Business Law Questions Sem 3

1) What are the different types of contracts? Explain In Detail. *

Answer:
a) Express Contracts
A contract made by word spoken or written. Section 9 of the Indian Contract Act 1872
provides that if a proposal or acceptance of any promise is made in words the promise is said
to be express.
Example: A says to B ‘will you purchase my bike for Rs.20,000?” B says to A “Yes”.

b) Implied Contract
A contract inferred by
• The conduct of person
• The circumstances of the case.
By implies contract means implied by law (i.e.) the law implied a contract through parties
never intended.
According to sec 9 in so for as such proposed or acceptance is made otherwise than in words,
the promise is said to be implied.
Example: A stops a taxi by waving his hand and takes his seat. There is an implied contract
that A will pay the prescribed fare.

c) Quasi-contract
In such a types of contract, the rights and obligations arise not by an agreement but by
operation of law.
Example: If Mr A leaves his goods at Mr B’s shop by mistake, then it is for Mr. B to return the
goods or to compensate for the price.

d) E-contract
An e-contract is a contract made through the digital mode.
Example: Via Internet

e) Executed contract
In an executed contract both the parties have performed their promises under a contract.
Example: A contracts to buy a car from B by paying cash, B instantly delivers his car.

f) Executory contract
In a Executory contract both the parties are yet to perform their promises.
Example: A sells his car to B for Rs. 2 lakh. If A is still to deliver the car and B is yet to pay the
price, it is an executory contract.

g) Partly Executed and partly executory contract

In a partly executed and partly executory contract, one party has already performed his
promised and the other party has yet to execute his promise.
Example: Anuj sells his bike to Bibek. Though Anuj has delivered the bike, Bibek has yet to pay
the price. For Anuj, it is an executed contract, whereas it is an executory contract on the part
of Bibek since the price has yet to be paid.

g) Unilateral Contract
A unilateral contract is also known as a one-sided contract. It is a type of contract where only
one party has to perform his promise.
Example: Anuj promises to pay Rs. 1000 to anyone who finds his lost cellphone. B finds and
returns it to Anuj. From the time B found the cellphone, the contract came into existence.
Now Anuj has to perform his promise, i.e. the payment of Rs. 1,000.

h) Bilateral contract
A Bilateral contract is one where the obligation or promise is outstanding on the part of both
the parties. It is also known as a two-sided contract.
Example: Aj promises to sell his car to Bj for Rs. 1 lakh and agrees to deliver the car on the
receipt of the payment by the end of the week. The contract is bilateral as both the parties
have exchanged a promise to be performed within a stipulated time.

i) Valid contract

If the contract entered into by the parties and satisfies all the elements of a valid contract as
per the act, it is said to be a valid contract.

j) Void contract
Section 2 (j) states as follows: “A contract which ceases to be enforceable by law becomes
void when it ceases to be enforceable”. Thus a void contract is one which cannot be enforced
by a court of law.
Example: Mr Aj agrees to write a book with a publisher. After few days, Aj dies in an accident.
Here the contract becomes void due to the impossibility of performance of the contract.
It may be added by way of clarification here that when a contract is void, it is not a contract at
all but for the purpose of identifying it, it has to be called a void contract.

k) Voidable contract
Section 2(i) defines that an agreement which is enforceable by law at the option of one or
more parties but not at the option of the other or others is a voidable contract.
This infact means where one of the parties to the agreement is in a position or is legally
entitled or authorized to avoid performing his part, then the agreement is treated and
becomes voidable.
Such a right might arise from the fact that the contract may have been brought about by one
of the parties by coercion, undue influence, fraud or misrepresentation and hence the other
party has a right to treat it as a voidable contract.

l) Illegal contract
Illegal contract are those that are forbidden by law. All illegal contracts are hence void also.
Because of the illegality of their nature they cannot be enforced by any court of law.
In fact, even associated contracts cannot be enforced. Contracts which are opposed to public
policy or immoral are illegal. Similarly contracts to commit a crime like supari contracts are
illegal contracts.
 m) Unenforceable contract
A type of contract which satisfies all the requirements of the contract but has technical
defects is called an unenforceable contract.
A contract is said to have a technical defect when it does not fulfil the legal formalities
required by some other act. When such legal formalities are compiled are complied with,
later on, the act becomes enforceable.

2) Difference between state, district and national commission. *

Answer:

No. Parameters National District Forums State Commission

Commission

1. Meaning A consumer A consumer dispute A consumer

disputes redressal redressal forms dispute redressal
forum working at working at district forum working at
national level. level. state level

2. Duration Every member Every member Every member

should hold office should hold office for should hold office
for a term of five a term of five years for a term of five
years or up to the or up to age of sixty- years or up to the
age of seventy seven years, age of sixty-seven
years, whichever is whichever is earlier. years, whichever
earlier. is earlier.

3. Members Other than Other than president Other than

president it has it has two members. president it has
minimum four minimum two
members. members

4. Monetary It can entertain the it can entertain the It can entertain

Jurisdiction cases where the cases where the the cases where
value of goods and value of the value of
services and the goods/services and goods/services
compensation the compensation and the
claimed is more claimed is less then compensation
than rupees 1 rupees twenty lakhs. claimed is more
crore. than rupees
twenty lakhs and
less than rupees
one crore.

5. Nature of It can entertain Only original cases It can entertain

Complaints original cases and can be entertained original cases and
also appeals which are within the also appeals
 against the order local limits of a against the order
of state district. of District Forum
commission. within the
geographical
limits of the state

6. Area It covers the entire It covers a particular It covers a

Covered country. district. particular state

7. President Supreme court District judge or High Court Judge

Judge or equivalent. or equivalent
equivalent.

3) Different Types of Partner.

Answer:

1] Active Partner/Managing Partner

An active partner is also known as Ostensible Partner. As the name suggests he takes active
participation in the firm and the running of the business. He carries on the daily business on
behalf of all the partners. This means he acts as an agent of all the other partners on a day to day
basis and with regards to all ordinary business of the firm.

Hence when an active partner wishes to retire from the firm he must give a public notice about
the same. This will absolve him of the acts done by other partners after his retirement. Unless he
gives a public notice he will be liable for all acts even after his retirement.

2] Dormant/Sleeping Partner

This is a partner that does not participate in the daily functioning of the partnership firm, i.e. he
does not take an active part in the daily activities of the firm. He is however bound by the action
of all the other partners.

He will continue to share the profits and losses of the firm and even bring in his share of capital
like any other partner. If such a dormant partner retires he need not give a public notice of the
same.

3] Nominal Partner

This is a partner that does not have any real or significant interest in the partnership. So, in
essence, he is only lending his name to the partnership. He will not make any capital contributions
to the firm, and so he will not have a share in the profits either. But the nominal partner will be
liable to outsiders and third parties for acts done by any other partners.

4] Partner by Estoppel

If a person holds out to another that he is a partner of the firm, either by his words, actions or
conduct then such a partner cannot deny that he is not a partner. This basically means that even
 though such a person is not a partner he has represented himself as such, and so he becomes
partner by estoppel or partner by holding out.

5] Partner in Profits Only

This partner will only share the profits of the firm, he will not be liable for any liabilities. Even
when dealing with third parties he will be liable for all acts of profit only, he will share none of the
liabilities.

6] Minor Partner

A minor cannot be a partner of a firm according to the Contract Act. However, a partner can be
admitted to the benefits of a partnership if all partner gives their consent for the same. He will
share profits of the firm but his liability for the losses will be limited to his share in the firm.

Such a minor partner on attaining majority (becoming 18 years of age) has six months to decide if
he wishes to become a partner of the firm. He must then declare his decision via a public notice.
So whether he continues as a partner or decides to retire, in both cases he will have to issue a
public notice.

