CHAPTER 1

LAW AND ITS SOURCES

Introduction
 Man is by nature a social being. He comes into contact with other individuals in different capacities. These
contacts or associations are the inevitable consequence of modern civilization. In all these associations, he is
expected to observe a Code of Conduct or a set of rules.
 The object of these set of rules is to
 make human associations possible; and
 ensure that members of the society may live ; and
 work together in an orderly and peaceful manner.
WHAT IS LAW
 The word `law` is a general term and over a period of time attained different connotations to signify varied
purposes.
DEFINITON OF `LAW` - ARTICLE 13 (3) OF CONSITTUTION OF INDIA
 Clause 3 of Article 13 of the Constitution of India defines `law` as under
(a) `law` includes any
 Ordinance,
 order,
 bye-law,
 rule,
 regulation,
 notification,
 custom or usage having the force of law;
 An amendment to an existing law is also law.
 `Law` in the context of the provisions of the Constitution of India may also be defined as – “It is an Act passed
by the legislature and assented to by the President of India or Governor of a State.” [Arts 111 and 200 of the
Constitution of India].
NEED FOR KNOWLEDGE OF `LAW`
 `Ignorntia juris non excusat` is a familiar maxim. This means `ignorance of law is no excuse`. Although it is
not possible for a layman to be aware of every branch lf law, yet he must acquaint himself with the general
principals of the law of the country.

EXTENT OF LAWS MADE BY LEGISLATIVE BODIES

 Article 245 of the Constitution of India empowers the Parliament and the Legislature of a State to make laws for
the country and the State respectively.
 Article 245, inter alia, stipulates as under: -
Article 245 Extent of laws made by Parliament and by the Legislatures of States
 The Parliament may make laws for the whole or any part of the territory of India, and
 The Legislature of a State may make laws for the whole or any part of the State.
 The law made by Parliament may have extra-territorial operation.
 The Constitution of India has put certain limitations on the legislative powers of the Parliament as well
the State Assembly.
SUBJECT MATTER OF LAWS MADE BY LEGISLATIVE BODIES
 Article 246 of the Constitution, inter alia, provides for the subject matter of laws to be made by Parliament and
by the Legislatures of States. The subject matters have been specified in the Seventh Schedule to the
Constitution.
 Parliament - Exclusive power relating to any of the matters enumerated in List I. ("Union List"-
contains 97 Entries).
 The State Legislature - Exclusive power relating any of the matters enumerated in List II. ('State List'-
contains 66 Entries).
 Parliament besides the State Legislature – Empowered to make laws relating to matters enumerated in
List III ("Concurrent List" – contains 47 Entries).
 Parliament has power to make laws with respect to any matter for any part of the territory of India not included
in a State notwithstanding that such matter is a matter enumerated in the State List.
List I – Union List. It has 97 entries.
IMT 2 CH. – 1 LAW & SOURCES

It contains those subjects which are of national interest or importance or which need national control and
uniformity of policy throughout the country.
Example: - Defence, Air Force, Atomic Energy, Foreign Affairs, Income Tax, CBI, Banking, Insurance,
Reserve Bank of India, Incorporation, regulation and winding of up of corporations, Stock Exchange, Bills of
exchange, Patents, Railways, Judges of Supreme Court and High Courts etc.
List II – State List. It has 66 entries.
It contains such subjects, which are of local (State) interest and on which the local control is more expedient.
Example: - Public Order, Police, local Government, public health and sanitation, trade and commerce within
the State, fairs, betting and gambling etc.
List III – Concurrent List. It has 47 entries.
It contains such subject, which though are of local importance yet need uniformity on national level or at least
some parts of the country i.e. with respect to more than one State.
Example: - Criminal Law, Education, Marriage and divorce, Transfer of Property, Contracts, Social Security
etc.
Residuary Legislative Powers
 Article 248 of the Constitution further empowers the Parliament with the residuary powers of legislation to
make any law with respect to any matter not enumerated in the Concurrent List or State List. Such power shall
include the power of making any law imposing a tax not mentioned in either of those Lists.

INTELLECTUAL PROPERTY LAWS

WHAT IS `INTELLECTUAL PROPERTY`

 Companies use their assets as part of the operations of their business and, as such, they contribute to the
development of the organisation as a whole. Managing and protecting assets is, therefore, a key operational and
strategic function.
 Assets may be classified as: -
1. Tangible (or physical) assets - land and building, plant and machinery and tools and equipment.
2. Intangible assets - goodwill, patents, designs, trademarks and copyrights -Intellectual property rights (IPRs)
 Intellectual property, often known as IP, allows people to own their creativity and innovation in the same way
that they can own physical property. The owner of IP can control and be rewarded for its use, and this
encourages further innovation and creativity to the benefit of us all.
Types of Intellectual Property
 There are four main types of IPRs:-
1. Patents: registered rights protecting industrial invention, which last for upto 20 years.
2. Trademarks registered rights for brand identity, which can continue as long as the registration fees are paid.
3. Designs registered designs (which lasts upto 25 years) and unregistered design right protect the aesthetic
appearance of articles.
4. Copyright unregistered protection for authors, artists and composers against the unauthorised copyin of their
works, which lasts for the life of the author plus 70 years.
 The first three categories are known as registered or monopoly rights as the process of registration effectively
prevents others from exploiting an invention, brand or design without the owner’s consent.
TRADEMARKS ACT, 1999
What is `Trade Mark`
 A `Trade Mark` is a distinguishing mark used in the course of trade of goods of one manufacturer or trader and,
therefore, it seeks to protect the interest of the consumer as well as the trader. A trademark may consist of a device
depicting the picture of animals, human beings, etc., words, letters numerals, signatures or any combination thereof.
Trademark Owner or Proprietor
 The person in whose name the Trade mark is registered and his name is so entered in the Register maintained
by the Registrar Trademarks.
Registered users (Section 48)
 A person other than the registered proprietor of a trademark may be registered in respect of any or all of the goods or
services in respect of which the trademark is registered. (Ex – HLL products manufactured by some other
manufacturer)
Trademarks as a series
 Where the proprietor of a trademark claims to be entitled to the exclusive use of any part thereof separately, he may
apply to register the whole and the part as separate trademarks. Each such separate trademark shall satisfy all the

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IMT 3 CH. – 1 LAW & SOURCES
conditions applying to and have all the incidents of, an independent trademark. (Ex – `Liberty` and `Ballerina` used
for Ladies Sandals)
Limitation as to Colour
 A trademark may be limited wholly or in part to any combination of colours. When a trademark is registered
without limitation of colour, it shall be deemed to be registered for all colours. (Ex- Airtel – in Red and White
colours)
TYPES OF TRADEMARKS
Classification Description
(A) Registered Trade A trademark registered with the Registrar of Trade Marks in the name of a
Mark person. The owner of that mark is called Registered Owner or Proprietor.
(B) Certification mark A mark used in commerce with the owner’s permission by someone other than its
owner,
 to certify regional or other geographic origin, material, mode of manufacture,
quality, accuracy, or
 that the work or labor on the goods or services was performed by members of
a union. (Ex – Woolmark; AGMARK)
A trademark or service mark used in commerce, by all the members of a
(C) Collective mark cooperative, an association etc. (Ex- Lijjat papad, FICCI)
A mark, which has become so well known to the substantial segment of the public,
(D) Well-known that the use of same trademark is used in relation to other goods or services, in the
trademark same course of trade, would cause confusion in the minds of the
users/beneficiaries of the goods or services. (Ex – Raxona chappals)
A mark used in the course of trade, to identify and distinguish the services of one
provider from services provided by others, and to indicate the source of the
(E) Service mark services. (Ex- Hutch)

What can be registered as a trademark?

