BUSINESS LEGISLATION

PAPER CODE: II-204 COURSE OBJECTIVE: The course is designed to provide an understanding of legal processes involved in management of an organization. The main focus is on understanding basic laws affecting the operation of a Business Enterprise

SYLLABUS
Unit-I The Indian Contract Act: Essentials of a valid contract, void agreements, performance of contracts, breach of contract and its remedies, Quasi-Contracts Unit-II The Sale of Goods Act: Contract of sale of goods, conditions and warranties, transfer of property, rights of an unpaid seller; the negotiable instruments act: nature and types; negotiation and assignment; holder-in due course, dishonor and discharge of a negotiable instrument, arbitration Unit-III The Companies Act, 1956: Nature and types of companies; formation; memorandum and articles of association; prospectus, shares and share capital, allotment of shares Unit-IV Membership; borrowing powers; management and meetings; accounts and audit; compromise arrangements and reconstruction; prevention of oppression and mismanagement; winding up; Consumer Protection Act and Cyber Law
Suggested Readings: 1. Kuchhal, M.C. and Deepa Parkash, Business Legislation Management, Vikas Publishing House Pvt. Ltd. 2. Khergamwala, J.S., The Negotiable Instrument Acts, N.M. Tripathi, Bombay, 1980 3. Ramaiyam, A., Guide to the Companies Act, Wadhwa, Nagpur, 1992 4. Shah, S.M., Business Law for Managers, Sultan Chand, New Delhi, 1998 5. Tulisian P.C., Busienss Law, TMH, New Delhi Note: 1. One case study be discussed per unit in the class.

INDIAN CONTRACT ACT-1872

Unit-I The Indian Contract Act: Essentials of a valid contract, void agreements, performance of contracts, breach of contract and its remedies, Quasi-Contracts

INDIAN CONTRACT ACT, 1872

Indian Contract Act 1872 is the main source of law regulating contracts in Indian law, as subsequently amended. It determines the circumstances in which promise made by the parties to a contract shall be legally binding on them. All of us enter into a number of contracts everyday knowingly or unknowingly. Eg. When you purchase milk or newspaper in the morning or go to movie in the evening, you are entering into a contract. Each contract creates some right and duties upon the contracting parties. Indian contract deals with the enforcement of these rights and duties upon the parties. It applies to the whole of India except the state of Jammu and Kashmir.

DEFINITIONS
Proposal (Offer) - 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. Acceptance - When the person to whom the proposal or offer is made signifies his assent thereto, the proposal is said to be accepted. Promise - A proposal when accepted becomes a promise. Consideration - Consideration means something in return (quid pro quo). It can be cash, kind, an act or abstinence. It can be past, present or future. However, consideration should be real and lawful. Agreement - Every promise and every set of promises, forming the consideration for each other, is an agreement. Contract - An agreement enforceable by law is a contract.

What is a Contract ?

An Agreement Enforceable by law Made between atleast two parties By which rights are acquired by one, & Obligations are created on the part of another And on failure, the other party has a remedy.

COMPONENTS OF CONTRACT
An Agreement It involves proposal or offer by one party and acceptance of the same by the other party.

AGREEMENT = OFFER + ACCEPTANCE

Enforceable at law

An agreement to become a contract must give rise to legal obligations. It must create legal relations and not merely social or domestic relations.
Leading Case: BALFOUR V. BALFOUR

CONTRACT = AGREEMENT+ENFORCEABILITY AT LAW

Classification of Contract
Classification as per Validity
(valid/voidable/illegal/unforceable)

Void Agreement & Void Contract Classification as per formation

(Express/Implied/Quasi)

Classification as per performance

(Executed/Executory)

Essential elements of a Valid Contract.

1. Proposal & Acceptance. 2. Lawful Consideration. 3. Capacity of parties to contract. 4. Free Consent. 5. Agreement should not be expressly declared void. 6. Writing & Registration, if so required by law. 7. Legal Relationship. 8. Certainty. 9. Possibility of Performance. 10. Enforceable by law.

Proposal/ Offer Proposal/ Offer - 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.

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Essentials of Proposal/ Offer 1. Beyond expression of willingness, there must be something in the nature of a request. 2. Proposer cannot dictate terms. 3. An offer must be intended to create & capable of creating legal relations.

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Communication of proposals. The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made. Eg - A proposes, by letter, to sell a house to B at a certain price. The communication of the proposal is complete when B receives the letter.

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Acceptance When one person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. Proposal when accepted becomes promise. The person making the proposal is called the Promisor and person accepting the proposal becomes Promisee.

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Essentials of Acceptance
1. Acceptance must be absolute and unqualified. 2. It must be expressed in some usual & reasonable manner. 3. Mental Acceptance is not sufficient in Law. 4. Acceptance must be communicated to the offerer. 5. Acceptance must be by a certain person. 6. Acceptance must be given within a reasonable time. 7. Acceptance must be given before the offer lapses or is revoked or is withdrawn. 8.Acceptance of proposal is acceptance of all terms.
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Communication of an acceptance
The communication of an acceptance is complete, as against the proposer, when it is put in a course of transmission to him, so as to be out of the power of the acceptor; as against the acceptor, when it comes to the, knowledge, of the proposer. Eg : B accepts A's proposal by a letter sent by post. The communication of the acceptance is complete, as against A when the letter is posted; as against B, when the letter is received by A.
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Revocation or Lapse of Offer

By Communication of Revocation Death of insanity of either party before acceptance By lapse of time (if not accepted within the prescribed time) Non fulfillment of specific condition If a counter offer is made If the acceptance is not according to the prescribed mode and the Offeree is informed

