Books:-

1. Business law for management

2. Elements of mercantile law by N.D. Kapoor ( Reference )
3. Business law for management by Bulcan!ani ( Reference )
Business Law
Business"# $ll tose acti%ities wic are aime! at transfer of goo!s & ser%ices from te
pro!uction centre to consumption centre carrie! out by an entrepreneur by optimally utili'ing
resources at is comman! i.e. money( man( material & macine wit a %iew to ma)imi'e profit.
Law"# Rules & Regulations wic as a force of autority( passe! by legislati%e bo!ies.
*$+,
-onstitutional *aw -riminal *aw -i%il *aw .nternational *aw
(Relating to rigts( (-rime & /unisment) (Business & /roperty (Dealing between
!uties of citi'en0s matters) citi'ens of two
towar!s te state countries)
& a!ministration)

Contract Act
Contract:- $greement enforceable by *aw.
Agreement:- .t is e%ery promise or a set of promises forming consi!eration for eac oter. .t is
a result of intention to create legally bin!ing relationsip.
Promise:- /roposal wen accepte! becomes promise.
Proposal:- +en a person signifies to anoter is willingness to !o or not to !o someting wit
a %iew to obtain assent of tat oter person( te person is sai! to a%e ma!e a proposal.
/roposal 1 $cceptance 2 /romise
/romise 3 /romise 2 $greement
$greement 1 Enforceability 2 -ontract

41. Discuss essential ingredients of a valid contract? Or All contracts are agreements but
all agreements are not contracts
$ns.
1. .ntention to create legally bin!ing relationsip
2. 5ffer an! $cceptance
3. 6wo or more persons
,ection 17 8 $ll agreements are contracts if tey are ma!e by
9ree consent
/arties competent to contract
9or lawful consi!eration
$n! lawful ob:ect
$n! not e)pressly !eclare! to be %oi!
;. -ompetence of parties to te contract 8 E%ery person is competent to contract if
<e atten!s te age of ma:ority accor!ing to wic e is sub:ect of
<e is of soun! min!
Not !is=ualifie! un!er law
>. *awful consi!eration
?. 9ree consent of parties 8 -onsent is free if it is not cause! by
-oercion (9orce) 8 use of pysical force
@n!ue .nfluence 8 use of !ominant position
Aisrepresentation 8 false statement
9rau! 8 ceating
AistaBe 8 erroneous state of affairs
C. *awful 5b:ect
D. -ertainty of performance
E. Not ambiguous F %ague(te agreement must be certain)
17. *egal 9ormalities
11. Not !eclare! to be %oi!
42. Offer and Acceptance
$ns.
Rules for a %ali! offer"#
1. 5ffer soul! be capable of creating legally bin!ing relationsips
2. 5ffer soul! be bacBe! by willingness to perform. Aere intention is not an offer
3. 5ffer soul! be communicate! 8 e.g. *alman ,uBla (-i%il 8 /laintiff( -riminal 8
-omplainant) %Fs Gauri Datt (-i%il 8 Defen!ant( -riminal 8 $ccuse! if guilty is calle!
con%ict if not guilty ten is calle! ac=uit)(//, Gogna /g no.27)
;. 5b:ecti%e of te offer is to obtain appro%al F acceptance of offeree
>. 5ffer soul! be !ifferentiate! from
.ntention
.n%itation to offer for e.g.
a) ,uper Ba'aar
b) /rospectus
c) 6en!er
!) $uction Notice
?. 5ffer may be con!itional
C. 5fferor cannot !ictate terms
Acceptance:- +en a person to wom offer is ma!e signifies is assent tere to e is sai! to
a%e accepte! te offerFproposal.
Rules for %ali! $cceptance"#
1. $cceptance to be %ali! must be absolute an! uncon!itional
2. $cceptor must be willing to perform is obligation
3. $cceptance must be communicate! to te offeror
;. $cceptance must be communicate! witin a reasonable time
>. $cceptance must be in te manner prescribe!
?. $cceptance must be communicate! before offer lapses F wit!rawn
*apse of offer 8 offer no longer %ali!
E)piry F *apse of time
Re%ocation 8 -ancellation of offer by offeror
a) Notice of re%ocation
b) -ommunication in same cannel
-on!itional acceptance F =ualifie! acceptance F counter offer
Non compliance of terms an! con!itions
Deat 8 in respect of contracts of personal sBill
Re:ection
!ules as to communication of offer " acceptance "#( better in //,G /g. no.2C)
1. 5ffer"# -ommunication of offer is complete wen it comes to te Bnowle!ge of te
person to wom it is ma!e.
2. $cceptance"# -ommunication of acceptance is complete
o 6o against offeror 8 wen communication of acceptance is put into transmission
so as to be beyon! te control of acceptor
o $s against acceptor 8 wen it comes to te Bnowle!ge of offeror.
5pen letter !ate! 71#7D#277>
*etter recei%e! by offeree 7>#7D#277> -ommunication of offer is
complete
*etter of acceptance !roppe!
on
7D#7D#277> -ommunication of
acceptance is complete as
against proposal
*etter of acceptance recei%e!
on
17#7D#277> -ommunication of
acceptance is complete
against acceptance
Competence of Parties to contract:-
(*egal -ompetence)
+eter a person as
o /ower .n *aw
o $utority
E%ery person is competent to contract open letter !ate! 71#7D#277> if
1. e as te age of ma:ority accor!ing to te law to wic e is sub:ect
2. e is of soun! min!
3. e is not !is=ualifie! un!er te law
# a person as attaine! te age of ma:ority incase were guar!ians a%e been appointe!
un!er guar!iansip law.
Legal Position of Contracts wit# $inor:-
+o is Ainor"# $ person wo as not attaine! te age of ma:ority
Hali!ity"# -ontracts wit minor are %oi!#ab#initio (from te %ery beginning)
e.g. Aoori Bibi %Fs Darmo!as Gose
1. $nyone wo contracts wit minor !oes it on is own risB
2. No ratification (no regulation)
3. -ontracts wit minor cannot be rectifie! e%en after e as attaine! te age of ma:ority.
+at is re=uire! is to sign a fres contract
$ & B (:ointly contract wit) - (Aa:or)
# -ontract is %oi! between B & -. 6e manager i.e. $ as to taBe full responsibility of
minor B an! is actions.
;. Ainor !eliberately mislea!ing is age
-ontract remains %oi!
-ourt may taBe cognigence & awar! compensation
>. Ainor cannot become a partner in partnersip firm. <owe%er if all te partners agree
minors may be a!mitte! to benefit of te firm
?. Ainor cannot become member of a company unless
$rticles of $ssociation of te company permit
,ares are fully pai!
C. Ainor can act as an agent
Ainor will a%e no personal liability

D. Ainor cannot be !eclare! insol%ent

E. No !egree of specific performance against minor
17. $nyone wo pro%i!es necessaries to minor can reco%er te amount from minor e%en by
attacing is property
%ound $ind:-
E%ery person is of soun! min! (for te purpose of entering into contract) if at te time of
maBing contract e un!erstan!s
6erms & con!itions of te contract
.mpact of terms & con!itions on is personal interest
.f e can un!erstan! tis ten e is sai! of soun! min!.
.!iot /erson"# /erson wose mental capacity is permanently affecte!. ,uc person can ne%er
enter a contract.
,ci'oprenia Epetopsey"# Aental capacity is temporarily un!er an attacB of a !isease. ,uc a
person can contract !uring te perio! of normalcy
DrunB /erson"# ,uc a person !on0t contract un!er influence of into)ication
Lawful Consideration:-
Basis
/rice
,ometing in return 8 4ui! /ro 4uo
Rigt( interest( benefit( or profit accruing to someone as against responsibility( !etriment(
sacrifice or loss suffere! or incurre! by someone else.
