ASSIGNMENT SET – 2

LEGAL ASPECTS OF BUSINESS - MB0035

Question -1). What is process of an enterprise to get incorporated as a

company?

Answer -1). The process of formation of a company can be divided and

discussed under the following four stages:
1. Promotion;
2. Incorporation or Registration;
3. Capital subscription;
4. Commencement of business.
Of these stages only the first two are necessary for the formation of a private
company and of a public company not having any share capital. They may
commence business immediately after they have received a certificate of
incorporation. But a public company having a share capital has to pass
through all the four stages mentioned above before it can commence business
or exercise any borrowing powers.
Promotion: Before a company can be formed, there must be some persons
who intend to form a company and who take the necessary steps to carry that
intention into operation. Such persons are called promoters. It is they who
conceive the idea of forming the company and it is they who take the
necessary steps to incorporate it by registration. The promotion of a company
is comprehensive term denoting that process by which a company is
incorporated and floated or established financially as a joint concern by the
issue of a prospectus.
The ‘promotion’ is the first stage in the formation of a company. Promotion
may be defined as “the discovery of business opportunities and the
subsequent organisation of funds, property and managerial ability into a
business concern for the purpose of making profits therefrom.”
The promoter: The promoter of a company is a person who does the
necessary preliminary work incidental to the formation of a company. The word
‘promoter’ has not been defined anywhere in the Companies Act. Palmer has
defined a ‘promoter’ as “a person who originates a scheme for the formation of
the company, has the memorandum and articles prepared, executed and
registered and finds the first directors and settles the terms of the preliminary
contracts and prospectus (if any) and making arrangement for advertising and
circulating the prospectus and placing the capitals is a promoter.”
Incorporation of a company: Any seven or more persons or where the
company to be formed will be a private company, any two or more persons,
associated for any lawful purpose may, by subscribing their name to a
memorandum of associations and otherwise complying with the requirement of
this Act in respect of registration, form an incorporated company, with or
without limited liability.

Question -2). Describe in detail the clauses in the Memorandum of

Association.

Answer -2). Memorandum of Association: Section 2(28) defines it as “The

Memorandum of Association of a company as originally framed or as altered
from time to time in pursuance of any previous companies or of this Act”. It
sets out the constitution of the company and defines the scope of the activities
of the company. It is the foundation on which the structure of the company
depends. It also defines the relationship of the company with the public. As the
interests of the shareholders, creditors and other members of the public are to
be protected by law, this document cannot be altered easily. It was regarded
as an unalterable charter of a company in England, until the year 1980, when
the Act was amended to allow alterations in certain cases and to a certain
extent. Section 16 of the Indian Companies Act lays down that the conditions
in the memorandum cannot be altered except in the cases and in the manner
and to the extent provided in the Act.
Importance of Memorandum:
1. Memorandum of Association of a company is its charter and defines the
limitations of the powers of the company, established under the Act.
2. The Memorandum contains the fundamental conditions upon which
alone the company is allowed to be incorporated.
3. The Memorandum of Association is the most important document with
regard to its constitution.
4. It is the foundation on which the whole super structure of company is
built-up.
5. Its purpose is two fold. The first is the prospective inventor knows within
what field his money is to be risked. Secondly, outsiders also know the
nature of the activities of the company and their rights against the
company in times of breach of contracts.
 6. The memorandum is the basis of the company on which is existence
depends.
Section 9 lays down that the memorandum cannot contain anything contrary to
the provisions of the Act. The memorandum must be signed at least by seven
members in the case of a public company and two members in the case of a
private company. It is to be divided into paragraphs, numbered consecutively
and printed. It must be dated and duly stamped.
Contents of Memorandum of Association (Section 13):
i) Name clause: A company may have any name which is not undesirable in
the view of the Central Government. For example, the name cannot be
identical or similar to the name of another existing company. It must contain at
its end, the word ‘Limited’ if it is a public limited company or the words ‘Private
Limited’ if it is a private limited company. But companies formed for the
promotion of art, science, etc., may be exempted from adding words “Limited”
or “Private Limited” as the case may be, by means of general or special order
granted by the Central Government under Section 25. Section 147(1) lays
down that the name must appear on the outside of every office or place of
business in a conspicuous manner and on all bills, notices, etc., of the
company.
ii) The Situation Clause: It shows the State in which the registered office of
the company is situated.
iii) The Objects Clause: It states separately (1) the main objects and objects
ancillary or incidental to the main objects to be pursued by the company and
(2) other objects. It defines the powers of the company beyond which, the
company cannot act. But it cannot contain the objects or powers which are
contrary to the provisions of the Act.
iv) The Liability Clause: It states whether the liability of the members is
limited to the extent of the nominal value of the shares or the extent of the
amount guaranteed by the members or unlimited.
v) The Capital Clause: It states the amount of the capital and the way in
which it is to be divided into shares.
vi) The Association and Subscription Clause: All the signatories of the
memorandum make a declaration that they are desirous of forming themselves
into a company and that they agree to take the number of shares mentioned
against their respective names given therein, with their addresses and
occupations.

