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PGDBA-Operations 200309032 Vaddadi Chitti Ramarao

: New No: 9, Teachers Colony, Kasthurba Nagar, Adyar Chennai-600020, India. : +91-44-52116327

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Business Law

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BAR CODE

SYMBIOSIS CENTER FOR DISTANCE LEARNING(SCDL)
Atur Centre, 1068, Gokhale Cross Road, Model Colony PUNE - 411016

ASSIGNMENT SHEET
(To be attached with each Assignment)

Full Name of Student Registration Number Subject of Assignment

: Vaddadi Chitti Ramarao :2

00309032

: Business Law

Date of submission of Assignment : 20th December 2003 (Question Response Record – To be completed by students)
Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Question Number Responded Question - 1 Question - 2 Question - 3 Question - 4 Question - 5 Question - 6 Question - 9 Question - 10 Question - 11 Question - 12 On Page Number of Assignment 3 6 9 11 13 15 16 18 20 21 Marks

Total Marks: Important Notes: 1. 2. 3. 4.

/100

Please ensure that your Correct Registration Number is mentioned on the Assignment Sheet. The date of receipt of the assignment shall be the date when the assignment was received at SCDL. Please do not send any other communication along with your assignment. Ensure to place the bar code label on each assignment sheet, without which SCDL will not accept the assignments. Signature of the Evaluator:________________________ Name of the Evaluator:___________________________ Date:_________________________

Signature of the Student:______________________ Name of the Student: Vaddadi Chitti Ramarao Date:_________________________

Business Law

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Q.No. 1: Define a contract and explain in detail the essential elements of a valid contract.? Answer: Introduction: Indian Contract Act, 1872, defines the term contract. In this Act the following words and expressions are used in the following senses, unless contrary intention appears from the context: • • When a person to whom the proposal is made, signifies his assent thereto, the proposal is said to be accepted. A proposal, when a accepted, becomes a promise. • The person making the proposal is called the "promissor", and the person accepting the proposal is called "promise". • When, at the desire of the promissor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise. • Every promise and every set of promises, forming the consideration for each other, is an agreement. • Promises which form the consideration or part of the consideration for each other, are called reciprocal promises. • A agreement not enforceable by law is said to be void. • An agreement enforceable by law is a contract. • An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract. • A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable. As per the above discussion, essential requirements of a contract could be listed as: Two Parties, An Agreement, And Legal Obligation Please note as per Indian contract act: All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. Nothing herein contained shall affect any law in force in India, and not hereby expressly repealed, by which any contract is required to be made in writing or in the presence of witnesses, or any law relating to the registration of documents. Essential Elements of Valid Contract: There must be an agreement: All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. Nothing herein contained shall affect any law in force in India, and not hereby expressly repealed, by which any contract is required to be made in writing or in the presence of witnesses, or any law relating to the registration of documents. Parties to a contract must be competent: Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is sound mind and is not disqualified from contracting by any law to which he is subject. A person is said to be of sound mind for the propose of making a contract, if, at the time when he makes it, he is capable of understanding it and of forming a rational judgment as to its effect upon his interest. A person, who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind. A person, who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind. There should be an intention to create a legal relationship: This is very important condition of a valid contract. If there is no intention to create any legal relationship than that contract is not valid. Agreements of social, moral or religious nature do not contemplates legal relations. When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal.

Business Law

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There should be free consent of parties to the contract: Two or more person are said to consent when they agree upon the same thing in the same sense. Consent is said to be free when it is not caused by: • • • • • coercion, as defined in section 15, undue influence, as defined in section 16, or fraud, as defined in section 17, or misrepresentation, as defined in section 18, or mistake, subject to the provisions of section 20,21, and 22.

Legal or Lawful Consideration and object: The consideration or object of an agreement is lawful, unless -It is forbidden by law; or is of such nature that, if permitted it would defeat the provisions of any law or is fraudulent; of involves or implies, injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy. In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void. Agreement not expressly declared void by law: Agreement must not have been declared void by any law in force in the country. Some of the examples could be: When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused. A party to contract, whose consent was caused by fraud or misrepresentation, may, if he thinks fit, insist that the contract shall be performed, and that he shall be put on the position in which he would have been if the representations made had been true. Illustration: A, intending to deceive B, falsely represents that five hundred maunds of indigo are made annually at A's factory, and thereby induces B to buy the factory. The contract is voidable at the option of B. When consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused. Any such contract may be set aside either absolutely or, if the party who was entitled to avoid it has received any benefit there under, upon such terms and conditions as to the court may seem just. Illustration: A, a money lender, advances Rs. 100 to B, an agriculturist, and, by undue influence induces B to execute a bond for Rs. 200 with interest at 6 per cent per month. The court may set the bond aside, ordering B to repay the Rs. 100 with such interest as may seem just. Agreement void where both parties are under mistake as to matter of fact Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement, the agreement is void. Explanation: An erroneous opinion as to the value of the things which forms the subject matter of the agreement, is not be deemed a mistake as to a matter of fact. Illustration: A agrees to sell to B a specific cargo of goods supposed to be on its way from England to Bombay. It turns out that, before the day of the bargain in the ship conveying the cargo had been cast away and the goods lost. Neither party was aware of these facts. The agreement is void. Every agreement of which the object or consideration is unlawful is void. Illustration: A promises to obtain for B an employment in the public service and B promises to pay 1,000 rupees to A. The agreement is void, as the consideration for it is unlawful. Every agreement in restraint of the marriage of any person, other than a minor, is void. Every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void. Compliance with legal Formalities: It is not necessary that a contract must be in writing, however in the interest of the parties to a contract, it should be in writing. Of course, there are certain formalities to be complied with in order to make an agreement legally enforceable, e.g. contracts in writing are required in cases of lease, gifts, sale and mortgage of immovable properties etc.

