ASSIGNMENT

MB0051-LEGAL ASPECTS OF
BUSINESS

Question 1
What are the rights of Surety?
Answer
Rights of surety may be classified under three heads:
Rights Against Creditors
Rights Against the Principle Debtors
Rights Against Co-Sureties
Let us discuss in details
1. RIGHTS AGAINST CREDITOR
In case of fidelity guarantee, the surety can direct a creditor to dismiss the employee whose
honesty he\she has guaranteed, in the event of proven dishonesty of the employee.
The creditor's failure to do so will exonerate the surety from his\her liability.
2. RIGHTS AGAINST THE PRINCIPLE DEBTOR

Right of subrogation

Section 140 provides that where a surety has paid he guaranteed debt on the due date or has
performed the guaranteed duty on the default of the principle debtor, he\she is invested with all
rights that the creditors has against the debtor.
In other word the surety is subrogated to all rights that the creditor had against the principle
debtor. Hence , if the creditor loss or without the consent of the surety parts with any securities,
the surety is discharged to the extent of the value of such securities.
Further the creditors must hand over t the surety the securities in the same condition as they
formerly stood in his\her hands.

Right to be Indemnified

The surety has a right to recover from the principal debtor the amount that he/she has rightfully
paid under the contract of guarantee.
3. RIGHT AGAINST CO-SURETIES

Right of contribution

Where a debt has been guaranteed by more than one person, they are called co-sureties. Section
146 provides for a right of contribution between them. When a surety has paid more than his/her
share or a decree has been passed against the surety for more than his/her share, he/she has a
right of contribution from the other sureties who are equally bound to pay with him/her.

Guaranteed Different sums

Where the co-sureties have guaranteed different sums, they are bound under Section 147 to
contribute equally, subject to the limit fixed by their guarantee and not proportionately to the
liability undertaken.
Question 2
Explain duties of a Bailor and a Bailee.
Answer
Let us discuss the duties of Bailor and a Bailee
DUTIES OF BAILOR
To Disclose Known Faults In Goods (Section 150)
The bailor is bound to disclose to the bailee, all faults in goods bailed, of which he/she is aware of.
These faults materially interfere with the use of them or expose the bailee to extraordinary risks. If
the bailor does not make such disclosure, he/she is responsible for the damage arising to the
bailee directly from such faults.

To Bear Liability For Breach Of Warranty As To Title

The bailor is responsible to the bailee for any loss that the bailee may sustain by reason that the
bailor was not entitled to make the bailment, or to receive goods or give directions respecting
them (Section 164).
To Bear Expenses In Case Of Gratuitous Bailment
Regarding bailment under which the bailee is to receive no remuneration, Section 158 provides
that in the absence of a contract to the contrary, the bailor must repay to the bailee all
necessary expenses incurred by him for the bailment.
To Bear Expenses In Case Of Non-Gratuitous Bailment
In case of non-gratuitous bailments, the bailor is responsible for bearing only extraordinary
expenses.
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DUTIES OF BAILEE
To Take Care Of Goods Bailed (Section 151)
In all cases of bailment, the bailee is bound to take care of the goods bailed to him as a man of
ordinary prudence would, under similar circumstances, take of his own goods of the same bulk,
quality and value as the goods bailed. In case the bailee has taken proper care of the goods, he
shall not be responsible, in the absence of any special contract, for the loss, destruction or
deterioration of the goods bailed (Section 152).
Not To Make Unauthorised Use Of Goods (Section 154)
In case the bailee makes unauthorised use of goods, i.e. uses them in a way not warranted by
the terms of bailment, he is liable to make a compensation to the bailor for any damages arising
to the goods from or during such use of them.

Not To Mix Bailors Goods With His Own (Sections 155-157)

If the bailee without the consent of the bailor mixes the goods of the bailor with his own and the
goods cannot be separated or divided, the bailee shall bear the expenses of separation or
division and any damages arising from the mixture.
To Return Any Accretion To Goods Bailed (Section 163)
In the absence of any contract to the contrary, the bailee is bound to deliver to the bailor, or
according to his/her directions, any increase or profit that may have accrued from the goods
bailed.

Question 3
"Power of Attorney is considered as an important concept in Business Law" Explain
Answer
Meaning of "Power of Attorney"
Power of attorney is defined by Section 2(21) of the Stamp Act as including any instrument not
chargeable with a fee under the law relating to court fees for the time being in force, that
empowers a specified person to act for and in the name of the person executing it. It is the
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Powers of Attorney Act, 1882, that deals with the subject but does not define it. In common
parlance, a power of attorney is an instrument or a deed by which a person is empowered to act
for and in the name of the person executing it. The person executing the deed is known as the
principal or donor and the one in whose favour it is executed is the agent, or the power agent or
the power of attorney agent.
Types of "Power of Attorney"
There are two types of "Power of Attorney"

If the deed conferring power by one to another relates to one single transaction, it is
known as special power of attorney.
If the deed conferring power relates to several transactions it is general power of attorney.

