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Business Laws Solved Question Papers: Nov' 2016

2016 (November)
COMMERCE
(General/Speciality)
Course: 102
(Business Laws)
The figures in the margin indicate full marks for the questions
(NEW COURSE)
Full Marks: 80
Pass Marks: 24
Time: 3 hours
1. (a) Elucidate the essential elements of a valid contract.                                                           14
Ans: Meaning of Contract and Its essentials or (“All contracts are agreements, but all agreements are not contracts.” [Essentials of a Valid Contract] or “A Contract is an agreement enforceable by Law”)
Section 2 (h) defines ‘Contract’ as an agreement enforceable by law.  If we analyse the definition it has two components viz.
1. An agreement between two or more persons "To Do" or "Not to Do" something.
2. An enforceability of such an agreement at law i.e. personal rights and personal obligations created and defined by agreement must be recognized by law.

Section 2 (e) defines ‘agreement’ as “every promise and set of promises forming consideration for each other”. For a contract to be enforceable by law there must be an agreement which should be enforceable by law. To be enforceable, the agreement must be coupled with obligation. Obligation is a legal duty to do or abstain from doing what one promised to do or abstain from doing.  All contracts are agreements but for agreement to be a contract it has to be legally enforceable.
Section10 of the Act provide “All agreements are contracts if they are made by the free consent of the parties competent to contract for lawful object & are not hereby expressly declared void.”
An agreement in order to become a contract must be enforceable by law. Agreements, which do not fulfill the essential requirements of a contract, are not enforceable. Thus when an agreement enables a person to compel another to do something or not to do something it is called a contract. Thus all contracts are agreements but all agreements are not contracts. In order to become a valid contract an agreement must posses the following essential elements:
a)      Offer & Acceptance: There must be two parties to an agreement i.e. one making the offer & other party accepting it. Acceptance of must be unconditional & absolute. A part of an offer cannot be accepted. The terms of an offer must be definite. The acceptance must be in the mode as prescribed & must be communicated. The acceptor of an offer must accept it in the same way & same sense & at the same time as offered by the offeror i.e. there must be consensus ad idem.
b)      Intention to create legal relationship: When two parties enter into a contract their intention must be to create legal relationship. If there is no such intention between the parties, there is no contract between them. Agreements of a social or domestic nature to do not constitute contracts.
c)       Lawful consideration: An agreement to be enforceable by law must be supported by consideration. “Consideration” means an advantage or benefit which one party receives from another. It is the essence of bargain. The agreement is legally enforceable only when both parties give something or get something in return. An agreement to do something without getting anything in return is not a contract. Contract must be in cash or kind.
d)      Capacity to Contract-Competency: The parties competent to contract must be capable of contracting i.e. they must be of the age of majority, they must be of sound mind & they must not be disqualified from contracting by any law to which they are subject to.  An agreement with minors, lunatics, drunkards, etc. is not contract & does not get a legal title.
e)      Free Consent: It is necessary between the contracting parties to have a free & genuine consent to an agreement. The consent of parties is said to be free when the contracting parties are of the same mind on the materials of a contract. They must mean the same thing at the same time the parties must not enter into a contract under undue influence, coercion, misrepresentation etc. If these flaws are present in an agreement it does not become a contract.
f)       Lawful object: The object of an agreement must be lawful. It should not be illegal, immoral or it should not oppose public policy. If an agreement suffers from a legal flaw with respect to object it is not enforceable by law & so it is not a contract.
g)      Agreement not declared void: For an agreement to be a contract it is necessary for the agreement must not be expressly declared void by any law in force in the country.
h)      Possibility & Certainty of performance: The terms of an agreement must not be vague or indefinite. It should be certain. The agreement must be to do a thing which is possible. For e.g. an agreement to sell a car for Rs. 100/- if sun does not rise tomorrow. This agreement is impossible & so not enforceable by law. 
Thus, agreement is the genus of which contract is the specie.
Or
(b) Define consideration. Explain the rules regarding consideration.                                      3+11=14
Ans: Consideration and Its Essentials
Section 2 (d) of Indian Contract Act, 1872, defines consideration as “When at the desire of the promisor the promise or any other person has done or abstained from doing or does or abstains from doing something, such act abstinence or promise is called a consideration for the promisor.”
Consideration is based on the term ‘quid-pro-quo’ which means ‘something in return’. When a person makes a promise to other, he does so with an intention to get some benefit from him. This act to do or to refrain from doing something is known as consideration.
Consideration is an advantage or benefit which moves from one party to another. It is the essence of bargain. It is the reciprocal promise i.e. to do something or abstain from doing something in return of a promise. It is necessary for an agreement to be enforceable by law. In consideration both the parties give something & get something in return. It may be in cash or kind.
The following are the rules related to the consideration
(i) Consideration must move at the desire of promisor. If it is done at the instance of a third party without the desire of the promisor, it is not consideration. Act done at the desire of a third party is not a consideration. Act must be done voluntarily at the desire of the promisor.
(ii) It may move from the Promisee or any other person in the Indian Law so that a stranger to the consideration may maintain a suit. A consideration may move from the promise or any other person. Consideration from a third party is a valid consideration. Under English Law, however, consideration must move from the Promisee only.
(iii) Consideration may be past, present or future. The words used in Section 2(d) are “has done or abstained from doing (past), or does or abstains from doing (present), or promises to do or to abstain from doing (future) something” This means consideration may be past, present or future.
(iv) There must be mutuality in consideration.
(v) It must be real & not illusory, infinite or vague. Although consideration need not be adequate, it must be real, competent and of some value in the eye of law. Physical impossibility, legal impossibility, uncertain consideration & illusory consideration.
(vi)  Consideration must not be unlawful, illegal, immoral or opposed to public policy. The consideration given for an agreement must not be unlawful. Where it is unlawful, the courts do not allow an action on the agreement.
(vii) Consideration need not be adequate. Consideration as already explained means “something in return”. This “something given”. The law simply provides that a contract should be supported by consideration. So long as consideration exists, the courts are not concerned as to its adequacy, provided it is of some value. “The adequacy of the consideration is for the parties to consider at the time of making the agreement, not for the court when it is sought to be enforced.”
2. (a) Distinguish between condition and warranty. Illustrate when a condition is treated as warranty with examples. 5+9=14
Ans: ‘Condition’ and ‘Warranty’
In a contract of sale, the subject matter is ‘goods’. There are millions of sale transactions which occur in the normal course, all around the world. There are certain provisions which need to be fulfilled because it is demanded by the contract. These prerequisites can either be a condition and warranty. The condition is the fundamental stipulation of the contract of sale whereas Warranty is an additional stipulation.
Condition: Section 12(2) states that a condition is a stipulation which is essential to the main purpose of the contract. The breach of a condition gives rise to a right to treat the contract as repudiated or broken. So according the above definition it is clear that condition is very essential for the performance of a contract. The breach of condition will be regarded as the breach of the whole contract.
Example: A buys from B hair oil advertised as pure coconut oil. The oil turns out to be mixed with herbs. A can return the oil and claim the refund of price.
Warranty: Section 12(3) states that a warranty is a stipulation which is collateral to the main purpose of the contract. The breach of a warranty gives rise to a claim for damages but not a right to reject the goods and treat the contract as repudiated. The above definition shows that for the implementation of a contract warranty is not essential. For the breach of warranty only damages can be claimed.
Example: A while selling his car to B, stated the car gives a mileage of 12 kms per litre of petrol. The car gives only 10 kms per litre. B cannot reject the car. It is breach of warranty. He can only claim damages for the loss due to extra consumption of petrol.
Difference between Condition and warranty:
Basis of Difference
Condition
Warranty
Definition
A stipulation which is essential to the main purpose of the contract.
A stipulation which is collateral to the main purpose of the contract.
Result of Breach
The aggrieved party can terminate the contract due to breach.
The aggrieved party cannot terminate the contract.
Remedy
The aggrieved party can terminate the contract, claim damages or treat it as breach of warranty.
The aggrieved party cannot terminate the contract but can only claim damages.
Treatment
A breach of condition can be treated as a breach of warranty.
A breach of warranty cannot be treated as breach of condition.
Link with contract
It is directly associated with the objective of the contract.
It is a subsidiary provision related to the object of the contract.

