Search for notes by fellow students, in your own course and all over the country.
Browse our notes for titles which look like what you need, you can preview any of the notes via a sample of the contents. After you're happy these are the notes you're after simply pop them into your shopping cart.
Title: what is business built on nowadays
Description: High profits come from abnorml thinking.
Description: High profits come from abnorml thinking.
Document Preview
Extracts from the notes are below, to see the PDF you'll receive please use the links above
Lesson 1
BUSINESS AND ITS ENVIRONMENT
NATURE OF BUSINESS
Business may be understood as the organized efforts of enterprise to
supply consumers with goods and services for a profit
...
But, all businesses
share the same purpose: to earn profits
...
There are:
•
It is an important institution in society
...
Hence, it is understood that the role of business is crucial
...
It needs no emphasis that business needs society as much
...
If there is any single word that can best
describe today’s business, it is change
...
Mass production and mass marketing are the norms followed by business
enterprises
...
100 crore
each was only three in 1969-70
...
Today’s business is characterized by diversification, which may be:
Concentric Diversification - It refers to the process of adding new, but relates
products or services
...
Conglomerate Diversification - It refers to adding new and unrelated products
or services
...
Business houses are exposed to global competition, which argues well for
consumers
...
BUSINESS IN 21ST CENTURY
Large organizations, with a large workforce will not exist
...
Business during the 21st century will be knowledge-based,
tomorrow’s manager need not spend his time on file pushing and paper-shufling
...
Organizations will
become flat
...
Employees will have
no definite jobs
...
Remuneration
will depend on one’s contribution to organization
...
Growth - Business should grow in all directions over a period of time
...
These resources
confer enormous economic and political power
...
Caring
for employee satisfaction and providing for their development has been
one of the objectives of enlightened business enterprises
...
Market Leadership - To earn a niche for oneself in the market,
innovation is the key factor
...
Joy of creation - It is through business strategies new ideas and
innovations are given a shape and are converted into useful products and
services
...
BUSINESS ENVIRONMENT
Environment refers to all external forces, which have a bearing on the
functioning of business
...
The business environment poses threats to a firm or offers
immense opportunities for potential market exploitation
...
There are two more factors, which exercise
considerable influence on business
...
3
Technological Environment
Technology is understood as the systematic application of scientific or other
organized knowledge to practical tasks
...
Economic Environment
There is close relationship between business and its economic environment
...
Political Environment
It refers to the influence exerted by the three political institutions viz
...
A stable and dynamic political environment is indispensable
for business growth
...
To
what extend business depends on nature and what is the relationship between the
two constitutes an interesting study
...
Business responses and managerial practices must be
fine-tuned to survive in the global environment
...
ENVIRONMENT – BUSINESS RELATIONS
Business is the product of the technological, political-legal, economic, social –
cultural, global and natural factors amidst which it functions
...
•
There is symbolic relationship between business and its environment and
among the environmental factors
...
Similarly, political-legal environment influences
economic environment and vice versa
...
•
These environmental forces are dynamic
...
•
The third feature is that a particular business firm, by itself, may not be
in a position to change its environment
...
IMPORTANCE OF ENVIRONMENTAL STUDY
The benefits of environmental study are as follows;
•
•
•
•
•
Development of broad strategies and long-term policies of the firm
...
To foresee the impact of socio-economic changes at the national and
international levels on the firm’s stability
...
To keep oneself dynamic
...
It frequently involves following signals or indicators unearthed during
environmental scanning
...
Naturally, forecasting is
an essential element in environmental analysis
...
Assessment
In assessment, the frame of reference moves from understanding the
environment- the focus of scanning, monitoring and forecasting – to
identify what the understanding means for the organization
...
6
Lesson 2
CORPORATE GOVERNANCE, SOCIAL RESPONSIBILITY AND
BUSINESS ETHICS
CORPORATE GOVERNANCE
Corporate failures and widespread dissatisfaction with the way many corporate
functions have led to the realization, globally, of the need to put in place a
proper system for corporate governance
...
The governance framework is there to encourage the efficient use of
resources and equally to require accountability for the stewardship of
those resources
...
The incentive to corporations and to those who
own and manage them to adopt internationally accepted governance
standards is that these standards will help them to achieve their corporate
aims and to attract investment
...
RELEVANCE
At least three reasons have triggered off concern in corporate governance
in our country
...
Several instances of mismanagement have been
alleged, with some well-known and senior executive being hauled
7
up for non-performance and /or non-compliance with legal
requirements
...
They seek information and want to
influence decisions
...
Several MNCs have sought to
set up 100 percent subsidiaries and transfer their businesses to
them
...
In this context, some norms of behavior to ensure responsive behavior
are of great help
...
FOCUS
Corporate governance is concerned with the values, vision and visibility
...
Corporate management is concerned with the efficiency of the resources use,
value addition and wealth creation within the broad parameters of the corporate
philosophy established by corporate governance
...
In other words
they have a system of good corporate governance
...
•
Corporate governance prevents insider trading
...
•
The principle should be ‘disclose or desist’
...
•
Good corporate governance is considered vital from medium and longterm perspectives to enable firms to compete internationally in sustained
way and make them, not only to improve standard of living materially
but also to enhance social cohesion
...
•
Vision, principles and norms, which indicate development path,
normative considerations, and guidelines and norms for performance
...
9
SOCIAL RESPONSIBILTY
Social responsibility is the obligation of decision-makers to take actions, which
protect and improve the welfare of society as a whole along with their own
interests
...
Be it deciding on diversification, expansion, opening of a new branch, and
closure of an existing branch or replacement of men by machines, the society is
affected in one way or the other
...
ARGUMENTS FOR SOCIAL RESPONSIBILITY
•
Business has to respond to the needs and expectations of society
...
•
Social responsibility discourages additional governmental regulation and
intervention
...
•
Internal activities of the enterprise have an impact on the external
environment
...
•
Social responsibility creates a favorable public image
...
10
•
It is better to prevent social problems through business involvement than
to cure them
...
•
Social responsibility would create excessive costs for business
...
•
Business people lack the social skills necessary to deal with the problems
of society
...
SOCIAL STAKEHOLDERS
Managers, who are concerned about corporate social responsibility, need to
identify various interest groups which may affect the functioning of a business
organization and may be affected by its functioning
...
These groups are called interest groups or social stakeholders
...
11
SOCIAL RESPONSIVENESS
Social responsiveness (SR) is “the ability of a corporation to relate it operations
and policies to the social environment in ways that are mutually beneficial to the
company and to society”
...
The need to measure the social responsiveness of an organization
led to the concept of social audit
...
The term
12
ethics commonly refers to the rules or principles that define right and wrong
conduct
...
Business ethics is concerned with truth and
justice and has a variety of aspects such as expectations of society, fair
competition, advertising, public relations, social responsibilities, consumer
autonomy, and corporate behavior in the home country as well as abroad
...
They seek to succeed only within the ideas of fairness, and justice
...
The moral
management approach is likely to be in the best interests of the organization,
long run
...
It ignores ethical considerations
...
•
Intentional amoral managers exclude ethical issues because they think
that general ethical standards are not appropriate to business
...
Immoral management
Immoral management is synonymous with “unethical” practices in
business
...
13
NEED FOR BUSINESS ETHICS
•
Ethics corresponds to basic human needs
...
These basic ethical need compel the organizations to be ethically
oriented
...
A company perceived by the public
to be ethically and socially responsive will be honored and respected
...
•
An ethical attitude helps the management make better decisions, because
ethics will force a management to take various aspects- economic, social,
and ethical in making decisions
...
•
Ethics is important because the government, law and lawyers cannot do
everything to protect society
...
•
Tell the Truth: To build and maintain long-term, trusting and win-win
relationships with relevant stockholders
...
•
Adhere to the golden rule: “Do unto others as you would have others
do unto you”
•
Premium Non-Nocere: (Above all, do no harm)
14
•
Allow Room for participation: Soliciting the participation of
stakeholders rather than paternalism
...
•
Always Act When You Have Responsibility: Managers have the
responsibility of taking action whenever they have the capacity or
adequate resources to do so
...
•
Codes of Ethics: A formal document that states an organization’s
primary values and the ethical rules it expects employees to follow
...
•
Ethics committees: Appointment of an ethics committee, consisting of
internal and external directors is essential for institutionalizing ethical
behavior
...
•
Ethics training: Ethical training enables managers to integrate employee
behavior in ethical arena with major organizational goals
...
The line is usually handled by an executive
appointed to help resolve the issues that are reported
...
It is constituted of all those individuals, households, farms, firms,
factories, banks and government, which act and interact to produce and
consume goods and services
...
Consumers are able to get the goods and services of their requirement; producers
are able to produce and sell various kinds of products in appropriate quantities
and so on
...
A modern economic system is enormously complex
...
Thousands of people are
involved in production and distribution of single commodity
...
KINDS OF ECONOMIC SYSTEMS
Free Enterprise Economy
This economic system works on the principle of Laissez Faire system, i
...
, the
least interference by the government or any external force
...
A free Enterprise Economy is characterized as follows:
•
Means of production are privately owned by the people who acquire and
posses them
•
Private gains are the main motivating and guiding force for carrying out
economic activities
•
Both consumers and firms enjoy the freedom of choice; consumers have
the freedom to consume what they want to and firms have the choice to
produce what they want to
•
The factor owners enjoy the freedom of occupational choice, i
...
, they
are free to use their resources in any legal business or occupation;
•
There exists a high degree of competition in both commodity and factor
markets and
•
There is least interference by the government in the economic activities
of the people; the government is in fact supposed to limit its traditional
functions viz, to defence, police, justice, some financial organizations
and public utility services
...
Such economies are, in contradistinction to the
free enterprise economies, controlled, regulated and managed by the government
agencies
...
Mixed Economy
A mixed economy is one in which there exist both government and private
economic systems
...
A mixed economy is widely known as one,
which had both “public sector”
(the government economy) and “private
sector” (the private economy)
...
It is
important to note here that most economies in the world today are Mixed
Economies
...
•
Mixed Capitalist Economies
A mixed Capitalist economy is a varient of the free enterprise economic system
...
K
...
though these economies have a very large government sector,
their private sectors work on the principles of the free enterprise system
...
18
•
Mixed Socialist Economies
To the category of the Mixed Socialist Economies belong the countries which
have adopted “ socialist pattern of society: and economic planning as he means
of growth and social justice (e
...
India) and the former communist countries (eg
...
The government of
these countries takes upon themselves to control and regulate the private sector
activities in accordance with the plan objectives
...
The major economic problems faced
by an economy may be classified into two broad groups: (i) micro-economic
problems called basic problems, which are related to the working of the
constituents of the economic system; and (ii) macro-economic problems related
to the growth, stability, and management of the economy as a whole
...
While in a socialist economy they are solved by the government
agencies, like central planning authority, in a free enterprise or mixed capitalist
economy this task is performed by the Price Mechanism or Market Mechanism
...
It becomes therefore
inevitable for the government to intervene fair competition, and help the
economy in achieving its goals – efficiency, stability, growth and economic
justice
...
Nevertheless, the economic role of the government can be broadly categorized
on the basis of the three economic systems which presently prevail in the world,
viz
...
Capital Society: In this system, the primary role of the government are: (i) to
preserve and promote free market mechanism wherever it is possible to ensure a
workable competition, (ii) to remove all unnecessary restrictions on the free
operation of competitive market, and (iii) to provide playground and rules of the
market game through necessary interventions and controls so that free
competition can work effectively
...
Socialist Economy: In contract with the capitalist system, the role of
government in a Socialist economy is much more exhaustive
...
In the socialist system, not only there is a complete disregard for free
enterprise and market mechanism but also these systems are abolished by law
...
All economic activities are centrally planned, controlled and
regulated by the State
...
, are centralized in the hands of government or the
Central Planning Authority
...
The other part of the economy, the public sector, is organized and managed
along the socialist pattern
...
The government prevents by an ordinance the entry of private
capital into the industries reserved for the public sector
...
The
promotion, control and management of the public sector industries is the sole
responsibility of the State
...
If necessary, direct controls are also imposed
...
It also means the withdrawal of the state from an industry or sector, partially or
fully
...
Privatization is an inevitable historical reaction to the indiscriminate expansion
of the state sector and the associated problems
...
OBJECTS
The objects are:
•
To improve the performance of PSUs so as to lessen the financial
burden on taxpayers
...
•
To encourage and to facilitate private sector investments, from both
domestic and foreign sources
...
22
PRIVATISATION ROUTES
The important ways of privatization are:
•
Divestiture, or privatization of ownership, through the sales of
equity
...
•
Contracting - under which government contracts out services to other
organizations that produce and deliver them
...
•
Government withdrawing from the provision of certain goods and
services leaving then wholly or partly to the private sector
...
Formal
liquidation involves the closure of an enterprise and the sale of its
assets
...
BENEFITS
The benefits of privatization may be listed down as follows:
•
It reduces the fiscal burden of the state by relieving it of the losses of
the SOEs and reducing the size of the bureaucracy
...
•
Privatization helps the state to trim the size of the administrative
machinery
...
•
It may result in better management of the enterprises
...
•
Privatization may increase the number of workers and common man
who are shareholders
...
CRITICISMS
Some of the important argument against privatization is as follows:
•
The public sector has been developed with certain noble objectives
and privatization means discarding them in one stroke
...
•
If privatization results in the substitution of the monopoly power of
the public enterprises by the monopoly power of private enterprises it
will be very dangerous
...
•
Privatization
of
profitable
enterprises,
including
potentially
profitable, means foregoing future streams of income for the
government
...
•
There are well managed and ill-managed firms both in the public and
private sectors
...
24
•
The capital markets of developing countries are not developed
enough for efficiently carrying out privatization
...
As a result that the expected
results may not be achieved
...
In many countries privatization often
has been a “garage sale” to favored individuals and groups
...
•
Replacement of a government monopoly by a private monopoly may
not increase public welfare-there must a multiplicity of private
suppliers
...
•
Public services to be provided by the private sector must be specific
or have measurable outcome
...
Service delivery by non-governmental
organizational or local governments may be more appropriate under
these conditions
...
25
•
The importance of educating consumers and disseminating
information to the public is necessary
...
•
Equity is an important consideration in the delivery of public
services
...
PRIVATISATION IN INDIA
In India, although there were some isolated cases of privatization, no definite
policy decision was taken until the new economic policy was been ushered in
...
Privatization of certain
sectors and enterprises are, therefore, necessary to reduce the budgetary burden
on the public, to make available more resources for the development activities,
to enable the government to concentrate more on the essential and priority areas
...
The new policy also proposes Privatization of enterprises by
selling shares to mutual funds, workers and the public
...
The disinvestments Commission was set up by Government of India in
August 1996, for suggesting the modalities for undertaking disinvestments of
equities for select PSUs
...
The policy of disinvestments specifically aimed at:
•
Modernization and up gradation of Public Sector Enterprises
...
•
Generation of Employment
•
Retiring of public debt
•
To ensure that disinvestments does not result in alienation of national
assets, which through the process of disinvestments, remain where
they are
...
•
Setting up a Disinvestments Proceeds Fund
...
GLOBALISATION
India’s economic integration with the rest of the world was very limited because
of the restrictive economic policies followed until 1991
...
Foreign investment by Indian firms was very insignificant
...
Globalization has in fact become a buzzword with Indian firms now and many
are expanding their overseas business by different strategies
...
Globalization may be considered at two levels
...
e
...
e
...
Globalization of the world economy is achieved, quite obviously, by
globalising the national economies
...
REASONS FOR GLOBALISATION
•
The rapid shrinking of time and distance across the globe thanks to faster
communication, speedier transportation, growing financial flows and
rapid technological changes
...
It is necessary to
search of international markets and to set up overseas production
facilities
...
•
To get technology and managerial know-how
...
•
Some companies set up plants overseas so as to be close to their raw
materials supply and to the markets for their finished products
...
•
The US, Canada and Mexico have signed the North American Free
Trade agreement (NAFTA), which will remove all barriers to trade
among these countries
...
FEATURES
The following are the features of the current phase of globalization:
New markets
•
Growing global markets in services – banking, insurance, transport
...
•
Deregulation of anti - trust laws and proliferation of mergers and
acquisitions
...
New actors
•
Multinational corporations integrating their production and marketing,
dominating food production
•
The World Trade Organization - the first multilateral organization with
authority to enforce national governments compliance with rule
•
An international criminal court system in the making
•
A booming international network of NGOs
•
Regional blocs proliferating and gaining importance – European Union,
Association of South- East Asian Nations, Mercosur, North American
Free Trade Association, Southern African Development Community,
among many others
•
More policy coordination groups – G-7, G40, G22, G77, OECD
29
New rules and Norms
•
Market economic policies spreading around the world, with greater
privatization and liberalization than in earlier decades
•
Widespread adoption of democracy as the choice of political regime
•
Human rights conventions and instruments building up in both coverage
and number of signatories – and growing awareness among people
around the world
•
Consensus goals and action agenda for development
•
Conventions and agreements on the global environment – biodiversity,
ozone layer, disposal of hazardous wastes, desertification, climate
change
•
Multilateral agreements in trade, taking on such new agendas as
environmental and social conditions
•
New multilateral agreements- for services, intellectual property,
communications – more binding on national governments than any
previous agreements
•
The multilateral agreements on investment under debate
New Tools of communication
•
Internet
and
electronic
communications
simultaneously
•
Cellular phones
•
Fax machines
•
Faster and cheaper transport by air, rail and road
•
Computer-aided design
30
linking
many
people
STAGES OF GLOBALISATION
There are five different stages in the development of a firm into global
corporations
...
Second stage
In the stage two, the company takes over these activities on its own
...
Four stage
In the stage four, the company moves to a full insider position in these markets,
supported by a complete business system including R & D and engineering
...
Fifth stage
In the fifth stage, the company moves toward a genuinely global mode of
operation
...
Licensing and Franchising
Under international licensing, a firm in one country (the licensor) permits a firm
in another country (the licensee) to use its intellectual property (such as patents,
trademarks, copyrights, technology, technical know-how, marketing skill or
some other specific skill)
...
Contract manufacturing
A company doing international marketing, contracts with firms in foreign
countries to manufacture or assemble the products while retaining the
responsibilities of marketing the product
...
The arrangement is especially attractive if the contracting
firm is given an option to purchase some shares in the managed company within
a stated period
...
32
Turnkey contracts are common in international business in the supply, erection
and commissioning of plants, as in the case of oil refineries, steel mills, cement
and fertilizer plants etc
...
This method
demands sufficient financial and managerial resources on the part of the
company
...
The
establishment of an assembly operation represents a cross between exporting
and overseas manufacturing
...
Types of joint overseas operations are:
Sharing of ownership and management in an enterprise
Licensing / franchising agreements
Contract manufacturing
Management contracts
Third country location
When there are no commercial transactions between two nations because of
political reasons or when direct transactions between two nations are difficult
due to political reasons or the like, a firm in one of these nations which wants to
enter the other market will have to operate from a third country base
...
Mergers and acquisitions
Mergers and acquisitions (M & A) have been a very important market entry
strategy as well as expansion strategy
...
Strategic alliance
This strategy seeks to enhance the long-term competitive advantage of the firm
by forming alliance with its competitors, existing or potential in critical areas,
instead of competing with each other
...
For example, a firm may enter a foreign market by
forming an alliance with a firm in the foreign market
...
Counter trade is a form of international trade in
which certain export and import transactions are directly linked with each other
and in which import of goods are paid for by export of goods, instead of money
payments
...
•
Living standards can go up faster
...
34
•
An open economy spurs innovation with fresh ideas from abroad
...
•
Unfettered capital flows give access to foreign investment and keep
interest rates low
...
Most
find new jobs that pay less
...
•
Workers face pay cut demands from employers, which often threaten to
export jobs
...
•
Employees can lose their comparative advantage when companies build
advanced factories in low-wage countries, making them as productive as
those at home
...
•
Business freedom
There should not be unnecessary government restrictions like import
restriction, restrictions on sourcing finance or other factors from abroad,
foreign investments etc
...
35
•
Facilities
The extent to which an enterprise can develop globally from home
country base depends on the facilities available like the infrastructural
facilities
...
•
Resources
Resourceful companies may find it easier to thrust ahead in the global market
...
•
Competitiveness
A firm derives competitive advantage from any one or more of the
factors such as low costs and price, product quality, product
differentiation, technological superiority, after sales services, marketing
strength etc
...
GLOBALISATION IMPACT ON INDIAN ECONOMY
In India, the process of dismantling trade barriers was started in 1991 and
subsequently, every year the Government has been announcing reduction in
custom duties and removing quantitative restrictions
...
36
For a developing country like India, it opens access to new markets and new
technology
...
The recent developments in
information and communications technology have further facilitated and
accelerated the pace of globalization
...
37
Lesson 5
NATURAL RESOURCES AND ECONOMIC DEVELOPMENT
NATURAL RESOURCES
Natural resources include land, water resources, fisheries, mineral resources,
forests, marine resources, climate, rainfall and topography
...
Some times the
discovery of the use of a resource can immediately increase its use value
...
With the growth of the knowledge about the unknown
resources and their use, the natural endowment of a country will be materially
altered
...
g
...
Consequently, careful use of the exhaustible resources and
maintenance of the quality of renewable resources like land are a sine qua non in
the process of development
...
Various guiding principles for resource development are:
38
•
Economic use of resources to achieve minimum waste
•
Sustained use of economic resources through conservation of renewable
resources and economic use of exhaustible resources
•
Multi-purpose use of resources: if a certain resource has a number of
uses, it is necessary to have all the uses
•
Integrated planning in the use of natural resources
•
Location of industries with a view to reducing transport costs to the
minimum
•
Abundant supply of energy resources, specially electric power so as to
utilize other resources in the best possible manner
LAND RESOURCES
The total geographical area of India is about 329 million hectares of which 42
million hectares or 14% of the total reporting area in India is classified as:
•
Barren land, such as mountains, deserts, etc
...
•
The rest of the land is put under three major uses, viz
...
FOREST RESOURCES
Forests are important natural resources of India
...
They supply timber, fuel wood, fodder
and a wide range of non-wood products
...
Forests, thus, play an important role
in environmental and economic sustainability
...
In our country, forests have generally
been undervalued in economic and social terms
...
A recent estimate puts the gross value of goods
and services provided by the forest sector at 2
...
There is concentration
of forests in a few states in Assam, Madhya Pradesh, Orissa and a few union
territories
...
There is a need to
increase forest areas in the entire country as also to develop them in deficient
states
...
According to this policy, it was
decided to raise steadily the area under forests to 100 million hectares or 33 %
for the country as a whole
...
The main objectives of forest
policy under the Five-Year Plans were:
•
To increase the productivity of forests
•
To link up forest-development with various forest-based industries and
•
To develop forests as a support to rural economy
...
Accordingly, it became imperative to evolve a new
40
strategy of forest conservation
...
The important features of this policy are:
•
Role of tribal in forests recognized
The new policy enunciates that all agencies responsible for forest
management, including forest development corporations should associate tribal
people closely in the protection, regeneration and development of forests
...
•
Discouragement to forest-based industries
The new forest policy states that no forest based enterprises except at the
village or cottage level will be set up in the future, unless it is first
cleared, after a careful study of the availability of raw materials
...
The contractors will be replaced by institutions such
as tribal cooperatives, government corporations, etc
...
•
Participatory Forest Management System
41
This new strategy involves rural people, particularly women and tribal
community who have intimate knowledge of plant species, their growth
characteristics, utility and medicinal value, etc
...
The adoption of the new strategy has led to several positive
outcomes, such as:
•
Change in the attitude and relationships of local communities
and forest officials towards each other and the forests
•
Improvement in the condition of forests
•
Reduction in encroachments
•
Increase in the income of local people and
•
Involvement of non-governmental organizations (NGOs) in
forest research, tree planting, promotion of productivity, etc
...
Because of deforestation and
denudation, a large portion of the monsoon water disappears into the sea
as surface run-off
...
Rivers are increasingly getting polluted as urban and industrial
wastes are dumped into them
...
They have not helped in
controlling or moderating floods
...
Ground
water table has gone down dramatically in more intensely cropped areas,
42
clearly indicating the need to increase recharges or to regulate pumping
...
India continues to be highly flood-prone and drought–prone but
neither the government nor the Planning Commission has shown
sufficient imagination to appreciate the gravity of the situation and make
necessary correction to India’s water policy
...
Fisheries sector plays important
role in the socio-economic development of India, generating employment
for a large coastal population- about one million fishermen draw their
livelihood from fisheries, but they generally live on the verge of extreme
poverty
...
It is estimated that
about six million people are employed in the fisheries sector
...
The contribution of the fisheries
sector to Gross Domestic Product (at current prices) has increased from
Rs
...
32,060 crores between 1980-1981 and 2001-2002
...
21 % of India’s GDP
...
The principal rivers and
their tributaries, canals, ponds, lakes, reservoirs comprise the inland
fisheries
...
43
The fisheries programmes have emphasized family- based Labour
intensive inland and brackish water fisheries and improving the
harvesting from seas by stimulating the growth of country boats,
mechanized boats and deep sea trawlers
...
Coal and iron, for instance, are the basic
minerals needed for the growth of iron and steel industry, which in turn,
is vitally necessary for the country’s development
...
Then we have mineral fuels like petroleum, coal, thorium and
uranium, which are of national importance
...
Besides these, we have a number of minor minerals with varying degrees
of utility to the country
...
, coal and iron are ample
...
The Government of India amended the Mines and Minerals
(regulated and Development) Act, 1957 in January 1994 and announced a
new mineral policy:
•
Throwing open the mining sector to the private sector
including direct foreign investment,
44
•
Empowering the states to grant prospecting licenses/mines
leases without prior approval of the central Government
(except in a few cases)
•
Removing the restrictions on equity holding by foreign
nationals in a mining company
The major objectives and the strategies of the new mineral policy
are as follows:
• to explore for identification of mineral wealth on land and offshore
•
to develop mineral resources taking into account the national
and strategic considerations
•
to minimize adverse effects of mineral development on the
forests,
environment
and
ecology
through
appropriate
protective measures
•
to promote foreign trade in minerals
•
to promote research and development in minerals
ECONOMIC DEVELOPMENT AND ENVIRONMENTAL ISSUES
Ecologists and Environmentalists believe that one pf the principal reasons for
the existence of the environmental problem stems from the emphasis on the
growth by the industrialized nations
...
Ecologists postulate that growth rates were so high, because of the
fantastic increase in population and demands of the society
...
45
Fast growth has resulted in the destruction of the environment, the
impairment in the quality of elemental environmental services, the deterioration
of air quality and the contamination of seas, rivers, lakes, etc
...
The loss and deterioration of
important environmental goods went relatively unnoticed
...
Economists who analyze in a straight jacket always contend that
sustained economic growth increases human welfare
...
To put in shortly, they compare Gross
National Product (GNP) in terms of dollar value to assess the economic growth
of nations
...
But, the measurement of economic growth in terms of output of goods
and services (GNP) is rather faulty
...
It does not consider the national disproduct in the process of
production
...
It does not take into
consideration the external cost, the pollution it creates, the diseases it spreads in
the society among smokers and silent smokers
...
Edward F
...
He had suggested that value of the deterioration to
environment by these real costs should be deducted from NNP to contain a
better measure of output
...
The role of environment and the need for maintaining the quality of the
environment have emerged recently as important issues and have assumed
greater importance in the context of several ecological disasters in many parts of
the globe in recent times
...
They are:
•
Population factor
•
Per capita availability of goods
•
Pollution per unit of economic good
...
, the size of the population, per capita production or
consumption; and the pollutant generated per unit of production or consumption
...
By the economic process, agencies external to the ecosystem are produced and which tend to degrade its capacity for self-adjustment
...
Man out of greed exploits this earth, as if its resources are limitless,
to enrich himself in his pursuit of economic growth
...
47
QUESTIONS:
1
...
What are business objectives?
3
...
4
...
Elucidate
...
Sketch organizational arrangement for environment analysis
...
6
...
Why is it assuming greater relevance now
a days?
7
...
8
...
List out the arguments for and against social responsibility
...
What are the practical problems that confront social action programmes?
How do you overcome them?
11
...
State and explain the sources of business ethics
...
How is ethics managed in a business unit?
14
...
Bring out the
guidelines, which help in ethical decision-making
...
What is an economic system? What are the basic problems of an
economic system?
16
...
“The fundamental economic problem of an economy is the problem of
choice”
...
18
...
19
...
20
...
21
...
22
...
Comment
...
Bring out the nature and causes for globalization of business
...
Explain the stages involved in the economic transition of globalization
...
Evaluate the impact of globalization on Indian economy
...
List out the strategies used for globalising a business
...
Natural resources are the wealth of a country’s economy
...
28
...
29
...
30
...
49
UNIT I I
Lesson 1
INFRASTRUCTURE OF THE ECONOMY
INFRASTRUCTURE
Adequate quantity, quality and reliability of infrastructure are key
to the growth of any economy
...
