Topic No.

of Sessions
Introduction to Legal Environment 2
Business Contracts 5
Non-Corporate Business Entities 2
Law Relating to Corporate Business Entities 5

Number
of Topic Details of the Topic Pedagogy
Sessions
1 Introduction to Meaning of Law – Purpose of Law – Lecture
Legal Sources of Law – Classification of Law –
Environment Torts – National and International Law

2 Introduction to Evolution of Mercantile / Business Law – Lecture

Legal International Business Law – Justice
Environment Delivery System in India.
Introduction to Classification of Taxes – Income Tax – Lecture
gst Wealth Tax – GST
3
4 Business Legal Elements of Contracts – Parties – Lecture
Contracts Offer – Acceptance – Consideration-Types
of Contracts – Valid Contracts – Voidable
Contracts
5 Breach of Contracts and Remedies – lecture
Payment of Damages-Liquidated damages
Agency – Rights and Duties of Principal lecture
and Agent – Termination of Agency
6 Special Contracts – Lien / Guarantee / Lecture
Indemnity / Letter of Credit / Set Off- using small
Important clauses in Corporate & caselets
Commercial Agreements-- Conditions –
Obligations – Termination –– Data Privacy
– Confidentiality – Indemnification.
7 Description of Parties – Recitals of Subject Lecture
– Consideration – Covenants and using small
Undertakings – Signatures and Attestation caselets
– Endorsement and Supplement Deeds –
Stamp Duty and Registration – Applicable
Law – Force Majeure – Notice –
Arbitration Employer and Employee
Contracts
8 Business Application of IT Act, 2000 to Contracts
Transactions and and Transactions
Cyber Digital Signature and Authentication of
Electronic Records
Cyber offences
9 Non-Corporate Legal Formalities and Registration – Lecture
 Business Entities Rights and Liabilities of Members – Sole
Proprietorship – Partnership – society
10 Limited Liability Partnership Firms (LLPs) Lecture +
– Hindu Undivided Family (HUF). Case
Insolvency – Acts of Insolvency –
Consequences.

Chapter 1; Session 1:
A person is a social human being living in the group, called society. He has to do various activities for
his livelihood. Some activities are good or some are bad. In other words, some are beneficial for the
society and some are harmful to the society. To regulate the activities of human behaviour a group of set
activities is introduced by regulatory authorities so that no one could harm the other one, this set of rules
is called Law. Let us take a look at the meaning of the law and a brief introduction to Indian Law.

Meaning of Law

In the real world, the law is an amorphous set of rules govern individuals and group behaviour. We don’t
even know about many of these rules or we understand them only generally. For example, you don’t
need to see a written law to know that it’s a crime to steal or destroy someone else property.

In other words, the law is a system of rules that are created and enforced through the social or
governmental institution to regulate behaviour. Stamp that regulates and ensure that individuals or
community support to the will of the state.

History of Law

The history of law is closely linked to the term civilization. Ancient Egyptian law (in 3000 BC)
contained a Civil Code that was probably broken into 12 books, based on the concept of Maat (refers to
the concept of truth, balance, harmony law, morality and Justice). it is the goddess showing these
concepts and regulated the stars, seasons and actions of mortals.

By the 22nd century, ancient Sumerian ruler Ur- Mammy had formulated the first law code including
casuistic statements (“if…… then”). Around 1760 BC, King Hammurabi new law Babylonian law by
codifying and describing it in the stone in the form of Stelae. It was further discovered in 19th century by
British just and translated into various languages including English, Italian, German and French.

Law is symbolized by goddess Mart a lady justice who wears a sword symbolizing the coercive power of
Tribunal scales ping an objective standard by which competing claims are weighed fold indicating that
justice should be impartial without and regardless of money, wealth, power and identity. This is a basic
principle in Indian Law

Types of law

There are four types of law that we have in our legislative system.

1. Criminal law
This is the kind of love that the police enforce. Murder, assault, robbery, and rape are examples of it. An
offense which is seen as being against everybody even though it does not come under the Criminal law.
For example, if a car is stolen then the theft is against the individual, but it threatens all car owners
because they might have stolen their car. Because the view is taken that everybody is threatened by the
crime this law is dealt with the public services and not by private investigators.

2. Civil law
Different areas such as a right to an education or to A trade union membership and divorce problems
furniture is a split between the couple and who receives custody of the children. The best way to describe
civil law is that it looks at actions that are not the crime. But the individuals to sort their own problems
by going to court themselves or with a lawyer.

It is a section of law dealing with disputes between individuals and organizations. For example,  a car
crash victims claims from the driver for loss or injury sustained in an accident or one company sue
another over a trade dispute.

3. Common law
It is also known as Judicial precedent or judge-made law or case law. It is a body of law derived from the
judicial decision of courts and similar tribunals. As the names describe it is common to all. Today one-
third of world’s population lives in common law jurisdictions or in the systems.

It is defined as a body of legal rules that have been made by judges at the issue rolling on cases as
opposed to rules and laws made by the legislature or in official statues. An example of common law is a
rule that a judge made the people have a duty to read contracts.

Example of a common law marriage is when two people have lived together for 10 or more years. They
have thus and legal rights to share their assets because of it.

4. Statutory law
It is termed used to define return loss usually enacted by a legislative body. It varies from regulatory or
administrative laws common law or the law created by prior Court decisions. A bill is proposed in the
legislature and voted upon.  For example, you are given a citation for violating the speed limit, you have
broken a vehicle and traffic law.

Indian Law
It refers to the system of law in modern India. India maintains a hybrid legal system including all above
described four laws within legal Framework inherited from the colonial era and various legislations
firstly introduced by British. The constitution of India is the longest written constitution for a century. It
contains450 articles, 12 schedules 101 amendment and 117,369 words. This makes the Indian Law
system a very extensive one.

Indian law is fairly complex with its religion supporting to it is on specific laws. In most states resisting
of marriages and divorce is not compulsory. Separate laws govern Hindus, Muslims, Christians and
followers of other religions. This rule is in the state of Goa, where a Uniform Civil Code is in place in
which or regions have a common law regarding marriage and divorce and adoption.

Meant for the last decade the Supreme Court of India banned the Islamic practice of triple Talaq. The
landmark Supreme Court of India judgment was welcomed by women activist across India. As of
January 2017, there were about 1248 laws. However, the best way to find an exact number of the central
laws on a given date in India is from the official sources.

Primary Sources
The primary source of law is in the enactments passed by the Parliament or the State Legislatures. In
addition to these the President and the Governor have limited powers to issue ordinances when the
Parliament or the State Legislature are not in session. These ordinances lapse six weeks from the re-
assembly of the Parliament or the State Legislature. These laws are later published in the Official
Gazette (The Gazette of India or the State Gazette) Most enactments delegate powers to the executive
to make rules and regulations for the purposes of the Acts. These rules and regulations are
periodically laid before the legislature (Union or State as the case may be). This subordinate
legislation is another source of law.

Laws passed by the Parliament are easily accessible at India Code and www.mahalibrary.com, which
are free sites. The AIR (All India Reporter) Manual of Central Laws is an exhaustive collection of
laws enacted by the Parliament together with decisions of the Supreme Court and the High Court on
these laws but this is not available online. Laws passed by the States are more difficult to access. The
States are slowly attempting to launch web sites and may take a couple of years to complete. For the
present, State laws are accessible through book sellers in India. A few State laws may be found at the
Stare Government websites. See http://goidirectory.nic.in/stateut.htm

Secondary Sources
An important secondary source of law is the judgments of the Supreme Court High Court and some
of the specialised Tribunals. The judgments of these institutions not only decide legal and factual
issues in dispute between the parties but in the process interpret/declare the law. This
interpretation/declaration law - the ratio decedendi is a binding precedent.

The Constitution provides that the law declared by the Supreme Court shall be binding on all courts
within India. The ratio decidendi as well as the orbita dicta of the Supreme Court constitute binding
precedents to be followed by all the other courts and tribunals. The Supreme Court is not bound by its
own decisions. However decisions of a larger bench of the Supreme Court are binding on benches of
equal or lesser strength. The Supreme Court has used its powers to venture into judicial activism
going far beyond the traditional view that courts should only interpret the law and not make new
law.  Judgments of the Supreme Court on public interest litigation, protection of the environment and
protection against arbitrary State action can be viewed more as judicial legislation and not as mere
interpretation of the law.

The judgments of a State High Court are binding on itself and on all subordinate courts and tribunals
in the State. However a numerically larger bench of the High Court can overrule a decision of a
numerically smaller bench. Judgments of a High Court are not binding on another High Court or on
courts subordinate to another High Court, but are of great persuasive value.

Judgments of specialised tribunals are binding on itself but not on the courts or other tribunals.
Occasionally larger benches of a tribunal are constituted to reconsider the correctness of the decisions
of smaller benches.

The Privy Council in London was the highest appellate body for India prior to independence.
Judgments of the Privy Council rendered prior to independence are binding precedents unless
overruled by the Supreme Court. Decisions of all other foreign courts are only of persuasive value. In
view of the prodigious output of the Supreme Court during the past fifty years, the role of judgments
of foreign courts has declined considerably. These judgments are normally cited in the Supreme
Courts and in the High Courts only in the absence of Indian judgments on the point involved. Foreign
judgments are seldom cited before the subordinate courts.

SESSION 2

INTRODUCTION TO BUSINESS LAW MEANING AND DEFINITION OF BUSINESS The term

business may be understood as the organised efforts of enterprises to supply consumers with goods
and services and to earn profit in the process. Business is a broad term and includes such varied
activities as production, promotion, wholesaling, retailing, distribution, transportation, warehousing,
financing, insurance, consultancy, and the like. The two definitions on business given below echo the
same meaning. Business is a “complex field of commerce and industry in which goods and services
are created and distributed ... in the hope of profit within a framework of laws and regulations.”
Business “comprises all profit seeking activities and enterprises that provide goods and services
necessary to an economic system. It is the economic pulse of a nation, striving to increase society’s
standard of living. Profits are a primary mechanism for motivating these activities. Business is as
important as it is vast in its scope. It is a unique institution which converts ideas into saleable
products. From the time we get up early in the morning till we go to bed in the nigh the products we
consume and the services we use are all supplied to us by business. Business offers innumerable
opportunities for us to earn money so that we can buy and enjoy the products. We depend so much on
business that except for six or seven hours we sleep every day the remaining hours we spend for or on
business. It is really shiver to imagine what would happen to us without business. Indeed there is no
life without business.
MEANING AND DEFINITION OF LAW Law refers to the principles and regulations established by
a Government and applicable to people, whether in the form of legislation or of custom and policies
recognised and enforced by judicial decision. A few definitions of law are worth quoting in this
context. According to BLACKSTONE “Law in its most general and comprehensive sense signifise a
rule of action and is applied indiscriminately to all kinds of actions whether animate or in animate,
rational or irrational.” Salmond defines law as the “body or principles recognised and applied by the
State in the administration of Justice.” Woodrow Wilson defines law as “that portion of the
established habit and thought of mankind which has gained distinct and formal recognitions in the
shape of uniform of rules backed by the authority and power of the Government.” Definitions of law
frequently emphasis the coercive power of the State which stands behind the rules. And it is true of
many rules that failure to comply with them may lead to the use of coercion by officials. Thus, if a
man refuses to perform his/her obligations under a contract, he/she is sued in a ... Business
Regulations court of breach of contract, loses the suit and is ordered to pay damages. But many rules
of law merely grant permission to do creation things; and if a citizen does not do what he/she is
permitted to do, he/ she is not subject to any coercion. Moreover, the government often induces
people to do what it wants them to do by the lure of benefits. An entrepreneur, for example, is assured
of certain concessions if he/she were to set-up his/her plant in a backward area. If he/she ignores the
offer, he/she is not penalised, he/she simply does not get the concessions.
CLASSIFICATION OF LEGAL RULES Legal rules of law are the creation of law prevailing in a
society at a given time. We use the term “given time” because law is never a body of static rules. It is
a dynamic process by which rules are constantly being created, changed and moulded to fit particular
situation. Now, the legal rules may be classified in a variety of ways. The most common
categorisation is (i) duties, liberties and powers, or (ii) criminal rules and civil rules (see Fig. 1.1) Fig.
1.1 Classification of Legal rules 1. Duties, Liberties and Powers This classification is made on the
position in which the people, to whom the rules are addressed, are placed.
(a) Duties : The first category imposes duties on people. In this class are rules that require a witness
under oath to tell the truth, a husband to support his wife and children, and a person who is a party to
an agreement to perform his/her part of the contract. The person who fails to do what each of these
rules requires may find officials intervening in his/her life. Often, rules that impose duties take the
form of command, for example “you are required to file an income tax return.” Sometimes they are
prohibitory, for example, “smoking prohibited.” The form is unimportant. What is important is that if
the persons addressed do not act as the rules require, remedial rules will apply. For example, “if you
smoke you will be fined.” The law imposes duties not only on private individuals, but on officials
also. A police, for instance, is under a duty not to enter a private home without permission unless
he/she has a search warrant.
(b) Liberties : We are familiar with only duties imposed by rules. There are also liberties or privileges
that are granted to us by rules. In effect, liberties say that if a person performs a certain type of act, no
other person will have any legal basis for complaint, and hence officials will not interfere. For
example, liberties established by law are freedom of speech and freedom of religion which are
guaranteed to us by our Constitution. We have a liberty either to speak or to maintain silence, the law
allows us to choose. Thus, liberty simply means absence of duty.
(c) Powers : Rules also create powers. Powers are particularly relevant to business people. Let us
assume, for example, that a buyer is planning to buy a washing machine from a seller. Buyer, we can
say, has a power under the law to seller what the law calls an “offer.” Notice that buyer has no duty to
do so, he/she is equally at liberty to make an offer for some other washing machine or to make no
offer at all. But once a person exercise power given to him/her he/she will create new legal duties,
liberties, and powers for himself/herself and for others. To have a power means to “change the legal
situation.” Before an offer is made by the buyer, relationship between him/her and the seller is like
that of any other two individuals. Once an offer is made a new situation arises. Buyer’s offer “binds”
him/her until he/she withdraws it or until it expires or is rejected. So long as the buyer’s offer is in
effect the seller has a power — which lie never had before — to accept the offer. If he/she accepts it,
buyer and seller are, from that moment, linked in an agreement, and each is subject to new legal
duties. Buyer is under a duty to pay the agreed price, and the seller is under duty to deliver the
washing machine. If one of the parties fails to honour his/her new obligations, the other may apply to
a court for redressal. Before the court can decide whether to grant the remedy asked for, it must
determine whether the parties exercised their powers in the manner prescribed by rules. In the buyer-
seller example, for instance, the rules required that the offer and the acceptance must be in writing
and be signed to be enforceable. And if so, was this requirement fulfilled? Powers exercised without
fulfilling prescribed formalities fail to achieve desired results. A businessman is under no obligation
to enter into an agreement. But once he chooses to do so, it is expected of him/her that he/she shall
satisfy the prescribed procedures.

2. Classification of Rules Rules may also be classified into (i) criminal rules and (ii) civil rules
depending upon the severity of action to be taken against the wrong doer. If the offender is subject to
a fine or imprisonment he/she has violated a criminal rule. On the other hand, if he/she is sued and
ordered to pay damages to whomsoever he/she has harmed, then he/she has violated a civil rule.
Thus, rules of criminal law impose duties on people (and sometimes on associations of people) and
specify that any violation of these duties is wrong, not merely to the individuals who are harmed, but
to the community at large. Since the whole community has been wronged, public officials take the
initiative in bringing wrong-doer to justice, prosecuting him/her before a court, and urging the judge
and jury to convict and punish him. Any redress received by the individuals wronged as a result of a
criminal proceeding is purely incidental. Criminal wrongs are of two types: felonies and
misdemeanours. Felonies are graver in severity, murder, for example. Misdemeanours are not grave,
but are offenses, nevertheless. An example for misdemeanour is parking violation. Rules of civil law
also impose duties on people and associations of people. Violation of a duty created by a civil rule is
wrong; but unlike a criminal wrong a civil wrong does not constitute a wrong against community at
large. When a wrongful act is merely a civil wrong, public officials will not take the initiative in
prosecuting and punishing the wrong-doer. It is left to the injured person to bring a suit against the
offender. Civil wrongs (excluding only breaches of contract) are more commonly known as torts
(from the French word meaning “Wrong”). Example of torts are trespass, libel, and negligence.

REVIEW QUESTIONS Conceptual Type

1. What is business?
2. What is common law?
3. What is statutory law?
4. What is business law?
5. Mention three important objectives of business law.
6. State three major pitfalls of business law.
7. State three important requisites of an effective legal system.
 8. What is Law?
9. Define Law.
10. What is Criminal Rule?
11. What is Civil Rule?
12. What is right to equity?
Analytical Type
1. “Role of business law is much more than mere policing.” Comment.
2. “Business law, like any other system, has its own problems." Elucidate?
3. Briefly discuss the sources of Business Law.
4. What is Business law? Discuss the objectives of Business Law.
5. Briefly discuss the problems of Business law.
6. State the objectives and pitfalls of Business law.
7. Briefly discuss the requirements of Business law.
8. Discuss the requirements of Business Law.
Essay Type
1. What do you understand by business law? What are its objectives?
2. Define business law. How to make business law effective?
3. What is Business Law? Discuss its objectives and problems.

Session 3:

Taxation in India
The India Constitution is quasi-federal in nature, and the country has three tier government structure.

To avoid any disputes between the centre and state the Constitution envisage following provisions
regarding taxation:

 Division of powers to levy taxes between centre and state is clearly defined.
 There are certain taxes which are levied by the centre, but their proceeds are distributed between both
centre and the state. Example- Union Excise Duty.
 There are certain taxes which are levied by the centre, but their proceeds are transferred to the states.
Example-Estate duty on property other than agriculture income.
 There are certain taxes which are levied by the central government, but the responsibility to collect
them is vested with the states. Example- Stamp Duty other than included in the Union List.
 There are certain taxes which are levied by the states, and their proceeds are also kept by states.
Example: Erstwhile VAT

Classification of Taxes
What is a Tax?
 Taxes are generally an involuntary fee levied on individuals and corporations by the government in
order to finance government activities. Taxes are essentially of quid pro quo in nature. It means a
favour or advantage granted in return for something.

Direct Tax versus Indirect Tax

Basis Direct Tax Indirect Tax

The tax that is levied by the

The tax that is levied by the
government on one entity
government directly on the
Meaning (Manufacturer of goods), but is passed
individuals or corporations are
on to the final consumer by the
called Direct Taxes.
manufacturer.

The incidence and impact of the The incidence and impact of the tax fall
Incidence
direct tax fall on the same person. on different persons.

Income Tax, Corporation Tax and VAT, Service tax, GST, Excise duty,
Examples
Wealth Tax. entertainment tax and Customs Duty.

Nature They are progressive in nature. They are regressive in nature.

Both Social and Economical. Only Economical. When an indirect tax

Social objective of direct tax is the
distribution of income. A person
earning more should contribute
Objective
more in the provision of public
service by paying more tax. This
provision is also known as
progressive taxation.
is levied on a product, both rich and
poor must pay at the same rate. A
person earning 10 lakh a month pays
the same tax on the Wheat purchase as
the person earning 3000 Re a month.
This principle is called regressive
taxation.

Impact Not at all Inflationary. Is inflationary.

Indirect Taxes in India

Custom Duty:

 It is a duty levied on exports and imports of goods.

 Import duty is not only a source of revenue from the government but also have also been employed to
regulate trade.
 Import duties in India is levied on ad valorem basis.
 Example: if an Indian plan to buy a Mercedes from abroad. He must pay the customs duty levied on
it.
 The purpose of the customs duty is to ensure that all the goods entering the country are taxed and
paid for.
 Just as customs duty ensures that goods for other countries are taxed, octroi is meant to ensure that
goods crossing state borders within India are taxed appropriately.
 It is levied by the state government and functions in much the same way as customs duty does.

Excise Duty

 An excise duty is in the true sense is a commodity tax because it is levied on production of goods in
India and not on the sale of the product.
 Excise duty is explicitly levied by the central government except for alcoholic liquor and narcotics.
 It is different from customs duty because it is applicable only to things produced in India and is also
known as the Central Value Added Tax or CENVAT.

Service Tax

 Service tax is levied on the services provided in India.

 Service tax was first introduced in 1994-95 on three services telephone services, general insurance
and share broking.
 Since then, every year the service net has been widened by including more and more services. We
now have an exclusion criterion based on ‘negative list’, where some services are excluded out of tax
net.
 The current rate of service tax in India was 15% before being replaced by Goods and Service tax.

Value Added Tax

 The India’s indirect tax structure is weak and produces cascading effects.
 The structure was by, and large uncertain and complex and its administration was difficult.
 As a result, various committees on taxation recommended ‘Value Added Tax’. The Indirect Taxation
enquiry committee argued for VAT.
 The VAT has a self-monitoring mechanism which makes tax administration easier.
 The VAT is properly structured removes distortions.
 Accordingly, VAT has been introduced in India by all states and UTs (except UTs of Andaman
Nicobar and Lakshadweep).
 The State VAT being implemented till 1 July 2017, had replaced erstwhile Sales Tax of States.
 The tax is levied on various goods sold in the state, and the amount of the tax is decided by the state
itself.

Indirect Taxes in a nutshell

Revenue
Tax Who Levies Nature Incidence Levied on
goes to

Shifts to
Central Centre Export and
Custom Duty Progressive Final
Government Govt Import
Consumer

Excise Central Both progressive Shifts to Domestically

Duty/CENVAT Government Centre Final Manufactured
 and State Consumer Goods

Shifts to
Central Centre
Service Tax Regressive Final All Services
Government Govt
Consumer

Shifts to
State State Sale of Goods
VAT Regressive Final
Government Govt in the States
Consumer

What are the Different Types of Taxes?

Mainly, there are two kinds of taxes defined under the Indian tax system, which get further sub-
divided into other categories:
1. Direct taxes in India
2. Indirect taxes in India
Let’s understand direct and indirect taxes applicable in India.
1. Direct Taxes in India
As per the Indian tax system, direct taxes in India are the ones that are directly levied on an individual
or taxpayer’s income. The Central Board of Direct Taxes (CBDT) overlook the direct taxes in India,
and they cannot get transferred to any other individual or legal entity.
What are the different types of Direct Taxes in India?

The following are the types of direct taxes in India, as defined under the Indian tax system:
1. Income tax
The tax that gets levied on the annual income or the profits of an individual or an entity is Income
Tax. Therefore, the Indian tax system recognises both salaried and self-employed individuals who are
earning an income, to be liable to pay income tax. Also, there is also a tax exemption limit of up to
Rs.2.5 lakh per annum under the Indian tax system, given to individuals below 60 years of age.
Similarly, the Indian tax system provides a tax exemption limit of up to Rs.3 lakh for individuals of
the age of 60 or above but less than 80. The limit is Rs.5 lakh for individuals of the age of 80 or
above. The tax slabs differ with income.

2. Indirect taxes in India

Taxes that get imposed on products and services when they are bought and sold are called indirect
taxes in India. The sellers of the service or products collect these taxes under the Indian tax system.
The tax gets levied as an addition to the original price of the product or service, which increases their
cost. Following are the different types of indirect taxes in India.
Goods and Services Tax

Goods or Services Tax (GST) is a consumption tax imposed on services and goods supply and has
completely replaced the indirect taxes in India. The Indian tax system stipulates that every stage of
the goods production process and value-added services is under the obligation to pay GST.
The introduction of GST under the Indian tax system has resulted in the abolition of other kinds of
indirect taxes in India and charges like Value Added Tax (VAT), OCTROI, Central Value Added Tax
(CENVAT), and also custom and excise taxes.
As per the Indian tax system, an exemption is given to the products or services such as electricity,
alcoholic drinks, and petroleum products that do not get taxed under GST. This tax is imposed
according to the previous tax regime decided by the different state governments.

What other Taxes come under Indirect Taxes?

Following are some other types of taxes which fall under the indirect tax category:
1. Securities Transaction Tax
2. Dividend Distribution Tax
3. Property Tax
4. Professional Tax
5. Entertainment Tax
6. Registration Fees, Stamp Duty, Transfer Tax
7. Education cess
8. Entry Tax
9. Road Tax and Toll Tax

What are the Differences between Direct Taxes and Indirect Taxes in India?
Direct Taxes Indirect Taxes

It is imposed on income and conducted

It is imposed on products and services.
activities.

The load of tax cannot be shifted in The load of tax can be shifted for indirect
case of direct taxes in India. taxes in India.

One person pays indirect taxes in India

but recovers the same from another
The concerned person directly pays
person, i.e. a person who actually bears
direct taxes in India.
the burden is ultimately the consumer.

Direct taxes in India are paid only after Indirect taxes in India are paid before the
the taxpayer receives an income. service or goods reach a taxpayer.