Revocation of proposals and acceptances A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards. An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards.
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Completion of Communication
Offer or Acceptance OFFER : when it comes to the knowledge of the Offeree ACCEPTANCE : (i) As against the offeror : when putted into course of transmission (out of acceptors power) (ii) As against the acceptor : when it comes to the knowledge of the offeror Revocation of Offer or Acceptance (i) As against the person who makes it -- when putted into course of transmission. (ii) As against the person to whom it is made -- when it comes to his knowledge

Consideration
When A promises to do something A must get something in return this something is known as consideration (Affirmative Act / Abstinence / Promise) It must move at the desire of the promisor It may move from promisee or any other person It may be act, abstinence, forbearance or promise It may be past, present, future It must be real and not illusory It must not be something which the promisor is not already bound to do It must not be illegal / immoral Stranger to the Contract

Capacity of parties to Contract

An agreement becomes a contract if it is entered between the parties who are competent to Contract. Every person is Competent to contract 1. Who is of the age of majority according to the law. 2. Who is of sound mind. 3. Who is not disqualified by any law.
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Free Consent
"Free consent" - Consent is said to be free when it is not caused by 1) 2) 3) 4) 5) coercion, undue influence fraud, misrepresentation, mistake. Consent is said to be so caused when it would not have been given but for the existence of such coercion, undue influence, fraud, misrepresentation or mistake.
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Coercion
Coercion is the committing, or threatening to commit, any act forbidden by the Indian Penal Code, or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement. Eg A, causes B to enter into an agreement by an act amounting to criminal intimidation under the Indian Penal Code.
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Undue influence
A contract is said to be induced by "undue influence where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other. Eg - A had given advance money to his son B during his minority, upon B's coming of age, A obtains, by misuse of parental influence, a bond from B for a greater amount than the sum due in respect of the advance. Here A employs undue influence.
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Fraud
"Fraud" means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto of his agent, or to induce him to enter into the contract 1) the suggestion, as a fact, of that which is not true, by one who does not believe it to be true; 2) The active concealment of a fact by one having knowledge or belief of the fact. 3) A promise made without any intention of performing. 4) Any other act fitted to deceive; 5) Any such act or omission as the law specially declares to be fraudulent. 24

Misrepresentation
"Misrepresentation" means and includes 1) the positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true. 2) any breach, of duty which, without an intent to deceive, gains an advantage to the person committing it, or any one claiming under him, by misleading another to his prejudice or to the prejudice of any one claiming under him. 3) causing, however innocently, a party to an agreement to make a mistake as to the substance of the thing which is the subject of the agreement.
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Legality of Object
Sec 23 declares that object & consideration of a contract should be lawful Consideration & object could be unlawful:a) If it is forbidden by law b) If it is of such a nature that, if permitted, it would defeat the provisions of any law c) If it is fraudulent d) If it involves or implies injury to the person or property of another e) If the court regards it as immoral f) If the agreement opposed to public policy

Void Agreements
An agreement not enforceable by law is said to be void. Following are void agreements * Both parties under mistake of fact (section 20) * Unlawful object or consideration (section 24) * Agreement without consideration (section 25) * Agreement in restraint of marriage (section 26) * Agreement in restraint of trade (section 27) * Agreement in restraint of legal proceedings (section 28) * Uncertain agreement (section 29) * Wagering agreement (section 29) * Agreement to do an impossible Act (section 56)
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Performance of Contract
Sec 38 says if a promisor has made an offer to perform as per the contract and the promisee does not accept that, the promisor is not responsible for non performance. By whom the contract must be performed; Promisor himself, Agent, Legal Rep., Third Person, Joint Promisors. Devolution of joint liabilities (Sec 42 to 44) (When 2 or more Promisors have made the promise, they are known as the joint promisors) All of them must fulfil the promise jointly (42), If not, 43 comes into effect thereby; liability of joint promisors is joint & several, a joint promisor may claim contribution, sharing of loss arising from default of one (43 para 1,2,3)

Discharge of Contract
Discharge means termination of a contract. The contract may be discharged in any of following ways 1. By performance. 2. By refusing tender of performance. 3. By breach of Contract. 4. By impossibility of performance. 5. By agreement or by consent. 6. By operation of law. (Death, Insolvency, Merger) 7. Discharge by lapse of time.
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Breach of Contract
Breach of contract is non performance of contract. Remedies for breach of contract to Aggrieved party. 1. 2. Suit for specific performance The court directs party commiting breach to perform the promise according to the terms of the contract. Suit for injunction An injunction is an order of Court directing person to do or refrain from doing some act which is subject matter of contract. Suit for damages, for the loss sustained In case of breach of contract, injured party can claim for damages caused due to breach. Quantum meruit Quantum meruit means as much as earned or deserved or as much as is merited. A person can claim payment for the work done or goods supplied.

3. 4.

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Contingent contract
"Contingent contract" defined 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. Essential characteristics of a contingent Contract 1. 2. 3. There should be existence of a contingency, happening or non happening of some event in future. Contingency must be uncertain. The event must be collateral, for example, incidental to the contract.

Eg A contracts to pay B Rs 10,000 if B s house is burnt. This is a contingent contract as A will pay B only if his house burns and not otherwise.
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Quasi Contracts Quasi Contract is an obligation resembling that created by a contract. It is implied Contract. The essentials of formation of contracts are absent. There is no agreement at all.

