Q1

Legal System in Business-

Pec-Vnb

Books:-

1. Business law for management

2. Elements of mercantile law by N.D. Kapoor ( Reference )

3. Business law for management by Bulchandani ( Reference )Business Law

Business:- All those activities which are aimed at transfer of goods & services from the production centre to consumption centre carried out by an entrepreneur by optimally utilizing resources at his command i.e. money, man, material & machine with a view to maximize profit.

Law:- Rules & Regulations which has a force of authority, passed by legislative bodies.

LAWS

Constitutional Law Criminal Law Civil Law International Law(Relating to rights, (Crime & Punishment) (Business & Property (Dealing between

duties of citizens matters) citizens of two

towards the state countries)

& administration)

Contract ActContract:- Agreement enforceable by Law.

Agreement:- It is every promise or a set of promises forming consideration for each other. It is a result of intention to create legally binding relationship.Promise:- Proposal when accepted becomes promise.

Proposal:- When a person signifies to another his willingness to do or not to do something with a view to obtain assent of that other person, the person is said to have made a proposal.

Proposal + Acceptance = PromisePromise * Promise = Agreement

Agreement + Enforceability = Contract

Q1. Discuss essential ingredients of a valid contract? Or All contracts are agreements but all agreements are not contracts.Ans.

1. Intention to create legally binding relationship

2. Offer and Acceptance

3. Two or more persons

Section 10 All agreements are contracts if they are made by

Free consent

Parties competent to contract

For lawful consideration

And lawful object

And not expressly declared to be void

4. Competence of parties to the contract Every person is competent to contract if

He attends the age of majority according to which he is subject of

He is of sound mind

Not disqualified under law

5. Lawful consideration

6. Free consent of parties Consent is free if it is not caused by

Coercion (Force) use of physical force

Undue Influence use of dominant position Misrepresentation false statement

Fraud cheating

Mistake erroneous state of affairs

7. Lawful Object

8. Certainty of performance

9. Not ambiguous / vague(the agreement must be certain)10. Legal Formalities

11. Not declared to be void

Q2. Offer and AcceptanceAns.

Rules for a valid offer:-

1. Offer should be capable of creating legally binding relationships

2. Offer should be backed by willingness to perform. Mere intention is not an offer

3. Offer should be communicated e.g. Lalman Shukla (Civil Plaintiff, Criminal Complainant) v/s Gauri Datt (Civil Defendant, Criminal Accused if guilty is called convict if not guilty then is called acquit)(PPS Gogna Pg no.20)4. Objective of the offer is to obtain approval / acceptance of offeree

5. Offer should be differentiated from

Intention

Invitation to offer for e.g.

a) Super Bazaar

b) Prospectus

c) Tender

d) Auction Notice

6. Offer may be conditional

7. Offeror cannot dictate terms

Acceptance:- When a person to whom offer is made signifies his assent there to he is said to have accepted the offer/proposal.Rules for valid Acceptance:-

1. Acceptance to be valid must be absolute and unconditional2. Acceptor must be willing to perform his obligation

3. Acceptance must be communicated to the offeror

4. Acceptance must be communicated within a reasonable time

5. Acceptance must be in the manner prescribed

6. Acceptance must be communicated before offer lapses / withdrawn

Lapse of offer offer no longer valid Expiry / Lapse of time

Revocation Cancellation of offer by offeror

a) Notice of revocation

b) Communication in same channel

Conditional acceptance / qualified acceptance / counter offer

Non compliance of terms and conditions

Death in respect of contracts of personal skill

Rejection

Rules as to communication of offer & acceptance :-( better in PPSG Pg. no.27)1. Offer:- Communication of offer is complete when it comes to the knowledge of the person to whom it is made.2. Acceptance:- Communication of acceptance is complete

To against offeror when communication of acceptance is put into transmission so as to be beyond the control of acceptor As against acceptor when it comes to the knowledge of offeror.Open letter dated01-08-2005

Letter received by offeree05-08-2005Communication of offer is complete

Letter of acceptance dropped on08-08-2005Communication of acceptance is complete as against proposal

Letter of acceptance received on10-08-2005Communication of acceptance is complete against acceptance

Competence of Parties to contract:-(Legal Competence)

Whether a person has Power In Law AuthorityEvery person is competent to contract open letter dated 01-08-2005 if

1. he has the age of majority according to the law to which he is subject

2. he is of sound mind

3. he is not disqualified under the law

a person has attained the age of majority incase where guardians have been appointed under guardianship law.

Legal Position of Contracts with Minor:-Who is Minor:- A person who has not attained the age of majority

Validity:- Contracts with minor are void-ab-initio (from the very beginning)

e.g. Mohori Bibi v/s Dharmodas Ghose1. Anyone who contracts with minor does it on his own risk2. No ratification (no regulation)3. Contracts with minor cannot be rectified even after he has attained the age of majority. What is required is to sign a fresh contractA & B (jointly contract with) C (Major)

- Contract is void between B & C. The manager i.e. A has to take full responsibility of minor B and his actions.4. Minor deliberately misleading his age

Contract remains void

Court may take cognigence & award compensation

5. Minor cannot become a partner in partnership firm. However if all the partners agree minors may be admitted to benefit of the firm

6. Minor cannot become member of a company unless

Articles of Association of the company permit

Shares are fully paid7. Minor can act as an agent

Minor will have no personal liability

8. Minor cannot be declared insolvent9. No degree of specific performance against minor

10. Anyone who provides necessaries to minor can recover the amount from minor even by attaching his propertySound Mind:-

Every person is of sound mind (for the purpose of entering into contract) if at the time of making contract he understands Terms & conditions of the contract

Impact of terms & conditions on his personal interest

If he can understand this then he is said of sound mind.

Idiot Person:- Person whose mental capacity is permanently affected. Such person can never enter a contract.

