Business Law Sybcom Sem Iv 2014-15

SY B COM MORE CLASSES
Business Law Your Partner in Studies
MODULE 1: THE COMPANIES ACT, 2013
Q. 1] Define a ‘company’. State the characteristics of a company? CPMAILHTC

Ans: Sec 3(1) of the Companies Act, 1956, defines a company as “a company formed and registered
under this Act, or an existing company. An existing company means a company, formed and registered
under any of the former Companies Acts.”
The characteristics of a company are as follows:
1) Compulsory registration: A company must be incorporated (registered) compulsorily under the
Companies Act. The association of individuals becomes a company only when it is registered
under the provisions given in the act.
2) Membership: The minimum membership required for private and public company is 2 and 7
respectively, while the maximum membership required is 50 and unlimited respectively.
3) Artificial legal person: On registration, a company is given the status of an individual. As it is
created under law, it is called as an artificial legal person.
4) Independent corporate personality: A company on registration has a separate legal identity of
its own, which is different and distinct from the members who constitute it. (salomon vs. salomon)
5) Limited liability: The liability of the shareholders is limited to the unpaid amount on the face
value of their shares.
6) Perpetual succession: A company enjoys perpetual existence. It would not cease to exist even
if all its members die. The shares are easily transferable or transmitted to new members.
7) Hold and dispose of property: A company can hold and dispose of property in its own name.
Property of the company cannot be treated as members property and vice versa.
8) Transferability of shares: The shares are easily transferable when compared to that of
Partnership. Though in between a public and private company, its easier in former when
compared to the latter.
9) Common seal: A company is an artificial person, with no physical existence. It acts through
directors. The directors act on behalf of the company and enter into contracts by affixing
company’s common seal. The common seal of a company is its official signature.
Q. 2] Write a note on ‘Lifting of corporate veil’:

Ans: Although as explained earlier, company is having a separate entity of its own and is only
responsible for its actions, a need was felt that the veil in rare cases needs to be lifted to meet the ends of
justice. This principle of ignoring the company’s corporate personality and examining the character of
persons, in real control of the corporate affairs is called the ‘principle of lifting the corporate veil’ or
‘exceptions to the principle of independent corporate personality of the company.
Circumstances for lifting of the corporate veil:
1. When the company formed is against public interest
2. Where the company has been formed for some fraudulent purpose
3. Where the company is formed for evasion of taxes
4. To investigate the relationship between Holding company and Subsidiary company
5. Any other circumstances where it is felt necessary (interest of members/creditors)
Q. 3] Distinction between ‘Public company’ and ‘Private company’.

Criteria Private company Public company
Members Minimum = 2 & Maximum = 50 Minimum = 7 & Maximum = unlimited
Minimum capital One lakh rupees Five lakh rupees
required
Restriction on A private company must add the words, No such restrictions for public company
name “Private limited” at the end of its name
Issue of A private company does not file a It is compulsory for a public company
Prospectus prospectus before issue of shares to file a prospectus before issue of
securities
Issue of shares to A private company cannot issue shares A public company can issue shares to
public to general public. They issue shares general public
only to relatives, friends and employees
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Preparation of Preparation of Articles of Association is A public may directly adopt contents of

Articles of compulsory for a private company Table A given in the Companies Act.
Association
Minimum numbers Atleast 2 directors Atleast 3 directors
of directors
Q. 4] What is ‘Memorandum of Association’? Explain its contents.

Ans: “Memorandum means memorandum of association of a company originally formed or altered
from time to time in pursuance of any previous companies law or of this Act.”
In other words, the memorandum of association is the document which contains the rules regarding the
constitution, activities or objects of the company.
Contents:
a) Name clause
b) Domicile clause
c) Objects clause
d) Liability clause
e) Capital clause
f) Subscription clause
Name Clause: Every Company must have a name of its own. The name gives the company a personal
existence. The promoters, who select the name of the company, are required to take care that the name
is not an undesirable one.
Further, in case of public company with limited liability must add the word ‘Limited’ at the end of its name,
and a private company, the word ‘Private Limited’ must be added at the end. Once the name is
registered, it must be printed or affixed on the outside of every office or place of business, in a
conspicuous position in letters easily legible, in the language in general use in the locality.
Registered Office Clause: Every company must have a registered office. At the time of registration, the
memorandum must contain the name of the State, in which the registered office of the company shall be
situated. However, the company shall, from the date on which it commences its business or within thirty
days of incorporation, whichever is earlier, have a registered office. The Registrar shall be intimated
within thirty days of incorporation.
Objects Clause: This clause defines the objects of the company and indicates what a company can do.
The objects clause has to be divided into
(1) Main objects of the company to be pursued by the company on its incorporation
(2) Objects incidental or ancillary to the attainment of the main objects, and
(3) Other objects of the company not included in (1) and (2).
A company cannot go beyond the object clause without the approval of the shareholders and/or approval
of the Central Government. However, it must be noted that objects cannot be illegal, immoral, opposed to
public policy or the Act.
Liability Clause: This clause states the nature of liability of the members. In case of a company with
limited liability, it must state that the liability of the members is ‘limited whether it is by shares or by
guarantee. Absence of this clause in the memorandum means that the liability of its members is
unlimited.
Capital Clause: This clause states the share capital with which a company is registered and the number
and value of the shares into which it is divided.
Subscription Clause: This clause is also known as association clause. It is a declaration made by the
subscribers who have signed the memorandum of their intention to form a company. Atleast 7 members
of public company and 2 members of private company shall sign the memorandum.
Q. 5] Write a note on Doctrine of ‘Ultra Vires’.

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Ans: A company must function within the frame work of its objects mentioned in the ‘object clause’.
The objects of a company serve — two fold functions
(1) It tells what the company can do.
(2) In the negative, it informs us what a company cannot do.
“Anything that a company does, which is beyond the scope of the object clause is called ultra vires the
object clause and is null and void. This doctrine was laid down in Ashbury Railway Carriages and
Wagons Company v. Riche (1875) LR & HL 653.”
Effects of Ultra Vires transactions:

Contract void: Ultra vires transactions render the contract void, giving no legal rights to the company or
the outsiders. Such contracts can never be ratified (confirmed).
Property acquired under ultra vires transaction: If a company acquires property under an ultra vires
transaction, the company’s right over the property shall be protected because assets so acquired
represent corporate capital.
Injunction: Any member may obtain an order of injunction from the Court to restrain the company from
persisting in ultra vires act.
Ultra vires borrowing: In case of an ultra vires borrowing, the lender has no right of action in respect of
the loan to the company. But he has certain rights in respect of money received by the company provided
the same is traceable. But the money lent by a company, not authorized to lend, can be recovered by it
because the debtor will be stopped from pleading that the company had no power to lend.
Directors personally liable: Directors, who part with the company’s money or property for ultra vires
objects will be personally liable to restore to the company the funds used for such purpose.
Liability for torts: A company can be made liable for any tort, if the following two conditions are satisfied,
viz.:
Firstly, the activity, in the course of which the tort has been committed, falls within the scope of the
Memorandum of Association.
Secondly, the servant of the company must have committed the tort within the course of his employment.
Q. 6] Distinction between: Memorandum of Association & Articles of Association

Ans:
Memorandum of Association Articles of Association
Memorandum contains the fundamental The Articles of Association are the internal
conditions upon which alone the company regulations of the company. They provide
is allowed to be incorporated. The the manner, in which the company is to be
conditions are introduced for the benefit of carried and its proceedings disposed of.
the creditors, the shareholders and the
outside public.
The memorandum is a dominant The Articles are always held to be
instrument as it states the purposes for subordinate to Memorandum because they
which the company has come into are mere internal regulations of the
existence. company.
Section 13 provides that some of the Section 31, on the other hand, provides
conditions of incorporation, contained in that the Articles of Association can be
the Memorandum, such as the objects altered simply by a special resolution. It
clause, and the registered office clause, does not require the sanction of the
cannot be altered except by the special Company Law Board or of any other
resolution of the company and with the authority.
sanction of the Company Law Board or of
a Court of Law.
If a company does something outside the If a company does something in
scope of the objects stated in the contravention of the provisions of its
Memorandum, it is absolutely null and Articles, it is only an irregularity and can
void and incapable of ratification. always be confirmed by the shareholders,
and thus rectified.
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Q. 7] Explain the ‘Doctrine of Constructive Notice’ and ‘Doctrine of Indoor Management’ or

Turquand rule. (V.V.V.IMP)
[Note: Doctrine of Indoor management is also known as Turquand rule]
Ans: DOCTRINE OF CONSTRUCTIVE NOTICE: The memorandum and articles of association of a
company are public documents. Any person who is dealing with a company is presumed to have read
and understood the proper meaning of the documents. In other words, no party can take the plea that he
was ignorant of what have been stated in the memorandum and articles of association.
The doctrine of constructive notice comes to the aid of a company vis-a-vis the outsiders.
However, the doctrine has been described as an unreal doctrine, as it fails to take note of business
realities. Hence, the rule has in reality been diluted. The Courts have held ‘if a person deals with the
company in good faith and the person with whom he is dealing has ‘ostensible authority’ to deal on behalf
of the company, the company will be held liable.
Example: Although the articles had clearly stated that the directors could delegate all powers, but the
power to borrow an overdraft taken by the managing agent without the sanction of the board was held to
be binding on the company. Such a temporary loan was not governed by the rule incorporated in the
articles. (Dehdradun Mussoorie Electric Tramway Co. vs. Jagmandardas, AIR (1932) All. 141).
DOCTRINE OF INDOOR MANAGEMENT OR TURQUAND RULE: The doctrine of constructive notice

protects the company in its dealings with outsiders, the doctrine of indoor management comes to the aid
of the outsiders, while dealing with the company.
The doctrine of indoor management implies, anyone dealing with the company who has no means of
knowing about the internal functioning of the company has every right to presume that, things are
happening the way it ought to happen. And any irregularity will not affect the rights of the outsiders. The
company will not be allowed to escape liability.
In other words the doctrine of indoor management is an exception to the doctrine of constructive notice.
Case:
In Royal British Bank v. Turquand (1856) 6E and B 327, the articles authorized its directors to borrow
on bonds by a resolution passed at the general meeting of the company. A bond was issued against the
borrowings made by the company without passing the required resolution. Held, the company was liable
on the bond as the borrower could presume that the resolution had been passed before making the
borrowing through the issue of bond. This came to be known as ‘Turquand Rule’.
Exceptions to the Rule of Indoor Management:

The doctrine of indoor management is subject to five exceptions:
(1) Knowledge of internal irregularities of the company: A person already aware of the irregularity, cannot
claim protection under this rule.
(2) Suspicion of the internal irregularity: Where a person dealing with the company is placed in such
circumstances, which are suspicious in nature and which invite
inquiry, he is not protected by the doctrine.
(3) Acts void ab initio: This doctrine does not apply to acts that are void ab initio. Where the document is
forged one.
(4) Acts, outside the apparent authority of the company: Where the acts of an officer do not fall within the
apparent authority of such an officer, protection under the
doctrine cannot be claimed.
(5) No knowledge of articles: A person who at the time of entering into a contract with a company, has no
knowledge of the company’s articles of association, cannot be saved or protected by the doctrine.
Q. 8] Define ‘a member’. How can a person become a member of a company? Also explain how
termination of membership happens?
Ans: a member of a company means a person—
i. who has subscribed his name to the memorandum.
ii. any other person who has agreed in writing, to become a member and whose name is entered
in the register of members.
iii. every person, holding equity share capital of a company and whose name is entered as beneficial
owner in the records of the depository (inserted by the Depositories Act, 1976).
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A person may become a member of a company in the following ways:

