Beruflich Dokumente
Kultur Dokumente
MB0035
LEGAL ASPECTS OF BUSINESS
Ans: All contracts are agreements but all agreements need not be
contracts. The agreements that create legal obligations only are
contracts. The validity of an enforceable agreement depends upon
whether the agreement satisfies the essential requirements laid down
in the Act. Section 10 lays down that ‘all the agreements are contracts
if they are made by the free consent of the parties competent to
contract for a lawful object and are not hereby expressly declared to
be void’.
b) Free consent: The parties should agree upon the same thing in
the same sense and their consent should be free from all sorts of
pressure. In other words it should not be caused by coercion, undue
influence, misrepresentation, fraud or mistake.
Acceptance
If the offeree does not signify his assent to the offeror according to the
mode prescribed it becomes ‘deviated acceptance’ and strictly
speaking it is no acceptance at all. However, such a regid rule is not
followed in India. In the case of deviated acceptance the proposer may
insist for the acceptance in the prescribed manner. He then has to do
this within a reasonable time after communication of acceptance to
him. Otherwise it will be presumed that the proposer has accepted the
deviated acceptance. Sec. 7 of the Act does not tell that deviated
acceptance is no acceptance.
3. Discuss the rights of surety against the creditor ant the principal debtor.
Rights of Surety
A. Rights of Surety against the Creditor
1. Ask the creditor to sue the debtor: On the guaranteed debt having fallen due for
payment, the surety may ask the creditor to sue the debtor to collect the due
amount, but he cannot compel him to do so. But he must then indemnify the
creditor against any risk or delay arising as a consequence.
2. Require the creditor to terminate the debtor’s services: In the case of the
fidelity guarantee, if the principal debtor’s dishonesty comes to light, the surety
can require the creditor to terminate the principal debtor’s services so as to save
him from further loss.
3. Claim to any set off: The surety on being called upon to pay, can claim any set-
off to which the principal debtor is entitled from the creditor.
4. Access to the securities of the debtor with the creditor: The surety can, after
paying the guaranteed debt, compel the creditor to assign to him all the securities
taken by the creditor either before or at the time of the contract of guarantee,
whether the surety was aware of them or not.
6. Right of subrogation: After paying the guaranteed debt, the surety steps into the
shoes of the creditor and acquires all the rights which the latter had against the
principal debtor (i.e., he gets subrogated to all the rights and remedies available to
the creditor) (Sec. 140). If the creditor has the right to stop goods in transit or has
a lien, the surety, on payment of all he is liable for, will be entitled to exercise
these rights.
7. Right as to securities with the creditor: The surety has the right to proceed
against such securities of the principal debtor, as the creditor could himself
proceed.
8. Right of indemnity: The surety is entitled to be indemnified by the principal
debtor for all payments rightfully made by him (Sec. 145).
9. Compel the principal debtor to perform the promise: The surety has also the
right to insist the principal debtor to perform the promise. The surety can, before
making payment, compel the debtor to relieve him from liability by paying of the
debt, provided that liability is an ascertained and subsisting one.
10. Prove the debt in case of bankruptcy of the debtor: In case of the bankruptcy
of the principal debtor, the surety may prove the debt in respect of contingent
ability even if he has not been called upon to pay a definite amount.
1. Co-sureties have liabilities among themselves under Sec. 132: Where two
persons contract with a third person to undertake a certain liability, and also contract with
each other that one of them shall be liable only on the default of the other, the third party
not being a party to such a contract, the liability of each of such two persons to the third
person under the first contract is not affected by the existence of the second contract,
although such third person may have been aware of its existence.
2. Release: Where there are co-sureties, a release by the creditor of one of them does
not discharge the other neither does it free surety so released from responsibility to other
sureties (Sec.138).
4. Equality: Where the sureties are bound in different sum, they are bound to pay
equally as far as the limits of their respective obligations permit (Sec. 147).
Liabilities of Co-sureties
Co-sureties are jointly and severally liable in India. The discharge of one co-surety from
his liability does not release the other co-sureties from their liability. They are liable to
bear the loss equally, subject to the limit of the debt guaranteed by him. As mentioned
earlier, if one of them has paid more than his share, he can claim contribution from
others. Where the co-sureties have limited their liabilities to different sums, they should
contribute equally and not exceeding their respective limits.
ii) D makes default to the extent to Rs.40,000. Liability shall be as of A’s 10,000
(maximum obligation), as of B and C, Rs.15,000 each being equal contribution.
D makes default of Rs.70,000 A, B and C will pay the full amount of guarantee.
Ans:
Ans:
A is the holder. A endorses without any recourse or liability to B.
The cheque is transferred from B to C. From C to D. From D with endorsement to E.
E can claim the money from D, C, or B since they have transferred without condition.
