."

124. “Contract of indemnity” defined.—A contract by which one

party promises to save the other from loss caused to him by the
conduct of the promisor himself, or by the conduct of any other
person, is called a “contract of indemnity.” —A contract by which
one party promises to save the other from loss caused to him by the
conduct of the promisor himself, or by the conduct of any other
person, is called a “contract of indemnity.”" Illustration A contracts to
indemnify B against the consequences of any proceedings which C
may take against B in respect of a certain sum of 200 rupees. This
is a contract of indemnity. A contracts to indemnify B against the
consequences of any proceedings which C may take against B in
respect of a certain sum of 200 rupees. This is a contract of
indemnity."

125. Rights of indemnity-holder when sued.—The promisee in a

contract of indemnity, acting within the scope of his authority, is
entitled to recover from the promisor— —The promisee in a contract
of indemnity, acting within the scope of his authority, is entitled to
recover from the promisor—"
(1) all damages which he may be compelled to pay in any suit in
respect of any matter to which the promise to indemnify applies;
(2) all costs which he may be compelled to pay in any such suit if, in
bringing or defending it, he did not contravene the orders of the
promisor, and acted as it would have been prudent for him to act in
the absence of any contract of indemnity, or if the promisor authorized
him to bring or defend the suit;
(3) all sums which he may have paid under the terms of any
compromise of any such suit, if the compromise was not contrary to
the orders of the promisor, and was one which it would have been
prudent for the promisee to make in the absence of any contract of
indemnity, or if the promisor authorized him to compromise the suit.

126. ‘Contract of guarantee’, ‘surety’, ‘principal debtor’ and

‘creditor’—A ‘contract of guarantee’ is a contract to perform the
promise, or discharge the liability, of a third person in case of his
default. The person who gives the guarantee is called the ‘surety’;
the person in respect of whose default the guarantee is given is
called the ‘principal debtor’, and the person to whom the guarantee
is given is called the ‘creditor’. A guarantee may be either oral or
written. —A ‘contract of guarantee’ is a contract to perform the
promise, or discharge the liability, of a third person in case of his
default. The person who gives the guarantee is called the ‘surety’;
the person in respect of whose default the guarantee is given is
called the ‘principal debtor’, and the person to whom the guarantee
is given is called the ‘creditor’. A guarantee may be either oral or
written."

127. Consideration for guarantee.—Anything done, or any promise

made, for the benefit of the principal debtor, may be a sufficient
consideration to the surety for giving the guarantee. —Anything
done, or any promise made, for the benefit of the principal debtor,
may be a sufficient consideration to the surety for giving the
guarantee." Illustrations
(a) B requests A to sell and deliver to him goods on credit. A agrees
to do so, provided C will guarantee the payment of the price of the
goods. C promises to guarantee the payment in consideration of A’s
promise to deliver the goods. This is a sufficient consideration for
C’s promise. (a) B requests A to sell and deliver to him goods on
credit. A agrees to do so, provided C will guarantee the payment of
the price of the goods. C promises to guarantee the payment in
consideration of A’s promise to deliver the goods. This is a sufficient
consideration for C’s promise."
(b) A sells and delivers goods to B. C afterwards requests A to forbear
to sue B for the debt for a year, and promises that, if he does so,
C will pay for them in default of payment by B. A agrees to forbear as
requested. This is a sufficient consideration for C’s promise. (b) A
sells and delivers goods to B. C afterwards requests A to forbear to
sue B for the debt for a year, and promises that, if he does so, C will
pay for them in default of payment by B. A agrees to forbear as
requested. This is a sufficient consideration for C’s promise."
(c) A sells and delivers goods to B. C afterwards, without
consideration, agrees to pay for them in default of B. The
agreement is void. (c) A sells and delivers goods to B. C afterwards,
without consideration, agrees to pay for them in default of B. The
agreement is void."

128. Surety’s liability.—The liability of the surety is co-extensive with

that of the principal debtor, unless it is otherwise provided by the
contract. —The liability of the surety is co-extensive with that of the
principal debtor, unless it is otherwise provided by the contract."
Illustration A guarantees to B the payment of a bill of exchange by
C, the acceptor. The bill is dishonoured by C. A is liable, not only for
the amount of the bill, but also for any interest and charges which may
have become due on it. A guarantees to B the payment of a bill of
exchange by C, the acceptor. The bill is dishonoured by C. A is liable,
not only for the amount of the bill, but also for any interest and
charges which may have become due on it."

129. ‘Continuing guarantee’.—A guarantee which extends to a

series of transactions, is called a ‘continuing guarantee’. —A
guarantee which extends to a series of transactions, is called a
‘continuing guarantee’." Illustrations
(a) A, in consideration that B will employ C in collecting the rents of
B’s zamindari, promises B to be responsible, to the amount of 5,000
rupees, for the due collection and payment by C of those rents. This
is a continuing guarantee. (a) A, in consideration that B will employ
C in collecting the rents of B’s zamindari, promises B to be
responsible, to the amount of 5,000 rupees, for the due collection
and payment by C of those rents. This is a continuing guarantee."
(b) A guarantees payment to B, a tea-dealer, to the amount of £
100, for any tea he may from time to time supply to C. B supplies C
with tea of above the value of £ 100, and C pays B for it. Afterwards,
B supplies C with tea of the value of £ 200. C fails to pay. The
guarantee given by A was a continuing guarantee, and he is
accordingly liable to B to the extent of £ 100.
(c) A guarantees payment to B of the price of five sacks of flour to
be delivered by B to C and to be paid for in a month. B delivers five
sacks to C. C pays for them. Afterwards B delivers four sacks to C,
which C does not pay for. The guarantee given by A was not a
continuing guarantee, and accordingly he is not liable for the price
of the four sacks. (c) A guarantees payment to B of the price of five
sacks of flour to be delivered by B to C and to be paid for in a
month. B delivers five sacks to C. C pays for them. Afterwards B
delivers four sacks to C, which C does not pay for. The guarantee
given by A was not a continuing guarantee, and accordingly he is
not liable for the price of the four sacks."
130. Revocation of continuing guarantee.—A continuing guarantee
may at any time be revoked by the surety, as to future transactions,
by notice to the creditor. —A continuing guarantee may at any time
be revoked by the surety, as to future transactions, by notice to the
creditor." Illustrations
(a) A, in consideration of B’s discounting, at, A’s request, bills of
exchange for C, guarantees to B, for twelve months, the due payment
of all such bills to the extent of 5,000 rupees. B discounts bills for C
to the extent of 2,000 rupees. Afterwards, at the end of three months,
A revokes the guarantee. This revocation discharges A from all
liability to B for any subsequent discount. But A is liable to B for the
2,000 rupees, on default of C. (a) A, in consideration of B’s
discounting, at, A’s request, bills of exchange for C, guarantees to
B, for twelve months, the due payment of all such bills to the extent
of 5,000 rupees. B discounts bills for C to the extent of 2,000
rupees. Afterwards, at the end of three months, A revokes the
guarantee. This revocation discharges A from all liability to B for any
subsequent discount. But A is liable to B for the 2,000 rupees, on
default of C."
(b) A guarantees to B, to the extent of 10,000 rupees, that C shall pay
all the bills that B shall draw upon him. B draws upon C, C
accepts the bill. A gives notice of revocation. C dishonours the bill at
maturity. A is liable upon his guarantee. (b) A guarantees to B, to
the extent of 10,000 rupees, that C shall pay all the bills that B shall
draw upon him. B draws upon C, C accepts the bill. A gives notice
of revocation. C dishonours the bill at maturity. A is liable upon his
guarantee."

131. Revocation of continuing guarantee by surety’s death.—The

death of the surety operates, in the absence of any contract to the
contrary, as a revocation of a continuing guarantee, so far as
regards future transactions. —The death of the surety operates, in the
absence of any contract to the contrary, as a revocation of a
continuing guarantee, so far as regards future transactions."

132. Liability of two persons, primarily liable, not affected by

arrangement between them that one shall be surety on other’s
default.—Where two persons contract with a third person to undertake
a certain liability, and also contract with each other that one of them
shall be liable only on the default of the other, the third person not
being a party to such contract, the liability of each of such two
persons to the third person under the first contract is not affected by
the existence of the second contract, although such third person may
have been aware of its existence. —Where two persons contract
with a third person to undertake a certain liability, and also contract
with each other that one of them shall be liable only on the default
of the other, the third person not being a party to such contract, the
liability of each of such two persons to the third person under the first
contract is not affected by the existence of the second contract,
although such third person may have been aware of its existence."
Illustration A and B make a joint and several
promissory note to C. A makes it, in fact, as surety for B, and C
knows this at the time when the note is made. The fact that A, to the
knowledge of C, made the note as surety for B, is no answer to a
suit by C against A upon the note. A and B make a joint and several
promissory note to C. A makes it, in fact, as surety for B, and C knows
this at the time when the note is made. The fact that A, to the
knowledge of C, made the note as surety for B, is no answer to a
suit by C against A upon the note."

133. Discharge of surety by variance in terms of contract.—Any

variance, made without the surety’s consent, in the terms of the
contract between the principal 1[debtor] and the creditor, discharges
the surety as to transactions subsequent to the variance. —Any
variance, made without the surety’s consent, in the terms of the
contract between the principal 1[debtor] and the creditor, discharges
the surety as to transactions subsequent to the variance."
Illustrations
(a) A becomes surety to C for B’s conduct as manager in C’s bank.
Afterwards, B and C contract, without A’s consent, that B’s salary
shall be raised, and that he shall become liable for one-fourth of the
losses on overdrafts. B allows a customer to over-draw, and the
bank loses a sum of money. (a) A becomes surety to C for B’s
conduct as manager in C’s bank. Afterwards, B and C contract,
without A’s consent, that B’s salary shall be raised, and that he shall
become liable for one-fourth of the losses on overdrafts. B allows a
customer to over-draw, and the bank loses a sum of money." A is
discharged from his suretyship by the variance made without his
consent, and is not liable to make good this loss. A is discharged from
his suretyship by the variance made without his consent, and
is not liable to make good this loss."
(b) A guarantees C against the misconduct of B in an office to which
B is appointed by C, and of which the duties are defined by an Act
of the Legislature. By a subsequent Act, the nature of the office is
materially altered. Afterwards, B misconducts himself. A is discharged
by the change from future liability under his guarantee, though the
misconduct of B is in respect of a duty not affected by the later Act.
(b) A guarantees C against the misconduct of B in an office to which
B is appointed by C, and of which the duties are defined by an Act
of the Legislature. By a subsequent Act, the nature of the office is
materially altered. Afterwards, B misconducts himself. A is discharged
by the change from future liability under his guarantee, though the
misconduct of B is in respect of a duty not affected by the later Act."

(c) C agrees to appoint B as his clerk to sell goods at a yearly

salary, upon A’s becoming surety to C for B’s duly accounting for
moneys received by him as such clerk. Afterwards, without A’s
knowledge or consent, C and B agree that B should be paid by a
commission on the goods sold by him and not by a fixed salary. A is
not liable for subsequent misconduct of B. (c) C agrees to appoint B
as his clerk to sell goods at a yearly salary, upon A’s becoming
surety to C for B’s duly accounting for moneys received by him as
such clerk. Afterwards, without A’s knowledge or consent, C and B
agree that B should be paid by a commission on the goods sold by
him and not by a fixed salary. A is not liable for subsequent
misconduct of B."

(d) A gives to C a continuing guarantee to the extent of 3,000

rupees for any oil supplied by C to B on credit. Afterwards B
becomes embarrassed, and, without the knowledge of A, B and C
contract that C shall continue to supply B with oil for ready money,
and that the payments shall be applied to the then, existing debts
between B and C. A is not liable on his guarantee for any goods
supplied after this new arrangement. (d) A gives to C a continuing
guarantee to the extent of 3,000 rupees for any oil supplied by C to
B on credit. Afterwards B becomes embarrassed, and, without the
knowledge of A, B and C contract that C shall continue to supply B
with oil for ready money, and that the payments shall be applied to
the then, existing debts between B and C. A is not liable on his
guarantee for any goods supplied after this new arrangement."

(e) C contracts to lend B 5,000 rupees on the 1st March. A guarantees

repayment. C pays the 5,000 rupees to B on the 1st January, A is
discharged from his liability, as the contract has been varied,
inasmuch as C might sue B for the money before the first of March.
(e) C contracts to lend B 5,000 rupees on the 1st March. A guarantees
repayment. C pays the 5,000 rupees to B on the 1st January, A is
discharged from his liability, as the contract has been varied,
inasmuch as C might sue B for the money before the first of March."

134. Discharge of surety by release or discharge of principal debtor.—

The surety is discharged by any contract between the creditor and the
principal debtor, by which the principal debtor is released, or by any
act or omission of the creditor, the legal consequence of which is the
discharge of the principal debtor. — The surety is discharged by any
contract between the creditor and the principal debtor, by which the
principal debtor is released, or by any act or omission of the creditor,
the legal consequence of which
is the discharge of the principal debtor."
Illustrations

(a) A gives a guarantee to C for goods to be supplied by C to B. C

supplies goods to B, and afterwards B becomes embarrassed and
contracts with his creditors (including C) to assign to them his property
in consideration of their releasing him from their demands. Here B is
released from his debt by the contract with C, and A is discharged
from his suretyship. (a) A gives a guarantee to C for goods to be
supplied by C to B. C supplies goods to B, and afterwards B becomes
embarrassed and contracts with his creditors (including C) to assign
to them his property in consideration of their releasing him from their
demands. Here B is released from his debt by the contract with C, and
A is discharged from his suretyship."

(b) A contracts with B to grow a crop of indigo on A’s land and to

deliver it to B at a fixed rate, and C guarantees A’s performance of
this contract. B diverts a stream of water which is necessary for
irrigation of A’s land, and thereby prevents him from raising the
indigo. C is no longer liable on his guarantee. (b) A contracts with B
to grow a crop of indigo on A’s land and to deliver it to B at a fixed
rate, and C guarantees A’s performance of this contract. B diverts a
stream of water which is necessary for irrigation of A’s land, and
thereby prevents him from raising the indigo. C is no longer liable on
his guarantee."
(c) A contracts with B for a fixed price to build a house for B within a
stipulated time. B supplying the necessary timber. C guarantees A’s
performance of the contract. B omits to supply the timber. C is
discharged from his suretyship. (c) A contracts with B for a fixed
price to build a house for B within a stipulated time. B supplying the
necessary timber. C guarantees A’s performance of the contract. B
omits to supply the timber. C is discharged from his suretyship."

135. Discharge of surety when creditor compounds with, gives time

to, or agrees not to sue, principal debtor.—A contract between the
creditor and the principal debtor, by which the creditor makes a
composition with, or promises to give time to, or not to sue, the
principal debtor, discharges the surety, unless the surety assents to
such contract. —A contract between the creditor and the principal
debtor, by which the creditor makes a composition with, or promises
to give time to, or not to sue, the principal debtor, discharges the
surety, unless the surety assents to such contract."

136. Surety not discharged when agreement made with third person
to give time to principal debtor.—Where a contract to give time to
the principal debtor is made by the creditor with a third person, and
not with the principal debtor, the surety is not discharged. —Where
a contract to give time to the principal debtor is made by the creditor
with a third person, and not with the principal debtor, the surety is
not discharged." Illustration C, the holder of an overdue bill of
exchange drawn by A as surety for B, and accepted by B, contracts
with M to give to B. A is not discharged. C, the holder of an overdue
bill of exchange drawn by A as surety for B, and accepted by B,
contracts with M to give to B. A is not discharged."

137. Creditor’s forbearance to sue does not discharge surety.—

Mere forbearance on the part of the creditor to sue the principal debtor
or to enforce any other remedy against him does not, in the absence
of any provision in the guarantee to the contrary, discharge
the surety. —Mere forbearance on the part of the creditor to sue the
principal debtor or to enforce any other remedy against him does
not, in the absence of any provision in the guarantee to the contrary,
discharge the surety." Illustration B owes to C a debt guaranteed by
A. The debt becomes payable. C does not sue B for a year after the
debt has become payable. A is not discharged from his suretyship.
B owes to C a debt guaranteed by A. The debt becomes payable. C
does not sue B for a year after the debt has become payable. A is
not discharged from his suretyship."

138. Release of one co-surety does not discharge others.—Where

there are co-sureties, a release by the creditor of one of them does
not discharge the others, neither does it free the surety so released
from his responsibility to the other sureties.1 —Where there are co-
sureties, a release by the creditor of one of them does not discharge
the others, neither does it free the surety so released from his
responsibility to the other sureties.1"

139. Discharge of surety by creditor’s act or omission impairing

surety’s eventual remedy.—If the creditor does any act which is
inconsistent with the rights of the surety, or omits to do any act
which his duty to the surety requires him to do, and the eventual
remedy of the surety himself against the principal debtor is thereby
impaired, the surety is discharged. —If the creditor does any act which
is inconsistent with the rights of the surety, or omits to do any act
which his duty to the surety requires him to do, and the eventual
remedy of the surety himself against the principal debtor is thereby
impaired, the surety is discharged." Illustrations
(a) B contracts to build a ship for C for a given sum, to be paid by
instalments as the work reaches certain stages. A becomes surety
to C for B’s due performance of the contract. C, without the
knowledge of A, prepays to B the last two instalments. A is discharged
by this prepayment. (a) B contracts to build a ship for C for a given
sum, to be paid by instalments as the work reaches certain stages.
A becomes surety to C for B’s due performance of the contract. C,
without the knowledge of A, prepays to B the last two instalments.
A is discharged by this prepayment."

(b) C lends money to B on the security of a joint and several

promissory note made in C’s favour by B, and by A as surety for B,
together with a bill of sale of B’s furniture, which gives power to C to
sell the furniture, and apply the proceeds in discharge of the note.
Subsequently, C sells the furniture, but, owing to his misconduct
and wilful negligence, only a small price is realized. A is discharged
from liability on the note. (b) C lends money to B on the security of a
joint and several promissory note made in C’s favour by B, and by A
as surety for B, together with a bill of sale of B’s furniture, which
gives power to C to sell the furniture, and apply the proceeds in
discharge of the note. Subsequently, C sells the furniture, but,
owing to his misconduct and wilful negligence, only a small price is
realized. A is discharged from liability on the note."

(c) A puts M as apprentice to B, and gives a guarantee to B for M’s

fidelity. B promises on his part that he will at least once a month,
see M make up the cash. B omits to see this done as promised, and
M embezzles. A is not liable to B on his guarantee. (c) A puts M as
apprentice to B, and gives a guarantee to B for M’s fidelity. B
promises on his part that he will at least once a month, see M make
up the cash. B omits to see this done as promised, and M
embezzles. A is not liable to B on his guarantee."
140. Rights of surety on payment or performance.—Where a
guaranteed debt has become due, or default of the principal debtor
to perform a guaranteed duty has taken place, the surety, upon
payment or performance of all that he is liable for, is invested with
all the rights which the creditor had against the principal debtor. —
Where a guaranteed debt has become due, or default of the
principal debtor to perform a guaranteed duty has taken place, the
surety, upon payment or performance of all that he is liable for, is
invested with all the rights which the creditor had against the
principal debtor."

141. Surety’s right to benefit of creditor’s securities.—A surety is

entitled to the benefit of every security which the creditor has
against the principal debtor at the time when the contract of suretyship
is entered into, whether the surety knows of the existence of
such security or not; and if the creditor loses, or without the consent
of the surety, parts with such security, the surety is discharged to the
extent of the value of the security. —A surety is entitled to the benefit
of every security which the creditor has against the principal debtor
at the time when the contract of suretyship is entered into, whether
the surety knows of the existence of such security or not; and if
the creditor loses, or without the consent of the surety, parts with such
security, the surety is discharged to the extent of the value of the
security."

Illustrations
(a) C, advances to B, his tenant, 2,000 rupees on the guarantee of
A. C has also a further security for the 2,000 rupees by a mortgage
of B’s furniture. C, cancels the mortgage. B becomes insolvent and
C sues A on his guarantee. A is discharged from liability to the
amount of the value of the furniture. (a) C, advances to B, his
tenant, 2,000 rupees on the guarantee of A. C has also a further
security for the 2,000 rupees by a mortgage of B’s furniture. C,
cancels the mortgage. B becomes insolvent and C sues A on his
guarantee. A is discharged from liability to the amount of the value
of the furniture."

(b) C, a creditor, whose advance to B is secured by a decree, receives

also a guarantee for that advance from A. C afterwards takes B’s
goods in execution under the decree, and then, without the
knowledge of A, withdraws the execution. A is discharged. (b) C, a
creditor, whose advance to B is secured by a decree, receives also
a guarantee for that advance from A. C afterwards takes B’s goods
in execution under the decree, and then, without the knowledge of A,
withdraws the execution. A is discharged."

(c) A, as surety for B, makes a bond jointly with B to C, to secure a

loan from C to B. Afterwards, C obtains from B a further security for
the same debt. Subsequently, C gives up the further security. A is
not discharged. (c) A, as surety for B, makes a bond jointly with B to
C, to secure a loan from C to B. Afterwards, C obtains from B a further
security for the same debt. Subsequently, C gives up the further
security. A is not discharged."

142. Guarantee obtained by misrepresentation, invalid.—Any

guarantee which has been obtained by means of misrepresentation
made by the creditor, or with his knowledge and assent, concerning
a material part of the transaction, is invalid. —Any guarantee which
has been obtained by means of misrepresentation made by the
creditor, or with his knowledge and assent, concerning a material
part of the transaction, is invalid."

143. Guarantee obtained by concealment, invalid.—Any guarantee

which the creditor has obtained by means of keeping silence as to a
material circumstance, is invalid. —Any guarantee which the
creditor has obtained by means of keeping silence as to a material
circumstance, is invalid." Illustrations

(a) A engages B as clerk to collect money for him. B fails to account

for some of his receipts, and A in consequence calls upon him to
furnish security for his duly accounting. C gives his guarantee for
B’s duly accounting. A does not acquaint C with B’s previous
conduct. B afterwards makes default. The guarantee is invalid. (a) A
engages B as clerk to collect money for him. B fails to account for
some of his receipts, and A in consequence calls upon him to
furnish security for his duly accounting. C gives his guarantee for
B’s duly accounting. A does not acquaint C with B’s previous
conduct. B afterwards makes default. The guarantee is invalid."

(b) A guarantees to C payment for iron to be supplied by him to B to

the amount of 2,000 tons. B and C have privately agreed that B should
pay five rupees per ton beyond the market price, such excess
to be applied in liquidation of an old debt. This agreement is concealed
from A. A is not liable as a surety. (b) A guarantees to C payment for
iron to be supplied by him to B to the amount of 2,000 tons. B and C
have privately agreed that B should pay five rupees per ton beyond
the market price, such excess to be applied in liquidation of an old
debt. This agreement is concealed from A. A is
not liable as a surety."
144. Guarantee on contract that creditor shall not act on it until co-
surety joins.—Where a person gives a guarantee upon a contract
that the creditor shall not act upon it until another person has joined
in it as co-surety, the guarantee is not valid if that other person does
not join. —Where a person gives a guarantee upon a contract that the
creditor shall not act upon it until another person has joined in it as
co-surety, the guarantee is not valid if that other person does not join."

145. Implied promise to indemnify surety.—In every contract of

guarantee there is an implied promise by the principal debtor to
indemnify the surety, and the surety is entitled to recover from the
principal debtor whatever sum he has rightfully paid under the
guarantee, but no sums which he has paid wrongfully. —In every
contract of guarantee there is an implied promise by the principal
debtor to indemnify the surety, and the surety is entitled to recover
from the principal debtor whatever sum he has rightfully paid under
the guarantee, but no sums which he has paid wrongfully."
Illustrations

(a) B is indebted to C, and A is surety for the debt. C demands

payment from A, and on his refusal sues him for the amount. A
defends the suit, having reasonable grounds for doing so, but he is
compelled to pay the amount of debt with costs. He can recover
from B the amount paid by him for costs, as well as the principal
debt. (a) B is indebted to C, and A is surety for the debt. C demands
payment from A, and on his refusal sues him for the amount. A
defends the suit, having reasonable grounds for doing so, but he is
compelled to pay the amount of debt with costs. He can recover
from B the amount paid by him for costs, as well as the principal
debt."
(b) C lends B a sum of money, and A, at the request of B, accepts a
bill of exchange drawn by B upon A to secure the amount. C, the
holder of the bill, demands payment of it from A, and, on A’s refusal
to pay, sues him upon the bill. A, not having reasonable grounds for
so doing, defends the suit, and has to pay the amount of the bill and
costs. He can recover from B the amount of the bill, but not the sum
paid for costs, as there was no real ground for defending the action.
(b) C lends B a sum of money, and A, at the request of B, accepts a
bill of exchange drawn by B upon A to secure the amount. C, the
holder of the bill, demands payment of it from A, and, on A’s refusal
to pay, sues him upon the bill. A, not having reasonable grounds for
so doing, defends the suit, and has to pay the amount of the bill and
costs. He can recover from B the amount of the bill, but not the sum
paid for costs, as there was no real ground for defending the
action."
(c) A guarantees to C, to the extent of 2,000 rupees, payment for
rice to be supplied by C to B. C supplies to B rice to a less amount
than 2,000 rupees, but obtains from A payment of the sum of 2,000
rupees in respect of the rice supplied. A cannot recover from B
more than the price of the rice actually supplied. (c) A guarantees to
C, to the extent of 2,000 rupees, payment for rice to be supplied by
C to B. C supplies to B rice to a less amount than 2,000 rupees, but
obtains from A payment of the sum of 2,000 rupees in respect of the
rice supplied. A cannot recover from B more than the price of the
rice actually supplied."

146. Co-sureties liable to contribute equally.—Where two or more

persons are co-sureties for the same debt or duty, either jointly or
severally, and whether under the same or different contracts, and
whether with or without the knowledge of each other, the co-
sureties, in the absence of any contract to the contrary, are liable,
as between themselves, to pay each an equal share of the whole
debt, or of that part of it which remains unpaid by the principal debtor.1
—Where two or more persons are co-sureties for the same debt or
duty, either jointly or severally, and whether under the same or
different contracts, and whether with or without the knowledge of each
other, the co-sureties, in the absence of any contract to the contrary,
are liable, as between themselves, to pay each an equal share of the
whole debt, or of that part of it which remains unpaid by the principal
debtor.1" Illustrations
(a) A, B and C are sureties to D for the sum of 3,000 rupees lent to
E. E makes default in payment. A, B and C are liable, as between
themselves, to pay 1,000 rupees each. (a) A, B and C are sureties
to D for the sum of 3,000 rupees lent to E. E makes default in payment.
A, B and C are liable, as between themselves, to pay
1,000 rupees each."
(b) A, B and C are sureties to D for the sum of 1,000 rupees lent to
E, and there is a contract between A, B and C that A is to be
responsible to the extent of one-quarter, B to the extent of one-
quarter, and C to the extent of one-half. E makes default in
payment. As between the sureties, A is liable to pay 250 rupees, B
250 rupees, and C 500 rupees. (b) A, B and C are sureties to D for
the sum of 1,000 rupees lent to E, and there is a contract between
A, B and C that A is to be responsible to the extent of one-quarter, B
to the extent of one-quarter, and C to the extent of one-half. E
makes default in payment. As between the sureties, A is liable to
pay 250 rupees, B 250 rupees, and C 500 rupees."
147. Liability of co-sureties bound in different sums.—Co-sureties who
are bound in different sums are liable to pay equally as far as the
limits of their respective obligations permit. —Co-sureties who are
bound in different sums are liable to pay equally as far as the limits of
their respective obligations permit." Illustrations
(a) A, B and C, as sureties for D, enter into three several bonds,
each in a different penalty, namely, A in the penalty of 10,000
rupees, B in that of 20,000 rupees, C in that of 40,000 rupees,
conditioned for D’s duly accounting to E. D makes default to the
extent of 30,000 rupees. A, B and C are liable to pay 10,000 rupees.
(a) A, B and C, as sureties for D, enter into three several bonds,
each in a different penalty, namely, A in the penalty of 10,000
rupees, B in that of 20,000 rupees, C in that of 40,000 rupees,
conditioned for D’s duly accounting to E. D makes default to the
extent of 30,000 rupees. A, B and C are liable to pay 10,000
rupees."
(b) A, B and C, as sureties for D, enter into three several bonds,
each in a different penalty, namely, A in the penalty of 10,000
rupees, B in that of 20,000 rupees, C in that of 40,000 rupees,
conditioned for D’s duly accounting to E. D makes default to the
extent of 40,000 rupees. A is liable to pay 10,000 rupees, and B and
C 15,000 rupees each. (b) A, B and C, as sureties for D, enter into
three several bonds, each in a different penalty, namely, A in the
penalty of 10,000 rupees, B in that of 20,000 rupees, C in that of
40,000 rupees, conditioned for D’s duly accounting to E. D makes
default to the extent of 40,000 rupees. A is liable to pay 10,000
rupees, and B and C 15,000 rupees each."
(c) A, B and C, as sureties for D, enter into three several bonds,
each in a different penalty, namely, A in the penalty of 10,000
rupees, B in that of 20,000 rupees, C in that of 40,000 rupees,
conditioned for D’s duly accounting to E. D makes default to the
extent of 70,000 rupees. A, B and C have to pay the full penalty of
his bond. (c) A, B and C, as sureties for D, enter into three several
bonds, each in a different penalty, namely, A in the penalty of
10,000 rupees, B in that of 20,000 rupees, C in that of 40,000
rupees, conditioned for D’s duly accounting to E. D makes default to
the extent of 70,000 rupees. A, B and C have to pay the full penalty
of his bond."

148. ‘Bailment’, ‘bailor’ and ‘bailee’ defined.—A ‘bailment’ is the

delivery of goods by one person to another for some purpose, upon
a contract that they shall, when the purpose is accomplished, be
returned or otherwise disposed of according to the directions of the
person delivering them. The person delivering the goods is called
the ‘bailor’. The person to whom they are delivered is called the
‘bailee’. —A ‘bailment’ is the delivery of goods by one person to
another for some purpose, upon a contract that they shall, when the
purpose is accomplished, be returned or otherwise disposed of
according to the directions of the person delivering them. The
person delivering the goods is called the ‘bailor’. The person to
whom they are delivered is called the ‘bailee’." Explanation.—If a
person is already in possession of the goods of other contracts to hold
them as a bailee, he thereby becomes the bailee, and the owner
becomes the bailor of such goods, although they may not have been
delivered by way of bailment.

149. Delivery to bailee how made.—The delivery to the bailee may be

made by doing anything which has the effect of putting the goods in
the possession of the intended bailee or of any person authorised
to hold them on his behalf. —The delivery to the bailee may be
made by doing anything which has the effect of putting the goods in
the possession of the intended bailee or of any person authorised to
hold them on his behalf."

Special contracts: Contracts of indemnity and guarantee;

contracts of bailment and pledge; Contracts of agency

150. Bailor’s duty to disclose faults in goods bailed.—The bailor is

bound to disclose to the bailee faults in the goods bailed, of which
the bailor is aware, and which materially interfere with the use of them,
or expose the bailee to extraordinary risks; and if he does not make
such disclosure, he is responsible for damage arising to the bailee
directly from such faults. If such goods are bailed for hire, the bailor is
responsible for such damage, whether he was or was not aware of
the existence of such faults in the goods bailed.

Illustrations

(a) A lends a horse, which he knows to be vicious, to B. He does not

disclose the fact that the horse is vicious. The horse runs away. B is
thrown and injured. A is responsible to B for damage sustained. (a)
A lends a horse, which he knows to be vicious, to B. He does not
disclose the fact that the horse is vicious. The horse runs away. B is
thrown and injured. A is responsible to B for damage sustained."
(b) A hires a carriage of B. The carriage is unsafe, though B is not
aware of it, and A is injured. B is responsible to A for the injury. (b)
A hires a carriage of B. The carriage is unsafe, though B is not
aware of it, and A is injured. B is responsible to A for the injury."
41151. Care to be taken by bailee.—In all cases of bailment the bailee
is bound to take as much care of the goods bailed to him as a man of
ordinary prudence would, under similar circumstances, take of his
own goods of the same bulk, quantity and value as the goods bailed.
42
43152. Bailee when not liable for loss, etc., of thing bailed.—The
bailee, in the absence of any special contract, is not responsible for
the loss, destruction or deterioration of the thing bailed, if he has taken
the amount of care of it described in section 151.

153. Termination of bailment by bailee’s act inconsistent with

conditions.—A contract of bailment is voidable at the option of the
bailor, if the bailee does any act with regard to the goods bailed,
inconsistent with the conditions of the bailment. Illustration A lets to B,
for hire, a horse for his own riding. B drives the horse in his carriage.
This is, at the option of A, a termination of the bailment. A lets to B,
for hire, a horse for his own riding. B drives the horse in his carriage.
This is, at the option of A, a termination of the bailment."

154. Liability of bailee making unauthorised use of goods bailed.—If

the bailee makes any use of the goods bailed which is not according
to the conditions of the bailment, he is liable to make compensation
to the bailor for any damage arising to the goods from or during
such use of them. —If the bailee makes any use of the goods bailed
which is not according to the conditions of the bailment, he is liable
to make compensation to the bailor for any damage arising to the
goods from or during such use of them."

Illustrations
(a) A lends a horse to B for his own riding only. B allows C, a member
of his family, to ride the horse. C rides with care, but the horse
accidentally falls and is injured. B is liable to make compensation to
A for the injury done to the horse. (a) A lends a horse to B for his
own riding only. B allows C, a member of his family, to ride the
horse. C rides with care, but the horse accidentally falls and is
injured. B is liable to make compensation to A for the injury done to
the horse."
(b) A hires a horse in Calcutta from B expressly to march to
Banaras. A rides with due care, but marches to Cuttack instead.
The horse accidentally falls and is injured. A is liable to make
compensation to B for the injury to the horse. (b) A hires a horse in
Calcutta from B expressly to march to Banaras. A rides with due care,
but marches to Cuttack instead. The horse accidentally falls and is
injured. A is liable to make compensation to B for the injury to the
horse."

155. Effect of mixture, with bailor’s consent, of his goods with

bailee’s.—If the bailee, with the consent of the bailor, mixes the goods
of the bailor with his own goods, the bailor and the bailee shall
have an interest, in proportion to their respective shares, in the mixture
thus produced. —If the bailee, with the consent of the bailor, mixes
the goods of the bailor with his own goods, the bailor and the bailee
shall have an interest, in proportion to their respective shares, in
the mixture thus produced."

156. Effect of mixture, without bailor’s consent, when the goods can
be separated.—If the bailee, without the consent of the bailor, mixes
the goods of the bailor with his own goods, and the goods can be
separated or divided, the property in the goods remains in the
parties respectively; but the bailee is bound to bear the expense of
separation or division, and any damage arising from the mixture. —
If the bailee, without the consent of the bailor, mixes the goods of
the bailor with his own goods, and the goods can be separated or
divided, the property in the goods remains in the parties
respectively; but the bailee is bound to bear the expense of separation
or division, and any damage arising from the mixture." Illustration A
bails 100 bales of cotton marked with a particular mark to B. B, without
A’s consent, mixes the 100 bales with other bales of his own, bearing
a different mark;

A is entitled to have his 100 bales returned, and B is bound to bear all
the expense incurred in the separation of the bales, and any other
incidental damage. A bails 100 bales of cotton marked with a particular
mark to B. B, without A’s consent, mixes the 100 bales with other
bales of his own, bearing a different mark; A is entitled to have his 100
bales returned, and B is bound to bear all the expense incurred in the
separation of the bales, and any other incidental damage."

157. Effect of mixture, without bailor’s consent, when the goods

cannot be separated.—If the bailee, without the consent of the
bailor, mixes the goods of the bailor with his own goods in such a
manner that it is impossible to separate the goods bailed from the
other goods and deliver them back, the bailor is entitled to be
compensated by the bailee for the loss of the goods. —If the bailee,
without the consent of the bailor, mixes the goods of the bailor with
his own goods in such a manner that it is impossible to separate the
goods bailed from the other goods and deliver them back, the bailor
is entitled to be compensated by the bailee for the loss of the
goods."

Illustration

A bails a barrel of Cape flour worth Rs. 45 to B. B, without A’s

consent, mixes the flour with country flour of his own, worth only Rs.
25 a barrel. B must compensate A for the loss of his flour. A bails a
barrel of Cape flour worth Rs. 45 to B. B, without A’s consent, mixes
the flour with country flour of his own, worth only Rs. 25 a barrel. B
must compensate A for the loss of his flour."

158. Repayment, by bailor, of necessary expenses.—Where, by the

conditions of the bailment, the goods are to be kept or to be carried,
or to have work done upon them by the bailee for the bailor, and the
bailee is to receive no remuneration, the bailor shall repay to the
bailee the necessary expenses incurred by him for the purpose of
the bailment. —Where, by the conditions of the bailment, the goods
are to be kept or to be carried, or to have work done upon them by
the bailee for the bailor, and the bailee is to receive no
remuneration, the bailor shall repay to the bailee the necessary
expenses incurred by him for the purpose of the bailment."

159. Restoration of goods lent gratuitously.—The lender of a thing

for use may at any time require its return, if the loan was gratuitous,
even though he lent it for a specified time or purpose. But if, on the
faith of such loan made for a specified time or purpose, the
borrower has acted in such a manner that the return of the thing lent
before the time agreed upon would cause him loss exceeding the
benefit actually derived by him from the loan, the lender must, if he
compels the return, indemnify the borrower for the amount in which
the loss so occasioned exceeds the benefit so derived. —The
lender of a thing for use may at any time require its return, if the
loan was gratuitous, even though he lent it for a specified time or
purpose. But if, on the faith of such loan made for a specified time
or purpose, the borrower has acted in such a manner that the return
of the thing lent before the time agreed upon would cause him loss
exceeding the benefit actually derived by him from the loan, the lender
must, if he compels the return, indemnify the borrower for the amount
in which the loss so occasioned exceeds the benefit so derived."

160. Return of goods bailed, on expiration of time or

accomplishment of purpose.—It is the duty of the bailee to return, or
deliver according to the bailor’s directions, the goods bailed, without
demand, as soon as the time for which they were bailed has
expired, or the purpose for which they were bailed has been
accomplished. —It is the duty of the bailee to return, or deliver
according to the bailor’s directions, the goods bailed, without
demand, as soon as the time for which they were bailed has
expired, or the purpose for which they were bailed has been
accomplished."

161. Bailee’s responsibility when goods are not duly returned.—If by

the fault of the bailee, the goods are not returned, delivered or
tendered at the proper time, he is responsible to the bailor for any
loss, destruction or deterioration of the goods from that time. 45
46161. Bailee’s responsibility when goods are not duly returned.—If
by the fault of the bailee, the goods are not returned, delivered or
tendered at the proper time, he is responsible to the bailor for any
loss, destruction or deterioration of the goods from that time. 47

162. Termination of gratuitous bailment by death.—A gratuitous

bailment is terminated by the death either of the bailor or of the bailee.
—A gratuitous bailment is terminated by the death either of the bailor
or of the bailee."

163. Bailor entitled to increase or profit from goods bailed.—In the

absence of any contract to the contrary, the bailee is bound to
deliver to the bailor, or according to his directions, any increase or
profit which may have accrued from the goods bailed. —In the
absence of any contract to the contrary, the bailee is bound to
deliver to the bailor, or according to his directions, any increase or
profit which may have accrued from the goods bailed." Illustration A
leaves a cow in the custody of B to be taken care of. The cow has a
calf. B is bound to deliver the calf as well as the cow to A. A leaves
a cow in the custody of B to be taken care of. The cow has a calf. B
is bound to deliver the calf as well as the cow to A."

164. Bailor’s responsibility to bailee.—The bailor is responsible to

the bailee for any loss which the bailee may sustain by reason that
the bailor was not entitled to make the bailment, or to receive back
the goods, or to give directions respecting them. —The bailor is
responsible to the bailee for any loss which the bailee may sustain
by reason that the bailor was not entitled to make the bailment, or to
receive back the goods, or to give directions respecting them."

165. Bailment by several joint owners.—If several joint owners of

goods bail them, the bailee may deliver them back to, or according
to the directions of, one joint owner without the consent of all in the
absence of any agreement to the contrary. —If several joint owners
of goods bail them, the bailee may deliver them back to, or
according to the directions of, one joint owner without the consent of
all in the absence of any agreement to the contrary."

166. Bailee not responsible on re-delivery to bailor without title.—If

the bailor has no title to the goods, and the bailee, in good faith,
delivers them back to, or according to the directions of, the bailor,
the bailee is not responsible to the owner in respect of such
delivery. 48

167. Right of third person claiming goods bailed.—If a person, other

than the bailor, claims goods bailed he may apply to the Court to
stop delivery of the goods to the bailor, and to decide the title to the
goods. —If a person, other than the bailor, claims goods bailed he
may apply to the Court to stop delivery of the goods to the bailor,
and to decide the title to the goods."

168. Right of finder of goods, may sue for specific reward offered.—
The finder of goods has no right to sue the owner for compensation
for trouble and expense voluntarily incurred by him to preserve the
goods and to find out the owner; but he may retain the goods
against the owner until he receives such compensation; and where
the owner has offered a specific reward for the return of goods lost,
the finder may sue for such reward, and may retain the goods until
he receives it. —The finder of goods has no right to sue the owner
for compensation for trouble and expense voluntarily incurred by
him to preserve the goods and to find out the owner; but he may
retain the goods against the owner until he receives such
compensation; and where the owner has offered a specific reward
for the return of goods lost, the finder may sue for such reward, and
may retain the goods until he receives it."

