Tag: Consumer Protection Act

The term “Indemnified“ refers to a person or party who is protected or compensated against a loss or damage by another party, known as the indemnifier. The concept of indemnification is rooted in Section 124 of the Indian Contract Act, 1872, which defines a Contract of Indemnity as a contract in which one party promises to save the other from loss caused by the conduct of the promisor or any third party.

The indemnified party is essentially the one who is at risk of suffering a loss and is seeking protection through a legal agreement. Once a valid indemnity contract is executed, the indemnified is legally entitled to claim compensation from the indemnifier if any specified loss arises.

Role of the Indemnified:

In any indemnity agreement, the indemnified plays a passive role in the sense that they are not responsible for causing the loss but are rather exposed to it due to certain actions, liabilities, or transactions. For instance, in a contract where a company indemnifies an employee against legal actions arising out of official duties, the employee becomes the indemnified.

Rights of the Indemnified:

The indemnified has the right to:

• Recover damages or losses covered under the contract of indemnity.

• Claim legal expenses incurred while defending a claim, provided the expenses were incurred in good faith.

• Be protected against future anticipated losses, especially if the liability is certain and imminent, though Indian courts generally recognize this only after actual loss.

These rights help ensure that the indemnified party does not suffer financial harm due to risks that are contractually transferred to the indemnifier.

Examples of Indemnified Party:

1. A tenant indemnified by the landlord against third-party claims.

2. An insurance policyholder being indemnified by the insurance company for damage to property.

3. A business partner indemnified against legal liabilities arising from company decisions.

Surety:

Surety is a person who gives a guarantee for the performance, debt, or conduct of another person, known as the principal debtor, to a third party, called the creditor. The concept of surety is covered under Section 126 of the Indian Contract Act, 1872, which defines a Contract of Guarantee as a contract to perform the promise or discharge the liability of a third person in case of their default.

The surety promises to be answerable if the principal debtor fails to meet their obligations. This creates a tripartite agreement among the creditor, principal debtor, and surety. The surety’s liability is secondary, meaning it arises only when the principal debtor defaults.

Nature of the Surety’s Liability:

The surety’s liability is generally co-extensive with that of the principal debtor (Section 128), unless otherwise stated in the contract. This means that the creditor can directly approach the surety for payment, even without first proceeding against the principal debtor. However, if the debtor fulfills the obligation, the surety’s role ends.

Rights of the Surety:

Once the surety discharges the debt or obligation of the principal debtor, he acquires certain rights:

1. Right of Subrogation: The surety steps into the shoes of the creditor and can recover the amount from the principal debtor.

2. Right to Indemnity: The surety has a right to be indemnified by the principal debtor for any payment lawfully made under the guarantee.

3. Right to Contribution: In case of multiple sureties, one surety who pays more than their share can recover the excess from co-sureties.

Examples of Surety:

• A parent acting as a guarantor for their child’s education loan.

• A person guaranteeing repayment of a business loan for a friend.

• An individual assuring a landlord that the tenant will pay rent on time.

Bailment involves the delivery of goods by one person (the bailor) to another (the bailee) for a specific purpose under a contract, where the goods are to be returned or otherwise disposed of upon completion of the purpose. Both parties have legal rights and duties toward each other.

Rights of the Bailor:

• Right to Enforcement of Bailee’s Duties

The bailor has the right to expect that the bailee will perform all contractual obligations, including taking care of the goods and returning them as agreed. If the bailee fails in their duty (such as through negligence or unauthorized use), the bailor can take legal action for damages or compensation. This ensures the bailor’s interest in the goods is protected throughout the period of bailment.

• Right to Claim Damages

If the bailee fails to take reasonable care of the goods and they are lost or damaged due to negligence, the bailor has the right to claim compensation. This right is essential for protecting the value of goods entrusted to the bailee and holds them accountable for their conduct during the bailment.

• Right to Terminate Bailment

The bailor has the right to terminate the bailment if the bailee acts inconsistently with the contract. For example, if the bailee misuses the goods or refuses to return them, the bailor may revoke the agreement and demand immediate return of the goods. This safeguards the bailor’s legal ownership and control.

