Business Legislation

BBA II Year (IV Semester) Business Legislations
Syllabus
• Unit I: Administration of law & legal system in India - Introduction to legal aspects of
Business in general; Freedom of Trade, Profession and Occupation (Constitutional
Provisions).
• Unit II: Indian Contract Act (1872) - a) Definition (Sec.2) b) Essential elements of a
valid contract c) Competency to enter in contracts (Sec. 11 & 12).d) Consent – Free
consent, Coercion, undue influence, fraud, misrepresentation, mistake (sec 13-23).Void
Agreement (sec 24-30) f) Consequences of breach of contract (sec73-75).
• Unit III: The Companies Act (1956) - Definition & characteristics of a company,
Company distinguished from partnership, Kinds of Companies, Provisions relating to
incorporation, lifting the Corporate Veil. Memorandum of Association, Doctrine of ultra-
vires, Articles of Association, Doctrine of indoor management & constructive notice,
Concept of Prospectus. Company Management And Board Meeting : Administrative
Hierarchy, Board of Director – Director- Legal Position, Appointment, Qualification,
Disqualification, Removals Power, duties, Liabilities etc. Managing Director – Meaning,
Appointment, and Disqualification. Manager-Meaning, Disqualification. Company
Meetings Meaning of meeting, General Body meeting – statutory Meeting, Annual General
meeting, Extra ordinary meeting Board Meeting.
• Unit IV: The Consumer Protection Act,1986 Salient features of Act. Definitions-
Consumer, Complaint, Services, Defect and Deficiency, Complainant. Rights and Reliefs
available to consumer. Procedure to file complaint. Consumer Disputes Redressal
Agencies.(Composition, Jurisdiction, Powers and Functions.) Procedure followed by
Redressal Agencies. Introduction to GST
R.S. Mundle Dharampath Arts & Commerce College, Nagpur

Deptt. Of BBA and BCCA Page 1
Unit I
Administration of law and legal systems in India: - Introduction to legal aspects of Business
in general; Freedom of Trade, Profession and Occupation (Constitutional Provisions).
• Administration of Law:
• The law is important for a society as it serves as a norm of conduct for citizens. It was
made to provide for proper guidelines and order upon the behaviour for all citizens. it acts
as a guideline as to what is accepted in society. Without it there would be conflicts between
social groups and communities. It is essential that we follow them.
• Administration involves the exercise of power by the executive arm of government.
• Administrative laws (legal framework) are formed to carry out public Administration in
India.
• The main purpose of Administrative laws is to control the powers of the government, and
its agencies and also provides an effective mechanism and adequate protection. It helps to
bring a balance between individual rights and public welfare and socio economic equality.
It is an important weapon for bringing harmony between power and justice.
• The Constitution governs administrators.
• Legal System in India:

• A legal system is a procedure or process for interpreting and enforcing the law.
• Constitution of India governs Indian legal system.
• The Constitution of India divides the Indian judiciary into superior judiciary and the
subordinate judiciary.
• Superior Judiciary means the Supreme Court and the High Courts.
• Subordinate judiciary means the lower courts under the control of the High Courts.

Introduction to legal aspects of business in general

• Legal Aspects means policy framework and approach of the government to ensure the
compliance of statutory framework by businesses/company.
• These are the legal rules that governs and regulate business activities/transaction/trade.

• Legal aspects helps businesses to know their rights and responsibilities as well as
challenges that may have to face.
• Therefore every business must understand this legal set up while setting its aims and
objectives.
• Legal Aspects of Business in general:
• Type of Business: One must consider the type of his business, for example – ‘Partnership
firm’, ‘private Limited’ or a sole proprietorship and confirm the required registration
process.
• Laws applicable to Business: various laws can be applicable for a business such as
company law, profession tax, provident fund, Goods and Service tax (GST), environment
protection, laws relating to employees etc. Business need to identify which laws are
applicable as per its type and ensure compliance with them to avoid legal problems in the
future. Business will also have to follow the state laws in which it is registered and
applicable to it.
• Taxation: it’s important to understand the taxes and tax procedure applicable to business
and pay it within given due date. Certain taxes laws based on turnover and are applicable
only when business crosses a certain turnover.
• Maintaining Books of Accounts: how to keep record of business transactions is depend
on the type of business. The specified books of accounts need to be compulsorily
maintained and get it audited by the specified authorities within a specified period.
• Other governing bodies: The company will also have to comply with SEBI, RBI, IRDA,
ICAI, ICSI etc if business activity is governed by such bodies.
• Rule for the governance of certain transactions and relation between: Business person
themselves, Business person and their customers, dealers, suppliers etc.
Freedom of Trade, Profession and Occupation

(Constitutional Provisions)
• What is Individual freedom: In simple words it is the principle or habit of independent
thought or action.

• Freedom of Trade Profession and Occupation: It is the right/liberty of a man to follow any
trade, profession or occupation without any restrictions.
• Constitutional Provisions for freedom of trade, Profession and Occupation:
The Indian Constitution is has provide us with six major fundamental rights and Freedom
to Carry Trade, Occupation, Business and Profession is the one.
These provisions are given under Article 19(1)(g) read with article 19(6) and Article 301
1) This right is guaranteed by our constitution under Article 19(1)(g), which states that all the
citizens have right to practice any profession, or to carry on any occupation, trade and business.
The basic intention of this fundamental rights is to evolve socio-economic strengthening
throughout the country.
Article 19(1)(g) ensures that all citizens earn their right to earn livelihood and guarantees to all
citizens the right to practice any profession or to carry on any occupation, trade or business. The
ambit of this article tries to cover all forms and means to earn livelihood and do economic activity.
• a) Here - Trade business carried on for subsistence or profit, it is an act of buying and
selling of goods and services.
Profession: Profession’ means an occupation carried on by a person by virtue of his
personal and specialized qualifications, training or skill.
Occupation: any regular work, profession, job, principal activity, employment, business or
a calling in which an individual is engaged.
Business: include anything which occupies the time. Attention and labour of a man for the
purpose of profit.
• b) However, this fundamental right is not unregulated and Article 19(6) allows state to
make laws in interest of general public and impose reasonable restrictions on the exercise
of the above right. The restrictions laid for right in Article 19(1)(g) is defined in Article
19(6). This clause six of Article 19 brings forward three major contentions: –
I) State shall make any law imposing the rights provided under Article 19(g) in interest of
general public.

II)Also, State shall make any law relating to professional or technical qualifications
necessary for practicing a profession or carrying on any occupation, trade or business,
III)And law in relation to creation of State Monopoly. Under no circumstances State
should impose unreasonable restrictions and that too in arbitrary manner.
2) “Article 301- FREEDOM TO TRADE, COMMERCE AND INTERCOURSE- TRADE,

COMMERCE AND INTERCOURSE THROUGHOUT THE TERRITOTY OF INDIA
SHALL BE FREE, SUBJECT TO PROVISIONS.”
• (Here the word ‘trade’ means buying or selling of goods. ‘Commerce’ includes all forms of
transportation such as by land, air or water. ‘Intercourse’ means movement of goods from
one place to another place.)
• The main objective behind this article is to establish economic unity and equality in all
parts of India.
• The said article is not subject to absolute and unqualified freedom because giving
unrestricted liberty may be misused. Therefore in Article 302, absolute power is given to
the Parliament for imposing restriction in the interest of general public but it should not
directly curtail the freedom laid down in Article19(1)(g).
• The purpose of Article 301 is to ensure free flow of trade, commerce in general and not to
confer any primary right to any Individual. It assures freedom of inter- state and intra state
trade commerce and intercourse.
(Ref: https://lexinsight.wordpress.com/2019/10/30/freedom-of-trade-business-and-
profession-in-depth-analysis/#_ftn4)

Unit II – Indian Contract Act 1872
• Indian Contract Act 1872 came into force on 1 September 1872 and it is applicable to all
the states in India except Jammu and Kashmir. It determines the conditions in which
promises made by the parties to a contract shall be legally binding.
• The Act as enacted originally had 266 Sections.
• The Indian Contract Act may be divided into two parts:
• Part 1: deals with the General Principles of Law of Contract Sections 1 to 75
• Part 2: deals with Special kinds of Contracts such as
Contract of Indemnity and Guarantee
Contract of Bailment and Pledge
Contract of Agency.
Definitions Under Section 2 of Indian Contract Act 1872
1. Offer 2(a): When one person signifies to another his willingness to do or to abstain from doing
anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to
make a proposal.
2. Acceptance 2(b): When the person to whom the proposal is made, signifies his assent there to,
the proposal is said to be accepted. A Proposal when accepted becomes a promise or when an offer
is accepted it becomes promise.
3. Promisor and promisee 2(c): When the proposal is accepted, the person making the proposal is
called as promisor and the person accepting the proposal is called as promisee.
4. Consideration 2(d): When at the desire of the promisor, the promisee or any other person has
done or abstained from doing or does or abstains from doing or promises to do or to abstain from
doing something such act or abstinence or promise is called a consideration for the promise.
5. Agreement 2(e): Every promise and set of promises forming the consideration for each other. In
short, agreement=promise + consideration.
6. Reciprocal Promises 2(f): Promises which form the consideration or part of the consideration
for each other are called 'reciprocal promises'. A reciprocal promise means, a promise in exchange
for another promise.
7. Void agreement 2(g): An agreement not enforceable by law is void.

8. Contract 2(h): An agreement enforceable by Law is a contract. Therefore, there must be an

agreement and it should be enforceable by law.
9. Voidable contract 2(i): An agreement which is enforceable by law at the option of one or more
of the parties thereto, but not at the option of the other or others, is a voidable contract;
10. Void contract 2(j): A contract becomes void when it ceases to be enforceable by law.
Essentials of Valid Contract
1- Offer and acceptance: There needs to be a lawful offer and acceptance to form a contract. The
term 'lawful ' means that, the offer and acceptance must meet the requirements of the contract
act. When an offer is accepted then it becomes a promise. Mere knowledge of the contract does not
constitute acceptance, it must be expressed
2- Legal relationship: There must be a clear intention among the parties that the agreement should
be attached by legal consequences and create a legal obligation. What this means are those
arrangements which are not enforceable by law, e.g. social or domestic agreements between
spouses or friends, which cannot be enforced in a court of law would not constitute contract. Legal
relationship will be implied when failure of a said act mentioned in the contract would result in
legal consequences.
3- Lawful Consideration: Consideration means ' something in return ' which means that the
parties have to accrue in some form, whether it be profit, rights, interest, etc. or agree to have some
form of beneficial "consideration."
Section-25 states that any contract without consideration is void as it is considered the essence of a
contract. However under section-23 there are certain considerations that would be unlawful and it
will further render the agreement illegal.
4- Parties must be competent to contract: In order to constitute a contract, the parties engaging
in the same must be competent to contract. Section 11 of “the act” states the criteria of parties who
are competent to contract:
The parties must attain the age of majority i.e. 18 years. An agreement with a person who is a
minor, will be considered void ab intio. The person must be of sound mind i.e. not an insane
person. He should not be disqualified from the law to engage in a contract.

5- Free consent by the parties: This implies to the fact that parties entering into a contract shall
enter with their free will and their decision of engaging should not be influenced by any external
factors. Section-14 of “the act” deals with free consent and provide certain factors, if so found,
would deem a contract invalid. These factors are- Coercion, Undue influence, Fraud,
Misrepresentation, Mistake:
Further, for a contract to be valid in the eyes of law , it shouldn’t be expressly declared void for
example agreement without consideration(Section-25), agreement in restraint of marriage(Section-
26), agreement in restraint of trade(Section-27), agreements in restraint judicial
proceedings(Section-28), an agreement by way wager(Section-30) etc.
Lawful object: The object of the agreement must be lawful and must not violate the law. If an
object or the consideration of an agreement is unlawful then such agreement will not be
enforceable. Section 23 of the Act states that what consideration and object amount to lawful.
The certainty of terms: The terms and conditions of the contract must be certain and should not be
vague or illusory. There can never be a contract to contract in the future.
Competency to enter in Contract (Section 11 and 12)

Section 11 of the Indian Contract Act, 1872, defines the capacity to contract of a person to be
dependent on three aspects; attaining the age of majority, being of sound mind, and not
disqualified from entering into a contract by any law that he is subject to. In this article, we will
look at all aspects in a detailed manner.
So, There are 3 main aspects:
1] Attaining the Age of Majority: According to the Indian Majority Act, 1875, the age of
majority in India is defined as 18 years. For the purpose of entering into a contract, even a day less
than this age disqualifies the person from being a party to the contract. Any person, domiciled in
India, who has not attained the age of 18 years is termed as a minor.
2] Person of Sound Mind: According to Section 12 of the Indian Contract Act, 1872, for the
purpose of entering into a contract, a person is said to be of sound mind if he is capable of
understanding the contract and being able to assess its effects upon his interests.
No person can enter a contract when he is of unsound mind, even if he is so temporarily.

