1.

Comment on the following statements with examples-

A. All the Contracts are agreements, but all agreements are not contracts

An agreement is an understanding between two parties regarding exchange of goods or services

against other goods or services or money. It 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’.

A Contract is an agreement enforceable by law. It involves a legal obligation between two

parties with appropriate clauses specified well in advance which can be revoked if either of the
parties breaches the terms and conditions of the contract and this can be contested in the court of
law. It is necessary for a contract to be an agreement i.e all the prerequisites of an agreement still
apply to a contract.

A contract essentially consists of two parts: i) An agreement and ii) Legal obligation for
enforcement of the terms and conditions of the agreement.

A contract is necessarily an agreement but same is not true for vice versa i.e an agreement is not
necessarily a contract as it has no legal bindings.

For example, if a company enters into an agreement and it is specifically agreed upon that the
agreement will not be subject to legal jurisdiction in the court of law, it cannot be called an as a
contract.

Example: If A offers B to take her for dinner and fails to do so, B cannot challenge A in the court
of law. This is known as an agreement.

Whereas, if A marries B under a contract and breaches the terms and conditions of the contract,
he can be challenged by B I in the court of law.

B. Counter offer to an offer lapses the offer

For two parties to enter into a contract, any offer made by a party must be accepted by the
other party without any changes i.e the acceptance of the offer should be mutual. Any
changes in the conditions during the acceptance will be taken as a counter offer which
must again be agreed upon by both the parties mutually. This is also known as the “mirror
image” rule. Any counter offer is makes the initial offer null and void.

For example, X makes an offer to Y:

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 Offer No. ADF dated 26th Jan 2011

Offer for sale of Rolls Royce Phantom 2008 make by X to Y subject to following
conditions:

- The delivery shall be made within 20 days of the date of acceptance of the contract

- The payment shall be made within 15 days from the date of dispatch as mentioned in
the B/L

Now if Y wishes to extend the payment terms, he must send a counter offer stating the
following:

This is with reference to offer No. ADF dated 26th Jan 2011 regarding the sale of Rolls
Royce Phantom 2008 make:

- The payment shall be made after 15 days from the date of receipt of the consignment.

- All other terms and conditions remaining the same.

This counter offer nullifies the original offer given by X to Y. X now has to give his
acceptance for this offer and only then they van enter into a contract. In other words, a
contract can be based on only a single set of terms and conditions agreed upon by both
the parties mutually without any discrepancies.

C. Terms of an offer must be certain

Any offer made to the opposite party must be clearly specified and understood mutually
in writing by both the parties. Agreements the meaning of which are not certain or are not
capable of being certain are void.

For example, for the purchase of 25 MT of steel from a vendor, a buyer makes the
following offer:

Purchase of 25 MT of steel

For the seller, this is very ambiguous as he stocks many grades of steel and hence, this
offer has no meaning. The correct offer should be as follows:

Purchase of 25 MT of steel plates subject to following specifications:

- Grade: IS 2062 Gr. B

- Thickness: 36mm
- Size: 1100 mm x 600 mm
- Make: SAIL/Essar
These specifications are enough for the seller to clearly understand the requirements of
the buyer. However, if there are any changes in the specifications, he must send a counter
offer to the buyer which should be accepted by him before the contract is laid.
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 2. Enron is a classic case of collective greed of industry leaders winning over
Corporate ethics and morals. Comment.

What happened in Enron can be studied as a classic example of how even the biggest of
the players cannot be completely trusted and how irrational decisions driven by greed of a
few people sitting at the corporate hierarchy can lead to massive financial devastation for
many small investors.

The case in a nutshell:

Enron was founded by Kenneth Lay who was also the chairman. The CEO was Jeff
Skilling who was hired by Lay in the year 1989. Skilling was the mastermind of the
various business models which were inherently faulty and involved doubtful operations.

One of the many faulty practices was the Mark to Market accounting practice followed by
Enron according to which, the NPV of expected returns made from an capital investment
could be showed as profits for the current year thereby showing exceptional profits even
without incurring them. There was no mechanism to forecast the revenue appropriately
hence this method was inherently faulty.

But nonetheless, this practice was followed by the top management to fool the investors
into buying Enron stocks which resulted into very high traded prices of these stocks.

Many employees withdrew money from their pension funds and invested in these shares.

This went on for a long time combined with many other “Ponzi Schemes” such as
weather trading, energy trading in California etc.. This was driven by insatiable greed of
Keneth Lay and Skillings along with other accomplices which soon enough went out of
their own control.

