MERCANTILE LAW “Small Book”

Preface

Hello friends, here I am presenting you

MERCANTILE LAW the “small book”. This book contains brief introduction to Contract Act, Company Law,

Partnership Act and Negotiable instrument Act and some of the laws and Acts. I collected this information‟s and data

from the books THE ELEMENTS OF MERCANTILE LAW by N.D.KAPOOR and COMPANY LAW AND SECRETARIAL

PRACTICES by APPANNAIAH and REDDY. In this “small book” from the exam point of view and easy to understand

the concepts, I have tried to bring out the concepts through points what I have collected. So I think this “small book”

would help you in understanding the concepts in a better way. This is not only for bachelor degree like B.com, BBM,

BBA and also for masters‟ degree like M.com, MBA courses. For points detailed explanations refer THE ELEMENTS

OF MERCANTILE LAW by N.D.KAPOOR.

RAGHUNANDAN M S

0808-878-1444/984-580-9388 E-mail:violin@live.in

Contents-

1. Law of Contract.

2. Law of Partnership. 3. Negotiable instruments Act. 4. Company Law.

Law of Contract

Nature of Contract- The law of contract is that branch of laws which determines the circumstances in which promises made by the parties to a contract. Shall be legally binding on them. Its rules define the remedies that are available in a court of law against a person who fails to perform his contract and the conditions under which the remedies are available. The Law of contract introduces definiteness in business transactions. In simple words it may be said that the purpose of law of contract is to ensure the realization of reasonable exception of the parties who entered in to a contract.

Indian Contract Act 1872- The law relating to contracts is contained in the Indian Contract Act of 1872. The Act deals with, 1.The general principles of the Law of Contract. 2. Some special contracts only. The law of contract differs from other branches of law in an important respect. It does not lay down a number of rights and duties which the law will enforce; it consists rather of a number of limiting principles subject to which the parties may create rights and duties for themselves which the law will uphold.

Definition of Contract- A contract is an agreement made between two or more parties

which the law will enforce. According to Salmond, a contract is “an agreement creating

and defining obligations between the parties”. As per Section.2 (h) defines a contract as an agreement

enforceable by law.

Agreement and its enforceability- If we analyze the definition of contract essentially consists of two elements, 1. Agreement and 2.Its enforceability by law.

Agreement-

Section.2 (e) an agreement is defined as “Every promise and every set of promise, forming consideration for each other”. Eg; 1. If A invites B to a dinner and B accepts the invitation, it is a social agreement. [Social agreements do not give rights to any legal obligations and it is not enforceable in the courts of law]. Eg; 2. Father promises to pay his son a sum of rs.10 every day as pocket money and if he fails to pay or refuse to pay, then the son cannot recover through the court. To conclude: Contract = Agreement + Enforceability by law. Thus every contract is an agreement but all agreements are not a contract.

Promise- Section.2 (b) defines promise that, “when a person to whom the proposal is made signifies his assent there to, the proposal is said to be accepted. A proposal when accepted becomes a promise”.

Essentials of a Valid Contract- a. Offer and acceptance. b. Intention to create legal relationship. c. Lawful Consideration. d. Capacity of parties. e. Free and genuine consent. f. Lawful object. g. Agreement not declared void. h. Certainty and possibility of performance. i. Legal formalities.

Offer and Acceptance Offer- An offer is a proposal by one party to another to enter in to a legally binding agreement with him. The person valuing the offer is known as the Offerror, Proposer, or Promisor and the person to whom it is made is called the Offeree, or Proposee. When the offeree accepts the offer, he is called the acceptor or promise.

Acceptance- A contract emerges from the acceptance of an offer. Acceptance is the act of assenting by the offerror to the offeree. It is the manifestation by the offeree of his willingness to be bound by the offer. This means when the offeree signifies his assent to the offerror, the offer is said to be accepted. An offer when accepted becomes a promise.

Consideration- Consideration is one of the essential elements to support a contract. Subject to certain exceptions, an agreement made without consideration is void. Consideration is a technical term used in the sense of quid pro quo (i.e., something in return). When a party to an agreement promises to do something, he must get “something in return. This “something” is defined as consideration. Section.2 (d) defines a consideration means “when at the desire of the promisor, the promisee or any other person has done or obstained from doing, or does or obtains from doing, or promises to do or to obstain from doing, something, such act or abstinence or promise is called a consideration for the promise”.