3] Disqualified Persons: Apart from minors and people with unsound minds, there are other
people who cannot enter into a contract. i.e. do not have the capacity to contract. The reasons for
disqualification can include, political status, legal status, etc. Some such persons are foreign
sovereigns and ambassadors, alien enemy, convicts, insolvents, etc.
Consent/Free Consent (Section 14)

• In the Indian Contract Act, the definition of consent is given in Section 14, which states
that “it is when two or more persons agree upon the same thing and in the same sense”. The
parties to the contract must have the same understanding in regards to the subject matter of
the contract.
• The definition of Free consent is provided under the Indian Contracts Act is Consent that
is free from Coercion, Undue Influence, Fraud, Misrepresentation or Mistake. Free Consent
means the absence of any kind of coercion, undue influence, fraud, misrepresentation or
mistake.
• Example - ‘A’ agrees to sell his house to ‘B’. ‘A’ owns three houses and wants to sell his
house in Haridwar. ‘B’ thinks he is buying his Delhi house. Here ‘A’ and ‘B’ have not
agreed upon the same thing in the same sense. Therefore, there is no consent and no
contract afterwards.
Coercion (Section 15)

• According to the Section 15 of Indian Contracts Act, 1872, coercion is defined as:
• “Coercion’ is the committing, or threatening to commit, any act forbidden by the Indian
Penal Code (45 of 1860) or the unlawful detaining, or threatening to detain, any property,
to the prejudice of any person whatever, with the intention of causing any person to enter
into an agreement.”
• Coercion means forcing an individual to enter into a contract. When intimidation or threats
are used under pressure to gain the party’s consent, i.e. it is not free consent.
Coercion may involve the actual infliction of physical and psychological harm in order to
enhance the credibility of a threat. Then the threat of further harm can lead to the
threatened person’s cooperation or obedience.

• Example - ‘A’ went out for a walk, ‘B’ approaches ‘A’ with a stranger, pulls out his gun
and asks ‘A’ to give all his possessions. The consent of ‘A’ is obtained by coercion here.
• Thus, Coercion has the effect of making the contract voidable. It implies that at the
discretion of the party whose consent was not free, the contract is voidable.
Undue Influence section 16

A contract is said to be induced by ‘undue influence’ where the relations subsisting between the
parties are such that one of the parties is in a position to dominate the will of the other and uses
that position to obtain an unfair advantage over the other.
It is defined under Section 16 of the Indian Contract Act. At the point when one party is in a
situation to dominate the desire of others and actually misuses the power or position, at that point it
is an instance of undue influence, and the contract gets voidable. At the point when all the
accompanying three conditions are satisfied then just the circumstance is considered as an undue
influence: - a) one individual is in a situation to dominate the will of others. b) He misuses his
position. c) He acquires an unjustifiable preferred position.
Undue means unnecessary, unwarranted or more than required. Influence implies persuading the
mind of a counterparty through altering his perception or changing his will, however this influence
should be undue i.e., it isn’t needed. Undue influence applies to a relationship which might be
blood connection or some other sort of connection i.e., connection dependent on trust. It implies
the unreasonable utilization of one’s superior position to acquire the assent of an individual who is
in a frail position.
For example- A cop purchased a property worth Rs 1 lakh for Rs 5000 from Ram, a denounced
under his custody. Later this agreement can be cancelled and it tends to be held as void on the
grounds that there is a mental pressure on an individual.
Fraud section 17
Section 17 of the Act defines fraud as –

“Fraud” means and includes any of the following acts committed by a party to a contract, or with
his connivance, or by his agents, with intent to deceive another party thereto his agent, or to induce
him to enter into the contract.
The acts that amount to fraud are a false claim, active concealment, promise without the intention
of carrying it out, any other deceptive act, or any act declared fraudulent.
The parties have no duty to speak about facts likely to affect the consent of the other party to the
contract, and mere silence does not amount to fraud. when the circumstance of the case shows, it is
the duty of the person keeping silence to speak, keeping silence in such a case amounts to fraud.
When there is a duty to disclose facts, one should do so rather than to remain silent.
Ingredients of Section 17
There should be a suggestion as to a fact;
The fact suggested should not be true;
The suggestion should have been made by a person who does not believe it to be true; and
The suggestion should be made with intent either to deceive or to induce the other party
Thus, where a false statement is made intentionally, with the knowledge that it is false, with a view
to deceive the other party and thereby inducing him into entering the contract – it is known as
fraud .
The element of fraud in a contract vitiates the contract and such a contract by fraud is voidable at
the option of the aggrieved party.
Misrepresentation section 18
Representation is a statement or assertion, made by one party to the other , either before or at the
time of contract relating to some matter essential to the formation of the contract, with an intention
to induce the other party to enter into contract.
Misrepresentation arises when the representation made is untrue but the person making it believes
it to be true. There is no intention to deceive. But which affects the other party’s decision in
corresponding to a contract. If the misrepresentation is identified, the contract can be declared void
and depending on the situation, the unfavourably impacted party may seek damages.

Misrepresentation is about giving of inaccurate information by one party (or their agent) to the
other before the contract is made which induces them to make the contract. If a person makes a
contract in reliance on misrepresentation and has to face loss as a result, they can revoke the
contract or claim damages.
When a person makes a positive statement of a fact without any trustworthy source of information
and believes that statement to be true, the act amounts to misrepresentation.
Misrepresentation applies only to statements of fact, not to opinions or predictions.
Misrepresentation is a basis for contract breach in transactions, no matter the size.
Misrepresentations are false statements of truth that affect another party's decision related to a
contract.
Such false statements can void a contract and in some cases, allow the other party to seek damages.
There are three types of misrepresentations—innocent misrepresentation, negligent
misrepresentation, and fraudulent misrepresentation—all of which have varying remedies.
Mistake Section 20,21,22 & 23

A mistake means ‘believe in those things which do not exist in reality’. Thus, the mistake is an
erroneous belief.
‘Mistake’ is not defined in the Indian Contract Act. Section 20, 21 and 22 deals with the concept
related to mistake. ‘Mistake’ can be defined as any action, decision or judgement that produced an
unwanted and unintentional result. A Mistake is said to have occurred where parties intending to
do one thing by error do something else.
A mistake is of two types:
Mistake of Law,
Mistake of Fact.
Mistake of Law
Mistake of Law means any contract which is performed by parties without knowing the law (or by
ignoring the law), which is essential for that contract. Section 21 of the Indian Contract Act deals
with ‘effect of mistake as to law’.
Mistake of Law can be of two types:

Mistake of Indian Law: “Ignorance of the law is not excused”. If a person takes part in a contract
without knowing any specific provisions of Indian Law which is essential for that contract, then
Contract is not voidable because everyone is supposed to know the law of his country.
Mistake of Foreign Law:- If a person takes part in a Contract without knowing any specific
provisions of Foreign Law which is essential for that contract, then that mistake is treated as a
mistake of fact i.e. the contract is void if both the parties under a mistake as to a foreign law
because one can not be expected to know the law of other foreign countries.
Mistake of Fact
Mistake of fact means any contract which is performed by parties without knowing any material
fact (or ignoring the fact), which is essential for that contract. Section 20 and 22 of the Indian
Contract Act deals with ‘Mistake of Fact’. Mistake of Fact are- Bilateral mistake and Unilateral
mistake
Unilateral Mistake
According to Section 22, a contract is not voidable merely because it was caused by one of the
parties to it being under a mistake as to a matter of fact. Such a mistake does not invalidate the
agreement. If any unilateral mistake is induced by fraud or misrepresentation, then the contract is
voidable for that party who has done the mistake in the contract.
Bilateral Mistake
According to Section 20, “Where both the parties to an agreement are under a mistake as to a
matter of fact essential to the agreement, the agreement is void”. In simple words, if parties are
involved in an agreement without knowing any essential facts related to the agreement, then it is
considered as a Bilateral Mistake and that agreement will be void.
Void Agreement Section 24-30

• Indian Contract Act, 1872 lay down the provisions from Section 24 to section 30 relating to
the Agreements, which are declared void
• ‘An agreement not enforceable by law is said to be void’ . Thus a void agreement does
not give rise to any legal consequences and is void ab initio. In the eye of law such an
agreement is no agreement and not at all from its very inception.
• Section 24. Agreements void, if consideration and objects unlawful in part-

If any part of a single consideration for one or more objects, or any one or any part of any
one of several consideration of a single object, is unlawful, the agreement is void.
• Section 25. Agreements without consideration-
This section says that an agreement made without consideration are void, unless it is in
writing and registered or is a promise to compensate for something done or is a promise to
pay a debt barred by limitation law.
• Section 26. Agreement in restraint of Marriage void
Every agreement that restraints the marriage of a major (other than minor) is a void
agreement.
• Section 27. Agreement in restraint of trade void-
Every agreement that debars any one from exercising a lawful profession i.e., from starting
or continuing his trade or business, in return for some consideration, is to that extent is void
• Section 28. Agreements in restraint of legal proceedings void-
a) In case of breach of contract any agreement that restricts an aggrieved party from
enforcing his rights to approach a relevant court or tribunal or limits the time within which
he may to do so, is a void agreement.
b) It further says that any agreement that extinguishes the rights of any party or
discharges either of the parties from liability is a void agreement.
• Section 29. Agreements void for uncertainty-
It says that the agreements whose meaning is not certain, or capable of being made certain,
are void.
• Section 30. Agreements by way of wager, void-
According to this section an agreement to wager is a void agreement. Exception in favour
of certain prizes for horse racing.
Consequences of Breach of Contract Section 73-75
• What is breach of Contract? A breach of contract is a violation of any of the agreed-

upon terms and conditions of a binding contract. The breach could be anything from a late

payment to a more serious violation such as the failure to deliver a promised asset.
A contract is binding and will hold weight if taken to court.
• It the party does not fulfill his contractual promise, or has given information to the other
party that he will not perform his duty as mentioned in the contract or if by his action and
conduct he seems to be unable to perform the contract, he is said to be breach of contract.
Thus when a party having a duty to perform a contract fails to do that, or does an act
whereby the performance of the contract by him becomes impossible, or he refuses to
perform the contract, there is said to be a breach of contract on his part. On the breach of
contract by the one party, the other party is discharged of his obligations to perform his part
of the obligations
• Breach of a contract does not discharge the contract, thereby automatically termination of
the innocent party. It gives an opinion to the innocent party to regard itself as discharged.
The innocent party rescinds the contract, the primary obligation of both the parties is over,
but the defaulting parties become liable for payment of compensation for the breach. The
innocent party may also waive the defective performance and elect to accept damages
instead of ending the contract.
The breach of contract may be either: (i) actual, i.e. non-performance of the contract on the
due date of performance, or (ii) anticipatory, i.e. before the due date of the performance has
come. Thus, when the party to the contract refuses to do an act or does an act at the time of
the performance of the contract then it is said to be the actual breach of the contract, but
when the party to the contract refuses to do an act or does an act before the time of
performance by which the performance of the contract is not possible, the such breach is
known as the anticipatory breach of contract.
• If one party fails to perform, blocks the other party from performing, or otherwise violates
the terms of the contract without a legal justification, they have breached the contract and
the contract can be terminated..
Consequences of Breach of Contract Section 73-75

• Section 73. Compensation for loss or damage caused by breach of contract.—When a

contract has been broken, the party who suffers by such breach is entitled to receive, from
the party who has broken the contract, compensation for any loss or damage caused to him
thereby, which naturally arose in the usual course of things from such breach, or which the
parties knew, when they made the contract, to be likely to result from the breach of it. Such
compensation is not to be given for any distant and indirect loss or damage sustained by
reason of the breach.
• Section 74 Compensation for breach of contract where penalty stipulated for:-When a
contract has been broken, if a sum is named in the contract as the amount to be paid in case
of such breach, or if the contract contains any other stipulation by way of penalty, the party
complaining of the breach is entitled, whether or not actual damage or loss is proved to
have been caused thereby, to receive from the party who has broken the contract reasonable
compensation not exceeding the amount so named or, as the case may be, the penalty
stipulated for.
• Thus, Under the Indian Contract Act, 1872, Section 73 and Section 74 provide for
unliquidated and liquidated damages respectively. Unliquidated Damages are the damages
awarded by the courts on the basis and assessment of actual loss or injury caused to the
party suffering breach of contract. Where as liquidated damages are the damages which the
parties to the contract may agree to, as payment of a certain amount on the breach of
contract.
Section 75. Party rightfully rescinding contract, entitled to compensation.—A person
who rightfully rescinds a contract is entitled to compensation for any damage which he has
sustained through the non-fulfillment of the contract.
Illustration A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for
two nights in every week during the next two months, and B engages to pay her 100 rupees
for each night’s performance. On the sixth night, A willfully absents herself from the
theatre, and B, in consequence, rescinds the contracts. B is entitled to claim compensation
for the damage which he has sustained through the non-fulfillment of the contract.

