Business Law - Finalised Notes

7/31/2019 Business Law - Finalised Notes

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Business Law

Module I Companies Act, 1956

1. Define a Company. Explain its characteristics. What is meant by Lifting of Corporate Veil? Under

what circumstances can it be lifted?

A Company is an incorporated association which is an artificial person created by law having

a separate entity with perpetual succession and a common seal

Definition - Lindley

An Association of many persons who contribute money or moneys worth to a common stock

and employ it in some common trade or business (i.e., for a common purpose) and who share the

profit or loss arising therefrom. The common stock so contributed is denoted in money and is the

capital of the company. The persons who contribute it, or to whom it belongs, are members. The

proportion of capital to which each member is entitled is his share. Shares are always transferable

although the transfer them is often more or less restricted

Characteristics of a Company

Voluntary Association

Separate Legal Entity

Limited Liability

Perpetual Succession

Common Seal

Transferability of Shares.

Own and Hold property in its own name

Capacity to be sue and sued

Representative Management

When a Company has been formed and registered under the Act, all dealings with the Company willbe in the name of the Company and the persons behind the Company will be disregarded, however

important they may be. This principle is referred to as the Veil of Incorporation

In case of a dishonest and fraudulent use of the facility of incorporation, the law will lift the

corporate veil and identify the persons who are behind the curtain and make them responsible for

the fraud and improper conduct. This is called as Lifting of Corporate Veil.


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Cases falling under statutory provisions

Reduction in membership below statutory minimum

Misrepresentation in Prospectus

Failure to refund Application Money

Mis-description of Companys name

Subsidiary Company

Fraudulent conduct

Non-payment of tax

Ultra vires Acts

Cases falling under judicial interpretation:

Determination of the character; whether it is an enemy Company or not

Protection of Revenue

Prevention of fraud or improper conduct

Where the corporate faade is really only an agency and instrument

Where the doctrine conflicts with public policy

Avoidance of Welfare legislation

Quasi Criminal cases

Lifting of Corporate Veil:

In case of a dishonest and fraudulent use of the facility of incorporation, the law will lift the

corporate veil and identify the persons who are behind the curtain and make them responsible for

the fraud and improper conduct. This is called as Lifting of Corporate Veil.

2. Explain the basic characteristics of a Private Limited Company and state, how it differ from a

Public Limited Company?

Characteristics of Private Limited Company:

A Private company is normally what the Americans call a close corporation

According to Sec 3 (1) (iii),l a private company means a company which has a minimum paid-up

capital of Rs.1,00,000 or such higher paid-up capital as may be prescribed, and by its Articles


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Restricts the right to transfer its shares.

Limits the number of members to fifty.

Prohibits any invitation to the public to subscribe to shares or debentures of the company.

Prohibits any invitation to deposits from persons other than its members, Directors or their

relatives.

It is a private company which is a subsidiary of a Public Company.

Distinction between a public company and a private company:

1. Minimum Capital :

Private: Minimum 1, 00,000

Public: Minimum 5, 00,000

2. Minimum Number :

Private: Minimum number required to form a public company is 2

Public: Minimum number required to form a public company is 7

3. Maximum Number:

Private: Maximum number of members cannot exceed 50

Public: There is no restriction on maximum number of members

4. Number of Directors:

Private: Must have at least 2 Directors

Public: Must have at least 3 directors

5. Restriction on appointment of directors:

Private: Need not registrar consent to act as directors or sign an undertaking

Public: The Directors must file with the Registrar consent to act as directors or sign an

undertaking for their qualification shares.

6. Restriction on invitation to subscribe for shares:

Private: Private Company by its articles prohibits any such invitation to public.

Public: A public company invites the general public to subscribe for the shares in, or the

debentures of the company.


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7. Transferability of share/ debentures:

Private: Transferring of shares and debentures is restricted by the Articles

Public: The shares and debentures are freely transferable (Sec. 82)

8. Special Privileges:

Private: Enjoys some special privileges, Public : enjoys no such privileges.

9. Quorum:

Private: 2 members present for a private company for a meeting of the company

Public: Articles of a company do not provide for a larger quorum, 5 members personally

present in the case of a public company are quorum for a meeting of a company

10.Managerial remuneration:

Private: There is no such restriction applies for Managerial remuneration

Public: The Managerial remuneration cannot exceed 11 percent of the net profits

(Sec.174)

3. What do you mean by the term Memorandum of Association? State the requirements, which must

be stated in the Memorandum of Association. Explain the provisions regarding alteration of the Object

Clause and Situation Clause.

Memorandum It is in fact a companys charter. It defines its constitution and the scope of the

powers with which it has been established under the Companies Act

Contents of Memorandum of Association:

Name Clause Limited for Public and Private Limited for Private company

Situation Clause - This act provides that the company must have a registered office so that the

registrar may be able to send notice etc. to the company at the registered office (gives details

about where and which state the company is located

Objects Clause - This clause is quite important and must be very carefully drafted as it

determines the activities of the company. In the object clause each and every detail of activities

of the business to be carried out must be laid down. Once the object clause is completed, it

becomes very difficult to make any amendment. The value of the shares, the allotment money

must be given in detail.

Liability Clause - A declaration that the shareholders liability is limited.

Capital Clause - This clause must contain a statement as to the amount of capital with which the

company proposes to be registered and the division thereof into shares at certain fixed amount.


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Alteration of the Object Clause and Situation Clause:

Sec. 17. The objects clause is the most important clause in the Memorandum of Association. The legal

personality of a company exists only for the particular purposes of incorporation as defined in the

objects clause.

The power of alteration of objects is subject to two limits, namely

1. Substantive or Physical Limit, and

2. Procedural Limited

Substantive or Physical Limit: By Sec.17 (1), the objects of a company may be altered by special

resolution so as to enable the company

a. To carry on its business more economically or more efficiently

b.

To attain its main purpose by new or improve means

c. To enlarge or change the local area of its operations

d. To carry on some business which may conveniently or advantageously by

Combined with the objects specified in the Memorandum

Procedure for alteration:

a. Special resolution

b.

Copy of special resolution to be filed

c. Certification of registration

d. Change in liability clause

e. Change in capital clause

3. What do you mean by the term Article of Association? In what manner can the Articles of

Association of a Company be altered? What are the limitations of such an alteration?

Articles of Association:

The Articles of Association are the rules, regulations and bye-laws for the internal

management of the affairs of the Company. They are framed with the object of carrying out the

objects as set out in the Memorandum of Association. The Articles should not contain anything

which is inconsistent with either the provisions of the Memorandum of Association or of the

Companies Act.


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Contents of articles:

1. Share capital, rights of shareholders, variation of these rights, and payment of commissions share

certificates

2. Lien on shares, 3. Calls on shares 4. Transfer of shares

5. Transmission of shares 6. Forfeiture of shares 7. Conversion of shares into stock

8. Share warrants 9. Alteration of capital 10. General meetings and proceedings

11. Voting rights of members, voting and poll, proxies 12. Manager 13. Secretary

14. Directors, their appointment, remuneration, qualifications, powers and proceedings of Board of

Directors, Dividends and reserves

15.Accounts, audit and borrowing powers 16. Capitalization of profits 17. Winding up

Alteration of Articles: According to Sec. 31. A company may, by passing a special resolution, alter its

Articles any time. Again any articles may be adopted which could have been lawfully included originally.

A copy of every special resolution altering the Articles shall be filed with the Registrar within 30 days of

its passing and attached to every copy of the Articles issued thereafter. Any alteration so made in the

Articles shall be as valid as if originally contained in the Articles.

