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Module 1:
The Study of Business, Government and Society (BGS): Importance of BGS to
Managers Models of BGS relationships Market Capitalism Model, Dominance Model,
Countervailing Forces Model and Stakeholder Model Global perspective Historical
Perspective.
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2. Recognizing that a company operates not only within markets but within a society is
critical.
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Business
The market capitalism model, shown in Figure, depicts business as operating within
a market environment, responding primarily to powerful economic forces. The market
acts as a buffer between business and nonmarket forces. To appreciate this model, it is
important to understand the history and nature of markets and the classic explanation of
how they work.
Markets are as old as humanity, but for most of recorded history they were a minor
institution. People produced mainly for subsistence, not to trade. Then, in the 1700s,
some economies began to expand and industrialize, division of labor developed within
them, and people started to produce more for trade. As trade grew, the market, through its
price signals, took on a more central role in directing the creation and distribution of
goods. The advent of this kind of market economy, or an economy in which markets play
a major role, reshaped human life.
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Dominance Model:
Environmental
Forces
Business
&
Government
Masses
The dominance model is a second basic way of seeing the BGS relationship. It
represents primarily the perspective of business critics. In it, business and government
dominate the great mass of people. This idea is represented in the pyramidal, hierarchical
image of society shown in Figure.
Adopters of this model believe that corporations and a powerful elite control a
system that enriches a few at the expense of the many. Such a system is undemocratic. In
democratic theory, governments and leaders represent interests expressed by the people,
who are sovereign.
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reflects
the
BGS
relationship
in
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Stakeholder Model:
The stakeholder model in
Figure
shows
the
with
groups,
and
entities
called
Stakeholders.
Stake-
corporation
has
large
many
stakeholders. These can be divided into two categories based on the nature of the
relationship. But the assignments are relative, approximate, and inexact. Depending on
the corporation or the episode, a few stakeholders may shift from one category to the
other.
Primary stakeholders: are a small number of constituents for whom the impact of the
relationship is immediate, continuous, and powerful on both the firm and the constituent.
They are stockholders (owners), customers, employees, communities, and governments
and may, depending on the firm, include others such as suppliers or creditors.
Secondary stakeholders: include a possibly broad range of constituents in which the
relationship involves less mutual immediacy, benefit, burden, or power to influence.
Examples are activist groups, trade associations, and schools.
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Global Perspective:
Today global capitalism animates the planetary stage, creating movements of
people, money, goods, and information that, in turn, beget conflicts as some benefit more
and others less or not at all. Viewing any nation's economy or businesses in isolation
from the rest of the world is myopic. Every government finds its economic and social
welfare policies judged by world markets. Every corporation has a home country, but as
shown in Table 1.1, many large multinational corporations have more sales, assets, and
employees outside its borders than within. For now, global capitalism is ascendant. It
brings unprecedented wealth creation and new material comforts. But it also imposes
burdens on human rights and the environment, challenges diversity of values, and creates
conflict with those who are fed upon in the lively predation or who stand aloof from the
free market consensus. A fitting perspective on the BGS relationship must, therefore, be
global.
Historical Perspective:
History is the study of phenomena moving through time. The BGS relationship is
a stream of events, of which only one part exists today. Historical perspective is
important for many reasons. It helps us see that today's BGS relationship is not like that
of other eras; that current ideas and institutions are not the only alternative; that historical
forces are irrepressible; that corporations both cause and adapt to change; that our era is
not unique in undergoing rapid change; and that we are shaping the future now. When
appropriate, we examine the antecedents of current arrangements.
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Module 2:
Corporate Governance
Introduction, Definition, Market model and control model, OECD on corporate governance, A
historical perspective of corporate governance, Issues in corporate governance, relevance of
corporate governance, need and importance of corporate governance, benefits of good corporate
governance, the concept of corporate, the concept of governance, theoretical basis for corporate
governance, obligation to society, obligation to investors, obligation to employees, obligation to
customers, managerial obligation, Indian cases
1. Introduction:
1.1 Corporate Governance Definition:
1.1.a Academic point of view:
Corporate Governance is seen that one addresses the problems that result from the
separation of ownership and control. Viewed from this perspective it focuses on the
Rules of BOD
How do the suppliers of finance get managers to return some of the profit to them?
How to assure that managers do not steal the capital they supply or invest it in bad
projects?
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Primacy of shareholder
2. Models of CG:
2.1 Model 1:
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Markets are well established and many of the brands are at maturity and saturation
stage.
Competition is high and every body is trying to increase market value either by their
own effort or by acquiring some other resources.
2.2 Model 2:
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Concentrated ownership
3. OECD Principles:
The organization for economic Cooperation & development is one of the earliest nongovernment organizations to work on and spell out principles and practices that should
govern corporates in their goal to attain long-term shareholders value.
The OECD Principles have gained universal acceptance on CG Principles.
OECD Principles are as much trendsetter as the Codes of Best practice associated to the
Cadbury report.
First step required for transformation in CG is to look after the principles laid by the
OECD
OECD defines CG: Involving a set of relationship between companys management,
board, its shareholders and other stakeholders.
The system by which business corporations are directed and controlled
3.1 OECD Elements
1. The right of Shareholder:
Protection of shareholders rights and the capability of shareholders to influence
behaviour of the corporation are pillars of good corporate governance
The right of shareholder incudes a set of rights to secure ownership of their shares,
the right to disclosure of information, voting rights, participation in sale or
modification of corporate assets, mergers and new share issues.
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Self -dealing and the disclosure of potential conflicting interests: the curse of
emerging markets
Effective redress: the possibility to seek remedies in courts for all shareholder: a
key implementation aspect
Transparency with respect to distribution of voting rights and ways voting rights
exercised
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Company objectives
Stakeholder information
Governance information
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BOD of a company shall have optimum combination of executive and nonexecutive directors with not less than 50 % of BOD to be non-executive.
Board of directors
Executive directors
Non-executive directors
Independent directors
Affiliated directors
Executive Director: is one who is executive of the company and also a member of BOD
Non-executive Director: has no separate employment relationship with the company.
Independent non-executive director: are those directors on the board who are free from
any business or other relationship, which could materially interfere with the exercise of
their independent judgment in the process of decision making as a member of board.
Affiliated Director (nominee Director): Non-executive director who has some kind of
independence, impairing relationship with the company or the companys management.
Example link with Supplier Company, he may be partner to other corporate which is
providing service to the existing corporate
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These questions are to be answered with different perceptions and with different
degree of emphasis.
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Creative competitive advantage requires both the vision to innovate and the
strategy to manage the process of delivering value.
The code of conduct such as policies and procedure governing the behavior of
individuals in corporation form a part of corporate governance.
Banks collapsing due to lending money to others and not having best practices for
collection of debt.
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8. Concept of Corporation:
The joint stock company, which is also known as corporation, is the nucleus of
all business activities in modern economies.
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Only few corporations in the market enjoy the power and exercise considerable
control over industrial production and sale.
The corporations are replacing the sole proprietor and tries to maximize its profits
and accumulate capital.
The corporation can act as if it were distinct from its members; it has perpetual
succession and a common seal.
It can therefore contract quite freely- it can also be fined, but it obviously cannot
be sent to prison or incur penalties which can only be applied to individuals.
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Costs
Double taxation
Documentation
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9. Concept of Governance:
All players other than government and the military are grouped together as part of
civil society.
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1. Agency Theory:
Strategic and Business policies in global world are managing with Agency Cost
Theory
Agency theory is the basic foundation for Corporate Governance, which is traced
back from Adams smith days.
Shareholders are the owners of any joint stock limited liability company, and are
the principals.
Principals generally assume that agents would invariably carry out their
objectives, which is often not so. In many instances the objectives of an agent
varies from that of principal
Ex. Agent may think of expanding the production capacity at the expenses of
corporate investment in order to increase his personal stature, which is not aligned
with shareholders objective.
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The shareholders and stakeholders may not be able to counteract this because of
inadequate disclosure about such decisions and because the principals are
scattered. Such mismatch of objective is called agency problem; the cost
occurred due to such problem is called agency cost.
Agency theory specifies mechanism, which reduces agency loss. These include
incentive scheme for managers, which reward them financially for maximizing
shareholders interest. Such schemes typically include plans whereby senior
executive obtain share, perhaps at reduced price, thus aligning financial interests
of executives with those of shareholders.
2. Stewardship Theory
Stewardship theory assumes that managers are basically trustworthy and attach
significant value to their own personal reputations.
