Business Law व्यावसायिक कायदे

Quick summary

The Indian Contract Act, 1872 is the base of all business law in India. It says when an agreement becomes a contract that the courts will enforce. This topic covers the meaning of a contract, the essential elements of a valid contract, offer and acceptance, consideration, capacity, free consent, and the kinds of contracts (valid, void, voidable, illegal).

Key points

• Contract (करार) – "an agreement enforceable by law" (Sec 2(h)). Agreement = offer + acceptance; contract = agreement + enforceability.
• "All contracts are agreements, but all agreements are not contracts."
• Essentials of a valid contract (Sec 10): offer and acceptance; intention to create legal relations; lawful consideration; capacity of parties; free consent; lawful object; agreement not expressly declared void; certainty and possibility of performance; legal formalities where required.
• Offer must be definite and communicated. An invitation to offer (price list, advertisement, goods in a shop window) is not an offer.
• Acceptance must be absolute and unconditional and communicated in the prescribed manner. A conditional acceptance is a counter-offer.
• Consideration – "something in return" (Sec 2(d)); it may be past, present or future and may move from the promisee or any other person. It need not be adequate, but must be real and lawful.
• Exceptions to "no consideration, no contract" (Sec 25): natural love and affection in a written, registered document; compensation for past voluntary service; promise to pay a time-barred debt in writing; also gifts actually made and agency (Sec 185).
• Capacity (Sec 11): a person who is a major (18 years), of sound mind and not disqualified by law. An agreement with a minor is void ab initio (Mohori Bibee v. Dharmodas Ghose, 1903).
• Free consent (Sec 14) – consent not caused by coercion, undue influence, fraud, misrepresentation or mistake. The first four make the contract voidable; a bilateral mistake of fact makes it void.
• Void agreements include agreements in restraint of marriage, trade or legal proceedings, wagering agreements and uncertain agreements.

Important terms

• Void agreement – not enforceable from the start.
• Voidable contract – enforceable at the option of one party (the aggrieved one).
• Illegal agreement – forbidden by law; collateral agreements are also void.
• Quasi-contract – obligation created by law without an agreement (e.g. payment by mistake, Sec 72).
• Promisor / promisee – person making the promise / person to whom it is made.

Key facts

• Carlill v. Carbolic Smoke Ball Co. (1893) – a general offer to the public can be accepted by anyone who performs the conditions.
• Balfour v. Balfour (1919) – domestic agreements between spouses usually lack intention to create legal relations.
• Lalman Shukla v. Gauri Dutt (1913) – no acceptance without knowledge of the offer.
• Remedies for breach: damages (Sec 73), specific performance, injunction, quantum meruit, rescission.

5 important questions

Q1. Define contract. Why are all agreements not contracts?

A contract is an agreement enforceable by law (Sec 2(h)). Only agreements that meet the essentials of Sec 10 – free consent, competent parties, lawful consideration and object – are enforceable. Social and domestic agreements, or those with minors, are not contracts.

Q2. What is the position of a minor's agreement?

It is void ab initio. A minor cannot ratify it on becoming major, and there is no estoppel against a minor. But a minor can be a beneficiary, and his necessaries are paid out of his property (Sec 68).

Q3. Explain the essentials of a valid contract.

Outline each element of Sec 10 with a one-line example and a case: offer and acceptance, legal relations (Balfour), consideration, capacity (Mohori Bibee), free consent, lawful object, not declared void, certainty, possibility, formalities.

Q4. Explain the rules of a valid offer and a valid acceptance.

Offer: definite, communicated, may be express or implied, specific or general (Carlill), not an invitation to offer, must intend legal consequences. Acceptance: absolute, communicated, in prescribed manner, within time, by the offeree, while the offer is alive. Communication is complete as against the proposer when the acceptance is posted.

Q5. Distinguish between void and voidable contracts.

