What are the essentials of a valid contract?

ESSENTIALS OF A VALID CONTRACT

According to Section 10, All agreements are contracts if they are made by the free consent of the parties competent to
contract, for a lawful consideration and with a lawful object and are not hereby expressly declared to be void.

The analysis of the provisions of Section 10 shows that a valid contract must have the following essential elements:

1. Proper Offer and Acceptance

There must be at least two parties one making the offer and the other accepting it. Such offer any acceptance must
be valid.
An offer to be valid must fulfil certain conditions, such as
o it must intend to create legal relations,
o its term, must be certain and unambiguous,
o it must be communicated to the person to whom it is made, etc.
An acceptance to be valid must folds certain conditions, such as
o it must be absolute and unqualified,
o it must be made in the prescribed manner,
o it must be communicated by an authorised person before the offer lapses.

2. Intention to Create Legal Relationship

There must be an intention among the parties to create a legal relationship. In case of social or domestic
agreements, the usual presumption is that the parties do not intend to create legal relationship but in commercial
or business agreements, the usual presumption is that the parties intend to create legal relationship unless
otherwise agreed upon.

Example: X invited Y to a dinner Y accepted the invitation. It is a social agreement. If X fails to serve dinner to
Y, Y cannot go to the courts of law for enforcing the agreement. Similarly, if Y fails to attend the dinner, X
cannot go to the courts of law for enforcing the agreement.

But even a business agreement may not be enforceable by law where the agreement so provides e.g. in Rose &
Frank Co. v. Crompton Bros. (1925) A.C. 445, the agreement entered into stated that it will not be subject to legal
jurisdiction in the law courts, the agreement was not enforceable by law as the parties never agreed to create legal
obligations despite being a business agreement.

3. Capacity of Parties
The parties to an agreement must be competent to contract. In other words, they must be capable of entering into a
contract.

According to Section 11 of Indian Contract Act, 1872. every person is competent to contract who is of the age of
majority according to the law to which he is subject and who is of sound mind and is not disqualified from
contracting by any law to which he is subject. In other words. the person must be major, must be of sound mind
and must not be declared disqualified from contracting by any law to which he is subject. If the parties to
agreement are not competent to contract, then no valid contract comes into existence.

Example: X a minor borrowed Rs 8,000 from Y and executed mortgage of his property in favour of the lender.
This was not a valid contract because X is not competent to contract. Therefore, the mortgage was not valid and
the money advanced to minor could not be recovered

4. Lawful Consideration
An agreement must be supported by lawful consideration. Consideration means something in return.

According to Section 23 of the Indian Contract Act, 1872, the consideration is considered lawful unless it is
forbidden by law or is fraudulent or involves or implies injury to the person or property of another or is immoral
or is opposed to public policy.
 Example : X agrees to sell his car to Y for Rs. 1,00,000. Here Ys promise to pay Rs. 1,00,000 is the
consideration for Xs promise to sell the car and Xs promise to sell the car is the consideration for Ys promise to
pay 1,00,000.

5. Free Consent
There must be free consent of the parties to the contact.

According to Section 14, Consent is said to be free when it is not caused by (i) coercion, (ii) undue influence,
(iii) fraud, (iv) misrepresentation, or (v) mistake. If the consent of the parties is not free, then no valid contract
comes into existence.

Example: X threatens to kill Y if he does not sell his house to X. Y agrees to sell his house to X. In this case, Ys
consent has been obtained by coercion and therefore, it cannot be regarded as free.

6. Lawful Object
The object of an agreement must be lawful.

According to Section 23 of the Indian Contract Act, 1872, the object is considered lawful unless it is forbidden
by law or is fraudulent or involves or implies injury to the person or property of another or is immoral or is
opposed to public policy.

Example: X, Y and Z enter into an agreement for the division among them of gains acquired or to be acquired by
them by fraud. The agreement is void because its object is unlawful.

Example II: X lets a flat on hire to Y a prostitute, knowing that it would be used for immoral purposes. The
agreement is void because its object is for immoral purposes.

7. Agreement not Expressly Declared Void

The agreement must not have been expressly declared void under the provisions of Sections 24 to 30 of the Indian
Contract Act, 1872. Under these provisions, agreement in restraint of marriage, agreement in restraint of legal
proceedings, agreement in restraint of trade and agreement by way of wager have been expressly declared void.

