Books:1. Business law for management 2. Elements of mercantile law by N.D. Kapoor ( Reference ) 3.

Business law for management by Bulchandani ( Reference ) Business Law Business:- All those activities which are aimed at transfer of goods & services from the production centre to consumption centre carried out by an entrepreneur by optimally utilizing resources at his command i.e. money, man, material & machine with a view to maximize profit. Law:- Rules & Regulations which has a force of authority, passed by legislative bodies. LAWS Constitutional Law (Relating to rights, duties of citizen’s towards the state & administration) Criminal Law (Crime & Punishment) Civil Law (Business & Property matters) International Law (Dealing between citizens of two countries)

Contract Act
Contract:- Agreement enforceable by Law. Agreement:- It is every promise or a set of promises forming consideration for each other. It is a result of intention to create legally binding relationship. Promise:- Proposal when accepted becomes promise. Proposal:- When a person signifies to another his willingness to do or not to do something with a view to obtain assent of that other person, the person is said to have made a proposal. Proposal + Acceptance = Promise Promise * Promise = Agreement Agreement + Enforceability = Contract

Q1. Discuss essential ingredients of a valid contract? Or All contracts are agreements but all agreements are not contracts. Ans. 1. Intention to create legally binding relationship 2. Offer and Acceptance 3. Two or more persons Section 10 – All agreements are contracts if they are made by • Free consent • Parties competent to contract • For lawful consideration • And lawful object • And not expressly declared to be void 4. Competence of parties to the contract – Every person is competent to contract if • He attends the age of majority according to which he is subject of • He is of sound mind • Not disqualified under law 5. Lawful consideration 6. Free consent of parties – Consent is free if it is not caused by • Coercion (Force) – use of physical force • Undue Influence – use of dominant position • Misrepresentation – false statement • Fraud – cheating • Mistake – erroneous state of affairs 7. Lawful Object 8. Certainty of performance 9. Not ambiguous / vague(the agreement must be certain) 10. Legal Formalities 11. Not declared to be void Q2. Offer and Acceptance Ans. Rules for a valid offer:1. Offer should be capable of creating legally binding relationships 2. Offer should be backed by willingness to perform. Mere intention is not an offer 3. Offer should be communicated – e.g. Lalman Shukla (Civil – Plaintiff, Criminal – Complainant) v/s Gauri Datt (Civil – Defendant, Criminal – Accused if guilty is called convict if not guilty then is called acquit)(PPS Gogna Pg no.20) 4. Objective of the offer is to obtain approval / acceptance of offeree 5. Offer should be differentiated from • Intention • Invitation to offer for e.g.

a) Super Bazaar b) Prospectus c) Tender d) Auction Notice 6. Offer may be conditional 7. Offeror cannot dictate terms Acceptance:- When a person to whom offer is made signifies his assent there to he is said to have accepted the offer/proposal. Rules for valid Acceptance:1. Acceptance to be valid must be absolute and unconditional 2. Acceptor must be willing to perform his obligation 3. Acceptance must be communicated to the offeror 4. Acceptance must be communicated within a reasonable time 5. Acceptance must be in the manner prescribed 6. Acceptance must be communicated before offer lapses / withdrawn • Lapse of offer – offer no longer valid • Expiry / Lapse of time • Revocation – Cancellation of offer by offeror a) Notice of revocation b) Communication in same channel • Conditional acceptance / qualified acceptance / counter offer • Non compliance of terms and conditions • Death – in respect of contracts of personal skill • Rejection Rules as to communication of offer & acceptance :-( better in PPSG Pg. no.27) 1. Offer:- Communication of offer is complete when it comes to the knowledge of the person to whom it is made. 2. Acceptance:- Communication of acceptance is complete o To against offeror – when communication of acceptance is put into transmission so as to be beyond the control of acceptor o As against acceptor – when it comes to the knowledge of offeror. Open letter dated Letter received by offeree 01-08-2005 05-08-2005 Communication of offer is complete Communication of acceptance is complete as against proposal Communication of acceptance is complete

Letter of acceptance dropped 08-08-2005 on Letter of acceptance received 10-08-2005 on

against acceptance

Competence of Parties to contract:(Legal Competence) Whether a person has o Power o Authority In Law

Every person is competent to contract open letter dated 01-08-2005 if 1. he has the age of majority according to the law to which he is subject 2. he is of sound mind 3. he is not disqualified under the law a person has attained the age of majority incase where guardians have been appointed under guardianship law.

Legal Position of Contracts with Minor:Who is Minor:- A person who has not attained the age of majority Validity:- Contracts with minor are void-ab-initio (from the very beginning) e.g. Mohori Bibi v/s Dharmodas Ghose 1. Anyone who contracts with minor does it on his own risk 2. No ratification (no regulation) 3. Contracts with minor cannot be rectified even after he has attained the age of majority. What is required is to sign a fresh contract A & B (jointly contract with) C (Major) - Contract is void between B & C. The manager i.e. A has to take full responsibility of minor B and his actions. 4. Minor deliberately misleading his age • Contract remains void • Court may take cognigence & award compensation 5. Minor cannot become a partner in partnership firm. However if all the partners agree minors may be admitted to benefit of the firm 6. Minor cannot become member of a company unless • Articles of Association of the company permit • Shares are fully paid 7. Minor can act as an agent • Minor will have no personal liability

• 8. Minor cannot be declared insolvent 9. No degree of specific performance against minor 10. Anyone who provides necessaries to minor can recover the amount from minor even by attaching his property Sound Mind:Every person is of sound mind (for the purpose of entering into contract) if at the time of making contract he understands • Terms & conditions of the contract • Impact of terms & conditions on his personal interest If he can understand this then he is said of sound mind. Idiot Person:- Person whose mental capacity is permanently affected. Such person can never enter a contract. Schizophrenia Epetopsey:- Mental capacity is temporarily under an attack of a disease. Such a person can contract during the period of normalcy Drunk Person:- Such a person don’t contract under influence of intoxication Lawful Consideration:Basis Price Something in return – Quid Pro Quo Right, interest, benefit, or profit accruing to someone as against responsibility, detriment, sacrifice or loss suffered or incurred by someone else. Q3. No Consideration, No Contract – Discuss giving Exceptions. Definition of Consideration:- When at the desire of promisor, promise or other person has done or abstained, does or abstained, promises to do or abstained from doing something. Such an act or abstinence is called consideration & contract without consideration is void. Essential Features of Consideration:1. Consideration must move at the request of promisor – desire of promisor cannot be ignored. E.g. Durga Prasad v/s Baldeo 2. Consideration may move from promisee or any other person. E.g. Chinnaya v/s Ramaiya 3. Consideration can be past, present & future. 4. Absence of act, forbearance or sacrifice may also be a good Consideration.