Limitation of Alteration:

Must not be inconsistent with the Act ; Must not conflict with the memorandum ; Must not

sanction anything illegal ; Must be for the benefit of the company ; Must not increase liability of

members ; Alteration by special resolutions only ; Approval of Central Government when a publiccompany is converted into a private company ; Breach of contract ; No power of the Tribunal to amend

Articles ; Alteration may be with retrospective effect.

15.Explain Doctrine of Constructive Notice and Doctrine of Indoor Management. Enumerate the

exceptions to Doctrine of Indoor Management

Doctrine of Constructive Notice:

Every outsider dealing with a company is deemed to have notice of the contents of the

Memorandum and the Articles of Association. These documents, on registration with the Registrar,

assume the character of public documents. This is known as constructive notice of Memorandumand Articles.

Doctrine of Indoor Management:

There is one limitation to the doctrine of constructive notice of the Memorandum and the

Articles of a company. The outsiders dealing with the company are entitled to assume that as far as

the internal proceedings of the company are concerned, everything has been regularly done.


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They are presumed to have read these documents and to see that the proposed dealing is not

inconsistent therewith, but they are not bound to do more; they need not inquire into the regularity

of the internal proceedings as required by the Memorandum and the Articles. They can presume

that all is being done regularly. This limitation of the doctrine of constructive notice is known as the

Doctrine of Indoor Management or the rule in Royal British Bank v. Turquand, or just Turquand

Rule.

16.Classes of companies?

Chartered, Statutory and Registered Company

Limited by shares, Limited by Guarantees and Unlimited

Private and Public

Holding and Subsidiary

Government and Non-Government

Foreign, Investment, Financial and Association not for profit

17.Memorandum and Articles of Association?

Memorandum of Association:

Person dealing with the Company should know whether the contract relation he

contemplates entering with the Company is one relating to a matter within its corporate

objects.

Contents of Memorandum Association:

Name Clause

Situation Clause

Objects Clause

Liability Clause

Capital Clause

Association Clause

Articles of Association: The Articles of Association are the rules, regulations and bye-laws for the

internal management of the affairs of the Company. They are framed with the object of carrying out the

objects as set out in the Memorandum of Association. The Articles should not contain anything which is

inconsistent with either the provisions of the Memorandum of Association or of the Companies Act.


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Contents of Articles of Association:

Exclusion wholly or in Part of Table A

Adoption of Preliminary contracts.

Number and value of shares.

Allotment of shares

Calls on shares

Lien on shares.

Transfer and Transmission of shares

Forfeiture of shares

Alteration of capital

Share certificate

Conversion of shares into stock

Voting rights and proxies

Meetings

Directors, their appointment, etc.

Borrowing powers

Dividends and reserves

Account and audit

Winding up.

Alteration of Articles: Power to alter the Articles is vested with the company under section 31. A

Company cannot divest itself of the power to alter Articles. Alteration is to be effected by special

resolution passed by the shareholders.

18.Explain Doctrine of Ultravires?

Ultra means beyond. Vires means powers. Ultravires a Company means an act done beyond

the legal power and authority of the Company. An act Ultravires the Companies Act is illegal and

void. An act ultra vires the Company is void.

Purpose of Doctrine: To protect the shareholders and To safeguard the interest of the creditors


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19.Explain of Doctrine of Constructive Notice?

The MoA and AoA are registered with the Registrar of Companies. The RoC is a public

office and consequently they are public documents open and accessible to all. Any person

dealing with the Company is persumed to have read the MoA and AOA.irrespective of whether

he actually reads it or not. This is called as Doctrine of Constructive Notice. If a person dealswith the Company and the transaction is inconsistent with these documents, he cannot plead

ignorance of the provisions of these documents.

20.Explain Doctrine of Indoor Management?

This doctrine is an exception to the doctrine of constructive notice.

According to it, persons dealing with the Company are persumed to have read the registered

documents and to see that the proposed dealing is not inconsistent therewith, but they are not

bound to do more; they need not enquire into the regularity of internal proceedings as required

by MoA and AoA. They can presume that all this is being done regularly

21.Explain in detail the Incorporation of companies?

In the case of a public company with or without limited liability any 7 or more persons can

form a company by subscribing their names to memorandum and otherwise complying with

the requirements of the Companies Act, 1956.

In exactly the same way, 2 or more persons can form a private company [Section 12].

Persons who form the company, who conceive the idea of forming the company are known

as promoters. They take all necessary step for its registration.

(a) Lawful purpose: The essence of validly incorporated company is that it must consist of a

particular number of persons and be an association for a lawful purpose. Unless the purpose

appears to be unlawful ex facie or is transparently illegal or prohibited by way ofstatute, it

cannot be regarded as an unlawful purpose.

(b) Applying for the name: The promoters of the company should decide upon at least three

suitable names in order of preference to afford flexibility to the Registrar to decide the

availability of the name.

(c)Documents to be filed:

After getting the name approved, three copies of a approved

MOA and AOA along with the registration and filing fee, documents like form 1,18,32 and

consent etc. and prescribed fees, are to be filed with the Registrar.

(d) Subscribing their names: Subscribing name means signing the names. Section 15

stipulates that the Memorandum should be signed by each subscriber who should add his

address, description and occupation in the presence of one witness.


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(e) Certificate of incorporation: Upon the registration of the documents mentioned earlier

and the payment of the necessary fees, the Registrar of Companies issues a certificate that

the company is incorporated, and in the case of a limited company that it is limited.

(f) Commencement of business

(g) Statement in Lieu of Prospectus: If a public company does not issue a prospectus inviting

the public to purchase its share because, the directors think they can sell the shares even

without the issue of the prospectus, it can do so.

22.Explain the types of Shares?

Types of Share Capital

Preference Shares

Equity Shares

a) With voting rights, or

b) With differential rights as to dividend, voting or otherwise in accordance with rules and

subject to such conditions as may be prescribed.

Preference Shares:

That part of the capital of the Company which -

a) Carries a preferential right as to payment of dividend during the life time of the Company

b) Carries on winding up a preferential right to be repaid the amount of the capital paid up.

Types of Preference Shares :

On the basis of participation

a) Participating Preference Shares b) Non-participating Preference Shares

On the basis of Accumulation

a) Cumulative Preference Shares b) Non-cumulative Preference Shares

On the basis of Redemption

a) Redeemable Preference Shares b) Irredeemable Preference Shares

On the basis of Conversion

a) Convertible Preference Shares b) Non-convertible Preference Shares


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Equity Shares:

Voting rights at the general Meeting.

Right to control management of the company.

Right to share in profit.

On winding up, equity share capital is repaid after repayment to the creditors and

preference shareholders

Issue of Shares:

Public Issue, Right Issue

Issue at Discount and Premium

Module II Contract Act, 1872

1. What are the Essentials of a Valid Contract?

In terms of Section 10 of the Act, all agreements are contracts if they are

made by the free consent of the parties competent to contract, for a lawful

consideration and with a lawful object and are not expressly declared to be

void

Thus in order to create a valid contract, the following elements should be present:

Intention to create legal obligation through offer and acceptance should be present

Free consent of the parties is necessary.

Competency or capacity to enter into contract must be ensured.

Lawful consideration should be present and

Lawful object should be the subject matter of contract.

The above important elements may be further analyzed as under:

In the first place, there must be an offer and the said offer must have been accepted.

Such offer and acceptance should create legal obligations between parties. This

should result in a moral duty on the person who promises or offers to do something.

Similarly this should also give a right to the promisee to claim its fulfillment. Such

duties and rights should be legal and not merely moral.

2. Explain Offer and Acceptance in details?The word proposal and the word offer mean one and the same thing and

therefore are used interchangeably.

