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Transcript of Indian Contract Act Monday
8/8/2019 Indian Contract Act Monday
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Indian contract act 1872
Capacity to contract
Sec not 11 µevery person is competentto contract, who is the age of majorityaccording to the law to which he is
subject and who is of sound mind and is
not disqualified from contracting by anylaw to which he is subject.
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MINOR
Absolutely void
No ratification
No restitution
No estoppel
Minors beneficiary**
Liability for necessities*
Minor agent
Minor partner
Minor member of company
Minor promisee
Minor surety
Minors liability for tort(civil wrong)
*valid contract
**voidable contract
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CONSIDERATIONsec 2d µWhen at the desire of 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 considerationfor the promise.¶
Essentials of a Consideration
Should be furnished at the desire of the promisor May move from promisee or any other person
May be promise or abstinence
May be past ,present or future
Unique consideration for each promise Must be real and not illusory, illegal, impossible,
uncertain, ambiguous, fradulent, immoral or opposedto public policy
Consideration must be valuable in the eyes of law
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No consideration. No contract
EXCEPTIONS Promise made on account of natural love and affection
Promise to compensate for voluntary services
Promise to pay time barred debt
Contracts of agency
Completed gifts
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Legality of object and consideration
Sec 23 when consideration and object is
unlawful Forbidden by law
Defeats the provisions of law
Fradulent
Implies injury to another person or property
Immoral or opposed to public property or public policy
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Agreements opposed to public policy
Trading with enemy Improper promotion of litigation and stifling of
prosecution
Marriage brokerage contracts
Creating intrest opposed to duty
Interfering with marital status
Agreements in restraint of parental rights
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CONSENT sec 13 ³ 2 or more persons
are said to consent when they agree uponthe same thing in the same sense.
FREE CONSENT «. Sec 14 consent is
said to be free when it is not caused by Coercion «. Sec15
Undue influence«.sec 16
Fraud«.sec 17
Misrepresentation«.sec 18
Mistake«.
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Undue influence ..sec 16 a contract is said to be
affected by undue influence when
a..the relations subsisting b/w theparties are such thatone of theparties is in a position to dominate the will of the other,and
b..uses that position to obtain an advantage over the other.
Persons deemed to be in a position to dominate
the will of the other Real or apparent authority
Fiduciary relationship
Contract with person with temporary or permanently disabled
mental abilityUNLESS
All material facts were disclosed
Adequate consideration
Independent advice and freedon to exercise it
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Effects «undue influence
Voidable
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Fraud sec 17«any of the following acts
committed by a party to a contract , or by any one with his
connivance or by his agent with intent to deceive another party thereto or his agent or to induce him to enter into the
contract
A suggestion as to a fact of that which is not true by
one who does not believe it to be true.
An active concealment of a fact by one having
knowledge or belief of the fact
A promise made w/o any intention of performing it
Any other act fitted to deceive
Any such act or omission as the law specially declares
to be fraudulent
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Elements of fraud
The act must be committed by a party to the
contract or with his connivance or by his agent,
and not by a stranger.
Nature of act
The act must be committed with the intent of causing the deceived party to act upon it
The act must deceive the other party
The deceived party must have suffered
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DUTY TO SPEAK
Contract of uberrimae fidei (absolute good
faith)Eg insurance contracts, family settlements
Contracts of partnership
Contracts of guarantee
Fiduciary relationship
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Effects «fraud
Voidable
Damages
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Misrepresentation is a false representation
made innocently w/o intent of deceiving. Includes
a«wrong statement of a material fact not known to befalse
b«non disclosure of fact where there is need to disclose
without intent to deceive
IT M AY BE COMMITTED BY
Breach of duty
Causing mistake by innocent
misrepresentation
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MISTAKE erroneous belief concerning something
Mistake
OF LAW OF FACT
INDIAN..valid FOREIGN«voidablePVT RGT OF PARTIES,,voidableBILATERAL,,void UNILATERAL
SUBJECT M ATTER PERFORM ANCE POSSIBILITY
PARTY ID¶sTRANSACTION NATURE
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Difference
C
OERC
ION &UNDUE INFLUENCE
Mode of obtaining
consent
Type of force Existence of
relationship
FRAUD AND
MISREPRESENTATI
ON
Intention
Rights Defence
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Void contracts
Agreements made by incompetent parties. Agreements made by mutual mistake of fact
Agreements with illegal object and/or consideration in full
or in part
Agreement without consideration Agreement in restraint of marriage
Agreement in restraint of trade
Agreement in restraint of legal proceedings
Uncertain agreements Agreement by way of wager
Agreement to do an impossible act
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Contingent contract
An absolute contract promisor undertakes to
perform the contract in all events
Contingent contracts contract to do something if some
collateral event to such contract does or does nothappen.
