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COMPANIES ACT 1956
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COMPANY ??
It mean an association of individualsformed for some common purpose.
It is an artificial person created bylaw , with a fixed capital, divided intotransferable shares, with perpetualsuccession and common seal.
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As defined in Companies Act 1956, Acompany formed and registered under this
Act or an existing company
A voluntary incorporated association whichis an artificial person, created by law withlimited liability having common seal andperpetual succession
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CHARACTERSTICS OF A COMPANY
Separate legal Entity
Limited Liability
Perpetual succession Common Seal
Transferability of Shares
Separate Property Capacity to sue.
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CLASSIFICATION OF COMPANIES
On the basis of Incorporation
On the basis of Liability
On the basis of number of Members. On the basis of Control.
On the basis of Ownership.
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CLASSIFICATION OF COMPANIES
On the basisof
Incorporation
STATUTORYCOMPANIES
REGISTEREDCOMPANIES
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ON THE BASIS
OFLIABILITY
LIMITED BYSHARE
LIMITED BYGUARANTEE
UNLIMITEDLIABILITY
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ON THE BASIS OFNUMBER OF
MEMBERS
PRIVATE PUBLIC
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ON THE BASISOF
CONTROL
HOLDING SUBSIDIARY
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ON THE BASISOF
OWNERSHIP
GOVERNMENT NON GOVERNMENT
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MEMORANDUM OF ASSOCIATION
This document contains the constitution ofa company.
It defines the area within which thecompany can operate, the objects forwhich the company has been formed aswell as the business that company would
undertake.
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Memorandum Of AssociationDefinition
Section 2 (28) of the companies Act defines
Memorandum means Memorandum ofAssociation of a company as originallyframed or as altered from time to time in
pursuance of any previous companies lawor of this Act
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IMPORTANCE
Foundation on which structure of company isbased.
States name . Address , sh cap etc.
Defines scope of activities within which co. canfunction.
Any activity outside the scope of MOA is ultravires and not binding on co.
Constitution of co. Public document
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Clauses of memorandum
Name clause.
Registered office clause.
Object clause
Liability clause
Capital clause
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Name Clause
The memorandum of associationshould contain the name of company,
whether it is private or public company.
Being a legal person it must have a
name to establish its identity.
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Any suitable name can be chosen subject tofollowing retrictions.
1. Word Ltd. Or Public Ltd. & word Pvt. Ltd.
2. Name must not be undesirable-
too identical or similar to name ofexisting co.
Misleading
Once name chosen & co. is registered Inthat name , it along with address mustappear on the outside of every office andon bills , letter, notices etc
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Registered Office Clause
This clause should state the name of the state
in which the registered office of the company
will be situated.
Notice of situation of registered office of co.and of every change is to be given to registrar
for record within 30 days of incorporation.
Registered office is the place where allcommunication and notices are to be sent and
where register of members , register of
debenture holders , minutes books etc are kept.
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Object & Power Clause
Set out objects of co.
A co. is not legally entitled to do anybusiness other than that specified in itsobject clause
This rule is meant to protect
- members- public at large
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Following points must be kept on mind
Objective must not be illegal
Obj must not be against public policy i.eto carry on trade with enemy country.
Obj must not be against provisions of cosact
Must be stated clearly and definitely Must be quite elaborate also- main and
other obj.
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Liability Clause
This clause states that The liabilityof the members shall be limited by
shares
This means no member can be calledupon to pay anything more than thenominal value of the shares held byhim.
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Capital Clause
This clause states the amount of shcapital with which the company isproposed to be registered and the
number and value of the shares intowhich it is divided.
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Association and
Subscription ClauseThe memorandum of association(MOA) concludes with the subscription
clause where in the subscribers agree totake the number of shares which arementioned against the name of the
subscriber
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Alteration
Sec 16 a co. shall not alter the conditionscontained in its MOA , except in the cases,in the mode and to the extent for which
express provision is made in cos act.
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Doctrine of ultra vires
Ultra means beyond and vires meanspowers
The term ultra viresa company means thatthe doing of the act is beyond the legalpowerand authorityof the company.
