UNIT I 1. a A void agreement is one Which is destitute of all legal effects.

cts. In the eyes of law such an agreement is no agreement at all from its very inception. A void agreement does not create any legal rights and obligations. It confers no rights on either party. It is void ab intito (ie void from the very beginning) and without any legal effect. Examples are agreement with a minor, agreements without consideration, agreements which are in restraint of trade or marriage or of legal proceedings, wagering agreement. An illegal agreement is one which like void agreement has no legal effect as between the immediate parties further, transaction collateral to it also become tainted with illegality and are therefore not enforceable. Every illegal agreement is void but every void agreement may not amount to illegal agreement. Parties to an unlawful agreement cannot get any help from a court of law. For no polluted hands shall touch the pure fountain of justice. On the other hand, a collateral transaction can be supported by a void agreement b. Void and Voidable Contract: 1. While a void contract becomes invalid at the time of its creation, a voidable contract only becomes invalid if it is cancelled by one of the two parties who are engaged in the contract. 2. A contract can become void if the contract involves any illegal activity, if the contract is made in such a way that it cannot be executed, or if the contract is not properly structured. 3. A voidable contract is where one party in the contract may repudiate it. 4. A void contract is nonexistent and cannot be upheld by any law. On the other hand, voidable contracts are existing contracts, and are bound to at least one party involved in the contract.

c. Contracts 1. A contract is a contract between two parties. In contract, always there is an agreement between the parties. 2. In contract, always there is an agreement between the parties. 3. In contract, the parties must give their consent to it. 4. In contract, the liability exists between the parties by the terms of the parties. 5. Examples: A sells his house to B for certain consideration. It is a contract. The consumers purchase the goods and services from the shop-owners. 6. It is created by the operation of the contract. 7. It is right in rem, and also right in personam. 8. Sec. 2(h) of the Indian contract act, 1872, defines contract: an agreement enforceable by law is a contract. 9. The word contract is divided from the Latin contractum which gives meaning drawn together or consensus ad idem (identity of minds). Thus the meaning of contract is a drawing together of two or more minds to form a common intention giving rise to an agreement. 10. 10. Essentials:
o o o o o

Free consent; The parties must be competent; There must be lawful consideration and lawful object; The agreement must not expressly be declared to be void; and If the law in force requires, it must be registered.

11. Example: A enters into a hotel and eats some food. It is the liability of A to pay the consideration for food. It is an implied contract. The contract is implied in fact. It is a true contract. Quasi Contracts 1. A quasi-contract is not a real contract. Quasi contracts are also known as constructive contracts or certain relations resembling those created by contracts. 2. Where as in quasi-contract, there is no agreement between the parties.

3. Where as in quasi-contract, the parties do not consent. 4. In quasi-contract, the liability exists independent of the agreement and rests upon equity, justice and good conscience. 5. Example: A is a lunatic. He has some property. B-son of A, met an accident. Moved by the pitiable condition of the boy-B, X spends Rs. 1,000/- for Bs treatment. X can claim this amount from A and his property. 6. It is imposed by law. It is not created by the operation of the contract. 7. It is right in personam. I.e. strictly available against a person and is not available against the entire world. 8. Salmond defines quasi contracts: there are certain obligations which are not in truth contractual in the sense of resting on agreement, but which the law treats as if they were. 9. Lord Mansfield explained that law as well as justice should try to prevent unjust enrichment. I.e. enrichment of one person at the cost of another. He explains: it is clear that any civilized system of law is bound to provide remedies for cases of what has been called unjust enrichment or unjust benefit, i.e. to prevent a man from retaining the money of, or some benefit derived from, another which it is against conscience that he should keep. Such remedies in contract or tort, and are now recognized to fall within a third category of the common law which has been termed as quasi-contract or restitution. 10. Essentials:
o o o o

It is imposed by law. It is not created by contract; It is a right in personam; The person who incurs expenses is entitled to receive money (unjust enrichment); and It is raised by a legal fiction.

11. Example: A- a publisher entrusts to B a printer to print a book. Half of the printing work is completed. Then B finds that the book is libelous one and he may be prosecuted by the state. He stops the work. What would be his position? Then cames the doctrine of quasi-contracts. It gives reasonable remuneration for the services actually rendered by B. B is entitled to get reasonable remuneration from A for the work completed. Here it becomes a contract implied in law. It is a quasi-contract.

