Arjun Chhabra

(CS LLB LLM)

62 62 62 143 8 | 9552 52 143 8
[Link]

CMA INTER LAW REVISION NOTES

Important Topics/Questions/Sections
Sale of Goods Act, 1930
Ques琀椀on 1:
How would you di昀昀eren琀椀ate between contract of sale and agreement to sell? [Dec 23 - 7
Marks (22)] [MQP Dec 25 Set 1 - 7 Marks]
Answer:
Basis Contract of sale Agreement to sell
The property of the goods The transfer of property takes
Transfer
passes from the buyer to the place at a future time subject
of property
seller. to certain conditions to be
fulfilled.
Type of contract It is an executed contract. It is an executory contract.
Sales takes place only for Future and contingent goods.
Type of goods
existing and specific goods.
If the goods are destroyed, the If the goods are destroyed, the
Risk of loss loss falls on the buyer despite loss falls on the seller despite
the goods are in thepossession the goods are in thepossession
of the seller. of the buyer.
The seller can sue the buyer for The seller can sue for
Breach of contract
price and for damages in case of damages only in case of breach
breach by the buyer. by the buyer.
It gives buyer to enjoy the It gives a right to the buyer
General and
goods as against the world at against the seller to sue for
particular
large including the seller. damages.
property
In the absence of lien over the The seller is not bound to part
goods the seller is to return the with thegoods until the price is
Insolvency of the
goods to the official receiver or paid to him.
buyer
assignee. He is entitled to get
the dividend declared by the
Official
receiver which will be at the
reduced rate.
The buyer, becoming the The buyer cannot claim the
Insolvency of the
owner, is entitled to recover goods but the dividend
seller
the same from the Official declared by the Official
receiver or assignee. receiver or assignee.
 Arjun Chhabra
(CS LLB LLM)
62 62 62 143 8 | 9552 52 143 8
[Link]

Ques琀椀on 2:
Explain the di昀昀erent type of Implied condi琀椀ons. [June 23 - 8 Marks (22)]
Answer:
Implied condi琀椀ons are of the following types.
i) Condi琀椀on as to 琀椀tle [Sec琀椀on 14(a)]: In a contract of sale, unless the circumstances of the
contract are such as to show a di昀昀erent inten琀椀on, there is an implied condi琀椀on on the part
of the seller that, in the case of a sale, he has a right to sell the goods and that, in the case
of an agreement to sell, he will have a right to sell the goods at the 琀椀me when the property
is to pass.

ii) Sale by descrip琀椀on [Sec琀椀on 15]: Where there is a contract for the sale of goods by
descrip琀椀on, there is an implied condi琀椀on that the goods shall correspond with the
descrip琀椀on, and, if the sale is by sample as well as by descrip琀椀on, it is not su昀케cient that the
bulk of the goods corresponds with the sample if the goods do not also correspond with
the descrip琀椀on. Goods are sold by descrip琀椀on when they are described in the contract, and
the buyer contracted relying on such descrip琀椀on of goods by the seller.

iii) Condi琀椀on as to quality or 昀椀tness [Sec琀椀on 16]: As per Sec 16 of the Sale of Goods Act,
the buyer is supposed to sa琀椀sfy himself about the quality of goods he purchased and is also
charged with the responsibility of seeing that the goods suit the purpose for which they
were purchased by him. Later on if the goods does not turn out to be as per his purpose,
the seller cannot be asked to compensate him. This is based on the famous doctrine of
Caveat Emptor which means „let the buyer beware‟

iv) Sale by sample [Sec琀椀on 17]: A contract of sale is a contract for sale by sample where
there is a term in the contract, express or implied, to that e昀昀ect.

In the case of a contract for sale by sample there is an implied condi琀椀on –

o That the bulk shall correspond with the sample in quality.
o That the buyer shall have a reasonable opportunity of comparing the bulk with the
sample.
o That the goods shall be free from any defect, rendering them un-merchantable, which
would not be apparent on reasonable examina琀椀on of the sample.

In case of eatables and provisions, in addi琀椀on to the implied condi琀椀on as to merchantability,

there is another implied condi琀椀on that the goods shall be wholesome.
 Arjun Chhabra
(CS LLB LLM)
62 62 62 143 8 | 9552 52 143 8
[Link]

Ques琀椀on 3:
What do you understand by "Caveat-Emptor" under the sale of Goods Act, 1930? What are
the excep琀椀ons to this rule? [Dec 17 - 8 Marks (16)] [Model Ques琀椀on Paper Set 1 – Dec 23
– 7 Marks]
Answer:
Doctrine of Caveat Emptor:
The term <caveat emptor= is a La琀椀n word which means <let the buyer beware.= This
principle states that it is for the buyer to sa琀椀sfy himself that the goods which he is
purchasing are of the quality which he requires.

If he buys goods for a par琀椀cular purpose, he must sa琀椀sfy himself that they are 昀椀t for that
purpose.

The doctrine of caveat emptor is embodied in Sec琀椀on 16 of the Act which states that
<subject to the provisions of this Act and of any other law for the 琀椀me being in force, there
is no implied warranty or condi琀椀on as to the quality or 昀椀tness for any par琀椀cular purpose of
goods supplied under a contract of sale=.

It is not the seller’s duty to give to the buyer the goods which are 昀椀t for a suitable purpose
of the buyer. If he makes a wrong selec琀椀on, he cannot blame the seller if the goods turn
out to be defec琀椀ve or do not serve his purpose.

The principle was applied in the case of Ward v. Hobbs, where certain pigs were sold by
auc琀椀on and no warranty was given by seller in respect of any fault or error of descrip琀椀on.
The buyer paid the price for healthy pigs. But they were ill and all but one died of typhoid
fever. They also infected some of the buyer’s own pigs. It was held that there was no implied
condi琀椀on or warranty that the pigs were of good health. It was the buyer’s duty to sa琀椀sfy
himself regarding the health of the pigs.

However, there are some excep琀椀ons to Sec琀椀on 16 which are as under:

a) Where the buyer, expressly or by implica琀椀on,
• makes it known to the seller the par琀椀cular purpose for which the goods are
required,
• so as to show that the buyer relies on the seller’s skill or judgment, and
• the goods are of a descrip琀椀on which it is in the course of the seller’s business to
supply (whether he is the manufacturer or producer or not),
• there is an implied condi琀椀on that the goods shall be reasonably be 昀椀t for such
purpose.
• However, in the case of a contract for the sale of a speci昀椀ed ar琀椀cle under its patent
or other trade name, there are no implied condi琀椀ons as to its 昀椀tness for any
par琀椀cular purpose.
 Arjun Chhabra
(CS LLB LLM)
62 62 62 143 8 | 9552 52 143 8
[Link]

b) Where goods are bought by descrip琀椀on from a seller who deals in goods of that
descrip琀椀on (whether he is the manufacturer or producer or not),
• there is an implied condi琀椀on that the goods shall be of merchantable quality.
• However, if the buyer has examined the goods, there shall be no implied condi琀椀ons
as regards defects which such examina琀椀on ought to have revealed.
• In order to apply the implied condi琀椀on as to merchantability the following
requirements must be sa琀椀s昀椀ed:
i) the seller should be dealer in goods of that descrip琀椀on;
ii) the buyer must have not opportunity to examine the goods or there must be
some latent defect in the goods which would not be apparent on reasonable
examina琀椀on of the same.

c) An implied warranty or condi琀椀on as to quality or 昀椀tness for a par琀椀cular purpose may be

annexed by the usage of trade. In some cases, the purpose for which the goods are required
may be ascertained from the acts and conducts of the par琀椀es to the sale or from the nature
of the descrip琀椀on of the ar琀椀cle purchased.
For example, if a hot water bo琀琀le is purchased, the purpose for which it is purchased is
implied in the thing itself. In such a case the buyer need not tell the seller the purpose for
which the bo琀琀le is purchased. Similarly, if a thermometer is purchased in common usage,
the purpose of thermometer is well known, the buyer need not tell the seller.

d) An express warranty or condi琀椀on does not nega琀椀ve a warranty or condi琀椀on implied by

this Act unless inconsistent therewith.
Ques琀椀on 4:
What are the consequences of "destruc琀椀on of goods" under the Sale of Goods Act, 1930,
where the goods have been destroyed a昀琀er the agreement to sell but before the sale is
a昀昀ected? [Dec 17 - 5 Marks (12)]
Answer:
Destruc琀椀on of Goods-Consequences:
(I) In accordance with the provisions of the Sale of Goods Act. 1930 as contained in Sec琀椀on
7,
• a contract for the sale of speci昀椀c goods is void
• if at the 琀椀me when the contract was made;
• the goods without the knowledge of the seller,
• perished or become so damaged
• as no longer to answer to their descrip琀椀on in the contract,
• then the contract is void abini琀椀o.
• This sec琀椀on is based on the rule that whether both the par琀椀es to a contract are
under a mistake as to a ma琀琀er of fact essen琀椀al to a contract, the act is void.

(II) In a similar way Sec琀椀on 8 provides that

• an agreement to sell speci昀椀c goods becomes void
 Arjun Chhabra
(CS LLB LLM)
62 62 62 143 8 | 9552 52 143 8
[Link]

• if subsequently the goods,

• without any fault on the part of the seller or buyer,
• perish or become so damaged
• as no longer to answer to their descrip琀椀on in agreement
• before the risk passes to the' buyer.
• This rule is also based on the ground of impossibility of performance as stated
above.
It may however, be noted that sec琀椀on 7 & 8 apply only to speci昀椀c goods and not to
unascertained goods or generic goods. If the agreement is to sell a certain quan琀椀ty of
unascertained goods, the perishing of even the whole quan琀椀ty of such goods in the
possession of the seller will not relieve him of his obliga琀椀on to deliver the goods.
Ques琀椀on 5:
How can you apply the implied condi琀椀ons in a contract of sale by sample. Discuss your
answer with the appropriate examples and reference to the law. [Model Paper – Set 2 –
June 23 – 8 Marks]
Answer:
A contract of sale is a contract for sale by sample where there is a term in the contract,
express or implied, to that e昀昀ect. In the case of a contract for sale by sample there is an
implied condi琀椀on –
• That the bulk shall correspond with the sample in quality.
• That the buyer shall have a reasonable opportunity of comparing the bulk with the
sample.
• That the goods shall be free from any defect, rendering them un-merchantable,
which would not be apparent on reasonable examina琀椀on of the sample.

Example: David sold Indian variant of sun昀氀ower seeds at his shop and sold it in bulk for who
ever wanted to buy the same. Ta琀椀ana tested the sample of the seeds at David’s shop and
decided to order it in bulk. However, when David sent the seeds in bulk, Ta琀椀ana decided to
sow the seeds. Months later Ta琀椀ana discovered that the seeds were of Swedish variant and
not the Indian variant that she has requested for. Ta琀椀an now wanted full refund for the
seeds that were delivered to her by David. David is now bound to either reimburse her the
whole amount or give her the quan琀椀ty of Swedish variant that she requested for.

In case of eatables and provisions, in addi琀椀on to the implied condi琀椀on as to merchantability,

there is another implied condi琀椀on that the goods shall be wholesome.
Ques琀椀on 6:
How condi琀椀on is di昀昀erent from warranty under Sales of Goods Act, 1930? Under what
circumstances condi琀椀on can be treated as warranty? [June 25 - 7 Marks]
Answer:
1. Under Sec琀椀on 12(2) of the Sales of Goods Act, 1930, a condi琀椀on is a s琀椀pula琀椀on essen琀椀al
to the main purpose of the contract, the breach of which gives rise to a right to treat the
contract as repudiated. A condi琀椀on in a contract of sale of goods is of fundamental nature
for breach of which buyer can repudiate the contract.
 Arjun Chhabra
(CS LLB LLM)
62 62 62 143 8 | 9552 52 143 8
[Link]

2. Under Sec琀椀on 12(3), a warranty is a s琀椀pula琀椀on 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 goods and treat the contract as repudiated.
Generally, the following are the di昀昀erences between condi琀椀on and warranty:
Condition Warranty
A condition is a stipulation which is essential A warranty is a stipulation which is collateral
to the main purpose of the contract to the main purpose of the contract
The aggrieved party can repudiate the
The aggrieved party can claim damages only
contract of sale in case there is a breach of a
in case of breach of warranty.
condition.
A breach of condition may be treated as a
breach of a warranty. This would happen A breach of a warranty cannot be treated as
where the aggrieved party is contended with a breach of condition.
damages only
Ques琀椀on 7:
Who is an unpaid seller? Discuss about the rights of an unpaid seller against goods? (7) PTP
16 Set 1
Answer:
According to Sec琀椀on 45(1), the seller of the goods is deemed to be 'unpaid seller' within
the meaning of this Act-
• when the whole of the price has not been paid or tendered;
• when a bill of exchange or other nego琀椀able instrument has been received as condi琀椀onal
payment, and the condi琀椀on on which it was received has not been ful昀椀lled by reason of the
dishonour of the instrument or otherwise;

Sec琀椀on 45(2) de昀椀nes the term 'seller' as including any person who is in the posi琀椀on of a
seller as for instance an agent of the seller to whom the bill of lading has been endorsed or
a consignor or agent who has himself paid, or is directly responsible for the price.

