Business law studytext ICAP

Section A: Mercantile Law - Chapter 1: Introduction to the legal systemSection overview  Definition of Law  Definition of Mercantile Law  Why Chartered Accountants study law  Wh

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Business Law

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Certificate in Accounting and Finance

Business Law

C

Contents

Page

Section A: Mercantile Law

Chapter

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5 0 3 Incorporation of Company

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5 2 3 Share Capital – Types and Variations

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5 3 3 Share Capital – Prospectus

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7 4 3 Mortgages and Charges

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Syllabus objective and learning outcomes

CERTIFICATE IN ACCOUNTING AND FINANCE

The candidate will be able to demonstrate:

1 Basic knowledge of the legal environment

2 Comprehension of law governing contracts, partnership and negotiable instruments

3 Knowledge of the legal terminology of company law and the basics of company incorporation

4 Familiarity with the provisions governing the issuance of shares

5 Knowledge of the management of companies

6 Familiarity with investment by companies, ﬁnancial accounts and distribution of proﬁt

7 Knowledge of the appointment of auditors and their responsibilities and duties

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Sections 52 to 136 of the Companies Ordinance, 1984 15

Sections 142 to 204A of the Companies Ordinance, 1984 15

Syllabus

A Introduction to the Legal System

Sources and process of legislation

1 Sources of law and an

introduction to the

Constitution of Pakistan

1 LO 1.1.1: Briefly describe sources of

law in Pakistan

LO 1.1.2: Describe the basic structure

of the constitution of the Islamic Republic of Pakistan

2 Process of legislation and

legal system in Pakistan

1 LO 1.2.1: Define legislation and

describe its forms

LO 1.2.2: Briefly describe the process

of legislation as per the Constitution

LO 1.2.3: Identify the structure of the

courts in Pakistan

B Mercantile law

Contract Act 1872

1 All sections 2 LO 2.1.1: Discuss the provisions of the

act with respect to the following and demonstrate comprehension in simple scenario based problems)

 communication, acceptance and revocation of proposals

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Syllabus objective and learning outcomes

Syllabus

contracts, voidable contracts and void agreements

Contingent contracts performance of contracts breach of contract

indemnity and guarantee bailment and pledge contract of agency

C Partnership Act 1932

1 Chapter I – Preliminary 2 LO 2.2.1: Deﬁne the terms

2 Chapter II - The nature of

partnership relationship and its creation and identify which mode determines existence of a partnership

3 Chapter III - Relations of

partners to one another 2 LO 2.4.1: Determine the rights and

duties of partners of the ﬁrm over property of the ﬁrm in given situations

4 Chapter IV - Relations of

partners to third parties 2 LO 2.5.1: Describe the relationship of

partners with third parties

LO 2.5.2: Identify the implied authority

of the partner in relation to third parties, liability of a partner for acts of the ﬁrm and liability of the ﬁrm for wrongful acts

of a partner in given situations

LO 2.5.3: Identify the rights and

liabilities of a minor admitted to the beneﬁts of partnership:

D Negotiable Instruments Act 1881

1 Deﬁnitions and meanings

(Section 1 to 25) LO 2.6.1: Deﬁne and explain terms

LO 2.6.2: Explain types of negotiable

instruments

2 Discharge of liability

(Section 82 to 90) LO 2.7.1: Identify how the maker of a

negotiable instrument is discharged from his liability under given scenarios

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Preliminary and incorporation (Sections 1 to 51)

1 Definitions (Section 2) 1 LO 3.1.1: Define the terms which are

relevant to the areas covered in the syllabus

2 Meaning of "subsidiary" and

"holding company"

(Section 3)

2 LO 3.2.1: Explain subsidiary and

holding company and when a company becomes a subsidiary or holding

company of another company

LO 3.2.2: Apply the concept of

subsidiary in simple scenarios

3 Powers and functions of the

Commission (Section 12)

1 LO 3.3.1: Demonstrate familiarity with

the powers and functions of the Commission

4 Memorandum of association

(Section 15 to 25)

2 LO 3.4.1: Describe the memorandum of

association and state its purpose

LO 3.4.2: List the clauses of

memorandums of association of various types of companies

LO 3.4.3: Describe the purpose and

procedure of alteration to different clauses of a memorandum of association

5 Articles of association

(Section 26)

