B.

Com 1st Year Subject- Business Regulatory Framework

SYLLABUS

Class – B.Com I Years

Subject – Business Regulatory Framework

UNIT – I Historical background of Business laws in India, Indian

Contract Act 1872-GENERAL LAWAS

UNIT – II Contact relating to Indemnity and Guarantee

UNIT – III Negotiable instrument Act 1881-General Introduction

Negotiable instrument (amendment) Act 2002

UNIT – IV General introduction of Consumer Protection Act 1986 and

2018, FEMA

UNIT – V Indian Partnership Act 1932-General introduction Limited

Liability Partnership Act 2008

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Unit-I
Subject: Indian Contract Act

The Indian Contract Act 1872

The law of contract in India contained in Indian Contract Act 1872, which is based on English common Law.
It extends to whole of India except the state of Jammu and Kashmir. It came into force on the first Sep. 1872. The
Act lays down general principles governing all contracts, but not the rights and duties of the parties. The rights
and duties are decided by the parties themselves.

Scheme of the Act: -

The scheme can be divided into two main groups:
1. General principles of the law of contract.
2. Specific kinds of contracts -
a. Indemnity and Guarantee
b. Contracts of Bailment and Pledge
c. Contract of Agency.

Meaning and Definition of an Agreement:

An Agreement consists of an offer by one party and its acceptance by other. In other words, an agreement comes
into existence only when one party makes a proposal to the other party and that other party gives acceptance.

Agreement = Proposal + Acceptance of proposal

According to Section 2(e) of Indian Contract Act 1872 “Every promise and every set of promises, forming the
consideration for each other is an agreement.”

Meaning and Definition of a Contract:

A contract is a promise or set of promises for the breach of which the law gives a remedy or the performance of
which the law in some way recognize as duty. In other words, a contract is an agreement the object of which is to
create a legal obligation.

The contract
consists of two
elements

Legal Obligation
An agreement i.e. enforceability
by law

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Contract = an Agreement + enforceability by law.

According to Section 2(h) of the Indian Contract Act 1872 “An agreement enforceable by law is a contract.”

Essential Elements of a valid Contract:

Offer and
Not Acceptance Intention
expressly to create
declared legal
void relation

Possibility
Lawful
of
Considerati
performan
ons
ce
Essential
Elements of a
valid Contract
Capacity of
Certainty
parties

Writing
and Free
Registratio Consent
n Lawful
object

1. Offer and Acceptance: There must be a “lawful offer” and a “lawful acceptance” of the offer, thus
resulting in an agreement.
2. Intention to create legal relation: There must be an intention among the parties that the agreement
should be attached by legal consequences and create legal obligations. Social agreements do not
contemplate legal relations, and so they do not give rise to a contract.

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3. Lawful Considerations: An agreement is legally enforceable only when each of the parties to it, give
something and get something. This something is the price for the promise and is called “Consideration”.
Only those considerations are valid which ‘Lawful’
4. Capacity of parties: The parties to an agreement must be competent to contract, otherwise it cannot be
enforced by a court. To be competent, the parties must be on majority age and of sound mind and must
not be disqualified from contracting by any law to which they are subject.
5. Free Consent: “Consent “means that the parties must have agreed upon the same thing in the same
sense. Consent is not enough for making a contract. That to must be free. It is said to be free when it is
not caused by-
1. Coercion, or (i) undue influence, or (iii) fraud, or (IV) misrepresentation, or (v) mistake.
6. Lawful object: For the formation of a valid contract, it is also necessary that the parties to an agreement
must agree for a lawful object. The object must not be fraud or illegal or immoral or must not imply
injury to the person or property of other.
7. Writing and Registration: Generally the contracts may be oral or written. But in special cases, it lays
down that the agreement must be in writing or registered to be valid.
8. Certainty: Any agreement can be enforced if its meaning is certain or capable of being made certain
agreements the meaning of which is not certain, are void.
9. Possibility of performance: The terms of the agreement must also be capable of performance physically
as well as legally.
10. Not expressly declared void: The agreement must not have been expressly declared void under the act.
There are some types of agreements which have been expressly declared to be void.

Kinds or classification of Contracts:-

Kinds of
contracts

On the basis of
On the basis of On the basis of On the basis of performance in
Enforceability Creation Execution relation to
parties

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A. On the basis of Enforceability

On the basis of
Enforceability

Illegal or
Voidable Unenforceable
Valid Contract Void Contract unlawful
Contract contract
contract

1. Valid Contract: A valid contract is an agreement enforceable by law. An agreement becomes enforceable
by law when all the essential elements of a valid contract (as per section 10 of the act) are present.
2. Voidable Contract: “An agreement which is enforceable by law at the option of one or more of the parties,
but not at the option of one or more of the other, is a voidable contract.”
3. Void Contract: Void means not binding in law. It is valid at the time of making it but becomes void
subsequently due to change in circumstances.
Void Agreement:” 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.
4. Unenforceable contract: It is one which is valid in it, but is not capable of being enforced in a court of law
because of some technical defect such as absence of writing, registration requisite stamp.
5. Illegal or unlawful contract: An agreement which is expressly or impliedly prohibited or forbidden by
law. It is void ab initio.

B. On the basis of Creation:

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On the basis of
Creation

Express Implied Constructive or

Contract Contract Quasi Contract

1. Express Contract: It is one in which parties make oral written declaration of the terms and conditions of
the contract.
2. Implied Contract: It is one in which evidence of contract is gathered from acts and conduct of the parties
and not from written or spoken words of parties.
3. Constructive or Quasi Contract: It is not a contract made intentionally by the parties by exchange of
promises. It is a contract imposed by the law. The basis of this contract is that no one can be allowed to
enrich himself at the cost of the other.
4.