Rights of an Unpaid Seller against the Goods

According to Sec琀椀on 46, an unpaid seller's right against the goods are:
a) A lien or right of reten琀椀on
b) The right of stoppage in transit.
c) The right of resale.
d) The right to withhold delivery

Right of Lien [Sec琀椀ons 47-49 and 54]: An unpaid seller who is in possession of goods sold,
may exercise his lien on the goods, i.e., keep the goods in his possession and refuse to
deliver them to the buyer un琀椀l the payment or tender of the price in cases where:
• the goods have been sold without any s琀椀pula琀椀on as to credit; or
• the goods have been sold on credit, but the term of credit has expired; or
• the buyer becomes insolvent.
 Arjun Chhabra
(CS LLB LLM)
62 62 62 143 8 | 9552 52 143 8
[Link]

The lien depends on physical possession. The seller's lien is possessory lien, so that it can
be exercised only so long as the seller is in possession of the goods. It can only be exercised
for the non-payment of the price and not for any other charges.

Examples: a) Rajnish sold his car to Manish under a contract. However, Manish gave Rajnish
a cheque for the amount due. However, Manish became insolvent and 昀椀led for bankruptey.
Since the cheques would not get encashed anymore, Rajnish withheld the car by exercising
his right of lien un琀椀l the payment under the contract of sale was made for the same.

b) XYZ Co. Ltd. manages the Haldia Port. They have constructed a godown on their wharf to
store goods. Diana Ship came to the wharf and alighted their goods. Mr. Prem Bhageria had
to claim the goods from the wharf. However, Mr. Bhageria did not turn up on the day the
ship arrived. Therefore, XYZ Co. Ltd. kept the consignment of goods in their store room.
A昀琀er 3 months, Mr. Bhageria came to claim the goods, however, XYZ Co. Ltd. asked Mr.
Bhageria to pay Rs.20 Lakhs in rent for the store room facility u琀椀lized by the goods. Mr.
Bhageria refused to pay the same. XYZ Co. Ltd. then refused to release the goods to Mr.
Bhageria by exercising their right of lien over the goods.

A lien is lost –
a) When the seller delivers the goods to a carrier or other bailee for the purpose of
transmission to the buyer, without reserving the right of disposal of the goods;
b) When the buyer or his agent lawfully obtains possession of the goods;
c) By waiver of his lien by the unpaid seller

Stoppage in transit [Sec琀椀ons 50-52|: The right of stoppage in transit is a right of stopping
the goods while they are in transit, resuming possession of them and retaining possession
un琀椀l payment or tender of the price.
The right to stop goods is available to an unpaid seller:
• when the buyer becomes insolvent; and
• the goods are in transit.

The buyer is insolvent if he has ceased to pay his debts in the ordinary course of business,
or cannot pay his debts as they become due. It is not necessary that he has actually been
declared insolvent by the court.

The goods are in transit from the 琀椀me they are delivered to a carrier or other bailee like a
whar昀椀nger or warehouse keeper for the purpose of transmission to the buyer and un琀椀l the
buyer takes delivery of them.

The transit comes to an end in the following cases:

a) If the buyer obtains delivery before the arrival of the goods at their des琀椀na琀椀on;
b) If, a昀琀er the arrival of the goods at their des琀椀na琀椀on, the carrier acknowledges to the buyer
that he holds the goods on his behalf, even if further des琀椀na琀椀on of the goods is indicated
by the buyer;
c) If the carrier wrongfully refuses to deliver the goods to the buyer.
 Arjun Chhabra
(CS LLB LLM)
62 62 62 143 8 | 9552 52 143 8
[Link]

If the goods are rejected by the buyer and the carrier or other bailee holds them, the transit
will be deemed to con琀椀nue even if the seller has refused to receive them back.

The right to stop in transit may be exercised by the unpaid seller either by taking actual
possession of the goods or by giving no琀椀ce of the seller's claim to the carrier or other person
having control of the goods. On no琀椀ce being given to the carrier, he must redeliver the
goods to the seller who must pay the expenses of the re-delivery.

The seller's right of lien or stoppage in transit is not a昀昀ected by any sale on the part of the
buyer unless the seller has assented to it. A transfer, however, of the bill of lading or other
document of seller to a bona 昀椀de purchaser for value is valid against the seller's right.

Right of re-sale [Sec琀椀on 54):

The unpaid seller may re-sell:
• where the goods are perishable;
• where the right is expressly reserved in the contract;
• where in exercise of right of lien or stoppage in transit, the seller gives no琀椀ce to the buyer
of his inten琀椀on to re-sell, and the buyer, does not pay or tender the price within a
reasonable 琀椀me.

If on a re-sale, there is a de昀椀ciency between the price due and amount realised, he is
en琀椀tled to recover it from the buyer. If there is a surplus, he can keep it. He will not have
these rights if he has not given any no琀椀ce and he will have to pay the buyer pro昀椀t, if any, on
the resale.

Example: Ram contracted with Shyam to buy 50 litres of Milk from Shyam on 16th March,
2020 for Rs. 100 per litre. However, Ram failed to claim the consignment on the said date.
Shyam runs the risk of ge琀�ng the milk spoiled. Ram failed to claim the consignment un琀椀l
20th March, 2020 and Shyam had to sell the same to Dham. Shyam is jus琀椀昀椀ed in doing so
even though he had a valid contract with Ram with respect to the same milk.

Rights to withhold Delivery

If the property in the goods has passed, the unpaid seller has right as described above. If,
however, the property has not passed, the unpaid seller has a right of withholding delivery
similar to and co-extensive with his rights of lien and stoppage in transit.
Ques琀椀on 8:
Under which circumstances can an unpaid seller exercise his right of lien? Dis琀椀nguish
between right of lien and right of stoppage of goods in transit, under the Sale of Goods Act,
1930. [June 17 - 6 Marks (12)]
Answer:
(i) Sec琀椀on 47 of the Sale of Goods Act, 1930 lays down cases in which an unpaid seller is
en琀椀tled to lien. They are as follows:
(ii) Where goods have been sold without any s琀椀pula琀椀on as to credit.
(iii) Where goods have been sold on credit but the term of credit expired, or
(iv) Where the buyer becomes insolvent.
 Arjun Chhabra
(CS LLB LLM)
62 62 62 143 8 | 9552 52 143 8
[Link]

Dis琀椀nc琀椀on between right of lien and right of stoppage of goods in transit

(1) The essence of a right of lien is to retain possession whereas the right of stoppage in
transit is right to regain possession.
(2) Seller should be in possession of goods under lien while in stoppage in transit
(i) Seller should have parted with the possession
(ii) possession should be with a carrier and (iii) buyer has not acquired the possession.
(3) Right of lien can be exercised even when the buyer is not insolvent but it is not the case
with right of stoppage in transit.
(4) Right of stoppage in transit begins when the right of lien ends. Thus, the end of the right
of lien is the star琀椀ng point of the stoppage in transit.
Ques琀椀on 9:
Discuss the remedies available to buyer against seller for breach of contract. [June 23 - 9
Marks (16)] [Dec 21 - 6 Marks (16)]
Answer:
A buyer also has certain remedies against the seller who commits a breach. These are as
under:

1. Suit for Damages for Non-Delivery [Sec琀椀on 57]- When the seller wrongfully neglects or
refuses to deliver the goods to the buyer, the buyer may sue the seller for damages for non-
delivery. This is in addi琀椀on to the buyer’s right to recover the price, if already paid, in case
of non-delivery.

2. Suit for price- Where the buyer has paid the price and the goods are not delivered to
him, he can recover the amount paid.

3. Suit for speci昀椀c performance [Sec琀椀on 58]- When the goods are speci昀椀c or ascertained,
a buyer may sue the seller for speci昀椀c performance of the contract and compel him to
deliver the same goods. The court orders for speci昀椀c performance only when the goods are
speci昀椀c or ascertained and an order for damages would not be an adequate remedy.
Speci昀椀c performance is generally allowed where the goods are of special signi昀椀cance or
value e.g. a rare paining, a unique piece of jewellery, etc.

4. Suit for Breach of Warranty [Sec琀椀on 59]- Where there is a breach of warranty by the
seller, or where the buyer elects or is compelled to treat the breach of condi琀椀on as breach
of warranty; the buyer cannot reject the goods. The buyer may, a) Set up the breach of
warranty in ex琀椀nc琀椀on or diminu琀椀on of the price payable by him, or b) Sue the seller for
damages for breach of warranty.

5. Repudia琀椀on of contract before the due date [Sec琀椀on 60] -- Sec琀椀on 60 provides that
where either party to a contract of sale repudiates the contract before the date of delivery,
the other may either treat the contract as subsis琀椀ng or wait 琀椀ll the date of delivery, or he
may treat the contract as rescinded and sue for damages for the breach.
 Arjun Chhabra
(CS LLB LLM)
62 62 62 143 8 | 9552 52 143 8
[Link]

6. Suit for interest-- The buyer may recover such interest or special damages, as may be
recoverable by law. He may also recover the money paid where the considera琀椀on for the
payment of it has failed. In the absence of a contract to the contrary, the court may award
interest, to the buyer, in a suit by him for the refund of the price in a case of a breach on
the part of the seller, at such rate as it thinks 昀椀t on the amount of the price from the date
on which the payment was made.
Transfer of Title by Non-Owners of Goods
As per sec琀椀on 27 of the Sale of Goods Act, where goods are sold by a person who is not the
owner thereof and who does not sell them under the authority or with the consent of the
owner, the buyer acquires no be琀琀er 琀椀tle to the goods than the seller had, unless the owner
of the goods is by conduct precluded from denying the seller's authority to sell.

A buyer cannot get good 琀椀tle to the goods unless he purchased the goods from a person
who is the owner thereof and sell them under the authority or with the consent of real
owner.

"Nemo dat quod non habet" means that no one can give what he himself does not have. It
means a non-owner cannot make valid transfer of property in goods. If the 琀椀tle of the seller
is defec琀椀ve, the buyer's 琀椀tle will also be subject to same defect. If the seller has no 琀椀tle, the
buyer does not acquire any 琀椀tle although he might have acted honestly and might have
acquired the goods a昀琀er due payment. This rule is to protect the real owner of the goods.
Though this doctrine seeks to protect the interest of real owners, but in the interest of the
trade and commerce, there must be some safeguard available to a person who acquired
such goods in good faith for value.

Accordingly, the Act provides the following excep琀椀ons to this doctrine which seek to protect
the interest of bona 昀椀de buyers:

1. Sale by a mercan琀椀le agent: If a mercan琀椀le agent is authorized by the owner of the goods
to sell on his behalf, then such sale shall be valid. In such cases, the buyer can acquire a
good 琀椀tle of the goods. This excep琀椀on will be implemented subject to ful昀椀lment of the
following condi琀椀ons:-
• The person must be in possession of goods or documents of 琀椀tle to the goods in his
capacity as a mercan琀椀le agent and with the consent of his owner
• The person must sell the goods while ac琀椀ng in the ordinary course of business.
• The buyer must act in good faith without having any no琀椀ce, at the 琀椀me of contract that
the mercan琀椀le agent has no authority to sell the goods.

2. Transfer of 琀椀tle by Estoppels: This excep琀椀on is based on the principle of personal

estoppels. Some琀椀me, the real owner may lead the buyers by virtue of his conduct or words
or by act to believe that the seller is the owner of the goods or has the authority to sell
them. In such case, he may not therea昀琀er deny the seller's authority to sell.

3. Sale by a joint owner: As per Sec琀椀on 28, it there are several joint owners of goods, one
of them if has sole possession of the goods by permission of the co -owners, then the
property in goods is transferred to any person who buys them from such joint owner. In
order to apply this excep琀椀on, following condi琀椀ons must be ful昀椀lled:
 Arjun Chhabra
(CS LLB LLM)
62 62 62 143 8 | 9552 52 143 8
[Link]

• One of the several owners must be in sole possession of the goods.