Examples of direct taxes in India are Examples of indirect taxes in India are
wealth tax and income tax. GST, excise and custom duties.
 Session 4:
INDIAN CONTRACT ACT 1872 INTRODUCTION
 The Law of Contract deals with the law relating to the general principles of contract. It is the most
important part of Mercantile Law. It affects every person in one way or the other, as all of us enter
into some kind of contract everyday.  Since this law was not happily worded, two subsequent
legislations namely Indian Sale of Goods Act – Sections 76 to 123 of the Indian Contract Act 1872
were repealed; and Partnership Act was also enacted and Sections 239 to 266 of the Contract Act
were also repealed. What is `Contract`
 The term `Contract` is defined in Section 2(h) of the Indian Contract Act, which reads as under “An
agreement enforceable by law is a contracts.”
 The analysis of this definition shows that a contract must have the following two elements: 1. An
agreement, and 2. The agreement must be enforceable by law.
 In other words: Contract = An Agreement + Enforceability (by law) Agreement (Section 2(e) Every
promise and every set of promises forming the consideration for each other is an agreement. Promise
(Section 2(b)) A proposal when accepted becomes a promise.
 Every agreement is not a contract. When an agreement creates some legal obligations and is
enforceable by law, it is regarded as a contract.
2.1 ESSENTIAL ELEMENTS OF CONTRACT 1. Agreement 2. Intention to create legal
relationship 3. Free and genuine consent. 4. Parties competent to contract. 5. Lawful consideration. 6.
Lawful object. 7. Must be in writing. (Generally, oral contract is not enforceable) 8. Agreement not
declared void or illegal. 9. Certainty of meaning. 10. Possibility of performance. 11. Necessary legal
formalities.
Ex – Where 'A' who owns 2 cars x and y wishes to sell car 'x' for Rs. 30,000. 'B', an acquaintance of
'A' does not know that' A' owns car 'x' also. He thinks that' A' owns only car 'y' and is offering to sell
the same for the stated price. He gives his acceptance to buy the same. There is no contract because
the contracting parties have not agreed on the same thing at the same time, 'A' offering to sell his car
'x' and 'B' agreeing to buy car or'. There is no consensus-ad-idem.
LAW OF CONTRACT CREATES jus in personam  The term jus in personam means a “right
against or in respect of a specific person.” Thus, law of contract creates jus in personam and not jus in
rem. A jus in rem means a right against or a thing. CLASSIFICATION OF CONTRACTS 1.
Classification according to validity or enforceability. a) Valid b) Voidable c) Void contracts or
agreements d) Illegal. e) Unenforceable 2. Classification according to Mode of formation (i) Express
contract (ii) Implied contract 2. Classification according to Performance
CONTRACT ACT (i) Executed contract (ii) Executory contract. (iii) Unilateral Contract (iv)
Bilateral Contract
2.2 OFFER AND ACCEPTANCE [Sections 3-9] OFFER What is `Offer/Proposal`  A Proposal is
defined as quot;when one person signifies to another his willingness to do or to abstain from doing
anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make
a proposal.quot; [Section 2(a)]. How an Offer is made?  An offer can be made by (a) any act or (b)
omission of the party proposing by which he intends to communicate such proposal or which has the
effect of communicating it to the other (Section 3).
CASE EXAMPLE In Carbolic Smoke Ball Co. 's case, the patent-medicine company advertised that
it would give a reward of £100 to anyone who contracted influenza after using the smoke balls of the
company for a certain period according to the printed directions. Mrs. Carlill purchased the advertised
smoke ball and contracted influenza in spite of using the smoke ball according to the printed
instructions. She claimed the reward of £100. The claim was resisted by the company on the ground
that offer was not made to her and that in any case she had not communicated her acceptance of the
offer. She filed a suit for the recovery of the reward. Held: She could recover the reward as she had
accepted the offer by complying with the terms of the offer.)
ESSENTIAL REQUIREMENTS OF A VALID OFFER  An offer must have certain essentials in
order to constitute it a valid offer. These are: I. The offer must be made with a view to obtain
acceptance. 2. The offer must be made with the intention of creating legal relations. [Balfour v.
Balfour (1919) 2 K.B.57Il 2. The terms of offer must be definite, unambiguous and certain or
capable of being made certain. The terms of the offer must not be loose, vague or ambiguous. 4. An
offer must be distinguished from (a) a mere declaration of intention or (b) an invitation to offer or to
treat. An auctioneer, at the time of auction, invites offers from the would-be-bidders. He is not
making a proposal. A display of goods with a price on them in a shop window is construed an
invitation to offer and not an offer to sell. Offer vis-a-vis Invitation to offer An offer must be
distinguished from invitation to offer.  A prospectus issued by a company for subscription of its
shares by the members of the public, is an invitation  to offer. The Letter of Offer issued by a
company to its existing shareholders is an offer. 5. The offer must be communicated to the offeree.
An offer must be communicated to the offeree before it can be accepted. This is true of specific as
sell as general offer. 6. The offer must not contain a term the non-compliance of which may be
assumed to amount to acceptance. Cross Offers  Where two parties make identical offers to each
other, in ignorance of each other's offer, the offers are known as cross-offers and neither of the two
can be called an acceptance of the other and, therefore, there is no contract.
TERMINATION OR LAPSE OF AN OFFER  An offer is made with a view to obtain assent
thereto. As soon as the offer is accepted it becomes a contract. But before it is accepted, it may
lapse, or may be revoked. Also, the offeree may reject the offer. In these cases, the offer will come
to an end. 1) The offer lapses after stipulated or reasonable time 2) An offer lapses by the death or
insanity of the offeror or the offeree before acceptance. 3) An offer terminates when rejected by the
offeree. 4) An offer terminates when revoked by the offeror before acceptance. 5) An offer
terminates by not being accepted in the mode prescribed, or if no mode is prescribed, in some usual
and reasonable manner. 6) A conditional offer terminates when the condition is not accepted by the
offeree. (7) Counter Offer
TERMINATION OF AN OFFER 1. An offer lapses after stipulated or reasonable time. 2. An offer
lapses by the death or insanity of the offeror or the offeree before acceptance. 2. An offer.
CONTRACT ACT rejection. 4. An offer terminates when revoked. 5. It terminates by counter-offer.
6. It terminates by not being accepted in the mode prescribed or in usual and reasonable manner. 7.
A conditional offer terminates when condition is not accepted. ACCEPTANCE  Acceptance has
been defined as quot;When the person to whom the proposal is made signifies his assent thereto, the
proposal is said to be accepted”. Acceptance how made  The offeree is deemed to have given his
acceptance when he gives his assent to the proposal. The assent may be express or implied. It is
express when the acceptance has been signified either in writing, or by word of mouth, or by
performance of some required act. Ex- A enters into a bus for going to his destination and takes a
seat. From the very nature, of the circumstance, the law will imply acceptance on the part of A.]  In
the case of a general offer, it can be accepted by anyone by complying with the terms of the offer.
ESSENTIALS OF A VALID ACCEPTANCE 1) Acceptance must be absolute and unqualified. 2)
Acceptance must be communicated to the offeror. 3) Acceptance must be according to the mode
prescribed. Ex- A sends an offer to B through post in the usual course. B should make the
acceptance in the quot;usual and reasonable mannerquot; as no mode of acceptance is prescribed.
He may accept the offer by sending a letter, through post, in the ordinary course, within a
reasonable time.
COMMUNICATION OF OFFER, ACCEPTANCE AND REVOCATION  As mentioned earlier
that in order to be a valid offer and acceptance. (i) the offer must be communicated to the offeree,
and (ii) the acceptance must be communicated to the offeror. The communication of acceptance is
complete: (i) as against the proposer, when it is put into a course of transmission to him, so as to be
out of the power of the acceptor; (ii) as against the acceptor, when it comes to the knowledge of the
proposer. Ex- A proposes, by letter, to sell a house to B at a certain price. B accepts A's proposal by
a letter sent by post. The communication of acceptance is complete: (i) as against A, when the letter
is posted by B; (ii) as against B, when the letter is received by A. The communication of a
revocation (of an offer or an acceptance) is complete: (1) as against the person who makes it, when
it is put into a course of transmission to the person to whom it is made, so as to be out of the power
of the person who makes it. (2) as against the person to whom it is made when it comes to his
knowledge. Ex- A revokes his proposal by telegram. The revocation is complete as against A, when
the telegram is dispatched. It is complete as against B, when B receives it. Revocation of proposal
and acceptance:  A proposal may be revoked at any time before the communication of its
acceptance is complete as against the proposer, but not afterwards. Ex- A proposes, by a letter sent
by post, to sell his house to B. B accepts the proposal by a letter sent by post. A may revoke his
proposal at any time before or at the moment when B posts his letter of acceptance, but not
afterwards. B may revoke his acceptance at any time before or at the moment when the letter
communicating it reaches A, but not afterwards.
CAPACITY TO CONTRACT (Sections 10-12) WHO ARE NOT COMPETENT TO CONTRACT
 The following are considered as incompetent to contract, in the eye of law: - (1) Minor: - (i) A
contract with or by a minor is void and a minor, therefore, cannot, bind himself by a contract. (ii) A
minor's agreement cannot be ratified by the minor on his attaining majority.(iii) If a minor has
received any benefit under a void contract, he cannot be asked to refund the same. (iv) A minor
cannot be a partner in a partnership firm. (v) A minor's estate is liable to a person who supplies
necessaries of life to a minor. CASE EXAMPLE In 1903 the Privy Council in the leading case of
Mohiri Bibi v. Dharmodas Ghose (190,30 Ca. 539) held that in India minor's contracts are
absolutely void and not merely voidable. The facts of the case were: Dharmodas Ghose, a minor,
entered into a contract for borrowing a sum of Rs. 20,000 out of which the lender paid the minor a
sum of Rs. 8,000. The minor executed mortgage of property in favour of the lender. Subsequently,
the minor sued for setting aside the mortgage. The Privy Council had to ascertain the validity of the
mortgage. Under Section 7 of the Transfer of Property Act, every person competent to contract is
competent to mortgage. The Privy Council decided that Sections 10 and 11 of the Indian Contract
Act make the minor's contract void. The mortgagee prayed for refund of Rs. 8,000 by the minor.
The Privy Council further held that as a minor's contract is void, any money advanced to a minor
cannot be recovered. (2) Mental Incompetence  A person is said to be of unsound mind for the
purpose of making a contract, if at the time when he makes it, he is incapable of understanding it,
and of forming a rational judgement as to its effect upon his interests.  A person, who is usually of
unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind. Ex-
A patient, in a lunatic asylum, who is at intervals, of sound mind; may contract during those
intervals. A sane man, who is delirious from fever or who is so drunk that he cannot understand the
terms of a contract or form a rational judgement as to its effect on his interest, cannot contract whilst
such delirium or drunkenness lasts. (3) Incompetence through Status (i) Alien Enemy (Political
Status) (ii) Foreign Sovereigns and Ambassadors (iii) Company under the Companies Act or
Statutory Corporation by passing Special Act of Parliament (Corporate status) (iv) Insolvent
Persons .
FREE CONSENT (Sections 10; 13-22) What is the meaning of `CONSENT` (SECTION 13) 
When two or more persons agree upon the same thing in the same sense, they are said to consent.
Ex- A agrees to sell his Fiat Car 1983 model for Rs. 80,000. B agrees to buy the same. There is a
valid contract since A and B have consented to the same subject matter. What is meant by `Free
Consent`  Consent is said to be free when it is not caused by Causes affecting contract
Consequences 1. Coercion Contract voidable 2. Undue influence Contract voidable 2. Fraud
Contract voidable 4. Misrepresentation Contract voidable 5. Mistake – (i) of fact (a) Bilateral Void
(b) Unilateral Generally not invalid (ii) of Fact Void Ex - (i) A railway company refuses to deliver
certain goods to the consignee, except upon the payment of an illegal charge for carriage. The
consignee pays the sum charged in order to obtain the goods. He is entitled to recover so much of
the charge as was illegally excessive. (ii) The directors of a Tramway Co. issued a prospectus
stating that they had the right to run tramcars with steam power instead of with horses as before. In
fact, the Act incorporating the company provided that such power might be used with the sanction
of the Board of Trade. But, the Board of Trade refused to give permission and the company had to
be wound up. P, a shareholder sued the directors for damages for fraud. The House of Lords held
that the directors were not liable in fraud because they honestly believed what they said .
CONSIDERATION [Sections 2(d), 10,23-25, 148, 185] Definition  Consideration is what a
promisor demands as the price for his promise. In simple words, it means 'something in return.' 
Consideration has been defined as quot;When at the desire of the promisor, the promisee or any
other person has done or abstained from doing, or does or abstains from doing, or promises to do or
promises to abstain from doing something, such act or abstinence or promise is called a
consideration for the promise.quot;
IMPORTANCE OF CONSIDERATION  A promise without consideration is purely gratuitous
and, however sacred and binding in honour it may be, cannot create a legal obligation.  A person
who makes a promise to do or abstain from doing something usually does so as a return or
equivalent of some loss, damage, or inconvenience that may have been occasioned to the other party
in respect of the promise. The benefit so received and the loss, damage or inconvenience so caused
is regarded in law as the consideration for the promise.
KINDS OF CONSIDERATION  A consideration may be: 1. Executed or Present 2. Executory or
Future 2. Past 2.6 LEGALITY OF OBJECT (Sections 23, 24)  An agreement will not be
enforceable if its object or the consideration is unlawful. According to Section 23 of the Act, the
consideration and the object of an agreement are unlawful in the following cases: What
consideration and objects are unlawful – agreement VOID 1. If it is forbidden by law 2. If it is of
such a nature that if permitted, it would defeat the provisions of any law. 2. If it is fraudulent. An
agreement with a view to defraud other is void. 4. If it involves or implies injury to the person or
property of another. If the object of an agreement is to injure the person or property of another it is
void. 5. If the Court regards it as immoral or opposed to public policy. An agreement, whose object
or consideration is immoral or is opposed to the public policy, is void. Ex- A partnership entered
into for the purpose of doing business in arrack (local alcoholic drink) on a licence granted only to
one of the partners, is void ab-initio whether the partnership was entered into before the licence was
granted or afterwards as it involved a transfer of licence, which is forbidden and penalised by the
Akbari Act and the rules thereunder [Velu Payaychi v. Siva Sooriam, AIR (1950) Mad. 987]. 2.7
VOID and VOIDABLE Agreements (Sections 26-30) Void agreement 1. The following are the
additional grounds declaring agreements as void: - (i) Agreements by person who are not competent
to contract. (ii) Agreements under a mutual mistake of fact material to the agreement. (iii)
Agreement with unlawful consideration. (iv) Agreement without consideration. (Exception – if such
an agreement is in writing and registered or for a past consideration) (v) Agreement in restraint of
marriage. (vi) Agreement in restraint of trade (vii) Agreements in restrain of legal proceedings,
(viii) Agreements void for uncertainty (Agreements, the meaning of which is not certain, or capable
of being made certain) (ix) Agreements by way of wager (a promise to give money or money's
worth upon the determination or ascertainment of an uncertain event) (x) Agreements against Public
Policy .(xi) Agreements to do impossible act. Voidable agreements  An agreement, which has been
entered into by misrepresentation, fraud, coercion is voidable, at the option of the aggrieved party.
2.8 CONTINGENT CONTRACTS (SECTIONS 31-36)  A contingent contract is a contract to do
or not to do something, if some event, collateral to such contract does or does not happen. When a
contingent contract may be enforced  Contingent contracts may be enforced when that uncertain
future event has happened. If the event becomes impossible, such contracts become void.
ESSENTIAL ELEMENTS OF A CONTINGENT CONTACT 1. There must be a valid contract. 2.
The performance of the contract must be conditional. 3. The even must be uncertain. 4. The event
must be collateral to the contact. 5. The event must be an act of the party. 6. The event should not be
the discretion of the promisor.
2.9 QUASI CONTRACTS [SECTIONS 68- 72]  The term `quasi contract` may be defined as a `
contract which resembles that created by a contract.` as a matter of fact, `quasi contract` is not a
contract in the strict sense of the term, because there is no real contract in existence. Moreover,
there is no intention of the parties to enter into a contract. It is an obligation, which the law creates
in the absence of any agreement. CIRCUMSTANCES OF QUASI CONTRACTS  Following are
to be deemed Quasi-contracts. (i) Claim for Necessaries Supplied to a person incapable of
Contracting or on his account. (ii) Reimbursement of person paying money due by another in
payment of which he is interested. Obligation of a person enjoying benefits of non-gratuitous act.
(iii) Responsibility of Finder of Goods (iv) Liability of person to whom money is paid, or thing
delivered by mistake or under coercion Ex- A, who supplies the wife and children of B, a lunatic,
with necessaries suitable to their conditions in life, is entitled to be reimbursed from B's property.
2.10 PERFORMANCE OF CONTRACTS [SECTIONS 37-67] Offer to perform or tender of
performance  According to Section 38, if a valid offer/tender is made and is not accepted by the
promisee, the promisor shall not be responsible for non-performance nor shall he lose his rights
under the contract. A tender or offer of performance to be valid must satisfy the following
conditions: 1. It must be unconditional. 2. It must be made at proper time and place, and performed
in the agreed manner.
WHO MUST PERFORM  Promisor - The promise may be performed by promisor himself, or his
agent or by his legal representative.  Agent - the promisor may employ a competent person to
perform it.  Legal Representative - In case of death of the promisor, the Legal representative must
perform the promise unless a contrary intention appears from the contract.
CONTRACTS, WHICH NEED NOT BE PERFORMED I. If the parties mutually agree to
substitute the original contract by a new one or to rescind or alter it 2. If the promisee dispenses
with or remits, wholly or in part the performance of the promise made to him or extends the time for
such performance or accepts any satisfaction for it. 2. If the person, at whose option the contract is
voidable, rescinds it. 4. If the promisee neglects or refuses to afford the promisor reasonable
facilities for the performance of his promise.
2.11 DISCHARGE OF CONTRACTS [Sections 73-75]
1.  The cases in which a contract is discharged may be classified as follows: A. By performance
or tender B. By mutual consent  A contract may terminate by mutual consent in any of the
following ways: - a. Novation (substitution) b. Recession (cancellation) c. Alteration C. By
subsequent impossibility D. By operation of law E. By breach
SESSION:5
REMEDIES FOR BREACH OF CONTRACT (SECTIONS 73-75)  As soon as either party commits
a breach of the contract, the other party becomes entitled to any of the following reliefs: - a)
Recession of the contract b) Damages (monetary compensation) c) Specific performance d)
Injunction e) Quantum meruit Ex – A, a singer contracts with B, the manager of a theatre, to sing at
his theatre for two nights in every week during the next two months, and B engages to pay her Rs.
100 for each night’s performance. On the sixth night, A wilfully absents herself from the theatre and
B in consequence, rescinds the contract. B is entitled to claim compensation for the damages for
which he has sustained through the non-fulfilment of the contract. 2.13 CONTRACTS OF
INDEMNITY [SECTIONS 124-125] What is contract of indemnity  A contract of indemnity is a
contract whereby one party promises to save the other from loss caused to him by the conduct of the
promisor himself or by the conduct of any other party.  A contract of indemnity may arise either (1)
by an express promise or (2) by operation of law i.e. the duty of a principal to indemnify an agent
from consequences of all lawful acts done by him as an agent.
RIGHTS OF INDEMNIFIED (THE INDEMNITY HOLDER)  The indemnity holder is entitled to
recover from the promisor a) All the damages which may be compelled to pay in any suit in respect
of any matter to which the promise to indemnify applies b) All costs of suit which he may have to pay
to such third party provided in bringing or defending the suit (i) he acted under the authority of the
indemnifier or (ii) he did not act in contravention of the orders of the indemnifier and in such a such
as a prudent man would act in his own case. c) All sums which he may have paid under the terms of
any compromise of any such suit, if the compromise was not contrary to the orders of the
indemnifier, and was one which it would have been prudent for the promisee to make.
RIGHTS OF INDEMNIFIER  The Contract Act makes no mention of the rights of the indemnifier.
It has been held in Jaswant Singh Vs. Section of State 14 Bom 299 that the indemnifier becomes
entitled to the benefit of all the securities, which the creditor has against the principal debtor whether
he was aware of them, or not.

SESSION :6
Special Contracts: Indemnity, Guarantee, Bailment and Pledge
The term Indemnity literally means “Security against loss". In a contract of indemnity one party – i.e.
the indemnifier promise to compensate the other party i.e. the indemnified against the loss suffered
by the other. The definition of a contract of indemnity as laid down in Section 124 – “A contract by
which one party promises to save the other from loss caused to him by the conduct of the promisor
himself, or by the conduct of any other person, is called a contract of indemnity.
ILLUSTRATION A contracts to indemnify B against the consequences of any proceedings which C
may take against B in respect of a certain sum of 200 rupees. This is a contract of indemnity.
VALIDITY OF INDEMNITY AGREEMENT A contract of indemnity is one of the species of
contracts. The principles applicable to contracts in general are also applicable to such contracts so
much so that the rules such as free consent, legality of object, etc., are equally applicable. Where the
consent to an agreement is caused by coercion, fraud, misrepresentation, the agreement is voidable at
the option of the party whose consent was so caused. As per the requirement of the Contract Act, the
object of the agreement must be lawful. An agreement, the object of which is opposed to the law or
against the public policy, is either unlawful or void depending upon the provision of the law to which
it is subject.
RIGHT OF THE INDEMNITY HOLDER – (SECTION 125) • An indemnity holder (i.e.
indemnified) acting within the scope of his authority is entitled to the following rights 1. Right to
recover damages – he is entitled to recover all damages which he might have been compelled to pay
in any suit in respect of any matter covered by the contract. 2. Right to recover costs – He is entitled
to recover all costs incidental to the institution and defending of the suit. 3. Right to recover sums
paid under compromise – he is entitled to recover all amounts which he had paid under the terms of
the compromise of such suit. However, the compensation must not be against the directions of the
indemnifier. It must be prudent and authorized by the indemnifier. •
RIGHT OF INDEMNIFIER – • Section 125 of the Act only lays down the rights of the indemnified
and is quite silent of the rights of indemnifier • as if the indemnifier has no rights but only liability
towards the indemnified.
CONTRACT OF GUARANTEE • A "contract of guarantee " is a contract to perform the promise, or
discharge the liability, of a third person in case of his default. The person who gives the guarantee is
called the " surety“. • the person in respect of whose default the guarantee is given is called the "
principal debtor ", and the person to whom the guarantee is given is called the " creditor ". A
guarantee may be either oral or written. •
ILLUSTRATIONS • (a) B requests A to sell and deliver to him goods on credit. A agrees to do so,
provided C will guarantee the payment of the price of the goods. C promises to guarantee the
payment in consideration of A’s promise to deliver the goods. This is a sufficient consideration for Cs
promise. • (b) A sells and delivers goods to B. C afterwards requests A to forbear to sue B for the
debt for a year, and promises that, if he does so, C will pay for them in default of payment by B. A
agrees to forbear as requested. • This is a sufficient consideration for Cs promise. Bailment •
Bailment is a kind of activity in which the property of one person temporarily goes into the
possession of another. The ownership of the property remains with the giver, while only the
possession goes to another. • Several situations in day to day life such as giving a vehicle for repair,
or parking a scooter in a parking lot, giving a cloth to a tailor for stitching •
Section 148 of Indian Contract Act 1872, defines bailment as follows – • Section 148 – A bailment is
the delivery of goods by one person to another for some purpose, upon a contract that they shall,
when the purpose is accomplished, be returned or otherwise disposed of according to the directions of
the person delivering them. The person delivering the goods is called the bailor and the person to
whom they are delivered is called the bailee. • Duties of a Bailor • A bailor may give his property to
the bailee either without any consideration or reward or for a consideration or reward. • In the former
case, he is called a gratuitous bailor, while in the latter, a bailor for reward. The duties in both the
cases are slightly different.
Section 150 specifies the duties for both kinds of bailor. It says that the bailor is bound to disclose
any faults in the goods bailed that the bailor is aware of, and which materially interfere with the use
of them or which expose the bailee to extraordinary risk. This means that if there is a fault with the
goods which may cause harm to the bailee, the bailor must tell it to the bailee. • For example, if a
person bails his scooter to his friend and if the person knows that the brakes are loose, then he must
tell this to the friend. Otherwise, the bailor will be responsible for damages arising directly out of the
faults to the bailee. But the bailor is not bound to tell the bailee about the fault if the bailor himself
 does not know about it. • Section 150 imposes a bigger responsibility to the non-gratuitous bailor
since he is making a profit out of the bailment. A non gratuitous bailor is responsible for any damage
that happens to the bailee directly because of the fault of the goods irrespective of whether the bailor
knew about it or not.
Duties/Responsibilities of a Bailee • 1. Duty to take reasonable care: Section 151 treats all kinds of
bailees the same with respect to the duty. It says that in all cases of bailment, the bailee is bound to
take as much care of the goods bailed to him as a man of ordinary prudence would, under similar
circumstances take, of his own goods of the same bulk, quality, and value as the goods bailed. The
bailee must treat the goods as his own in terms of care. However, this does not mean that if the bailor
is generally careless about his own goods, he can be careless about the bailed goods as well. He must
take care of the goods as any person of ordinary prudence would of his things. • 2. Bailee, when not
liable for loss etc. for thing bailed – : As per section 152, in absence of a special contract, the bailee is
not responsible for loss, destruction, or deterioration of the thing bailed, if he has taken the amount of
care as described in section 151. This means that if the bailee has taken as much care of the goods as
any owner of ordinary prudence would take of his goods, then the bailee will not be liable for the
loss, destruction, or deterioration of the goods. No fixed rule regarding how much care is sufficient
can be laid down and the nature, quality, and bulk of goods will be taken into consideration to find
out if proper care was taken or not. In Gopal Singh vs Punjab National Bank, AIR 1976, Delhi HC
held that on the account of partition of the country, when a bank had to flee along with mass exodus
from Pakistan to India, the bank was not liable for the goods bailed to it in Pakistan. 3.Duty not to
make unauthorized use (Section 154) : Section 154 says that if the bailee makes any use of the goods
bailed which is not according to the conditions of the bailment, he is liable to make compensation to
the bailor for any damage arising to the goods from or during such use of them. 4. Duty to return
(Section 160) : It is the duty of the bailee to return or deliver according to the bailor’s directions, the
goods bailed, without demand, as soon as the time for which they were bailed has expired or the
purpose for which they were bailed has been accomplished. Pledge A pledge is only a special kind of
bailment, and chief basis of distinction is the object of the contract. Where the object of the delivery
of goods is to provide a security for a loan or for the fulfilment of an obligation, that kind of bailment
is pledge. Under Indian Contract Act, 1872 the ‘Pledge’ has been defined in section 172 as: S 172.
“Pledge”, “pawnor”, and “Pawnee” defined: The bailment of goods as security for payment of a debt
or performance of a promise is called “pledge”. The bailor is in this case called the “Pawnor”. The
Bailee is called the “Pawnee”.
CONTRACT OF GUARANTEE [SECTION 126] What is Contract of Guarantee  A contract of
guarantee is defined as a contract to perform the promise or discharge the liability or a third person in
case of his default.  The person who gives the guarantee is called the “Surety”, the person from
whom the guarantee is given is called the “Principal Debtor” and the person to whom the guarantee I
given is called the “Creditor”. Requirement of two contracts  It must be noted that in a contract of
guarantee there must, in effect be two contracts.
(i) a principal contract - the principal debtor and the creditor ; and (ii) a secondary contract - the
creditor and the surety. Ex – When A requests B to lend Rs. 10,000 to C and guarantees that C will
repay the amount within the agreed time and that on C failing to do so, he will himself pay to B, there
is a contract of guarantee. Essential and legal rules for a valid contract of guarantee (i) The contract
of guarantee must satisfy the requirements of a valid contract (ii) There must be someone primarily
liable (iii) The promise to pay must be conditional Kinds of guarantee (i) Specific Guarantee (ii)
Continuing Guarantee
RIGHTS AND OBLIGATIONS OF THE CREDITOR Rights  The creditor is entitled to demand
payment from the surety as soon as the principal debtor refuses to pay or makes default in payment.
Obligations  The obligations of a creditor are: 1) Not to change any terms of the Original Contract.
 2) Not to compound, or give time to, or agree not to sue the Principal Debtor 3) Not to do any act
inconsistent with the rights of the surety
RIGHTS OF SURETY  Rights of a surety may be classified under three heads: 1. Rights against the
Creditor In case of fidelity guarantee, the surety can direct creditor to dismiss the employee whose
honesty he has guaranteed, in the event of proved dishonesty of the employee. 2. Rights against the
Principal Debtor (a) Right of Subrogation (stepping into the shoes of the original) Where a surety has
paid the guaranteed debt on its becoming due or has performed the guaranteed duty on the default of
the principal debtor, he is invested with all the rights, which the creditor has against the debtor. (b)
Right to be indemnified The surety has the right to recover from the principal debtor, the amounts
which he has rightfully paid under the contract of guarantee. 2. Rights of Contribution Where a debt
has been guaranteed by more than one person, they are called as co-sureties. When a surety has paid
more than his share, he has a right of contribution from the other sureties who are equally bound to
pay with him.
LIABILITIES OF SURETY  The liability of a surety is called as secondary or contingent, as his
liability arises only on default by the principal debtor.  But as soon as the principal debtor defaults,
the liability of the surety begins and runs co-extensive with the liability of the principal debtor, in the
sense that the surety will be liable for all those sums for which the principal debtor is liable. The
creditor may file a suit against the surety without suing the principal debtor.  Where the creditor
holds securities from the principal debtor for his debt, the creditor need not first exhaust his remedies
against the securities before suing the surety, unless the contract specifically so provides.
DISCHARGE OF SURETY 1. By notice of revocation 2. By death of surety 2. By variance in terms of
contract 4. By release or discharge of Principal Debtor 5. By compounding with, or giving time to, or
agreeing not to sue, Principal Debtor 6. By creditor's act or omission impairing Surety's eventual
remedy 7. Loss of Security
CONTRACT OF BAILMENT AND PLEDGE BAILMENT [SECTIONS 148 –181] What is
`Bailment`  When one person delivers some goods to another person under a contract for a specified
purpose and when that specified purposes is accomplished the goods shall be delivered to the first
person, it is known as Bailment  The person delivering the goods is called the quot;Bailorquot;, and
the person to whom goods are delivered is called the quot;Baileequot;.
CHARACTERISTICS OF BAILMENT 1. Delivery of Goods - it may be express or constructive
(implied). 2. Contract. 2. Return of goods in specie. KINDS OF BAILMENTS  Bailment may be
classified as follows: - 1. Deposit - Delivery of goods by one man to another to keep for the use of the
bailor. 2. Commodatum - Goods lent to friend gratis (free of charge) to be used by him. 2. Hire -
Goods lent to the bailee for hire, i.e., in return for payment of money. 4. Pawn or Pledge - Deposit of
goods with another by way of security for money borrowed. 5. Delivery of goods for being
transported by the bailee - for reward. DUTIES OF BAILOR 1. To disclose faults in the goods 2.
Liability for breach of warranty as to title. 2. To bear expenses in case of Gratuitous bailments 4. In
case of non-gratuitous bailments, the bailor is held responsible to bear only extra-ordinary expenses.
Ex- A horse is lent for a journey. The ordinary expenses like feeding the horse etc., shall be borne by
the bailee but in case horse falls ill, the money spent in his treatment will be regarded as an extra-
ordinary expenditure and borne by the bailor.
DUTIES OF THE BAILEE 1. To take care of the goods bailed 2. Not to make unauthorised use of
goods 2. Not to Mix Bailor's goods with his own 4. To return the goods bailed 5. To return any
accretion to the goods bailed RIGHTS OF BAILEE 1. The bailee can sue bailor for (a) claiming
compensation for damage resulting from non-disdosure of faults in the goods; (b) for breach of
warranty as to title and the damage resulting therefrom; and (c) for extraordinary expenses. 2. Lien 2.
Rights against wrongful deprivation of injury to goods
RIGHTS OF THE BAILOR 1. The bailor can enforce by suit all duties or liabilities of the bailee. 2.
In case of gratuitous bailment (i.e., bailment without reward), the bailor can demand their return
whenever he pleases, even though he lent it for a specified time or purpose.
TERMINATION OF BAILMENT 1. On the expiry of the stipulated period. 2. On the
accomplishment of the specified purpose. 2. By bailee's act inconsistent with conditions.
FINDER OF LOST GOODS  Finding is not keeping. A finder of lost goods is treated as the bailee
of the goods found as such and is charged with the responsibilities of a bailee, besides the
responsibility of exercising reasonable efforts in finding the real owner.  However, he enjoys certain
rights also. His rights are summed up hereunder 1. Right to retain the goods 2. Right to Sell -the
finder may sell it: (1) when the thing is in danger of perishing or of losing the greater part of its value;
(2) when the lawful charges of the finder in respect of the thing found, amount to 2/3rd of its value.
2.16 PLEDGE  A pledge is the bailment of goods as security for payment of debt or performance of
a promise. The person who delivers the goods, as security is called the 'pledgor' and the person to
whom the goods are so delivered is called the 'pledgee'. The ownership remains with the pledgor. It is
only a qualified property that passes to the pledgee.  Delivery Essential - A pledge is created only
when the goods are delivered by the borrower to the lender or to someone on his behalf with the
intention of their being treated as security against the advance. Delivery of goods . however, be actual
or constructive.
CONTRACT OF AGENCY [SECTION 182 – 238] Who is an `Agent`  An agent is defined as a
quot;person employed to do any act for another or to represent another in dealings with third
personquot;. In other words, an agent is a person who acts in place of another. The person for whom
or on whose behalf he acts is called the Principal.  Agency is therefore, a relation based upon an
express or implied agreement whereby one person, the agent, is authorised to act for another, his
principal, in transactions with third person.  The function of an agent is to bring about contractual
relations between the principal and third parties.
WHO CAN EMPLOY AN AGENT  Any person, who is capable to contract may appoint as agent.
Thus, a minor or lunatic cannot contract through an agent since they cannot contract themselves
personally either.
WHO MAY BE AN AGENT  In considering the contract of agency itself (i.e., the relation between
principal and agent), the contractual capacity of the agent becomes important.
HOW AGENCY IS CREATED  A contract of agency may be created by in any of the following
three ways: - (1) Express Agency (2) Implied Agency (3) Agency by Estoppel (4) Agency by Holding
Out (5) Agency of Necessity (6) Agency By Ratification DUTIES OF AGENT 1. To conduct the
business of agency according to the principal's directions 2. The agent should conduct the business
with the skill and diligence that is generally possessed by persons engaged in similar business, except
where the principal knows that the agent is wanting in skill. 3. To render proper accounts. 4. To use
all reasonable diligence, in communicating with his principal, and in seeking to obtain his
instructions. 5. Not to make any secret profits 6. Not to deal on his own account 7. Agent not entitled
to remuneration for business misconducted. 8. An agent should not disclose confidential information
supplied to him by the principal [Weld Blundell v. Stephens (1920) AC. 1956]. 9. When an agency is
terminated by the principal dying or becoming of unsound mind, the agent is bound to take on behalf
of the representatives of his late principal, all reasonable steps for the protection and preservation of
the interests entrusted to him.
RIGHTS OF AN AGENT 1. Right to remuneration 2. Right Of Retainer 2. Right of Lien 4. Right of
Indemnification 5. Right to compensation for injury caused by principal’s neglect PRINCIPAL'S
DUTIES TO AGENT  A principal is: (i) bound to indemnify the agent against the consequences of
all lawful acts done by such agent in exercise of the authority conferred upon him; (ii) liable to
indemnify an agent against the consequences of an act done in good faith. (iii) The principal must
make compensation to his agent in respect of injury caused to such agent by the principal's neglect or
want of skill.
TERMINATION OF AGENCY 1. By revocation by the Principal. 2. On the expiry of fixed period of
time. 2. On the performance of the specific purpose. 4. Insanity or Death of the principal or Agent. 5.
An agency shall also terminate in case subject matter is either destroyed or rendered unlawful. 6.
Insolvency of the Principal. Insolvency of the principal, not of the agent, terminates the agency

