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MB0051 Legal Aspects of Business

Assignment Set - 1
1. Discuss the nature and significance of business law? Answer: Business Law may be defined as that branch of law which prescribes a set of rules for the governance of certain transactions and relations between: (i) business persons themselves, (ii) business persons and their customers, dealers, suppliers, etc., and (iii) business persons and the state. In the context of Indian business some of these transactions and relations concern the following: a. Regulation of restrictive and unfair business practices, b. Foreign exchange management and regulation, c. Insolvency of business persons, d. Promotion of conciliation, and arbitration for settlement of business disputes, e. Regulation of companies incorporated under the Companies Act, 1956, f. Negotiable instruments, g. Patents, trade marks and copyrights, h. Actionable claims, factoring and forfaiting, i. Import and export regulation, j. Contracts, sale of goods, guarantee, indemnity, bailment, pledge, charge, mortgage, partnerships, insurance, carriage of goods, k. Prevention of food adulteration, regulation of essential commodities, l. Regulation of stock exchange and financial securities, m. Regulation and development of industries, n. Economic offences, o. Conservation of foreign exchange and prevention of smuggling activities, p. Regulation of foreign contributions, foreign capital, q. Excise, import and export duties, tax on income, wealth, etc. Objectives From the description of the nature and meaning of business law, it can be inferred that the subject has many objectives to achieve. Firstly, law lays down the framework within which business activities shall be carried out. For example, X company issues an advertisement disparaging the products of its rival Y company. Further X company prohibits its dealers to deal in the products of Y company. These acts of X company are not in conformity with some legal rules prescribed by some statute or the other. Thus Y company can enforce its right which have been infringed by the X company. Secondly, a businessperson can resort to various judicial and quasi-judicial authorities against the government in case his legal rights have been violated. Thirdly, some laws are made to facilitate the business persons to achieve their goals smoothly. For example, business has been extended the facility of doing business by getting a company incorporated, deriving all the advantages of incorporation, such as separate legal entity, limited liability, etc. Fourthly, business law has social objectives too. The anti-competition laws, the pollution control laws, etc., are some of the examples. Further, laws concerning regulation of essential commodities and prevention of food adulteration in the interest of the consumers go a long way in serving social objectives.

Lastly, business laws aim to prevent concentration of economic power and help in the adjustment of claims of individuals against each other. Sources of Indian business law The sources of Indian business law are: 1. Statutes such as the Indian Contract Act, 1872, the Sale of Goods Act, 1930, the Partnership Act, 1932, the Negotiable Instruments Act, 1881, the Insurance Act, 1938. 2. Common law: In the absence of a legal provision on a subject, the Indian courts apply English Common Law. Even in interpreting Indian law, the Indian courts refer to English decisions. 3. Custom and usages: The Indian business customs and trade usages, unless excluded by a statute, are allowed to govern business transactions. The Negotiable Instruments Act, 1881, has not excluded the trade usage of hundis as negotiable instruments. 4. Precedents: Courts make law too. Their main contribution comes in the form of decisions in law suits. The cases decided by the Supreme Court and other courts have served as precedents to follow by the lower courts. 5. Justice, equity and good conscience: The equitable principles of law developed by the English equity courts are the guiding force behind most of the Indian statutes on business laws. Also as and when necessary, the Indian courts make use of these principles of equity in interpreting the Indian law. 2. Define contract of indemnity. Describe the rights of the indemnifier and the indemnity holder. Answer: Secs.124 and 125 provide for a contract of indemnity. Sec.124 provides that a contract of indemnity is a contract whereby one party promises to save the other from loss caused to him (the promisee) by the conduct of the promisor himself or by the conduct of any other person. A contract of insurance is a glaring example of such type of contracts. A contract of indemnity may arise either by (i) an express promise or (ii) operation of law, e.g., the duty of a principal to indemnify an agent from consequences of all lawful acts done by him as an agent. The contract of indemnity, like any other contract, must have all the essentials of a valid contract. These are two parties in a contraction of identity indemnifier and indemnified. The indemnifier promises to make good the loss of the indemnified (i.e., the promisee). Example: A contracts to indemnify B against the consequences of any proceeding which C may take against B in respect of a certain sum of Rs 200. This is a contract of indemnity. Rights of the indemnified (i.e., the indemnity holder) He is entitled to recover from the promisor: (i) All damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies; (ii) All costs of suit which he may have to pay to such third party, provided in bringing or defending the suit (a) he acted under the authority of the indemnifier or (b) if he did not act in contravention of orders of the indemnifier and in such a way as a prudent man would act in his own case; (iii) All sums which may have been paid under the terms of any compromise of any such suit, if the compromise was not contrary to the orders of the indemnifier and was one which it would have been prudent for the promisee to make.