(1) By subscribing to the memorandum: Signatories to the memorandum ipso facto become members
of the company on its incorporation. By virtue of being subscribers, they are deemed to have become
members and must be entered in the register of members. Hence, neither application nor allotment of
shares is necessary.
(2) By undertaking to buy qualification shares: Where a person has signed an undertaking to take and
pay for his qualification shares, he shall as regards those shares, be in the same position as if he had
signed the memorandum for shares of that number or value. Thus an undertaking on the part of the
director to buy qualification shares puts him in the position of a subscriber to the memorandum. He is
deemed to be a member of the company and must be entered in the register of members.
(3) By allotment: A person may acquire membership of a company by application and allotment of
shares.
(4) By transmission: On the death of a shareholder, shares are transmitted to his legal representatives,
who become members of the company on their being entered in the register of members.
(5) By transfer: A person who take shares from art existing member by sale, gift or some other
transaction, acquires membership, on his name appearing in the register of members.
(6) Membership by acquiescence and estoppels: A person is deemed to be a member of a company, if
he allows his name to be put on the register of members or otherwise holds himself out as a member,
even if there is no agreement to become a member. Thus, this liability springs into existence as a result of
acquiescence and estoppels.
(7) Joint members: When two or more persons hold share in a company in their joint names it is called a
joint membership. In such a case, the name of the member appearing first is considered to be the main
member for the purpose of sending notices, dividends, etc.
Membership may be terminated in following manner:

(1) Transfer of shares: The transferor ceases to be a member when the transferee is placed on the
register of members. However, he remains liable to be placed in the ‘B’ list for one year, if the company
goes into liquidation.
(2) If his shares are forfeited by the company.
(3) If the company sells his shares under some provision in its Articles, as for example, in the exercise of
its rights to enforce a lien.
(4) If he validly surrenders shares to the company, where such surrender is permitted.
(5) If his shares are sold in execution of a decree of the Court.
(6) If he rescinds the contract to take shares on the ground of misrepresentation in the prospectus or
of irregular allotment,
(7) If he is adjudicated insolvent. The shares of an insolvent vest in the Official Receiver or Assignee. -
(8) If he dies. However, the estate of the deceased member remains liable until the shares are registered
in the name of his legal representative.
(9) If redeemable preference shares are redeemed.
(10) If the company is being wound up, a member remains liable as a contributor and is also entitled to
share in the surplus assets, if any.
Q. 9] What is a Prospectus? What are the legal requirements of Prospectus?

Ans: Section 2(36) of the Companies Act, 1956 has defines Prospectus as “any document described
or issued as prospectus and includes any notice, circular, advertisement or other document inviting
deposits from the public or inviting offers from the public for the subscription or purchase of shares in or
debentures of a body corporate.”
Different types of prospectus:

 Abridged prospectus
 Shelf prospectus
 Red-herring prospectus
Legal requirement of Prospectus:

1. A prospectus is required to be issued only after the incorporation of the company.
2. The prospectus must contain all the particulars, listed in Schedule II to the Companies’ Act.
3. The prospectus must be dated.
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4. A prospectus must be signed by every person, mentioned therein as a director or a proposed

director, or his agent.
5. Every application form for shares, issued by the company, must be accompanied by a copy of the
prospectus except (a) application forms, issued for bona fide invitation to a person to enter into an
underwriting agreement, and (b) application forms, issued to existing members and debenture
holders.
6. A statement, relating to the affairs of the company by an expert, may be included in the
prospectus.
7. Consent of the expert must be obtained in writing and this fact must be stated in the prospectus.
The term “expert” includes an engineer, valuer, chartered accountant, and other person, whose
profession gives authority to a statement, made by him.
8. No deposit can be invited without issuing an advertisement in a daily newspaper. The said
advertisement must contain a statement, reflecting the company’s financial position issued by the
Company and in such a form or in such a manner, as may be prescribed.
9. Before a prospectus is issued, a copy of it must be registered with the Registrar of Companies.
10. Prospectus shall be issued within 90 days of its registration (i.e. of prospectus).
Q. 10] Write a note on ‘Statement in lieu of prospectus’.

Ans: A public limited company,
(1) which has not issued a prospectus, or
(2) which has issued a prospectus, but has not proceeded to allot any of the shares, offered to
the public for subscription,
is required to deliver to the Registrar a “Statement in lieu of Prospectus” for registration, at least three
days before the allotment of shares or debentures.
Schedule III contains the details of the particulars to be furnished. In case of private company becoming a
public company, statement in lieu of the prospectus can be filed.
Schedule IV contains the details of the particulars to be furnished for the same.
Such a statement is required to be signed by every person, who is named therein as a director or a
proposed director, of the company, or by his agent authorized in writing.
If allotment of shares or debenture is made without filing the statements in lieu of prospectus, the allottee
may avoid it within two months after the statutory meeting, or where no such meeting is to be held, within
two months of the allotment. Contravention also renders the company and every director liable to a fine
upto rupees ten thousand.
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MODULE 2: THE INDIAN PARTNERSHIP ACT, 1932
Q. 1] Define Partnership. State the essentials of Partnership. State its types.

Ans: Sec 4 of the Act defines Partnership as, “the relation between persons who have agreed to share
the profits of a business carried on by all or any of them acting for all”.
Essential features:
(a) Two or more persons: For a partnership agreement, minimum two persons are required. In case of
banking business the maximum number permissible is 10, while in any other business, the number
cannot exceed 20. All persons must have the capacity to enter into a contract.
(b) Agreement: There should be an agreement to form a partnership. However; this agreement may be
expressed or implied. S.5 of the act states, “the relation of partnership arises from a contract and not from
status”. The agreement must satisfy the essentials of a contract. The registration of the agreement is not
a must.
(c) Business: The definition clearly states, partnership can be formed only to carry on a business. The
term business is used in the widest sense, and it refers to any lawful activity, which if successful would
result in profits. And it includes every trade, occupation and profession. It may also be noted that it is not
necessary that the business be a permanent undertaking. A partnership may exist even for a single
venture.
Example: ‘A’ and ‘B’ are partners for a single road building contract. This amounts to partnership.
(d) Sharing of Profits: The word ‘partnership’ is derived from the word ‘to part’ which means ‘to divide’.
Thus, division or sharing of profits is a must in partnership. For a partnership, sharing of profits is a must
but the ratio in which they share the profits is not important. If nothing is mentioned in the Deed about the
ratio of sharing then the profits are shared equally.
(e) Mutual Agency: There must exist a mutual agency relationship amongst the partners. Mutual agency
relationship means that each partner is both an agent and a principal. Thus, a partner is an agent of the
other partner in the sense that by his acts he can bind the other partners. He is the principal in the sense
that he can be held liable for the acts of the other partners.
(f) Essentials of a Contract: As partnership is an agreement it must satisfy the requirements of a
contract.
Types of Partnership:
(1) Partnership for a fixed term: It is a partnership, where the time period is fixed. Such a partnership
gets dissolved at the expiry of the time period. Before the fixed period, it may be dissolved by mutual
consent. However, if it continuous after the fixed period, it becomes partnership at will.
(2) Partnership at will: It is a partnership in which the duration is not fixed and can be dissolved by any
partner by giving a notice.
(3) Particular partnership: It is a partnership which is formed for the purpose of carrying on the particular
venture. Such particular partnership comes to an end on the completion of the venture. Again if it
continues after completion of the venture, it becomes partnership at will.
Q. 2] Explain the procedure for registration of firms. What are the consequences of non-
registration?
Ans: Registration of firms is not compulsory under the Act. Hence, non-registration of firms does not
affect the partnership agreement or any transaction between the partners and third parties.
Registration of a firm may be done at any time by sending in the application form along with the fee to the
Registrar of firms. The form should contain the following particulars:
(a) Name of the firm.
(b) Place or Principal place of business.
(c) The name of any other places where the firm carries on business.
(d) The date when each partner joined the firm.
(e) The name in full and permanent address of partners.
(f) The duration of the firm.
After scrutiny, the Registrar shall make entry in the Register of firms.
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Consequences of non-registration or effect of non-registration:

Although the Partnership Act does not make registration of firms compulsory, yet attaches certain
disabilities to non-registered firms.
(a) The partners cannot file a suit against the firm or other partners: A partner of an unregistered firm
cannot sue the firm or his other present or past partners, for the enforcement of any right arising from a
contract or conferred by the Indian Partnership Act.
(b) The firm cannot file a suit against third parties: An unregistered firm or the partners of the
unregistered firm cannot sue the third party for acts arising from a contract.
(c) No right to counter claim or set-off: No unregistered firm and no partners of such unregistered firm
shall, when sued be entitled to counter claim on set-off.
Exceptions: Non-registration of firm, however, does not affect the following rights:
(i) The right of a third party to sue an unregistered firm or its partners.
(ii) The right of a partner to sue for the dissolution of a firm or for accounts of a dissolved firm or for
realisation of the property of a dissolved firm.
(iii) The power of an Official Assignee to realise the property of an insolvent partner.
(iv) The rights of the firm or its partners are not affected if the firm has no place of business in India.
(v) The right to suit or claim set-off not exceeding Rs. 100 in value.
(vi) One partner can bring a suit for damages for misconduct against another partner.
Registration of firms in Maharashtra: Registration of firms is compulsory in Maharashtra. Although

registration is compulsory, legal heirs or legal representatives of a deceased partner of a firm can enforce
their rights for accounts or to realise the property against the unregistered firm.
Q. 3] What are the rights and duties of partners? V.V.V.IMP

Ans: The following are the rights of partners can exercise against his co-partners:
(1) Right to take part in business: Every partner has a right to take part in the conduct of business of
the firm.
(2) Right to access the books of firm: Every partner has a right to have an access to the books of the
firm. He can examine, and copy such accounts.
(3) Right to share profits: Every partner has the right to share the profits in the agreed proportion or
equally if no agreement to that effect is there.
(4) Right to interest on capital: Ordinarily no interest can be claimed on the contribution towards the
capital. However if agreed, interest made be paid but only out of the profits.
(5) Right to be consulted: Subject to the contract between the partners, every partner has a right to be
consulted in all matters of the firm. However, with regard to ordinary matters, majority rule will prevail. But
in crucial matters like introduction of a new partner, consent of all partners is a must.
(6) Right to be consulted at the time of admission of new partner: Generally, no person can be
admitted as a partner without the consent of all partners, in other words, every partner has the right to be
consulted for admission of new partner.
(7) Right of an outgoing partner: An outgoing partner can carry on a competing business. However,
reasonable restrictions may be imposed by the firm.
(8) Right to indemnify: Every partner has a right to be indemnified for the expenses incurred in the
ordinary course of business and for expenses incurred in an emergency.
(9) Right to retire: A partner can retire:
(i) with the consent of all partners,
(ii) in accordance with the terms of the agreement,
(iii) in case of partnership at will.
The following are the duties/liabilities of partners can exercise against his co-partners:
(1) General Duties: All partners are bound to:
(a) carry on the business of the firm to the greatest common benefit;
(b) be just and faithful to each other, in their mutual dealings; and
(c) render true accounts and full information of all things, affecting the firm, to any partner or to his
legal representative.
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The accounts must not be merely submitted but must be explained and supported by proper vouchers
and documents.
(2) A duty to indemnify the firm for any loss, caused by fraud: Every partner shall indemnify the firm
for any loss, caused to it by his fraud in the conduct of the business of the firm.
(3) A duty of a partner to attend diligently to his duties: Every partner is bound to attend diligently to
his duties in the conduct of the business. He must use his knowledge and skill and take care to the
common advantage of all the partners of the firm.
(4) A duty of a partner to indemnify the firm for any loss caused by his wilful neglect: Every partner
shall indemnify the firm for any loss, caused to it by his wilful neglect in the conduct of the business of the
firm.
(5) To account for private profits: A partner is liable to account to the firm, regarding the private profits
earned by him.
(6) Duty to account for profits in competing business: Every partner is duty bound not to carry on
business in competition with the firm. If any partner carries on competing business and earns profit, he
has to account for such profits and pay the same to the firm.
(7) Duty not to transfer his rights and interest: It is the duty of every partner not to transfer his rights
and interest in the firm to outsiders.
Q. 4] Write a short note on “Partner by Holding Out”.

