Assignment Mb 0051

Assignment Subject Code: MB0051 Roll no- 1302006411 Q1.What are the rights of a Surety? A. 

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

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Rights against the principal debtor 

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

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

Rights against co-sureties 

Right of contribution – Where a debt has been guaranteed by more than one person, they are called co-sureties. Section 146 provides for a right of contribution between them. When a surety has paid more than his/her share or a decree has been passed against the surety for more than his/her share, he/she has a right of contribution from the other sureties who are equally bound to pay with him/her. Example: A, B and C are sureties to D for Rs. 3,000 lent to E. E defaults in making the payment. A, B and C are liable to pay Rs. 1,000 each, and if any one of them has to pay more than his/her share, i.e. Rs. 1,000, he/she can claim contribution from the others.

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Where the co-sureties have guaranteed different sums, they are bound under Section 147 to contribute equally, subject to the limit fixed by their guarantee and not proportionately to the liability undertaken. Examples  A, B and C as sureties for D, enter into three several bonds, each in a different penalty, namely, A in the penalty of Rs. 10,000, B in that of Rs. 20,000, C in that of

Rs. 40,000, conditioned for D’s duly accounting to E. E defaults to the extent of Rs. 30,000. A, B and C are each liable to pay Rs. 10,000.  In the above example, if D defaults to the extent of Rs. 40,000, A is liable to pay Rs. 20,000 and B and C Rs. 15,000 each. Q2. Explain duties of a Bailor and a Bailee. A.  Duties of a bailor

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To disclose known faults in goods (Section 150) – The bailor is bound to disclose to the bailee, all faults in goods bailed, of which he/she is aware of. These faults materially interfere with the use of them or expose the bailee to extraordinary risks. If the bailor does not make such disclosure, he/she is responsible for the damage arising to the bailee directly from such faults. Example: A lends a horse, which he knows to be vicious, to B. He does not disclose to B the fact that the horse is vicious. The horse runs away, B is thrown down and injured. A is responsible for injury caused to B.

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To bear liability for breach of warranty as to title – The bailor is responsible to the bailee for any loss that the bailee may sustain by reason that the bailor was not entitled to make the bailment, or to receive goods or give directions respecting them (Section 164). Example: A gives B’s car to C without B’s knowledge and permission. B sues C and receives compensation. A, the bailor, is responsible to make good this loss to C, the bailee.

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To bear expenses in case of gratuitous bailment – Regarding bailment under which the bailee is to receive no remuneration, Section 158 provides that in the absence of a contract to the contrary, the bailor must repay to the bailee all necessary expenses incurred by him for the bailment.

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To bear expenses in case of non-gratuitous bailment – In case of non-gratuitous bailment’s the bailor is responsible for bearing only extraordinary expenses. Example: A car is lent for a journey. The ordinary expenses like petrol, etc., shall be borne by the bailee. However, in case the car needs repair, the money spent in this regard is an extraordinary expenditure and borne by the bailor.

Duties of a bailee To take care of goods bailed (Section 151) – In all cases of bailment, the bailee is bound to take care of the goods bailed to him as a man of ordinary prudence would, under similar circumstances, take of his own goods of the same bulk, quality and value as the goods bailed. In case the bailee has taken proper care of the goods, he shall not be responsible, in the absence of any special contract, for the loss, destruction or deterioration of the goods bailed (Section 152). Example: A lends a car to B for his own driving only. B allows C, his wife, to drive the car. C drives with care, but the car is damaged in an accident. A is liable to make a compensation to B for the damage caused to the car. Not to make unauthorized use of goods (Section 154) – In case the bailee makes unauthorized use of goods, i.e. uses them in a way not warranted by the terms of bailment, he is

liable to make compensation to the bailor for any damages arising to the goods from or during such use of them. 

Not to mix bailor’s goods with his own (Sections 155-157) – If the bailee without the consent of the bailor mixes the goods of the bailor with his own and the goods cannot be separated or divided, the bailee shall bear the expenses of separation or division and any damages arising from the mixture. Example: A bails 100 bales of cotton marked with a special mark to B. B, without A’s consent, mixes the 100 bales with other bales of his own bearing a different mark. A is entitled to have his 100 bales returned and B is bound to bear all expenses incurred in the separation of the bales and any other incidental damage. However, in case the goods are mixed in such a manner that it is impossible to separate the goods bailed from the other goods and deliver them, the bailor is entitled to be compensated by the bailee for the loss of goods.

