Legal Environment for Business in Nepal

Essential Elements of a Valid Contract (Nepal National Civil Code, 2074):

Under the National Civil Code, 2074 (Section 504), a legally binding contract requires:

1. Plurality of Parties & Legal Capacity: Two or more competent persons of sound mind who have attained the age of majority (18 years).
2. Offer and Unconditional Acceptance: A definite proposal followed by an absolute and unqualified assent (Consensus ad idem).
3. Free Consent: Consent given voluntarily, free from coercion, undue influence, fraud, misrepresentation, or mutual mistake.
4. Lawful Object & Lawful Consideration: The agreement must pursue a legal purpose and be supported by valid consideration that is not contrary to public policy.
5. Intention to Create Legal Relations: The parties must intend to establish legally enforceable rights and obligations.

Meaning of a Person of Unsound Mind:

Under the law of contract (Section 507 of the National Civil Code, 2074), a person is considered to be of unsound mind if, at the time of entering into the contract, they are incapable of understanding the terms and conditions of the transaction or of forming a rational judgment regarding its effect upon their personal or financial interests.

Categories:

• Idiots / Congenital Disability: Persons permanently lacking cognitive reasoning capacity from birth.
• Lunatics / Temporarily Insane: Persons suffering from mental disorders who may have lucid intervals (contracts made during a lucid interval are legally valid).
• Intoxicated or Delirious Persons: Persons whose rational judgment is temporarily incapacitated by narcotics, severe alcohol intoxication, or high fever.

Importance of Free Consent:

Free consent is the foundational cornerstone of the law of contract based on the legal maxim Consensus ad idem (meeting of the minds on the same thing in the same sense).

Why it is Crucial:

1. Ensures Voluntariness and Fairness: Validates that both parties voluntarily agreed without external duress, pressure, or deceit.
2. Determines Contract Enforceability: If consent is caused by coercion, undue influence, fraud, or misrepresentation, the contract becomes voidable at the option of the aggrieved party under Section 516 of the National Civil Code, 2074. If caused by mutual bilateral mistake of essential fact, it is void ab initio.

Communication of Offer:

Communication of an offer is the legal process by which a proposer (offeror) transmits the terms of a proposal to the offeree, bringing it to the offeree’s actual knowledge.

Legal Rule (Section 505, National Civil Code, 2074):

• The communication of an offer is complete when it comes to the knowledge of the person to whom it is made.
• An individual cannot accept an offer of which they had no prior knowledge (Lalman Shukla v. Gauri Dutt principle).

Definition and Meaning of Prospectus:

Under Section 2(n) and Section 23 of the Nepal Companies Act, 2063, a prospectus is an official legal disclosure document issued by a public limited company inviting the general public to subscribe to or purchase its shares, debentures, or debt securities.

Core Functions:

• Discloses the company’s financial health, past performance, board of directors’ profiles, capital structure, and risk factors.
• Serves as the formal basis on which public investors evaluate whether to invest capital in an Initial Public Offering (IPO).

Meaning of Arbitration:

Arbitration is an Alternative Dispute Resolution (ADR) mechanism governed in Nepal by the Arbitration Act, 2055, whereby disputing parties bypass formal court litigation and submit their civil or commercial dispute to one or more mutually chosen, neutral private adjudicators known as arbitrators.

Key Characteristics:

• Based on a voluntary, written arbitration agreement between parties.
• The proceeding is private, confidential, and expeditious.
• The arbitrator’s final verdict is called an Arbitral Award, which is legally binding on all parties and enforceable through the District Court like a formal judicial decree.

Types of Breach of Contract:

1. Actual Breach of Contract: Occurs when a contracting party fails or refuses to perform their contractual obligation at the agreed time or during the course of performance.
2. Anticipatory Breach of Contract: Occurs when a contracting party declares their intention not to perform the contract before the agreed date of performance arrives:
   • Express Repudiation: Communicating explicit refusal via words or writing.
   • Implied Impossibility: Performing an act that disables oneself from fulfilling the promise (e.g., selling a contracted unique property to a third party before closing).