Theory defines situations in which mangers are not motivated by individual goals,
but rather they are stewards whose motives are aligned with the objectives of
principals.
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Control can be potentially counterproductive, because it undermines the proorganizational behavior of the steward, by lowering his/her motivation.
Theory emphasis on responsibility of the board to shareholders in the AngloSaxon model of CG in terms of Stewardship and trusteeship is nowhere better
articulated than in the Canadian guidelines. It is stated therein: Stewardship
refers to the responsibility of the board to oversee the conduct of the business and
to supervise management which is responsible for the day-to-day conduct of
business.
Agency
Stewardship
Managers act as
Agents
Stewards
Governance Approach
Materialistic
Sociological
&
Psychological
Behavior Pattern
Managers motivated by
Individualistic
Collective
Opportunistic
Pro-organizational
Self-serving
Trustworthy
Principals objectives
Converge
Interests
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Owners Attitude
Risk Avoidance
Risk taken
Principal Manager
Control
Trust
Agency
Stewardship
Relationship based on
Psychological Mechanisms
Psychological responses
Motivation
Extrinsic need
Intrinsic needs
Social comparison
Compatriots
Attachment
Little
attachment
Principal
to Great
attachment
company
company
Institutional
Personal
Situational Responses
Agency Theory
Stewardship Theory
Management Philosophy
Control oriented
Involvement oriented
Power
to
Situational Mechanisms
While
dealing
increasing
Risk orientation
Through trust
Time frame
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Cost Control
Cultural differences
Improving performance
distance
3. Stakeholder Theory:
Stakeholder theory of corporate governance has a lengthy history that dates back to
1930.
The theory considers the firm as an input-output model by explicitly adding all
interest groups such as employees, customers, dealers, government and society at
large.
4. Sociological Theory:
The sociological approach has focused mostly on board composition and the
implications for power and wealth distribution in society.
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Obligations to Society:
National interest
Political non-alignment
Legal compliances
Rule of law
Honest and ethical conduct
Corporate citizenship
Ethical behavior
Social concerns
Corporate social responsibility
Environmental friendliness
Healthy and safe working environment
Competition
Trusteeship
Accountability
Effectiveness and efficiency
Timely responsiveness
Corporations should uphold the fair name of the country
Obligation to investors
Towards shareholder
Measures promoting transparency and informed shareholder participation.
Transparency.
Financial reporting and records.
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Obligation to customers
Quality of Products and Services
Products at Affordable Prices
Unwavering Commitment to
Customer Satisfaction
Obligation to employees
Fair Employment Practices
Equal-opportunities Employer
Encouraging Whistle Blowing
Humane Treatment
Participation
Empowerment
Equity and Inclusiveness
Participative and Collaborative Environment
Obligation to managers
Protecting Companys Assets
Behavior Towards Government Agencies
Control
Consensus Oriented
Gifts and Donations
Role and Responsibilities of Corporate Board and Directors
Direction and Management must be Distinguished
Managing and Whole-Time Directors
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Module 3
Public Policies:
The role of public policies in governing business, Government and public policy,
classification of public policy, areas of public policy, need for public policy in business
and levels of public policy.
Introduction:
For instance, economic policy of a government is the statement of its objectives and
how these are realized through the subset of policies such as monetary policy, fiscal
policy and commercial policy. Likewise, a budget is an instrument of economic
policy.
Public policy can be generally defined as course of action taken by state with regard
to a particular issue.
The government, whether it is city, state, or federal, develops public policy in terms
of laws, regulations, decisions and actions.
Public policies shape and affect business. National economic policies, for example,
affect corporates at different levels, through its constituents monetary, fiscal and
commercial policies.
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Certain acts are said to be against public policy if they tend to promote breach of the
law, of the policy behind a law or trend to harm the state or citizens.
Constitutional and non-democratic governments play vital role in framing the public
policy.
Governments key role is to create appropriate public policy that promotes economic
growth.
Government policies are regarded as those obligations, which are easily observed
by citizens.
2. Government policies involve as these extend to all sections in society unlike the
policies of other groups such as corporations, churches and civic-associations.
3. Government cans alone exercise coercion in society.
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Economic forces,
Political forces,
Technological forces
Social force includes the size and composition of population that have definite effect on
both the demand and supply of goods and services that corporate deal in; social forces
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Economic forces are those that shape corporate behavior as well as the reaction of
government to solve the problems arising there from.
Political forces have an impact on government making and how governments are
prompted to shape their policies affecting corporate.
Technological forces are very important as for as shaping of corporate policies are
concerned. Since these allow corporations to update their products, processes, and help
them meet competition.
1. To create a competitive environment: Public policies help the market to have a
perfect competition by way of controlling monopolies through license or by creating a
competitive market mechanism. It helps in providing a level playing field for
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Module 4
Environmental concerns and corporations:
History
of
environmentalism,
environmental
preservation-role
of
stakeholders,
History of environmentalism:
As early as the turn of the 20th century, the importance of natural resource
conservation led to the establishment of national parks by Teddy Roosevelts
administration. Later during the human health risks posed by pollution raised
much concern in 1960s.
Public protest of air and water pollution led to the passing of many environmental
laws by the US congress and to the creation of the. Environmental protection
Agency (EPAS) community led recycling programmers and protest against
polluting businesses in Not in my Backyard(NIMBY) campaigns are two
examples of how environmentalism has impacted industrial activity.
During last three decades businesses had to respond to many new regulations,
which have, both posed challenges and opened opportunities.
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International issues:
Many environmental issues are international by their nature. These include CrossBoundary pollution, common resources and economic development. Traditionally, state
sovereignty and self-interest took precedence over the resolution of global problems.
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Sustainable Development:
A very significant concept underlying international and domestic environmental
policy is sustainable development. Its goal is to ensure that the natural resource needs of
the present are met without compromising then ability of future generations to meet their
own needs. The implication is that there are limitations to the earths carrying capacity in
the light of present levels of technology, social organization and population.
The evolution of ideas about sustainable development has been substantial but the
next step is to generate effective policy initiatives.
William Nitze offers a contradiction of popular opinions about sustainable
development in The Economic case for sustainable development. The author argues
that sustainable practices are no more costly than current industrial processes and that the
actual barriers to change are inadequate information, training and incentive. He claims
that cleaner technologies are very competitive and that public development institutions
should attempt to stimulate innovation, rather than dole out funds for incremental costs.
Environmentalism in the 21st century is likely to be characterized by various efforts to
implement the sustainable development agenda. International organizations, such as
United States and World Bank will be integral to the development of effective global
environment policy.
Corporations maintain a dominant role in this issue; those that adopt a proactive
stance in environmental stewardship are likely to compete well in the world economy in
the rears to come.
Industrial pollution:
Industrial pollution is pollution that can be directly linked with industry, in
contrast to other pollution sources. This form of pollution is one of the leading causes of
pollution worldwide; in the United States, for example, the Environmental Protective
Agency estimates that up to 50% of the nation's pollution is caused by industry. Because
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of
waste,
which
causes
leakage
into ground
water and
waterways. Industrial pollution can also impact air quality, and it can enter the soil,
causing widespread environmental problems.
Because of the nature of the global environment, industrial pollution is never
limited to industrial nations. Samples of ice cores from Antarctica and the Arctic both
show high levels of industrial pollutants, illustrating the immense distances which
pollutants can travel, and traces of industrial pollutants have been identified in isolated
human, animal, and plant populations as well.
Industrial pollution hurts the environment in a range of ways, and it has a negative
impact on human lives and health. Pollutants can kill animals and plants,
imbalance ecosystems, degrade air quality radically, damage buildings, and generally
degrade quality of life. Factory workers in areas with uncontrolled industrial pollution are
especially vulnerable.
A growing awareness of factory pollution and its consequences has led to tighter
restrictions on pollution all over the world, with nations recognizing that they have an
obligation
to
protect
themselves
and
their
neighbors
from pollution.
However, industrial pollution also highlights a growing issue: the desire of developing
nations to achieve first world standards of living and production. As these countries
industrialize, they add to the global burden of industrial pollution, triggering serious
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Pollution Prevention:
Corporate management has a great deal to offer to achieve sustainable development.
To implement sustainable development; it requires promotion and application of
pollution prevention, whether through source reduction or cleaner technologies.
Pollution prevention means both management of wastes and production before their
create pollution problems. In the past, environment strategy focused on pollution
control-waste removal, treatment and disposal techniques etc.in manufacturing
process.