Eventually, one of the employees, Sheron Watkins discovered this and the company came
under suspicion as a result of which the prices of the stocks started dropping. The top
management convinced the employees to not to worry and offloaded their stocks to the
employees thereby encashing the stocks held by them. But soon enough, the news of the
fraudulent practices were exposed resulting into sudden plunge of Enron stock prices to
nothing.

While the management earned millions of dollars in process, investors lost all their
earnings and were devastated. Many lost their jobs and lifetime savings due to the greed
of some management leaders.

This became a classic case of immoral practices in corporate governance where unethical
practices driven by greed of some people led to devastating consequences for many.

3. Issues & Cases in Law & Best Practices.

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 Procurement of Structural Steel in the Project Environment
Procurement of steel is considered the most intense and high pressure activity as it
involves tight deadlines, zero tolerance on quality and intense pressure from the
execution department as their responsibilities which involves fabrication activities
depends upon the supply of raw material by the procurement department. This activity
often falls into critical path and involves many complicated transactions.
During my stint as a buyer of structural steel for the project, I was faced with many
irregularities which have given me several learnings to reflect upon.
The case of Handrails
Workers’ safety is one of the greatest concerns in a construction project and the ongoing
project had already witnessed several minor accidents during its construction phase. For
the same project, I was once assigned a crucial responsibility of sub-contracting
fabrication of handrails for the boiler structure of ongoing power plant project.

As per the contractual guidelines given by the Project Management Consultant Engineers
India Limited, there were several contractual requirements some of which were:

- The handrails had to be made of a specific grade of steel pipes

- They had to be hot dip galvanized

- The fabricator must be approved by EIL

- Moreover, the construction site which was also the destination of the handrails, was in
Panipat, Haryana and as per the state transportation laws, any consignment entering
the state must accompany a Road Permit issued by the consignee which in our case
was IOCL. This made supply of material to site a difficult task as for issuance of road
permits, prior intimation had to be made to the consignee which sometimes delayed
the transportation duration. Hence, it was preferable to have the consignor as well as
the consignee within the state of Haryana.

The trade off

Time was of primary importance for the execution of this contract as laborers had already
started working at higher altitudes with no handrails to protect them from falling. To

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 shorten the transportation duration, I managed to locate a fabricator just 300 km away
from the project site inside the state of Haryana.

However, the fabricator located by me was not approved by EIL and the approval
procedure would have taken several days. But, this fabricator had previously carried
fabrication activities for EIL, which was one of the important qualification criteria by
EIL, and approval could have been carried out smoothly.

There was also a parallel fabrication order running with a large amount of material being
supplied from a fabricator located in Chennai. Moreover, this was already approved by
EIL. Another option could’ve been to give the Handrail fabrication order to this fabricator
along with the already ongoing order. But there were several cons of this:

- The delivery of the handrails was urgent and lead time had to be minimum

- The Chennai based fabricator was already under tremendous pressure which would’ve
resulted in conflict of priorities.

- It is a good risk mitigation strategy to divide tasks amongst more than one fabricator.

Hence, there was a clear trade-off between choosing a safer but lengthier alternative and a
shorter but unapproved fabricator.

The Dilemma
The senior manager of the department who was coordinating with the Chennai based
fabricator felt more comfortable working with him. Hence, he insisted upon me to place
the order on the Chennai based fabricator. But this would have largely delayed the
transportation cycle by more than 15 days while workers had already started working at
high altitudes. Moreover, this fabricator did not have a galvanizing facility and would
have required outsourcing this task to another subcontractor thereby increasing the
complexity and further delay in supply.

Reasoning with the senior manager did not help and led to frictions between us. A
detailed analysis of the lead time and material supply planning was necessary which was
eventually carried out by me. My proposal was finally approved and a decision was taken
to place the order on the vendor near the project site.

Lessons
There were several lessons learned:

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 - Succumbing to the pressure could’ve avoided the conflicts hence developed but it
would’ve affected the supply which could’ve led to mishaps at site which fortunately
did not happen as the supplies were made well on time.

- We did not have a plan B prepared well in advance. An EIL approved fabricator
should’ve been available well in advance.

- A well documented guideline for approval was prepared after this case which came in
handy for approval of many other vendors.

- Further orders were placed on this fabricator as he was within Haryana state which
avoided the constant need of road permits.

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