Name: Deepak Singh Bohra

Roll No: MBE008

Centre for Management Studies

MBA-Executive
Semester-IV (2020)
End-Semester-IV Examinations, 2020
Online Assignment-I
Subject: Legal Environment of Business
Paper Code: MBA (Exec) CP- 402

Q1. What are negotiable instruments according to negotiable instruments

act, 1881? Discuss the importance of negotiable instruments in the
governance of business environment with the help of decided cases/
illustrations.

Ans: Negotiable Instruments Act, 1881 is a law relating to all negotiable instruments such as
promissory notes, bills of exchange and cheques.

As per definition it is "an instrument, the property in which is acquired by anyone who takes it
bona fide, and for value, notwithstanding any defect of title in the person from whom he took it,
from which it follows that an instrument cannot be negotiable unless it is such and in such a
state that the true owner could transfer the contract or engagement contained therein by simple
delivery of instrument.

Three major conditions to be met are:

The instrument should be freely transferable.

i. An instrument cannot be negotiable unless it is such and in such state that the true
owner could transfer by simple delivery or endorsement and delivery.

ii. The person who takes it for value and in good faith is not affected by the defect in the
title of the transferor.

iii. Such a person can sue upon the instrument in his own name.

The important characteristics of negotiable instruments are as follows:

I. The holder of the instrument is presumed to be the owner of the property contained in it.

II. They are freely transferable.

 III. A holder in due course gets the instrument free from all defects of title of any previous
holder.

IV. The holder in due course is entitled to sue on the instrument in his own name.

V. The instrument is transferable till maturity and in case of cheques till it becomes stale
(on the expiry of 6 months from the date of issue).

VI. Certain equal presumptions are applicable to all negotiable instruments unless the
contrary is proved.

Under the Negotiable instrument act, it recognizes only three types of instruments viz., ci
Promissory Note, a Bill of. Exchange and a Cheque as negotiable instruments. However, it does
not mean that other instruments are not negotiable instruments provided that they satisfy the
following conditions of negotiability:

The instrument should be freely transferable by the custom of trade. Transferability may be by

a. Delivery or

b. Endorsement and delivery.

The person who obtains it in good faith and for consideration gets it free from all defects and
can sue upon it in his own name.

The holder has the right to transfer. The negotiability continues till the maturity.

The Importance of Negotiable Instruments

Negotiable instruments are critical to our economy. They allow people to do business and to be
certain that they will receive money for their services or goods without the actual transfer of
cash. For example, a business can mail a check to a supplier instead of delivering large
amounts of cash. On a smaller scale, the same thing happens when you pay a bill to your
electric company with a check rather than mailing cash.

Without the predictable laws in place that protect both the payer and payee of a negotiable
instrument, our economy would not be able to function the way that it currently does.

The following points can grasp as the importance of a Negotiable Instrument.

 Negotiable Instrument is an easier means of transfer of money.

 It is easy to delivery from one place to another place.
 It helps to flourish in the business sector.
 It creates the right of property.
 It has the easy negotiability and somewhere it provides the security.
 It makes the fast transaction of money.
 It makes the security of money as well as personal security in course of the transaction
of money.
Below is one of the remarkable NI act case to review and discuss the objectives and
importance of the negotiable Instrument act 1881.

Case name: Meters & Instruments (P.) Ltd. v. Kanchan Mehta

(Ref: https://taxpublishers.in/Ency_CL/CL_Judg_Show?83020000?a0)