Business Law

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Agreements, the meaning of which is not certain, or capable of being made certain, are void. Illustrations: A agrees to sell B "a hundred tons of oil". There is nothing whatever to show what kind of oil was intended. The agreement is void for uncertainty. A agrees to sell to B "1000 maunds of rice at a price to be fixed by C". As the price capable of being made certain, there is no uncertainty here to make the agreement void. To conclude we can say that essential elements of a valid contract are: • • • • • • • • • An Agreement Competent Parties Creation of a legal relationship Free consent Lawful consideration Legal object Agreement not declared Void Compliance of legal formalities Certainty and impossibility of terms and performance.

Business Law

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Q.No. 2: Discuss the Circumstances under which a contract is said to be free.? Answer: Two or more persons are said to consent when they agree upon the same thing in the same sense. Consent is said to be free when it is not caused by• • • • • Coercion, as defined in section 15, or Undue influence, as defined in section 16, or Fraud, as defined in section 17, or Misrepresentation, as defined in section 18, or Mistake, subject to the provisions of sections 20, 21, and 22.

Consent is said to be so caused when it would not have been given but for the existence of such coercion, undue influence, fraud, misrepresentation, or mistake. Coercion: "Coercion" is the committing, or threatening to commit, any act forbidden by the Indian Penal Code (45 of 1860) or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement. Explanation: It is immaterial whether the Indian Penal Code (45 of 1860) is or is not in force in the place where the coercion is employed. Illustration: A, on board an English ship on the high seas, causes B to enter into an agreement by an act amounting to criminal intimidation under the Indian Penal Code (45 of 1860). A afterwards sues B for breach of contract at Calcutta. A has employed coercion, although his act is not an offence by the law of England, and although section 506 of the Indian Penal Code (45 of 1860) was not in force at the time when or at the place where the act was done. Undue influence: • A contract is said to be induced by "undue influence" where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other. In particular and without prejudice to the generality of the foregoing principle, a person is deemed to be in a position to dominate the will of anothero Where he holds a real or apparent authority over the other, or where he stands in a fiduciary relation to the other Where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness, or mental or bodily distress.

o •

Where a person who is in a position to dominate the will of another, enters into a contract with him, and the transaction appears, on the face of it or on the evidence adduced, to be unconscionable, the burden of proving that such contract was not induced by undue influence shall lie upon the person in a position to dominate the will of the other.

Nothing in this sub-section shall affect the provisions of section 111 of the Indian Evidence Act, 1872 (1 of 1872). Illustrations: • A having advanced money to his son, B, during his minority, upon B's coming of age obtains, by misuse of parental influence a bond from B for a greater amount then the sum due in respect of the advance. A employs un-due influence. • • • A, a man enfeebled by disease of age, is induced by B's influence over him as his medical attendant, to agree to pay B an unreasonable sum for his professional services, B employs undue influence. A, being in debt to B, the money-lender of his village, contracts a fresh loan on terms which appear to be unconscionable, It lies on B to prove that the contract was not induced by undue influence. A applies to a banker for a loan at a time when there is stringency in the money market, The banker declines to make the loan except at an unusually high rate of interest. A accepts the loan on these

Business Law

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terms. This is a transaction in the ordinary course of business, and the contract is not induced by undue influence. Fraud: Fraud" means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agents , with intent to deceive another party thereto or his agent, or to induce him to enter into the contract: (1) The suggestion as a fact, of that which is not true, by one who does not believe it to be true; (2) The active concealment of a fact by one having knowledge or belief of the fact; (3) A promise made without any intention of performing it; (4) Any other act fitted to deceive; (5) Any such act or omission as the law specially declares to be fraudulent. Explanation: Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence is, in itself, equivalent to speech. Illustrations: • A sells, by auction, to B, a horse which A knows to be unsound. A says nothing to B about the horse's unsoundness. This is not fraud in A. • • • B is A’s daughter and has just come of age. Here the relation between the parties would make it A's duty to tell B if the horse is unsound. B says to A- "If you do not deny it, I shall assume that the horse is sound". A says nothing. Here, A's silence is equivalent to speech. A and B, being traders, enter upon a contract; A has private information of a change in prices which would affect B's willingness to proceed with the contract. A is not bound to inform B.

Misrepresentation: it means and includes• • The positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true; Any breach of duty which, without an intent to deceive, gains and advantage to the person committing it, or any one claiming under him; by misleading another to his prejudice, or to the prejudice of any one claiming under him; Causing, however innocently, a party to an agreement, to make a mistake as to the substance of the thing which is the subject of the agreement.

Mistake as to matter of fact: Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement, the agreement is void. Explanation: An erroneous opinion as to the value of the things which forms the subject matter of the agreement, is not be deemed a mistake as to a matter of fact. Illustrations: • A agrees to sell to B a specific cargo of goods supposed to be on its way from England to Bombay. It turns out that, before the day of the bargain in the ship conveying the cargo had been cast away and the goods lost. Neither party was aware of these facts. The agreement is void. A agrees to buy from B a certain horse. It turns out that the horse was dead at the time of bargain, though neither party was aware of the fact. The agreement is void. A, being entitled to an estate of the life of B, agrees to sell it to C, B was dead at the time of the agreement, but both parties were ignorant of the fact. The agreement is void.

