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LEGAL AND REGULATORY ASPECTS OF BANKING 2nd Edition
INDIAN INSTITUTE OF BANKING & FINANCE
MACMILLAN 'THE ARCADE', WORLD TRADE CENTRE, CUFFE
PARADE MUMBAI400005
Established on 30th April 1928
MISSION
finance.
Page 1
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2.
3.
Page 4
Page 5
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CRR/SLR Concepts
Cash/Currency Management
Corporate Governance
Indemnities/Guarantees
Page 7
Obligations of a Banker
Registration of Firms/Companies
Law of Limitation
LokAdalats
Page 8
CONTENTS
Foreword
2.
15
Page 9
31
4.
5.
65
7.
8.
Indemnities 101
9.
Bank Guarantees
107
10.
Letters of Credit
119
11.
131
12.
135
13.
14.
155
15.
16.
17.
18.
Incorporation of Companies
19.
83
173
181
187
205
21.
209
Page 10
Assets of
Banks and Financial Institutions 219
xii
23.
24.
Central Registry
25.
26.
Miscellaneous Provisions
28.
Preliminary
30.
31.
32.
Procedure of Tribunals
33.
Miscellaneous Provisions
THE BANKERS' BOOKS EVIDENCE ACT, 1891
34.
LokAdalats
37.
Page 11
TAX LAWS
40.
42.
Contracts of Indemnity
43.
Contracts of Guarantee
44.
Contract of Bailment
45.
Contract of Pledge
46.
Contract of Agency
47.
48.
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Unpaid Seller
50.
51.
52.
53.
54.
Dissolution of a Firm
55.
Effect of Non-Registration
56.
57.
Types of Companies
58.
59.
Management
60.
Membership
61.
Prospectus
62.
Directors
63.
64.
65.
66.
67.
68.
Bibliography
373 377 381 385 389 393 397 399 405 411 415 419 425 429 437 443
453 457 463 469 475
Page 13
Objectives
1.1
Introduction
1.2
Business of Banking
1.3
Constitution of Banks
1.4
1.5
1.6
1.7
1.8
1.9
1.10
Let Us Sum Up
1.11
Keywords
1.12
1.13
1.14
Terminal Questions
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OBJECTIVES
regulators; and
banks.
1.1
INTRODUCTION
1.2
BUSINESS OF BANKING
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(b)
(c)
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indemnity business.
(f)
Manage, sell and realise any property which may come into
Acquire, hold and deal with any property or any right, title
or interest in any such property which may form the security for
any loan or advance.
(h) Undertake and execute trusts.
(i) Undertake the administration of estates as executor, trustee or
otherwise.
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(b)
foreign company;
(c)
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1.5
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(b)
(c)
(d)
1.6
OF BANKS
i. The Reserve Bank was constituted under Section 3 of the Reserve
Bank of India Act, 1934 for taking over the management of
currency from the Central Government and carrying on the
business of banking in accordance with the provisions of the Act.
Originally, under the RBI Act, the Bank had the responsibility of:
(a)
(b)
(c)
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power to licence;
(b)
boards/personnel;
(c)
(d)
(e)
(f)
(g)
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Page 28
(d)
(e)
(f)
Section 45.
The above provisions confer wide powers on the Central
Government to regulate banks. These are in addition to the powers
conferred on the government as majority shareholder or full owner
of public sector banks under the statutes constituting them.
1.8 CONTROL OVER CO-OPERATIVE BANKS
i. A co-operative bank is a co-operative society engaged in the
business of banking and may be a primary Co-operative bank, a
district central co-operative bank or a state co-operative bank.
Cooperative banks operating in one state only are registered
under the State co-operative Societies Act concerned. The
formation of such banks as well as their management and control
over personnel is regulated by the co-operative law of the state. The
Registrar of co-operative societies under the Co-operative Societies
Act exercises a wide range of powers on co-operative societies from
registration to winding up.
ii. In the case of co-operative banks operating in more than one
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LET US SUM UP
1.
Page 31
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KEYWORDS
a special statute, a co
operative society, a company)
(Reserve Bank, Registrar of Companies,
(iii) Banking companies are licensed by
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1. (i) True; (ii) False; (iii) True; (iv) False; (v) False.
statute
(iii)
Reserve Bank
(iv) BRAct
(v)
B.
1. (i) True; (ii) False; (iii) False; (iv) False; (v) True.
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_.
(new banks
Page 36
(is
UNIT
2
CONTROL OVER ORGANISATION OF BANKS
Page 37
Objectives
2.1
Introduction
2.2
2.3
Branch Licensing
2.4
2.5
2.6
2.7
Board of Directors
2.8
2.9
2.10
Restrictions on Employment
2.11
2.12
Corporate Governance
2.13
2.14
Let Us Sum Up
2.15
Keywords
2.16
2.17
2.18
Terminal Questions
16
2.0
OBJECTIVES
The objectives of this unit are to understand the laws that govern
banking companies, in respect of:
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companies
Corporate governance
2.1
INTRODUCTION
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Page 40
earning prospects;
(e)
the company;
(f)
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(b)
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i _r
t/\ J r-.
18
2.3 BRANCH LICENSING
i. Apart from the requirement of licence for commencing or
carrying on banking business, banks have to obtain the prior
permission of Reserve Bank for opening a new place of business or
changing location of the existing place of business. Under Section
23 of the Banking Regulation Act, 'Place of business' for this
purpose includes any sub-office, pay office, sub-pay office or any
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(b)
(c)
(d)
Public interest.
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business or industry;
(c)
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(b) public
RESTRICTIONS ON EMPLOYMENT
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Public interest
(b)
The Reserve Bank has to pass such an order recording the reasons
in writing. Before passing the order, the affected person has to be
given a reasonable opportunity of making a representation against
the proposed order. Where an urgent action is required and delay
would be against the interests of the company or its depositors, the
Reserve Bank is empowered to direct by order, at the time of giving
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control functionaries
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LET US SUM UP
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KEYWORDS
Page 69
in any other
company, (beneficial
interest, any interest, substantial interest)
(ii) At least
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under Section
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1.
(i) licence; (ii) same city, town or village; (iii) 20 per cent of
(i) True; (ii) True; (iii) False; (iv) True; (v) False; (vi) False.
3.
(i) substantial interest; (ii) 51 per cent; (iii) by lots; (iv) give
(i) True; (ii) False; (iii) True; (iv) False; (v) True; (vi) True;
(vii) False
2.18
TERMINAL QUESTIONS
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banking company;
has to satisfy itself under Section 22(3) of the BR Act as to
adequacy of capital structure and earning prospects; has to consult
the Central Government as to the adequacy of the capital structure
of a banking company before licensing).
5.
(in excess of ten per cent of the total voting rights of all the
shareholders of the company; in excess of two per cent of the total
voting rights of all the shareholders of the company; in excess of
ten per cent of the total voting rights of all the shareholders except
with prior permission of the Reserve Bank).
Choose the correct statements from the following.
6.
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STRUCTURE
3.0
Objectives
3.1
Introduction
3.2
3.3
Acceptance of Deposits
3.4
Nomination
3.5
3.6
3.7
3.8
3.9
3.10
Banking Ombudsman
3.11
Reserve Funds
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3.13
3.14
Assets in India
3.15
Let Us Sum Up
3.16
Keywords
3.17
3.18
3.19
Terminal Questions
32
3.0
OBJECTIVES
borrowing
banks
3.1
INTRODUCTION
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NOMINATION
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BANKING OMBUDSMAN
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(e)
bankers' cheques;
(f)
(g)
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rates;
(b)
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(a)
the complaint is made not later than one year after the
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(f)
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it is:
(i)
(ii)
(iii)
behalf, or
(iv)
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LET US SUM UP
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KEYWORDS
Page 110
interest on deposits by
(iii) (iv)
(v)
(vi)
2.
Say
(i)
(ii) (iii)
(iv) (v) (vi)
3.
Fill
(i)
(ii) (iii)
(iv) (v) (vi)
4.
Say
(i)
(ii)
banking companies under Section 35A of the BR Act. (Government,
Reserve Bank, Board of Directors)
The banking ombudsman can settle a dispute between . (a bank and
its customer/
s, two or more customers, a bank and the Government)
Directions can be issued to banking companies on loans and
advances
. (in strict
of the economy
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(3 per
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(ii) Reserve Bank (iv) in Public Interest (vi) Usurious Loans Act
1.
2. 3.
4.
(i) Loans and Advances (iii) a bank and its customer/s (v) Selective
Credit Control
(i) True; (ii) True; (iii) False; (iv) True; (v) False; (vi) True
(i) 20 per cent
(ii) last Friday of every quarter (iii) 3 per cent over bank rate
(iv) banking companies which are not scheduled banks (v) not
inclusive (vi) civil court
(i) True; (ii) True; (iii) False; (iv) False; (v) False; (vi) False
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unencumbered approved
securities)
4.
. (may be
Page 115
(ii) (iii)
7.
(i)
(ii)
(iii)
8.
(i)
00
(iii)
9.
(i) (ii)
(iii)
10.
(i)
(ii)
(iii)
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Objectives
4.1
Introduction
4.2
4.3
4.4
Submission of Returns
4.5
4.6
4.7
4.8
Acquisition of Undertakings
4.9
Amalgamation of Banks
4.10
Winding up of Banks
4.11
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Let Us Sum Up
4.13
Keywords
4.14
4.15
4.16
Terminal Questions
50
4.0
OBJECTIVES
audit of accounts
filing of returns
winding up
4.1
INTRODUCTION
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51
Act that are inconsistent with the provisions of the Banking
Regulation Act are not applicable to banking companies. However,
those provisions of the Companies Act that are consistent with the
Banking Regulation Act are applicable. The forms specified in the
third schedule of the Banking Regulation Act may be modified by
the Central Government from time to time by notification in the
official gazette.
iv. In the case of banking companies, the profit and loss account,
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audit;
(d)
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(b)
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interests of the
depositors.
A banking company shall be deemed to be unable to pay its debts if
it has refused to meet any lawful demand made at any of its offices
or branches within the stipulated time and the Reserve Bank
certifies in writing that the banking company is unable to pay its
debts. If the demand is made at a place where the Reserve Bank has
an office, branch or agency, the time limit is two days and in other
cases five days. When the Reserve Bank makes an application for
winding up, the court is bound to allow the application. As held by
the Supreme Court in the Palai Central Bank case (AIR 1962 SC
1371 at 1383), as between the Court and the Reserve Bank, the
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KEYWORDS
Page 148
of cooperative
societies)
(iii) Three copies of the balance sheet and accounts along with the
auditor's report of a banking company sent to the Reserve Bank
under Section 31 of the BR Act, have also to be sent to
. (the Central Government, Registrar of Companies,
Company Law Board)
(iv) Reserve Bank is empowered to conduct
of a banking
. (the
Government, Reserve
Bank, Indian Banks Association) (vii) Under Section 35(4) of the
BR Act, Central Government can prohibit a banking company
from accepting fresh deposits if the business of the banking
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. (directions of the
Government, directions
under Sections 21 and 35A of BR Act, provisions of the Companies
Act)
(ii) The Central Government may make a
after consultation
performing assets)
(v) In a winding up proceeding the depositors shall
for the
moratorium in
respect of a banking company, (banking company, Registrar of
Companies, Reserve Bank) (vii) The provisions of a scheme of
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affect, have
overriding effect on, will be subject to).
4. Say whether true or false
(i) Central Government can acquire the undertaking of a banking
company under Section
36AE of the Banking Regulation Act in the interest of banking
policy without any report
from the Reserve Bank on the affairs of the banking company, (ii)
The undertaking of an acquired bank may vest in the Central
Government or in any company
or corporation as directed by the Central Government, (iii) On the
application of Reserve Bank, the High Court may stay the
commencement or
continuance of proceedings against any banking company for any
period, (iv) The Reserve Bank or State Bank or another person as
specified by the Reserve Bank in its
application before the High Court may be appointed as liquidator
of a banking company, (v) On winding up of a banking company,
all the depositors as a class get the first preference
for payment, (vi) The Reserve Bank may prepare a scheme for
reconstruction or amalgamation of a banking
company under moratorium under Section 45 of the BR Act. (vii)
Making any false statement in a return or other document
submitted under the provisions of
the BR Act is punishable with imprisonment and fine also.
4.15
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(iv) Inspection
(v)
should be given
(vii)
2.
(i)
True; (ii) False; (iii) True; (iv) False; (v) False; (vi)
(i)
(ii)
Scheme
(iv)
(vi)
Reserve Bank
4.
(i)
False; (ii) True; (iii) False; (iv) True; (v) False; (vi)
TERMINAL QUESTIONS
of Companies; only
to the Reserve Bank; only to the Registrar of Companies).
3.
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STRUCTURE
5.0
Objectives
5.1
Introduction
5.2
5.3
5.4
Nationalised Banks
5.5
Banks
5.6
5.7
Co-operative Banks
5.8
Let Us Sum Up
5.9
Keywords
5.10
5.11
5.12
Terminal Questions
Page 156
OBJECTIVES
operative banks.
5.1
INTRODUCTION
i. The public sector banks, namely, the State Bank of India and its
subsidiaries, Nationalised banks and regional rural banks are
established by special statutes. These statutes and the rules,
regulations and/or schemes framed thereunder provide the
powers, functions and management of these banks. The Banking
Regulation Act is applicable to these banks only in a limited way, as
some of the provisions are not applicable.
ii. In the case of co-operative banks, these banks being created and
governed by the laws relating to co-operative societies, if they
operate only in one state, the State Act and if they operate in
different states, the Central Act applies. The Banking Regulation
Act is applicable to co-operative banks in a modified manner as
provided in Section 56 of the Act.
iii. In this unit, we study the special laws applicable to the public
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were made in the statutes governing public sector banks. The State
Bank of India Act, was amended by the State Bank of India
(Amendment) Act, 1993. Section 4 was modified to divide capital
into shares of Rs. 10 each instead of Rs. 100. The restriction on
voting rights (which existed under Section 11, being up to two
hundred shares only) was modified as up to ten per cent of the
issued capital and restriction on dividends was deleted.