Modes of Termination / Discharge of a Contract:

Under the National Civil Code, 2074, a contract is discharged through:

1. Performance: Actual performance or valid tender of performance by both parties.
2. Mutual Consent / Agreement: Novation, alteration, rescission, remission, or waiver.
3. Supervening Impossibility (Doctrine of Frustration): Subsequent change of law or destruction of subject matter.
4. Operation of Law: Insolvency, death, or merger of rights.
5. Lapse of Time: Failure to enforce legal remedies within statutory limitation periods.
6. Breach of Contract: Repudiation or non-performance by either party.

Definition of Insolvency:

Under the Insolvency Act, 2063 (Nepal), insolvency is the legal and financial state in which a company or individual debtor is unable to pay off their matured financial liabilities and obligations to creditors in the ordinary course of business, or where total liabilities exceed the fair market value of all realizable assets.

Consequence:

Triggers formal insolvency proceedings in the Commercial Bench of the High Court, initiating either debt restructuring/rehabilitation or corporate liquidation.

Nature of Performance of Contract:

1. Actual Performance: Both parties completely and punctually fulfill their respective reciprocal promises exactly according to the contractual terms, extinguishing all obligations.
2. Attempted Performance (Tender of Performance): The promisor makes a valid and unconditional offer to perform at the proper time and place, but the promisee refuses to accept it. Tender of performance discharges the promisor from liability for non-performance.

Importance of Legal Environment for Business in Nepal:

The legal environment encompasses the constitutional statutes, commercial enactments, judicial precedents, and regulatory frameworks governing commercial enterprises within a sovereign jurisdiction.

Key Dimensions of Importance:

1. Upholds the Rule of Law and Contractual Sanctity:
   • Provides enforceable legal guarantees that trade agreements, commercial sales, and debt obligations will be honored, deterring fraudulent default.
2. Protection of Private Property and Intellectual Property Rights:
   • Safeguards physical real estate, industrial equipment, patents, trademarks, and copyright assets (Patent, Design and Trademark Act, 2022).
3. Fosters Investor Confidence and Capital Inflows:
   • Predictable legal frameworks governing foreign investment (FITTA, 2075) encourage domestic entrepreneurs and foreign direct investors to commit long-term capital.
4. Fair Competition and Anti-Monopoly Regulation:
   • Prevents cartel formations, price-fixing, and predatory syndicates through the Competition Promotion and Market Protection Act, 2063.
5. Consumer Protection and Public Welfare:
   • Protects citizens against adulterated food, defective merchandise, and misleading advertisements under the Consumer Protection Act, 2075.
6. Structured Dispute Resolution:
   • Furnishes efficient conflict resolution channels through specialized Commercial Benches of High Courts and Alternative Dispute Resolution (Arbitration Act, 2055).

Rules Regarding Contingent Contracts (Nepal National Civil Code, 2074):

A contingent contract is a contract to do or not to do something if some collateral event does or does not happen (Section 510).

Key Legal Rules of Enforcement:

1. Contracts Contingent on the Happening of an Event:
   • Cannot be enforced by law unless and until that uncertain future event has actually occurred. If the event becomes impossible, the contract becomes void.
2. Contracts Contingent on the Non-Happening of an Event:
   • Can be enforced when the happening of that event becomes completely impossible, and not before.
3. Contracts Contingent on an Event Happening Within a Fixed Time:
   • Becomes void if, at the expiration of the fixed time, the event has not occurred, or if before the time expires, it becomes certain that the event will not happen.
4. Contracts Contingent on the Future Conduct of a Living Person:
   • If the event is how a person will act at an unspecified time, the event is deemed impossible if that person acts in a manner making it impossible for them so to act within any definite time.
5. Contracts Contingent on Impossible Events are Void Ab Initio:
   • Contingent agreements dependent on inherently impossible events (e.g., bringing a dead person to life) are void from inception, whether the impossibility was known to the parties or not.

Concept and Types of Quasi-Contract:

1. Conceptual Foundation

A quasi-contract (or constructive contract) is not a genuine contract created by formal agreement or mutual consent of parties. Instead, it is a legal obligation imposed by equity and justice under the fundamental doctrine of Unjust Enrichment (Nemo debet locupletari ex aliena jactura—no person should unjustly enrich themselves at another person’s expense).