Rights of the indemnifier The Act makes no mention of the rights of indemnifier. However, his rights, in such cases, are similar to the rights of a surety under Sec.141, viz., he becomes entitled to the benefit of all the securities which the creditor has against the principal debtor whether he was aware of them or not. 3. What is Partnership? Briefly state special features of a partnership on the basis of which its existence can be determined under the Indian Partnership Act? Answer: Definitions of Partnership: A partnership is an association of two at more persons to carry on as co owners of a business and to share its profits and losses. Section 4 of the Partnership Act defines partnership as the relation between persons who have agreed to share the profits of a business carried on by all or any one of them acting for all. Persons who have entered into partnership with one another are called individual partners and collectively a firm and the name under which their business is carried on is called the firm name. The salient features of partnership are as under: 1. Formation: According to the Partnership Act of 1932, there is no special mode for the creation of a partnership. If persons between 2 and 20 enter Into agreement oral or verbal for carrying on a business, with a private gain, then partnership is formed (10 in case of banking business). To avoid misunderstanding, it is desirable that the articles of partnership be prepared in writing with legal assistance. The articles of partnership should cover the rights, duties, obligations and the arrangements which the parties have mutually agreed upon. t is not binding for partnership to be register However, if a 1kmremains unregistered, it has to face certain disabilities or disadvantages.
2. Financing: The capital is made available to the firm by the partners as per terms of the

agreement. It is not necessary that all the partners should contribute equally to the partnership. A person who has special skill or ability can be admitted to the partnership without any capita contribution.
3. Management: In a partnership business, every partner has a right to take part in its

management. The important business decisions are taken with the consent of all other partners.
4. Restriction on Transfer of Interest: No partner can transfer h share to any other person

without the prior consent or willingness of all other partners.

5. Unlimited Liability of Partners: The liability of the partners of a firm is unlimited. If the

business suffers losses end the assets of the partnership are not sufficient to meet its obligations, then the creditors may those to sue any one or all of the partners to satisfy the debt. This poses a serious handicap for the individual partners with large personal assets. He may be compelled to pay the entire debt of the partnership from his personal assets.
6. Duration: The partnership is a temporary form of business ownership. It operates at the

pleasure of the partners. The partnership can come to an end, if a partners leaves, dies, declared bankrupt or insane it is also dissolved by the partners by obtaining a degree from the court.

7. Taxation: If a firm is registered under the Income Tax Act, the profit of the firm is first

divided among the partners and then assessed separately. In case, it is not registered within the meaning of Income Tax Act, the firm will be assessed on total profit.
8. Implied Authority: Each partner is an agent of the other partners and at the same time of