Void: no legal effect, neither party can enforce it, e.g. agreement with a minor or wagering. Voidable: valid until the aggrieved party cancels it, e.g. consent by coercion or fraud. Third parties are protected in voidable contracts if they acquire rights in good faith before cancellation.

Exam tip

Quote the section number and one case name in every long answer on contracts; examiners in Maharashtra universities reward both.

Quick summary

Special contracts are particular kinds of contracts dealt with in Chapters VIII to X of the Indian Contract Act, 1872: indemnity and guarantee (Sec 124–147), bailment and pledge (Sec 148–181), and agency (Sec 182–238). They are used daily in business – bank loans with a guarantor, goods given for repair, gold pledged for a loan, and work done through agents.

Key points

• Indemnity (Sec 124) – a promise by one party to save the other from loss caused by the promisor himself or by any other person. Two parties: indemnifier and indemnity-holder. Example: insurance (other than life).
• Rights of the indemnity-holder (Sec 125): recover damages, costs of a suit and sums paid under a compromise made with the indemnifier's authority.
• Guarantee (Sec 126) – a contract to perform the promise or discharge the liability of a third person on his default. Three parties: creditor, principal debtor, surety (जामीनदार). It may be oral or written.
• Surety's liability is co-extensive with that of the principal debtor (Sec 128), unless the contract says otherwise.
• Continuing guarantee (Sec 129) extends to a series of transactions; it can be revoked for future transactions by notice (Sec 130) and ends on the surety's death (Sec 131).
• Rights of surety: subrogation (steps into the creditor's shoes), indemnity from the principal debtor, contribution from co-sureties, benefit of securities held by the creditor.
• Discharge of surety: variation in terms without consent, release of the principal debtor, creditor's act impairing the surety's remedy, loss of security, revocation.
• Bailment (Sec 148) – delivery of goods by the bailor to the bailee for a purpose, on condition that they are returned or disposed of as directed. Only movable goods; possession (not ownership) passes.
• The bailee must take as much care as a man of ordinary prudence would of his own goods (Sec 151) and has a lien for his charges (Sec 170 particular lien).
• Pledge (Sec 172) – bailment of goods as security for a debt; parties are pawnor and pawnee. The pawnee may sell after reasonable notice on default (Sec 176).
• Agency (Sec 182) – an agent is employed to do any act for, or represent, the principal in dealings with third persons. "He who does an act through another does it himself."
• Agency is created by express appointment, implication, necessity, ratification or estoppel. A minor can be an agent, but the principal must be competent.

Important terms

• Sub-agent – person employed by the agent to act under his control.
• Del credere agent – agent who guarantees payment by buyers for an extra commission.
• Ratification – later approval by the principal of an act done without authority.
• Lien – right to keep goods until dues are paid.

Key facts

5 important questions

Q1. Define a contract of guarantee and name its parties.

A contract to perform the promise, or discharge the liability, of a third person in case of his default (Sec 126). Parties: creditor, principal debtor and surety.

Q2. What is a continuing guarantee?

A guarantee that extends to a series of transactions, e.g. a surety guarantees payment for all goods supplied to a dealer up to ₹1 lakh. It can be revoked for future transactions by notice and ends on the death of the surety.

Q3. Explain the rights of a surety.

Outline: against the principal debtor – subrogation and implied indemnity (Sec 140, 145); against the creditor – benefit of securities (Sec 141); against co-sureties – contribution in equal or agreed shares (Sec 146–147). Give examples.

Q4. Explain the duties and rights of a bailee.

Duties: reasonable care, not to make unauthorised use, not to mix goods, return the goods, return any increase or profit. Rights: compensation for defect in title, recover necessary expenses, particular lien, right to sue a wrongdoer.

Q5. How is an agency created and terminated?

Creation: express, implied, necessity, ratification, estoppel. Termination by act of parties (revocation, renunciation, mutual agreement) or by law (completion of business, expiry of time, death or insanity, insolvency of the principal, destruction of subject matter). Agency coupled with interest cannot be revoked (Sec 202).