According to Section 2(a) of the Act a person is said to make a proposal when

he signifies to another, his willingness to do or abstain from doing anything with a

view to obtaining the assent of that other to such act or abstinence. Doing an act

and not doing an act both have the same effect in the eyes of the law, though one is

a positive act and the other is a negative act.


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Capacity to Contract

Every person who (a) has attained the age of majority (b) is of sound mind and (c) is

not otherwise disqualified from contracting, is competent to contract.

(a) Age of majority

In terms of Indian Majority Act 1875, every domiciled Indian attains majority on thecompletion of 18 years of age. However where a guardian is appointed by a court to

protect the property of a minor and the court takes charge of the property before the

person attains 18 years, then he or she would attain majority on completion of 21

years.

(b) Sound mind

A person will be considered to be of sound mind if he at the time of entering into a

contract is capable of understanding it and forming a rational judgment as to its effect

upon his interest. A person who is of unsound mind but occasionally of sound mind

can enter into a contact when he is in sound mind though for temporary periods.

For example a person who is in lunatic asylum during intervals of sound mind can

enter into contracts.

Similarly a person who is generally of sound mind, but occasionally of unsound mind

cannot enter into a contract when he is of unsound mind.

From the above it clears that the period of lucidity would be crucial as much as the

periods of lunacy. But the burden of proof of unsound mind is on the person who

challenges the validity of the contract.

4. Explain Free Consent and Discharge of Contract?In terms of section 13 of the Act, two or more persons are said to have

consented when they agree upon the same thing in the same manner. This is referred

to as identity of minds or consensus ad-idem. Absence of identity of minds would

arise when there is an error on the part of the parties regarding (a) nature oftransaction or (b) person dealt with or (c) subject matter of agreement .In such cases

there would be no consent.

Example: Where the persons refer to a ship of a name in the contract but

each of them had a different ship in mind though of same name, there is no identity

of minds and hence there is no consent.

Discharge of Contract: A contract may be discharged in eight ways as discusshereunder.

(a) Discharge by performance: Discharge by performance will take place

when there is (i) Actual performance or (ii) Attempted performance

Actual performance / discharge takes place when parties to the contract fulfill theirobligations within time and in the manner prescribed. Here each party has done what

he has to do under the contract. In attempted performance the promisor offers to

perform his part but the promisee refuses to accept his part. This is also known as

tender.

(b) Discharge by mutual agreement: Discharge also takes place where there

is substitution [novation] rescission, alteration and remission. In all these cases old

contract need not be performed.


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(c) Discharge by impossibility of performance:A situation of impossibility

may have existed at the time of entering into the contract or it may have transpired

subsequently (also known as supervening impossibility) Impossibility can arise

when

There is an unforeseen change in law.

Destruction of subject matter.

non-existence or nonoccurrence of a state of thing to facilitate

Happening of the Agreement.

Personal incapacity of the promisor.

Declaration of war.

(d) Discharge by lapse of time: Performance of contract has to be done

within certain prescribed time. In other words it should be performed before it is

barred by law of limitation. In such a case there was no remedy for the promisee. For

example where, then the debt is barred by law of limitation.

(e) Discharge by operation of law: Where the promisor dies or goes insolvent

there is discharge by operation of law.

(f) Discharge by breach of contract: Where there is a default by one party

from performing his part of contract on due date then there is breach of contract.

Breach of contract can be actual breach or anticipatory breach. Where a person

repudiates a contract before the stipulated due date, it is anticipatory breach. In both

the events, the party who has suffered injury is entitled for damages. Further he is

discharged from performing his part of the contract.

(g) A promisee may remit the performance of the promise by the promisor.

Here there is a discharge. Similarly the promisee may accept some other satisfaction.

Then again there is a discharge on the ground of accord and satisfaction

(h) When a promisee neglects or refuses to afford the promisor reasonable

facilities or opportunities for performance, promisor is excused by such neglect orrefusal.

5. Explain Breach of Contract? And remedy of breach ofcontract?

Anticipatory Breach of Contract

Where the promisor refuses to perform his obligation even before the specified time

for performance and signifies his unwillingness, then there is an anticipatory breach.

Leading case on this point is Huckster vs. Dela Tour. In this case defendant had

engaged the services of plaintiff as his attendant for a tour of the continent from June

1st on a fee of 10 per month for three months. However defendant changed his

mind before June 1st and informed the plaintiff that his services are not required.This is thus a case of anticipatory breach of contract. It was held in this case that

plaintiff could put an end to the contract even before the due date viz 1st June and he

need not wait for the date meant for performance of the promise.

Actual Breach of Contract

Where one of the parties breaches the contract by refusing to perform the promise

on due date, it is known as actual breach of contract. In such a case the other party to

contract obtains a right of action against the one who breached the contract.


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Measurement of Damages

Compensation for damages suffered by the promisee. The compensationcan be classified as:

those for damages that usually arise in the event of breach of contract and

those for damages which parties know and anticipated at the time of

entering into the contract called special damages. This kind of special

damages can be claimed only on previous notice.

However no compensation is payable for any remote or any indirect loss. While

assessing the damage the inconvenience caused to the aggrieved party on

account of non-performance should be assessed carefully, as the party entitled

for compensation, he has a duty to take steps to minimize the loss.

Liability for Damages:

The liability to pay damages is of four kinds. They are:

liability for special damages

liability for exemplary damages

liability to pay nominal damages and

liability to pay damages for deterioration caused by delay.

Now let us discuss each one of them-

Liability for special damages: Where it is understood between parties that in

the event

of breach of contract, there would be special damages also in addition to

normal damages, then special damages would be payable. In our given

example above if the tailor had informed about the special circumstances,

special damages would have become payable.

Liability for exemplary damages: These situations may arise mainly in two

cases namely(i) Breach of promise to marry and

(ii) Wrongful dishonor of cheques of customer by bank. In case of breach of

promise to marry the damages are awarded taking into account the injury or

humiliation which the aggrieved person would have suffered. In case of

wrongful dishonour of cheques the damages would depend upon the loss of

credit and reputation suffered by the customer. The damages could be very

heavy if loss had been suffered by a businessman, when compared to a non-

businessman customer.

Liability to pay nominal damages: Nominal damages are awarded in those

cases ofbreach of contract where no damage has been suffered. Such damages

are awarded only to establish the right to decree for breach of contract. Suchdamages are for nominal amounts like ten rupees or even ten paise.

Damages for deterioration caused by delay: Compensation can be recovered even

without notice for damages or deterioration caused to goods on account of delay by

carriers amounting to breach of contract. Here the word deterioration means not

only physical damages but also loss of opportunity.


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Module III Sale of Goods Act, 1930

1. What is sales and explain Formation of Contract of Sales?

The contract of sale of goods is a contract whereby the seller transfers

or agrees to transfer the property in goods to the buyer for a price.

There may be a contract of sale between one part owner and another.

A contract of sale may be absolute or conditional.

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

from the seller to the buyer, the contract is called a sale, but where the

transfer of property in the goods is to take place at a future time or

subject to some conditions thereafter to be fulfilled, the contract is

called an agreement to sell.

An agreement to sell becomes a sale when the timeelapses; all the

conditions subject to which the property in the goods is to be

transferred are fulfilled

Essential Requisites of Sale:

In order to constitute a sale, it is necessary that there should be an

agreement between the parties for the purpose of transferring title to

goods, which presupposed capacity to contract, that it must be

supported by money consideration, that as a result of transaction, the

property must actually pass in the goods. Unless all these elements are

present there would be no sale.

