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ASSIGNMENT DRIVE: SPRING 2014
SIKKIM MANIPAL UNIVERSITY-DDE
Master of Business Administration-MBA Semester III
Subject: Legal Aspects of Business
Subject code: MB0051
Book ID B1725
ASSIGNMENT DRIVE: SPRING 2014
SIKKIM MANIPAL UNIVERSITY-DDE
Master of Business Administration-MBA Semester III
Subject: Legal Aspects of Business
Subject code: MB0051
Book ID B1725
ASSIGNMENT DRIVE: SPRING 2014
SIKKIM MANIPAL UNIVERSITY-DDE
Master of Business Administration-MBA Semester III
Subject: Legal Aspects of Business
Subject code: MB0051
Book ID B1725
SIKKIM MANIPAL UNIVERSITY-DDE Master of Business Administration-MBA Semester III Subject: Legal Aspects of Business Subject code: MB0051 Book ID B1725 --------------------------------------------------------------------------------- Q. No. 1. What are the rights of a surety? Rights against creditors Rights against Principal Debtor Right against Co-Sureties Ans: - A surety, surety bond or guaranty, in finance, is a promise by one party to assume responsibility for the debt obligation of a borrower if that borrower defaults. The person or company providing this promise is also known as a "surety" or as a "guarantor". A surety most typically requires a guarantor when the ability of the primary obligor or principal to perform its obligations to the obligee (counterparty) under a contract is in question, or when there is some public or private interest which requires protection from the consequences of the principal's default or delinquency. In most common-law jurisdictions, a contract of suretyship is subject to the Statute of Frauds (or its equivalent local laws) and is only enforceable if recorded in writing and signed by the surety and by the principal.
Rights of surety may be classified under three heads:
-sureties
Rights against the creditor In case of fidelity guarantee, the surety can direct a creditor to dismiss the employee whose honesty he/she has guaranteed, in the event of proven dishonesty of the employee. The creditors failure to do so will exonerate the surety from his/her liability.
Rights against the principal debtor Right of subrogation Section 140 provides that where a surety has paid the guaranteed debt on the due date or has performed the guaranteed duty on the default of the principal debtor, he/she is invested with all rights that the creditor has against the debtor. In other words, the surety is subrogated to all rights that the creditor had against the principal debtor. Hence, if the creditor loses or without the consent of the surety parts with any securities (whether known to the surety or not), the surety is discharged to the extent of the value of such securities (Section 141). Further, the creditor must hand over to the surety the securities in the same condition as they formerly stood in his/her hands. 2
Right to be indemnified The surety has a right to recover from the principal debtor the amount that he/she has rightfully paid under the contract of guarantee.
Rights against co-sureties Right of contribution Where a debt has been guaranteed by more than one person, they are called co-sureties. Section 146 provides for a right of contribution between them. When a surety has paid more than his/her share or a decree has been passed against the surety for more than his/her share, he/she has a right of contribution from the other sureties who are equally bound to pay with him/her
Example: A, B and C are sureties to D for Rs. 3,000 lent to E. E defaults in making the payment. A, B and C are liable to pay Rs. 1,000 each, and if any one of them has to pay more than his/her share, i.e. Rs. 1,000, he/she can claim contribution from the others.
-sureties have guaranteed different sums, they are bound under Section 147 to contribute equally, subject to the limit fixed by their guarantee and not proportionately to the liability undertaken.
Examples A, B and C as sureties for D, enter into three several bonds, each in a different penalty, namely, A in the penalty of Rs. 10,000, B in that of Rs. 20,000, C in that of Rs. 40,000, conditioned for Ds duly accounting to E. E defaults to the extent of Rs. 30,000. A, B and C are each liable to pay Rs. 10,000 In the above example, if D defaults to the extent of Rs. 40,000, A is liable to pay Rs. 20,000 and B and C Rs. 15,000 each.
Q. No. 2 Explain duties of a Bailor and a Bailee Duties of Bailor Duties of Bailee
Ans: -. According to Section 148 of the Contracts Act, the person delivering the goods is called the bailor and the person to whom the goods are delivered is called the bailee. Delivery of the possession is not necessary where one person, already in possession of goods, contracts to hold them as the bailee. Duties of a Bailor To disclose known faults in goods (Section 150) The bailor is bound to disclose to the bailee, all faults in goods bailed, of which he/she is aware of. These faults materially interfere with the use of them or expose the bailee to extraordinary risks. If the bailor does not make such disclosure, he/she is responsible for the damage arising to the bailee directly from such faults. Example: A lends a horse, which he knows to be vicious, to B. He does not disclose to B the fact that the horse is vicious. The horse runs away, B is thrown down and injured. A is responsible for injury caused to B. 3
To bear liability for breach of warranty as to title The bailor is responsible to the bailee for any loss that the bailee may sustain by reason that the bailor was not entitled to make the bailment, or to receive goods or give directions respecting them (Section 164).
