ASSIGMENT- BUSINESS LAWS

ANSWER-1

Introduction

Fund raising by companies has picked up pace in the last few years on account of rise in start-up

culture and entrepreneurship in India. While starting – up one’s enterprise faces numerous

challenges, the primary hurdle faced by every start-up company is capital raising.

Companies incorporated under the Companies Act, 2013 (“Act”) have the option of issuing

various instruments to its investors and meet their capital requirements from time to time. The

technical term for instruments issued by companies to investors is ‘securities’. While the issue of

securities represent an investor’s interest in the company, they are primarily a bundle of rights

and obligations accruing to the investor either at the time of its issue or on the occurrence of

specific events or winding up of the company. Once the securities are issued to investors they

may or may not alter the capital table of the company. The capital table is a structure depicting

the total capital infused in a company sub-divided into the percentage of shareholding held by

each shareholder.

Instruments issued by companies under the Act

The instruments commonly issued by companies at the time of fund – raising are equity based

instruments, debt based instruments or hybrid instruments (containing a combination of features

of both equity and debt based instruments). The nature of instrument to be issued by a company

depends to a large extent on the valuation of the company obtained through different

mechanisms.[1] A common problem faced by early stage start – ups is valuation of the company.

That being said, for every promoter group of a start – up, the issue of a security having least risk

factors is generally the rule of thumb.

The types of securities typically issued in a fund raise (under the Act) are elaborated below
Equity Instruments / Equity Shares
Nature
Shares of a company which represent
ownership to the investor upto the
fraction of shares held by such person
and permit a right to vote in decisions
pertaining to the company.
Preference Shares
Nature
· Shares which entitle the holder to
Types of Equity Shares
· Equity Shares with voting rights – shares
which allow each holder to participate and vote
in all meetings of the company and thus, run the
operations of the company.
· Equity Shares with Differential Voting
Rights (“DVRs”) – shares carrying superior
voting rights (i.e., multiple votes on an equity
share), inferior voting rights (i.e., a fraction of
the voting right on an equity share or shares with
differential rights as to dividend).[2]
· Employee Stock Options (“ESOPs”) –
ESOPs are benefits given to employees of a
company to purchase, or to subscribe for, the
shares of the company at a future date at a pre-
determined price.
· Sweat Equity Shares – equity shares which
are issued by a company as a reward to its
employees for providing their know-how or
making available rights in the nature of
intellectual property rights or value additions, by
whatever name called for consideration other
than cash.
Types of Preference Shares
· Participating and non – participating
a preferential right to receive fixed
dividend during the life of the
company as well as a preferential right
to receive the amount paid on such
shares during the winding up of the
company.[3]
· Does not confer voting rights in
ordinary circumstances.
Debentures
Nature
· Security evidencing debt due to
the holder of debenture by the
company repayable in principal
amount with interest.
· The debenture may or may not
be secured by the assets of the
company.
Hybrid Instruments
Nature
· Securities which have elements
of both debt securities and equity
securities.
preference shares – right to a fixed preferential
dividend and a right to participate in surplus
profits.
· Cumulative and non – cumulative
preference shares – right to claim dividend fixed
at a sum or percentage for the past and current
year out of future profits; and
· Redeemable preference shares – obligation
on the company to redeem the shares after a
specified limit.
Types of Debentures
· Redeemable debentures – debentures which
upon issue will be repaid to the holder upon a
specific time limit;
· Convertible debentures – debentures which
may be converted into equity shares upon a
specific time limit or upon the occurrence of
specific events. Compulsorily convertible
debentures or CCDs must be converted to equity
shares within a period of 10 years from the date
of its issue otherwise the same will be treated as
“deposit” under the Act.[4]
Types of Hybrid Securities
· Hybrid securities typically issued by
companies include optionally convertible
debentures (fully or partly), compulsorily
 convertible debentures, compulsorily convertible
preference shares and optionally convertible
preference shares (fully or partly) all of which
are convertible into equity shares of the company
at specified events.

Conclusion

Capital raising is one of the primary requirements of commencing and sustaining a successful

start-up business. While the idea and/or the innovation proposed is a seed that may be planted

initially by bootstrapping, continued operation of the idea requires constant watering in order to

grow and develop from a plant to a fully rooted tree. The continuous watering process is carried

out by way of a steady in-flow of funding which in turn is implemented through the issue of

capital instruments explained above.