ENERGY
Energy is the most important determinant of a country’s economic
growth
...
Energy is created through several sources
...
The first shall include
commercial and non- commercial sources of energy
...
Non-commercial energy
commands no price and the user can take it as a free good gifted by
50
mature
...
Confining to the commercial energy, it may be stated that Coal is
the main source, accounting for 67 % of the total energy consumed in the
country
...
Private sector participation is allowed in coal mining
...
Power has been a bugbear of our economy
...
The government has announced a package of incentives to attract private
investments
...
As part of the ongoing economic reforms, the government has
allowed imports and distribution of certain petroleum products like
domestic LPG and kerosene by the private sector at market prices to
promote new investments and to improve operational efficiency
...
Private and foreign companies are now allowed to invest in oil
exploration and production in joint- venture with ONGC or OIL, (ONGC
has already tied up with Reliance and Enron) and also in refining of
petroleum products
...
51
STRENGTHS, WEAKNESS AND REMEDIES OF POWER
Strengths
•
Elaborate organizational framework for the growth of electricity
has been provided by the Electricity (supply) Act, 1948
•
Power and responsibilities nearly divided between center and
states
...
Latter looks after generation and distribution
...
•
Joint venture among states in power generation
•
Numerous amendments to permit private participation in power
generation
Weaknesses
•
Very low plant load factors
•
Declining share of hydro – power
•
Too much subsidy burden on state electricity boards
•
Incompetent and corrupt electricity boards
•
Frequent and heavy load – shedding
•
Capital intensive but starved of funds
•
Heavy losses during transmission and distribution
Remedies
•
Formulate unambiguous guidelines for private sector investment
and ensure speedy clearance
52
•
Expedite formulation of guidelines for private participation in
transmission and distribution
•
Create autonomous regulatory authorities at the central and state
levels
...
The Indian Railways have a long history
...
Electrified
networks with 11,793 kms account for 18
...
The thrust areas identified for the eight-plan period include
replacement and renewal of averaged assets; argumentation of terminal
and rolling stock capacities, gauge conversion and electrification
...
The last few years have been particularly good for railways
because of the addition of more than 500 new trains, which include the
deluxe trains like Rajdhanis and Shatabdis
...
Among the PSUs of the
railway ministry are the Rail India Technical and Economic Services Ltd
53
(RITES) and the Indian Railway Construction Company Ltd (IRCON)
...
It has completed important assignments in railway systems in
Africa, the Middle East, Vietnam and Nepal
...
Another feather in the cap of the railways is the 760 km
long Konkan railway
...
Private participation has been allowed in
the construction and maintenance of roads
...
National Highway Act is to be amended so as
to enable the levy of a toll on road users
...
The Road Development Plan for 1981 – 2001
envisages the construction of 2212000 kms of rural roads
...
STRENGTHS,
TRANSPORT
WEAKNESS
AND
REMEDIES
OF
ROAD
Strength
•
One of the worlds largest, stretching for almost 201 million across
the country
55
•
•
Relatively low vehicle density per km
...
6% of road strength is occupied by national highways,
5
...
54%by district and village roads
...
•
Several missing links, unbridged river crossings, weak culverts
and inadequate road pavement enroute
...
•
Create a highway development fund as an extra-budgetary
development fund for funding highways
•
Set up a financing mechanism for funding road construction,
using the toll system for cost recovery
•
Encourage
private
sector
participation
in
highways
by
institutionalizing build-operate –transfer schemes
...
56
•
Amend the loans to allow for Right of Way in land acquisition for
laying roads
...
To reap the benefits of the scheme, SCI has beefed up its
customer services cell to attend to the requirements of shippers on a
priority basis
...
Under the ISM code,
which will be applicable to passenger ships and tankers by July 1998 and
for other vessels by July 2002, shipping companies are required to
provide special training to on shore staff and the crew on board
...
The phenomenal growth of our merchant navy from a modest base
of 0
...
3 m GRT has placed our country 17 th among
the maritime nations of the world
...
57
STRENGTHS, WEAKNESS AND REMEDIES OF SHIPPING
Strengths
•
Long coastline of over 5700 kms and almost the whole of foreign
trade passing across the seas
...
There will be considerable increase in
sea-borne trade
...
Remedies
•
Amend the Major Port Trust Act, 1963, to allow private sector
BOT projects at the 11 major ports
•
Raise the capital expenditure ceiling of the port trust boards from
Rs
...
200Crore
...
•
Allow port-based businesses to create captive facilities for
themselves under the BOT system
•
Initiate restraining programmes to reduce labour resistance to
private sector participation
...
On the operational side, Indian Airlines
Limited, Vayudoot (which functions as a separate identifiable division of Indian
Airlines Limited) and private airlines (scheduled and non –scheduled) provide
domestic air services
...
Pawan Hans limited provides
helicopter support services, primarily to the petroleum sector
...
These
two authorities are being merged to form a single authority viz
...
The regulatory and developmental functions are looked after by the
Ministry of Civil Aviation and the offices of the Directorate General of Civil
Aviation
...
Six private operators, who were hitherto operating as air
taxis, have since been granted scheduled airlines status
...
Several measures have
been taken, mainly centred on making the organization adopt a marketing
approach to decision-making and considerably improve the quality of its
product
...
COMMUNICATIONS
The communication system comprises posts and telegraphs, telecommunication
systems, broadcasting, television and information services
...
Accordingly, the
modern communication system has become an integral part of the development
process
...
The postal department has given a new thrust to its programme of
modernization for providing new value added services to customers
...
Indian telegraphs
Indian Telegraph is one of the oldest government –owned public utility
organizations in the world
...
The phonogram service for sending and
receiving telegram by telephone, telex service to send and receive printed
message directly from one centre to another, the tremendous expansion of
telephone facilities and direct trunk dialing – all these facilities are available to
the general public
...
It is important not only because of its role
in bringing the benefits of communication to every corner of India but also in
serving the new policy objectives of improving the global competitiveness of the
Indian economy and stimulating and attracting foreign direct investment
...
There has been a shift in importance towards the private sector and
towards wireless telephony with falling tariff rates for cellular phones, there has
also been a phenomenal increase in the number of cellular subscribers
...
STRENGTHS, WEAKNESS AND REMEDIES OF
TELECOMMUNICATION
Strength
•
Huge potential for expansion
•
Rapid growth in the last couple of years with annual growth of 13 %
between 1984 and 1994 and 20 % thereafter
...
97 phones per 100 towns people ahead of
China and Indonesia
•
High technology – 66 % of exchanges are digital
Weaknesses
•
Waiting period to get new connections
•
Poor maintenance 218 faults for 100 lines every year
•
Privatization efforts not successful
Remedies
•
Accelerate the clearance process for private sector entry into basic
telecom services
•
Offer incentives to private telecom companies for meeting connection
and low-fault targets
•
Resolve disputes between private operators and the DOT over long
distance connections immediately
•
Convert the DoT into a holding corporation, with its subsidiaries
operating services in different circles
62
•
Replace the Indian Telegraph Act, 1885 with a new act incorporating the
impact of technology changes
...
•
To enhance telecom services in rural and remote areas, the Telecom
Department has issued guidelines for implementing Universal Service
Obligation (USO)
•
According to the new telecom policy every village in India is expected to
be provided with one public telephone
...
While Science represents “ accumulation of
knowledge”, Technology represents “ refinement in tools”
...
For rapid economic progress, the application of science and
technology (S and T) to agriculture, industry, transports and to all other
economic and non-economic activities has become essential
...
He was responsible for the setting up of a chain of national laboratories devoted
to basic and applied research, develop indigenous technology and processes and
help industrial enterprises in solving their technological problems
...
The Indian Council of Agricultural Research (ICAR)
was strengthened
...
, in 1958 the science Policy Resolution
was adopted to provide positive incentives for the development and utilization
of S and T in nation building activities
...
The Indian government has been giving special support to S and T since
Independence and the large network of national laboratories and universities
have been training a strong cadre of scientists, engineers, technologists, etc
...
The rapid growth of engineering consultancy
organizations to provide design and consultancy services and act, as the bridge
between research institutions and industry is really commendable
...
5 million
...
Science and technology (S&T) has made a phenomenal impact the world
over in shaping the lifestyle of the common man
...
Hence, the deployment of S&T as an effective
instrument of growth and change becomes an imperative strategy
...
MEASURES TO PROMOTE S & T
Following are the measures necessary to promote S & T:
Education for the knowledge economy
Producing knowledge intensive, technologically sophisticated, higher value
goods and services are not possible without a trained management cadre and
labour force with the appropriate mix of technical and vocational skills
...
Moreover, since the skills
required by today’s labour market may not be the same as those that will be
required in the future, a process of life long learning must be built into the
education system
...
Technology acquisition and diffusion (using existing knowledge to improve
the competitiveness)
Most of the knowledge that developing countries need to boost productivity and
value added, in both high tech and traditional sectors has already been invented
...
Therefore, a third, related aspect of capacity
building involves enhancing the private sector’s ability existing technology,
improve and develop it for particular needs of local enterprises and incorporate
it into local production processes
...
Science & Technology Policy Making Capacity
National policy makers need to have the capacity to understand the challenges
and opportunities flowing from the global economy and to devise appropriate
policies
...
It
will also require close links and co-operation between each of these actors
...
Some of the strategies for
the creation of jobs and for retaining S&T personnel are:
•
•
•
•
•
•
•
•
•
•
Motivating S&T personnel to capture the full potential of selfemployment
Creating awareness about entrepreneurship leading to selfemployment among the college and school students
Introducing greater capital investment in the areas where the outlay
per work place is minimal
Restructuring government policies to minimize import of goods
Creating entrepreneurship development cells in all Science
/Engineering/IITs and other academic institutions by the concerned
central /state agencies
Introducing automated techniques selectively from the viewpoint of
safety, reduction of drudgery, improvements in productivity
/efficiency etc
Examining export strategy to enable the country to pay for imports
through exports and thereby simultaneously generating greater
employment
Encouraging the establishment of sophisticated industries in the
emerging areas of technology as also encouraging the service sectors
requiring inputs from high technology so that highly trained S&T
personnel could be retained and gainfully employed
Maintaining centers of excellence in various branches of Science and
Technology to retain highly trained persons within the country
Providing proper working atmosphere and adequate amenities (e
...
housing in urban areas) to S&T personnel
67
Lesson 2
DEMOGRAPHIC ISSUES AND HUMAN DEVELOPMENT
STUDY OF HUMAN RESOURCE
The study of human resource is vital from the point of view of economic
welfare
...
It is necessary to know in
quantitative terms the number of people living in a country at a particular time,
the rate at which they are growing and the composition and distribution of
population
...
First stage of Demographic transition: According to this theory death rates are
high
in the first stage of an agrarian economy an account of poor diets,
primitive sanitation and absence of effective medical aid
...
Economic development also brings about all round
improvement including the improvement in transport, which makes the supply
of food regular
...
Thus in the second
stage, birth rate remains high but death rate begins to decline rapidly
...
High birth rate and falling death rate
contribute to the growth of the average size of the family in the second stage
...
One of the features of economic development is typically
increasing urbanization, and children are usually more of a burden and less of an
asset in an urban setting than in a rural
...
Thus, the characteristics of the third stage are low birth rate,
low death rate, small family size and low growth rate of population
...
When an
economy shifts from the first stage to the second stage of demographic
transition, an imbalance is created in the economy as a result of falling death
rate but relatively stable birth rate
...
This stage is
the most hazardous period for a developing economy
...
Thus, the theory is termed as the theory of
demographic transition
...
A new constellation of demographic forces is brought about
which changes the character of society; birth and death rate becomes balanced at
a lower level as a result of which growth rate of population also declines
...
4 percent of the total land area of the world but
she has to support about 17 percent of the world population
...
A study of growth rate of India’s population falls into four phases:
1891-1921: stagnant population
1921-1951: steady growth
1951-1981: rapid high growth
1981-2001: high growth with definite signs of slowing down
During the first phase of 30 years (1891-1921), the population of India grew
from 236 million in 1891 to 251 million in 1921 i
...
, just by 15 million
...
19
361
1
...
15
844
2
...
93
Source: Census of India 2001, Series 1, Paper 1 of 2001, Provisional Population Totals
...
e
...
During the third phase of 30 years (1951-1981),
the population of India grew from 361 million in 1951 to 683 million in
1981
...
During 1981to 2001, India entered the
fourth phase of high population growth with definite signs of slowing
down
...
4 % during the 20 years
period
...
93%) in the annual average rate of growth
...
HUMAN DEVELOPMENT IN INDIA
MEASURES OF HUMAN DEVELOPMENT
Economic growth contributes most to poverty reduction when it expands
the employment, productivity and wages of poor people and when public
resources are channeled to promoting human development
...
Income clearly is only one option that people would like to have,
though an important one
...
Income
is also a means, with human development the end
...
Three measures have been developed
...
Comparison of Human Development Indices (2002) Some
selected countries
Human Development (HDI)
1
4
8
9
12
Norway
Canada
United states
Japan
United
Kingdom
Gender related
Development
Index (GDI)
High Human Development
0
...
955
0
...
941
0
...
936
0
...
932
0
...
934
71
Human Poverty Index
(HPI)
Income Poverty line US $ I a day
1993 PPP 1990 – 2002
7
...
2
15
...
1
14
...
3*
7
...
6*
…
15
...
888
0
...
795
0
...
778
0
...
768
0
...
745
0
...
732
0
...
961
0
...
595
0
...
497
0
...
292
0
...
792
9
...
794
…
0
...
9
0
...
5
0
...
5
0
...
8
0
...
0
0
...
2
0
...
2
0
...
4
0
...
8
0
...
0
0
...
9
0
...
4
0
...
2
Low Human Development
0
...
9
0
...
1
0
...
4
<2
...
9
…
<2
15
...
2
…
14
...
6
6
...
5
17
...
1
34
...
0
13
...
2
61
...
Human Development Index
HDI measures the average achievement in three basic dimensions of
human development:
•
A long and healthy life as measured by life expectancy at birth
•
Knowledge as measured by the adult literacy rate (with two third
weight) and the combined primary, secondary and tertiary gross
enrolment ratio (with one third weight)
•
A decent standard of living as measured by GDP per capita (PPP
US $)
Before calculating HDI, an index for each of the three dimensions is
created
...
The table indicates Human Development Index for 2002 for
72
selected countries as reported in HDR 2004
...
8 and above are in the High Human
Development group
•
Countries in the HDI range 0
...
8 are in the range of Medium
Human Development group
•
Countries in the HDI range less than 0
...
Among them 55
countries were in the High Human Development range, 86 countries were
in Medium Human Development range and 36 countries were in Low
Human Development range
...
138 in HDI in 1994,
has improved its position to No
...
Gender Related Development Index (GDI)
While HDI measures average achievement, the GDI adjusts the average
achievement to reflect the inequalities between men and women
...
The greater the difference between HDI and GDI, the
greater is the gender inequality
...
Countries s which indicate higher gender
inequality are Saudi Arabia, Pakistan, Iran , India , Egypt and Nigeria
...
The first deprivation is vulnerability to death at a relatively early age and is
represented in the HPI by the percentage of people expected to die before age
40
...
The third deprivation relates to a decent
standard of living, in particular, overall provisioning
...
It may be noted that in the case of Nigeria, 70
...
1 %
...
2, but income poor
population is 36 %
...
7 %, but human poverty Index is 31
...
UNITED NATIONS MILLENNIUM DECLARATION
FOR 2015
To promote HDI:
•
•
To halve the proportion of the world’s people living on less than $1 a
day
To halve the proportion of the world’s people suffering from hunger
74
•
•
To halve the proportion of the world’s people without access to safe
drinking water
To achieve universal completion of primary schooling
•
To achieve gender equality in access to education
•
To reduce maternal mortality ratios by three quarters
•
To reduce under-five mortality rates by two thirds
•
To halt and begin to reverse the spread of HIV/AIDS, malaria and other
major diseases
...
78(1)
55
...
86(3)
51
...
56(5)
47
...
83(7)
45
...
28(9)
39
...
71(11)
37
...
11(13)
35
...
05(15)
Note: 1
...
Figures in brackets indicate respective statewise ranks
Source: UNFPA, India: Towards Population and Development Goals, OUP, 1997
Many of India’s states can be compared with medium-size countries
...
The
UNFPA published a report on Human Developments in India in a book entitled
“ India; Towards Population and Development Goals” in 1997
...
8 for the top most Kerala to 34 for
75
Bihar
...
7 in case of Kerala to 34
...
PROGRESS OF HUMAN DEVELOPMENT IN INDIA
The basic purpose of planning in India is to widen people’s choices and improve
the well being of the people
...
It would be, therefore,
appropriate to examine the progress of human development in India
...
The human Development Index has risen
gradually from 0
...
510 in 1990 and stands at 0
...
In
fact, it can take quite long for India to cross the mark of 0
...
A major impediment to progress in human development is the very fast
growth of population experienced in India
...
7 million in 1975 to 1,033 million in 2001 giving a growth rate of 20 % per
annum during the period (1975-2001), which is fairly high
...
3 %
...
Urbanization is considered to be a factor, which promotes human
development
...
3 % in 1975, has reached a
level of 27
...
2 %
...
Another healthy feature of likely demographic transition is the
proportion of children or population under age 15, whose proportion stood at
33
...
7 % by 2015
...
It
would be quite useful to consider factors related with the education of the
population that art likely to promote human development
...
The share of India in the
world’s illiterate population is 33
...
The information technology revolution
has been necessitated an increase in proportion of tertiary students in science,
math and engineering to be steeped up
...
India has to bring about a shift to meet the challenging
demands of the new economy
...
It has to cultivate
relations with others states of the world out of sheer necessity
...
Therefore, international relationship is as much a
product of necessity as social existence itself
...
As a result the regional and local problems began to assume world
character
...
The term international relations has been interpreted and defined in
two senses- Narrow and Broad
...
By emphasizing official relations, the relations between businessmen,
scientists, etc
...
In the broader sense international relations include “ all
intercourse among states and all movements of people, goods and ideas across
national frontiers”
...
•
Cooperative relations - They are usually non-political and involve no
power
...
International relations include study of both
...
With establishment of the League of Nations, the study of international
institutions was also included in its fold
...
After World War II, its field was further widened and study of military
science and regional areas was also included in it
...
Thus at
present international relations have become very extensive
...
•
The classical approach considers the substance more important
•
Scientific approach attaches more importance to method and technique
...
This approach is not possible in modern world, though it had the
79
advantage of giving the students a deep understanding of the problems in
their correct prescriptive
...
This theory does not take
into account the activities of a state outside the international
organization
...
This approach however ignored the internal
politics as a factor in determining the attitude of a power in the
international sphere
...
•
Karl detsch developed Quantitative theory and developed certain
measurable indices of community development
...
Synder emphasized the need of
probing the minds of the decision makers
...
•
The systems theory developed by Kapalan holds that a theory of
international politics normally cannot predict individual actions because
the interaction problem is very complex
...
He holds that the states seek to secure the
best attainable position of equilibrium, and this is desirable
...
MULTINATIONAL CORPORATIONS
The dynamics of the business environment fostered by the drastic political
changes in the erstwhile communist and socialist countries and the economic
liberalization across the world has enormously expanded the opportunities for
the multinational corporations, also known by such names as international
corporation, transnational corporation, global corporation (or firm, company
or enterprise) etc
...
According to the World Investment
Report 2001 there were over 63,000 of them with about 822,000 affiliates
...
China was host to about 3
...
e
...
The MNC’s account for a
significant share of the world’s industrial investment, production, employment
and trade
...
Firms that participate in international business, however large they may be,
81
solely by exporting or by licensing technology are not multinational
enterprises
...
g
...
•
Directly control foreign investments (as opposed simply to holding
shares in foreign companies)
...
•
The transnational corporation has become vehicles for the transfer
technology, especially to the developing countries
...
•
The MNCs enable the host countries to increase their exports and
decrease their import requirements
...
82
•
MNCs provide an efficient means of integrating national economies
...
Thus, they make
a commendable contribution to inventions and innovations
...
•
MNCs help increase competition and break monopolies
...
•
Through their power and flexibility, MNCs can evade or undermine
national economic autonomy and control, and their activities may be
inimical to the national interests
•
MNCs may destroy competition and acquire monopoly powers
...
•
MNCs retard growth of employment in the home country
...
They have also been
accused of the environmental problems
...
PRESPECTIVE
Future holds out an enormous scope for the growth of MNCs
...
A united Nation’s report described several developments
that points to a rapidly changing context for economic growth, along
with a growing role transnational corporations in that process
...
•
Rapidly changing technologies that are transforming the nature of
organization and location of international production
...
•
The rise of services to constitute the largest single sector in the world
economy and
•
Regional economic integration, which involve both the world’ largest
economies as well as selected developing countries
...
1991 onwards, the Government of India has taken several steps
to attract foreign investments and entry of the MNCs, such as:
•
Abolition of industrial licensing
•
Removal of restriction on investment under the MRTP Act
84
•
Liberalization of policy and procedure for transfer of technology, import
off capital goods, etc
•
Existing companies are allowed to raise foreign equity up to 51%
•
Provisions of the FERA have been relaxed
...
•
Foreign companies are permitted to use their trade in domestic markets
...
The government approved 666 foreign collaborations in
1990
...
At present,
the USA is the largest investor in India, followed by Switzerland, Japan and UK
...
THE RISE OF INDIAN MULTINATIONALS
After liberalization of Indian market in 1991 and in its due course, India INC
...
Though it took almost a
decade when many Indian forms have slowly and surly embarked on the global
path and lead to the emergence of the Indian Multinational Companies
...
While an Asian Paints is painting the world red, Tata is rolling out indicas from
Birmingham and Sundaram Fasteners nails home the fat that the Indian
company is an entity to be reckoned with
...
•
INFOSYS has 25,634 employees including 600 from 33 nationalities
other than Indian
...
•
Ranbaxy is the ninth largest generics company in the world
...
•
Dr
...
•
Small auto components company Bharat Forge is now the world’s
second largest forging maker
...
Its workforce includes Japanese, German,
American and Chinese people
...
•
About 80% of revenues for Tata Consultancy Services come from
outside India
...
•
Sundaram Fasteners is not merely a nuts and bolts company
...
Probably that is why it decided to acquire a
plant in China
...
87
Lesson 4
FOREIGN CAPITAL AND COLLABORATION
FOREIGN CAPITAL
Most countries of the world which embarked on the road to economic
development had to depend on foreign capital to some extent
...
But the fact cannot be denied that
foreign capital contributes in many important ways to the process of economic
growth and industrialization
...
•
For want of experience, domestic capital and entrepreneurship may not
flow into certain lines of production
...
•
It may be difficult to mobilize domestic savings for the financing of
projects that are badly needed for economic development
...
FORMS OF FOREIGN CAPITAL
The different forms of foreign investments are:
88
Direct Foreign Investment Foreign capital can enter India in the form of direct investments
...
There are three types of
foreign collaborations- joint participation between private parties, between
foreign firms and Indian government and between foreign governments and
Indian government
...
Loans from International Institutions
International Monetary Fund (IMF), Aid India Consortium, Asian Development
Bank (ADB) and the World Bank have been the major sources of external
assistance to India
...
to obtain commercial borrowing from the
capital market
...
The Foreign Investment Promotion Board
(FIPB) was also set up to process applications in cases not covered by automatic
approval
...
89
FOREIGN COLLABORATION
During the early phase of the planning era, the national policy towards foreign
capital did recognize the need for foreign capital, but decide not to permit it a
dominant position
...
Moreover, foreign collaborations were to be permitted in priority areas, more
especially those in which we had not developed our capabilities
...
Consequently, during 1961-70 a total of
2,475 foreign collaborations were approved and during the next decade (1971 –
80) an other 3, 041 collaborations were sanctioned
...
This was done specifically in respect of
investors from Oil Exporting Developing countries with well- defined package
exemptions
...
The objective of the policy was to acquire imported technology
and ensure that it was of the latest type appropriate to the requirements and
resources of the country
...
e
...
These relaxations resulted in a
larger inflow of foreign direct investment and consequently, the number of
approvals during the decade (1981 – 90) reached a record figure of 7,436
involving a total investment of Rs1, 274 crores
...
322
...
This was one fourth
90
of the total foreign collaboration approvals
...
2%), Japan, UK, Italy, France and Switzerland
...
Even Non-Resident Indians (NRIs)
contributed about Rs
...
9 % of total investment
...
5%
...
By and large it may be stated that the
priority sector accounted for about 70% of total approvals
...
FINANCIAL AND TECHNICAL COLLABORATIONS
Foreign collaborations are of two types:
•
Technical approvals involving payments for technology
•
Financial approvals involving equity capital of an existing or new
undertaking
...
600 crores the Industry Ministry accords approval on the advice
of Foreign Investment Promotion Board (FIPB), but larger projects over this
limits are approved by Cabinet Committee on Foreign Investment (CCFI)
...
1% during 1981– 1985, their share
improved to 28
...
•
The amount of approved investment also increased sharply from Rs
...
1, 73,510 crores in august 1998
...
However Government has been successful in
attracting more foreign investment in the post liberalization phase as compared
to the earlier period
...
It needs to be emphasized that
takeovers do not add to new production capacities
...
In foreign collaborations,
transfer of superior technology has not been the main consideration
...
•
Hindustan lever took over Tomco
...
•
Transfer of Lakme’s brand to a 50:50 joint venture with the Levers
...
•
Whirlpool took over TVS Whirlpool
...
92
•
Bridgestone increasing its stake from 51% to 74 % in joint venture with
ACC
...
•
Henkel increasing its share to 70%
...
•
Shriram’s share got reduced in Shriram Honda Power
...
FDI AND THE INDIAN STOCK MARKET
•
Stock market is an ideal form of organization, which by providing easy
liquidity encourages the public to invest, and this brings out the latent
surplus in the economy
...
During the 70’s and 80’s, a good number of blue
chip TNC scripts got listed
...
Merck, Eskayef, Fulford, Hoechst, May &
Baker, Organon, Parke Davis and Wyeth
...
•
In the post-liberalization period, the policy was reversed
...
93
•
While raising share of foreign equity to majority level, most TNCs
indicate a tendency to avoid the stock market
...
•
The number of technical collaborations declined from 629 in 1997 –
1928 to only 299 in 2003-2004
...
FOREIGN CAPITAL AND COLLABORATION – A CRITICAL
ASSESSMENT
•
Transfer of technology can be effected with more investment being made
by technologically advanced MNCs
...
•
Nearly half of the Foreign Investment is in the nature of portfolio
investment, which only strengthens speculative trading in shares
...
•
Foreign direct investment is catering to the needs of the upper middle
and affluent classes
...
•
Portfolio investment made in India is in the nature of hot money, which
may take to flight if the market signals indicate any adverse trends
...
94
•
A larger inflow of foreign direct investment, more so in the financial
sector, will lead to building of reserves, which in turn will expand
domestic money supply
...
•
MNCs after their entry are rapidly increasing their shareholding in Indian
companies
...
95
Lesson 5
FUTURE PERSPECTIVE OF INDIA INDUSTRY
AND MANAGEMENT
INDUSTRIALIZATION
Industrialization has a major role to play in the economic development of
the underdeveloped countries
...
The pattern of “growth though trade” in primary commodities was,
however, realized in the nineteenth century when industrialization was closely
linked with international trade
...
In industry, the scope for internal as
well as external economies is greater than in agriculture
...
As a
consequence of these factors, any successful transfer of labour from agriculture
to industry contributes to economic development
...
Industrial development depends upon the rate of capital
96
formation
...
Increase in the imports of capital goods depends
upon the rate of growth of exports
...
In addition, within the current volume of imports, capital goods may be
substituted in place of consumer goods
...
Simultaneously development of all the three classes of industries will
approve to be the most effective strategy of industrialization
...
REVEIEW OF INDUSTRIAL GROWTH
The progress of industrialization during the last 50 years since 1951 has been a
striking
feature
of
Indian
economic
development
...
As a result, over the last nearly 50 years, industrial production went
up by about five times, making India the tenth most industrial country of world
...
After a steady growth of
about 8 % during the initial period of 14 years (1951-1965), there was a
fluctuating trend since then
...
5 % and in the seventies (1971-80) the average
growth rate was about 4 % per annum
...
3 % per annum
...
Growing Importance of Basic and Capital goods
The structure of Indian industries had changed in favor of basic and capital
goods sector
...
, declined
...
Consumer durables like refrigerators, air-conditioners, TVs, cars and
scooters, etc
...
, enter into mass consumption
...
, Public sector units
accounted for 7 % of the number of factories in the country but they employed
32 % of the productive capital
...
Growth of Infrastructure
The rapid pace of industrial growth and the development of productive capacity
have been marked by remarkable, though still inadequate, expansion of
infrastructural facilities in the country
...
