Category: Osmania University B.com Notes

Osmania University B.com Notes

Rights and Remedies of Unpaid Seller

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Unpaid Seller

A seller is under an obligation to deliver the goods sold and buyer is under an obligation to pay the requisite amount set or quid pro quo i.e something in return, under the contract of sale, by them. This is known as reciprocal promise as per Section 2(f) of the Indian Contract Act. In other words, any set of promises made which forms the consideration or part of the consideration for each other are called reciprocal promises and every contract of sale of goods consists of reciprocal promises.

When a buyer refuses or fails to pay the requisite amount to the seller, the seller becomes an unpaid seller and can exercise certain rights against the buyer. These rights are considered as seller’s remedies in case there is a breach of contract by the buyer. These remedies can be against:

  • Buyer
  • Goods

According to Section 45(1) of Sale of Goods Act, 1930, the seller is considered as an unpaid seller when:

  • When the whole price has not been paid and the seller has an immediate right of action for the price.
  • When Bills of Exchange or other negotiable instrument has been received as conditional payment, and the pre-requisite condition has not been fulfilled by reason of the dishonour of the instrument or otherwise.

Seller also includes a person who is in a position of a seller i.e agent, consignor who had himself paid or is responsible for the price.

In a contract, there is always a reciprocal promise. Even in a contract of sale, both the buyer and the seller must perform their duties. And if the buyer does not pay the seller his due, the seller becomes an unpaid seller. This means such unpaid seller has some rights against the buyer. Let us see.

Rights of Unpaid Seller against Buyer

When the buyer of goods does not pay his dues to the seller, the seller becomes an unpaid seller. And now the seller has certain rights against the buyer. Such rights are the seller remedies against the breach of contract by the buyer. Such rights of the unpaid seller are additional to the rights against the goods he sold.

1) Suit for Price

Under the contract of sale if the property of the goods is already passed but he refuses to pay for the goods the seller becomes an unpaid seller. In such a case. The seller can sue the buyer for wrongfully refusing to pay him his due.

But say the sales contract says that the price will be paid at a later date irrespective of the delivery of goods, and on such a day the if the buyer refuses to pay, the unpaid seller may sue for the price of these goods. The actual delivery of the goods is not of importance according to the law.

2) Suit for Damages for Non-Acceptance

If the buyer wrongfully refuses or neglects to accept and pay the unpaid seller, the seller can sue the buyer for damages caused due to his non-acceptance of goods. Since the buyer refused to buy the goods without any just cause, the seller may face certain damages.

The measure of such damages is decided by the Section 73 of the Indian Contract Act 1872, which deals with damages and penalties. Take for example the case of seller A. He agrees to sell to B 100 liters of milk for a decided price. On the day, B refuses to accept the goods for no justifiable reason. A is not able to find another buyer and the milk goes bad. In such a case, A can sue B for damages.

3) Repudiation of Contract before Due Date

If the buyer repudiates the contract before the delivery date of the goods the seller can still sue for damages. Such a contract is considered as a rescinded contract, and so the seller can sue for breach of contract. This is covered in the Indian Contract Act and is known as Anticipatory Breach of Contract

4) Suit for Interest

If there is a specific agreement between the parties the seller can sue for the interest amount due to him from the buyer. This is when both parties have specifically agreed on the interest rate to be paid to seller from the date on which the payment becomes due.

But if the parties do not have such specific terms, still the court may award the seller with the interest amount due to him at a rate which it sees fit.

Remedies of Buyer against the Seller

Just as the seller can rescind the contract, then so can the seller. When the seller breaches the contract the buyer also has certain remedies against the seller. Let us take a look at some remedies that the Sales Act prescribes for the buyer.

1) Damages of Non-Delivery

If the seller wrongfully or neglectfully refuses to deliver the goods to the buyer, then the buyer can sue for non-delivery of the goods. According to Section 57 of the Sale of Goods Act, if the buyer faces losses due to the wrongful actions of the seller (non-delivery) he can sue for damages caused due to this.