UNIT – III
THE COMPANIES ACT, 1956
Introduction- The Companies Act is a vast legislation containing 658 sections and
more. However, the basic principles are very few. A company means a group of persons
associated together for the attainment of a common end, social or economical. A
company is an artificial person created by the process of law and hence can only be
destroyed by the process of law.
A company is a legal person. It means that the company can sue and be sued “in its
own name, the emphasis being on the words “in its own name”. A company can hold
property, acquire, sell, lease, mortgage, gift or otherwise transfer a property in its own
name. In other words, a company as such can be a transferor, or a transferee of a
property.
Meaning- A Joint stock Company is an artificial person, created by law with a fixed
capital, divisible into transferable shares, with perpetual succession and common seal.
The company has a separate legal entity. It must be compulsory registered.
A Joint stock company is a business organization in which the capital of a company is
divided into shares. The persons who buy the shares are called share holders. Share
holders are the owners of the company but they elect Board of Directors to manage the
company on their behalf.
Definition- ―A company is an incorporated association which is an artificial person

created by law, having a perpetual succession and common seal. The liability of its
members is limited.
Characteristics of Company
1) Artificial person- A company is an artificial person created by law. It has no body or
soul. It can do everything like a normal human being. It can hold property, appoint
employees, enter into a contract or contracts. Thus, it has a separate life which is distinct
from that of the shareholders.
2) Incorporated Association- A company comes into existence only after registration.

Registration is compulsory under the Indian Companies Act, 1956. After incorporation a
company has a separate legal identity which is distinct from its members.
3) Perpetual Succession- A company enjoys a long and stable life. Its existence is not
affected bydeath, insolvency or insanity of any members or any directors. Its existence is
quite separate from its members. Once a company is formed it cannot be dissolved as
long as the law recognises it and till it is wound up by the act.
4) Common Seal- Every company has common seal. The name of the company is
engraved on the common seal. Every document of the company bears this seal. The
Company is an artificial person, so common seal as the symbol of company’s signature
holds the importance. Any one acting on behalf of the company must affix the seal of the
company together with itssignature.
5) Limited Liability- The most important feature of the company is that the liability of its
shareholders is limited to the face value of shares allotted to him. For example, if a
shareholder has been allotted ten shares of rupees ten each, his liability will be limited to
Rs.100 only, even if the company suffers losses worth crore of rupees.
6) Membership- In case of Private company the minimum number of member is two and
maximum is 50. While in case of Public company the minimum no. of members is 7 and
maximum is no limit.
7) Separation of Ownership and Management-The shareholders are the owners of the
company but the managerial rights are vested in the hands of the Board of Directors.
This is because the shareholders are many and they are scattered all over the country. It
is not possible for them to manage the business. Therefore, they elect the Board of
Directors to manage the business on their behalf.
8) Transferability of Shares- The capital of the company consists of the shares of a fixed
valuewhich are freely transferable.
9) Government Regulation- Government exercises strict and effective control on the
working of the company because large no. of people invest their money.

COMPANY DISTINGUISHED FROM THE PARTNERSHIP
SR.NO. Point of Difference COMPANY PARTNERSHIP

1 Formation A company comes into A Partnership is formed
existence only after by mutual agreement of all
registration under the the partners.
Companies Act.
2 Legal Status It has a separate legal It does not have a separate
status. legal entity.
3 Number of Members In case of Private The minimum number of
Company, minimum partners is 2 and the
number of members is maximum number in case
2 and maximum of Banking business is 10
number is 50. In case and other business is 20.
of Public Company it
is 7 and maximum
isunlimited.
4 Liability The maximum The liability of partners is
liability of share unlimited. Every partner
holders is limited to is jointly and severally
the face value of liablefor the debt and dues
shares held by them. of the
firm.
5 Transfer of Shares Shares of Public Partners cannot transfer
company are their shares in the firm.
transferable.
6 Registration The registration of The registration of
company is partnership is not
compulsory. compulsory.
7 Management The company is It is managed by all the
managed by the Board partners. Every partner
of Directors, the has right to take part in
elected representatives the management.
of shareholders. Every
shareholder cannot
participate in the
management of the
company.
8 Implied Agency A member is not an Partners are the agent of
agent of the company the firm and also of the
or of any other partners.
member.

9 Filing of Documents The company must It is not required.

file a copy of its final
Accounts and
Auditor‘sreport with
the registrar.
KINDS OF COMPANIES/ TYPES OF COMPANIES
ON THE BASIS OF
INCORPORATION
TYPES OF COMPANIES
ON THE BASIS OF
LIABILITY
ON THE BASIS OF
OWNERSHIP
1) On the basis of Incorporation- Joint stock companies are classified as-:

(a) Chartered companies- These companies are established by the royal charter or special
sanction of the head of the state. These companies are granted special powers and
privileges. For example, British East India Company was established by a royal charter
of the Queen of England. Dutch East India Company and Bank of England are other
examples.
(b) Statutory Companies- These companies are formed by the special act of the Parliament
or State legislature. Their objectives, power and activities are determined by the special
law under which these companies are formed. Industrial Finance Corporation of India,
Reserve Bank of India, State Bank of India, Unit Trust of India are the certain examples
of statutory companies in India.

(c) Registered Companies-These companies are established under Indian Companies

Act,1956. Registered companies are very common in India. Maruti udyog, Bombay
dyeing, TISCO, BSC etc. are the examples of Registered Companies. In general most of the
companies formed in India are registered.
2) On the Basis of Liability- Companies are classified as under-:
(a) Unlimited Liability Companies- The liability of members of this company is unlimited
just like partners of a firm. It means that the personal property of the members can be
attached, if claims of the creditors cannot be satisfied by the company. Though Indian
companies Act, 1956 permits the formation of such companies but these companies are
rarely established in India.
(b) Limited Liability Company- These companies are classified as under :
(i) Companies limited by shares- This is the most common type of company in India. The
liability of shareholders of this company is restricted to the face value of shares held by
them. For example, A has been allotted 100 shares of Rs.10 each of the company. In case
the company suffers the losses of crores, the liability of A i.e. A will have to bear Rs.100
x10 = 1000 only. It shows that the maximum liability of A is limited to the face value of
shares heldby him.
(ii) Companies limited by Guarantee- The liability of shareholders of the company is
limited to the specified amount, guaranteed by them to be borne, is necessary, at the time
of winding up of the company. This company may or may not have share capital. If there
is share capital every member will have to bear initially loss to the face value of shares
held by him. If the loss exceeds the face value of shares issued, it will have to be shared
among shareholders in the ratio of amount guaranteed by them.
(c) On the Basis of Ownership companies can be classified as under-:
(i) Public Companies- According to Section 3(1) (iv) of Indian Companies Act, 1956, “A
public company is one which is not a private company”. The provision restricting the
number of shareholders, transferability of shares and issuing prospectus applicable in
case of private companies does not apply in Public companies. In other words, a public
company is the company where in: Minimum number of members is 7 and no limit
regarding the maximum member. There is no restriction on the transferability of shares.

There is complete freedom to issue prospectus and invite application for shares and
debentures. Examples of Public companies- Bajaj Auto Limited, Associated Cement
CompaniesLimited, Oswal Agro Limited etc.
(ii) Private companies- According to Section 3(1) (iii) of Indian Companies Act, 1956, “A
private company means a company which by its articles-
Restricts the right to transfer its shares, if any Limits the number of its members
(excluding its present or past employees) to 50 and Prohibit any invitation to the public
to subscribe for shares or debentures of the company. It is necessary for the private
company to use the word- ‘Private Limited‘ after its name.
(iii) Government company- The company whose at least 51% of the paid up capital is held
by the government is called Government company. It may be the central government or
state government individually or jointly. Maruti Udyog Limited, Hindustan Insecticides
Limited, Indian Oil Corporations etc. are its examples.
(iv) Holding Companies- A company which holds more than 50% of the share capital of
another company is known as holding company. According to Indian Companies Act,
1956, A company will be said to be holding company, when the other company is its subsidiary.
Having share capital more than 50% means having majority of votes of the company and
retaining its management and control.
(v) Subsidiary Company- According to Section 4(1) of the Indian Companies Act, 1956, a
company will be said to be the subsidiary of another company when: Other company holds
control over its Board of Directors..Other company holds more than 50% of its share
capital. Other company is the subsidiary of another company, which is itself the subsidiary of
other company.
(vi) One Man Company- A company usually a private company in which one man holds
practically the whole of the share capital, is known as One- Man company.
PROVISIONS RELATING TO INCORPORATION OF A COMPANY

Joint Stock Company as we have discussed earlier is an legal entity. It has to follow
legalprocedures for its formation. The law does not interfere in the establishment of

sole proprietorship and partnership. These forms of business organization may or

may not be registered. The company is formed, brought up and even wound up after
following legal formalities. The company has to follow certain legal steps in its
formation as under:
Steps/ Stages/ Procedure of formation of a Company

1) Promotion Stage
2) Incorporation Stage
3) Capital Collection Stage
4) Commencement of Business Stage/ Trading Certificate Stage
A company is said to have been brought into existence when it is being registered under
the Indian Companies Act, 1956, and has obtained a Certificate of Incorporation from
the Registrarof the Companies. But prior to the stage of Incorporation, the promoter have
to undertake ample steps preparatory to Incorporation.
1) Promotion Stage- The term “Promotion” in the context of the company formation
refers to the process by which a company is bought into existence. This work is either
done by a person or group of persons who are called the promoters. These are the
persons who generally conceives the idea of exploiting a business opportunity,
examining the idea whether it is worth working, arrange men, money, material, and
machines and forming a profitable enterprise. The promoter identifies the business
opportunities, analyses its prospects and initiates steps to form a company.
Preliminary preparations incidental to the incorporation are done by the promoters
and theyare:
(a) Memorandum of Association- Laying down the constitution of the company.
(b) Articles of Association- Advising/ Recommending regulations for Internal management.
(c) Prospectus- For public issue of capital in case of Public limited company.
(d) Preliminary contracts- Contracts of purchase of property and assets.

(e) Underwriting Contract- To insure capital issues.

2) Incorporation Stage- A company is said to be incorporated or registered when it gets
the Certificate Of Incorporation from the Registrar of the Companies. Certain
documents have to be filed with the Registrar before the incorporation of the company
and they are:
a) Memorandum of Association (MOA)- It defines the aims and objectives of the company.
b) Articles of Association (AOA)- It chalks out the rules and regulations of the
internalmanagement of the company.
c) Notice of Address of Registered office of the company.
d) A written consent of the persons who have agreed to act as directors of the company.
e) A written consent of the directors that they are willing to purchase and pay
forqualification shares.
f) A statutory declaration that all the legal formalities have been fulfilled.
g) Along with above documents necessary stamp duty, registration fees and filing fees are
to be paid at the time of filing the documents with the registrar.
The Registrar examines the documents and if satisfied issues the Certificate of
Incorporation. A private company can commence its business immediately after
securing this certificate. But a public company has to pass through two more stages i.e.
Capital Collection Stage and Commencement of Business stage.
3) Capital Collection Stage- This is very important stage in the formation of a Joint stock
Company. Capital means money or funds required by the business. A capital of a Joint
Stock Company is raised through issue of shares. In this stage the types of shares to be
issued to the public are decided. In this the types and amounts of capital, methods of
allotment etc. is decided.
4) Commencement Of Business Stage/ Trading Certificate Stage- It is the last stage
in the formation of the company. A public company can start its business only after
receiving the certificate of Commencement of Business. This certificate is issued by
the registrar only ifthe following documents are filed:
a) Prospectus or Statement in lieu of Prospectus.
b) A declaration that the minimum subscription has been collected.
c) A declaration that the Directors have purchased and paid for their qualification shares.
d) A statutory declaration that all the legal formalities relating to commencement of
business has been completed.
e) The Registrar goes through all these documents and if satisfied issues a
trading certificate. After receiving this certificate a company will be able to
start its business.
LIFTING THE CORPORATE VEIL

As we have studied that the company has a separate legal entity distinct from its
members. But sometimes the members can misuse their powers for their personal gains.
This gave birthto the theory called the ―Lifting the veil of corporate‖.
This simply means that there are circumstances when the members, directors or certain
persons can be made personally liable for the debts or acts of the company.
From the juristic point of view a company is a legal person distinct from its members
(Saloman v. Saloman and co. Ltd.). This principle may be referred to as the veil of
incorporation. The effect of this principle is that there is a fictional veil ( mask, curtain,
cloak, covering) between the company and its members.“ Lifting the veil means looking
behind the company as a legal person i.e. disregarding the corporate entity and paying
regard instead to the realities behind the legal form. Where the courts ignore the
company and concern themselves directly with the members or managers, the corporate
veil is said to have been lifted.
MEMORANDUM OF ASSOCIATION:
Memorandum of Association (MOA) is the most important basic legal document of
the company. It is the charter of the company, which defines its objectives and
determine the boundary line with in which the company has to work. It can be said to
be the foundation stone, upon which the future structure of the company will stand.
Memorandum of Association establishes the relationship of the company with the
outside world.