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To return goods bailed without demand (Section 160) – It is the duty of the bailee to return, or deliver according to the bailor’s directions, the goods bailed without demand, as soon as the time for which they were bailed has expired, or the purpose for which they were bailed has been accomplished. If bailee fails to return goods at the proper time, he is responsible to the bailor for any loss, destruction or deterioration of goods from that time onwards (Section 161).

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To return any accretion to goods bailed (Section 163) – In the absence of any contract to the contrary, the bailee is bound to deliver to the bailor, or according to his/her directions, any increase or profit that may have accrued from the goods bailed. Example: A leaves a cow to be taken care of in the custody of B. The cow gives birth to a calf. B is bound to deliver the cow as well as the calf to A.

Q3. “Power of Attorney is considered as an important concept in Business Law”. A.  Meaning- Power of attorney is defined by Section 2(21) of the Stamp Act as including “any instrument not chargeable with a fee under the law relating to court fees for the time being in force,” that empowers “a specified person to act for and in the name of the person executing it”. It is the Powers of Attorney Act, 1882, that deals with the subject but does not define it. In common parlance, a power of attorney is an instrument or a deed by which a person is empowered to act for and in the name of the person executing it. The person executing the deed is known as the principal or donor and the one in whose favour it is executed is the agent, or the power agent or the power of attorney agent. 

Power of attorney may be special or general -If the deed conferring power by one to another relates to one single transaction; it is known as special power of attorney. If the deed conferring power relates to several transactions it is general power of attorney.

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Registration -As a general rule, registration of power of attorney is not necessary. However, if it authorizes the donee to recover the rent of an immovable property of the donor for the donee’s benefit, it would require a registration. Also, a power creating a charge in favour of the donee upon an immovable property referred to therein will need a registration. Further, Section 32 (c) of the Registration Act, 1908, requires that where a document is presented for registration by the agent of a person entitled to present it for registration, such

agent must be duly authorized by power of attorney executed and authenticated in manner as mentioned in Section 33 of the Act. Such a power of attorney is to be executed before and authenticated by a registrar or subregistrar. Unregistered power executed in a foreign country before a public notary can be used by the agent for presentation of document for registration. The power of attorney, however, executed before a public notary in India will not enable the agent to present any document for registration under the Registration Act, 1908. Power of attorney is required to be embossed on non-judicial stamp paper. The amount of Stamp duty varies with different types of powers as described in the Stamp Act and varies in different states of India. Section 4 of the Power of Attorney Act, 1882, provides that the original deed of power can be deposited in the High Court in whose jurisdiction the principal resides. Moreover, a certified copy of the deed can be obtained from the High Court. Such certified copies are equal to originals and are binding on all.

Q4. “The Banking Regulation Act, 1949, provides various methods of regulation of the banking business”. Describe the key areas of regulation. A. The Banking Regulation Act, 1949, provides various methods of regulation of the banking business. Some of the key areas of regulation are: 

Power to provide directions – Sections 21 and 35A of the Act empower the RBI to regulate the business of banks by issuing directions controlling various aspects of banking. Section 21 provides the power to regulate advances of banking companies, while Section 35A provides powers of regulation over banks. These statutory directions issued by the RBI are binding on banks. The circulars issued by the RBI, pertaining to its statutory power are binding on banks. The RBI is expected to issue directives with bonafide intentions and is competent to provide advice or caution to the banking companies under Section 36. Case study: BOI Finance Ltd. vs. The Custodian (AIR1997 SC 1952) Some banks entered into repo transactions despite the RBI circular expressly prohibiting such transactions. Held, the action of banks was in violation of RBI directives. However, such violations would render the banks liable to prosecution but did not invalidate their contracts with third parties.

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

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Nomination facility – According to Sections 45ZA, 45ZC and 45ZE, banking customers have the right to appoint a nominee for their deposits and locker facilities, in the manner prescribed by the RBI. In the event of death of the customer, the bank is expected to hand over the deposit monies or contents of locker to the respective nominees.