2. a) Performance Contract: A performance contract is a contract between a performer and a venue which sets out the terms of a performance. The contract includes the rights and obligations of all parties involved in the performance and discusses matters such as security, compensation, and scheduling. The goal of a performance contract is to make the expectations of all parties clear so that the performance will go smoothly and to eliminate any causes for legal challenges in the future. Sometimes venues seek out performers and in other cases performers seek out venues. In either case, both sides may have standard boilerplate contracts which they can use as a starting point for developing a performance contract or attorneys for both sides can draw up a contract. For a small venue and a single artist or small group, the contract is often relatively simple. Large venues and big groups may require extensive negotiations. Contract negotiations can sometimes take a long time if the parties cannot agree on the terms of the performance contract. Issues such as compensation can sometimes become a sticking point, and special requests on the part of the performer may be challenging for the venue to accommodate. Advocates for the parties involved in the negotiations usually try to work together to reach an agreement which will satisfy everyone. The written agreement covers a variety of situations which may come up. It states who will be involved in the performance, including not just the performers but also technical support staff, discusses promotion of the event, covers the equipment which will be required by the performance, and states when the performers and their technical crew will be able to enter the venue to set up and test. The performance contract also includes a rider, a list of requests from the performers which must be met. Riders include hospitality requests, such as requests for water in the dressing room, along with technical requests like a specification for qualified local crew to be made available. Riders are a somewhat infamous component of performance contracts. Some performers have extremely detailed riders which may include humorous or absurd elements, in addition to requests which sometimes seem odd. These inclusions are sometimes attributed to a sense of self importance on the part of the performers, but some performers argue that peculiar requests are actually included to confirm that the venue pays attention to detail. Many performers are very concerned about issues like safety, availability of the right

equipment, and comfortable accommodations and they appreciate an attention to detail on the part of the venue. b) Rules related to time and place of performance of contract. The rules regarding the time and place of performance are given in Section 46 to 50 of the Contract Act are as follows: 1. Performance of the promise within a reasonable time: As per the Section 46 of Contract Act, where the time for performance is not specified in the contract and the promissory himself has to perform the promise without being asked for by the promise, the contract must be performed within a reasonable time. The question of reasonable time, in each particular case, is a question of fact. 2. Performance of promise where time is specified: Section 47 says that when a promise is to be performed on a certain day and the promissory has undertaken to perform it without any demand by the promisee, the promisor may perform it at any time during the usual hours of business on such day and at the place at which the promise ought to be performed. 3. Performance of promise on an application by the promise: It may also happen that the day for the performance of the promise is specified in the contract but the promisor has not undertaken to perform it without application or demand by the promisee. In such cases, the promisee must apply for performance at a proper place and within the usual hours of business. 4. Performance of promise where no place is specified and also no application is to be made by promise: Section 49 of the contract act says that when promise is to be performed without application by the promisee and no place is fixed for the performance of it, it is the duty of the promisor to apply to the promisee to appoint a reasonable place for the performance of the promise and to perform it at such place. 5. Performance of promise in the manner and time or sanctioned by promise:

Sometimes the promisee himself prescribes the manner and the time of performance. In such cases, the promise must be performed in the manner and at the time prescribed by the promisee. The promisor shall be discharged from his liability if he performed the promise in the manner and time prescribed by the promisee. For example: A owes B Rs. 30,000. B desires A to pay the amount to B's account with C's banker. A, who also has an account with C, orders the amount to be transferred to B's credit and this is done by the banker. Afterwards and before A knows of the transfer, the bank fails. There has been a good payment by A and he is discharged from his obligation. UNIT II 3) Rules related to seller: Property rights and rights to people Property rights are rights over things enforceable against all other persons. By contrast, contractual rights are rights enforceable against particular persons. Property rights may, however, arise from a contract; the two systems of rights overlap. In relation to the sale of land, for example, two sets of legal relationships exist alongside one another: the contractual right to sue for damages, and the property right exercisable over the land. More minor property rights may be created by contract, as in the case of easements, covenants, and equitable servitudes. A separate distinction is evident where the rights granted are insufficiently substantial to confer on the nonowner a definable interest or right in the thing. The clearest example of these rights is the license. In general, even if licenses are created by a binding contract, they do not give rise to property interests. Property rights and personal rights Property rights are also distinguished from personal rights. Practically all contemporary societies acknowledge this basic ontological and ethical distinction. In the past, groups lacking political power have often been disqualified from the benefits of property. In an extreme form, this has meant that people have become "objects" of propertylegally "things" or chattels. (See slavery.)