• Right to Receive Accretion (Section 163)

If any natural increase or profit arises from the bailed goods (like offspring of animals), the bailor has the right to claim such accretion. The bailee is not entitled to keep or sell these additions and must return them with the original goods upon completion of bailment.

• Right to Recover Goods

The bailor can demand the return of goods once the bailment period ends or the purpose is accomplished. If the bailee fails or refuses to return the goods, the bailor has the legal right to recover them through a court of law. This ensures the bailor’s rightful ownership is not jeopardized.

Duties of the Bailor:

• Duty to Disclose Faults (Section 150)

The bailor must inform the bailee of any known defects in the goods that may cause harm or affect usage. If the bailor fails to disclose such faults, and the bailee suffers loss or injury, the bailor is liable. This duty ensures transparency and safety during bailment, particularly when goods are dangerous or defective.

• Duty to Bear Expenses (Gratuitous Bailment)

In a gratuitous (free) bailment, the bailor must bear all necessary expenses incurred by the bailee in caring for and preserving the goods. This includes storage, maintenance, or handling costs unless otherwise agreed. It prevents the bailee from facing financial burden when they are not being compensated for the bailment.

• Duty to Accept Goods Back

The bailor has a duty to accept the goods once the purpose is completed or the time expires. If the bailor refuses to take the goods back, they may be liable for compensation to the bailee for any loss or additional costs incurred in storing or handling the goods beyond the bailment period.

• Duty to Indemnify Loss due to Defects

If the bailee suffers any loss due to hidden faults in the goods that the bailor was aware of but did not disclose, the bailor must indemnify the bailee. This duty arises under Section 150 and protects the bailee from damages not caused by their own conduct or negligence.

• Duty to Compensate Bailee for Loss Due to Premature Termination

In gratuitous bailment, if the bailor ends the contract before the agreed time or before the purpose is fulfilled, and the bailee suffers loss due to this, the bailor must compensate the bailee. This prevents unfair financial harm when the bailee has acted in good faith.

Rights of the Bailee

• Right to Compensation (Section 158)

The bailee is entitled to be reimbursed for any necessary expenses incurred in maintaining the goods, especially in gratuitous bailments. This right prevents financial loss to the bailee who takes care of the goods without reward and ensures fair treatment for fulfilling the bailor’s request.

• Right of Lien (Section 170–171)

The bailee has a particular lien, meaning they can retain the goods until dues or lawful charges are paid. If the bailee is in the business of receiving goods and no payment is made, they can legally keep the goods until the charges are cleared. It is a protective right in commercial bailments.

• Right to Sue for Compensation

If the bailor causes loss to the bailee (e.g., by giving faulty goods without warning), the bailee can sue the bailor for damages. This right ensures that the bailee is not unfairly burdened due to the bailor’s negligence or non-disclosure of risks related to the goods.

• Right to Deliver Goods to Joint Bailors

If goods are jointly bailed by multiple people, the bailee has the right to deliver them to any one of the joint bailors unless specifically instructed otherwise. This prevents confusion or legal issues when returning the goods and provides legal security to the bailee.

• Right to Recover Loss Due to Bailor’s Refusal

If the bailor refuses to accept the goods back after the bailment ends, and the bailee suffers loss due to continued possession or care of the goods, the bailee has the right to recover such losses from the bailor. This protects the bailee’s interest when their obligation has been fulfilled.

Pledge

Pledge is a special type of bailment where goods are delivered as security for payment of a debt or performance of a promise. The person who delivers the goods is called the pawnor, and the person who receives them is called the pawnee.

Rights of the Pawnee:

• Right of Retention (Section 173)

The pawnee has the right to retain the pledged goods until the full repayment of the debt, interest, and any necessary expenses incurred in the preservation of goods. This right serves as a legal security to the pawnee for the recovery of dues and is valid even in the absence of a written agreement.

• Right to Recover Extraordinary Expenses (Section 175)

If the pawnee incurs extraordinary or necessary expenses to preserve the pledged goods (e.g., special storage or maintenance costs), they are entitled to recover such costs from the pawnor. However, the pawnee cannot retain the goods for these expenses alone—they must file a suit if unpaid.