43. &o Consideration' &o Contract ( Discuss giving )*ceptions
Definition of Consideration:- +en at te !esire of promisor( promise or oter person as
!one or abstaine!( !oes or abstaine!( promises to !o or abstaine! from !oing someting. ,uc
an act or abstinence is calle! consi!eration & contract witout consi!eration is %oi!.
Essential 9eatures of -onsi!eration"#
1. -onsi!eration must mo%e at te re=uest of promisor 8 !esire of promisor cannot be
ignore!. E.g. Durga /rasa! %Fs Bal!eo
2. -onsi!eration may mo%e from promisee or any oter person. E.g. -innaya %Fs
Ramaiya
3. -onsi!eration can be past( present & future.
;. $bsence of act( forbearance or sacrifice may also be a goo! -onsi!eration.
>. -onsi!eration nee! be real & not imaginaryFillusory.
?. -onsi!eration nee! not be a!e=uate.
C. -onsi!eration must be lawful
.f it !oes not %iolate te pro%isions of te law
.f it is not forbi!!en by law
.f it !oes not result into in:ury to person or property
.f it is not against public policy
-ircumstances were contract witout -onsi!eration may not be %oi!"#
1. -ontracts ma!e un!er natural lo%e & affection pro%i!e! agreement is in writing(
registere! & between parties in near relation. E.g. Ra: luBee Debee %Fs Bootnat
2. /romise to compensate for past %oluntary ser%ice ren!ere! 8 ser%ice must be %oluntary
& not a legal !uty
3. /romise to pay time barre! !ebt
Aust be in writing
Aust be signe! by !ebtor
;. Gift 8 Donation witout consi!eration
>. -aritable contribution 8 e.g. Ke!arnat %Fs Gauri Aoamme!
Coercion:- -onsent is obtaine! by coercion wen it is obtaine! by"#
1. -ommitting or treatening to commit
2. 5ffense punisable un!er .n!ian /enal -o!e
3. Detaining or treatening to !etain unlawfully property of a person
9eatures of -oercion"#
1. @se of pysical force
2. Hiolent in nature
3. E%en a treat is enoug
;. 5ffense may be committe! or treatene! is punisable un!er .n!ian /enal -o!e
>. 6reat to commit suici!e is punisable & it can result in coercion. E.g. $mira:u %Fs
,esamma
-onse=uences of -oercion"#
1. -onsent is not free
2. -ontract is %oi!able
/erson wo ga%e consent un!er coercion can a%oi! or cancel te contract
+ndue ,nfluence:- -onsent is in!uce! by un!ue influence wen relationsip subsisting
between te parties are suc tat one is in a position to !ominate te will of anoter & uses tat
position to obtain unfair a!%antage o%er te oter.
Relationsip were un!ue influence may be presume!"#
1. +ere tere is real or apparent autority e.g. master & sla%e( fater & son.
2. +en te parties stan! in fi!uciary relationsip. E.g. -$ & client( lawyer & client( guru
& !isciple
3. +ere mental capacity is temporarily affecte! on account of age & !isease e.g. !octor
& patient
-onse=uences of -oercion"#
1. -onsent is not free
2. -ontract is %oi!able
Coercion +ndue ,nfluence
$eaning @se of pysical force @se of !ominant force
&ature Hiolent Aay not be %iolent
!elations#ip Not re=uire! 6ere must be relationsip
-#o can e*ercise 6ir! parties can e)ercise
5nly by parties un!er
relationsip
$isrepresentation:-
1. 9alse statement by a person wo belie%es it to be true
2. Breac of !uty witout intention to !ecei%e( gi%ing unfair a!%antage
3. -ausing owe%er innocently( party to maBe a mistaBe regar!ing sub:ect matter of
contract e.g. Re) %Fs Kylsant
Effects of Aisrepresentation"#
1. -onsent is not free
2. -ontract is %oi!able
3. /erson wo ga%e consent can cancel te rigt of cancellation F rescission
/erson must a%e !epen!e!
-ancellation must be witin a reasonable time
/erson soul! not a%e affoun! te contract or taBen benefit of te contract
.raud:- Aeans & inclu!es any of te following wit intention to !ecei%e
1. 9alse statement by a person wo !oes not belie%e it to be true
2. $cti%e concealment of facts
3. /romise witout intention to perform
;. $nyting fitte! to !ecei%e
>. $nyting wic law may !eclare to be frau!ulent
# Aere silence is not frau!( unless tere is !uty to speaB
# Negligence is no frau! e.g. Derry %Fs /eeB
$isrepresentation .raud
,ntention No intention to ceat 6ere is intention to ceat
/nowledge of false statement /erson maBing false statement /erson maBing false statement
!oes not Bnow statement is
false
!oes Bnow statement is false
Claim for damages No claim for !amages a%ailable -laim for !amages a%ailable
$istake:- Error or erroneous state of affair. +en a party inten!ing to !o one ting( by error(
!oes someting else.
*$+,
AistaBe of *aw AistaBe of 9act
.n!ian *aw 9oreign *aw Bilateral @nilateral
(.gnorence of law (6reate! as mistaBe (Bot parties are (5nly one party at
not e)cuse!) of fact) at mistaBe 8 Hoi! mistaBe 8
-ontract -ontract)
isn0t %oi!)
two e)ceptions
.!entity of person contracte! wit Nature of contract signe!
-ontract becomes %oi!
e.g. -un!y %Fs *in!say
Agreements e*pressl0 declared to be void:-
1. $greement wit parties incompetent to contract
2. -ontract witout consi!eration
3. -ontract wit unlawful consi!eration
;. -ontract wit unlawful ob:ect
>. -ontract wit mutual mistaBe of fact
?. -ontracts in restraint of marriage
C. -ontracts in restraint of tra!e"# $ny agreement wic taBes away te free!om it woul!
amount to restraint of tra!eF%oi!.
Reasonable Restrictions
,ale of Goo!will /artnersip agreements 6ra!eFBusiness -onsi!eration ,er%ice
-ontract
D. -ontracts in restraint *egal /rocee!ings
o Rigt to seeB legal reme!y 8 if refuse! Hoi!
o $greement were perio! of limitation is re!uce!
o E)ception 8 Reference to arbitration
E. -ontracts te meaning of wic is uncertain
17. -ontracts by way of +ager
11. -ontracts contingent on uncertain e%ent wen e%ent becomes impossible
12. -ontracts to !o impossible tings
Agreement b0 wa0 of -ager:-
Betting 1 )*penditure Agreement:- /romise to pay or money0s wort if an uncertain e%ent
turns one way & if te e%ent turns oterwise( person will recei%e instea! of paying.
@ncertain 6ransactions wic are not wagers"#
*ottery
-ross wor! pu''les 8 games
<orse racing 8 ,ports e%ent
,tocB e)cange tra!ing 8 .n%estment ,cience
.nsurance 8 socially beneficial
Agreement to impossible acts 2void3:-
Contingent Contracts:- -ontract to perform or not to perform if an uncertain future e%ent
collateral to te contract !oes or !oes not appen.
4 !ules relating to enforceabilit0 of contingent contract
1. -ontract contingent on appening of an e%ent 8
,uc contract cannot be enforce! until te e%ent taBes place
.f te e%ent becomes impossible contract is %oi!
2. -ontract contingent on non#appening of an e%ent 8 suc contract cannot be enforce!
until it is clear tat te e%ent sall ne%er taBe place
3. -ontract contingent on future bea%ior of an in!i%i!ual 8 e%ent sall be consi!ere!
impossible if a person bea%es in suc a way tat e cannot come bacB to te original
position
;. -ontract contingent on appening of an e%ent witin a specifie! time 8 ,uc contract
cannot be enforce! until te e%ent taBes place witin a specifie! time
>. -ontract contingent on non#appening of an e%ent # suc contract cannot be enforce!
until it is clear tat te e%ent sall ne%er taBe place witin a specifie! time
?. -ontract contingent on impossible e%ents
4uasi Contracts:- -ircumstances in wic tere is no offer( no acceptance or no formal
contract but law enforces !uty. 6is !uty is as goo! as contract (as if contract was signe!)