• The joint owner must have permission of co-owners.
• The buyer must purchase goods in good faith.
• The buyer should not have no琀椀ce regarding the ma琀琀er that the seller has no authority to
sell.

4. Sale by person in possession under voidable contract: According to the Sec琀椀on 29 a

person in possession of goods under a voidable contract which is not rescinded, can transfer
a good 琀椀tle to the buyer. The buyer should purchase the goods in good faith and without
no琀椀ce of the seller's defec琀椀ve 琀椀tle.

5. Sale by seller in possession a昀琀er sale: Under Sec琀椀on 30(1) it is laid down that where a
person has sold goods but he con琀椀nues in possession of goods or of the documents of 琀椀tle
to the goods, he may sell them to a third person and if such person obtains delivery thereof
in good faith and without no琀椀ce of the previous sale, the person can get a good 琀椀tle to
them. In order to apply this excep琀椀on, the seller must be in possession a昀琀er sale of goods
and there must be delivery or transfer of the goods or documents of 琀椀tle by the seller.

6. Sale by buyer in possession a昀琀er sale: Under Sec琀椀on 30(2), it is laid down that where a
buyer having bought or having agreed to buy goods, obtain with the consent of the seller
the possession of the goods or documents of 琀椀tle to the goods, he can resell the goods to
a bona 昀椀de transfer. If at the 琀椀me of this sale, buyer was not in possession, then this
excep琀椀on will not apply.

7. Sale by an unpaid seller: If the unpaid seller has exercised right of lien or stoppage in
transit, resells the goods, then the buyer acquires a good 琀椀tle as against the original buyer,
even though the resale is not jus琀椀昀椀ed in the circumstances.

8. Excep琀椀on under other Acts: According to some Acts, a person although he is not the
owner of the goods may sell the goods and pass a be琀琀er 琀椀tle than he himself has. As for
example-
i. Under Sec琀椀on 169 of the Indian Contract Act, a 昀椀nder of the goods has the right to sell.
ii. Under Sec琀椀on 176 of the Indian Contract Act, a pawnee of goods has the right to sell the
[Link] pawned subject to sa琀椀sfying some condi琀椀ons.
iv. In certain cases, a special right of sale is given to o昀케cers of court, liquidators of the
companies, receivers of insolvents estate, custom o昀케cers for dues and du琀椀es remaining
unpaid etc.
v. A person who takes a nego琀椀able instrument in good faith and for value becomes the true
owner even if he takes it from a thief or 昀椀nder.
Auc琀椀on Sale
Sec琀椀on 64 provides that in the case of a sale by auc琀椀on-
• where goods are put up for sale in lots, each lot is prima facie deemed to be the subject
of a separate contract of sale;
• the sale is complete when the auc琀椀oneer announces its comple琀椀on by the fall of the
hammer or in other customary manner; and un琀椀l such announcement is made, any bidder
may retract his bid;
 Arjun Chhabra
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62 62 62 143 8 | 9552 52 143 8
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• a right to bid may be reserved expressly by or on behalf of the seller and, where such right
is expressly so reserved, but not otherwise, the seller or any one person on his behalf may,
subject to the provisions hereina昀琀er contained, bit at the auc琀椀on;
• where the sale is not no琀椀昀椀ed to be subject to a right to bid on behalf of the seller, it
shall not be lawful for the seller to bid himself or to employ any person to bid at
such sale, or for the auc琀椀oneer knowingly to take any bid from the seller or any such
person; and any sale contravening this rule may be treated as fraudulent by the
buyer;
• the sale may be no琀椀昀椀ed to be subject to a reserved or set up price;
• if the seller makes use of pretended bidding to raise the price, the sale is voidable
at the op琀椀on of the buyer.
Sec琀椀on 64 does not deal with the ques琀椀on of passing of the property at auc琀椀on sale but
merely deals with comple琀椀on of the contract of sale which takes place at the fall of the
hammer or at the announcement of the close of the sale in other customary manner by the
auc琀椀oneer. In other words, all that happens at the fall of the hammer or at the
announcement of the closure of the sale in other customary manner is that a contract of
sale comes into existence and par琀椀es get into the rela琀椀onship of a promisor and a promisee
in an executory contract.

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 Arjun Chhabra
(CS LLB LLM)
62 62 62 143 8 | 9552 52 143 8
[Link]

CMA INTER LAW REVISION NOTES

Important Topics/Ques琀椀ons/Sec琀椀ons
Partnership Act, 1932
Ques琀椀on 1:
Demonstrate the procedure to form a partnership under "The Partnership Act. 1932".
[Model Ques琀椀on Paper Set 2 – Dec 23 – 7 Marks] [June 25 - 7 Marks]
Answer:
Partnership is one of the modes of business. It is governed under the Indian Partnership
Act, 1932. For cons琀椀tu琀椀ng a partnership, the following ingredients are necessary-
• There should be an agreement between the par琀椀es;
• The agreement must be to share the pro昀椀ts of the business and the business must
be carried on by all or any of them ac琀椀ng for all;
• The exis琀椀ng of an agency between the concerned persons inter-se.
• All the above ingredients must exist before a partnership come into existence. Actual
star琀椀ng of business to registra琀椀on is not a condi琀椀on precedent.

Procedure to form a partnership

The 昀椀rst step is to decide the number of partners of a 昀椀rm. The law provides for minimum
2 number of partners. The upper limit is 10 in case of banking business and 20 in respect of
other business.
• First decide to who are the partners of the 昀椀rm, considering the limit envisaged in the
Act;
• The name of the partnership 昀椀rm is selected subject to the provisions of the
partnership Act;
• Select the business to be done by the partnership and object of the business;
• Decide the capital to be brought by each and every partner;
• Prepare the agreement deed of the 昀椀rm – the deed is the vital and most signi昀椀cant
document. The deed shall contain all aspects of the partnership 昀椀rm. This document
prescribes the 8a to z9 of the partnership 昀椀rm to be formed;
• The agreement should invariably in wri琀椀ng and signed by all partners;
• The provisions contained in the agreement are binding all partners;
• The partnership 昀椀rm is to be registered. According to the Act the partnership 昀椀rm may
be registered or may not be registered. Unregistered 昀椀rms have no legal protec琀椀on and
therefore registra琀椀on of partnership 昀椀rm is to be preferred.
• Open bank account in the name of the partnership 昀椀rm;
• In the present scenario obtaining PAN is necessary and get the PAN from the Income
Tax Authority;
• Acquire all mandatory licenses from the respec琀椀ve authori琀椀es for the conduct of the
business;

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• Registra琀椀on with required tax authori琀椀es i.e., direct tax as well as indirect tax such as
central excise, service tax, VAT etc.,
• The Registra琀椀on cer琀椀昀椀cate is the conclusive evidence of the forma琀椀on of the
partnership 昀椀rm.
Ques琀椀on 2:
Prepare the list of mutual rights and liabili琀椀es of partners as per the Indian Partnership Act,
1932. [June 23 - 7 Marks (22)]
Answer:
Followings are the Mutual rights and liabili琀椀es of partners:
Sec琀椀on 13 of the Indian Partnership Act, 1932 provides that subject to the contract between
the partners-
I. a partner is not en琀椀tled to receive remunera琀椀on for taking part in the conduct of the
business;
II. the partners are en琀椀tled to share equally in the pro昀椀ts earned and shall contribute
equally to the losses sustained by the 昀椀rm;
III. where a partner is en琀椀tled to interest on the capital subscribed by him, such interest
shall be payable only out of pro昀椀ts;
IV. a partner, making, for the purposes of the business, any payment or advance beyond the
amount of capital he has agreed to subscribe, is en琀椀tled to interest thereon at 6% per
annum;
V. the 昀椀rm shall indemnify a partner in respect of payments made, and liabili琀椀es incurred,
by him-
a. in the ordinary and proper conduct of the business, and
b. in doing such act, in an emergency, for the purpose of protec琀椀ng the 昀椀rm from loss, as
would be done by a person of ordinary prudence, in his own case, under similar
circumstances; and
VI. a partner shall indemnify the 昀椀rm or any loss caused to it by his willful neglect in the
conduct of the business of the 昀椀rm.
VII. When the pro昀椀ts are not shared equally, the losses are, in the absence of the
agreement, to be borne in the same propor琀椀on as the pro昀椀ts are shares, regardless,
whether one partner has put up more capital than other.
Ques琀椀on 3:
Demonstrate the concept of implied authority of a partner. [MQP_Paper5_Set2_Dec24 - 7
Marks]
Authority of a Partner
Partner’s Authority The authority of a partner means the capacity of a partner to bind the 昀椀rm
by his act.
Mode of Authority Authority of a partner may be express or implied.
Express Authority The authority conferred on a partner by mutual agreement is called
8express authority.9
Implied Authority The authority conferred on a partner by the provisions of Sec琀椀on 19 of the
Indian Partnership Act is called 8implied authority!

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(CS LLB LLM)
62 62 62 143 8 | 9552 52 143 8
[Link]

Condi琀椀ons for
Reading together Sec琀椀ons 19(1) and 22. Implied authority covers those
Implied Authority
acts of partners which ful昀椀ll the following three condi琀椀ons:
1. The act must relate to the normal business of the 昀椀rm;
2. The act must have been done in the usual way of carrying on the
business of the 昀椀rm;
(It may be noted that the ques琀椀on as to what is usual and what is
unusual in a business depends on the nature of business and the
usage of trade, e.g. taking loan is considered as usual ac琀椀vity in case
of a trading concern but unusual ac琀椀vity in case of a professional
concern of solicitors.)
3. The act must be done in the 昀椀rm’s name or in any other manner
expressing or implying an inten琀椀on to bind the 昀椀rm.
Acts outside
In the absence of any usage or custom of trade to the contrary, the implied
implied authority
authority of a partner does not empower him to do the following eight
of partner Sec琀椀ons
acts namely—
19(2)
1. To submit a dispute to arbitra琀椀on rela琀椀ng to the business of the 昀椀rm;
2. To open a Bank Account on behalf of the 昀椀rm in partner's own name;
3. To compromise or relinquish any claim or por琀椀on of the claim by the
昀椀rm;
4. To withdraw a suit or proceedings 昀椀led on behalf of the 昀椀rm;
5. To admit any liability in a suit or proceedings against the 昀椀rm;
6. To acquire immovable property on behalf of the 昀椀rm;
7. To transfer immovable properly belonging to the 昀椀rm; and
8. To enter into partnership on behalf of the 昀椀rm.
Note: A partner can do any of the above-men琀椀oned acts only if he is
expressly authorised to do that act or the usage or custom of the trade
permits him to do that act.

Ques琀椀on 4:
State the modes by which a partner may transfer his interest in the 昀椀rm in favour of another
person under the Indian Partnership Act. What are the rights of such a transferee? [June 17
- 5 Marks (12)]
Modes by which a partner may transfer his interest in the 昀椀rm:
According to Sec琀椀on 29 of the Indian Partnership Act, 1932 a partner may transfer his
interest in the 昀椀rm by sale, mortgage or charge. The transfer may be absolute or par琀椀al.
The transfer does not en琀椀tle the transferee, during the con琀椀nuance of the 昀椀rm:
(i) to interfere in the conduct of the business of the 昀椀rm, or
(ii) to require accounts of the 昀椀rm, or
(iii) to inspect the books of the 昀椀rm

On transfer of interest by a partner, the transferee only becomes en琀椀tled to receive share
of pro昀椀t of the transferring partner. But in this case also the transferee has to accept the
account of pro昀椀ts agreed to by the partners [Sec琀椀on 29(1)].

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(CS LLB LLM)
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[Link]

If the 昀椀rm is dissolved or if the transferring partner ceases to be a partner, the transferee
is en琀椀tled to receive the transferring partner's share in the assets of the 昀椀rm. For the
purpose of ascertaining that share, he is en琀椀tled to an account as from the date of the
dissolu琀椀on (Sec琀椀on 29(2)).
Ques琀椀on 5:
What are the rights of outgoing partners? [June 17 - 9 Marks (16)]
Answer:
Rights of outgoing partners
Sec琀椀on 36 provides that an outgoing partner may carry on a business compe琀椀ng with that
of the 昀椀rm. He may adver琀椀se such business, but, subject to contract to the contrary, he may
not-
• use the 昀椀rm name;
• represent himself as carrying on the business of the 昀椀rm; or
• solicit the custom of persons who were dealing with the 昀椀rm before he ceased to be a
partner.