169. When finder of thing commonly on sale may sell it.—When a

thing which is commonly the subject of sale is lost, if the owner cannot
with reasonable diligence be found, or if he refuses upon demand, to
pay the lawful charges of the finder, the finder may sell it— —When
a thing which is commonly the subject of sale is lost, if the owner
cannot with reasonable diligence be found, or if he refuses upon
demand, to pay the lawful charges of the finder, the finder may sell
it—"
(1) when the thing is in danger of perishing or of losing the greater
part of its value, or
(2) when the lawful charges of the finder, in respect of the thing found,
amount to two-thirds of its value.

170. Bailee’s particular lien.—Where the bailee has, in accordance

with the purpose of the bailment, rendered any service involving the
exercise of labour or skill in respect of the goods bailed, he has, in the
absence of a contract to the contrary, a right to retain such goods
until he receives due remuneration for the services he has rendered
in respect of them. Illustrations
(a) A delivers a rough diamond to B, a jeweller, to be cut and polished,
which is accordingly done. B is entitled to retain the stone till he is
paid for the services he has rendered. (a) A delivers a rough
diamond to B, a jeweller, to be cut and polished, which is accordingly
done. B is entitled to retain the stone till he is paid for
the services he has rendered."
(b) A gives cloth to B, a tailor, to make into a coat. B promises A to
deliver the coat as soon as it is finished, and to give a three months
credit for the price. B is not entitled to retain the coat until he is paid.
(b) A gives cloth to B, a tailor, to make into a coat. B promises A to
deliver the coat as soon as it is finished, and to give a three months
credit for the price. B is not entitled to retain the coat until he is
paid."

171. General lien of bankers, factors, wharfingers, attorneys and

policy-brokers.—Bankers, factors, wharfingers, attorneys of a High
Court and policy-brokers may, in the absence of a contract to the
contrary, retain as a security for a general balance of account, any
goods bailed to them; but no other persons have a right to retain, as
a security for such balance, goods bailed to them, unless there is an
express contract to that effect.

—Bankers, factors, wharfingers, attorneys of a High Court and policy-

brokers may, in the absence of a contract to the contrary, retain as a
security for a general balance of account, any goods bailed to them;
but no other persons have a right to retain, as a security for such
balance, goods bailed to them, unless there is an express contract to
that effect.1"

172. ‘Pledge’, ‘pawnor’ and ‘pawnee’ defined.—The bailment of

goods as security for payment of a debt or performance of a
promise is called ‘pledge’. The bailor is in this case called the
‘pawnor’. The bailee is called ‘pawnee’. —The bailment of goods as
security for payment of a debt or performance of a promise is called
‘pledge’. The bailor is in this case called the ‘pawnor’. The bailee is
called ‘pawnee’."
173. Pawnee’s right of retainer.—The pawnee may retain the goods
pledged, not only for payment of the debt or the performance of the
promise, but for the interests of the debt, and all necessary
expenses incurred by him in respect of the possession or for the
preservation of the goods pledged. —The pawnee may retain the
goods pledged, not only for payment of the debt or the performance
of the promise, but for the interests of the debt, and all necessary
expenses incurred by him in respect of the possession or for the
preservation of the goods pledged."

173. Pawnee’s right of retainer.—The pawnee may retain the goods

pledged, not only for payment of the debt or the performance of the
promise, but for the interests of the debt, and all necessary
expenses incurred by him in respect of the possession or for the
preservation of the goods pledged. —The pawnee may retain the
goods pledged, not only for payment of the debt or the performance
of the promise, but for the interests of the debt, and all necessary
expenses incurred by him in respect of the possession or for the
preservation of the goods pledged."

174. Pawnee not to retain for debt or promise other than that for which
goods pledged. Presumption in case of subsequent advances.—The
pawnee shall not, in the absence of a contract to that effect, retain the
goods pledged for any debt or promise other than the debt or promise
for which they are pledged; but such contract, in the absence of
anything to the contrary, shall be presumed in regard to subsequent
advances made by the pawnee.
—The pawnee shall not, in the absence of a contract to that effect,
retain the goods pledged for any debt or promise other than the
debt or promise for which they are pledged; but such contract, in the
absence of anything to the contrary, shall be presumed in regard to
subsequent advances made by the pawnee."

175. Pawnee’s right as to extraordinary expenses incurred.—The

pawnee is entitled to receive from the pawnor extraordinary
expenses incurred by him for the preservation of the goods pledged.
—The pawnee is entitled to receive from the pawnor extraordinary
expenses incurred by him for the preservation of the goods
pledged."

175. Pawnee’s right as to extraordinary expenses incurred.—The

pawnee is entitled to receive from the pawnor extraordinary
expenses incurred by him for the preservation of the goods pledged.
—The pawnee is entitled to receive from the pawnor extraordinary
expenses incurred by him for the preservation of the goods
pledged."

176. Pawnee’s right where pawnor makes default.—If the pawnor

makes default in payment of the debt, or performance; at the
stipulated time or the promise, in respect of which the goods were
pledged, the pawnee may bring a suit against the pawnor upon the
debt or promise, and retain the goods pledged as a collateral security;
or he may sell the thing pledged, on giving the pawnor reasonable
notice of the sale. —If the pawnor makes default in payment of the
debt, or performance; at the stipulated time or the promise, in respect
of which the goods were pledged, the pawnee may bring a suit against
the pawnor upon the debt or promise, and retain the goods pledged
as a collateral security; or he may sell the
thing pledged, on giving the pawnor reasonable notice of the sale."
If the proceeds of such sale are less than the amount due in respect
of the debt or promise, the pawnor is still liable to pay the balance. If
the proceeds of the sale are greater than the amount so due, the
pawnee shall pay over the surplus to the pawnor.

177. Defaulting pawnor’s right to redeem.—If a time is stipulated for

the payment of the debt, or performance of the promise, for which
the pledge is made, and the pawnor makes default in payment of
the debt or performance of the promise at the stipulated time, he
may redeem the goods pledged at any subsequent time before the
actual sale of them1, but he must, in that case, pay, in addition, any
expenses which have arisen from his default.

178. Pledge by mercantile agent.—Where a mercantile agent is,

with the consent of the owner, in possession of goods or the document
of title to goods, any pledge made by him, when acting in the ordinary
course of business of a mercantile agent, shall be as valid as if he
were expressly authorised by the owner of the goods to make the
same; provided that the pawnee acts in good faith and has not at the
time of the pledge notice that the pawnor has not authority to pledge.

Explanation.—In this section, the expressions ‘mercantile agent’

and ‘documents of title’ shall have the meanings assigned to them
in the Indian Sale of Goods Act, 1930 (3 of 1930).

53 [178A. Pledge by person in possession under voidable contract.—

When the pawnor has obtained possession of the goods pledged by
him under a contract voidable under section 19 or
section 19A, but the contract has not been rescinded at the time of
the pledge, the pawnee acquires a good title to the goods, provided
he acts in good faith and without notice of the pawnor’s defect of
title.]

179. Pledge where pawnor has only a limited interest.—Where a

person pledges goods in which he has only a limited interest, the
pledge is valid to the extent of that interest. —Where a person pledges
goods in which he has only a limited interest, the pledge is valid to the
extent of that interest."

180. Suit by bailor or bailee against wrong-doer.—If a third person

wrongfully deprives the bailee of the use of possession of the goods
bailed, or does them any injury, the bailee is entitled to use such
remedies as the owner might have used in the like case if no bailment
had been made; and either the bailor or the bailee may bring a suit
against a third person for such deprivation or injury. —If a third
person wrongfully deprives the bailee of the use of possession
of the goods bailed, or does them any injury, the bailee is entitled to
use such remedies as the owner might have used in the like case if
no bailment had been made; and either the bailor or the bailee may
bring a suit against a third person for such deprivation or
injury."

181. Apportionment of relief or compensation obtained by such

suits.—Whatever is obtained by way of relief or compensation in
any such suit shall, as between the bailor and the bailee, be dealt with
according to their respective interests. —Whatever is obtained by way
of relief or compensation in any such suit shall, as between the bailor
and the bailee, be dealt with according to their respective
interests."
182. ‘Agent’ and ‘principal’ defined.—An ‘agent’ is a person
employed to do any act for another, or to represent another in
dealings with third person. The person for whom such act is done,
or who is so represented, is called the ‘principal’. —An ‘agent’ is a
person employed to do any act for another, or to represent another
in dealings with third person. The person for whom such act is done,
or who is so represented, is called the ‘principal’."

183. Who may employ agent.—Any person who is of the age of

majority according to the law to which he is subject, and who is of
sound mind, may employ an agent. —Any person who is of the age
of majority according to the law to which he is subject, and who is of
sound mind, may employ an agent."

184. Who may be an agent.—As between the principal and third

person any person may become an agent, but no person who is not
of the age of majority and of sound mind can become an agent, so
as to be responsible to his principle according to the provisions in
that behalf herein contained. —As between the principal and third
person any person may become an agent, but no person who is not
of the age of majority and of sound mind can become an agent, so
as to be responsible to his principle according to the provisions in
that behalf herein contained."

185. Consideration not necessary.—No consideration is necessary

to create an agency. —No consideration is necessary to create an
agency."
186. Agent’s authority may be expressed or implied.—The authority
of an agent may be expressed or implied. 54

187. Definitions of express and implied authority.—An authority is

said to be express when it is given by words spoken or written. An
authority is said to be implied when it is to be inferred from the
circumstances of the case; and things spoken or written, or the
ordinary course of dealing, may be accounted circumstances of the
case. —An authority is said to be express when it is given by words
spoken or written. An authority is said to be implied when it is to be
inferred from the circumstances of the case; and things spoken or
written, or the ordinary course of dealing, may be accounted
circumstances of the case." Illustration A owns a shop in Serampor,
living himself in Calcutta, and visiting the shop occasionally. The shop
is managed by B, and he is in the habit of ordering goods from C in
the name of A for the purposes of the shop, and of paying for them
out of A’s funds with A’s knowledge. B has an implied authority
from A to order goods from C in the name of A for the purposes of
the shop. A owns a shop in Serampor, living himself in Calcutta, and
visiting the shop occasionally. The shop is managed by B, and he is
in the habit of ordering goods from C in the name of A for the
purposes of the shop, and of paying for them out of A’s funds with
A’s knowledge. B has an implied authority from A to order goods
from C in the name of A for the purposes of the shop."

188. Extent of agent’s authority.—An agent having an authority to

do an act has authority to do every lawful thing which is necessary
in order to do such act. —An agent having an authority to do an act
has authority to do every lawful thing which is necessary in order to
do such act." An agent having an authority to carry on a business,
has authority to do every lawful thing necessary for the purpose, or
usually done in the course, of conducting such business.
Illustrations

(a) A is employed by B, residing in London, to recover at Bombay a

debt due to B. A may adopt any legal process necessary for the
purpose of recovering the debt, and may give a valid discharge for
the same. (a) A is employed by B, residing in London, to recover at
Bombay a debt due to B. A may adopt any legal process necessary
for the purpose of recovering the debt, and may give a valid discharge
for the same."

(b) A constitutes B his agent to carry on his business of a ship-

builder. B may purchase timber and other materials, and hire
workmen, for the purpose of carrying on the business. (b) A
constitutes B his agent to carry on his business of a ship-builder. B
may purchase timber and other materials, and hire workmen, for the
purpose of carrying on the business."

189. Agent’s authority in an emergency.—An agent has authority, in

an emergency, to do all such acts for the purpose of protecting his
principal from loss as would be done by a person of ordinary
prudence, in his own case under similar circumstances. —An agent
has authority, in an emergency, to do all such acts for the purpose
of protecting his principal from loss as would be done by a person of
ordinary prudence, in his own case under similar circumstances."
Illustrations
(a) An agent for sale may have goods repaired if it be necessary. (a)
An agent for sale may have goods repaired if it be necessary."
(b) A consigns provisions to B at Calcutta, with directions to send them
immediately to C, at Cuttack. B may sell the provisions at Calcutta, if
they will not bear the journey to Cuttack without spoiling. (b) A
consigns provisions to B at Calcutta, with directions to send them
immediately to C, at Cuttack. B may sell the provisions at Calcutta, if
they will not bear the journey to Cuttack without spoiling."

190. When agent cannot delegate.—An agent cannot lawfully

employ another to perform acts which he has expressly or impliedly
undertaken to perform personally, unless by the ordinary custom of
trade a sub-agent may, or, from the nature of the agency, a sub-
agent must, be employed. —An agent cannot lawfully employ another
to perform acts which he has expressly or impliedly undertaken to
perform personally, unless by the ordinary custom of trade a sub-
agent may, or, from the nature of the agency, a sub- agent must,
be employed."

191. ‘Sub-agent’ defined.—A ‘sub-agent’ is a person employed by,

and acting under the control of, the original agent in the business of
the agency. —A ‘sub-agent’ is a person employed by, and acting
under the control of, the original agent in the business of the
agency."

192. Representation of principal by sub-agent properly appointed—

Where a sub-agent is properly appointed, the principal is, so far as
regards third persons, represented by the sub-agent, and is bound
by and responsible for his acts, as if he were an agent originally
appointed by the principal. —Where a sub-agent is properly
appointed, the principal is, so far as regards third persons,
represented by the sub-agent, and is bound by and responsible for
his acts, as if he were an agent originally appointed by the
principal." Agent’s responsibility for sub-agent.—The agent is
responsible to the principal for the acts of the sub-agent. —The
agent is responsible to the principal for the acts of the sub-agent."
Sub-agent’s responsibility.—The sub-agent is responsible for his
acts to the agent, but not to the principal, except in cases of fraud or
wilful wrong. —The sub-agent is responsible for his acts to the
agent, but not to the principal, except in cases of fraud or wilful wrong."

193. Agent’s responsibility for sub-agent appointed without

authority.—Where an agent, without having authority to do so, has
appointed a person to act as a sub-agent, the agent stands towards
such person in the relation of a principal to an agent, and is
responsible for his acts both to the principal and to third persons;
the principal is not represented by or responsible for the acts of the
person so employed, nor is that person responsible to the principal.
—Where an agent, without having authority to do so, has appointed
a person to act as a sub-agent, the agent stands towards such person
in the relation of a principal to an agent, and is responsible for his
acts both to the principal and to third persons; the principal is not
represented by or responsible for the acts of the person so employed,
nor is that person responsible to the principal."

194. Relation between principal and person duly appointed by agent

to act in business of agency.—Where an agent, holding an express or
implied authority to name another person to act for the principal in
the business of the agency, has named another person
accordingly, such person is not a sub-agent, but an agent of the
principal for such part of the business of the agency as is entrusted
to him. —Where an agent, holding an express or implied authority to
name another person to act for the principal in the business of the
agency, has named another person accordingly, such person is not
a sub-agent, but an agent of the principal for such part of the business
of the agency as is entrusted to him." Illustrations
(a) A directs B, his solicitor, to sell his estate by auction, and to employ
an auctioneer for the purpose. B names C, an auctioneer, to conduct
the sale. C is not a sub-agent, but is A’s agent for the conduct of the
sale.
(b) A authorizes B, a merchant in Calcutta, to recover the moneys due
to A from C & Co. B instructs D, a solicitor, to take legal proceedings
against C & Co. for the recovery of the money. D is not a sub-agent,
but is solicitor for A.

195. Agent’s duty in naming such person.—In selecting such agent

for his principal, an agent is bound to exercise the same amount of
discretion as a man of ordinary prudence would exercise in his own
case; and, if he does this, he is not responsible to the principal for
the acts or negligence of the agent so selected. —In selecting such
agent for his principal, an agent is bound to exercise the same amount
of discretion as a man of ordinary prudence would exercise in his
own case; and, if he does this, he is not responsible to the principal
for the acts or negligence of the agent so selected." Illustrations
(a) A instructs B, a merchant, to buy a ship for him. B employs a
ship-surveyor of good reputation to choose a ship for A. The
surveyor makes the choice negligently and the ship turns out to be
unseaworthy and is lost. B is not, but the surveyor is, responsible to
A. (a) A instructs B, a merchant, to buy a ship for him. B employs a
ship-surveyor of good reputation to choose a ship for A. The
surveyor makes the choice negligently and the ship turns out to be
unseaworthy and is lost. B is not, but the surveyor is, responsible to
A."
(b) A consigns goods to B, a merchant, for sale. B, in due course,
employs an auctioneer in good credit to sell the goods of A, and allows
the auctioneer to receive the proceeds of the sale. The auctioneer
afterwards becomes insolvent without having accounted for the
proceeds. B is not responsible to A for the proceeds. (b) A consigns
goods to B, a merchant, for sale. B, in due course, employs an
auctioneer in good credit to sell the goods of A, and allows the
auctioneer to receive the proceeds of the sale. The auctioneer
afterwards becomes insolvent without having accounted for the
proceeds. B is not responsible to A for the proceeds."

196. Right of person as to acts done for him without his authority.
Effect of ratification.—Where acts are done by one person on behalf
of another, but without his knowledge or authority, he may elect to
ratify or to disown such acts. If he ratify them, the same effects will
follow as if they had been performed by his authority. —Where acts
are done by one person on behalf of another, but without his
knowledge or authority, he may elect to ratify or to disown such
acts. If he ratify them, the same effects will follow as if they had
been performed by his authority."

197. Ratification may be expressed or implied.—Ratification may be

expressed or may be implied in the conduct of the person on whose
behalf the acts are done. —Ratification may be expressed or may
be implied in the conduct of the person on whose behalf the acts
are done." Illustrations
(a) A, without authority, buys goods for B. Afterwards B sells them
to C on his own account; B’s conduct implies a ratification of the
purchase made for him by A. (a) A, without authority, buys goods for
B. Afterwards B sells them to C on his own account; B’s conduct
implies a ratification of the purchase made for him by A."
(b) A, without B’s authority, lends B’s money to C. Afterwards B
accepts interest on the money from C. B’s conduct implies a
ratification of the loan. (b) A, without B’s authority, lends B’s money
to C. Afterwards B accepts interest on the money from C. B’s
conduct implies a ratification of the loan."

198. Knowledge requisite for valid ratification.—No valid ratification

can be made by a person whose knowledge of the facts of the case
is materially defective. —No valid ratification can be made by a person
whose knowledge of the facts of the case is materially defective."

199. Effect of ratifying unauthorized act forming part of a

transaction.—A person ratifying any unauthorized act done on his
behalf ratifies the whole of the transaction of which such act formed
a part. —A person ratifying any unauthorized act done on his behalf
ratifies the whole of the transaction of which such act formed a
part."

200. Ratification of unauthorized act cannot injure third person—An

act done by one person on behalf of another, without such other
person’s authority, which, if done with authority would have the
effect of subjecting a third person to damages, or of terminating any
right or interest of a third person, cannot, by ratification, be made to
have such effect. —An act done by one person on behalf of
another, without such other person’s authority, which, if done with
authority would have the effect of subjecting a third person to
damages, or of terminating any right or interest of a third person,
cannot, by ratification, be made to have such effect." Illustrations
(a) A, not being authorized thereto by B, demands, on behalf of B, the
delivery of a chattel, the property of B, from C who is in possession
of it. This demand cannot be ratified by B, so as to make C liable
for damages for his refusal to deliver. (a) A, not being authorized
thereto by B, demands, on behalf of B, the delivery of a chattel, the
property of B, from C who is in possession of it. This demand
cannot be ratified by B, so as to make C liable for damages for his
refusal to deliver."
(b) A holds a lease from B, terminable on three months’ notice. C,
an unauthorized person, gives notice of termination to A. The notice
cannot be ratified by B, so as to be binding on A. (b) A holds a lease
from B, terminable on three months’ notice. C, an unauthorized
person, gives notice of termination to A. The notice cannot be
ratified by B, so as to be binding on A."

201. Termination of agency.—An agency is terminated by the

principal revoking his authority, or by the agent renouncing the
business of the agency; or by the business of the agency being
completed; or by either the principal or agent dying or becoming of
unsound mind; or by the principal being adjudicated an insolvent
under the provisions of any Act for the time being in force for the
relief of insolvent debtors. —An agency is terminated by the
principal revoking his authority, or by the agent renouncing the
business of the agency; or by the business of the agency being
completed; or by either the principal or agent dying or becoming of
unsound mind; or by the principal being adjudicated an insolvent
under the provisions of any Act for the time being in force for the
relief of insolvent debtors."

202. Termination of agency, where agent has an interest in subject-

matter.—Where the agent has himself an interest in the property
which forms the subject-matter of the agency, the agency cannot, in
the absence of an express contract, be terminated to the prejudice
of such interest. —Where the agent has himself an interest in the
property which forms the subject-matter of the agency, the agency
cannot, in the absence of an express contract, be terminated to the
prejudice of such interest." Illustrations
(a) A gives authority to B to sell A’s land, and to pay himself, out of
the proceeds, the debts due to him from A. A cannot revoke this
authority, nor can it be terminated by his insanity or death. (a) A
gives authority to B to sell A’s land, and to pay himself, out of the
proceeds, the debts due to him from A. A cannot revoke this authority,
nor can it be terminated by his insanity or death."
(b) A consigns 1,000 bales of cotton to B, who has made advances
to him on such cotton, and desires B to sell the cotton, and to repay
himself out of the price the amount of his own advances. A cannot
revoke this authority, nor is it terminated by his insanity or death. (b)
A consigns 1,000 bales of cotton to B, who has made advances to
him on such cotton, and desires B to sell the cotton, and to repay
himself out of the price the amount of his own advances. A cannot
revoke this authority, nor is it terminated by his insanity or death."

203. When principal may revoke agent’s authority—The pricnipal

may, save as is otherwise provided by the last preceding section,
revoke the authority given to his agent at any time before the
authority has been exercised so as to bind the principal. —The
pricnipal may, save as is otherwise provided by the last preceding
section, revoke the authority given to his agent at any time before
the authority has been exercised so as to bind the principal."
203. When principal may revoke agent’s authority—The pricnipal
may, save as is otherwise provided by the last preceding section,
revoke the authority given to his agent at any time before the authority
has been exercised so as to bind the principal. —The pricnipal may,
save as is otherwise provided by the last preceding section, revoke
the authority given to his agent at any time before the authority has
been exercised so as to bind the principal."

204. Revocation where authority has been partly exercised.—The

principal cannot revoke the authority given to his agent after the
authority has been partly exercised, so far as regards such acts and
obligations as arise from acts already done in the agency. —The
principal cannot revoke the authority given to his agent after the
authority has been partly exercised, so far as regards such acts and
obligations as arise from acts already done in the agency."
Illustrations

(a) A authorizes B to buy 1,000 bales of cotton on account of A and

to pay for it out of A’s moneys remaining in B’s hands. B buys 1,000
bales of cotton in his own name, so as to make himself personally
liable for the price. A cannot revoke B’s authroty so far as regards
payment for the cotton. (a) A authorizes B to buy 1,000 bales of cotton
on account of A and to pay for it out of A’s moneys remaining in B’s
hands. B buys 1,000 bales of cotton in his own name, so as to make
himself personally liable for the price. A cannot revoke B’s
authroty so far as regards payment for the cotton."
(b) A authorizes B to buy 1,000 bales of cotton on account of A, and
to pay for it out of A’s money remaining in B’s hands. B buys 1,000
bales of cotton in A’s name, and so as not to render himself
personally liable for the price. A can revoke B’s authority to pay for
the cotton. (b) A authorizes B to buy 1,000 bales of cotton on
account of A, and to pay for it out of A’s money remaining in B’s
hands. B buys 1,000 bales of cotton in A’s name, and so as not to
render himself personally liable for the price. A can revoke B’s
authority to pay for the cotton."

206. Notice of revocation or renunciation.—Reasonable notice must

be given of such revocation or renunciation, otherwise the damage
thereby resulting to the principal or the agent, as the case may be,
must be made good to the one by the other. —Reasonable notice
must be given of such revocation or renunciation, otherwise the
damage thereby resulting to the principal or the agent, as the case
may be, must be made good to the one by the other."

207. Revocation and renunciation may be expressed or implied.—

Revocation or renunciation may be expressed or may be implied in
the conduct of that principal or agent respectively. —Revocation or
renunciation may be expressed or may be implied in the conduct of
that principal or agent respectively." Illustration A empowers B to let
A’s house. Afterwards A lets it himself. This is an implied revocation
of B’s authority. A empowers B to let A’s house. Afterwards A lets it
himself. This is an implied revocation of B’s authority."

208. When termination of agent’s authority takes effect as to agent,

and as to third persons.—The termination of the authority of an
agent does not, so far as regards the agent, take effect before it
becomes known to him, or, so far as regards third persons, before it
becomes known to them. —The termination of the authority of an
agent does not, so far as regards the agent, take effect before it
becomes known to him, or, so far as regards third persons, before it
becomes known to them." Illustrations
(a) A directs B to sell goods for him, and agrees to give B five per
cent. commission on the price fetched by the goods. A afterwards
by letter, revokes B’s authority. B after the letter is sent, but before
he receives it, sells the goods for 100 rupees. The sale is binding on
A, and B is entitled to five rupees as his commission. (a) A directs B
to sell goods for him, and agrees to give B five per cent.
commission on the price fetched by the goods. A afterwards by
letter, revokes B’s authority. B after the letter is sent, but before he
receives it, sells the goods for 100 rupees. The sale is binding on A,
and B is entitled to five rupees as his commission."
(b) A, at Madras, by letter directs B to sell for him some cotton lying
in a warehouse in Bombay, and afterwards, by letter revokes his
authority to sell, and directs B to send the cotton to Madras. B after
receiving the second letter, enters into a contract with C, who knows
of the first letter, but not of the second for the sale to him of the
cotton. C pays B the money, with which B absconds. C’s payment is
good as against A. (b) A, at Madras, by letter directs B to sell for
him some cotton lying in a warehouse in Bombay, and afterwards,
by letter revokes his authority to sell, and directs B to send the
cotton to Madras. B after receiving the second letter, enters into a
contract with C, who knows of the first letter, but not of the second
for the sale to him of the cotton. C pays B the money, with which B
absconds. C’s payment is good as against A."
(c) A directs B, his agent, to pay certain money to C. A dies, and D
takes out probate to his will. B, after A’s death, but before hearing of
it, pays the money to C. The payment is good as against D, the
executor. (c) A directs B, his agent, to pay certain money to C. A
dies, and D takes out probate to his will. B, after A’s death, but
before hearing of it, pays the money to C. The payment is good as
against D, the executor."

209. Agent’s duty on termination of agency by principal’s death or

insanity.— When an agency is terminated by the principal dying or
becoming of unsound mind, the agent is bound to take, on behalf of
the representatives of his late principal, all reasonable steps for the
protection and preservation of the interests entrusted to him. — When
an agency is terminated by the principal dying or becoming of
unsound mind, the agent is bound to take, on behalf of the
representatives of his late principal, all reasonable steps for the
protection and preservation of the interests entrusted to him."

210. Termination of sub-agent’s authority.—The termination of the

authority of an agent causes the termination (subject to the rules
herein contained regarding the termination of an agent’s authority)
of the authority of all sub-agents appointed by him. —The
termination of the authority of an agent causes the termination
(subject to the rules herein contained regarding the termination of
an agent’s authority) of the authority of all sub-agents appointed by
him."

210. Termination of sub-agent’s authority.—The termination of the

authority of an agent causes the termination (subject to the rules
herein contained regarding the termination of an agent’s authority)
of the authority of all sub-agents appointed by him. —The
termination of the authority of an agent causes the termination
(subject to the rules herein contained regarding the termination of
an agent’s authority) of the authority of all sub-agents appointed by
him."

211. Agent’s duty in conducting principal’s business.—An agent is

bound to conduct the business of his principal according to the
directions given by the principal, or in the absence of any such
directions according to the custom which prevails in doing business of
the same kind at the place where the agent conducts such business.
When the agent acts otherwise, if any loss be sustained, he must
make it good to his principal, and if any profit accrues, he must
account for it. —An agent is bound to conduct the business of his
principal according to the directions given by the principal, or in the
absence of any such directions according to the custom which prevails
in doing business of the same kind at the place where the agent
conducts such business. When the agent acts otherwise, if any loss
be sustained, he must make it good to his principal, and if any profit
accrues, he must account for it." Illustrations
(a) A, an agent engaged in carrying on for B a business, in which it
is the custom to invest from time to time, at interest, the moneys
which may be in hand, on its to make such investments. A must
make good to B the interest usually obtained by such investments.
(a) A, an agent engaged in carrying on for B a business, in which it
is the custom to invest from time to time, at interest, the moneys
which may be in hand, on its to make such investments. A must
make good to B the interest usually obtained by such investments."
(b) B, a broker in whose business it is not the custom to sell on
credit, sells goods of A on credit to C, whose credit at the time was
very high. C, before payment, becomes insolvent. B must make
good the loss to A. (b) B, a broker in whose business it is not the
custom to sell on credit, sells goods of A on credit to C, whose
credit at the time was very high. C, before payment, becomes
insolvent. B must make good the loss to A."

212. Skill and diligence required from agent.—An agent is bound to

conduct the business of the agency with as much skill as is
generally possessed by persons engaged in similar business unless
the principal has notice of this want of skill. The agent is always bound
to act with reasonable diligence, and to use such skill as he
possesses; and to make compensation to his principal in respect of
the direct consequences of his own neglect, want of skill, or
misconduct, but not in respect of loss or damage which are
indirectly or remotely caused by such neglect, want of skill, or
misconduct. —An agent is bound to conduct the business of the
agency with as much skill as is generally possessed by persons
engaged in similar business unless the principal has notice of this
want of skill. The agent is always bound to act with reasonable
diligence, and to use such skill as he possesses; and to make
compensation to his principal in respect of the direct consequences
of his own neglect, want of skill, or misconduct, but not in respect of
loss or damage which are indirectly or remotely caused by such
neglect, want of skill, or misconduct." Illustrations
(a) A, a merchant in Calcutta, has an agent, B, in London, to whom
a sum of money is paid on A’s account, with orders to remit. B
retains the money for a considerable time. A, in consequence of not
receiving the money, becomes insolvent. B is liable for the money and
interest, from the day on which it ought to have been paid, according
to the usual rate, and for any further direct loss—as, e.g., by variation
of rate of exchange—but not further. (a) A, a merchant
in Calcutta, has an agent, B, in London, to whom a sum of money is
paid on A’s account, with orders to remit. B retains the money for a
considerable time. A, in consequence of not receiving the money,
becomes insolvent. B is liable for the money and interest, from the
day on which it ought to have been paid, according to the usual
rate, and for any further direct loss—as, e.g., by variation of rate of
exchange—but not further."
(b) A, an agent for the sale of goods, having authority to sell on credit,
sells to B on credit, without making the proper and usual enquiries as
to the solvency of B. B at the time of such sale is insolvent. A must
make compensation to his principal in respect of any loss thereby
sustained. (b) A, an agent for the sale of goods, having authority to
sell on credit, sells to B on credit, without making the proper and usual
enquiries as to the solvency of B. B at the time of such sale is
insolvent. A must make compensation to his principal in respect of any
loss thereby sustained."
(c) A, an insurance-broker employed by B to effect an insurance on
a ship, omits to see that the usual clauses are inserted in the policy.
The ship is afterwards lost. In consequence of the omission of the
clauses nothing can be recovered from the underwriters. A is bound
to make good the loss to B. (c) A, an insurance-broker employed by
B to effect an insurance on a ship, omits to see that the usual
clauses are inserted in the policy. The ship is afterwards lost. In
consequence of the omission of the clauses nothing can be recovered
from the underwriters. A is bound to make good the loss to B."
(d) A, a merchant in England, directs B, his agent at Bombay, who
accepts the agency, to send him 100 bales of cotton by a certain
ship. B, having it in his power to send the cotton, omits to do so.
The ship arrives safely in Engalnd. Soon after her arrival the price of
cotton rises. B is bound to make good to A the profit which he might
have made by the 100 bales of cotton at the time of ship arrived, but
not any profit he might have made by the subsequent rise. (d) A, a
merchant in England, directs B, his agent at Bombay, who accepts the
agency, to send him 100 bales of cotton by a certain ship. B, having
it in his power to send the cotton, omits to do so. The ship arrives
safely in Engalnd. Soon after her arrival the price of cotton rises. B is
bound to make good to A the profit which he might have made by the
100 bales of cotton at the time of ship arrived, but not any profit he
might have made by the subsequent rise."
213. Agent’s accounts.—An agent is bound to render proper accounts
to his principal on demand. —An agent is bound to render proper
accounts to his principal on demand."

214. Agent’s duty to communicate with principal.—It is the duty of

an agent, in cases of difficulty, to use all reasonable diligence in
communicating with his principal, and in seeking to obtain his
instructions. —It is the duty of an agent, in cases of difficulty, to use
all reasonable diligence in communicating with his principal, and in
seeking to obtain his instructions."

214. Agent’s duty to communicate with principal.—It is the duty of

an agent, in cases of difficulty, to use all reasonable diligence in
communicating with his principal, and in seeking to obtain his
instructions. —It is the duty of an agent, in cases of difficulty, to use
all reasonable diligence in communicating with his principal, and in
seeking to obtain his instructions."

215. Right of principal when agent deals, on his own account, in

business of agency without principal’s consent.—If an agent deals
on his own account in the business of the agency, without first
obtaining the consent of his principal and acquainting him with all
material circumstances which have come to his own knowledge on
the subject, the principal may repudiate the transaction, if the case
shows, either that any material fact has been dishonestly concealed
from him by the agent, or that the dealings of the agent have been
disadvantageous to him. —If an agent deals on his own account in
the business of the agency, without first obtaining the consent of his
principal and acquainting him with all material circumstances which
have come to his own knowledge on the subject, the principal may
repudiate the transaction, if the case shows, either that any material
fact has been dishonestly concealed from him by the agent, or that
the dealings of the agent have been disadvantageous to him."

Illustrations
(a) A directs B to sell A’s estate. B buys the estate for himself in the
name of C. A, on discovering that B has bought the estate for himself,
may repudiate the sale, if he can show that B has dishonestly
concealed any material fact, or that the sale has been
disadvantageous to him. (a) A directs B to sell A’s estate. B buys
the estate for himself in the name of C. A, on discovering that B has
bought the estate for himself, may repudiate the sale, if he can
show that B has dishonestly concealed any material fact, or that the
sale has been disadvantageous to him."

(b) A directs B to sell A’s estate. B, on looking over the estate

before selling it, finds a mine on the estate which is unknown to A. B
informs A that he wishes to buy the estate for himself, but conceals
the discovery of the mine. A allows B to buy, in ignorance of the
existence of the mine. A, on discovering that B knew of the mine at
the time he bought the estate, may either repudiate or adopt the
sale at his option. (b) A directs B to sell A’s estate. B, on looking
over the estate before selling it, finds a mine on the estate which is
unknown to A. B informs A that he wishes to buy the estate for himself,
but conceals the discovery of the mine. A allows B to buy, in
ignorance of the existence of the mine. A, on discovering that B knew
of the mine at the time he bought the estate, may either repudiate or
adopt the sale at his option."

216. Principal’s right to benefit gained by agent dealing on his own

account in business of agency.—If an agent, without the knowledge
of his principal, deals in the business of the agency on his own
account instead of on account of his principal, the principal is
entitled to claim from the agent any benefit which may have resulted
to him from the transaction. —If an agent, without the knowledge of
his principal, deals in the business of the agency on his own
account instead of on account of his principal, the principal is
entitled to claim from the agent any benefit which may have resulted
to him from the transaction." Illustration A directs B, his agent, to
buy a certain house for him. B tells A it cannot be bought, and buys
the house for himself. A may, on discovering that B has bought the
house, compel him to sell it to A at the price he gave for it. A directs
B, his agent, to buy a certain house for him. B tells A it cannot be
bought, and buys the house for himself. A may, on discovering that
B has bought the house, compel him to sell it to A at the price he gave
for it."

217. Agent’s right of retainer out of sums received on principal’s

account.—An agent may retain, out of any sums received on
account of the principal in the business of the agency, all moneys
due to himself in respect of advances made or expenses properly
incurred by him in conducting such business, and also such
remuneration as may be payable to him for acting as agent. —An
agent may retain, out of any sums received on account of the principal
in the business of the agency, all moneys due to himself in respect of
advances made or expenses properly incurred by him in conducting
such business, and also such remuneration as may be payable to him
for acting as agent."

218. Agent’s duty to pay sums received for principal.—Subject to

such deductions, the agent is bound to pay to his principal all sums
received on his account. —Subject to such deductions, the agent is
bound to pay to his principal all sums received on his account."

219. When agent’s remuneration becomes due.—In the absence of

any special contract, payment for the performance of any act is not
due to the agent until the completion of such act; but an agent may
detain moneys received by him on account of goods sold, although
the whole of the goods consigned to him for sale may not have
been sold, or although the sale may not be actually complete. —In
the absence of any special contract, payment for the performance of
any act is not due to the agent until the completion of such act; but
an agent may detain moneys received by him on account of goods
sold, although the whole of the goods consigned to him for sale may
not have been sold, or although the sale may not be actually
complete."

220. Agent not entitled to remuneration for business misconducted.—

An agent who is guilty of misconduct in the business of the
agency, is not entitled to any remuneration in
respect of that part of the business which he has misconducted. —
An agent who is guilty of misconduct in the business of the agency,
is not entitled to any remuneration in respect of that part of the
business which he has misconducted." Illustrations
(a) A employs B to recover 1,00,000 rupees from C, and to lay it out
on good security, B recovers the 1,00,000 rupees and lays out
90,000 rupees on good security, but lays out 10,000 rupees on
security which he ought to have known to be bad, whereby A loses
2,000 rupees. B is entitled to remuneration for recovering the
1,00,000 rupees and for investing the 90,000 rupees. He is not entitled
to any remuneration for investing the 10,000 rupees, and he must
make good the 2,000 rupees to B. (a) A employs B to recover
1,00,000 rupees from C, and to lay it out on good security, B recovers
the 1,00,000 rupees and lays out 90,000 rupees on good security, but
lays out 10,000 rupees on security which he ought to have known to
be bad, whereby A loses 2,000 rupees. B is entitled to remuneration
for recovering the 1,00,000 rupees and for investing the 90,000
rupees. He is not entitled to any remuneration for investing the 10,000
rupees, and he must make good the 2,000 rupees to B."
(b) A employs B to recover 1,000 rupees from C. Through B’s
misconduct the money is not recovered. B is entitled to no
remuneration for his services, and must make good the loss. (b) A
employs B to recover 1,000 rupees from C. Through B’s misconduct
the money is not recovered. B is entitled to no remuneration for his
services, and must make good the loss."

221. Agent’s lien on principal’s property.—In the absence of any

contract to the contrary, an agent is entitled to retain goods, papers,
and other property, whether movable or immovable of the principal
received by him, until the amount due to himself for commission,
disbursements and services in respect of the same has been paid
or accounted for to him. —In the absence of any contract to the
contrary, an agent is entitled to retain goods, papers, and other
property, whether movable or immovable of the principal received
by him, until the amount due to himself for commission,
disbursements and services in respect of the same has been paid
or accounted for to him."

221. Agent’s lien on principal’s property.—In the absence of any

contract to the contrary, an agent is entitled to retain goods, papers,
and other property, whether movable or immovable of the principal
received by him, until the amount due to himself for commission,
disbursements and services in respect of the same has been paid
or accounted for to him. —In the absence of any contract to the
contrary, an agent is entitled to retain goods, papers, and other
property, whether movable or immovable of the principal received
by him, until the amount due to himself for commission, disbursements
and services in respect of the same has been paid or accounted for
to him."

222. Agent to be indemnified against consequences of lawful acts.—

The employer of an agent is bound to indemnify him against the
consequences of all lawful acts done by such agent in exercise of
the authority conferred upon him. —The employer of an agent is
bound to indemnify him against the consequences of all lawful acts
done by such agent in exercise of the authority conferred upon
him." Illustrations
(a) B, at Singapure, under instructions from A of Calcutta, contracts
with C to deliver certain goods to him. A does not send the goods to
B, and C sues B for breach of contract. B informs A of the suit, and
A authorises him to defend the suit. B defends the suit, and is
compelled to pay damages and costs, and incurs expenses. A is liable
to B for such damages, costs and expenses. (a) B, at Singapure,
under instructions from A of Calcutta, contracts with C to deliver
certain goods to him. A does not send the goods to B, and C sues B
for breach of contract. B informs A of the suit, and A authorises him
to defend the suit. B defends the suit, and is compelled to pay
damages and costs, and incurs expenses. A is liable to B for such
damages, costs and expenses."
(b) B, a broker at Calcutta, by the orders of A, a merchant there,
contracts with C for the purchase of 10 casks of oil for A. Afterwards
A refuses to receive the oil, and C sues B. B informs A, who repudiates
the contract altogether. B defends, but unsuccessfully, and has to pay
damages and costs and incurs expenses. A is liable to B for such
damages, costs and expenses. (b) B, a broker at Calcutta, by the
orders of A, a merchant there, contracts with C for the purchase of
10 casks of oil for A. Afterwards A refuses to receive the oil, and
C sues B. B informs A, who repudiates the contract altogether. B
defends, but unsuccessfully, and has to pay damages and costs and
incurs expenses. A is liable to B for such damages, costs and
expenses."