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Loans and advances – Section 21 provides that RBI has the right to issue directions for controlling advances by banking companies. These directions are issued to banking companies

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

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

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

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Internet banking guidelines – The RBI has the authority to issue guidelines on internet banking that covers security, technology, legal and regulatory aspects. These guidelines also include all forms of electronic banking.

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Reserve funds and liquid assets maintenance – According to Section 17 (1) of the Act, every banking company should create a reserve fund out of its profits. The sum transferred should be equivalent to not less than 20 percent of profits every year. Under Section 42 of the RBI Act, every scheduled bank has to maintain certain cash reserves. These provisions have to be adhered to, by every banking company, and any violation will be penalized. Under Section 24 of the Banking Regulation Act, 1949, every banking company is also expected to maintain liquid assets in the prescribed manner. The returns of such assets have to be filed with the RBI by the banking company every month.

From the above discussions, it is clear that banking companies are subject to rigorous external control from the RBI and other statutory bodies. However, such an intense regulatory framework is essential in the banking sector as it forms the bulwark of the nation’s economy and needs to be monitored for effective growth. In the next section, we shall study one of the most important sectors of growth, namely, insurance. Q5. Explain the nature and scope of complaints under the Consumer Protection Act? A. To provide simple, speedy and inexpensive Redressal of consumer grievances, the Act envisages three-tier quasi-judicial machinery at the district, state and national levels. At the district level, the Redressal forum is called as District Forum. The State Government may, if it deems fit, establish more than one District Forum in a district. At the state level, there are to be similar Redressal commissions to be known as State Commissions and at the national level, there is a National Consumer Disputes Redressal Commission to be known as National Commission.

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

The consumer to whom such goods are sold or delivered or agreed to be sold or delivered or such service provided or agreed to be provided. In case of death of a consumer, the legal heir or representative can file a complaint.

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Any recognized consumers association namely, any voluntary consumer association registered under the Companies Act, 1956, or any other law for the time being in force. It is not necessary that the consumer is a member of such an association.

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One or more consumers, where there are numerous consumers having the same interest, with the permission of the District Forum, on behalf of, or for the benefit of, all consumers so interested.

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The Central or the State Government.

The Amendment Act, 2002, has amended Section 12. It provides as follows:

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Every complaint shall be accompanied with such amount of fee as prescribed.

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On receipt of a complaint, the District Forum may allow the complaint to be proceeded with or rejected.

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However, a complaint shall not be rejected unless an opportunity of being heard has been given to the complainant.

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Where a complaint is allowed to be proceeded with, the District Forum may proceed with the complaint in the manner as provided under the Act.

Place of complaint The following are the three instances where a consumer can lodge a complaint: 

If the value of the goods or services and the compensation claimed does not exceed Rs. 20 lakhs, then the complaint can be filed in the District Forum within the local limits of whose jurisdiction the opposite party actually resides or carries on business or has a branch office (Section 11).

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If the value of the goods or services and compensation claimed exceeds Rs. 20 lakhs but does not exceed rupees one crore, the complaint can be filed before the State Commission (Section 17). Where a joint petition is filed on behalf of a large number of victims, it is the total amount of compensation claimed in the petition (and not the individual claims) that will determine the question of jurisdiction. The State Commission shall also have the jurisdiction to entertain appeals against the orders of

any District Forum within the State (Section 17). If the value of goods or services and the compensation claimed exceeds Rs. 1 crore, the complaint can be filed before the National Commission (Section 21). The National Commission shall also have the jurisdiction to entertain appeals against the orders of any State Commission (Section 21).

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Procedure for filing a complaint There is no fee for filing a complaint before any of the aforesaid bodies. The complainants or their authorized agent can present the complaint in person. The complaint can also be sent by post to the appropriate Forum/ Commission. The complaint should be addressed to the President of the Forum/Commission. A complaint should contain the following information:

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Name, description and address of the complainant.

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Name, description and address of the opposite party or parties, as the case may be, as far as they can be ascertained.

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Facts relating to complaint and when and where it arose.

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Documents, if any, in support of the allegations contained in the complaint.

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Relief that the complaint is seeking.