Question -3). Discuss the need for the development of cyber laws.
Answer -3). In the 49th year of Indian independence, Internet was
commercially introduced in India. The beginnings of Internet were small and
the growth of subscribers painfully slow.
However, as Internet has grown, the need has been felt to enact the relevant
Cyber laws, which are necessary to regulate Internet in India. This need for
Cyber laws was propelled by numerous factors.
Firstly, India has an extremely detailed and well-defined legal system in place.
Numerous laws have been enacted and implemented and the paramount
among them is The Constitution of India. We have various laws like Indian
Penal Code, 1860, The Indian Evidence At, 1872, The Banker’s Book
Evidence Act, 1891, The Reserve Bank of India Act, 1934, The Companies
Act, 1956, and so on. However, the arrival of Internet signaled the beginning of
the rise of new and complex legal issues. It may be pertinent to mention that
all the existing laws in place in India were enacted keeping in mind the
relevant political, social, economic, and cultural scenario of that time. Nobody
then could really visualize the emergence of the Internet. Despite the brilliant
acumen of our master draftsmen, the requirements of cyberspace could hardly
be anticipated. The advancement of Internet led to the emergence of
numerous ticklish legal issues and problems, which necessitated the
enactment of Cyber Laws.
Secondly, the existing laws of India could not be interpreted in the light of the
emerging cyberspace, to include all aspects relating to different activities in
cyberspace.
Thirdly, none of the existing laws gave any legal validity or sanction to the
activities in Cyberspace. For example, the Net is used by a large majority of
users for email purposes. Yet, e-mail was not “legal” in our country. There was
no law in the country, which accorded legal sanctity to e-mail and the
electronic format. The judiciary in our country had been reluctant to grant
judicial recognition to the legality of e-mail in the absence of any specific law
having been enacted by Parliament on the subject. Thus the need arose for
enacting Cyber Law in our country.
Fourthly, Internet requires an enabling and supportive legal infrastructure in
time with the times. This legal infrastructure can only be given by the
enactment of the relevant Cyber Laws as the traditional laws have failed to
provide it. E-commerce, the biggest future of Internet, can only be possible if
necessary legal infrastructure complements the same to enable its vibrant
growth. As such, an urgent need was felt for enacting Cyber Law in our
country.

Question -4). What do you mean by award with reference in arbitration?

