Marathon Notes of SOGA, LLP (Inc. Mind Maps and Section Revision)

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Unit 1 Overview
5
Formation of the Contract of Sale
Introduction
Sale of goods is one of the specific forms of contracts

recognized and regulated by law in India. Sale is a typical
bargain between the buyer and the seller. The Sale of
Goods Act, 1930 allows the parties to modify the provisions
of the law by express stipulations. However, in some places
this freedom is severely restricted.
Introduction
Sale of Goods Act, 1930 is the Act to define and amend the
law relating to the sale of goods. It extends to the whole of
India except the State of Jammu and Kashmir. It came into
force on 1st July, 1930.
DEFINITIONS
The Sale of Goods Act, 1930 defines the terms which have
been frequently used in the Act, which are as follows
(A) Buyer and Seller: ‘Buyer’ means a person who

buys or agrees to buy goods [Section 2(1)]. ‘Seller’ means a
person who sells or agrees to sell goods [Section 2(13)]. The
two terms, ‘buyer’ and‘seller’ are complementary and
represent the two parties to a contract of sale of goods.
Both the terms are, however, used in a sense wider than
their common meaning. Not only the person who buys but
also the one who agrees to buy is a buyer. Similarly, a
‘seller’ means not only a person who sells but also a
person who agrees to sell.
9
DEFINITIONS
(B) Goods and other related terms:
“Goods” means every kind of movable property other than

actionable claims and money; 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. [Section 2(7)]
DEFINITIONS
(B) Goods and other related terms:
This is a wider definition than contained in the English law,

which does not consider ‘stock’ and ‘shares’ as goods,
though it includes a ship.
‘Actionable claims’ are claims, which can be enforced only

by an action or suit, e.g., debt. A debt is not a movable
property or goods. Even the Fixed Deposit Receipts (FDR)
are considered as goods under Section 176 of the Indian
Contract Act read with Section 2(7) of the Sales of Goods
Act.
DEFINITIONS
Goods : “Goods” means every kind of movable property, Sale and
Purchase of immovable property is not covered in this act
Includes Excludes
1. Old Rare antique Coins

2. All movable properties 1. Money
3. Stocks/Shares/FDRs 2. Immovable Property
4. growing crops, grass, and things 3. Actionable Claims
attached to or forming part of the Eg BOE
land
5.Wate, Gas, Electricity
6. Goodwill,Patent,Trademark,
copyright
13
Classification of Goods
(i) EXISTING GOODS are such goods as are in

existence at the time of the contract of sale, i.e., those
owned or possessed by the seller at the time of contract of
sale (Section 6).
The existing goods may be of following kinds:
(a) Specific goods means goods identified and agreed

upon at the time a contract of sale is made [Section 2(14)].
Example 1: Any specified and finally decided goods like a

Samsung Galaxy S7 Edge, Whirlpool washing machine of 7
kg etc.
Example 2: ‘A’ had five cars of different models. He agreed

to sell his ‘fiat’ car to ‘B’ and ‘B’ agreed to purchase the
same car. In this case, the sale is for specific goods as the
car has been identified and agreed at the time of the
contract of sale.
(b) Ascertained Goods are those goods which are

identified in accordance with the agreement after the
contract of sale is made. This term is not defined in the
Act but has been judicially interpreted. In actual practice
the term ‘ascertained goods’ is used in the same sense as
‘specific goods.’ When from a lot or out of large quantity of
unascertained goods, the number or quantity contracted
for is identified, such identified goods are called
ascertained goods.
Example: A wholesaler of cotton has 100 bales in his

godown. He agrees to sell 50 bales and these bales were
selected and set aside. On selection the goods becomes
ascertained. In this case, the contract is for the sale of
ascertained goods, as the cotton bales to be sold are
identified and agreed after the formation of the contract. It
may be noted that before the ascertainment of the goods,
the contract was for the sale of unascertained goods.
(c) Unascertained goods are the goods which are not

specifically identified or ascertained at the time of making
of the contract. They are indicated or defined only by
description or sample.
Example: If A agrees to sell to B one packet of salt out of

the lot of one hundred packets lying in his shop, it is a sale
of unascertained goods because it is not known which
packet is to be delivered. As soon as a particular packet is
separated from the lot, it becomes ascertained or specific
goods.
(ii) FUTURE GOODS means goods to be

manufactured or produced or acquired by the seller after
making the contract of sale [Section 2 (6)].
A contract for the sale of future goods is always an

agreement to sell. It is never actual sale because a man
cannot transfer what is not in existence.
Example 1: 1,000 quintals of potatoes to be grown on A’s

field, is not illegal, though the actual sale of future goods is
not possible. This is an example of agreement to sell.
Example 2: P agrees to sell to Q all the milk that his cow

may yield during the coming year. This is a contract for the
sale of future goods.
Example 3: T agrees to sell to S all the oranges which will

be produced in his garden this year. It is contract of sale of
future goods, amounting to ‘an agreement to sell.’
(iii) CONTINGENT GOODS: The acquisition of which by

the seller depends upon an uncertain contingency
(uncertain event) are called ‘contingent goods’ [Section
6(2)].
Contingent goods also operate as ‘an agreement to sell’

and not a ‘sale’ so far as the question of passing of
property to the buyer is concerned. In other words, like the
future goods, in the case of contingent goods also, the
property does not pass to the buyer at the time of making
the contract.
Example: A agrees to sell to B a Picasso painting provided

he is able to purchase it from its present owner. This is a
contract for the sale of contingent goods.
Types of Goods
Existing Goods Future Goods Contingent Goods
1. These are such goods as are 1. Goods to be manufactured

in existence at the time of the 1. Goods which does not exist at
or produced or acquired.eg. the time of contract of sale
contract of sale. Furniture
2.Sale of these goods depends
2. Those owned or possessed 2. Not in Possession of Seller on happening or non happening
by the seller at the time of
Eg. Jwellery of uncertain event.
contract of sale
23
(C) Delivery - its forms and derivatives: Delivery

means voluntary transfer of possession from one person to
another [Section 2(2)]. As a general rule, delivery of goods
may be made by doing anything, which has the effect of
putting the goods in the possession of the buyer, or any
person authorized to hold them on his behalf.
Forms of delivery: Following are the kinds of delivery for

transfer of possession:
Delivery of goods Voluntary transfer of possession by one person to another
Actual Constructive Symbolic

delivery delivery delivery
(i) Actual delivery: When the goods are physically

delivered to the buyer.
(ii) Constructive delivery: When it is elected without

any change in the custody or actual possession of the thing
as in the case of delivery by attornment
(acknowledgement) e.g., where a warehouseman holding
the goods of A agrees to hold them on behalf of B, at A’s
request.
(iii) Symbolic delivery: When there is a delivery of a

thing in token of a transfer of something else, i.e., delivery
of goods in the course of transit may be made by handing
over documents of title to goods, like bill of lading or
railway receipt or delivery orders or the key of a warehouse
containing the goods is handed over to buyer.
27
Goods are said to be in a deliverable state when they are in

such a condition that the buyer would, under the contract,
be bound to take delivery of them [Section 2(3)].
For example, when A contracts to sell timber and make

bundles thereof, the goods will be in a deliverable state
after A has put the goods in such a condition.
(D) “Document of title to goods” includes bill of

lading, dock-warrant, warehouse keeper’s certificate,
wharfingers’ certificate, railway receipt, multimodal
transport document, warrant or order for the delivery of
goods and any other document used in the ordinary course
of business as proof of the possession or control of goods
or authorizing or purporting to authorize, either by
endorsement or by delivery, the possessor of the document
to transfer or receive goods thereby represented. [Section
2(4)]
Examples: Bill of lading, dock warrant, warehouse keeper’s

certificate, wharfinger’s certificate, railway receipt, warrant,
an order of delivery of goods. The list is only illustrative
and not exhaustive. Any other document which has the
above characteristics also will fall under the same
category. Though a bill of lading is a document of title, a
mate’s receipt is not; it is regarded at law as merely an
acknowledgement for the receipt of goods. A document
amounts to a document of title only where it shows an
unconditional undertaking to deliver the goods to the
holder of the document.
Great Britain INDIA
Sales Agent
Sales Agent
Seller Buyer
31
32
However, there is a difference between a ‘document

showing title’ and ‘document of title’. A share certificate is
a ‘document’ showing title but not a document of title. It
merely shows that the person named in the share
certificate is entitled to the share represented by it, but it
does not allow that person to transfer the share mentioned
therein by mere endorsement on the back of the certificate
and the delivery of the certificate.
(E) Mercantile Agent [Section 2(9)]: It means an

agent having in the customary course of business as such
agent authority either to sell goods or to consign goods for
the purpose of sale or to buy goods or to raise money on
the security of the goods.
Examples of such kind of agents are auctioneers, factors,

brokers, etc.
(F) Property [Section 2(11)]: ‘Property’ here means

‘ownership’ or general property. In every contract of sale,
the ownership of goods must be transferred by the seller
to the buyer, or there should be an agreement by the seller
to transfer the ownership to the buyer. It means the
general property (right of ownership-in-goods) and not
merely a special property.
The property in the goods means the general property i.e.,

all ownership right of the goods. Note that the ‘general
property’ in goods is to be distinguished from a ‘special
property’. It is quite possible that the general property in a
thing may be in one person and a special property in the
same thing maybe in another e.g., when an article is
pledged. The general property in a thing may be
transferred, subject to the special property continuing to
remain with another person i.e., the pledgee who has a
right to retain the goods pledged till payment of the
stipulated dues.
Example: If A who owns certain goods pledges them to B, A

has general property in the goods, whereas B has special
property or interest in the goods to the extent of the
amount of advance he has made.
(G) Insolvent [Section 2(8)]: A person is said to be

insolvent when he ceases to pay his debts in the ordinary
course of business, or cannot pay his debts as they
become due, whether he has committed an act of
insolvency or not.
(H) Price [Section 2(10)]: Price means the money

consideration for a sale of goods.
(I) Quality of goods includes their state or condition.

[Section 2(12)]
Sale and Agreement to Sell (Section 4)
According to section 4(1), “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 a price”. There may
be a contract of sale between one part- owner and
another.
A contract of sale may be absolute or conditional. [Section

4(2)]
Sale and Agreement to Sell (Section 4)
Where under a contract of sale the property in the goods is

transferred from the seller to the buyer, the contract is
called a sale, but where the transfer of the property in the
goods is to take place at a future time or subject to some
condition thereafter to be fulfilled, the contract is called
an agreement to sell. [Section 4(3)]
An agreement to sell becomes a sale when the time

elapses or the conditions are fulfilled subject to which the
property in the goods is to be transferred. [Section 4(4)]
Analysis
A contract for the sale of goods may be either sale or

agreement to sell
42
Analysis
Sale: In Sale, the property in goods is transferred from

seller to the buyer immediately. The term sale is defined in
the Section 4(3) of the Sale of Goods Act, 1930 as – “where
under a contract of sale the property in the goods is
transferred from the seller to the buyer, the contract is
called a sale.”
Analysis
Agreement to Sell: In an agreement to sell, the ownership

of the goods is not transferred immediately. It is
intending to transfer at a future date upon the completion
of certain conditions thereon. The term is defined in
Section 4(3) of the Sale of Goods Act, 1930, as – “where
the transfer of the property in the goods is to take place at
a future time or subject to some condition thereafter to be
fulfilled, the contract is called an agreement to sell.”
Analysis
Thus, whether a contract of sale of goods is an absolute

sale or an agreement to sell, depends on the fact whether
it contemplates immediate transfer from the seller to the
buyer or the transfer is to take place at a future date.
Analysis
When agreement to sell becomes sale: An agreement to sell

becomes a sale when the time elapses or the conditions are
fulfilled subject to which the property in the goods is to be
transferred.
Analysis
The following elements must coexist so as to constitute a

contract of sale of goods under the Sale of Goods Act, 1930:
(i) There must be at least two parties, the seller and the
buyer.
(ii) The subject matter of the contract must necessarily be

goods covering only movable property. It may be either existing
goods, owned or possessed by the seller or future goods.
Analysis
(iii) A price in money (not in kind) should be paid or

promised. But there is nothing to prevent the consideration from
being partly in money and partly in kind.
(iv) A transfer of property in goods from seller to the buyer

must take place. The contract of sale is made by an ouer to buy
or sell goods for a price by one party and the acceptance of
such ouer by other.
Analysis
(v) A contract of sale may be absolute or conditional.
(vi) All other essential elements of a valid contract must

be present in the contract of sale, e.g. competency of parties,
legality of object and consideration etc.
Distinction between Sale and an Agreement

to Sell
The differences between the two are as follows
Basis of Sale Agreement to sell
difference
Transfer of The property in the Property in the goods

property goods passes to the passes to the buyer on
buyer immediately. future date or on
fulfilment of some
condition.
Nature of It is an executed It is an executory

contract contract. i.e. contract contract. i.e. contract
for which for which
consideration has consideration is to be
been paid. paid at a future date.

to Sell
difference
Remedies for The seller can sue the The aggrieved party
breach buyer for the price of can sue for damages
the goods because of only and not for the
the passing of the price, unless the price
property therein to the was payable at a
buyer. stated date.
Liability of A subsequent loss or Such loss or

parties destruction of the destruction is the
goods is the liability of liability of the seller.
the buyer.

to Sell
difference
Burden of risk Risk of loss is that of Risk of loss is that of

buyer since risk seller.
follows ownership.
Nature of Creates Jus in rem Creates Jus in

rights personam
Right of resale The seller cannot resell The seller may sell the
the goods. goods since ownership
is with the seller.
SALE Hire Purchase
53
Sale Distinguished from other Similar

Contracts
(i) Sale and Hire Purchase: Contract of sale resembles
with contracts of hire purchase very closely, and indeed the real
object of a contract of hire purchase is the sale of the goods
ultimately.
Hire purchase agreements are governed by the Hire-purchase

Act, 1972. Term “hire-purchase agreement” means an agreement
under which goods are let on hire and under which the hirer has
an option to purchase them in accordance with the terms of the
agreement and includes an agreement under which

Contracts
(a) Possession of goods is delivered by the owner thereof
to a person on condition that such person pays the agreed
amount in periodical instalments, and
(b) The property in the goods is to pass to such person on

the payment of the last of such instalments, and
(c) Such person has a right to terminate the agreement at

any time before the property so passes; None the less a sale has
to be distinguished from a hire purchase as their legal incidents
are quite different.

Contracts
The main points of distinction between the ‘sale’ and ‘hire-
purchase’ are as follows:
Basis of Sale Hire- Purchase

difference
Time of Property in the The property in
passing goods is goods passes to
property transferred to the the hirer upon
buyer immediately payment of the
at the time of last installment.
contract.
Position of The position of the The position of the


Contracts

difference
Termination The buyer cannot The hirer may, if

of contract terminate the he so likes,
contract and is terminate the
bound to pay the contract by
price of the goods. returning the
goods to its owner
without any
liability to pay the

Contracts

difference
Burden of The seller takes The owner takes
Risk of the risk of any loss no such risk, for if
insolvency resulting from the the hirer fails to
of the insolvency of the pay an
buyer buyer. installment, the
owner has right to
take back the
goods.

Contracts
difference
Transfer of title The buyer can The hirer cannot

pass a good pass any title even
title to a bona to a bona fide
fide purchaser purchaser.
from him.
Resale The buyer in The hire purchaser

sale can resell cannot resell
the goods unless he has paid
all the
installments.

Contracts
(ii) Sale and Bailment: A ‘bailment’ is the delivery of goods
for some specific purpose under a contract on the condition that
the same goods are to be returned to the bailor or are to be
disposed ou according to the directions of the bailor. Provisions
related to bailment are regulated by the Indian Contract Act,
1872.

Contracts
The difference between bailment and sale may be clearly
understood by studying the following
Basis of Sale Bailment

difference
Transfer of The property in goods There is only transfer

property is transferred from the of possession of goods
seller to the buyer.
from the bailor to the
bailee for any of the
reasons like safe
custody, carriage etc.

Contracts

difference
Return of The return of goods in The bailee must return

goods contract of sale is not the goods to the bailor
possible. on the accomplishment
of the purpose for
which the bailment
was made.

Contracts

difference
Consideration The consideration is The consideration may

the price in terms of be gratuitous or non-
money. gratuitous.