Trading names Ex- Lal Quila Basmati Chawal (Rice)
Signatures Ex - Cadbury’s bar of chocolate.
Newly invented words Ex - ORTEM
Geographical names Ex – Bikaneri bhujia
Distinctive packaging Ex.- Radial Tyres
Smells, sounds and colours Ex – Zevit capsules from SKF Glaxo
REGISTRATION OF TRADEMARK [SECTION 3 TO 8]]
Registrar of Trademark
 The Central Government has appointed Controller-General of Patents, Designs and Trademarks. .
Trademarks Registry and offices thereof
 The Trademarks Registry is located at Mumbai, Chennai, Delhi, Kolkata and Ahmedabad.
The Register of Trademarks
 The Register of Trade mark shall be kept at the head office. In that Register all registered trade marks with the
names, addresses and description of the proprietors, notifications of assignment and transmissions, the names,
addresses and descriptions of registered users, conditions, limitations and such other matter relating to registered
trademarks shall be entered. The Register may be kept wholly or partly in computer floppies diskettes or in any other
electronic form subject to prescribed safeguards.
Classification of goods and services
 The Registrar shall classify goods and services, as far as may be, in accordance with the International classification
of goods services for the purposes of registration of trademarks. The Registrar may publish in the prescribed manner
an alphabetical classification of goods and services.
Registration of Trademark
 Any person claiming to be the proprietor or a trademark used or proposed to used by him shall apply in writing to the
Registrar in the prescribed manner for the registration of his trademark. A single application may be made for
registration of a trademark for different classes of goods. After due compliance of related procedures, the Registrar
may register with or without conditions.
Duration, renewal, removal and restoration of registration
 The registration of a trademark shall be for a period of 10 years may be renewed for further period of 10 years from
time to time.
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Infringement of registered trademarks

 When a person other than the registered proprietor of permitted user uses a mark in the course of trade for which
original owner is registered, and such a mark is identical with, or deceptively similar to the registered trademark
relation to goods or services in respect of which the trademark is registered and in such manner as to render the use
of the mark likely to be taken as being used as a trademark. (Ex – `Palmolive` (registered mark);
`Pamolive`(infringement)
Passing Off
 It means when any person not authorised to use any registered trade uses the same in order to cause confusion or
deception in the mind of the user or injure reputation of the registered owner. There shall be actual damage by such
unauthorised use. It constitutes an infringement, when proved.
REDRESSAL MECHANISM [SECTIONS 83 TO 100]
 The Central Government has notified the establishment of an Appellate Board known as the Intellectual Property
Appellate Board to exercise the jurisdiction, powers and authority conferred on it. The Appellate Board shall consist
of a Chairman, Vice-Chairman and other Members (Judicial and Technical).
Bar of jurisdiction of courts, etc.
 No court or other authority shall have any jurisdiction, powers or authority in relation to the matters referred to in
appeal.
OFFENCES AND PENALTIES [SECTIONS 103]
Penalty for applying/selling false trademarks, trade descriptions, etc.
 An imprisonment upto three years and fine upto Rs. 2 Lakhs may be imposed on violation of the Act.
TRADEMARK AGENTS
Agents may present the applicant before Registrar (Section 145)
 The Registrar may authroise the legal practioners or registered agents may be authorised to represent their
principals.
PATENTS ACT, 1970
What is `Patent`
 Patent is a monopoly granted to the original inventor of a product or process that is capable of commercial
exploitation.
The benefits of patent protection
 The patent gives the patent holder the right to stop others from using the invention concerned or to choose to
let others use it under agreed terms. It also brings the right to take legal action against others who might be
infringing the invention to claim damages. Patent right is assignable.
Patent Requirements
 Be novel.
 Involve an inventive step
 Capable of Commercial Exploitation
 Be described.
TRIP AGREEMENT
Compliance of the TRIP Agreements
 India is a signatory to the agreement establishing the World Trade Organization (WTO). The WTO Agreement,
inter-alia, contains an agreement on intellectual property rights, namely, the Agreement on Trade Related
Aspects of Intellectual Property Rights (TRIPs). The TRIPs Agreement requires member countries to align their
legislations on intellectual property in conformity with their obligations under the TRIPs Agreement .
 The Patent Act 1970 has been amended in 1999, 2002 and 2005 so as to make Indian Patent Act fully
compliant of the TRIP Agreement.
INVENTIONS NOT PATENTABLE (SECTION 3 AND 4)
 Frivolous or claims made are obvious or contrary to well established natural laws.
 Contrary to law or morality or injurious to public heath. (Ex.-Method for gambling)
 Mere discovery of a scientific principle or the formulation of an abstract theory. (Ex -Scientific theory is a
statement about the natural world.)
 The mere discovery of any new property or its use or of the mere use of a known process, machine or
apparatus. (Ex - Use of Aspirin for cardio-vascular disease)

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IMT 5 CH. – 1 LAW & SOURCES

 A substance obtained by a mere admixture resulting only in the aggregation of the properties of the
components thereof (Ex – Alloy)
 The mere arrangement or re-arrangement or duplication of known devices (Ex - Umbrella with fan)
 A method or a process for enhancing machine efficiency. (Ex - Process for testing of chlorine level in the water)
 A method of agriculture or horticulture (Ex - A method for cultivation of an algae)
 Any process for the medicinal, surgical, curative, prophylactic or other treatment of living animals to
make them disease free. (Ex - treatment of malignant tumour cells)
 Inventions relating to Atomic energy [Section 4]
Who may apply for Patent
 An application for a patent may be made by the first inventor, his assignee or legal representative or foreign
national of a convention country on reciprocal basis.
Types of Patent Applications
a. Patent applications under Patents Act 1970.
b. International applications under PCT.
Secrecy direction of certain inventions
 The Registrar while sealing a Patent may issue security directions for products or process for defence
purposes.
Term of a patent
 The term of every patent shall be 20 years from the date of filing application for patent. A patent may be
revoked by the High Court on any of the specified grounds.
Compulsory licences
 At any time after 3 years from the date of the sealing of a patent, any person including Central Government in
the public interest may make an application to the Controller for grant of compulsory licence on patent on
specified grounds. The Controller on being satisfied with the expediency and urgency and public interest, my
grant compulsory licence.
Revocation of patents by the Controller for non-working
 Where patented invention is not available to public at a reasonably affordable price, the Central Government
has been empowered to apply to the Controller for revocation of compulsory licence after 2 years from the
grant of licence.
REDRESSAL MECHANISM [SECTION 116]
Appellate Board
 The Appellate Board established under the Trade Marks Act, 1999 shall be the Appellate Board for the
Patent Act also.
INTERNATIONAL ARRANGEMENTS
Notification as to convention countries (Section 133)
 The Central Government may, declare and notify a country to be a convention country with a view to the
fulfillment of a treaty, on reciprocal basis.
THE COPYRIGHT ACT 1957
What is copyright
 Copyright is a kind of intellectual property. Copyrights generally protect works of art including poetry, movies, video
games, DVDs, paints, sculptures, literary, dramatic or musical work, musical works, photographs, or
architectural designs, among others. To qualify for a copyright, the work must be “fixed in a tangible medium of
expression.”
 A copyright does not cover an author’s ideas – which is why the work must be fixed in a tangible medium. In
other words, the work must exist in some physical form, such as a tape recording, on film, on paper, or even in
an email.
 Copyright is not a positive right but a negative right that is the right to stop others from exploiting the work without the
copyright owners consent or license. Thus where, for instance, the work is derived from some other work in which copyright
subsists as in the case of translation, adoption or abridgement of a literary work the author of such work can stop others
from exploiting it but he cannot himself exploit that work without the consent or license of the original work from which the
work has been derived.
Conditions for qualifying as copyright
a) The work is first published in India.
b) Where the work is first published outside India the author, at the date of publication must be a citizen of
India.

