BUSINESS LEGISLATION

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

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

INDIAN CONTRACT ACT-1872
‡ Unit-I ‡ The Indian Contract Act: Essentials of a valid contract, void agreements, performance of contracts, breach of contract and its remedies, Quasi-Contracts

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

A proposal when accepted becomes a promise.An agreement enforceable by law is a contract.When the person to whom the proposal or offer is made signifies his assent thereto. forming the consideration for each other. the proposal is said to be accepted. It can be past. ‡ Agreement . ‡ Promise . kind. present or future. However.Every promise and every set of promises.DEFINITIONS ‡ Proposal (Offer) . ‡ Acceptance . . It can be cash. with a view to obtaining the assent of that other to such act or abstinence.When one person signifies to another his willingness to do or to abstain from doing anything.Consideration means something in return (quid pro quo). an act or abstinence. he is said to make a proposal. is an agreement. consideration should be real and lawful. ‡ Contract . ‡ Consideration .

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

COMPONENTS OF CONTRACT An Agreement It involves proposal or offer by one party and acceptance of the same by the other party. Leading Case: BALFOUR V. BALFOUR CONTRACT = AGREEMENT+ENFORCEABILITY AT LAW . It must create legal relations and not merely social or domestic relations. AGREEMENT = OFFER + ACCEPTANCE Enforceable at law An agreement to become a contract must give rise to legal obligations.

Classification of Contract ‡ Classification as per Validity (valid/voidable/illegal/unforceable) ‡ Void Agreement & Void Contract ‡ Classification as per formation (Express/Implied/Quasi) ‡ Classification as per performance (Executed/Executory) .

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

Proposal/ Offer Proposal/ Offer . with a view to obtaining the assent of that other to such act or abstinence. 10 .When one person signifies to another his willingness to do or to abstain from doing anything. he is said to make a proposal.

Beyond expression of willingness. there must be something in the nature of a request. Proposer cannot dictate terms. 3.Essentials of Proposal/ Offer 1. An offer must be intended to create & capable of creating legal relations. 11 . 2.

‡ The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made. ‡ Eg .Communication of proposals. to sell a house to B at a certain price. by letter. The communication of the proposal is complete when B receives the letter.A proposes. 12 .

‡ The person making the proposal is called the Promisor and person accepting the proposal becomes Promisee. 13 .Acceptance ‡ When one person to whom the proposal is made signifies his assent thereto. the proposal is said to be accepted. ‡ Proposal when accepted becomes promise.

It must be expressed in some usual & reasonable manner. Mental Acceptance is not sufficient in Law. 6. Acceptance must be by a certain person. 2. 5. 3. 14 .Essentials of Acceptance 1. Acceptance must be given before the offer lapses or is revoked or is withdrawn. Acceptance must be absolute and unqualified. 7.Acceptance of proposal is acceptance of all terms. Acceptance must be given within a reasonable time. 4. Acceptance must be communicated to the offerer. 8.

The communication of the acceptance is complete. when the letter is received by A. knowledge. as against A when the letter is posted. as against the acceptor. so as to be out of the power of the acceptor. 15 . as against B. as against the proposer. when it comes to the. when it is put in a course of transmission to him. of the proposer.Communication of an acceptance The communication of an acceptance is complete. Eg : B accepts A's proposal by a letter sent by post.

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

but not afterwards. ‡ An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor.Revocation of proposals and acceptances ‡ A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer. 17 . but not afterwards.

(ii) As against the person to whom it is made -.Completion of Communication Offer or Acceptance OFFER : when it comes to the knowledge of the Offeree ACCEPTANCE : (i) As against the offeror : when putted into course of transmission (out of acceptors power) (ii) As against the acceptor : when it comes to the knowledge of the offeror Revocation of Offer or Acceptance (i) As against the person who makes it -.when it comes to his knowledge .when putted into course of transmission.