223. Agent to be indemnified against consequences of acts done in

good faith.—Where one person employs another to do an act, and the
agent does the act in good faith, the employer is liable to indemnify
the agent against the consequences of that act, though it may cause
an injury to the rights of third persons. —Where one person employs
another to do an act, and the agent does the act in
good faith, the employer is liable to indemnify the agent against the
consequences of that act, though it may cause an injury to the rights
of third persons." Illustrations
(a) A, a decree-holder and entitled to execution of B’s goods
requires the officer of the Court to seize certain goods, representing
them to be the goods of B. The officer seizes the goods, and is sued
by C, the true owner of the goods. A is liable to indemnify the officer
for the sum which he is compelled to pay to C, in consequence of
obeying A’s directions. (a) A, a decree-holder and entitled to
execution of B’s goods requires the officer of the Court to seize certain
goods, representing them to be the goods of B. The officer seizes the
goods, and is sued by C, the true owner of the goods. A is liable to
indemnify the officer for the sum which he is compelled to pay to C, in
consequence of obeying A’s directions."
(b) B, at the request of A, sells goods in the possession of A, but which
A had no right to dispose of. B does not know this, and hands over
the proceeds of the sale to A. Afterwards C, the true owner of the
goods, sues B and recovers the value of the goods and costs. A is
liable to indemnify B for what he has been compelled to pay to C, and
for B’s own expenses. (b) B, at the request of A, sells goods in the
possession of A, but which A had no right to dispose of. B does not
know this, and hands over the proceeds of the sale to A. Afterwards
C, the true owner of the goods, sues B and recovers the value of the
goods and costs. A is liable to indemnify B for what he has been
compelled to pay to C, and for B’s own expenses."

224. Non-liability of employer of agent to do a criminal act.—Where

one person employs another to do an act which is criminal, the
employer is not liable to the agent, either upon an express or an
implied promise to indemnify him against the consequences of that
Act.1 —Where one person employs another to do an act which is
criminal, the employer is not liable to the agent, either upon an
express or an implied promise to indemnify him against the
consequences of that Act.1" Illustrations
(a) A employs B to beat C, and agrees to indemnify him against all
consequences of the act. B thereupon beats C, and has to pay
damages to C for so doing. A is not liable to indemnify B for those
damages. (a) A employs B to beat C, and agrees to indemnify him
against all consequences of the act. B thereupon beats C, and has
to pay damages to C for so doing. A is not liable to indemnify B for
those damages."
(b) B, the proprietor of a newspaper, publishes, at A’s request, a
libel upon C in the paper, and A agrees to indemnify B against the
consequences of the publication, and all costs and damages of any
action in respect thereof. B is sued by C and has to pay damages,
and also incurs expenses. A is not liable to B upon the indemnity.
(b) B, the proprietor of a newspaper, publishes, at A’s request, a
libel upon C in the paper, and A agrees to indemnify B against the
consequences of the publication, and all costs and damages of any
action in respect thereof. B is sued by C and has to pay damages,
and also incurs expenses. A is not liable to B upon the indemnity."

225. Compensation to agent for injury caused by principal’s neglect.—

The principal must make compensation to his agent in respect of
injury1 caused to such agent by the principal’s neglect or want of skill.
—The principal must make compensation to his agent in respect of
injury1 caused to such agent by the principal’s neglect or want of
skill." Illustration A employs B as a bricklayer in building a house, and
puts up the scaffolding himself. The scaffolding is unskilfully put up,
and B is in consequence hurt. A must make
compensation to B. A employs B as a bricklayer in building a house,
and puts up the scaffolding himself. The scaffolding is unskilfully put
up, and B is in consequence hurt. A must make compensation to B."

226. Enforcement and consequences of agent’s contracts.—

Contracts entered into through an agent, and obligations arising
from acts done by an agent, may be enforced in the same manner,
and will have the same legal consequences as if the contracts had
been entered into the acts done by the principal in person. —
Contracts entered into through an agent, and obligations arising
from acts done by an agent, may be enforced in the same manner,
and will have the same legal consequences as if the contracts had
been entered into the acts done by the principal in person."
Illustrations
(a) A buys goods from B, knowing that he is an agent for their sale,
but not knowing who is the principal. B’s principal is the person
entitled to claim from A the price of the goods, and A cannot, in a
suit by the principal, set-off against that claim a debt due to himself
from B. (a) A buys goods from B, knowing that he is an agent for
their sale, but not knowing who is the principal. B’s principal is the
person entitled to claim from A the price of the goods, and A cannot,
in a suit by the principal, set-off against that claim a debt due to
himself from B."
(b) A, being B’s agent, with authority to receive money on his behalf,
receives from C a sum of money due to B. C is discharged of his
obligation to pay the sum in question to B. (b) A, being B’s agent,
with authority to receive money on his behalf, receives from C a
sum of money due to B. C is discharged of his obligation to pay the
sum in question to B."
227. Principal how far bound, when agent exceeds authority.—
When an agent does more than he is authorized to do, and when
the part of what he does, which is within his authority, can be
separated from the part which is beyond his authority, so much only
of what he does as is within his authority is binding as between him
and his principal. —When an agent does more than he is authorized
to do, and when the part of what he does, which is within his authority,

can be separated from the part which is beyond his authority, so much
only of what he does as is within his authority is binding as between
him and his principal." Illustration A, being owner of a ship and cargo,
authorizes B to procure an insurance for 4,000 rupees on the ship.
B procures a policy for 4,000 rupees on the ship, and another for the
like sum on the cargo. A is bound to pay the premium for the
policy on the ship, but not the premium for the policy on the cargo.
A, being owner of a ship and cargo, authorizes B to procure an
insurance for 4,000 rupees on the ship. B procures a policy for 4,000
rupees on the ship, and another for the like sum on the cargo. A is
bound to pay the premium for the policy on the ship, but not the
premium for the policy on the cargo."

228. Principal not bound when excess of agent’s authority is not

separable.—Where an agent does more than he is authroized to do,
and what he does beyond the scope of his authority cannot be
separated from what is within it, the principal is not bound to recognize
the transaction. —Where an agent does more than he is authroized
to do, and what he does beyond the scope of his authority
cannot be separated from what is within it, the principal is
not bound to recognize the transaction." Illustration A, authorizes B
to buy 500 sheep for him. B buys 500 sheep and 200 lambs for one
sum of 6,000 rupees. A may repudiate the whole transaction. A,
authorizes B to buy 500 sheep for him. B buys 500 sheep and 200
lambs for one sum of 6,000 rupees. A may repudiate the whole
transaction."

229. Consequences of notice given to agent.—Any notice given to

or information obtained by the agent, provided it be given or
obtained in the course of the business transacted by him for the
principal, shall, as between the principal and third parties, have the
same legal consequences as if it had been given to or obtained by
the principal. —Any notice given to or information obtained by the
agent, provided it be given or obtained in the course of the business
transacted by him for the principal, shall, as between the principal and
third parties, have the same legal consequences as if it had been
given to or obtained by the principal."

Illustrations

(a) A is employed by B to buy from C certain goods, of which C is

the apparent owner, and buys them accordingly. In the course of the
treaty for the sale, A learns that the goods really belonged to D, but
B is ignorant of that fact. B is not entitled to set-off a debt owing to
him from C against the price of the goods. (a) A is employed by B to
buy from C certain goods, of which C is the apparent owner, and
buys them accordingly. In the course of the treaty for the sale, A
learns that the goods really belonged to D, but B is ignorant of that
fact. B is not entitled to set-off a debt owing to him from C against
the price of the goods."
(b) A is employed by B to buy from C goods of which C is the apparent
owner. A was, before he was so employed, a servant of C, and then
learnt that the goods really belonged to D, but B is ignorant of
that fact. In spite of the knowledge of his agent, B may set-off against
the price of the goods a debt owing to him from C. (b) A is employed
by B to buy from C goods of which C is the apparent owner. A was,
before he was so employed, a servant of C, and then learnt that the
goods really belonged to D, but B is ignorant of that fact. In spite of
the knowledge of his agent, B may set-off against the price of the
goods a debt owing to him from C."

230. Agent cannot personally enforce, nor be bound by, contracts

on behalf of principal.—In the absence of any contact to that effect
an agent cannot personally enforce contracts entered into by him on
behalf of his principal, nor is he personally bound by them. —In the
absence of any contact to that effect an agent cannot personally
enforce contracts entered into by him on behalf of his principal, nor
is he personally bound by them." Presumption of contract to
contrary.—Such a contract shall be presumed to exist in the
following cases:—
(1) where the contract is made by an agent for the sale or purchase
of goods for a merchant resident abroad;
(2) where the agent does not disclose the name of his principal;
(3) where the principal, though disclosed, cannot be sued.

231. Right of parties to a contract made by agent not disclosed.—If

an agent makes a contract with a person who neither knows, nor
has reason to suspect, that he is an agent, his principal may require
the performance of the contract; but the other contracting party has,
as against the principal, the same rights as he would have had as
against the agent if the agent had been principal. —If an agent makes
a contract with a person who neither knows, nor has reason to
suspect, that he is an agent, his principal may require the
performance of the contract; but the other contracting party has, as
against the principal, the same rights as he would have had as against
the agent if the agent had been principal." If the principal discloses
himself before the contract is completed, the other contracting party
may refuse to fulfil the contract, if he can show that, if he had
known who was the principal in the contract, or if he had known that
the agent was not a principal, he would not have entered into the
contract.

232. Performance of contract with agent supposed to be principal.—

Where one man makes a contract with another, neither knowing nor
having reasonable ground to suspect that the other is an agent, the
principal, if he requires the performance of the contract, can only
obtain such performance subject to the right and obligations
subsisting between the agent and the other party to the contract. —
Where one man makes a contract with another, neither knowing nor
having reasonable ground to suspect that the other is an agent, the
principal, if he requires the performance of the contract, can only
obtain such performance subject to the right and obligations
subsisting between the agent and the other party to the contract."
Illustration A, who owes 500 rupees to B, sells 1,000 rupees worth
of rice to B. A is acting as agent for C in the transaction, but B has
no knowledge nor reasonable ground of suspicion that such is the
case. C cannot compel B to take the rice without allowing him to
set-off A’s debt. A, who owes 500 rupees to B, sells 1,000 rupees
worth of rice to B. A is acting as agent for C in the transaction, but B
has no knowledge nor reasonable ground of suspicion that such is
the case. C cannot compel B to take the rice without allowing him to
set-off A’s debt."

233. Right of person dealing with agent personally liable.—In cases

where the agent is personally liable, a person dealing with him may
hold either him or his principal, or both of them liable. —In cases
where the agent is personally liable, a person dealing with him may
hold either him or his principal, or both of them liable." Illustrations A
enters into a contract with B to sell him 100 bales of cotton, and
afterwards discovers that B was acting as agent for C. A may sue
either B or C, or both, for the price of the cotton. A enters into a
contract with B to sell him 100 bales of cotton, and afterwards
discovers that B was acting as agent for C. A may sue either B or C,
or both, for the price of the cotton."

234. Consequence of inducing agent or principal to act on belief that

principal or agent will be held exclusively liable.—When a person who
has made a contract with an agent induces the agent to act upon
the belief that the principal only will be held liable, or induces the
principal to act upon the belief that the agent only will be held liable,
he cannot afterwards hold liable the agent or principal respectively. —
When a person who has made a contract with an agent induces the
agent to act upon the belief that the principal only will be held liable,
or induces the principal to act upon the belief that the agent only will
be held liable, he cannot afterwards hold liable the agent or principal
respectively."

235. Liability of pretended agent.—A person untruly representing

himself to be the authorized agent of another, and thereby inducing
a third person to deal with him as such agent, is liable, if his alleged
employer does not ratify his acts, to make compensation to the
other in respect of any loss or damage which he has incurred by so
dealing. —A person untruly representing himself to be the
authorized agent of another, and thereby inducing a third person to
deal with him as such agent, is liable, if his alleged employer does not
ratify his acts, to make compensation to the other in respect of any
loss or damage which he has incurred by so dealing."

236. Person falsely contracting as agent, not entitled to

performance.—A person with whom a contract has been entered
into in the character of agent, is not entitled to require the performance
of it, if he was in reality acting, not as agent, but on his own account.
—A person with whom a contract has been entered into in the
character of agent, is not entitled to require the performance of it, if he
was in reality acting, not as agent, but on his own account."

237. Liability of principal inducing belief that agent’s unauthorized

acts were authorized.—When an agent has, without authority, done
acts or incurred obligations to third persons on behalf of his
principal, the principal is bound by such acts or obligations, if he has
by his words or conduct induced such third persons to believe that
such acts and obligations were within the scope of the agent’s
authority. —When an agent has, without authority, done acts or
incurred obligations to third persons on behalf of his principal, the
principal is bound by such acts or obligations, if he has by his words
or conduct induced such third persons to believe that such acts and
obligations were within the scope of the agent’s authority."
Illustrations
(a) A consigns goods to B for sale, and gives him instructions not to
sell under a fixed price. C, being ignorant of B’s instructions, enters
into a contract with B to buy the goods at a price lower than the
reserved price. A is bound by the contract. (a) A consigns goods to
B for sale, and gives him instructions not to sell under a fixed price. C,
being ignorant of B’s instructions, enters into a contract with B to buy
the goods at a price lower than the reserved price. A is bound by
the contract."
(b) A entrusts B with negotiable instruments endorsed in blank. B
sells them to C in violation of private orders from A. The sale is
good. (b) A entrusts B with negotiable instruments endorsed in
blank. B sells them to C in violation of private orders from A. The
sale is good."

238. Effect, on agreement, of misrepresentation or fraud by agent.—

Misrepresentation made or frauds committed, by agents acting in the
course of their business for their principals, have the same effect on
agreements made by such agents as if such misrepresentations or
frauds had been made or committed by the principals; but
misrepresentations made, or frauds committed, by agents, in matters
which do not fall within their authority, do not affect their principals.
—Misrepresentation made or frauds committed, by agents acting in
the course of their business for their principals, have the same effect
on agreements made by such agents as if such misrepresentations
or frauds had been made or committed by the principals; but
misrepresentations made, or frauds committed, by agents, in
matters which do not fall within their
authority, do not affect their principals." Illustrations
(a) A, being B’s agent for the sale of goods, induces C to buy them
by a misrepresentation, which he was not authorized by B to make.
The contract is voidable, as between B and C, at the option of C.
(b) A, the captain of B’s ship, signs bills of lading without having
received on board the goods mentioned therein. The bills of lading
are void as between B and the pretended consignor.
239. Of Partnership.—[Rep. by the Indian Partnership Act, 1932 (9
of 1932), sec. 73 and Sch. II.]
240. Of Partnership.—[Rep. by the Indian Partnership Act, 1932 (9
of 1932), sec. 73 and Sch. II.]
241. Of Partnership.—[Rep. by the Indian Partnership Act, 1932 (9
of 1932), sec. 73 and Sch. II.]
242. Of Partnership.—[Rep. by the Indian Partnership Act, 1932 (9
of 1932), sec. 73 and Sch. II.]
243. Of Partnership.—[Rep. by the Indian Partnership Act, 1932 (9
of 1932), sec. 73 and Sch. II.]
244. Of Partnership.—[Rep. by the Indian Partnership Act, 1932 (9
of 1932), sec. 73 and Sch. II.]
245. Of Partnership.—[Rep. by the Indian Partnership Act, 1932 (9
of 1932), sec. 73 and Sch. II.]
246. Of Partnership.—[Rep. by the Indian Partnership Act, 1932 (9
of 1932), sec. 73 and Sch. II.]
247. Of Partnership.—[Rep. by the Indian Partnership Act, 1932 (9
of 1932), sec. 73 and Sch. II.]
248. Of Partnership.—[Rep. by the Indian Partnership Act, 1932 (9
of 1932), sec. 73 and Sch. II.]
249. Of Partnership.—[Rep. by the Indian Partnership Act, 1932 (9
of 1932), sec. 73 and Sch. II.]
250. Of Partnership.—[Rep. by the Indian Partnership Act, 1932 (9
of 1932), sec. 73 and Sch. II.]
251. Of Partnership.—[Rep. by the Indian Partnership Act, 1932 (9
of 1932), sec. 73 and Sch. II.]
252. Of Partnership.—[Rep. by the Indian Partnership Act, 1932 (9
of 1932), sec. 73 and Sch. II.]
253. Of Partnership.—[Rep. by the Indian Partnership Act, 1932 (9
of 1932), sec. 73 and Sch. II.]
254. Of Partnership.—[Rep. by the Indian Partnership Act, 1932 (9
of 1932), sec. 73 and Sch. II.]
255. Of Partnership.—[Rep. by the Indian Partnership Act, 1932 (9
of 1932), sec. 73 and Sch. II.]
256. Of Partnership.—[Rep. by the Indian Partnership Act, 1932 (9
of 1932), sec. 73 and Sch. II.]
257. Of Partnership.—[Rep. by the Indian Partnership Act, 1932 (9
of 1932), sec. 73 and Sch. II.]
258. Of Partnership.—[Rep. by the Indian Partnership Act, 1932 (9
of 1932), sec. 73 and Sch. II.]
259. Of Partnership.—[Rep. by the Indian Partnership Act, 1932 (9
of 1932), sec. 73 and Sch. II.]
260. Of Partnership.—[Rep. by the Indian Partnership Act, 1932 (9
of 1932), sec. 73 and Sch. II.]
261. Of Partnership.—[Rep. by the Indian Partnership Act, 1932 (9
of 1932), sec. 73 and Sch. II.]
262. Of Partnership.—[Rep. by the Indian Partnership Act, 1932 (9
of 1932), sec. 73 and Sch. II.]
263. Of Partnership.—[Rep. by the Indian Partnership Act, 1932 (9
of 1932), sec. 73 and Sch. II.]
264. Of Partnership.—[Rep. by the Indian Partnership Act, 1932 (9
of 1932), sec. 73 and Sch. II.]
265. Of Partnership.—[Rep. by the Indian Partnership Act, 1932 (9
of 1932), sec. 73 and Sch. II.]
266. Of Partnership.—[Rep. by the Indian Partnership Act, 1932 (9
of 1932), sec. 73 and Sch. II.]
The Indian Contract Act, 1872 SCHEDULE Enactments repealed.—
[Rep. by the Repealing and Amending Act, 1914 (10 of 1914) sec. 3
and Sch. II.]
The term Indemnity literally means “Security against loss”. In a
contract of indemnity one party – i.e. the indemnifier promise to
compensate the other party i.e. the indemnified against the loss
suffered by the other.

The English law definition of a contract of indemnity is – “it is a

promise to save a person harmless from the consequences of an
act”. Thus it includes within its ambit losses caused not merely by
human agency but also those caused by accident or fire or other
natural calamities.

The definition of a contract of indemnity as laid down in Section 124

– “A contract by which one party promises to save the other from
loss caused to him by the conduct of the promisor himself, or by the
conduct of any other person, is called a contract of indemnity.
The definition provided by the Indian Contract Act confines itself to
the losses occasioned due to the act of the promisor or due to the
act of any other person.

Under a contract of indemnity, liability of the promisor arises from

loss caused to the promisee by the conduct of the promisor himself
or by the conduct of other person. [Punjab National Bank v Vikram
Cotton Mills].
Every contract of insurance, other than life insurance, is a contract
of indemnity. The definition is restricted to cases where loss has been
caused by some human agency. [Gajanan Moreshwar v Moreshwar
Madan]

Section 124 deals with one particular kind of indemnity which arises
from a promise made by an indemnifier to save the indemnified from
the loss caused to him by the conduct of the indemnifier himself or
by the conduct of any other person, but does not deal with those
classes of cases where the indemnity arises from loss caused by
events or accidents which do not depend upon the conduct of
indemnifier or any other person. [Moreshwar v Moreshwar]

“Contract of indemnity” defined.-A contract by which one party

promises to save the other from loss caused to him by the conduct
of the promisor himself, or by the conduct of any other person, is
called a “contract of indemnity”.

Illustration

A contracts to indemnify B against the consequences of any

proceedings which C may take against B in respect of a certain sum
of 200 rupees. This is a contract of indemnity.

Nature of Contract of Indemnity –

A contract of indemnity may be express or implied depending upon

the circumstances of the case, though Section 124 of the Indian
Contract Act does not seem to cover the case of implied indemnity.
A broker in possession of a government promissory note endorsed
it to a bank with forged endorsement. The bank acting in good faith
applied for and got a renewed promissory note from the Public Debt
Office. Meanwhile the true owner sued the Secretary of State for
conversion who in turn sued the bank on an implied indemnity. It
was held that – it is general principle of law when an act is done by
one person at the request of another which act is not in itself
manifestly tortious to the knowledge of the person doing it, and such
act turns to be injurious to the rights of a third person, the person doing
it is entitled to an indemnity from him who requested that it should
be done. [Secretary of State v Bank of India].

The Indian Contract Act also deals with special cases of

implied indemnity –

1. U/s 69 if a person who is interested in payment of money

which another is bound by law to pay and therefore pays it, he is
entitled to be indemnified. For instance – if a tenant pays certain
electricity bill to be paid by the owner, he is entitled to be
indemnified by the owner.

2. Section 145 provides for right of a surety to claim

indemnity from the principal debtor for all sums which he has rightfully
paid towards the guarantee.

3. Section 222 provides for liability of the principal to

indemnify the agent in respect of all amounts paid by him during the
lawful exercise of his authority.
The plaintiff, an auctioneer, acting on the instruction of the
defendant sold certain cattle which subsequently turned out to
belong to someone else other than the defendant. When the true
owner sued the auctioneer for conversion, the auctioneer in turn
sued the defendant for indemnity. The Court held that the plaintiff
having acted on the request of the defendant was entitled to
assume that, if it would turned out to be wrongful, he would be
indemnified by the defendant. [Adamson v Jarvis].

Validity of Indemnity Agreement

A contract of indemnity is one of the species of contracts. The
principles applicable to contracts in general are also applicable to
such contracts so much so that the rules such as free consent, legality
of object, etc., are equally applicable.

Where the consent to an agreement is caused by coercion, fraud,

misrepresentation, the agreement is voidable at the option of the
party whose consent was so caused. As per the requirement of the
Contract Act, the object of the agreement must be lawful. An
agreement, the object of which is opposed to the law or against the
public policy, is either unlawful or void depending upon the provision
of the law to which it is subject.

Contract of indemnity when enforceable –

The question whether the liability of indemnifier commences only

when the indemnified has actually suffered loss or when there is an
apprehension that the indemnified by all chances is likely to suffer it.
The former view was held in cases like – Shankar Nimbaji v Laxman
Sapdu / Chand Bibi v Santosh Kumar Pal.
The plaintiff filed a suit to recover Rs. 5,000/- and interest from
defendant by the sale of a mortgaged property and, in case of
deficit, for a decree against the estate of defendant 2 which was in the
hands of his sons, the defendant 2 died during the pendency of the
suit. It was held that plaintiff cannot sue the defendant in anticipation
that the proceeds realized by the sale of the mortgaged property
would be insufficient and there would be some deficit. [Shankar
Nimbaji v Laxman Sapdu]

The defendant’s father while purchasing certain property

covenanted to pay off mortgage debt incurred by the plaintiff and
also promised to indemnify him if they were made liable for the
mortgage debt. The defendant’s father failed to pay off the
mortgage debt and plaintiff filed an action to enforce the covenant. It
was held as the plaintiff had not yet suffered any damage, the suit
was premature so far as the cause of action on indemnity was
concerned. [Chand Bibi v Santosh Kumar Pal]

A different point of view was held by the Courts in the

following cases –

Plaintiff company agreed to act as commission agent for the

defendant firm for purchase and sale of “Hessian” and “Gunnies”
and charge commission on all such purchases and the defendant
firm agreed to indemnify the plaintiff against all losses in respect of
such transactions. The plaintiff company purchased certain Hessian
from one Maliram Ramjidas.
The defendant firm failed to pay for or take delivery of the Hessian.
Then Maliram Ramjidas resoled it at lesser price and claimed the
difference as damages from the plaintiff company. The plaintiff
company went into liquidation and the liquidator filed a suit to
recover the amount claimed by Maliram from the defendant firm under
the indemnity.

The defendant argued that in as much as the plaintiff had not yet
paid any amount to Maliram in respect of their liability they were not
entitled to maintain the suit under indemnity. It was held negative
and decided in plaintiff’s favour with a direction that the amount
when recovered from the defendant firm should be paid to Maliram
Ramjidas. [Osmal Jamal & Sons Ltd. v Gopal Purushotham]
After the landmark deicision in the case of Gajanan Moreshwar v
Moreshwar Madan Mantri it has been well established that the
liability of the indemnifier commences as soon as the loss of the
indemnified becomes absolute, certain or imminent. It is not
necessary that the promisee should pay for the loss.

Right of the indemnity holder – (Section 125)

An indemnity holder (i.e. indemnified) acting within the scope of his

authority is entitled to the following rights –

1. Right to recover damages – he is entitled to recover all

damages which he might have been compelled to pay in any suit in
respect of any matter covered by the contract.

2. Right to recover costs – He is entitled to recover all costs

incidental to the institution and defending of the suit.
3. Right to recover sums paid under compromise – he is entitled
to recover all amounts which he had paid under the terms of the
compromise of such suit. However, the compensation must not be
against the directions of the indemnifier. It must be prudent and
authorized by the indemnifier.

4. Right to sue for specific performance – he is entitled to sue for

specific performance if he has incurred absolute liability and the
contract covers such liability. The promisee in a contract of indemnity,
acting within the scope of his authority, is entitled to recover from the
promisor-
(1) all damages which he may be compelled to pay in any suit in
respect of any matter to which the promise to indemnify applies
(2) all costs which he may be compelled to pay in any such suit if, in
bringing or defending it, he did not contravene the orders of the
promisor, and acted as it would have been prudent for him to act in
the absence of any contract of indemnity, or if the promisor authorized
him to bring or defend the suit ;
(3) all sums which he may have paid under the terms of any
compromise of any such suit, if the compromise was not
It is important to note here that the right to indemnity cannot be
claimed of dishonesty, lack of good faith and contravention of the
promisor’s request. However, the right cannot be negatived in case
of oversight. [Yeung v HSBC]

Right of Indemnifier –

Section 125 of the Act only lays down the rights of the indemnified
and is quite silent of the rights of indemnifier as if the indemnifier
has no rights but only liability towards the indemnified.
In the logical state of things if we read Section 141 which deals with
the rights of surety, we can easily conclude that the indemnifier’s
right would also be same as that of surety.

Where one person has agreed to indemnify the other, he will, on

making good the indemnity, be entitled to succeed to all the ways and
means by which the person indemnified might have protected himself
against or reimbursed himself for the loss. [Simpson v Thomson]

Principle of Subrogation is applicable because it is an essential part

of law of indemnity and is based on equity and the Contract Act
contains no provision in contravention with [Maharaja Shri Jarvat
Singhji v Secretary of State for India]

Contract of guarantee, surety, principal debtor and creditor:-

A “contract of guarantee ” is a contract to perform the promise, or

discharge the liability, of a third person in case of his default. The
person who gives the guarantee is called the ” surety”;
the person in respect of whose default the guarantee is given is
called the ” principal debtor “, and the person to whom the
guarantee is given is called the ” creditor “. A guarantee may be
either oral or written.

Consideration for guarantee.-Anything done, or any promise made,

for the benefit of the principal debtor, may be a sufficient
consideration to the surety for giving the guarantee.

Illustrations
(a) B requests A to sell and deliver to him goods on credit. A
agrees to do so, provided C will guarantee the payment of the price
of the goods. C promises to guarantee the payment in consideration
of As promise to deliver the goods. This is a sufficient consideration
for Cs promise.

(b) A sells and delivers goods to B. C afterwards requests A to forbear

to sue B for the debt for a year, and promises that, if he does so,
C will pay for them in default of payment by B. A agrees to forbear as
requested. This is a sufficient consideration for Cs promise.
(c) A sells and delivers goods to B. C afterwards, without
consideration, agrees to pay for them in default of B. The
agreement is void.

Suretys liability:-

The liability of the surety is coextensive with that of the principal

debtor, unless it is otherwise provided by the contract.

Illustration

A guarantees to B the payment of a bill of exchange by C, the

acceptor. The bill is dishonoured by C. A is liable not only for the
amount of the bill but also for any interest and charges which may
have become due on it.

Continuing guarantee.-A guarantee which extends to a series series

of transactions is called a “continuing guarantee”.
Illustrations

(a) A, in consideration that B will employ C in collecting the rent of

Bs zamindari, promises B to be responsible, to the amount of
5,000 rupees, for the due collection and payment by C of those
rents.

This is a continuing guarantee.

(b) A guarantees payment to B of the price of five sacks of flour to

be delivered by B to C and to be paid for in a month. B
delivers five sacks to C. C pays for them. Afterwards B delivers four
sacks to C, which C does riot pay for. The guarantee given by A
was not a continuing guarantee, and accordingly he is not liable for
the price of the four sacks.
Revocation of continuing guarantee.-A continuing guarantee may at
any time be revoked by the surety,as to future transactions, by
notice to the creditor.

Illustrations

(a) A, in consideration of Bs discounting, at As request, bills of

exchange for C, guarantees to B, for twelve months, the due payment
of all such bills to the extent of 5,000 rupees. B
discounts bills for C to the extent of 2,000 rupees. Afterwards, at the
end of three months, A revokes the guarantee. This revocation
discharges A from all liability to B for any subsequent discount. But
A is liable to B for the 2,000 rupees, on default of C.
Revocation of continuing guarantee by suretys death.-The death of
the surety operates, in the absence of any contract to the contrary,
as a revocation of a continuing guarantee, so far as regards future
transactions.

Discharge of surety by variance in terms of contract.

Any variance, made without the suretys consent, in the terms of the
contract between the principal 1[debtor] and the creditor, discharges
the surety as to transactions subsequent to the variance.

Illustrations

(a) A becomes surety to C for Bs conduct as a manager in Cs bank.

Afterwards B and C contract, without As consent, that Bs salary
shall be raised, and that he shall become liable for one-fourth of the
losses on overdrafts. B allows a customer to overdraw, and the
bank loses a sum of money. A is discharged from his suretyship by
the variance made without his consent, and is not liable to make
good this loss.

(b) A guarantees C against the misconduct of B in an office to which

B is appointed by C, and of which the duties are defined by an
Act of the Legislature. By a subsequent Act, the nature of the office
is materially altered. Afterwards, B misconducts himself. A is
discharged by the change from future liability under his guarantee,
though the misconduct of B is in respect, of a duty not affected by
the later Act.

(c) C contracts to lend B 5,000 rupees on the 1st March. A

guarantees repayment. C pays the 5,000 rupees to B on the 1st
January. A is discharged from his liability, as the contract has been
varied, inasmuch as C might sue B for the money before the 1st of
March.

Discharge of surety by release or discharge of principal debtor:-

The surety is discharged by any contract between the creditor and the
principal debtor, by which the principal debtor is released or by any
act or omission of the creditor, the legal consequence of which is the
discharge of the principal debtor.

Illustrations

(a) A contracts with B to grow a crop of indigo an As land and to deliver

it to B at a fixed rate, and C guarantees As performance of this
contract. B diverts a stream of water which is necessary for irrigation
of As land and thereby prevents him from raising the indigo. C
is no longer liable on his guarantee.

Discharge of surety when creditor compounds with, gives time

to, or agrees not to sue, principal debtor.-

A contract between the creditor and the principal debtor, by which

the creditor makes a composition with, or promises to give time to,
or not to sue, the principal debtor, discharges the surety, unless the
surety assents to such contract.
Surety not discharged when agreement made with third person to
give time to principal debtor. Where a contract to give time to the
principal debtor is made by the creditor with a third person, and not
with the principal debtor, the surety is not discharged.
Illustration

(a) C, the holder of an overdue bill of exchange drawn by A as

surety for B, and accepted by B, contracts with M to give time to B.
A is not discharged.
Release of one co-surety does not discharge others.-
Where there are co-sureties, a release by the creditor of one of
them does not discharge the others; neither does it free the surety
so released from his responsibility to the other sureties. Discharge
of surety by creditors act or omission impairing suretys eventual
remedy.
Guarantee obtained by misrepresentation invalid.
Any guarantee which has been obtained by means of
misrepresentation made by the creditor, or with his knowledge and
assent, concerning a material part of the transaction, is invalid.
Guarantee on contract that creditor shall not act on it until co-surety
joins Where a person gives a guarantee upon a contract that the
creditor shall not act upon it until another person has joined in it as
co-surety, the guarantee is not valid if that other person does not
join.

Co-sureties liable to contribute equally

Where two or more persons are CO-sureties for the same debt or
duty, either jointly or severally, and whether under the same or
different contracts, and whether with or without the knowledge of each
other, the co-sureties, in the absence of any contract to the contrary,
are liable, as between themselves, to pay each an equal share of the
whole debt, or of that part of it which remains unpaid by
the principal debtor1*.
Illustrations

(a)A, B and C are sureties to D for the sum of 3,000 rupees lent to
E. E makes default in payment. A, la and C are liable, as between
them selves, to pay 1,000 rupees each.

(b)A, B and C are sureties to D for the sum of 1,000 rupees lent to
E, and there is a contract between A, B and C that A is to be
responsible to the extent of one-quarter, B to the extent of one-
quarter, and C to the extent of one-half. E makes default in
payment. As between the sureties, A is liable to pay 250 rupees, B
250 rupees, and C 500 rupees.
Liability of co-sureties bound in different sums.-
Co-sureties who are bound in different sums are liable to pay
equally as far as the limits of their respective obligations permit.

Illustrations

(a)A, B and C, as sureties for D, enter into three several bonds,

each in a different penalty, namely, A in the penalty of 10,000
rupees, B in that of 20,000 rupees, C in that of 40,000 rupees,
conditioned for Ds duly accounting to E. D makes default to the
extent of 30,000 rupees. A, B and C are liable to pay 10,000 rupees.
(b)A, B and C, as sureties for D, enter into three several bonds,
each in a different penalty, namely, A in the penalty of 10,000
rupees, B in that of 20,000 rupees, C in that of 40,000 rupees,
conditioned for Ds duly accounting to E. D makes default to the
extent of 70,000 rupees. A, B and C have to pay each the full
penalty of his bond.
Difference between Indemnity and Guarantee:-
In a contract of indemnity there are two parties i.e. indemnifier and
indemnified. A contract of guarantee involves three parties i.e.
creditor, principal debtor and surety.
An indemnity is for reimbursement of a loss, while a guarantee is for
security of the creditor.
In a contract of indemnity the liability of the indemnifier is primary
and arises when the contingent event occurs. In case of contract of
guarantee the liability of surety is secondary and arises when the
principal debtor defaults.
What is Sale of Goods Act, 1930: Sale and
agreement to sell; Doctrine of Caveat Emptor;
Rights of unpaid seller and rights of buyer?

Sale of Goods Act, 1930

The Sale of Goods Act, 1930 governs the contracts relating to sale
of goods. It applies to the whole of India except the State of Jammu
& Kashmir. The contacts for sale of goods are subject to the general
principles of the law relating to contracts i.e. the Indian Contact Act.
A contract for sale of goods has, however, certain peculiar features
such as, transfer of ownership of the goods, delivery of goods rights
and duties of the buyer and seller, remedies for breach of contract,
conditions and warranties implied under a contract for sale of
goods, etc. These peculiarities are the subject matter of the provisions
of the Sale of Goods Act, 1930.

FORMATION OF CONTRACT OF SALE

CONTRACT OF SALE OF GOODS

A contract of goods is a contract whereby the seller transfers or

agrees to transfer the property to goods to the buyer for a price. There
may be a contract of sale between one part-owner and another [Sec.
4(1)]. A contract of sale may be absolute or
conditional [Sec 4(2)].
The term ‘contract of sale’ is a generic term and includes both a
sale and an agreement to sell.
Sale and agreement to sell: when under a contract of sale, the
property in the goods is transferred from the seller to the buyer, the
contract is called a ‘sale’, but where the transfer of the property in
the goods is to take place at a future time or subject to some
conditions thereafter to be fulfilled, the contract is called an
‘agreement to sell’ [Sec. 4(3)]. An agreement to sell becomes a sale
when time elapses or the conditions, subject to which the property
in the goods is to be transferred are fulfilled [Sec. 4(4)].

ESSENTIAL ELEMENTS OF A CONTRACT OF SALE

Two parties: there must be 2 distinct parties i.e. a buyer and a

seller, to affect a contract of sale and they must be competent to
contract. ‘Buyer’ means a person who buys or agrees to buy goods
[Sec. 2(1)]. ‘Seller’ means a person who sells or agrees to sell
goods [Sec. (13)].

Goods: there must be some goods the property in which is or is to

be transferred from the seller to the buyer. The goods which form
the subject-matter of the contract of sale must be movable. Transfer
of immovable property is not regulated by the Sale of Goods Act.

Price: Price is an essential ingredient for all transactions of sale and

in the absence of the price or the consideration, the transfer is not
regarded as a sale. The transfer by way of sale must be in
exchange for a price. It has been held that price normally means
money. The price can be paid fully in cash or it can be partly paid
and partly promised to be paid in future. The price can be fixed by the
agreement between the parties before the conveyance of the property
Transfer of general property: There must be a transfer of general
property as distinguishes from special property in goods from the
seller to the buyer. For e.g. if A owns certain goods he has general
property in the goods. If he pledges them with B, B has special
property in the goods.

Essential elements of a valid contract: All essential elements of a

valid contract must be present in the contract of sale.

EFFECT OF DESTRUCTION OF GOODS:

Goods perishing before making of contract (Sec 7): A contract for

the sale of specific goods is void if at the time when the contract
was made, the goods have, without the knowledge of the seller,
perished. The same would be the case where the goods become so
damaged as no longer to answer to their description in the contract.

Goods perishing after the agreement to sell but before the sale is
effected (Sec.8): An agreement to sell specific goods becomes void
if subsequently the goods, without any fault on the part of the seller
or the buyer, perish or become so damaged as no longer to answer to
their description in the agreement before the risk passes to the buyer,
‘Fault’ means wrongful act or default [Sec 2(5)]

CASE STUDY

Bathroom city washed its hands off the problem

Simon Bell, of King’s Lynn, Norfolk, has been battling with Bathroom
City, Birmingham, over a cracked bathroom unit for six months after
buying a shower tray, cabinet and basin in March. The delivery did
not turn up for a month, despite a promise that it would arrive within
days. Mr. Bell, left, who is a former heating and plumbing engineer,
says: “When the delivery was made I inspected the goods and could
see nothing wrong. But because the delivery was so late I missed
my opportunity to fit it immediately.”

It wasn’t until a couple of days later that he noticed a “hairline crack”

on the basin when he took it out of the box. He sent a photograph of
the damage to Bathroom City, which said that there was nothing it
could do because he had not reported it within two days of delivery.
The company also claimed that it did not look like a manufacturing
fault but damage caused when fitting the taps.

However, Consumer Direct says that it is the duty of Bathroom City

to prove that it was not responsible; if it cannot, then the company
owes Mr Bell a replacement or repair. Mr. Bell says: “Bathroom City
has refused to budge and my e-mails and letters have been
ignored. I have fitted many bathroom suites over the years and have
never broken anything. What’s more, I know that it is impossible to
inflict this type of damage with modern taps.”

After being contacted by Times Money, Bathroom City offered to

replace the basin as a goodwill gesture, but maintains that it has
“clear proof” that it did not damage the basin because “Mr. Bell
clearly states that when it was delivered he checked the goods over
and found no initial fault”.
Question 1:

Identify the elements of sale of goods.

The elements of sale of goods present in this case study are as
follows:
Two parties: there are 2 parties present here that is the buyer
(Simon Bell) and the seller, (Bathroom City, Birmingham)
Goods: the goods which should be transferred from the seller to the
buyer are a shower tray, cabinet and basin. These goods which
form the subject-matter of the contract of sale are movable.

Price: Though nothing about price or money is mentioned, it is obvious

that a certain amount of cash is paid, (naturally speaking) because
the goods mentioned are not gifts and are brought from the bathroom
city by Mr. Simon Bell
Transfer of general property: the goods show the nature of general
property.

Essential elements of a valid contract: the essential elements if a

contract are as follows:
Two parties: As mentioned before, there are two parties mentioned
in the given case study that is the buyer (Simon Bell) and the seller,
(Bathroom City, Birmingham)
Offer/Acceptance: there is an agreement seen in the case study i.e.
the goods offered by the company, The Bathroom city are accepted
by the customer, Mr. Simon Bell.

Legal Obligation: the legal formalities of the contract are not clearly
mentioned but since there is a promise being mentioned that the
goods would arrive within days, it is assumable that the required
statutory formalities are complied with.

Question 2

Identify in which point the case supports or deviates the rules of

sale of goods act.
The instances when the case deviate the rules of sale of goods act:
The goods where not delivered as promised by the promise (the
bathroom city)

According to (Sec.11) which relates to stipulation as to time, in a

contract of sale, stipulations other than those relating to the time of
payment are regarded as of the essence of the contract. Thus, if a
time if fixed for the delivery of goods, the delivery must be made at
the fixed time; otherwise the other party is entitled to put an end to the
contract.

The mode of payment is not mentioned the given case

Lack of mutual consent
The bathroom city refused to respond to the e-mails and letters of
Mr. Bell.

According to the company, “Mr. Bell clearly states that when it was
delivered he checked the goods over and found no initial fault” but
Mr. Bell insisted on the fact that the basin be either fixed or replaced
as it had been damaged prior to its fitting
The instances when the case supports the rules of sale of goods
act:
All the essential elements of the Sale of Goods Act are clearly present
in the case except for the price of the goods as mentioned in the
answer to the previous question.
Two parties: there are 2 parties present here that is the buyer
(Simon Bell) and the seller, (Bathroom City, Birmingham)
Goods: the goods which should be transferred from the seller to the
buyer are a shower tray, cabinet and basin. These goods which
form the subject-matter of the contract of sale are movable.
Price: Though nothing about price or money is mentioned, it is
obvious that a certain amount of cash is paid, (naturally speaking)
because the goods mentioned are not gifts and are brought from the
bathroom city by Mr. Simon Bell

Transfer of general property: the goods show the nature of general

property.
Essential elements of a valid contract: the essential elements if a
contract are present.
All the essential elements of the contract (according to Indian
contract act, 1872) are also present.

