Legal Environment of Business - 1 - 30
Legal Environment of Business - 1 - 30
Legal Environment of Business - 1 - 30
IBS - Gurgaon
Semester III
Course Code: SL GM 601
Course Synopsis
Sessi Topic
on
Introduction to Legal
1 Environment
Introduction to Legal
2 Environment
Business Contracts
Business Contracts
Business Contracts
Business Contracts
Sessio Topic
n
7
8
9
Business Contracts
10
Law Relating to
Corporate Business
Entities
11
Law Relating to
Corporate Business
Entities
12
Law Relating to
Corporate Business
Entities
Sessio Topic
n
Law Relating to
13 Corporate Business
Entities
14
Law Relating to
Corporate Business
Entities
Sessio Topic
n
Property Law for
15
Business
16
17
18
19
20
Sessio Topic
n
21
Financial Services
Legal and Regulatory
Environment
22
Financial Services
Legal and Regulatory
Environment
23
Financial Services
Legal and Regulatory
Environment
24
Financial Services
Legal and Regulatory
Environment
Sessio Topic
n
25
Business Transactions
and Cyber Law
Application of IT Act, 2000 to Contracts and Transactions Digital Signature and Authentication of Electronic Records Cyber Offences and Penalties.
26
Competition and
Consumer Protection
i.
ii.
Competition and
Consumer Protection
iii. Competition Law in India Prohibition of Anticompetitive Agreements and Abuse of Dominant Position
iv. Restrictive and Unfair Trade Practices
v. Product Liability
vi. Class Action Suits in US
27
Environment Protection
Types of Pollution - Rule of Strict Liability and Absolute
and Business Obligations
Liability - Applicability of Criminal Law
28
Alternative Dispute
Alternative Dispute resolution Mechanisms - Arbitration and
29 Resolution Mechanisms Conciliation Law in India.
30
Case Studies
Introduction to Legal
Environment
Lectures 1
Purpose of Law
Liability of an
Auditor
Sources of Law
Civil Liability
Section 34,35
Claim for
damages on
account of
negligence
Claim for
damages for
misfeasance
Liability as an Expert
or in any other
capacity
Criminal Liability
Section 448, 447
Sources of Law
Classification of Law
Law of Torts
Tort may be defined as an infringement of a right of a
person or persons by another person, giving a right of
compensation in a legal suit, to the injured party.
Liability for tort arises from:
i. the breach of a duty towards a person or persons;
ii. primarily fixed by law (and not from any contract
or other relationship);
iii.and such breach is redressable by an action for un
liquidated damages.
Therefore, the constituents of Tort are:
iv. A wrongful act committed by a person.
v. Such wrongful act must give rise to a legal damage
or actual damage.
vi. The wrongful act must be of such nature as to give
rise to a legal remedy in the form of an action for
Principles of Liability
1. Absolute Liability: Rule laid down by Supreme Court of
India in the Oleum Gas Leak Case
a. Where an enterprise is engaged in a hazardous or
inherently dangerous activity, the enterprise is strictly
and absolutely liable to compensate all those who are
affected by the accident and such liability is not subject
to any exceptions.
b. The enterprise cannot escape liability by showing it
had taken all reasonable care and there was no
negligence on its part.
c. This principle, however, has been rarely applied since it
was formulated.
2. Strict Liability: Rule in Ryland v. Fletcher
The person who, for his own purpose, brings on his
premises and keeps there anything likely to do mischief if
it escapes, must keep it in at his peril; and if he does not
do so is prima facie answerable for all the damage which is
the natural consequence of its escape.
The liability under this rule is strict and it is no defense
Monism Vs Dualism
Doctrine of Monism
Doctrine of Dualism
Section 288
Liability of persons
who may or may not
be professional
accountants /
auditors
Section 278
Appeal before
Appeal before
Supreme Court
Judgments become
law for the whole
country
High Court
Judgments become
law for the particular
State
Judgments become
precedents for similar
cases in the lower
courts within the same
jurisdiction
Lecture 2 3 - Legal Elements of Contracts Parties Offer Acceptance Consideration Types of Contracts Valid Contracts Voidable Contracts Breach of Contracts and
Remedies Payment of Damages - Contracts of Agency Rights and Duties of
Principal and Agent Termination of Agency - Special Contracts Guarantee /
Indemnity / Letter of Credit / Lien / Set Off
Lecture 4 - Important Clauses in Corporate & Commercial Agreements
- Amalgamations & Reconstructions;
- Acquisition & Mergers
- Winding up
31
AGREEMENT
Agreement = Offer + Acceptance
What constitutes an Offer
Section 2 (a) : When one person signifies to another his
willingness to do or to abstain from doing anything, with a
view to obtaining the assent of that other to such act or
abstinence, he is said to make a proposal.
Hence, offer must:
Signify the willingness of a person to do or abstain from
doing anything. Hence, an offer can be a negative act
also;
Be intimated or communicated to another person or
persons;
Have the intention of obtaining the consent of such
person to such act or abstinence;
Implied i.e.
By conduct or implication
Illustrative Examples
Consideration
One of the essentials of a valid contract u/s 10 is the
existence of lawful consideration for each party to the
contract.
What exactly is the meaning of the term
consideration.