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

2. Who is not disqualified by any law. Every person is Competent to contract 1. Who is of sound mind.Capacity of parties to Contract An agreement becomes a contract if it is entered between the parties who are competent to Contract. 20 . 3. Who is of the age of majority according to the law.

mistake. 21 . undue influence.Free Consent "Free consent" . misrepresentation or mistake. Consent is said to be so caused when it would not have been given but for the existence of such coercion. fraud.Consent is said to be free when it is not caused by 1) 2) 3) 4) 5) coercion. undue influence fraud. misrepresentation.

Eg A.Coercion Coercion is the committing. or threatening to detain. or the unlawful detaining. 22 . any act forbidden by the Indian Penal Code. to the prejudice of any person whatever. with the intention of causing any person to enter into an agreement. or threatening to commit. any property. causes B to enter into an agreement by an act amounting to criminal intimidation under the Indian Penal Code.

A obtains. upon B's coming of age. Here A employs undue influence.A had given advance money to his son B during his minority. Eg . a bond from B for a greater amount than the sum due in respect of the advance. by misuse of parental influence.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. 23 .

Fraud "Fraud" means and includes any of the following acts committed by a party to a contract. or by his agent. 24 . by one who does not believe it to be true. 3) A promise made without any intention of performing. 2) The active concealment of a fact by one having knowledge or belief of the fact. with intent to deceive another party thereto of his agent. or with his connivance. 5) Any such act or omission as the law specially declares to be fraudulent. 4) Any other act fitted to deceive. of that which is not true. as a fact. or to induce him to enter into the contract 1) the suggestion.

gains an advantage to the person committing it. of duty which. 25 . without an intent to deceive. a party to an agreement to make a mistake as to the substance of the thing which is the subject of the agreement. however innocently. 2) any breach. 3) causing. of that which is not true. though he believes it to be true. or any one claiming under him. by misleading another to his prejudice or to the prejudice of any one claiming under him. in a manner not warranted by the information of the person making it.Misrepresentation "Misrepresentation" means and includes 1) the positive assertion.

Legality of Object ‡ Sec 23 declares that object & consideration of a contract should be lawful ‡ Consideration & object could be unlawful:a) If it is forbidden by law b) If it is of such a nature that. it would defeat the provisions of any law c) If it is fraudulent d) If it involves or implies injury to the person or property of another e) If the court regards it as immoral f) If the agreement opposed to public policy . if permitted.

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

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

31 . collateral to such contract. Essential characteristics of a contingent Contract 1. Eg A contracts to pay B Rs 10.000 if B s house is burnt. The event must be collateral.Contingent contract "Contingent contract" defined A "contingent contract" is a contract to do or not to do something. if some event. There should be existence of a contingency. does or does not happen. Contingency must be uncertain. This is a contingent contract as A will pay B only if his house burns and not otherwise. incidental to the contract. happening or non happening of some event in future. 3. for example. 2.

32 . ‡ There is no agreement at all. ‡ The essentials of formation of contracts are absent. ‡ It is implied Contract.Quasi Contracts ‡ Quasi Contract is an obligation resembling that created by a contract.

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

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

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Types of Quasi Contracts Continued
‡ Obligation to pay for non-gratuitous ‡ When a person lawfully does anything not intending to do so gratuitously & other person enjoys benefit thereof, the later is bound to make compensation to the former. ‡ Responsibilities of finder of goods ‡ A person who finds the goods belonging to another is subject to the same liabilities as a bailee of goods. He is entitled to retain the goods until he receives the lawful charges or compensation.
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1930 ‡ Unit-II ‡ The Sale of Goods Act: Contract of sale of goods. transfer of property. conditions and warranties. rights of an unpaid seller .SALE OF GOODS ACT .

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

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

Contract of Sale ‡ A contract whereby a seller transfers or agrees to transfer the property in goods to buyer for a price .

Essentials of Contract of Sale ‡ ‡ ‡ ‡ ‡ Two Parties Transfer of Property Goods Price Includes both Sale & Agreement to sell .