The Banking Companies (Acquisition and Transfer of
Undertakings) Act, 1970 (and also the 1980 Act) were modified by
Amendment Acts of 1994 and 1995, for facilitating public holding
of shares. Section 3 was amended to provide for an authorised
capital of Rs. 1,500 crore, divided into shares of Rs. 10 each, to
increase or reduce the authorised capital between Rs. 1,500 crore
and Rs. 3,000 crore, for transferability of shares, other than those
held by the Government, raising of capital through public issue,
voting rights of shareholders (limited to one per cent per
shareholder) and keeping register of shareholders including in
floppies. Section 10A was amended to declare dividends, as earlier
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Act, includes a
member of any committee or body for the time being vested with
the management of the
affairs of that society. (Director, Member, Manager) (iii) The
requirement of minimum paid-up capital and reserves for a cooperative bank to
commence or carry on banking business is
in other co-
operative societies
under Section 19 of the BR Act. (holding of shares, keeping
deposits, acquiring any interest) (v) Central and state co-operative
banks have to submit their returns under Section 31 of BR
Act to . (Reserve Bank and National Bank, National Bank only,
Reserve Bank only)
(vi) Under Section 23 of the BR Act, without the permission of
Reserve Bank, a
can open a new place of business within the area of its operation,
(central co-operative
bank, state co-operative bank, primary co-operative bank) (vii) Co-
Page 192
Reserve Bank
of India Act, State Co-operative Societies Act)
Say whether true or false.
(i) Banking Regulation Act was made applicable to co-operative
banks by the Banking Laws
(Application to Co-operative Societies) Act, 1965. (ii) A primary cooperative bank does not require licence from the Reserve Bank to
carry on
banking business, (iii) The provisions of the Banking Regulation
Act as provided in Section 56 of the Act apply to
co-operative banks, (iv) A 'Co-operative Bank' means a primary cooperative bank, central co-operative bank and a
state co-operative bank, (v) There are no restrictions under the BR
Act on lending by co-operative banks to their directors
or firms in which they are interested, (vi) A scheduled co-operative
bank has to maintain cash reserve as stipulated in Section 42 of
the Reserve Bank of India Act (as applicable to co-operative
societies).
(vii) Inspection of co-operative banks is done by the state
Government under the Co-operative Societies Act and the
Reserve Bank has no power to inspect under the Banking
Regulation Act.
5.11 ANSWERS TO CHECK YOUR PROGRESS'
Page 193
(i)
body corporate
(ii)
(iii)
(iv)
(v)
SBI
(vii)
2.
(i)
(vi)
True; (ii) False; (iii) True; (iv) False; (v) True; (vi)
(i)
Banking company
(iii)
Rs. 1 lakh
(ii) Director
Page 194
as permitted by the
Government from time to time; only such business as permitted by
the Reserve Bank in consultation with Central Government;
banking business and any other business permissible for banks
under Section 6(1) of the BR Act.
5.
(an officer of
(ii) All regional rural banks are not scheduled banks, (iii) Some
public sector banks are not scheduled banks.
8.
societies.
Page 195
Indemnities
Unit 9.
Bank Guarantees
Unit 10.
Letters of Credit
Unit 11.
Unit 12.
Unit 13.
Page 196
Unit 15.
Unit 16.
Unit 17.
Unit 18.
Incorporation of Companies
Unit 19.
Objectives
6.1
Introduction
6.2
6.3
Cheque is Forged
6.4
6.5
6.7
Let Us Sum Up
6.8
Keywords
6.9
6.10
' L.K.A.D-7
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OBJECTIVES
laws;
decided by Courts.
6.1
INTRODUCTION
The Negotiable Instruments Act, 1881 lays down the law relating to
payment of a customer's cheque by a banker and the protection
available to a banker. The relationship between a banker and
customer being debtor-creditor relationship the banker is bound to
pay the cheques drawn by his customer. This duty on the part of
the banker, to honour his customers' mandate, is laid down in
Section 31 of the Negotiable Instruments Act.
Sections 10, 85, 85A, 89 and 128 of the Negotiable Instruments
Act, 1881, grant protection to a paying banker. We shall in detail,
examine individually these sections and with the help of case laws
apply the provisions of these sections to a given set of facts.
6.2
As stated in Part 1.1 of this unit, the customer who has deposited
money with a bank being a creditor has the right to ask back the
money from the banker who is a debtor. The duty on the part of the
banker to pay has been laid down in Section 31 of the Negotiable
Instruments Act, 1881 in the following terms:
'The drawee of a cheque having sufficient funds of the drawer in his
hands properly applicable to the payment of such cheque must pay
Page 198
the banker has exercised his right of set off for amounts due
Page 199
(b)
in good faith;
(c)
without negligence;
(d)
(e)
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LET US SUM UP
The Negotiable Instruments Act, 1881 lays down the law relating to
the payment of a customer's cheque and the protection that is
available to a banker making payment of a cheque in due course.
Sections 10, 85, 85A, 89 and 128 of the Act deal with the protection
available to a banker whereas Section 31 lays down the condition as
to when a bank has to make payment on a cheque drawn by the
customer. The banker on making the payment in due course is
entitled to seek protection provided the cheque has not been
altered or the alteration, if altered, is not apparent. However, the
banker does not get protection, if signature of the customer is
forged
6.8
KEYWORDS
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1. (i) False; (ii) True; (iii) True; (iv) False; (v) True; (vi) False; (vii)
False; (viii) True; (ix) False; (x) False
I
Rs.
;as >ay ho,
:is of ide
UNIT
7
CASE LAWS ON RESPONSIBILITY OF COLLECTING BANK
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STRUCTURE
7.0
Objectives
7.1
Introduction
7.2
7.3
7.4
Let Us Sum Up
7.5
Keywords
7.6
7.7
94
7.0
OBJECTIVES
INTRODUCTION
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2.
3.
4.
himself.
I
95
7.3 DUTIES OF THE COLLECTING BANK
Since no specific enactment has been laid down prescribing the
nature of duties a banker will have to observe while acting as a
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that the person for whom the banker acts must be his
customer;
(d)
to himself.
The High Court stated that if the draft was drawn in favour of a
fictitious person, it could not be said that the ownership stood
transferred to a non-existent person for the purpose of examining
the question whether the bank as a collecting banker acted
negligently or not. The ownership would pass to the true owner.
The High Court did not consider it necessary to decide as to what
extent a person obtaining a draft in favour of a fictitious person
would lose the ownership in favour of a bona fide 'holder in due
course'.
In view of the aforesaid, the appellant bank was held to have acted
without taking any care, and was found negligent throughout and
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Constructions Electriques de
Cherleroi [1967] 1 AC 86 PC, an agent paid his principal's cheque
into his personal account
and the bank was charged with conversion. However, the bank
defended the same because
there was implied authority from the principal to his agent to use
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2.
3.
4.
himself.
In concluding whether the bank had been negligent or not the
following matters would be relevant and if the banker has failed to
carry out any of the following duties then he can be liable on the
grounds of negligence. These duties are:
(i)
documentary proof.
(ii)
(iv)
instruments.
(v)
(vi)
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1. (i) False; (ii) True; (iii) False; (iv) True; (v) True
L.K.A.B.8
INDEMNITIES
STRUCTURE
8.0
Objectives
8.1
Introduction
8.2
8.3
8.4
8.5
8.6
Let Us Sum Up
Page 234
Keywords
8.8
8.9
102
8.0
OBJECTIVES
8.1
INTRODUCTION
The word indemnity means 'to save from loss'. This loss could be
either due to the act of the party giving the indemnity or due to the
act of a third party. The law regarding indemnity as laid down in
Sections 124 and 125 of the Indian Contract Acts, is not exhaustive.
The law of indemnity is much wider than as stated in the Contract
Act, since Courts applying the principles of equity have developed
it. A Contract of Indemnity is a contingent contract, i.e. its
performance is made dependent upon the happening or nonhappening of some event.
8.2 CONTRACT OF INDEMNITY DEFINED
Section 124 of the Indian Contract Act, 1872 defines contract of
indemnity as follows:
Sectionl24. 'Contract of Indemnity' defined: A contract by which
one party promises to save the other from loss caused to him by the
Page 235
Page 236
AND GUARANTEE
i. Number of Parties to the Contract of Indemnity: In a contract of
indemnity there are two parties, viz., the indemnifier and the
indemnified whereas in a contract of guarantee there are three
parties, viz., the debtor (the person on whose behalf the guarantee
is given), the creditor (the beneficiary, the person to whom the
guarantee is given) and the surety (the person who gives the
guarantee).
ii. Contingent Risk: In an indemnity, the risk is contingent whereas
in a guarantee the liability is
subsisting.
Page 237
TO BANKS
As far as a banker is concerned, the law relating to indemnities is of
great importance. Customers of the bank who have lost a demand
draft or travellers' cheque are required to give an indemnity before
the issuance of a fresh instrument in lieu of the lost one. These
indemnities are required since the bank has to protect itself from
any subsequent claim made by a person who may have for value
received these instruments. In some cases over and above the
indemnity, banks ask for surety. This is usually done in cases where
the amount involved is quite substantial or the banker does not
know the customer well enough, since the customer must have had
only one or two dealings with the banker. Indemnity bonds are also
insisted by bankers while issuing duplicate FDRs, settling death
claims to heirs or while issuing duplicate pay orders (bankers'
cheque), etc.
In the indemnity taken by the bank the customer undertakes to
protect the bank from any loss or damage and for costs incurred. In
Page 238
Page 239
(b)
promisor.
In case the indemnity holder does not violate the above two
conditions, he is then entitled to be indemnified by the indemnifier
to the extent of:
(a)
(b)
(c)
Page 240
indemnifier;
(b)
LET US SUM UP
Sections 124 and 125 of the Indian Contract Act respectively, lays
down the laws of indemnity and the rights of indemnity holder.
These sections are not exhaustive and the general law of indemnity,
which is wider, has been applied in cases not covered by Sections
Page 241
KEYWORDS
Page 242
indemnified?
3.
Page 243
D.
indemnifier.
(ii) Such compromise was prudent.
(iii) the indemnifier had authorised the indemnity holder to
compromise the suit.
4.
BANK GUARANTEES
STRUCTURE
9.0
Objectives
9.1
Introduction
9.2
Bank Guarantees
9.3
9.4
9.5
9.6
9.7
Let Us Sum Up
Page 244
Keywords
9.9
9.10
108
9.0
OBJECTIVES
guarantee.
9.1
INTRODUCTION
Page 245
BANK GUARANTEES
Though under law, bank guarantees have not been classified by the
nature of the underlying contract entered into by the customer, in
practice such classification has been made. Though there are
various types of guarantees, the important ones, which a banker
would be regularly required to issue in the course of his business
are as follows:
i. Financial Guarantee: These are guarantees issued by banks on
Page 246
Page 247
Page 248
Page 249
Page 250
Page 251
Page 252
Page 253
Page 254
Page 255
Page 256
Page 257
Page 258
Page 259
Page 260
Page 261
Page 262
Page 263
2.
Page 264
Page 265
Page 266
LET US SUM UP
Page 267
KEYWORDS
1.
2.
3.
is primary.'
5.
There are two exceptions to the general rule that banks must
Page 268
(b)
(c)
beneficiary;
(b)
controversy;
(c)
(d)
bank guarantee.
8.
guarantee?
10.
Page 269
LETTERS OF CREDIT
STRUCTURE
10.0
Objectives
10.1
Introduction
10.2
10.3
10.4
10.5
10.6
UCPDC 600
10.7
10.8
Let Us Sum Up
10.9
Keywords
OBJECTIVES
Page 270
transaction;
10.1
INTRODUCTION
Page 271
Page 272
Page 273
(b)
The buyer can induce the seller to give credit from his
The buyer can, while opening the LC insist that the quality
Page 274
Page 275
Page 276
Page 277
Page 278
Page 279
Page 280
Page 281
Page 282
Page 283
Page 284
39.
payment credits.
of documents.
126
The new UCP 600 also contains within the text the 12 Articles of
the eUCP, ICC's supplement to the UCP governing presentation of
documents in electronic or part-electronic form.
10.7 PAYMENT UNDER LETTER OF CREDIT - BANKS
OBLIGATION PRIMARY
Page 285
Page 286
Page 287
Page 288
Page 289
Page 290
LET US SUM UP
Page 291
Page 292
KEYWORDS
Acceptance Credit; Advising Bank; Airway Bill; Applicant; Back-toBack Credit; Bankers Commercial
129
Credit; Beneficiary; Bill of Exchange; Bill of Lading; Confirmed
Credit; Confirming Bank; Green Clause Credit; Invoice; Issuing
Bank; Negotiating Bank; Red Clause Credit; Reimbursing Bank;
Revocable Credit; Revolving Credit; Transferable Credit; UCP 600;
With Recourse Credit; Without Recourse Credit;
10.10 CHECK YOUR PROGRESS
1.
(a)
Page 293
Page 294
(iii)
(ii)
(iii)
(iv)
3.
(a)
hereunder have to be
paid immediately.
(b)
called an
(c)
the
(d)
(e)
Page 295
(a)
(d)
(e)
2.
(a) ii; (b) i; (c) iii; (d) iii; (e) ii; (f) ii; (g) iii; (h) iii; (i)ii;j)ii
3.
(a) False; (b) False; (c) False; (d) True; (e) False; (f) True;
(g) False
Page 296
Objectives
11.1
Introduction
11.2
11.3
Method of Payment
11.4
Let Us Sum Up
11.5
Keywords
11.6
11.7
132
11.0
OBJECTIVES
guarantee.
11.1
INTRODUCTION
Page 297
Page 298
METHOD OF PAYMENT
the supply of goods by the seller to the buyer and the seller
Page 299
interest;
3.
Page 300
LET US SUM UP
KEYWORDS
Page 301
er and nks as
ill the tomer.