Section 2 (d) of the Indian Contract Act states that: when
at the desire of the promisor, the promisee or any other
person has done or abstained from doing or does or
abstain from doing or promises to do or abstain from doing
something then such act or abstinence or promise is the
consideration for the promise. From this definition the
following points emerge regarding consideration:
i. Consideration must be the same thing that is desired
by the promisor;
ii. Consideration may come from any other person than
the promisee;
iii. Consideration can be past, present or future;
Illustrative Examples
Later the mother of the MINOR filed a suit for setting aside
the Mortgage on the ground of competence to contract.
ISSUES
LEGAL POINTS
Section 10 of the Indian Contract Act 1872 clearly states
that the parties entering into a contract must be competent
to contract.
JUDGMENT
She filed a case against the Carbolic Smoke Ball Co for the
compensation of 100 Pounds
The ad was not a mere puff or a boast by the Carbolic Smoke Ball
Co of the particular statement in the ad 1000 is deposited with
the Alliance Bank, showing our sincerity in the matter. This
statement was a proof of sincerity on the part of the company to
pay.
Types of Contracts
iii. Sec 70: Obligations of person enjoying benefit of nongratuitous act.- Where a person lawfully does anything for
another person, or delivers anything to him, not intending
to do so gratuitously, and such other person enjoys the
Payment of Damages
1. A contracts to sell and deliver 50 tones of rice to B, at Rs
50,000/- to be paid on delivery. A subsequently breaks his
promise. B is forced to buy the same quality of rice from
C at Rs 60,000/-. B is entitled to receive from A, by way of
compensation, the sum of Rs 10,000 /- being the
difference between the price at which A was supposed to
sell and the price at which B bought from C.
2. A sells certain merchandise to B, warranting it to be of a
particular quality, and B, in reliance upon this warranty,
sells it to C with a similar warranty. The goods prove to be
not according to the warranty, and B becomes liable to
pay C a sum of money by way of compensation. B is
entitled to be reimbursed this sum by A.
3. A contracts to pay a sum of money to B on a day
specified. A does not pay the money on that day; B, in
consequence of not receiving the money on that day, is
Law of Agency
Law of Agency
5.
Duties of an Agent
1. Section 211: An agent is bound to conduct the business of
his principal according to the directions given by the
principal, or, in the absence of any such directions,
according to the custom which prevails in doing business
of the same kind at the place where the agent conducts
such business. When the agent acts otherwise, if any loss
be sustained, he must make it good to his principal, and, if
any profit accrues, he must account for it.
Case Illustration:
A, an agent engaged in carrying on for B a business, in
which it is the custom to invest from time to time, at
interest, the moneys which may be in hand, omits to
make such investment. A must make good to B the
interest usually obtained by such investments.
Duties of an Agent
2. Section 212: An agent is bound to conduct the business of
the agency with as much skill as is generally possessed by
persons engaged in similar business, unless the principal
has notice of his want of skill. The agent is always bound
to act with reasonable diligence, and to use such skill as
he possesses; and to make compensation to his 'principal
in respect of the direct consequences of his own neglect,
want of skill or misconduct, but not in respect of loss or
damage which are indirectly or remotely caused by such
neglect, want of skill or misconduct.
Illustration Case:
A, an agent for the sale of goods, having authority to sell on
credit, sells to B on credit, without making the proper and
usual enquiries as to the solvency of B. B, at the time of
such sale, is insolvent. A must make compensation to his
principal in respect of any loss thereby sustained.
Duties of an Agent
3. Section 213: An agent is bound to render proper accounts
to his principal on demand.
4. Section 214: It is the duty of an agent, in cases of
difficulty, to use all reasonable diligence in communicating
with his principal, and in seeking to obtain his instructions.
Termination of Agency
Section 201 of the Indian Contract Act, 1872 lays down the
law for the termination of agency.
An agency is terminated under any of the following events
happening:
1. by the principal revoking his authority; or
2. by the agent renouncing the business of the agency; or
3. by the business of the agency being completed; or
4. by either the principal or agent dying or becoming of
unsound mind; or
5. by the principal being adjudicated an insolvent under the
Section
202 stipulates
that
thebeing
agentin has
provisions
of any Act
forWhere
the time
forcehimself
for thean
interest
inofthe
property
which forms the subject-matter of the
relief
insolvent
debtors.
agency, the agency cannot, in the absence of an express
contract, be terminated to the prejudice of such
interest.
Illustration
A gives authority to B to sell A's land, and to pay himself, out of
the proceeds, the debts due to him from A. A cannot revoke this
Special Contracts
Guarantee / Indemnity/ LCs / Lien / Set off
1. Section 124 of the Indian Contract Act, 1872 defines a
"Contract of indemnity" as one in 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.
Illustration
A contracts to indemnify B against the consequences of
any proceedings which C may take against B in respect
of a certain sum of Rs 20,000 . This is a contract of
indemnity.
2. Section 126 defines a "Contract of guarantee", as a
contract to perform the promise, or discharge the
liability, of a third person in case of his default. The
person who gives the guarantee is called the " surety";
the person in respect of whose default the guarantee is
given is called the " principal debtor ", and the person to
Special Contracts
Guarantee / Indemnity/ LCs / Lien / Set off
1. Letters of Credit or LCs
When an importer wishes to import any material from a
foreign country the key issue arises which is that neither
the importer wants to pay upfront nor does the exporter
want to ship the consignment before receiving the
payment. This paradoxical situation is solved through
the medium of an LC. The importer gets an LC opened
with his bank in favour of the exporter and the bank
validates the credit of the importer under which the
importers bank undertakes to pay the exporters bank
on submission of the proof of dispatch, subject to the
fulfillment of certain other conditions.