Exam tip

Distinction questions (indemnity vs guarantee, bailment vs pledge) are very common. Learn the tables above with at least five points each.

Quick summary

The Sale of Goods Act, 1930 governs contracts for the sale of movable goods. It explains the difference between a sale and an agreement to sell, conditions and warranties, the rule of caveat emptor, when ownership passes from seller to buyer, the rule that only the owner can give a good title (and its exceptions), and the rights of an unpaid seller.

Key points

• Contract of sale (Sec 4) – a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a price.
• Essentials: two parties, goods (movable property, not money or actionable claims), price in money, transfer of ownership, all essentials of a valid contract.
• Sale vs agreement to sell: in a sale ownership passes at once (executed contract); in an agreement to sell it passes at a future time or on a condition (executory contract).
• Goods may be existing (specific or ascertained/unascertained), future or contingent.
• Condition (Sec 12(2)) – a stipulation essential to the main purpose; its breach gives the right to reject the goods and claim damages.
• Warranty (Sec 12(3)) – a stipulation collateral to the main purpose; its breach gives only a claim for damages.
• Implied conditions: title (Sec 14), sale by description (Sec 15), quality or fitness for purpose (Sec 16(1)), merchantable quality (Sec 16(2)), sale by sample (Sec 17).
• Caveat emptor (ग्राहक सावध राहा) – "let the buyer beware" (Sec 16): the buyer must check goods himself. Exceptions: fitness for purpose made known, merchantable quality, usage of trade, consent by fraud, sale by sample/description.
• Nemo dat quod non habet – no one can give a better title than he himself has. Exceptions: sale by mercantile agent, by a co-owner in possession, under a voidable contract before it is rescinded, by a seller or buyer in possession, by an unpaid seller, by estoppel.
• Unpaid seller (Sec 45) has rights against the goods – lien, stoppage in transit (when the buyer is insolvent) and resale – and rights against the buyer personally – suit for price, damages for non-acceptance, interest.

Important terms

• Property in goods – ownership of goods.
• Delivery – voluntary transfer of possession; may be actual, symbolic (key of a godown) or constructive (attornment).
• Ascertained goods – goods identified and agreed upon after the contract.
• Auction sale (Sec 64) – sale complete when the hammer falls.

Key facts

• Rules for passing of property: specific goods in deliverable state – when the contract is made (Sec 20); goods on approval or "sale or return" – when the buyer signals approval or keeps them beyond the time fixed (Sec 24); unascertained goods – when goods are appropriated to the contract (Sec 23).
• Risk passes with property unless agreed otherwise ("risk prima facie passes with property", Sec 26).

5 important questions

Q1. Distinguish between sale and agreement to sell.

In a sale, ownership passes immediately and the risk is with the buyer; the seller can sue for the price. In an agreement to sell, ownership passes later; risk is with the seller; the remedy on breach is only damages.

Q2. What is meant by caveat emptor?

It means "let the buyer beware". The seller is not bound to disclose defects; the buyer must examine the goods and use his own judgment. Sec 16 lists exceptions such as fitness for a disclosed purpose and merchantable quality.

Q3. Explain the implied conditions and warranties in a contract of sale.

Outline: conditions – title, description, sample, sample + description, fitness for purpose, merchantable quality, wholesomeness of food. Warranties – quiet possession, freedom from encumbrance, disclosure of dangerous nature. One example each.

Q4. Who is an unpaid seller? Explain his rights.

An unpaid seller is one who has not been paid the whole price or who received a bill/cheque that was dishonoured (Sec 45). Rights against goods: lien (while in possession), stoppage in transit (on buyer's insolvency), resale (perishable goods or after notice). Rights against buyer: suit for price, damages, interest, suit for repudiation.

Q5. Explain the exceptions to the rule "nemo dat quod non habet".

Outline the six exceptions with examples: mercantile agent, co-owner, voidable contract, seller in possession after sale, buyer in possession with seller's consent, estoppel; also sale by a finder of goods and by a pawnee in certain cases.

