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Master of Business Administration (Semester 3) MB00051 Legal Aspects of Business ASSIGNMENT- Set 1 (Marks 60)

Note: Each Question carries 10 marks. Answer all the questions.

Q1. All agreements are not contracts, but all contracts are agreements. Comment.
Ans: - A contract is a legally binding agreement or relationship that exists between two or more parties to do or abstain from performing certain acts. A contract can also be defined as a legally binding exchange of promises between two or more parties that the law will enforce. For a contract to be formed an offer made must backed acceptance of which there must be consideration. Both parties involved must intend to create legal relation on a lawful matter which must be entered into freely and should be possible to perform. An agreement is a form of cross reference between different parties, which may be written, oral and lies upon the honor of the parties for its fulfillment rather than being in any way enforceable. All contracts are agreement because there must be mutual understanding between two parties for a contract to be formed. All parties should agree and adhere to the terms and conditions of an offer. The following cases illustrate ways in which all contracts are agreements; In the case of invitation to treat, where an invitation to treat is merely an invitation to make an offer. When a firm's offer is accepted it results into a contract provided other elements of contracts are accepted. Considering person A buying a radio on hire purchase from person B who deals with electronics and its appliances. Both parties must come to an agreement on payment of monthly installment within specified period of time. Such an agreement result to specialty contract which a contract under seal. All contracts are agreement until avoided for example, avoidable contract where one of the parties can withdraw from it if s/he wishes. This occurs due to minor agreement and misrepresentation or undue influence. Considering a case where person A make contract with person B but during the contract period B realizes that he was engaged to perform an agreement under undue influence. Definition of contract According to section 2(h) of the Indian Contract Act: " An agreement enforceable by law is a contract." A contract therefore, is an agreement the object of which is to create a legal obligation i.e., a duty enforceable by law. From the above definition, we find that a contract essentially consists of two elements: (1) An agreement and (2) Legal obligation i.e., a duty enforceable by law. We shall now examine these elements detail. 1. Agreement. As per section 2 (e): Every promise and every set of promises, forming the consideration for each other, is an agreement." Thus it is clear from this definition that a 'promise' is an agreement. What is a 'promise'? The answer to this question is contained

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in section 2 (b) which defines the term." When the person to whom the proposal is made signifies his assent thereto the proposal is said to be accepted. A proposal, when accepted, becomes a promise." An agreement, therefore, comes into existence only when one party makes a proposal or offer to the other party and that other party signifies his assent (i.e., gives his acceptance) thereto. In short, an agreement is the sum total of 'offer' and 'acceptance'. On analyzing the above definition the following characteristics of an agreement become evident: (a) At least two persons. There must be two or more persons to make an agreement because one person cannot inter into an agreement with himself. (b) Consensus-ad-idem. Both the parties to an agreement must agree about the subject matter of the agreement in the same sense and at the same time. 2. Legal obligation. As stated above, an agreement to become a contract must give rise to a legal obligation i.e., a duty enforceable by law. If an agreement is incapable of creating a duty enforceable by law. It is not a contract. Thus an agreement is a wider term than a contract. All contracts are agreements but all agreements are not contracts," Agreements of moral, religious or social nature e.g., a promise to lunch together at a friend's house or to take a walk together are not contracts because they are not likely to create a duty enforceable by law for the simple reason that the parties never intended that they should be attended by legal consequences.

Q2. What are the essentials of a contract of sale under the sale of Goods Act, 1930?
Ans:-A contract of sale as a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. From the definition, the following essentials of

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the contract emerge: 1. There must be at least two parties. A sale has to be bilateral because the property in goods has to pass from one person to another. The seller and the buyer must be different persons. A person cannot buy his own goods. However, a part-owner may sell to another part-owner. 2. Transfer or agreement to transfer the ownership of goods. In a contract of sale, it is the ownership that is transferred (in the case of sale), or agreed to be transferred (in the case of agreement to sell), as against transfer of mere possession or limited interest (as in the case of bailment or pledge). 3. The subject matter of the contract must necessarily be goods. The sale of immovable property is not covered under Sale of Goods Act. The expression goods is defined in Sec.2(7). 4. Price is the consideration of the contract of sale. The consideration in a contract of sale has necessarily to be money, (i.e., the legal tender money). If for instance, goods are offered as the consideration for goods, it will not amount to sale. It will be called a barter. Payment by installments: In the case of sale of goods, the parties may agree that the price will be payable by installments. Also, the terms may stipulate some amount by way of down payment and the balance by installments. Sale and agreement to sell Where under a contract of sale, the property (ownership) in the goods is transferred from the seller to the buyer; it is called a sale [Sec. 4(3)]. Thus, sale takes place when there is a transfer of ownership in goods from the seller to the buyer. A sale is an executed contract.