2. Agreement of Lien
Lien means having the first right on a property before it
can be sold. Generally banks hold the first lien on the
property of its borrowers to prevent them from selling it.
Lien is created on immovable property by a mortgage
Compensation
Every element of the compensation payable to the
Benefits
Spell out the new employee's benefit package in detail in
the contract. Also cover other items such as holidays,
vacations, stock options, any profit sharing your company
offers and retirement plans you provide for employees.
Termination
The situations leading to termination of employment as also
the resignation by the employee from the services of the
company as also procedure and process of relieving,
settlement of account and furnishing of experience
certificate should be mentioned in the contract in full
details.
Case Study 1
Breach of Contract
X is working for an R&D based organization in Bangalore. In
this company, freshers are asked to execute 2 yrs bond at the
time of joining. The bond is signed by X, along with 2
witnesses and executed on a 100 Rs bond paper. Under the
bond an employee has to pay a compensation equivalent to
one year CTC to the company in case he or she does not
complete the period of 2 years as committed in the Bond. Mr
X has completed one year with the company and has given his
resignation letter as he wants to go for higher studies under a
full time M Tech Program.
Legal Issues:
a. Is such a bond valid in India?
b. Can the company recover the compensation from X?
c. What options are available to X who has already resigned
from the company?
Case Study 1
Breach of Contract
Sole Proprietorship
Partnerships LLPs
HUFs
Societies Legal formalities and Registration Rights and liabilities of members
80
81
Conventional Partnerships
Salient Features of a conventional Partnership
i. Governed by the Indian Partnership Act 1932
ii. Can be Registered or Unregistered
iii. Unlimited liability on each partner for the acts of
every other partner and the firm;
iv. In case of Unregistered firms there are further
disabilities like inability to claim money from a third
party against contracts etc
v. Maximum number of partners not to exceed 20,
incase of banks 10
82
85
86
HUFs
Salient Features of a HUF
i. Family venture;
ii. Headed by the Karta of the family - male family
head;
87
89
Basics
Features of a Co Advantages of a Corporate Entity
Separate Entity Concept Types Difference between
Public & Private Cos.
90
Se
c
Provision of Companies
Act, 2013
Impact
Implementa
tion
Time
2(41)
March,
12
A company is required
to disclose the
following (a) Full name of the Co
(c) Address of its regd
office
(d) Corporate Identity
Remarks
Se
c
3.
93
Provision of Companies
Act, 2013
Implementati
on
Time
Change in promoter shareholding
Impact
Mechanism to monitor
shareholding of
promoters and top 10
shareholders should
be in place.
101
Earlier,
holding
of
Annual
General
Meetings at a shorter
notice required the
approval of 100% of
the members entitled
to
vote
at
such
meeting
of
the
company.
Earlier, Extra-ordinary
general
meetings
could have been held
Remarks
Sec
Impact
103
Consolidation of Accounts
6.
129
The
2013
Act
now
mandates
consolidated financial statements for
any co having a subsidiary and their
adoption at the AGM of the company.
The financial statements to be placed
before annual general meeting shall
include
a
separate
statement
If
consolidation
of
associate
is
not
possible, reasons for the
same will have to be
stated.
Remarks
Sec
Impact
Implementation
Time
135
A company is required
to comply with this
provision based on the
threshold limits in the
audited
financials
commencing from 1st
April, 2014
A CSR Committee
consisting of (3) or
more directors, out
of which at least
one (1) director
should
be
an
independent
director is reqd to
be
constituted in
the ensuing Board
Meeting.
138
A company may be
required to appoint an
Internal
Auditor
depending
on
the
aforesaid limits.
A
company
is
required to appoint
an Internal Auditor
within 6 months
i.e.
by
30th
September, 2014.
Sec
Impact
Implementation
Time
139
Listed
and
unlisted
public
companies having paid up share
capital of INR 100 million or public
borrowings/ deposits of INR 500
million
or more shall rotate its
Auditors. After 1 term of 5 years in
case of individual Auditor and after
2 terms of 5 years in case of an
Audit Firm.
Private ltd companies with a paid up
share capital of INR 200 million or
more and companies with public
A company may
be required to
rotate its current
Auditors.
Se
c.
Provision of Companies
Act, 2013
Impact
Implementat
ion
Time
14
9
(1)
The
woman
director
is
required to be
appointed on
or before 31st
March, 2015.
Resident Director
11.
14
9
(3)
Every company shall have at Every company will now require to 1st April, 2014
least one (1) director who appoint a Resident Director
has stayed in India for a total
period of not less than one
hundred
and
eighty-two
(182) days in the previous
calendar year.
Sec
12
.
