Saturday, June 24, 2006
Business Legislation Notes - Prof. Bijoy Kumar Dutta - Part 2
DIFFERENCE BETWEEN PRIVATE AND PUBLIC COMPANY
a) NO OF MEMBERS
In a private company the number of members cannot be less than 2 & cannot be more than 50. In a public com[any the number of members cannot be less than 7 but there is no upper limit.
b) RESTRICTION IN TRANSFER OF SHARES
In a public company, there is no restriction of transfer of shares but in private company there is restriction.
c) RESTRICTION ON INVITATION TO PUBLIC
A private company cannot invite the public to purchase its shares or debentures but a public co, may do so.
d) BY NAME
e) PROSPECTUS
Public company issues prospectus for raising capital but private company need not find prospectus but it has to find a statement in lieu of prospectus.
f) COMMENCEMENT OF BUSINESS
Private company can commence a business its own but public company cannot commence a business.
g) NO OF DIRECTORS
Private company must have at least 2 directors but a public company must have minimum 3 directors.
h) STATUTORY MEETING
In a private company, no statutory meeting needed but in a public company it is needed.
14th June, 2006 – Bijoy Kumar Dutta – Business Legislation
CONTRACT ACT
An arrangement enforceable by law is a CONTRACT. The contract essentially consists of 2 elements.
1) Agreement
2) Its enforceability by law
Section 2a
When one person signifies to another, his willingness to do or abstain from doing anything with a view to obtaining the ascent of that other in such act or abstinence, he is said to make a proposal.
Section 2b
When the person to whom the proposal is made signifies his ascent there to the proposal is said to be accepted. The proposal when accepted becomes a promise.
(Promise = Agreement = Proposal + Accepted)
Section 10 (VVV Imp)
All agreements are contracts if they are made by the free consent of the parties competent to contract for a lawful consideration & with a lawful object and are not expressly declared to be void.
1) OFFER & ACCEPTANCE
There must be lawful offer by one party and lawful acceptance of the offer by the other party. The word lawful implies that an offer & acceptance must conform to the rules laid down in the contract act regarding offer and acceptance.
2) INTENTION TO CREATE LEGAL RELATIONSHIP
There must be an intention among the parties that the agreement shall result in or create legal relationship.
Agreement of social does not contemplate, legal relationship as for instance an agreement to dine at your friend’s house.
3) LAWFUL CONSIDERATION
Subject to certain exceptions an agreement is legally enforceable when each of the parties to it, get something & give something an agreement to do something for noting is usually not enforceable by law.
( My Concept – potato seller sells potato at Rs 7 per kg – this is open offer – I buy 2 kgs from him at Rs 14 ) ( Bus fare – This is implied offer – as contract is made)
4) FREE CONSENT
Every contract must be entered into on the basis of free consent of all the parties. If the agreement is induced by coercion, undue influence, misrepresentation, fraud & mistake then it is to be taken as absence of free consent.
5) CAPACITY OF PARTIES
Capacity means competency of parties to execute a contract. Want of capacity arises from minority, lunacy, idiocy and drunkenness.
6) LEGALITY OF THE OBJECT
The object for which an agreement has been entered into must not be illegal or immoral or opposed to public policy.
7) POSSIBILITY OF PERFORMANCE
The agreement must be capable of being performed.
Eg: life into a dead body
8) AGEEMENT EXPRESLY DECLARED VOID
9) LEGAL FORMALITIES
An oral conflict is perfectly valid except in those cases where writing & registration is required by law. Eg: lease gift, sale of property.
Conclusion:-
The elements mentioned above must be present in a contract. If anybody of there is absent, the agreement is not a contract from this it follows that all agreements are contracts but all contracts are not agreements.
Imp Question
All agreements are contracts but all contracts are not agreements. Discuss.
RULES REGARDING OFFER
1. Terms of offer must be definite, unambiguous, certain & not vague.
Eg: ‘A’ says to ‘B’, “I will sell you a car”. A owns 5 different car. So offer is not definite as he is not specific, which car he wants to sell.
2. Offer must be communicated.
An offer to be complete must be communicated to the person to whom it is made. Unless it is done there can be no acceptance.
Eg: ‘D’ is a man called “Gouri Dutta”. He sent his servant to trace his missing nephew. Then ‘D’ announces a reward of Rs 500. ‘P’ his servant ignorance of the announcement traces the boy. ‘P’ later came to know about the reward. He asks for the money. Master refuses to give the money. Court says, you will not get the money, as he did not know about the offer.
LEGAL RULES AS TO ACCEPTANCE
1. It must be absolute & unqualified.
Eg: M offered land to N at 280 pounds. ‘N’ replies accepting & enclosing Rs 80 pounds & promising to pay the balance at a monthly installment of 50 pounds. Held no concluded contract.
2. It must be communicated to the offerer.
FREE CONSENT
1. COERCION
This is committing or threatening to commit an act forbidden by Indian Penal Code for unlawful detaining or threatening to detain any property to the prejudice of a person. ‘A’ threatens ‘B’ to shoot him if he does not let out his house to ‘A’ and ‘B’ is threatened to do so, the agreement is brought by coercion.
2. UNDUE INFLUENCE
A contract is said to be induced by undue influence where one of the parties is in a position to dominate the wheel of the other & he uses the position to obtain an unfair advantage over the other.
Eg: A spiritual Guru induced a devotee to make a gift of the property in return of a person of salvation of the devotee. Held, the consent of the devotee was given under undue influence.
3. MIS-REPRESENTATION
Representation is a statement or assertion made by one party to the other before the time of the contract regarding some fact relative to it. Mis-representation arises when the representation to inaccurate, but the inaccuracy is not due to any desire to defraud the other party. There is no intention to deceive.
Eg: A says to B who intends to purchase A’s land ”My land produces 15 quintals of paddy per bigha” A believes the statement to be true although A did not have sufficient ground to believe. Later on it transpires that the land does not produce 15 quintals of paddy per bigha. This is mis-representation.
4. FRAUD
Fraud means includes any of the following acts committed by a party to a contract,
1) The suggestion that the fact is true when it is not true & the person making this suggestion does not believe it to be true.
2) The active consentment of a fact by a person having knowledge & believe of the fact.
3) The promise made without any intension of performing it.
Eg: A company was depicted as prosperous by non-disclosal of liabilities in the prospectus. Public invested in the shares of the company held fraud was perpetrated by non-disclosal of liability.
5. MISTAKE
It is of 2 kinds
1) Mistake of Fact.
2) Mistake of Law.
Ignorance of foreign law into betrayed as mistake of fact that is void but mistake of Indian Law is no excuse. Mistake of facts may be bilateral mistake, unilateral mistake.
CAPACITY TO CONTRACT (VVVV Imp)
Definition:
CONSIDERATION
Section 2d
Defines consideration as follows, when at the desire of the promisor, the promisee or any other person has done or abstained from doing or does & abstains from doing or promises to do or promises to do or to abstain form doing “something”. Such act, abstinence or promise is called consideration for the promise.
1. Consideration is to be given at the desire of promisor.
Eg: ‘A’ saves ‘B’s goods from fire, without being asked to do so. ‘A’ cannot demand payment for his services.
2. Consideration to be given by the promisee or any other person.
Eg: An old lady by a deed of gift, maneuvers certain properties to her daughter ‘C’ under the direction, that she should pay her maternal uncle ‘R’ certain amount of money annually. On the same day ‘C’ entered into an agreement with maternal uncle ‘R’ to pay the agreed amount. Later on ‘C’ refuses to play on the plea that has no consideration has moved from the ‘R’ to ‘C’. Held, ‘R’ was entitled to maintain a suit as consideration half moved from the old lady. Consideration has to be given may be past, present or future.
Question VVVV Imp
“No consideration, no contract, exception to the rule, discuss.”
Answer
1. Agreement made out of natural love or affection with those standing in relation to each other. Such an agreement must be written down and registered
Eg: Father giving some property to his daughter.
2. Agreement to compensate voluntary service. ‘A’ finds ‘B’s purse & returns it to him. ‘B’ promises to pay ‘A’ Rs 500. This is a valid contract.
