BANKING LAWS

Presentation
By
Ch. Naseer Ahmad

1
Meaning of Negotiable
Instrument.
 Goods / services are bought or sold for
cash as well as on credit.
 Common practice of business people to
to use certain documents as means of
payment.
 Some of these documents are called
Negotiable Instruments

2
NEGOTIABLE INSTRUMENTS.
 Negotiable means transferable.
 Instrument means document.
 Negotiable instruments are document for
making payments, the ownership of
which can be transferred from one
person to another many times before the
final payment is made.

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DEFINITION.
 According to section-13 of the Negotiable
Instrument Act,1881, a Negotiable Instrument
means PROMISSORY NOTE, BILL OF
EXCHANGE or CHEQUE, payable either to
order or to bearer.
 NIA-1881 codifies the law relating to
negotiable instruments viz Bill of Exchange,
Promissory Note and Cheque.

4
Promissory Note,Section -4
 Promissory Note is an Instrument in
writing { not being a bank note or a
currency note }, containing an
unconditional undertaking, signed by
the maker to pay on demand or at a
fixed or determinable future time , a
certain sum of money only to, or to the
order of a certain person or to the
bearer of the instrument.

5
Salient features of P.Note
 Must be in writing duly signed by the maker
and properly stamped as per stamp Act.
 Must contain an undertaking or promise to pay
& not acknowledgement of indebtedness.
 Promise to pay not conditional.
 Maker and payee must be certain.
 Payable on demand or on future date.
 Promise to pay money only.
 Sum payable must be certain.

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EXERCISE- Promissory Note
 Mr. A has signed the following
instruments , please identify the correct
instruments.
 I promise to pay B or order Rs. 500/=
 I acknowledge myself to be indebted to
B in Rs. 1,000/=to be paid on demand
for value received.
 Mr. B I.O.U Rs. 1,000/=

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Exercise contd.
 I promise to pay B Rs. 500/= and all other
sums which shall be due to him.
 I promise to pay B Rs. 500/= first deducting
thereout any money which he may owe me.
 I promise to pay B Rs. 500/= seven days after
my marriage with C.
 I promise to pay B Rs. 500/= on D’s death,
provided D leaves me enough to pay that sum.
 I promise to pay B Rs. 500/= and to deliver to
him my black horse on 1st January next.

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BILL OF EXCHANGE, Section -5
 Bill of exchange is an instrument in
writing , containing an unconditional
order, signed by the maker , directing a
certain person to pay on demand or at a
fixed or determinable future time , a
certain sum of money only to ,or to the
order of a certain person, or to the
bearer of the instrument.

9
Salient features of Bill of
Exchange.
 B/E contains three parties.
 B/E must be in writing
 B/E must contain an order to pay.
 Order must be unconditional.
 Order must be to pay money only.
 The sum payable must be certain.
 The parties involved must be certain.
 Subject to stamp duty if drawn under usance.

10
Types of Bills of Exchange.
 Demand B/E- sight or DP collection.
 Usance B/E- term or DA collection.
 Noting & protesting of B/E if dishonored
on presentation or maturity.

11
 Exercise
on

BILL OF EXCHANGE.

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CHEQUE- Section, 6
 Cheque is a Bill of Exchange drawn on a
specified banker and not expressed to
be payable otherwise than on demand.
 Parties in a cheque are,
 Drawer.
 Drawee.
 Payee.

13
Salient features of a Cheque.
 Cheque must be in writing and duly signed by
the drawer.
 It contains unconditional order.
 It is issued on a specified banker.
 Amount is always certain and mentioned in
figures & words.
 Payee is certain.
 Always payable on demand.
 Cheque must bear a date.

14
Distinction between Bill of
Exchange & Promissory Note.
 Promissory Note.
 Unconditional promise
 2 parties maker & payee
 Made by the debtor.
 Liability of maker is
primary & absolute.
 Bill of Exchange.
 Unconditional order.
 3 parties,drawer, drawee
& payee.
 Drawn by the creditor
 Liability of drawer is
secondary & conditional
if drawee fails to pay
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Essentials of a valid cheque.
 The cheque must be payable on
demand. A cheque is payable on
demand when it is expressed to
payable on demand, or at sight or on
presentation or when no time for
payment is expressed.
 Cheque must be an order to pay money
and it must be for the payment of
money only.

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 The amount must be a sum certain not
subject to contingent or indefinites
conditions. E.g. an instrument for the sum of
Rs. 1000/= and all other sums which may be
due, would not be a valid cheque, since the
sum payable is not certain.
 A cheque must be payable to or to the order
of a specified person or bearer. Hence where
the cheque is not made payable to bearer,
the payee must be named or otherwise
indicated with reasonable certainty.