4) Process of registering a company

Answer: The basic procedure for Incorporation of a Company under Companies Act, 2013 -
1. Obtain Digital Signatures
Various documents are required to be filed with the digital signature of the Managing
Director or Director or Manager or Secretary of the Company, therefore, it is required to
Obtain a Digital Signature Certificate from authorized DSC issuing authority.
2. Obtain Director Identification Number
Every individual intending to be appointed as director of a company shall make an application
for allotment of Director Identification Number in form DIR.3 to the Central Government
along with prescribed fees
3. Name availability for proposed company
Application for the reservation/availability of name shall be in Form no. INC.1 along with
prescribed fee of Rs. 1,000/-.
After approval of name ROC will issue a Name availability letter.
Validity of Name approved by ROC - The maximum time the name will be valid is for a period
of 60 days from the date on which the application for Reservation was made.
Note: The applicant cannot start business or enter into any agreement, contract, etc. in the
name of the proposed company until and unless a certificate of registration is issued by the
registrar.
4. Preparation of the Memorandum of Association (MOA) and Articles of Association (AOA)
Drafting of the MOA and AOA is generally a step subsequent to the availability of name made
by the Registrar. It should be noted that the main objects should match with the objects
shown in e-Form INC.1. These two documents are basically the charter and internal rules and
regulations of the company. Therefore, it must be drafted with utmost care and the other
object clause should be drafted in a very broader sense.
5. Application for incorporation
Application for incorporation of a company, shall be made with the Registrar, within whose
jurisdiction the registered office of the company is proposed to be situated, along with the
following attachments:
i. Memorandum of Association
 ii. Articles of Association
iii. A declaration in the prescribed form by an advocate, a CA, CMA or CS in practice who is
engaged in the formation of the company, and by a person named in the articles as a director,
manager or secretary of the company, that all the requirements of this Act and the rules
made there under in respect of registration and matters precedent or incidental thereto have
been complied with
iv. Affidavit from each of the subscriber to the Memorandum from persons named as the first
directors, if any in the articles, that he is not convicted of any offence in connection with the
promotion, formation or management of any company, or that he has not been found guilty
of any fraud or misfeasance or of any breach of duty to any company under this Act or any
previous company law during the preceding five years and that all the documents filed with
the Registrar for registration of the company contain information that is correct and complete
and true to the best of his knowledge and belief
v. Proof of residential address (the address for correspondence till its registered office is
established)
vi. NOC in case there is change in the promoters (first subscribers to Memorandum of
Association)
vii. Proof of Identity (the particulars of name, including surname or family name, residential
address, nationality and such other particulars of every subscriber to the memorandum and
the particulars of the persons mentioned in the articles as the first directors of the company
along with proof of identity, and in the case of a subscriber being a body corporate, such
particulars as may be prescribed;)
viii. PAN Card (in case of Indian national)
ix. Copy of certificate of incorporation of the foreign body corporate and proof of registered
office address
x. Certified true copy of board resolution/consent by all the partners authorizing to subscribe
to MOA

5) Explain the concepts of LLP and its important elements in details.

Answer: LLP stands for Limited Liability Partnership. Limited liability partnership definition – It
is an alternative corporate business form that offers the benefits of limited liability to the
partners at low compliance costs. It also allows the partners to organize their internal
structure like a traditional partnership. A limited liability partnership is a legal body, liable for
the full extent of its assets. The liability of the partners, however, is limited. Hence, LLP is a
hybrid between a company and a partnership. It is not the same as limited liability company
LLC.

Salient Elements of Limited Liability Partnership

LLP is a body corporate
According to Section 3 of the Limited Liability Partnership Act 2008 (LLP Act), an LLP is a body
corporate, formed and incorporated under the Act. It is a legal entity separate from its
partners.

Perpetual Succession
Unlike a general partnership firm, a limited liability partnership can continue its existence
even after the retirement, insanity, insolvency or even death of one or more partners.
Further, it can enter into contracts and hold property in its name.
Separate Legal Entity
Just like a corporation or a company, it is a separate legal body. Further, it is completely liable
for its assets. Also, the liability of the partners has certain limitations in their contribution to
the LLP. Hence, the creditors of the LLP are not the creditors of individual partners.

Mutual Agency
Another difference between an LLP and a partnership firm is that independent or
unauthorized actions of one partner do not make the other partners liable. All partners are
agents of the LLP and the actions of one partner do not bind the others.

LLP Agreement
An agreement between all partners governs the rights and duties of all the partners. Also, the
partners can devise the agreement as per their choice. If such an agreement is not made,
then the Act governs the mutual rights and duties of all partners.

Artificial Legal Person

For all legal purposes, LLP is an artificial legal person. A legal process creates it and has all the
rights of an individual. It is invisible, intangible, and immortal but not fictitious since it exists.

Common Seal
If the partners decide, the LLP can have a common seal [Section 14(c)]. It is not mandatory
though. However, if it decides to have a seal, then it is necessary that the seal remains under
the custody of a responsible official. Further, the common seal can be affixed only in the
presence of at least two designated partners of the LLP.

Limited Liability
According to Section 26 of the Act, every partner is an agent of the LLP for the purpose of the
business of the entity. However, he is not an agent of other partners. Further, the liability of
each partner has limitations to his agreed contribution to the LLP. It provides personal liability
protection to its partners.

Minimum and Maximum Number of Partners in an LLP

Every Limited Liability Partnerships must have at least two partners and at least two
individuals as designated partners. At any time, at least one designated partner should be
resident in India. There is no maximum limit on the number of maximum partners in the
entity.

Business Management and Business Structure

The partners of the LLP can manage their business. However, only the designated partners
are responsible for legal compliances.

Business for Profit Only

Limited Liability Partnerships cannot be formed for charitable or non-profit purposes. It is
essential that the entity is formed to carry on a lawful business with a view to earning a profit.

Investigation
The power to investigate the affairs of an LLP resides with the Central Government. Further,
they can appoint a competent authority for the same.
 Compromise or Arrangement
Any compromise or arrangement like a merger or amalgamation needs to be in accordance
with the Act.

Conversion into LLP

A private company, firm, or an unlisted public company or a small business can convert into
an LLP in accordance with the provisions of the Act.

E-Filing of Documents
If the entity is required to file any form/application/document, then it needs to be filed in an
electronic form on the website www.mca.gov.in. Further, a partner or designated partner has
to authenticate the same using an electronic or digital signature.

6) What is Negotiable Instrument and list its essentials. *

Answer: A negotiable instrument is a signed document that promises a sum of payment to a

specified person or the assignee.

Negotiable instruments are transferable in nature, allowing the holder to take the funds as cash
or use them in a manner appropriate for the transaction or according to their preference.

Common examples of negotiable instruments include checks, money orders, and promissory
notes.

Essential Features of Negotiable Instruments are given below:

Writing and Signature:

Negotiable Instruments must be written and signed by the parties according to the rules relating
to Promissory Notes, Bills of Exchange and Cheques. Demand Drafts are also construel as
Negotiable Instruments in the limiting case as they have the same property as N.I. Instrument

Money:

Negotiable instruments are payable by legal tender money of India. The liabilities of the parties of
Negotiable Instruments are fixed and determined in terms of legal tender money.

Negotiability:

Negotiable Instruments can be transferred from one person to another by a simple process. In
the case of bearer instruments, delivery to the transferee is sufficient. In the case of order
instruments two things are required for a valid transfer: endorsement (i.e., signature of the
holder) and delivery. Any instrument may be made non-transferable by using suitable words, e.g.,
“pay to X only.”

Title:
 The transferee of a negotiable instrument, when he fulfils certain conditions, is called the holder
in due course. The holder in due course gets a good title to the instrument even in cases where
the title of the transferrer is defective.

Notice:

It is not necessary to give notice of transfer of a negotiable instrument to the party liable to pay.
The transferee can sue in his own name.