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Business Law

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Voidability of agreements without free consent When consent to an agreement is caused by coercion, 4A[***] fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused. A party to a contract, whose consent was caused by fraud or misrepresentation, may, if he thinks fit, insist that the contract shall be performed, and that he shall be put on the position in which he would have been if the representations made had been true. Exception: If such consent was caused by misrepresentation or by silence, fraudulent within the meaning of section 17, the contract, nevertheless, is not voidable, if the party whose consent was so caused had the means of discovering the truth with ordinary diligence. Explanation: A fraud or misrepresentation which did not cause the consent to a contract of the party on whom such fraud was practiced, or to whom such misrepresentation was made, does not render a contract voidable. Illustrations: • • A, intending to deceive B, falsely represents that five hundred maunds of indigo are made annually at A's factory, and thereby induces B to buy the factory. The contract is voidable at the option of B. A, by a misrepresentation, leads B erroneously to believe that five hundred mounds of indigo are made annually at A's factory. B examines the accounts of the factory, which show that only four hundred maunds of indigo have been made. After this B buys the factory. The contract is not voidable on account of A's misrepresentation. A fraudulently informs B that A's estate is free from encumbrance. B thereupon buys the estate. The estate is subject to a mortgage. B may either avoid the contract, or may insist on its being carried out and the mortgage-debt redeemed. B, having discovered a vein of ore on the estate of A, adopts means to conceal, and does conceal the existence of the ore from A. Though A's ignorance B is enabled to buy the estate at an undervalue. The contract is voidable at the option of A. A is entitled to succeed to an estate at the death of B, B dies; C having received intelligence of B's death, prevents the intelligence reaching A, and thus induces A to sell him his interest in the estate. The sale is voidable at the option of A.

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Q.No. 3: What do you mean by discharge of a contract.? What are the various ways in which a contract may be discharged.? Answer: Once created, a contract must be discharged i.e. brought to an end. A contract is said to be discharged, terminated or dissolved when the rights and obligations created by the contract come to an end. A contract may be discharged by: Performance - both parties have performed what they have agreed to do, in strict accordance with their contractual obligations Agreement - if both parties agree to terminate the contract before all obligations have been fulfilled. This may happen in one of the following ways:

• •
• • • • •

By By By By By By By

Novation (section 62) Recission (section 62) Alteration (Section 62) Remission (Section 63) Waiver Merger Owing to occurrence of an event

Termination by notice - the contract might contain a clause giving either party the right to terminate by giving notice Frustration - if an unforeseeable change in circumstances, beyond the control of either party, results in the contract becoming impossible to fulfill, e.g. war or natural disaster Time - when performance is completed by a period that is fixed in the contract. If no time has been fixed then within a reasonable time is time is not specified in an contract. Thus to make it more clear we could say, “if the period of time is lapsed the contract is terminated and the right to bring an action to enforce the contract is barred under the limitation act. Substituted contract (Novation) - when the original contract is replaced by a new contract Mistake - contracts may be voidable in the event of a recognized genuine mistake by one or both parties rather than in the event of an error of judgment. By Operation of Law:

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Bankruptcy or insolvency: When an order for discharge is made in a bankruptcy or insolvency, whereby all provable debts and liabilities may be released, terminating the contract Death: In contracts where personal skill or taste or ability is required, the death of the promisor results in termination of contract. In all the other cases, the rights/liabilities pass on to his legal representatives. Merger: It implies that an inferior right accruing to the party to a contract merges into a superior right accruing to the same party under the same or other contract. Thus, inferior rights accruing to a party automatically vanish under an agreement. Complete loss of evidence: If the evidence proving the existence of a contract is lost, it stands terminated.

By Breach made by one of the parties to the contract: • • • • Actual breach – It means breach committed by either at the time when the performance of the contract is due or during its performance. Anticipatory breach - Anticipatory breach takes place when a party to the contract disowns its liability under the contract even before its performance is due. Impossibility of performance: Impossibility of performance of a contract can be of following types: The parties know about impossibility at the time of making the contract. This is also known as absolute or initial impossibility. Page 9 of 23

Business Law

Impossibility unknown to parties when the contract was made. For example Mr. S agrees to purchase the shop of Mr. M. Both the parties are unaware about the fact, that an earthquake has destroyed the shop. The contract is void on the grounds of impossibility unknown to the parties at the time of contract. Super-venting impossibility – impossibility that arises subsequent to the formation of the contract. There could be following cases under which it could happen: • • • • • • Destruction of subject matter. Death or incapacity of personal service. Non-existence of a particular state of things. Non-occurrence of a particular state of things Out-break of war. Change of Law.

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Q.No. 4: Classify and explain different types of agents.? Answer: An "agent" is a person employed to do any act for another, or to represent another in dealing with third persons. The person for whom such act is done, or who is so represented, is called the "principal". As between the principal and third persons, any person may become an agent, but no person who is not of the age of majority and sound mind can become an agent, so as to be responsible to the principal according to the provisions in that behalf herein contained. No consideration is necessary to create an agency. The authority of an agent may be express or implied. An authority is said to be express when it is given by words spoken or written. An authority is said to be implied when it is to be inferred from the circumstances of the case; and things spoken or written, or the ordinary course of dealing, may be accounted circumstances of the case. Agents can be classified in various ways: Special Agents: Agent appointed for a particular task only. The agency in such cases lasts for a specific period of for a particular type of job or work. For example… a property dealer appointed as an agent for a sale of a property is authorize his rights in regards to that property only and that too till its sale or revocation of agency by the principal. General Agents: As the name suggests, the agent has a general authority in such a case. To elaborate, we could say a general agent is one who has authority to do all the acts (usually related to business or Trade) in the interest of his principal. A general agent has a implied authority to bind his principal by doing various acts necessary for carrying on the business of his principal. Universal Agents: Universal agent is practically a general agent with very extensive rights. We can say that an universal agent is a substitute of principal for all those transactions where in principal cannot participate. We rarely find universal agents in business world today, however in personal life, a wife, son or a very close friend or relative could become a universal agent. For example: when a person leaves his country for a long time, he may appoint his son as his universal agent to act on his behalf in his absence. Co-Agents: This happens when a principal appoints two or more person as agents jointly. Their authority is joint when nothing is mentioned. It implies that all co-agents concur in the exercise of their authority unless their authority is fixed or unless circumstances reveal any intention to the contrary. But when their authority is several, any other of the co-agents can act without the concurrence of the other. Sub-Agents: In the language of law, a sub-agent would be “a person employed and acting under the control of the original agent in the business of the agency “. In simple words, sub-agent is an agent of the original agent. As far as third party is concerned, principal can be held liable for the acts of sub-agent in certain cases like fraud etc. however in general, agent is responsible to the principal for the acts of sub-agent. Substituted Agents: Substituted agent is almost same as a co-agent or sub-agent. Sections 194 and 195 deals with substituted agents. It states “when an agent holding on express or implied authority to name another person to act for and on behalf of his principal in his business, such agent is know as substituted agent. There are certain differences between the two, which could be better understood by the way of following illustration: Mr. RR authorizes Mr. YY, who is a businessman in Pune, to recover the money due to RR from ABC Company. YY, in turn, instructs NN, a solicitor, to take necessary legal actions and recover the dues. Here, NN is not a sub-agent but a solicitor for R. To elaborate more on points of distinction between sub-agents and co-agents we can have following arguments: • • • A substituted agent acts under the direct control his principal where as sub-agent works under the original agent. An agent does not delegate any part of his tasks or duties to a substituted agent, whereas as he does that to a sub-agent. In case of a substituted agent, there is always a privacy of contract between the principal and the substituted agent, both can sue each other, however a sub-agent is not directly answerable to the principal, they can’t sue each other, however both can sue the agent.

