CMA Inter Paper 5: Business Laws and Ethics key terms

A clear expression of willingness by one person to another to do or abstain from doing something, made with the intention of obtaining that other person's assent. It becomes a promise only when accepted.

The unqualified and unconditional assent to every term of an offer, communicated by the offeree to the offeror in the manner prescribed or a reasonable manner. A conditional or altered assent operates as a counter-offer.

Something of value given by each party in exchange for the other's promise - an act, abstinence, or promise - done at the promisor's desire. It must be real, lawful and not past, though it need not be adequate.

Consent given without coercion, undue influence, fraud, misrepresentation or mistake. Where consent is caused by any of these vitiating factors, the contract is voidable at the option of the aggrieved party.

Committing or threatening any act forbidden by the Indian Penal Code, or unlawfully detaining or threatening to detain property, to cause a person to enter a contract. Consent so obtained makes the agreement voidable.

Where parties stand in a relation in which one can dominate the will of the other and uses that position to obtain an unfair advantage. The burden of proving the contract was not induced by influence lies on the dominant party.

A positive but innocent assertion of an untrue fact, or breach of duty without intent to deceive, that induces the other party to contract. It makes the contract voidable and may entitle the aggrieved party to damages.

Intentional deception - a false statement known to be false, made without belief in its truth, or recklessly, or active concealment of a fact - with intent to induce another to act on it. The contract is voidable and damages may follow.

A contract to do or not to do something if some collateral event, not forming part of the contract, happens or does not happen. It becomes enforceable only on the occurrence or non-occurrence of that uncertain future event.

An obligation imposed by law, not by agreement, to prevent unjust enrichment - for example, payment made by mistake or money had and received. It rests on equity and the principle that no one should gain at another's expense.

An agreement not enforceable by law, such as one without consideration, against public policy, or with a party incompetent to contract. It is void from the beginning and creates no legal rights or obligations.

An agreement enforceable by law at the option of one or more parties but not at the option of the other, typically because consent was obtained by coercion, undue influence, fraud or misrepresentation. The aggrieved party may rescind or affirm it.

A contract by which one party promises to save the other from loss caused by the conduct of the promisor himself or of any other person. A common example is a fire or marine insurance policy.

A contract to perform the promise or discharge the liability of a third person in case of his default. It involves a principal debtor, a creditor and a surety, and may be oral or written.

The person who gives the guarantee and undertakes to answer for the default of the principal debtor. The surety's liability is co-extensive with that of the principal debtor unless the contract provides otherwise.

Delivery of goods by one person to another for some purpose, upon a contract that they shall be returned or disposed of as directed when the purpose is accomplished. Only possession, not ownership, passes to the bailee.

A bailment of goods as security for payment of a debt or performance of a promise. The pledgor retains ownership while the pawnee holds possession and has a right to sell on default after notice.

A relationship in which one person, the agent, is authorised to act for another, the principal, so as to create legal relations between the principal and third parties. No consideration is necessary to create an agency.

Authority that a third party is entitled to assume an agent possesses because of the principal's conduct or representations, even if the agent lacks actual authority. The principal is then bound as against that third party.

Let the buyer beware: the buyer takes goods at his own risk as to quality, subject to exceptions such as fitness for a disclosed purpose, merchantable quality, and sale by description or sample. The buyer must examine goods on purchase.

A stipulation essential to the main purpose of a contract of sale, the breach of which gives the aggrieved party a right to repudiate the contract and claim damages. It may be treated as a warranty if the buyer so elects.

A stipulation collateral to the main purpose of a contract of sale, the breach of which gives a right to claim damages but not to reject the goods or repudiate the contract.

A seller to whom the whole price has not been paid or tendered, or whose payment by a negotiable instrument has been dishonoured. He has rights of lien, stoppage in transit and resale against the goods.

A promissory note, bill of exchange or cheque payable either to order or to bearer. It is freely transferable by delivery or endorsement and delivery, and a holder in due course takes it free from defects.

A holder who took a negotiable instrument for consideration, before maturity, in good faith and without notice of any defect in the transferor's title. He can sue prior parties in his own name and is protected against prior defects.

A bill of exchange drawn on a specified banker and payable on demand. It includes the electronic image of a truncated cheque and a cheque in electronic form, and is valid for three months from its date.

A partnership in which no provision is made by contract for the duration of the partnership or for determination of the partnership on notice. It can be dissolved by any partner giving written notice to all others.

The principle that every partner is both an agent of the firm and of the other partners for the purposes of the business. Acts done in the ordinary course of business bind the firm unless the partner had no authority and the third party knew it.

A body corporate formed under the LLP Act, 2008 with perpetual succession, a separate legal entity and partners whose liability is limited to agreed contributions. It combines the flexibility of a partnership with limited liability.

Any document described or issued as a prospectus, including a notice, circular or advertisement, inviting the public to subscribe to securities of a company. It must contain prescribed disclosures and be filed with the Registrar.

A prospectus that does not contain complete particulars of the price of the securities or the quantum of securities offered. It is filed with the Registrar before the opening of the offer and must state that it is a red herring prospectus.

An untrue or misleading statement in a prospectus, or a wilful omission of material fact. Persons who subscribed on the faith of it may claim compensation from the company, promoters, directors and experts responsible.

Equity shares issued by a company to its directors or employees at a discount or for consideration other than cash, in recognition of their contribution to the company. Issue must comply with prescribed conditions and a special resolution.

A debt instrument issued by a company acknowledging a loan, usually carrying a fixed rate of interest and repayable at a stated time. A debenture holder is a creditor, not a member, and has no voting rights.

A person who subscribes to the memorandum of a company, or whose name is entered in the register of members, and who holds shares. Membership carries rights to vote, receive dividends and receive notice of meetings.

The minimum number of members who must be present at a meeting for the business to be validly transacted. For general meetings it is prescribed by the Companies Act, and for board meetings by the articles or the Act.

A transaction between a company and its directors, key managerial personnel, promoters or their relatives, or entities in which they are interested. Prescribed transactions require board or shareholder approval and disclosure.

The portion of a company's profits distributed to shareholders in proportion to the paid-up capital on their shares. It is declared by the members on the board's recommendation and must be paid within prescribed time limits.

The application of moral principles and standards of right conduct to commercial activities and decisions. It guides behaviour beyond mere legal compliance, covering honesty, fairness, transparency and responsibility to stakeholders.

The system of rules, practices and processes by which a company is directed and controlled. It balances the interests of shareholders, management, and other stakeholders and rests on accountability, transparency, fairness and independence.

A non-executive director who has no material pecuniary relationship with the company, its promoters or management, beyond director's remuneration. Such a director brings objective judgement to board decisions.

The obligation of specified companies to spend at least two per cent of average net profits of the preceding three financial years on activities listed in Schedule VII of the Companies Act, 2013, through a CSR committee.

Under the Consumer Protection Act, 2019, a person who buys goods or hires services for consideration, including online and teleshopping transactions, and any user of such goods or services with the buyer's approval.

A trade practice that adopts a deceptive method or practice to promote the sale of goods or services, such as false representations, misleading advertisements or offering gifts with the intention of not providing them.

The process of concealing the origin, nature or ownership of proceeds of crime by layering transactions and integrating them into the legitimate economy. It is an offence under the Prevention of Money Laundering Act, 2002.

Property derived or obtained directly or indirectly from a scheduled offence under the Prevention of Money Laundering Act, 2002. Such property is liable to attachment and confiscation by the authorities.