Exam tip

Use one daily-life example (buying a mobile phone, a hair dye case like Grant v. Australian Knitting Mills for fitness) in long answers; it shows understanding.

Quick summary

The Negotiable Instruments Act, 1881 deals with promissory notes, bills of exchange and cheques – documents that transfer the right to receive money by simple delivery or endorsement. This topic covers their meaning and features, holder and holder in due course, endorsement, crossing of cheques, dishonour, and the offence of cheque bounce under Sec 138.

Key points

• Negotiable instrument (Sec 13) – a promissory note, bill of exchange or cheque payable to order or bearer.
• Features: freely transferable, the transferee in good faith gets a good title (better than the transferor's), right to sue in his own name, and legal presumptions (consideration, date, time of acceptance, order of endorsement – Sec 118).
• Promissory note (Sec 4) – an unconditional written promise, signed by the maker, to pay a certain sum to a certain person. Two parties: maker and payee. Cannot be made payable to bearer.
• Bill of exchange (Sec 5) – an unconditional written order by the drawer to the drawee to pay a certain sum. Three parties: drawer, drawee and payee; it needs acceptance.
• Cheque (Sec 6) – a bill of exchange drawn on a specified banker and payable on demand; includes the electronic cheque and a truncated cheque.
• Holder (Sec 8) – a person entitled in his own name to possess the instrument and receive payment.
• Holder in due course (Sec 9) – a holder who got the instrument for consideration, in good faith, before maturity, and without notice of any defect in title. He gets a better title than the transferor.
• Endorsement (पृष्ठांकन) (Sec 15) – signing on the back to transfer it: blank, special (full), restrictive, partial (not valid as negotiation), conditional, sans recourse.
• Crossing: general (two parallel lines – paid only through a bank), special (bank's name written), account payee (credited only to the payee's account), not negotiable.
• Dishonour by non-acceptance or non-payment; notice of dishonour must be given; noting and protest by a notary public is evidence of dishonour.
• Sec 138 (cheque bounce) – dishonour for insufficient funds is an offence if the cheque is presented within its validity (3 months), the payee sends a written notice within 30 days of the bank's return memo, and the drawer fails to pay within 15 days of receiving it. Punishment: up to 2 years' imprisonment, or fine up to twice the cheque amount, or both.

Important terms

• Drawer / drawee / payee – maker of the order / person ordered to pay / person to be paid.
• Maturity – the date on which the instrument becomes payable; 3 days of grace are added for time bills and notes (not for demand instruments).
• Material alteration – a change that alters the legal effect; it makes the instrument void.
• Accommodation bill – a bill drawn to help a party raise funds, without real trade.

Key facts

5 important questions

Q1. Define a cheque.

A bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand; it includes an electronic cheque and a truncated cheque (Sec 6).

Q2. What is a holder in due course?

A person who obtains a negotiable instrument for value, in good faith, before maturity, without any reason to believe the transferor's title was defective (Sec 9). He is protected against most defences of earlier parties.

Q3. Explain the kinds of crossing and their effect.

Outline: general crossing (two lines, "& Co."), special crossing (bank's name), account payee crossing, "not negotiable" crossing; who can cross; effect on payment; protection to the paying and collecting banker (Sec 85, 131).

Q4. Explain the procedure and penalty under Sec 138 for dishonour of a cheque.

Outline: dishonour for insufficient funds; presentation within 3 months; demand notice within 30 days; 15 days to pay; complaint within one month after the cause of action; trial by magistrate; punishment up to 2 years or fine up to twice the amount or both; interim compensation (Sec 143A).

Q5. Explain the kinds of endorsement.

Outline with examples: blank, special, restrictive, partial, conditional, sans recourse, facultative. Rules for a valid endorsement: on the instrument or allonge, signed by the holder, for the whole amount.

Exam tip

Draw small specimens of a promissory note and a bill (in words, without real names or numbers) in long answers. Mention Sec 138 timelines exactly – 3 months, 30 days, 15 days.