Sec琀椀on 37 provides that in case where a partner has died or ceased to be a partner, the
surviving and con琀椀nuing partners may carry on the business of the 昀椀rm with the property
of the 昀椀rm without any 昀椀nal se琀琀lement of accounts as between them and the outgoing
partner or the estate of deceased partner. In the absence of a contract to the contrary, the
outgoing partner of the representa琀椀ve of the deceased partner is en琀椀tled at the op琀椀on -
• to such share of the pro昀椀ts made since he ceased to be a partner as may be a琀琀ributable
to the use of his share of the property of the 昀椀rm; or
• to interest at 6% per annum on the amount his share in the property of the 昀椀rm.

Where an op琀椀on is given to surviving or con琀椀nuing partners to purchase the interest of a

deceased or outgoing partner and the same is duly exercised, the estate of the deceased
partner or the outgoing partner is not en琀椀tled to any further or other share of pro昀椀ts. But
if any partner, assuming to act in exercise of the op琀椀on, does not, in all material respects
comply with the terms, he is liable to account under the provisions of this sec琀椀on.
Ques琀椀on 6:
Discuss the right and liability of partners a昀琀er dissolu琀椀on as per Indian Partnership Act,
1932. [Dec 23 - 7 Marks (22)] [MQP Dec 25 - Set 1 - 7 Marks]
Answer:
Right of partners a昀琀er dissolu琀椀on
Sec琀椀on 46 provides that on the dissolu琀椀on of a 昀椀rm, every partner or his representa琀椀ve is
en琀椀tled as against all the other partners or their representa琀椀ves, to have the property of
the 昀椀rm applied in payment of the debts and liabili琀椀es of the 昀椀rm and to have the surplus
distributed among the partners or their representa琀椀ves according to their rights.

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 Arjun Chhabra
(CS LLB LLM)
62 62 62 143 8 | 9552 52 143 8
[Link]

Liability of partners a昀琀er dissolu琀椀on

Sec琀椀on 45 provides that the liability of the partners will con琀椀nue for the acts done before
the dissolu琀椀on, even a昀琀er the dissolu琀椀on, un琀椀l public no琀椀ce is given of the dissolu琀椀on. The
following partner is not liable for the acts a昀琀er the date on which he ceases to be a partner-
• a deceased partner;
• a partner who is adjudicated as an insolvent;
• a partner, who not having been known to the person, dealing with the 昀椀rm, to be a
person, re琀椀res from the 昀椀rm

In 8Rajagopala Pillai v. Krishnaswai Che琀�9 –it was held that the legal representa琀椀ves of a
deceased partner cannot be validly bound by an acknowledgement made by the surviving
partner a昀琀er dissolu琀椀on caused by death. Once the partnership is dissolved, even the
theory of implied agency disappears. A昀琀er the jural rela琀椀onship of partners having been
put an end, there can be no ques琀椀on of any partner, ac琀椀ng in any representa琀椀ve capacity,
so as to bind the 昀椀rm.
Ques琀椀on 7:
Demonstrate the di昀昀erences between various modes for se琀琀lement of accounts between
the partners a昀琀er dissolu琀椀on. [Model Paper – Set 2 – June 23 – 7 Marks]
Answer:
Sec琀椀on 48 provides the mode of se琀琀lement of accounts between the partners a昀琀er the
dissolu琀椀on. In this regard, the following shall be observed, subject to the agreements by
the partners-
• losses, including de昀椀ciencies of capital, shall be paid 昀椀rst out of pro昀椀ts, next out of
capital and lastly if necessary by the partners individually in the propor琀椀ons in which
they were en琀椀tled to share pro昀椀ts;
• the assets of the 昀椀rm, including any sums contributed by the partners to make up
de昀椀ciencies of capital shall be applied in the following manner and order-
• in paying the debts of the 昀椀rm to the third par琀椀es;
• in paying to each partner rateably what is due to him from the 昀椀rm for advances as
dis琀椀nguished from capital;
• in paying to each partner rateably what is due to him on account of capital; and
• the residue, if any, shall be divided among the partners in the propor琀椀ons in which
they were en琀椀tled to share pro昀椀ts.

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 Arjun Chhabra
(CS LLB LLM)
62 62 62 143 8 | 9552 52 143 8
[Link]

1. Se琀琀lement of Losses
Losses, including de昀椀ciencies of capital, shall be se琀琀led in the following order:
1. First out of pro昀椀ts, if available.
2. Next out of capital contributed by the partners.
3. Lastly, by the partners individually, if necessary, in the propor琀椀ons in which they
share pro昀椀ts.

2. Distribu琀椀on of Assets
Once the losses have been accounted for, the assets of the 昀椀rm (including amounts
contributed by the partners to make up for capital de昀椀ciencies) will be distributed in this
speci昀椀c order:
1. Paying debts to third par琀椀es: First, the debts owed to third par琀椀es are to be paid in
full from the 昀椀rm's assets.
2. Repayment of loans/advances from partners: Next, the 昀椀rm must pay any amounts
that were advanced by partners (dis琀椀nguished from their capital contribu琀椀on).
3. Return of capital to partners: A昀琀er that, the capital contributed by each partner
must be repaid to them.
4. Division of surplus among partners: Finally, any remaining surplus (residue) is
divided among the partners in the propor琀椀on in which they share pro昀椀ts.

Example:
Let9s consider an example of a partnership 昀椀rm "XYZ & Co." consis琀椀ng of three partners, A,
B, and C. They share pro昀椀ts in the ra琀椀o of 3:2:1. The 昀椀rm is dissolved, and the se琀琀lement
of accounts needs to be done as per Sec琀椀on 48.
Scenario:
• Firm's total assets: ₹6,00,000
• Firm’s liabili琀椀es to third par琀椀es: ₹2,50,000
• Partner A's loan to the 昀椀rm: ₹50,000
• Capital contributed by partners:
o A: ₹1,00,000
o B: ₹1,50,000
o C: ₹1,00,000
• Total capital contribu琀椀on: ₹3,50,000
• The 昀椀rm has incurred a loss of ₹1,00,000, and there are no pro昀椀ts to cover this loss.
Steps for Se琀琀lement:
1. Se琀琀lement of losses:
o Since there are no pro昀椀ts, the loss of ₹1,00,000 will be se琀琀led from the
capital.
o The loss is distributed in the ra琀椀o of pro昀椀ts, i.e., 3:2:1.
o A's share of the loss: ₹50,000
o B's share of the loss: ₹33,333

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 Arjun Chhabra
(CS LLB LLM)
62 62 62 143 8 | 9552 52 143 8
[Link]

E昀昀ect of non-registra琀椀on
Sec琀椀on 69 of the Act place an unregistered 昀椀rm under some disadvantages as a result of
which 昀椀rms go for compulsory registra琀椀on. The consequences of non-registra琀椀on of a 昀椀rm
are as under;
1. No suit to enforce a right arising from a contract or conferred by this Act shall be ins琀椀tuted
in any Court by or on behalf of any person suing as a partner in a 昀椀rm against the 昀椀rm or
any person alleged to be or to have been a partner in the 昀椀rm unless the 昀椀rm is registered
and the person suing is or has been shown in the Register of Firms as a partner in the 昀椀rm.
2. No suit to enforce a right arising from a contract shall be ins琀椀tuted in any Court by or on
behalf of a 昀椀rm against any third party unless the 昀椀rm is registered and the persons suing
are or have been shown in the Register of Firms as partners in the 昀椀rm.
3. The provisions of sub-sec琀椀ons (1) and (2) shall apply also to claim of set- o昀昀 or other
proceeding to enforce a right arising from contract, but shall not a昀昀ect-
a) the enforcement of any right to sue for the dissolu琀椀on of a 昀椀rm or for accounts of a
dissolved 昀椀rm, or any right or power to realise the property of a dissolved 昀椀rm, or
b) the powers of an o昀케cial assignee, receiver or Court under the Presidency- towns
Insolvency Act, 1909 or the Provincial Insolvency Act, 1920. to realise the property of an
insolvent partner.

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Page | 9
 Arjun Chhabra
(CS LLB LLM)
62 62 62 143 8 | 9552 52 143 8
[Link]

Limited Liability Partnership Act, 2008

Ques琀椀on 1:
Mr. X was appointed as a partner of an LLP but a昀琀er just 3 months he was declared
undischarged insolvent. Can he con琀椀nue as a partner because he was solvent when he was
appointed as a partner? Jus琀椀fy your answer with reference to the relevant provisions of the
applicable Act. [Model Paper – Set 1 – June 23 – 7 Marks]
Answer:
Sec琀椀on 5 of LLP Act 2008 provides that any individual or body corporate may be a partner
in a LLP.
An individual shall not be capable of becoming a partner of LLP, if-
• he has been found to be of unsound mind by a Court of competent jurisdic琀椀on and
the 昀椀ndings is
• in force.
• he is undischarged insolvent; or
• he has applied to be adjudicated as an insolvent and his applica琀椀on is pending.

So, Mr. X cannot con琀椀nue as a partner because he is undischarged insolvent. As per act he
is not capable or eligible a partner of LLP.

Ques琀椀on 2:
Demonstrate the procedure rela琀椀ng to winding up of an LLP by the tribunal. [Model
Ques琀椀on Paper Set 1 – Dec 24 – 7 Marks]
OR
Discuss, in brief, rules for winding up and dissolu琀椀on of a LLP. [Dec 17 - 10 Marks (12)]
OR
Demonstrate the circumstances in which Limited Liability Partnership may be wound up by
Tribunal? [Model Ques琀椀on Paper Set 1 – Dec 23 – 7 Marks]
Answer:
Winding up of a Limited Liability Partnership (LLP) by a Tribunal can be ini琀椀ated for several
reasons:
1. Voluntary Winding Up: The LLP decides to wind up and consents to the process.
2. Insu昀케cient Number of Partners: The LLP has fewer than two partners for six months.
An LLP requires at least two partners to operate legally.
3. Inability to Pay Debts: The LLP is 昀椀nancially insolvent and cannot meet its debt
obliga琀椀ons or public order.
4. Ac琀椀vi琀椀es against Na琀椀onal Interest: The LLP engages in ac琀椀vi琀椀es detrimental to the
sovereignty, integrity of India, the state's security.
5. Non-compliance with Statutory Filings: The LLP fails to 昀椀le the Statement of Accounts
and Solvency or Annual Returns with the Registrar for 昀椀ve consecu琀椀ve 昀椀nancial years,
indica琀椀ng a lack of opera琀椀onal transparency and regulatory compliance.

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6. Just and Equitable Grounds: The Tribunal determines that it is just an equitable for the
LLP to be wound up. This broad and subjec琀椀ve criterion can encompass various
situa琀椀ons the Tribunal deems as warran琀椀ng winding up for fairness or other reasons.

When a Tribunal ini琀椀ates the winding-up process for an LLP based on these grounds, it
marks the beginning of a formal procedure to dissolve the LLP.
Procedure for winding up of an LLP by a Tribunal: -
The procedure for winding up an LLP by a Tribunal involves several steps to ensure an
orderly and fair dissolu琀椀on of the LLP. Here's an overview of the process:
Step 1: Pe琀椀琀椀on for Winding Up
The process begins with 昀椀ling a pe琀椀琀椀on for winding up to the Tribunal. This pe琀椀琀椀on can be
昀椀led by the LLP itself, creditors, partners, or, in certain cases, by the Registrar or by a person
authorized by the Central Government.
Step 2: Tribunal's Decision to Wind Up
Upon receiving the pe琀椀琀椀on, the Tribunal will consider the reasons for winding up. If the
Tribunal 昀椀nds su昀케cient grounds per the LLP Act's provisions, it will pass a winding-up order.
Step 3: Appointment of Liquidator
Once the winding-up order is passed, the Tribunal will appoint a Liquidator. The role of the
Liquidator is crucial, as they are responsible for managing the en琀椀re winding-up process,
including the liquida琀椀on of assets.
Step 4. Public Announcement:
The Liquidator must publicly announce the winding up, invi琀椀ng claims from creditors and
instruc琀椀ng debtors to se琀琀le their dues.
Step 5. Se琀琀lement of Claims:
The Liquidator will then proceed to se琀琀le the claims of creditors as prescribed by the law.
This includes verifying the claims and deciding the order for the debts to be paid.
Step 6. Liquida琀椀on of Assets:
The Liquidator will liquidate the LLP's assets to generate funds to pay o昀昀 the LLP's debts.
This could involve selling o昀昀 property, machinery, intellectual property, etc.
Step 7. Distribu琀椀on of Assets:
A昀琀er paying o昀昀 the debts. If there are any remaining assets, they are distributed among the
partners of the LLP according to the agreement in the LLP deed or the LLP Act if the deed
does not specify the distribu琀椀on.
Step 8. Dissolu琀椀on of LLP:
Once all debts have been paid, and the remaining assets have been distributed, the
Liquidator will apply to the Tribunal for the dissolu琀椀on of LLP 昀椀rm. A昀琀er ensuring that all
procedures have been correctly followed, the Tribunal will pass an order to dissolve the LLP.
Step 9. Filing of Order with Registrar:
The order of dissolu琀椀on issued by the Tribunal must be 昀椀led with the Registrar by the
Liquidator within a speci昀椀ed period. The Registrar will then publish a no琀椀ce declaring the
LLP to be dissolved.