Sale and agreement to sell

A ‘Contract of Sale‘ is a type of contract whereby one party (seller)

either transfers the ownership of goods or agrees to transfer it for
money to the other party (buyer). A contract of sale can be a sale or
an agreement to sell. In a contract of sale, when there is an actual
sale of goods, it is known as Sale whereas if there is an intention to
sell the goods at a certain time in future or some conditions are
satisfied, it is called an Agreement to sell.
Both sale and agreement to sell are types of contract, wherein the
former is an executed contract whereas the latter represents an
executory contract. Many law students get confused amidst these
two terms, but these are not one and the same. Here, in the article
given below, we’ve explained the difference between sale and
agreement to sell, check it out.
Content: Sale Vs Agreement to sell
1. Comparison Chart
2. Definition
3. Key Differences
4. Conclusion
Comparison Chart

BASIS FOR AGREEMENT TO

SALE
COMPARISON SELL

Meaning When in a When in a contract

contract of sale, of sale the parties to
the exchange of contract agree to
goods for money exchange the goods
consideration for a price at a
takes place future specified date
immediately, it is is known as an
known as Sale. Agreement to Sell.

Nature Absolute Conditional

BASIS FOR AGREEMENT TO
SALE
COMPARISON SELL

Type of Contract Executed Contract Executory Contract

Transfer of risk Yes No

Title In sale, the title of In an agreement to

goods transfers to sell, the title of
the buyer with the goods remains with
transfer of goods. the seller as there is
no transfer of
goods.

Right to sell Buyer Seller

Consequences Responsibility of Responsibility of

of subsequent buyer seller
loss or damage
to the goods

Tax VAT is charged at No tax is levied.

the time of sale.
Suit for The buyer can claim Here the buyer
breach of damages from the seller has the right to
contract by and proprietary remedy claim damages
the seller from the party to whom the only.
goods are sold.

Right of Right to sue for the price. Right to sue for

unpaid seller damages.

Definition of Sale

A sale is a type of contract in which the seller transfers the

ownership of goods to the buyer for a money consideration. Here
the relationship amidst the seller and buyer is of creditor and debtor.
It is the result of an agreement to sell when the conditions are
fulfilled and the specified time is over.
Types of Sale

The following are the essential conditions regarding Sale:

1. There must be at least two parties; one is the buyer, and other
is the seller.
2. The subject matter of the sale is the goods.
3. Payment should be made in the country’s legal currency.
4. The goods should pass from seller to buyer.
5. All the necessary conditions of a valid contract should be
present like free consent, consideration, a lawful object, capacity
of parties, etc.
If the goods are being sold and the property is transferred to the
buyer, but the seller is not paid. Then, the seller can go to the court
and file a suit against the buyer for the damages and the price too. On
the other hand, if the goods are not delivered to the buyer then
he can also sue the seller for damages.
Definition of Agreement to Sell

An agreement to sell is also a contract of sale of goods, in which the

seller agrees to transfer goods to the buyer for a price at a later date
or after the fulfilment of a condition.

When there is a willingness of the both the parties to constitute a

sale i.e. the buyer agrees to buy, and the seller is ready to sell the
goods for monetary value. In an agreement to sell the performance
of the contract is done at a future date, i.e. when the time elapses or
when the necessary conditions are satisfied. After the contract is
executed, it becomes a valid sale. All the necessary conditions
required at the time of sale should exist in the case of an agreement
to sell too.

If the seller rescinds the contract, then the buyer can claim
damages for the breach of contract. On the other hand, the unpaid
seller can also sue the buyer for damages.

Key Differences Between Sale and Agreement to Sell

The following are the major differences between sale and
agreement to sell:

1. When the vendor sells goods to the customer for a price, and
the transfer of goods from the vendor to the customer takes place
at the same time, then it is known as Sale. When the seller
agrees to sell the goods to the buyer at a future specified date
or after the necessary conditions are fulfilled then it is
known as Agreement to sell.
 2. The nature of sale is absolute while an agreement to sell is
conditional.
3. A contract of sale is an example of Executed Contract whereas
the Agreement to Sell is an example of Executory Contract.
4. Risk and rewards are transferred with the transfer of goods to
the buyer in Sale. On the other hand, risk and rewards are not
transferred as the goods are still in possession of the seller.
5. If the goods are lost or damaged subsequently, then in the
case of sale it is the liability of the buyer, but if we talk about
an agreement to sell, it is the liability of the seller.
6. Tax is imposed at the time of sale, not at the time of
agreement to sell.
7. In the case of a sale, the right to sell the goods is in the hands
of the buyer. Conversely, in agreement to sell, the seller has
the right to sell the goods.

Conclusion

Under Indian Sale of Goods Act 1930, section 4 (3) deals with the
contract of sale and agreement to sell, where it has been clarified that
the agreement to sell also come under sale. However, there is a
distinction between these two terms which we discussed above.

Doctrine of Caveat Emptor

The rule of caveat emptor which means “let the buyer beware” has
been overridden by the rule of caveat venditor. Such change was
required because of changing conditions of modern trade and
commerce. The phrase caveat emptor is not used by the judges
very often nowadays. This doctrine is based on the principle that
when a buyer is satisfied as to the product’s suitability, then he is
left with no subsequent right to reject such product. The caveat
emptor rule originated many years ago in common law and over the
times has undergone major changes. The exceptions of the doctrine
started expanding with time as it was being given a concrete
shape.

Statement Of Caveat emptor

The principle of Caveat emptor is explained in Section 16 of

the Sale of Goods Act 1930 which states that there is no implied
condition or warranty as to quality or fitness for any particular
purpose of goods supplied.”

The History of Caveat emptor

In the 19th century, the attitude of common law towards the buyer can
be understood by the maxim Caveat emptor which means let the
buyer beware. This maxim explains that a purchaser must carefully
examine and judge what is best for him. The purchaser should not
take the risk of the condition and quality of the object which he needs
to buy, he must protect himself by a warranty. The philosophy behind
the rule of Caveat emptor basically was that buyer shall apply his
own skill and judgment before buying.

It is based on the fundamental principle that when a buyer is satisfied

with the suitability of the product for his use, no subsequent right will
be left with him to reject the same. When the rule of caveat emptor
originated, it was quite rigid and there was no scope for any
subsequent change in the rule. In English Sale of Goods Act, 1893,
it is highly noticeable and evident that the seller’s duties as to
requirements of disclosure when a product is sold was minimal. There
was no duty upon the seller to provide information and proper
examination of the goods by the buyer was considered over and
above any other duty.

The Concepts which could be used to shift the burden as to quality

and fitness on the seller such as ‘fitness of goods’ and
‘merchantability’, were not encouraged. Another strong statement
which was present in Section 11(1)(c) in the said Act, which
mandated that the buyer could not reject the goods on any ground
in cases where there was sale of ‘specific’ goods. Thus, it is highly
noticeable that the law was bent towards the seller and in those times,
one could not even find a corresponding rule which would put the
burden on the seller.

The Fallacy & The Need For Change

At the time of its origin the rule of Caveat emptor prevailed in its
absolute form but it was later categorised as detrimental to the
development of commerce and trade. Rule of Caveat emptor in its
absolute form was highly detrimental to the buyer because of the
absence of the element of reasonable examination. Therefore a buyer
would have no recourse against the seller who is aware of the latent
defect but did not aware the buyer about the same and the buyer
cannot detect that defect (as it can not be detected by reasonable
examination).

Another strong reason for the fallacy of the rule of Caveat emptor, is
the need for providing protection to the buyer who purchases the
goods in good faith, that is, where the buyer purchases goods from
the seller by relying on his skill and judgment. Thus the rule was
subsequently diluted so as to give proper recognition to the
relationship between the seller and the buyer and in order to give
rise to a scenario wherein commercial transactions are encouraged.
How it changed to Caveat venditor?

For the aforementioned reasons, the rule of Caveat emptor for the first
time suffered backlash in the case of Priest v. Last, wherein
reliance was placed on the buyer relying on seller’s skill and
judgment and the buyer was allowed to reject the goods for the first
time. In this case the buyer purchased a hot water bottle relying on
the seller’s skill and judgment. It was observed that if a buyer
purchases an object relying on the seller’s skill and judgment then
the buyer will be allowed to reject the same on the occurrence of
any defect. This was the first ever decision in common law in which
importance was given to the buyer’s reliance on the seller’s
judgment and skill.

Gradually this rule gained prominence and the seller’s obligations

have been given a proper shape along various case laws and
statutes limiting the rule of Caveat emptor to ‘reasonable
examination’. In cases like milk containing typhoid germs,
contaminated beer, the Courts have been generous enough to
establish that where the defects would not have been traced by
reasonable examination in ordinary circumstances, the buyer will be
exempted from this duty.

Further, in Harlingdon & Leinster Enterprises Ltd v. Christopher Hull

Fine Art Ltd, the buyer claimed that he had the right to reject the
painting as it was not of the original painter. So, it was observed that
where the buyer has more expertise in a given field and is more
reasonable than the seller then it would be completely wrong to
suggest that the buyer would have the right to reject the purchased
object. Therefore the seller is bound by the duty to make known to
the buyer all the defects in the goods and the information relating to
the usage of goods. This obligation of the seller is irrespective of his
own judgment and skill because what matters is what he is
expected to have and not what he has.
Judicial Trends

Exceptions To The Rule Of Caveat emptor (Section 16 of The

Sale of Goods Act, 1930)

Fitness for buyers purpose [Section 16(1)]

Section 16(1) of the said Act provides that in situations where the
seller is aware either expressly or by necessary implication of the
purpose for which a buyer needs to purchase a specific product,
further, the goods are of such description which the seller supply in
his ordinary course of business and by relying upon the judgment
and skill of the seller, the buyer purchases that product, then the
goods should be in accordance with the purpose. In other words,
this section explains the circumstances where the seller has an
obligation to supply the goods to the buyer as per the purpose for
which he intends to buy the goods.

Requirements of Section 16(1) are as follows:-

The buyer should explain the particular purpose for which he is
making the purchase to the seller.
 The buyer should rely on the seller’s skill and judgment while
making a purchase.
The goods must be of a description which the seller in his
ordinary course of business supply.

In Shital Kumar Saini v. Satvir Singh, a compressor was purchased

by the petitioner with one year warranty. The defect in the product
appeared within three months. The petitioner sought a
replacement. The seller replaced it but did not provide any further
warranty. The State Commission stated that an implied warranty
was guaranteed under section 16 of the Sale of Goods Act, 1930
and allowed it to be rejected.

Sale under Trade Name [Proviso to S. 16(1)]

In some cases, a buyer purchases goods not by relying on the skill

and judgment of the seller but by relying on the product’s trade
name. In such cases, it would be unfair that the seller is burdened
with the responsibility of quality. The proviso to Section 16 deals
with such cases. It provides that:

“Provided that, there is no implied condition as to fitness for any

particular purpose in the case of a contract for the sale of a
specified product under its patent or other trade names.
Merchantable quality [Section 16(2)]

The second most important exception to the rule of Caveat emptor

is incorporated by Section 16(2) of the Act. The Section imposes a
duty upon the dealer to deliver the goods of merchantable quality.
Section 16(2) states that there is an implied condition that when goods
are purchased by description from a seller who deals in the goods of
that description, the goods shall be of merchantable quality.
Meaning of Merchantable Quality: It implies that when the goods
are purchased for resale, the goods must be capable enough of
passing in the market under the name by which they are sold.
Merchantable quality depends on the following two factors:-

Marketability- Merchantability does not mean that the goods are

saleable just because the goods look all right, but they shall be
marketable at their full value. “Merchantability does not mean that
the goods are saleable even if it has defects which makes it unfit for
its proper use but is not noticeable on ordinary examination.

Reasonable fitness for general purposes- “Merchantable quality”

means, that if goods are purchased for self-use, they must be fit for
the purpose for which they are generally used. Example: A person
bought a hot-water bottle which is generally used for the application
of heat. The bottle burst to scald the person’s wife. The seller was
held to be liable.

Examination by buyer [Proviso to S. 16(2)]

The proviso to S. 16(2) provides that “if upon examination of the

goods to be purchased, the defects ought to have been revealed,
then no implied condition as regards to the defect will exist.” The
requirement provided in the proviso would be considered as
satisfied fully when the buyer was given full opportunity to examine
the goods and the argument that the buyer did not use that
opportunity will not make any difference, an existence of opportunity
is sufficient in such cases.

Conditions implied by trade usage [Sec. 16(3)]

Section 16(3) gives statutory force to the conditions implied by the
usage of a particular trade. It states:
“An implied condition or warranty as to the quality or fitness for any
particular purpose may be annexed by the usage of trade.”
In the case of Peter Darlington Partners Ltd v Gosho Co Ltd, a
contract for the sale of canary seeds was subjected to the custom of
trade and held that if there exist any impurities in the seeds the
buyer will get a rebate on the price but he would not reject the
goods. However, a custom which is unreasonable will not affect the
parties’ contract.

Conclusion

Thus, it can be concluded from the aforementioned analysis that the

rule of Caveat emptor is being taken over by the rule of Caveat
venditor and is dying a slow death. The change is taking place in
order to create a more consumer-oriented market wherein
transactions of commercial nature will be encouraged. Such change
will help to create a more consumer-friendly market and an
appropriate balance can be maintained between the rights and
obligations of the buyer and the seller. But it should be noted that if
this approach is taken too far, it might end up in becoming
extremely pro buyer and then some people might end up misusing the
protection under the law.

Rights of unpaid seller and rights of buyer

The seller who has not received price of goods sold or the seller
who has got his negotiable instrument dishonored will become Unpaid
Seller. Sale of goods act, 1930 Section 45 to 55 read about the rights
of Unpaid Seller. Those rights can be classified into two groups. They
are as follows.

Rights against Goods

Rights against Buyer

What are the Rights of Unpaid Seller against Goods

When goods are in existence and title has not gone to buyer,
Unpaid Seller can exercise the rights against goods. These rights
are categorized into three types. They are as follows.

1. Right of lien
2. Right of stoppage in transit
3. Right to Re-Sell

Right of lien
Right to retain goods by unpaid seller till amount is recovered is called
right of lien. If unpaid seller wants to exercise right of lien, he has to
fulfill the following conditions.
He must be unpaid seller
There should be no credit terms in the Contract of Sale.
After completion of credit period, right of lien can be exercised.
The unpaid seller should have obtained those goods lawfully.
Amount must be due on those goods only against which right
of lien is decided.
Right of stoppage in transit
Unpaid Seller has right to stop the goods in the transit itself. To
exercise this right the following conditions are to be fulfilled.
He must be unpaid seller.
Buyer must be insolvent.
There should be no credit terms in the Contract of Sale. After
expiry of Credit period, this right can be exercised.
Amount must be due on those goods only against which this
right is desired.

At times the transport company may refuse to deliver the goods to

buyer due to any reason. Then the goods are said to be in transit. At
times, the buyer may retain the goods at the transport company. Then
the goods are said to be not in transit.

Right to re-sale
The unpaid seller can re-sell the goods for non-payment of price by
buyer. He can exercise this right when the goods are of perishable
nature while doing so it is beneficiary to the seller to give a notice to
buyer with regard to resale. If such notice is given seller can claim
loss.
If any on resale from the buyer. On the other hand if there is profit
on resale the former buyer cannot claim that profit. If notice is not
given the seller has to face adverse consequence. If there is any
loss on re-sale, that loss cannot be recovered from buyer. But in
case of profit, seller has responsibility to pay that amount of profit to
buyer.

What are the Rights of Unpaid Seller against Buyer

At times it becomes inevitable choice to exercise rights on buyer for
non-payment of price. The unpaid seller can file suits against the
buyer as explained below.

Right to sue for price

It is fundamental right of buyer to file a suit for recovery of unpaid
price. In the case of sale. Suit will be made for price balance, but
not for compensation.

Right to sue to interest

If the buyer makes unreasonable delay for making payment, the seller
has right to claim interest also.

Right to sue for compensation

When an agreement to sell is breached, the seller can see only for
compensation for the breach of Contract. Under such circumstances
he cannot sue for price.

Right to Sue for anticipatory contract

When an agreement to sell is breached by buyer before date of
performance. It is called anticipatory breach. Then also seller can
sue for compensation.
What is Negotiable Instruments Act, 1881: Types
of negotiable instruments; Negotiation and
assignment; Dishonour and discharge of
negotiable instruments?

Negotiable Instruments Act, 1881

Negotiable Instrument is a combination of two words Negotiable and

Instrument with subject to their different meaning as “Negotiable is
transferrable” and “Instrument is written document”. Two modes are
being used for the Negotiable Instrument for its transferability either
it can be delivered or by endorsement, passes to the transferee a
bona fide title to payment according to its tenor and irrespective of the
title, transferor is bearing, provided that he is a bona fide holder for
Instrument without any of notice of defect attaching to the instrument
or in the title of the transferor, the principle of Nemo dat quod non
habit does not apply.

Negotiable Instrument should be of as such nature that it should be

in the form of writing, signed by the maker or drawer, an unconditional
promise or order to pay, a fixed amount of money to be stated, freely
transferrable from one person to another person, be payable to order
or to bearer, lastly be payable on demand or at a definite time.

II. Negotiable Instrument meaning:

According to Section 13 of the Negotiable Instrument Act, 1881,
Negotiable Instrument means a promissory note, bill of exchange or
cheque payable either to order or to bearer. A negotiable instrument
may be made payable to two or more payees jointly, or it may be
made payable in the alternative to one of two, or one or some of
several payees.

Explanation as to bare provisions,

The explanation I - A promissory note, bill of exchange or cheque is

payable to order which is expressed to be so payable or which is
expressed to be payable to a particular person, and does not
contain words prohibiting transfer or indicating an intention that it shall
not be transferable.

Explanation II - A promissory note, bill of exchange or cheque is

payable to bearer which is expressed to be so payable or on which
the only or last endorsement is an endorsement in blank.

Explanation III - Where a promissory note, bill of exchange or cheque,

either originally or by endorsement, is expressed to be payable to the
order of a specified person, and not to him or his order, it is
nevertheless payable to him or his order at his option.

III. Types of Negotiable Instrument

1. Promissory Note: Promissory note are one of the legal
document or an instrument by which rights are conferred and
party promises to pay a certain or a fixed amount of money to
another person at a demand of the payee. Promissory notes is
 unconditional as to other Instruments and is signed by the
maker.
Maker: Person who makes the Promissory note and promises to
pay a certain amount.

Payee: A person to whom the payment is to made.

Section 4 states as a “Promissory note” is an instrument in writing
(not being a bank-note or a currency-note) containing an
unconditional undertaking, signed by the maker, to pay a certain
sum of money only to, or to the order of, a certain person, or to the
bearer of the instrument.

Essential Ingredients for promissory note are as follows:

1. Promissory Note to be in writing.
2. It should be unconditional.
3. It should be payable to a definite person.
4. Sign on Promissory Note to be done by Maker or Payee.
5. Amount to be paid on demand or at a fixed period of time.
6. Instrument shall bear a stamp

Illustrations:
A Signs instruments in the following terms:
(a ) “I promise to pay B or order Rs. 500.”
(b) “I acknowledge myself to be indebted to B in Rs. 1,000, to be
paid on demand, for value received.”

2. Bills of Exchange: It is Negotiable Instrument in form of a

written promissory document for a person to pay a certain
amount of money to the required payee. Three Parties are
here in the Bills of Exchange as they are drawer, drawee and
 payee. It includes an unconditional order which is signed by
maker for directing a person to pay.

Section 5 of The Negotiable Instrument Act states Bill of Exchange

as: 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.

A promise or order to pay is not “conditional”, within the meaning of

this section and section 4, by reason of the time for payment of the
amount or any instalment thereof being expressed to be on the
lapse of a certain period after the occurrence of a specified even
which, according to the ordinary expectation of mankind, is certain
to happen, although the time of its happening may be uncertain.

The sum payble may be “certain”, within the meaning of this section
and section 4, although it includes future interest or is payable at an
indicated rate of exchange, or is according to the course of exchange,
and although the instrument provides that, on default of payment of
an instalment, the balance unpaid shall become due.

The person to whom it is clear that the direction is given or that

payment is to be made may be a “certain person”, within the
meaning of this section and section 4, although he is mis-named or
designated by description only.

3. Cheques: Cheque is an order to the bank to pay the certain

amount of money to the account of the drawer, Cheque
 basically crossed in its back to end its negotiability and it is
always accepted into the account of the payee.

Section 6 of the Negotiable Instrument Act states cheque

A “cheque” is a bill of exchange drawn on a specified banker and

not expressed to be payable otherwise than on demand and it
includes the electronic image of a truncated cheque and a cheque
in the electronic form.

IV. Section 138 of Negotiable Instrument Act

Section 138 of the Negotiable Instrument Act, 1881, talks about the
dishonour of cheque for insufficiency, etc., of funds in the account,
as it states about the essential ingredients, exceptions, punishment
and fine.

Essential Ingredients
1. Cheque to be drawn by a person,
2. To banker,
3. For payment of any amount of money to another person,
4. To discharge in part any debt or other liability,
5. Cheque returned by the bank unpaid,
6. Amount of the money in the bank a/c is insufficient to
dishonour the cheque,
7. Or that it exceeds the amount arranged to be paid from that
account by an agreement made with that bank,

Exceptions:
 1. the cheque has been presented to the bank within a period of
three months from the date on which it is drawn or within the
period of its validity, whichever is earlier.
2. the payee or the holder in due course of the cheque, as the
case may be, makes a demand for the payment of the said
amount of money by giving a notice; in writing, to the drawer of
the cheque, [within thirty days] of the receipt of information by
him from the bank regarding the return of the cheque as
unpaid.
3. the drawer of such cheque fails to make the payment of the
said amount of money to the payee or, as the case may be, to
the holder in due course of the cheque, within fifteen days of
the receipt of the said notice.

Punishment:
1. Imprisonment for two years,
2. Fine which may extend to twice the amount of the cheque,
3. Imprisonment and fine both.

V. Cognizance of Offence under Section 138

Section 142 of the Negotiable Instrument Act, states the
cognizance, procedure and jurisdiction of the offence u/s 138.

Procedure:
1. Complaint to be filled in writing.
2. By the payee or the holder in due course of the cheque.
3. Complaint to be made within 1 month of the date on which the
cause of action arises.
4. Metropolitian Magistrate or a Judicial Magistrate of the I st Class
shall try any offence punishable under Section 138 of NIA.
Provided that the cognizance of a complaint may be taken by
the Court after the prescribed period, if the complainant
satisfies the Court that he had sufficient cause for not making
a complaint within such period

Jurisdiction: Offence under Section 138 shall be inquired into and

tried only by a court within whose local jurisdiction,- if the cheque is
delivered for collection through an account, the branch of the bank
where the payee or holder in due course, as the case may be,
maintains the account, is situated; or; if the cheque is presented for
payment by the payee or holder in due course, otherwise through
an account, the branch of the drawee bank where the drawer
maintains the account, is situated.

VI. Documents required for filling Complaint u/s 138 of NIA.

Some of the basic documents that are necessary required to file
complaint under the Section 138 of NIA are as follows.
1. Memo of Parties
2. Complaint u/s 138 of NIA, 1881.
3. Pre-summoning Evidence/ Affidavit
4. List of Witnesses
5. List of Documents
6. Vakalatnama.
7. Copy of the resolution authorizing Complainant's Attorney (in
case of Company, firm etc).
8. Original dishonored cheques
9. Returning memo dated
10. Copy of legal notice dated
11. Postal Receipt No. dated
12. UPC Dated
 13. Limitation Document

VII. Offences by Company

Subject to the Provisions for the Cheque Bounce in the Negotiable
Instrument Act, Section 141 of the Negotiable Instrument Act states
about the liability of the Company or directors or both in offence of
Section 138.
If the person committing an offence under section 138 is a
company, every person who, at the time the offence was committed,
was in charge of, and was responsible to, the company for the conduct
of the business of the company, as well as the company, shall be
deemed to be guilty of the offence and shall be liable to be proceeded
against and punished accordingly
Exception: i. Provided that nothing contained in this sub-section
shall render any person liable to punishment if he proves that the
offence was committed without his knowledge, or that he had
exercised all due diligence to prevent the commission of such offence.

ii. Provided further that where a person is nominated as a Director

of a company by virtue of his holding any office or employment in
the Central Government or State Government or a financial
corporation owned or controlled by the Central Government or the
State Government, as the case may be, he shall not be liable for
prosecution under this Chapter.

iii. Person who is in charge or responsible to the company by that very

fact or act be deemed to be guilt and will be liable for the said
offence under the section 138 of Negotiable Instrument Act.
VIII. Compensation under the NIA Act S.143 A and appeal
S.148.
1. As with the time amendments are being done and with respect
to it 2018 amendment inserted Provision for payment
of interim compensation to the complainants. Section 143A
of the Negotiable Instrument Act, provides for the
compensation, as it empowers the court to order the drawer of
the cheque to pay interim compensation as to the complainant.
1. In case of a summary trial or a summons case, where the
drawer pleads not guilty to the allegations made in the
complaint, and
2. In any other case, upon framing of the charges.
In case of Quantum of Compensation – Compensation amount
shall not exceed 20% of the amount of cheque.
Acquittal - In case where the drawer is acquitted then the payee
may be directed to refund the entire amount of interim
compensation along with the RBI's Prevailing interest rate, to the
drawer.

Time Frame - The interim compensation shall be paid within 60

days from the date of the order by the court which may be further
extended by an additional period of 30 days, subject to the sufficient
reasons being shown.
B. With respect to section 143A as Section 148 was also inserted
by the amendment in the Negotiable Instrument Act, 1881. As
Section 148 empowers the Appellate Court to order payment
pending the appeal against the conviction as u/s 138 of the
NIA.
 1. The Appellate Court may order the appellant to deposit an
amount which shall be a minimum of 20% of the fine or
compensation awarded by the trial Court.
2. This amount shall be in addition to the amount already paid by
the appellant under Section 143A.
3. This deposit may be released by an order for payment to the
complainant at anytime during the pendency of the appeal.

On Acquittal - In case of the appellant being acquitted, the court

shall direct the complainant to refund the entire deposit amount
along with the RBI's prevailing interest rate to the appellant.

Time Frame - The deposit amount shall be paid within 60 days from
the date of the order by the court which may be further extended by
an additional period of 30 days, subject to the sufficient reasons being
shown.

IX. Compounding of Offence

Section 147 of the Negotiable Instrument states about the
compounding of offence, it says that the if the appellant or original
complainant comes to the Court who has taken the cognizance and
says that he wants to withdraw from the side of the prosecution on
account of compromise and he has compounded the matter, then
the sentence and conviction have to be set aside anyhow.

X. Landmark Judgments on Major Areas of Negotiable

Instruments Act.
Jurisdiction: In the case of K. Bhaskaran v. Shankaran AIR 1999
SC 3762, Hon’ble Supreme Court had given jurisdiction to initiate
the prosecution at any of the following places.
 1. Where cheque is drawn.
2. Where payment has to be made.
3. Where cheque is presented for payment.
4. Where cheque is dishonoured.
5. Where notice is served to drawer.

Procedure: In the case of Indian Bank Association and others v.

Union of India & Others AIR 2014 SC 2528, general directions have
been given by the Apex Court.
1. Metropolitan Magistrate/ Judicial Magistrate, on the day when
the complaint u/s 138 of the NIA is presented, shall scrutinize the
complaint and, if the complaint is accompanied by the affidavit,
and the affidavit and the documents, if any, are found to be in
order, take cognizance and direct issuance of summons.
2. Metropolitan Magistrate/ Judicial Magistrate should adopt a
pragmatic and realistic approach while issuing summons.
Summons must be properly addressed and sent by post as
well as by email address got from the complainant. Court in
appropriate cases, may take the assistance of the police or the
nearby court to serve notice to the accused. For notice of
appearance, a short date be fixed. If the summons is received
back unserved, immediate follow action be taken.

3. Court may indicate in the summons that if the accused makes

an application for compounding of offences at the first hearing of
the case and if an application is made, Court may pass
appropriate order at the earliest.
 4. The court should direct the accused when he appears to
furnish a bail bond, ensure his appearance during the trial and
ask him to take notice u/s. 251, Cr.P.c. to enable him to enter his
plea of defense and fix the case for defense evidence, unless an
application is made by the accused u/s. 145(2) for recalling a
witness for cross-examination.

5. The Court concerned must ensure that the Examination in

chief, Cross-Examination, and re-examination of the
complainant must be conducted within three months of assigning
the case. The court has the option of accepting affidavits of the
witnesses, instead of examining them in Court. Witnesses to the
Complainant and accused must be available for cross-
examination as and when there is a direction to this effect by the
Court.

Liability of Partner: The Apex Court in case of Aparna A Shaha v.

Sheth Developers Pvt. Ltd. 2014 (1) Mh L.J. took a view that a Joint
Account holder cannot be prosecuted unless the cheque is signed
by each person who is Joint Account Holder. In the present case,
the cheque was signed by the husband of the appellant. The Apex
Court quashed the proceeding against the appellant. The court
observed that as a natural corollary each joint account holder must
sign the cheque before they are considered for criminal action under
section 138 of NIA.

The drawer of Cheque only liable: The Supreme Court in the

case of Anil Gupta v. Star India Pvt. Ltd. Co, & anr. 2014 Cr.L.J.
3884, laid down that only drawer of cheque falls within ambit of
Section 138 of the Act whether Human being or a body corporate or
even a firm.. The Hon’ble Apex Court further observed that “we
arrived at the irresistible conclusion that for maintain the prosecution
u/s 141 of the Act, arraigning of the company as a accused is to
imperative”.

Compounding - consent of parties: In the case of Meters and

Instruments (P) Ltd. v. Kanchan Mehta, (2018) 1 SCC 560, it was
held that the though the compounding requires consent of both
parties, even in absence of such consent, the court, in the interest
of justice, on being satisfied that the complainant has been duly
compensated, can its discretion close the proceedings and
discharge the accused.

XI. Conclusion
It is well observed from the above context that, Negotiable
Instrument means a promissory note, bill of exchange or cheque
payable either to order or to bearer, various provisions of Negotiable
Instrument Act are being enumerated above regarding the dishonor of
the cheque and liability of an director, company and an individual as
with the context to section 138 of Negotiable Instrument Act.
Landmark judgments have been stated for the better understanding
regarding the procedure and liability and of the compounding.

This article is created with an initiative of providing a ground work

for further research and highlights the Negotiable Instrument Act
major provisions for better and clear understanding.

Negotiation and assignment; Dishonour and discharge of

negotiable instruments
Negotiable Instruments: Section 13 of Negotiable Instruments Act
says- negotiable instrument means a promissory note, cheque
(payable either to bearer or order) or bill of exchange. A negotiable
instrument may be made payable to two or more payees jointly, or it
may be made payable in the alternative to one or two, or one or some
of several payees.

Dishonour of negotiable instrument

Dishonour means not honouring the obligation. A negotiable

instrument may be dishonoured by-
(a) Non acceptance
(b) Non-payment

A bill of Exchange is dishonoured either by non-acceptance or by

non-payment but a cheque and promissory notes can be dishonoured
by non-payment.

Section 91: Dishonour by non-acceptance

The following cases say when a bill of exchange is dishonoured:

i. When the acceptance of the bill is not done within 48 hrs from the
time of presentment for acceptance by the drawee.
ii. When drawee is a fictitious person and cannot be traced (Section
61)
iii. When drawee is incompetent to contract.
iv. When drawee accepts with qualified acceptance.
v. When drawee is insolvent or dead.
vi. When the presentment for acceptance is excused and the bill is
not accepted i.e., remains unaccepted.
Section 92: Dishonour by non payment

i. When a bill is accepted then it has to be presented on the date of

its maturity.
ii. When the acceptor fails to pay when it is due, the bill is
dishonoured by non-payment.
iii. When the holder of a bill or pro-note may treat it as dishonoured,
without placing for payment when presentment for payment is
excused expressly by the maker of the pro-note, or acceptor of the bill
and the note or bill when overdue remains unpaid.
iv. When the banker refuses to pay then the cheque is dishonoured
by non-payment.

Section 93: Effect of dishonor

i. When a negotiable instrument is dishonoured either by non-

acceptance or non-payment, the holder has all the rights to sue the
parties liable to pay.
ii. It is compulsory for the holder to give notice of dishonour to every
party against whom he intends to proceed.
iii. Holder of the instrument has to give the notice.
iv. Notice is given to all the parties, it may be given to endorser or
argent.
v. The notice may be in oral or in writing (must be sent by post).
vi. The notice should be given in a reasonable time.
vii. Except in the cases which notice is dispensed with Section 98 is
to discharge all parties who are entitled to such notice.

Discharge of instrument
Discharge means to release from the obligation. When the Negotiable
Instrument is issued, there is a liability to pay at a certain time and
amount and when the liability is satisfied, the instrument is discharged.
Discharge means the discharge of the instrument and the discharge
of one or more parties liable on the instrument. When the Instrument
is discharged then it will not be negotiable but when a particular party
is discharged then the instrument is negotiable.

A party to a negotiable instrument is discharged in the following

ways

By cancellation of the name of a party to the instruments

By the release of any party to the instruments
By payments
By allowing drawee more than 48 hours to accept
By delay in presenting a cheque for payment
By payment in due course of a cheque (payable to order)
By taking qualified acceptance
By non-presentment for acceptance of a bill of exchange
By operation of law
By material alteration
“The views of the authors are personal“
What is The Companies Act, 2013: Nature and
kinds of companies; Company formation;
Management, meetings and winding up of a joint
stock company?

The Companies Act, 2013

The Companies Act 2013 is the law covering incorporation, dissolution
and the running of companies in India. The Act came into force
across India on 12th September 2013 and has a few amendments to
the previous act of 1956. It has also introduced new concepts like a
One Person Company.

There are many definitions of a Company by various legal experts.

However, Section 2(20) of the Companies Act, 2013, defines the
term ‘Company’ as follows: “Company means a company
incorporated under this Act or under any previous company law.”
Hence, in order to understand the meaning of a Company, it is
important to look at the distinctive features that explain the realm of
a Company.

Features of a Company
A Company is a Separate Legal Entity

One of the most distinctive features of a Company, as compared to

other organizations, is that it acquires a unique character of being a
separate legal entity. Hence, when you register a company, you
give it a legal personality with similar rights and powers as a human
being.

The existence of a company is distinct and separate from that of its

members. It can own property, bank accounts, raise loans, incur
liabilities and enter into contracts. According to Law, it is altogether
different from the subscribers to the Memorandum of Association.
Also, it has a distinct personality which is different from those who
compose it. Member can also contract with the Company and
acquire a right against it or incur a liability to it. However, for any
debts, the creditors can sue the Company but the members cannot.
A Company can own, enjoy, and dispose of a property in its own
name. While the shareholders contribute to the capital and assets,
the company is the rightful owner of such assets and capital.
Further, the shareholders are not private or joint holders of the
company’s property.

Perpetual Succession
Another important feature of a Company is that it continues to carry
on its business notwithstanding the death of change of its members
until it is wound up on the grounds specified by the Act. Further, the
shares of the company change hands infinitely, but that does not
affect the existence of the company.

In simple words, the company is an artificial person which is brought

into existence by the law. Hence, it can be ended by law alone and
is unaffected by the death or insolvency of its members.

Limited Liability
One of the important features of a company is the limited liability of
its members. The liability of a member depends on the type of
company.
In the case of a limited liability company, the debts of the
company in totality do not become the debts of its
shareholders. In such a case, the liability of its members is
limited to the extent of the nominal value of shares held by
 them. The shareholders cannot be asked to pay more than the
unpaid value of their shares.
In the case of a company limited by guarantee, members are
liable only to the extent of the amount guaranteed by them.
Further, this liability arises only when the company goes into
liquidation.
Finally, if it is an unlimited company, then the liability of its
members is unlimited too. But such instances are very rare.

Artificial Legal Person

Another one of the features of a company is that it is known as an

Artificial Legal Person.
Artificial – because its creation is by a process other than
natural birth.
Legal – because its creation is by law, and
Person – because it has similar rights to a human being.

Further, a company can own property, bank accounts, and do

everything that a natural person can do except go to jail, marry, take
an oath, or practice a learned profession. Hence, it is a legal person
in its own sense.

Since a company is an artificial person, it needs humans to function.

These humans are Directors who can authenticate the company’s
formal acts either on their own or through the common seal of the
company.
Common Seal
While a company is an artificial person and works through the
agency of human beings, it has an official signature. This is affixed
by the officers and employees of the company on all its documents.
This official signature is the Common Seal.
However, the Companies (Amendment) Act, 2015 has made the
Common Seal optional. Section 9 of the Act does not have the
phrase ‘and a common seal’ in it. This provides an alternative mode
of authorization for companies who do not wish to have a common
seal.

According to this amendment, if a company does not have a

common seal, then the authorization shall be done by:
Two Directors or
One Director and the Company Secretary (if the company has
appointed a Company Secretary).

Corporate Veil Theory

The Corporate Veil Theory is a legal concept which separates the

identity of the company from its members. Hence, the members are
shielded from the liabilities arising out of the company’s actions.
Therefore, if the company incurs debts or contravenes any laws,
then the members are not liable for those errors and enjoy
corporate insulation. In simpler words, the shareholders are
protected from the acts of the company.
This brings us to some important questions:
1. If lifting or piercing the corporate veil possible?
2. If yes, then what are the scenarios and the rules that govern
piercing the corporate veil?
Piercing the Corporate Veil means looking beyond the company as
a legal person. Or, disregarding the corporate identity and paying
regard to humans instead.
In certain cases, the Courts ignore the company and concern
themselves directly with the members or managers of the company.
This is called piercing the corporate veil. Usually, Courts choose this
option when the case involves a question of control rather
than ownership.

Piercing the Corporate Veil

Scenarios under which the Courts consider piercing or lifting the
corporate veil are as below,

1] To Determine the Character of the Company

There are cases where the Courts need to understand if the
company is an enemy or friend. In such cases, the Courts adopt the
test of control. The Courts usually avoid piercing the corporate veil,
unless the public interest is in jeopardy. However, to ascertain if a
company is an enemy company, the Court might choose to do so.
So, how can a company be an enemy? It does not have a mind or
consciousness and cannot be a friend or foe, right? However, if the
affairs of a company are under the control of people from an enemy
country, then the company might be an enemy too. In such cases, the
Court may examine the character of the humans who are at the helm
of affairs of the company.

2] To Protect Revenue or Tax

In matters concerning evasion or circumvention of taxes, duties,
etc., the Court might disregard the corporate entity.
Imagine a company that is used to evade tax. In such cases,
piercing the corporate veil allows the Court to understand the real
owner of the income of the company and make the said person
liable for legitimate taxes.

3] If trying to avoid a Legal Obligation

Sometimes the members of a company can create another
company/subsidiary company to avoid certain legal obligations. In
such cases, piercing the corporate veil allows the Courts to
understand the real transactions.
Imagine a company liable to share 20 percent of its profits with its
employees as a bonus. This is a legal obligation. To avoid this, the
company opens a wholly owned subsidiary company and transfers
its investment holdings to it.

The new company formed has no assets of its own and no business
income either. It is completely dependent on the principal company.
By doing so, the principal company reduced the amount of bonus
liable to be paid to its employees. The Courts, by piercing the
corporate veil, can understand the real intention of the principal
company and ensure that it fulfils its legal obligations.
4] Forming Subsidiaries to act as Agents
Sometimes, the basis of the formation of a company is to act as an
agent or trustee of its members or of another company. In such cases,
the company loses its individuality in favour of its principal. Also, the
principal is liable for the acts of such a company.

5] A company formed for fraud or improper conduct or to

defeat the law
In cases where a company is formed for some illegal or improper
purposes like defeating the law, the Courts might decide to lift or
pierce the corporate veil.

One Person Company

The Companies Act, 2013 completely revolutionized corporate laws
in India by introducing several new concepts that did not exist
previously. On such game-changer was the introduction of One
Person Company concept. This led to the recognition of a
completely new way of starting businesses that accorded flexibility
which a company form of entity can offer, while also providing the
protection of limited liability that
sole proprietorship or partnerships lacked.
Several other countries had already recognized the ability of
individuals forming a company before the enactment of the new
Companies Act in 2013. These included the likes of China, Singapore,
UK, Australia, and the USA.
Definition of One Person Company
Section 2(62) of Companies Act defines a one-person company as
a company that has only one person as to its member. Furthermore,
members of a company are nothing but subscribers to its
memorandum of association, or its shareholders. So, an OPC is
effectively a company that has only one shareholder as its member.
Such companies are generally created when there is only one
founder/promoter for the business. Entrepreneurs whose
businesses lie in early stages prefer to create OPCs instead of sole
proprietorship business because of the several advantages that OPCs
offer.

Difference between OPCs and Sole Proprietorships

A sole proprietorship form of business might seem very similar to
one-person companies because they both involve a single person
owning the business, but they’re actually exist some differences
between them.

The main difference between the two is the nature of

the liabilities they carry. Since an OPC is a separate legal entity
distinguished from its promoter, it has its own assets and liabilities.
The promoter is not personally liable to repay the debts of the
company.

On the other hand, sole proprietorships and their proprietors are the
same persons. So, the law allows attachment and sale of
promoter’s own assets in case of non-fulfilment of the business’
liabilities.

Features of a One Person Company

Here are some general features of a one-person company:
a. Private company: Section 3(1)(c) of the Companies Act says
that a single person can form a company for any lawful
purpose. It further describes OPCs as private companies.
 b. Single-member: OPCs can have only one member or
shareholder, unlike other private companies.
c. Nominee: A unique feature of OPCs that separates it from
other kinds of companies is that the sole member of the
company has to mention a nominee while registering the
company.
d. No perpetual succession: Since there is only one member in
an OPC, his death will result in the nominee choosing or rejecting
to become its sole member. This does not happen in other
companies as they follow the concept of perpetual succession.
e. Minimum one director: OPCs need to have minimum one
person (the member) as director. They can have a maximum
of 15 directors.
f. No minimum paid-up share capital: Companies Act, 2013
has not prescribed any amount as minimum paid-up capital for
OPCs.
g. Special privileges: OPCs enjoy several privileges and
exemptions under the Companies Act that other kinds of
companies do not possess.