Ans: Generally, a person becomes a partner by agreement. Sometimes a person though not a partner
is treated as a partner on account of his conduct. One such way is by holding out.
S. 28 Partner by holding out:
“Anyone who by words spoken or written or by conduct represents himself, or knowingly permits himself
to be represented to be a partner in that firm, is liable as a partner in that firm to anyone who has on the
faith of any such representations given credit to the firm, whether the person representing himself or
represented to be a partner does or does not know that the representation has reached the person so
giving credit.”
From the definition it is clear a person would be liable as a partner by holding out if:
(a) he has represented himself as a partner either by express representation or by tacit representation,
and
(b) the other party has given credit on the basis of such representation.
Note: It is immaterial whether the person so representing is aware or not, that the representation has
reached the person giving credit.
A partner by holding out is liable to the third parties. However, he cannot take part in the activities of the
firm nor does he share the profits.
Example: ‘A’ introduced ‘B’ to ‘C’ as his partner. ‘A’ and ‘B’ remained silent. In fact ‘A’ and ‘B’ were not
partners. In this case, B becomes a partner by holding out.
However the doctrine of holding out does not apply in the following cases:
(1) Retirement of a sleeping partner: A sleeping partner is a partner who is unknown to outsiders. He is
liable so long as he is a partner. After his retirement he cannot be held liable by way of holding out.
(2) Deceased partner: Sometimes a firm continues its busmess even when a partner dies. In such
cases, the estate of the deceased partner cannot be held liable for any act of the firm after his death. It
does not matter whether public notice was given or not.
(3) Insolvent partner: An insolvent partner cannot be held liable for the acts of the firm entered after he
was declared insolvent. Even in this case no public notice need be given. His liability gets terminated from
the date he was declared insolvent.
Q. 5] Write a short note on Minor’s position in Partnership.

Ans: A minor is a person below 18 years or 21 years of age in accordance with the law to which he is
subject. As we are already aware, a minor cannot contract, he cannot enter into partnership agreement.
However, under the Act, a minor can be admitted to the benefits of partnership. In this case the
agreement shall be entered by the parent or next of friend. He will have to bring in capital and shall share
profits as agreed upon. The position of a minor can be studied under two headings namely
(1) Rights and liabilities of a minor during minority.
(2) Rights and liabilities on attaining the age of majority.
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(1) Rights and liabilities of a minor during minority:

Rights:
(i) To share profits: A minor has the right to share profits and property as agreed upon.
(ii) Access to books: During minority, a minor can look into the accounts but not the books of accounts.
(iii) To sue: A minor has a right to sue for his share of profits or property of the firm. However, this right
can be exercised only after -coming out of the firm.
Liabilities:
A minor share only will be liable for any acts of the firm. Hence, his liability is limited.
(2) Position of a minor on attaining the age of majority:

On attaining the age of majority, the minor has to decide within six months, whether or not he wants to
become a full fledged partner.
A public notice must be given stating:
(i) he has decided to become a partner, or
(ii) he has decided not to become a partner.
If he fails to give notice, then he will automatically be deemed to have become a partner on the expiry of
six months.
(3) Rights and liabilities of a minor on attaining the age of majority:

(1) Where the minor elects to be a partner:
(i) His rights and liabilities shall be similar to those of the full fledged partners unless there is an
agreement to the contrary.
(ii) His share in the property and profits shall be the same as was during minority unless there’s an
agreement to the contrary.
(iii) He becomes personally liable for all debts, since he was first admitted to the benefits of partnership.
(2) Where he elects not to become a partner:

(i) His rights and liabilities shall continue to be those of a minor, upto the date of public notice.
(ii) His share shall not be liable for any acts of the firm, done after the date of notice.
(iii) Finally, he can file a suit against the partners for his share of property and profits in the firm.
Q. 6] What are the different modes of Dissolution of Firm?

Ans: There are three modes of dissolution of a firm namely:
(A) Voluntary dissolution.
(B) Dissolution by operation of law.
(C) Dissolution by the intervention of the Court.
(A) Voluntary Dissolution:

(1) By consent: All partners may consent for the dissolution of the firm. happen whether the firm is for a
fixed duration or not.
(2) By agreement: A firm may be dissolved in accordance with a contract. Example: Partnership for a
fixed term.
(3) By notice: Whenever a partnership is at will, any partner can give a notice for dissolution, and
dissolve the firm.
(B) Dissolution by Operation of Law:

This is further sub-divided into two, namely
(1) Compulsory dissolution,
(2) Dissolution on the happening of certain contingencies.
(1) Compulsory dissolution:

a) By Insolvency: When all partners of the firm become insolvent or all except one become
insolvent, the firm gets dissolved.
b) Some event making partnership business unlawful: Sometimes an event happens which
makes the business of the firm unlawful. In such cases the firm gets dissolved.
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Example: A firm was importing rice from another country. Subsequently, the government bans the import
of rice. The firm gets dissolved, as the business has become unlawful.
c) Some event making the business unlawful, if carried on in partnership: Sometimes the
business may be lawful but carrying on in partnership is unlawful. In such cases the firm gets
dissolved.
Example: A firm carrying on business in stationery item having twenty-one partners. Here, it cannot be a
firm any longer, as maximum numbers permissible is twenty.
(2) Dissolution on the happening of certain contingencies: The firm may get dissolved, subject to the
contract between the partners in the following circumstances:
(i) Expiry of the firm for which the firm was constituted,
(ii) On completion of the venture,
(iii) On death of a partner, and
(iv) On insolvency of a partner.
(C) Dissolution of the firm by Intervention of the Courts:

On the filing of a suit, the Court after hearing the parties may order for the dissolution of the firm in
following circumstances:
(1) Insanity of a partner: When a partner becomes of unsound mind. The case may be instituted by the
next of friend or other partners.
(2) Permanent incapacity: Sometimes, a partner may become permanently incapable of discharging his
duties. In such cases also, the Court may order dissolution of the firm.
(3) Misconduct of a partner: When a partner, other than the partner suing, is guilty of misconduct which
is likely to affect the business of the firm, the Court may order for dissolution of the firm.
(4) Willful or persistent breaches of agreement: Sometimes, a partner wilfully or persistently commits a
breach of agreement relating to the management of the affairs of the firm or conducts the business in
such a way that the other partners find it difficult to carry on the business with him. In such cases any
partner other than the guilty partner may approach the Court for dissolution.
(5) Transfer of interest: Sometimes a partner may transfer the whole of his interest or share to a third
party, or the share may be charged or the share has been sold for the recovery of arrears of land
revenue, in which cases, the other partner or partners may seek for dissolution of the firm.
(6) Losses in business: Where the business of a firm cannot be carried on except at a loss, the Court
can order for dissolution.
(7) Any other just and equitable grounds: Where the Court is satisfied that it is just and equitable to
dissolve the firm
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LIMITED LIABILITY PARTNERSHIP ACT, 2008

DEFINE LLP. DISCUSS ITS NATURE AND SALIENT FEATURES.
Section 2(n) of the LLP Act, 2008 defines a “Limited Liability Partnership” as “a partnership formed and
registered under the Limited Liability Partnership Act, 2008.”
Section 3 of the Act defines the nature of the LLP as “a body corporate formed and incorporated under
the LLP Act, 2008 and a legal entity separate from that of its partners.”
Hence, from above details, we may conclude that a LLP is a relatively new form of business organisation,
formed by two or more persons to carry on lawful business, trade, profession, service or occupation, that
enjoys an independent juridical entity having its own legal status.
SALIENT FEATURES:
 Body Corporate: A LLP is a body corporate, formed and registered under this act and has a
separate legal existence from that of its partners.
 Perpetual Succession: A LLP shall have perpetual succession. Any change in the partners of a
limited liability partnership shall not affect the existence, rights or liabilities of the limited liability
partnership.
 Partners: Any individual or body corporate may be a partner in a limited liability partnership, except if
the individual is:
 Found to be of unsound mind,
 is an undischarged insolvent or
 has applied to be adjudicated as an insolvent
 Minimum number of Partners: every LLP shall always have atleast two partners.
 Designated partners: Every LLP shall have atleast two designated partners who are individuals and
atleast one of them shall be a resident in India.
 Liabilities of Designated Partners: A designated partner shall be responsible for the doing of all
acts, matters and things as are required to be done by the LLP in respect of compliance of the
provisions of this act else they will be liable to penalties.
DISCUSS THE EXTENT AND LIMITATIONS OF LIABILITY OF LLP.
The extent and limitation of liability of a LLP and partners are discussed below:
 Partner as the Agent: Every partner of a LLP is, for the purpose of the business of the LLP, the
agent of the LLP, but not of the other partners.
 Extent of Liability of LLP (Sec. 27):
a) A LLP is not bound by anything done by a partner in dealing with a person if the partner has not
authority to act for the LLP in doing a particular act or the person knows that he has no authority
or does not know or believe him to be a partner of the LLP.
b) The LLP is liable if a partner of a LLP is liable to any person as a result of a wrongful act or
omission on his part in the course of the business of the LLP or with its authority.
c) An obligation of the LLP whether arising in contract or otherwise, shall be solely the obligation of
the LLP.
d) The liabilities of the LLP shall be met out of the property of the LLP.
 Extent of Liability of Partner (Sec. 28):
a) A partner is not personally liable, directly or indirectly for an obligation referred to in sub-section
(3) of section 27 solely by reason of being partner of the LLP.
b) A partner shall not be personally liable for the wrongful acts or omission of any partner of the LLP
except for himself.
 Holding out:
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Any person, who by words spoken or written or by conduct, represents himself, or knowingly permits
himself to be represented to be a partner in LLP is liable to any person who has given credit to LLP
on such wrongful presentation.
 Unlimited Liability in case of Fraud:
In the event of an act carried out by a LLP, or any of its partners, with intent to defraud creditors of the
LLP or any other person, or for any fraudulent purpose, the liability of the LLP and partners who acted
with intent to defraud creditors or for any fraudulent purpose shall be unlimited for all or any debts or
other liabilities of the LLP.
 Whistle Blowing:
The Court or Tribunal may reduce or waive any penalty leviable against any partner or employee of a
LLP, if it is satisfied that such partner or employee of a LLP has provided useful information during
investigation of such LLP.
DISCUSS THE WINDING-UP AND DISSOLUTION OF LLP.
Winding up is the legal process that results in dissolution of the LLP, which means an end of LLP as a
corporate body. The winding up and dissolution of a LLP are governed by and under the provisions of
Sec. 63 to 65 of the Act, as explained herein under:
 Winding Up and Dissolution voluntarily or by Tribunal (S.63):
The winding up of a LLP may be either voluntary or by the Tribunal and LLP, so wound up may be
dissolved.
 Winding Up voluntarily under three circumstances:
 On expiry of the period as specified in the LLP agreement,
 On the happening of the specified event, if the LLP passes a resolution to that effect, or
 If the LLP passes a special resolution for voluntary winding, with the approval of atleast 75% of
total number of partners and also of the creditors holding at least 2/3 of the value.
 Winding Up by the Tribunal under six circumstances:
 If the LLP decides that LLP be wound up by the Tribunal,
 If for a period of more than 6 months, the number of partners of the LLP is reduced below two,
 If the LLP is unable to pay its debts,
 If the LLP has acted against the interests of the sovereignty and integrity of India, the security of
the state or pubic order,
 If the LLP has made a default in filing with the Registrar the Statement of Account and Solvency
or annual returns for any five consecutive years,
 It the Tribunal is of the opinion that it is just and equitable that the LLP be wound up.
.
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MODULE 3: THE CONSUMER PROTECTION ACT, 1986
IMPORTANT DEFINITIONS:
“Complainant” means
i) an individual consumer; or,
ii) any voluntary consumer association, registered under the Companies Act, 1956, or under any other
law for the time being in force; or,
iii) the Central Government or any State Government; or,
iv) one or more consumers, where there, are numerous consumers having the same interest; who are
which makes a complaint; or,
v) in case of death of a consumer, his legal heir or representative.
A complainant is the party, who makes the complaint before a Consumer Redressal Forum, such as, (i)
the District Forum, (ii) the State Commission, and (iii) the National Commission.
Complaint [Sec. 2(1) (c)]