LAWS RELATING TO BILL FINANCE
STRUCTURE
12.0
Objectives
12.1
Introduction
12.2
12.3
Classification of Bills
Page 302
12.5
12.6
Let Us Sum Up
12.7
12.8
136
BEGUL/
12.0
OBJECTIVES
12.1
INTRODUCTION
(b)
(c)
basis
(d)
Page 303
(a)
categories
(i) Clean bills (ii) Documentary bills
(iii) Bills drawn under credit
(b)
Page 304
Page 305
Place
Inland bills
Period
3.
Demand bills
4.
Usance bills
Nature
1.
5. Clean bills
2. Foreign bills
1.
4. Usance bills
6. Documentary bills
Page 306
(b)
Page 307
Page 308
Page 309
Page 310
Page 311
Page 312
Page 313
LET US SUM UP
1.
2.
4.
(i) The drawer of the bill is creditor, (ii) The drawee of a bill is the
debtor.
6.
purpose of transfer.
9.
Depending upon the place where the bills are made, they
1.
Page 314
-^ rtrr? ATIM.
3.
(True /False)
4.
5.
6.
delivery of
7.
Objectives
13.1
Introduction
13.2
13.3
Let Us Sum Up
13.4
Keywords
13.5
Page 315
144
13.0
OBJECTIVES
13.1
INTRODUCTION
2.
3.
5.
6.
7.
8.
It should be durable.
9.
Page 316
Page 317
Page 318
Page 319
engineers or architects.
(b)
(c)
By local authorities.
146
(d)
(e)
Page 320
Page 321
(b)
(c) They are not easily realisable because of the restricted market
for such shares.
Precautions while taking stocks and shares as security: Banker
must take the following precautions while advancing against stocks
and shares:
(i) In the case of partly paid shares (a) the banker should never
register them in his name.
(b)
(c)
Page 322
Easy to sell.
(ii)
(iii)
(iv)
(v)
Page 323
Page 324
Page 325
Page 326
Page 327
Page 328
Page 329
Page 330
Page 331
Page 332
Page 333
(b)
(c)
Page 334
Page 335
(b)
receipt
(c)
Page 336
Page 337
Final Bills for the balance of twenty to fifteen per cent which
Page 338
LET US SUM UP
Page 339
KEYWORDS
(c)
property.
(e)
preference.
(f)
no voting rights.
(g)
goods.
(h) Bills of lading, dock warrants, warehouse-keeper's certificate,
etc., are some examples of documents of title to goods.
(i) Documents of title to goods are negotiable instruments.
(j) Only Life Insurance Companies can issue life policies, (k)
Insurance contracts are contracts of absolute good faith.
(1) An assignee of a life policy can sue in his/her own name, (m)
Page 340
Objectives
14.1
Introduction
14.2
Mortgage
14.3
Let Us Sum Up
14.4
14.5
156
14.0
OBJECTIVES
14.1
INTRODUCTION
Page 341
MORTGAGE
Simple mortgage
(iii)
Usufructuary mortgage
(v)
Page 342
Anomalous mortgage
Simple mortgage
According to Section 58(b) of the Transfer of Property Act, a simple
mortgage is a transaction whereby, 'without delivering possession
of the mortgaged property, the mortgagor binds himself personally
to pay the mortgage money and agrees, expressly or impliedly, that
in the event of his failing to pay according to his contract, the
mortgagee shall have a right to cause the mortgaged property to be
sold by a decree of the Court in a suit and the proceeds of the sale
to be applied so far as may be necessary in payment of the
mortgage money.'
Features of simple mortgage
(i) The mortgagee has no power to sell the property without the
intervention of the Court.
In case there is shortfall in the amount recovered even after sale of
the mortgaged property the
mortgagor continues to be personally liable for the shortfall, (ii)
The mortgagee has no right to get any payments out of the rents
and produce of the mortgaged
property.
iOf
02 of
he
he
id
157
Page 343
(c)
Page 344
Page 345
Page 346
Page 347
(b)
Page 348
Merits
(i) The borrower saves the stamp duty on the mortgage deed and
the registration charges. It
involves minimum formalities, (ii) It involves less time and can be
conveniently created.
It can be done without much publicity and therefore, the
customer's position is not exposed to public gaze.
Demerits
(i) In case of default, the remedy is to obtain a decree for sale of the
property. Since, this involves going to the Court, it is expensive and
time consuming. This shortcoming, can be overcome by inserting a
covenant by which the mortgagee is given the power of sale. In that
case, the mortgage deed must be properly stamped and registered
and the mortgage loses the advantage of being simple in procedure
and less expensive.
(ii) Where the borrower is holding the title deeds in his capacity as
a trustee and equitable mortgage of the same is effected, the claim
of the beneficiary, under trust will prevail over any equitable
mortgage. Therefore, the banker has to make a proper scrutiny of
the title deeds before accepting them as a security.
(iii) The borrower may create a subsequent legal mortgage in
favour of another party. However, this possibility is not there, if the
equitable mortgagee holds the original title deeds. In India, there is
no difference between the two types of mortgages. According to
Section 48 of the Registration Act, 1908, a mortgage by deposit of
title deeds prevails against any subsequent mortgage relating to the
Page 349
Page 350
Page 351
in some cases
(iii) English mortgage.
Enforcement of all these types of mortgages is by way of filing a
suit for sale of mortgaged properties. The procedure for filing a suit
for a sale is provided for in the Code of Civil Procedure, 1908. The
Page 352
Page 353
Page 354
1. Mortgage is
in the immoveable property.
2.
(True/False)
3.
registered. (True/False)
4.
Page 355
Objectives
15.1
Introduction
15.2
Pledge
15.3
Hypothecation
15.4
Let Us Sum Up
15.5
15.6
164
15.0
OBJECTIVES
15.1
INTRODUCTION
PLEDGE
Page 356
of goods);
2.
3.
Page 357
Page 358
(b)
satisfied
(i) He should be in possession of the goods, or the documents of
Page 359
Rights of Pawnee
(a)
Page 360
(c)
Page 361
Page 362
167
5.
6.
Page 363
Page 364
Even if the goods are lost, the banker can recover the
(b)
pledged.
(d)
Page 365
Page 366
Page 367
Page 368
Page 369
Page 370
Page 371
Page 372
Page 373
Page 374
LET US SUM UP
1.
3.
mercantile agent.
4.
warehouse.
5.
Under the contract of pledge, the pawnee can sell the goods
15.5
1.
Pledge means
Page 375
4.
STRUCTURE
16.0
Objectives
16.1
Introduction
16.2
T^pes of Borrowers
16.3
Let Us Sum Up
16.4
Keywords
16.5
16.6
Page 376
OBJECTIVES
16.1
INTRODUCTION
TYPES OF BORROWERS
4. Companies
Page 377
Page 378
Page 379
2.
3.
own behalf.
Business of partnership firm; How is it done?
In the case of a partnership firm, rights and duties of the partners
are determined by the deed of partnership. It provides for opening
of bank accounts, borrowing powers, signing of cheques, etc.
Generally, there may be a managing partner who conducts the
business on behalf of the other partners. A banker dealing with a
partnership firm, should ensure that the business is conducted as
per the partnership deed. If the managing partner does not have
the powers to conduct certain transactions then, it should be
ensured, that consent of all partners are obtained.
Partnership firm and transactions in immoveable property
Section 19 of the Indian Partnership Act, 1932 states that a partner
cannot affect the transfer of immoveable property of the firm
unless expressly authorised. A banker taking a mortgage security of
firm's immoveable property should ensure that the partner who is
creating the mortgage is expressly authorised to create the
mortgage. If the partner, has no authority to create the mortgage,
then the banker should ensure that all the partners jointly create
the mortgage.
Insolvency of the firm
The banker, on receiving notice of insolvency of the firm, must
immediately stop any further transactions in the account
irrespective of the fact that the account is in credit or debit. In case
Page 380
Page 381
Page 382
Powers
(a)
property
(b)
(c)
(d)
Duties
(a)
Duty to run the family business and manage the property for
Page 383
Page 384
(b)
situated
(c)
(d)
(e)
(b)
Page 385
(d)
(e)
Types of companies
(a)
Page 386
Page 387
Page 388
Page 389
LET US SUM UP
KEYWORDS
ms
L.R.A.B-13
180
16.5 CHECK YOUR PROGRESS
Page 390
Act.
numbers of members.
transferable.
A Public Limited Company shares are
Statutory corporations are established by Acts of
Private trusts are governed by the Act.
Act. Act.
Trusts of Hindus are governed by the _ Trusts of Muslims are
governed by the
16.6 ANSWERS TO CHECK YOUR PROGRESS'
1. (a) Indian Contract; (b) Karta; (c) separate and distinct; (d) 2,
50; (e) freely; (f) Parliament; (g) Indian Trusts Act; (h) Religious
and Charitable Endowments Act; (i) Wakf.
um
Page 391
:nt;
STRUCTURE
17.0
Objectives
17.1
Introduction
17.2
17.3
17.4
Term/Demand Loans
17.5
Bill Finance
17.6
Let Us Sum Up
17.7
17.8
182
17.0
OBJECTIVES
them;
17.1
INTRODUCTION
Page 392
Page 393
1.
Page 394
Page 395
Page 396
TERM/DEMAND LOANS
(iii) Long-
term Loans.
Short-term loans are loans that are repayable within one year,
medium-term loans within two to seven years and long-term loans
above seven years periods. Banks normally grant the short-term
and medium-term loans. The development financial institutions
usually grant long-term loans. Banks in certain cases like housing
loans sanction long-term loans which are repayable over longer
period of 20-25 years.
Law relating to term loans
Page 397
Page 398
BILL FINANCE
acceptance;
(iii) Bills co-acceptance.
In all these cases, the banker undertakes an obligation and
depending on the nature of bill finance, the first two are fundbased facilities and the last is a non-fund based facility.
This subject has been dealt with in more detail in the chapter of
'Law Relating to Bill Finance'.
185
Non-Fund Based Facilities
In the business of lending, a banker also extends non-fund based
facilities. Non-fund based facilities do not involve an immediate
outflow of funds. The banker undertakes a risk to pay the amounts
on happening of a contingency. Non-fund based facilities can be of
following types among other:
(a) Guarantee facility;
Page 399
Page 400
Page 401
3.
under .
4.
years
Objectives
18.1
Introduction
18.2
18.3
18.4
Registration of Firms
18.5
18.6
Incorporation of a Company
18.7
Let Us Sum Up
Page 402
18.9
188
18.0
OBJECTIVES
companies.
18.1
INTRODUCTION
LOANS'?
Unsecured Loans
Most of the loans granted by banks in India are generally secured
by tangible security being assets purchased out of the bank funds
and/or some valuable collateral such as bonds, shares and
merchandise deposited either in the bank's godowns or in the
godowns of the borrowers under agreement of hypothecation, and
immoveable property, but occasionally loans are granted even
without any security.
An unsecured loan is one for which the banker has to rely upon the
Page 403
Page 404
(b)
Page 405
(d)
(e)
(f)
Page 406
Page 407
Page 408
parties
(iii) exceptions
suits,
(i) Suits by Partners Inter se: If a firm is not registered under the
Indian Partnership Act, then no suit to enforce a right, arising from
Page 409
Page 410
Page 411
to any suit or claim of set off not exceeding Rs. 100 in value
Page 412
Page 413
Page 414
Page 415
Page 416
Page 417
Page 418
Page 419
Page 420
Page 421
Page 422
public company.
18.7 LET US SUM UP
1.
Page 423
3.
8.
case of.
2.
3.
Pledge is
4.
Hypothecation is treated as
Page 424
6.
7.
(True/False)
9.
Objectives
19.1
Introduction
19.2
What is a Charge?
19.3
19.4
Page 425
19.6
Let Us Sum Up
19.7
19.8
198
19.0
OBJECTIVES
19.1
INTRODUCTION
WHAT IS A CHARGE?
(b)
Page 426
(e)
the company
(f)
Page 427
a fixed charge.
199
From the above, it can be noted that when the charge is floating,
the company may, in the ordinary course of business, deal with the
property in any manner until the charge attaches. In other words, a
floating charge is an equitable charge which does not fasten on any
specific property but covers the whole of the company's property
whether it is or is not subject to fixed charge.
When floating charge becomes fixed or crystallised/attaches
When the debtor company ceases to carry on business or goes into
liquidation or the debenture holder or creditor, in whose favour
charge is created, intervenes by getting a receiver appointed or
doing some other act which affects the powers of the company to
dispose the assets charged. A floating charge may also crystallise on
the happening of an event specified in the creating a charge deed.
Effect of floating charge becoming fixed or crystallised
When a floating security upon all the property or assets of the
company becomes fixed, it constitutes a charge upon all the
property or assets then belonging to the company. It has priority
Page 428
Companies Act, 1956 under Section 125(1) provides that all the
particulars of a charge created by the company shall be filed with
the Registrar of Companies together with an instrument, creating
charge, for registration within thirty days of the creation of charge.
The time limit of thirty days within which the charge shall be
registered can be extended by Registrar of Companies by further
thirty days.
The procedure for registration is provided under the Rule 6 of the
Companies (Central Government's) General Rules and Forms:
(a)
Page 429
Section 125 of the Companies Act provides that the charge created
by the company over the properties, if not registered, would not be
valid against the liquidator and any creditor of the company.
It has been held in various cases by the Courts that nonregistration of charge under Section 125 would not render the
security invalid automatically. The only consequence of nonregistration is that the charge would not be valid against the
liquidator and other creditors of the company in the event of
winding up.
It must be noted that, as against the company itself, so long as the
company does not go into liquidation, the mortgage or charge is
good and maybe enforced.
200
19.5 PROVISIONS OF LAW RELATING TO REGISTRATION OF
CHARGES
Sections 124 to 145 of the Companies Act, 1956 provides for the
registration of charges. They can be stated briefly as follows:
Section 124: This Section provides that 'charge' means and includes
mortgage over any or all properties of the company.