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 A cheque must be signed by the person
giving the order. If the order is not
signed by him, it is not a valid bill.
Hence where the signature of the
drawer is forged or where it is signed
on behalf of the drawer or by a person
having no authority, it will not be
considered signed by the drawer.

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 The cheque must be in writing which include
print. Legally a cheque may be drawn in
pencil but in view of the ease with which
alteration could be made, a banker would be
justified in returning such a document.
 The cheque must be an order i.e. imperative
in terms and not a mere request.
 The cheque must be an unconditional order
i.e. the order to pay must not be subject to
any condition.

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Distinction- Cheque & B/E
 Cheque  Bill of Exchange
 Drawn on a banker.  Can be drawn on any
 Payable on demand. body including banker.
 Can be crossed.  Payable on demand or
 Acceptance is not after specified period.
required.  It can not be crossed.
 Not subject to stamp  Subject to stamp duty if
duty. usance.
 Acceptance is must in
case of usance.

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Types of a Cheque.
 OPEN cheque.
 CROSSED cheque.
 BEARER cheque.
 ORDER cheque.

21
Sections dealing with Cheque
payment.
 Section -10 Payment in due course.
 Section -85 Cheque payable to order.
 Section 85 {1}protection against forged
endorsement to paying banker.
 Section 85 {2} payment of bearer
cheque.
 Section 128 payment of a crossed
cheque.

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Scrutiny of cheque.
 Cheques to be paid with the following conditions.
01-cheque should be drawn in proper form
02- the drawer has not stopped payment of
cheque.
03- the banker has not received the notice of the
customer’s death.
04- customer has not been adjudicated as
insolvent by a competent court of law
05- the banker has not received the Garnishee
order against that account.

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Open cheque presented on
counter.
 Drawn on the branch.
 Open or crossed.
 Serial Number–

01- any alteration in the printed number.

02-belongs to the series of current cheque
book of that customer, if not make sure
that cheque or cheque book previously
reported lost/ stolen ?

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 Scrutiny of cheque.
03- Do not persume that a new chequebook has
been issued without proper checking.
04- If from current series , see whether it is out of
sequence? Check serial number Any unusual gap
? Enquire.
05- Cheque serial number ,branch code , bank code
{017} are properly mentioned in the micro
encoding of NIFT.
In most of the cheques ,serial number is printed by
using , letterpress printing process as a result of
which one can feel depressed surface from
front and embossed from the back.

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Scrutiny of Cheque.
 Date.
 Payee’s name.if cheque is payable to order then
payee must be named and if endorsed, endorsement
in order.
 Amount. words and figures to match, in case of
discrepancy amount in words is legally payable but it
is the practice of the bankers to return unpaid.
 Sufficient balance, properly applicable and within the
limit if finance account.
 Account number ,correct and no evidence of
tempering.

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Scrutiny of Cheque contd.
 Signature of the Drawer. cheque should
bear signature as per the specimen
provided by the drawer.
 In case of any variation, return the
cheque with remarks , SIGNATURE
DIFFERS and inform the drawer.

27
Scrutiny of Cheques.
 Material Alteration, all material
alterations render cheque void, so all the
alterations must bear full signature of the
drawer in authentication.
 Section 3 {f} Material Alteration is related
to promissory note , bill of exchange or
cheque includes an alteration of the date
,the sum payable, time of payment , the
place of payment.

28
Scrutiny of Cheque contd.
 Authenticating signature may be easily forged
from specimen already on the cheque, hence
assess nature of alteration.
 In case of more than one signatory , all should
authenticate alteration.
 May alter bearer to order without
authentication but order to bearer requires
authentication.

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Scrutiny contd.
 Mutilation
it may be an indication that the drawer
intended its destruction. In all such cases
the cheque should be returned with
remarks , cheque mutilated unless the
cheque is torn in error and bears the
signature of the collecting bank in
respect of mutilation.

30
Crossing.

Ch. Naseer Ahmad

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Crossing ,purpose and impact.
 Simple/ general crossing- Sec.123
 Special crossing. Sec. 124
 Account Payee’s only
crossing.Sec.123A
 Not Negotiable Crossing-130
 Who can cross a cheque.
 Who can cancel the crossing.

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Cheque crossed generally. 123
 When a cheque bears across its face an
addition of the words- and company- or
any abbreviation thereof , between two
parallel transverse lines or of two parallel
transverse lines simply, either with or
without the words ,not negotiable that
addition shall be deemed a crossing
and the cheque shall be deemed to be
crossed generally. NIA-Sec. 123.

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Cheque crossed account payee
NIA -123-A
 Where a cheque crossed generally
bears across its face an addition of the
words ,account payee, between the
two parallel transverse lines constituting
the general crossing , the cheque
besides being crossed generally is said
to be crossed ACCOUNT PAYEE,

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Account payee crossing.
 It shall cease to be negotiable.
 It shall be the duty of the banker
collecting payment of the cheque to
credit the proceeds thereof only to the
account of the payee named in the
cheque.