Presumptions:

Certain presumptions apply to all negotiable instruments. Example: It is presumed that there is
consideration. It is not necessary to write in a promissory note the words “for value received” or
similar expressions because the payment of consideration is presumed. The words are usually
included to create additional evidence of consideration.

Special Procedure:

A special procedure is provided for suits on promissory notes and bills of exchange (The
procedure is prescribed in the Civil Procedure Code). A decree can be obtained much more
quickly than it can be in ordinary suits.

Popularity:

Negotiable instruments are popular in commercial transactions because of their easy negotiability
and quick remedies.

Evidence:

A document which fails to qualify as a negotiable instrument may nevertheless be used as

evidence of the fact of indebtedness.

7) Short note on minor partner

Answer: Status of a minor
As per the Indian Contract act 1872, no person below the age of 18 years can enter into the
contract which implies that no minor can enter into a contract. But Section 30 states that the
minor cannot be a partner in a partnership firm but he can be admitted to benefit from the
partnership firm. The minor will be liable to get only the benefits from the partnership but is
not liable for any losses or liability. The minor can be admitted to the partnership only with
the consent of all the partners.
Rights of a minor.
(i) Right to inspect the books of account
(ii) Rights to share the profits from the firm
(iii) Rights to sue any partner or all for his share of benefit or profit
(iv) He has a limited liability which means his personal assets may not be disposed of to pay
the firm debts
(v) A minor has a right to become a partner on attaining the age of 18 years.
Liabilities of a minor
(i) A minor has Limited liability. If minor is declared as insolvent his share will be kept in the
possession of official liquidator.
 (ii) If after attaining the age of 18 years he decided to become the partner then he has to give
public notice within 6 months of attaining the majority. If notice not given then minor will
become liable for all the acts of others until the notice is given
(iii) When a minor partner becomes the major, he will be liable for the acts of all partners to
the third parties. If he decided to become a full-time partner then he will be considered as a
normal partner and will take part in the conduct of the business

8) What is a contract act and essentials of a valid contract. *

Answer: The Indian Contract Act 1872 states the term contract is like an agreement that
creates an obligation between parties. According to the act, the contract is "an agreement
enforceable by law."
The act also lists the essentials of a valid contract directly or through various judgments of the
Indian judiciary.

Essentials Elements of a Valid Contract

According to the Indian Contract Act 1872, "Agreements are also contracts made by the
consent of parties, competent to contract to consider with a lawful object and are not hereby
expressly declared to be void”. Therefore, the contract or the agreement must carry essential
aspects to maintain the normal phase of duties by both parties.

1. Offers and Acceptance – For an agreement, there must be a lawful offer by one and lawful
acceptance of that provided by the opposite party. The term lawful means the offer and
acceptance must satisfy the wants of the Contract Act. The offer must be made with the
intention of making legal relations otherwise, there’ll be no agreement.

2. Legal Relationship – Agreements of a social or domestic nature don’t create legal relations
and intrinsically cannot create a contract. It’s presumed in commercial agreements that
parties will create legal relations.

3. Lawful Consideration – The third essential of a sound contract is that the presence of
consideration. Consideration is “something reciprocally.” It’s going to be some benefit to the
party. Consideration has been defined because of the price paid by one party for the promise
of the opposite. An agreement is enforceable only both parties get something and provides
something. Something given or obtained is that the price of the promise and is termed
consideration.

4. Capacity of Parties – An agreement is enforceable on the condition that it’s entered into by
parties who possess the contractual capacity. It implies that the parities to an agreement
must be competent to contract. in line with Section 11, so as to be competent to contract the
parties must be of the age of majority and of sound mind and must not be disqualified from
contracting by any law to which they’re subject. A contract by an individual of unsound mind
is void ab-initio (from the beginning). If one amongst the parties to the agreement suffers
from minority, madness, drunkenness, etc., the agreement isn’t enforceable at law, except in
some cases. Example: M, someone of unsound mind, enters into an agreement with S to sell
his house for Rs.2 lac. it’s not a sound contract because M isn’t competent to contract.
 5. Free Consent – It is another essential of a sound contract. Consent means the parties must
have prearranged the identical thing within the same sense. For a legitimate contract, it’s
necessary that the consent of parties to the contract must be free.

6. Lawful Objects – It is also necessary that agreement should be made for a lawful object.
The situation in which the agreement has been entered into must not be fraudulent, illegal,
immoral, or opposition to public policy or must not imply injury to the person or property of
another. Every agreement of which the thing or consideration is unlawful is prohibited is
therefore void.

7. Writing and Registration – According to Contract Act, a contract is also oral or in writing.
Although in practice, it’s always within the interest of the parties that the contract should be
made in writing so it should be convenient to prove within the court. However, a verbal
contract if proved within the court won’t be considered invalid merely on the bottom that it
not in writing.

8. Certainity – According to Section 29 of the Contract Act, “Agreements the meaning of

which don’t seem to be certain or capable of being made certain are void.” so as to grant rise
to a legitimate contract the terms of the agreement, must not be vague or uncertain. For a
legitimate contract, the terms and conditions of an agreement must be clear and certain.

9. Possibilty of Performance – The valid contract should be made capable of performance.

10. Not Expressly Declared Void – An agreement must not be one in all those, which are
expressly declared to be void by the Act. Section 24-30 explains certain styles of agreement,
which are expressly declared to be void. An agreement under control of trade and an
agreement by way of wager are expressly declared void.

9) Explain RTI act.

Answer: The Right to Information Act passed in 2005 extends to all states and union
territories of India excepting the state of Jammu and Kashmir. This act gives Indian citizens
the right to access information about any public authority or institution, including non-
government organizations substantially funded by the government.

The main aims of the RTI act are to provide clarity of information to the citizens of India, to
contain corruption and to promote accountability in the working of every public authority.

The objectives of the RTI Act, 2005 are as follows:

i) To provide for a practical framework that allows the citizens to access the
information under the control of public authorities.
ii) To promote transparency and accountability in the working of governments and their
instrumentalities.
iii) To provide for the constitution of Information Commissions at state and national
level for discharging the functions and exercising the powers under the Act.
iv) To develop an informed citizenry.
v) To contain corruption.
 vi) To lay down the exemptions to disclosure of information when such disclosure is
likely to conflict with other public interests and to harmonise these conflicting
interests while preserving the paramountcy of the democratic ideal.

Public authorities are to maintain and catalogue records in accordance to the act and ensure
that records that are appropriate are computerised within reasonable time and subject to
availability of resources.
A person can request information in writing or through electronic means in English, Hindi or
in the official language of the area in which the application is being made, along with the
prescribed application fee [S.6.(1)]. The application can be made to the Central Public
Information officer, State Public Information Officer, Central Assistant Public Information
Officer, or State Assistant Public Officer depending on the case.

Grounds for rejection:

• An application can be rejected if the disclosure of information

o affects the sovereignty and integrity of India, the security, strategic, scientific or
economic interests of India or would lead to incitement of an offence. [S.2.(8)(a)]

o is forbidden to be published by any court, tribunal or if disclosure may constitute

contempt of court. [S.2.(8)(b)]

o including information such as trade secrets, commercial confidence, intellectual

property. [S.2.(8)(d)]

Importance of the Right to Information Act

1. This law empowers people to ask for information about central, state governments including
non-governmental organizations which are substantially funded by the government.

2. The law gives citizens of India the tools to fight against corruption.

3. RTI gives people the right to hold the government and organizations substantially funded by
the government accountable

4. The Right to Information Act gives citizens the right to ask for information and decide, based
on the information received, whether their constitutional rights have been met.

5. This law arms individuals with information so that they can advocate for themselves.

10) Communication and Revocation of offer and acceptance

Answer:

Communication of Offer

Section 4 of the Indian Contract Act 1872 says that the communication of the offer is complete
when it comes to the knowledge of the person it has been made to. So when the offeree (in case
of a specific offer) or any member of the public (in case of a general offer) becomes aware of the
offer, the communication of the offer is said to be complete.
So when two people are talking, face-to-face or via telephone, etc the communication will be
complete as soon as the offer is made. Example if A tells B he will fix his roof for five thousand
rupees, the communication is complete as soon as the words are spoken.

