MB0051-Legal Aspects of Business

Q1. Discharge refers to the termination of contractual relationship between the parties.
Explain the statement along with different modes of discharging a contract.
The duties under a contract are discharged when there is a legally binding termination of
such duty by a voluntary act of the parties or by operation of law. Discharge refers to the
termination of contractual relationship between the parties. The contract ceases to operate, i.e.,
when the rights and obligations under the contract ends. According to Sections 73-75 of the
Contracts Act, a contract may be discharged in several modes.
Modes of discharging a contract
i)

Performance or tender

The obvious mode of discharge of a contract is by performance, where the parties have done
whatever was contemplated under the contract. Thus, where A contracts to sell his/her car to B
for Rs. 1,85,000, as soon as the car is delivered to B and B pays the agreed price for it, the
contract comes to an end by performance. The tender or offer of performance has the same effect
as performance. If a promisor tenders performance of his/her promise but the other party refuses
to accept it, the promisor stands discharged of his/her obligations.
ii)

Mutual consent

Section 62 of the Act states that if the parties to a contract agree to substitute a new contract
for the old or rescind or alter the terms, the original contract is discharged. A contract may be
terminated by mutual consent in any of the six ways, viz., novation, rescission, alteration and
remission, waiver and merger. Novation means substitution of a new contract for the original
one.
iii)

Impossibility of performance

A contract may be discharged because of impossibility of performance. There are two types
of impossibility. First, One that is inherent in the transaction (i.e., the contract) another is one
that may emerge later by the change of certain circumstances material to the contract.
iv)

Operation of law

Discharge by operation of law may take place in three ways. First is by death of the promisor in
cases involving personal skill or ability. Next is by insolvency, where an order of discharge is
passed by an insolvency court and the insolvent stands discharged of all debts incurred previous
to his adjudication. Third is by merger.

Q2. Explain the meaning of Power of Attorney, its types and clause related to registration.
Power of Attorney
Power of attorney is defined by Section 2(21) of the Stamp Act as including any
instrument not chargeable with a fee under the law relating to court fees for the time being in
force, that empowers a specified person to act for and in the name of the person executing it.
It is the Powers of Attorney Act, 1882, which deals with the subject but does not define it. In
common parlance, a power of attorney is an instrument or a deed by which a person is
empowered to act for and in the name of the person executing it. The person executing the deed
is known as the principal or donor and the one in whose favor it is executed is the agent, or the
power agent or the power of attorney agent.
Types
Power of attorney may be special or general. If the deed conferring power relates to
several transactions it is general power of attorney. If the deed conferring power by one to
another relates to one single transaction, it is known as special power of attorney.
Registration
As a general rule, registration of power of attorney is not necessary. However, if it
authorizes the donee to recover the rent of an immovable property of the donor for the donees
benefit, it would require a registration. Further, Section 32 (c) of the Registration Act, 1908,
requires that where a document is presented for registration by the agent of a person entitled to
present it for registration, such agent must be duly authorized by power of attorney executed and
authenticated in manner as mentioned in Section 33 of the Act.
Such a power of attorney is to be executed before and authenticated by a registrar or subregistrar. Unregistered power executed in a foreign country before a public notary can be used by
the agent for presentation of document for registration. The power of attorney, however, executed
before a public notary in India will not enable the agent to present any document for registration
under the Registration Act, 1908.
Power of attorney is required to be embossed on non-judicial stamp paper. The amount of
stamp duty varies with different types of powers as described in the Stamp Act and varies in
different states of India. Section 4 of the Power of Attorney Act, 1882, provides that the original
deed of power can be deposited in the High Court in whose jurisdiction the principal resides.

