1.indian contract act

7/28/2019 1.Indian Contract Act

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Legal & Tax Aspects ofBusiness

Prof. Mayur Malviya


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Legal & Tax Aspects of Business

Course Content

1. Indian Contract Act

. .

3. Salient Features of Companies Act:

a. Characteristics of a company

b. Formation of a company

c. Types of companies private, public. Government etc.d. Management of company Directors, Meeting.

Accounts & Audits

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Legal & Tax Aspects of Business

4. Restrictive & Unfair Trade Practices.

5. Salient Features of Negotiable InstrumentsAct

a. Bi o exc ange, c eque, promissory note,b. Negotiation & Endorsement

c. Dishonour of Instruments including noting

and protest

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Tax Aspects of Business 6. Elements 01 Income Tax:

a. Scope and charge of income tax b. Selected definitions relevant to computation of Total Income

c. Residential status

d. Heads of income & computation thereof with special reference to BusinessIncome. & Ca ital Gains

e. Exemptions from Total, Income& Deductions from Gross total income

7. Salient Feature of Central Excise Actincluding assessable value. CENCAT credit

8. Salient features of Maharashtra value added Tax Act

9. Salient features of Central Sales Tax Act

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Reference Text :

1. Business Law N. D. Kapoor

2. Business Law Buichandani

.

4. Income Tax Dr. Singhania

5. Indian Taxes V.S.Datey

6. S. S. Gulshan. Mercantile Law (Excel Rooks)

7. A. K. Majumdar & G.K. Kapoor: Students guide toCompany Law (Taxmann)

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Definition

A rule of conduct imposed and enforced by

the sovereign (Austin)

Law is a o y o princip es recognize anapplied by the state in the administration of

justice(Salmond)

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Public Law

Private Law Personal Law

Procedural Law

Substantive Law

Statute Law

Classification of laws

ommon aw Civil Law

Criminal Law

Municipal Law International Law

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Classification of Laws

Public lawCollective interest

Classification ofLaws

Private lawEnforced betweenindividuals in the

society

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Laws

Procedural (civil&criminalprocedure code)

Substantive (Lawof Contract)

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Law which prohibits thecommission, guides theinvestigation and provides forpunishment

CriminalLaw

Law aims at compensating the

injured for the loss suffered byhim.Civil Law

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Statue Laws

Laws laid down by acts ofparliament or legislative

assembles of various states

Precedents

Judge made laws

Declaratory

Persuasive

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THE INDIAN CONTRACT

ACT (ICA), 1872

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What is a contract?

Section 2(h)

An agreement enforceable by law is acontract.

Thus,

Contract = Agreement+ Enforceability at Law

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Agreement Sec 2 (e)

Every promise and every set of promises, formingthe consideration for each other, is anagreement;

Section 2(b)Promise = Proposal/Offer + Acceptance(Agreement)

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ContractEnforceability by Law

Agreements which are not enforceable

Illegal/unlawful agreements, e.g., to smuggle/to kill

(Balfourvs. Balfour)

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Agreement & Contract Case 1

Balfour V Balfour

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Problem -1

Abhinav have agreed to sell his house to Bachan for 10 Lakh andreceived an advance amount of 2 lakh.But he failed to hand over thepossession as he had another offer of Rs 12 lakh for the same.What would be the legal position in the present situation. Whether

Problem -2Rohit had promised his wife Roshini ,that he would pay her a sum of Rs

10,000 every month during the entire period of his posting outsidethe country. He continued to remit the promised amount to his wife

for around a year, and there after he refused to keep his promise.Roshini filed a case against Rohut for recovery of the amount fromhim. Do you think Roshini will win the case . Give reasons

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Kinds of Contracts

From the point of view of

Enforceability

Valid

Void

Voidable

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Agreements Declared Void under

ICA

e.g.Agreement with or by a minor

Marriage brokerage contract

Wagering/Betting Agreements

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Void Agreement vs. Void Contract

Void Agreement

i.e., void-ab-initio i.e. unenforceable from thevery beginning

Becomes void (Void Contract)

o a ei.e., void + ablei.e., capable of being declared void

(unenforceable) at the option of one of theparties to the contract but not at the option ofthe other.