Session 7:
Representations, Warranties and Covenants: Back to the Basics in Contracts
“Representations,” “warranties” and “covenants” are so common in contracts that the words are likely
to be overlooked. They appear not only as nouns, but as verb forms as well. Sometimes there is a
separate section for each word, implying that they have distinct meanings. Often they are grouped
together as “represents and warrants” or “represents, warrants and covenants.” Unfortunately, these
repetitious phrases blur their meanings. Their imprecise use does not frequently result in litigation,
but there’s much to be said for reducing redundancy and ambiguity.
These words are basic building blocks of contracts and have a long history. Each has traditionally had
a distinct meaning and purpose. The key difference among these words is temporal – past and present
for representations; past, present, but mainly future for warranties; and mainly future for covenants.
The remedies for a false representation, breach of a warranty or violation of a covenant also have
differed. Giving attention when drafting or editing a contract to their backgrounds and the traditional
distinctions among them will promote clarity.
Representations
In traditional usage, a representation precedes and induces a contract. It is information by which a
contracting party decides whether to proceed with the contract. A representation is an express or
implied statement that one party to the contract makes to the other before or at the time the contract is
entered into regarding a past or existing fact. An example might be that a seller of equipment
represents that no notice of patent infringement had been received.
A representation traditionally was not part of a contract, and a claim for damages due to a
misrepresentation generally would not be allowed. Instead, a claim that a misrepresentation induced a
contract might be pursued in fraud, either to rescind the contract or for damages. In some instances, a
claim might be based on the tort of negligent misrepresentation.
If a representation was included as part of a contract, it typically would function as a “condition” or
“warranty.” A condition is a vital term going to the root of the contract (for example, that a lawyer
hired under an employment agreement must be licensed to practice law), which, if the condition were
false, would entitle the employer to repudiate the contract. In contrast, a representation in a contract
might be a “warranty,” which would be an independent, subsidiary promise that did not go to the root
of the contract (such as that the lawyer claims to always wear a suit to the office), and, if false, might
give rise only to a claim for damages.
Warranties
Warranties generally are promises that appear on the face of the contract. They are important parts of
the contract, requiring strict compliance. Warranties may include representations, agreements or
promises that a proposition of fact is true at the time of the contract and will be true in the future. A
warranty provides that something in furtherance of the contract is guaranteed by a contracting party,
often to give assurances that a product is as promised. It often is equivalent in effect to a promise that
the warranting party will indemnify the other if the assurances are not satisfied.
Warranties may be categorized as affirmative warranties, i.e., those that focus on assurances that
certain facts are true or acts have been performed at the time of the contract, and promissory
warranties, i.e., those that are agreements for the future. Either type of warranty entitles the protected
party to damages for breach or to the particular remedies set forth in the contract. Damages are based
on the difference between the value of contract as agreed upon compared to the value of the contract
given the facts at the breach.
Warranties now commonly provide protection for consumer products, and are subject to the Uniform
Commercial Code and federal law. An “extended warranty” protects beyond the initial agreement
between a buyer and seller. It is a form of insurance and may be regulated as such depending on state
law and the particulars involved.
Comparing Representations and Warranties
Justifiable reliance generally is an element for a misrepresentation claim, but the state of mind of the
party to whom the warranty is given is not pertinent to a warranty claim, and a party may enforce an
express warranty even if the beneficiary believes the warranty will be breached and the problem it
covers will arise.
Traditionally, a warranty also differed from a representation in these ways: (1) a warranty was always
part of a contract, while a representation usually was a collateral (or a separate) inducement prior to
the contract; (2) a warranty was on the face of a contract, while a representation might be written or
even oral; (3) a warranty was conclusively presumed to be material, while a party claiming a
misrepresentation had to establish materiality; (4) a warranty had to be strictly complied with, while
substantial truth was enough for a representation; (5) a contract remained binding if a warranty was
breached (unless the warranty was also a condition that was vital to the contract, e.g., that the lawyer
hired under an employment agreement was licensed); and (6) only damages were recoverable from a
breach of warranty, while a party defrauded by a misrepresentation might in some circumstances
rescind the contract or recover damages for fraud.
Covenants
A covenant in a contract traditionally has been a solemn promise in writing, signed, sealed and
delivered, by which a party pledges that something has been or will be done or that certain facts are
true. Historically, a covenant was in a sealed document that was self-authenticating, and witnesses
were not required to establish the terms in the document. Of course, with the abolition of private seals
over the last hundred years or more, contracts have been enforceable without being sealed documents.
Covenants usually are formal agreements or promises in a written contract, and are usually in
agreements relating to real property. Covenants in or related to a contract usually are secondary to the
main reason for the contract. They are an undertaking to do or not do something in the future; for
example, that conditions will be maintained between the signing of a contract and the closing of the
transaction, or while a loan is unpaid, or that a party will not compete or sue. A covenant – similar to
a warranty – has always been part of the contract. A claim for breach of a covenant may be for
damages or specific performance, or, potentially, if the covenant is important enough, for rescission
or termination.
The Future
Dispensing with “representations,” “warranties” or “covenants” might be the norm for contracts in
the future. Some commentators and model forms avoid the words, substituting “agree” or “obligate”
or use “represent” to also cover “warrant.” Distinctions based on these terms have been important –
perhaps to an excessive degree – in the past. Courts today are more willing than before to excuse
formalism related to particular words, but it’s safe to warrant that archaic distinctions still matter in
the digital age.
Endorsement and Supplement Deeds – Stamp Duty and Registration – Applicable Law
Endorsement means to write on the back or on the face of a document wherein it is necessary in
relation to the contents of that document or instrument. The term “endorsement” is used with
reference to negotiable documents like cheques, bill of exchange etc. For example, on the back of the
cheque to sign one’s name as Payee to obtain cash is an endorsement on the cheque. Thus, to inscribe
one’s signatures on the cheque, bill of exchange or promissory note is endorsement within the
meaning of the term with reference to the Negotiable Instrument Act, 1881.

Q1. What do you mean by “force majeure”?

The term ‘force majeure’ has been defined in Black’s Law Dictionary, as ‘an event or effect that can
be neither anticipated nor controlled. It is a contractual provision allocating the risk of loss if
performance becomes impossible or impracticable, especially as a result of an event that the parties
could not have anticipated or controlled.’ While force majeure has neither been defined nor
specifically dealt with, in Indian statutes, A force majeure clause typically spells out specific
circumstances or events, which would qualify as force majeure events, conditions which would have
be fulfilled for such force majeure clause to apply to the contract and the consequences of occurrence
of such force majeure event. As such, for a force majeure clause to become applicable (should any
force majeure event occur), the occurrence of such events should be beyond control of the parties and
the parties will be required to demonstrate that they have made attempts to mitigate the impact of
such force majeure event. If an event or circumstance comes within the ambit of a force majeure
event and fulfils the conditions for applicability of the clause then the consequence would be that
parties would be relieved from performing their respective obligations to be undertaken by them
under the contract during the period that such force majeure events continue.

Q2. What would force majeure clauses typically include and what happens if, a contract does
not include a force majeure clause?
A force majeure clause in a contract would typically include an exhaustive list of events such as acts
of God, war, terrorism, earthquakes, hurricanes, acts of government, explosions, fire, plagues or
epidemics or a non- exhaustive list whether acts or events that are beyond the control of parties”. As
discussed above, it would also include conditions which would have be fulfilled for such force
majeure clause to apply to the contract and the consequences of occurrence of such force majeure
event. Consequences would include the suspension of obligations of the parties upon occurrence of a
force majeure event.
Arbitration Employer and Employee Contracts

It has become a common practice for employers to include an employment arbitration agreement in
most employment contracts these days, but many employees are unsure about what they are signing.
This article evaluates arbitration agreements, including whether you should sign a contract with an
arbitration agreement and what to do if you need to sue your employer.

Table of Contents

 Can I Sue If I Signed an Arbitration Agreement?

 Downsides of Arbitration
 Upsides of Arbitration
 Be Careful What You Sign
 Be Careful About Not Signing
 Fair Arbitration Agreements
 Discrimination and Other Agency Remedies
 Get a Legal Evaluation

Can I Sue My Employer If I Signed an Arbitration Agreement?

No, you can't sue your employer in court if you signed an arbitration agreement.

If your employment contract includes an employment arbitration clause, then it means you agreed not
to pursue any legal action against your employer in court. Instead, any disputes that you have with
your employer must be settled through a process known as arbitration.

Arbitration is one of the alternative dispute resolution techniques that serve as an alternative to filing

a lawsuit. It often has many different implications than a full-blown case before a judge or jury.

Downsides of Arbitration

Some of the downsides of arbitration include the following:

 Unlike a trial, where you may be able to opt to have your legal claim heard by a jury of your
peers, your dispute will be heard and concluded with a neutral third party called the arbitrator.
The arbitrator's decision is, in general, fair and will follow the law. However, sometimes
employees prefer to have their cases heard by juries because juries are often more sympathetic
to employees.
 Parties going through arbitration, in general, get to request less evidence and documents from
the other side than if the dispute had gone through a trial. In most situations, this will hurt the
employee because it is the employer that will have access to more of the evidence and
documents needed during the dispute.
  Arbitration decisions cannot, in general, be appealed. This finality is very unlike court
decisions that are routinely appealed to higher courts to take a second look at a case.
Employees who do not like the results of arbitration, or think they are unfair, generally cannot
get a higher authority to take a look.

Upsides of Arbitration

Despite the disadvantages of arbitration, there are some upsides to the process. These include:

 Arbitration is generally much less formal than a court trial, which could save you money in
attorney's fees and in terms of preparing and filing documents.
 Because of the informality, you may not even need to hire an employment attorney for the
arbitration process (though in many cases it is a good idea).
 Arbitration generally proceeds and finishes much more quickly and efficiently than court
trials do. Where arbitration may take a few weeks or months, a court trial can realistically last
more than a year.

Be Careful What You Sign

As mentioned, it has almost become common practice for some employers to include employment
arbitration agreements inside of standard employment forms and documents. As an employee, you
may not know that you have signed away your rights to sue because the employment arbitration
agreement is usually included as a clause within an employment contract, or in an employee
handbook.

So, read everything before you sign it. Make sure to read through:

 All the clauses in an employment contract

 Your employee handbook, particularly if you are asked to sign a paper that says you have read
and understood everything contained in the employee handbook

Ask your new employer if any of the documents you are signing contain an employment arbitration
agreement.

Be Careful About Not Signing

The next thing that you must consider is whether or not you would actually not sign your rights away.
Keep in mind that your employer may rescind your job offer if you refuse to sign the arbitration
agreement. In addition, at-will employees can potentially be fired for refusing to sign.

But you should always think about your bargaining power. If a certain employer has been courting
you for months, they might be willing to give up the arbitration agreement in order to get you on
board.

Your last option is to sign the agreement, but with certain modifications. This is discussed below.

Fair Arbitration Agreements

Even though your employer may not be willing to get rid of the arbitration clause altogether, you may
be able to negotiate to make it fairer to you. After all, you are just looking out for your interests.
If you feel concerned about an overly-broad or restrictive arbitration agreement, you may want to talk
with an attorney before attempting to negotiate. Lawyers are often good at finding things that should
be changed within arbitration agreements.

In general, these are some points that you may want to attempt to negotiate in your arbitration
agreement:

1. The arbitrator:
In determining which arbitrator to use in the arbitration process, be sure that you have just as
much control as your employer will. To this end, be sure that both you and your employer get
to throw out at least one arbitrator, without having to provide any reasons. Remember that the
decision of the arbitrator will most likely be final, so it is important for you to have a say in
who makes this decision.
2. Disclosure of information by the arbitrator:
Be sure to include a term in the agreement that allows you or your employer to request that
the arbitrator disclose all information that could relate to some interest he or she may have in
the dispute. For example, if the arbitrator is a shareholder of your employer's business, then he
or she may be biased in favor of your employer. You and your employer should have the right
to reject an arbitrator that has a conflict of interest.
3. Costs:
Because your employer wants the arbitration, be sure that your employer is the one that is
going to pay the costs of the arbitration.
4. Do not give up any of your remedies:
Again, because your employer wants all disputes to be settled in arbitration, be sure that you
are not limited to awards and remedies that are normal to arbitration. Be sure that you can still
seek damages for emotional distress and punitive damages.
5. Do not give up your right to an attorney:
If this was a court case, you would have been able to retain an attorney to represent you. Be
sure that you can still have an attorney represent you in arbitration.

Discrimination and Other Agency Remedies

Because the arbitration agreement you sign only applies to you and your employer, you may still be
able to take your employer to court for certain reasons. For example, if you feel that your employer
discriminated against you, you are free to go to the Equal Employment Opportunity
Commission (EEOC) and make a complaint. The EEOC can sue your employer on your behalf
because the arbitration agreement only applies to you, not to federal or state agencies.
SESSION 8:
Cyber Laws
Information Technology Act, 2000
The Information Technology Act, 2000 or ITA, 2000 or IT Act, was notified on October 17, 2000. It is
the law that deals with cybercrime and electronic commerce in India. In this article, we will look at the
objectives and features of the Information Technology Act, 2000.

Information Technology Act, 2000

In 1996, the United Nations Commission on International Trade Law (UNCITRAL) adopted the model
law on electronic commerce (e-commerce) to bring uniformity in the law in different countries.

Further, the General Assembly of the United Nations recommended that all countries must consider this
model law before making changes to their own laws. India became the 12th country to enable
cyber law after it passed the Information Technology Act, 2000.
 While the first draft was created by the Ministry of Commerce, Government of India as the ECommerce
Act, 1998, it was redrafted as the ‘Information Technology Bill, 1999’, and passed in May 2000.

Objectives of the Act

The Information Technology Act, 2000 provides legal recognition to the transaction done via electronic
exchange of data and other electronic means of communication or electronic commerce transactions.

This also involves the use of alternatives to a paper-based method of communication and information
storage to facilitate the electronic filing of documents with the Government agencies.

Further, this act amended the Indian Penal Code 1860, the Indian Evidence Act 1872, the Bankers’
Books Evidence Act 1891, and the Reserve Bank of India Act 1934. The objectives of the Act are as
follows:

i. Grant legal recognition to all transactions done via electronic exchange of data or other electronic
means of communication or e-commerce, in place of the earlier paper-based method of
communication.

ii. Give legal recognition to digital signatures for the authentication of any information or matters
requiring legal authentication

iii. Facilitate the electronic filing of documents with Government agencies and also departments

iv. Facilitate the electronic storage of data

v. Give legal sanction and also facilitate the electronic transfer of funds between banks and financial
institutions
vi. Grant legal recognition to bankers under the Evidence Act, 1891 and the Reserve Bank of India
Act, 1934, for keeping the books of accounts in electronic form.

Features of the Information Technology Act, 2000

a. All electronic contracts made through secure electronic channels are legally valid.

b.Legal recognition for digital signatures.

c. Security measures for electronic records and also digital signatures are in place

d.A procedure for the appointment of adjudicating officers for holding inquiries under the Act is
finalized

e. Provision for establishing a Cyber Regulatory Appellant Tribunal under the Act. Further, this
tribunal will handle all appeals made against the order of the Controller or Adjudicating Officer.

f. An appeal against the order of the Cyber Appellant Tribunal is possible only in the High Court

g. Digital Signatures will use an asymmetric cryptosystem and also a hash function

h.Provision for the appointment of the Controller of Certifying Authorities (CCA) to license and
regulate the working of Certifying Authorities. The Controller to act as a repository of all digital
signatures.

i. The Act applies to offences or contraventions committed outside India

j. Senior police officers and other officers can enter any public place and search and arrest without
warrant

k.Provisions for the constitution of a Cyber Regulations Advisory Committee to advise the Central
Government and Controller.
Applicability and Non-Applicability of the Act
Applicability

According to Section 1 (2), the Act extends to the entire country, which also includes Jammu and
Kashmir. In order to include Jammu and Kashmir, the Act uses Article 253 of the constitution. Further, it
does not take citizenship into account and provides extra-territorial jurisdiction.

Section 1 (2) along with Section 75, specifies that the Act is applicable to any offence or contravention
committed outside India as well. If the conduct of person constituting the offence involves a computer or
a computerized system or network located in India, then irrespective of his/her nationality, the person is
punishable under the Act.

Lack of international cooperation is the only limitation of this provision.

Non-Applicability
According to Section 1 (4) of the Information Technology Act, 2000, the Act is not applicable to the
following documents:

1.Execution of Negotiable Instrument under Negotiable Instruments Act, 1881, except cheques.

2.Execution of a Power of Attorney under the Powers of Attorney Act, 1882.

3.Creation of Trust under the Indian Trust Act, 1882.

4.Execution of a Will under the Indian Succession Act, 1925 including any other testamentary
disposition
by whatever name called.

5.Entering into a contract for the sale of conveyance of immovable property or any interest in such
property.

6.Any such class of documents or transactions as may be notified by the Central Government in the
Gazette.

Solved Question for You

Q1. What are the objectives of the Information Technology Act, 2000?

Answer:

The primary objectives of the IT Act, 2000 are:

 Granting legal recognition to all transactions done through electronic data exchange, other means of
electronic communication or e-commerce in place of the earlier paper-based communication.

 Providing legal recognition to digital signatures for the authentication of any information or matters
requiring authentication.

 Facilitating the electronic filing of documents with different Government departments and also
agencies.

 Facilitating the electronic storage of data

 Providing legal sanction and also facilitating the electronic transfer of funds between banks and
financial institutions.

 Granting legal recognition to bankers for keeping the books of accounts in an electronic form.
Further, this is granted under the Evidence Act, 1891 and the Reserve Bank of India Act, 1934.
SESSION 9:
Forms of Business Organisation: Different Forms of Business Organisation

Forms of Business Organisation – Sole Proprietorship, Partnership Firm, Limited Liability

Partnership, Private Company and Public Limited Company

Form # 1. Sole Proprietorship:

‘Sole Proprietorship’ form of business organisation refers to a business enterprise exclusively owned,
managed and controlled by a single person with all authority, responsibility and risk.

Definition of Sole Proprietorship:

According to J. L. Hanson – “A type of business unit where one person is solely responsible for
providing the capital and bearing the risk of the enterprise, and for the management of the business.”

Characteristics of Sole Proprietorship:

i. Single Ownership – The sole proprietorship form of business organisation has a single owner who
himself/herself starts the business by bringing together all the resources.

ii. No Separation of Ownership and Management – The owner himself/herself manages the business as
per his/her own skill and intelligence.

iii. Less Legal Formalities – The formation and operation of a sole proprietorship form of business
organisation does not involve any legal formalities.

iv. No Separate Entity – The businessman and the business enterprise are one and the same, and the
businessman is responsible for everything that happens in his business unit.
v. No Sharing of Profit and Loss – The sole proprietor enjoys the profits and losses alone.

vi. Unlimited Liability – The liability of sole proprietor is unlimited.

vii. One-man control- The owner has complete control of operations.

Advantages of Sole Proprietorship:

i. Easy to form and wind up – It is very easy and simple to form a sole proprietorship form of business
organisation. No legal formalities are required to be observed. Similarly, the business can be wound up
any time if the proprietor so decides.

ii. Quick Decision and Prompt Action – Nobody interferes in the affairs of the sole proprietary
organisation. So he/she can take quick decisions on the various issues relating to business and
accordingly prompt action can be taken.

iii. Direct Motivation – In sole proprietorship form of business organisations entire profit of the
business goes to the owner. This motivates the proprietor to work hard and run the business efficiently.

iv. Flexibility in Operations – It is very easy to effect changes as per the requirements of the business.
The expansion or curtailment of business activities does not require many formalities as in the case of
other forms of business organisation.

v. Maintenance of Business Secrets – The business secrets are known only to the proprietor. He is not
required to disclose any information to others unless and until he himself so decides. He is also not
bound to publish his business accounts.

vi. Personal Touch – Since the proprietor himself handles everything relating to business, it is easy to
maintain a good personal contact with customers and employees.

Limitations of Sole Proprietorship:

i. Limited Resources – The resources of a sole proprietor are always limited. It is not always possible
to arrange sufficient funds from personal sources.

ii. Lack of Continuity – The continuity of the business is linked with the life of the proprietor. Illness,
death or insolvency of the proprietor can lead to closure of the business. Thus, the continuity of
business is uncertain.

iii. Unlimited Liability – In the eyes of law, the proprietor and the business are one and the same. So
personal properties of the owner can also be used to meet the business obligations and debts.

iv. Unsuitable for Large Scale Operations – As the resources and the managerial ability are limited,
sole proprietorship form of business organisation is not suitable for large- scale business.

v. Limited Managerial Expertise – A sole proprietorship form of business organisation always suffers
from lack of managerial expertise. A single person may not be an expert in all fields like, purchasing,
selling, financing etc.

Suitability of Sole Proprietorship:

In short, this is a simple one person firm where, one can use his brand name, apply for payment
gateways and be able to issue invoice on his brand name to customers. It is best form for the testing of
ideas in the starting stage whether it’s an e-commerce or tech startup, on later stage, one can easily set
up another elaborate forms like private limited company or public limited company.

Form # 2. Partnership Firm:

‘Partnership’ is an association of two or more persons who pool their financial and managerial
resources and agree to carry on a business, and share its profit. The persons who form a partnership are
individually known as partners and collectively a firm or partnership.

Definition of Partnership:

Indian Partnership Act, 1932 defines partnership as “the relation between persons who have agreed to
share the profits of the business carried on by all or any of them acting for all”.

Partnership form of business organisation in India is governed by the Indian Partnership Act 1932. The
agreement between the partners may be in oral, written or implied. When the agreement is in writing,
it is termed as partnership deed.

However, in the absence of an agreement, the provisions of the Indian Partnership Act 1932 shall
apply. Partnership Deed contains the terms and conditions for starting and continuing the partnership
firm. It is always better to insist on a written agreement in order to avoid future legal hurdles.

Characteristics of Partnership:

i. Two or More Persons – To form a partnership firm at least two persons are required.

ii. Contractual Relationship – Minors, lunatics and insolvent persons are not eligible to become the
partners. However, a minor can be admitted to the benefits of partnership firm i.e., he can have share
in the profits without any obligation for losses.

iii. Sharing Profits and Business – There must be an agreement among the partners to share the profits
and losses of the business of the partnership firm. If two or more persons share the income of jointly
owned property, it is not regarded as partnership.

iv. Existence of Lawful Business – The business of to be carried on by partners, must be lawful. Any
agreement to indulge in smuggling, black marketing or any other lawful activity cannot be called a
partnership firm in the eyes of law.

v. Principal Agent Relationship – There must be an agency relationship between the partners. Every
partner is the principal as well as the agent of the firm. When a partner deals with other parties he/she
acts as an agent of other partners, and at the same time the other partners become the principal.

vi. Unlimited Liability – The partners of the firm have unlimited liability. They are jointly as well as
individually liable for the debts and obligations of the firms. If the assets of the firm are insufficient to
meet the firm’s liabilities, the personal properties of the partners can also be utilized for this purpose.

vii. Voluntary Registration – The registration of partnership firm is not compulsory. But an
unregistered firm suffers from some limitations which make it virtually compulsory to be registered.
Merits of Partnership:

i. Easy to Form

ii. Availability of Larger Resources

iii. Better Decisions

iv. Flexibility

v. Sharing of Risks – The losses of the firm are shared by all the partners equally or as per the agreed
ratio as decided in the partnership agreement.

vi. Keen Interest – Since partners share the profit and bear the losses, they take keen interest in the
affairs of the business.

vii. Benefits of Specialization – Partnership firm enjoys benefits of individual partners, specialisation,
for instance, in a partnership firm, providing legal consultancy to people, one partner may deal with
civil cases, one in criminal cases, and another in labour cases and so on as per their area of
specialization.

viii. Protection of Interest – In partnership form of business organisation, the rights of each partner and
his/her interests are fully protected. If a partner is dissatisfied with any decision, he can ask for
dissolution of the firm or can withdraw from the partnership.

ix. Secrecy – Business secrets of the firm are only known to the partners.