Let’s take for example A whose agrees to sell to B 10 pair of shoes for 1000/- each. B was going to sell the same shoes to C for 1100/- a pair. A neglect to deliver the goods to B. Now, B can sue A for non-delivery. He can sue for the amount of 100/- per pair, i.e. 1000/- (the difference between B’s cost price and sale price)

2) Suit for Specific Performance

If the seller commits a breach of contract, the buyer can approach the court to ask the seller for specific performance. The court after deliberation can command the seller for specific performance. One important point to keep in mind is that this remedy is only available if the goods are ascertained or specific.

Example: There was a contract between A and B, that A will sell to B a very expensive painting on a specific date. On the said day A refuses to sell. B can approach the court, who orders A to sell the painting to B at the ascertained price.

3) Suit for Breach of Warranty

When the seller breaches the warranty of the goods, the buyer cannot simply reject the goods on such basis. The buyer has two options in such a case,

  • Set up against the buyer the said breach of warranty in the extinction of the price
  • or Sue the seller for breach of warranty

4) Repudiation of Contract

If the seller repudiates the contract, the buyer does not have to wait until the date of the contract. He can treat the contract as rescinded and sue for damages immediately. This will be an anticipatory breach of contract.

5) Sue for Interest

The Act specifically states that nothing in the act will affect the right of the seller or the buyer to recover interest or special damages due to him by the contract. And if there is no specific clause in the contract, the court can come to the rescue of the affected party.

Lucknow University BBA Notes / Osmania University B.com Notes

Kinds of Resolutions under Company Act.

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A Company being an artificial person, any decision taken by it shall be in the form of a Resolution. Accordingly, a resolution may be defined as an agreement or decision made by the directors or members (or a class of members) of a company. A proposed resolution is a motion. When a resolution is passed a company is bound by it. The resolutions could be on just about any subject in case of Board meetings since they are ultimately responsible for running the Company. The Act generally specifies the matters in respect of which resolutions are required to be passed by the members in general meetings.

Basically, there are three types of resolutions: Ordinary Resolution, Special Resolution and Unanimous Resolution.

In case of Board Meetings, there is no concept of Special Resolutions and also unanimous resolutions are required in very few cases. However, in case of general meetings, all three are covered.

Section 114 of the Companies Act, 2013 defines an Ordinary and Special Resolutions. It states:

“(1) A resolution shall be an ordinary resolution if the notice required under this Act has been duly given and it is required to be passed by the votes cast, whether on a show of hands, or electronically or on a poll, as the case may be, in favour of the resolution, including the casting vote, if any, of the Chairman, by members who, being entitled so to do, vote in person, or where proxies are allowed, by proxy or by postal ballot, exceed the votes, if any, cast against the resolution by members, so entitled and voting.

(2) A resolution shall be a special resolution when:

(a) the intention to propose the resolution as a special resolution has been duly specified in the notice calling the general meeting or other intimation given to the members of the resolution;

(b) the notice required under this Act has been duly given; and

(c) the votes cast in favour of the resolution, whether on a show of hands, or electronically or on a poll, as the case may be, by members who, being entitled so to do, vote in person or by proxy or by postal ballot, are required to be not less than three times the number of the votes, if any, cast against the resolution by members so entitled and voting.”

Other than these two, there is also a concept of a unanimous resolution implying approval of all the members present and voting, without a single vote cast against it. Initially, as per Companies Act 1956 only one resolution required unanimous approval in the general meeting and the same has also been covered under section 162 (1) of the Companies Act 2013 which states that:

“At a general meeting of a company, a motion for the appointment of two or more persons as directors of the company by a single resolution shall not be moved unless a proposal to move such a motion has first been agreed to at the meeting without any vote being cast against it.”

However, in addition to above, for private companies, the Companies Act 2013 also inserts one more resolution which requires unanimous approval of all the members. As per sub-section 4 of section 5 for inclusion of “entrenchment provision” in the Articles of Association of an already existing Company, it should be “agreed to by all the members of the company in the case of a private company and by a special resolution in the case of a public company.” Other than these all-other specified matters require either an ordinary or a special resolution. Let us further take a look into the maters which require ordinary and/or special resolutions as per the Companies Act, 2013.

3Types of Resolutions recognized by Companies Act

Type 1. Ordinary Resolution:

An ordinary resolution is that which is passed by a simple majority at any general meeting of the shareholders. The resolution may be passed by a show of hands or by a poll. A 21 days notice must have been given for the meeting in which such a resolution is passed. Any matters can be decided through an ordinary resolution unless the Companies Act or the Articles of the company provide otherwise.