5. Consideration need be real & not imaginary/illusory. 6. Consideration need not be adequate. 7. Consideration must be lawful • If it does not violate the provisions of the law • If it is not forbidden by law • If it does not result into injury to person or property • If it is not against public policy Circumstances where contract without Consideration may not be void:1. Contracts made under natural love & affection provided agreement is in writing, registered & between parties in near relation. E.g. Raj lukhee Debee v/s Bhootnath 2. Promise to compensate for past voluntary service rendered – service must be voluntary & not a legal duty 3. Promise to pay time barred debt • Must be in writing • Must be signed by debtor 4. Gift – Donation without consideration 5. Charitable contribution – e.g. Kedarnath v/s Gauri Mohammed Coercion:- Consent is obtained by coercion when it is obtained by:1. Committing or threatening to commit 2. Offense punishable under Indian Penal Code 3. Detaining or threatening to detain unlawfully property of a person Features of Coercion:1. Use of physical force 2. Violent in nature 3. Even a threat is enough 4. Offense may be committed or threatened is punishable under Indian Penal Code 5. Threat to commit suicide is punishable & it can result in coercion. E.g. Amiraju v/s Shesamma Consequences of Coercion:1. Consent is not free 2. Contract is voidable • Person who gave consent under coercion can avoid or cancel the contract Undue Influence:- Consent is induced by undue influence when relationship subsisting between the parties are such that one is in a position to dominate the will of another & uses that position to obtain unfair advantage over the other. Relationship where undue influence may be presumed:1. Where there is real or apparent authority e.g. master & slave, father & son.

2. When the parties stand in fiduciary relationship. E.g. CA & client, lawyer & client, guru & disciple 3. Where mental capacity is temporarily affected on account of age & disease e.g. doctor & patient Consequences of Coercion:1. Consent is not free 2. Contract is voidable Coercion Use of physical force Violent Not required Third parties can exercise Undue Influence Use of dominant force May not be violent There must be relationship Only by parties under relationship

Meaning Nature Relationship Who can exercise

Misrepresentation:1. False statement by a person who believes it to be true 2. Breach of duty without intention to deceive, giving unfair advantage 3. Causing however innocently, party to make a mistake regarding subject matter of contract e.g. Rex v/s Kylsant Effects of Misrepresentation:1. Consent is not free 2. Contract is voidable 3. Person who gave consent can cancel the right of cancellation / rescission • Person must have depended • Cancellation must be within a reasonable time • Person should not have affound the contract or taken benefit of the contract Fraud:- Means & includes any of the following with intention to deceive 1. False statement by a person who does not believe it to be true 2. Active concealment of facts 3. Promise without intention to perform 4. Anything fitted to deceive 5. Anything which law may declare to be fraudulent Mere silence is not fraud, unless there is duty to speak Negligence is no fraud e.g. Derry v/s Peek Misrepresentation No intention to cheat Person making false statement does not know statement is Fraud There is intention to cheat Person making false statement does know statement is false

Intention Knowledge of false statement

Claim for damages

false No claim for damages available

Claim for damages available

Mistake:- Error or erroneous state of affair. When a party intending to do one thing, by error, does something else. LAWS Mistake of Law Indian Law (Ignorence of law not excused) two exceptions Identity of person contracted with Contract becomes void e.g. Cundy v/s Lindsay Agreements expressly declared to be void:1. Agreement with parties incompetent to contract 2. Contract without consideration 3. Contract with unlawful consideration 4. Contract with unlawful object 5. Contract with mutual mistake of fact 6. Contracts in restraint of marriage Nature of contract signed Foreign Law (Treated as mistake of fact) Mistake of Fact Bilateral Unilateral (Both parties are (Only one party at at mistake – Void mistake – Contract Contract) isn’t void)

7. Contracts in restraint of trade:- Any agreement which takes away the freedom it would amount to restraint of trade/void. Reasonable Restrictions Sale of Goodwill Contract Partnership agreements Trade/Business Consideration Service

8. Contracts in restraint Legal Proceedings o Right to seek legal remedy – if refused o Agreement where period of limitation is reduced o Exception – Reference to arbitration

Void

9. Contracts the meaning of which is uncertain 10. Contracts by way of Wager 11. Contracts contingent on uncertain event when event becomes impossible 12. Contracts to do impossible things Agreement by way of Wager:Betting / Expenditure Agreement:- Promise to pay or money’s worth if an uncertain event turns one way & if the event turns otherwise, person will receive instead of paying. Uncertain Transactions which are not wagers:• Lottery • Cross word puzzles – games • Horse racing – Sports event • Stock exchange trading – Investment Science • Insurance – socially beneficial Agreement to impossible acts (void):Contingent Contracts:- Contract to perform or not to perform if an uncertain future event collateral to the contract does or does not happen.

