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Master of Business Administration-MBA Semester III
Subject: Legal Aspects of Business
Subject code: MB0051
Book ID B1725
Q. No. 1. What are the rights of a surety?
Rights against creditors
Rights against Principal Debtor
Right against Co-Sureties
Ans: - A surety, surety bond or guaranty, in finance, is a promise by one party to
assume responsibility for the debt obligation of a borrower if that borrower defaults.
The person or company providing this promise is also known as a "surety" or as a
A surety most typically requires a guarantor when the ability of the primary obligor or
principal to perform its obligations to the obligee (counterparty) under a contract is in
question, or when there is some public or private interest which requires protection
from the consequences of the principal's default or delinquency. In most common-law
jurisdictions, a contract of suretyship is subject to the Statute of Frauds (or its equivalent
local laws) and is only enforceable if recorded in writing and signed by the surety and
by the principal.

Rights of surety may be classified under three heads:


Rights against the creditor
In case of fidelity guarantee, the surety can direct a creditor to dismiss the employee
whose honesty he/she has guaranteed, in the event of proven dishonesty of the
employee. The creditors failure to do so will exonerate the surety from his/her liability.

Rights against the principal debtor
Right of subrogation Section 140 provides that where a surety has paid the
guaranteed debt on the due date or has performed the guaranteed duty on the default
of the principal debtor, he/she is invested with all rights that the creditor has against
the debtor. In other words, the surety is subrogated to all rights that the creditor had
against the principal debtor. Hence, if the creditor loses or without the consent of the
surety parts with any securities (whether known to the surety or not), the surety is
discharged to the extent of the value of such securities (Section 141). Further, the
creditor must hand over to the surety the securities in the same condition as they
formerly stood in his/her hands.

Right to be indemnified The surety has a right to recover from the principal debtor
the amount that he/she has rightfully paid under the contract of guarantee.

Rights against co-sureties
Right of contribution Where a debt has been guaranteed by more than one person,
they are called co-sureties. Section 146 provides for a right of contribution between
them. When a surety has paid more than his/her share or a decree has been passed
against the surety for more than his/her share, he/she has a right of contribution from
the other sureties who are equally bound to pay with him/her

Example: A, B and C are sureties to D for Rs. 3,000 lent to E. E defaults in making the
payment. A, B and C are liable to pay Rs. 1,000 each, and if any one of them has to pay
more than his/her share, i.e. Rs. 1,000, he/she can claim contribution from the others.

-sureties have guaranteed different sums, they are bound under Section
147 to contribute equally, subject to the limit fixed by their guarantee and not
proportionately to the liability undertaken.

A, B and C as sureties for D, enter into three several bonds, each in a different
penalty, namely, A in the penalty of Rs. 10,000, B in that of Rs. 20,000, C in that of
Rs. 40,000, conditioned for Ds duly accounting to E. E defaults to the extent of
Rs. 30,000. A, B and C are each liable to pay Rs. 10,000
In the above example, if D defaults to the extent of Rs. 40,000, A is liable to pay
Rs. 20,000 and B and C Rs. 15,000 each.

Q. No. 2 Explain duties of a Bailor and a Bailee
Duties of Bailor
Duties of Bailee

Ans: -.
According to Section 148 of the Contracts Act, the person delivering the goods is called
the bailor and the person to whom the goods are delivered is called the bailee.
Delivery of the possession is not necessary where one person, already in possession of
goods, contracts to hold them as the bailee.
Duties of a Bailor
To disclose known faults in goods (Section 150) The bailor is bound to disclose
to the bailee, all faults in goods bailed, of which he/she is aware of. These faults
materially interfere with the use of them or expose the bailee to extraordinary
risks. If the bailor does not make such disclosure, he/she is responsible for the
damage arising to the bailee directly from such faults.
Example: A lends a horse, which he knows to be vicious, to B. He does not disclose to B
the fact that the horse is vicious. The horse runs away, B is thrown down and injured. A
is responsible for injury caused to B.

To bear liability for breach of warranty as to title The bailor is responsible to
the bailee for any loss that the bailee may sustain by reason that the bailor was
not entitled to make the bailment, or to receive goods or give directions
respecting them (Section 164).

Example: A gives Bs car to C without Bs knowledge and permission. B sues C and
receives compensation. A, the bailor, is responsible to make good this loss to C, the
To bear expenses in case of gratuitous bailment Regarding bailment under
which the bailee is to receive no remuneration, Section 158 provides that in the
absence of a contract to the contrary, the bailor must repay to the bailee all
necessary expenses incurred by him for the bailment.