ANSWER-2

Contract labour Act, 1970

Contract labourers also suffer from inferior labour status, casual nature of employment, lack of
job security and poor economic conditions. It was also observed that in some cases the contract
labourers did the same work as the workers directly employed by the industrialist but were no
paid the same wages and the same working conditions. This practice of contract labour has also
lead to the exploitation of these labourers as they are not employed directly under the employer.
This practice of exploitation was and still is very much prevalent in India, therefore to encounter
such problem and also to regulate the conditions of these labourers the Govt. passed an Act
called the Contract Labour (Regulation and Abolition) Act, 1970. The Act was also passed to
provide legislative protection to these workers who had no rights to claim what they deserved
like basic amenities, urinals, drinking water facilty etc. Furthermore these contract labourers
before the enactment could not avail the rights and benefits which were availed by the permanent
workers under different labour and industrial provisions.

In the case of Municipal Corporation of Greater Bombay v. K.V. Shramik Sangh the SC had the
same view point as in the case of Air India Statutory Corp. v. United Labour Union and gave the
same reasoning as well.
Now, in the case of Rourkela Shramik Sangh v. Steel Authority of India Ltd the SC held that
the contract labourers who were less than 58yrs old and medically fit should be absorbed by the
principal employer.

Here the SC reverted back to the decision which it gave initially. Its decision showed that it has
again approached towards the contract labour problem from a very practical point of view and
not on just the basis of what has been written in the statute. The SC also took into consideration
that it would be unjust to leave the labourers unemployed after the abolishment of contract
labour.

Now from the above case analysis it can be easily inferred that the Courts have not developed a
steady attitude towards the above issue. The reason for this is the Act itself , because it lacks
provisions regarding the same. It does not mention anything about the issue in concern. The
Courts therefore faced a problem and in some of the judgements gave their decision solely based
on the basis of the provisions given in the Act while others gave decisions based on the object of
the Act i.e. to protect these labourers from exploitation. Now if the object had to be achieved the
Act should have been more expressive because on issues like this there has to be certain
guidelines provided by the legislation otherwise these labourers may keep on being exploited.

This problem is still very much prevalent and it can be understood from the fact that contract
labourers went again on a strike at the Manesar factory of Honda Motorcycle and Scooter India
Ltd. (HMSI). The company officials had to call police to avoid any ugly scene which happened
in the same company in 2005 . This shows that how much unrest is present in the contract
labourers as they don’t have any job security and they are exploited too in terms of wages and
working conditions too.

Industrial Disputes Act, 1947

Industrial Disputes Act, 1947 regulates Labour laws in India as it concerns all the workmen or all
the people employed on the Indian mainland. It came into force on 1st April 1947. The employer
and the workers always had a difference of opinion which led to lots of conflicts amongst and
within these groups. So, these issues were brought to the attention of the government and so they
decided to pass this Act. This Act was formulated with the main objective of bringing peace and
harmony in industrial disputes between the parties. This is an Act made for the examination and
settlement of industrial disputes, and for different purposes too. This Act centres around any
industry carried on by or under the authority of the Central Government, or by a railway
organization, or concerning any such controlled industry as might be indicated for this benefit by
the Central Government. This Act gives out specific guidelines with regards to both the
businesses and all the workmen to advance measures for good working relations and
comprehension among the workmen and the businesses later on and to end that, it additionally
vows to resolve any material difference in views of opinion concerning such issues. Industrial
dispute implies any distinction of conclusion, contest, injury between the business and the
representatives, or between the labourers and bosses, or between the labourers or workers itself
which is all concerned with the work or non-business terms or terms of business dependent on
the terms of the state of work of any person.

Bombay Union of Journalists vs. The Hindu 1961, II LLJ 727 Bom

A person working in ‘The Hindu, Madras’ was dismissed for claiming as a full-time employee.
The Bombay Union of Journalists raised the dispute. It was found that there were ten employees
out of which seven on the administrative side and only three on the journalism side. Of these
three, only two were members of the union. Therefore, the Supreme Court held that the Bombay
Union of Journalists is not competent to raise this dispute. Even if it had been raised, it could not
have become an industrial dispute.

Indian Bank Vs Management of Indian Bank 1985 1 LLJ 6 (Mad.)