Formation of One Person Companies

A single person can form an OPC by subscribing his name to the
memorandum of association and fulfilling other requirements
prescribed by the Companies Act, 2013. Such memorandum must
state details of a nominee who shall become the company’s sole
member in case the original member dies or becomes incapable of
entering into contractual relations.
This memorandum and the nominee’s consent to his nomination
should be filed to the Registrar of Companies along with an
application of registration. Such nominee can withdraw his name at
any point in time by submission of requisite applications to the
Registrar. His nomination can also later be canceled by the
member.
Membership in One Person Companies
Only natural persons who are Indian citizens and residents are eligible
to form a one-person company in India. The same condition applies
to nominees of OPCs. Further, such a natural person cannot be a
member or nominee of more than one OPC at any point in time.

It is important to note that only natural persons can become

members of OPCs. This does not happen in the case of companies
wherein companies themselves can own shares and be members.
Further, the law prohibits minors from being members or nominees
of OPCs.

Conversion of OPCs into other Companies

Rules regulating the formation of one-person companies expressly
restrict the conversion of OPCs into Section 8 companies, i.e.
companies that have charitable objectives. OPCs also cannot
voluntarily convert into other kinds of companies until the expiry of two
years from the date of their incorporation.

Privileges of One Person Companies

OPC enjoy the following privileges and exemptions under the
Companies Act:
They do not have to hold annual general meetings.
 Their financial statements need not include cash flow
statements.
A company secretary is not required to sign annual returns;
directors can also do so.
Provisions relating to independent directors do not apply to
them.
Their articles can provide for additional grounds for vacation of
a director’s office.
Several provisions relating to meetings and quorum do not
apply to them.
They can pay more remuneration to directors than compared
to other companies.

Private Companies

The growth of trade and business led to many problems that

traditional forms of business did not solve. For example, the
unlimited liability feature of a sole proprietorship form of business
resulted in people forming partnerships, but even that proved to be
too inadequate and risky. This is when the concept of companies
emerged, and private companies form of business is the oldest
example of it.

Section 8 Company

Not all companies have objectives of making profits by carrying out

trade and commerce. Many companies primarily have charitable
and non-profit objectives. Such entities are referred to as a Section
8 Company because they get recognition under Section 8 of
Companies Act, 2013. These companies dedicate all their incomes
and profits towards the furtherance of their objectives.
Definition of Section 8 Company
The Companies Act defines a Section 8 company as one whose
objectives is to promote fields of arts,
commerce, science, research, education, sports, charity, social
welfare, religion, environment protection, or other similar objectives.
These companies also apply their profits towards the furtherance of
their cause and do not pay any dividend to their members.
These companies were previously defined under Section 25 of
Companies Act, 1956 with more or less the same provisions. The
new Act has, however, prescribed more objectives that Section 8
companies can have.

Famous examples of Section 8 companies include Federation of

Indian Chambers of Commerce and Industry (FICCI) and
Confederation of Indian Industries (CII). The objective of these
companies is facilitating the growth of trade and commerce and
India.

Features of a Section 8 Company

A Section 8 company comprises of the following distinct features
that most other kinds of companies do not have:
i. Charitable objectives: Section 8 companies do not aim to
make profits. Their objectives are purely charitable in nature.
They aim to further causes like science, culture, research,
sports, religion, etc.
ii. No minimum share capital: Section 8 companies, unlike all
other companies, do not require a prescribed minimum paid-up
share capital.
iii. Limited liability: Members of these companies can only have
limited liability. Their liabilities cannot be unlimited in any case.
iv. Government license: Such companies can function only if
they have the Central Government’s license. The Government
can revoke this license as well.
v. Privileges: Since these companies possess charitable
objectives, the Companies Act has accorded several benefits
and exemptions to them.
vi. Firms as members: Apart from individuals and associations
of persons, Section 8 also allows firms to be members of these
companies.

Formation of Section 8 Company

A person or an association of persons can make an application to

the Registrar of Companies using requisite forms to form a
company with charitable objectives under Section 8 of Companies
Act. The Central Government, if satisfied, can accept such an
application upon any terms and conditions imposed under the
license granted by it. Once accepted, the Registrar of Companies
will register the company after the applicants pay all requisite fees.

It is important to note that such companies can only be limited

companies. All privileges and obligations of limited companies apply
in this case. Further, these companies also do not need to include the
words “Limited” or “Private Limited” in their names, as all other
companies have to.

Since the existence of such companies is based on the license

granted to them, they cannot even alter their memorandum or
articles of association without the Central Government’s permission.
They also cannot do anything that the license disallows.

Cancellation of License
Section 8 companies require a grant of a license by the Central
Government. All such licenses are revocable as well on the
following grounds:
the company contravenes provisions of Section 8;
terms of the license are violated;
when its conduct is fraudulent, or it violates its own objectives
and public policy.

The Government can even order the company to be wound-up or

amalgamated with another similar company under certain
circumstances. The Government has to hear the company before
passing such orders.

Winding Up
Section 8 companies can wind-up or dissolve themselves either
voluntarily or under orders given by the Central Government. If any
assets remain after satisfaction of debts and liabilities upon such
winding-up, the National Company Law Tribunal can order the
transfer of these assets to a similar company. It can also order that
they must be sold and the proceeds of this sale should be credited
to the Insolvency and Bankruptcy Fund.

Punishment for Contravention

Any company that contravenes provisions of Section 8 is punishable

with a fine ranging from Rs. 10 lakhs to Rs. 1 crore. Further,
directors and officers of the company are liable to punishment with
imprisonment up to 3 years and a fine between Rs. 25,000 to Rs. 25
lakhs. Such officers can also face prosecution under stringent
provisions of Section 447 (dealing with fraud) if they conduct any
affairs with fraudulent motives.

Advantages/Privileges

People generally prefer to conduct charitable activities by forming

Section 8 companies instead of regular NGOs and associations.
This is because they have limited liability, so their personal assets
will not be used in paying debts of the company. Here are some
advantages that these companies enjoy:

Members have limited liability.

No minimum capital requirements.
They get several tax exemptions.
Stamp duties and high fees are not payable for registration.
They have perpetual existence and separate legal status.
Exemptions from carrying out several procedural compliances.
More credibility than compared to NGOs, societies, and trusts
because they are recognized by the Central Government’s
license.

Disadvantages
Despite numerous merits, these companies also have the following
drawbacks:
Members of the company cannot get any dividend.
Officers and directors do not get benefits and allowances.
 Can only use the profits for furthering charitable aims and
objectives.
Amendment of memorandum and articles requires Central
Government’s permission.
The license is revocable on several grounds.

Registration and Incorporation of a Company

The Companies Act, 2013 details the regulations and company

registration papers essential for the incorporation of a company. In
this article, we will understand all such rules and documents listed in
the Act. To begin with, let’s define the promoters of a company.

Promoters
Section 2(69) of the Companies Act, 2013, defines promoters as an
individual who:-
Is named as a promoter in the prospectus or in the annual
returns of the company.
Controls the affairs of a company, directly or indirectly.
Advises, directs, or instructs the Board of Directors.
Hence, we can say that promoters are people who originally come
up with the idea of the company, form it and register it. However,
solicitors, accountants, etc. who act in their professional capacity
are NOT promoters of the company.

Formation of a Company
Section 3 of the Companies Act, 2013, details the basic
requirements of forming a company as follows:
 Formation of a public company involves 7 or more people who
subscribe their names to the memorandum and register the
company for any lawful purpose.
Similarly, 2 or more people can form a private company.
One person can form a One-person company.

Registration or Incorporation of a Company

Section 7 of the Companies Act, 2013, details the procedure for
incorporation of a company. Here is the procedure:

Filing of company registration papers with the registrar

To incorporate a company, the subscriber has to file the following
company registration papers with the registrar within whose
jurisdiction the location of the registered office of the proposed
company falls.

1. The Memorandum and Articles of the company. All subscribers

have to sign on the memorandum.
2. The person who is engaged in the formation of the company
has to give a declaration regarding compliance of all the
requirements and rules of the Act. A person named in the Articles
also has to sign the declaration.
3. Each subscriber to the Memorandum and individuals named
as first directors in the Articles should submit an affidavit with
the following details:
i. Declaration regarding non-conviction of any offence with
respect to the formation, promotion, or management of
any company.
ii. He has not been found guilty of fraud or any breach of
duty to any company in the last five years.
 iii. The documents filed with the registrar are complete and
true to the best of his knowledge.
4. Address for correspondence until the registered office is set-
up.
5. If the subscriber to the Memorandum is an individual, then he
needs to provide his full name, residential address, and
nationality along with a proof of identity. If the subscriber is a
body corporate, then prescribed documents need to be
provided.
6. Individuals mentioned as subscribers to the Memorandum in
the Articles need to provide the details specified in the point
above along with the Director Identification Number.
7. The individuals mentioned as first directors of the company in
the Articles must provide particulars of interests in other firms
or bodies corporate along with their consent to act as directors
of the company as per the prescribed form and manner.

Issuing the Certificate of Incorporation

Once the Registrar receives the information and company registration
papers, he registers all information and documents and issues a
Certificate of Incorporation in the prescribed form.

Corporate Identity Number (CIN)

The Registrar also allocates a Corporate Identity Number (CIN) to
the company which is a distinct identity for the company. The
allotment of CIN is on and from the company’s incorporation date.
The certificate carries this date.

Maintaining copies of Company registration papers

The company must maintain copies of all information and
documents until dissolution.

Furnishing false information at the time of incorporation

During the formation of a company, an individual can:
Furnish incorrect or false information
Suppress any material information in the documents provided
to the Registrar for the incorporation, on purpose
In such cases, the individual is liable for action for fraud under
section 447.

The company is already incorporated based on false information

If a company is already incorporated but it is found at a later date
that the information or documents submitted were false or incorrect,
then the promoters, first directors, and persons making a
declaration is liable for action for fraud under section 447.

Order of the National Company Law Tribunal (NCLT)

If a company is incorporated by furnishing false or incorrect
information or representation or suppressing material facts or
information in the documents furnished, the Tribunal can pass the
following orders (if an application is made and the Tribunal is
satisfied with it):
Pass an order to regulate the management of the company. It
can include changes in its Memorandum and Articles if
required. This order is either in public interest or in the interest
of the company and its members and creditors.
Make the liability of its members unlimited
 Order removal of the name of the company from the Registrar
of Companies
Order the company to wind-up
Pass any other order as it deems fit

Before passing an order, the Tribunal has to give the company a

reasonable opportunity to state its case. Also, the Tribunal should
consider the transactions of the company including obligations
contracted or payment of any liability.
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Effect of Registration of a Company
According to Section 9 of the Companies Act, 2013, these are the
effects of registration of a company:
From the date of incorporation, the subscribers to the
Memorandum and all subsequent members of the company
are a body corporate.
A registered company can exercise all functions of a company
incorporated under the Act. Also, the company has perpetual
succession with power to acquire, hold, and dispose of
property of all forms. Also, it can contract, sue and be sued by
the said name.
Further, the company becomes a legal person separate from
the incorporators from the date of incorporation. Also, a
binding contract comes into existence between the company and
its members as mentioned in the Memorandum and Articles
of Association. Until the company dissolves or the Registrar
removes it from the register, it has perpetual existence.

Management

Section 399 of the Companies Act, 2013, specifies the rules and
regulations governing the inspection, production, and evidence
of documents with the Registrar. In this article, we will look at the
doctrine of constructive notice, the doctrine of indoor management,
and exceptions to the indoor management rule.
Doctrine of Constructive Notice

Section 399 allows any person to electronically inspect, make a

record, or get a copy/extracts of any document of
any company which the Registrar maintains. There is a fee
applicable for the same. The documents include the certificate of
incorporation of the company.
By now we know that the Memorandum and Articles of
Association are public documents. This section confers the right of
inspection to all.

Before any person deals with a company he must inspect its

documents and establish conformity with the provisions. However,
even if a person fails to read them, the law assumes that he is
aware of the contents of the documents. Such an implied or presumed
notice is called Constructive Notice.

In simpler words, if a person enters into a contract which is beyond

the powers of a company, then he has no right under the said contract
against the company. The Memorandum of Association defines the
powers of the company. Also, if the contract is beyond the authority
of the directors as defined in the Articles, the person has no rights.

Doctrine of Indoor Management

The doctrine of indoor management is an exception to the earlier
doctrine of constructive notice. It is important to note that the
doctrine of constructive notice does not allow outsiders to have
notice of the internal affairs of the company.

Hence, if an act is authorized by the Memorandum or Articles of

Association, then the outsider can assume that all detailed
formalities are observed in doing the act. This is the Doctrine of
Indoor Management or the Turquand Rule. This is based on the
landmark case between The Royal British Bank and Turquand. In
simple words, the doctrine of indoor management means that a
company’s indoor affairs are the company’s problem.

Therefore, this rule of indoor management is important to people

dealing with a company through its directors or other persons. They
can assume that the members of the company are performing their
acts within the scope of their apparent authority. Hence, if an act which
is valid under the Articles, is done in a particular manner, then the
outsider dealing with the company can assume that the director/other
officers have worked within their authority.

Exceptions to the Doctrine of Indoor Management

The Turquand rule or the law of indoor management is not
applicable to the following cases:

The outsider has actual or constructive knowledge of an

irregularity
In such cases, the rule of indoor management does not offer
protection to the outsider dealing with the said company.

The outsider behaves negligently

The rule of Indoor management does not protect a person dealing
with a company if he does not initiate an inquiry despite suspecting
an irregularity. Further, this rule does not offer protection if the
circumstances surrounding the contract are suspicious. For
example, the outsider should get suspicious if an officer purports to
act in a manner outside the scope of his authority.

Forgery
The doctrine of indoor management is applicable to irregularities
that affect a transaction except for forgery. In case of a forgery, the
transaction is deemed null and void.

Meetings and winding up of a joint stock company

Joint-Stock Company:

A joint-stock company is a business entity which is owned by

shareholders. Each shareholder owns the portion of the company in
proportion to his or her ownership of the company's shares
(certificates of ownership). This allows for the unequal ownership of
a business with some shareholders owning a larger proportion of a
company than others. Shareholders are able to transfer their shares
to others without any effects to the continued existence of the
company.

In modern corporate law, the existence of a joint-stock company is

often synonymous with incorporation (i.e. possession of legal
personality separate from shareholders) and limited liability
(meaning that the shareholders are only liable for the company's debts
to…show more content…
3. Statement of company affairs:
In the meeting of the creditors directors of the company should
intimate the names, addresses and claims of the creditors. One of
the directors presides the meeting of the creditors.

4. Intimation to registrar:
Within ten years after the date of creditors meeting, a copy of
resolution passed should be sent to registrar.
5. Appointment of liquidator:
The creditors and shareholders will nominate any person as a
liquidator in their respective meeting. The opinion of the creditors is
preferred.

6. Inspection committee:
The creditors and shareholders can appoint the inspection
committee consisting of five members in each case.

7. Remuneration of liquidators:
It is fixed by the inspection committee or by the creditors. The duties
and powers of the liquidators are also sanctioned by the inspection
committee or creditors.

8. Final meeting:
The liquidator calls the meeting of the creditors and paces before
them the full account of the company assets.

9. Dissolution:
Within one week after the date of meeting liquidator sends the copy
of account and other documents to registrar. Registrar will register the
documents. After three months from the date of registration a
company will be dissolved.

3. Winding Up Under the Supervision of A Court:

Sometimes if Court feels necessary it may issue the order to
dissolve the company under its own supervision. Dissolution of a
company can take place
Show More
Related

Disadvantages Of Joint Stock Company

The company form of business ownership has become very popular

in modern business on account of its several advantages. Following
are the advantages of Joint Stock Company 1. Large capital
resources A company can secure large capital compared to a sole
trader or partnership. A joint stock company has widespread appeal
to the investors of all the types. Its capital is divided into shares of
small value so that the people with limited means can also buy
them.

1. Sole proprietorship 2. Partnership 3. Joint stock company 4. All of

the given options 2) Election of the Board of Directors is done by
Shareholders. 1. Through special resolution 2. In annual general
meeting 3. In Special meeting 4. In statuary meeting 3) Which of the
following business type, has to pay double taxes to the
government? 1. Sole proprietorship 2. Partnership 3. Joint stock
company 4. Cooperative Societies 4) includes

Insurance

The Joint Stock Companies Act 1844[9] allowed people to create

companies without permission through a royal charter. Companies
had "separate legal personality", the ability to sue and be sued, and
served as an easy mechanism for raising capital through the purchase
of shares (an equitable title) in the company's capital. The
Act's corollary, to bring the existence of these "legal persons" to an
end was the Joint Stock Companies Winding-Up Act 1844. The
Limited Liability

Company Analysis : Joint Venture Agreements the company itself.

There may well also be release of the outgoing shareholder from its
obligations.9 Thus, a shareholders’ agreement creates legally
binding contractual rights enforceable irrespective of the Articles
thereby improving the legal position of, and protecting the
shareholder.

right and protection of interest of the minority shareholders

The Memorandum And Articles Of Association. The Memorandum and

Articles of Association (“M&A”) of a company are the constitutional
documents of a company. The M&A are important documents as they
set out and regulate among other things the objects of the company
and the manner in which the company to be managed. The M&A take
effect in law as a contract between not only the shareholders
and the company, but between each individual shareholder and
every other. Generally, an affected individual shareholder

Bermuda: The Perfect Location for Takaful and Re-takaful

Opportunities

Bermuda -based as the perfect location for Takaful and Re-takaful

opportunities in the Islamic finance sector and work progressively to
ensure that both sectors are successfully implemented and used in
country. Bermuda has made significant contributions to the Takaful
and Re-takaful sector and specializes in the field of Islamic finance
in country. Bermuda has earned its place as the largest offshore
reinsurance and insurance domicile in the world that provides
investors and business professionals

Research Essay

Marley is a close friend of the Indahouse chairperson Al Gee. She

also learns that the company’s constitution contains a rule that
provides “the chairperson of the company may, as they see fit, order
any member to transfer their shares to any person at a fair market
price”. Jimmy, another shareholder, discovers that as the company
requires more funds the directors plan to issue a parcel of shares to
a single investor without the members being able to participate.
Julie does not wish to sell

Joint Venture Essay

thing to consider, when setting up a business in China, especially

for a foreign national, is to determine the legality of the business.
Many types of businesses are not allowed to be run by foreign
nationals in China. For example, an export trade company cannot
be run by a citizen of another country in China (Harris, 2017). Next,
you need to decide if your corporation is going to be a joint venture
or what is called a wholly foreign owned enterprise (WFOE). A joint
venture is a partnership with a

Dividend Policy

Report on Dividend policy Case analysis on Bank EXECUTIVE

SUMMARY A dividend is a usually distributed in cash form to stock
holders of a corporation approved by the board of director. It may also
include stock dividend or other forms of payment. A stock dividend
represents a distribution of additional shares to common stockholders.
Dividends are only cash payments regularly made by corporations to
their stockholders. The dividend policy such as the
payment of dividend affects the market
What is Limited Liability Partnership: Structure
and procedure of formation of LLP in India?

Limited Liability Partnership

The Limited Liability Partnership Act, 2017

ACT No. XV OF 2017
An Act to make provisions for the incorporation, regulation and
winding up of limited liability partnerships as body corporate and for
matters connected;

WHEREAS

it is expedient to make provisions for the formation and regulation

of limited liability partnerships and for matters connected therewith
or incidental thereto;
It is hereby enacted as follows:---
PART I

PRELIMINARY

1. Short title, extent and commencement.—(1) This Act may be

called the Limited Liability Partnership Act, 2017.
(2) It extends to the Whole of Pakistan.
(3) It shall come into force at once:---
Provided that different dates may be appointed for different provisions
of this Act and any reference in any such provision to the
commencement of this Act shall be construed as a reference to the
coming into force of that provision.
2. Definitions.—(1) In this Act, unless the context otherwise
requires,---
(a) ”address” in relation to a partner of a limited liability partnership,
means,---
(i) if an individual, his usual residential address or service address
provided by him; and
(ii) if a body corporate or company, the address of its registered
office;
(b) ”advocate” means an Advocate within the meaning of the Legal
Practitioners and Bar Councils Act, 1973 (XXXV of 1973);
(c) ”Appellate Bench” means Appellate Bench of the Commission
constituted under sub-section (2) of section 33 of the Securities and
Exchange Commission of Pakistan Act, 1997 (XLII of 1997);
(d) ”body corporate” includes,---
(i) limited liability partnership registered under this Act;
(ii) limited liability partnership registered or incorporated
outside Pakistan; and
(iii) company incorporated outside Pakistan, but does not include,---
(a) sole proprietorship;
(b) co-operative society registered under any law relating to
cooperative societies; and
(c) any other body corporate, not being a company as defined in the
Ordinance, which the Federal Government may, by notification in
the official Gazette, specify in this behalf;
(e) ”business” includes every trade, profession and occupation;
(f) ”chartered accountant” means a chartered accountant as defined
in clause (b) of sub-section (1) of section 2 of the Chartered
Accountants Ordinance, 1961 (X of 1961) and who has obtained a
certificate of practice under sub-section (1) of section 6 thereto;
(g) ”Commission” means Securities and Exchange Commission of
Pakistan established under section 3 of the Securities and
Exchange Commission of Pakistan Act, 1997 (XLII of 1997);
(h) ”cost and management accountant” means a cost and
management accountant within the meaning Of the Cost and
Management Accountants Act, 1966 (XIV of 1966);
(i) ”Court” means the Company Bench of a High Court as provided
in section 7 and section 8 of the Ordinance;
(j) ”designated partner” means any partner designated as such
pursuant to section 10;
(k) ”financial year” means the period commencing on the first day of
July of any year and ending on the thirtieth day of June of the
succeeding year;
(l) ”firm” shall have the same meaning as assigned to it under the
Partnership Act, 1932 (IX of 1932);
(m) ”foreign limited liability partnership” means a limited liability
partnership that is formed, registered or incorporated
outside Pakistan;
(n) ”limited liability partnership means a partnership registered
under this Act;
(o) ”limited liability partnership agreement” means any written
agreement between partners of the limited liability partnership which
determines mutual rights and duties of the partners and their rights
and duties in relation to the limited liability partnership;
(p) ”officer” in relation to a limited liability partnership, means,---
(i) any manager Of the limited liability partnership;
(ii) a receiver and manager of any part of the undertaking of the
limited liability partnership appointed under a power contained in
any instrument; and
(iii) any liquidator of the limited liability partnership appointed in a
voluntary winding up;
(q) ”Ordinance” means the Companies Ordinance, 1984 (XLVII of
1984);
(r) ”partner”, in relation to a limited liability partnership, means any
person who has been admitted as a partner in the limited liability
partnership in accordance with the limited liability partnership
agreement;
(s) ”prescribed” means prescribed through regulations made by the
Commission for carrying out the purposes of this Act; and
(t) ”Registrar” means a Registrar, an Additional, a Joint, a Deputy or
an Assistant Registrar, performing under this Act the duty of
registering limited liability partnership.
(2) The words and expressions used but not defined in this Act shall
have the same meaning as defined in the Securities and Exchange
Commission of Pakistan Act, 1997 (XLI1 of 1997).

PART II
NATURE OF LIMITED LIABILITY PARTNERSHIP

3. Separate legal personality.—(1) A limited liability partnership shall

be a body corporate by registration under this Act and shall be a
legal entity separate from its partners.
(2) A limited liability partnership shall have perpetual succession.
Any change in the partners of a limited liability partnership shall not
affect the existence, rights or liabilities of the Limited Liability
Partnership.
(3) Any change in the partners of a limited liability partnership shall
not affect the existence, rights or liabilities of the Limited Liability
Partnership.

4. Capacity and execution of documents.—(1) A limited liability

partnership shall, by its name, be capable to,---
(a) sue and be sued;
(b) acquire, own, hold and develop or dispose of property of every
description, both movable and immovable;
(c) have a common seal; and
(d) do and suffer such other acts and things as bodies corporate
may lawfully do and suffer.
(2) An agreement in writing made before the registration of a limited
liability partnership, between the persons who subscribe their
names to the incorporation document, may impose obligations on
the limited liability partnership:

Provided that such agreement is ratified by all the partners

after the registration of the limited liability partnership:---

Provided further that prior to ratification by the limited liability

partnership, the person or persons who purported to act in the name
or on behalf of the limited liability partnership shall in the absence of
express agreement to the contrary be personally bound by the
contract or other transaction and entitled to the benefit thereof.
(3) Contracts on behalf of a limited liability partnership shall be
made in writing under common seal of the limited liability
partnership and any contract so made shall be effectual in law and
shall bind the limited liability partnership and its successors and all
parties thereto.
(4) A document or proceeding requiring authentication by a limited
liability partnership may be signed by a designated partner of the
limited liability partnership.
(5) A limited liability partnership may by writing under its common
seal empower any person, either generally or in respect of any
specified matters, as its agent or attorney to execute deeds on its
behalf and a deed signed by such an agent .or attorney on behalf of
the limited liability partnership and under his seal or, subject to sub-
sections (7) and (8), under the appropriate official seal of the limited
liability partnership shall bind it and have the same effect as if it
were under its common seal.
(6) The authority of any such agent or attorney specified under sub-
section (5) shall as between the limited liability partnership and any
person dealing with him continue during the period, if any,
mentioned in the instrument conferring the authority or if no period
is therein mentioned then until notice of the revocation or
determination of his authority has been given to the person dealing
with him.
(7) The name of a limited liability partnership shall appear in legible
letters on,—
(a) its seal; and
(b) all business letters, statements of account, invoices, official
notices, publications, bills of exchange, promissory notes,
endorsements, cheques, orders, receipts and letters of credit of or
purporting to be issued or signed by or on behalf of the limited
liability partnership.
(8) If an officer of a limited liability partnership or any person on its
behalf,—
(a) uses or authorizes the use of any seal purporting to be a seal of
the limited liability partnership whereon its name does not so
appear;
(b) issues or authorizes the issue of any business letter, statement
of accounts, invoice or official notice wherein its name is not so
mentioned; or
(c) signs, issues or authorizes to be signed or issued on behalf of
the limited liability partnership any bill of exchange, promissory note,
cheque or other negotiable instrument or any endorsement, order,
receipt or letter of 'credit wherein its name is not so mentioned he
shall be guilty of an offence punishable with a fine which may
extend to five hundred thousand rupees.

PART III
REGISTRATION

5. Incorporation document.—(1) For a limited liability partnership to

be registered,—
(a) two or more persons associated for carrying on a lawful
business with a view to profit shall have subscribed their names to
an incorporation document containing such particulars as provided
in sub-section (2);
(b) it shall have a registered office to which all communications,
notices and other documents may be addressed and served by
registered post or by courier, or by leaving it at its registered office
or by any other mode as may be prescribed by the Commission
through regulations:---

Provided that a limited liability partnership may change the place of

its registered office and where there is any change in the registered
office of the limited liability partnership, notice must be delivered to
the Registrar within fifteen days of such change in such a manner
as may be prescribed by the Commission through regulations and any
such change shall only take effect upon serving such notice;
(c) the incorporation document shall be ,filed in such manner and
with such fees, as may be prescribed by the Commission through
regulations; and
(d) there shall be filed a statement, in the form prescribed by the -
Commission through regulations, made by either an advocate or a
member of the Institute of Chartered Accountants or the Institute of
Cost and Management Accountants, who is engaged in formation of
the limited liability partnership or by anyone who has subscribed his
name to the incorporation document, that all the requirements of
this Act and the rules and regulations made there under have been
complied with, in respect of registration and matters precedent and
incidental thereto.

(2) The incorporation document shall,---

(a) be in a form as may be prescribed by the Commission through

regulations;
(b) state the name of the limited liability partnership;
(c) state general nature of its main business and any other
incidental or ancillary object thereto, which it proposes to carry on
as a limited liability partnership;
(d) state the province or the part of the Pakistan not forming part of
a province, as the case may be in which the registered office is to
be situated;
(e) state the name and residential address of each of the persons
who are to be partners of the limited liability partnership on
incorporation;
(f) either specify which of those persons are to be designated
partners or state that every person who from time to time is a
partner of the limited liability partnership is designated partner on
incorporation;
(g) state that the liability of its partners shall be limited; and
(h) contain such other information concerning the proposed limited
liability partnership as may be prescribed by the Commission
through regulations.
(3) A person, who makes a statement or provides any information
under sub-section (1) and sub-section (2) which he,—
(a) knows to be false; or
(b) does not believe to be true, commits an offence for which he
shall be punishable with imprisonment for a term which may extend
to two years and with fine which may extend to one million rupees.

6. Provision related to name.—(1)

Every limited liability partnership shall have. the acronym “LLP” as

the last letters of its name.
(2) No limited liability partnership shall be registered by aflame
which, in opinion of the Registrar, is,---
(a) undesirable, inappropriate or deceptive or is designed to exploit
or offend religious susceptibilities of the people; and
(b) identical to that of any limited liability partnership or body
corporate or company or so nearly resembling that name as to be
calculated to deceive.
(3) Except with prior approval of the Commission in writing, no
limited liability partnership shall be registered by a name which
contains any words suggesting or calculated to suggest,---
(a) the patronage of any past or present Pakistani or foreign had of
State;
(b) any connection with the Federal Government or a Provincial
Government or any department or authority of any such
Government;
(c) any connection with any corporation set up by or under any
Federal or Provincial law; or
(d) the patronage of, or any connection with, any foreign
government or any international organization.
(4) Whenever a question arises as to whether or not the name of a
limited liability partnership is in violation of the foregoing provisions
of this section, decision of the Commission thereon shall be final.
(4) Every limited liability partnership shall paint or affix and keep
painted or affixed, its name, in a conspicuous position, on outside of
every office or place in which its business is carried on in letters easily
legible and in English or Urdu characters, and also, if the registered
office is situated in a place beyond local limits of ordinary original civil
jurisdiction of a High Court, in the characters of one of the vernacular
languages used in that place.

(6) If a limited liability partnership does not paint or affix and keep
painted or affixed, its name in a manner directed by this Act, it shall
be liable to a fine which may extend to ten thousand rupees for
every day during which its name is not so kept painted or affixed
and every designated partner of the limited liability partnership who
knowingly and wilfully authorizes or permits the default shall be
liable to the like penalty.
(7) Without prejudice to the generality of the foregoing, the
Commission may through regulations prescribe for provisions
relating to,---
(a) reservation of name of limited liability partnership;
(b) rectification of name of limited liability partnership;
(c) change of name of limited liability partnership;
(d) publication of name and statement with respect to limited
liability; and
(e) fee to be prescribed for any ancillary matter.

7. Registration of incorporation document.—(1) When the

requirements imposed by clauses (b) and (c) of sub-section (1) of
section 5 have been complied with, the Registrar shall retain the
incorporation document and, unless the requirement imposed by
clause (a) of that sub-section has not been complied with, he shall,--
-
(a) register the incorporation document; and
(b) give a certificate that the limited liability partnership is registered
by the name specified in the incorporation document.
(2) The Registrar may accept the statement delivered under clause
(d) of sub-section (1) of section 5 as sufficient evidence that the
requirement imposed by clause (a) of that sub-section has been
complied with.
(3) The certificate issued under clause (b) of sub-section (1) shall be
signed by the Registrar and authenticated by his official seal.
(4) The certificate shall be conclusive evidence that the limited liability
partnership is registered by the name specified in the
incorporation document.
(5) Notwithstanding any provision of this Act or any other law for the
time being in force, the Registrar shall refuse to register the
incorporation document where he has reasons to believe that the
proposed business,---

(a) is undesirable or unlawful; or

(b) is deceptive; or
(c) would be contrary to the national security or interest for the
limited liability partnership to be registered.

PART IV
PARTNERS, PARTNERSHIP AND THEIR RELATIONS

8. Partners.—(1) Any individual or body corporate or company may

become a partner in a limited liability partnership:
Provided that an individual shall not be capable of becoming a partner
of a limited liability partnership, if,---
(a) he has been found, to be of unsound mind by a court of
competent' jurisdiction and the finding is in force; or
(b) he is an undercharged insolvent; or
(c) he has applied to be adjudicated as an insolvent and his
application is pending.
(2) On the incorporation of a limited liability partnership, the persons
who subscribed their names to the incorporation document shall be
its partners and any other person may become a partner of the limited
liability partnership by and in accordance with the limited liability
partnership agreement.

9. Minimum number of partners.—(1) Every limited liability partnership

shall have at least two partners.
(2) If at any time the number of partners of a limited liability partnership
is reduced below two and the limited liability partnership carries on
business for more than six months or such other period as may be
prescribed while the number is so reduced, the person who is the only
partner of the limited liability partnership during the time that it so
carries on business after those six months or such other period as
may be prescribed and has the knowledge of the fact that it is
carrying on business with him alone, he shall be liable personally for
the obligations of the limited liability partnership incurred during that
period.

(3) A person may cease to be a partner of a limited liability

partnership,---
(a) in the event of his death;
(b) in the event of dissolution of limited liability partnership; and
(c) in accordance with an agreement with other partners or, in the
absence of agreement with the other partners as to cessation of
partnership, by giving reasonable notice to the other partners.
(4) Every partner of a limited liability partnership is its agent subject
to its agreement.

10. Designated partners.—(1) Every limited liability partnership shall

have at least one designated partner who,---
(a) is an individual; and
(b) a resident in Pakistan:
Provided that in case of a limited liability partnership in which all the
partners are bodies corporate, or in which one or more partners are
individuals and bodies corporate, at least two individuals who are
partners of such limited liability partnership or nominees of such
bodies corporate shall act as designated partners and one of the
nominees or partners, as the case may be, shall be a resident in
Pakistan.

Explanation.—For the purpose of this section, “resident

in Pakistan” means a person who has stayed in Pakistan for a
period of not less than six months during the immediately preceding
one year.
(2) Subject to the provisions of sub-section (1), if the incorporation
document,---
(a) specifies who are to be designated partners such persons shall
be designated partners on incorporation; and
(b) states that each of the partners from time to time of the limited
liability partnership is to be a designated partner, every such partner
shall be a designated partner.
(3) Subject to the provisions of sub-section (1), any partner may
become a designated partner by and in accordance with an
agreement with the other partners and a partner may cease to be a
designated partner in accordance With an agreement with other
partners.

(4) Subject to the provisions of this section, a limited liability

partnership shall appoint a designated partner within thirty days of a
vacancy arising for any reason:---
Provided that if no designated partner is appointed, each partner
shall be deemed to be a designated partner.
(5) An individual shall not become a designated partner in a limited
liability partnership unless he has given his prior consent to act as
such to the limited liability partnership in such form and manner as
may be prescribed by the Commission through regulations.
(6) Every limited liability partnership shall ensure that the particulars
of every individual who agrees to act as a designated partner of the
limited liability partnership and his consent to act as such are within
thirty days of the appointment of the designated partner” filed with
the Registrar in such form and manner as may be prescribed by the
Commission through regulations.
(7) An individual eligible to be designated partner shall satisfy such
conditions and requirements as may be prescribed by the
Commission through regulations.
(8) A person ceases to be a designated partner if he, or the body
corporate or company for which he is a nominee, ceases to be a
partner in the limited liability partnership.
(9) Unless expressly provided otherwise in this Act, a designated
partner shall be responsible for the doing of all acts, matters and
things as are required to bb done by the limited liability partnership
in respect to compliance of the provisions of this act including filing
any document, return, statement and the like report pursuant of the
provisions of this act and as may be specified in the limited liability
partnership agreement.

11. Joint liability. If the limited liability partnership contravenes the

provisions of sections 8,9 and 10, the limited liability partnership and
every designated partner commits an offence and shall be punishable
with fine which may extend to one million rupees.

12. Relationship of partners.—(1) Save as otherwise provided by

this Act, the mutual rights and duties of the partners of a limited liability
partnership, and the mutual rights and duties of a limited liability
partnership and its partners, shall be governed by the limited
liability partnership agreement between the partners.
(2) The limited liability partnership agreement and any changes
made therein shall be filed with the Registrar in the form and
manner, accompanied by such fee, as may be prescribed by the
Commission through regulations.
(3) An agreement in writing made before the incorporation of a
limited liability partnership between the persons who subscribe their
names to the incorporation document may impose obligations on
the limited liability partnership, provided such agreement is ratified
by all the partners after the incorporation of the limited liability
partnership.
Explanation.—Any reference to a resolution of partners for a
particular matter is a reference to a resolution passed by all or such
number of partners as may be required by the limited liability
partnership agreement for that matter.
(4) In absence of agreement as to any matter, the mutual rights and
duties of the partners and the mutual rights and duties of the limited
liability partnership and the partners shall be determined by the
provisions relating to that matter as are set out in the First
Schedule.
13. Cessation of partnership interest.—(1) A person may cease to
be a partner of a limited liability partnership in accordance with an
agreement with the other partners or, in absence of the agreement
with the other partners as to cessation of being a partner, by giving
a notice of not less than thirty days to the other partners of his
intention to cease as partner:---

Provided that a notice in writing to this effect shall be delivered by

the limited liability partnership to the Registrar.
(2) A person may also cease to be a partner of a limited liability
partnership by his death or by dissolution of the limited liability
partnership.
(3) Where a person has ceased to be a partner of a limited liability
partnership, hereinafter referred to as “former partner”, the former
partner is to be regarded (in relation to any person dealing with the
limited liability partnership) as still being a partner of the limited liability
partnership unless,—
(a) the person has notice that the former partner has ceased to be a
partner of the limited liability partnership; or
(b) notice, that the former partner has ceased to be a partner of the
limited liability partnership, has been delivered to the Registrar.
(4) The cessation of a partner from the limited liability partnership
does not by itself discharge the partner from any obligation to the
limited liability partnership or to the other partners or to any other
person which he incurred while being a partner.
(5) Where a partner of a limited liability partnership ceases to be a
partner, unless otherwise provided in the limited liability partnership
agreement, the former partner or a person entitled to his share in
consequence of the death or insolvency of the former partner, shall
be entitled to receive from the limited liability partnership an
amount,---
(a) equal to the capital contribution of the former partner actually
made to the limited liability partnership; and
(b) his right to share in the accumulated profits of the limited liability
partnership after the deduction of losses of the limited liability
partnership determined as at the date the former partner ceased to be
a partner.
(6) A former partner or a person entitled to his share in
consequence of death or insolvency of the former partner shall not
have any right to interfere in the management of the limited liability
partnership.
(7) Any former partner or the former partner's personal
representative or liquidator who fails to comply with sub-section (6)
commits an offence:

14. Registration of changes in partners.—(1) A limited liability

partnership shall ensure that,---
(a) where a person becomes or ceases to be a partner or
designated, notice is filed with the Registrar within fifteen days from
the date he becomes or ceases to be a partner; and
(b) where there is any change in the name or address of a partner,
notice is filed with the Registrar within fifteen days of such change in
respect of designated partner:
Provided that where all the partners of a limited liability partnership
are, from time to time, designated partners notice under clause (a)
will not be required.
(2) A notice filed with the Registrar under sub-section (1),---
(a) shall be in such form and accompanied by such fee as may be
prescribed by the Commission through regulations;
(b) shall be signed by the designated partner of the limited liability
partnership and authenticated in a manner as may be prescribed by
the Commission through regulations; and
(c) if it relates to admission of a partner, shall contain a statement
by the incoming partner that he consents to becoming a partner,
signed by him and authenticated in a manner as may be prescribed
by the Commission through regulations.
(3) If the limited liability partnership contravenes the provisions of
sub-section (1), the limited liability partnership and every designated
partner of the limited liability partnership shall be punishable with
fine which may extend to one million rupees.
(4) Any person who ceases to be a partner of a limited liability
partnership may himself file with the Registrar the notice referred to
in sub-section (2) if he has reasonable cause to believe that the limited
liability partnership may not file the notice with the Registrar and in
case of any such statement filed by a partner, the Registrar shall
obtain a confirmation to this effect from the limited liability partnership
unless the limited liability partnership has also filed such notice.

PART V
EXTENT OF LIABILITY

15. Extent of liability of limited liability partnership.—(1) A limited

liability partnership is not bound by anything done by a partner in
dealing with a person, if,---
(a) the partner in fact has no authority to act for the limited liability
partnership in doing a particular act; and
(b) the person knows that he has no authority or does not know or
believe him to be a partner of the limited liability partnership.
(2) A limited liability partnership is liable if a partner of the limited
liability partnership is liable to any person as a result of a wrongful
act or omission on his part in the course of business of the limited
liability partnership or with its authority.
(3) An obligation of a limited liability partnership, whether arising in
Contract or otherwise, is solely obligation of the limited liability
partnership.
(4) The liabilities of a limited liability partnership shall be met out of
the property of the limited liability partnership.
16. Extent of liability of a partner.—(1) A partner is not personally
liable, directly or indirectly, for an obligation referred to in sub-
section (3) of section 15 solely by reason of being a partner of the
limited liability partnership.
(2) The provisions of sub-section (3) of section 15 and sub-section
(l) of this section shall not affect the personal liability of a partner for
his own wrongful act or omission, but a partner shall not be personally
liable for the wrongful act or omission of any other partner of the
limited liability partnership.