35
Cheque crossed specially-124.
 Where a cheque bears across its face
an addition of the name of a banker,
either with or without the words , not
negotiable, that addition shall be
deemed to be crossed specially and to
be crossed to that banker. NIA-124

36
Not negotiable crossing.130
 A person taking a cheque crossed
generally or specially bearing in either
case the words , not negotiable shall
not have and shall not be capable of
giving better title to the cheque than
that which the person from whom he
took it had. NIA- 130.

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Negotiation Section-14
 WHEN A PROMISSORY NOTE,BILL
OF EXCHANGE OR CHEQUE IS
TRANSFERRED TO ANY PERSON, SO
AS TO CONSTITUTE THAT PERSON
THE HOLDER, THE INSTRUMENT IS
SAID TO BE NEGOTIATED.

38
Section 14 contd.
 Negotiation means the transfer of an
instrument in such a form that the
transferee becomes a legal holder of it.
 If the instrument is payable to order it is
negotiated by endorsement and delivery,
if payable to bearer it is negotiated by
mere delivery.

39
When cheque ceases to be
negotiable.
 When it contains words prohibiting the transfer or
indicates the intention that it is not transferable.
{section-13}
 When crossed ,Account Payee’s only {section -123-A}
 When it contains restrictive endorsement {section-50}
 When it is overdue {section 21-A}
 When it has been previously dishonored {section-59}
 When an order cheque bears forged endorsement
{section -29B}

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Difference between ‘Defective Title’
(Section 58) and ‘No Title’ Section 29
B

Defective Title Section 58

 A person is said to have the defective
title if he has found a cheque lost by
some one else, or has obtained a
cheque or draft by means of an offence
or a fraud for some unlawful
consideration.

41
No Title Section 29-B
 Whereas a person is said to have ‘no
title’ when he is in possession of a
cheques or draft on which the drawer’s
or endorser’s signature has been forged.
For a forged or unauthorized
endorsement is wholly inoperative and
no one can get any rights through or
under a forged signature.

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Defective / No titles
 The important distinction between
defective title and no title is that the
former can be cured through the process
of negotiation i.e. where an innocent
transferee honestly takes a cheques or
draft under strict conditions such a
transferee gets paramount rights and is
known as holder in due course.

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 Where as forgery breaks the golden
chain of negotiation and where the
drawer’s signature is forged or an
endorsement on an order cheque is
forged, the possessor has no rights at
all on the instrument.

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Holder in due course. Section-9
 Holder in due course means any person
who for consideration becomes the
possessor of a promissory note, bill of
exchange or cheque if payable to
bearer or the payee or endorser
thereof, if payable to order, before it
becomes overdue without notice that the
title of the person from whom he derived
his own title was defective.

45
 payment in due course
section-10
 Payment in due course means payment
in accordance with the apparent tenor
of the instrument in good faith and
without negligence to any person in
possession thereof under circumstances
which do not afford a reasonable
ground for believing that he is not
entitled to receive payment of the
amount therein mentioned.

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Check List for Holder in Due
Course.
 Examine the instrument to ensure that it is in
negotiable form I,e. it does not contain words
prohibiting transfer or indicating the intention
that it is not transferable.
 Not crossed , Account Payee.
 Not restrictively endorsed.
 Not over due / stale.
 No evidence of previous dishonor.
 Not tainted by forgery.

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The transferee to examine
following conditions.
 to accept the instrument in good faith.
 For value/ consideration.
 Without notice of any defect in the title of
the transferor.

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Holder in Due Course.
 The highest type of holder is the holder in due
course., who has paramount right over a bill.
To qualify as holder in due course , the holder
must take possession of a cheque under strict
conditions:
 The cheque must be complete and regular on
the face of it. Thus a person when taking an
‘order’ cheque from a payee without the
payee’s endorsement could not be holder in
due course.

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Contd.
 The cheque when negotiated must not be
overdue. Which means it must not have been
in circulation for an unreasonable length of
time.
 The holder must take it without notice of
previous dishonor, if any.
 He must be a holder for some consideration,
i.e. he must give value for the instrument.

50
Contd.
 A holder in due course must take a
cheque without notice of any defect in
the title of the person from whom he
took it.
 It must be noticed that in case the
instrument is tainted with forgery, there
cannot be holder in due course of such
an instrument ( 29 B )

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Contd.
 The holder in due course has first of all the
usual rights of holder as mentioned in section
57 B:
 To receive payment in due course.
 To negotiate the instrument further if he so
desires, unless further negotiation is restricted.
 To sue in his own name to recover payment, if
the instrument is dishonored.
 In addition, he acquires the following rights as
mentioned in section 53 A

52
Contd.

 He holds the instrument free from any

defect of title of previous parties and
free from any defenses available to the
prior parties amongst themselves.
 He may enforce payment of the full
amount of the instrument against all
the parties liable thereon.