To bear expenses in case of non-gratuitous bailment In case of non-gratuitous
bailments, the bailor is responsible for bearing only extraordinary expenses.

Example: A car is lent for a journey. The ordinary expenses like petrol, etc., shall be
borne by the bailee. However, in case the car needs repair, the money spent in this
regard is an extraordinary expenditure and borne by the bailor.
Duties of a Bailee
To take care of goods bailed (Section 151) In all cases of bailment, the bailee is
bound to take care of the goods bailed to him as a man of ordinary prudence
would, under similar circumstances, take of his own goods of the same bulk,
quality and value as the goods bailed. In case the bailee has taken proper care of

the goods, he shall not be responsible, in the absence of any special contract, for
the loss, destruction or deterioration of the goods bailed (Section 152).

Example: A lends a car to B for his own driving only. B allows C, his wife, to drive the
car. C drives with care, but the car is damaged in an accident. A is liable to make a
compensation to B for the damage caused to the car.

Not to make unauthorised use of goods (Section 154) In case the bailee makes
unauthorised use of goods, i.e. uses them in a way not warranted by the terms of
bailment, he is liable to make a compensation to the bailor for any damages
arising to the goods from or during such use of them.
Not to mix bailors goods with his own (Sections 155-157) If the bailee without
the consent of the bailor mixes the goods of the bailor with his own and the
goods cannot be separated or divided, the bailee shall bear the expenses of
separation or division and any damages arising from the mixture.
Example: A bails 100 bales of cotton marked with a special mark to B. B, without As
consent, mixes the 100 bales with other bales of his own bearing a different mark. A is

entitled to have his 100 bales returned and B is bound to bear all expenses incurred in
the separation of the bales and any other incidental damage.

To return goods bailed without demand (Section 160) It is the duty of the bailee
to return, or deliver according to the bailors directions, the goods bailed without
demand, as soon as the time for which they were bailed has expired, or the
purpose for which they were bailed has been accomplished.

If bailee fails to return goods at the proper time, he is responsible to the bailor for any
loss, destruction or deterioration of goods from that time onwards (Section 161).

To return any accretion to goods bailed (Section 163) In the absence of any
contract to the contrary, the bailee is bound to deliver to the bailor, or according
to his/her directions, any increase or profit that may have accrued from the
goods bailed.

Example: A leaves a cow to be taken care of in the custody of B. The cow gives birth to a
calf. B is bound to deliver the cow as well as the calf to A.

Q. No. 3 Power of Attorney is considered as an important concept in
Business Law. Explain
Ans: -
Meaning:- A power of attorney (POA) or letter of attorney is a written authorization
to represent or act on another's behalf in private affairs, business, or some other legal
matter, sometimes against the wishes of the other's b
A power of attorney is an instrument or a deed by which a person is empowered to act
for and in the name of the person executing it
The person executing the deed is known as the principal or donor
The one in whose favor it is executed is the agent or the power agent or the power of
attorney agent
A Power of Attorney is a written document in which you authorize someone (known as
your attorney-in-fact or agent) to conduct certain business on your behalf. The
business conducted by the agent is legally binding upon you, meaning you will be
responsible for the cost of any contract or expense that person incurs while acting under
your authorization.
Types Of Powers Of Attorney :-
There are two types of powers of attorney: General and Special. While General powers
entail a broad grant of authority to act on your behalf, Special powers only permit your
agent to perform specific actions and make specific decisions.

It is important to note that third parties, such as banks and other businesses, do not
have to accept your power of attorney. Some institutions have their own power of
attorney form, which they could require you to use. Remember to check with the
business where your agent will use the power of attorney to ensure that it will be
General Power of Attorney
A General power of attorney gives your agent the authority to do almost anything you
could do if you were present, such as write checks, borrow money, and enter into
contracts in your name. Along with broad authority, this type of power of attorney
carries a broader potential for abuse. With a General power of attorney, your agent
could empty your bank account or sell your most cherished possessions. For this
reason, it is particularly important that the person whom you select as your agent be
Special Power of Attorney
A Special power of attorney grants limited authority to your agent, empowering that
person to do only acts which are specified in the document. The agents actions are
restricted to those which you have specifically designated in your power of attorney
document; this carries a much lower potential for abuse than a General power of
attorney. Additionally, Special powers of attorney are often considered to be more
indicative of your actual intent than General powers, and as such they are more likely to
be accepted by businesses and government agencies.
As a general rule, registration of power of attorney is not necessary but a registration
is required if:
It authorizes the donee to recover the rent of an immovable property of the donor for
the donees benefit
A power has created a charge upon an immovable property referred to therein in
favor of the donee
Section 32 (c) of the Registration Act, 1908, requires that where a document is
presented for registration by the agent of a person entitled to present it for registration
such agent must be duly authorized by power of attorney executed and authenticated
in manner as mentioned in Section 33 of the Act
Such a power of attorney is to be executed before and authenticated by a registrar or
Unregistered power executed in a foreign country before a public notary can be used
by the agent for presentation of document for registration
The power of attorney executed before a public notary in India will not enable the
agent to present any document for registration under the Registration Act, 1908
Power of attorney is required to be embossed on non-judicial stamp paper