17. Unlimited liability in case of fraud.—(1) In the event of an act

carried out by a limited liability partnership or any of its partners with
intent to defraud creditors of the limited liability partnership or any
other person or for any fraudulent purpose, the liability of the limited
liability partnership and partners who acted with intent to defraud
creditors or for any fraudulent purpose shall be unlimited for all or
any of the debts or other liabilities of the limited liability partnership:
Provided that in case any such act is carried out by a partner, the
limited liability partnership is liable to the same extent as the partner
unless it is established, by the limited liability partnership that such
act was without the knowledge or the authority of the limited liability
partnership.

(2) Where any business is carried on with such intent or for such
purpose as mentioned in sub-section (1), every person who was
knowingly a party to the * carrying on of the business in the manner
aforesaid shall be punishable with imprisonment for a term which may
extend to two years and with fine which may extend to two
million rupees.
PART VI
CONTRIBUTIONS

18. Form of contribution.—(1) The form and value of contribution to

the partnership of a partner, if any, will be decided mutually by the
partners and may consist of moneys, negotiable instruments,
properties including valuable rights, intangibles, knowledge and
skills, etc. which the partners deem to add value 16 partnership.
(2) The monetary value of contribution of partners representing
intangible properties including valuable rights, intangibles,
knowledge and skills etc. may be accounted for and disclosed in the
accounts of the limited liability partnership which can be valued
reliably and can be legally enforced, subject to the conditions as
may be prescribed by the Commission through regulations.

19. Liability for contribution.—(1) The obligation of a partner to

contribute money or other property or other benefit, whether
tangible or intangible, or to perform services for a limited liability
partnership shall be as per the limited liability partnership
agreement.
(2) A creditor of a limited liability partnership, which extends credit
or otherwise acts in reliance on an obligation described in that
agreement, without notice of any compromise between partners,
may enforce the original obligation against such partner.

PART VII
FINANCIAL DISCLOSURES
20. Maintenance of books of accounts, other records and audit, etc.—
(1) The limited liability partnership shall maintain such proper
books of accounts as may be prescribed by the Commission
through regulations relating to its affairs for each year of its
existence on accrual basis and according to double entry system of
accounting and shall maintain the same at its registered office for
such period as may be prescribed through such regulations.
(2) Every limited liability partnership shall, within a period of four
months from the end of each financial year, prepare a statement of
accounts for the said financial year as at the last day of the said
financial year and the designated partners of the limited liability
partnership shall put their signature on such statement evidencing
their acceptance thereof.
(3) The Commission may, through notification in the official Gazette,
specify such class or classes of limited liability partnerships who
shall file the statement of accounts prepared pursuant to sub-
section (2) with the Registrar every year in such form and manner and
accompanied by such fee as may be prescribed by the Commission
through regulations.
(4) The statement of accounts of limited liability partnerships shall
be audited in accordance with the regulations as may be prescribed
by the Commission:---
Provided that the Commission may, by notification, exempt any
class or classes of limited liability partnerships from the
requirements of this sub-section.
(5) A person shall not be qualified to be the auditor of a limited liability
partnership unless he is a chartered accountant.
(6) Any limited liability partnership which fails to comply with the
provisions of this section, unless otherwise provided, shall be
punishable with fine which may extend to two million rupees and the
designated partners of such limited liability partnership shall be
punishable with fine which may extend to one million rupees.
21. Inspection of documents kept by Registrar. The incorporation
document, names of partners and changes, if any, made therein
and any other documents filed by the limited liability partnership
from time to time, shall be available for inspection in office of the
Registrar by any person during business hours and in such manner
and on payment of such fees as may be prescribed by the
Commission through regulations.

22. Penalty for false statement. If in any return, statement or other

document required by or for the purposes of any of the provisions of
this Act, any person makes a statement,---
(a) which is false in any material particular, knowing it to be false; or
(b) which omits any material fact knowing it to be material, he shall,
save as otherwise expressly provided in this Act, be punishable with
imprisonment for a term which may extend to two years or with a
fine which may extend to two million rupees or with both.

23. Filing and registration of documents.—(1) Where in opinion of

the Registrar, any document required or authorized by or under this
Act to be filed or registered with the Registrar,---
(a) does not comply with the requirements of law, or any regulations
made by the Commission ;,or
(b) is not complete owing to any defect, error or omission; or
(c) is insufficiently legible or is written upon paper which is:not
durable; or
(d) is not properly authenticated; or
(e) is not in the prescribed form, if any, the Registrar may refuse to
accept the document for filing or registration and direct the limited
liability partnership to file a revised document in the form and within
the period to be specified through order:---
Provided that the limited liability partnership may appropriately
amend or complete and resubmit the document again or submit a
fresh document in its place.
(2) If the document is filed or registered and its contents are
detected to be defective, false, forged or not capable of rectification,
the Registrar may, through order in writing, return or cancel the
registration of the document.
(3) If the Registrar returns or cancels the registration of document
under sub-section (2), the same shall not be deemed to be
delivered in accordance with the provisions of this Act.
(4) The registration or filing of document with the Registrar does not
affect or create a presumption as to the validity or invalidity of the
document or the correctness or otherwise of the information contained
in it.

PART VIII
ASSIGNMENT AND, TRANSFER OF PARTNERSHIP RIGHTS

24. Partner's transferable interest.—(1) The rights of a partner to a

share of the profits and losses of the limited liability partnership and
to receive distributions in accordance with the limited liability
partnership agreement are transferable either wholly or in part and
such change shall be communicated to the Registrar within seven
days.
(2) The transfer of any right by any partner pursuant to sub-section
(1) does not by itself cause the disassociation of the partner or a
dissolution and winding up of the limited liability partnership.
(3) The transfer of right pursuant to this section does not, by itself,
entitle the transferee or assignee to participate in the management
or conduct of the activities of the limited liability partnership or
access information concerning the transactions of the limited liability
partnership.

PART IX
CONVERSION TO LIMITED LIABILITY PARTNERSHIP

25. Conversion from firm to limited liability partnership.—The

provisions of the Second Schedule shall apply to the conversion
from firm to a limited liability partnership.

26. Conversion from private limited company to limited liability

partnership.—The provisions of the Third Schedule shall apply to
the conversion from private limited company to a limited liability
partnership.

PART X
FOREIGN LIMITED LIABILITY PARTNERSHIP

27. Foreign limited liability partnership.—(1) Foreign limited liability

partnership shall not carry on business in Pakistan unless it is
registered as a foreign limited liability partnership as may be
prescribed.
(2) The Federal Government shall make rules in relation to
establishment of place of business by foreign limited liability
partnership within Pakistan and carrying on their business or
through notification in the official Gazette direct that any provisions
of the Ordinance specified in such notification shall apply to any
foreign limited liability partnership, with such exception, modification
and adaptation as may be specified in the notification.
(3) In all other respects, the provisions of this Act shall apply to a
foreign limited liability partnership.

PART XI
COMPROMISE, ARRANGEMENT OR RECONSTRUCTION OF
LIMITED LIABILITY PARTNERSHIPS

28. Compromise, arrangement or reconstruction of limited liability

partnerships.—(1) The Federal Government shall make rules in
relation to compromise, arrangement or reconstruction of limited
liability partnership or through notification in the official Gazette
direct that any provisions of the Ordinance specified in such
notification shall apply to any scheme of compromise, arrangement
or reconstruction of limited liability partnerships with such exception,
modification and adaptation as may be specified in the notification.
(2) In all other respects, the provisions of this Act shall apply to
compromise, arrangement or reconstruction under sub-section (1).

PART XII
WINDING UP AND DISSOLUTION

29. Winding up. The winding up of a limited liability partnership may

be either voluntary or by the Court.

30. Circumstances in which limited liability partnership may be

wound up by Court. A limited liability partnership may be wound up
by the Court,---
(a) if the limited liability partnership decides that limited liability
partnership be wound up by the Court;
(b) if the number of partners of the limited liability partnership is
reduced below two;
(c) if the limited liability partnership is unable to pay its debts;
(d) if the limited liability partnership has acted against the interests
of the sovereignty, or integrity of Pakistan, the security of the State
or public order;
(e) if the limited liability partnership has made a default in filing with
the Registrar the statement of accounts for any five consecutive
financial years;
(f) if the limited liability partnership has been conceived or brought
forth or is or has been carrying on unlawful or fraudulent activities;
or
(g) if the Court is of the opinion that it is just and equitable that the
limited liability partnership be wound up.

31. Procedure for winding up.—(1) The Federal Government shall

make rules in relation to winding up and dissolution of limited liability
partnerships or through notification in the official Gazette direct that
any provisions of the Ordinance specified in such notification shall
apply to any winding up and dissolution proceedings of limited
liability partnerships with such exception, modification and
adaptation as may be specified in the notification.
(2) In all other respects, the provisions of this Act shall apply to the
procedure for winding up.

PART XIII
MISCELLANEOUS
32. Non-applicability of Act IX of 1932.—Save as otherwise
provided by this Act, the provisions of the Partnership Act, 1932 (IX
of 1932) shall not apply to a limited liability partnership.

33. Business transactions of partner with limited liability

partnership. A partner may lend money to and transact other
business with the limited liability partnership as may be prescribed
and shall have the same rights and obligations with respect to the
loan or other transactions as a person who is not a partner.

34. Application of company law.—The Federal Government may, by

notification in the official Gazette, direct that any of the provisions of
the Ordinance specified in the notification,---
(a) shall apply to any limited liability partnership; or
(b) shall apply to any limited liability partnership with such
exception, modification and adaptation as may be specified in the
notification.

35. Electronic filing of documents.—(1) Any document required to

be filed or registered under this Act may be filed or registered in
such manner and subject to such conditions as may be prescribed
by the Commission through regulations.

Limited Liability Partnership (LLP) Registration in India

Features of LLP
It has a separate legal entity just like companies
The liability of each partner is limited to the contribution made
by partner
The cost of forming an LLP is low
 Less compliance and regulations
No requirement of minimum capital contribution

The minimum number of partners to incorporate an LLP is 2. There

is no upper limit on the maximum number of partners of LLP.
Among the partners, there should be minimum two designated
partners who shall be individuals, and at least one of them should
be resident in India. The rights and duties of designated partners
are governed by the LLP agreement. They are directly responsible for
the compliance of all the provisions of LLP Act 2008 and provisions
specified in LLP agreement.

If you want to start your business with Limited Liability Partnership,

then you must get it registered under Limited liability Partnership
Act, 2008.

Form name Form purpose

RUN – LLP (Reserve Form for reserving a name for the

Unique Name-Limited LLP
Liability Partnership

*FiLLiP Form for incorporation of LLP

Form 5 Notice for change of name

Form 17 Application and statement for the
conversion of a firm into LLP

Form 18 Application and Statement for

conversion of a private
company/unlisted public company
into LLP

Process of Registration as LLP

Step 1: Obtain DSC
Step 2: Apply for DIN
Step 3: Name Approval
Step 4: Incorporation of LLP
Step 5: File LLP Agreement

Steps to form a limited liability partnership

Step 1: Digital Signature Certificate (DSC)
Before initiating the process of registration, you must apply for the
digital signature of the designated partners of the proposed LLP.
This is because all the documents for LLP are filed online and are
required to be digitally signed.

So, the designated partner must obtain their digital signature

certificates from government recognized certifying agencies. Here is
a list of such certified agencies. The cost of obtaining DSC varies
depending upon the certifying agency. Also, you should obtain
either class 2 or class 3 category of DSC or you can click here & let
a expert procure DIN for you. If you go for Limited Liability
Partnership company registration with , up to 2 DINs are covered in
the plan & there is no need to apply for DIN separately.

Step 2: Director Identification Number (DIN)

You have to apply for the DIN of all the designated partners or those
intending to be designated partner of the proposed LLP.
The application for allotment of DIN has to be made in Form DIR-3.
You have to attach the scanned copy of documents (usually
Aadhaar and PAN) to the form. The form shall be signed by a
Company Secretary in full- time employment of the company or by the
Managing Director/Director/CEO/CFO of the existing company in
which the applicant shall be appointed as a director.

Step 3: Reservation of Name

LLP-RUN(Limited Liability Partnership-Reserve Unique Name) is
filed for the reservation of name of proposed LLP which shall be
processed by the Central Registration Centre under Non-STP. But
before quoting the name in the form, it is recommended that you
use the free name search facility on MCA portal. The system will
provide the list of closely resembling names of existing
companies/LLPs based on the search criteria filled up.

This will help you in choosing names not similar to already existing
names. The registrar will approve the name only if the name is not
undesirable in the opinion of the Central Government and does not
resemble any existing partnership firm or an LLP or a body
corporate or a trademark. The form RUN-LLP has to be
accompanied with fees as per Annexure ‘A’ which may be either
approved/rejected by the registrar. A re-submission of the form shall
be allowed to be made within 15 days for rectifying the defects.
There is a provision to provide for 2 proposed names of the LLP.

Step 4: Incorporation of LLP

1. The form used for incorporation is FiLLiP(Form for

incorporation of Limited Liability Partnership) which shall be
filed with the Registrar who has a jurisdiction over the state in
which the registered office of the LLP is situated. The form will
be an integrated form.
2. Fees as per Annexure ‘A’ shall be paid.
3. This form also provides for applying for allotment of DPIN, if an
individual who is to be appointed as a designated partner does
not have a DPIN or DIN.
4. The application for allotment shall be allowed to be made by
two individuals only.
5. The application for reservation may be made through FiLLiP
too.
 6. If the name that is applied for is approved, then this approved
and reserved name shall be filled as the proposed name of the
LLP
7.
Step 5: File Limited Liability Partnership Agreement

LLP agreement governs the mutual rights and duties amongst the
partners and also between the LLP and its partners.
LLP agreement must be filed in form 3 online on MCA Portal.
Form 3 for LLP agreement has to be filed within 30 days of the
date of incorporation.
The LLP Agreement has to be printed on Stamp Paper. The
value of Stamp Paper is different for every state.

Documents required to register as LLP

Here is a list of documents required for registration:

Documents of Partners:
PAN Card/ ID Proof of the Partners
 Address Proof of the partners
Residence Proof of Partners
Photograph
Passport (in case of Foreign Nationals/ NRIs)

Documents of LLP:
Proof of Registered Office Address
Digital Signature Certificate
A. Documents of Partners

1. PAN Card/ ID Proof of Partners – All the partners are required

to provide their PAN at the time of registering LLP. PAN card acts
as a primary ID proof.

2. Address Proof of Partners – Partner can submit anyone

document out of Voter’s ID, Passport, Driver’s license or Aadhar Card.
Name and other details as per address proof and PAN card should be
exactly same. If spelling of own name or father’s name or date of birth
is different in address proof and PAN card, it should be corrected
before submitting to RoC.

3. Residence Proof of Partners – Latest bank statement,

telephone bill, mobile bill, electricity bill or gas bill should be
submitted as a residence proof. Such bill or statement shouldn’t be
more than 2-3 months old and must contain the name of partner as
mentioned in PAN card.

4. Photograph – Partners should also provide their passport size

photograph, preferably on white background.
5. Passport (in case of Foreign Nationals/ NRIs) – For becoming
a partner in Indian LLP, foreign nationals and NRIs have to submit
their passport compulsorily. Passport has to be notarized or apostilled
by the relevant authorities in the country of such foreign nationals and
NRI, else Indian Embassy situated in that country can also sign the
documents.
Foreign Nationals or NRIs have to submit a proof of address also
which will be a driving license, bank statement, residence card or
any government issued identity proof containing the address.
If the documents are in other than the English language, a notarized
or apostilled translation copy will be also be attached.

B. Documents of LLP

1. Proof of Registered Office Address

Proof of registered office has to be submitted during registration, or
within 30 days of its incorporation.
If the registered office is taken on rent, rent agreement and a no
objection certificate from the landlord has to be submitted. No
objection certificate will be the consent of the landlord to allow the
LLP to use the place as ‘registered office’.
Besides, anyone document out of utility bills like gas, electricity, or
telephone bill must be submitted. The bill should contain complete
address of the premise and owner’s name and the document
shouldn’t be older than 2 months.

2. Digital Signature Certificate

One of the designated partners needs to opt for a digital signature
certificate also since all documents and applications will be digitally
signed by the authorized signatory.
Cost Involved in Registration Process

Below is the government fees for filing forms:

Step Cost

Step 1 – DSC Around Rs. 1500-2000 for 2

partners(varies depending on the
agency)

Step 2 – DIN Rs. 1000 for 2 partners

Step 3 – Name Rs. 200

Reservation

Step 4 – Depends on capital contribution.

Incorporation Contribution up to Rs. 1 lakhs – Rs. 500,
Contribution between Rs. 1 and 5 lakhs
– Rs. 2000

Step 5 – LLP Depends on capital contribution.

Agreement Contribution up to Rs 1 lakhs – Rs 50 for
filing Form 3
and stamp duty based on the state
where LLP is formed
Time Involved In Registration Process
LLP formation starting from obtaining DSC to Filing Form 3 takes
approximately 15 days subject to availability of all the documents.
Now, get your business registered as a Limited Liability
Partnership using ’s Expert & Legal Services.

What is The Competition Act, 2002: Objectives

and main provisions?

The Competition Act, 2002: Objectives and main provisions

Introduction

Competition is the act of the sellers individually seeking to acquire

the patronage of buyers in order to achieve profits or market share.
The Competition Act, 2002 was enacted by the Parliament of India
and replaced The Monopolies and Restrictive Trade Practices Act,
1969. It is in effect to govern Indian competition law. After its
enactment The Competition Act, 2002 has been amended twice,
The Competition (Amendment) Act, 2007 and The Competition
(Amendment) Act, 2009.

Two of the main features of the Competition Act, 2002 is the

framework it provides for the establishment of the Competition
Commission, and the tools it provides to prevent anti-competitive
practices and to promote positive competition in the Indian market.

Objectives of the Act

The Act seeks to provide the legal framework and tools to ensure
competition policies are met and to prevent anti-competition
practices and provide for the penalisation of such acts. The Act
protects the free and fair competition which protects the freedom of
trade, which in turn protects the interest of the consumer. The Act
seeks to prevent monopolies and also to prevent unnecessary
intervention by the government. The main objectives of the
Competition Act, 2002 are:
to provide the framework for the establishment of the
Competition Commission
to prevent monopolies and to promote competition in the
market
to protect the freedom of trade for the participating individuals
and entities in the market
to protect the interest of the consumer
Anti-Competitive agreements
In simple words, Anti-Competitive agreements are agreements that
are made by two or more companies competing in the same market
to fix prices or reduce stocks etc, so as to manipulate the market
favourably for them. This has the effect of the companies reducing the
competition in the market which adversely affects the end consumer.

The Competition Act, 2002 defines anti-competitive agreements as

such in section 3 where it states, “No enterprise or association of
enterprises or individuals or association of individuals may enter into
an agreement regarding production, supply, distribution, storage,
acquisition or control of goods or provision of services which may
adversely affect the competition in the Indian market”.
Such agreements are termed as AAEC agreement, which means
the appreciable adverse effect on competition agreements. the
Act expressly states that such an agreement shall be void.
An AAEC agreement is classified as any agreements that result in:-
Directly affects purchase or sale prices
Indirectly affects purchase or sale prices
Limits production
Limits supply
Limits technical development
Limits service provision in the market
Leads to the rigging of bids
Leads to collusive bidding

Abuse of dominant position

The abuse of dominant position is prohibited by Section 4 of the
Competition Act. Abuse of dominant position is defined under the
second part of the same Section. According to the act dominant
position means any enterprise that enjoys the position and power in
the Indian market which enables it to:
Operate independently of competitive forces in the relevant
market
Affect its competition, consumer or the relevant market in its
favour.

For example, predatory pricing is a practice that is seen to be an

abuse of dominant position. In simple words when a dominant
enterprise engages in AAEC acts, it is considered an abuse of
dominant position. The difference between the definition of anti-
competitive agreements and abuse of dominant position is that in
anti-competitive agreements there have to be two or more parties
and it can be between any enterprise or firm and doesn’t require
there to be a dominant firm involved. In abuse of dominant position,
it can be done by a single party but the party has to be in a
dominant position in the relevant market.

Remedies
Remedies against AAEC agreements and abuse of dominant
position are provided by the Competition Commission of India. Upon
a review and enquiry into the alleged practices the Competition
Commission may pass the following orders:
Direct the discontinuance of such practices
Impose a penalty that is less than 10% or the turnover of the
preceding three financial years; in the case of a cartel the
penalty shall be 10% or three times the turnover of every
financial year and shall continue for the period of continuance
of such practices
 Direct the modification of such an agreement or abuse so as to
curtail its adverse effect upon the competition of the market
Pass any order that it may so deem fit.

Competition commission
The Competition Commission of India is established under the
Competition Act, 2002. It is a statutory body that has the power to
govern and enforce the Competition Act including penalties. It was
established when the need for a healthy competitive environment
became necessary following liberalisation under the Vajpayee
government.

The Commission is composed of a chairman and a minimum of 2

board members and a maximum of 6 board members. These
members are required to have a minimum of 15 years of experience
in their respective fields. Its objectives, duties and powers are
enumerated in the Competition Act, 2002. Its main duty and object
is to ensure that the Indian markets maintain a healthy and fair
competitive environment and is granted power to ensure such an
environment and penalise any acts adversely affecting its duties.

Regulation of combination
The term combination has a broad definition under the ACT, it
includes
any acquisition of shares,
voting rights,
control of assets
Party to merger or amalgamation of enterprises
Any person/enterprise shall not enter into a combination which is likely
to have an adverse effect on the competition and such a combination
will be void.
If any person/enterprise proposes to enter into a combination he
shall intimate the Competition Commission of India within 30 days
of:
Approval of the proposal relating to mergers and
amalgamation by the BOD of the enterprises involved in the
process.
Execution of any agreement pertaining to acquiring of control.

Business Perspective
Business Operations in India necessitates the knowledge of the
various laws and regulations and also the implementation of the
same. Competition in the market is a huge challenge which needs
to be dealt with carefully. It is essential for the businesses to realize
that although competition brings prosperity, thriving and striving
shall be a continuous process.

The various matters to be kept in mind by the business houses are:

1. The markets are susceptible to formation of cartels which pose
a risk of formation of monopolies. The awareness of the fact
that such associations are not permitted under the Competition
Act 2002 is essential.
2. When discussions are made with competitors documentation
of the same should be done.
3. Any meetings wherein any matter is being discussed, which
shall raise issues under the competition law shall be avoided.
4. It is advisable to avoid discussions pertaining to price and the
actual cost to the company.
 5. Appointment of an Ombudsman for advise on the Competition
Law so as to prevent any legal issues may be done.
6. Communication aspects although seem trivial may leave an
impact when it comes to abuse of dominant position issues.
Any statements made shall be weighed carefully.
The Competition Act 2002 is a comprehensive law and the intent of
the legislation is

To promote fair competition, catch up with the global economy,

safeguard the interest of the consumers and ensure a stable market
for India.

As per the Act, a ‘Combination’ comprises of any of the following –

any acquisition of – control / shares / voting rights / assets of
enterprises
acquiring of control by person over an enterprises, where such
person already has direct / indirect control over another
enterprise engaged in similar / competitive business
any merger or amalgamation between enterprises if it exceeds
the monetary threshold of assets and or turnover as under:

Person/ Rs. USD / Rs.

Enterprise

In India In or Outside India

 Assets Turnove Assets* Turnover
* r

Acquirer + > 15 > 45 USD > USD

Target billion billion 750 mn > 2.25
Includin billionIncludin
g at g at least Rs.
least 22.50 billion
Rs. should be in
7.50 India
billion
should
be in
India

^Group > 60 > 180 USD > USD > 9

post billion billion 3 billion billion

acquisition Includin Including at

g at least Rs.
least 22.50 billion
Rs. should be in
7.50 India
billion
should
be in
India
* Assets – book value as per audited accounts and includes
intangibles ^ Group means two or more enterprises, which directly
or indirectly –
Exercise => 26% of voting rights in other enterprise
Appoint > 50% of board members in other enterprise
Control (#) the management or affairs of the other enterprise
# Control include controlling the affairs or management, either singly
or jointly:
by one or more enterprises over another enterprise or group;
or
by one or more groups over another group or enterprise
As mentioned above, GOI has enhanced the monetary limit of
“assets” and “turnover” under section 5 of the Act. The above table
is after considering such enhancement.

Exemptions from Section 5 of the Act:

1. An enterprise, whose control, shares, voting rights or assets are
being acquired has assets of the value of not more than ~ 2.50
billion or turnover of not more than ~ 7.50 billion is exempted from
the provisions of Section 5 of the Act for a period of 5 years from 4
March 2011.

2. A ‘Group’ exercising less than 50% of voting rights in other

enterprise is exempted from the provisions of Section 5 of the Act
for a period of 5 years from 4 March 2011.
Overview of Regulation of Combination

Section 6 of the Act inter alia provides that no person or enterprise

shall enter into a Combination which causes or is likely to cause an
appreciable adverse effect on competition within the relevant market
in India and such a combination shall be void.
If any proposed Combination exceeds the threshold of assets and /
or turnover specified in Section 5 of the Act (as aforesaid), the person
/ enterprise need to intimate the same to the CCI within 30 days of
board approval / entering into of the agreement for Combination for
approval.

A Combination cannot come into effect until a period of 210 days

has passed from the day on which the notice was given to CCI or CCI
has passed an order under Section 31 of the Act, whichever is earlier.

Above mentioned requirement of obtaining approval of CCI for the

combination is not applicable to share subscription/ financing facility
or any acquisition by public financial institution, Foreign Institutional
Investor (FII), Venture Capital Fund, Bank pursuant to any covenant
of a loan / investment agreement.

Under section 31 of the Act, broadly if the CCI opines that the
combination
Does not or is not likely to have an appreciable adverse effect
on competition, it would order approval of the combination.
Is or is likely to have an appreciable adverse effect on
competition, it would order that the combination shall not take
effect.
Is or is likely to have an appreciable adverse effect on
competition but such an adverse effect can be eliminated by
suitable modification of such combination, the CCI may
suggest appropriate modification to the combination for
approval by the parties. CCI, in such case would pass
appropriate order based on response received from the parties
to the Combination.
What is The Information Technology Act, 2000:
Objectives and main provisions; Cyber crimes and
penalties?

The Information Technology Act, 2000

Information Technology Act, 2000

The Information Technology Act, 2000 or ITA, 2000 or IT Act, was

notified on October 17, 2000. It is the law that deals with cybercrime
and electronic commerce in India. In this article, we will look at the
objectives and features of the Information Technology Act, 2000.
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Study of Cyber Crimes

Introduction of Information Technology Act 2000 Part 1

Introduction of Information Technology Act 2000

Information Technology Act, 2000

In 1996, the United Nations Commission on International Trade Law

(UNCITRAL) adopted the model law on electronic commerce (e-
commerce) to bring uniformity in the law in different countries.
Further, the General Assembly of the United Nations recommended
that all countries must consider this model law before making changes
to their own laws. India became the 12th country to enable cyber law
after it passed the Information Technology Act, 2000.

Source: Pixabay

While the first draft was created by the Ministry of

Commerce, Government of India as the ECommerce Act, 1998, it
was redrafted as the ‘Information Technology Bill, 1999’, and
passed in May 2000.

Objectives of the Act

The Information Technology Act, 2000 provides legal recognition to

the transaction done via electronic exchange of data and other
electronic means of communication or electronic commerce
transactions.

This also involves the use of alternatives to a paper-based method

of communication and information storage to facilitate the electronic
filing of documents with the Government agencies.
Further, this act amended the Indian Penal Code 1860, the
Indian Evidence Act 1872, the Bankers’ Books Evidence Act 1891,
and the Reserve Bank of India Act 1934. The objectives of the Act are
as follows:

i. Grant legal recognition to all transactions done via electronic

exchange of data or other electronic means of communication
 or e-commerce, in place of the earlier paper-based method of
communication.
ii. Give legal recognition to digital signatures for the
authentication of any information or matters requiring legal
authentication
iii. Facilitate the electronic filing of documents with Government
agencies and also departments
iv. Facilitate the electronic storage of data
v. Give legal sanction and also facilitate the electronic transfer of
funds between banks and financial institutions
vi. Grant legal recognition to bankers under the Evidence Act,
1891 and the Reserve Bank of India Act, 1934, for keeping the
books of accounts in electronic form.

Features of the Information Technology Act, 2000

a. All electronic contracts made through secure electronic

channels are legally valid.
b. Legal recognition for digital signatures.
c. Security measures for electronic records and also digital
signatures are in place
d. A procedure for the appointment of adjudicating officers for
holding inquiries under the Act is finalized
e. Provision for establishing a Cyber Regulatory Appellant
Tribunal under the Act. Further, this tribunal will handle all
appeals made against the order of the Controller or
Adjudicating Officer.
f. An appeal against the order of the Cyber Appellant Tribunal is
possible only in the High Court
 g. Digital Signatures will use an asymmetric cryptosystem and
also a hash function
h. Provision for the appointment of the Controller of Certifying
Authorities (CCA) to license and regulate the working of
Certifying Authorities. The Controller to act as a repository of
all digital signatures.
i. The Act applies to offences or contraventions committed
outside India
j. Senior police officers and other officers can enter any public
place and search and arrest without warrant
k. Provisions for the constitution of a Cyber Regulations Advisory
Committee to advise the Central Government and Controller.

Applicability and Non-Applicability of the Act

Applicability

According to Section 1 (2), the Act extends to the entire country, which
also includes Jammu and Kashmir. In order to include Jammu and
Kashmir, the Act uses Article 253 of the constitution. Further, it does
not take citizenship into account and provides extra-territorial
jurisdiction.

Section 1 (2) along with Section 75, specifies that the Act is applicable
to any offence or contravention committed outside India as well. If
the conduct of person constituting the offence involves a computer or
a computerized system or network located in India, then
irrespective of his/her nationality, the person is punishable under
the Act.
Lack of international cooperation is the only limitation of
this provision.
Non-Applicability
According to Section 1 (4) of the Information Technology Act, 2000,
the Act is not applicable to the following documents:
1. Execution of Negotiable Instrument under Negotiable
Instruments Act, 1881, except cheques.
2. Execution of a Power of Attorney under the Powers of Attorney
Act, 1882.
3. Creation of Trust under the Indian Trust Act, 1882.
4. Execution of a Will under the Indian Succession Act, 1925
including any other testamentary disposition
by whatever name called.
5. Entering into a contract for the sale of conveyance of
immovable property or any interest in such property.
6. Any such class of documents or transactions as may be
notified by the Central Government in the Gazette.

Cyber crimes and penalties

Purpose of Introduction
Information Technology Act, 2000 was enacted on 17th May, 2000
to provide legal recognition for electronic transactions and facilitate E-
Commerce. It was later amended by passing Information

Technology (Amendment) Act, 2008.

The following are the important objectives of Information
Technology Act, 2000 :
1. Grant legal recognition to E-Transactions
 2. Provide legal recognition to Digital Signatures for
authentication
3. Facilitate E-Filing of data and information
4. Allow Electronic storage of data
5. Grant recognition to maintenance of books of accounts in
Electronic Form
Penalties, Compensation and Adjudication under Information
Technology Act, 2000

Section 43: Where a person without the permission of owner or any

other person-in-charge damage the Computer, or Computer
System, or Computer Network, the he shall be liable for Penalty and
Compensation to such person so affected.

Section 44: Where a person fails to furnish any document, return,

report to the controller, or certifying authority, then he shall be liable
to pay penalty upto Rs.1,50,000/- per failure. Further where a
person fails to furnish any information, books or other documents
within time specified, then he shall be liable to pay penalty
upto Rs.5,000/- per day. Further provided that where a person fails
to maintain books of accounts or other records, then he shall be liable
to pay penalty upto Rs.10,000/- per day.
Offences under Information Technology Act, 2000

Section 65: Any person tamper, conceal, destroy, or alter any

computer source document intentionally, then he shall be liable to pay
penalty upto Rs.2,00,000/-, or Imprisonment upto 3 years, or
both.
Section 66: Any person dishonestly, or fraudulently does any act as
referred in Section 43, then he shall be liable to pay penalty
upto Rs.5,00,000/-, or Imprisonment upto 3 years, or both.

Section 66B: Any person dishonestly, or fraudulently receives or

retains any stolen computer resource or communication device,
then he shall be liable to pay penalty upto Rs.1,00,000/-, or
Imprisonment upto 3 years, or both.

Section 66C: Any person dishonestly, or fraudulently make use of

Electronic Signature, Password or any other Unique Identification
Feature of any other person, then he shall be liable to pay penalty
upto Rs.1,00,000/-, or Imprisonment upto 3 years, or both.

Section 66D: Any person dishonestly, or fraudulently by means of

any communication device or computer resource cheats by
personating, then he shall be liable to pay penalty
upto Rs.1,00,000/-, or Imprisonment upto 3 years, or both.

Section 66E: Any person intentionally captures, publishes, or

transmits image of private area of any person without consent, then
he shall be liable to pay penalty upto Rs.2,00,000/-, or
Imprisonment upto 3 years, or both.

Section 66F: Any person does any act electronically, or with use of
computer with intent to threaten unity, integrity, security, or
sovereignty of India, then he shall punishable with Imprisonment
for Life.
Section 67: Any person publishes, or transmits in electronic form
any material which appeals to prurient interest, or if its effect is such
as to tend to deprave and coorupt persons who are likely to read, see,
or hear matter contained in it, then he shall be liable to pay penalty
upto Rs.5,00,000/-, or Imprisonment upto 3 years, or both, And in
the event of second or subsequent conviction, he shall be liable to
pay penalty upto Rs.10,00,000/-, or Imprisonment upto 5 years, or
both.

Section 67A: Any person publishes, or transmits in electronic form

any material which contains sexually explicit act, or conduct, then
he shall be liable to pay penalty upto Rs.10,00,000/-, or
Imprisonment upto 5 years, or both, And in the event of second or
subsequent conviction, he shall be liable to pay penalty
upto Rs.10,00,000/-, or Imprisonment upto 7 years, or both.

Section 68: The Controller may, by order, direct a Certifying

Authority or any employee of such Authority to take such measures
or cease carrying on such activities as specified in the order if those
are necessary to ensure compliance with the provisions of this Act,
rules or any regulations made thereunder and if any person who
intentionally or knowingly fails to comply with the order, then he
shall be liable to pay penalty upto Rs.1,00,000/-, or Imprisonment
upto 2 years, or both.

Section 69: Where the Central Government or a State Government

or any of its officers specially authorized by the Central Government
or the State Government, as the case may be, in this behalf may, if
satisfied that it is necessary or expedient so to do, in the interest of
the sovereignty or integrity of India, defense of India, security of the
State,

friendly relations with foreign States or public order or for preventing

incitement to the commission of any cognizable offence relating to
above or for investigation of any offence, it may with reasons to be
recorded in writing, by order, direct any agency of the appropriate
Government to intercept,

monitor or decrypt or cause to be intercepted or monitored or

decrypted any information generated, transmitted, received or
stored in any computer resource, Any person who fails to comply
with the order, then he shall be liable to Imprisonment of 7 years,
along with the fine (amount of fine is not specified in the act).

Section 70: The appropriate Government may, by notification in the

Official Gazette, declare any computer resource which directly or
indirectly affects the facility of Critical Information Infrastructure, to
be a protected system, Any person who fails to comply with the
notification, then he shall be liable to Imprisonment of 10 years,
along with the fine (amount of fine is not specified in the act).

Section 71: Whoever makes any misrepresentation to, or

suppresses any material fact from the Controller or the Certifying
Authority for obtaining any License or Electronic Signature Certificate,
as the case may be, then he shall be liable to pay penalty upto
Rs.1,00,000/-, or Imprisonment upto 2 years, or both.

Section 72: If any person who has secured access to any electronic
record, book, register, correspondence, information, document or
other material without the consent of the person concerned
discloses such electronic record, book, register, correspondence,
information, document or other material to any other person, then
he shall be liable to pay penalty upto Rs.1,00,000/-, or
Imprisonment upto 2 years, or both.

Section 72A: If any person who has secured access to any material
containing personal information about another person, with the
intent to cause or knowing that he is likely to cause wrongful loss or
wrongful gain discloses, without the consent of the person concerned,
or in breach of a lawful contract, then he shall be liable to pay penalty
upto Rs.5,00,000/-, or Imprisonment upto 3 years, or both.

Section 73: If any person publishes a Electronic Signature

Certificate, or make it available to any other person with the
knowledge that
Certifying Authority has not issued it, or
Subscriber has not accepted it, or
Certificate has been revoked or suspended
then he shall be liable to pay penalty upto Rs.1,00,000/-, or
Imprisonment upto 2 years, or both.

Section 74: If any person knowingly creates, publishes, or

otherwise makes available Electronic Signature Certificate for any
fraudulent or unlawful purpose, then he shall be liable to pay penalty
upto Rs.1,00,000/-, or Imprisonment upto 2 years, or both.

Section 75: If any person have committed an offence, or

contravention committed outside India, and if the act or conduct
constituting the offence or contravention involves a computer,
computer system or computer network located in India, then
the provisions of this Act shall apply also to any offence or
contravention committed outside India by any
person irrespective of his nationality.

Section 76: Any computer, computer system, floppies, compact

disks, tape drives, or any other accessories related thereto, in respect
of which any provision of this Act, rules, orders, or regulations made
thereunder has been, or is being contravened, shall be liable to
confiscation. However, if it is proved that such resources were not
used in committing fraud then only person in
default will be arrested.
What is The RTI Act, 2005: Objectives and main
provisions ?

The RTI Act, 2005: Objectives and main provisions

We, the people of India, pay taxes from our earnings so that the nation
can run. We give our tax to the government; it means the
government is mainly there to serve us and not to serve
themselves.
As we are paying taxes, we should have every right to know how
the government is spending that money. And how do we keep a check
on them, by having access to information that compiles their
functioning?
This is the whole idea that led to one of the most significant law ever
passed by the government of India ‘The Right to Information Act
2005’. In this post, we are going to learn.

Table of contents

RTI
Right to information popularly known as RTI is a fundamental right
given by our constitution under article 19.1. The article 19.1 says
that every citizen has freedom of speech and expression. In 1976
the Supreme Court said that people could not speak or express
themselves unless they know. Therefore the Right to Information is
embedded in article 19.1 and is a fundamental right.

In the same case court also said that India is a democracy and
peoples are the masters; therefore, the masters or the people have
a right to know how the government means to serve them are
functioning.
Further, every citizen pays taxes; the citizens, therefore, have a
right to know how their money was being spent.

Enactment of RTI
The RTI Act was enacted in 2005. It was passed in Lok Sabha on
11th of May 2005 and on 12 of May of Rajya Sabha by the UPA
government. It received the assent of President of India on 15th
June 2005. Soon after 120 days, the Act came into force on 12
October 2005.

The objective of the Act was revolutionary when, because it opened

all official departments across the country to public scrutiny.
RTI includes the Right to
To inspect works, document and records.
To take notes, extracts, or certified copies of documents and
records.
Take certified samples of material.
To obtain information in the form of printouts, diskettes.

What is the Public Authority?

Public Authority means a body or institution of self-government

established or constituted
Under the constitution
Law made by the parliament of state legislative
By notification of the government
Body controlled or financed by government
Non-government body directly or indirectly by the funded by
the government.
Every public authority must publish its obligations within 120 days of
the enactment, which includes the functions, duties and the name of
office bearers.

Background of Right to Information Act 2005

Asking question is a human tendency; the RTI is all about asking
questions and getting answers as a Right.

Because our government retained the colonial Official Secrets Act

OSA of the British era, even after independence, and continued to
operate in a secret manner at an administrative level. The Central
Civil Service Conduct Rules of 1964 also strengthen the OSA by
prohibiting the government servants from communicating the official
document to anyone without authorisation.

The factors that influenced the free flow of information are

democratic culture, illiteracy and absence of useful communications
tools.

No doubt that there is a need for administrative secrecy in some

instances. No one wants classified documents concerning national
defence or foreign policy to be made public.
But every citizen has a right to know how the government is
functioning. The Right to Information empowers every citizen to
seek information from the government, inspect any
government document and seek certified photocopies of the
same.
Some laws of Right to information also empower the citizen to inspect
any government work officially or to take a sample of material
used in any work.

The meaning of ‘Information’ according to the RTI Act

Any material in any form including records, documents, memos,
email, opinion, advice, press release, circulars, orders logbook,
contracts, report, paper, samples, models, data material held in any
electronic form and information relating to any private body which
can be accessed by a public authority under any other law for the
time being in force.

Two features that make RTI a Unique Act

It was a Right based enactment:
The Right to information is a right based enactment done by the
GOI. The Act or laws that provide the specific Right to the citizens are
called rights-based enactment. The UPA government has enforced
several Right based enactments in their tenure.

For example, Right to employment (MANREGA) in 2005, Right to

education became operational in 2009, Forest rights act 2006, Right
to Information Act 2005, etc. are all the examples of Rights-based
enactment.

Enacted due to the pressure of society:

This Act was a few of those acts which were enacted with the active
involvement of society and pressure groups. For example, the
Lokpal Act of 2013 was passed by the government due to the heavy
demands of the people and pressure groups. Similarly, the
government passed RTI due to its demand right from the beginning.
Way back in 1986 in of a Supreme Court judgement the court said,
right to information is an essential part of freedom of speech and
expression under Article 19.1. Since then the successive
government started promising to bring the RTI act. But the UPA
government in 2004 decided to bring it.
Finally, it involved all the experts from the field such as Aruna Roy
ex IAS and others to give their suggestions on the draft of the New
Right to Information Act.

Procedure to apply for an RTI Application

The RTI can be claimed through two means, first through in writing
mode or through electronic mode.

What is the Format of Application for filing RTI?

There is no prescribed format of application for seeking information.
The application can be made on plain paper. The applications,
however, have the name and complete postal address of the
applicant.

What language is used in an RTI application?

The application can be in English, Hindi or any official language of the
area. Which means language is not a barrier in filing an RTI.