149
(4)
Provision of Companies
Act, 2013
Impact
Implementati
on
Time
Appointment of Independent Directors
Remarks
IDs are In
case
a
Listed companies shall have A listed company is The
is
at least one-third of its Board required to have at required to be company
to
as Independent Directors least one-third of the appointed on or required
st
IMPACT OF THE COMPANIES
2013 ON
total number ofACT,
its before
31 appoint
(IDs).
directors
asPUBLIC
IDs. Any March,
2015.
higher
ESSAR GROUP [LISTED
AND
COMPANIES]
number
of
Unlisted public companies fraction contained in
one-third
IDs due to
having paid up share capital such
shall
be
composition
of INR 100 million or more or number
of its Audit
turnover of INR 1 billion or rounded off as one.
Committee,
more
or
borrowings
such higher
exceeding 500 million shall
board
number
of
have at least two directors Review
to
IDs shall be
as Independent Directors constitution
rd
ensure at least 2/3
applicable to
(IDs).
of the total directors
such
companies.
Term
of
Independent liable to retire by
under
Directors fixed for 5 years rotation
152
with 5 year extension with section
approval
by
special excluding IDs.
resolution.
Retirement by rotation not
applicable
Se
c
Impact
Implementati
on
Time
Duties of Directors
13.
16
6
Board Meetings
14.
17
4
to
Se
c
Provision of
Companies Act, 2013
Impact
Implementatio
n
Time
Remarks
Audit Committee
15.
177
Every
listed
and
unlisted
public
company having paid
up capital of INR 100
million or more or
turnover of INR 1 billion
or more or which have,
in
aggregate,
outstanding loans or
borrowings
or
debentures or deposits
exceeding
INR
500
million shall constitute
an Audit Committee.
The Audit Committee
shall consist of at least
3
directors majority
being IDs.
A company may be
required to constitute an
Audit
Committee
depending
on
the
thresholds prescribed.
A company is
reqd to have at
least 2 IDs on its
board within one
For the purpose, a year from the
minimum of 2 IDs are commencement
required
to
be of the Act i.e., by
appointed.
31st
March,
2015.
In
case
a
company
is
required
to
appoint
higher
number
of
IDs due to
composition
of its Audit
Committee,
such higher
number
of
IDs shall be
applicable to
such
companies.
Sec
Provision of Companies
Act, 2013
Impact
177
17.
17
8
Implementat
ion
Time
Every listed company and (i) A company may be required to 1st April, 2014
companies which accept deposits constitute a Vigil Mechanism based
from the public; and (ii) companies on the thresholds prescribed.
which have borrowed money from
banks
and
public
financial Review current Whistle Blower
institutions in excess of INR 500 Policy of the company.
million shall establish a vigil
mechanism for their directors and Align with the new requirements
employees to report their genuine such as incorporating the provision
of access to the Chairman of the
concerns or grievances.
The vigil mechanism shall provide Audit Committee in appropriate or
for adequate safeguards against exceptional cases.
victimization of persons who use
such mechanism. The company
should disclose the details of
establishment
of
such
vigil
Nomination
and
Remuneration
Committee (NRC)
mechanism on its website, if any,
and
in the
Boards
Every
listed
and report.
unlisted public A company may be required to 1st April, 2014.
company having paid up capital of constitute a NRC depending on the
INR 100 million or more or thresholds prescribed.
A company is
turnover of INR 1 billion or more or
required
to
which
have,
in
aggregate,
have at least 2
outstanding loans or borrowings or
IDs on its board
debentures or deposits exceeding
within one year
INR 500 million shall constitute a
from
NRC.
commencemen
The NRC shall consist of 3 or more
t of the Act i.e.,
non-executive Directors out of
by 31st March,
Sec
Provision of Companies
Act, 2013
Impact
18
0
Remarks
Sec
Provision of Companies
Act, 2013
Impact
Remarks
Sec
Impact
Remarks
186
"Investment
Company" has
been defined
to
mean
a
company
whose
principal
business is the
acquisition of
shares,
debentures or
other
securities.
Note: WOS
means
Wholly
owned
Subsidiary
Sec
Provision of
Companies Act, 2013
Impact
Remarks
18
8
There is no requirement of
obtaining
Central
Government approval for
related party transactions.
Approval of related party
transactions by board of
directors at board meeting
has been made mandatory.
No approval
of
Central
Government
is required for
entering into
related party
transactions.
Se
c
Impact
18
8
Related
party,
with
reference to a company,
means
(i) a director or his relative;
(ii)
a
key
managerial
personnel or his relative;
(iii) a firm, in which a director,
manager or his relative is a
partner;
(iv) a private company in
which a director or manager is
a member or director;
(v) a public company in which
a director or manager is a
director or holds along with
his relatives, more than two
per cent. of its paid-up share
capital;
(vi) any body corporate whose
Board of Directors, managing
director
or
manager
is
accustomed
to
act
in
accordance with the advice,
directions or instructions of a
director or manager;
Remarks
Sec
Impact
188
(iii)
remuneration
for
underwriting the subscription of
any securities or derivatives
thereof
of
the
company
exceeding one (1) percent of net
Remarks
Se
c
Provision of Companies
Act, 2013
Impact
Implementati
on
Time
Appointment of Key Managerial Personnel [KMP]
2
2
203
If
a
companys
capital is more than
the
prescribed
limited,
then
company
is
required to appoint
KMPs.
This section or
rules does not
specify
any
transition
period.
A
company
is
required
to
comply with this
provision
immediately.
