Business Law SYBCom: 2019

Sunday, 3 November 2019

CONTENTS

1. WELCOME

http://businesslawsybcom.blogspot.com/2018/04/welcome.html

2. SYLLABUS SEM III

Saturday, 12 October 2019

THE NEGOTIABLE INSTRUMENTS (AMMENDED) ACT 2015

5. The Negotiable Instruments (Ammended) Act 2015

Negotiable Instruments – Concept (S13), Characteristics, Classification of Negotiable Instruments (Ss. 11, 12, 17-20, 42, 43, 104,134,135) Maturity of Instruments.

Promissory Note and Bill of Exchange (Ss. 4,5, 108-116) - Concept, Essentials of Promissory Note, Bill of Exchange (Ss. 4, 5), Essential features of promissory note and Bill of exchange, Kinds Promissory note and Bill of exchange, Cheque (S.6) – Concept, Types & Crossing of Cheque, Distinguish between Bill of Exchange & Cheque, Dishonour of Cheque – Concept & Penalties (Ss. 138, 139,142)

Miscellaneous Provisions (S. 8-10, 22, 99-102, 118-122, 134-137) – Parties to Negotiable instruments Holder, Holder in due course, Rights & Privileges of Holder in due course, Payment in due course, Noting & Protest (99-104A)

THE NEGOTIABLE INSTRUMENTS (AMMENDED) ACT 2015.

[(1) A negotiable instrument means a promissory note, bill of exchange or cheque payable either to order or to bearer.

Explanation (i) -- A promissory note, bill of exchange or cheque is payable to order which is expressed to be so payable or which is expressed to be payable to a particular person, and does not contain words prohibiting transfer or indicating an intention that it shall not be transferable.

Explanation (ii) -- A promissory note, bill of exchange or cheque is payble to bearer which is expressed to be so payable or on which the only or last indorsement is an indorsement in blank.

Explanation (iii) -- Where a promissory note, bill of exchange or cheque, either originally or by indorsement, is expressed to be payable to the order of a specified person, and not to him or his order, it is nevertheless payable to him or his order at his option.]

[(2) A negotiable instrument may be made payable to two or more payees jointly, or it may be made payable in the alternative to one of two, or one or some of serveral payees.]

Source : India Code: Section Details

Defn : A negotiable instrument may be defined as “a piece of paper, which entitles a person to a sum of money and which is transferable from person to person by mere delivery or by endorsement and delivery.

Characteristics of Negotiable Instruments :

1. Writing and signature

2. Payable by legal tender money of India.

3. Acquisition of Property

4. Freely transferable property.

5. Good title.

6. No need of notice.

7. Remedy.

8. Rights of Holder in due course.

9. Presumption.

Classification of Negotiable Instruments

We can study negotiable instruments under the following broad classifications. These classifications depend on various features like transferability, negotiability, rights of holders, etc.

1. Bearer Instruments

There are two important conditions for negotiable instruments to become payable to bearers. Firstly, parties to the transactions must express it to be so payable. Secondly, the only endorsement for it should be an endorsement in blank.

These two requirements basically imply that any holder of such instruments can obtain payment for them. For example, a bill of exchange is payable to any person who holds it. These bearer instruments include cheques, bills of exchange and promissory notes.

2. Order Instruments

Negotiable instruments can often be payable to order in certain cases. They are payable when the instruments expressly state them to be so. Furthermore, they may be payable to order only to a specific person. The only requirement is that there should be no prohibition on their transferability.

3. Inland Instruments

Section 11 of the NI Act deals with inland instruments. This provision basically regulates instruments that are drawn and made payable in India. Alternatively, they may be payable outside India but only if they are drawn upon by an Indian resident.

4. Foreign Instruments

Every instrument that is not inland automatically becomes a foreign instrument. These instruments are drawn in a foreign country but may be payable within or outside India. They may even originate in India but only for payment to a person who resides abroad.

5. Demand Instruments

Sometimes, an instrument may not specify a time period during which it remains payable. Such instruments are generally payable whenever the bearer demands. Examples of such instruments include promissory notes and bills of exchange.

6. Time Instruments

Unlike demand instruments, time instruments carry a fixed future date for payment. For example, a promissory note may carry a maturity date arising after 24 months of its issue. Such instruments may even become payable upon the happening of a specific future event.

7. Ambiguous Instruments

An ambiguous instrument is basically 0ne that may be either a bill or a note for its holder. Such situations arise in peculiar circumstances only. For example, sometimes the drawee may be a fictitious person or he may be incompetent to contract.

Under such circumstances, the holder of such instruments may treat them either as bills of exchange or as promissory notes. Section 17 of the Negotiable Instruments Act deals with such situations.