Let us take the same example. A writes to B offering to fix his roof for five thousand rupees. He
posts the letter on 2nd July. The letter reaches B on 4th July. So the communication is said to
complete on 4th July.

Communication of Acceptance

Mode of Acceptance

In this case of communication of acceptance, there are two factors to consider, the mode of
acceptance and then the timing of it. Let us first talk about the mode of acceptance. Acceptance
can be done in two ways, namely

Communication of Acceptance by an Act: This would include communication via words,

whether oral or written. So this will include communication via telephone calls, letters, e-
mails, telegraphs, etc.

Communication of Acceptance by Conduct: The offeree can also convey his acceptance of the
offer through some action of his, or by his conduct. So say when you board a bus, you are
accepting to pay the bus fare via your conduct.

Timing of Acceptance

The communication of acceptance has two parts:

As against the Offeror: For the proposer, the communication of the acceptance is complete
when he puts such acceptance in the course of transmission. After this it is out of his hand to
revoke such acceptance, so his communication will be completed then. So, for example, A
accepts the offer of B via a letter. He posts the letter on 10th July and the letter reaches B on
14th For B (the proposer) the communication of the acceptance is completed on 10th July
itself.

As against the Acceptor: The communication in case of the acceptor is complete when the
proposer acquires knowledge of such acceptance. So in the above example, A’s
communication will be complete on 14th July, when B learns of the acceptance.

Revocation of Offer

The Indian Contract Act lays out the rules of revocation of an offer in Section 5. It says the offer
may be revoked anytime before the communication of the acceptance is complete against the
proposer/offeror. Once the acceptance is communicated to the proposer, revocation of the offer
is now not possible.

Let us take the same example of before. A accepts the offer and posts the letter on 10th July. B
gets the letter on 14th July. But for B (the proposer) the acceptance has been communicated on
10th July itself. So the revocation of offer can only happen before the 10th of July.

Revocation of Acceptance
 Section 5 also states that acceptance can be revoked until the communication of the acceptance
is completed against the acceptor. No revocation of acceptance can happen after such date.

Again from the above example, the communication of the acceptance is complete against A
(acceptor) on 14th July. So till that date, A can revoke his/her acceptance, but not after such date.
So technically between 10th and 14th July, A can decide to revoke the acceptance.

11) What is free consent?

Answer: In the Indian Contract Act, the definition of Consent is given in Section 13, which states that “it
is when two or more persons agree upon the same thing and in the same sense”. So the two people
must agree to something in the same sense as well. Let’s say for example A agrees to sell his car to B. A
owns three cars and wants to sell the Maruti. B thinks he is buying his Honda. Here A and B have not
agreed upon the same thing in the same sense. Hence there is no consent and subsequently no contract.
Now Free Consent has been defined in Section 14 of the Act. The section says that consent is considered
free consent when it is not caused or affected by the following,

1) Coercion(Section 15)- Coercion means using force to compel a person to enter into a
contract. So force or threats are used to obtain the consent of the party under coercion,
i.e it is not free consent. Section 15 of the Act describes coercion as

• committing or threatening to commit any act forbidden by the law in the IPC

• unlawfully detaining or threatening to detain any property with the intention of causing
any person to enter into a contract.
Now the effect of coercion is that it makes the contract voidable. This means the contract is
voidable at the option of the party whose consent was not free. So the aggravated party will
decide whether to perform the contract or to void the contract. So in the above example, if B
still wishes, the contract can go ahead.

Also, if any monies have been paid or goods delivered under coercion must be repaid or returned
once the contract is void. And the burden of proof proving coercion will be on the party who
wants to avoid the contract. So the aggravated party will have to prove the coercion, i.e. prove
that his consent was not freely given.

2) Undue Influence (Section 16)- Section 16 of the Act contains the definition of undue
influence. It states that when the relations between the two parties are such that one
party is in a position to dominate the other party, and uses such influence to obtain an
unfair advantage of the other party it will be undue influence.

The section also further describes how the person can abuse his authority in the following two
ways,

• When a person holds real or even apparent authority over the other person. Or if he is in a
fiduciary relationship with the other person

• He makes a contract with a person whose mental capacity is affected by age, illness or
distress. The unsoundness of mind can be temporary or permanent
Now undue influence to be evident the dominant party must have the objective to take
advantage of the other party. If influence is wielded to benefit the other party it will not be
undue influence. But if consent is not free due to undue influence, the contract becomes
voidable at the option of the aggravated party. And the burden of proof will be on the dominant
party to prove the absence of influence.

3) Fraud (Section 17) -Fraud means deceit by one of the parties, i.e. when one of the
parties deliberately makes false statements. So the misrepresentation is done with full
knowledge that it is not true, or recklessly without checking for the trueness, this is said
to be fraudulent. It absolutely impairs free consent.

So according to Section 17, a fraud is when a party convinces another to enter into an
agreement by making statements that are

• suggesting a fact that is not true, and he does not believe it to be true

• the active concealment of facts

• a promise made without any intention of performing it

• any other such act fitted to deceive

One factor to consider is that the aggravated party should suffer from some actual loss due to
the fraud. There is no fraud without damages. Also, the false statement must be a fact, not an
opinion. In the above example if B had said his horse is better than C’s this would be an opinion,
not a fact. And it would not amount to fraud.

4) Misrepresentation(Section 18)- Misrepresentation is also when a party makes a

representation that is false, inaccurate, incorrect, etc. The difference here is the
misrepresentation is innocent, i.e. not intentional. The party making the statement
believes it to be true. Misrepresentation can be of three types

• A person makes a positive assertion believing it to be true

• Any breach of duty gives the person committing it an advantage by misleading another. But
the breach of duty is without any intent to deceive

• when one party causes the other party to make a mistake as to the subject matter of the
contract. But this is done innocently and not intentionally.
5) Mistake (Section 14)- A mistake is an erroneous belief that is innocent in nature. It
leads to a misunderstanding between the two parties. Now when talking about a
mistake, the law identifies two types of mistakes, namely,

i) A Mistake of Law-This mistake may relate to the mistake of the Indian

laws, or it can be a mistake of foreign laws. If the mistake is regarding
Indian laws, the rule is that the ignorance of the law is not a good enough
excuse. This means either party cannot simply claim it was unaware of the
law.
 ii) A Mistake of Fact- Then there is the other type of mistake, a mistake of
fact. This is when both the parties misunderstand each other leaving them
at a crossroads. Such a mistake can be because of an error in
understanding, or ignorance or omission etc. But a mistake is never
intentional, it is an innocent overlooking. These mistakes can either be
unilateral or bilateral.

12) Short note on e-contracts:

Answer: E contracts, or electronic contracts, are a type of contract formed online.

E contracts, or electronic contracts, are a type of contract formed online. The interaction
between the parties in forming the contract can be by many different electronic means: e-mail,
through a computer program, or by two electronic agents programmed to recognize the
formation of the contract.

Rules regarding the formation, governance, and basic terms of an e-contract are included in The
Uniform Computer Information Transactions Act. Contract law principles and remedies apply to e-
contracts. E-contracts with e-signatures just like traditional paper contracts are legal and
enforceable. The same basic requirements of a binding contract are required of both: an offer, an
acceptance, consideration, competency, capacity, etc.

Companies that work and communicate online with consumers can use e-signatures to conduct
their business. Websites that connect two businesses, B2Bs, can also use e-signatures to form
enforceable contracts in requesting services or ordering supplies. The law now allows these
companies to conduct business entirely online. Businesses save big with this ability and can pass
on those savings to their consumers.