“Complaint” means any allegation, in writing, made by a complainant to the effect that —
i) an unfair trade practice, or a restrictive trade, practice has ‘been adopted by any trader or service
provider;
ii) the goods, bought by him, or agreed to be bought by him, suffer from one or more defects;
iii) the services, hired, or availed of or agreed to be hired, or availed of by him, suffer from deficiency in
any respect;
iv) a trader or the service provider, as the case may be, has charged for the goods, or for the services,
mentioned in the complaint, a price, in excess of the price, fixed by or under any law, for the time being in
force, or displayed, on the goods, or any package containing such goods, or displayed on the price list
exhibited by him or under any law for the time being in force, or agreed between the parties;
v) goods, which will be hazardous to life and safety, when used, are being offered for sale to the public to
contravention of the provisions of any law, for the time being in force, if the trader could have known with
due diligence that the goods so offered, are unsafe to the public, or services which are hazardous or likely
to be hazardous to life and safety of the public when used, are being offered by the service provider,
which such person could have known with due diligence to be injurious to life and safety.
- The term ‘complaint’, as defined above, is equivalent to a ‘plaint’ of a civil suit, providing the particulars,
to be contained in the ‘plaint’.
Consumer [Sec. 2(1)(a)]

The concept of a “Consumer” has already been defined.
Following are a few instances of persons, held to be consumers
(1) Bank customers; (2) Consumers of electricity; (3) Subscribers of telephones; (4) a passengers
travelling by train or by bus or by aeroplane; (5) a patient receiving medical treatment on payment of fees;
(6) a beneficiary of services like a nominee of the insured; (7) A self-employed person, who buys goods
and uses them himself, exclusively for earning his livelihood, is a consumer [Laxmi Engineering Works v.
P. S. O. Industrial Institute AIR (1995) SC 1428]; (8) Where a young child was taken to a private hospital
by parents and treated by the doctor, it was held by the Supreme Court that both the child (patient) as
well as his parents were consumers [Spring Meadows Hospital v. Ahluwala (1998) (4) SCC 39].
Following are a few examples of persons, who are not held to be consumers:
1. a patient receiving medical treatment in a Government hospital;
2. a student hiring services of a private tutor.
3. persons, who obtain goods for “resale”, or for “commercial purpose.”
Consumer Dispute [Sec. 2(1) (e)]

“Consumer dispute” means a dispute, where the person, against whom, a complaint has been made,
denies or disputes the allegations, contained in the complaint.
Defect [Sec. 2(1) (f)]

“Defect” means any fault, imperfection, or shortcoming, in the quality, quantity, potency, purity or
standard, which is required to be maintained by, or under any law, for the time being in force, or as is
claimed by the trader in any manner, whatsoever in relation to any goods.
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The term ‘defect’ means lack or absence, of something, which is considered essential for completeness
[Tate v. Luther (1897) 1 Q B 502].
Where there is a shortage in the quantity of goods, it amounts to a defect in goods. Similarly, if the seller
fails to deliver the goods, which he agreed to sell, it will be treated as a defect. [General Co-operative
Groups Housing Society v. J.K. Cement Works (1991) CPJ 550 (Del)].
Finally, the defect may be substantive or cosmetic in nature.
Deficiency [Sec. 2(1) (g)]

‘Deficiency’ means any fault, imperfection, shortcoming, or inadequacy in the quality, nature and manner
of performance, which is required to be maintained by or under any law for the time being in force, or has
been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any
service.
The basic point of distinction between ‘defect’ and ‘deficiency’ is that, while the former refers to any goods
and the latter has been used in relation to any service. Fault or negligence in setting the claim by the
insurance company constitutes deficiency. [Umedilal v. United India Assurance Co. (1991) (PJ 3 NC)].
Disconnection of electric supply on account of arbitrary and excessive billing is ‘deficiency’ in service
[Nunes Enterprises v. Office of the Assistance Engineer (1992)
Failure of Bank to credit the amount in the account is deficiency in service [Dr. K. T. Shivaiah v. Canara
Bank (1992) I CPJ 253 Nc]
In spite of the knowledge that a junior doctor is not capable of performing duties properly, delegating the
responsibility to such a junior doctor amounts to negligence.
Manufacturer [Sec. 2 (1) U)]

“Manufacturer” means a person who,
i) makes or manufactures any goods, or parts thereof; or
ii) assemble parts, manufactured or made by others; or
iii) puts or causes to be put his own mark on any goods, made or manufactured by any other
manufacturer.
Where a manufacturer despatches any goods, or part thereof, to any branch office, maintained by him,
such branch office shall not be deemed to be the manufacturer, even though, the parts so despatched to
it are assembled at such branch office and are sold or distributed from such branch office.
Service [Sec. 2 (1) (o)]

“Service” means service of any description, which is made available to potential users and includes the
provision of facilities in connection with (a) banking, (b) financing, (c) insurance, (d) transport, (e)
processing, (f) supply of electrical, or other energy, (g) board or lodging or both, (h) housing construction,
(i) entertainment, amusement, or (j) the purveying of news or other information, but does not include the
rendering of any service free of charge, or, under a contract of personal service.
‘Service’ means hire of any service for money consideration only and not free of charge, or, under a
contract of persona) service.
Following are a few instances, which are held to be services:

1. services, rendered by Post and Telegraphs Department;
2. processing services;
3. services, rendered by Insurance Companies, including services for settlement of claims;
4. services rendered by entertainment agencies like cinema houses, theatres, etc.,
5. services rendered by hospitals or nursing homes on payment of fees;
6. services rendered by banking and financial institutions;
7. services, rendered by transport agencies, such as, rail, bus, air, sea, etc.
8. supply of electricity; and
9. supply of food on board of aircraft;
10. hotel, lodging and boarding services;
11: housing construction; and
12. common carriers for loss or damage to the goods, entrusted to it for transportation [Patel Roadways
Ltd. v. Birla Yamaha Ltd. (2000) (4) 5CC 91].
Following are a few instances, which are held not to be services:

Page | 15
1. Medical treatment, offered free of charge in a Government hospital;

2. Services rendered by a private tutor, as it is a contract of personal service;
3. Services, rendered by Municipalities, or Municipal Corporations, as payment of direct or indirect taxes
by public is not considered to be a consideration, paid for hiring the services; and
4. Any service, rendered gratuitously.
Cases:
Kerala High court has held that the failure to perform an emergency operation on the deceased, on March
11, 1974, amounted to negligence and the death of the deceased was due to that failure. [Dr. T.T.
Thomas v. Elisa, AIR (1987) Ker 52]
The Supreme Court, in a landmark judgement, ruled, on November 13, 1995, that providing medical
assistance for payment falls within the scope of the expression ‘service’ as defined in section2(i)(o) of the
Consumer Protection Act. Doctors have, thus, been made accountable to the patient, his family, and the
public.
Unfair Trade Practice [Sec. 2(1)(r)]

The expression ‘unfair trade practice” means a trade practice, which, for the purpose of promoting the
sale, use or supply of any goods, or for the provision of any services adopts any unfair method, or unfair,
or deceptive, practice, including any of the following practices, namely
1. the practice of making any statement, whether orally, or in writing, or by visible representation, which,
i) falsely represents that the goods are of good standard, quantity, grade, composition, style, or models;
ii) falsely represents that the services are of a particular standard, quality or grade;
iii) falsely represents any rebuilt, second hand, renovated, reconditioned, or old goods, as new goods;
iv) represents that the goods or services have sponsorship, approval, performance characteristics,
accessories, uses, or benefits, which such goods or services do not have;
v) represents that the seller, or the supplier, has a sponsorship or an approval, or affiliation, which such
seller or supplier does not have;
vi) makes a false or misleading representation concerning the need for, or the usefulness of any goods or
services;
vii) gives to public any warranty or guarantee of the performance, efficiency, or length of life of a product.
or of any goods, that I s not based on an adequate or proper test thereof:
viii) makes to the public a representation in a form, that purports to be
a) a warranty or guarantee of a product or of any goods or services; or
b) a promise to replace, maintain, or repair an article, or any part thereof, or to repeat, or continue a
service until it has achieved a specified result, if such purported warranty, or guarantee, or
promise is materially misleading, or if there is no reasonable prospect that such warranty,
guarantee, or promise will be carried out;
ix) materially misleading the public concerning the price, at which a product, or like products, or goods or
services have been, or are, ordinarily sold or provided, and for this purpose, a representation as to price
shall be deemed to refer to the price, at which, the products or goods, or services has or have been sold
by sellers, or provided by suppliers, generally in the relevant market, unless it is clearly specified to be the
price, at which, the product has been sold by whom or on whose behalf the representation is made;
x) gives false or misleading facts disparaging the goods, services or trade of another person;
Restrictive Trade Practice [Sec. 2 (nnn)]

A restrictive trade practice means any trade practice, which restricts the freedom of a consumer by forcing
him to buy, hire, or avail of any goods, or services, as the case may be, as a condition precedent to
buying, hiring, or, availing of other goods or services. Thus, no trader can impose any such conditions for
sale of a particular kind of goods or services, if a consumer wants to buy, or, hire, or, avail of services of
other goods and/or services. For example, a consumer cannot be forced to buy a Video recording player
as a condition precedent, if he wants to buy a colour television of a particular brand only.
Page | 16
Q. 1] WHAT ARE THE AIMS AND OBJECTS OF THE CONSUMER PROTECTION ACT, 1986?
Ans: The Consumer Protection Act, 1986, seeks to provide for better protection of the interests of
consumers and protect the following rights of consumers under its
Section 6:
1. the right to be protected against marketing of goods and services, which are hazardous to life and
property;
2. the right to be informed about the quality, quantity, potency, purity, standard, and price of goods or
services, as the case may be, so as to protect the consumer against unfair trade practices;
3. the right to be assured, wherever possible, access to variety of goods and services at competitive
prices;
4. the right to be heard and to be assured that customers interests will receive the consideration at
appropriate forums;
5. the right to seek redressal against unfair trade practices, or, restrictive trade practice, or, unscrupulous
exploitation of consumers; and
6. The right to consumer education. The aforesaid aims and objects are sought to be promoted and
protected by the Consumer Protection Councils, to be established at the National, State, and District
levels.
7. To provide speedy and simple redressal of consumer disputes. a quasi- judicial machinery is sought to
be set up at the District, Stale and Central levels. These quasi-judicial bodies will observe the principles of
natural justice and have been empowered to give reliefs of a specific nature and to award, whenever
appropriate monetary compensation to consumers. Penalties for non-compliance of the orders, given by
the quasi judicial bodies, have also been provided.
The Consumer Protection Act, 1986. extends to the whole of India except the State of Jammu and
Kashmir.
Q. 2] WHAT IS MEANT BY “CONSUMER PROTECTION”?