Contracts
(iii) Sale and contract for work and labour: A contract of
sale of goods is one in which some goods are sold or are to be
sold for a price. But where no goods are sold, and there is only
the doing or rendering of some work of labour, then the contract
is only of work and labour and not of sale of goods.
Example: Where gold is supplied to a goldsmith for preparing an

ornament or when an artist is asked to paint a picture.
Contract of Sale How Made (Section 5)
According to section 5(1), a contract of sale is made by an ouer

to buy or sell goods for a price and the acceptance of such ouer.
The contract may provide for the immediate delivery of the
goods or immediate payment of the price or both, or for the
delivery or payment by instalments, or that the delivery or
payment or both shall be postponed.
Further, as per sub-section (2) of section 5, subject to the

provisions of any law for the time being in force, a contract of
sale may be made in writing or by word of mouth, or partly in
writing and partly by word of mouth or may be implied from the
conduct of the parties.
Analysis
A contract of sale may be made in any of the following modes:
(i) Contract of sale is made by an ouer to buy or sell

goods for a price and acceptance of such ouer.
(ii) There may be immediate delivery of the goods; or
(iii) There may be immediate payment of price, but it may

be agreed that the delivery is to be made at some future date; or
Analysis
A contract of sale may be made in any of the following modes:
(iv) There may be immediate delivery of the goods and an

immediate payment of price; or
(v) It may be agreed that the delivery or payment or both

are to be made in installments; or
(vi) It may be agreed that the delivery or payment or both

are to be made at some future date.
Goods
Subject Matter of Contract of Sale

Existing or Future Goods (Section 6)
(1) The goods which form the subject of a contract of sale
may be either existing goods, owned or possessed by the seller,
or future goods.
(2) There may be a contract for the sale of goods the

acquisition of which by the seller depends upon a contingency
which may or may not happen.
Example: A contract for sale of certain cloth to be manufactured

by a certain mill is a valid contract. Such contacts are called
contingent contracts.
(3) Where by a contract of sale the seller purports to

euect a present sale of future goods, the contract operates as
an agreement to sell the goods.
69
Goods Perishing
Goods perishing before making of contract

(Section 7):
Goods perishing before making of contract (Section 7): Where
there is a contract for the sale of specific goods, the contract is
void if the goods without the knowledge of the seller have, at
the time when the contract was made, perished or become so
damaged as no longer to answer to their description contract.
Example: A agrees to sell B 50 bags of wheat stored in the A’s

godown. Due to water logging, all the goods stored in the
godown were destroyed. At the time of agreement, neither
parties were aware of the fact. The agreement is void.
Goods Perishing
Goods perishing before sale but after

agreement to sell
Goods perishing before sale but after agreement to sell
(Section 8): Where there is an agreement to sell specific goods,

and subsequently the goods without any fault on the part of the
seller or buyer perish or become so damaged as no longer to
answer to their description in the agreement before the risk
passes to the buyer, the agreement is thereby avoided.
Price
Ascertainment of Price (Section 9 & 10)

Ascertainment of Price (Section 9)
(1) The price in a contract of sale may be fixed by the
contract or may be left to be fixed in manner thereby agreed or
may be determined by the course of dealing between the
parties.
(2) Where the price is not determined in accordance with

the foregoing provisions, the buyer shall pay the seller a
reasonable price. What is a reasonable price is a question of fact
dependent on the circumstances of each particular case.
Price
Analysis
‘Price’ means the monetary consideration for sale of goods

[Section 2 (10)]. By virtue of Section 9, the price in the contract
of sale may be
(1) fixed by the contract, or
(2) agreed to be fixed in a manner provided by the

contract, e.g., by a valuer, or
(3) determined by the course of dealings between the

parties.
Price
Agreement to sell at valuation

(Section 10)
(1) Where there is an agreement to sell goods on the
terms that the price is to be fixed by the valuation of third party
and such third party cannot or does not make such valuation,
the agreements is thereby avoided:
Price
Agreement to sell at valuation

(Section 10)
Provided that, if the goods or any part thereof have been
delivered to, and appropriated by, the buyer, he shall pay a
reasonable price therefore.
(2) Where such third party is prevented from making the

valuation by the fault of the seller or buyer, the party not in
fault may maintain a suit for damages against the party in
default.
Price
Analysis
Section 10 provides for the determination of price by a third

party. Where there is an agreement to sell goods on the terms
that price has to be fixed by the third party and he either does
not or cannot make such valuation, the agreement will be void.
In case the third party is prevented by the default of either party
from fixing the price, the party at fault will be liable to the
damages to the other party who is not at fault. However, a buyer
who has received and appropriated the goods must pay a
reasonable price for them in any eventuality.
Price
Analysis
Example: P is having two bikes. He agrees to sell both of the

bikes to S at a price to be fixed by the Q. He gives delivery of
one bike immediately. Q refuses to fix the price. As such P ask S
to return the bike already delivered while S claims for the
delivery of the second bike too. In the given instance buyer S
shall pay reasonable price to P for the bike already taken. As
regards the Second bike, the contract can be avoided.
Conditions & Warranties
Unit Overview
Stipulation as to Time (Section

11)
Stipulations as to time: Unless a different intention
appears from the terms of the contract, stipulations as to
time of payment are not deemed to be of the essence of a
contract of sale. Whether any other stipulation as to time
is of the essence of the contract or not depends on the
terms of the contract.
Analysis
As regard time for the payment of price, unless a different

intention appears from the terms of contract, stipulation
as regard this, is not deemed to be of the essence of a
contract of sale. But delivery of goods must be made
without delay. Whether or not such a stipulation is of the
essence of a contract depends on the terms agreed upon.
Analysis
Price for goods may be fixed by the contract or may be

agreed to be fixed later on in a specific manner.
Stipulations as to time of delivery are usually the essence
of the contract.
Introduction - Conditions and

Warranties
At the time of selling the goods, a seller usually makes
certain statements or representations with a view to
induce the intending buyer to purchase the goods. Such
representations are generally about the nature and quality
of goods, and about their fitness for buyer’s purpose.

Warranties
When these statements or representations do not form a
part of the contract of sale, they are not relevant and have
no legal effects on the contract. But when these form part
of the contract of sale and the buyer relies upon them,
they are relevant and have legal effects on the contract.
Analysis
Price for goods may be fixed by the contract or may be

agreed to be fixed later on in a specific manner.
Stipulations as to time of delivery are usually the essence
of the contract.

Warranties
Condition and warranty (Section 12): A stipulation in a
contract of sale with reference to goods which are the
subject thereof may be a condition or a warranty. [Sub-
section (1)]
“A condition is a stipulation essential to the main purpose

of the contract, the breach of which gives rise to a right to
treat the contract as repudiated”. [Sub-section (2)]

Warranties
“A warranty is a 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 and treat
the contract as repudiated”. [Sub-section (3)]
Whether a stipulation in a contract of sale is a condition or

a warranty depends in each case on the construction of
the contract. A stipulation may be a condition, though
called a warranty in the contract. [Sub-section (4)]

Warranties
Example: Ram consults Shyam, a motor-car dealer for a
car suitable for touring purposes to promote the sale of his
product. Shyam suggests Maruti’ and Ram accordingly buys
it from Shyam. The car turns out to be unfit for touring
purposes. Here the term that the ‘car should be suitable
for touring purposes’ is a condition of the contract. It is so
vital that its non-fulfilment defeats the very purpose for
which Ram purchases the car. Ram is therefore entitled to
reject the car and have refund of the price.

Warranties
Let us assume Ram buys a new Maruti car from the
showroom and the car is guaranteed against any
manufacturing defect under normal usage for a period of
one year from the date of original purchase and in the
event of any manufacturing defect there is a warranty for
replacement of defective part if it cannot be properly
repaired.

Warranties
After six months Ram finds that the horn of the car is not
working, here in this case he cannot terminate the
contract. The manufacturer can either get it repaired or
replaced it with a new horn. Ram gets a right to claim for
damages, if any, suffered by him but not the right of
repudiation.

Warranties
Difference between conditions and warranties:
The following are important differences between conditions and

warranties.
Point of Condition Warranty

differences
Meaning A condition is It is only collateral

essential to the main to the main purpose
purpose of the of the contract.
contract.

Warranties

warranties.

differences
Right in case of The aggrieved party The aggrieved party

breach can repudiate the can claim only
contract or claim damages in case of
damages or both in breach of warranty.
the case of breach
of condition.

Warranties

warranties.

differences
Conversion of A breach of A breach of warranty

stipulations condition may be cannot be treated as
treated as a breach a breach of
of warranty. condition.
When Condition to be Treated as

Warranty (Section 13)
Where a contract of sale is subject to any condition to be
fulfilled by the seller, the buyer may waive the condition or
elect to treat the breach of the condition as a breach of
warranty and not as a ground for treating the contract as
repudiated. [Sub-section (1)]

Where a 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 and not as a ground for rejecting the
goods and treating the contract as repudiated, unless there
is a term of the contract, express or implied, to that effect.
[Sub-section (2)]

Nothing in this section shall affect the case of any
condition or warranty fulfilment of which is excused by law
by reason of impossibility or otherwise. [Sub-section (3)]
Analysis
Section 13 specifies cases where a breach of condition be

treated as a breach of warranty. As a result of which the
buyer loses his right to rescind the contract and can claim
for damages only.
Analysis
In the following cases, a contract is not avoided even on

account of a breach of a condition:
(i) Where the buyer altogether waives the performance

of the condition. A party may for his own benefit, waive a
stipulation.
(ii) Where the buyer elects to treat the breach of the

conditions, as one of a warranty. That is to say, he may
claim only damages instead of repudiating the contract.
Analysis
Example: A agrees to supply B 10 bags of first quality sugar

@ ` 625 per bag but supplies only second quality sugar, the
price of which is ` 600 per bag. There is a breach of
condition and the buyer can reject the goods. But if the
buyer so elects, he may treat it as a breach of warranty,
accept the second quality sugar and claim damages @ ` 25
per bag.
Analysis
(iii) Where the contract is non-severable and the buyer

has accepted either the whole goods or any part thereof.
Acceptance means acceptance as envisaged in Section 72
of the Indian Contract Act, 1872.
(iv) Where the fulfillment of any condition or warranty

is excused by law by reason of impossibility or otherwise.
Waiver of
Conditions
Express and Implied Conditions and

Warranties (Section 14-17)
Condition and Warranty

‘Conditions’ and ‘Warranties’ may be either express or
implied. They are “express” when the terms of the contract
expressly state them. They are implied when, not being
expressly provided for.
Express conditions are those, which are agreed upon

between the parties at the time of contract and are
expressly provided in the contract.

The implied conditions, on the other hand, are those, which
are presumed by law to be present in the contract. It
should be noted that an implied condition may be negated
or waived by an express agreement.
Implied Conditions: Following conditions are implied in a

contract of sale of goods unless the circumstances of the
contract show a different intention.


(i) Condition as to title [Section 14(a)]. In every
contract of sale, unless there is an agreement to the
contrary, the first implied condition on the part of the
seller is that
(a) in case of a sale, he has a right to sell the goods,

and

(b) in the case of an agreement to sell, he will have
right to sell the goods at the time when the property is to
pass.
In simple words, the condition implied is that the seller has

the right to sell the goods at the time when the property is
to pass. If the seller’s title turns out to be defective, the
buyer must return the goods to the true owner and recover
the price from the seller.

Example 1: A purchased a tractor from B who had no title
to it. After 2 months, the true owner spotted the tractor
and demanded it from A. Held that A was bound to hand
over the tractor to its true owner and that A could sue B,
the seller without title, for the recovery of the purchase
price.

Example 2: If A sells to B tins of condensed milk labelled
‘C.D.F. brand’, and this is proved to be an infringement of N
Company’s trade mark, it will be a breach of implied
condition that A had the right to sell. B in such a case will
be entitled to reject the goods or take off the labels, and
claim damages for the reduced value. If the seller has no
title and the buyer has to make over the goods to the true
owner, he will be entitled to refund of the price.

(ii) Sale by description [Section 15]: Where there is a
contract of sale of goods by description, there is an
implied condition that the goods shall correspond with the
description. This rule is based on the principle that “if you
contract to sell peas, you cannot compel the buyer to take
beans.” The buyer is not bound to accept and pay for the
goods which are not in accordance with the description of
goods.

Thus, it has to be determined whether the buyer has
undertaken to purchase the goods by their description, i.e.,
whether the description was essential for identifying the
goods where the buyer had agreed to purchase. If that is
required and the goods tendered do not correspond with
the description, it would be breach of condition entitling
the buyer to reject the goods.
It is a condition which goes to the root of the contract and

the breach of it entitles the buyer to reject the goods
whether the buyer is able to inspect them or not.

Example 1: A at Kolkata sells to B twelve bags of “waste
silk” on its way from Murshidabad to Kolkatta. There is an
implied condition that the silk shall be such as is known in
the market as “Waste Silk”. If it not, B is entitled to reject
the goods.

Example 2: A ship was contracted to be sold as “copper-
fastened vessel” but actually it was only partly copper-
fastened. Held that goods did not correspond to
description and hence could be returned or if buyer took
the goods, he could claim damages for breach.

The Act, however, does not define ‘description’. A sale has
been deemed to be by the description
(i) where the class or kind to which the goods belong

has been specified, e.g., ‘Egyptian cotton’, “java sugar”,
“Sheffield crockery”, etc., and
(ii) where the goods have been described by certain

characteristics essential to their identification, e.g., jute
bales of specified shipment, steel of specific dimension,
etc.

It may be noted that the description in these cases
assumes that form of a statement or representation as
regards the identity of particular goods by reference to the
place of origin or mode of packing, etc. Whether or not
such a statement or representation is essential to the
identity of the goods is a question of fact depending, in
each case, on the construction of the contract.

(iii) Sale by sample [Section 17]: In a contract of sale by
sample, there is an implied condition that
(a) the bulk shall correspond with the sample in

quality;
(b) the buyer shall have a reasonable opportunity of

comparing the bulk with the sample,

Example: In a case of sale by sample of two parcels of
wheat, the seller allowed the buyer an inspection of the
smaller parcel but not of the larger parcel. In this case it
was held that the buyer was entitled to refuse to take any
latent of the parcels of wheat.

(c) the goods shall be free from any defect rendering
them un-merchantable, which would not be apparent on
reasonable examination of the sample. This condition is
applicable only with regard to defects, which could not be
discovered by an ordinary examination of the goods. But if
the defects are latent, then the buyer can avoid the
contract.

Example: A company sold certain shoes made of special
sole 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 the price plus
damages.

(iv) Sale by sample as well as by description [Section
15]: Where the goods are sold by sample as well as by
description the implied condition is that the bulk of the
goods supplied shall correspond both with the sample and
the description. In case the goods correspond with the
sample but do not tally with description or vice versa or
both, the buyer can repudiate the contract.

Example: A agreed with B to sell certain oil described as
refined sunflower oil, warranted only equal to sample. The
goods tendered were equal to sample, but contained a
mixture of hemp oil. B can reject the goods.

(v) Condition as to quality or fitness [Section 16(1)]:
Ordinarily, there is no implied condition as to the quality or
fitness of the goods sold for any particular purpose.
However, the condition as to the reasonable fitness of

goods for a particular purpose may be implied if the
buyer had made known to the seller the purpose of his
purchase and relied upon the skill and judgment of the
seller to select the best goods and the seller has ordinarily
been dealing in those goods. Even this implied condition
will not apply if the goods have been sold under a
trademark or a patent name.

Example 1: ‘A’ bought a set of false teeth from ‘B’, a
dentist. But the set was not fit for ‘A’s mouth. ‘A’ rejected
the set of teeth and claimed the refund of price. It was
held that ‘A’ was entitled to do so as the only purpose for
which he wanted the set of teeth was not fulfilled.

Example 2: ‘A’ went to ‘B’s shop and asked for a ‘Merrit’
sewing machine. ‘B’ gave ‘A’ the same and ‘A’ paid the
price. ‘A’ relied on the trade name of the machine rather
than on the skill and judgement of the seller ‘B’. In this
case, there is no implied condition as to fitness of the
machine for buyer’s particular purpose.
As a general rule, it is the duty of the buyer to examine the

goods thoroughly before he buys them in order to satisfy
himself that the goods will be suitable for his purpose for
which he is buying them. This is known as rule of caveat
emptor which means “Let the buyer beware”.

(vi) Condition as to Merchantability [Section 16(2)]:
Where goods are bought by description from a seller who
deals in goods of that description (whether he is the
manufacturer or producer or not), there is an implied
condition that the goods shall be of merchantable quality.

Provided that, if the buyer has examined the goods, there
shall be no implied condition as regards defects which
such examination ought to have revealed.
The expression “merchantable quality”, though not

defined, nevertheless connotes goods of such a quality
and in such a condition a man of ordinary prudence would
accept them as goods of that description. It does not imply
any legal right or legal title to sell.

Example 1: If a person orders motor horns from a
manufacturer of horns, and the horns supplied are
scratched and damaged owing to bad packing, he is
entitled to reject them as unmerchantable.
Example 2: A bought a black velvet cloth from C and found

it to be damaged by white ants. Held, the condition as to
merchantability was broken.

(vii) Condition as to wholesomeness: In the case of
eatables and provisions, in addition to the implied
condition as to merchantability, there is another implied
condition that the goods shall be wholesome.
Example: A supplied F with milk. The milk contained

typhoid germs. F’s wife consumed the milk and was
infected and died. Held, there was a breach of condition as
to fitness and A was liable to pay damages.

Implied Warranties: It is a warranty which the law implies
into the contract of sale. In other words, it is the
stipulation which has not been included in the contract of
sale in express words. But the law presumes that the
parties have incorporated it into their contract. It will be
interesting to know that implied warranties are read into
every contract of sale unless they are expressly excluded
by the express agreement of the parties.
These may also be excluded by the course of dealings

between the parties or by usage of trade (Section 62).


The examination of Sections 14 and 16 of the Sale of Goods
Act, 1930 discloses the following implied warranties:
1. Warranty as to undisturbed possession [Section

14(b)]: An implied warranty that the buyer shall have and
enjoy quiet possession of the goods. That is to say, if the
buyer having got possession of the goods, is later on
disturbed in his possession, he is entitled to sue the seller
for the breach of the warranty.

2. Warranty as to non-existence of encumbrances
[Section 14(c)]: An implied warranty that the goods shall be
free from any charge or encumbrance in favour of any third
party not declared or known to the buyer before or at the
time the contract is entered into.

Example: A pledges his car with C for a loan of `15,000 and
promises him to give its possession the next day. A, then
sells the car immediately to B, who purchased it on good
faith, without knowing the fact. B, may either ask A to clear
the loan or himself may pay the money and then, file a suit
against A for recovery of the money with interest.

3. Warranty as to quality or fitness by usage of trade
[Section 16(3)]: An implied warranty as to quality or fitness
for a particular purpose may be annexed or attached by
the usage of trade.
Regarding implied condition or warranty as to the quality or

fitness for any particular purpose of goods supplied, the
rule is ‘let the buyer beware’ i.e., the seller is under no duty
to reveal unflattering truths about the goods sold, but this
rule has certain exceptions.