ASSIGNMENT SET 2
MB0035
LEGAL ASPECTS OF BUSINESS
1) Promotion,
2) Incorporation or Registration,
3) Capital Subscription,
4) Commencement of Business
Of these stages only two are necessary for the formation of a private company and of a
public company not having any share capital. They may commence business immediately
after they have received a certificate of incorporation. But a public company having a
share capital has to pass through all the above mentioned four stages before it can
commence business or exercising any borrowing powers.
1. Promotion: Before a company can be formed, there must be some persons who
intend to form a company and who take the necessary steps to carry that intention into
operation. Such persons are called promoters. The promoter is a person “who The
promotion is the first stage in the formation of the company. Promotion may be defined
as “the discovery of business opportunities and the subsequent organization of funds,
property and managerial ability into a business concern for the purpose of making profits
therefrom.”
2.a. X issues a cheque in favour of Y and puts a condition that the payment is to
be made only when Y fulfills a condition. Y obtains the payment from the bank
without compliance of this condition. X demands damages from the bank for not
ensuring the compliance. What is conditional endorsement and how is it effective
between the parties mentioned above?
Ans: When drawer/holder of cheque puts a condition while endorsing in favour of other
person or persons, that the endorsee should fulfill a condition mentioned in order to get
the payment of the cheque. If condition is not fulfilled the endorsee is not entitled for
payment of cheque. Such endorsement is conditional endorsement.
In other words Y is not entitled for payment of cheque since he has not fulfilled the
condition put by X.
A meeting held prior to the statutory period of one month from the date of entitlement of
a company to commence business cannot be called the statutory meeting. The statutory
meeting is held only once in the lifetime of a company.
The statutory meeting is held to inform the shareholders about matters relating to
incorporation, allotment of shares, the details of the contracts concluded by the company,
etc. Statutory meeting is convened in order to afford the shareholders an opportunity for
seeing what degree of success has attained the floatation of the company and in order that
any special matters requiring their approval may be laid before them.
Ans: In the 49th year of Indian independence, Internet was commercially introduced in
India. The beginnings of Internet were small and the growth of subscribers painfully
slow.
However, as internet has grown, the need has been felt to enact the relevant Cyber laws,
which are necessary to regulate Internet in India. This need for Cyber laws was propelled
by numerous factors.
Firstly, India has an extremely detailed and well-defined legal system in place. Numerous
laws have been enacted and implemented and the paramount among them is The
Constitution of India. We have various laws like Indian Penal Code, 1860, The Indian
Evidence Act, 1872, The Banker’s Book Evidence Act, 1891, The Reserve Bank of India
Act, 1934, The Companies Act, 1956 and so on. However, the arrival of Internet signaled
the beginning of the rise of new and complex legal issues. It may be pertinent to mention
that all the existing laws in place in India were enacted keeping in mind the relevant
political, social, economic, and cultural scenario of that time. Nobody then could really
visualize the emergence of the Internet. Despite the brilliant acumen of our master
draftsmen, the requirements of cyberspace could hardly be anticipated. The advancement
led to the emergence of numerous ticklish legal issues and problems, which necessitated
the enactment of Cyber Laws.
Secondly, the existing laws of India could not be interpreted in the light of the emerging
cyberspace, to include all aspects relating to different activities in cyberspace.
Thirdly, none of the existing laws gave any legal validity or sanction to the activities in
Cyberspace. For example, the Net is used by a large majority of users for email purposes.
Yet, e-mail was not “legal” in our country. There was no law in the country, which
accorded legal sanctity to e-mail and the electronic format. The judiciary in our country
had been reluctant to grant judicial recognition to the legality of e-mail in the absence of
any specific law having been enacted by Parliament on the subject. Thus the need arose
for enacting Cyber Law in our country.
Fourthly, Internet requires an enabling and supportive legal infrastructure in time with the
times. This legal infrastructure can only be given by the enactment of the relevant Cyber
Laws as the traditional laws have failed to provide it. E-commerce, the biggest future of
Internet, can only be possible if necessary legal infrastructure complements the same to
enable its vibrant growth. As such, an urgent need was felt for enacting Cyber Law in our
country.
Ans: The present Act is based on model law drafted by United Nations Commission on
International Trade Laws (UNICTRAL), both on domestic arbitration as well as
international commercial arbitration, to provide uniformity and certainty to both
categories of cases.
Arbitration is a dispute resolution process where the opposing parties select or appoint an
individual called an Arbitrator. Upon appointment, the Arbitrator will arrange the process
to hear and consider the evidence, review arguments and afterwards will publish an
award in which the items of dispute are decided. In some cases the Arbitrator can conduct
the arbitration on documents evidence only. When published the Arbitrator’s decisions
are final and binding on the parties. It is rare for an arbitration to be appealed to the
courts. Arbitration may compromise a sole Arbitrator, or may be a panel of Arbitrators.