Limitations of Partnership:

A partnership firm also suffers from certain limitations:

i. Unlimited Liability – Partners in partnership firm suffer from the problem of unlimited liability.
Resultantly, members may end up using personal assets to meet the liabilities of business.

ii. Instability – Every partnership firm has uncertain life. The death, insolvency, incapacity or the
retirement of any partner bring the firm to an end. Not only that any dissenting partner can give notice
at any time for dissolution of partnership.

iii. Limited Capital – A partnership firm suffers due to limited personal capacity of partners.

iv. Non-transferability of share – The share of interest of any partner cannot be transferred to other
partners or to the outsiders.

v. Possibility of Conflicts – At times there is a strong possibility of conflict among partners due to
divergent views and interest.

Suitability of Partnership:
Usually persons having different abilities, skill or expertise can join hands to form a partnership firm
to carry on the business. Business activities like construction, providing legal services, accounting and
financial services etc. can successfully run under this form of business organization.

It is also considered suitable where capital requirement is of a medium size. Thus, businesses like a
wholesale trade, professional services, mercantile houses and small manufacturing units can be
successfully organized as partnership firms.

Form # 3. Limited Liability Partnership (LLP):

Keeping in view the incapacity of sole proprietor and partnership firms to raise money while facing
unlimited liability, a new form of business was introduced through the Limited Liability Partnership
Act 2008. This form was primarily created to give flip to small and medium entrepreneurs and
professionals who can enjoy the benefits of body corporate while also retaining control over their
businesses.

Meaning of LLP:

A Limited Liability Partnership (LLP) means a body corporate registered under the LLP Act 2008, in
which some or all partners (depending on the respective jurisdiction of state) have limited liability. It
therefore exhibits elements of partnerships and corporations. In an LLP, one partner is not responsible
or liable for another partner’s misconduct or negligence, as it was the case in case of original form of
partnership firms.

This form was introduced in the world by U.S in 1990s in the wake up of fall of real estate and energy
prices in Texas. After that, other countries like Poland, Singapore, Canada, China, Germany, Greece
and Japan have also felt the need to establish LLPs in their respective countries.

Definition of LLP:

According to Limited liability partnership Act 2008, limited liability partnership means, “a partnership
formed and registered under this act”.

LLP agreement means any written agreement between the partners of the LLP or between LLP and its
partners which determines the mutual rights and duties of the partners and their rights and duties in
relation to that LLP.

Any two or more persons can form an LLP. Even a limited Company, a foreign Company, a LLP, a
foreign LLP or a non-resident can be a partner in LLP. Although, there is no specific mention, a HUF
represented by its Karta and a Minor can also be partner in LLP. An Incorporation document (similar
to memorandum) and LLP agreement (similar to articles of association) is required to be filed
electronically. The Registrar of Companies (ROC) shall register and control LLPs

Advantages of a LLP:

i. An LLP is a body corporate and legal entity separate from its partners.

ii. It has perpetual succession.

iii. Being the separate legislation (i.e. LLP Act, 2008), the provisions of Indian Partnership Act, 1932
are not applicable to an LLP and it is regulated by the contractual agreement between the partners.
iv. Liability of partners is limited to their agreed contribution in the LLP and no partner is liable on
account of the independent or un-authorized actions of other partners, thus individual partners are
protected from joint liability created by another partner’s wrongful business decisions or misconduct.

v. LLP has more flexibility and lesser compliance requirements as compared to a company.

vi. Simple registration procedure, no requirement of minimum capital, no restrictions on maximum

limit of partners.

vii. It is easy to become a partner or leave the LLP.

viii. It is easier to transfer the ownership in accordance with the terms of the LLP Agreement.

ix. As a juristic legal person, an LLP can sue in its name and be sued by others. The partners are not
liable to be sued for dues against the LLP.

x. No restriction on the limit of the remuneration to be paid to the partners unlike in case of
companies. However, the remuneration to partners must be authorized by the LLP agreement and it
cannot exceed the limit prescribed under the agreement.

xi. The Act also provides for conversion of existing partnership firm, private limited Company and
unlisted public Company into an LLP by registering the entity with the Registrar of Companies
(ROC).

xii. No exposure to personal assets of the partners except in case of fraud.

Disadvantages of an LLP:

i. Any act of the partner without the consent of other partners, can bind the LLP.

ii. Under some cases, liability may extend to personal assets of the partners also.

iii. A LLP is not allowed to raise money from Public.

iv. Due to the hybrid form of the business, it is required to comply with various rules and regulations
and legal formalities.

v. It is very difficult to wind up the business in case of exigency as there are lots of legal compliances
under Limited Liability Partnership (Winding Up and Dissolution) Rules and it is very lengthy and
expensive procedure also.

Suitability of LLPs:

Limited Liability Partnership has proved to be a boon for small manufacturing sector as well as for
service sector firms. Especially for professionals like chartered accountants/ company secretaries and
advocates, it has become much easier to be formed as an LLP. Foreign Direct Investment is permitted
under the automatic route in LLPs, operating in sectors/ activities where 100% FDI is allowed through
the automatic route and there are no FDI-linked performance conditions.
Forms of Business Organisation – Sole Proprietorship, General Partnerships, Company Form of
Organization and Co-Operatives

Most production and distribution activities are carried out by millions of people in different parts of
the country by constituting various kinds of organizations. These organizations are based on some
form of ownership. Choosing a legal form of organization—a sole proprietorship, partnership, or
corporation—ranks among an entrepreneur’s most vital decisions.

This choice affects a number of managerial and financial issues, including the amount of taxes the
entrepreneur would have to pay, whether the entrepreneur may be personally sued for unpaid business
bills, and whether the venture will die automatically with the demise of the entrepreneur.

Some common kinds of ownership structures are as follows:

1. Sole Proprietorship:

The simplest way to start up a business on one’s own is to become a sole trader (sometimes known as
a sole proprietor). The sole proprietorship, as its name implies, is a business owned and managed by a
single individual. The general perception of sole proprietorships is that they are a small and
insignificant part of the national as well as global economy.

Advantages:

The following are the advantages of a sole proprietorship business:

i. Freedom:

As the sole proprietor is in total control of operations, he/she can respond quickly to changes, which is
an asset in a rapidly changing market situation. The freedom to set the company’s course of action is a
major motivational force. Many sole proprietors simply thrive on the feeling of control they have over
their personal future and recognition they earn as the owner of the business.

ii. Ease of Formation:

One of the most attractive features of a sole proprietorship is that it is fast and simple to begin. If an
entrepreneur wants to operate a business under his/her own name, they simply have to obtain the
necessary licences from the Government and begin operations.

iii. Low Start-Up Cost:

In addition to being easy to begin, the sole proprietorship is generally the least expensive form of
ownership to establish.

iv. Tax Benefits:

Sole proprietors generally enjoy tax benefits from the State and Central Governments in view of theirs
being tiny and small operations. This is because the Government encourages small and tiny
entrepreneurs to come up in a large way.

v. Profit Incentive:
One of the major advantages of sole proprietorship is that once the owner pays all of the company’s
expenses, he/she can keep the remaining profits. The profit incentive is a powerful one, and profits
represent an excellent way of keeping score in the game of the business.

vi. No Special Legal Restrictions:

The sole proprietorship is the least regulated form of business ownership. In a time when the
government requests for information seem never ending, this feature has much merit.

vii. Easy to Discontinue:

If the entrepreneur decides to discontinue operations, he can terminate the business quickly, even
though he will still be personally liable for any outstanding debts and obligations that the business
cannot pay.

Disadvantages:

i. Unlimited Liability:

The major disadvantage of a sole proprietorship is the unlimited liability of the owner, which means
that the sole proprietor is personally liable for all of the business’s debts. In a sole proprietorship, the
owner is the business. He/she owns all of the business’s assets, and if the business fails, creditors can
force the sale of these assets to cover its debts. Failure of a proprietory trader can ruin a sole proprietor
financially.

ii. Lack of Continuity:

This is inherent in a sole proprietorship. If the proprietor dies, retires, or becomes incapacitated, the
business automatically terminates. Unless a family member or employee can take over, the business
could be in jeopardy.

iii. Difficulty of Raising Money, Image of Instability:

If the business is to grow and expand, a sole proprietor generally needs additional financial resources.
However, many proprietors have already put all they have in their businesses and have used their
personal resources as collateral on existing loans, making it difficult to borrow additional funds.

iv. Limited Skills and Capabilities:

A sole proprietor may not have the wide range of skills that running a successful business requires.
Each of us has areas in which our education, training, and work experiences have taught us a great
deal; yet there are other areas where our decision-making ability is weak. Many failures occur because
owners lack the skills, knowledge, and experience in areas that are vital to business success.

Owners tend to brush aside problems they don’t understand or don’t feel comfortable with in favour of
those they can solve more easily. Unfortunately, the problems they set aside seldom solve by
themselves. By the time an owner decides to seek help in addressing those problems, it may be too late
to save the company.

v. Feeling of Isolation:
Running a business alone allows an entrepreneur maximum flexibility, but it also generates feeling of
isolation that there is no one to turn to for help in solving problems or getting feedback on a new idea.
Most sole proprietors admit that there are times when they feel the pressure of being alone and being
fully and completely responsible for every major business decision.

vi. Suitability:

Sole proprietorship form of organization is suitable when the size of the concern is very small, requires
little capital, prefers to control by one person, where risk is more and personal attention is required.

2. General Partnerships:

As defined by the uniform Partnership Act, a partnership is a ‘voluntary association of two or more
persons to carry on as co-owners a business for profit’. An association of individuals competent to
contract who agree to carry on a lawful business in common with the object of sharing profit is a
partnership.

Advantages:

i. Larger Pool of Talent:

In a partnership, more co-owners and their skills contribute to the business and play complementary
role to each other in the organization which is missing in the sole trade form of organization.

ii. Larger Pool of Money:

The partnership form of ownership can significantly increase the pool of capital available to a
business. Each partner’s assets cumulatively lead to a large pool of capital available for the business,
which in turn helps to carry out the business on a large scale compared to sole proprietorship.

iii. Ease of Formation:

Like sole proprietorship form of organization, partnership firms can also easily get established without
much legal formalities. However, more formal system prevails on it compared to proprietor concerns.

iv. Possible Tax Benefits:

The partnership itself is not subject to general taxation. It serves as a conduit for the profit or losses it
earns or incurs; it is generally not as effective as the corporate form of ownership, which can raise
capital by selling shares of ownership to outside investors.

v. Limited Legal Formalities:

Like proprietorship concerns, partnership form of organization is not burdened with red tape. In other
words, partnership form of organizations too can come out successfully without much legal
formalities.

vi. Division of Profits:

There are no restrictions on how partners may distribute the company’s profits as long as they are
consistent with the partnership agreement and do not violate the rights of any partner. The partnership
agreement should articulate the nature of each partner’s contribution and proportional share of the
profits.

Disadvantages:

i. Unlimited Liability:

At least one member of every partnership must be a general partner. The general partner has unlimited
personal liability, even though he or she is often the partner with the least personal resources.

ii. Lack of Continuity:

If one of the partners dies, the continuation of the business gets ridden with complications. Partners’
interest is often non-transferable through inheritance because the remaining partners may not want to
be in a partnership with the person who inherits the deceased partner’s interest. Partners can make
provisions in the partnership agreement to avoid dissolution due to death, if all parties agree to accept
as partners those who inherit the deceased’s interest.

iii. Difficult Ownership Transfer:

Most partnership agreements restrict how a partner can dispose of his share of the business. Often a
partner is required to sell his interest to the remaining partners. Even if the original agreement contains
such a requirement and clearly delineates how the value of each partner’s ownership will be
determined, there is no guarantee that the other partners will have the financial resources to buy the
seller’s interest. All these things generally result in difficulties in transferring the ownership from one
person to another.

iv. Possibility of Forced Liquidation:

Since conflicts among partners are often difficult to resolve due to differences among them, many
partnership firms are forced to dissolve. This is again due to personality clashes and authority
differences among the partners.

v. Suitability:

Partnership form of organization is suitable where there is more scope for long duration of the project,
not possible for one person to carry out the activities, where more funds and more skills are needed.

3. Company Form of Organization:

A corporation is ‘an artificial being, invisible, intangible, and existing only in contemplation of the
law’.

Advantages:

i. Limited Liability:

Because the company is a separate legal entity, it allows investors to limit their liability to the total
amount of their investment in the business. This legal protection of personal assets beyond the
business is of critical concern to many potential investors. In other words, corporate form of ownership
does not protect its owners from being held personally liable for fraudulent or illegal acts.

ii. Continuity:

The corporate form of organization is basically continued indefinitely. The corporation’s existence
does not depend on the fate of any single individual. Unlike a proprietorship or partnership in which
the death of a member ends the business, a corporation lives beyond the lives of those who gave life to
the organization.

iii. Ease of Ownership Transfer:

If the members in a corporation are displeased with the progress of the business, they can freely sell
their shares to someone else and leave the organization. Similarly, shareholders can also transfer their
shares through inheritance to a new generation of owners. During all of these transfers of ownership,
the corporation continues to conduct business as usual.

iv. Ease of Raising Money:

Just because of limited liability, corporations have proved to be the most effective form of ownership
for accumulating large amount of capital. Limited only by the number of shares authorized in its
charter the corporation can raise money to begin business and expand as opportunity dictates by
selling shares of its stock to investors.

v. Diffused Risk:

The sense of loss is spread over a large number of investors and the possibility of hardship on a few
persons as in the case of partnership or on an individual as in the case of sole trade is minimized.

vi. Scope for Expansion:

Vast aggregation of capital and ploughing back of company’s own large earnings contribute to the
expansion of its business. The company offers an excellent scope for self-generating growth.

Disadvantages:

i. High Legal Start-Up Costs:

To establish corporations it takes a lot of time and also cost. This is just because the owners give birth
to an artificial legal entity and gestation period can be prolonged for the novice.

ii. Closely Regulated:

Corporations are subjected to more legal, reporting, and financial requirements than other forms of
ownership. Corporate officers must meet more stringent requirements for recording and reporting
management decisions and actions.

iii. Extensive Record Keeping:

Corporations are supposed to maintain detailed accounts for every transaction. In fact a huge
establishment is needed to maintain the records and accounts and the same will be verified by
independent auditors.

iv. Double Taxation:

Since a corporation is a separate legal entity, it must pay taxes on its net income at the state level, and
also at local level. Before stakeholders receive a rupee of its net income and dividends, a corporation
must pay these taxes at the corporate tax rate.

v. Speculation Encouraged:

The Company form of organization generally encourages reckless speculation on the stock exchange.
This is an evil of great magnitude in our country.

vi. Bureaucratic Approach:

The bureaucratic habit of the company officials is to shirk troublesome initiatives because they get no
direct benefit from it and often retards growth.

vii. Excessive Regulation by Law:

The state in which a company is located regulates its activities much more closely than those of non-
corporate associations. A company and its management have to function well within the law.

viii. Suitability:

Company form of organization is suitable where the organization has to exist for a long period, huge
capital is required, professionalism is needed, legal protection is needed, etc.

4. Co-Operatives (Common Ownership):

Co-operatives provide a structure for starting up business in which all the members of the cooperative
jointly own, control, and work for the business. They share responsibility equally, make collective
decisions on the basis of one person one vote and, in most co-operatives receive equal pay.

The concept of a co-operative enterprise is not a political concept but the idea of co-operative working
is supported by the Government. Co-operative or common ownership enterprise can be divided
basically into a society or a company
Session 11

Tax Laws: 1

A tax is a compulsory levy by the government within its borders to raise revenue
for government spending and public expenditures.

All the various taxes in India can be broadly classified into two categories- direct
and indirect tax.
 Direct Taxes v. Indirect Taxes
Direct Taxes Indirect Taxes
1. Imposed on Income and Profits Goods and Services
The incidence of tax The incidence of tax is
cannot be shifted to any shifted from person to
other person person
2. Who pays? Person (Individuals and The end consumer via one
other entities) directly to or more intermediaries
the government
3. Transferability Not Transferable Transferable
4. Examples Income Tax, Securities Goods & Services Tax
Transaction Tax and ( GST), Customs Duty,
Capital Gains Tax Value
Added Tax ( VAT)
5. Nature Progressive * Regressive
6. Administrated by The Central Board of The Central Board of
Direct Taxes ( CBDT) Indirect Taxes and
Customs (CBIC)
Direct taxes are also known to be equitable as the progression principle is at its
foundation. People with lower income pay lower taxes, and people with higher
income pay higher taxes. Indirect taxes on the other hand are widely perceived to
be regressive in nature. While they make sure that everyone pays taxes
irrespective of their income, they are not equitable. People from every income
group are required to pay indirect taxes at the same rate.
 Session 12
Income Tax

The Income Tax Act, 1961 came into force from April 1, 1962, for levy,
administration, collection, and recovery of income taxes in India. The
income earned by an assessee during the previous year is assessed to tax
in the assessment year.

Important definitions:

Previous year: previous year is defined as the financial year which

immediately precedes the assessment year.

Assessment year: Assessment year is the 12 months’ period commencing

on 1st of April till 31st March of next year. It is the year in which the income
earned by the assessee in the previous year is assessed.

Assessee: An assessee is a person who is liable to pay tax under any

provision of the Income Tax Act.

Assessment: Assessment is the process of determining the correctness of

income declared by the assessee and calculating the amount of tax
payable by him and further procedure of imposing that tax liability on that
person.
Person: As per section 2(31) of Income-Tax Act 1961, a Person would be
any one who is-

 An Individual
 A HUF (Hindu Undivided Family)
 A Company
 A Firm
 An association of person or body of individuals
 A Local Authority
 Every artificial and juridical person who is not included in any of the
above mentioned category.
 Heads of Income

The various heads under which you are assessed to income tax include:

1. Salary
2. Income from house property
3. Capital gains
4. Profit and gains from business or profession
5. Income from other sources
Income from salary: This head includes any remuneration, which is
received by an individual on terms of services provided by him based on a
contract of employment. This amount qualifies to be considered for income
tax only if there is an employer-employee relationship between the payer
and the payee respectively. Salary also should include the basic wages or
salary, advance salary, pension, commission, gratuity, perquisites as well
as annual bonus. It also includes the annual accretion and transferred
balance in recognized provident fund and any contribution to employees
pension account.

Income from House Property: Rental Income from properties owned by a

person other than those which are occupied by him are charged as income
from house property. If property is vacant then a notional income is
included under this head. The assessee should be the owner of the
property, the property should be situated in India, and it should not be used

for any business or profession carried on by the assessee.

Income from Business or Profession: Income from trade or profession
carried on by the assessee, and includes profit on sale of an import
entitlement license, and any interest, salary, bonus, commission or
remuneration received by a partner of a firm.
Capital Gains: Capital Gains are the profits or gains earned by an
assessee by selling or transferring a capital asset during the previous year.
Capital gains can be long term capital gains ( LTCG) or short term capital
gains ( STCG ) , depending on the period od holding of the asset by the
assessee.

Income from other sources: Any other form of income, which is not
categorized in the above mentioned clauses, can be sorted in this category.
Interest income from bank deposits and other securities, dividends, royalty
income, lottery winnings, winnings on card games, gambling or other sports
awards are included in this category, as also gifts received from others.
These incomes are attributed in the Section 56(2) of the Income Tax Act
and are chargeable for income tax.

How does the government collect Income Tax?

Government collects income taxes through three avenues:

 Voluntary payment by taxpayer into designated bank by way of

advance tax
 Voluntary payment by taxpayer into designated bank by way of self
assessment tax
 Tax deducted at source ( TDS)

What is Gross Total Income? And what is Total Income?

Gross Total Income’ (GTI) is the total income you earn by adding all heads
of income. Income from salary, income from house property, income from
other sources, income from business or profession, and capital gains
earned in a financial year are all added to arrive at the GTI.
Total income or taxable income (TI) is derived after subtracting the various
deductions under Section 80 from the GTI. So, you first compute the GTI
and then subtract the deductions to arrive at the TI.
Deductions from Gross Total Income:

According to the Income Tax Act 1961, you can claim deductions under the
following sections:

1. Section 80C to 80U: Under Section 80C, 80CCC & 80CCD of the
Income Tax Act 1961, you can reduce your taxable income by
Rs.150,000
2. Section 80CCD: Section 80CCD of the Income Tax Act, 1961 focuses
on income tax deductions that individual income tax assesses are
eligible to avail on contributions made towards the New Pension
Scheme (NPS) and Atal Pension Yojana (APY)
3. Section 80D: Under section 80D, you can claim income tax deduction
for medical expenses and health insurance premiums
4. Section 80DD: Tax deduction under Section 80DD of the Income Tax
Act can be claimed by individuals who are residents of India and
HUFs for the medical treatment of a dependant with disability(ies) or
differently abled
5. Section 80DDB: Tax deductions under section 80DDB of Income Tax
Act 1961 can be claimed for medical expenses incurred for medical
treatment of specific illnesses
6. Section 80TTA: Section 80TTA provides a deduction of Rs 10,000 on
interest income. This deduction is available to an Individual and HUF.
7. Section 80U: Under Section 80U, physically disabled persons can
claim deductions up to Rs.100,000.
Steps in computing income tax:
 Compute your gross total income by including any and every taxable
income from all sources.
 Take deductions under Chapter VIA ( Sec. 80 C – Sec. 80U) to arrive
at taxable income
 Compute tax liability. Do not forget to add surcharge if applicable, and
education cess.
 Deduct taxes already paid through TDS or advance taxes and self
assessment tax
 The remaining amount is the income tax payable, which needs to be
paid before filing IT return.

Illustration:
Particulars Amount
Income from salary Rs.850,000
Income from house
900,000
property
Profits and gains of
890,000
business or profession
Capital gains ( short
NIL
term )
Income from other
45,000
sources
Gross Total Income Rs. 2,685,000
Less : Deductions
under Chapter VI-A
(i.e. under section
80C to 80U)
Sec. 80 C 150,000
Sec. 80 D 20,000
80 G 10,000
80TTA 5,000 185,000
Total Income (i.e.,
Rs. 25,00,000
taxable income)
Assuming that you are an individual who prefers the existing system
of income tax to the new regime* , your tax liability before surcharge
or cess would be Rs. 250,000 x 0 % + 250,000 x 5 % + Rs. 500,000 x
20 % + Rs. ( 25,00,000 – 10,000,000 ) x 30 % = Rs. 562,500
There is no surcharge, as your total income is less than Rs. 50 lakhs.
Add education cess @ 4 %. So your total tax liability is Rs. 562,500 x
1.04 = Rs. 585,000
 Now assume that you have already paid tax via the TDS route
amounting to Rs. 325,000. You have also paid advance tax of Rs.
225,000.
You net tax liability is Rs. 35,000, which needs to be paid before you
file your income tax return.

From FY 2020-21, assesses shall have the option to choose between the
existing tax system, and the new regime. Many of the deductions available
under the existing system would not be valid under the new system.

1. Income tax slabs and rates for Individuals and HUF: FY 2020- 21 / AY
2021-22
Taxable Income Tax Rate ( Existing Tax Rate ( New
Scheme) Scheme)

Up to Rs. 250,000 Nil Nil

Rs. 250,001 – Rs. 5%

500,000 5%

Rs. 500,001 – Rs. 20 %

750,000 10 %

Rs. 750,001 – Rs. 20 %

10,00,000 15 %

Rs. 10,00,001 – Rs. 30 %

12,50,000 20 %

Rs. 12,50,001 – Rs. 30 %

15,00,000 25 %

Above Rs. 15,00,000 30 % 30%

Surcharge:
a) 10% of Income tax where total income exceeds Rs.50 lakh
b) 15% of Income tax where total income exceeds Rs.1 crore
c) 25% of Income tax where total income exceeds Rs.2 crore
d) 37% of Income tax where total income exceeds Rs.5 crore
Education cess: 4% of income tax plus surcharge
2.Tax rate For Partnership Firm:

A partnership firm (including LLP) is taxable at 30%.

Surcharge: 12% of Income tax where total income exceeds Rs. 1 crore

Education cess: 4% of Income tax plus surcharge.

3.Tax rate for Domestic Company:

A domestic company is taxable at 30%. However, the tax rate is 25% if

turnover or gross receipt of the company does not exceed Rs. 400 crore in
the previous year.

Surcharge:
a) 7% of Income tax where total income exceeds Rs.1 crore
b) 12% of Income tax where total income exceeds Rs.10 crore
c) 10% of income tax where domestic company opted for section 115BAA
and 115BAB

Education cess: 4% of Income tax plus surcharge.

Session 13
GST

GST or the Goods and Services Tax is an indirect tax which has replaced many
indirect taxes in India such as the excise duty, VAT, services tax, etc. The Goods
and Service Tax Act was passed in the Parliament on 29th March 2017 and came
into effect on 1st July 2017.

Goods and Services Tax Law in India is a comprehensive, multi-stage,

destination- based tax that is levied on every stage of value addition. GST is a
single domestic indirect tax law for the entire country.

Destination-based: Consider goods manufactured in Maharashtra and sold to the

final consumer in Karnataka. Since the Goods and Service Tax is levied at the
point of consumption, the entire tax revenue will go to Karnataka and not
Maharashtra.

Advantages of GST:

 Removing the cascading effect of tax

 Price reduction for the end user
 Higher threshold for GST registration
 Composition scheme for small businesses
 Compliance requirements made easier
 Online facilities for GST compliance
 Defined treatment for e-commerce activities
 Increased efficiency in logistics
 Regulating the unorganized sector
 Components of GST
There are three taxes applicable under this system: CGST, SGST and IGST

GST

Inter-state Intra-State
Movement Movement

Centra GST State GST Integrated

( CGST) ( SGST) GST ( IGST)

 CGST: It is the tax collected by the Central Government on an intra-state

sale (e.g., a transaction happening within Maharashtra)
 SGST: It is the tax collected by the state government on an intra-state sale
(e.g., a transaction happening within Maharashtra)
 IGST: It is a tax collected by the Central Government for an inter-state sale
(e.g., Maharashtra to Tamil Nadu)

Illustration: A dealer in Gujarat has sold goods worth Rs. 50,000 to a dealer in
Punjab. The tax rate is 18 % comprising only IGST. Therefore, GST revenue of Rs.
9,000 will go to the Central Govt.
A dealer in Gujarat sells goods worth Rs. 50,000 to a dealer in Gujarat. Assume
that the applicable GST rate is 12 %. This rate comprises of 6 % SGST and 6 %
CGST. Therefore, the dealer collects Rs. 6,000 in GST, which will be shares equally
between the Central Govt. and the State of Gujarat.
CGST, SGST and IGST have replaced the following taxes:
 Central Excise Duty
 Duties of Excise
 Additional Duties of Excise
 Additional Duties of Customs
 Special Additional Duty of Customs
 Cess
  State VAT
 Central Sales Tax
 Purchase Tax
 Luxury Tax
 Entertainment Tax
 Entry Tax
 Taxes on advertisements
 Taxes on lotteries, betting, and gambling

However, certain taxes such as the GST levied for the inter-state purchase at a
concessional rate of 2% by the issue and utilisation of ‘Form C’ is still prevalent.
It applies to certain non-GST goods such as:
i. Petroleum crude;
ii. High-speed diesel
iii. Motor spirit (commonly known as petrol);
iv. Natural gas;
v. Aviation turbine fuel; and
vi. Alcoholic liquor for human consumption.

GST Rates:
 Input Tax Credit

If there is one thing that completely stands out about this new tax, it is the mechanism of input credit
under GST.