Example: A gives Bs car to C without Bs knowledge and permission. B sues C and receives compensation. A, the bailor, is responsible to make good this loss to C, the bailee. To bear expenses in case of gratuitous bailment Regarding bailment under which the bailee is to receive no remuneration, Section 158 provides that in the absence of a contract to the contrary, the bailor must repay to the bailee all necessary expenses incurred by him for the bailment.
To bear expenses in case of non-gratuitous bailment In case of non-gratuitous bailments, the bailor is responsible for bearing only extraordinary expenses.
Example: A car is lent for a journey. The ordinary expenses like petrol, etc., shall be borne by the bailee. However, in case the car needs repair, the money spent in this regard is an extraordinary expenditure and borne by the bailor. Duties of a Bailee To take care of goods bailed (Section 151) In all cases of bailment, the bailee is bound to take care of the goods bailed to him as a man of ordinary prudence would, under similar circumstances, take of his own goods of the same bulk, quality and value as the goods bailed. In case the bailee has taken proper care of
the goods, he shall not be responsible, in the absence of any special contract, for the loss, destruction or deterioration of the goods bailed (Section 152).
Example: A lends a car to B for his own driving only. B allows C, his wife, to drive the car. C drives with care, but the car is damaged in an accident. A is liable to make a compensation to B for the damage caused to the car.
Not to make unauthorised use of goods (Section 154) In case the bailee makes unauthorised use of goods, i.e. uses them in a way not warranted by the terms of bailment, he is liable to make a compensation to the bailor for any damages arising to the goods from or during such use of them. Not to mix bailors goods with his own (Sections 155-157) If the bailee without the consent of the bailor mixes the goods of the bailor with his own and the goods cannot be separated or divided, the bailee shall bear the expenses of separation or division and any damages arising from the mixture. Example: A bails 100 bales of cotton marked with a special mark to B. B, without As consent, mixes the 100 bales with other bales of his own bearing a different mark. A is 4
entitled to have his 100 bales returned and B is bound to bear all expenses incurred in the separation of the bales and any other incidental damage.
To return goods bailed without demand (Section 160) It is the duty of the bailee to return, or deliver according to the bailors directions, the goods bailed without demand, as soon as the time for which they were bailed has expired, or the purpose for which they were bailed has been accomplished.
If bailee fails to return goods at the proper time, he is responsible to the bailor for any loss, destruction or deterioration of goods from that time onwards (Section 161).
To return any accretion to goods bailed (Section 163) In the absence of any contract to the contrary, the bailee is bound to deliver to the bailor, or according to his/her directions, any increase or profit that may have accrued from the goods bailed.
Example: A leaves a cow to be taken care of in the custody of B. The cow gives birth to a calf. B is bound to deliver the cow as well as the calf to A.
Q. No. 3 Power of Attorney is considered as an important concept in Business Law. Explain Meaning Types Registration Ans: - Meaning:- A power of attorney (POA) or letter of attorney is a written authorization to represent or act on another's behalf in private affairs, business, or some other legal matter, sometimes against the wishes of the other's b A power of attorney is an instrument or a deed by which a person is empowered to act for and in the name of the person executing it The person executing the deed is known as the principal or donor The one in whose favor it is executed is the agent or the power agent or the power of attorney agent A Power of Attorney is a written document in which you authorize someone (known as your attorney-in-fact or agent) to conduct certain business on your behalf. The business conducted by the agent is legally binding upon you, meaning you will be responsible for the cost of any contract or expense that person incurs while acting under your authorization. Types Of Powers Of Attorney :- There are two types of powers of attorney: General and Special. While General powers entail a broad grant of authority to act on your behalf, Special powers only permit your agent to perform specific actions and make specific decisions. 5
It is important to note that third parties, such as banks and other businesses, do not have to accept your power of attorney. Some institutions have their own power of attorney form, which they could require you to use. Remember to check with the business where your agent will use the power of attorney to ensure that it will be accepted. General Power of Attorney A General power of attorney gives your agent the authority to do almost anything you could do if you were present, such as write checks, borrow money, and enter into contracts in your name. Along with broad authority, this type of power of attorney carries a broader potential for abuse. With a General power of attorney, your agent could empty your bank account or sell your most cherished possessions. For this reason, it is particularly important that the person whom you select as your agent be trustworthy. Special Power of Attorney A Special power of attorney grants limited authority to your agent, empowering that person to do only acts which are specified in the document. The agents actions are restricted to those which you have specifically designated in your power of attorney document; this carries a much lower potential for