Objects:

Following are some of the matters which can be decided by an ordinary resolution:

  1. Approval of statutory report.
  2. Approval of directors report.
  3. Approval of final accounts.
  4. Declaration of dividend.
  5. Appointment of directors.
  6. Election of directors.
  7. Issue of shares at discount.
  8. Appointment of auditors and their remuneration.
  9. Alteration of share capital.
  10. Change in the rights of shareholders of any class.
  11. Creation of reserve fund.
  12. Conversion of fully paid-up shares into stock.
  13. Sale of the whole or part of the company’s undertaking or business.

Specimen of Ordinary Resolutions:

  1. Issue of shares at discount (Sec. 79). “RESOLVED that the Directors of the Company be and are hereby authorised, subject to the sanction of the court, to issue 10,000 shares of Rs. 10 each in the capital of the Company at a discount of not exceeding Rupee one per share.”
  2. Increase in the number of directors (Sec. 258). “RESOLVED that (subject to the approval of Central Government) the number of existing directors be increased from……………………….. to…………………… and Mr………….. and Mr…………. be and they are hereby appointed as additional directors.”
  3. Removal of director (Sec. 284) “RESOLVED that Mr…………………… Director of the Company regarding whose removal special notice has been received and has been duly heard as required by Section 284(3) of the Companies Act, 1956, be and is hereby removed from his office of director of the company.”

Type 2. Special Resolution:

A special resolution is one which is passed by at least 3/4th majority of the members voting on it at the General Meeting. A 21 days notice must have been given for the meeting in which such a resolution is passed. Notice calling the meeting should indicate that the resolution is intended to be proposed as a special resolution.

The main feature of special resolution is that the number of votes cast in favour of the resolution should be three times the number of votes against it.

Objects:

The following are some of the matters which can be decided by a special resolution:

(1) Alteration of the name of company.

(2) Alteration of the objects of the company.

(3) Alteration of articles of association.

(4) Change of registered office from one state to another state.

(5) Reduction of share capital.

(6) Creation of reserve capital.

(7) Payment of interest out of capital.

(8) Fixing directors’ remuneration.

(9) Voluntary winding up of a company.

(10) Making the liability of directors unlimited.

(11) Application to the court to wind up the company.

(12) Appointment of inspectors to investigate the affairs of the company.

(13) To bind the company by an arrangement or compromise made.

Specimen of Special Resolution:

  1. Alteration of name of the company. RESOLVED that the name of the company be and is hereby altered from…………………. Limited to………………………… Limited and the Central Government be officially informed for the purpose of securing their consent of such alteration.
  2. Voluntary winding up of the company. “RESOLVED that the company be wound up voluntarily and that Mr……………………….. of………. be and is hereby appointed liquidator for the purpose and that this be and is hereby passed as a special resolution pursuant to Sec. 484 of the Companies Act, 1956.
  3. Alteration of articles of association. “RESOLVED that clause……………………………. of the Articles of Association of the Company be altered by omitting the following words therefore

“………………………….”

and substituting instead of the following words:

“………………………….”

Type 3. Resolution Requiring Special Notice:

The Indian Companies Act, 1956 has introduced a new type of resolution for the passing of which special notice has to be given. Some matters specified in the Act cannot be moved for discussion at 3 General Meeting unless a special notice is given to the company.

A notice containing the intention to move the resolution had to be given in such cases at least 14 days before convening the meeting in which it is proposed to be moved. The company in turn should give members the notice of that resolution at least seven days before the holding of the meeting. Such resolution may be ordinary or special resolution.

Following are some of the resolutions requiring special notice:

(1) Resolution to remove a director.

(2) Resolution to fill up a casual vacancy of the director.

(3) Resolution to appoint as Auditor a person other than the retiring person.

(4) Resolution to appoint as Director a person in place of removed director.

Lucknow University BBA Notes / Osmania University B.com Notes

India’s Balance of Trade

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Balance of Trade (BOT) is the difference in the value of all exports and imports of a particular nation over a period of time. A positive or favorable trade balance occurs when exports exceed imports. A negative or unfavorable balance occurs when the opposite happens. Simply put, if a country exports more than what it imports, for a given period of time, it has a positive BOT.