Essential characteristics Performance of a contract depends on happening or non
happening of a certain in the future.
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The event is uncertain
The uncertain event is collateral to the contract
Rules of performance
If the event does not happen the contract becomes void.
Nullity or possibility is decided only once the event has
happened or becomes impossible and not before.
Contracts to do an impossible thing are void
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Quasi contractscertain relation resembling those of
contracts A person cannot be allowed to enrich himself at the cost of
another
Types of quasi contracts
Claim for necessaries supplied to a person incapable of contracting
Reimbursement of person paying money due by another in payment of which he is interested
Obligation of a person enjoying benefit of a non
gratuitous act Responsibility of a finder of goods
Liability of a person to whom money is paid or thingsdelivered, by mistake or under coercion
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Discharge of contracts Meaning and mode of discharge When an obligation comes to an end
By agreement 1 By novation
2 by rescission #by mutual consent
#by the aggrieved party
#by party whose consent is not free 3 by alteration
4 by remission
By performance of contract
By lapse of time
By operation of law By material alteration
By subsequent impossibility of performance
By breach
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By performance
In full
Exceptions
where contract is divisible
A promisor substantially does what he promised
A party is prevented from completing theundertaking by some act or omission of theother party
By lapse of time
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Operation of law
Merger Death
Loss of evidence
By insolvency
Material alteration
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Supervening impossibility of
performance
Impossibility known and unknown to parties at the timeof making a contract
Impossibility arising subsequent to the contract
#by destruction of subject matter
#by non existence of state of things necessary for performance
#death or incapacity of capacitor
#Change of law
#outbreak of war
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Breach
Actual breach
Anticipatory breach
PERFORM ANCE OF CONTRACTS# actual performance
# attempted performance / tender
tender of money
tender of goods
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Essentials of a valid tender
Should be unconditional Should be an offer to perform in full
Must be made at fixed/proper time and place
Should be made to the proper promisee
Should be for quality and quantity agreed upon
in case of goods
Reasonable opportunity to be provided to
promisee Must be of precise amt and in legal tender
money (tender of money)
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Remedies for breach of contract
Rescission
Damages
#ordinary
# special
#exemplary /vindictive
# nominal
Quantum meirut Specific performance
Injunction
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Contracts of indemnity and
guarantee Contract of indemnity as per Sec 124 of IC A
1872 µa contract by which one party promises to savethe other from the loss caused to him by the conduct of the promisor himself ,or by the conduct of the third
party. DEFINITION includes
# express promise to indemnify
# cases where loss is caused by the conduct of thepromisor himself or any other person
It does not cover
# implied promise to indemnify
# cases wherethe loss is caused accidently or bythe conduct of the promisee.
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Parties to a contract of indemnityINDEMNIFIER and INDEMNITY-HOLDER
Rights of indemnity-holder
Right to claim damages
Claim for costs
Claim for sum paid under a compromise
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All essentials of valid contract must
be present
Something done/promise made for benefit
of principal debtor shall qualify as
consideration
Creditor and surety must be competent.
the principal debtor can be minor.
Liability of surety is conditional. Arises at
default by principal debtor.
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Contract of guarantee Sec 126 of IC A 1872 µa
contract to perform the promise of discharge of the
liability of a third person in case of his default.