Technology

Other means of providing and obtaining e-signatures have been developed, including:

A means of capturing a fingerprint digitally

Electronically recording your signature with hardware

See the Worldwide Web Consortium’s (W3C) developments to follow along with new progress.

Cryptographic Signatures (PKI)

Electronic signatures are different than digital signatures. "Digital signature" is the term used
when identifying cryptographic signatures. "Electronic signature" is the term for a paperless way
to provide a signature online. Cryptography is the science of securing
information. Cryptographers work with systems that scramble information and then unscramble
it. These experts use Public Key Infrastructure (PKI) as their method of signing contracts online
because it is the most reliable and secure.

When you use PKI to sign a document, it encrypts the online document to be accessible only by
parties that have been authorized. If only authorized parties have the key to access the
document, then PKI protects against anyone else fraudulently signing the document.

Requesting Paper Contracts

 Federal laws regarding e-signatures allow parties to a business contract to use paper contracts if
they would like. Consumers may opt out of using e-contracts.

Before a consumer provides consent for the formation of an electronic contract, a business must
notify the consumer that paper contracts are available and that the consumers, even if they
consent to e-documents and e-signatures, can revoke that consent and require a paper
agreement be sent to them.

13) Rights and Duties of partners

Answer:

Rights of Partners:

Partners can exercise the following rights under the Act unless the partnership deed states
otherwise:

Right to participate in business: Each partner has an equal right to take part in the conduct of
their business. Partners can curtail this right to allow only some of them to contribute to the
functioning of the business if the partnership deed states so.

Right to express opinions: Another one of the rights of partners is their right to freely express
their opinion. Partners, by a majority, can determine differences with respect to ordinary matters
connected with the business. Each partner can express his opinion to decide such matters.

Right to access books and accounts: Each partner can inspect and copy books of accounts of the
business. This right is applicable equally to active and dormant partners.

Right to share profits: Partners generally describe in their deed the proportion in which they will
share profits of the firm. However, they have to share all the profits of the firm equally if they
have not agreed on a fixed profit sharing ratio.

Right to be indemnified: Partners can make some payments and incur liabilities through their
decisions in the course of their business. They can claim indemnity from each other for these
decisions. Such decisions must be taken in situations of emergency and should be of such nature
that an ordinarily prudent person would resort to under similar conditions.

Right to interest on capital and advances: Partners generally do not get an interest on the capital
they contribute. In case they decide to take an interest, such payment must be made only out of
profits. They can, however, receive interest of 6% p.a. for other advances made subsequently
towards the business.

Duties of Partners:

Now that we have seen the rights of partners let us see the duties the Act has prescribed,

General duties: Every partner has the following general duties like carrying on the business to the
greatest common good, duty to be just and faithful towards each other, rendering true accounts,
and providing full information of all things affecting the firm. etc
 Duty to indemnify for fraud: Every partner has to indemnify the firm for losses caused to it by his
fraud in the conduct of business. The Act has adopted this principle because the firm is liable for
wrongful acts of partners. Any partner who commits fraud must indemnify other partners for his
actions.

Duty to act diligently: Every partner must attend to his duties towards the firm as diligently as
possible because his not functioning diligently affects other partners as well. He is liable to
indemnify others if his willful neglect causes losses to the firm.

Duty to use the firm’s property properly: Partners can use the firm’s property exclusively for its
business, and not for any personal purpose, because they all own it collectively. Hence, they must
be careful while using these properties.

Duty to not earn personal profits or to compete: Each partner must function according to
commonly shared goals. They should not make any personal profit and must not engage in any
competing business venture. They should hand over personal profits made to their firm.

14) Difference between promissory note, bills of exchange and cheques *

Answer:
No. Parameter Cheque Bill Of Exchange Promissory Note
1. Meaning By a cheque one A negotiable It is an instrument
individual/party instrument is in given in writing with
orders the bank to writing and holds an an unrestricted
transfer the money to unconditional order guarantee to pay a
the bank account of by the bill’s maker to certain amount of
another pay a certain amount money to a certain
individual/party in of money either to a individual or to the
whose name the specific person or its bearer of the
cheque has been bearer. instrument and
issued. signed by the maker
of it.
2. Legal A cheque is a The definition of a bill The definition of the
negotiable instrument of exchange is given in promissory note is
under Section 6 of the Section 5 of the given in Section 4 of
Negotiable Negotiable the Negotiable
Instruments Act, Instruments Act, Instruments Act,
1881. 1881. Bill of exchange 1881.
is also defined in
Section 2(2) of the
Indian Stamps Act,
1899 and the bill of
exchange payable on
demand has been
explained in Section
2(3) of the Indian
Stamps Act, 1899.
3. Drawer of Creditor Creditor Debtor
Instrument
 4. Parties Three parties are The same person can The drawer and
Involved involved as a drawn be the drawer and payee cannot be the
payee. payee.It is payable on- same person.
demand or on the
expiry of a certain
period.
5. Payability It is payable on- The same person can The drawer and
demand only. be the drawer and payee cannot be the
payee.It is payable on- same person.
demand or on the
expiry of a certain
period.
6. Notice of For a cheque, a notice For a bill of exchange, No notice is served to
Dishonour of dishonour is not a notice of dishonour the drawer in case of
compulsory. is mandatory and it dishonouring the
should be served to promissory note.
all the concerned
parties involved in the
transaction on
dishonouring the bill
of exchange.
7. Copies The cheque allows no Bill of exchange can The promissory note
copies. have copies. allows no copies.
8. Grace Period A cheque does not A bill of exchange, Third day after the
have a grace period however, has a three day on which it is
once it is presented days grace period. expressed to be
for its payment. payable.
9. Liability The parties remain As regards a bill of The liability of the
liable to pay even exchange, the parties drawer is primary and
though no notice of who don’t get notice absolute.
dishonour is given. of dishonour are free
from the liability of
paying and the
liability of the drawer
is secondary and
conditional.
10. Validity A cheque is generally There is no validity to A promissory note is
valid for six months; a bill. valid only for a period
some cheques issued of 3 years from the
by the central date of its execution
government may be after which it
valid only for 3 becomes invalid.
months from the date
of issue.
11. Acceptance A cheque does not A bill of exchange No acceptance is
require acceptance must be accepted first required from the
and its object is for before payment can drawee.
immediate payment. be demanded on it.

15) Explain Partnership deed

 Answer: Partnership deed is a written legal document that contains an agreement made
between two individuals who have the intention of doing business with each other and share
profits and losses. It is also called a partnership agreement.

What documents are required for registration of a partnership firm?

Documents required for registration of a partnership firm are:

Certified original copy of Partnership deed

Partner’s documents ( PAN Card and Aadhar or Driving License)
Address proof of the firm ( rent agreement and utility bills ( gas, landline or electricity)
GST registration
Specimen of an affidavit certifying all the details mentioned in the partnership deed and
documents are correct.
Application for registration of partnership i.e Form 1
How do you write a partnership deed?
Partnership deed is written or created with the following basic informations:

Name and address of the firm as well as all the partners.

Nature of business to be carried out by the firm.
Date of commencement of business.
Duration of partnership (whether for a fixed period/project)
Capital contribution by each partner.
Profit sharing ratio among the partners.

16) Explain consumer protection act. *

Answer: The Consumer Protection Act, implemented in 1986, gives easy and fast
compensation to consumer grievances. It safeguards and encourages consumers to speak
against insufficiency and flaws in goods and services. If traders and manufacturers practice
any illegal trade, this act protects their rights as a consumer. The primary motivation of this
forum is to bestow aid to both the parties and eliminate lengthy lawsuits.

This Protection Act covers all goods and services of all public, private, or cooperative sectors,
except those exempted by the central government. The act provides a platform for a
consumer where they can file their complaint, and the forum takes action against the
concerned supplier and compensation is granted to the consumer for the hassle he/she has
encountered.