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

A agrees to sell B specific painting provided he is able to purchase it from its present owner) . Particular Car bearing a number) ± Unascertained Goods (Eg. One bag of sugar) ‡ Future Goods (Eg. A agrees to sell B milk that his cow yields in coming year) ‡ Contingent Goods (Eg.Kinds of Goods ‡ Existing Goods (Goods which are physically in existence & sellers ownership & possession at the time of entering the contract) ± Specific Goods (Eg.

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

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

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

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

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

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

2. A buys bicycle for Rs 2000 on a months credit and asks the shopkeeper to send it to his house. The bicycle immediately becomes property of A. When goods have to be put into a deliverable state ‡ Eg. When goods are in deliverable state ‡ Eg.Transfer of Property in Specific or ascertained goods 1. filling them in containers or polishing them to give a finished shape. or loading them on rail or ship. Packing the goods. The shopkeeper agrees. .

. When the goods have to be measured etc. within 8 days .Eg. to ascertain price ‡ Property does not pass unless such thing is done 4. When goods are delivered on approval ..Transfer of Property in Specific or ascertained goods 3. Held A was to bear the loss as the horse was still its property when it perished. A delivered a horse to B on the terms of sale or return. The horse died on the 3rd day without any fault on the part of B.

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

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

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

resuming possession and retaining possession until payment ‡ Right of Resale . ‡ Right to Stoppage of goods in transit ± Stopping further transit of the goods while they are with a carrier for purpose of transmission to the buyer.Rights of unpaid seller against the goods ‡ Right of lien ± Lien is the right to retain possession of goods and refuse to deliver them to the buyer until the price due in respect of them is paid or tendered.

Rights of unpaid seller against the buyer personally ‡ Suit for Price ± Buyer wrongfully neglects or refuses to pay the price according to the terms of the contract. ‡ Suit for damages for non acceptance ± Buyer wrongfully neglects or refuses to accept and pay for the goods ‡ Suit for special damages and interest ± Sue buyer for special damages .

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negotiation and assignment. dishonor and discharge of a negotiable instrument.NEGOTIABLE INSTRUMENTS ACT ‡ Unit-II ‡ The negotiable instruments act: nature and types. arbitration . holder-in due course.

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

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

Essentials of Promissory Note ‡ It must be in writing ‡ It must contain a promise or undertaking to pay.seven days after my marriage with C ‡ ‡ ‡ ‡ The maker must be a certain person The payee must be certain The sum payable must be certain It must be signed by the maker. ± I promise to pay B Rs 500/- ‡ The promise to pay must be unconditional ± I promise to pay B Rs 500/. .

2008 Three moths after the date.Specimen of a promissory note Rs. 5000/Pune November 25. X of Mumbai or order a sum of Rupees Fifty Thousand for value received. Address«««. ««««« Mumbai Stamp Signature of Mr Y 62 . To Mr. I promise to pay Mr..

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

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

In this case it is Tarun. Rajiv is the drawer. ii.He is generally a debtor of the drawer.Parties to a Bill of Exchange There are three parties involved in a bill of exchange. It is Sameer in this case. The Payee The person to whom the payment is to be made. The Drawer The person who makes the order for making payment. . They are i. The Drawee The person to whom the order to pay is made. In the above specimen. iii.

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

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

the person thereby directed to pay is called the "Drawee".Cheque ³A cheque is a bill of exchange drawn on a specified banker and expressed to be payable otherwise than on demand. 68 .´ The maker of a bill of exchange or Cheque is called the ³Drawer".

A cheque can be bearer. It is always drawn on a specified banker. It is a bill of exchange. order or crossed 69 . It is always payable on demand.Essential characteristics of a Cheque ‡ ‡ ‡ ‡ ‡ A cheque is a negotiable instrument.

title. interest of a person in a negotiable instrument to another person so as to give a good title to the transferee and make a transferee a holder of such instrument.Negotiation ³It is a process of transferring the ownership. right.´ 70 .