Schizophrenia Epetopsey:- Mental capacity is temporarily under an attack of a disease. Such a person can contract during the period of normalcy

Drunk Person:- Such a person dont contract under influence of intoxicationLawful Consideration:-BasisPrice

Something in return Quid Pro Quo

Right, interest, benefit, or profit accruing to someone as against responsibility, detriment, sacrifice or loss suffered or incurred by someone else.Q3. No Consideration, No Contract Discuss giving Exceptions.Definition of Consideration:- When at the desire of promisor, promise or other person has done or abstained, does or abstained, promises to do or abstained from doing something. Such an act or abstinence is called consideration & contract without consideration is void.

Essential Features of Consideration:-

1. Consideration must move at the request of promisor desire of promisor cannot be ignored. E.g. Durga Prasad v/s Baldeo

2. Consideration may move from promisee or any other person. E.g. Chinnaya v/s Ramaiya3. Consideration can be past, present & future.

4. Absence of act, forbearance or sacrifice may also be a good Consideration.5. Consideration need be real & not imaginary/illusory.6. Consideration need not be adequate.

7. Consideration must be lawful

If it does not violate the provisions of the law

If it is not forbidden by law

If it does not result into injury to person or property

If it is not against public policy

Circumstances where contract without Consideration may not be void:-

1. Contracts made under natural love & affection provided agreement is in writing, registered & between parties in near relation. E.g. Raj lukhee Debee v/s Bhootnath2. Promise to compensate for past voluntary service rendered service must be voluntary & not a legal duty

3. Promise to pay time barred debt

Must be in writing Must be signed by debtor

4. Gift Donation without consideration

5. Charitable contribution e.g. Kedarnath v/s Gauri Mohammed

Coercion:- Consent is obtained by coercion when it is obtained by:-

1. Committing or threatening to commit

2. Offense punishable under Indian Penal Code

3. Detaining or threatening to detain unlawfully property of a person

Features of Coercion:-

1. Use of physical force

2. Violent in nature

3. Even a threat is enough

4. Offense may be committed or threatened is punishable under Indian Penal Code

5. Threat to commit suicide is punishable & it can result in coercion. E.g. Amiraju v/s Shesamma

Consequences of Coercion:-

1. Consent is not free2. Contract is voidable

Person who gave consent under coercion can avoid or cancel the contract

Undue Influence:- Consent is induced by undue influence when relationship subsisting between the parties are such that one is in a position to dominate the will of another & uses that position to obtain unfair advantage over the other.

Relationship where undue influence may be presumed:-

1. Where there is real or apparent authority e.g. master & slave, father & son.

2. When the parties stand in fiduciary relationship. E.g. CA & client, lawyer & client, guru & disciple

3. Where mental capacity is temporarily affected on account of age & disease e.g. doctor & patient

Consequences of Coercion:-

1. Consent is not free

2. Contract is voidable

CoercionUndue Influence

MeaningUse of physical forceUse of dominant force

NatureViolentMay not be violent

RelationshipNot requiredThere must be relationship

Who can exerciseThird parties can exerciseOnly by parties under relationship

Misrepresentation:-1. False statement by a person who believes it to be true

2. Breach of duty without intention to deceive, giving unfair advantage

3. Causing however innocently, party to make a mistake regarding subject matter of contract e.g. Rex v/s Kylsant

Effects of Misrepresentation:-

1. Consent is not free

2. Contract is voidable

3. Person who gave consent can cancel the right of cancellation / rescission

Person must have depended

Cancellation must be within a reasonable time

Person should not have affound the contract or taken benefit of the contract

Fraud:- Means & includes any of the following with intention to deceive

1. False statement by a person who does not believe it to be true

2. Active concealment of facts

3. Promise without intention to perform

4. Anything fitted to deceive

5. Anything which law may declare to be fraudulent

Mere silence is not fraud, unless there is duty to speak

Negligence is no fraud e.g. Derry v/s PeekMisrepresentationFraud

IntentionNo intention to cheatThere is intention to cheat

Knowledge of false statementPerson making false statement does not know statement is falsePerson making false statement does know statement is false

Claim for damagesNo claim for damages availableClaim for damages available

Mistake:- Error or erroneous state of affair. When a party intending to do one thing, by error, does something else.

LAWS

Mistake of Law Mistake of Fact

Indian Law Foreign Law Bilateral Unilateral(Ignorence of law (Treated as mistake (Both parties are (Only one party atnot excused) of fact) at mistake Void mistake Contract Contract) isnt void)

two exceptions

Identity of person contracted with Nature of contract signed

Contract becomes void

e.g. Cundy v/s Lindsay

Agreements expressly declared to be void:-

1. Agreement with parties incompetent to contract

2. Contract without consideration

3. Contract with unlawful consideration

4. Contract with unlawful object

5. Contract with mutual mistake of fact

6. Contracts in restraint of marriage

7. Contracts in restraint of trade:- Any agreement which takes away the freedom it would amount to restraint of trade/void.Reasonable Restrictions

Sale of Goodwill Partnership agreements Trade/Business Consideration Service Contract

8. Contracts in restraint Legal Proceedings

Right to seek legal remedy if refused Void

Agreement where period of limitation is reduced

Exception Reference to arbitration

9. Contracts the meaning of which is uncertain

10. Contracts by way of Wager

11. Contracts contingent on uncertain event when event becomes impossible

12. Contracts to do impossible things

Agreement by way of Wager:-Betting / Expenditure Agreement:- Promise to pay or moneys worth if an uncertain event turns one way & if the event turns otherwise, person will receive instead of paying.

Uncertain Transactions which are not wagers:-

Lottery

Cross word puzzles games

Horse racing Sports event

Stock exchange trading Investment Science

Insurance socially beneficial

Agreement to impossible acts (void):-

Contingent Contracts:- Contract to perform or not to perform if an uncertain future event collateral to the contract does or does not happen.