Legal rules as to Consideration- a. It must move at the desire of the promisor. b. It may move from the promisee or any other person. c. It may be an act, abstinence or forbearance or a return

promise. d. It may be past, present or future.

e. It need not be adequate. f. It must be real and not illusory. g. It must be something which the promisor is not already bound

to do. h. It must not be illegal, immoral, or opposed to public policy.

Privity of Contract (stranger to a contract)- The general rule of law that only parties to a contract may sue and be sued on that contract. This rule is known as Doctrine of Privity of Contract. The Privity of contract means “relationship subsisting between the parties who have entered in to contractual obligations. It implies the mutuality of will and creates a legal bond between the parties to a contract.

Capacity of Contract/Capacity of Parties The parties who enter in to a contract must have the capacity to do so. „Capacity‟ here means competence of the parties to enter in to a valid contract. According to sec.10, an agreement becomes a contract if it is entered in to between the parties who are competent to contract. According to sec.11, every person is competent to contract who (a) is of the age of majority according to the law to which he is subject, (b) is of sound mind, and (c) is not disqualified from contracting by any law to which he is subject. Thus sec 11 declares the following persons to be incompetent to contract:

i. Minors, ii. Persons of unsound mind, and iii. Persons disqualified by any law to which they are

subject.

Free consent

It is essential to the creation of a contract that the parties are ad-idem (meeting of minds). i.e. they agree upon the same thing in the same sense at same time and that they consent is free and real.

Sec.10 also says that all agreements are contracts if they are made by the free consent of parties.

Consent- It means an act of assenting to an offer. “Two or more persons are said to consent when they agree upon the same thing in the same sense”. (sec.13)

Free Consent- Sec.14, consent is said to be free when it is not caused by-

a. Coercion (sec.15) b. Undue influence (sec. 16) c. Fraud (sec. 17) d. Misrepresentation (sec. 18) e. Mistake (sec. 20,21,and 22)

Quasi contracts

Under certain circumstances a person may receive a benefit to which the law regards another person has better entitled, or for which the law considers he should pay to the other person, even though there is no contracts between the parties. Such relations are termed quasi contracts, because all through there is no contract or agreements between the parties, they are put in the same position as if there were a contract between them. These relationships are termed quasi contracts or constructive contracts under English Law and “certain relations resembling those created by contracts” under the Indian Law. A quasi contract rests on the ground of equity that a person shall not be allowed to enrich himself unjustly at the expenses of another.

Kinds of Quasi Contracts- i. Supply of necessaries (sec.68) ii. Payment by an interested person (sec.69) iii. Obligations to pay for non gratuitous acts (sec. 70) iv. Responsibility of finder of loss goods (sec. 71)

v. Mistake or coercion (sec. 72)

Legality of Object

A contract must not only the based upon mutual assent of competent parties but must also have a lawful object. If the object of an agreement is the performance of an unlawful act, the agreement is enforceable. Sec.23 declares that the object or the consideration of an agreement is not lawful in certain cases. The word object means, as used in sec.23, purpose or design. With this we may conclude that the words “object” and “consideration” are not used synonymously under sec.23 of the Act. Because in some cases consideration may be lawful but the purpose of the act, for which the agreement is entered in to may be unlawful.

When consideration or object is lawful (sec.23)- a. If it is forbidden by law. b. If it is such a nature that, if permitted, it would defeat

the provisions of law. c. If it is fraudulent. d. If it involves or implies injury to the person or property of

another. e. If the court regards it as immoral. f. Where the court regards it as opposed to public policy.

Agreements oppose to public policy- An agreement is said to be opposed to public policy when it is harmful to the public welfare. Public policy is that principle of law which holds that no subject can lawfully do that which as a mischievous tendency or be injures to the interest of the public, or which is against to the public welfare. Some of the agreements which are, or which have been held to be opposes to public policy and or unlawful are as follows-

i. Agreements of trading with enemy. ii. Agreement to commit a crime.

iii. Agreement which interfere with the court of justice. iv. Agreement is restraint of legal proceedings. v. Agreement in restrain of parental rights. vi. Agreement restraining personal liberty. vii. Agreement in restrain of marriage. viii. Agreement in restraint of trade. ix. Agreements to defraud creditors or revenue authorities. x. Trafficking in public offices and titles.