India now ranks third in the world in respect of technological talent and
manpower
...
INDIAN INDUSTRIES – STRUCTURAL TRANSFORMATION
The industrial structure has been widely diversified covering broadly the entire
range of consumer, intermediate and capital goods
...
99
Finally, the rapid stride in industrialization has been accompanied by a
corresponding growth in technological and managerial skills for efficient
operation of the most sophisticated industries and also planning, designing and
construction of such industries
...
Companies who have implemented TQM include Ford Motor Company,
Philips Semiconductor, SGL Carbon, Motorola and Toyota Motor Company
...
TQM is the concept that quality can be managed and that it is a
process
...
It is a holistic approach to managing complex organizations
and replaces top-down management with decentralized customer-driven
decision-making
...
It is based on the
assumption that 90 % of problems are a result of process, not employees
...
TQM places responsibilities for
100
quality problems with management rather than on the workers
...
The objective of TQM is the continual improvement of processes,
achieved through a shift in focus from outcomes (or products) to the processes
that produce them
...
PRINCIPLES OF TQM
The principles of TQM are as follows:
•
Quality can and must be managed
...
•
Processes, not people are the problem
...
•
Problems must be prevented, not just fixed
...
•
Quality improvements must be continuous
...
•
Goals are based on requirements, not negotiated
...
•
Management must be involved and lead
...
KEY ELEMENTS OF TQM
The key elements of TQM are as follows:
•
Pursue New strategic Thinking
101
•
Know your customers
•
Set True customer requirements
•
Concentrate on prevention, not correction
•
Reduce chronic Waste
•
Pursue a continuous Improvement strategy
•
Use structured methodology for process improvement
•
Reduce Variation
•
Use a Balanced Approach
•
Apply to all functions
TQM – PROCESS IMPROVEMENT AND PROBLEM SOLVING
SEQUENCE
This consists of five stages:
I
...
Recognize that what you are doing is a “PROCESS”
...
Identify the commodity being processed - Process inference
...
Define some measurable characteristics of value to the commodity
...
Describe the “PROCESS”
...
Identify the “BIG” problem
...
“BRAINSTORM” what is causing the problem
...
Determine what past data shows
...
Determine the relationship between cause and effect
...
Determine what the process is doing now
...
IMPLEMENT (Implement the change)
1
...
2
...
III
...
Test the change
...
Determine what change worked (Confirmation)
IV
...
Ensure the fix is embedded in the process and that the resulting
process is used
...
Continue to monitor the process to ensure the problem is fixed for
good and the process is good enough
...
FOLLOW UP (To ensure continuous improvement)
1
...
POLITICAL GEOGRAPHY
In the early 1990s the threat of superpower nuclear war faded as an omnipresent
nightmare in international relations
...
Fears about
terrorism also grew with a series of bombings from Paris, London, and Moscow
to Oklahoma City, New York and Atlanta
...
S troops and embassies in Saudi
Arabia, Tanzania, Kenya and Yemen were the targets of terrorist attacks
...
The new meta-narrative of geopolitics is the “war against
terror”
...
New
social movements have forced questions concerning the politics of identity and
lifestyles onto the political agenda
...
With global media networks
broadcasting news 24 hours a day and the Internet spreading a world wide web,
the ‘real’ geographies of everyday life were becoming strikingly virtual as well
as actual
...
Many of the problematics defining the late twentieth and early twenty
first century are inescapably political - geographic questions, from murderous
spatial practices like ‘ethnic cleansing’ or hyperbolic spatial narratives about ‘
borderlessness’ and ‘the end of distance’ to generalized concern about the
changing status of key human geographic notions like ‘territory’, ‘community’,
‘scale’, ‘place’ and ‘democracy’
...
Contemporary research on political - geographic questions is located
within the mainstream of contemporary social science
...
With its inherited
discourses on place and politics, technological transformations and geopolitical
space, nature and the contested politics of human-environment relations,
political geographers are well positioned to contribute to the larger social
science conversation about the human condition in the 21st century
...
Outline the present status of infrastructural facilities in our country
...
Point out the constraints which inhibit the rapid growth of infrastructural
facilities
...
Bring out the role of infrastructure in the growth of a county
...
Bring out the strengths, problems and remedies for different areas of
infrastructure
...
List out the recent developments in Telecom sector
...
Evaluate the significance of S & T in economic growth suggest suitable
measures to promote S & T
...
Explain the theory of Demographic Transition
...
Examine the trend of population growth and its implications on
economic growth
...
State the importance of Human Development
...
‘Gender Related Development is important to achieve overall human
development’, Comment and highlight the extent of gender equality in
India
...
Evaluate the Human Development across the state in India
...
12
...
Explain the different approaches of International Relations management
...
Evaluate the role played by MNCs in developing countries
...
What is Multinational Corporation? Explain its characteristics
...
Outline the major MNCs in India
...
17
...
105
18
...
19
...
20
...
21
...
22
...
23
...
24
...
25
...
26
...
27
...
Describe its process improvement and
problems solving sequence
...
Examine the growth and future perspective of Indian industries
...
What is ‘Geo Political Dimension’? Give its relevance in today’s global
environment
...
Describe the need and emergence of new dimension of business
environment, ‘geo political transformation’
...
These promises whether made by businessmen or by others create
certain rights and obligations and if these rights and obligations are not
enforceable, the business world would be paralysed
...
The contract Act does
not lay down the list of obligations that would be enforceable by law but lays
down the rules subject to which rights or duties created by the parties would be
enforced
...
Meaning: Sec
...
” Therefore,
a contract has two important elements, one is the agreement, and the other is the
obligation which is enforceable by law
...
e
...
(Sec
...
These would not be an agreement if the
parties do agree but not on the same thing in the same sense , i
...
, consensus is
not sufficient
...
Sec
...
A proposal when accepted becomes a promise
...
10,000 from B and promises to supply him 10 bags of
rice after 10 days
...
It shall be a set of promises if A promises to
supply 10 bags of rice after 10 days and B promises to pay him Rs
...
Thus, Agreement = Offer + Acceptance
...
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 the other to such act or abstinence, he is said to make a
proposal”
...
2(b)) as “ When the person to
whom the proposal is made, signifies his assent thereto, the proposal is said to
be accepted
...
Example: A lost his Cell Phone and announced that anybody
who
brought his cell phone back home would receive Rs
...
B
heard the announcement and brought the Cell Phone back home
...
Promisor: A person who makes the promise is called the ‘Promisor’ or
‘Offeror’
...
In case an agreement is a set of promises,
then a person becomes a promisor and promisee
...
However, this agreement does not become a contract unless
there is a corresponding obligation, i
...
Obligation (Sec
...
All agreements are contracts if they are
made by the free consent of the parties competent to enter into contract,
for a lawful consideration and with a lawful object and not hereby
expressly declared to be void
...
108
1
...
A minor, a
lunatic, a drunkard etc
...
2
...
For an agreement to become a contract the parties to
an agreement should give their consent to the agreement out of
their own free will
...
3
...
e
...
A promises to give
his bike to B for no money, here , there is no consideration, hence
no
obligation
...
consideration
a
promise
can’t
be
However, consideration need not be in
money or in kind
...
But consideration should be lawful
...
In this case , there is no lawful object
...
Intention to create Legal Relationship: Social obligation can’t
bring legal relationship
...
100 per day for pocket expenses, however later on did not
pay the said amount
...
109
5
...
1 lakh
...
6
...
There is nothing whatever to show which horse is intended
...
7
...
25)
...
8
...
g
...
Thus the law of Contract is
not the whole law of Agreements
...
The Law of Contract is not the Whole Law of Obligations
There may be certain duties (obligations) which the law may enforce
though they were not agreed to by the parties
...
These obligations may arise in the
following ways:
(1)
Torts and Civil Wrong: Where a tort is committed by one person
against another the former is bound to compensate the latter even
110
though there is no agreement between the two
...
(3)
Quasi Contracts : Where law creates and enforces an obligation
between two persons, it is known as Quasi Contract
...
KINDS OF CONTRATS
(1)
Valid Contract: It is an agreement which fulfils all the essentials
of enforceability and can be enforced by either of the parties at the
courts of law
...
” This arises where the consent of one of the
parties to the contract is not free
...
, A, at the point of pistol
makes B agree to sell his bicycle for Rs
...
Here B’s consent is
not free
...
14, 17 and 19)
(ii)
Consent caused by coercion (Sec
...
14, 18 and 19)
111
(iv)
Consent caused by undue influence (Sec
...
(B) By Subsequent Default
(i)
Where offer of performance is not accepted (Sec
...
53)
(iii)
When a party fails to perform at the time fixed, if time is the
essence of the contract (Sec
...
The benefit must have been received
under the contract and not otherwise
...
(B)
As regards the other party, he need not perform his promise
...
g A agrees to sell his car to B for Rs
...
All
essentials of a contract are fulfilled
...
But
if, before the delivery the car is destroyed by Tsunami, the court
cannot enforce anything and hence this contract becomes
112
unenforceable i
...
Thus, void contract is one which was a
valid contract when it was made but becomes void later on
...
Following circumstances will transform a valid contract into a void
contract
...
(B)
Repudiation of a voidable contract: When a voidable contract is
rescinded by the party at whose option it is voidable, the contract
becomes void
...
56): A contract which becomes
impossible to perform, after it is made, becomes void
...
56): A contract becomes void if it
becomes illegal after it is made
...
65 lays down that when a
contract becomes void, the party who has received any advantage under
such agreement, should restore it or make compensation for it to the
party from whom he received it
...
If
any
of
113
the
essentials
of
obligations
(enforceability), other than free consent, is missing the agreement
cannot be enforced at Courts of Law
...
(1)
If a party to the contract is incompetent to contract (Sec
...
10, 25) barring
certain exceptions
...
23)
(4)
If the meaning of the contract is uncertain (Sec
...
56)
(6)
If both the parties enter into an agreement under a mistake as to
the essential matter of fact (Sec
...
There is no consensus ad
idem
...
21)
(8)
If the agreement is in restraint of marriage of a person other than
a minor (Sec
...
27) barring certain
exceptions
...
28)
(11)
If the agreement is by way of wager (Sec
...
e
...
Example: A agrees to steal furniture for B for a
consideration of Rs
...
It is illegal and therefore it is void
...
114
While all illegal agreements are void, all void agreements are not illegal
...
(6)
Unlawful Agreements: (Sec
...
In simple words an agreement
may be unlawful because it is:
(a) Immoral –i
...
contrary to sound and positive morality as
recognized by law, e
...
cohabitation
...
e
...
g
...
(c) Illegal –i
...
contrary to positive law, being forbidden either by
statutes law or common law;
Hence a line of demarcation needs to be drawn between illegal and
unlawful agreements
...
are termed as
unenforceable contracts
...
Example: A goes to B’s
shop and asks him to supply 10 boxes @ Rs
...
B tells
him that he is ready to supply the boxes at the mentioned rate
...
The same intention of the parties may
be expressed in writing signed by both the parties
...
No exchange of
words either written or spoken takes place, but the manifestation
of their intentions is inferred from their respective acts or
conduct
...
Example: A, a tradesman, leaves goods at B’s house
by mistake
...
B is bound to pay A for
them, the obligation is imposed by law
...
All transactions of Cash sales are the examples
of Executed Contracts
...
It is partly Executed
and partly Executory
...
Example: A goes to a bus stand ticketcounter and
buys a ticket for journey
...
e
...
But the bus authority is
yet to perform his promise i
...
, of carrying him from one point to
another
...
116
(14)
Bilateral Contract: As against Unilateral Contract, a Bilateral
Contract is one where at the time of entering into the contract
both the parties to the contract are yet to perform their respective
promises
...
We shall, therefore, discuss as to what constitutes a ‘lawful offer’
...
According to sec
...
The person
making the proposal is called the “Promisor” and the person to whom
the offer is made is called the “Promisee” [Sec
...
100 to B if B washes his cloths
...
100
...
It is important to note that the offer
must be made with the object of obtaining the assent of the other party
...
(2) Offer should be made with an intention to create legal
relationship: In the absence of such intention no obligation can arise
...
117
Example: Where A proposes to sell his ‘Television’ to B for Rs
...
(3) There is no valid offer where:
(i) it is mere statement of intention:
Example: A gives an advertisement in the television that he would
dispose of his building by auction on 5 th June at 8 a
...
in the lawns of
his bungalow
...
A cannot be held liable because his
advertisement to hold auction did not constitute an offer, it was merely
an intention to hold an auction where bids would be received
...
The actual offer is the bid made at the auction and
the auctioneer accepts it
...
If an offer is not
communicated to the offeree, the latter cannot accept it
...
118
Example: A writes to B “I shall buy your furniture for Rs, 10,000, if you
do not reply I shall assume that you have accepted my offer
...
(6)
Offer may be express or implied: An offer is express when it is
stated in words, written or spoken
...
e
...
LAPSE OF AN OFER
An offer once made cannot be continued for ever
...
An offer
becomes invalid i
...
comes to an end in the following circumstances
...
5000 and tells him
that B must communicate his acceptance within three days
...
5000 to buy the table
...
A is not
bound because the offer has lapsed on the third day
...
Next day
Central Government prohibits inter-state transfer of Peanuts
...
119
(3)
Where the offerer or offeree dies or becomes insane before the
offer is accepted: Example: A offers to sell his cow to B
...
B cannot accept the offer
...
10000
...
B writes a letter to A accepting the offer
...
But if A informs
B that he is not treating this letter as acceptance because the offer
has not been accepted by a telegram, then this letter would not
result in acceptance
...
10,000”
...
15,000
...
15,000
...
10,000
...
A is not bound by his offer because the statement of B that
‘I shall sell my land for Rs
...
When a counter offer is made the original
offer lapses and there is nothing for the offeree to accept
...
(6)
An offer comes to an end when the offerer revokes his offer
before it is accepted
...
The party inviting tenders may require a definite
quantity of goods or services to be supplied, in that event the person who
responds to that invitation is said to have made a definite offer and
would become bound by it if it is accepted
...
A
proposal once accepted becomes a contract
...
These offers are called ‘CROSS OFFERS”
...
But where the offer
is made to an uncertain body of persons, anybody can accept the offer
...
(2) The Acceptance must be expressed in some usual and
reasonable manner, unless the proposal prescribes a manner
in which it is to be accepted
(3) Acceptance by
Consideration:
performing
Conditions
or
receiving
Example: A offers to pay Rs
...
B immediately throws the ball into the
basket in first attempt
...
”
(4) Acceptance must be communicated: Unless acceptance is
communicated it would not turn the offer into a contract
...
But the offerer cannot
frame his offer in such a way that the silence of the offeree would
become his acceptance
...
But where no time
limit is stipulated the offer should be accepted within a reasonable
time
...
CONSENSUS AD IDEM
According to sec
...
But where the
circumstances lead one party to believe that the other would have
understood the terms of the agreement, law may imply unenforceable
agreement
...
COMMUNICATION OF OFFER AND ACCEPTANCE
Problem of communication arises when the parties to the contract are not
face to face with each other
...
122
Advertisements, notices, circulars, etc
...
The rules of communication regarding them are as follows:
(1) “The communication of a proposal is complete When it comes to
the knowledge of the person to whom it is made…” (sec
...
The communication of an acceptance is complete
(i) as against the proposer, when it is put in a course of transmission
to him, so as to be out of the power of acceptor; and
(ii) as against the acceptor, when it comes to the knowledge of the
proposer…” (Sec
...
REVOCATION OF PROPOSAL AND ACCEPTANCE
“A proposal may be revoked at any time before that communication of
its acceptance is complete as against the proposer, but not afterwards
...
”
Agreement to Agree in Future
Agreement to enter into an agreement upon terms to be settled
afterwards between the parties is a contradiction in terms
...
124
LESSON 2
CONSIDERATION AND COMPETENCE TO CONTRACT
Consideration is one of the elements of obligation
...
(Sec
...
(Sec
...
ESSENTIALS OF CONSIDERATION
(A) Based on Definition
An analysis of the above definition reveals the following essentials of
consideration
...
Stranger to Contract
It is a general rule that a person, who is not a party to a contract, cannot
sue on the contract even though the contract is for his benefit i
...
unless
there is privity of contract ,the relationship is not enforceable
...
10) “All agreements are
contracts if they are made for a lawful consideration” The consideration
of an agreement is unlawful, if (i) it is forbidden by law, or (ii) it is of
such a nature that, if permitted, it would defeat the provisions of any
law, or (iii) it is fraudulent or (iv) it involves or implies injury to the
person or property of another or (v) the court regards it as immoral or
opposed to public policy (Sec
...
(2) Consideration need not be adequate to the value of the promise:
(Sec
...
”
Exceptions to the Rule of Consideration
(Sec
...
(1) Love and affection:
An agreement without consideration is enforceable if
(a) it is made out of love and affection;
(b) the love and affection is natural because the parties are so
related to each other;
(c) the agreement is in writing;
(d) the agreement is registered under law
...
”
(3)
Promise to pay a time barred debt: If it is a promise, made
in writing and signed by the debtor or his agent to pay wholly
or in part a debt which is barred by the limitation
...
185 provides “No consideration is
necessary to create an agency
...
25) “Nothing in this Section shall
affect the validity, as between the donor and donee, of any gift
actually made
...
23), “The consideration or
object of an agreement is lawful, unless it is forbidden by law; or is of
such a nature that, if permitted, it would defeat the provisions of any
law; or is fraudulent; or involves or implies injury to the person or
property of another; or the court regards it as immoral, or opposed to
public policy
...
23 which make an agreement
unlawful
...
127
(2)
If it is of such a nature that, if permitted, it would defeat the
provisions of any law: i
...
it would indirectly lead to a violation
of the law
...
(4)
If it involves or implies injury to the person or property of
another:
(5)
If the Court regards it as immoral
...
(c)
Agreements interfering with the Course of Justice: An
agreement entered into with the object of exercising improper
influence on judges or officers of justice is bad in law as opposed
to public policy
...
(e)
Agreement to vary the period of limitation: An agreement that
reduces or increases the period of limitation as laid down by the
law of limitation is opposed to public policy
...
(g)
Agreement creating an interest opposed to duty
(h)
Agreements restraining personal freedom
(i)
Agreements opposed to parental rights and duties: Father is
supposed to be the guardian of his children and in the absence of
the father their mother acquires this right as well as responsibility
and this right cannot be bartered away
...
The following agreements are also opposed to public policy
...
(ii) Agreements in restraint of trade
...
COMPETENCE TO CONTRACT
Competence to contract is one of the essential elements of enforceability
of an agreement
...
10 ‘All agreements are contracts if
they are made by… the parties competent to Contract…
...
11 of the Contract Act states that “Every
person is competent to contract who is of the age of majority according
to the law to which he is subject, and who is of sound mind, and is not
disqualified from contracting by any law to which he is subject
...
e
...
129
(2)
A Person who is not of sound mind i
...
a person of unsound
mind
...
e
...
)
MINOR
A minor is a person who has not completed 18 years of age on the date
of the contract
...
(b) When the minor is under the guardianship of the court of Wards, i
...
minor’s property is looked after by the Court of Wards
...
10, an agreement
made by a person incompetent to contract is void
...
The agreement is void ab initio i
...
void from
the very beginning
...
68 of the Contract Act lays down “if a person,
incapable of entering into a contract or any one whom he is legally
bound to support, is supplied by another person with necessaries suited
to his condition in life, the person who has furnished such supplies is
entitled to be reimbursed from the property of such incapable person
...
The privilege of
minority is available to the minor only
...
Thus the minor can enforce the
agreement against the other party
...
e
...
(4) No Compensation is payable by a minor: Though an agreement
with a minor is void, the minor would not be called upon to refund any
benefit which he has received, under such an agreement (i
...
Sec
...
65 would not apply to a minor)
...
e
...
(6) No recovering back the money paid: Where an infant has paid
money under a void or voidable contract he cannot recover it unless
there has been a total failure of consideration
...
If what the infant has done lies right
outside the terms of the contract, the infant can be made liable
...
A minor acting as an agent cannot be held liable even for
those acts for which other agents would incur personal liability
...
(10) Partnership: An agreement with a minor is void
...
This means that the losses of the firm can be
recovered only from his share in the firm but unlike other partners his
personal property would not be liable for firm’s losses
...
(12) Joint Agreement: Where a minor and another person make a joint
promise, the promisee cannot enforce the agreement against the minor
but he can enforce it against the other person
...
(14) Minor’s Parents: Agreements made by a minor are not enforceable
against his parents, even through they are for the necessaries supplied to
the minor
...
11 only a person of sound mind can make a contract
...
12 further defines the term sound mind in these words, “A person is
said to be of sound mind for the purpose of making a contract if, at the
time when he makes it, he is capable of understanding it and of forming
a rational judgment as to its effect upon his interest…”
...
Consent is an act of reason accompanied by
132
deliberations
...
A person of unsound mind may be divided into two broad
categories:
(1) Idiots: An Idiot is one who has lost mental powers completely, i
...
,
his brain has not developed enough to enable him, at all to understand
the contract or of forming a rational judgment of its effects upon his
interest
...
However, he
can be sued for necessaries of life supplied to him or to anybody
dependent upon him
...
The essential element of lunacy is that the mental powers of the
lunatic are so deranged that he cannot make a rational judgment of any
subject the period of lunacy
...
10)
...
(2)
Foreign sovereigns and their Ambassadors
...
133
(3)
Corporation: A corporation is an artificial person created by law
...
It has to act
through some agent
...
(5)
Convicts: A person against whom a sentence of imprisonment is
passed loses the capacity to contract
...
A woman, married or single, in Indian Law, is under
no disability as regard, entering into contracts with regard to the
property that belongs to her (e
...
stridhan of a married women)
...
FREE CONSENT
“The term free consent consists of two requirements viz
...
Consent:
The term consent is defined by Sec
...
Consent is said to be so caused
when it would not have been given but for the existence of such
coercion, undue influence, fraud, misrepresentation or mistake
...
14)
COERCION
“Coercion is the committing or threatening to commit any act, forbidden
by the Indian Penal Code or the unlawful detaining or threatening to
detain any property, to the prejudice of any person whatever, with the
intention of causing any person to enter into agreement
...
15)
(A)
Coercion is committing any act forbidden by the Indian Penal
Code with the intention of causing any person to enter into an agreement
...
(C)
Coercion is the Unlawful detaining of any property to the
prejudice or any person, whatever, with the intention of causing any
person to enter into an agreement
...
Effect of Coercion: Sec, 19 states “When consent to an agreement is
caused by coercion… the agreement is a contract voidable at the option
135
of the party whose consent was so caused” i
...
the aggrieved party at its
option, may set aside the contract or may insist that the contract shall
performed
...
72 further states, “A person to whom money has been
paid, or anything delivered… under coercion, must repay or return it
...
16 (1)] “A Contract is said to be induced by ‘undue influence’
where the relations subsisting between the parties are such that one of
the parties is in a position to dominate the will of the other and uses that
position to obtain an unfair advantage over the other
...
Effect of Undue Influence: [Sec
...
Pardanashin Women: A pardanashin woman is susceptible to undue
influence and therefore, the law throws around her a “Special cloak of
protection” i
...
where such a woman signs a sale, mortgage, gift or
release, the person obtaining her signatures has to prove that the
transaction was not only explained to her but also that she had
understood the transaction and that no undue influence was exercised on
her
...
(2)
Burden of Proof : Prove how the coercion was exercised; Prove
that the other party was in a position to dominate his will and that
the transaction is unconscionable
...
FRAUD
Fraud means and includes any of the following acts committed by a party
to a contract, or with his connivance or by his agent with intent to
deceive another party thereto or his agent or to induce him to enter into
the contract:
(a)
The suggestion, as a fact, of that which is not true by one who
does not believe it to be true;
(b)
The active concealment of a fact by one, having knowledge and
belief of the fact;
(c)
A promise made without any intention of performing it;
(d)
Any other act fitted to deceive;
(e)
Any such act or omission as the law specially declares to be
fraudulent (Sec
...
17) “silence as to facts likely to
affect the willingness of a person to enter into a contract is not fraud
137
unless the circumstances of the case are such that regard being had to
them it is the duty of the person keeping silence to speak or unless his
silence is in itself equivalent to speech
...
These are
called uberrimae fidei contracts: b) His silence is, in itself, equivalent
to speech:
Effect of Fraud
(A) Where Fraud is the cause of the contract:(i)Voidable Contract:(ii)
Damages
(B) Where Fraud is not the cause of contract: An attempt at deceit,
which does not deceive, is no fraud
...
18 as: “Misrepresentation means and includes(a) The positive assertion in a manner not warranted by the information
of the person making it, of that which is not true, though he believes
it to be true;
(b) Any breach of duty which, without an intent to deceive, gains an
advantage to the person committing it, or any one claiming under
him, by misleading another to his prejudice or to the prejudice of any
one claiming under him;
138
(c) Causing, however innocently, a party to an agreement to make a
mistake as to the substance of the thing which is the subject of the
agreement”
...
Distinction between Fraud and Misrepresentation
Fraud: Intention to deceive there is no intention to deceive, fraud to
recover damages not available in case of misrepresentation
...
In Fraud,
this exception does not apply
...
As “error in
consensus” i
...
there is no ‘consensus ad idem’; because of some
misunderstanding, called ‘Mistake’, parties do not agree upon the same
thing in the same sense
...
MISTAKE OF LAW (Sec
...
” The
reason of this rule lies in the legal maxim “ Ignorance of law is no
excuse”
...
Essentials: (1) Mistake must be
mutual; (2) Mistake must relate to a fact: (3) Fact should be
essential:
Type of Mistakes: Mistake of fact can be divided into the following
categories:
(A) Bilateral Mistakes: (1) Mistake as to the subject Matter: (i)
Mistake regarding existence of subject matter: (ii) Mistake
regarding identity of the subject matter i
...
the two parties
understand different things to be the subject matter: (iii)Mistake
regarding quantity of subject matter:(iv) Mistake regarding title of
the subject matter: Where both the parties believe that the seller
has the right to sell the goods but unknown to both, the seller has
no title to the goods
...
(vi) Mistake regarding the quality of the subject matter
...
(B) Unilateral Mistake: In the following circumstances, even unilateral
mistake will make the contract voidable
...
When one of the parties to a contract,
140
without any fault of his own, is made to commit a mistake as to the
nature of transaction the agreement would be void
...
VOID AGREEMENTS
Following are those contracts, which may not lack any of the essentials,
discussed so far, still the law has specifically declared them void, they are:
(1)
AGREEMENT IN RESTRAINT OF MARRIAGE
(2)
AGREEMENT IN RESTRAINT OF TRADE
Following agreements are not in Restraint of Trade
(1)
Restraint during the term of service
(2)
Agreements which promote business and do not restrain it
(3)
Trade Combinations
(3)
AGREEMENT IN RESTRAINT OF LEGAL PROCEEDINGS
(Sec
...
Exceptions-Arbitration Agreements: An agreement to refer all future as well
as present disputes in connection with a contract, to arbitration is valid
...
29) “Agreements the meaning of
which is not certain or capable of being made certain, are void
...
30) “Agreements by way
of wager are void, and no suit shall be brought for recovering anything
alleged to be won on any wager, or entrusted to any person to abide by the
result of any game or other uncertain event on which any wager is made
...
30
...
Cross-ward Puzzles: Cross-word puzzles are of two types:
(i)
One in which any person solving the puzzle would be awarded, therefore it
is a game of skill and not of chance and is not a wagering agreement
...
CONTINGENT CONTRACTS
(Selection 31) “A contingent contract is a contract to do or not to do
something, if some event, collateral to such contract does or does not happen”
...
142
Example: X contracts to pay Y Rs
...
100 monthly premium, if Y’s factory is burnt
...
Example: A agrees to pay B a sum of money if B marries C
...
RULES RELATING TO CONTINGENT CONTRACTS
1
...
2
...
3
...
32) “Contingent contracts to
do or not to do anything if an uncertain future event happens cannot be
enforced by law unless and until that event has happened”
...
Contracts contingent on the non-happening of an event: (Sec
...
5
...
35)
...
143
6
...
36-)“Contingent agreement
to do or not to do anything if an impossible event happens, are void, whether
the impossibility is known or not to the parties to the agreement at the time
when it is made
...
2
Parties have real interest in the occurrence but or non-occurrence of the
event e
...
, insurable interest in the property insured
...
3
Future uncertain event is merely collateral: uncertain event is the sole
determining factor of the agreement
...
A quasi contract is
based on the principle that no person can enrich himself unjustly, at the expense
of another
...
Following relations created by law resemble those created by contract:
(1)
NECESSARIES SUPPLIED TO A PERSON INCAPABLE OF
CONTRACTING: Example: X supplies Y, a lunatic, with necessaries
144
suitable to his conditions in life
...
(2)
PAYMENT OF MONEY DUE BY ANOTHER: (Sec
...