Input credit means at the time of paying GST on output, you can reduce the tax you have already
paid on inputs.

Assume that XYZ Co. is a manufacturer of goods.

GST payable on output (final product) is Rs 900

GST paid on input (purchases) is Rs 500

XYZ Co. can claim Input Credit of Rs 500 and you only need to deposit Rs 400 in GST.

Input Credit Mechanism is available to you when you are covered under the GST Act. Which
means if you are a manufacturer, supplier, agent, e-commerce operator, aggregator or any of the
persons registered under GST, You are eligible to claim input credit for tax paid by you on your
purchases.

How to claim input credit under GST?

To Pay To Pay SGST

IGST
To Pay
CGST
•T GST paid on purchases
a
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i • Take input tax credit from CGST
n and IGST paid on purchases
p
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t • Take input tax credit from SGST
a and IGST
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 To claim input tax credit,

 You must have a tax invoice(of purchase) or debit note issued by registered dealer

 You should have received the goods/services

 The tax charged on your purchases has been deposited/paid to the government by the
supplier in cash or via claiming input credit
 Supplier has filed GST returns

Therefore, to allow you to claim input credit on Purchases all your suppliers must be GST
compliant as well.
 Session 14
Company Law: 1

With a change in the domestic and international economic landscape, the

Government of India decided to replace the Companies Act of 1956 with the more
contemporary and relevant Companies Act, 2013.

As per Sec. 2 (20) of the Companies Act, 2013, a company means a company
incorporated under this Act or any previous company law.

Features of a company:

1. Independent corporate existence: By virtue of incorporation under

the Companies Act, a company becomes vested with a corporate
personality, which is independent of and distinct from its members. It
was decided by the House of Lords in the case of Salomon v. Salomon
& Co. Ltd. that a company is a legal person.
2. Limited liability of members: The members of the company are not
liable for the debts of the company beyond the amount remaining
unpaid on their shares, or any amount they might have guaranteed to
contribute in the event of winding up of the company.
3. Perpetual succession: Members may come and go, but the company
can go on forever. Death or insolvency of individual members does
not affect the continued existence of the company.
4. Free transferability of shares: The shares of a company are movable
property, transferable in the manner provided in the articles of the
company. The shares of a public company are freely transferable.
Therefore, a shareholder may sell his shares in the company in the
stock exchange and liquidate his investment without affecting the
balance sheet of the company.
5. Separate property: Company is capable of holding and enjoying
property in its own name. No member, not even all the members can
claim ownership of any of the company’s assets.
6. Right to sue: A company can sue and be sued in its corporate name.
7. A company attracts professional management.
8. Huge access to funds: A company has the privilege of mobilizing
huge amounts of interest-free funds from the public for its business by
making a public issue or a private placement of its shares.

Salomon v. Salomon & Co. Ltd. : Case Summary

Salomon transferred his business of boot making, initially run as a
sole proprietorship, to a company (Salomon & Co. Ltd.), incorporated
with members comprising of himself and his family. The price for
such transfer was paid to Salomon by way of shares, and debentures
having a floating charge (security against debt) on the assets of the
company. Later, when the company’s business failed and it went into
liquidation, Salomon’s right of recovery (secured through floating
charge) against the debentures stood as prior to the claims of
unsecured creditors, who would, thus, have recovered nothing from
the liquidation proceeds.
The case concerns claims of certain unsecured creditors in the
liquidation process of Salomon Ltd., a company in which Salomon
was the majority shareholder, and accordingly, was sought to be
made personally liable for the company’s debt. Hence, the issue was
whether, regardless of the separate legal identity of a company, a
shareholder/controller could be held liable for its debt, over and
above the capital contribution, so as to expose such member to
unlimited personal liability.
The Court of Appeal, declaring the company to be a myth, reasoned
that Salomon had incorporated the company contrary to the true
intent of the then Companies Act, 1862, and that the latter had
conducted the business as an agent of Salomon, who should,
therefore, be responsible for the debts incurred in the course of such
agency.
The House of Lords, however, upon appeal, reversed the above
ruling, and unanimously held that, as the company was duly
incorporated, it is an independent person with its rights and liabilities
appropriate to itself, and that “the motives of those who took part in
 the promotion of the company are absolutely irrelevant in discussing
what those rights and liabilities are”. Thus, the legal fiction of
“corporate veil” between the company and its owners/controllers
was firmly created by the Salomon case.
The corporate principle of corporate veil, thus established,
enunciates that a company has a legal personality separate and
independent from the identity of its shareholders. Hence, any rights,
obligations or liabilities of a company are separate from those of its
shareholders, where the latter are responsible only to the extent of
their capital contributions, known as “limited liability”.

Company v. Partnership

Company Partnership
1. Definition A voluntary association A relation between two
of persons registered and or more individuals who
incorporated for a have agreed to share the
common object is a profits of a business
company carried on by all or any
of them acting for all.
2. Applicable Law Regulated and controlled Regulated by the
by the Companies Act, Partnership Act, 1932
2013
3. Registration Compulsory Not compulsory
4. Legal Position Ordinarily, members are Partners are liable for the
not liable for the acts of acts of the firm, as the
the company, as the partnership firm has no
company is a separate legal existence distinct
 legal entity. from its partners.
5. Life The life of a company is Life of a partnership
not affected by the ends on the death or
change of membership insolvency or insanity of
or death or insolvency of any one partner.
 its members
6. Liability of The maximum liability The liability of the
members/ partners of shareholders is partners is unlimited. The
limited to the amount partners are jointly and
unpaid on the shares of severally liable for all the
the company. If the debts of the partnership
company is limited by firm.
guarantee, the maximum
liability of the members
is limited to the amount
guaranteed by them.
7. Transferability of Shares of a company are A partner cannot transfer
shares freely transferable unless his share without the
restricted by the Articles. consent of all other
partners.
8. Audit The accounts of a In the case of a
company should be partnership, statutory
audited by a chartered audit is not required.
accountant
9. Management The management of a The management is in the
company is in the hands hands of the partners
of a group of elected themselves.
representatives of the
shareholders called the
board of directors
10. Issue of Shares A company can borrow A partnership firm
and Debentures money by issuance of cannot raise money by
shares and/or debentures
issuance of shares or
debentures

Types of Companies

One Person Company

• One person company (OPC) means a company formed with only one
(single) person as a member, unlike the traditional manner of having at
least
two members.
 • OPC under the Companies Act, 2013 is a separate legal entity having
perpetual succession, which is required to be registered as per the
provisions
of the Companies Act, 2013.

• The legal status of an OPC as an incorporated company gives an edge to

it with respect to availing of loans from any banks as compared to a sole
proprietorship.

• Letters ‘OPC’ to be suffixed with the name of OPCs to distinguish it from

other companies.

• A nominee has to be appointed by the memorandum of association. He

will become the member of the company in the event of death of the
existing
member.

• OPC is suitable only for small business. OPC can have maximum paid up
share capital of Rs.50 Lakhs or Turnover of Rs.2 Crores. Otherwise OPC
need to be converted into Private Ltd Company. An OPC is exempted from
stringent legal compliances of the Companies Act.

• OPC is a separate legal entity

• Perpetual succession.

• Liability of member limited to amount remaining unpaid on subscribed share

capital.

• Various small and medium enterprises, doing business as sole

proprietors, might enter into the corporate domain.

• One shareholder one director. The shareholder and director can be the same
person.

• The organized version of OPC will open avenues for more favorable
banking facilities.

Private Limited Company

• Section 2(68) of Companies Act, 2013 defines private companies.

Accordingly, private companies are those companies whose articles of
 association restrict the transferability of shares and prevent the public at
large from subscribing to them.

• Minimum paid-up capital of Rs. 100,000.

• Minimum 2 and maximum 200 members

• Transferability of shares restricted

• Only 2 directors required.

• Not allowed to issue prospectus to public

• They find it more difficult than public companies to access external

financial support.

• All private companies must include the words “Private Limited” or

“Pvt. Ltd.” in their names.

Public Limited Company

• Minimum 7 shareholders are required to form a public limited company

• Minimum of 3 directors is required to form a public limited company

• Minimum paid-up capital of Rs. 500,000.

• Shares are freely transferable

• Easy mobilization of funds through shares, debentures or public deposits.

Section 8 company: Not-for-Profit company

Not all companies have objectives of making profits by carrying out trade and
commerce. Many companies primarily have charitable and non-profit objectives.
Such entities are referred to as a Section 8 Company because they get recognition
under Section 8 of Companies Act, 2013. These companies dedicate all their
incomes and profits towards the furtherance of their objectives.
The Companies Act defines a Section 8 company as one whose objectives is to
promote fields of arts, commerce, science, research, education, sports, charity,
social welfare, religion, environment protection, or other similar objectives. These
companies apply their surpluses towards the furtherance of their cause and do not
pay any dividends to their members.

Features:

i. Charitable objectives: Section 8 companies do not aim to make profits.

Their objectives are purely charitable in nature. They aim to further
causes like science, culture, research, sports, religion, etc.
ii. No minimum share capital: Section 8 companies, unlike other companies,
do not require a minimum paid-up share capital.
iii. Limited liability: Members of these companies can only have
limited liability. Their liabilities cannot be unlimited in any case.
iv. Government license: Such companies can function only if they have the
Central Government’s license. The Government can revoke this license
as well.
v. Privileges: Since these companies possess charitable objectives, the
Companies Act has accorded several benefits and exemptions to them.
vi. Firms as members: Apart from individuals and associations of persons,
Section 8 also allows firms to be members of these companies.

Lifting of the Corporate Veil

The general rule is that the company is a legal person, and is distinct from its
members. It has a seal of its own, its assets are separate, it can sue and be sued in
its own name. This position is well established ever since the decision in the case
of Salomon v. Salomon & Co. Ltd. was pronounced in 1897.

This principal of separate entity is regarded as a curtain or a veil between the

company and its members, therefore protecting the members from the liabilities of
the company. Normally, this veil is impassable, but it cannot be pushed to
unnatural limits. Circumstances may arise when it becomes necessary to lift or
pierce the veil in order to identify the members and to make them liable. Company
not being a biological person cannot commit anything wrongful or fraudulent.
Therefore in exceptional cases, the court will take action as though no separate
entity of the company existed, and the corporate veil is said to have been lifted or
pierced.

Common law exceptions

1. Determination of character: In times of war, it might become necessary to
lift the veil to ascertain whether the company belongs to entities of the
alien state.
2. When the company is a sham: The court might lift the veil when
the corporate veil is being used to conceal the illegal nature of
activities conducted in its name.
3. Prevention of fraud or improper conduct: When it appears that the company
was formed for evading contractual and statutory obligations, the court
might disregard the separate existence of the company.
4. Protection of revenue: The court might lift the veil and make the
members liable if the company is being used for tax evasion.

Statutory exceptions

1. When the number of members falls below the statutory minimum of

2 for private companies, or 7 for public companies, and the company
carries on business with such reduced number, every member will be
liable to an unlimited extent for the debts of the company contracted
during such period.
2. Failure to refund share application money: When the minimum
subscription is not raised within the stipulated period, then the
company is liable to refund the application money within the next 10
days. Failure to do so will render the directors jointly and severally
liable to make the refund along with interest for any delay.
3. When the company is not mentioned clearly on a promissory note,
bill of exchange or cheque, any person who signs on behalf of the
company would be personally liable.
4. An inspector appointed by the Central Government may lift the veil
of incorporation if necessary to investigate into the affairs of its
subsidiary or holding company.
 Session 15

Company Law : 2

Formation of a Company

A company being an artificial entity comes into existence only after its
registration and incorporation with the Registrar of Companies. A number of
formalities need to be completed before a request is made to the Registrar
for its registration, and a legal process has to be completed before a
company obtains a separate legal entity. After ensuring that all necessary
formalities have been complied with, the Registrar of Companies (ROC)
issues a Certificate of Incorporation. With this certificate, the company
becomes a separate legal entity. It is the birth certificate of the company.

The steps involved in the incorporation of a company, in a nutshell, are as

follows:

 Ascertaining name availability

 Application for the Digital Signature Certificate ( DSC)
 Application for Directors Identification Number ( DIN )
 Filing the proposed name of the company for approval to the
Registrar of Companies
 Drafting of the Memorandum and Articles of Association
 Printing, Signing, Stamping, and vetting of both articles and
memorandum of association
 Application for incorporation of the company in the prescribed form
with the prescribed fees.
 After processing of the form is complete, Corporate Identity Number
(CIN ) is generated, and the Certificated of Incorporation is issued.

According to S.11 of the Companies Act, 2013, company having a

share capital shall not commence any business or exercise any
borrowing power unless a director files declaration with ROC that
every subscriber to the memorandum has paid the value of the
shares agreed to be taken by him and the paid up capital is not less
than 5 Lakh Rupees in case of Public Company and not less than 1
Lakh in case of Private Company.
Section-12 of the Companies Act, 2013 requires that the company,
on and from the 15 days of its incorporation and at all times
thereafter, shall have a registered office capable of receiving and
acknowledging all communications and notices as may be addressed
to it and company shall furnish to the registrar verification of its
registered office within a period of 30 days of its incorporation in such
manner as may be prescribed.

Memorandum of Association

The memorandum of association of a company is the constitution or

the charter of the company. It is a contract document among the
members. Section 4 of the Companies Act, 2013 provides for the
content of the Memorandum of Association. The standard clauses are
as follows:

a. The name clause: Sec. 4 (1) (a) requires that the company must
have a name. The name of a private limited company must end
with the words Private Limited
b. The situation clause: Sec. 4 (1) ( b ) requires the state in which the
company is going to be registered, to be mentioned.
c. The objects clause: Sec. 4 (1) (c) requires the memorandum of
association to mention the main objects to be pursued by the
company and the incidental objects considered necessary for
attainment of the main objects. This clause is the raison d’etre of
the company.
d. The liability clause: Sec. 4 (1) (d) requires the promoters to
mention the nature of liability of members: limited by shares, or
limited by guarantee or both or unlimited liability.
e. The capital clause: Sec. 4 (1) (e) requires mention of the total
share capital or the authorized capital with which the company will
be incorporated, the number of shares in which the authorized
capital is broken into, the face value of each share and the number
of shares being taken up by the subscribers to the memorandum.
f. The association clause: Wherein the subscribers to the
memorandum agree to be associated into a company, and also to
take up the shares set against their respective names. It must be
subscribed by at least 2 persons in the case of a private
company, and by at least 7 persons in the case of public
company.
 The memorandum of association must be printed, the pages
serially numbered, and signed by the subscribers.

Articles of Association

The Articles of Association (AOA) is the second contract document

signed by the subscribers and is registered at the time of
incorporation of the company. While the MOA provides the broadest
framework within which corporate activities are to be confined, the
AOA supplements it by providing all the details and procedures for
the functioning and the internal regulations of the company, e.g.
rights of each class of shareholders, allotment of shares, transfer and
transmission of shares, borrowing powers, holding of general
meetings, the number and powers of directors, dividends, audit and
accounts etc.

Doctrine of Constructive Notice:

The memorandum and articles of association, by virtue of
registration, become public documents, and therefore are open to
public inspection. It is desirable that every person contracting with the
company must acquaint himself with these two documents in order to
ensure that the contract is not inconsistent with the contents thereof.
Otherwise he cannot recover damages from the company.

Doctrine of Ultra Vires:

The objects clause in the Memorandum of Association, not only
determines the field of industry within which the corporate activities
are to be confined, and also ensures that no act shall be dome
beyond the boundaries set out therein. A company cannot take up an
activity beyond its listed objectives. . Any act outside the objects
clause is ultra vires . This rule was laid down by the House of Lords in
Ashbury Railway Carriage and Wagon Co. v. Riche. The gist of the
case is as follows:
A company was incorporated a. To manufacture and sell railway
carriages etc and
b. To act as mechanical engineers and general contractors.
The company entered into a contract with Riche to finance the
construction of a railway line in Belgium. The company subsequently
repudiated the contract because it was beyond its powers as set out
in the objects clause of the MOA. Riche brought an action for breach
of contract.
Construction of railways, carriages and wagons was an objective of
the company, but not the financing of the construction of railway lines.
The company was not held liable, as the contract was ultra vires, and
hence null and void. However, the directors of the company can be
made personally liable.

Doctrine of Indoor Management:

The doctrine of indoor management is the reverse of the doctrine of
constructive notice. The doctrine of indoor management states that
the outsiders are not expected to have knowledge about how the
company’s internal matters are handled by the executives of the
company. Internal irregularities cannot be a basis for setting aside a
contract. While the doctrines of constructive notice and ultra vires
protect the company against outsiders dealing with the company, the
doctrine of indoor management protects the outsiders against the
company.
Case Law: Royal British Bank v. Turquant
The directors of a coal mining and railway company borrowed from
the Royal British Bank on a bond of 2,000 pounds. The bond was
given under the seal of the company, and was signed by two
directors and a secretary. The company however claimed that, under
its clauses of incorporation, the directors had powers to borrow only
such sums as has been authorized by a general resolution of the
company, and in this case, no specific resolution was passed.
The company was held liable. Once it was established that the
directors could borrow subject to a resolution, the plaintiff had the
right to assume that the necessary resolution must have been
passed. The internal procedure is not a matter of public knowledge.
 While the outsider is expected to know the contents of the MOA and
AOA, he is not expected to know what transpires within the closed
doors of the boardroom.

Exceptions to the rule of Indoor Management:

 The outsider has knowledge of the irregularity
 The outsider has suspicion of the irregularity
 Forgery
 No knowledge of the articles of association.
Section 16

Company Law: 3

Raising of

Capital Share

Capital

In a company, capital refers to share capital. Share capital is broken up into

units called shares. A share is the basis of ownership of a company.

A company is created to conglomerate capital. The initial capital is

collected from the subscribers to the memorandum. But this would hardly
be adequate for the needs of the business. The company would raise
further capital by getting its shares subscribed, and the Companies Act
makes detailed provisions for raising of capital. A private company can
raise capital only privately. A public company on the other hand can raise
capital from the public through IPO or an FPO.

The Memorandum of Association (MOA) mentions the amount of capital

the company is being registered with. This is known as the nominal capital
or the authorized capital of the company. A company cannot issue share
capital in excess of the authorized capital, without alteration of the capital
clause of the MOA.

Issued capital is that part of the authorized capital that has been offered
for subscription. The subscribed capital is that part of the issued capital,
which have been taken up by the purchasers of shares in the company,
and which have been allotted by the company. The company may require
the subscriber to pay up only a part of the nominal value, the remainder
being left to be collected as and when required. Paid-up capital is that
portion of the called up capital that the members have paid. Reserve
capital is that portion of uncalled share capital which can be called only in
case of winding up.

The Articles of Association will contain some essential information about

shares and share capital, like the classes of shares to be prescribed.
According to the Companies Act, there are two types of shares a company
can allot. These have different natures, rights, and obligations.

A company can issue two kinds of shares: Equity Shares and Preference
Shares.

A preference share is one which carries two exclusive preferential rights

over equity shares. These two special rights of preference shares are

 A preferential right with respect to the dividends declared by a

company. Such dividends at a fixed rate on the nominal value of the
shares shall be first paid to preference shareholders before equity
shareholders.
 Preferential right when it comes to repayment of capital on liquidation
of the company. This means that the preference shareholders get
paid their capital earlier than the equity shareholders.

The holders of preference shares can vote only on matters directly affecting
their rights or obligations.

Preference shares can actually be of various types. They can be

redeemable or irredeemable. They can be participating (participate in
surplus profits after a dividend is paid out) or non-participating. And they
may be cumulative (arrear dividends will accumulate) or non-cumulative.

An equity share is defined as a share which is not a preference share.

Equity shareholders only enjoy equity, or ownership in the company.

The dividend given to equity shareholders is not fixed. It is decided by the

board of directors according to the financial performance of the company.
And if in a given year, no dividends can be declared by the board, the right
of the shareholders to dividends for that year lapses.

Equity shareholders also have proportional voting rights according to their

paid-up capital in the company.
Issue of Share Capital
Issue of shares can be done in three ways which are:

 Private placement of shares

 Public issue
 Issue the shares to existing shareholders ( rights issue or bonus
issue)

Section 23 of the Companies Act, 2013 mentions Public Issue as a

way of raising funds from the public. It means the selling of shares for
subscription by the public by issue of a prospectus.

Public Issue of Shares

1. Prospectus

Only a public company can raise capital through a public issue. Section 23
states that a public issue will be done only through a prospectus.The
Companies Act, 2013 defines a prospectus under Sec. 2(70). Prospectus
can be defined as “any document which is described or issued as a
prospectus”. This also includes any notice, circular, advertisement or any
other document acting as an invitation to offers from the public. Such an
invitation to offer should be for the purchase of any securities of a corporate
body. Shelf prospectus and red herring prospectus are also considered as
prospectus.

Sec. 26 details the information to be contained in the prospectus. Some

important information to be included therein:

 Dates of opening and closing of the issue.

 Details of underwriting.
 Consent of the directors, auditors and the bankers to the issue.
 The details of the resolution authorizing the issue.
 Capital structure of the company.
 Main objects of the public offer.
 Main objects and present business, and implementation schedule of
the project.
  Risk factors.
 Minimum subscription, and the amount payable by way of premium.

Filing prospectus with the SEBI is a must for a company to come out with
public issue. Prospectus is also required to be filed with the concerned
stock exchanges along with the application for listing its securities. The final
Prospectus must be signed by all the directors and filed with the Registrar
of Companies (ROC). ROC may suggest change and report the same to
SEBI. The date of the prospectus is when ROC Card is obtained.

A copy of prospectus should delivered to the Registrar for registration

signed by every person who thus named as a director or proposed director
of the company or by his duly authorised attorney on or before the date of
its publication and only then it shall issued by or on behalf of a company or
in relation to an intended company.

A red herring prospectus carries the same obligations as a prospectus. On

the closing of the offer, a copy of the prospectus will be filed with the
Registrar and SEBI. It will state the total capital raised, the price of the
securities, and any other details not included in the red herring prospectus

The golden rule of the prospectus: Everything must be stated with strict
and scrupulous accuracy. The Act imposes stringent civil and criminal
liabilities for false statements in a prospectus.

Receiving Applications

When the prospectus is issued, prospective investors can apply for shares.
They must fill out an application and deposit the requisite application
money in the scheduled bank mentioned in the prospectus. The application
process can stay open a maximum of 120 days. If in these 120 days
minimum subscription has not been reached, then this issue of shares will
be cancelled. The application money must be refunded to the investors
within 130 days since issuing of the prospectus.
This minimum subscription is generally set by the board of directors, but it
cannot be less than 90% of the issued capital. Therefore, at least 90% of
the issued capital must receive subscriptions or the offer will be said to
have failed. In such a case the application money received thus far must be
returned within the prescribed time limit. The time limit allowed for the
collection of the minimum subscription is one hundred and twenty days.
The time period should be calculated from the date of opening of the issue.
In case the minimum subscription is not reached, the application money
should be refunded. The refund should be made within fifteen days from
the date of closure of the issue. In case there is a delay beyond fifteen
days, the applicants should be repaid with interest at the prescribed rate.
The directors of the company should also bear the liability to meet the
interest obligation. The refund should be made directly to the bank account
of the applicant.

Allotment of Shares

Once the minimum subscription has been reached, the shares can be
allotted. Generally, there is always oversubscription of shares, so the
allotment is done on pro-rata basis. Letters of allotment are sent to those
who have been allotted their shares. This results in a valid contract
between the company and the share applicant, who will now be a part
owner of the company.

Debentures

In addition to equity capital, companies also take loans to raise funds for
their business. Companies often raise funds through debentures. The term
debenture has originated from the latin ‘Acknowledgment of Debt’. Just like
equity shares, a debenture is put up to the public to subscribe for.

As per Sec.2(30) of the Companies Act,2013,”Debenture” includes

debenture stock, bonds or any other instrument of the company evidencing
a debt, whether constituting a charge on the assets of the company or not.

A company may issue debentures with an option to convert such

debentures into shares, either wholly or partly at the time of redemption,
which shall be approved by a special resolution passed at a general
meeting.

No company shall issue any debentures carrying any voting rights.

Conditions for issue of secured debentures:A company shall not issue
secured debentures, unless it complies with the following conditions,
namely:-

 Term of Debentures

An issue of secured debentures may be made, provided the date of its

redemption shall not exceed 10 years from the date of issue. If a company
is engaged in the setting up of infrastructure projects, it may issue secured
debentures for a period exceeding 10 years but not exceeding 30 years.

 Secured by charge:

An issue of debentures shall be secured by the creation of a charge, on

the properties or assets of the company, having a value which is sufficient
for the due repayment of the amount of debentures and interest thereon.

 Appointment of Debenture Trustee:

The company shall appoint a debenture trustee before the issue of

prospectus or letter of offer for subscription of its debentures and not later
than 60 days after the allotment of the debentures, execute a debenture
trust deed to protect the interest of the debenture holders.

 Charge/Mortgage in favour of Debenture Trustee:

The security for the debentures by way of a charge or mortgage shall be

created in favour of the debenture trustee on-

(i) any specific movable property of the company (not being in the nature of
pledge); or

(ii) any specific immovable property wherever situate, or any interest

therein.

 Creation of Debenture Redemption Reserve A/c:

The company shall create a Debenture Redemption Reserve for the
purpose of redemption of debentures, in accordance with the conditions
given below;
(a) The Debenture Redemption Reserve shall be created out of the profits
of the company available for payment of dividend;

(b) The company shall create a Debenture Redemption Reserve equivalent

to at least 50% of the amount raised through the debenture issue before
debenture redemption commences
Session 17
Company Law : 4
Company Meetings

A Company is a separate legal entity different from its members. Its affairs
are generally conducted by the Board of Directors. Certain powers are
executed by the board subject to approval of the shareholders in general
meetings. The Annual General Meeting (AGM) gives them the opportunity
to assess the health of the company and also to make suggestion for its
improvement and progress.

i. Annual General Meeting:

Every company other than a One Person Company must hold an

AGM in each year apart from other meetings.

Every company, other than a One Person Company must hold, in

addition to any other meeting, an annual general meeting once every
year, and not more than 15 months should elapse between two
AGMs. A company may hold its first AGM within the period of 9
months from close of its first financial year, otherwise, within a period
of 6 months from the close of financial year. Every AGM shall be
called during business hours on any day which is not a public holiday
and shall be held at the registered office or in any other place within
the city, town or village in which the registered office is situated.

The procedure for holding a meeting begins with a notice. A general

meeting of a company may be called by giving not less than 21 days’
notice either in writing or through electronic mode. The notice must
 be accompanied by a copy of the director’s report, audited accounts
and the auditor’s report.

The quorum of a meeting is another issue. It is the minimum number of

members that must be present in order to constitute a valid meeting. The
quorum for a private company is 2 members. The Companies Act 2013 has
set the quorum for a public company on the basis of total membership of
the company. Accordingly, 5 members personally present if the number of
members as on the date of meeting is not more 1,000; 15 members
personally present if the number of members as on the date of meeting is
more than 1,000 but up to 5,000; 30 members personally present if the
number of members as on the date of the meeting exceeds 5,000

The meeting is conducted by the chairman of the meeting.

There is no provision for extension of 1 st AGM but in other cases it

can be extended for period of three months by the Registrar of
Companies. However, if such first AGM is not held, NCLT can order
holding of General Meeting under section 97 of the Act.

Business to be transacted at AGM:

Ordinary Business: The following constitutes ordinary business at any

AGM.

a. Consideration of financial statements and reports of board of

directors and auditors.

b. Declaration of dividends.

c. Appointment of directors in place of those retiring.

d. Appointment and remuneration of the auditors.

Special Business : Any other business conducted at an Annual General

Meeting, and all business conducted at an Extraordinary General Meeting
is special business.