3. Promise to pay a time barred debt. His promise to pay must be made in writing & must be signed by the person to pay.
4. Contract of agency.
5. Completed gift
21st June, 2006 – Bijoy Kumar Dutta – Business Legislation
Question
What are the agreements that have been expressly declared as void.
Section 20
Where both the parties through an agreement are under a mistake, as to a matter of fact essential to the agreement. (I did not understand the meaning)
Eg: A agrees to buy from B a certain horse. It turns out that the horse was dead at the time of bargain though neither party was aware of the same.
Section 25
An agreement made without consideration is void subject to certain exception.
Section 26
An agreement in restraint of mrriage of any person other than a minor is void.
Section 28
An agreement in restrained by legal proceedings is void except where the case has been referred to arbitration.
Section 29
Agreement: The meaning of which is not certain or capable of being madecertain is void.
Eg: Every student gives 100 tons of oil to B
Section 30
Agreement by way of wager is void.
PERFORMANCE OF CONTRACT
Performance of contract means carrying out of the obligations by the parties to the contract within time & in the manner prescribed.
Section 37
Section 37 provides that a party is to the contract, mans either performed or offers to perform their respective promises unless such performance is dispersed with or excuse under the provision of the act or of any other law.
Section 40
1. PERSONAL PERFORMANCE
In cases involving personal skill, the promisor must himself perform the contract.
Eg: A promisor to paint a picture. A must perform the promise personally.
2. PERFORMANCE BY REPRESENTING
In all other cases the promisor or his representative may employ a competitive person to perform.
Eg: A promisor to pay B a sum of money A may perform the promise by personally paying the same or cause it to be paid by representative.
3. DEATH OF A PROMISOR
Contracts involving personal skill, comes to an end when promisor dies. It is heir or legal representative are not bound to perform such contracts.
In cases not involving personal skill the representative of a deceased promisor are bound to perform the contract.
TERMINATION BY BREACH OF CONTRACT
If a party to the contract breaks its obligation, which a contract imposes, a breach of contract takes place. It may be actual or anticipary breach of contract.
ANTICIPATORY BREACH OF CONTRACT
A breach of contract may take place before the time is fixed for the performance of the contract as arrived.
Eg: ‘A’ contracts with ‘B’ on first January to sell 100 tons of coal and to deliver to deliver the same on 1st June, but on 5th Feb, writes to ‘B’ that he is not going to deliver the coal. ‘B’ at once can treat the contract as an end & sue for damages.
ACTUAL BREACH OF CONTRACT
It takes place during the performance of the contract or at a time when the performance of contract is due; one party either fails or refuses to perform his obligations under the contract.
Eg: (a) ‘A’ agrees to supply to a railway company with 3900 tons of railway chairs after 1787 tons of chairs had been delivered. The railway company told ‘A’ that no more will be required.
(b) ‘A’ agrees to deliver to ‘B’, 500 tons of sugar as 1st June, he fails to do so on 1st June this is actual breach of contract.
COERCION
This is committing or threatening to commit any at forbidden by Indian Penal Code or unlawful detaining or threatening to detain any property to the prejudice of a person whatsoever with the intension of causing any person with the *****
Eg: ‘A’ Threatens ‘B’ to shoot him, if he does not lend out his house to ‘A’ & ‘B’ is threatened to do so, the agreement is brought about by coercion.
LAWFUL OBJECT (continuation of section 10)
Section 23
Legality of object & consideration -
The consideration or object of an agreement is lawful unless
i) It is forbidden by law, or
ii) Is of such a nature that if permitted it would defeat the provisions of any other law, or,
iii) Is fraudulent, or,
iv) Involves or implies injury to person or property of another, or,
v) The court regards it as immoral or opposed to public policy
Eg:
i. An agreement for sale of opium entered into by a person who has not obtained a license; is forbidden by law
ii. An agreement by a Hindu husband that he will always live in his father-in-laws house & the wife will not live elsewhere is void & is no answer to a suit brought by the husband for restitution of conjugal rights
iii. An agreement is fraud on creditors is fraudulent
iv. A suit cannot lie to recover advances for printing libelous matter
v. A agrees to lend his daughter to B for concubinage is void as it is illegal
QUASI CONTRACT (VVVV Imp)
Quasi Contracts are exceptional kinds of contracts by which one party is bound to pay money in consideration of something done or suffered by the other party ; they are not founded on actual promises, but arise when one party has so conducted as if he has made a promise, although in fact he has not.
Definition: A quasi contract is founded on the principle of equity that a person shall not be allowed to enrich himself unjustly at the expense of another.
1) Necessaries for incapable persons - If a person, incapable of entering into a contract, or anyone whom he is legally bound to support, is supplied by, another person, with necessaries suited to his condition in life. The person who has furnished such supplies is entitled to be reimbursed from the property for such incapable person.
Section 68
‘A’ supplies ‘B’, a lunatic with necessaries suitable to his condition in life. ‘A’ is entitled to be reimbursed from his property.
2) Reimbursement of interested person – A person who is interested in the payment of money which another is bound to pay & who therefore pays it is entitled to by reimbursed by other.
Section 69
‘B’ holds land on a lease granted by ‘A’, the zamindar. The revenue payable by ‘A’ to the government being in area his land in advertised for sale by government under the revenue law, the consequences of such sell will be annulment of ‘B’s lease.
‘B’ in order to prevent the sale & consent annulment of the lease, pays to the government the sum due from ‘A’, ‘A’ is bound to pay good to ‘B’ the amount so paid.
3) Benefit of non gratuitous act – Where a person lawfully does anything for another person and deliver anything to him not intending to do so gratuitously & such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of or to restore the thing so done or delivered
Section 17
‘A’, a tradesman leaves goods to B’s house by mistake. ‘B’ treats the goods as his own, ‘B’ is bound to pay for them.
4) Finder of goods – A person who finds goods belonging to another & takes them into his custody, he is subjected to the same responsibility as bailey.
Section 71
‘B’ is bound to take goods as much care of the goods as a man of ordinary prudence would under similar circumstances take of his own goods of the same bulk quality & value.
5) Delivery by mistake or under coercion.
A person to whom money has been paid or delivered anything by mistake or under coercion must repay to the person who paid him by mistake or under coercion.
‘A’ & ‘B’ jointly owe Rs 100 to ‘C’. ‘A’ alone pays the amount to ‘C’ & ‘B’ not knowing this fact pays Rs 100 over again to ‘C’. ‘C’ is bound to repay the amount to ‘B’.
a) NO OF MEMBERS
In a private company the number of members cannot be less than 2 & cannot be more than 50. In a public com[any the number of members cannot be less than 7 but there is no upper limit.
b) RESTRICTION IN TRANSFER OF SHARES
In a public company, there is no restriction of transfer of shares but in private company there is restriction.
c) RESTRICTION ON INVITATION TO PUBLIC
A private company cannot invite the public to purchase its shares or debentures but a public co, may do so.
d) BY NAME
e) PROSPECTUS
Public company issues prospectus for raising capital but private company need not find prospectus but it has to find a statement in lieu of prospectus.
f) COMMENCEMENT OF BUSINESS
Private company can commence a business its own but public company cannot commence a business.
g) NO OF DIRECTORS
Private company must have at least 2 directors but a public company must have minimum 3 directors.
h) STATUTORY MEETING
In a private company, no statutory meeting needed but in a public company it is needed.
14th June, 2006 – Bijoy Kumar Dutta – Business Legislation
CONTRACT ACT
An arrangement enforceable by law is a CONTRACT. The contract essentially consists of 2 elements.
1) Agreement
2) Its enforceability by law
Section 2a
When one person signifies to another, his willingness to do or abstain from doing anything with a view to obtaining the ascent of that other in such act or abstinence, he is said to make a proposal.
Section 2b
When the person to whom the proposal is made signifies his ascent there to the proposal is said to be accepted. The proposal when accepted becomes a promise.
