Business Law

June 2022 Examination

Q1. Please explain the different types of instruments under which a company under
Companies Act, 2013 can raise capital. (10 Marks)

Ans 1.
Introduction:
Capital or fund is the money or the assets a company or an employer desires to function nicely in
the current environment and make it sustainable in the long term within the marketplace.
Because of the increase in start-ups over the last three years, fundraising or capital rising has
become very prevalent in the market. Each business is looking for a few funding of their
business to either increase their product line or to use the fund in any other business activity. The
finances are generated via diverse strategies. It consists of finances in change for equity, finances
in change for debts, or both. Fundraising thru debt means that someone would be investing in
your company in opposition to a debt on which you will pay the interest at a positive agreed rate.
Fundraising through equity means that someone might be giving you investment in trade for
some shares to your company. The investor might take some fairness of your company to
provide you capital as funding.

Concept & application:

Different types of instruments to raise capital:

In India, each business enterprise has to check-in itself beneath the companies Act, 2013 to get
benefits of the provisions noted therein. The groups Act also specify the numerous units through
which any organization can improve capital. The mechanisms are as follows:

a) Equity-based instruments: Fundraising via equity means that someone would be supplying
you with funding in alternate for a few stocks to your organization. The investor would take
some equity of your company to give you capital as funding. Right here, there exists immediate
dilution of the present shareholding. As soon as you are getting investment, you have to dilute
the percentage of stocks to your organization to the investor. Consequently, he may be entitled to
the earnings for such percentage and will even get the proper to take part inside the choice-
making process of the company.

There are equity stocks cited below the act via which the budget may be raised. Those are:

1. Equity shares with voting rights

2. Equity shares with differential voting rights

3. Worker stock options

4. Sweat equity shares

Furthermore, there are numerous preferential stocks mentioned inside the act. These are:

1. Collaborating and non-taking part preferential shares

2. Cumulative and non-cumulative preference stocks

3. Redeemable preference shares

a) Debt-based instruments: Fundraising through debt approach that someone could be making
an investment on your firm against a debt on which you may have to pay the interest at an
agreed-upon charge. Here, the dilution of shareholding of the organization comes at a touch later
stage. It comes that once your agency is unable to generate profits and you have to repay the
debts of the investor, you may dilute a number of your shareholdings inside the name of the
investor to eliminate the debts. So, the company can keep its shareholding so long as it can fulfill
the debt or interest necessities of the investor. So, its miles pretty contingent upon a non-profit-
making situation.

b) Hybrid instruments (each debt and equity mixed): Those methods have protection
elements of each equity and debt security. They're generally issued by way of the company with
optionally convertible debentures either fully or partially, or every other sort of debentures.
Those are all convertible into equity stocks of the company at detailed activities.

c) Debentures: Those are the safety evidencing debt due to the holder of debenture by way of
the enterprise repayable in predominant quantity with interest. There are the following types of
debentures referred to in the act:

1. Redeemable debentures

2. Convertible debentures

3. Compulsory convertible debentures

Those 3 are the most broadly used gadgets by which the employer can generate finances or
enhance capital. The decisive issue in selecting which tool needs to be used is the valuation of
the business enterprise. The character of the instrument to be issued by using an organization
relies mainly on the valuation of the enterprise. But again, there lies a problem with this
particular idea of valuation. It is challenging for any start-up company to cost their corporation
because they're yet to make their sales, they're yet to collect market, they are yet to make their
goodwill. But to solve this problem, a thumb rule has been made under which the startups can
calculate the valuation of their corporation employing the problem of safety having the minor
elements.

Conclusion:

Those 3 are the maximum broadly used units by which the employer can generate a budget or
enhance capital. The nature of the instrument to be issued by way of a corporation depends to a
large extent on the valuation of the company. The decisive issue in choosing which instrument
needs to be used is the company's valuation. However, once more, there lies a hassle with this
precise idea of valuation.

Q2. Please give two (2) real life instances where Indian employee related laws have ensured
protection of welfare of employees. (10 Marks)
Ans 2.
Introduction:
In 2020, all the laws related to labor welfare and safety were amalgamated underneath four
codes, the industrial relations Code, the Code on Social security, Occupational, protection and
health codes, Code on Wages. These codes have sooner or later fashioned the labor laws in India,
which previously had been scattered into around 150 legislations that were once very difficult to
examine, comprehend, and interpret. These codes have provisions associated with both the
organization and employee welfare and safety. Those laws goal to hold coherence and a
nonviolent courting among the employer and the worker. It also enumerates the penalties or
punishment that may be imposed on employers and employees if they do not abide by the law or
provisions noted inside the code.

