Question1. What are the main elements of a valid contract?
Answer1. At the outset, it is significant to state that there is no term like valid contract as
the word “contract” itself implies validity therein except in the cases where the contract
has become void. Law has given complete free hand to parties for deciding over the terms
and conditions of a contract, however, it regulates certain basic elements as a matter of
justice, equity and good conscience.
Contract as such means an agreement enforceable law. An agreement requires a proposal
and acceptance thereof but in order to enforce an agreement, some additional elements are
required. In accordance with Section 10 of the Indian Contract Act, 1872, other elements of
a contract are-free consent, competent parties, lawful consideration, lawful object and
further, such agreement has not been expressly declared void. All the said elements have
been discussed in the following paragraphs.
Competency of a party is judged on the basis of his age, sanity and disqualification, if any.
To enter into a contract, a party must be of age of majority, sound mind and not disqualified
under any law for the time being in force from entering into a contract. However, insane
person too can enter into a contract during his lucid intervals. In fact, a person who is
generally of sound mind but intermittently becomes of unsound mind can also enter into
any agreement when he is of sound mind. Competency of a party is quintessential as in
general, contracts are comprised of rights as well as liabilities. A competent person is
assumed to have discretion to decide whether he can take the onus of the liability or not.
Thus, absence of competency results into a void agreement.
Not just competency but free consent also holds importance for enforcing an agreement.
Consent means when two persons agree on the same thing in the same sense, and for a
valid contract, such consent must be a free consent. Consent is said to be free if not caused
by coercion, undue influence, fraud, misrepresentation or mistake. Mistake can be as to the
mistake of fact or law, but ignorance of law can never be a ground for avoiding a contract. It
is pertinent to mention that the presence of any of the said cause will result into a voidable
contract or a void agreement.
Lawful consideration and lawful object also stand on equal footing with other elements of a
valid contract. If the consideration given or the object of the contract is, inter-alia,
forbidden by law, fraudulent, immoral or against public policy, the agreement will be held
as void.
An agreement not expressly declared as void, can be understood and exemplified by way of
different provisions of the Indian Contract Act itself which also includes the instance which
we have discussed in the aforesaid para. An agreement in restraint of marriage, an
agreement in restraint of lawful trade, business or profession, is void. In the latter case,
there may be some exceptions such as trade combination, exclusive sale agreement or a
service agreement. Even the agreement which imposes absolute restrictions on initiation of
legal proceedings by one party against the other is also void. Similarly, an agreement is void
for uncertainty as well as when agreement is contingent on an event which is impossible to
happen.
Thus, for a valid contract it is essential that the contract has been entered into with free
consent by competent parties for a lawful consideration and with a lawful object provided
the agreement has not been expressly declared to be void.
Question 2. Draft a settlement contract between a company (ABC Pvt. Ltd.) and one of
its employee Ms. X covering the following terms and conditions:
Facts: There was a misunderstanding between Ms. X and Mr. Y that had let to a
complaint
at
the
Police
Station.
Terms and Conditions:





She will resign from the Company and also withdraw her present police
complaint
She will be paid 6-months’ salary. Her last salary was Rs. 18, 500/- per month.
Confidentiality Clause i.e. not to disclose any thing agreed to under the
contract to a an outsider
No future complaints.
TDS will be deducted on the payment.
Answer 2:
SETTLEMENT CONTRACT
This settlement agreement is made on _____________ at __________ BETWEEN ABC Pvt. Ltd., a
company incorporated and registered under the Companies Act, 2013, having its registered
office at ____________________________________________________________, represented through Mr.
Senior Manager-legal, (hereinafter referred to as “ the Company”) which expression shall,
unless repugnant to the context or otherwise, include its representatives and assigns, on
the First part
AND
Ms.
X,
aged
24,
daughter
of
Mr.
Y
,
residing
at
_______________________________________________(hereinafter referred to as “Ms X”) which
expression shall, unless repugnant to the context or otherwise, include her, her legal heir,
representatives, on the Second Part
WHEREAS, the company has appointed Ms. X as a Senior Executive, in the mid of January
2014, for the purpose of looking after the function of administration of the Company.
WHEREAS Ms. X also agreed to work with the Company in accordance with the terms and
conditions mutually agreed between the parties hereto.
WHERAS, while working in the Company Ms X had filed a complaint against the Company
on the alleged ground of criminal breach of trust
WHEREAS, Ms X has realized that the complaint was filed due to some misunderstanding of
her own, and now, she doesn’t want to pursue the matter and wishes to settle the same
outside the court
WHEREAS, the Company has also agreed to settle the matter with Ms.X, and both the
parties want to reduce the terms and conditions of the settlement to writing.