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[Link]

Ques琀椀on 3:
A Limited Liability Partnership wants to shi昀琀 its registered o昀케ce from Chennai in the State
of Tamil Nadu to Banglore in the State of Karnataka. What procedure the corporate has to
follow under Limited Liability Partnership Act, 2008? [Dec 23 - 8 Marks (16)]
OR
A limited liability partnership wants to shi昀琀 its registered o昀케ce from Mumbai in the State
of Maharashtra to Kolkata in the State of West Bengal. What procedure the corporate has
to follow under Limited Liability Partnership Act, 2008? [Dec 18 - 8 Marks (16)] MTP 2016
Jun2023 Set1 – 8M
Answer:
1. Sec 13 of the LLP Act states that a Limited Liability Partnership may change the place of
its registered o昀케ce and 昀椀le the no琀椀ce of such change with the Registrar in form 15 within
30 days.
2. Registered o昀케ce can be changed from one place to another place in the manner
provided in the Partnership Agreement.
3. If the agreement is silent then consent of all partners shall be required for changing the
place of registered o昀케ce of Limited Liability Partnership to another place,
4. where the change in place of registered o昀케ce is from one State to another State, the
Limited Liability Partnership having secured creditors shall also obtain consent of such
secured creditors.
5. Where the change in place of registered o昀케ce is from one state to another state, a
general no琀椀ce, not less than 21 days before 昀椀ling any no琀椀ce with Registrar, is required
to be published in a
• daily newspaper published in English and in the principal language of the district
in which the registered o昀케ce of the limited liability partnership is situated and
• circula琀椀ng in that district giving no琀椀ce of change of registered o昀케ce.
6. However, there is just change in the jurisdic琀椀on of one Registrar to the jurisdic琀椀on of
another Registrar; the Limited Liability Partnership shall 昀椀le the no琀椀ce in Form 15 with
the Registrar from where the Limited liability partnership proposes to shi昀琀 its registered
o昀케ce.
7. With a copy thereof for the informa琀椀on to the Registrar under whose Jurisdic琀椀on the
registered o昀케ce is proposed to be shi昀琀ed.
8. Failure to comply with the provision of this sec琀椀on
• the Limited Liability Partnership and
• its every partner is liable to be punishable
• with 昀椀ne which shall not be less than
• two thousand rupees but which may extend to twenty-昀椀ve thousand rupees.

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(CS LLB LLM)
62 62 62 143 8 | 9552 52 143 8
[Link]

Ques琀椀on 4:
Discuss the procedure for conversion from a 昀椀rm into an LLP. [7] MTP 2016 Jun 2020 Set1
Answer:
De昀椀ni琀椀on of Key Firm: As defined in Section 4 of the Indian Partnership Act, 1932.
Terms (Second Convert: Transfer of property, assets, interests, rights, privileges, liabilities,
Schedule) obligations, and undertaking of the firm to LLP.
Condi琀椀ons for Partners of the firm must comply with the provisions of the Second Schedule.
Conversion Eligibility:
• All partners of the LLP must be the partners of the firm.
• No other person can be a partner in the LLP post-conversion.
Applica琀椀on for Submit to the Registrar:
Conversion • Form No. 17 (signed by all partners) along with the fee.
• Details required:
• Name and registration number of the firm (if applicable).
• Date of registration under the Indian Partnership Act, 1932,
or other applicable law.
• Incorporation document and statement.
Post-Submission Registrar's Action:
Procedure • Registers the documents.
• Issues a certificate of registration in Form No. 19, specifying the date
of registration under the Act.
• May require verification of documents.
LLP must inform the Registrar of Firms (under the Indian Partnership Act)
within 15 days of registration, providing the particulars of the LLP.
Rejec琀椀on and The Registrar may refuse registration if not satisfied with the information
Appeal provided.
Appeal: Can be filed before the Tribunal in case of refusal.

Ques琀椀on 5:
Discuss the procedure of conversion from unlisted public company into limited liability
partnership. [Dec 22 - 10 Marks (16)]
Answer:
Definitions (Fourth Convert: Transfer of property, assets, interests, rights, privileges, liabilities,
Schedule) obligations, and undertaking of the company to the LLP as per the Fourth
Schedule.
Listed Company: As defined in SEBI (Disclosure and Investor Protection)
Guidelines, 2000, issued under Section 11 of the SEBI Act, 1992. Refers to
companies with securities listed on a recognized stock exchange, including
Public Sector Undertakings with listed securities.
Unlisted Company: A company that is not a listed company.
Conditions for Eligibility Criteria:
Conversion • No security interest should subsist or be in force on the company’s
assets at the time of application.
All shareholders of the company must become partners of the LLP, and no
one else.
Application Process Documents to be filed with the Registrar:
• Form No. 18 (statement by all shareholders) with fees, containing:

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(CS LLB LLM)
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[Link]

• Name and registration number of the company.

• Date of incorporation of the company.
Incorporation document and statement.
Post-Submission Registrar's Action:
Procedure • Registers the documents as per the Act and rules.
• May require verification of documents.
• Issues a certificate of registration in Form No. 19, specifying the date
of registration under the Act.
LLP must inform the Registrar of Companies within 15 days of registration
about the conversion and provide particulars of the LLP in the prescribed
form.
Rejection and Registrar may refuse registration if not satisfied with the particulars or
Appeal information provided.
Appeal: Can be made before the Tribunal against the Registrar’s refusal.

Ques琀椀on 6:
Discuss the procedure of conversion from private limited company into limited liability
partnership. [Dec 19 - 9 Marks (16)]
Answer:
Definition of Convert: Transfer of property, assets, interests, rights, privileges, liabili琀椀es,
'Convert' (Third obliga琀椀ons, and undertaking of the private company to the LLP in accordance
Schedule) with the Third Schedule.
Conditions for Eligibility Criteria:
Conversion • No security interest subsisting or in force on the company’s assets at
the time of application.
• All shareholders of the private company must become partners of
the LLP, and no one else.
All parties (company, shareholders, LLP, and partners) are bound by the
provisions of the Third Schedule.
Application Documents to be filed with the Registrar:
Process • Form No. 18 (statement by all shareholders) with fees, including:
• Name and registration number of the company.
• Date of incorporation of the company.
Incorporation document and statement.
Post-Submission Registrar's Action:
Procedure • Registers the documents as per the Act and rules.
• May require verification of the documents.
• Issues a certificate of registration in Form No. 19, specifying the date
of registration.
LLP must inform the Registrar of Companies within 15 days of registration
about the conversion and provide particulars of the LLP in the required form
with fees.
Rejection and Registrar may refuse registration if not satisfied with the particulars or
Appeal information provided.
Appeal: Can be made before the Tribunal against the Registrar’s refusal.

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(CS LLB LLM)
62 62 62 143 8 | 9552 52 143 8
[Link]

Ques琀椀on 7:
Explain provisions rela琀椀ng to unlimited liability in case of fraud under LLP Act. [June 17 - 7
Marks (12)]
Answer:
1. In case of fraud:
• In the event of an act carried out by a LLP, or any of its partners,
• with intent to defraud creditors of the LLP or any other person, or for any fraudulent
purpose,
• the liability of the LLP and partners who acted with intent to defraud creditors or
for any fraudulent purpose
• shall be unlimited for all or any of the debts or other liabili琀椀es of the LLP.

However, in case any such act is carried out by a partner, the LLP is liable to the same extent
as the partner unless it is established by the LLP that such act was without the knowledge
or the authority of the LLP.

2. Where any business is carried on with such intent or for such purpose as men琀椀oned in
sub-sec琀椀on (1), every person who was knowingly a party to the carrying on of the
business in the manner aforesaid shall be punishable with
• imprisonment for a term which may extend to 昀椀ve years and
• with 昀椀ne which shall not be less than Rs. 50,000 but which may extend to Rs. 5
Lakhs.

3. Where a LLP or any partner or designated partner or employee of such LLP has
conducted the a昀昀airs of the LLP in a fraudulent manner, then without prejudice to any
criminal proceedings which may arise under any law for the 琀椀me being in force, the LLP
and any such partner or designated partner or employee shall be liable to pay
compensa琀椀on to any person who has su昀昀ered any loss or damage by reason of such
conduct.
However, such LLP shall not be liable if any such partner or designated partner or
employee has acted fraudulently without knowledge of the LLP.

Ques琀椀on 8:
Demonstrate the procedure of appointment of auditor as per the Limited Liability Partnership Act,
2008. [Dec 24 – 7 Marks]
Answer: Sec琀椀on
Quali昀椀ca琀椀on of A Chartered Accountant in prac琀椀ce is quali昀椀ed for appointment as an
Auditor auditor.
Appointment of For the First Financial Year:
Auditor(s) • The designated partners may appoint an auditor(s) at any time
but before the end of the first financial year.
For Subsequent Financial Years:
• The designated partners must appoint an auditor(s) at least 30
days prior to the end of each financial year.

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To Fill a Casual Vacancy:

• This includes cases where the turnover or contribution of the
LLP exceeds the prescribed limits or when an auditor is
removed.
Failure to Appoint If the designated partners fail to appoint auditor(s), the partners may
Auditor(s) appoint an auditor(s).
Tenure of Auditor An appointed auditor shall hold office until:
• New auditors are appointed; or
• Re-appointment of the same auditor occurs.
Deemed Re- Rule 24 (14):
appointment of • Where no auditor has been appointed, the existing auditor shall be
deemed to be re-appointed unless:
Auditor
• The LLP agreement requires actual reappointment; or
• The majority of partners determine that the auditor should not be
reappointed and have given notice to this effect to the LLP.
• Notice Requirements:
• A notice may be in hard copy or electronic form and must be
authenticated by the person(s) giving it.
Applicability to The provisions for appointment and reappointment also apply to the
Removal and removal and resigna琀椀on of auditors.

Resigna琀椀on of
Auditors
Remunera琀椀on of The remunera琀椀on may be:
Auditor • Fixed by the designated partners; or
• In accordance with the procedure laid down in the LLP agreement

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(CS LLB LLM)
62 62 62 143 8 | 9552 52 143 8
[Link]

Ques琀椀on 1:
Elaborate the procedure for 昀椀xing and revising minimum wages under the Code on Wages, 2019.
[June 23 - 10 Marks (22)]
Answer:
Procedure for Fixing and Revising Minimum Wages [Sec琀椀on 8]
Methods of Fixing When fixing minimum wages for the first time or revising them under this
or Revising Code, the appropriate Government shall:
Minimum Wages (a) Appoint as many committees as necessary to hold enquiries and
recommend in respect of the fixation or revision; or
[Sec琀椀on 8 (1)] (b) Publish its proposals by notification for the information of persons
likely to be affected, specifying a date (not less than two months from
the date of notification) for consideration of such proposals.
Composi琀椀on of Committees appointed under clause (a) of sub-section (1) shall consist of:
Commi琀琀ees • Persons representing employers.
• Persons representing employees, in a number equal to employer
[Sec琀椀on 8 (2)] representatives.
• Independent persons, not exceeding one-third of the total members of
the committee.
No琀椀昀椀ca琀椀on of After considering:
Minimum Wages • The recommendations of the committee (appointed under clause
(a)), or
[Sec琀椀on 8 (3)] • All representations received before the specified date (under clause
(b)),
the appropriate Government shall fix or revise the minimum rates of
wages by notification.
Unless otherwise provided in the notification, it shall come into force three
months after the date of its issue.
Consulta琀椀on with If the Government proposes to revise minimum wages under clause (b) of
Advisory Board sub-section (1), it shall also consult the Advisory Board constituted under
Section 42.
Review or Minimum rates of wages shall be reviewed or revised by the appropriate
Revision Interval Government at an interval not exceeding five years.
[Sec琀椀on 8 (4)]

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(CS LLB LLM)
62 62 62 143 8 | 9552 52 143 8
[Link]

Ques琀椀on 2:
Demonstrate the 琀椀me limit for payment of wages under the Code on Wages, 2019. [Dec 23 - 7 Marks
(22)] [Model Ques琀椀on Paper Set 1 – Dec 23 – 7 Marks]
Answer:
Time Limit for Payment of Wages [Sec琀椀on 17]
Payment Based on Wages must be paid as follows:
Wage Period • Daily basis: At the end of the shift.
• Weekly basis: On the last working day of the week, before the
[Sec琀椀on 17(1)] weekly holiday.
• Fortnightly basis: Before the end of the second day after the end
of the fortnight.
• Monthly basis: Before the expiry of the seventh day of the
succeeding month.
Payment upon Wages must be paid within two working days if an employee is:
Termina琀椀on of • Removed or dismissed from service,
Employment • Retrenched,
[Sec琀椀on 17(2)] • Resigned, or
• Became unemployed due to closure of the establishment.
Power of Appropriate The appropriate Government may prescribe any other time limit for
Government payment of wages, considering the circumstances under which wages
[Sec琀椀on 17(3)] are to be paid.
Other Legal Provisions Sub-section (1) and (2) do not affect any time limit for payment of
[Sec琀椀on 17(4)] wages provided in other laws in force.