• Right to Sell the Goods (Section 176)

If the pawnor defaults in payment or performance, the pawnee has the right to sell the goods after giving reasonable notice to the pawnor. The sale must be done fairly. The proceeds are adjusted toward the debt, and any surplus is returned to the pawnor. If the proceeds fall short, the pawnee can sue for the balance.

• Right to Sue for Debt and Retain Goods

The pawnee may choose to sue for recovery of the debt and still retain possession of the pledged goods. They are not bound to sell the goods. This dual remedy strengthens the pawnee’s legal position and gives them flexibility in enforcing the pledge.

• Right Against Third Party Interference

The pawnee has the right to be protected from third-party claims or interference in the possession of pledged goods. As a bailee, the pawnee enjoys legal protection under the Indian Contract Act and can sue anyone who unlawfully takes or harms the goods in their custody.

Duties of the Pawnee:

• Duty to Take Reasonable Care (Section 151)

The pawnee must take reasonable care of the pledged goods, just like a prudent person would take of their own goods. If the goods are damaged or lost due to negligence, the pawnee is liable to compensate the pawnor. This duty ensures the goods remain protected while in custody.

• Duty Not to Use Goods

The pawnee is not allowed to use the pledged goods unless the pawnor has given express or implied permission. Unauthorized use is a violation of the pledge agreement and may result in legal consequences, including termination of the contract or compensation for misuse.

• Duty to Return Goods

Once the debt is repaid or the promise is performed, the pawnee is legally obligated to return the pledged goods to the pawnor. If the pawnee fails or refuses to return them, they may be liable for damages or even face legal proceedings for wrongful detention.

• Duty to Return Accretion (Section 163)

If the pledged goods generate profit or accretion during the pledge (e.g., dividends on pledged shares or offspring of pledged animals), the pawnee must return such increase to the pawnor along with the original goods. This ensures that ownership-related benefits remain with the pawnor.

• Duty to Sell Goods Fairly (If Exercising Right to Sell)

If the pawnee exercises the right to sell the pledged goods due to the pawnor’s default, the sale must be conducted fairly, and the surplus proceeds (if any) must be returned to the pawnor. Any unfair sale or failure to inform can lead to compensation claims.

Rights of the Pawnor:

• Right to Redeem Goods (Section 177)

The pawnor has the right to redeem the goods pledged at any time before the pawnee sells them. This right continues even after default, provided the pawnee has not yet sold the goods. The pawnor must repay the full debt and any additional lawful expenses to reclaim the goods.

• Right to Receive Surplus from Sale

If the pawnee sells the goods upon default and receives more than the owed amount, the pawnor has the right to claim the surplus amount. The pawnee cannot unjustly enrich themselves through the sale; they are legally bound to return the balance to the pawnor after adjusting dues.

• Right to Notice Before Sale

The pawnor is entitled to reasonable notice before the pawnee sells the goods due to default. If the pawnee fails to give such notice, the sale can be declared void, and the pawnor may claim compensation or reclaim the goods, depending on the circumstances.

• Right to Compensation for Unauthorized Use

If the pawnee uses the goods without permission or causes damage through negligence, the pawnor has the right to claim compensation. This right holds the pawnee accountable and ensures the safety of the goods in the absence of the owner.

• Right to Recover Goods Upon Repayment

Upon full repayment of the debt and expenses, the pawnor has the absolute right to recover the pledged goods. This includes any increase or profit derived from them. If the pawnee refuses, the pawnor can initiate legal proceedings for recovery and damages.

Under Section 124 of the Indian Contract Act, 1872, a contract of indemnity involves a promise by one party (indemnifier) to compensate the other (indemnified) for loss. The indemnifier assumes responsibility in case of certain events that cause damage or loss to the indemnified.

Rights of the Indemnifier:

• Right to Control the Defence

When the indemnified faces a legal suit or proceedings, the indemnifier has the right to control the defence. This includes appointing lawyers, making strategic decisions, or choosing whether to settle the dispute. This right ensures that the indemnifier, who is ultimately liable to pay, can avoid unnecessary or inflated claims and control litigation expenses to protect their financial interest.