Q. Rules relating to enforceability of contingent contract1. Contract contingent on happening of an event

Such contract cannot be enforced until the event takes place

If the event becomes impossible contract is void2. Contract contingent on non-happening of an event such contract cannot be enforced until it is clear that the event shall never take place

3. Contract contingent on future behavior of an individual event shall be considered impossible if a person behaves in such a way that he cannot come back to the original position

4. Contract contingent on happening of an event within a specified time Such contract cannot be enforced until the event takes place within a specified time

5. Contract contingent on non-happening of an event - such contract cannot be enforced until it is clear that the event shall never take place within a specified time

6. Contract contingent on impossible events

Quasi Contracts:- Circumstances in which there is no offer, no acceptance or no formal contract but law enforces duty. This duty is as good as contract (as if contract was signed)

Based on Principles of Equity & Justice

No one shall be permitted to be unjustly enriched at the expense of another

Q. Why should law impose duty?

Circumstances in which law imposes duty:-

Reimbursement of amount spent towards necessaries supplied to a person incompetent to contract Reimbursement of payment due from someone else but person paying is interested in such payment

Reimbursement of act done or service rendered non gratuitously, not out of charity & on commercial terms

Responsibility of finder of goods a person who finds goods belonging to another and takes them into his custody is placed with responsibility of a bailee

The article delivered price paid under coercion or mistake

Discharge of Contract:- Contractual relationship comes to an end & nothing remains the same

1. By Performance

Actual

Attempted

2. By Agreement

Novation New agreement is substituted in place of old

Alteration Existing agreement is modified

Rescission Right to cancel agreement

Remission Accepting less than in agreement in final settlement Merger Right to receive & right to pay both come in the same hands

Waiver Withdrawal of contractual terms

3. By Operation of Law

Death

Insolvency

Merger

4. By Impossibility of Performance

At the Time of Contract Void

Subsequenti. Permitted as excuse

Distribution of subject matter

Outbreak of war

Change of law

Change of state of affairs

ii. Not Excused Difficult to perform5. Breach of Contract Actual Breach of Contract

Anticipatory Breach of Contract

Breach of Contract:- Contractual obligations not carried out in agreed manner.

Actual (On due date of performance)Anticipatory (Before the actual due date intention not to perform is communicated)

The other party can treat this communication as breach of contract on the date of receipt of communicationThe other party can wait till actual due date

We can perform on due date (alternative arrangement)If we fail it will be breach of contract on actual due date

Consequences of Breach of Contract:-Suit for Damages (Estimate of monetary loss suffered on account of non performance)

Normal Arising out of normal course of businessSpecial Parties had estimated or convisaged

Exemplary Puritive by way of punishmentNominal Taken but in recognition of rights of the partySuit for Specific PerformanceInjunctionCourt order restricting the partiesQuantum Meruit As much as is merited

Where contract is abandoned or cancelled

Contract becomes void

When contract is voidable & party decides to cancel

In the mean time part of the contract is already performed payment is required to be made to the extent of performance

Guidelines for determining damages:- Damages to be on account of proximate cause & not remote cause e.g. Headley vs Baxandle

Damages must arise out of & during the normal course of business

Person claiming damages must show his sincerity in mitigating the losses Amount of damages claimed can never exceed the actual loss suffered

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

2. Limited Liability Liability is limited to extent of uncalled / unpaid amount of shares3. Transferability of Shares Shares of the company are transferable & members can sell them any time when they want. A person can cease to be a member whenever he desires to quit

4. Perpetual Existence Company never dies except through due process of law

5. Common Seal Seal is signature of a company

6. Property can be purchased in the company name. Company can own, posses / dispose of the property

7. Can Sue Company can file suit against own name & can be sued againstAll 7 points together is termed as Corporate Entity / Veil which acts as a curtain

Q. What do you understand by corporate veil & under what circumstances the corporate veil can be pierced?

Circumstances under which corporate veil can be pierced:-1. Loss Of Revenue to the State e.g. Dinshaw Maneckji Petit vs CIT

2. Company assuming enemy character e.g. Daimler & Company Ltd vs Continental Tyres & Rubbers Company3. Improper Conduct e.g. Gil Ford Motor Company vs Harne

4. Fraud

5. Statutory provisions:-

Membership is reduced below minimum & business is carried on for 6 months or more then all the members are personally liable

Misdescription of Name

Misfeasance Proceedings Criminal breach of trust

Types Of Companies:-Types of Companies

On the basis of Statute(act)

Companies formed under special charter East India Company

Co-formed under special statute act RBI

Co-Registered under companies act Reliance Ltd.LiabilityCompany with limited Liability

Company with unlimited liability Kotak Mahindra Capital Company

Capital ContributionWith Share Capital

May not have share capital Liability limited by guarantee(Indian Institute of Bankers)

Number of MembersPublic Ltd Company Min 7 & Max (no upper limit)Marketability of shares

Unlisted (Closely Held)Listed

Private Ltd Company Min 2 & Max 50 (Excluding present/past employees who are shareholders)

Basis of ControlHolding Company

which controls appointment of majority of directors in other company

which holds majority of shares of other companies

Subsidiary of Subsidiary is subsidiary of holdings

Subsidiary Company

Basis of Government involvement Government Company Audited by CAG(Comptroller & Auditor General of India)

Annual report is placed before the parliament

51% of capital is held by government(Central, State, Other Govt. Co. PSUs if registered under companies act)

Geographic Parameter (Place of Incorporation)Foreign Companies (All MNCs)

Face Value As may be issued by the company as Re. 1, 5, 10, 100.