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Other classification of agents is as follows: Factor: As per the section 2 of sale of goods act, there is an agent known as Mercantile Agent. As the name suggest he is the one who works for the business (merchandize) of the principal. A Factor is one type of a mercantile agent who sells goods on behalf of his principal. He has wide authority and discretionary powers to sell goods upon such terms and conditions as he thinks proper. He in broader terms relieves his principal from the burden of his work. If a factor does any act which is beyond his authority, but which is within the scope of his apparent authority, then his principal is bound by such act. Broker: A broker is a special type of mercantile agent who acts as a middleman between the buyer and the seller. We can say that he is employed to bring about contractual relationship between the principal and the third party. He usually gets commission for the work performed. His function ends when he brings the two parties together. He is never in possession of the subject, therefore cannot exercise the right of lien. Auctioneer: Auction is usually a public sale of goods made in the highest of several bidders. An auctioneer is a mercantile agent who is appointed to sell goods on behalf of principal, compensated in terms of commission. Commission Agents: A commission agent is generally, appointed for selling or buying goods on behalf of his principal. Such types of agents belongs to a somewhat indefinite class of agents. He/She tries to secure buyer for a seller of a goods and sellers for a buyer of goods and receives a commission in return for his work on the actual sales price. Del Credere Agents: A Del Credere agent is a mercantile agent who is employed to sell goods on behalf of his principal. He undertakes to guarantee the payment of dues in consideration for an extra commission. We can say that besides being a mercantile agent a del credere agent finds himself into the shoes of a guarantor as well. Forwarding Agents: Forwarding agents render services of collecting goods from their principals and forwarding the same to shipping companies. As foreign trade procedures are more complex that the procedures of home trade, the service of forwarding agents hence helps the producers and exporters to a great extent. Clearing Agents: As forwarding agents help the exporters of goods, clearing agents help the importers of goods. They complete various complicated customs and exchange formalities on behalf of the importers who appoint them. Indenting Agents: An indenting agent is a commission agent who procures a sale or purchase on behalf of his principal with a merchant abroad for a commission at the rate mentioned in the indent. He is an important mercantile agent who facilitates the distribution of goods at international level.

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Q.No. 5: Explain the rights, duties and responsibilities of an agent to his principal.? Answer: Rights of an Agent To do all law-full things: An agent has a right to do every lawful thing or act which is necessary for the purpose, he has been appointed. He is supposed to do all possible things, which the principal would have done in the time of need for the purpose. Rights in Emergency: In an emergency, an agent has an implied authority to do all such acts which are necessary for the purpose of protecting his principal from loss as would be done by a person of ordinary prudence, in his own case, under similar circumstances. Right to appoint Sub-agent and substitute agent: An agent has a right to appoint a sub-agent, who will work under the control of the original agent. However, a sub-agent has to report to the principal, and can be appointed where agent has a express or implied authority. Right to receive remuneration when due: There are however two exceptions to this right, i.e. whenever there is any contract to the contrary or the agent is found guilty of any misconduct in the agency business. If an Agent is found to be guilty on a part of business, then he may be in certain cases entitled to his remuneration for the part he has not found guilty of misconduct. For ex. SS appoints YY to recover certain goods from ZZ and later on he instructs him to sell the goods. YY recovers the goods from ZZ and later on while making a sales deal, he misappropriates. In such a case ZZ is entitled to get his commission for recovery part, however he will have to pay damages (if any) in sales part. Right to receive compensation for premature revocation: Section 205 implies that where there is an express or implied conduct that the agency should be continued for any period of time, the agent has the right to receive compensation from his principal for any previous revocation of the agency without any sufficient cause. Right of Retainer: As per the provisions of section 217, an agent has the right to retain, out of any sums received on account of the principal in the business of the agency. All moneys due to himself in respect of advances made or expenses properly incurred by him in conducting such business and also such remuneration as may be payable for acting as an agent. Even if the remuneration is not agreed, agent is entitled for a reasonable amount, as the services of agents are not considered voluntary. Right of lien on principal’s property: As per section 221, “in absence of any contract to the contrary, an agent is entitled to retain goods, papers and other property of the principal, received by him, until the amount due to him against the services provided to the principal. Right of indemnification against the consequences of legal act: An agent represents his principal. The agent therefore has the right to be indemnified by the principal against the consequences of all lawful acts done by such agent in exercise of the authority conferred upon him. Right to be indemnified against the consequences of all the acts done in good faith: Section 223 lays down that “Where one person employs another to do an act in good faith, the employer is liable to indemnify the agent against the consequences of that act, though it causes an injury to the right of a third person. (*Rights to get indemnified does not extend to illegal, unlawful or criminal acts) Right of stoppage in transit: When the agent purchases goods on behalf of his principal either with his own money or by incurring some personal liability for the price, he stands towards the principal in the position of an unpaid seller and hence, he possesses the right to stop the goods in transit. When an agent is a del credere agent, he is personally liable to his principal for the price of goods sold, he can therefore exercise the unpaid seller’s right to stop the goods in transit on the insolvency of the buyer. Right of compensation for injury caused by principal’s neglect or want of skill: An agent has every right to be compensated in respect of injury caused by principal’s neglect or want of skill but not for the injury caused by his own contributory negligence. Duties and responsibilities of an Agent towards Principal Duty to conduct principal’s business according to his directions: It’s the primary duty of any agent. As per section 221, “An agent is bound to conduct the business of his principal according to the directions given by the principal, or in the absence of any such directions, according to the customs which prevail in doing business of the same kind at the place where the agent conducts such business”. Business Law Page 13 of 23