Consumer Rights and Responsibilities:

The Rights of the Consumer

• Right to Safety- Before buying, a consumer can insist on the quality and guarantee of
the goods. They should ideally purchase a certified product like ISI or AGMARK.
• Right to Choose- Consumer should have the right to choose from a variety of goods
and in a competitive price.
• Right to be informed- The buyers should be informed with all the necessary details of
the product, make her/him act wise, and change the buying decision.
 • Right to Consumer Education- Consumer should be aware of his/her rights and avoid
exploitation. Ignorance can cost them more.
• Right to be heard- This means the consumer will get due attention to express their
grievances at a suitable forum.
• Right to seek compensation- The defines that the consumer has the right to seek
redress against unfair and inhumane practices or exploitation of the consumer.

The Responsibilities of the Consumer

• Responsibility to be aware – A consumer has to be mindful of the safety and quality

of products and services before purchasing.
• Responsibility to think independently– Consumer should be well concerned about
what they want and need and therefore make independent choices.
• Responsibility to speak out- Buyer should be fearless to speak out their grievances
and tell traders what they exactly want
• Responsibility to complain- It is the consumer’s responsibility to express and file a
complaint about their dissatisfaction with goods or services in a sincere and fair
manner.
• Responsibility to be an Ethical Consumer- They should be fair and not engage
themselves with any deceptive practice.

17) Explain Rights of Consumer

Answer: The Rights of the Consumer

• Right to Safety- Before buying, a consumer can insist on the quality and guarantee of
the goods. They should ideally purchase a certified product like ISI or AGMARK.
• Right to Choose- Consumer should have the right to choose from a variety of goods
and in a competitive price.
• Right to be informed- The buyers should be informed with all the necessary details of
the product, make her/him act wise, and change the buying decision.
• Right to Consumer Education- Consumer should be aware of his/her rights and avoid
exploitation. Ignorance can cost them more.
• Right to be heard- This means the consumer will get due attention to express their
grievances at a suitable forum.
• Right to seek compensation- The defines that the consumer has the right to seek
redress against unfair and inhumane practices or exploitation of the consumer.

18) Insurance act 1938

Answer: The insurance act originally passed in the year 1938. The IRDA itself became the
authority to perform many tasks required to be done under the insurance act such as issuing
licenses, issuing registration certificates, monitoring compliance with the provisions of the Act,
issuing directives, laying down norms. The all above said functions were performed by the
controller of Insurance earlier as per the Insurance Act, 1938. The provisions of the Act may be
briefly described as follows.

Registration
To obtain the certificate of registration is compulsory to every insurance company. The
Registration should be renewed annually. The paid-up capital must be of Rs. 100 crores for life
insurance or general and Rs. 200 crores for re-insurance business. Every insurer has to deposit in
cash or approved securities, a sum equivalent to 1 % in life insurance or 3% in general insurance
of the total gross premium in-any financial year commencing after 31st March, 2000 with the
Reserve Bank of India. The amount is not being exceeding Rs. 10 crores. The deposit amount is Rs.
20 crores for reinsurance businesses.

Every insurance company must keep the accounts separately of all receipts and payment in
respect of each class of insurance business such as the marine or miscellaneous insurance.

Insurers must invest his assets only in those investments which approved under the provisions of
the Act.

Every insurance company has to do a minimum insurance business in the rural or social sector, as
may be specified in the order. The authority can be investigated the affair of the insurer at any
time.

Licensing of agents

License is the pre requirement for becoming the agent. Person can’t work as an insurance agent
unless he has obtained a license from the authority. There is some disqualification as per the act
for a person to be an agent, as follows:

• Being unsound mind.

• Being convicted of criminal misappropriation or criminal breach of trust or cheating or forgery

or abetment or attempt to commit any such offence.

• Being found to have been guilty of or connived at any fraud, dishonesty or misappropriation
against any insured on insurer.

Licensing of surveyors and loss assessors

No insurer can settle any claim equal to or exceeding Rs. 20000/- without the report on the loss
from a licensed surveyor. The person can act as a surveyor or loss assessor only after obtaining
license from the authority. The authority can’t issue the license without get satisfaction about the
applicant.

Solvency margin

The authority for the insurer also decides the solvency margin. The act clarifies how the assets
and liabilities have to be determined and the extent to which the assets are to exceed the
liabilities. These provisions exist to ensure the adequacy of insurer’s solvency

Payment of premium before assumption of risk

A risk can be assumed by the, insurance company after receiving the premium or a guarantee
that the premium will be paid within the prescribe time. Sometimes agents collect the premium
amount and dispatch or deposited to the insurance company. They have to deposit the money
within the 24 hours except the bank and postal holiday. The agent has to deposit the premium in
full without deducting his commission. If any refund of, the premium will be due, the insurer
directly shall pay the amount to the insured by crossed or order cheque or by postal money order.
19) LIC of 1956
Answer: Life Insurance Business in India was nationalized with effect from January 1956. On the
date, the Indian business of 16 non-Indian insurers operating in India and 75 Provident Societies
were taken over by Government of India. Life Insurance Corporation of India commenced its
functioning as a corporate body from September 1, 1956. Its working is governed by the LIC Act.
The LIC is a corporate having perpetual succession and a common seal with a power to acquire
hold and dispose of property and can by its name sue and be sued.
Important Provisions of Life Insurance Corporation Act, 1956
• Constitution
• Capital
• Functions of the Corporation
• Transfer of Services
• Set-up of the Corporation
• Committee of the Corporation
• Authorities
• Finance, Accounts and Audit
• Miscellaneous
Life Insurance Corporation of India (LIC)
It is basically an investment institution, in as much as the funds of policy holders are invested and
dispersed over different classes of securities, industries and regions, to safeguard their maximum
interest on long term basis. LIC is required to invest not less than 75% of its funds in Central and
State Government securities, the government guaranteed marketable securities and in the
socially-oriented sectors. It provides long term finance to industries. Besides, it extends resource
support to other term lending institutions by way of subscription to their shares and bonds and
also by way of term loans.
Objectives of LIC of India
The LIC was established with the following objectives:
• Spread life insurance widely and in particular to the rural areas, to the socially and
economically backward classes with a view to reaching all insurable persons in the country and
providing them adequate financial cover against death at a reasonable cost
• Maximisation of mobilisation of people’s savings for nation building activities.
• Provide complete security and promote efficient service to the policy-holders at economic
premium rates.
• Conduct business with utmost economy and with the full realisation that the money belongs
to the policy holders.
• Act as trustees of the insured public in their individual and collective capacities.
• Meet the various life insurance needs of the community that would arise in the changing
social and economic environment
• Involve all people working in the corporation to the best of their capability in furthering the
interest of the insured public by providing efficient service with courtesy.
Role and Functions of LIC
• It collects the savings of the people through life policies and invests the fund in a variety of
investments.
• It invests the funds in profitable investments so as to get good return. Hence the policy
holders get benefits in the form of lower rates of premium and increased bonus. In short, LIC is
answerable to the policy holders.
• It subscribes to the shares of companies and corporations.
• It provides direct loans to industries at a lower rate of interest.
 • It provides refinancing activities through SFCs in different states and other industrial loan
giving institutions.
• It has provided indirect support to industry through subscriptions to shares and bonds of
financial institutions such as IDBI, IFCI, ICICI, SFCs etc. at the time when they required initial
capital. It also directly subscribed to the shares of Agricultural Refinance Corporation and SBI.
• It gives loans to those projects which are important for national economic welfare. The
socially oriented projects such as electrification, sewage and water channelising are given priority
by the LIC.
• It nominates directors on the boards of companies in which it makes its investments.
• It gives housing loans at reasonable rates of interest.
• It acts as a link between the saving and the investing process. It generates the savings of the
small savers, middle income group and the rich through several schemes.