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IMT 6 CH. – 1 LAW & SOURCES

c) In the case of an architectural work of art, the work is located in India

COPYRIGHT BOARD, POWERS AND PROCEDURE [SECTIONS 11 TO 12]
Constitution and composition of the Copyright Board
 The Central Government has constituted a Copyright Board. The Copyright Board shall be deemed to be a
civil court and all proceedings shall be deemed to be judicial proceedings.
Functions of the copyright Board
 Settlement of disputes with regard to copy right, infringement thereof, assignment, determination of
royalties, compulsory licence in public interest, and other matters incidental thereto.
Assignment of copyright
 The owner of the copyright in an existing work may assign to any person the copyright either wholly or partially
and either generally or subject to limitations and either for the whole term of the copyright or any part thereof.
 The assignment shall be in writing and for a consideration.
TERM OF COPYRIGHT
Published literary, dramatic, musical and artistic works etc. - Lifetime of the author upto 60
years from the beginning of the calendar year next following the year in which the author
dies.
The broadcast reproduction right - 25 years from the beginning of the calendar year next
following the year in which the broadcast is made.
Performer's right - 50 years from the beginning of the calendar year next following the year in which the
performance is made.
LICENCES (Section 30)
Licences by owners of copyright
 The owner of the copyright in any existing work or the prospective owner of the copyright in any future work
may grant any interest in the right by licence in writing signed by him or by his duly authorised agent.
Compulsory licence in works withheld from public
 Upon a complaint made to the Copyright Board and on being satisfied in the public interest, the Board may
direct the Registrar to grant compulsory licence to the Complainant on such conditions as maybe prescribed.
STATUTORY EXCEPTIONS TO INFRINGEMENT (SECTION 52)
 Some of the exceptions provided under the Act are as follows: -
(i) a fair dealing with a literary, dramatic musical or artistic work;
(ii) the making of copies or adaptation of a computer programme by the lawful possessor;
(iii) the doing of any act necessary to obtain information essential for operating inter-operability of an
independently created computer programme.
(iv) the reproduction of a literary dramatic, musical or artistic work for the purpose of a judicial proceeding;
(v) the reading or recitation in public of any reasonable extract from a published literary or dramatic work;.
(vi) the publication in a collection, mainly composed of non-copyright matter, bona fide intended for the use of
educational institutions;
(vii) the reproduction of a literary, dramatic musical or artistic work by a teacher or a pupil in the course of
instruction; or as part of the question to be answered in an examination; or in answers to such questions;
(viii) the making of sound recordings in respect of any literary, dramatic or musical work, if sound recordings of
that work have been made by or with the licence or consent of the owner of the right in the work; the person
making the sound recordings has given a notice of his intention to make the sound recordings, has provided
copies of all covers or labels with which the sound recordings are to be sold, and has paid in the prescribed
manner to the owner of rights in the work royalties in respect of all such sound recordings to be made by
him, at the rate fixed by the Copyright Board in this behalf.
(x) the causing of a recording to be heard in public by utilising it in an enclosed room or hall.
(xi) the making of not more than three copies of a book;
(xv) the reproduction, for the purpose of research or private study;
PENALTIES FOR INFRINGEMENT OF COPYRIGHT (SECTIONS 54 –62)
 Imprisonment for a minimum period of 3 years and with fine upto Rs. 2 lakhs. For any second and subsequent
convictions imprisonment up to three years and the fine upto Rs.2 lakhs.
COMPARITIVE ANALYSIS OF PATENT, COPYRIGHT AND TRADEMARK
PATENT COPYRIGHT TRADEMARK

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IMT 7 CH. – 1 LAW & SOURCES

Right Protected A new invention to
manufacture the product
patented or use the
process patented.
Time Period 20 years
and in case of food and
drugs 5 or 7 years.
Original, literary, dramatic,
musical and artistic works,
cinematograph film and records.
Lifetime plus 60 years for literary, 7 years and may be renewed
dramatic, musical and artistic
works. 50 years from year of
publication for records.
To use a particular mark,
which may be a symbol,
word, device applied to
articles of commerce to
indicate the distinctiveness of
goods.
from time to time.

Who Can Register Actual inventor or an
assignee of the right to
make an application or
legal representative of
either.
Commercial Use Assigning rights or
licensing them to
industrialists for a lump
sum payment or royalty
basis.
Remedy For Injunction, Damages,
Infringement Accounts of profits.
The author or publisher of, or
owner of or other person
interested in the copyright in any
work.
By assigning or licensing the
right to others on a royalty or
lump sum basis.
Civil, Criminal, Administrative.
Proprietor of the trademark
and application may be made
in the name of an individual,
partners of a Firm,
Corporation, Government
department or Trust.
Licensing the right by
registration of the licensee as
a registered user.
Injunction, Damages,
Accounts of profits

ARBITRATION AND CONCILIATION ACT, 1996

ALTERNATE DISPUTES RESOLUTION (ADR) MECHANISM
paradigm shift from traditional litigation
 As globalisation of economy is taking place at a rapid pace and the business is increasing, the disputes
related to businesses are also increasing. Businessmen cannot afford to lose time in avoidable litigation.
Hence, commercial establishments are increasingly moving towards Alternate Disputes Resolution.
Among all the ADR, the method of arbitration is the most popular. Arbitration has four factors to command
it – speed, finality, cheapness and justice.
 Redressal of disputes requires collaboration, co-operation and mutual trust, which is available in mediation,
conciliation, arbitration and settlement efforts.
 This alternate redressal forum may not be replacement of Courts but definitely they will aid to achieving
goal of speedy justice. Success of such redressal system depends on honest independent an unbiased
Arbitral Tribunal or arbitrator.
What is `Arbitration`
 Arbitration is a method whereby parties can resolve their disputes privately. It is known as an alternative
dispute resolution mechanism. Instead of filing a case in a court, parties can refer their case to an arbitral
tribunal, which is the forum where arbitration proceedings are conducted. The arbitral tribunal will consider the
questions over which the parties are in conflict and will arrive at a decision. This decision is known as an
'award'. The Indian synonym for ‘arbitration’ is ‘panchayat’.
The Arbitrator is private in so far as
(1) he is chosen and paid by the disputants
(2) he does not sit in public
(3) he acts in accordance with privately chosen procedure so far as that is not repugnant to public policy
(4) so far as the law allows he is set up to the exclusion of the State Courts
(5) his authority and powers are only whatsoever he is given by the disputants agreement
(6) the effectiveness of his powers derives wholly from the private law of contract or the public policy of
England bearing in mind that the paramount public policy is that freedom of contract is not lightly to be
inferred with.”

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IMT 8 CH. – 1 LAW & SOURCES

ADVANTAGES OF ARBITRATION
Advantages
(i) Avoidance of publicity, for the proceedings are held in private
(ii) Cost Effective reduction of expenses in majority of the cases
(iii) Saving of Time since the proceedings are quicker than a Court trial.
(iv) Simple Procedures proceedings are held informally
(v) Social efficacy, the award of the arbitrator being the decision by the consent of the parties.
(vi) Candour in presenting facts and figures knowing that trade competitors are not present to gain knowledge to the detriment
of the person giving the evidence.
Disadvantages
 Competency of the arbitrator - the award of any arbitration is dependent upon the competency of the arbitrator. In
case the arbitrator in not competent, the award may be faulty.
 Injustice may result due to incompetence of the arbitrator.
SOURCE OF THE PRESENT ACT
 The United Nations Commission on International Trade Law (UNCITRAL) adopted the UNCITRAL Model Law on
International Commercial Arbitration in 1985.
 The General Assembly of the United Nations recommended that all countries give due consideration to the said Model
Law, in view of the desirability of uniformity of the law of arbitral procedure in the context of international commercial
relations and the parties should endeavour to seek an amicable settlement of a dispute by recourse to conciliation. India
being constituent member of United Nations enacted Arbitration and Conciliation Act 1996 on the lines of model law and
rules i.e. UNICTRAL.
TYPES OF ARBITRATION
(i) Domestic arbitration
 Domestic arbitration means an arbitration, which takes place in India, wherein parties are Indians and
the dispute is decided in accordance with substantive law in India.
(ii) International arbitration
 International arbitration means an arbitration which may take place either within India or outside India, where there are ingredients of foreign origin in
relation to the parties or the subject matter of the dispute and the dispute is decided in accordance with substantive law in India or any other country,
depending on the contract in this regard and the rules of conflict of laws.
(iii) Institutional arbitration

 Institutional arbitration means an arbitration conducted by an arbitral institution in accordance with prescribed
rules of the institution. Many a times, business contracts contain a similar provision that should any dispute
arise the same will be referred to arbitration and decided in accordance with rules of arbitration of particular
arbitral institution. Such arbitration is called ‘institutional arbitration.’
MATTERS THAT CAN BE REFERRED TO ARBITRATION
 Sec 9 of CPC, 1908, inter alia, provides that all matters in dispute between parties relating to private rights or
obligations, which civil courts may take, cognizance of may be referred to arbitration.
Exception – Any matter, which is forbidden by any law or is against public policy, shall not be referred to arbitration.
MATTER THAT CANNOT BE REFERRED TO ARBITRATION
1. Matrimonial matters e.g. divorce or restitution of conjugal rights
2. Testamentary matters like the validity of a will
3. Insolvency matters
4. The guardianship of a minor
5. Public charities and charitable trusts
6. Lunacy proceedings
7. Matters of criminal nature
8. Execution proceedings.
ARBITRATION MECHANISM
Appointment of Arbitrators (Arbitral Tribunal)
 Arbitration agreement is a contract. It is a document in writing, signed by both the parties. This will make
them bound by the arbitration agreement. An arbitration clause, which forms part of a contract, shall be
treated as an agreement independent of the other terms of the contract. The person of any nationality may
be appointed as arbitrator. The parties are free to determine the number of arbitrators (Arbitral Tribunal).