Y here Mr. Eg -X hands over a cheque to Mr. Simple transfer may not necessarily involve the transfer of property in the negotiable instrument but negotiation implies the transfer of property or ownership. Y.Continued Negotiation does not mean a simple transfer. the cheque is not negotiated to Mr. Y asking him to keep the same in his safe. Y does not become its holder but only a bailee. X has negotiates the instrument. 71 . But if he hands over a cheque to Mr. Mr.

Essentials of negotiation ‡ There must be transfer of a negotiable instrument to another person. 72 . the transferee must become the holder of the instrument. ‡ As a result of such transfer.

actual or constructive. 73 .´ It is physical act of delivering the instrument or handing over the delivery. ‡ Negotiation by endorsement and delivery ± The negotiable Instrument payable to order is negotiable by the holder by endorsement and delivery thereof.Modes of negotiation: ‡ Negotiation by delivery ± The negotiable Instrument is transferred by delivery.

The person to whom the instrument is endorsed is called the endorsee. Endorsee . 74 .Endorsement ³Literal meaning of the term endorsement is writing on an instrument.The person who signs on the back or on the face of the instrument or on the slip is an endorser.´ Endorser .

It specifies the name of the person to whom or to whose order the payment must be made.Endorser signs his name either on the back or face of the instrument.Types of Endorsement ‡ General or blank endorsement . ‡ Full or special endorsement . 75 .

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

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

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

Dishonour of negotiable instrument

‡ Negotiable instruments, Promissory notes and
Cheques may be dishonored by non payment ‡ Bills of exchange may be dishonored by non payment or by non-acceptance as they require acceptance from drawees.

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

THE COMPANIES ACT ‡ Unit-III The Companies Act. allotment of shares . shares and share capital. 1956: Nature and types of companies. prospectus. formation. memorandum and articles of association.

Types of Business Entities  Sole Proprietorship  Partnership  Private Limited Company  Public Limited Company  Charitable Organization .

Sole Proprietorship No registration required Unlimited liability Used for small business or by Professionals No Separate Legal Entity .

1932 Section 4 ± Partnership is the relation between persons who have agreed to share profits of business carried on by all or any of them acting for all ‡ ‡ Unlimited Liability Registration not Compulsory .Partnership ‡ Section 11 of Companies Act. 1956 No partnership consisting of more than 20 persons shall be formed ‡ Indian Partnership Act.

1956 Special Features of Company a) Company is a Separate Legal Entity b) It can sue and be sued in its own name c) The liability of the shareholders are limited to the extent of their shareholdings d) Company is distinct from its shareholders e) It can hold property in its own name .Company ‡ Governing Act ± Companies Act.

Types of Companies in India DESCRIPTIONS Definition PRIVATE COMPANY Which by its article restricts: Numbers of members to 50 Transfer of shares Invitation of public to subscribe its debenture. shares etc. 1956 Companies Act. Acceptance of deposits from person other than its shareholders and directors PUBLIC COMPANY Which is not * private Governing Laws Companies Act. 1956 SEBI Act. . 1992 and allied laws.

Types of Companies in India DESCRIPTIONS Incorporation Time Minimum No. of shareholders Minimum Paid up Capital Transferability of Shares Minimum No.00.00. of Shareholders Maximum No. If company is listed then through stock exchange(s) 3 2 .000/Restricted PUBLIC COMPANY 2 to 3 weeks 7 (Seven) No limit INR 5.000/Freely. of Directors PRIVATE COMPANY 22 to 3 weeks 2 (Two) 50 (Fifty) INR 1.

€These defines powers and duties of directors and other officers of the company.Articles of Association. 88 . €The Articles of association are the documents containing the rules and regulations which govern the internal management of a company at every stage of its business that is from cradle to grave.