C. On the basis of Execution

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Executed Executory
Contract Contract

On the
basis of
Execution

1. Executed Contract: When both the parties to a contract have completely performed their share of
obligations and nothing remains to be done by either party under the contract.
2. Executory Contract: When either parties have still to perform their share of obligation in to or there
remains something to be done under the contract on both sides.

D. On the basis of performance in relation to parties

Unilateral Bilateral
Contract Contract
On the basis
of
performance
in relation to
parties

1. Unilateral Contract: When one party has to perform his obligation, and the other party has performed
his obligation at the time of formation of the contract or before it .This is why it is also called one-sided
contract.

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2. Bilateral Contract: When the obligations of both the parties are outstanding at the time of formation of
contract. it is similar to Executory contract. It is also called contract with executory consideration.

Capacities of Parties

Meaning of Capacity to
Contract
Capacity or competence to contract means legal capacity of parties to enter into a contract. In other words,
it is the capacity of parties to enter into a legally binding contract.

Who are Competent to Contract?

Every person is legally competent to
contract if he fulfills the following three
condition :
i. He has attained the age of majority;
ii. He is of sound mind; and.
iii. He is not disqualified from contracting by
any other law to which he is subject

Who are not competent to contract?

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Persons Of
Unsound Mind

Persons
Minors Disqualified By
Other Laws

Persons
Incomeptent
To Make A
Contract

1) MINORS
Any person, who has not attained the age of majority prescribed by law, is known as minor.
Section 3 of the Indian Majority Act prescribes the age limit for majority and says a minor is a person
who has not completed eighteen years of age. But the same Act also mentions that in the following two cases a
person attains majority only after he completes his age of twenty one years :
(i) Where a Court has appointed guardian of a minor’s person or property or both (under the Guardians
and Wards Act, 1890); or
(ii) Where the minor’s property has been placed under the superintendence of a Court of wards.

2) PERSONS OF UNSOUND MIND

A person is said to be of sound mind for the purpose of making a contract (a) if he is capable of understanding
the contract at the time of making it, and (b) if he is capable of making a rational judgment as to the effect upon
his interests.
Types of Persons of Unsound Mind and their Contracts:
1. Idiot
2. Lunatic
3. Delirious persons
4. Drunken or intoxicated persons
5. Hypnotized persons
6. Mental decay

3) PERSONS DISQUALIFIED BY OTHER LAWS

There are certain persons who are disqualified from contracting by the other laws of our country. They are as
under:
1. Alien enemy
2. Foreign sovereigns, diplomatic staff etc.
3. Corporations and companies
4. Insolvents
5. Convicts

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Rules /effects as to or Nature of Minor’s Agreements

1. Void ab-initio: - Minor’s agreement is absolutely void from very beginning, i.e. void ab- initio. It is nullity
in the eye of law. An agreement with minor, therefore, can never be enforced by law.
2. Minor can be a promise or beneficiary: - A minor can enforce such agreements in which he is a
beneficiary or promise and does not create any obligation on his part.
3. No ratification:- A minor cannot be ratify even after attaining the age majority because void agreement
cannot be ratified.
4. Restitution/ Compensation possible: - If a minor has received benefits under an agreement from the
other party, the Court may require the minor to restore the benefit (so far as may be), to the other party
at the time of rescission of the agreement. The minor may be asked to restore the benefit to the extent he
or his estate has been benefited.
5. Contract by parent/ guardian/ manager: - A minor’s parent/ guardian/ manager can enter into
contract on behalf of the minor provided:
i. The parent/ guardian/ manager acts within the scope of his authority; and
ii. The contract is for the benefit of the minor.
6. No liability of parents: - The parents (guardian) of a minor are not liable for agreements made by their
minor ward. However, they can be held liable if the minor makes agreement as their authorized.
7. Minor as an agent: - A minor is not entitled to employ an agent; he can be an agent himself for someone
else. As an agent he ca represent the principal, and bind him for his acts done in the course of agency. But
the minor is not responsible to the principal for his acts.
8. Minor and insolvency: - A minor cannot be declared insolvent because he is not competent to contract.
9. Minor as joint Promisor: - A minor can be a joint promisor with a major, but the minor cannot be held
liable under the promise to the promises as well as to his co-promisor. But the major promise cannot
escape liability. The major joint promisor can be forced to perform the promise.
10. Minor shareholder: - A minor can become a shareholder or member of a company if (a) the shares are
fully paid up and (b) the articles of association do not prohibit so.
11. Liability for necessaries of life: - A minor is incompetent to contract. A minor, therefore, is not
personally liable for the payment of price of necessaries of life supplied to him or to his legal dependents.
However, the person who has furnished such supplies is entitled to be reimbursed from the property of
the minor.
12. Minor Partner: - According to the Partnership Act, 1932, a minor cannot make a contract of partnership
though he may be admitted to its benefits with the consent of all the partners. A minor partner cannot be
made personally liable for any obligation of the firm, but his share in the firm’s property can be made
liable.
13. No estoppels against minor: - The term ‘estoppels’ means prevention of a claim. When a minor enter
into contract, representing that he is a major, but in reality he is not, then later on he can plead his
minority as a defence and cannot be estopped (prevent) from doing so.

Definition of Consideration

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Consideration is one of the essential elements of a valid contract. The term “Consideration” means something in
return i.e. quid –pro-quo. Consideration must result in a benefit to the promiser, & a detriment or loss to the
promisee or a detriment to both. Without consideration a contract is void or nude i.e. nudum pactum

Section 2(d) of the Indian Contract act, 1872 defines Consideration as follows:
“ When, at the desire of the promiser ,the promisee or any other person has done or abstained from doing, or does or
abstains from doing ,or promises to do or abstain from doing something, such act or abstinence or promise is called a
consideration for the promise.”