Concept & Application:

Protection of employees:

The Indian Judiciary has over and over given diverse judgments where it has ensured the safety
of employees. The personnel is given a lot of interest because they're in a disadvantageous or
weak role compared to the employers. They're the humans who are in immediate need of
employment. They're the ones who have suffered the exploitation by using these organization
training for the last -three centuries. That’s why the judiciary has constantly kept a soft stance for
the betterment of the employee class. However, it needs to be stated that whenever these
employees cannot be included, they often take undue advantage of the energy of leniency being
given to them. Hence, at that point, the judiciary takes a specific tough-line stance because the
final objective is to hold a cordial relationship between the employer and the worker. For this
reason, the whole lot is decided based on the data and instances of the case. The subsequent are a
number of the instances wherein the judiciary or the law has aimed closer to the safety or the
welfare of the employees:

a) Vijay Cotton turbines v nation of Rajasthan and Edward Cotton turbines v state of
Ajmer
In this example, it was given that under Ar 43 of the charter, the nation is obliged to ensure not
only the physical subsistence of workers but also the health and respectable living situations for
workers, which ought to be conducive to the general health of the public. For protecting the
people from being exploited with the aid of their employers, it was necessary to impose
regulations upon the freedom of contract.

In advance, the wages have been decided by using the organization, worker thru the contract of
employment. Still, in maximum cases, it leads to exploiting the employee/ employees who have
terrible bargaining talents. So the kingdom went directly to fix a statutory minimum wage below
which the agency couldn't go.

It changed into held in this case that if a person company is not capable of providing its worker
wages at par with the minimum wages, they're no longer allowed to carry on business. The same
cannot be said to violate fundamental rights under art 19(1) (g), i.e., freedom to carry on trade,
career, or business of one’s own choice.

So, here, the court docket has included the interest of the personnel using making sure them
minimum wages and telling the enterprise that if you are using any workers, then you need to
pay them minimal wages to preserve your employment or business; otherwise, you need to shut
down your business as it isn't capable of fully satisfy the desires of your human resource. That is
how the judiciary has aimed to defend the welfare of the employees.

a) Mackinson Mackenzi & company Pvt. Ltd. v Ibrahim Mhd. Issac (1970):

Facts: In this case, there was a worker (Sheik) who became a seaman. Sooner or later, he
complained of pain within the chest. The medical doctor could not hit upon something abnormal
in his chest. He complained of insomnia/ pain within the chest. The medical officer gave him a
sedative pill. He became absolutely underneath observation by everyone. At 6:15, he said he was
going to bed, and in a while, he couldn't be observed, neither the dead frame turned into
recovered.
Judgment: In this case, the court docket discussed the doctrine of brought peril. The extra
commissioner said that no proof of death had been discovered, so no compensation must be
provided to the family of the dead. But the high court gave compensation. However, while the
ultimate court docket dealt with the case, they stated that repayment must no longer accept, and
the extra commissioner became proper in their method. To provide upward thrust to a claim for
compensation, each out of employment and in the route of employment must be considered. It's
miles because the workers should be there in employment at the coincidence.

Conclusion:

The Indian Judiciary has time and again given numerous judgments wherein it has ensured the
protection of employees. The employees are given much interest because they're in a
disadvantageous or weak position compared to the employers. They may be the humans who're
in direct want of employment. They have suffered the exploitation by way of these employer
lessons for the last -3 centuries.

Q3. Gavit and Vinayak are partners who started a partnership under the Partnership Act,
1932. There are differences arisen between them and they have approached you to advise
them to resolve their differences:

a. Please suggest ways how they can resolve their differences without approaching
conventional court of laws (5 Marks)

Ans 3a.
Introduction:

In India, we can see significant growth in partnership corporations in recent times. To display
this partnership, the government has come up with different laws. Earlier, while the partnership
turned into not that popular, the most straightforward one rules of Partnership Act, 1932. Still,
considering that the partnerships have widened over time, there came a want for legislation about
limited liability partnership, i.e., constrained legal responsibility Partnership Act, 2008.