‡ Meetings of the Company.qualifications of Board of Directors. ‡ Share certificates & warrants. ‡ Rights of share holders.remuneration. ‡ Dividends. ‡ Appointment. 89 . ‡ Indemnity.Contents of Articles ‡ Provisions relating to share capital and alteration thereof.

 be divided into paragraphs numbered consecutively.Articles of Association shall  be printed.  be signed by each subscriber of the memorandum of association. 90 .

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

€Company is governed by Memorandum of Association.Memorandum of Association €Memorandum of Association is the document which contains the rules regarding constitution and activities or objects of the Company. 92 . €It is a fundamental agreement of the Company.

Contents of memorandum. and with "Private Limited" as the last word of the name in the case of a private limited company. 93 . €The State in which the registered office of the company is to be situated. €The name of the company with "Limited" as the last word of the name in the case of a public limited company.

the States to whose territories the objects extend. ‡ in the case of companies with objects not confined to one State.Continued ‡ objects of the company. 94 . ‡ The memorandum of a company limited by shares or by guarantee shall also state that the liability of its members is limited.

95 . €In the case of a company having a share capital the memorandum shall also state the amount of share capital with which the company is to be registered and the division thereof into shares of a fixed amount.Continued €The memorandum of a company limited by guarantee shall also state that each member undertakes to contribute to the assets of the company in the event of its being wound up.

 be signed by 7(2 in case of private company) subscriber.  be divided into paragraphs numbered consecutively.The memorandum shall (sec 15)  be printed. 96 .

for which express provision is made in this Act.Alteration of memorandum. ‡ A company shall not alter the conditions contained in its memorandum except in the cases. ‡ Provisions relating to the appointment of a managing director. 97 . managing agent. may be altered in the same manner as the articles of the company. secretaries and treasurers or manager.

shall be filed by the Company within three months from the date of the order with the Registrar who shall register the same and certify it. with a printed copy of the memorandum altered.Continued ‡ The alteration. 98 .

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

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

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

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

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

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

Statement which produced wrong impression. 5.65] -Mis-statement includes:1.62] .Statement which are misleading 4.MIS-STATEMENT OF THE PROSPECTUS:[SEC.Untrue statement 2. -Mis-leading prospectus:The prospectus which contains mis-statement/mis-leading statement -Who is liable for mis-statement in prospectus:-[sec.omission of facts.Statement which produce wrong impression 3.

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

Share capital Definition (Sect. of liability in the first place .2(46)) Share means share in the share capital of the company A Share is the interest of shareholder in the company measured by a sum of money for the purpose. and of interest is second .

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

preference share may be cumulative or non-cumulative. Types of preference share:- 1)Cumulative or non-cumulative:With regard to the payment of dividends.the fixed dividend keeps on accumulating until it is fully paid.Participating preference shares are those shares which are entitled to a fixed preferential dividend and .‡ ‡ Preference Share :Characteristic of preference share:Preference share have two characteristic : 1) 2) They have preferential rights to be paid dividend during the life time of company and They have preferential right to the return of capital when the company goes into liquidation. 2)Participating or non-Participating :. in addition carry a right to participate in the surplus profits along with equity shareholder. A cumulative preference share confers a right on it s holder to claim fixed dividend of the past and the current year out of future profits. .

2)Participating or non-Participating :. 4)Convertible or non-convertible :convertible preference shares are those which would be convertible into equity shares after a specified period. 3)Redeemable or irredeemable:Redeemable preference share are issued by a public limited company. . Condition for issue of such shares are laid down in section 80 of the act.Participating preference shares are those shares which are entitled to a fixed preferential dividend and . to be redeemed either at a fixed date or after a certain period of item during the life time of the company . in addition carry a right to participate in the surplus profits along with equity shareholder.