Q. Rules relating to enforceability of contingent contract 1. Contract contingent on happening of an event – • Such contract cannot be enforced until the event takes place • If the event becomes impossible contract is void

2. Contract contingent on non-happening of an event – such contract cannot be enforced until it is clear that the event shall never take place 3. Contract contingent on future behavior of an individual – event shall be considered impossible if a person behaves in such a way that he cannot come back to the original position 4. Contract contingent on happening of an event within a specified time – Such contract cannot be enforced until the event takes place within a specified time 5. Contract contingent on non-happening of an event - such contract cannot be enforced until it is clear that the event shall never take place within a specified time 6. Contract contingent on impossible events Quasi Contracts:- Circumstances in which there is no offer, no acceptance or no formal contract but law enforces duty. This duty is as good as contract (as if contract was signed) • Based on Principles of Equity & Justice • No one shall be permitted to be unjustly enriched at the expense of another Q. Why should law impose duty? Circumstances in which law imposes duty:• • • • • Reimbursement of amount spent towards necessaries supplied to a person incompetent to contract Reimbursement of payment due from someone else but person paying is interested in such payment Reimbursement of act done or service rendered non gratuitously, not out of charity & on commercial terms Responsibility of finder of goods – a person who finds goods belonging to another and takes them into his custody is placed with responsibility of a bailee The article delivered price paid under coercion or mistake

Discharge of Contract:- Contractual relationship comes to an end & nothing remains the same 1. By Performance • Actual • Attempted 2. By Agreement • Novation – New agreement is substituted in place of old • Alteration – Existing agreement is modified • Rescission – Right to cancel agreement • Remission – Accepting less than in agreement in final settlement • Merger – Right to receive & right to pay both come in the same hands • Waiver – Withdrawal of contractual terms 3. By Operation of Law

• Death • Insolvency • Merger 4. By Impossibility of Performance • At the Time of Contract – Void • Subsequent i. Permitted as excuse  Distribution of subject matter  Outbreak of war  Change of law  Change of state of affairs ii. Not Excused – Difficult to perform 5. Breach of Contract • Actual Breach of Contract • Anticipatory Breach of Contract

Breach of Contract:- Contractual obligations not carried out in agreed manner. Actual (On due date of Anticipatory (Before the actual due date intention not to perform is performance) communicated) The other party can The other party can wait till actual due date treat this communication as breach of contract on the date of receipt of communication We can perform on due If we fail it will be date (alternative breach of contract on arrangement) actual due date Consequences of Breach of Contract:Suit for Damages Suit for Specific Injunction Quantum Meruit (Estimate of monetary Performance Court order restricting - As much as is loss suffered on the parties merited account of non - Where contract performance) is abandoned or Normal – Arising out cancelled of normal course of - Contract

business Special – Parties had estimated or convisaged Exemplary – Puritive – by way of punishment Nominal – Taken but in recognition of rights of the party

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becomes void When contract is voidable & party decides to cancel In the mean time part of the contract is already performed payment is required to be made to the extent of performance

Guidelines for determining damages:- Damages to be on account of proximate cause & not remote cause e.g. Headley vs Baxandle - Damages must arise out of & during the normal course of business - Person claiming damages must show his sincerity in mitigating the losses - Amount of damages claimed can never exceed the actual loss suffered

Companies Act
Company:• Association of person • Registered under the companies act 1956 • By contributing to capital which is • divided into shares • which are transferable • & with limited liability • having perpetual existence • common seal • & being an independent / artificial juridical person • can own, posses, dispose of property • can sue & be sued Essential features of Companies Act:1. Association of person registered under the act having separate legal entity – the company has separate legal entity different from members e.g. Solomon vs. Solomon & Company Ltd.

2. Limited Liability – Liability is limited to extent of uncalled / unpaid amount of shares 3. Transferability of Shares – Shares of the company are transferable & members can sell them any time when they want. A person can cease to be a member whenever he desires to quit 4. Perpetual Existence – Company never dies except through due process of law 5. Common Seal – Seal is signature of a company 6. Property can be purchased in the company name. Company can own, posses / dispose of the property 7. Can Sue – Company can file suit against own name & can be sued against All 7 points together is termed as Corporate Entity / Veil which acts as a curtain Q. What do you understand by corporate veil & under what circumstances the corporate veil can be pierced? Circumstances under which corporate veil can be pierced:1. Loss Of Revenue to the State – e.g. Dinshaw Maneckji Petit vs CIT 2. Company assuming enemy character – e.g. Daimler & Company Ltd vs Continental Tyres & Rubbers Company 3. Improper Conduct – e.g. Gil Ford Motor Company vs Harne 4. Fraud 5. Statutory provisions:• Membership is reduced below minimum & business is carried on for 6 months or more then all the members are personally liable • Misdescription of Name • Misfeasance Proceedings – Criminal breach of trust Types Of Companies:Types of Companies On the basis of Statute(act) Companies formed under special charter – East India Company Co-formed under special statute act – RBI Co-Registered under Liability companies act – Reliance Ltd. Capital Contribution

Company with limited Liability Company with unlimited liability – Kotak Mahindra Capital Company With Share Capital May not have share capital – Liability limited by

guarantee(Indian Institute of Bankers) Number of Members Public Ltd Marketability Company – of shares Min 7 & Max Unlisted Listed ∞ (no upper (Closely limit) Held) Private Ltd Company – Min 2 & Max 50 (Excluding present/past employees who are shareholders) Basis of Control Holding Company - which controls appointment of majority of directors in other company - which holds majority of shares of other companies - Subsidiary of Subsidiary is subsidiary of holdings Subsidiary Company Basis of Government - Audited by involvement – Government CAG(Comptroller & Company Auditor General of India) - Annual report is placed before the parliament - 51% of capital is held by government(Central, State, Other Govt. Co. – PSU’s if registered under companies act) Geographic Parameter Foreign Companies (All MNC’s) (Place of Incorporation) • • • Face Value – As may be issued by the company as Re. 1, 5, 10, 100. Book Value – (Paid up Capital + Reserves & Surplus – Accumulated Losses) / No. of shares issued Market Value – As quoted in the Market

Incorporation of a Company Promoter:- One who promotes the company. One who conceives the idea of setting up business in the form of a company.