ESSENTIAL ELEMENTS OF A VALID CONSIDERATION:-

1
• It must move at the desire of the promisor

2
• It may move from the promise or any other person

3
• It may be Past , Present or Future

• It must be of some value

4

5
• It must be real & not illusory

6
• Must be Something other than the promisor’s Existing obligation

7
• It must not be illegal, immoral or opposed to public policy

 It must move at the desire of the promisor: Consideration must have been done at the desire or request
of the promisor & not at the desire of a third party or without the desire of the promisor.

 It may move from the promise or any other person: An act constituting consideration may be done by
the promise himself or any other person. Thus, it is immaterial who furnishes the consideration &
therefore may move from the promisee or any other person. This means that even a stranger to the
consideration can sue on a contract, provided he is a party to the contract (Case Chinayya V/s
Ramayya)
 It may be Past , Present or Future:
 Past Consideration: The consideration which has already move before the formation of agreement.
 Present consideration: The consideration which moves simultaneously with the promise.
 Future Consideration: The consideration which is to be moved after the formation of agreement.
It must be of some value: The consideration need not be adequate to the promise but it must be of some
value in the eye of the law.
It must be real & not illusory: Ex. A promise to put life into the B’s dead wife & B promises to pay Rs
10,000. This agreement is void because consideration is physically impossible to perform.

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Must be Something other than the promisor’s Existing obligation: Consideration must be something
which the promisor is not already bound to do because a promise to do what a promisor is already bound to
do adds nothing to the existing obligation.
It must not be illegal, immoral or opposed to public policy.

A CONTRACT WITHOUT CONSIDERATION IS VOID

The general rule is “An Agreement made without consideration is void”. Sec 25 & 185 deals with the Exceptions
to this rule.
These cases are:

Love &
Affection

Compensati
Contribution on for
to Charity voluntary
services

Exceptions

Promise to
Agency pay a Time
barred debt

Completed
gifts

1) Love & Affection: A written & registered agreement based on natural love & affection between near relatives is
enforceable even if it is without consideration.
Ex: X, for natural love & affection, promises to give his son, Y, Rs 1000. X puts his promise to Y in writing &
registers it. This is a contract.
2) Compensation for voluntary services: A promise to compensate wholly or partly, a person who has already
voluntarily done something for the promisor, is enforceable even without consideration.
Ex: A finds B’s purse & gives it to him. B promises to give Rs 50 to A. This is a contract.

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3) Promise to pay a Time barred debt: A promise by a Debtor to pay a time-barred debt if it is made in writing &
is signed by the debtor or by his agent is enforceable.
4) Completed gifts: There need not be consideration in case of completed gifts.
5) Agency: No consideration is necessary to create an Agency.
6) Contribution to Charity

STRANGER TO A CONTRACT
Though a stranger to consideration can use because the consideration can be furnished or supplied by any
person whether he is the promises or not, but a stranger to a contract cannot sue because of the absence of privity
of contract (i.e. relationship subsisting between the parties to a contract.

Free Consent

MEANING OF CONSENT
Two or more persons are said to consent when they agree upon the same ting in the same sense at the same
time.

MEANING OF FREE CONSENT

Sec. 14 describes the cases when the consent is not free. It lays down that consent is not free if it is caused by
coercion, undue influence, fraud, misrepresentation, etc. if the consent is not free, the agreement is avoidable at the
option of the party whose consent was not free.

COERCION

UNDUE
MISTAKE
INFLUENCE
Consent is
not free if it
is obtained
by

MISREPRESE
FRAUD
NTATION

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1) COERCION
Coercion simply means forcing a person to enter in to a contract. Sec. 15 defines coercion as, “Committing
or threatening to commit, any act forbidden by the Indian Penal Code, or 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”.

The essential elements of coercion are

(1) Committing or threatening to commit any act forbidden by Indian Penal Code.
(2) Unlawful detaining or threatening to detain any property.
(3) The act of coercion may be directed at any person and not necessarily at the other party to the
agreement.
(4) The act of coercion must be done with the object of inducing or compelling any person to enter into
an agreement.

2) UNDUE INFLUENCE : It is kind of moral coercion.

Sec. 16(1) defines undue influence as, “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
other and uses that position to obtain an unfair advantage over the other”.
(a) Where he holds a real or apparent authority over the other e.g., in the relationship between master and
servant.
(b) Where he stands in fiduciary relation to the other. It implies a relationship of mutual trust and
confidence.
(c) Where a contract is made with a person whose mental capacity is affected by reason of age, illness, or
mental or bodily distress.
Any innocent or unintentional false statement or assertion of fact made by one party to the other during
the course of negotiation of a contract is called a misrepresentation.

3) MISREPRESENTATION
As per Sec. 18, misrepresentation is a wrong statement of fact made innocently, i.e., without any
intention to deceive the other party. It may be caused.
(1) By positive statement.
(2) By breach of duty.
(3) By mistake regarding the subject matter of the agreement.

Essential of misrepresentation
(1) There must be a representation or omission of a material fact.
(2) The representation or omission of duty must be made with a view to inducing the other party to
enter into contract.
(3) The representation or omission of duty must have induced the party to enter into contract.
(4) The representation must be wrong but the party making the representation should not know that it
is wrong.
4) FRAUD
Fraud is the international misrepresentation or concealment of material facts of an agreement by a party to
or by his agent with an intention to deceive and induce the other party to enter into an agreement.
Sec. 17 defines fraud as, any of the following acts committed by a party to a contract (or with his
convenience or by his agent) with intention to deceive another party thereto (or his agent) or to induce him to
enter into the contract.
(1) The suggestion that a fact is true when it is not true by a person who does not believe it be true.
(2) The active concealment of the fact by a person having knowledge or belief of the fact.