Base! on /rinciples of E=uity & Iustice
No one sall be permitte! to be un:ustly enrice! at te e)pense of anoter
4 -#0 s#ould law impose dut0?
Circumstances in w#ic# law imposes dut0:-
Reimbursement of amount spent towar!s necessaries supplie! to a person incompetent
to contract
Reimbursement of payment !ue from someone else but person paying is intereste! in
suc payment
Reimbursement of act !one or ser%ice ren!ere! non gratuitously( not out of carity & on
commercial terms
Responsibility of fin!er of goo!s 8 a person wo fin!s goo!s belonging to anoter an!
taBes tem into is custo!y is place! wit responsibility of a bailee
6e article !eli%ere! price pai! un!er coercion or mistaBe
Disc#arge of Contract:- -ontractual relationsip comes to an en! & noting remains te same
1. By /erformance
$ctual
$ttempte!
2. By $greement
No%ation 8 New agreement is substitute! in place of ol!
$lteration 8 E)isting agreement is mo!ifie!
Rescission 8 Rigt to cancel agreement
Remission 8 $ccepting less tan in agreement in final settlement
Aerger 8 Rigt to recei%e & rigt to pay bot come in te same an!s
+ai%er 8 +it!rawal of contractual terms
3. By 5peration of *aw
Deat
.nsol%ency
Aerger
;. By .mpossibility of /erformance
$t te 6ime of -ontract 8 Hoi!
,ubse=uent
i. /ermitte! as e)cuse
Distribution of sub:ect matter
5utbreaB of war
-ange of law
-ange of state of affairs
ii. Not E)cuse! 8 Difficult to perform
>. Breac of -ontract
$ctual Breac of -ontract
$nticipatory Breac of -ontract
Breac# of Contract:- -ontractual obligations not carrie! out in agree! manner.
Actual (5n !ue !ate of
performance)
Anticipator0 (Before te actual !ue !ate intention not to perform is
communicate!)
6e oter party can
treat tis
communication as
breac of contract on
te !ate of receipt of
communication
6e oter party can wait till actual !ue !ate
+e can perform on !ue
!ate (alternati%e
arrangement)
.f we fail it will be
breac of contract on
actual !ue !ate
Conse5uences of Breac# of Contract:-
%uit for Damages
(Estimate of monetary
loss suffere! on
account of non
performance)
%uit for %pecific
Performance
,n6unction
-ourt or!er restricting
te parties
4uantum $eruit
# $s muc as is
merite!
# +ere contract
is aban!one! or
&ormal 8 $rising out
of normal course of
business
%pecial 8 /arties a!
estimate! or
con%isage!
)*emplar0 8 /uriti%e
8 by way of
punisment
&ominal 8 6aBen but
in recognition of rigts
of te party
cancelle!
# -ontract
becomes %oi!
# +en contract
is %oi!able &
party !eci!es to
cancel
# .n te mean
time part of te
contract is
alrea!y
performe!
payment is
re=uire! to be
ma!e to te
e)tent of
performance
7uidelines for determining damages:-
# Damages to be on account of pro)imate cause & not remote cause e.g. <ea!ley %s
Ba)an!le
# Damages must arise out of & !uring te normal course of business
# /erson claiming !amages must sow is sincerity in mitigating te losses
# $mount of !amages claime! can ne%er e)cee! te actual loss suffere!
Companies Act
Compan0:-
$ssociation of person
Registere! un!er te companies act 1E>?
By contributing to capital wic is
!i%i!e! into sares
wic are transferable
& wit limite! liability
a%ing perpetual e)istence
common seal
& being an in!epen!ent 1 artificial :uri!ical person
can own( posses( !ispose of property
can sue & be sue!
)ssential features of Companies Act:-
1. $ssociation of person registere! un!er te act a%ing separate legal entity 8 te
company as separate legal entity !ifferent from members e.g. ,olomon %s. ,olomon &
-ompany *t!.
2. *imite! *iability 8 *iability is limite! to e)tent of uncalle! F unpai! amount of sares
3. 6ransferability of ,ares 8 ,ares of te company are transferable & members can sell
tem any time wen tey want. $ person can cease to be a member wene%er e !esires to
=uit
;. /erpetual E)istence 8 -ompany ne%er !ies e)cept troug !ue process of law
>. -ommon ,eal 8 ,eal is signature of a company
?. /roperty can be purcase! in te company name. -ompany can own( posses F !ispose of te
property
C. -an ,ue 8 -ompany can file suit against own name & can be sue! against
$ll C points togeter is terme! as -orporate Entity F Heil wic acts as a curtain
4 -#at do 0ou understand b0 corporate veil " under w#at circumstances t#e corporate
veil can be pierced?
Circumstances under w#ic# corporate veil can be pierced:-
1. *oss 5f Re%enue to te ,tate 8 e.g. Dinsaw AanecB:i /etit %s -.6
2. -ompany assuming enemy caracter 8 e.g. Daimler & -ompany *t! %s -ontinental 6yres
& Rubbers -ompany
3. .mproper -on!uct 8 e.g. Gil 9or! Aotor -ompany %s <arne
;. 9rau!
>. ,tatutory pro%isions"#
Aembersip is re!uce! below minimum & business is carrie! on for ? monts or more
ten all te members are personally liable
Ais!escription of Name
Aisfeasance /rocee!ings 8 -riminal breac of trust
80pes Of Companies:-
80pes of Companies
On t#e basis of %tatute2act3
Companies formed under
special c#arter 8 East .n!ia
-ompany
Co-formed under special
statute act 8 RB.
Co-!egistered under
companies act 8 Reliance *t!.
Liabilit0 -ompany wit limited *iability
-ompany wit unlimited liability
8 KotaB Aain!ra -apital
-ompany
Capital Contribution -it# ,are -apital
$a0 not a%e sare capital 8
*iability limite! by
guarantee(.n!ian .nstitute of
BanBers)
&umber of $embers Public Ltd
Compan0 8
Ain C & Aa)
J (no upper
limit)
$arketabilit0
of s#ares
@nliste!
(-losely
<el!)
*iste!
Private Ltd Compan0 8 Ain 2
& Aa) >7 (E)clu!ing
presentFpast employees wo are
sareol!ers)
Basis of Control <ol!ing -ompany
# wic controls
appointment of ma:ority
of !irectors in oter
company
# wic ol!s ma:ority of
sares of oter companies
# ,ubsi!iary of ,ubsi!iary
is subsi!iary of ol!ings
,ubsi!iary -ompany
Basis of 7overnment
involvement ( 7overnment
Compan0
# $u!ite! by
-$G(-omptroller &
$u!itor General of .n!ia)
# $nnual report is place!
before te parliament
# >1K of capital is el! by
go%ernment(-entral(
,tate( 5ter Go%t. -o. 8
/,@0s if registere! un!er
companies act)
7eograp#ic Parameter
2Place of ,ncorporation3
9oreign -ompanies ($ll AN-0s)
9ace Halue 8 $s may be issue! by te company as Re. 1( >( 17( 177.
BooB Halue 8 (/ai! up -apital 1 Reser%es & ,urplus 8 $ccumulate! *osses) F No. of
sares issue!
AarBet Halue 8 $s =uote! in te AarBet
,ncorporation of a Compan0
/romoter"# 5ne wo promotes te company. 5ne wo concei%es te i!ea of setting up business
in te form of a company.
Name"#
$pplication for a%ailability of name
9orm No. . $
/ayment fee of Rs. >77F#
,uggest te name by wic e woul! liBe is company to be incorporate! wit 3 oter
alternati%e names
&ames w#ic# are not Available 1 not Desirable
Names of e)isting companies
/onetic ,imilarity e.g. I.K. .n!ustries *6D. & Iay Kay .n!ustries
-annot use international bo!ies F national bo!ies
Rele%ance of business name & business soul! be maintaine!