Section 125: This Section provides that the charge created over the
properties of the company shall be registered with the Registrar of
Companies within thirty days of creation of charge. It also provides
that if the charge is not registered then the charge created would be
invalid as against the liquidator and other creditor of the company
in its winding up.
Page 430
Page 431
Page 432
that the debt for which the charge was given has been paid
Page 433
4.
Registration of Charges.
19.7 CHECK YOUR PROGRESS
for
(a) Charge means any form of
(b)
(c)
(d)
True/False
(e)
creation of charge.
19.8 ANSWERS TO 'CHECK YOUR PROGRESS'
(a) Security, debt; (b) Registrar of Companies; (c) Mortgage; (d)
False; (e) 30
Page 434
Unit 24.
Central Registry
Unit 25.
Unit 26.
Miscellaneous Provisions
Page 435
Page 436
Introduction
20.2
20.3
Let Us Sum Up
20.4 Keywords
20.5
206
20.0 OBJECTIVE
The objective, of this unit is to see why there was a need for the
new legislation, viz., Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest, 2002 (SARFAESI Act
2002) and why it was enacted. The Act has created a new legal
framework, new concepts about security and new procedures for
recovery of dues by banks and financial institutions.
20.1
INTRODUCTION
1.
Page 437
(b)
(c)
Page 438
Page 439
LET US SUM UP
In this unit, we have seen how new changes are brought in by the
Act. The comfort available for the lender for his money to come
back will give him a confidence for lending.
20.4 KEYWORDS
Security in Possession; Remedy with and/or without Court
Intervention; Prudential Norms; Security Interest; Financial
Assets; Securitisation of Financial Asset; Reconstruction of
Financial Asset; Enforcement of Security; Possession and Sale of
Asset.
20.5
1.
of
securities.
2.
Page 440
(b)
(c)
effect.
(d)
2.
provisions.
(c)
Page 441
(c)
(b)
(c)
(d)
STRUCTURE
21.0
Objective
Page 442
Introduction
21.2
Preamble
21.3
Appellate Tribunal
21.4
Asset Reconstruction
21.5
Bank
21.6
Board
21.7
Borrower
21.8
Central Registry
21.9
21.10 Default
21.11 Financial Assistance
21.12 Financial Asset
21.13 Financial Institution
21.14 Hypothecation
21.15 Non-performing Asset
21.16 Originator
21.17 Obligor
21.18 Property
21.19 Qualified Institutional Buyer
21.20 Reconstruction Company
21.21 Scheme
21.22 Securitisation
21.23 Securitisation Company
21.24 Security Agreement
21.25 Secured Asset
21.26 Secured Creditor
21.27 Secured Debt
Page 443
OBJECTIVE
21.1
INTRODUCTION
For any Act, different concepts and effects revolve mainly around
certain defined words. The Act also takes some definitions from
some other Acts, to the extent it is relevant and applicable. The
preamble to the Act gives in a nutshell, the purpose of the
enactment.
21.2
PREAMBLE
Page 444
ASSET RECONSTRUCTION
BANK
Page 445
CENTRAL REGISTRY
Under this Act, 'Central Registry' means the registering office, set
up or caused to be set up by the Central Government. With this
proposed set up, all the transactions of asset securitisation,
reconstruction as well as transactions of creation of security
interests, will have to be registered with this authority. The
registration system will operate on a priority of registration basis,
i.e., first in time to register gets priority over the person doing
registration at a later time. The registry will also serve the purpose
of maintaining credit information for the lenders.
21.9
When the borrower does not pay any principal debt or any
Page 446
secured or insecured, or
(ii)
immoveable property, or
(iii)
Page 447
securing debt, or
(v)
213
21.13 FINANCIAL INSTITUTION
The financial institution means:
(i) A public financial institution within the meaning of the
Companies Act, 1956.
(ii) Any institution specified by the Central Government under the
Recovery of Debts due to Bank
and Financial Institutions Act, 1993. (iii) The 'International
Finance Corporation', established under the International Finance
Corporation
(Status, Immunities and Privileges) Act, 1958. (iv) Any other
institution or non-banking financial company as defined in the
Reserve Bank of India
Act, 1934, which the Central Government may specify as a financial
institution for the purpose
of this Act.
21.14 HYPOTHECATION
1.
Hypothecation means:
Page 448
existing or future
created by a borrower
Page 449
Property means:
Page 450
Page 451
Page 452
Page 453
Any right, title and interest of any kind whatsoever upon the
Page 454
(True or False)
2.
4.
'
days after
Page 455
Page 456
(b)
(c)
2.
any time.
(b)
(c)
(d)
(a)
Yes.
(b)
No.
(c)
(d)
4.
company?
(a)
(b)
(c)
the lender.
(d)
Page 457
Objectives
22.1
Introduction
22.2
Company
22.3
22.4
22.5
Obligor
22.6
Securitisation Company or
Reconstruction Company
22.7
22.8
22.9
Reconstruction Company
22.10 Resolution of Dispute
22.11 Power of Reserve Bank to Determine Policy and Issue
Directions
22.12 Let Us Sum Up
22.13 Keywords
Page 458
OBJECTIVE
INTRODUCTION
OR RECONSTRUCTION COMPANY
1.
Page 459
Page 460
1.
Bank, or
Page 461
relevant documents
when so demanded by the Reserve Bank of India, or
(d)
change in management or
change in registered office or change of name.
2.
Page 462
ASSETS
1. The securitisation company or the reconstruction company can
acquire the financial asset of any bank or financial institution by
any of the following ways:
(i) By issuing a debenture or bond or any other security in the
nature of debenture for the agreed consideration and agreed terms
and conditions between the bank/financial institution and the
securitisation company/reconstruction company as the case may
be,
(ii) By entering into an agreement with such bank or financial
institution for the transfer of financial asset to such company on
terms and conditions as may be agreed between them.
222
Page 463
Page 464
Page 465
transaction.
(i) Offer document: The Reserve Bank of India in its guidelines of
2003 has mentioned details about the form of offer and details to
be incorporated therein. By and large the full details and
particulars about the financial asset, loan details of bank, trustees'
details, etc., are included. Some quarterly details are also required
to be disclosed. These include details
223
Page 466
Page 467
FUNDS BY
SECURITISATION OR RECONSTRUCTION COMPANY
1.
Page 468
Page 469
RECEIPT
1.
1.
Page 470
Page 471
Page 472
Page 473
COMPANY
OR RECONSTRUCTION COMPANY
1.
Page 474
Here it should be noted that only the said three parties are
Page 475
Page 476
Page 477
Page 478
Page 479
transaction?
5.
has
effect and is
on the parties concerned.
Page 480
(b)
(c)
(d)
The company does not keep accounts as per the RBI norms.
(b)
securitisation or reconstruction.
(c)
investor.
(d)
Page 481
Objectives
23.1
Introduction
23.2
23.3
23.5
23.6
23.7
23.8
23.9
Let Us Sum Up
23.10 Keywords
23.11 Check Your Progress
23.12 Answers to 'Check Your Progress'
23.13 Multiple Choice Terminal Questions
232
23.0
OBJECTIVES
Page 482
INTRODUCTION
With introduction of NPA norms and its higher levels on one side
and delay in realisation of money by sale of properties through
Court intervention on the other side, giving powers to the lender to
enforce security was essential, by the introduction of new suitable
enactment.
The SARFAESI Act empowers banks and financial institutions to
enforce securities in the event of default by the borrower without
the intervention of either, the Civil Court or the Debt Recovery
Tribunal. The powers so given by this Act, have an overriding effect
on other laws in this respect. The powers are also over and above
other remedies available for recovery, by filling appropriate
proceeding either in a Civil Court or Debt Recovery Tribunal. The
secured creditor has been given the option to decide which course
of action should be adopted in respect of defaulted loans.
From the angle of banks and financial institutions this unit is very
important. In this unit, see about the powers to enforce the
securities obtained, while lending money and realise money
therefrom. These powers can be exercised by the creditor, i.e.
lender without intervention of the Court.
23.2
1.
Page 483
Page 484
Page 485
If the borrower does not pay in full as per the notice such
Page 486
Page 487
Page 488
Page 489
Page 490
Page 491
Page 492
Page 493
Page 494
Page 495
OFFICE
No managing director or director or any person in charge of
management of the business of the borrower shall be entitled to
any compensation for the loss of office or for premature
termination of any contract of management, entered into by him
with the borrower. This provision has an overriding effect over any
other laws or contract.
However, if any director or any other person controlling the
management has to recover any amount from borrower, it can be
recovered.
23.6
1.
Page 496
COSTS
1. If the debt recovery tribunal or the appellate tribunal, as the
case may be
(i) holds that the possession of secured asset by the secured
creditor is not in accordance with
Page 497
LET US SUM UP
Page 498
(True/False)
3.
Page 499
(True/False)
6.
Page 500
(a)
Ignore the notice as the law does not provide for any reply
his reply.
(c)
Take the matter before DRT for resolving issues raised in the
reply.
2. On sale of the security asset, the sale proceeds are appropriated
firstly.
(a)
(b)
(c)
Page 501
CENTRAL REGISTRY
STRUCTURE
24.0
Objectives
24.1
Introduction
24.2
Central Registry
24.3
Central Registrar
24.4
Interest Transactions
24.5
24.7
24.8
Let Us Sum Up
24.10 Keyword
24.11 Check Your Progress
24.12 Answers to 'Check Your Progress'
24.13 Multiple Choice Terminal Questions
Page 502
OBJECTIVES
INTRODUCTION
CENTRAL REGISTRY
1.
Page 503
CENTRAL REGISTRAR
Page 504
AND
SECURITY INTEREST TRANSACTIONS
A record shall be maintained at the central registrar at the head
office of the central registrar in which transactions relating to
243
(i) Securitisation of financial assets,
(ii) Reconstruction of financial assets,
(iii) Creation of security interests shall be maintained.
The record of central registrar can be kept fully or partly on
computer, floppies, diskettes, or any other electronic form. Any
entry made with the central registrar shall be a reference to any
such transaction. The central registrar shall have the control and
management of the central register.
24.5
Page 505
1.
Page 506
LET US SUM UP
Page 507
interest is
3.
days.
registration.
(b)
(d)
Page 508
rial
the
)be
STRUCTURE
25.0
Objectives
25.1
Introduction
25.2
Penalties
25.3
of India
25.4
Offences
25.5
Cognisance of Offences
25.6
Let Us Sum Up
25.7
Keyword
25.8
25.9
Page 509
INTRODUCTION
PENALTIES
OFFENCES
Page 510
contravenes, or
2.
attempts to contravene, or
3.
COGNISANCE OF OFFENCES
LET US SUM UP
KEYWORDS
Page 511
1.
1. Yes; 2. No
25.10 MULTIPLE CHOICE TERMINAL QUESTIONS
1. Whether breach of RBI directives is punishable offence and to
what extent?
(a)
(c)
(d)
No, the Act has not provided for any punishment in specific.
Ans. 1. (a)
MISCELLANEOUS PROVISIONS
STRUCTURE
26.0
Objective
26.1
Introduction
26.2
Certain Cases
26.3
Page 512
Offences by Companies
26.5
26.6
26.7
Limitation
26.8
26.9
is Set Up or Cause
to be Set Up
26.10 Amendments to Certain Other Enactments
26.11 Let Us Sum Up
26.12 Check Your Progress
26.13 Answers to 'Check Your Progress'
26.14 Multiple Choice Terminal Questions
250
26.0
OBJECTIVE
INTRODUCTION
Page 513
Page 514
The secured creditors and their officers are protected for actions
taken in good faith by the provisions made in the Act. For initiating
actions under the Act no suit, prosecution or any other legal
proceeding
251
can be taken against the secured creditor or his officers. This
protection is given so that actions contemplated and authorised
under SARFAESI Act, can be taken without fear of counteraction
from the borrower or any other person having interest in the
Page 515
OFFENCES BY COMPANIES
1.
Page 516
The provision of this Act has overriding effect on any other laws if
the provisions in the other law are inconsistence with this Act. If
for any particular point, the provisions of this Act and in some
other Act are inconsistent with each other, a question will come as
to which provisions are to be followed, when both such Acts are
applicable to that particular point. The Act, therefore, provides that
the provisions of the SARFAESI Act will have overriding effect on
the other Act. Mainly, such inconsistencies are in the Transfer of
Property Act and the Registration Act. The provisions the
SARFAESI Act will apply, overriding the provisions in those Acts.
26.7
LIMITATION
The actions that secured creditor can take against the security
under the SARFAESI Act are required to be taken within the
limitation as per Section 36 of the Limitation Act. That means, the
Page 517
1.
Page 518
Page 519
Page 520
Page 521
the following?
(a)
Pledged goods.
(b)
(c)
(d)
creditor.
2.
(b)
(c)
framed.
Ans. 1. (d); 2. (d)
Objective
27.1
Introduction
27.2
27.3
Definitions
Page 522
27.5
27.6
Secretariat
27.7
27.8
LetUsSumUp
27.9
Keywords
OBJECTIVE
INTRODUCTION
In this unit, we will see the definitions of the words used in the
scheme. The definitions are important, as they have an assigned
meaning in the scheme and these words are used in the scheme in
the context of definitions. If the definitions are well mastered, it is
easy to understand the scheme. We will also see the provisions
relating to establishment of office of banking ombudsman. The RBI
decides his appointment and other terms of office, his secretariat,
his powers, etc. The RBI also decides the territorial jurisdiction of
the banking ombudsman. The scheme has come in force with effect
from 1 January 2006.
Page 523
1.
DEFINITIONS
1.
'Bank' means,
Page 524
a banking company,
The Reserve Bank may appoint one or more of its officers in the
rank of Chief General Manager or General Manager to be known as
the banking ombudsmen to carry out the functions entrusted to
them by or under the scheme. This appointment may be made for a
period not exceeding three years at a time.
27.5
OFFICE
1.