It is necessary for every individual firm, company and institution that while dealing
with the company they must familiarize themselves with the memorandum of the
company, because it is the charter (means contract, grant, deed, agreement, approval)
ofthe company determining liability.
Definition:- According to Section 2(28) of the Indian Companies Act, 1956, ―

Memorandum means the Memorandum of Association of a company as originally
framed or as altered from time to time in pursuance of any previous companies law orof
this act‖.
In the words of Lord Cains,― The memorandum of association of a company is its

charter and defines the limitations of powers of the company established under the Act.
The memorandum contains the fundamental conditions upon which alone the company is
allowed to be incorporated‖
CONTENTS OF MEMORANDUM OF ASSOCIATION
1) Name Clause- This clause contains the name of the company. While choosing the
name ofthe company should take into consideration the following points:
a) The name should not be identical to or closely resembling an existing company.
b) The name should not indicate that the company is patronized by the government.
c) The name should not include the word ―co-operative‖.
d) The name of the company should be prominently affixed outside the premise of the
company.
e) The name must be engraved on common seal.
2) Registered office / Domicile/ place/ Situational Clause- Under this clause the name
of the state in which the company is situated is mentioned. The registered office is the
place, where all statutory books and documents of the company are kept. The address is

used for correspondence from the Registrar of Companies.

3) Object Clause—Under this clause the main objects and other objects which the
company maypursue are mentioned. The object must be legal and not against the public
interest and policy. This clause must be clear in precise term, because it defines the
power and activities of the company. The company must be very careful and cautious
while drafting this clause.
4) Liability Clause- It must be clearly stated in the Memorandum of Association that the
liability of shareholders is limited to the nominal value of shares held by him. If the
liabilityis limited by guarantee, it should be clearly specified.
5) Capital Clause- Under this clause, the authorised capital of the company is
mentioned. Thetypes, numbers and denomination of shares should also be mentioned.
6) Association Clause- The association clause reads, “ we the several persons, whose
names and addresses are submitted are desirous of being formed into a company in
accordance with the Memorandum of Association and we undertake to take the number
of shares in the capital of the company mentioned opposite our respective names”. In
case of public company this declaration must be signed by at least seven parsons and in
case of private company, it must be signed by at least two persons.
DOCTRINE OF ULTRAVIRES
The word „ultra‟ means beyond and the word „vires‟ means the powers. Ultra vires,
therefore, means beyond the powers. Any act beyond the objects stated in the
Memorandum of Association is ultra vires the company and thus void (means cancelled,
invalid, annulled). To be ultra vires, a transaction has to be outside the capacity of the
company. It does not bind the company. Neither the company nor the other contracting
party can sue on it. It is absolutely void. The company cannot make it valid, even if
every member approves it.

The rule is meant to protect shareholders and the creditors of the company. But if the
act is ultra vires (beyond the powers of) the directors only, the shareholders can ratify it.
Or if it is ultra vires the articles of association, the company can alter its articles in the
proper way.
Effects of Ultra vires transactions-:

a) Ultra vires contracts are void ab initio and hence cannot become intra vires by
reason of estoppel or ratification.
b) Injunction- The members can get an injunction to restrain the company wherein ultra
viresacts has been or is about to be under taken.
c) Personal liability of Directors- It is one of the duties of directors to ensure that the
corporate capital is used only for the legitimate business of the company and hence if
such capital is diverted to purposes foreign to company’s memorandum, the director
will be personally liable to replace it.
d) Where a company’s money has been used ultra vires to acquire some property the
company/sright over such property is held secure.
e) Ultra vires borrowing does not create the relationship of creditor and debtor.
ARTICLES OF ASSOCIATION (AOA)

Articles of Association of the company deal with the administration of internal affairs of
the company. It defines the duties, rights and powers of the management and board of
directors. The article of association of the company must be printed, divided into
paragraphs and numbered. The signatories to the memorandum must sign it in the
presence of witness. Generally companies have their own articles but they may adopt the
model Articles given in Table „A‟ of Companies Act.
CONTENTS OF ARTICLES OF ASSOCIATION

The following are the contents of Articles of Association-:
The amount of share capital and different classes of shares.

Rights of each classes of shareholders.

Details of contracts made with different persons.
Procedure for making allotment of shares.
Procedure of issuing share certificate.
Procedure of transfer of shares.
Procedure of forfeiture and re-issue of forfeited shares.
Procedure for appointment, removal and remuneration of directors and their powers
andduties.
Procedure for declaration and payment of dividend.
Matters relating to keeping of statutory books.
Procedure regarding alteration of share capital.
Procedure regarding the winding up of the company.
The articles of association can be altered by passing a special resolution, provided such
alteration is legal and in the interest of the company.
CHANGE/ ALTERATION IN ARTICLES OF ASSOCIATION

Alteration in articles of association can be made by special resolution. The change must
be compulsorily initiated to the Registrar of Companies. The Articles of Association is
always dependent to the Memorandum of Association. If there is any clash between the
provisions of Memorandum and Articles of Association, the provisions of Memorandum
of Association will hold good.
ALTERATION IN MEMORANDUM OF ASSOCIATION

The Memorandum of Association cannot be altered easily. The contents of a
memorandum can be altered only in the manner and to the extent provided in the
Companies Act.

Change in Name- Section 21 provides that the name of a company may be changed at
any time by passing a special resolution at a general meeting of the company and with
the written approval of the Central government. The powers of the Central Government
to accord approval to change of name have now been delegated to Registrar of
Companies w.e.f. 1.7.85. For changing the name, the company is required to apply to
ROC in E form 1A to ascertain the availability of name.
However, no approval of the Central Government is necessary if the change of name
involves only the addition or deletion of the word “private” i.e., when public
company is converted into a private company or vice-versa.
Change of Registered Office- The change of registered office may involve any of the
following-:
Within the same city.
Within the same State
Within the jurisdiction of the existing ROC in the same State.
Within the jurisdiction of another ROC in the same State
Change of registered office from one state to another state..
Change of Registered office from one premises to another premises in the same
city, town or village.- A company can change its registered office from one place to
another within the local limits of the city, town or village where it is situated, by
passing a resolution in the meeting of Board of Directors. However, notice of the
change should, within 30 daysof the change, be given to the Registrar who shall record
the same.
Change of Registered office from one town to another town in the same state
and within the jurisdiction of another ROC- If a company wants to change the
place of its registered office from jurisdiction of one ROC to jurisdiction of another
Roc with in the same state, it needs to go through the following procedure:
Special resolution convenes the General Meeting for approving the change in
the registered office from jurisdiction of one ROC to jurisdiction of another
ROC withinthe same State.
Obtain confirmation from Regional Director. Make an application in the prescribed

form to the Regional Director for confirmation. The confirmation or otherwise shall be
communicated to the company within 4 weeks from the date of receipt of application for
suchchange.
Filing of confirmation with ROC- File a certified copy of the confirmation by the
RegionalDirector for change of its registered office, within two months from the date of
confirmation, together with a printed copy of the Memorandum as altered with the
Registrar.
Registration-The Registrar shall register the same and certify the registration under his
hand within one month from the date of filing of such document. The certificate shall
be conclusive evidence that all the requirements of this Act with respect to the
alteration and confirmation have been complied with and henceforth the memorandum
as altered shall be the memorandum of the company.
a) Change of Registered office from One State to Another State- Section 17 provides
for the shift of the registered office from one State to another and such shift involves
alteration of memorandum.
Grounds for shifting:- A company can shift its registered office from one state to
anotherfor a certain purposes only as specified in sec.17(1). These are:
1) To carry on its business more economically and more efficiently.
2) To attain its main purpose by new or improved means.
3) To enlarge or change the local area of its operation.
4) To carry on some business which under existing circumstances may be conveniently or
advantageously combined with the business of the company.
5) To restrict or abandon any of the objects specified in the memorandum
6) To sell or dispose of the whole or any part of the under taking.
7) To amalgamate with any other company or body of persons.
Special resolution- Registered office of a company can be shifted from one state to
another by passing special resolution in the general meeting of shareholders. E-FORM
23 should be filed for registering the special resolution.

Confirmation by the Company Law Board- The company should file a petition
of theCompany Law Board for confirmation of the change.
Notice to affected parties- Before confirming the change, the Company Law
Board, willsatisfy itself that sufficient notice has been given to-
a) Every creditor and all other persons whose interests are likely to be affected by the
alterationincluding
b) The Registrar of Companies and the
c) Government of the State in which the registered office is situated
Copy of the company law board order to be filed with ROC- The CLB, may confirm the
alteration and ma impose such terms and conditions. A certified copy of the CLB‟s
order shouldbe filed within 3 months thereof with the Registrar of Companies of each of
the States. If it is not filed within the prescribed time, then the alteration shall, at the
expiry of such period, become void and inoperative.
Change of object-
1) To carry on its business more economically and more efficiently.

2) To attain its main purpose by new or improved means.
3) To enlarge or change the local area of its operation.
4) To carry on some business which under existing circumstances may be conveniently or
advantageously combined with the business of the company.
5) To restrict or abandon any of the objects specified in the memorandum
6) To sell or dispose of the whole or any part of the under taking.
7) To amalgamate with any other company or body of persons
The statutory requirement s for alteration are as follows:
A special resolution shall be passed in the general meeting.
The special resolution together with a printed copy of the Memorandum as altered
shall be filed with the Registrar within one month from the date of such resolution.
The Registrar shall register the same and certify the registration under his hand
within one month from the date of filing of such document.
On registration, the Memorandum as altered shall take effect.
Change of Liability Clause- The liability of a member of a company cannot be

increased unless the members agree in writing. In case of unlimited liability company,
the liability may be made limited by passing a special resolution and obtaining the
Court‟s approval. A copy ofthe special resolution and the court‟s confirmation must be
filed with the Registrar within the time specified.
Change in Capital Clause- A limited company, having a share capital may alter its
capital clause subject to the provisions of its articles by a resolution in the general
meeting. The confirmation of the court is not required if alteration is made for any of
the following purposes:-
1) Increase of Authorised share capital
2) Consolidation and sub- division of shares.
3) Conversion of shares into stock and vice- versa.
4) Diminution of share capital/ To cancel its shares.
DOCTRINE OF CONSTRUCTIVE NOTICE
Section 610 provides that the Memorandum and Articles when registered with
Registrar of Companies „become public documents‘ and then they can be inspected
by any one on payment of a nominal fee. Therefore, any person who contemplates
entering into a contract with the company has the means of ascertaining the powers of
the company and is thus, presumed to have read these documents and understood them
in their true perspective. This isknown as ―doctrine of constructive notice‖.
Even if the party dealing with the company does not have actual notice of the
contents of these documents it is presumed that he has implied (constructive) notice
of them.
Consequently, if a person enters into a contract which is beyond the powers of the
company, as defined in the memorandum or outside the limit set on the authority of the
directors as per the memorandum or articles, he cannot, as a general rule, acquire any
rights under the contract against the company.
DOCTRINE OF INDOOR MANAGEMENT
The doctrine of Indoor Management constitutes an exception to the “doctrine of