Rele%ance between name & si'e of autori'e! capital
N$AE $@6<5R.,ED -$/.6$*
.f -oporation > crores
.nternational F Globe F Global F $sia F $siatic F
.ntercontinental
1 crore
$bo%e wor!s use! in between name >7 lacs
<i!ustan F Barat F .n!ia as first name >7 lacs
$bo%e wor!s use! in between name > lacs
.n!ustry F @!yog 1 crore
Enterprise F /ro!ucts F Aanufacturing 17 lacs
Documents to be submitted for !egistration
1. Aemoran!um 5f $ssociation 6o be stampe! accor!ing to te %alue of
autori'e!
2. $rticles 5f $ssociation capital
3. *ist of Directors on 9orm 32 (.n Duplicate)
;. -onsent of persons wo a%e agree! to become Director on 9orm 2E (only in respect of
/ublic *6D -ompanies)
>. Declaration tat pro%isions of -ompany *aw a%e been complie! wit 9orm . (signe!
by Director F $!%ocate F -$ F /-,)
?. /articulars of registere! office on 9rom 1D
C. Registration 9ee
Certificate of ,ncorporation
.ssue! by Registrar of -ompanies (R5-)
on satisfying tat re=uirements of company law a%e been complie! wit
-onclusi%e e%i!ence as regar!s
i. Registration of -ompany
ii. -ompliance to -ompany *aw
Birt certificate of -ompany 8 -orporate features become operati%e from tis !ate
.f te company is /ri%ate *6D -ompany ten it can commence its business
imme!iately on incorporation
.f company is /ublic *6D -ompany ten it as to obtain a!!itional certificate 8
-ertificate of -ommencement of Business
Certificate of Commencement of Business
-ompany must a%e to raise! minimum subscription to commence its business
Ainimum ,ubscription 8 .s te amount wic in te opinion of Directors of te -ompany
sufficient to commence te business
.n respect of ./5 F ,ubse=uent public offer 8 Ainimum subscription is E7K of te amount
of public offer of an issue of sares (if minimum subscription is not raise! entire
application amount is to be refun!e!)
$ppro%al from te stocB e)canges at wic te sares of te company are propose! to
be liste! must be obtaine! (.f stocB e)canges refuse listing( te application amount will
a%e to be refun!e!)
Directors soul! a%e taBen & pai! =ualification sares if any
$u!ite! receipt & e)pen!iture account since incorporation
Declaration by Director tat -ompany *aw as been complie! wit
$emorandum Of Association 2$OA3
-aracter F -onstitution of te -ompany
9un!amental Document
Contents of $OA
4 Discuss significance of ob6ect clause in $OA " Doctrine of ultra vires vis-9-vis t#e
ob6ect clause
1. Name -lause 8 Name of te -ompany is LLLLLLLLLLLLLLLLLLLL
2. Registere! 5ffice -lause 8 6e registere! office of te company is locate! in te state
of LLLLLLLLLLLLLLLLLLLLL
3. 5b:ect -lause 8
Aain ob:ecti%es te company will pursue on its incorporation
5b:ects ancillary to main ob:ects
5ter ob:ects
3 Nee! for 5b:ect -lause 8
/ositi%ely ,peaBing 8 5b:ect -lause specifies te areas of operations in wic te
company will !eploy its fun!s
Negati%ely ,peaBing 8 -ompany will not !eploy its fun!s in te areas beyon! wat is
state! in te ob:ect clause
-omfort of in%estors F members
-re!itors
$nyting beyon! te ob:ect clause is ultra %ires
@ltra Hires contract is in%ali!
-ompany is not boun!
Directors may incur personal liability
;. *iability -lause 8 e.g. $sbury Railway -arriage & .ron -ompany %s Rice. *iability of
members of te company is limite!
>. -apital -lause 8 ,pecifies te ma)imum amount company is autori'e! to raise e.g.
$utori'e! -apital of te company is Rs. >7 crore !i%i!e! in > crore e=uity sares of Rs
.17 eac
?. ,ubscription F $ssociation -lause 8 Names( $!!resses( @n!ertaBing to te sares(
,ignature !uly witnesse!
Alteration of $emorandum Of Association
1. -ange of Name 8
-ompulsory Holuntary
+ere e)isting company ob:ect te name to
similar F i!entical
R5- to issue or!er
# 9irst sow cause notice
# <earing
# 5r!er
+en te members of te company want
to cange
# a%ailability of new name to be cecBe!
up
# appro%al of members to cange name at
$GA F E5GA
# 9ile copy of Resolution wit R5-
# R5- to issue fres certificate of
.ncorporation wit new name
# Newspaper $!%ertisement
2. -ange of Registere! 5ffice 8
# -ange of office from one area to anoter witin same town
9irst !ecision at meeting of Boar! of Directors
Boar! resolution F recor! of !ecision to be file! wit R5-
9orm 1D for cange of a!!ress to be file! wit R5-
$!%ertisement
# -ange of office from one town to anoter witin same state
9irst !ecision at meeting of Boar! of Directors
$ppro%al of members wit special resolution (3F;
t
of members present
& %oting) at $GA F E5GA
9orm 1D for cange of a!!ress to be file! wit R5-
$!%ertisement
# -ange of office from one state to anoter
9irst !ecision at meeting of Boar! of Directors
$ppro%al of members wit special resolution (3F;
t
of members present
& %oting) at $GA F E5GA
9orm 1D for cange of a!!ress to be file! wit R5-
$pplication to -*B at te Regional Director of Mone for appro%al
/ublication of earing before -*B
.n%iting ob:ections (from state go%ernment( worBers or cre!itors)
5r!er will be issue! appro%ing cange of registere! office
9iling of -*B or!er wit R5-
$!%ertisement
3. -ange of 5b:ect -lause 8
+y -ange of 5b:ect -lause
# New 6ecnology
# New /ro!ucts F ,er%ices wic coul! be simultaneously un!ertaBen
# $malgamation F Aerger of !ifferent companies wit ob:ecti%es
6aBe 5%er F $c=uisition Aerger F $malgamation
Gu:arat $mbu:a $-- wit ma:ority
sareol!ing of $--
.n!ian Rayon( .n!o Gulf 9ertili'er & Birla
9inance became Birla Nuo
# -ancellation of any ob:ects
/roce!ure 8
# Decision by Boar! 5f Directors
# $ppro%al of Aembers at $GA F E5GA 8 by passing special resolution for
amen!ing ob:ect clause
# $ppro%al to be obtaine! from R5-
$!%ertisement in%iting ob:ections if any
<earing if re=uire!
R5- will gi%e appro%al
R5- to gi%e certificate appro%ing cange in ob:ect clause
;. *iability -lause 8 ne%er amen!e!
>. -apital -lause 8 can be cange! F amen!e!
/roce!ure for cange in capital clause
i. Decision by Boar! of Directors
ii. $ppro%al of members at $GA F E5GA
a. By passing or!inary resolution 8 simple ma:ority if tere is power to amen!
capital clause in te $5$
b. By passing special resolution 8 if tere is no pro%ision of alteration of capital
clause in te $5$( C>K ma:ority in fa%or of cange
iii. 9iling wit R5- 9orm no. > !uly stampe! & a!!itional registration fee
?. $ssociation F ,ubscription -lause 8 Not $mmen!e!