4. Disclosure of dangerous nature of goods: Where the
goods are dangerous in nature and the buyer is ignorant of
the danger, the seller must warn the buyer of the probable
danger. If there is a breach of warranty, the seller may be
liable in damages.
Caveat Emptor
In case of sale of goods, the doctrine ‘Caveat Emptor’

means ‘let the buyer beware’. When sellers display their
goods in the open market, it is for the buyers to make a
proper selection or choice of the goods. If the goods turn
out to be defective he cannot hold the seller liable. The
seller is in no way responsible for the bad selection of the
buyer. The seller is not bound to disclose the defects in
the goods which he is selling.
Caveat Emptor
It is the duty of the buyer to satisfy himself before buying

the goods that the goods will serve the purpose for which
they are being bought. If the goods turn out to be defective
or do not serve his purpose or if he depends on his own
skill or judgment, the buyer cannot hold the seller
responsible.
Caveat Emptor
The rule of Caveat Emptor is laid down in the Section 16, which
states that, “subject to the provisions of this Act or of any other
law for the time being in force, there is no implied warranty or
condition as to the quality or fitness for any particular purpose
of goods supplied under a contract of sale”.
Caveat Emptor
Following are the conditions to be satisfied:
❖ if the buyer had made known to the seller the purpose of

his purchase, and
❖ the buyer relied on the seller’s skill and judgement, and
❖ seller’s business to supply goods of that description
(Section 16).
Caveat Emptor
Example 1: A sold pigs to B. 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”.
Caveat Emptor
Example 2: A purchases a horse from B. A needed the horse for

riding but he did not mention this fact to B. The horse is not
suitable for riding but is suitable only for being driven in the
carriage. Caveat emptor rule applies here and so A can neither
reject the horse nor can claim compensation from B.
Exceptions: The doctrine of Caveat Emptor is, however, subject

to the following exceptions;
Caveat Emptor
1. Fitness as to quality or use: Where the buyer makes

known to the seller the particular purpose for which the goods
are required, so as to show that he relies on the seller’s skill or
judgment and the goods are of a description which is in the
course of seller’s business to supply, it is the duty of the seller
to supply such goods as are reasonably fit for that purpose
[Section 16 (1)].
Caveat Emptor
Example: An order was placed for some trucks to be used for

heavy traffic in a hilly country. The trucks supplied by the seller
were unfit for this purpose and broke down. There is a breach of
condition as to fitness.
Caveat Emptor
In Priest vs. Last,
P, a draper, purchased a hot water bottle from a retail chemist,

P asked the chemist if it would stand boiling water. The Chemist
told him that the bottle was meant to hold hot water. The bottle
burst when water was poured into it and injured his wife. It was
held that the chemist shall be liable to pay damages to P, as he
knew that the bottle was purchased for the purpose of being
used as a hot water bottle.
Caveat Emptor
Where the article can be used for only one particular purpose,
the buyer need not tell the seller the purpose for which he
required the goods. But where the article can be used for a
number of purposes, the buyer should tell the seller the purpose
for which he requires the goods, if he wants to make the seller
responsible.
In Bombay Burma Trading Corporation Ltd. vs. Aga Muhammad,

timber was purchased for the express
purpose of using it as railways sleepers and when it was found

to be unfit for the purpose, the Court held that the contract
could be avoided.
Caveat Emptor
2. Goods purchased under patent or brand name: In case

where the goods are purchased under its patent name or brand
name, there is no implied condition that the goods shall be fit
for any particular purpose [Section 16(1)].
3. Goods sold by description: Where the goods are sold by

description there is an implied condition that the goods shall
correspond with the description [Section 15]. If it is not so then
seller is responsible.
Caveat Emptor
4. Goods of Merchantable Quality: Where the goods are

bought by description from a seller who deals in goods of that
description there is an implied condition that the goods shall be
of merchantable quality. The rule of Caveat Emptor is not
applicable. But where the buyer has examined the goods this
rule shall apply if the defects were such which ought to have
not been revealed by ordinary examination [Section 16(2)].
Caveat Emptor
5. Sale by sample: Where the goods are bought by sample,

this rule of Caveat Emptor does not apply if the bulk does not
correspond with the sample [Section 17].
6. Goods by sample as well as description: Where the goods

are bought by sample as well as description, the rule of Caveat
Emptor is not applicable in case the goods do not correspond
with both the sample and description or either of the condition
[Section 15].
Caveat Emptor
7. Trade Usage: An implied warranty or condition as to

quality or fitness for a particular purpose may be annexed
by the usage of trade and if the seller deviates from that, this
rule of Caveat Emptor is not applicable [Section 16(3)].
Example: In readymade garment business, there is an implied

condition by usage of trade that the garments shall be
reasonably fit on the buyer.
Caveat Emptor
8. Seller actively conceals a defect or is guilty of fraud:

Where the seller sells the goods by making some
misrepresentation or fraud and the buyer relies on it or when
the seller actively conceals some defect in the goods so that
the same could not be discovered by the buyer on a reasonable
examination, then the rule of Caveat Emptor will not apply. In
such a case the buyer has a right to avoid the contract and
claim damages.
Transfer of Ownership And Delivery of Goods
Unit Overview
Introduction
● Sale of goods involves transfer of ownership of property

from seller to buyer. It is essential to determine the time at
which the ownership passes from the seller to the buyer.
Importance Of The Time Of Transfer:
● The general rule is that risk prima facie passes with the
property.
● In case where goods are lost or damaged, the burden of loss
will be borne by the person who is the owner at the time
when the goods are lost or damaged.
● Where the goods are damaged by the act of the third party ,
it is the owner who can take action.
● Suit for price by the seller lies only when the property has
passed to the buyer.
Passing Of Property (Sections 18 – 26)
● Passing or transfer of property constitutes the most

important element and factor to decide legal rights and
liabilities of sellers and buyers.
● Passing of property implies passing of ownership. If the
property has passed to the buyer, the risk in the goods sold
is that of buyer and not of seller, though the goods may still
be in the seller’s possession.
Passing Of Property (Sections 18 – 26)
The primary rules determining the passing of property from seller

to buyer are as follows:
A. Property (Specific or ascertained goods)

passes when intended to pass (Section 19):
● Where there is a contract for the sale of specific or
ascertained goods the property in them is transferred to the
buyer at such time as the parties to the contract intend it to
be transferred. [sub-section (1)]
● For the purpose of ascertaining the intention of the parties
regard shall be had to the terms of the contract, the conduct
of the parties and the circumstances of the case. [sub-
section (2)]
● Unless a different intention appears, the rules contained in
sections 20 to 24 are rules for ascertaining the intention of
the parties as to the time at which the property in the goods
is to pass to the buyer. [sub-section (3)]
Stages of goods while passing of property
● Specific goods in a deliverable state

● Specific goods to be put into a deliverable state
● Specific goods in a deliverable state when seller has to
ascertain price.
1. Specific goods in a deliverable state (Section 20):
● Where there is an unconditional contract for the sale of

specific goods in a deliverable state, the property in the
goods passes to the buyer when the contract is made, and it
is immaterial whether the time of payment of the price or
the time of delivery of the goods, or both, is postponed.
● Example: X goes into a shop and buys a television and asks
the shopkeeper for its home delivery. The shopkeeper agrees
to do it. The television immediately becomes the property of
X.
2. Specific goods to be put into a deliverable state

(Section 21)
● Where there is a contract for the sale of specific goods and

the seller is bound to do something to the goods for the
purpose of putting them into a deliverable state, the
property does not pass until such thing is done and the
buyer has notice thereof.
3. Specific goods in a deliverable state, when the

seller has to do anything thereto in order to ascertain
price (Section 22):
● Where there is a contract for the sale of specific goods in a

deliverable state, but the seller is bound to weigh, measure,
test or do some other act or thing with reference to the
goods for the purpose of ascertaining the price, the property
does not pass until such act or thing is done and the buyer
has notice thereof.
● Example: A sold carpets to the Company which were
required to be laid. The carpet was delivered to the
company’s premises but was stolen before it could be laid. It
was held that the carpet was not in deliverable state as it
was not laid, which was part of the contract and hence, the
property had not passed to the buyer company.
B. Goods must be ascertained
● Where there is a contract for the sale of unascertained

goods, no property in the goods is transferred to the buyer
unless and until the goods are ascertained. [Section 18]
● The rules in respect of passing of property of unascertained
goods are as follows:
1. Sale of unascertained goods by description

[Section 23(1)]:
● Where there is a contract for the sale of unascertained or

future goods by description and goods of that description
and in a deliverable state are unconditionally appropriated to
the contract, either by the seller with the assent of the
buyer or by the buyer with the assent of the seller, the
property in the goods thereupon passes to the buyer. Such
assent may be express or implied, and may be given either
before or after the appropriation is made.
2. Delivery to the carrier [Section 23(2)]:
● Where, in pursuance of the contract, the seller delivers the

goods to the buyer or to a carrier or other bailee (whether
named by the buyer or not) for the purpose of transmission
to the buyer, and does not reserve the right of disposal, he is
deemed to have unconditionally appropriated the goods to
the contract.
● Example: A bill of lading of railway parcel is made out in the
name of the buyer and is sent to him, the ownership in the
goods passes from the seller to the buyer. In case the goods
are subjected to accidental loss or by theft, the seller will
not be liable.
Analysis of section 23:
● Sale of unascertained goods and Appropriation:

Appropriation of goods involves selection of goods with the
intention of using them in performance of the contract and
with the mutual consent of the seller and the buyer.
Analysis of section 23:
The essentials are:

a) There is a contract for the sale of unascertained or future
goods.
b) The goods should conform to the description and quality
stated in the contract.
c) The goods must be in a deliverable state.
d) The goods must be unconditionally (as distinguished from an
intention to appropriate) appropriated to the contract either
by delivery to the buyer or his agent or the carrier.
e) The appropriation must be made by:
f) the seller with the assent of the buyer; or
g) the buyer with the assent of the seller.
h) The assent may be express or implied.
i) The assent may be given either before or after appropriation.
C. Goods sent on approval or “on sale or return”

(Section 24)
When goods are delivered to the buyer on approval or “on sale or

return” or other similar terms, the property therein passes to the
buyer-
a) when he signifies his approval or acceptance to the seller or
does any other act adopting the transaction;
b) if he does not signify his approval or acceptance to the seller
but retains the goods without giving notice of rejection, then,
if a time has been fixed for the return of the goods, on the
expiration of such time, and, if no time has been fixed, on
the expiration of a reasonable time; or
c) he does something to the good which is equivalent to
accepting the goods e.g. he pledges or sells the goods.
Example 1:
● P brought a musical instrument from a musical shop on a

condition that he will purchase it, if he likes that instrument.
After a week he has informed the shop owner that he has
agreed to purchase the musical instrument. The ownership is
transferred when he has decided to purchase the instrument
as his own.
● A buyer under a contract on the basis of ‘sale or return’ is
deemed to have exercised his option when he does any act
exercising domination over the goods showing an
unequivocal intention to buy, example, if he pledges the
goods with a third party. Failure or inability to return the
goods to the seller does not necessarily imply selection to
buy.
Example 2:
● ‘A’ delivered some jewellery to ‘B’ on sale or return basis. ‘B’

pledged the jewellery with ‘C’. It was held that the ownership
of the jewellery had been transferred to ‘B’ as he had
adopted the transaction by pledging the jewellery with ‘C’. In
this case, ‘A’ has no right against ‘C’. He can only recover the
price of the jewellery from ‘B’.
Example 3:
● A sends to B a water motor on approval or return in March,

2016. B to return it after trial in August, 2016. The water
motor has not been returned within a reasonable time, and
therefore, A is not bound to accept it and B must pay the
price.
Sale for cash only or Return
● It may be noted that where the goods have been delivered by

a person on “sale or return” on the terms that the goods
were to remain the property of the seller till they are paid
for, the property therein does not pass to the buyer until the
terms are complied with, i.e., cash is paid for.
● Example:‘A’ delivered his jewellery to‘B’ on sale for cash only
or return basis. It was expressly provided in the contract that
the jewellery shall remain ‘A’s property until the price is
paid. Before the payment of the price, ‘B’ pledged the
jewellery with ‘C’. It was held that at the time of pledge, the
ownership was not transferred to ‘B’. Thus, the pledge was
not valid and ‘A’ could recover the jewellery from ‘C’.
D. Reservation of right of disposal

(Section 25)
● Where there is a contract for the sale of specific goods or

where goods are subsequently appropriated to the contract,
the seller may, by the terms of the contract or appropriation,
reserve the right of disposal of the goods until certain
conditions are fulfilled. In such case, notwithstanding the
delivery of the goods to a buyer, or to a carrier or other
bailee for the purpose of transmission to the buyer, the
property in the goods does not pass to the buyer until the
conditions imposed by the seller are fulfilled. [Sub-section
(1)]

(Section 25)
● Where goods are shipped, or delivered to a railway

administration for carriage by railway and by the bill of
lading or railway receipts, as the case may be, the goods are
deliverable to the order of the seller or his agent, the seller
is prima facie deemed to reserve the right of disposal. [Sub-
section (2)]

(Section 25)
● Where the seller of goods draws on the buyer for the price
and transmits to the buyer the bill of exchange together with
the bill of lading or, as the case may be, the railway receipt,
to secure acceptance or payment of the bill of exchange, the
buyer is bound to return the bill of lading or the railway
receipt if he does not honour the bill of exchange; and, if he
wrongfully retains the bill of lading or the railway receipt, the
property in the goods does not pass to him. [Sub-section
(3)]
Analysis:
● This section preserves the right of disposal of goods to

secure that the price is paid before the property in goods
passes to the buyer.
● Where there is contract of sale of specific goods or where
the goods have been subsequently appropriated to the
contract, the seller may, by the terms of the contract or
appropriation, as the case may be, reserve the right to
dispose of the goods, until certain conditions have been
fulfilled. In such a case in spite of the fact that the goods
have already been delivered to the buyer or to a carrier or
other bailee for the purpose of transmitting the same to the
buyer, the property therein will not pass to the buyer till the
condition imposed, if any, by the seller has been fulfilled.
Example:
● X sends furniture to a company by a truck and instructs the

driver not to deliver the furniture to the company until the
payment is made by company to him. The property passes
only when the payment is made.
Example:
Circumstances under which the right to disposal may be reserved:

In the following circumstances, seller is presumed to have
reserved the right of disposal:
● If the goods are shipped or delivered to a railway
administration for carriage and by the bill of lading or
railway receipt, as the case may be, the goods are
deliverable to the order of the seller or his agent, then the
seller will be prima facie deemed to have reserved to the
right of disposal.
Example:
● Where the seller draws a bill on the buyer for the price and
sends to him the bill of exchange together with the bill of
lading or (as the case may be) the railway receipt to secure
acceptance or payment thereof, the buyer must return the
bill of lading, if he does not accept or pay the bill. And if he
wrongfully retains the bill of lading or the railway receipt, the
property in the goods does not passes to him. It should be
noted that Section 25 deals with “conditional appropriation”
as distinguished from ‘unconditional appropriation’ dealt
with under Section 23 (2).
Risk Prima Facie Passes With Property (Sections 26)
● According to section 26, unless otherwise agreed, the goods

remain at the seller’s risk until the property therein is
transferred to the buyer, but when the property therein is
transferred to the buyer, the goods are at the buyer’s risk
whether delivery has been made or not:
● Provided that, where delivery has been delayed through the
fault of either buyer or seller, the goods are at the risk of the
party in fault as regards any loss which might not have
occurred but for such fault.
● Provided also that nothing in this section shall affect the
duties or liabilities of either seller or buyer as bailee of the
goods of the other party.
Analysis:
● The general rule is, “unless otherwise agreed, the goods

remain at the seller’s risk until the property therein is
transferred to the buyer, but when the property therein is
transferred to the buyer, the goods are at the buyer’s risk
whether delivery has been made or not”.
● However, Section 26 also lays down an exception to the rule
that ‘risk follows ownership.’ It provides that where delivery
of the goods has been delayed through the fault of either
buyer or seller, the goods are at the risk of the party in fault
as regards any loss which might not have occurred but for
such fault.
● Thus in ordinary circumstances, risk is borne by the buyer
only when the property in the goods passes over to him.
However, the parties may by special agreement stipulate
that ‘risk’ will pass sometime after or before the ‘property’
has passed.
Risk prima facie passes with ownership:
● The owner of goods must bear the loss or damage of goods

unless otherwise is agreed to. Under Section 26 of the Sale
of Goods Act, unless otherwise agreed, the goods remain at
the seller’s risk until property therein has passed to the
buyer. After that event they are at the buyer’s risk, whether
delivery has been made or not.
Example:
● A bids for an antique painting at a sale by auction. After the

bid, when the auctioneer struck his hammer to signify
acceptance of the bid, he hit the antique which gets
damaged. The loss will have to be borne by the seller,
because the ownership of goods has not yet passed from the
seller to the buyer.
Example:
The aforesaid rule is, however, subject to two qualifications:

I. If delivery has been delayed by the fault of the seller or the
buyer, the goods shall be at the risk of the party in default,
as regards loss which might not have arisen but for the
default.
II. The duties and liabilities of the seller or the buyer as bailee
of goods for the other party remain unaffected even when
the risk has passed generally.
Example:
● A contracted to sell 100 bales of cotton to B to be delivered

in February. B took the delivery of the part of the cotton but
made a default in accepting the remaining bales.
Consequently the cotton becomes unfit for use. The loss will
have to be borne by the buyer. It should, however, be
remembered that the general rule shall not affect the duties
or liabilities of either seller or buyer as a bailee of goods for
the other, even when the risk has passed.
● As noted above, the risk (i.e., the liability to bear the loss in
case property is destroyed, damaged or deteriorated) passes
with ownership. The parties may, however, agree to the
contrary. For instance, the parties may agree that risk will
pass sometime after or before the property has passed from
the seller to the buyer.
3.3 TRANSFER OF TITLE (SECTIONS 27 – 30)
Sale by person not the owner (Section 27):
● Subject to the provisions of this Act and of any other law for
the time being in force, where goods are sold by a person
who is not the owner thereof and who does not sell them
under the authority or with the consent of the owner, the
buyer acquires no better title to the goods than the seller
had, unless the owner of the goods is by his conduct
precluded from denying the seller’s authority to sell.
Sale by person not the owner (Section 27):
● Provided that, where a mercantile agent is, with the consent

of the owner, in possession of the goods or of a document
of title to the goods, any sale made by him, when acting in
the ordinary course of business of a mercantile agent, shall
be as valid as if he were expressly authorised by the owner
of the goods to make the same; provided that the buyer acts
in good faith and has not at the time of the contract of sale
notice that the seller has no authority to sell.
Analysis:
● In general the seller sells only such goods of which he is the

absolute owner. But sometimes a person may sell goods of
which he is not the owner, then the question arises as to
what is the position of the buyer who has bought the goods
by paying price. The general rule regarding the transfer of
title is that the seller cannot transfer to the buyer of goods a
better title than he himself has. If the seller is not the owner
of goods, then the buyer also will not become the owner i.e.
the title of the buyer shall be the same as that of the seller.
This rule is expressed in the Latin maxim “Nemo dat quod
non habet” which means that no one can give what he has
not got.
Example 1:
● If A sells some stolen goods to B, who buys them in good

faith, B will get no title to that and the true owner has a
right to get back his goods from B.
Example 2:
● P, the hirer of vehicle under a hire purchase agreement, sells

them to Q. Q, though a bona fide purchaser, does not acquire
the ownership in the vehicle. At the most he acquires the
same right as that of the hirer.
● If this rule is enforced rigidly then the innocent buyers may
be put to loss in many cases. Therefore, to protect the
interests of innocent buyers, a number of exceptions have
been provided to this rule.
Exceptions:
● In the following cases, a non-owner can convey better title

to the bona fide purchaser of goods for value.
(1) Sale by a Mercantile Agent:
A sale made by a mercantile agent of the goods for document of

title to goods would pass a good title to the buyer in the
following circumstances; namely;
● If he was in possession of the goods or documents with the
consent of the owner;
● If the sale was made by him when acting in the ordinary
course of business as a mercantile agent; and
● If the buyer had acted in good faith and has at the time of
the contract of sale, no notice of the fact that the seller had
no authority to sell (Proviso to Section 27).
(2) Sale by one of the joint owners (Section 28):
● If one of several joint owners of goods has the sole

possession of them by permission of the co-owners, the
property in the goods is transferred to any person who buys
them of such joint owner in good faith and has not at the
time of the contract of sale notice that the seller has no
authority to sell.
Example:
● A, B, and C are three brothers and joint owners of a T.V and