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2. Major Types of Quasi-Contracts under Nepalese Law:

1. Supply of Necessaries to Incapable Persons (Section 656, Civil Code):
   • If a person incapable of entering into a contract (e.g., minor, person of unsound mind) is supplied with necessaries suited to their condition in life, the supplier is entitled to reimbursement from the property of such incapable person.
2. Reimbursement of Person Paying Money on Behalf of Another:
   • A person interested in the payment of money which another is bound by law to pay, and who pays it, is entitled to be reimbursed (e.g., a sub-tenant paying municipal tax to avoid property seizure).
3. Obligation of Person Enjoying Benefit of Non-Gratuitous Act:
   • Where a person lawfully performs something for another person or delivers goods, not intending to do so gratuitously, and the other person enjoys the benefit, the beneficiary must compensate the provider.
4. Responsibility of Finder of Lost Goods:
   • A person who finds goods belonging to another and takes custody incurs the identical legal duties and bailee obligations as a bailee (must take reasonable care and make diligent search for the true owner).
5. Liability of Person Receiving Money by Mistake or Under Coercion:
   • A person to whom money has been paid or anything delivered erroneously by mistake or through coercion must repay or return it.

Roles, Duties, and Powers of a Liquidator:

Under the Nepal Companies Act, 2063 (Sections 126-140) and the Insolvency Act, 2063, a liquidator is an independent professional appointed by the court or shareholders to wind up the corporate affairs of an entity.

Primary Roles and Responsibilities:

1. Custody and Control of Corporate Assets:
   • Immediately takes custody and physical possession of all movable and immovable properties, cash accounts, and books of accounts belonging to the company.
2. Realization of Corporate Assets:
   • Publicly auctions or sells corporate assets at fair market value to convert them into distributable cash pools.
3. Investigation of Company Affairs & Fraud:
   • Investigates past transactions to uncover any fraudulent preference, undervalued asset transfers, or director misfeasance, taking legal action to recover misappropriated funds.
4. Adjudication of Creditors’ Claims:
   • Publishes public notices calling upon all claimants to submit claims, verifying and settling liabilities in accordance with statutory priority:
     • 1. Liquidation administration and legal costs
     • 2. Outstanding employee wages and social security dues
     • 3. Secured creditors
     • 4. Government taxes
     • 5. Unsecured creditors
5. Distribution of Surplus Capital:
   • Distributes remaining surplus funds proportionally to equity shareholders according to shareholding rights.
6. Submission of Final Report and Dissolution:
   • Submits the final liquidation report and audited accounts to the Office of Company Registrar (OCR) and the court, leading to the formal dissolution and cancellation of company registration.

Contemporary Business Ethics Issues in Nepal:

Business ethics involves the moral principles, standards of conduct, and social responsibilities that guide commercial behavior. In Nepal, the business sector faces several ethical challenges:

1. Tax Non-Compliance & Under-Invoicing (Hundi/Billing Malpractices):
   • Widespread prevalence of dual-billing, customs under-valuation, and informal financial transfers (Hundi) to evade Value Added Tax (VAT) and corporate income taxes.
2. Syndicates, Cartels, and Artificial Price Manipulation:
   • Collusive pricing and transport cartels in public transit, agricultural produce (Kalimati vegetable markets), and construction materials, artificially restricting supply and harming consumers.
3. Food Adulteration and Counterfeit Consumer Goods:
   • Supplying substandard edible oils, expired pharmaceuticals, and counterfeit consumer goods, violating public health standards.
4. Corporate Governance & Conflict of Interest:
   • Insider trading on NEPSE, related-party lending in banking and cooperative sectors, and mismanagement of depositor funds leading to cooperative collapses.
5. Neglect of Environmental Ethics & Worker Welfare:
   • Discharging untreated industrial effluents into rivers (e.g., Bagmati), illegal riverbed aggregate extraction, and denial of statutory minimum wages and safety gear to contractual workers.

The Right to Information (RTI) Framework in Nepal:

1. Constitutional and Statutory Foundation

• Article 27 of the Constitution of Nepal: Guarantees that every citizen has the fundamental right to demand and obtain information on any matter of personal importance or public importance.
• Right to Information Act, 2064 & Rules, 2065: The comprehensive statute establishing the institutional, procedural, and enforcement mechanisms for RTI.

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2. Objectives of RTI in Business & Governance

1. Enhances transparency, openness, and accountability in state governance and public institutions.
2. Combats institutional corruption, nepotism, and bureaucratic secrecy in public contracting and procurement.
3. Empowers citizens, journalists, and researchers to access public records and participate in policy decisions.