Quick summary

The Consumer Protection Act, 2019 replaced the 1986 Act from 20 July 2020. It protects consumers against defective goods, deficient services, unfair trade practices and misleading advertisements, including in e-commerce. It sets up the Central Consumer Protection Authority (CCPA), three-tier Consumer Disputes Redressal Commissions, product liability rules and mediation.

Key points

• Consumer (ग्राहक) (Sec 2(7)) – a person who buys goods or hires services for consideration, including online, teleshopping, direct selling or multi-level marketing; it includes the user with the buyer's approval. A person who buys for resale or commercial purpose is not a consumer (buying for self-employment to earn a livelihood is allowed).
• Six consumer rights: right to safety, to be informed, to choose, to be heard, to seek redressal and to consumer awareness.
• Consumer Protection Councils – Central, State and District councils to promote and protect consumer rights (advisory bodies).
• Central Consumer Protection Authority (CCPA) – a regulator that can investigate unfair trade practices, order recalls and refunds, stop misleading advertisements and impose penalties.
• Penalty for misleading advertisements – CCPA may fine a manufacturer or endorser up to ₹10 lakh (up to ₹50 lakh for repeat offences); an endorser can also be barred from endorsing for up to 1 year (3 years for repeat).
• Consumer Disputes Redressal Commissions: District, State and National. Pecuniary limits (as revised by the 2021 rules, based on the value of goods/services paid): District – up to ₹50 lakh; State – above ₹50 lakh up to ₹2 crore; National – above ₹2 crore. Check the current notified limits.
• A complaint can be filed where the complainant resides or works, and online through e-Daakhil; no lawyer is needed.
• Limitation period – within 2 years from the date the cause of action arose.
• Appeals: District → State (within 45 days) → National (within 30 days) → Supreme Court (within 30 days).
• Product liability – the manufacturer, product service provider or seller is liable for harm caused by a defective product.
• Mediation – disputes may be settled through consumer mediation cells attached to the Commissions.
• E-commerce – covered by the Consumer Protection (E-Commerce) Rules, 2020: display of seller details, return and refund policy, grievance officer, no fake reviews.

Important terms

• Defect – any fault or shortcoming in quality, quantity, purity or standard of goods.
• Deficiency – any fault or shortcoming in the quality or manner of performance of a service.
• Unfair trade practice – deceptive methods to promote sale, e.g. false claims, fake discounts, not issuing a bill.
• Restrictive trade practice – practices that manipulate price or supply, e.g. tie-in sales.
• Complainant – a consumer, a registered consumer association, the Central or State Government, the CCPA, or legal heir of a deceased consumer.

Key facts

5 important questions

Q1. Who is a consumer under the CPA 2019?

A person who buys goods or avails services for consideration, offline or online, for personal use, including a user with the buyer's approval. A person buying for resale or commercial purposes is excluded.

Q2. What is the CCPA?

The Central Consumer Protection Authority, set up under the CPA 2019 to protect consumers as a class. It investigates violations, orders recalls and refunds, and penalises false or misleading advertisements.

Q3. Explain the rights of consumers.

Outline the six rights with an example each (safety – ISI mark, information – MRP and expiry date, choice, hearing, redressal, education); also responsibilities of consumers (take a bill, check standards, file genuine complaints).

Q4. Explain the three-tier redressal machinery under the CPA 2019.

Outline: composition, pecuniary jurisdiction, territorial jurisdiction, filing a complaint, time limits, reliefs (replacement, refund, compensation, removing defects, stopping unfair practice), appeals and their time limits.

Q5. Explain the important new features of the CPA 2019.

Outline: CCPA, e-commerce coverage, product liability, filing from home and e-filing, mediation, penalties for misleading ads and endorsers, enhanced pecuniary limits, unfair contracts, faster disposal.

Exam tip

Learn the pecuniary limits and appeal time limits as a small table; they are often asked as short notes. Note that limits can be revised by rules, so mention the year of the figures.