A company is an artificial person, therefore any decision taken by it shall be

recorded in the form of a resolution. Accordingly, a resolution may be
defined as an agreement or decision made by the directors or members (or
a class of members) of a company. A proposed resolution is called a
motion. A motion is always in writing, and its notice is given in advance.
When a motion is passed at a meeting, it is called a resolution, and it is
binding.
Basically, there are two types of resolutions for a general meeting,Ordinary
Resolution and Special Resolution. In case of Board Meetings, there is
no concept of special resolutions. An ordinary resolution requires a simple
majority of above 50 % of the votes. For a special resolution to be adopted,
the number of votes cast in favor of the motion must be at least three times
the number of votes cast against it.

Some issues which require ordinary resolution: alteration of authorized

capital, declaration of dividends, appointment of directors and auditors,
removal of directors etc.

Some issues which require special resolution: Alteration of the objects

clause of the MOA, shifting the registered office of the company from one
state to another, alteration of articles of association, reduction in share
capital, change in the name of the company, mergers and acquisitions.

ii. Extraordinary General Meeting:

Any meeting of members of a company, other than the AGM, is
an extraordinary general meeting. In other words, any general
meeting between two AGMs is an EGM. All business conducted at
an EGM is special business. An EGM is convened for urgent or
special business. A member interested in calling an EGM can
mobilize other members, totaling at least 1/10 th of the total voting
power, and request the board of directors to convene the meeting.
If the board fails to call the meeting, the members themselves can
call the meeting.

(iii) Meeting of a Class of Members:

Such Meetings are held to pass resolutions which only bind the
Members of the class concerned. Only members of that class can
attend such Meetings and speak as well as vote thereat, e.g.
meetings of holders of preference shares. Such Meetings are
required to be convened when it is proposed to vary the rights of the
holders of a particular class of shares.

iv. Meetings of Debenture Holders, Creditors etc. - Such Meetings

are held to pass resolutions which bind the debenture holders or
creditors, as the case may be. The debenture holders or creditors can
attend such meetings and speak as well as vote thereat.
 Session 18

Company Law: 5

Directors

A company, though a legal entity in the eyes of law, is an artificial person, existing
only in contemplation of law. It has no physical existence. It has neither soul nor
body of its own. As such, it cannot act in its own person. It can do so only through
some human agency. The persons who are in charge of the management of the
affairs of a company are termed as directors. They are collectively known as
Board of Directors or the Board. The directors are the brain of a company. They
occupy a pivotal position in the structure of the company. Directors take the
decision regarding the management of a company collectively in their meetings
known as Board Meetings or at meetings of their committees constituted for
certain specific purposes.

Section 149(1) of the Companies Act, 2013 requires that every company shall
have a minimum number of 3 directors in the case of a public company, two
directors in the case of a private company, and one director in the case of a One
Person Company. A company can appoint maximum fifteen directors. A company
may appoint more than fifteen directors after passing a special resolution in
general meeting and approval of Central Government is not required.

Maximum number of directorships, including any alternate directorship a person

can hold is 20. It has come with a rider that number of directorships in public
companies/ private companies that are either holding or subsidiary company of a
public company shall be limited to 10. Further the members of a company may
restrict abovementioned limit by passing a special resolution. Any person holding
office as director in more than 20 or 10companies as the case may be before the
commencement of this Act shall, within a period of one year from such
commencement, have to choose companies where he wishes to continue/resign
as director. Thereafter he shall intimate about his choice to concerned companies
as well as concerned Registrar.
Appointment of Directors:

First Directors:

The first directors of most of the companies are named in their articles. If they are
not so named in the articles of a company, then subscribers to the memorandum
who are individuals shall be deemed to be the first directors of the company until
the directors are duly appointed in the general meeting of the company. In the
case of a One Person Company, an individual being a member shall be deemed to
be its first director until the director(s) are duly appointed by the member.

Subsequent directors:

Articles of the Company may provide the provisions relating to retirement of the
all directors. If there is no provision in the article, then not less than two-thirds of
the total number of directors of a public company shall be persons whose period
of office is liable to determination by retirement by rotation and eligible to be
reappointed at annual general meeting. Further independent directors shall not
be included for the computation of total number of directors. At the annual
general meeting of a public company one-third of such of the directors for the
time being as are liable to retire by rotation, or if their number is neither three
nor a multiple of three, then, the number nearest to one-third, shall retire from
office. The directors to retire by rotation at every annual general meeting shall be
those who have been longest in office since their last appointment.

At the annual general meeting at which a director retires as aforesaid, the

company may fill up the vacancy by appointing the retiring director or some other
person thereto.

Additional Directors: The board of directors can appoint additional directors, if

such power is conferred on them by the articles of association. Such additional
directors hold office only up to the date of next annual general meeting or the last
date on which the annual general meeting should have been held, whichever is
earlier. A person who fails to get appointed as a director in a general meeting
cannot be appointed as additional director.

Alternate Director:

The Board of Directors of a company must be authorized by its articles or by a

resolution passed by the company in general meeting for appointment of
alternate director.

The person in whose place the Alternate Director is being appointed should be
absent for a period of not less than 3 months.

The person to be appointed as the Alternate Director shall be the person other
than the person holding any alternate directorship for any other directorship in
the company.

An alternate director shall not hold office for a period longer than that
permissible to the director in whose place he has been appointed and shall vacate
the office if and when the director in whose place he has been appointed returns.

Nominee Directors:

Subject to the articles of a company, the Board may appoint any person as a
director nominated by any institution in pursuance of the provisions of any law
for the time being in force or of any agreement or by the Central Government or
the State Government by virtue of its shareholding in a Government Company.

Appointment of Directors to fill in a Casual Vacancy:

If any vacancy is caused by death or resignation of a director appointed by the

shareholders in General meeting, before expiry of his term, the Board of directors
can appoint a director to fill up such vacancy. The appointed director shall hold
office only up to the term of the director in whose place he is appointed.
Independent Directors:

Corporate Governance is one of the most important differentiators of a business

that has impact on the profitability, growth and sustainability of business.

The provisions of independent directors has been laid down under section 149(4)
of the Companies Act, 2013. This section lays down that at least one-third of the
total number of directors should be independent directors in every listed
company The Central Government may prescribe the minimum number of
independent directors in public companies.

According to sub-section (6) of section 149 of the Companies Act, 2013 an

independent director in relation to a company, means a director other than a
managing director or a whole-time director or a nominee director.

As per sub section 4 of Section 149 of the Companies Act 2013, every listed public
company is mandatorily required to have at least one-third of the total number of
directors as independent directors.

Unlisted public companies must appoint at least two independent directors in the
following circumstances:

i. if the paid up share capital exceeds Rs.10 crores;

ii. if the turnover exceeds Rs.100 crores;

An independent director shall possess appropriate skills, experience and

knowledge in one or more fields of finance, law, management, sales, marketing,
administration, research, corporate governance, technical operations or other
disciplines related to the company’s business.

Woman Director:
The following class of companies are required to appoint at least one Woman
Director-

(i) every listed company;

(ii) every other public company having –

(a) paid–up share capital of 100 crore rupees or more; or

(b) turnover of 300 crore rupees or more.

For appointment of Women Director, paid up share capital or turnover, as the

case may be, as on the last date of latest audited financial statements has to be
taken into account.

Whole Time Director

Whole Time Director under Section 2 (94) of the Companies Act, 2013

Whole Time Director means a director in the whole-time employment of the

company. In other words, a director employed to devote the whole of his time
and attention in the carrying on of the affairs of the Company.

A person, who is proposed to be appointed as a managing director or whole-time

director, can’t be appointed unless he is already a director in the company. So,
holding of office of director is a prerequisite for holding of office of managing or
whole-time director.

Director Identification Number (DIN)

Every individual, who is to be appointed as director of a company shall make an

application electronically in Form DIR-3 (Application for allotment of Director
Identification Number) to the Central Government for the allotment of a DIN.

Powers of Directors
The powers of directors are co-extensive with the powers of the company itself.
The director once appointed, they have almost total power over the operations of
the company.

There are two limitations on the exercise of the power of directors which are as
follows.
 1. The board of directors are not competent to do the acts which the
shareholders are required to do in general meetings.
2. The powers of directors are to be exercised in accordance with the
memorandum and articles.

The individual directors have powers only as prescribed by memorandum and

articles.

Intervention of shareholders in exceptional cases:

In following exceptional situations the general meeting is competent to act in

matters delegated to the Board:

1. When directors have acted mala fide.

2. When directors have due to some valid reason become incompetent to act.
3. The shareholders can intervene when directors are unwilling to act or there
is a situation of deadlock.
4. The general meetings of shareholders have residuary powers of a company.

Powers that can be exercised by the Board:

There certain powers which can be exercised only when its resolution has been
passed at the Board’s meetings. Those powers such as the power:

1. To make calls.
2. To borrow money.
3. To issue funds of the company.
4. To grant loans or give guarantees.
5. To approve financial statements.
6. To diversify the business of the company.
7. To apply for amalgamation, merger or reconstruction.
8. To take over a company or to acquire a controlling interest in another
company.
The shareholders in a general meeting may impose restrictions on the
exercise of these powers.

Powers to be exercised with the approval of shareholders:

Certain powers can be exercised by the Board only when it is approved in the
general meeting of shareholders:

1. To sale, lease or otherwise dispose of the whole or any part of the

company’s undertakings.
2. To invest otherwise in trust securities.
3. To borrow money for the purpose of the company
4. To give time or refrain the director from repayment of any debt.

When the director has breached the restrictions imposed under the section, the
title of lessee or purchaser is affected unless he has acted in good faith along with
due care and diligence. This section does not apply to the companies whose
ordinary business involves the selling of property or to put a property on lease.

Liquidation of Companies

The liquidation or winding up of a company is the process whereby its life is

ended and its property is administered for the benefit of its creditors and
members. An Administrator, called a liquidator, is appointed and he takes control
of the company, collects its assets, pays its debts and finally distributes any
surplus among the members in accordance with their rights.”

Modes of Winding Up

Company may be wound up in any of the following two ways:

1. Compulsory Winding Up of a Company:

Winding up a company by an order of the National Company Law Tribunal is

known as compulsory winding up.

Who may file a Petition to the Tribunal ?

A petition for compulsory winding up of a company may be filed in the Tribunal by
any of the following persons.

i. Petition by the Company - A company can file a petition to the Tribunal for its
winding up when the members of the company have resolved by passing a
Special Resolution to wind up the affairs of the company. Managing Director or
the
directors cannot file such a petition on their own account unless they do it on
behalf of the company and with the proper authority of the members in the
General Meeting.

ii. Petition by the Contributories - A contributory shall be entitled to present a

petition for the winding up of the company, notwithstanding that he may be the
holder of fully paid-up shares or that the company may have no assets at all, or
may have no surplus assets left for distribution among the holders after the
satisfaction of its liabilities. It is no more required of a contributory making
petition to have tangible interest in the assets of the company

iii. Petition by the Registrar - Registrar may with the previous sanction of the
Central Government make petition to the Tribunal for the winding up the
company only in the following cases:

(a) If the company has made a default in filing with the Registrar its financial
statements or annual returns for immediately preceding five consecutive financial
years;

(b) If the company has acted against the interests of the sovereignty and
integrity of India the security of the State friendly relations with foreign States,
public order, decency or morality;

(c) If on an application made by the Registrar or any other person authorised

by the Central Government by notification under this Act, the Tribunal is of the
opinion that the affairs of the company have been conducted in a fraudulent
manner or the company was formed for fraudulent and unlawful purpose or the
persons concerned in the formation or management of its affairs have been guilty
of fraud, misfeasance or misconduct in connection therewith and that it is proper
that the company be wound up.

iv. Petition by the Central Government or a State Government on the ground

that company has acted against the interests of the sovereignty and integrity of
India, the security of the State, friendly relations with foreign States, public order,
decency or morality.
v. Any person authorised by the Central Government in that behalf.
2. Liquidation under Insolvency and Bankruptcy Code 2016:

The Insolvency and Bankruptcy Code, 2016 relates to re-organisation and

insolvency resolution of companies, partnership firms and individuals in a time
bound manner.

The Insolvency and Bankruptcy Code, 2016 applies to matters relating to the
insolvency and liquidation of a company where the minimum amount of the
default is Rs. 1 lakh (may be increased up to Rs.1 cr by the Government, by
notification).

The Code lays down two stages:

Insolvency Resolution Process

It is the stage during which financial creditors assess whether the debtor’s
business is viable to continue and the options for its re-organisation and re-
structuring are suggested; and

Liquidation

In case the insolvency resolution process fails, the liquidation process shall
commence in which the assets of the company are realized to pay off the
creditors.
 Session 19

Negotiable

Instruments

A negotiable instrument is a piece of paper which entitles a person to a sum

of money and which is transferable (negotiable) from person to person by
mere delivery ( bearer instrument ) or by endorsement and delivery ( order
instrument). The person to whom it is transferred becomes entitled to the
money, and also to the right to further transfer it.

The maxim of law is nemo dat quod non habet ( no one can transfer a better
title than he himself has). Negotiable instruments are an exception to this rule.

The Negotiable Instruments Act, 1881 recognizes three kinds of negotiable

instruments: promissory notes, bills of exchange and cheques. A person who
takes a negotiable instrument in good faith and for value becomes its true
owner even if he takes it from a thief or a finder.

‘The great element of negotiability is the acquisition of property by your own

conduct, not by another’s, and if you take it bona fide and for value, nobody
can deprive you of it’: Raephal v. Bank of England.

According to S. 13 ( 1) of the Negotiable Instruments Act, 1881, a negotiable

instrument means a promissory note, bill of exchange or cheque payable either
to order or to bearer.

An instrument which is payable to a particular person, or to any other person

on his order, is referred to as Payable to Order. Example: Pay A, Pay A or order,
Pay A or to the order of A.

An instrument payable to any person who bears it is Payable to Bearer.

Examples: Pay to bearer, Pay A or bearer etc.
 Special Characteristics of a Negotiable Instrument

 Property: The holder of a negotiable instrument is presumed to be the

owner of the property contained therein. A negotiable instrument does not
merely convey possession, but ownership also.
 Negotiability: The property in the negotiable instrument is freely
transferable by one person to another. When the instrument is bearer, it is
negotiated by mere delivery, and in case of order instrument, it is
transferable by endorsement and delivery.
 Good Title: A holder in due course, a bonafide transferee of a negotiable
instrument for value, gets a good title even if the title of the transferor is
defective. Therefore the maxim of ‘ Nemo Dat Quod Non Habet’ or ‘No one
can give a better title than he himself has’ does not apply to negotiable
instruments.
 Right to sue in own name: Where a negotiable instrument is dishonoured,
the holder of the instrument at maturity has the right to sue in his own,
even though he might not be the original payee.
 Presumptions: A negotiable instrument is supported by consideration, the
instrument is presumed to have been made or drawn on the date
mentioned on it, bill of exchange has been accepted within reasonable
time, a lost bill or note was duly stamped, the endorsements have taken
place in the order in which they appear on the instrument etc.

Types of Negotiable Instruments

Promissory note:

This is an instrument in writing, containing an unconditional undertaking, signed

by the maker to pay a certain sum of money to the order of a certain person, or to
the bearer of the instrument.

Instrument Valid Promissory Note? Reason

I owe B Rs. 1,000 No No promise to pay, only
acknowledgment of debt
I promise to pay B as No Conditional undertaking
soon as I am able to
I promise to pay B Rs. No Sum payable is uncertain
1,000, and all other
charges
I promise to pay B on Yes Unconditional promise to
demand Rs. 1,000 for pay certain sum to a
value received certain person
I promise to pay the No Private parties prohibited
bearer a sum of Rs. 1,000 from issuing promissory
notes payable to bearer*
*The Government of India, with the intention to control as to who can issue
currency notes, through the Reserve Bank of India, has imposed restrictions on
the issuance of promissory notes. No person other than the RBI or the Central
Government can make or issue a promissory note payable to bearer. Subsequent
parties can however, by endorsement, convert it into a ‘ payable to bearer’ note.

Parties to a promissory note: Maker ( debtor) and Payee (creditor)

Bill of Exchange:

A bill of exchange is an instrument in writing, containing an unconditional order,

directing a person to pay a certain sum of money to a person, or to the bearer of
the instrument. A bill of exchange, unlike a promissory note, originates from the
creditor.

The parties to a bill of exchange: Drawer (creditor), Drawee /Acceptor (debtor),

and Payee

Promissory Note v. Bill of Exchange

Promissory Note Bill of Exchange

1. Originates from the debtor Originates from the
creditor
2. Contains an unconditional Contains an unconditional
 undertaking to pay order to pay
3. Two parties initially: Maker Three parties: Drawer,
and Payee Drawee and Payee
4. Not required to be Required to be accepted by
accepted, before being the drawee before being
presented for payment presented for payment
5. Can be dishonored by non- Can be dishonored by non
payment only acceptance or by non
payment
6. Liability of maker is primary Liability of drawer is
secondary
7. Cannot be made payable to Bill of exchange can be
bearer drawn as payable to
bearer, provided that it is
not payable on demand
Cheque:

A cheque is a bill of exchange drawn on a specified banker, and not expressed

to be payable otherwise than on demand, and it includes the electronic image
of a truncated cheque and a cheque in the electronic form.

Parties to a cheque: Drawer(debtor), Drawee (bank) and the Payee (creditor).

Bill of Exchange v. Cheque

Bill of Exchange Cheque

1. Can be drawn on any Can only be drawn on a
person bank
2. Must be accepted before No acceptance required
the drawee can be made
liable
3. May be demand of usance Always payable on
instrument demand
4. Notice of dishonor No notice of dishonor
necessary necessary
5. Must be stamped Cheque is not required to
be stamped
6. Unless payable on Payable on demand
demand, entitled to three without any days of grace
days of grace
7. No provision for crossing a Cheque may be crossed
 bill of exchange

Crossing of Cheques

Cheques may be of two types, open cheques and crossed cheques. Open cheques
are those which are paid across the counter of a bank. In other words, they need
not be put through a bank account. Open cheques are liable to great risk if they
fall into wrong hands. They may be lost or stolen and the finder or the thief can
get it encashed across the counter of a bank, unless the drawer has in the
meantime countermanded payment.

With a view to avoiding such risks, and to protect the owner of the cheque, a
system of crossing was introduced. Crossing is a direction to the bank not to pay
the cheque across the counter, but to pay only to a bank, or to a particular
account with the bank. Crossing does not affect the negotiability or the
transferability of the cheque. But where the words ‘ Not Negotiable’ are added,
the cheque is not negotiable.

Broadly speaking, crossing may be: General Crossing and Special Crossing.

General crossing: Two transverse parallel lines are essential for general crossing.
A cheque is said to be crossed generally when it bears across its face an addition
of :

a. The words ‘and company’, between two parallel tranverse lines, either with
or without the words ‘ Not Negotiable’.
b. Two parallel transverse lines simply with or without the words ‘Not

Negotiable’.

Special Crossing: It requires the name of the banker to be added across the face of the
cheque with or without the words ‘ Not Negotiable’. Transverse lines are not necessary for a

special crossing. Special crossing makes the cheque safer than a general crossing, because the
payee or holder cannot receive payment except through the banker named on the cheque.

Special crossing may take any one of the following forms

Restrictive crossing: In addition to the two types of crossing as

aforementioned, another type of crossing has been adopted by commercial
and banking usage. It has the effect of restricting the payment in certain
ways. In such a crossing, the words ‘ Account Payee only’ are added, which
make the cheque non-tranferable.
Who can cross a cheque:
 The drawer
 The holder
  The banker

Dishonor of Cheques

The relationship between the banker and customer is that of debtor and creditor.
Normally, the banker must honour its customer’s cheque because of the
contractual relationship that exists between them. A bank has to have a valid
reason for refusing payment. If a bank dishonours a cheque without a valid
reason, it has to compensate the drawer. But there are certain situations where a
bank must refuse payment on a cheque. Some such situations are as follows:

 When the drawer of the cheque has countermanded payment, by giving

a stop payment advice.
 Post dated cheque
 Outdated or stale cheque
 Signature mismatch
 Amount not matching in words and numbers
 Mutilated cheque
 Scribbling or overwriting on cheque
 Garnishee order of court
 Insufficient funds in the account of the drawer.

If a customer has issued a cheque without having sufficient funds in his account,
he has essentially committed a fraud on the holder. The Negotiable Instruments
Act has taken special care of the matter, by making it a punishable offence u/s
138 of the Act. The defaulter shall be punishable with imprisonment for a term
which may extend to two years, or with fine which may extend to twice the
amount of the cheque or with both.

Following is the procedure for initiating criminal proceedings under Sec 138 of the
Negotiable Instruments Act, 1881:

 Firstly, after dishonour of cheque, a chance shall be given to the drawer

of the cheque by giving a written notice to immediately pay the amount.
 Such notice shall be sent within 30 days of receipt of ‘Cheque Return
Memo’.
  Notice period of 15 days shall be specified in such notice sent to the
drawer
 No offence is presumed to be committed by the Drawer if the Drawer
pays off the whole amount within the said notice period of 15 days.
 If not, the Payee may choose to file a complaint in the competent court
against the defaulter.
 Such complaint shall be made within one month from the expiry of 15
days prescribed in the notice.

Criminal action can be brought u/s 138 against the drawer of the
dishonored cheque only if the following conditions exist:

1. The cheque drawn by the drawer is on the account maintained by or in the

name of the drawer himself.
2. The cheque was dishonoured and returned due to ‘Insufficient funds’ in
the drawer's account.
3. The amount mentioned in the cheque is for the discharge of some debt or
liability of the drawer towards the payee.
4. The drawer fails to make payment of the dishonoured cheque within 15
days from the date of receiving the written notice in this regard.
Session 20

The Securitization and Reconstruction of Financial Assets and Enforcement of

Security Interest ( SARFAESI) Act of 2002

The Securitisation and Reconstruction of Financial Assets and Enforcement of

Security Interest Act, 2002, allow banks and financial institutions to auction
properties (residential and commercial) when borrowers fail to repay their loans. It
enables banks to reduce their non performing assets by adopting measures for
recovery or reconstruction.

The SARFAESI Act was enacted with a distinct purpose to facilitate banks and
financial institutions to recover dues in a speedy manner by enforcement of security
interest without intervention of the court. The object of the debt recovery laws is to
reduce non-performing assets and increase liquidity in the market.

Upon loan default, banks can seize the securities (except agricultural land) without
intervention of the court. SARFAESI is effective only for secured loans where bank
can enforce the underlying security e.g. hypothecation, pledge and mortgages. In
such cases, court intervention is not necessary, unless the security is invalid or
fraudulent. However, if the asset in question is an unsecured asset, the bank would
have to move the court to file civil case against the defaulters.

Preconditions

The Act stipulates four conditions for enforcing the rights by a creditor.

 The debt is secured;

 The debt has been classified as an NPA by the banks ;
 The outstanding dues are one lakh and above and more than 20% of the
principal loan amount and interest there on;
 The security to be enforced is not an agricultural land.

How the Sarfaest Act works

The SARFAESI Act gives powers of ‘seize’ to banks. Banks can give a notice in
writing to the defaulting borrower requiring it to discharge its liabilities within 60
days. If the borrower fails to comply with the notice, the Bank may take recourse
to one or more of the following measures:

 Take possession of the security for the loan;

 Sale or lease or assign the right over the security;
 Manage the same or appoint any person to manage the same.

The SARFAESI Act also provides for the establishment of Asset Reconstruction
Companies regulated by RBI to acquire assets from banks and financial
institutions.

The Act also makes provision for sale of financial assets by banks and financial
institutions to asset reconstruction companies. RBI has issued guidelines to banks
on the process to be followed for sales of financial assets to Asset Reconstruction
Companies.

Methods of Recovery:

The registration and regulation of securitization companies or reconstruction

companies is done by RBI. These companies are authorized to raise funds by
issuing security receipts to qualified institutional buyers (QIBs), empowering
banks and Fls to take possession of securities given for financial assistance and
sell or lease the same or to take over management in the event of default. This
act makes provisions for two main methods of recovery of the NPAs as follows:

 Securitisation: Securitisation is the process of issuing marketable securities

backed by a pool of existing assets such as auto or home loans. After an
asset is converted into a marketable security, it is sold. A securitization
company or reconstruction company may raise funds from only the QIB
(Qualified Institutional Buyers) by formulating schemes for acquiring
financial assets.
 Asset Reconstruction: Asset Reconstruction can be done by either proper
management of the business of the borrower, or by taking over the asset or
by selling a part or whole of the business or by rescheduling of payment of
debts payable by the borrower and enforcement of security interest in
accordance with the provisions of this Act.
Further, the act provides exemption from the registration of security receipt. This
means that when the securitization company or reconstruction company issues
receipts, the holder of the receipts is entitled to undivided interests in the
financial assets and there is no need of registration unless and otherwise it is
compulsory under the Registration Act 1908.

However, the registration of the security receipt is required in the following cases:

 There is a transfer of receipt, or

The security receipt is creating, declaring, assigning, limiting, and extinguishing

any right title or interest in an immovable property.

POWERS OF DEBT RECOVERY TRIBUNAL:

 The Debt Recovery Tribunals have been empowered to entertain appeals

against the misuse of powers given to banks. Any person aggrieved, by any
order made by the Debts Recovery Tribunal may go to the Debt Recovery
Appellate Tribunal within thirty days from the date of receipt of the order
of Debts Recovery Tribunal.

Rights of the Borrower:

The above observations make it clear that the SAFAESI act was able to provide the
effective measures to the secured creditors to recover their long standing dues
from the non-performing assets, yet the rights of the borrowers could not be
ignored, and have been duly incorporated in the law.

 The borrowers can at any time before the sale is concluded, remit the dues
and avoid losing the security;

 In case any unfair / illegal act is done by the authorized officer, he will be
liable for penal consequences;
 The borrowers will be entitled to get compensation for such acts;

 For redressal of the grievances, the borrowers can approach firstly the DRT
and thereafter the DRAT in appeal. The limitation period is 45 days and 30
days respectively.
 Recent cases

M/s. Dr. P.B’s Health & Glow Clinic Ltd. & Ors vs. Oriental Bank Of
Commerce, In the High Court at Calcutta Civil Revisional Jurisdiction:

FACTS OF THE CASE:

The Petitioners are the debtors and had availed the credit facilities from the
respondents. Petitioners made repayment of loan to some extent, but not
entirely, and accordingly the respondent took recourse under the provisions of
the SARFAESI Act, 2002. Consequently, possession of the mortgaged property was
taken up and it was duly advertised for sale. Petitioners also filed an application
under Section before the Debts Recovery Tribunal, which was dismissed. Being
aggrieved, the petitioners approached this court.

The petitioners contended that the Reserve Bank of India has provided guidelines
for one time settlement of the loan and accordingly, one time settlement should
have been duly considered by the respondent. The respondent instead of
following that settlement formula, had taken possession of the property. The
respondent provided the statement of accounts to show the quantum of dues
from the petitioner. Also, in reply to the notice under Section 13(2) of the Act, the
petitioners had sent a letter dated December 18, 2012 requesting the bank to
permit them to repay the dues in small weekly installments and had also
deposited 10 cheques amounting to Rs.25.50 lakhs. The petitioners did not point
out any irregularities against the steps under Section 13(2) of the Act.

JUDGMENT:

The court held that notice issued under Section 13(2) of the 2002 Act was duly
tendered to the petitioners. When the persons under occupation of the
premises/property refused the notice, the same was affixed on the conspicuous
part of the said premises. Therefore, the notice was duly served in presence of
the occupiers of the secured assets. With regard to settlement of loans, the court
held that some post-dated cheques were issued but, all the cheques were not
honored and some of them had been dishonored due to insufficient funds.
 The loan amount had been described as NPA on June 30, 2012 and as such,
steps had been taken for recovery of the loan under the provisions of the
SARFAESI Act. According to the provisions of Section 18 of 2002 Act, an
appeal lies to the Appellate Tribunal, within the specified time, from the
date of receipt of the order of the Debt Recovery Tribunal under certain
terms and conditions. Accordingly, the court found the application devoid
of merits and thus dismissed the same.