(Promise = Agreement = Proposal + Accepted)
Section 10 (VVV Imp)
All agreements are contracts if they are made by the free consent of the parties competent to contract for a lawful consideration & with a lawful object and are not expressly declared to be void.
1) OFFER & ACCEPTANCE
There must be lawful offer by one party and lawful acceptance of the offer by the other party. The word lawful implies that an offer & acceptance must conform to the rules laid down in the contract act regarding offer and acceptance.
2) INTENTION TO CREATE LEGAL RELATIONSHIP
There must be an intention among the parties that the agreement shall result in or create legal relationship.
Agreement of social does not contemplate, legal relationship as for instance an agreement to dine at your friend’s house.
3) LAWFUL CONSIDERATION
Subject to certain exceptions an agreement is legally enforceable when each of the parties to it, get something & give something an agreement to do something for noting is usually not enforceable by law.
( My Concept – potato seller sells potato at Rs 7 per kg – this is open offer – I buy 2 kgs from him at Rs 14 ) ( Bus fare – This is implied offer – as contract is made)
4) FREE CONSENT
Every contract must be entered into on the basis of free consent of all the parties. If the agreement is induced by coercion, undue influence, misrepresentation, fraud & mistake then it is to be taken as absence of free consent.
5) CAPACITY OF PARTIES
Capacity means competency of parties to execute a contract. Want of capacity arises from minority, lunacy, idiocy and drunkenness.
6) LEGALITY OF THE OBJECT
The object for which an agreement has been entered into must not be illegal or immoral or opposed to public policy.
7) POSSIBILITY OF PERFORMANCE
The agreement must be capable of being performed.
Eg: life into a dead body
8) AGEEMENT EXPRESLY DECLARED VOID
9) LEGAL FORMALITIES
An oral conflict is perfectly valid except in those cases where writing & registration is required by law. Eg: lease gift, sale of property.
Conclusion:-
The elements mentioned above must be present in a contract. If anybody of there is absent, the agreement is not a contract from this it follows that all agreements are contracts but all contracts are not agreements.
Imp Question
All agreements are contracts but all contracts are not agreements. Discuss.
RULES REGARDING OFFER
1. Terms of offer must be definite, unambiguous, certain & not vague.
Eg: ‘A’ says to ‘B’, “I will sell you a car”. A owns 5 different car. So offer is not definite as he is not specific, which car he wants to sell.
2. Offer must be communicated.
An offer to be complete must be communicated to the person to whom it is made. Unless it is done there can be no acceptance.
Eg: ‘D’ is a man called “Gouri Dutta”. He sent his servant to trace his missing nephew. Then ‘D’ announces a reward of Rs 500. ‘P’ his servant ignorance of the announcement traces the boy. ‘P’ later came to know about the reward. He asks for the money. Master refuses to give the money. Court says, you will not get the money, as he did not know about the offer.
LEGAL RULES AS TO ACCEPTANCE
1. It must be absolute & unqualified.
Eg: M offered land to N at 280 pounds. ‘N’ replies accepting & enclosing Rs 80 pounds & promising to pay the balance at a monthly installment of 50 pounds. Held no concluded contract.
2. It must be communicated to the offerer.
FREE CONSENT
1. COERCION
This is committing or threatening to commit an act forbidden by Indian Penal Code for unlawful detaining or threatening to detain any property to the prejudice of a person. ‘A’ threatens ‘B’ to shoot him if he does not let out his house to ‘A’ and ‘B’ is threatened to do so, the agreement is brought by coercion.
2. UNDUE INFLUENCE
A contract is said to be induced by undue influence where one of the parties is in a position to dominate the wheel of the other & he uses the position to obtain an unfair advantage over the other.
Eg: A spiritual Guru induced a devotee to make a gift of the property in return of a person of salvation of the devotee. Held, the consent of the devotee was given under undue influence.
3. MIS-REPRESENTATION
Representation is a statement or assertion made by one party to the other before the time of the contract regarding some fact relative to it. Mis-representation arises when the representation to inaccurate, but the inaccuracy is not due to any desire to defraud the other party. There is no intention to deceive.
Eg: A says to B who intends to purchase A’s land ”My land produces 15 quintals of paddy per bigha” A believes the statement to be true although A did not have sufficient ground to believe. Later on it transpires that the land does not produce 15 quintals of paddy per bigha. This is mis-representation.
4. FRAUD
Fraud means includes any of the following acts committed by a party to a contract,
1) The suggestion that the fact is true when it is not true & the person making this suggestion does not believe it to be true.
2) The active consentment of a fact by a person having knowledge & believe of the fact.
3) The promise made without any intension of performing it.
Eg: A company was depicted as prosperous by non-disclosal of liabilities in the prospectus. Public invested in the shares of the company held fraud was perpetrated by non-disclosal of liability.
5. MISTAKE
It is of 2 kinds
1) Mistake of Fact.
2) Mistake of Law.
Ignorance of foreign law into betrayed as mistake of fact that is void but mistake of Indian Law is no excuse. Mistake of facts may be bilateral mistake, unilateral mistake.
CAPACITY TO CONTRACT (VVVV Imp)
Definition:
CONSIDERATION
Section 2d
Defines consideration as follows, when at the desire of the promisor, the promisee or any other person has done or abstained from doing or does & abstains from doing or promises to do or promises to do or to abstain form doing “something”. Such act, abstinence or promise is called consideration for the promise.
1. Consideration is to be given at the desire of promisor.
Eg: ‘A’ saves ‘B’s goods from fire, without being asked to do so. ‘A’ cannot demand payment for his services.
2. Consideration to be given by the promisee or any other person.
Eg: An old lady by a deed of gift, maneuvers certain properties to her daughter ‘C’ under the direction, that she should pay her maternal uncle ‘R’ certain amount of money annually. On the same day ‘C’ entered into an agreement with maternal uncle ‘R’ to pay the agreed amount. Later on ‘C’ refuses to play on the plea that has no consideration has moved from the ‘R’ to ‘C’. Held, ‘R’ was entitled to maintain a suit as consideration half moved from the old lady. Consideration has to be given may be past, present or future.
Question VVVV Imp
“No consideration, no contract, exception to the rule, discuss.”
Answer
1. Agreement made out of natural love or affection with those standing in relation to each other. Such an agreement must be written down and registered
Eg: Father giving some property to his daughter.
2. Agreement to compensate voluntary service. ‘A’ finds ‘B’s purse & returns it to him. ‘B’ promises to pay ‘A’ Rs 500. This is a valid contract.
3. Promise to pay a time barred debt. His promise to pay must be made in writing & must be signed by the person to pay.
4. Contract of agency.
5. Completed gift
21st June, 2006 – Bijoy Kumar Dutta – Business Legislation
Question
What are the agreements that have been expressly declared as void.
Section 20
Where both the parties through an agreement are under a mistake, as to a matter of fact essential to the agreement. (I did not understand the meaning)
Eg: A agrees to buy from B a certain horse. It turns out that the horse was dead at the time of bargain though neither party was aware of the same.
Section 25
An agreement made without consideration is void subject to certain exception.
Section 26
An agreement in restraint of mrriage of any person other than a minor is void.
Section 28
An agreement in restrained by legal proceedings is void except where the case has been referred to arbitration.
Section 29
Agreement: The meaning of which is not certain or capable of being madecertain is void.
Eg: Every student gives 100 tons of oil to B
Section 30
Agreement by way of wager is void.
PERFORMANCE OF CONTRACT
Performance of contract means carrying out of the obligations by the parties to the contract within time & in the manner prescribed.
Section 37
Section 37 provides that a party is to the contract, mans either performed or offers to perform their respective promises unless such performance is dispersed with or excuse under the provision of the act or of any other law.
Section 40
1. PERSONAL PERFORMANCE
In cases involving personal skill, the promisor must himself perform the contract.
Eg: A promisor to paint a picture. A must perform the promise personally.
2. PERFORMANCE BY REPRESENTING
In all other cases the promisor or his representative may employ a competitive person to perform.
Eg: A promisor to pay B a sum of money A may perform the promise by personally paying the same or cause it to be paid by representative.