When condition to be treated as warranty.
a)      Where a contract of sale is subject to any condition to be fulfilled by the seller, the buyer may waive the condition or elect to treat the breach of the condition as a breach of warranty and not as a ground for treating the contract as repudiated.
b)      Where a contract of sale is not severable and the buyer has accepted the goods or part thereof, the breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty and not as a ground for rejecting the goods and treating the contract as repudiated, unless there is a term of the contract, express or implied, to that effect.
c)       Nothing in this section shall affect the case of any condition or warranty fulfillment of which is excused by law by reason of impossibility or otherwise.
Or
(b) Elucidate how to file complaint under the Consumer Protection Act.                              14
Ans: Complaint
In Section 2 (1) (c) "complaint" means any allegation in writing made by a complainant that:
a)      an unfair trade practice or a restrictive trade practice has been adopted by any trader;
b)      the goods bought by him or agreed to be bought by him suffer from one or more defect;
c)       the services hired or availed of or agreed to be hired or availed of by him suffer from deficiency in any respect;
d)      a trader has charged for the goods mentioned in the complaint a price in excess of the price fixed by or under any law for the time being in force or displayed on the goods or any package containing such goods;
e)      goods which will be hazardous to life and safety when used are being offered for sale to the public in contravention of the provisions of any law for the time being in force requiring traders to display information in regard to the contents, manner and effect of use of such goods.
With a view to obtaining any relief provided by or under this Act; the essential features of a “Complaint” are:
a)      The complaint must be in writing;
b)      The complaint must be made with a view to obtain any relief under the Act;
c)       The Complaint must make any of the five allegations stated under section 2 (1) (c), against a trader or manufacturer;
d)      The complaint must be filed in a manner prescribed under law i.e. under section 12 of the Act.
e)      The complaint must be filed before appropriate consumer commission having jurisdiction to entertain complaint. Section 17 & Section 21.
Ordinarily, the complaint must contain name, description and address of the Complainant and the purpose for which he bought the goods. It must also contain the name, description and address of the trader or manufacturer. It must state clearly, the facts of the case e.g. when the things was purchase? For what purpose? When the things were consumed or used? Defects in goods or deficiency in the service etc., what injury suffered etc. These facts must be supported by all relevant and proper documents. Lastly, the complaint must mention the relief or relief’s asked for against the trader or manufacturer i.e. the opposite party.
Procedure for Filing Complaint
The complainant or his authorised agent can present the complaint in person or send it by post to the appropriate forum or Commission, as the case may be. No fee is charged for filing a complaint before the District Forum or the State Commission or the National Commission.
Important Points
a.       Each of the members and the opposite parties are to be sent a copy of the complaint.
b.      The complaint himself should possess two or more copies of the complaint.
c.       If the complainant desires so he can send a copy to an active voluntary consumer organisation.
d.      A complaint should always be supported and verified by an affidavit.
The time period within which a complaint must be filed
The District Forum, the State Commission, or the National Commission shall not admit a complaint unless it is filed within two years from the date on which the cause of action has arisen. However, where the complainant satisfies the District Forum/State Commission, that he had sufficient cause for not filing the complaint within two years, such complaint may be entertained by it after recording the reasons for condoning the delay.
Decision Time: The District Forum, State Commission and National Commission are required to decide complaints, as far as possible, within three months from date of notice received by the opposite parties. For those complaints which require laboratory analysis or testing of commodities, the period is extended to five months. 
3. (a) Discuss the various ways of crossing of cheques.                                  14
Ans: Crossing of a cheque
A cheque is said to be crossed when two parallel transverse line with or without any words are drawn on the left hand corner of the cheque. The negotiability of a cheque doesn’t affect for crossing. Crossing of a cheque refers to the instruction to the banker relating to the payment of the cheque. A crossing is the direction to the paying banker that the cheque should be paid only to a banker. Crossing of cheque is very safety because the holder of the cheque is not allowed to cash it across the counter. A crossed cheque provides protection not only to the holder of the cheque but also to the receiving and collecting bankers.
The following parties can cross a cheque:
a)      The Drawer: The drawer of a cheque may cross a cheque before issuing it. He may cross it generally or specially.
b)      The Holder: The holder of a cheque can cross in the following way:


Ø  The holder may cross an open cheque generally or specially.
Ø  The holder may specially cross a generally crossed cheque.
Ø  The holder may add the words “Not-Negotiable” in a generally or specially crossed cheque.
c)       The Banker: The banker to whom the cheque is crossed specially may again cross it especially to another banker's agent, for collection. This is called double special crossing.
Types of crossing:
1. General crossing: A general crossing is a crossing where a cheque simply bears two parallel lines with or without any words and without any specification. According to Sec. 123 of the Negotiable Instrument Act, 1881, “When a cheque bears across its face an addition of the words. “and company” or any abreactions thereof between two parallel transverse line or of two parallel transverse lines simply either or without the words, “Not Negotiable” that addition shall be deemed a general crossing. Simplify, In case of General crossing words such as “and company”, “not Negotiable”, “Account payee” etc. may be inserted between the lines.
A general crossing cheque protects the drawer and also the payee or the holder thereof. Whenever a drawer desires to make payment to an outstation party, he can cross the cheque so that even if the cheque is lost, only a piece of paper is lost and nothing beyond that. If by any chance, it is encashed by a third and unauthorized person, it is possible to find out to whose account the amount is credited and the unauthorized person can be identifies and suitable action taken against him.
2. Special crossing: Section 124 of the Negotiable Instruments Act, 1881 defines special crossing as “where a cheque bears across its face, an addition of the name of a banker with or without the words “not negotiable”, that addition shall be deemed a crossing and the cheque shall be deemed to be crossed specially and to be crossed to that banker.”
Thus, in case of special crossing, the name of a particular bank is written in between the parallel lines. The main implication of this type of crossing is that the amount of the cheque will be paid to the specified banker whose name is written in between the lines. Special crossing is in a particular bank and by special crossing, he is assured of double safety, safety to the drawer and safety to the payee.
3. Account payee crossing: This type of crossing is done by adding the words ‘Account Payee’. This can be made both in general crossing and special crossing. The implication of this type of crossing is that the collecting banker has to collect the amount of the cheque only for the payee. If he wrongly credits the amount of the cheque to another account, he will be held responsible for the same. 
4. Not negotiable crossing: When the words ‘not negotiable’ is added in generally or specially crossed cheques, it is called not negotiable crossing. A cheque bearing not negotiable crossing cannot be transferred. If a cheque bearing ‘Not negotiable crossing’ is transferred, care must be taken regarding the ownership of title of both the transferor and transferee.
Or
(b) Elucidate in detail the characteristics of Negotiable Instrument.                                       14
Ans: Meaning of Negotiable Instruments
Negotiable Instruments are money/cash equivalents. These can be converted into liquid cash subject to certain conditions. They play an important role in the economy in settlement of debts and claims. The transactions involving the Negotiable Instruments in our country are regulated by law and the framework of the Statute which governs the transaction of these instruments is known as The Negotiable Instruments Act. This act was framed in our country in the year 1881 when the British ruled our country. Prior to 1881 the transactions governing Negotiable Instruments were regulated under the cover of Indian Contract Act 1872.
The term ‘negotiable’ means transferable and the word ‘document’ means ‘in writing’. Therefore, negotiable means a written promise or order to pay money which may be transferred from one person to another.
Section 13 of the Negotiable Instruments Act, 1881 states, “A negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer.” A negotiable instrument may be made payable to two or more payees jointly, or it may be made payable in the alternative to one of two, or one or some of several payees.
Essentials or Characteristics of Negotiable Instruments:
a)      Witting and Signature according to the rules: A Negotiable Instrument must be in writing and signed by the parties according to the rules relating to (a) promissory notes, (b) Bills of Exchange and (c) Cheques.
b)      Payable by Money: Negotiable Instruments are payable by the legal tender money of India. The Liabilities of the parties are governed in terms of such money only.
c)       Unconditional Promise: If the instrument is a promissory note, it must contain an unconditional promise to pay. If the instrument is a bill or cheque, it must be an unconditional order to pay money.
d)      Freely transferable: A negotiable instrument is transferable from one person to another by delivery or by endorsement and delivery.
e)      Acquisition of Property: Any person who possesses a negotiable instruments, becomes its owner and entitled to the sum of money, mentioned on the face of the instrument. When it is payable to bearer, the property in its passes from one holder to another by mere delivery. If it is payable to order, the property passes by endorsement, i.e. by the signature of its holder on its back and its delivery.
f)       Acquisition of Good Title: The holder in due course, i.e. the transferee of a negotiable instrument in good faith and for value, acquires a good title to the instrument even if the title of the transferor is defective. Further his title will not be affected, by any defect in the title of the transferor.
g)      No Need of Giving Notice: There is no need of giving a notice of transfer of a negotiable instrument to the party liable to pay the money.
h)      Right of the Holder in Due Course: The holder in the due course remains unaffected by certain defenses, which might be available against previous holders, as for example , fraud, to which he is not a party.
i)        Certain Presumptions: Unless contrary proved certain presumptions are in the made case of all negotiable instruments. Consideration, date, signature of holder in due course, for example, is presumed in the case of all instruments. The presumptions from Special rules of Evidence under section 118 to 119.
4. (a) Describe the main purpose and characteristics of Industrial Disputes Act, 1947.                                     5+9=14
Ans: Objectives and Features of Industrial Dispute Act:
The Industrial Disputes Act, 1947 was enacted to promote industrial peace by providing appropriate machinery for amicable settlement of disputes arising between employers and employees.
Objectives of the Act:
1.       The Act provides machinery for the settlement of disputes by arbitration or adjudication.
2.       It attempts to ensure social justice and economic progress by fostering industrial harmony.
3.       It enables workers to achieve their demands by means of legitimate weapon of strike and thus facilitates collective bargaining.
4.       It prohibits illegal strikes and lockouts.
5.       It provides relief to the workman in the event of layoff or retrenchment.
6.       The act relates to all the relevant aspects of industrial relations machinery namely—collective bargaining, mediation and conciliation, arbitration, adjudication and matters incidental thereto.
Main Features or Characteristics of the Act:
Some of the important features of the Act may be summearised as below:
1. Any industrial dispute may be referred to an industrial tribunal by mutual consent of parties to dispute or by the State Government, if it deems expedient to do so.
2. An award shall be binding on both the parties to the dispute for the operated period, not exceeding one year;
3. Strike and lockouts are prohibited during: (a) The pendency of conciliation and adjudication proceedings; (b) the pendency of settlements reached in the course of conciliation proceedings, and (c) the pendency of awards of Industrial Tribunal declared binding by the appropriate Government.
4. In public interest or emergency, the appropriate Government has power to declare the transport (other than railways), coal, cotton textiles, food stuffs and iron and steel industries to be public utility services for the purpose of the Act, for a maximum period of six months.
5. In case of lay-off or retrenchment of workmen, the employer is requested to pay compensation to them. This provision stands in the case of transfer or closure of an undertaking.
6. A number of authorities (Works Committees, Conciliation Officers, and Board of conciliation, Courts of Inquiry, Labour Courts, Tribunal and National Tribunal) are provided for settlement of Industrial disputes. Although the nature of powers, functions and duties of these authorities differ from each other, everyone plays important role in ensuring industrial peace.
Or
(b) Discuss the elements of strike and lockout.                                                 14
Ans: Strike: A strike is a very powerful weapon used by trade unions and other labor associations to get their demands accepted. It generally involves quitting of work by a group of workers for the purpose of bringing the pressure on their employer so that their demands get accepted. When workers collectively cease to work in a particular industry, they are said to be on strike.
According to Industrial Disputes Act 1947, a strike is “a cessation of work by a body of persons employed in an industry acting in combination; or a concerted refusal of any number of persons who are or have been so employed to continue to work or to accept employment; or a refusal under a common understanding of any number of such persons to continue to work or to accept employment”. This definition throws light on a few aspects of a strike. Firstly, a strike is a referred to as stoppage of work by a group of workers employed in a particular industry. Secondly, it also includes the refusal of a number of employees to continue work under their employer.
The analysis of the definition would show that there are the following essential elements or requirements for the existence of a strike:
1)      There must be cessation of work.
2)      The cessation of work must be by a body of persons employed in any industry; 
3)      The strikers must have been acting in combination;
4)      The strikers must be working in any establishment which can be called industry within the meaning of Section 2(j); or
5)      There must be a concerted refusal; or
6)      Refusal under a common understanding of any number of persons who are or have been so employed to continue to work or to accept employment;
7)      They must stop work for some demands relating to employment, non-employment or the terms of employment or the conditions of labour of the workmen.
Lockout: A lockout is a work stoppage in which an employer prevents employees from working. It is declared by employers to put pressure on their workers. This is different from a strike, in which employees refuse to work. Thus, a lockout is employers’ weapon while a strike is raised on part of employees. Acc to Industrial Disputes Act 1947, lock-out means the temporary closing of a place of employment or the suspension of work or the refusal by an employer to continue to employ any number of persons employed by him.
A lockout may happen for several reasons. When only part of a trade union votes to strike, the purpose of a lockout is to put pressure on a union by reducing the number of members who are able to work.
5. Write short notes on:                                                4x4=16
a)      Goods.
b)      District Forum.
c)       Minor.
d)      Promissory Note.