Formalities of a Contract of Sale:

A contract of sale is made by an offer to buy or sell goods for a price and

the acceptance of such price. A contract may provide for the immediatedelivery of goods or immediate payment of the price or both, or for the

delivery or payment by instalments. Or that the delivery of payments or

both shall be postponed.

Subject to the provisions of any law for the time being in force, a

contract of sale may be in writing or by the word of mouth or may be

implied from the conduct of the parties.

A statement or conduct inviting the making of an offer such as by

display of goods in a shop does not buy itself bind the shopkeeper to

accept the customers offer even at the price displayed or advertised.

Such invitation to treat therefore differs from an offer, which is

intended to be binding on the person making it and is capable of being

accepted without any further negotiation.

Where, however, the accessibility to goods in intended to an offer

capable of acceptance by customers act such as filling the petrol tank of

a car from a self service pump or choosing items in a self service shop or


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taking goods intended for sale for an automatic vending machine the

question of obtaining sellers assent does not arise.

A sale can be complete even without effecting immediate delivery and

immediate payment.

In a contract of sale, the title in goods passes immediately on thepayment of price while in an agreement to sale the title in goods passes

at a future time subject to conditions to be fulfilled thereafter

However, when the goods are accepted by the buyer and the price is

received by the seller the sale is deemed to be complete.

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2. Explain Conditions and Warranties?

Sec. 11 - Stipulation as to time Unless a different intentionappears from the terms of the contract, stipulation as to time of

payment are not deemed to be of the essence of a contract ofsale.

Whether any other stipulation as to time is of the essence of thecontract or not depends on the terms of the contract.

Section 12, Condition and Warranty,

1. A stipulation in a contract of sale with reference to goods which are

subject thereof may be a condition or a warranty.

2. A condition is a stipulation essential to the main purpose of the

contract, the breach of which gives rise to a right to treat the

contract as repudiated.

3. A warranty is a stipulation collateral to the main purpose of the

contract, the breach of which gives rise to a claim for damages but

not to a right to reject the

4. Whether a stipulation in a contract of sale is a condition or a

warranty depends in each case on the construction of the contract.

A stipulation may be a condition, though called a warranty in the

contract.

Express Conditions:The parties if they wish, may put the contents of any particular statement orpromise which passes between them on the same footing as the description of

the thing contracted for, so that if it is not made good by the party undertaking

it, the failure is deemed to be a total failure of the performance, and the other

is at least wholly discharged, and may in addition recover damages for such

failure of performance.


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Express Warranties:

There may also be, and there occur in common practice, auxiliary promises or

undertakings of which the breach is not intended to avoid the contract, but

only to give a remedy in damages. These are warranties in the proper sense,

as defined in sub-s (3).

A condition of sale, protecting a seller in respect of misdescription, may beoverridden by a warranty given before the sale takes place and damages may

be recovered for breach of the warranty.

Whether a statement is to be regarded as warranty must be objectively

ascertained by asking whether adopting the standard of a reasonable man,

the other party assumed that the representor was to be regarded as

undertaking legal liability for his assertions.

3. Difference between Sale and Bailment?

In a sale the property in goods is transferred from the seller to thebuyer.

In a bailment, there is only transfer of possession from the bailor to thebailee.

Bailment may be for safe custody, use, carriage from one place toanother.

In a sale the buyer can deal with the goods in any way he likes.

The bailee can deal with the goods according to the directions of thebailor.

4. Explain Hire Purchase Agreement? A hire purchase agreement is a contract whereby the owner of the

goods lets them on hire to another person called the hirer or hirepurchaser on the payment of rent to be paid in installments & upon anagreement that when a certain number of such installments is paid, theproperty in the goods will pass to the hirer.

The hirer may return the goods any time without any obligation to paythe balance rent.

A Hire purchase agreement is not a contract of sale but only a bailment& the property in the goods remains with the owner during thecontinuance of bailment.

It is a Bailment plus an agreement to sell.

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5. Difference between Sale and Hire Purchase Agreement?Sale Hire Purchase Agreement

Ownership is transferred from the Ownership is transferred from the

Seller to the buyer as soon as the Seller to the hire-purchaser onlyContract is entered into when a certain agreed number of

Installments is paid


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The Position of the buyer is that of the the position of the hire-purchaser

Owner is that of the bailee. Owner

The buyer cannot terminate the the hire-purchaser has an option

Contract & as such is bound to pay the to terminate the contract at anyprice of the goods stage & cannot be forced to pay

further installments

If the payment is made by the buyer the installments paid by the hire

In installments, the amount payable purchaser are regarded as hire

By the buyer to the seller is reduced charges & not as payment

For the payment made by the buyer is towards the price of the goods

toward the price of the goods till the option to purchase the

goods is exercised---------------------- -------------------------- --------------------- ------------------- --------------------- ------------------------ ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ------------------------ --------------------- ------------------------ ----------------------- --------------------------- --------------------- ------------------------ ------------------------- ---------------------- ------------------------ ----------------------- ------------------------ ------------------------ ----------------------- ------------------------ --------------------- -------------------------- ----------------------- ---------------------- ------------------------ ----------------------- ------------------------ ------------------------ ----------------------- ------------------------ ----------------------- ------------------------ ------------------------ --------------------- -------------------------- --------------------- ------------------------ ------------------------ ----------------------- ---------------------- ---------------------- ----------------------- ------------------------ ------------------------ ----------------------- ---------------------- ------------------------ ----------------------- ------------------------ ------------------------ ----------------------- ------------------------ -----------

6. Bail Agreement or Bailment?Bailment means handing over or change of possession.

As per Section 148 of the Act, bailment is an act whereby goods are delivered by one person toanother for some purpose, on a contract, that the goods shall, when the purpose isaccomplished, be returned or otherwise disposed of according to the directions of the persondelivering them.

The person who delivers the goods is the bailor and the person to whom the goods are deliveredis the bailee.

For example where X delivers his car for repair to Y, X is the bailor and Y is the bailee.The essential characteristics of bailment are-

(a) Bailment is based upon a contract. Sometimes it could be implied by law as it happens in the

case of finder of lost goods.

(b) Bailment is only for moveable goods and never for immovable goods or money.(c) In bailment possession of goods changes. Change of possession can happen by physicaldelivery or by any action which has the effect of placing the goods in the possession of bailee.(d) In bailment bailor continues to be the owner of goods as there is no change of ownership.

(e) Bailee is obliged to return the goods physically to the bailor. The bailee cannot deliver someother goods, even not those of higher value.

General issues

In bailment both custody and possession must change but not the ownership. But where aperson is in custody without possession he does not became a bailee. For example servants of a

master who are in custody of goods of the master do not become bailees.

Possession and custody do not however mean physical delivery of goods.Constructive delivery could also create a bailor and bailee relationship. This arises in situationswhere the bailee is already in possession of goods but agrees to be a bailee through a contract.


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Deposit of money in a bank is not bailment since the money returned by the bank would not beidentical currency notes.

Similarly depositing ornaments in a bank locker is not bailment, because ornaments are kept in a

locker whose key are still with the owner and not with the bank. The ornaments are in

possession of the owner though kept in a locker at the bank.

Different forms of Bailment:

Following are the popular forms of bailment

(1) Delivery of goods by one person to another to be held for the bailors use.

(2) Goods given to a friend for his own use without any charge(3) Hiring of goods.

(4) Delivering goods to a creditor to serve as security for a loan.(5) Delivering goods for repair with or without remuneration.

(6) Delivering goods for carriage.