Example : X promised to marry none else except Y and in default pay her Rs 1,00,000. X married to Z and Y sued
X for the recovery of Rs 1,00,000. It was held that Y was not entitled to recover anything because this agreement
was in restraint of marriage and as such void.

8. Certainty of Meaning
The terms of the agreement must be certain and unambiguous.

According to Section 29 of the Indian Contract Act, 1872, agreements the meaning of which is not certain or
capable of being made certain are void.

Example: X a dealer in different types of oils agreed to sell 100 tonnes of oil to Y. This agreement is void on the
ground of uncertainty because it is not clear what kind of oil is intended to be sold. If, however, the meaning of
the agreement could be made certain from the circumstances of the case, it will be treated as a valid contract.
Example: X who is a dealer in mustard oil, agreed to sell 100 tonnes of oil to Y. This agreement is valid because
the meaning of the agreement could be easily ascertained from the circumstances of the case.

9. Possibility of Performance
The terms of the agreement must be such as are capable of performance.

According to Section 56, an agreement to do an impossible act is void.

Example : X agrees with Y to discover treasure by magic and Y agrees to pay Rs 1,000 to X. This agreement is
void because it is an agreement to do an impossible act.
 Example II: X agrees with Y to enclose some area between two parallel lines and Y agrees to pay Rs 1,000 to X.
This agreement is void because it is an agreement to do an impossible act.

10. Legal Formalities

The agreement must comply with the necessary formalities as to writing, registration, stamping etc. if any
required in order to make it enforceable by law.

Example : An oral agreement for arbitration is unenforceable because the law requires that arbitration agreement
must be in writing.

When does a contract become null and void?

A contract can also be void due to the impossibility of its performance.

E g: If a contract is formed between two parties A & B but during the performance of the contract the object of the
contract becomes impossible to achieve (due to action by someone or something other than the contracting parties), then
the contract cannot be enforced in the court of law and is thus void. A void contract can be one in which any of the
prerequisites of a valid contract is/are absent for example if there is no contractual capacity, the contract can be deemed as
void. In fact, void means that a contract does not exist at all. The law cannot enforce any legal obligation to either party
especially the disappointed party because they are not entitled to any protective laws as far as contracts are concerned.

Features of Void agreements:

An agreement made by incompetent parties (Incapacitated Person) is void.
Any agreement with a bilateral mistake is void
Agreements which have unlawful consideration is void.
Agreement with an unlawful object is void.
Agreements made without consideration is void.
Agreement in restraint of marriage of any major person is void (absolute restriction).
Agreement in restraint of trade is void.(reasonable reason)
Agreement in restraint of legal proceedings is void.
An agreement the terms of which are uncertain is void.
An agreement by way of wager (betting/gambling) is void.
An agreement contingent upon the happening of an impossible event is void.
Agreement to do impossible acts is void.

Doctrine of Constructive Notice:

Undoubtedly, both memorandum of association and the articles of association are public documents in the sense that
any person under section 610 of Indian company act, 1956 may inspect any document which will include the
memorandum and articles of the company kept by the registrar of companies in accordance with the rules made under
the destruction of records act, 1917 being documents filed and registered in pursuance of the act. As a consequence,
the knowledge about the contents of the memorandum and articles of a company is not necessarily restricted to the
members of the company alone. Once these documents are registered with the registrar of companies, these become
public documents and are accessible by any members of the public by paying the requisite fees. Therefore, notice
about the contents of memorandum and articles is said to be within the knowledge of both members and non-members
of the company. Such notice is a deemed notice in case of a members and a constructive notice in case of non-
members. Thus every person dealing with the company is deemed to have a constructive notice of the contents of the
memorandum and articles of the company. An outsider dealing with the company is presumed to have read the
contents of the registered documents of the company. The further presumption is that he has not only read and perused
the documents but has also understood them fully in the proper sense. This is known as the rule of constructive notice.
So, the doctrine or rule of constructive notice is a presumption operating in favour of the company against the
outsider. It prevents the outsider from alleging that he did not know that the constitution of the company rendered a
particular act.

The doctrine of constructive notice' is more or less an unreal doctrine. It does not take notice of the realities of
business life. People know a company through its officers and not through its documents. The courts in India do not
 seem to have taken it seriously though. For example, in Dehra Dun Mussorie Electric Tramway Co. v. Jagmandardas,
the Allahabad high court allowed an overdraft incurred by the managing agent of a company when under the articles
the directors had no power to delegate their borrowing power.