What can be the reasons for seeking information?

There is no need for the applicant to specify any reason for seeking
RTI. A person can file it whenever he or feels certainty of any doubtful
activity.

Is there any Assistance provided to file RTI?

If a person is unable to make written request, the Public Information
Officer PIO should render him reasonable assistance.

What fees are charged for seeking Information through RTI?

As per the RTI Act, the fees required should always be reasonable,
and it is mandatory for the organisation to prescribe the fees. If
extra fees are required to produce the information, then the same
must be intimated in writing with calculation details of how the figure
has arrived.
The fee is not required for citizens below poverty line category.

How much time shall a person wait for receiving information?

Normally the duration is of 30 days from the date of application to
receive the information. But if the matter is related to Life and
Liberty, the time limit for the Public Information Officer to provide
information is 48 hours.

Five days shall be added to the above response time, in case the
application for information is given to the assistant public
information officer.
If the interest of the third party is involved, then the time limit will be
40 days.
Failure to provide information within the specified period is deemed
refusal.

What are the grounds for rejection for refusal of RTI

application?
An application can only be rejected if it is covered by exemption
from disclosure, or if it infringes the copyright of any person other
than the State then these can be served as a ground for rejection.

The objective of Right to information act

To provide a legal framework of citizens democratic Right to access
to information under the control of public authorities.
To promote transparency and ensure accountability.
To harmonise conflicting interest and priorities in operations of
government, and use of resources.
To promote the practice of revelation of information to preserve
democratic ideals.
To promote accountability in the functioning of every public
authority, thereby reduce corruption.

Exemption from Disclosure

All forms of information are not covered under the RTI; the RTI act
has certain exceptions of disclosures which includes.
Information including commercial confidence, trade secret
or intellectual property rights, the disclosure of which would
harm the competitive position of a third party, unless the
competent authority is satisfied that more significant public
interest warrants the disclosure of such information.
The information available to a person in his fiduciary
relationship, unless the competent authority is satisfied that the
immense public interest warrants the disclosure of such
information.
Information received in confidence from a foreign government.
Information, that disclosure of which would endanger the life or
physical safety of any person or identify the source of
information or assistance given in confidence for law
enforcement or security proposes.
Information that relates to personal information the disclosure of which
has no relationship to any public activity or interest, which would
cause unwarranted invasion of the privacy of the individual.

What happens if a Public Information Officer refuses RTI

Application?
There is a provision for punishment if an officer does not comply
with the law.

Public officials who deliberately delay or obstruct an application for

information, or who deliberately provide incorrect or misleading
information can be punished under the RTI laws.
The RTI Act allows for the imposition of penalties. Most notably,
where a PIO has, without any reasonable cause:
 Not furnished information within time limits
Malafidely denied the request
Unknowingly given incorrect, incomplete or misleading
information
Destroyed information subject to a request
Obstructed the process
All such attempts are the violation of laws under the RTI Act.

Some Important aspects of filling RTI you must know

If more than one person asks the same kind of information, then it
should be made available to all such requestors. It is advised that
such records should be digitised if possible and uploaded on the
website for ensuring easy access.

The Act does not permit rejection simply because it relates to a

large number of documents.
An applicant can ask for multiple numbers of information with just
one application and cannot be asked to apply a fresh RTI.
If the information asked is comprehensive, then the PIO can request
the applicant to visit his or her office personally on a notified date
and time to inspect the required document or files.

Misuse and Abuse of RTI

It is inaccurate to assume that some elements may misuse RTI and
use the information to blackmail officers.
What is Intellectual Property Rights (IPRs) :
Patents, trademarks and copyrights; Emerging
issues in intellectual property?

Intellectual Property Rights (IPRs)

Intellectual property rights (IPR) are the rights given to persons over
the creations of their minds: inventions, literary and artistic works,
and symbols, names and images used in commerce. They usually
give the creator an exclusive right over the use of his/her creation
for a certain period of time.

▪ These rights are outlined in Article 27 of the Universal

Declaration of Human Rights, which provides for the right to
benefit from the protection of moral and material interests
resulting from authorship of scientific, literary or artistic
productions.
▪ The importance of intellectual property was first recognized in

the Paris Convention for the Protection of Industrial

Property (1883) and the Berne Convention for the
Protection of Literary and Artistic Works (1886). Both treaties
are administered by the World Intellectual Property
Organization (WIPO).
Intellectual property rights are customarily divided into two
main areas:
(i) Copyright and rights related to copyright:
▪ The rights of authors of literary and artistic works (such as

books and other writings, musical compositions, paintings,

sculpture, computer programs and films) are protected by
copyright, for a minimum period of 50 years after the death
of the author.
(ii) Industrial property: Industrial property can be divided into two
main areas:

▪ Protection of distinctive signs, in particular trademarks and

geographical indications.

o Trademarks distinguish the goods or services of one

undertaking from those of other undertakings.
 o Geographical Indications (GIs) identify a good as
originating in a place where a given characteristic of the
good is essentially attributable to its geographical origin.
o The protection of such distinctive signs aims to stimulate
and ensure fair competition and to protect
consumers, by enabling them to make informed choices
between various goods and services.
o The protection may last indefinitely, provided the sign in
question continues to be distinctive.

▪ Industrial designs and trade secrets: Other types of

industrial property are protected primarily to stimulate
innovation, design and the creation of technology. In this
category fall inventions (protected by patents), industrial
designs and trade secrets.

What is the need of IPR?

The progress and well-being of humanity rest on its capacity to

create and invent new works in the areas of technology and culture.
▪ Encourages innovation: The legal protection of new
creations encourages the commitment of additional resources
for further innovation.
▪ Economic growth: The promotion and protection of
intellectual property spurs economic growth, creates new jobs
and industries, and enhances the quality and enjoyment of life.
▪ Safeguard the rights of creators: IPR is required to

safeguard creators and other producers of their intellectual

commodity, goods and services by granting them certain time-
 limited rights to control the use made of the manufactured
goods.
▪ It promotes innovation and creativity and ensures ease of
doing business.
▪ It facilitates the transfer of technology in the form of foreign
direct investment, joint ventures and licensing.

India and IPR

▪ India is a member of the World Trade Organisation and

committed to the Agreement on Trade Related Aspects of
Intellectual Property (TRIPS Agreement).
▪ India is also a member of World Intellectual Property
Organization, a body responsible for the promotion of the
protection of intellectual property rights throughout the world.
▪ India is also a member of the following important WIPO-
administered International Treaties and Conventions
relating to IPRs.

o Budapest Treaty on the International Recognition of the

Deposit of Microorganisms for the Purposes of Patent
Procedure
o Paris Convention for the Protection of Industrial Property
o Convention Establishing the World Intellectual Property
Organization
o Berne Convention for the Protection of Literary and
Artistic Works
o Patent Cooperation Treaty
o Protocol Relating to the Madrid Agreement Concerning
the International Registration of Marks- Madrid Protocol
 o Washington Treaty on Intellectual Property in respect of
Integrated Circuits
o Nairobi Treaty on the Protection of the Olympic Symbol
o Convention for the Protection of Producers of
Phonograms Against Unauthorized Duplication of Their
Phonograms
o Marrakesh Treaty to facilitate Access to Published Works
by Visually Impaired Persons and Persons with Print
Disabilities.

National IPR Policy

▪ The National Intellectual Property Rights (IPR) Policy 2016

was adopted in May 2016 as a vision document to guide future
development of IPRs in the country.
▪ It’s clarion call is “Creative India; Innovative India”.
▪ It encompasses and brings to a single platform all IPRs, taking
into account all inter-linkages and thus aims to create and exploit
synergies between all forms of intellectual property (IP),
concerned statutes and agencies.
▪ It sets in place an institutional mechanism for
implementation, monitoring and review. It aims to incorporate
and adapt global best practices to the Indian scenario.
▪ Department of Industrial Policy & Promotion
(DIPP), Ministry of Commerce, Government of India, has been
appointed as the nodal department to coordinate, guide and
oversee the implementation and future development of IPRs in
India.
▪ The ‘Cell for IPR Promotion & Management (CIPAM)’, setup
under the aegis of DIPP, is to be the single point of
 reference for implementation of the objectives of the National
IPR Policy.
▪ India’s IPR regime is in compliance with the WTO's agreement
on Trade-Related Aspects of Intellectual Property Rights
(TRIPS).

Objectives

▪ IPR Awareness: Outreach and Promotion - To create public

awareness about the economic, social and cultural benefits of
IPRs among all sections of society.
▪ Generation of IPRs - To stimulate the generation of IPRs.
▪ Legal and Legislative Framework - To have strong and
effective IPR laws, which balance the interests of rights
owners with larger public interest.
▪ Administration and Management - To modernize and
strengthen service-oriented IPR administration.
▪ Commercialization of IPRs - Get value for IPRs through
commercialization.
▪ Enforcement and Adjudication - To strengthen the
enforcement and adjudicatory mechanisms for combating IPR
infringements.
▪ Human Capital Development - To strengthen and expand
human resources, institutions and capacities for teaching,
training, research and skill building in IPRs.

Achievements under new IPR policy

 ▪ Improvement in GII Ranking: India’s rank in the Global
Innovation Index (GII) issued by WIPO has improved from
81st in 2015 to 52nd place in 2019.
▪ Strengthening of institutional mechanism regarding IP
protection and promotion.
▪ Clearing Backlog/ Reducing Pendency in IP
applications: Augmentation of technical manpower by the
government, has resulted in drastic reduction in pendency in
IP applications.

o Automatic issuance of electronically generated patent

and trademark certificates has also been introduced.
▪ Increase in Patent and trademark Filings: Patent filings
have increased by nearly 7% in the first 8 months of 2018-19
vis-à-vis the corresponding period of 2017-18. Trademark
filings have increased by nearly 28% in this duration.
▪ IP Process Re-engineering Patent Rules, 2003 have been
amended to streamline processes and make them more user
friendly. Revamped Trade Marks Rules have been notified in
2017.
▪ Creating IPR Awareness: IPR Awareness programs have
been conducted in academic institutions, including rural
schools through satellite communication, and for industry, police,
customs and judiciary.
▪ Technology and Innovation Support Centres (TISCs): In
conjunction with WIPO, TISCs have been established in
various institutions across different states.

Issues in India’s IPR regime

▪ Section 3(d) of the Indian Patent Act 1970 (as amended in
2005) does not allow patent to be granted to inventions
involving new forms of a known substance unless it differs
significantly in properties with regard to efficacy.

o This means that the Indian Patent Act does not allow
evergreening of patents.
o This has been a cause of concern to the pharma

companies. Section 3(d) was instrumental in the Indian

Patent Office (IPO) rejecting the patent for Novartis’
drug Glivec (imatinib mesylate).
▪ Issue of Compulsory licencing (CL): CL is problematic for
foreign investors who bring technology as they are concerned
about the misuse of CL to replicate their products. It has been
impacting India-EU FTA negotiations.

o CL is the grant of permission by the government to

entities to use, manufacture, import or sell a patented
invention without the patent-owner’s consent. Patents Act
in India deals with CL.
o CL is permitted under the WTO’s TRIPS (IPR)
Agreement provided conditions such as ‘national
emergencies, other circumstances of extreme urgency
and anti-competitive practices’ are fulfilled.
▪ India continues to remain on the United States Trade
Representative's (USTR’s) ‘Priority Watch List’ for
alleged violations of intellectual property rights (IPR).

o In its latest Special 301 report released by the United

States Trade Representative (USTR), the US termed
 India as “one of the world’s most challenging major
economies" with respect to protection and enforcement of
IP.
▪ Data Exclusivity: Foreign investors and MNCs allege that
Indian law does not protect against unfair commercial use of test
data or other data submitted to the government during the
application for market approval of pharmaceutical or agro-
chemical products. For this they demand a Data Exclusivity
law.
▪ Enforcement of the Copyright act is weak, and piracy of
copyrighted materials is widespread.

Way Forward
▪ Promoting an environment of innovations in schools. The

academic curricula need to be rebooted.

▪ A proper resolution mechanism for resolving IPR related

issues is needed.
▪ India will be unable to take full advantage of the transformative

benefits of a strong IP system unless and until it addresses gaps

in its IP laws and regulations.
▪ Success of India’s flagship programmes - Make in
India and Start up India - depends on the boost of innovation
ecosystem with better IPR safeguardings.

o More awareness is needed about the creation, protection

and enforcement of IPRs to encourage the Indian
industry not only to innovate but also to protect and enforce
their innovations.

Conclusion
 ▪ India has made a number of changes in its IPR regime to
increase efficiency and has cut down the time required to issue
patents.The culture of innovation is taking centre stage in the
country. India is well poised to focus on R&D. This has been
reflected in its improved ranking in Global Innovation
Index over the years.

▪ Government’s effort to strengthen National IPR policy, IP

appellate tribunal, e-governance and commitment to abide by
the TRIPS agreement of WTO in letter and spirit will help in
improving perception of India globally.

▪ An efficient and equitable intellectual property system can help

all countries to realize intellectual property’s potential as a
catalyst for economic development and social & cultural well-
being.

Copyright, patent, and trademark are all different types of

intellectual property (IP). Although the three types of IP are very
different, people often confuse them.
A brief description of copyright, patents, and trademarks, including a
brief discussion of how these forms of IP differ from copyright, is
provided below.

Copyright
A copyright is a collection of rights automatically vested to you once
you have created an original work. To understand how these rights
can be used or licensed, it is helpful to analogize them to a bundle
of sticks, where each stick represents a separate right vested to you
as the owner.

These rights include the right to reproduce the work, to prepare

derivative works, to distribute copies, to perform the work publicly, and
to display the work publicly. As the
copyright owner, you have the authority to keep each “stick,” to
transfer them individually to one or more people, or to transfer them
collectively to one or more people. This can be accomplished through
licensing, assigning, and other forms of transfers. The power of
copyright allows you to choose the way your work is made available
to the public.

The primary goal of the patent law is to encourage innovation and

commercialization of technological advances. Patent law
incentivizes inventors to publicly disclose their inventions in exchange
for certain exclusive rights.

A patent protects inventions. These inventions can include new and

useful processes, machines, manufactures, compositions of matter as
well as improvements to these. Certain computer programs may fall
within the subject matter protected by both patents and copyrights.

In this respect the patent system compliments copyright protection by

providing protection for functional aspects of the software, which are
not protected by copyright. Unlike with copyright protection, to get
patent protection one must first apply for and be granted a patent
from the U.S. Patent and Trademark Office (USPTO). Unlike
the copyright registration process, the patent application

.
process is expensive, complex, difficult, and time consuming and
generally should not be attempted without the assistance of an
experienced patent attorney or agent.

Trademark

According to the USPTO, “a trademark is a word, phrase, symbol,

and/or design that identifies and distinguishes the source of the goods
of one party from those of others. A service mark is a word, phrase,
symbol, and/or design that identifies and distinguishes the source of
a service rather than goods. Examples include brand names, slogans,
and logos.

(The term “trademark” is often used in a general sense to refer to

both trademarks and service marks.)” Similar to copyright, a person
does not need not register a trademark or service mark to receive
protection rights, but there are certain legal benefits to registering
the mark with the USPTO. There is rarely an overlap between
trademark and copyright law but it can happen — for instance, when
a graphic illustration is used as a logo the design may be protected
both under copyright and trademark.

Copyright Patents Trademark

Original Inventions, Any word,
works of such as phrase,
authorship, processes, symbol,
What’s
such as machines, and/or
Protected?
books, manufacture design that
articles, s, identifies
songs, compositions and

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 Copyright Patents Trademark

photographs, of matter as distinguishe

sculptures, well as s the
choreograph improvement source of
y, sound s to these the goods
recordings, of one party
motion from those
pictures, and of others
other works
A mark
must be
distinctive
A work must
An invention (i.e., that is,
be original,
Requirement must be it must be
creative and
s to be new, useful capable of
fixed in a
Protected and identifying
tangible
nonobvious the source
medium
of a
particular
good)
For as long
Author’s life
Term of as the mark
plus 70 more 20 years
Protection is used in
years.
commerce
Right to Right to Right to use
control the prevent the mark
Rights reproduction, others from and to
Granted making of making, prevent
derivative selling using others from
works, or importing using

.
 Copyright Patents Trademark

distribution the patented similar

and public invention marks in a
performance way that
and display would
of the cause a
copyrighted likelihood-
works of-
confusion
about the
origin of the
goods or
services.

Challenges & Issues In Intellectual Property Rights (India)

India joined WTO (World Trade Organization) and became a

signatory of the TRIPS (Trade-Related Aspects of Intellectual rights)
agreements in the year of 1995. With this, all the signatories were
supposed to align their IP rules in conformation with the TRIPS
agreement. However, developing countries like India were granted a
window period of 10 years (5-compulsory +5 extended) to comply
with the rules put forth by the agreement.

Though India had aligned its rule in accordance to TRIPS in the

year 2005, still, there are many challenges and issues, that needs to
be addressed to maximize the benefits. Thus getting and granting
IP rights in India has become a matter of contention since 2005 and

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various stakeholders are interested in knowing India address these
issues.
This article is an attempt to underline those challenges and issues
hat India is facing in offering IP rights to companies in Indian
jurisdiction. Though, there are many challenges we will list only the
top 6, that are of utmost importance.
Intellectual Property Rights (India): Top 6 Challenges

1# From Process to Product Patents- One of the binding point in

TRIPS agreement is that all member countries are required to shift
their patent regime from “Process Patent” to “Product
Patent.” The fundamental difference between a Process Patent
regime and a Product Patent regime lies in the fact that the former
protects for processes only while the latter products. It becomes a
contentious issue when it comes to getting IP rights on
pharmaceuticals and food products.

Unlike developed countries where Capitalist Economic Model is

working India has adopted a mixed development model striking a
balance between Capitalism and Socialism. This approach was

.
taken to safeguard the interest of ordinary people those are struggling
for their basic needs including food and medicines. Developed
countries are accusing countries like India and Brazil being
protectionist when it comes to granting patents in pharmaceuticals
and food sectors.

Section 3(d) of the Indian Patent Act– Another challenge that it is

facing is the condemnation of section 3(d) of the Indian Patent Act.
This section prevents multinational companies evergreening their
patents simply by making minor changes. Implementation of 3(d)
was exercised in challenging the patent of Novartis Glevac drug.
The Court rules that multinational companies can’t evergreen their
patents simply by making minor changes in earlier patents and they
need to show considerable “Therapeutic Efficiency” to get patent
protection in already existing patents.

3# Compulsory licensing- With the provision of compulsory

licensing, the Govt of India can compel the owner company or
other companies to mass produce some drugs in emergency
irrespective of who got the patent. Multinationals are accusing India
of being opportunistic in their stand and are asking to abrogate this
provision. However, Indian Govt is not willing to cancel this
provision to safeguard the interests of mass.

4# Provision of Drug Price Control Order- With this provision

companies can’t charge an unfair price for drugs that they are
producing. The price has to be justified regarding investments, and
if someone plays foul, then the Govt has the right to intervene.

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5# Food security and IPR- India is a land of farmers wherein most
of the people are engaged in doing farming for their livelihood. In
such a country Govt offers many subsidies to farmers. India’s
domestic support schemes are generally in the form of “minimum
support price” for major agricultural commodities and “input”
subsidies provided to farmers in the types of electricity, fertilizers,
seeds, etc. However, for complete implementation of TRIPS
agreements, these subsidies will have to be reduced or eliminated.
Thus, the Indian Government is struggling to create a balance
between food security and providing IP rights in India.

6# IPRs, Community property rights, & Indigenous knowledge-

Traditional knowledge gives ready-made leads for pharmaceutical
companies and then simply come up with the new formulation to show
the efficacy of the general traditional understanding. The Indian
Govt is bound to protect the rich source of traditional knowledge by
not allowing multinationals to get patents on traditional culture.
As a defensive mechanism, the Govt has created TKDL (Traditional
Knowledge Digital Library) to challenge patenting traditional Indian
understanding. Multinationals and developed countries are also
opposing this move.

Intellectual Property Rights (India): Neglected Issues

Some of the highlighted issues that are facing negligence regarding
implementation, for a long time are:
Insufficiency of the regulations,
Lack of awareness and respect for IPRs and access rules, and
Lack of efficient application/control of these regulations.
Intellectual Property Rights (India): Some Recommendations
To Follow
Some of our recommendations that can be followed are:
Formulate comprehensive IPR Policies for various sectors
and Academic Institutions
Train personnel to manage IPR
Provide access and training to use Patent information
databases
Create a consortium of IPR professionals to offer professional
services for IPR work

Intellectual Property Rights (India): Milestones To Achieve

Though India technically has shifted from a process patent regime
to a product patent regime, it is still struggling to balance the interest
of companies as well as the masses. The country has technically
incorporated the rules of TRIPS but also trying to level the playing
field by adding clauses and provisions like compulsory licensing.
Some of the milestones still to achieve, are:

Successful implementation of the TRIPs agreement: The

important ones being legal, administrative and institutional
reforms, appropriate research investment, and first-rate
science and technology capability. Provided the IPR protection
is adequate and effective (worldwide), the TRIPs accord can
promote innovation, transfer of technology, foreign direct
investment, use of genetic resources and environmental
protection.
Creation of patent cell in the ICAR: Having a clear-cut
intellectual property policy and promoting patent literacy
among its scientists must be the next logical step.
 Foster and reward entrepreneurship: To maximize
opportunities patent offices must evolve a regulatory
environment conducive to technological innovation.
Indian must establish a lobby: At the international level, in
the WTO, India must lobby for creating a linkage between the
Convention on Biological Diversity (CBD) and TRIPs, stating that
it is the CBD which must have primacy over the TRIPs and
not the other way round.

Getting IP rights in India is a complex process where plenty of clauses

and provisions are there those can interfere with the interests of
patentees. Thus, it is of utmost importance to invest prudently,
foreseeing risks that companies may face. In such a situation it is
essential to take help of companies that are experienced in
filing patents and protecting IP rights in India. Should you are
looking for such a company, Your Patent Team can
help you in your journey from ideating to protecting IPs.
What is Goods and Services Tax (GST): Objectives
and main provisions; Benefits of GST;
Implementation mechanism; Working of dual
GST?

Goods and Services Tax (GST):

Introduction
Article 366(12A) of the proposed 122nd Constitutional Amendment
Bill, 2014 defines the Goods and Services tax (GST) as a tax on
supply of goods or services or both, except supply of alcoholic liquor
for human consumption. While Article 246A provide simultaneous
powers to both the Central and State governments to levy the goods
and services tax on intra-state supply, the Parliament alone shall have
exclusive power to make laws with respect to levy of goods and
services tax on inter-state supply.

Article 269A empowers the Parliament to formulate the principles for

determining the place of supply and when a supply of
goods/services takes place in the course of inter-state trade or
commerce. The term ‘supply’ is, however, not defined in the
Constitution.

2. The concept of ‘supply’ is the key stone of the proposed GST

architecture. GST is a multi-stage tax levied on supply of goods and
/ or services, collected at each stage of the production and distribution,
in proportion to the value added by each taxable person in the chain
of supply. In the GST regime, the entire value of supply of goods and
/ or services is proposed to be taxed in an integrated manner, unlike
the existing indirect taxes, which are charged independently either on
the manufacture or sale of goods, or on the provisions of services.
This paper explains the meaning and scope of supply, the various
types of supply, the time when the GST is chargeable (time of supply),
and the valuation of supply as provided in the Model GST Law.

II. Supply – Meaning

3.1. In general, supply for GST purposes covers all forms of supply
where goods and/or services are supplied in return for a
consideration. Any transaction involving supply of goods and/or
services without consideration is not a supply unless it is deemed to
be a supply under law. Drawing upon the international experience, the
following criteria have been identified to distinguish a transaction as
supply on which GST is levied;
(i) supply of goods and / or services
(ii) supply is for a consideration
(iii) supply is made in the course or furtherance of business
(iv) supply is made in the taxable territory
(v) supply is a taxable supply, and
(vi) supply is by a taxable person.

3.2. Under certain circumstances, there can be a supply under GST

even when one or more of the above criteria are not satisfied. For
instance, in free of charge supply, there could be no consideration
or a supply may not be in the course or furtherance of business. Such
transactions could be deemed by law to be a supply for GST
purposes. There may also be instances where a transaction is kept
out of GST despite the existence of the above criteria e.g. services
rendered by an employee to his employer in the course of
employment, transfer of business as a going concern.

(i). Supply of goods and/or services;

4.1. As GST is levied on supply of goods and/or services,

classification of a transaction as a supply of goods or supply of
services becomes essential. A single transaction may consist of
different elements of supplies that may be taxed at different rates –
a portion that is taxed at standard rate and another at lower rate, or
the time and place of supply provisions may apply differently for
different elements of such supply. Therefore, it becomes necessary
to understand what constitutes a supply of goods or supply of
services.

4.2. Supply of goods is not defined in the Model GST Law.

Generally, supply of goods mean the transfer of the right to dispose
of the goods as owner. Ordinarily, this would mean the transfer of both
title and possession ofthe goods. Transfer of goods may be
effected in any of the following manner:
 Transfer of title as well as possession – In a simple sale, title
as well as possession is transferred such as over the counter
sale of a drug or a readymade garment;
Transfer of possession but not title -sale on approval basis or
hire purchase;
Possession of goods is transferred but title is retained – when
goods are let out on hire or lease, the transaction will be
treated as supply of service.

Transfer of title to the goods may be effected with immediate effect

or at a future date. Instances of immediate transfer of title include, a
contract of sale, exchange or barter etc. Instances of future sale
include hire purchase contract, an agreement for the sale of goods
where the seller retains ownership until the goods are fully paid for, or
sometimes until everything owed by the customer has been paid,
conditional sale, supply on approval basis etc.

4.3. Supply of service is not specifically defined in the Model

GST Law.
Internationally, supply of services is defined as any supply that is
not a supply of goods. A supply of service is said to be made when
a person does something, or agrees to do something for a
consideration. A supply of service is also said to be made when a
person agrees to refrain from doing something or gives up a right for
consideration which also includes grant, assignment or surrender of
any right. In some situations, supply involving goods may be treated
as the service. Lease/hire of goods/immovable property,
transfer/sale of undivided share in title of goods, temporary application
of business assets for non-business use are treated as supply of
services.

(ii). Supply for a consideration;

5.1. One of the essential conditions for the supply of goods and/or
services to fall within the ambit of GST is that a supply is made for a
consideration. For GST purposes, consideration does not refer only
to money. It covers anything which might be possibly done, given or
made in exchange for something else. For example, it might be
something exchanged in a barter arrangement, such as in a part
exchange, or where a service is performed in return for another
service or it may simply be a condition imposed upon the making of
the supply.

A consideration may be monetary, non-monetary or a combination

of both but it must be capable of being expressed in monetary
terms. There must be a direct link between the supply and the
consideration. In order to qualify as consideration for a supply, there
must be at least two parties. A direct link is established between the
supply made and the consideration given. A consideration need not
always flow from the recipient of the supply. It could be made by a
third person. Consideration refers to ‘reciprocal performance’
capable of being expressed in monetary terms.

5.2. The Model GST Law defines consideration in relation to the

supply of goods and/or services to any person to include

(a) any payment made or to be made, whether in money or otherwise,

in respect of, in response to, or for the inducement of, the
supply of goods and/or services, whether by the said person or by
any other person;

(b) the monetary value of any act or forbearance, whether or not

voluntary, in respect of, in response to, or for the inducement of, the
supply of goods and/or services, whether by the said person or by
any other person. However, a deposit whether refundable or not,
given in respect of the supply of goods and/or services shall not be
considered as payment made for the supply unless the supplier
applies the deposit as consideration for the supply.

5.3. Certain transactions made without considerations (free supply

of goods and services) are deemed to be supply for GST purposes.
For example, the permanent transfer /disposal of business assets,
temporary application of business assets to a private or non- business
needs, services put to a private or non-business use, self- supply of
goods or services, assets retained after de-registration and a supply
made by the same PAN based entity across different States without
consideration (stock/branch transfer) shall be deemed to be
taxable supplies, though no consideration may be involved.

(iii) Supply made in the course or furtherance of business;

6.1. A transaction made in the course or furtherance of business,
alone will be treated as a supply under GST. As the objective of
GST is to tax the value addition, it would not be appropriate to tax,
for instance, the sale of a car by an individual who is not in the
business of supplying cars. Such transaction may otherwise be
treated as a supply if the concept of business is not brought in.
There is no exhaustive definition or test for determining whether an
activity is in the course or furtherance of business. Internationally,
the business test has emerged through judicial decisions. Generally,
whether an activity carried by a taxable person constitutes a
business or not is determined by considering the whole of the
activities carried on by him. If these activities are predominately
concerned with the making of taxable supplies to customers for a
consideration, it has to be held that the taxable person is in the
business of making taxable supplies, and the taxable supplies which
he makes are supplies made in the course of carrying on that
business, especially if the supplies are of a kind which are made
commercially by those who seek to profit from them.

6.2. However, there is no presumption that activities carried on by a

taxable person cannot be business if the profit motive is absent.
GST is not a tax on profit or income but on taxable supplies by taxable
persons. Whether an activity is in the course of business or not is
dependent on the business test. This test ensures that occasional
supplies, even if made for consideration, will not be subjected to GST.
For example, when a household makes a one- time sale of some
paintings, if it is not in the business of selling paintings, the sale will
not be a supply for GST purposes. However, a painter who sells his
paintings on regular basis, even infrequently, will be liable to pay GST
since he is in the business of selling paintings. The ‘business test’
requires examination of the following;

1. Is the activity, a serious undertaking earnestly pursued?

2. Is the activity is pursued with reasonable or recognisable
continuity?
3. Is the activity conducted in a regular manner based on sound and
recognised business principles?
4. Is the activity predominantly concerned with the making of
taxable supply for consideration/profit motive?
6.3. Section 2(17) of the Model GST Law defines ‘business’ to
include
(a) any trade, commerce, manufacture, profession, vocation or any
other similar activity, whether or not it is for a pecuniary benefit; (b)
any transaction in connection with or incidental or ancillary to (a)
above; (c) any transaction in the nature of (a) above, whether or not
there is volume, frequency, continuity or regularity of such transaction;
(d) supply or acquisition of goods including capital assets and
services in connection with commencement or closure of business; (e)
provision by a club, association, society, or any such body (for a
subscription or any other consideration) of the facilities or benefits to
its members, as the case may be; (f) admission, for a consideration,
of persons to any premises; and (g) services supplied by a person as
the holder of an office which has been accepted by him in the course
or furtherance of his trade, profession or vocation; Certain supplies
listed under Schedule I of the Model GST Law which are made
not in the course or furtherance of business are deemed as taxable
supply.

(iv) Supply made in the taxable territory;

7. GST being a destination based consumption tax, the GST law must
define the jurisdictional limit of the tax under which a
transaction is proposed to be taxed. Under this principle, imports
are taxed and exports are zero rated. Importation of services are taxed
under the reverse charge mechanism at the hands of the
recipient of the supplier.
To zero rate exports, the exports are treated as taxable supply
made within the country to enable an exporter to claim the input tax
credit. Place of supply determines whether a supply is made within
or outside the country/within or outside the state. The scope of
supplies in India, whether intra or inter-State supplies are
determined by the place of supply provisions. As place of supply for
importof goods will not be India, GST on imports is proposed to be
levied through a specific provision in the Customs Act.

(v) Supply – a taxable supply;

8. Taxable supply means supply of goods and/or services that are
subjected to GST. Supplies which are exempt or subjected to NIL rate
of tax will not be treated as taxable supply. In the GST regime,
exemptions may be provided to the specified goods or services or to
a specified category of persons / entities making supply and such
supplies may be treated as out of scope of GST supply. For the
purpose of GST, zero rated supplies will not be treated as exempted
supplies.

(vi) Supply – by a taxable person;

9. For GST purposes, supply is reckoned only in the context of a

taxable person. A taxable person is defined in the Model GST
Law to mean a person who carries on any business at any place in
India/State who is registered or required to be registered under
Schedule III. Such taxable person includes a public authority, a
department of central or state government subject to specified
exclusions. Person whose aggregate turnover during a year is
below the prescribed threshold or persons making only exempted
supplies may not be considered as a taxable person; however
persons making interstate supplies, persons liable to pay tax under
reverse charge are required to obtain registration irrespective of
their turnover.

III Supply – Model GST Law

10. The Model GST Law defines ‘supply’ to include, (a) all forms of
supply of goods and / or services such as sale, transfer, barter,
exchange, license, rental, lease or disposal made or agreed to be
made for a consideration by a person in the course or furtherance of
business, (b) importation of service, whether or not for a consideration
and whether or not in the course or furtherance of business, and (c)
a supply specified in Schedule I, made or agreed to be made without
a consideration. Schedule II of the Model GST Law classify specified
transactions as supply of goods or supply of services. Where a
person acting as an agent for consideration, either supplies or
receives any goods and/or services on behalf of any principal, the
transaction between such principal and the agent shall be deemed to
be a supply. Supply of any branded service by an aggregator under
a brand name or trade name is deemed to be a supply of service
by the aggregator. The Model GST Law also empowers the Central
or State government to specify the transactions that are to be treated
as (i) a supply of goods and not as a supply of services; or (ii) a
supply of services and not as a supply of goods; or (iii) neither a
supply of goods nor a supply of services.

IV. Types of Supply

(i). Taxable supply
11.1 Taxable supply refers to a supply of goods and/or services which
is chargeable to tax under the GST Act. Supplies which are exempt
or subject to NIL rate of tax will not be treated as taxable supplies.
However, exempt supplies shall be included for the purpose of
computing the aggregate turnover to determine the threshold /
composition limits.

(ii). Exempt supply

11.2. Exempt supply means supply of any goods and/or services
which are not taxable under the GST Act and includes such supply
of goods/or services which are specified in the Schedule to the Act
or which may be exempt from payment of tax under Sec. 10 of
the Model GST Law.Under Section 10 of the Model GST Law, a
supply may be exempt generally either absolutely or subject to such
conditions as may be specified in a notification issued by the
appropriate government. Further, where an exemption in respect of
any goods and/or services from the whole of the tax leviable
thereon has been granted absolutely, the taxable person providing
such goods and/or services shall not be eligible pay tax on such
goods and/or services.

(iii). Zero-rated supply

11.3. Zero rated supply is a supply of any goods and/or services on
which no tax is payable but credit of the input tax related to that supply
is admissible. Exports shall be treated as zero-rated supply. Zero
rated supplies will be treated as taxable supply.

(iv). Composite / Mixed supply

11.4. Section 2(27) of the Model GST Law defines composite supply
to mean a supply consisting of two or more goods, two or more
services or a combination of goods and services provided in the
course or furtherance of business, whether or not the same can be
segregated. Many transactions that fall within the scope of GST
may consist of more than one element.

These elements may be a mix of goods, or services, or both.

Sometimes these elements, if supplied separately, may have different
GST liabilities depending upon the rates, applicability of time of
supply and place of supply provisions. To avoid disputes about
whether the supplier is making a single supply with one liability,
or multiple supplies with different liabilities, it has to be determined
whether the supply is one of goods, or of services, or it is a supply
constituted of both goods and services (composite supplies).

11.5. To determine whether a particular supply consists of various

elements to be treated as a single supply or as multiple supplies,
one has to first identify the essential features of the transaction
which involves, ascertaining what the recipient has received. If a
component of the supply is to be treated separately from the overall
supply of which it is a part, it should be distinct and independent and
should amount to more than merely a component of the overall supply.
For instance, when a car is given for servicing, as a part of the service,
engine oil may be replaced. The supply of the oil cannot be considered
as distinct or independent in the context of the overall service required
by the recipient. It is also necessary to ascertain whether each
supply shall be properly regarded as a principle
supply or some of them are merely ancillary to principle supply.
11.6. The Model GST Law contains specific provisions [sub-Section
(3) Section 3] empowering the Central or a State government to
specify, by notification, on the recommendations of the GST
Council, whether a transaction involving composite supply will be
treated as a supply of goods and not a supply of service or a supply
of service and not a supply of goods.

(v). Continuous supply of goods/services

12.1. Continuous supply of goods means a supply of goods which is
provided or agreed to be provided, continuously or on recurrent basis,
under a contract, for which the supplier invoices the recipient on a
regular or periodic basis. Continuous supply of services means a
supply of service notified by the Central or a State government,
provided or agreed to be provided, continuously or on recurrent
basis under a contract, for a period of exceeding three months, with
periodic payment obligations.

12.2. Identifying a supply as a continuous supply of goods/services

is required in view of the time of supply of provisions. Section 12 of
the Model GST Law provides that in the case of continuous supply
of goods, involving successive statement of accounts or successive
payments, the time of supply shall be the date of expiry of the
period to which such successive statements of accounts or
successive payments relate. Where there are no successive
statements of accounts, the date of issue of invoice or the date of
receipt of payment, whichever is earlier, shall be the time of supply.

12.3. Section 13 of Model GST Law provides that in case of

continuous supply of services, the time of supply to be (a) where the
due date of payment is ascertainable from the contract, the date on
which the payment is liable to be made by the recipient of service,
whether or not any invoice has been issued or any payment has been
received by the supplier of service;(b) where the due date of payment
is not ascertainable from the contract, each such time when the
supplier of service receives the payment, or issues an invoice,
whichever is earlier;(c) where the payment is linked to the completion
of an event, the time of completion of that event.

(vi). Inward/Outward supply

13.1 An inward supply [Section 2(61)] refers to receipt of goods and/or
services whether by purchase, acquisition or any other means
by a person registered under the Act. Section 26 of the Model
GST Law mandates every registered taxable person other than
an input service distributor, a person paying tax under composite
scheme or a tax deductor at source to file details of inward
supplies as a part of monthly / quarterly return.

13.2. An outward supply [Section 2(73)] refers to supply of goods

and/or services, whether by sale, transfer, barter, exchange,
licence, rental, lease or disposal made or agreed to be made by
such person in the course or furtherance of business except in case
of such supplies where the tax is payable on reverse charge basis.
Section 25 of the Model GST Law mandates every registered
taxable person other than an input service distributor, a person paying
tax under composite scheme or a tax deductor at source to file details
of outward supplies as a part of monthly / quarterly return.

(vii). Inter/Intra State supply

14.1. The location of the supplier and the place of supply
determines whether a supply is treated as an Intra State supply or
an Inter State supply. Determination of the nature of supply is
essential to ascertain which type of GST is payable (i.e.
CGST/SGST or IGST). Inter State supply of goods means (subject
to Section 5 of the draft IGST Act), supply of goods where the location
of the supplier and place of supply are in different States. Inter State
supply of service means (subject to Section 6 of the draft IGST Act),
supply of services where the location of the supplier and place of
supply are in different States.

14.2. Intra State supply of goods means (subject to Section 5 of the

draft IGST Act), supply of goods where the location of the supplier
and place of supply are in the same State. Intra State supply of service
means (subject to Section 6 of the draft IGST Act), where the
location of supplier and the place of supply are in the same State.

(viii). Deemed supply

15. Schedule I of the Model GST Law lists specific transactions
made without consideration as deemed supply for GST purposes.
They include (i) permanent transfer / disposal of business assets (ii)
temporary application of business assets to a private or non- business
use (iii) services put to a private or non-business use (iv) assets
retained after deregistration and (v) supply of goods / or services by a
taxable person to another taxable or non-taxable person in the course
or furtherance of business.

V. Treatment of certain transactions as supply of goods or as

supply of services
16.1. Schedule II of the Model GST Law lists certain specified
transactions as a supply of goods or as a supply of services. Under
the Schedule, transfer of title in goods with immediate effect or with
effect from a future date under an agreement is considered as
supply of goods. Transfer of goods or of rights in goods without the
transfer of title is treated as supply of services. Any lean, tenancy,
easement, license to occupy land, or lease or letting out a building
for business or commerce, treatment or process applied to another
person’s goods (job work) is treated as supply of services.

16.2. Where goods forming part of the assets of the business are
transferred or disposed of by a person who no longer carries on the
business (ceases to be a taxable person), such transfer/disposal is
a supply of goods. When the goods held or used for the purposes of
the business are put to any private or personal use other than for
the purpose of business, whether or not for consideration, the usage
or making available of such goods for non-business use is a supply of
services. The Schedule II also provides that, where any goods
forming part of the business assets of a taxable person are sold by
any other person who has the power to do so to recover any debt
owed by the taxable person, the goods shall be deemed to be the
supplies by the taxable person in the course of furtherance of his
business.

16.3. Where any person ceases to be a taxable person, any goods

forming part of the assets of any business carried on by him shall be
deemed to be supplied by him in the course or furtherance of his
business immediately before he ceases to be a taxable person,
unless (a) the business is transferred as a going concern to another
person; or (b) the business is carried on by a personal
representative who is deemed to be a taxable person.
16.4. The Schedule II further provides that (a) renting of immovable
property, (b) construction of building/civil structure, (c) temporary
transfer or permitting use or enjoyment of intellectual property right,
(d) development, design, programming and certain other activities
relating to information technology software, (e) agreeing to or refrain
from an act or to tolerate an act, (f) works contract, (g) transfer of
the right to use any goods, (h) catering services, as a supply of
services.

Time of Supply

I.Introduction
The liability to pay the goods and services tax arises only when a
supply has been made. The time of supply fixes the point when the
liability has to be discharged. The time of supply is the time when a
supply of goods and / or services is treated as being made under
the GST law. It is important to determine the time of supply because
a taxable person should charge GST at the time when the supply is
made / deemed to have been made.

A supplier becomes liable to account for GST once a tax point has
occurred and must include it in the return covering the period in which
it falls. The time of supply differs for supply of goods and supply of
services. This is because goods are tangible and involve physical
movement / removal or transport whereas services are
intangible that involve performance, for making supply.
2. There are general provisions for determining the time of supply.
However in certain cases and in particular situations, specific time
of supply provisionsare to be applied. It is important to note that where
a specific time of supply provision applies, it will override the general
provisions.

