UGC NET LAW · CODE 058 · UNIT 06

UGC NET Law Unit 6: Commercial Law Notes and MCQs

Unit 6 covers contract and the main commercial statutes: the Sale of Goods Act, the Partnership and LLP Acts, the Negotiable Instruments Act and the Companies Act, 2013. Expect section numbers, definitions and well-known cases. These notes follow the ten syllabus topics and add the cases and tables worth memorising.

Indian Contract Act 1872
Sale of Goods Act
Partnership and LLP
Negotiable Instruments Act
Companies Act 2013
CSR

10 syllabus topics
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Updated 11 October 2026

NET Law 058 is an independent study aid, not affiliated with UGC or NTA. Always check the official UGC NET syllabus and the current bare Acts.

What Unit 6 covers

Commercial law rewards numbers and sections, so keep a short table of them and test yourself on it. The official syllabus lists 10 topics for this unit. Each is explained below with the points examiners most often use.

1Essential elements of contract and e-contract

Section 10: free consent of competent parties, lawful consideration and object, and not expressly declared void. Offer and acceptance under Sections 2 to 9. Competence under Section 11 (age of majority, sound mind, not disqualified).
Offer to the world: Carlill v. Carbolic Smoke Ball Co. (1893). Acceptance needs knowledge of the offer: Lalman Shukla v. Gauri Dutt (1913). A counter-offer rejects the original offer.
Consideration (Section 2(d)): it may move from the promisee or any other person, so privity of consideration is not required in India (Chinnaya v. Ramayya, 1882). Privity of contract still limits who can sue.
E-contracts: Section 10A of the Information Technology Act, 2000 says a contract is not invalid only because it is in electronic form. Contract by telephone: Bhagwandas Goverdhandas Kedia v. Girdharilal (1966).

2Breach of contract, frustration, void and voidable agreements

Void agreement (Section 2(g)): not enforceable. Voidable contract (Section 2(i)): enforceable at the option of the aggrieved party, as with coercion, undue influence, fraud or misrepresentation (Sections 14 to 19). A minor's agreement is void ab initio: Mohori Bibee v. Dharmodas Ghose (1903).
Frustration (Section 56): supervening impossibility or illegality discharges the contract. Taylor v. Caldwell (1863) and Satyabrata Ghose v. Mugneeram Bangur (1954).
Damages: Section 73 (compensation for loss naturally arising or contemplated) and Section 74 (reasonable compensation for stipulated damages or penalty). Remoteness comes from Hadley v. Baxendale (1854).
Other remedies: rescission, quantum meruit and specific performance under the Specific Relief Act, 1963, as amended in 2018 to make specific performance a general remedy rather than a discretionary one.

3Standard-form contracts and quasi-contract

Standard-form contracts are take-it-or-leave-it terms drawn by the stronger party. Courts strike unconscionable clauses under Article 14 and the public policy rule: Central Inland Water Transport v. Brojo Nath Ganguly (1986).
Doctrine of fundamental breach and the reading of exemption clauses against the party who relies on them.
Quasi-contract (Sections 68 to 72) rests on unjust enrichment: supply of necessaries to a person incapable of contracting (68), payment by an interested person (69), non-gratuitous act (70), finder of goods (71) and money paid by mistake or coercion (72).
Section 65 requires restitution of any advantage received under a void agreement or a contract that becomes void.

4Specific contracts: bailment, pledge, indemnity, guarantee and agency

Indemnity (Section 124): promise to save the other party from loss, with two parties. Guarantee (Section 126): promise to perform another's obligation if he defaults, with three parties: surety, principal debtor and creditor.
Bailment (Section 148): delivery of goods for a purpose on a contract to return them. Pledge (Section 172) is bailment as security for a debt or promise. Bailee's duty of care: Section 151.
Agency (Section 182): the agent acts for the principal and the relationship is fiduciary. Consideration is not needed to create an agency (Section 185). Agent's authority can be express, implied or ostensible.
A surety's liability is co-extensive with the principal debtor's unless the contract says otherwise. Continuing guarantee is in Section 129.

