Beruflich Dokumente
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Criminal Law
(Crime & Punishment)
Civil Law
(Business & Property
matters)
International Law
(Dealing between
citizens of two
countries)
Contract Act
Contract:- Agreement enforceable by Law.
Agreement:- It is every promise or a set of promises forming consideration for each other. It is a
result of intention to create legally binding relationship.
Promise:- Proposal when accepted becomes promise.
Proposal:- When a person signifies to another his willingness to do or not to do something with a
view to obtain assent of that other person, the person is said to have made a proposal.
Proposal + Acceptance = Promise
Promise * Promise = Agreement
Agreement + Enforceability = Contract
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Q1. Discuss essential ingredients of a valid contract? Or All contracts are agreements but all
agreements are not contracts.
Ans.
1. Intention to create legally binding relationship
2. Offer and Acceptance
3. Two or more persons
Section 10 All agreements are contracts if they are made by
Free consent
Parties competent to contract
For lawful consideration
And lawful object
And not expressly declared to be void
4. Competence of parties to the contract Every person is competent to contract if
He attends the age of majority according to which he is subject of
He is of sound mind
Not disqualified under law
5. Lawful consideration
6. Free consent of parties Consent is free if it is not caused by
Coercion (Force) use of physical force
Undue Influence use of dominant position
Misrepresentation false statement
Fraud cheating
Mistake erroneous state of affairs
7. Lawful Object
8. Certainty of performance
9. Not ambiguous / vague(the agreement must be certain)
10. Legal Formalities
11. Not declared to be void
Q2. Offer and Acceptance
Ans.
Rules for a valid offer:1. Offer should be capable of creating legally binding relationships
2. Offer should be backed by willingness to perform. Mere intention is not an offer
3. Offer should be communicated e.g. Lalman Shukla (Civil Plaintiff, Criminal
Complainant) v/s Gauri Datt (Civil Defendant, Criminal Accused if guilty is called
convict if not guilty then is called acquit)(PPS Gogna Pg no.20)
4. Objective of the offer is to obtain approval / acceptance of offeree
5. Offer should be differentiated from
Intention
Invitation to offer for e.g.
a) Super Bazaar
b) Prospectus
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c) Tender
d) Auction Notice
6. Offer may be conditional
7. Offeror cannot dictate terms
Acceptance:- When a person to whom offer is made signifies his assent there to he is said to have
accepted the offer/proposal.
Rules for valid Acceptance:1. Acceptance to be valid must be absolute and unconditional
2. Acceptor must be willing to perform his obligation
3. Acceptance must be communicated to the offeror
4. Acceptance must be communicated within a reasonable time
5. Acceptance must be in the manner prescribed
6. Acceptance must be communicated before offer lapses / withdrawn
Lapse of offer offer no longer valid
Expiry / Lapse of time
Revocation Cancellation of offer by offeror
a) Notice of revocation
b) Communication in same channel
Conditional acceptance / qualified acceptance / counter offer
Non compliance of terms and conditions
Death in respect of contracts of personal skill
Rejection
Rules as to communication of offer & acceptance :-( better in PPSG Pg. no.27)
1. Offer:- Communication of offer is complete when it comes to the knowledge of the person to
whom it is made.
2. Acceptance:- Communication of acceptance is complete
o To against offeror when communication of acceptance is put into transmission so
as to be beyond the control of acceptor
o As against acceptor when it comes to the knowledge of offeror.
Open letter dated
01-08-2005
05-08-2005
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Communication of offer is
complete
Communication
of
acceptance is complete as
against proposal
Communication
of
acceptance
is
complete
against acceptance
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In Law
a person has attained the age of majority incase where guardians have been appointed under
guardianship law.