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3. Procedural Framework for Accessing Information

1. Designation of Information Officer (IO): Every public body is statutorily mandated to appoint an Information Officer to handle citizen requests.
2. Application Submission: A citizen submits a written application specifying the requested information.
3. Timelines: Information must be provided immediately; if complex, within 15 days. Information related to human life and personal liberty must be provided within 24 hours.
4. Fees: Reasonable direct reproduction costs (photocopy/electronic media) as prescribed by rules.

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4. Statutory Exceptions to RTI (Section 3(3)):

A public body is prohibited from disclosing information that:

• Seriously jeopardizes the sovereignty, national integrity, security, or international relations of Nepal.
• Directly impacts the investigation, prosecution, or trial of criminal offenses.
• Harms intellectual property, banking/commercial trade secrets, or fair market competitiveness.
• Discloses private personal data unless justified by public interest.

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5. National Information Commission (NIC):

An independent quasi-judicial regulatory watchdog that hears appeals against denial of information, issues binding directives to public bodies, and imposes financial fines and departmental sanctions against non-compliant officials.

Rights and Duties of an Unpaid Seller (Sale of Goods):

1. Definition of Unpaid Seller

A seller is deemed to be an unpaid seller when:

• The whole of the agreed purchase price has not been paid or tendered.
• A negotiable instrument (cheque or bill of exchange) received as conditional payment has been dishonored.

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2. Rights of an Unpaid Seller

A. Rights Against the Goods:

1. Right of Lien (Section 568, Civil Code):
   • The right to retain possession of goods until the buyer pays or tenders the full purchase price.
   • Available when goods are sold without credit, credit terms have expired, or the buyer becomes insolvent.
2. Right of Stoppage in Transit:
   • When the buyer becomes insolvent and the goods are in the custody of an intermediary carrier, the unpaid seller can stop the transit and resume physical possession.
3. Right of Resale:
   • The seller may resell the goods if:
     • The goods are of a perishable nature.
     • Notice of intention to resell is given to the buyer, and the buyer fails to pay within a reasonable time.

B. Rights Against the Buyer Personally (Suit for Breach):

1. Suit for the Price: Where property in goods has passed to the buyer and the buyer wrongfully neglects or refuses to pay.
2. Suit for Damages for Non-Acceptance: Right to claim financial damages for loss suffered due to the buyer’s wrongful refusal to accept delivery.
3. Suit for Interest: Right to claim statutory commercial interest on the unpaid sum.

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3. Duties of an Unpaid Seller:

1. Must not exercise the right of lien if possession was voluntarily surrendered without reserving rights.
2. Must give reasonable notice before executing resale of non-perishable goods.
3. Must safely preserve and maintain goods during the exercise of lien or stoppage in transit.

Civil Procedures in Nepal (National Civil Procedure Code Act, 2074):

The civil justice system in Nepal follows a structured adversarial procedure governed by the National Civil Procedure (Code) Act, 2074:

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Key Stages of Civil Litigation:

1. Filing of the Plaint (Firdi-patra):
   • The plaintiff initiates legal action by submitting a formal statement of claim setting out material facts, legal grounds, evidence, and specific relief claimed, along with the prescribed court fee.
2. Issuance and Service of Summons (Myad Jari & Tameli):
   • The court issues a formal summons ordering the defendant to appear within 30 days (extendable by 15 days on valid grounds) to submit a defense.
3. Filing of the Written Statement (Pratiuttar-patra):
   • The defendant responds by submitting a statement of defense, admitting, denying, or raising counter-claims against the plaint.
4. Framing of Issues (Mudda Kayam / Mudda ko Poko Badhne):
   • The presiding judge examines the conflicting assertions in the plaint and written statement, formulating specific disputed questions of law and fact.
5. Collection and Examination of Evidence (Praman Bujhne):
   • Submission of primary documentary evidence, examining expert opinions, local on-site judicial inspections (Sarjameen), and cross-examination of witnesses under oath.
6. Final Arguments / Hearing (Bahas):
   • Legal practitioners representing the plaintiff and defendant deliver legal arguments based on evidence and statutory provisions.
7. Pronouncement of Judgment (Faisala):
   • The court pronounces its reasoned verdict deciding all issues and determining costs.
8. Execution of Decree (Faisala Karyanwayan):
   • Enforcing the judgment through asset attachment, monetary recovery, or specific performance via the court’s execution section.