Void Agreements

An agreement though it might possess all the essential elements of a valid contract, must not have been expressly declared as void by any law in force of the country. The contract Act specifically declares certain agreements to be void. A void agreement is one which is not enforceable by law (sec.2 (g)). Such an agreement does not give rise to any legal consequences and is void ab initio.

Discharge of Contract

Discharge of contract means termination of the contractual relationship between the parties. A contract is said to be discharged when it ceases to operate. i.e., when the rights and obligations created by it comes to an end. In some cases other right and obligations may arise as a result of discharge of contract. A contract may be discharge-

i. By performance. ii. By agreement or consent. iii. By impossibility. iv. By laps of time. v. By operation of law. vi. By breach of contract.

Discharge by breach of contract- Breach of contract means the breaking of the obligations which a contract imposes. It occurs when a party to a contract without lawful excuse does not fulfill the contractual obligations by his own act makes it impossible that he should perform his obligations under it. It confers a right of action for damages on the injured party. Breach of contract may be-

i. Actual breach. ii. Anticipatory breach.

Remedies for breach of Contract- a. Rescission. b. Suit for damages. c. Specific performance of the contract. d. Suit upon Quantum meruit. e. Suit for injunction.

Bailment and Pledge Bailment- Section. 148 defines „bailment‟ as the delivery of goods by one person to another for some purpose, upon a contract, that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. The person delivering the goods is called the „bailor‟ and the person to whom they are delivered is called „bailee‟. Eg; X delivers a piece of cloth to Z, a tailor, to be stitched in to a suit. There is a contract of bailment between X and Z. Sometimes there may be bailment even without a contract. Eg; when a person finds goods belonging to another, a relationship of bailor and bailee is automatically created between the finder and the owner.

Requisites of bailment- 1. Contract. 2. Delivery of possession. 3. For some purpose. 4. Return of specific purpose.

Kinds of bailment- A. Gratuitous bailment. B. Bailment for reward.

Duties of bailor- a. To disclose known faults. b. To bear extraordinary expenses of bailment. c. To indemnify bailee for loss in case of premature

termination of gratuitous bailment. d. To receive back the goods. e. To indemnify the bailee.

Duties of bailee- a. To take reasonable care of the goods bailed. b. Not to make any unauthorized use of goods. c. Not to mix the goods bailed with his own goods. d. Not to set up an adverse title. e. To return any accretion to the goods. f. To return the goods.

Rights of bailee- i. Delivery of goods to one of several joint bailors of goods. ii. Delivery of goods to bailor without tittle. iii. Right to apply to court to stop delivery. iv. Right of action against trespassers. v. Bailee‟s lien.

Lien- Lien means the right of a person to retain possession of some goods belonging to others until some debt or claim

of the person in possession is satisfied.

Types of lien- a. Particular lien. b. General lien.

Rights of bailor- i. Enforcement of rights. ii. Avoidance of contract. iii. Return of goods lent gratuitously. iv. Compensation from a wrong doer.

Termination of bailment- 1. On the expiry of the period of bailment. 2. On the achievement of the object. 3. Inconsistent use of goods. 4. Destruction of the subject matter. 5. Death of the bailor or bailee.

Pledge- The bailment of goods as security for payment of a debt or performance of a promise is called „pledge‟. The bailor is, in this case, called the „pledger‟ or „pawnor‟ and the bailee is called the „pledgee‟ or „pawnee‟.

Rights of Pawnee (pledgee)- a. Right to retainer. b. Right to retainer for subsequent advances. c. Right to extraordinary expenses. d. Right against true owner, when the pawnor‟s tittle is

defective. e. Pawnee‟s rights were pawnor makes default.

Rights of Pawnor (pledger)- a. Right to get back goods. b. Right to redeem debt. c. Preservation and maintenance of the goods. d. Rights of an ordinary debtor.

Bailment v/s Pledge- 1. Pledge is the bailment of goods as a security for the

performance of a specific promise, i.e., the payment of a debt or performance of a promise. Bailment, on the other hand, is a purpose of any kind.