The amount of stamp duty varies with different types of powers as described in the
Stamp Act and varies in different states of India
Section 4 of the Power of Attorney Act, 1882, provides that the original deed of power
can be deposited in the High Court in whose jurisdiction the principal resides
A certified copy of the deed can be obtained from the High Court that are equal to
originals and are binding on all

Q. No. 4 The Banking Regulation Act, 1949, provides various methods
of regulation of the banking business. Describe the key areas
of regulation.
Methods of regulation
Ans:- Bank regulations are a form of government regulation which subject banks to
certain requirements, restrictions and guidelines. This regulatory structure creates
transparency between banking institutions and the individuals and corporations with
whom they conduct business, among other things.
As per Section 5(c) of Banking Regulation Act, 1949 a "Banking Company" means any
company which transacts the business of banking in India.
The Banking Regulation Act, 1949, provides various methods of regulation of the
banking business. Some of the key areas of regulation are:
Power to provide directions Sections 21 and 35A of the Act empower the RBI to
regulate the business of banks by issuing directions controlling various aspects of
banking. Section 21 provides the power to regulate advances of banking companies,
while Section 35A provides powers of regulation over banks. These statutory directions
issued by the RBI are binding on banks. The circulars issued by the RBI, pertaining to its
statutory power are binding on banks. The RBI is expected to issue directives with
bonafide intentions and is competent to provide advice or caution to the banking
companies under Section 36.

Deposits Banks can accept both time (repayable after a time period) and demand
(repayable on demand) deposits from customers. The bank can decide on the terms and
conditions of such deposits, subject to the directions of the RBI. Currently, the RBI
prescribes minimum and maximum period of deposits and prescribes the interest rates
of savings and NRI deposits. Under Section 26, banks are expected to file a returns
every year for unclaimed deposits

Nomination facility According to Sections 45ZA, 45ZC and 45ZE, banking
customers have the right to appoint a nominee for their deposits and locker facilities, in
the manner prescribed by the RBI. In the event of death of the customer, the bank is

expected to hand over the deposit monies or contents of locker to the respective

Loans and advances Section 21 provides that RBI has the right to issue directions for
controlling advances by banking companies. These directions are issued to banking companies
with respect to purpose for which advances are given, margins for secured advances, maximum
amount of advances and guarantees as well as the rate of interest and terms and conditions for
advances. Section 20 imposes restrictions on loans and advances by disallowing banks from
providing loans against their own shares. Section 20A provides that a bank does not have the
power to remit the debts of any of its directors without the permission of RBI.

Regulation of interest rate Section 21(2)(e) of the Act regulates the interest rates on
loans and advances. The lending rates differ for differing types of industries such as
small-scale industries, agriculture, etc. The rate of interest also varies on the period of
the loan. Currently, the RBI directives govern interest rates of advances and for finance
to exporters and small loans up to Rs. 2 lakhs. Section 21A provides that the transaction
between a banking company and its borrower cannot be scrutinised by courts on the
grounds of excessive rate of interes

Regulation of payment systems Earlier, there was no separate provision for
regulating payment systems by the RBI. However, with the advent of electronic
payment systems, it became increasingly important for such a regulation. This gap was
addressed by the Information Technology Act, 2000, as well as the RBI Regulations,
2005. While the former empowers the RBI to frame rules for payment systems, the latter
aided in constituting a Board for Regulation and Supervision of Payment and
Settlement Systems (BPSS). This Board prescribes policies for regulation of payment
and settlement systems and sets the standards for existing and future systems and
authorisations, as well as determines the membership of such systems.