More commonly, marginalized groups have been denied legal rights to own property. These include Jews in England and married women in Western societies until the late 19th century. The dividing line between personal rights and property rights is not always easy to draw. For instance, is one's reputation property that can be commercially exploited by affording property rights to it? The question of the proprietary character of personal rights is particularly relevant in the case of rights over human tissue, organs and other body parts. There have been recent cases of women being subordinated to the fetus, through the imposition of unwanted caesarian sections. English judges have recently made the point that such women lack the right to exclusive control over their own bodies, formerly considered a fundamental commonlaw right. In the United States, a "quasi-property" interest has been explicitly declared in the dead body. Also in the United States, it has been recognised that people have an alienable proprietary "right of publicity" over their "persona". The patent\patenting of biotechnological processes and products based on human genetic material may be characterised as creating property in human life. A particularly difficult question is whether people have rights to intellectual property developed by others from their body parts. In the pioneering case on this issue, the Supreme Court of California held in Moore v. Regents of the University of California (1990) that individuals do not have such a property right. According to Section 27 of the Sale of Goods Act, where goods are sold by a person who is not the owner thereof and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by conduct precluded from denying the sellers authority to sell. In other words, if the seller has no title or he has defective title the buyers title will be equally wanting and defective though he has purchased in good faith and for value. Exception to the general rule 1. Sale by Mercantile Agent: Where a mercantile agent is, with the consent of the owner, in possession of the goods or of a document of title to the goods, any sale made by him, when acting in the ordinary course of business of a mercantile agent, shall be as valid as if he were expressly authorized by the owner of the goods to make the same, provided that the buyer

act is good faith and has not at the time of the contract of sale notice that the seller has no authority to sell. 2. Sale by one of joint owners: If one of several joint owners of goods has the sole possession of them by permission of the coowners, the property in the goods in transferred to any person who buys them of such joint owner in good faith and has not at the time of the contract of sale notice that the seller has not authority to sell. 3. Sale by person in possession under voidable contract: When the seller of goods has obtained possession thereof under a contract voidable under Section 19 or Section 19A of the Indian Contract Act, 1872, but the contract has not rescinded at the time of the sale, the buyer acquires a god title to the goods, provided he buys them in good faith and without notice of the sellers defect of title. 4. Sale by Seller in possession after sale: Where a person, having sold goods, continues or is in possession of the goods or of the documents of title to the goods, the delivery or transfer by that person or by a mercantile agent acting for him of the goods or documents of title under any sale, pledge or other disposition thereof to any person receiving the same in good faith and without notice of the previous sale shall have the same effect as if the person making the delivery to transfer were expressly authorised by the owner of the goods to make the same. 5. Sale by Buyer in possession after sale: Where a person, having bought or agreed to buy goods, obtains with the consent of the seller, possession of the goods or the documents of title to the goods, the delivery or transfer by that person or by a mercantile agent acting for him, of the goods or documents of tile under any sale, pledge or other disposition thereof to any person receiving the same in good faith and without notice of any lien or other right of the original seller in respect of the goods shall have effect as if such lien or right did not exist. 4. Negotiation Negotiation is a dialogue between two or more people or parties, intended to reach an understanding, resolve point of difference, or gain advantage in outcome of dialogue, to produce an agreement upon courses of action, to bargain for individual or collective advantage, to craft outcomes to satisfy various interests of two people/parties involved in negotiation process.

Negotiation is a process where each party involved in negotiating tries to gain an advantage for themselves by the end of the process. Negotiation is intended to aim at compromise.

The following table illustrates major differences between negotiation and assignment: Negotiation Negotiation can be done either by delivery or by delivery and endorsement. The consideration in case of negotiation is presumed. A notice of transfer to the creditor is not mandatory. The Act governing negotiation of negotiable instruments is the Negotiable Instruments Act, 1881 Assignment Written document duly signed by the transferor is mandatory for an assignment. The consideration has to be proved in case of an assignment. Informing the creditor about the assignment is mandatory. The activities concerning an assignment are regulated by the Transfer of Property Act, 1882

UNIT III 5. Procedure for effecting the conversion of a private company into a public company The Companies Act (Sections 43, 43A,44), contains two procedures for such a conversion. Conversion by default The Companies (Amendment) Act,2000, stipulates that the Articles of a private company shall provide for four restrictions: Restrictions on transfer of shares; Restrictions on invitation to public to subscribe to the shares or debentures of the company; Restrictions on the maximum number of members which should not exceed 50 excluding members who are employees or ex-employees of the company; and Prohibition on any invitation or acceptance of deposits from persons other than its members, directors or their relatives. If default is made by any private company in complying with any of the above restrictions, such a private company shall cease to be entitled to the privileges and exemptions conferred on a private company by the Act and all the provisions which are applicable to a public company shall apply to such a private company. However, it is provided that the company or any person interested may file a petition before the Central Government along with the requisite fee, to grant relief in committing the default. The petition shall be accompanied by the following documents: Copy of the Memorandum and Articles of Association;