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Quasi Contracts
Law of Quasi Contract Law of Restitution As a matter of fact Quasi Contract is not a contract at all. It is rather created by Law. It is an obligation which the law creates in the absence of any agreement. Sec. 68 -72 deals with following kinds of quasicontractual obligations; 1. 2. 3. 4. 5. Supply of necessaries Payment by an interested person Obligation to pay for non-gratuitous Responsibilities of finder of goods Mistake or Coersion

Types of Quasi Contracts.

Supply of necessaries Where a person supplies necessaries to a person incapable of contracting, he is entitled to be reimbursed from that property of such incapable person. Payment by an interested person A person who is interested in the payment of money which another is bound by law to pay is entitled to be reimbursed by other. Mistake or Coersion A person to whom money is paid by mistake or under coercion, must repay or return it.

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Types of Quasi Contracts Continued

Obligation to pay for non-gratuitous When a person lawfully does anything not intending to do so gratuitously & other person enjoys benefit thereof, the later is bound to make compensation to the former. Responsibilities of finder of goods A person who finds the goods belonging to another is subject to the same liabilities as a bailee of goods. He is entitled to retain the goods until he receives the lawful charges or compensation.
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SALE OF GOODS ACT - 1930

Unit-II The Sale of Goods Act: Contract of sale of goods, conditions and warranties, transfer of property, rights of an unpaid seller

Preliminary
Short title, extent and commencement. This Act may be called the Sale of Goods Act, 1930. It extends to the whole of India (except the State of Jammu and Kashmir). It shall come into force on the 1st day of July, 1930

Definitions
(1) buyer" means a person who buys or agrees to buy goods, (2) "delivery" means voluntary transfer of possession from one person to another

Contract of Sale

A contract whereby a seller transfers or agrees to transfer the property in goods to buyer for a price

Essentials of Contract of Sale

Two Parties Transfer of Property Goods Price Includes both Sale & Agreement to sell

Contract of Sale how made

A contract of sale is made by an offer to buy or sell goods for a price and the acceptance of such offer. The contract may provide for the immediate delivery of the goods or immediate payment of the price or both, or for the delivery or payment by instalments, or that the delivery or payment or both shall be postponed.

Kinds of Goods
Existing Goods (Goods which are physically in existence & sellers ownership & possession at the time of entering the contract)
Specific Goods (Eg. Particular Car bearing a number) Unascertained Goods (Eg. One bag of sugar)

Future Goods (Eg. A agrees to sell B milk that his cow yields in coming year) Contingent Goods (Eg. A agrees to sell B specific painting provided he is able to purchase it from its present owner)

Conditions & Warranties

(1) A stipulation in a contract of sale with reference to goods which are the subject thereof may be a condition or a warranty. (2) A condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise to right to treat the contract as repudiated. (3) A warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated. (4) Whether a stipulation in a contract of sale is condition or a warranty depends in each case on the construction of the contract.

Condition Defined
A condition is a stipulation essential to the main purpose of the contract, the breach of which gives the aggrieved party a right to repudiate the contract itself. In addition, he may maintain an action for damages for loss suffered, if any, on the footing that the whole contract is broken and the seller is guilty of non delivery.

ILLUSTRATION
A goes to B, a horse dealer and says, I want a horse which can run at the speed of 30 km per hour . The horse dealer points out to a particular horse and says, This horse will suit you . A buys the horse. Later on A finds the horse can run only at the speed of 20 km per hour. There is a breach of condition, A can repudiate the contract, return the horse to B & get back the price.

Warranty Defined
A warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives the aggrieved party a right to sue for damages only, and not to avoid the contract itself.

ILLUSTRATION
If A says to B, I want a good horse. B shows him a horse and says, This is a good horse and it can run at the speed of 30 km per hour , A buys the horse and later on finds it can run at the speed of 20 km per hour only, there is a breach of warranty, because the stipulation made by the seller did not form the very basis of the contract and was only subsidiary one & hence is only of secondary importance.

Transfer of Property
It means transfer of ownership of the goods. Rules Regarding Transfer of Property 1. Transfer of property in specific or ascertained goods. 2. Transfer of property in unascertained and future goods.

Transfer of Property in Specific or ascertained goods 1. When goods are in deliverable state
Eg. A buys bicycle for Rs 2000 on a months credit and asks the shopkeeper to send it to his house. The shopkeeper agrees. The bicycle immediately becomes property of A.

2.

When goods have to be put into a deliverable state

Eg. Packing the goods, or loading them on rail or ship, filling them in containers or polishing them to give a finished shape.

Transfer of Property in Specific or ascertained goods 3. When the goods have to be measured etc., to ascertain price
Property does not pass unless such thing is done

4.

When goods are delivered on approval

- Eg. A delivered a horse to B on the terms of sale or return, within 8 days . The horse died on the 3rd day without any fault on the part of B. Held A was to bear the loss as the horse was still its property when it perished.

Transfer of Property in Unascertained and Future goods The property in goods does not pass to the buyer unless and until the goods are ascertained or conditionally appropriated to the contract so as to bring them in a deliverable state, either by seller with assent of buyer or by buyer with assent of seller.

Rights of unpaid seller

The seller of the goods is deemed to be an unpaid seller
a) when the whole of the price has not been paid or tendered b) where a bill of exchange or other negotiable instrument has been received as a conditional payment and the same has been dishonored.

Rights of unpaid seller

An unpaid seller has two fold rights
a) Rights of unpaid seller against the goods and b) Rights of unpaid seller against the buyer personally

Rights of unpaid seller against the goods

Right of lien
Lien is the right to retain possession of goods and refuse to deliver them to the buyer until the price due in respect of them is paid or tendered.