The problem of environmental degradation is not limited to manufacturing process
only. That is only the first generation problem i.e, release of waste within a plant. The
problem is much more extensive, as besides manufacture, storage and transportation
and use of products also contribute to pollution, waste accumulation and
environmental degradation. Thus we need to differentiate waste management
strategies and pollution management strategies. While former emphasis reduction in
waste generation and controlling pollutants in waste, the latter seeks not only to
improve manufacturing processes but also consumption of environment friendly
products.
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Develop and implement manufacturing processes, new products and services that
are congruent with the principle of pollution prevention.
Integrative preventive strategies into all relevant units of business and industry
organizations and their management systems and all relevant operations.
Environmental Audit:
The environmental audit examines the companys performance as against its
policy and is undertaken with reference to performance personnel, technology, system
and documentation and how these are related to relevant standards of practice. Therefore
environmental audit is in the nature of a corporate policy audit.
Objectives of environmental audit:
Evaluation of the efficiency and efficacy of resource utilization i.e, man, machine,
materials.
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Module 5
Business Ethics
Business Ethics: Meaning of ethics, business ethics, relation between ethics and business
ethics, evolution of business ethics, nature of business ethics, scope, need and purpose,
importance, approaches to business ethics, sources of ethical knowledge for business
roots of unethical behavior, ethical decision making, some unethical issues, benefits from
managing ethics at workplace, ethical organizations.
Values have gone down; Morals have been destroyed; Society is stinking; Corruption
in public life has reached scandals proportions; Such Statements have been making
newspaper headlines with frustrating regularity in recent times. Over the past 15 years,
over 2/3 of the fortune 500 companies have been involved in some form of unethical
behavior reputed Indian Companies too, have been questioned on Grounds of unethical
practices in recent times Eg: issue of warrants to promoters, buying at inflated prices in
foreign soils, under invoicing of sales, hiking equity raising sentimental issues regarding
take over, switching of shares to favor relatives and friends, inflating profit figures with
active support from auditors etc.
Meaning of Ethics:
The word ethics refers to principles of behavior that distinguish between good,
bad; right and wrong.
It is a persons own attitude and believes concerning good behavior.
Ethics reside within individuals and as such are defined separately by each
individual in his own way.
What may be ethical behavior to X may be unethical to Y.
Ethics in short may refer to the following:
1. Ethics are principles of personal and professional conduct
2. Ethics is broader than what is stated by law, Customs and public opinion.
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Why Ethics?
Ethical considerations in business are important to managers as individuals personal
life and business life cannot be neatly separated with respect to moral judgments. Number
of factors contributed for ethical considerations becoming primary concerns of todays
business managers, namely:
1. For the individual the job is center of life and its value must be in harmony with
the rest of life, if is to be whole and healthy personality.
2. This is an industrial society, and its values tend to become those of the entire
culture.
3. The public is insisting that business leaders are, in fact, responsible for general
social welfare-that the managers responsibilities go for beyond those of running
the business.
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Nature of Ethics:
Nature of ethics is in such a way that
It is argued that ethics is a science or an art. But experts concluded that ethics is
more of science as it involves systematic knowledge about moral behavior and
conduct of human being.
Ethics deals with human conduct, which is voluntary not forced by circumstances
or humans. It can be said that at ground level, ethics deals with moral judgment
regarding set directed human conduct.
The science of ethics is normative Science. It is search for an ideal litmus test of
proper behavior. Normative science involves arriving at moral standards that
regulate right and wrong conduct.
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Moral business practices will have advantage on long run. In other words,
this may not suit the short-term business and may provide little incentive
for business. When competition grows, survival would be a serious
problem.
2. Legal Approach:
Assumes that moral obligations in business are restricted to what the law requires.
Moral principles are beyond the requirement of law. The unreasonableness of such
moral requirement is all more evident in societies that do have strong external sources
of morality.
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4. Social Approach:
This approach enables the company in to operate such a way that it actively
recognizes the central role that business plays in the structure of society by initiating
innovative ways to improve the quality of life of a broad community
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Ethical
issue
intensity
Individual
Factors
Opportunity
Profession
or
Business
Ethics
Evaluation
and
intentions
Ethical
or
Unethical
Behavior
Organizational
Factors
Model of the ethical decision making process in business includes ethical issue
intensity, individual factors, and organizational factors such as corporate culture and
opportunity. All of these interrelated factors influence the evaluations of and intentions
behind the decisions that produce ethical or unethical behavior. This model does not
describe how to make ethical decisions, but it does help one to understand the factors and
processes related to ethical decision making.
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Ethical organization:
Ethical organizations are business entities that have incorporated ethics and values
in the stem of the organization.
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Highly ethical organization begin with a clear vision and picture of integrity
throughout organization
Leadership:
Values
Integrity
Respect
Loyalty
Concern
Moral Persons
Moral Managers
2. Ethical Practices
Decision making
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Success is defined not just by results, but also the way they are obtained
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Module 6:
Corporate Social Responsibility:
Types and nature of social responsibilities, CSR principles and strategies, models of CSR,
Best practices of CSR, Need of CSR, Arguments for and against CSR, CSR in Indian
perspective, Indian examples.
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Nature of CSR
Nature of corporate social responsibility includes:
1. Positive approach: CSR is a positive business-driven response to the business
environment of today. CSR is not an add-on for business; it is increasingly being
integrated into business operations, governance, management system and thinking. It
must therefore be seen within the context of the totality of a business today.
2. Multi-Dimensional Concept: CSR is multi-dimensional concept covering social,
economic and environmental concerns, and is continually evolving within the
diversity of the market. This diversity of the marketplace makes innovation a critical
aspect in the development and implementation of the varied CSR initiatives. Efforts
to regulate or standardize such an inherently dynamic process of voluntary action
would stifle this very fundamental characteristic.
3. Not an alternative: CSR is not an alternative to regulation. Governments must be
responsible for the implementation and enforcement of national laws.
Scope of CSR:
Brummet suggested five possible areas in which corporate social responsibility
objectives may be found. The term contribution includes social costs as well as social
benefits associated with an organizations activities.
1. Net income contribution: The social objectives of a business by no means reduce
the importance of the income objective. Without an adequate return on investment, a
business organization cannot exist. Furthermore, long-range planning for a business
unit includes calculating the minimum return on shareholders equity. A business
must contribute to the overall economic development of the society. If a business fails
to recognize the social problem, its performances may be affected either in the shortrun or in the long run. This improper working condition may lead to lower
productivity or causes damage to the quality of the product. Ultimately, the sales and
income of the business may be affected. Therefore, the failure to plan and attain
social objectives of the business may be affected. Therefore the failure to plan and
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Need of CSR:
Corporate social responsibility becomes a necessity for an organization due to the
following reasons:
1. To provide sense of responsibility: The institution of business exists only because it
performs invaluable services for society. Society gives business its charter to exist
and that charter can be amended or revoked at any time if it fails to live up to
societys expectations. Therefore, if business intends to retain its existing social role
and social power it must respond to societys needs constructively.
2. To fulfill long-run self-interest:
community needs would, in its own self-interest, like to have a better community in
which to conduct its business. To achieve that, it would implement special
programmes for social welfare. As a result of social improvements, crime will
decrease. Less money will be required to protect property. Labor recruitment will be
easier. Turnover and absenteeism will be substantially reduced.
3. To improve public image: Each business organization must enhance its public
image to secure more customer, better employees, and higher profit. The public
image concept may be extended to the accomplishment of various types of social
goals. So, if the firm wants to capture a favorable public image, it will have to show
that it also supports these social goals.
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CSR Principles:
No universal rules of social responsibility apply to every company. However, the
following broad principles are widely accepted by managers:
1. Corporations are economic institutions run for profit: corporations greatest
responsibility is to create economic benefits. They should be judged primarily on
economic criteria and cannot be expected to meet major social objectives without
financial incentives that promise long-term benefits and should seek ways to solve
social problems at a profit.
2. Follow Multiple bodies of law: All firms must follow multiple bodies of law
including:
a. Corporation laws and chartering provisions,
b. The civil and criminal laws of nations,
c. Government regulations, and
d. International law.
3. Managers must act ethically: Managers must respect the law and, in addition,
conform their behavior to ethical principles. They should also setup codes, policies,
and procedures to elevate behavior within the firm.