Ans: In the light of the above concepts of “consumer” and “consideration” the expression “consumer
protection” means and includes protection of the consumer:
a) against excessive, unfair, or, exorbitant prices, levied on primary, consensual goods and
commodities, and articles of daily consumption;
b) against adulteration of goods, commodities, drugs, and other articles;
c) against under weight of goods, articles, and commodities;
d) against sub-standard quality of products;
e) against short measures and unfair practices;
f) against deficiency in service in any respect.
Q. 3] WHAT IS THE TEST OF “DEFICIENCY IN SERVICE? WHO IS OBLIGATED TO PROVE

“DEFICIENCY IN SERVICE?
Ans: The test of “deficiency in service” had been laid down by the Supreme court in the case of
Ravneet Singh Bagga v/s. KLM Royal Dutch Airlines, where it was held that “deficiency in service” cannot
be alleged without attributing fault, imperfection, shortcoming, inadequacy in quality, nature and/or
manner of performance of a service, defective goods, unfair trade practices, inefficiency, lack of adequate
care, which a professional person with ordinary prudence is obligated to possess and demonstrate in the
profession, absence of bona fides, recklessness, haste, rashness, or an omission in rendering services.\
The burden, onus, or responsibility of proving a case of “deficiency in service” lies on the complainant,
who alleges deficiency in service. In the absence of deficiency in service, the aggrieved person may have
a remedy under the common law to file a law suit for damages but cannot insist on relief under the
Consumer Protection Act. A bona fide dispute would not constitute a deficiency in service.
In May, 2008, Mr. Narayan Vishnu Tawade, a member of Shiv Ganga Cooperative Housing Society Ltd.
moved the Mumbai Suburban District Consumer Dispute Redressal Form, Bandra court, for “deficiency in
service” against the said society. The Forum, comprising its President J.L. Deshpande and its member
V.G. Joshi, said “The by-laws say non-occupancy charges should not be more than 10% of the service
charges (excluding municipal taxes). Going by the statements, produced by the complainant, we found
Page | 17
that the non-occupancy fees were over-charged by 100%”. The Forum, then, ordered: “We deem it fit and
proper to award the complainant a refund of over-charged non-occupancy charges from August, 2001
along with interest of 9% per annum from the date when the complaint was lodged.”
Moreover, the complainant had also demanded Rs. 49,140 for repair works in his flat. The Court said that
despite repeated requests, the said housing society did not repair the outer walls, dug up, to plug the
leaks. Ultimately, the complainant himself got the wall repaired, for which he submitted architect’s report
and bills as evidence. The Forum ordered that Tawade should be paid that sum with an interest of 9% per
annum.
Q. 4] WHAT IS THE COMPOSITION OF THE CENTRAL COUNCIL?

Section 4 of the Act, as amended by the Consumer Protection (Amendment) Act, 2002, the Central
Government shall, by notification, establish with effect from such dare as it may specify in such
notification, a council to be known as the Central Consumer Protection Council (also known as the
Central Council). The Central Council shall consist of the following members, namely
a) the Minister in charge of Consumer Affairs in the Central Government, who shall be its Chairman, and
b) such number of other official or non-official members representing such interests, as may be
prescribed.
Rule 3 of the Consumer Protection Rules, 1987 says that the Central Council shall consist of the
following members, not exceeding 150, namely
i) the Minister in-charge of Department of Civil Supplies, who shall be the Chairman of the Central
Council;
ii) the Minister of State (where he is not holding independent charge) or Deputy Minister in the
Department of Civil Supplies who shall be the Vice-Chairman of the Central Council;
iii) the Minister in-charge of Consumer Affairs in States;
iv) eight Members of Parliament (five from the Lok Sabha and three from the Rajya Sabha);
v) the Secretary of the National Commission for the Scheduled Castes and the Scheduled Tribes;
vi) not more than twenty representatives of the Central Government Departments, autonomous
organisations, concerned with consumer interest;
vii) not less than thirty-five representatives of the Consumer Organisations for consumers;
viii) not less than ten representatives of women;
ix) not more than twenty representatives of farmers, trade and industries;
x) not more than fifteen persons capable of representing consumer interests not specified above;
xi) the Secretary in-charge of Consumer Affairs in the Central Government shall be the member Secretary
of the Central Council
The Central Government, accordingly, constituted the first Central Council by a notification dated June 1,
1987.
Q. 5] WHAT IS THE PROCEDURE FOR MEETINGS THE CENTRAL COUNCIL?

Ans: 1) At Least One Meeting in a Year [See. 5(1)]: The Central Council shall meet as and when
necessary, but at least one meeting of the Council shall be held every year. It is obligatory for the Central
Council to meet at least once a year; however, the Council is at liberty to meet as and when necessary.
2. Time and Place of Meeting and its procedure [Sec. 5(2)]: The Central Council shall meet at such
time and place as the Chairman may think fit and shall observe such procedure in regard to the
transaction of its business, as may be prescribed.
The Chairman of the Council enjoys unfettered jurisdiction in the matter of fixation of the time and place of
such meeting. The only restriction is that he is obligated to follow the procedure, as prescribed by the
Central Government in regard to the transaction of the business of the Council.
3. Procedure for Meetings of the Central Council: Under sub-section (2) of Section 5, the Central
Council shall observe the following procedure in regard to the transaction of its business, as laid down
Rule 4.
 The meeting of the Central Council shall be presided over by the Chairman.
 In the absence of the Chairman, the Vice-Chairman shall preside over the meeting of the Central
Council.
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 In the absence of the Chairman and the Vice-Chairman, the Central Council shall elect a member
to preside over that meeting of the Council.
 Each meeting of the Central Council shall be called by giving not less than ten days, from the
date of issue, notice in writing to every member.
3. Every notice of a meeting of the Central Council shall specify the place and the day and hour of the
meeting and shall contain statement of business, to be transacted thereat.
4. No proceedings of the Central Council shall be invalid merely by reasons of existence of any vacancy
in or any defect in the Constitution of the Council.
5. For the purpose of performing its functions under the Act, the Central Council may constitute from
amongst its members, such working groups, as it may deem necessary, and every working group so
constituted shall perform such functions, as are assigned to it by the Central Council. The findings of such
working groups shall be placed before the Central Council for its consideration.
6. The non-official member shall be entitled to first class to and fro Railway fare and a daily allowance of
one hundred rupees per day for attending the meeting of the Central Council, or any working group.
Members of Parliament shall be entitled to travelling and daily allowances, at such rates, as are
admissible to such members.
7. The resolution, passed by the Central Council, shall be recommendatory in nature.
Q. 6] WHAT IS THE COMPOSITION OF THE STATE CONSUMER PROTECTION COUNCIL (STATE

COUNCIL)?
I] Sec. 7 of the Act says that the State Government shall, by notification, establish with effect from such
date, as it may specify in such notification,
1] a Council to be known as the State Consumer Protection Council (hereinafter referred to as the State
Council).
2] The State Council shall consist of the following members, namely,
i. the Minister in charge of consumer affairs in the State Government, who shall be its Chairman;
ii. such number of other official, or non-official members representing such interests, as may be
prescribed by the State Government.
iii. such number of other official or non-official members, not exceeding ten, as may be nominated by
the Central Government.
II] Procedure for Meetings of the State Councils.

i. Not less than Two Meetings in a Year [Sec. 7(3)1.
ii. The State Council shall meet as and when necessary but not less than two meetings shall be
held every year.
iii. Time and Place of Meeting and Its Procedure [Sec. 7(4)].
iv. The State Council shall meet at such time and place, as the Chairman may think fit and shall
observe such procedure in regard to the transaction of its business, as may be prescribed by the
State Government.
Q. 7] WRITE A NOTE ON CONSUMER DISPUTE REDRESSAL AGENCIES:

Ans: Sec. 9 provides for establishment of a three-tier hierarchy of the Consumer Disputes Redressal
Agencies, as under:
District Forum in Each District: At the lowest base level is the District Consumer Disputes Redressal
Forum, also known as the ‘District Forum’, which shall be established by the concerned State
Government by a notification in the Official Gazette. Provided that the State Government may. if it deems
fit, establish more than one District Forum in a district.
2. A State Commission in Each State: Next in the hierarchy is the State Consumer Disputes Redressal
Commission, to be known as the “State Commission” to be established in each State, by a notification in
the Official Gazette.
3. A National Commission is the Apex Body: The National Commission is the apex body, in the
hierarchy of the Consumer Disputes Redressal Agencies, for the whole country. It shall be established by
the Central Government by notification in the Official Gazette. Although the National Commission is the
apex body enjoying unlimited pecuniary jurisdiction, an appeal lies to the Supreme Court against any
order, passed by the National Commission, under Sec. 23 of the Act.
No Court Fee and Other Procedural Technicalities The most significant feature of these Redressal
Agencies is that no court fee, or other procedural technicalities, is envisaged and a fresh beginning is
Page | 19
made to grant relief through these Redressal Agencies “without expense of finical (precise) legal
technicalities.” [Jagadamba Rice Mills v. Union of India (1991) CPJ 273, Haryana].
Q. 8] WRITE A NOTE ON DISTRICT FORUM:

Ans: Composition of the District Forum: Each District Forum shall consist of— a person who is, or
has been, or is qualified to be a District Judge, who shall be its President;
b) two other members, one of whom shall be a woman, who shall have the following qualifications,
namely
i. be not less than thirty-five years of age,
ii. possess a bachelor’s degree from a recognised university, and
be persons of ability, integrity, and standing, and have adequate knowledge and experience of at least
ten years in dealing with problems relating to economic, law, commerce, accountancy, industry, public
affairs, or administration.
Recommendation of a Selection Committee: Every appointment, under Sub-section (1), shall be made
by the State Government on the recommendation of a Selection Committee consisting of the following,
namely:
i) President of the State Commission as the Chairman;
ii) Secretary of the Law Department of the State, as a Member; and
iii) Secretary in-charge of the Department dealing with the consumer affairs in the State as a Member.
Tenure of Office (Five years) [Sec. 10(2)]: Every member of the District Forum shall hold office for a
term of five years or up to the age of sixty five years, whichever is earlier, and shall be eligible for
reappointment on the basis of the recommendation of the Selection Committee, for another term of five
years or upto the age of 65 years, whichever is earlier. However, there is no specific provision for re-
appointment of the President.
Vacancy: The office of the President, or any member, may fall vacant in any of the following ways
i) when he completes the tenure of five years, or attains the age of sixty five years, whichever is earlier; or
ii) if he resigns his office in writing under his hand, addressed to the State Government; resignation
becomes effective only when it is accepted by the State Government till then, the office of the member,
who has submitted resignation, shall not fall vacant. [Rajkumar v. Union of India, AIR (1991) SC 180].
The vacant office may be filled by the appointment of a person, possessing any of the qualifications,
mentioned in sub-section (1) of section 10 in relation to the category of member, who has resigned. Such
an appointment shall he made by the concerned State Government.
Powers of District forum: The District Forum shall have the same powers, as are vested in a Civil Court,
under the Code of Civil Procedure, 1908 (5 of 1908), while trying a suit in respect of the following matters,
namely
i. the summoning and enforcing attendance of any defendant or witness and examining the witness
on oath;
ii. the discovery and production of any document, or other material, or object, producible as
evidence;
iii. the reception of evidence on affidavits;
iv. the requisitioning of the report of the concerned analysis or test from the appropriate laboratory or
from any other relevant source;
v. issuing of any commission for the examination of any witness; and
vi. Any other matter which may be prescribed.
Jurisdiction: The State Commission has jurisdiction claims below Rs. 20,00,000.
Q. 9] WRITE A NOTE ON STATE COMMISSION:

Ans: Composition of the State Commission: A Judge of a High Court and not less than Two
Persons of Ability, Integrity and Standing Each State Commission shall consist of:
a) a person, who is, or has been, a Judge of a High Court, appointed by the State Government, after
consultation with the Chief Justice of the High Court, who shall be its President; and
Page | 20
i. b) not less than two, and not more than such number of members, as may be prescribed, and
one of whom shall be a woman, who shall have the following qualifications, namely,
ii. be not less than 35 years of age;
iii. possess a bachelor’s degree from a recognised university; and
iv. be persons of ability, integrity and standing, and have adequate knowledge or experience of, or
have shown capacity in dealing with problems relating to, economics, law, commerce,
accountancy, industry, public affairs, or administration; Provided that not more than fifty per cent
of the members shall be from amongst persons having a judicial background.
The disqualifications for appointment as a member of State Commission are the same as those,
prescribed for membership of the District Forum.
Recommendation of a Selection Committee: Every appointment to the State Commission shall be

made by the State Government on the recommendation of a Selection Committee consisting of the
following, namely
i) President of the State Commission as its Chairman,
ii) Secretary of the Law Department of the State as a Member,
iii) Secretary, in-charge of the Department dealing with consumer affairs in the State as a Member.
Provided that where the President of the State Commission is, by reason of r absence or otherwise,
unable to act as Chairman of the Selection Committee, the State Government may refer the matter to the
Chief Justice of the High Court for nominating a sitting Judge of that High Court to act as Chairman.
Tenure: Every member of the State Commission shall hold office for a term of five years, or upto the age
of Sixty-Seven years, whichever is earlier.
A member as well as the President of the State Commission shall be eligible for re-appointment in the
manner provided above.
Jurisdiction: The State Commission has jurisdiction claims Between Rs. 20,00,000 and Rs. 1,00,00,000.
Q. 10] WRITE A NOTE ON NATIONAL COMMISSION:

Ans: Composition of the State Commission: A Judge of the Supreme Court and Four Other
Members. The National Commission shall consist of:
a) a person, who is, or has been, a Judge of the Supreme Court to be appointed by the Central
government, after consultation with the Chief Justice of India who shall be its President; and
b) not less than four, and not more than such number of members, as may be presciibed, and one of
whom shall be a woman, who shall have the following qualifications, namely
i. be not less than 35 years of age;
ii. possess a bachelor’s degree from a recognised university; and
iii. be persons of ability, integrity and standing and have adequate knowledge and experience of at
least ten years in dealing with problems relating to economics, law, commerce, accountancy,
industry, public affairs, or administration;
Provided further that not more than 50 per cent of the members shall be from amongst the persons
having a judicial background.
The disqualifications for appointment to the National Commission are the same, as those, prescnbed for
appointment to the State Commission and the District Forum, mentioned above.
Recommendation of a Selection Committee: Every appointment, made to the National Commission,

shall be made by the Central Government on the recommendation of a Selection Committee consisting of
the following, namely
i) a person, who is a judge of the Supreme Court, to be nominated by the Chief Justice of India as its
Chairman;
ii) Secretary of the Department of Legal Affairs in the Government of India, as its Member; and
iii) Secretary of the Department dealing with the consumer affairs in the Government of India as a
Member.
Tenure: Every member of the National Commission shall hold office for a term of five years, or up to the
age of seventy years whichever is earlier, and shall not be eligible for re-appointment.
Jurisdiction: The National Commission has jurisdiction claims above Rs. 1,00,00,000.
Page | 21
THE COMPETITION ACT, 2002
DISCUSS THE OBJECTS OF COMPETITION ACT, 2002?
Liberalization, Privatisation and Globalisation (LPG) have opened the doors of Indian economy, by
removing most of the governmental controls over it, to the natural competition from within the borders of
our country as well as from the global market economy. The Monopolies and Restrictive Trade Practices
(MRTP) Act, 1969 had become out-dated and obsolete, as it was choking the Indian economy. It was,
therefore, replaced by the Competition Act, 2002.
Following are the main objects of Competition Act, 2002: [Sec. 18]
 To Prevent and eliminate the forces, factors and practices, that cause adverse and negative
impact on competition;
 To promote and sustain the forces of competition in the Indian economy;
 To protect and promote the interests of consumers; and
 To ensure freedom of trade, carried on by all other participants in Indian markets.
WRITE A NOTE ON COMPETITION COMMISSION OF INDIA (CCI).
1] Establishment of CCI:
 The CCI, under section 7(1), shall by established by the GOI with effect from such date, as
notified by the Govt.
 The Commission shall be a body corporate, having perpetual succession and a common seal.
 The Head Office of CCI shall be at such place, as the Central Govt may decide from time to time.
 The CCI may establish offices at other places in India.
2] Composition of CCI (Sec. 8):
 The Commission shall consist of a chairperson and not less than two and not more than six other
members to be appointed by the Central Govt.
 The Chairperson and every other member shall be a person of ability, integrity and standing and
who has special knowledge of, and such professional experience of not less than fifteen years in,
international trade, economics, business, commerce, law, finance, accountancy, management,
industry, public affairs or competition matters, including completion law and policy, which in the
opinion on the Central Govt., mat be useful to the Commission.
 The Chairperson and other members shall be whole-time members.
3] Selection Committee for chairperson and other members (Sec. 9):
 The Chairperson and other members of the commission shall be appointed by the Central
Government from a panel of names recommended by a selection committee consisting of:
The Chief Justice of India or his nominee Chairperson
The Secretary on MCA Members
The Secretary in the Ministry of Law and Justice Member
Two experts of repute who have special knowledge Members
4] Term of Office of Chairperson and other members (Sec. 10):
 The Chairperson and other members of the commission shall hold office for a term of five years
or Sixty-five years of age whichever is earlier.
 A vacancy caused by the resignation or removal of the chairperson or any member shall be filled
by fresh appointment in accordance with the provisions of section 8 and 9.
5] Resignation, Removal and Suspension or Chairperson and other members (Sec. 11):
 The Chairperson or any other member may, by notice in writing under his hand addressed to the
Central Govt.
 The Central Govt. shall remove the Chairperson or any other member from his office, if such
person:
 Is or has been adjudged as insolvent
Page | 22
 Has engaged in paid employment during his term in office

 Has been convicted of an offence involving moral turpitude
 Has so abused his position as to render his continuance in office prejudicial to the public interest
 Has become physically or mentally incapable of acting as member.
WRITE A NOTE ON ANTI-COMPETITION AGREEMENTS.
Any agreement which has an adverse affect on the competition within India is known Anti-competition
agreement. The following provisions relate to Anti-competition agreements (Sec. 3):
(1) No enterprise or association of enterprise or person or association of persons shall enter into any
agreement in respect of production, supply, distribution, storage, acquisition or control of goods or
provision of services, which causes or is likely to cause an appreciable adverse effect on
competition within India.
(2) Any agreement entered into in contravention of the provision contained in sub-section (1) above
shall be void.
(3) Any agreement entered into between enterprise or association of enterprise or person or
association of persons or between any person and enterprise or practice carried on, or decision
taken by, any association of enterprise or association of persons, including cartels, which:
a) Directly or indirectly determines purchase or sale price;
b) Limits or controls production, supply, markets, technical development, investment or
provision of services;
c) Shares the market or source of production or provision of services by allocation of
geographical area or market, or type of goods or services, or number of customers in the
market or any other similar way;
d) Directly or indirectly results in bid rigging or collusive bidding.
(4) Any agreement amongst enterprises or persons at different stages or levels of the production
chain in different markets, in respect of production, supply, distribution, storage, sale or price of,
or trade in goods or provision of services, including
 Tie-up arrangement
 Exclusive supply agreement
 Exclusive distribution agreement
 Refusal to deal and
 Resale price maintenance
WRITE A NOTE ON “DOMINANT POSITION”. WHAT LEADS TO ABUSE OF SUCH POSITION.
Dominant position is defined as a position of strength, enjoyed by an enterprise, in the relevant market,
in India, which enables it to (i) operate independently of competitive forces prevailing in the relevant
market; or (ii) affect its competitors or consumers or the relevant market in its favour.
Abuse of “Dominant Position”:

1) No enterprise or group shall abuse its dominant position.
2) There shall be an abuse of dominant position under sub-section (1), if an enterprise or a group:
a) Directly or indirectly, imposes unfair or discriminatory condition in purchase or sale of goods or
services; or
b) Directly or indirectly, imposes unfair or discriminatory price in purchase or sale including
predatory price of goods or services.
c) Limits or restricts production of goods or provision of services or market therefore or
d) Limits or restricts technical or scientific development relating to goods or service to the prejudice
of consumer; or
e) Indulges in practice resulting in denial of market access in any manner; or
Page | 23
f) Makes conclusion contracts subject to acceptance by other parties of supplementary obligations

which, by their nature or according to commercial usage, have no connection with the subject of
such contracts or
g) Uses its dominant position in one relevant market to enter into, or protect, other relevant market.
Page | 24
SY B Com MORE CLASSES
Business Law Part II Your Partner in Studies
MODULE 4: COMPANY LAW [ESTABLISHMENT OF NCLT]

