Comercial Law Faq

Commercial Law FAQ [ Indian Context] Compiled by Prof G.C.Nijampure

Nego tiab le In st rume nt

What is a negotiable instrument? What is dishonour of a cheque all about? What are electronic cheques? Can an action be taken under S. 138 of Negotiable Instrument Act, for the dishonour of a cheque that was given as a gift? Can a person file a suit for recovery and also file a complaint under Section 138 of the Negotiable Instruments Act for dishonour of a cheque?

Par tners hi p Ø What is Partnership? Ø How many partners are required to form a partnership firm? Ø Can a Hindu Undivided Family enter into a partnership? Ø What are the types of Partnership? What rights and duties partners have in a partnership firm?

Sa le of Goods Ø What are the requirements of sale? Ø What is the meaning of 'sale on approval basis' or, 'sale on return basis'? Ø What happens in cases where the seller delivers wrong quantity of goods to the buyer? Ø What is the procedure of delivering the goods? Ø What is a breach of contract?

Negotiable Instrument

Q: Wha t is a negoti abl e i nst ru me nt ? The term, 'negotiable instrument' refers to a promissory note, bill of exchange or cheque, payable either to order or to bearer. Any instrument, containing a contract to pay money, or any other negotiable security representing money, which is in a form which renders it capable of being sued on by the holder, in his own name and, which is transferable by custom of trade, is a negotiable instrument. Bills of Exchange, cheques and promissory notes are the most common examples of negotiable instruments.

Q: Wha t is di shonour of a cheque al l about ? When any cheque, drawn by a person for the discharge of any liability is returned by the bank unpaid, because of insufficiency of the amount of money, standing to the credit of the account on which the cheque was drawn or, for the reason that it exceeds the arrangements made by the drawer of the cheque, the cheque is said to have been dishonoured.

Q: Wha t are el ect ronic chequ es? The Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002 defines electronic cheques as those cheques, which contain the exact mirror image of paper cheques. In order to ensure the minimum safety standards with the use of digital signatures and asymmetric crypto system, such cheques are generated, written and signed in a secure system.

Q: C an a n action b e ta ken under S. 138 of Negoti abl e Inst rument A ct, f or th e di sho nour of a che que tha t was g iven as a gi ft?

No. You cannot bring an action under S. 138 for the dishonour of a cheque that is given as a gift. This section applies only when the cheque, which is dishonoured, was issued for the payment of a debt or any other liability, which is legally enforceable.

Q: C an a person fi le a s uit for rec overy and als o fi le a compl aint u nder Sec tion 1 38 of th e Ne goti abl e Inst ru ment s Act for di shonou r of a chequ e?

Yes. In case a person has filed suits for recovery, then he is not precluded from filing a complaint under Section 138 of the Negotiable Instruments Act and Section 420 of the Indian Penal Code. The pendency of criminal matters would not be an impediment to proceeding with the civil suits.

Partnership

Q: W ha t is Pa rt nersh ip ? According to the Indian Partnership Act, 1932, a "Partnership" is the relation between persons who have agreed to share the profit of a business carried on by all, or, any of them acting for all. Persons who have entered into a partnership are, individually, called partners and, collectively, called a firm. The name, under which the business is carried on, is called the name of the firm. A firm is not a legal person. Partnership is, merely a relationship between persons, brought about by an agreement to share the profits of a business.

Q: How many pa rtn ers ar e requ ir ed to f orm a pa rt nershi p f ir m? Since a partnership is the result of a contract, there must be at least two partners. The Partnership Act places no upper limit on the number of partners. However, under S. 11 of the Companies Act, 1956, it is provided that a partnership cannot have more than ten partners for carrying on the business of banking, or more than twenty partners for carrying on any other business. Thus, a partnership cannot have more than 20 partners.

Q: Ca n a Hi nd u Und ivi ded Fa mil y ent er into a pa rtn ershi p?

A Hindu Undivided family (HUF) cannot enter into a partnership with other persons, as it is not a legal person, but the karta of a HUF can. Two kartas of Hindu undivided families can form a partnership, but the individual members of the two HUFs do not, automatically, become partners.

Q: Wha t are t he t yp es of Pa rtners hi p? The two types of partnership are as follows Partnerships at will - There is no provision for duration and determination of partnership - it is not formed for a fixed period of time and can be terminated by any of the partners, by giving a notice in writing to all the other partners. Particular partnership - Such partnerships are for a specific duration or purpose or undertaking. A partnership determines the expiry of such duration or completion of the purpose or undertaking. It may be noted that where a firm, constituted for a fixed term, continues to carry on business after expiry of the term the mutual rights, obligation and duties of the partners, remain the same as they were before the expiry of the specified duration. The firm will, then, become a partnership at will.