Q3. Describe the main features of Consumer Protection Act 1986.


Ans:- Consumer is at the core of business world in the present day economy. Quantity and

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quality of goods are produced as per the needs of the consumer. Advancement of any business unit depends on the satisfaction of the consumer. That product will be in great demand which gives maximum satisfaction to the consumer and so will be produced on large scale. As a result, the concerned production unit will develop and earn large profit. Despite the Fact that Importance of the consumer is widely recognized, he is deprived of his rights and privilege and is subjected to diverse kinds of exploitation. For instance exploitation in the form of short weight and measure poor quality of the product, adulteration, supply of fake goods, boarding and black marketing of the goods, delivery of goods not on schedule. Not only that, even doubtful and false advertisements are indulged into by the producers to attract consumers. With a view to protecting the consumers from such exploitation and making them aware of their rights, a method of consumer protection has been launched. Need for protection arid satisfaction of the consumer is now being widely recognized across the world. India has also adopted the concept of consumer protection more seriously and vigoursly. Meaning of Consumer Protection: Consumer protection means the protection of the consumers from their exploitation by the unfair trade practices of the producers/sellers. In fact, providing proper protection of the fundamental rights and Interests of the consumers, freeing them from exploitation, creating consumer awareness, consumer providing the right to clean business environment to the consumers by means of Legal amendments Is all that protection means. Main Elements/Features of Consumer Protection Act, 1986 Consumer Protection Act is the most progressive Act of Social well are and is referred to as Magna Carta of consumer protection. It is a land mark event in the history of Acts in India. Main features of the Act are as under It applies to all kinds of goods and services. Provisions of this Act are in addition to the provisions of any other Act in force in the country. Thus, this Act does not limit or reduce the scope of any other Act. Under this Act, there is a provision for the Centre and State Governments to setup Consumer Protection Councils composing of both official and non-official members. The objectives of the council are: - to promote the rights and Interests of the consumers,- to educate and protect them This Act provides for the following rights to the consumer: Right to safety, Right to be heard, Right to consumer education,

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Right to seek redressal Right to Choose Right to be Informed

This Act is based on the principle of compensation wherein fair compensation to the aggrieved party is provided for. To redress the grievance, there is provision for three-tier judicial machinery 1. District level 2. State level and 3. National Level This Act provides affective protection to the consumer from different types of exploitations, such as defective goods, adulteration, under-weight, excessive price, unsatisfactory or deficient services and unfair trade practices. This Act redresses in a simple, cheap and dynamic manner the grievance of the consumer in limited time. All suppliers of goods and services belonging to private, public and co-operative sectors come under the purview of this Act.

Right to Consumer: In a free market economy, consumer is sovereign. He has the right to buy or not to buy a product offered for sale, to expect the product to be safe; to expect the product sale, to bewhat it is claimed to be; to be adequately informed about the most salient aspect of the product. He has a right to receive proper and efficient service and satisfaction. Under section 6 of Consumer Protection Act, consumer has following rights: (I) Right to Safety: Consumer has the right to be protected against marketing of such goods and services as are hazardous to health, life and property. There are several fake, adulterated, inferior, defective, ineffective and dangerous goods available in market. They are injurious to body and health. Consumer therefore, has the right to safety from all such goods as well as is likely to cause harm to his body and health, besides causing loss of money. (II) Right to Choose: Under this right, consumer can choose any from among the variety of goods and services available in the market. One finds in the market goods of different brand, quality, shape, color, size, design and price produced by different manufacturers. Under this right, the consumer must be assured access to variety of goods and services at competitive prices as far as possible. Misleading or false advertisement, wrong information or in any other