2 LO 3.5.1: Define the articles of

association and state its purpose

LO 3.5.2: State the information which

should be contained in the articles of various companies

6 Registration of

memorandum and articles of

association

(Section 30 to 36)

2 LO 3.6.1: Describe the procedure of

registration of the memorandum and articles of association

LO 3.6.2: Describe the effects of

registration of the memorandum and articles of association

7 Provisions with respect to

names of companies

(Section 37 to 41)

2 LO 3.7.1: Describe with examples the

prohibitions with regard to the selection

of the name of a company

LO 3.7.2: Identify the actions and

procedures needed to be taken by company and registrar, if a company is registered by a prohibited name

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Syllabus

8 Association not for proﬁt

association not for proﬁt

9 Companies limited by

guarantee (Section 43) 1 LO 3.9.1: Understand the provisions

regarding divisible proﬁt and dividing the undertaking into shares or interest

F Allotment of shares, registration of charge etc (Sections 52 to 136)

1 Prospectus, allotment, issue

and transfer of shares and

debentures, deposits, etc

(Section 52 to 57)

1 LO 4.1.1: Deﬁne a prospectus and

explain its purpose

LO 4.1.2: Understand the requirements

relating to a prospectus as laid down in Section 52, 53 (1), (5) and (8)

LO 4.1.3 Describe the matters that are

to be speciﬁed in a a prospectus as required under clause 1 to 7 and 17, 18

19, 24, 26 and 27 of Section 1 of Part I

of Second Schedule

LO 4.1.4: Describe the reports that are

to be included in a prospectus as required under Section 2 of Part I of Second Schedule

LO 4.1.5: Understand the provisions

regarding statement and consent of expert

2 Share capital and

debentures

(Section 89 to 95 and 108)

1 LO 4.2.1: Describe the nature of shares

and share certiﬁcates

LO 4.2.2: Describe the classes and

kinds of shares

LO 4.2.3: Describe with simple

example the condition of fully paid shares

LO 4.2.4: State with simple examples

the kinds of alterations can be made to the share capital

LO 4.2.5: State the rules on prohibition

of purchase of a company’s own or its holding company’s shares

LO 4.2.6: Understand the meaning of

variation of shareholders’ right

LO 4.2.7: Demonstrate familiarity with

the procedure for cancellation of variation of shareholders’ right

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1 LO 4.3.1: Discuss the meaning of

mortgage/charge with simple examples, and the duty of company and the procedure for registration of charges

LO 4.3.2: State the right of an

interested party in respect of a registration of mortgage/charge

LO 4.3.3: State the duty and procedure

of payment or satisfaction of mortgage/charge

LO 4.3.4: Demonstrate familiarity with

the right to inspect the instrument creating a mortgage/charge

LO 4.3.5: Discuss the consequences of

registered and unregistered mortgages/charges

G Management and administration (Sections 142 to 204A)

1 Registered office,

publication of names etc

(Section 142 to 145)

2 LO 5.1.1: Discuss with simple

examples the provisions with regard to having a registered office, publication of name and publication of paid-up capital

2 Commencement of business

by a public company

(Section 146)

1 LO 5.2.1: State the conditions to be

fulfilled before commencement of business by a company

LO 5.2.2: State the applicability and

non-applicability of the conditions on different kinds of company

3 Meeting and proceedings

1 LO 5.3.1: State the timing, matters and

reports relating to statutory meetings

LO 5.3.2: State the timing, matters and

reports relating to an annual general meeting using simple examples

LO 5.3.3: State who can call an annual

general meeting

LO 5.3.4: State the timing, matters and

reports relating to an extraordinary general meeting

LO 5.3.5: State who can call an

extraordinary general meeting

LO 5.3.6: State the quorum for a

general meeting

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Syllabus

LO 5.3.7: State the entitlement of a

member in respect of appointment of proxy and conditions applicable thereon

LO 5.3.8: Describe the provisions

relating to minutes of meetings

4 Directors

(Section 174 to 197A) 1 LO 5.4.1: Explain and apply in given

scenarios, the legal provision with respect to directors’:

Eligibility Number Elections Vacation of ofﬁce Powers, duties and liabilities

LO 5.4.2: State the legal restrictions on

a company with reference to loans to directors

5 Chief executive

(Section 198 to 204A) 1 LO 5.5.1: Explain the appointment of

ﬁrst chief executive and subsequent chief executives using simple examples

LO 5.5.2: State the conditions

applicable on appointment, removal, engagement in any business

LO 5.5.3: State the provisions relating

2 LO 6.1.1: Describe the conditions

applicable to a company for making investment in associated companies and undertakings

2 Investment of companies to

be held in its own name

(Section 209)

1 LO 6.2.1: Discuss with simple

examples as to how a company can hold its investment in names other than its own name

3 Disclosure of interest by

directors (Section 214) 1 LO 6.3.1: Explain the requirements of

disclosure of interest by director in contract / arrangement entered into by

or on behalf of the company

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Syllabus

4 Interest of other officers etc

(Section 215)

1 LO 6.4.1: Explain the requirements of

disclosure of interest by officers in contract / arrangement entered into by

or on behalf of the company

5 Interested director not to

participate or vote in

proceedings of directors

(Section 216)

1 LO 6.5.1: Describe the participation of

interested director in the proceedings of directors in contract / arrangement entered into by or on behalf of the company

6 Accounts (Section 230, 233,

236, 241 and 242 )

LO 6.6.1: List the books of accounts to

be kept by company

LO 6.6.2: Explain the major

requirements with respect to the annual accounts and the balance sheet

LO 6.6.3: Describe the contents of a

directors’ report

LO 6.6.4: Describe the authentication

of balance sheet and profit and loss account

LO 6.6.5: Discuss requirements of filing

of balance sheets and profit and loss accounts with the registrar

7 Dividend

LO 6.7.1: Explain the requirement

relating to declaration of dividend and identify certain restrictions on

declaration of dividend

LO 6.7.2: Describe the provisions

applicable to payment of dividend

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Introduction to the legal system

LO 1 On the successful completion of this paper, candidates will be able to

demonstrate a basic knowledge of the legal environment

LO 1.1.1 Briefly describe sources of law in Pakistan

LO 1.1.2 Describe the basic structure of the constitution of the Islamic Republic of

Pakistan

LO 1.2.1 Define legislation and describe its form

LO 1.2.2 Briefly describe the process of legislation as per the Constitution

LO 1.2.3 Identify the structure of the courts in Pakistan

Exam context

By the end of this chapter students will be able to:

 Briefly describe the sources of law in Pakistan

 Understand the civil and criminal law

 Explain the purpose and constituents of Parliament

 Explain the procedure followed for enactment of any law in Pakistan

 Discuss the structure of the courts in Pakistan

References to Legal Acts

Section number references embedded in the learning materials refer to the following legal acts unless otherwise stated:

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Section A: Mercantile Law - Chapter 1: Introduction to the legal system

Section overview

 Definition of Law

 Definition of Mercantile Law

 Why Chartered Accountants study law

 Where to apply law in practical life

 Sources of law in Pakistan

 Doctrine of Binding Precedent

 Civil law and criminal law

1.1 Definition of Law

Law means a set of rules or a system of rules of conduct designed and enforced

by the state to control and regulate the conduct of people

Law is not stagnant As circumstances and conditions in a society change, laws are also changed as per the requirements of the society

The word law may have different meaning for different situations It is often

preceded by an adjective to give it a more clear meaning e.g Civil Law, Criminal Law, Business Law etc

1.2 Definition of Mercantile Law

Business Law is the part of civil law which deals with the rights and obligations of persons dealing with each other It includes laws relating to contracts,

partnership, sales of goods, negotiable instruments etc

1.3 Why Chartered Accountants study law

The intention of studying law in Chartered Accountancy is not to become an expert lawyer dealing with complex legal issues

The objective of studying law in Chartered Accountancy is to be aware when legal problems arise, be able to judge when outside assistance is required,

evaluate the financial implications of law and also communicate with the lawyers

1.4 Where to apply law in practical life

A general knowledge of some of the more important legal principles and how they apply to certain problems will help in avoiding conflict with the people around

us Civil law involves the problems that impact on people’s everyday life like debts, tenancy issues, sale of goods etc One should know the law to which he is subject because generally ignorance of law is neither excuse nor defence

1.5 Sources of law in Pakistan

The law consists of rules that regulate the conduct of individuals, businesses, and other organizations within society