Copy of the documents showing that the default has been committed in complying with the conditions laid down under the Act; Affidavit verifying the petition; Bank draft evidencing the payment of requisite application fee; Memorandum of appearance with copy of the Board Resolution or the executed Vakalatnama, as the case may be. The Central Government on being satisfied that the failure to comply with the conditions envisaged under the Act was accidental or due to inadvertence or due to some other sufficient cause, or that on other grounds it is just and equitable to grant relief, may order that the company or any other person interested be relieved from the consequences of default, on such terms and conditions as seem to the court just and expedient. From the date of the order, the company will again be entitled to all the privileges and exemptions available to a private company. But during the intervening period, the provisions of the Act as are applicable to a public company shall apply. Conversion by an act of Volition A private company may get itself converted into a public company voluntarily by following the procedure for conversion: Convene a Board meeting and decide the time, place an agenda for convening a general meeting to alter the Articles of Association and consequently, the name, by Special Resolutions. It is, however, advisable to adopt a new set of Articles applicable to a public company. This is necessary as there are other Articles like quorum for general meetings; number of directors and the period of service of notice of a general meeting, etc. which are also to be changed. Send notice for the general meeting proposing the Special Resolutions along with suitable Explanatory Statements. If the quorum of two members personally present exists, then convene the general meeting and pass the Special Resolution to the following effect: To delete those articles which are required to be included in the articles of a private company only. Such other articles which do not apply to a public company, should be deleted and those which apply should be inserted. Consequent to the above changes, delete the word "private" from its name. To raise the paid-up capital to minimum Rs. 5 lakhs. In case the authorised capital is less than Rs. 5 lakhs than it shall also require to be increased. To raise the capital from public. File either the prospectus in the Form as prescribed under Schedule II or the Statement in lieu of prospectus in the Form as prescribed under Schedule IV within thirty days of passing of the above special resolutions. Director's consent to act as such in e-Form 32 is not required to be filed by a private company converted into a public company. File the Special Resolutions passed and the Explanatory Statements with the concerned Registrar of Companies(ROC) in e-Form 23 within thirty days of their passing, along with the requisite fee.

Apply to the concerned ROC for the issue of a fresh certificate of incorporation in the changed name i.e. the existing name with the word "private" deleted. On issue of such a certificate, the change of name of the converted company shall be final and complete. If the company has less than three directors, then increase the number of directors to atleast three. If the company has less then seven members, then increase them to atleast seven. Although the company becomes a public company as soon as the Special Resolution to change the Articles to make it a public company is passed, the change in its name becomes effective only on the issue of the fresh Certificate of Incorporation by the concerned Registrar of Companies(ROC) in the changed name. When a private company is converted into a public company, it is not required to obtain a certificate of commencement of business. A statutory meeting must be held if such a conversion is before six months of the incorporation of the company. Difference between private company and a public company Basis Private Limited Company Public Limited Company 1. Membership Minimum - 02 Minimum - 07 Maximum - 50 Maximum - no restriction 2. Identification Use a suffix Private Limited Use a suffix Limited after its after its name name 3. Transferability of shares Restricted Free 4. Capital required Not less than Rs. 1 lakh Not less than Rs. 5 lakh Cannot give open invitation to Can raise as much money as 5. Raising of funds the public to subscribe the required from public shares Must issue and file a prospectus Need not issue and file a 6. Issue of prospectus or a statement in lieu of prospectus prospectus It can start business only after It can start business 7. Commencement of Business getting a certificate of immediately on incorporation commencement of business 8. Number of Directors At least two At least three Qualification shares have to be 9. Qualification shares No qualification shares require purchased for becoming a director Must prepare its own articles of May adopt table A as given in the 10. Articles of Association association Companies Act.

6. Shares : Meaning and Definition A Share is the interest of a share holder in the company It has some monetary value but also consists of rights and responsibilities Section-2 (46): Defines A share in the capital of a company and includes stock except where a distinction between stock and share is expressed and implied

Share in Simple words A share is a fractional part of a companys capital and forms the basis of rights and interests of a subscriber in the company such as the right to dividend, to vote, to attend meeting etc. It also indicates other rights and liabilities and same is evidenced by the share certificate. Nature of Share: Share Is movable property Is transferable subject to limitations of articles of the company Has right enforceable by law Has bundle of obligations Can be hypothecated Can be bequeathed Not transferable by mere delivery Share Certificate: Is evidence of ownership Is issued by the company Is acknowledgement of the receipt of the money by the company Thus a share i) Measures the right of a shareholder to receive a certain proportion of the profits of the company while it is a going concern and to contribute to the assets of the company when it is being wound up; and ii) Forms the basis of the mutual covenants contained in the articles binding the shareholders inter se. A share is a personal estate capable of being transferred in the manner laid down in the articles of association. It is a movable property which can either be mortgaged or pledged. Share is included in the definition of good under the provisions of the sale of goods act, 1930. Every share issued by a company under its common seal specified the shares held by any member. The share certificate is the prima facie evidence of the title of the member to such shares. The share certificate is not a negotiable instrument. Types of shares: According to section 86 of the companies act, a company can issue only two types of shares: (a) Preference shares; and (b) Equity shares. Preference shares: A preference share must satisfy the following two conditions: I) It shall carry a preferential right as to the payment of dividend at a fixed rate; and