Name:• Application for availability of name • Form No. I A • Payment fee of Rs. 500/• Suggest the name by which he would like his company to be incorporated with 3 other alternative names Names which are not Available / not Desirable • Names of existing companies • Phonetic Similarity e.g. J.K. Industries LTD. & Jay Kay Industries • Cannot use international bodies / national bodies • Relevance of business name & business should be maintained • Relevance between name & size of authorized capital NAME AUTHORISED CAPITAL If Coporation 5 crores International / Globe / Global / Asia / Asiatic / 1 crore Intercontinental Above words used in between name 50 lacs Hidustan / Bharat / India as first name 50 lacs Above words used in between name 5 lacs Industry / Udyog 1 crore Enterprise / Products / Manufacturing 10 lacs Documents to be submitted for Registration 1. Memorandum Of Association To be stamped according to the value of authorized 2. Articles Of Association capital 3. List of Directors on Form 32 (In Duplicate) 4. Consent of persons who have agreed to become Director on Form 29 (only in respect of Public LTD Companies) 5. Declaration that provisions of Company Law have been complied with Form I (signed by Director / Advocate / CA / PCS) 6. Particulars of registered office on From 18 7. Registration Fee Certificate of Incorporation • Issued by Registrar of Companies (ROC) • on satisfying that requirements of company law have been complied with • Conclusive evidence as regards i. Registration of Company ii. Compliance to Company Law • Birth certificate of Company – Corporate features become operative from this date

• •

If the company is Private LTD Company then it can commence its business immediately on incorporation If company is Public LTD Company then it has to obtain additional certificate – Certificate of Commencement of Business

Certificate of Commencement of Business • Company must have to raised minimum subscription to commence its business Minimum Subscription – Is the amount which in the opinion of Directors of the Company sufficient to commence the business In respect of IPO / Subsequent public offer – Minimum subscription is 90% of the amount of public offer of an issue of shares (if minimum subscription is not raised entire application amount is to be refunded) • Approval from the stock exchanges at which the shares of the company are proposed to be listed must be obtained (If stock exchanges refuse listing, the application amount will have to be refunded) • Directors should have taken & paid qualification shares if any • Audited receipt & expenditure account since incorporation • Declaration by Director that Company Law has been complied with Memorandum Of Association (MOA) • Character / Constitution of the Company • Fundamental Document Contents of MOA Q. Discuss significance of object clause in MOA & Doctrine of ultra vires vis-à-vis the object clause 1. Name Clause – Name of the Company is ____________________ 2. Registered Office Clause – The registered office of the company is located in the state of _____________________ 3. Object Clause – • Main objectives the company will pursue on its incorporation • Objects ancillary to main objects • Other objects * Need for Object Clause – • Positively Speaking – Object Clause specifies the areas of operations in which the company will deploy its funds • Negatively Speaking – Company will not deploy its funds in the areas beyond what is stated in the object clause • Comfort of investors / members • Creditors Anything beyond the object clause is ultra vires

• Ultra Vires contract is invalid • Company is not bound • Directors may incur personal liability 4. Liability Clause – e.g. Asbury Railway Carriage & Iron Company vs Riche. Liability of members of the company is limited 5. Capital Clause – Specifies the maximum amount company is authorized to raise e.g. Authorized Capital of the company is Rs. 50 crore divided in 5 crore equity shares of Rs .10 each 6. Subscription / Association Clause – Names, Addresses, Undertaking to the shares, Signature duly witnessed Alteration of Memorandum Of Association 1. Change of Name – Compulsory Voluntary • Where existing company object the name to • When the members of the company want similar / identical to change - availability of new name to be checked • ROC to issue order up - First show cause notice - approval of members to change name at - Hearing AGM / EOGM - Order - File copy of Resolution with ROC - ROC to issue fresh certificate of Incorporation with new name - Newspaper Advertisement 2. Change of Registered Office – - Change of office from one area to another within same town  First decision at meeting of Board of Directors  Board resolution / record of decision to be filed with ROC  Form 18 for change of address to be filed with ROC  Advertisement - Change of office from one town to another within same state  First decision at meeting of Board of Directors  Approval of members with special resolution (3/4th of members present & voting) at AGM / EOGM  Form 18 for change of address to be filed with ROC  Advertisement - Change of office from one state to another  First decision at meeting of Board of Directors  Approval of members with special resolution (3/4th of members present & voting) at AGM / EOGM  Form 18 for change of address to be filed with ROC  Application to CLB at the Regional Director of Zone for approval

 Publication of hearing before CLB  Inviting objections (from state government, workers or creditors)  Order will be issued approving change of registered office  Filing of CLB order with ROC  Advertisement 3. Change of Object Clause – • Why Change of Object Clause - New Technology - New Products / Services which could be simultaneously undertaken - Amalgamation / Merger of different companies with objectives Take Over / Acquisition Merger / Amalgamation Gujarat Ambuja ACC with majority Indian Rayon, Indo Gulf Fertilizer & Birla shareholding of ACC Finance became Birla Nuo Cancellation of any objects • Procedure – Decision by Board Of Directors Approval of Members at AGM / EOGM – by passing special resolution for amending object clause Approval to be obtained from ROC  Advertisement inviting objections if any  Hearing if required  ROC will give approval  ROC to give certificate approving change in object clause 4. Liability Clause – never amended 5. Capital Clause – can be changed / amended Procedure for change in capital clause i. Decision by Board of Directors ii. Approval of members at AGM / EOGM a. By passing ordinary resolution – simple majority if there is power to amend capital clause in the AOA b. By passing special resolution – if there is no provision of alteration of capital clause in the AOA, 75% majority in favor of change iii. Filing with ROC Form no. 5 duly stamped & additional registration fee 6. Association / Subscription Clause – Not Ammended Articles of Association (AOA) Q. What do you understand by Doctrine of Indoor Management? Discuss significance & relevance of AOA • • Bye Laws / Rules & Regulations for company law requirements Internal Procedure to be followed by a company

While MOA is compulsory for all the companies, AOA is optional for public LTD companies. In case of Public Ltd company does not prepare AOA, Table A (Model Bye Laws / AOA for Public Ltd Companies) of Schedule II of Companies Act will apply