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way, If any person (manufacturer, seller) influences his preference, in an unfair or unnecessary manner, it will be treated as intervention in his right to choose. (III) Right to be informed: Consumer has the right to get all necessary information onthe basis of which he may decide to buy the good or service. He has therefore the right to be informed about the quality, quantity, purity, potency, standard, price of goods, etc. (IV) Right to be heard: Consumer has the right to present before the appropriate forum or authorities all those matters which affect his interests. This right includes the right to make protest and file complaints. This right implies that matters of interest to the consumer will receive due consideration at appropriate forums, so that he is encouraged to express his problems, complaints and unjust treatment meted out to him. (V) Right to seek redressal: Consumer has the right to get his claims and complaints settled against the manufacturers and sellers. This right provides the consumer freedom from unfair trade practice or unscrupulous exploitation by the trader. Besides, it helps him secure compensation. (VI)Right to Consumer Education: Under this right, consumer is entitled to get Information or educated about those things which are necessary for him. Such an education creates awareness about his rights and he comes to know when to approach for the redressal of his grievance and exploitation. This helps a consumer protect himself against fraudulent, deceptive and misleading advertisement and poor or negligent services.

Q4. What are the duties and powers of an authorised person under FEMA, 1999?
Ans:- Authorised Person : (1) The Reserve Bank may, on an application made to it in this behalf, authorize any person to be known as authorized person to deal in foreign exchange or in foreign securities, as an authorized dealer, money changer or off-shore ranking unit or in any other manner as it deems fit. (2) An authorization under this section shall be in writing and shall be subject to the conditions laid down therein.

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(3) An authorization granted under sub-section (1) may be revoked by the Reserve Bank at any time if the Reserve Bank is satisfied that: (a) it is in public interest so to do; or (b) the authorized person has failed to comply with the condition subject to which the authorization was granted or has contravened any of the provisions of the Act or any rule, regulation, notification, direction or order made there under: Provided that no such authorization shall be revoked on any ground referred to in clause (b)unless the authorized person has been given a reasonable opportunity of making a representation in the matter. (4) An authorized person shall, in all his dealings in foreign exchange or foreign security, comply with such general or special directions or orders as the Reserve Bank may, from time to time, think fit to give, and, except with the previous permission f the Reserve Bank, an authorized person shall not engage in any transaction involving any foreign exchange or foreign security which is not in conformity with the terms of his authorization under this section. (5) An authorized person shall, before undertaking any transaction in foreign exchange on behalf of any person, require that person to make such declaration and to give such information as will reasonably satisfy him that the transaction will not involve and is not designed for the purpose of any contravention or evasion of the provisions of this Act or of any rule, regulation, notification, direction or order made thereunder, and where the said person refuses to comply with any such requirement or make only unsatisfactory compliance therewith, the authorized person shall refuse in writing to undertake the transaction and shall, if he has reason to believe that any such contravention or evasion as aforesaid is contemplated by the person, report the matter to the Reserve Bank. (6) Any person, other than an authorized person, who has acquired or purchased foreign exchange for any purpose mentioned in the declaration made by him to authorized person under sub-section (5) does not use it for such purpose or does not surrender it to authorized person within the specified period or uses the foreign exchange so acquired or purchased for any other purpose for which purchase or acquisition or foreign exchange is not permissible under the provisions of the Act or the rules or regulations or direction or order made there under shall be deemed to have committed contravention of the provisions of the Act for the purpose of this section. Reserve Bank's powers to issue directions to authorised person: (1) The reserve Bank may, for the purpose of securing compliance with the provisions of this Act and of any rules, regulations, notifications or directions made there under, give to the authorised persons any direction in regard to making of payment or the doing or desist from doing any act relating to foreign exchange or foreign security. (2) The Reserve Bank may, for the purpose of ensuring the compliance with the provisions of this Act or of any rule, regulation, notification, direction or order made there under, direct any authorised person to furnish such information, in such manner, as it deems fit.