2. In case of default by the pawnor to repay the debt, the Pawnee may, after giving notice to the pawnor, sell the goods pledge with him. The bailee may retain the goods or sue for his charges.

3. In case of pledge, the Pawnee has no right to use the goods pledge with him. In case of bailment, the bailee may do so if the terms of bailment so provide.

Contract of Indemnity

A contract by which one party promises to save the other from loss caused to him by the conduct of

the promisor himself, or by the conduct of any other person, is called a „contract of indemnity‟(sec.124). the

person who promises to make good the loss is called the indemnifier (promisor) and the person whose loss

is to be made good is called the indemnified or indemnity-holder (promisee).

Law of Partnership

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. Persons who have entered in to

partnership with one another are called individually „partners‟ and collectively „a firm‟.

A contract of partnership is a special contract. Where

the partnership Act is silent on any point, the general principles of the law of contract apply.

Essentials of partnership- 1. Association of two or more persons.

2. Agreement. 3. Business.

4. Sharing of profits. 5. Mutual agency.

Rights of a partner-

a. Right to take part in business. b. Right to be consulted. c. Right to access to accounts. d. Right to share in profits. e. Right to interest on capital. f. Right to interest on advances. g. Right to be indemnified. h. Right to the use of partnership property. i. Right to partner as agent of the firm. j. Right to retire. k. No liability before joining. l. No new partner to be introduced. m. Right not to be expelled. n. Right of outgoing partner to share in the subsequent

profits.

Duties of a partner- a. To carry on business to the greatest common advantage. b. To observe faith. c. To indemnify for fraud.

d. Not to claim remuneration. e. To attend diligently. f. To share losses. g. To account for personal profits. h. To act within authority. i. Not to assign his rights. j. To be liable jointly and severally. k. To account for profit in competing business.

Types of partners- a. Actual or ostensible partner. b. Sleeping or dormant partner. c. Nominal partner. d. Partner in profits only. e. Sub partner. f. Partner by estoppel or holding out. g. Minor partner.

Dissolution of firm- It means complete breakdown or extinction of the relationship of partnership between all the partners of a firm. If this breakdown or severance of partnership relation is between a few and not all the partners (and the business is carried on), this amounts to dissolution of partnership and not of the firm.

Dissolution of Partnership- It involves only a change in the relation of partners. Eg; if there is a partnership between X, Y and Z, and Y retires. The partnership between X, Y and Z comes to end and partnership between X and Z comes to begin. The new firm with X and Z as its partners is called „reconstituted firm‟.

Rights of a partner on Dissolution- a. Right to have business wound up. b. Right to have the debts of the firm settled out of the

property of the firm. c. Right to personal profits earned after dissolution. d. Right to return of premium on premature dissolution.

e. Right where partnership contract is rescinded for fraud or misrepresentation.

f. Right to restrain partners from use of firm name or property.

Liabilities of a partner on Dissolution- a. Liabilities for acts of partners done after dissolution. b. Continuing authority of partners for purposes of winding

up.

Negotiable Instruments

Act There are certain documents which are freely used in commercial transactions and monetary dealings. These documents, if they satisfy certain conditions, are known as “Negotiable Instruments”. The word “negotiable” means “transferable from one person to another in return for consideration” and “instrument” means a “written document by which a right is created in favor of some persons”. A negotiable instrument is a method of transferring a debt from one person to another.

Characteristics of a negotiable instrument- a. Freely transferable. b. Title of holder free from all defects. c. Recovery. d. Presumptions. e. Consideration. f. Date. g. Time of acceptance. h. Time of transfer. i. Order of endorsements.

j. Stamp. k. Proof of protest.

Types of Negotiable Instruments-

I. Negotiable by Statute.

a. Promissory notes.

b. Bills of exchange. c. Cheques.

II. Negotiable by Custom or Usage. a. Share warrants.

b. Dividend warrants. c. Share certificates.

d. Bearer debentures. e. Bank notes.

Promissory Note- A „promissory note‟ is an instrument in writing (not being bank note or a currency note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or to order of, a certain person, or to the bearer of the instrument.

Specimen of a promissory note-

Rs. 1000 Bangalore, May 6, 2009

Three months after date I promise to pay Archana or Order

the sum of one thousand rupees, for value received.