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(3) A promise made with out any intention to perform it.

(4) Any other act fitted to deceive.
(5) Any such act or omission as the law specifically declares to be fraudulent.
5) MISTAKE
Acc. To Sec. 20 mistake means erroneous belief concerning some fact. The parties are said to consent
when they agree upon the same thing in the same sense. If they do not agree upon the agreement in the same
sense, there will be no contract.
When the consent of one or both the parties to a contract is caused by misconception or erroneous belief,
the contract is said to be induced by mistake.

Mistake may be of following types:

(1) Mistake of law,
(a) Mistake of law of the country.
(b) Mistake of foreign law.
(c) Mistake of private rights of the parties

(2) Mistake of fact,

(A) Bilateral Mistake :
(1) Mistake as to subject mater :
(a) Mistake regarding existence
(b) Mistake regarding identity
(c) Mistake regarding title.
(d) Mistake regarding price
(e) Mistake regarding quality
(f) Mistake regarding quantity
(2) Mistake as to the possibility of performance
(a) Physical impossibility
(b) Legal impossibility
(B) Unilateral Mistake :
(1) Mistake as to identify of the person contracted with.
(2) Mistake as to the nature of contract.

Distinction between an Agreement and a Contract

Basis of distinction Agreement Contract

1. Definition Every promise and every set of An agreement enforceable by law is a
promises forming consideration contract.
for each other is an agreement
2. Creation An agreement is created by Agreement and its enforceability
acceptance of an offer. together create a contract.
3. legal rights and An agreement may not create legal A contract creates legal rights and
obligations rights and obligations of the obligation between the parities.
parties
4. Necessity No contract is required to make an Valid agreement is necessary for
agreement. making a contract.
5. Legally binding An agreement is not a concluding A contract is a concluding or legally
or legally binding contact. binding on the parties.
6. Concept Agreement is a wider concept and Contract is a narrow concept and it is

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includes contacts. only a specific of agreement.

DISTINCTION BETWEEN VOID AGREEMENT AND VOID CONTRACT

Basis of distinction Void Agreement Void Contract

1. Definition An agreement not enforceable A contract which cases to be enforceable
by law is said to be void. [Sec. by law becomes void when it ceases to be
2(g)] enforceable [Sec. 2(j)]
2. Time when becomes void It is void from very beginning. It becomes void subsequently due to
change in law or change in circumstances.
3. Restitution Generally no restitution is Restitution may be granted when the
granted, however, the Court contract is discovered to be void or
may on equitable grounds becomes void.
grant restitution in case of
fraud or misrepresentation by
minors.
4. Description in the Act Such agreement have been There is no mention of cases of void
mentioned as void in the Act. contracts in the Act. They are created by
Agreements without circumstances and law Courts decide
consideration, agreements with whether they have become void or not.
lawful object or consideration
and some other agreements
have expressly been declared
to be void.

DISTINCTION BETWEEN VOID AGREEMENT AND VOIDABLE CONTRACT

Basis of Void Agreement Voidable Contract
distinction
1. Definition An agreement not enforceable by law is A contract enforceable by law at the option of the
said to be void. aggrieved party, is a voidable contract.
2. Period of It is void from the beginning i.e. void ab It is valid till it is avoided by the aggrieved party to
validity initio the contract.
3. Legal It is nullity, hence, does not exist in the eye It has its existence in the eye of law till it is
existence of law. repudiated.
4. Change in Status of void agreement does not change Status of such contract change when the aggrieved
status with the change in circumstances. party elects to avoid it within a reasonable time. It
becomes void when the aggrieved party elects to
rescind it.
5. Causes Any agreement is void when it is made with A contract is voidable when the consent of the
incompetent parties or for unlawful objects party is caused by coercion or undue influence or
and consideration, or without fraud or misrepresentation.
consideration, or without consideration or
it is expressly declared to be void under the
law.

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6. Transfer The party obtaining goods under void The party obtaining goods under voidable
of title agreement cannot transfer a good title to agreement can transfer a good title to the third
the third party. party if the third party obtains it in good faith and
for consideration and the aggrieved party has not
avoided the contract before such transfer.
7. Parties do not have right to restore the Generally, right restitution is available if the party
Restitution benefits passed on to the other unless the elects to avoid the contract.
parties were unaware of the impossibility
of performance at the time of agreement or
the party to the agreement was minor.
8. Damages No party as a right to get compensation for If a party rightfully rescinds (i.e. puts and end) the
damages because such agreement has no contract, he can claim compensation, he can claim
legal effect. compensation of damages sustained by him due to
non-fulfilment of the promise.
DISTINCTION BETWEEN VOID AND VOIDABLE CONTRACT
Basis of Void Contract Voidable Contract
distinction
1. Definition A contract which ceases to be A contract which is enforceable by law at the option
enforceable by law become void, of the aggrieved party is a voidable contract.
when it ceases to be enforceable.
2. Period of It remains valid till it does not It remains valid if the aggrieved party does not elect
validity cease to be enforceable. to avoid it within a reasonable time.
3. Will of the Its validity is not affected by the Its validity is affected by the will of the aggrieved
party will of any party. It is decided by party. Aggrieved party has option to treat it either
the Law Court. binding or repudiate it.
4. Causes Contracts become void due to Contract is voidable when the consent of the party is
change in circumstances or in the caused by coercion, undue influence, fraud or
law of land. misrepresentation. Sometimes, it may be voidable
under the provisions of the Secs. 39, 53 and 55.