Contents of AOA 1. Procedure relating to • Share Capital • Issue of share certificate • Issue of duplicate share certificate • Transfer Shares • Transmission • Forfeiture of shares 2. Matters relating to • Meetings of the members • Types of meetings • Procedure at meetings  Issue of notice  Quorum requirement  Proxy  Voting  Resolution 3. Provisions relating to Directors • Meeting of Directors • Powers of Directors • Powers of Chairman / Managing Director • Borrowing Powers of the company • Accounts & Audit • Seal 4. Significance of AOA • Bye Laws / Rules governing internal company law requirement • Doctrine of Indoor Management Doctrine of Constructive Notice • Office of ROC is Public office • Whatever is filed with ROC can be inspected by the public by paying inspection fee • Information filed with ROC is deemed to have been given to public • Every person who deals with company is presumed to know whatever is filed with ROC but nothing beyond this. Therefore a person can presume that company has complied with all the procedural requirements • He is not required to investigate whether the company has in fact complied with such requirements e.g. Royal British Bank vs. Turquand

Limitations to the Doctrine of Indoor Management • Knowledge of Irregularity • Forgery • Circumstances giving rise to Suspicion Raising The Resource for the Company Short Term - Working Capital facility from bank - Sundry Creditors - Outstanding Expenses - Public Deposit maturing within one year - Commercial Papers - Inter-corporate Loans - Factoring Limit Long Term • Capital – Equity & Preference • Debentures (Bonds) • Term Loans • Public Deposit maturing after 1 year (Max. 3 years)

GDR – Global Depository Receipt – Shares not issued, only certificate issued in other than dollar, listed on foreign exchanges ADR – American Depository Receipt FCCB – Foreign Currency Convertible Bonds ECB – External Commercial Borrowing Raising Long Term Funds through Equity • How much / what amount of Equity • Size of Project  Detailed Financial plan with focus on its predetermined activity with specified investment ensuring desired monetary return

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Detailed Project Report – Details of investment on land, building, plant & machinery, furniture & fixtures, installation, contingency provision, margin for working capital Means of Finance – Capital 30 crores (Equity – 10 crores; IPO through prospectus & Debt – 20 crores)

IPO – Through issue of Prospectus Legal Aspects 1. Companies Act – Provisions relating to prospectus 2. SEBI Act 1992 – Disclosure for SEBI guidelines 3. Securities Contract Regulation Act – Listing guidelines of exchange

Coordination can be done by Merchant Bankers (Tie up Means of Finance) Entry Norms Of SEBI Only Public Ltd companies have access to capital market - Track record of dividend payment in 3 out of 5 preceding financial years - Net worth of the company should be not be less than 1 crore in last five financial years - IPO cannot exceed an amount more than 5 times its net worth -

Newly incorporated company / in Greenfield project Project has to approved by Financial Institution / Banks Approving Authority must have participated to the extent of 10% There should be compulsory market making for 2 years

Draft Prospectus Primary Responsibility – Merchant Banker companies Secretarial / Finance Department to provide necessary output • Contents of Prospectus – Companies Act (Section 62) • It should also follow disclosure norm of SEBI – for investors to take informed decisions • Also keep in mind listing guidelines of the stock exchanges where the shares are prepared to be traded in 2 parts Part 1 (General Information) • Name • Registered office • Main objectives of the company • Authority for the issue • Terms of issue (no. of shares, Price – Fixed price or Market price to be discovered through book building process). Payment to be made on application or allotment. Issue Program – Issue Opens on, Issue Closes on, Earliest Closing • Lead Managers or Co-Managers • Bankers to the issue • Brokers to the issue • Registrars for the issue • Underwriters for the issue (optional) All these agencies have to give their written consent to be enclosed & filed with prospectus when it is filed with ROC Part 2 • Background of the Company & the management

• • • • • • • • • • • •

Board of Directors – Names, Addresses, educational qualification & experience as well as details of other directorship Other group companies under the same management Objectives of the issue Details of the project – cost of project, means of finance, availability of raw material Utilities Marketing / Selling Arrangements Schedule of implementation Outstanding litigation Stock exchange data Risk factors affecting the business Management perception in respect of risk factors Audited financial performance for last 5 years

Draft prospectus to be filed with • SEBI • Stock exchange where shares are proposed to be listed After SEBI clearance prospectus is filed with ROC Red Herring Prospectus • Where price / no. of shares issued by the company is not mentioned in the prospectus • Price is discovered through book building  Lead managers – lead book runners  Other members – syndicate members • Price band – (floor price – max. price are mentioned) Lead Merchant Banker prepares a research report on the company. Presentations are made before QIB’s (Qualified Institutional Bankers) called Road shows. QIB’s indicate their interest in the issue. Bids are invited. Cut off price is decided • The prospectus is filed with ROC • Basis of allotment prepared by registrar to issue • Return of allotment to be filed with ROC Self Prospectus:- Only for Banks & Financial Institution • Filing of issue of prospectus which will be issued for 1 year • Details of shares subscribed & allotted are filed with ROC Authorized Capital:- Maximum amount the company is authorized to raise as per capital clause of MOA Issued Capital:- Number & amount of share capital issued to the public Subscribed Capital (90%) & Paid Up Share Capital:- Shares subscribed by the investors (which may not be less than 98% of issue amount)

Paid Up = Subscribed Capital less calls in arrears Shares Equity (3) Preference (1) Those shares which are not preference shares Which can enjoy preferential rights (risk capital) • Dividend • No assurance as to return of investment • Redemption • No certainty as to return on investment

Equity Voting Rights

Without Voting Rights (not more than 25% of paid up share capital) Equity shares with differential voting rights