Duty on the termination of agency by his principal’s death or insanity: When an agency is terminated by his principal dying or becoming of unsound mind, it is the duty of the agent to take, on behalf of the representative of his late principal, all reasonable steps for the protection and preservation of interest entrusted to him. Duty to conduct the work with reasonable care, skill and diligence: The agent is always bound to act with reasonable diligence and to use such skills as he possesses. As per the section 212 “an agent is bound to make compensation to his principal in respect of the direct consequence of his own neglect, want of skill or misconduct, but not in respect of loss or damage which are indirectly or remotely caused by such neglect, want of skill or misconduct. Duty to render accounts properly to his principal: An agent is always under obligation to keep proper accounts and render it to the principal whenever demanded. Duty not to delegate his authority: Provisions of section 190 implies that an agent must act in person and it is the duty of an agent not to delegate his authority or employ another person to perform acts which he has expressly or impliedly undertaken to perform personally, unless by the contract of agency, a sub-agent must be employed. Duty to communicate with principal in cases of difficulty: Section 214 clearly states that, “it is the duty of the agent, in cases of difficulty, to use all reasonable diligence in communicating with his principal, and in seeking to obtain his instructions”. Duty not to deal on his own account in the business of agency: It’s the duty of an agent not to deal on his own account in his agency business without prior consent of his principal and without acquainting with material circumstances. If an agent deals in his agency business on his own account without the knowledge of his principal, the principal has an authority to repudiate the transaction, if the case shows that the agent has concealed any material fact, dishonesty from his principal or that the agent’s dealings have been disadvantageous to the principal. Duty not to earn or make secret profit from agency business: The provisions of section 216 imply that as agent shall not earn or make any secret profits from his agency business beyond the agreed remuneration. Duty not to use the information obtained in the course of the agency business against his principal Duty to pay sum received for the principal: If the agent deals on his own account in the agency business, then he is not entitled to receive any commission or remuneration from his principal. However an agent may retain, out of any sums received on account of the principal in the business of the agency in following cases: All sums due to himself in respect of advances, or Expenses properly incurred by him in conducting the business of agency, or Such remuneration as may be payable to him for acting as the agent (Section 217) Duty not to set up an advance adverse title: When an agent receives from his principal or from the sources connected with the agency business for and on behalf of his principal, in the capacity of an agent, it is the duty of the agent not to set up an adverse title i.e. his own title or the title of third parties to the goods. If an agent does so, he is held liable for such conversion. Duty in naming an agent for his principal: According to section 195, in selecting an agent for his principal, an agent is bound to exercise the same amount of discretion as a man of ordinary prudence would exercise in his own case. However, if the agent does so, he is not held responsible to his principal for the acts or negligence of the agent so selected.

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Q.No. 6: Explain the mutual rights and responsibilities of partner in a partnership firm.? Answer: "Partnership" is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Persons who have entered into partnership with one another are called individually, "partners" and collectively "a firm", and the name under which their business is carried on is called the "firm-name". Mutual rights and liabilities (Subject to contract between the partners) • A partner is not entitled to receive remuneration for taking part in the conduct of the business; The partners are entitled to share equally in the profits earned, and shall contribute equally to the losses sustained by the firm; • • Where a partner is entitled to interest on the capital subscribed by him, such interest shall be payable only out of profits; A partner making, for the purposes of the business, any payment or advance beyond the amount of capital he has agreed to subscribe, is entitled to interest thereon at the rate of six per cent. per annum; The firm shall indemnify a partner in respect of payments made and liabilities incurred by him.

In the ordinary and proper conduct of the business; • • A partner shall indemnify the firm for any loss caused to it by his willful neglect in the conduct of the business of the firm. In doing such act, in an emergency, for the purpose of protecting the firm from loss, as would be done by a person of ordinary prudence, in his own case, under similar circumstances;