To, Stamp Archana

#90/B (24), MALLESHWARAM BANGALORE 560 003 SD/-

Bills of exchange- A bill of exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument. There are three parties to a bill of exchange. The drawer, the drawee and the payee. The person who gives the order to pay or who makes the bill is called drawer. The person who is directed to pay is called the drawee. When the drawee accepts the bill, he is called the acceptor.

Endorser and Endorsee- When the holder endorses the bill, note or a cheque, he is called the endorser. The person to whom the bill, note or a cheque is endorsed is called the endorsee.

Cheque- A cheque is a bill of exchange drawn upon a specified banker and payable on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form.

Types of crossing of cheque- General crossing. Special crossing.

Discharge of a Negotiable instrument- The term „discharge‟ in relation to a negotiable instrument is used in two senses…

i. Discharge of the instrument. ii. Discharge of one or more of the parties from liability

thereon.

Company Law Company- A voluntary association of persons. A company in broad sense may mean an association of individuals formed for some common purpose. But it is a voluntary association of persons. It has capital divisible into parts, known as shares. At the same time it is an artificial person created by a process of law. It has a perpetual succession and a common seal. An Artificial person- has no body or soul. A company has no body, no soul and no conscience nor is it subject to imbecilities of the body. It is not visible, save to the eye of the law. These physical disabilities make a company an artificial person. But then a company really exists and it is not a fictitious entity.

Characteristics of a company- i. Separate legal entity. ii. Limited liability. iii. Perpetual succession. iv. Common seal. v. Transferability of shares. vi. Separate property. vii. Capacity to sue.

Kinds of Companies- A. Classification on the basis of Incorporation-

a. Statutory Company. b. Registered Company.

B. Classification on the basis of liability-

a. Companies with limited liability-

i. Companies limited by shares. ii. Companies limited by guarantee.

b. Companies with unlimited liability.

C. Classification on the basis of number of members- a) A private Company. b) A public Company.

D. Classification on the basis of control- a) Holding Companies. b) Subsidiary Companies.

E. Classification on the basis of ownership- a) Government Company. b) Non-government Company.

One-Man Company- This is a company (usually private) in which one man holds practically the whole of the share capital of the company, and in order to meet the statutory requirement of minimum number of members, some dummy members who are mostly his relations or friends, hold just 1 or 2 shares each. The dummy members are usually nominees of the principal shareholder who is the virtual owner of the business and who carries it on with limited liability.

Memorandum of Association- A fundamental document. The Memorandum of Association is a document of great importance in relation to the proposed company. It contains the fundamental conditions upon which alone the company is allowed to be incorporated. It is the charter of the company and defines its reason for existence. It lays down the area of operation of the company. It also regulates the external affairs of the company in relation to outsiders. Purpose of Memorandum-

1. The prospective shareholders shall know the field in, or the purpose for, which their money is going to be used by the company and what risk they are undertaking in making investment.

2. The outsiders dealing with the company shall know with certainty as to what to objects of the company are and as to whether the contractual relation in to which they

contemplate to enter with the company is within the objects of the company.

Clauses of Memorandum- 1. The name clause. 2. The registered office clause. 3. The object clause. 4. The capital clause. 5. The liability clause. 6. The association clause.

Articles of Association- The Articles of Association or just Articles are the rules, regulations and bye-laws for the internal management of the affairs of a company. They are framed with the object of carrying out the aims and objects as set out in the Memorandum of Association. The Articles are next in importance to the Memorandum of Association which contains the fundamental conditions upon which alone a company is allowed to be incorporated. They are as such subordinate to, and controlled by, the Memorandum.

Contents of Articles- a) Share capital, rights of shareholders, variation of these

rights, payment of commissions, share certificates. b) Lien on shares. c) Calls on shares. d) Transfer of shares. e) Transmission of shares. f) Forfeiture of shares. g) Conversion of shares into stock. h) Share warrants. i) Alteration of capital. j) General meetings and proceedings thereat. k) Voting rights of members, voting and poll, proxies. l) Directors, their appointment, remuneration,

qualifications, powers and proceedings of Board of directors.

m) Manager.

n) Secretary. o) Dividends and reserves. p) Accounts, audit and borrowing powers. q) Capitalization of profits. r) Winding up.