Book Value (Paid up Capital + Reserves & Surplus Accumulated Losses) / No. of shares issued

Market Value As quoted in the Market

Incorporation of a Company

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

Name:-

Application for availability of name

Form No. I A

Payment fee of Rs. 500/-

Suggest the name by which he would like his company to be incorporated with 3 other alternative names

Names which are not Available / not Desirable

Names of existing companies Phonetic Similarity e.g. J.K. Industries LTD. & Jay Kay Industries Cannot use international bodies / national bodies Relevance of business name & business should be maintained Relevance between name & size of authorized capitalNAMEAUTHORISED CAPITAL

If Coporation5 crores

International / Globe / Global / Asia / Asiatic / Intercontinental1 crore

Above words used in between name50 lacs

Hidustan / Bharat / India as first name50 lacs

Above words used in between name5 lacs

Industry / Udyog1 crore

Enterprise / Products / Manufacturing10 lacs

Documents to be submitted for Registration1. Memorandum Of Association To be stamped according to the value of authorized2. Articles Of Association capital

3. List of Directors on Form 32 (In Duplicate)

4. Consent of persons who have agreed to become Director on Form 29 (only in respect of Public LTD Companies)

5. Declaration that provisions of Company Law have been complied with Form I (signed by Director / Advocate / CA / PCS)

6. Particulars of registered office on From 18

7. Registration Fee

Certificate of Incorporation Issued by Registrar of Companies (ROC) on satisfying that requirements of company law have been complied with Conclusive evidence as regardsi. Registration of Companyii. Compliance to Company Law Birth certificate of Company Corporate features become operative from this date If the company is Private LTD Company then it can commence its business immediately on incorporation If company is Public LTD Company then it has to obtain additional certificate Certificate of Commencement of BusinessCertificate of Commencement of Business

Company must have to raised minimum subscription to commence its businessMinimum Subscription Is the amount which in the opinion of Directors of the Company sufficient to commence the business

In respect of IPO / Subsequent public offer Minimum subscription is 90% of the amount of public offer of an issue of shares (if minimum subscription is not raised entire application amount is to be refunded) Approval from the stock exchanges at which the shares of the company are proposed to be listed must be obtained (If stock exchanges refuse listing, the application amount will have to be refunded)

Directors should have taken & paid qualification shares if any

Audited receipt & expenditure account since incorporation

Declaration by Director that Company Law has been complied with

Memorandum Of Association (MOA)

Character / Constitution of the Company Fundamental DocumentContents of MOA

Q. Discuss significance of object clause in MOA & Doctrine of ultra vires vis--vis the object clause1. Name Clause Name of the Company is ____________________

2. Registered Office Clause The registered office of the company is located in the state of _____________________

3. Object Clause

Main objectives the company will pursue on its incorporation

Objects ancillary to main objects

Other objects

* Need for Object Clause

Positively Speaking Object Clause specifies the areas of operations in which the company will deploy its funds

Negatively Speaking Company will not deploy its funds in the areas beyond what is stated in the object clause

Comfort of investors / members

Creditors

Anything beyond the object clause is ultra vires

Ultra Vires contract is invalid

Company is not bound

Directors may incur personal liability

4. Liability Clause e.g. Asbury Railway Carriage & Iron Company vs Riche. Liability of members of the company is limited5. Capital Clause Specifies the maximum amount company is authorized to raise e.g. Authorized Capital of the company is Rs. 50 crore divided in 5 crore equity shares of Rs .10 each6. Subscription / Association Clause Names, Addresses, Undertaking to the shares, Signature duly witnessed

Alteration of Memorandum Of Association1. Change of Name CompulsoryVoluntary

Where existing company object the name to similar / identical

ROC to issue order

First show cause notice

Hearing

Order When the members of the company want to change

availability of new name to be checked up

approval of members to change name at AGM / EOGM

File copy of Resolution with ROC ROC to issue fresh certificate of Incorporation with new name

Newspaper Advertisement

2. Change of Registered Office

Change of office from one area to another within same town

First decision at meeting of Board of Directors

Board resolution / record of decision to be filed with ROC

Form 18 for change of address to be filed with ROC

Advertisement

Change of office from one town to another within same state

First decision at meeting of Board of Directors

Approval of members with special resolution (3/4th of members present & voting) at AGM / EOGM

Form 18 for change of address to be filed with ROC

Advertisement

Change of office from one state to another

First decision at meeting of Board of Directors

Approval of members with special resolution (3/4th of members present & voting) at AGM / EOGM

Form 18 for change of address to be filed with ROC

Application to CLB at the Regional Director of Zone for approval

Publication of hearing before CLB

Inviting objections (from state government, workers or creditors)

Order will be issued approving change of registered office

Filing of CLB order with ROC

Advertisement

3. Change of Object Clause

Why Change of Object Clause

New Technology

New Products / Services which could be simultaneously undertaken

Amalgamation / Merger of different companies with objectives

Take Over / AcquisitionMerger / Amalgamation

Gujarat Ambuja ACC with majority shareholding of ACCIndian Rayon, Indo Gulf Fertilizer & Birla Finance became Birla Nuo

Cancellation of any objects

Procedure

Decision by Board Of Directors Approval of Members at AGM / EOGM by passing special resolution for amending object clause

Approval to be obtained from ROC

Advertisement inviting objections if any

Hearing if required

ROC will give approval

ROC to give certificate approving change in object clause

4. Liability Clause never amended

5. Capital Clause can be changed / amended

Procedure for change in capital clause

i. Decision by Board of Directors

ii. Approval of members at AGM / EOGM

a. By passing ordinary resolution simple majority if there is power to amend capital clause in the AOA

b. By passing special resolution if there is no provision of alteration of capital clause in the AOA, 75% majority in favor of change

iii. Filing with ROC Form no. 5 duly stamped & additional registration fee6. Association / Subscription Clause Not Ammended

Articles of Association (AOA)Q. What do you understand by Doctrine of Indoor Management? Discuss significance & relevance of AOA

Bye Laws / Rules & Regulations for company law requirements Internal Procedure to be followed by a company While MOA is compulsory for all the companies, AOA is optional for public LTD companies. In case of Public Ltd company does not prepare AOA, Table A (Model Bye Laws / AOA for Public Ltd Companies) of Schedule II of Companies Act will applyContents of AOA