Procedures for the Incorporation of a Company in Nepal (Companies Act, 2063):

The registration and incorporation of a company (Private or Public Limited) is administered by the Office of Company Registrar (OCR) under the Ministry of Industry, Commerce and Supplies:

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Step-by-Step Incorporation Process:

1. Name Approval / Name Reservation:
   • Promoters apply online via the OCR portal proposing three alternative names. The OCR verifies that the proposed name is unique and does not conflict with existing registered corporate trademarks.
2. Drafting Foundational Constitutional Documents:
   • Memorandum of Association (MOA - Prabandha Patra): Defines the company’s name, registered office, authorized and paid-up capital, liability clause, and primary objectives.
   • Articles of Association (AOA - Niyamawali): Defines internal operational rules, voting procedures, board appointment guidelines, and meeting protocols.
3. Submission of Registration Application (Section 4):
   • Promoters upload signed application forms along with:
     • Approved MOA and AOA (signed by all founding promoters and certified by legal witnesses).
     • Notarized citizenship certificates (or passport/FITTA approval for foreign promoters).
     • Unanimous promoter consensus agreement (for private companies) or pre-incorporation contract.
4. Scrutiny and Payment of Registration Fees:
   • OCR scrutinizes submitted filings against the Companies Act. Promoters pay registration revenue fees based on authorized capital slabs.
5. Issuance of Certificate of Incorporation (Section 5):
   • Upon satisfaction, the Registrar registers the company and issues the official Certificate of Company Incorporation within 15 days.
6. Post-Incorporation Compliances:
   • Obtaining Permanent Account Number (PAN/VAT) from the Inland Revenue Department.
   • Opening corporate bank accounts.
   • Informing the OCR of the physical registered office address and commencement of business within prescribed deadlines.

Legal Opinion: Contract Validity in Shambhu vs. Harihar (Export of Rakta Chandan):

1. Facts of the Case:

• Shambhu contracted with Harihar to supply and export “Rakta Chandan” (Red Sandalwood) to the United States of America at a stipulated rate.
• Subsequent to contract formation, the Government of Nepal enacted a statutory law strictly prohibiting the export of Rakta Chandan by private individuals, reserving export exclusively to the State.

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2. Relevant Legal Provisions:

• National Civil Code, 2074 (Section 531): Governs the Doctrine of Supervening Impossibility / Frustration of Contract.
• Under contract law, where performance of a contract becomes unlawful or physically impossible due to subsequent legislative enactments or government prohibition beyond the control of parties, the contract becomes discharged and void.

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3. Legal Analysis:

1. Initial Validity: At the time of agreement, the contract was valid if permitted under prevailing trade regulations.
2. Subsequent Illegality: The subsequent enactment of the prohibitive law made private commercial export illegal under Nepalese law. Under the doctrine of frustration (Taylor v. Caldwell and Section 531), subsequent change of law destroys the legal foundation of the agreement.
3. No Party in Breach: Because non-performance is caused by sovereign legislative decree rather than voluntary default, neither party can sue the other for breach of contract or claim commercial damages.

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4. Conclusion & Legal Advice:

• The contract is VOID due to supervening illegality.
• Shambhu is legally excused from supplying the timber to Harihar.
• If Shambhu received any advance monetary deposit from Harihar, he must restore and refund it under Section 532 (Doctrine of Restitution).

Legal Determination: Rights of Payment in Agency Transaction (Bharat, Ramesh, and Rupesh):

1. Facts of the Case:

• Bharat knows Ramesh is an agent selling clothes.
• Bharat purchases clothes on credit from Ramesh, unaware that Rupesh is Ramesh’s actual principal.
• In legal terms, Rupesh is an Unnamed / Partially Disclosed Principal (Bharat knew Ramesh was an agent, but did not know the identity of the principal).

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2. Relevant Legal Provisions:

• National Civil Code, 2074 (Chapter on Contract of Agency):
  • Contracts entered into through an authorized agent within scope of authority may be enforced in the same manner as if entered into directly by the principal.
  • Where the principal is unnamed or undisclosed, the principal has the inherent legal right to intervene and enforce performance directly against the third party.
  • Concurrently, because the agent personally contracted in their own name without naming the principal, the third party also remains directly liable to the agent until the principal intervenes.