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(3) Where any authorised person contravenes any direction given by the Reserve Bank under this Act or fails to file any return as directed by the Reserve Bank, the Reserve Bank may, after giving reasonable opportunity of being heard, impose on the authorised person a penalty which may extend to ten thousand rupees and in the case of continuing contravention with an additional penalty which may extend to two thousand rupees for every day during which such contravention continues. Power of Reserve Bank to inspect authorised person: (1) The Reserve Bank may, at any time, cause an inspection to be made, by any officer of the Reserve Bank specially authorised in writing by the Reserve Bank in this behalf, of the business of any authorised person as may appear to it to be necessary or expedient for the purpose of(a) verifying the correctness of any statement, information or particulars furnished to the Reserve Bank; (b) obtaining any information or particulars which such authorised person has failed to furnish on being called upon to do so; (c) securing compliance with the provisions of this Act or of any rules, regulations, directions or orders made there under. (2) It shall be the duty of every authorised person, and where such person is a company or a firm, every director, partner or other officer of such company or firm, as the case may be, to produce to any officer making an inspection under sub-section.

Q5. What do you mean by Memorandum of Association? What does it contain?


Ans:-Memorandum of association is one of the documents which has to filed with the registrar of companies at the time of incorporation of a company. Section 2(28)defines a memorandum to mean the memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous company law or of this act. The definition, however, either does not give us any idea as to what a memorandum of association really is nor does it point out the role which it plays in the affairs of the company. The memorandum of association is an extremely important document in relation to the affairs of the company. It is a document which sets out the constitution of the company and is really the foundation on which the structure of the company is based. It contains the fundamental conditions upon which alone the company is allowed to be incorporated. A company may pursue only such objects and exercise only such powers as are conferred expressly in the memorandum or by implication therefore i.e. such powers as are

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incidental to the attainment of the objects. A company cannot depart from the provisions contained in its memorandum, however, great the necessity may be. If it does, it defines its relation with the outside world and the scope of its activities. The purpose of the memorandum is to enable shareholders, creditors and those who deal with the company to know what is the permitted range of the enterprise. It defines as well as confines the powers of the company; it not only shows the object of its formation, but also the utmost possible scope of its operation beyond which its action cannot go. Lord Cairns in Ashbury Railway Carriage Co. V. Riche pointed out, The memorandum is as it were, the area beyond which the action of the company cannot go; inside that area the shareholders may make such regulations for their own government as they think fit. Purpose of memorandum: The purpose of the memorandum is twofold. 1. The intending share holder who contemplates the investment of his capital shall know within what field it is to be put at risk. 2. Anyone who shall deal with the company shall know without reasonable doubt whether the contractual relation into which he contemplates entering with the company is one relating to a matter within its corporate objects. At least seven persons in the case of public company and at least two in the case of a private company must subscribe to the memorandum. The memorandum shall be printed, divided into consecutively numbered paragraphs, and shall be signed by each subscriber, with his address, description and occupation added, the presence of at least one witness who will attest the same. Contents of Memorandum: According to section 13, the memorandum of association of every company must contain the following clauses: 1. The name of the company with limited as the last word of the name in the case of a public limited company and with private limited as the last word in the case of a private limited company. 2. The state in which the registered office of the company is to be situated. 3. The objects of the company to be classified as: a. The main objects of the company to be pursued by the company on its incorporation and objects incidental to the attainments of the main objects, and b. Other objects not included above 4. In the case of companies with object not confined to one state, the states to whose territories the objects extend. 5. The liability of members is limited if the company is limited by shares or by guarantee.

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6. In the case of a company having a share capital, the amount of share capital with which the company proposes to be registered and its division into shares of a fixed amount. An unlimited company need not include items 5 and 6 in its memorandum. In the case of a company limited by guarantee, its memorandum of association shall state that each member undertakes to contribute to the assets of the company, in the event of its being wound up while he is a member or within or year after wards for the payment of the debts and liabilities of the company. Every subscriber to the memorandum shall take at least one share and shall write opposite to his name the number of shares taken by him. Different clauses: A brief discussion of the various clauses is as follows: Name clause: A company may be registered with any name it likes. But no company shall be registered by a name which in the opinion of the central government is undesirable and in particular which is identical or which too nearly resembles the name of an existing company. Where a company is registered by a name so similar to that of another company, that the public are likely to be deceived, the court will grant an injunction restraining it from using that name. Every public company must write the word limited after its name and every private limited company must write the word private limited after its name. The use of the word company is however, not compulsory. Companies, whose liabilities are not limited, are prohibited from using the word limited. The words limited may be dispensed with in the name of charitable companies. But companies formed to promote art, science, religion etc, which do not propose to pay dividend but intend to apply all its profits towards the working of the company, can be registered without the word limited under licenses granted by the central government. A company cannot adopt a name which violates the provisions of the emblems and names act 1950. This act prohibits the use of the name and emblems of the united nation, and the world health organization, the official seal and emblem of the central and the state governments, the Indian National Flag, the name and pictorial representation of Mahatma Gandhi and the prime minister of India. If a limited company makes a contract without using the word limited the directors who make the contract on behalf of the company would be personally liable. Every company is required to publish its name outside its registered office, and outside every place where it carries on business, to have its name engraved on its seal and to have its name on all business letters, bill heads, notices and other official publications of the company. Registered office clause: This clause states the name of the state where the registered office of the company is to