Goods: The subject-matter of the contract of sale must be ‘goods’. According to Section 2(7) “goods means every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale.” Goodwill, trade marks, copyrights, patents right, water, gas, electricity,, decree of a court of law, are all regarded as goods. In the case of land the grass which forms part of land have to be separated from the land. Thus where trees sold so that they could be cut out and separated from the land and then taken away by the buyer, it was held that there was a contract for sale of movable property or goods (Kursell vs Timber Operators & Contractors Ltd.). But contracts for sale of things ‘forming part of the land itself’ are not contracts for sale of goods. 
The District Consumer Protection Council: Section 8-A as inserted by the Consumer Protection (Amendment) Act, 2002. The State government shall establish for every district, by notification, a council to be known as the District Consumer Protection Council.
Membership: The District Consumer Protection Council (hereinafter referred to as the District Council) shall consist of the following members:
a.       The collector of the district (by whatever name called) who shall be its Chairman; and
b.      Such number of other official and non-official members representing such interest as maybe described by the state government.
Objects of the District Council: The Objects of every District Council shall be to promote and protect within the district the rights of consumers laid down in the clause (a) to (f) of Section 6 (National Consumer Protection Council)
District Consumer Disputes Redressal Forums:  At the lowest level are the District Forums and these are established in each District and have jurisdiction to entertain complaints where the value of goods or services and the compensation if any, claimed does not exceed Rs.20,00,000 (TWENTY LAKHS), and a complaint can be filed in a District Forum within the local limits of which
a)      The opposite party resides or
b)      Carries on his business or works for gain or
c)       Where the cause of action arises.
Minor: The term “minor/minors” is no where defined in the Contract Act. But taking into consideration the wordings of Section 11, a minor is a person who has not attained the age of 18 years. The age of majority of a person is regulated by Section 3 of the Indian Majority Act, 1857.  But where a guardian has been appointed to the person or property of the minor by a Court or when the minor’s property is under supervision of Courts of wards, the age of majority of such a person is 21 years and not 18 years.
Section 11 of the Act expressly forbids a minor from entering into a Contract. The effect of this express prohibition is that any contract entered into by a minor is void ab initio regardless of whether the other party was aware of his minority or not.
Promissory Note: Promissory Note, in the law of negotiable instruments, is a written instrument containing an unconditional promise by a party, called the maker, who signs the instrument, to pay to another, called the payee, a definite sum of money either on demand or at a specified or ascertainable future date. The note may be made payable to the bearer, to a party named in the note, or to the order of the party named in the note.
According to the Section 4 of the Negotiable Instrument Act, 1881 “A Promissory Note is an instrument in writing not being a bank note or a current note containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or do the order of, a certain person, or to the bearer of the instrument.”
In other words, we can say that a promissory note is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand to the payee, or at fixed or determinable future time, certain in money, to order or to bearer.
6. (a) Write ‘Yes’ or ‘No’:                                              1x5=5
1)      Agreement with a minor is void.                       True
2)      Parties to a contract must be capable of entering into a contract.                      True
3)      An unpaid seller obtains right against goods only.                     False, also right against the buyer
4)      Any person purchasing goods for resale or other commercial purpose is not considered as a consumer. True                       