53
ENDORSEMENT. Section- 15.
 When the maker or holder of a negotiable
instrument signs the same , otherwise than as
such maker, for the purpose of negotiation on
the back or face thereof on a slip of paper
annexed thereto, or so signs for the same
purpose a stamped paper , intended to be
completed as a negotiable instrument, he is
said to endorse the same and is called the
endorser.

54
 Essentials of a valid
endorsement
 It must be on the instrument ,{ back or face } or
on allonge.
 It must be made by the drawer, payee or
endorsee.
 It must be signed.
 It must contain mere singatures or with
instructions.
 It must be completed by delivery of the
instrument.

55
Contd.
 The Endorser:
 The payee when he negotiates an order
cheque becomes the endorser.
 Duties & Responsibilities:
 He undertakes that if the cheque is
dishonored and he is given notice of
dishonor, he will compensate the holder or
subsequent endorsees who is compelled to
pay.

56
Rights of an Endorser

 He has a right to expect that it will be

presented within reasonable time and if
dishonored, notice of dishonor will be given to
him failing which he will be discharge of his
liability to the holder.
 If compelled to compensate the holder, he has
the right to recover from the drawer

57
Types of endorsement.
 Blank or general.
 Full or special.
 Restrictive.
 Conditional.
 Sans recourse
 Partial.
 Facultative.

58
The Nature of

Partnership

59
Partnership Act -1932.
 Meaning and definition.
1. A partnership is a voluntary association of two
or more persons who contribute money ,
time, care or skill to carry on a lawful
business for profits and to share the profit and
losses of the business.
2. Partnership can be defined as a contract
between two or more competent persons to
do a lawful business and to divide the profits
and bear the losses in the agreed proportion.

60
Partnership Act -1932.
3- According to section -4 of the Act ,
partnership is the relation between
persons who have agreed to share the
profits of a business carried on by all
or any one of them acting for all.

61
Salient Features of Partnership.
 LEGAL Entity. Partners collectively are
known as FIRM and individually as
partners.
 The life of partnership is attached with
the partners
 If any of the partners dies ,retires or
becomes insane the partnership comes
to an end

62
Features. Contd.
 Agreement. The relation of partnership arises
from contract and not from status. The
partnership is a result of an agreement written
or oral.
 It does not arise from status, operation of law
or inheritance so at the death of father who
was a partner in a firm, the son can claim the
share in the firm’s property but cannot
become partner unless he enters into an
agreement with the remaining partners.

63
Features contd.
 NUMBER OF PARTNERS. Minimum
members are two and maximum 20. to
form a partnership.
 In case of partnership formed for a bank
the maximum number of partners is
allowed up to 10.

64
Features contd.
 Existence of business. the partners
must have agreed to carry on a
business. Where there is no business
there is no partnership. Charitable work
or social welfare and similar activities do
not qualify for partnership.

65
Features contd.
 Sharing of profits, the profit will be distributed
among the partners as per the agreement.
 In the absence of any agreement the profit will
be distributed amongst the partners equally.
 Section 13-b provides that the partners are
entitled to share equally in the profits earned
and to contribute equally to the losses of the
Firm.

66
Features contd.
 Mutual Agency, each partner of the firm
acts as an agent of the other members of
the Firm.it means contract of agency
exists among partners.
 The element of mutual agency enables
every partner to carry on the business
on behalf of others.

67
Features contd.
 Unlimited Liability, the liability of all the
partners is unlimited in respect of firm’s debt
 All the partners are individually and collectively
responsible for the debts of the Firm
 In the event of insufficient sources the private
assets of the partners can be sold to meet the
claims of banks / creditors.

68
Features contd.
 Capital, generally the capital of the firm
is supplied by all the partners , it is not
necessary to contribute equal capital.
 Capital is contributed according to the
agreement, a person without any capital
can be the partner on the basis of his
ability, energy education and experience
and entitles to share the profits of the
firm.

69
Kinds of Partners.
 Active Partner.
 Secret Partner.
 Sleeping or dormant partner.
 Nominal Partner.
 Senior Partner.
 Junior Partner.
 Minor Partner.

70
Minor Partner
 A minor is a person who has not attained
majority.
 To make him partner there should be an
agreement among the partners.
 With the consent of other partners he
may be admitted to the benefits of the
partnership by an agreement made by
his guardians with the other partners.

71
Important points.
 A minor can be admitted to the benefits of the
partnership with the consent of the existing
partners.
 There must be a partnership in existence
before some minor is admitted to its benefits.
 There can not be partnership consisting of all
minors.
 If a minor is made full-fledged partner under
the terms of a partnership deed, the deed
would be invalid.