Legal Position of Contracts with Minor:Who is Minor:- A person who has not attained the age of majority
Validity:- Contracts with minor are void-ab-initio (from the very beginning)
e.g. Mohori Bibi v/s Dharmodas Ghose
1. Anyone who contracts with minor does it on his own risk
2. No ratification (no regulation)
3. Contracts with minor cannot be rectified even after he has attained the age of majority. What
is required is to sign a fresh contract
A & B (jointly contract with)
C (Major)
- Contract is void between B & C. The manager i.e. A has to take full responsibility of minor
B and his actions.
4. Minor deliberately misleading his age
Contract remains void
Court may take cognigence & award compensation
5. Minor cannot become a partner in partnership firm. However if all the partners agree minors
may be admitted to benefit of the firm
6. Minor cannot become member of a company unless
Articles of Association of the company permit
Shares are fully paid
7. Minor can act as an agent
Minor will have no personal liability
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Sound Mind:Every person is of sound mind (for the purpose of entering into contract) if at the time of making
contract he understands
Terms & conditions of the contract
Impact of terms & conditions on his personal interest
If he can understand this then he is said of sound mind.
Idiot Person:- Person whose mental capacity is permanently affected. Such person can never enter a
contract.
Schizophrenia Epetopsey:- Mental capacity is temporarily under an attack of a disease. Such a
person can contract during the period of normalcy
Drunk Person:- Such a person dont contract under influence of intoxication
Lawful Consideration:Basis
Price
Something in return Quid Pro Quo
Right, interest, benefit, or profit accruing to someone as against responsibility, detriment, sacrifice or
loss suffered or incurred by someone else.
Q3. No Consideration, No Contract Discuss giving Exceptions.
Definition of Consideration:- When at the desire of promisor, promise or other person has done or
abstained, does or abstained, promises to do or abstained from doing something. Such an act or
abstinence is called consideration & contract without consideration is void.
Essential Features of Consideration:1. Consideration must move at the request of promisor desire of promisor cannot be ignored.
E.g. Durga Prasad v/s Baldeo
2. Consideration may move from promisee or any other person. E.g. Chinnaya v/s Ramaiya
3. Consideration can be past, present & future.
4. Absence of act, forbearance or sacrifice may also be a good Consideration.
5. Consideration need be real & not imaginary/illusory.
6. Consideration need not be adequate.
7. Consideration must be lawful
If it does not violate the provisions of the law
If it is not forbidden by law
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Circumstances where contract without Consideration may not be void:1. Contracts made under natural love & affection provided agreement is in writing, registered &
between parties in near relation. E.g. Raj lukhee Debee v/s Bhootnath
2. Promise to compensate for past voluntary service rendered service must be voluntary & not
a legal duty
3. Promise to pay time barred debt
Must be in writing
Must be signed by debtor
4. Gift Donation without consideration
5. Charitable contribution e.g. Kedarnath v/s Gauri Mohammed
Coercion:- Consent is obtained by coercion when it is obtained by:1. Committing or threatening to commit
2. Offense punishable under Indian Penal Code
3. Detaining or threatening to detain unlawfully property of a person
Features of Coercion:1. Use of physical force
2. Violent in nature
3. Even a threat is enough
4. Offense may be committed or threatened is punishable under Indian Penal Code
5. Threat to commit suicide is punishable & it can result in coercion. E.g. Amiraju v/s
Shesamma
Consequences of Coercion:1. Consent is not free
2. Contract is voidable
Person who gave consent under coercion can avoid or cancel the contract
Undue Influence:- Consent is induced by undue influence when relationship subsisting between the
parties are such that one is in a position to dominate the will of another & uses that position to obtain
unfair advantage over the other.
Relationship where undue influence may be presumed:1. Where there is real or apparent authority e.g. master & slave, father & son.