• Right to Access Legal Proceedings

The indemnifier is entitled to receive full information about legal proceedings, facts, and circumstances involving the indemnified. This includes the right to inspect legal documents, monitor case status, and be informed of actions taken. This access allows the indemnifier to assess liability, ensure transparency, and possibly intervene in a timely manner to limit loss or offer reasonable settlements to mitigate financial damage.

• Right to Subrogation

Once the indemnifier pays for the loss or damages on behalf of the indemnified, he attains the right of subrogation. This means the indemnifier steps into the shoes of the indemnified and can recover the amount from third parties responsible for the loss. Subrogation helps the indemnifier claim legal redress, damages, or refunds and prevents unjust enrichment of the indemnified.

• Right to Proof of Loss

The indemnifier has the right to demand credible proof or evidence of the loss before compensating the indemnified. This ensures that the indemnifier is not held liable for false, exaggerated, or fraudulent claims. The indemnified must demonstrate that the loss falls within the agreed terms of indemnity. This right is a protective measure to prevent misuse of indemnity arrangements.

• Right to Be Informed of Settlements

If the indemnified chooses to settle a claim or dispute without court intervention, the indemnifier has the right to be informed beforehand. Since the indemnifier may be responsible for the settlement amount, prior knowledge and consent help them evaluate the fairness of the settlement. This prevents the indemnified from entering unfavorable or excessive settlements without the indemnifier’s approval.

• Right to Reimbursement on Misuse

If the indemnifier pays for a loss based on false information or fraud by the indemnified, he retains the right to recover that amount. This right protects the indemnifier from being financially liable for dishonest conduct by the other party. Courts uphold this right to ensure indemnity is used only in good faith and within the legal scope of the original contract.

• Right to Define Scope of Indemnity

The indemnifier has the right to specify the extent, conditions, and limitations of indemnity at the time of entering the contract. This means the indemnifier can include clauses to exclude certain types of losses (like indirect damages, penalties, or third-party actions) or set a financial cap. Clearly defining scope protects the indemnifier from open-ended or unlimited liability in the future.

Duties of the Indemnifier

• Duty to Compensate for Actual Loss

The primary duty of the indemnifier is to compensate the indemnified for any actual loss or damage suffered due to the acts covered under the contract. This includes financial loss, legal costs, or damages awarded by the court. The indemnifier is legally bound to fulfill this duty once the indemnified proves that the loss falls under the indemnity clause.

• Duty to Act in Good Faith

The indemnifier must act honestly and in good faith while discharging obligations under the contract. This includes cooperating with the indemnified, not withholding critical information, and not taking unfair advantage of the indemnity arrangement. Good faith is fundamental to all contracts, and its breach may result in loss of trust or legal consequences.

• Duty to Honour Terms of Contract

The indemnifier has a legal obligation to perform according to the specific terms agreed in the contract of indemnity. This includes honoring the agreed limit of liability, covering specified events, and respecting timelines. Failure to perform as per the contract may amount to breach, making the indemnifier liable for damages or penalties.

• Duty to Pay Reasonable Legal Costs

When indemnity covers legal actions, the indemnifier must bear reasonable costs of litigation, including lawyer’s fees and court charges, if these are incurred in good faith. The indemnified should not suffer additional legal burden when acting within the terms of the contract. Courts may enforce this duty even if the indemnity amount does not explicitly mention legal costs.

• Duty Not to Interfere Unreasonably

Although the indemnifier may have the right to control proceedings, they must not interfere unreasonably or act in a way that harms the indemnified’s legal interests. For example, pressuring the indemnified to accept an unfair settlement may be considered a breach of duty. The indemnifier must balance control with the indemnified’s rights and interests.

• Duty to Indemnify Promptly

It is the indemnifier’s duty to compensate the indemnified within a reasonable time after the loss has occurred and been substantiated. Unnecessary delay in payment can lead to financial hardship for the indemnified and may invite legal action or interest on delayed compensation. Prompt action is seen as a sign of good faith and professionalism.