72
Rights and liabilities of a Minor.
 Minor is entitled to the agreed share of
the property and the profits of the firm.
 Minor can inspect the books of accounts
of the firm but he has no right to inspect
the books other than accounts as they
contain business secrets of the firm.
 Minor is not entitled to take part in the
conducting of the business.

73
Rights and liabilities contd.
 Minor is not liable to the firms debt and is
limited to the extent of his profit and share of
property.
 The personal property of the minor can not be
applied for the settlement of firm debt.
 He cannot be declared insolvent, in the event
of firms insolvency his share will be vested
with the official assignee

74
Partnership & co-ownership
 If some property is owned jointly
without any intention to carry on a
business it is called co-ownership.
 The important distinction between
partnership and co-ownership is that
there is no business in co-ownership and
there is a business in partnership.

75
Points of difference between
partnership & co-ownership.
 Partnership.  Co-ownership.
 It is a result of  It is created by
agreement operation of law.
 A partner is an agent  It is not an agent to
of the firm. can bind. other co-owners
 Lien on the property &cannot bind others.
of firm for expenses  No lien on the joint
property for his
expenses..

76
Points of difference contd.

 Partner cannot transfer  Co-owner can transfer

his shares without the his share without the
consent of all the consent of other co-
partners. owners.
 There is common  There is no common
interest in partnership. interest in co-
 Maximum members 20. ownership.no maximum
 It is made to carry on limit for co-owners.
business.  It does not involve any
 It is regulated by business.
partnership Act-1932.  No law to regulate co-
ownership.

77
Formation of Partnership.
 The successful working of a partnership
depends upon mutual confidence and utmost
good faith among the partners as each partner
can bind the rest of the lot by his acts. Proper
care and caution is required for selection.
 Essential elements of valid contract are
present, free consent of the parties competent
to contract and the object of the firm is not
forbidden by law.

78
Formation of Partnership.
 The mutual rights and obligation of the
partners should be discussed in detail
and should be in written form in the
shape of partnership deed.
 The partnership deed should be
registered as soon as it is formed with
the registrar of firms of the area.

79
Partnership

Deed
80
Partnership Deed
 The partnership agreement in writing is called
partnership deed.
 This contains the rights and obligations of the
members of the firm.
 It should be stamped as per law.
 Each member should have a copy of the deed.
 All partners should sign it
 At the time of registration of firm a copy of
deed should be filed with the Registrar of the
firms.

81
Contents of Partnership Deed.
 The name of the firm.
 Nature of business to be carried on.
 The town/place of operation of business.
 The amount of capital to be contributed by
each partner along with a statement whether
this contribution would be in cash or property.
 The names and addresses of the partners.
 The duration of partnership if any.
 The ratio of sharing profits /loss.

82
Contents of a Deed contd.
 The rate of interest if any to be allowed on
capital or applied on drawings.
 Drawings of partners per month or year from
the firm’s account.
 Monthly salary/compensation of each
member.
 The manner of partnership dissolution and
distribution of firm’s property among the
partner

83
Contd.
 The powers & duties of each partner.
 In case partnership is terminated , the
valuation and treatment of goodwill.
 Provision regarding the accounting system
and the fiscal year to be use

84
Contents contd.
 Rules to be followed in case of retirement,
death or admission of a partner.
 Settlement of disputes among the partners and
appointment of arbitrator.
 Power of a partner for retirement after giving
notice.
 How the amount due to the deceased partner
will be determined,whether the amount to be
paid in full or in instalments to the legal
representatives.

85
Contents contd.
 The keeping of proper books of accounts
and periodical preparation of accounts.
 Any other provision to prevent any future
misunderstanding and ill will.

86
Types of

partnership
87
Types of Partnership.
01-General Partnership. in this type of
partnership the liability of all the partners
is unlimited, it means that the creditor of
the firm can realize the dues in full from
any of the partners of the firm by
attaching even his personal property.
 In general partnership all the partners
have equal rights to participate in the
management of the business.

88
Partnership-at -will
 A general partnership becomes a partnership
at- will under the following circumstances.
1- If a partnership is formed for an indefinite
period it is called partnership-at-will.
2- If a partnership is formed for a definite period
but is continued after the expiry.
3- If a partnership has been formed for a
particular venture or undertaking and it is
continued even after the completion of the
venture.

89
Kinds of general Partnership.
A--Partnership at will. According to
section 7 of Partnership Act-1932 if no
provision is made in the Deed regarding
the duration of the partnership, it is
called Partnership at will.
 In this partnership any partner can
terminate it by giving a notice of
termination.

90
Particular Partnership.
B--This partnership is formed for a
particular business of temporary nature.
or a business for a particular period.
such a firm is dissolved immediately
after the completion of the project or
purpose. i.e producing a film or
construction of a building.