5)      According to Sale of Goods Act, 1930, money cannot be regarded as goods.  True, Actionable claim is also not considered as goods.
(b) Fill in the blanks:                                                      1x3=3
1)      The Consumer Protection Act was passed in 1986.
2)      Promise in a promissory note must be definite and Unconditional.
3)      Contract is defined under Section 2(h) of the Indian Contract Act.
(Old COURSE)
(Business Regulatory Framework)
Full Marks: 80
Pass Marks: 32
Time: 3 hours
1. Write short notes on (any four):                                           4x4=16
a)      Illegal agreement.
b)      Goods.
c)       Bill of Exchange.
d)      District Forum.
e)      Reserve Bank of India.
2. (a) “A contract is an agreement enforceable by law.” Explain.                                                              11
Ans: Meaning of Contract and Its essentials or (“All contracts are agreements, but all agreements are not contracts.” [Essentials of a Valid Contract] or “A Contract is an agreement enforceable by Law”)
Section 2 (h) defines ‘Contract’ as an agreement enforceable by law.  If we analyse the definition it has two components viz.
1. An agreement between two or more persons "To Do" or "Not to Do" something.
2. An enforceability of such an agreement at law i.e. personal rights and personal obligations created and defined by agreement must be recognized by law.
Section 2 (e) defines ‘agreement’ as “every promise and set of promises forming consideration for each other”. For a contract to be enforceable by law there must be an agreement which should be enforceable by law. To be enforceable, the agreement must be coupled with obligation. Obligation is a legal duty to do or abstain from doing what one promised to do or abstain from doing.  All contracts are agreements but for agreement to be a contract it has to be legally enforceable.
Section10 of the Act provide “All agreements are contracts if they are made by the free consent of the parties competent to contract for lawful object & are not hereby expressly declared void.”
An agreement in order to become a contract must be enforceable by law. Agreements, which do not fulfill the essential requirements of a contract, are not enforceable. Thus when an agreement enables a person to compel another to do something or not to do something it is called a contract. Thus all contracts are agreements but all agreements are not contracts. In order to become a valid contract an agreement must posses the following essential elements:
a)      Offer & Acceptance: There must be two parties to an agreement i.e. one making the offer & other party accepting it. Acceptance of must be unconditional & absolute. A part of an offer cannot be accepted. The terms of an offer must be definite. The acceptance must be in the mode as prescribed & must be communicated. The acceptor of an offer must accept it in the same way & same sense & at the same time as offered by the offeror i.e. there must be consensus ad idem.
b)      Intention to create legal relationship: When two parties enter into a contract their intention must be to create legal relationship. If there is no such intention between the parties, there is no contract between them. Agreements of a social or domestic nature to do not constitute contracts.
c)       Lawful consideration: An agreement to be enforceable by law must be supported by consideration. “Consideration” means an advantage or benefit which one party receives from another. It is the essence of bargain. The agreement is legally enforceable only when both parties give something or get something in return. An agreement to do something without getting anything in return is not a contract. Contract must be in cash or kind.
d)      Capacity to Contract-Competency: The parties competent to contract must be capable of contracting i.e. they must be of the age of majority, they must be of sound mind & they must not be disqualified from contracting by any law to which they are subject to.  An agreement with minors, lunatics, drunkards, etc. is not contract & does not get a legal title.
e)      Free Consent: It is necessary between the contracting parties to have a free & genuine consent to an agreement. The consent of parties is said to be free when the contracting parties are of the same mind on the materials of a contract. They must mean the same thing at the same time the parties must not enter into a contract under undue influence, coercion, misrepresentation etc. If these flaws are present in an agreement it does not become a contract.
f)       Lawful object: The object of an agreement must be lawful. It should not be illegal, immoral or it should not oppose public policy. If an agreement suffers from a legal flaw with respect to object it is not enforceable by law & so it is not a contract.
g)      Agreement not declared void: For an agreement to be a contract it is necessary for the agreement must not be expressly declared void by any law in force in the country.
h)      Possibility & Certainty of performance: The terms of an agreement must not be vague or indefinite. It should be certain. The agreement must be to do a thing which is possible. For e.g. an agreement to sell a car for Rs. 100/- if sun does not rise tomorrow. This agreement is impossible & so not enforceable by law. 
Thus, agreement is the genus of which contract is the specie.
Or
(b) “No consideration, no contract.” Explain. Discuss the exceptions to this rule.                             4+7=11
Ans: Consideration and Its Essentials
Section 2 (d) of Indian Contract Act, 1872, defines consideration as “When at the desire of the promisor the promise or any other person has done or abstained from doing or does or abstains from doing something, such act abstinence or promise is called a consideration for the promisor.”
Consideration is based on the term ‘quid-pro-quo’ which means ‘something in return’. When a person makes a promise to other, he does so with an intention to get some benefit from him. This act to do or to refrain from doing something is known as consideration.
Consideration is an advantage or benefit which moves from one party to another. It is the essence of bargain. It is the reciprocal promise i.e. to do something or abstain from doing something in return of a promise. It is necessary for an agreement to be enforceable by law. In consideration both the parties give something & get something in return. It may be in cash or kind.
The following are the rules related to the consideration
(i) Consideration must move at the desire of promisor. If it is done at the instance of a third party without the desire of the promisor, it is not consideration. Act done at the desire of a third party is not a consideration. Act must be done voluntarily at the desire of the promisor.
(ii) It may move from the Promisee or any other person in the Indian Law so that a stranger to the consideration may maintain a suit. A consideration may move from the promise or any other person. Consideration from a third party is a valid consideration. Under English Law, however, consideration must move from the Promisee only.
(iii) Consideration may be past, present or future. The words used in Section 2(d) are “has done or abstained from doing (past), or does or abstains from doing (present), or promises to do or to abstain from doing (future) something” This means consideration may be past, present or future.
(iv) There must be mutuality in consideration.
(v) It must be real & not illusory, infinite or vague. Although consideration need not be adequate, it must be real, competent and of some value in the eye of law. Physical impossibility, legal impossibility, uncertain consideration & illusory consideration.
(vi)  Consideration must not be unlawful, illegal, immoral or opposed to public policy. The consideration given for an agreement must not be unlawful. Where it is unlawful, the courts do not allow an action on the agreement.
(vii) Consideration need not be adequate. Consideration as already explained means “something in return”. This “something given”. The law simply provides that a contract should be supported by consideration. So long as consideration exists, the courts are not concerned as to its adequacy, provided it is of some value. “The adequacy of the consideration is for the parties to consider at the time of making the agreement, not for the court when it is sought to be enforced.”
Exceptions to the rule ‘No consideration no contract’
The general rule is that an agreement made without consideration is void. Section 25 deals with the exceptions to this rule. In such cases the agreements are enforceable even though they are made without consideration.  These cases are:
a) Love and Affection [Section 25(1)]: Where an agreement is expressed in writing and registered under the law for the time being in force for the registration of documents and is made on account of natural love and affection between the parties standing in a near relation to each other, it is enforceable even if there is no consideration. 
For e.g. F, for natural love and affection, promises to give his son A, Rs. 1 Lac. F puts this promise in writing and registers it. This is a contract.
b) Compensation for voluntary services [Section 25(2)]: A promise to compensate wholly or part a person, who has already voluntarily done something for the promisor, is enforceable, even though without consideration. A promise to pay for a past voluntary service is binding. 
For e.g. A says to B’ At the risk of your life you saved me from a serious accident. I promise to pay you Rs.1, 000.” There is a contract between A and B even though there is no consideration.
c) Promise to pay a time barred debt [Section 25(3)]: A promise by a debtor to pay a time barred debt is enforceable provided it is made in writing and is signed by the debtor or by his agent generally or specifically authorized in that behalf. The debt must be such “of which the creditor might have enforced payment but for the law for limitation of suits”
For e.g. D owes C Rs.1, 000 but the debt is barred by the Limitation Act. D signs a written promise to pay C Rs.500 on account of the debt. This is a valid contract.
d) Agency (Section 185): No consideration is necessary to create an agency.
e) Completed Gift (Explanation 1 to Section 25): The rule ‘No consideration no contract’ does not apply to completed gifts. This rule shall not affect the validity, as between donor and donee, of any gift actually made.
3. (a) Discuss with example, the implied conditions under the Sale of Goods Act, 1930.                                11
Ans: Implied Conditions:
1. Condition as to title: In a contract of sale, unless the circumstances of the contract are such as to show a different intention, there is an implied condition on the part of the seller that –
(a) In the case of a sale, he has a right to sell the goods and
(b) In the case of an agreement to sell, he will have a right to sell the goods at the time when the property is to pass.
2. Sale by description: Where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description (Section 15). If you contract to sell peas, you cannot oblige a party to take beans.
3. Sale by sample: In a case of a contract for sale by sample, there is an implied condition:


(a) That the bulk shall correspond with the sample in quality
(b) That the buyer shall have a reasonable opportunity of comparing the bulk with the sample.
(c) That the goods shall be free from any defect, rendering them unmerchantable.
4. Sale by description as well as sample: Section 15 further provides that if the sale is by sample as well as by description, the goods must correspond both with the sample and with the description.
5. Condition as to quality or fitness: Normally, in a contract of sale there is no implied condition as to quality or fitness of goods for a particular purpose. The buyer must examine the goods thoroughly before he buys them in order to satisfy himself that the goods will be suitable for the purpose for which he is buying them. However, in the following instances, the condition as to quality or fitness applied –
(a) Where the buyer, expressly or by implication makes known to the seller the particular purpose for which he needs the goods and depends upon the skill and judgement of the seller whose business it is to supply goods of that description, there is an implied condition that the goods are reasonable fit for that purpose. [Section 16(1)]. For e.g. an order was placed for some Lorries to be used “for heavy traffic in a hilly area”. The Lorries supplied were unfit and broke down. Held, there is a breach of condition as to fitness.
(b) An implied condition as to quality or fitness for a particular purpose may also be annexed by the usage of trade. [Section 16(3)]
6. Condition as to merchantability: Where goods are bought by description from a seller who deals in goods of that description, here is an implied condition that the goods are of merchantable quality. This means that the goods should be such as are commercially saleable under the description by which they are known in the market at their full value.
7. Condition as to wholesomeness: In the case of eatable and provisions, in addition to the implied condition as to merchantability, there is another implied condition that the goods shall be wholesome. For e.g. C bought a bun containing a stone which broke one of C’s teeth. Held, he could recover damages.
8. Condition implied by custom: An implied condition as to quality or fitness for a particular purpose may also be annexed by the usage of trade in the locality concerned.
Or
(b) Elucidate the differences in between sale and agreement to sell.                                    11
Ans: Difference between ‘Sale’ and ‘agreement to sell’.
According to Section 4 of the Sale of Goods Act, 1930, ‘A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in the goods to the buyer for a price.’
The term ‘Contract of sale’ is a generic term and includes both a sale and an agreement to sell. Where under a contract of sale, the property in the goods is transferred from the seller to the buyer (i.e. at once), the contract is called a ‘sale’ but where the transfer of the property in the goods is to take place at a further time or subject to some condition thereafter to be fulfilled, the contract is called an ‘agreement of sell’. [Section 4(3)].
Difference between Sale and Agreement to Sale:-
Basis
Sale
Agreement to Sell
Definition
Where under a contract of sale, the property in the goods is transferred from the seller to the buyer (i.e. at once); the contract is called a ‘sale’.
where the transfer of the property in the goods is to take place at a further time or subject to some condition thereafter to be fulfilled, the contract is called an ‘agreement of sell’
Transfer of ownership
Transfer of ownership of goods takes place immediately.
Transfer of ownership of goods is to take place at a future time or subject to fulfillment of some condition.
Executed contract or Executory contract
It is an executed contract because nothing remains to be done.
It is an Executory contract because something remains to be done.
Conveyance of property
Buyer gets a right to enjoy the goods against the whole world including seller.
Buyer does not get such right.
Transfer of risk
Transfer of risk of loss of goods takes place immediately because ownership is transferred.
Transfer of risk of loss of goods does not take place because ownership is not transferred.
Right of seller against the buyer’s breach
Seller can sue the buyer for the price, even though the goods are in his possession.
Buyer can sue the seller for damages only.
Rights of buyer against the seller’s breach
Buyer can sue the seller for damages and can sue the third party who bought those goods for goods.
Buyer can sue the seller for damages only.
Effect of insolvency of seller having possession of goods.
Buyer can claim the goods from the official receiver or assignee because the ownership of goods has transferred to the buyer.
Buyer cannot claim the goods, even when he has paid the price because the ownership has not transferred to the buyer. The buyer who has paid the price can only claim rateable dividend.
Effect of insolvency of the buyer before paying the price.
Seller must deliver the goods to the official receiver or assignee because the ownership of goods has transferred to the buyer. He can only claim rateable dividend for the unpaid price.
Seller can refuse to deliver the goods unless he is paid full price of the goods because the ownership has not transferred to the buyer.
Right in rem / personam
It is a right in rem i.e. right against the whole world.
It creates a right in personam i.e. right against a person.
In risk of destruction of goods.
Buyer has to bear the risk even if possession is with the seller as ownership has passed.
Seller has to bear the risk, even if possession is with the buyer, as ownership has not passed.