Right to Stoppage of goods in transit

Stopping further transit of the goods while they are with a carrier for purpose of transmission to the buyer, resuming possession and retaining possession until payment

Right of Resale

Rights of unpaid seller against the buyer personally Suit for Price
Buyer wrongfully neglects or refuses to pay the price according to the terms of the contract.

Suit for damages for non acceptance

Buyer wrongfully neglects or refuses to accept and pay for the goods

Suit for special damages and interest

Sue buyer for special damages

NEGOTIABLE INSTRUMENTS ACT

Unit-II The negotiable instruments act: nature and types; negotiation and assignment; holder-in due course, dishonor and discharge of a negotiable instrument, arbitration

Definition
The term Negotiable Instrument literally means a written document transferable by delivery A negotiable instrument is a piece of paper which entitles a person to a certain sum of money and which is transferable from one to another person by a delivery or by endorsement and delivery
Promissory Notes Bills of Exchange Cheque

Promissory Note
A promissory note is an instrument in writing (not being a bank note or a currency note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to or to the order of certain person, or to the bearer of the instrument.
I am liable to pay to B Rs 500/ I have taken from B Rs 2000/- and I am accountable to him for the same with interest

Essentials of Promissory Note

It must be in writing It must contain a promise or undertaking to pay.
I promise to pay B Rs 500/-

The promise to pay must be unconditional

I promise to pay B Rs 500/- seven days after my marriage with C

The maker must be a certain person The payee must be certain The sum payable must be certain It must be signed by the maker.

Specimen of a promissory note

Rs. 5000/Pune November 25, 2008

Three moths after the date, I promise to pay Mr. X of Mumbai or order a sum of Rupees Fifty Thousand for value received. To Mr. Address.. Mumbai

Stamp Signature of Mr Y
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Bill of Exchange
A bill of exchange is an instrument in writing containing and unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument. Eg - Mr. X purchases goods from Mr. Y for Rs. 1000/Mr. Y buys goods from Mr. S for Rs. 1000/Then Mr. Y may order Mr. X to pay Rs. 1000/- Mr. S which will be nothing but a bill of exchange.

Bill of Exchange
Suppose Rajiv has given a loan of Rupees Ten Thousand to Sameer, which Sameer has to return. Now, Rajiv also has to give some money to Tarun. In this case, Rajiv can make a document directing Sameer to make payment up to Rupees Ten Thousand to Tarun on demand or after expiry of a specified period. This document is called a Bill of Exchange, which can be transferred to some other person s name by Tarun. Section 5 of the Negotiable Instruments Act, 1881 defines a bill of exchange as an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to or to the order of a certain person, or to the bearer of the instrument .

Parties to a Bill of Exchange

There are three parties involved in a bill of exchange. They are i. The Drawer The person who makes the order for making payment. In the above specimen, Rajiv is the drawer.

ii. The Drawee The person to whom the order to pay is made.He is generally a debtor of the drawer. It is Sameer in this case.

iii. The Payee The person to whom the payment is to be made. In this case it is Tarun.

Features of a bill of exchange

i. A bill must be in writing, duly signed by its drawer, accepted by its drawee and properly stamped as per Indian Stamp Act. ii. It must contain an order to pay. Words like please pay Rs 5,000/- on demand and oblige are not used. iii. The order must be unconditional. iv. The order must be to pay money and money alone. v. The sum payable mentioned must be certain or capable of being made certain. vi. The parties to a bill must be certain.

Cheques
Cheque is a very common form of negotiable instrument. If you have a savings bank account or current account in a bank, you can issue a cheque in your own name or in favour of others, thereby directing the bank to pay the specified amount to the person named in the cheque. Therefore, a cheque may be regarded as a bill of exchange; the only difference is that the bank is always the drawee in case of a cheque. The Negotiable Instruments Act, 1881 defines a cheque as a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. Actually, a cheque is an order by the account holder of the bank directing his banker to pay on demand, the specified amount, to or to the order of the person named therein or to the bearer.

Cheque
A cheque is a bill of exchange drawn on a specified banker and expressed to be payable otherwise than on demand. The maker of a bill of exchange or Cheque is called the Drawer"; the person thereby directed to pay is called the "Drawee".

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Essential characteristics of a Cheque

A cheque is a negotiable instrument. It is a bill of exchange. It is always drawn on a specified banker. It is always payable on demand. A cheque can be bearer, order or crossed

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Negotiation
It is a process of transferring the ownership, right, title, interest of a person in a negotiable instrument to another person so as to give a good title to the transferee and make a transferee a holder of such instrument.

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Continued
Negotiation does not mean a simple transfer. Simple transfer may not necessarily involve the transfer of property in the negotiable instrument but negotiation implies the transfer of property or ownership. Eg -X hands over a cheque to Mr. Y here Mr. X has negotiates the instrument. But if he hands over a cheque to Mr. Y asking him to keep the same in his safe, the cheque is not negotiated to Mr. Y, Mr. Y does not become its holder but only a bailee.
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Essentials of negotiation
There must be transfer of a negotiable
instrument to another person. As a result of such transfer, the transferee must become the holder of the instrument.

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Modes of negotiation:
Negotiation by delivery The negotiable
Instrument is transferred by delivery, actual or constructive. It is physical act of delivering the instrument or handing over the delivery.