VCR and with the consent of B and C, the VCR was kept in
possession of A. A sells the T.V and VCR to P who buys it in
good faith and without notice that A had no authority to sell.
P gets a good title to VCR and TV.
(3) Sale by a person in possession under

voidable contract:
● A buyer would acquire a good title to the goods sold to him

by a seller who had obtained possession of the goods under
a contract voidable on the ground of coercion, fraud,
misrepresentation or undue influence provided that the
contract had not been rescinded until the time of the sale
(Section 29).
Example:
● X fraudulently obtains a diamond ring from Y. This contract

is voidable at the option of Y. But before the contract could
be terminated, X sells the ring to Z, an innocent purchaser. Z
gets the good title and Y cannot recover the ring from Z even
if the contract is subsequently set aside.
(4) Sale by one who has already sold the goods but
continues in possession thereof:
● If a person has sold goods but continues to be in possession

of them or of the documents of title to them, he may sell
them to a third person, and if such person obtains the
delivery thereof in good faith and without notice of the
previous sale, he would have good title to them, although the
property in the goods had passed to the first buyer earlier. A
pledge or other disposition of the goods or documents of
title by the seller in possession are equally valid
[Section 30(1)].
Example:
● During ICL matches, P buys a TV set from R. R agrees to

deliver the same to P after some days. In meanwhile R sells
the same to S, at a higher price, who buys in good faith and
without knowledge about the previous sale. S gets a good
title.
(5) Sale by buyer obtaining possession before the

property in the goods has vested in him:
● Where a buyer with the consent of the seller obtains

possession of the goods before the property in them has
passed to him, he may sell, pledge or otherwise dispose of
the goods to a third person, and if such person obtains
delivery of the goods in good faith and without notice of the
lien or other right of the original seller in respect of the
goods, he would get a good title to them [Section 30(2)].
● However, a person in possession of goods under a ‘hire-
purchase’ agreement which gives him only an option to buy
is not covered within the section unless it amounts to a sale.
Example:
● A took a car from B on this condition that A would pay a

monthly installment of ` 5,000 as hire charges with an
option to purchase it by payment of ` 1,00,000 in 24
installments. After the payment of few installments, A sold
the car to C. B can recover the car from C since A had
neither bought the car, nor had agreed to buy the car. He
had only an option to buy the car.
(6) Effect of Estoppel
● Where the owner is estopped by the conduct from denying

the seller’s authority to sell, the transferee will get a good
title as against the true owner. But before a good title by
estoppel can be made, it must be shown that the true owner
had actively suffered or held out the other person in
question as the true owner or as a person authorized to sell
the goods.
Example:
● ‘A’ said to ‘B’, a buyer, in the presence of ‘C’ that he (A) is

the owner of the horse. But ‘C’ remained silent though the
horse belonged to him. ‘B’ bought the horse from ‘A’. Here
the buyer (B) will get a valid title to the horse even though
the seller (A) had not title to the horse. In this case, ‘C’, by
his own conduct, is prevented from denying ‘A’s authority to
sell the horse.
(7) Sale by an unpaid seller:
● Where an unpaid seller who had exercised his right of lien or

stoppage in transit resells the goods, the buyer acquires a
good title to the goods as against the original buyer
[Section 54 (3)].
(8) Sale under the provisions of other Acts:
1) Sale by an Oflcial Receiver or Liquidator of the Company will

give the purchaser a valid title.
2) Purchase of goods from a finder of goods will get a valid title
under circumstances [Section 169 of the Indian Contract Act,
1872]
3) A sale by pawnee can convey a good title to the buyer
[Section 176 of the Indian Contract Act, 1872]
3.4 Performance Of The Contract Of Sale
(Sections 31 – 44)
Definition of Delivery [section 2(2)]:
● Delivery means voluntary transfer of possession from one

person to another.
● Thus, if the possession is taken through unfair means, there
is no delivery of the goods. Delivery of goods sold may be
made by doing anything which the parties agree, shall be
treated as delivery or putting the goods in the possession of
the buyer or of any person authorised to hold them on his
behalf.
Duties of seller and buyer (Section 31):
● It is the duty of the seller to deliver the goods and of the

buyer to accept and pay for them, in accordance with the
terms of the contract of sale.
Payment and delivery are concurrent

conditions (Section 32):
● Unless otherwise agreed, delivery of the goods and payment

of the price are concurrent conditions, that is to say, the
seller shall be ready and willing to give possession of the
goods to the buyer in exchange for the price, and the buyer
shall be ready and willing to pay the price in exchange for
possession of the goods.
Rules Regarding Delivery of goods (Section 33-41)
● The Sale of good Act, 1930 prescribes the following rules of

delivery of goods:
(i) Delivery (Section 33):
● Delivery of goods sold may be made by doing anything which

the parties agree shall be treated as delivery or which has
the effect of putting the goods in the possession of the
buyer or of any person authorised to hold them on his
behalf.
(ii) Effect of part delivery:
● A delivery of part of goods, in progress of the delivery of the

whole has the same effect, for the purpose of passing the
property in such goods, as a delivery of the whole; but a
delivery of part of the goods, with an intention of severing it
from the whole, does not operate as a delivery of the
remainder. (Section 34)
Example:
● Certain goods lying at wharf were sold in a lot. The seller

instructed the wharfinger to deliver them to the buyer who
had paid for them and the buyer, thereafter, accepted them
and took away part. Held, there was delivery of the whole.
(iii) Buyer to apply for delivery:
● Apart from any express contract, the seller of goods is not

bound to deliver them until the buyer applies for delivery.
(Section 35)
(iv) Place of delivery
● Whether it is for the buyer to take possession of the goods

or for the seller to send them to the buyer is a question
depending in each case on the contract, express or implied,
between the parties. Apart from any such contract, goods
sold are to be delivered at the place at which they are at the
time of the sale, and goods agreed to be sold are to be
delivered at the place at which they are at the time of the
agreement to sell or if not then in existence, at the place at
which they are manufactured or produced. [Section 36(1)]
(v) Time of delivery:
● Where under the contract of sale the seller is bound to send

the goods to the buyer, but no time for sending them is
fixed, the seller is bound to send them within a reasonable
time. [Section 36(2)]
(vi) Goods in possession of a third party:
● Where the goods at the time of sale are in possession of a

third person, there is no delivery unless and until such third
person acknowledges to the buyer that he holds the goods
on his behalf. Provided that nothing in this section shall
affect the operation of the issue or transfer of any document
of title to goods. [Section 36(3)]
(vii) Time for tender of delivery:
● Demand or tender of delivery may be treated as ineffectual

unless made at a reasonable hour. What is reasonable hour
is a question of fact. [Section 36(4)].
(viii) Expenses for delivery:
● The expenses of and incidental to putting the goods into a

deliverable state must be borne by the seller in the absence
of a contract to the contrary. [Section 36(5)].
(ix) Delivery of wrong quantity [Section 37]:
● Where the seller delivers to the buyer a quality of goods less

than he contracted to sell, the buyer may reject them, but if
the buyer accepts the goods so delivered he shall pay for
them at the contract rate. [Sub-section (1)]
● Where the seller delivers to the buyer a quantity of goods

larger than he contracted to sell, the buyer may accept the
goods included in the contract and reject the rest, or he may
reject the whole. If the buyer accepts the whole of the goods
so delivered, he shall pay for them at the contract rate.
[Sub- section (2)]
● Where the seller delivers to the buyer the goods he

contracted to sell mixed with goods of a different
description not included in the contract, the buyer may
accept the goods which are in accordance with the contract
and reject, or may reject the whole. [Sub-section (3)]
● The provisions of this section are subject to any usage of
trade, special agreement or course of dealing between the
parties. [Sub-section (4)].
Example:
● A agrees to sell 100 quintals of wheat to B at ` 1,000 per

quintal. A delivers 1,100 quintals. B may reject the whole lot,
or accept only 1,000 quintals and reject the rest or accept
the whole lot and pay for them at the contract of sale.
(x) Instalment deliveries:
● Unless otherwise agreed, the buyer is not bound to accept

delivery in instalments. The rights and liabilities in cases of
delivery by instalments and payments thereon may be
determined by the parties of contract. (Section 38)
(xi) Delivery to carrier:
● Subject to the terms of contract, the delivery of the goods to

the carrier for transmission to the buyer, is prima facie
deemed to be delivery to the buyer. [Section 39(1)]
(xii) Deterioration during transit:
● Where goods are delivered at a distant place, the liability for

deterioration necessarily incidental to the course of transit
will fall on the buyer, though the seller agrees to deliver at
his own risk. (Section 40)
Example
● P sold to Q a certain quantity of iron rods which was to be

sent by proper vessel. It was rusted before it reached the
buyer. The rust of the rod was so minimal and was not
effecting the merchantable quality and the deterioration was
not necessarily incidental to its transmission. It was held
that Q was bound to accept the goods.
(xiii) Buyer’s right to examine the

goods
● Where goods are delivered to the buyer, who has not

previously examined them, he is entitled to a reasonable
opportunity of examining them in order to ascertain whether
they are in conformity with the contract. Unless otherwise
agreed, the seller is bound, on request, to afford the buyer a
reasonable opportunity of examining the goods. (Section 41)
Rule related to Acceptance of Delivery of Goods

(Section 42):
● The buyer is deemed to have accepted the goods when he

intimates to the seller that he has accepted them, or when
the goods have been delivered to him and he does any act in
relation to them which is inconsistent with the ownership of
the seller, or when, after the lapse of a reasonable time, he
retains the goods without intimating to the seller that he has
rejected them.
Analysis:
Acceptance is deemed to take place when the buyer-

● intimates to the seller that he had accepted the goods; or
● does any act to the goods, which is inconsistent with the
ownership of the seller; or
● retains the goods after the lapse of a reasonable time,
without intimating to the seller that he has rejected them.
Buyer not bound to return rejected goods

(Section 43):
● Unless otherwise agreed, where goods are delivered to the

buyer and he refuses to accept them, having the right so to
do, he is not bound to return them to the seller, but it is
suflcient if he intimates to the seller that he refuses to
accept them.
Liability of buyer for neglecting or refusing

delivery of goods (Section 44):
● When the seller is ready and willing to deliver the goods and
requests the buyer to take delivery, and the buyer does not
within a reasonable time after such request take delivery of
the goods, he is liable to the seller for any loss occasioned
by his neglect or refusal to take delivery and also for a
reasonable charge for the care and custody of the goods.
● Provided further that nothing in this section shall affect the
rights of the seller where the neglect or refusal of the buyer
to take delivery amounts to a repudiation of the contract.
Unpaid Seller
Chapter Overview
4.1 Unpaid Seller
● A contract comprises 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.
4.1 Unpaid Seller
● According to Section 45(1) of the Sale of Goods Act, 1930 the

seller of goods is deemed to be an ‘Unpaid Seller’ when-
a. The whole of the price has not been paid or tendered and
the seller had an immediate right of action for the price.
4.1 Unpaid Seller
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. The term ‘seller ‘
here includes any person who is in the position of a seller,
as, for instance, an agent of the seller to whom the bill of
lading has been endorsed, or a consignor or agent who has
himself paid, or is directly responsible for, the price [Section
45(2)].
4.1 Unpaid Seller
Example 1
● X sold certain goods to Y for ₹ 50,000. Y paid ₹ 40,000

but fails to pay the balance. X is an unpaid seller.
4.1 Unpaid Seller
Example 2
● P sold some goods to R for ₹ 60,000 and received a

cheque for a full price. On presentment, the cheque
was dishonored by the bank. P is an unpaid seller.
4.2 Rights Of An Unpaid Seller
Unpaid seller’s right (Section 46):
● Subject to the provisions of this Act and of any law for

the time being in force, notwithstanding that the
property in the goods may have passed to the buyer,
the unpaid seller of goods, as such, has by implication
of law-
a) a lien on the goods for the price while he is in possession of

them;
b) in case of the insolvency of the buyer a right of stopping
the goods in transit after he has parted with the possession
of them;
c) a right of re-sale as limited by this Act. [Sub-section (1)]
● Where the property in goods has not passed to the

buyer, the unpaid seller has, in addition to his other
remedies, a right of withholding delivery similar to and
co-extensive with his rights of lien and stoppage in
transit where the property has passed to the buyer.
[Sub-section (2)]
● An unpaid seller has been expressly given the rights
against the goods as well as the buyer personally
which are discussed as under:
(a) Rights of an unpaid seller against the goods:
● The right of unpaid seller against goods can be

categorized under two headings.
4.3 Right Of Unpaid Seller Against The Goods
(1) Seller’s lien (Section 47):
● According to sub-section (1), subject to the provisions

of this Act, the unpaid seller of goods who is in
possession of them is entitled to retain possession of
them until payment or tender of the price in the
following cases, namely:-
(1) Seller’s lien (Section 47):
a) where the goods have been sold without any

stipulation as to credit;
b) where the goods have been sold on credit, but the
term of credit has expired;
c) where the buyer becomes insolvent.
According to sub-section (2), the seller may exercise his

right of lien notwithstanding that he in possession of the
goods as agent or bailee for the buyer.
Part delivery (Section 48):
● Where an unpaid seller has made part delivery of the

goods, he may exercise his right of lien on the
remainder, unless such part delivery has been made
under such circumstances as to show an agreement
to waive the lien.
Termination of lien (Section 49):
According to sub-section (1), the unpaid seller of goods

loses his lien thereon-
a) when he delivers the goods to a carrier or other bailee
for the purpose of transmission to the buyer without
reserving the right of disposal of the goods;
b) when the buyer or his agent lawfully obtains
possession of the goods;
c) by waiver thereof.
The unpaid seller of goods, having a lien thereon, does not

lose his lien by reason only that he has obtained a decree
for the price of the goods. [Sub-section (2)]
Analysis of section 47, 48 and 49
Rights of lien:
● An unpaid seller has a right of lien on the goods for the

price while he is in possession, until the payment or tender
of the price of such goods. It is the right to retain the
possession of the goods and refusal to deliver them to the
buyer until the price due in respect of them is paid or
tendered.
● The unpaid seller’s lien is a possessory lien i.e. the lien can
be exercised as long as the seller remains in possession of
the goods.
Exercise of right of lien:
This right can be exercised by him in the following cases only:

a) where goods have been sold without any stipulation of
credit; ( i.e., on cash sale)
b) where goods have been sold on credit but the term of
credit has expired; or
c) where the buyer becomes insolvent.
Example:
● A sold certain goods to B for a price ₹ 50,000 and allowed

him to pay the price within one month. B becomes insolvent
during this period of credit. A, the unpaid seller, can
exercise his right of lien.
● Seller may exercise his right of lien even where he is in
possession of the goods as agent or bailee for the buyer.
● The term insolvent refers to “a person is said to be
insolvent who has ceased to pay his debts in the ordinary
course of business, or cannot pay his debts as they become
due, whether he has committed an act of insolvency or
not”.
Termination of lien:
However, the unpaid seller loses his right of lien under the
following circumstances:
I. When he delivers the goods to a carrier or other bailee for
the purpose of transmission to the buyer without reserving
the right of disposal of the goods.
II. Where the buyer or his agent lawfully obtains possession of
the goods.
III. Where seller has waived the right of lien.
IV. By Estoppel i.e., where the seller so conducts himself that
he leads third parties to believe that the lien does not exist.
Exception:
● The unpaid seller of the goods, having a lien thereon, does

not lose his lien by reason only that he has obtained a
decree for the price of the goods.
Example:
● A, sold a car to B for ₹ 1,00,000 and delivered the same to

the railways for the purpose of transmission to the buyer.
The railway receipt was taken in the name of B and sent to
B. Now A cannot exercise the right of lien.
(2) Right of stoppage in transit (Section 50 to 52):
Right of stoppage in transit (Section 50):
● Subject to the provisions of this Act, when the buyer of

goods becomes insolvent, the unpaid seller who has parted
with the possession of the goods has the right of stopping
them in transit, that is to say, he may resume possession of
the goods as long as they are in the course of transit, and
may retain them until paid or tendered price of the goods.
Duration of transit (Section 51):
● Goods are deemed to be in the course of transit from the

time when they are delivered to a carrier or other bailee for
the purpose of transmission to the buyer, until the buyer or
his agent in that behalf takes delivery of them from such
carrier or other bailee.
● If the buyer or his agent in that behalf obtains delivery of
the goods before their arrival at the appointed destination,
the transit is at an end.
● If, after the arrival of the goods at the appointed

destination, the carrier or other bailee acknowledges to the
buyer or his agent that he holds the goods on his behalf
and continues in possession of them as bailee for the
buyer or his agent, the transit is at an end and it is
immaterial that a further destination for the goods may
have been indicated by the buyer.
● If the goods are rejected by the buyer and the carrier or

other bailee continues in possession of them, the transit is
not deemed to be at an end, even if the seller has refused
to receive them back.
● When goods are delivered to a ship chartered by the buyer,
it is a question depending on the circumstances of the
particular case, whether they are in the possession of the
master as a carrier or as agent of the buyer.
● Where the carrier or other bailee wrongfully refuses to

deliver the goods to the buyer or his agent in that behalf,
the transit is deemed to be at an end.
● Where part delivery of the goods has been made to the
buyer or his agent in that behalf, the remainder of the
goods may be stopped in transit, unless such part delivery
has been given in such circumstances as to show an
agreement to give up possession of the whole of the goods.
How stoppage in transit is effected (Section