BOT is most often the largest component of a country’s current account or Balance of Payment (BOP) and is a crucial reflection of a country’s business scenario. Moreover, the BOP data also highlights key inferences from the past performances, which help create better strategies for future. The components contributing heavily to exports/imports can be readily identified and improved upon.

The balance of trade (BOT), also known as the trade balance, refers to the difference between the monetary value of a country’s imports and exports over a given time period. A positive trade balance indicates a trade surplus while a negative trade balance indicates a trade deficit. The BOT is an important component in determining a country’s current account.

It is the difference between the money value of exports and imports of material goods during a year.

Examples of visible items are clothes, shoes, machines, etc. Clearly, the two transactions which determine BOT are exports and imports of goods.

Interpretation of BOT for an Economy

To the misconception of many, a positive or negative trade balance does not necessarily indicate a healthy or weak economy. Whether a positive or negative BOT is beneficial for an economy depends on the countries involved, the trade policy decisions, the duration of the positive or negative BOT, and the size of the trade imbalance, among other things.

In short, the BOT figure alone does not provide much of an indication regarding how well an economy is doing. Economists generally agree that neither trade surpluses or trade deficits are inherently “bad” or “good” for the economy.

A positive balance occurs when exports > imports and is referred to as a trade surplus.

A negative trade balance occurs when exports < imports and is referred to as a trade deficit.

Surplus or Deficit BOT:

Balance of trade may be in surplus or in deficit or in equilibrium. If value of exports of visible items is more than the value of imports of visible items, balance of trade is said to the positive or favourable. Thus, BOT shows a surplus. In case the value of exports is less than the value of imports, the balance of trade is said to be negative or adverse or unfavourable.

Balance of Trade: BOT means the discrepancy between a countries’s exported goods and services and its imported goods and services.

Example

Country X exports $1 billion of goods and services for the financial year 2015-2016, while in the same period it imported $1.5 billion of goods. Thus, this country has an unfavorable balance because it imports more than it exports. This is typically considered unfavorable because it shows how little the country produces and how dependent it is on foreign countries.

Country X is a reputed player in the rubber products industry, owing to the climate that accentuates rubber cultivation. It also has a majority share in its export portfolio.

The political and business leaders focus heavily on the same and ensure more and more rubber exports in coming years. However, this has led to jeopardized attention to food grains cultivation, which was observed from the high import value in the balance of trade figures of the particular year.

As such, it becomes imperative to the policy makers that it’s good to focus largely on the main profit centers, but not at the cost of the very basic necessities being left untouched. This can result in costlier imports. Moreover, the BOT data also reflects how effectively a nation has been using its key factors of production in the past and clearly depicts the outlook a nation is heading forth with.

Components of BOT

(1) Current Account:

Current account refers to an account which records all the transactions relating to export and import of goods and services and unilateral transfers during a given period of time.

Current account contains the receipts and payments relating to all the transactions of visible items, invisible items and unilateral transfers.

Components of Current Account:

The main components of Current Account are:

  1. Export and Import of Goods (Merchandise Transactions or Visible Trade):

A major part of transactions in foreign trade is in the form of export and import of goods (visible items). Payment for import of goods is written on the negative side (debit items) and receipt from exports is shown on the positive side (credit items). Balance of these visible exports and imports is known as balance of trade (or trade balance).

  1. Export and Import of Services (Invisible Trade):

It includes a large variety of non- factor services (known as invisible items) sold and purchased by the residents of a country, to and from the rest of the world. Payments are either received or made to the other countries for use of these services.

Services are generally of three kinds:

(a) Shipping,

(b) Banking, and

(c) Insurance.

Payments for these services are recorded on the negative side and receipts on the positive side.

  1. Unilateral or Unrequited Transfers to and from abroad (One sided Transactions):

Unilateral transfers include gifts, donations, personal remittances and other ‘one-way’ transactions. These refer to those receipts and payments, which take place without any service in return. Receipt of unilateral transfers from rest of the world is shown on the credit side and unilateral transfers to rest of the world on the debit side.

  1. Income receipts and payments to and from abroad:

It includes investment income in the form of interest, rent and profits.

Current Account shows the Net Income:

Current Account records all the actual transactions of goods and services which affect the income, output and employment of a country. So, it shows the net income generated in the foreign sector.