Articles of Association 2AOA3
4 -#at do 0ou understand b0 Doctrine of ,ndoor $anagement? Discuss significance "
relevance of AOA
Bye *aws F Rules & Regulations for company law re=uirements
.nternal /roce!ure to be followe! by a company
+ile A5$ is compulsory for all te companies( $5$ is optional for public *6D
companies. .n case of /ublic *t! company !oes not prepare $5$( 6able $ (Ao!el Bye
*aws F $5$ for /ublic *t! -ompanies) of ,ce!ule .. of -ompanies $ct will apply
Contents of AOA
1. /roce!ure relating to
,are -apital
.ssue of sare certificate
.ssue of !uplicate sare certificate
6ransfer ,ares
6ransmission
9orfeiture of sares
2. Aatters relating to
Aeetings of te members
6ypes of meetings
/roce!ure at meetings
.ssue of notice
4uorum re=uirement
/ro)y
Hoting
Resolution
3. /ro%isions relating to Directors
Aeeting of Directors
/owers of Directors
/owers of -airman F Aanaging Director
Borrowing /owers of te company
$ccounts & $u!it
,eal
;. ,ignificance of $5$
Bye *aws F Rules go%erning internal company law re=uirement
Doctrine of .n!oor Aanagement
Doctrine of Constructive &otice
5ffice of R5- is /ublic office
+ate%er is file! wit R5- can be inspecte! by te public by paying inspection fee
.nformation file! wit R5- is !eeme! to a%e been gi%en to public
E%ery person wo !eals wit company is presume! to Bnow wate%er is file! wit R5-
but noting beyon! tis. 6erefore a person can presume tat company as complie!
wit all te proce!ural re=uirements
<e is not re=uire! to in%estigate weter te company as in fact complie! wit suc
re=uirements e.g. Royal Britis BanB %s. 6ur=uan!
*imitations to te Doctrine of .n!oor Aanagement
Knowle!ge of .rregularity
9orgery
-ircumstances gi%ing rise to ,uspicion
!aising 8#e !esource for t#e Compan0
%#ort 8erm
# +orBing -apital facility from banB
# ,un!ry -re!itors
# 5utstan!ing E)penses
# /ublic Deposit maturing witin one year
# -ommercial /apers
# .nter#corporate *oans
# 9actoring *imit
Long 8erm
-apital 8 E=uity & /reference
Debentures (Bon!s)
6erm *oans
/ublic Deposit maturing after 1 year (Aa). 3
years)
GDR 8 Global Depository Receipt 8 ,ares not issue!( only certificate issue! in oter tan
!ollar( liste! on foreign e)canges
$DR 8 $merican Depository Receipt
9--B 8 9oreign -urrency -on%ertible Bon!s
E-B 8 E)ternal -ommercial Borrowing
!aising Long 8erm .unds t#roug# )5uit0
<ow muc F wat amount of E=uity
,i'e of /ro:ect
Detaile! 9inancial plan wit focus on its pre!etermine! acti%ity wit specifie!
in%estment ensuring !esire! monetary return
# Detaile! /ro:ect Report 8 Details of in%estment on lan!( buil!ing( plant &
macinery( furniture & fi)tures( installation( contingency pro%ision( margin for
worBing capital
# Aeans of 9inance 8 -apital 37 crores (E=uity 8 17 croresN ./5 troug
prospectus & Debt 8 27 crores)
,PO ( 8#roug# issue of Prospectus
*egal $spects
1. -ompanies $ct 8 /ro%isions relating to prospectus
2. ,EB. $ct 1EE2 8 Disclosure for ,EB. gui!elines
3. ,ecurities -ontract Regulation $ct 8 *isting gui!elines of e)cange
-oor!ination can be !one by Aercant BanBers (6ie up Aeans of 9inance)
)ntr0 &orms Of %)B,
5nly /ublic *t! companies a%e access to capital marBet
# 6racB recor! of !i%i!en! payment in 3
out of > prece!ing financial years
# Net wort of te company soul! be not
be less tan 1 crore in last fi%e financial
years
# ./5 cannot e)cee! an amount more tan
> times its net wort
# Newly incorporate! company F in
Greenfiel! pro:ect
# /ro:ect as to appro%e! by 9inancial
.nstitution F BanBs
# $ppro%ing $utority must a%e
participate! to te e)tent of 17K
# 6ere soul! be compulsory marBet
maBing for 2 years
Draft Prospectus
/rimary Responsibility 8 Aercant BanBer companies ,ecretarial F 9inance Department to
pro%i!e necessary output
-ontents of /rospectus 8 -ompanies $ct (,ection ?2)
.t soul! also follow !isclosure norm of ,EB. 8 for in%estors to taBe informe! !ecisions
$lso Beep in min! listing gui!elines of te stocB e)canges were te sares are
prepare! to be tra!e! in 2 parts
/art 1 (General .nformation)
Name
Registere! office
Aain ob:ecti%es of te company
$utority for te issue
6erms of issue (no. of sares( /rice 8 9i)e! price or AarBet price to be !isco%ere!
troug booB buil!ing process). /ayment to be ma!e on application or allotment.
.ssue /rogram 8 .ssue 5pens on( .ssue -loses on( Earliest -losing
*ea! Aanagers or -o#Aanagers
BanBers to te issue
BroBers to te issue
Registrars for te issue
@n!erwriters for te issue (optional)
$ll tese agencies a%e to gi%e teir written consent to be enclose! & file! wit
prospectus wen it is file! wit R5-
/art 2
BacBgroun! of te -ompany & te management
Boar! of Directors 8 Names( $!!resses( e!ucational =ualification & e)perience as
well as !etails of oter !irectorsip
5ter group companies un!er te same management
5b:ecti%es of te issue
Details of te pro:ect 8 cost of pro:ect( means of finance( a%ailability of raw material
@tilities
AarBeting F ,elling $rrangements
,ce!ule of implementation
5utstan!ing litigation
,tocB e)cange !ata
RisB factors affecting te business
Aanagement perception in respect of risB factors
$u!ite! financial performance for last > years
Draft prospectus to be file! wit
,EB.
,tocB e)cange were sares are propose! to be liste!
$fter ,EB. clearance prospectus is file! wit R5-
!ed :erring Prospectus
+ere price F no. of sares issue! by te company is not mentione! in te prospectus
/rice is !isco%ere! troug booB buil!ing
*ea! managers 8 lea! booB runners
5ter members 8 syn!icate members
/rice ban! 8 (floor price 8 ma). price are mentione!) *ea! Aercant BanBer prepares a
researc report on te company. /resentations are ma!e before 4.B0s (4ualifie!
.nstitutional BanBers) calle! Roa! sows. 4.B0s in!icate teir interest in te issue. Bi!s
are in%ite!. -ut off price is !eci!e!
6e prospectus is file! wit R5-
Basis of allotment prepare! by registrar to issue
Return of allotment to be file! wit R5-
%elf Prospectus:- 5nly for BanBs & 9inancial .nstitution
9iling of issue of prospectus wic will be issue! for 1 year
Details of sares subscribe! & allotte! are file! wit R5-
Aut#ori;ed Capital:- Aa)imum amount te company is autori'e! to raise as per capital
clause of A5$
,ssued Capital:- Number & amount of sare capital issue! to te public
%ubscribed Capital 2<=>3 " Paid +p %#are Capital:- ,ares subscribe! by te in%estors
(wic may not be less tan EDK of issue amount)
/ai! @p 2 ,ubscribe! -apital less calls in arrears
%#ares
)5uit0 2?3
6ose sares wic are not preference sares
(risB capital)
No assurance as to return of in%estment
No certainty as to return on in%estment
Preference 2@3
+ic can en:oy preferential rigts
Di%i!en!
Re!emption
)5uit0
Aoting !ig#ts -it#out Aoting !ig#ts (not more tan 2>K of
pai! up sare capital)
E=uity sares wit !ifferential %oting rigts
Preferential !ig#ts:-
1. -umulati%e F Non -umulati%e 8 /reference sares were te rigt to !i%i!en! is
allowe! to be accumulate! e%en if company as not !eclare! !i%i!en! & te !i%i!en!
will be payable in te year wen te company as a!e=uate profit are calle! cumulati%e
preference sares & preference sares were !i%i!en! is not allowe! to be accumulate!
are calle! non cumulati%e preference sares.