8. Incomplete instruments

Incomplete instruments lack certain essential requirements of typical negotiable instruments. In such cases, the holder of the instrument has the authority to complete it up to the amount mentioned therein. This, in turn, results in the creation of legally binding negotiable instrument payable by law. Not only the first holder but also any subsequent holder who procures such instruments can complete them.

Source : https://www.toppr.com/guides/business-laws-cs/negotiable-instruments-act/classification-of-negotiable-instruments/

MATURITY OF AN INSTRUMENT

I. “At Sight”, “On Presentment”, “After Sight” (S.21)

On Demand

PN – After presentment for sight.

BOE – After acceptance – noting for non acceptance.

II. Definition of Maturity (S.22)

Section 22 says : “The maturity of a PN, or BOE is the date at which it falls due.”

Limitation period :

“At sight” or “on presentment” - 3 Y

On Demand – 3 Y

III. What are the Days of Grace ? (S.22)

Not – payable on demand, at sight or on presentment – Maturity Third Day

1. Cheque

2. payable on demand, at sight or on presentment

3. Bills or notes

No time for payment is mentioned – no grace

IV. Calculating Maturity of Bills and Notes.

1. Bills or Notes payable so many months after date or sight (S.23)

2. Bills or Notes payable so many days after date or sight (S.24)

3. When days of maturity is a holiday (S.25)

4. Promissory Notes payable by Instalments (S.67)

ACT :

21. “At sight”.—“On presentment”.—

In a promissory note or bill of exchange the expressions “at sight” and “on presentment” mean on demand. The expression “After sight”—“after sight” means, in a promissory note, after presentment for sight, and, in a bill of exchange, after acceptance, or nothing for non-acceptance, or protest for non-acceptance.

22. “Maturity”.—

The maturity of a promissory note or bill of exchange is the date at which it falls due. Days of grace.—Every promissory note or bill of exchange which is not expressed to be payable on demand, at sight or on presentment is at maturity on the third day after the day on which it is expressed to be payable.

23. Calculating maturity of bill or note payable so many months after date or sight.—

In calculating the date at which a promissary note or bill of exchange, made payable a stated number of months after date or after sight, or after a certain event, is at maturity, the period stated shall be held to terminate on the day of the month which corresponds with the day on which the instrument is dated, or presented for acceptance or sight, or noted for non-acceptance, or protested for non-acceptance, or the event happens, or, where the instrument is a bill of exchange made payable a stated number of months after sight and has been accepted for honour, with the day on which it was so accepted. If the month in which the period would terminate has no corresponding day, the period shall be held to terminate on the last day of such month. Illustrations

(a) A negotiable instrument, dated 29th January, 1878, it made payable at one month after date. The instrument is at maturity on the third day after the 28th February, 1878.

(b) A negotiable instrument, dated 30th August, 1878, it made payable three months after date. The instrument is at maturity on the 3rd December, 1878.

(c) A promissory note or bill of exchange, dated 31st August, 1878, is made payable three months after date. The instrument is at maturity on the 3rd December, 1878.

24. Calculating maturity of bill or note payable so many days after date or sight.—

In calculating the date at which a promissory note or bill of exchange made payable a certain number of days after date or after sight or after a certain event is at maturity, the day of the date, or of presentment for acceptance or sight, or of protest for non-acceptance, or on which the event happens, shall be excluded.

25. When day of maturity is a holiday.—

When the day on which a promissory note or bill of exchange is at maturity is a public holiday, the instrument shall be deemed to be due on the next preceding, business day.

1. Subs. by Act 3 of 1951, s. 3 and the Sch., for “the States”.

Explanation.— The expression “public holiday” includes Sundays: 1 *** and any other day declared by the 2 [Central Government], by notification in the Official Gazette, to be a public holiday.

PROMISSORY NOTE

Defn (S.4)

Characteristics / Essentials of Promissory Note

1. PN must be in writing.

2. A promise to pay.

3. A definite and unconditional promise to pay.

4. Signed by the maker or Drawer.

5. The maker or Drawer and the payee must be certain.

6. A certain sum of money.

7. Promise to pay money and money only.

8. Formalities.

Date, place consideration.

9. Stamping.

BILL OF EXCHANGE

Defn (S.5)

Essential Characteristics of Bill of Exchange.

1. It must be in writing.

2. Drawer, the drawee and the payee.

3. Acceptor.

4. An unconditional order to pay.

5. Signed by the Drawer.

6. Certain sum of Money.

7. Order to pay money and money only.

8. Stamping.

TYPES OF PROMISSORY NOTES.