3. DEATH OF A PROMISOR
Contracts involving personal skill, comes to an end when promisor dies. It is heir or legal representative are not bound to perform such contracts.
In cases not involving personal skill the representative of a deceased promisor are bound to perform the contract.
TERMINATION BY BREACH OF CONTRACT
If a party to the contract breaks its obligation, which a contract imposes, a breach of contract takes place. It may be actual or anticipary breach of contract.
ANTICIPATORY BREACH OF CONTRACT
A breach of contract may take place before the time is fixed for the performance of the contract as arrived.
Eg: ‘A’ contracts with ‘B’ on first January to sell 100 tons of coal and to deliver to deliver the same on 1st June, but on 5th Feb, writes to ‘B’ that he is not going to deliver the coal. ‘B’ at once can treat the contract as an end & sue for damages.
ACTUAL BREACH OF CONTRACT
It takes place during the performance of the contract or at a time when the performance of contract is due; one party either fails or refuses to perform his obligations under the contract.
Eg: (a) ‘A’ agrees to supply to a railway company with 3900 tons of railway chairs after 1787 tons of chairs had been delivered. The railway company told ‘A’ that no more will be required.
(b) ‘A’ agrees to deliver to ‘B’, 500 tons of sugar as 1st June, he fails to do so on 1st June this is actual breach of contract.
COERCION
This is committing or threatening to commit any at forbidden by Indian Penal Code or unlawful detaining or threatening to detain any property to the prejudice of a person whatsoever with the intension of causing any person with the *****
Eg: ‘A’ Threatens ‘B’ to shoot him, if he does not lend out his house to ‘A’ & ‘B’ is threatened to do so, the agreement is brought about by coercion.
LAWFUL OBJECT (continuation of section 10)
Section 23
Legality of object & consideration -
The consideration or object of an agreement is lawful unless
i) It is forbidden by law, or
ii) Is of such a nature that if permitted it would defeat the provisions of any other law, or,
iii) Is fraudulent, or,
iv) Involves or implies injury to person or property of another, or,
v) The court regards it as immoral or opposed to public policy
Eg:
i. An agreement for sale of opium entered into by a person who has not obtained a license; is forbidden by law
ii. An agreement by a Hindu husband that he will always live in his father-in-laws house & the wife will not live elsewhere is void & is no answer to a suit brought by the husband for restitution of conjugal rights
iii. An agreement is fraud on creditors is fraudulent
iv. A suit cannot lie to recover advances for printing libelous matter
v. A agrees to lend his daughter to B for concubinage is void as it is illegal
QUASI CONTRACT (VVVV Imp)
Quasi Contracts are exceptional kinds of contracts by which one party is bound to pay money in consideration of something done or suffered by the other party ; they are not founded on actual promises, but arise when one party has so conducted as if he has made a promise, although in fact he has not.
Definition: A quasi contract is founded on the principle of equity that a person shall not be allowed to enrich himself unjustly at the expense of another.
1) Necessaries for incapable persons - If a person, incapable of entering into a contract, or anyone whom he is legally bound to support, is supplied by, another person, with necessaries suited to his condition in life. The person who has furnished such supplies is entitled to be reimbursed from the property for such incapable person.
Section 68
‘A’ supplies ‘B’, a lunatic with necessaries suitable to his condition in life. ‘A’ is entitled to be reimbursed from his property.
2) Reimbursement of interested person – A person who is interested in the payment of money which another is bound to pay & who therefore pays it is entitled to by reimbursed by other.
Section 69
‘B’ holds land on a lease granted by ‘A’, the zamindar. The revenue payable by ‘A’ to the government being in area his land in advertised for sale by government under the revenue law, the consequences of such sell will be annulment of ‘B’s lease.
‘B’ in order to prevent the sale & consent annulment of the lease, pays to the government the sum due from ‘A’, ‘A’ is bound to pay good to ‘B’ the amount so paid.
3) Benefit of non gratuitous act – Where a person lawfully does anything for another person and deliver anything to him not intending to do so gratuitously & such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of or to restore the thing so done or delivered
Section 17
‘A’, a tradesman leaves goods to B’s house by mistake. ‘B’ treats the goods as his own, ‘B’ is bound to pay for them.
4) Finder of goods – A person who finds goods belonging to another & takes them into his custody, he is subjected to the same responsibility as bailey.
Section 71
‘B’ is bound to take goods as much care of the goods as a man of ordinary prudence would under similar circumstances take of his own goods of the same bulk quality & value.
5) Delivery by mistake or under coercion.
A person to whom money has been paid or delivered anything by mistake or under coercion must repay to the person who paid him by mistake or under coercion.
‘A’ & ‘B’ jointly owe Rs 100 to ‘C’. ‘A’ alone pays the amount to ‘C’ & ‘B’ not knowing this fact pays Rs 100 over again to ‘C’. ‘C’ is bound to repay the amount to ‘B’.
Wednesday, June 07, 2006
Business Legislation Notes - Prof. Bijoy Kumar Dutta
25th January, 2006 – Prof. Bijoy Kumar Dutta – Business Legislation
DIFFERENCE BETWEEN A HIGHER PURCHASE & INSTALMENT
Higher Purchase Agreement is one in which a person takes delivery of goods promising to pay the price by a certain number of installments & until full payment is made to pay higher charges for using the good. The ownership of the goods is not transferred until the last payment is made.
In Installment Sale the purchaser becomes the owner of specific good immediately although the total price is to be paid in a number of installments. In other words ownership is transferred at the time of first payment of installment.
CONDITION & WARRANTY
Before a contract of sale is entered into a seller often makes statements with reference to the goods, which influence the buyer to clinch the bargain.
Whether any statement made by the seller in reference to the goods is under stipulation form a part of the contract or is a mere representation namely expression of opinion forming no part of the contract depends upon the construction of the contract.
Section 12 of the sale of goods act states that the stipulation or term in a contract of sale with reference to goods may be a CONDITION or a WARRANTY.
Condition:- Section 12 Subsection 2
Condition is a stipulation essential to the main purpose of the contract. The breach of which gives to a right to treat the contract as repudiated.
Warranty is also a stipulation collateral to the main purpose of the contract, the breach of which gives rise to claim damages but not a right to reject the goods & treat the contract as repudiated.
Eg: price, quality, colour cannot cancel but claim damage.
Section 13
When a condition can be treated as a warranty.
Section 13(1) - Voluntary waiver of a condition
The buyer may elect to treat a breach of condition as a breach of warranty i.e. instead of repudiating the contract he may accept performance & suffer damages if he has suffered only.
Eg: saree ordered to give by 31st September but gave on 5th October.
Section 13(2) – Compulsory waiver of a condition.
Where contract of sale is not sever able & the buyer has accepted the goods or a part thereof, he cannot repudiate the contract but can sue for damages.
Eg: 400 sarees & rest 100 sarees to be sent later
Some V V V Important Questions
1. Who is an unpaid seller? What are his rights against the good & the buyers personality?
2. What is lien?
Another class January, 2006 – Bijoy Kumar Dutta – Business Legislation
Question
“No consolidation no contract” Exception to the rule (Imp question for Exam)
Answer
The general rule is that the consolidation is one of the essentials of a valid contract. If there is no consolidation the argument will be void however a contract without consolidation is not always void. Section 25 of the contract act deals with certain exceptional cases. The exceptions are as follows.
1) Agreement made under
a) natural love & affection with those standing in
b) near relation to one another. Such an agreement must be
c) written down & registered to become a contract
Eg: father giving some property to his daughter.
2) Agreement to compensate a voluntary service. A voluntary service means service rendered without any request.
Eg: A finds B’s purse & returns it to him. B promises to pay A Rs 500. This is a valid contract because it is to compensate a voluntary service.
3) Promise to pay time barred debt – This promise to pay must be in writing & sign by the person to pay whole or in part the day on which the creditor might have enforced payment but for the law of limitation.
4) Contract of agency – no consideraion is required.
5) Completed gift.