Prospectus- Sec.2 (36) defines a prospectus as “any document described or issued as a prospectus and includes any notice, circular, advertisement or any other document inviting deposits from the public or inviting offers from the public for the subscription or purchase of any shares in, or debentures of, a body corporate.” In simple words, any document inviting deposits from the public or inviting offers from the public for the subscription of shares or debentures of a company is a prospectus.

Liability for misstatements in prospectus- Civil liability Criminal liability Against the company against the directors, Promoters and experts Rescission or claim for Contract damages

Damages compensation damages for non compliance For fraudulent for innocent Misrepresentation misrepresentation

Member v/s Shareholders- 1. A registered shareholder is a member but a registered

member may not be a shareholder because the company may not have a share capital.

2. A person who owes a bearer share warrant is a shareholder but he is not a member as his name is struck off the register of members. This means that a person can be a holder of shares without being a member.

3. A legal representative of a deceased member is not a member until he applies for registration. He is, however, a shareholder even though his name does not appear in the register of members.

Share capital- Share capital means the capital raised by a company by the issue of shares. The word „capital‟ in connection with a company is used in several sense: it may mean authorized, issued and subscribed, or paid-up or reserve capital of the company.

Share- A share is the interest of a shareholder in a company. The capital of a company is divided into certain indivisible units of a fixed amount. These units are called shares. „Share‟ means share in the share capital of the company.

Types of shares-

i. Preference shares. ii. Equity shares.

Preference shares-

They have a preferential right to be paid dividend during the life time of the company.

They have a preferential right to the return of capital when the company goes in to liquidation.

Kinds of preference shares- a. Cumulative preference shares. b. Non-cumulative preference shares. c. Participating preference shares. d. Non-Participating preference shares. e. Convertible preference shares. f. Non-Convertible preference shares. g. Redeemable preference shares.

Equity shares- An equity share represents ownership in a company. The holder of such a share is a member of the company eligible to share many benefits from the company.

Preferential allotment of shares- A fresh allotment of shares to promoters, their friends and relatives on a preferential basis.

Face value of a share- Face value, also called par value, is the nominal value of the share. The company arrives at this figure on the basis of the total capital issued by it and the number of shares issued in order to raise that capital. While earlier, the companies were required to fix the face value of their share at Rs. 10 or multiple of Rs.10 as per the prevailing regulations of the time, now they are free to fix the face value at any amount they desire.

Bonus share- A share issued by companies to their shareholders free of cost by capitalization of accumulated reserves from the profits earned in the earlier years.

Right issue- A company issues new shares by giving existing shareholders the right to purchase new shares in proportion to their existing holding. Right shares are usually offered at a discount, and most investors take up the offer of a right issue.

Issue at par- When a share is issued at the same price as the face value of the share.

Issue at premium- When a share issued at a price above the face value of the share. Eg; face value of Lufthansa Aviation equity is Rs.10 but the share was issued at a price of Rs.640, i.e., at a premium of Rs.630.

Dividend- Dividend is the part of profit distributed by the company among its investors. It is declared as a percentage of the paid-up value or face value of the share.

Share certificate- Every person whose name is entered as a member in the register of members of a company has a right to receive a certificate of his shares. A share certificate shall be under the seal of the company, and shall specify-

The shares to which it relates, The amount paid-up thereon, and The name of the holder of the shares. The share

certificate shall be signed by at least 2 directors and the secretary of the company.

Share warrant- A share warrant is a document issued by a public company stating that its bearer is entitled to the shares specified therein. It is transferable by mere delivery and is a substitute for the share certificate.

Debentures- Debentures are commonly issued in a manner similar to the issue of shares through prospectus. The amount might be payable by installments on application, allotment and calls.

The most usual form of borrowing by a company is by the issue of debentures. According to sec.2 (12), „debenture‟ includes debenture stock, bonds and any other security of a company, whether constituting a charge on the assets of the company or not.

Kinds of Debentures- a) Bearer debentures. b) Registered debentures. c) Secured debentures. d) Unsecured/naked debentures. e) Redeemable debentures. f) Irredeemable/perpetual debentures. g) Convertible debentures. h) Non-convertible debentures.

Winding-up- Winding-up or liquidation of a company represents the last stage in its life. It means a proceeding by which a company is dissolved. The assets of the company are disposed of, the debts are paid off out of the realized assets, and the surplus, if any, is then distributed among the members in proportion to their holdings in the company.