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The legal system is derived from English common law (Equity) and is based on the constitution of Pakistan 1973 as well as Islamic law (sharia) Thus we can say that in Pakistan the main sources of law are following:

1.6 Doctrine of binding precedent

The Doctrine of binding precedent means that a judge is bound to apply

decisions from earlier cases to the facts of the case before him provided certain conditions are satisfied A precedent is established in the following

circumstances

 The judicial decision that creates a precedent must be based on a

proposition of law or principle of law A precedent cannot be based simply

on a question of fact It is not the actual decision in a particular case that creates the precedent: the precedent is established by a principle of law or proposition of law of the decision

 This proposition or principle of law must have been used by the judge in reaching his decision in the particular case (The reason for reaching a decision in a particular way is called the ‘ratio decidendi’.)

 A judicial decision may also include a statement of law that was not a part

of the ratio decidendi in the case Any such statement of the law is irrelevant to the decision and such statements are sometimes called ‘obiter dicta’, which means ‘said by the way’ Statements of the law that are obiter dicta do not form part of the binding precedent However, they may be

treated as a persuasive authority, and taken into consideration by judges

in later cases

Judges who must decide on subsequent cases are required to identify the judicial precedent (if any) that applies in the case

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 There are comprehensive law reports on decisions in earlier cases, and judges should refer to these and look for a similar case that sets a precedent If a precedent is discovered that was set by a court of equal or higher status, the judge dealing with the current case should normally follow this precedent

 There are rules for establishing the legal principle from the details of an earlier case, and applying the principle to the facts of the current case

 The legal principle must form part of the judge’s ratio decidendi

 The facts in the case must be materially the same as in the case that is used as the precedent If a judge decides that the material facts in a later case are different, he or she can ‘avoid’ (ignore) the precedent set by the earlier case in reaching a decision

 However, a precedent established by a lower court does not necessarily have to be applied by a higher court, although in practice it is unusual for a higher court to overrule the precedent set by a lower court, if the precedent

is long-established

Types of precedent

Original precedent is one which creates and applies a new rule

Binding precedent is one which is required to be followed

Persuasive precedent is one which is not required to be followed e.g a decision

by lower court, decision by courts of other countries

Declaratory precedent is the application of an already existing rule of law

How can precedents be altered or avoided?

Precedents can sometimes be altered or avoided by judges

 Overruling a precedent A precedent established by a lower court can be

overruled by a higher court The higher court sets aside the decision of the lower court, and the precedent ceases to apply

 Making a distinction between cases A judge may avoid a precedent by

identifying facts in the current case that make it different from a previous case If the facts are sufficiently different, the judge in the current case does not have to follow the precedent of the previous case Judges who do not wish to apply a precedent in a particular case may therefore try to identify distinguishing features in the case, and use these to justify a decision that

ignores the precedent

Advantages and disadvantages of binding precedent

There are several advantages in a system of law based on binding precedent

 It can save time and expense When a new legal dispute arises, time can

be saved by considering how the court is likely to make its decision based

on the relevant precedent This may persuade one party to the dispute to reach an out-of-court settlement If the case goes to court, the existence of

a precedent means that the legal arguments do not have to be repeated in the current case, because they are already established

 Another important advantage of precedent and case law is that judicial decisions should be consistent in all cases of a similar nature, because

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by the precedent Consistency in judicial decisions is an important

characteristic of a good system of law, because individuals and organisations who become involved in legal disputes can often know what

to expect if they take their dispute to court (They may dispute the facts of the case, but the legal principles should be well-established.)

 Flexibility in the law Judges are able to interpret the existing law,

including statute law, by creating new precedents This gives some flexibility to the law, because judges are able to develop new law without the need for new legislation by statute

There are also some disadvantages with binding precedent and case law

 The large number of precedents There are a large number of reported

legal cases that can be cited as precedents in a current case Lawyers can therefore argue about which precedents should apply in a particular case

When there is uncertainty about which precedents should apply, there will

be uncertainty about the outcome of the legal dispute This is a weakness

in the law

 Unjust precedents In some cases, a precedent might be unfair or unjust

Unless the precedent is overruled by a higher court, unfair decisions will be continued in future cases The law is weakened when it is seen to be unfair