• Duty to Uphold Confidentiality

In situations where indemnity is linked to sensitive information, such as in professional services or commercial contracts, the indemnifier must maintain confidentiality. Sharing or misusing such information may not only breach the contract but also legal provisions under privacy or trade secret laws. Upholding confidentiality protects the integrity of the business or relationship.

Alteration of share capital

Alteration of Share Capital refers to the changes in the existing capital structure of the firm. A company can alter its share capital only if it is authorized by its Articles of Association. An article of association is the document framed at the time of incorporation of the company to govern its internal affairs.

In case of public company, the shares are being subscribed from the public. So, the limited company has to make alteration of the memorandum of association clause also. There is a capital clause in the memorandum of association that contains the details regarding the amount of share capital that can be raised by the company during its lifetime. The capital clause has to be get altered by the registrar appointed under Companies Act 2013.

SECTION: 61 Way to Alter Share Capital

Section 61 of the Companies Act, 2013 states the five different ways to alter the share capital which are as follows:

Increase in Authorized Capital: Authorized Capital is also known as Registered or Nominal Capital. This is the capital with which company gets incorporated. The company can increase its share capital by altering its capital clause mentioned in the Memorandum of Association.  

Consolidation of Shares: The Company can also alter its share capital by consolidating the smaller denominations shares into larger denominations. In case there is any change regarding voting rights of shareholders results out of the consolidation, the permission of the tribunal or court is compulsory. In case of consolidation of shares, the following journal entry is passed:

Share Capital (Old) A/c    Dr.

     To Share Capital (New) A/c

Variation of share-holder right

This provision must be mentioned in the memorandum or articles of the company; and if not altered them accordingly:

If variation by one class of shareholders affects the rights of any other class of shareholders, the consent of three-fourths of such other class of shareholders shall also be obtained and the provisions of this section shall apply to such variation.

Where the holders of not less than 10% of issued class of shares did not consent in favour of Special Resolution, they may apply to the Tribunal to have the variation cancelled.

If such application is received by the Tribunal, the variation shall not effect unless and until it is confirmed by Tribunal.

Provided that an application under this section shall be made within 21 days after the date on which the consent was given or the resolution was passed, and may be made on behalf of the shareholders entitled to make the application by such one or more of their number as they may appoint in writing for the purpose.

The decision of the Tribunal on any application shall be binding on the shareholders.

The company shall, within thirty days of the date of the order of the Tribunal, file a copy thereof with the Registrar.

Sub Division

A company can also alter its share capital by sub dividing the value of the shares held by the shareholders. Section 61 allows the company to sub-divide its shares of higher denominations into smaller denominations. The company can do so only if it is authorized by the memorandum of association. In case there is sub-division of partly paid-up shares, the condition to be fulfilled is that the difference between the paid-up amount and unpaid amount continues to be the same. This way of alteration of share capital results in the holding of a greater number of shares in the hands of the shareholders with low denomination. The journal entry to be passed in this method is as follows:

Share Capital (Old) A/c    Dr.

     To Share Capital (New) A/c

Consolidation

• Company can consolidate and divide its shares into shares of larger amount only if it is authorized by its Articles of Association and after obtaining approval of members by ordinary resolution. (Section 61(1)
• Company shall ensure that proposed consolidation and division of shares shall not result in change in the voting percentage of shareholders. Otherwise, Company shall be required to approach Tribunal (at present, Company Law Board) seeking permission for proposed consolidation and division of shares resulting in change in the voting percentage of shareholders (Proviso to Section 61(1)(b))
• A company may replace all the existing certificates by new certificates upon consolidation and division of shares subject to compliance with prescribed rules.

Surrender and Reissue/Cancellation

Cancel the unissued shares: the company can also cancel its unissued capital. But this does not leads to alteration of share capital. In this method, no journal entry is passed and no treatment is done in the books of the accounts.

Conversion of shares into stock: The Company can also alter its shares capital by converting the fully paid-up shares into the stock. Stock is the aggregate of fully paid-up shares.  The company can do so only if it is authorized by its articles of association. Also, the company can re convert its stock into shares.

The journal entries to be passed are as follows:

A) Conversion of shares into stock

Equity share capital A/c    Dr.

    To Equity Capital Stock A/c

B) Conversion of stock into shares

Equity Capital Stock A/c     Dr.