II.General principles for goods

3.1. The general principles followed internationally for determining
the time of supply of goods are
Removal of Goods;
(a) if the goods are to be removed, the time of removal; (b) if the
goods are not to be removed, the time when they are made
available to the person to whom the goods are supplied. Removal is
said to occur when the goods are sent for delivery by the supplier or
somebody acting on behalf of the supplier, to a recipient of the supply.
(Basic tax point)

Issue of invoice;
Goods are either accompanied by the invoice or the invoice may be
sent before or after delivery of the goods. The GST law may provide
for time limit within which an invoice has to be issued from the date
of supply. (Actual tax point)

Receipt of payment;
A payment for supply is made either before or after delivery or
before or after issue of the invoice. (Actual tax point)
3.2. Normally, the date of removal and the date of invoice could be
the same. However, there can be situations where the invoice is
issued or payment is received before the basic tax point occurs.
Internationally, the time of supply is normally reckoned with the
basic tax point or the actual tax point whichever is earlier. Following
this principle, the Model GST Law provides to determine the time of
supply of goods as the earliest of the events listed above.
III. Time of supply of goods
(i) General rule

4.1. The Model GST Law provides that the time of supply of goods
shall be the earliest of the following dates:
(a) (i) the date on which the goods are removed by the supplier for
supply to the recipient, in a case where the goods are required to be
removed or
(ii) the date on which the goods are made available to the recipient, in
a case where the goods are not required to be removed, or
(b) the date on which the supplier issues the invoice with respect to
the supply, or
(c) the date on which the supplier receives the payment with respect
to the supply, or
(d) the date on which the recipient shows the receipt of the goods in
his books of account.

4.2. Where goods are made available to the recipient refers to

cases where the goods (i) are physically not capable of being
moved; or (ii) are supplied in assembled or installed form; or (iii) are
supplied by the supplier to his agent or his principal. The expression
‘made available to the recipient’ mean when the goods are placed at
the disposal of the recipient. For the purposes of clauses (b) and (c)
above, the supply shall be deemed to have been made to the extent
it is covered by the invoice or, as the case may be, the payment.For
the purpose of clause (c) above, “the date on which the supplier
receives the payment” shall be the date on which the payment is
entered in his books of accounts or the date on which the payment
is credited to his bank account, whichever is earlier.
(ii) Continuous supply of goods
5.1. In case of continuous supply of goods, where successive
statements of accounts or successive payments are involved, the time
of supply shall be the date of expiry of the period to which such
successive statements of accounts or successive payments relate.
If there are no successive statements of account, the date of issue
of the invoice (or any other document) or the date of receipt of
payment, whichever is earlier, shall be the time of supply.
The Model GST Law empowers the Central or State government to
notify specified supply of goods as continuous supply of goods.

(iii) Reverse charge

5.2. In case of supplies in respect of which tax is payable on reverse
charge basis, the time of supply shall be the earliest of the following
dates;
(a) the date of the receipt of goods, or
(b) the date on which the payment is made, or
(c) the date of receipt of invoice, or
(d) the date of debit in the books of accounts.

(iv) Supply on approval basis

5.3. If the goods (being sent or taken on approval or sale or return
or similar terms) are removed before it is known whether a supply
will take place, the time of supply shall be at the time when it becomes
known that the supply has taken place or six months from the date of
removal, whichever is earlier.

(v) Residual provision

5.4. In case it is not possible to determine the time of supply as above,
the time of supply shall (a) in a case where a periodical return
has to be filed, the date on which such return is to be filed and in
any other case, the date on which the CGST/SGST is paid.
IV. Time of supply of services (i) General rule
6.1. The general principle for determining the time of supply of service
is the time when the services performed (i.e. completed) which is the
basic tax point for the services. Issue of the invoice and the payment
of service are the actual tax point. Time of supply of services shall be
the earliest of the above.

6.2. The Model GST Law provides that the time of supply of
services shall be;
(a) the date of issue of invoice or the date of receipt of payment,
whichever is earlier, if the invoice is issued within the prescribed
period, or
(b) the date of completion of the provision of service or the date of
receipt of payment, whichever is earlier, if the invoice is not issued
within the prescribed period, or
(c) the date on which the recipient shows the receipt of services in
his books of account, in a case where the provisions of clause (a) or
(b) do not apply.
For the purposes of clauses (a) and (b) above , the supply shall be
deemed to have been made to the extent it is covered by the
invoice or, as the case may be, the payment.For the purpose of
clause (a) and (b) above, “the date of receipt of payment” shall be
the date on which the payment is entered in the books of accounts
of the supplier or the date on which the payment is credited to his
bank account, whichever is earlier.
(ii) Continuous supply of services
6.3. In case of continuous supply of services, the time of supply
shall be -
(a) where the due date of payment is ascertainable from the
contract, the date on which the payment is liable to be made by the
recipient of service, whether or not any invoice has been issued or
any payment has been received by the supplier of service;
(b) where the due date of payment is not ascertainable from the
contract, each such time when the supplier of service receives the
payment, or issues an invoice, whichever is earlier;
(c) where the payment is linked to the completion of an event, the time
of completion of that event;
The Model GST Law empowers the Central or State government to
notify specified supply of services as continuous supply of services.
(iii) Reverse charge

6.4. In case of supplies in respect of which tax is paid or liable to be

paid on reverse charge basis, the time of supply shall be the earliest
of the following dates, namely-
(a) the date of receipt of services, or
(b) the date on which the payment is made, or
(c) the date of receipt of invoice, or
(d) the date of debit in the books of accounts.
(iv) Residual provisions

6.5. In a case where the supply of services ceases under a contract

before the completion of the supply, such services shall be deemed
to have been provided at the time when the supply ceases. Where it
is not possible to determine the time of supply of services under any
of the above mentioned provisions, the time of supply shall be (a) in
a case where a periodical return has to be filed, the date on which
such return is to be filedorin any other case, the date on which the
CGST/SGST is paid.

V. Change in rate of tax (services)

7. The time of supply, in cases where there is a change in the effective
rate of tax in respect of services, shall be determined in the following
manner.
(a) in case the taxable service has been provided before the change
in effective rate of tax:
(i) where the invoice for the same has been issued and the payment
is also received after the change in effective rate of tax, the time of
supply shall be the date of receipt of payment or the date of issue of
invoice, whichever is earlier; or
(ii) where the invoice has been issued prior to change in effective
rate of tax but the payment is received after the change in effective
rate of tax, the time of supply shall be the date of issue of invoice; or
(iii) where the payment is received before the change in effective
rate of tax, but the invoice for the same has been issued after the
change in effective rate of tax, the time of supply shall be the date of
receipt of payment;
(b) in case the taxable service has been provided after the change
in effective rate of tax -
(i) where the payment is received after the change in effective rate
of tax but the invoice has been issued prior to the change in
effective rate of tax, the time of supply shall be the date of receipt of
payment; or
(ii) where the invoice has been issued and the payment is received
before the change in effective rate of tax, the time of supply shall be
the date of receipt of payment or date of issue of invoice, whichever
is earlier; or
(iii) wherethe invoice has been issued after the change in effective
rate of tax but the payment is received before the change in
effective rate of tax, the time of supply shall be the date of issue of
invoice.
VI. Imports and Exports
8.1. As imports of goods is not treated as domestic supply, the
treatment for levy of GST on imports will be distinct from GST on
domestic supplies. The time of supply in such cases will be the
relevant date for levy of Customs duty. Date of filing of Bill of Entry
/Declaration for clearance of goods for home consumption shall be the
time of supply in normal cases. In case of prior entry, the date of entry
inwards or arrival of the aircraft under which the goods have been
imported, shall be the time of supply.
8.2. The time of supply for export of goods/services shall be governed
by the general provisions relating to the determination of time of
supply of goods/services in India.

Valuation of Supply
I. Introduction
The value of the supply is the value on which the GST is
chargeable. Determination of value of the supply is not only required
to charge the goods and services tax, but also for arriving at the value
of supply to compute the turnover prescribed for obtaining registration
under GST. The Model GST Law proposes to adopt the concept of
‘transaction value’ for determining the taxable value of supply on which
the goods and services tax shall be levied. Currently, the concept of
transaction value is followed both under Central Excise and
Customs legislations for levying central excise and customs duties
by the Central government.
II. Value of a taxable supply
2. The value of a supply of goods and/or services shall be the
transaction value, that is the price actually paid or payable for the said
supply of goods and/or services where the supplier and recipient
of the supply are not related and the price is the sole consideration
for the supply. Section 15 of the Model GST Law provides
that the transaction value for the purpose of valuing a taxable supply
shall include;

> any amount that the supplier is liable to pay in relation to such
supply which has been incurred by the recipient of the supply and
not included in the price actually paid or payable for the goods
and/or services.

> the value, apportioned as appropriate, of such goods and/or

services as are supply directly or indirectly by the recipient of the
supply free of charge or at reduced cost for use in connection with
the supply of goods and / or services being valued, to the extent
such value has not been included in the price actually paid or
payable

> royalties and licence fees related to the supply of goods and / or
services that the recipient of supplies must pay either directly or
indirectly, a condition of the said supply, to the extent that such
royalties and fees are not included in the price actually paid or payable

> any taxes, duties, fees and charges levied under any statute other
than the SGST Act or the CGST Act or the IGST Act
> incidental expenses such as commission and packing, including
any amount charged for anything done by the supplier in respect of
the supply of the goods and/or services at the time of, or before the
delivery of goods /supply of services. > subsidies provided in any
form or manner, linked to the supply
> any reimbursable expenditure or cost incurred by or on behalf of the
supplier and charged in relation to the supply of goods and / or
services
> any discount or incentives that may be allowed after the supply
has been effected. However, post-supply discount which is
established as per the agreement and known at before the time of
supply linked to relevant invoices shall not be included in the
transaction value.

III. Discounts
1. The Model GST Law provides that the transaction value defined
under subsection (1) of section 16 shall not include any discount
allowed before or at the time of supply provided such discount is
allowed in the course of normal trade practice and has been duly
recorded in the invoice issued in respect of the supply.

IV. GST Valuation Rules (i) General provisions

4.1. The Model GST Law provides that where the value of supply of
goods and/or services cannot be determined under sub-section (1)
of Section 16, the same shall be determined in such manner as may
be prescribed in the rules, in the following situations where;
(i) the consideration paid or payable, is not money, wholly or partly
(ii) the supplier and the recipient of the supply are related
(iii) there is reason to doubt the truth or accuracy of the transaction
value declared by the supplier
(iv) business transactions are undertaken by a pure agent, money
changer, insurer or travel agent and distributor or selling agent of
lottery
(v) such other supplier as may be notified by the Central or a State
government on the recommendations of the Council.

4.2. Section 2(28) of the Model GST Law defines consideration in

relation to supply of goods and /or services to include la) any payment
made or to be made, whether in money or otherwise, in respect of,
in response to, or for the inducement of, the supply of goods and/or
services, whether by the said person or by any other person; (b) the
monetary value of any act or forbearance, whether or not voluntary,
in respect of, in response to, or for the inducement of, the supply of
goods and/or services, whether by the said person or by any other
person. However, a deposit, whether refundable or not, given in
respect of the supply of goods and/or services shall not be considered
as payment made for the supply unless the supplier applies the
deposit as consideration for the supply’.

4.3. Rule 3 of the GST Valuation (Determination of Value of Supply

of Goods and Services) Rules, 2016 (hereinafter refer to as the
GST Valuation Rules) provides for determining the transaction value
in monetary terms.

4.4. Where the supply consists of both taxable and non-taxable

supply, the taxable supply shall be deemed to be for such part of
the monetary consideration as is attributable thereto.
4.5. Transaction value shall be accepted even where the supplier
and the recipient of supply are related, provided that the relationship
has not influenced the price.

4.6. Transaction value shall be applicable where the goods are

transferred from (a) one place of business to another place of the
same business, and (b) the principal to an agent or from an agent to
the principal.

4.7. The value of supplies specified in para 4.1 above shall be

determined by proceeding sequentially through rule 4 to 6 of the
GST Valuation Rules.

(ii) Value of supply by comparison (Rule 4)

5.1. Where the value of supply cannot be determined under rule 3 of
the GST Valuation Rules, the value has to be determined on the basis
the transaction value of goods and/or services of like kind and quality
supplied at or about the same time to other recipients, adjusted after
taking into consideration the relevant factors such as difference in the
(i) dates of supply,
(ii) commercial/quantity levels,
(iii) composition, quality/design between the goods / services valued
and the goods / services with which they are compared and
(iv) freight and insurance charges depending upon the place of
supply.

5.2. Goods of like kind and quantity is defined to mean goods which
are identical or similar in physical characteristics, quality and
reputation, and perform the same functions, commercial
interchangeable with the goods being valued, supplied by the same
person or by a different person. Services of like kind and quality are
defined to mean the services which are identical or similar in nature,
quality and reputation as the services being valued and supplies by
the same person or by a different person.

(iii) Value of supply by computed value method (Rule 5)

6. Where the value of the supply cannot be determined by comparison

method, the same shall be based on a computed value which shall
include (a) the cost of production, manufacture or processing of the
goods or the cost of the provision of services, (b) charges if any for
the design or brand, and (c) an amount towards profit and general
expenses equal to that usually reflected in supply of goods and / or
services of the same class or kind as the goods and/or services being
valued which are made by other suppliers.

(iv) Residual method (Rule 6)

7. Where of value of the goods and services cannot be determined
under rule 5, the value shall be determined using reasonable means
consistent with the principles and general provisions of these rules.

(v) Rejection of declared value

8.1 Where the proper officer has reason to doubt the truth and the
accuracy of the value declared in relation to supply of goods and /
or services, he may ask the supplier to furnish further information
including documents or other evidence and after receiving such
information or where no such information is forthcoming, it shall be
deemed that the transaction value of such goods and or services
cannot be determined under rule 3 of the GST Valuation Rules.
8.2 The reasons to doubt the truth and accuracy of the value of the
supply may include;
> the significantly higher value at which goods and / or services of like
kind or quality supplied at or about the same time in comparable
quantity, in a comparable commercial transaction
> significantly lower or higher value of the supply of goods and / or
services compared to the market value of goods and or services of
like kind and quality at the time of supply
> mis-declaration of goods and or services such as description,
quality, quantity, year of manufacture etc.
8.3. The proper officer has to follow the principles of natural justice
including granting of hearing, recording of reasons in writing before
proceeding to determine the value in accordance with the provisions
of rule 4 or rule 5 or rule 6, proceeding sequentially.

(vi) Valuation in certain cases Pure Agent

9.1 Clause (b) to sub-section (2) of section 15 provides that any

reimbursable expenditure or cost incurred by or on behalf of the
supplier and charged in relation to the supply of goods and or services
shall be included in the transaction value, as defined under sub-
section (1) of section 15. Rule 8 of the GST Valuation Rules carves
out an exception to the provisions contained in sub-section (2) of
section 15 in respect of the expenditure or cost that a service provider
is incurs, as a pure agent of the recipient, so as to exclude the same
from the transaction value, if such supplier fulfils all the
following conditions, listed below;
> the service provider acts as a pure agent of the recipient of
service when he makes payment to third party for the goods and/or
services procured

> the recipient of service receives and uses the goods and/or services
so procured by the service provider in his capacity as pure agent of
the recipient of service > the recipient of service is liable to make
payment to the third party

> the recipient of service authorises the service provider to make

payment on his behalf

> the recipient of service knows that the goods and/or services for
which payment has been made by the service provider shall be
provided by the third party

> the payment made by the service provider on behalf of the recipient
of service has been separately indicated in the invoice issued by the
service provider to the recipient of service

> the service provider recovers from the recipient of service only
such amount as has been paid by him to the third party, and

> the goods and/or services procured by the service provider from
the third party as a pure agent of the recipient of service are in
addition to the services he provides on his own account.

9.2 A ‘pure agent’ means a person who(a) enters into a contractual

agreement with the recipient of service to act as his pure agent to
incur expenditure or costs in the course of providing taxable service
(b) neither intends to hold nor holds any title to the goods and/or
services so procured or provided as pure agent of the recipient of
service (c) does not use such goods and/or services so procured, and
(d) receives only the actual amount incurred to procure such goods
and/or services.

Money Changer

10.1. The value of taxable service provided for the services in so far
as it pertains to purchase or sale of foreign currency, including
money changing, shall be determined by the service provider in the
following manner:-
For a currency, when exchanged from, or to, Indian Rupees (INR),
the value shall be equal to the difference in the buying rate or the
selling rate, as the case may be, and the Reserve Bank of India
(RBI) reference rate for that currency at that time, multiplied by the
total units of currency. Where, the RBI reference rate for a currency
is not available, the value shall be 1% of the gross amount of Indian
Rupees provided or received, by the person changing the money:

10.2. Where neither of the currencies exchanged is Indian Rupee, the

value shall be equal to 1% of the lesser of the two amounts the person
changing the money would have received by converting any of the
two currencies into Indian Rupee on that day at the reference rate
provided by RBI.

Some of the Hits of GST:

1. GST Council plays principled diplomacy & and

the statesmanship shown by the members is surely a hit!
2. Technological Support to the Structure of GST law: The new
GST system runs under a canopy of strong technological support
and we can expect more GST services to be digitalised in the
months to come.
3. GST -A boon to Micro, Small & Medium Enterprises: MSMEs
are now less dependant on tax experts when compared to the
earlier regime, due to a simplified return filing system in place.
Rationalisation of the composition scheme and introduction of
quarterly filing option for taxpayers having turnover below Rs 1.5
crores was a wise decision.
Few Misses of GST: Need of recovery:
1. Delayed IGST refund has hit Exporters and caused a
slowdown: Although efforts are being made by the department
towards timely sanctioning of refund, yet over a few months, we can
expect a slowdown in the Export sector in India.
2. Sentiments around claiming of Input Tax Credit: admission of
ITC is currently being allowed on a provisional basis to the recipient
of the credit. Authorities are in process of reconciliation between
Different GST returns and hence, many taxpayers are receiving
mismatch notices for ITC claimed as per GSTR-3B and allowed as
per GSTR-2A supplier data. Development of recon. tools on the
GST portal will help a buyer be cautioned before claiming any
wrong ITC, thus avoiding the interest or penalties that follow.

Let us look at the advantages to start with:

Advantages of GST
1. GST eliminates the cascading effect of tax
GST is a comprehensive indirect tax that was designed to bring the
indirect taxation under one umbrella. More importantly, it is going to
eliminate the cascading effect of tax that was evident earlier.
Cascading tax effect can be best described as ‘Tax on Tax’. Let us
take this example to understand what is Tax on Tax:
Before GST regime:
A consultant offering services for say, Rs 50,000 and charged a
service tax of 15% (Rs 50,000 * 15% = Rs 7,500).
Then say, he would buy office supplies for Rs. 20,000 paying 5% as
VAT (Rs 20,000 *5% = Rs 1,000).
He had to pay Rs 7,500 output service tax without getting any
deduction of Rs 1,000 VAT already paid on stationery.
His total outflow is Rs 8,500.
Under GST

GST on service of Rs 50,000 @18% 9,000

Less: GST on office supplies (Rs 20,000*5%) 1,000

Net GST to pay 8,000

2. Higher threshold for registration

Earlier, in the VAT structure, any business with a turnover of more
than Rs 5 lakh (in most states) was liable to pay VAT. Please note
that this limit differed state-wise. Also, service tax was exempted for
service providers with a turnover of less than Rs 10 lakh.
Under GST regime, however, this threshold has been increased to Rs
20 lakh, which exempts many small traders and service
providers.
Let us look at this table below:

Tax Threshold Limits

Excise 1.5 crores

VAT 5 lakhs in most states

Service Tax 10 lakhs

GST 20 lakhs (10 lakhs for NE states)

3. Composition scheme for small businesses

Under GST, small businesses (with a turnover of Rs 20 to 75 lakh)

can benefit as it gives an option to lower taxes by utilizing
the Composition scheme. This move has brought down the tax and
compliance burden on many small businesses.

4. Simple and easy online procedure

The entire process of GST (from registration to filing returns) is
made online, and it is super simple. This has been beneficial for
start-ups especially, as they do not have to run from pillar to post to
get different registrations such as VAT, excise, and service tax.
Our GST software is already on a roll filing GST returns

5. The number of compliances is lesser

Earlier, there was VAT and service tax, each of which had their own
returns and compliances. Below table shows the same:
Under GST, however, there is just one, unified return to be filed.
Therefore, the number of returns to be filed has come down. There
are about 11 returns under GST, out of which 4 are basic returns
which apply to all taxable persons under GST. The main GSTR-1 is
manually populated and GSTR-2 and GSTR-3 will be auto- populated.

6. Defined treatment for E-commerce operators

Earlier to GST regime, supplying goods through e-commerce sector
was not defined. It had variable VAT laws. Let us look at this example:

Online websites (like Flipkart and Amazon) delivering to Uttar Pradesh

had to file a VAT declaration and mention the registration number of
the delivery truck. Tax authorities could sometimes seize goods if the
documents were not produced.
Again, these e-commerce brands were treated as facilitators or
mediators by states like Kerala, Rajasthan, and West Bengal which
did not require them to register for VAT.

All these differential treatments and confusing compliances have been

removed under GST. For the first time, GST has clearly mapped out
the provisions applicable to the e-commerce sector and since these
are applicable all over India, there should be no complication
regarding the inter-state movement of goods anymore.

7. Improved efficiency of logistics

Earlier, the logistics industry in India had to maintain multiple
warehouses across states to avoid the current CST and state entry
taxes on inter-state movement. These warehouses were forced to
operate below their capacity, giving room to increased operating
costs.
Under GST, however, these restrictions on inter-state movement of
goods have been lessened.
As an outcome of GST, warehouse operators and e-commerce
aggregators players have shown interest in setting up their
warehouses at strategic locations such as Nagpur (which is the
zero-mile city of India), instead of every other city on their delivery
route.
Reduction in unnecessary logistics costs is already increasing
profits for businesses involved in the supply of goods through
transportation.

8. Unorganized sector is regulated under GST

In the pre-GST era, it was often seen that certain industries in India
like construction and textile were largely unregulated and
unorganized.
Under GST, however, there are provisions for online compliances
and payments, and for availing of input credit only when the supplier
has accepted the amount. This has brought in accountability and
regulation to these industries.
Let us now look at disadvantages of GST. Please note that
businesses need to overcome these disadvantages to run the
business smoothly.

Disadvantages of GST
1. Increased costs due to software purchase
Businesses have to either update their existing accounting or ERP
software to GST-compliant one or buy a GST software so that they
can keep their business going. But both the options lead to
increased cost of software purchase and training of employees for
an efficient utilization of the new billing software.

2. Being GST-compliant
Small and medium-sized enterprises (SME) who have not yet
signed for GST have to quickly grasp the nuances of the GST tax
regime. They will have to issue GST-complaint invoices, be
compliant to digital record-keeping, and of course, file timely
returns. This means that the GST-complaint invoice issued must have
mandatory details such as GSTIN, place of supply, HSN codes,
and others.

3. GST will mean an increase in operational costs

As we have already established that GST is changing the way how
tax is paid, businesses will now have to employ tax professionals to
be GST-complaint. This will gradually increase costs for small
businesses as they will have to bear the additional cost of hiring
experts.
Also, businesses will need to train their employees in GST
compliance, further increasing their overhead expenses.
4. GST came into effect in the middle of the financial year
As GST was implemented on the 1st of July 2017,
businesses followed the old tax structure for the first 3 months
(April, May, and June), and GST for the rest of the financial year.
Businesses may find it hard to get adjusted to the new tax regime,
and some of them are running these tax systems parallelly, resulting
in confusion and compliance issues.

5. GST is an online taxation system

Unlike earlier, businesses are now switching from pen and paper
invoicing and filing to online return filing and making payments. This
might be tough for some smaller businesses to adapt to.

Cloud-based GST billing software like the GST Billing

Software is definitely an answer to this problem. The process for
return filing on GST is very simple. Business owners need to only
upload their invoices, and the software will populate the return forms
automatically with the information from the invoices. Any errors in
invoices will be clearly identified by the software in real-time, thus
increasing efficiency and timeliness.

6. SMEs will have a higher tax burden

Smaller businesses, especially in the manufacturing sector will face
difficulties under GST. Earlier, only businesses whose turnover
exceeded Rs 1.5 crore had to pay excise duty. But now any
business whose turnover exceeds Rs 20 lakh will have to pay GST.

However, SMEs with a turnover upto Rs 75 lakh can opt for the
composition scheme and pay only 1% tax on turnover in lieu of GST
and enjoy lesser compliances. The catch though is these
businesses will then not be able to claim any input tax credit. The
decision to choose between higher taxes or the composition
scheme (and thereby no ITC) will be a tough one for many SMEs.

Basics of GST – Implementation In India

Indirect Tax Structure in India

India currently has a dual system of taxation of goods and services,
which is quite different from dual GST. Taxes on goods are
described as “VAT” at both Central and State level. It has adopted
value added tax principle with input tax credit mechanism for
taxation of goods and services, respectively, with limited cross-levy
set-off. The present tax structure can best be described by the
following chart:
SHORTCOMINGS IN THE PRESENT STRUCTURE AND NEED
OF GST
1. Tax Cascading: The most significant contributing factor to tax
cascading is the partial coverage by Central and State taxes.
The exempt sectors are not allowed to claim any credit for the
Cenvat or the Service Tax paid on their inputs.
2. Levy of Excise Duty on manufacturing point : The CENVAT
is levied on goods manufactured or produced in India. Limiting
the tax to the point of manufacturing is a severe impediment to
an efficient and neutral application of tax. Taxable event at
manufacturing point itself forms a narrow base. For example,
valuation as per excise valuation rules of a product, whose
consumer price is Rs. 100/-, is, say, Rs. 70/-. In such a case,
excise duty as per the present provisions is payable only on
Rs.70/-, and not on Rs.100/-.

3. Complexity in determining the nature of transaction – Sale

vs. Service

4. Inability of States to levy tax on services : With no powers

to levy tax on incomes or the fastest growing components of
consumer expenditures, the States have to rely almost
exclusively on compliance improvements or rate increases for
any buoyancy in their own-source revenues.

5. Lack of Uniformity in Provisions and Rates

6. Fixation of situs – Local Sale vs. Central Sale
7. Interpretational Issues: whether an activity is sale or works
contract; sale or service, is not free from doubt in many cases.
8. Narrow Base
 9. Complexities in Administration

GST (Goods and Service Tax)

GST means Goods and Service Tax. It is an indirect tax levied on
sale of goods and services. The reformists believe that GST is one
of the most awaited law which upon introduced will boost the
economic growth in the country. This law if passed by the
parliament may come into force from April 2016. As everyone is
talking about it now, let’s get into the basics of the proposed law in
this article.

Present system – This can be better explained through an example.

Suppose you buy soap for Rs.50 per piece, it includes Excise Duty,
VAT or CST, Customs duty on the imported raw materials, etc. So,
currently you will have to pay multiple taxes on the same product.
Let’s take another example; the food you buy at hotels will have
VAT as well as Service Tax.

Complexities in the present system – The taxes are levied by

central government as well as state governments. So, the
businessman has to maintain accounts which will comply with all the
applicable laws. It is perceived to be a complex system. Hence,
worldwide over 150 countries have adopted GST, a simple tax
system. Though it is late, India is catching up with the global trends.

Is it easy to implement in India? Not really. Today states have

autonomy in collecting state taxes. They have the feeling of losing
their rights! They want liquor, fuel to be out of GST tax system. They
are also worried about Central government sharing GST revenue
with the states. If India becomes one common market, then the
states will have to share their powers of taxing with the union
government. (Which means states can’t increase the taxes as and
when, as much as they want)

If the GST bill is passed; will it come into effect immediately? NO.
The earliest day we can see GST in India will be in April 2016.
Again implementation depends upon the initiative and involvement
of state governments. Some of the states may act quickly and some
of them may take time to implement.

GST Rate- Today, one pays Excise Duty of 12%, VAT of 14% on
goods (totaling to 26%). 12% service tax on services. So, the rates
may be anywhere between 12% and 26%. The average worldwide
GST rate is around 18%.

FEATURES OF AN IDEAL GST

The main features of GST are as under:-
(a) GST is based on the principle of value added tax and either
“input tax method” or “subtraction” method, with emphasis on
voluntary compliance and accounts based system.
(b) It is a comprehensive levy and collection on both goods and
services at the same rate with benefit of input tax credit or subtraction
of value of penultimate transaction value.
(c) Minimum number of floor rates of tax, generally, not exceeding two
rates.
(d) No scope for levy of cess, re-sale tax, additional tax, special tax,
turnover tax etc.
(e) No scope for multiple levy of tax on goods and services, such
as, sales tax, entry tax, octroi, entertainment tax, luxury tax, etc.
(f) Zero rating of exports and inter State sales of goods and supply
of services.
(g) Taxing of capital goods and inputs whether goods or services
relatable to manufacture at lower rate, so as to reduce inventory
carrying cost and cost of production.
(h) A common law and procedures throughout the country under a
single administration.
(i) GST is a destination based tax and levied at single point at the
time of consumption of goods or services by the ultimate consumer.

MODELS OF GST
There are three prime models of GST:
GST at Central (Union) Government Level only
GST at State Government Level only
GST at both, Union and State Government Levels
EXPECTED MODEL OF GST IN INDIA- DUAL GST

In India, the GST model will be “dual GST” having both Central and
State GST component levied on the same base. All goods and
services barring a few exceptions will be brought into the GST base.
Importantly, there will be no distinction between goods and services
for the purpose of the tax with common legislations applicable to both.

For Example, if a product have levy at a base price of Rs. 100 and
rate of CGST and SGST are 8% then in such case both CGST and
SGST will be charged on Rs 100 i.e. CGST will be Rs 8 and SGST
will be Rs.8.
Interestingly, as per the recommendations of Joint Working Group
(JWG) appointed by the Empowered Committee in May
2007, the GST in India may not have a dual VAT structure exactly
but it will be a quadruple tax structure. It may have four
components, namely – (a) a Central tax on goods extending up to
the retail level; (b) a Central service tax; (c) a State-VAT on goods;
and (d) a State-VAT on services.
The significant features of Dual GST recommended in India, in
conjunction with the recommendations by the JWG, are as under:

1. There will be Central GST to be administered by the Central

Government and there will be State GST to be administered by
State Governments.

2. Central GST will replace existing CENVAT and service tax and
the State GST will replace State VAT.
3. Central GST may subsume following indirect taxes on supplies
of goods and services: Central Excise Duties (CENVAT)· Additional
excise duties including those levied under Additional Duties· of Excise
(Goods of Special Importance) Act, 1957. Additional customs
duties in the nature of countervailing duties, i.e.,· CVD, SAD and
other domestic taxes imposed on imports to achieve a level playing
field between domestic and imported goods which are currently
classified as customs duties. Cesses levied by the Union viz., cess
on rubber, tea, coffee etc.· Service Tax· Central Sales Tax – To be
completely phased out· Surcharges levied by the Union viz., National
Calamity Contingent Duty,· Education Cess, Special Additional Duties
of Excise on Motor-Spirit and High Speed Diesel (HSD).

4. State GST may subsume following State taxes: Value Added

Tax· Purchase Tax· State Excise Duty (except on liquor)·
Entertainment Tax (unless it is levied by the local bodies)· Luxury
Tax· Octroi Entry Tax in lieu of Octroi· Taxes on Lottery, Betting and
Gambling·

5. The proposed GST will have two components – Central GST and
State GST – the rates of which will be prescribed separately
keeping in view the revenue considerations, total tax burden and the
acceptability of the tax.

Working of dual GST

The Goods and Services Tax (GST) is a comprehensive value

added tax (VAT) on the supply of goods or services. France was the
first country to introduce this value added tax system in 1954
devised by a public servant. In India, due to non consensus
between central and state government, the proposal is to introduce
a Dual GST regime i.e. Central and State GST.

Dual GST:- Many countries in the world have a single unified GST
system i.e. a single tax applicable throughout the country. However,
in federal countries like Brazil and Canada, a dual GST system is
prevalent whereby GST is levied by both the federal and state or
provincial governments. In India, a dual GST is proposed whereby a
Central Goods and Services Tax (CGST) and a State Goods and
Services Tax (SGST) will be levied on the taxable value of every
transaction of supply of goods and services.

Impact on Prices of Goods and Services:-

The GST is expected to foster increased efficiencies in the

economic system thereby lowering the cost of supply of goods and
services. Further, in the Indian context, there is an expectation that
the aggregate incidence of the dual GST will be lower than the present
incidence of the multiple indirect taxes in force.
Consequently, the implementation of the GST is expected to bring
about, if not in the near term but in the medium to long term, a
reduction in the prices of goods and services.

The expectation is that the dealers would start passing on the

benefit of the reduced tax incidence to the customers by way of
reduced prices. As regards services, it could be that their short term
prices would go up given the expectation of an increase in the tax
rate from the present 10% to approximately 14% to 16%.
Benefits of Dual GST: – The Dual GST is expected to be a simple
and transparent tax with one or two CGST and SGST rates. The
dual GST is expected to result in:-
reduction in the number of taxes at the Central and State level
decrease in effective tax rate for many goods
removal of the current cascading effect of taxes
reduction of transaction costs of the taxpayers through
simplified tax compliance
increased tax collections due to wider tax base and better
compliance

Certainty of implementation:- The Finance Minister has made a

categorical statement in Parliament that GST will be implemented
on April 1, 2013. In his subsequent media interactions, he has
further indicated that he is keen to implement the GST even if some
of the States are not ready or willing to implement GST by this date.
Accordingly, based on the present indications, as also on the basis
of our subsequent interactions with senior Government Officials, we
believe that the April 1, 2013 timeline for introduction of the dual
GST will be met.

Who would be impacted: All businesses, whether engaged in

sales / supply of goods or supply of services, would be impacted by
GST. The impact would be on supply chains, ERP, product pricing,
dealer margins etc.

Applicability to service providers :-Unlike the transition from the

sales tax regime to the VAT, where only businesses dealing in
goods were affected, in the case of GST, as the name suggests,
both goods and service providers will be impacted. Thus, even pure
service providers need to plan for the transition to the GST.

Time to Plan for GST:-The draft laws will clarify finer aspects of
GST such as rates, classification and compliances. However, based
on the material in the public domain, one can begin with spreading
awareness among various stakeholders within the organization and
identifying broad areas of action before the draft laws are published.
Experience of VAT implementation suggests that there may not be
enough lead-time available between the date of announcement of
GST implementation and the actual date of GST implementation.

Taxable event:- The “Taxable event” will be the „supply of goods?

and the „supply of services?. Hence, the current taxable events
such as ‘manufacture of goods’, ‘sale of goods?’ and ‘ rendition of
services’ will not be relevant under the GST regime.

Applicability of both CGST and the SGST on all transactions:-

A transaction of ‘supply of goods’ will attract both the CGST &
SGST as applicable on goods. Similarly, a ‘supply of service’ will
attract both the CGST & SGST as applicable on services.

Appliability of othr indirect taxes : It is proposed that the taxes to

be subsumed under CGST will include Central Excise
Duty (CENVAT), Service Tax and Additional Duties of Customs and
the taxes to be subsumed under the SGST will include Value Added
Tax, Central Sales Tax, Purchase Tax, Entertainment Tax, Luxury
Tax, Octroi, Lottery Taxes, Electricity Duty and State surcharges
relating to supply of goods and services.
GST collection model :- GST is collected on the value added at
each stage of sale or purchase in the supply chain. The tax on value
addition is ensured through a tax credit mechanism throughout the
supply chain. GST paid on the procurement of goods and services
is available for set-off against the GST payable on the supply of goods
or services. The idea is that the final consumer will bear the GST
charged to him by the last person in the supply chain. It is thus a
consumption based indirect tax.

Applicability of taxes on imports of goods:- It must be

understood that customs duties will remain outside the GST regime.
Thus, the applicable basic customs duty will continue to be leviable
on import of goods. In addition, both the CGST and the SGST are
expected to be levied on imports of goods. Thus, the additional duty
of customs in lieu of excise (CVD) and the additional duty of
customs in lieu of sales tax / VAT will both be subsumed in the
import GST.

Tax on import of services and person liabile to pay:- Importation

of services will be taxed and both the CGST & the SGST will apply
on such imports. The tax will be payable on a reverse charge
mechanism and the importer of services will hence need to self
declare and pay the tax. As to which State will have authority to collect
the relevant SGST, this will be determined based on the place of
supply rules that the government is expected to notify for this
purpose.

Separate enactments for the Central and State GST:-There will

be separate enactments. The CGST will be a common code
throughout India. Further, each State will legislate its own
enactment to levy and collect the SGST. However, it is understood
that a white paper will be released by the Federal
Government/Empowered Committee of State Finance Ministers
based on which each State will legislate. The expectation is
therefore is that a majority of the provisions will be uniform across
the States.

Expected aggregate rate of GST:-The aggregate rate of GST,

across the Central and State GST, is expected to be approximately
16%. This is currently the subject matter of discussion within the
Empowered Committee.

Different rates for goods and for services:- It is expected that

there will be one single rate of GST on services at the Central and
State level and the understanding is that there would be not one but
a few rates of Central and State GST for goods.

Carry forward of Input Tax Credits (ITC) and CENVAT Credit

(CC) balances:-Going by the precedence at the time of VAT
implementation, it is believed that the accumulated ITC and CC will
both be allowed to be carried forward under the GST regime, albeit
upon fulfilment of prescribed conditions, if any.

Refund of un-utilised CC on inputs and input services :-It is

envisaged that under the proposed Dual GST model there would be
refund of unutilized accumulated CCs at the end of each fiscal year
and that refunds would not be restricted only to those relating to
exports.
Cross utilization of credits between goods and services:- Under
the GST regime, the incidence of tax will be on supplies, be it supplies
of goods or services. The taxes will be levied in parallel by the Centre
and the States who will levy the CGST and SGST respectively on
each supply of goods/services. Accordingly, the cross utilization of
credits for goods and services would be allowed subject to the fact
that cross utilization of credits between the CGST and SGST would
not be permissible.

Threshold limits for e levy of GST:-No threshold limits have been

prescribed as yet. However, it has been indicated that the
thresholds will be uniform and will be based on the cumulative
turnover of goods and services. Dealers with turnover below these
thresholds will not be covered under the ambit of the GST.
Uniformity under the various indirect tax legislations:- The
Dual GST model envisages uniform threshold limits under both the
Central and the State GST .

Exemptions from GST, lists of exempted goods and exempted

services:- Under the GST, exemptions are expected to be minimal.
Further, a common list of exemptions for both the Central and State
GST with little flexibility for States to deviate therefrom is envisaged.

Benefits availed presently by EOUs (exemption from excise

duty and Central Sales Tax (CST) on domestic procurement of
goods) :-CST will be phased out and will have no place in the GST
regime. It is expected that the benefits presently availed by the
EOUs by way of exemptions would continue to be available in the
GST regime as well.
Status of Software Technology Parks/ 100% Export Oriented
Units/Special Economic Zone units:-Typically, in view of the
common list of exemptions, the exemption would extend to both the
CGST and the State GST. With regard to the position on the Software
Technology Parks/ 100% Export Oriented Units/Special Economic
Zone units, it is envisaged that the status quo will remain.

Continuation of exemption currently available :-In view of the

fact that under the GST scheme, exemptions would be minimal, it may
not be correct to proceed on the assumption that the present
exemptions would continue under the GST dispensation.

Position with regard to investors who enjoy area-based

exemptions or who have entered into a Memorandum of
Understanding with the Governments in respect of exemption,
subsidy etc.:-All exemption schemes are proposed to be converted
to post-tax cash refund schemes. However, it is advised that
companies approach the Government to negotiate their MOUs so that
their interests are not jeopardized and that the incentives granted
under the present tax regime are protected.

Ttaxation of Inter-State sale transactions: Presently, inter-State

sales are subject to Central Sales Tax (CST), which is origin based.
However, the GST regime would work under a destination /
consumption based concept and hence the tax on inter- State sale
transactions will accrue to the destination State. As a corollary, it will
be zero rated in the Origin State.
treatment of stock transfers :-The taxable event will be the
supply of goods and therefore the stock transfers could be taxed.
However, certainty will only emerge once the GST law is finalized.

taxation of inter State supply of services :- Detailed place of

supply rules will be framed for such transactions. Taxation of such
supplies will however continue to pose a challenge. Practices
currently being followed in the European Union, Canada and Brazil
are being studied. Policymakers are also looking at different options
of taxing inter State supplies of services based on whether they are
Business to Business (B2B) or Business to Customer (B2C)

Ffresh registrations and registration of existing VAT and

Service tax dealers :- The position in this regard is not clear at
present. However, the rules are expected to be assessee- friendly in
this regard with appropriate soft-landing provisions for the transition
phase.

Single return or multiple returns :-It is expected that a single

return will be required to be prepared by the assessee and copies
filed with the Central GST and State GST authorities. The draft GST
laws / Rules will provide further details.

Process of assessment under the dual GST:-The dual GST is

expected to be a self assessed tax. The Tax administration would
have powers to audit and re-assess the taxpayers on a selective
basis.

Relevancy of concepts / principles

surrounding „manufacture?, „MRP based valuation?,
„works contract?s etc. under the GST:- As GST is on all
economic value addition involving all supplies of goods and
services, the above concepts / principles could lose relevance under
the GST.

Refunds on exports: In view of the Government policy that no

taxes should be exported, refund of GST paid on inputs should be
available in case of exports of goods and services, which will both
be zero rated.
Unit 9: Legal Aspects of Business
MCQs