5Sale of Goods Act, 1930

Section 4: a sale transfers property in goods for a price. An agreement to sell becomes a sale when the time passes or conditions are met. Property passes when the parties intend it to (Section 19).
Condition and warranty (Section 12): breach of condition allows rescission, breach of warranty gives only damages. Implied conditions as to title, description, quality or fitness and sample. Caveat emptor is the general rule (Section 16), with exceptions.
Nemo dat quod non habet: a seller without title cannot pass title (Section 27), subject to exceptions such as sale by a mercantile agent or a person in possession.
Unpaid seller (Sections 45 to 54): lien, stoppage in transit and a right of resale, in addition to a suit for price or damages.

6Partnership and limited liability partnership

Partnership Act, 1932, Section 4: relation between persons who agree to share the profits of a business carried on by all or any of them acting for all. Each partner is an agent of the firm (Section 18) and liable jointly and severally for the firm's acts (Section 25).
Registration of a firm is optional, but an unregistered firm cannot sue a third party on a contract (Section 69). Dissolution may be by agreement, notice, by court or on the happening of an event.
Limited Liability Partnership Act, 2008: an LLP is a body corporate and a separate legal entity with perpetual succession. It needs at least two partners and two designated partners, one of whom must be resident in India.
In an LLP a partner is not personally liable for the LLP's debts beyond their agreed contribution, and the relation of partners is governed by the LLP agreement.

7Negotiable Instruments Act, 1881

Promissory note (Section 4), bill of exchange (Section 5) and cheque (Section 6). A cheque is a bill of exchange drawn on a specified banker and payable on demand. Holder in due course: Section 9.
Presumptions: Section 118 (consideration) and Section 139 (a holder received the cheque for the discharge of a debt). They are rebuttable.
Section 138: dishonour of a cheque for insufficient funds or because it exceeds the arrangement is an offence. Steps: presentation within validity, demand notice within 30 days of dishonour information, 15 days for the drawer to pay, and a complaint within one month after that period. Punishment is imprisonment up to two years or a fine up to twice the cheque amount, or both.
Section 141 makes persons in charge of a company liable. Interim compensation of up to 20 per cent (Section 143A) and the 20 per cent deposit on appeal (Section 148) were added in 2018.

8Company law: incorporation, prospectus, shares and debentures

Companies Act, 2013, Section 3 (formation), Section 4 (memorandum) and Section 5 (articles). The Registrar issues the certificate of incorporation, which is conclusive. A company has separate legal personality: Salomon v. Salomon & Co. (1897). The veil can be lifted for fraud or evasion.
Ultra vires: Ashbury Railway Carriage v. Riche (1875). Doctrine of indoor management: Royal British Bank v. Turquand (1856).
Prospectus (Section 2(70) and Section 26): a document inviting offers from the public to subscribe to securities. Civil and criminal liability for misstatements applies. Shares can be equity or preference. A debenture is an instrument of debt.
A private company cannot invite the public to subscribe to its securities. The 2015 amendment removed the minimum paid-up capital requirement.

9Company law: directors and meetings

Directors: a public company needs at least three, a private company two and a one-person company one. The maximum is 15 without a special resolution. At least one director must be resident in India (182 days) and prescribed companies need a woman director.
Independent directors (Section 149): at least one-third of the board of a listed company. Duties are in Section 166 (good faith, due care, no conflict of interest). Directors are agents and fiduciaries of the company.
Meetings: Annual General Meeting within 15 months of the last one, and board meetings at least four times a year with not more than 120 days between two. Notice of a general meeting is 21 clear days. A special resolution needs three-fourths of votes cast.
Quorum of a general meeting of a public company depends on membership (5, 15 or 30 members). Related party transactions need approval under Section 188.

10Corporate social responsibility

Section 135 of the Companies Act, 2013: it applies to companies with net worth of Rs 500 crore or more, turnover of Rs 1000 crore or more, or net profit of Rs 5 crore or more in the preceding financial year.
Such a company must have a CSR committee and spend at least 2 per cent of its average net profit of the preceding three financial years on activities listed in Schedule VII.
Unspent CSR amounts go to a special account and then to a specified fund, under the 2019 amendment and the 2021 CSR Rules. Failure to comply attracts penalties.
CSR is a statutory duty in India, unlike the purely voluntary approach in most other countries.