Doctrine of indoor management

The Doctrine of indoor management is a presumption on the part of the people dealing with the company such as
the shareholders that the internal requirements with regard to the articles of association and memorandum of
association have been complied with.
The doctrine of indoor management helps in protection of external members from the company and states that the
people are entitled to presume that the internal proceedings are as per the documents submitted with the registrar
of companies.
They are not allowed to go into the procedural aspect, such as the fact that the internal proceedings might not
happen regularly, or what are the proceedings before the directors, in an extraordinary general meeting.

Memorandum of Association and articles of association are two most important documents needed for the incorporation
of a company.

The memorandum of a company is the constitution of that company. It sets out the
(a) object clause,
(b) name clause,
(c) registered office clause,
(d) liability clause and
(e) capital clause;

whereas the articles of association enumerate the internal rules of the company under which it will be governed.

The doctrine of indoor management is an exception to the rule of constructive notice. It imposes an important
limitation on the doctrine of constructive notice. According to this doctrine "persons dealing with the company are
entitled to presume that internal requirements prescribed in memorandum and articles have been properly observed".
A transaction has two aspects, namely, substantive and procedural. An outsider dealing with the company can only
find out the substantive aspect by reading the memorandum and articles. Even though he may find out the procedural
aspect, he cannot find out whether the procedure has been followed or not. For example, a company may have
borrowing powers by passing a resolution according to its memorandum and articles. An outsider can only found out
the borrowing powers of the company. But he cannot find out whether the resolution has in fact been passed or not.
The outsiders dealing with the company are presumed to have read and understood the memorandum and articles and
to see that the proposed dealing is not inconsistent therewith, but they are not bound to do more; they need not inquire
into the regularity of the internal proceedings as required by the memorandum and articles. They can presume that all
is being done regularly.

The doctrine of indoor management is also known as the TURQUAND rule after Royal British Bank v. Turquand. In
this case, the directors of a company had issued a bond to Turquand. They had the power under the articles to issue
such bond provided they were authorized by a resolution passed by the shareholders at a general meeting of the
company. But no such resolution was passed by the company. It was held that Turquand could recover the amount of
the bond from the company on the ground that he was entitled to assume that the resolution was passed.

In one of the case the rule was stated thus: "If the directors have the power and authority to bind the company but
certain preliminaries are required to be gone through on the part of the company before that power can be duly
exercised, and then the person contracting with the directors is not bound to see that all these preliminaries have been
observed. He is entitled to presume that the directors are acting lawfully in what they do."

The rule is based on public convenience and justice and the following obvious reasons:

1. the internal procedure is not a matter of public knowledge. An outsider is presumed to know the constitution
of a company, but not what may or may not have taken place within the doors that are closed to him.
 2. the lot of creditors of a limited company is not a particularly happy one; it would be unhappier still if the
company could escape liability by denying the authority of officials to act on its behalf.

Exceptions to the doctrine of indoor management:

1. Knowledge of irregularity: when a person dealing with a company has actual or constructive
notice of the irregularity as regards internal management, he cannot claim benefit under the rule of indoor
management. He may in some cases, be himself a part of the internal procedure. The rule is based on common sense
and any other rule would encourage ignorance and condone dereliction of duty.

In Howard v. Patent Ivory Co, the directors had the authority under the articles to borrow only up to 1000 without
the resolution of general meeting. For any amount beyond 1000, they needed the consent of general meeting. But the
directors borrowed 3500 from themselves without the consent of general meeting or shareholders and accepted
debentures. It was held that they had knowledge of internal irregularity and debentures were good only up to 1000.

2. Negligence: where a person dealing with a company could discover the irregularity if he had made proper
inquiries, he cannot claim the benefit of the rule of indoor management. If, for example, an officer of a company
purports to act outside the scope of his apparent authority, suspicion should arise and the outsider should make proper
inquiry before entering into a contract with the company.

Anand Bihari Lal v. Dinshaw & Co, the plaintiff, in this case, accepted a transfer of a company's property from its
accountant. Held, the transfer was void as such a transaction was apparently beyond the scope of the accountant's
authority. The plaintiff should have seen the power of attorney executed in favour of the accountant by the company.