4. (a) Explain ‘crossing of cheque’. Show the various types of crossing with examples.                  4+7=11
Ans: Crossing of a cheque
A cheque is said to be crossed when two parallel transverse line with or without any words are drawn on the left hand corner of the cheque. The negotiability of a cheque doesn’t affect for crossing. Crossing of a cheque refers to the instruction to the banker relating to the payment of the cheque. A crossing is the direction to the paying banker that the cheque should be paid only to a banker. Crossing of cheque is very safety because the holder of the cheque is not allowed to cash it across the counter. A crossed cheque provides protection not only to the holder of the cheque but also to the receiving and collecting bankers.
The following parties can cross a cheque:
d)      The Drawer: The drawer of a cheque may cross a cheque before issuing it. He may cross it generally or specially.
e)      The Holder: The holder of a cheque can cross in the following way:
Ø  The holder may cross an open cheque generally or specially.
Ø  The holder may specially cross a generally crossed cheque.
Ø  The holder may add the words “Not-Negotiable” in a generally or specially crossed cheque.
f)       The Banker: The banker to whom the cheque is crossed specially may again cross it especially to another banker's agent, for collection. This is called double special crossing.
Types of crossing:
1. General crossing: A general crossing is a crossing where a cheque simply bears two parallel lines with or without any words and without any specification. According to Sec. 123 of the Negotiable Instrument Act, 1881, “When a cheque bears across its face an addition of the words. “and company” or any abreactions thereof between two parallel transverse line or of two parallel transverse lines simply either or without the words, “Not Negotiable” that addition shall be deemed a general crossing. Simplify, In case of General crossing words such as “and company”, “not Negotiable”, “Account payee” etc. may be inserted between the lines.
A general crossing cheque protects the drawer and also the payee or the holder thereof. Whenever a drawer desires to make payment to an outstation party, he can cross the cheque so that even if the cheque is lost, only a piece of paper is lost and nothing beyond that. If by any chance, it is encashed by a third and unauthorized person, it is possible to find out to whose account the amount is credited and the unauthorized person can be identifies and suitable action taken against him.
2. Special crossing: Section 124 of the Negotiable Instruments Act, 1881 defines special crossing as “where a cheque bears across its face, an addition of the name of a banker with or without the words “not negotiable”, that addition shall be deemed a crossing and the cheque shall be deemed to be crossed specially and to be crossed to that banker.”
Thus, in case of special crossing, the name of a particular bank is written in between the parallel lines. The main implication of this type of crossing is that the amount of the cheque will be paid to the specified banker whose name is written in between the lines. Special crossing is in a particular bank and by special crossing, he is assured of double safety, safety to the drawer and safety to the payee.
3. Account payee crossing: This type of crossing is done by adding the words ‘Account Payee’. This can be made both in general crossing and special crossing. The implication of this type of crossing is that the collecting banker has to collect the amount of the cheque only for the payee. If he wrongly credits the amount of the cheque to another account, he will be held responsible for the same. 
4. Not negotiable crossing: When the words ‘not negotiable’ is added in generally or specially crossed cheques, it is called not negotiable crossing. A cheque bearing not negotiable crossing cannot be transferred. If a cheque bearing ‘Not negotiable crossing’ is transferred, care must be taken regarding the ownership of title of both the transferor and transferee.
Or
(b) What are the distinctions between cheque and bill of exchange?                                     11
Ans: Difference between cheque and bills of exchange:
Basis
Cheque
Bills of Exchange
Drawee
A cheque is always drawn on a bank or banker.
A bill of exchange can be drawn on any person including a banker.