2. /articipati%e F Non /articipati%e 8 /articipati%e /reference sares are tose wic are
allowe! to participate in sare of profit after payment of !i%i!en! on e=uity from out of
surplus profit left. Non /articipati%e /reference sares are not entitle! to any
participation in surplus profit. 6ey are entitle! to agree! !i%i!en!
3. -on%ertible F Non -on%ertible 8 -on%ertible /reference sares are tose wic are
con%erte! into e=uity. Non -on%ertible /reference ,ares are tose wic are not
con%erte! into e=uity
;. Re!eemable F .rre!eemable 8 Re!eemable /reference sares are tose wic will be
re!eeme! F repai! witin ma) perio! of 17 years. .rre!eemable /reference sares cannot
be issue!
>. -umulati%e -on%ertible /reference sares 8 Rigt to !i%i!en! is accumulate!.
/reference sares are con%erte! into e=uity
%#ares issued at Premium %#ares issued at
Discount
%#ares issued at
Par
Bu0 Back %#ares
# sares issue! at %alue
iger tan te face
# Rs. 17 sares issue!
at Rs .E per sare
,ares issue! at
face %alue
AarBet price is relate!
price multiples of E/,
%alue
# sare premium can be
utili'e! for
writing off
preliminary
e)penses
Bonus issue of
sares
E)pansion
# Rs. 17 sare issue! at Rs.
127 (,are -apital 8
Rs.17 & ,are /remium
Rs. 117)
# company wen
issues sares at a
price less tan te
face %alue
Not more tan
17K unless
appro%e! by
central go%t.
$ppro%e! by
members by
special
resolution
,ares
forfeite! are
issue! at
!iscount
(Earnings F No. of
sares)
# company can buy
bacB 2>K of its
pai! up capital
# buy bacB from
accumulate!
profits
reser%es
procee!s of
pre%ious issues
of sares
# tere must be
pro%ision in $5$
# buy bacB can be by
purcase of o!!
lots
open marBet
purcases
re%erse booB
buil!ing
sares ten!ere!
un!er buy bacB
must be
cancelle! witin
C !ays
$eetings of $embers:-
%tatutor0 $eeting A7$ )O7$
# el! once un!er te act
ence statutory
# 6o be el! only by /ublic
*t! -ompany. /%t. *t!
-ompany not to ol! tis
meeting
# el! once in life time
# it is el! between 1 8 ?
monts from te !ate of
obtaining certificate of
commencement of business
# -an be el! by /ublic F /%t.
*t! company
# <el! e%ery year
# +it ? monts from en! of
accounting year
# 5ne meeting per calen!ar
year
# 1
st
meeting to be el! witin
1D monts from te !ate of
incorporation
# between 2 $GA0s gap not
more tan 1> monts
# 5btain appro%al of R5- if
gap e)cee!s 1> monts
# -an be el! by /ublic F /%t.
*t! company
# -an be el! any time wen
te matter is urgent
# .t cannot wait till ne)t $GA
# $ny meetings of members
oter tan $GA are E5GA
Agenda
%tatutor0 $eeting A7$ )O7$
-onsi!eration of ,tatutory
Report
# Report e)plaining te
progress ma!e since
incorporation of te
company
# Receipts & payment aFc
# ,ares issue! & allotte!
# .mportant contracts signe!
by management
# 6o be file! wit R5-
-onsi!eration of ,tatutory
Report
# /&* aFc
# Balance seet
# $u!itors report
# Directors reports
# -orporate go%ernance
report
-onsi!eration of ,tatutory
Report
Procedure to Conduct meetings of members
$utority to con%ene a meeting 8 Boar! of Directors 8 E%ery general bo!y meeting
must be presi!e! by Boar! meeting
Notice 8 ,pecify time (worBing time)( Day (+orBing Day 8 not a ,un!ay or public
oli!ay 8 Negotiable .nstrument $ct)( Date & place of meeting (registere! office or
oter place in te town in wic registere! office is locate!( 21 !ay clear notice 8 !ate
of posting & !ate of receipt to be e)clu!e! un!er certificate of posting)
$gen!a for Aeeting 8 9or $GA agen!a is !i%i!e! in 2 parts
1. 5r!inary Business
$ppro%al of /&*( BFs /asse! by or!inary resolution
Declaration of !i%i!en!
$ppointment of au!itor
$ppointment of Directors
2. ,pecial Business
anyting oter tan or!inary business
e)planatory statement soul! be gi%en in te notice
reason wy business is taBen up
!isclosure of interest of any !irector
$t E5GA 8 all business matters are special business re=uiring e)planatory stan!
Procedure to conduct meetings of members on t#e date of meeting
1. -airman 8 te !esignate! cairman to presi!e o%er te meeting. .f tere is no
!esignate! cairman( te members to coose one of tem as cairman of te meeting
2. 4uorum 8 Ainimum no. of members re=uire! to be present at te meeting
a. $s per pro%isions in te article
b. .f articles are silent( in case of /ublic lt! company > persons( in case of /%t lt!
company 2 persons sall form =uorum
c. 4uorum must be present witin alf an our from te sce!ule! time of
commencement of meeting
!. .f =uorum is not present witin alf an our( meeting is a!:ourne! to ne)t weeB(
same time( same place
e. .f at te a!:ourne! meeting =uorum is not present( persons present sall form te
=uorum
3. /ro)y 8 a member is entitle! to atten! te meeting or !epute a person to atten! on is
bealf by e)ecuting instrument of pro)y
a. /ro)y nee! not be a member
b. /ro)y form soul! be lo!ge! wit te company ;D ours before te sce!ule!
time of commencement of meeting
c. /ro)y may be open or wit specific !irection to %ote or against te resolution
!. /ro)y is cancelle! if member atten!s te meeting
e. /ro)y cannot speaB( but %ote at te meeting
;. Ao%ement of Resolution
a. Resolution is propose! by 1 of te members
b. .t is secon!e! by anoter member
c. Decision on te resolution 8 members can raise =uestions 8 cairman to answer
!. Report of au!itor is rea! at te meeting
>. -airman to ascertain te sense of te meeting (weter te resolution as been passe!
or not)
a. Hoice %ote # 5r!inary resolution re=uires simple ma:ority
b. By sow of an!s # ,pecial resolution re=uires 3F;
t
ma:ority
c. By !i%ision
!. By ballot
e. By poll
?. Ainutes 8 recor! of resolution passe! is written in minute booB to be signe! by
cairman of te meeting
C. ,pecial resolution are passe! to be file! wit R5-
Resolutions
5r!inary ,pecial Resolution re=uiring special
notice
# ,imple ma:ority
# 5r!inary business of rule is
passe! by simple ma:ority
# Re=uires 3F;
t
ma:ority
# $men!ment in A5$
# $men!ment in $5$
# $ppointment of AD
# Remuneration of AD
# $ppointment of sole selling
agent
# -an be !one by postal
ballot for liste! companies
# Remo%al of a Director
# Remo%al of an $u!itor
4 Discuss t#e provisions relating to 5ualifications' appointment' powers " removal of
directors of t#e compan0 under companies act?
Director 8 Director means a person wo ol!s position of a Director by wate%er name calle!
1. $gent of te -ompany 8 Director functions as an agent of te company acting on bealf
of te company
2. 6rustees
a. of te members for te property owne! by te company
b. must obser%e at most goo! fait (trust & confi!ence)
c. act in te benefit of te company & not for personal profit
3. Aanaging 5rgan 8 6roug wic te company operates F functions
;. /rofessional Employees 8 Director as to be an in!i%i!ual & not an incorporate! bo!y
Appointment of Directors No. of Directors 8 minimum in case of /ublic lt! company 8 3 &
/%t. *t! -ompany 8 2. Aa)imum no. as may be permissible in $5$
1. 9irst Directors 8 Names in $5$. .n case articles are silent all te subscribers to A5$ F
$5$ sall be !eeme! to be te first !irector. 6ese !irectors sall el! office till $GA
2. ,ubse=uent Directors 8 by te members at $GA. 1F3
r!
of te !irectors can be non
repairable & 2F3
r!
of te !irectors will be liable to retirement. 5f tis 2F3
r!