CONCLUSION:

Though the enactment of SARFAESI Act sought to mobilise blocked funds of the
banks in non-performing assets, the various provisions of the acts have created
distress and harassment for genuine borrowers. The various provisions meant to
balance the requirements of the borrowers and the banks, have their balance of
favour tilted towards the banks. These powers are, at majority of the times,
abused by the lenders to appropriate their interests against the interests of the
buyers. In such a situation it is pertinent for the civil courts to assume a more
equitable approach in the larger interest of the borrowers on the one hand and to
share the responsibilities of the banks to mobilise their funds from the numerous
non-performing assets on the other.

The Insolvency and Bankruptcy Code, 2016

At present, there are multiple overlapping laws and adjudicating forums dealing
with financial failure and insolvency of companies and individuals in India.

The Code offers a uniform, comprehensive insolvency legislation encompassing all

companies, partnerships and individuals (other than financial firms). The
Government is proposing a separate framework for bankruptcy resolution in
failing banks and financial sector entities.
One of the fundamental features of the Code is that it allows creditors to assess
the viability of a debtor as a business decision, and agree upon a plan for its
revival or a speedy liquidation. The Code creates a new institutional framework,
consisting of a regulator, insolvency professionals, information utilities and
adjudicatory mechanisms, that will facilitate a formal and time bound insolvency
resolution process and liquidation.

KEY HIGHLIGHTS

1. Corporate Debtors: Two-Stage Process

To initiate an insolvency process for corporate debtors, the default should be at

least Rs. 100,000 (USD 1495) (which limit may be increased up to Rs. 10,000,000
(USD 149,500) by the Government).

The Code proposes two independent stages:

Insolvency Resolution Process, during which financial creditors assess whether

the debtor's business is viable to continue and the options for its rescue and
revival; and

Liquidation, if the insolvency resolution process fails or financial creditors decide

to wind down and distribute the assets of the debtor.

(a) The Insolvency Resolution Process (IRP)

The IRP provides a collective mechanism to lenders to deal with the overall
distressed position of a corporate debtor. This is a significant departure from the
existing legal framework under which the primary onus to initiate a
reorganisation process lies with the debtor, and lenders may pursue distinct
actions for recovery, security enforcement and debt restructuring.

The Code envisages the following steps in the IRP:

(i) Commencement of the IRP

A financial creditor (for a defaulted financial debt) or an operational creditor (for
an unpaid operational debt) can initiate an IRP against a corporate debtor at the
National Company Law Tribunal (NCLT).

The defaulting corporate debtor, its shareholders or employees, may also initiate
voluntary insolvency proceedings.

(ii) Moratorium
The NCLT orders a moratorium on the debtor's operations for the period of the
IRP. This operates as a 'calm period' during which no judicial proceedings for
recovery, enforcement of security interest, sale or transfer of assets, or
termination of essential contracts can take place against the debtor.

(iii) Appointment of Resolution Professional

The NCLT appoints an insolvency professional or 'Resolution Professional' to

administer the IRP. The Resolution Professional's primary function is to take over
the management of the corporate borrower and operate its business as a going
concern under the broad directions of a committee of creditors.

Therefore, the thrust of the Code is to allow a shift of control from the
defaulting debtor's management to its creditors, where the creditors drive the
business of the debtor with the Resolution Professional acting as their agent.

(iv) Creditors Committee and Revival Plan

The Resolution Professional identifies the financial creditors and constitutes a

creditors committee. Operational creditors above a certain threshold are allowed
to attend meetings of the committee but do not have voting power. Each decision
of the creditors committee requires a 75% majority vote. Decisions of the
creditors committee are binding on the corporate debtor and all its creditors.

The creditors committee considers proposals for the revival of the debtor and
must decide whether to proceed with a revival plan or liquidation within a period
of 180 days (subject to a one-time extension by 90 days). Anyone can submit a
revival proposal, but it must necessarily provide for payment of operational debts
to the extent of the liquidation waterfall.

The Code does not elaborate on the types of revival plans that may be adopted,
which may include fresh finance, sale of assets, haircuts, change of management
etc.
(b) Liquidation

Under the Code, a corporate debtor may be put into liquidation in the following
scenarios:
(i) A 75% majority of the creditor's committee resolves to liquidate the corporate
debtor at any time during the insolvency resolution process;

(ii) The creditor's committee does not approve a resolution plan within 180 days
(or within the extended 90 days);

(iii) The NCLT rejects the resolution plan submitted to it on technical grounds; or

(iv) The debtor contravenes the agreed resolution plan and an affected person
makes an application to the NCLT to liquidate the corporate debtor.

Once the NCLT passes an order of liquidation, a moratorium is imposed on

the pending legal proceedings against the corporate debtor, and the assets of
the debtor (including the proceeds of liquidation) vest in the liquidation
estate.

Priority of Claims

The Code significantly changes the priority waterfall for distribution of liquidation
proceeds.

After the costs of insolvency resolution (including any interim finance), secured
debt together with workmen dues for the preceding 24 months rank highest in
priority. Central and state Government dues stand below the claims of secured
creditors, workmen dues, employee dues and other unsecured financial creditors.
Under the earlier regime, Government dues were immediately below the claims
of secured creditors and workmen in order of priority.

Upon liquidation, a secured creditor may choose to realise his security and
receive proceeds from the sale of the secured assets in first priority. If the
secured creditor enforces his claims outside the liquidation, he must contribute
any excess proceeds to the liquidation trust. Further, in case of any shortfall in
recovery, the secured creditors will be junior to the unsecured creditors to the
extent of the shortfall.
2. Insolvency Resolution Process for Individuals/Unlimited Partnerships

For individuals and unlimited partnerships, the Code applies in all cases where the
minimum default amount is INR 1000 (USD 15) and above (the Government may
later revise the minimum amount of default to a higher threshold). The Code
envisages two distinct processes in case of insolvencies: automatic fresh start and
insolvency resolution.

Under the automatic fresh start process, eligible debtors (basis gross income) can
apply to the Debt Recovery Tribunal (DRT) for discharge from certain debts not
exceeding a specified threshold, allowing them to start afresh.

The insolvency resolution process consists of preparation of a repayment plan by

the debtor, for approval of creditors. If approved, the DRT passes an order binding
the debtor and creditors to the repayment plan. If the plan is rejected or fails, the
debtor or creditors may apply for a bankruptcy order.

3. Institutional Infrastructure

(a) The Insolvency Regulator

The Code provides for the constitution of a new insolvency regulator i.e., the
Insolvency and Bankruptcy Board of India (Board). Its role includes: (i) overseeing
the functioning of insolvency intermediaries i.e., insolvency professionals,
insolvency professional agencies and information utilities; and (ii) regulating the
insolvency process.

(b) Insolvency Resolution Professionals

The Code provides for insolvency professionals as intermediaries who would play
a key role in the efficient working of the bankruptcy process. The code
contemplates insolvency professionals as a class of regulated but private
professionals having minimum standards of professional and ethical conduct.

In the resolution process, the insolvency professional verifies the claims of the
creditors, constitutes a creditors committee, runs the debtor's business during
the moratorium period and helps the creditors in reaching a consensus for a
revival plan. In liquidation, the insolvency professional acts as a liquidator and
bankruptcy trustee.
(c) Information Utilities

A notable feature of the Code is the creation of information utilities to collect,

collate, authenticate and disseminate financial information of debtors in
centralised electronic databases. The Code requires creditors to provide financial
information of debtors to multiple utilities on an ongoing basis. Such information
would be available to creditors, resolution professionals, liquidators and other
stakeholders in insolvency and bankruptcy proceedings. The purpose of this is to
remove information asymmetry and dependency on the debtor's management
for critical information that is needed to swiftly resolve insolvency.

(d) Adjudicatory authorities

The adjudicating authority for corporate insolvency and liquidation is the NCLT.
Appeals from NCLT orders lie to the National Company Law Appellate Tribunal
and thereafter to the Supreme Court of India. For individuals and other persons,
the adjudicating authority is the DRT, appeals lie to the Debt Recovery Appellate
Tribunal and thereafter to the Supreme Court.

In keeping with the broad philosophy that insolvency resolution must be

commercially and professionally driven (rather than court driven), the role of
adjudicating authorities is limited to ensuring due process rather than
adjudicating on the merits of the insolvency resolution.

CONCLUSION

India's weak insolvency regime, its significant inefficiencies and systematic abuse
are some of the reasons for the distressed state of credit markets in India. The
Code seeks to bring about reforms with a thrust on creditor driven insolvency
resolution. It aims at early identification of financial failure and maximising the
asset value of insolvent firms. The Code also has provisions to address cross
border insolvency through bilateral agreements and reciprocal arrangements with
other countries.

The unified regime envisages a structured and time-bound process for insolvency
resolution and liquidation, which should significantly improve debt recovery rates.
Differences between the SARFAESI Act and the Insolvency and Bankruptcy Code
(IBC)

a. The Sarfaesi Act applies only to secured loans, while the IBC applies
to all loans whether secured or unsecured
 b. The Sarfaesi Act does not override the IBC, whereas, during the
process of insolvency resolution, the codes override the Sarfaesi
Act as per the provision of section 14(1)(c) of Insolvency and
Bankruptcy Code.
c. As per the provisions of the Sarfaesi Act, there in only one
tribunal: The Debt Recovery Tribunal. In IBC, there are two
different tribunals: The National Company Law Tribunal and
Debts Recovery Tribunal.

The Insolvency and Bankruptcy Code (Amendment) Act, 2019

The Insolvency and Bankruptcy Code (Amendment) Act, 2019 seeks to

address critical gaps and inconsistencies in insolvency resolution timelines,
payments received by operational creditors under a resolution plan and
manner of voting by an authorised representative on behalf of the class of
financial creditors.

Key changes:

a.Clarity on allowing comprehensive corporate restructuring through

merger, amalgamation and demerger under a resolution plan

b.Time-bound disposal of the resolution application

c.Timeline for completion of CIRP increased to an overall limit of 330 days

d.Voting by an authorised representative on behalf of certain classes of

financial creditors

e.Distributions under the Resolution

Plan f.Resolution Plan binding on all

Stakeholders g.Liquidation by the

Committee of Creditors
 Session 21
RBI and Banking Regulation Act
The Indian banking sector is regulated by the Reserve Bank of India Act 1934 (RBI Act) and
the Banking Regulation Act 1949 (BR Act). The Reserve Bank of India (RBI), India’s central
bank, issues various guidelines, notifications and policies from time to time to regulate the
banking sector. In addition, the Foreign Exchange Management Act 1999 (FEMA) regulates
cross-border exchange transactions by Indian entities, including banks.

India has both private sector banks (which include branches and subsidiaries of foreign
banks) and public-sector banks (ie, banks in which the government directly or indirectly
holds ownership interest). Banks in India can primarily be classified as:
 scheduled commercial banks (ie, commercial banks performing all banking functions);
 cooperative banks (set up by cooperative societies for providing financing to small
borrowers); and
 regional rural banks (RRBs) (for providing credit to rural and agricultural areas)
 Recently, the RBI has also introduced specialised banks such as payments banks and
small finance banks that perform only some banking functions.

The objectives of bank regulation, and the emphasis, vary between jurisdictions. The most
common objectives are:
 Prudential - to reduce the level of risk to which bank creditors are exposed (i.e. to
protect depositors)
 Systemic risk reduction - to reduce the risk of disruption resulting from adverse
trading conditions for banks causing multiple or major bank failures
 To avoid misuse of banks - to reduce the risk of banks being used for criminal
purposes, e.g. laundering the proceeds of crime
 To protect banking confidentiality
 Credit allocation - to direct credit to favoured sectors
 It may also include rules about treating customers fairly and having corporate social
responsibility.

Bank regulation is a complex process and generally consists of two components:

 licensing, and
 supervision.
The first component, licensing, sets certain requirements for starting a new bank. Licensing
provides the licence holders the right to own and to operate a bank. Licensing involves an
evaluation of the entity's intent and the ability to meet the regulatory guidelines governing the
bank's operations, financial soundness, and managerial actions. The regulator supervises
licensed banks for compliance with the requirements and responds to breaches of the
requirements by obtaining undertakings, giving directions, imposing penalties or (ultimately)
revoking the bank's license.
The second component, namely, supervision, is an extension of the licence-granting process
and consists of supervision of the bank's activities by a government regulatory body i e The
RBI. Supervision ensures that the functioning of the bank complies with the regulatory
guidelines and monitors for possible deviations from regulatory standards. Supervisory
activities involve on-site inspection of the bank's records, operations and processes or
evaluation of the reports submitted by the bank. 

Actions by RBI to control functioning of Banks:

Credit control measures by RBI

Quantitative credit control Qualitative credit control

1. Reserve ratios 1. Margin Requirement,

CRR / SLR LTV requirements

2. Open Market Operations. 2. Consumer credit

requirement

3. Repo and Reserve Repo Rate, LAF,

MSF, Bank rate 3. Credit rationing

4. Moral suation

Minimum requirements: A national bank regulator imposes requirements on banks in order

to promote the objectives of the regulator. Often, these requirements are closely tied to the
level of risk exposure for a certain sector of the bank. The most important minimum
requirement in banking regulation is maintaining minimum capital ratios, Reserve
Requirements,
Market discipline: The regulator requires banks to publicly disclose financial and other
information and depositors and other creditors are able to use this information to assess the
level of risk and to make investment decisions. As a result of this, the bank is subject to
market discipline and the regulator can also use market pricing information as an indicator of
the bank's financial health.
Corporate governance: Corporate governance requirements are intended to encourage the
bank to be well managed, and is an indirect way of achieving other objectives. As many
banks are relatively large, and with many divisions, it is important for management to
maintain a close watch on all operations. I
Financial reporting and disclosure requirements: Among the most important regulations
that are placed on banking institutions is the requirement for disclosure of the bank's finances
Credit rating requirement: Banks may be required to obtain and maintain a current credit
rating from an approved credit rating agency, and to disclose it to investors and prospective
investors. Also, banks may be required to maintain a minimum credit rating.

Further to the above:

 The RBI conducts periodic audits and also acts as a consumer disputes ombudsman for
retail banking.
 RBI also supervises the Indian banking system through various methods such as on-site
inspection, surveillance and reviewing regulatory filings made by the banks.
 The RBI also monitors compliance on an ongoing basis by requiring banks to submit
detailed information periodically under an off-site surveillance and monitoring system.
 The RBI can conduct compulsory amalgamations:
 in the public interest;
 in the interests of depositors of a bank;
 to secure proper management of a bank; or
 in the larger interests of the banking system.
 In addition, the RBI has wide powers in appropriate cases to:
 require banks to make changes in their management as the RBI considers necessary;
 remove any chairman, director, chief executive officer or other employee of a bank;
 appoint additional directors to the board of directors of a bank; and
 supersede the board of directors of a bank for a maximum period of 12 months and
instead appoint an administrator.
 The RBI has the power of winding-up of a banking company. An order for the winding-up
of a banking company can be passed by a High Court:
 if it is unable to pay its debts;
 if an application has been made by the RBI; or
 on request of the GOI.
 Session 22
Insurance Laws and IRDA
The word insurance means an arrangement for protection against any likely loss or damage.
Insurance contracts are based on the contingency of an event which causes a loss. Such
contracts are legal agreements which are entered into between two parties wherein, the
company promises to make good the loss as and when it occurs, in return for a regular
premium to be paid by the party.

In India, several insurance laws have been enacted to save the interest of the various
policyholders. Health insurance, fire insurance, car insurance, marine insurance, life
insurance, etc are few examples of the insurance available in India.

There are two main categories of Insurance:

1. Life insurance - Life Insurance is a legal agreement wherein financial compensation is
provided in cases of death or disability. It can be availed by paying lumpsum amount or
by making periodic instalments so as to save the vested interest of your family in your
absence. The periodic instalments are termed as premium.
Depending upon its coverage:
Life insurance can be further classified into either whole life insurance, endowment
policy, life term etc.
2. General insurance- General insurance provides protection from any loss other than life
insurance.
It includes:
 Travel insurance
 Health insurance
 Home insurance
 Motor insurance
 Fire insurance

To regulate the insurance sector, several regulatory authorities have been formed:
 IRDA (Insurance Regulatory and Development Authority)
 Tariff Advisory Committee
 Insurance Association of India, councils and committees
 Ombudsman
Every insurer seeking to carry on the insurance business in India is required to obtain the
certificate of registration from the IRDA prior to commencement of business. However,
conditions for applying have been envisaged in various Acts.

The Acts relating to general insurance business in India are:

I. Insurance Act 1938
II. Marine Insurance Act 1963
III. Motor Vehicles Act, 1939
IV. Motor Vehicles Act, 1988
V. Inland Steam Vessels Act, 1917
VI. General Insurance Business (Nationalisation) Act,1972
VII. Carriers Act,1865, etc

The Indian Government however after several years, implemented the changes recommended
by the Malhotra Committee and made changes in insurance act,1938 and General insurance
business act,1972.

IRDA- Insurance Regulatory and Development Authority: It is a regulatory body which

regulates and the general insurance and life insurance in India.

IRDA functions and ensures:

 To protect the interest of policyholders in all insurance contracts. It ensures smooth and
systematic transactions between the policy holders and the insurance companies. The
authority governs the conduct of the various insurance businesses.
 IRDA clarifies the code of conduct for all insurance companies, surveyors, and loss
assessors. It ensures that companies do not ignore the requests of the general public. It
ensures that no misdeed happen and for this it regulates through regular audits
investigation into the working of all the insurance companies or intermediaries. It
regulates the rates and terms offered by the insurance companies to bring equality for the
customers.
 In cases of any dispute between the insurer and the policyholder, IRDA will ensure a
resolution.
Functions of IRDA:
1. Protecting interest of policyholders
2. Systematic growth of insurance sector
3. Amicable resolution of conflicts.
4. Regular monitoring so as to check any discrepancies /frauds etc.
5. Fair dealings in the market.

For the systematic growth of the economy, it is imperative that government should
establish authorities who govern the working of the companies, ex- insurance companies.
An investor must be protected from any fraudulent activities and his money must be
utilised and put to judicious use. Like Banking sector, is governed by RBI and the later
regulates the entire functioning of the banks, similarly, IRDA regulates all insurance
companies managing different insurance operations.
 Session 23
SEBI as a regulator:
Securities and Exchange Board of India (SEBI) is a statutory regulatory body entrusted with
the responsibility to regulate the Indian capital markets. It monitors and regulates the
securities market and protects the interests of the investors by enforcing certain rules and
regulations.

The SEBI is the regulatory authority in India established under Section 3 of SEBI Act to
protect the interests of the investors in securities and to promote the development of, and to
regulate, the securities market and for matters connected therewith and incidental thereto.
Main objectives of SEBI are as follows:
 Protecting the interests of investors in securities and promoting and regulating the
development of the securities market
 Regulating the business in stock exchanges
 Registering and regulating the working of stock brokers, sub–brokers, share transfer agent
etc.
 Registering and regulating the working of venture capital funds, collective investment
schemes (like mutual funds) etc
 Promoting investor’s education and training intermediaries
 Promoting and regulating self-regulatory organizations
 Prohibiting fraudulent and unfair trade practices
 Calling for information from, undertaking inspection, conducting inquiries and audits of
the stock exchanges, intermediaries, self – regulatory organizations, mutual funds and
other persons associated with the securities market

SEBI, just like any corporate firm has a hierarchical structure and consists of numerous
departments headed by their respective heads. Following is a list of some of the departments:
 Foreign Portfolio Investors and Custodians
 Human Resources Department
 Information Technology
 Investment Management Department
 Office of International Affairs
 Commodity and Derivative Market Regulation Department
 National Institute of Securities Market

The functions and powers of SEBI have been listed in the SEBI Act,1992. SEBI caters to the
needs of three parties operating in the Indian Capital Market. These three participants are
mentioned below:
 Issuers of the Securities: Companies that issue securities are listed on the stock
exchange. They issue shares to raise funds. SEBI ensures that the issuance of Initial
Public Offerings (IPOs) and Follow-up Public Offers (FPOs) can take place in a
healthy and transparent way.
 Protects the Interests of Traders & Investors: It is a fact that the capital markets
are functioning just because the traders exist. SEBI is responsible for safeguarding
their interests and ensuring that the investors do not become victims of any stock
market fraud or manipulation.
 Financial Intermediaries: SEBI acts as a mediator in the stock market to ensure that
all the market transactions take place in a secure and smooth manner. It monitors
every activity of the financial intermediaries, such as broker, sub-broker, NBFCs, etc

Securities and Exchange Board of India has the following three powers:
 Quasi-Judicial: With this authority, SEBI can conduct hearings and pass ruling
judgements in cases of unethical and fraudulent trade practices. This ensures
transparency, fairness, accountability and reliability in the capital market. SEBI
PACL case is an example of this power.
 Quasi-Legislative: Powers under this segment allow SEBI to draft rules and
regulations for the protection of the interests of the investor. One such regulation is
SEBI LODR (Listing Obligation and Disclosure Requirements). It aims at
consolidating and streamlining the provisions of existing listing agreements for
several segments of the financial market like equity shares. This type of regulation
formulated by SEBI aims to keep any malpractice and fraudulent trading activates at
bay.
 Quasi-Executive: SEBI is authorised to file a case against anyone who violates its
rules and regulation. It is empowered to inspect account books and other documents
as well if it finds traces of any suspicious activity
 Session 24
Environment laws
Government has been introducing various measure so as to preserve the environment.
Various environmental laws have been introduced to restore our natural resources and at the
same time and maintain a sustainable system with regard to the same. The ever-emerging
growth of consumerism has led to major environment issues. However, with the application
of various legislations, the govt is trying to strike a balance in the eco system. Companies
have been given moral, ethical and social responsibility to maintain the purity of the
ecosystem and hence save the environment. The Constitution of our country also contains
special provisions on environment protection. Directive principles and the fundamental duties
expressly provide measures to protect the environment.

However, there is a need for an integrated strategy at the national level, international
cooperation and plan for sustainable development for bringing out radical positive
environment change.

The various environment laws introduced in India are:

 The Environmental Protection Act 1986
 The Air (Prevention and Control of Pollution) Act 1981
 The Water (Prevention and Control of Pollution) Act 1974
 The Water (Prevention and Control of Pollution) Act 1977
 The Wild Life (Protection) Act, 1972
 The Public Liability Insurance Act, 1991
 The National Environmental Tribunal Act, 1995
 The National Environmental Appellate Authority Act, 1997
 The Mines and Minerals (Regulation and Development) Act, 1957
 The Indian Forest Act of 1927
 The Forest (Conservation) Act of 1980
 The Atomic Energy Act of 1948
 The National Green Tribunal Act-2010

National Environment Policy, 2006

 It the first initiative in strategy-formulation for environmental protection in a
comprehensive manner.
 It undertakes a diagnosis of the causative factors of land degradation with a view to
flagging the remedial measures required in this direction.
 It recognizes that the relevant fiscal, tariffs and sectoral policies need to take explicit
account of their unintentional impacts on land degradation.
 The solutions offered to tackle the problem comprise adoption of both, science-based and
traditional land-use practices, pilot-scale demonstrations, large scale dissemination,
adoption of Multi-stakeholder partnerships, promotion of agro-forestry, organic farming,
environmentally sustainable cropping patterns and adoption of efficient irrigation
techniques

As the right to pure environment is an implied right, hence any violation of this fundamental
right, can be pleaded by filling a writ petition to the Supreme Court under Art.32 and the
High Court under Art.226.

The writs of Mandamus, Certiorari and Prohibition can be invoked for such environmental
matters. A writ of mandamus would lie against a municipality which fails to construct sewers
and drains, clean street and clear garbage.

Supreme Court by virtue of various judgments for example: Oleum gas leak case, Bhopal Gas
Leak case etc has laid the rule of absolute liability and following these judgments, even The
Public Liability Insurance Act was passed, following by many other legislations.

Though the Indian Judiciary has done remarkable contribution by enacting various
environment laws but still the responsibility is on each individual to preserve the natural
resources.
 Session 25
Property Law
Property has a wide meaning in its legal sense. It means something of value and includes both
tangible and intangible assets. When a man owns a property, it means he can not only possess
and enjoy the same with an absolute right but can also derive benefit from it without violating
the law of land.

The traditional principles related to property rights include:

1. Control over the use of the property
2. Right to take any benefit from the property
3. Right to transfer or sell the property
4. Right to exclude others from the property

All properties are classified as either personal property or real property. Personal property is
movable property, anything that can be subject to ownership, except land. Real property on
the other hand, is immovable property such as land and anything attached to the land.

Though the Transfer of Property Act, 1882 does not define the term ‘Property’ the
Interpretation of the Act, says Immovable property does not includes standing timber,
growing crops or grass". Section 3(26), The General Clauses Act, 1897, defines, " immovable
property" shall include land, benefits to arise out of the land, and things attached to the earth,
or permanently fastened to anything attached to the earth.
"Immovable property" includes land, buildings, hereditary allowances, rights to ways, lights,
ferries, fisheries or any other benefit to arise out of the land, and things attached to the earth
or permanently fastened to anything which is attached to the earth, but not standing timber,
growing crops nor grass.

Under THE Securitisation And Reconstruction Of Financial

Assets And Enforcement Of Security Interest Act, 2002 "property" means--
(i) immovable property;
(ii) movable property;
(iii) any debt or any right to receive payment of money, whether secured or unsecured;
(iv) receivables, whether existing or future;
(v) intangible assets, being know-how, patent, copyright, trade mark, license, franchise or any
other business or commercial right of similar nature.

Movable Property
The definition of movable property is given differently under various Statutes. Some of the
definitions are as follows:
Section 3(36) of the General Clauses Act defines Movable Property as: “Movable Property
shall mean property of every description, except immovable property”.
Section 2(9) of the Registration Act, 1908 defines property as: “Moveable property’ includes
standing timber, growing crops and grass, fruit upon and juice in trees, and property of every
other description except immovable property”.
Section 22 of IPC defines property as - The words ‘Moveable property” is intended to include
corporeal property of every description except land and things attached to the earth. Things
attached to the land may become moveable property by severance from the Earth.

Tangible Property
Tangible Property refers to any type of property that can generally be moved (i.e., it is not
attached to real property or land), touched or felt.

Intangible Property
Intangible Property refers to personal property that cannot actually be moved, touched or felt
but instead represents something of value such as negotiable instruments, securities, service
(economics), and intangible assets.

Intellectual Property
Intellectual Property is a term referring to a number of distinct types of creations of the mind
for which property rights are recognized.
Under intellectual property law, owners are granted certain exclusive rights to a variety of
intangible assets, such as musical, literary and artistic works, discoveries and inventions; and
words, phrases, symbols and designs. Patents, trademarks, and copyrights, designs are the
four main categories of intellectual property.
 Session 26
Hypothecation & Pledge
The term” Hypothecation” is not defined under the Indian contract Act, 1872, however,
section 2(n) of Securitization and reconstruction of Financial assets & Enforcement of
Securities Interest Act, 2002 defines hypothecation as:
“’Hypothecation’ means a charge in or upon any moveable property, existing in future,
created by borrower in favour of a secured creditor, without delivery of possession of the
moveable property to such creditor, as a security for financial assistance and includes floating
charge and crystallization of such charge into fixed charge on moveable property”.

It means that the borrower, even after hypothecating the property with the lender/ creditor has
the possession of the said property and no beneficial interest is created in favour of the
creditor. Under a deed of hypothecation, the right of the creditor is limited to enforcing the
charge created under the deed of hypothecation in the manner specified in the deed. Hence
under a deed of hypothecation the creditor neither gets the title nor the possession of the
goods or asset so hypothecated. It merely means creating a charge over the asset in favour of
the creditor. Hypothecation is also defined as: “where property is charged with the amount of
a debt, but neither ownership nor possession is passed to the creditor, it is said to be
hypothecated”.
Hence a deed of hypothecation signifies:
• Offering of an asset as collateral security to the lender or the creditor.
• While a charge is created in favour of the creditor, the borrower enjoys the possession
of the property so hypothecated.
• However, if the borrower defaults in repayment the lender can exercise his ownership
rights to seize the asset.
• Assets are of moveable nature.
• Purpose of a deed of hypothecation is to mitigate the creditor’s credit risk.