1. Procedure relating to

Share Capital

Issue of share certificate

Issue of duplicate share certificate

Transfer Shares

Transmission

Forfeiture of shares

2. Matters relating to Meetings of the members

Types of meetings

Procedure at meetings

Issue of notice

Quorum requirement

Proxy

Voting

Resolution

3. Provisions relating to Directors

Meeting of Directors

Powers of Directors

Powers of Chairman / Managing Director

Borrowing Powers of the company

Accounts & Audit

Seal

4. Significance of AOA

Bye Laws / Rules governing internal company law requirement

Doctrine of Indoor Management

Doctrine of Constructive Notice

Office of ROC is Public office Whatever is filed with ROC can be inspected by the public by paying inspection fee

Information filed with ROC is deemed to have been given to public

Every person who deals with company is presumed to know whatever is filed with ROC but nothing beyond this. Therefore a person can presume that company has complied with all the procedural requirements

He is not required to investigate whether the company has in fact complied with such requirements e.g. Royal British Bank vs. Turquand

Limitations to the Doctrine of Indoor Management Knowledge of Irregularity Forgery

Circumstances giving rise to Suspicion

Raising The Resource for the CompanyShort Term

- Working Capital facility from bank

- Sundry Creditors

- Outstanding Expenses

- Public Deposit maturing within one year

- Commercial Papers

- Inter-corporate Loans

- Factoring LimitLong Term

Capital Equity & Preference Debentures (Bonds) Term Loans Public Deposit maturing after 1 year (Max. 3 years)

GDR Global Depository Receipt Shares not issued, only certificate issued in other than dollar, listed on foreign exchanges

ADR American Depository Receipt

FCCB Foreign Currency Convertible Bonds

ECB External Commercial Borrowing

Raising Long Term Funds through Equity

How much / what amount of Equity Size of Project Detailed Financial plan with focus on its predetermined activity with specified investment ensuring desired monetary return Detailed Project Report Details of investment on land, building, plant & machinery, furniture & fixtures, installation, contingency provision, margin for working capital Means of Finance Capital 30 crores (Equity 10 crores; IPO through prospectus & Debt 20 crores)IPO Through issue of ProspectusLegal Aspects

1. Companies Act Provisions relating to prospectus

2. SEBI Act 1992 Disclosure for SEBI guidelines

3. Securities Contract Regulation Act Listing guidelines of exchange

Coordination can be done by Merchant Bankers (Tie up Means of Finance)

Entry Norms Of SEBIOnly Public Ltd companies have access to capital market

Track record of dividend payment in 3 out of 5 preceding financial years

Net worth of the company should be not be less than 1 crore in last five financial years

IPO cannot exceed an amount more than 5 times its net worth

Newly incorporated company / in Greenfield project Project has to approved by Financial Institution / Banks

Approving Authority must have participated to the extent of 10%

There should be compulsory market making for 2 years

Draft Prospectus

Primary Responsibility Merchant Banker companies Secretarial / Finance Department to provide necessary output

Contents of Prospectus Companies Act (Section 62)

It should also follow disclosure norm of SEBI for investors to take informed decisions

Also keep in mind listing guidelines of the stock exchanges where the shares are prepared to be traded in 2 parts

Part 1 (General Information)

Name Registered office

Main objectives of the company

Authority for the issue

Terms of issue (no. of shares, Price Fixed price or Market price to be discovered through book building process). Payment to be made on application or allotment. Issue Program Issue Opens on, Issue Closes on, Earliest Closing Lead Managers or Co-Managers

Bankers to the issue

Brokers to the issue

Registrars for the issue

Underwriters for the issue (optional)

All these agencies have to give their written consent to be enclosed & filed with prospectus when it is filed with ROC

Part 2

Background of the Company & the management

Board of Directors Names, Addresses, educational qualification & experience as well as details of other directorship

Other group companies under the same management Objectives of the issue

Details of the project cost of project, means of finance, availability of raw material

Utilities

Marketing / Selling Arrangements

Schedule of implementation

Outstanding litigation

Stock exchange data

Risk factors affecting the business

Management perception in respect of risk factors

Audited financial performance for last 5 years

Draft prospectus to be filed with

SEBI

Stock exchange where shares are proposed to be listed

After SEBI clearance prospectus is filed with ROC

Red Herring Prospectus Where price / no. of shares issued by the company is not mentioned in the prospectus Price is discovered through book building Lead managers lead book runners

Other members syndicate members

Price band (floor price max. price are mentioned) Lead Merchant Banker prepares a research report on the company. Presentations are made before QIBs (Qualified Institutional Bankers) called Road shows. QIBs indicate their interest in the issue. Bids are invited. Cut off price is decided

The prospectus is filed with ROC

Basis of allotment prepared by registrar to issue

Return of allotment to be filed with ROC

Self Prospectus:- Only for Banks & Financial Institution Filing of issue of prospectus which will be issued for 1 year

Details of shares subscribed & allotted are filed with ROC

Authorized Capital:- Maximum amount the company is authorized to raise as per capital clause of MOA

Issued Capital:- Number & amount of share capital issued to the public

Subscribed Capital (90%) & Paid Up Share Capital:- Shares subscribed by the investors (which may not be less than 98% of issue amount)

Paid Up = Subscribed Capital less calls in arrears

Shares

Equity (3)

Those shares which are not preference shares (risk capital)

No assurance as to return of investment

No certainty as to return on investmentPreference (1)

Which can enjoy preferential rights Dividend

Redemption

Equity

Voting RightsWithout Voting Rights (not more than 25% of paid up share capital)Equity shares with differential voting rights

Preferential Rights:-1. Cumulative / Non Cumulative Preference shares where the right to dividend is allowed to be accumulated even if company has not declared dividend & the dividend will be payable in the year when the company has adequate profit are called cumulative preference shares & preference shares where dividend is not allowed to be accumulated are called non cumulative preference shares.