CAPACITY TO CONTRACT
The parties who enter in to a contract must have the capacity to valid do so. Capacity means competency of the parties to enter into a valid contract. According to section II every person is competent to contract who –
a) is of the age of majority according to the law to which he is subject.
b) is of sound mind
c) is non-disqualified from contracting by any law to which he is subject.
Minor - According to section 3 of the Indian Majority Act 1875, a minor is a person who has not completed 18 years of age.
Person of unsound mind - Section 12 lays down that a person is said to be of unsound mind for the purpose of making a contract if at that time the contract is made, he is incapable of understanding it, and of following a rational judgment as to its effect upon his interest. Lunatic is a person who is mentally deranged due to some mental strain or some other personal experience.
Idiot - is a person who has completely lost his mental power.
Other person – Foreign sovereign (eg: Bush, Tony Blair)
Convict – is incapable
Intoxicated person –
CONTINGENT CONTRACT -
Contingent means that which is dependent on something else. A contingent contract is a contract to do or not to do something, if some event collateral to such contract does or does not happen (Section 31)
QUASI CONTRACT –
Quasi Contracts are exceptional kinds of contracts by which one party is bound to pay money in consideration of something done or suffered by the other party. They are not found on actual promises but arise when one party has so concluded himself that he must be deemed bound as if he has made a promise although in fact he has not. A quasi-contract is founded on the principle of equity that a person shall not be allowed to enrich himself unjustly at the expense of another.
1) Necessary for incapable persons – If a person incapable of entering into a contract or anyone whom he is legally bound to support is supplied by another with necessary suited to his condition in life. The person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person (Section 68)
Eg: A supplies B a lunatic with necessaries suited to his condition in life. A is entirely to be reimbursed from B’s property.
2) Reimbursement of interested person - A person who interested in the parent of money, which another is bound to pay, and therefore pays it, he is entitled to be reimbursed by the other person. (Section 69)
Eg: B holds land on a lease granted by A the zamindar. The revenue payable by A to the government being in arrear his land is advertised for sale will be annulment of B’s lease. B to prevent sale, pays to the government the sub due from A is bound to make good to be the amount so paid.
3) Benefit of non gratuitors act where a person lawfully does anything for another person or delivers anything to him not intending to do so gratuitors by & such other person enjoys the benefit the latter is bound to make compensation to the former (I don’t have any other notes of January)
5th June, 2006 – Bijoy Kumar Dutta – Business Legislation
COMPANY’S ACT 1956
Question
The law confers upon a company distinct legal personalities with peripheral succession & common seal.
Eg: company is an artificial personality. Any individual is a natural personality.
Perpetual company – it will go on till it is dissolved.
Answer
Accordingly a company is different from its members & individuals who compose it. Suppose A, B, C, & 50 others form a company named ABC& Co. This ABC & Co is a legal person; separate from A, B, C & 50 others.
Eg: as company is formed the members loose their personality.
Solomon V/s Solomon & Company Ltd. – This case was decided in 1897 by House of Lords in England It still rules the world.
Facts of the case -
Solomon had a business in boot manufacturing. He formed a company called Solomon & Co Ltd. With himself, his wife, daughter & 4 sons (7 members) & shareholders & transferred the business to the company.
As a consideration, Solomon received major share of the company & debentures, which created a charge on the assets of the company.
Subsequently the company went into liquidation. (chalate parlo naa)
Solomon claimed to be a secured creditor & demanded priority in payment out of the assets of the company. The unsecured creditors of the Co. objected on the ground that the company belonged to Solomon & so cannot be a secure creditor. But the House of Lords gave the verdict that Solomon, as an individual was quite distinct from Solomon & Company Ltd. & he is a secured creditor & will get priority in payment.
What are the different companies?
1) STATUTORY COMPANY – A company or corporation formed by an act of legislation is called Statutory Corporation or Company.
Eg: To form this Company the Parliament passes a law, like LIC of India and RBI.
2) PRIVATE COMPANY – It is one which by its articles of association
a) restricts the rights of its members to transfer the shares
b) limits the number of its members to 50 and minimum to 2.
c) prohibits any invitation to public to subscribe a share or debenture to any company.
d) restriction about invitation of public deposits.
3) PUBLIC COMPANY – It means a company, which is not a private company. Public companies are classified into 3 types: -
a) A company limited by shares – In these companies there is a share capital. Each share has a fixed nominal value, which the shareholder pays at a time or by a number of installments. Shareholders are not liable to pay anything more than the fixed value of shares whatever may be the liability of the company.
b) A company limited by guarantee – In these companies each member promises to pay a fixed sum of money in the event of liquidation of the company. This amount is called the guarantee.
c) Unlimited Company - Liability of the shares in unlimited.(no one takes the responsibility) (limited company means my liability is limited)
d) Government Company – It is one in which not less than 51% of the paid up share capital is held by the central government and/or state governments & governments by one or more of them together.
e) Holding Company & Subsidiary Company – If a company can control the policies of another company
i) through the ownership of shares or through the composition of the board of directors then the former company is called the holding company & latter company is called the subsidiary company.
MEMORANDUM OF ASSOCIATION
It is the charter or constitution of a company. It is the foundation on which the structure of company is build upon. It defines its relations with the outside world. Its purpose is to enable the shareholder & creditors of the company to know.
i) Its permitted range of activities are
Eg: WBSEB generates & sells electricity but cannot manufacture bulb, as it is not in memorandum.
Memorandum is a public document. Every can look into it.
Qs) What is the form & content of MOA?
1. NAME CLAUSE – The name of company with the word “limited” at the end of a name of a public company & the word private limited is to be given.
Eg: CC Saha Private Ltd for private company but CC Saha Ltd for public company.
The promoters of a company can select any name but they cannot select any name, which in the opinion of the central government is undesirable. The name will be considered undesirable if it has close resemblance or identical with the name of an existing company.
2. SITUATION CLAUSE – The name of the state in which the registered office of the company to be situated is to be started. The purpose is that the persons dealing with the co. can kanow
a) where the notice is to be served.
b) Replace where registers of the company are kept
3. OBJECT CLAUSE – The MOA must state separately the main objects as well as incidental or ancillary to the main object.
4. LIABILITY CLAUSE – The nature of the liability of the company whether limited by shares or guarantee is to be stated.
5. CAPITAL CLAUSE – In case of a company having a share capital, the MOA shall state the authorized share capital, the division there of shares into fixed value & different kinds of shares.
6. SUBSCRIPTION CLAUSE – No subscriber of MOA shall beg less than one share.
ARTICLES OF ASSOCIATION (AOA)
It is a document, which contains the rules, regulations & by-laws regarding the internal management of the company.
RELATIONSHIP BETWEEN MOA & AOA
1. AOA is subbordinte to MOA.
2. The MOA must be read in conjunction with AOA.
3. In terms of MOA cannot be modified or controlled by AOA.
REGISTRATION OF A COMPANY ( V V V Imp ) ( 12 ½ marks or 8 marks for Exam)
Procedure regarding registration of a company
For the purpose of registration of a company, the following documents accompanied by necessary fees must be submitted to the registrar of the companies of the state, in which the registered office of the company will be situated.
What is to be submitted?
1. MOA signed by 2 subscribers in case of a Pvt. Ltd company & 7 subscribers in case of a Public Ltd company.
2. AOA must be signed in similar manner.
3. The agreement if any which the company proposes to enter into with any individual for appointment as its MD or whole time director.
4. A declaration by any of the following that all requirements of the act in regard to registration have been complied with –
a) An advocate of Supreme Court or High Court.
b) An attorney or a solicitor
c) A company secretary in wholesome practice.
d) A chartered accountant in whole time practice.
e) A person named in the article as director, manager or secretary of the company.
If the registrar is satisfied that all requirements of the act have been complied with, he shall register the company 7 issue a certificate called the certificate of incorporation.
On incorporation a company acquires a distinct Legal Personality or Entity & secures perpetual succession.
DISTINCTION
A Pvt. Ltd. Company can commence business immediately on incorporation but the public limited company having a share capital & issuing a prospectus cannot commence business until the registrar issues a “certificate of commencement of business”.