1. It must be in Writing (Section 7(3)): Like the old law, the new law also
requires the arbitration agreement to be in writing. It also provides in section 7(4)
that an exchange of letters, telex, telegrams, or other means of telecommunication
can also provide a record of such an agreement. It is not necessary that such
written agreement should be signed by parties. No particular form of formal
document is necessary.
2. It must have all the essentials of a valid contract : An arbitration agreement
stands on the same footing as any other agreement. Every person capable of
entering into a contract may be a party to an arbitration agreement. The terms of
the agreement must be definite and certain; if the terms are vague it is bad for
indefiniteness.
3. The agreement must be to refer a dispute, present or future, between the
parties to arbitration: If there is no dispute, there can be no right to demand
arbitration. A dispute means an assertion of a right by one party and repudiation
thereof by another. A point as to which there is no dispute cannot be referred to
arbitration. The dispute may relate to an act of commission or omission, for
example with holding a certificate to which a person is entitled or refusal to
register a transfer of shares. Under the present law, certain disputes such as
matrimonial disputes, criminal prosecution, questions relating to guardianship,
question about validity of a will etc. are treated as not suitable for arbitration.
4. An arbitration agreement maybe in the form of an arbitration clause in a
contract or in the form of a separate agreement (Section 7(2)).
Ans: For the purpose of speedy and simple settlement of ‘Consumers disputes’ section
9 of the Act, 1986 provides for the establishment of the following three Consumer
Disputes Redressal Agencies.
1. District Forums
2. State Commission and
3. National Commission.
District Forum means a Consumer Disputes Redressal Forum, established under Section
9 (2) of the Consumer Protection Act, 1986. This is established by the State Government
in each district of the state by means of a notification. If reasonable and necessary, the
State Government can establish more than one district forum in a district. As per the
amended Act, 1993, permission of the Central Government is not necessary for
establishing a district forum.
Composition of District Forum: According to section 10 of the Act, each district forum
shall consist of: (i) a person who is, or has been or is qualified to be a District Judge shall
be nominated by the State Government and shall be the President of the Forum, (ii) a
person of eminence in the field of education, trade, or commerce, law etc., and (iii) a lady
social worker.
2. State Commission:
Composition of the State Commission: According to section 16(1) of the Act, each State
Commission shall consist of the following: (i) a person who is or has been a judge of
High court shall be appointed, on the recommendation of a Selection Committee, by the
State Government and shall be its president. (ii) Two other members, who shall be
persons of ability, integrity, and standing. They shall have adequate knowledge or
experience of or have shown capacity in dealing with, problems relating to economics,
law, commerce, accountancy, industry, public affairs or administration. One of such
members shall be a woman.
3. National Commission:
In exercise of the powers conferred under sec 9(c) of the Consumers Protection Act, the
Central Government established a “National Consumer Disputes Redressal Commission”
to be known as a ‘National Commission’ by notification.
Ans: In case any unauthorized deduction has been made from the wages of an
employee, or any payment of wages has been delayed, of any sum is otherwise due from
the employer, the employee or any legal practitioner or any authorized agent or any
office-bearer of a registered trade union or an inspecting officer may make an application
to the prescribed authority for a direction. The prescribed authority is required to hear the
application and he may direct the refund of the amount deducted or payment of the
delayed wages or any other sum to the employee together with the payment of
compensation not exceeding ten times the amount of unauthorized deduction from wages,
and not exceeding Rs. 10 in other cases. No direction for compensation is, however, to be
made in the case of delayed wages if the authority is satisfied that the delay was due to:
(i) a bona fide dispute as to the amount payable to the employee; or error or bona fide
dispute as to the amount payable to the employee; or (ii) occurrence of an emergency or
existence of exceptional circumstances, on account of which, the person responsible for
the payment of wages was unable, though exercising reasonable diligence to make
prompt payment; or (iii) failure of the employed person to apply for or accept payment. If
the authority is satisfied that it was either malicious or vexatious, he may direct that a
penalty not exceeding Rs. 25 be paid to the employer or other person responsible for the
payment of wages by the person presenting the application. The authority may deal with
any numbers of separate pending applications as a single application.
An appeal against the order of the authority or a direction given by him may be preferred
to the prescribed appellate authority, whose decision will be final.
The authorities have the power of a civil court under the Code of Civil Procedure for the
purpose of taking evidence, enforcing the attendance of witnesses and compelling the
production of documents. They are also deemed to be civil for the purpose of the Code of
Criminal Procedure, (Sec. 28).
A legal practitioner may appear, plead or act on behalf of any party in proceedings under
the Act to prescribed conditions. (Sec. 28).