Answer -4). Award means an arbitral award. It is a final decision or judgement
of the arbitral tribunal on all matters referred to it. An award in order to be valid
must be final, certain and must decide all the matters referred to. An award by
the arbitrator is as binding in its nature as the judgement of a court.
Arbitral award includes an interim award
There are two types of decisions to be made by the arbitral tribunal i.e.
decision on the merits of the dispute and decision on questions of procedure.
Decision on merits of dispute is to be made by the, majority of members of the
arbitral tribunal but question of procedure can be decided by the presiding
arbitrator, if authorised by the parties or all members of the arbitral tribunal. In
the absence of such authorisation by the parties or other members of the
tribunal, the decision on question of procedure is also to be made by majority
of members of the arbitral tribunal. In the absence of such authorisation by the
parties or other members of the tribunal, the decision on question of procedure
is also to be made by majority of members of the arbitral tribunal. The
presiding arbitrator has not been given any special power and he acts like any
other arbitrator. All arbitrators have been given equal power irrespective of
mode of appointment.
Essentials of an Arbitral Award
Section 31 deals with the form and contents of the arbitral award. The
provisions of Section 31 are discussed in the form of essentials which are as
under:
1. An arbitration agreement is required to be in writing. Similarly, a
reference to arbitration and award is also required to be made in writing.
The arbitral award is required to be made on stamp paper of prescribed
value. An oral decision is not an award under the law.
2. The award is to be signed by the members of the arbitral tribunal.
However, the signatures of majority of all the members of the tribunal are
sufficient if the reason for any omitted signature is stated.
3. Unless the agreement provides otherwise, the arbitrator must give
reasons for the award. Thus, the making of an award is a rational process
which is accentuated by recording the reasons. However, there are two
exceptions where award without reasons is valid i.e.
(a) Where the arbitration agreement expressly provides that no reasons are
to be given, or
(b) Where the award has been under section 30 of the new Act i.e. where
the parties settled the dispute and the arbitral tribunal has recorded the
settlement in the form of an arbitral award on agreed terms.
4. The award should be dated i.e. the date of the making of the award should
be mentioned in the award.
5. The arbitral tribunal shall state the place of arbitration in the award.
6. The arbitral tribunal may include in the sum for which award is made,
interest up to the date of award and also a direction regarding future
interest. The rate of interest shall be eighteen per cent.
7. The award may also include decisions and directions of the arbitrator
regarding the cost of the arbitration.
8. After the award is made, a signed copy should be delivered to each party
for appropriate action.
9. The arbitral tribunal may, at any time during the arbitral proceedings,
make an interim arbitral award on any matter with respect to which it may
make a final arbitral award.
Finality of Arbitral Awards (Section 35)
An arbitral award shall be final and binding on the parties and persons
claiming under them respectively. Now, under the new Act, by virtue of section
35 of the Act, the award made by the Arbitrator shall be final and binding on
the parties itself and shall be decree without being made a decree by the
court.

Question -5). How can consumer defined in the Consumer Protection

Act? Discuss.