Negotiation by endorsement and delivery

The negotiable Instrument payable to order is negotiable by the holder by endorsement and delivery thereof.
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Endorsement
Literal meaning of the term endorsement is writing on an instrument. Endorser - The person who signs on the back or on the face of the instrument or on the slip is an endorser. Endorsee - The person to whom the instrument is endorsed is called the endorsee.
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Types of Endorsement
General or blank endorsement - Endorser
signs his name either on the back or face of the instrument. Full or special endorsement - It specifies the name of the person to whom or to whose order the payment must be made.

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Continued
Partial endorsement Endorsement is made
for remaining balance of payment. Conditional endorsement The liability of the endorser is limited or negative.

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Holder
The definition given in Section 8 implies that any person: Who is entitled in his own name to the possession of the negotiable instrument. Has right to receive or recover the amount from the parties thereto

Holder In Due Course

The definition of holder in due course in Section 9 means that any person who for the consideration paid becomes the possessor of a negotiable instruments, before its maturity, in good faith and without any sufficient reason to believe that any defect existed in the title of the person from whom he obtained it.

Dishonour of negotiable instrument

Negotiable instruments, Promissory notes and

Cheques may be dishonored by non payment Bills of exchange may be dishonored by non payment or by non-acceptance as they require acceptance from drawees.

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Discharge of Instrument
A negotiable instrument is said to be discharged when it can not be negotiated further When party liable to instrument makes payment When party primarily liable becomes insolvent When holder cancels the instrument with the intention to release the primary party liable.

THE COMPANIES ACT

Unit-III The Companies Act, 1956: Nature and types of companies; formation; memorandum and articles of association; prospectus, shares and share capital, allotment of shares

Types of Business Entities

 Sole Proprietorship  Partnership  Private Limited Company  Public Limited Company  Charitable Organization

Sole Proprietorship
No registration required

Unlimited liability

Used for small business or by Professionals

No Separate Legal Entity

Partnership
Section 11 of Companies Act, 1956
No partnership consisting of more than 20 persons shall be formed

Indian Partnership Act, 1932

Section 4 Partnership is the relation between persons who have agreed to share profits of business carried on by all or any of them acting for all

Unlimited Liability Registration not Compulsory

Company
Governing Act Companies Act, 1956

Special Features of Company

a) Company is a Separate Legal Entity b) It can sue and be sued in its own name c) The liability of the shareholders are limited to the extent of their shareholdings d) Company is distinct from its shareholders e) It can hold property in its own name

Types of Companies in India

DESCRIPTIONS
Definition

PRIVATE COMPANY
Which by its article restricts:
Numbers of members to 50 Transfer of shares Invitation of public to subscribe its debenture, shares etc. Acceptance of deposits from person other than its shareholders and directors

PUBLIC COMPANY
Which is not * private

Governing Laws

Companies Act, 1956

Companies Act, 1956 SEBI Act, 1992 and allied laws.

Types of Companies in India

DESCRIPTIONS Incorporation Time Minimum No. of Shareholders Maximum No. of shareholders Minimum Paid up Capital Transferability of Shares Minimum No. of Directors PRIVATE COMPANY
22 to 3 weeks 2 (Two) 50 (Fifty) INR 1,00,000/Restricted

PUBLIC COMPANY
2 to 3 weeks 7 (Seven) No limit INR 5,00,000/Freely. If company is listed then through stock exchange(s) 3

Articles of Association.
The Articles of association are the documents containing the rules and regulations which govern the internal management of a company at every stage of its business that is from cradle to grave. These defines powers and duties of directors and other officers of the company.
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Contents of Articles
Provisions relating to share capital and alteration thereof. Share certificates & warrants. Rights of share holders. Meetings of the Company. Appointment,remuneration,qualifications of Board of Directors. Dividends. Indemnity.

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Articles of Association shall

 be printed.  be divided into paragraphs numbered consecutively.  be signed by each subscriber of the memorandum of association.

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ALTERATION OF ARTICLES ASSOCIATION

It must be bonafide in the interest of the company and for the benefit of the company as a whole, it should not constitute a fraud on minority. It should not operate as a breach of contract with an outsider. It cannot require a member to purchase more shares or increase his liability in any way except with his consent in writing.

Memorandum of Association
Memorandum of Association is the document which contains the rules regarding constitution and activities or objects of the Company. It is a fundamental agreement of the Company. Company is governed by Memorandum of Association.
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Contents of memorandum.
The name of the company with "Limited" as the last word of the name in the case of a public limited company, and with "Private Limited" as the last word of the name in the case of a private limited company. The State in which the registered office of the company is to be situated.

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Continued
objects of the company. in the case of companies with objects not confined to one State, the States to whose territories the objects extend. The memorandum of a company limited by shares or by guarantee shall also state that the liability of its members is limited.
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Continued
The memorandum of a company limited by guarantee shall also state that each member undertakes to contribute to the assets of the company in the event of its being wound up. In the case of a company having a share capital the memorandum shall also state the amount of share capital with which the company is to be registered and the division thereof into shares of a fixed amount.
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The memorandum shall (sec 15)

 be printed,  be divided into paragraphs numbered consecutively,  be signed by 7(2 in case of private company) subscriber.
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Alteration of memorandum.
A company shall not alter the conditions contained in its memorandum except in the cases, for which express provision is made in this Act. Provisions relating to the appointment of a managing director, managing agent, secretaries and treasurers or manager, may be altered in the same manner as the articles of the company.
97

Continued
The alteration, with a printed copy of the memorandum altered, shall be filed by the Company within three months from the date of the order with the Registrar who shall register the same and certify it.