2. Participative / Non Participative Participative Preference shares are those which are allowed to participate in share of profit after payment of dividend on equity from out of surplus profit left. Non Participative Preference shares are not entitled to any participation in surplus profit. They are entitled to agreed dividend

3. Convertible / Non Convertible Convertible Preference shares are those which are converted into equity. Non Convertible Preference Shares are those which are not converted into equity

4. Redeemable / Irredeemable Redeemable Preference shares are those which will be redeemed / repaid within max period of 10 years. Irredeemable Preference shares cannot be issued

5. Cumulative Convertible Preference shares Right to dividend is accumulated. Preference shares are converted into equity

Shares issued at PremiumShares issued at DiscountShares issued at ParBuy Back Shares

shares issued at value higher than the face value

share premium can be utilized for

writing off preliminary expenses

Bonus issue of shares

Expansion

- Rs. 10 share issued at Rs. 120 (Share Capital Rs.10 & Share Premium Rs. 110)- Rs. 10 shares issued at Rs .9 per share

- company when issues shares at a price less than the face value

Not more than 10% unless approved by central govt.

Approved by members by special resolution

Shares forfeited are issued at discount

Shares issued at face valueMarket price is related price multiples of EPS (Earnings / No. of shares) company can buy back 25% of its paid up capital

buy back from accumulated profits

reserves

proceeds of previous issues of shares

- there must be provision in AOA

- buy back can be by

purchase of odd lots

open market purchases

reverse book building

shares tendered under buy back must be cancelled within 7 days

Meetings of Members:-Statutory MeetingAGMEOGM

held once under the act hence statutory

To be held only by Public Ltd Company. Pvt. Ltd Company not to hold this meeting

held once in life time

it is held between 1 6 months from the date of obtaining certificate of commencement of business Can be held by Public / Pvt. Ltd company

Held every year

With 6 months from end of accounting year

One meeting per calendar year

1st meeting to be held within 18 months from the date of incorporation

between 2 AGMs gap not more than 15 months

Obtain approval of ROC if gap exceeds 15 months Can be held by Public / Pvt. Ltd company

Can be held any time when the matter is urgent

It cannot wait till next AGM

Any meetings of members other than AGM are EOGM

AgendaStatutory MeetingAGMEOGM

Consideration of Statutory Report

Report explaining the progress made since incorporation of the company

Receipts & payment a/c

Shares issued & allotted

Important contracts signed by management

To be filed with ROCConsideration of Statutory Report

P&L a/c Balance sheet

Auditors report

Directors reports

Corporate governance reportConsideration of Statutory Report

Procedure to Conduct meetings of members Authority to convene a meeting Board of Directors Every general body meeting must be presided by Board meeting

Notice Specify time (working time), Day (Working Day not a Sunday or public holiday Negotiable Instrument Act), Date & place of meeting (registered office or other place in the town in which registered office is located, 21 day clear notice date of posting & date of receipt to be excluded under certificate of posting)

Agenda for Meeting For AGM agenda is divided in 2 parts

1. Ordinary Business

Approval of P&L, B/s Passed by ordinary resolution Declaration of dividend

Appointment of auditor Appointment of Directors

2. Special Business

anything other than ordinary business

explanatory statement should be given in the notice

reason why business is taken up

disclosure of interest of any director

At EOGM all business matters are special business requiring explanatory stand

Procedure to conduct meetings of members on the date of meeting1. Chairman the designated chairman to preside over the meeting. If there is no designated chairman, the members to choose one of them as chairman of the meeting

2. Quorum Minimum no. of members required to be present at the meeting

a. As per provisions in the article

b. If articles are silent, in case of Public ltd company 5 persons, in case of Pvt ltd company 2 persons shall form quorum

c. Quorum must be present within half an hour from the scheduled time of commencement of meeting

d. If quorum is not present within half an hour, meeting is adjourned to next week, same time, same place

e. If at the adjourned meeting quorum is not present, persons present shall form the quorum

3. Proxy a member is entitled to attend the meeting or depute a person to attend on his behalf by executing instrument of proxy

a. Proxy need not be a member

b. Proxy form should be lodged with the company 48 hours before the scheduled time of commencement of meeting

c. Proxy may be open or with specific direction to vote or against the resolution

d. Proxy is cancelled if member attends the meeting

e. Proxy cannot speak, but vote at the meeting

4. Movement of Resolution

a. Resolution is proposed by 1 of the members

b. It is seconded by another member

c. Decision on the resolution members can raise questions chairman to answer

d. Report of auditor is read at the meeting

5. Chairman to ascertain the sense of the meeting (whether the resolution has been passed or not)a. Voice vote - Ordinary resolution requires simple majority

b. By show of hands - Special resolution requires 3/4th majority

c. By division

d. By ballot

e. By poll

6. Minutes record of resolution passed is written in minute book to be signed by chairman of the meeting

7. Special resolution are passed to be filed with ROCResolutions

OrdinarySpecialResolution requiring special notice

Simple majority

Ordinary business of rule is passed by simple majority Requires 3/4th majority

Amendment in MOA

Amendment in AOA

Appointment of MD

Remuneration of MD

Appointment of sole selling agent

Can be done by postal ballot for listed companies Removal of a Director

Removal of an Auditor

Q. Discuss the provisions relating to qualifications, appointment, powers & removal of directors of the company under companies act?Director Director means a person who holds position of a Director by whatever name called

1. Agent of the Company Director functions as an agent of the company acting on behalf of the company

2. Trustees

a. of the members for the property owned by the company

b. must observe at most good faith (trust & confidence)c. act in the benefit of the company & not for personal profit

3. Managing Organ Through which the company operates / functions

4. Professional Employees Director has to be an individual & not an incorporated body

Appointment of Directors No. of Directors minimum in case of Public ltd company 3 & Pvt. Ltd Company 2. Maximum no. as may be permissible in AOA1. First Directors Names in AOA. In case articles are silent all the subscribers to MOA / AOA shall be deemed to be the first director. These directors shall held office till AGM