52)
● The unpaid seller may exercise his right of stoppage in

transit either by taking actual possession of the goods, or
by giving notice of his claim to the carrier or other bailee in
whose possession the goods are. Such notice may be given
either to the person in actual possession of the goods or to
his principal. In the latter case the notice, to be effectual,
shall be given at such time and in such circumstances, that
the principal, by the exercise of reasonable diligence, may
communicate it to his servant or agent in time to prevent a
delivery to the buyer.
How stoppage in transit is effected (Section

52)
● When notice of stoppage in transit is given by the seller to

the carrier or other bailee in possession of the goods, he
shall re-deliver the goods to, or according to the directions
of, the seller. The expenses of such re-delivery shall be
borne by the seller.
Meaning of right of stoppage in transit:
● The right of stoppage in transit means the right of stopping

the goods while they are in transit, to regain the possession
and to retain them till the full price is paid.
● When the unpaid seller has parted with the goods to a
carrier and the buyer has become insolvent, he can exercise
this right of asking the carrier to return the goods back, or
not to deliver the goods to the buyer.
● This right is the extension of the right of lien because it
entitles the seller to regain possession even when the seller
has parted with the possession of the goods.
Meaning of right of stoppage in transit:
However, the right of stoppage in transit is exercised only when

the following conditions are fulfilled:
a) The seller must be unpaid.
b) He must have parted with the possession of goods.
c) The goods are in transit.
d) The buyer has become insolvent.
e) The right is subject to provisions of the Act. [Section 50]
Example:
● B at Delhi, orders goods of A, at Mumbai. A consigns and

forwards the goods to B. On arrival at Delhi, they are taken
to B‘s warehouse and left there. B refuses to take these
goods and stop payment. The goods are in transit and the
unpaid seller can take them back.
Duration of transit
● The goods are deemed to be in course of transit from the

time when they are delivered to a carrier or other bailee for
the purpose of transmission to the buyer, until the buyer or
his agent in that behalf takes delivery of them from such
carrier or other bailee.
When does the transit come to an end?
The right of stoppage in transit is lost when transit comes to an

end. Transit comes to an end in the following cases:
● When the buyer or other bailee obtains delivery.
● Buyer obtains delivery before the arrival of goods at
destination.
● Where the carrier or other bailee acknowledges to the buyer
or his agent that he holds the goods as soon as the goods
are loaded on the ship, unless the seller has reserved the
right of disposal of the goods.
When does the transit come to an end?
● If the carrier wrongfully refuses to deliver the goods to the

buyer.
● Where goods are delivered to the carrier hired by the buyer,
the transit comes to an end.
● Where the part delivery of the goods has been made to the
buyer, there the transit will come to an end for the
remaining goods which are yet in the course of
transmission.
● Where the goods are delivered to a ship chartered by the
buyer, the transit comes to an end. [section 51]
How stoppage in transit is effected:
● There are two modes of stoppage in transit-

How stoppage in transit is effected:
● Where the notice of stoppage in transit is given by the

seller to the carrier or other bailee in possession of the
goods, he shall re-deliver the goods to, or according to the
directions of, the seller. The expenses of such re-delivery
shall be borne by the seller.
Distinction between Right of Lien and

Right of Stoppage in Transit
I. The essence of a right of lien is to retain possession

whereas the right of stoppage in transit is right to regain
possession.
II. Seller should be in possession of goods under lien while in
stoppage in transit (i) seller should have parted with the
possession (ii) possession should be with a carrier, & (iii)
buyer has not acquired the possession.
III. Right of lien can be exercised even when the buyer is not
insolvent but it is not the case with right of stoppage in
transit.
IV. Right of stoppage in transit begins when the right of lien
ends. Thus the end of the right of lien is the starting point
of the right of stoppage in transit.
Effects of sub-sale or pledge by buyer

(Section 53):
● The right of lien or stoppage in transit is not affected by the

buyer selling or pledging the goods unless the seller has
assented to it. This is based on the principle that a second
buyer cannot stand in a better position than his seller. (The
first buyer).
● The right of stoppage is defeated if the buyer has
transferred the document of title or pledges the goods to a
sub-buyer in good faith and for consideration.
Example:
● A sold certain goods to B of Mumbai and the goods are

handed over to railways for transmission to B. In the mean
time, B sold these goods to C for consideration. B becomes
insolvent. A can still exercise his right of stoppage in
transit.
Exceptions
a. When the seller has assented to the sale, mortgage or other

disposition of the goods made by the buyer.
Example:
● A entered into a contract to sell cartons in possession of a

wharfinger to B and agreed with B that the price will be
paid to A from the sale proceeds recovered from his
customers. Now B sold goods to C and C duly paid to B. But
anyhow B failed to make the payment to A. A wanted to
exercise his right of lien and ordered the wharfinger not to
make delivery to C. Held that the seller had assented to the
resale of the goods by the buyer to the sub-buyers. As a
result A’s right to lien is defeated (Mount D. F. Ltd. vs Jay &
Jay (Provisions) Co. Ltd ).
Example:
b. When a document of title to goods has been transferred to

the buyer and the buyer transfers the documents to a
person who has bought goods in good faith and for value
i.e. for price, then, the proviso of sub-section (1) stipulates
as follows:
I. If the last-mentioned transfer is by way of sale, right of lien
or stoppage in transit is defeated, or
II. If the last mentioned transfer is by way of pledge, unpaid
seller’s right of lien or stoppage only be exercised, subject
to the rights of the pledgee.
Example:
● However, the pledgee may be required by the unpaid seller

to use in the first instance, other goods or securities of the
pledger available to him to satisfy his claims.
[Sub-section (2)].
Effect of stoppage:
● The contract of sale is not rescinded when the seller

exercises his right of stoppage in transit. The contract still
remains in force and the buyer can ask for delivery of goods
on payment of price.
Right of re-sale [Section 54]:
● Where the goods are of a perishable nature:

In such a case the buyer need not be informed of the
intention of resale.
Where he gives notice to the buyer of his intention to re-sell the

goods: If after the receipt of such notice the buyer fails within a
reasonable time to pay or tender the price, the seller may resell
the goods. It may be noted that in such cases, on the resale of
the goods, the seller is also entitled to:
● Recover the difference between the contract price and
resale price, from the original buyer, as damages.
● Retain the profit if the resale price is higher than the
contract price.
● It may also be noted that the seller can recover damages

and retain the profits only when the goods are resold after
giving the notice of resale to the buyer. Thus, if the goods
are resold by the seller without giving any notice to the
buyer, the seller cannot recover the loss suffered on resale.
Moreover, if there is any profit on resale, he must return it
to the original buyer, i.e. he cannot keep such surplus with
him [Section 54(2)].
● A re-sale by the seller where a right of re-sale is expressly

reserved in a contract of sale: Sometimes, it is expressly
agreed between the seller and the buyer that in case the
buyer makes default in payment of the price, the seller will
resell the goods to some other person. In such cases, the
seller is said to have reserved his right of resale, and he
may resell the goods on buyer’s default.
● It may be noted that in such cases, the seller is not
required to give notice of resale. He is entitled to recover
damages from the original buyer even if no notice of resale
is given.
● Where the property in goods has not passed to the buyer:

the unpaid seller has in addition to his remedies a right of
withholding delivery of the goods. This right is similar to lien
and is called “quasi-lien”.
4.4 Rights Of Unpaid Seller Against The Buyer
(Sections 55-61)
Rights of unpaid seller against the buyer:
● An unpaid seller can enforce certain rights against the

goods as well as against the buyer personally. Rights of
unpaid seller against the buyer are otherwise known as
seller’s remedies for breach of contract of sale. The rights
of the seller against the buyer personally are called rights in
personam and are in addition to his rights against the
goods.
● The right against the buyer are as follows:
(Sections 55-61)
1. Suit for price (Section 55)
a) Where under a contract of sale the property in the goods

has passed to the buyer and the buyer wrongfully neglects
or refuses to pay for the goods according to the terms of
the contract, the seller may sue him for the price of the
goods. [Section 55(1)]
b) Where under a contract of sale the price is payable on a
day certain irrespective of delivery and the buyer wrongfully
neglects or refuses to pay such price, the seller may sue
him for the price although the property in the goods has not
passed and the goods have not been appropriated to the
contract. [Section 55(2)].
(Sections 55-61)
2. Suit for damages for non-acceptance
(Section 56):
● Where the buyer wrongfully neglects or refuses to accept

and pay for the goods, the seller may sue him for damages
for non-acceptance. As regards measure of damages,
Section 73 of the Indian Contract Act, 1872 applies.
(Sections 55-61)
3. Repudiation of contract before due date
(Section 60):
● Where the buyer repudiates the contract before the date

of delivery, the seller may treat the contract as rescinded
and sue damages for the breach. This is known as the ‘rule
of anticipatory breach contract’.
(Sections 55-61)
4. Suit for interest [Section 61]:
● Where there is specific agreement between the seller and

the buyer as to interest on the price of the goods from the
date on which payment becomes due, the seller may
recover interest from the buyer. If, however, there is no
specific agreement to this effect, the seller may charge
interest on the price when it becomes due from such day
as he may notify to the buyer.
(Sections 55-61)
4. Suit for interest [Section 61]:
● In the absence of a contract to the contrary, the Court may

award interest to the seller in a suit by him at such rate as
it thinks fit on the amount of the price from the date of the
tender of the goods or from the date on which the price
was payable.
4.5 Remedies Of Buyer Against The Seller
● If the seller commits a breach of contract, the buyer gets

the following rights against the seller:
1. Damages for non-delivery [Section 57]:
● Where the seller wrongfully neglects or refuses to deliver

the goods to the buyer, the buyer may sue the seller for
damages for non-delivery.
Example:
● ‘A’ a shoe manufacturer, agreed to sell 100 pairs of shoes to

‘B’ at the rate of ₹ 1050 per pair. ‘A’ knew that ‘B’ wanted
the shoes for the purpose of further reselling them to ‘C’ at
the rate of ₹ 1100/- per pair. On the due date of delivery, ‘A
’failed to deliver the shoes to ‘B. In consequence, ‘B’ could
not perform his contract with 'C’ for the supply of 100 pairs
of shoes. In this case, 'B’ can recover damages from ‘A’ at
the rate of ₹ 50/- per pair (the difference between the
contract price and resale price).
2. Suit for specific performance (Section 58):
● Where the seller commits of breach of the contract of sale,

the buyer can appeal to the court for specific performance.
The court can order for specific performance only when the
goods are ascertained or specific.
Example:
● ‘A’ agreed to sell a rare painting of Mughal period to ‘B’. But

on the due date of delivery, ‘A’ refused to sell the same. In
this case, ‘B’ may file a suit against ‘A’ for obtaining an
order from the Court to compel ‘A’ to perform the contract
(i.e. to deliver the painting to ‘B’ at the agreed price).
3. Suit for breach of warranty (section 59):
● Where there is breach of warranty on the part of the seller,

or where the buyer elects to treat breach of condition as
breach of warranty, the buyer is not entitled to reject the
goods only on the bases of such breach of warranty. But he
may-
i. set up against the seller the breach of warranty in

diminution or extinction of the price; or
ii. sue the seller for damages for breach of warranty.
4. Repudiation of contract before due date (Section 60):
● Where either party to a contract of sale repudiates the

contract before the date of delivery, the other may either
treat the contract as subsisting and wait till the date of
delivery, or he may treat the contract as rescinded and sue
for damages for the breach.
5. Suit for interest:
i. Nothing in this Act shall affect the right of the seller or the
buyer to recover interest or special damages, in any case
where by law interest or special damages may be
recoverable, or to recover the money paid where the
consideration for the payment of it has failed.
5. Suit for interest:
ii. In the absence of a contract to the contrary, the court may

award interest at such rate as it thinks fit on the amount of
the price to the buyer in a suit by him for the refund of the
price in a case of a breach of the contract on the part of
the seller-from the date on which the payment was made.
Example 1:
● In case of a sale of cigarettes which turned out to be

mildewed and unfit for consumption, damages were
awarded on the basis of the difference between the
contract price and the price released.
4.6 Auction Sale (Section 64)
● An ‘Auction Sale’ is a mode of selling property by inviting

bids publicly and the property is sold to the highest bidder.
An auctioneer is an agent governed by the Law of Agency.
When he sells, he is only the agent of the seller. He may,
however, sell his own property as the principal and need
not disclose the fact that he is so selling.
Rules of Auction sale:
● Section 64 of the Sale of Goods Act, 1930 provides following

rules to regulate the sale by auction:
a. Where goods are sold in lots:

● Where goods are put up for sale in lots, each lot is prima
facie deemed to be subject of a separate contract of sale.
b. Completion of the contract of sale:

● The sale is complete when the auctioneer announces its
completion by the fall of hammer or in any other customary
manner and until such announcement is made, any bidder
may retract from his bid.
c. Right to bid may be reserved:

● Right to bid may be reserved expressly by or on behalf of
the seller and where such a right is expressly reserved, but
not otherwise, the seller or any one person on his behalf
may bid at the auction.
d. Where the sale is not notified by the seller:

● Where the sale is not notified to be subject to a right to bid
on behalf of the seller, it shall not be lawful for the seller
to bid himself or to employ any person to bid at such sale,
or for the auctioneer knowingly to take any bid from the
seller or any such person; and any sale contravening this
rule may be treated as fraudulent by the buyer.
e. Reserved price:
● The sale may be notified to be subject to a reserve or upset
price; and
f. Pretended bidding:
● If the seller makes use of pretended bidding to raise the
price, the sale is voidable at the option of the buyer.
Example:
● P sold a car by auction. It was knocked down to Q who was

only allowed to take it away on giving a cheque for the
price and signing an agreement that ownership should not
pass until the cheque was cleared. In the meanwhile till the
cheque was cleared, Q sold the car to R. It was held that
the property was passed on the fall of the hammer and
therefore R had a good title to the car. Both sale and sub
sale are valid in favour of Q and R respectively.
4.7 Inclusion Of Increased Or Decreased Taxes In
Contract Of Sale (Section 64A)
● Where after a contract has been made but before it has
been performed, tax revision takes place. Where tax is being
imposed, increased, decreased or remitted in respect of any
goods without any stipulations to the payment of tax, the
parties would become entitled to read just the price of the
goods accordingly. Following taxes are applied on the sale
or purchase of goods:
❖ Any duty of customs or excise on goods,
❖ Any tax on the sale or purchase of goods
4.7 Inclusion Of Increased Or Decreased Taxes In
Contract Of Sale (Section 64A)
● The buyer would have to pay the increased price where the
tax increases and may derive the benefit of reduction if
taxes are curtailed. Thus, seller may add the increased
taxes in the price. The effect of provision can, however, is
excluded by an agreement to the contrary. It is open to the
parties to stipulate anything regard to taxation.
301
Important
Definitions
Document of Title
Buyer & Seller Goods Delivery V. Document
showing Title
Existing Future Contingent Actual
Specific Constructive
Ascertained Symbolic
Unascertained
SALE Vs.
Agreement to Contract for Work

Hire- Purchase Bailment
Sale & Labour
No Goods are
sold only services
are transferred.
Basis of difference Sale Agreement to sell
Transfer of property The property in the goods passes to the Property in the goods passes to the
buyer immediately. buyer on future date or on fulfilment of
some condition.
Nature of contract It is an executed contract. i.e. contractfor It is an executory contract. i.e. contract
which consideration has been paid. for which consideration is to be paid at
a future date.
Remedies for breach The seller can sue the buyer for the price The aggrieved party can sue for
of the goods because of the passing of the damages only and not for the price,
property therein to the buyer. unless the price was payable at a stated
date.
Liability of parties A subsequent loss or destruction of the Such loss or destruction is the liability
goods is the liability of the buyer. of the seller.
Burden of risk Risk of loss is that of buyer since risk Risk of loss is that of seller.
follows ownership.
Nature of rights Creates Jus in rem Creates Jus in personam
Right of resale The seller cannot resell the goods. The seller may sell the goods since
ownership is with the seller.
In case of insolvencof The official assignee will not be able to The official assignee will acquire
seller take over the goods but will recover the control over the goods but the price will
price from the buyer. not be recoverable.
In case of insolvencof The official assignee will have control The official assignee will not have any
buyer over the goods. control over the goods.
difference
Time of passing Property in the goods is transferred The property in goods passes to the
property to the buyer immediately at the time hirer upon payment of the last
of instalment.
contract.
Position of the party The position of the buyer is that of The position of the hirer is that of a
the owner of the goods. bailee till he pays the
lastinstalment.
Termination of contract The buyer cannot terminate the The hirer may, if he so likes,
contract and is bound to pay the price terminate the contract by returning
of the goods. the goods to its owner without any
liability to pay the remaining
instalments.
Burden of Risk of The seller takes the risk of any loss The owner takes no such risk, for if
insolvency of the buyer resulting from the insolvency of the the hirer fails to pay an instalment,
buyer. the owner has right to take back the
goods.
Transfer of title The buyer can pass a good title to a The hirer cannot pass any title even
bona fide purchaser from him. to a bona fide purchaser.
Resale The buyer in sale can resell the The hire purchaser cannot resell
goods. unless he has paid all
theinstalments.
difference
Transfer of The property in goods is There is only transfer of
property transferred from the seller to possession of goods from
the buyer. So it is transfer of the bailor to the bailee for
general property. any of the reasons like
safe custody, carriage etc.
So, it is transfer of special
property.
Return of goods The return of goods in The bailee must return the
contract of sale is not goods to the bailor on the
possible. accomplishment of the
purpose for which the
bailment was made.
Consideration The consideration is the The consideration may be

price in terms of money. gratuitous or non-
gratuitous.
Contract of Sale
How Made
(section 5)
Immediate Immediate Immediate Delivery and Delivery and

Offer to buy or
Delivery of Payment of Delivery and payment both in payment both in
Sale at a price
Goods Price Payment installment Future date
Subject Matter of contract
of sale
(u/s 6)
Existing Future Contingent

Goods Goods Goods
Goods Perishing
Before Contract of Before Sale after

sale Agreement of Sale
(u/s 7) (u/s 8)
Agreement can be
Contract is Void
avoided
Price
Ascertainment of Agreement to
Price sale at Valuation
(u/s 9) (u/s 10)
Price to be fixed at the Sale is made by valuation by third

time of contract party
If not, that Buyer shall pay If unable to do valuation agreement