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A company has the power to do all suchthings as are-
Authorized to be done by the Companies
Act, 1956; Essential to the attainment of its objects
specified in the Memorandum;
Reasonably and fairly incidental to itsobjects.
Everything else is ultra viresthe company.
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Articles of Association
It contains the regulationrelating to internal
management of a company
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Clauses of article
Share capital, rights of shareholders,payment of commissions, sharecertificates.
Calls on shares.
Transfer of shares.
Transmission of shares.
Forfeiture of shares.
Conversion of shares into stocks
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Conversion of shares into stocks.
Share warrants.
Alteration of capital.
General meetings and proceedings.Voting right and proxies.
Directors, their appointment, remunerations,powers and proceedings of board of directors.
Manager
Secretary
Dividend and reserves
Accounts audit and borrowing powers. Capitalization of profit.
Winding up.
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Alteration
A company may alter its articles as oftenas required , by passing a specialresolution only.
A copy of special resolution must be filedwith the registrar within 30days of passingresolution.
A copy of altered articles must be filedwith the registrar within three months ofpassing special resolution.
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Limitations
Must not be inconsistent with theprovisions of cos act or any other statute
Must not be inconsistent with theconditions contained in MOA
Must not be inconsistent with thealteration ordered by CLB.
Must not deprive any person of his rights.
Must not constitute a fraud on minority.
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BOARD OF DIRECTORS
SEC 2(13) defines director as any personoccupying the position of authority to acton behalf of the company
The directors of a company are collectivelyknown as board of directors . they are
elected representatives of shareholders.
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Appointment of Directors
No. of Directors minimum in case of Public ltd company3 & Pvt. Ltd Company 2. Maximum no. as may bepermissible in AOA
First Directors
Names in AOA. In case articles are silent all thesubscribers to MOA / AOA shall be deemed to be the firstdirector. These directors shall held office till AGM
Subsequent Directors
by the members at AGM. 1/3rd
of the directors are nonrotational & 2/3rd of the directors will be liable toretirement.
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Directors appointed by Board of Directors
Appointment of additional director
BOD can appoint additional director (not exceeding
the max. no. provision in AOA) to take benefit ofexpertise as well as experience of any individual
Such director will hold position till next AGM. Atnext AGM he may be re-appointed
To fill up casual vacancies
On account if vacancy arises, BOD can appoint adirector to fill up the vacancies
Death, resignation or Disqualification
Such director to hold office till next AGM
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Alternate directors - When the director leaves thestate in which registered office of a company islocated
For a period more than 3 monthsBoard may appoint alternate director to attend the
Board meeting in absence of original director
The alternate director attends Board meetings in
absence of original director Appointment of directors by outsiders There can be an
agreement by the company with
Its lenders or
Creditors
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Qualifications of a director
Qualifications Qualifications ifprovided in AOA the director will have totake up qualification shares within 2
months of appointment
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DisqualificationsPerson is disqualified
if he is of unsound mind
undischarged insolvent
he applies for declaring himself insolvent
he has been sentenced to imprisonment for a period not excluding 6
months, for offence involving moral turpitude & a period of 5 yearshas not expired
he is director in a company
company has defaulted to file annual return & balance sheet fora consecutive period of 3 years with Registrar
Company defaults in payout of interest / principal of depositsfrom public
Max. no. of companies - a person can be director in max. 20companies
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Vacation of office of Directors
on attracting disqualification
if a director fails to attend 3 consecutiveBoard meetings without leave of absence
if director fails to take qualification shareswithin 2 months
if he fails to pay call money on shareswithin 6 months
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Removal of a Director
Removal by the member at AGM
By not reappointing retired Director
By appointing someone else in place of
retiring director
By passing a resolution removing a director
Removal of Director by CLB
Resignation
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Powers of director
General powers
Specific powers
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General powers
Two sources:-
Articles of association
Companys act.
Exercising powers like supervising and
controlling the work of the officer of thecompany.
S ifi
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Specific powers. To disclose the nature of his interest in a
contract or arrangement by or on behalfof the company.