Moreover, a certified copy of the deed can be obtained from the High Court. Such certified
copies are equal to originals and are binding on all.
Q3. Explain the procedure of registration of partnership firms.
Registration of partnership of Firms (Sections 58-59)
Application for registration
Section 58 lays down the procedure for registration of partnership firms. A partnership firm
may be registered at any time by post, or delivering to the Registrar of Firms of the area in which
the business of the firm is situated or proposed to be situated, a statement in the prescribed form
and accompanied by the prescribed fee, stating:

Date when each partner joined the firm

Names in full and addresses of the partners, and
Duration of the firm
Firms name
Place or the principal place of business
Names of any other places where the firm carries on business

The statement must be signed by all partners, or by their agents especially authorized in that
behalf and duly verified. When the Registrar of Firms is satisfied that the provisions of Section
58 have been duly complied with, he/she registers the firm by recording an entry of the statement
in a register called the Register of Firms and files the statement (Section 59). The Registrar then
issues a Certificate of Registration. Registration is effective from the date when the Registrar
files the statement and makes entries in the Register of Firms.
Registration of firms is optional
The Act does not provide for compulsory registration of firms. It is optional and there is
no penalty for non-registration. However, Section 69 has effectively ensured registration of firms
by introducing certain disabilities that an unregistered firm suffers from.

Q4. What are the circumstances under which breach of condition is treated as breach of
warranty?

Circumstances under that Breach of condition to be treated as breach of warranty

According to Section 13, under certain circumstances, a breach of condition is to be treated
as a breach of warranty, i.e., the right to repudiate the contract is deemed to have been lost. These
circumstances are:
i). Where a contract of sale is subject to any condition to be fulfilled by the seller, the buyer may
either:

Waive the condition

Elect to treat the breach of the condition as a breach of warranty.
In such situations, the buyer is active and is either waiving the condition or electing to
treat the breach of condition as a breach of warranty. If the buyer decides to waive the
condition, he/she cannot later on insist that the condition be fulfilled. Where the buyer
treats the breach of condition as a breach of warranty, he/she has to give a notice to the
seller to that effect.

ii). There is also a compulsory treatment of breach of condition as a breach of warranty. Where
the contract of sale is not severable and the buyer has accepted the goods or part thereof, the
breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty.
However, the agreement may provide otherwise, i.e. may permit repudiation of the contract in
spite of the acceptance of the goods by the buyer.
Q5. Explain the procedure for filing a complaint and admission of complaint in consumer
protection act.
Procedure for filing a complaint
The complaint can be sent by post to the appropriate Forum/ Commission. The complaint
should be addressed to the President of the Forum/Commission. There is no fee for filing a
complaint before any of the aforesaid bodies. The complainants or their authorized agent can
present the complaint in person.
A complaint should contain the following information:

Name, description and address of the complainant

Name, description and address of the opposite party or parties, as the case may be, as far

as they can be ascertained

Facts relating to complaint and when and where it arose
Documents, if any, in support of the allegations contained in the complaint
Relief that the complaint is seeking.

Admission of complaint (Section 13)

Procedure in respect of goods where the defect requires no testing or analysis: The
District Forum should send a copy of admitted complaint to the opposite party mentioned in the
complaint within 21 days of admission. He should be instructed to provide his version of the case
within 30 days or may be granted a further extension of 15 days, at the discretion of the Forum.
If the opposite party disputes the allegations or fails to take any action, the forum can settle the
disputes as specified in the Act.
Procedure in respect of goods where the defect requires analysis or testing: With
respect to goods which need to be tested or analyzed for defects, the District Forum should
obtain a sample of goods from the complainant and should take steps to seal and authenticate the
sample and send it to the appropriate laboratory for testing or analysis. This exercise should be
carried out to ascertain whether the goods suffer from defects alleged by the complainant and the
results of such tests must be provided within 45 days. This period may be extended by the
Forum, if necessary. The complainant is obliged to bear the necessary charges towards the
analysis/testing and needs to deposit these fees to the forum. The Forum, in turn, remits the
amount deposited to the laboratory which undertakes the test or analysis. Upon receiving the
report, the Forum then forwards a copy of the same, along with its remarks, to the Opposite party
seeking clarification. Any disputes with respect to the laboratorys findings must be countered
by written objections from the concerned party. The Forum then provides reasonable opportunity
for both the complainant and the opposite party to be heard.
Q6. Write short notes on:
a) Shares and its classification
b) Meetings and its classification

Shares and its classification

Section 2(46) defines a share as a share in the share capital of a company and includes
stock except where a distinction between stock and share is expressed or implied. Section 83
requires that each share in a company having a share capital must be distinguished by its
appropriate number. The Companies (Amendment) Act, 1999, amended Section 82 to the effect
that for the word shares, the words shares and debentures shall be substituted.
The most common classes of shares are:

Preference
Equity or Ordinary
Deferred or Founders

A public company and a private company that is a subsidiary of a public company may not issue
shares other than equity, preference and Cumulative Convertible Preference Shares (CCPS).
Preference Shares
A preference share is one that carries the following two rights over holders of equity shares:

A preferential right in respect of dividends at a fixed amount or at a fixed rate, and

A preferential right in regard to repayment of capital on winding up.