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 IMT 9 CH. – 1 LAW & SOURCES

The number of arbitrators cannot be in even number . Party cannot approach the Court for removal of
arbitrator or stay of proceeding except on specified grounds.
When Arbitrator may be appointed by Chief Justice
(i) the parties disagree on the arbitration procedure
(ii) the two appointed arbitrators disagree as to the procedure
(iii) any person including the institution fails to perform any function entrusted to him .
[NOTE: Chief Justice means the Chief Justice of the concerned High Court where the jurisdiction of the civil court lies.]
Procedure to be followed by the Arbitral Tribunal
 The parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting its proceedings. The
Arbitral Tribunal shall not be bound by the Code of Civil Procedure or the Indian Evidence Act. The parties are free to
agree on the place of arbitration.
 An arbitrator may be challenged only if
(i) Circumstances exist that give rise to justifiable doubts as to his independence or impartiality or
(ii) He does not possess the qualifications agreed to by the parties
 The arbitral tribunal may require a party to provide appropriate security.
Features of an Arbitral Award
(a) The award should be in writing, dated, and signed by majority of the arbitrators. (Arbitral Tribunal). The reasons for
omission of the signature of other members should be specified.
(b) The awards need to quantify the award. It should be made on a stamp paper of appropriate value which value is dependent
of the quantum and the State where the award has been made.
(c) The award should contain reason, justification, evidence or the set of documents, which have been relied upon while
formulating the award and the conclusions for arriving at the pronounced award.
(d) The place of the arbitration is very crucial. It is required to be mentioned for it determines the jurisdiction of the High
Court for appeal, if opted by either party.
(e) Cost of arbitration may also be provided in the award
(f) After the award is made, a copy of the said award is required to be each party in dispute for implementation accordingly.
Enforceability of the Award
 An arbitral award shall be final and binding on the parties and persons claiming under them respectively.
Recourse to a Court against an arbitral award may be made only by an application for setting aside such
award.
Appellate provisions
 The aggrieved party may prefer an appeal to the concerned High Court.
CONCILIATION
 Conciliation is a process of persuading parties to reach agreement, and is plainly not arbitration nor is the
chairman of conciliation board an arbitrator.
 The party initiating conciliation shall send to the other party a written invitation to conciliate, briefly identifying
the subject of the dispute. If the other party rejects the invitation, there will be no conciliation proceedings. During
the conciliation proceedings, the parties shall not initiate any arbitral or judicial proceedings in respect of subject
matter of the conciliation proceedings.
 The conciliator shall assist the parties in an independent and impartial manner in their attempt to reach an
amicable settlement of their dispute. The conciliator shall be guided by principles of objectivity, fairness and
justice, giving consideration to, among other things, the rights and obligations of the parties, the usages of
the trade concerned and the circumstances surrounding the dispute, including any previous business
practices between the parties.
 In order to facilitate the conduct of the conciliation proceedings, the parties, or the conciliator with the
consent of the parties, may arrange for administrative assistance by a suitable institution or person.
Advantages
1. It offers a more flexible alternative. It is committed to maintenance of confidentiality.
2. It obviates recourse to the court system.
3. It reserves the freedom of the parties to withdraw from conciliation. The parties are however, at liberty to refer
the matter legal proceedings at any stage of the proceedings.
4. It is cost effective and produces quicker resolution of dispute. It facilitates the maintenance of continued cordial
relationship between the parties even after the settlement;
ROLE OF ARBITRAL INSTITUTIONS

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 It is for the first time under the new Act, the concept of arbitral institutions have been given recognition. When the parties
are not in a position to agree on a procedure for the appointment of arbitrators, the Chief Justice may ask any institution to
arbitrate the matter.
 For the purpose of facilitating its constituent members, every arbitration institution has model agreement containing the
arbitration clause, constitution and manner of appointment of arbitration tribunal and other related issues. If the arbitration
clause of an institution is incorporated in a contract, it will automatically provide for comprehensive set of procedures for
dispute resolution, fees of the arbitrators, place, assistance etc. that may be provided by that institution. Thereby obviating
much avoidable delay, expense and uncertainty. The institution also assist the parties to complete the pleadings,
documentations etc even before the arbitrator is appointed so that the arbitrator is able to proceed with the matter
expeditiously on receiving the well organized case material
Arbitral Institutions in India
 These institutions provide In-house facilities to arbitrate and/or arrange for arbitration through its constituent
members for resolving business and trade disputes of internal as well as international character, involving
Indian or foreign parties including Governments and Public Sector undertakings and to maintain panels of
person to act as arbitrators. Some of the prominent institutions are: -
 Indian Council of Arbitration
 International Center for Alternative Dispute Resolution
 Indian Society of Arbitrators
INTERNATIONAL COMMERCIAL ARBITRATION
 International commercial arbitration makes a significant contribution for the establishment of a unified legal
framework for the fair and efficient settlement of disputes arising in international commerce relations, where
parties seek an amicable settlement of the disputes.
 Based on the Model Law on International Commercial Arbitration adopted at the United Nations Commission on
International Trade Law (UNCITRAL), the Arbitration and Conciliation Act, 1996, inter alia provides for
enforcement of foreign arbitral. India being signatory to the UNCTRAL, the international commercial arbitration may
be held in the country, which is a signatory to either the New York Convention or the Geneva Convention.

CHAPTER 02

INDIAN CONTRACT ACT 1872

INTRODUCTION
 The Law of Contract deals with the law relating to the general principles of contract. It is the most
important part of Mercantile Law. It affects every person in one way or the other, as all of us enter
into some kind of contract everyday.
 Since this law was not happily worded, two subsequent legislations namely Indian Sale of Goods Act –
Sections 76 to 123 of the Indian Contract Act 1872 were repealed; and Partnership Act was also enacted and
Sections 239 to 266 of the Contract Act were also repealed.
What is `Contract`
 The term `Contract` is defined in Section 2(h) of the Indian Contract Act, which reads as under
“An agreement enforceable by law is a contracts.”
 The analysis of this definition shows that a contract must have the following two elements:
1. An agreement, and
2. The agreement must be enforceable by law.
 In other words:
Contract = An Agreement + Enforceability (by law)
Agreement (Section 2(e)
Every promise and every set of promises forming the consideration for each other is an agreement.
Promise (Section 2(b))
A proposal when accepted becomes a promise.
 Every agreement is not a contract. When an agreement creates some legal obligations and is
enforceable by law, it is regarded as a contract.

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IMT 11 CH. – 1 LAW & SOURCES

1.1 ESSENTIAL ELEMENTS OF CONTRACT

1. Agreement
2. Intention to create legal relationship
3. Free and genuine consent.
4. Parties competent to contract.
5. Lawful consideration.
6. Lawful object.
7. Agreement not declared void or illegal.
8. Certainty of meaning.
9. Possibility of performance.
Ex –
Where 'A' who owns 2 cars x and y wishes to sell car 'x' for Rs. 30,000. 'B', an acquaintance of 'A' does not know
that' A' owns car 'x' also. He thinks that' A' owns only car 'y' and is offering to sell the same for the stated price. He
gives his acceptance to buy the same. There is no contract because the contracting parties have not agreed on the
same thing at the same time, 'A' offering to sell his car 'x' and 'B' agreeing to buy car or'. There is no consensus-ad-
idem.
CLASSIFICATION OF CONTRACTS
1. Classification according to validity or enforceability.
a) Valid
b) Voidable
c) Void contracts or agreements
d) Illegal.
e) Unenforceable

2. Classification according to Mode of formation

(i) Express contract
(ii) Implied contract
3. Classification according to Performance
(i) Executed contract
(ii) Executory contract.
(iii) Unilateral Contract
(iv) Bilateral Contract
OFFER AND ACCEPTANCE
[Sections 3-9]
OFFER
What is `Offer/Proposal`
 A Proposal is defined as "when one person signifies to another his willingness to do or to abstain from doing
anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a
proposal." [Section 2(a)].
How an Offer is made?
 An offer can be made by
(a) any act or
(b) omission of the party proposing by which he intends to communicate such proposal or which has the effect of communicating it to the other (Section
3).