Bailors Duties and Rights:The duties of bailor are spelt out in a number of Sections. These are enumerated hereunder:

(i) the bailor must disclose all defects/faults in the goods bailed. If the bailor does not disclose,he would be responsible for any loss or damage suffered by the bailee while keeping the goodsin his custody. The bailor is particularly responsible for defects in goods hired to bailee whetherbailor was aware of such defects or not.(ii) where the bailment is gratuitous, the bailor must reimburse the bailee for any expenditureincurred in keeping the goods.

(iii) the bailor should reimburse any expense which the bailee may incur by way of loss in the

process of returning the goods or complying with other directions for returning the goods.

(iv) the bailor must compensate the bailee for the loss or damage suffered by

the bailee that is in excess of the benefit received, where he had lent the goods

gratuitously and decides to terminate the bailment before the expiry of the

period of bailment.

(v) the bailor is bound to accept the goods after the purpose is accomplished.

If bailor fails, he is responsible for any loss or damage to the goods and has to

reimburse for expenses incurred by the bailee for keeping the goods safely.

Rights of Bailor

The following are the rights of bailor:

(1)Bailor has a right to enforce the duties of the bailee such as -

(a) right to claim damages for loss caused to the goods by the negligence of bailee;

(b) right to claim compensation for loss caused by an unauthorized use of thegoods bailed;c) right to claim damages arising out of mixing the goods of the bailor with his

own goods.(2) Bailor has a right to terminate the contract if the bailee does

anything which is inconsistent with the conditions of bailment.


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For example A lets on hire his horse to B for his own ridingbut B uses the horse for driving his carriage. A has a right toterminate the contract of bailment.

(3) Bailor in the case of gratuitous bailment has a right to demandthe goodsback even before the expiry of the period of bailment. If in the

process, loss is caused to the bailee, bailor is bound to compensate.

(4) Bailor has a right to claim the increase or profit from the goods

bailed which may have occurred from the goods value.

For example where A bails his cow to B and if the

cow gives birth to a calf, B is bound to return the cow and the calf to A.

Care to be taken by Bailee

The bailee is bound to take as much care of the goods bailed to him as a man

ofordinary prudence with regard to quantity, bulk and value would take.

In such a case he will not be responsible, in the absence of special contract, for

any special loss or destruction or deterioration of the goods bailed, since he hastaken as much care as a man of ordinary prudence.

For example if X bails his ornaments to Y and Y keeps these ornaments in his

own locker at his house along with his own ornaments and if all the ornaments

are lost/stolen in a riot Y will not be responsible for the loss to X. If on the

other hand X specifically instructs Y to keep them in a bank, but Y keeps

them at his residence, then Y would be responsible for the loss [caused on

account of riot].

Bailee has right to terminate

The bailee has the right to terminate a contract of bailment if the bailor

does anything inconsistent with bailment conditions.Duties and Rights of a Bailee.

In addition to the two important duties of having to take care of the goods

bailed and being responsible for loss/injury/damage to goods, bailee has other

following duties under the Act.

(i) Bailee has no right to make unauthorized use of goods bailed

(ii) Bailee has no right to mix the goods bailed with his own goods without the consent of the bailor.

(iii) Bailee has to return the goods on expiration of period of bailment

(iv) Bailee has a duty to return any extra profit accruing from goods bailed.

Where A bails his cow to B and if the cow gives birth to a calf, B must return both

the cow and the calf to A

(v) Bailee has duty not to do anything inconsistent with the condition of bailment.


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Rights of bailee

The bailee has the following rights [These rights are also the duties of the bailor

to claim compensation for any loss arising from non-disclosure of knowndefects in the goods

to claim indemnification for any loss or damage as a result of defective title. to deliver back the goods to joint bailors according to the agreement or

directions

to deliver the goods back to the bailor whether or not the bailor has the right to

the goods

to exercise his right of lien. This right of lien is a right to retain thegoods and is exercisable where charges due in respect of goods retained

have not been paid. The right of lien is a particular lien for the reason that

the bailee can retain only these goods for which the bailee has to receive his

fees/remuneration.

to take action against third parties if that party wrongfully denies the baileeof his right to use the goods

Rights and Duties of Finder of Goods

The duties of finder of lost goods is that of the bailee. Such a finder of lost

goods is as good as a bailee and he enjoys all the rights and carries all the

responsibilities of a bailee.

In addition, the finder of lost goods can ask for reimbursement for

expenditure incurred for preserving the goods but also for searching the true

owner. If the real owner refuses to pay compensation, the finder cannot sue but

retain the goods so found.

Further where the real owner has announced any reward, the finder is entitledto receive the reward. The right to collect the reward is a primary and a

superior right even more than the right to seek reimbursement of expenditure.

Lastly the finder though has no right to sell the goods found in the normal course,

he may sell the goods if the real owner cannot be found with reasonable efforts

or if the owner refuses to pay the lawful charges subject to the following

conditions.

a) when the article is in danger of perishing and losing the greater part of the value or

b) when the lawful charges of the finder amounts to two-third or more of the value of the

article found.

General Lien and Particular LienA general lien is the right to retain the property of another for a general balance of account.

In contract the particular lien is the right to retain the particular goods bailed for non-paymentof

charges/remuneration. Bankers, factors, wharfingers, policy brokers and attorneys of law havea general lien in respect of goods which come into their possession during the course of theirprofession. For instance a banker enjoys the right of a general lien on cash, cheques, bills of

exchange and securities deposited with him for any amounts due to him.


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For instance A borrows ` 500/- from the bank without security and subsequently again borrows

another ` 1000/- but with security of say certain jewellery. In this illustration, even where A has

returned ` 1000/- being the second loan, the banker can retain the jewellery given as security to

the second loan towards the first loan which is yet to be repaid.

Under the right of general lien the goods cannot be sold but can only be retained for dues.

The right of lien can be waived through a contract.

Chartered Accountants have a general lien against the books of their clients which come into

their possession against professional fees not paid to them by those clients.

Particular lien

In accordance with the purpose of bailment if the bailee by his skill or labourimproves

the goods bailed, he is entitled for remuneration for such services. Towards such remuneration,

the bailee can retain the goods bailed if the bailor refuses to pay the remuneration. Such a right

to retain the goods bailed is the right of particular lien. He however does not have the right to

sue.

Where the bailee delivers the goods without receiving his remuneration, he has a right to

sue the bailor. In such a case the particular lien may be waived. The particular lien is also lost ifthe bailee does not complete the work within the time agreed.

Difference between general lien and particular lien.

The difference between the two can be summarized as follows:

(a) Particular lien is exercisable only on such goods in respect of which charges are due.

General lien is a right to detain/retain any goods of the bailor for general balance ofaccount outstanding

(b) Particular lien is automatic. A general lien is not automatic but is recognized through on

agreement. It is exercised by the bailee only by name

(c) Particular lien comes into play only when some labour or skill is involved. A general lien can

be exercised against goods even without involvement of labour or skill.

7. Rights of an unpaid seller against the goods?

The seller of goods is deemed to be an unpaid seller

(a) When the whole of the price has not been paid or tendered;

(b) When a bill of exchange or other negotiable instrument has been received

as conditional payment and the condition on which it was received has not

been fulfilled by reason of the dishonour of the instrument or otherwise.

A lien is a right to retain possession of goods until payment of the price.

It is available to an unpaid seller of the goods who is in possession of them

where

(a) Goods have been sold without any stipulation as to credit

(b) Goods have been sold on credit, but the term of credit has expired

(c) Buyer becomes insolvent.


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Rules regarding Lien:

1) The Seller may exercise his right of lien notwithstanding that he is in

possession of the goods as agent or bailee for the buyer. If he loses

possession of the goods, he loses the right of lien also.

2) The lien depends on actual possession & not on title. It is not affected even ifthe seller has parted with the document capable of transferring title.