Pledge
Bailment of goods as security for payment of a debt or performance of a promise is called
pledge. It is a special kind of bailment. The bailor in this case is called the pledgor or pawnor
and the bailee is called the pledgee or pawnee. Any kind of moveable property may be
pledged but delivery of the said property is necessary to complete ‘Pledge’. The delivery may
be actual or constructive. If for some reason physical delivery is not possible, a symbolic
delivery will suffice.

Difference between Hypothecation and Pledge:

1. In pledge the creditor takes actual possession of the assets. While in hypothecation a
charge is created against the security of moveable assets
2. In a pledge the pledgee retains the possession of the goods until the pledgor repays the
entire debt amount. In case of hypothecation the possession of the security remains
with the borrower itself.
3. Where the borrower defaults in repayment of the loan amount the pledgee has a right
to sell the goods in his possession and adjust the proceeds towards the amount due.
However in case of hypothecation the lender has to first take the possession of the
asset and then sell it.
 Session 27
Real Estate (Development & Regulation) Act, 2016

Enhancing transparency and accountability in real estate & housing transactions: -

Real estate sector is important for fulfilling the need for housing and infrastructure in the
country. Unfortunately, there is very less transparency and accountability in this sector. In
view of the above, the Parliament enacted the Real Estate (Regulation and Development) Act,
2016 which aims at protecting the rights and interests of consumers and promoters and
establish uniformity and standardization of business practices and transactions. Hence the
interests of consumers as well as the promoters are balanced by imposing certain
responsibilities on both.

Boost domestic and foreign investment in real estate sector: -

The Indian urban population is increasing rapidly and is expected to be about 600 million in
2031. It has also been estimated that real estate contribution to India’s GDP is estimated to
increase to about 13 per cent by 2028. Increasing share of real estate in the GDP would be
supported by increasing industrial activity, improving income level, and urbanization. There
is an effort from the realtors and property analysts for the creation of "Special Residential
Zones" (SRZs), along the lines of SEZs. Hence FDI in real estate sector gains prominence.
As per the Department of Industrial Policy and Promotion (DIPP) which has been renamed as
the Department for Promotion of Industry and Internal Trade, the total FDI inflow in
construction development sector during 2000 to 2015 has been around US$ 24.16 billion
which is about 9% of total FDI inflows.

Provide uniform regulatory environment to ensure speedy adjudication of disputes: -

RERA strives to establish equilibrium between the promoter and purchaser, regarding
transparency of contractual conditions, set minimum standards of accountability and a fast-
track dispute resolution mechanism. Many developers across India follow a common practice
of pre-launching a project without securing requisite approvals for the project from the local
authorities, which is termed as “soft launch”, “pre-launch” etc. But if there is an unscrupulous
developer then there is a great risk. Hence, to plug this gap, registration of every project with
the regulatory authority has been made mandatory before it is launched for sale and for
registration.
The relevant provisions for registration are as below:
 Prior Registration of Real Estate project with Real Estate Regulatory Authority.
 A promoter shall not advertise, market, book, sell or offer for sale, or invite persons to
purchase in any manner any plot, apartment or building, as the case may be, in any
real estate project or part of it, in any planning area, without registering the real estate
project with the Real Estate Regulatory Authority established .
 The projects those are ongoing on the date of commencement of this Act and for
which the completion certificate has not been issued, the promoter shall make an
application to the Authority for registration of the said project within a period of three
months from the date of commencement of this Act.
 For projects which are developed beyond the planning area but with the requisite
permission of the local authority, it may, by order, direct the promoter of such project
to register with the Authority, and the provisions of this Act or the rules and
regulations made there under, shall apply to such projects from that stage of
registration.
 Where the real estate project is to be developed in phases, every such phase shall be
considered a standalone real estate project, and the promoter shall obtain registration
under this Act for each phase separately.

The following projects do not require to be registered under the Act:

 Area of land does not exceed 500 Sq. Meters
 Number of apartments does not exceed 8 inclusive of all phases;
 In case of Renovation/ Repair/Re-development
 where the promoter has received completion certificate for a real estate project

To bring in transparency and accountability, Real Estate Agents have also been covered
under the ambit of RERA and registration requirement has been mandatory for them as per
section 9 of the Act. Without obtaining registration, real estate agent shall not facilitate the
sale or purchase of or act on behalf of any person to facilitate the sale or purchase of any plot,
apartment or building, as the case may be, in a real estate project or part of it, being the part
of the real estate project registered, being sold by the promoter in any planning area.

Promote orderly growth through efficient project execution and standardization: -

While the Real Estate sector has grown significantly in recent years, it has been largely
unregulated, with absence of professionalism and standardization and lack of adequate
consumer protection.
The most important duty of the promoter which has been mandated by the Act is to provide
complete details of the project so that a layman who does not even know the legal
requirements is able to check the legal sanctity of the project. The promoter has also been
debarred from advertising and selling his project until he has procured the requisite approvals
from the authorities and got his project registered with RERA. On successful registration, the
promoter of the project will be provided with a registration number, a login id and password
to track the status of the project and showing the approvals/ permissions in place to execute
the project.

Offer single window system of clearance for real estate project: -

A single window clearance is a system awaited by the developers and promoters as the
implementation of single window system for clearance will save a lot of time and cost of the
developers in the process encourage greater investments in the realty sector. As this sector is
dependent on various core sectors such as steel, cement etc. an easily approachable and
transparent market must be created by the government for inviting investment in this sector.
A single window system would ensure time bound project approvals and clearances for
timely completion of the project; creation of a transparent and robust grievance redressal
mechanism against acts of omission and commission of competent authorities and their
officials; The Authority shall take suitable measures for the promotion of advocacy, creating
awareness and imparting training about laws relating to real estate sector and policies.

Empower and protect the right of home buyers:

Promoters will be responsible for all obligations, responsibilities and functions under the
provisions of the Act or the rules and regulations made thereunder or to the allottees as per
the agreement for sale, or to the association of allottees, as the case may be, till the
conveyance of all the apartments, plots or buildings, as the case may be, to the allottees, or
the common areas to the association of allottees or the competent authority, as the case may
be. Provided that the responsibility of the promoter, with respect to the structural defect or
any other defect for such period as is referred to in sub-section (3) of section 14, shall
continue even after the conveyance deed of all the apartments plots or buildings, as the case
may be, to the allottees are executed.
 Session 28
Intellectual Property
Intellectual Property is a term referring to a number of distinct types of creations of the mind
for which property rights are recognized.
Under intellectual property law, owners are granted certain exclusive rights to a variety of
intangible assets, such as musical, literary and artistic works, discoveries and inventions; and
words, phrases, symbols and designs. Patents, trademarks, and copyrights, designs are the
four main categories of intellectual property.

Dimensions of the Act

 It assures protection to authors and inventors to commercially exploit their ideas for a
limited period
 On other side it is enforced against all others engaged in same art, preventing them from
infringing the holders’ right.
 This leads to new inventions and healthy competition

Patents
Patents are used to protect new product, process, apparatus, and uses provided the inventions
are not obvious in the light of what has been done before, is not in the public domain, and has
not been disclosed anywhere in the world at the time of the application. The invention must
have a practical purpose. Patents can be registered.

Importance of Patents
 Gives a competitive edge
 Protects one’s efforts and knowledge
 Avoids duplication of research and acts as a stepping stone for scientific research
 Identifies emerging technologies, research areas and business opportunities

What can be patented:

Important features of a patent claim:
 Novelty: It should not be published / manufactured / used / sold anywhere around the
world
 Non-obviousness to a person skilled in the art: means something that is known or
anticipated by prior use; that is a product of nature, and not a product of human creativity
 Industrial Application: Utility of patented technology or prod

Trade Marks
A symbol (logo, words, shapes, a celebrity name, jingles) used to provide a product or service
with a recognizable identity to distinguish It from competing products. Trademarks protect
the distinctive components which make up the marketing identity of a brand, including
pharmaceuticals. They can be registered nationally or internationally, enabling the use of the
symbol.
A mark can include a device, brand, heading, label, ticket, name, signature, word, letter,
numeral, shape of goods, packaging or combination of colors or any such combinations.

Copyright
Copyright is used to protect original creative works, published editions, sound recordings,
films and broadcasts. It exists independently of the recording medium, so buying a copy does
not confer the right to copy. Limited copying (photocopying, scanning, downloading) without
permission is possible, e.g. for research, publication of excerpts or quotes needs
acknowledgment. However, an idea cannot be copyrighted.
In the case of original literary, dramatic, musical and artistic works, the duration of copyright
is the lifetime of the author or artist, and 60 years counted from the year following the death
of the author.

Design Registration
Design registrations are used to protect products distinguished by their novel shape or pattern.
They are available for one-off items. The design itself must be new, although a 1-year grace
period is allowed for test-marketing. Registration is not possible where the new form is
dictated by function. The design is registrable either nationally or under an EU-wide single
right. It can also be protected by copyright.

Legislative Framework of IP Administration:

Department of IP covers
  The Patents Act, 1970 (as amended in 2005) and The Patents Rules, 2003 (as amended in
2006)
 The Designs Act, 2000 and Rules 2001 (as amended in 2008)
 The Trade Marks Act 1999 and Rules 2002
 The Geographical Indications of Goods (Registration & Protection) Act, 1999 and Rules,
2002
 Department of Education covers The Copyrights Act 1957 (amended in 1999)
Session 29 & 30
Cyber Law and The Information Technology Act, 2000
IT Act was formed to provide legal recognition for transactions carried out by means of
electronic data interchange and other means of electronic communication, commonly referred
to as "electronic commerce", which involve the use of alternatives to paper-based methods of
communication and storage of information, to facilitate electronic filing of documents with
the Government agencies

Objectives of Information Technology Act

i. Grant legal recognition to all transactions done via electronic exchange of data or other
electronic means of communication or e-commerce, in place of the earlier paper-based
method of communication
ii. Give legal recognition to digital signatures for the authentication of any information or
matters requiring legal authentication
iii. Facilitate the electronic filing of documents with Government agencies and also
departments
iv. Facilitate the electronic storage of data
v. Give legal sanction and also facilitate the electronic transfer of funds between banks and
financial institutions
vi. Grant legal recognition to bankers under the Evidence Act, 1891 and the Reserve Bank of
India Act, 1934, for keeping the books of accounts in electronic form.

Digital Signature
Digital signature is a mathematical scheme to verify the authenticity of digital documents or
messages. Also, a valid digital signature allows the recipient to trust the fact that a known
sender has sent the message and it was not altered in transit. Like written signatures, digital
signatures provide authentication of the messages.
Further, digital signatures authenticate the source of messages like an electronic mail or a
contract in electronic form.

The three important features of digital features are:

• Authentication – They authenticate the source of messages. Since the ownership of a digital
certificate is bound to a specific user, the signature shows that the user has sent it.
• Integrity – Sometimes, the sender and receiver of a message need an assurance that the
message was not altered during transmission. A digital certificate provides this feature.
• Non-Repudiation (denial of the validity) – A sender cannot deny sending a message which
has a digital signature.

Electronic Signature
Electronic Signature has been defined under Section 2(1)(ta) of the Information Technology
Act, 2000. Electronic Signature means the authentication of any electronic record by a
subscriber by means of the electronic technique as specified under the Second Schedule and
also includes a digital signature. An electronic signature is described as any electronic
symbol, process or sound that is associated with a record or contract where there is intention
to sign the document by the party involved. The major feature of an electronic signature is
thus the intention to sign the document or the contract.

Difference between Electronic and Digital Signatures;

Electronic signature and digital signature are often used interchangeably but the truth is that
these two concepts are different.
a) The main difference between the two is that digital signature is mainly used to secure
documents and is authorized by certification authorities while electronic signature is often
associated with a contract where the signer has got the intention to do so.
b) The other notable aspect that makes an electronic signature different from a digital
signature is that an electronic signature can be verbal, a simple click of the box or any
electronically signed authorization.
c) The main purpose of a digital signature is to secure a document so that it is not tampered
with by people without authorization. An electronic signature is mainly used to verify a
document. The source of the document and the authors are identified.
d) Digital signature is authorized and regulated by certification authorities. These are trusted
third parties entrusted with the duty to perform such task. Electronic signatures are not
regulated and this is the reason why they are less favorable in different states since their
authenticity is questionable. They can be easily tampered with.
e) A digital signature is comprised of more security features that are meant to protect the
document. An electronic signature is less secure since it is not comprised of viable
security features that can be used to secure it from being tampered with by other people
without permission
f) A digital signature can be verified to see if the document has not been tempered with. A
digital certificate can be used to track the original author of the document. It may be
difficult to verify the real owner of the signature since it is not certified. This
compromises the authenticity as well as integrity of the document.
E-Commerce:
In a broad sense Electronic Commerce (E-Commerce) includes not only Internet commerce
but also transactions through other electronic medium. In other words, it can be described as-
(1)Transaction between a company and its customers i.e. buying and selling of goods,
services and information (including after-sale service and support);
(2)Exchange of structured business information between two or more companies, e.g.
Electronic Data Interchange (EDI); and
(3)Internal commerce involving work flow reengineering, product and service customization,
Supply Chain Management (SCM) etc. by using electronic devices.

Electronic devices used for E-Commerce are – (I) Bar Code Machines, (II) Vending
Machines, (III) Telephone & Telegraphs (IV) Fax (V) Television (VI) Stand-alone
Computers (VII) Computer Network (VIII) Internet, WWW & E-mail.

Cyber Laws
The growth of Electronic Commerce has propelled the need for vibrant and effective
regulatory mechanisms which would further strengthen the legal infrastructure, so crucial to
the success of Electronic Commerce. All these governing mechanisms and legal structures
come within the domain of Cyber law.
Cyber law is important because it touches almost all aspects of transactions and activities and
on involving the internet, World Wide Web and cyberspace. Every action and reaction in
cyberspace has some legal and cyber legal angles Cyber law encompasses laws relating to:
· Cyber-crimes
· Electronic and digital signatures
· Intellectual property
· Data protection and privacy

Cybercrimes: is not defined in Information Technology Act 2000 nor in the I.T. Amendment
Act 2008 nor in any other legislation in India. Cybercrimes can be defined as: "Offences that
are committed against individuals or groups of individuals with a criminal motive to
intentionally harm the reputation of the victim or cause physical or mental harm, or loss, to
the victim directly or indirectly, using modern telecommunication networks such as Internet
(networks including chat rooms, emails, notice boards and groups) and mobile phones
(Bluetooth/SMS/MMS)". 
To put it in simple terms ‘any offence or crime in which a computer is used is a ‘cyber-
crime’. Interestingly even a petty offence like stealing or pick-pocket can be brought within
the broader purview of cyber-crime if the basic data or aid to such an offence is a computer or
an information stored in a computer used (or misused) by the fraudster. The I.T. Act defines a
computer, computer network, data, information and all other necessary ingredients that form
part of a cyber-crime. In a cyber-crime, computer or the data itself is the target or the object
of offence or a tool in committing some other offence, providing the necessary inputs for that
offence. All such acts of crime will come under the broader definition of cyber-crime.
Cybercrime may threaten a person or a nation's security and financial health. Issues
surrounding these types of crimes have become high-profile, particularly those
regarding hacking, copyright infringement, unwarranted mass-surveillance, sextortion, child
pornography, and child grooming.
Cybercrime usually includes:
(a) Unauthorized access of the computers (b) Data diddling (c) Virus/worms attack (d) Theft
of computer system (e) Hacking (f) Denial of attacks (g) Logic bombs (h) Trojan attacks (i)
Internet time theft (j) Web jacking (k) Email bombing, etc.
 Session 31
The Consumer Protection Act
The Consumer Protection Act, 1986 (CPA) is an Act that provides for effective protection of
interests of consumers by prescribing specific remedies to make good the loss or damage
caused to consumers as a result of unfair trade practices. It makes provision for the
establishment of consumer councils and other authorities that help in settlement of consumer
disputes and matters connected therewith.

The main objectives of the consumer protection programme are: -

i) To create suitable administrative and legal mechanisms which would be within the easy
reach of consumers and to interact with both Government and non-Governmental
Organizations to promote and protect the welfare of the consumers.
ii) To generate awareness among consumers about their rights and responsibilities, motivate
them to assert their rights so not to compromise on the quality and standards of goods
and services and to seek redressal of their disputes in consumer forum, if required.
iii) To educate the consumers as to be aware of their rights & social responsibilities

CPA aims to protect the following rights of a Consumer:

a. Right to safety of life and property from hazardous goods.
b. Right to information about the quality, quantity, potency, purity, standard and price of
goods and services so as to protect consumers against unfair trade practices.
c. Right to choice as to variety of goods and services.
d. Right to be heard and representation and to be assured that consumer interests will receive
due consideration at appropriated platform.
e. Right to seek redressal against unfair trade practices or restrictive trade practices or
unscrupulous exploitation of consumers.
f. Right to consumer education

The Salient Features of the Act are as under:

(i) The Act provides for establishing three-tier consumer dispute redressal machinery at the
national, state and district levels.
(ii) It applies to all goods and services.
(iii) It covers all sectors, whether private, public or any person.
(iv) The Act provides for relief of a specific nature and also for compensation to the
consumer as appropriate.
(v) The provisions of the Act are in addition to and not in derogation of the provisions of any
other law for the time being in force

Redressal Forums: Consumer Protection Act, 1986 enables the ordinary consumers to
secure less expensive and often speedy redressal of their grievances. Under the Consumer
Protection, it provides for a three-tier structure of the National and State Commissions and
District Forums for speedy resolution of consumer disputes. Any individual consumer or
association of consumers can lodge a complaint with the district, state or national level
forum, depending on the value of goods and claim for compensation. At present there are 632
District Forums, 35 State Commissions with the National Consumer Disputes Redressal
Commission (NCDRC) at the apex.

The provisions of this Act cover, ‘goods as well as services.’ The goods are those which
are manufactured or produced or sold to consumers through whole sellers and retailers. The
services are in the nature of transport, telephone, electricity, housing, banking, insurance,
medical treatment etc. The Act provides a mechanism for redressal of complaints regarding
defect in goods and deficiency in services.

The CPA categorises the following four types of persons to be the complainants. These
are as follows: (i) a consumer; or (ii) any voluntary consumer association registered under the
Companies Act, 1956, or under any other law for the time being in force; or (iii) the central
government or any state government who or which makes a complaint; or (iv) one or more
consumers, where there are numerous consumers having the same interest; who or which
makes a complaint.

Consumer" means any person who—

 buys any goods for a consideration which has been paid or promised or partly paid and
partly promised, or under any system of deferred payment and includes any user of such
goods other than the person who buys such goods for consideration paid or promised or
partly paid or partly promised, or under any system of deferred payment, when such use
 is made with the approval of such person, but does not include a person who obtains such
goods for resale or for any commercial purpose; or
 (ii) hires or avails of any service for a consideration which has been paid or promised or
partly paid and partly promised, or under any system of deferred payment and includes
any beneficiary of such service other than the person who hires or avails of the services
for consideration paid or promised, or partly paid and partly promised, or under any
system of deferred payment, when such services are availed of with the approval of the
first mentioned person, but does not include a person who avails of such service for any
commercial purpose.

How to File a Complaint?

 Within two years of purchasing the product or services, the complaint should be
filled.
 In the complaint, the consumer should mention the details of the problem. This can be
an exchange or replacement of the product, compensation for mental or physical torture.
However, the declaration needs to be reasonable.
 All the relevant receipts, bills should be kept and attached to the complaint letter.
 A written complaint should be then sent to the consumer forum via email, registered
post, fax or hand-delivered. Acknowledgement is important and should not be forgotten to
receive.
 The complaint can be in any preferred language.
 The hiring of a lawyer not required.
 All the documents sent and received should be kept.

Consumer Protection Bill of 2018 replaces the Consumer Protection Act, 1986. The Bill
sets up a Central Consumer Protection Authority to promote, protect and enforce consumer
rights as a class.  It can issue safety notices for goods and services, order refunds, recall
goods and rule against misleading advertisements. If a consumer suffers an injury from a
defect in a good or a deficiency in service, he may file a claim of product liability against the
manufacturer, the seller, or the service provider. 
The Bill empowers the central government to appoint, remove and prescribe conditions of
service for members of the District, State and National Consumer Disputes Redressal
Commissions.  The Bill leaves the composition of the Commissions to the central
government. 
 Session 32
Competition Law
Competition law is the regulation that promotes and maintains market competition. It
regulates the market scenario for a healthy market environment. However, the said law is
enforced through public and private enforcement.

The major objectives of the law are:

1. To prohibit and check prevalence of any unfair agreements in the market scenario
2. To promote market efficiency
3. To prohibit the abuse of dominance in the market

The Competition Act 2002 was amended in the year 2007 and 2009. Under the Act, a
Commission is appointed which protects the interests of the parties and ensure fairness in the
market environment. The Act replaced the old Monopolistic and Restrictive Trade Practices
Act.1969.

The Commission appointed under the Act performs three major functions:
 To check unfair agreements
Anti-competitive agreements include all those agreements which are entered so as to hamper
the market conditions in India. Commission holds a power to check upon such agreements,
the decisions of such persons/companies and to oversee their conduct also.
Examples of such agreements are:
Limiting or controlling the production market
Limiting or controlling the technical market
Engaging in any manner in bid rigging or collusive bidding
Entering into exclusive distribution or supply arrangement. Etc
 To check dominance in agreements
The Act defines dominant position as a position of strength, enjoyed by an enterprise, in the
relevant market in India , which enables it to:
i. Operate independently of competitive forces prevailing in the relevant manner.
ii. Affect its competitors or consumers or the relevant market in its favour.
Ex- engaging in predatory pricing, etc
 To check unhealthy combinations/mergers and amalgamations outside India so as to
hamper conditions in India. Such combinations/ mergers happen when the main
 motive is to limit the number of players in the market. Herein, the companies become
one entity so as to deceive the market environment and to gain unjust benefit.
The Act ensures through the commission that all such unhealthy practices must not exist and
hence give wide powers to the appointed commission. To handle the cross-border issues, the
Commission is empowered to enter into MOU with any foreign agency of any foreign
country, with the prior approval of the central government. With the rapid growth of our
economy, it has become imperative to check and regulate the competition happening within
India and from outside the international borders.

Competition Commission of India is a quasi-judicial body , which entails the task of ensuring
compliance under the Act in India. It can give orders of:
 Cease and desist
 Imposition of penalty
 Order for changes or modification in the agreements, etc.

The main aim of the legislation to promote healthy competition in the market, to eradicate
unfair trade practices, thus boosting the economy of the country. It ensures clear, fair and
transparent conduct of all the players in the market scenario. It is a check on the companies,
while conducting their day to day activities, to maintain fairness in all dealings.
 Session 33
Alternate Dispute Resolution
The alternative Dispute Resolution (ADR) mechanism is used all over the world which is
more effective, faster and less expensive.
Under ADR mechanism, there are basically four methods:
(a) Negotiation
(b) Mediation
(c) Conciliation
(d) Arbitration
While the first two methods are not recognized by law, the methods of conciliation and
arbitration are quasi-judicial methods to resolve a dispute with minimum court intervention.
The same is now recognized by the Arbitration and Conciliation Act, 1996 (Act 26 of 1996).
The courts have always assisted in proper conduct of the arbitration proceedings and
enforcement of arbitration awards.
Quick decision of any commercial dispute is necessary for smooth functioning of business
and industry. In today’s world of shrinking boundaries, free trade and international commerce
have become global necessities. Increasing competitiveness often leads to conflicts between
entrepreneurs, resulting in commercial disputes.
Arbitration is chosen as a means of effective consensual and speedy dispute resolution. The
growing strength and role of India and the Indian industry in the Asian and global economy
has seen the country's emergence as a force to be contended with. Increasing foreign direct
investment and other forms of collaboration by foreign companies have witnessed disputes
between Indian and foreign parties. This has raised the need for an act that will address
commercial disputes quickly and efficiently.

Arbitration:
"Arbitration is the reference of dispute between not less than two parties, for determination,
after hearing both sides in a judicial manner, by a person or persons other than a court of
competent jurisdiction.”

What disputes can be referred to arbitration

Generally speaking, all disputes of a civil nature or quasi-civil nature which can be decided
by a civil court can be referred to arbitration. Thus, disputes relating to property, right to hold
an office, compensation for non-fulfillment of a clause in a contract, disputes in a partnership
etc. can be referred to arbitration. Even the disputes between an insolvent and his creditors
can be referred to arbitration by the official receiver or the official assignee with the leave of
the court.
Disputes excluded from Arbitration:
The law has given jurisdiction to determine certain matters to specified tribunal only; these
cannot be referred to arbitration:
 Relating to appointment of a guardian.
 Pertaining to criminal proceedings
 Relating to Charitable Trusts
 Winding up of a company
 Matters of divorce or restitution of conjugal rights
 Disputes arising from an illegal contract
 Insolvency matters, such as adjudication of a person as an insolvent.
 Matters falling within the purview of the Competition Act.

Appointment and termination of arbitrators

Though any person can be appointed as an arbitrator, generally impartial and independent
persons in whom parties repose confidence are to be selected and appointed as arbitrators.
Parties are free to determine the number of arbitrators, provided that such number shall not be
an even number. If the Arbitration Agreement is silent in this respect, the arbitral Tribunal
shall consist of a sole arbitrator. In cases, where three arbitrators are to be appointed, each
party will appoint one arbitrator and the two appointed arbitrators will jointly appoint a third
arbitrator, who will be the presiding arbitrator. In certain cases of failure to appoint the
arbitrators, the Chief Justice of the High Court or his designate has been given power to
appoint the arbitrator u/s. 11(6) of the Arbitration and Conciliation Act, 1996.
The mandate of an arbitrator shall terminate if---
 he becomes de jure or de facto unable to perform his functions or for other reasons fails to
act without undue delay; and
 he withdraws from his office or the parties agree to the termination of his mandate.
 where he withdraws from office for any reason; or by or pursuant to agreement of the
parties

Cost of arbitration: means reasonable cost relating to fees and expenses of arbitrators and
witnesses, legal fees and expenses, administration fees of the institution supervising the
arbitration and other expenses in connection with arbitral proceedings. The tribunal can
decide the cost and share of each party. If the parties refuse to pay the costs, the Arbitral
Tribunal may refuse to deliver its award. In such case, any party can approach Court. The
Court will ask for deposit from the parties and on such deposit, the award will be delivered by
the Tribunal. Then Court will decide the costs of arbitration and shall pay the same to
Arbitrators. Balance, if any, will be refunded to the party.
Award of Arbitration Tribunal
The award shall be in writing and the reasons on the basis of which award was passed, shall
be recorded unless the parties agree otherwise. The award shall be drawn on a Rs. 100/-
stamp paper. It shall be dated and signed by the arbitrators. The sum awarded may include the
interest which the claimant is entitled. It shall also provide for the costs and it shall mention
the party liable to pay the costs. A signed copy of the award shall be delivered to each party.
The Act also empowers the arbitrator to make an interim arbitral award on any matter with
respect to which he may make a final award.
The parties are free to settle the matter any time during the arbitration proceedings. The
arbitrator, if satisfied about the impartiality of the settlement, has to make the award in term
of the settlement arrived at by the parties

Conciliation – 
Part III of the Act makes provision for conciliation proceedings. In conciliation proceedings,
there is no agreement for arbitration. In fact, conciliation can be done even if there is
arbitration agreement. The conciliator only brings parties together and tries to solve the
dispute using his good offices. The conciliator has no authority to give any award. He only
helps parties in arriving at a mutually accepted settlement. After such agreement they may
draw and sign a written settlement agreement. It will be signed by the conciliator.

However after the settlement agreement is signed by both the parties and the conciliator, it
has the same status and effect as if it is an arbitral award. Conciliation is the amicable
settlement of disputes between the parties, with the help of a conciliator. All matters of a civil
nature or breach of contract or disputes of movable or immovable property can be referred to
conciliation. Matters of criminal nature, illegal transactions, matrimonial matters like divorce
suit etc. cannot be referred to conciliation.
The conciliation proceedings can start when one of the parties makes a written request to
other to conciliate, briefly identifying the dispute. The conciliation can start only if other
party accepts in writing the invitation to conciliate. Unless there is written acceptance,
conciliation cannot commence. If the other party does not reply within 30 days, the offer for
conciliation can be treated as rejected.