2. When the parties stand in fiduciary relationship. E.g. CA & client, lawyer & client, guru &
disciple
3. Where mental capacity is temporarily affected on account of age & disease e.g. doctor &
patient
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Meaning
Nature
Relationship
Coercion
Use of physical force
Violent
Not required
Undue Influence
Use of dominant force
May not be violent
There must be relationship
Only
by
parties
under
relationship
Intention
Knowledge of false statement
Claim for damages
Misrepresentation
No intention to cheat
Person making false statement
does not know statement is
false
No claim for damages available
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Fraud
There is intention to cheat
Person making false statement
does know statement is false
Claim for damages available
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Mistake:- Error or erroneous state of affair. When a party intending to do one thing, by error, does
something else.
LAWS
Mistake of Law
Indian Law
(Ignorence of law
not excused)
Foreign Law
(Treated as mistake
of fact)
Mistake of Fact
Bilateral
(Both parties are
at mistake Void
Contract)
Unilateral
(Only one party at
mistake Contract
isnt void)
two exceptions
Identity of person contracted with
Partnership agreements
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Void
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Discharge of Contract:- Contractual relationship comes to an end & nothing remains the same
1. By Performance
Actual
Attempted
2. By Agreement
Novation New agreement is substituted in place of old
Alteration Existing agreement is modified
Rescission Right to cancel agreement
Remission Accepting less than in agreement in final settlement
Merger Right to receive & right to pay both come in the same hands
Waiver Withdrawal of contractual terms
3. By Operation of Law
Death
Insolvency
Merger
4. By Impossibility of Performance
At the Time of Contract Void
Subsequent
i. Permitted as excuse
Distribution of subject matter
Outbreak of war
Change of law
Change of state of affairs
ii. Not Excused Difficult to perform
5. Breach of Contract
Actual Breach of Contract
Anticipatory Breach of Contract
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by
way
of
- In the mean
punishment
time part of the
Nominal Taken but
contract
is
in recognition of rights
already
of the party
performed
payment
is
required to be
made to the
extent
of
performance
Guidelines for determining damages:-
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Damages to be on account of proximate cause & not remote cause e.g. Headley vs
Baxandle
Damages must arise out of & during the normal course of business
Person claiming damages must show his sincerity in mitigating the losses
Amount of damages claimed can never exceed the actual loss suffered
Companies Act
Company: Association of person
Registered under the companies act 1956
By contributing to capital which is
divided into shares
which are transferable
& with limited liability
having perpetual existence
common seal
& being an independent / artificial juridical person
can own, posses, dispose of property
can sue & be sued
Essential features of Companies Act:1.
Association of person registered under the act having separate legal entity the
company has separate legal entity different from members e.g. Solomon vs. Solomon &
Company Ltd.
2. Limited Liability Liability is limited to extent of uncalled / unpaid amount of shares
3. Transferability of Shares Shares of the company are transferable & members can sell them any
time when they want. A person can cease to be a member whenever he desires to quit
4. Perpetual Existence Company never dies except through due process of law
5. Common Seal Seal is signature of a company
6. Property can be purchased in the company name. Company can own, posses / dispose of the
property
7. Can Sue Company can file suit against own name & can be sued against
All 7 points together is termed as Corporate Entity / Veil which acts as a curtain
Q. What do you understand by corporate veil & under what circumstances the corporate veil
can be pierced?
Circumstances under which corporate veil can be pierced:1. Loss Of Revenue to the State e.g. Dinshaw Maneckji Petit vs CIT
2. Company assuming enemy character e.g. Daimler & Company Ltd vs Continental Tyres &
Rubbers Company
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involvement Government
Company
CAG(Comptroller
&
Auditor General of India)
- Annual report is placed
before the parliament
- 51% of capital is held by
government(Central,
State, Other Govt. Co.
PSUs if registered under
companies act)
Geographic
Parameter Foreign Companies (All MNCs)
(Place of Incorporation)
Incorporation of a Company
Promoter:- One who promotes the company. One who conceives the idea of setting up business in
the form of a company.