Modes of Winding-up- 1. Winding-up by the Tribunals (sec.433-483). 2. Voluntary winding-up (sec.484-521). This may be-

a. Members‟ voluntary winding-up. b. Creditors, voluntary winding-up.

Directors- Sec.2 (13) of the Companies Act, defines a director as “any person occupying the position of the director, by whatever name called”. As per the above definition, if one performs the functions of a director, he would be considered as a director from the point of law. Thus, a director may be defined as a person having control over the direction, conduct, management and superintendence of the affairs of the company. The directors of the company who are collectively known as the board of directors or simply a board,

frame the general policy of the company, direct its affairs, appoint the officers of the company and ensure that they carry out their duties properly.

Appointment of Director- a. By the promoters of the company. b. By the subscribers to the memorandum of association of

the company. c. By the company in a general meeting. d. By the board of directors. e. By the central government. f. By the principal of proportional representation. g. By third parties.

Powers of Directors- 1. The powers to make calls, to issue debentures, to forfeit

shares, to borrow otherwise than on debentures, to invest funds of the company, to make loans, etc…

2. The power to appoint a secretary, a manager etc… 3. The power to fill up casual vacancy in the office of an

auditor. 4. The power to make a contribution to the national defense

fund without any limit. 5. The power to appoint alternate directors if so authorized

by the articles. 6. The power to enter in to a contract on behalf of the

company with other parties.

Restrictions on the powers of directors- 1. Sell, lease, or otherwise dispose of the whole or

substantially the whole of the undertaking of the company.

2. Remit or give time for payment of a debt due from a director.

3. Invest the sale proceeds from the sale of any property or undertaking of the company.

4. Appoint sole selling agents for any area for a term exceeding 5years at a time.

5. No director or any relative or partner or firm of the directors can hold any office or place of office except that of the managing director, manager etc., without the shareholders‟ approval.

Duties of Directors- a. To determine the amount of minimum subscription. b. To prepare a statutory report and file a copy of it with the

registrar. c. To pay dividends only out of divisible profits of the

company. d. To approve the balance sheet and profit and loss account

before they are submitted to the auditors for their report. e. To call an extraordinary general meeting of the company

on the requisition of the specified number of members. f. To manage the affairs of the company efficiently. g. To purchase and pay for qualification shares within the

specified time. h. To disclose to the company their interest, if any, in any

contract entered in to by the company. i. To see the board meetings are held at least once in every

3months and four times in a calendar year. j. To prepare and place at the annual general meeting an

annual report of the along with the balance sheet and profit and loss account.

Liabilities of Directors- i. Liability to outsiders. ii. Liability to the company. iii. Liability to the shareholders. iv. Liability to statutory penalties. v. Criminal liability.

-In General- Corporate Law-

o THE COMPANIES (AMENDMENT) ACT, 2006 o The Company Act, 1956 o The Company Secretaries Act, 1980 o The Monopolies And Restrictive Trade Practices Act, 1969 o The Prevention of Money-Laundering Bill, 1999 o The Securities Contract (Regulation) Act, 1956 o The Sick Industrial Companies Act, 1985 o The SEBI Act, 1992 o Apprentices Act, 1961 o The Depositories Act, 1996 o The Foreign Trade (Development and Regulation) Act,

1992 o The Partnership Act, 1932 o The Sale of Goods Act, 1930 o The National Securities And Depositories Limited -

Byelaws, 1996 o Companies (Foreign Interests) Act, 1918

o The Companies (Donations To National Funds) Act, 1951

Intellectual Property Law- o The Copyright Act, 1957 o Trade and Merchandise Mark Act, 1958 o The Trade Marks Act, 1999

Miscellaneous Law- o Arbitration and Conciliation Act, 1996 o Constitution of India o The Arms Act, 1959 o The Commissions of Inquiry Act, 1952 o The Court Fees Act, 1870 o Indian Contract Act, 1872 o The Indian Trusts Act, 1882 o The Delhi Co-operative Society Act, 1972

o The Drugs and Cosmetics Act, 1940 o The General Clauses Act, 1897 o The Limitation Act, 1963 o The Life Insurance Corporation Act, 1956 o The Government of National Capital Territory of Delhi