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Q.No. 9: Define the term ‘Negotiable Instrument’ and explain it’s types and various parties of the types of negotiable instruments.? Answer: "Negotiable instrument".-[(1) A "negotiable instrument" means a promissory note, bill of exchange or cheque payable either to order or to bearer. Explanation (i).- A promissory note, bill of exchange or cheque is payable to order which is expressed to be so payable to a particular person, and does not contain words prohibiting transfer or indicating an intention that it shall not be transferable. Explanation (ii).- A promissory note, bill of exchange or cheque is payable to bearer which is expressed to be so payable or on which the only or last endorsements is an endorsement is an endorsement in blank. Explanation (iii) Where a promissory note, bill of exchange or cheque, either originally or by endorsement, is expressed to be payable to the order of a specified person, and not to him or his order, it is nevertheless payable to him or his order at his option.] (2) A negotiable instrument may be made payable to two or more payees jointly, or it may be made payable in the alternative to one or two, or one or some of several payees.] Various Types of Negotiable Instruments: Promissory note: A "promissory note" is an instrument in writing (not being a bank-note or a currency-note) containing an unconditional undertaking signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument Bill of exchange: A "bill of exchange" is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument. A promise or order to pay is not "conditional", within the meaning of this section and section 4, by reason of the time for payment of the amount or any installment thereof being expressed to be on the lapse of certain period after the occurrence of a specified event which, according to the ordinary expectation of mankind, is certain to happen, although the time of its happening may be uncertain. The sum payable may be "certain", within the meaning of this section and section and section4, although it includes future indicated rater of change, or is according to the course of exchange, or is according to the course of exchange, and although the instrument provides that, on default of payment of an installment, the balance unpaid shall become due. The person to whom it is clear that the direction is given or that payment is to be made may be a "certain person," within the meaning of this section and section 4, although he is misnamed or designated by description only Cheque: A "cheque" is a bill exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. Inland instrument: A promissory note, bill of exchange or cheque drawn or made in [India] and made payable in, or drawn upon any person resident in, [Indian] shall be deemed to be an inland instrument. Foreign instrument: Any such instrument not so drawn, made or made payable shall be deemed to be a foreign instrument. Ambiguous instruments: Where an instrument may be construed either as a promissory note or bill of exchange, the holder may at his election treat it as either and the instrument shall be thenceforward treated accordingly. Instruments payable on demand. – A promissory note or bill of exchange, in which no time for payment is specified, and, a cheque, are payable on demand. Inchoate stamped instruments.- Where one person signs and delivers to another a paper stamped in accordance with the law relating to negotiable instruments then in force in [India], and either wholly blank or having written thereon an incomplete negotiable instrument, he thereby gives prima facie authority to the holder thereof to make or complete, as then case may be, upon it a negotiable instrument, instrument, for any amount specified therein and not exceeding the amount covered by the stamp. The person so signing shall be liable upon such instrument, in the capacity in which he signed the same, to any holder in due course for such amount, provided that no person other than a holder in due course shall recover from the person delivering the instrument anything in excess of the amount intended by him to be paid there under.

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Parties to various types of Negotiable Instruments: Drawer" or Drawee: The maker of a bill of exchange or cheque is called the "drawer"; the person thereby directed to pay is called the "drawee". Drawee in case of need: When in the bill or in any endorsement thereon the name of any person is given in addition to the drawee to be resorted to in case of need such person is called a "drawee in case of need". Acceptor: After the drawee of a bill has signed his assent upon the bill, or, if there are more parts thereof than one, upon one of such parts, and delivered the same, or given notice of such signing to the holder or to some person on this behalf, he is called the "acceptor". Acceptor for honor: When a bill of exchange has been noted or protested for non-acceptance or for better security, and any person accepts is supra protest for honor of the drawer or of any one of the endorsers, such person is called an "acceptor for honor". Payee: The person named in the instrument, to whom or to whose order the money is by the instrument directed to be paid, is called the "payee". Holder: The "holder" of a promissory note, bill of exchange or cheque means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto. Where the note, bill or cheque is lost or destroyed, its holder is the person so entitled at the time of such loss or destruction. Holder in due course: “Holder in due course” means any person who for consideration became the possessor of a promissory note, bill of exchange or cheque if payable to bearer, or the payee or indorse thereof, if [payable to order] before the amount mentioned in it became payable, and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title. Endorsement: When the marker or holder of an negotiable instrument signs the same, otherwise than as such maker, for the purpose of negotiation, one the back or face thereof or on a slip of paper annexed thereto, or so signs for the same purpose a stamped paper intended to be completed as a negotiable instrument, he is said to indorse the same, and is called the “endorser”. Capacity to make, etc., promissory notes, etc.: Every person capable of contracting, according to the law to which he is subject, may bind himself and be bound by the making, drawing, acceptance, endorsement, delivery and negotiation of a promissory note, bill of exchange or cheque. Minor: A minor may draw, indorse, deliver and negotiate such instruments to as to bind all parties except himself. Nothing herein contained shall be deemed to empower a corporation to make, indorse or accept such instruments except in cases in which, under the law for the time being in force, they are so empowered. Agency: Every person capable of binding himself or of being bound, as mentioned in section 26, may so bind himself or be bound by a duly authorized agent acting in his name. A general authority to transact business and to receive and discharge debts does not confer upon an agent the power of accepting or indorsing bills of exchange so as to bind his principal.

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Q.No. 10: Explain the objects of the Consumer Protection Act.? and State and explain the following terms used in the Consumer Protection ACT, 1986.? (a) A consumer, (b) A Dispute, (c) Deficiency and (d) Restrictive Trade Practices and Unfair Trade Practices? Answer: The consumer protection Act, 1986 (68 of 1986) is a milestone in the history of socio-economic legislation in the country. It is one of the most progressive and comprehensive pieces of legislations enacted for the protection of consumers. It was enacted after in-depth study of consumer protection laws in a number of countries and in consultation with representatives of consumers, trade and industry and extensive discussions within the Government. The main objective of the act is to provide for the better protection of consumers. Unlike existing laws, which are punitive or preventive in nature, the provisions of this Act are compensatory in nature. The act is intended to provide simple, speedy and inexpensive redressal to the consumers' grievances, and relief’s of a specific nature and award of compensation wherever appropriate to the consumer. The act has been amended in 1993 both to extend its coverage and scope and to enhance the powers of the redressal machinery. The salient features of the Act are summed up as under: • • • The Act applies to all goods and services unless specifically exempted by the Central Government. It covers all the sectors whether private, public or cooperative. The provisions of the Act are compensatory in nature.