Parties to contract of guarantee
SURETY, Principal debtor and creditor
Objective / purpose
To Secure performance of something
To secure honesty and fidelity of someone To secure someone from injury
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Types of guarantee
Specific guarantee
Continuing guarantee
can be revoked by# notice
# death
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Rights of surety
Against principle debtor
#right to be subrogated
#right to claim indemnity
Against the creditor
#right to every security which the creditor has against the debtor at the time of
guarantee
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Against co-sureties
#liable to contributre equally
#libale for different sums
DISCHARGE OF SURETY
# by notice or death
#changes in terms of the original contract b/w the
principle debtor and creditor
#by release or discharge of principle debtor
#compounding by creditor with the principal
debtor
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Creditors act or omission impairing surety¶s
eventual remedy
Loss of security
By invalidation of the contract of guarantee
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Contract of bailment
Sec 148 of IC A 1872 ³Bailement is 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 be disposed off according to thedirection of the person delivering them.´ BAILOR
The person delivering goods
BAILEE The person to whom they are delivered
Essentials of bailment
Delivery of possession
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Delivery of goods must be for a specific purpose
Contract
Return of goods
TYPES OF BAILMENT
Gratuitous or non-gratuious
OR
Bailment for exclusive benefit of the bailor
Bailment for exclusive benefit of bailee
Bailment for mutual benefit
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RIGHTS OF BAILOR
Right of termination
Right to demand return of goods anytime
in case of gratuituous bailment
Enforcement of rights
DUTIES OF BAILOR
To disclose faults in the goods bailed
Responsibility for title to the goods
To bear necessary expenses of
bailment(gratuituous bailment)
To bear risk for loss
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RIGHTS OF BAILEE
right to interplead
Right against third person
Right of particular lien for payment of service
Right of general lien
Right to indemnity
Right to claim compensation in case of faulty
goods
Right to claim necessary expenses Right of delivery of goods to any of the joint
bailors
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DUTIES OF BAILEE
To take care of goods
To use goods only in authorised manner Must not mix goods with his own goods
To return the goods
To return increase of profit from goods
Must not set up an adverse title
LIEN ±
right of a person to retain that which belongs toanother
Particular lien
General lien
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PAWN OR PLEDGE
Sec 172 of IC A 1872 ³pledge is the
bailment of goods as security for payment
of debt or the performance of a promise.¶¶
Bailor /depositor/pledger / pawner
Bailee/depositee /pledgee/pawnee
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RIGHTS AND DUTIES OF PAWNER
Duty to repay loan Right to receive goods till sold
RIGHTS AND DUTIES OF PAWNEE Right to retainer
Right of particular lien
Right to receive extraordinary expenses
Pawnees right in case of default of the pawner
pawnee to not use goods .
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PLEDGE BY NON OWNERS
only owner of goods can make a valid pledge
Nemo dat quod non habet no man can pass
better title than he himself has.
EXCEPTIONS Pledge by mercantile agents
Pledge by seller or buyer in possession after
sale
Pledge by co-owners
Pledge by a person in possession under
voidable title
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Termination of bailment
On expiry of stipulated period
On fulfillment of purpose
By notice By death
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AGENCY Sec 182 of Indian contract act 1872 ³an
agent is a person employed to do any act for
another or to represent another in dealing with
third persons. The person for whom such act is
done, or who is so represented ,is called the
principal.´
WHO C AN EMPLOY AN AGENT
sec 183 of IC A 1872 ³any person who is of theage of majority according to the law to which he
is subject and who is of sound mind, may
employ an agent.
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Who may be an agent
sec 184 of IC A 1872 ³as between principaland third person any person may become an
agent, but no person who is not the age of
majority and of sound mind can become an
agent so as to be responsible to his principal.
CONSIDERATION AND AGENCY
sec 185 of IC A 185 ³ no consideration is
necessary to create agency.
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Creation of agency
By express agreement By implication
# agency by estoppel
#agency by holding out#agency by neccessity
Agency by ratification
# ratification can be express or implied
#no ratification possible by person whose
knowledge of the case is materially defective
#ratification to be made within reasonable time
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# Ratification cannot be made for criminal acts
# Ratification should be only of those acts in which
the person ratifying has the power to do so.