Case Synopsis: Dishonour of cheque for insufficiency, etc., of funds in account—Ap

peal against rejection of compounding of offences. Absence of consent of both parties--
Whether Court in its discretion closed proceedings and discharged accused--Where company
filed an application under section 147 for compounding of offences under section 138, but the
same was rejected on the ground that there was absence of complainant|s consent for
compounding of offence, but compounding of offence required consent of both parties, even in
absence of such consent, Court, in the interest of justice, on being satisfied that the complainant
had been duly compensated, could, in its discretion, close proceedings and discharge accused.-
-Complainant K filed complaint under section 138 against the company on the ground that the
company was to pay a monthly amount to her under an agreement. Therefore, the company
had given a cheque to her in discharge of legal liability, but the same was returned unpaid for
want of sufficient funds. In spite of service of legal notice, the amount had not been paid and the
company had committed the offence under section 138. Therefore, director of the company
made a statement that he was ready to make the payment of the cheque amount, but K
declined to accept demand draft. Thus, the company filed an application under section 147 for
compounding of offences under section 138, but the same was rejected by High Court on the
ground that there was absence of K|s consent for compounding of offence. Hence, the company
filed an appeal against the order.

Held: Offence under section 138 is primarily a civil wrong and Negotiable Instruments
(Amendment and Miscellaneous Provisions) Act, 2002 provides making the offence
compoundable. Further that, compounding of offence requires consent of both parties, even in
absence of such consent, Court, in the interest of justice, on being satisfied that complainant
had been duly compensated, could, in its discretion, close proceedings and discharge the
accused. Hence, the appeal was to be allowed.

Observations made by the court in this case.

1) The offence under Section 138 of the Negotiable Instruments Act is primarily a civil
wrong. The burden of proof is on accused in view presumption under Section 139
(Negotiable Instruments Act) but the standard of such proof is “preponderance of
probabilities”. The same has to be normally tried summarily as per provisions of
summary trial under the Cr.P.C. but with such variation as may be appropriate to
proceedings under Chapter XVII of the Act. Thus read, the principle of Section 258
Cr.P.C. will apply and the Court can close the proceedings and discharge the accused
on satisfaction that the cheque amount with assessed costs and interest is paid and if
there is no reason to proceed with the punitive aspect.

2) The object of the provision being primarily compensatory, the punitive element being
mainly with the object of enforcing the compensatory element, compounding at the
initial stage has to be encouraged but is not debarred at a later stage subject to
appropriate compensation as may be found acceptable to the parties or the Court.
 3) Though compounding requires the consent of both parties, even in absence of such
consent, the Court, in the interests of justice, on being satisfied that the complainant has
been duly compensated, can in its discretion close the proceedings and discharge the
accused.

4) Since evidence of the complaint can be given on affidavit, subject to the Court
summoning the person giving affidavit and examining him and the bank’s slip being
prima facie evidence of the dishonour of cheque, it is unnecessary for the Magistrate to
record any further preliminary evidence. Such a�idavit evidence can be read as
evidence at all stages of trial or other proceedings. The manner of examination of the
person giving affidavit can be as per Section 264 Cr.P.C. The scheme is to follow
summary procedure except where exercise of power under the second proviso to
Section 143 becomes necessary, where sentence of one year may have to be awarded
and compensation under Section 357(3) is considered inadequate, having regard to the
amount of the cheque, the financial capacity and the conduct of the accused or any
other circumstances.

Held That:

1. Where the cheque amount with interest and cost as assessed by the Court is paid by a
specified date, the Court is entitled to close the proceedings in exercise of its powers
under Section 143 of the Act read with Section 258 Cr.P.C.

Q2. Discuss the salient features of Indian Companies act 1956 and its
amendment in the year 2013 and the companies (amendment) bill,
2019/2020. Draw a complete outline with suitable cases.