2. Subsequent Directors by the members at AGM. 1/3rd of the directors can be non repairable & 2/3rd of the directors will be liable to retirement. Of this 2/3rd ,1/3rd will retire every year. Retiring directors can offer themselves for re-appointment. Reappointment by members at AGM

3. Directors appointed by Board of Directors

a. Appointment of additional director

i. BOD can appoint additional director (not exceeding the max. no. provision in AOA) to take benefit of expertise as well as experience of any individual

ii. Such director will hold position till next AGM. At next AGM he may be re-appointed

b. To fill up casual vacancies

i. On account if vacancy arises, BOD can appoint a director to fill up the vacancies

ii. Death, resignation or Disqualification

iii. Such director to hold office till next AGM

c. Alternate directors - When the director leaves the state in which registered office of a company is locatedi. For a period more than 3 months

ii. Board may appoint alternate director to attend the Board meeting in absence of original director

iii. The alternate director attends Board meetings in absence of original director

4. Appointment of directors by outsiders There can be an agreement by the company with

a. Its lenders or

b. Creditors

Whereby its nominee of lenders / creditors may be appointed in the Board

c. Such directors are not liable to retirement

5. Power of Government / NCLT (National Company Law Tribunal) to appoint director on the Board of the Company

a. Where there are complaints about mismanagement of the company &

b. Investigation have been carried out

c. Or complaints before NCLT about the affair of the company being conducted against the interest of the members. NCLT / Government can appoint Director on the Board of the Company

d. These directors are not liable to retirement

Qualifications Qualifications if provided in AOA the director will have to take up qualification shares within 2 months of appointment. For shares upto face value of Rs. 5000/-Disqualifications Person is disqualified

1. if he is of unsound mind

2. undischarged insolvent

3. he applies for declaring himself insolvent

4. he has been sentenced to imprisonment for a period not excluding 6 months, for offence involving moral turpitude & a period of 5 years has not expired

5. he is director in a company

a. company has defaulted to file annual return & balance sheet for a consecutive period of 3 years with ROC

b. Company defaults in payout of interest / principal of deposits from public

Max. no. of companies - a person can be director in max. 15 companies excluding Pvt, ltd Companies

Vacation of office of Directors1. on attracting disqualification

2. if a director fails to attend 3 consecutive Board meetings without leave of absence

3. if director fails to take qualification shares within 2 months

4. if he fails to pay call money on shares within 6 months

Removal of a Director

1. Removal by the member at AGMa. By not reappointing retired Director

b. By appointing someone else in place of retiring director

c. By passing a resolution removing a director

2. Removal of Director by NCLT

Powers of a Director

1. General Power General Powers to be exercised keeping in view

a. Provisions of companies act

b. AOA

c. Contract with the company

i. Directors have general power to do all those things which a company is empowered to do

2. Powers which can be exercised at Board Meeting there has to be board meetings (min. 4 meetings in a year, 1 every quarter)

a. Power to make calls on shares

b. Power to issue debentures

c. Power to borrow

d. Power to make investment

e. Power to make political donations total Rs. 50000/- or 5% of net profit whichever is higher

3. Powers which can be exercised with consent of members

a. To sell any undertaking (division) of the company

b. To borrow in excess of paid up capital & reserves

c. To amalgamate / merge other company / with other company

d. To appoint sole selling agent

e. To amend MOA / AOA

f. To fix remuneration of MD

Account & Audit Books of a/c / registers to be maintained by the company

Assets of the company

Liabilities of the company

Register of sales

Register of purchases for manufacturing operations

Registers for

Raw material

Labor

Utilities

Other expenditure

P&L & B/S as per schedule VI

Dividend to be paid to be paid only out of current profits

1. provided for depreciation

2. rules relating to transfer of profits to reserve

ProfitTransfer to Reserve

10% - 12.5%2.5%

12.5% - 15%5%

15% - 17.5%7.5%

Above 17.5%10%

3. a/cs to be audited by the auditors

Q. Discuss provisions relating to appointment, qualification & powers of auditors of the company under the companies act 1956?Audit under the companies act is statutory audit. Every company under the companies act is required to have its accounts audited by the auditorAuditor

CA member of ICAI having certificate of practice &

He is not in the full time employment

Not indebted to the company for amount exceeding Rs. 1000/-

Should not be related to Directors

Powers of Auditor1. Power to have access to all documents agreements / contracts / minutes

2. Power to visit / verify / check properties / assets of the company at all locations (plant, branch. HR)

3. Power to obtain information / explanation from the employees of the company

4. To report to the members

a. Whether the company has maintained the required books of a/c or registers

b. Whether the company has been complying with accounting standards

c. In case of variation point out the impact on P&L of the company

Certify That

1. P&L a/c gives true & fair view of profit & loss for the year

2. Balance sheet gives true & fair view of financial position of the company as on a particular date

a. Auditors to qualify the report where there are irregularities

b. Directors to reply to qualifying remarks of auditors

NEGOTIABLE INSTRUMENTS ACT 1881Transferable documents which are used for transfer of movable property. Negotiable instrument means Promissory Note, bill of exchange & Cheque

Q. Define promissory note & differentiate it from bill of exchange & a cheque

Promissory Note Instrument in writing

Not being a bank note or currency note

Signed by the maker

Containing an unconditional undertaking

Ta pay certain sum of money only

To a certain person on his order

Bill of exchange Instrument in writing

Signed by the maker

Containing an unconditional order

Directing a certain

To pay a certain sum of money only

To certain person or his order

Cheque

Bill of exchange drawn on a specified banker

Promissory NoteBill of ExchangeCheque

1. Parties Involved2 parties maker who promises to pay & payee (promise) who collects payment3 parties Drawer / maker who draws the bill

Drawee on whom the bill is drawn or to whom direction to pay is given

Payee - Who collects the payment3 parties

Drawer maker of a cheque

Drawee Bank

Payee - Who collects the payment

2. Nature of relationshipMaker DebtorPayee - CreditorDrawer Creditor vis--vis Drawee but Debtor vis--vis PayeeDrawee Debtor

Payee CreditorDrawer Creditor vis--vis Bank but Debtor vis--vis Payee

Drawee Bank - Debtor

Payee Creditor

3. Nature of liabilityMaker of promissory note is primararily liableDrawee Primary Liable

Drawer Secondary LiableBank Primary Liable

Drawer Secondary Liable

4. AcceptanceNot RequiredAcceptance by drawee requiredNot Required

5. CrossingN.A.N.A.Only cheque are required to be crossed

6. Stamp DutyAttractedAttractedNot Required

7. Notice of dishonorNot RequiredRequiredBank issues non Payment memo

8. Special Provisions

a. Drawee in case of needN.A.N.A.

b. Acceptance for HonorN.A.N.A.