Page 525
SECRETARIAT
(i) The Reserve Bank shall depute such number of its officers and
other staff to the office of the banking ombudsman as considered
necessary to function as the secretariat of the banking ombudsman.
(ii) The cost of the secretariat will be borne by the Reserve Bank.
27.7
(b)
LET US SUM UP
Page 526
KEYWORDS
Conciliation; Meditation.
27.10 CHECK YOUR PROGRESS
1.
scheme, 2006?
(a)
(b)
Page 527
services.
(d)
2.
facility.
(c)
the scheme.
(d)
bank.
(b)
the scheme.
(d)
Page 528
Introduction
28.2
Grounds of Complaint
28.3
28.4
28.5
28.6
28.7
Page 529
INTRODUCTION
GROUNDS OF COMPLAINT
Page 530
Page 531
Page 532
(a)
the complaint is made not later than one year after the cause
Page 533
262
(f) It is made before the expiry of the period of limitation
prescribed under the Indian Limitation Act 1963 for such claims.
28.4
1.
Page 534
1.
summary in nature.
28.6
1.
Page 535
The award passed under the sub-clause above shall state the
Page 536
The bank shall within one month from the date of receipt by
1.
Page 537
Page 538
(b)
(c)
The order of the appellate authority has also the same effect as that
of the award of the banking ombudsman.
264
28.9
Page 539
Page 540
Page 541
Yes, but if the police authorities who have received the FIR
ombudsman.
(d)
(b)
Page 542
Advocates can appear for the parties as they can present the
Objective
29.1
Introduction
29.2
29.3
Definitions
29.4
Let Us Sum Up
29.5
Keywords
29.6
Page 543
29.8
268
29.0
OBJECTIVE
INTRODUCTION
Page 544
AND DEFINITIONS
1.
The preamble to the DRT Act describes the Act as, 'An Act to
Page 545
Page 546
Page 547
Page 548
insecured. (True/False)
3.
(b)
Act.
(c)
Page 549
case.
Ans. 1. (c)
kh)
me
e.
STRUCTURE
30.0 Objective
30.1
Introduction
30.2
Establishment of Tribunal
30.3
Composition of Tribunal
Staff of Tribunal
Page 550
INTRODUCTION
ESTABLISHMENT OF TRIBUNAL
Page 551
COMPOSITION OF TRIBUNAL
STAFF OF TRIBUNAL
Page 552
CHAIRPERSON OF
THE APPELLATE TRIBUNAL AND TERM OF OFFICE
1.
Page 553
Page 554
(True/False)
3.
Courts. (True/False)
30.13 ANSWERS TO 'CHECK YOUR PROGRESS'
1. Central Government; 2. False; 3. False.
30.14 MULTIPLE CHOICE TERMINAL QUESTIONS
Page 555
(b)
No.
(c)
(d)
Ans. 1. (b)
UNIT
31
JURISDICTION, POWERS AND AUTHORITY OF TRIBUNALS
STRUCTURE
31.0
Objective
31.1
Introduction
31.2
31.3
31.4
Let Us Sum Up
31.5
Keywords
31.6
L.R.A.B-19
276
31.0
OBJECTIVE I
i
Page 556
INTRODUCTION
TRIBUNALS
1.
Page 557
1.
Page 558
LET US SUM UP
277
31.5 KEYWORDS
Tribunal; Appointed Day; Jurisdiction; Powers; Authority; High
Court; Spreme Court; Jurisdiction.
31.6 CHECK YOUR PROGRESS
1.
For the matters for which the Tribunals are empowered the
PROCEDURE OF TRIBUNALS
Page 559
Objective
32.1
Introduction
32.2
32.3
32.4
32.5
Tribunal
32.6
Limitation
32.7
Let Us Sum Up
32.8
Keywords
32.9
OBJECTIVE
INTRODUCTION
1.
Page 560
Page 561
Page 562
Page 563
Page 564
Page 565
[Section 19(18)]
(i) appoint a receiver of any property, whether before or after grant
of certificate for recovery
of debt;
(ii) remove any person from the custody or possession of the
property; (iii) give possession, custody or management of the
property to the receiver;
282
(iv) confer powers to the receiver in respect of the property given in
his possession for bringing suits or defend it, file applications,
collection of rents and profits, preservation, realisation,
management, protection, execution of documents, etc., and as the
tribunal may deem fit;
(v) appoint a commissioner for preparation of an inventory of the
properties of the defendant or for sale thereof.
20.
Page 566
Page 567
The tribunal may make such orders and give such directions
Page 568
Page 569
APPEAL
1.
Page 570
The Tribunal and the Appellate Tribunal are for the purpose
Page 571
LIMITATION
LET US SUM UP
Page 572
KEYWORDS
1.
5.
Page 573
tribunal decides.
(b)
(c)
m
RECOVERY OF DEBTS DETERMINED BY TRIBUNAL AND
MISCELLANEOUS PROVISIONS
33.0
Objective
33.1
Introduction
33.2
33.3
33.4
Page 574
33.6
33.7
33.8
33.9
Decree or Order
33.10 Chairperson, Presiding Officer and Staff of Appellate
Tribunal and
Tribunal Public Servants
33.11 Protection of Action Taken in Good Faith
33.12 Overriding Effect of the Act
33.13 Doctrine of Election
33.14 Powers to Make Rule
33.15 Let Us Sum Up
33.16 Keywords
33.17 Check Your Progress
33.18 Answers to 'Check Your Progress'
33.19 Multiple Choice Terminal Questions
286
33.0
OBJECTIVE
INTRODUCTION
Page 575
1.
Page 576
AMENDMENT THEREOF
1.
One of the Rules framed under the Act (5A) says that when
Page 577
Page 578
Page 579
Page 580
Page 581
1.
Page 582
Page 583
Page 584
(D)
Page 585
Page 586
Page 587
Page 588
4.
Page 589
(a)
(b)
(c)
them;
(d)
Objective
34.1
Introduction
34.2
34.3
34.4
34.5
Books
34.6
34.7
Costs of Application
34.8
Let Us Sum Up
34.9
Keywords
Page 590
II!
34.0
OBJECTIVE
INTRODUCTION
Page 591
Page 592
9.
is taken.
For this definition also, if the earlier definitions of legal proceeding
and Court are considered together, the scope of word 'trial' is much
wider.
10.
295
(i) if maintained in the written form, a copy of any entry in such
books together with a certificate written at the foot of such copy
mentioning that
(a)
(b)
the bank
(c)
(d)
Page 593
mechanism obtained by a
mechanical or other process, and it should contain the certificate
having all the applicable
contents detailed above in sub-Para (i).
34.3 CONDITIONS IN THE PRINTOUT
1.
Page 594
change of data;
(c)
(g)
devices;
(h) the safeguards to prevent and detect any tampering with the
system; and
(i) any other factor which will vouch for the integrity and accuracy
of the system.
2.
Page 595
296
properly at the material time, he was provided with all the relevant
data and the printout in question represents correctly and is
appropriately derived from the relevant data.
34.4
BOOKS
A certified copy of any entry in a bankers' book shall in all legal
proceedings be received as prima facie evidence of the existence of
such entry. Further it shall be admissible as evidence of all the
matters, transactions and accounts therein recorded in every case
as the original entry itself.
In Chandrahdar Goswami vs Gauhati Bank Ltd. AIR 1967 SC 1058,
the Supreme Court has held that to make a person liable mere
entries in books of account are not sufficient even though the books
of account are kept in regular course of business. There has to be
further evidence to prove payment of the money by the bank which
appear in the books of account to make the person liable, except
where the person accepts the correctness of the books of account.
34.5
Page 596
JUDGE
1.
Page 597
COSTS OF APPLICATION
1.
LET US SUM UP
Page 598
KEYWORDS
Certified Copy.
34.10 CHECK YOUR PROGRESS
1.
legal proceeding as
evidence for existence of such entry.
4.
compelled to produce
to
Page 599
evidence.
(b)
admissible in evidence.
(c)
(d)
Ans. 1. (b) No
Objective
35.1
Introduction
35.2
35.3
35.4
35.5
35.6
35.7
Let Us Sum Up
35.8
35.9
300
35.0
OBJECTIVE
Page 600
INTRODUCTION
Lok Adalats shall deal with the following types of cases or matters,
viz.,
Page 601
(b)
Page 602
NATURE OF AWARD
LET US SUM UP
Lok Adalats are organised under the Legal Services Authorities Act,
1987.
They are intended to bring about a compromise or settlement in
respect of any dispute or potential dispute. Lok Adalats derive
jurisdiction by consent of parties or on an application made to the
court by one of the parties to the dispute or the court is satisfied
that the dispute between the parties could be settled by Lok Adalat.
In respect of a potential dispute, any party may request the
Authority or Committee organising Lok Adalat to refer the dispute
for determination. Lok Adalats shall be guided by the principles of
justice, equity, fair play and other legal principles. In case of
settlement, the Award shall be binding on the parties to the
dispute. No appeal shall lie in any court against the Award. If no
settlement, the case shall be remitted back to the court which
referred the matter to the Lok Adalat. In case of potential court
case, the Lok Adalat shall advise the parties to seek remedy in
court.
35.8
Page 603
(True/False)
2.
Adalat. (True/False)
35.9
Objective
36.1
Introduction
36.2
36.3
Definitions
36.4
36.5
Let Us Sum Up
36.6
Keywords
Page 604
36.8
36.9
304
36.0
OBJECTIVE
INTRODUCTION
1.
The Act was enacted with the objective, 'for better protection
Page 605
DEFINITIONS
1.
Page 606
'Complainant' means
(i) a consumer, or
(ii) any voluntary consumer association registered under the
Companies Act, 1956 or under
any law for the time being in force, or
(iii) the Central Government or a state government, who or which
makes the complaint, or (iv) one or more consumers, where there
are numerous consumers having the same interest,
and (v) in case of death of a consumer, his legal heirs or
representative.
4.
Page 607
(b)
goods, or
(c)
law, or
(d)
(v) the goods which will be hazardous to life and safety when used,
are being offered for sale to the public
(a)
goods as required to be
complied with, by or under any law,
(b)
if the trader could have known with due diligence that the
Page 608
A.
(i) buys any goods for a consideration which has been paid
Page 609
Page 610
'Person' includes
Page 611
'Service' means
Page 612
Page 613
services; or
(b)
Page 614
Permits
(i) offering of gifts, prizes or other items with the intention of not
providing them as offered or creating impression that something is
being given or offered free of charge when actually it is not so;
(ii) the conduct of any contest, lottery, game of chance or skill for
the purpose of promoting the sale, use or supply of any product or
business interest.
D.
Page 615
Page 616
LET US SUM UP
The Act has been enacted for the settlement of consumer disputes.
The Act is social welfare benefit oriented legislation. It is for speedy
disposal of the redressal of consumer disputes. Deciding the
consumer types and protections required the Act was made for
better protection of the interests of the
309
consumers establishing the consumer councils and authorities. The
provisions of the Act are not overriding on any other law.
36.6 KEYWORDS
Quasi-judicial Authorities; Appropriate Laboratory; District
Forum; State Commission; National Commission; Restrictive
Trade Practice.
36.7
1.
complaint? (Yes/No)
Page 617
1. 'N. has purchased a draft from a bank favouring 'B'. The draft is
lost in transit and for duplicate draft in lieu of first bank need some
formalities to be completed by 'N'. Can 'B' file a consumer case
against the formalities as it is delaying payment to him.
(a)
(c)
(d)
Objective
37.1
Introduction
37.2
37.3
37.4
37.5
37.6
Page 618
Let Us Sum Up
37.8
37.9
OBJECTIVE
INTRODUCTION
Page 619
COUNCIL
The Central Council shall meet as and when necessary but at least
once in a year. For transacting the business of the meeting the
procedure shall be as may be prescribed.
37.4
Page 620
1.
LET US SUM UP
Page 621
1.
Government. (True/False)
4.
37.9
(b)
Government.
(d)
Page 622
Introduction
38.2
38.3
38.4
38.5
Form of Complaint
38.6
38.7
38.8 Appeal
38.9
Page 623
INTRODUCTION
REDRESSAL AGENCIES
1. For the purposes of this Act, there shall be following agencies
established by the state government or the Central Government, as
the case may be.
(i) District Forum established by the state government at each
district. The government may
Page 624
1.
A.
qualifications as under:
(i) be not less than thirty-five years of age,
(ii) possess a bachelor's degree from a recognised university,
(iii) be person of ability, integrity and standing, and have adequate
knowledge and experience
of at least ten years in dealing with problems relating to economics,
law, commerce,
accountancy, industry, public affairs or administration.
2.
Page 625
1.
Page 626
FORM OF COMPLAINT
1.
Page 627
fee.
4.
318
(i) Refer a copy of complaint within twenty-one days from the date
of admission to the opposite party to give his version of the case.
The opposite party is required to give his version within thirty days
or extended period of not more than fifteen days.
(ii) If the opposite party denies or disputes the allegation contained
in the complaint or fails to submit any of his version, then the
Page 628
Page 629
Page 630
Page 631
goods in question;
2.
question;
Page 632
8.
9.
pay such sum, which shall not be less than 5 per cent of the
2.
Page 633
Page 634
1.
A.
Not less than two other members and not more than such
Page 635
Page 636
Page 637
Page 638
A.
Not less than four other members and not more than such
Page 639
Page 640
Page 641
Page 642
Page 643
Page 644
For the trial of offences under this Act the District Forum,
Page 645
Page 646
Page 647
(True/False)
3.
(b)
(c)
(d)
Objective
39.1
Introduction
39.2
Definition
39.3
Page 648
39.5
Act
39.6
Let Us Sum Up
39.7
39.8
m
328
39.0
OBJECTIVE
INTRODUCTION
DEFINITION
Page 649
in the case of a set off, on the same date as the suit in which
Page 650
Page 651
There are two instances which will give rise to fresh period of
limitation. In these cases the period of limitation will be computed
as if the starting point is the happening of the instances.
1.