DISTINCTION BETWEEN VOID AND ILLEGAL AGREEMENT

Basis of Void Agreement Illegal Agreement

distinction
1. Definition An agreement not enforceable by law is void. An agreement which is
expressly or impliedly
prohibited by law, is illegal.
2. Effect on The agreement collateral to the void agreement is not The agreement collateral to an
collateral necessarily void. illegal agreement is always
agreement void.
3. Scope All void agreements need not necessarily be illegal All ill agreements are void.
agreements. Hence, the scope is wider than that of the
illegal agreements.
4. Restitution The Court may grant restitution of money advanced if is Restitution of money is not
minor or if the parties were unaware of the impossibility granted in case of an illegal
of performance of the agreement. agreement.

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DIFFERENCE BETWEEN COERCION AND UNDUE INFLUENCE

Basis of Coercion Undue influence
distinction
1. Coercions the committing or threatening to Undue influence is an influence which arises
Definition commit, any act forbidden by the I.P.C. or where the relations subsisting between the parties
unlawful detaining or threatening to detain are such that one of the parties is in a position to
any property with the intention of causing dominate the will of the other and uses that
any person to enter into an agreement. position to obtain an unfair advantage over the
other.
2. Relations In case of coercion, relation between the In case of undue influence, in the relation between
parities is immaterial. the parties the parties must be such that one of
them is in a position to dominate the will of other.
3. Intention Coercion is applied with the intention of It is exerted with the intention to obtain an unfair
causing any person to enter into an advantage over the other party.
agreement.
4. Nature of It involves physical force. It involves moral force.
force
5. Kind of It involves criminal act. It does not involve criminal act.
act
6. Direction The coercion may be directed against any Under influence is used against the weaker party
person including a stranger. only.
7. Who It can be exercised by any person. Even a It is employed by the person who is in a position to
exercise stranger to contract can exercise it. dominate the will of the other.
8. Remedies A contract caused by coercion, may be In case of undue influence, the aggrieved party
avoided by the aggrieved party’s contract. may avoided the contract or the Court, may set
[Sec. 19] aside the contract absolutely or conditionally. [Sec.
19 A]

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DISTINCTION BETWEEN FRAUD AND MISREPRESENTATION

Basis of Fraud Misrepresentation
distinction
1. Meaning A fraud is an international misrepresentation An innocent or unintentional misrepresentation
or concealment of material fact to include the of material facts by one party fact by one party
other party to enter into a contract. include the other party to enter into a contract.
2. Intention Fraud is committed with an intention to There is no such intention.
deceive
3. Belief in The person committing of a fraudulent act The person making misrepresentation believes
the facts does not believe it to be true. in its facts to be true.
4. Suit for The aggrieved party has right to sue the other The aggrieved party cannot sue for damages.
damage party for damages.
5. Defence A party cannot set up a defense that the In case of misrepresentation the other party
aggrieved party had means of discovering the always set up a defense that the aggrieved party
truth except in case of fraud by concealment that the aggrieved party had means of
or by silence. discovering the truth.

DISTINCTION BETWEEN COTANGENT TRACT AND WAGERING AGREEMENT

Basis of distinction Contingent contract Wagering agreement
1. Meaning A contingent contract is contract A wagering agreement is one in
in which the promisor which one person agrees to pay
undertakes to perform the certain amount of money to the
contract upon the happening or other on happening or non-
non-happening of an event, happening of a specific event.
which is collateral to the
contract.
2. Nature of event The event is collateral to the Even is the sole determining
contract, i.e. not a part of promise factor.
or consideration of the contract.
3. Reciprocal promise There is no reciprocal promise is The wagering agreement consist
a contingent contract. of reciprocal promise.
4. Interest in the subject The parties are interested in the The parties to wagering
matter subject-matter of such contracts. agreement have no other interest
Therefore, the happening or non- in the subject matter of the
happening of the event is agreement except the winning or
material for them. losing the money at stake.
5. Validity A contingent contract is valid A wagering agreement void
contract. agreement. In the State of
Maharashtra and Gujarat it is
illegal.
6. Nature of contract All contingent contracts are not All wagering agreements are
wagering agreements because all contingent agreements because
contingent contracts are not void. their performance is dependent
upon uncertain future events.

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Business Laws
Many business laws in India precede the nation’s independence in 1947. For example, the Indian Contract Act of 1872
is still in force, albeit specific contracts, for example, partnerships and the sale of merchandise are presently covered
by newer laws. The Partnership Act of 1932 covering partnership firms in India. Business laws regulating chartered
accountants and cost accountants were passed in 1949 and 1959, respectively. The Banking Regulation Act of 1949
continues to control private banking companies and manage banks in India. In 2012, it was modified by the Banking
Law (Amendments) Act. Under these amendments, the Reserve Bank of India (RBI) was given the power to restrict
voting rights and shares obtaining in a bank. The RBI established the Depositor Education and Awareness Fund. Banks
are presently able to issue both equity and preference shares under RBI guidelines.

While India is often criticized for complex regulations, it is essential to keep in mind that that in some cases, these
laws are simpler than those of the U.S. Furthermore, most regulations are consistent the nation over, and attorneys in
India can practice in any state. Filing lawsuits is seldom productive in most commercial disputes since legal disputes
can delay for quite a long time and collection can take even longer. For large deals, binding third-nation discretion can
be the best method to resolve disputes.

After India’s economic development in the 21st century, the Ministry of Corporate Affairs endorsed the Competition
Act of 2002 and the Limited Liability Act in 2008. These promote sustainable competition in markets, preclude against
competitive business practices, and protect consumer interests while ensuring free trade.

The Parliament of India passes and amends regulations for the two businesses and investors. Notwithstanding
arrangements from the Companies Act of 1956, the Companies Act of 2013 features arrangements regarding mergers
and acquisitions, board room decision-making, related gathering transactions, corporate social responsibility, and
shareholding. The act was additionally modified through the Companies Act of 2015 which abolished the procedural
regular seal, declarations for the commencement of businesses, and minimum settled up capital requirements. The
amendment likewise relaxed governing-related gathering transactions while limiting access to strategic corporate
resolutions in India.