Quick summary

The Companies Act, 2013 governs how companies are formed, managed and wound up in India. A company is an artificial person created by law, with a separate legal entity and perpetual succession. This topic covers the meaning and features of a company, its main types, and the stages of formation: promotion, incorporation and commencement of business.

Key points

• Company (कंपनी) (Sec 2(20)) – a company incorporated under the Companies Act, 2013 or any previous company law.
• Features: artificial legal person, separate legal entity (Salomon v. Salomon & Co. Ltd, 1897), limited liability, perpetual succession, common seal (now optional since 2015), transferability of shares (restricted in private companies), separation of ownership and management, can sue and be sued in its own name.
• Lifting the corporate veil – courts may look behind the company to the persons in control in cases of fraud, tax evasion or enemy character.
• Types by members: private company (Sec 2(68)) – minimum 2, maximum 200 members, restricts share transfer and cannot invite the public; public company (Sec 2(71)) – minimum 7 members, no maximum; One Person Company (OPC) (Sec 2(62)) – a single member who must name a nominee.
• Minimum directors: public 3, private 2, OPC 1; maximum 15 (more by special resolution).
• Types by liability: company limited by shares, limited by guarantee, unlimited company.
• Other types: government company (51% or more held by government), holding and subsidiary, listed company, small company, Section 8 (not-for-profit) company, foreign company.
• Promotion – idea, investigation, assembling resources, preparing documents. The promoter stands in a fiduciary relation to the company.
• Incorporation (registration) – apply to the Registrar of Companies (ROC) through the MCA portal using the SPICe+ form (name reservation, DIN, PAN, TAN, GST and bank account in one integrated form), with e-MoA and e-AoA, declarations and fees. The ROC issues the Certificate of Incorporation with a Corporate Identity Number (CIN); it is conclusive evidence of incorporation (Sec 7).
• Commencement of business (Sec 10A) – a company with share capital must file a declaration (form INC-20A) within 180 days of incorporation that subscribers have paid for their shares.
• Stages of formation:
• Capital subscription – for a public issue, prospectus, minimum subscription and allotment (see Issue of Shares).
• Pre-incorporation contracts – contracts by promoters before incorporation; the company may adopt them after incorporation under the Specific Relief Act, 1963.

Important terms

• Promoter (प्रवर्तक) – the person who conceives the idea of a company and takes steps to form it (Sec 2(69)).
• Registrar of Companies (ROC) – government officer who registers companies.
• DIN – Director Identification Number, a unique number for each director.
• Prospectus – a document inviting the public to subscribe to securities (Sec 2(70)).

Key facts

5 important questions

Q1. Define a company and state its features.

A company is an artificial person incorporated under the Companies Act, 2013 (Sec 2(20)). Features: separate legal entity, limited liability, perpetual succession, transferable shares, own property, can sue and be sued.

Q2. What is a One Person Company?

A company with only one person as its member (Sec 2(62)). It needs a nominee, at least one director, and enjoys limited liability; only a natural person who is an Indian citizen can form it.

Q3. Distinguish between a private and a public company.

Use the table above and add points on prospectus, quorum, managerial remuneration limits and number of directorships.

Q4. Explain the stages in the formation of a company.

Outline: promotion (role and duties of promoter), incorporation (SPICe+, documents, declarations, certificate of incorporation, CIN), commencement of business (Sec 10A declaration within 180 days), capital subscription for public issues.

Q5. Explain the doctrine of separate legal entity with the Salomon case.

Outline: meaning; Salomon v. Salomon & Co. Ltd (1897) – Salomon was a secured creditor of his own company and was paid first; effects – own property, own debts, own contracts; exceptions – lifting the corporate veil (fraud, tax evasion, enemy character, sham companies).

Exam tip

Always quote the Companies Act, 2013 section numbers for definitions (2(20), 2(62), 2(68), 2(71)). Filing forms change often, so write "SPICe+ form on the MCA portal" rather than old form numbers.