(1F3
r!
will
retire e%ery year. Retiring !irectors can offer temsel%es for re#appointment.
Reappointment by members at $GA
3. Directors appointe! by Boar! of Directors
a. $ppointment of a!!itional !irector
i. B5D can appoint a!!itional !irector (not e)cee!ing te ma). no.
pro%ision in $5$) to taBe benefit of e)pertise as well as e)perience of
any in!i%i!ual
ii. ,uc !irector will ol! position till ne)t $GA. $t ne)t $GA e may be
re#appointe!
b. 6o fill up casual %acancies
Aembers 8 -ontribute to
te capital of te company
& control te company by
e)ecuting %oting rigts at
meeting
$ppoint $u!itors to cecB
& control performance of
company wic is
manage! by !irectors
Report to members
/ower to manage te
company gi%en to Boar!
of Directors 8 wo are
responsible for !ay to !ay
management
i. 5n account if %acancy arises( B5D can appoint a !irector to fill up te
%acancies
ii. Deat( resignation or Dis=ualification
iii. ,uc !irector to ol! office till ne)t $GA
c. $lternate !irectors # +en te !irector lea%es te state in wic registere! office
of a company is locate!
i. 9or a perio! more tan 3 monts
ii. Boar! may appoint alternate !irector to atten! te Boar! meeting in
absence of original !irector
iii. 6e alternate !irector atten!s Boar! meetings in absence of original
!irector
;. $ppointment of !irectors by outsi!ers 8 6ere can be an agreement by te company
wit
a. .ts len!ers or
b. -re!itors
+ereby its nominee of len!ers F cre!itors may be appointe! in te Boar!
c. ,uc !irectors are not liable to retirement
>. /ower of Go%ernment F N-*6 (National -ompany *aw 6ribunal) to appoint !irector on
te Boar! of te -ompany
a. +ere tere are complaints about mismanagement of te company &
b. .n%estigation a%e been carrie! out
c. 5r complaints before N-*6 about te affair of te company being con!ucte!
against te interest of te members. N-*6 F Go%ernment can appoint Director
on te Boar! of te -ompany
!. 6ese !irectors are not liable to retirement
4ualifications 8 4ualifications if pro%i!e! in $5$ te !irector will a%e to taBe up
=ualification sares witin 2 monts of appointment. 9or sares upto face %alue of Rs. >777F#
Dis5ualifications ( /erson is !is=ualifie!
1. if e is of unsoun! min!
2. un!iscarge! insol%ent
3. e applies for !eclaring imself insol%ent
;. e as been sentence! to imprisonment for a perio! not e)clu!ing ? monts( for offence
in%ol%ing moral turpitu!e & a perio! of > years as not e)pire!
>. e is !irector in a company
a. company as !efaulte! to file annual return & balance seet for a consecuti%e
perio! of 3 years wit R5-
b. -ompany !efaults in payout of interest F principal of !eposits from public
Aa). no. of companies # a person can be !irector in ma). 1> companies e)clu!ing
/%t( lt! -ompanies
Aacation of office of Directors
1. on attracting !is=ualification
2. if a !irector fails to atten! 3 consecuti%e Boar! meetings witout lea%e of absence
3. if !irector fails to taBe =ualification sares witin 2 monts
;. if e fails to pay call money on sares witin ? monts
!emoval of a Director
1. Remo%al by te member at $GA
a. By not reappointing retire! Director
b. By appointing someone else in place of retiring !irector
c. By passing a resolution remo%ing a !irector
2. Remo%al of Director by N-*6
Powers of a Director
1. General /ower 8 General /owers to be e)ercise! Beeping in %iew
a. /ro%isions of companies act
b. $5$
c. -ontract wit te company
i. Directors a%e general power to !o all tose tings wic a company is
empowere! to !o
2. /owers wic can be e)ercise! at Boar! Aeeting 8 tere as to be boar! meetings (min.
; meetings in a year( 1 e%ery =uarter)
a. /ower to maBe calls on sares
b. /ower to issue !ebentures
c. /ower to borrow
!. /ower to maBe in%estment
e. /ower to maBe political !onations 8 total Rs. >7777F# or >K of net profit
wice%er is iger
3. /owers wic can be e)ercise! wit consent of members
a. 6o sell any un!ertaBing (!i%ision) of te company
b. 6o borrow in e)cess of pai! up capital & reser%es
c. 6o amalgamate F merge oter company F wit oter company
!. 6o appoint sole selling agent
e. 6o amen! A5$ F $5$
f. 6o fi) remuneration of AD
Account " Audit 8 BooBs of aFc F registers to be maintaine! by te company
$ssets of te company
*iabilities of te company
Register of sales
Register of purcases for manufacturing operations
Registers for
o Raw material
o *abor
o @tilities
o 5ter e)pen!iture
/&* & BF, as per sce!ule H.
Di%i!en! to be pai! 8 to be pai! only out of current profits
1. pro%i!e! for !epreciation
2. rules relating to transfer of profits to reser%e
Profit 8ransfer to !eserve
17K # 12.>K 2.>K
12.>K # 1>K >K
1>K # 1C.>K C.>K
$bo%e 1C.>K 17K
3. aFc0s to be au!ite! by te au!itors
4 Discuss provisions relating to appointment' 5ualification " powers of auditors of t#e
compan0 under t#e companies act @<BC?
$u!it un!er te companies act is statutory au!it. E%ery company un!er te companies act is
re=uire! to a%e its accounts au!ite! by te au!itor
Auditor
-$ 8 member of .-$. a%ing certificate of practice &
<e is not in te full time employment
Not in!ebte! to te company for amount e)cee!ing Rs. 1777F#
,oul! not be relate! to Directors
Powers of Auditor
1. /ower to a%e access to all !ocuments 8 agreements F contracts F minutes
2. /ower to %isit F %erify F cecB 8 properties F assets of te company at all locations (plant(
branc. <R)
3. /ower to obtain information F e)planation from te employees of te company
;. 6o report to te members
a. +eter te company as maintaine! te re=uire! booBs of aFc or registers
b. +eter te company as been complying wit accounting stan!ar!s
c. .n case of %ariation point out te impact on /&* of te company
Certif0 8#at
1. /&* aFc gi%es true & fair %iew of profit & loss for te year
2. Balance seet gi%es true & fair %iew of financial position of te company as on a
particular !ate
a. $u!itors to =ualify te report were tere are irregularities
b. Directors to reply to =ualifying remarBs of au!itors
&)7O8,ABL) ,&%8!+$)&8% AC8 @DD@
6ransferable !ocuments wic are use! for transfer of mo%able property. Negotiable instrument
means /romissory Note( bill of e)cange & -e=ue
4 Define promissor0 note " differentiate it from bill of e*c#ange " a c#e5ue
Promissor0 &ote
.nstrument in writing
Not being a banB note or currency note
,igne! by te maBer
-ontaining an uncon!itional un!ertaBing
6a pay certain sum of money only
6o a certain person on is or!er
Bill of e*c#ange
.nstrument in writing
,igne! by te maBer
-ontaining an uncon!itional or!er
Directing a certain
6o pay a certain sum of money only
6o certain person or is or!er
C#e5ue
Bill of e)cange !rawn on a specifie! banBer
Promissor0 &ote Bill of )*c#ange C#e5ue
@ Parties ,nvolved 2 parties 8 maBer wo
promises to pay &
payee (promise) wo
collects payment
3 parties
Drawer F maBer
8 wo !raws
te bill
Drawee 8 on
3 parties
Drawer 8
maBer of a
ce=ue
Drawee 8 BanB
2>F11F277>
5n !eman! . promise to pay Rupes /an!ey sum of Rs. >7777F# for
%alue recei%e!