Ans:
The Companies Act 1956 is administered by the Government of India through the Ministry of
Corporate Affairs and the Offices of Registrar of Companies, Official Liquidators, Public Trustee,
Company Law Board, Director of Inspection, etc. The Act is 658 sections long. The Act contains
provisions about Companies, directors of the companies, memorandum and articles of
associations, etc. This act states and discusses every single provision requires or may need to
govern a company. It mentions what type on companies their differences, constitution,
management, members , capital, how should the shares should be issues, debentures,
registration of charge, at the end of the act it concludes the about winding up of a company,
discussing the situations a company needs to be winded up. The ways it should be done by
volunteer or through courts.
Companies Act 1956 explains about the whole procedure of the how to form a company, its fees
procedure, name, constitution, its members, and the motive behind the company, its share
capital, about its general board meetings, management and administration of the company
including an important part which is the directors as they are the decision makers and they take
all the important decisions for the company their main responsibility and liabilities about the
company matter the most. The Act explains about the winding of the business as well and what
happens in detail during liquidation period.
Company objective and legal procedure based on the Act
The basic objectives underlying the law are:
 A minimum standard of good behavior and business honesty in company promotion and
management.
 Due recognition of the legitimate interest of shareholders and creditors and of the duty of
managements not to prejudice to jeopardize those interests.
 Provision for greater and effective control over and voice in the management for
shareholders.
 A fair and true disclosure of the affairs of companies in their annual published balance
sheet and profit and loss accounts.
 Proper standard of accounting and auditing.
 Recognition of the rights of shareholders to receive reasonable information and facilities
for exercising an intelligent judgment with reference to the management.
 A ceiling on the share of profits payable to managements as remuneration for services
rendered.
 A check on their transactions where there was a possibility of conflict of duty and
interest.
 A provision for investigation into the affairs of any company managed in a manner
oppressive to minority of the shareholders or prejudicial to the interest of the company
as a whole.
 Enforcement of the performance of their duties by those engaged in the management of
public companies or of private companies which are subsidiaries of public companies by
providing sanctions in the case of breach and subjecting the latter also to the more
restrictive provisions of law applicable to public companies.

Key Highlights of Indian Companies Act 2013

 The maximum number of members (shareholders) permitted for a Private Limited

Company is increased to 200 from 50.
 One-Person company.
 Section 135 of the Act which deals with Corporate Social Responsibility.
 Company Law Tribunal and Company Law Appellate Tribunal.