Regulation of payment systems Earlier, there was no separate provision for
regulating payment systems by the RBI. However, with the advent of electronic
payment systems, it became increasingly important for such a regulation. This gap was
addressed by the Information Technology Act, 2000, as well as the RBI Regulations,
2005. While the former empowers the RBI to frame rules for payment systems, the latter
aided in constituting a Board for Regulation and Supervision of Payment and
Settlement Systems (BPSS). This Board prescribes policies for regulation of payment
and settlement systems and sets the standards for existing and future systems and
authorisations, as well as determines the membership of such systems.

Regulation of payment systems Earlier, there was no separate provision for regulating
payment systems by the RBI. However, with the advent of electronic payment systems, it
became increasingly important for such a regulation. This gap was addressed by the
Information Technology Act, 2000, as well as the RBI Regulations, 2005. While the former
empowers the RBI to frame rules for payment systems, the latter aided in constituting a Board

for Regulation and Supervision of Payment and Settlement Systems (BPSS). This Board
prescribes policies for regulation of payment and settlement systems and sets the standards for
existing and future systems and authorisations, as well as determines the membership of such

Reserve funds and liquid assets maintenance According to Section 17 (1) of the
Act, every banking company should create a reserve fund out of its profits. The sum
transferred should be equivalent to not less than 20 percent of profits every year. Under
Section 42 of the RBI Act, every scheduled bank has to maintain certain cash reserves.
These provisions have to be adhered to, by every banking company, and any violation
will be penalised. Under Section 24 of the Banking Regulation Act, 1949, every banking
company is also expected to maintain liquid assets in the prescribed manner. The
returns of such assets have to be filed with the RBI by the banking company every
From the above discussions, it is clear that banking companies are subject to rigorous
external control from the RBI and other statutory bodies. However, such an intense
regulatory framework is essential in the banking sector as it forms the bulwark of the
nations economy and needs to be monitored for effective growth. In the next section,
we shall study one of the most important sectors of growth, namely, insurance.

Q. No. 5 Explain the nature and scope of complaints under the
Consumer Protection Act?
Persons competent to make complaints
Place of complaint
Procedure for filing a complaint
Admission of complaint
Power of the District Forum

The Consumer Protection Act, 1986, is a unique legislation enacted in India to protect
consumers. The Act is claimed to have been designed after an in-depth study of
consumer protection laws and arrangements in the UK, USA, Australia and New
To provide simple, speedy and inexpensive redressal of consumer grievances, the Act
envisages three-tier quasi-judicial machinery at the:
District level - District Forum
State level - State Commissions
National level - National Commission

Persons competent to make a complaint (Section 12)
Any of the following people may file a complaint under the Act:

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. In case of death of a
consumer, the legal heir or representative can file a complaint.
Any recognised consumers association namely, any voluntary consumer
association registered under the Companies Act, 1956, or any other law for the
time being in force. It is not necessary that the consumer is a member of such an
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.
The Central or the State Government.
The Amendment Act, 2002, has amended Section 12. It provides as follows:

Every complaint shall be accompanied with such amount of fee as prescribed.
On receipt of a complaint, the District Forum may allow the complaint to be
proceeded with or rejected.
However, a complaint shall not be rejected unless an opportunity of being heard
has been given to the complainant.
Where a complaint is allowed to be proceeded with, the District Forum may
proceed with the complaint in the manner as provided under the Act.

Place of complaint
A consumer can lodge a complaint in the following instances:
In the District Forum
If the value of the goods or services and the compensation claimed does not
exceed Rs. 20 lakhs
Within the local limits of whose jurisdiction the opposite party actually resides or
carries on business or has a branch office
Before the State Commission
If the value of the goods or services and compensation claimed is between Rs. 20
lakhs and rupees one crore
to appeal against the orders of any District Forum within the State
In case of joint petition from a large number of victims the total amount of
compensation claimed will determine the question of jurisdiction
Before the National Commission
If the value of goods or services and the compensation claimed exceeds Rs. 1
To appeal against the orders of any State Commission

Procedure for filing a complaint
The complainants or their authorized agent:

can present the complaint in person with out any filing fee before any of the
aforesaid bodies
can also be sent by post to the appropriate Forum/ Commission
It should be addressed to the President of the Forum/Commission
A complaint should contain the following information:
Name, description and address of the complainant
Name, description and address of the opposite party or parties, as the case may
be, as far as they can be ascertained
Facts relating to complaint and when and where it arose
Documents, if any, in support of the allegations contained in the complaint
Relief that the complaint is seeking

Admission of complaint (Section 13)
Procedure in respect of goods where the defect requires no testing or analysis:
The District Forum should send a copy of admitted complaint to the opposite party
mentioned in the complaint:
Within 21 days of admission
Instructing to provide his version of the case within 30 or 45 days at the
discretion of the Forum
If the opposite party disputes the allegations or fails to take any action, the forum can
settle the disputes as specified in the Act.