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Voidvs. Illegal Agreements

Void Agreement Illegal Agreement1. Unenforceable

1. Unenforceable

.

3. Collateraltransactions

unaffected.

.

imprisonment orboth)

3. Collateraltransactions arealso void.

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Essentials of valid contractTwo or more persons

Valid offer

Valid acceptance

Intention to contract

Lawful consideration

Free consentCompetence of the

parties

Lawful object

Compliance with legalformalities

Possibility of performance

Validcontract

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PROPOSAL/ OFFER

Section 2(a)

the assent of the other.

Thus, mere expression of willingness doesntconstitute offer/proposal.

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Eg ;1

Ashok offers to sell his computer to Akash. HereAshok is making an offer to do something. It isa ositive act on the art of Ashok.

Eg 11

A banker offers not to file a civil case againstVivek ,it he would repay the amount of Rs10,000 outstanding on his loan amount.

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Essentials of valid offer

There must be communication between the

parties.

The ersons who initiate the communication or

the offer or must have expressed his willingness.

The communication should be made with an

intention of obtaining the assent of the other tosuch act.

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Kinds of offer Counter offer

Auction sales

open offer

Special offer General offer

Cross offer

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Different types of offerDifferent types of offerDifferent types of offerDifferent types of offer

Offer

General

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Specific and General Offer Specific Offer:

made to a specified person or a group ofpersons.

made.

Thus, if offer is addressed to A, B cannot

accept it. Case Law: Boulton vs.Jones

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General offer

It can be accepted by any of the person by

comp ying its terms an con itions.

Carbill v Carbolic Smoke ball Co

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CrossOffer

Counter


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Cross Offers & Counter Offers Cross Offers

Identical offers cross each other and none ofthe parties is aware of the same. Doesnt result

.

Counter Offer

Instead of accepting an offer, the offeree makes

a counter offer, i.e., accepts the same subject tocertain conditions or qualification.


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Offer

Invitationto offer

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Offervs. Invitation to offer Illustrations of Invitation to Offer:

Prospectus issued by a college.Prospectus issued by a company.

Invitation o i s in an auction.Price-catalogues, price lists, quotations

Display of goods with a price-tag in a shop

window.

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When it is not an offer? Invitation

Cross


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Lapse of Offer

Wrong mode of acceptance

Lapse of time Rejection

Death or Insanity

Subsequent illegality, destruction or impossibility

Revocation before acceptance


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AcceptanceSection 2(b)

Giving of assent to the proposal.

Sec 2(b)

,

his assent thereto, the proposal is said to be accepted.

A proposal, when a accepted, becomes a promise;

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Essentials of valid Acceptance.

The acceptance must be absolute .

It must be communicated It must be in the prescribed mode(only mental

acceptance not a owe It must be made before the offer lapses

It must be given only by the specific person

It must be given in response to an offer.

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DEFINITION OF CONSIDERATION . section 2(d).

When, at the desire of the promisor,the promisee or any other person has

done or abstained from doing, ordoes or abstains from doing, orpromises to do or to abstain fromdoing, something, such act orabstinence or promise is called aconsid-eration for the promise

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Essential ingredients of consideration

1.It should be at the desire of the promisor

3.It can come from the promisee or any other person

4.Consideration must be something of value

5.Consideration must be lawful

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Cases on Consideration It should be at the desire of the

promisorDurga prasad vs

Baldev

It can come from the

promisee or any other personChinnaya vs Ramayya

Consideration must besomething of valueBolton vs Maden

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Consideration

Past

Consideration

PresentFuture

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Exceptions to the rule No Consideration


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Exceptions to the rule No Consideration

no contract On account of Natural love and affection

To compensate for past voluntary services To pay a time barred debt

Gifts

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Lawful object

Lawful consideration

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FREE

CONSENT

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Meaning of Free consentconsent is said to be free when it is not caused

by (S.14)coercion Undue influence

Fraud Misrepresentation

Mistake

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FREE CONSENT ; it means an act of assenting to an offer.