     To Equity Share Capital A/c

Reduction of share capital

Bailment is a legal relationship in which the owner of goods (called the bailor) delivers them to another person (called the bailee) for a specific purpose under a contract, with the understanding that the goods will be returned after the purpose is fulfilled or otherwise disposed of according to the bailor’s directions.

Bailment is governed by Sections 148 to 171 of the Indian Contract Act, 1872.

Definition (Section 148)

According to Section 148,

“A bailment is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them.”

Thus, bailment involves:

• Delivery of goods

• Specific purpose

• Return or disposal of goods as instructed

Features of Bailment:

1. Delivery of Goods
   Only movable goods (not immovable property or money) can be bailed. The delivery can be:

   • Actual delivery: Physical handing over of goods.

   • Constructive delivery: Transfer of possession without actual handover, like handing over keys to a godown.

2. Contract
   Bailment must be based on a contract, express or implied. In some cases (e.g. finder of goods), bailment exists even without a formal agreement.

3. Purpose
   Goods are delivered for a specific objective, such as safekeeping, transportation, or repair.

4. Return of Goods
   The bailee must return the goods or dispose of them as per the bailor’s instructions once the purpose is fulfilled.

Duties of the Bailee:

• Take reasonable care of goods (Section 151)

• Not use goods for unauthorized purposes

• Return goods on time (Section 160)

• Return increase or profit (e.g., baby animals, interest on bonds)

Duties of the Bailor:

• Disclose known faults in goods (Section 150)

• Compensate bailee for losses due to defective goods

• Pay agreed charges or expenses

Types of Bailment

1. Gratuitous Bailment: Bailment without reward (e.g., lending a book to a friend).

2. Bailment for Hire or Reward: Bailment with consideration (e.g., leaving a car with a valet or in a garage for service).

Termination of Bailment:

Bailment ends when:

• The purpose is fulfilled

• The agreed time expires

• The bailee returns the goods

• The bailor demands return (in some cases)

Examples of Bailment:

• Giving clothes to a dry cleaner

• Depositing valuables in a hotel locker

• Lending a bicycle for a day

Pledge

Pledge is a special type of bailment, where goods are delivered by one party to another as security for repayment of a debt or performance of a promise. It is a commonly used concept in banking, lending, and commercial transactions involving collateral.

Pledge is governed by Sections 172 to 179 of the Indian Contract Act, 1872.

Definition (Section 172):

According to Section 172 of the Indian Contract Act:

“The bailment of goods as security for payment of a debt or performance of a promise is called a pledge.”

In this relationship:

• The pawnor (pledgor) is the person who delivers the goods as security.

• The pawnee (pledgee) is the person who receives the goods and holds them until the debt or obligation is fulfilled.

Essentials of a Valid Pledge

1. Delivery of Possession
   There must be delivery of movable goods (not immovable property) by the pawnor to the pawnee. Delivery can be:

   • Actual: Physical handover of goods.

   • Constructive: Symbolic delivery (e.g., handing over documents of title like a warehouse receipt).

2. Purpose – Security for Debt or Promise
   The pledge must be made as security for a debt repayment or the performance of a promise.

3. Return of Goods
   Once the debt is repaid or the promise fulfilled, the pawnee must return the goods to the pawnor.

4. Ownership Retained by Pawnor
   Ownership of the goods remains with the pawnor; only possession is transferred temporarily.

Rights of the Pawnee

1. Right of Retention (Section 173)
   The pawnee can retain the goods pledged until the full payment of the debt or performance of the promise.

2. Right to Recover Expenses (Section 175)
   If the pawnee incurs expenses in preserving or protecting the goods, he can recover those from the pawnor.

3. Right to Sell (Section 176)
   If the pawnor defaults, the pawnee can:

   • Sue for the debt, retaining the goods, or

   • Sell the goods after giving reasonable notice to the pawnor.

Duties of the Pawnee:

• Take reasonable care of the pledged goods.

• Not use goods for unauthorized purposes.

• Return goods upon repayment or performance of the promise.

Rights and Duties of the Pawnor:

• Right to redeem goods before actual sale by the pawnee.