# Ratification cannot be made to subject third
person to damage or terminate right or interest
of a third person. Agency by operation of law
Classsification of agents General agent and Special agent
Mercantile agent
# factors
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# brokers
# Auctioneers#partners
#del credere agent
Extent of agents authoritys
Actual or real authority
Ostensible authority
Authority in an emergency
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Delegation of authority
Sec 190 IC A 1872 ³an agent cannot lawfully
appoint a sub agent to do acts which he hasundertaken to do personally´
EXCEPTIONS
#where custom of trade permits to appoin a subagent
#where the nature of agency so requires
When the act to be done is ministerial ( requires no
discretion or confidence)
#when the principal so agrees expressly or
impliedly
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# incase of unforseen emergency
SUB-AGENT is a person employed by an acting
under the control of the original agent .
@principal can hold the agent responsible for the
acts of the sub agent.
@the agent is responsible for the acts of subagentto the principal and third parties.
SUBSTITUTED AGENT where an agent
holding an express or implied authorityto name
another person to act for his principal,names
another person accordingly,he is a substitued
agent for the principal
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Duties of an agent Duty to follow instructions
Duty to follow custom in absence of instructions Duty to exercise skill and diligence
Duty to render account
Duty to communicate
Duty not to deal with his own account
Duty to pay over all money
Duty not to make secret profit
Duty to protect interest of principal in the case of his
death or insolvency
Duty not to set up an adverse title
Duty not to delegate authority
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Rights of agent Right of retainer
Right to remuneration
Right of lien
Right to indemnification
Right to compensation
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Personal liability of an agent
Generally An agent cannot personally enforce contract entered into
by him on behalf of his principle, nor is he personally
bound by them.
EXCEPT in case of #in case of foreign principle
#In case of undisclosed principle
#in case of incompetent principle#in case of non existence of principle
#in case of acts not ratified
#in case of acts in his own name
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#in case of express agreement
#in case of custom or usage of trade
Right of person dealing with agent
#right of person dealing with agent personally liable
#inducing agent or principle to act on belief that principle or agent will be held exclusively liable.
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POSITION OF PRINCIPAL or contracts
/agency with third persons
Named principal# acts done within authority of agent by agent
#Acts done beyond agents authority by agent
#Liability of principal inducing belief that agent¶sunauthorized acts were authorized
#notice to the agent
#misrepresentation or fraud by an agent
#Admission made by an agent
Unnamed principal
Undisclosed principal
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TERMINATION OF AGENCY
By act of parties# by agreement between principal and agent
# By revocation of agency by the principal
# By renunciation of business by the agent
By operation of law
# By completion of business of agency# By efflux of time
# By death or insanity of principal or agent
# By the insolvency of the principal
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#by insolvency of principal
#By destruction of subject matter of agency
# By the principal becoming an alien enemy.
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SALE OF GOODS ACT 1930
Sec 4(1) ³ Contract of sale of goods is a
contract whereby the seller transfers or agrees to
transfer the property in goods to the buyer for a price.´
Hence contract of sale # Sale
# Agreement of sale
Essentials of contract of sale# Two Parties
# Goods
# Transfer of general property
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# Price
# essentials of a valid offer
SALE AND AGREEMENT TO SELL
# Nature of contract
# Transfer of ownership
# General and particular property
# Seller¶s right of resale
# Right to recover price and damages
# incidence of risk of loss
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Distinction between SALE &
Bailment Gift
Barter and exchange
Mortgage and hypothecation
Contract for work and labour
Hire-purchase agreement
# regulating law
# transfer of property
# buyer¶s status
# buyer¶s option
# installment payment
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Formation of contract of sale
Essentials of a valid contract Maybe verbal or written fully/partly
Express or implied
GOODS Subject matter of contract of sale
Sec 2(7) every kind of movable property other than
actionable claims and money and includes stocks and
shares, growing crops, and things attached to or forming
part of land which are agreed to be severed before saleor under contract of sale´
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Types of goods
Existing
# specific
# ascertained
# unascertained
Future
Contingent
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Effect of perishing/destruction of goods
forming subject matter of contract
In case of contract of sale contract
becomes void if There contract is for sale of specific goods
Goods no longer answer to their description in thecontract, before making of the contract
The seller is not aware about the destruction of goods
In case of agreement to sell the contract
becomes void if There is an agreement to sell specific goods
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The goods no longer answer to their description in the
agreement
There must not be any fault of buyer or seller
The goods have perished before agreement to sell
becomes sale
PRICE of goods Modes of determining price
# may be fixed by contract
# may be left to be fixed in an agreed manner
# may be determined by the course of dealing between theparties.
Thus, price may not be fixed at the time sale however,
there has to be a price which the buyer is dutybound to
pay.