As a member of the International Labor Organization, India offers security for employees. These include the Payment
of Wages Act of 1936, the Industrial Employment Act of 1946, the Industrial Disputes Act of 1947, the Payment of
Bonus Act of 1965, and the 1972 Payment of Gratuity Act. Protections include yearly bonuses of 8.33% and separation
fees of around 15 days per year of employment. Other labor laws, for example, the Building and Other Construction
Workers Acts of 1996 and the Workmen’s Compensation Act of 1923 (amended in 2000) are in effect. Passed in 1926,
the Trade Unions Act deals with the registration, rights, liabilities, and responsibilities of trade associations. The
Industrial Disputes Act of 1946 regulates trade associations and matters between industrial employers and
employees.

Business laws in India include consumer protection. The Consumer Protection Act, 1986 mandates Consumer Dispute
Redressal Forums at neighborhood and public levels. Older laws, for example, the Standards of Weights and Measures
Act of 1956, ensure reasonable competition in the market and free progression of the correct information from
providers of merchandise and enterprises to consumers.

Due to the development of trade, the Indian government passed the Foreign Trade (Development and Regulation) Act
of 1992 to facilitate imports and augment exports. The serving Exports from India Scheme (SEIS) substituted the
Served from India Scheme. The SEIS extends the responsibility-free prescription to Indian service providers and
provides notified services in a specified mode outside the nation. Under the Export Promotion Capital Goods Scheme,

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B.Com 1st Year Subject- Business Regulatory Framework

the export commitment requires six times the obligation saved on imported capital products; in the case of
neighbourhood sourcing of capital merchandise, the export commitment is reduced by 25%. Beyond merchandise and
enterprises, the Foreign Exchange Management Act of 1999 regulates foreign exchange transactions including
investments abroad.

As a founding member of the World Trade Organization in 1995, India has updated business laws in terms of
copyrights, patents, and trademarks to meet the Agreement on Trade-Related Aspects of Intellectual Property Rights.
Indian companies and the federal government honour worldwide IP rights. However, because music copyrights are
different in India, both Indian and Western IP owners in the entertainment industry have suffered due to
computerized theft. Even thus, there are few IP-related disputes outside of several celebrated pharmaceutical
industry cases. In 2013, India’s Supreme Court refused Novartis an extension to update its cancer drug Glivec due to
“evergreening” charges.

E-commerce and online growth of companies prompt India to create regulations to cover cyber law and security
agreements, for example, the techno legal regulating provisions in the Companies Act of 2013. The Information
Technology Act of 2000 is the essential law for e-commerce regulation in India. In 2008, the IT Act was an amendment
to provide clear legal recognition of digital transactions.

DISCHARGE OF CONTRACT

When the rights and obligations arising out of a contract are extinguished, the contract is said to be discharged
or terminated.

A contract
may be
discharged
by any of the
following
ways

By
By subsequent
By mutual
performance or By lapse of By operation By breach of
consent or
– Actual or supervening time of law contract
agreement.
Attempted impossibility
or illegality.

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1.Discharge by Performance-

Performance of a contract is the most popular manner of discharge of a contract. The performance may be either
Actual performance or Attempted performance.
A. Actual performance:-When each party fulfils his obligations arising out of the contract within the time and
in a manner prescribed , it is called the actual performance and the contract comes to an end.
B. Attempted performance or Tender:-When the promisor offers to perform his obligation, but is unable to do
so because the promise does not accept the performance, it is called ” Attempted Performance” or “tender”.
Thus tender is not actual performance but is only an offer to perform the obligation under the contract. A valid
tender of performance is equivalent to performance.

Essentials of a valid tender:-if it fulfils the following conditions:-

1. It must be unconditional. If A who is a debtor of company B, offers to pay if shares are allotted to him at
par. IT is not a tender.
2. It must be made at proper time and place:- A is tenant of B. H offers him rent at a marriage party. B is not
bound to accept as tender is not made at a proper place.
3. It must be of the whole obligation contracted for and not only of the part:- e.g. deciding of his own to pay
in the installments and offering the first installment was held invalid tender as it was not of the whole
amount due .
4. If the tender related to the delivery of goods, it must give a reasonable opportunity to the promise for
inspection of goods so that he may be sure that the goods tendered are of contract description.
5. It must be made by a person who is in a position and is willing to perform the promise.
6. It must be made to the proper person i.e. the promisee or his authorized person.
7. If there are several joint promisees, an offer to any one of them is a valid tender (but the actual payment
must be made to all joint promisees, and not to any one of them.)
8. In case of tender of money, exact amount should be tendered in the legal tender money.

Effect of refusal to accept a valid tender: The effect of refusal to accept a properly made “offer of
performance” is that the contract is deemed to have been performed by the promisor. And the promise can be
sued for breach of contract. Thus we can say that “a valid tender discharges the contract.”

2. Discharge by Mutual Consent or Agreement:

A contract is created by means of an agreement, it may also be discharged by another agreement between the
same parties.-
A. Novation: “Novation occurs when a new contract is substituted for an existing contract, either between the
same parties or between different parties, the consideration mutually being the discharge of the old contract.” If
the parties are same, then small changes in the in the terms of contract is called “alteration” and not “Novation”.
For being “Novation”, the changes must be of significant nature.
Novation cannot be compulsory, it can only be with the mutual consent of all the parties.
B. Alteration:-It means that change of one or more of the material terms of a contract. A material alteration is
one which alters the legal effect of the contract. e.g. change in the amount of money, change in the rate of interest
etc.
Note that a material alteration made in a contract by one party without the consent of the other will make the
whole contract void and no person can maintain an action upon it.
C. Rescission. A contract may be discharged before the date of performance, by agreement between the parties
to the effect that it shall no longer bind them. Such an agreement amounts to “Rescission” or cancellation of the
contract, the consideration being the abandonment by the respective parties of their rights under the contract.