4. Corrective Adverse Social Impacts: Corporations have a duty to correct the adverse
social impacts they cause. They should internalize external costs, or costs of
productions borne by society. A factory dumping toxic effluent into stream creates
costs such as human and animal disease that are imposed on innocents, not on the
company or its customers.
5. Social responsibly varies with company characteristics: Social responsibility
varies with company characteristics such as size, industry, products, and strategies,
marketing techniques, locations, internal cultures and external demands.
6. Meet legitimate needs of stakeholders: Managers should try to meet legitimate
needs of multiple stakeholders. Although corporations have a fiduciary duty to
shareholders, it is not legally required, or desirable or possible to manage solely in
theyre interest. Consumers, employees, governments, communities, and other groups
also have important claims on the firm.
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CSR Strategies:
Organizations can adopt a variety of strategies to social responsibility. For
example, a firm that never considers the consequences of its decisions and tries to hide its
transgressions is taking an obstructionist stance. At the other extreme, a firm that actively
seeks to identify areas where it can help society is pursuing a practice stance toward
social responsibility.
Some people advocated a larger social role for organizations and other argue that
the role is already too large. Not surprisingly, organization themselves adopt a wide range
of positions on social responsibility.
The four stances that an organization can take concerning its obligations to
society fall along continuum ranging from the lowest to the highest degree of socially
responsible practices are shown below
Obstructionist
stance
Defensive
stance
Accommodative
stance
Proactive
stance
Lowest
Highest
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Types of CSR:
There are following types of corporate social responsibility:
1. Environmental Corporate Social Responsibility: People expect business to exhibit
environmentally responsible behavior, as evidenced by a price water house Coopers
survey that found that the No.1 issue for companies in the future, according to U.S
respondents, is carbon emissions reductions. Specific environmental issues that affect
businesses include global warning, sustainable resources and pollution, businesses are
being urged by environmental groups and governments to reduce their carbon
footprint, to obtain their materials from sustainable sources and reduce their pollution.
2. Human Rights Corporate Social Responsibility: the 21st century marketplace is
highly global. This means that when a product is purchased in the United States, e.g.,
it may have received criticism for their use of sweatshops and for sourcing resources
that are harvested by unfairly treated workers. This has lead to a push for the use of
strict labor standards to be applied to suppliers, and a demand for fair trade products
such as chocolate and coffee.
3. Financial Corporate Social Responsibility: Financial responsibility is an important
issue in corporate social responsibility. In the wake of the accounting fraud
perpetrated by Enron and Arthur Andersen and Ponzi schemes orchestrated by the
like of Bernie Madoff and Satyam in India, Businesses are questioned about the
accuracy of their financial reporting by increasingly skeptical shareholders and
government officials, as evidenced by the Sarbanes-oxley Act. Employees are
expected to act as whistle blowers in such situations, and white collar crime is seeing
high-profile prosecutions like that of Martha Stewart or former Worldcom CEO
Bernie Ebbers.
4. Political Corporate Social Responsibility: Trading with repressive regimes is a
difficult issue in corporate social responsibility. Some business argues that working
with these regimes will help to advance them and bring rights to the countries. People
and Governments have demanded that businesses stop trading with repressive
regimes, which was most notably observed when several western governments
launched an embargo against the partheid government in South Africa during 1980s.
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Models of CSR:
1. Ackerman and Bauer: Addressing this need to look at how organization-specific
stakeholder issues should be managed; Ackerman and Bauer argue that each social
issue has a specific lifecycle which denotes its development within the organization.
Consisting of three stages policy, learning and organizational commitment- the
positioning of each stakeholder issue within the context of this lifecycle is expected to
determine correspondent organizational responses.
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responsibilities rather than economic and legal responsibilities. CSR begins where
legal obligation ends.
5. Environmental integrity and Community Health Model: the corporate firms have
recommended this model in recent years in the United States. There is a hidden
business agenda in-built in this model. Business people believe that if the corporate
sector can positively contribute to the environmental integrity and human health,
there will be greater opportunities for the expansion of business in general and this
will, in turn, maximize profits. Healthy people can work more and earn more. So,
consumers spending this will, increase and so will the profit. Therefore in the same
form CSR is beneficial for the corporate sector. What then is required is the socially
responsible investment portfolio, and a good relationship with the community which
is always beneficial for the business.
6. Corporate Citizenship Model: The model posits that when a business behaves in a
way that satisfies philanthropic, legal and economic responsibilities well in the
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Module 7:
Business Law:
Law of contract - meaning of contract, agreement, essential elements of a valid contract. Law
of agency - meaning, creation and termination of agency. Bailment and Pledge - meaning,
rights and duties of bailor and bailee.
Negotiable Instruments Act 1881: Nature and Characteristics of Negotiable instruments,
Kinds of Negotiable Instruments Promissory Notes, Bills of Exchange and Cheques.
Discharge and Dishonour of Negotiable Instruments.
Sale of Goods Act 1930: Definition of Sale, Sale v/s Agreement to Sell, Goods, Condition
and Warranties, Express and Implied Condition, Doctrine of Caveat Emptor, Right and
duties of Unpaid Seller.
Meaning, scope and objectives of - Intellectual property law, law relating to patents, law
relating to copyrights, law relating to trade mark.
What is law?
The word law is a general term and has different conations (different philosophy)
for different people.
Example:
1. A citizen may think of law as a set of rules which he must obey
2. A lawyer who practices law may think of law as vocation [activity which he trained
for]
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Jus in rem is available against the world at large, Jus in personam is available only
against particular person.
Ex. A owes a certain sum of money to B. B has the right to recover his amount from A.
(Jus in Personam)
X is the owner of a plot of land. He has the right to have a quiet possession and
enjoyment of the land against every member of public. Similarly every member of the
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Definition of Contract:
Contract is an agreement made between 2 or more parties which law will enforce.
Sir William Andson defines Contract as a legally binding agreement between two or
more persons by which rights are acquired by one or more to act as forbearance
(abstaining from doing something) on the part of others.
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Obligations:
An agreement to become a contract, must give rise to legal obligations or duty
The term obligation is defined a legal tie which imposes upon a definite person or
persons the necessity of doing or abstaining from doing a definite act or acts. It may
relate to social or legal matters.
An agreement which gives rise to social obligations is not a contract. It must give
rise to legal obligations in order to become a contract
Ex: A agrees to sell his Car to B at Rs. 1lakh.
The agreement give rise to obligation on the part of A to deliver the car to B and
on the part of B to pay Rs. 1Lakh
A social agreement does not give rise to contractual obligations & is not enforceable by
law. It is only those agreements, which are enforceable in a court of law are contracts.
Examples
A invite his friend B to come and stay with him for a week. B accepts the
invitation but when he comes to A, A cannot accommodate him, as his wife had
died the day before. B cannot claim compensation from A.
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A father promises to pay his son Rs.100 every week as pocket allowances. Later
he refuses to pay. The son cannot recover as it is domestic agreement and there is
no intention on the part of the parties to create legal relations.
Thus all contracts are agreements but all agreements are not necessarily be contracts.
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The agreement is legally enforceable only when both the parties give something
and get something in return.
4. Capacity of Parties: The parties to the agreement must be capable of entering into a
valid contract. Every person is competent to contract if he/she
a) Is of the age of Majority
b) Is of sound mind
c) Is not disqualified from contracting by any law to which he is subjected (sec 11 &
12)
Flaw in capacity to contract may rise from minority, lunacy, idiocy, and drunkenness.
5. Free and genuine consent: It is essential to the creation of every contract that there
must be free and genuine consent of the parties to the agreement.
The consent of the parties is said to be free when they are of the same mind on all
material terms of contract. (Sec13)
Consent is said to be free if contract is missed by coercion, undue influence, fraud,
and misrepresentation.
6. Lawful object: The object of the agreement should be lawful. In other words it
should not be illegal, immoral or opposed to public policy.
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O agreed to purchase a motor van from S on hire-purchase terms. The hirepurchase price was to be paid over two years. Held, there was no contract as the
terms were not certain about rate of interest and mode of payment.
Law of Agency:
Definition of Agent and Principal
A person who has capacity to contract may enter into a contract with another (i)
either by himself or (ii) through another person called agent.
The function of an agent is to bring his principal into contractual relations with
third persons.
Creation of Agency:
The relationship of principal and agent may arise
1. By express agreements or
2. By implied agreement or
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Q and P are brothers. Q lives in Delhi while P lives in Meerut. Q with the
knowledge of P leases Ps land in Delhi. He realizes the rent and remits it to P. Q
is the agent of P, though not expressly appointed as such.