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3. Legal Analysis:

1. Right of the Principal (Rupesh):
   • As the true owner and principal, Rupesh has the paramount legal right to disclose himself, intervene in the transaction, and demand payment directly from Bharat.
2. Right of the Agent (Ramesh):
   • Ramesh, having conducted the credit sale directly with Bharat, also holds the right to demand payment from Bharat, but only as a fiduciary representative holding the collected funds for Rupesh.
3. Protection of Bharat:
   • If Bharat pays Ramesh before receiving notice of Rupesh’s intervention, Bharat is fully discharged from liability. Once notified by Rupesh, Bharat must pay Rupesh directly.

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4. Conclusion:

Both Rupesh (the principal) and Ramesh (the agent) have the right to demand payment, but Rupesh possesses the superior, overriding right to intervene and collect payment directly.

Legal Analysis: Enforceability of Agreement to Commit a Crime (Sarala and Gita):

1. Facts of the Case:

• Sarala promised to pay a sum of money to Gita on the condition that Gita kills Rita.
• Gita accepts the agreement, commits the homicide (murder), and demands payment.
• Sarala refuses to pay the promised sum.
• Issue: Can Gita legally recover the promised money through court action?

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2. Relevant Legal Provisions:

• National Civil Code, 2074 (Section 517):
  • An agreement is void ab initio (void from the very beginning) if its object or consideration is unlawful, prohibited by criminal law, injurious to the person or property of another, or contrary to public policy and morality.
• Fundamental Legal Maxims:
  • Ex turpi causa non oritur actio: No legal action arises from an immoral or illegal cause.
  • In pari delicto potior est conditio defendentis: Where both parties are equally at fault, the position of the defendant is stronger.

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3. Legal Analysis:

1. Contract is Non-Existent in Law: The agreement involves contracting for murder, a heinous felony under the National Penal Code, 2074. The consideration and object are blatantly criminal.
2. Absolute Denial of Judicial Remedy: Courts of law exist to uphold justice and will never enforce agreements that facilitate criminal acts.
3. Criminal Culpability: Rather than obtaining civil payment, both parties face severe criminal sanctions. Gita is liable for murder, and Sarala is liable for criminal conspiracy and abetment to murder.

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4. Conclusion:

No, Gita CANNOT recover any amount from Sarala through legal remedies. The contract is completely void ab initio, and both parties are subject to criminal prosecution under the National Penal Code, 2074.

Judicial Decision: Partial Delivery of Goods (Prakash vs. Mohan):

1. Facts of the Case:

• Prakash agreed to supply a specified total quantity of sugar to Mohan.
• Contract condition: Payment was agreed to be made only after completing full supply.
• Prakash supplied only a portion of the contracted sugar and failed to deliver the remaining balance.
• Issue: What is the fair and lawful resolution between Prakash and Mohan?

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2. Relevant Legal Provisions:

• National Civil Code, 2074 (Sections on Sale of Goods and Performance of Contract):
  • Entire Contract Doctrine: Where a contract is indivisible and provides for payment only upon complete execution, the promisor cannot demand payment without full performance.
  • Doctrine of Quantum Meruit (As much as earned): Where a party receives and retains the benefit of partial performance under a contract, equity mandates that the party enjoying the benefit must pay for what was actually retained.
  • Damages for Breach (Section 534): The innocent party is entitled to recover damages for losses caused by the supplier’s default.

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3. Legal Judgment & Resolution:

1. Option A: If Mohan Rejects and Returns the Partial Delivery:
   • Mohan is completely within his legal rights to reject the partial delivery because Prakash failed to fulfill the entire condition precedent. In this case, Mohan pays nothing and can sue Prakash for commercial damages (e.g., price difference of procuring sugar from the open market).
2. Option B: If Mohan Accepts and Retains the Delivered Sugar:
   • If Mohan decides to retain and use/resell the partially delivered sugar, he is legally obligated under Quantum Meruit to pay Prakash for the quantity actually retained, calculated at the agreed contract rate.
3. Deduction of Compensatory Damages:
   • From the amount owed to Prakash for the retained sugar, Mohan has the legal right to deduct and set-off any financial damages incurred to procure the deficit quantity of sugar at higher market prices.

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4. Conclusion:

Justice mandates that if Mohan retains the partially delivered sugar, he must pay Prakash the pro-rata value of that sugar, minus any actual financial losses caused by Prakash’s breach. If Mohan rejects the partial supply, he owes nothing and is entitled to compensation.