91
 02-Limited partnership.
 In this type of firm one or more partners have
limited liability and at least one of the partners
has unlimited liability.
 The liability of the limited partner is limited to
the extent of his investment in the business.
 In Pakistan there is no limited liability
partnership.
 This partnership is regulated by the
partnership Act of 1907 instead of 1932.

92
Registration of Firm.
 The registration of firm is optional and
there is no penalty for non-registration.
 The unregistered firm suffers from a
number of disabilities.

93
Submission of application
 Application along with fee and all the
requisites information is submitted to the
Registrar of Firms of the area.
 The application must be signed by all the
partners or their agents specially
authorized in this behalf.

94
Application must contain the
following.
 The name of the firm.
 The principal place of business of the firm.
 The names and addresses of other places
where firm can conduct business.
 The partners date of joining the firm.
 The duration of the firm.
 The names and addresses of the partners.

95
Certification of firm.
 The Registrar after examining the particulars
and with due satisfaction will register the firm
and issue a certificate.
 If any change takes place in the particulars
supplied to the registrar it must be informed to
him for onward amendments in the register of
firms.
 A person who provides false information to the
registrar shall be punishable with imprisonment
up to three months or with fine or with
both.sec-70

96
Effects of non-registration.
 01- No suit by a partner, if any dispute
arises among the partners or between a
partner and the firm or between a partner
and an ex-partner regarding the rights
arising from contract, then a partner of
an unregistered firm cannot file a suit to
settle such disputes.

97
Effects of non-registration
contd.
02-No suit by firm. an unregistered firm
cannot file a suit against a third party for
the enforcement of any right arising from
a contract e.g for the recovery of the
price of goods supplied, but criminal
proceedings can be brought against the
wrong doers.

98
Contd.
03-Suit by third party, a third party can
file a suit against the unregistered firm
or its partners to enforce his rights.
04- No claim for adjustment, an
unregistered firm cannot even claim
adjustment of the amount payable and
receivable by the firm exceeding Rs
100/=

99
Exceptions to the non-registered
firm.
01-partners can sue for the dissolution of the
firm.
02- the partners can sue for the accounts of the
dissolved firm.
03- partners can sue for the realization of the
property of the dissolved firm.
04-the receiver acting for an insolvent partner
may bring a suit for the realization of insolvents
share.
05-The partners can refer a dispute to the
arbitrator

100
Advantages
of

Registration

101
Advantages to Firm
 The registered firm can sue against the third
party for the enforcement of rights arising from
any contract.
 Registration enhances the goodwill of the firm.
 The registered firm attracts large capital from
the public.
 The registered firm can sue against the third
party for adjustment.

102
Advantages to the Partners.
 The partners can file a suit in the court
of law in order to settle their disputes.
 The partners who have left the firm
cannot be held responsible for the firm
debt after their expulsion from firm as
the record of the Registrar of Firms will
show that they have left the firm.

103
Advantages to the creditors.
 The partners of a registered firm cannot
deny from the membership of the firm to
the creditors.
 The creditors of the firm can hold all the
partners for the payment of their debts
due from the firm.

104
Relations of

partners

105
Relations of partners.
 The rights and duties of partners are
determined by agreement between the
partners.
 An agreement containing rights & duties is
made at the time when the partnership comes
into existence.
 Where the agreement is silent the Partnership
Act determines the rights and duties of the
partners.

106
Rights of Partners.
 Right to take part in business.
 Right to be consulted- decision by majority of
the partners.
 Right to excess to books.- to inspect and
copy any of the books.
 Right to share the profit.- in the absence of
any agreement every partner has a right to
share equally the profits earned and is liable to
contribute equally to the losses sustained by
the firm.

107
Rights contd.
 Right to interest on capital.-if there is
no provision in the agreement the
partners are not entitled for such interest
on capital.
 Right to interest on advances.-if any
partner contributes in excess of his
capital share he is entitled to receive 6%
p.a rate of interest. Or as per agreement.

108
Rights contd.
 Right to be indemnified , every partner has
the right to be indemnified by the firm in
respect of payments made and liabilities
incurred by him in ordinary and proper
conduct of the business of the firm.
 Right to act in emergency, a partner can bind
the firm for any action taken in emergency to
protect partnership from losses if the action is
on reasonable grounds.

109
Rights contd.
 Right to give consent for new partner.
 Right to retire –as per agreement –with the
consent of all the partners –if partnership is at
–will by giving a notice to all the partners.
 Right not to be expelled, a partner cannot be
expelled from a firm by any majority of
partners provided the decision is made in good
faith and there is a provision in the contract.

110
Rights contd.
 Right to carry on competing business.
every outgoing partner has a right to
carry on a business similar to to that of
the firm subject to certain restrictions.
 Right to share in profit and loss,every
partner who leaves the firm due to any
reason is entitled to claim any share
according to the agreement.