II) In the event of winding up, there must be a preferential right to the repayment of the paid up capital. These are two dominant characteristics of preference shares. So preference share may or may not carry such other right as: (a) A preferential right to any arrears of dividend; (b) A right to share in surplus profits by way of additional dividend; (c) A right to be paid a fixed premium specified in the memorandum; and (d) A right to share in surplus assets in the event of a winding up, after all kinds of capital have been repaid. Equity shares: All shares which are not preference shares are equity shares. Equity shareholders have the residual rights of the company. They may get higher dividend than preference shareholders if the company is prosperous or get nothing if the business of the company flops. In the winding up, the equity shares are entitled to the entire surplus assets remaining after the payment of the liabilities and the capital of the company; unless the articles confer right on the preference shares a right to participate in the distribution of surplus assets. 1. Cumulative and non-cumulative preference shares: With regard to the payment of dividend, preference shares may be cumulative or noncumulative. In the case of cumulative preference shares, if the profits of the company in any years are not sufficient to pay the fixed dividend, on the preference shares the deficiency must be made up out of the profits of subsequent years. The accumulated arrears of dividend must be paid before anything is paid out of the profits to the holders of any other class of shares. In the case of non-cumulative preference shares, the dividend is only payable out of the net profits of each year. If there are no profits in any year, the arrears of dividend cannot be claimed in the subsequent years. Preference shares are presumed to be cumulative unless expressly described as non-cumulative. Any ambiguous language in the articles will not be enough to make them non-cumulative. 2. Participating and Non-participating Preference Share: Participating preference shares are those shares which are entitled, in addition to preference dividend at a fixed rate, to participate in the balance of profits with the equity shareholders after they get a fixed rate of dividend on their shares. The participating preference shares may also have the right to share in the surplus assets of the company on its winding up. Such a right must be expressly provided in the memorandum or the articles of association of the company. Non-participating preference shares are entitled only to a fixed rate of dividend and do not share in the surplus profits. The preference shares are presumed to be non-participating, unless expressly provided in the memorandum or the articles or the terms of issue. A mere fact that the articles of a company confer on the preference shareholders a right to participate with the equity shareholders in the surplus profits does not necessarily mean that the preference shareholders are entitled to participate in the surplus assets also. 3. Redeemable preference shares:

According to section 80, a company limited by shares, if so authorized by its articles, may issue redeemable preference shares. Such shares may be redeemed either after a fixed period or earlier at the option of the company. In the case of irredeemable shares, the capital is to be returned on the winding up of the company. The redeemable preference shares can be redeemed, only subject to the following conditions: i) Such shares must be fully paid ii) Such shares shall be redeemed out of distributable profits or out of the proceeds of a fresh issue made for the purposes of redemption. iii) Any premium to be paid on redemption of such shares must be paid out of profits or out of the share premium account. iv) Where shares are so redeemed out of profits, a sum equal to the nominal value of the shares redeemed must be transferred to the capital redemption reserve account. This amount shall be treated as capital of the company and the provisions as regards reduction of capital shall apply. The amount credited to the account cannot be paid out to the shareholders as dividend. But it can be used to pay up unissued shares to be issued as fully paid bonus shares. Redemption of preference shares is not to be taken as reduction of the companys authorized share capital. Shares already issued cannot be converted into redeemable preference shares. Where a company fails to comply with these provisions, the company and every officer of the company who is in default shall be punishable with fine which may extend to Rs. 1,000. Redemption of redeemable preference shares shall be notified to the registrar within one month of redemption. Where redeemable preference shares have been issued, the balance sheet must contain a statement specifying what part of the capital consists of such shares and the earliest date on which the company has power to redeem the shares Allotment of Shares Meaning o The Shares allotment means the appropriation of shares by the directors to a particular person. o By virtue of allotment, the applicant for shares becomes the holder of inappropriate shares o A valid allotment creates a binding contract between company and the shareholder Restrictions on Allotment The Shares allotment must confirm to the provisions of The Law of contract The Companies Act

Provisions of the Law of Contract Allotment must be made o by proper authority, allotment by irregularly constituted board shall be prima facie invalid

o o o o o

Against written request Within reasonable time Absolute and unconditional Communicated to the applicant Without contravention of any law

Statutory provisions of the Companies Act o There is no restrictions on allotment of shares by private company; o There are certain restrictions on allotment of shares by the public companies o When public offer is not made 1. Cannot proceed to make valid allotment unless at least 3 days prior to allotment the company has filed a statement-in-lieu of prospectus to the registrar 2. The statement should be signed by the every person named as director/ proposed directors or his authorized agents When public offer is made 1. Issue of prospectus and registration of the same must be there 2. The company must receive a minimum of 5% of the nominal value of share as application money. 3. A minimum of 90% subscription must be received in cash within 60 days of closure of issue. 4. If a company fails to raise the minimum subscription, all the monies received from applicants must be refunded forthwith 5. The application moneys shall be kept deposited in a scheduled bank till i. The certificate to commence business is obtained ii. Where such certificate is obtained, till minimum subscription has been received iii. The permission of stock exchange is pending for listing the company Issue of Shares at Premium Meaning The issue of shares at a price higher than their face value There is no restriction on issuing shares at a premium However 1. The amount received as premium must be transferred to the separate account known as Securities Premium Account 2. And, the share premium may be used only for Issue of fully paid bonus Write off preliminary expenses Write off the commission paid, or the discount allowed on any issue of shares/debentures Premium payable on redemption of shares To buy back shares 3. The share premium account must be disclosed in the prospectus Where premium is consideration other than cash A sum equal to the amount equal to the premium must be transferred to the securities premium account