A woman allowed her Son to drive a car for her, she paying all the expenses of
maintenance and operation. The Son caused an accident-injuring Neighbor. Held
Neighbor could sue the Mother as the son was an implied agent of mother.
A Agency by estoppel:
Doctrine of estoppel may be stated in sec 237. According to it, when an agent has,
without authority, done acts or incurred obligations to third persons on behalf of his
principal, the principal is bound by such acts or obligations, if he has by his words or
conduct induced such third persons to believe that such acts and obligations were
within the scope of the agents authority.
Example. A tells T within the hearing of P that he (A) is Ps agent. P does not object
to this statement of A. later T supplies certain goods to A, who pretends to act as an
agent of P. P is liable to pay the price to T. by keeping quite, he (P) had led T to
believe that A is really his agent.
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3. Agency by ratification:
A person may act on behalf of another without his knowledge or consent.
Example:
A may act as Ps agent though he has no prior authority from P. In such a case P
may subsequently either accept the act of A or reject it. If he accepts the act of A,
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A insures Ps goods without his authority. If P ratifies As act, the policy will be
as valid as if A had been authorized to insure the goods.
Ratification may be expressed or may be implied in the conduct of the person on
Effect of ratification: The effect of ratification is to render the acts done by one person
(agent) on behalf of another (Principal), without his (principals) knowledge or authority,
binding on the other person (Principal) as if they had been performed by his authority
(Sec. 196).
Ratification is tantamount to prior authority: It relates back to the date when the agent
did the act. This means the agency comes into existence from the moment the agent first
acted and not from the time when the principal ratified the act.
Example:
A, the managing director of a company, purporting to act as agent on companys behalf,
but without its authority, accepted an offer by T. T subsequently withdrew the offer, but
the company ratified As acceptance. Held T was bound. The ratification related back to
the time of As acceptance and so prevented the subsequent revocation by T
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Where the ratification is of the acts which the principal has no power to do.
Termination of Agency:
Sec. 201 describes the modes of termination of agency. The various modes are
given below
1. Termination of agency by act of the parties:
a. Agreement: The relation of principal and agent like any other agreement may be
terminated at any time and at any stage by the mutual agreement between the
principal and the agent.
b. Revocation by the principal: The principal may revoke the authority of the agent
at any time before the agent has exercised his authority so as to bind the principal
unless the agency is irrevocable. But if the act has begun, the authority can only be
revoked subject to any claim, which the agent may have for breach of contract.
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Irrevocable agency:
When an agency cannot be terminated or put an end to, it is said to be an
irrevocable agency.
An agency is irrevocable in the following cases:
1. Where the agency is coupled with interest
An agency is said to be coupled with interest when it is created for securing some
benefit to the agent over and above his remuneration as agent. Where, for example, a
creditor is employed as an agent to collect rents due to the principal for adjusting the
amount towards his debt, the authority of the agent is coupled with interest and it is
irrevocable during the subsistence of the interest. Sec 202 of the contract act provides
to this effect as follows. Where the agent has himself an interest in the property that
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Requisites of bailment:
1. Contract: A bailment is usually created by agreements between bailor & bailee. The
agreement may be express or implied, sometime created by law.
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Classification of Bailment:
1. For exclusive benefit of bailor:
Delivery of some valuables to neighbor for safe custody without charge
2. For exclusive benefit of bailee:
Lending of bicycle to a friend for his use without charge.
3. For mutual benefit of bailor and bailee:
Hiring of bicycle to friend or giving watch for repair
4. Other classification
A. Gratuitous Bailment: It is a bailment where no consideration passes between
bailor and bailee.
Ex. A lends a book to his friend B
B. Non Gratuitous Bailment: Bailment for reward
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Rights of Bailee:
The duties of the bailor are the rights of bailee. As such the bailee can by suit,
enforce the duties of bailor.
1. Right to know about faults in goods
2. Right to get extraordinary expenses from bailor
3. Right to take loss occurred from premature termination of bailment
4. Delivery of goods to one of several joint bailers of the goods
If several joint owners of goods bail them. The bailee may deliver them back to,
according to direction of one joint owner without consent of all.
5. Delivery of goods to bailor without title
If the bailor has no title to the goods and bailee in good faith, deliver them back
to, according to the direction of bailor, the bailee is not responsible to owner in
respect of sub delivery.
6. Right to apply to court to stop delivery
If a person, other than bailor, claims goods bailed, the bailee may apply to the
court to stop the delivery of goods to bailor and to decide the title of goods/
7. Right of action against trespassers:
If the 3rd person wrongfully deprives the bailee of the use or possession og goods
bailed to him, he has the right to bring an action against that party.
8. Bailees lien: where lawful charges of bailee in respect of goods bailed are not paid
he may retain goods.
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Duties of Bailee:
1. To take reasonable care of goods bailed:
In all cases of bailment the bailee is bound to take as much care of the goods
bailed to him as man of ordinary course as his own goods
The onus proof is on bailee to show reasonable care has taken when he fails to
return to show reasonable care has taken when he fails to return the goods or return
them in damaged condition.
Ex. Certain goods of A were bailed with B.B omitted to lock goods bailed, locking up
similar goods of his own. Held was liable.
2. Not to make any unauthorized use of goods:
If the bailee use the goods bailed in manner which is inconsistent with terms of
contract, he shall be liable for any loss even though he is not guilty of negligence and
even if damages is result of an accident.
Ex. A lends a horse to B for his riding only. B allows C, member of his family to ride
the horse. C rides with care but the horse accidently falls and is injured. B is liable
to make compensation to A for the injury caused to horse.
3. Not to mix the goods bailed with his own goods.
The bailee must not mix the goods of bailor with his own goods, but must keep them
separate from his own goods. If he mixes the bailor goods with his own goods
a. With bailor consent, both shall have a proportionate interest in mixture thus
produced
b. Without bailor consent, and if the goods can be separated or divided, the bailee is
bound to bear the expenses of separation or division. As well as damage arising
from mixture.
Ex. A bails 100 bales of cotton marked with a particular mark to B. B without As
consent, mixes the 100 bales with other bales of his own, bearing a different mark. A
is entitled to have his 100 bales returned and B is bound to bear all expenses incurred
in separation of bales and any other incidental charges.
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Rights of Bailor:
1. Enforcement of rights: The bailor can enforce by suit all the liabilities or duties of
bailee as his right.
2. Avoidance of contract: The bailor can terminate the bailment if the bailor does, with
regard to goods bailed. Any act which is inconsistent with terms of bailment. (Sec
153)
Ex. A lend horse to B, for his own riding only. B uses the horse with a carriage. A
can terminate the bailment.
3. Return of goods lent gratuitously: when goods are lent gratuitously, the bailor can
demand their return whenever he pleases even though he lent them for specified time
or purpose.
4. Compensation from wrong-doer: if a 3rd person wrongfully deprives the bailee of
the use or possession of goods bailed, or does them an injury, the bailor or bailee may
bring a suit against 3rd person.
Termination of bailment:
1. On the expiry of period: bailment for specific period, it termination on the expiry of
that period.
2. On the achievement of object: bailment terminates as specific purpose done in
contract is over or finished.
3. Inconsistent use of goods: when bailee uses the goods in a manner inconsistent with
terms of contract, the bailment terminates.
4. Destruction of subject matter:
a. Subject is destroyed
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Pledge:
The bailment of goods as security for payment of debt or performance of a
promise is called pledge.
Bailor in this case called the Pledgor or Pawnor
Bailee is called Pledgee or Pawnee
A pledge is a bailment for security
It is a special kind of bailment
Ex. If A borrows Rs 200 from B and keeps his watch as security for payment of debt, the
bailment of watch is pledge.
Any kind of movable goods, documents, valuable and even passbook of SB A/c can be
pledged.
But delivery is necessary to complete pledge. The delivery may be actual or constructive
and symbolic.
Ex. The producer of film borrowed a sum of money from financier and agreed to deliver
the final prints of film when ready. Held agreement was a pledge, there being no actual
transfer of possession.
Difference between Pledge and Bailment:
Pledge is bailment of goods as security for the performance of specific promise. i.e
the payment of debt or performance of promise. Bailment on the other hand is for
purpose of any kind.
In case of default by pawnor to repay debt, the pawnee may, after giving a notice to
pawnor, sell the goods pledged with him. The bailee may either retain the goods or
sue for his charges.