 The judiciary makes the law Although judges are interpreting the law

when they create new precedents, they are also in effect making new law

It could be argued that the judiciary should not make new law, but should

do no more than interpret the established law

1.7 Civil law and criminal law

There are several branches of the law Each deals with a different area of law and legal relationships Two major branches of the law are:

imprisonment and/or fines

With criminal law, the State establishes acceptable standards of behaviour, and represents the interests of society as a whole in doing so

Legal action may be brought by the State against individuals who are accused of being in breach of the criminal law It is the responsibility of the State (and not private individuals) to bring these legal actions, in criminal trials

Civil law

The civil law is a branch of the law that primarily deals with disputes between individuals and organisations (such as companies), and it regulates relationships between them regarding their rights and obligations A violation of the civil law is

a tort (a wrongdoing), but is not a crime The civil law provides for remedies for

civil wrongs (torts), but these do not include imprisonment

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Civil law may be established by statute or by case law (common law),

codification, interpretation of the law, consideration, and so on

Example: Civil law

 property disputes (Transfer of property act)

 work-related disputes (employment law)

 accusations of negligence (negligent behaviour) (Tort)

 claims by consumers against manufacturers or service providers

 commercial disputes between business entities (commercial law)

 copyright disputes

 claims of defamation of character (Tort)

 disputes about an alleged breach of contract (Contract Act)

Legal proceedings in the civil law are initiated by an individual or private person against another (In contrast, a criminal prosecution is brought to court by the State.) For example, an individual may bring a civil action against another

person, claiming a wrongdoing by that person and seeking a settlement (for example, seeking money compensation in the form of ‘damages’.)

A civil case might therefore be identified as: Tanveer v Khatri where a case is brought to the civil court by Tanveer (the ‘plaintiff’) who is making a claim against Khatri (the claimant)

Criminal law or civil law?

Many of the legal aspects of commercial and business law are aspects of the civil law, but the criminal law may also apply For example fraud and money

laundering are criminal activities that may occur in business

It is also important to remember that the same action may be in breach of the criminal law and also a tort in civil law In such a situation, the action may give rise to:

 criminal prosecution by the State and

 civil action by a private person, claiming a remedy such as damages Example: Criminal law and Civil law

Suppose that a train company operates a train service, and there is a major

accident involving loss of life and injury to passengers The State may claim that the train company or its senior managers are guilty of a breach of the criminal law and bring a case in the criminal court Individuals who have been injured in the crash and individuals who have lost a relative killed in the crash may bring civil actions against the train company, demanding compensation

Business managers must therefore be aware of both the criminal law and civil law implications of their activities

The burden of proof

Another important difference between criminal law and civil law is the burden of proof that is required by a court

 In criminal cases, the burden of proof is much greater than in civil law cases The guilt of an accused person needs to be proved ‘beyond all reasonable doubts



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This means that an individual accused of a crime might be found not guilty in a criminal court, but the same individual may be sued in a civil court for the same may be found liable

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2.1 President

 The President of Pakistan is Pakistan’s Head of State and is considered a symbol of unity

 President must be a Muslim

 President is elected for a five year term by Senate, National Assembly and members of Provincial Assemblies

 President is eligible for re-election, but no individual may hold the office for more than two consecutive terms

 The majority party in the National Assembly usually nominates and elects a person as the President

 The President approves the statutes passed by the National Assembly and thereafter by the Senate

 He guides the Prime Minister in the matters of national importance

 The Prime Minister must be nominated and elected by a majority of

members in the National Assembly That individual is then appointed as Prime Minister by the President

 The Prime Minister is assisted by the Federal Cabinet A council of

ministers whose members are appointed by the President on the advice of the Prime Minister

 Federal Ministers are supported by secretaries and other government officers appointed in each department for ensuring that policies formulated

by the government are acted upon

2.3 Senate

 The Senate is a permanent legislative body with equal representation from each of the four Provinces with representatives elected by the members of

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n t si a P f o s t n t n o c A d r e tr a C f o e t u ti s n

I e T 0

l a o it a r e

There are also representatives from the Federally Administered Tribal Areas and Islamabad Capital Territory

Members are elected for a period of six years Half the members retire after three years and are replaced by the equal number of newly elected

senators

Senate is a permanent institution The election of all members is not held at the same time and so it continues to be present on a permanent basis The Chairman of the Senate under the constitution is next in line to act as President if the ofﬁce becomes vacant and until such time a new President can be formally elected