CASE EXAMPLE
In Carbolic Smoke Ball Co. 's case, the patent-medicine company advertised that it would give a reward of £100
to anyone who contracted influenza after using the smoke balls of the company for a certain period according to the
printed directions. Mrs. Carlill purchased the advertised smoke ball and contracted influenza in spite of using the
smoke ball according to the printed instructions. She claimed the reward of £100. The claim was resisted by the
company on the ground that offer was not made to her and that in any case she had not communicated her
acceptance of the offer. She filed a suit for the recovery of the reward. Held: She could recover the reward as she
had accepted the offer by complying with the terms of the offer.)
ESSENTIAL REQUIREMENTS OF A VALID OFFER
 An offer must have certain essentials in order to constitute it a valid offer. These are:
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IMT 12 CH. – 1 LAW & SOURCES

I. The offer must be made with a view to obtain acceptance.

2. The offer must be made with the intention of creating legal relations. [Balfour v. Balfour (1919) 2 K.B.57Il
1. The terms of offer must be definite, unambiguous and certain or capable of being made certain. The
terms of the offer must not be loose, vague or ambiguous.
4. An offer must be distinguished from (a) a mere declaration of intention or (b) an invitation to offer or to treat.
An auctioneer, at the time of auction, invites offers from the would-be-bidders. He is not making a proposal.
A display of goods with a price on them in a shop window is construed an invitation to offer and not an offer to
sell.
Offer vis-a-vis Invitation to offer

An offer must be distinguished from invitation to offer.

A prospectus issued by a company for subscription of its shares by the members of the public, is an
invitation to offer. The Letter of Offer issued by a company to its existing shareholders is an offer.
5. The offer must be communicated to the offeree. An offer must be communicated to the offeree before it can be
accepted. This is true of specific as sell as general offer.
6. The offer must not contain a term the non-compliance of which may be assumed to amount to acceptance.
Cross Offers
 Where two parties make identical offers to each other, in ignorance of each other's offer, the offers are known
as cross-offers and neither of the two can be called an acceptance of the other and, therefore, there is no
contract.
TERMINATION OR LAPSE OF AN OFFER
 An offer is made with a view to obtain assent thereto. As soon as the offer is accepted it becomes a contract.
But before it is accepted, it may lapse, or may be revoked. Also, the offeree may reject the offer. In these
cases, the offer will come to an end.
1) The offer lapses after stipulated or reasonable time
2) An offer lapses by the death or insanity of the offeror or the offeree before acceptance.
3) An offer terminates when rejected by the offeree.
4) An offer terminates when revoked by the offeror before acceptance.
5) An offer terminates by not being accepted in the mode prescribed, or if no mode is prescribed, in some usual
and reasonable manner.
6) A conditional offer terminates when the condition is not accepted by the offeree.
(7) Counter Offer
ACCEPTANCE
 Acceptance has been defined as "When the person to whom the proposal is made signifies his assent thereto,
the proposal is said to be accepted”.
Acceptance how made
 The offeree is deemed to have given his acceptance when he gives his assent to the proposal. The assent may
be express or implied. It is express when the acceptance has been signified either in writing, or by word of
mouth, or by performance of some required act.
Ex- A enters into a bus for going to his destination and takes a seat. From the very nature, of the circumstance,
the law will imply acceptance on the part of A.]
 In the case of a general offer, it can be accepted by anyone by complying with the terms of the offer.
ESSENTIALS OF A VALID ACCEPTANCE
1) Acceptance must be absolute and unqualified.
2) Acceptance must be communicated to the offeror.
3) Acceptance must be according to the mode prescribed.
Ex- A sends an offer to B through post in the usual course. B should make the acceptance in the "usual and
reasonable manner" as no mode of acceptance is prescribed. He may accept the offer by sending a letter,
through post, in the ordinary course, within a reasonable time.
COMMUNICATION OF OFFER, ACCEPTANCE AND REVOCATION
 As mentioned earlier that in order to be a valid offer and acceptance.
(i) the offer must be communicated to the offeree, and
(ii) the acceptance must be communicated to the offeror.
The communication of acceptance is complete:
(i) as against the proposer, when it is put into a course of transmission to him, so as to be out of the power of
the acceptor;
(ii) as against the acceptor, when it comes to the knowledge of the proposer.
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IMT 13 CH. – 1 LAW & SOURCES

Ex-
A proposes, by letter, to sell a house to B at a certain price. B accepts A's proposal by a letter sent by post. The
communication of acceptance is complete: (i) as against A, when the letter is posted by B; (ii) as against B,
when the letter is received by A.
The communication of a revocation (of an offer or an acceptance) is complete:
(1) as against the person who makes it, when it is put into a course of transmission to the person to whom it is
made, so as to be out of the power of the person who makes it.
(2) as against the person to whom it is made when it comes to his knowledge.
Ex-
A revokes his proposal by telegram. The revocation is complete as against A, when the telegram is dispatched.
It is complete as against B, when B receives it.
Revocation of proposal and acceptance:
 A proposal may be revoked at any time before the communication of its acceptance is complete as against the
proposer, but not afterwards.
Ex-
A proposes, by a letter sent by post, to sell his house to B. B accepts the proposal by a letter sent by post. A may revoke his proposal at any time before or
at the moment when B posts his letter of acceptance, but not afterwards. B may revoke his acceptance at any time before or at the moment when the letter
communicating it reaches A, but not afterwards.

CAPACITY TO CONTRACT
(Sections 10-12)
WHO ARE NOT COMPETENT TO CONTRACT
 The following are considered as incompetent to contract, in the eye of law: -
(A) LIVING PERSON
(1) Minor: -
(i) A contract with or by a minor is void and a minor, therefore, cannot, bind himself by a contract.
(ii) A minor's agreement cannot be ratified by the minor on his attaining majority.
(iii) If a minor has received any benefit under a void contract, he cannot be asked to refund the same.
(iv) A minor cannot be a partner in a partnership firm.
(v) A minor's estate is liable to a person who supplies necessaries of life to a minor.
CASE EXAMPLE
In 1903 the Privy Council in the leading case of Mohiri Bibi v. Dharmodas Ghose (190,30 Ca. 539) held that in
India minor's contracts are absolutely void and not merely voidable.
The facts of the case were:
Dharmodas Ghose, a minor, entered into a contract for borrowing a sum of Rs. 20,000 out of which the lender paid the minor a sum of Rs. 8,000. The minor
executed mortgage of property in favour of the lender. Subsequently, the minor sued for setting aside the mortgage. The Privy Council had to ascertain the
validity of the mortgage. Under Section 7 of the Transfer of Property Act, every person competent to contract is competent to mortgage. The Privy Council
decided that Sections 10 and 11 of the Indian Contract Act make the minor's contract void. The mortgagee prayed for refund of Rs. 8,000 by the minor. The
Privy Council further held that as a minor's contract is void, any money advanced to a minor cannot be recovered.

(2) Mental Incompetence

 A person is said to be of unsound mind for the purpose of making a contract, if at the time when he makes it,
he is incapable of understanding it, and of forming a rational judgement as to its effect upon his interests.
 A person, who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of
sound mind.
Ex- A patient, in a lunatic asylum, who is at intervals, of sound mind; may contract during those intervals.
A sane man, who is delirious from fever or who is so drunk that he cannot understand the terms of a contract or form a rational judgement as to its effect
on his interest, cannot contract whilst such delirium or drunkenness lasts.

(3) Incompetence through Status

(i) Alien Enemy (Political Status)
(ii) Foreign Sovereigns and Ambassadors
(iii) Company under the Companies Act or Statutory Corporation by passing Special Act of Parliament
(Corporate status)
(iv) Insolvent Persons

(B) CORPORATE
When under liquidation (under the supervision of the Court/Tribunal)

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IMT 14 CH. – 1 LAW & SOURCES

FREE CONSENT
(Sections 10; 13-22)
What is the meaning of `CONSENT` (SECTION 13)
 When two or more persons agree upon the same thing in the same sense, they are said to consent.

Ex-
A agrees to sell his Fiat Car 1983 model for Rs. 80,000. B agrees to buy the same. There is a valid

contract since A and B have consented to the same subject matter.