3) The possession of the goods by the seller must not expressly exclude the right

of lien.

4) The lien can be exercised by the unpaid seller only for the price & not for any

other charges such as warehouse & dock charges.

5) Where unpaid seller has made part delivery of the goods, he may exercise his

right of lien on the reminder.

6) The unpaid seller of goods having a lien does not lose his lien by reason only

that he has obtained a decree for the price.

8. Distinction between Right of Lien & Right of stoppage in transit?

The unpaid sellers right to stop the goods in transit arises only when the

buyer is insolvent, but right of lien can be exercised even when the buyer is

able to pay but does not pay.

The right of lien can be exercised on goods which are in actual or construction

possession of the seller, while right of stoppage in transit when the goods are

in possession of a middleman between the seller who has parted with the

possession of the goods & the buyer who has not yet acquired the possession

The right of lien comes to an end when the possession of the goods is

surrendered by the seller but the right of stoppage in transit commences

when the goods have left the possession of the seller & continues until the

buyer or his agent acquires possession.

The right of lien is to retain possession, while the right of stoppage in transit is

to regain or resume possession.

Module IV

Objectives

To provide legal recognition for transactions Carried out by means of electronic datainterchange, and

Other means of electronic communication commonly referred to as "electronic

commerce", involving the use of alternatives to paper-based methods of

communication and storage of information.

To facilitate electronic filing of documents with the Government agencies

To amend the Indian Penal Code, the Indian Evidence Act, 1872, the Banker's Book

Evidence Act, 1891 and the Reserve Bank of India Act, 1934.


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Short title, extent, commencement and application:

This Act may be called the Information Technology Act, 2000.

It shall extend to the whole of India.

Exception:

Nothing in this Act shall apply to-

(a) a negotiable instrument as defined in section 13 of the Negotiable Instruments Act, 1881

(26 of 1881);

(b) a power-of-attorney as defined in section 1A of the Powers-of-Attorney Act, 1882 (7 of

1882);

(c) a trust as defined in section 3 of the Indian Trusts Act, 1882 (2 of 1882);

(d) a will as defined in clause (h) of section (2) of the Indian Succession Act, 1925 (39 of 1925),

including any testamentary disposition by whatever name called;

(e) Any contract for the sale or conveyance ofimmovable property or any interest in such

property;

(f) Any such class of documents or transactions as may be notified by the Central Government

in the Official Gazette.

Definitions. -

"access", means gaining entry into, instructing or communicating with the logical, arithmetical

or memory function resources of a computer, computer system or computer network;

"Addressee" means a person who is intended by the originator to receive the electronic record

but does not include any intermediary;

"Adjudicating officer" means an adjudicating officer appointed under sub-section (1) of section

46;

"Affixing digital signature", means adoption of any methodology or procedure by a person for

the purpose of authenticating an electronic record by means of digital signature;

"Appropriate Government means as respects any matter- enumerated in List II of the Seventh

Schedule to the Constitution;

Relating to any State law enacted under List III of the Seventh Schedule to the Constitution,


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(i) the State Government and

(ii) in any other case, the Central Government;

"asymmetric crypto system" means a system of a secure key pair consisting of a private key for

creating a digital signature and a public key to verify the digital signature;

"Certifying Authority" means a person who has been granted a license to issue a Digital

Signature Certificate under section 24;

"Certification practice statement" issued by a Certifying Authority to specify the practices that

the Certifying Authority employs in issuing Digital Signature Certificates;

"Computer" means

electronic, magnetic, optical or other high-speed data processing device or system

which performs logical, arithmetic and memory functions by manipulations of

electronic, magnetic or optical impulses, and

includes all input, output, processing, storage, computer software or communication

facilities which are connected or relates to the computer in a computer system or

computer network;

"Computer network" means the inter-connection of one or more computers through-

(i) the use of satellite, microwave, terrestrial lime or other communication media; and

(ii) terminals or a complex consisting of two or more interconnected computers whether or

not the interconnection is continuously maintained;

"Computer resources" means computer, computer system, computer network, data, computer

database or software;

"computer system" means a device or collection of devices, including input and output support

devices and excluding calculators which are not programmable and capable being used in

conjunction with external files which contain computer programmes, electronic instructions,

input data and output data that performs logic, arithmetic, data storage and retrieval,

communication control and other functions;

"Controller" means the Controller of Certifying Authorities appointed under sub-section (1) ofsection 17

"Cyber Appellate Tribunal" means the cyber Regulations Appellate Tribunal established under

sub-section (1) of section 48;

"Data" means a representation of information, knowledge, facts, concepts or instruction which

are being prepared or have been prepared in a formalized manner, and is intended to be


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processed, is being processed or has been processed in a computer system or computer

network, and may be in any form (including computer printouts magnetic or optical storage

media, punched cards, punched tapes) or stored internally in the memory of the computer.

"Digital Signature" means authentication of any electronic record by a subscriber by means of

an electronic method or procedure in accordance with the provisions of section 3;

"Digital Signature Certificate means a Digital Signature Certificate issued under sub-section (4)

of section 35;

"Electronic Form", with reference to information, means, any information generated, sent,

received or stored in media, magnetic, optical, computer memory, micro film, computer

generated micro fiche or similar device;

"Electronic Gazette" means Official Gazette published in the electronic form;

"Electronic Record" means data, record or data generated, image or sound stored, received or

sent in an electronic form or micro film or computer generated micro fiche;

Electronic Signature means authentication of any electronic record by a subscriber by means

of the electronic techniques specified in the Second Schedule & includes digital signature.

Electronic Signature Certificate means an Electronic Signature Certificate issued under

section 35 & includes Digital Signature Certificate.

"Function" in relation to a computer, includes logic, control, arithmetical process, deletion,

storage and retrieval and retrieval and communication or telecommunication from or within acomputer;

"Information includes data, text, images, sound, voice, codes, computer programmes,

software and databases or micro film or computer generated micro fiche;

"Intermediary" with respect to any particular electronic message, means any person who on

behalf of another person receives, stores or transmits that message or provides any service

with respect to that message;

"Key Pair", in an asymmetric crypto system, means a private key and its mathematically relatedpublic key., which are so related that the public key can verify a digital signature created by the

private key;

"Law" includes any Act of Parliament or of a State Legislature, Ordinances promulgated by the

President under article 240, Bills enacted as Presidents Act under sub-clause (a) of clause (1) of

article 375 of the Constitution and includes rules, regulations, bye-laws and order issued or

made thereunder;


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"License" means a license granted to a Certifying Authority under section 24;

"Originator" means a license granted to a Certifying Authority under section 24;

"Prescribed" means prescribed by rules made under the Act;

"Private Key" means the key of a key pair used to create a digital signature;

"Public Key" means the key of a key pair used to verify a digital

Signature and listed in the Digital Signature Certificate;

"Secure System" means computer hardware, software and procedure that-

(a) Are reasonably secure from unauthorized access and misuses;

(b) Provide a reasonable level of reliability and correct operation;

(c) Are reasonably suited to performing the intended functions; &

(d) Adhere to generally accepted security procedures;

"Security Procedure" means the security procedure prescribed under section 16 by the Central

Government;

"Subscriber" means a person in whose name the Digital Signature Certificate is issued;

"Verify", in relation to a digital signature, electronic record or public key, means to determine

whether-

(a) The initial electronic record was affixed with the digital signature by the sue of private keycorresponding to the public key of the subscriber;

(b) The initial electronic record is retained intact or has been altered since such electronic

record was so affixed with the digital signature.

Digital Signature & Electronic SignatureAuthentication of electronic records. -

Authentication is a process used to confirm the identity of a person or to prove the

integrity of the information.