3. Forgery: the rule in turquand's case does not apply where a person relies upon a document that turns out to
be forged since nothing can validate forgery. A company can never be held bound for forgeries committed by its
officers. The leading case on the point is :

Ruben v. Great Fingall Consolidated Co., the secretary of a company issued a share certificate under the company's
seal with his own signature and the signature of a director forged by him. Held, the share certificate was not binding
on the company. The person who advanced money on the strength of this certificate was not entitled to be registered
as holder of the shares.

4. Acts outside the scope of apparent authority: if an officer of a company enters into a contract with a third
party and if the act of the officer is beyond the scope of his authority, the company is not bound.

Kreditbank Cassel v. Schenkers Ltd,a branch manager of a company drew and endorsed bills of exchange on behalf of
the company in favour of a payee to whom he was personally indebted. He had no authority from the company to do
so. Held, the company was not bound. But if an officer of a company acts fraudulently under his ostensible authority
on behalf of the company, the company is liable for his fraudulent act.

Conclusion: Thus the doctrine of indoor management seeks to protect the interest of the shareholders who are in
minority or who remains in dark about whether the working of the internal affairs of the company are being carried
out in accordance with the memorandum and articles. It lays down that persons dealing with a company having
satisfied themselves that the proposed transaction is not in its nature inconsistent with the memorandum and articles,
are not bound to inquire the regularity of any internal proceeding.

Civil Liability and Criminal Liability for Misstatement in prospectus

Civil Liability
Every person authorizing the issue of prospectus has a primary responsibility to see that the prospectus contains the true
state of affairs of the company and does not give any fraudulent picture to the public. The section 62 of the Companies
Act, 1956 makes certain person liable to pay compensation to every person who subscribes for any shares of debentures
on the faith of the prospectus for any loss or damage he may have suffered by reason of any untrue statement made in the
prospectus. These would include Directors of the company, Promoters, or even the company.
It is immaterial for the purpose of this section whether the Director sees the prospectus or not it is enough that he
authorizes its issue. Misstatement means a falsehood or concealment or an ambiguity or an exaggeration all of these
have the potential to mislead a prospective investor in the company

Conditions for invoking Section. 62:

The company had issued a prospectus inviting persons to subscribe for its shares or debentures.
An untrue statement was included in the prospectus.
The person who is claiming for the compensation had subscribed for the shares or debentures offered by the
prospectus.
Such person has subscribed for the shares or debentures relying upon the untrue statement contained in the
prospectus.
Such person has sustained a loss or damage after having subscribed for the shares or debentures.

Persons liable under Section.62:

Every director holding the office at the time of the issue of the prospectus.
Every person named in the prospectus as a director or a proposed director, if he has consented to include his name
in the prospectus as such.
Every promoter of the company as defined in subsection (6) (a) of this section.
Every other person who has authorized the issue of prospectus.

Defenses to escape from liability:

Withdrawal of consent: The director will not be liable if he had withdrawn his consent to become a director before
the issue of the prospectus and it was issued without his authority or consent. Reasonable public notice must be
given of withdrawal of consent.
Issue without knowledge: The director can escape from his liability if he proves that the prospectus was issued
without his knowledge and when he became aware about it, and then he gave a public notice for it. Some of the
principal newspapers is not enough, it should be all newspapers in which the prospectus was advertised and
with same frequency too.
Withdrawal of the consent after the issue of the prospectus but before allotment: When the director becomes
aware about such misstatement in the prospectus, after the issue of the prospectus but before the allotment, then
he can withdraw his consent and can give a public notice for it.
Reasonable ground for belief: The director shall be protected if he can show that he had such reasonable ground to
believe, which he did up to the time of allotment.
Statement of expert: If any statement is made by the expert, then director can always contend the fact that he had a
reasonable ground to believe that such statements made were made under competent authority, and he did believe
such statement to be true till the time of allotment. Even for public official document, the same rule shall apply.

Criminal Liability
Where a prospectus issued after the commencement of this Act includes any untrue statement, every person who
authorized the issue of the prospectus shall be punishable with imprisonment for a term which may extend to two
years, or with fine which may extend to fifty thousand rupees, or with both, unless he proves either that the
statement was immaterial or that he had reasonable ground to believe, and did up to the time of the issue of the
prospectus believe, that the statement was true.
A person shall not be deemed for the purposes of this section to have authorized the issue of a prospectus by
reason only of his having given (a) the consent required by section 58 to the inclusion therein of a statement
purporting to be made by him as an expert, or (b) the consent required by subsection (3) of section 60.
Rule in Foss vs Harbottle
Facts
Richard Foss and Edward Starkie Turton were two minority shareholders in the "Victoria Park Company". The company
had been set up in September 1835 to buy 180 acres of land near Manchester and, according to the report, "enclosing and
planting the same in an ornamental and parklike manner, and erecting houses thereon with attached gardens and
pleasuregrounds, and selling, letting or otherwise disposing thereof".