Procedure in respect of goods where the defect requires analysis or testing: If the
Goods need to be tested for defects, the District Forum should:
Obtain a sample of goods from the complainant
Take steps to seal and authenticate the sample
Send it to the appropriate laboratory for testing
Ascertain if the goods suffer from defects alleged by the complainant
Provide the results within 45 days
The complainant has to bear the charges towards the testing/analysis and needs to
deposit these fees to the forum
The Forum remits the amount to the laboratory which undertakes the test
The Forum forwards a copy of the report along with its remarks to the opposite party
seeking clarification
Any disputes with respect to the laboratorys findings must be countered by written
objections from the concerned party
The Forum then provides reasonable opportunity for both the complainant and the
opposite party to be heard

Power of the district forum [Section 13(4)]
District Forum shall have the same powers as are vested in a civil court under the Code
of Civil Procedure, 1908, while trying a suit in respect of the following matters, namely:
Summoning and enforcing the attendance of any defendant or witness and
examining the witness on oath

Discovery and production of any document or other material object producible
as evidence
Reception of evidence on affidavits
Requisitioning of the concerned analysis or test from the appropriate laboratory
or from any other relevant source
Issuing any commission (i.e., warrant conferring authority) for the examination
of any witness
Any other matter that may be prescribed.

Q. No. 6 Explain the need and types of meetings
Need for meeting
Statutory meetings
Annual General Meetings
Extraordinary meetings
Class meetings

Ans: - A meeting is a gathering of two or more people that has been convened for the
purpose of achieving a common goal through verbal interaction, such as sharing
information or reaching agreement.
Meetings may occur face to face or virtually, as
mediated by communications technology, such as a telephone conference call, askyped
conference call or a videoconference.
Need for meetings
A company is an artificial person and therefore, must act through some human
intermediary. The various provisions of law empower shareholders to do certain things.
through companys general meetings. Section 291 empowers the Board of Directors to
manage the affairs of the company & meetings of shareholders and directors become
necessary. Different types of meetings of shareholders: (i) Statutory Meeting; (ii) Annual
General Meeting; (iii) Extraordinary General Meeting; and (iv) Class Meetings.
Statutory meetings (Section 165)
Every Public limited company having a share capital is required to hold a Statutory
Meeting once in every year u/s 165 of the Companies Act, 1956.
The most important legal provisions regarding statutory meetings are:
It is required to be held only by a public company having share capital
A private company or a public company registered without share capital is
under no obligation to hold such a meeting
It must be held within a period of not less than one month and not more than six
months from the date on which the company is entitled to commence business

At least 21 days before the day of meeting, a notice of the meeting is to be sent to
every member stating it to be a Statutory Meeting

Annual general meeting (AGM) (Sections 166-168)
The provisions relating to annual meeting of a company are:
Every company, whether public or private, having a share capital or not, limited
or unlimited must hold this meeting
The meeting must be held in each calendar year and not more than 15 months
shall elapse between two meetings
The first AGM may be held within 18 months from the date of its incorporation
If a general meeting is held within that period, it need not hold any such meeting
in the year of its incorporation or in the following year
The maximum gap between two such meetings may be extended by three
months by taking permission of the Registrar, who may so allow for any special
The meeting must be held:
On a day that is not a public holiday
During business hours
At the registered office of the company or at some other place within the city,
town or village in which the registered office is situated (Section 166 (2))

Extraordinary Meeting (EGM) Section 169
All general meetings other than AGMs shall be called the EGMs with the legal
provisions :
EGM is convened for transacting:
Some special or urgent business that may arise in between two AGMs, for
instance, change in the objects or shift of registered office or alteration of capital
Special business that must always be accompanied by an Explanatory Statement
An EGM may be called by:
Directors of their own accord
Directors on requisition
Requisitionists themselves
The Tribunal
The Board of Directors (at a notice of 21 days & on a shorter notice if agreed by
members of the company holding 95 percent or more of the voting rights (Section

Class Meetings
A company has two classes of shares equity shares and preference shares. The class
meetings are held for these different classes of shareholders, as and when their rights
are affected.