The parties hereto agree as follows:
1. Ms X agrees that she made the allegations of criminal breach of trust against the
Company due to some misunderstanding and that the complaint should not have
been filed by her.
2. Ms X has voluntarily agreed to resign from the position held by her in the Company
and also agreed to withdraw the said complaint within two days of execution of this
agreement and further, agreed not to file any complaint/case/application/suit
/petition against the company, in future, before any judicial authority or any quasijudicial authority.
3. Ms X is presently drawing salary of Rs.18,500/- from the Company per month, and
the Company has agreed to pay to Ms X, six months’ salary which will be payable
after deduction of TDS as per applicable laws for the time being in force, within one
month of the receipt of her resignation.
4. Both the parties hereto have mutually agreed to keep confidential whatever has
been transpired through this agreement between the parties hereto. It has been
further agreed that neither party shall disclose the fact of this agreement to any
third party nor use this agreement as an evidence in any judicial proceedings or
otherwise.
5. In the event of default in compliance of the terms laid down herein, this agreement
shall stand terminated with an immediate effect and the dispute arising out of this
agreement shall be referred to a sole Arbitrator to be appointed at the sole
discretion of the Company. The venue of the arbitration proceedings will be
Mumbai.
6. The terms and conditions of the agreement shall be construed according to the India
law, and courts of Mumbai will have jurisdiction to decide over the disputes
pertaining to this agreement, if any.
IN WITNESS WHEREOF, the parties hereto have signed this agreement as of the day and
year as mentioned above.
Mr._A_______
Ms X
On behalf of ABC Pvt Ltd
WITNESSES:
1.
2.
Question 3. Review the following draft and add comments (You may do this in track
mode):
MEMORANDUM OF ASSOCIATION (OF A PRIVATE LIMITED COMPANY)
ABC Limited having its registered office of the company will be situated in the
National Capital Territory of Delhi.
(I) Object Clause
The objects to be pursued by the company on its incorporation are:—
(a) To manufacture tubeless tyres
II. Matters which are necessary for furtherance of the objects specified in clause I
are:—
(a) Availing requisite licenses
(b) Availing requisite raw materials
(c) Necessary Machinery
(d) Necessary Approvals from Board of Directors as well as governmental and other
authorities
III. Liability Clause
The liability of the member(s) is limited and this liability is limited to the amount
unpaid, if any,on the shares held by them.
IV. Share Capital Clause
The share capital of the company is Rs. 1, 00, 000/- divided into 10000 shares of Rs.
10/- each.
V. Shareholders/Members Clause
We, the several persons, whose names and addresses are subscribed, are desirous of
being formed into a company in pursuance of this memorandum of association, and
we respectively agree to take the number of shares in the capital of the company set
against our respective names:—
Names, addresses,
descriptions and occupations
of subscribers
Total shares taken:
Signature of subscriber
Signature, names,
and addresses, descriptions and
occupations of witnesses
Mr. A, CA
2000
XYZ Pvt. Ltd.
5000
Dated this 4th day of February 2014.
Answer 3. (Reviewing the draft in track mode)
MEMORANDUM OF ASSOCIATION (OF A PRIVATE LIMITED COMPANY)
ABC Pvt Limited having its registered office of the company will be situated in the National
Capital Territory of Delhi.
1st Name Clause: The name of the company shall be ABC Pvt Ltd.
2nd Registered office clause: The Company shall have its registered office in National Capital
Territory of Delhi.
3rd Object Clause
(A)The objects to be pursued by the company on its incorporation are:—
To manufacture tubeless tyres
(B)Matters which are necessary for furtherance of the objects specified in clause I are:—
(a) Availing requisite licenses
(b) Availing requisite raw materials
(c) Necessary Machinery
(d) Necessary Approvals from Board of Directors as well as governmental and other
authorities
4th. Liability Clause
The liability of the member(s) is limited and this liability is limited to the amount unpaid, if
any,on the shares held by them.
5th. Share Capital Clause
The share capital of the company is Rs. 1, 00, 000/- divided into 10000 equity shares of Rs.
10/- each.
6th.
Shareholders/Members
Clause
We, the several persons, whose names and addresses are subscribed, are desirous of being
formed into a company in pursuance of this memorandum of association, and we
respectively agree to take the number of shares in the capital of the company set against
our respective names:—
Names,addresses,descriptions No. of shares taken by each Signature,
names,
and
occupations
of subscriber
and addresses, descriptions
subscribers
and
occupations of witnesses
Mr.
A,
CA 2000
XYZ Pvt. Ltd.
Dated this 4th day of May 2015.
5000