Secretarial Audit
2
3
204
If
a
companys
capital or turnover
is more than the
prescribed limited,
then company
is
required to comply
with this provision.
A company shall
have to comply
basis
the
Audited
financials of 31st
March, 2014.
Remarks
108
Incorporation of a Company
Section 3 (1): A company may be formed for any lawful
purpose by:
a. seven or more persons, where the company to be formed is
to be a public company;
b. two or more persons, where the company to be formed is to
be a private company; or
c. one person, where the company to be formed is to be One
Person Company that is to say, a private company,
by subscribing their names or his name to a memorandum and
complying with the requirements of this Act in respect of
registration.
118
Provisions Relating to
Prospectus under the
Companies Act 2013
Separate Handout
123
124
125
126
127
Dividends
Question 1
The shareholders at an annual general meeting unanimously passed a
resolution for payment of dividend at a rate higher than that
recommended by the directors. Discuss the validity of the resolution.
Answer
Under section 102 (2) of the Companies Act, 2013 one of the
businesses transacted thereat is the declaration of dividend. The
dividend approved by the shareholders must be at the rate
recommended by the Board of Directors. The shareholders do not have
the right to modify the rate. They can only approve the dividend as
recommended by the Board; hence the resolution is invalid in the given
case.
128
Question 2
Advise on the following situations:
(i) A company wants to transfer more percentage of profits to
reserves.
Answer
i. The first proviso to 123 (1) of the Companies Act, 2013 provides
that a company may, before the declaration of any dividend in any
financial year, transfer such percentage of its profits for that
financial year as it may consider appropriate to the reserves of the
company. Therefore, under the new Companies Act, 2013 the
amount transferred to reserves out of profits for a financial year
has been left at the discretion of the company acting vide its Board
of Directors. Therefore the company is free to transfer any part of
its profits to reserves as it deems fit.
129
Question 4
Advise on the following situations:
(iii) A company wants to provide depreciation higher than the rates
provided in Schedule II of the Companies Act, 2013.
Answer
iii. The rates contained in Schedule II of the Companies Act, 2013 are
the minimum rates below which companies are not permitted to
charge for depreciation and therefore there is no bar in providing a
higher rate of depreciation. However, it is advisable to give a
statement to the effect that the management has estimated life of
the asset which requires higher rate of depreciation to be provided
than rates prescribed under schedule II of the Companies Act,
2013.
131
Question 5
The Board of directors of M/s RPP Ltd. in a meeting held on 30th April 2012 declared an
interim dividend payable on the paid up equity share capital of the company. In the board meeting
scheduled for 15th May 2012, the board wants to revoke the said declaration. State with reference to
the provisions of the Companies Act, 2013 whether the board of directors can do so?
Answer
Under section 2 (35) of the Companies Act, 2013 dividend includes any interim dividend. Interim
dividend means the dividend declared during the financial year. A company may declare interim
dividend any number of times in a financial year. The interim dividend is merely a distribution of
profits of a company earned during the financial year without waiting for the declaration of the
dividend at the AGM which is held much after the end of the financial year.
Generally, when companies earn bumper profits during a financial year and expect to continue to do
so through out the year, the Board of Directors may declare interim dividend during the financial
year out of surplus in profit and loss account.
The 2013 Act, however, imposes a restriction on the declaration of interim dividend that in case a
company has incurred loss during the current financial year, up to the end of the quarter
immediately preceding the date of declaration of the interim dividend, then the interim dividend
cannot be declared at a rate higher than the average dividends declared by the company during the
immediately preceding three financial years [section 123(3) of the 2013 Act].
132
There are no limitations to the declaration of interim dividend out of current years profits by the
Board of Directors under the Companies Act, 2013 and the directors may do so by passing a
Board Resolution at a Board Meeting.
Having clarified the above provisions under section 2013, regarding the power of the board to
revoke the declaration of interim dividend, the answer is that the Board may revoke the payment
of interim dividend by a resolution at a Board Meeting. The reason for this is that interim dividend
is not a debt and it is a settled matter of law that in case of an interim dividend which the directors
have resolved to pay, they have an option at any time before the payment to review their decision
and resolve not pay.
133
Management of Companies
Key Managerial Personnel Appointment of Directors Duties
and Liabilities of Directors Meetings of Members Board
Meetings
Key Managerial Personnel: Under section 2 (51) of the Cos Act 2013,
the KMP have been defined to include:
I. CEO, MD or Manager of the company;
II. Company Secretary;
III. Whole Time Director
IV. CFO; and
V. Any other officer as may be prescribed
Manager as defined in section 2 (53) means an individual who,
subject to the superintendence, control and direction of the Board of
Directors, has the management of the whole, or substantially the
whole, of the affairs of a company, and includes a director or any other
person occupying the position of a manager, by whatever name called,
whether under a contract of service or not;
Managing Director as defined in section 2 (54) means a director who,
by virtue of the articles of a company or an agreement with the
company or a resolution passed in its general meeting, or by its Board
of Directors, is entrusted with substantial powers of management
134 of
Meetings of Members
ANNUAL GENERAL MEETING
Section 96 (1): Every company other than a One Person Company shall
in each year hold in addition to any other meetings, a general meeting as
its annual general meeting and shall specify the meeting as such in the
notices calling it, and not more than fifteen months shall elapse between
the date of one annual general meeting of a company and that of the
next:
Provided that in case of the first annual general meeting, it shall be held
within a period of nine months from the date of closing of the first
financial year of the company and in any other case, within a period of six
months, from the date of closing of the financial year:
Provided further that if a company holds its first annual general meeting
as aforesaid, it shall not be necessary for the company to hold any annual
general meeting in the year of its incorporation:
Provided also that the Registrar may, for any special reason, extend the
time within which any annual general meeting, other than the first annual
135
general meeting, shall be held, by a period not exceeding three months.