Act, 1991 o The Societies Registration Act, 1860 o The Immoral Traffic Prevention Act - 1956 o The Narcotic Drugs and PSYCHOTROPIC Substances Act

1985 o The Narcotic Drugs and PSYCHOTROPIC Substances Act

- Amendment 2001 o The Suits Valuation Act, 1887

Banking Laws- o Bankers Book Evidence Act, 1891 o The Hire-Purchase Act, 1972 o The Industrial Disputes (Banking and Insurance

Companies) Act, 1949 o The Industrial Disputes (Banking Companies) Decision

Act, 1955

Criminal and Motor Accidents Laws- o The Code of Criminal Procedure, 1973 o Indian Penal Code, 1860 o The Negotiable Instruments Act, 1881 o Indian Contract Act, 1872 o The Fatal Accidents Act, 1855 o The Indian Evidence Act, 1872 o The Juvenile Justice Act, 1986 o Personal Injuries (Emergency Provisions) Act, 1962 o The Smugglers and Foreign Exchange Manipulators

(Forfeiture of Property) Act, 1976 o Prevention of Corruption Act, 1988 o Prevention of Terrorism Act 2002 o Motor Vehicles Act, 1988 o Motor Vehicles (AMENDMENT) Act 2000 o The Criminal Law Amendment Act, 1938

o The Criminal Law Amendment Act, 1961 o The Criminal Law Amendment Act, 1993 o The Criminal Law Amendment Act, 1990

NRI related Laws- o The Emigration Act, 1983 o The Foreign Trade (Development and Regulation) Act,

1992 o The Foreign Marriage Act, 1969 o The Foreign Exchange Maintenance Act, 1999 o The Child Marriage Restraint Act, 1929

Indirect Tax Law- o The Central Excise Act,1944 o The Medicinal And Toilet Preparation (Excise Duties) Act,

1955 o Service Tax : Statutory Provisions (1994) o Central Sales Tax, 1956 o Delhi Sales Tax, 1975 o Customs Act, 1962

o The Additional Duties Of Excise (Textiles And Textile

Articles) Act, 1978 o The Agricultural Produce Cess Act, 1940

Direct Tax Law- o The Income Tax Act, 1961 - New Income Tax Return

Forms for 2007-08 o The Expenditure Tax Act, 1987 o The Interest Tax Act, 1974 o The Gift Tax Act, 1958 (Abolished) o The Wealth Tax Act, 1957 o The Taxation Laws (Amendment) Act, 2006

Cyber Law covers- Online share trading. Online banking. Online ticket booking.

E-filing of IT returns. E-filing of company returns. Digital signatures. Hacking. Cyber pornography. Music piracy. Software piracy. ATM transactions.

Preview of Joint Stock Company Final Account- (Vertical format)

Final accounts of joint stock company Vertical trading, profit & loss account

Net sales Less: cost of goods sold: Opening stock Add: net purchases Add: direct expenses Less: closing stock Gross profit Less: operating expenses: 1] management expenses 2] repairs and maintenance 3] selling and distribution Operating profits Less: non operating expenses: Financial expenses Add: non operating incomes: Rent received Interest received Net profit before taxation Less: provision for taxation Net profit after tax Note: If profit and loss appropriation account items are given then- Net profit after tax Add: profit & loss appropriation account [I.e. credit balance of previous year] Less: apportion of profit balance carried to balance sheet

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Vertical form of balance sheet Name of the company

Balance sheet as at------------

Particulars

Schedule number

Amount of

current year

Amount of

previous year

1] sources of funds:

1. owner’s funds or shareholder’s funds: a) share capital b) reserves and surplus 2. Loan funds: a) secured loans b) un-secured loans

2] Application of funds:

1. fixed assets XXX a) gross block XXX b) less: depreciation XXX c) net block XXX d) capital work in progress XXX 2. Investments: 3. current assets loans and advances: a) inventories XXX b) sundry debtors XXX c) cash and bank balance XXX d) other current assets XXX e) loans and advances XXX Less: current liabilities and provisions a) Current liabilities b) provisions Net current asset 4. a) miscellaneous expenditure to the extent to written off or adjust. b) profit and loss account [I.e. debit balance] Total

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