The members elect from themselves a chairman and a Deputy Chairman All statutes passed by the National Assembly are also approved by the Senate with the exception of money bills

Fourteen shall be elected by members each Provincial Assembly Four women shall be elected by members of each Provincial Assembly Four technocrats including Ulema shall be elected by the members of each Provincial Assembly

Eight shall be elected from the Federally Administered Tribal Areas in such manner as the President may by order prescribe

Two on general seats and one woman and one technocrat including aalim shall be elected from the Federal Capital in such manner as the President may by order prescribe

Four non-Muslims, one from each Province, shall be elected by the members of each Provincial Assembly

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The most important function of the National Assembly is law making and formulation of policies

Composition of National Assembly

Punjab Sindh Pakhtonkhwa Balochistan Fata Khyber Federal Capital Total

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The bill at the request of the house in which it originated shall be considered in the joint sitting of both the house i.e National Assembly and the Senate and

If it is passed by the votes of the majority of the members present and voting in the joint sitting it shall be presented to the President for assent

It shall be presented to the President for assent

The President shall within ten days assent to the bill or return it to the

Parliament for reconsideration (in case of a bill other than money bill) of any provision or any amendment therein

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 In case a bill is pending in the National Assembly or passed by it, is

pending in the Senate The bill shall lapse on the dissolution of National Assembly But if the bill is pending in the Senate not passed by the National Assembly shall not lapse on dissolution of the National Assembly

Money bills

A money bill shall originate in the National Assembly and after it has been

passed by the Assembly it shall (without being transmitted to the Senate) be presented to the President for assent

Ordinance

 The President if deems necessary to take immediate action, he has power

to make an Ordinance when the National Assembly is not in session

 Such Ordinance promulgated thus, shall have the same force and effect as

an Act of the Parliament

 The Ordinance shall stand repealed after one hundred and twenty days if it

is not presented or passed

 by the National Assembly in case of Money Bill and

 by both houses if it is other than Money Bill

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The chart below shows the process of legislation

In Delegated Legislation power is given to an Executive (a minister or public body

to make subordinate or delegated legislation for specified purposes only) E.g Local authorities are given statutory powers to make bye-laws which apply within

a specific locality

Control over delegated legislation

 Parliament has some control over delegated legislation by restriction and defining the power to make rules

 Rules made under delegated power to move legislation may be challenged

in the courts on the grounds that it is ultra vires In other words that it exceeds the prescribed limits or has been made without due compliance

 If the objection is valid the court declares it void

Advantages of delegated legislation

Senate National

Assembly

When National Assembly is not in sessionProcess of Legislation

President

When National Assembly is in session

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 Flexible

Delegated legislation is more flexible than an Act of Parliament It is far simpler to amend a piece of delegated legislation than to amend an Act of Parliament

Disadvantages of delegated legislation

 The main criticism of delegated legislation is that it takes law making away from the democratically elected members Power to make law is given to unelected civil servants and experts working under the supervision of a government minister

 Because delegated legislation can be produced in large amounts the

volume of such law making becomes unmanageable and it is impossible to

keep up-to-date

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 Federal Shariat Court

 Alternate Dispute Resolution

The structure of courts in Pakistan has the following basis levels:

functions of the Court The Constitution assigns the Supreme Court a unique responsibility of maintaining harmony and balance between the three pillars of the State, namely, the Legislature, the Executive and the Judiciary As guardian

of the Constitution, the Court is required to preserve, protect and defend this basic document

Jurisdiction of Supreme Court

The Supreme Court exercises original, appellate and review jurisdiction It

possesses exclusive original jurisdiction for the settlement of intergovernmental disputes between Federal and Provincial Government(s) or Provincial

Civil courts

District court Civil court

Federal Shariat Court

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respect to the enforcement of fundamental rights, if the case involves an issue of public importance The Court also exercises advisory jurisdiction, where under the President may obtain its opinion on a question of law Under its appellate jurisdiction, the Court entertains appeals against orders and decisions of High Courts and other special courts/tribunals

Criteria to be Judge of Supreme Court

 A person with five years’ experience as a Judge of a High Court or

 Fifteen years standing as an advocate of a High Court

is eligible to be appointed as Judge of the Supreme Court

There is one High Court in each province, and one in the federal capital,

Islamabad, including:

 Lahore High Court, Lahore, Punjab

 Sindh High Court, Karachi, Sindh

 Peshawar High Court, Peshawar, Khyber Pakhtunkhwa

 Balochistan High Court, Quetta, Baluchistan

 Islamabad High Court, Islamabad,

The High Court has supervisory role over other Courts subordinate to it It may

issue a writ of habeas corpus which is an order for the release of a person

wrongfully detained, and also prerogative orders against inferior courts, tribunals and other bodies such as local authorities in so far as they have a duty to

exercise a discretion fairly

Criteria to be Judge of High Court

 Ten years’ experience as an advocate of a High Court or

 Ten years’ service as a civil servant including three years’ experience as a District Judge or

 Ten years’ experience in a judicial office

There are three types of prerogative order

2 Prohibition

It prevents a court or tribunal from exceeding its jurisdiction

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Areas of jurisdiction of the High Court

Following are the few areas of jurisdiction of the High Court

Original civil jurisdiction Appellate civil jurisdiction Appellate criminal jurisdiction Supervisory jurisdiction Constitutional jurisdiction

3.3 Criminal Courts

The criminal courts structure is given below:

Supreme Court

of Pakistan Chief Justice Justice Discussed earlier

High Court Chief Justice Supervisory control

Justice

Sessions Court Sessions Judge All other offences not covered in

Judicial Magistrate Jurisdiction, but sentence of death is passed subject

to the conﬁrmation of High Court Cases of enforcement of law relating

to Hudood are also tried by sessions judges

AdditionalSessions Judge

Assistant Sessions Judge Offences with punishment not exceeding seven years

2nd Class

Offences with punishment of imprisonment for a term not exceeding one year, ﬁne not exceeding Rs 5,000

Judicial Magistrate

3rd Class

Offences with punishment of imprisonment for a term not exceeding one month, ﬁne not exceeding Rs 100

Special Judicial Magistrate

Provincial Government on recommendation of High Court confer upon any person powers of Judicial Magistrate

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Business Law

Sessions Judge

Each province consists of sessions / divisions and every session division shall be

a district or consists of districts The Provincial Government established a Court

of Session for every sessions / division and appoints a judge of such court called session judge

Additional Sessions Judges

The Provincial Government may also appoint Additional Sessions Judges and Assistant Sessions Judges to exercise jurisdiction in one or more such courts Magistrates’ courts

Magistrates’ Courts are the subordinate criminal courts In addition, they also exercise certain family law, administrative law and minor civil functions

Criminal court Appeals

Supreme Court of Pakistan Division Bench of High Court High Court

Conviction for more than 4 years

Magistrates Courts

Assistant Sessions Court

Sessions Court Conviction for Sedition

(trouble making)

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Additional District Judge

In every district of a Province, there is a Court of District Judge which is the principal court of original jurisdiction in civil matters Government in consultation with the High court, appoints as many Additional District Judges as may be necessary An additional district judge discharges such functions of a District Judge as the District Judge assigns him and has the same powers like that of District Judge

Civil Judge

Civil Judges function under the superintendence and control of District Judge and all matters of civil nature originate in the courts of Judges The District Judge may, however, withdraw any case from any Civil Judge and try it himself

Appeals against the judgments and decrees passed by the Civil Judges in cases where the value of the suit does not exceed the specified amount lie to the

District Judge

Civil court Appeals

Suits value below Rs.200,000

Supreme Court of Pakistan Division Bench of High Court

High Court / Company Bench / Banking Court

Civil Courts

District Court Suit value above

Rs 200,000

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 The court having jurisdiction under the Companies Ordinance, 1984 is the High court having jurisdiction in the place at which the registered office of the company is situated

 The Federal Government may empower any civil court to exercise all or any of the jurisdictions by this ordinance

 In each High Court one or more benches known as the company bench are constituted by the chief justice of High Court

 All the matters coming before the court under this Ordinance are disposed

of within ninety days from the date of presentation

Industrial Tribunal

Industrial Tribunals were established by the Industrial Relation Act, 2008 They have a wide jurisdiction over most disputes between employee and employer