According to section 13,

"Tow or more persons are said to consent when theyagree upon the same thing in the same thing in samesense."

Thus, consent involves identity of minds in respect of thesubject matter of the contract.

In English Law, this is called 'consensus-ad-idem

Effect of Absence of consent

When there is no consent at all, the agreement is void ab-initio, i.e. it is not enforceable at the option of either party.

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Free consentwhen consent iscaused by coercion

or undue influence or

fraud or

misrepresentation or

mistake

contract is

usually voidable

at the option of

the party whose

consent was so

caused.

Prof. Mayur Malviya

COERCION


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COERCION

Meaning of coercion[section 15]:

It means compelling a person to enter into a contract, by useof physical force/activities forbidden by Indian penal code.

Effect of coercion: Voidable and can be canceled at the optionof aggrieved party

X threatens to kill Y if he does not sell his house for Rs.

1,00,000 to X. Y sells his house to X and receives thepayments. Here, Ys consent has been obtained by coercion.

This contract is voidable at the option of Y.

If Y decides to avoid the contract, he will have to return Rs1,00,000 which he had received from X.

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2. UNDUE INFLUENCE

Meaning of Undue influence

[section 16(1)

The term 'undue influence' means dominating the will of the other person toobtain an unfair advantage over the other.

A contract is said to be induced by undue influence where the relationssubsisting between the parties are such that one of them is in aposition to dominate the will of the other, and the dominant partyuses that position to obtain an unfair advantage over the other.

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3. FRAUD

[section 17]

The term 'fraud' means a false representation of fact madewillfully with a view to deceive the other party. Fraud includes

following: Wrong suggestion about a fact, knowing that it is not-true;

E.g.X sells to Y locall manufactured oods as im orted oods

charging a higher price, it amounts to fraud.

A seller claimed that his projector is made in Singapore, and soldit for Rs. 100,000/- However the fact is that "Projector wasmade in south India". Active concealment (Hide) of defect ingoods:

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4. Misrepresentation

The term "misrepresentation" means a false representation of fact made innocently or non-disclosure of a material fact without any intention to deceive the other party. (Section 18 )

Essential elements of misrepresentation: By a party to a contract:

connivance or by his agent. Thus, the misrepresentation by a stranger to the contract

does not affect the validity of the contract.

False representation: There must be a false representation and it must be madewithout the knowledge of its falsehood i.e. the person making it must honestly even itis to be true.

Representation as to fact: The representation must relate to a fact. In other words, amere opinion, a statement of expression or intention does not amount tomisrepresentation.

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Misrepresentation

"Innocent misstatement made into good faith OR without any intentionto cause loss

Eg.

A farmer says that his land is very productive and produces 100 quintalper acre. This is misrepresentation and buyer can cancel the contract.

Eg. An owner of factory, while selling his factory, express his opinion as my

factory produces 1000 kg per ann-um and requested the buyer to findout exact production by checking "production-record". If the buyer failsto check the production record then buyer cannot blame seller.

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MistakeMistake of Law:

Mistake of Indian Law.

Mistake of fact

Unilateral mistake Bilateral mistake

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5. Mistake

A mistake is said to have occurred where the parties intending to do one thing byerror do something else. Mistake is "erroneous belief" concerning something.

[section 20]

Classification of Mistake of Law:

(a) Mistake of Indian Law(In sense of penalty): The contract is not voidable becauseeveryone is supposed to know the law of his country. e.g. disobeying traffic rules

(b) Mistake of Foreign Law(void-ab-initio): A mistake of foreign law is treated asmistake of fact, i.e. the contract is void if both the parties are under a mistake as to

a foreign law because one cannot be expected to know the law of other country.