98

Company Objects
There can be an objects clause This sets out the companies aims and objectives If it goes beyond it is acting ultra vires Ashbury v Riche 1875

Prospectus

DEFINATION any document inviting deposits from public or inviting offers from public for the subscription of shares or debentures of a company is a prospectus.

Characteristics of Prospectus
prospectus to be in writing invitation to public offer to the public

THE IMPORTANT CONTENT OF PROSPECTUS

1. General information-1.name & add of company. 2. name of regional stock exchange. 3. rating of CRISIL. 4. date of opening and closing of the issue.5.declaration about refund of the issue. 2. Capital structure authorized, issued, subscribed and paid-up capital 2) size of present issue 3)paid-up: a)after the present issue, b)after conversion of debentures

Cont .
3)Term of the present issue : a)terms of payment b)rights of the instruments holder c)how to apply d)any special for company and its shareholders. 4)Particulars of the issue: a)object b)project cost c)means of financing. 5)Company ,management and project: a)history, main objects of business b)subsidary of the company. C)promoters d)collaboration agreement

Conti
Particular in regarding to the company: a) name of company b)year of the issue c)type of issue d)amount of issue e)rate of dividend paid management perception of risk factor :a)sensitivity to foreign exchange rate fluctuation b)difficulty in availability of raw material.

MIS-STATEMENT OF THE PROSPECTUS:[SEC.65] -Mis-statement includes:1.Untrue statement 2.Statement which produce wrong impression 3.Statement which are misleading 4.Statement which produced wrong impression.

5.omission of facts. -Mis-leading prospectus:The prospectus which contains mis-statement/mis-leading statement -Who is liable for mis-statement in prospectus:-[sec.62]

LIABILITIES:- Civil & Criminal

CIVIL LIABILITES:1.Compensation. 2.Damages for Fraud. 3.Recision of Contract. 4.Penalty for issuing the prospectus without delivering for registration.

Share capital
Definition (Sect.2(46))

Share means share in the share capital of the company A Share is the interest of shareholder in the company measured by a sum of money for the purpose, of liability in the first place , and of interest is second

Kinds of share:Before the company act, 1956 was passed a company could issue three types of share ; 1) Equity share 2) Preference share 3) Deferred share But under the company act ,1956 a company can issue only two type of share namely; 1) Equity share 2) Preference share Section 86 as amended by the companies act 2000, provide that the new issues of capital of a company limited by shares shall be of two kinds namely 1)Equity share This type of share can be further divided into, 1 . With voting rights; or 2 . With differential right as to dividend , voting or other wise 2)Preference share

share

Preference Share :Characteristic of preference share:Preference share have two characteristic :

1) 2)

They have preferential rights to be paid dividend during the life time of company and They have preferential right to the return of capital when the company goes into liquidation.

Types of preference share:-

1)Cumulative or non-cumulative:With regard to the payment of dividends, preference share may be cumulative or non-cumulative. A cumulative preference share confers a right on it s holder to claim fixed dividend of the past and the current year out of future profits.the fixed dividend keeps on accumulating until it is fully paid.

2)Participating or non-Participating :- Participating preference shares are those shares which are entitled to a fixed preferential dividend and , in addition carry a right to participate in the surplus profits along with equity shareholder.

2)Participating or non-Participating :- Participating preference shares are those shares which are entitled to a fixed preferential dividend and , in addition carry a right to participate in the surplus profits along with equity shareholder.

3)Redeemable or irredeemable:Redeemable preference share are issued by a public limited company, to be redeemed either at a fixed date or after a certain period of item during the life time of the company . Condition for issue of such shares are laid down in section 80 of the act.

4)Convertible or non-convertible :convertible preference shares are those which would be convertible into equity shares after a specified period.

Ordinary or Equity shares :All shares other than preference share will be ordinary shares . The holder of these shares are entitled to dividend from the net profit of the company after the fixed dividend on preference share has been paid up . If after paying the divident on preference share, no profit remain, equity shareholder will receive no dividend.

Kinds of equity shares :section 86,as amended by the companies (amendment) Act 2000, empowers companies to issue the following types of equity shares:

1)

Equity shares with voting right :The holder of such equity shares will have the right to vote on every resolution placed before the company . His voting right on a poll will be a proportion to his share of the paid-up equity capital of the company. [Sec.87(1)] Equity shares with differential rights:The holder of such equity shares have differential rights as to dividend ,voting or otherwise in accordance with such rules and subject to such condition as may be prescribed by the central government.

2)

Who Can Become a Member of a Company?

Any individual who can enter into a contract under the Indian Contract Act, 1872 may be eligible to become a member of a company. However, this is subject to the provisions under the Memorandum and the Articles of the company

Who Can Become a Member of a Company?

The Articles may restrict particular persons or organizations from becoming a member of a company. A person can become a member of a company provided he fulfills certain conditions: Minor: A minor is not qualified to become a member of a company, because a contract with a minor is not valid. However, a minor can become a member if a written agreement is signed by his legal guardian. Insolvent: A bankrupt person may be considered a member of a company and is entitled to vote, as long as his name is there on the register of members. Partnership Firm: A partnership firm may own shares in a business. The shares are allotted on the names of partners. As per Section 25 of the Companies Act, 1956, a firm is allowed to become a member of a company that is licensed under Sec. 25. Foreigner: A foreigner is eligible to become a member of a company. His rights as a member would be suspended if at any point of time he becomes an alien foe. Company: A company may become a member of any other company if granted by its Articles. However, under Sec. 77 (1), of the Companies Act, 1956, a company cannot become its own member. It is considered illegal if it buys its own shares

BORROWING POWERS
A company is empowered to borrow money, if The object clause permits the company to borrow money; or It is a trading company (since a trading company has an implied power to borrow money.)