Concept & application:

Ways to resolve the differences without approaching court:

The sector these days has started using alternative strategies to clear up disputes. This
opportunity dispute resolution approach has arisen in India within the final decade. The number
one reason for resolving disputes through opportunity methods is time and price-saving. The
Arbitration and Conciliation Act, 1996 elaborates on the numerous techniques through which the
disputes can be settled outside the courtroom of regulation. It includes arbitration, conciliation,
mediation, consumer counseling, Lok Adalat, etc. For every opportunity method, we've specific
legislations to manipulate the proceedings. To solve the dispute thru arbitration, the events have
to input into a settlement announcing that the dispute is to be resolved using the arbitrator. It's far
from the requirement of phase 7. Now, there are various kinds of arbitration that a party can
choose. It consists of but isn't restricted to:

a) Institutional Arbitration: Here, the arbitration institutions are approached through the parties
for the resolution in their dispute.

b) Ad- Hoc Arbitration: Here, there may be no standardized body this is to be approached by
the parties for resolving their disputes. They can appoint an impartial third party with certain law
information to clear up their dispute.

c) International commercial Arbitration: If one of the parties is foreign countrywide, or the

concern relies upon the dispute is situated in any overseas country, or the seat of arbitration is
outside India, the arbitration will be called international business arbitration.

d) Med-Arb Arbitration: It is the technique in which events first try to resolve their dispute
thru mediation that is a far less time and money ingesting technique and requires a whole lot
fewer technicalities when it comes to the application of legal guidelines and manufacturing of
proof, and later on they pass to arbitration forum if they experience that the dispute has now not
been resolved well or it but requires some extra discussions.
Conclusion:

Therefore, in the immediate case, the partners can pick any ADR techniques to solve their
dispute outside the court docket of law to avoid any discrepancy arising inside the traditional
court docket gadget.

b. Please elaborate the advantages of resolving their differences without approaching

conventional court of laws (5 Marks)

Ans 3b.
Introduction:

Section 4 of the Partnership Act, 1932 defines partnership as an association between two or more
man or woman events who have agreed to percentage the income generated from the business
below the supervision of all the members or on behalf of different contributors.

Phase four, in addition, stipulates the essential features of a partnership. Those are:

a) Agreement among partners

b) There must be two or greater members

c) The agreement should be in accord of sharing of income
d) The joint venture or firm needs to have a business purpose
e) There must be a mutual business
f) The liability of all the companions could be unlimited.

Concept & application:

Advantages of resolving the dispute without going to the court:

The Arbitration and Conciliation Act, 1996 elaborates on the various ways to settle disputes in
the court of law. It consists of arbitration, conciliation, mediation, patron counseling, Lok Adalat,
etc. We've got different legislations to control the court cases for each alternative approach. The
number one reason for invoking these alternate techniques of resolving the dispute is to have fast
disposal of instances. The following are the benefits of opportunity dispute decision techniques:

a) Less time-consuming/ fast settlement of dispute: in the Arbitration, the events have full
autonomy to choose the forum, the law to be implemented, the time while the hearing is to occur,
this all helps in fast disposal of case as compared to the traditional court machine.

b) Less costly: no charges might be imposed on every new hearing since there is less time
involved.

c) Party autonomy: Both the parties have the complete autonomy to decide the regulation to be
applied, the discussion board wherein the listening to is to take location, the individual or the
arbitrator to conduct the arbitration intending, it is known as party autonomy.

d) Control of method: It is due to party autonomy that events manage the technique of the
proceedings.

e) Choice of the discussion board: In contrast to the court docket machine, there may be no
hierarchy in the opportunity dispute decision mechanism. The parties can randomly pick out any
of the forums to facilitate dispute resolution.

f) A wide variety of troubles can be considered: the ADR process is much more flexible than the
conventional court device. A massive variety of problems may be mentioned there.

g) A wide range of potential outcomes: in contrast to litigation, various remedies or results are to
be had in the ADR system together with repayment, injunction, etc.
h) Flexibility of system: ADR is bendy, unlike the court gadget, which could be very fixed in
nature.

Conclusion:

The sector these days has commenced using alternative methods to resolve disputes. These
alternative dispute decision techniques have arisen in India in the final decade. The number one
reason for resolving the disputes via alternative strategies is that they are time and cost-saving in
technique