6o Rupes /an!ey ,igne! by maBer F promissor
2>F11F277>
5n !eman! pay Rupes /an!ey sum of Rs. >7777F# for %alue recei%e!
6o Drawee (wo as been !irecte! to pay) ,igne! by maBer F promissor
BanB of Baro!a 2>F11F277>
/ay Rupes /an!ey
.n +or!s 9iguresLLLLLLLLL
,igne! by maBer F promissor
wom te bill
is !rawn or to
wom !irection
to pay is gi%en
/ayee # +o
collects te
payment
/ayee # +o
collects te
payment
E &ature of
relations#ip
AaBer 8 Debtor
/ayee # -re!itor
Drawer 8 -re!itor %is#
O#%is Drawee but
Debtor %is#O#%is /ayee
Drawee 8 Debtor
/ayee 8 -re!itor
Drawer 8 -re!itor %is#
O#%is BanB but Debtor
%is#O#%is /ayee
Drawee 8 BanB #
Debtor
/ayee 8 -re!itor
? &ature of liabilit0 AaBer of promissory
note is primararily
liable
Drawee 8 /rimary
*iable
Drawer 8 ,econ!ary
*iable
BanB 8 /rimary *iable
Drawer 8 ,econ!ary
*iable
F Acceptance Not Re=uire! $cceptance by !rawee
re=uire!
Not Re=uire!
B Crossing N.$. N.$. 5nly ce=ue are
re=uire! to be crosse!
C %tamp Dut0 $ttracte! $ttracte! Not Re=uire!
G &otice of dis#onor Not Re=uire! Re=uire! BanB issues non
/ayment memo
D %pecial Provisions
a Drawee in case of
need
N.$. N.$.
b Acceptance for
:onor
N.$. N.$.
4 -#at do 0ou mean b0 crossing of c#e5ues? Discuss various t0pes of crossings " t#eir
significance?
Aeaning 8 +en a ce=ue bears across in face two parallel trans%erse lines wit or witout te
wor!
$n! company
& company
not negotiable
-e=ue is sai! to be crosse!
,ignificance 8 crossing is an instruction to te banB not to pay cas across te counter
80pes of Crossing
7eneral Crossing %pecial Crossing !estrictive Crossing
+en te ce=ue bears across
its face two parallel lines wit
te name of a particular banBer
ten te ce=ue is sai! to a%e
been specially crosse! to tat
banB
,ignificance 8 BanBer to wom
te ce=ue is specially crosse!
.s te only autori'e! banBer to
collect te payment
+en te ce=ue bears across
its face two parallel lines wit
te wor!s PaFc payee onlyQ or
Ppayees aFc onlyQ ce=ue is sai!
to be restricti%ely crosse!
,ignificance 8 -e=ue cannot
be !eposite! in any oter aFc of
payee
,ignificance of ce=ues crosse! wit te wor!s not negotiable 8 wor!s not negotiable !o not
proibit te transferability of te amount of a ce=ue but it is a warning tat te title of te
person recei%ing te ce=ue will not get better tan tat of te person from wom e gets it
Negotiations 8 /rocess wereby te amount mentione! in Negotiable .nstrument is transferre!
to anoter person
B0 mere deliver0 )ndorsement " deliver0
.f negotiable instrument is !rawn payable to
bearer
Negotiable instrument !rawn payable to or!er
4 -#at do 0ou understand b0 endorsement? Discuss various t0pes of endorsements "
effect t#ereb0 b0 giving suitable e*amples?
)ndorsement 8 .nstruction to transfer te amount of negotiable instrument to anoter person
/erson wo gi%es te instrument 8 En!orser
/erson in wose fa%or en!orsement is gi%en 8 En!orsee
9irst En!orser 8 /ayee
$llonge 8 $!!itional slip attace! to cecB for en!orsement
80pes of )ndorsements
1. En!orsement in BlanB 8 were payee or en!orser merely signs te instruments at te
bacB for te purpose of transfer amount of Negotiable .nstrument. Effect 8 or!er
instrument becomes bearer instrument & amount can be pai! by mere !eli%ery
2. En!orsement in 9ull 8 wen payee or en!orser gi%es full instructions as to wom te
amount of Negotiable .nstrument is to be transferre!. Effect # 6e person in wose
fa%or en!orsement is ma!e is entitle! to collect te amount of Negotiable .nstrument or
furter en!orse
3. Restricti%e En!orsement 8 wen payee or en!orser restricts furter en!orsements are
restricte!. Effect 8 En!orsee will a%e collect te amount by !epositing te Negotiable
.nstrument in is aFc
;. -on!itional En!orsement 8 wen payee or en!orser attaces con!itions to transfer of
amount of Negotiable .nstrument. Effect 8 En!orsee will a%e to comply wit terms of
en!orsement
>. /artial En!orsement 8 wen payee or en!orser transfers part of te amount of
Negotiable .nstrument. /artial En!orsement is in%ali!. E)ception 8 .ncase were Bill of
E)cange contains a note tat part amount is alrea!y pai! Negotiable .nstrument will
stan! re!uce! to tat amount
?. 9acultati%e En!orsement 8 wen payee or en!orser forgoes is rigt or increases is
responsibility. Effect 8 En!orser continues to be el! responsible e%en if notice of
!isonor was not ser%e! on im
Bill of E)cange !rawn by Rames ,ina
Drawee 8 $mit
/ayee 8 $nga!
1
st
En!orsee 8 $bbas
2
n!
En!orsee 8 ,ar!ul
3
r!
En!orsee # $sif
C. En!orsement ,ans#resource 8 wen payee or en!orser maBes furter en!orsement
witout a%ing any reference to imself. Effect 8 6e en!orser is not a%ailable for any
reference F reme!y
D. En!orsement sans frais 8 wen payee or en!orser transfers witout is a%ailability to
contribute towar!s e)penses. Effect 8 En!orsee cannot !epen! on contribution on
en!orser
4 Define :older in due course " discuss privileges of #older in due course
:older in Due Course
$ B - D E 9
Drawer Drawee /ayee En!orsee1 En!orsee2 En!orsee3
<ol!er 8 $ person in possession of Negotiable .nstrument in is own name. entitles to recei%e
te amount
<ol!er in !ue course 8 $ person wo became
/ossessor of Negotiable .nstrument payable to bearer
/ayee or en!orsee of Negotiable .nstrument payable to or!er
9or consi!eration
Before maturity
+itout a%ing sufficient cause to belie%e tat
Defect e)iste! in te of te person from wom e !eri%e! it
Privileges of t#e :older in due course
1. $ll te pre%ious parties are liable to <.D-
2. <.D- can file suit for reco%ery in is own name against all te pre%ious persons
3. Drawee cannot refuse payment to <.D- on te groun!s tat te bill was
accommo!ation bill 8 Bill !rawn witout consi!eration
;. Drawee cannot refuse payment on te groun! tat bill is fictitious 8 were eiter !rawer
or payee are not e)isting
>. Drawee cannot refuse payment on te groun! tat bill is incoate 8 Bill wic is
stampe! & signe! but incomplete F blanB in respect of oter !etails
?. <ol!er in !ue course is entitle! F autori'e! to fill up F complete incoate stampe!
instrument
C. Drawee cannot refuse payment on te groun! tat bill is uncon!itional F escrow 8 were
bill as been !rawn & accepte! sub:ect to certain con!itions
D. 5nce te Negotiable .nstrument passes troug te an!s of <.D- it gets cleanse! of
all its !efects
E. -apacities of pre%ious parties cannot be =uestione!
17. E%ery ol!er is pressure! to be ol!er in !ue course