It cant be treated as profit hence cant be distributed as dividend It cant also be treated as free reserve

Issue of Shares at Discount Meaning The issue of shares at a price lower than their face value Subject to the following conditions The shares to be issued at a discount must be of a class already issued A minimum one year must be completed since the company became entitled to commence business The issue must be authorized by ordinary resolution Must specify maximum rate of discount which shall not be higher than 10% Every prospectus issued shall disclose the discount allowed Issue of Bonus Shares Meaning o The Shares issued from the accumulated large amounts of profits to the shareholders. o These shares are issued free of cost as fully paid shares o Issued to the existing shareholders in proportion to their existing shareholding o On the issue of bonus shares the companys issued capital increases whereas the assets remain intact Therefore; it is known as Capitalization of undistributed profits i.e. conversion of accumulated profits into share capital Condition for issue of Bonus shares o The company must have sufficient undistributed profits o The articles must permit the making of bonus issue o The board of directors must pass a resolution for this purpose o The formal approval of shareholders in a general meeting must be obtained o The issue must be in accordance with the guidelines of SEBI for listed companies Issue of Sweat Equity Shares Meaning o The Shares issued to the employees or directors at a discount to the market price, o or for a consideration other than cash in exchange of technical knowhow, o Or intellectual property rights are sweat equity share o It is not an independent category of shares o Provisions applicable on equity shares are apply on these shares Conditions for issue of Sweat Equity Shares o The Shares must be of a class already issued

o o o

A minimum one year must be completed since the company became entitled to commence business The issue must be authorized by special resolution of the general meeting The resolution authorizing the issue must specify the number of shares, current market price, consideration if any, an the classes of directors and employees to whom they are issued The issue must be in accordance with the guidelines of SEBI for listed companies and GOI guidelines in case of unlisted companies

UNIT IV 7. Consumer Dispute Redressal under Consmer Protection Act, 1986 The Consumer Protection Act, 1986 provides for a 3 tier approach in resolving consumer disputes. The District Forum has jurisdiction to entertain complaints where the value of goods / services complained against and the compensation claimed is less than Rs. 5 lakhs, the State Commission for claims exceeding Rs. 5 lakhs but not exceeding Rs. 20 lakhs and the National Commission for claims exceeding Rs. 20 lakhs. 1.District Forum Under the CPA, the State Government has to set up a district Forum in each district of the State. The Government may establish more than one District Forum in a district if it deems fit. Each District Forum consists of :(a) a person who is, or who has been, or is qualified to be, a District Judge who shall be its President (b) two other members who shall be persons of ability, integrity and standing and have adequate knowledge or experience of or have shown capacity in dealing with problems relating to economics, law, commerce, accountancy, industry, public affairs or administration, one of whom shall be a woman. Appointments to the State Commission shall be made by the State Government on the recommendation of a Selection Committee consisting of the President of the State Committee, the Secretary - Law Department of the State and the secretary in charge of Consumer Affairs Every member of the District Forum holds office for 5 years or upto the age of 65 years, whichever is earlier and is not eligible for re-appointment. A member may resign by giving notice in writing to the State Government whereupon the vacancy will be filled up by the State Government. The District Forum can entertain complaints where the value of goods or services and the compensation, if any, claimed is less than rupees five lakhs. However, in addition to jurisdiction over consumer goods services valued upto Rs. 5 lakhs, the District Forum also may pass orders against traders indulging in unfair trade practices, sale of defective goods or render deficient services provided the turnover of goods or value of services does not exceed rupees five lakhs. A complaint shall be instituted in the District Forum within the local limits of whose jurisdiction (a) the opposite party or the defendant actually and voluntarily resides or carries on business or