Name: Application for availability of name
Form No. I A
Payment fee of Rs. 500/ Suggest the name by which he would like his company to be incorporated with 3 other
alternative names
Names which are not Available / not Desirable
Names of existing companies
Phonetic Similarity e.g. J.K. Industries LTD. & Jay Kay Industries
Cannot use international bodies / national bodies
Relevance of business name & business should be maintained
Relevance between name & size of authorized capital
NAME
AUTHORISED CAPITAL
If Coporation
5 crores
International / Globe / Global / Asia / Asiatic / 1 crore
Intercontinental
Above words used in between name
50 lacs
Hidustan / Bharat / India as first name
50 lacs
Above words used in between name
5 lacs
Industry / Udyog
1 crore
Enterprise / Products / Manufacturing
10 lacs
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Q. Discuss significance of object clause in MOA & Doctrine of ultra vires vis--vis the object
clause
1. Name Clause Name of the Company is ____________________
2. Registered Office Clause The registered office of the company is located in the state of
_____________________
3. Object Clause
Main objectives the company will pursue on its incorporation
Objects ancillary to main objects
Other objects
* Need for Object Clause
Positively Speaking Object Clause specifies the areas of operations in which the company
will deploy its funds
Negatively Speaking Company will not deploy its funds in the areas beyond what is stated
in the object clause
Comfort of investors / members
Creditors
Anything beyond the object clause is ultra vires
Ultra Vires contract is invalid
Company is not bound
Directors may incur personal liability
4. Liability Clause e.g. Asbury Railway Carriage & Iron Company vs Riche. Liability of
members of the company is limited
5. Capital Clause Specifies the maximum amount company is authorized to raise e.g.
Authorized Capital of the company is Rs. 50 crore divided in 5 crore equity shares of Rs .10
each
6. Subscription / Association Clause Names, Addresses, Undertaking to the shares, Signature
duly witnessed
Alteration of Memorandum Of Association
1. Change of Name
Compulsory
Voluntary
Where existing company object the name to
When the members of the company want
similar / identical
to change
- availability of new name to be checked
ROC to issue order
up
- First show cause notice
- approval of members to change name at
- Hearing
AGM / EOGM
- Order
- File copy of Resolution with ROC
- ROC to issue fresh certificate of
Incorporation with new name
- Newspaper Advertisement
2. Change of Registered Office
- Change of office from one area to another within same town
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Contents of AOA
1. Procedure relating to
Share Capital
Issue of share certificate
Issue of duplicate share certificate
Transfer
Shares
Transmission
Forfeiture of shares
2. Matters relating to
Meetings of the members
Types of meetings
Procedure at meetings
Issue of notice
Quorum requirement
Proxy
Voting
Resolution
3. Provisions relating to Directors
Meeting of Directors
Powers of Directors
Powers of Chairman / Managing Director
Borrowing Powers of the company
Accounts & Audit
Seal
4. Significance of AOA
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Long Term
Capital Equity & Preference
Debentures (Bonds)
Term Loans
Public Deposit maturing after 1 year (Max. 3
years)
GDR Global Depository Receipt Shares not issued, only certificate issued in other than dollar,
listed on foreign exchanges
ADR American Depository Receipt
FCCB Foreign Currency Convertible Bonds
ECB External Commercial Borrowing
Raising Long Term Funds through Equity
How much / what amount of Equity
Size of Project
Detailed Financial plan with focus on its predetermined activity with specified
investment ensuring desired monetary return
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Detailed Project Report Details of investment on land, building, plant & machinery,
furniture & fixtures, installation, contingency provision, margin for working capital