111
Duties of Partners.
 Duty to carry on business for
common advantages, a partner must
use his knowledge and skills for the
benefits of the firm and not for his
personal gains.
 Duty to be just and faithful, a partner
must observe utmost good faith and
fairness towards his co-partners.

112
Duties contd.
 Duty to render accounts. Every partner
must be ready to explain the accounts and to
provide vouchers in support of the entries.
 Duty to provide information, a partner being
the agent to other partners must not conceal
any information from his co-partners and to
conduct business with the best of his abilities
to the maximum benefits of the firm.

113
Duties contd.
 Duty to indemnify for fraud. Every partner is bound to
indemnify the firm for any loss caused by his fraud or
fraudulent intentions.
 Duty to attend diligently.
 Duty to share losses, in the absence of any contract the
partners shall share the losses equally sustained by the
firm irrespective of their capital contributions.
 Duty to indemnify for willful neglect, in the absence of
a contract to the contrary every partner shall indemnify
the firm for any loss caused by his willful negligence in
the conduct of business of the firm

114
Duties contd.
 Duty to use firm’s property for firm,
every partner must hold and use firm’s
property for the purpose of firm’s
business.
 Duty to account for personal profits. if
a partner gets any benefit without the
consent of other partners he must pay it
back to the firm

115
Duties contd.
 Duty not to assign his rights, a partner
cannot assign his rights and interest in
the firm to any outsider in order to make
him a partner without the consent of
other partners.

116
Implied authority
of

Partners

117
Implied authority of partners.
 He can sell the goods of the firm but cannot
sell the immovable property of the firm without
the consent of other partners.
 He can purchase the goods for the firm as per
the requirement of the business.
 He can accept payments from others for firms
account an can issue receipts for them
 He can issue and receive cheques or other
negotiable instruments on behalf of the firm.

118
Implied authority contd.
 He can defend any suit filed against the
firm.
 He can raise loans by mortgaging
property of the firm.
 He can employ staff for the conduct of
the business.
 He can settle accounts with persons
dealing with the firm.

119
No implied authority as under.
 To submit a dispute relating to the
business of the firm for arbitration.
 To open a bank account on behalf of the
firm in his own name.
 To compromise any claim of the firm.
 To admit any liability in a suit against the
firm.

120
Contd.
 To acquire any immovable property of
the firm.
 To transfer any immovable property of
the firm.
 To make an agreement with others on
behalf of the firm.

121
Incoming and outgoing partners.
 A new partner can be admitted into the
partnership at any time with the consent of old
partners.
 New partners are generally admited into the
partnership with a view to obtain more capital,
fresh skills, energy or influence for the
business.
 Sometimes faithful & dedicated employee may
be given the status of a partner.

122
Outgoing Partner.
 A partner becomes an outgoing partner
by,
- Retirement.
- Expulsion.
- Insolvency.
- Death.

123
Retiring Partner.
 A partner is said to be retired when the
surviving partners continue to carry on the
business and the member retiring ceases to be
a partner.
 The withdrawal of a partner results in the
dissolution of the firm as per law.
 If the remaining partners wish to continue the
firm they must pay the retiring partner the
value of his interest in the business.
 A retiring partner is liable for acts of the firm
done before his retirement.

124
Expulsion of a Partner.
 A partner can be expelled from a firm by
majority of the partners only if,
01-The power to expel by contract has
been conferred between the partners.
02-Such a power has been exercised in
good faith and for the benefit of the firm.

125
Insolvency of a Partner.
 When a Partner in a firm is adjudicated as
insolvent he ceases to be the partner of the
firm.
 As per the contract among the partners the
firm is not dissolved and the insolvent partner
is not responsible for the acts of the firm and
the firm is not accountable for any act of the
insolvent partner after the receipt of
adjudication notice.

126
Death of a Partner.
 On the death of a Partner the firm is
dissolved as per law but if the partners
agree to continue the firm the firm may
not be dissolved.
 If the firm is dissolved the estate of the
deceased partner is not liable for any act
of the firm taken after his death.

127
Self study

exercise
128
Dissolution of Firm.
 Dissolution by agreement.
 Dissolution by notice.
 Compulsory dissolution.
 Contingent dissolution.
 Dissolution by the court.

129
Company

law
130
WHAT IS COMPANY LAW?
 It may be defined as a branch of law
governing the companies.
 The company law is that branch of law
which exclusively deals with all matters
relating to companies from the time of
incorporation of a company up to the
time of its winding up.

131
Company law contd.
 The existing law governing companies is
contained in Companies Ordinance
-1984.
 The ordinance was promulgated on 8th
October 1984 and it has replaced the
Companies Act -1913.

132
What is company?
 Company is a voluntary association of
persons formed to achieve some
common objectives, having a separate
legal entity independent and separate
from its members with aq perpetual
succession and a common seal and with
capital divisible into transferable
shares.