What is meant by `Free Consent`

 Consent is said to be free when it is not caused by
Causes affecting contract Consequences

1. Coercion Contract voidable

2. Undue influence Contract voidable

1. Fraud Contract voidable
4. Misrepresentation
Contract voidable
5. Mistake –
(i) of fact
(a) Bilateral
Void
(b) Unilateral
Generally not invalid
(ii) of Fact
Void

Ex -
(i) A railway company refuses to deliver certain goods to the consignee, except upon the payment of an illegal
charge for carriage. The consignee pays the sum charged in order to obtain the goods. He is entitled to
recover so much of the charge as was illegally excessive.
(ii) The directors of a Tramway Co. issued a prospectus stating that they had the right to run tramcars with steam
power instead of with horses as before. In fact, the Act incorporating the company provided that such power
might be used with the sanction of the Board of Trade. But, the Board of Trade refused to give permission and
the company had to be wound up. P, a shareholder sued the directors for damages for fraud. The House of
Lords held that the directors were not liable in fraud because they honestly believed what they said in the
prospectus to be true. [Derry v. Peek (1889) 14 A.C. 337].
CONSIDERATION
[Sections 2(d), 10,23-25, 148, 185]
Definition
 Consideration is what a promisor demands as the price for his promise. In simple words, it means 'something in
return.'
 Consideration has been defined as
"When at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to
do or promises to abstain from doing something, such act or abstinence or promise is called a consideration for the promise."

IMPORTANCE OF CONSIDERATION
 A promise without consideration is purely gratuitous and, however sacred and binding in honour it may be,
cannot create a legal obligation.
 A person who makes a promise to do or abstain from doing something usually does so as a return or equivalent
of some loss, damage, or inconvenience that may have been occasioned to the other party in respect of the
promise. The benefit so received and the loss, damage or inconvenience so caused is regarded in law as the
consideration for the promise.
KINDS OF CONSIDERATION
 A consideration may be:
1. Executed or Present
2. Executory or Future

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IMT 15 CH. – 1 LAW & SOURCES

LEGALITY OF OBJECT
(Sections 23, 24)
 An agreement will not be enforceable if its object or the consideration is unlawful. According to Section 23 of
the Act, the consideration and the object of an agreement are unlawful in the following cases:
What consideration and objects are unlawful – agreement VOID
1. If it is forbidden by law
2. If it is of such a nature that if permitted, it would defeat the provisions of any law.
1. If it is fraudulent. An agreement with a view to defraud other is void.
4. If it involves or implies injury to the person or property of another. If the object of an agreement is to injure
the person or property of another it is void.
5. If the Court regards it as immoral or opposed to public policy. An agreement, whose object or consideration
is immoral or is opposed to the public policy, is void.
Ex-
A partnership entered into for the purpose of doing business in arrack (local alcoholic drink) on a licence
granted only to one of the partners, is void ab-initio whether the partnership was entered into before the licence
was granted or afterwards as it involved a transfer of licence, which is forbidden and penalised by the Akbari
Act and the rules thereunder [Velu Payaychi v. Siva Sooriam, AIR (1950) Mad. 987].

VOID and VOIDABLE Agreements

(Sections 26-30)
Void agreement
1. The following are the additional grounds declaring agreements as void: -
(i) Agreements by person who are not competent to contract.
(ii) Agreements under a mutual mistake of fact material to the agreement.
(iii) Agreement with unlawful consideration.
(iv) Agreement without consideration. (Exception – if such an agreement is in writing and registered or for a past
consideration)
(v) Agreement in restraint of marriage.
(vi) Agreement in (absolute) restraint of trade
(vii) Agreements in restrain of legal proceedings,
(viii) Agreements void for uncertainty (Agreements, the meaning of which is not certain, or capable of being made
certain)
(ix) Agreements by way of wager (a promise to give money or money's worth upon the determination or
ascertainment of an uncertain event)
(x) Agreements against Public Policy
(xi) Agreements to do impossible act.
Voidable agreements
 An agreement, which has been entered into by misrepresentation, fraud, coercion is voidable, at the option of
the aggrieved party.
CONTINGENT CONTRACTS
(SECTIONS 31-36)
 A contingent contract is a contract to do or not to do something, if some event, collateral to such contract does
or does not happen.
When a contingent contract may be enforced
 Contingent contracts may be enforced when that uncertain future event has happened. If the event
becomes impossible, such contracts become void.
ESSENTIAL ELEMENTS OF A CONTINGENT CONTACT
1. There must be a valid contract.
2. The performance of the contract must be conditional.
3. The even must be uncertain.
4. The event must be collateral to the contact.
5. The event must be an act of the party.
6. The event should not be the discretion of the promisor.
QUASI CONTRACTS
[SECTIONS 68- 72]
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IMT 16 CH. – 1 LAW & SOURCES

 The term `quasi contract` may be defined as a ` contract which resembles that created by a contract.`
as a matter of fact, `quasi contract` is not a contract in the strict sense of the term, because there is no
real contract in existence. Moreover, there is no intention of the parties to enter into a contract. It is an
obligation, which the law creates in the absence of any agreement.
CIRCUMSTANCES OF QUASI CONTRACTS
 Following are to be deemed Quasi-contracts.
(i) Claim for Necessaries Supplied to a person incapable of Contracting or on his account.
(ii) Reimbursement of person paying money due by another in payment of which he is interested.
Obligation of a person enjoying benefits of non-gratuitous act.
(iii) Responsibility of Finder of Goods
(iv) Liability of person to whom money is paid, or thing delivered by mistake or under coercion
Ex-
A, who supplies the wife and children of B, a lunatic, with necessaries suitable to their conditions
in life, is entitled to be reimbursed from B's property.
PERFORMANCE OF CONTRACTS
[SECTIONS 37-67]
Offer to perform or tender of performance
 According to Section 38, if a valid offer/tender is made and is not accepted by the promisee, the promisor shall
not be responsible for non-performance nor shall he lose his rights under the contract. A tender or offer of
performance to be valid must satisfy the following conditions:
1. It must be unconditional.
2. It must be made at proper time and place, and performed in the agreed manner.
WHO MUST PERFORM
 Promisor - The promise may be performed by promisor himself, or his agent or by his legal representative.
 Agent - the promisor may employ a competent person to perform it.
 Legal Representative - In case of death of the promisor, the Legal representative must perform the promise
unless a contrary intention appears from the contract.

CONTRACTS, WHICH NEED NOT BE PERFORMED

I. If the parties mutually agree to substitute the original contract by a new one or to rescind or alter it
2. If the promisee dispenses with or remits, wholly or in part the performance of the promise made to him or
extends the time for such performance or accepts any satisfaction for it.
1. If the person, at whose option the contract is voidable, rescinds it.
4. If the promisee neglects or refuses to afford the promisor reasonable facilities for the performance of his
promise.
DISCHARGE OF CONTRACTS
[Sections 73-75]
 The cases in which a contract is discharged may be classified as follows:
A. By performance or tender
B. By mutual consent
 A contract may terminate by mutual consent in any of the following ways: -
a. Novation (substitution)
b. Recession (cancellation)
c. Alteration
C. By subsequent impossibility
D. By operation of law
E. By breach
REMEDIES FOR BREACH OF CONTRACT
(SECTIONS 73-75)
 As soon as either party commits a breach of the contract, the other party becomes entitled to any of the
following reliefs: -
a) Recession of the contract
b) Damages (monetary compensation)

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IMT 17 CH. – 1 LAW & SOURCES

c) Specific performance
d) Injunction
e) Quantum meruit
Ex –
A, a singer contracts with B, the manager of a theatre, to sing at his theatre for two nights in every week during the next two months, and B engages to
pay her Rs. 100 for each night’s performance. On the sixth night, A wilfully absents herself from the theatre and B in consequence, rescinds the contract.
B is entitled to claim compensation for the damages for which he has sustained through the non-fulfilment of the contract.