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Duty of buyer to pay a reasonable price
If a third party is to fix price by valuation and
does not do so the contract becomes void Ernest money Vs advance payment
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Stipulation «sec 12(1) is a contract of sale
with reference to goods which are subject
thereof maybe a condition or a warranty Condition is a stipulation essential to the main
purpose of the contract, the breach of which
gives rise to a right to treat a contract as
repudiated «.sec 12 (2)
Warranty is a stipulation collateral to the main
purpose of a contract, the breach of which gives
right to a claim for damages but not a right to
reject the goods and repudiate the contract..sec
12 (3)
Di ti ti b t diti
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Distinction between condition
and warranty Difference as to value
Difference as to breach
Difference as to treatment
Express conditions and warranties
Implied conditions and warranties
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Implied conditions
As to title As to description
As to sample
As to quality or fitness As to merchantability
As to wholesomeness
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Implied warranty Quiet enjoyment
Freedom from encumbrances
Usage of trade
Dangerous nature
Breach of codition becomes breach of
warranty
Voluntary waiver by buyer Compulsory treatment of condition as warranty
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T f f hi
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Transfer of ownership
Risk passes with ownership
Action against third party
Insolvency of the seller or buyer
Rules regarding transfer of ownership
Of ascertained goods
When goods are in deliverable state
When the seller has to do something
When goods are to be measured
When goods are sold on approval
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Unascertained goods
Transfer of title by non owners
Generally µ nemo dat quad non habet´
Except
sale by mercantile agent
Sale by estoppel Sale by co owner
Sale by a person with voidable title
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Sale by seller in possession of goods after sale
Sale by buyer in possesion of goods after sale
Sale by an unpaid seller
PERFORM ANNCE OF CONTRACT OF SALE As regards seller DELIVERY
As regards buyer ACCEPTANCE OF DELIVERY
AND PAYMENT
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DELIVERY OF GOODS «means voluntary
transfer of possession of goods from one person
to another. It may be Actual or Constructive /symbolic
Rules concerning delivery
Mode of delivery
Delivery and payment
Effect of part delivery
Buyer to apply for delivery
Place of delivery
Goods in possession of a third party
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Right to lien if
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Right to lien if Goods are not sold on credit
Goods sold on credit n credit period has expired
The buyer becomes insolvent
Right to stoppage in transit
Right of resale
Right to withhold delivery
Right to sue for price, damages ,interest
Distinction between lien and stoppage in
transitRetain possession / resume possessiopn
Non payment /non payment due to insolvency only
When goods r in possession/after parting from goods
AUCTION SALE sec 64 public sale in
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AUCTION SALE sec 64«public sale in
which goods are offered to the highest
bidder Goods sold in separate lots, each lot will prima facie be
deemed to be subject of a separate contract of sale
The sale is compleate when auctioneer annonces its
completion by fall of hammer or in some other customarymanner.
If goods destroyed or damaged before the completion of
the sale, loss to be borne by the seller
A right to bid may be reserved expressly by or on behalf of
the seller , and the seller or one on his behalf may bid
subject to provisions
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Where the sale is not notified to be subject to bid
on behalf of the seller,if will not be lawful fopr
seller to bid himself or to employ someone to bidon his behalf.and maybe treated as fraud by
buyer
Pretended biddin by buyer/seller/representative
will render sale voidable at the option of thebuyer
Sale may be with or without reserve.(upset or
minimum price)
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Implied warranties in an auction sale
Auctioneer warrants his authority to sell He knows of no defect in principal¶s title
He guarantees to give quiet and undisturbed
possession in payment of price
NEGOTIABLE INSTRUMENTS
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NEGOTIABLE INSTRUMENTS
ACT 1881 Negotiable«transferable from one to
another for consideration
Instrument«written document which
creates a right in favour of someone
Sec 13 a negotiable instrument means a
promissory note, bill of exchange,, or
cheque , payable either to order or bearer.