The power to make calls on shareholders
in respect of money unpaid on theirshares.
The power to enter in to a contract for the
sale , purchase or supply of any goods,materials or services or for underwritingshares or debentures in which directorsare interested with certain expectations.
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The power to invest in any shares or debenturesof any other company .
The power to fill a casual vacancy of directors incase of public company or its subsidiary pvtcompany.
The power to appoint as managing director or
manager a person who is already managingdirector or manager of another company.
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Duties
Statutory duties
General duties
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Statutory duties
To hold meeting once in every 3 months.
To see that copies of balance sheet andprofit and loss account are filed with theregistrar.
To declare dividends and to arrange fortheir due payments to shareholders.
To see that no statement included in theprospectus is false or misleading.
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To attach their own report on the affairsof the company on the balance sheet.
To authenticate balance sheet and profit
and loss account of the company. To make arrangements to disclose his
interests to other directors.
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General duties
Duty of good faith
Duty of reasonable care
Duty to attend board meeting
M ti f M b
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Meetings of Members:-
Statutory meeting
Annual General Meeting
Extraordinary General Meeting
Statutory Meeting
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Statutory Meeting
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 thedate of obtaining certificate ofcommencement of business
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Agenda-Statutory Meeting
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 ROC
AGM
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AGM
Can be held by Public / Pvt. Ltd company Held every year
Within 6 months from end of accounting year
One meeting per calendar year
1st meeting to be held within 18 months fromthe date of incorporation
between 2 AGMs gap not more than 15 months
Obtain approval of ROC if gap exceeds 15months
A d AGM
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Agenda-AGM
P&L a/c
Balance sheet
Auditors report
Directors reports
EOGM
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EOGM
Can be held by Public / Pvt. Ltd company
Can be held any time when the matter isurgent
It cannot wait till next AGM
Any meetings of members other than AGMare EOGM
Agenda for Meeting For AGM
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Agenda for Meeting For AGMagenda is divided in 2 parts
Ordinary Business
Approval of P&L, B/s
Declaration of dividend
Appointment of auditor
Appointment of Directors 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 requiringexplanatory stand
Procedure to Conduct
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Procedure to Conductmeetings of members
Authority to convene a meeting Board ofDirectors Every general body meeting must bepresided by Board meeting
Notice Specify time (working time), Day(Working Day not a Sunday or public holidayNegotiable Instrument Act), Date & place ofmeeting (registered office or other place in the
town in which registered office is located, 21 dayclear notice date of posting & date of receiptto be excluded under certificate of posting)
Procedure to conduct meetings of members
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Procedure to conduct meetings of memberson the date of meeting
Chairman the designated chairman to preside over the
meeting. If there is no designated chairman, the members tochoose one of them as chairman of the meeting
Quorum is specified minimum number of qualified memberswhose presence is required at the meeting
As per provisions in the article If articles are silent, in case of Public ltd company 5
persons, in case of Pvt ltd company 2 persons shall formquorum
Quorum must be present within half an hour from the
scheduled time of commencement of meeting
If quorum is not present within half an hour, meeting isadjourned to next week, same time, same place
If at the adjourned meeting quorum is not present,
persons present shall form the quorum
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Proxy a member is entitled to attend the meeting ordepute a person to attend on his behalf by executinginstrument of proxy
Proxy need not be a member
Proxy form should be lodged with the company 48hours before the scheduled time of commencement ofmeeting
Proxy may be open or with specific direction to vote
or against the resolution
Proxy is cancelled if member attends the meeting
Proxy cannot speak, but vote at the meeting
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Movement of Resolution
Resolution is proposed by 1 of the members
It is seconded by another member
Decision on the resolution members canraise questions chairman to answer
Report of auditor is read at the meeting
Minutes record of resolution passed iswritten in minute book to be signed bychairman of the meeting
Resolutions
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Resolutions
Resolution is defined as the formal decisionof a meeting on any proposal before it.