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In case of pledge, the Pawnee has no right to use goods pledged with him. In case of
bailment, the bailee may do so if the terms of bailment so provide.
Rights of Pawnee:
1. Right of retainer: The Pawnee may retain the goods pledged unless his dues are
paid. He may retain them not only for payment of debt or the performance of
promise, but for
2. Right of retainer for subsequent advance: When the Pawnee lends money to same
pawnor after date of pledge; it is presumed that right of retainer over the pledged
goods extends to subsequent advances also.
3. Right to gain extraordinary expenses
4. Right against true owner when the pawnors title is defective: when pawnor has
obtained possession of goods pledged by him under a voidable contract but the
contract has not been rescinded at time of pledge, the pawnee acquires a good title of
goods, provided he acts in good faith and without notice of pawnors defect of title
5. Pawnee rights where pawnor makes default: where pawnor fails to redeem his
pledge, the pawnee can exercise following rights.
He may file a suit against pawnor upon debt or promise and may retain goods
pledged as collateral security.
He may sell the goods pledged after giving a pawnor a reasonable notice of
sale.
He can recover from pawnor any deficiency arising on sale of goods by him.
But he should hand over surplus on sale of goods to pawnor.
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Rights of Pawnor:
1. Right to get back goods: on the performance of promise or repayment of loan and
interest, if any, the pawnor is entitled to get back the goods pledged.
2. Right to redeem debt: quite often time is stipulated for the payment of debt, or
performance of promise, for which pledge is made. In such case if pawnor makes
default to payment of debt or performance of promise at time he may still redeem the
goods pledged at any subsequent time before the actual sale of them.
3. Preservation and maintenance of goods: the pawnor has a right to see that pawnee,
like bailee, preserve the goods pledged and properly maintain them.
4. Rights of an ordinary debtor: the pawnor has, in addition to above rights, the right
of an ordinary debtor which is conferred on him by various statutes meant for
protection of debtor.
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Promissory Note:
note) containing an unconditional undertaking, signed by the maker, to pay a certain sum
of money only to, or to order of, a certain person, or the bearer of the instrument (Sec 4).
The person who makes the promi9ssory note and promises to pay is called the
maker.
The person to whom the payment is to be made is called the payee.
Examples. A signs an instrument in the following terms:
i.
ii.
iii.
iv.
I promise to pay B Rs. 500 and all other sums which shall be due to him.
v.
I promise to pay B Rs. 500, first deducting there out any money which he
may owe me.
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vii.
viii.
January next.
Of these only (1) and (2) are promissory notes.
Essential Elements:
For an instrument to become a promissory note, it must have the following
essential elements:
1. Writing: The instrument must be in must writing. Mere verbal engagement to pay is
not enough. Writing include print and typewriting and may also be in pen or ink.
2. Promise to pay. The instrument must contain an express promise to pay. A mere
acknowledgement of indebtedness or implied undertaking by the use of word debt
or pronote is not sufficient.
The following instruments signed by A are not promissory notes:
a. Mr. B, I.O.U. Rs. 100 or Mr. B, I owe you Rs.100.
b. I am liable to B, in a sum of Rs.500 to be paid by installments
c. I am bound to pay the sum of Rs. 500 which I received from you.
A receipt of money, if it does not contain express promise to pay, is not a promissory
note.
Example: I of my own free will and accord approached B and borrowed from him
the sum of Rs.100 bearing interest at the rate of 2 percent per mensem. I have,
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Bill of Exchange:
A bill of exchange is 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 (Sec 5)
Parties to a Bill:
There are three parties to the bill of exchange, viz., the drawer, the drawee and the
payee.
The person who gives the order to pay or who makes the bill is called the drawer.
The person who is directed to pay is called the drawee.
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Rs. 500
Shyam
235, Subash Marg,
Delhi-110006
Accepted
Shyam
Stamp
Krishna
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Essential Elements:
1. It must be in writing.
2. It must contain an order to pay, and not a request to pay.
Example: Mr. Little please let the bearer have Rs 70 and oblige. Signed by A. this
is not a bill of exchange as it contains a request and not an order.
3. The order must be unconditional, i.e., no condition should be attached to it.
4. It requires three parties i.e., the drawer, the drawee and the payee.
5. The parties must be certain
6. The maker, i.e., the drawer, must sign the order.
7. The sum payable must be certain
8. The order must be directed to a certain person who must be named or otherwise
indicated with reasonable certainty.
9. The formalities relating to number, date, place and consideration, though usually
found in bills, are not essential in law. But a bill must be affixed with the necessary
stamp.
In a note there are two parties - the maker and the payee. In bills of exchange there
are three parties drawer, the drawee and the payee
The maker of note will be debtor and he himself undertakes to pay. The drawer of the
bill will be creditor who directs the drawee to pay.
The maker of note corresponds in general acceptor of a bill. but the maker of note
cannot undertake to pay conditionally whereas the acceptor may accept the bill
conditionally because he is not the originator of bill
The liability of the maker of note is primary and absolute, where as the liability of
drawer of bill is secondary and conditionally.
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A note cannot be made payable to maker himself, whereas in bill the drawer and
payee can be one and the same person
A note requires no acceptance as it is signed by the person who is liable to pay. A bill
payable after sight or after a certain period must be accepted by the drawee before it
is presented for payment.
The maker of a note stands in immediate relation with the payee. The drawer of bill
stands in immediate relation with acceptor and not payee
Cheque:
A cheque is a bill of exchange drawn upon a specified banker and payable on
demand and it include the electronic image of a truncated cheque and a cheque is in the
electronic form.
A cheque in the electronic form means cheque which contains the exact mirror
image of a proper 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.
A truncated cheque means a cheque which is truncated during the course of a
clearing cycle, either by the clearing house or by the bank whether paying or receiving
payment, immediately on generation of an electronic image for transmission, substituting
the further physical movement of the cheque in writing.
Clearing house means the clearing house managed by the RBI or a clearing
house recognized as such by the RBI
A cheque is a species of a bill of exchange; but it has the following two additional
qualifications, viz.,
1. It is always drawn on a specified banker, and
2. It is always payable on demand
All cheques are BOE, but all BOE are not cheques, a cheque must have all the
essential requisites of a bill of exchange, it must be signed by the drawer. It must contain
an unconditional order on a specified banker to pay certain sum of money to or to the
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Date..
PUNJAB NATIONAL BANK
Subzi mandi, Delhi-110007
Sd/-
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Marking of cheques:
A cheque does not require acceptance in ordinary course of business as it is
intended for immediate payment. the custom among bankers to mark scheques a s good
for payment does not amount to the acceptance.
Marking is the writing on a cheque by the drawee banker that it would be honored
when it is duly presented for payment. The effect of marking a cheque as good by the
drawee banker is that it cannot be countermanded by the drawer subsequently and the
payee is certain of getting the money.
Cheques may be marked as good by the drawee banker at the instance of
a) The drawer
b) The holder
c) The collecting banker.
1. Marking at drawers instance. When a cheque is marked good at the instance of the
drawer, the drawee banker earmarks sufficient funds in the account to meet the
cheque when it will be presented for payment. The drawer cannot afterwards
countermand payment of such cheque. The banker is entitled to dishonor other
cheques if their encashment would leave the banker with insufficient funds to meet
the cheque marked good.
2. Marking at holders instance. When a cheque is marked good at the holders
instance, it is intimation to the holder that at the time of marking, the banker has
sufficient funds of the drawer in his hands. The banker may refuse to honor the
cheque when it is subsequently presented for payment if in due course the drawer has
withdrawn funds or stopped payment of the cheque.
3. Marking at collecting bankers instance. Where a cheque is received by a
collecting banker too late for inclusion in the clearing, he may, to safeguard the
interest of the customer, present such cheque for marking by the drawee banker.
When a cheque is marked at the collecting bankers instance, the marking is treated,
as constructive payment because the banking custom is that such cheque shall be
honored when it is presented through the next clearing.
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Crossing of cheques.
There are two types of cheques,
1. Open cheques
2. Crossed cheques.
Open Cheque. A cheque which is payable in cash across the counter of a bank is
called an open cheque. When such a cheque is in circulation, a great risk attends it, if
its holder loses it, its finder may go the bank and get payment unless its payment has
already been stopped.
Crossed cheque. is one on which two parallel transverse lines with or without the
words &Co. are drawn. The payment of such cheque can be obtained only through a
banker. Thus crossing is a direction to the drawee banker to pay the amount of money
on a crossed cheque generally to a banker or a particular banker so that the party who
obtains the payment of the cheque can be easily traced. The crossing compels the
holder to present the holder to present the cheque through a quarter of known
respectability and credit and affords security and protection to the owner of the
cheque, as the cheque is payable only through banker.