Admission of complaint (Section 13) 

Procedure in respect of goods where the defect requires no testing or analysis: The District Forum should send a copy of admitted complaint to the opposite party mentioned in the complaint within 21 days of admission. He should be instructed to provide his version of the case within 30 days or may be granted a further extension of 15 days, at the discretion of the Forum. If the opposite party disputes the allegations or fails to take any action, the forum can settle the disputes as specified in the Act.

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Procedure in respect of goods where the defect requires analysis or testing: With respect to goods which need to be tested or analyzed for defects, the District Forum should obtain a sample of goods from the complainant and should take steps to seal and authenticate the sample and send it to the appropriate laboratory for testing or analysis. This exercise should be carried out to ascertain whether the goods suffer from defects alleged by the complainant and the results of such tests must be provided within 45 days. This period may be extended by the Forum, if necessary. The complainant is obliged to bear the necessary charges towards the analysis/testing and needs to deposit these fees to the forum. The Forum, in turn, remits the amount deposited to the laboratory which undertakes the test or analysis. Upon receiving the report, the Forum then forwards a copy of the same, along with its remarks, to the Opposite party seeking clarification. Any disputes with respect to the laboratory’s findings must be countered by written objections from the concerned party. The Forum then provides reasonable opportunity for both the

complainant and the opposite party to be heard. 

Power of the district forum [Section 13(4)] District Forum shall have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908, while trying a suit in respect of the following matters, namely: 

Summoning and enforcing the attendance of any defendant or witness and examining the witness on oath.

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Discovery and production of any document or other material object producible as evidence.

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Reception of evidence on affidavits.

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Requisitioning of the concerned analysis or test from the appropriate laboratory or from any other relevant source.

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Issuing any commission (i.e., warrant conferring authority) for the examination of any witness.

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Any other matter that may be prescribed.

Q6. Explain the need and types of meetings. A. A company is an artificial person and therefore, must act through some human intermediary. The various provisions of law empower shareholders to do certain things. They are specifically reserved for them to be done in company’s general meetings. Section 291 empowers the Board of Directors to manage the affairs of the company. In this context, meetings of shareholders and directors become necessary. The Act has made provisions for following different types of meetings of shareholders: (i) Statutory Meeting; (ii) Annual General Meeting; (iii) Extraordinary General Meeting; and (iv) Class Meetings. 

Statutory meetings (Section 165) The most important legal provisions regarding statutory meetings are:

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It is required to be held only by a public company having share capital. A private company or a public company registered without share capital is under no obligation to hold such a meeting.

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It must be held within a period of not less than one month and not more than six months from the date on which the company is entitled to commence business.

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

Annual general meeting (AGM) (Sections 166-168)

As the name signifies, this is an annual meeting of a company. The provisions relating to this meeting are:  Every company, whether public or private, having a share capital or not, limited or unlimited must hold this meeting.

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The meeting must be held in each calendar year and not more than 15 months shall elapse between two meetings. However, the first AGM may be held within 18 months from the date of its incorporation and if such general meeting is held within that period, it need not hold any such meeting in the year of its incorporation or in the following year. The maximum gap between two such meetings may be extended by three months by taking permission of the Registrar, who may so allow for any special reason.

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The meeting must be held  On a day that is not a public holiday.  During business hours.  At the registered office of the company or at some other place within the city, town or village in which the registered office is situated. (Section 166 (2)).

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Extraordinary Meeting (EGM) Section 169 Clause 47 of Table A (Schedule – I) provides that all general meetings other than AGMs shall be called the EGMs. The legal provisions as regards such meetings are:  EGM is convened for transacting some special or urgent business that may arise in between two AGMs, for instance, change in the objects or shift of registered office or alteration of capital. All business transacted at such meetings is called special business. Therefore, every item on the agenda must be accompanied by an Explanatory Statement’. 

An EGM may be called by:  Directors of their own accord.  Directors on requisition.  Requisitionists themselves.  The Tribunal. The Board of Directors may call a general meeting of the members at any time by giving not less than 21 days notice. A shorter notice may, however, be held valid if consent is accorded thereto by members of the company holding 95 percent or more of the voting rights (Section 171).

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Class Meetings

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