Registration
As a general rule, registration of power of attorney is not necessary. However, if it authorizes the
donee to recover the rent of an immovable property of the donor for the donees benefit, it would
require a registration. Also, a power creating a charge in favour of the donee upon an immovable
property referred to therein will need a registration.
Further, Section 32 (c) of the Registration Act, 1908, requires that where a document is
presented for registration by the agent of a person entitled to present it for registration, such
agent must be duly authorised by power of attorney executed and authenticated in manner as
mentioned in Section 33 of the Act.
Such a power of attorney is to be executed before and authenticated by a registrar or subregistrar. Unregistered power executed in a foreign country before a public notary can be used by
the agent for presentation of document for registration. The power of attorney, however,
executed before a public notary in India will not enable the agent to present any document for
registration under the Registration Act, 1908.
Power of attorney is required to be embossed on non-judicial stamp paper. The amount of stamp
duty varies with different types of powers as described in the Stamp Act and varies in different
states of India. Section 4 of the Power of Attorney Act, 1882, provides that the original deed of
power can be deposited in the High Court in whose jurisdiction the principal resides. Moreover, a
certified copy of the deed can be obtained from the High Court. Such certified copies are equal to
originals and are binding on all.

Question 4
"The Banking Regulation Act, 1949,provides various methods of regulation of the
banking business". Describe the key areas of regulation.
Answer
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The Banking Regulation Act, 1949, provides various methods of regulation of the banking
business. Some of the key areas of regulation are:
POWER TO PROVIDE DIRECTION
Sections 21 and 35A of the Act empower the RBI to regulate the business of banks by issuing
directions controlling various aspects of banking. Section 21 provides the power to regulate
advances of banking companies, while Section 35A provides powers of regulation over banks.
These statutory directions issued by the RBI are binding on banks. The circulars issued by the
RBI, pertaining to its statutory power are binding on banks. The RBI is expected to issue
directives with bonafide intentions and is competent to provide advice or caution to the banking
companies under Section 36.
DEPOSITS
Banks can accept both time and demand deposits from customers. The bank can decide on the
terms and conditions of such deposits, subject to the directions of the RBI. Currently, the RBI
prescribes minimum and maximum period of deposits and prescribes the interest rates of
savings and NRI deposits. Under Section 26, banks are expected to file a returns every year for
unclaimed deposits.
NOMINATION FACILITIES
According to Sections 45ZA, 45ZC and 45ZE, banking customers have the right to appoint a
nominee for their deposits and locker facilities, in the manner prescribed by the RBI. In the event
of death of the customer, the bank is expected to hand over the deposit monies or contents of
locker to the respective nominees.
LOANS AND ADVANCE
Section 21 provides that RBI has the right to issue directions for controlling advances by banking
companies. These directions are issued to banking companies with respect to purpose for which
advances are given, margins for secured advances, maximum amount of advances and
guarantees as well as the rate of interest and terms and conditions for advances. Section 20
imposes restrictions on loans and advances by disallowing banks from providing loans against
their own shares. Section 20A provides that a bank does not have the power to remit the debts of
any of its directors without the permission of RBI.
REGULATION OF INTEREST RATE
Section 21(2)(e) of the Act regulates the interest rates on loans and advances. The lending rates
differ for differing types of industries such as small-scale industries, agriculture, etc. The rate of
interest also varies on the period of the loan. Currently, the RBI directives govern interest rates of
advances and for finance to exporters and small loans up to Rs. 2 lakhs. Section 21A provides
that the transaction between a banking company and its borrower cannot be scrutinized by
courts on the grounds of excessive rate of interest.
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From the above discussions, it is clear that banking companies are subject to rigorous external
control from the RBI and other statutory bodies.

Question 5
Explain the nature and scope of complains under the Consumer Protection Act?
Answer:
To provide simple, speedy and inexpensive redressal of consumer grievances, the Act envisages
three-tier quasi-judicial machinery at the district, state and national.
1. Persons Competent to Make Complaint

The consumer to whom such goods and services are sold or delivered or agreed to be sold
or delivered.
Any recognized consumers association namely, any voluntary consumer association
registered under the Companies Act, 1956, or any other law for the time being in force.
One or more consumers, where there are numerous consumers having the same interest,
with the permission of the District Forum, on behalf of, or for the benefit of, all consumers
so interested.
The Central or the State Government.
2. Place of Complaint
The following are the three instances where a consumer can lodge a complaint:

District Forum
State Commission
National Commission

3. Procedure for Filing a Complaint

There is no fee for filing a complaint before any of the aforesaid bodies. The complainants or
their authorized agent can present the complaint in person.
The complaint can also be sent by post to the appropriate Forum/ Commission. The complaint
should be addressed to the President of the Forum/Commission. A complaint should contain the
following information:

Name, description and address of the complainant

Name, description and address of the opposite party or parties, as the case may be, as
far as they can be ascertained
Facts relating to complaint and when and where it arose
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Documents, if any, in support of the allegations contained in the complaint

Relief that the complaint is seeking.
4. Admission of Complaint

Procedure in respect of goods where the defect requires no testing or analysis:

The District Forum should send a copy of admitted complaint to the opposite party
mentioned in the complaint within 21 days of admission. He should be instructed to
provide his version of the case within 30 days or may be granted a further extension of 15
days, the discretion of the Forum. If the opposite party disputes the allegations or fails to
take any action, the forum can settle the disputes as specified in the Act.
Procedure in respect of goods where the defect requires analysis or testing:
With respect to goods which need to be tested or analyzed for defects, the District Forum
should obtain a sample of goods from the complainant and should take steps to seal and
authenticate the sample and send it to the appropriate laboratory for testing or analysis.
The complainant is obliged to bear the necessary charges towards the analysis/testing and
needs to deposit these fees to the forum. Upon receiving the report, the Forum then
forwards a copy of the same, along with its remarks, to the Opposite party seeking
clarification. Any disputes with respect to the laboratorys findings must be countered by
written objections from the concerned party. The Forum then provides reasonable
opportunity for both the complainant and the opposite party to be heard.
5. Power Of the District Forum

District Forum shall have the same powers as are vested in a civil court under the Code of Civil
Procedure, 1908, while trying a suit in respect of the following matters, namely:

Summoning and enforcing the attendance of any defendant or witness and examining the
witness on oath
Discovery and production of any document or other material object producible as
evidence
Reception of evidence on affidavits
Requisitioning of the concerned analysis or test from the appropriate laboratory or from
any other relevant source
Issuing any commission (i.e., warrant conferring authority) for the examination of any
witness
Any other matter that may be prescribed.

Question 6
Explain the need and types of Meetings.
Answer

A company is an artificial person and therefore, must act through some human intermediary. The
various provisions of law empower shareholders to do certain things. They are specifically
reserved for them to be done in companys general meetings. Section 291 empowers the Board
of Directors to manage the affairs of the company. In this context, meetings of shareholders and
directors become necessary.
The Act has made provisions for following different types of meetings of
shareholders:
(i) Statutory Meeting;
The most important legal provisions regarding statutory meetings are:

It is required to be held only by a public company having share capital. A private company
or a public company registered without share capital is under no obligation to hold such a
meeting.
It must be held within a period of not less than one month and not more than six months
from the date on which the company is entitled to commence business.
At least 21 days before the day of meeting, a notice of the meeting is to be sent to every
member stating it to be a Statutory Meeting.

(ii) Annual General Meeting;

As the name signifies, this is an annual meeting of a company. The provisions relating to
this meeting are:

Every company, whether public or private, having a share capital or not, limited or
unlimited must hold this meeting.
The meeting must be held in each calendar year and not more than 15 months
shall elapse between two meetings. However, the first AGM may be held within 18
months from the date of its incorporation and if such general meeting is held within
that period, it need not hold any such meeting in the year of its incorporation or in
the following year. The maximum gap between two such meetings may be
extended by three months by taking permission of the Registrar, who may so allow
for any special reason.
The meeting must be held on a day that is not a public holiday o During business
hours o At the registered office of the company or at some other place within the
city, town or village in which the registered office is situated. (Section 166 (2)).

(iii) Extraordinary General Meeting;

Clause 47 of Table A (Schedule I) provides that all general meetings other than AGMs
shall be called the EGMs. The legal provisions as regards such meetings are:
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EGM is convened for transacting some special or urgent business that may arise in
between two AGMs, for instance, change in the objects or shift of registered office or
alteration of capital. All business transacted at such meetings is called special
business. Therefore, every item on the agenda must be accompanied by an
Explanatory Statement.
An EGM may be called by:
Directors of their own accord
Directors on requisition
Requisitionists themselves
The Tribunal. The Board of Directors may call a general meeting of the
members at any time by giving not less than 21 days notice. A shorter
notice may, however, be held valid if consent is accorded thereto by
members of the company holding 95 percent or more of the voting rights
(Section 171).

(iv) Class Meetings;

A company has two classes of shares equity shares and preference shares. The class meetings
are held for these different classes of shareholders, as and when their rights are affected.

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