Quick summary

The Memorandum of Association (MoA) and the Articles of Association (AoA) are the two basic documents of a company. The MoA is its charter – it fixes the company's name, office, objects, liability and capital, and its relationship with the outside world. The AoA contains the internal rules for running the company. This topic covers their contents, alteration, and three doctrines: ultra vires, constructive notice and indoor management.

Key points

• Memorandum of Association (पार्षद सीमानियम) (Sec 2(56), Sec 4) – the charter of the company that defines the scope of its powers.
• Name clause – ending with "Limited" or "Private Limited"; must not be identical or undesirable.
• Registered office clause – the State in which the office is situated.
• Object clause – the objects for which the company is formed.
• Liability clause – limited by shares, by guarantee or unlimited.
• Capital clause – the authorised share capital and its division into shares.
• Subscription (association) clause – subscribers' names and the shares they take.
• For an OPC, the nominee clause.
• Clauses of the MoA:
• Alteration of MoA (Sec 13) – by special resolution; change of name needs Central Government (ROC) approval; change of registered office from one State to another needs Regional Director approval; change in objects of a company that raised money by prospectus needs public notice and an exit option to dissenting shareholders; alteration of capital is under Sec 61.
• Articles of Association (पार्षद अंतर्नियम) (Sec 2(5), Sec 5) – rules and regulations for internal management: share capital and transfer, calls, forfeiture, meetings, voting, directors, dividends, accounts and audit.
• Model Articles are given in Schedule I (Table F for a company limited by shares). A company may adopt them fully or partly.
• Entrenchment provisions (Sec 5(3)) – provisions that can be changed only by a stricter procedure than a special resolution.
• Alteration of AoA (Sec 14) – by special resolution; conversion of a public company into a private company also needs Central Government approval (delegated to the Regional Director). Articles cannot override the Act or the MoA.
• Doctrine of ultra vires – an act beyond the objects of the MoA is void and cannot be ratified even by all shareholders (Ashbury Railway Carriage and Iron Co. v. Riche, 1875).
• Doctrine of constructive notice – outsiders are deemed to know the contents of the MoA and AoA, as they are public documents.
• Doctrine of indoor management – outsiders acting in good faith may assume that internal procedures have been followed (Royal British Bank v. Turquand, 1856). Exceptions: knowledge of irregularity, negligence, forgery, act beyond the Articles.

Important terms

• Special resolution – passed when votes in favour are at least three times the votes against (Sec 114(2)).
• Charter – the basic document that gives a body its powers.
• Ultra vires – beyond the powers.
• Table F – model Articles for a company limited by shares.

Key facts

5 important questions

Q1. What is the Memorandum of Association?

It is the charter of a company that defines its name, registered office, objects, liability, capital and subscribers. It lays down the limits within which the company can act.

Q2. State the doctrine of indoor management.

Outsiders dealing with a company in good faith are entitled to assume that the internal procedures required by the Articles have been properly carried out (Turquand's case). It protects outsiders, unlike constructive notice which protects the company.

Q3. Explain the contents of the Memorandum of Association.

Outline the six (seven for OPC) clauses with their legal requirements and an example of each; mention the forms in Table A–E of Schedule I.

Q4. Distinguish between the Memorandum and the Articles of Association.

Use the table above and add points on legal requirement, contents, effect of acts beyond them and who it binds.

Q5. Explain the doctrine of ultra vires and its effects.

Outline: meaning; Ashbury case; effects – the act is void, the company cannot be sued or sue on it, directors are personally liable, an injunction can be obtained by members, property bought may be protected; difference between ultra vires the company, the directors and the Articles.

Exam tip

Quote the three famous cases – Ashbury (ultra vires), Turquand (indoor management) and Salomon (separate entity). They are expected in every company law answer.