constructive notice”. According to the doctrine of constructive notice people entering
into contracts with a
company is presumed to have read and have notice of the contents of the company’s
memorandum and the articles. The doctrine of Indoor Management on the other hand
allows all those who deal with the company to assume that the provisions of the articles
have been observed by the officers of the company. In other words, the persons dealing
with the company are not bound to inquire into the regularity of internal proceedings..
While the doctrine of constructive notice seeks to protect the company against the
outsiders, the principle of indoor management operates to protect the outsiders against
the company.
The doctrine of Indoor management is subject to the following limitations:-
1) Knowledge of Irregularity- The rule does not protect any person who has actual or
constructive notice of the want of authority of the person acting on behalf of the
company.
2) No knowledge of the articles- The rule cannot be involved in favour of a person who
did not in fact consult the company’s memorandum and articles and consequently did not
act in relianceof those documents.
3) Negligence- The doctrine is not applicable in case of negligent persons. If an officer of
the company acts in a manner, which would not ordinarily be within his powers, the
person dealing with him must make proper inquires and satisfy himself as to the
officer’s authority. Ifhe fails to make inquiry, he cannot rely on the rule.
4) Forgery- The protection under this rule is not available where the outsider is found to
haverelied upon the document, which is a forged one.
5) The rule does not apply to transactions which are illegal or void ab initio nor
does it apply where requisite signature are forged.
PROSPECTUS
According to Section 2(36) of Indian Companies Act, 1956. ―Prospectus means a
document described or issued as prospectus and includes any notice, circular,
advertisement or other documents inviting offers from the public for subscription or
purchase of any shares or debentures of a body corporate‖.
Prospectus as such is an invitation or offer to the public to subscribe for shares of

company, if desired by them. It contains all material information required regarding
financial aspect of the company and helps the people to make decisions, whether they
should subscribe for shares of the company or not. Framing and preparing the prospectus
is an art. The company depicts the picture of its golden future through prospectus and
motivates the prospective shareholders to subscribe for the shares and debentures of the
company.
CONTENTS OF PROSPECTUS
1) Matter discussed in Memorandum of Association, Names, addresses and qualification
shares ofmembers signing on the memorandum.
2) Main object of the company.
3) Asset of the company and share of shareholders in the profit of company.
4) Number of qualification shares to be taken by the directors.
5) Distribution of the share capital of the company, types of shares, number and value of
different types of shares and rights of the shareholders.
6) If redeemable preference shares have been issued, their numbers, method and
date, whenpayment has to be made.
7) Names, addresses, profession, and remuneration of directors and managers.
8) Minimum subscribed capital of the company.
9) Amount payable on application and allotment.
10) Date and time of receiving application money.
11) Number and amount to shares and debentures issued for consideration other than cash.
12) Name and addresses of underwriters.

13) Preliminary expenses and its estimated amount.
14) Amount payable to promoters.
15) Name and address of the auditors.
16) Details of the interest of directors and promoters in the formation of company.
17) Details regarding all important contracts, their dates and place.
18) Details of directors and promoters interest in the assets purchased by the company.
19) Amount of premium or discount allowed on shares, if shares have been issued at a price
moreor lesser than the face value of shares.
20) Name and addresses of those vendors who have sold assets to the company. Details
regarding form of payment i.e., cash, shares or debentures.
21) Rights to shareholders regarding receiving dividend and return of capital.
22) Details of the voting rights etc. of the different classes of shares.
23) Method and restriction on the payment of dividend.
24) Other useful information regarding issue of shares and debentures.
STATEMENT IN LIEU OF PROSPECTUS

A public company any not issue prospectus. In such a situation, it will have to file a
statement in lieu of Prospectus with the Registrar of Companies. The proforma of the
statement is givenin the third schedule of the companies act. This statement must be filed
at least 3 days before the allotment of shares. Like prospectus, it should also be true and
not conceal material facts. It must be signed with date by all the directors.
Statement in lieu of prospectus is used in the following cases:
1) If the private company is changed into public company.
2) If there is automatic and immediate collection of capital at the time of incorporation.
3) If the company has not issued prospectus due to any reason.
4) If the company has decided that it will not issue shares or debentures to public.

COMPANY MANAGEMENT
One of the important features of a company is that there is a separation of ownership from
management. The shareholders do not directly manage. Instead, they elect some persons
from among themselves as their representatives to act on behalf of the company. Such
persons are known as directors. The power to manage however is not entrusted to any single
director but to all the directors, collectively called the Board of Directors. The chief organs
of company management are:-
a) The Shareholders, who have ultimate control of the company. They can elect and
remove directors and amend corporate documents viz., Memorandum of Association and
Article of Association.
b) The Board of Directors, who frame the business policies of the company and are
responsible for overall management, supervision and control.
c) The Chief Executive, who may be a Managing Director (MD) or a Manager (M)
responsible for da-to-day administration of the company. The chief executive
implements the decisions of the Board and functions under its control and
supervision. For the assistance of the chief executive there may be Whole Time Directors
(WTD) and other departmental managers such as finance manager, production manager,
personnel manager and company secretary.
DIRECTOR:-
Having no physical shape and form, a company should act through some human agency.
The persons, through whom a company acts are known as directors, collectively termed
as Board of Directors or the Board [Sec.252(3)]. Between the two organs of the
company, namely the board of directors and the members in general meeting, the former
occupies pre-eminently a higher position.

―The Board of Directors are the brain and the only brain of the company which is the
body and the company can and does act only through them.‖ Nevile J.
LEGAL POSITION OF THE DIRECTORS
The Companies Act does not make any effort to define the position of directors.
Sec.2(13) merely states that “directors includes any person occupying the position of a
director, by whatever name called”. The articles of a company may therefore
designate its directors asgovernors, council, managing committees, etc.
―Directors are described sometimes as agents, sometimes as trustees and sometimes as

managing partners. But each of these expressions is used not as exhaustive of their
powers and responsibilities but as indicating useful points of view from which they may
for the moment and for the particular purpose, be considered.‖
Director as Agents
The directors in the eyes of law are agent of the company, and the ordinary rules of
agency are applicable to them. “Whenever an agent is liable those directors would be
liable; where the liability would attach to the principal and the principal only, the
liability is the liability of the company”. Hence, in respect of the transactions entered
into by the directors in the name of the company, or on its behalf, it is the company as
the principal which is liable and not the directors.
Directors as Employees
Directors, as such are not employees of the company, but there is no legal bar for the
director to hold a salaried office or employment in the company. Mc Cardie points out
that “a director is in fact a director or controller of the company’s affairs. He is not a
servant.”
Director as Trustees
In York and North Midland Railway v. Hudson, Romilly M.R. points out that the
directors are trustees of the company’s properties. They are persons selected to

manage the affairs ofthe company for the benefit of the shareholders. It is an office of
trust, which if they undertake , it is their duty to perform fully and entirely.
Directors are not trustees in the true sense of the term. A trustee is the legal owner of the
property which he holds in trust for a beneficiary, a director does not hold any property
in trust for the company; the company itself is the legal owner. Further, a trustee
contracts in hisown name; but a director contracts in the name of the company.
APPOINTMENT OF DIRECTORS
1) First Directors [sec. 254]. The first directors of the company are appointed
usually by the articles. If no such directors are appointed by the articles, the
subscribers to the memorandum who are individuals, shall be deemed to be the
first directors of the company. They hold office until the directors are duly
appointed in accordance with the articles and the provisions of Sec.255.
2) Appointment at General Meeting [sec.255]. At least two third of the total
number of the directors, of a Public company or a Private Company which is a
subsidiary of a Public Company shall be appointed by the company in General
meeting. These directors are subject to retire by rotation and hence they are
known as the rotational directors. The remaining one third directors in the case of
any such company, and the directors generally in the case of a Private Company
not being a subsidiary of any Public Company shall also be appointed by the
company in general meeting. All these appointments should be subject to any
regulations in the articles of the company.
3) Appointment by Board of directors. The Board of directors may appoint a
director:
(a) as an additional director, (b) to fill in casual vacancy; or (c ) as an
alternatedirector.
4) Appointment by Central Government[sec. 408]. The central government may
appoint such number of persons as the Company Law Board may, by order in
writing, specify as being necessary to effectively safeguard the interests of the
company, or its shareholders or the public interest to hold office as directors
thereof for such period, not exceeding three years on any one occasion. The
directors so appointed will not be subject to retirement, nor need they hold any
qualification shares.
5) Appointment by Third Parties. The articles may empower to debenture
holders or other creditors to appoint their nominee or nominees to the Board.
However, the number of directors so appointed cannot exceed one –third of the
total strength of theboard.
Share Qualification:
Though the Act does not prescribe any qualification for a director, provisions to that
effect are usually found in the articles. The articles of a company may provide that a
director shall hold a certain number of shares in the company. Such shares are called
qualification shares. Within two months of the appointment a director must obtain
the required number. The value of qualification shares should not be more than five
thousand rupees except when the nominal value of a single share exceeds the
amount. Share warrants will not be counted for the purpose of qualification of
shares. If a director fails to obtain the qualification shares within the specified period
he suffers in two ways: firstly, his office falls vacant and, secondly, he becomes
liable to a penalty if he continuesto act as a director.
Disqualification :
Section 274 states that a person shall not be capable of being appointed
director of acompany, if:
a) He has been found to be of unsound mind by a competent Court;

b) He is an un discharged insolvent;
c) He has applied to be declared as an insolvent and his application is pending;
d) He has been convicted of any offence involving moral turpitude and sentenced
to imprisonment for not less than six months, and a period of five years has not
elapsed from the date of expiry of the sentence;
e) He has not paid any call in respect of shares of the company held by him and six

months have elapsed from the last day fixed for the payment of the call;
f) He has been disqualified under Sec. 203 of the Act for the purpose of
preventing fraudulent persons from managing companies.
A private Company may add to the above further disqualifications. However, the
CentralGovernment is empowered to remove the disqualification in the case (d) and
(e ) by notification in the Official Gazette.
DUTIES OF DIRECTORS
The duties of directors are regulated by the articles of association, and the
provisions of the Companies Act. There are, however, certain duties of general
nature which every director is required to perform.
Duties under the Companies Act
1. To deposit all amounts received by way of the application money for shares
with aScheduled Bank.
2. To allot the shares only after receiving the minimum subscription.
3. To prepare the Statutory Report and file a copy of the same with the Registrar.
4. To see that all the Statutory Books of the company are maintained properly.
5. To convene the various meetings of the company.
6. To present the audited profit and loss account and balance sheet in every
annualgeneral meeting.
7. To make a „declaration of solvency‟ at the time of voluntary winding
up of acompany.
Duties Under the General Law

1. Duty of good faith.
2. Duty of reasonable care.
3. Duty to attend the Board meeting.
4. Duty to disclose interest.

5. Duty not to delegate.
LIABILITIES OF DIRECTOR
The various liabilities which directors of a company may incur can be considered
under thefollowing heads:
1. Liability to outsiders: The directors are personally liable to third parties of

contractsin the following cases:
 They contract with outsiders in their personal capacity.
 They enter into a contract on behalf of a prospective company.
 They contract as agents of an undisclosed principal.
 When the contract is ultra vires the company.

 Where the prospectus contains any untrue statement.
 Where the allotment of shares is irregular.
 They fail to repay the application money if minimum subscription is not
subscribed.
 They fail to repay the application money if the allotment of shares or debentures
is notdealt with in stock exchange as provided in the prospectus.
2. Liability to Company: In certain circumstances, the directors are liable
to thecompany. These are:
 Where the acts of the directors are ultra vires the company.
 Where the directors are negligent in performing their duties.
 Where there is a breach of trust.
 Where the directors are guilty of misfeasance.
3. Criminal Liabilities of Directors: For acts of fraud, default in discharging their
duties and misdemeanor, the Act provides penalties by way of fine or
imprisonment.