WRITE A NOTE ON NATIONAL COMPANY LAW TRIBUNAL (NCLT)? OR
ESTABLISHMENT OF NATIONAL COMPANY LAW TRIBUNAL?
The Companies (Second Amendment) Act, 2002 provides for the setting up of a National Company Law
Tribunal and Appellate Tribunal to replace the existing Company Law Board (CLB) and Board for
Industrial and Financial Reconstruction (BIFR). It also provides for dealing with various matters, which fall
presently under the jurisdiction of High Court pursuant to various provisions contained in the Companies
Act, 1956.
The setting up of NCLT as a specialized institution for corporate justice is based on the recommendations
of the Justice Eradi Committee on Law Relating to Insolvency and Winding up of Companies. The
Committee examined not only the Companies Act, 1956 but also the other relevant laws having a bearing
on the subject such as Sick Industrial Companies (Special Provisions) Act, 1985 (SICA), Recovery of
Debts due to Banks and Financial Institutions Act, 1993 and the recommendations of the United Nations
(UN) and International Monetary Fund (IMF) Report - “Orderly and Effective Insolvency Procedures- Key
Issues”.
The Committee in its report noted that there are at present three different agencies namely,
(1) the High Courts, which have powers to order winding up of companies under the provisions of the
Companies Act, 1956;
(2) the Company Law Board set up under section 10E of the Companies Act, 1956 to exercise
powers conferred on it by the Act or the powers of the Central Government delegated to it and
(3) Board for Industrial and Financial Reconstruction (BIFR) which deals with the references relating
to rehabilitation and revival of companies.
The High Courts are not able to devote exclusive attention to winding up cases which is essential to
conclude the winding up of companies quickly. The experiment with BIFR for speedy revival of companies
has also not been encouraging.
The committee after a detailed analysis of the working of BIFR, with respect to revival of sick companies
and the working of High Courts with respect to winding up of companies recommended for the formation
of a composite legal forum to address all aspects of Companies Act 1956 rather than have separate Acts
and multiple forums for various sections of the Companies Act 1956.
This led to the establishment of NCLT.
DISCUSS THE POWERS OF NATIONAL COMPANY LAW TRIBUNAL (NCLT)?
The NCLT has been empowered to exercise the following powers:

1) Most of the powers of the Company Law Board under the Companies Act, 1956.
2) All the powers of BIFR for revival and rehabilitation of sick industrial companies;
3) Power of High Court in the matters of mergers, demergers, amalgamations, winding up, etc.;
4) Power to order repayment of deposits accepted by Non-Banking Financial Companies (NBFCs)
as provided in section 45QA of the Reserve Bank of India Act, 1934;
5) Power to wind up companies;
6) Power to Review its own orders.
The NCLT shall have powers and jurisdiction of the Board for Industrial and Financial Reconstruction
(BIFR), the Appellate Authority for Industrial and Financial Reconstruction (AAIFR), Company Law Board,
High Courts relating to compromises, arrangements, mergers, amalgamations and reconstruction of
companies, winding up etc. Thus, multiplicity of litigation before various courts or quasi-judicial bodies or
forums have been sought to be avoided.
The powers of the NCLT shall be exercised by the Benches constituted by its President.
On and from the commencement of the relevant sections of the Companies (Second Amendment) Act,
2002, the Board of Company Law Administration (CLB) constituted under Section 10E of Companies Act,
Page 25 of 34
1956 shall stand dissolved. It may be noted that notification to dissolve the CLB under Section 10FA has
not yet been issued by the Central Government and till such notification is issued, the Company Law
Board shall continue to discharge its duties and exercise its powers under the Companies Act, 1956
DISCUSS THE ESTABLISHMENT/ COMPOSITION OF NATIONAL COMPANY LAW APPELLATE

TRIBUNAL (NCLAT)?
NCLAT is set-up to provide an avenue for appealing against the orders passed by NCLT. It is a relatively
smaller body as compared to NCLT and contains a chairperson and two members only. They are
appointed by Central Government for hearing appeals.
Composition:
Chairperson and not more than two members, to be appointed by Central Govt.
Chairperson shall be a person who has been a Judge of Supreme Court or the Chief Justice of High
Court.
Members shall be person of ability integrity and standing having special knowledge of and professional
experience of not less than twenty five years in science, technology, economics, banking, industry, law,
etc.
Tenure:
In case of chairperson, three years of Attainment of Age of 70 years. In case of members, three years of
Attainment of Age of 67 years.
Page 26 of 34
SECURITIES EXCHANGE BOARD OF INDIA (SEBI)

DISCUSS ABOUT THE ESTABLISHMENT AND CONSTITUTION OF SECURITIES EXCHANGE
BOARD OF INDIA (SEBI)?
SEBI has been formed under SEBI Act, 1992. SEBI Act, 1992 has come into force with effect from 30th
January, 1992. SEBI is a body corporate having perpetual succession and common seal.
SEBI is an authority to regulate and develop the Indian capital market and protect the interest of investors
in the capital market. SEBI has replaced the ‘Controller of Capital Issues.’
Management of SEBI:
The management of SEBI shall consist of a Chair person and eight members.
a) a Chairman, who shall be appointed by Central Government and he shall be a person of ability,
integrity and standing in the field of securities market, law, finance, accountancy, economics,
administration. etc.;
b) two members from amongst the officials of the Ministry of the Central Govt. dealing with Finance
and administration of the Companies Act. 1956, who shall be nominated by the Central Govt.;
c) one member from amongst the officials of RBI, who shall be nominated by RBI;
d) five other members out of which atleast three members shall be whole-time members, who shall
be appointed by Central Government and they shall be persons of ability, integrity and standing in
the field of securities market, law, finance, accountancy, economics, administration etc.
Term of Office and Condition of service:

Term of Office and Condition of service of the chairperson and members shall be such as may be
prescribed by the Central Govt. The Central Govt. has the power to terminate their services.
Removal of Members from office:

The Central Govt. shall remove any member from office it the member –
a) Is or has been at any time adjudicated as insolvent
b) Is of unsound mind and stands declared so by court
c) Has been convicted of an offence which involves moral turpitude
d) Has abused his position in office and his continuation is detrimental to public interest.
Meetings and Rules of procedure:

The Board shall meet at such times and places, and shall observe such rules of procedure in regard to
the transaction of business at its meetings as may be provided in regulations
The chairman shall preside over the meetings of the Board.
In the absence of chairman, any other member chosen by the members present from the board, shall
preside over the meetings.
DISCUSS THE FUNCTIONS OF SEBI?
The SEBI was formed in 1992 to protect the rights of investors and to regulate the securities market. The
functions of SEBI as stated in Sec. 11 of the SEBI Act, 1992 are as follows:
The principal functions of SEBI are:
1) Protecting the interest of investors in securities market:
2) Promoting the development of securities market; and
3) Regulating the securities market.
The above functions, inter-alia, would include the following:

a) Regulating the business in Stock Exchanges;
b) Registration and regulating the work of various intermediaries such as Brokers, Sub-brokers,
Registrar and Share Transfer Agents, Merchant Bankers, Underwriters, Portfolio Managers. etc.;
c) Registration and regulating the work of Depositories and Depositories Participants;
Page 27 of 34
d) Registration and regulating the work of Foreign Institutional Investors (FII’s), Credit Rating
Agencies (CRA’s), etc.;
e) Registration and regulating the work of Venture Capital Funds, Mutual Funds, Collective
Investment Schemes;
f) Promoting Investors’ education;
g) Prohibiting insider trading in securities;
h) Prohibiting fraudulent practices and unfair trading practices;
i) Regulating substantial acquisition of shares and takeover of companies;
j) Undertaking inspection, conducting inquiries and audits of the Stock Exchanges, Mutual Funds
and other persons associated with the securities market.
DISCUSS THE POWERS OF SEBI?
The Board shall have, for the purpose of discharging its functions under SEBI Act, 1992, the same
powers as are vested in a Civil Court under the Code of Civil Procedure, 1908. in respect of the following
matters, namely:
1] Powers under CPC, 1908:
a) The discovery and production of books of account and other documents at such place and such
time as may be specified by the Board;
b) Summoning and enforcing the attendance of any person and examining him on oath;
c) Receiving evidence on affidavits;
d) Issuing commissions for the examination of witnesses or documents;
e) Reviewing its decisions;
f) Dismissing an application for default or deciding it ex parte;
g) Setting aside any order of dismissal of any application for default or any order passed by it ex
parte;
h) any other matter which may be prescribed.
2] Suspend the trading of any security in a Recognized Stock Exchange

3] Restrain persons from accessing the securities market
4] Suspend any office-bearer of any Stock Exchange of Self-regulatory organization from holding such
position;
5] Board to regulate or prohibit Issue of Prospectus, offer document or Advertisement soliciting money for
Issue of securities.
6] The Board may specify the requirements for listing and transfer of securities and other matters
incidental thereto;
7] Prevent the affairs of any intermediary in public interest & secure the management of such
intermediary
8] Power to Investigate the transactions in securities, if it has reasonable grounds to believe that they are
been dealt with in a manner detrimental to the investors or the securities market.
WRITE A NOTE ON SECURITIES APPELLATE TRIBUNAL (SAT)?
Established by Central Government for the purpose of making appeals against the orders passed by
SEBI & its adjudicating officers.
Composition of SAT:
One presiding member
ALL appointed by Central Govt.
Two other members
Presiding officer is appointed by CG in consultation with Chief Justice of India. He shall hold the office for
a period of 5 years or upto the age of 68 years.
Members shall be appointed by CG. He must be a person of ability & integrity and must possess
qualification & experience of corporate law, securities laws, finance, economics or accountancy. He shall
hold the office for a period of 5 years or upto the age of 62 years.
Page 28 of 34
Appeal to SAT:
Who can appeal? – any person aggrieved by an order passed by SEBI or its adjudicating officer
No appeal, when the order is passed with consent of both parties.
Appeal to be filed within 45 days from date of receiving the copy of order.
On receipt of an appeal, SAT may confirm, modify or set aside the order.
It shall send a copy of every order made by it to following persons:
 SEBI
 Adjudicating officers
 Parties to Appeal
An appeal against an order of SAT directly lies to Supreme Court, only on a question of law. To be
made within 60 days.
Page 29 of 34
COMPROMISES, ARRANGEMENTS, RECONSTRUCTIONS AND MERGERS
DISTINGUISH BETWEEN COMPROMISE AND ARRANGEMENT.
Compromise is a scheme of give and take in a dispute. The concept of a compromise presupposes the
existence of a dispute over some matter because; the question of a compromise does not arise at all
unless there is some dispute. A fair, reasonable and just compromise demands
1) Surrender of some rights with compensation, or measure of accommodation, on both sides of all the
parties to it, so that
2) It becomes beneficial to all the parties to it.
There can be no compromise, nor a scheme, in which, one person should become a victim, and the rest
of the body “should feast upon his rights.” A compromise involves adjustment of claims by mutual
concessions in a dispute.
Arrangement involves reorganization of the Share Capital of a Company. The concept of ‘arrangement’
has a wider import and connotation. It includes reorganization and re-arrangement of the share capital of
a company without the existence of any dispute,
1) By the consolidation of shares of different classes, or
2) By the division of shares into shares of different classes, or
3) By both those methods
STEPS INVOLVED IN COMPROMISE OR ARRANGEMENT WITH CREDITORS OR MEMBERS
Need of Application to the High Court for its Sanction: The Company, or its liquidator, or any of its
member or creditor is required to make an application to the High Court for its sanction of the proposed
compromise or arrangement. The company is obligated to place different interest in separate classes of
members, creditors affected by the proposed scheme. If an application is made properly, the proposed
scheme is fair, just and reasonable and can be implemented by the company, the court may order for
calling of a meeting of the class of creditors or members, which shall held and conducted.
Need of Resolution by Majority of Three-fourths in value of Creditors or Members: Any scheme of

compromise or arrangement is required to approved and passed by a majority representing three-fourths
in value of the creditors or members, as the case may be, to get the required sanction of the High Court.
It is directory not mandatory.
Duties and Powers of the High Court: The High Court is obligated to consider and satisfy itself about
the following matters before according to its sanction, namely:
All the provisions of the Act have been complied with.
The statutory majority power of three-fourths in value of creditors or members has been exercised in good
faith
All material facts of the company have been placed before the court for its examination and approval
Court is obligated to examine reasonableness of the scheme.
Finally, the Court has no power to stay a criminal prosecution against the company and/or against its
directors and guarantors.
Enforcement and Supervision of the Scheme by the Court: The Court, which has sanctioned the
scheme of compromise or arrangement, has the power to supervise the implementation of the scheme.
Statement of Information as to the Company: The company is obligated to send a statement,