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(CS LLB LLM)
62 62 62 143 8 | 9552 52 143 8
[Link]

Ques琀椀on 3:
Analyse the deduc琀椀ons, which are might be made from wages as per sec琀椀on 18 of the Code of
Wages Act ,2019. [Model Ques琀椀on Paper Set 1 – Dec 24 – 7 Marks] MTP 2016 Dec 2023 Set1 MTP
2016 Jun2023 Set1 – 10M [MQP_Paper5_Set1_Dec24 - 7 Marks]
Answer:
Deduc琀椀ons from Wages [Sec琀椀on 18]
General Rule on No deductions from wages except those authorized under this Code.
Deduc琀椀ons Explanation:
(a) Payments made by an employee to the employer or agent are deemed
[Sec琀椀on 18(1)] deductions.
(b) Loss of wages due to withholding increment, demotion, or suspension
(for valid reasons) is not deemed deductions if provisions meet government-
specified requirements.
Authorized Deductions can only be made for the following purposes:
Deduc琀椀ons (a) Fines imposed on the employee.
(b) Absence from duty.
[Sec琀椀on 18(2)] (c) Damage or loss caused due to employee's neglect or default (e.g., goods
or money entrusted for custody or accounting).
(d) House-accommodation provided by employer, government, or housing
board.
(e) Amenities and services provided by the employer, authorized by the
government (excluding tools/raw materials).
(f) Recovery of advances (e.g., travel allowance, overpayment, welfare
fund loans).
(g) House-building loans and similar approved loans.
(h) Statutory deductions: Income tax, court-ordered payments, or other
statutory levies.
(i) Social security contributions: Provident fund, pension fund, health
insurance, etc.
(j) Payments to cooperative societies, subject to government-imposed
conditions.
(k) Trade Union fees with written authorization of the employee.
(l)-(n) Railway administration losses, e.g., counterfeit currency, incorrect
rebates, or uncollected charges due to employee negligence.
(o) Prime Minister's National Relief Fund or other government-notified
funds (with written authorization of employee).
Limit on • Total deductions cannot exceed 50% of wages in any wage period.
Deduc琀椀ons • Excess deductions (beyond 50%) may be recovered in a prescribed
[Sec琀椀on 18(3) manner.
(4)]
Employer If the employer fails to deposit deducted amounts into a trust, government
Default in fund, or other account as required, the employee is not held responsible.
Deposi琀椀ng
Deduc琀椀ons

[Sec琀椀on 18(5)]

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(CS LLB LLM)
62 62 62 143 8 | 9552 52 143 8
[Link]

Ques琀椀on 4:
What is the procedure in imposi琀椀on of 昀椀ne on the employee under this Act? MTP 2016 Jun 2020
Set1 – 8 Marks [June 25 - 7 Marks]
Answer:
Fines [Sec琀椀on 19]
Restric琀椀on on Fines can only be imposed for acts or omissions speci昀椀ed by the employer
Imposi琀椀on of with prior approval of the appropriate Government or prescribed authority.
Fines
Display of A no琀椀ce specifying such acts and omissions must be exhibited on the
Speci昀椀ed Acts premises in a manner prescribed.
and Omissions
Opportunity to No 昀椀ne can be imposed unless the employee is given an opportunity to show
Show Cause cause or as per the prescribed procedure.
Limit on Fine The total 昀椀ne in a wage period cannot exceed 3% of the wages payable for
Amount that period.
Fines on Minors No 昀椀nes can be imposed on employees under the age of 15 years.
Recovery of Fines cannot be recovered:
Fines • By installments.
• A昀琀er 90 days from the day they were imposed.
Deemed Date of A 昀椀ne is deemed to be imposed on the day of the act or omission it relates
Imposi琀椀on to.
Register of Fines • All 昀椀nes and realiza琀椀ons must be recorded in a register in the prescribed
manner and form.
• Realiza琀椀ons from 昀椀nes must only be applied to purposes bene昀椀cial to
employees, as approved by the prescribed authority.

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(CS LLB LLM)
62 62 62 143 8 | 9552 52 143 8
[Link]

Ques琀椀on 5:
Discuss the applicability of 'Eligibility for Bonus' under the act "The Code on Wages, 2019". [Model
Ques琀椀on Paper Set 2 – Dec 23 – 7 Marks]
Answer:
Eligibility for bonus, etc. [Sec琀椀on 26]
Allocable Surplus Allocable Surplus is the portion of the employer's profits available for
distribution to employees as a bonus. It is derived after making certain
statutory deductions from the gross profit. These deductions are outlined in
the Income Tax Act and may include depreciation, reserves, and other
prescribed expenses.

Formula for Allocable Surplus=Gross Profit−Statutory Deductions.

Allocable Surplus
Set-On • If the allocable surplus in a given year exceeds the maximum bonus
liability (20% of wages), the excess amount is carried forward as "set-on."
• The "set-on" can be used in subsequent years when the allocable surplus is
insufficient to pay the minimum bonus.
• Maximum carry-forward period: 4 years.
Set-Off • If the allocable surplus is less than the minimum bonus liability
(8.33% of wages), the shortfall is carried forward as "set-off."
• This shortfall can be adjusted in future years when there is surplus
beyond the required amount.
• Maximum carry-forward period: 4 years.
Example of Wages: ₹1,00,00,000 (across all employees)
Allocable Surplus Minimum Bonus (8.33%): ₹8,33,000
with Set-On/Set- Maximum Bonus (20%): ₹20,00,000
Off Adjustments Year 1:
• Allocable Surplus: ₹25,00,000
• Bonus Liability: ₹20,00,000 (maximum limit)
• Excess Surplus (Set-On): ₹25,00,000 - ₹20,00,000 = ₹5,00,000
Year 2:
• Allocable Surplus: ₹5,00,000
• Minimum Bonus Required: ₹8,33,000
• Shortfall (Set-Off): ₹8,33,000 - ₹5,00,000 = ₹3,33,000
The ₹3,33,000 shortfall is adjusted against the set-on from Year 1, leaving a
remaining set-on balance of ₹1,67,000 (₹5,00,000 - ₹3,33,000).
Year 3:
• Allocable Surplus: ₹18,00,000
• Bonus Liability: ₹18,00,000 (since it's below the maximum limit, all is
used for bonus).
• No Set-On/Set-Off Adjustments Needed.
Key Notes on 1. The total set-on or set-off must be carried forward for a maximum of 4
Set-On and Set- accounting years.
Off 2. The adjustments ensure employees receive at least the minimum bonus
even in years of financial difficulty, provided earlier profits allow for it.
Eligibility for Bonus, etc.
Payment of • Every employee drawing wages not exceeding an amount per month as
Minimum Bonus determined by notification by the appropriate Government and working at
least 30 days in an accounting year shall receive:

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[Link]

[Section 26 (1)] • Annual Minimum Bonus at 8.33% of wages earned, or

• ₹100, whichever is higher.
• This applies irrespective of whether the employer has any allocable surplus
in the previous accounting year.
Calculation for If an employee's wages exceed the amount determined by the appropriate
Higher Wages Government, the bonus payable is calculated as if the wages were the notified
amount or the minimum wage, whichever is higher.
[Section 26 (2)]
Bonus in Case of If allocable surplus exceeds the minimum bonus, the employer must pay a
Allocable Surplus bonus proportional to the wages earned, subject to a maximum of 20% of the
wages.
[Section 26 (3)]
Consideration of The amount set on or set off under section 36 shall be included while
Allocable Surplus computing allocable surplus.

[Section 26 (4)]
Excess Bonus Any demand for bonus exceeding the minimum bonus shall:
Demand • Be based on production or productivity in the accounting year.
[Section 26 (5)] • Be subject to an agreement or settlement between the employer and
employees.
• Not exceed 20% of wages earned.
Bonus for Initial In the first 5 accounting years after the establishment begins sales or services,
Accounting Years bonus is payable only if profits are earned, and is calculated without applying
section 36.
[Section 26 (6)]
Set On or Set Off In the 6th and 7th accounting years, section 36 provisions apply with
in Sixth and modifications:
Seventh Years • 6th year: Set on or set off is calculated based on excess or deficiency
from the 5th and 6th years.
[Section 26 (7)] • 7th year: Set on or set off is calculated based on excess or deficiency
from the 5th, 6th, and 7th years.
Application from From the 8th year onward, section 36 applies as it does for any other
Eighth Year establishment.
Onwards

[Section 26 (8)]
Profit Definition An employer is deemed to have derived profit only if:
for Sub-section • Provision for depreciation for the year is made as per the Income-tax
(6) Act or agricultural income tax laws.
• Arrears of depreciation and previous losses have been fully set off.
Trial Production • Sales during trial running of a factory or prospecting stage of a mine or oil
Exclusion field are excluded.
• The appropriate Government decides any related disputes after providing
an opportunity for representation.
Application to Sub-sections (6), (7), and (8) also apply to new departments, undertakings, or
New branches set up by existing establishments.
Departments or
Branches

[Section 26 (9)]

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[Link]

Ques琀椀on 6:
State the procedure of payment of undisbursed wage in case of death of employed person under
Payment of Wages Act, 1936. [Dec 23 - 6 Marks (16)]
Answer:
Payment of Various Undisbursed Dues in Case of Death of Employee [Sec琀椀on 44]
Payment of Dues • If amounts payable to an employee under this Code could not or
in Case of Death or cannot be paid due to:
Unknown (a) The death of the employee before payment.
Whereabouts (b) The whereabouts of the employee being unknown.
• Such amounts shall:
(a) Be paid to the person nominated by the employee in accordance
with the rules made under this Code.
(b) If no nomination has been made or the amounts cannot be paid to
the nominee for any reason, the amounts shall be deposited with the
authority prescribed under this Code.
• The prescribed authority shall deal with the deposited amounts as per
the rules prescribed.
Employer's When the employer takes the following actions, they are discharged of
Discharge of their liability to pay the amounts:
Liability (a) Payment to the person nominated by the employee under the Code.
(b) Deposit of the amounts with the prescribed authority as per clause (b)
of sub-section (1).

Ques琀椀on 7:
Demonstrate claims made under The Code on Wages, 2019 and procedure thereof. [Dec 24 - 7
Marks]
Answer:
Appointment of The appropriate Government may, by no琀椀昀椀ca琀椀on, appoint one or more
Authori琀椀es authori琀椀es, not below the rank of a Gaze琀琀ed O昀케cer, to hear and determine
claims arising under the provisions of this Code.
[Sec琀椀on 45 (1)]
Decision on Claims • The authority appointed under sub-section (1), while deciding the claim,
and Compensa琀椀on may order payment of compensation in addition to the claim
determined, considering the circumstances under which the claim
[Sec琀椀on 45 (2)] arises.
• The compensation may extend to ten times the claim determined.
• Efforts shall be made by the authority to decide the claim within three
months.
Recovery in Case of • If an employer fails to pay the claim determined and compensation
Non-Payment ordered, the authority shall issue a certificate of recovery to the
Collector or District Magistrate of the district where the establishment
[Sec琀椀on 45 (3)] is located.
• The Collector or District Magistrate shall recover the amount as arrears
of land revenue and remit it to the authority for payment to the
concerned employee.
Persons Eligible to Applica琀椀ons for claims may be 昀椀led by:
File Applica琀椀ons a) The employee concerned.
b) Any Trade Union registered under the Trade Unions Act, 1926, of which
[Sec琀椀on 45 (4)]

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the employee is a member.

c) The Inspector-cum-Facilitator.
Filing of Joint Subject to rules, a single applica琀椀on may be 昀椀led on behalf of or in respect
Applica琀椀ons of mul琀椀ple employees employed in an establishment.