A public company having share capital is required to obtain a certificate of commencement of business. Until such certificate is received, it shall not carry on any business or borrow money.

Borrowing of money
Such power shall be exercised by passing a resolution in a BM Such power may be delegated by the Board, provided
The resolution delegating the power to borrow money is passed at a BM only The resolution of the Board shall specify total amount that may be borrowed

Meaning of Borrowings ultra vires the company

Any borrowing by a non-trading company shall be ultra vires the company if the power to borrow money is not expressly stated in the memorandum Any borrowings by any company shall be ultra vires the company if the borrowings are made for a purpose which is outside the object clause of memorandum The borrowing by the company must be within the limits, if any, specified in the articles

Accounts and Audit

Every company must maintain proper books of accounts of its affairs. The following transactions must be entered in the books of accounts of the company which must be kept at its registered office : all sums of money received and expended by the company and the matters in respect of which the respect of which the receipt and expenditure took place; all sales and purchases of goods by the company; and the assets and liabilities of the company. in the case of a company engaged in production, processing, manufacturing or mining activities, such particulars relating to utilisation of material or other items of cost as may be prescribed relating to certain class of companies as the Central Government may require.

Preparation of Balance Sheet and Profit and Loss Account

The company has to prepare its balance sheet and profit & loss account from the books of account maintained by it. Every Balance Sheet of a company must give a true and fair view of the state of affairs of the company as at the end of the financial year and must be in the prescribed format.

Auditors of Companies
It is the duty of the auditor conduct the audit of the books of accounts of the company and to make his report to the members of the company on the accounts examined by him, and on every balance sheet, every profit and loss account and on every other document declared by the Act to be part of or annexed to the balance-sheet or profit and loss account and laid before the company in general meeting during his tenure of office. The auditor s report, besides other things necessary in any particular case, must expressly statewhether, in his opinion and to the best of his information and according to explanation given to him, the accounts give the information required by the Act and in the manner as required; whether the balance-sheet gives a true and fair view of the company's affairs as at the end of the financial year and the profit and loss account gives a true and fair view of the profit or loss for the financial year; whether he has obtained all the information and explanations required by him for the purposes of his audit; whether in his opinion, the profit & loss account and balance sheet refered to in his report comply with the accounting standards recommended by the Institute of Chartered Accountants of India; whether, in his opinion, proper books of account as required by law have been kept by the company, and proper returns for the purposes of his audit have been received from the branches not visited by him; whether the company's balance sheet and profit and loss account dealt with by the report are in agreement with the books of account and returns. In case any of the above matters is answered in the negative or with a qualification, the auditor's report must state the reason for the same. Where the auditor is unable to express any opinion in answer to a particular question, his report shall indicate such fact together with the reasons why it is not possible for him to give an answer to such question.

Compromise Arrangements and Reconstruction

Compromise Compromise means an amicable agreement between parties to a controversy to settle their differences by making mutual concessions. In a compromise, the parties agree to settle it between themselves by a give and take arrangement . For the purpose of a compromise, it has been held that it is but essential that each party thereto should empowered to make the necessary concessions.

Compromise Arrangements and Reconstruction

Arrangements Includes a reorganization of the share capital of the company by the consolidation of shares of different classes or by division of shares into shares of different classes or by both these methods.

Compromise Arrangements and Reconstruction

Reconstruction A Reconstruction is commonly said to have taken place when a company resolves to wind up its business and it is proposed to form a new company, with only old shareholders as its members to take over its undertaking, the rights of shareholders in the old company.

Prevention of oppression and mismanagement

Application to the Company Law Board for relief in cases of oppression Any members of a company who complain that the affairs of the company are being conducted in a manner prejudical to public interest or in a manner oppressive to any member or members may apply to the Company Law Board for an order for relief, provided such members have a right so to apply as given below. If, on any application, the Company Law Board is of the opinion : that the company's affairs are being conducted in a manner oppressive to any member or members; and that to wind up the company would unfairly prejudice such member or members and would be a very serious step, but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be would up; the Company Law Board may, with a view to bringing to an end the matters complained of, make such order as it thinks fit.

Prevention of oppression and mismanagement

Application to the Company Law Board for relief in cases of oppression

Any members of a company who complain that the affairs of the company are being conducted in a manner prejudical to public interest or in a manner oppressive to any member or members may apply to the Company Law Board for an order for relief, provided such members have a right so to apply as given below. If, on any application, the Company Law Board is of the opinion :that the company's affairs are being conducted in a manner oppressive to any member or members; and that to wind up the company would unfairly prejudice such member or members and would be a very serious step, but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be would up; the Company Law Board may, with a view to bringing to an end the matters complained of, make such order as it thinks fit.

Prevention of oppression and mismanagement

Application to Court for relief in cases of mismanagement Any members of a company who complain :that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company; or that a material change has taken place in the management or control of the company, whether by an alteration in its Board of directors, or manager or in the ownership of the company's shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company; may apply to the Company Law Board for an order of relief provided such members have a right so to apply as given below. If, on any such application, the Company Law Board is of opinion that the affairs of the company are being conducted as aforesaid or that by reason of any material change as aforesaid in the management or control of the company, it is likely that the affairs of the company will be conducted as aforesaid, the court may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit.

Winding up
Winding up of company is a legal procedure to dissolve the company and put an end to its life The term winding up is defined as, the process by which the life of a company is ended and its property is administered for the benefit of its members and creditors. During the process of winding up, the assets of the company are sold and all the debts of the company are paid off. An administrator, called the liquidator, is appointed to take control of the winding up process of the company. If any surplus is left, the liquidator would distribute it among the owners of the company in accordance to their rights.