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Example A promises to deliver some goods to B on say 14th Nov. 2006. But before the date of performance i.e.
14th Nov. 2006, A and B mutually agree that the contract will not be performed. The contract stand discharged by
rescission.
If there is non performance of a contract by both the parties for a long time without complaint, it amounts to an
implied rescission.
Note: In rescission, the existing contract is cancelled by mutual consent without substituting a new contract in its
place.
D. Remission. It is defined as “Acceptance of lesser amount than what was contracted for or a lesser fulfillment
of the promise made”
E. Waiver. It means deliberate giving up of a right which a party is entitled to under a contract whereupon the
other party to the contract is released form his obligation. Example A promises to stitch a Shirt for B if B sings a
song in A’s party and accepting it B sings a song in A’s party. Then later on B says there is no need to stitch shirt
for me, to which A gives his consent. Thus the contract is terminated.
3. Discharge by Subsequent or Supervening Impossibility or Illegality.
Impossibility at the time of contract. If you contract for something impossible, the agreement is void ab initio
the promisor knows about the impossibility after using reasonable efforts, the promisor is bound to compensate
the promisee for any loss he may suffer because of non performance of the promise, even if the agreement being
void ab initio

Subsequent impossibility. Impossibility is found out after the contract is made, “ A contract to do an act which,
after making the contract, becomes impossible or unlawful, becomes void when the act becomes impossible or
unlawful.”
Conditions for It…
(i) the act should have become impossible.
(ii) The impossibility should be by reason of some event which the promisor could not prevent.
(iii) the impossibility should not be self induced by the promisor or due to negligence.
To be impossible, it is sufficient that it becomes impracticable or extremely hazardous or useless from the point
of view of the object and purpose which the parties had in view,
If the performance of a contract becomes impossible by reason of supervening impossibility or illegality of the
act, it s logical to absolve the parties from further performance of it as they never did promise to perform an
impossibility.

4. DISCHARGE BY LAPSE OF TIME.

In some circumstances, the laps of time may also discharge a contacts, e.g. the period of limitation for simple
contracts is three years the under limitation Act and therefore on default by a debtor, if the creditor does not file
a suit of recovery against him within three years of default, the debt becomes time barred and the creditor will
not get the help of the law. This in effect discharges the contract. ‘Where times is of essence`, if the contract is not
performed on time, the contract comes to an end, and the party not at fault need not perform his obligation and
may sue the other party for damages.

5. DISCHARGE BY OPERATION OF LAW: -

A contract is discharged by operation of law in the following cases:-
(A) Death: Sometimes a contract is of a person nature and involves personal skills, of promiser, of promisor, In
such cases the contract is discharged on the death of the promisor. In such cases the contract is discharged on
the death of the promisor.
(B) Insolvency: When a person is adjudged in solvent the he is released from his all liabilities in current order
of adjudication. His rights (Assets) and liabilities are transferred to the official assignee or official receiver, on
the case may be.
(C) Merger of rights: Sometimes, inferior right of a person under the some or other contract, in such a case the
inferior, right is vanished and is not required to be enforced, Foe example an ordinary debt can be merged. In to

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B.Com 1st Year Subject- Business Regulatory Framework

rights, of ownership in such case the inferior right need not to be enforced because this right have merge in to a
superior right of mortgage or ownership.
(D) Loss of evidence of contract:-
There the evidence of the existence of the contract is lost or vanished. The contract is discharged for example
document of contract is lost or destroyed and not other evidence is available the contract is discharged.
6.DISCHARGE BY BREACH OF CONTRACT:-
A contract is sometimes discharged, by its breach generally, Breach of contract means refused. Or future of any
one party to perform his contractual obligation under the contract specifically a breach of contract occurs when
a party to a contract does any of the other following things.
(1) Fails or refuses to perform his obligation under the contract.
(2) Disable himself from performing his past of the contract.
(3) Maker the performance of contract impossible by his own acts.

UNIT-II

INDEMNITY AND GUARANTEE CONTROL

The contract of indemnity and guarantee are special kinds of contracts. These contract are therefore also
required to fulfill all the essential of a valid contract.
Indemnity Contract: Indemnity contract is a type of contingent contract. The term ‘Indemnity`
Simply means ‘Making Somebody Safe` or ‘Paying Somebody back`.

Section 124 of contract Act defines that ‘‘A contract by which one party. Promises to save the other from loss
caused to him by the conduct of the promise himself by the conduct of any other person, is called a conduct of
indemnity”.

The party who gives indemnity or who promises to compensate for or to make good the loss, is called.
Indemnifier and the party for whose protection or safety the indemnity is given or the party whose loss is made
good is called ‘Indemnified’ or ‘indemnity holder’.

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Creation of
It must be faith
liabilities

Loss/damage All essential

may be the own features of valid
or other person contract

Promises for
Compensation
pay
for actual
compensation
loss/damage
of loss/damage

Important It may be
Two party features of an express or
implied
indemnity
contract

Loss/damage may be caused by some event, or accident, or some natural phenomenon or disaster.

Rights of Indemnified (Indemnity-Holder) –

Rights to
claim for all
damages/lo
sses

Rights of
Indemnified
(Indemnity-
Holder)
Rights to
Rights to
claim for all
claim for all
sums which
costs which
his may
is related to
have paid
contract
for contract

Liabilities/Duties of Indemnified –

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B.Com 1st Year Subject- Business Regulatory Framework

Liabilities to pay
all
damages/losses

Liabilities/Duties of
Indemnified

Liabilities to pay
all sum which is Liabilities to pay
received by sell all costs related
for contract from to contract.
indemnified.