has a branch office or personally works for gain at the time of institution of the complaint; or (b) any one of the opposite parties (where there are more than one) actually and voluntarily resides or carries on business or has a branch office or personally works for gain, at the time of institution of the complaint provided that the other opposite party/parties acquiescence in such institution or the permission of the Forum is obtained in respect of such opposite parties; or (c) the cause of action arises, wholly or in part. 2.State Commission The Act provides for the establishment of the State Consumer Disputes Redressal Commission by the State Government in the State by notification. Each State Commission shall consist of:(a) a person who is or has been a judge of a High Court appointed by State Government (in consultation with the Chief Justice of the High Court ) who shall be its President; (b) two other members who shall be persons of ability, integrity, and standing and have adequate knowledge or experience of, or have shown capacity in dealing with, problems relating to economics, law, commerce, accountancy, industry, public affairs or administration, one of whom must be a woman. Every appointment made under this hall be made by the State Government on the recommendation of a Selection Committee consisting of the President of the State Commission, Secretary -Law Department of the State and Secretary in charge of Consumer Affairs in the State. Every member of the District Forum holds office for 5 years or upto the age of 65 years, whichever is earlier and is not eligilbe for re-appointment. A member may resign by giving notice in writing to the State Government whereupon the vacancy will be filled up by the State Government. The State Commission can entertain complaints where the value of goods or services and the compensation, if any claimed exceed Rs. 5 lakhs but does not exceed Rs. 20 lakhs; The State Commission also has the jurisdiction to entertain appeal against the orders of any District Forum within the State The State Commission also has the power to call for the records and appropriate orders in any consumer dispute which is pending before or has been decided by any District Forum within the State if it appears that such District Forum has exercised any power not vested in it by law or has failed to exercise a power rightfully vested in it by law or has acted illegally or with material irregularity. 3. National Commission The Central Government provides for the establishment of the National Consumer Disputes Redressal Commission The National Commission shall consist of :(a) a person who is or has been a judge of the Supreme Court, to be appoint by the Central Government (in consultation with the Chief Justice of India ) who be its President; (b) four other members who shall be persons of ability, integrity and standing and have adequate knowledge or experience of, or have shown capacity in dealing with, problems relating to economics, law, commerce, accountancy, industry, public affairs or administration, one of whom shall be a woman

Appointments shall be by the Central Government on the recommendation of a Selection Committee consisting of a Judge of the Supreme Court to be nominated by the Chief Justice of India, the Secretary in the Department of Legal Affairs and the Secretary in charge of Consumer Affairs in the Government of India. Every member of the National Commission shall hold office for a term of five years or upto seventy years of age, whichever is earlier and shall not be eligible for reappointment. The National Commission shall have jurisdiction :a. to entertain complaints where the value of the goods or services and the compensation, if any, claimed exceeds rupees twenty lakhs: b. to entertain appeals against the orders of any State Commission; and c. to call for the records and pass appropriate orders in any consumer dispute which is pending before, or has been decided by any State Commission where it appears to the National Commission that such Commission has exercised a jurisdiction not vested in it by law, or has failed to exercise a jurisdiction so vested, or has acted in the exercise of its jurisdiction illegally or with material irregularity. Complaints may be filed with the District Forum by :1. the consumer to whom such goods are sold or delivered or agreed to be sold or delivered or such service provided or agreed to be provided 2. any recognised consumer association, whether the consumer to whom goods sold or delivered or agreed to be sold or delivered or service provided or agreed to be provided, is a member of such association or not 3. one or more consumers, where there are numerous consumers having the same interest with the permission of the District Forum, on behalf of or for the benefit of, all consumers so interested 4. the Central or the State Government.

On receipt of a complaint, a copy of the complaint is to be referred to the opposite party, directing him to give his version of the case within 30 days. This period may be extended by another 15 days. If the opposite party admits the allegations contained in the complaint, the complaint will be decided on the basis of materials on the record. Where the opposite party denies or disputes the allegations or omits or fails to take any action to represent his case within the time provided, the dispute will be settled in the following manner :I. In case of dispute relating to any goods : Where the complaint alleges a defect in the goods which cannot be determined without proper analysis or test of the goods, a sample of the goods shall be obtained from the complainant, sealed and authenticated in the manner prescribed for referring to the appropriate laboratory for the purpose of any analysis or test whichever may be necessary, so as to find out whether such goods suffer from any other defect. The appropriate laboratory' would

be required to report its finding to the referring authority, i.e. the District Forum or the State Commission within a period of forty- five days from the receipt of the reference or within such extended period as may be granted by these agencies. Appropriate laboratory means a laboratory or organisation:(i) recognised by the Central Government; (ii) recognised by a State Government, subject to such guidelines as may be prescribed by the Central Government (iii) any such laboratory or organisation established by or under any law for the time being in force, which is maintained, financed or aided by the Central Government or a State Government for carrying out analysis or test of any goods with a view to determining whether such goods suffer from any defect. The District Forum / State Commission may require the complainant to deposit with it such amount as may be specified towards payment of fees to the appropriate laboratory for carrying out the tests. On receipt of the report, a copy thereof is to be sent by District Forum/State Commission to the opposite party along with its own remarks. In case any of the parties disputes the correctness of the methods of analysis/test adopted by the appropriate laboratory, the concerned party will be required to submit his objections in writing in regard to the report. After giving both the parties a reasonable opportunity of being heard and to present their objections, if any, the District Forum/Slate Commission shall pass appropriate orders. II. In case of dispute relating to goods not requiring testing or analysis or relating to services: Where the opposite party denies or disputes the allegations contained in the complaint within the time given by the District Forum / State Commission, it shall dispose of the complaint on the basis of evidence tendered by the parties. In case of failure by the opposite party to represent his case within the prescribed time, the complaint shall be disposed of on the basis of evidence tendered by the complainant.