the firm. This is an implied authority the moment the agreement is entered into between the partners, this authority automatically comes to each of the partners. The regular acts of business such as buying, selling of goods, hiring of employees etc. by a partner is considered the act of the firm or the act of all the partners. Each partner thus is both an agent and a principal. As agents he has the capacity to bind other partners by his acts done. Each partner is principal in the sense that he is bound by the acts of other partners 4. What remedies are available to a seller for breach of contract of sale? Answer: Remedies for Breach of Contract When someone breaches a contract, the other party is no longer obligated to keep its end of the bargain. From there, that party may proceed in several ways: (i) the other party may urge the breaching party to reconsider the breach; (ii) if it is a contract with a merchant, the other party may get help from consumers associations; (iii) the other party may bring the breaching party to an agency for alternative dispute resolution; (iv) the other party may sue for damages; or (v) the other party may sue for other remedies. Rescission of the contract: When a breach of contract is committed by one party, the other party may treat the contract as rescinded. In such a case the aggrieved party is freed from all his obligations under the contract. Damages (Sec.75): Another relief or remedy available to the promisee in the event of a breach of promise by the promisor is to claim damages or loss arising to him there from. Damages under Sec.75 are awarded according to certain rules as laid down in Secs.73-74. Sec.73 contains three important rules: (i) Compensation as general damages will be awarded only for those losses that directly and naturally result from the breach of the contract. (ii) Compensation for losses indirectly caused by breach may be paid as special damages if the party in breach had knowledge that such losses would also follow from such act of breach. (iii) The aggrieved party is required to take reasonable steps to keep his losses to the minimum. What is the most common remedy for breach of contracts: The usual remedy for breach of contracts is suit for damages. The main kind of damages awarded in a contract suit are ordinary damages. This is the amount of money it would take to put the aggrieved party in as good a position as if there had not been a breach of contract. The idea is to compensate the aggrieved party for the loss he has suffered as a result of the breach of the contract.

5. Examine the rights of a consumer enshrined under the Consumer Protection Act, 1986. Answer: Rights of Consumers enshrined under the Consumer Protection Act, 1986: For the first time in the history of consumer legislation in India, the Consumer Protection Act, 1986 extended a statutory recognition to the rights of consumers. Sec.6 of the Act recognizes the following six rights of consumers: 1. Right to safety, i.e., the right to be protected against the marketing of goods and services which are hazardous to life and property. 2. Right to be informed, i.e., the right to be informed about the quality, quantity, potency, purity, standard and price of goods or services, as the case may be, so as to protect the consumer against unfair trade practices. 3. Right to choose: It means right to be assured, wherever possible, access to a variety of goods and services at competitive prices. In case of monopolies, say, railways, telephones, etc., it means right to be assured of satisfactory quality and service at a fair price. 4. Right to be heard, i.e., the consumers interests will receive due consideration at appropriate forums. It also includes right to be represented in various forums formed to consider the consumers welfare. 5. Right to seek redressal: It means the right to seek redressal against unfair practices or restrictive trade practices or unscrupulous exploitation of consumers. It also includes right to fair settlement of the genuine grievances of the consumers. 6. Right to consumer education: It means the right to acquire the knowledge and skill to be an informed consumer. 6. Write short notes on the following: a. Copy right b. License Answer: a) Copyright: Copyright is a form of intellectual property protection granted under Indian law to the creators of original works of authorship such as literary works (including computer programs, tables and compilations including computer databases which may be expressed in words, codes, schemes or in any other form, including a machine readable medium), dramatic, musical and artistic works, cinematographic films and sound recordings. Copyright law protects expressions of ideas rather than the ideas themselves. Under section 13 of the Copyright Act 1957, copyright protection is conferred on literary works, dramatic works, musical works, artistic works, cinematograph films and sound recording. For example, books, computer programs are protected under the Act as literary works. Copyright refers to a bundle of exclusive rights vested in the owner of copyright by virtue of Section 14of the Act. These rights can be exercised only by the owner of copyright or by any other person who is duly licensed in this regard by the owner of copyright. These rights include the right of adaptation, right of reproduction, right of publication, right to make translations, communication to public etc. Copyright protection is conferred on all Original literary, artistic, musical or dramatic, cinematograph and sound recording works. Original means, that the work has not been copied from any other source. Copyright protection commences the moment a work is created, and its registration is optional. However it is always advisable to obtain a registration for a better