Reasonable price is void
Party in fault pay damages to

other party
If received Goods, Buyer shall

pay reasonable price
Stipulation as to Time
Delivery of goods
Time of Payment
Must be made
is not Essence
without Delay
Definition
Condition Warranty
Point of differences Condition Warranty
Meaning A condition is a stipulation essential A warranty is a stipulation collateral

to the main purpose of the contract. to the main purpose of the contract.
Right incase of breach The aggrieved party can repudiate The aggrieved party can claim only
the contract or claim damages or damages in case of breach of
both in the case of breach of warranty.
condition.
Conversion of stipulations A breach of condition may be treated A breach of warranty cannot be

as a breach of warranty. treatedas a breach of condition.
When Condition is treated as
warranty
Voluntary Waiver Compulsory Waiver
Waives
Non Severability of
Performance of
Contract Contract
Elect to treat Fulfilment of

condition as Conditions excused
Warranty by law
CAVEAT EMPTOR
“LET THE BUYER BEWARE”
Exceptions
Fitness as Goods Goods of Sale by

Sale by Trade
to quality Goods sold by Merchanta sample as
sample Usage
or use Purchased Descriptio ble Quality well as Seller
under n Descriptio actively
patent or n conceals a
brand defect or is
name guilty of
fraud
Passing of Property
Property Passes Goods Must be

Goods sent on
when Intend to Pass Ascertained Reservation of right
Rules approval or “on sale
(Specific/Ascertained (Unascertained of disposal
or return”
Goods) Goods)
Sale of
Identification of Specific Goods in unascertained Sale for cash only
Goods Deliverable State goods by or Return
description
Specific Goods to be
Delivery to the
Intentions of Parties put into Deliverable
carrier
State
Specific Goods in
Deliverable State
when Seller has to
Ascertain Price
RISK PRIMA FACIE PASSES
WITH PROPERTY
Goods remain at the seller’s risk

until the property therein is
transferred to the buyer, but when
In case of Delay, Party in fault
the property therein is transferred
shall be liable
to the buyer, the goods are at the
buyer’s risk whether delivery has
been made or not.
TRANSFER OF TITLE BY NON OWNERS
“Nemo dat quod non habet” which means that no

one can give what he has not got
Exceptions
Sale by a
Sale by a person in Sale by one Sale by buyer Sale by
Mercantile Sale by who has obtaining Effect of an
possessi Sale under
Agent one of on under already sold possession Estoppel unpaid
the joint before the seller the
voidable the goods but provisions of
owners contract continues in property in the
goods has other Acts
possession
thereof vested in him
PERFORMANCE OF
THE CONTRACT OF
SALE
Payment and
Definition & Duties of seller delivery are
Types of Delivery and buyer concurrent
conditions
Rules Regarding Delivery of goods (Section 33-41)
UNPAID SELLER
When a bill of exchange or other

negotiable instrument has been
The whole of the price has not
received as conditional payment,
been paid or tendered and the
and the condition on which it was
seller had an immediate right of
received has not been fulfilled by
action for the price.
reason of the dishonour of the
instrument
RIGHTS OF AN UNPAID SELLER
Rights of an unpaid seller against

the goods
Right of Stoppage in Right of

Seller’s Lien
Transit Resale
Duration of
Part Delivery Where goods are perishable
Transit
Termination
of Lien Where he gives notice to the buyer of
his intention to re-sell the goods
How stoppage in
transit is effected
Where an unpaidseller who has exercised his right of
lien or stoppage in transit resells the goods
A re-sale by the seller where a right of r-esale is

expressly reserved in a contract of sale
Where the property in goods has not passed to the buyer

RIGHTS OF AN UNPAID SELLER
Rights of an unpaid seller against the Buyer
Suit for Price
Suit for Damages for Non-

acceptance
Repudiation of contract before

due date
Suit For Interest

REMEDIES OF BUYER AGAINST THE SELLER
AUCTION SALE
Completion of Right to bid Where the sale
Where goods Pretended
the contract of may be is not notified Reserved price
are sold in lots bidding
sale reserved by the seller
THE SALE OF GOODS ACT, 1930
Section Particular
1 Short title, extent and commencement.

2 Definitions.
3 Application of provisions of Act 9 of 1872
4 Sale and agreement to sell.
5 Contract of sale how made.
6 Existing or future goods.
7 Goods perishing before making of contract.
8 Goods perishing before sale but after agreement to sell.
9 Ascertainment of price.
10 Agreement to sell at valuation.
11 Stipulations as to time.
12 Condition and warranty.
332
13 When condition to be treated as warranty.
14 Implied undertaking as to title, etc.
15 Sale by description.
16 Implied conditions as to quality or fitness.
17 Sale by sample.
18 Goods must be ascertained.
19 Property passes when intended to pass.
20 Specific goods in a deliverable state.
21 Specific goods to be put into a deliverable state.
22 Specific goods in a deliverable state, when the seller has to do anything
thereto in order toascertain price.
23 Sale of unascertained goods and appropriation. Delivery to carrier.
24 Goods sent on approval or “on sale or return”.
25 Reservation of right of disposal.
26 Risk prima facie passes with property.
27 Sale by person not the owner.
333
28 Sale by one of joint owners.
29 Sale by person in possession under voidable contract.
30 Seller or buyer in possession after sale.
31 Duties of seller and buyer.
32 Payment and delivery are concurrent conditions.
33 Delivery.
34 Effect of part delivery.
35 Buyer to apply for delivery.
36 Rules as to delivery.
37 Delivery of wrong quantity.
38 Instalment deliveries.
39 Delivery to carrier or wharfinger.
40 Risk where goods are delivered at distant place.
41 Buyer’s right of examining the goods.
42 Acceptance.
43 Buyer not bound to return rejected goods.
334
44 Liability of buyer for neglecting or refusing delivery of goods.
45 “Unpaid seller” defined.
46 Unpaid seller’s rights.
47 Seller’s lien.
48 Part delivery.
49 Termination of lien.
50 Right of stoppage in transit.
51 Duration of transit.
52 How stoppage in transit is effected.
53 Effect of sub-sale or pledge by buyer.
54 Sale not generally rescinded by lien or stoppage in transit.
55 Suit for price.
56 Damages for non-acceptance.
57 Damages for non-delivery.
58 Specific performance.
59 Remedy for breach of warranty.
335
60 Repudiation of contract before due date.
61 Interest by way of damages and special damages.
62 Exclusion of implied terms and conditions.
63 Reasonable time a question of fact.
64 Auction sale.
64A In contracts of sale, amount of increased or decreased taxes to be added or

deducted.
65 [Repealed.].
66 Savings
336
THE SALE OF GOODS ACT, 1930
SN CASE LAWS PARTICULARS
1 Bombay timber was purchased for the express purpose of using it as
Burma railways sleepers and when it was found to be unfit for the
Trading purpose, the Court held that the contract could be avoided.
Corporation
Ltd. vs. Aga
Muhammad
2 Mount D. F. A entered into a contract to sell cartons in possession of a
Ltd. vs Jay wharfinger to B and agreed with B that the price will be paid to
& Jay A from the sale proceeds recovered from his customers. Now
(Provisions) B sold goods to C and C duly paid to B. But anyhow B failed
Co. Ltd to make the payment to A. A wanted to exercise his right of
lien and ordered the wharfinger not to make delivery to C.
Held that the seller had assented to the resale of the goods by
the buyer to the sub-buyers.
As a result A’s right to lien is defeated
337
1.
Introduction
Let’s start LAW
The Limited Liability Partnership Act, 2008
Chapter Overview
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❖ The Ministry of Law and Justice on 9 th January 2007
notified the Limited Liability Partnership Act, 2008.
❖ The Parliament passed the Limited Liability Partnership Bill
on 12th December, 2008 and the President of India has
assented the Bill on 7 th January, 2009 and called as the
Limited Liability Partnership Act, 2008.
❖ This Act have been enacted to make provisions for the
formation and regulation of Limited Liability Partnerships
and for matters connected therewith or incidental thereto.
❖ The LLP Act, 2008 has 81 sections and 4 schedules.
34
❖ The First Schedule deals with mutual rights and duties of
partners, as well limited liability partnership and its partners
where there is absence of a formal agreement with respect
to them.
❖ The Second Schedule deals with conversion of a firm into
LLP.
❖ The Third Schedule deals with conversion of a private
company into LLP.
❖ The Fourth Schedule deals with conversion of unlisted
public company into LLP.
34
❖ The Ministry of Corporate Affairs and the Registrar of
Companies (ROC) are entrusted with the task of
administering the LLP Act, 2008.
❖ The Central Government has the authority to frame the
Rules with regard to the LLP Act, 2008, and can amend them
by notifications in the Official Gazette, from time to time.
❖ It is also to be noted that the Indian Partnership Act, 1932 is
not applicable to LLPs.
34
❖ The lawmakers envisage the needs for bringing out the new
legislation for creation of the Limited Liability Partnership to
meet with the contemporary growth of the Indian economy.
A need has been felt for a new corporate form that would
provide an alternative to the traditional partnership with
unlimited personal liability on the one hand and the statute-
based governance structure of the limited liability company
on the other hand, in order to enable professional expertise
and entrepreneurial initiative to combine, organize and
operate in flexible, innovative and efficient manner.
34
❖ The Limited Liability Partnership (LLP) is viewed as an
alternative corporate business vehicle. It provides the
benefits of limited liability but allows its members the
flexibility of organizing their internal structure as a
partnership based on a mutually arrived agreement.
❖ The LLP form enables entrepreneurs, professionals and

enterprises providing services of any kind or engaged in
scientific and technical disciplines, to form commercially
efficient vehicles suited to their requirements. Owing to
flexibility in its structure and operation, the LLP is a suitable
vehicle for small enterprises and for investment by venture
capital.
34
❖ A LLP is a new form of legal business entity with limited liability. It
is an alternative corporate business vehicle that not only gives the
benefits of limited liability at low compliance cost but allows its
partners the flexibility of organising their internal structure as a
traditional partnership. The LLP is a separate legal entity and, while
the LLP itself will be liable for the full extent of its assets, the
liability of the partners will be limited.
❖ LLP is an alternative corporate business form that gives the
benefits of limited liability of a company and the flexibility of a
partnership.
❖ Since LLP contains elements of both ‘a

corporate structure’ as well as ‘a partnership
firm structure’ LLP is called a hybrid between
a company and a partnership.
34
34
1. Body Corporate [(Section 2(d)]: It means a company as defined
in clause (20) of section 2 of the Companies Act, 2013 and
includes—
i. a LLP registered under this Act;
ii. a LLP incorporated outside India; and
iii. a company incorporated outside India,
⬩ but does not include—

i. a corporation sole;
ii. a co-operative society registered under any law for the time being in force; and
iii. any other body corporate (not being a company as defined in clause
(20) of section 2 of the Companies Act, 2013 or a limited liability
partnership as defined in this Act), which the Central Government may,
by notification in the Official Gazette, specify in this behalf.
17
1. Business [Section 2(e)]: Business [Section 2(e)]: “Business”
includes every trade, profession, service and occupation
except any activity which the Central Government may, by
notification, exclude.
3. Designated Partner [Section 2(j)]: “Designated partner” means
any partner designated as such pursuant to section 7.
4. Entity [Section 2(k)]: ‘’Entity” means any body corporate and
includes, for the purposes of sections 18, 46, 47, 48, 49, 50, 52
and 53, a firm set up under the Indian Partnership Act, 1932.
5. Financial Year [Section 2(l)]: “Financial year”, in relation to a
LLP, means the period from the 1st day of April of a year to the
31st day of March of the following year.
However, in the case of a LLP incorporated after the 30th day
of September of a year, the financial year may end on the 31st
day of March of the year next following that year.
6. Foreign LLP [section 2(m)]: It means a LLP formed,
incorporated or registered outside India which establishes a
place of business within India.
7. Limited liability partnership [Section 2(n)]: Limited Liability
Partnership means a partnership formed and registered under
this Act.
8. Limited Liability partnership agreement [Section 2(o)]: It means
any written agreement between the partners of the LLP or
between the LLP and its partners which determines the mutual
rights and duties of the partners and their rights and duties in
relation to that LLP.
9. Partner [Section 2(q)]: Partner, in relation to a LLP, means any
person who becomes a partner in the LLP in accordance with
the LLP agreement.
“Small limited liability partnership [Section 2(ta)]: It means a
limited liability partnership—
(i) the contribution of which, does not exceed twenty-five lakh rupees
or such higher amount, not exceeding five crore rupees, as may be
prescribed; and
(i) the turnover of which, as per the Statement of Accounts and

Solvency for the immediately preceding financial year, does not
exceed forty lakh rupees or such higher amount, not exceeding
fifty crore rupees, as may be prescribed; or
which meets such other requirements as may be prescribed, and fulfils

such terms and conditions as may be prescribed;
Non-applicability of the Indian Partnership Act, 1932 (Section 4):
Save as otherwise provided, the provisions of the Indian Partnership
Act, 1932 shall not apply to a LLP.
Partners (Section 5): Any individual or body corporate may be a

partner in a LLP.
However, an individual shall not be capable of becoming a partner of

a LLP, if—
a. he has been found to be of unsound mind by a Court of
competent jurisdiction and the finding is in force;
b. he is an undischarged insolvent; or
c. he has applied to be adjudicated as an insolvent and his
application is pending.
Minimum number of partners (Section 6):
i. Every LLP shall have at least two partners.
ii. If at any time the number of partners of a LLP is reduced below
two and the LLP carries on business for more than six months
while the number is so reduced, the person, who is the only
partner of the LLP during the time that it so carries on business
after those six months and has the knowledge of the fact that
it is carrying on business with him alone, shall be liable
personally for the obligations of the LLP incurred during that
period.
Designated partners (Section 7):
(1) Every limited liability partnership shall have at least two designated partners who
are individuals and at least one of them shall be a resident in India:
Provided that in case of a limited liability partnership in which all the partners are
bodies corporate or in which one or more partners are individuals and bodies
corporate, at least two individuals who are partners of such limited liability
partnership or nominees of such bodies corporate shall act as designated
partners.
Explanation. For the purposes of this section, the term resident in India means
a person who has stayed in India for a period of not less than one hundred and
twenty days during the financial year.
(1) Subject to the provisions of sub-section (1),
(a) if the incorporation document specifies who are to be designated partners, such
persons shall be designated partners on incorporation; or
(b) states that each of the partners from time to time of limited liability partnership is
to be designated partner, every partner shall be a designated partner;
(ii) any partner may become a designated partner by and in accordance with the
limited liability partnership agreement and a partner may cease to be a
designated partner in accordancewith limited liability partnership agreement.
(3) An individual shall not become a designated partner in any limited liability
partnership unless he has given his prior consent to act as such to the limited
liability partnership in such form and manner as may be prescribed.
(4) Every limited liability partnership shall file with the Registrar the particulars of
every individual who has given his consent to act as designated partner in such
form and manner as may be prescribed within thirty days of his appointment.
(5) An individual eligible to be a designated partner shall satisfy such conditions and
requirements as may be prescribed.
Every designated partner of a limited liability partnership shall obtain a Designated

Partners Identification Number (DPIN) from the Central Government and the
provisions of sections 153 to 159 (both inclusive) of the Companies Act, 2013
shall apply mutatis mutandis for the said purpose
LLP is a body corporate: Section 2(1)(d) of the LLP Act, 2008
provides that a LLP is a body corporate formed and incorporated
under this Act and is a legal entity separate from that of its
partners and shall have perpetual succession. Therefore, any
change in the partners of a LLP shall not affect the existence,
rights or liabilities of the LLP.
Section 3 of LLP Act provides that a LLP is a body corporate
formed and incorporated under this Act and is a legal entity
separate from that of its partners.
Perpetual Succession: The LLP can continue its existence

irrespective of changes in partners. Death, insanity, retirement or
insolvency of partners has no impact on the existence of LLP. It is
capable of entering into contracts and holding property in its own
name.
Separate Legal Entity: The LLP is a separate legal entity, is liable
to the full extent of its assets but liability of the partners is limited
to their agreed contribution in the LLP. In other words, creditors of
LLP shall be the creditors of LLP alone.
Mutual Agency: Further, no partner is liable on account of the

independent or un-authorized actions of other partners, thus
individual partners are shielded from joint liability created by
another partner’s wrongful business decisions or misconduct. In
other words, all partners will be the agents of the LLP alone. No
one partner can bind the other partner by his acts.
LLP Agreement: Mutual rights and duties of the partners within a
LLP are governed by an agreement between the partners. The LLP
Act, 2008 provides flexibility to partner to devise the agreement as
per their choice. In the absence of any such agreement, the mutual
rights and duties shall be governed by the provisions of the LLP
Act, 2008.
Artificial Legal Person: A LLP is an artificial legal person because it
is created by a legal process and is clothed with all rights of an
individual. It can do everything which any natural person can do,
except of course that, it cannot be sent to jail, cannot take an
oath, cannot marry or get divorce nor can it practice a learned
profession like CA or Medicine. A LLP is invisible, intangible,
immortal (it can be dissolved by law alone) but not fictitious
because it really exists.
Common Seal: A LLP being an artificial person can act through its
partners and designated partners. LLP may have a common seal, if
it decides to have one [Section 14(c)]. Thus, it is not mandatory for
a LLP to have a common seal. It shall remain under the custody of
some responsible official and it shall be affixed in the presence of
at least 2 designated partners of the LLP.
Limited Liability: Every partner of a LLP is, for the purpose of the
business of LLP, the agent of the LLP, but not of other partners
(Section 26). The liability of the partners will be limited to their
agreed contribution in the LLP. Such contribution may be of
tangible or intangible nature or both.
Management of Business: The partners in the LLP are entitled to
manage the business of LLP. But only the designated partners are
responsible for legal compliances.
Minimum and Maximum number of Partners: Every LLP shall have