It was observed that where privilege is given to an office-bearer of a trade union in the form of
duty, relief was withdrawn by the management which was granted to the privileged. It cannot be
said that an industrial dispute has arisen thereby and the legal status of the duty relief is only that
of a concession and not a matter relating to conditions of service. In this case, it was held that
where the concession provided is withdrawn, the beneficiary cannot complain that a condition of
service is affected and the management is not entitled to do so without raising an industrial
dispute and having the matter adjudicated by the authority.

All the above mentioned are the real life instances where Indian employee related laws have
ensured protection of welfare of employees.

ANSWER-3

(a) The Indian Partnership Act, 1932 is an act to define and amend law relating to
partnership. The definition of partnership is given under section 4[1] of the Indian
Partnership Act, 1932. The section reads the definition of partnership as partnership is 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. Furthermore the section also reads as persons who have
entered into partnership with one another are called individually partners and collectively
 a ‘firm, and the name under which their business is carried on is called the firm name.

Partnership Disputes

A partnership dispute may arise due to following reasons:

Underperformance of a Partner: Every partner is assigned with a specific role while forming a
partnership. If a partner is unable to carry out his/her duties well, then a dissent may arise among
the other partners.

Secret profits: All the profits incurred in the partnership must be clearly declared before all the
partners. Any secret profit taken by any partner without the knowledge of other partners may
raise a conflict in the partnership.

Conflicting interests: It is imperative that all partners within a partnership have common
interests in businesses. If two partners have a different vision and the rest of the partners do not
agree to the same, a conflict may arise.

Management/personality conflicts: In this situation the most sensible course of action may be
to dissolve the partnership altogether. In some cases you may need to involve the Courts to
ensure that all loose ends are tied up so that the company’s assets are divided fairly.

Partner Disputes Settlement

Having discussed what all can be the reasons for disputes in partnership disputes, now comes the
settlement of these kinds of disputes. A decent and well-balanced dispute resolution process is
essential for maintaining the smooth functioning of the partnership business. The process
commences right from choosing what kind of resort the parties are looking for; or any technique
explicitly mentioned in the Partnership Agreement. If the method resorted for resolving the
dispute is mediation, then the appointment with the mediator or the place of mediation would be
considered as a part of the dispute resolution process.

There are various options available to all the parties for resolving partnership dispute. The parties
can either negotiate by settling down at an agreement by the process of Alternative Dispute
Resolution (ADR), or can go to the Court for settlement.

In the event of any disputes arising from a partnership, a person has three most efficacious
options to resolve the disputes which are outlined below:
Arbitration: It involves an arbitrator either appointed by the parties or by a Court. The decisions
made by the arbitrator are legally binding on the parties. It is considered to be cost effective,
simpler and a faster way of resolving disputes than the Courts.

Mediation: It is the process where an independent mediator is appointed to resolve the dispute.
The mediator does not decide the dispute, but attempts to make a fair discussion. It is a very cost
effective way of resolving a dispute, while giving an option to the parties to provide inputs for
resolution of matters. The mediator does not impose a decision. In mediation, the outcome is
entirely within the control of the parties, and not on a third person such as a judge.

Negotiation: Negotiation is considered to be one of the easiest forms of dispute resolution

process. It is often seen that the parties to the dispute negotiate a resolution that is agreed to both
without the need for formal mediation.

Out of all the three dispute settlement processes ADR (Alternative Dispute Resolution) is the
best method to settle the disputes in partnership disputes. The most frequent option to resolve
partnership disputes is ADR.

(b) The advantages of resolving their differences without approaching

conventional court of laws are:

Time and cost saving: Any technique used under ADR process can be more cost and time
effective.

Flexibility of processes and outcomes: It allows the parties in dispute to adopt a flexible way
while following ADR. The process can be adjusted according to the needs of the parties.
Control: Parties to a dispute may choose the most appropriate neutral person to negotiate their
dispute. They also have the right to choose the time, place, and the date according to their
convenience.

Confidentiality: Any of the technique mentioned under ADR and used by the parties to dispute,
will always remain strictly confidential.

Conclusion: The dispute in partnership dispute can be solved by the various methods like
arbitration, mediation and negotiation. Court proceeding and awards are also the ways in which a
dispute can be settled. Out of all the settlements methods arbitration is the best method and
evidences to support this statement are already provided by the author in the project with the help
of various case laws where arbitration settled the disputes arising in partnership.