Meetings of Members
ANNUAL GENERAL MEETING
Section 96 (2): Every annual general meeting shall be called during
business hours, that is, between 9 a.m. and 6 p.m. on any day that is not
a National Holiday and shall be held either at the registered office of the
company or at some other place within the city, town or village in which
the registered office of the company is situate:
Provided that the Central Government may exempt any company from
the provisions of this sub-section subject to such conditions as it may
impose.
Explanation. For the purposes of this sub-section, National Holiday
means and includes a day declared as National Holiday by the Central
Government.
136
Meetings of Members
ANNUAL GENERAL MEETING
Section 97 (1): If any default is made in holding the annual general
meeting of a company under section 96, the Tribunal may,
notwithstanding anything contained in this Act or the articles of the
company, on the application of any member of the company, call, or
direct the calling of, an annual general meeting of the company and give
such ancillary or consequential directions as the Tribunal thinks
expedient:
Provided that such directions may include a direction that one member of
the company present in person or by proxy shall be deemed to constitute
a meeting.
137
Meetings of Members
ANNUAL GENERAL MEETING Business to be transacted
Section 102 (2)
(a) in the case of an annual general meeting, all business to be
transacted thereat shall be deemed special, other than
(i) the consideration of financial statements and the reports of the Board
of Directors and auditors;
(ii) the declaration of any dividend;
(iii) the appointment of directors in place of those retiring;
(iv) the appointment of, and the fixing of the remuneration of, the
auditors; And
(b) in the case of any other meeting, all business shall be deemed to be
special:
Meetings of Members
ANNUAL GENERAL MEETING Business to be transacted
Section 102 (1): A statement setting out the following material facts
concerning each item of special business to be transacted at a general
meeting, shall be annexed to the notice calling such meeting, namely:
(a)
(b) any other information and facts that may enable members to
understand the meaning, scope and implications of the items of
business and to take decision thereon.
139
Meetings of Members
EXTRAORDINARY GENERAL MEETING
Section 100 (1): The Board may, whenever it deems fit, call an
extraordinary general meeting of the company.
Section 100 (2) The Board shall, at the requisition made by,
(a) in the case of a company having a share capital, such number of
members who hold, on the date of the receipt of the requisition, not less
than one-tenth of such of the paid-up share capital of the company as on
that date carries the right of voting;
(b) in the case of a company not having a share capital, such number of
members who have, on the date of receipt of the requisition, not less
than one-tenth of the total voting power of all the members having on the
said date a right to vote, call an extraordinary general meeting of the
company within the period specified in subsection (4).
Section 100 (3): The requisition made under sub-section (2) shall set
out the matters for the consideration of which the meeting is to be called
and shall be signed by the requisitionists and sent to the registered office
of the company.
140
Meetings of Members
EXTRAORDINARY GENERAL MEETING
Section 100 (4): If the Board does not, within twenty-one days from the
date of receipt of a valid requisition in regard to any matter, proceed to
call a meeting for the consideration of that matter on a day not later than
forty-five days from the date of receipt of such requisition, the meeting
may be called and held by the requisitionists themselves within a period
of three months from the date of the requisition.
144
Section
164 of the
2013 provides
forthe
disqualifications
a
Disqualifications
forCompanies
appointmentAct,
of director
(Sec 164 of
Companies Act, for
2013)
person to be appointed as a director of a company.
(i) A person cannot be appointed as director of a company if:
(a) he is of unsound mind and stands so declared by a competent
court;
(b) he is an undischarged insolvent;
(c) he has applied to be adjudicated as an insolvent and his
application is pending;
(d) he has been convicted by a court of any offence, whether
involving moral turpitude or otherwise, and sentenced in respect
thereof to imprisonment for not less than six months and a period
of five years has not elapsed from the date of expiry of the
sentence.
However, if a person has been convicted of any offence and sentenced
in respect thereof to imprisonment for a period of seven years or
more, he shall not be eligible to be appointed as a director in any
company
(e) an order disqualifying him for appointment as a director has been
passed by a court or Tribunal and the order is in force;
(f)
he has not paid any calls in respect of any shares of the company
held by him, whether alone or jointly with others, and six months
have elapsed from the last day fixed for the payment of the call;
(g) he has been convicted of the offence of dealing with related party
transactions under section 188 at any time during the last
preceding five years; or
Disqualifications for appointment of director (Sec 164 of the Companies Act, 2013)
ii. No person who is or has been a director of a company which
(a)has not filed financial statements or annual returns for any
continuous period of three financial years; or
(b)has failed to repay the deposits accepted by it or pay interest
thereon or to redeem any debentures on the due date or pay
interest due thereon or pay any dividend declared and such
failure to pay or redeem continues for one year or more,
shall be eligible to be re-appointed as a director of that company or
appointed in other company for a period of five years from the
date on which the said company fails to do so.