Salient features of the Companies Act 2013

a) Class action suits for Shareholders: The Companies Act 2013 has introduced new
concept of class action suits with a view of making shareholders and other
stakeholders, more informed and knowledgeable about their rights.
b) More power for Shareholders: The Companies Act 2013 provides for approvals
from shareholders on various significant transactions.
c) Women empowerment in the corporate sector: The Companies Act
2013 stipulates appointment of at least one woman Director on the Board (for certain
class of companies).
d) Corporate Social Responsibility: The Companies Act 2013 stipulates certain class
of Companies to spend a certain amount of money every year on activities/initiatives
reflecting Corporate Social Responsibility.
e) National Company Law Tribunal: The Companies Act 2013 introduced National
Company Law Tribunal and the National Company Law Appellate Tribunal to replace
the Company Law Board and Board for Industrial and Financial Reconstruction. They
would relieve the Courts of their burden while simultaneously providing specialized
justice.
f) Fast Track Mergers: The Companies Act 2013 proposes a fast track and simplified
procedure for mergers and amalgamations of certain class of companies such as
holding and subsidiary, and small companies after obtaining approval of the Indian
government.
g) Cross Border Mergers: The Companies Act 2013 permits cross border mergers,
both ways; a foreign company merging with an India Company and vice versa but
with prior permission of RBI.
h) Prohibition on forward dealings and insider trading: The Companies Act
2013 prohibits directors and key managerial personnel from purchasing call and put
options of shares of the company, if such person is reasonably expected to have
access to price-sensitive information.
i) Increase in number of Shareholders: The Companies Act 2013 increased the
number of maximum shareholders in a private company from 50 to 200.
j) Limit on Maximum Partners: The maximum number of persons/partners in any
association/partnership may be upto such number as may be prescribed but not
exceeding one hundred. This restriction will not apply to an association or
partnership, constituted by professionals like lawyer, chartered accountants,
company secretaries, etc. who are governed by their special laws. Under the
Companies Act 1956, there was a limit of maximum 20 persons/partners and there
was no exemption granted to the professionals.
k) One Person Company: The Companies Act 2013 provides new form of private
company, i.e., one person company. It may have only one director and one
shareholder. The Companies Act 1956 requires minimum two shareholders and two
directors in case of a private company.
l) Entrenchment in Articles of Association: The Companies Act 2013 provides for
entrenchment (apply extra legal safeguards) of articles of association have been
introduced.
m) Electronic Mode: The Companies Act 2013 proposed E-Governance for various
company processes like maintenance and inspection of documents in electronic
form, option of keeping of books of accounts in electronic form, financial statements
to be placed on company’s website, etc.
n) Indian Resident as Director: Every company shall have at least one director who
has stayed in India for a total period of not less than 182 days in the previous
calendar year.
o) Independent Directors: The Companies Act 2013 provides that all listed companies
should have at least one-third of the Board as independent directors. Such other
class or classes of public companies as may be prescribed by the Central
Government shall also be required to appoint independent directors. No independent
director shall hold office for more than two consecutive terms of five years.
p) Serving Notice of Board Meeting: The Companies Act 2013 requires at least
seven days’ notice to call a board meeting. The notice may be sent by electronic
means to every director at his address registered with the company.
 q) Duties of Director defined: Under the Companies Act 1956, a director had fiduciary
(legal or ethical relationship of trust)duties towards a company. However, the
Companies Act 2013 has defined the duties of a director.
r) Liability on Directors and Officers: The Companies Act 2013 does not restrict an
Indian company from indemnifying (compensate for harm or loss) its directors and
officers like the Companies Act 1956.
s) Rotation of Auditors: The Companies Act 2013 provides for rotation of auditors and
audit firms in case of publicly traded companies.
t) Prohibits Auditors from performing Non-Audit Services: The Companies Act
2013 prohibits Auditors from performing non-audit services to the company where
they are auditor to ensure independence and accountability of auditor.
u) Rehabilitation and Liquidation Process: The entire rehabilitation and liquidation
process of the companies in financial crisis has been made time bound
under Companies Act 2013.

The Companies (Amendment) Bill, 2020

A bill to amend the Companies Act, 2013 and decriminalise various offences under it was
introduced in the Lok Sabha. The proposed amendments aim to reduce the burden on the
National Company Law Tribunal. The Bill was however vehemently opposed and was
demanded to be referred to the Parliamentary Standing Committee on Finance.

Companies (Amendment) Act, 2019

 It was enacted to consolidate and amend the laws relating to companies.

 It tightened the CSR compliance norms and ensured stricter norms for non-compliance
of the company law regulations.
o It allowed companies to transfer their unspent CSR funds to a separate
account, the same has to be spent within three financial years.
o In case, the money remains unspent, then it should be transferred to any fund
specified in Schedule VII of the Act.
 It empowered the Registrar of Companies to initiate action for removal of a company’s
name if it is not carrying out business activities as per the Companies Act.
 It provided for transferring of functions with regard to dealing with applications for
change of financial year and shifting of powers for conversion from public to private
companies from NCLT to the Central government.
 It provided more teeth to the Central government to deal with violators and reduced the
burden on special courts and enabled the National Financial Reporting Authority
(NFRA) to perform its functions through divisions and executive bodies.
Proposed Amendments in the Bill