protection. Copyright registration does not confer any rights and is merely a prima facie proof of an entry in respect of the work in the Copyright Register maintained by the Registrar of Copyrights. As per Section 17 of the Act, the author or creator of the work is the first owner of copyright. An exception to this rule is that, the employer becomes the owner of copyright in circumstances where the employee creates a work in the course of and scope of employment. Copyright registration is invaluable to a copyright holder who wishes to take a civil or criminal action against the infringer. Registration formalities are simple and the paperwork is least. In case, the work has been created by a person other than employee, it would be necessary to file with the application, a copy of the assignment deed. One of the supreme advantages of copyright protection is that protection is available in several countries across the world, although the work is first published in India by reason of India being a member of Berne Convention. Protection is given to works first published in India, in respect of all countries that are member states to treaties and conventions to which India is a member. Thus, without formally applying for protection, copyright protection is available to works first published in India, across several countries. Also, the government of India has by virtue of the International Copyright Order,1999, extended copyright protection to works first published outside India. Indian perspective on copyright protection: The Copyright Act, 1957 provides copyright protection in India. It confers copyright protection in the following two forms: (A) Economic rights of the author, and (B) Moral Rights of the author. (A) Economic Rights: The copyright subsists in original literary, dramatic, musical and artistic works; cinematographs films and sound recordings. The authors of copyright in the aforesaid works enjoy economic rights u/s 14 of the Act. The rights are mainly, in respect of literary, dramatic and musical, other than computer program, to reproduce the work in any material form including the storing of it in any medium by electronic means, to issue copies of the work to the public, to perform the work in public or communicating it to the public, to make any cinematograph film or sound recording in respect of the work, and to make any translation or adaptation of the work. In the case of computer program, the author enjoys in addition to the aforesaid rights, the right to sell or give on hire, or offer for sale or hire any copy of the computer program regardless whether such copy has been sold or given on hire on earlier occasions. In the case of an artistic work, the rights available to an author include the right to reproduce the work in any material form, including depiction in three dimensions of a two dimensional work or in two dimensions of a three dimensional work, to communicate or issues copies of the work to the public, to include the work in any cinematograph work, and to make any adaptation of the work. In the case of cinematograph film, the author enjoys the right to make a copy of the film including a photograph of any image forming part thereof, to sell or give on hire or offer for sale or hire, any copy of the film, and to communicate the film to the public. These rights are similarly available to the author of sound recording. In addition to the aforesaid rights, the author of a painting, sculpture, drawing or of a manuscript of a literary, dramatic or musical work, if he was the first owner of the copyright, shall been titled to have a right to share in the resale price of such original copy provided that the resale price exceeds rupees ten thousand. (B) Moral Rights: Section 57 of the Act defines the two basic moral rights of an author. These are: (i) Right of paternity, and (ii) Right of integrity. The right of paternity refers to a right of an author to claim authorship of work and a right to prevent all others from claiming authorship of his work. Right of integrity empowers the author to prevent distortion, mutilation or other alterations of his work, or any other action in relation to said work, which would be prejudicial to his honour or reputation. The proviso to section 57(1) provides that the author shall not have any right to restrain or claim damages in respect of any adaptation of a computer program to which section 52 (1)(aa) applies (i.e. reverse engineering of the same).

It must be noted that failure to display a work or to display it to the satisfaction of the author shall not be deemed to be an infringement of the rights conferred by this section. The legal representatives of the author may exercise the rights conferred upon an author of a work by section 57(1), other than the right to claim authorship of the work b) License: Sec.84 provides as follows: 1. At any time after the expiration of 3 years from the date of the sealing of a patent, any person interested may make an application to the controller for grant of compulsory license on patent or any of the following grounds: (i) that the reasonable requirements of the public with respect to the patented invention have not been satisfied; or (ii) the patented invention is not available to the public at a reasonably affordable price, (iii) the patented invention is not worked in the territory of India. 2. An application for a compulsory license can be made by any person notwithstanding that he is already the holder of a license under the patent. Further no person shall be estopped from alleging that the reasonable requirements of the public with respect to the patented invention are not satisfied or that the patented invention is not worked in the territory of India or that the patented invention is not available to the public at a reasonably affordable price by reason of any admission made by him, whether in such a license or otherwise or by reason of his having accepted such a license. 3. Every application for a compulsory license shall contain a statement setting out the nature of the applicant's interest together with such particulars as may be prescribed and the facts upon which the application is based. 4. The controller, if satisfied that the reasonable requirements of the public with respect to the patented invention have not been satisfied or that the patented invention is not worked in the territory of India or that the patented invention is not available to the public at a reasonably affordable price, may grant a license upon such terms as he may deem fit.