This became Victoria Park, Manchester. Subsequently, an Act of Parliament incorporated the company. [1] The claimants
alleged that property of the company had been misapplied and wasted and various mortgages were given improperly over
the company's property. They asked that the guilty parties be held accountable to the company and that a receiver be
appointed.

Judgment
The court dismissed the claim and held that when a company is wronged by its directors it is only the company that has
standing to sue. In effect the court established two rules. Firstly, the "proper plaintiff rule" is that a wrong done to the
company may be vindicated by the company alone. Secondly, the "majority rule principle" states that if the alleged wrong
can be confirmed or ratified by a simple majority of members in a general meeting , then the court will not interfere.

Rule in Foss v. Harbottle is actually rule of majority supremacy. It means that once a resolution is passed by majority, it is
binding on all the members. Also the courts will in such cases not interfere to protect the minority interest. This is based
on the rational that on becoming a member, each person impliedly consents to submit to the will of majority. Said in
another way it is a corollary to the rule that only the company can sue, which again translates to the wish of the majority.

EXCEPTIONS
The protection of minority rights as mentioned in the previous part is realized by making out some exceptions to the Foss
v. Harbottle rule.

These exceptions are:

Ultra Vires or Illegal Act: Exception One:
Where the act complained of is against the memorandum the Foss v. Harbottle rule is inapplicable.

Wrongdoer in Control: Exception Two:

If the person against whom the relief is sought is himself in control, the rule of majority supremacy cannot be applied.

Fraud on Minority: Exception Three:

Where the act is not for the benefit of the company and discriminates between majority and minority shareholders, action
can be brought by the minority.

Inadequate Notice: Exception Four:

Where a shareholder because of inadequate notice, could not present himself in the meeting where a resolution against
him is passed, the rule does not apply.

Qualified Majority: Exception Five:

Where a resolution requiring special majority is actually passed by simple majority, an exception to the rule is found.

Personal Rights: Exception Six:

Personal rights are not covered by Foss v. Harbottle rule.

ULTRA VIRES ACT: EXCEPTION ONE

Where the acts complained of is outside the scope of the company that is where it is ultra vires the memorandum of
association of the company the rule laid down in Foss v. Harbottle is not applicable.

Meaning of Ultra Vires :

Ultra vires means those things which are outside the scope. In case of a company any act which is not allowed under the
memorandum of association is ultra vires. However where the acts are only contrary to the articles of association but
allowed by the memorandum those acts are not ultra vires and in such cases the rule in Foss v. Harbottle is applicable.
These are any act which is beyond the object clause.

The Exception:
Every shareholder has a right, by injunction, to restrain the company from doing any act which are ultra vires the
company or are illegal. A shareholder is entitled to bring an action against the company and its officers in respect of
matters which are ultra vires the company.

The Rational Behind the Exception:

This exception is based on the rational that acts which are beyond the memorandum are completely illegal and cannot be
ratified by a majority resolution. Thus the shareholders cannot validate it by even a unanimous vote.

Corporate Environment Liability

CSR is defined as the duty to cover the environmental implications of the companys operations, products
and facilities eliminate waste and emissions maximize the efficiency and productivity of its resources
and minimize practices that might adversely affect the enjoyment of the countrys resources by future
generations.
Corporate Social Responsibility has been making an increasingly prominent impact in the Indian social
psyche by supplementing developmental projects towards betterment of the standard of life. The term
itself encompasses a lot of connotations such as compliance, philanthropic and business approaches and
the social primary and social obligation approaches
Corporate Social Responsibility involves the legal, ethical, commercial and other expectations society has
for business and making decisions that fairly balance the claims of all key stakeholders.
When a company commits an offence, prosecution is not launched on all officers of the company, but is
launched or liability is imposed on officers who are responsible or in-charge of the activities of the
company. This practice is in line with Section 5 of the Companies Act,1956 which defines Officer in
Default, namely, the managing director, whole time directors, the manager and the company secretary.
So as is the case with other legislationsin the event of an offence committed by a company, every
person who, at the time the offence was committed, was directly in charge of, and was responsible to the
company for the conduct of the business of the company, as well as the company shall be deemed to be
guilty of the offence and shall be liable to be prosecuted as per the law and punished accordingly. Hence,
according to the existing legislation, the buck stops with the executive management.
Non-executive directors should not rather, cannot be held responsible for the conduct of a companys
business unless they are in charge of the activity.