SHARE CAPITAL
1. AUTHORISED CAPITAL – It is the total face value of the shares of the company authorized to issue as per its MOA.
2. ISSUED CAPITAL – It is that part of authorized capital, which is actually offered to the public for sale.
3. SUBSCRIBED CAPITAL – It is that part of the issued capital which is taken up or/and subscribed by the public.
4. PAID UP SHARE CAPITAL - It is the amount of money actually paid by the subscribers that is the actual amount of money, received on shares.
TYPES OF CAPITAL
1) EQUITY SHARES – are that share capital which is not preference share capital.
2) PREFERENCE SHARES – these are shares that are given by AOA of the company to privileges namely
a) priority in payment of dividends over other shares.
b) priority as regard on return of capital in the event liquedation
7th June, 2006 – Bijoy Kumar Dutta – Business Legislation
DOCTORINE OF INDOOR MANAGEMENT
When the AOA of a company prescribes a particular mode for doing a thing, the duty of carrying out of the provision lies upon the person, in-charge of the company.
Outsiders are entitled to assume that the rules are being complied with.
Eg: The AOA provides that the director can give bond if authorized by a resolution of the company. The director gave a bond to A although no resolution was passed. Held (means Court decided), A was entitled to assume that the resolution was passed.
MEETINGS (3) VVVV Imp
1. STATUTORY MEETING (held only once)
Every public company limited by shares & every company limited by guarantee & having a share capital by guarantee & having a share capital must, within a period of not less than one month & not more than six months at which the company is entitled to commence business, hold a general meeting of members. This is called statutory meeting. In this meeting, the members are to discuss report by the directors of the company known as statutory report which contains particulars relating to the formation of the company.
STATUTORY REPORT (later)
2. ANNUAL GENERAL MEETING (AGM)
The first AGM of a company is required to be held within 18 months from the date of incorporation.
A company holding its first AGM within this period will not be required to hold any other AGM either in the year of incorporation or in the following year, but the time gap between AGMS should not exceed 15 months.
3. EXTRA ORDINARY MEETING
It can be convened by the board of directors on requisition received in this regard from
(i) Such number of members holding not less than 1/10th of the paid up capital of the company or from such number of members holding not less than 1/10th of the voting power.
(ii) The requisition now set out, that matter which will be considered at the meeting. The requisition must be deposited at the registered office.
PROSPECTUS
The central theme of a prospectus is that it sets out the prospects of a company and the purpose for which the capital is required.
Section 2 Clause 36
Defines a prospectus as any document described or issued as a prospectus & includes any notice circular or advertisement or other document inviting deposits from the public, or inviting occurs from the public for the subscription or purchase of the shares in or debentures of a body corporate.
STATAEMENT IN LIEU OF PROSPECTUS
A private company need not approach public for money. The promoters of the company may tap their private resources or contacts for raising the requisite capital. In such a case no prospectus need be issued.
Promoter must prepare a document akin to the prospectus known as statement in lieu of prospectus. These documents must be in the form set up III of the Act. The sicument shall be delivers for registration 3 days before the 1st allotment of shares.
Question
What is untrue in a prospectus?
A prospectus must tell the truth, the whole of the truth and nothing but the truth. It must not cancel any fact which is ought to be disclosed. This is known as GOLDEN RULE as to the framing of the prospectus.
Section 65 Subsection 1 Clause A
The statement included in a prospectus shall be deemed to be untrue if the statement is misleading in form & in content.
Greenwood v/s Leather Shade Wheel Company
A company manufacturing leather type wheels for trollies issued a prospectus stating orders have been received from the House of Commons in England to be followed by large number of orders later on.
In fact the person who supplied refreshment in House of Commons had only 1 trolley with these types of wheels & no customer has expressed any statement for buying anything on a large scale.
Hence the prospectus was misleading.
ALLOTMENT OF SHARES
Application is an offer by a prospective shareholder to take shares. When an application is accepted, it is an allotment.
MINIMUM SUBSCRIPTION & APPLICATION MONEY
Section 69
The first requisite of a value allotment is that of minimum subscription when shares are offered to the public, the amount of minimum subscription has to be stated in the prospectus has to be stated in the prospectus.
Minimum subscription means the amount, which is in the estimate of directors enough to meet the needs namely purchased price of a property, preliminary expenses & working capital.
No shares can be allotted unless at least so much amounts have been subscribed & the application money which must not be less than 5% of the nominal value of the shares has been received in cash.
SHARE CERTIFICATE
This is a certificate issued under a common seal of the company specified under a no of shares held by any number.
SHARE WARRANT
This is a document issued by a ****** stating that its bearer is entitled to shares their specified.
DIFFERENCE BETWEEN SHARE CERTIFICATE AND SHARE WARRANT
a) Share Warrant is issued only with fully paid up shares. Share Certificate is issued even though shares are partly paid.
b) The holder of a share warrant does not ordinarily possess the right to vote but holder of a share certificate possesses the right to vote.
STOCK
Shares are converted in to stock only when they are fully paid up. Shares are always a specified denomination e.g.: Rs 5 or Rs 10 or multiple of them.
BORROWING POWERS OF A COMPANY
A company can borrow money at its own to what extent are matters depending upon MOA & AOA. The company’s Act does not condemn any profession expressing empowering a company to borrow money.
A trading company has implied power to borrow.
A non-trading company has no implied power to borrow.
It can borrow if permitted by MOA & AOA.
DEBENTURE (VVV Imp)
The issue of debenture is a particular mode of borrowing money by a company. Plamer defined debentures as follows:- “Any installment under seal evidencing a debt, the essence of it being the admission of indebtedness. It is simply an instrument of acknowledgement of debt by the company whereby it undertakes to pay the amount covered by it & till it undertakes further to pay interest thereon to debenture holders. It is an instrument, which acknowledges or creates a debt.
ESSENTIAL CHARACTERISTICS OF DEBENTURE
a) It is an acknowledgement of indebtedness in the form of a certificate of a company.
b) All the debentures issued under the common seal of a company.
c) A date is specified in so far as repayment of loan is concerned.
d) A debenture holder does not have the right to attend AGM.
DIFFERENCE BETWEEN SHARE AND DEBENTURE
Share has been defined in Section 2 Clause 46 of the Company’s Act to mean a share in the share capital of the company on the other hand a debenture is an instrument of debt executed by the company, acknowledging its receipt to repay the same at a specified rate & also carrying interest.
The corpus of 2 issues falls to different segments of capitals thus share representing the share capital & debenture representing the loan capital.
Shareholders are the owners of the company till it is folded up fully while the debenture holders are creditors of company.
DIFFERENCE BETWEEN A HIGHER PURCHASE & INSTALMENT
Higher Purchase Agreement is one in which a person takes delivery of goods promising to pay the price by a certain number of installments & until full payment is made to pay higher charges for using the good. The ownership of the goods is not transferred until the last payment is made.
In Installment Sale the purchaser becomes the owner of specific good immediately although the total price is to be paid in a number of installments. In other words ownership is transferred at the time of first payment of installment.
CONDITION & WARRANTY
Before a contract of sale is entered into a seller often makes statements with reference to the goods, which influence the buyer to clinch the bargain.
Whether any statement made by the seller in reference to the goods is under stipulation form a part of the contract or is a mere representation namely expression of opinion forming no part of the contract depends upon the construction of the contract.
Section 12 of the sale of goods act states that the stipulation or term in a contract of sale with reference to goods may be a CONDITION or a WARRANTY.
Condition:- Section 12 Subsection 2
Condition is a stipulation essential to the main purpose of the contract. The breach of which gives to a right to treat the contract as repudiated.
Warranty is also a stipulation collateral to the main purpose of the contract, the breach of which gives rise to claim damages but not a right to reject the goods & treat the contract as repudiated.
Eg: price, quality, colour cannot cancel but claim damage.
Section 13
When a condition can be treated as a warranty.
Section 13(1) - Voluntary waiver of a condition
The buyer may elect to treat a breach of condition as a breach of warranty i.e. instead of repudiating the contract he may accept performance & suffer damages if he has suffered only.