8. Members of a company All persons who are competent to contract may, in general, become members of a company. There are, however, some special considerations to which reference must be made. (1) Company. A company may become a member of another company if it is authorised by its memorandum or articles, or if it takes the shares of another company by way of a Compromise or Arrangement.

A company cannot, however, buy its own shares. Also, subject to certain exceptions given in Section 42, a company cannot buy shares of its holding company. (2) Hindu undivided family. A Hindu undivided family can purchase shares in a company through its Karta, i.e. the karta only shall become the member of the company. (3) Firm. A partnership firm cannot become a member of a company, as it is not a legal person having a separate entity from that of partners. Partners may be registered as joint holders in which case each of them becomes a member. (4) Joint holders. The shares of a company may also be held jointly by two or more persons. In the case of. a public company every joint shareholder is counted as a separate member (Narandas Man Mohandas Ramji & Sons vs. Indian Manufacturing Co. Ltd.) but in the case of a private company joint holders are treated as a single member [Section 3(l)(iii)]. (5) Registered society. A society registered under the Society registration Act, I860, is competent to hold shares in a company in its own name, if it is so authorized by its memorandum or articles of association. (6) Insolvent. An insolvent may be a member of the company (Morgan vs. Grey), although the beneficial interest in his shares will be with the Official Receiver. He does not cease to be a member of the company on becoming insolvent, unless provided otherwise by the articles of association. (7) Minor. A minor or lunatic, being incompetent to enter into a contract, cannot be allotted shares of a company. "If directors, in ignorance of the fact of minority, allot shares to a minor, and enter his name on the register of members, the company can repudiate the allotment and remove his name from the register, when the fact of applicant's minority comes to its knowledge. The minor can also repudiate the allotment at any time during his minority. In either case, the, company must repay to minor all money received from him in respect of the allotted shares, and whether or not the minor should restore to the company the benefits he might have derived from the shares would be for the court to decide in view of the facts and circumstances of each case. Difference between Member and Shareholder of a Company

For a Company, there is a very minor difference between Member(s) and Shareholder(s), but that difference which applies to only some of the situations is very important from the point of view of that member/shareholder.

A. Who is a Member? A member is one of the Companys owners whose name has been entered on the register of members of that Company. The subscribers of the memorandum of association of a company are the deemed members of the company and on the registration of the same, their names are required to be entered register of members. Every person holding equity share capital of company and whose name is entered as beneficial owner in the records of the depository shall be deemed to be a member of the concerned company.

B. Who is a shareholder? A shareholder is a person who buys and holds shares in a company having a share capital. They become a member once their name is entered on the register of members. Many companies limited by guarantee do not have a share capital, and consequently, their members are not shareholders.

C. Rights of members and shareholders? The rights of members are stated in the Companies Act and in the companys memorandum and articles of association and those rights are not available to the Shareholder. e.g. Right to a dividend:- Only Members of the Company are eligible for a dividend i.e. the money that a company pays to its shareholders from its profits. Generally the Company fixes a record date before distribution of dividend to determine the members who are eligible for the dividend, and only the name of the persons whose name appears in the Register of Members and in the Statement of Beneficial Owners as provided by the Depository(ies) as on the Record Date are considered as Member. And therefore any Person who has bought the shares from an existing member of a Company but such share transfer is under process for registration and his name is not yet entered in the Register of Members, then he will not be considered as Member neither he will be eligible for Dividends.

Termination of Membership : A person may cease to be a member of a company, at any time, one of the following ways: (1) When he transfers his shares and the transfer is duly registered in the books of the company. (2) By forfeiture of shares for non-payment of calls, if articles so provide. (3) By a valid surrender of shares. It is a short cut to forfeiture as it involves no legal formalities. (4) When the company sells the shares, in exercise of its right or line over them, by giving a 14 days notice to a debtor shareholder. (5) When a shareholder dies and his shares stand transmitted to his legal representative, upon registration of the share;, in the successor's name. (6) When he is declared insolvent and the Official Assignee disclaims the shares under his right of 'disclaimer of onerous properly.' (7) By repudiating the contract of membership on the ground of misrepresentation in the prospectus or on the ground of irregular allotment. (8) By conversion of share certificate into share warrant, unless the articles provide otherwise. In this case one ceases to be a 'member' in the strict sense of the term, that is, his name being removed from the Register of Members, although he continues to be a shareholder of the company.