abuse than a General power of attorney. Additionally, Special powers of attorney are often considered to be more indicative of your actual intent than General powers, and as such they are more likely to be accepted by businesses and government agencies. Registration As a general rule, registration of power of attorney is not necessary but a registration is required if: It authorizes the donee to recover the rent of an immovable property of the donor for the donees benefit A power has created a charge upon an immovable property referred to therein in favor of the donee Section 32 (c) of the Registration Act, 1908, requires that where a document is presented for registration by the agent of a person entitled to present it for registration such agent must be duly authorized by power of attorney executed and authenticated in manner as mentioned in Section 33 of the Act Such a power of attorney is to be executed before and authenticated by a registrar or sub-registrar Unregistered power executed in a foreign country before a public notary can be used by the agent for presentation of document for registration The power of attorney executed before a public notary in India will not enable the agent to present any document for registration under the Registration Act, 1908 Power of attorney is required to be embossed on non-judicial stamp paper 6
The amount of stamp duty varies with different types of powers as described in the Stamp Act and varies in different states of India Section 4 of the Power of Attorney Act, 1882, provides that the original deed of power can be deposited in the High Court in whose jurisdiction the principal resides A certified copy of the deed can be obtained from the High Court that are equal to originals and are binding on all
Q. No. 4 The Banking Regulation Act, 1949, provides various methods of regulation of the banking business. Describe the key areas of regulation. Methods of regulation Ans:- Bank regulations are a form of government regulation which subject banks to certain requirements, restrictions and guidelines. This regulatory structure creates transparency between banking institutions and the individuals and corporations with whom they conduct business, among other things. As per Section 5(c) of Banking Regulation Act, 1949 a "Banking Company" means any company which transacts the business of banking in India. The Banking Regulation Act, 1949, provides various methods of regulation of the banking business. Some of the key areas of regulation are: Power to provide directions Sections 21 and 35A of the Act empower the RBI to regulate the business of banks by issuing directions controlling various aspects of banking. Section 21 provides the power to regulate advances of banking companies, while Section 35A provides powers of regulation over banks. These statutory directions issued by the RBI are binding on banks. The circulars issued by the RBI, pertaining to its statutory power are binding on banks. The RBI is expected to issue directives with bonafide intentions and is competent to provide advice or caution to the banking companies under Section 36.
Deposits Banks can accept both time (repayable after a time period) and demand (repayable on demand) deposits from customers. The bank can decide on the terms and conditions of such deposits, subject to the directions of the RBI. Currently, the RBI prescribes minimum and maximum period of deposits and prescribes the interest rates of savings and NRI deposits. Under Section 26, banks are expected to file a returns every year for unclaimed deposits
Nomination facility According to Sections 45ZA, 45ZC and 45ZE, banking customers have the right to appoint a nominee for their deposits and locker facilities, in the manner prescribed by the RBI. In the event of death of the customer, the bank is 7
expected to hand over the deposit monies or contents of locker to the respective nominees.
Loans and advances Section 21 provides that RBI has the right to issue directions for controlling advances by banking companies. These directions are issued to banking companies with respect to purpose for which advances are given, margins for secured advances, maximum amount of advances and guarantees as well as the rate of interest and terms and conditions for advances. Section 20 imposes restrictions on loans and advances by disallowing banks from providing loans against their own shares. Section 20A provides that a bank does not have the power to remit the debts of any of its directors without the permission of RBI.
Regulation of interest rate Section 21(2)(e) of the Act regulates the interest rates on loans and advances. The lending rates differ for differing types of industries such as small-scale industries, agriculture, etc. The rate of interest also varies on the period of the loan. Currently, the RBI directives govern interest rates of advances and for finance to exporters and small loans up to Rs. 2 lakhs. Section 21A provides that the transaction between a banking company and its borrower cannot be scrutinised by courts on the grounds of excessive rate of interes
Regulation of payment systems Earlier, there was no separate provision for regulating payment systems by the RBI. However, with the advent of electronic payment systems, it became increasingly important for such a regulation. This gap was addressed by the Information Technology Act, 2000, as well as the RBI Regulations, 2005. While the former empowers the RBI to frame rules for payment systems, the latter aided in constituting a Board for Regulation and Supervision of Payment and Settlement Systems (BPSS). This Board prescribes policies for regulation of payment and settlement systems and sets the standards for existing and future systems and authorisations, as well as determines the membership of such systems.