 Redress of individual grievances

 Complaints of unfair dismissal

 Pay claims

 Questions as to the terms of employment

 Appeals against health and safety notices

Terms to remember

Juveniles: Any offence, other than one punishable with death or transportation for life, committed by any person under the age of fifteen years The age is

calculated at the date when he appears or brought before the court, may be tried

by a District Magistrate working under the Reformatory Schools Act, 1897

Decision reversed: If an appeal court gives its judgment in favour of the party

making the appeal (the appellant) the original decision is said to be reversed

Court of first instance: It is the court where the case is originally heard in full Appellate Court: It is the court to which an appeal is made against the judgment or the sentence

3.5 Federal Shariat Court

Courts Staff

Supreme Court of Pakistan Chief Justice

Justices Federal Shariat Court Chief Justice

Justices

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Composition of Federal Shariat Court

 The Federal Shariat Court consists of not more than eight Muslim Judges

including the Chief Justice who are appointed by the President in accordance with Article 175A

 Out of the number not more than three shall be Ulema having at least fifteen years’ experience in Islamic law, research or instruction and not more than four each, one of them

 is or

 has been or

 is qualified

to be a Judge of High Court

 The judges hold office for a period of three years However, the President may, extend such period

Process

 The Court may either

 of its own motion or

 If Federal Shariat court decides that a law or the provision of any law is repugnant to the Injunctions of Islam, it shall set out in its decision:

 The reasons for its holding that opinion and

 The extent to which such law or provision is so repugnant

 And specify the day on which decision shall take effect

 Provided that no such decision shall take effect before the expiration of the period within which an appeal may be preferred to the Supreme Court or where an appeal has been so preferred, before the disposal of such appeal

Appeal to Supreme Court

 A party aggrieved by the final decision of the court within sixty days of such decision may prefer an appeal to the Supreme Court

 An appeal on behalf of the Federation or a Province may be preferred within six months of such decision

3.6 Alternate Dispute Resolution

Alternate Dispute Resolution is any type of procedure or combination of

procedures voluntarily used to resolve issues in controversy, other than court

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Business Law

ADR is generally classified into following types:

Negotiation

In negotiation the participation is voluntary and there is no third party who

facilitates the resolution process or imposes a resolution

Mediation

In mediation there is a third party a mediator is a person who facilitates the

resolution process but does not impose a resolution on the parties

Arbitration is often faster than litigation in court

Cheaper and Flexible

Arbitration can be cheaper and more flexible for businesses

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Delay

When there are multiple arbitrators on the panel, manage their schedules for hearing dates in long cases can lead to delays

Arbitration in Islamic way

Islamic arbitration is known as Takhim

Qualification to be an arbitrator

 Must be a Muslim

 Male

 Knowledge in Sharia and

 Free from any defects that could affect his ability to arbitrate

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Business Law

Chapter review

Before moving on to the next chapter check that you now know how to:

 Briefly describe the sources of law in Pakistan

 Understand the civil and criminal law

 Explain the purpose and constituents of Parliament

 Explain the procedure followed for enactment of any law in Pakistan

 Discuss the structure of the courts in Pakistan

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Introduction to the law of contract

LO 2 On the successful completion of this paper, candidates will be able to

demonstrate knowledge of laws relating to Contract Act

LO 2.1.1 Discuss the provisions of Act with respect to validity of a contract

LO 2.1.1 Demonstrate comprehension in simple scenario based problems

The learning outcome 2.1.1 is covered from chapter 2 to 16

Exam context

By the end of this chapter students will be able to:

 Understand the meaning of a contract

 Discuss the essentials of a valid contract

 Explain the different classifications of contract

References to Legal Acts

Section number references embedded in the learning materials refer to the following legal acts unless otherwise stated:

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Section A: Mercantile Law - Chapter 2: Introduction to the law of contract

Definition: Contract [Section 2(h)]

An agreement enforceable by law is a contract

A contract is an agreement which legally binds the parties The analysis of the above definition reveals that a contract has following two elements:

These two essentials are discussed below:

Definition: Agreement [Section 2(e)]

Every promise and every set of promises forming the consideration for each other

is an agreement

The analysis of the above definition reveals that an agreement comes into existence only when one party makes a proposal or offer to the other party and the other party signifies his acceptance thereto Thus an agreement can be an accepted proposal

Definition: Promise [Section 2(b)]

When the person to whom the proposal is made signifies his assent to it, the proposal is said to be accepted A proposal, when accepted becomes a promise The person making the proposal is called the promisor and the person accepting the proposal is called the promisee

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