For ex: XYZ Ltd. has not filed the financial statements or Annual
Return for 4 years. Mr. A is the director of XYZ Ltd. Thus, Mr. A is
not eligible for re-appointment in XYZ Ltd. and also he is not
eligible to be appointed as director in any other company.
iii. A private company may by its articles provide for any
disqualifications for appointment of a person as a director therein,
in addition to those specified in sub-sections (1) and (2) of section
164 as stated above.
Nothing in this section shall be deemed to give validity to any act done by the director after
his appointment has been noticed by the company to be invalid or to have terminated.
Board Meetings
Section 173 of the Companies Act, 2013 lays down the following
provisions in respect of the meetings of the Board of Directors:
i. Frequency of Board Meetings [Section 173 (1)]:
ii. First Board meeting: Every company shall hold the first meeting of
the Board of Directors within 30 days of the date of its
Incorporation.
iii. Subsequent Board meetings: Every company shall hold minimum
of 4 meetings every year provided that the gap between two
consecutive board meetings shall not be more than 120 days.
However, the Central Government may by notification, direct that
these provisions will not apply in relation to any class or descriptions
of companies or will apply in relation thereto subject to such
exceptions, modifications or conditions as may be specified in the
notification.
Board Meetings
Participation in Board meeting [Section 173 (2)]:
(a)
Sub section (2) of section 173 allows directors to attend Board meetings,
(b) In person, or,
i.
through video conferencing, or,
ii. other audio visual means as may be prescribed.
(b)
Such audio visual means should be capable of recording and recognizing the participation of
the directors and of recording and storing the proceedings of such meetings along with date
and time.
(c)
However, the Central Government may by notification specify such matters which shall not be
dealt with in a meeting through video conferencing and other audio visual means.
Meetings of Members
There are 2 types of meetings of members of a company
Annual General Meeting; AND
Extraordinary General Meeting
Some key provisions relating to the meeting of members are as
under:
Section 101: Notice of the meeting must be given at least 21
clear days before the date of the meeting;
The notice must be sent in writing or by any other electronic
mode;
Notice of every meeting must be sent to every member,
director and auditors of the company;
Sec 101: In the case of any special business to be transacted at
a meeting of members a statement must be annexed to the
Notice giving full information and details on every item of
special business to enable the members to vote on the same in
an informed manner.
Sec 103: the meeting will not be valid if the prescribed quorum
is present through out the meeting. The quorum for a valid
meeting is as under:
161
162
Income Tax
Wealth Tax
Excise Duty
Customs Duty
Sales Tax
VAT
Service Tax.
163
Genesis of Taxation
Taxes
Establishment
are the sources
Costs
of funding the expenditure of Governments. In th
Salaries of Govt
Employees &
establishment
costs
Indian
Railways,
Posts &
Telegraph Etc
Food Bill,
Manrega,
Road
Construction
etc
Incom
e Tax
Gift
Tax
Wealth
Tax
Abolished
by Union
Budget
2015
Sales
Tax /
VAT
Servic
e Tax
GST
Excis
e
Duty
Custo
m Duty
166
Who is an Assessee?
Under section 2 (7) of the Income Tax Act, 1961 the term
"assessee means a person by whom any tax or any
other sum of money is payable under this Act, and
includes every person:
a. in respect of whom any proceeding under this Act has
been taken for the assessment of his income or
assessment of fringe benefits or of the income of any
other person in respect of which he is assessable, or of
the loss sustained by him or by such other person, or
of the amount of refund due to him or to such other
person; OR
b. who is deemed to be an assessee under any provision
of this Act ; OR
c. who is deemed to be an assessee in default under any
provision of this Act ;
ICAI,
Under section 3 of the Income Tax Act 1961 "previous year" mean
ICAI,
Question 1
A starts a business on 1st July 2015 . Indicate the first
previous year of A and the Assessment Year relevant to
that previous year. Also indicate the Union Budget which
will determine the relevant Ass Year in this case.
Question 2
What is the current previous year and the assessment year for a
salaried person.
Answer
The current previous year of a salaried person is the financial
year 15-16 i.e. the period of 12 months from 1st Apr 16 to 31st
Mar 17 and the Assessment Year will be 2017-18
ICAI,
ICAI,
ICAI,
A. Resident in India
ICAI,
Additional Conditions
for determining
Residential Status in
India
Min Stay in
Additional
Additional
Min Stay in
India for an
Condition 1 - Condition 2 India for an
aggregate
Resident in
Min Stay in
aggregate
period of
India for at
India for an
period of 365
182 days in
least 2 prev aggregate of
days in the 4
the
yrs in the 730 days in 7
preceding
Previous
preceding 10
preceding
Prev Years
Year
Prev Years Previous Years
Must be
Complied
Must be
complied
ICAI,
Note: Control and management means de facto control and management and not
merely the right to control or manage. Control and management is situated at
a place where the head, the seat and the directing power are situated.