Message authentication involves determining its source & verifying that it has not beentampered or replaced in transit.

Any subscriber may authenticate an electronic record by affixing his digital signature.

The authentication of the electronic record shall be effected by the use ofasymmetric

crypto system and hash function which envelop and transform the initial electronic

record into another electronic record.


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"asymmetric crypto system" means a system of a secure key pair consisting of a private

key for creating a digital signature and a public key to verify the digital signature;

"electronic record" means data, record or data generated, image or sound stored,

received or sent in an electronic form or micro film or computer generated micro fiche;

"digital signature" means authentication of any electronic record by a subscriber by

means of an electronic method or procedure in accordance with the provisions of

section 3;

Hash function" means an algorithm mapping or translation of one sequence of bits

into another, generally smaller, set known as "hash result" such that

(i) an electronic record yields the same hash result every time the algorithm is

executed with the same electronic record as its input(ii) making it computationally infeasible for a message to derive or reconstruct the

original electronic record from the hash result produced by the algorithm;

(iii) It is computationally infeasible that two electronic records can produce the same

hash result using the same algorithm.

Verification:

Any person by the use of a public key of the subscriber can verify the electronic record.

The private key and the public key are unique to the subscriber and constitute a functioning key

pair.

Electronic Signature: Section 3A1. A subscriber may authenticate any electronic record by such electronic signature or

electronic authentication technique which

(a) Is considered reliable &

(b)May be specified in the Second Schedule.

2. For the purpose of this section, any electronic signature or electronic authentication

technique shall be considered reliable if

(a)The signature creation data or the authentication data are within the context in

which they are used, linked to the signatory or, as the case may be, the

authenticator & to no other person.

(b)The signature creation data or the authentication data were at the time of

signing, under the control of the signatory or, as the case may be, theauthenticator & of no other person.

(c) Any alteration to the electronic signature made after affixing such signature is

detectable.

(d)Any alteration to the information made after its authentication by electronic

signature is detectable &

(e) It fulfills such other conditions which may be prescribed.


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3. The Central Government may prescribe the procedure for the purpose of ascertaining

whether electronic signature is that of the person by whom it is purported to have been

affixed or authenticated.

4. The Central Government may by notification in the official Gazette, add to or omit any

electronic signature or electronic authentication technique & the procedure for affixing

such signature from the Second Schedule. Provided that no electronic signature orauthentication technique shall be specified in the second Schedule unless such

signature or technique is reliable.

5. Every notification issued under sub-section (4) shall be laid before each house of

parliament.

Electronic Governance

Legal recognition of electronic records -

Where any law provides that information or any other matter shall be in writing or in the

typewritten or printed form, then, such requirement shall be deemed to have been satisfied ifsuch information or matter is-

(a) Rendered or made available in an electronic form; and

(b) Accessible so as to be usable for a subsequent reference.

Legal Recognition of Digital Signatures:

Where any law provides that information or any other matter shall be authenticated by affixing

the signature or any document shall be signed or bear the signature of any person, then, such

requirement shall be deemed to have been satisfied if such information or matter is

authenticated by means of digital signature affixed.

Attribution, Acknowledgment and Dispatch Of Electronic

Records:

Attribution of Electronic Records:

An electronic record shall be attributed to the originator if it was sent

(a) by the originator himself;

(b) by a person who had the authority to act on behalf of the originator in respect

of that electronic record; or

(c) By an information system programmed by or on behalf of the originator tooperate automatically.

Acknowledgement of Receipt:

(1) Where the originator has not stipulated that the acknowledgment of receipt of electronic

record be given in a particular form or by a particular method, an acknowledgment may be

given by -


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(a) Any communication by the addressee, automated or otherwise; or

(b) Any conduct of the addressee, sufficient to indicate to the originator that the

electronic record has been received.

Secure Electronic Records and Secure Electronic SignatureSecure Electronic Record:

Where any security procedure has been applied to an electronic record at a specific point of

time, then such record shall be deemed to be a secure electronic record from such point of

Time to the time of verification.

Secure Electronic Signature:

An electronic signature shall be deemed to be a secure electronic signature if-

(i) the signature creation data, at the time of affixing signature, was under the exclusive control

of signatory and no other person; and

(ii) the signature creation data was stored and affixed in such exclusive manner as may beprescribed

Explanation- In case of digital signature, the "signature creation data" means the private key of

the subscriber

Security procedures and Practices:

The Central Government may for the purposes of sections 14 and 15 prescribe the security

procedures and practices

Provided that in prescribing such security procedures and practices, the Central Government

shall have regard to the commercial circumstances, nature of transactions and such other

Related factors as it may consider appropriate.Regulation of Certifying Authorities

Appointment of Controller and other officers:

(1) The Central Government may, by notification in the Official Gazette, appoint a Controller of

Certifying Authorities for the purposes of this Act and may also by the same or subsequent

notification appoint such number of Deputy Controllers and Assistant Controllers, other officers

and employees as it deems fit.

(2) The Controller shall discharge his functions under this Act subject to the general control and

directions of the Central Government.

(3) The Deputy Controllers and Assistant Controllers shall perform the functions assigned to

them by the Controller under the general superintendence and control of the Controller.

(4) The qualifications, experience and terms and conditions of service of Controller, Deputy

Controllers and Assistant Controllers other officers and employees shall be such as may be

prescribed by the Central Government.

(5) The Head Office and Branch Office of the Office of the Controller shall be at such places as

the Central Government may specify, and these may be established at such places as the

Central Government may think fit.


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(6) There shall be a seal of the Office of the Controller.

Functions of the Controller:

The Controller may perform all or any of the following functions, namely:

(a) Exercising supervision over the activities of the Certifying Authorities;

(b) Certifying public keys of the Certifying Authorities(c) Laying down the standards to be maintained by the Certifying Authorities;

(d) Specifying the qualifications and experience which employees of the Certifying Authorities

should possess;

(e) Specifying the conditions subject to which the Certifying Authorities shall conduct their

business;

(f) Specifying the content of written, printed or visual material and advertisements that may be

distributed or used in respect of a Electronic Signature Certificate and the Public Key;

(g) Specifying the form and content of a Electronic Signature Certificate and the key;

(h) Specifying the form and manner in which accounts shall be maintained by the Certifying

Authorities;

(i) Specifying the terms and conditions subject to which auditors may be appointed and the

remuneration to be paid to them;

(j) Facilitating the establishment of any electronic system by a Certifying Authority either solely

or jointly with other Certifying Authorities and regulation of such systems;

(k) Specifying the manner in which the Certifying Authorities shall conduct their dealings with

the subscribers;

(l) Resolving any conflict of interests between the Certifying Authorities and the subscribers;

(m) Laying down the duties of the Certifying Authorities;

(n) Maintaining a data-base containing the disclosure record of every Certifying Authority

containing such particulars as may be specified by regulations, which shall be accessible to

public.Procedure for grant or rejection of license:

The Controller may, on receipt of an application after considering the documents accompanying

the application and such other factors, as he deems fit, grant the license or reject the

application:

However, no application shall be rejected under this section unless the applicant has been given

a reasonable opportunity of presenting his case.

Suspension of License:

(1) The Controller may, if he is satisfied after making such inquiry, as he may think fit, that a

Certifying Authority has -(a) Made a statement in, or in relation to, the application for the issue or renewal of the license,

which is incorrect or false in material particulars;

(b) Failed to comply with the terms and conditions subject to which the license was granted;

(c) Failed to maintain the standards specified by the Central Government;

(d) Contravened any provisions of this Act, rule, and regulation or order made there under,

revoke the license:


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However, no license shall be revoked unless the Certifying Authority has been given a

reasonable opportunity of showing cause against the proposed revocation.