Quick reference tables

Valid, void and voidable
Type	Meaning	Example
Valid contract	Enforceable by law, with all essentials of Section 10	Sale agreed for a price by competent parties
Void agreement	Not enforceable from the start	Agreement with a minor; agreement in restraint of trade (Section 27)
Voidable contract	Enforceable at the option of one party	Consent caused by coercion, undue influence, fraud or misrepresentation
Void contract	Becomes unenforceable later	Contract discharged by supervening impossibility (Section 56)
Illegal agreement	Forbidden by law; collateral agreements also void	Agreement to commit a crime

Indemnity and guarantee
Point	Indemnity	Guarantee
Section	124	126
Parties	Two: indemnifier and indemnity holder	Three: surety, principal debtor and creditor
Liability	Primary	Secondary, arising on default of principal debtor
Purpose	Protect from loss	Secure performance of another's promise

Landmark cases to revise

Carlill v. Carbolic Smoke Ball Co.1893

A general offer to the public can be accepted by performing its conditions.

Mohori Bibee v. Dharmodas Ghose1903

A minor's agreement is void ab initio.

Hadley v. Baxendale1854

Damages are limited to loss arising naturally or within the parties' contemplation.

Taylor v. Caldwell1863

Destruction of the subject matter discharges the contract.

Satyabrata Ghose v. Mugneeram Bangur & Co.1954

Section 56 covers supervening impossibility in a wide sense.

Lalman Shukla v. Gauri Dutt1913

Acceptance of an offer of reward requires knowledge of the offer.

Chinnaya v. Ramayya1882

Under Indian law, consideration may move from a person other than the promisee.

Central Inland Water Transport Corp. v. Brojo Nath Ganguly1986

An unconscionable term in a standard-form contract is void as contrary to public policy.

Salomon v. A. Salomon & Co. Ltd.1897

A company is a legal person separate from its members.

Foss v. Harbottle1843

Where a wrong is done to the company, the company is the proper plaintiff; the majority rules.

Ashbury Railway Carriage and Iron Co. v. Riche1875

An act beyond the objects of the memorandum is ultra vires and void.

Royal British Bank v. Turquand1856

Outsiders may assume that internal procedures have been followed (indoor management).

Practise Commercial Law MCQs topic by topic

Beyond the six samples, all 440 questions for this unit are on their own pages, grouped by syllabus topic, with the answer key on the page.

See all 32 topic sets (440 MCQs) →

Try 6 sample questions

Tap “Show answer” after you have tried each one. These come from the 400+ MCQs in this unit.

1A minor's agreement is void ab initio per:

Felthouse v. Bindley
Mohori Bibee v. Dharmodas Ghose
Hyde v. Wrench
Carlill

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Answer: B. Mohori Bibee v. Dharmodas Ghose

Privy Council, 1903.

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2Doctrine of frustration/impossibility in India is under:

Section 73
Section 10
Section 124
Section 56

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Answer: D. Section 56

Satyabrata Ghose v. Mugneeram Bangur explains it.

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3Dishonour of a cheque for insufficient funds is an offence under Section:

138 NI Act
73 Contract Act
420 IPC
27 Companies Act

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Answer: A. 138 NI Act

Section 138, Negotiable Instruments Act, 1881.

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4Under Section 135 Companies Act, CSR spend is of average net profits of preceding three years:

Show answer and explanation

Answer: B. 2%

Two per cent for companies meeting thresholds.

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5After dishonour of a cheque and notice, the drawer must pay within how many days of receipt of notice?

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Answer: C. 15

Section 138 NI Act.

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6Match: A Carlill, B Mohori Bibee, C Satyabrata Ghose, D Hadley with (1) Minor (2) General offer (3) Remoteness (4) Frustration

A-1, B-2, C-3, D-4
A-2, B-4, C-1, D-3
A-3, B-1, C-2, D-4
A-2, B-1, C-4, D-3

Show answer and explanation

Answer: D. A-2, B-1, C-4, D-3

Case–principle.

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Practise all 400+ Unit 6 MCQs Take a free mock test

How to study this unit

Learn the Contract Act in clusters of sections: 2, 10 to 30 for formation, 56 and 73 to 74 for breach, 124 to 238 for specific contracts.
For the Negotiable Instruments Act, memorise the Section 138 timeline: 30 days for notice, 15 days to pay, one month to file.
For the Companies Act 2013, make a one-page list of numbers (directors, quorum, notice days, CSR thresholds) and revise it often.

Planning your time? See the UGC NET Law preparation plans for 6 months, 3 months, 1 month or 2 weeks, or check the cut-off trend to set a target score.

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Last updated: 11 October 2026. Notes are a revision aid and not legal advice. Spotted a mistake? Write to netlawverse@gmail.com.