[Sec琀椀on 45 (5)]
Time Limit for Filing • Applications under sub-section (4) must be filed within three years from
Applica琀椀ons the date on which the claim arises.
• However, the authority under sub-section (1) may entertain applications
[Sec琀椀on 45 (6)] filed after three years if the applicant shows sufficient cause for delay.
Powers of the • The authority appointed under sub-section (1) and the appellate
Authority and authority under Section 49(1) shall have all the powers of a civil court
Appellate Authority under the Code of Civil Procedure, 1908, for:
• Taking evidence.
[Sec琀椀on 45 (7)] • Enforcing the attendance of witnesses.
• Compelling the production of documents.
• These authorities shall be deemed as civil courts for all purposes of
Section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973.

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Ques琀椀on 1:
Dis琀椀nguish between holder and holder in due course. [June 23 - 5 Marks (22)]
Answer:
S No. Holder Holder-in-due course
1 Holder is en琀椀tled in his own name Holder-in-due course possesses the
to possess the instrument and the instrument for considera琀椀on before maturity
amount thereon from par琀椀es and in good faith.
involved.
2 Title of the holder is subject to 琀椀tle Holder-in-due course gets a be琀琀er 琀椀tle than
of the transfer. transfer.
3 Holder may receive the instrument Holder-in-due course always receives the
without considera琀椀on. instrument for considera琀椀on.
4 Holder does not get certain Holder-in-due course always gets privileges
privileges available to the Holder-in- not available to holder.
due course.

Ques琀椀on 2:
What are the di昀昀erent types of instruments men琀椀oned in the Nego琀椀able Instruments Act,
1881? [June 23 - 6 Marks (16)] [Dec 24 - 7 Marks]
Answer:
There are various types of instruments men琀椀oned in the Nego琀椀able Instruments Act, 1881
as follows:
1. Inland instrument – a promissory note, bill of exchange or cheque drawn or made in
India and made payable in, or drawn upon any person resident in, India shall be deemed to
be an inland instrument.
Example:
(a) A promissory note made in Kolkata and payable in Mumbai.
(b) A bill drawn in Varanasi on a person resident in Jodhpur (although it is stated to be
payable in Singapore)
(c) A, a resident of Agra, drew (i.e., made) a bill of exchange in Agra on B, a merchant in
New York. And B accepted the bill of exchange as payable in Delhi. It is an inland bill of
exchange. In this case, the bill of exchange was drawn in India and also payable in India.
(d) A, resident of Mumbai, drew a bill of exchange in Mumbai on B, a merchant in Mathura.
And B accepted the bill of exchange as payable in London. It is also an inland bill of
exchange. In this case, the bill of exchange was drawn in India on a person resident in
India. It is immaterial that the amount is payable in London. An inland instrument
remains inland even if it has been endorsed in a foreign country.
(e) If the bills of exchange men琀椀oned in above two examples, are endorsed in France, they
will remain inland bills.

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2. Foreign instrument – a promissory note, bill of exchange or cheque not drawn, made or
made payable, in India, shall be deemed to be a foreign instrument.
3. Ambiguous instrument – where an instrument may be construed either as a promissory
note or bill of exchange, the holder may at his elec琀椀on, treat it as either and the instrument
shall be thenceforward treated accordingly.
4. Instruments payable on demand – A promissory note or bill of exchange, in which no
琀椀me for payment is speci昀椀ed, and a cheque, are payable on demand.
5. Inchoate stamped instruments –
• Where one person signs and delivers to another
• a paper stamped
• wholly blank or having wri琀琀en thereon
• an incomplete nego琀椀able instrument,
• he thereby gives prima facie authority to the holder thereof
• to make or complete, as the case may be, upon it a nego琀椀able instrument,
• for any amount speci昀椀ed therein
• and not exceeding the amount covered by the stamp.
• The person so signing shall be liable upon such instrument, in the capacity in which he
signed the same,
• to any holder in due course for such amount
• provided that no person other than a holder in due course shall recover from the
person delivering the instrument anything in excess of the mount intended by him to
be paid there under.

Example: 'A' signs, as maker, a blank stamped (Su昀케cient to cover amount of Rs.1000) paper
and gives it to 'B', and authorizes him to 昀椀ll it as note for Rs. 500. 'B' fraudulently 昀椀lls it up
as note for Rs. 2,000, and endorsed to 'C' (B9s brother) as gi昀琀 who received it in good faith.
Decide, with reasons whether 8C is en琀椀tled to recover the amount and if so, up to what
extent?

Mr. C is en琀椀tled to recover Rs.500 from Mr. A since:

1. Mr. C received such instrument as gi昀琀.
2. Which means Mr. C is holder and not in holder in due course.
3. Because to become holder in due course Mr. c must receive such instrument for
considera琀椀on or value [ Sec琀椀on 9]
Ques琀椀on 3:
Raju is the holder of a bill of exchange made payable to the order of Ram. The bill of
exchange contains the following endorsements in blank:
(i) First endorsement Ram
(ii) Second endorsement Ganesh.
(iii) Third endorsement Naresh and
(iv) Fourth endorsement Bakul

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Raju strikes out, without Bakul's consent, the endorsements by Ganesh and Naresh.
Describe with reasons whether Raju is en琀椀tled to recover anything from Bakul under the
provisions of Nego琀椀able Instruments Act, 1881. [MQP_Paper5_Set2_Dec24 - 7 Marks]
Answer:
According to sec琀椀on 40 of the Nego琀椀able Instruments Act, 1881, where the holder of a
nego琀椀able instrument, without the consent of the endorser, destroys or impairs the
endorser9s remedy against a prior party, the endorser is discharged from liability to the
holder to the same extent as if the instrument had been paid at maturity. Any party liable
on the instrument may be discharged by the inten琀椀onal cancella琀椀on of his signature by the
holder.

In the given ques琀椀on, Raju is the holder of a bill of exchange of which Ram is the payee and
it contains the following endorsement in blank:

First endorsement = Ram

Second endorsement = Ganesh
Third endorsement = Naresh
Fourth endorsement = Bakul

Raju, the holder, may inten琀椀onally strike out the endorsement by Ganesh and Naresh, in
that case the liability of Ganesh and Naresh upon the bill will come to an end. But if the
endorsements of Ganesh and Naresh are struck out without the consent of Bakul , Raju will
not be en琀椀tled to recover anything from Bakul. The reason being that as between Naresh
and Bakul, Naresh is the principal debtor and Bakul is surety. If Naresh is released by the
holder under Sec琀椀on 39 of the Act, Bakul, being surety, will be discharged. Hence, when the
holder without the consent of the endorser impairs the endorser9s remedy against a prior
party, the endorser is discharged from liability to the holder.

Thus, if Raju strikes out, without Bakul9s consent, the endorsements by Ganesh and Naresh,
Bakul will also be discharged.

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Ques琀椀on 4:
Anil draws a bill of exchange payable to himself on Sushil, who accepts the bill without
considera琀椀on just to accommodate Anil. Anil transfers the bill to Ajay for good
considera琀椀on. State the rights of Anil and Ajay. Would your answer be di昀昀erent if Anil
transferred the bill to Ajay a昀琀er maturity? [June 18 - 7 Marks (16)] MTP 2016 Jun2023 Set1

OR

A draws a bill on B. B accepts the bill without any considera琀椀on. The bill is transferred to C
without considera琀椀on. C transferred it to D for value, Decide –
i) Whether D can sue the prior par琀椀es of the bill,
ii) Whether the prior par琀椀es other than D have any right of ac琀椀on intense? Give your answer
in reference to the Provisions of Nego琀椀able Instruments Act, 1881. [June 17 - 6 Marks (16)]

OR

Lokesh draws a bill of exchange payable to himself on Prachi, who accepts the bill without
considera琀椀on just to accommodate Lokesh. Lokesh transfers the bill to Govind for good
considera琀椀on. State the rights of Lokesh and Govind. Would your answer be di昀昀erent if
Lokesh transferred the bill to Govind a昀琀er maturity? MTP 2016 Jun 2020 Set1 – 8 Marks

OR

Ajay draws a bill on Anoop. Anoop accepts the bill without any considera琀椀on. The bill is
transferred to Udit without considera琀椀on. Udit transferred it to Vicky for value. Decide -
(i) Whether Vicky can sue the prior par琀椀es of the bill?
(ii) Whether the prior par琀椀es other than Vicky have any right of ac琀椀on intense? [June 19 -
8 Marks (16)]

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Ques琀椀on 5:
X, by inducing Y, obtains a Bill of Exchange from him fraudulently in his (X) favour. Later, he
enters into a commercial deal and endorses the bill to Z towards considera琀椀on to him (Z)
for the deal. Z takes the Bill as a holder in due course. Z subsequently endorses the bill to X
for value, as considera琀椀on to X for some other deal. On maturity, the bill is dishonoured. X
sues Y for recovery of money. With reference to the provisions of Nego琀椀able Instruments
Act, decide whether X will succeed in the case. [Dec 17 - 7 Marks (16)]
Answer:
Sec琀椀on 58 of Nego琀椀able Instruments Act provides that when an instrument is obtained by
fraud, o昀昀ence or for unlawful considera琀椀on, possessor or endorsee cannot receive the
amount of Instrument. Hence, normally X would not be en琀椀tled to sue Y as X has obtained
instrument through fraud.

However, as per sec琀椀on 53, a holder who derives 琀椀tle from holder in due course has all
rights of a holder in due course. Since X derives his 琀椀tle from Z (who is a holder in due
course), X has all rights of Z.

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Second part of sec琀椀on 58 also makes it clear that even if a nego琀椀able instrument is obtained
by means of an o昀昀ence or fraud or for unlawful considera琀椀on, the possessor or endorsee is
en琀椀tled to receive the amount from the maker, if he is a holder in due course or claims
through a person who was a holder in due course. Hence, X can sue Y as he is deriving his
right from Z, who is holder in due course. Hence, X will succeed.

Ques琀椀on 6:
Discuss the special characteris琀椀cs of <Nego琀椀able Instruments.= [Model Paper – Set 1 – June
23 – 7 Marks]
Answer:
Special characteris琀椀cs of Nego琀椀able Instruments are -
1. It must be in wri琀椀ng.
2. It should be signed by the maker or drawer.
3. There must be a promise or order to pay.
4. The promise or order must be uncondi琀椀onal.
5. It must call for payment in money and money only.
6. It should call for payment of a certain sum.
7. The property in the instrument may be passed in two ways:
a) by mere delivery; and
b) by indorsement and delivery.
8. The considera琀椀on is also presumed to have been passed

Ques琀椀on 7:
Dis琀椀nguish between Bill of Exchange and Promissory Note. [Dec 17 - 7 Marks (12)]
Answer:
Dis琀椀nguish between Bill of Exchange and Promissory Note. The following are the points of
di昀昀erences between a Bill of Exchange and Promissory note:
1. Number of Par琀椀es: In a Bill of Exchange there are three par琀椀es - the drawer, the drawer
and the payee. In a promissory note, there are 2 par琀椀es - the maker and the payee.
2. Promise and Order: In a Bill of Exchange, there is an order to pay. In a Promissory note
there is a promise to pay.
3. Acceptance: A bill needs acceptance but a promissory note does not require acceptance.
4. Liability: The drawer of a bill is liable only when the drawer does not accept the bill or
pay the money due. But the make of a Promissory note is primarily liable on the
instrument.
5. Rela琀椀onship: In a Bill of Exchange, a drawer stands in an immediate rela琀椀onship with
the acceptor; But the maker of the Promissory note stands in an immediate rela琀椀onship
to the payee

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6. No琀椀ce: In case of non-acceptance or non-payment of a bill of no琀椀ce must be given to all

persons liable to pay. This is called 'No琀椀ce of Dishonor'. In the case of a Promissory note,
no 'No琀椀ce of Dishonor' is necessary.