Preferential Rights:1. Cumulative / Non Cumulative – Preference shares where the right to dividend is allowed to be accumulated even if company has not declared dividend & the dividend will be payable in the year when the company has adequate profit are called cumulative preference shares & preference shares where dividend is not allowed to be accumulated are called non cumulative preference shares. 2. Participative / Non Participative – Participative Preference shares are those which are allowed to participate in share of profit after payment of dividend on equity from out of surplus profit left. Non Participative Preference shares are not entitled to any participation in surplus profit. They are entitled to agreed dividend 3. Convertible / Non Convertible – Convertible Preference shares are those which are converted into equity. Non Convertible Preference Shares are those which are not converted into equity 4. Redeemable / Irredeemable – Redeemable Preference shares are those which will be redeemed / repaid within max period of 10 years. Irredeemable Preference shares cannot be issued 5. Cumulative Convertible Preference shares – Right to dividend is accumulated. Preference shares are converted into equity Shares issued at Premium shares issued at value higher than the face value share premium can be utilized for • writing off Shares issued at Discount - Rs. 10 shares issued at Rs .9 per share company when issues shares at a price less than the face value Shares issued at Buy Back Shares Par Shares issued at Market price is related face value price multiples of EPS (Earnings / No. of shares) - company can buy back 25% of its

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preliminary expenses • Bonus issue of shares • Expansion Rs. 10 share issued at Rs. 120 (Share Capital – Rs.10 & Share Premium Rs. 110)

Not more than 10% unless approved by central govt. Approved by members by special resolution Shares forfeited are issued at discount

paid up capital - buy back from • accumulated profits • reserves • proceeds of previous issues of shares there must be provision in AOA - buy back can be by • purchase of odd lots • open market purchases • reverse book building • shares tendered under buy back must be cancelled within 7 days

Meetings of Members:Statutory Meeting - held once under the act hence statutory - To be held only by Public Ltd Company. Pvt. Ltd Company not to hold this meeting - held once in life time - it is held between 1 – 6 months from the date of obtaining certificate of commencement of business AGM - Can be held by Public / Pvt. Ltd company - Held every year - With 6 months from end of accounting year - One meeting per calendar year - 1st meeting to be held within 18 months from the date of incorporation - between 2 AGM’s gap not more than 15 months - Obtain approval of ROC if gap exceeds 15 months EOGM - Can be held by Public / Pvt. Ltd company - Can be held any time when the matter is urgent - It cannot wait till next AGM - Any meetings of members other than AGM are EOGM

Agenda Statutory Meeting AGM EOGM

Consideration of Statutory Report - Report explaining the progress made since incorporation of the company - Receipts & payment a/c - Shares issued & allotted - Important contracts signed by management - To be filed with ROC

Consideration of Statutory Consideration Report Report - P&L a/c - Balance sheet - Auditors report - Directors reports - Corporate governance report

of

Statutory

Procedure to Conduct meetings of members • Authority to convene a meeting – Board of Directors – Every general body meeting must be presided by Board meeting • Notice – Specify time (working time), Day (Working Day – not a Sunday or public holiday – Negotiable Instrument Act), Date & place of meeting (registered office or other place in the town in which registered office is located, 21 day clear notice – date of posting & date of receipt to be excluded under certificate of posting) • Agenda for Meeting – For AGM agenda is divided in 2 parts 1. Ordinary Business • Approval of P&L, B/s Passed by ordinary resolution • Declaration of dividend • Appointment of auditor • Appointment of Directors 2. Special Business • anything other than ordinary business • explanatory statement should be given in the notice • reason why business is taken up • disclosure of interest of any director • At EOGM – all business matters are special business requiring explanatory stand Procedure to conduct meetings of members on the date of meeting 1. Chairman – the designated chairman to preside over the meeting. If there is no designated chairman, the members to choose one of them as chairman of the meeting 2. Quorum – Minimum no. of members required to be present at the meeting a. As per provisions in the article b. If articles are silent, in case of Public ltd company 5 persons, in case of Pvt ltd company 2 persons shall form quorum c. Quorum must be present within half an hour from the scheduled time of commencement of meeting

3.

4.

5.

6. 7.

d. If quorum is not present within half an hour, meeting is adjourned to next week, same time, same place e. If at the adjourned meeting quorum is not present, persons present shall form the quorum Proxy – a member is entitled to attend the meeting or depute a person to attend on his behalf by executing instrument of proxy a. Proxy need not be a member b. Proxy form should be lodged with the company 48 hours before the scheduled time of commencement of meeting c. Proxy may be open or with specific direction to vote or against the resolution d. Proxy is cancelled if member attends the meeting e. Proxy cannot speak, but vote at the meeting Movement of Resolution a. Resolution is proposed by 1 of the members b. It is seconded by another member c. Decision on the resolution – members can raise questions – chairman to answer d. Report of auditor is read at the meeting Chairman to ascertain the sense of the meeting (whether the resolution has been passed or not) a. Voice vote - Ordinary resolution requires simple majority b. By show of hands - Special resolution requires 3/4th majority c. By division d. By ballot e. By poll Minutes – record of resolution passed is written in minute book to be signed by chairman of the meeting Special resolution are passed to be filed with ROC Special Requires 3/4th majority Amendment in MOA Amendment in AOA Appointment of MD Remuneration of MD Appointment of sole selling agent Can be done by postal ballot for listed companies Resolution requiring special notice - Removal of a Director - Removal of an Auditor

Resolutions Ordinary -

Simple majority Ordinary business of rule is passed by simple majority -

Power to manage the company given to Board of Directors – who are responsible for day to day management Members – Contribute to the capital of the company & control the company by executing voting rights at meeting

Appoint Auditors to check & control performance of company which is managed by directors Report to members