Assignment Set - 2
1. All agreement are not contracts but all contacts are agreements. Comment. Answer: Contract A contract is an agreement, enforceable by law, made between at least two parties by which rights are acquired by one and obligations are created on the part of another. If the party, which had agreed to do something, fails to do that, then the other party has a remedy. Example: D Airlines sells a ticket on 1 January to X for the journey from Mumbai to Bangalore on 10 January. The Airlines is under an obligation to take X from Mumbai to Bangalore on 10 January. In case the Airlines fails to fulfil its promise, X has a remedy against it. Thus, X has a right against the Airlines to be taken from Mumbai to Bangalore on 10 January. A corresponding duty is imposed on the Airlines. As there is a breach of promise by the promisor (the Airlines), the other party to the contract (i.e., X) has a legal remedy. Agreement Sec.2(e) defines an agreement as every promise and every set of promises forming consideration for each other. In this context, the word promise is defined by Sec.2(b). In a contract there are at least two parties. One of them makes a proposal (or an offer) to the other, to do something, with a view to obtaining the assent of that other to such act. When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted becomes a promise (Sec.2(b)). Enforceability by law: The agreement must be such which is enforceable by law so as to become a contract. Thus, there are certain agreements which do not become contracts as this element of enforceability by law is absent. Essentials of a contract Sec.10 provides that all agreements are contracts, if they are made by free consent of parties, competent to contract, for a lawful consideration, and with a lawful object, and are not expressly declared by law to be void. To constitute a contract, there must be an agreement between two or more than two parties. No one can enter into a contract with himself. An agreement is composed of two elements offer or proposal by one party and acceptance thereof by the other party. Effect of absence of one or more essential elements of a valid contract: If one or more essentials of a valid contract are missing, then the contract may be either voidable, void, illegal or unenforceable. Classification of contracts Contracts may be classified as follows: Classification of contracts according to formation: A contract may be (a) Made in writing (b) By words spoken and (c) Inferred from the conduct of the parties or the circumstances of the case. Formal and informal contracts: This is another way of classifying contracts on the basis of their formation. A formal contract is one to which the law gives special effect because of the formalities or the special language used in creating it. The best example of formal contracts is negotiable instruments, such as cheques. Informal contracts are those for which the law does not require a particular set of formalities or special language. Classification according to validity: Contracts may be classified according to their validity as (i) Valid, (ii) Voidable, (iii) Void,

(iv) Unenforceable. A contract to constitute a valid contract must have all the essential elements discussed earlier. If one or more of these elements are missing, the contract is either voidable, void, illegal or unenforceable. As per Sec.2(i) A voidable contract is one which may be repudiated (i.e., avoided) at the will of one or more of the parties, but not by others. 2. What do you mean by bailment? What are the requisites of a contract of bailment? Explain. Answer: Bailment is defined as the delivery of goods by one to another person for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of person delivering them. The person delivering the goods is called the bailor and the person to whom the goods are delivered is called the bailee. The explanation to the above Section points out that delivery of possession is not necessary, where one person, already in possession of goods contracts to hold them as bailee. The bailee is under an obligation to re-deliver the goods, in their original or altered form, as soon as the time of use for, or condition on which they were bailed, has elapsed or been performed. Lets illustrate, (i) A delivers some clothes to B, a dry cleaner, for dry cleaning. (ii) A delivers a wrist watch to B for repairs. (iii) A lends his book to B for reading. (iv) A delivers a suit-length to a tailor for stitching. (v) A delivers some gold biscuits to B, a jeweller, for making jewellery. (vi) Delivery of goods to a carrier for the purpose of carrying them from one place to another. (vii) Delivery of goods as security for the repayment of loan and interest thereon, i.e., pledge. From the definition of bailment, the following characteristics should be noted: 1. Delivery of goods. The essence of bailment is delivery of goods by one person to another for some temporary purpose. Delivery of goods may, however, be actual or constructive. Actual delivery may be made by handing over goods to the bailee. Constructive delivery may be made by doing something which has the effect of putting the goods in the possession of the intended bailee or any person authorised to hold them on his behalf (Sec.149). Example: A holding goods on behalf of B, agrees to hold them on behalf of C, there is a constructive transfer of possession from C to A. 2. Bailment is based on a contract. In bailment, the delivery of goods is upon a contract that when the purpose is accomplished, they shall be returned to the bailor. For example, where a watch is delivered to a watch repairer for repair, it is agreed that it will be returned, after repair, on the receipt of the agreed or reasonable charges. 3. Return of goods in specie. The goods are delivered for some purpose and it is agreed that the specific goods shall be returned. Return of specific goods (in specie) is an essential characteristic of bailment. Thus, where an equivalent and not the same is agreed to be returned, there is no bailment. 4. Ownership of goods. In a bailment, it is only the possession of goods which is transferred and not the ownership thereof, therefore the person delivering the possession of goods need not be the owner; his business is to transfer possession and not ownership. Kinds of bailments Bailments may be, classified into six kinds as follows. (i) Deposit. Delivery of goods by one person to another for the use of the former, i.e., bailor; (ii) Commodatum. Goods lent to a friend gratis to be used by him;