”
(3)
NON-GRATUITOUS ACT FOR ANOTHER’S BENEFIT: (Sec
...
Example: A Businessman leaves goods at B’s house with the intention of
persuading B to buy them
...
He is bound to
pay A, for them
...
71) “A person who finds goods
belonging to another and takes them into his custody is subject to the
same responsibility as a bailee
...
72)
“A person to whom money has been paid or anything delivered by
mistake or under coercion must repay or return it”
...
1000 to Z
...
1000 over again to Z
...
This is a
general rule, usually invoked where there is no agreement to pay for the
work done
...
70)
146
LESSON 3
PERFORMANCE AND DISCHARGE OF CONTRACTS
‘Performance of Contracts’ refers to the fulfillment of their respective legal
obligations, created under the contract, by both the parties
...
The various aspects relating to
performance are discussed below:
(A)
ACTUAL PERFORMANCE
“The parties to a contract must either perform, or offer to perform their
respective promises, unless such performance is dispensed with or excused
under the provisions of this Act of any other law
...
1000 to Y on
10th June
...
1000 in cash but Y did not accept
it
...
1000 but he would
not be liable to pay interest thereon from 10th June onwards
...
38): The promisor while offering to
perform his promise must do it unconditionally
...
38): The offer must be of whole
payment or performance
...
147
(iii)
Proper time and place (Sec
...
(iv)
Able and willing (Sec
...
”
(v)
Reasonable opportunity (Sec
...
Thus buyer must have reasonable
opportunity to ascertain that the goods offered are contracted for
...
38) “An offer to one of several joint promises
has the same legal consequences as an offer to all of them
...
39)
“When a party to a contract has refused to perform, or disabled himself from
performing, his promise in its entirely, the promisee may put an end to the
contract, unless he has signified, by words or conduct, his acquiescence in its
continuance
...
”
(D)
BY WHOM CONTRACTS MUST BE PERFORMED
(1) By the promisor himself: (Sec
...
are
involved, it is presumed that the promisor would himself perform the contract
...
37) “…Promises bind the
representatives of the promisors in the case of death of such promisors before
performance, unless a contrary intention appears from the contract”
...
10,000
...
A’s representatives are bound to deliver
the goods to B, and B is bound to pay Rs
...
(E)
OFFER TO PERFORM (TENDER)
(Sec 37) “A party who has not already performed his obligation must offer to
perform the same
...
38) “Where a promisor has made an offer of
performance to the promisee, and the offer has not been accepted, the promisor
is not responsible for non-performance, nor does he thereby lose his rights under
the contract”
...
A must perform this
promise personally
...
g
...
When a promise is made to two or more persons, they are Joint
Promises
...
5000
...
5000
...
” “The
question what is a reasonable time is, in each particular case, a question of fact
...
47) “When a promise is to be
performed on a certain day, and the promisor has undertaken to perform it
without application 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
...
46) “When a promise
is to be performed on a certain day, and the promisor has not undertaken to
150
perform it without application by the promisee, it is the duty of the promisee to
apply for performance at proper place and within the usual hours of business
...
49) “When a
promise is to be performed with application by the promisor 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
...
50) “The performance of
any promise may be made in any manner, or at any time which the promisee
prescribes or sanction
...
2 (f)] “Promises which form the consideration or part of the consideration
for each other are called reciprocal promises
...
”
(2) In the order, which the nature of transaction requires: (Sec
...
”
151
(3) When the performance of a promise is dependent upon other: (Sec
...
” These
are known as mutual and dependent promises
...
53) “ When a contract contains reciprocal promises, and one party to
the contract prevents the other from performing his promise the contract
becomes voidable at the option of the party so prevented
...
57) “Where
persons reciprocally promise, firstly, to do certain things which are legal,
and secondly, under specified circumstances, to do certain other things
which are illegal the first set of promises is a contract, but the second is a
void agreement
...
55) “When a party to a
contract promises to do certain thing at or before a specified time, or
certain things at or before specified times, and fails to do any such thing at
or before the specified time, the contract, or so much of it as has not been
performed, becomes voidable to the option of the promisee, if the intention
of the parties was that time should be the essence of the contract
...
(3)
Condition for compensation when contract is voidable and goods are
accepted: “If in case of a contract voidable on account of the promisor’s
failure to perform his promise at the time agreed, the promisee accepts
performance of such promise at any time other than that agreed, the
promisee cannot claim compensation for any loss occasioned by the nonperformance of promise at the time agreed unless, at the time of such
acceptance, he gives notice to the promisor of his intention to do so
...
55)
DISCHARGE OF A CONTRACT
A contract is discharged, terminated when the rights and obligations created by
it come to an end
...
37): When the parties to a contract
perform their respective promises, the contract comes to an end
...
(II)
BY TENDER (ATTEMPTED PERFORMANCE): When a promisor
makes an offer of performance tender and the offer is not accepted, the
promisor is not responsible for non-performance, i
...
he is discharged
from his obligations under the contract
...
e
...
(III)
(A)
BY SUPERVENING IMPOSSIBILITY: Impossibility is of two types:
IMPOSSIBILITY AT THE TIME OF CONTRACT: (Sec
...
”: Example A
agrees with B to discover gold by magic
...
(B)
SUBSEQUENT OR SUPERVENING IMPOSSIBILITY
Where a contract originates as one capable of performance but later due to
change of circumstances its performance becomes impossible, it becomes void
by subsequent or supervening impossibility (section 56)
...
Example: A and B contract to marry each other
...
The contract becomes void
...
(3) Change of Law: A contract which becomes illegal after it is made, becomes
void and the parties to the contract will be discharged from their respective
obligations
...
154
(5) Declaration of war: A contract entered into with an alien enemy before the
war breaks out is either suspended or discharged after the declaration of war if it
does not aid the enemy in the pursuit of war, it is suspended and would be
performed after the war is over, otherwise it is terminated and the parties to the
contract are discharged from their respective obligations
...
(i)
Difficulty of performance: If a contract becomes difficult to perform but
not impossible the promisor would not be discharged on that account
...
A contract
would not be deemed to be impossible because it does not remain
profitable to the promisor or would make the promisor to incur losses
...
(ii) Strikes, lock-outs, civil disturbances and riots do not discharge a
contract unless there is a clause in the contract to that effect
...
155
Consequences of Supervening Impossibility
Supervening impossibility makes a contract void
...
65)
...
V
...
Termination by mutual agreement may occur in any one
of the following ways
...
(2) Alteration: When one or more of the terms of a contract are changed it is
called alteration
...
Example: A agrees to supply to B 20 readymade pants, 10 of the size 32 and 10
of the size 34
...
A
agrees to it
...
(3) Rescission: When both the parties to a contract agree to put an end to the
contract, without performing it, the contract is said to be rescinded by mutual
agreement
...
both
the parties agree that the contract would not be performed
...
(4) Remission: When a party to a contract accepts, from the other party, a
performance lesser than what he had contracted for, he is deemed to have
remitted the remaining performance, and the contract is discharged
...
500 rupees but pays on by Rs
...
The whole debt is discharged
...
Example: A pays Rs 1000 to B
to paint a wall for him
...
B is no longer
bound to perform the promise
...
This
is known as merger
...
After one year A buys the house from B
...
VI
...
If that time limit expires, the promisee cannot enforce the promisor
and promisor is discharged
...
The last date for
the repayment of the loan has expired and B does not file a suit against A for
two years
...
VII
...
Death: If a contract involves personal skill
or ability, death of the promisor would terminate the contract
...
Insolvency:
When a person is adjudged insolvent and hands over all his property to the
official receiver/assignee, he is supposed to have the right to earn his livelihood
in the ordinary way and therefore the courts, under certain circumstances and
subject to certain conditions, discharge him from all debts which were payable
157
in insolvency but remain unpaid
...
3
...
Material alteration: A change which affects or alters, in a specific
manner, the rights and liabilities of the parties is called material alteration
...
g
...
VIII
...
It
entitles the promisee to rescind the contract
...
BREACH OF CONTRACT AND ITS REMEDIES
As we discussed in the previous part breach of contract is a mode of discharge
of the contract
...
The remedies depend upon whether the breach is (a) Actual or (b)
Anticipatory or Constructive
...
ACTUAL BREACH
Where a person fails to perform a contract when the performance is due, the
other party can hold him liable for breach i
...
he can rescind the contract and sue
for damages
...
Example: A promised to supply B,
158
500 tables on 10th Jan
...
A is guilty of
breach of contract and B becomes the aggrieved party
...
If the promisor is not allowed to perform the
remaining part then the promisee has committed a breach of contract
...
agreed to buy 4000 tons of goods
...
The company committed a breach of contract
...
ANTICIPATORY BREACH
When a party to the contract, before the date of performance arrives, repudiates
his liability under the contract or makes the performance of the contract
impossible, there is an anticipatory (constructive) breach of contract
...
Example: A promises to marry
B in the month of April
...
The marriage
between A and B becomes impossible, this is a case of anticipatory breach
...
He may treat the
anticipatory breach as the actual breach of contract and can rescind the contract
...
He may ignore the notice or the conduct of the promisor and may wait till the
due date of performance and then if the promise is not performed he may treat it
as breach of contract
...
159
REMEDIES OF BREACH OF CONTRACT
When a contract is broken the party who suffers from such breach is entitled to
the following relieves:
1
...
Example: A, an advocate promises to plead B’s case in the court of
law if B gets him (A) a table before the date of hearing
...
A can rescind the contract and becomes free from the obligation of
pleading B’s case
...
Suit for Damages: The injured party can also file a suit for compensation for
the loss it has suffered because of the breach of the contract
...
60,000 but B breaks his promise
...
3
...
e
...
The
rule is invoked where there is no agreement for remuneration for the work done
...
Example: A agreed to write a story for B, which B
would publish in iinstalments in his weekly magazine
...
After a few instalments were published, B
abandoned the magazine
...
4
...
In certain cases the court may direct the
party in default to fulfill his promise
...
It is usually granted
where monetary compensation is not an adequate remedy
...
g
...
Example: A, a renowned painter agrees to
paint a picture for B
...
B pleads with the court that he
cannot get such a painting with any amount of money
...
5
...
It is an order of the court prohibiting a party from doing
something
...
Later on a agrees to perform in the theatre of P
...
(because court
cannot effectively supervise it) but he can ask the court to restrain A from
performing in P’s theatre
...
Following are
the rules for the damages:
(1)
When a contract is broken, only those damages “which naturally arose in
the usual course of things from such breach” can be recovered
...
(2)
In certain cases even special damages can also be recovered
...
’ (Sec
...
(4)
“… In estimating the loss of damage, arising from a breach of contract, the
means which existed of remedying the inconvenience caused by the nonperformance of the contract must be taken into account”
...
(6)
Damages are not awarded with a view to punishing the defendant except
(a) for a breach of promise to marry and (b) for a wrongful dishonour by
the banker of cheque of the customer
...
(7)
In case the court finds that though the defendant has been guilty of a
breach of contract, the breach has not caused any appreciable loss to the
plaintiff, it awards only nominal damages, like costs of the suit etc
...
These are
known as liquidated damages (Sec
...
(Sec
...
(10) Mitigation of loss: it is the duty of the plaintiff to take steps to minimize
the loss resulting from breach
...
(12) Interest as damages: As regards breach of contract of sale, the court is
empowered to award interest, at such rate as it thinks fit, on the amount of
the price
...
73)
(2)
Special Damages means loss which would result not in the ordinary
course, but because of special circumstances and the parties know, at the time
162
when they entered into the contract, that this is likely to result from the breach of
it
...
74) “When a contract has been broken, if a
sum is named in the contract as the amount to be paid in case of such breach, or
if the contract contains any other stipulation by way of penalty, the party
complaining of the breach is entitled whether or not actual damage or loss is
proved to have been caused thereby, to receive from the party who has broken
the contract reasonable compensation not exceeding the amount so named or, as
the case may be, the penalty stipulated for”
...
10000, if he fails to pay B Rs
...
A fails to pay B Rs
...
B is entitled to recover from
A such compensation, not exceeding Rs
...
(4) Vindictive or exemplary Damages: As explained earlier, damages for
breach of contract are granted to compensate for the loss suffered by the plaintiff
and not with a view to punish or penalize the wrong done by the defendant
...
However there are following two exceptions to this general rule
...
(ii) In
case
a
banker,
wrongfully, dishonouring the cheque of a customer having sufficient funds to his
credit
...
“A stipulation for increased interest from the date
of default may be a stipulation by way of penalty” [Sec
...
(5) Nominal Damages: Where the aggrieved party does not suffer any monetary
loss, sometimes the Courts grant a nominal amount like cost etc
...
163
LESSON 4
CONTRACT OF AGENCY
DEFINITION OF AGENT AND PRINCIPAL
(Sec
...
The person for whom such act is
done or who is so represented, is called the principal
...
Where a person is in the
habit of advising another in business dealings he does not become the agent of
the other
...
“A principal has the right to direct what the
agent has to do; but a master has not only that right but also the right to say how
it is to be done” An agent is, therefore, sometimes described as ‘Superior
Servant
...
Who may employ agent?
(Sec
...
”
“Whatever a person can do personally he can do through an agent
...
164
Who may be an agent? A minor or even a person of unsound mind can act as
agents but they would not be responsible to the principal or to the third parties in
cases where a person competent to contract would have been responsible
...
185) “No consideration is
necessary to create an agency
...
CREATION OF AGENCY
The relationship of principal and agent may be created in any of the following
ways:
(i)
BY EXPRESS AGREEMENT: “The authority of an agent may be
express or implied
...
186) “An authority is said to be express when it
is given by words spoken or written
...
187): Example: A asks B to
sell his cow for a commission of 10% on sales
...
Agency has been created
...
But in
certain cases, law requires the agreement to be in writing, e
...
for sale or
purchase of land, the law requires the agent to be appointed by executing a
formal power of attorney
...
187: “… An authority is said to be
implied when it is to be inferred from the circumstances of the case, and things
spoken or written, or the ordinary course of dealing…”
Example: A owns a
shop
...
B has an implied authority from A to order goods
from C in the name of A for the purposes of the shop
...
237): “When an agent has without authority done
acts or incurred obligations to third persons on behalf of his principal, the
principal is bound by such acts or obligations if he has, by his words or conduct,
induced such third persons to believe that such acts and obligations were within
the scope of the agent’s authority
...
A, B and C are sitting together
...
A does not contradict this
statement, though he had not appointed him as his agent
...
A would be bound by
this transaction
...
(ii) Agency by holding out: The principle of holding out is a part of the law of
estoppel
...
Example: A sends his servant to buy goods from B on
credit
...
Later on A’s
servant, without A’s asking for it, buys goods from B on A’s credit and runs
away
...
(iii) Agency of Necessity: If a person protects the property or interest of another
where such property or interests are in imminent danger and the instructions of
the owner cannot be obtained, the former would be deemed to be an agent of the
latter so as to make the latter liable for whatever he has done provided the
former has acted bonafide in the interests of the latter
...
(ii) The agent takes reasonable and necessary course in the
circumstances
...
Example: A sends some bananas to
B with the instructions that B should send them to C
...
B, therefore, sells them
at the best possible price
...
In cases of accident and emergency a master of a ship can sell or pledge
the goods in order to save their value and such sale or pledge would be binding
on the owners of the cargo
...
Example: H and W are husband and wife respectively
...
On her failure to
pay for the purchases A cannot recover the money from H because they are not
living together
...
But
if the wife is deserted by her husband and thus forced to live separately, she may
of necessity become agent of her husband and can pledge her husband’s credit
for necessaries to the extent a reasonable maintenance makes it necessary
...
When a
person adopts or accepts an act done on his behalf but without his authority he is
said to have ratified it
...
Afterwards B sells them to C on his own account; B’s conduct implies a
ratification of the purchase made for him by A
...
This means that the agency comes into
existence not from the time when the act is ratified but from the time when the
act was done
...
e
...
(ii) No Authority for future: The ratification of an act done without authority
does not confer authority to do similar acts in future
...
(1) Must contract as agent: The agent must contract as agent for a principal in
contemplation; or the agent should not make the contract for himself
...
He can do
so even if the agent never intended that he should do so
...
Later on C, A’s
elder brother want to have the benefit of the contract and wants to ratify the
same
...
D, when comes to know of the contract, wants to ratify
168
the same; he can do so and enjoy the benefit of the contract even if A does not
want it
...
If the principal was not in existence at the time
of the contract, he cannot ratify such contract
...
Thus a minor cannot ratify a contract made
on his behalf after becoming a major
...
198):
“No valid ratification can be made by a person whose knowledge of the facts
of the case is materially defective
...
199)
...
(8) The act to be ratified should not be void or illegal though ratification can
be made of voidable contracts or even of tortuous acts
...
(10) Ratification by Govt: Acts done by public servant in the name of the
Government may be ratified by subsequent approval in the same manner as
private transaction
...
They are as
follows:
(A) Actual Authority: Actual authority is one which is conferred on the
agent by the principal
...
(1) Express Authority: An
authority is said to be express when it is given by words spoken or written (Sec
...
(2) Implied Authority: (i) An authority is said to be implied when it is
inferred from the circumstances of the case
...
187) (ii) An agent having
authority to do an act has authority to do every lawful thing which is necessary
in order to do such act
...
188)
(B) Ostensible or Apparent Authority: Apparent or ostensible authority is
that authority which an agent appears to be possessing though in fact he may not
have
...
” (Sec
...
DELEGATION OF AUTHORITY BY AGENT
“An agent cannot lawfully employ another to perform acts which he has
expressly or impliedly undertaken to perform personally…” sub-agent may not
enjoy the confidence of the principal [“A subagent is a person employed by, and
acting under the control of, the original agent in the business of the agency”
(Sec
...
Exceptions: In the following circumstances delegation made by an agent to subagent would be proper: (1) Nature of agency: (2) Custom of Trade: Where it
is a custom of trade that an agent appoints a sub-agent
...
(4) Express Delegation: Where
the principal has expressly permitted delegation
...
e
...
(6) In emergency: In
case of emergencies an agent can always delegate the authority to a sub –agent
...
213): “An agent is bound to render
proper accounts to his principal on demand
...
(4)
To communicate with the principal (Sec
...
215)
(6)
To pay sums received for principal
(7)
Not to delegate authority (Sec
...
209)
RIGHTS OF AN AGENT
(1)
Right to Remuneration: Every agent is entitled to receive the
remuneration agreed upon with the principal
...
217)
(3)
Right of Lien (Sec
...
(2) He can recover
compensation for any breach of duty by the agent
...
(4) Principal is entitled to any extra profit that the agent has made
out of his agency
...
(5) Principal is
entitled to receive all sums that the transactions, entered into, by the agent,
on behalf of the principal were void or illegal
...
To Pay Remuneration:
2
...
Compensation for injuries:
4
...
(1) Notice given to agent as notice to principal (Sec
...
207) (iii) Reasonable Notice of
revocation: (iv) Compensation
...
(Sec
...
173
a
...
Where agent has partly exercised his authority
c
...
The Act came into force with effect from October 1, 1932
...
Section 4 of the Indian Partnership Act, 1932 defines ‘partnership’ as
follows: “a business carried on by all or any of them acting for all
...
But a partnership firm cannot create another partnership as it does not enjoy the
status of the artificial legal person
...
Such a contract may, however, be either
express or implied, written or oral
...
Besides names, address and occupation of partners
it lays down the duration of partnership, nature of business, profit sharing ratio,
right to interest, salary, commission etc
...
The provisions
relating to registration of partnership firm are contained in Chapter 7, Sections
56 to 71 of the partnership Act
...
69)
An unregistered firm and its partners suffer from the following disabilities:
(1)
(2)
(3)
No Suit against other partners and firms
No suit against third parties
No claim of set off
DURATION OF PARTNERSHIP
Partnership may, from the point of view of its duration, be categorized into the
following two classes: (1) Partnership for a fixed term or particular partnership
(2) Partnership at will
...
The important
classification of partners is given below:
(1)
(2)
(3)
(4)
(5)
(6)
Actual or active partners,
Dormant or sleeping partner,
Nominal partner,
Partner in profits only,
Sub-partner,
Partner by estoppel or by holding out
...
(2) Dormant or sleeping partner: The nominal partner is one who lends his
name to the partnership firm without any real interest in terms of investing
money in the firm or sharing in profits
...
(4) Partner in profits only: A person who does not want to take risk of loss
may agree to become a partner in profits only
...
(6) Partner by estoppel or by holding out: If a partner, by his words or
conduct holds out to another that he is a partner, he will be stopped from
denying that he is not a partner
...
He is only liable to third
parties
...
Section 30 of the
Partnership Act provides that a minor may be admitted to the benefits of
partnership with the consent of all the partners
...
(2) Right to have the access to do the inspection
(3) Right to file a suit for accounts or demand his share of property or profits
...
Liabilities of Minor Partner
1
...
2
...
177
Rights, Duties and Liabilities of Partners
RIGHTS
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
Right to take part in the conduct of business
Right to be consulted
Right of Access to the books
Right to share profits
Right to interest on capital
Right to interest on advances
Right to indemnity
Right to act prudently in emergency
Right to give consent for admission of a new partner
Right to retire
Right to carry on competing business after retirement
...
16(a)]
(B) OTHERS
(1) Duty to carry on business for the common advantage
(2) To indemnify for loss caused by fraud
(3) To give full information
(4) To render true accounts
(5) To be just and faithful
178
LIABILITIES
(1) Liability of partner for acts of the firm: Every partner is liable, jointly
with all the other partners and also severally, for all acts of the firm done while
he is a partner
(2) Liability of the firm for wrongful acts of the partner: Where, by the
wrongful act or omission of a partner acting in the ordinary course of the
business of a firm, or with the authority of his partners, loss or injury is caused
to any third party, or any penalty is incurred, the firm is liable therefore to the
same extent as the partner (Section 26)
...
27)
...
AUTHORITY OF A PARTNER
(A)
EXPRESS AUTHORITY
(B)
IMPLIED AUTHORITY
“The act of partner which is done to carry on, in the usual way, business of the
kind carried on by the firm, binds the firm”
...
(C)
AUTHORITY IN AN EMERGENCY: A partner has authority in an
emergency to do all such acts for the purpose of protecting the firm from loss as
179
would be done by a person of ordinary prudence, in his own case, acting under
similar circumstances, and such acts bind the firm
...
The partnership is reconstituted on:
(1)
Admission
(2)
Retirement
(3)
Expulsion
(4)
Insolvency
(5)
Death of a partner
(6)
Transfer of interests by a partner
...
The Indian Partnership Act
distinguishes between:
(a)
(b)
Dissolution of firm, and
Dissolution of partnership
...
MODES OF DISSOLUTION
A firm may be dissolved in any of the following modes
(I) BY AGREEMENT (Sec
...
43) (III) ON THE
HAPPENING OF CERTAIN CONTINGENCIES (Sec
...
2
...
4
...
44 (e)]
Continuous losses[Section 44(f)]
Just and equitable causes [Sec
...
45]
Continuous authority of partners for purposes of winding up [Sec
...
46]
Right to return of premium [Sec
...
52]
Rights to impose restrictions [Sec
...
50]
SETTLEMENT OF ACCOUNTS UPON DISSOLUTION
(1)
(2)
(3)
(4)
(5)
Treatment of goodwill
Meeting losses [Sec
...
58(a)]
Losses arising from insolvency of a partner
Payment of firm’s debts and separate debts [Sec
...
Before 1930, law relating to sale of goods was
contained in the Indian Contract Act, 1872
...
ESSENTIALS OF A CONTRACT OF SALE OF GOODS
“A contract of sale of goods is a contract whereby the seller transfers or agrees
to transfer the property in goods to the buyer for a price
...
(4) 1]
...
The
parties must agree on the transfer of property
...
e
...
(4) Goods: Goods means every kind of movable property other than
actionable claims and money
...
[Sec
...
Since the price of the goods is expressed in terms of the money, money
itself cannot be bought, and hence, money is not considered as goods
...
Price is the money consideration for the goods
...
Thus “where under a contract of sale the property in the
goods is transferred from the seller to the buyer, the contract is called a
sale
...
4 (3)]
...
e
...
But in an agreement to sell the
seller continues to be the owner unless it becomes a sale by the expiry of certain
time or by the fulfillment of the conditions agreed upon
...
e
...
(3) Risk of Loss: Risk prima facie passes with property (Sec
...
The buyer would bear the risk of loss, even if goods are in the possession of
the seller
...
When the buyer commits the default and does not pay the price of the
contract is a ‘sale
...
But in ‘an agreement to sell he cannot
sue him (buyer) for the price of the goods even if the goods happen to be in
the possession of the buyer
...
When the seller commits default and refuses to sell the goods or sells the
goods to some other person, then if the contract is a sale the buyer can
recover his goods, even from a second buyer (except under certain
circumstances) and sue the seller for breach of contract as well, but in case
the contract is only an ‘agreement to sell ‘ the buyer can only sue the seller
for the breach of contract but cannot recover the goods
...
An agreement to sell, the seller may
refuse to deliver the goods to the official receiver/assignee of the buyer’s
property unless he is paid the full price
...
But in an agreement to sell buyer cannot recover the
goods even if he has paid the price in advance
...
If money is exchanged for money (say $ 10 for
Rs
...
But where goods are exchanged
for a money consideration, it is called a sale
...
185
(2) ‘Hire purchase’ and ‘Agreement to sell’ : In a contract of sale there is an
agreement to buy but in ‘hire purchase’, hirer has the option to buy the
goods if he pays all the installments
...
In an agreement to sell, if the buyer refuses to buy the goods the seller
can sue him for breach of contract
...
But if the
delivery of goods is the essence of the contract although some labour on the
part of the seller may be necessary, it would be a contract of sale
...
Existing goods may be further classified into (i) specific; (ii) ascertained; and
(iii) unascertained
...
2(14)]
...
The goods
which are only defined by description and not specifically identified at the time
a contract of sale is made are called unascertained goods
...
”
[Sec
...
10,000 per ton
...
(C) Contingent goods: Contingent goods are those the acquisition of which
by the seller depends upon a contingency which may or may not happen [Sec
...
Example: A agrees to sell the cow to B if A inherits C’s property
including the cow
...
The contract becomes
void
...
(A) Goods perishing before the contract of sale
(Sec
...
’
(B) Goods perishing after the contract of sale is made
(i)
Perishing before sale but after an agreement to sell: “unless otherwise
agreed, the goods remain at the seller’s risk until the property therein is
transferred to the buyer…”
(ii) Goods perishing after sale: In sale, goods are destroyed after sale
...
(Sec
...
2(10)]
...
(2)
In an agreement: The price may be left to be fixed in manner thereby
agreed (sec
...
Whatever manner of fixing the price has been agreed
upon by the parties to the contract, that would be recognized by law
...
(4)
By the course of dealings: Where the price is neither expressed in the
contract nor any manner of fixing the price is agreed, the price would be
determined by the course of dealings between the parties
...
Generally the market price
on the date of supply is taken to be a reasonable price
...
If
buyers commit a breach of the contract and seller files a suit for
damages, the amount of damages shall be reduced by the amount of
earnest money forfeited
...
64 (A)]: Any tax, is
imposed or increased after making of the contract of sale of such goods,
then the seller can recover the same from the buyer
...
32): The seller shall be ready, and willing to give possession of the
188
goods to the buyer in exchange for the price, and the buyer shall be ready
and willing to pay the price in exchange for possession of the goods
...
(1) Regarding payment: “unless a different intention appears from the
terms of the contract, stipulations as to time of payment are not
deemed to be the essence of a contract of sale
...
(Sec
...
189
LESSON 7
LAW OF INSURANCE
The contract of insurance is called an aerator contract because it depends upon
an uncertain event
...
”
FUNDAMENTAL PRINCIPLES OF INSURANCE: (i) good faith, (ii)
insurable interest, (iii) indemnity, (iv) mitigation of loss, (v) attachment of risk,
(vi) causa proxima
...
INSURABLE INTEREST: The assured must have an actual interest called the
insurable interest, in the subject-matter of the insurance; either he must own part
or whole of it, or he must be in such a position that injury to it would affect him
adversely
...
MITIGATION OF LOSS: In the event of some mishap to insured property, the
owner (the insured) must act as though he were uninsured, and make every
effort to preserve his property
...
190
CAUSA PROXIMA: Make the insurer liable for loss, such loss must have been
proximately caused by the peril insured against
...
CONTRACT OF INSURANCE ONE FROM YEAR TO YEAR: The
general rule is the except in the case of life assurance a contract of insurance is a
contract from year to year only,
PREMIUM: The premium is the price for the risk undertaken by the insurer
...
DAYS OF GRACE: The days of grace are the days allowed by the insurance
company after the expiry of the stipulated period of insurance during which the
assured can pay the premium in order to continue or to renew the policy of
insurance
...