Q. Discuss the provisions relating to qualifications, appointment, powers & removal of directors of the company under companies act? Director – Director means a person who holds position of a Director by whatever name called 1. Agent of the Company – Director functions as an agent of the company acting on behalf of the company 2. Trustees a. of the members for the property owned by the company b. must observe at most good faith (trust & confidence) c. act in the benefit of the company & not for personal profit 3. Managing Organ – Through which the company operates / functions 4. Professional Employees – Director has to be an individual & not an incorporated body Appointment of Directors No. of Directors – minimum in case of Public ltd company – 3 & Pvt. Ltd Company – 2. Maximum no. as may be permissible in AOA 1. First Directors – Names in AOA. In case articles are silent all the subscribers to MOA / AOA shall be deemed to be the first director. These directors shall held office till AGM 2. Subsequent Directors – by the members at AGM. 1/3 rd of the directors can be non repairable & 2/3rd of the directors will be liable to retirement. Of this 2/3rd ,1/3rd will retire every year. Retiring directors can offer themselves for re-appointment. Reappointment by members at AGM 3. Directors appointed by Board of Directors a. Appointment of additional director i. BOD can appoint additional director (not exceeding the max. no. provision in AOA) to take benefit of expertise as well as experience of any individual ii. Such director will hold position till next AGM. At next AGM he may be re-appointed b. To fill up casual vacancies

i. On account if vacancy arises, BOD can appoint a director to fill up the vacancies ii. Death, resignation or Disqualification iii. Such director to hold office till next AGM c. Alternate directors - When the director leaves the state in which registered office of a company is located i. For a period more than 3 months ii. Board may appoint alternate director to attend the Board meeting in absence of original director iii. The alternate director attends Board meetings in absence of original director 4. Appointment of directors by outsiders – There can be an agreement by the company with a. Its lenders or b. Creditors Whereby its nominee of lenders / creditors may be appointed in the Board c. Such directors are not liable to retirement 5. Power of Government / NCLT (National Company Law Tribunal) to appoint director on the Board of the Company a. Where there are complaints about mismanagement of the company & b. Investigation have been carried out c. Or complaints before NCLT about the affair of the company being conducted against the interest of the members. NCLT / Government can appoint Director on the Board of the Company d. These directors are not liable to retirement Qualifications – Qualifications if provided in AOA the director will have to take up qualification shares within 2 months of appointment. For shares upto face value of Rs. 5000/Disqualifications – Person is disqualified 1. if he is of unsound mind 2. undischarged insolvent 3. he applies for declaring himself insolvent 4. he has been sentenced to imprisonment for a period not excluding 6 months, for offence involving moral turpitude & a period of 5 years has not expired 5. he is director in a company a. company has defaulted to file annual return & balance sheet for a consecutive period of 3 years with ROC b. Company defaults in payout of interest / principal of deposits from public Max. no. of companies - a person can be director in max. 15 companies excluding Pvt, ltd Companies Vacation of office of Directors 1. on attracting disqualification 2. if a director fails to attend 3 consecutive Board meetings without leave of absence 3. if director fails to take qualification shares within 2 months

4. if he fails to pay call money on shares within 6 months Removal of a Director 1. Removal by the member at AGM a. By not reappointing retired Director b. By appointing someone else in place of retiring director c. By passing a resolution removing a director 2. Removal of Director by NCLT Powers of a Director 1. General Power – General Powers to be exercised keeping in view a. Provisions of companies act b. AOA c. Contract with the company i. Directors have general power to do all those things which a company is empowered to do 2. Powers which can be exercised at Board Meeting – there has to be board meetings (min. 4 meetings in a year, 1 every quarter) a. Power to make calls on shares b. Power to issue debentures c. Power to borrow d. Power to make investment e. Power to make political donations – total Rs. 50000/- or 5% of net profit whichever is higher 3. Powers which can be exercised with consent of members a. To sell any undertaking (division) of the company b. To borrow in excess of paid up capital & reserves c. To amalgamate / merge other company / with other company d. To appoint sole selling agent e. To amend MOA / AOA f. To fix remuneration of MD Account & Audit – Books of a/c / registers to be maintained by the company • Assets of the company • Liabilities of the company • Register of sales • Register of purchases for manufacturing operations • Registers for o Raw material o Labor o Utilities o Other expenditure P&L & B/S as per schedule VI

Dividend to be paid – to be paid only out of current profits 1. provided for depreciation 2. rules relating to transfer of profits to reserve Profit Transfer to Reserve 10% - 12.5% 2.5% 12.5% - 15% 5% 15% - 17.5% 7.5% Above 17.5% 10% 3. a/c’s to be audited by the auditors Q. Discuss provisions relating to appointment, qualification & powers of auditors of the company under the companies act 1956? Audit under the companies act is statutory audit. Every company under the companies act is required to have its accounts audited by the auditor Auditor • CA – member of ICAI having certificate of practice & • He is not in the full time employment • Not indebted to the company for amount exceeding Rs. 1000/• Should not be related to Directors Powers of Auditor 1. Power to have access to all documents – agreements / contracts / minutes 2. Power to visit / verify / check – properties / assets of the company at all locations (plant, branch. HR) 3. Power to obtain information / explanation from the employees of the company 4. To report to the members a. Whether the company has maintained the required books of a/c or registers b. Whether the company has been complying with accounting standards c. In case of variation point out the impact on P&L of the company Certify That 1. P&L a/c gives true & fair view of profit & loss for the year 2. Balance sheet gives true & fair view of financial position of the company as on a particular date a. Auditors to qualify the report where there are irregularities b. Directors to reply to qualifying remarks of auditors

NEGOTIABLE INSTRUMENTS ACT 1881 Transferable documents which are used for transfer of movable property. Negotiable instrument means Promissory Note, bill of exchange & Cheque Q. Define promissory note & differentiate it from bill of exchange & a cheque Promissory Note • Instrument in writing • Not being a bank note or currency note

• • • •

Signed by the maker Containing an unconditional undertaking Ta pay certain sum of money only To a certain person on his order 25/11/2005 On demand I promise to pay Rupesh Pandey sum of Rs. 50000/- for value received To Rupesh Pandey Signed by maker / promissor

Bill of exchange • Instrument in writing • Signed by the maker • Containing an unconditional order • Directing a certain • To pay a certain sum of money only • To certain person or his order 25/11/2005 On demand pay Rupesh Pandey sum of Rs. 50000/- for value received To Drawee (who has been directed to pay) Signed by maker / promissor

