indian contract act monday

8/8/2019 Indian Contract Act Monday

http://slidepdf.com/reader/full/indian-contract-act-monday 1/129

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.



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



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



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



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



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



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«.



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



Effects «undue influence

Voidable



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



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



DUTY TO SPEAK

Contract of uberrimae fidei (absolute good

faith)Eg insurance contracts, family settlements

Contracts of partnership

Contracts of guarantee

Fiduciary relationship



Effects «fraud

Voidable

Damages



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



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



Difference

C

OERC

ION &UNDUE INFLUENCE

Mode of obtaining

consent

Type of force Existence of

relationship

FRAUD AND

MISREPRESENTATI

ON

Intention

Rights Defence



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



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.



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



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



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



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



Operation of law

Merger Death

Loss of evidence

By insolvency

Material alteration



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



Breach

Actual breach

Anticipatory breach

PERFORM ANCE OF CONTRACTS# actual performance

# attempted performance / tender

tender of money

tender of goods



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)



Remedies for breach of contract

Rescission

Damages

#ordinary

# special

#exemplary /vindictive

# nominal

Quantum meirut Specific performance

Injunction



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.



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



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.



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



Types of guarantee

Specific guarantee

Continuing guarantee

can be revoked by# notice

# death



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



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



Creditors act or omission impairing surety¶s

eventual remedy

Loss of security

By invalidation of the contract of guarantee



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



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



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



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



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



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



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 .



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



Termination of bailment

On expiry of stipulated period

On fulfillment of purpose

By notice By death



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.



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.



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



# 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



# brokers

# Auctioneers#partners

#del credere agent

Extent of agents authoritys

Actual or real authority

Ostensible authority

Authority in an emergency



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



# 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



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



Rights of agent Right of retainer

Right to remuneration

Right of lien

Right to indemnification

Right to compensation



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



#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.



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



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



#by insolvency of principal

#By destruction of subject matter of agency

# By the principal becoming an alien enemy.



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



# 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



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



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´



Types of goods

Existing

# specific

# ascertained

# unascertained

Future

Contingent



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



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.



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



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



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



Implied conditions

As to title As to description

As to sample

As to quality or fitness As to merchantability

As to wholesomeness



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



T f f hi



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



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



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



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



Right to lien if



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



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



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)



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



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



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



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



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



Who may endorse?The payee of the instrument make sthe first endorsement

and thereafter the holder

Effect of endorsement



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



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



Parties to bill of exchange

Drawer

Drawee

Payee

Types of b/e

Demand bill Time bills

Trade bill

Accomodation bills

I l d bill



Inland bill

Foreign bill

Bank draft

Traveller¶s cheque

Inchoate instrument

HUNDIES i di i bill f h



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



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



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



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



Discounting of bills

Retirement of a bill and rebate



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



Liabilities of parties to Negotiable



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



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



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



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



Kinds of companies

On Basis of constitution

public

private

On basis of control

govtholding & subsidiary

O b i f i ti



On basis of incorporation

chartered company

statutory company

foreign company

registered company



Registered

limited

Ltd shares

public pvt

Ltdguarantee

public pvt

unlimited

public pvt

Diff b/ t d bli



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



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



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



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



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



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



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



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



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



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



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



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



# 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



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



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



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



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



Untrue statements«««..misleading in form



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



Recission

Damages of deceit

Remedies against directors

Liability for damages

2 Criminal liability

» Share capital

A th i d i t d i l



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



shares

preference

cumulativeNon

cumulative

equity deferred

Cumulative shares



# participating/non participating

# convertible # redeemable/ irredemable

Non cumulative shares # participating/non participating

# convertible/non convertible

# redeemable/ irredemable

indian contract act monday

Documents