INTERIM RECEIPT, CERTIFICATE OR COVER NOTE: A cover note or
interim certificate is a document which the insurance company, on receiving the
proposal, may issue pending the execution of a policy or the final decision of the
directors as to acceptance or rejection of the proposal
...
191
DOUBLE INSURANCE: When the same subject-matter is insured with two or
more insurers and the total sum insured exceeds the actual value of the subjectmatter, it is known as double insurance and it amounts to over-insurance
...
CONTRIBUTION: Contribution is the right of the insurers to claim from
others some payment towards the loss, and arises only where there is double
insurance
...
A contract of marine insurance is an agreement whereby the insurer
undertakes to indemnify the assured, in the manner and to the extent thereby
agreed, against marine losses, that is to say, the losses incidental to marine
adventure (Sec
...
There is a marine adventure when (i) any insurable property
is exposed to maritime perils; (2) the earnings or acquisition of any freight,
passage money, commission, profit or other pecuniary benefit, or the security for
any advances, loans, or disbursements is endangered by the exposure of
insurable property to maritime perils; (3) any liability to third party may be
insured by the owner of, or other person interested in or responsible for,
insurable property by reason of maritime perils [Sec
...
Maritime Perils: means the perils consequent on, or incidental to, the
navigation of the sea, that it to say, perils of the seas, fire, war perils, pirates,
rovers, thieves, captures, seizures, restraints and detainments of princes and
peoples, jettisons, barratry and any other perils which are either of the like kind
or may be designed by the policy [Sec
...
192
TYPES OF POLICIES
VOYAGE POLICY: Where the contact is to insure the subject-matter “at and
from” or from one place to another or others, the policy is called a voyage
policy
...
VALUED POLICY: A valued policy is a policy which specifies the agreed
value of the subject-matter insured
...
30)
...
WAGER OR HONOUR POLICY: It is a policy in which the assured has no
insurable interest or the insurer or underwriter is willing to dispense with the
proof of interest
...
The assured must have insurable interest at the time of the loss thought he
may not have been interested when the insurance was actually effected
...
193
DISCLOSURE AND REPRESENTATION: The assured must disclose to the
insurer every material circumstance which is known to him, and he is deemed to
know everything which he ought to know in the ordinary course of business
...
35 of the Act, is an undertaking
by the assured that some condition shall be fulfilled, or that a certain thing shall
be or shall not be done, or whereby he confirms or negatives the existence of a
particular state of facts
...
An express
warranty is a condition which is set forth in the policy or attached thereto; and
an implied warranty is an essential condition implied by law, though not written
in the policy
...
LEGALITY: So far as the assured can control the matter, the adventure shall be
carried out in a lawful manner
...
Perils- Perils are the risks which the underwriter agrees to take upon himself,
and are inserted in the policy
...
The purpose of
the policy is to secure an indemnity against accidents which may happen,
not against events which must happen
...
Total loss may be
subdivided into two classes: (i)Actual Total Loss, and (ii) Constructive Total
Loss
...
Partial loss is also of two classes: (i)Particular Average, and (ii)
General Average
...
AVERAGE CLAUSE: It is becoming very common in policies of fire
insurance to insert a condition called the average clause, by which the insured is
called upon to bear a portion of the loss himself
...
Insurable interest, the insured must have insurable
interest in the subject-matter both at the time of effecting the policy and at
the time of the loss
...
WHAT IS FIRE: The word fire as used in the expression “loss by fire” is to be
construed in its popular and literal sense, and means a fire which has broken
bounds
...
FIRE POLICIES
VALUED POLICY: In the “valued policy” the insured can recover a fixed
amount, agreed at the issue of the policy without the necessity for any further
proof of value at the time of the fire
...
CONSEQUENTIAL LOSS POLICY: The insured is indemnified for the loss
of profits which he sustains through interruption or cessation of his business as a
result of fire
...
LIFE INSURANCE IS NOT
A CONTRACT OF INDEMNITY: “The
contract commonly called life assurance when properly considered is a mere
contract to pay a certain sum of money on the death of a person, in consideration
of the due payment of a certain annuity for his life…
...
”
INSURABLE INTEREST: The assured must have at the time of the contract
an insurable interest in the life upon which the insurance is effected
...
RELATIVES: A wife has an insurable interest in the life of her husband, and
vice versa
...
POLICIES: Whole Life Policy: which matures only at the death whenever it
may occur
...
Joint Life Policies: are issued under which the sum assured
is payable at the death of the first of the two lives
...
SURRENDER VALUE: The amount which the insurers are prepared to pay in
total discharge of the contract, in case the assured wishes to surrender his policy
and extinguish his claim upon it
...
PAID-UP POLICY VALUE: The amount to which the sum assured would be
reduced at any time if the assured requested a rearrangement of his contract so
that no further premium should be payable
...
45 OF INSURANCE ACT: The
general rule is that in all kinds of insurance the assured must disclose everything
which is likely to affect the judgment of the insurer and what is stated must be
truthful
...
Accident insurance consists of three categories:- (a) Personal
197
accident insurance, of three, including insurance against sickness; (b) Property
insurance, including burglary, fidelity, insolvency, etc
(c) Liability insurance, including motor insurance, workmen’s compensation
insurance, etc
...
The word ‘negotiable’ means transferable
from one person to another, and the term ‘instrument’ means ‘any written
document by which a right is created in favor of some person
...
The Negotiable Instruments Act does not
affect the provisions of Sections 31 and 32 of the Reserve Bank of India Act,
1934
...
Ex
...
500 and all other sums which shall be due to him
...
Promise to pay
...
Signed by the Maker
...
Certain sum of money
...
Number, place, date etc
...
31 of RBI Act)
...
”
199
Characteristic features of a Bill of Exchange:
1
...
2
...
Words, like
‘Please pay Rs
...
3
...
4
...
, drawer, drawee and payee
...
The parties must be certain
...
It must be signed by the drawer
...
The sum payable must be certain or capable of being made certain
...
The order must be to pay money and money alone
...
It must be duly stamped as per the Indian Stamp Act
...
Number, date and place are not essential
...
CHEQUE: A cheque is defined as ‘a bill of exchange drawn on a specified
banker and not expressed to be payable otherwise than on demand’ (Section 6)
...
: (i) it is always
drawn on a specified banker; (ii) and it is always payable on demand and not
otherwise
...
2
...
Bill of Exchange
There are only two parties-the 1
...
Contains an unconditional 2
...
No prior acceptance is needed
...
200
There are three parties-the drawer,
the drawee and the payee
...
A bill payable ‘after sight’ must be
accepted by the drawee or his agent
before it is presented for payment
...
5
...
drawer is primary and
absolute
...
be given
...
Notice of dishonour must be given
by the holder to the drawer and the
intermediate endorsers to hold them
liable thereon
...
2
...
4
...
6
...
8
...
The amount is always payable
on demand
...
Acceptance is not needed
...
(The parties thereon
remain liable, even if no notice
of dishonour is given
...
The protection given to the
paying banker in respect of
crossed cheques is peculiar to
this instrument
...
2
...
4
...
6
...
Can be drawn on any person
including a banker
...
A usance (time) bill is entitled to
three days of grace
...
Crossing of a bill of exchange is not
possible
...
(A
party who does not receive a notice
of dishonour can generally escape its
liability thereon
...
8
...
HOLDER AND HOLDER-IN –DUE-COURSE: According to section 8, a
holder of a negotiable instrument is “a person entitled in his own name to the
possession thereof and to receive or recover the amount due thereon from the
201
parties thereto
...
A ‘holder in-due-course’: Is “a person who for consideration became the
possessor of a promissory note, bill of exchange or cheque, if payable to bearer,
or the payee or endorsee thereof, if payable to order, before the amount
mentioned in it becomes payable and without having sufficient cause to believe
that any defect existed in the title of the person from whom he derived his title
(Section 9)
...
2
...
4
...
6
...
A person, who signed and delivered to another a stamped but otherwise
inchoate (incomplete) instrument, is stopped form asserting, as against a
holder in due course
...
Where a bill of exchange is drawn by a fictitious person and is payable to
his order, the acceptor cannot be relieved from his liability to the holder
in due course
...
Not only that the title of the holder in due course is not subject to the
defect in previous holder’s title but once the instrument passes through
the hands of a holder in due course, it is purged of all defects
...
No maker of a note and no acceptor of a bill payable to order is, in a suit
thereon by a holder in due course, permitted to deny the payee’s capacity
at the date of the note or bill to endorse it (Section 121)
...
17): An ambiguous instrument is one which may
be construed either as a promissory note or as a bill exchange
...
Where Amount is stated differently in Figures and Words (Sec
...
Inchoate Instruments (Sec
...
The person so signing shall be liable upon
the instrument, in the capacity in which he signed the same, to any holder-indue-course for such amount
...
Minor (Sec
...
Agency (Sec
...
Liability of Agent Signing (Sec
...
Liability of Legal Representative (Sec
...
Negotiable Instruments Made, etc
...
43): A
negotiable instrument made, drawn, accepted, indorsed or transferred without
consideration, or for a consideration which fails, creates no obligation
of
payment between the parties to the transaction
...
44): When the
consideration for which a person signed a promissory note, bill of exchange or
cheque consisted of money, and was originally absent in part or has
subsequently failed in part, the sum which a holder standing in immediate
relation with such signer is entitled to receive from him is proportionately
reduced
...
45): When a
part of the consideration for which a person signed a promissory note, bill of
exchange or cheque, though not consisting of money, is ascertainable in money
without collateral enquiry, and there has been a failure of that part, the sum
which a holder standing in immediate relation with such signer is entitled to
receive from him is proportionally reduced
...
58]: When a negotiable instrument has been
lost, or has been obtained from any maker, acceptor or holder thereof by means
of an offence or fraud, or for an unlawful consideration, no possessor or
indorsee who claims through the person who found or so obtained the
instrument is entitled to receive the amount due thereon from such maker,
acceptor or holder, or from any party prior to such holder
...
Lost Instruments: When a bill or note is lost, the finder acquires no title to it as
against the rightful owner
...
If the finder obtains payment, the person who
pays it in due course may be able to get a valid discharge for it
...
Stolen Instruments: (1) A person cannot enforce payment of it against any
party thereto nor can he retain it against the party from whom he had stolen it
...
(3) If a person who has stolen a bill or note payable to
bearer transfers it to a holder in due course, he confers a good title on him or any
person deriving title from such holder
...
The instrument is void
...
A holder in due course, however, obtains a good title to an instrument
which was originally made or drawn or subsequently negotiated for an
unlawful consideration
...
It is also a forgery to sign the name of a
fictitious person or non-existing person
...
Legal Position:
1
...
205
2
...
4
...
The holder of a forged instrument cannot enforce payment thereon nor
can he give a valid discharge therefore
...
Even a holder in due course cannot claim payment on a forged
instrument
...
CHEQUE
A cheque is the usual method of withdrawing money from an account with a
banker
...
Section 6 defines a cheque as “bill of
exchange drawn on a specified banker and not expressed to be payable
otherwise than on demand
...
2
...
4
...
6
...
8
...
A cheque must be an instrument in writing
...
A cheque must contain an unconditional order
...
A cheque must be drawn on a specified
banker
...
The order must be only for the payment of
money and that too must be specified
...
A cheque to be valid must be payable to a certain
person
...
A cheque to be valid must be payable on demand
and not otherwise
...
A mount of the cheque must be clearly
mentioned
...
The drawer of a cheque is expected to date it before
it leaves his hands
...
In India, a cheque that bears a date earlier than six months
is a stale cheque and cannot be claimed for
...
CROSSING OF CHEQUES: Crossing of a cheque is a direction to the paying
banker by the drawer that payment should not be made across the counter
...
Section 123, defines crossing as, “Where a cheque bears across its face
an addition of the words ‘and company’ or any abbreviation thereof, between
two parallel transverse lines, or of two parallel transverse lines simply, either
with or without the words ‘not negotiable’, that addition shall be deemed a
crossing and the cheque shall be deemed to be crossed generally
...
A cheque that is not crossed is called an open cheque
...
By crossing a cheque, a person, who is not entitled
to receive its payment, is prevented from getting the cheque encashed at the
counter of the paying banker
...
General Crossing: The term general crossing implies the addition of two
parallel transverse lines
...
Section 124 in this regard, reads: Where a
cheque bears across its face, an addition of the name of a bank, either with or
207
without the words ‘not negotiable’, that addition shall be deemed a crossing, and
the cheque shall be deemed to be crossed to that banker
...
Thus, it makes the cheque system
still safer
...
Such a cheque is like any other
goods where the title of the transferee is always subject to the title of the
transferor
...
Account Payee Crossing (A/c Payee Crossing): An A/c payee crossing
signifies that the drawer intends the payment to be credited only to the payee’s
account and in none else
...
Not Negotiable, A/c Payee Crossing: The instrument is rendered not negotiable
plus A/c payee crossing directs the collecting banker to collect it for the payee
only and warns that if the amount is collected for someone else, he may be held
liable for damages
...
The drawer of a cheque
...
The holder of a
cheque
...
The Banker
...
The
drawer has the right to cancel the crossing by writing the words ‘pay cash’ and
putting his ‘full signatures’
...
208
The marking
of a cheque may be done at the instance of the drawer or at the instance of the
payee or at the instance of the collecting banker
...
Marking at the Instance of the Drawer: The banker acquires a right to retain
money to meet such a cheque
...
Marking at the Request of the Payee or Holder: It constitutes nothing more
than an intimation that at the time of marking, the bank has a sufficient balance
to the credit of the drawer
...
Marking of Post-dated Cheques: It has been held anomalous and invalid
...
MATERIAL ALTERATIONS: A material alteration was defined as “an
alteration which alters the business effect of the instrument if used for any
business purpose
...
”
Examples of material alteration are:(i) date (ii) the time of payment (iii) the
place of payment (iv) the sum payable (v) the number of parties (vi) the
209
relationship between parties (vii) legal character of the cheque (viii) opening a
crossed cheque (ix) converting an order cheque into a bearer cheque
...
”
Examples of Alterations Which are not Material: (i)filling blanks of the
instrument (Section 20); (ii)conversion of blank endorsement into endorsement
in full (Section 49); (iii)crossing of cheques (Section 125);
FORGERY: No protection is granted to paying banker for making payment of
cheques bearing forged signature of the customer
...
THE PAYING BANKER: The ‘paying banker’ is a term used to denote the
position and duties of the dawee banks in payment the cheques of their
customers
...
The job of a paying banker in regard to the payment of cheques is highly risky
...
But, the banker, despite his
efforts, may inadvertently happen to pay a cheque to a wrong person claiming
payment under a clever forgery of endorsement
...
Payment must be in accordance with the apparent tenor of the
instrument
...
Payment must be made in good faith and without negligence
...
Payment must be made to the person in possession of the instrument
...
Payment must be made under circumstances which do not afford a
reasonable ground for believing that he is not entitled to receive
payment of the amount mentioned therein
...
Payment must be made in money only
...
2
...
4
...
6
...
8
...
10
...
On receipt of a notice of customer’s death
On customer’s becoming insolvent
On receipt of a notice of the customer’s insanity
On receipt of Garnishee order
Where Garnishee Order is absolute, i
...
, attaching the whole amount,
payment on cheques received after the receipt of such an order must be
refused
...
On suspicious misuse by trustee
If the banker feels suspicious ,that the trustee intends to use the amount
of the cheque for his personal use
...
In case of a joint account to be operated by all jointly where the cheque
is not signed by all of the joint account holders
...
211
11
...
e
...
WHEN BANKER MAY REFUSE PAYMENT?: In the following cases the
banker may dishonour a cheque without incurring any liability thereon:
1
...
Refusal to pay a post-dated cheque
before its due date does not make a banker liable for wrongful dishonour
...
Where the funds of the customer are insufficient
...
Where a cheque is not duly presented
...
NEGOTIATION: A negotiable instrument may be transferred by negotiation or
assignment
...
Negotiation By Mere Delivery: (Section 47) A bill or cheque payable to bearer
is negotiated by mere delivery of the instrument
...
Actual delivery means change of actual possession
...
Payable to bearer: An instrument is payable to bearer (1) where it is made so
payable, or (2) where it is originally made payable to order but the only or the
last endorsement is in blank
...
The rule is
once a bearer cheque always a bearer cheque or (3) where the payee is a
fictitious person
...
212
ENDORSEMENT/INDORSEMENT
1
...
2
...
3
...
4
...
5
...
It may also be restrictive
...
Conditional Endorsement: It is one which makes the transfer of the
property in a negotiable instrument from the endorser to the endorsee
dependent upon the fulfillment of a stated condition
...
In such a case, ‘X’ can
claim payment on the instrument only if he reaches Delhi
...
Endorsement in Blank: Where the endorser just puts his signature without
specifying the endorsee, the endorsement is said to be in blank (Section 16)
...
3
...
“Pay Y or order” and is signed by ‘X’, the payee, it constitute
‘endorsement in full
...
Restrictive Endorsement: An endorsement is restrictive which prohibits the
further negotiation of a negotiable instrument
...
Endorsement ‘Sans Recourse’: An endorsement of a negotiable instrument
may be express words in the endorsement exclude his own liability thereon
(Section 52)
...
For example, where X endorse a cheque as: ‘Pay
Y or order Sans Recourse’ or ‘Pay Y or order without Recourse to me’
...
6
...
7
...
8
...
Such an endorsement is not valid
...
The effect of restrictive
endorsement is (a) to prohibit or exclude further negotiation, or (b) to constitute
the endorsee an agent of endorser to endorse the instrument, or (c) to constitute
the endorsee as agent to receive its contents for some other specified persons
...
When acting in this capacity he is called a
“collecting banker”
...
For Crossed Cheques only
...
Collection for customers
...
Acted in
Good Faith and Without Negligence
...
Inland Bill: “a promissory note, bill of exchange or cheque drawn or
made in India and payable in or drawn upon any person resident in
India”
...
2
...
3
...
4
...
5
...
Clean and Documentary Bill: Where the banker is instructed to deliver
to the drawee of the bill the documents of title against acceptance of the
bill, the bill is called as Documents against Acceptance of Bill (D/A Bill)
and where the documents are to be released only against payment, it is
called as Documents against Payment of Bill (D/P Bill)
...
The Drawer
2
...
The Payee
4
...
The Indorser
6
...
Drawee in Case of Need: Such a person whose name is mentioned as an
alternative drawee is called a drawee in case of need’
...
Acceptor for Honour: An acceptor for honour is a person who, on the
refuse by the original drawee to accept the bill or to furnish better
security when demanded by the notary, accepts the bill in order to
safeguard the honour of the drawer or any indorser
...
The Maker
2
...
The Holder
4
...
The Indorsee
9
...
216
ACCEPTANCE: The acceptance of a bill is the indication by the drawee of his
assent to the order of the drawer
...
PRESENTMENT: Presentment of a negotiable instrument is made for two
purposes
...
DISHONOUR: A bill of exchange may be dishonoured either by nonacceptance or by non-pay-ment
...
Dishonour by Non-Payment: A negotiable instrument is said to be dishonoured
by non-payment when the maker, acceptor or drawee, as the case may default in
payment upon being duly required to pay the same (Section 92)
...
Compensation to Endorses
...
Discharge of
One or More Parties
One or more parties to a negotiable instrument is/are discharged from
liability in the following ways:
1
...
82 (a)]
...
By release [Sec
...
3
...
82 (c) and 8]
4
...
83)
5
...
86)
...
By not giving notice of dishonour
...
By non-presentment for acceptance of a bill (Sec
...
By delay in presenting cheque (Sec
...
9
...
10
...
218
IMPORTANT QUESTIONS:
1
...
Do you agree with this statement?
2
...
3
...
4
...
What are the legal consequences if the goods are not delivered in time
and the payment is not made in time?
6
...
7
...
What is Agency by ‘Ratification’? What are the essential conditions to
make a valid ratification?
9
...
10
...
***
219
UNIT IV
LESSON 1
NATURE OF COMPANY AND FORMATION
The Companies Act, 1956 defines the word ‘company’ as a company formed
and registered under the Act or an existing company formed and registered
under any of the previous company laws (Section 3)
...
These may be (i) companies limited
by shares, (ii) companies limited by guarantee, and (iii) unlimited companies
...
The common stock so contributed is denoted in money and is “the
capital” of the company
...
The proportion of capital to which each member is entitled is his
“share”
...
Features of the Company: The following are the characteristic features of
company:
1
...
Minimum number required for the purpose is 7 in
case of a public company, and 2, in case of a private company (Sec
...
As
per Section 11, an association of more than 10 persons, in case of banking
business, and 20 in case of any other business, if not registered as a company
under the Companies Act, or under any other law for the time being in force,
becomes an illegal association
...
Artificial Person: A company is created with the sanction of law and is not
itself a human being, it is, therefore, called artificial; and since it is clothed
with certain rights and obligations, it is called a person
...
220
3
...
Section 34(2) says that on registration, the
association of persons becomes a body corporate by the name contained in
the memorandum
...
Saloman & Co
...
(1877)]
4
...
Hence, in the case of a company limited by
shares, the liability of members is limited to the nominal value of shares held
by them
...
However, companies may be formed with unlimited liability of members or
members may guarantee a particular amount
...
In case of unlimited liability companies, members shall continue to
be liable till each paise has been paid off
...
e
...
5
...
In India, this principle of separate property was best laid
down by the Supreme Court in Bacha F
...
the Commissioner of
Income Tax, Bombay (Supara)
...
g
...
6
...
The shares of a company are transferable in the manner provided in
the Articles of the company (Sec
...
However, in a private company,
certain restrictions are placed on such transfer of shares but the right to
transfer is not taken away absolutely
...
Perpetual Existence: A company being an artificial person cannot be
incapacitated by illness and it does not have an allotted span of life
...
Members may come and go but the company can go for ever
...
Common Seal: A company being an artificial person is not bestowed with a
body of natural being
...
But, it can be held bound by only those documents
which bear its signatures
...
221
9
...
LIFTING OF THE CORPORATE VEIL: In case of a dishonest and
fraudulent use of the facility of incorporation, the law lifts the corporate veil and
identifies the persons (members) who are behind the scene and are responsible
for the perpetration of fraud
...
The veil of corporate personality, even though not lifted
sometimes, is becoming more and more transparent in modern jurisprudence
...
(ii)Where the company is acting as agent of the shareholders, (iii)Where a
company has been formed by certain persons to avoid their own valid
contractual obligation, (iv)Where a company has been formed for some
fraudulent purpose or is a “sham”, (v)Where a company formed is against
public interest or public policy, (vi)Where the holding company holds 100
per cent shares in a subsidiary company and the latter is created only for
purposes of holding company (vii)Where the number of members falls below
statutory minimum (Section 45) (viii)Where prospectus includes a
fraudulent misrepresentation
...
(x)Holding and Subsidiary
Companies (Secs
...
(xi)Investigation into related companies
...
Sec 247 (xiii)Where in
the course of winding of a company
...
(xv)Where company is used as medium to
avoid welfare legislation
...
(xvii)To Punish for contempt of Court
222
(xiii)For determination of technical competence of company
...
ILLEGAL ASSOCIATION: (Section 11) No company, association or
partnership consisting of more than 10 persons for the purpose of carrying on
the business of banking and more than 20 persons for the purpose of carrying on
any other business can be formed unless it is registered under the Companies
Act or is formed in pursuance of some other Indian Law
...
However, Section 11 does not apply in the
following cases: Stock Exchange, Association ‘Not for Profit-making’, Joint
Hindu Family
...
Every member is personally liable for all liabilities incurred in the
business
...
Members are punishable with fine which may extend up to Rs
...
3
...
4
...
5
...
6
...
7
...
8
...
223
9
...
CLASSIFICATION OF COMPANIES: Companies can be classified into
three categories according to the mode of incorporation
...
For example, the East India
Company came into being by the grant of a Royal Charter
...
A company which is created by a Special Act of
the Legislature is called a Statutory Company
and is governed by the
provisions of that Act
...
g
...
A company brought into
existence by registration of certain documents under the Companies Act, 1956 is
called Registered Company
...
It may be limited by shares, or by
guarantee or by both (i
...
, shares and guarantee)
...
A shareholder cannot be called upon to
pay more than the amount remaining unpaid on his shares
...
Such a company is
also known as a “Share Company
...
Such a company is also known as a “Guarantee
Company”
...
224
A company limited by shares as well as by guarantee is a hybrid form of
company which combines elements of the guarantee and the share company
...
Private and Public Companies: Either of the above kinds of companies (i
...
, a
limited liability company and an unlimited liability company) may be private or
public (Section 12)
...
Such a company
must have a minimum paid-up capital of Rs
...
(iv) Prohibits any invitation or acceptance of deposits from persons other than its
member, directors or their relatives
...
(b) Has a minimum paid-up capital of five lakh rupees or such higher paidup capital, as may be prescribed;
(c) Is a private company, which is a subsidiary of a company, which is not a
private company
...
however there is no limit to the maximum number
of members
...
12)
...
Deemed Public Company: The Companies (Amendment) Act
...
Conversion of Private Company into a Public Company: Section 44 provides
for conversion of a private company into a public company
...
Within thirty days of the passing of the special resolution altering the
articles, the company shall file with the Registrar (i) a printed or typewritten copy of the special resolution, and (ii) a prospectus or a
statement in lieu of prospectus [Sec
...
Pass special resolution for altering the articles so as to include there in
the necessary restrictions, limitation and prohibitions and to delete any
provision inconsistent with the restrictions
...
The word Private should be added before Limited
...
The approval of the Central Government to the alternation in the articles
for converting a public company into a private company should be
obtained
...
Within one month of the date of the receipt of the order of approval, a
printed copy of the altered articles must be filled with the Registrar
...
Within thirty days of the passing of the special resolution, a printed or
type-written copy there of should be filed with the Registrar
...
A Company is
deemed to be under the control of another if;
1
...
The other company holds more than half in nominal value of its equity
share capital
3
...
For example, where company ‘B’ is a subsidiary of
company ‘A’ and company ‘C’ is a subsidiary of company ‘B’ then
company ‘C’ shall be a subsidiary of company ‘A’
...
One Man Company: A member may hold virtually the entire share capital of a
company
...
This can happen
both in a private company and a public company
...
Such other members may
be just dummies for the purpose of fulfilling the requirements of law as regards
minimum membership [Salomon v
...
Ltd
...
As soon as it obtains a license and is registered accordingly, it will have the
same privileges and obligations that a limited company has under the
Companies Act, 1956
...
Companies: Section 617 defines a Government company as any
company in which not less than fifty-one per cent of the paid-up share capital is
held by the Central Government, or by any State Government or Governments
or partly by the Central Government and partly by one or more State
Governments
...
Foreign Companies (591 to 602): A foreign company is a company which is
incorporated in a country outside India under the law of that other country and
has a place of business in India
...
Investment Companies: An investment company is a company the principal
business of which consists in acquiring, holding and dealing in shares and
securities
...
FERA Companies: The FERA companies are those companies which are
incorporated in India in which the non-resident interest (viz
...
After the Amendment of FERA 1973 in the
year 1993, the erstwhile FERA companies would not in future be subjected to
obtain the prior approval of the RBI in respect of certain matters
...
45 of the RBI
Act, 1934
...
4-A): The following financial institutions
shall be regarded, for the purposes of the Companies Act, as public financial
institutions, namely:1
...
The Industrial Finance Corporation of India (IFCI)
3
...
The Life Insurance Corporation of India (LIC)
5
...
The Infrastructure Development Finance Company Ltd
...
4-A empowers the Central Government to
specify any other institution, as it may think fit, to be a public financial
institution by issuing a notification in the Official Gazette
...
Duties and Liabilities of Promoters: Duties: The promoters to make a full
disclosure of all material facts relating to the formation of the company
...
Liabilities: For Non-disclosure: In case a promoter fails to make full disclosure
at the time the contract was made, the company may either:
229
(1)
rescind the contract and recover the purchase price where he sold his
own property to the company, or
recover the profit made, even though rescission is not claimed or is
impossible, or
claim damages for breach of his fiduciary duty
...
(2)
(3)
Registration (Sec 12, 33): Availability of Name: Section 20 states that a
company cannot be registered by a name, which in the opinion of the Central
Government is undesirable
...
Procedure: The promoters will have to get together at least seven person in the
case of public company, or two persons in the case of a private company to
subscribe to the memorandum of association
...
Statutory Declaration of Compliance: Section 33 also requires a declaration to
be filed with the Registrar of Companies along with the Memorandum and the
Articles
...
”
230
Consent of Directors: In case of a public company, if the first directors are
appointed by the articles then the following must be complied with before the
registration of articles with the Registrar of Companies:
(i)
Written consent of those directors to act, signed by themselves, or by an
agent duly authorized in writing, and
(ii)
An undertaking in writing signed by each such director to take from the
company and pay for his qualification shares (if any)
...
146)
...