Q: Wha t righ ts a nd d uti es pa rt ners ha ve in a pa rt ners hip f irm? Subject to provision of this Act, mutual rights and duties may be determined by the contract-- either expressed or, implied by course of dealing between the partners. Such contract can be varied by consent of all the partners and, such consent may be expressed or, may be implied by a course of dealing.

Gene ral dut ies of the pa rt ner: To conduct the business of the firm to the greatest common advantage. To be just and faithful towards the firm and other partners. To render true accounts and full information, relating to and, affecting the firm or, any partner or, his legal representative. To indemnify the firm for loss, caused by his fraud, in conduct of the business of the firm. To attend, diligently, to his duties in the conduct of the business.

Rights of the partner: To take part in the conduct of the business. To express his opinion before a decision is taken. A majority may take all decision relating to ordinary matters connected with the business, but no change in nature of business may be made without the consent of all the partners. To access and inspect and copy books of the firm. To share the profits of the firm To be indemnified, in respect of payment made, and liabilities incurred, by him, in the ordinary and proper course of business. In case of an emergency, every partner is entitled to protect the firm from loss, as would have been done by a prudent man, in his own case. To receive interest, on an amount subscribed by him, beyond the capital at the rate of 6%, per annum.

Sale of Goods Q: Wha t are t he r equi reme nts of sa le? Requi rement s of s ale a re: Parties, competent to contract. Mutual assent. Passing of property. Price to be paid. Thus, a sale must be the result of a contract, in pursuance, whereof; a transfer of property takes place on payment of a price. The contract may be oral or in writing. It may even be inferred from the conduct of the parties. It must however, originate in an offer and its acceptance.

Q: Wha t is the me ani ng of 's ale on appr oval ba sis ' or, ' sa le on r etur n b asi s'? As the name itself suggests, this is a sale of goods, where the buyer has the option of either, accepting the goods or, rejecting them and returning them. The sale would be complete, only, if and when the buyer accepts the goods. The parties to such a sale may agree that the buyer shall, temporarily, take the goods in his possession to see whether they are satisfactory to him. If they are not, he may decline to purchase them.

Q: Wha t ha ppe ns i n case s wh er e the sel ler del iv er s wr ong quan tit y of goods to the bu ye r?

Followings are the consequences in cases where the seller delivers wrong quantity of goods to the buyer: Where the seller delivers to the buyer, a quantity of goods less than he contracted to sell, the buyer has the option to reject the goods or, to accept them. If the buyer accepts the goods, so delivered, he is bound to pay for them at the contract price. E.g. Mr. A. orders 100 boxes of pens from Mr. B, at the rate of Rs. 2000/- per box. Mr. B delivers only 60 boxes. Now, Mr. A has the option to reject the entire delivery of 60 boxes or, he may accept the 60 boxes. If, Mr. A, accepts the boxes, he must pay for them at the contract price, i.e. Rs. 2000/- per box. Where the seller delivers to the buyer a quantity of goods, larger than he contracted to sell, the buyer may accept the goods, included in the contract and, reject the rest or, he may reject the whole. If the buyer accepts the whole of the goods, so delivered, he shall pay for them at the contract rate. Where the seller delivers to the buyer the goods, he contracted to sell, mixed with goods of a different description, not included in the contract, the buyer may accept the goods, which are in accordance with the contract, and, reject the rest, or, may reject the whole.

: Wh at is the pro cedu re of de li ve rin g t he go ods? The delivery of sold goods can be made in the following ways: -by doing anything, which the parties agree shall be treated as delivery, or by doing anything which has the effect of putting the goods; in the possession of the buyer, or - in the possession of any person, authorized to hold them on his behalf. Therefore, the delivery of goods is made when the seller, either places the goods in the possession of the buyer or, in the possession of any person, authorized to hold the goods on behalf of the buyer. If, there is an agreement between the buyer and the seller to treat any act as delivery, then the delivery of the goods is said to have been made when that act is performed.

Q: Wha t is a br each of co ntra ct ?

A breach occurs, where a party repudiates or, fails to perform, one or more of the obligations, imposed upon him by the contract. A breach of contract may take any one of the following three forms, namely: Where a party fails to perform his obligation upon the date fixed for the performance by the contract; as a buyer, wrongfully, refusing to accept goods and pay the price on the date agreed for acceptance;

Where a party expressly repudiates the contract; as where he states expressly that he will not perform his promise; Where a party does some act which disables him from performing his obligation; as where a buyer does not secure a license for exporting the goods. The first form of breach occurs, only, when the performance is due. The second and third forms of breaches may occur before the performance is due. In the second form, the breach is a breach of a presently binding promise, not an anticipatory breach of an act, to be done in the future. The person, guilty of the breach, is in default not because he repudiates a performance that is not yet due, but, because he renounces a promise that continues to bind him, from the time of the making of the contract, until the completion of the contract.