Ordinary
Special
Resolution requiring special notice
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Ordinary resolution
Simple majority
Votes cast in favour, exceeds votes castagainst
Ordinary business of rule is passed bysimple majority
Special resolution
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Special resolution
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
Resolution requiring special notice
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Resolution requiring special notice
It is a kind of ordinary resolution with thedifference that here the mover of the proposedresolution is required to give special notice ofatleast 14 days to the company before moving
the resolution and the company is in turn isrequired to give special notice of atleast 7daysbefore the meeting either individually or throughadvertisement in newspaper
Removal of a Director Removal of an Auditor
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Audit
Audit under the companies act is statutory audit. Everycompany under the companies act is required to have itsaccounts audited by the auditor
Auditor
CA member of ICAI (The Institute of CharteredAccountants of India) 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 Auditor
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Powers of Auditor
Power to have access to all documents agreements /
contracts / minutes Power to visit / verify / check properties / assets of the
company at all locations (plant, branch. HR)
Power to obtain information / explanation from the
employees of the company To report to the members
Whether the company has maintained the requiredbooks of a/c or registers
Whether the company has been complying withaccounting standards
In case of variation point out the impact on P&L ofthe company
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WINDING UP
Winding up is the process to bring aboutan end to the life of the organization.
Winding Up V/s Dissolution
Modes of winding up Compulsory winding up order of court
Voluntary winding up
Voluntary winding up under supervision ofcourt
Compulsory winding up under order
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Compulsory winding up under orderof court
Grounds for winding up
Special resolution
Default in holding statutory meeting
Failure to commence business within oneyear of incorporation or suspending itsbusiness for a whole year
Membership below minimum
Inability to pay debts
Just and equitable
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Voluntary winding up
Where company is wound up by themembers or creditors, without anyinterference by the court.
Grounds:
By passing ordinary resolution
By passing special resolution
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Types
Members voluntary winding up:
It is possible only when the co. is solventand is able to pay its liabilities in full.It
requires
The filing of a statutarydeclaration ofsolvency with registar
Passing of ordinary or special resolutionand filing a copy of same with registrar.
Creditors voluntary winding up:
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Creditors voluntary winding up:
Where a co. Is unable to pay its liabilitiesin full(i.e. declared insolvent),and stillwants to undergo voluntary winding up, it
should naturally be controlled andsupervised by the creditors, so that theirinterests are taken care of.
Voluntary winding up under
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Voluntary winding up undersupervision of court
When voluntary winding up of thecompany is in progress,the liquidator orany creditor may apply to the
court,requesting that the windibg up beproceeded further under supervision ofcourt on all or any of the following
grounds:
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The liquidator is negligent in collecting theassets
Liquidator is partial
Rules relating to winding up are not beingobserved
Majority is playing fraud on minority,etc
B i L
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Business Law
Business:- All those activities whichare aimed at transfer of goods &services from the production centreto consumption centre carried out byan entrepreneur by optimally utilizing
resources at his command i.e.money, man, material & machinewith a view to maximize profit.
Law:- Rules & Regulations which
has a force of authority, passed bylegislative bodies.
Contract Act
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Contract Act
Contract:-Agreement enforceable by Law.
Agreement:- It is every promise or a set of promisesforming consideration for each other. It is a result ofintention to create legally binding relationship.
Promise:- Proposal when accepted becomes promise.
Proposal:- When a person signifies to another hiswillingness to do or not to do something with a view toobtain assent of that other person, the person is said tohave made a proposal.
Proposal + Acceptance = Promise Promise * Promise = Agreement
Agreement + Enforceability = Contract
Discuss essential ingredients
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Discuss essential ingredientsof a valid contract
Intention to create legally binding relationship
Offer and Acceptance
Two or more persons
Competence of parties to the contract Everyperson is competent to contract if
He attends the age of majority according to
which he is subject ofHe is of sound mind
Not disqualified under law
Lawful consideration
Free consent of parties Consent is free if it is
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Free consent of parties Consent is free if it isnot caused by
Coercion (Force) use of physical force Undue Influence use of dominant position
Misrepresentation false statement
Fraud cheating
Mistake erroneous state of affairs
Lawful Object
Certainty of performance
Not ambiguous / vague(the agreement must becertain)
Legal Formalities
Not declared to be void
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Module 5
NEGOTIABLE INSTRUMENTSACT
OF 1881
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Definition
Section 13 states negotiable instrument means:
promissory note or bill of exchange or
cheque payable to order or the bearer whether
the words order or bearer appear on the
instrument or not.