2) . no profit remain. If after paying the divident on preference share. ‡ Kinds of equity shares :section 86. equity shareholder will receive no dividend.‡ Ordinary or Equity shares :All shares other than preference share will be ordinary shares . empowers companies to issue the following types of equity shares: 1) Equity shares with voting right :The holder of such equity shares will have the right to vote on every resolution placed before the company .voting or otherwise in accordance with such rules and subject to such condition as may be prescribed by the central government. The holder of these shares are entitled to dividend from the net profit of the company after the fixed dividend on preference share has been paid up . [Sec.as amended by the companies (amendment) Act 2000.87(1)] Equity shares with differential rights:The holder of such equity shares have differential rights as to dividend . His voting right on a poll will be a proportion to his share of the paid-up equity capital of the company.

this is subject to the provisions under the Memorandum and the Articles of the company .Who Can Become a Member of a Company? ‡ Any individual who can enter into a contract under the Indian Contract Act. 1872 may be eligible to become a member of a company. However.

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

or ± It is a trading company (since a trading company has an implied power to borrow money. if± The object clause permits the company to borrow money.) ‡ A public company having share capital is required to obtain a certificate of commencement of business.BORROWING POWERS ‡ A company is empowered to borrow money. . it shall not carry on any business or borrow money. ‡ Until such certificate is received.

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

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

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

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

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

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

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

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

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

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

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

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

CONSUMER PROTECTION ACT. 1986 .

WHO IS A CONSUMER? ‡ Two kinds of consumer under the Act ± Consumer of goods ‡ buys or agrees to buy goods ‡ any user of such goods ± Consumer of services ‡ hires or avails any services ‡ any beneficiary of such service .

CONSUMERS NEED PROTECTION AGAINST ‡ Unfair trade practice ‡ Restrictive trade practice ‡ Defects ‡ Deficiencies .

g. use or supply of goods or services e.  Misleading public about price (e. .  Offering misleading warranty or guarantee.  Charging above MRP printed. bargain price when it is not so). approval or affiliation.  Misleading public about another s goods or services.g.  Falsely claiming a sponsorship.CONSUMERS NEED PROTECTION AGAINST UNFAIR TRADE PRACTICE  Adopting unfair methods or deception to promote sale.

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

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

‡ Consumer Disputes Redressal Commissions (State Commission) ±Claim more than Rs.20 lacs. ‡ National Consumer Disputes Redressal Commission (National Commission) ±Claim equal to Rs.20 lacs & less than Rs.1 crore & appeals .FORUM & JURISDICTION ‡ Consumer Disputes Redressal Forums (District Forum) ± Claims less than or equal Rs.1 crore & appeals.

ESSENTIAL INFORMATION IN THE APPLICATION ± Name and full address of complainant ± Name and full address of opposite party ± Description of goods and services ± Quality and quantity ± Price ± Date & proof of purchase ± Nature of deception ± Type of redressal prayed for .

. ± Compensation. ± Replacement of defective goods.Speedy trial ‡ Relief ± Removal of defects in goods or deficiency in services. ± Refund against defective goods or deficient services.BENEFITS & RELIEFS ‡ Benefit ± Disposal within 90 days ± No adjournment shall ordinarily be granted . ± Prohibition on sale of hazardous goods.

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CYBER LAWS .

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

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

NEED FOR CYBER LAWS ‡ TACKLING CYBER CRIMES ‡ INTELLECTUAL PROPERTY RIGHTS AND COPYRIGHTS PROTECTION ACT .

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

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

CYBER CRIMES ‡ CYBER CRIMES AGAINST PERSONS ‡ CYBER CRIMES AGAINST PROPERTY ‡ CYBER CRIMES AGAINST GOVERNMENT .

OFFENCES AND LAWS IN CYBER SPACE ‡ TAMPERING WITH COMPUTER DOCUMENTS ‡ HACKING WITH COMPUTER SYSTEM ‡ PUBLISHING OBSCENE MATERIAL ON INTERNET ‡ BREACHING OF CONFIDENTIALITY AND PRIVACY .

Appeals / Cyber Appellate Tribunal ‡ Appeal to Cyber Appellate Tribunal ± Any aggrieved person ‡ Powers of Cyber Appellate Tribunal ‡ Appeal to High Court .

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

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