Types of Crossing:
There are 3 types of crossing: General, Special and Restrictive Crossing.
1. General crossing. A cheque is said to be crossed generally where it bears across its
face an addition of
a. The words and company or any abbreviation thereof, between two parallel
transverse lies, either with or without the words not negotiable; or
b. Two parallel transverse lines simply, either with or without the words not
negotiable
(1)
And
(2) com
pan
y
(3)
&
Co.
(4)
Not
Neg
otia
ble
Not
Neg
otia
(5) ble
&
Co.
(6)
N/N
&
Co.
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(1)
Ban
k of
Indi
a
(2)
Ban
k of
Indi
a
(3) Can
ara
ban
k&
Co.
(4)
Bank
of
India
Not
Negot
iable
(5)
Bank of
India
For A/c of
Payee
Ban
(1) k of
Indi
a
Ban
(2) k of
Indi
a
Can
ara
(3) ban
k&
Co.
The word A/c Payee on the cheque are a direction to the collecting banker that
the amount collected on the cheque is to be credited to the account of the payee. If he
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Goods:
The subject matter of the contract of sale must be goods.
Sec.2(7), goods means every kind of movable property other than actionable
claim and money and includes stock and shares, growing crops, grass and things attached
to or forming part of the land which are agreed to be severed before sale or under the
contract of sale.
With regard to growing crops, grass and things attached to or forming part of the
land, such things are regarded as goods as soon as they are agreed to be separated from
the land. Old and rare coins are regarded as goods.
Classification of Goods:
The goods, which form the subject of a contract of sale, may be either existing goods, or
future goods [SEC. 6 (1)], or contingent goods [Sec. 6(2)].
1. Existing goods. These are the goods, which are owned or possessed by the seller at
the time of sale. Only existing goods can be the subjects of a sale. The existing goods
may be further classified into:
a. Specific goods. These are the goods which are identified and agreed upon at
the time a contract of sale is made [Sec.2(14)] as, for example, a specified
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Breach of these conditions may give Company X to repudiate the company Y in contract.
Warranty: [Sec 12(3)]
A stipulation may be condition though called warranty in the contract. Sec 12(4)
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2. Difference as to Breach
3. Difference as to Treatment
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Implied Conditions:
1. Condition as to title: Sec 14(a)
In a contract of sale, unless the circumstances of contract are such that as to show
different intention, there is an implied condition on the part of
(i) In case of sale, he has the right to sale the goods
(ii) In case of Agreement to sell, he will have a right to sell the goods at time when
right is to pass.
Ex: R bought a car from D and used it for 4 months. D had no title to car and
consequent R had to hand it over to original owner. Held R could recover price.
2. Sale by description: Sec 15
Where there is contract for the sale of goods by description, there is an implied
condition that goods shall correspond with description.
If the description tendered is different in an respect, it is not the article bargained for
and the other party is not bound to take it.
Example: N agrees to sell G some oil described as foreign refined sunflower, the oil
supplied though correspond with sample, was adulterated wit palm oil. Held the
supply was not matching to description, hence buyer was entitled to reject the same.
Sale of goods by description may include the following situation
1
Where the buyer has not seen the goods and relies on the description given by the
seller
W bought a reaping machine, which he had never seen and which, V the
seller described, to have been new the previous year and used to cut 50 to 60
acres. W found machine was extremely old, held W could return the machine as
Where the buyer has seen the goods but he relies not on what he has seen but
what was stated to him and the deviation of good from description is not apparent.
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Where the buyer expressly or by implication, makes known to seller the particular
purpose for which he needs the goods and depends upon the skill and judgment of
seller whose business is to supply goods of that description, there is an implied
condition that goods shall be reasonably fit for that purpose.
Ex: A ordered lorry to B and specifies, it is required for heavy traffic in hilly
area. The lorry supplied was unfit and broke down. Hence breach of
condition to fitness
Ex: G purchased a tweed coat that caused her dermatitis due to her skin
sensitiveness. Held seller is not liable, the cloth being fit for anyone with
normal skin.
If the buyer purchases an article under its patent or other trade name, the implied
condition that articles are fit for particular purpose shall not apply.
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In some cases, the purpose for which the goods are required may be understood
by the description of the goods purchased.
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Buyer shall have reasonable opportunity of comparing the bulk with sample.
7. Condition by wholesomeness:
In case of eatables and provisions. In addition to the implied condition as to
merchantability, there is another condition that goods shall be wholesome.
Ex. F bought milk from A containing germs of typhoid fever Fs wife took the milk and
got infected as a result of which she died. Held F could recover damages
Implied warranties:
1. Warranty of quiet possession: Sec 14(b)
In contract of sale, unless there is a contrary intention, there is an implied
warranty that buyer shall have and enjoy quiet possession of the goods. If the buyer is
anyway disturbed in the enjoyment of the goods in consequence of sellers defective
title to sell. He can claim for damages.
2. Warranty of freedom from encumbrance:
In addition to previous warranty, the buyer is entitled to a further warranty that
the goods are not subjected to any change or right in favor of a third party.
If his possession is anyway disturbed by a reason of existence of any charge of
encumbrance on the goods in favor of any third party, he shall have a right to claim
damages for breach of warranty.
3. Warranty as to quality or fitness by usage of trade:
An implied warranty or fitness for a particular purpose may be annexed by usage
of trade.
4. Warranty to disclose dangerous nature of goods:
Where a person sells goods knowing that goods are inherently dangerous or they
are likely to dangerous to buyer and buyer is ignorant of danger. He must warn the
buyer of the probable danger; otherwise he will be liable in damages.
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In contract of sale good the seller is under no duty to reveal unflattering truth about
the goods sold.
Therefore when a person buys the goods, he should examine them thoroughly.
If the goods turn out to be defective or do not suit his purpose or if he depends upon
his own skill or judgment and makes a bad selection, he cannot blame anybody
excepting himself.
Examples:
H sold 32 pigs to F. the pigs were suffering from swine flue, but he never disclosed to
F. held there was no implied warranty by H and the sale was good and H was not
liable in damages.
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The following conditions must be fulfilled before a seller of goods can be deemed to be
an unpaid seller.
1. He must be unpaid and the price must be due.
2. He must have an immediate right of action for the price.
3. A bill of exchange or other negotiable instrument was received but the same has
been dishonored.
I.
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The seller may exercise his right of lien not withstanding that he is in possession of
the goods as agent or bailee for the buyer [Sec. 47(2)]. If he loses the possession of
the goods, he loses the right of lien also.
The lien depends on actual possession and not on title. It is not affected even if the
seller has parted with the document capable of transferring title.
The possession of the goods by the seller must not expressly exclude the right of lien
The lien can be exercised by the unpaid seller only for the price and not for any other
charges such as warehouse or dock charges.
Where an unpaid seller has made part delivery of the goods, he may exercise his right
of lien on the remainder. He may refuse to deliver such remainder of the goods till he
is paid for the goods already delivered and the goods yet to be delivered.
Where, however. A part of the goods is delivered under such circumstances as to
show an agreement to wave the lien, the seller cannot retain the remainder (sec 48).
The unpaid seller of goods, having a lien thereon, does not lose his lien by reason
only that he has obtained a decree for the price of the goods.
Termination of Lien[Sec 49]: The unpaid seller of goods loses his lien on the goods
whena) He delivers the goods to a carrier or other bailee for the purpose of transmission to the
buyer without reserving the right of disposal of the goods
b) The buyer or his agent lawfully obtains possession of the goods as bager;
Example. P Sells a lawn mover to D and: refuses to deliver it to D till he has been
paid for. But he lends it to D in order that D may cut the grass. P does not lose his
lien.
c) He waves the right of lien on the goods [Sec 49(1)]. He may do this either expressly
or impliedly.
a. Express Waiver, When the contract of sale provides in express terms that the
seller shall not retain possession of the goods even if the price has not been
paid, there is an express waiver of lien.
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To his principal
Notice to the principal, to be effectual, must be given in such manner that the
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The unpaid sellers right to stop the goods in transit rises only when the buyer is
insolvent but the right of lien can be exercised even when the buyer is able to pay but
does not pay.