CONSUMER PROTECTION ACT, 1986

WHO IS A CONSUMER?
Two kinds of consumer under the Act
Consumer of goods
buys or agrees to buy goods any user of such goods

Consumer of services
hires or avails any services any beneficiary of such service

CONSUMERS NEED PROTECTION AGAINST

Unfair trade practice Restrictive trade practice Defects Deficiencies

CONSUMERS NEED PROTECTION AGAINST

UNFAIR TRADE PRACTICE
 Adopting unfair methods or deception to promote sale, use or

supply of goods or services e.g.

 Misleading public about price (e.g. bargain price when it is not so).  Charging above MRP printed.  Misleading public about another s goods or services.  Falsely claiming a sponsorship, approval or affiliation.  Offering misleading warranty or guarantee.

CONSUMERS NEED PROTECTION AGAINST

RESTRICTIVE TRADE PRACTICE
y Price fixing or output restraint re: delivery/flow of supplies to impose unjustified costs/restrictions on consumers. y Collusive tendering; market fixing territorially among competing suppliers, depriving consumers of free choice, fair competition. y Supplying only to particular distributors or on condition of sale only within a territory. y Delaying in supplying goods/services leading to rise in price. y Requiring a consumer to buy/hire any goods or services as a precondition for buying/hiring other goods or services.

CONSUMER'S RIGHTS

y Right to safety against hazardous goods and services y Right to be informed about quality, quantity, purity, standard, price y Right to choose from a variety at competitive prices y Right to be heard y Right to seek redressal y Right to consumer education

FORUM & JURISDICTION

Consumer Disputes Redressal Forums (District Forum)
Claims less than or equal Rs.20 lacs.

Consumer Disputes Redressal Commissions (State Commission)

Claim more than Rs.20 lacs & less than Rs.1 crore & appeals.

National Consumer Disputes Redressal Commission (National Commission)

Claim equal to Rs.1 crore & appeals

ESSENTIAL INFORMATION IN THE APPLICATION

Name and full address of complainant Name and full address of opposite party Description of goods and services Quality and quantity Price Date & proof of purchase Nature of deception Type of redressal prayed for

BENEFITS & RELIEFS

Benefit
Disposal within 90 days No adjournment shall ordinarily be granted - Speedy trial

Relief
Removal of defects in goods or deficiency in services. Replacement of defective goods. Refund against defective goods or deficient services. Compensation. Prohibition on sale of hazardous goods.

CYBER LAWS

CONTENTS
INTRODUCTION NEED FOR CYBER LAWS CYBER LAWS IN INDIA CYBER CRIMES OFFENCES AND LAWS IN CYBER SPACE

INTRODUCTION
GROWTH OF CYBER SPACE ONSET OF INTERNET CYBER LAW OR LAW OF INTERNET

NEED FOR CYBER LAWS

TACKLING CYBER CRIMES INTELLECTUAL PROPERTY RIGHTS AND COPYRIGHTS PROTECTION ACT

IT ACT PROVISIONS
email would now be a valid and legal form of communication in our country that can be duly produced and approved in a court of law. Companies shall now be able to carry out electronic commerce using the legal infrastructure provided by the Act. Digital signatures have been given legal validity and sanction in the Act.

IT ACT PROVISIONS
statutory remedy in case if anyone breaks into companies computer systems or network and causes damages or copies data

CYBER CRIMES
CYBER CRIMES AGAINST PERSONS CYBER CRIMES AGAINST PROPERTY CYBER CRIMES AGAINST GOVERNMENT

OFFENCES AND LAWS IN CYBER SPACE

TAMPERING WITH COMPUTER DOCUMENTS HACKING WITH COMPUTER SYSTEM PUBLISHING OBSCENE MATERIAL ON INTERNET BREACHING OF CONFIDENTIALITY AND PRIVACY

Appeals / Cyber Appellate Tribunal

Appeal to Cyber Appellate Tribunal
Any aggrieved person

Powers of Cyber Appellate Tribunal Appeal to High Court

SYLLABUS
Unit-I The Indian Contract Act: Essentials of a valid contract, void agreements, performance of contracts, breach of contract and its remedies, Quasi-Contracts Unit-II The Sale of Goods Act: Contract of sale of goods, conditions and warranties, transfer of property, rights of an unpaid seller; the negotiable instruments act: nature and types; negotiation and assignment; holder-in due course, dishonor and discharge of a negotiable instrument, arbitration Unit-III The Companies Act, 1956: Nature and types of companies; formation; memorandum and articles of association; prospectus, shares and share capital, allotment of shares Unit-IV Membership; borrowing powers; management and meetings; accounts and audit; compromise arrangements and reconstruction; prevention of oppression and mismanagement; winding up; Consumer Protection Act and Cyber Law
Suggested Readings: 1. Kuchhal, M.C. and Deepa Parkash, Business Legislation Management, Vikas Publishing House Pvt. Ltd. 2. Khergamwala, J.S., The Negotiable Instrument Acts, N.M. Tripathi, Bombay, 1980 3. Ramaiyam, A., Guide to the Companies Act, Wadhwa, Nagpur, 1992 4. Shah, S.M., Business Law for Managers, Sultan Chand, New Delhi, 1998 5. Tulisian P.C., Busienss Law, TMH, New Delhi Note: 1. One case study be discussed per unit in the class.

THANK YOU