These two documents are required to be submitted within 30 days of
registration of the company:
Certificate of Incorporation/Consequences of Incorporation: This certificate
serves the same purpose in the case of a company which a birth certificate does
in the case of a natural person
...
Floatation/Capital Subscription: When a company has been registered and has
received its certificate of incorporation, it is ready for “floatation”, i
...
, it can go
ahead with raising capital sufficient to commence business and to carry it on
satisfactorily
...
It must be done at least 3 days before
allotment
...
No money is, or may become, liable to be repaid to the applicants
...
Where the company has not issued a prospectus Section 149(2) requires
that it shall not commence business or exercise its borrowing powers unless:(a) it has filed with the Registrar a statement in lieu of prospectus;
(b) every director of the company has paid to the company on each of the
shares taken or contracted to be taken by him
...
Penalty: every person at fault is liable to a fine upto Rs
...
232
LESSON 2
MEMORANDUM AND ARTICLES OF ASSOCIATION
The Memorandum of Association of a company is its charter which contains the
fundamental conditions upon which alone the company can be incorporated
...
If anything is done beyond the
powers, that will be ultra vires (beyond powers of) of the company and so void
...
Form and Contents: Shall be in such one of the Forms in Tables B,C,D and E
in Schedule I to the Companies Act, 1956 as may be applicable in the case of the
company, or in Forms as near thereto as circumstances admit
...
The Name Clause (Sec
...
25 as an ‘association not for profit’ (Sec
...
The Registered Office Clause (Sec
...
Every
company must have registered office which establishes its domicile, and it is
also the address at which company’s statutory books must normally be kept and
to which notices, and all other communication can be sent
...
13(1)(d)]: The objects clause defines the objects of
the company and indicates the sphere of its activities
...
Section 13, read along with Tables “B’, ‘C’, ‘D’ and E’, requires the
company to divide its objects clause into two parts:
(a) Main objects of the company to be pursued by the company on its
incorporation and object incidental or ancillary to the attainment of the
main objects; and
(b) Other objects of the company not included in (a) above
...
13(2)]: This clause states the nature of liability of
the members
...
In case
of companies limited by guarantee, this clause will state the amount which every
member undertakes to contribute to the assets of the company in the event of its
winding-up
...
The Capital Clause [Sec
...
e
...
The Association Clause [Sec
...
234
DOCTRINE OF ULTRA VIRES (Beyond Powers)
The company’s activities are confined strictly to the objects mentioned in its
Memorandum, and if they go beyond these objects, then such acts will be ultra
vires
...
1
...
3
...
Exceptions to Doctrine of Ultra Vires: (1) Acquires some property (2)
Property can be recovered, exists and is traceable (3) Ultra vires loan to pay its
own debts – can recover the money from the company (4) Any person borrows
money from the company – the company has right to sue and recover the money
from him (5) The company may compel the director to refund the money(6) The
company is held liable for the ultra vires torts (civil wrongs) of its employees
when it is proved
...
The ultra vires acts are null and void ab initio
...
If the directors have exceeded their authority such matter can be ratified
by the general body of the shareholders, provided the company has the
capacity to do by its memorandum of association
...
235
(vii)
Directors and other officers can be held liable to compensate the
company for any loss occasioned to it by an ultra vires act
...
(ix)
Money or property gained through an ultra-vires transaction available in
specie or capable of being identified shall be restituted (restored) to the
other party
...
ALTERATION OF MEMORANDUM
Section 16 provides that the company con not alter the conditions contained in
memorandum except in the cases and in the mode and to the extent express
provision has been made in the Act
...
Change of Registered Office: (a)Change of registered office from one premises
to another premises in the same city, town or village
...
(b)Change of registered office from one
town or city or village to another town or city or village in the same State
Procedure
...
Notice of new Location
...
(c)Change of
Registered Office from one State to another State
...
236
Alteration of Objects Clause (Section 17): Empowers a company to change the
place of its Registered Office from one State to another or to alter its objects by
passing a special resolution, if alteration is sought on any of the following
grounds:
1
...
3
...
To carry on its business more economically and more efficiently
To attain its main purpose by new or improved means
To enlarge or change the local area of its operation
To carry on some business which under existing circumstances may be
conveniently or advantageously combined with the business of the
company
5
...
6
...
7
...
Alteration of Liability Clause (Sec
...
Increase in
liability may be by way of subscribing for more shares than the number held by
him at the date on which the alteration is made or in any other manner
...
to increase its authorized share capital ; 2
...
3
...
to sub-divide its shares, or any
of them, into shares of smaller amount
...
to cancel shares which have not been
taken or agreed to be taken by any person
...
They define the duties, rights, powers and authority of the shareholders and the
directors in their respective capacities and of the company, and the mode and
form in which the business of the company is to be carried out
...
There are actually three possible alternatives in which such
company may adopt articles: (i) it may adopt Table A in full or, (ii) it may
wholly exclude Table A and set out its own regulations in full, or (iii) it may set
out its own articles and adopt part of Table A
...
28) : A company limited by shares may either frame
its own set of articles or may adopt all or any of the regulations contained in
Table ‘A’ [Section 28(1)]
...
Subject matter of Articles/Contents
The articles of a company usually deal with the following matters:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
the business of the company;
the amount of capital issued and the classes of shares the increase and
reduction of share capital;
the rights of each class of shareholders and the procedure for variation of
their rights;
the execution or adoption of a preliminary agreement, if any; the
allotment of shares; calls and forfeiture of shares for non-payment of
calls;
the allotment of shares; calls and forfeiture of shares for non-payment of
calls:
transfer and transmission of shares;
company’s lien on shares;
238
(8)
(9)
(10)
(11)
(12)
(13)
exercise of borrowing powers including issue of debentures;
general meetings, notices, quorum, proxy, poll, voting resolution,
minutes;
number, appointment and powers of directors;
dividends – interim and final – and general reserves;
accounts and audit;
keeping of books-both statutory and others
...
Section 30
requires that articles shall:1
...
be divided into paragraphs numbered consecutively; 3
...
Inspection and Copies of the Articles: A company shall, on being so required
by a member, send to him within seven days of the requirement, on payment of
one rupee, a copy of the articles
...
A printed or
type written copy of every special resolution altering the articles must be filed
with the Registrar within 30 days of the passing of the special resolution
...
Company bound to members: A company is bound to members by whatever is
contained in its memorandum and articles of association
...
e
...
Whether company or members bound to outsiders?: No, the memorandum
or articles do not confer any contractual rights to outsiders against the company
or its members, even though the name of the outsiders is mentioned in the
articles
...
CONSTRUCTIVE NOTICE OF ARTICLES AND MEMORANDUM: The
memorandum and articles when registered become public documents and then
they can be inspected by anyone on payment of a nominal fee
...
This is known as ‘Doctrine of
Constructive Notice’
...
In
other words, they are not bound to enquire into the regularity of internal
proceedings
...
Exceptions : The doctrine of indoor management is subject to the following
exceptions:
1
...
240
2
...
3
...
The rule does not apply to transactions which
are void or illegal ab initio, eg
...
4
...
If he fails to
make inquiry he cannot rely on the rule
...
Doctrine does not apply where question is in regard to very existence of
agency
...
Thus, a prospectus
is not merely an advertisement; it may be a circular or even a notice
...
It invites subscriptions to shares or debentures or invites deposits
...
The aforesaid invitation is made to the public
...
Appointment of various expert agencies such as bankers, auditors,
secretary, etc
...
Entering into underwriting contract, brokerage contracts
...
Making arrangements for the listing of shares on stock exchanges
...
Drafting a prospectus for the purpose of issue to the public
...
In
return for this undertaking, the company agrees to pay the underwriter a
commission on all shares or debentures, whether taken up by the public or by he
underwriters
...
The difference between the commission paid by
the company to the principal underwriters and the commission paid by them to
the sub-underwriters is known as overriding commission
...
(Sec
...
5 crores [Rs
...
Time of Floatation: The Board of Directors will decide about the time of issue
of prospectus
...
Dating of Prospectus: Sec
...
Section 56 of
the Companies Act lays down that the matters and reports stated in Schedule II
to the Companies Act must be included in a prospectus
...
Form 2-A
has been prescribed as a format of abridged prospectus
...
56(3)(a)]
(ii)
When shares or debentures are not offered to the public
[Sec
...
(iii)
Where offer is made only to existing members/debenture holders of
the company by way of rights, whether with or without the right of
renunciation [Sec
...
(iv)
In the case of issue of shares or debentures which are in all respects
similar to those previously issued and dealt in and quoted on a
recognized stock exchange [Sec
...
Registration of the Prospectus (Section 60): A copy of the prospectus duly
signed by every director or proposed directors must be delivered to the Registrar
before its publication
...
(iii) A memorandum containing the prescribed salient features of a
prospectus
...
56(3)
(v)
Application form is issued in relation to shares or debentures not offered
to the public [Sec
...
56(5)]
(vii) The issue relates to shares or debentures previously issued [Sec
...
66]
...
,
Sections 60A and 60B relating to ‘Shelf Prospectus’ and ‘Information
Memorandum’ respectively
...
Information Memorandum (Section 60B): ‘Information memorandum’ means
a process undertaken prior to the filing of a prospectus by which a demand for
the securities proposed to be issued by a company is elicited, and the price and
the terms of issue for such securities is assessed, by means of a notice, circular,
advertisement or document [Section 2(19B)]
...
If allotment of shares or debentures is made without filing the Statement
in lieu of prospectus, the allottee may avoid it within two months after the
statutory meeting, or where no such meeting is to be held, within two months of
the allotment
...
10,000
...
The persons issuing the prospectus are bound to state
everything accurately and not to omit material facts
...
Civil Liability (Section 62): The following persons shall be liable to pay
compensation to every subscriber for loss or damage (1) director of the company
at the time of the issue of the prospectus; (2) person who has authorized himself
to be named and is named in the prospectus as a director, (3) every promoter of
the company; and (4) who has authorized the issue of the prospectus
...
rescind the contract to take the shares (2)claim damages
...
which is inconsistent with the right to
repudiate, e
...
, to accept dividends
...
Damages for Fraudulent Misrepresentation: An allottee of shares may bring
an action for deceit, i
...
, fraudulent misrepresentation
...
62]: File a suit for compensation
under Section 62
...
Remedies against Experts : The allottee of the shares is entitled to claim from
the expert: (i) damages, (ii) compensation under Section 62
...
e
...
II) may give rise to an action for
damages at the instance of a subscriber for shares, who has suffered loss
...
50
...
Liability under Section 68: Every person authorizing its issue
...
1,00,000 or with both
...
& Land Co
...
Muggeridge (1860)
...
Thus, the persons
247
issuing the prospectus must not include in the prospectus all the relevant
particulars specified in Parts I & II of Schedule II of the Act, which are required
to be stated compulsorily but should also voluntarily disclose any other
information within their knowledge which might in any way affect the decision
of the prospective investor to invest in the company
248
LESSON 4
SHARE & SHARE CAPITAL
Meaning of a Share
...
A share signifies the following:
(i)
(ii)
(iii)
(iv)
The interest of a shareholder in the company; the right to receive
dividend, attend meetings, vote at the meeting and share in the surplus
assets of the company, if any, in the event of the company, being wound
up ;
The liability of the shareholder in the company to pay calls on shares
until fully paid up;
The right of the shareholder to transfer the shares subject to the articles
of association
...
Thus, a share of a company in the hands of a shareholder signifies a
bundle of rights and obligations
...
Share Vs
...
82 of the Companies Act
...
84, on the other hand, describes a ‘share certificate’ to
mean a certificate, under the common seal of the company, specifying any
shares held by any member
...
Stock
Share: The share capital of a company is divided into a number of indivisible
units of specified amount
...
Stock The term
‘stock’ may be defined as the aggregate of fully paid-up shares of a member
merged into one fund of equal value
...
The ‘stock’ is expressed in terms of money and not as so many shares
...
Distinction: Following are the main points of difference:
1
...
3
...
Share
A share has a nominal value
...
A share has a distinctive 2
...
Share
can
be
issued 3
...
A stock bears no such number
...
Stock can be issued by
existing company by converting its
fully paid-up shares
...
A stock may be transferred in any
fractions
...
paid-up or partly paid-up
...
A
share
cannot
be 5
...
It is
transferred as a whole
...
All the shares are of equal 6
...
denominations
...
A public company and a private company which is a subsidiary of
public company may not issue shares other than equity, preference and
cumulative convertible preference shares (CCPS)
...
The preference or priority of the preference shareholders is in relation to
the rights of equity shareholders [Section 85]
...
Thus, if a preference share does not carry either of these rights, then it
will be known as non-participating share
...
If a preference share does not carry the
right to dividend in arrears, then such a preference share is known as noncumulative or simple
...
Redeemable and Irredeemable : Redeemable preference shares are those
shares which are to be redeemed by the company either at a fixed date, or after a
certain period of time or at the option of the company as per Section 80
...
The shares can be redeemed only when
they are fully paid up; it will only be redeemed: (a) out of profits of the company
which would otherwise be available for dividend, or (b) out of the proceeds of a
new issue of shares
...
Where the shares are redeemed out of profits, a sum equal to the
nominal amount of the shares redeemed is to be transferred out of profits to the
“Capital Redemption Reserve Account
...
(i) any resolution for
winding up of the company, (ii) any resolution for the reduction or repayment of
share capital, (iii) any resolution at any meeting, if dividend on cumulative
preference shares remains unpaid for at least two years
Equity Share: ‘Equity share’ means a share which is not preference share
[Section 85]
...
The Board of Directors
recommend the rate of dividend which is then declared by the members at the
Annual General Meeting
...
Prior to the Amendment to the companies Act in 2000, public companies
were not allowed to issue equity shares with differential rights
...
The holders of equity shares
carrying voting rights shall have voting rights in proportion to the paid-up equity
capital of the company [Section 87(1)]
...
252
Deferred or Founders’ Shares: A pure private company can issue shares of a
type other than those discussed above [Section 90]
...
As deferred shares are normally held by promoters
and directors of the company, they are usually called founders’ shares
...
ISSUE OF SHARES AT PAR, AT PREMIUM, AND AT DISCOUNT
A company may issue shares at par, or at a premium, or at a discount
...
PAR VALUE OF SHARES: ‘Par value’ is the notional face value of the shares
which a company issues to its investors
...
The
premium cannot be treated as profit and, therefore, cannot be distributed as
dividend
...
As per SEBI guidelines, 2000 every company
entitled to make a public issue can offer its shares at par or premium
...
Certain conditions subject to which shares can be issued at a discount:
Is authorized by a resolution
1
...
The issue must be of a class of shares already issued
The maximum rate of discount must not exceed 10 per cent
253
3
...
5
...
Issued within two months of the sanction by the Company Law Board
...
Issue of Sweat Equity Shares [Sec
...
‘Sweat equity shares’ may be issued for providing
know-how or making available intellectual property rights (say, patents) or
value additions, by whatever name called
...
(b)Authorised by a special resolution (c) The resolution
specifies the number of shares, current market price, consideration, if any, and
the class or classes of directors or employees to whom such equity shares are to
be issued
...
BONUS SHARES: A company may, if the articles so provide, capitalize profits
by issuing fully paid-up shares to the members thereby transferring the sums
capitalized from the profit and loss account or Reserve Account to the Share
Capital [Section 205(3)]
...
The issue of bonus
shares is regulated not only by the Companies Act, 1956 but also by the
guidelines issued by SEBI in this regard
...
Such
shares are known as “right shares” but they are not issued free of charge
...
Nominal, Authorised or Registered capital: This is the sum stated in the
memorandum as the share capital of a company with which it is proposed to be
registered
...
Issued capital: It is the part of the authorized capital which the company has
issued for subscription
...
Subscribed capital: It is that portion of the issued capital which has been
subscribed for the purchasers of the company’s shares
...
Called-up capital: The company may not call up full amount of the face value
of the shares
...
The total amount of called-up capital can be either equal
to or less than the subscribed capital
...
The company may reserve all or part of the uncalled capital, which
can then be called in the event of the company being wound up
...
Paid-up capital: Paid –up capital is the amount of money paid-up on the shares
subscribed
...
Increase of authorised share capital : A company limited by shares if
the articles authorise, can increase its authroised share capital by passing
an ordinary resolution
...
Consolidate and sub-divide shares : Consolidation is the process of
combining shares of smaller denomination, Sub-division of shares is just
the opposite of consolidation
...
Convert shares into stock and vice versa : Stock cannot be issued in
the first instance
...
Also stock can be reconverted
into fully paid-up shares by passing a resolution in general meeting
...
Diminish share capital : Section 94 provides that a company may
cancel shares and diminish the amount of the share capital by the amount
of the shares so cancelled
...
5
...
(ii) By paying off returning capital which
is in excess of the wants of the company, (iii) Pay off paid-up capital on
the understanding that it may be called up again
...
(v) Write off or cancel capital which has been
lost or is not represented by available assets
...
These are:
(i)
Forfeiture of shares
...
(v)
Purchase of shares of a member by the company under section 402
...
Private Placement of Shares: Shares are issued privately to a small number of
persons known to the promoters or related to them by family connections
...
This
document is deemed to be a prospectus [Section 64(1)]
...
257
Issue of shares to existing shareholders: The capital is also raised by issue of
rights shares’ to the existing shareholders (Sec
...
In the case, the shares are
allotted to the existing equity shareholders in proportion to their original
shareholding
...
ALLOTMENT OF SHARES: It means and implies a division of the share
capital into defined shares of a particular value or of different classes and
assignment of such shares to different persons
...
It must bear the common seal of the
company, must be stamped and bear the signature of one or more directors
...
It entitles the bearer to the shares specified in it and he can transfer
the ownership of shares by merely delivering the share warrant to the transferee
...
The subscribers of the Memorandum
2
...
Every person holding equity share capital of a company
Member and Shareholder: In the case of an unlimited company or a company
limited by guarantee, a member may not be a shareholder
...
1
...
2
...
258
CALLS ON SHARES: The company may ask for some payment at the time of
application for shares (but money not less than 5 per cent of the nominal value)
and another sum at allotment
...
FORFEITURE OF SHARES: Forfeiture of shares means taking theme away
from the member
...
259
LESSON 5
DEBENTURES
According to Sec
...
Characteristic features of a debenture: (1)Debentures is issued by a company
and is usually in the form of a certificate which is an acknowledgement of
indebtedness
...
(3)It is one of a series
issued to a number of lenders
...
(5) It generally creates a charge on the
undertaking of the company or some parts of its property
...
CLASSES OF DEBENTURES
Debentures may be classified according to the following characteristics, viz
...
2
...
4
...
negotiability,
security,
permanence,
convertibility, and
priority
...
Classification according to negotiability:
(1) Bearer debentures
...
2
...
(2) Unsecured or naked debentures
...
Classification according to permanence:
(1) Redeemable debentures
...
4
...
(2) Non-convertible debentures
...
Classification according to priority:
(1) First debentures
...
260
Debentures with voting rights not to be issued (Sec
...
Debentures and debenture stock: The difference between debentures and
debenture stock is the same as the difference between shares and stock
...
117-A as inserted by the Companies
(Amendment) Act, 2000]
...
Appointment of debenture trustees and duties of debenture trustees
[Sec
...
Liability of company to create security and debenture redemption reserve
[New Sec
...
Liability of trustees for debenture-holders (Sec
...
261
REMEDIES OF DEBENTURE HOLDERS
1
...
2
...
439 for the winding up of the company by
the Court
...
Debenture-holders’ action
...
Appointment of receiver
...
Foreclosure
...
Sale
...
Proof for the balance
CREATION OF CHARGES: A company like any other person can, when it
borrows money, give its-creditors security
...
FIXED AND FLOATING CHARGES:
Fixed charge: A fixed or specific charge is one which is created on some
specific and definite assets of the company, e
...
, a charge on land and building
...
g
...
New financial instruments: Issuer of capital shall make instruments such as
Deep Discount Bonds, Debentures wit Warrants, Secured Premium Notes etc
...
262
LESSON 6
COMPANY MANAGEMENT & REMUNERATION
DIRECTORS: A company in the eyes of the law is an artificial person
...
They are collectively known as Board of directors or the
Board
...
253): No body corporate, association
or firm can be appointed as director of a company
...
252): Every public company
(other than a deemed public company) shall have at least 3 directors and every
other company (e
...
, a private company, a deemed public company) at least 2
directors
...
First Directors (Sec
...
(b) If the first directors are not named in the Articles, the number of
directors and the name of the directors shall be determined in writing by
the subscribers of the Memorandum or a majority of them (Clause 64 of
Table A)
...
2
...
255 to 257, 263 and 264)
Directors must be appointed by shareholders in general meeting
...
Such
directors are called rotation directors
...
257): (1) Fourteen days’ notice and
deposit of Rs
...
(2) Consent in writing to act as director (Sec
...
(3)
Separate ordinary resolution for each appointment (Sec
...
Retirement of directors where annual general meeting is not held: A director
who is to retire by rotation at the annual general meeting shall not continue in
office after the last day on which the annual general meeting in each year should
have been held
...
Appointment of director by directors (Secs
...
260)
...
262)
...
313)
...
Appointment of directors by third parties: The number of directors so
appointed shall not exceed 1/3rd of the total number of directors, and they are not
liable to retire by rotation
...
Appointment by proportional representation (Sec
...
5
...
408):
Any director appointed by the Central Government shall not be required to hold
any qualification shares
...
Directors as employees: Although the directors of a company are its agents,
they are not employees or servants of the company for being entitled to
264
privileges and benefits which are granted under the Companies Act to the
employees
...
2 (30)]
...
QUALIFICATIONS AND DISQUALIFICATIONS OF DIRECTORS
A director must –
(a) be an individual,
(b) be competent to contract, and
(c) hold a share qualification, if so required by the Articles
...
274)
The following persons are disqualified for appointment as directors of a
company:
(a) A person of unsound mind
...
(c) A person who has applied to be adjudicated as an insolvent and his
application is pending
...
(e) A person whose calls in respect of shares of the company held for more
than 6 months have been in arrear
...
203
...
VACATION OF OFFICE, REMOVAL AND RESIGNATION OF
DIRECTORS
Vacation of office by directors (Sec
...
2)Additional
grounds in case of private companies
...
Removal of directors
Directors may be removed by:
(1) the shareholders, (2)the Central Government, (3)the Company Law Board
...
Removal by Central Government: (Secs
...
Removal by Company Law Board (Sec
...
397) or mismanagement (under Sec
...
Resignation of directors: There is no provision in the Companies Act, 1956
relating to the resignation of office of a director
...
(b) Whole-time/part-time directors, or (c) Manager
...
198): Remuneration not to
exceed 11 per cent: The total managerial remuneration of the directors and the
manager in respect of any financial year shall not exceed 11 per cent of the net
266
profit of the company for that financial year computed in the manner laid down
in Sec
...
MEETINGS OF DIRECTORS (Sec
...
Number of meetings – once in every 3 months (Sec
...
2
...
286): Every officer of the company whose duty
is to give notice and who fails to do so shall be punishable with fine
which may extend to
Rs
...
3
...
287): The quorum shall be 1/3rd of its strength
or 2 directors, whichever is higher
...
291): The Board of directors of company is
entitled to exercise all such powers and to do all such acts and things as the
company is authorized to exercise and do
...
292): The following powers,
on behalf of the company,
(a) make calls on shareholders in respect of money unpaid on their shares;
(a) the Power to authorise the buy-back of shares
(b)issue debentures;
(c) borrow moneys otherwise than on debentures
(d)invest the funds of the company; and make loans
...
262);
(b) to sanction or give consent for certain contracts in which particular
directors, their relatives and firms are interested (Sec
...
299);
(d) to receive notice of disclosure of shareholdings of directors (Sec
...
316 and 386) ;
(f) to make investments in companies in the same group (Sec
...
267
Exceptions:
1
...
3
...
5
...
Directors themselves wrong-doers
...
Deadlock in management
...
i
...
, powers not expressly conferred on the directors
or shareholders, in a general meeting
...
293):
(a) To sell, lease or otherwise dispose of
...
(c) To invest (excluding trust securities) the amount of compensation
received
...
(e) To contribute to charitable and other funds not directly relating to the
business
...
292-A as introduced by the Companies (Amendment)
Act, 2000]: The Audit Committee shall act in accordance with terms of
reference to be specified in writing by the Board
...
Fiduciary duties and 2
...
1
...
2
...
Other duties of directors: The other duties of a director are –
(1) to attend Board meetings,
(2) not to delegate his functions except to the extent authorized by the Act or
the constitution of the company, and
(3) to disclose his interest
...
Liability
to
third
parties:
(1)
Material
misrepresentations
...
(3)Liability for acts ultra vires the company: Where a director
enters into a contract, which is ultra vires the company, the director is
personally liable for breach of implied warranty of authority
...
2
...
OTHER MANAGERIAL PERSONNEL
MANAGING DIRECTOR: The term ‘managing director’ includes a director
occupying the position of a managing director, by whatever name called
...
2 (24), means an individual who
has the management of the whole or substantially the whole of the affairs of a
company
...
A managing director is entrusted
with the substantial powers of the
management
...
A company may have two managing
directors
...
A manager has the management of
the whole, or substantially the whole
of the affairs of a company
...
A company can have only one
manager as he is vested with the
management of the whole or
substantially of the whole or
substantially the whole of the affairs of
the company
...
A managing director must be a 3
...
director
...
A managing director is appointed by 4
...
and appointed either resolution of the
Board or general meeting
...
SECRETARY: A company secretary means “a person who is a member of the
Institute of Company Secretaries of India”
...
2 (45) of the
Companies Act as amended in 1988 ‘secretary’ means a company secretary
within the meaning of Sec
...
270
LESSON 7
MEETINGS AND RESOLUTIONS
GENERAL MEETINGS OF SHAREHOLDERS:
1
...
165): Every company limited by shares and
every company limited by guarantee and having a share capital shall, within a
period of not less than one month and not more than six months from the date at
which the company is entitled to commence business, hold a general meeting of
the members of the company
...
This is the first meeting of the shareholders of a public company and is held
only once in the lifetime of a company
...
Procedure at the meeting: (a) List of members
...
(c) Adjournment
...
To put the members of the company in possession of all the important
facts relating to the company
...
To provide the members an opportunity of meeting and discussing the
management, methods and prospects of the company
...
To approve the modification of the terms of any contract named in the
prospectus
...
ANNUAL GENERAL MEETING (Secs
...
166)
Every 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 notice calling it
...
But the first
annual general meeting should be held within a period of 18 months from the
date of its incorporation
...
But no
extension of time is granted for holding the first annual general meeting
...
It 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 situated
...
21 days’ notice (Sec
...
Annual general meeting a statutory requirement: The annual general
meeting of a company is a statutory requirement
...
Canceling or postponing of
convened meeting: Where an annual general meeting is convened for a
particular date and notice is issued to the members, the Board of directors can
cancel or postpone the holding of the meeting on that date provided power is
exercised for bona fide and proper reasons
...
167, to the Company Law Board for
calling the meeting
...
Powers of Company Law Board to call annual general meeting (Sec
...
166, any member of the company may apply to the
Company Law Board for calling such a meeting
...
168): If default is made by a company in holding a
meeting in accordance with Sec
...
167, the company, and
every officer of the company who is in default, shall be punishable with fine
which may extend to Rs
...
3
...
169): A statutory
meeting and an annual general meeting of a company are called ordinary
meetings
...
It is called for transacting some urgent or special business
which cannot be postponed till the next annual general meeting
...
(1) by the Board of directors on its own or on the requisition of the
members; or (2) by the requisitionists themselves on the failure of the Board of
directors to call the meeting
...
The Board of directors may call an extraordinary general meeting:
(a) On its own
...
(2) Extraordinary meeting convened by the requisitionists
Power of Company Law Board to order meeting (Sec
...
II
...
Under Sec
...
REQUISITES OF A VALID MEETING: A meeting can validly transact any
business if the following requirements are satisfied:
1
...
2
...
3
...
4
...
5
...
They are:
1
...
3
...
Ordinary resolution (Sec
...
e
...
274
When is an ordinary resolution required? Ordinary resolution is necessary for
the following among other purposes:
(a) Rectification of name or adoption of new name by a company where it
resembles the name of an existing company with the previous approval
of the Central Government [Sec
...
(b) Issue of shares at a discount [Sec
...
94 (2)]
...
121)
...
165)
...
210)
...
224
(1)]
...
255 (1)]
...
258)
...
269)
...
284(1)]
...
294)
...
484 (1) (a)]
...
490 (1)]
...
502
(1)]
...
Special resolution [Sec
...
275
(b) The notice has been duly given of the general meeting
...
(d) An explanatory statement setting out all material facts concerning the
subject-matter of the special resolution including, in particular, the
nature of the concern or interest of every director and the manager, if
any, shall be annexed to the notice of the meeting
...
17(1) and (2)]
...
(b) Changes of name of a company with the consent of the Central
Government (Sec
...