(iii) Hire. Goods lent to the bailee for hire, i.e., in return for payment of money; (iv) Pawn or Pledge. Deposit of goods with another by way of security for money borrowed; (v) Delivery of goods for being transported, or something to be done about them, by the bailee for reward. (vi) Delivery of goods as in (vii) above, but without reward. 3. What do you mean by del credere agent? Answer: A del credere agent is one who, in consideration of an extra remuneration, called a del credere commission, guarantees the performance of the contract by the other party. A del credere agent is a mercantile agent who guarantees his principal for the collection of dues from the customer to whom credit sales are made. If they do not pay, the agent would bear the loss himself. In return for his guarantee, he is given an extra commission known as Del Credere commission. It is paid to the agent in addition to the usual commission. A Del credere agent shall be very cautious in extending credit. He will extend credit sales only to a person of probity and reliability. An arrangement in which an agent or factoran individual who takes possession and agrees to sell goods for anotherconsents for an additional fee to guarantee that the purchaser, to whom credit has been extended, is financially solvent and will perform the contract. As the result of a del credere agency, the del credere agent becomes a surety of the purchaser. If the purchaser defaults, the agent is responsible to the principal for the outstanding amount. A del credere commission is the extra fee paid to the agent for such promises. Del credere originated in Italy during the Middle Ages. The word del credere comes from the Italian and means of belief or trust. A del credere agency is a business that agrees to sell a producers goods and, in return for a fee, guarantees that the buyer will pay for them. Basically, a del credere agency is a type of broker, mediator, or middleman, between a vendor and a vendee. The agency takes a del credere commission, or a fee, from the producer for ensuring that the good is sold and paid in full. Consequently, if the buyer defaults on payments, the agency assumes financial responsibility. This promise that the buyer will pay, or the agent will pay the amount the buyer failed to pay, makes the agent a surety. An example might be the best way to understand the concept. If a glass blower makes a vase, he or she might contact a del credere agency to sell it. The glass blower would then pay a fee to the agency, also called a del credere commission, to ensure that, if the vase sells, the glass blower will be paid in full. If the vase sells and the buyer successfully pays the total amount owed, the del credere agency profits from the fee the original producer pays. If the buyer defaults on payments, the del credere agency has to pay the outstanding amount to the glass blower. To ensure that the del credere agency does not lose money through defaulted payments, it will generally only sell to solvent vendees, or buyers that are capable of making payment. A prediction of solvency depends on good credit history and debt-equity ratios. A good credit history implies that the individual or company has been extended credit and has been consistently paid back on time. A high debt-equity ratio usually means that an individual or company has paid for its financial growth with debt incurring processes, such as through the buying and selling of stocks or loans. This makes their earnings more unstable and therefore a less attractive buyer to del credere agencies.