Page 652
loan is made
For money lent under an agreement that it shall be payable on
demand
Page 653
limitation would begin to run under this Act against a like suit by a
private person
Any suit for which no period of limitation is provided elsewhere in
this Schedule Thirty years When the right to sue accrues
39.6
LET US SUM UP
1.
Page 654
limitation. (True/False)
5.
TAX LAWS
STRUCTURE
40.0 Objective
40.1
Introduction
40.2
Income Tax
40.3
Service Tax
Page 655
INTRODUCTION
INCOME TAX
Meaning of Income
The definition of 'income' is inclusive and not exhaustive in nature.
Thus no precise definition as to what constitutes income.
Assessee and Assessment year
The income accruing, or arising, to a person (called 'Assessee') is
taxed on the basis of 'Assessment Year'. The term Assessment Year
represents the period of 12 months beginning from 1st April every
Page 656
(c)
(d)
Page 657
4. Capital gains
Page 658
Page 659
(b)
334
(c)
(d)
Page 660
Page 661
Page 662
Fringe Benefit Tax [FBT] was introduced by Finance Act 2005 and
is applicable for the previous year beginning 1.4.2005 (i.e. For AY
2006-2007 onwards).
FBT intends to tax fringe benefits, which are provided or deemed
to have been provided, by an employer to its employee during the
previous year. It is in the nature of a presumptive tax levied on an
employer in respect of various expenses incurred by the employer
on behalf of its employee.
FBT is payable at the rates applicable to the assessee on the 'Value'
of such fringe benefit, this tax is payable by an employer in
addition to the income tax. The definition of the term fringe benefit
is contained in Section 115(w)(b) of the Income Tax Act. There are
two parts in the definition. First part defines three categories of
benefit, which are specifically taken to mean 'Fringe Benefit'. The
second part treats certain benefits or expenditure incurred by the
employer as 'Deemed Fringe Benefit'.
The value 'Deemed Fringe Benefit' as defined in Section 115(w)(b)
is to be calculated at the rates specified on the total expenditure
incurred. In other words, only part of the expenditure and not the
entire amount expended is taken into account as 'value of fringe
benefit' for the purpose of payment of FBT.
Page 663
Page 664
Page 665
Page 666
337
I:
the month in which the income is received [except in the month of
March when it is required within the same month]. The return in
Form ST-3 is required to be filed half yearly on April 25 and
October 25 and every year covering half period ending 31st March
and 30th September respectively.
Cenvat Credit
If service tax paid is by an assessee for input services, the same can
be set off to the extent of 20 per cent of the liability on output
services. Such set off to the extent of 20 per cent of the service tax
liability is across all input services. Rule 6[l][iii] of Cenvat credit
rules, also provides for set off to the extent of 100 per cent of
service tax liability in respect of service tax paid on certain
specified input services. In other words, service tax paid on input
service includes specific category of service, the limit of 20 per cent
mentioned above can be breached and credit for the entire amount
paid for input service can be taken against the liability on output
service.
Export and Import of Services
Service tax is not applicable when service are rendered outside
Page 667
Page 668
1.
5.
return. (True/False)
8.
9.
10.
11.
Page 669
15.
(True/False)
16.
(a)
disallowance of expenditure;
(b)
(c)
(d)
2.
an individual exceeds
(a) Rs. 10,000;
Page 670
(c) last day of the current month; (d) 10th day of the next month
Ans: 1. (a); 2. (c); 3. (a)
MODULE -D
COMMERCIAL LAWS WITH REFERENCE TO BANKING
OPERATIONS
Unit 41. Meaning and Essentials of a Contract
Unit 42. Contracts of Indemnity
Unit 43. Contracts of Guarantee
Unit 44. Contract of Bailment
Unit 45. Contract of Pledge
Unit 46. Contract of Agency
Unit 47. Meaning and Essentials of a Contract of Sale
Unit 48. Conditions and Warranties
Unit 49. Unpaid Seller
Unit 50. Definition, Meaning and Nature of Partnership
Unit 51. Relations of Partners to One Another
Unit 52. Relations of Partners to Third Parties
Unit 53. Minor Admitted to the Benefits of Partnership
Unit 54. Dissolution of a Firm
Unit 55. Effect of Non-Registration
Unit 56. Definition and Features of a Company
Unit 57. Types of Companies
Unit 58. Memorandum of Association and Articles of Association
Unit 59. Doctrines of Ultra Vires/Constructive Notice/Indoor
Management
Page 671
Objective
41.1
Introduction
41.2
Meaning of Contract
41.3
41.4
41.5
Let Us Sum Up
41.6
Keywords
41.7
41.8
342
Page 672
OBJECTIVE
INTRODUCTION
MEANING OF CONTRACT
2.
Page 673
Page 674
Illustration
Mr A out of his natural love and affection, promises to give to his
son B, a sum of Rs. 1000. A puts his promise in writing and
registers it. This is a valid contract even though there is no
consideration from B.
A promise to compensate a person, who has already done
something voluntarily for the promisor (or done something
voluntarily, that the promisor was legally bound to do) is
enforceable at law.
Illustration
A finds B's watch and gives it to him. B promises to give A a sum of
Rs. 100. This is a contract.
The agreement must be entered for lawful objects, e.g. it should not
be forbidden by law or must not be fraudulent (i.e. to commit a
Page 675
Page 676
LET US SUM UP
KEYWORDS
1.
(i) A
is void,
(cash/consideration/indemnity/guarantee)
(iii) A person who makes a proposal is known as
(promisor/principal debtor/surety/
guarantor)
(iv) A person is said to be competent to contract if
(he is a
major/he is of sound
mind/he is a major and of sound mind)
2.
Page 677
1.
CONTRACTS OF INDEMNITY
un
ed
he
UNIT
42
ind
en. an
ab
STRUCTURE
ue;
42.0
Objectives
42.1
Introduction
42.2
42.3
Let Us Sum Up
42.4
42.5
me
Page 678
OBJECTIVES
INTRODUCTION
2.
3.
Illustration
Mr A contracts with C, that B will not sue C in respect of Rs.
1,00,000, which C owes to B. If B sues C, any consequences of such
a suit will be borne by A according to the contract. Is such a
Page 679
LET US SUM UP
1.
-. (guarantee /pledge/
(i) Insurance policies are contracts which are in the nature of
bailment/indemnity)
(ii) There are parties in a contract of indemnity. (2/3/4/5)
2.
Page 680
CONTRACTS OF GUARANTEE
STRUCTURE
43.0
Objective
43.1
Introduction
43.2
43.3
43.4
Consideration
43.5
43.6
Continuing Guarantee
43.7
Death of Surety
43.8
43.9
Page 681
OBJECTIVE
INTRODUCTION
Page 682
All the principles and rules, which apply to other contracts, like
what can form consideration, or what would be a valid contract,
also apply to a Contract of Guarantee.
43.4
CONSIDERATION
Page 683
Page 684
CONTINUING GUARANTEE
DEATH OF SURETY
Normally, when the surety dies, the guarantee ends from that date.
However, this is not true in all cases. It depends upon the terms of
the contract and the intention of the parties as regards future
transactions.
Generally all guarantees obtained by banks are continuing
guarantees and in the case of death of a surety, the guarantee
would stand revoked for future transactions. The is the precise
reason when the information of a guarantor's death is received,
banks prefer to break the running accounts of a borrower.
43.8
Page 685
Page 686
Page 687
Page 688
rice to be supplied by C to B. C
supplies to B, rice to a lesser amount than Rs. 20,000 but obtains
from A, a payment of Rs.
20,000 in respect of the rice supplied. A cannot recover from B
more than the price of the rice
actually supplied.
43.16 CO-SURETIES FOR THE SAME DEBT
Where two or more persons are sureties for the same debt, whether
with or without the knowledge of each other, the co sureties are
liable to pay an equal share of the whole debt, or of that part of it
Page 689
Page 690
(indemnifier/bailor/guarantee
or/bailee)
(ii) Liability of the surety is that of the principal debtor, (coextensive with/primary
to/secondary to)
(iii) A guarantee which extends to a series of transactions is known
as a
guarantee.
(i) True; (ii) True; (iii) True; (iv) True; (v) False.
2.
CONTRACT OF BAILMENT
STRUCTURE
44.0
Objective
44.1
Introduction
44.2
Meaning of Bailment
44.3
44.4
Page 691
44.6
44.7
Bailee's Lien
44.8
Let Us Sum Up
44.9
354
44.0
OBJECTIVE
INTRODUCTION
MEANING OF BAILMENT
Page 692
(b)
(c)
Page 693
(a)
If the bailee (with the consent of the bailor), mixes the goods
Page 694
Page 695
The bailor is responsible to the bailee for any loss which the
If the bailor has no title to the goods and the bailee, in good
Page 696
BAILEE'S LIEN
LET US SUM UP
Page 697
CONTRACT OF PLEDGE
STRUCTURE
45.0
Objective
45.1
Introduction
Page 698
Nature of Pledge
45.3
Let Us Sum Up
45.4
45.5
358
45.0
OBJECTIVE
INTRODUCTION
NATURE OF PLEDGE
(a)
If the proceeds of such sale are less than the amount due, in
Page 699
The pawnee can retain the goods pledged, not only for
LET US SUM UP
Page 700
CONTRACT OF AGENCY
STRUCTURE
46.0
Objective
46.1
Introduction
46.2
Meaning of Agency
46.3
46.4
46.5
Consideration
46.6
Authority of an Agent
46.7
46.8
46.9
Page 701
OBJECTIVE
The role, duties and liabilities of the principal and the agent
46.1
INTRODUCTION
Page 702
MEANING OF AGENCY
CONSIDERATION
AUTHORITY OF AN AGENT
Page 703
Page 704
(ii)
Page 705
(iv)
mind; or
(v)
362
46.12 AGENT'S DUTY IN CONDUCTING PRINCIPAL'S
BUSINESS
An agent is bound to conduct the business of his principal
according to the directions given by the principal. In the absence of
any such directions, conduct business according to the customs,
which prevails in doing business of the same kind at the place
where the agent conducts such business. If the agent, acts
otherwise and if any loss be sustained, he has to make it good to his
principal and if any profit accrues, he must account for it.
Illustrations
(a)
Page 706
Page 707
Page 708
Page 709
Page 710
(express
appointment/implication of law/ratification
_. (power of attorney/indemnity
by principal/any of the three modes)
(ii) The usual form of contract of agency is by way of a
bond/guarantee bond) (iii) When a person by his words or conduct
appoints someone as his agent it is known as agency
by
(estoppel/promise/conduct/action)
2.
Estoppel.
2.
(i) False; (ii) True; (iii) True; (iv) False; (v) True.
Page 711
Objective
47.1
Introduction
47.2
47.4
47.5
47.6
47.7
Let Us Sum Up
47.8
Keywords
47.9
OBJECTIVE
INTRODUCTION
Page 712
DEFINED
UNDER THE SALE OF GOODS ACT, 1930
'Goods' means every kind of moveable property (other than
actionable claims and money) and includes
Page 713
(a)
Page 714
price.
47.5
Page 715
TO SELL
Table 47.1 Difference in Sale and Agreement to Sell
Sale
1.
4.
Page 716
LET US SUM UP
A sale involves two persons, the buyer and the seller. A contract of
sale of goods is a contract under which the seller transfers the
goods to the buyer for a price. When the property in the goods is
transferred from the seller to the buyer, the contract is called a sale.
The consideration for a sale of goods is the money payable for the
transfer of goods. The Sale of Goods Act covers only the sale of
moveable goods and not immoveable property.
When the transfer of the property in the goods is to take place at a
future time or subject to some condition thereafter to be fulfilled,
the contract is called an agreement to sell. An agreement to sell
becomes a sale when the time elapses or the conditions are
Page 717
KEYWORDS
Breach; Encumbrance.
47.9
1.
brackets.
(i)
Delivery/Shares)
(ii) Goods as defined under Sale of Goods Act do not include .
(actionable claims/
shares/stock/grass)
(iii)
contract of sale is
made. (Future/Specific/Moveable/Tmmoveable)
(v)
another. (Delivery/
Lien/Indemnity/Suit) (vi) When the transfer of the property in the
goods is to take place at a future time or subject to
some conditions thereafter to be fulfilled, the contract is called
. (agreement to
sell/contract of sale/contract of future goods/contract of specific
goods)
(vii) In
Page 718
(i) Shares are goods within the meaning of the Sale of Goods Act.
(ii) Fixtures can be regarded as moveable goods only if they are
intended to be severed and sold separately.
47.10 ANSWERS TO 'CHECK YOUR PROGRESS'
1.
(i) price; (ii) actionable claim; (iii) future; (iv) specific; (v)
Introduction
48.2
48.3
48.4
Let Us Sum Up
48.5
Keywords
48.6
48.7
370
48.0 OBJECTIVE
Page 719
INTRODUCTION
Page 720
he will have a right to sell the goods at the time when the
Page 721
Sale by sample
(b)
the sample;
(c)
Page 722
Page 723
Page 724
LET US SUM UP
KEYWORDS
1.
brackets.
(i) If the stipulation agreed to between the parties is essential to the
main purpose of the contract
then such a stipulation is known as a
(condition/warranty/implied condition/
guarantee)
(ii) A is a stipulation, collateral to the main purpose of the
contract, (condition/
warranty/implied condition/guarantee)
(iii) There is an implied condition on the part of the seller that he
has a right to the
goods, (use/sell/retain/resell)
(iv) If the sale of goods is by
(i) In every contract of sale it is implied that the seller has got the
Page 725
1.
2.
UNPAID SELLER
STRUCTURE
49.0
Objective
49.1
Introduction
49.2
49.3
Let Us Sum Up
49.4
49.5
374
49.0
OBJECTIVE
INTRODUCTION
When the whole of the price has not been paid or tendered;
(b)
Page 726
Table 49.1 Rights of Unpaid Seller Against Goods and the Buyer
^^^^^^^^Rights against the goods
Rights
Where the
damages
Lien
Repudiation contract
Withholding in
transit Stoppage
them;
(b)
Page 727
a right of resale.