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situate. The registered office clause is important for two reasons. Firstly, it ascertains the domicile and nationality of a company. This domicile clings to it throughout its existence. Secondly, it is the place where various registers relating to the company must be kept and to which all communications and notices must be sent. A company need not carry on its business at its registered office. A company shall have its registered office. Such office must be in existence from the date on which the company begins to carry on business or within 30 days after incorporation, whichever is earlier. Notice of situation of the registered office and every change therein must be given within 30 days from the date of incorporation of the company of after the date of change, as the case may be. Objects clause: The objects clause is the most important clause in the memorandum of association of a company. It is not merely a record of what is contemplated by the subscribers, but it serves a two-told purpose: (a) It gives an idea to the prospective shareholders the purposes for which their money will be utilized. (b) It enables the persons dealing with the company to ascertain its powers. In case of companies which were in existence immediately before the commencement of the companies act 1965, the objects clause has simply to state the objects of the company. But in the case of a company to be registered after the amendment, the objects clause must state separately: (a) Main objects. This sub-clause has to state the main objects to be pursued by the company on its incorporation and objects incidental or ancillary to the attainment of the main objects. (b) Other objects. This sub-clause shall state other objects which are not included in the above clause. Further, in the case of a non-trading company. Whose objects are not confined to one states clause must mention specifically the states to whose territories the objects extend. The subscribers to the memorandum of association may choose and object or objects for their company. There are, however, certain restrictions. 1. The objects should not be against the policy of the constitution. For example, the object should not be such as to encourage untouched ability which has been abolished under our constitution. 2. The objects should not include anything which is illegal or against public policy. For example, forming a company for dealing in lotteries or for trading with the alien enemies. 3. The object must not be against the provisions of the companies act, as for example, authorizing the company to purchase its own shares.

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On its being registered, the company has power to do whatever is necessary to do for attaining the objects stated in the memorandum, and to do whatever else is incidental to or consequential upon the attainment of the main object. It is, therefore, clear that any act of the company outside its stated, objects is ultra viruses and therefore void and cannot be ratified even by the whole body of shareholders. Liability clause: This clause states that the liability of the members of the company is limited. In the company is limited. In the case of a company limited by shares, the member is liable only to the amount unpaid on the shares taken by him. In the case of a company limited by guarantee the members are liable to the amount undertaken to be contributed by them to the assets of the company in the event of its being wound up. However, this clause is omitted from the memorandum of association of unlimited companies. Any alteration in the memorandum compelling a member to take up more shares, or which increases his liability, would be null and void. If a company carries on business for more than six months, while the number of members is less than 7, in the case of public company and less than 2 in case of a private company each member aware of this fact, is liable for all the debts contracted by the company after the period of six months has elapsed. Capital clause: The memorandum of a company limited by shares must state the authorized or nominal share capital, the different kinds of shares, the authorized or nominal share capital, the different kinds of shares, and the nominal value of each share. The capital clause need not state anything else and it is usually better that it should not do so. Association or subscription clause: This clause provides that those who have agreed to subscribe to the memorandum must signify their willingness to associate and form a company. According to section 12 of the act, at least seven persons are required to sign the memorandum in the case of a public company, and at least two persons in the case of a private company. The memorandum has to be signed by each subscriber in the presence of at least one witness who must attest the signatures. Each subscriber must write opposite his name the number of shares he shall take. No subscriber of the memorandum shall take less than one share. This clause need not be numbered.