In the landmark judgment of Standard Chartered and Ors v. Directorate of Enforcement in 2005, the Supreme
Court rule that there was no blanket immunity for any company merely because the prosecution would
ultimately entail a sentence of mandatory imprisonment. The `polluter pays' principle, as interpreted by the Court
in Indian Council for Enviro-Legal Action vs. Union of India, means that the absolute liability for harm to the
environment extends not only to compensate the victims of pollution but also the cost of restoring the
environmental degradation. However, what appears to be missing is the will to enforce criminal sanctions on a
corporation.

Lifting of Corporate Veil

As the company is a separate legal entity, is has been provided with a veil, compared to that of individuals who
are managing the company.
But if the court feels that such veil has to been used for any wrongful purpose, the court lifts the corporate veil
and makes the individual liable for such acts which they should not have done or doing in the name of the
company

Circumstances to lift the corporate veil

The corporate veil can be lifted either under the
Statutory provisions or
Judicial interpretations
The statutory provisions are provided under the Companies Act, 1956. The other circumstances are decided through
Judicial interpretations, which are based on facts of each case as per the decisions of the court

Statutory circumstances for lifting the corporate veil

Reduction in membership- Less than seven in public company and less than two if it is a private company
Failure to refund application money- After the issue of shares to the public, the company has to pay back the
initial payment to the unsuccessful applicants (SEBI Guidelines- 130 Days), if they fail to do so, the corporate
veil can be lifted.
Mis-description of companies name - While signing a contract if the companys name is not properly described,
then the corporate veil can be lifted.
Misrepresentation in the prospectus - (Derry Vs Peek) In case of misrepresentation, the promoters, directors and
every other person responsible in this matter can be held liable.
Fraudulent Conduct- In case the company is carried on with intent to defraud the creditors, and then the court may
lift the corporate veil.
Holding and subsidiary companies - A subsidiary has a distinct legal entity from the holding company other than
in a few circumstances, so if otherwise shown, the court may under the Act , lift the corporate veil of the
subsidiary company.

Circumstances to lift the corporate veil through judicial interpretations

When the court feels that there are no statutory provisions which can pierce the corporate veil, and the identity of
the company is not the one which has to exist, and the court has to interfere in order to avoid the activities that are
done in the name of the company by persons managing them, it has been empowered to do so.

The circumstances are..

Protection of Revenue - Whenever a company uses its name for the purpose of tax evasion or to circumvent tax
obligations
Prevention of fraud or improper conduct - The incorporation has been used for fraudulent purpose, like defrauding
the creditors, defeating the purpose of law etc.
Determination of the character of the company - Enemy Company or all the members being the citizens of the
enemy country. (Daimler Co. Ltd V. Continental Tyre & Rubber Co. Ltd)
Other Circumstances:
Where a company is used to avoid welfare legislation - If a company is formed in order to avoid the benefits to
the workers like bonus, or other statutory benefits.
For determining the technical competence of the company - To look into the competency of the company or the
shareholders or promoters (New Horizons Ltd and Another V. Union of India (1994)
Company Incorporation:
A company comes into existence when a number of persons come together with a view to exploit some business
opportunity. These persons are called promoters. Under section 12, any seven or more persons may form an incorporated
company for a lawful purpose by subscribing their names to the memorandum of association and complying with other
requirements in respect of registration. Such an incorporated company may be a company
Limited by shares,
Limited by guarantee, or
An unlimited company.
The application for registration of a company should be presented to the registrar of the state in which the business office
of the company is to be situated. The application shall be accompanied by the following documents.
The memorandum of association.
The articles of association, if any, duly signed by the subscribers of the memorandum.
A statement of the nominal capital and where it exceeds 25 lakhs, a certificate from the controller of capital
issues, permitting the issue of capital. This certificate is not required under the companies Act 1956, but under the
Capital Issues Control Act 1947.
A notice of address of the registered office of the company. This may be done within 30 days of registration if it
cannot be filed at the time of registration.
A list of directors and their consent to act signed by each.
An undertaking in writing signed by each such director to take and pay for their qualification shares.
A declaration that all the requirements of the act have been complied with. Such a declaration may be signed by
an advocate of the Supreme Court or high court, an attorney or pleader entitled to appear before a high court, a
chartered accountant practicing in India who is engaged in the formation of the company, or by a person named in
the articles as director, manager or secretary of the company.
Items number 5 and 6 are not required to be filed in the case of a private company.
If the registrar is satisfied that all the requisite documents delivered to him are in order, he shall register the memorandum
and the articles, if any, provided he is satisfied on the following point:
The relevant provisions of the act have been complied with.
The objects of the company are lawful.
The requisite number of persons required under the act have subscribed and duly signed.
The memorandum and the articles comply in all respects with the provisions of the act.
The name selected by the company is acceptable.
The statutory declaration has been properly made.
If the registrar of companies is satisfied that all the aforesaid requirements have been complied with, he will register the
company and place its name on the register of companies. It is clear that once the statutory requirements have been
complied with, the registrar has no option but to register it. On refusal to register on improper grounds, he may be
compelled by a writ of mandamus.