It enshrines the following rights of consumers: • • • • • • • Right to be protected against the marketing of goods and services, which are hazardous to life and property. Right to be informed about the quality, quantity, potency, purity, standard and price of goods or services so as to protect the consumer against unfair trade practices; Right to be assured, wherever possible, access to a variety of goods and services at competitive prices; Right to be heard and to be assured that consumers' interests will receive due consideration at appropriate forums; Right to seek redressal against unfair trade practices unscrupulous exploitation of consumers; and Right to consumer education The Act envisages establishment of Consumer Protection Councils at the Central and State levels, whose main objects will be to promote and protect the rights of the consumers.

Structure: • To provide simple, speedy and inexpensive redressal of consumer grievances, the Act envisages a three- tier quasi-judicial machinery at the National, State and District levels. o o o • National Consumer Disputes Redressal Commission - known as "National Commission". Consumer Disputes Redressal Commissions known as "State Commission. Consumer Disputes Redressal Forums- known as "District Forum.

The provisions of this Act are in addition to and not in derogation of the provisions of any other law for the time being in force.

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Consumer: All of us are consumers of goods and services. For the purpose of the Consumer Protection Act, the word "Consumer" has been defined separately for "goods" and "services". • For the purpose of "goods", a consumer means a person belonging to the following categories: o One who buys or agrees to buy any goods for a consideration, which has been paid or promised or partly paid and partly promised, or under any system of deferred payment; It includes any user of such goods other than the person who actually buys goods and such use is made with the approval of the purchaser.

o •

For the purpose of "services", a "consumer" means a person belonging to the following categories: o One who hires or avails of any service or services for a consideration, which has been paid or promised or partly paid and partly promised, or under any system of deferred payment; It includes any beneficiary of such service other than the one who actually hires or avails of the service for consideration and such services are availed with the approval of such person.

o

Note: - A person is not a consumer if he purchases goods for commercial or resale purposes However, the word "commercial" does not include use by consumer of goods bought and used by him exclusively for the purpose of earning his livelihood, by means of self employment. Definitions attached with the ACT Goods: Goods means goods as defined in the State of Goods Act, 1930 (3 of 1930).According to the Sale of Goods Act, 1930. "goods" means every kind of movable property other than actionable claims and money, and includes stock and shares, growing crops, grass, and this attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale. Service: Service means service of nay description which is made available to potential users and includes the provision of facilities in connection with banking, financing, insurance, transport, processing, supply of electrical or other energy, board or lodging or both, housing construction, entertainment, amusement or the purveying of news or other information, but does not include the rendering of any service free of charge or under a contract of personal service; Defect: Defect means any fault, imperfection or shortcoming in the quality, quantity, potency, purity or standard which is required to be maintained by or under any law for the time being in force or under any contract express or implied or as is claimed by the trader in any manner whatsoever in relation to any goods. Deficiency: Deficiency means any fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance which is required to be maintained by or under any law for the time being in force or has been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any service. Restrictive Trade Practice: Restrictive trade practice means any trade practice which requires a consumer to buy, hire or avail of any goods or, as the case may be, services as a condition precedent for buying, hiring or availing of other goods or services; Unfair Trade Practice: Unfair trade practice the detailed definition is given in the Consumer Protection Act, 1986 as amended by the Consumer Protection (Amendment) Act. 1993. It means a trade practice which, for the purpose of promoting the sale, use or supply of any goods or for the provision of any service, adopts any unfair method or unfair or deceptive practice including any of the following practices, namely: • • • • • False or misleading representation, Bargain price Offering of gifts, prize, contest etc. Non compliance of product safety standard. Hoarding or destruction of goods

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Q.No. 11: How is a company formed under the companies Act of 1956.? What are the documents to be filled with the Registrar of the Companies.? Answer: Formation of Companies under Companies Act, 1956

• •

Select in order of preference a few suitable names, not less than four, ensuring that the name does not resemble the name of an existing Company. Apply to the jurisdictional Registrar of Companies to ascertain the availability of name in Form 1A along with mentioned fee. Registrar of Companies informs the status of the application within 14 days. If the name proposed is not available, apply again for a fresh name. Arrange for drafting of the Memorandum and Articles of Association(MA) through a Consultant, vetting of the same by the Registrar of the Companies and printing of the same. Arrange for stamping of the M & A as per Registrar of Companies instructions. Get the Memorandum and Articles of Association signed by, at least 2 persons in case of Private Limited Company, at least 7 persons in case of Public Limited Company, each shall also write in his own hand his fathers name, occupation and address and number of shares subscribed for, and duly witnessed by at least one person who shall also write in his own hand his full details as above. The M & A should be dated on a date after the date of stamping.

• •

The following forms are to be filled and signed:

• • • •

Declaration of Companies of Companies Act 1956, Form No.1. Notice of situation of Registered Office of the Company Form No. 18. Particulars of Directors, Manager or Secretary Form No.32. Consent to act as Directors Form No. 29.

File the following documents with the Registrar of Companies with necessary Registration and filing for:

• • • • • •

Stamped and signed copy of Memorandum and Articles of Association. Form No. 1, 18, 32, and 29 in duplicate. Any other agreement referred to in the Memorandum and Articles. Any agreement proposed for appoint of Managing Director/whole time Director. Certified true copy of the Registrar of Companies letter intimating availability of name. Power of attorney in favor of any person for making corrections on their behalf in the documents and papers filed for registration.

Obtain the certificates of incorporation from Registrar of Companies: In case of Private Limited Companies, they can commence business immediately on receipt of the certificates of incorporation from the Registrar of Companies. In case of Public Limited Company following additional steps are to be completed. • Arrange for payment of application and allotment money in cash by the Directors on the shares taken or agreed to be taken by them.

File the statement in lieu of prospectus with the Registrar of Companies in accordance with Schedule IV of the Companies Act 1956.