Prof. Mayur Malviya

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Mistake of fact

Mistake of fact be eitherUnilateral mistake or Bilateral mistake.

Unilateral mistake [section 22]: The term 'unilateral mistake' means where only one partyto the agreement is under a mistake. According to section 22, "A contract is not voidablemerely because it was caused by one of the parties to it being under a mistake as to matterof fact.

Bilateral mistake [section 22]: The term 'bilateral mistake' means where both the parties

to the agreement are under a mistake. According to section 20, "where both the parties toan agreement are under a mistake as to a matter of fact essential to the agreement, theagreement is void." thus, the following three conditions must be satisfied before declaring acontract void under this section: Both the parties must be under a mistake

Mistake must be of fact but not of law.

Note: Mistake about price is valid

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C i ( 10 11)


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Capacity to contract(s.10,s.11)

In competent to

Minors

Persons ofcontract unsound mind

Personsdisqualified by

Law

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C it t t t


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Capacity to contract

MinorMinor Unsound mindUnsound mind

Idiocy

Disqualification

by Law

Disqualification

by Law

Minors agreement is

void ab initio

Minor as;

Share holderPartner

Agent

Lunacy

Drunkenness

Hypnotism

Foreign sovereigns

Convicts

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P f f C t t


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Performance of Contract

Offer to perform

Unconditional

Who must perform

The promisor

Other rules

Reciprocal

and place Time for

verification of

quality

the promisor The legal

representative

o f the

promisor

Assignment ofcontracts

Appropriation

of payment

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Discharge of Contract

By

Performance

By

Mutualconsent

BySubsequentimpossibility

By

operation oflaw

By

Breach ofcontract

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Breach of contract


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Breach of contract

Recession of contract Claim damages

Decree for specificperformance

Getting an Injunction order

Remedies forbreach of contract

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Contingent Contract


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Contingent Contract

A contracts to pay B Rs. 10,000 if Bs house isburnt. This is a contingent contract. [section 31].

A makes a contract with B to buy Bs horse if Asurvives C. the contract cannot be enforced bylaw unless and until c dies in As life time.

Contingent contract- A contingent contract is a

contract to do or not to do something, if someevent, collateral to such contract, does or doesnot happen.

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Contract of Agency


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Contract of Agency

AGENT AND PRINCIPAL DEFINED -An agent is aperson employed to do any act for another or to

represent another in dealings with third persons. Theperson for whom such act is done, or who is sore resented is called the rinci al section 182 .

WHO MAY EMPLOY AGENT-Any person who is of theage of majority according to the law to which he issubject, and who is of sound mind, may employ anagent. [section 183]. - - Thus, any person competent to

contract can appoint an agent.

Prof. Mayur Malviya

124 "Contract of indemnity"


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124. Contract of indemnity

Defined

A contract by which one party promises tosave t e ot er rom oss cause to m y t e

conduct of the promisor himself, or by the

conduct of any other person, is called a

"contract of indemnity."

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Contract of GuaranteeA "contract of guarantee" is a contract to perform thepromise, or discharge the liability, of a third person in

case of his default

Princi le debtor

SuretyThe person who

gives the

guarantee

The person inrespect of

whose default

the guarantee isgiven

The person towhom the

guarantee is

given

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Bailment


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Bailment

Bailment means act of delivering goods for aspecified purpose on trust.

The goods are to be returned after the purpose isover.

In bailment, possession of goods is transferred,but property i.e. ownership is not transferred.

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Bailment


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Bailment

A bailment is the delivery of goods by oneperson to another for some purpose, upon a

contract that they shall, when the purpose isaccomplished, be returned or otherwise disposedo accordin to the directions o the ersondelivering them.

The person delivering the goods is called thebailor.

The person to whom they are delivered is calledthe bailee. -

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Best of luck for your exams!!

Prof. Mayur Malviya

1.indian contract act

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