(c) Omission or addition of the word ‘Private’ from or to the name of a
company (Sec
...
(d) Change of name of a charitable or other non-profit company by omitting
the word or words ‘Limited’ or ‘Private Limited’ [Sec
...
(e) Alteration of the Articles of a company [Sec
...
(f) Conversion of any portion of the uncalled capital into reserve capital
(Sec
...
(g) Reduction of share capital [Sec
...
(h) Variation of shareholder’s rights (Sec
...
(i) Removal of a company’s registered office outside the local limits of any
city, town or village [Sec
...
(j) Keeping registers and returns at a place other than the registered office
[Sec
...
(k) Payment of interest out of capital [Sec
...
(l) Applying to the Central Government for appointing an Inspector for
investigating a company’s affairs in some cases [Sec
...
276
(m) Appointment of sole selling or buying agent in the case of companies
having paid-up share capital of Rs
...
294-AA(3)]
...
309 (1)]
...
314(1) and (1-B)]
...
323(1)]
...
433 (a)]
...
484 (1) (b)]
...
494 (1)]
...
550 (1) (b)]
...
Resolutions requiring a special notice (Sec
...
It is only a different kind of an ordinary resolution of which notice of the
intention to move a resolution has to be given to the company
...
277
LESSON 8
ACCOUNTS, AUDIT AND PREVENTION OF OPPRESSION AND MIS
MANAGEMENT
ACCOUNTS: Books of account to be kept by company (Sec
...
The
object of this clause is to make efficiency audit possible
...
209-A): The books of account and other
books and papers shall be open to inspection during business hours (i) by the
Registrar; (ii) by such other officer of the Government as may be authorized by
the Central Government in this behalf
...
STATUTORY BOOKS: In addition to the books of account required to be
maintained by a company under Sec
...
Such books are called statutory books and are as follows:
1
...
49 (7)]
...
Register of charges (open to inspection of all) [Sec
...
3
...
150 (1))
...
Index of members where their number is more than 50 (open to inspection
of all) [Sec
...
5
...
152 (1)]
...
Index of debenture-holders where their number is more than 50 (open to
inspection of all) [Sec
...
7
...
158)
...
Minute books containing minutes of proceedings of general meetings (open
to inspection of members) [Sec
...
9
...
209 (1) 210]
...
Register of contracts, and companies and firms in which directors are
interested (open to inspection of members) [Sec
...
11
...
303 (1)]
...
Register of directors’ shareholding (open to inspection of members and
debenture-holders during 14 days before and 3 days after the annual general
meeting and to the Registrar and the Central Government) [Sec
...
13
...
370
(1
...
These books are not only found to be desirable but often
indispensable in practice
...
2
...
4
...
6
...
8
...
10
...
12
...
Share application and allotment book
...
Register of share warrants
...
Register of share transfers
...
Register of balance tickets issued
...
Agenda book
...
Dividend Mandates register
...
Register of documents sealed
...
15
...
Register of powers of attorney
...
Register of directors’ attendance
AUDITORS: To safeguard the interest of the shareholders, the Companies Act
provides for the employment of an auditor
...
QUALIFICATIONS AND DISQUALIFICATIONS OF AUDITORS (Sec
...
226 (1)]: A person shall not be qualified for appointment as
auditor of a company unless he is a Chartered Accountant within the meaning of
the Chartered Accountants Act, 1949
...
226 (3)]: The following persons, even if they are
otherwise qualified, shall he disqualified from being appointed as auditors of a
company:
(a) A body corporate
...
(c) A person who is a partner, or who is in the employment of an officer or
employee of the company
...
1,000 or who has given any guarantee of any third person to the
company for an amount exceeding Rs
...
(e) A person holding any security of that company after a period of one year
from the date of commencement of the Companies (Amendment) Act,
2000
...
224 and 225): Appointment in
annual general meeting: Every company shall, at each annual general meeting,
appoint an auditor or auditors to hold office from the conclusion
...
Compulsory re-appointment: At any general meeting a retiring auditor, by
whatsoever authority appointed (Board of directors, general meeting, annual
general meeting or Central Government), shall be re-appointed except in the
following cases:
(a) if he is not qualified for re-appointment;
(b) if he has given notice to the company in writing or his unwillingness to
be re-appointed;
(c) if a resolution has been passed to the effect appointing somebody instead
of him or providing expressly that he shall not be re-appointed; or
(d) where notice has been given of an intended resolution to appoint some
person or persons in the place of a retiring auditor, and by reason of
death, incapacity or disqualification of that person or of all those
persons, the resolution cannot be proceeded with [Sec
...
Appointment of auditors by a special resolution: Sec
...
281
First auditors: The first auditors of a company shall be appointed by its
Board of directors within 1 month of its incorporation
...
225): At the expiry of the term of an
auditor, the members may, in the annual general meeting, appoint another
person in his place
...
232): If default is made by a company in complying with
any of the provisions of Sec
...
5,000
...
Removal of auditors: The first auditors of company appointed by the directors
prior to the first annual general meeting of the company may be removed by the
members in a general meeting even if their tenure of office has not expired
...
POSITION OF AUDITORS: 1
...
2
...
As employee of the company
Rights and powers of auditors
1
...
227)
...
Right to obtain information and explanations (Sec
...
Right to visit branch offices and right of access to books, etc
...
228)
4
...
5
...
231)
6
...
Duties of auditors: 1
...
2
...
227)
...
Duty of care and caution
...
Statutory report (Sec
...
Prospectus (Sec
...
3
...
240)
...
This has been
done because the cardinal rule laid down in Foss v
...
Secs
...
If the oppressed minority consider that to wind up the company would not
relieve but on the contrary, they would be unfairly prejudiced by winding up,
they may petition the Court under Sec
...
A certain number of members (stated below) may
apply to the Company Law Board for relief on the grounds that the affairs of the
company are being conducted:(a) in a manner oppressive to any member or members, or
(b) in a manner prejudicial to the interests of the company, or
(c) in a manner prejudicial to the public interest, or
283
(d) that material change has taken place in the management or control of the
company and that by reason of, it may pass any orders with a view to
bringing to an end the matters complained of, or apprehended
...
The number of
members necessary to make application is (i) in the case of a company having
share capital, 100 members or 10 per cent of the total number of member,
whichever is less, or members holding 10 per cent of the issued capital; (ii) in
the case of a company not having share capital, 20 per cent of its total number of
members
...
The Company Law Board may in its discretion make any order that it
thinks fit, and in particular, it may provide for: (i) the regulation of the
company’s affairs in future, and may even frame fresh regulation; (ii) the
acquisition of the shares or interests of any members by other members or by the
company; (iii) the consequent reduction of the share capital in case of (ii) above;
(iv) termination, setting aside or modification of any agreement, howsoever
arrived at, between the company and the managing agent, secretaries and
treasurers, managing director, any other director, or manager; (v) termination,
setting aside or modification of any agreement between the company and any
other person with the latter’s consent; (vi) setting aside any transfer, delivery of
goods, payment, execution or other act relating to property made or done by or
against the company within 3 months of the application which would amount to
a fraudulent preference in the case of an individual’s insolvency; (vii) any other
matter for which in the opinion of the Company Law Board it is just and
equitable that provision should be made (Sec
...
No compensation is payable
284
for loss of office resulting from the termination of agreement by the Company
Law Board
...
In addition to the above order, heavy penalties are provided
...
GROUNDS FOR COMPULSORY WINDING UP:
(a)
Resolved to be wound up by the Court
...
(c)
If the company does not commence its business within a year from its
incorporation, or suspends its business for a whole year
...
(e)
If the company is unable to pay its debts
...
(g)
Just & Equitable: (a) Main object-failed (b) Deadlock in management (c)
Cannot carry on business except losses
...
(e) Majority of
shareholder have adapted an aggressive policy towards the minority
...
440, when a company is already being wound up voluntarily, the court
may order winding up by it
...
484)
...
WINDING UP UNDER SUPERVISION: Where a company is being wound
up voluntarily the Court may order the continuation of voluntary winding up
subject to its supervision with any terms or conditions
...
CONSEQUENCES OF WINDING UP
AS TO SHAREHOLDERS: A shareholder is liable to pay full amount of
shares held by him
...
Unsecured
creditors of an insolvent company are paid in this order: (i) preferential payment
under Sec
...
AS TO SERVANTS AND OFFICERS: A winding up order operates as a
notice of discharge to the employees and officers of the company except when
the business of the company is being continued (Sec
...
A voluntary winding
up also operates as a notice of discharge
...
AS TO COSTS: If the company, while in liquidation, brings or defends any
action and is ordered to pay costs, they are paid first out of the assets of the
company
...
He is liable to be imprisoned up to 5 years, or fined or
given both punishments
...
LIQUIDATORS
COMPULSORY WINDING UP: The official Liquidator attached to each
High Court will become the liquidator on a winding up order being passed
...
DUTIES OF LIQUIDATOR: Summon meetings of creditors or contributories
get in the property and pay the debts and distribute the balance among
contributories
...
Keep all the funds of the company in “the public account of
India” in the Reserve Bank of India
...
A voluntary liquidator is a paid agent of the company and is
liable in damages if he neglects his duties as such
...
IMPORTANT QUESTIONS
1
...
3
...
5
...
7
...
9
...
“A company has an identity separate from its members” – Explain the
statement critically
...
Distinguish between a share and a stock
...
What are the powers of the court in relation to the prevention of
oppression and mis-management?
State the grounds on which court can order winding up of a company
...
289
UNIT V
Lesson 1
FACTORIES ACT, 1948
INTRODUCTION
In common parlance, invariably factory and industry are understood as
interchangeable
...
The term industry refers to a steady and
systematic activity in which a trade is organised, whereas a factory is the place
where such activities are being carried on
...
This
Act extends to the whole of India, including Jammu and Kashmir
...
(Section 116)
The Bhopal tragedy of 1984 has created an awareness among the public
for preventing pollution and this has made the government to take steps in
amending the present 1948 Act by incorporating Chapter IV A from Sections 41
A to 41 H, pertaining to provisions as regards hazardous processes
...
(b)
To regulate by imposing restriction as to hours of work including
rest and provisions for availing of leave
...
290
MEANING OF THE TERM ‘FACTORY’
Factory means any premises including the precincts therefore –
(i)
Wherein ten or more workers are working or were working on any
day of the preceding twelve months, and in any part of which a
manufacturing process is being carried on with the aid of power, or
is ordinarily so carried on, or
(ii)
Whereon twenty or more workers are working or were working on
any day of the preceding twelve months, and in any part of which a
manufacturing process is being carried on without the aid of power,
or is ordinarily so carried on
...
To put it in a nutshell, factory means (i) any premises including precincts
(ii) where ten or more persons are engaged in manufacturing process with the
aid of power or (iii) twenty or more persons are engaged in manufacturing
process without the aid of power
...
POWER [Section 2(g)]
It means mechanical or electrical energy transmitted as a step or aids to carry out
manufacture and not energy generated by human or animal agency
...
[New Taj Mahal Hotel vs
...
L
...
J
...
Manufacturing process must be done with the aid of power, according to
Section 2 (m)
...
According to Section 4, on application by the occupier
of a factory, different departments or branches of the factory may be treated as
separate factories
...
WORKER [Section 2 (l)]
Worker means a person employed directly or through any agency (including a
contractor) with or without the knowledge of the principal employer, whether
for remuneration or not, in any manufacturing process or in cleaning any part of
the machinery or premises used for a manufacturing process or in any other kind
of work incidental to, or connected within the manufacturing process, or the
subject of the manufacturing process but does not include any member of the
armed forces of the Union [Section 2 (1)]
...
That is, the employer must not only be in a position to
292
direct what work the employee should do but also how the work has to be done
by him
...
OCCUPIER [Section 2(m)]
Any person who has ultimate control and management over the affairs of
the factory will be deemed to be an occupier
...
(ii)
In companies, the directors are regarded to be occupier because
they are vicariously liable for the functions of the company
...
(iv)
In the case of partnership firm or association of individuals, and
partner or member may be prosecuted
...
(v)
Owner, lessee or a licensee having control over the factory with
regard to its management is deemed to be the occupier [Emperor
vs
...
423]
...
The site chosen to
locate the factory must have the previous permission in writing of the State
293
government of Chief Inspector of factories
...
Every application must be duly accompanied with a certified plan,
showing all the details together with the challan representing the fees payable
for such registration, licensing or renewal of licence
...
On the refusal of the State government to grant permission, the aggrieved
applicant can prefer an appeal within the 30 days from the date of refusal
...
Licence or permission cannot be denied merely on the
direction by the government without hearing the applicant [Shihabudeen Kunju
vs
...
L
...
106]
...
Such notice should contain the following:
(a)
The name and situation of the factory;
(b)
The name and address of the occupier;
(c)
The name and address of the owner of the premises or building
(including the precincts thereof);
(d)
The address to which communications relating to the factory may
be sent;
(e)
The nature of the manufacturing process to be carried on in the
factory during the next 12 months;
(f)
The total rated horse power installed or to be installed in the
factory (not including the rated horse power of any separate
stand-by plant);
294
(g)
The name of the manager of the factory for the purpose of this
Act;
(h)
The number of workers likely to be employed in the factory; and
(i)
Such other particulars as may be prescribed
...
Even an acting manager or a person without any designation as
manager will be deemed to be an occupier if control and management of the
factory is governed by them
...
[Kama Kishore
Jhunjhunwala vs
...
L
...
355]
...
Certifying Surgeons (Section10)
Certifying surgeons are qualified medical practitioners, who are appointed by
the State government for specified areas or factories
...
However, an occupier
of a factory or any parson who becomes directly or indirectly interested in such
factory cannot be appointed as a certifying surgeon
...
295
HEALTH, SAFETY AND WELFARE MEASURES
By way of implementing the recommendation of the Royal Commission on
Labour in India, the present Factories Act, has underlined the importance of
health, safety and welfare of the workers
...
HEALTH (SECTIONS 11 TO 20)
Cleanliness (Section 11) :
House keeping is the modern term used for
keeping the factory premises clean and tidy
...
Constant cleaning of effluvia (disagreeable
vapours) arising from any drain is needed
...
Disposal of wastes and effluents (Section 2) : Wastes and effluents are to be
disposed of in order to maintain the hygiene inside the factory
...
This is because wastes would pollute
the surroundings
...
Ventilation and Temperature (Section 13): Ventilation and air circulation
ensure normal health to the workmen
...
For this
purpose, the interior walls and roofs of the factory must be properly designed
and provided with heat resisting or heatproof materials by way of insulation
...
Dust and Fumes (Section 14) :
Effective measures have to be adopted in
order to prevent the workers inhaling dusts, fumes and other impurities that are
present (which cannot be seen through naked eye) in the air
...
Use of
exhaust fans is highly recommended in such places
...
[Gregeon vs
...
R
...
Artificial Humidification (Section 15) :
In factories where artificial
humidification is adopted from the point of view of manufacturing a product
(e
...
, in a textile mill), the norms prescribed by the Government must be strictly
followed for increasing or decreasing or maintaining such artificial
humidification, Humidifiers for keeping air moisture at even level shall be
provided
...
Otherwise it will give room for water borne diseases among workers
...
However, while
calculating the aggregate space, no account shall be taken of any space, which is
more than 14 feet above the level of the floor
...
Lighting (Section17) : Too much light throws glare on normal vision
...
Hence, the required light with
297
minimum power must be provided
...
Glares and shadows must be avoided from distorting the vision
of eye
...
Drinking water (Section18) : Potable, pure or wholesome drinking water shall
be made available to workmen at convenient points, A notice board must be
displayed indicating availability of such facility
...
If the strength of the workers
increases beyond 250, cool water equipment must be provided to ensure supply
of chilled water
...
Such water points must be located beyond 6 meters or any washing place,
urinals, latrine, spittoon and open drainage, carrying silage or effluent
...
Latrines and Urinals (Section 19) : For a human being, two places are very
important and both of them have to dept clean and tidy
...
Factories where more than 250 workers are ordinarily employed, the
latrine and urinal accommodation shall be of the prescribed sanitary type
...
If tiles are not provided for, the latrines cannot be
dept clean, as the bad water would pass through the pores of latrine walls
...
298
Spittoons (Section 20) :
Spittoons are nothing but pots that are specially
provided for, into which, the workers have to spit
...
Sufficient
number of spittoons should be provided, taking into account the number of
persons employed
...
5 would be imposed on any one who violated
the rule
...
According to this concept, the present Factories Act
ensures several safety measures as sound in Sections 21 to 40, which are
enumerated below:
Fencing of Machinery (Section 21)
In every factory the following namely,
•
Every moving part of a prime mover, and every fly-wheel
connected to a prime mover, whether the prime mover or fly-wheel
is in the engine house or not;
•
The headrace and tailrace of every water wheel and water-turbine;
•
Any part of a stock-bar, which projects beyond the headstock of a
lathe;
•
Every part of an electric generator, a motor or rotary converter;
•
Every part of transmission machinery; and
•
Every dangerous part of any other machinery must be fenced in a
secured manner by substantial construction, which should be
constantly maintained
...
The manager of the factory should take particular care to provide
safeguard devices to deep the machine in tact, so that it cannot come into
contact with workers and thereby cause injury
...
Employment of Young persons on Dangerous machines (Section 23):
Where complex machinery is functioning in a factory, it becomes very essential
to stop any machinery either by striking a gear or for cutting off power
...
They
were used forming part of transmission machinery
...
Suitable,
efficient mechanical device must be provided for instantaneously stopping the
machines
...
However, such machinery shall be allowed to traverse both outward and
inward directions only beyond a distance of 45 cms from any fixed structure
...
Workers must be capable of
passing under the moving part of self-acting machine in connection with their
employment
...
e
...
Spur wheel, helical wheel, fly wheel, friction gear not
requiring adjustments which are in constant motion should be safely encased
...
500 and imprisonment for 3 months or both
...
If the feed end of a cotton
opener is portioned by a separate wall or screen extending upto the ceiling or
roof from the delivery end, then women and children could be employed on the
side of the feeding end and definitely not at the delivery end
...
Such lifts should be fitted with gates
and enclosures
...
Entries have to be made recording the date of examination
...
These chains and ropes tied up with the
hoists sufficiently protect the lifts and cranes in contingencies like power failure
or mechanical failure
...
The chief
Inspector of factories has to ensure whether these lifts and cranes including the
ropes are maintained properly
...
Although indications may be there signifying the
maximum speed, the optimum speed must be written on the machine for the safe
301
use of it
...
Such a notice must be displayed on the peripheral space of the
grinding stone, abrasive wheel, etc
...
Precautionary measures and for handling situations
involving hazardous processes have been highlighted under Chapter IV-A
...
It is for this reason; a new concept under hazardous
processes has been introduced with effect from 1
...
1987
...
WELFARE OF WORKERS
The present Factories Act has provided several measures under Chapter V for
welfare of the workers under Sections 42 to 48, dealing with washing facilities,
facilities for storing and dressing, facilities for sitting, First-aid appliances,
canteen, shelter, rest rooms, lunch rooms and crèches
Washing facilities (Section 42) :
Suitable and adequate washing facilities, as
prescribed by the State government have tobe provided separately and
exclusively for male and female workers
...
Facilities for storing and drying clothes (Section 43) : Suitable places must be
provided by the occupier to enable the workers to keep their clothes safe so that
there is no risk of theft in that place
...
302
First Aid appliances (Section 45) : The term first aid itself signifies immediate
medical help required by the affected parties
...
Where in a factory, 500 or more workers are employed, the occupier
should provide an ambulance room, which is indispensable in the matter of
giving medical attention to workers who have e sustained serious injuries
...
A managing
committee consisting of representatives of employees and employers should
manage such canteens
...
Creches (Section 48) : Creche is a room or place for accommodating children
below the age of six
...
Trained women assistants shall be employed to attend to the children
and maintain them clean and healthy
...
WORKING HOURS, HOLIDAYS & ANNUAL LEAVE
Adult [Section 2(a)], Adolescent [Section 2(b)] and Child [Section 2(c)]
An adult is a person who has completed the age of 18
...
A child is a person who has not completed the
age of 15
...
Working Hours
Weekly hours (Section 51): No adult worker shall be required or allowed
to work in a factory for more than 48 hours in a week
...
Work not done in the factory under direction of office will not be
counted
...
J
...
Andrews, (1931) I
...
R
...
519]
...
However, to facilitate the change of shift, this limit
may be exceeded, subject to the previous approval of the Chief Inspector
of factories
...
Classification of Workers : The manager of the factory shall classify
the workers into such groups, as he may deem fit and proper
...
For each group, which is not
304
required to work on a system of shifts, the manager of the factory shall
fix the periods during which the group may be required to work
...
Group working on a system of shifts : The manager shall fix the period
during which each relay of the group may be required to work on shifts
...
Register of Adult Workers (Section 62) : Registers disclosing the
particulars of adult workers working in the factory shall be maintained
by the manager incorporating the changes from time to time
...
Work in accordance with Notice (Section 63) :
All adult workers
who are required or allowed to work in the factory, shall be in
accordance with the notice periods of work as displayed on the general
notice board and in conformity with the entries made in the register of
adult workers
...
Furthermore, he shall not allow the total number of workers to exceed
the number that has already been notified and allocated for work
...
305
HOLIDAYS (SECTIONS 52 & 53)
No adult worker shall be required or allowed to work in a factory, on the
first day of the week, which is a Sunday
...
However, the manager may call upon a worker to work on a Sunday
...
Before
making this arrangement, a manager shall deliver a notice to the office of
the inspector expressing his intention to that effect
...
No substitution can however be made, in such a
way that it makes a worker to work for more than l0 days consecutively
...
Compensatory Holidays : It is mandatory that a worker shall be allowed
compensatory holidays of equal number to the holidays so lost
...
The compensatory holidays must be allowed to
the workman within 2 months or within a month in which the
substitution of such holidays becomes due
...
ANNUAL LEAVE WITH WAGES (SECTION 79 TO 82)
Section 78 to 84 of the Factories Act deal with annual leave with wages
...
But there
cannot be any award or settlement reducing the annual leave as provided
under the Act
...
(b)
During that year, for every 20 days of actual work put in by him, a
workman becomes eligible for one day rest leave in the succeeding year
...
In spite of the fact that a worker might not have completed 240
days in a calendar year, the legal representative or nominee of such
worker shall be entitled to claim such earned wages proportionately
before the expiry of the second working day from the date of such
discharge or dismissal or quitting
...
(3) In calculating leave period, fraction of leave of half a day or
more shall be treated as one full day’s leave
...
In case
307
of excess, unavailed earned leave would lapse
...
Other Provisions of Chapter VIII (Section 81 to 84): A worker who
has been allowed earned leave for not less than 4 days in the case of an
adult and 5 days in the case of a child, they shall be paid the wages due
for the period before their leave begins respectively
...
Power to make rules (Section 83):
The State Government may make
rules directing managers of factories to keep registers containing
prescribed particulars and requiring the register to be available for
examination by Inspectors
...
RECENT AMENDMENTS IN THE ACT
Government has introduced the Social Security Scheme for the unorganized
sector worker on a pilot basis in 50 districts of the Country, which was launched
on 23/01/2004
...
6500 per month
...
500 per month on retirement at the age of 60
and total disablement
...
•
A personal accident insurance cover for rupees one lakh and
308
•
Universal health insurance scheme for a worker and his family at the cost
of Rs
...
365 per annum
for a family of 3 members
...
The Factories (Amendment) Bill, 2003 was introduced on the Lok Sabha
on July 29, 2003
...
66 of the Factories Act, 1948
so as to provide flexibility in the matter of employment of women during night
with adequate safeguard for their safety, dignity, honour and transportation from
the factory premises to the nearest point of their residence
...
The report of the II
National Commission on labour was submitted to the Government on June 29,
2002
...
The protection is afforded to all workers – men, women, and
children
...
As the employer prepares the environment,
the law seeks to regulate the same in the interests of the workmen
...
309
Appropriate standards are also prescribed
...
Employment of children below
the age of 14 is prohibited
...
Law provides for the entitlement of annual
leave with wages
...
Labour reforms in India, in the context of globalization is much desired,
but also feared and misinterpreted
...
In the hurry to reform and to keep up with the globalization trend
set in motion by the GATT (now replace by the WTO), the immediate forms
was on the retrenchment of surplus workers’ and the closure of ‘SICK’ Public
and Private Sector units
...
Well ahead of any Indian
legislation on this front, several benefits – the eight hour working day, free
medical aid, provident fund, gratuity, leave with pay, maternity benefits were
incorporated by the TATA’s their work place climate
...
1
...
310
5
...
2 Activity
A worker aged 25 years has been allowed leave for 4 days
...
Both the
workers intend to get the wage before their leave begins
...
5
...
3
Activity
Visit a factory (or look into your own organisation, if it is a factory or industrial
establishment)
...
Analyse how they compare with the provisions and
standards set in the text of the Factories Act
...
Explain the requirements for constitution of a factory
...
2
...
State the responsibilities of the Inspector of Factories with
regard to grant and registration of license
...
Explain the role of the designer and manufacturer in carrying out research
work in day-to-day activities of the factories
...
Discuss and explain briefly health, safety and welfare measures adopted
under the Factories Act, 1948
...
What is hazardous process? What are all the precautionary measures and
safety measures have to be adopted under Chapter IV-A of the Factories
Act?
6
...
7
...
8
...
Explain the method of declaring rest day in factories
...
What is meant by annual leave with wages and what are the
conditions to be fulfilled for availing of annual leave with wages?
KEY WORDS
o Administration: State Governments will administer the Act
through their own Factory Inspectors
...
312
o Assessment: Factories Act would apply notwithstanding any
provisions inconsistent therewith in any other enactment
...
o Certifying Surgeons: They are qualified medical practitioners who
are appointed by the State Government for specified areas or
factories
...
S
...
1980 Labour Regulations Law in India (Revised Edition),
Macmillan Company of India Ltd: Delhi
...
P
...
Ltd
...
313
Lesson 2
INDUSTRIAL DISPUTES ACT, 1947
INTRODUCTION
With the growing industrialization, the number of industrial workers in the
country is also increasing rapidly
...
The expectations of workers have
changed
...
The employer-employee
relationship thus assumes a great importance in the changing scenario
...
WHAT IS INDUSTRIAL RELATIONS?
Industrial relations’ is a dynamic and developing concept
...
Industrial relations are an integral aspect of social relations arising out of
employer-employee interaction in modern industries, which are regulated by the
State in conjunction with organized social forces
...
Workers
and their organizations
...
314
The State cannot remain a silent spectator in the hope that the relations
will on their own reach the state of harmony
...
Thus, “industrial
relations’ is not merely a simple relationship; it is a functional, inter-related
complexity and requires inter-disciplinary approach
...
John Dunlop
in the preface to his work “Industrial Relations System” (1958) says: “Industrial
societies necessarily create industrial relations, defined as the complex of interrelations among workers, managers and government,”
The interest groups, therefore, are:
•
Workers and their organizations
•
Managers (employers) and their organizations
•
The Government
Each group has different interests and priorities
...
As against these, the employers
and their organizations want maximum productivity at the lowest possible cost
...
The interests of the first two groups are thus conflicting
...
The third interest group is the government
...
Thus, when the government apprehends that there may be an
industrial dispute, it refers the matter for adjudication
...
INDUSTRIAL RELATIONS IN INDIA
In order to understand the issued and problems associated with industrial
relations, it is desirable to study its various evolutionary phases
...
The various stages of industrial relations
progressed from primitive stage to factory or industrial capitalism stage
...
From the very early days, craftsmen and 3 workers felt the
necessity of being united
...
”
Kautilyas’s
Arthashastra
gives
a
comprehensive
picture
of
the
organisation and functions of the social and political institutions of India
and a good description of unions of employees, craftsmen or artisans
...
However, there were no organisations of workers during the
Mughal rule
...
Historical evidence further shows the
existence of rules of conduct and prescribed procedure for the settlement
of disputes for promoting cordial relations between the parties
...
A study of modern industrial relations in India can be made in three
distinct phases
...
The second phase comprises the period thereafter till the attainment of
independence in 1947, and
The third phase represents the post-independence era
...
The Act is primarily meant
for regulating the relations of employers and workmen, past, present and future
...
The Act was passed with a view to removing certain shortcomings found
in the working of the Trade Disputes Act, 1929
...
1(3)]
...
1 (2)]
...
The Act
has been amended from time to time
...
Thus, though the main object of the Act is to provide for
investigation and settlement of industrial disputes, the amendment Act
seeks to ensure speedier resolution of industrial disputes by removing
317
procedural delays
...
These objects are:
•
Promoting measures for securing and preserving amity and good
relations between employer and workmen
...
•
Promoting the settlement of industrial disputes
...
•
Reference of individual disputes to grievance settlement authorities
...
•
Prevention of illegal strikes and lock-outs
...