20) General insurance fire marine property

Answer: [Notes]

21) General Insurance business (Nationalisation) act 1972

Answer: The General Insurance Business Nationalization Act was passed in 1972 to set up the
general insurance business. It was the nationalization of 107 insurance companies into one main
company called General Insurance Corporation of India and its four subsidiary companies with
exclusive privilege for transacting general insurance business. This act has been amended and the
exclusive privilege ceased on and from the commencement of the Insurance Regulatory and
Development Authority act 1999. General Insurance Corporation has been working as a reinsurer
in India. Their subsidiaries are working as a separate entity and plays significant role in the public
sector of general insurance.
General Insurance Corporation of India (GIC)
General insurance industry in India was nationalised and a government company known as
General Insurance Corporation of India was formed by the Central government in November,
1972. General insurance companies have catered to the increasing demands and have offered a
variety of insurance covers that almost cover anything under the sun.
Objective of the GIC:
(i) To carry on the general insurance business other than life, such as accident, fire etc.
(ii) To aid and achieve the subsidiaries to conduct the insurance business and
(iii) To help the conduct of investment strategies of the subsidiaries in an efficient and productive
manner.
Role and Functions of GIC
(i) Carrying on of any part of the general insurance, if it thinks it is desirable to do so.
(ii) Aiding, assisting and advising the acquiring companies in the matter of setting up of standards
of conduct and sound practice in general insurance business.
(iii) Rendering efficient services to policy holders of general insurance.
(iv) Advising the acquiring companies in the matter of controlling their expenses including the
payment of commission and other expenses.
(v) Advising the acquiring companies in the matter of investing their fund.
(vi) Issuing directives to the acquiring companies in relation to the conduct of general insurance
business.
(vii) Issuing directions and encouraging competition among the acquiring companies in order to
render their services more efficiently.
Classification of Indian General Insurance Industry
 General Insurance is also known as Non-Life Insurance in India. The General Insurance companies
have been classified into two broad categories namely:
1. PSUs (Public Sector Undertakings)
2. Private Insurance Companies
PSUs (Public Sector Undertakings)
These insurance companies are wholly owned by the Government of India (subsidiaries of GIC).
Eg. National Insurance Company Ltd., Oriental Insurance Company Ltd., The New India Assurance
Company Ltd. and United India Insurance Company Ltd.
Private Insurance Companies
Eg. Bajaj Allianz General Insurance Co. Ltd., Cholamandalam MS General Insurance Co. Ltd.,
Future General Insurance Company Ltd, ICICI Lombard General Insurance Ltd., Royal Sundaram
General Insurance Co Ltd. etc

22) Functions of IRDAI Act

Answer: Section 14 of the IRDA Act, 1999 lays down the duties, powers and functions of IRDA,
some of which are as follows:

• Protect the interest of the policyholders in matters concerning assigning of policy,

nomination by policyholders, surrender value of the policy, settlement of insurance claim,
insurable interest and other terms and conditions of contracts of insurance
• Regulate and escalate the growth of the insurance and reinsurance industry in an
organized manner to benefit the common man
• Ensure a fair regulation of the insurance industry
• Ensure that the provisions of the Insurance Act are properly implemented
• Ensure a speedy and hassle-free claim settlement process
• Prevent insurance related frauds and other malpractices
• Address the grievances of the policyholder through a proper channel
• To promote fair and transparent operations among insurance companies
• Frame policies and regulations periodically to avoid ambiguity in the insurance industry
• Register and supervise insurance companies
• Facilitate licensing and establish norms for insurance intermediaries
• Specify financial reporting norms of insurance companies
• Enhance the standards of insurance markets
• Enforce actions when the established standards are ineffective
• Form a reliable management system with high standards of financial stability
• Approve product terms and conditions offered by various insurers
• Regulate and oversee premium rates and terms of non-life insurance covers
• Regulate and control investments made by insurance companies from policyholders’
funds
• Ensure that insurance companies maintain a solvency margin
• Ensure rural areas and vulnerable sections of society have sufficient insurance coverage
• Lay down the code of ethics, credentials and skills required for insurance agents and
intermediaries
• Adjudicate the conflicts among insurers and intermediaries of insurance
• Step in and provide resolution in case of any dispute between the insurer and the
policyholder
 • Call for audit, conduct investigation and call for any information required from insurance
companies or intermediaries to prevent any misdeed

23) Investment Regulations in India

Answer: [To ask maam]

24) IRDAI Appointed Actuarial Regulations 2017

Answer: [Notes]

25) Registration of India Insurance Company 2000

Answer: Section 29 in The Insurance Regulatory and Development Authority (Registration of
Indian Insurance Companies) Regulations, 2000
Registration of existing insurers. -

(1) Every insurer carrying on insurance business in India before the commencement of the Insurance
Regulatory and Development Authority Act, 1999 (41 of 1999) and requiring registration under the
Act, shall make an application, in Form IRDA/R2 for grant of certificate of registration, within three
months from the commencement of the Insurance Regulatory and Development Authority Act, 1999
(41 of 1999).
(2) Every application shall be accompanied by-
(a) original certificate of registration;
(b) a confirmation that the requirements of section 7 of the Act have been met; (c) evidence of having
rupees one hundred crore or more paid up share capital, in case the application for grant of
certificate of registration is for life insurance business or general insurance business;
(d) evidence of having rupees two hundred crore or more paid-up share capital, in case of an
application for grant of certificate of registration for reinsurance business;
(e) an affidavit by the principal officer of the applicant certifying that the requirements of section 6 of
the Act have been complied with;
(f) a certified copy of the standard forms of the insurer and statements of the assured rates,
advantages, terms and conditions to be offered in connection with insurance policies together with a
certificate in case of life insurance business by an actuary that such rates, advantages, terms and
conditions are workable and sound;
(g) the original receipt showing payment of fee of rupees fifty thousand for each class of business;
(h) any other information required by the Authority during the processing of the application for
registration.
(3) The Authority shall register every applicant, who submits an application in accordance with sub-
regulation (2), and grant a certificate in Form IRDA/R3.

26) What is Companies’ Act?

Answer: The Indian Companies Act 2013 replaced the Indian Companies Act, 1956. The
Companies Act 2013 makes comprehensive provisions to govern all listed and unlisted companies
in the country. The Companies Act 2013 implemented many new sections and repealed the
relevant corresponding sections of the Companies Act 1956.

Key Highlights of Indian Companies Act 2013

• The maximum number of members (shareholders) permitted for a Private Limited

Company is increased to 200 from 50.
 • One-Person company.
• Section 135 of the Act which deals with Corporate Social Responsibility.
• Company Law Tribunal and Company Law Appellate Tribunal.

Salient Features of Companies Act:

1. Class action suits for Shareholders: The Companies Act 2013 has introduced new
concept of class action suits with a view of making shareholders and other
stakeholders, more informed and knowledgeable about their rights.
2. More power for Shareholders: The Companies Act 2013 provides for approvals from
shareholders on various significant transactions.
3. Women empowerment in the corporate sector: The Companies Act 2013 stipulates
appointment of at least one woman Director on the Board (for certain class of
companies).
4. Corporate Social Responsibility: The Companies Act 2013 stipulates certain class of
Companies to spend a certain amount of money every year on activities/initiatives
reflecting Corporate Social Responsibility.
5. National Company Law Tribunal: The Companies Act 2013 introduced National
Company Law Tribunal and the National Company Law Appellate Tribunal to replace
the Company Law Board and Board for Industrial and Financial Reconstruction. They
would relieve the Courts of their burden while simultaneously providing specialized
justice.
6. Fast Track Mergers: The Companies Act 2013 proposes a fast track and simplified
procedure for mergers and amalgamations of certain class of companies such as
holding and subsidiary, and small companies after obtaining approval of the Indian
government.
7. Cross Border Mergers: The Companies Act 2013 permits cross border mergers, both
ways; a foreign company merging with an India Company and vice versa but with prior
permission of RBI.
8. Prohibition on forward dealings and insider trading: The Companies Act 2013 prohibits
directors and key managerial personnel from purchasing call and put options of shares
of the company, if such person is reasonably expected to have access to price-sensitive
information.
9. Increase in number of Shareholders: The Companies Act 2013 increased the number of
maximum shareholders in a private company from 50 to 200.
10. Limit on Maximum Partners: The maximum number of persons/partners in any
association/partnership may be upto such number as may be prescribed but not
exceeding one hundred. This restriction will not apply to an association or partnership,
constituted by professionals like lawyer, chartered accountants, company secretaries,
etc. who are governed by their special laws. Under the Companies Act 1956, there was
a limit of maximum 20 persons/partners and there was no exemption granted to the
professionals.
11. One Person Company: The Companies Act 2013 provides new form of private
company, i.e., one person company. It may have only one director and one
shareholder. The Companies Act 1956 requires minimum two shareholders and two
directors in case of a private company.
12. Electronic Mode: The Companies Act 2013 proposed E-Governance for various
company processes like maintenance and inspection of documents in electronic form,
 option of keeping of books of accounts in electronic form, financial statements to be
placed on company’s website, etc.
13. Liability on Directors and Officers: The Companies Act 2013 does not restrict an Indian
company from indemnifying (compensate for harm or loss) its directors and officers
like the Companies Act 1956.
14. Prohibits Auditors from performing Non-Audit Services: The Companies Act
2013 prohibits Auditors from performing non-audit services to the company where
they are auditor to ensure independence and accountability of auditor.
15. Rehabilitation and Liquidation Process: The entire rehabilitation and liquidation
process of the companies in financial crisis has been made time bound
under Companies Act 2013.

27) What are different types of companies?

Answer: Types of Company Under Companies Act, 2013

Entrepreneurs can register different types of companies under the Companies Act, 2013 (‘Act’) in
India to conduct their business and provide a legal structure for the business. The different types
of companies are as follows:

One Person Company

The Act introduced the concept of a One Person Company (OPC). As per the Act, an OPC is a
company that has only one member. The member can also be the director of the company.
Though the OPC should have only one member, it can have a maximum of fifteen directors.

Private Limited Company

A private limited company is a company where there cannot be more than 200 members. A
minimum of two members are required to establish a private limited company. The members
cannot transfer their share, and it is suitable for businesses that prefer to register as private
entities. There needs to be a minimum of two directors, and there can be a maximum of 15
directors in a private limited company.

Public Limited Company

A public limited company means a company where the general public can hold the company
shares. There is no maximum shareholders limit for a public limited company, but there needs to
be a minimum of seven members to establish a public company. The company needs to have two
directors and can have a maximum of fifteen directors.
Section 8 Company (NGO)

An association of persons or individuals can register a company under section 8 of the Act for
charitable purposes. These companies are established to promote commerce, science, art,
education, sports, research, religion, social welfare, charity, the protection of the environment, or
such other objects. The company should apply its profits and other incomes to promote its
activities. Such companies intend to prohibit any dividend payments to their members.

Types of Companies Based on Size

The MSME Act classifies companies based on their size to give benefits provided by the
government for MSMEs. The differentiation of companies based on size to obtain MSME benefits
is as follows:

Micro Companies

A micro company is a company whose investment in plant and machinery does not exceed Rs.1
crore, and the annual turnover does not exceed Rs.5 crore.

Small Companies

A small company is a company whose investment in plant and machinery does not exceed Rs.10
crore, and the annual turnover does not exceed Rs.50 crore.

However, the Companies Act, 2013, also provides many benefits to small companies. A company
with a paid-up share capital of below Rs.2 crore and an annual turnover of below Rs.20 crore is
considered a small company under the Companies Act.

Medium Companies

A medium company is a company whose investment in plant and machinery does not exceed
Rs.50 crore, and the annual turnover does not exceed Rs.250 crore.

Types of Company Based on Liability

The members of a company have either limited or unlimited liability. The liability of the company
member arises at the time of bankruptcy, company loss, winding up or paying the company’s
debt. Thus, a company established under the Companies Act, 2013 can also be classified based on
the liability of its shareholders.

Limited By Shares

A company limited by shares means the liability of the company members is limited by the
Memorandum of Association (MOA). The company members are liable only for the unpaid
amount on the shares respectively held by them. The equity shares held by a member measure
the shareholder’s ownership in the company.

Limited by Guarantee

A company limited by guarantee means the member’s liability is limited to the amount they
guarantee to contribute towards the company’s assets. The member’s liability is limited by the
company MOA. The members undertake in the MOA to contribute the guaranteed amount in the
event of the company being wound up. The percentage of the member’s ownership is based on
the amount guaranteed by them.

Unlimited Company

An unlimited company means the company members do not have any limit on their liability. If any
debt arises, the member’s liability is unlimited and extends to their personal assets. Usually, the
company entrepreneurs choose not to incorporate this type of company.

Types of Company Based on Control

The companies can be classified based on the ownership structure and control as follows:

Holding Company

A holding company is a company having the majority of voting powers of another company
(subsidiary company). The holding company is the parent company controlling the subsidiary
company’s policies, assets and management decisions. However, it remains uninvolved in the
subsidiary’s day-to-day activities.

Subsidiary Company

A subsidiary company is owned by another company (holding company) either partially or

entirely. The holding company controls the composition of the board of directors of the subsidiary
company or more than 50% of its voting powers. Where a single holding company holds 100%
voting powers, the subsidiary is known as the Wholly Owned Subsidiary (WOS) of the holding
company.

Types of Company Based on Listing

The companies are classified into listed and unlisted companies based on access to capital. Every
listed company must be a public company, but vice versa need not be true. An unlisted company
can be a private or public limited company.

Listed Company
 A listed company is a company which is registered on various recognised stock exchanges within
or outside India. The shares of the listed companies are freely traded on the stock exchanges.
They have to follow the guidelines given by the Securities Exchange Board of India (SEBI).

A company that wishes to list its shares on stock exchanges should issue a prospectus to the
general public for subscribing to its debentures or shares. A company can list its shares through
an Initial Public Offer (IPO), while an already listed company can make a Further Public Offer
(FPO).

Unlisted Company

An unlisted company is a company that is not listed on any recognised stock exchange, and its
shares are not freely tradable on the stock exchanges. These companies fulfil their capital
requirements by obtaining funds from friends, family members, relatives, financial institutions, or
private placement. An unlisted company must convert to a public company and issue a
prospectus if it wishes to list its securities on the stock exchanges.

28) Difference between public and private companies.

Answer:
No. Parameters Private Company Public Company
1. Meaning A privately-owned business can A public organisation can offer its
sell its own, secretly or privately own enlisted shares to the overall
held shares to a couple of willing population or the general public.
financial backers.
2. Regulations Until the privately owned A public organisation needs to
to Follow businesses reach $10 million comply with a ton of guidelines and
and a greater number of than detailing principles according to the
500 investors or shareholders, Government.
they don’t need to follow any
guidelines given by the
Government.
3. Advantage The essential benefit of a The essential benefit of a public
privately traded or exchanged corporation is that it can take
organisation is that it doesn’t advantage of the market by selling
have to pay all due respects to more shares.
any investors, and there’s no
requirement for divulgences
also.
4. Size of the Privately owned traded Public corporations are enormous
Firm organisations can likewise be organisations.
huge organisations. The
possibility that a privately held
organisation is a more modest
or small company is absolutely
false.
5. Funds and For privately-held organisations, For the public corporation, the
their sources the wellspring of assets is not source of assets or funds is by
many private financial backers selling its bonds and shares.
or investors.
6. Traded in The stock of a privately owned The stocks of a public organisation
business is claimed and are exchanged or traded in the stock
exchanged or traded by a couple exchanges.
of private financial backers.