Eg: saree ordered to give by 31st September but gave on 5th October.
Section 13(2) – Compulsory waiver of a condition.
Where contract of sale is not sever able & the buyer has accepted the goods or a part thereof, he cannot repudiate the contract but can sue for damages.
Eg: 400 sarees & rest 100 sarees to be sent later
Some V V V Important Questions
1. Who is an unpaid seller? What are his rights against the good & the buyers personality?
2. What is lien?
Another class January, 2006 – Bijoy Kumar Dutta – Business Legislation
Question
“No consolidation no contract” Exception to the rule (Imp question for Exam)
Answer
The general rule is that the consolidation is one of the essentials of a valid contract. If there is no consolidation the argument will be void however a contract without consolidation is not always void. Section 25 of the contract act deals with certain exceptional cases. The exceptions are as follows.
1) Agreement made under
a) natural love & affection with those standing in
b) near relation to one another. Such an agreement must be
c) written down & registered to become a contract
Eg: father giving some property to his daughter.
2) Agreement to compensate a voluntary service. A voluntary service means service rendered without any request.
Eg: A finds B’s purse & returns it to him. B promises to pay A Rs 500. This is a valid contract because it is to compensate a voluntary service.
3) Promise to pay time barred debt – This promise to pay must be in writing & sign by the person to pay whole or in part the day on which the creditor might have enforced payment but for the law of limitation.
4) Contract of agency – no consideraion is required.
5) Completed gift.
CAPACITY TO CONTRACT
The parties who enter in to a contract must have the capacity to valid do so. Capacity means competency of the parties to enter into a valid contract. According to section II every person is competent to contract who –
a) is of the age of majority according to the law to which he is subject.
b) is of sound mind
c) is non-disqualified from contracting by any law to which he is subject.
Minor - According to section 3 of the Indian Majority Act 1875, a minor is a person who has not completed 18 years of age.
Person of unsound mind - Section 12 lays down that a person is said to be of unsound mind for the purpose of making a contract if at that time the contract is made, he is incapable of understanding it, and of following a rational judgment as to its effect upon his interest. Lunatic is a person who is mentally deranged due to some mental strain or some other personal experience.
Idiot - is a person who has completely lost his mental power.
Other person – Foreign sovereign (eg: Bush, Tony Blair)
Convict – is incapable
Intoxicated person –
CONTINGENT CONTRACT -
Contingent means that which is dependent on something else. A contingent contract is a contract to do or not to do something, if some event collateral to such contract does or does not happen (Section 31)
QUASI CONTRACT –
Quasi Contracts are exceptional kinds of contracts by which one party is bound to pay money in consideration of something done or suffered by the other party. They are not found on actual promises but arise when one party has so concluded himself that he must be deemed bound as if he has made a promise although in fact he has not. A quasi-contract is founded on the principle of equity that a person shall not be allowed to enrich himself unjustly at the expense of another.
1) Necessary for incapable persons – If a person incapable of entering into a contract or anyone whom he is legally bound to support is supplied by another with necessary suited to his condition in life. The person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person (Section 68)
Eg: A supplies B a lunatic with necessaries suited to his condition in life. A is entirely to be reimbursed from B’s property.
2) Reimbursement of interested person - A person who interested in the parent of money, which another is bound to pay, and therefore pays it, he is entitled to be reimbursed by the other person. (Section 69)
Eg: B holds land on a lease granted by A the zamindar. The revenue payable by A to the government being in arrear his land is advertised for sale will be annulment of B’s lease. B to prevent sale, pays to the government the sub due from A is bound to make good to be the amount so paid.
3) Benefit of non gratuitors act where a person lawfully does anything for another person or delivers anything to him not intending to do so gratuitors by & such other person enjoys the benefit the latter is bound to make compensation to the former (I don’t have any other notes of January)
5th June, 2006 – Bijoy Kumar Dutta – Business Legislation
COMPANY’S ACT 1956
Question
The law confers upon a company distinct legal personalities with peripheral succession & common seal.
Eg: company is an artificial personality. Any individual is a natural personality.
Perpetual company – it will go on till it is dissolved.
Answer
Accordingly a company is different from its members & individuals who compose it. Suppose A, B, C, & 50 others form a company named ABC& Co. This ABC & Co is a legal person; separate from A, B, C & 50 others.
Eg: as company is formed the members loose their personality.
Solomon V/s Solomon & Company Ltd. – This case was decided in 1897 by House of Lords in England It still rules the world.
Facts of the case -
Solomon had a business in boot manufacturing. He formed a company called Solomon & Co Ltd. With himself, his wife, daughter & 4 sons (7 members) & shareholders & transferred the business to the company.
As a consideration, Solomon received major share of the company & debentures, which created a charge on the assets of the company.
Subsequently the company went into liquidation. (chalate parlo naa)
Solomon claimed to be a secured creditor & demanded priority in payment out of the assets of the company. The unsecured creditors of the Co. objected on the ground that the company belonged to Solomon & so cannot be a secure creditor. But the House of Lords gave the verdict that Solomon, as an individual was quite distinct from Solomon & Company Ltd. & he is a secured creditor & will get priority in payment.
What are the different companies?
1) STATUTORY COMPANY – A company or corporation formed by an act of legislation is called Statutory Corporation or Company.
Eg: To form this Company the Parliament passes a law, like LIC of India and RBI.
2) PRIVATE COMPANY – It is one which by its articles of association
a) restricts the rights of its members to transfer the shares
b) limits the number of its members to 50 and minimum to 2.
c) prohibits any invitation to public to subscribe a share or debenture to any company.
d) restriction about invitation of public deposits.
3) PUBLIC COMPANY – It means a company, which is not a private company. Public companies are classified into 3 types: -
a) A company limited by shares – In these companies there is a share capital. Each share has a fixed nominal value, which the shareholder pays at a time or by a number of installments. Shareholders are not liable to pay anything more than the fixed value of shares whatever may be the liability of the company.
b) A company limited by guarantee – In these companies each member promises to pay a fixed sum of money in the event of liquidation of the company. This amount is called the guarantee.
c) Unlimited Company - Liability of the shares in unlimited.(no one takes the responsibility) (limited company means my liability is limited)
d) Government Company – It is one in which not less than 51% of the paid up share capital is held by the central government and/or state governments & governments by one or more of them together.
e) Holding Company & Subsidiary Company – If a company can control the policies of another company
i) through the ownership of shares or through the composition of the board of directors then the former company is called the holding company & latter company is called the subsidiary company.
MEMORANDUM OF ASSOCIATION
It is the charter or constitution of a company. It is the foundation on which the structure of company is build upon. It defines its relations with the outside world. Its purpose is to enable the shareholder & creditors of the company to know.
i) Its permitted range of activities are
Eg: WBSEB generates & sells electricity but cannot manufacture bulb, as it is not in memorandum.
Memorandum is a public document. Every can look into it.
Qs) What is the form & content of MOA?
1. NAME CLAUSE – The name of company with the word “limited” at the end of a name of a public company & the word private limited is to be given.
Eg: CC Saha Private Ltd for private company but CC Saha Ltd for public company.
The promoters of a company can select any name but they cannot select any name, which in the opinion of the central government is undesirable. The name will be considered undesirable if it has close resemblance or identical with the name of an existing company.
2. SITUATION CLAUSE – The name of the state in which the registered office of the company to be situated is to be started. The purpose is that the persons dealing with the co. can kanow
a) where the notice is to be served.
b) Replace where registers of the company are kept
3. OBJECT CLAUSE – The MOA must state separately the main objects as well as incidental or ancillary to the main object.
4. LIABILITY CLAUSE – The nature of the liability of the company whether limited by shares or guarantee is to be stated.
5. CAPITAL CLAUSE – In case of a company having a share capital, the MOA shall state the authorized share capital, the division there of shares into fixed value & different kinds of shares.
6. SUBSCRIPTION CLAUSE – No subscriber of MOA shall beg less than one share.
ARTICLES OF ASSOCIATION (AOA)
It is a document, which contains the rules, regulations & by-laws regarding the internal management of the company.
