Practical Problems_Contract Act_86

X advances to Y Rs.10,000 on the guarantee of Z. The loan carries interest at ten percent per annum. Subsequently, Y becomes financially embarrassed. On Y’s request, X reduces the interest to six per cent per annum and does not sue Y for one year after the loan becomes due. Y becomes insolvent. Can X sue Z?

X cannot sue Z, because a surety is discharged from liability when, without his consent, the creditor makes any change in the terms of his contract with the principal debtor, no matter whether the variation is beneficial to the surety or does not materially affect the position of the surety.

Practical Problems_Contract Act_85

Ajay induced Anil to buy his car saying that it was in a very good condition. After taking the car, Anil complained that there were many defects in the car. Ajay proposed to get it repaired and promised to pay 50% cost of repairs. After a few days, the car did not work at all. Now Anil wants to rescind the contract. Decide giving reasons.

The aggrieved party, in case of misrepresentation by the other party, can avoid or rescind the contract [Section 19, Indian Contract Act, 1872]. The aggrieved party loses the right to rescind the contract if he, after becoming aware of the misrepresentation, takes a benefit under the contract or in some way affirms it. Accordingly in the given case Anil could not rescind the contract, as his acceptance to the offer of Ajay to bear 50% of the cost of repairs impliedly amount to final acceptance of the sale

Practical Problems_Contract Act_84

A promised to pay B for his services at his (A) sole discretion which found to be fair and reasonable. However, B dissatisfied with the payment made by A and wanted to sue him. Decide whether B can sue A under the provisions of Indian Contract Act, 1872?

B’s suit will not be valid because the performance of a promise is contingent upon the mere will and pleasure of the promisor; hence, there is no contract. As per section 29 of the Indian Contract Act, 1872 – agreements, the meaning of which is not certain, or capable of being made certain, are void”.

Companies Act_Practical Problems_35

Company Y with a paid-up capital of Rs.50 lakhs entered into a contract with company Z in which a director of Y is holding equity shares of the nominal value of Rs.50,000. The director did not disclose his interest at the Board meeting under section 299 of the Companies Act, 1956. Is the director liable for his act?

As per Section 299, the disclosure of interest by directors do not apply to any contract or arrangement within two companies where any of the directors of one company or two or more of them together holds or hold not more than 2% of the paid up share capital in the other company. In the present case, if the holding is less than 2%, the director is not liable.

Companies Act_Practical Problems_34

Mr. Agent having ‘substantial interest’ in ABC Ltd is appointed as a Sole selling agent by the Board of Directors for a period of 5 years. The company’s paid-up share capital is Rs.49 crores. The Board did not place the matter in the AGM and communicated to Mr. Agent about his appointment, who in turn accepted the offer.
Examining the provisions of the Companies Act, 1956,
(a) Whether the appointment is in order?
(b) What course of action you would take as the Secretary of the company, in case Mr. Agent does not have substantial interest?

(i) the appointment of J is not in order, as there have been a number of violation on the part of the company as per the Companies Act, 1956. Appointment without the approval of the general meeting and without the approval of the Central Government is not valid since the company’s paid-up share capital is more than Rs.50 lakhs in this case. Moreover, since J has substantial interest in the company, approval of Central Government in Form 1 is must. Thus, the appointment of J is not in order.

(ii) the answer would not be different, as the capital (paid-up share capital) is more than 50 lakhs Rupees. In this case though the appointee (J) does not have substantial interest, but the company’s paid up share capital is more than 50 lakhs, consent of the company in general meeting (special resolution) and the approval of the Central Government is required.

Comapnies Act_Practical Problems_33

The Board meeting of Governance Ltd. has the following schedules:
1st Meeting - 1st January, 2005
2nd Meeting - 30th June, 2005
3rd Meeting - 1st July, 2005.
4th Meeting - 31st December, 2005.
State whether the Board Meetings are as per order/compliance of the provisions of the Companies Act, 1956. What would be your views if the meeting to be held on 30th June, 2005 is adjourned due to lack of quorum?

As per Section 285, in the case of every company, a meeting of the Board of Directors shall be held at least once in every three months and at least four such meetings shall be held in every year. The section does not state the gap between two board meetings. In the present case four meetings have been scheduled for the year 2005 even though the gap between two board meetings is more than 3 months. However, as per the section there appear to be no contravention.

If the Board meeting to be held on 30th June, is adjourned due to lack of quorum, again a meeting is held on some other date, the company shall not be deemed to have contravened the provisions of Section 285. If the said meeting is held on 30th June, 2005 and was adjourned for want of quorum, the meeting automatically stand adjourned by virtue of Section 288 (1) till the same day in the next week, at the same time and place. And if the same day is a public holiday, then the meeting stands adjourned till the next succeeding day which is not a public holiday.

Comapanies Act_Practical Problems_32

The financial year of a holding company ends on 31st March, while that of its subsidiary ends on 30th June. The subsidiary company wants to extend the financial year from 30th June to 31st March, so that the financial year of both the companies would coincide. Is it possible?

In this case, the financial year of the subsidiary precedes that of the holding company by 9 months. In case the subsidiary wants to extend the financial year from 30th June of one year to 31st March of the following year, the financial years of both the holding and subsidiary companies would coincide. But the extension sought for is for 9 months, i.e., from 30th June of one year to 31st March of the following year. Such an extension cannot be granted even by the Registrar under the proviso to sub-section (4) of section 210. It appears that the Central Government can, under this section, direct that the provisions of sub-section (4) of section 210 shall not apply in this case. Similarly, in order to ensure that the financial year of the subsidiary does not precede that of the holding company by more than six months, similar direction can be issued by the Central Government under sub-section (2) of this section, extending the financial year of the holding company from 31st march, 31st December. Here again, the extension will be for a period of nine months. The financial years of the holding and the subsidiary company
will not coincide. But, by virtue of direction under sub-section (2) the requirement of clause (c) of sub-section (2) of section 212 will be fulfilled.