Acceptance
A cheque does not require any acceptance.
A bill must be accepted before the Drawee can be made liable upon it.
Payment
A cheque is payable immediately on demand without any days of grace.
A bill of exchange is normally entitled to three days of grace unless it is payable on demand.

Stamp
A cheque does not require any stamp.

A bill of exchange must be stamped.
Protection
A banker is given statutory protection with regard to payment of cheques in certain circumstances.
No such protection is available to the Drawee or acceptor of a bill of exchange.

Crossing
A cheque may be crossed.
Bill can never be crossed.
Presentment
If not presented to the banker for payment, it does not discharge the drawer unless he suffers injury or damages.
Drawer is discharged, if bill is not presented for payment to the acceptor.

 Noting and Protesting
A cheque is not required to be noted or protested for dishonour.
A bill of exchange may be noted or protested for dishonour.
5. (a) Elucidate National Commission and its composition.                                                          11
Ans: The National Consumer Protection Council: The Central Government may, by notification, establish with effect from such date as it may specify in such notification, a council to be known as the Central Consumer Protection Council (hereinafter referred to as the Central Council).
a)      The Minister in charge of consumer affairs in the Central Government, who shall be its Chairman, and
b)      Such number of other official or non-official members representing such interests as may be prescribed.
The objects of the Central Council shall be to promote and protect the rights of the consumers such as-
a)      The right to be protected against the marketing of goods [and services] which are hazardous to life and property;
b)      The right to be informed about the quality, quantity, potency, purity, standard and price of goods 1[or services, as the case may be], so as to protect  the consumer against unfair trade practices;
c)       The right to be assured, wherever possible, access to a variety of goods and services at competitive prices;
d)      The right to be heard and to be assured that consumers'  interests will receive due consideration at appropriate forums;
e)      The right to seek redressal against unfair trade practices 1[or restrictive trade practices] or unscrupulous exploitation of consumers; and
f)       The right to consumer education.
National Consumer Disputes Redressal Commission: The National Consumer Disputes Redressal Commission has jurisdiction to entertain complaints where the value of the goods or services and compensation if any claimed exceeds Rs.1,00,00,000 (ONE CRORE)
Or
(b) Explain how to file complaint under the Consumer Protection Act.                                  11          
Ans: Complaint
In Section 2 (1) (c) "complaint" means any allegation in writing made by a complainant that:
a)      an unfair trade practice or a restrictive trade practice has been adopted by any trader;
b)      the goods bought by him or agreed to be bought by him suffer from one or more defect;
c)       the services hired or availed of or agreed to be hired or availed of by him suffer from deficiency in any respect;
d)      a trader has charged for the goods mentioned in the complaint a price in excess of the price fixed by or under any law for the time being in force or displayed on the goods or any package containing such goods;
e)      goods which will be hazardous to life and safety when used are being offered for sale to the public in contravention of the provisions of any law for the time being in force requiring traders to display information in regard to the contents, manner and effect of use of such goods.
With a view to obtaining any relief provided by or under this Act; the essential features of a “Complaint” are:
a)      The complaint must be in writing;
b)      The complaint must be made with a view to obtain any relief under the Act;
c)       The Complaint must make any of the five allegations stated under section 2 (1) (c), against a trader or manufacturer;
d)      The complaint must be filed in a manner prescribed under law i.e. under section 12 of the Act.
e)      The complaint must be filed before appropriate consumer commission having jurisdiction to entertain complaint. Section 17 & Section 21.
Ordinarily, the complaint must contain name, description and address of the Complainant and the purpose for which he bought the goods. It must also contain the name, description and address of the trader or manufacturer. It must state clearly, the facts of the case e.g. when the things was purchase? For what purpose? When the things were consumed or used? Defects in goods or deficiency in the service etc., what injury suffered etc. These facts must be supported by all relevant and proper documents. Lastly, the complaint must mention the relief or relief’s asked for against the trader or manufacturer i.e. the opposite party.
Procedure for Filing Complaint
The complainant or his authorised agent can present the complaint in person or send it by post to the appropriate forum or Commission, as the case may be. No fee is charged for filing a complaint before the District Forum or the State Commission or the National Commission.
Important Points
a)      Each of the members and the opposite parties are to be sent a copy of the complaint.
b)      The complaint himself should possess two or more copies of the complaint.
c)       If the complainant desires so he can send a copy to an active voluntary consumer organisation.
d)      A complaint should always be supported and verified by an affidavit.
The time period within which a complaint must be filed
The District Forum, the State Commission, or the National Commission shall not admit a complaint unless it is filed within two years from the date on which the cause of action has arisen. However, where the complainant satisfies the District Forum/State Commission, that he had sufficient cause for not filing the complaint within two years, such complaint may be entertained by it after recording the reasons for condoning the delay.
Decision Time: The District Forum, State Commission and National Commission are required to decide complaints, as far as possible, within three months from date of notice received by the opposite parties. For those complaints which require laboratory analysis or testing of commodities, the period is extended to five months. 
6. (a) Elucidate the obligations of exporter of goods and services under FEMA, 2000.                     12
Or
(b) Write in short:                                           6x2=12
                                i.            Export of goods and services.
                              ii.            Current account transaction.
7. Fill in the blanks:                                          1x8=8
a)      Indian Contract Act was passed in 1872.
b)      A contract is not discharged by commercial impossibility.
c)       An unpaid seller obtains right against buyer.
d)      Condition is a stipulation essential to the main purpose of the contract.
e)      The Negotiable Instruments Act of India is applicable from 1881.
f)       There are three Parties in a Bill of Exchange.
g)      The Consumer Protection Act was passed in 1986.

h)      FEMA, 2000 deals with exchange of goods and services only. 

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