Quick summary

A company works through its shareholders in general meetings and through its Board of Directors. This topic covers the kinds of meetings – board meetings, annual general meeting, extraordinary general meeting – with notice, quorum, resolutions and minutes, and the management of a company: directors, their appointment, duties, and key managerial personnel under the Companies Act, 2013.

Key points

• Board meeting (Sec 173) – the first within 30 days of incorporation; at least four meetings a year, with a gap of not more than 120 days between two meetings. Notice of at least 7 days. Quorum (Sec 174) – one-third of total strength or 2 directors, whichever is higher. Meetings may be held by video conferencing.
• Annual General Meeting (AGM) (Sec 96) – every company except an OPC must hold one each year. The first AGM within 9 months from the close of the first financial year; later AGMs within 6 months of the end of the financial year, with a gap of not more than 15 months.
• Business at an AGM (ordinary business) – adoption of financial statements and reports, declaration of dividend, appointment of directors in place of those retiring, appointment and remuneration of auditors. All other business is special business.
• Extraordinary General Meeting (EGM) (Sec 100) – for urgent special business; called by the Board, or on requisition by members holding at least 10% of paid-up voting capital.
• Notice (Sec 101) – at least 21 clear days in writing or electronically; shorter notice with consent of members as provided.
• Quorum (Sec 103) for a public company: 5 members present in person if members are up to 1,000; 15 if 1,000 to 5,000; 30 if more than 5,000. For a private company: 2 members.
• Ordinary resolution (Sec 114(1)) – votes in favour exceed votes against. Special resolution (Sec 114(2)) – votes in favour are at least three times the votes against, with notice saying it is a special resolution.
• Minutes (Sec 118) – a record of proceedings, signed and kept within 30 days; they are evidence of the meeting.
• Proxy (Sec 105) – a person appointed to attend and vote for a member; a proxy cannot speak and votes only on a poll.
• Director (संचालक) (Sec 2(34)) – a person appointed to the Board. Needs a DIN. Maximum 20 directorships, of which not more than 10 in public companies (Sec 165).
• Women director – required for listed companies and certain public companies. Independent directors – at least one-third of the Board in listed companies (Sec 149).
• Resident director – at least one director must stay in India for 182 days or more in a financial year.
• Key Managerial Personnel (Sec 2(51)) – CEO/MD/manager, Company Secretary, whole-time director and CFO.
• Duties of directors (Sec 166) – act as per the Articles, in good faith, with due care and skill, avoid conflict of interest, not make undue gains, not assign their office.

Important terms

• Agenda – list of items to be discussed at a meeting.
• Quorum – minimum number of members who must be present for a valid meeting.
• Poll – voting where votes are counted by shares held.
• E-voting – electronic voting, compulsory for listed companies and those with 1,000 or more members.

Key facts

5 important questions

Q1. What is a quorum?

The minimum number of members who must be present for a meeting to transact business validly. For a public company with up to 1,000 members, the quorum is 5 members personally present (Sec 103).

Q2. Distinguish between an ordinary and a special resolution.

Ordinary: votes in favour more than votes against. Special: votes in favour at least three times the votes against, and the notice must state it is a special resolution. Special resolutions are used for altering MoA/AoA, changing the registered office between States, etc.

Q3. Explain the provisions relating to the Annual General Meeting.

Outline: who must hold it; time limits; place and time (business hours, not on a national holiday, at the registered office or within the same city); notice; ordinary business; Tribunal (or Central Government) power on default; penalties.

Q4. Explain the requisites of a valid meeting.

Outline: proper authority to call, proper notice, quorum, chairman, agenda, resolutions, minutes, proxies and voting by show of hands, poll or e-voting.

Q5. Explain the appointment and duties of directors.

Outline: first directors, appointment by members at a general meeting, additional, alternate and casual vacancy directors, nominee directors, independent and women directors, DIN; duties under Sec 166; disqualification (Sec 164); removal (Sec 169).

Exam tip

Time limits (30 days, 120 days, 9 months, 6 months, 15 months, 21 days) carry easy marks; make a small table and revise it before the exam.