least two partners and shall also have at least 2 individuals as
designated partners, of whom at least one shall be resident in
India. There is no maximum limit on the partners in LLP.
Business for Profit Only: The essential requirement for forming
LLP is carrying on a lawful business with a view to earn profit.
Thus LLP cannot be formed for charitable or non-economic
purpose.
Investigation: The Central Government shall have powers to
investigate the affairs of an LLP by appointment of competence
authority for the purpose.
Compromise or Arrangement: Any compromise or agreements
including merger and amalgamation of LLPs shall be in accordance
with the provisions of the LLP |Act, 2008.
Conversion into LLP: A firm, private company or an unlisted public
company would be allowed to be converted into LLP in accordance
with the provisions of LLP Act, 2008.
E-Filling of Documents: Every form or application of document
required to be filed or delivered under the act and rules made
thereunder, shall be filed in computer readable electronic form on
its website www.mca.gov.in and authenticated by a partner or
designated partner of LLP by the use of electronic or digital
signature.
Foreign LLPs: Section 2(1)(m) defines foreign limited liability

partnership “as a limited liability partnership formed, incorporated,
or registered outside India which established as place of business
within India”. Foreign LLP can become a partner in an Indian LLP.
Limited Liability Partnership- ADVANTAGES
❖ Advantages of LLP form- LLP form is a form of business model
which:
Incorporation of LLP
Incorporation document (Section 11):
1. For a LLP to be incorporated:
a. two or more persons associated for carrying on a lawful

business with a view to profit shall subscribe their names to
an incorporation document;
b. the incorporation document shall be filed in such manner
and with such fees, as may be prescribed with the Registrar
of the State in which the registered office of the LLP is to be
situated; and
c. Statement to be filed:
❖ there shall be filed along with the incorporation

document, a statement in the prescribed form,
❖ made by either an advocate, or a Company Secretary or
a Chartered Accountant or a Cost
❖ Accountant, who is engaged in the formation of the LLP
and
❖ by any one who subscribed his name to the
incorporation document,
❖ that all the requirements of this Act and the rules made
thereunder have been complied with,
❖ in respect of incorporation and matters precedent and
incidental thereto.
2. The incorporation document shall—
a. be in a form as may be prescribed;
b. state the name of the LLP;
c. state the proposed business of the LLP;
d. state the address of the registered office of the LLP;
e. state the name and address of each of the persons who are
to be partners of the LLP on incorporation;
f. state the name and address of the persons who are to be
designated partners of the LLP on incorporation;
g. contain such other information concerning the proposed LLP
as may be prescribed.
3. If a person makes a statement as discussed above which h e —
a. knows to be false; or
b. does not believe to be true, shall be punishable
❖ with imprisonment for a term which may extend to 2
years and
❖ with fine which shall not be less than 10,000 but which
may extend to 5 Lakhs.
Incorporation by registration (Section 12):
1. When the requirements imposed by clauses (b) and (c) of s ub -

section (1) of section 11 have been complied with, the Registrar shall
retain the incorporation document and, unless the requirement
imposed by clause (a) of that sub-section has not been complied
with, he shall, within a period of 14 d a y s —
a. register the incorporation document; and
b. give a certificate that the LLP is incorporated by the name specified therein.
2. The Registrar may accept the statement delivered under clause (c) of
sub-section (1) of section 11 as sufficient evidence that the requirement
imposed by clause (a) of that sub-section has been complied with.
3. The certificate issued under clause (b) of sub-section (1) shall be
signed by the Registrar and authenticated by his official seal.
4. The certificate shall be conclusive evidence that the LLP is

incorporated by the name specified therein.
Registered office of LLP and change therein
(Section 13):
1. Every limited liability partnership shall have a registered

office to which all communications and notices may be
addressed and where they shall be received.
2. A document may be served on a limited liability partnership

or a partner or designated partner thereof by sending it by
post under a certificate of posting or by registered post or
by any other manner, as may be prescribed, at the
registered office and any other address specifically
declared by the limited liability partnership for the
purpose in such form and manner as may be prescribed.
3. A limited liability partnership may change the place of its
registered office and file the notice of such change with the
Registrar in such form and manner and subject to such
conditions as may be prescribed and any such change shall
take effect only upon such filing.
4. If any default is made in complying with the requirements of

this section, the limited liability partnership and its every
partner shall be liable to a penalty of five hundred rupees for
each day during which the default continues, subject to a
maximum of fifty thousand rupees for the limited liability
partnership and its every partner.
Effect of registration (Section 14):
Name (Section 15):
1. Every limited liability partnership shall have either the words

“limited liability partnership” or the acronym “LLP” as the last
words of its name.
2. No LLP shall be registered by a name which, in the opinion of
the Central Government i s —
a. undesirable; or
b. identical or too nearly resembles to that of any other
partnership firm or LLP or body corporate or a registered
trade mark, or a trade mark which is the subject matter of
an application for registration of any other person under the
Trade Marks Act, 1999.
Reservation of name (Section 16):
1. A person may apply in such form and manner and accompanied

by such fee as may be prescribed to the Registrar for the
reservation of a name set out in the application a s —
a. the name of a proposed LLP; or
b. the name to which a LLP proposes to change its name.
2. Upon receipt of an application under sub-section (1) and on

payment of the prescribed fee, the Registrar may, if he is
satisfied, subject to the rules prescribed by the Central
Government in the matter, that the name to be reserved is not
one which may be rejected on any ground referred to in s u b -
section (2) of section 15, reserve the name for a period of 3
months from the date of intimation by the Registrar.
Change of name of LLP (Section 17):
Change of name of LLP (Section 17):

(1) Notwithstanding anything contained in sections 15 and 16, if
through inadvertence or otherwise, a limited liability partnership,
on its first registration or on its registration by a new body
corporate, its registered name;">name, is registered by a name
which is identical with or too nearly resembles to —
(a) that of any other limited liability partnership or a company; or
(b) a registered trade mark of a proprietor under the Trade Marks
Act, 1999, as is likely to be mistaken for it, then on an application
of such limited liability partnership or proprietor referred to in
clauses (a) and (b) respectively or a company, the Central
Government may direct that such limited liability partnership to
change its name or new name within a period of three months from
the date of issue of such direction:
Provided that an application of the proprietor of the registered
trade marks shall be maintainable within a period of three years
from the date of incorporation or registration or change of name of
the limited liability partnership under this Act.
2. Where a limited liability partnership changes its name or

obtains a new name under sub-section (1), it shall within a
period of fifteen days from the date of such change, give
notice of the change to Registrar along with the order of
the Central Government, who shall carry out necessary
changes in the certificate of incorporation and within thirty
days of such change in the certificate of incorporation,
such limited liability partnership shall change its name in
the limited liability partnership agreement.
3. If the limited liability partnership is in default in complying
with any direction given under sub-section (1), the Central
Government shall allot a new name to the limited liability
partnership in such manner as may be prescribed and the
Registrar shall enter the new name in the register of limited
liability partnerships in place of the old name and issue a fresh
certificate of incorporation with new name, which the limited
liability partnership shall use thereafter:
Provided that nothing contained in this sub-section shall prevent
a limited liability partnership from subsequently changing its
name in accordance with the provisions of section 16.
Steps to incorporate LLP-
Eligibility to be partners (Section 22):
❖ On the incorporation of a LLP, the persons who subscribed

their names to the incorporation document shall be its partners
and any other person may become a partner of the LLP by and
in accordance with the LLP agreement.
Relationship of partners (Section 23):
1. Save as otherwise provided by this Act, the mutual rights and

duties of the partners of a LLP, and the mutual rights and
duties of a LLP and its partners, shall be governed by the LLP
agreement between the partners, or between the LLP and its
partners.
2. The LLP agreement and any changes, if any, made therein shall
be filed with the Registrar in such form, manner and
accompanied by such fees as may be prescribed.
3. An agreement in writing made before the incorporation of a LLP
between the persons who subscribe their names to the
incorporation document may impose obligations on the LLP,
provided such agreement is ratified by all the partners after the
incorporation of the LLP.
4. In the absence of agreement as to any matter, the mutual

rights and duties of the partners and the mutual rights and
duties of the LLP and the partners shall be determined by the
provisions relating to that matter as are set-out in the First
Schedule.
Cessation of partnership interest (Section 24):
1. A person may cease to be a partner of a LLP in accordance

with an agreement with the other partners or, in the absence of
agreement with the other partners as to cessation of being a
partner, by giving a notice in writing of not less than 30 days to
the other partners of his intention to resign as partner.
2. A person shall cease to be a partner of a L L P —

a. on his death or dissolution of the LLP; or
b. if he is declared to be of unsound mind by a competent
court; or
c. if he has applied to be adjudged as an insolvent or declared
as an insolvent.
3. Where a person has ceased to be a partner of a LLP
(hereinafter referred to as “former partner”), the former
partner is to be regarded (in relation to any person dealing with
the LLP) as still being a partner of the LLP u n le s s —
a. the person has notice that the former partner has ceased
to be a partner of the LLP; or
b. notice that the former partner has ceased to be a partner
of the LLP has been delivered to the Registrar.
4. The cessation of a partner from the LLP does not by itself
discharge the partner from any obligation to the LLP or to the
other partners or to any other person which he incurred while
being a partner.
5. Where a partner of a LLP ceases to be a partner, unless
otherwise provided in the LLP agreement, the former partner or
a person entitled to his share in consequence of the death or
insolvency of the former partner, shall be entitled to receive
from the L L P —
a. an amount equal to the capital contribution of the former
partner actually made to the LLP; and
b. his right to share in the accumulated profits of the LLP,
after the deduction of accumulated losses of the LLP,
determined as at the date the former partner ceased to be
a partner.
6. A former partner or a person entitled to his share in
consequence of the death or insolvency of the former partner
shall not have any right to interfere in the management of the
LLP.
Registration of changes in partners (Section 25):
1. Every partner shall inform the LLP of any change in his name or
address within a period of 15 days of such change.
2. A LLP shall—
a. where a person becomes or ceases to be a partner, file a
notice with the Registrar within 30 days from the date he
becomes or ceases to be a partner; and
b. where there is any change in the name or address of a
partner, file a notice with the Registrar within 30 days of
such change.
3. A notice filed with the Registrar under sub-section (2)—
a. shall be in such form and accompanied by such fees as may
be prescribed;
b. shall be signed by the designated partner of the LLP and
authenticated in a manner as may be prescribed; and
c. if it relates to an incoming partner, shall contain a
statement by such partner that he consents to becoming a
partner, signed by him and authenticated in the manner as
may be prescribed.
4. If the limited liability partnership contravenes the provisions
of sub- section (2), the limited liability partnership and its
every designated partner shall be liable to a penalty of ten
thousand rupees.
5. If the contravention referred to in sub- section (1) is made by
any partner of the limited liability partnership, such partner
shall be liable to a penalty of ten thousand rupees.
6. Any person who ceases to be a partner of a LLP may
himself file with the Registrar the notice referred to in sub-
section (3) if he has reasonable cause to believe that the LLP
may not file the notice with the Registrar and in case of any
such notice filed by a partner, the Registrar shall obtain a
confirmation to this effect from the LLP unless the LLP has
also filed such notice. Where no confirmation is given by the
LLP within 15 days,the registrar shall register the notice
made by a person ceasing to be a partner under this section.
Partner as agent (Section 26):
❖ Every partner of a LLP is, for the purpose of the business of the
LLP, the agent of the LLP, but not of other partners.
Extent of liability of LLP (Section 27):
1. A LLP is not bound by anything done by a partner in dealing with a

person if—
a. the partner in fact has no authority to act for the LLP in
doing a particular act; and
b. the person knows that he has no authority or does not
know or believe him to be a partner of the LLP.
1. The LLP is liable if a partner of a LLP is liable to any person as a
result of a wrongful act or omission on his part in the course of the
business of the LLP or with its authority.
3. An obligation of the LLP whether arising in contract or otherwise,
shall be solely the obligation of the LLP.
4. The liabilities of the LLP shall be met out of the property of the LLP.
54
Extent of liability of partner (Section 28):
1. A partner is not personally liable, directly or indirectly for an

obligation referred to in sub-section (3) of section 27 solely by
reason of being a partner of the LLP.
2. The provisions of sub-section (3) of section 27 and sub-section
(1)of this section shall not affect the personal liability of a
partner for his own wrongful act or omission, but a partner
shall not be personally liable for the wrongful act or omission
of any other partner of the LLP.
38
Holding out (Section 29):
➢ Any person,
❖ who by words spoken or written or by conduct,
❖ represents himself, or knowingly permits himself to be
represented to be a partner in a LLP
❖ is liable to any person
❖ who has on the faith of any such representation
❖ given credit to the LLP, whether the person representing
himself or represented to be a partner
❖ does or does not know that the representation has reached
the person so giving credit.
➢ However,
38
❖ where any credit is received by the LLP as a result of such
representation,
❖ the LLP shall,
❖ without prejudice to the liability of the person so representing
himself or represented to be a
❖ partner,
❖ be liable to the extent of credit received by it or any financial
benefit derived thereon.
2. Where after a partner’s death the business is continued in
the same LLP name, the continued use of that name or of the
deceased partner’s name as a part thereof shall not of itself
make his legal representative or his estate liable for any act
of the LLP done after his death.
39
Unlimited liability in case of fraud (Section 30):
1. In the event of an act carried out by a limited liability

partnership, or any of its partners, with intent to defraud
creditors of the limited liability partnership or any other
person, or for any fraudulent purpose, the liability of the
limited liability partnership and partners who acted with
intent to defraud creditors or for any fraudulent purpose
shall be unlimited for all or any of the debts or other
liabilities of the limited liability partnership:
Provided that in case any such act is carried out by a partner,
the limited liability partnership is liable to the same extent as the
partner unless it is established by the limited liability
partnership that such act was without the knowledge or the
authority of the limited liability partnership.
39
(2) Where any business is carried on with such intent or for
such purpose as mentioned in sub-section (1), every person
who was knowingly a party to the carrying on of the business
in the manner extend to five years and with fine which shall not be
less than fifty thousand rupees but which may extend to five lakh
rupees.
(3) Where a limited liability partnership or any partner or designated

partner or employee of such limited liability partnership has
conducted the affairs of the limited liability partnership in a
fraudulent manner, then without prejudice to any criminal
proceedings which may arise under any law for the time being in
force, the limited liability partnership and any such partner or
designated partner or employee shall be liable to pay
compensation to any person who has suffered any loss or
damage by reason of such conduct:
Provided that such limited liabilitypartnership shall not be liable if any
such partner or designated partner or employee has acted
fraudulently without knowledge of the limited liability partnership. 39
Whistle blowing (Section 31):
1. The Court or Tribunal may reduce or waive any penalty leviable

against any partner or employee of a LLP, if it is satisfied that—
● such partner or employee of a LLP has provided useful
information during investigation of such LLP; or
● when any information given by any partner or employee
(whether or not during investigation) leads to LLP or any
partner or employee of such LLP being convicted under this
Act or any other Act.
1. No partner or employee of any LLP may be discharged,
demoted, suspended, threatened, harassed or in any other
manner discriminated against the terms and conditions of his
LLP or employment merely because of his providing
information or causing information to be provided pursuant to
sub-section (1).
39
Maintenance of books of account, other records
and audit, etc. (Section 34):
(1) The limited liability partnership shall maintain such proper

books of account as may be prescribed relating to its
affairs for each year of its existence on cash basis or
accrual basis and according to double entry system of
accounting and shall maintain the same at its registered
office for such period as may be prescribed.
39
(2) Every limited liability partnership shall, within a period of six
months from the end of each financial year, prepare a Statement of
Account and Solvency for the said financial year as at the last day of
the said financial year in such form as may be prescribed, and such
statement shall be signed by the designated partners of the limited
liability partnership.
(3) Every limited liability partnership shall file within the prescribed time,
the Statement of Account and Solvency prepared pursuant to sub-
section (2) with the Registrar every year in such form and manner
and accompanied by such fees as may be prescribed.
(4) The accounts of limited liability partnerships shall be audited in

accordance with such rules as may be prescribed:
Provided that the Central Government may, by notification in the
Official Gazette, exempt any class or classes of limited liability
partnerships from the requirements of this sub-section.
5. Any limited liability partnership which fails to comply with the
provisions of sub-section (3), such limited liability partnership
and its designated partners shall be liable to a penalty of one
hundred rupees for each day during which such failure
continues, subject to a maximum of one lakh rupees for the
limited liability partnership and fifty thousand rupees for every
designated partner.
6. Any limited liability partnership which fails to comply with the

provisions of sub-section (1), sub-section (2) and sub-section
(4), such limited liability partnership shall be punishable with fine
which shall not be less than twenty-five thousand rupees, but
may extend to five lakh rupees and every designated partner of
such limited liability partnership shall be punishable with fine
which shall not be less than ten thousand rupees, but may
extend to one lakh rupees.
34A. Accounting and auditing standards.
The Central Government may, in consultation with
the National Financial Reporting Authority constituted under
section 132 of the Companies Act, 2013,—
(a) prescribe the standards of accounting; and
(b) prescribe the standards of auditing, as recommended by
the Institute of Chartered Accountants of India constituted
under section 3 of the Chartered Accountants Act, 1949,
for a class or classes of limited liability partnerships
Annual return (Section 35):
1. Every LLP shall file an annual return duly authenticated with

the Registrar within 60 days of closure of its financial year in
such form and manner and accompanied by such fee as may be
prescribed.
2. If any limited liability partnership fails to file its annual
return under sub- section (1) before the expiry of the period
specified therein, such limited liability partnership and its
designated partners shall be liable to a penalty of one
hundred rupees for each day during which such failure
continues, subject to a maximum of one lakh rupees for the
limited liability partnership and fifty thousand rupees for
designated partners.
39
❖ Conversion from firm into LLP (Section 55): A firm may convert
into a LLP in accordance with the provisions of this Chapter
and the Second Schedule.
❖ Conversion from private company into LLP (Section 56): A

private company may convert into a LLP in accordance with the
provisions of this Chapter and the Third Schedule.
❖ Conversion from unlisted public company into LLP (Section 57):