Characterstics of negotiable
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Characterstics of negotiable
instruments Contract to pay money
Freely transferable by delivery / endorsement & delivery
ad infinitum till maturity
The transferor need not give notice of transfer to person
liable to pay instrument
Holder in due course has good title even if title of
trasferor is defective
Transferee can use it in his own name
As good as cash.
Dishonour results in ruin of credit of all parties
Negotiation
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NegotiationSec 14 when a promissory note, bill of exchange, or
cheque is transferred to any person ,so as to constitute that
person the holder thereof,
Negotiation by mere delivery
Negotiable by endorsement and delivery
H ld
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Holder
Holder in due course
Endorsement
± # blank / general endorsement
± # special/full endorsement
± # restrictive endorsement
± Conditional /qualified endorsement
± Sans recourse
±C
ontingent ± Facultative
± Sans frais
± # partial endorsement
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Who may endorse?The payee of the instrument make sthe first endorsement
and thereafter the holder
Effect of endorsement
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Promissory note
SEC 4 ³ an instrument in writing containing an
unconditional undertaking signed by the maker to pay a
certain sum of money, to or to the order of a certain
person.´ Parties to a promissoory note
# Maker
# Payee
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Essentials of a promissory note
Must be in writing
It is a promise to pay
Undertaking to pay is unconditional
Should be signed by the maker
Maker must be certain
The payee must be certain
The promise should be to pay money only The amount should be certain
Other legal formnalities
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Parties to bill of exchange
Drawer
Drawee
Payee
Types of b/e
Demand bill Time bills
Trade bill
Accomodation bills
I l d bill
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Inland bill
Foreign bill
Bank draft
Traveller¶s cheque
Inchoate instrument
HUNDIES i di i bill f h
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HUNDIES«indigineous bill of exchange
drawn in local language
Darshani hundi
Mudatte hundi
Shah jog hundi Nam jog hundi
Firman jog hundi
Dhani jog hundi Jokhmi hundi
Acceptance of bill
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p
Act of putting signature of the drawee or his authorized
agent with the word acceptance written on it.
Liability of drawee arises only on acceptance by drawee
and handing over the accepted bill to the holder
It must appear on the bill itself
Types of acceptance
General
Qualified ± Conditional
± Partial
± Qualified as to time/place
± Acceptance by some of the drawee
Presentment for payment of bills
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Dishonoring of billsWhen drawee does not accept the bill within 48 hrs from
time of presentment for acceptance,or refuses
In case of qualified acceptance cause holder is not bound
to take qualified acceptance
Where presentmant for acceptance is excused as in the
following
drawee untraceable after reasonable search
drawee incompetant to contract
drawee is fictitious
drawee becomes bankrupt
drawee is dead.
Dishonour by non payment
Noting and protesting
Diffrence between a B/E and a
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Diffrence between a B/E and a
P Note Number of parties
Promise and order
Acceptance
Nature of liability Maker¶s position
Notice to prior parties
Notice to prior parties
Protest copies
Di ti f bill
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Discounting of bills
Retirement of a bill and rebate
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Cheque«
Sec 6 ³ a bill of exchange drawn on aspecified banker payable on demand.´
Parties to a cheque Drawer
Drawee/ banker
Payee
Dating of a cheque Antedated, postdated, & stale cheques
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Liabilities of parties to Negotiable
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p g
instruments Liability of drawer
Liability of drawee of cheque
Liability of maker of note and acceptor of bill
Liability of endorser
Liability of prior parties to a holder in due course
Parties liable as principle debtors
maker of P note,drawer of cheque, drawer of bill until
acceptance,the acceptor of bill
All other parties liable as surities,whose liability arises
only on default of the party primarily liable.
Discharge of party from liability
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Discharge of party from liabilitywhen a party or parties is discharged , the instrument
continues to be negotiable and undischarged partiesremain liable
Modes of discharge
By cancellation
By release By discharge of secondary parties
Operation of law eg insolvency of debtor
Non presentment discharges the drawer
By allowing drawee more than 48 hrs to accept the bill,all previous parties are dicharged.