RELATIONSHIP BETWEEN MOA & AOA
1. AOA is subbordinte to MOA.
2. The MOA must be read in conjunction with AOA.
3. In terms of MOA cannot be modified or controlled by AOA.
REGISTRATION OF A COMPANY ( V V V Imp ) ( 12 ½ marks or 8 marks for Exam)
Procedure regarding registration of a company
For the purpose of registration of a company, the following documents accompanied by necessary fees must be submitted to the registrar of the companies of the state, in which the registered office of the company will be situated.
What is to be submitted?
1. MOA signed by 2 subscribers in case of a Pvt. Ltd company & 7 subscribers in case of a Public Ltd company.
2. AOA must be signed in similar manner.
3. The agreement if any which the company proposes to enter into with any individual for appointment as its MD or whole time director.
4. A declaration by any of the following that all requirements of the act in regard to registration have been complied with –
a) An advocate of Supreme Court or High Court.
b) An attorney or a solicitor
c) A company secretary in wholesome practice.
d) A chartered accountant in whole time practice.
e) A person named in the article as director, manager or secretary of the company.
If the registrar is satisfied that all requirements of the act have been complied with, he shall register the company 7 issue a certificate called the certificate of incorporation.
On incorporation a company acquires a distinct Legal Personality or Entity & secures perpetual succession.
DISTINCTION
A Pvt. Ltd. Company can commence business immediately on incorporation but the public limited company having a share capital & issuing a prospectus cannot commence business until the registrar issues a “certificate of commencement of business”.
SHARE CAPITAL
1. AUTHORISED CAPITAL – It is the total face value of the shares of the company authorized to issue as per its MOA.
2. ISSUED CAPITAL – It is that part of authorized capital, which is actually offered to the public for sale.
3. SUBSCRIBED CAPITAL – It is that part of the issued capital which is taken up or/and subscribed by the public.
4. PAID UP SHARE CAPITAL - It is the amount of money actually paid by the subscribers that is the actual amount of money, received on shares.
TYPES OF CAPITAL
1) EQUITY SHARES – are that share capital which is not preference share capital.
2) PREFERENCE SHARES – these are shares that are given by AOA of the company to privileges namely
a) priority in payment of dividends over other shares.
b) priority as regard on return of capital in the event liquedation
7th June, 2006 – Bijoy Kumar Dutta – Business Legislation
DOCTORINE OF INDOOR MANAGEMENT
When the AOA of a company prescribes a particular mode for doing a thing, the duty of carrying out of the provision lies upon the person, in-charge of the company.
Outsiders are entitled to assume that the rules are being complied with.
Eg: The AOA provides that the director can give bond if authorized by a resolution of the company. The director gave a bond to A although no resolution was passed. Held (means Court decided), A was entitled to assume that the resolution was passed.
MEETINGS (3) VVVV Imp
1. STATUTORY MEETING (held only once)
Every public company limited by shares & every company limited by guarantee & having a share capital by guarantee & having a share capital must, within a period of not less than one month & not more than six months at which the company is entitled to commence business, hold a general meeting of members. This is called statutory meeting. In this meeting, the members are to discuss report by the directors of the company known as statutory report which contains particulars relating to the formation of the company.
STATUTORY REPORT (later)
2. ANNUAL GENERAL MEETING (AGM)
The first AGM of a company is required to be held within 18 months from the date of incorporation.
A company holding its first AGM within this period will not be required to hold any other AGM either in the year of incorporation or in the following year, but the time gap between AGMS should not exceed 15 months.
3. EXTRA ORDINARY MEETING
It can be convened by the board of directors on requisition received in this regard from
(i) Such number of members holding not less than 1/10th of the paid up capital of the company or from such number of members holding not less than 1/10th of the voting power.
(ii) The requisition now set out, that matter which will be considered at the meeting. The requisition must be deposited at the registered office.
PROSPECTUS
The central theme of a prospectus is that it sets out the prospects of a company and the purpose for which the capital is required.
Section 2 Clause 36
Defines a prospectus as any document described or issued as a prospectus & includes any notice circular or advertisement or other document inviting deposits from the public, or inviting occurs from the public for the subscription or purchase of the shares in or debentures of a body corporate.
STATAEMENT IN LIEU OF PROSPECTUS
A private company need not approach public for money. The promoters of the company may tap their private resources or contacts for raising the requisite capital. In such a case no prospectus need be issued.
Promoter must prepare a document akin to the prospectus known as statement in lieu of prospectus. These documents must be in the form set up III of the Act. The sicument shall be delivers for registration 3 days before the 1st allotment of shares.
Question
What is untrue in a prospectus?
A prospectus must tell the truth, the whole of the truth and nothing but the truth. It must not cancel any fact which is ought to be disclosed. This is known as GOLDEN RULE as to the framing of the prospectus.
Section 65 Subsection 1 Clause A
The statement included in a prospectus shall be deemed to be untrue if the statement is misleading in form & in content.
Greenwood v/s Leather Shade Wheel Company
A company manufacturing leather type wheels for trollies issued a prospectus stating orders have been received from the House of Commons in England to be followed by large number of orders later on.
In fact the person who supplied refreshment in House of Commons had only 1 trolley with these types of wheels & no customer has expressed any statement for buying anything on a large scale.
Hence the prospectus was misleading.
ALLOTMENT OF SHARES
Application is an offer by a prospective shareholder to take shares. When an application is accepted, it is an allotment.
MINIMUM SUBSCRIPTION & APPLICATION MONEY
Section 69
The first requisite of a value allotment is that of minimum subscription when shares are offered to the public, the amount of minimum subscription has to be stated in the prospectus has to be stated in the prospectus.
Minimum subscription means the amount, which is in the estimate of directors enough to meet the needs namely purchased price of a property, preliminary expenses & working capital.
No shares can be allotted unless at least so much amounts have been subscribed & the application money which must not be less than 5% of the nominal value of the shares has been received in cash.
SHARE CERTIFICATE
This is a certificate issued under a common seal of the company specified under a no of shares held by any number.
SHARE WARRANT
This is a document issued by a ****** stating that its bearer is entitled to shares their specified.
DIFFERENCE BETWEEN SHARE CERTIFICATE AND SHARE WARRANT
a) Share Warrant is issued only with fully paid up shares. Share Certificate is issued even though shares are partly paid.
b) The holder of a share warrant does not ordinarily possess the right to vote but holder of a share certificate possesses the right to vote.
STOCK
Shares are converted in to stock only when they are fully paid up. Shares are always a specified denomination e.g.: Rs 5 or Rs 10 or multiple of them.
BORROWING POWERS OF A COMPANY
A company can borrow money at its own to what extent are matters depending upon MOA & AOA. The company’s Act does not condemn any profession expressing empowering a company to borrow money.
A trading company has implied power to borrow.
A non-trading company has no implied power to borrow.
It can borrow if permitted by MOA & AOA.
DEBENTURE (VVV Imp)
The issue of debenture is a particular mode of borrowing money by a company. Plamer defined debentures as follows:- “Any installment under seal evidencing a debt, the essence of it being the admission of indebtedness. It is simply an instrument of acknowledgement of debt by the company whereby it undertakes to pay the amount covered by it & till it undertakes further to pay interest thereon to debenture holders. It is an instrument, which acknowledges or creates a debt.
ESSENTIAL CHARACTERISTICS OF DEBENTURE
a) It is an acknowledgement of indebtedness in the form of a certificate of a company.
b) All the debentures issued under the common seal of a company.
c) A date is specified in so far as repayment of loan is concerned.
d) A debenture holder does not have the right to attend AGM.
DIFFERENCE BETWEEN SHARE AND DEBENTURE
Share has been defined in Section 2 Clause 46 of the Company’s Act to mean a share in the share capital of the company on the other hand a debenture is an instrument of debt executed by the company, acknowledging its receipt to repay the same at a specified rate & also carrying interest.
The corpus of 2 issues falls to different segments of capitals thus share representing the share capital & debenture representing the loan capital.
Shareholders are the owners of the company till it is folded up fully while the debenture holders are creditors of company.