Q. What do you mean by crossing of cheques? Discuss various types of crossings & their significance?

Meaning When a cheque bears across in face two parallel transverse lines with or without the word And company

& company

not negotiable

Cheque is said to be crossed

Significance crossing is an instruction to the bank not to pay cash across the counter

Types of Crossing

General CrossingSpecial CrossingRestrictive Crossing

When the cheque bears across its face two parallel lines with the name of a particular banker then the cheque is said to have been specially crossed to that bank

Significance Banker to whom the cheque is specially crossed Is the only authorized banker to collect the paymentWhen the cheque bears across its face two parallel lines with the words a/c payee only or payees a/c only cheque is said to be restrictively crossed

Significance Cheque cannot be deposited in any other a/c of payee

Significance of cheques crossed with the words not negotiable words not negotiable do not prohibit the transferability of the amount of a cheque but it is a warning that the title of the person receiving the cheque will not get better than that of the person from whom he gets itNegotiations Process whereby the amount mentioned in Negotiable Instrument is transferred to another person

By mere deliveryEndorsement & delivery

If negotiable instrument is drawn payable to bearerNegotiable instrument drawn payable to order

Q. What do you understand by endorsement? Discuss various types of endorsements & effect thereby by giving suitable examples?Endorsement Instruction to transfer the amount of negotiable instrument to another person

Person who gives the instrument Endorser

Person in whose favor endorsement is given Endorsee

First Endorser Payee

Allonge Additional slip attached to check for endorsement

Types of Endorsements1. Endorsement in Blank where payee or endorser merely signs the instruments at the back for the purpose of transfer amount of Negotiable Instrument. Effect order instrument becomes bearer instrument & amount can be paid by mere delivery

2. Endorsement in Full when payee or endorser gives full instructions as to whom the amount of Negotiable Instrument is to be transferred. Effect - The person in whose favor endorsement is made is entitled to collect the amount of Negotiable Instrument or further endorse

3. Restrictive Endorsement when payee or endorser restricts further endorsements are restricted. Effect Endorsee will have collect the amount by depositing the Negotiable Instrument in his a/c

4. Conditional Endorsement when payee or endorser attaches conditions to transfer of amount of Negotiable Instrument. Effect Endorsee will have to comply with terms of endorsement

5. Partial Endorsement when payee or endorser transfers part of the amount of Negotiable Instrument. Partial Endorsement is invalid. Exception Incase where Bill of Exchange contains a note that part amount is already paid Negotiable Instrument will stand reduced to that amount

6. Facultative Endorsement when payee or endorser forgoes his right or increases his responsibility. Effect Endorser continues to be held responsible even if notice of dishonor was not served on himBill of Exchange drawn by Ramesh Sinha

Drawee Amit

Payee Angad

1st Endorsee Abbas

2nd Endorsee Shardul

3rd Endorsee - Asif

7. Endorsement Sans-resource when payee or endorser makes further endorsement without having any reference to himself. Effect The endorser is not available for any reference / remedy

8. Endorsement sans frais when payee or endorser transfers without his availability to contribute towards expenses. Effect Endorsee cannot depend on contribution on endorser

Q. Define Holder in due course & discuss privileges of holder in due courseHolder in Due CourseA B C D E F

Drawer Drawee Payee Endorsee1 Endorsee2 Endorsee3

Holder A person in possession of Negotiable Instrument in his own name. entitles to receive the amount

Holder in due course A person who became

Possessor of Negotiable Instrument payable to bearer

Payee or endorsee of Negotiable Instrument payable to order

For consideration

Before maturity

Without having sufficient cause to believe that

Defect existed in the of the person from whom he derived it

Privileges of the Holder in due course1. All the previous parties are liable to HIDC

2. HIDC can file suit for recovery in his own name against all the previous persons

3. Drawee cannot refuse payment to HIDC on the grounds that the bill was accommodation bill Bill drawn without consideration4. Drawee cannot refuse payment on the ground that bill is fictitious where either drawer or payee are not existing

5. Drawee cannot refuse payment on the ground that bill is inchoate Bill which is stamped & signed but incomplete / blank in respect of other details

6. Holder in due course is entitled / authorized to fill up / complete inchoate stamped instrument7. Drawee cannot refuse payment on the ground that bill is unconditional / escrow where bill has been drawn & accepted subject to certain conditions

8. Once the Negotiable Instrument passes through the hands of HIDC it gets cleansed of all its defects

9. Capacities of previous parties cannot be questioned

10. Every holder is pressured to be holder in due courseMembers Contribute to the capital of the company & control the company by executing voting rights at meeting

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

Report to members

25/11/2005

On demand pay Rupesh Pandey sum of Rs. 50000/- for value received

To Drawee (who has been directed to pay) Signed by maker / promissor

25/11/2005

On demand I promise to pay Rupesh Pandey sum of Rs. 50000/- for value received

To Rupesh PandeySigned by maker / promissor

Power to manage the company given to Board of Directors who are responsible for day to day management

Bank of Baroda25/11/2005

Pay Rupesh Pandey

In WordsFigures_________

Signed by maker / promissor

Santhoshkumark2002@gmail.com