Means of Finance Capital 30 crores (Equity 10 crores; IPO through prospectus &
Debt 20 crores)
Draft Prospectus
Primary Responsibility Merchant Banker companies Secretarial / Finance Department to provide
necessary output
Contents of Prospectus Companies Act (Section 62)
It should also follow disclosure norm of SEBI for investors to take informed decisions
Also keep in mind listing guidelines of the stock exchanges where the shares are prepared to
be traded in 2 parts
Part 1 (General Information)
Name
Registered office
Main objectives of the company
Authority for the issue
Terms of issue (no. of shares, Price Fixed price or Market price to be discovered
through book building process). Payment to be made on application or allotment. Issue
Program Issue Opens on, Issue Closes on, Earliest Closing
Lead Managers or Co-Managers
Bankers to the issue
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Authorized Capital:- Maximum amount the company is authorized to raise as per capital clause of
MOA
Issued Capital:- Number & amount of share capital issued to the public
Subscribed Capital (90%) & Paid Up Share Capital:- Shares subscribed by the investors (which
may not be less than 98% of issue amount)
Paid Up = Subscribed Capital less calls in arrears
Shares
Equity (3)
Preference (1)
Those shares which are not preference shares Which can enjoy preferential rights
(risk capital)
Dividend
No assurance as to return of investment
Redemption
No certainty as to return on investment
Equity
Voting Rights
Preferential Rights:1. Cumulative / Non Cumulative Preference shares where the right to dividend is allowed to
be accumulated even if company has not declared dividend & the dividend will be payable in
the year when the company has adequate profit are called cumulative preference shares &
preference shares where dividend is not allowed to be accumulated are called non cumulative
preference shares.
2. Participative / Non Participative Participative Preference shares are those which are
allowed to participate in share of profit after payment of dividend on equity from out of
surplus profit left. Non Participative Preference shares are not entitled to any participation in
surplus profit. They are entitled to agreed dividend
3. Convertible / Non Convertible Convertible Preference shares are those which are converted
into equity. Non Convertible Preference Shares are those which are not converted into equity
4. Redeemable / Irredeemable Redeemable Preference shares are those which will be
redeemed / repaid within max period of 10 years. Irredeemable Preference shares cannot be
issued
5. Cumulative Convertible Preference shares Right to dividend is accumulated. Preference
shares are converted into equity
Shares issued at Premium
-
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Approved by
Expansion
members
by
Rs. 10 share issued at Rs.
special
120 (Share Capital
resolution
Rs.10 & Share Premium
Shares
Rs. 110)
forfeited are
issued
at
discount
AGM
- Can be held by Public / Pvt.
Ltd company
- Held every year
- With 6 months from end of
accounting year
- One meeting per calendar
year
- 1st meeting to be held within
18 months from the date of
incorporation
- between 2 AGMs gap not
more than 15 months
- Obtain approval of ROC if
gap exceeds 15 months
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EOGM
- Can be held by Public / Pvt.
Ltd company
- Can be held any time when
the matter is urgent
- It cannot wait till next AGM
- Any meetings of members
other than AGM are EOGM
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Agenda
Statutory Meeting
Consideration of Statutory
Report
- Report
explaining
the
progress
made
since
incorporation
of
the
company
- Receipts & payment a/c
- Shares issued & allotted
- Important contracts signed
by management
- To be filed with ROC
AGM
EOGM
Consideration of Statutory Consideration
Report
Report
- P&L a/c
- Balance sheet
- Auditors report
- Directors reports
- Corporate
governance
report
of
Statutory
3.
4.
5.
6.
7.