Answer -5). Consumer’ means any person who: (i) “Buys any goods for a
consideration which has been paid or promised, or partly paid and partly
promised, or under a system of deferred payment,” or (ii) Hires any services
for a consideration which has been paid or promised, or partly paid and partly
promised, or under a system of deferred payment i.e., in respect of hire-
purchase, transactions, [Sec. 2(d)].
Thus, consumer is a person who (i) buys any goods for a consideration, or (ii)
hires or avails any services for a consideration. In addition to buyer(s) of goods
or hirer(s) or user(s) of services, any beneficiary of such services, using the
goods/services with the approval of purchaser or hirer or user would also be a
deemed a ‘Consumer’ under the Act. The widow of the deceased Policy holder
was held as consumer under the Act by the State Commission of A.P. in the
case of A vs. LIC of India. The consideration may be either paid or promised,
or partly paid and partly promised or under any system of deferred payment.
The Act thus covers transactions for the supply of goods and rendering of
services.
Buyer of goods for consideration: The Act, unlike the Sale of Goods Act,
does not insist on money consideration only. Transactions of transfer of
services, or barter, or exchange will come within the purview of the Act. The
user of such goods, with the approval of the buyer of goods, is also a
consumer as per the Act. But according to Section 2(d) of the Act, the term
consumer does not include a person who obtains such goods for resale or for
any commercial purpose. Thus a purchaser of goods for reselling them or a
purchaser of a taxi for plying the same on hire, a purchaser of a V.C.R. for
running a video library, or purchaser of machinery for his commercial
establishment is not a consumer. However, according to Consumer Protection
(Amended) Act 1993, a person who purchases tools or machinery under self-
employment scheme is also a consumer.
Hirer of services for consideration: Any person who hires services for a
consideration is a consumer. Consumer, not only means merely one who hires
services for consideration, but also includes a person who is a beneficiary of
such services. For example, the user of a telephone, even though he is not
himself the subscriber is a consumer under the Act. Services include all kinds
of professional services, be it the routine services of a barber or the technical
services of a highly qualified person. For example, supply of electricity has
been held to be a service and not sale of goods. The services must be of
commercial nature in the sense that they must be on payment. The payments
may be in cash or kind. It may be made either at once, or partly at once, or
partly on credit. The services may be rendered wholly or partly on credit.
However, free services or personal service under a contract have been
excluded from the protective spell of the Consumer Protection Act.
Union of India Vs. Mrs. S. Prakash: It was held that the subscriber of
telephone is a consumer as the rental charges paid to the Central Government
is the consideration for the services rendered by the Tele-Communication
Department, District Manager, Telephones, Patna Vs. Lalith Kumar Bajla
(1989).
Mumbai Grahak Panchayat, Vs. Andhra Pradesh Scooters Ltd. The
complainant made an advance deposit of Rs.500 with the A.P. Scooters Ltd.,
booking a scooter. The complaint was not given the refund of the deposit when
he demanded the same as per his contract with the opposite party. It was held
that the complainant was a consumer, and was entitled to relief asked by him.
Ganapathi Vs. Postmaster, Karnataka State: In this case, the remitter of
T.M.O.,was held to be a consumer and was awarded a compensation.
Cosmopolitan Hospitals Vs. Smt. V.P. Nair’s: The National Commission held,
that a patient is a consumer and the medical assistance was a service. The
Medical Officer’s service was not a personal service so as to constitute an
exception to the application of the Consumer Protection Act.
Question -6). Undertake a survey of 20 shops and write a report on the
provisions being maintained in these shops as per the Shops and
Establishments Act.

Answer -6). No shop shall on any day be opened earlier or closed later than
such hours as fixed by the State Government. Any customer who was being
served or was waiting to be served in any shop at the hour fixed for its closing
may be served during the quarter of an hour immediately following such an
hour. No person shall carry on, in or adjacent to a street or public place, the
sale of any goods after the hour fixed for closing of shops dealing in the same
class of goods except newspapers in that locality, i.e., selling outside the shop
is prohibited after closing hour.
Daily and Weekly Hours of Work in Shops: No person employed in any
shop shall be required or allowed to work therein for more than eight hours in
any day and 48 hours in any week. If any such persons work for any period in
excess of the time limit fixed, he is entitled to overtime wages. However, the
period of work including overtime work, shall not exceed 10 hours in any day
and in the aggregate 50 hours in any week. Further, he should be given an
interval for rest of at least one hour after four hours of work in any day. The
spread-over of work periods of such a person is not to exceed more than 12
hours in any including the intervals for rest.
Closing of Shops and Grant of (Weekly and Additional) Holidays: Every
shop is to remain entirely closed on one day of the week. The shop-keeper
has to specify that day in a notice exhibited in a conspicuous place in the shop
and the day so specified is not to be altered by the shop-keeper more than
once in three months. Every person employed in a shop is to be allowed in
each week a holiday of one whole day. This provision is not applicable to any
person whose period of employment, in the week including any days spent on
authorised leave, is less than six days or a person who has been allowed a
whole holiday on the day on which the shop has remained closed.
Besides one whole day, the State Government may by Notification require
shops to be closed at such hour in the afternoon of one weekday in every
week. Every person employed in any such notified shop(s) is to be allowed in
each week an additional holiday of one-half day. The State Government may,
for this purpose fix different hours for different shops or different classes of
shops or for different areas or for different times of the year. There should be
no deduction of wages of any person employed in a shop on account of
weekly holiday (one whole day) and additional holiday (one-half day).