An unlisted public company may convert into a LLP in
accordance with the provisions of this Chapter and the Fourth
Schedule.
39
Registration and effect of conversion (Section 58):
Registration:
i. The Registrar, on satisfying that a firm, private company or an
unlisted public company, as the case may be, has complied
with the provisions of the various Schedules, provisions of this
Act and the rules made thereunder, register the documents
issue a certificate of registration in such form as the Registrar
may determine stating that the LLP is, on and from the date
specified in the certificate, registered under this Act.
ii. The LLP shall, within 15 days of the date of registration, inform
the concerned Registrar of Firms or Registrar of Companies, as
the case may be, with which it was registered under the
provisions of the Indian Partnership Act, 1932 or the Companies
Act, 1956 (Now Companies Act, 2013) as the case may be, about
the conversion and of the particulars of the LLP in such form
and manner as may be prescribed.
40
iii. Upon such conversion, the partners of the firm, the
shareholders of private company or unlisted public company,
as the case may be, the LLP to which such firm or such
company has converted, and the partners of the LLP shall be
bound by the provisions of the various Schedules, as the case
may be, applicable to them.
iv. Upon such conversion, on and from the date of certificate of

registration, the effects of the conversion shall be such as
specified in the various schedules, as the case may be.
40
Registration and effect of conversion (Section 58):
Effect of Registration:
Notwithstanding anything contained in any other law for the time
being in force, on and from the date of registration specified in the
certificate of registration issued under the various Schedule, as the
case may be,—
a. there shall be a LLP by the name specified in the certificate of
registration registered under this Act;
40
Effect of Registration:
b. all tangible (movable or immovable) and intangible property
vested in the firm or the company, as the case may be, all
assets, interests, rights, privileges, liabilities, obligations
relating to the firm or the company, as the case may be, and
the whole of the undertaking of the firm or the company, as
the case may be, shall be transferred to and shall vest in the
limited liability partnership without further assurance, act or
deed; and
c. the firm or the company, as the case may be, shall be deemed
to be dissolved and removed from the records of the Registrar
of Firms or Registrar of Companies, as the case may be.
40
Foreign limited liability partnerships (Section 59):
❖ The Central Government may make rules for provisions in

relation to establishment of place of business by foreign LLP
within India and carrying on their business therein by applying
or incorporating, with such modifications, as appear
appropriate, the provisions of the Companies Act, 1956 or such
regulatory mechanism with such composition as may be
prescribed.
40
Winding up and dissolution (Section 63)
❖ The winding up of a LLP may be either voluntary or by the

Tribunal and LLP, so wound up may be dissolved.
40
Circumstances in which LLP may be wound up
by Tribunal (Section 64)
❖ A LLP may be wound up by the Tribunal:

a. if the LLP decides that LLP be wound up by the Tribunal;
b. if, for a period of more than six months, the number of
partners of the LLP is reduced below two;
c. if the LLP is unable to pay its debts;
d. if the LLP has acted against the interests of the sovereignty
and integrity of India, the security of the State or public
order;
e. if the LLP has made a default in filing with the Registrar the
Statement of Account and Solvency or annual return for any
five consecutive financial years; or
f. if the Tribunal is of the opinion that it is just and equitable
that the LLP be wound up.
40
Rules for winding up and dissolution (Section 65)
❖ The Central Government may make rules for the provisions in

relation to winding up and dissolution of LLP.
40
❖ Business transactions of partner with LLP (Section 66): A
partner may lend money to and transact other business with
the LLP and has the same rights and obligations with respect
to the loan or other transactions as a person who is not a
partner.
40
Application of the provisions of the Companies
Act (Section 67):
1. The Central Government may, by notification in the Official

Gazette, direct that any of the provisions of the Companies Act,
1956 specified in the notification—
● shall apply to any LLP; or
● shall apply to any LLP with such exception, modification
and adaptation, as may be specified, in the notification.
40
2. A copy of every notification proposed to be issued under s u b -
section (1)
● shall be laid in draft before each House of Parliament, while
it is in session,
● for a total period of 30 days which may be comprised in
one session or in two or more successive sessions, and
● if, before the expiry of the session immediately following
the session or the successive sessions aforesaid, both
Houses agree in disapproving the issue of the notification or
both Houses agree in making any modification in the
notification,
● the notification shall not be issued or, as the case may be,
● shall be issued only in such modified form as may be
agreed upon by both the Houses.
41
67A. Establishment of Special Courts.
(1) The Central Government may, for the purpose of providing

speedy trial of offences under this Act, by notification,
establish or designate as many Special Courts as may be
necessary for such area or areas, as may be specified in the
notification.
(2)The Special Court shall consist of—
(a) a single Judge holding office as Sessions Judge or Additional

Sessions Judge, in case of offences punishable under this Act with
imprisonment of three years or more; and
(b) a Metropolitan Magistrate or a Judicial Magistrate of the first

class, in the case of other offences, who shall be appointed by the
Central Government with the concurrence of the Chief Justice of
the High Court
Provided that until Special Courts are designated or
established under sub- section (1), the Courts designated as
Special Courts in terms of section 435 of the Companies Act,
2013 shall be deemed to be Special Courts for the purpose of
trial of offences punishable under this Act:
Provided further that notwithstanding anything contained in the

Code of Criminal Procedure, 1973, any offence committed
under this Act, which is triable by a Special Court shall, until a
Special Court is established under this Act or the Companies
Act, 2013, be tried by a Court of Sessions or the Court of
Metropolitan Magistrate or a Judicial Magistrate of the first
class, as the case may be, exercising jurisdiction over the
area.]
67B. Procedure and powers of Special Court.
(1) Notwithstanding anything contained in the Code of Criminal

Procedure, 1973, all offences specified under sub- section (1)
of section 67A shall be triable only by the Special Court
established or designated for the area in which the registered
office of the limited liability partnership is situated in relation to
which the offence is committed or where there are more than
one Special Courts for such area, by such one of them as may
be specified in this behalf by the High Court concerned.
(2) While trying an offence under this Act, a Special Court may
also try an offence other than an offence under this Act with which
the accused may, under the Code of Criminal Procedure, 1973 be
charged at the same trial.
(2) Notwithstanding anything contained in the Code of Criminal Procedure,
1973, the Special Court may, if it thinks fit, try in a summary way any
offence under this Act which is punishable with imprisonment for a term
not exceeding three years:
Provided that in the case of any conviction in a summary trial, no sentence
of imprisonment for a term exceeding one year shall be passed:
Provided further that, when at the commencement of or in the course of a

summary trial, it appears to the Special Court that the nature of the case is
such that the sentence of imprisonment for a term exceeding one year
may have to be passed or that it is, for any other reason, undesirable to
try the case summarily, the Special Court shall, after hearing the parties,
record an order to that effect and thereafter recall any witnesses who
may have been examined and proceed to hear or rehear the case in
accordance with the procedure for the regular trial.
67C. Appeal and revision :
The High Court may exercise, so far as may be applicable, all

the powers conferred by Chapters XXIX and XXX of the Code
of Criminal Procedure, 1973 on a High Court, as if a Special
Court within the local limits of the jurisdiction of the High
Court were a Court of Sessions trying cases within the local
limits of the jurisdiction of the High Court.]
Electronic filing of documents (Section 68):
1. Any document required to be filed, recorded or registered

under this Act may be filed, recorded or registered in such
manner and subject to such conditions as may be prescribed.
2. A copy of or an extract from any document electronically filed
with or submitted to the Registrar which is supplied or issued
by the Registrar and certified through affixing digital signature
as per the Information Technology Act, 2000 to be a true copy
of or extract from such document shall, in any proceedings, be
admissible in evidence as of equal validity with the original
document.
3. Any information supplied by the Registrar that is certified by
the Registrar through affixing digital signature to be a true
extract from any document filed with or submitted to the
Registrar shall, in any proceedings, be admissible in evidence
and be presumed, unless evidence to the contrary is adduced,
to be a true extract from such document.
41
68A. Registration offices.
(1) For the purpose of exercising such powers and discharging such
functions as are conferred on the Central Government by or under
this Act or under rules made thereunder and for the purpose of
registration of limited liability partnerships under this Act, the Central
Government shall, by notification, establish such number of
registration offices at such places as it thinks fit, specifying their
jurisdiction.
(2) The Central Government may appoint such Registrars, Additional
Registrars, Joint Registrars, Deputy Registrars and Assistant
Registrars as it considers necessary, for the registration of limited
liability partnerships and discharge of various functions under this
Act.
(3)The powers and duties of the Registrars referred to in sub-section
(2) and the terms and conditions of their service shall be such as
may be prescribed.
(4)The Central Government may direct the Registrar to prepare a

seal or seals for the authentication of documents required for, or
connected with the registration of limited liability partnerships.]
Payment of additional fee (Section 69):
❖ Payment of additional fee (Section 69): Any document or return

required to be registered or filed under this Act with Registrar,
if, is not registered or filed in time provided therein, may be
registered or filed after that time, on payment of such
additional fee as may be prescribed in addition to any fee as is
payable for filing of such document or return:
❖ Provided that such document or return shall be filed after the

due date of filing, without prejudice to any other action or
liability under this Act:
❖ Provided further that a different fee or additional fee may be

prescribed for different classes of limited liability partnerships
or for different documents or returns required to be filed under
this Act or rules made thereunder.
41
Distinction between LLP and Partnership Firm: The points of
distinction between a limited liability partnership and partnership
firm are tabulated as follows:
42
42
42
Distinction between LLP and Limited Liability Company
42
45pj-16u3-0evh-c4zu-ethu
42
42
426
Introduction
81 Section 4 Schedules
427
428
Important Definitions
Limited Liability
Designated Limited liability
Body Corporate Financial Year Foreign LLP partnership
Partner partnership
agreement
429
Designated Partner
Every LLP shall have at least If in LLP, all the partners are Resident in India: For the
two designated partners who bodies corporate or in which one purposes of this section, the
are individuals and at least or more partners are individuals term “resident in India”
one of them shall be a and bodies corporate, at least means a person who has
resident in India. two individuals who are partners stayed in India for a period of
of such LLP or nominees of not less than 182 days
such bodies corporate shall act during the immediately
as designated partners preceding one year
430
Characteristics
Management of
Body Corporate Limited Liability Foreign LLPs
Business
Minimum and
Maximum E-Filling of
LLP Agreement Common Seal
number of Documents
Partners
Perpetual Artificial Legal Business for Conversion into

Succession Person Profit Only LLP
Separate Legal Compromise or

Mutual Agency Investigation
Entity Arrangement
431
Advantages of LLP
432
Incorporation of LLP
For a LLP to be incorporated:

two or more persons associated for carrying on a lawful business with a view to profit shall subscribe their names to an
incorporation document;
the incorporation document shall be filed in such manner and with such fees, as may be prescribed with the Registrar of
the State in which the registered office of the LLP is to be situated; and
Statement to be filed:
there shall be filed along with the incorporation document, a statement in the prescribed form,
made by either an advocate, or a Company Secretary or a Chartered Accountant or a Cost Accountant, who is engaged in
the formation of the LLP and
by any one who subscribed his name to the incorporation document,
that all the requirements of this Act and the rules made thereunder have been complied with,
in respect of incorporation and matters precedent and incidental thereto.
The incorporation document shall—
be in a form as may be prescribed;
state the name of the LLP;
state the proposed business of the LLP;
state the address of the registered office of the LLP;
state the name and address of each of the persons who are to be partners of the LLP on incorporation;
state the name and address of the persons who are to be designated partners of the LLP on incorporation;
contain such other information concerning the proposed LLP as may be prescribed.
434
435
PARTNERS AND THEIR RELATIONS
Cessation of Registration
Eligibility to Relationship
partnership of changes in
be partners of partners
interest partners
436
EXTENT AND LIMITATION OF LIABILITY
OF LLP AND PARTNER
Extent of
Partner as Extent of Unlimited Whistle
liability of Holding out
agent liability of LLP liability in case blowing
partner
of fraud
437
Financial Disclosure
Proper Books of Statement of Account Every LLP shall file

within the prescribed The accounts of LLP
account and Solvency
time, the Statement of shall be audited in
Account and Solvency accordance with such
prepared pursuant to rules as may be
sub-section (2) with the prescribed. However, the
Registrar every year in Central Government
such form and manner may, by notification in
and accompanied by the Official Gazette,
such fees as may be exempt any class or
prescribed. classes of LLP from the
requirements of this sub-
section.
438
WINDING UP AND DISSOLUTION
Circumstances in which LLP may be wound up by Tribunal (Section 64): A

LLP may be wound up by the Tribunal:
if the LLP decides that LLP be wound up by the Tribunal;
if, for a period of more than six months, the number of partners of the LLP is
reduced below two;
if the LLP is unable to pay its debts;
if the LLP has acted against the interests of the sovereignty and integrity of
India, the security of the State or public order;
if the LLP has made a default in filing with the Registrar the Statement of
Account and Solvency or annual return for any five consecutive financial years;
or
if the Tribunal is of the opinion that it is just and equitable that the LLP be wound
up.
Rules for winding up and dissolution (Section 65): The Central Government
may make rules for the provisions in relation to winding up and dissolution of
LLP.
Basis LLP Limited Liability Company
1. Regulating Act The LLP Act, 2008. The Companies Act, 2013.
2. Members/Partners The persons who contribute to LLP are The persons who invest the money in the
known as partners of the LLP. shares are known as members of the
company.
3. Internal governancestructure The internal governance structure of a LLP The internal governance structure of a
is governed by contract agreement company is regulated by statute (i.e.,
between the partners. Companies Act, 2013).
4. Name Name of the LLP to contain the word Name of the public company to contain the
“Limited Liability partnership” or “LLP” as word “limited” and Pvt. Co. to contain the
suffix. word “Private limited” as suffix.
5. No. of members/partners Minimum – 2 members Private company:
Maximum – No such limit on the members Minimum – 2 members Maximum
in the Act. The members of the LLP can be 200 membersPublic company:
individuals/or body corporate through the Minimum – 7 members
nominees.
Maximum – No such limit on the members.
Members can be organizations, trusts,
another business form or individuals.
6. Liability of Liability of a partners is limited to the Liability of a member is limited to the
members/partners extent of agreed contribution in case of amount unpaid on the shares held by them.
intention is fraud.
7. Management The business of the company managed by The affairs of the company are managed by
the partners including the designated board of directors elected by the
partners authorized in the agreement. shareholders.
8. Minimum number Minimum 2 designated partners. Pvt. Co. – 2 directors Public co. –
ofdirectors/designated 3 directors
partners
440
Basis LLP Partnership firm
1. Regulating Act The Limited Liability Partnership Act, 2008. The Indian Partnership Act, 1932.
2. Body corporate It is a body corporate. It is not a body corporate,
3. Separate legal entity It is a legal entity separate from its It is a group of persons with noseparate
members. legal entity.
4. Creation It is created by a legal process called It is created by an agreementbetween the
registration under the LLP Act, 2008. partners.
5. Registration Registration is mandatory. LLP cansue and Registration is voluntary. Only the
be sued in its own name. registered partnership firm can sue the third
parties.
6. Perpetual succession The death, insanity, retirement or The death, insanity, retirement or
insolvency of the partner(s) does not affect insolvency of the partner(s) may affect its
its existence of LLP. Members may join or existence. It has no perpetual succession.
leave but its existence continues forever.
7. Name Name of the LLP to contain the word limited No guidelines. The partners can have any
liability partners (LLP) as suffix. name as per their choice.
8. Liability Liability of each partner limited to the extent Liability of each partner is unlimited. It can
to agreed contribution except in case of be extended upto the personal assets of the
willful fraud. partners.
9. Mutual agency Each partner can bind the LLP by hisown Each partner can bind the firm as wellas
acts but not the other partners. other partners by his own acts.
10. Designated partners At least two designated partners and atleast There is no provision for such partners
one of them shall be resident in India. under the Partnership Act, 1932.
11. Common seal It may have its common seal as itsofficial There is no such concept inpartnership
signatures.
12. Legal compliances Only designated partners are responsible All partners are responsible for all the
for all the compliances and penalties under compliances and penalties under the Act.
this Act.
441

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PREEXAM Marathon

SOGA & LLP

While taking any Subscription Use Code

Sale of goods is one of the specific forms of contracts

(A) Buyer and Seller: ‘Buyer’ means a person who

(B) Goods and other related terms:

“Goods” means every kind of movable property other than

(B) Goods and other related terms:

This is a wider definition than contained in the English law,

‘Actionable claims’ are claims, which can be enforced only

1. Old Rare antique Coins

(i) EXISTING GOODS are such goods as are in

The existing goods may be of following kinds:

(a) Specific goods means goods identified and agreed

Example 1: Any specified and finally decided goods like a

Example 2: ‘A’ had five cars of different models. He agreed

The existing goods may be of following kinds:

(b) Ascertained Goods are those goods which are

The existing goods may be of following kinds:

Example: A wholesaler of cotton has 100 bales in his

The existing goods may be of following kinds:

(c) Unascertained goods are the goods which are not

Example: If A agrees to sell to B one packet of salt out of

(ii) FUTURE GOODS means goods to be

A contract for the sale of future goods is always an

Example 1: 1,000 quintals of potatoes to be grown on A’s

Example 2: P agrees to sell to Q all the milk that his cow

Example 3: T agrees to sell to S all the oranges which will

(iii) CONTINGENT GOODS: The acquisition of which by

Contingent goods also operate as ‘an agreement to sell’

Example: A agrees to sell to B a Picasso painting provided

Existing Goods Future Goods Contingent Goods

1. These are such goods as are 1. Goods to be manufactured

(C) Delivery - its forms and derivatives: Delivery

Forms of delivery: Following are the kinds of delivery for

Delivery of goods Voluntary transfer of possession by one person to another

Actual Constructive Symbolic

(i) Actual delivery: When the goods are physically

(ii) Constructive delivery: When it is elected without

(iii) Symbolic delivery: When there is a delivery of a

Goods are said to be in a deliverable state when they are in

For example, when A contracts to sell timber and make

(D) “Document of title to goods” includes bill of

Examples: Bill of lading, dock warrant, warehouse keeper’s

However, there is a difference between a ‘document

(E) Mercantile Agent [Section 2(9)]: It means an

Examples of such kind of agents are auctioneers, factors,

(F) Property [Section 2(11)]: ‘Property’ here means

The property in the goods means the general property i.e.,

Example: If A who owns certain goods pledges them to B, A

(G) Insolvent [Section 2(8)]: A person is said to be

(H) Price [Section 2(10)]: Price means the money

(I) Quality of goods includes their state or condition.

Sale and Agreement to Sell (Section 4)

According to section 4(1), “A contract of sale of goods is a

A contract of sale may be absolute or conditional. [Section

Sale and Agreement to Sell (Section 4)

Where under a contract of sale the property in the goods is

An agreement to sell becomes a sale when the time

A contract for the sale of goods may be either sale or

Sale: In Sale, the property in goods is transferred from

Agreement to Sell: In an agreement to sell, the ownership

Thus, whether a contract of sale of goods is an absolute