(2) The Controller may, if he has reasonable cause to believe that there is any ground for

revoking a license under sub-section (1), by order suspends such license pending the

completion of any enquiry ordered by him:

However, no license shall be suspended for a period exceeding ten days unless the CertifyingAuthority has been given a reasonable opportunity of showing cause against the proposed

suspension.

(3) No Certifying Authority whose license has been suspended shall issue any Electronic

Signature Certificate during such suspension.

Notice of suspension or revocation of license:

(1) Where the license of the Certifying Authority is suspended or revoked, the Controller shall

publish notice of such suspension or revocation, as the case may be, in the database

maintained by him.

(2) Where one or more repositories are specified, the Controller shall publish notices of such

suspension or revocation, as the case may be, in all such repositories.

However, the data-base containing the notice of such suspension or revocation, as the case

may be, shall be made available through a web site which shall be accessible round the clock

However, that the Controller may, if he considers necessary, publicize the contents of the data-

base in such electronic or other media, as he may consider appropriate.

Access to computers and data:

(1)The Controller or any person authorized by him shall, if he has reasonable cause to suspect

that any contravention of the provisions of this chapter made there under has been committed,

have access to any computer system, any apparatus, data or any other material connected with

such system, for the purpose of searching or causing a search to be made for obtaining any

information or data contained in or available to such computerSystem.

(2)The Controller or any person authorized by him may, by order, direct any person in charge

of, or otherwise concerned with the operation of the computer system, data apparatus or

material, to provide him with such reasonable technical and other assistant as he may consider

necessary.

Duties of Certifying Authorities:

This section provides that every Certifying Authority shall follow certain procedures in respect

of Digital Signatures as given below:

Every Certifying Authority shall(a) Make use of hardware, software, and procedures that are secure from intrusion and misuse.

(b) Provide a reasonable level of reliability in its services which arc reasonably suited to the

performance of intended functions;

(c) Adhere to security procedures to ensure that the secrecy and privacy of the Electronic

Signature are assured

(ca) be the repository of all Electronic Signature Certificates issued under this Act


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(cb) publish information regarding its practices, Electronic Signature Certificates and current

status of such certificates; and

(d) observe such other standards as may be specified by regulations.

Certifying Authority to ensure compliance of the Act, etc.:

Every Certifying Authority shall ensure that every person employed or otherwise engaged by itcomplies, in the course of his employment or engagement, with the provisions of this Act,

Rules, regulations and orders made there under.

Display of license:

Every Certifying Authority shall display its license at a conspicuous place of the premises in

which it carries on its business.

Duties of SubscribersGenerating Key Pair:

Where any Digital Signature Certificate, the public key of which corresponds to the private key

of that subscriber which is to be listed in the Digital Signature Certificate, has been acceptedby a subscriber, then the subscriber shall generate the key pair by applying the security

procedure.

Duties of subscriber of Electronic Signature Certificate:

In respect of Electronic Signature Certificate the subscriber shall perform such duties as may be

prescribed.

Acceptance of Digital Signature Certificate:

(1) A subscriber shall be deemed to have accepted a Digital Signature Certificate if he publishes

or authorizes the publication of a Digital Signature Certificate -(a) to one or more persons;

(b) in a repository, or otherwise demonstrates his approval of the Digital Signature Certificate in

any manner.

(2) By accepting a Digital Signature Certificate the subscriber certifies to all who reasonably rely

on the information contained in the Digital Signature Certificate that

(a) the subscriber holds the private key corresponding to the public key listed in the Digital

Signature Certificate and is entitled to hold the same;

(b) all representations made by the subscriber to the Certifying Authority and all material

relevant to the information contained in the Digital Signature Certificate are true;

(c) all information in the Digital Signature Certificate that is within the knowledge of thesubscriber is true.

The subscriber shall exercise all reasonable care to retain control of his private key

corresponding to the public key. If such private key has been compromised (i.e., endangered

or exposed), the subscriber must immediately communicate the fact to the Certifying Authority.


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Otherwise, the subscriber shall be liable till he has informed the Certifying Authority that the

private key has been compromised.

Control of Private Key:

(1) Every subscriber shall exercise reasonable care to retain control of the private key

corresponding to the public key listed in his Digital Signature Certificate and take all steps to

prevent its disclosure.

(2) If the private key corresponding to the public key listed in the Digital Signature Certificate

has been compromised, then, the subscriber shall communicate the same without any delay to

the Certifying Authority in such manner as may be specified by the regulations.

The subscriber shall be liable till he has informed the Certifying Authority that the private key

has been compromised.

On acceptance of the Digital Signature Certificate the subscriber shall generate a key pair using

a secure system.

Module V Consumer Protection Act, 1986 The consumer protection Act, 1986 is a milestone in the history of socio-economic legislation in

the country.

The main objective of the act is to provide for the better protection of consumers. Unlike

existing laws which are punitive or preventive in nature, the provisions of this Act are

compensatory in nature.

The main objectives of the Act are:

1. Better Protection of Interests of the consumers:

The Act seeks to provide for better protection of the interests of the consumers. For this

purpose the Act makes provision for establishment of Consumer Councils & other authorities for

settlement of consumer disputes.

2. Protection of Rights of the consumers:

a. the right to be protected against 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, or services so as to protect the consumer against unfair trade practices

c. the right to be assured, wherever possible, access to variety of goods and services at

competitive prices

d. the right to be heard and be assured that consumers' interests will receive due consideration

at appropriate forums


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e. the right to seek redressal against unfair trade practices or restrictive trade practices or

unscrupulous exploitation of consumers

f. the right to consumer education

3. Consumer Protection Councils:

The objects are sought to be promoted & protected by the Consumer Protection

Councils established at the Central & State Levels.

4. Quasi-Judicial Machinery for speedy redressal of Consumer disputes:

The Act seeks to provide speedy & simple redressal to consumer disputes. For

this purpose a quasi-judicial machinery has been set up at the District, State & Central Levels.

Definitions:

Appropriate laboratory means a laboratory or organization

(i) Recognized by the Central Government;

(ii) recognised by a State Government, subject to such guidelines as may be prescribed

by the Central Government in this behalf; or

(iii) any such laboratory or organisation which is maintained, financed or aided by the

Central Government or a State Government for carrying out analysis or test of any goods with a

view to determining whether such goods suffer from any defect;

"Branch Office" means

(i) any establishment described as a branch by the opposite party; or

(ii) any establishment carrying on either the same or substantially the same activity as

that carried on by the head office of the establishment.

Complainant" means

(i) a consumer; or

(ii) Any voluntary consumer association registered under the Companies Act, 1956 or under any

other law for the time being in force; or

(iii) The Central Government or any State Government,

(iv) One or more consumers, where there are numerous consumers having the same interest;


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(v) In case of death of a consumer, his legal heir or representative; who or which makes a

complaint

Complaint: Means an allegation of unfair trade practice

Restrictive trade practice Defect in goods

Deficiency in service

Overcharging

Sale of hazardous goods, etc.

No court fee is required for lodging a complaint

Consumer means a person who buys any goods or avails of any service for a consideration,

including any user of such goods or service with the approval of the buyer.

It excludes a buyer for resale or commercial purposes.

Use for earning livelihood is not commercial use

Customer: is a buyer

Buyer [S.2 (1) of Sale of Goods Act 1930]: A person who buys or agrees to buy goods for

a consideration

Goods: as defined in the Sale of Goods Act 1930

Consumer Dispute" means a dispute where the pers

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