 The Bill removes the penalty and imprisonment in certain offences along with the
reduction in the amount of fine payable.
 Decriminalization: The Bill proposed 72 amendments to the Companies Act, 2013 to
decriminalise various offences which can promote Ease of doing ethical business and
Ease of doing honest business.
  It will also boost the confidence of the investors along with giving an impetus to
the business as the fear of imprisonment will be reduced.
 The decriminalization is only for minor, procedural and technical falls which do
not involve fraud, injury to the public interest, or non- compoundable offences.
 Recategorization: The changes recategorize at least 23 offences out of the 66
compoundable offences mentioned under the Act in case of defaults (which can
be determined objectively and which lack an element of fraud or do not involve larger
public interest). Such cases will be dealt with an in-house adjudication framework.
 Compoundable Offences are those which can be conciliated by the parties
under dispute (without the requirement of the permission of the Court).
 Producer Companies: Under the 2013 Act, certain provisions from the Companies
Act, 1956 continue to apply to producer companies. These include provisions on their
membership, the conduct of meetings, and maintenance of accounts. The Bill removes
these provisions and adds a new chapter in the Act with similar provisions on producer
companies.
 Producer companies include companies which are engaged in the production,
marketing and sale of agricultural produce, and sale of produce from cottage
industries.
 Direct Listing in Foreign Jurisdictions: The Bill empowers the Central government
to allow certain classes of Indian public companies to directly list classes of securities
(as may be prescribed) in foreign jurisdictions.
 This is likely to help start-ups to tap overseas markets for raising capital.
 Remuneration to non-executive Directors: The 2013 Act made special provisions for
payment of remuneration to executive directors of a company (including managing
director and other full-time directors) if the company has inadequate or no profits in a
year. The Bill extends this provision to non-executive directors, including independent
directors.
 This will enhance the productivity of such non-executive directors because of
their increased remuneration.
 Financial Results Filing & Corporate Governance: Specified class of unlisted
companies will now have to prepare and file their financial results periodically and also
complete the audit or review of such results.
 Also, the Bill provides for a window within which the penalties shall not be levied
for delay in filing of annual returns.
 This aims to improve corporate governance as it will bring more transparency
into affairs of closely held companies which are used by major shareholders of
large public interest companies to divert funds through transactions that are not
on an arm’s length basis.
 Benches of NCLAT: The Bill seeks to establish benches of the National Company
Law Appellate Tribunal in order to ease their burden and decrease the pendency of
cases.
  Penalties: It extends lesser penalties for small companies (i.e., with lower paid-up
share capital and turnover thresholds), one-person companies (i.e., companies with
only one member), and producer companies, in case of all offences which attract
monetary penalties.
 Exclusion from listed companies: The Bill empowers the Central government, in
consultation with the Securities and Exchange Board of India (SEBI), to exclude
companies issuing specified classes of securities from the definition of a “listed
company”.
 Exemptions from filing resolutions: The 2013 Act required companies to file certain
resolutions with the Registrar of Companies (RoC). However, banking companies were
exempted from filing such resolutions. This exemption has been extended to registered
non-banking financial companies and housing finance companies by the proposed Bill.
 Corporate Social Responsibility (CSR): Under Section 135 of the Companies Act,
2013, companies with net worth, turnover or profits above a specified amount are
required to constitute CSR Committees and spend 2% of their average net profits in
the last three financial years, towards its CSR policy.
 The Bill exempts companies with a CSR liability of up to Rs 50 lakh a year from
setting up CSR Committees.
 Further, the Bill allows eligible companies (which spend any amount in excess of
their CSR obligation in a financial year) to set off the excess amount towards their
CSR obligations in the subsequent financial years.
Corporate Social Responsibility
 Corporate Social Responsibility is a management concept whereby companies
integrate social and environmental concerns in their business operations and
interactions with their stakeholders.
 While CSR law mandates spending across 12 prescribed schedules ranging from
education and health care to sports or gender equality, few companies spend
towards community development, infrastructure, social & child welfare, etc.
 Under it, companies are mandated to constitute a CSR committee, comprising at
least 3 members of the Board (with at least 1 independent member).

A healthy business can only succeed in a healthy society. Thus, it is in the best interest of a
company to produce goods and services which strengthen the health of the society along with
the supportive efforts of the government to provide and create a conducive environment for the
growth of the companies.