Difference between Balance of Trade and Current Account:

Basis Balance of Trade (BOT) Current Account
Components: Balance of trade includes only visible items. Current Account records both visible and invisible items.
Scope: It is a narrow concept as it is only a part of current account It is a wider concept and it includes BOT.

Balance on Current Account:

In the current account, receipts from export of goods, services and unilateral receipts are entered as credit or positive items and payments for import of goods, services and unilateral payments are entered as debit or negative items. The net value of credit and debit balances is the balance on current account.

  1. Surplus in current account arises when credit items are more than debit items. It indicates net inflow of foreign exchange.
  2. Deficit in current account arises when debit items are more than credit items. It indicates net outflow of foreign exchange.

Components of Current Account:

Credit Items Debit Items Net Credit (Credit – Debit)
1. Visible Trade Exports of goods: Imports of goods Net Exports of goods (Balance of Trade)
2. Invisible Trade Exports of services: Imports of services Net Exports of services
3. Unilateral Transfers Transfer Receipts: Transfer Payments Net Transfer Receipts
4. Income Receipts & Payments Income Receipts: Income Payments Net Income Receipts
Current Receipts (1+2+3+4) Current Payments Current Account Balance

(2) Capital Account:

Capital account of BOP records all those transactions, between the residents of a country and the rest of the world, which cause a change in the assets or liabilities of the residents of the country or its government. It is related to claims and liabilities of financial nature.

Capital Account is used to:

(i) Finance deficit in current account; or

(ii) Absorb surplus of current account.

Capital account is concerned with financial transfers. So, it does not have direct effect on income, output and employment of the country.

Components of Capital Account:

The main components of capital account are:

  1. Borrowings and landings to and from abroad: It includes:
  • All transactions relating to borrowings from abroad by private sector, government, etc. Receipts of such loans and repayment of loans by foreigners are recorded on the positive (credit) side.
  • All transactions of lending to abroad by private sector and government. Lending abroad and repayment of loans to abroad is recorded as negative or debit item.

2. Investments to and from abroad: It includes:

  • Investments by rest of the world in shares of Indian companies, real estate in India, etc. Such investments from abroad are recorded on the positive (credit) side as they bring in foreign exchange.
  • Investments by Indian residents in shares of foreign companies, real estate abroad, etc. Such investments to abroad be recorded on the negative (debit) side as they lead to outflow of foreign exchange.

3. Change in Foreign Exchange Reserves:

The foreign exchange reserves are the financial assets of the government held in the central bank. A change in reserves serves as the financing item in India’s BOP. So, any withdrawal from the reserves is recorded on the positive (credit) side and any addition to these reserves is recorded on the negative (debit) side. It must be noted that ‘change in reserves’ is recorded in the BOP account and not ‘reserves’.

Balance on Capital Account:

The transactions, which lead to inflow of foreign exchange (like receipt of loan from abroad, sale of assets or shares in foreign countries, etc.), are recorded on the credit or positive side of capital account. Similarly, transactions, which lead to outflow of foreign exchange (like repayment of loans, purchase of assets or shares in foreign countries, etc.), are recorded on the debit or negative side. The net value of credit and debit balances is the balance on capital account.

  1. Surplus in capital account arises when credit items are more than debit items. It indicates net inflow of capital.
  2. Deficit in capital account arises when debit items are more than credit items. It indicates net outflow of capital.

In addition to current account and capital account, there is one more element in BOP, known as ‘Errors and Omissions’. It is the balancing item, which reflects the inability to record all international transactions accurately.

Credit Items Debit Items Net Credit (Credit – Debit)
1. Borrowings and lending’s to and from abroad Borrowings from abroad: Landings to abroad Net Borrowings from abroad
2. Investments from abroad Investments from abroad: Investments to abroad Net Investments from abroad
3. Change in Foreign Exchange Reserves. Decreases in foreign exchange reserves: Increases in foreign exchange reserves Net change in foreign exchange reserves
Capital Receipts (1+2+3): Capital Payments Capital Account Balance

Balance on Current Account Vs. Balance on Capital Account:

Balance on current account and balance on capital account are interrelated.

  1. A deficit in the current account must be settled by a surplus on the capital account.
  2. A surplus in the current account must be matched by a deficit on the capital account.
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