4. What do you mean by Memorandum of Association? What does it contain? Answer: Memorandum of association is one of the documents which has to filed with the registrar of companies at the time of incorporation of a company. Section 2(28)defines a memorandum to mean the memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous company law or of this act. The definition, however, either does not give us any idea as to what a memorandum of association really is nor does it point out the role which it plays in the affairs of the company. The memorandum of association is an extremely important document in relation to the affairs of the company. It is a document which sets out the constitution of the company and is really the foundation on which the structure of the company is based. It contains the fundamental conditions upon which alone the company is allowed to be incorporated. A company may pursue only such objects and exercise only such powers as are conferred expressly in the memorandum or by implication therefore i.e. such powers as are incidental to the attainment of the objects. A company cannot depart from the provisions contained in its memorandum, however, great the necessity may be. If it does, it defines its relation with the outside world and the scope of its activities. The purpose of the memorandum is to enable shareholders, creditors and those who deal with the company to know what is the permitted range of the enterprise. It defines as well as confines the powers of the company; it not only shows the object of its formation, but also the utmost possible scope of its operation beyond which its action cannot go. Lord Cairns in Ashbury Railway Carriage Co. V. Riche pointed out, The memorandum is as it were, the area beyond which the action of the company cannot go; inside that area the shareholders may make such regulations for their own government as they think fit. Purpose of memorandum: The purpose of the memorandum is two fold.1. The intending share holder who contemplates the investment of his capital shall know within what field it is to be put at risk.2. Anyone who shall deal with the company shall know without reasonable doubt whether the contractual relation into which he contemplates entering with the company is one relating to a matter within its corporate objects. At least seven persons in the case of public company and at least two in the case of a private company must subscribe to the memorandum. The memorandum shall be printed, divided into consecutively numbered paragraphs, and shall be signed by each subscriber, with his address, description and occupation added, the presence of at least one witness who will attest the same. Contents of Memorandum: According to section 13, the memorandum of association of every company must contain the following clauses: 1. The name of the company with limited as the last word of the name in the case of a public limited company and with private limited as the last word in the case of a private limited company. 2. The state in which the registered office of the company is to be situated. 3. The objects of the company to be classified as a. The main objects of the company to be pursued by the company on its incorporation and objects incidental to the attainments of the main objects, and b. Other objects not included above 4. In the case of companies with object not confined to one state, the states to whose territories the objects extend. 5. The liability of members is limited if the company is limited by shares or by guarantee. 6. In the case of a company having a share capital, the amount of share capital with which the company proposes to be registered and its division into shares of a fixed amount. An unlimited company need not include items 5 and 6 in its memorandum. In the case of a company limited by guarantee, its memorandum of association shall state that each member undertakes to contribute

to the assets of the company, in the event of its being wound up while he is a member or within or year after wards for the payment of the debts and liabilities of the company. Every subscriber to the memorandum shall take at least one share and shall write opposite to his name the number of shares taken by him. 5. Name the instruments which are recognized as negotiable instruments by the Negotiable Instruments Act, 1881. Answer: Section 13 of the Negotiable Instruments Act states that a negotiable instrument is a promissory note, bill of exchange or a cheque payable either to order or to bearer. Negotiable instruments recognized by statute are: (i) Promissory notes (ii) Bills of exchange (iii) Cheques. Negotiable instruments recognised by usage or custom are: (i) Hundis (ii) Share warrants (iii) Dividend warrants (iv) Bankers draft (v) Circular notes (vi) Bearer debentures (vii) Debentures of Bombay Port Trust (viii) Railway receipts (ix) Delivery orders. This list of negotiable instrument is not a closed chapter. With the growth of commerce, new kinds of securities may claim recognition as negotiable instruments. The courts in India usually follow the practice of English courts in according the character of negotiability to other instruments. Promissory note A promissory note is an instrument in writing (not being a bank or a currency note) containing an unconditional undertaking, signed by the maker to pay a certain sum of money to, or to the order of, a certain person or to the bearer of the instrument (Sec.4). The following are two illustrations of promissory notes. Where A signs instruments in the following terms: (i) I promise to pay B or order Rs 500. (ii) I acknowledge myself to be indebted to B in Rs 1000, to be paid on demand, for value received. Parties to a promissory note 1. The maker the person who makes the note promising to pay the amount stated therein. 2. The payee the person to whom the amount of the note is payable. 3. The holder is either the original payee or any other person in whose favour the note has been endorsed. 4. The endorser the person who endorses the note in favour of another person. 5. The endorsee the person in whose favour the note is negotiated by indorsement. Bill of exchange A bill of exchange is defined by Sec.5 as an instrument in writing, containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to or to the order of, a certain person, or to the bearer of the instrument. Parties to a bill of exchange The parties of bill of exchange are:

1. The drawer: The person to whom the amount of the bill is payable. 2. The drawee: The person on whom the bill is drawn. Thus, drawee is the person responsible for acceptance and payment of the bill. In certain cases however a stranger may accept the bill on behalf of the drawee. 3. The payee: The person to whom amount of the bill is payable. It may be the drawer himself or any other person. 4. The holder: It is the original payee but where the bill has been endorsed, the endorsee. In case of a bearer bill, the bearer or possessor is the holder. 5. The endorser: It is the person who endorses a bill. 6. The endorsee: It is the person to whom the bill is negotiated by endorsement. 7. Drawee in case of need. 8. Acceptor for honour. Cheques A cheque is the usual method of withdrawing money from a current account with a banker. Savings bank accounts are also permitted to be operated by cheques provided certain minimum balance is maintained. A cheque, in essence, is an order by the customer of the bank directing his banker to pay on demand, the specified amount, to or to the order of the person named therein or to the bearer. Sec.6 defines a cheque. The Amendment Act 2002 has substituted new section for Sec.6. It provides that a cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic from. A cheque in the electronic form means a cheque which contains the exact mirror image of a paper cheque, and is generated, written and signed in a secure system ensuring the minimum safety standards with the use of digital signature and asymmetric crypto system. Every bank has its own printed cheque forms which are supplied to the account holders at the time of opening the account as well as subsequently whenever needed. These forms are printed on special security paper which is sensitive to chemicals and makes any chemical alterations noticeable. Although, legally, a customer may withdraw his money even by writing his directions to the banker on a plain paper but in practice bankers honour only those orders which are issued on the printed forms of cheques. 6. Write short notes on the following: a. Digital Signature b. Information Technology Act Answer: a) Digital Signature: Authentication of electronic records. Authentication is a process used to confirm the identity of a person or to prove the integrity of information. The authentication of message involves determining its source and verifying that it has not been modified or replaced in transit. Subject to the provisions of section 3 any subscriber may authenticate an electronic record by affixing his digital signature. The hash function means an algorithm mapping or translation of one sequence of bits into another, generally smaller set known as hash result such that an electronic record yields the same hash result every time the algorithm is executed with the same electronic record as its input making it computationally infeasible (a) to derive or reconstruct the original electronic record from the hash result produced by the algorithm; (b) that two electronic records can produce the same hash result using the algorithm. b) Information Technology Act: In May 2000, at the height of the dot-com boom, India enacted the IT Act and became part of a select group of countries to have put in place cyber laws. In all

these years, despite the growing crime rate in the cyber world, only less than 25 cases have been registered under the IT Act 2000 and no final verdict has been passed in any of these cases as they are now pending with various courts in the country. Although the law came into operation on October 17, 2000, it still has an element of mystery around it. Not only from the perception of the common man, but also from the perception of lawyers, law enforcing agencies and even the judiciary. The prime reason for this is the fact that the IT Act is a set of technical laws. Another major hurdle is the reluctance on the part of companies to report the instances of cyber crimes, as they don't want to get negative publicity or worse get entangled in legal proceedings. A major hurdle in cracking down on the perpetrators of cyber crimes such as hacking is the fact that most of them are not in India. The IT Act does give extra-territorial jurisdiction to law enforcement agencies, but such powers are largely inefficient. This is because India does not have reciprocity and extradition treaties with a large number of countries. The Indian IT Act also needs to evolve with the rapidly changing technology environment that breeds new forms of crimes and criminals. We are now beginning to see new categories and varieties of cyber crimes, which have not been addressed in the IT Act. This includes cyber stalking, cyber nuisance, cyber harassment, cyber defamation and the like. Though Section 67 of the Information Technology Act, 2000 provides for punishment to whoever transmits or publishes or causes to be published or transmitted, any material which is obscene in electronic form with imprisonment for a term which may extend to two years and with fine which may extend to twenty five thousand rupees on first convection and in the event of second may extend to five years and also with fine which may extend to fifty thousand rupees, it does not expressly talk of cyber defamation. The above provision chiefly aim at curbing the increasing number of child pornography cases and does not encompass other crimes which could have been expressly brought within its ambit such as cyber defamation.