By material alteration
The Companies Act 1956
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The Companies Act ,1956
Sec 3 (1) a ³company is a company formed and
registered under the companies act 1956.´
Existing company ³a company formed andregistered in accordance with any of the previous
company laws´
In general terms ³an artificial person created by
law with perpetual succession and a common seal´
Ch t ti f
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Charecterstics of a company
Incorporated association
Artificial legal person
Separate legal entity
Limited liability Perpectual succession
Transferability of shares
Separate property
Commom seal
Capacity to sue and be sued
Kinds of companies
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Kinds of companies
On Basis of constitution
public
private
On basis of control
govtholding & subsidiary
O b i f i ti
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On basis of incorporation
chartered company
statutory company
foreign company
registered company
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Registered
limited
Ltd shares
public pvt
Ltdguarantee
public pvt
unlimited
public pvt
Diff b/ t d bli
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Diff b/w pvt and a public co
M
in number 2/7 Max no 50/unlimited
No of directors 2/3
Transfer of shares restricted/free
Name of co P(ltd)/ltd restriction on directors none/many
Invitation to subscribe cannot invite public/can by issue
of prospectus
Prospectus need not/mandatory Commencement cert of incorporation/cert of
of business commencement of business
Statutory meeting nt req/ within 6 mnts along with
statutory report report to the registrar
Min subs nt reqd/first allotment only on
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q y
achieving min subs
Managerial remuneration no limits/certain limits
Articles of association have its own/can adopt
table A of the act
Quorum gen meeting 2/5 personally present
Share warrant issue cannot/can
Formation and incorporation of
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o a o a d co po a o o
a company Promotion
Registration or incorporation
Raising of capital
C
ommencement of business
Promotion
Discovery of business opportunities
Detailed investigation of feasibility of the idea Organization of funds, property & managerial ability
Taking necessary steps to float the company
Promoter «.individual, syndicate, association,
partnership or a company which takes all steps to create
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partnership or a company which takes all steps to create
and mould a company.
Remuneration of promoters
Selling his own property at an overvaluation.
Taking a grant of some shares of the company
Taking commission on the shares sold Taking a grant of a lump sum of money from the
company
Registration or incorporation Application to be filed with registrar of companies of
state in which registered office of company is to be
situated along with the following documents and the
prescribed fees.
The memorandum of association duly signed by the
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The memorandum of association duly signed by the
subscribers.
Articles of associations similarly signed
Agreement, if any, which company proposes to enter into
with any individual for appointment as its managing or
whole time director or manager.
The sanction obtained from the controller of capital
issues, if the proposed capital exceeds Rs 1 crore.
License from central govt in case of industries specified
in the first schedule to the industries industries
development and regulation act, 1951.
List of directors and their consent to act. A statuatory declaration stating that all the requirements
of the act have been complied with signed by one of the
Following
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Advocate of supreme court or high court
Attorney or pleader entitled to appear before the high
court
A chartered accountant practising in india
A person named in articles as director, manager or
secretary of the company.
Certificate of incorporation
Effects of registration
separate legal entity
It acquires perpetual succession.
Property is not property of the shareholders
Raising of capital
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Raising of capital Applibable only for public ltd company having share
capital Directors file copy of prospectus with registrar and invite
public to subscribe
On achieving min subscription shares alloted
If min subscription not recd within 120 days of issue of prospectus money refunded
Commencement of business
Pvt co can start business from date of incorporation Public co has to apply for issue of certificate of
commencement of business.
For issue of certificate to commence business the
followin are neccessary
Shares upto min subscription are alotted
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Every director has paid to the company on shares taken
by him
No money is payable to applicants
A statutory declaration of compliance signed by director
or secretary
Memorandum of association 1 st step
It defines the relationship of the co with the outside world It should be in the prescribed fomat
Printed, divided into paragraphs numbered
consecutively.
Signed by subscribers in presence of atleast 1 witness.
Contents of memorandum
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Co te ts o e o a du
Name clause #p ltd/ ltd
#must not be undesirable
#not to resemble existing co
Can drop ltd if it is for promotion of science , commerce ,
art, religion, charity, or any other useful object.