Certificate of incorporation:
On registration the registrar will issue a certificate of incorporation whereby he certifies that the company is incorporated
and in the case of a limited company, that the company is limited. From the date of incorporation mentioned in the
certificate, the company becomes a legal person separate from its shareholders. The legal effect of incorporation is as
under:
A company becomes a body corporate distinct from its members. It becomes a legal person and not a mere
aggregate of the shareholders. Thus, where all the members of a company were killed by a bomb the company
was deemed to survive.
A company has a perpetual succession and a common seal it is an immortal being.
A company can sue and be sued in its own name.
A company has a right to hold and alienate its own property. The property of the company belongs to the
company itself and not to the individual members.
Companys debts and obligations are the liabilities of the company only and cannot be enforced against the
individual shareholders.

Conclusiveness of the certificate of incorporation:

The certificate of incorporation shall be conclusive evidence that-
i) All the requirements of the act have been complied with in respect of registration;
ii) All the pre-conditions of registration have been complied with;
iii) The company is duly registered, and
iv) That the company came into existence on the date of the certificate.
The certificate of incorporation prevents the re-opening of matters prior to the registration and essential to it. It places the
existence of the company as a legal person beyond doubt. Consequently, even if the seven signatures to a memorandum
were written by one person or were all forged, the certificate would be conclusive that the company was duly registered.
Similarly, if the signatories were all infants, the certificate would still be conclusive.
Case III: Salomon v. Salomon & Co. Ltd. [1897].

Reference to: Separate Legal Entity

Case Summary:
The doctrine of separate legal entity was originated from this case The facts in this case disclosed that a company had
been incorporated by Mr. Salomon in which he and members of his family were the only shareholders. The issue arises
when the companys business turns to be a failure. The value of the assets was insufficient to pay out both Mr. Salomon
and the companys other creditors. Consequently, the creditors raised an issue whereby they argued that Mr. Salomon
should not receive the payment from the company because the degree of control he exercised over the company.

Mr. Saloman, the owner of a very prosperous shoe business, sold his business for the sum of 30,000 to Saloman and Co.
Ltd. which consisted of Saloman himself, his wife, his daughter and his four sons. The purchase consideration was paid by
the company by allotment of 23,000 shares and 10,000 debentures and the balance in cash to Mr. Saloman. The
debentures carried a floating charge on the assets of the company. One share of 1 each was subscribed by the remaining
six members of his family. Saloman and his two sons became the directors of this company. Saloman was
the managing Director. After a short duration, the company went into liquidation. At that time the statement of affairs
was like this:

Assets :$ 6000,
Liabilities:
Saloman as debenture holder $ 10,000
Unsecured creditors $ 7,000.

Thus its assets were running short of its liabilities b $11,000. The unsecured creditors claimed a priority over the
debenture holder on the ground that company and Saloman were one and the same person and the company was a mere
agent in the eyes of law. But the House of Lords held that the existence of a company is quite independent and distinct
from its members and that the assets of the company must be utilized in payment of the debentures first in priority to
unsecured creditors. The court held that though virtually Saloman was the holder of all the shares in the company, he was
also the secured creditor and was entitled to repayment in priority to the unsecured creditors.