If the property in goods has not passed to the buyer, the unpaid
seller also has a right of withholding delivery of the goods.
Unpaid seller's lien
The unpaid seller of goods (who is in possession of them), is
entitled to retain possession of them until payment of the price is
made in the following cases:
(a)
credit;
(b)
if the goods have been sold on credit, but the term of credit
has expired;
(c)
to ith
ing
atil
Page 728
the goods;
(c)
by waiver of lien.
However, the lien is not lost just because the seller obtains a decree
for the price of the goods. Right of stoppage in transit
When the buyer becomes insolvent, the unpaid seller who has
parted with the possession of the goods has the right of stopping
them in transit. He may retain them until payment of the price.
Duration of transit
Goods are deemed to be in course of transit from the time when
they are delivered to a carrier or other bailee for the purpose of
transmission to the buyer and the transit ends, when the buyer or
his agent takes delivery of them from such carrier or other bailee.
How stoppage in transit is affected?
The unpaid seller may exercise his right of stoppage in transit
either by taking actual possession of the goods, or by giving notice
of his claim to the carrier or other bailee in whose possession the
goods are.
Page 729
Page 730
a right of resale;
(d)
GO (iii)
1.
2.
Fill in the gaps from the available options given in the brackets.
has not been paid
(i) The seller of goods is deemed to be an unpaid seller when the
(price/interest/damages/penalty)
There is no
purpose.
(implied condition/implied warranty/express condition/express
warranty)
When the
Page 731
2.
UNIT
50
DEFINITION, MEANING AND NATURE OF PARTNERSHIP
Page 732
STRUCTURE
50.0 Objective
50.1
Introduction
50.2
50.3
types of Partnership
50.4
Let Us Sum Up
50.5
50.6
378
50.0 OBJECTIVE
The objective of this unit is to give the candidates a broad view of
the legal aspects involved in a partnership business and the
determination of the rights and liabilities arising out of partnership
business.
50.1
INTRODUCTION
Page 733
Page 734
business.
Page 735
TYPES OF PARTNERSHIP
1.
Partnership at will
Page 736
Particular partnership
LET US SUM UP
Page 737
Objective
51.1
Introduction
51.2
51.3
51.4
51.6
Page 738
51.8
51.9
OBJECTIVE
INTRODUCTION
The partners should not make secret profits. They have to be just
and faithful to each other. They must render true accounts of the
business and full information of all things affecting the firm to all
the partners or their legal representatives.
51.3
Every partner is bound to indemnify the firm for any loss caused to
the partnership firm by his fraud, in the conduct of the business of
the firm. For example, if a partner commits a fraud upon a
customer of the partnership firm for which the firm is held liable
Page 739
business;
(b)
Page 740
Page 741
(e)
Page 742
(a)
Page 743
Objective
52.1
Introduction
52.2
52.3
Page 744
52.5
52.6
52.7
52.8
52.9
OBJECTIVE
INTRODUCTION
A partner is the agent of the firm for the purpose of the business of
the firm. Every partner plays a dual role in a partnership. One is
the role of a principal, i.e. on his own behalf and the other the role
of an agent for every other partner. It must be noted that every
partner is an agent of every other partner only in the business of
the firm.
52.2
A partner can make the firm liable by his acts, if done in the name
of the firm and in the ordinary course of business of the firm. A
partner, who contracts in his own name, incurs only a personal
Page 745
FIRM
An act done by a partner to carry on the kind of business done by
the firm (in the usual way) binds the firm. This authority of a
partner to bind the firm is called his 'implied authority'.
The implied authority of a partner does not empower him to
(a)
name;
(c)
(d)
(e)
the firm;
(f)
(g)
IMPLIED AUTHORITY
The partners in a firm may by mutual agreement amongst
themselves, extend or restrict the implied authority of any partner.
Any act done by a partner on behalf of the firm within his implied
authority binds the firm unless the person with whom he is dealing
knows the restriction.
52.5
Page 746
Every partner is liable jointly with all the other partners and also
severally for all acts of the firm done while he is a partner. This is a
core principle of partnership business.
52.8
PARTNER
If a partner commits some wrongful act or omits doing of
something in the ordinary course of the business of the firm with or
without the authority of other partners and consequently a loss or
injury is caused to any third party, the firm is liable thereof to the
same extent as the partner.
52.9
PARTNERS
The firm is liable to make good the loss of money or property from
Page 747
Page 748
Page 749
Objective
53.1
Introduction
53.2
53.3
53.4
Retirement of a Partner
53.5
Insolvency of a Partner
53.6
Let Us Sum Up
53.7
53.8
390
I
53.0
OBJECTIVE
INTRODUCTION
Page 750
The minor has a right to share the property and profits of the firm
as may be agreed upon by the partners and the minor can have
access to the accounts of the firm.
As explained earlier, the partners of the firm are personally liable
for all the liabilities of the firm. However, only the minor's share is
liable for the acts of the firm but the minor is not personally liable
for the acts of the firm and the liabilities arising there from.
The minor may or may not take legal action (by filing suit) against
the partners for payment of his share of the property or profits of
the firm except when severing (ending) his connection with the
firm.
However, all the partners acting together or any partner who is
entitled to dissolve the firm by notice to other partners can elect
(choose) in such a suit filed by the minor to dissolve the firm.
Thereafter, the court proceeds with the suit as a suit for dissolution
and for settling accounts between the partners. The share of the
minor is then determined along with the shares of the other
partners.
53.3
MAJORITY
At any time within six months of his attaining majority, or of his
obtaining knowledge that he had been admitted to the benefits of
partnership (whichever date is later) the person may give public
notice to the effect whether he has elected to become a partner or
not. This notice determines his position as regards the firm.
However, if he fails to give such notice, he shall become a partner
in the firm on the expiry of the said six months.
Page 751
his share in the property and profits of the firm shall be the
his share shall not be liable for any acts of the firm done
RETIREMENT OF A PARTNER
(b)
(c)
Page 752
INSOLVENCY OF PARTNER
LET US SUM UP
Page 753
Objective
54.1
Introduction
54.2
Dissolution by Agreement
54.3
Compulsory Dissolution
54.4
54.5
54.6
54.7
Let Us Sum Up
54.8
54.9
394
54.0
OBJECTIVE
Page 754
INTRODUCTION
DISSOLUTION BY AGREEMENT
COMPULSORY DISSOLUTION
A firm is dissolved:
(a)
(b)
CONTINGENCIES
A firm is dissolved in the following circumstances. To avoid
dissolution in these cases, the partners should expressly agree that
the firm shall not be dissolved in these circumstances:
Page 755
(d)
54.5
At the suit of a partner the court may dissolve a firm on any of the
following grounds:
(a)
(b)
395
(e)
Page 756
loss; or
(g)
DISSOLUTION
Any partner of the firm must give a public notice to the effect that
the firm is dissolved. This is because even after the dissolution of a
firm, the partners continue to be liable to third parties for any act
done by any of them, until such public notice is given.
54.7
LET US SUM UP
1. State whether the following statements are True or False, (i) The
partners can mutually agree and dissolve the firm, (ii) On the death
of a partner the partnership firm is compulsorily dissolved.
54.9
EFFECT OF NON-REGISTRATION
STRUCTURE
55.0
Objective
55.1
Introduction
55.2
Registration
Page 757
55.4
398
55.0
OBJECTIVE
INTRODUCTION
REGISTRATION
The partner's may or may not enter into a partnership deed and
may decide to have an oral partnership if they have a strong
understanding amongst themselves. Further, even if a partnership
deed is entered into by the partners they may not opt for
registration of the partnership firm. However, the Partnership Act
casts certain disabilities on a partnership firm that is not registered
with the Registrar of Partnership Firms. Due to this provision
which is stated in the Section 69, a majority of the partnership
firms decide to register the firm to avoid future hassles and
complexities on solving issues amongst the partners as well as with
third parties. The provisions of the Section 69 are briefly stated
hereunder:
A partner of an unregistered firm cannot enforce by way of a suit,
Page 758
1. (i) False.
d >f
UNIT
56
DEFINITION AND FEATURES OF A COMPANY
:s :d
IP :d
is
tie or
Page 759
Objective
56.1
Introduction
56.2
Definition of a Company
56.3
Features of a Company
56.4
56.5
Let Us Sum Up
56.6
56.7
ist
lOt
ts.
400
56.0
OBJECTIVE
INTRODUCTION
DEFINITION OF A COMPANY
Page 760
Registration
Page 761
Page 762
Limited liability
Perpetual succession
Separate property
Page 763
Transfer of shares
The Companies Act, 1956 states that shares or other interest of any
member in a company shall be moveable property, transferable in
the manner provided by the articles of association. A shareholder
may sell his shares in the open market and get back his money
without changing the capital of the company.
(h) Common Seal
As a company is an artificial legal person, it is not capable of
signing documents for itself. It acts through natural persons who
are the directors appointed by the shareholders of the company.
However since it is a legal person it can be held responsible for only
those documents that bear its signature. Hence the law provides for
a common seal with the name of the company engraved on it as a
substitute for its signature. Any document bearing the common
seal of the company is legally binding on the company. However a
common seal cannot be affixed by any director. It has to be affixed
in the manner stated in the articles of association, e.g., in the
presence of two directors who shall sign on the document where
the common seal is affixed in their presence.
(i) Corporate veil
Although a company is a separate legal entity distinct from
shareholders in reality it is an association of persons who are the
beneficial owners of all the corporate property. Hence it may
sometime become
402
necessary to look at the persons who are behind the corporate veil.
The corporate veil is said to be lifted or pierced when the Court
Page 764
Registration
Number of members/partners
Legal status
Ownership of property
Page 765
Management
Perpetual existence
Contracts
Page 766
LET US SUM UP
UNIT
57
TYPES OF COMPANIES
STRUCTURE
Page 767
Objective
57.1
Introduction
57.2
Incorporation
57.3
57.4
57.5
57.6
Let Us Sum Up
57.7
57.8
406
57.0
OBJECTIVE
INTRODUCTION
There are various types of companies that can be formed under the
Companies Act, 1956 and they can be classified as per the mode of
incorporation, on the basis of liability, on the basis of public
interest, as holding and subsidiary companies, etc. This unit
examines these in brief.
57.2
CLASSIFICATIONS OF COMPANIES
Page 768
Page 769
Page 770
Transfer of Shares
Issue of Prospectus
Page 771
Deposits
Page 772
Page 773
of State Governments
and includes a company which is subsidiary of a government
company, e.g. Bharat Heavy Electricals Limited, Bokaro Steel
Limited, etc.
Foreign Company
The Companies Act, 1956 defines a foreign company as a company
which is incorporated outside India but has a place of business in
India.
57.5
LET US SUM UP
Page 774
1.
(7/12/50/2)
. (five
. (five
Page 775
1.
2.
(i) 2; (ii) 7; (iii) 50; (iv) any number; (v) one lakh; (vi) five
Objective
58.1
Introduction
58.2
Memorandum of Association
58.3
Articles of Association
58.4
Let Us Sum Up
58.6
58.7
412
58.0
OBJECTIVE
Page 776
INTRODUCTION
MEMORANDUM OF ASSOCIATION
Name clause
Page 777
This clause must mention the name of the state in which the
registered office of the company is situated. It is to be noted that
the address of the registered office is not to be mentioned. Only the
name of the state is required to be mentioned. A company shall
from the date on which it commences business or within thirty
days after the date of incorporation, whichever is earlier, have a
registered office to which all the communications and notices may
be addressed. Notice of the situation of the registered office and of
every change therein is to be given within thirty days after the date
of incorporation of the company or after the date of the change as
the case may be to the registrar of companies who shall record the
same.
C.
Objectives Clause
Page 778
Liability clause
Capital clause
Page 779
Schedule I of the Companies Act, 1956 sets out the tables or model
forms of articles of association for different companies. Table A is
applicable to public companies limited by shares. Hence a public
company limited by shares may either frame its own articles of
association or adopt the regulations contained in Table A which
will then automatically apply to the extent to which it is not
excluded.
The main advantage of adopting Table A lies in the fact that its
provisions are legally beyond all doubt.
In the case of an unlimited company the articles of association
must state the number of members with which the company is to
be registered and the amount of share capital of the company (if
Page 780
ASSOCIATION AND
ARTICLES OF ASSOCIATION
The memorandum of association contains the fundamental
conditions (objects) upon which the company is incorporated. The
conditions are introduced for the benefit of the creditors, the
shareholders, and the outside public.
The articles of association are the internal regulations of the
company and they provide the manner in which the proceedings of
the company are to be carried on.
The memorandum of association is a dominant instrument as it
states the purposes of the company and the reasons for which it has
come into existence.
The articles of association are always held to be subordinate to the
memorandum of association because the articles of association are
merely the internal regulations of the company while the
memorandum of association states the objects of the company
beyond which the company cannot go.
Page 781
LET US SUM UP
1. (i) False.
Page 782
Objective
59.1
Introduction
59.2
59.3
59.4
Articles of Association
59.5
59.6
59.7
Let Us Sum Up
59.8
59.9
416
59.0
OBJECTIVE
INTRODUCTION
These three doctrines deal with the rights and duties of the
company with respect to the members, amongst the members, and
Page 783
Page 784
Page 785
ASSOCIATION AND
ARTICLES OF ASSOCIATION
What is meant by constructive notice of the memorandum of
association and articles of association? The memorandum of
association and articles of association of a company are registered
with the registrar of companies at the time of incorporation. As the
office of the registrar of companies is a public office, the
memorandum of association and articles of association become
public documents. Hence, the act expressly guarantees the right of
inspection of these documents to all. It is therefore the duty of
every person who deals with a company to inspect its public
documents, i.e. its memorandum of association and articles of
association and make sure that his contract is in accordance with
their provisions. However, whether a person has actually read
them or not he shall be in the same position as if he had read them.