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• •

File a declaration in Form No.20 with the Registrar of Companies to the effect that the application and allotment monies have been paid/will be paid in respect of shares taken up by the Directors. Obtain the certificate of commencement of Business from the Registrar.

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Q.No. 12: Explain rights, duties and disqualifications of directors of a company.? Answer: The Board of directors shall consist of the following, namely: • • • A director to be nominated as chairman under sub-section (1) of section 15. Two directors nominated by the State Government of whom one director shall be a person who has special knowledge of or experience in small-scale industries. Provided that in the case of a Joint Financial Corporation, the number of directors shall be such as the State Governments of the participating States may, by agreement among themselves, think fit to nominate each participating State Government nominating not more than two directors. Provided further that in the case of a Joint Financial Corporation, the director, who shall have special knowledge of, or experience in, small-scale industries, shall be nominated by that participating State which, according to the terms of agreement between the participating States, is entitled to make Such nomination. Two directors nominated by the Small Industries Bank. Two directors nominated in the prescribed manner by the parties mentioned in clause (c) of subsection (3) of section 4. Such number of directors elected, in the prescribed manner, by shareholders, other than those mentioned in clauses (a), (b) and (c) of sub-section (3) of section 4, whose names are entered on the register of shareholders of the Financial Corporation, ninety days before the date of the meeting in which such election takes place on the following basis, namely. • • • • Where the total amount of issued equity share capital held by such shareholders is ten per cent. or less of the total issued equity capital, two directors; Where the total amount of issued equity share capital held by such shareholders is more than ten per cent. but less than twenty-five per cent. Of total issued equity capital, three directors; Where the total amount of issued equity share capital held by such shareholders is twenty-five per cent. or more of total issued equity capital, four directors; and Where the total amount of issued equity share capital held by equity shareholders referred to in this clause does not permit election of all the four directors, the Board shall co-opt such number of directors as is required to make up the said number who shall retire in equal number on the assumption of charge by the elected directors in the order of their co-option;

• • •

A managing director appointed in accordance with the provisions of sub-section (1) of section 17; Provided that on the first constitution of the Board, the directors referred to in clause (d) shall be nominated by the State Government and directors so nominated shall, for the purpose of this Act, be deemed to be elected directors; Provided further that all the directors of the Board first constituted, other than the managing director, shall retire at the end of the first year.

Powers and duties of Directors and administrators • Subject to the control of the Financial Corporation, the Directors, or as the case may be, the administrators appointed under section 32A, shall take such steps as may be necessary for the purpose of efficiently managing the business of the industrial concern and shall exercise such powers and have such duties as may be prescribed. Without prejudice to the generality of the powers vested in them under sub-section (1), the directors or as the case may be, the administrators appointed under section 32A, may, with the previous approval of the Financial Corporation, make an application to a court for the purpose of canceling or varying any contract or agreement entered into at any time before the issue of the notified order under section 32A, between the industrial concern and any other person and the court may, if satisfied after due inquiry that such contract or agreement had been entered into in bad faith and is detrimental to the interests of the industrial concern, make an order canceling or varying (either unconditionally or subject to such conditions as it may think fit to impose) that contract or agreement and the contract or agreement shall have effect accordingly. Page 22 of 23

Business Law

No right to compensation for termination of contract of Managing Agent, Managing Director, etc. • Notwithstanding anything to the contrary contained in any contract or in any law for the time being in force, no Managing agent, Managing Director or any other Director or a manager or any person in charge of management of an industrial concern shall be entitled to any compensation for the loss of office or for the premature termination under this Act of any contract of management entered into by him with such concern. Nothing contained in sub-section (1) shall affect the right of any such managing agent or Managing Director, or any other Director or manager or any such person in charge of management to recover from the industrial concern, moneys recoverable otherwise than by way of such compensation.

Term of office and retirement of directors • • • A nominated director shall hold office during the pleasure of the authority nominating him. A nominated director shall hold office for three years and shall also be eligible for re-nomination provided that he shall not hold office continuously for a period exceeding six years. An elected director other than a director deemed to be elected under the first proviso to clause (d) of section 10 shall hold office for three years and shall also be eligible for re-election: Provided that no such director shall hold office continuously for a period exceeding six years.

Disqualifications for being a director. No person shall be a director, if he: • • • Has been found to be of unsound mind by a court of competent jurisdiction or At any time he has been adjudicated as insolvent or has suspended payment of his debts or has compounded with his creditors or Has been convicted by a court of any offence involving moral turpitude and sentenced in respect thereof to imprisonment of not less than six months and a period of five years has not elapsed from the date of expiry of the sentence or Is elected by the persons referred to in clause (d) of sub-section (3) of section 4 but not registered as shareholder in his own right of unencumbered shares of a nominal value of not less than ten thousand rupees in the Financial Corporation or Has not paid any call in respect of shares of the Financial Corporation held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call.]

Removal of Director from office, The State Government may remove from office any Director who• • • Is, or has become, subject to any of the disqualifications mentioned in section 12 or Without excuse sufficient in the opinion of the State Government to exonerate it, is absent without leave of the Board from more than three consecutive meetings of the Board. The shareholders, other than whose names are entered on the register of shareholders, may, after giving to the director a reasonable opportunity of being heard in the manner as may be prescribed, by resolution passed by majority of the votes of such shareholders holding in the aggregate not less than one-half of the total issued equity share capital held by all such shareholders, remove any director elected and elect in his place another person to fill the vacancy so caused.

Resignation of office by Director and filling up of casual vacancies • • • By giving notice in writing to the Chairman of the Board, he can resign from his office and on such resignation being accepted, shall be deemed to have vacated his office. If any director resigns, new director can occupy his office for the un expired portion of the term of his predecessor. No act or proceeding of the Board shall be questioned on the ground merely of the existence of any vacancy in, or any defect in the constitution of, the Board. Page 23 of 23

Business Law

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