Negotiable Instrument means any document
transferable from one person to another.
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Essential features of negotiableinstrument:
1. Free transferability
2. Offer better title to the transferee.
3. Holder in due course is the owner.
4. Holder in due course can file recovery on
suits5. The instrument is transferable till
maturity.
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TYPES OF NEGOTIABLE INSTRUMENT
*PROMISSORY NOTES
Instrument in writing containing unconditionalundertaking signed by the maker to pay acertain sum of money to or to the order of acertain person or to only the bearer of theinstrument
Parties : Maker, payee, holder,endorser, endorsee.
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Essentials of Promissory note:1. Instrument in writing
2. Undertaking to pay
3. The undertaking to pay is unconditional.4. It must be signed by the maker.
5. Amount payable must be certain and in moneyform.
6. The payee must be certain.7. Must be duly stamped as per the Stamp Act.
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BILLS OF EXCHANGE
IS AN INSTRUMENT IN WRITING
AN UNCONDITIONAL ORDER SIGNED BY THE
MAKER DIRECTING A CERTAIN PERSON TOPAY A CERTAIN SUM OF MONEY ONLY TOOR THE ORDER OF CERTAIN SUM OR TO THEBEARER OF THE INSTRUMENT.
Parties: Drawer, Drawee, Acceptor, payee, holder,endorser, endorsee, drawee, acceptor
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Essentials of Bills of Exchange1. It must be in writing
2. It must be an order to pay
3. The order to pay must be unconditional
4. It must be signed by the drawer.5. The parties to the bill must be certain.
6. The order to pay must be in money.
7. The formalities like date , stamp and othersshould be there.
8. Maturity, grace period
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Negotiation and indorsement Negotiation is a process of transferring from
one person to another ( first hand transfer).Thus also confirms the right of the owner to
bring a legal suit if necessary. indorsement ( indorsement) means writing of
the persons name on the back of the instrumentfor the purpose of negotiation.The person who
signs is endorser, who receives is calledendorsee.
In blank
In full
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NEGOTIATION BY ENDORSEMENT AND DELIVERY
Types:
-BLANK OR GENERAL: SIGNS OR WRITES AT THE BACKPAYABLE TO BEARER.
-SPECIAL OR FULL: ORDERED TO SPECIFIC PERSON
-RESTRICTIVE : PROHIBITS OR RESTRICTS FURTHERNEGOTIATION OF INSTRUMENTS.
-PARTIAL : ENDORSEMENT OF HALF OF THE AMOUNT
-CONDITIONAL OR QUALIFIED : CONDITIONS STIPULATED
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CHEQUEA cheque is a bill of exchange drawn on a specified banker
and not expressed to be paid otherwise than ondemand.
-It is a B/E with two additional features:
-Always drawn on a banker.
-Always payable on demand.
A cheque could be open cheque( payable across counter ) orclosed cheque ( named with two parallel lines.)
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TYPES OF CROSSINGS
General Crossing-
shown by two parallel lines
Special Crossings- mentions name of the banker on the face of cheque
Not negotiable may or may not be written.
Restrictive Crossings- Adopted for commercial or banking usage.
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HUNDIS
ARE NEGOTIABLE INSTRUMENTS NOT COVERED UNDER
THE ACT. THEY MAY AT TIMES BE B/E OR P/N
TYPES: SHAH JOG: PAYABLE TO A RESPECTABLE HOLDER.
JOKHMI : DRAWN ON GOODS TO BE SAILED ON SHIP.
JAWABEE HUNDI: USED FOR REMITTING MONEY FROM
ONE PLACE TO ANOTHER.
NAM JOG : PAYABLE TO THE PARTY NAMED IN THEBILL
DARSHANI HUNDI : PAYABLE AT DEMAND AND
PRESENTED AT DEMAND.