It was held by the House of Lords that despite Mr. Salomon having the control over the company, it was neither his agent
nor trustee. This is because, a company was treated as operating the business in its own right, and as being separate from
its controller, i.e. in this case of Mr. Salomon. Therefore, the charge given by the company to Mr. Salomon was valid and
he was entitled to be paid his debt even though other creditors of the company would not be paid because the company
had insufficient assets to pay all its creditors.

Thus, it shows that a company is a legal person separate and distinct from its individual members or directors as in the
words of Cave J in Re Sheffield & South Sheffield Yorkshire Permanent Building Society, In Liquidation [1889]: a
company is a legal persona just as much as an individual'.

Salomans case established beyond doubt that in law a registered company is an entity distinct from its members, even if
the person hold all the shares in the company. There is no difference in principle between a company consisting of only
two shareholders and a company consisting of two hundred members. In each case the company is a separate legal entity.

The Company is at law a separate person. The 1862 Act created limited liability companies as legal persons separate and
distinct from the shareholders. They held that there was nothing in the Act about whether the subscribers (i.e. the
shareholders) should be independent of the majority shareholder. It was held that: "Either the limited company was a legal
entity or it was not. If it were, the business belonged to it and not to Mr Salomon. If it was not, there was no person and
nothing to be an agent [of] at all; and it is impossible to say at the same time that there is a company and there is not."
Hence the business belonged to the company and not to Salomon, and Salomon was its agent. The House further noted:
"The company is at law a different person altogether from the [shareholders] ...; and, though it may be that after
incorporation the business is precisely the same as it was before, and the same persons are managers, and the same hands
received the profits, the company is not in law the agent of the [shareholders] or trustee for them. Nor are the
[shareholders], as members, liable in any shape or form, except to the extent and in the manner provided for by the Act."
not offer promise but invitation to offer. no contract yet formed. so not liable to sell it to you. consumer protection act

tender of performance -> if the vendor is in right intentions to submit then good enough - if he is supplying good quality
otherwise, iiml can sue the vendor. it is the intent that matters in the end. law is reasonable.

open offer by advertising. caroline accepted so it is a contract. so it is a breach of contract

negotioation is not final offer

acceptance in ignorance is no acceptance

when you put less price, it is called counter offer. one ready two not ready then one not ready. reject. reject. no contract
made at all. so no sue

Ignorance of facts can be excused only in the case of impossibility. when things are impossible, only then the contract is
nullified. but here he can buy from
somewhere else and provide to the customer. so this is not an impossibility case

discharge of contract(discharge means complete or breach)

the vendor has to explicitly mention that he needs the 5lakh back even at the end of the year when the customer
immediately paid 5lakh after taking 10lakh loan

car sold to another

anticipatory breach of contract-
integrity is doubtful so breach of contract. intention to contract

breach of fundamental rights- directly file to supreme court

md and ceo are seperate legal entity. they are not accountable for non-ayment of salaries. they are not accountable for
payments of employees salaries

act of god

environment - natural resources responsible state. company wrong. file against state. so that appropriate actions be taken

company is a seperate legal entity - soloman case

mr lee case too. woman is entitled to compensation because he was an employee and also an owner
incase there is a lift of corporate veil, seperate legal entity can be ignored

Memorandum of association and article of association

certificate of incorporation/registration. jan 6 dated contract can issue shares even if it is received on jan 8
share holding is a bonafide decision so share holders need to be protected

The liability of the promoters is "joint or several". A Promoter who is found liable may recover contributions from the
other prmoters.

certificate is issued after due diligence.so it is enforced as of yet. but the verification grouds can be challenged

law says business added must be such that it is conveniently added to eexisting business. entend when it is already
mentioned in contract or it is related
it is to protect the shareholders interest

constitution - company act - memorandum - article

he s binded to sell but not others binded to sell

solicitor can be removed
article of association is followed only when he is the member of the company. but solicitor is not a company's employee.
statutory powers cannot be taken away by any ageements

it is in the interest of the company. alteration in the article of memorandum made in the interst of company is binding

contract is passed because he is majority share holder but it is not binding on the company

minority is not allowed to challenge the lawful acts of the majority according to the law of supremacy. when majority of
shareholders agreed to something,
they cant sue the company on grounds

doctrine of constructive notice

doctrine of indoor management

expert survey. shareholders can sue the company, if there is no problem with research consultants.
share holders can sue the company, later, if the company can sue the consultants or not is next phase.