CONTRACT OF AGENCY
[SECTION 182 – 238]
Who is an `Agent`
 An agent is defined as a "person employed to do any act for another or to represent another in dealings with
third person". In other words, an agent is a person who acts in place of another. The person for whom or on
whose behalf he acts is called the Principal.
 Agency is therefore, a relation based upon an express or implied agreement whereby one person, the agent, is
authorised to act for another, his principal, in transactions with third person.
 The function of an agent is to bring about contractual relations between the principal and third parties.
WHO CAN EMPLOY AN AGENT
 Any person, who is capable to contract may appoint as agent. Thus, a minor or lunatic cannot contract through
an agent since they cannot contract themselves personally either.
WHO MAY BE AN AGENT
 In considering the contract of agency itself (i.e., the relation between principal and agent), the contractual
capacity of the agent becomes important.
HOW AGENCY IS CREATED
 A contract of agency may be created by in any of the following three ways: -
(1) Express Agency
(2) Implied Agency
(3) Agency by Estoppel
(4) Agency by Holding Out
(5) Agency of Necessity
(6) Agency By Ratification
DUTIES OF AGENT
1. To conduct the business of agency according to the principal's directions
2. The agent should conduct the business with the skill and diligence that is generally possessed by persons
engaged in similar business, except where the principal knows that the agent is wanting in skill.
3. To render proper accounts.
4. To use all reasonable diligence, in communicating with his principal, and in seeking to obtain his instructions.
5. Not to make any secret profits
6. Not to deal on his own account
7. Agent not entitled to remuneration for business misconducted.
8. An agent should not disclose confidential information supplied to him by the principal [Weld Blundell v.
Stephens (1920) AC. 1956].
9. When an agency is terminated by the principal dying or becoming of unsound mind, the agent is bound to take
on behalf of the representatives of his late principal, all reasonable steps for the protection and preservation of
the interests entrusted to him.
RIGHTS OF AN AGENT
1. Right to remuneration
2. Right Of Retainer
1. Right of Lien
4. Right of Indemnification
5. Right to compensation for injury caused by principal’s neglect
PRINCIPAL'S DUTIES TO AGENT
 A principal is:
(i) bound to indemnify the agent against the consequences of all lawful acts done by such agent in
exercise of the authority conferred upon him;
(ii) liable to indemnify an agent against the consequences of an act done in good faith.
(iii) The principal must make compensation to his agent in respect of injury caused to such agent by the

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IMT 18 CH. – 1 LAW & SOURCES

principal's neglect or want of skill.

TERMINATION OF AGENCY
1. By revocation by the Principal.
2. On the expiry of fixed period of time.
1. On the performance of the specific purpose.
4. Insanity or Death of the principal or Agent.
5. An agency shall also terminate in case subject matter is either destroyed or rendered unlawful.
6. Insolvency of the Principal. Insolvency of the principal, not of the agent, terminates the agency.
7. By renunciation of agency by the Agent.

CHAPTER 02

SALE OF GOODS ACT 1930

 Originally, the law relating to sale of goods was contained in Chapter VII of the Indian Contract Act, 1872. The
same was repealed and re-enacted by the Sale of Goods Act, III of 1930.
FORMATION OF THE CONTRACT OF SALE
Definition
(Section 4)
A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to
the buyer for price".
ESSENTIALS OF CONTRACT OF SALE
From the above definition, the following essentials of a contract of sale may by noted:
1. There must be at least two parties
2. Transfer or Agreement to transfer the ownership of goods.
3. The subject matter of the contract must necessarily be 'goods'.
4. The consideration is Price.
3. A Contract of sale may be absolute or conditional
6. All other essentials of a valid contract must be present.
`SALE` AND 'AGREEMENT TO SELL' DISTINGUISHED
Sale:
 It is a contract where the ownership in the goods is transferred by seller to the buyer immediately at the
conclusion contract. Thus, strictly speaking, sale takes place when there is a transfer of property in goods from
the seller to the buyer. A sale is an executed contract.
 It must be noted here that the payment of price is immaterial to the transfer of property in goods.
Ex -
A sells his Yamaha Motor Bicycle to B for Rs. 10,000. It is a sale since the ownership of the motorcycle has
been transferred from A to B.
Agreement to sell:
 It is a contract of sale where the transfer of property in goods is to take place at a future date or subject to some
condition thereafter to be fulfilled.
Ex-
(i) A agreed to buy from B a certain quantity of nitrate of soda. The ship carrying the nitrate of soda
was yet to arrive. This is `an agreement to sale`. In this case, the ownership of nitrate of soda is
to be to transferred to A on the arrival of the ship containing the specified goods (i.e. nitrate of
soda) [Johnson V Mcdonald (1842) 9 M & W 600, 60 RR 838]
(ii) On 1st March 1998, A agreed to sell his car to B for Rs. 80,000. It was agreed between themselves
that the ownership of the car will transfer to B on 31st March 1998 when the car is got registered in
B`s name. It is an agreement to sell and it will become sale on 31st March when the car is
registered in the name of B.
Other points of distinction between a sale and an agreement to sell are:
Sale Agreement to sell
1. A sale is an executed contract. 1. An Agreement to sell is an executory contract.
2. In an agreement to sell, in case of breach, the seller

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IMT 19 CH. – 1 LAW & SOURCES

2. In a sale, since the property has passed to the
buyer, the seller can sue the buyer for the price
of the goods.
can only sue for damages, unless the price was
payable at a stated date.
3. An agreement to sell creates a right in personam.
4. The loss in this case shall be borne by the seller,
even though the goods are in the possession of the
buyer.

5. In these circumstances, the buyer cannot claim the

3. A sale creates a right in rem.
4. In case of loss of goods, the loss will fall on the
buyer, even though the goods are in the possession
of the seller. It is because 'Risk' is associated with
ownership.
3. In case buyer pays the price and the seller
goods but only a rateable dividend for the money
paid.
6. In these circumstances, the seller can refuse to
deliver the goods to the Official Assignee or Re-
ceiver.

thereafter becomes an insolvent, the buyer can

claim the goods from the Official Receiver or

Assignee.

6. If the buyer becomes an insolvent without paying the

price, the ownership having passed to the buyer, the
seller shall have to deliver the goods to the Official
Assignee or Receiver except where he has a lien
over the goods.
Sale and Hire Purchase Agreement
Hire Purchase Agreement
 It is an agreement for hire, with an option to purchase.
 The hirer, under this agreement, is required to pay every month a particular sum of money, and if he pays
in that way for a fixed number of months, the hirer will become the owner of the goods on the payment of
the last instalment.
 But, if the hirer fails to pay any particular instalment, the owner can terminate the contract and take away
the goods, because the ownership continues to remain in the owner. A "Hire-purchase agreement" is
distinct from "Sale" in which price is payable by instalments
 A 'Hire-purchase agreement,' does not result in passing of the property unless the option to purchase is
exercised, usually by payment of all the instalments. Till such time, it constitutes bailment.
Sale
 ln case of sale, the property passes as soon as sale is made though price has not been fully paid.
 In determining as to whether a particular contract belongs to one type or the other, regard shall have to be paid
to the fact whether the hirer has merely an option to purchase, or whether he has bought or agreed to buy the
goods.
3.2 GOODS
Definition of `GOODS` under the Act
 'Goods' means every kind of moveable property and includes stock and shares, growing crops, grass, and
things attached to or forming part of the land, which are agreed to be severed before sale or under the contract
of sale.
 Thus, goods include every kind of moveable property other than actionable claim or money. Example -
goodwill, copyright, trademark, patents, water, gas, and electricity are all goods and may be the subject matter
of a contract of sale.
 The TEST IS - if the property on shifting its situation, does not lose its character, the said property shall be
movable and fall within the definition of `Goods`.
CLASSIFICATION OF GOODS
Goods may be classified into:
1. Existing Goods - Existing goods are those, which are owned or possessed by the seller at the time of the
contract. Instances of sale of goods possessed but not owned by the sellers fire sales by agents and pledgees.
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IMT 20 CH. – 1 LAW & SOURCES

Existing goods may be either:

(a) Specific and Ascertained - goods identified and agreed upon at the time a contract of sale is made; or
(b) Generic and Unascertained - goods arc goods indicated by description and not specifically identified.
2. Future Goods - Future goods" means goods to be manufactured or produced or acquired by the seller after
making the contract of sale.
3. Contingent Goods - Contingent goods are the goods the acquisition of which by the seller depends upon a
contingency which mayor may not happen. Contingent goods are a part of future goods.
3.3 PRICE
 'Price' means the money consideration for sale of the goods. 'Price' is an integral part of a contract of sale. If it
is not fixed or is not capable of being fixed, the whole contract is void ab-initio.
 The price may be fixed
(I) by the contract or
(II) may be agreed to be fixed in a manner provided by the contract, e.g., by a valuer, or
(III) it may be determined by the course of dealings between the parties.
(IV) in case, price is not capable of being fixed in any of the above ways, the buyer is bound to pay
reasonable price. What is reasonable price will vary from case to case.
5.4 CONDITIONS AND WARRANTIES
[Sections 11-17]
 In a contract of sale, parties make certain stipulations, i.e., agree to certain terms. Some of them may be
intended by the parties to be of a fundamental nature, e.g., quality of the goods to be supplied. The stipulation
essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as
repudiated. Such stipulations are known as `Conditions`.
 In contrast, some may be intended by the parties to be binding, but of a subsidiary or inferior character, e.g.,
time of payment. Thus, stipulation collateral to the main purpose of the contract, the breach of which gives rise
to a claim for damages but not to a right to reject the goods. Here the stipulations are known as `warranties'.
DISTINCTION BETWEEN 'CONDITION' AND 'WARRANTY'
Condition Warranty
1. A condition is a stipulation (in a contract), which is 1. A warranty is a stipulation, which is only collateral or
essential to the main purpose of the contract. subsidiary to the main purpose of the contract.
2. A breach of condition gives the aggrieved party a 2. A breach of warranty gives only the right to sue for
right to sue for damages as well as the right to damages. The contract cannot be repudiated.
repudiate the contract. 
3. A breach of condition may be treated as a breach of 3. A breach of warranty cannot be treated as a breach
warranty in certain circumstances. of condition.
Ex-
A man buys a particular horse, which is warranted quiet to ride and drive. If the horse turns out to be vicious, the
buyer's only remedy is to claim damages. But if instead of buying a particular horse, a man asks a dealer to supply
him with a quiet horse and the horse turns out to be vicious, the stipulation is a condition and the buyer can reject
the horse, or keep the horse and claim damages.
WHEN CONDITION TO BE TREATED AS WARRANTY
[SECTION 13]
 Under the following 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:
1. Waiver of Condition
2. Compulsory treatment of breach of condition as breach of Warranty.
EXPRESS AND IMPLIED CONDITIONS AND WARRANTIES
 Conditions and Warranties may be either express or implied. They are said to be "express" when the terms of
the contract expressly provide for them. They are said to be 'implied' when the law deems their existence in
the contract even without their actually having been put in the contract.
(A) IMPLIED CONDITIONS
 The following are the implied conditions
(1) Condition as to Title
(2) Sale by Description
(3) Condition as to Quality or Fitness
(4) Merchantable Quality

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IMT 21 CH. – 1 LAW & SOURCES

Sale by sample - A contract of sale is a contract for sale by sample where there is a term in the contract, express or
implied, to that effect.
 In a sale by sample, the following are the implied conditions:
1. The bulk shall correspond with the sample in quality;
2. That the buyer shall have a reasonable opportunity of comparing the bulk with the sample; and
3. That the goods shall be free from any defects rendering them unmerchantable, which would not be apparent on reasonable examination of the
sample.

Ex-
(i) Certain shoes were sold by sample for the French Army. The shoes were found to contain paper not
discoverable by ordinary inspection. Held, the buyer was entitled to the refund of price plus damages.
(ii) In a contract for the sale of brandy by sample, the brandy that was supplied had been coloured with a dye.
Held, the buyer was not bound by the contract, though the bulk corresponded with sample, since the defect
could not have been located on reasonable examination of the sample [Mody v. Gregson (1868) L.R.4Ex. 49.].
(B) IMPLIED WARRANTIES
 There are two implied warranties. These are:
1. Warranty of Quiet Possession
2. Warranty of Freedom from Encumbrances
Ex –
A purchased a second hand typewriter from B. A used it for sometime and also spend some money on its
repairs. The typewriter turned out to be stolen one and as such A had to return it to the true owner. It was held
that A could recover damages from B amounting to the price paid and the cost of repair [Mason v.
Burmingham (1949) 2 KB 545]
3.5 DOCTRINE OF CAVEAT EMPTOR
 Caveat Emptor is a fundamental principle of the law of sale of goods. It means "Caution Buyer", i.e. "Let the
buyer beware".
 In other words, it is not the duty of the seller's duty to point out defects of his own goods. The buyer must
inspect the goods to find out if they will suit his purpose.
Ex-
Pigs were sold "subject to all faults", and these pigs, being infected, caused typhoid to other healthy pigs of the
buyer, it was held that the seller was not bound to disclose that the pigs were unhealthy. The rule of the law being
'Caveat Emptor'. [Goddard v. Hobbs 1878, 4 App. Cas. 13].
Exceptions
1. Where the seller makes a false representation and buyer relies on that representation. The rule of "Caveat
Emptor" will not apply and the buyer will be entitled to the goods according to that representation;
2. Where the seller actively conceals a defect in the goods, so that on a reasonable examination the same
could not be discovered;
3. Where the buyer makes known to the seller the purpose for which he is buying the goods, and the seller
happens to be a person whose business is to sell goods of that description, then there is an implied condition
that the goods shall be reasonably fit for such purpose. The rule of Caveat Emptor will not apply;
4. In case of sale by description, there is implied condition as to their being of merchantable quality. However, if
the buyer has examined the goods, this condition of "merchantability" extends only to hidden or latent defects.
The defects, which such examination ought to have revealed, are not covered, i.e., the rule of Caveat Emptor
will be applicable.
Ex -
In Donoghue v. Stevenson (the `snail in the ginger-beer `case) it was held that manufacturers owed a duty to
the ultimate consumer to take care in making their goods where there is no likelihood of their being examined
before they reach the ultimate consumer.
3.6 TRANSFER OF TITLE BY NON-OWNERS
[Sections 27-30]
 The general rule is that only the owner of goods can transfer a good title. No one can give a better title than he
himself has. This rule is expressed by the maxim "Nemo dat quod non habet" which means "that no one can
give what he himself has not"
 If the seller, therefore, has no title, or a defective title, the buyer's title will be equally wanting or defective as the
case may be, though he may be a purchaser - bonafide and for value.
Ex-
A finds a ring of B and sells it to a third person who purchases it for value and in good faith. The true owner,
i.e., B can recover from that person, for A having no title could pass none the better. [Faruquaharson v. King
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IMT 22 CH. – 1 LAW & SOURCES

(1902) A.C. 323.).

Exceptions to the Rule
1. Sale by Mercantile Agent
2. Sale by a Joint-owner
3. Sale by a Person in Possession under a Voidable Contract
4. Sale by the Seller in Possession of Goods after Sale
3. Sale by an unpaid
DUTIES OF THE SELLER AND BUYER
Duty of the seller
a) To deliver the goods, in accordance with the terms of the contract of sale.
b) Delivery and payment of price are concurrent conditions.
c) The seller of goods has the duty of giving delivery according to the terms of the contract.
Duty of the buyer
a) Pay for the goods;
b) Accept delivery; and
c) Pay compensation to the seller in case he wrongfully refuses to accept delivery.
DELIVERY
 It has been defined as a voluntary transfer of possession from one person to another..
 Delivery of the goods may, be:
I. Physical or Actual Delivery
2. Symbolic Delivery - e.g., delivery of a railway receipt properly endorsed, or delivery of the key of a warehouse;
3. Constructive Delivery or Attornment - only an acknowledgement by the person in possession that he holds
them on behalf of another.

3.7 UNPAID SELLER AND HIS RIGHTS

 A contract is comprised of reciprocal promises, in a contract of sale, if seller is under an obligation to deliver
goods; buyer has to pay for it. In case buyer fails or refuses to pay, the seller, as an unpaid seller, shall have
certain rights.
Who is an unpaid seller
 An unpaid seller of goods is a person who has not been paid the whole of the price or to whom the whole of the
price has not been tendered. The term "seller" includes an agent of the seller.
 The seller of goods is deemed to be an "unpaid seller" if:
(a) the whole of the price, has not been paid or tendered;
(b) when a bill of exchange or other negotiable instrument has been received as conditional payment, and the
condition on which it was received has not been fulfilled by reason of the dishonour of the instrument or
otherwise.
Rights of an unpaid seller
 Rights of an unpaid seller may broadly be classified under two heads namely:
1. Rights against goods
 An unpaid seller has the following rights against the goods:
(a) Lien on the goods
(b) A right of stoppage in transit
(c) A right of re-sale
2. Rights Against the Buyer Personally
 An unpaid seller, besides his rights against goods, has the following rights against the buyer personally:
(i) Right to sue for the price; and
(ii) the right to sue the buyer for damages for non-acceptance.

LECTURES BY PROF.(Dr.) S N GHOSH