Regulation of payment systems Earlier, there was no separate provision for regulating payment systems by the RBI. However, with the advent of electronic payment systems, it became increasingly important for such a regulation. This gap was addressed by the Information Technology Act, 2000, as well as the RBI Regulations, 2005. While the former empowers the RBI to frame rules for payment systems, the latter aided in constituting a Board for Regulation and Supervision of Payment and Settlement Systems (BPSS). This Board prescribes policies for regulation of payment and settlement systems and sets the standards for existing and future systems and authorisations, as well as determines the membership of such systems.
Regulation of payment systems Earlier, there was no separate provision for regulating payment systems by the RBI. However, with the advent of electronic payment systems, it became increasingly important for such a regulation. This gap was addressed by the Information Technology Act, 2000, as well as the RBI Regulations, 2005. While the former empowers the RBI to frame rules for payment systems, the latter aided in constituting a Board 8
for Regulation and Supervision of Payment and Settlement Systems (BPSS). This Board prescribes policies for regulation of payment and settlement systems and sets the standards for existing and future systems and authorisations, as well as determines the membership of such systems.
Reserve funds and liquid assets maintenance According to Section 17 (1) of the Act, every banking company should create a reserve fund out of its profits. The sum transferred should be equivalent to not less than 20 percent of profits every year. Under Section 42 of the RBI Act, every scheduled bank has to maintain certain cash reserves. These provisions have to be adhered to, by every banking company, and any violation will be penalised. Under Section 24 of the Banking Regulation Act, 1949, every banking company is also expected to maintain liquid assets in the prescribed manner. The returns of such assets have to be filed with the RBI by the banking company every month. From the above discussions, it is clear that banking companies are subject to rigorous external control from the RBI and other statutory bodies. However, such an intense regulatory framework is essential in the banking sector as it forms the bulwark of the nations economy and needs to be monitored for effective growth. In the next section, we shall study one of the most important sectors of growth, namely, insurance.
Q. No. 5 Explain the nature and scope of complaints under the Consumer Protection Act? Persons competent to make complaints Place of complaint Procedure for filing a complaint Admission of complaint Power of the District Forum
The Consumer Protection Act, 1986, is a unique legislation enacted in India to protect consumers. The Act is claimed to have been designed after an in-depth study of consumer protection laws and arrangements in the UK, USA, Australia and New Zealand. To provide simple, speedy and inexpensive redressal of consumer grievances, the Act envisages three-tier quasi-judicial machinery at the: District level - District Forum State level - State Commissions National level - National Commission
Persons competent to make a complaint (Section 12) Any of the following people may file a complaint under the Act: 9
The consumer to whom such goods are sold or delivered or agreed to be sold or delivered or such service provided or agreed to be provided. In case of death of a consumer, the legal heir or representative can file a complaint. Any recognised consumers association namely, any voluntary consumer association registered under the Companies Act, 1956, or any other law for the time being in force. It is not necessary that the consumer is a member of such an association. One or more consumers, where there are numerous consumers having the same interest, with the permission of the District Forum, on behalf of, or for the benefit of, all consumers so interested. The Central or the State Government. The Amendment Act, 2002, has amended Section 12. It provides as follows:
Every complaint shall be accompanied with such amount of fee as prescribed. On receipt of a complaint, the District Forum may allow the complaint to be proceeded with or rejected. However, a complaint shall not be rejected unless an opportunity of being heard has been given to the complainant. Where a complaint is allowed to be proceeded with, the District Forum may proceed with the complaint in the manner as provided under the Act.
Place of complaint A consumer can lodge a complaint in the following instances: In the District Forum If the value of the goods or services and the compensation claimed does not exceed Rs. 20 lakhs Within the local limits of whose jurisdiction the opposite party actually resides or carries on business or has a branch office Before the State Commission If the value of the goods or services and compensation claimed is between Rs. 20 lakhs and rupees one crore to appeal against the orders of any District Forum within the State In case of joint petition from a large number of victims the total amount of compensation claimed will determine the question of jurisdiction Before the National Commission If the value of goods or services and the compensation claimed exceeds Rs. 1 crore To appeal against the orders of any State Commission
Procedure for filing a complaint The complainants or their authorized agent: 10
can present the complaint in person with out any filing fee before any of the aforesaid bodies can also be sent by post to the appropriate Forum/ Commission It should be addressed to the President of the Forum/Commission A complaint should contain the following information: Name, description and address of the complainant Name, description and address of the opposite party or parties, as the case may be, as far as they can be ascertained Facts relating to complaint and when and where it arose Documents, if any, in support of the allegations contained in the complaint Relief that the complaint is seeking
Admission of complaint (Section 13) Procedure in respect of goods where the defect requires no testing or analysis: The District Forum should send a copy of admitted complaint to the opposite party mentioned in the complaint: Within 21 days of admission Instructing to provide his version of the case within 30 or 45 days at the discretion of the Forum If the opposite party disputes the allegations or fails to take any action, the forum can settle the disputes as specified in the Act.