The right of lien can be exercised on goods which are in actual or constructive
possession of the seller, while right of stoppage in transit can be exercised when the
goods are in possession of a middle men between the seller who has parted with the
possession of the goods and the buyer who has not yet acquired the possession.
The right of lien comes to an end when the possession of the goods is surrendered by
the seller but the right of stoppage in transit commences when the goods have left the
possession of the seller and continues until the buyer or his agent has acquired the
possession
Right of lien is to retain possession, while the right of stoppage in transit is to regain
or resume possession
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Intellectual Property:
Intellectual Property is the property created by the intellect of the human mind.
It is a non-physical property which stems from, and whose value is based upon
some ideas.
It refers to the ideas, knowledge, invention, innovation, creativity, research, etc.,
all being the product of human mind and is similar to any property,, whether
movable or immovable, wherein the proprietor or the owner may exclusively use
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Patent:
Word Patent has been derived from Latin term patere, which means to lay
open or available for public usage.
A patent is, an exclusive right granted by a country t o the owner of an invention
to make, use, manufacture and market the invention, provided the invention satisfies
certain conditions stipulated in the law.
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Characteristics of Patents:
1. If more than 2 persons have jointly applied for patent license, both will own the
patent separately.
2. In spite of ownership of the rights, the use or exploitation of invention is restricted.
3. Patent in law is property right, hence it can be gifted, inherited, assigned, sold or
licensed.
4. Patent right is territorial in nature and inventors/assignors will have to file separate
patent applications in the countries of their interest along with necessary fees for
obtaining patents in those countries.
5. As the patent is conferred by state it can be revoked by state under special
circumstances even if the patent is sold out or licensed or manufactured or marketed
in the mean time.
6. A new chemical process or drug molecules or an electronic circuit or new surgical
instrument or a vaccine in a patentable subject-matter provided all the stipulation of
the law satisfies.
Patent law stipulated broad categories of what can and cannot be patented and the
words of statute. Any person who inventors or discoverers any new and useful
process, machine, manufacture, composition or matter or any new and useful
improvement thereof, may obtain a patent.
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Registration of patents:
Patents are registered with the controller general of patents, designs and
trademarks.
The head office is in Calcutta and branch offices are in Delhi, Mumbai, and
Chennai.
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For items as food medicines the process patent is granted for five years from the
date of sealing or 7 years from date of patent. Patents can be legally assigned or
merely licensed to other parties, for use in India or any part of country.
Besides this process, the government may on reciprocal basis, declare any other
country as a convention country, for the purpose of fulfilling any treaty. In such
case if a patent-holder abroad maker application in India within12 months of
having applied for patent abroad, his patent production in India
Revocation of Patents:
On a petition of any person interested, or of the central government by the
appellate Board or on a counter claim in a suit for infringement of the patent by the high
court, the patent may be revoked on any of the following grounds:
1. Invention Earlier Claimed: The material date as far as validity of the patent is
concerned must be the date on which the complex specification having been accepted
is finally published and therefore comes to the notice of the public who are going to
perform it. That the invention, so far as claimed in any claim of the complete
specification, was claimed in a valid claim of earlier priority date contained in the
complete specification of another patent granted in India. In order to establish prior
claim, it has to be shown that the invention was distinctly claimed in the specification
and not merely comprehended by the terms of the claim.
2. Patentee not Entitled to Apply: That the patent was granted on the application of a
person not entitled under the provision of this Act to apply therefore: provided that a
patent granted under the Indian patents and Design Acts, shall not be revoked on the
ground that the applicant was the communicators or the importer of the invention in
India and therefore not entitled to make an application for the grant of a patent under
this Act.
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Grant of Patent:
1. The grant of patent under this act shall be subjected to the condition that:
I.
II.
III.
2. On the grant of patent, the Controller shall publish the fact that the patent has been
granted and thereupon the application, specification, and other documents related
thereto shall be open for public inspection.
3. Every patent shall be dated as of the date on which the application for the patent was
filed. The date of every patent shall be entered in the register. No suit or other
proceeding shall be commenced or prosecuted in respect of an infringement
committed before the date of publication of the application
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Term of Patent:
1. Patent remains in force for 20 years from the date he application was filed. During
that time, no one without the permission of the patent owner can (within the
geographical limits of the United stated) make, use, sell, offer to sell or import the
invention described by the patent claims. To do so is an infringement of the
patent, regardless of whether the infringer copied the inventors ideas or
discovered them independently. In contrast to trademark law, which requires that
the protected mark be used in business, a patent owner can choose to practice the
claimed invention, license it to others or prevent its practice altogether.
2. The most common reason for a patent to come to an end is that the statutory
period during which it is in-force expires. For utility and plant patents, the
statutory period is 20 years after the application data. For design patents, the
statutory period is 14 years from date of issuance.
Copyright:
Copyright is a right, which is available for creating an original literary or dramatic
or musical or artistic work. For example, Cinematographic films including sound track
and video films and recordings on discs, tapes, perforated roll or other devices are
covered by copyrights. Computer programs and software are covered under literary
works and are protected in India under copyrights.
Copyrights give protection for the expression of an idea and not for the idea itself.
For example, many authors write textbooks on physics covering various aspects like
mechanics, heat, optics etc. even though these topics are covered in several books by
different authors, each author will have copyright on the book written by him/her,
provided the book is not a copy of some other book published earlier.
Copyrights are similar to patents in establishing ownership and protection for
creative endeavor but they pertain to intellectual property. A copyright extends protection
to authors, composers, artists and it relates to the form of expression rather than the
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Registration of Patent:
Registration of copyright is optional. A register of copyright is kept in the
copyright office. All details of works in which registration is applied for is entered in the
register. Register of copyrights is Prima facie evidence of the particular enters therein.
The register is open for inspection and extracts of it can be obtained. The entries in the
register can be corrected or rectified and shall be publish. A certificate of registration
becomes a crucial Prima facie evidence before a court in the ownership of the material
and other facts recorded therein.
For registration, the office of the Registrar of Copyrights has been created. The
register of copyrights is maintained in the copyright office of the Department of
Education. The register contains the following six parts:
Part 1: literary works other than computer programs, tables and compilations, including
computer databases and Dramatic works.
Part 2: Musical Works.
Part 3: Artistic Works.
Part 4: Cinematograph films.
Part 5: Sound Recordings.
Part 6: Computer programs, tables and compilations, including computer databases.
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Infringement of Copyright:
Some of the act which are considered as no infringement of copyright are:
1. Private use including research.
2. Criticism or review
3. Computer program-making copies for the purpose for which it was supplied or make
backup copies
4. Reporting current events in a newspaper/magazine or by broadcast or in
cinematograph film, or by means of photographs.
5. In any work prepared by the secretariat of a legislature exclusively for the use of its
members.
6. For judicial proceedings
7. Copy made in accordance with any law
8. Reading in public of any reasonable extract from a published literary or dramatic
work.
9. By a teacher or pupil in the course of instruction or as a part of question or answer in
examination.
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Trademark:
Trademark is a mark or symbol used by a trader in association with specific goods
manufactures and or sold;
Mark may be symbol of reputation of some kind in the goods for its origin or
quality or both.
The brand name, logo or label of the company can be registered as trademark.
Once it is registered then it is protected against misuse by the third parties.
The registered trademark is a valuable property, which can be transferred or sold
or licensed to third parties. In India, the trademark Act, 1999 governs this and the law
encourages registration of trademarks, as registration confers on the owner an exclusive
right to use the mark.
Service mark:
The trademarks Act provided the facility to register marks for services as well as
goods. Services has been defined to mean a service of any description which is made
available to potential users and includes the provision of service in connection wit
business in any industrial or commercial matter, such as banking, communication,
education, finance, insurance, real estate, transport, storage, material treatment,
processing, supply of energy, lodging, entertainment, construction, repair, conveyance of
news and advertising.
Trademarks not registerable
No Trademark shall be registered in respect of any goods, descriptive of goods or
services that is identical with or deceptively similar to Trademark, which is already
registered. Descriptive words, surnames and geographical names are not registerable.
Procedure for Registration:
1. The application is filed
2. Then the Trademark office examines the application and objections, if any are raised.
3. After clearing the objections, if any, the mark is advertised in Trademark Journal and
is open to third party opposition period of 4 months.
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At the prescribed time before the explanation of the last registration of a trademark
the Registrar shall send notice in the prescribed manner to the registered proprietor of
the date of expiration and the conditions as to payment of fees and otherwise upon
which a renewal of registration may be obtained, and if at the expiration of the time
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