POWERS OF DIRECTORS
Directors of a firm are vested with certain powers by the corporate legislation and the
firm'sarticles of association. These generally include power to:
(1) act as the firm's agents,

(2) have full access to the firm's accounts,
(3) cause the firm to enter into valid contracts,
(4) pledge the firm's assets,
(5) borrow and give security, and
(6) determine terms and conditions under which the firm's shares are issued,
transferred, and forfeited.
MANAGING DIRECTOR:-
It is a common practice that the Board of Directors appoints one of its members to
managethe affairs of the company as a whole time officer and calls him the Managing
Director.
He acts as the chief executive. He occupies a position of dual authority and responsibility.
As
a director, he attends the Board meetings and, as a manager, he performs the
managerialfunctions.
Appointment of Managing Director:
A managing director is appointed by the Board of Directors subject to the approval

of the Central govt. He is appointed at the first instance for the period of five years
which can extend for a period of another five years.
The appointment of a person as managing director in a public or its subsidiary
private company shall not have effect unless it is approved by the Central Govt. In
case of a new company, the approval must be made within three months of his
appointment.
The Central Govt. shall not accord its approval unless it is satisfied that:
(i) It is the interest of the company to have a managing director,

(ii) The proposed incumbent is a fit and proper person for such appointment
(iii) His appointment is not against public interest,
(iv) The terms and conditions of the appointment of the proposed managing director
is notagainst public interest.
If his appointment is not approved by the Central Govt., the incumbent must vacate his
office from the date of receipt of the disapproval of the Govt.
Disqualifications of Managing Director:
No person can be appointed a managing director if:
(i) He is an un-discharged insolvent, or has at any time been adjudged an insolvent,
(ii) He suspends or has at any time suspended, payment to his creditors,
(iii) He makes, or has at any-time made, a composition with his creditors, or
(iv) He is, or has at any time, convicted by a Court of an offence involving moral
turpitude.The disqualifications applicable to directors apply to managing director.
POWERS, DUTIES AND RESPONSIBILITIES OF THE MANAGING
DIRECTORMAY BE STATED AS FOLLOWS:
1. As a member of the Board of Directors he participates in formulating the

objectives andpolicy-making functions of the Board.
2. To execute policies laid down by the Board of Directors.
3. He is the liaison officer between the Board of Directors and the rest of the organisation.
4. To interpret and communicate policies of the company to subordinate employees.
5. To review the operations of the company and present to the Board periodically
accounts and statistics showing the progress and the present position of the
company.
6. To formulate the employment and compensation plan in accordance with the accepted
policies of the company.
7. To appoint high officials of the company.

8. To plan the development and expansion of business.
9. To organise meetings with department heads.
10. To promote high morale among the employees of company by creating a sense of
belonging.
11. To maintain contact with the govt., chamber of commerce, trade unions and
community at large.
12. To maintain a harmonious relationship between line and staff managers.
13. To approve or disapprove development plans submitted by the senior

executives and place before the Board for final approval.
14. To establish a system of budgetary control by which the actual performance
of thecompany may be evaluated against the planned course of action.
15. To administer production and sales activities of the company.
16. To give due attention to consumer satisfaction which is ensured by the continued
supplyof goods and services to the market.
ADMINISTRATIVE HIERARCHY
Hierarchy: A hierarchy is an arrangement of items (objects, names, values, categories,
etc.) in which the items are represented as being “above”, “below”, or “at the same level
as” one another.
A hierarchy can link entities either directly or indirectly, and either vertically or
diagonally. The only direct links in a hierarchy, in so far as they are hierarchical, are to
one‟s immediate superior or to one of one‟s subordinates, although a system that is
largely hierarchical can also incorporate alternative hierarchies.
Indirect hierarchical links can extend “vertically” upwards or downwards via multiple
links in the same direction, following a path. All parts of the hierarchy which are not
linked verticallyto one another nevertheless can be horizontally linked.

Administrative Hierarchy is the relationships that are in an organization that keep

going from the CEO to the floorworker.
A lawfully officially permitted body where a group of professionals get amalgamated
simply to accomplish non profitable and profitable business is termed as a company.
There are numerous ranks in any company. One such department is the administrative
sector. This rankhas got the administration related authority, power and decision making
capabilities in the company. Entire administration structure is managed by these
professionals with their vital knowledge of the field along with their past experience.
Company administration hierarchy defines successfully all the administrative ranks in
any company. These are same almost for all the businesses. The company
administration hierarchy is described in brief as below starting with the topmost
administrative level and proceeding ahead.
HIGHEST ADMINISTRATION LEVEL
The highest administration level in the company administration hierarchy incorporates

all the senior level designation of the administration department. These are extremely
expert professionals with years of vital experience in the administration field. Their core
duty if administer and manager the entire work and get it done from their team in an
effective way for company’s growth and profit. Since company administration is one
the most vital operations in the organization, highly professional and experienced
personnel are appointed on the following given designations. These professionals report
to the company‟s senior officials. The high level job profiles in company administration
hierarchy are described below –
Senior Administrative Coordinator
Senior Administrative Analyst
Senior Administrative Service Officer
Senior Administrator
Senior Coordinator
Assistant Director

Administrator
Senior Events Coordinator
Senior Support Specialist
MIDDLE ADMINISTRATION LEVEL

These professionals in the company business administration hierarchy are those having
some experience in the administration. They play a vital role as a representative for the
company. These are also referred to as „Admin‟ normally in the offices. The
administrative staff of this
level is exceedingly significant consecutively to maintain all other practiced positions
to be keenly focused on their prime responsibilities. The mid-level company
administration hierarchy includes following job profiles –
Administrative Coordinator
Administrative Assistant
Administrative Services Officer
Administrative Services Manager
Administrative Support Manager
Assistant Administrator
Executive Services Administrator
Executive Assistant
Facility Manager
Office Support Supervisor
Office Support Manager

LOWER ADMINISTRATION LEVEL
These are the professionals in the company administration hierarchy that work only as
the orders are provided to them. These professionals do appear at lower level but for
the smooth functioning of any company they play a vital role since the small work they
do when combined help a company to run efficiently. These are professionals who are
expert of their roles and perform their provided roles on daily basis. The lower level of
company administration hierarchy includes following job profiles in any marketing
company –
Mail Clerk Leader
Mail Clerk
Secretary
Credit Clerk
Office Clerk.
Mail Equipment Operator Receptionist

Company Meetings
When two or more than two persons get together at one place to discuss any common
issue, it is called Meeting. Meetings of the shareholders or of the directors or the
debenture holder or of the contributories are called Meeting of a company.
A company meeting may be defined as a concurrence or coming together of at least a
quorum of members in order to transact either ordinary or special business of the
company.
Characteristics of a Company Meeting:
The characteristics of a company meeting are as follows:
1. Two or more persons (who are the members of the Company) must be present
at themeeting.
2. The assembly of persons must be for discussion and transaction of some lawful
business.

R.S.Mundle Dharampeth Arts and Commerce College,Nagpur,

Department of BBA and BCCA Page 32
3. A previous notice would be given for convening a

meeting
4. 4.The meeting must be held at a particular place, date

and time.
5. The meeting must be held as per provisions/rules of Companies Act.
KINDS OF MEETINGS:
There are following types or kings of meeting in a company
1. Shareholders Meeting\Statutory (legal) Meeting:
Definition:
Statutory meeting is the first meeting of the members of a public company. It is held once
in the life of a public company. Statutory means legal so this meeting is totally based on
law. Law enforced the company to call this meeting.
Occasion:
This meeting must be held after 3 months, but before 6 months of obtaining the
certificate ofcommencement of business.
Notice of Meeting:
The directors will send a notice of the meeting to all the members of the company at
least 21days before the meeting. And also send statutory report to the shareholders.
Objectives of the Meeting:
Following are the main objectives of the meeting.
i. To win Confidence:
This meeting is called to win the confidence of the shareholders and try to increase
their attention towards the company and try to create their interest in the
development of the company.
ii. To Provide Latest Information:
As it is the first meeting of the company and that is why its prime objective is to brief

about the position of the company in the market and provide the information about the
expected growth of
the company and the industry.
iii. To Discuss Statutory Report:
Another objective of this meeting is to discuss statutory report of the company. Statutory
report contains following type of information
 Details of the shares allotted.
 Total number of shares issued.
 Total receipts and total payments.
 Cash received against shares allotted.
 Names of the directors, CEO, secretary, auditors and legal advisors etc.
iv. To Discuss Future Plans:
This meeting is held to brief about the future plans of the company for example; about to
increase the share capital, about to make new units of production, about to purchase some
kindof securities, about to issue debentures against the borrowing etc.
v. To Inform About the Property:
Another purpose of this meeting is to inform the shareholders about the assets of the
companyand their value in terms of money in the market.
vi. To Inform Where the Money Used:
It is also included in this meeting to inform the shareholders where the collected money
fromshares is used and where the future earnings will be used etc.
Penalty:
In default in filing statutory report and in holding the statutory meeting, every responsible
officer and the company shall be liable to a fine.
2. Annual General Meeting:
Definition:

Every public company will hold Annual General Meeting of its members every year.
This meeting is to be call and held by the directors of the company.
Occasion:
The first annual general meeting must be held within 18 months from the date of its
incorporation. The next meeting must be held once in every calendar year within 4 months
after closing of its financial year. The interval between the two meetings must not exceed
than 15 months.
Notice of the Meeting:
least 21days before the meeting. It should also be published in newspaper.
Objectives of the Meeting:
Following are the main objectives of this meeting
i. To check Annual Accounts:
The first and the most important objective of this meeting is to check annual accounts
of the company as well as check the growth of the company among the relevant
industry.
ii. Declaration of Dividend:
The shareholders and directors declare the dividend of the year with the mutual co-
operation. They make decisions for the betterment of the company and for the
betterment of the shareholders etc.
iii. Election of Directors:
Elections of the directors also held in this meeting, elected participant will lead the
company upto the next annual general meetings.
iv. Appointment of Auditor:
In this meeting the directors and shareholder with the mutual co-operation announced the
nameof the auditor and fixed the remuneration.
Penalty:
If the company fails to hold this meeting the company and every officer of the company

shall be liable to fine.
3. Extra Ordinary General Meeting:
Definition: All general meetings other than annual general meeting and statutory meeting are
known as Extra-Ordinary General Meetings. This meeting is held on the special occasions or
you can say in the emergency situations when directors think that it necessary. For example;
at the plan of merger etc.
Occasion:
This meeting is held on the special occasion and in the emergency

situation. Notice of the Meeting:
least 21days before the meeting.
Objectives:
Following are the main objectives of the Extra Ordinary General Meeting.
i. Special Business:
In case of special business this meeting is held for example; a case of 10 billion rupees of
exportis at the door. In this case it can be called.
ii. In Some Innovative Cases:
In some innovative cases this meeting can be called for example; an idea of launching a
newproduct or launching a new setup etc.
Board Meeting
A meeting held at intervals to discuss problems and policy. A chairperson is the boss of
the meeting. Minutes must be made of each meeting. All members of the board have to
follow what is decided.

Unit IV
Consumer Protection Act, 1986
Salient features of the Act are:

1) The Act aims to provide better and all-round protection to consumers.
2) In terms of geographical application, it applies to the whole of India except the State of
Jammu and Kashmir.
3) It applies to all goods and services unless otherwise expressly notified by the Central
Government.
4) It is indeed a very unique and highly progressive piece of social welfare legislation. The
Act has made the consumer movement more powerful, broad-based and effective and
people oriented.
This is the only law which directly relates to market place and try to redress complaints
arising from it. Its provisions are very wide-ranging and highly effective.
5) It provides effective safeguards to the consumers against different types of exploitation
such as defective goods, unsatisfactory (or deficient) services and unfair trade practices
Three-Tier Grievance Redressal Machinery

For enforcement of the rights of the consumers, the Act has created special consumer Courts. As
Act provides for a three-tier consumer grievance redressal machinery with the District Forums at
the base, the State Commission at the middle level and the National Commission at the top level.
The State and national level bodies also function as appellate authorities. Any judgment given by
the National Commission can be challenged in the Supreme Court.
The cost of goods or services and compensation asked for is the criterion for filing the complaint
with the above Redressal Forum
No court fee or any other charge is to be paid in respect of any complaint or petition of appeal or
revision, however high be the value of its subject matter. Thus, the Act provides a simple, speedy
and inexpensive redressal of consumer grievances relating to the defective goods
•

• Definitions under the Act:

Consumer Section.2(1)(d) :
means any person who,—(i) buys any goods for a consideration which has been paid or promised
or partly paid and partly promised, or under any system of deferred payment and includes any user
of such goods other than the person who buys such goods for consideration paid or promised or
partly paid or partly promised, or under any system of deferred payment, when such use is made
with the approval of such person, but does not include a person who obtains such goods for resale
or for any commercial purpose; or
(ii) hires or avails of any services for a consideration which has been paid or promised or partly
paid and partly promised, or under any system of deferred payment and includes any beneficiary of
such services other than the person who hires or avails of the services for consideration paid or
promised, or partly paid and partly promised, or under any system of deferred payment, when such
services are availed of with the approval of the first mentioned person but does not include a
person who avails of such services for any commercial purpose.
Complaint section 2(1)(C)
“complaint” means any allegation in writing made by a complainant that—
(i) an unfair trade practice or a restrictive trade practice has been adopted by any trader or service
provider
(ii) the goods bought by him or agreed to be bought by him suffer from one or more defects;
(iii) the services hired or availed of or agreed to be hired or availed of by him suffer from
deficiency in any respect;
(iv) a trader or the service provider, as the case may be, has charged for the goods or for the
services mentioned in the complaint, a price in excess of the price
(v) goods which will be hazardous to life and safety when used are being offered for sale to the
public.
(vi) services which are hazardous or likely to be hazardous to life and safety of the public when
used, are being offered by the service provider which such person could have known with due
diligence to be injurious to life and safety.
service section 2(1)(o)

means service of any description which is made available to potential users and includes, facilities
in connection with banking, financing insurance, transport, processing, supply of electrical or other
energy, board or lodging or both, housing and construction, entertainment, amusement or the
purveying of news or other information, but does not include the rendering of any service free of
charge or under a contract of personal service.
“defect” section 2(1)(f)
means any fault, imperfection or shortcoming in the quality, quantity, potency, purity or standard
which is required to be maintained by or under any law for the time being in force or under any
contract, express or implied, or] as is claimed by the trader in any manner whatsoever in relation to
any goods;
“deficiency” section 2(1)(g)
means any fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of
performance which is required to be maintained by or under any law for the time being in force or
has been undertaken to be performed by a person in pursuance of a contract or otherwise in
relation to any service;
“Complainant” section 2(1)(b)
means—
i) a consumer; or
ii) any voluntary consumer association registered under the Companies Act, 1956 (1 of 1956)
or under any other law for the time being in force; or
(iii) the Central Government or any State Government; or
(iv) one or more consumers, where there are numerous consumers having the same interest
(v) in case of death of a consumer, his legal heir or representative who or which makes a
complaint;
Rights & Relief Available to Consumer
In India, the Consumer Protection Act, 1986, deals with the rights that ensure consumers in the
country get goods and services worth their money. The act was passed in the assembly in October

1986 to protect the interests of consumers in India. Under the Consumer Protection Act, 1986, the
government of India gives us six basic rights
Right to Safety : Right to Safety is referred to as ‘right to be protected against the marketing of
goods and services which are hazardous to life and property’. It is mainly applicable in healthcare,
pharmaceuticals, and food processing sectors. The right is also applicable in sectors that have an
indirect impact on health including automobiles, housing, domestic appliances, and travel.
After the implementation of this act, there is a mandate for each and every field to get all their
products which are a danger to the life to be carefully tested and validated before launching it to
the market.
Right to Information
The Consumer Protection Act, 1986, defines Right to Information as ‘the right to be informed
about the quality, quantity, potency, purity, standard and price of goods so as to protect the
consumer against unfair trade practices’ by the sellers. For instance, pharmaceuticals must disclose
the potentials side effects of drugs.
Right to Choose
It referred to as ‘the right to be assured, wherever possible, access to a variety of goods at
competitive prices’. It is very common to find one product being sold at different possible prices
by different sellers. This happens due to market competition which is found in almost all the
countries. Therefore it is the right of all the consumers to purchase any product at any price which
according to him is the best. A consumer cannot be forced to purchase a product of some particular
brand or quality. a consumer can even bargain on the MRP, as it is not fixed by the government
and the actual selling price could be lower depending on the taxes.
Right to be Heard
This right was introduced for a consumer in order to ensure that all the complaints and issues of
the consumers are heard duly under the appropriate authority. The right ensures that consumers
come forward without any fear, file the complaint and raise their voice against any products and
services. Almost all the big selling companies have a separate department known as the customer
service to help the consumers in case of any dispute or any complaint regarding the quality or
quantity of the product.
Right to Seek Redressal

If any consumer has been exploited by the seller or faced any unfair trade practices he can seek
redressal i.e. compensation or damages under this right. This right ensures that all the issues of the
consumers are dealt with and justice is done to him. A proper redressal mechanism has been set up
by the government of India. These courts are set on three levels which includes District Consumer
Disputes Redressal Forums at the district level, State Consumer Disputes Redressal Commissions
at the state level and National Consumer Disputes Redressal Commissions at the national level.
Right to Consumer Education
It is the right of each and every person who is a citizen of India to have knowledge about all the
laws and policies relating to the consumer. Therefore it is made sure the material regarding the
consumer-related laws is easily available all over India but there is still a major part of the
population who is not aware of his laws and rights. Many awareness programmes have been
organized by the government of India such as ‘jago grahak Jago’ .
Reliefs/ Remedies available to Consumer

• Remedies available under the Act
• The Consumer Protection Act provides consumers with various remedies. Following are
the remedies available under the act:
• Removal of Defects– if the consumer after conducting a proper test by using the product
finds the product to be defective then the authority can pass an order of removing the
defects in the product.
• Replacement of goods
• Refund of the price paid by the consumer while purchasing the product.
• Award of Consumption– a consumer can demand compensation from the trader or service
provider if because of his negligence the consumer has suffered some physical or any other
loss.
• Removal of Deficiency in Service– the authority can pass orders for removal of the
deficiency if there is any deficiency in delivery of the service, for instance, if the consumer
has applied for a loan and has fulfilled all the formalities but the bank is making
unnecessary delay in sanctioning the loan, then the court can pass orders to sanction the
loan.

• Discontinuance of Unfair/ Restrictive Trade Practice– if a complaint is filed by the

consumer against any unfair trade practice in the market, the authority can order an
immediate withdrawal of such practice and can also pass an order for banning such trade
practice.
• Stopping of sale of hazardous goods
• Withdrawal of hazardous goods from the market.
• Payment of the adequate cost
Procedure to file Complaint

• Who can file a complaint? - According to sec-2(1)(b) a complainant can be a person who
is:
A consumer, or
Any voluntary consumer association registered under the Companies Act of 1956 or under
any other law for the time being in force, or
The Central Government or any State Government, who or which makes a complaint, or
One or more consumers, where there is more than one consumer they shall have the same
interest for filing a collective complaint, or
In the case of death of a consumer, his legal heir or representative who or which makes a
complaint.
• How to file a Complaint?
1. Send a notice: the aggrieved party should send a notice to the service provider from whom
the goods were purchased or the service was availed informing him about the defects in the
goods or the deficiency in the service or unfair practice. This notice is sent to the trader or
the aggrieved party in order to see if that company or trader is willing to give the
compensation or offer any other remedy. If in case the trader or service provider is not
willing to provide with any remedy, the aggrieved party shall go ahead with filing a formal
complaint.
2. Make a formal complaint and draft a complaint: The next step is to file a formal
complaint under the Consumer Protection Act of 1986. The aggrieved party does not need
to hire a lawyer in order to file a complaint. He can file the complaint on his own

• The aggrieved party need to write down the following contents on a plain paper:
Name, description and the address of the complainant and of the opposite party or parties
Facts relating to the complaint and time and venue where it arose
All the possible documents in support of the allegations contained in the complaint
The relief or the remedy claimed by the complainant
The complaint should consist of signatures of the complainant or his authorized agent
3. Apply to appropriate authority: choose the appropriate authority under whom the
complaint is to be filed. The complainant shall choose the authority according to pecuniary
jurisdiction of his complaint i.e. the total value of the goods or services and the
compensation claimed by him. It is to be noted here that the complainant can also file an
online complaint on www.consumerhelpline.gov.in
4. Furthermore, the complainant needs to pay the prescribed court fees according to the
pecuniary value of his case. Following are the fee details of the court fees:
For District forums
Up to Rs 1 lakh: Rs 100
Between Rs 1-5 lakh: Rs 200
Between Rs 5-10 lakh: Rs 400
Above Rs 10 lakh and up to Rs 20 lakh: Rs 500
For State Commissions
Above Rs 20 lakh but less than Rs 50 lakh: Rs 2,000
Above Rs 50 lakh and up to Rs 1 crore: Rs 4,000
For the National Commission
A standard amount of Rs 5,000
The Forum under which the complaint has been filed by the aggrieved party is under a
mandate to provide the resolution to the parties within a period of 30 days. If it fails to
adhere with the same the party can move to the next commission.
The limitation period for filing a Complaint or Appeal to higher commission

Filing of a complaint– the complainant can file a case against the trader or the service
provider only within two years from the date on which the cause of action arose. The forum
may entertain the case in case of delay only if the complainant gives sufficient cause.
Appeal to the State Commission– according to sec-15 of the act an appeal can be filed to
the State Commission by any person who is aggrieved by an order passed by the District
Forum within a period of thirty days from the date of an order, in a form and manner
prescribed under the act. If an appeal is filed after the expiry of the period of limitation the
State Commission has the discretion to entertain that appeal if the complainant shows
sufficient cause for not filing an appeal within the limitation period.
Appeal to the National Commission– according to sec-19 of the act an appeal can be filed
to the National Commission by a person aggrieved by the order passed by the State
Commission within 30 days from the date of receipt of order. The appeal to be
accompanied by a copy of an affidavit.
Appeal to the Supreme Court of India– according to sec-23 of the act an appeal may be
referred to the Supreme Court of India by the party aggrieved by the order passed by the
National Commission within a period of 30 days from the date of order passed.
Revision Petition to the National Commission– sec-21(b) of the act vests the power in
the National Consumer Disputes Redressal Commission to call for the records and pass
appropriate orders in any consumer dispute which is either pending or has been decided by
the State Commission. The National Commission can exercise its revisional jurisdiction
only if it appears to the commission that the State Commission has acted illegally or with
irregularity or outside its jurisdiction. Such a Revision Petition can be filed within a period
of 90 days from the date of the order passed by the aggrieved party.
District Forum: The Consumer Disputes Redressal Forum, known as District Forum is the first stage
of courts at the bottom of the hierarchy of the consumer redressal courts. The sections 10 to 15 of the -
Consumer Protection Act, 1986 deal with this forum.
Composition: Section 10(1) of the Act deals with the composition of District Forum. The important
aspects of this Act involve:

1. A President with the qualification of a District judge.

2. Apart from the President, there are two other members, one being a woman.
3. These members are to be chosen based on three grounds. They must be at least 35 years of age,
they must have a degree from a recognized university and they must have at least 10 years of
experience in law, economics, commerce and so on.
Jurisdiction: Section 11 of the Consumer Protection Act, 1986 defines the jurisdiction of the District
Forum, explained below:
1) The value of goods and services and compensation should not exceed 20 lakh rupees.
2) Jurisdiction in terms of place can be determined as:

a) The place of residence or carrying out of the business of the opposite party,
b) Any party or each party
c) The place where the cause of action wholly or partly arises.
Power: In accordance with Section 14 of the Act, the District Forum
a) It has the power to grant damages in the form of compensation,

b) removing defects or deficiencies,
c) discontinuing unfair trade practice,
d) Withdrawal of hazardous good for sale and so on.
Section 15 of the Act grants an appeal against the decision of the District Forum within 30 days to the
State Commission. Also, the appellant must have paid 50 per cent of the compensation decided against
him or ₹25000, whichever is less.
Procedure followed by Redressal Agencies (District Forum): Section 13: The Forum should
implement the procedure against the consumer complaint as follows:
a) Within 21 days of filing the complaint, the opposite party should receive a copy to explain his
version. The version should be submitted in 30 days, with a maximum extension of 15 days.
b) When the opposite party either disputes and denies or fails to take action to represent his case,
clause (c) or (g) must be followed
c) If a complaint needs an analysis of the good, a sample can be taken by the District Forum to be sent
to a certain laboratory for testing for the defect. The report of the findings should be complete in 45
days unless an extension is granted by the Forum.

d) The complainant may have to pay a fee in order to carry out the process of sample testing at the said
laboratory.
e) This fee will be given to the laboratory and the report with the appropriate remarks will be
forwarded to the opposite party.
f) If one of the parties disputes the findings of the laboratory, the party’s objections should be
submitted in writing.
g) Both parties will be given a reasonable opportunity to be heard by the District Forum.
Deficiency in services follows a similar procedure, focusing on the evidence brought to the District
Forum.
If the complainant fails to appear on the date of the hearing, the Forum may either dismiss the
complaint or act on its discretion
State Commission : The Consumer Disputes Redressal Commission, known as State Commission is
the second stage of courts from the bottom of the hierarchy. The Sections 16, 17, 18 and 19 of the
Consumer Protection Act, 1986 deal with State Commission.
Composition: A Section 16 of the Act deals with the composition of the State Commission. The
important aspects of this Act involve:
1. A President who is or was a judge of the High Court, appointed by the State Government
2. Apart from the President, there are two other members, one being a woman.
3. The number of members in the State Commission cannot be less than 2
4. These members are to be chosen based on three grounds. They must be at least 35 years of age,
they must have a bachelor’s degree from a recognized university and they must have at least 10
years of experience in law, economics, commerce and so on.
5. Not more than fifty per cent of the members should have a judicial background.
Every member of the District Forum need to have the following qualifications:
o The term is five years or 67 years, whichever is earlier

o Reappointment is possible through the Selection Committee’s recommendation

o Resignation can be done with a letter addressed to the State Government
Jurisdiction: Section 17(1) of the Consumer Protection Act, 1986 defines the jurisdiction of the State
Commission, explained below:
a) The value of goods and services and compensation should be at least 20 lakh but not exceed
1 crore rupees.
b) Appeals against the orders of District Forum are settled here
c) If the District Forum has seemingly acted beyond its power or has failed in its duty, then the
State Commission can call for records.
Jurisdiction in terms of place can be determined as (Section 17(2)):
a) The place of residence or carrying out of the business of the opposite party,
b) Any party or each party
c) The place where the cause of action wholly or partly arises.
Power: The State Commission may transfer a complaint to it from the District Forum at any stage of
the proceeding.