133
Company contd.
 A company though artificial legal person
possesses rights and liabilities. a natural
person has
 It can do every act like a natural person except
it cannot be sentenced.
 In a case it has been held that a company can
be held liable for statutory violation like an
individual but it cannot be imprisoned.

134
Advantages of a company.
 Separate legal entity.
 Artificial person.
 Separate ownership.
 Perpetual succession.
 Capacity to sue and being sued.
 Possess common seal.
 Members liability limited.
 Shares freely transferable.

135
Characteristics or Advantages of
Incorporations

136
Separate Legal Entities
 Company has a separate legal entity. Its
existence is separate and independent
from members. It deals in its own name.
A member is not liable for the acts of
company.

137
Artificial Person
 A company upon incorporation becomes
an artificial legal person enjoying similar
rights and owing similar obligations as a
natural person has.

138
Separate ownership
 Company as a corporate person, owns
and holds property in its own name.
Company is the owner of all assets and
capital. It controls manages and
disposes of all the properties.

139
Perpetual succession
 Company as a juristic person, distinct
from its members has a perpetual
succession. Which means it has a
continuous existence and it never dies.
Any change in the membership doesn't
affect the company’s continuity. Death,
insanity or insolvency of the members
doesn’t affect the corporate existence of
the company.

140
Capacity to sue and being sued.
 A company as a legal person and having
an independent existence can file suits
against others in own name. Like wise
others can file suits against the company
in its name.

141
Posses common seal
 Business documents are signed to make
the same legally binding. Since a
company has no physical existence and
it cannot sign any document. The law
has permitted the use of common seal
having company’s name engraved
thereon as a substitute for signatures.

142
Members liability limited.
 The liability of the member of a company
is limited to the extent of the nominal
value of shares held by him.

143
Shares freely transferable
 The capital of a company is divided into
the parts of equal denomination. Each
part is called a share. The shares are
freely transferable and can be sold and
purchased in the same market.

144
Kinds of Companies

145
Registered Company
 A registered company is the one which is
formed and registered under the
provisions of companies ordinance, 1984
it also includes an existing company as
defined in section 2(15). A registered
company comes into existence when its
registration is complete and a
certification of incorporation is issued.

146
Limited companies
 A limited company is that, the liability of
whose members is limited to the nominal
value of the share acquired by a
member. So a member is liable up to a
limited amount and beyond which he
cannot be required to contribute anything
towards the payment of the company’s
debt.

147
Categories of companies
Formed-Section 15.
 Company limited by shares.
 Company limited by guarantee.
 Unlimited company.
 Association not for profit.

148
Companies limited by Shares
Section 15(12).
 The principal for of registration is that of
a company limited by shares. Whereby
each person becoming a member of the
company acquires one or more of the
shares into which its capital is divided.
His liability being limited to the amount
payable on the shares held by him.

149
Company limited by Guarantee-
Section 15(12)(b).
 A company limited by guarantee is an
organization each member of which
undertakes that in the event of liquidation he
will contribute an amount not exceeding a
certain fixed sum towards settling the debts
and meeting the cost of winding up provided
the organization is wound up when he was
member or within one year from the cessation
of his membership.

150
Unlimited Company-Section
15(2)
 These are companies which do not have any
limit on the liability of their members. This is
little more than an ordinary partnership. Every
member is liable to the full extent of his
personal assets for all the debts of the
company contracted while he was a member.
Thus the members liability is the same as in a
partnership, and for this reason, unlimited
companies do not exist.

151
Association not for Profit-
Section 42
 An association not for profit, may under
section 42, be registered with limited
liability but without the addition of the
word ‘Limited’ or (Private) Limited or
‘(Guarantee) Limited’ to their name,
provided a license is obtained from the
Commission.

152
Formation of Company

Registration &
incorporation

153
Formation of Company.
 The idea of forming a limited company is
conceived by a number of persons.
 Such persons get together & decide certain
basic matters, i.e
 what type of business is to be started ?
 In which province the business is to be
established?
 Whether the company should be private or
public limited.?
 what should be the capital?

154
Contd.
 After deciding these matters they take
necessary action to complete the
formalities and the company is formed.
 There are number of stages in the
formation of a company from conceiving
the idea of forming a company up to the
issuance of commencement certificate.

155
Stages of formation of Company.
 Promotion stage.

 Registration & incorporation stage.

 Commencement of business stage.

156
Promotion stage.
 The persons who initiate the work of forming a
company are called company promoters.
 Promotion means the various steps taken by
the persons desirous of forming a company
from the initial idea to final existence of the
company.
 Promotion is the first stage in the formation of
a company.

157
Registration stage.
 Registration of company is the second
stage in the formation cycle. The
following steps are involved in the
registration process.
01-Approval of proposed name.
02- Preparation of registration documents.
03- Payment of stamp duty and filing fees.
04-Submission of registration application.

158
Registration of company contd.


159