c. Quorum must be present within half an hour from the scheduled time of
commencement of meeting
d. If quorum is not present within half an hour, meeting is adjourned to next week, same
time, same place
e. If at the adjourned meeting quorum is not present, persons present shall form the
quorum
Proxy a member is entitled to attend the meeting or depute a person to attend on his behalf
by executing instrument of proxy
a. Proxy need not be a member
b. Proxy form should be lodged with the company 48 hours before the scheduled time
of commencement of meeting
c. Proxy may be open or with specific direction to vote or against the resolution
d. Proxy is cancelled if member attends the meeting
e. Proxy cannot speak, but vote at the meeting
Movement of Resolution
a. Resolution is proposed by 1 of the members
b. It is seconded by another member
c. Decision on the resolution members can raise questions chairman to answer
d. Report of auditor is read at the meeting
Chairman to ascertain the sense of the meeting (whether the resolution has been passed or
not)
a. Voice vote
- Ordinary resolution requires simple majority
b. By show of hands - Special resolution requires 3/4th majority
c. By division
d. By ballot
e. By poll
Minutes record of resolution passed is written in minute book to be signed by chairman of
the meeting
Special resolution are passed to be filed with ROC
Resolutions
Ordinary
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Special
Simple majority
Ordinary business of rule is passed by simple majority
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Report to members
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c. Alternate directors - When the director leaves the state in which registered office of a
company is located
i. For a period more than 3 months
ii. Board may appoint alternate director to attend the Board meeting in absence
of original director
iii. The alternate director attends Board meetings in absence of original director
4. Appointment of directors by outsiders There can be an agreement by the company with
a. Its lenders or
b. Creditors
Whereby its nominee of lenders / creditors may be appointed in the Board
c. Such directors are not liable to retirement
5. Power of Government / NCLT (National Company Law Tribunal) to appoint director on the
Board of the Company
a. Where there are complaints about mismanagement of the company &
b. Investigation have been carried out
c. Or complaints before NCLT about the affair of the company being conducted against
the interest of the members. NCLT / Government can appoint Director on the Board
of the Company
d. These directors are not liable to retirement
Qualifications Qualifications if provided in AOA the director will have to take up qualification
shares within 2 months of appointment. For shares upto face value of Rs. 5000/Disqualifications Person is disqualified
1. if he is of unsound mind
2. undischarged insolvent
3. he applies for declaring himself insolvent
4. he has been sentenced to imprisonment for a period not excluding 6 months, for offence
involving moral turpitude & a period of 5 years has not expired
5. he is director in a company
a. company has defaulted to file annual return & balance sheet for a consecutive period
of 3 years with ROC
b. Company defaults in payout of interest / principal of deposits from public
Max. no. of companies - a person can be director in max. 15 companies excluding Pvt, ltd
Companies
Vacation of office of Directors
1. on attracting disqualification
2. if a director fails to attend 3 consecutive Board meetings without leave of absence
3. if director fails to take qualification shares within 2 months
4. if he fails to pay call money on shares within 6 months
Removal of a Director
1. Removal by the member at AGM
a. By not reappointing retired Director
b. By appointing someone else in place of retiring director
c. By passing a resolution removing a director
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Above 17.5%
10%
3. a/cs to be audited by the auditors
Q. Discuss provisions relating to appointment, qualification & powers of auditors of the
company under the companies act 1956?
Audit under the companies act is statutory audit. Every company under the companies act is required
to have its accounts audited by the auditor
Auditor
CA member of ICAI having certificate of practice &
He is not in the full time employment
Not indebted to the company for amount exceeding Rs. 1000/ Should not be related to Directors
Powers of Auditor
1. Power to have access to all documents agreements / contracts / minutes
2. Power to visit / verify / check properties / assets of the company at all locations (plant,
branch. HR)
3. Power to obtain information / explanation from the employees of the company
4. To report to the members
a. Whether the company has maintained the required books of a/c or registers
b. Whether the company has been complying with accounting standards
c. In case of variation point out the impact on P&L of the company
Certify That
1. P&L a/c gives true & fair view of profit & loss for the year
2. Balance sheet gives true & fair view of financial position of the company as on a particular
date
a. Auditors to qualify the report where there are irregularities
b. Directors to reply to qualifying remarks of auditors
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Instrument in writing
Signed by the maker
Containing an unconditional order
Directing a certain
To pay a certain sum of money only
To certain person or his order
25/11/2005
On demand pay Rupesh Pandey sum of Rs. 50000/- for value received
To Drawee (who has been directed to pay)
Cheque
Bill of exchange drawn on a specified banker
Bank of Baroda
Pay Rupesh Pandey
In Words
25/11/2005
Figures_________
Signed by maker / promissor
Promissory Note
Bill of Exchange
1. Parties Involved
2 parties maker who 3 parties
promises to pay &
Drawer / maker
payee (promise) who
who draws
collects payment
the bill
Drawee on
whom the bill
is drawn or to
whom direction
to pay is given
Payee - Who
collects
the
payment
2.