•
Provision for the payment of wages from the date of the award till the
suit pending before courts of law is decided
...
These objects of the Act Center round the securing of industrial harmony
and social justice
...
The general rule is
that an industrial dispute arising between an employer and his employees would
be referred for adjudication by the State Government except in the cases
mentioned above
...
Average pay [Sec
...
The determination of average pay is to be made in a different way in the
case of
Monthly paid workmen,
Weekly paid workmen, and
Daily paid workmen
...
The period of three months, four weeks or twelve days as specified
above, must precede the day on which the average pay becomes payable
...
Award [Sec
...
Interim award means a provisional or temporary relief
...
An order of labour Court, industrial
Tribunal or National Industrial Tribunal granting or refusing to grant any of the
relief’s, which have been asked for would fall within the term ‘award’
...
2 (cc)]
It means the permanent closing down of a place of employment or part thereof
...
•
Any railway service or any transport service for the carriage of
passengers or goods by road, water or air;
•
Any section of an industrial establishment on the working of
which the safety of the establishment or the workmen employed
therein depends;
•
Any postal, telegraph or telephone service;
•
Any industry which supplies power, light or water to the public;
•
Any system of public conservancy or sanitation;
•
Any industry specified in the First Schedule which the
appropriate government many, if satisfied that public emergency
or public interest so requires, by notification in the Official
Gazette, declare to be a public utility service for a specified
period not exceeding six months in the first instance
...
320
Industry [Sec
...
2 (j) as amended in 1982 as follows:
‘Industry’ means any systematic activity carried on by co-operation
between an employer and his workmen (whether such workmen are employed
by such employer directly or by or through any agency including a contractor)
for the production, supply or distribution of goods or services with a view to
satisfy human wants or wished (not being wants or wishes which are merely
spiritual or religious in nature)
...
‘Industry’ includes
Any activity of the Dock
...
Any activity relating to the promoting of sales or business or both
carried on by an establishment
...
2 (k)]
It means any dispute or difference between
•
Employers and employers;
•
Employers and workmen; or
•
Workmen and workmen, which is connected with
(a)
The employment or non-employment
(b)
The terms of employment or,
(c)
The conditions of labour of any reason
321
In the ordinary language an industrial dispute is implied to mean a
dispute between the workmen and the management
...
Individual and collective disputes
The industrial disputes may be (1) Individual disputes or (2) Collective
disputes
...
A collective dispute may relate to any of the following matters:
(i)
Wages, bonus, profit sharing, gratuity, compensatory and other
allowances
...
(iii)
Rules of discipline, retrenchment of workmen, closure of
establishment, rationalisation
...
322
LAY-OFF [Sec
...
Lay-off does not involve alteration in the conditions of service
...
It is more akin to an order of
suspension
...
Under the present definition, two alternative acts of the
employer constitute a lockout
...
THE FIRST SCHEDULE
The appropriate Government may, if satisfied that public emergency or interest
so requires, by notification in the official Gazette, declare any industry specified
in the First Schedule to be a public utility service for the purposes of the
industrial Disputes Act for such period as may be specified in the notification
...
2 (oo)]
The term as used in the industrial Disputes Act means the termination by the
employer of the service of a workman for any reason whatsoever otherwise than
as a punishment inflicted by way of disciplinary action
...
‘Retrenchment’ does not, however, include(i)
Voluntary retirement of a workman; or
(ii)
Retirement of the workman on reaching the age of
superannuation if the contract of employment between the
employer and workman contains a stipulation in the behalf; or
(iii)
Termination of the service of a workman on the ground of
continued ill health
...
2 (p)]
It means•
a settlement arrived at in the course of conciliation proceedings
which may be held by a conciliation officer or Board of
Conciliation, and includes
•
a written agreement between the employer and workmen arrived
at otherwise than in the course of conciliation proceeding where
such agreement has been signed by the parties thereto in the
prescribed manner and a copy thereof has been sent to an officer
authorised in this behalf by the appropriate Government and the
conciliation officer
...
2 (q)]
It means•
a cessation of work by a body of persons employed in any
industry acting in combination; or
•
a concerted refusal of any number of persons who are or have
been so employed to continue to work or to accept employment;
or
324
•
a refusal under a common undertaking of any number of such
persons to continue to work or to accept employment
...
There
should be some evidence to show that his absence was the result of some concert
between him and other persons and they would not continue to work
...
2(s)]
‘Workman’ means any person (including an apprentice0 employed in any
industry to do any manual, unskilled, skilled, technical, operational, clerical or
supervisory work for hire or reward
...
For the purpose of any proceeding under this Act in relation to an
industrial dispute, ‘workman’ includes any person who has been dismissed,
discharged or retrenched in connection with, or as a consequence of that dispute,
or whose dismissal, discharge or retrenchment has led to that dispute
...
These are as under –
•
Works committee
•
Conciliation officers
•
Board of conciliation
•
Courts of inquiry
•
Labour courts
•
Industrial tribunals, and
•
National tribunals
A brief description of the constitution, powers and duties of the various
authorities is given below:
325
1
...
3)
Constitution: Section 3 of the Act empowers the appropriate Government to
constitute a works committee by a general or special order in a manner, which
may be prescribed
...
(ii)
One hundred or more workmen should either be presently
employed or should have been employed on any day in the
preceding twelve months
...
It is further provided that the representatives of the workmen
shall be chosen in the prescribed manner and in consultation with the registered
trade union
...
CONCILIATION OFFICERS (Sec
...
3
...
A board shall consist of a chairman and two or
four other members, as the appropriate government thinks fit
...
If any party fails to make a
recommendation with in the prescribed time, the appropriate government shall
appoint such persons as it thinks fit to represent that party
...
But members of the boards of conciliation enjoy
more powers than those enjoyed by conciliation officers
...
4
...
6)
The appropriate Government may, by notification in the official Gazette,
constitute a Court of Inquiry 9hereinafter called the court) for inquiring into any
matter appearing to be connected with or relevant to an industrial dispute
[Sec
...
5
...
7)
The appropriate Government may, by notification in the official Gazette,
constitute one or more Labour Courts for adjudication of industrial dispute
relating to any matter specified in the Second Schedule
...
7 (1)]
...
(vii)
A labour court shall consist of one person only to be appointed by the
appropriate Government
...
INDUSTRIAL TRIBUNALS (Sec
...
7-A (1)]
...
•
Wages including the period and mode of payment
...
•
Shift working otherwise, than in accordance with standing orders;
•
Classification by grades;
•
Rules of discipline;
•
Rationalisation;
•
Retrenchment of workmen and closure of establishment; and
•
Any other matter that may be prescribed
...
NATIONAL TRIBUNALS (Sec
...
7-B (1)]
...
A notice in prescribed manner of the nature of the change proposed to be
effected must be given to the workmen likely to be affected by such
change; and
2
...
The appropriate Government has the power to include any other rules or
regulations in this category by notification in its official Gazette
...
(ii)
Contribution paid or payable by the employer to any provident
fund or pension fund
...
(iv)
Hours of work and other rest intervals
...
(vii)
Classification by grades
...
(xi)
Any increase or reduction (other than casual) in the number of
persons employed or to be employed in any occupation or
process or department or shift not occasioned by circumstances
over which the employer has no control
...
2 (b)] It means an interim or a final determination of any industrial
dispute or of any question relating thereto by any Labour Court, industrial
Tribunal or National Tribunal
...
10-A
...
2 (p)] It means
(a)
a settlement arrived at in the course of a conciliation proceeding
which may be held by a conciliation officer or a Board or
conciliation, and includes:
(b)
a written agreement between the employer and workmen arrived
at otherwise than in the course of conciliation proceedings
...
The ‘Award’ of a Labour Court or industrial Tribunal or National Tribunal shall
be in writing and shall be signed by its presiding officer [Sec
...
STRIKES AND LOCK-OUTS
Meaning of Strike
According to Section 2(q) of the Act “ ‘strike’ means a cessation of work
by a body f persons employed in any industry acting in combination, or a
330
concerted refusal, or a refusal under a common understanding of any number of
persons who are or have been so employed to continue to work or to accept
employment
...
Meaning of Lock-out
Section 2(1) defines lock-out thus: “Lock-out” means temporary closing of a
place of employment, or the suspension of work, or the refusal by an employer
to continue to employ any number of persons employed by him
...
Illegal strikes and lock-outs (Sec
...
22 or Sec
...
10 (3) or
Sec
...
24 (1)]
...
Penalty for illegal strike [Sec
...
0 or with both
...
Penalty for illegal lock-out [Sec
...
1, 000 or with both
...
Penalty for instigation etc
...
27)
Any person who instigates or incites others to take part in, or A otherwise
acts in furtherance of, a strike or lockout, which is illegal, shall be
punishable with imprisonment for term which may extend to six months or
with a fine which may extend to Rs
...
In the case Raja
Kulkarni Vs
...
27 did
not impose any unreasonable restriction upon the fundamental rights
guaranteed by Articles 19(1)(a) and (19(1)(c) of the constitution
...
Penalty for giving financial aid for illegal strike and lock-out(Sec
...
1, 000 or with both
...
The reduction was more prominent in the
Public Sector
...
80
million in 2003
...
35
10
...
96
5
...
66
2
...
71
16
...
80
18
...
92
20
...
06
26
...
76
23
...
58
22
...
They lay-off may be
due to shortage of coal, power or raw materials or the accumulation of stocks or
breakdown of machinery
...
Meaning of retrenchment [Sec 2 (oo)]
Retrenchment means the termination by the employer of the services of a
workman for any reason whatsoever, otherwise than as a punishment inflicted
by way of disciplinary action
...
[Harprasad Shiv Shanker
Shukla Vs A
...
Diwelkar, AIR 1957 SC 121]
Retrenchment, however, does not include
Retrenchment of worker either (a) voluntarily, or (b) on reaching
the age of superannuation if the contract of employment between
the employer and the employee concerned contains a stipulation
in that behalf;
Termination of the service of workman on the ground of
continued ill health;
Termination of the service of the workmen as a result of the nonrenewal of the contract of employment provided a stipulation in
that behalf is contained in the contract
...
Lay-off and lock-out
Both lay-off and lock-out resemble each other in some respects
...
Both in lay-off and lock-out the
relationship of employer and workmen is only suspended and is not terminated
...
(ii)
In case of lay-off the employer is unable to give employment to
one or more workmen on account of the reasons specified in
Section 2(kkk), whereas in case of lock-out the employer
deliberately closes the business for reasons, which have no
connection with the causes specified in Section 2(kkk)
...
The liability of the
employer in cases of lock-out will depend upon whether the lockout was justified and legal or not
...
(v)
The Act imposes certain penalties on lock-out but there are none
in case of lay-off
...
Lay off and closure
A lay-off is different from closure of business
...
Lay off means temporary suspension and not discontinuance of
the business
...
In the case of closure there in no question of laying-off workers
...
e
...
3
...
In case of a
closure, the employer does not merely close down the place of business, but he
closes business itself while lock-out indicates the closure of the place of
business and not the closure of the business itself
...
If an employer shuts down his place of business as an instrument of
coercion, or as mode of exerting pressure on the employees there would be lockout
...
4
...
(iii)
Lock-out is with a motive to coerce the workmen; while the
intention behind retrenchment is to dispense with surplus labour
...
SUMMARY
It is gratifying to note that apart from the fundamental rights, our Constitution
embodies within itself, in Part IV, Directive Principles of State policy
...
The old idea of laissez faire has given
place to a new idea of welfare state
...
The development and growth of industrial
law presents a close analogy to the development and growth of constitutional
law
...
The central and some state governments have
enacted laws on industrial relations
...
336
5
...
1
...
Discuss the jurisdiction, power
and function of the Industrial Disputes Act, 1947
...
What are the consequences of labour being included in the concurrent list of
the Indian constitution?
2
...
What is the procedure for registration of a trade union under the trade unions
act?
4
...
What is the procedure for certification of standing orders under the Industrial
Employment (Standing Orders) Act?
6
...
What are the provisions regarding strikes and lockouts under the Industrial
Disputes Act?
8
...
o National Tribunal: The third adjudicatory body provided by the Act to
deal with industrial disputes involving ‘questions of national importance’
where more than one state is affected
...
L
...
, New Delhi, 1978
•
Indian Law Institute, Labour Law and Labour Relations Cases
and Materials, N
...
Tripathi Pvt
...
•
Mallick, P
...
, Industrial Law, Eastern Book Company, Lucknow,
1989
...
The continuing tendency among the employer is only to exploit
the labourers who happen to be illiterates and who never possessed the
necessary prowess to fight against the ingenuity of the employers
...
(ii)
Prevents the employers from exploiting the labourers by
paying wages far below their needs; and
(iii)
Lays down principles for fixation of wages on a need based
scale
...
In common sense, minimum wages is
the bare subsistence money required by the worker not only to meet the basic
needs such as food, shelter and clothing but it is also includes monies required
for medical expenses, education for children and traveling expenses to a worker
in a family
...
OBJECTS AND SCOPE OF THE ACT
The Minimum Wages Act contemplates
339
(i)
The wages that are paid to the workers should meet their physical
needs and at the same time
...
(iii)
It should ensure sustenance for their family; and
(iv)
Also enable them to subsist by preserving their efficiency as
workmen in day-to-day life
...
(b) Wages paid to workmen must be sufficient to provide, a standard
family, with food, shelter, clothing, medical care and education
for their children
...
(c) (i)Fair wage is not a living wage
...
The minimum wage itself is slightly
above the bare minimum
...
, Vs
...
I
...
(1958) S
...
578]
(ii) Living wage meets the normal ne4ds of an average worker as a human
being, living in a civilized society
...
[Bijoy Cotton Mills
...
State of Ajmer A
...
R
...
C
...
]
(iii)
Concept of minimum wage, fair wage and living wage is
bound to change in accordance with the growth and development of
industries and living standard of the employees
...
of India vs
...
I
...
(19610 S
...
895]
(iv)
Fair wage, although may be set at the level of minimum
wage at the beginning, yet, it can be enhanced in gradual stages
depending upon the capacity of the industry to pay
...
[Express News paper Pvt
...
Vs
...
I
...
(1959) S
...
R
...
[Arbuda Bhavan vs
...
I
...
1671 Bom
...
[Hindustan Antibiotics Ltd
...
Their Workmen A
...
R
...
C
...
]
(e) Minimum wages are paid solely on the requirements of the
worker of the family
...
COMPONENTS IN THE MINIMUM WAGE
It must be understood that wages that are paid to a workman is not paid
exclusively to him, but it is paid to his family as a unit
...
341
(b) Equally, minimum wages are not based on the Economic principle,
namely those who are able financially, must be capable of paying
more to the workers
...
To put it in a nutshell, minimum
wages are considered to be need-based wages, which is according to
the directive principle of our Constitution
...
Cost of living forms an integral part in the fixation of wages
for workers
...
The essential
requirements for providing a staple food consisting of protein, carbohydrates,
fat, vitamin, etc
...
Calculation of Cost of Living Index: Upto 100 points they merge with
the salary
...
This renders the position of a workers
equivalent to a stage termed as ‘between the cup and the lip
...
Payment of wages is mandatory
...
Whether it makes profit or not, minimum wages must be
paid to the workmen concerned
...
Minimal requirements of the worker concerned should be provided under
minimum wages
...
A living wage enables a worker to enjoy comfort in life
...
To neutralize or standardize
the two extreme wage limits, namely, minimum wage and living wage, concept
of fair wage is introduced as a via media, as given below:
Ideal wage
Living wage
Fair wage
Minimum wages
A fair wage is said to be a mean between minimum wage and living
wage
...
Hence, sometimes, fair wage also descends to the level
of minimum wage
...
Laborer’s demand should always be
viewed with sympathy and hence minimum wages must be paid compulsorily
...
343
For the purpose of understanding the Minimum Wages Act, it essential
to know the following definitions contained in the Act
“Appropriate Government’ [Section 2(b)] means(a) In relation to any scheduled employment carried on by or under
the authority of the central Government or a railway
administration or in relation to a mine, oil-field or major port, or
any corporation established by the Central Government, and
(b) In relation to any other scheduled employment, the State
Government
...
(i) “Employee” means any person who is employed for hire or
reward to do any work skilled or unskilled, manual or clerical, in
a scheduled employment in respect of which minimum rates of
344
wages have been fixed; and includes an out-worker to whom any
articles or materials are given out by another person to be made
up, cleaned, washed, altered ornamented, finished, repaired,
adapted or otherwise processed for sale for the purposes of the
trade or business of that other person where the process is to be
carried out either in the home of the outworker or in some other
premises not being premises under the control and management
of that other person; and also includes an employee declared to
be an employee by the appropriate Government; bout does not
include any member of the Armed Forces of Union
...
I
...
II
...
III
...
Sections 3,4 and 5 are said to be the operative sections under the
Minimum Wages Act
...
Section3 provides that the appropriate Government—
(a) Shall fix the minimum rates of wages payable to employees
employed in an employment specified in Part I or Part II of the
Schedule to the Act and in an employment added to either part by
notification in the official Gazette
[Sec
...
(b) May, in respect of employees employed in an employment
specified in Part II of the Schedule, instead of fixing minimum
rates of wages for the whole State, fix such rates for a part of the
State or for any specified class or classes of such employment in
the whole State or part thereof [Provision to Sec
...
345
(c) Shall review at such intervals not exceeding five years, the
minimum rates of wages so fixed and revise the minimum rates if
necessary [Sec
...
PROCEDURE FOR FIXING AND REVISING MINIMUM WAGES
(Sec
...
5 (1)]
...
11)
...
11 (1)]
...
11 (20]
...
11 (3)]
...
12)
...
346
Such wages shall be paid without any deductions except as may be
authorized
...
12 (1)]
...
12 (2)]
...
19)
...
19(1)]
...
The inspectors have e to see that the provisions of the Minimum Wages
Act are complied with
...
20)
...
13 (1)(b) or for work done on days of rest under Sec
...
14 to employees
employed or paid in that area [Sec
...
OFFENCES AND PENALTIES
Penalties for offences (Secs
...
Any employer who—
(i)
(ii)
Pays to any employee less than the minimum rates of wages fixed for
that employee’s class of work, or less than the amount due to his
under the provision of this Act; or
Contravenes any rule or order made under Sec
...
500, or with both [Sec
...
In imposing any fine for offence under Sec
...
20 (Proviso to Sec
...
Further, any employer who contravenes any provision of this Act or of
any rule or order made there under shall, if no other penalty is provided for such
contravention by the Act, be punishable with fine which may extend to Rs
...
22-A]
...
25]
According to the Section 25 of the Act, any agreement or contract between the
employer and the employee by which the employee gives upon his right to
minimum, wages or any privilege or concession accruing to his under the Act is
null and void, in so far it purports to reduce the minimum rate of wages fixed
under the Act
...
EXEMPTIONS AND EXCEPTIONS (Sec
...
(b) Direct by notification in the official Gazette that the provisions of the
Act or any of them shall not apply to all or any class of employees,
employed in any scheduled employment [Sec
...
(c) Exempt some specified employments from the application of some or
all the provisions of this Act [Sec 26(3)]
...
A
348
member of the employer’s family includes his or her spouse or child or parent or
brother or sister (Explanation to Sec 26(3)]
...
55 to Rs
...
This act is of interest to women workers, as it sets minimum wages for
employees, which include those working on a temporary basis, Piece rate
workers and workers paid daily wages
...
SUMMARY
This act aims at statutory fixation of minimum wages with a view to prevent the
exploitation of workers
...
There are three levels of
wage
...
The
components of the minimum wage are set by the standards necessary to cover
the basic needs of the workman and to preserve his efficiency
...
The responsibilities
fundamental to the scheme envisaged under the Act are two fold
...
Secondly, the consequential responsibility of
paying the same to the workmen is laid on the employer, both public and
private, governed by the Act
...
They are substantially similar
...
Based upon the necessity, the government may
either appoint a committee for enquiry and advice or formulate the proposal and
publish the same inviting objections
...
With a view to ensure quick and
inexpensive justice, summary procedure is envisaged
...
3
...
Activity
Consider yourself as an employee of an engineering company and your brother
was employed in the factory where the minimum rate of wages has been fixed
by the appropriate government
...
Advice your brother
...
3
...
Activity
Comment and State whether the following statements are correct
...
(2) The components of minimum wages may be – basis rate plus
cost of living allowance plus cost value of concession regarding supplies of
essential commodities at concesstional rates
...
Describe hoe the scale of minimum wage is fixed from the point of view of
its contents regions and duration of hours of work
...
State the constitution, role and function of the Advisory Committee under
the Minimum Wages Act
...
State the measures prescribed under the Minimum Wages Act for
implementation of the provisions of the Act
...
What are the penalties provided under this Act for non-payment of
minimum wages? State the remedies available for the aggrieved party
...
Write short notes on:
(a)
Committee method
(b)
Notification method
(c)
Minimum rates
(d)
Contracting out
KEY WORDS
o Minimum Piece Rate System: Minimum wages fixed by the employer
for the production of a single piece
...
o Administration: Advisory Committees or Boards appointed by the
appropriate government fix and revise the minimum wages and to advise
the Central or State Government as the case may be, in the matter
...
L
...
Report of the National
Commission on Labour
...
•
Misra, S
...
, 1983
...
351
Lesson 4
WORKMEN’S COMPENSATION ACT, 1923
INTRODUCTION
The Workmen’s Compensation Act, 1923, was the first social security measure
introduced in Indian prior to independence
...
OBJECT AND SCOPE OF THE ACT
The Act considers compensation payable by an employer to his workmen in the
case of an accident as a measure of relief and social security
...
It also lays down
the various amounts payable in case of an accident depending upon the type and
extent of injury
...
Accordingly, payment of compensation is the main object of the Act
...
DEFINITIONS
Section 2 gives the definitions of the terms used in the Act
...
A partial disablement only reduces the
earning capacity of a workman, while a total disablement incapacitates a
workman, from all work, which he was capable of performing at the time of the
accident
...
A temporary partial disablement means any disablement, which
temporarily reduces the earning capacity of workman in any employment in
which he was engaged at the time of the accident causing the disablement
...
But, every injury specified in part II of schedule I of this Act shall
be deemed to result in permanent partial disablement
...
TOTAL DISABLEMENT [SECTION 2 (1)(l)]
Total disablement means such disablement as incapacitates a workman
for all work which he was capable of performing at the time of the accident
resulting in such disablement
...
A total disablement may be temporary or permanent
...
A carpenter suffered injury in the course of his employment, which
resulted in amputation of left hand above elbow
...
354
EMPLOYER’S LIABILITY FOR COMPENSATION
Section
...
It lays down that the following conditions must exist before an
employer may be held liable to pay compensation to a workman
(1)
Some personal injury must have been caused to a workman;
(2)
Such an injury must have been caused by an accident;
(3)
The accident must have arisen out of and in the course of
employment; and
(4)
The injury must have resulted either in the death of the workman or
in his total or partial disablement for a period exceeding three days
...
In the case of disease, no compensation shall be payable to a workman in
respect thereof, unless the same is directly attributable to an injury caused by an
accident arising out of and in the course of his employment
...
ACCIDENT OUT OF EMPLOYMENT
An accident arising out of employment implies a ‘casual connection’
between the injury and the accident and the work done in the course of
employment
...
In the case Dennis Vs White,
(1917) A
...
479, it was laid down that “when a man runs a risk incidental to his
employment and is thereby injured, the injury arises out of employment
...
In the case Saurastra Salt Mfg
...
Vs Bai Balu Raja
(1958) SC 881, the Supreme Court held “as a rule the employment of a
workman does not commence until he has reached the place of employment and
does not continue when he has left the place of employment”
...
1
...
2
...
356
3
...
, within the premises of the employer
is regarded as incidental to work and the worker is supposed to be in
the course of his employment even for that period
...
When the workman uses transport provided by the employer for the
purpose of going to and from the place of work, he is deemed to be in
the course of employment during the time when he uses the transport
...
B
...
OCCUPATIONAL DISEASE
Sub-section (2) declares that the contracting of an occupational disease by a
workman shall be deemed to be an injury by accident within the meaning of
Section 3, and unless the contrary is proved, the accidents shall be deemed to
have arisen out of, and in the course of employment
...
In respect of any injury which does not result in the total or partial
disablement of the workman for a period exceeding three days;
2
...
(ii)
The willful disobedience of the workman to an order
expressly given, or to a rule expressly framed, for the
purpose of securing the safety of workman; or
357
(iii)
The willful removal or disregard by the workman of any
safety guard or other device, which he knew to have been
provided for the purpose of securing the safety of
workman
...
According to sub-section (4) of Section 3, if the occupational disease
is not directly attributable to a specific injury by accident arising out
of and in the course of his employment
...
According to sub-section (5), if the injured workman has instituted a
suit in a civil court for damages in respect of the injury, against the
employer or any other person, and
5
...
AMOUNT OF COMPENSATION
The amount of compensation payable to a workman depends on
(i)
The nature of the injury caused by accident;
(ii) The monthly wages of the workman concerned; and
(iii) The relevant factor for working out lump-sum equivalent of
compensation amount as specified in Schedule IV (as substituted
by the Amendment
Act of 1984)
...
Now Section 4 (as substituted by the Amendment Act of 1984) provides
for compensation for
•
Death;
•
Permanent total disablement;
358
•
Permanent partial disablement;
•
Temporary disablement, whether total or partial
...
He has to make a choice between these two reliefs
...
It further provides that
a workman cannot file a suit for damages in any court of law if
(i)
He has filed a claim under the Workmen’s Compensation Act,
1923; or
(ii)
There is an agreement between the workmen and his employer
providing for the payment of compensation according to the
provisions of the Workmen’s Compensation Act, 1923
...
Moreover, a civil suit is a risky and
costly affair
...
APPEAL (Sec
...
(b) An order awarding interest or penalty;
(c) An order refusing to allow redemption of half-monthly payment;
359
(d) An order providing for the distribution of compensation among the
dependants of a deceased workman, or disallowing any claim of a
person alleging himself to be such dependent;
(e) An order allowing or disallowing any claim for the amount of an
indemnity under the provisions of Section 12 (2);
(f) An order refusing to register a memorandum of agreement of
registering the same or providing for the registration of the same
subject to conditions
...
An appeal will not also lie, if the parties have agreed to abide by the
decision of the Commissioner, or in which the order of the Commissioner gives
effect to an agreement between the parties
...
The period of limitation for an appeal is 60 days, and the provisions of
Section 5 of the Indian Limitation Act, 1908, will also apply to appeal under this
section
...
From the same date the ceiling of the Maximum
amount of compensation has been doubled from Rs
...
28 lakh to 4
...
2
...
48 lakh in case of permanent total
disablement
...
SUMMARY
India’s first social security legislation was passed in 1923
...
The Act imposes obligation on the employer to pay compensation for accidents
arising out of and in course of employment
...
400 per month, and the 1976 amendment raised the
wage limit to Rs
...
1, 600
per month
...
10,000 to
30,000 and for permanent and total disablement from Rs
...
The term “workmen” in the Act refers to those employed in
factories, mines, plantations, construction work and other hazards occupations,
except those covered by Employee State Insurance Act, 1948, and clerical
employees
...
However, the employee cannot claim any compensation if he sustains
injuries under the influence of drugs, alcohol, etc
...
The compensation cannot exceed
half the monthly wages
...
The employer is required to file annual return giving
details of the compensation paid, number of injuries and other particulars
...
In this case, the
compensation will be payable only if the workman has been in service of the
employer for more than six months
...
If there is no justification for the delay in the opinion of the
Commissioner, an additional sum not exceeding 50 per cent of such amount may
be recovered from the employer by way of penalty
...
4
...
Activity
The employer did not pay the compensation within six months from the date it
fell due
...
5
...
2
...
Workmen’s Compensation Act is a boon offering social justices to
workmen by speedy remedy without much cause and expense for their
claims-Discuss
...
Who are dependants and who can they claim compensation under the
act?
3
...
Explain
...
Accident arising out of employment is deemed to have occurred in the
course of employment, - Discuss
...
State the three classified types of occupational diseases with
illustrations
...
State the methods and manner by which compensation under the Act is
settled in the case of
(i)
Death
(ii)
Permanent total disablement
(iii)
Temporary total and partial disablement
(iv)
Temporary total and partial disablement
7
...
8
...
Is there has been right of appeal for
any aggrieved parties?
363
9
...
KEY WORDS
o Social Welfare Activities: Activities which will improve the living
conditions of people (especially of manual workers)
o Social Security Measures: measures that will ensure protection by
society to its members against economic and social distress
...
FURTHER READINGS
•
Sarma, A
...
1981 Aspects of Labour Welfare and Social Security,
Himalaya Publishing House: Bombay
...
P
...
Corporate Strategy on Fringe Benefits
...
•
Agarwal
...
L
Title: what is business built on nowadays
Description: High profits come from abnorml thinking.
Description: High profits come from abnorml thinking.