In other words, he will be presumed to have knowledge of the
contents of these documents and to have understood them
according to their proper meaning. This kind of presumed notice is
known as constructive notice. This is known as the doctrine of
Page 786
NOTICE
The following are the practical effects of the doctrine of
constructive notice:
(a)
Page 787
Page 788
MEMBERSHIP
Page 789
Introduction
60.2
60.3
INTRODUCTION
Page 790
COMPANY
(a)
Page 791
Page 792
421
(b)
Page 793
2.
3.
4.
Page 794
9.
member;
(b)
a member; and
(d)
A company may, after giving not less than seven days previous
notice by advertisement in some newspaper circulating in the
district in which the registered office of the company is situated,
Page 795
MEMBERS
The register of members is to be kept at the registered office of the
company. It may be kept at any other place within the city, town or
village in which the registered office is situated, if
(i) such other place has been approved for this purpose by a special
resolution passed by the
company in general meeting, and (ii) the Registrar of Companies
has been given in advance a copy of the proposed special
resolution.
The registers are to be open during business hours to the
inspection of any member or debenture
holder without fee. Any other person has to pay a fee. Any such
member, debenture holder or
other person may make extracts from any register.
60.8 RIGHTS AND DUTIES (LIABILITIES) OF MEMBERS OF A
COMPANY
The liability of a member of a company depends upon the nature of
the company.
(a)
Page 796
3.
Transfer shares.
4.
5.
company.
8.
of the company.
Page 797
Proprietary Rights:
(a)
(c)
Page 798
PROSPECTUS
L
STRUCTURE
61.0
Objective
61.1
Introduction
61.2
What is a Prospectus?
61.3
61.4
61.5
Let Us Sum Up
61.6
61.7
426
61.0
OBJECTIVE
INTRODUCTION
Page 799
WHAT IS A PROSPECTUS?
agreement/arrangement to purchase/subscribe
the shares.
(b)
(a)
Page 800
Page 801
2.
2.
Page 802
LET US SUM UP
1. (i) False
UNIT
62
DIRECTORS
STRUCTURE
Page 803
Objective
62.1
Introduction
62.2
62.3
62.4
to Retire by Rotation
62.5
of Vacancies
62.6
Directorship
62.7
62.8
Additional Directors
62.9
Page 804
OBJECTIVE
INTRODUCTION
(b)
Page 805
DIRECTORS
Subscribers of the memorandum, who are individuals, are deemed
to be the directors of the company, until the directors are duly
appointed in accordance with the Act.
62.4
THOSE WHO
ARE TO RETIRE BY ROTATION
Unless the articles provide for the retirement of all directors at
every annual general meeting, at least two-thirds of the total
number of directors of a public company, or of a private company
which is a subsidiary of a public company, have to be
(a)
retirement by rotation;
(b)
ROTATION AND
Page 806
DIRECTORSHIP
RETIRING DIRECTORS TO STAND
Any person is eligible for appointment to the office of director at
any general meeting, if not less than fourteen days before the
meeting he himself or some other member intends to propose that
person as a director gives a signed notice in writing to the company
signifying that person's candidature for the office of director along
with a deposit of Rs. five hundred.
The deposit is refunded to such a person or to the member
(whoever had given the notice and paid the deposit) if that person
is elected as a director.
62.7
Page 807
ADDITIONAL DIRECTORS
Page 808
Page 809
(c)
(d)
he is adjudged an insolvent;
(e)
(g)
Page 810
their shares;
(b)
issue debentures;
(c)
(d)
(e)
(f)
Page 811
(b)
remit, or give time for the repayment of, any debt due by a
Page 812
Page 813
D.
Page 814
435
10t : is
r') ch he or
or of m >n
Page 815
are to be persons
whose period of office is liable to determination by retirement by
rotation. (2/3/7/two-third) (vi) Every public company, or a private
company which is a subsidiary of a public company,
having a paid-up share capital of Rupees must have a managing or
whole-time
director or a manager, (five crore/five lakh/one crore/one lakh)
(vii) Additional directors are appointed by the (board of
directors/promoters/
underwriters/shareholders)
(viii) Alternate directors are appointed by the
(board of
directors/promoters/
underwriters/shareholders)
Page 816
Objective
63.1
Introduction
63.2
63.3
63.4
63.5
63.6
Directorate of Enforcement
63.7
63.8
438
63.0
OBJECTIVE
This unit aims to show the broad structure of the Foreign Exchange
Management Act, 1999 which is enacted to regulate foreign
exchange transactions in India. By a reading of this unit, it would
be clear that the FEMA does not specify the details of each and
every procedure and matter concerning the regulation of foreign
Page 817
INTRODUCTION
FEMA
'Authorised person' means any bank or other person including
authorised money changer or dealer, authorised under the FEMA
to deal in foreign exchange or securities.
Page 818
Page 819
an individual;
(ii)
(iii)
a company;
(iv)
a firm;
(v)
incorporated or not;
(vi)
(vii)
person.
'Person resident in India' means the following:
(i) a person residing in India for more than one hundred and
eighty-two days in the preceding financial year but does not include
(A)
India:
Page 820
(b)
(c)
than:
(a)
(b)
(c)
Page 821
(c)
PERSONS
RBI has the following powers under FEMA:
1.
Page 822
APPEALS
Under the FEMA any violation of the provisions of the said Act will
attract penal provisions including the right of arrest and detention.
Like any other statutes there exists the right of appeal. The first of
such appeals shall be with the special director (Appeals).
Thereafter if someone is aggrieved by the said appellate order they
can prefer an appeal against the order before the appellate
tribunals established for this purpose. Wherein questions of law
are involved and need to be interpreted, an appeal lies to the High
Court. Only questions of law are referred to the High Courts and
thereafter to the Supreme Court.
Penalty can be levied up to thrice the sum involved in such
contravention where such amount is quantifiable, or up to Rs. two
lakh where the amount is not quantifiable, and where such
contravention is a continuing one, further penalty which may
extend to Rs. five thousand for every day after the first day during
which the contravention continues.
Page 823
DIRECTORATE OF ENFORCEMENT
Page 824
1. (i) False; (ii) False; (iii) False; (iv) True; (v) True; (vi) False;
UNIT
64
TRANSFER OF PROPERTY ACT, 1882
STRUCTURE
64.0
Objective
64.1
Introduction
64.2
64.3
64.4
Types of Mortgage
64.5
64.6
64.7
64.8
64.9
Actionable Claims
Page 825
OBJECTIVE
INTRODUCTION
Page 826
Page 827
Page 828
(iii)
Page 829
Page 830
(a)
Page 831
Page 832
impleaded as defendants.
4.
Page 833
Page 834
Page 835
Page 836
Page 837
Page 838
ACTIONABLE CLAIMS
Page 839
Page 840
Page 841
of the accession,
(entitled/not entitled)
(v) A mortgagor, while lawfully in possession of the mortgaged
property, shall have
to make leases thereof, (power/no power)
451
3. Multiple Choice Questions. Select the alternative as applicable.
(i) The power of sale without intervention of the Court is given to
the mortgagee in the case of:
(a) Equitable mortgage
(i) False; (ii) True; (iii) True; (iv) True; (v) True; (vi) True;
Page 842
UNIT
65
THE RIGHT TO INFORMATION ACT, 2005
STRUCTURE
65.0
Objective
65.1
Introduction
65.2
Applicability
65.3
Definitions
65.4
Let Us Sum Up
65.5
Keywords
65.6
65.7
65.8
454
65.0
OBJECTIVE
Page 843
INTRODUCTION
APPLICABILITY
This Act extends to whole of India except the State of Jammu &
Kashmir. While the provisions of the Act relating to the obligations
of public authorities, designation of public information officers and
assistant public information officers, constitution of Central
information commission, constitution of State information
commission, non applicability of the Act to certain organisations
and power to make rules came into force on 15 June 2005, the
remaining provisions were made effective 120 days after the
aforesaid date. They came into force on 12 October 2005. On
coming into force of this Act (i.e., 12.10.2005) the Freedom of
Information Act, 2002 has been repealed.
65.3
DEFINITIONS
Page 844
(b)
(c)
I
455
Page 845
LET US SUM UP
Page 846
KEYWORDS
1.
(b)
(c)
Page 847
(b)
records;
(c)
(d)
Objective
66.1
Introduction
66.2
Page 848
66.4
Disposal of Request
66.5
Appeal
66.6
Orders in Appeal
66.7
Penalties
66.8
Let Us Sum Up
66.9
OBJECTIVE
INTRODUCTION
Page 849
PIO shall deal with requests from persons seeking information and
where the request cannot be made in writing, to render reasonable
assistance to the person to reduce the same in writing.
If the information requested for is held by or its subject matter is
closely connected with the function of another public authority, the
PIO shall transfer, within five days, the request to that other public
authority and inform the applicant immediately.
PIO may seek the assistance of any other officer for the proper
discharge of his/her duties.
PIO, on receipt of a request, shall as expeditiously as possible, and
in any case within thirty days of the receipt of the request, either
provide the information on payment of such fee as may be
prescribed or reject the request for any of the reasons specified in
8.8 or 8.9 of the Act.
Where the information requested for concerns the life or liberty of
a person, the same shall be provided within forty-eight hours of the
receipt of the request.
66.4
DISPOSAL OF REQUEST
(a) If the PIO fails to give a decision on the request within the
period specified, he shall be deemed to have refused the request.
Where a request has been rejected, the PIO shall communicate to
the requester (i) the reasons for such rejection,
(ii) the period within which an appeal against such rejection may
be preferred, (iii) the particulars of the appellate authority.
Page 850
(d)
Page 851
Payment of fees
rupees two for each page in A-4 or A-3 size paper created or
copied;
Page 852
(c)
(d)
for inspection of records, no fee for the first hour and a fee
Page 853
Page 854
or intellectual property;
(e)
relationship;
(f)
government;
(g)
Page 855
information;
(d)
unreasonable;
(e)
Any person who does not receive a decision within the time
specified (normally thirty days) or is aggrieved by a decision of the
Central Public Information Officer may within thirty days from the
expiry of such period or from the receipt of such decision, prefer an
appeal to the officer who is senior in rank to the Central Public
Information Officer in each public authority. The appellate
authority has the power to condone the delay in filing the appeal if
he is satisfied that the appellant was prevented by sufficient
reasons from filing the appeal in time.
If the appeal is against the third party information, the appeal by
the concerned third party shall be made within thirty days from the
date of the order.
Page 856
ORDERS IN APPEAL
(d)
66.7
PENALTIES
Page 857
or
(iii)
(iv)
information; or
(v)
(vi)
462
66.8
LET US SUM UP
Page 858
1.
Page 859
authority. (True/False)
8.
Page 860
Objective
67.1
Introduction
67.2
67.3
67.4
and Intermediaries
67.5
Rules Framed
67.6
Records to be Maintained
67.7
67.8
67.9
OBJECTIVE
INTRODUCTION
Page 861
Page 862
The records shall be maintained for ten years from the date of
cessation of the transactions between the clients and the banking
company, financial institution or intermediary. The director
appointed by the Central Government, has the right to call for the
records and make such inquiry or cause an enquiry to be made. If
he finds that the banking company, financial institution or
intermediary has not complied with the requirements he may
impose a fine on the banking company which shall not be less than
ten thousand rupees but may extend to one lakh rupees. The Act
also specifically provides that the banking companies and their
officers shall not be liable to any civil proceedings against them for
furnishing information.
465
67.5
RULES FRAMED
Page 863
RECORDS TO BE MAINTAINED
by way of:
(i) deposits and credits, withdrawals into or from any accounts in
whatsoever name they are referred to in any currency maintained
by way of:
(a)
Page 864
travellers cheque; or
(c)
payment orders, or
(b)
cashier cheques; or
(c)
demand drafts; or
(d)
transfer; or
(e)
interest transfers; or
(f)
(g)
Page 865
certificate of deposits
preferential shares, debentures, securitised participation, interbank participation or any
other investments in securities or the like whatever form and name
it is referred to; or
(b)
instruments; or
466
(c.) foreign exchange contracts, currency, interest rate and
commodity and any other derivative
instrument in whatsoever name it is called; or (d) letters of credit,
standby letters of credit, guarantees, comfort letters, solvency
certificates
and any other instruments for settlement and/or credit support.
(v) collection service in any currency by way of collection of bills,
cheques, instruments or any other mode of collection in
whatsoever name it is referred to.
67.7
(b)
was denominated
(c)
(d)
67.8
Page 866
Page 867
Individual
Company
1. Certificate of incorporation
467
2.
3.
4.
the account
(c)
Partnership firm
1.
Registration certificate;
2.
Partnership deed;
3.
the transaction.
(d)
Trust
1.
Registration certificate;
2.
3.
the transaction.
(e)
Unincorporated association
Page 868
2.
transaction; and
3.
Page 869
India. (True/False)
4.
(True/False)
7.
client. (True/False)
8.
Introduction
Page 870
Definitions
68.3
Electronic Governance
68.4
Certifying Authorities
68.5
68.6
Penalties
68.7
Appeal
68.8 Investigations
68.9
Let Us Sum Up
68.10 Keywords
68.11 Check Your Progress
68.12 Answers to 'Check Your Progress'
470
68.1
INTRODUCTION
Page 871
DEFINITIONS
Page 872
Page 873
more computers through (i) the use of satellite, microwave, terrestrial line or other
communication media; and (ii) terminals or a complex consisting
of two or more interconnected computers whether or not the
interconnection is continuously maintained;
11.
Page 874
Page 875
Page 876
Act;
29.
digital signature;
30.
procedure that
(a)
(b)
operation;
(c)
and
(d)
32.
Page 877
ELECTRONIC GOVERNANCE
(b)
CERTIFYING AUTHORITIES
Page 878
Chapter VII of the Act deals with the scheme of things relating to
Digital Signature Certificates. The duties of subscribers are also
enshrined in the said Act.
473
68.6
PENALTIES
APPEAL
Page 879
LET US SUM UP
Page 880
Page 881
Page 882
Page 883