Cheque Bill of exchange drawn on a specified banker Bank of Baroda Pay Rupesh Pandey In Words 25/11/2005 Figures_________ Signed by maker / promissor

1. Parties Involved

Promissory Note Bill of Exchange Cheque 2 parties – maker who 3 parties 3 parties promises to pay & • Drawer / maker • Drawer – payee (promise) who – who draws maker of a collects payment the bill cheque • Drawee – on • Drawee – Bank whom the bill

2. Nature relationship

of Maker – Debtor Payee - Creditor

3. Nature of liability

4. Acceptance 5. Crossing 6. Stamp Duty 7. Notice of dishonor

Drawer – Creditor visà-vis Bank but Debtor vis-à-vis Payee Drawee – Bank Debtor Payee – Creditor Maker of promissory Drawee – Primary Bank – Primary Liable note is primararily Liable Drawer – Secondary liable Drawer – Secondary Liable Liable Not Required Acceptance by drawee Not Required required N.A. N.A. Only cheque are required to be crossed Attracted Attracted Not Required Not Required Required Bank issues non Payment memo N.A. N.A.

is drawn or to whom direction to pay is given • Payee - Who collects the payment Drawer – Creditor visà-vis Drawee but Debtor vis-à-vis Payee Drawee – Debtor Payee – Creditor

Payee - Who collects the payment

8. Special Provisions a. Drawee in case of N.A. need b. Acceptance for N.A. Honor

Q. What do you mean by crossing of cheques? Discuss various types of crossings & their significance? Meaning – When a cheque bears across in face two parallel transverse lines with or without the word • And company • & company • not negotiable Cheque is said to be crossed Significance – crossing is an instruction to the bank not to pay cash across the counter Types of Crossing General Crossing Special Crossing Restrictive Crossing

When the cheque bears across its face two parallel lines with the name of a particular banker then the cheque is said to have been specially crossed to that bank Significance – Banker to whom the cheque is specially crossed Is the only authorized banker to collect the payment

When the cheque bears across its face two parallel lines with the words “a/c payee only” or “payees a/c only” cheque is said to be restrictively crossed Significance – Cheque cannot be deposited in any other a/c of payee

Significance of cheques crossed with the words not negotiable – words not negotiable do not prohibit the transferability of the amount of a cheque but it is a warning that the title of the person receiving the cheque will not get better than that of the person from whom he gets it Negotiations – Process whereby the amount mentioned in Negotiable Instrument is transferred to another person By mere delivery Endorsement & delivery If negotiable instrument is drawn payable to Negotiable instrument drawn payable to order bearer Q. What do you understand by endorsement? Discuss various types of endorsements & effect thereby by giving suitable examples? Endorsement – Instruction to transfer the amount of negotiable instrument to another person Person who gives the instrument – Endorser Person in whose favor endorsement is given – Endorsee First Endorser – Payee Allonge – Additional slip attached to check for endorsement Types of Endorsements 1. Endorsement in Blank – where payee or endorser merely signs the instruments at the back for the purpose of transfer amount of Negotiable Instrument. Effect – order instrument becomes bearer instrument & amount can be paid by mere delivery 2. Endorsement in Full – when payee or endorser gives full instructions as to whom the amount of Negotiable Instrument is to be transferred. Effect - The person in whose favor endorsement is made is entitled to collect the amount of Negotiable Instrument or further endorse 3. Restrictive Endorsement – when payee or endorser restricts further endorsements are restricted. Effect – Endorsee will have collect the amount by depositing the Negotiable Instrument in his a/c 4. Conditional Endorsement – when payee or endorser attaches conditions to transfer of amount of Negotiable Instrument. Effect – Endorsee will have to comply with terms of endorsement

5. Partial Endorsement – when payee or endorser transfers part of the amount of Negotiable Instrument. Partial Endorsement is invalid. Exception – Incase where Bill of Exchange contains a note that part amount is already paid Negotiable Instrument will stand reduced to that amount 6. Facultative Endorsement – when payee or endorser forgoes his right or increases his responsibility. Effect – Endorser continues to be held responsible even if notice of dishonor was not served on him Bill of Exchange drawn by Ramesh Sinha Drawee – Amit Payee – Angad 1st Endorsee – Abbas 2nd Endorsee – Shardul 3rd Endorsee - Asif 7. Endorsement Sans-resource – when payee or endorser makes further endorsement without having any reference to himself. Effect – The endorser is not available for any reference / remedy 8. Endorsement sans frais – when payee or endorser transfers without his availability to contribute towards expenses. Effect – Endorsee cannot depend on contribution on endorser Q. Define Holder in due course & discuss privileges of holder in due course Holder in Due Course A Drawer B Drawee C Payee D Endorsee1 E Endorsee2 F Endorsee3

Holder – A person in possession of Negotiable Instrument in his own name. entitles to receive the amount Holder in due course – A person who became • Possessor of Negotiable Instrument payable to bearer • Payee or endorsee of Negotiable Instrument payable to order • For consideration • Before maturity • Without having sufficient cause to believe that • Defect existed in the of the person from whom he derived it Privileges of the Holder in due course 1. All the previous parties are liable to HIDC 2. HIDC can file suit for recovery in his own name against all the previous persons 3. Drawee cannot refuse payment to HIDC on the grounds that the bill was accommodation bill – Bill drawn without consideration

4. Drawee cannot refuse payment on the ground that bill is fictitious – where either drawer or payee are not existing 5. Drawee cannot refuse payment on the ground that bill is inchoate – Bill which is stamped & signed but incomplete / blank in respect of other details 6. Holder in due course is entitled / authorized to fill up / complete inchoate stamped instrument 7. Drawee cannot refuse payment on the ground that bill is unconditional / escrow – where bill has been drawn & accepted subject to certain conditions 8. Once the Negotiable Instrument passes through the hands of HIDC it gets cleansed of all its defects 9. Capacities of previous parties cannot be questioned 10. Every holder is pressured to be holder in due course

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