• Duty to repay the debt or perform the promise.

• Duty to compensate for any expenses incurred by the pawnee.

Pledge by Non-Owners (Section 178 & 179):

In certain cases, non-owners (like mercantile agents or persons with possession under a voidable contract) can make a valid pledge if:

• They act in the ordinary course of business.

• The pawnee acts in good faith and without knowledge of any defect in title.

Examples of Pledge:

• Pledging gold ornaments with a bank for a loan.

• A business pledging goods in a warehouse for working capital financing.

Key differences between Bailment and Pledge:

Aspect	Bailment	Pledge
Purpose	Custody	Security
Involves	Goods only	Movable goods
Parties	Bailor, Bailee	Pawnor, Pawnee
Ownership	Retained	Retained
Possession	Temporary transfer	Security transfer
Consideration	May or may not	Always
Right to Sell	No	Yes (on default)
Use of Goods	With permission	Not allowed
Right of Retention	Limited	Extended
Delivery Type	Actual/Constructive	Actual/Constructive
Governing Sections	148–171	172–179
Example	Dry cleaning	Gold loan
Compensation	For damage	For default
Return Obligation	After use/purpose	After repayment
Legal Remedy	Sue only	Sue or sell

The term “Dissolution of Partnership“ refers to the change in the relationship among partners due to which one or more partners cease to be partners, while the firm may continue with the remaining partners. It is different from dissolution of a firm, which completely ends the existence of the partnership firm.

Meaning of Dissolution of Partnership:

Dissolution of partnership occurs when there is a reconstitution of the firm without ending its overall business operations. It is a change in the structure of the partnership due to:

• Admission of a new partner

• Retirement or death of an existing partner

• Insolvency of a partner

• Change in profit-sharing ratio

The firm continues to exist, but the partnership agreement among the partners changes.

Legal Definition (Section 4):

According to Section 4 of the Indian Partnership Act, a partnership is “the relation between persons who have agreed to share profits of a business carried on by all or any of them acting for all.”

When this relationship is altered—without completely closing the business—the partnership is said to be dissolved, though the firm may still exist in a reconstituted form.

Causes of Dissolution of Partnership:

• Admission of a New Partner

When a new partner joins the firm, the existing partnership comes to an end, and a new partnership is formed. This is a common cause of dissolution and reconstitution.

• Retirement of a Partner

When a partner retires voluntarily or by agreement, the original partnership dissolves. The remaining partners may continue the firm under a new agreement.

• Death of a Partner

Unless otherwise agreed in the partnership deed, the death of any partner leads to dissolution of the existing partnership. The surviving partners may form a new partnership and carry on the business.

• Insolvency of a Partner

If a partner is declared insolvent by a competent court, the partnership is dissolved unless there is an agreement to the contrary. An insolvent partner cannot continue in a contract-based relationship.

• Expiry of Term or Completion of Project

In a partnership created for a specific duration or particular venture, dissolution takes place automatically at the end of the period or completion of the project. The firm can then be reconstituted if partners agree.

• Change in Profit-Sharing Ratio

A change in the profit-sharing ratio of partners is considered a reconstitution of the partnership, implying dissolution of the old partnership and formation of a new one, unless otherwise agreed.

Effects of Dissolution of Partnership:

• The firm continues to exist unless the firm itself is dissolved.

• The rights and liabilities of the continuing partners are redefined.

• The partnership deed is revised, and a new agreement is formed.

• Capital accounts may need adjustment based on the new structure.

The buyer in a contract of sale has both rights and duties governed by the Sale of Goods Act, 1930. These ensure fairness in commercial transactions and balance responsibilities between buyer and seller.

Rights of the Buyer:

• Right to Delivery of Goods (Section 31)

The buyer has the right to receive delivery of goods as per the terms of the contract. If the seller fails to deliver within the stipulated time or condition, the buyer may refuse delivery, cancel the contract, or claim damages. This ensures protection against non-performance by the seller.

• Right to Reject Goods (Section 37 & 41)

The buyer has the right to reject goods that do not conform to quality, quantity, or description agreed in the contract. This includes rejecting defective, damaged, or excess goods. The right to reject reinforces quality control and encourages compliance by the seller.