Section 19 of the Act grants an appeal against the decision of the State Commission within 30 days to
the National Commission. Also, the appellant must have paid 50 per cent of the compensation decided
against him or Rs. 35000, whichever is less.
Procedure followed by Redressal Agencies (State Commission): As according to Section 18, the
State Commission observes the same procedure as the District Forum under Sections 12, 13 and 14.
The Forum should implement the procedure against the consumer complaint as follows:

laboratory.
Deficiency in services follows a similar procedure, focusing on the evidence brought to the District
Forum.
National Commission: The National Consumer Disputes Redressal Commission, better known as
National Commission is the highest structure of redressal agencies, subordinate to the Supreme Court.
It is the court that deals with the appeals against the State Commission.
Composition: Section 20 of the Act deals with the composition of the National Commission. The
important aspects of this Act involve:
1. A President who is or was a judge of the Supreme Court, appointed by the Central
Government
2. There must be 4 members at least, one being a woman.
3. These members are to be chosen based on three grounds. They must be at least 35 years of
age, they must have a bachelor’s degree from a recognized university and they must have at
least 10 years of experience in law, economics, commerce and so on.
4. Not more than fifty per cent of the members should have a judicial background.
Every member of the District Forum need to have the following qualifications:
o The term is five years or 70 years, whichever is earlier

o Reappointment is possible through the Selection Committee’s recommendation

o Resignation can be done with a letter addressed to the Central Government
Jurisdiction: Section 21 of the Consumer Protection Act, 1986 defines the jurisdiction of the National
Commission, explained below:
a) The value of goods and services and compensation should exceed 1 crore rupees
b) Appeals against the orders of State Commission are settled here
c) If the State Commission has seemingly acted beyond its power or has failed in its duty, then
the National Commission can call for records.
Powers: The National Commission may receive a transfer of a complaint from the State Commission
at any stage of the proceeding in the interest of justice. This can be on the application of the
complainant or its own motion.
The National Commission has the power to review any order made by itself when there seems to be an
error on the record, as stated in Section 22.

Section 19 of the Act grants an appeal against the decision of the National Commission within 30 days
to the Supreme Court. Also, the appellant must have paid 50 per cent of the compensation decided
against him or Rs. 50000, whichever is less.
Procedure followed by Redressal Agencies (National Commission): The National Commission

observes the same procedure as the District Forum under Sections 12, 13 and 14.
The Forum should implement the procedure against the consumer complaint as follows:

laboratory.
Deficiency in services follows a similar procedure, focusing on the evidence brought to the State
Commission
Introduction to GST:
GST is known as the Goods and Services Tax. It is an indirect tax which has replaced many
indirect taxes in India such as the excise duty, VAT, services tax, etc. The Goods and Service Tax
Act was passed in the Parliament on 29th March 2017 and came into effect on 1st July 2017. GST
is a single domestic indirect tax law for the entire country
Under the GST regime, the tax is levied at every point of sale. In the case of intra-state sales,
Central GST and State GST are charged. All the inter-state sales are chargeable to the Integrated
GST.

Goods and Service Tax (GST) is levied on the supply of goods and services. Goods and Services
Tax Law in India is a comprehensive, multi-stage, destination-based tax that is levied on
every value addition.
Multi-stage: An item goes through multiple change-of-hands along its supply chain: Starting from
manufacture until the final sale to the consumer.
Purchase of raw materials

↓
Production or manufacture
↓
Warehousing of finished goods
↓
Selling to wholesalers
↓
Sale of the product to the retailers
↓
Selling to the end consumers
Value Addition: A manufacturer who makes biscuits buys flour, sugar and other material. The
value of the inputs increases when the sugar and flour are mixed and baked into biscuits.
The manufacturer then sells these biscuits to the warehousing agent who packs large quantities of
biscuits in cartons and labels it. This is another addition of value to the biscuits. After this, the
warehousing agent sells it to the retailer.
The retailer packages the biscuits in smaller quantities and invests in the marketing of the biscuits,
thus increasing its value. GST is levied on these value additions, i.e. the monetary value added at
each stage to achieve the final sale to the end customer.
Destination-Based: Consider goods manufactured in Maharashtra and sold to the final consumer
in Karnataka. Since the Goods and Service Tax is levied at the point of consumption, the entire tax
revenue will go to Karnataka and not Maharashtra.
Objectives of GST
1. To achieve the ideology of ‘One Nation, One Tax’ : GST has replaced multiple indirect
taxes, which were existing under the previous tax regime. The advantage of having one

single tax means every state follows the same rate for a particular product or service. Tax
administration is easier with the Central Government deciding the rates and policies.
2. To subsume a majority of the indirect taxes in India : India had several indirect taxes
such as service tax, Value Added Tax (VAT), Central Excise, etc., which used to be levied
at multiple supply chain stages. Some taxes were governed by the states and some by the
Centre. There was no unified and centralised tax on both goods and services. Hence, GST
was introduced. Under GST, all the major indirect taxes were subsumed into one.
3. To eliminate the cascading effect of taxes : A cascading effect is an unexpected chain of
events that occurs when an event in a system has a negative impact on other, related
systems. One of the primary objectives of GST was to remove the cascading effect of taxes.
Previously, due to different indirect tax laws, taxpayers could not set off the tax credits of
one tax against the other. For example, the excise duties paid during manufacture could not
be set off against the VAT payable during the sale. This led to a cascading effect of taxes.
Under GST, the tax levy is only on the net value added at each stage of the supply chain.
This has helped eliminate the cascading effect of taxes.
4. To curb tax evasion: Under GST, taxpayers can claim an input tax credit only on invoices
uploaded by their respective suppliers. This way, the chances of claiming input tax credits
on fake invoices are minimal. Due to GST being a nationwide tax and having a centralised
surveillance system, the clampdown on defaulters is quicker and more efficient. Hence,
GST has curbed tax evasion and minimised tax fraud from taking place to a large extent.
5. To increase the taxpayer base: Previously, each of the tax laws had a different threshold
limit for registration based on turnover. As GST is a consolidated tax levied on both goods
and services both, it has increased tax-registered businesses. Besides, the stricter laws
surrounding input tax credits have helped bring certain unorganised sectors under the tax
net.
6. Online procedures for ease of doing business: GST procedures are carried out almost
entirely online. Everything is done with a click of a button, from registration to return filing
to refunds to e-way bill generation. It has contributed to the overall ease of doing business
in India and simplified taxpayer compliance to a massive extent.

7. To promote competitive pricing and increase consumption: Introducing GST has also
led to an increase in consumption and indirect tax revenues. Due to the cascading effect of
taxes under the previous regime, the prices of goods in India were higher than in global
markets.. Uniform GST rates have contributed to overall competitive pricing across India
and on the global front. This has hence increased consumption and led to higher revenues,
which has been another important objective achieved.
Advantages of GST: GST has mainly removed the cascading effect on the sale of goods and
services. Removal of the cascading effect has impacted the cost of goods. Since the GST regime
eliminates the tax on tax, the cost of goods decreases.
Also, GST is mainly technologically driven. All the activities like registration, return filing,
application for refund and response to notice needs to be done online on the GST portal, which
accelerates the processes.
Components of GST: There are three taxes applicable under this system: CGST, SGST &
IGST.
 CGST: It is the tax collected by the Central Government on an intra-state sale (e.g., a
transaction happening within Maharashtra)
 SGST: It is the tax collected by the state government on an intra-state sale (e.g., a
transaction happening within Maharashtra)
 IGST: It is a tax collected by the Central Government for an inter-state sale (e.g.,
Maharashtra to Tamil Nadu)
Multiple rate structure: The GST presently has a four slab structure with tax rates kept at 5%,
12%, 18% and 28%. The multiple tax structure has been justified on the ground that necessary
items of mass consumption should be taxed at a lower rate while luxury items should be taxed at
higher rates. However, multiple rates are likely to increase administrative complexity as well as
create classification disputes. Such a system makes it difficult to evaluate the overall effects of the
tax design.


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BBA II Year (IV Semester) Business Legislations

R.S. Mundle Dharampath Arts & Commerce College, Nagpur

• Legal System in India:

R.S. Mundle Dharampath Arts & Commerce College, Nagpur

Introduction to legal aspects of business in general

R.S. Mundle Dharampath Arts & Commerce College, Nagpur

Freedom of Trade, Profession and Occupation

R.S. Mundle Dharampath Arts & Commerce College, Nagpur

R.S. Mundle Dharampath Arts & Commerce College, Nagpur

2) “Article 301- FREEDOM TO TRADE, COMMERCE AND INTERCOURSE- TRADE,

R.S. Mundle Dharampath Arts & Commerce College, Nagpur

Unit II – Indian Contract Act 1872

R.S. Mundle Dharampath Arts & Commerce College, Nagpur

8. Contract 2(h): An agreement enforceable by Law is a contract. Therefore, there must be an

Essentials of Valid Contract

R.S. Mundle Dharampath Arts & Commerce College, Nagpur

Competency to enter in Contract (Section 11 and 12)

R.S. Mundle Dharampath Arts & Commerce College, Nagpur

Consent/Free Consent (Section 14)

Coercion (Section 15)

R.S. Mundle Dharampath Arts & Commerce College, Nagpur

Undue Influence section 16

R.S. Mundle Dharampath Arts & Commerce College, Nagpur

R.S. Mundle Dharampath Arts & Commerce College, Nagpur

Mistake Section 20,21,22 & 23

R.S. Mundle Dharampath Arts & Commerce College, Nagpur

Void Agreement Section 24-30

R.S. Mundle Dharampath Arts & Commerce College, Nagpur

Consequences of Breach of Contract Section 73-75

• What is breach of Contract? A breach of contract is a violation of any of the agreed-

R.S. Mundle Dharampath Arts & Commerce College, Nagpur

Consequences of Breach of Contract Section 73-75

R.S. Mundle Dharampath Arts & Commerce College, Nagpur

• Section 73. Compensation for loss or damage caused by breach of contract.—When a

R.S. Mundle Dharampath Arts & Commerce College, Nagpur

Definition- ―A company is an incorporated association which is an artificial person

2) Incorporated Association- A company comes into existence only after registration.

R.S. Mundle Dharampath Arts & Commerce College, Nagpur

COMPANY DISTINGUISHED FROM THE PARTNERSHIP

SR.NO. Point of Difference COMPANY PARTNERSHIP

R.S. Mundle Dharampath Arts & Commerce College, Nagpur

9 Filing of Documents The company must It is not required.

KINDS OF COMPANIES/ TYPES OF COMPANIES

1) On the basis of Incorporation- Joint stock companies are classified as-:

R.S. Mundle Dharampath Arts & Commerce College, Nagpur

(c) Registered Companies-These companies are established under Indian Companies

R.S. Mundle Dharampath Arts & Commerce College, Nagpur

PROVISIONS RELATING TO INCORPORATION OF A COMPANY

R.S. Mundle Dharampath Arts & Commerce College, Nagpur

sole proprietorship and partnership. These forms of business organization may or

Steps/ Stages/ Procedure of formation of a Company

R.S. Mundle Dharampath Arts & Commerce College, Nagpur

(e) Underwriting Contract- To insure capital issues.

LIFTING THE CORPORATE VEIL

R.S. Mundle Dharampath Arts & Commerce College, Nagpur

Definition:- According to Section 2(28) of the Indian Companies Act, 1956, ―

In the words of Lord Cains,― The memorandum of association of a company is its

CONTENTS OF MEMORANDUM OF ASSOCIATION

R.S. Mundle Dharampath Arts & Commerce College, Nagpur

used for correspondence from the Registrar of Companies.

R.S. Mundle Dharampath Arts & Commerce College, Nagpur

Effects of Ultra vires transactions-:

ARTICLES OF ASSOCIATION (AOA)

CONTENTS OF ARTICLES OF ASSOCIATION