containing all information in respect of the terms of the compromise or arrangement; the material interests
of the directors, managing director, or manager of the company; and the effect on those interests of such
compromise or arrangement, alongwith the notice calling the meeting of the creditors or members.
Page 30 of 34
WHAT IS MERGER? DISCUSS THE CATEGORIES OF MERGERS.
‘Merger’ or “Amalgamation” takes place either (a) when one or more undertakings are transferred to a
new company, or, (b) by the transfer of one or more undertakings to an existing company.
There are three categories of mergers, known as horizontal mergers, vertical mergers and market-
extension mergers.
Horizontal Mergers: When a merger takes place between two or more companies, which are in direct
competition and share similar product lines and similar markets, it is known as “horizontal merger”.
Vertical Mergers: When a merger takes place between a company and its customer, or between a
company and its supplier, it is called a “vertical merger”.
Market-Extension Mergers (companies in same products but in different markets): When a merger
takes place between two companies, that sell the same products in different markets, it is known as an
“market-extension merger”.
WHAT IS RECONSTRUCTION? DISCUSS THE PROCEDURE OF RECONSTRUCTION OR MERGER.
Reconstruction takes place when a company transfers its entire undertaking and property to a new
company under an agreement, by which the shareholders of the old company are entitled to receive
some shares or identical interest in the new company. “Reconstruction”, thus, brings about material
alteration in the rights of a class of shareholders or creditors.
Procedure for Reconstruction or Merger:

a) Need of approval of the scheme by Holders of 75% in value of shares. In other words, ¾ majority
should be in support of the scheme to get the approval for the same.
b) Need of Approval by Tribunal for any of the following matters:
 Transfer of undertaking, property and liabilities to the transferee company.
 Allotment by the transferee company, of any securities as the payment of purchase consideration.
 The continuation by or against any transferee company of any legal proceedings by or against
any transferor company.
 The dissolution of any transferor company without winding up.
 The provision to be made for any persons, who dissent from the scheme of compromise or
arrangement and such incidental, consequential and supplemental matters, as are necessary to
secure full and effective reconstruction or merger
c) Need of Report from Registrar for Merger of a company, which is being wound up.
d) Filing of a certified copy of order of Tribunal with Registrar within 30 days.
e) Notice to the Central Government, by the Tribunal about every application made to it for
reconstruction or merger.
Page 31 of 34
INTELLECTUAL PROPERTY RIGHTS [PATENTS ACT]

WHAT IS AN INTELLECTUAL PROPERTY? WHAT ARE INTELLECTUAL PROPERTY RIGHTS?
An intellectual property is that property, which is created by the effective application of deep and fertile
imagination and sharp intelligence, powered and guided by scientific temper and inventive mind, leading
to any new invention, unique literary production, unique visual symbol or design, etc.
Man is a creative animal and his creative skills have no limits. Any creation requires huge investment of
capital, knowledge, skills, time and other resources. What is the use of these creations if they can’t bring
returns to its creator?
Hence, in the recent past (both internationally and nationally) these creations were recognized as
intellectual property of the owner. The owner’s rights over these properties were considered as
Intellectual Property Rights (IPR).
It provides recognition, incentive and rewards to its owner.
Intellectual Property Rights include:

PATENTS:
 Patent is an exclusive right to the owner of an invention to make, use, manufacture and market
the invention.
 It’s a right in rem.
 Available only for limited time. (20 years)
 A patent right is property right and hence can be sold, gifted, assigned, inherited, licensed, etc.
COPYRIGHT:
 Copyright means the exclusive right to do or authorize other(s) to do certain acts in relation to-
a) literary, dramatic or musical works;
b) artisitic work;
c) cinematograph film; and
d) sound recording.
TRADEMARKS:
 A Trademark is a distinctive sign or indicator used by an individual, business organization, or
other legal entity to identify that the products or services to consumers with which the trademark
appears originate from a unique source, and to distinguish its products or services from those of
other entities.
 It may be a word (invented or existing), picture, drawing, symbol, signature, color combination,
device, letter, numeral, etc.
Page 32 of 34
WHAT IS A PATENT? HOW IS IT GRANTED?
Any new and useful invention, which can be made, manufactured, marketed and sold with monopoly
rights for a particular period, registered under the Patent Act, 1970, is known as a patent.
• Patent is an exclusive right to the owner of an invention to make, use, manufacture and market
the invention.
• The right is granted by Government to the inventor and is open for the world to see.
• It’s a right in rem.
• It is available only for fixed time. (i.e.20 years)
• A patent right is property right and hence can be sold, gifted, assigned, inherited, licensed, etc.
• Under special circumstances (emergency), it can be revoked by state.
• A patent right is territorial in nature.
• The owner of a patent is called as patentee.
A Patent is granted in the following manner:

Detailed specification of the Invention: A patent is granted on the basis of the full, complete and
detailed specifications of the invention, made in a public disclosure and submitted alongwith the
prescribed application to the Patent office of the Government of India by the original inventor.
Examination of the Specification by Examiner: The specifications are then examined by the expert
examiner,
 To find whether the specifications comply with the requirement of the Act.
 Whether there are any lawful ground for objection to the grant.
Examiner’s report to be examined by Controller of Patents:
 The expert examiner is obligated to submit its report to the Controller of patents within a period of
18 months from the date of reference to him.
 If the Controller is satisfied with the report, then he shall allot a serial number to the specifications
and publish an advertisement in the Government Gazette for public inspection free of charge.
 If the application has not been opposed, a formal request is required to be made by the applicant
for sealing and issue of patent.
 Thus a patent is granted in India.
WRITE A NOTE ON INVENTIONS THAT ARE NOT PATENTABLE?
The following inventions are non-patentable under the provisions of Section 3 of the Patents Act, 1970:
1) Frivolous invention, which claims anything which is obvious to the universal nature of law or
contrary to natural law;
2) Any scientific discovery or theory like Copernicus Theory, or, theory of relativity, and or
mathematical method;
3) Method of agriculture/horticulture
4) Invention relating to Atomic energy
5) Mere discovery of new property or new use
6) Mere admixture
7) Mere arrangement or rearrangement
8) Method or process of testing
9) Medical treatment of humans/animals/plants
10) Food/chemicals/Medicine- no patent for substance
WRITE A NOTE ON RIGHTS OF A PATENTEE?
The Patents Act, 1970 confers the following intellectual property rights to the patentees of their patents:
 Monopoly Rights to Use, make and Sell patented article:
Page 33 of 34
The Patentee has the exclusive and monopoly right to Use, make, manufacture, market and Sell the
patented article. This right is a right in rem (i.e. against the whole world). The Patentee can exercise
this right directly by himself, or through his licensees or agents.
 Right to transfer by Assignment or through a License:
A Patentee has the Right to transfer by Assignment or through a License, to any person to use,
make, manufacture, market, distribute or sell the patented article, method, procedure, etc. for
valuable consideration known as royalty.
 Right to Surrender:
A Patentee of a Patent has the right to surrender his patent to the Government of India for any
reason. This will bring the patent into ‘Public Domain’.
 Right before Sealing:
During the period from the date of advertisement of the acceptance of the complete specifications in
the Govt. Gazette to the actual date of the grant of patent, the applicant can exercise all the rights of
a patentee except the right to file a suit for infringement.
 Right to Sue for Infringement:
A Patentee has a right to sue any person for infringement of his rights in respect of his patent.
Page 34 of 34

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SY B COM MORE CLASSES

Business Law Your Partner in Studies

MODULE 1: THE COMPANIES ACT, 2013

Q. 1] Define a ‘company’. State the characteristics of a company? CPMAILHTC

Q. 2] Write a note on ‘Lifting of corporate veil’:

Q. 3] Distinction between ‘Public company’ and ‘Private company’.

Preparation of Preparation of Articles of Association is A public may directly adopt contents of

Q. 4] What is ‘Memorandum of Association’? Explain its contents.

Q. 5] Write a note on Doctrine of ‘Ultra Vires’.

Effects of Ultra Vires transactions:

Q. 6] Distinction between: Memorandum of Association & Articles of Association

Q. 7] Explain the ‘Doctrine of Constructive Notice’ and ‘Doctrine of Indoor Management’ or

DOCTRINE OF INDOOR MANAGEMENT OR TURQUAND RULE: The doctrine of constructive notice

Exceptions to the Rule of Indoor Management:

A person may become a member of a company in the following ways:

Membership may be terminated in following manner:

Q. 9] What is a Prospectus? What are the legal requirements of Prospectus?

Different types of prospectus:

Legal requirement of Prospectus:

4. A prospectus must be signed by every person, mentioned therein as a director or a proposed

Q. 10] Write a note on ‘Statement in lieu of prospectus’.

MODULE 2: THE INDIAN PARTNERSHIP ACT, 1932

Q. 1] Define Partnership. State the essentials of Partnership. State its types.

Consequences of non-registration or effect of non-registration:

Registration of firms in Maharashtra: Registration of firms is compulsory in Maharashtra. Although

Q. 3] What are the rights and duties of partners? V.V.V.IMP

Q. 4] Write a short note on “Partner by Holding Out”.

Q. 5] Write a short note on Minor’s position in Partnership.

(1) Rights and liabilities of a minor during minority:

(2) Position of a minor on attaining the age of majority:

(3) Rights and liabilities of a minor on attaining the age of majority:

(2) Where he elects not to become a partner:

Q. 6] What are the different modes of Dissolution of Firm?

(A) Voluntary Dissolution:

(B) Dissolution by Operation of Law:

(1) Compulsory dissolution:

(C) Dissolution of the firm by Intervention of the Courts:

LIMITED LIABILITY PARTNERSHIP ACT, 2008

DISCUSS THE EXTENT AND LIMITATIONS OF LIABILITY OF LLP.

DISCUSS THE WINDING-UP AND DISSOLUTION OF LLP.

MODULE 3: THE CONSUMER PROTECTION ACT, 1986

Complaint [Sec. 2(1) (c)]

Consumer [Sec. 2(1)(a)]

Consumer Dispute [Sec. 2(1) (e)]

Defect [Sec. 2(1) (f)]

Deficiency [Sec. 2(1) (g)]

Manufacturer [Sec. 2 (1) U)]

Service [Sec. 2 (1) (o)]

Following are a few instances, which are held to be services:

Following are a few instances, which are held not to be services:

1. Medical treatment, offered free of charge in a Government hospital;

Unfair Trade Practice [Sec. 2(1)(r)]

Restrictive Trade Practice [Sec. 2 (nnn)]

Q. 2] WHAT IS MEANT BY “CONSUMER PROTECTION”?

Q. 3] WHAT IS THE TEST OF “DEFICIENCY IN SERVICE? WHO IS OBLIGATED TO PROVE

Q. 4] WHAT IS THE COMPOSITION OF THE CENTRAL COUNCIL?

Q. 5] WHAT IS THE PROCEDURE FOR MEETINGS THE CENTRAL COUNCIL?

Q. 6] WHAT IS THE COMPOSITION OF THE STATE CONSUMER PROTECTION COUNCIL (STATE