Ques琀椀on 8:
Examine the validity of the acceptance by the term-
(i) "Acceptance by mere signature of the drawee without the addi琀椀on of the word
'Accepted' on the nego琀椀able instrument".
(ii) "An Oral Acceptance". [Model Ques琀椀on Paper Set 2 – Dec 23 – 7 Marks]
Answer:
Following are the essen琀椀als of a valid acceptance:
• Acceptance may be oral or in wri琀椀ng;
• It may be expressed or implied;
• If a par琀椀cular method of acceptance is prescribed, the o昀昀er must be accepted in the
prescribed manner;
• It must be unquali昀椀ed and absolute and must correspond with all terms of the o昀昀er;
• The condi琀椀onal acceptance will amount to rejec琀椀on of o昀昀er;
• A counter o昀昀er for acceptance will also amount to reject of o昀昀er but the counter o昀昀er
may be accepted or rejected by the other party;
• It must be communicated to the o昀昀erer, since acceptance is completed the moment it is
communicated;
• Mere silence on the part of the o昀昀eree does not amount to acceptance;
• The acceptance should be given if there is a 琀椀me limit is 昀椀xed or otherwise at a
reasonable 琀椀me and before he o昀昀ers lapses or is revoked.

The given problem is answered as follows:

1) An oral acceptance is not valid since the acceptance must be in wri琀椀ng and signed.
2) Although it is usual to accept the bill by wri琀椀ng the word 8accepted9, yet it is not a
necessary condi琀椀on to make the acceptance valid.
In other words, signature made by the drawee on the bill amounts valid acceptance even
though such signature is not accompanied by the word 8Accepted9. Therefore, the
acceptance in the given case is valid.
Ques琀椀on 9: Mr. X drew a cheque payable to Mr. Y on order. Mr. Y lost the cheque and was
not aware of the loss of the cheque. The person who found the cheque forged the signature
of Mr. Y and endorsed it to Mr. Z as the considera琀椀on for goods bought by him from Mr. Z.
Mr. Z encashed the cheque, on the very same day from the drawee bank. Mr. Y in琀椀mated
the drawee bank about the the昀琀 of the cheque a昀琀er three days. Review the liability of the
drawee bank. [Dec 24 - 7 Marks]

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Answer:
Cheque payable to order [Sec琀椀on 85 of the Nego琀椀able Instruments Act, 1881]
(1) Where a cheque payable to order purports to be endorsed by or on behalf of the payee,
the drawee is discharged by payment in due course.
(2) Where a cheque is originally expressed to be payable to bearer, the drawee is discharged
by payment in due course to the bearer thereof, notwithstanding any endorsement whether
in full or in blank appearing thereon, and notwithstanding that any such en dorsement
purports to restrict or exclude further nego琀椀a琀椀on.

As per the given facts, cheque is drawn payable to <Mr. Y or order=. It was lost and Mr. Y
was not aware of the same. The person found the cheque and forged and endorsed it to
Mr. Z, who encashed the cheque from the drawee bank. A昀琀er few days, Mr. Y in琀椀mated
about the the昀琀 of the cheque, to the drawee bank, by which 琀椀me, the drawee bank had
already made the payment.

According to above stated sec琀椀on 85 of the Act, the drawee banker is discharged when it
has made a payment against the cheque payable to order when it is purported to be
endorsed by or on behalf of the payee. Even though the signature of Mr. Y is forged, the
banker is protected and is discharged. The true owner, Mr. Y, cannot recover the money
from the drawee bank in this situa琀椀on.

Ques琀椀on 10:
Discuss the circumstances when a Bill of Exchange is dishonoured and the role of a no琀椀ce
in this regard. [Model Ques琀椀on Paper Set 1 – Dec 24 – 7 Marks]
Answer:
The dishonour may be due to the following reasons-
1. non acceptance; and
2. by non-payment
1. Sec琀椀on 91 provides that a bill of exchange is said to be dishonored by non- acceptance
• when the drawee, or one of several drawees, not being partners,
• makes default in acceptance upon being duly required to accept the bill, or
• where presentment is excused and the bill is not accepted.
• When the drawee is incompetent to contract, or the acceptance is quali昀椀ed the bill
may be treated as dishonored.
2. Sec琀椀on 92 provides that an instrument is said to be dishonored by non -payment
• when the maker of the note, acceptor of the bill or drawee of the cheque makes
default in payment upon being duly required to pay the same.

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Role of a no琀椀ce:
Sec琀椀on 93 provides that when an instrument is dishonoured the holder must give no琀椀ce
that the instrument has been dishonoured.
Sec琀椀on 94 provides that the no琀椀ce may be in wri琀椀ng or oral.
• If it is in wri琀琀en form
• it must be sent by post and may be in any form
• but it must inform the party to whom it is given either in express term or by reasonable
intendment
• that the instrument has been dishonored and he will be held liable thereon. It must be
given within a reasonable

Ques琀椀on 11:
Vinit draws a cheque in favour of Pankaj, a minor, Pankaj endorses the same in favour of
Vikas. The cheque is dishonoured by bank on grounds of inadequate funds. What legal
remedy is available to Vikas under the provisions of the Nego琀椀able Instruments Act, 1881?
[Dec 23 - 7 Marks (16)]
OR
Mr. S. K drew a cheque in favour of Mr. P. K who was seventeen years old. Mr. P. K se琀琀led
his rental due by endorsing the cheque in favour of Mrs. R. K the owner of the house in
which he stayed. The cheque was dishonoured when Mrs. R. K presented it for payment on
the grounds of inadequacy of funds. Advice to Mrs. R. K how she can proceed to collect her
dues. [Dec 19 - 6 Marks (16)]
Answer:
• Capacity to incur liability as a party to a nego琀椀able instrument is co-extensive with
capacity to contract.
• According to Sec琀椀on 26 of the Nego琀椀able Instruments Act, 1881, every person capable
of contrac琀椀ng, may bind himself and be bound by making, drawing, acceptance,
endorsement, delivery and nego琀椀a琀椀on of a promissory note, bill of exchange or
cheque.
• Nega琀椀vely, minors, luna琀椀cs, idiots, drunken person and persons otherwise disquali昀椀ed
by their personal law, do not incur any liability as par琀椀es to nego琀椀able instruments.

But in capacity of one or more of the par琀椀es to a nego琀椀able instrument in no way,

diminishes the liabili琀椀es of the competent par琀椀es to the said instrument.
Therefore, where a minor is the endorser or payee of an instrument which has been
endorsed all the par琀椀es excep琀椀ng the minor are liable in the event of its dishonor.

In the given case Vikas can recover the amount of cheque from Vinit who delivers the
cheque in favour of Pankaj, a minor by resor琀椀ng to the provisions of the Nego琀椀able
Instruments Act, 1881.

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Dishonour of Cheque o昀昀ence u/s 138

1. Cheque issued by Drawer to clear the liability

2. Presented within 3 months or validity period, whichever is earlier.
3. Returned due to insu昀케ciency of funds
4. Payee serves no琀椀ce of dishonour within 30 days
5. Drawer fails to make the payment with 15 days from the date of receipt of no琀椀ce
6. Drawer deemed to have commi琀琀ed a o昀昀ence liable for (a) 昀椀ne - twice the amount of
cheque; (b) Imprisonment for 2 years; (c) Both
7. Payee a昀琀er the expiry of 15 days can 昀椀le a suit within 1 month
Ques琀椀on 12:
Explain assignment of nego琀椀a琀椀on instruments. How would you di昀昀eren琀椀ate between
nego琀椀a琀椀on and assignment? [June 24 - 7 Marks] [Dec 21 - 6 Marks (16)]
Answer:
Assignment of Nego琀椀a琀椀on Instruments
• Assignment takes place where the holder of an instrument transfers it to another so as
to confer a right on the transferee to receive the payment of the instrument.
• All nego琀椀able instruments are transferable by assignment without endorsement under
sec琀椀ons 130-132 of the Transfer of property act.
• Assignment of a nego琀椀able instrument is e昀昀ected by wri琀椀ng without endorsement.
• The main feature of assignment is that the assignee obtains the right of the assignor.
• Therefore, if the assignor9s 琀椀tle is defec琀椀ve assignee 琀椀tle will also be defec琀椀ve.

S. No. Nego琀椀a琀椀on Assignment

1 Considera琀椀on is presumed un琀椀l Considera琀椀on must be proved
contrary is proved.
2 If transferee is a holder in due Assignee9s 琀椀tle is always subject to
course, he takes the instrument defences and equi琀椀es between the
free from any defects. original debtor and assignor.
3 No琀椀ce of transfer is not necessary. No琀椀ce of assignment must be given
4 Nego琀椀a琀椀on is e昀昀ected by delivery Assignment is e昀昀ected only by wri琀椀ng
in case of instruments payable to
bearer and by delivery and
endorsement in case of instrument
payable to order.
5 Transferee can sue the third party Assignee cannot sue the third party in
in his own name. his own name.
6 There are a number of There are no such presump琀椀ons.
presump琀椀ons in favour of holder in
due courses

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Ques琀椀on 13: Examine the validity of the condi琀椀on "Issuing a cheque that bounces is an
O昀昀ence". MQP_Paper5_Set2_Dec24 - 7 Marks
Sec琀椀on 138 provides penalty for dishonour of cheque for insu昀케ciency etc., of funds in the
account. Where any cheque drawn by a person on an account maintained by him with a
banker for payment of any money to another person from out of that account for t he
discharge, in whole or in part, of any 8debt or other liability9 (a legally enforceable debt or
other liability) is returned by the bank unpaid, -
• either because of the amount of money standing to the credit of that account is
insu昀케cient to honor the cheque; or
• that it exceeds the amount arranged to be paid from that account by an agreement made
with that bank, such person shall be deemed to have commi琀琀ed an o昀昀ence and shall,
without prejudice to any other provision of this Act, be punished with imprisonment for a
term which may be extended to 2 years or with 昀椀ne which may extend to twice the amount
of the cheque, or with both.

The penal provision in this cheque shall not apply unless-

• the cheque has been presented to the bank within a period of three months (with e昀昀ect
from 01.04.2012, before that it is six months) from the date on which it is drawn or within
the period of its validity, whichever is earlier;
• the payee or the holder in due course of the cheque, as the case may be, makes a demand
for the payment of the said amount of money by giving a no琀椀ce in wri琀椀ng to the drawer of
the cheque within 30 days of the receipt of informa琀椀on by him from the bank regarding the
return of the cheques as unpaid; and
• the drawer of such cheque fails to make the payment of the said amount of money to the
payee or as the case may be, to the holder in due course of the cheque within 15 days of
the receipt of the said no琀椀ce. Condi琀椀ons precedent

In 8Kusum Ingots & Alloys Limited V. Pennar Peterson Securi琀椀es Limited9 – AIR 2000 SC 954,
the Supreme Court held that the ingredients which are to be sa琀椀s昀椀ed for making out a case
under Sec琀椀on 138 of the Act, are-
• a person must have drawn a cheque on an account maintained by him in a bank for
payment of a certain amount of money to another person from out of that account for
discharge of any debt or other liability;
• that cheque has been presented to the bank within a period of six months (now three
months) from the date on which it is drawn or within the period its validity whichever is
earlier;
• that the cheque is returned by the bank unpaid, either because of the amount of money
standing to the credit of the account is insu昀케cient to honor the cheque or that it exceeds
the amount arranged to be paid from that account by an agreement made with the bank;
• the payee or holder in due course of the cheque makes a demand for the payment of the
said amount of money by giving a no琀椀ce in wri琀椀ng to the drawer of the cheque, within 15
days (now 30 days) of the receipt of informa琀椀on by him from the bank regarding the
return of the cheque as unpaid;

•the drawer of such cheque fails to make payment of the said amount of money to the
payee or the holder in due course of the cheque within 15 days of the receipt of the said
no琀椀ce.

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 Arjun Chhabra
(CS LLB LLM)
62 62 62 143 8 | 9552 52 143 8
[Link]

Sec琀椀on 139 provides that it shall be presumed, unless the contrary is proved that the holder
of a cheque received the cheque, of the nature referred to in Sec琀椀on 138, for the discharge,
in whole or in part, of any debt or other liability.

In 'B. Mohan Krishna V. Union of India' 1996 CrLJ 683 (AP DB), the Andhra Pradesh High
Court Division Bench held that the presump琀椀on in Sec琀椀on 139 in favor of the holder of a
cheque is not viola琀椀ve of Ar琀椀cle 20(3) of the Cons琀椀tu琀椀on which incorporates immunity
against self-incrimina琀椀on.
Sec琀椀on 140 provides that it shall not be a defence in a prosecu琀椀on for an o昀昀ence under
Sec琀椀on 138 that the drawer had no reason to believe when he issued the cheque that the
cheque may be dishonoured on presentment for the reasons stated in the sec琀椀on .

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