ICAI,
Resident in India
Non Resident in
India
ICAI,
QQ 3:
From the following residential data of Mr
A in India, determine the residential status
of Mr A for the Assessment Year 2016 - 17
Sl
1
2
3
4
5
6
7
8
9
10
11
No of
Financial
Days in
Year
India
2015 -16
177
2014 - 15
40
2013 - 14
200
2012 13
130
2011 - 12
45
2010 - 11
75
2009 - 10
186
2008 - 09
183
2007 - 08
150
2006 - 07
118
2005 - 06
78
ICAI,
ICAI,
Question 4
X Ltd was incorporated in New York in 2012. In June 2013
it set up a business office in New Delhi. The business
office in Delhi manages a auto parts plant set up in
March 2014 which started commercial production on 1st
June 2014. The company is managed by the Board of
Directors based in New York. However, the company has
posted a Managing Director for heading its Indian
Operations, a CFO and a Legal Advisor who are all
members of a Management Committee which reports to
the Board of Directors and works under its supervision.
Determine the Residential Status of X Ltd for the
Under section 6 of the Income Tax Act, 1961 a company incorporated in
Previous Year 2015 - 16
Not Ordinarily
Resident
Non Resident
Taxable
Taxable
Taxable
Not Taxable in
India
Not Taxable in
India
Not Taxable in
India
Taxable
Not Taxable in
India
Not Taxable in
India
Not Taxable in
India
Not Taxable in
India
Not Taxable in
India
Resident
A. Indian Income
Taxable
B. Foreign Income is taxable
as under:
a. Business income which
is controlled wholly or
Taxable
partly from India
Resident
Not Ordinarily
Resident
Non Resident
A. Indian Income
Taxable
Not Applicable
Taxable
B. Foreign Income
Taxable
Not Applicable
Not Taxable in
India
Various
situations of
earning of
Income
Classification of
Income
Income
Income
Income accruing
Income
accruing or accruing or
or arising (or
accruing or
arising outside arising in deemed to accrue
arising in India
India but
India but
or arise outside
and also
received in
received
India) and
received in
India during outside India received outside
India during the
the Previous during the
India in the
Previous Year
Yr
Previous Yr
Previous Yr
Indian Income
Foreign Income
Under the Income Tax Law all incomes which are taxable at the han
186
187
Summary of Relief /
Concessions
under the Income Tax Law
Indirect
Taxes
Indirect
Taxes
The Road
Ahead
Excise Duty
Annual Union Finance Acts (The Union Budgets): Once the Annua
Trade notices / Clarifications: Trade notices are issued by the Excise Dep
Excisable Goods
Manufacture defined
Who is a Manufacturer?
Basics
The First Schedule of the Customs Tariff Act, 1975 lays down the rates o
Classification of import / export goods may be defined as the grouping and sub g
Applicability of CST
Constitutional Framework
Central
CST
Departmental
Annual
Trade
Rules
Notices
Union
Sales
issued
Tax
Fin
and
Circulars
Acts
under
Act,
Clarifications
1956
or&
the
Union
Instructions
CSTBudgets
Act,
Issued
1956
Issued
for giving
for ensuring
clarity touniformity
trade for cor
&
Charge of CST
CST Act, 1956 extends to the whole of India
Key Terms
Goods
Sale
Conventional Sale
Deemed Sale
Interstate Sale
Interstate Sale
Interstate Sale
Rates of CST
Section 8 (1)
Rates of CST
Turnover
CST is levied on the turnover of a registered dealer. From the total turno
Concept
Variants of VAT
Gross Product Variant: Tax is levied on total sales and deduction by way
VAT in India
Excise Duty - Modvat to
Cenvat
VAT
In
The
With
2000
2002,
was
VAT
theMODVAT
on
VAT
first
above
services
was
introduced
integration
was
introduced
was
substituted
in
integrated
1986
the
onEXCISE
cascading
services
as
with
Modified
into
CENVAT
DUTY
CENVAT
also
effect
Value
Payable
thereby
or
Central
in dual
Added
2004
on
allowing
or
VAT
manufacture
which
Tax
multiple
(Modvat)
applicabl
Service
meant
taxor
Ti
VAT in India
State Level VAT
After the introduction of VAT in the manufacture and the Services sector
VAT in India
Goods covered and
exempt
Generally all goods are covered under VAT and are allowed input tax cre
VAT in India
Input / Output Tax
Input Tax
Output Tax
VAT in India
VAT in Lease
Transactions
VAT in India
VAT in Hire Purchase Transactions
The final reform in the Tax Laws in the country will be to have a single
C 3 Test 75 Minutes
15 Mins (out of which 5 marks if attendance >75%)
Lecture - 24
Law
Environmental
protection is a
fundamental duty of
every citizen
The Forest
Hazardous Wastes
(Management &
Handling)
Amendment Rules,
2003
Bhopal gas tragedy is, till date, the worlds worst industrial
disaster. The Bhopal Gas Tragedy was a major leak of toxic
chemical gases occurred from the Union Carbide chemical plant in
the city of Bhopal in 1984. The Environment Protection Act, 1986
came into force soon after the Bhopal Gas Tragedy.
Definitio
ns
Arbitration
Agreement
Composition
Arbitral
Tribuna
l
Jurisdictio
n
Arbitration
Awards &
Termination
of
Proceedings
Finality
and
Enforcem
ent of
Award
Conduct of
Proceedings
Recours
e&
Appeals
C 4 Test 75 Minutes
Field Project Presentations
Lecture - 30