Guarantee Contract

The object of the contract of guarantee is to enable. A person to obtain an employment, or a loan, or some goods
or service on credit,

According to section 126 of the contract Act ‘‘A contract of guarantee is a contract to perform the promise, or
discharge the liability, of a third person in case of his default.”

The person who gives the guarantee is called the ‘Surety’ or ‘guarantor’ & the person in respect of whose
default the guarantee is given is called the principal debtor or he is the party on whose behalf. Guarantee is
given and the person to whom the guarantee is given is called the ‘Creditor’.

Essential features of a Guarantee Contract –

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B.Com 1st Year Subject- Business Regulatory Framework

It may be oral or Liability of surety

written is secondary is
Control may be
dependent on
experts or implies
principal debtor’s
default
Guarantee must
be in the
Three agreement
knowledge of
debtor

Guarantee must
Concurrence of not be obtained
the three parties by means of
misrepresentation

features of a Existence of a
Three parties
Guarantee Contract primary liability

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DISTINCTION BETWEEN A CONTRACT OF INDEMNITY AND GUARANTEE

S.No. Different Basis Indemnity Contract Guarantee Contract
1. Nature of Contract Promises to save the One party promises to discharge the liability
other from loss. of the third party in case of his default.
2. No. of Parties Only to parties are There are three parties.
there
3. No. of contracts There is only one There are three contract between debtors,
contract creditors and surety.
4. Nature of Liability The liability of the The liability of the surely is secondary and
indemnifier is dependent.
primary and
independent.
5. Arising of Liability Indemnifier’s liability Arises only after the default of debtor in
arises only on the payment.
happening of a
contingency.
6. Existence of debt There is no existence There is always some existing debt or duty
or duty debt or duty in this in this contract.
contract.
7. Request by the It is not necessary for The surely generally gives guarantee to the
debtor the indemnifier to act request of the debtor.
at the request
indemnified.
8. Right to sue The indemnifier It surely has discharged. The debt after the
cannot sue the third default of the principal debtor, he becomes
party for loss in his entitled to sue the debtor in his own name.
own name.

Kinds of Guarantee –

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B.Com 1st Year Subject- Business Regulatory Framework

Specific or
Continuing
Simple
guarantee
Guarantee

Kinds of
Guarantee

1. Specific or Simple Guarantee: When a guarantee is given in respect to a single debt or specific
transaction is to come to an end when the guarantee debt is paid or the promise is duly performed. It is
called a specific or simple guarantee.
2. Continuing guarantee: Section 129, of the contract Act defines a guarantee which towards to a series of
transaction, is called a continuing guarantee, thus, a continuing guarantee is not confined to a single
transaction but keeps on moving to several transaction continuously.

Revocation of Guarantee – Revocation of guarantee means cancellation of guarantee already accrued, it may
be noted that the specific guarantee cannot be revoked if the liability has already secured. However a
continuing guarantee can be revoked and on the revocation of such a guarantee. The liability of the surely or
guarantor comes to an end for the future transaction. The surety continues to be liable for the transactions
which have taken place up to the time of revocation. A continuing guarantee may be revoked in any of the
following ways-

A Guarantee may be revoked in any of the following ways-

1. By notice of revocation.
2. By death of surely.
3. By discharge of surely in various circumstances
A. By novation (Sec.62)
B. By variance in terms (Sec. 133)
C. By release/discharge of principal Debtor (Sec.-134)
D. When the creditor events in to an agreement with the principal debtors (Sec.13..)
E. By creditor act or omission impairing surety’s eventual remedy (Sec. 139)
F. By loss of security “(Sec. 141)
G. By invalidation of contract (Sec.142,143,144)

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Nature and Extent of Surety’s Liability –

1. The liability of surety is co- extensive.
2. The liability of surety arises the same moment when default is made by the principal debtor.
3. The surety is free to restrict limit his liability.
4. Sometimes the surely is liable though the principal debtors is not liable.
5. If there is a condition precedent for the surety’s liability; the surety will be liable, only when that
condition is fulfilled first.
6. In a continuing guarantee liability of surety extends to a series of transaction over a period of time.
7. The surely will not be liable if the creditor has obtained guarantee either by misrepresenting a material
fact regarding the transaction or by keeping silence to material circumstances.
8. A discharge of principal debtor by operation of law does not discharge the surely from liability.

Discharge of surety from liability -

By
revocation

Discharge
of surety
from
liability
By
invalidation By conduct of
of conduct of the creditor
guarantee

The following are the modes or circumstances under which a surety is discharge from his liability –
1. By revocation
a) Notice by surety
b) Death of surety
c) Notation.
2. By conduct of the creditor
a) Variance (change) in terms of the contract
b) Release or discharge or the principal debtor.
c) Certain arrangements made by the creditors with the principal debtors without the consent of
surety,
d) Creditors act or omission impairing surety’s eventual (ultimate) remedy.
e) Loss of security.

3. By invalidation of conduct of guarantee

a) Guarantee obtained by misrepresentations
b) Guarantee obtained by concealment
c) Failure of co-surety to join a surety

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RIGHTS OF SURETY

Right against
Right against Right against
the Principal
the Creditor the Co-Sureties
debtor

I.Right against the Principal debtor

1. Right of subrogation
2. Right of indemnity
II. Right against the Creditor
1.Right to security
2. Right to claim set off

III. Right against the Co-Sureties

1. Equal contribution
2. Liability of co-securities bond in different sums
3. Right to share benefits of securities.

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