Equity shares
Equity share means a share that is not preference share (Section 85). The rate of
dividend is not fixed. The Board of Directors recommends the rate of dividend that is then
declared by the members at the Annual General Meeting. Before recommending dividend on
equity shares, the Board of Directors have to comply with the provisions of law as regards
depreciation, transfer of a minimum amount to reserves, etc. The holders of equity shares have
voting rights in proportion to the paid-up equity capital of the company (Section 87 (1)).
Cumulative Convertible Preference Shares (CCPs)
The Government of India vide its guidelines dated 19 August 1985 permitted issue of
another class of shares by public limited companies, called cumulative convertible preference
shares.
Deferred or founders shares
A private company can issue shares of a type other than those discussed above (Section
90). Thus, it may issue what are known as deferred shares. As deferred shares are normally held
by promoters and directors of the company, they are usually called founders shares.

Non-voting shares
Non-voting shares as the term suggests are shares that carry no voting rights. These are
contemplated as altogether a different class of shares which may carry additional dividends in
lieu of the voting rights. The Companies (Amendment) Act, 2000, provided for issue of such
type of equity shares under Section 86.
Sweat equity shares
The Companies (Amendment) Act, 1999, allowed issue of sweat equity shares subject to
fulfillment of certain conditions. The new Section 79A was inserted for this purpose.
General Meetings and Proceedings
Need for meetings
A company is an artificial person and therefore, must act through some human
intermediary. The various provisions of law empower shareholders to do certain things. They are
specifically reserved for them to be done in companys general meetings. Section 291 empowers
the Board of Directors to manage the affairs of the company. In this context, meetings of
shareholders and directors become necessary. The Act has made provisions for following
different types of meetings of shareholders:
(i)
(ii)
(iii)
(iv)

Statutory Meeting
Annual General Meeting
Extraordinary General Meeting
Class Meetings.

Statutory meetings (Section 165)

The most important legal provisions regarding statutory meetings are:

It is required to be held only by a public company having share capital. A private

company or a public company registered without share capital is under no obligation to

hold such a meeting.

It must be held within a period of not less than one month and not more than six months

from the date on which the company is entitled to commence business.

At least 21 days before the day of meeting, a notice of the meeting is to be sent to every
member stating it to be a Statutory Meeting.

Annual general meeting (AGM) (Sections 166-168)

As the name signifies, this is an annual meeting of a company. The provisions relating to this
meeting are:
Every company, whether public or private, having a share capital or not, limited or
unlimited must hold this meeting.
The meeting must be held in each calendar year and not more than 15 months shall elapse
between two meetings. However, the first AGM may be held within 18 months from the
date of its incorporation and if such general meeting is held within that period, it need not
hold any such meeting in the year of its incorporation or in the following year. The
maximum gap between two such meetings may be extended by three months by taking
permission of the Registrar, who may so allow for any special reason.
The meeting must be held
On a day that is not a public holiday
During business hours
At the registered office of the company or at some other place within the city, town or village in
which the registered office is situated. (Section 166 (2)).
Extraordinary Meeting (EGM) Section 169
Clause 47 of Table A (Schedule I) provides that all general meetings other than AGMs
shall be called the EGMs. The legal provisions as regards such meetings are:

EGM is convened for transacting some special or urgent business that may arise in
between two AGMs, for instance, change in the objects or shift of registered office or
alteration of capital. All business transacted at such meetings is called special business.
Therefore, every item on the agenda must be accompanied by an Explanatory
Statement.

*An EGM may be called by:

Directors of their own accord

Directors on requisition
Requisitionists themselves
The Tribunal. The Board of Directors may call a general meeting of the members at any
time by giving not less than 21 days notice. A shorter notice may, however, be held valid
if consent is accorded thereto by members of the company holding 95 percent or more of
the voting rights (Section 171).

Class Meetings

A company has two classes of shares equity shares and preference shares. The class
meetings are held for these different classes of shareholders, as and when their rights are
affected.