• Right to Examine Goods (Section 41)

The buyer is entitled to a reasonable opportunity to inspect and examine the goods upon delivery. This ensures that the goods match the sample, description, or specifications. If not satisfied, the buyer may refuse to accept them. Inspection must be allowed before the buyer is deemed to have accepted the goods.

• Right to Sue for Non-Delivery (Section 57)

If the seller refuses to deliver goods, the buyer can sue for damages caused by non-delivery. The measure of damages is the difference between the contract price and market price on the date of breach. This right compensates the buyer for losses due to breach.

• Right to Sue for Breach of Warranty (Section 59)

When the seller breaches a warranty (minor term), the buyer can claim compensation rather than reject the goods. This is useful in cases where goods are usable but not fully as promised. The buyer keeps the goods but gets monetary relief for the defect.

Duties of the Buyer:

• Duty to Accept and Pay for Goods (Section 31)

The buyer must accept the goods and pay the agreed price as per the contract. Failure to do so gives the seller the right to sue for non-acceptance or non-payment. This duty is central to the sale contract and ensures seller receives fair compensation.

• Duty to Apply for Delivery (Section 35)

Unless the contract says otherwise, the buyer must apply for delivery of goods. The seller is not bound to send or deliver the goods unless the buyer initiates the request. This encourages cooperation and clarity in the delivery process.

• Duty to Take Delivery (Section 36)

The buyer must take delivery of goods within a reasonable time. Unreasonable delay can make the buyer liable for loss or additional costs incurred by the seller. This duty ensures prompt clearance of goods and avoids storage or spoilage risks.

• Duty to Pay Damages for Refusal (Section 56)

If the buyer wrongfully refuses to accept and pay for the goods, the seller can sue for damages. The buyer must compensate the seller for any financial loss caused due to breach. This discourages careless cancellations and ensures fairness in business transactions.

• Duty Not to Reject After Acceptance (Section 42)

Once the buyer has accepted the goods, they cannot later reject them unless fraud or breach is discovered. Acceptance may be implied if the buyer uses or resells the goods. This duty prevents unfair reversal of contracts after partial or full performance by the seller.

Sale of Goods Act, 1930 is a key piece of legislation that governs contracts relating to the sale and purchase of goods in India. It defines the rights, duties, remedies, and liabilities of both buyers and sellers, ensuring that transactions involving movable property are carried out fairly and legally.

Historical Background:

Originally, the law relating to the sale of goods was part of the Indian Contract Act, 1872 (Chapter VII). In order to provide clarity and a separate legal framework, it was carved out and enacted as a distinct law on 1st July 1930. The Act is largely based on the English Sale of Goods Act, 1893 and applies to the whole of India.

Scope of the Act:

The Act governs only movable goods, not immovable property or services. It applies to all forms of sale contracts, whether oral or written. It covers:

• Conditions and warranties

• Transfer of property

• Performance of the contract

• Rights of an unpaid seller

• Remedies for breach of contract

Key Definitions under the Act:

1. Goods: Every kind of movable property other than actionable claims and money. Includes stock, shares, crops, etc.

2. Buyer: A person who buys or agrees to buy goods.

3. Seller: A person who sells or agrees to sell goods.

4. Contract of Sale: An agreement where the seller transfers or agrees to transfer the ownership of goods to the buyer for a price.

5. Price: The money consideration for the sale of goods.

Types of Goods:

1. Existing Goods: Owned or possessed by the seller at the time of contract.

2. Future Goods: To be manufactured or acquired by the seller after the contract.

3. Contingent Goods: Depend on the occurrence or non-occurrence of a future event.

Essentials of a Valid Contract of Sale:

• Involves two parties: buyer and seller

• Transfer of ownership (immediate or future)

• Movable goods as subject matter

• Price as monetary consideration

• Voluntary consent and lawful object

Transfer of Ownership:

Ownership of goods passes from seller to buyer when:

• Goods are ascertained

• The contract is unconditional

• Delivery is complete or as agreed

This is crucial because risk follows ownership—once the property is transferred, the buyer bears the risk of loss or damage.