Procedure in respect of goods where the defect requires analysis or testing: If the Goods need to be tested for defects, the District Forum should: Obtain a sample of goods from the complainant Take steps to seal and authenticate the sample Send it to the appropriate laboratory for testing Ascertain if the goods suffer from defects alleged by the complainant Provide the results within 45 days The complainant has to bear the charges towards the testing/analysis and needs to deposit these fees to the forum The Forum remits the amount to the laboratory which undertakes the test The Forum forwards a copy of the report along with its remarks to the opposite party seeking clarification Any disputes with respect to the laboratorys findings must be countered by written objections from the concerned party The Forum then provides reasonable opportunity for both the complainant and the opposite party to be heard
Power of the district forum [Section 13(4)] District Forum shall have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908, while trying a suit in respect of the following matters, namely: Summoning and enforcing the attendance of any defendant or witness and examining the witness on oath 11
Discovery and production of any document or other material object producible as evidence Reception of evidence on affidavits Requisitioning of the concerned analysis or test from the appropriate laboratory or from any other relevant source Issuing any commission (i.e., warrant conferring authority) for the examination of any witness Any other matter that may be prescribed.
Q. No. 6 Explain the need and types of meetings Need for meeting Statutory meetings Annual General Meetings Extraordinary meetings Class meetings
Ans: - A meeting is a gathering of two or more people that has been convened for the purpose of achieving a common goal through verbal interaction, such as sharing information or reaching agreement. [2] Meetings may occur face to face or virtually, as mediated by communications technology, such as a telephone conference call, askyped conference call or a videoconference. Need for meetings A company is an artificial person and therefore, must act through some human intermediary. The various provisions of law empower shareholders to do certain things. through companys general meetings. Section 291 empowers the Board of Directors to manage the affairs of the company & meetings of shareholders and directors become necessary. Different types of meetings of shareholders: (i) Statutory Meeting; (ii) Annual General Meeting; (iii) Extraordinary General Meeting; and (iv) Class Meetings. Statutory meetings (Section 165) Every Public limited company having a share capital is required to hold a Statutory Meeting once in every year u/s 165 of the Companies Act, 1956. APPLICABILITY The most important legal provisions regarding statutory meetings are: It is required to be held only by a public company having share capital A private company or a public company registered without share capital is under no obligation to hold such a meeting It must be held within a period of not less than one month and not more than six months from the date on which the company is entitled to commence business 12
At least 21 days before the day of meeting, a notice of the meeting is to be sent to every member stating it to be a Statutory Meeting
Annual general meeting (AGM) (Sections 166-168) The provisions relating to annual meeting of a company are: Every company, whether public or private, having a share capital or not, limited or unlimited must hold this meeting The meeting must be held in each calendar year and not more than 15 months shall elapse between two meetings The first AGM may be held within 18 months from the date of its incorporation If a general meeting is held within that period, it need not hold any such meeting in the year of its incorporation or in the following year The maximum gap between two such meetings may be extended by three months by taking permission of the Registrar, who may so allow for any special reason The meeting must be held: On a day that is not a public holiday During business hours At the registered office of the company or at some other place within the city, town or village in which the registered office is situated (Section 166 (2))
Extraordinary Meeting (EGM) Section 169 All general meetings other than AGMs shall be called the EGMs with the legal provisions : EGM is convened for transacting: Some special or urgent business that may arise in between two AGMs, for instance, change in the objects or shift of registered office or alteration of capital Special business that must always be accompanied by an Explanatory Statement An EGM may be called by: Directors of their own accord Directors on requisition Requisitionists themselves The Tribunal The Board of Directors (at a notice of 21 days & on a shorter notice if agreed by members of the company holding 95 percent or more of the voting rights (Section 171))
Class Meetings A company has two classes of shares equity shares and preference shares. The class meetings are held for these different classes of shareholders, as and when their rights are affected.