If co applys income to promote its objects.
Registered office clause states the name of the
state in which the co is situated.
Co to have registered office within 30 days of incorporationor when it commences business.
Object clause sets out objects for which co has been
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formed. # main objects
# other objects
# states to which objects extend
Liability clause nature of liability the members will
incur. Limited to shares / guarantee/ unlimited
Capital clause contains amt of capital co is registered
with and no and value of shares into which it is divided.
Association clause
Doctrine of ultra vires means beyond the powers
of the company
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of the company
Ultra vires act are inoperative and void
They cannot be ratified. Duty of court to ensure the company does not involve
itself in any ultra vires act
However acts ultravires the director can be ratified by
shareholders Similarly, acts ultravires articles can be rectified by
modifying the articles accordingly
E
ffects of ultravires transactions Injuction
Personal liability of directors
Ultra vires contracts
Articles of associtaion
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Articles of associtaion Contains rules and regulation and byelaws for general
administration
Public ltd co may register its own or adopt table A
Unlimited and p ltd have to register
Contents of articles
Should not contradict the act, provides for matters like
# adoption or execution of pre incorporation contracts
# share capital and rgt of shareholders
# making of calls
# forfeiture of shares
# increase and reduction of capital
# transfer of shares
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# lien on shares
# lien on shares
# share cert and share warrant
# dividend , reserve, and capitalization of profits
# appointment of managerial personnel
# remuneration of directors # voting rights of members
# Arbitration provisions
# general meetings, proxies and polls
# proceedings of board of directors # winding up
Effects of memorandum and articles
O i d bi d h d b
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Once registered binds the co and members
# members to the company
# company to the members
# members interse
# company to outsiders
Constructive notice of memorandum and articles
Both public documents
Hence deemed to have been read
Doctrine of indoor management
Limitation to doctrine of constructive notice
Outsiders are not bound to know about the internal
functioning of the co.
prospectus
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prospectus
³It means any document described or issued as a
prospectus and includes any notice, circular
advertisement or other document inviting deposits from
public or inviting offers from the public for the
subscription or purchase of any shares in or debentures
of a body corporate.´
Issuing houses and deemed prospectus
Requirements as to a prospectus It should be dated
A copy should be dated with the registrar
It should be issued within ninety days of its registration
Contents of a prospectus
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Main objects of company including details of signatories
The number & classes of shares The number of redeemable shares to be issued with
DORedemption
Names, occupation, and addresses of managerial
personnel
Subscribed capital
Min subscription for allotment and time of opening of
subscription list
The amt payable on allotment and and allotment per
share.
In case of prospectus issued within last two years details
of subscription and allotment
Particulars about any option or preferential right given to
t b ib t h d b t f
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any person to subscribe to shares or debentures of a co
Amt/estimated amt of preliminary expenses and persons
paid and payable
Number of shares and debentures issued for a
consideration other than cash in the last two years.
Premium paid or payable on any shares issued within 2
yrs preceding date of prospectus Details of any amt or benefit paid to any promoter or
officer in the preceding 2 yrs
Particulars about vendors
Amt or rate of underwriting commission Names and addresses of auditors
Voting rights of diff classes of shares
Names and addresses of creditors of the company
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Untrue statements«««..misleading in form
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and context. Misstatement of fact.
False statements and half truths
Liabilities in case of mis statement in prospectus
1. Civil liability
Investor damnified can have claims against# the company, # the directors, promoters and experts
Remedies against company if he can prove
# He is an allottee and not a purchaser fom the market
# he is infact induced by the prospectus
# the above was issued by the company or by someone
with the company¶s authority
Remedies against company
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Recission
Damages of deceit
Remedies against directors
Liability for damages
2 Criminal liability
» Share capital
A th i d i t d i l
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Authorized, registered, nominal
Issued
Subscribed
Called up
Paid up
Reserve
Classes of capital
Preference share capital« prefential rgt as to payment
of dividend and repayment of paid up capital in case of
winding up
Equity share capital
Types of shares
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shares
preference
cumulativeNon
cumulative
equity deferred
Cumulative shares