Nature
of Maker Debtor
Drawer Creditor visrelationship
Payee - Creditor
-vis
Drawee
but
Debtor vis--vis Payee
Drawee Debtor
Payee Creditor
3. Nature of liability
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Cheque
3 parties
Drawer
maker of a
cheque
Drawee Bank
Payee - Who
collects
the
payment
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note is
liable
4. Acceptance
5. Crossing
6. Stamp Duty
7. Notice of dishonor
primararily Liable
Drawer Secondary
Drawer Secondary Liable
Liable
Not Required
Acceptance by drawee Not Required
required
N.A.
N.A.
Only
cheque
are
required to be crossed
Attracted
Attracted
Not Required
Not Required
Required
Bank
issues
non
Payment memo
8. Special Provisions
a. Drawee in case of N.A.
need
b. Acceptance for N.A.
Honor
N.A.
N.A.
Q. What do you mean by crossing of cheques? Discuss various types of crossings & their
significance?
Meaning When a cheque bears across in face two parallel transverse lines with or without the word
And company
& company
not negotiable
Cheque is said to be crossed
Significance crossing is an instruction to the bank not to pay cash across the counter
Types of Crossing
General Crossing
Special Crossing
When the cheque bears across
its face two parallel lines with
the name of a particular banker
then the cheque is said to have
been specially crossed to that
bank
Significance Banker to whom
the cheque is specially crossed
Is the only authorized banker to
collect the payment
Restrictive Crossing
When the cheque bears across
its face two parallel lines with
the words a/c payee only or
payees a/c only cheque is said
to be restrictively crossed
Significance Cheque cannot
be deposited in any other a/c of
payee
Significance of cheques crossed with the words not negotiable words not negotiable do not
prohibit the transferability of the amount of a cheque but it is a warning that the title of the person
receiving the cheque will not get better than that of the person from whom he gets it
Santhoshkumark2002@gmail.com
Pec-Vnb
Santhoshkumark2002@gmail.com
Pec-Vnb
8. Endorsement sans frais when payee or endorser transfers without his availability to
contribute towards expenses. Effect Endorsee cannot depend on contribution on endorser
Q. Define Holder in due course & discuss privileges of holder in due course
Holder in Due Course
A
Drawer
B
Drawee
C
Payee
D
Endorsee1
E
Endorsee2
F
Endorsee3
Holder A person in possession of Negotiable Instrument in his own name. entitles to receive the
amount
Holder in due course A person who became
Possessor of Negotiable Instrument payable to bearer
Payee or endorsee of Negotiable Instrument payable to order
For consideration
Before maturity
Without having sufficient cause to believe that
Defect existed in the of the person from whom he derived it
Privileges of the Holder in due course
1. All the previous parties are liable to HIDC
2. HIDC can file suit for recovery in his own name against all the previous persons
3. Drawee cannot refuse payment to HIDC on the grounds that the bill was accommodation bill
Bill drawn without consideration
4. Drawee cannot refuse payment on the ground that bill is fictitious where either drawer or
payee are not existing
5. Drawee cannot refuse payment on the ground that bill is inchoate Bill which is stamped &
signed but incomplete / blank in respect of other details
6. Holder in due course is entitled / authorized to fill up / complete inchoate stamped instrument
7. Drawee cannot refuse payment on the ground that bill is unconditional / escrow where bill
has been drawn & accepted subject to certain conditions
8. Once the Negotiable Instrument passes through the hands of HIDC it gets cleansed of all its
defects
9. Capacities of previous parties cannot be questioned
10. Every holder is pressured to be holder in due course
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