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Q6. Write short notes on the following: a. Copy Right Act; b. Pledge
Ans :- a. Copyright Act: The Copyright Act, 1957 provides copyright protection in India. It confers copyright protection in the following two forms: (A) Economic rights of the author, and (B) Moral Rights of the author. Economic Rights: The copyright subsists in original literary, dramatic, musical and artistic works; cinematographs films and sound recordings. The authors of copyright in the aforesaid works enjoy economic rights u/s 14 of the Act. The rights are mainly, in respect of literary, dramatic and musical, other than computer program, to reproduce the work in any material form including the storing of it in any medium by electronic means, to issue copies of the work to the public, to perform the work in public or communicating it to the public, to make any cinematograph film or sound recording in respect of the work, and to make any translation or adaptation of the work. In the case of computer program, the author enjoys in addition to the aforesaid rights, the right to sell or give on hire, or offer for sale or hire any copy of the computer program regardless whether such copy has been sold or given on hire on earlier occasions. In the case of an artistic work, the rights available to an author include the right to reproduce the work in any material form, including depiction in three dimensions of a two dimensional work or in two dimensions of a three dimensional work, to communicate or issues copies of the work to the public, to

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include the work in any cinematograph work, and to make any adaptation of the work. In the case of cinematograph film, the author enjoys the right to make a copy of the film including a photograph of any image forming part thereof, to sell or give on hire or offer for sale or hire, any copy of the film, and to communicate the film to the public. These rights are similarly available to the author of sound recording. In addition to the aforesaid rights, the author of a painting, sculpture, drawing or of a manuscript of a literary, dramatic or musical work, if he was the first owner of the copyright, shall be entitled to have a right to share in the resale price of such original copy provided that the resale price exceeds rupees ten thousand. Moral Rights: Section 57 of the Act defines the two basic moral rights of an author. These are: (i) Right of paternity, and (ii) Right of integrity. The right of paternity refers to a right of an author to claim authorship of work and a right to prevent all others from claiming authorship of his work. Right of integrity empowers the author to prevent distortion, mutilation or other alterations of his work, or any other action in relation to said work, which would be prejudicial to his honour or reputation. The proviso to section 57(1) provides that the author shall not have any right to restrain or claim damages in respect of any adaptation of a computer program to which section 52 (1)(aa) applies (i.e. reverse engineering of the same). It must be noted that failure to display a work or to display it to the satisfaction of the author shall not be deemed to be an infringement of the rights conferred by this section. The legal representatives of the author may exercise the rights conferred upon an author of a work by section 57(1), other than the right to claim authorship of the work. b. PledgeSec.172, defines a pledge as the bailment of goods as security for payment of a debt or performance of a promise. The person, who delivers the goods as security, is called the pledgor and the person to whom the goods are so delivered is called the pledgee. The ownership remains with the pledgor. It is only a qualified property that passes to the pledgee. He acquires a special property, and lien which is not of ordinary nature and so long as his loan is not repaid, no other creditor or authority can take away the goods or its price. Thus, in Bank of Bihar v. State of Bihar and Ors. (1971) Company Cases 591, where sugar pledged with the Bank was seized by the Government of Bihar, the Court ordered the State Government of Bihar to reimburse the bank for such amount as the Bank in the ordinary course would have realised by the sale of sugar seized. Delivery essential. A pledge is created only when the goods are delivered by the borrower to the lender or to someone on his behalf with the intention of their being treated as security against the advance. Delivery of goods may, however, be actual or constructive. It is constructive delivery where the key of a godown (in which the goods are kept) or documents of title to the goods are delivered. The owner of the goods can create a valid pledge by transferring to the creditor the documents of title relating to the goods.

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Advantages of pledge: To a creditor, pledge is perhaps the most satisfactory mode of creating a charge on goods. It offers the following advantages: 1. The goods are in the possession of the creditor and therefore, in case the borrower makes a default in payment, they can be disposed of after a reasonable notice. 2. Stocks cannot be manipulated as they are under the lenders possession and control. 3. In the case of insolvency of the borrower, lender can sell the goods and prove for the balance of the debt, if any. 4. There is hardly any possibility of the same goods being charged with some other party if actual possession of the goods is taken by the lender.

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