1. Promissory Notes payable on Demand.

2. Promissory Note payable After Date.

3. Joint Promissory Note.

4. Joint and Several Promissory Notes.

TYPES OF BILL OF EXCHANGE

1. Bill of Exchange payable on Demand.

2. Bill of Exchange payable after Date.

3. Inland Bill of Exchange.

4. Foreign Bill of Exchange.

5. Accommodation Bill of Exchange.

6. Fictitious Bill of Exchange.

7. Escrow.

CHEQUE

Defn (S.6)

RBI Notification

In exercise of the powers conferred by Section 35A of the Banking Regulation Act, 1949, Reserve Bank hereby directs that with effect from April 1, 2012, banks should not make payment of cheques/drafts/pay orders/banker’s cheques bearing that date or any subsequent date, if they are presented beyond the period of three months from the date of such instrument.

Source : https://rbidocs.rbi.org.in/rdocs/notification/PDFs/CVC041111.PDF

CHARACTERISTICS OR ESSENTIALS OF CHEQUE.

A cheque is a Bill of Exchange.

1. Drawee of a cheque must be a Banker.

2. Cheque must be payable on demand.

3. Does not require acceptance.

4. Stamped --------

5. Signed by the drawer.

6. Dated - Post Dated/Ante Dated.

Truncated Cheque and Cheque in an Electronic form.

TYPES AND CROSSING OF CHEQUE.

1. Bearer Cheques.

2. Crossed Cheques.

a. Cheques Crossed Generally.

_______________

and Company

& Co.

Not Negotiable

& Co. Not Negotiable.

b. Proforma of Cheque Crossed Specially.

State Bank of India.

& Co State Bank of India

State Bank of India Not Negotiable.

c. Restrictive Crossing.

AC Payee

AC Payee Not Negotiable

AC Payee State Bank of India.

DISTINGUISH BETWEEN BILL OF EXCHANGE AND CHEQUE.

1. Who can be a Drawee.

2. Is acceptance required.

3. When is payment made ?

4. Is notice of dishonor required ?

5. Is noting and protest possible ?

6. Is Counter – manding payment possible ?

7. Is it payable to the bearer on demand ?

8. Is Crossing Possible ?

D Section 138. Dishonour of cheque for insufficiency, etc., of funds in the account.

1[Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for 2[a term which may be extended to two years], or with fine which may extend to twice the amount of the cheque, or with both:

Provided that nothing contained in this section shall apply unless--

(a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;

(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice; in writing, to the drawer of the cheque, 3[within thirty days] of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and

(c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.

Explanation.-- For the purposes of this section, debt of other liability means a legally enforceable debt or other liability.

1. Ins. by Act 66 of 1988, s, 4 (w.e.f. 1-4-1989).

2. Subs. by Act 55 of 2002, s.7, for certain words (w.e.f. 6-2-2003).

3. Subs. by s. 7, ibid., for within fifteen days (w.e.f. 6-2-2003).

Section 142. Cognizance of offences.

1[(1)] Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974),

(a) no court shall take cognizance of any offence punishable under section 138 except upon a complaint, in writing, made by the payee or, as the case may be, the holder in due course of the cheque;

(b) such complaint is made within one month of the date on which the cause of action arises under clause (c) of the proviso to section 138:

2[Provided that the cognizance of a complaint may be taken by the Court after the prescribed period, if the complainant satisfies the Court that he had sufficient cause for not making a complaint within such period;]

(c) no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any offence punishable under section 138.].

3[(2) The offence under section 138 shall be inquired into and tried only by a court within whose local jurisdiction,--

(a) if the cheque is delivered for collection through an account, the branch of the bank where the payee or holder in due course, as the case may be, maintains the account, is situated; or

(b) if the cheque is presented for payment by the payee or holder in due course, otherwise through an account, the branch of the drawee bank where the drawer maintains the account, is situated.

Explanation.-- For the purposes of clause (a), where a cheque is delivered for collection at any branch of the bank of the payee or holder in due course, then, the cheque shall be deemed to have been delivered to the branch of the bank in which the payee or holder in due course, as the case may be, maintains the account.]

1. Section 142 numbered as sub-section (1) thereof by Act 26 of 2015, s. 3 (w.e.f. 15-6-2015).

2. Ins. by Act 55 of 2002, s. 9 (w.e.f. 6-2-2003).

3. Ins. Act 26 of 2015, s. 3 (w.e.f. 15-6-2015).

HOLDER

Section 8 : “Holder”.—The “holder” of a promissory note, bill of exchange or cheque means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto. Where the note, bill or cheque is lost or destroyed, its holder is the person so entitled at the time of such loss or destruction.

HOLDER IN DUE COURSE

Section 9 : “Holder in due course”.—“Holder in due course” means any person who for consideration became the possessor of a promissory note, bill of exchange or cheque if payable to bearer, or the payee or indorsee thereof, if 1[payable to order], before the amount mentioned in it became payable, and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.

A B C D

Drawer Payee

PAYMENT IN DUE COURSE

Section 10 : “Payment in due course”.—‘‘Payment in due course” means payment in accordance with the apparent tenor of the instrument in good faith and without negligence to any person in possession thereof under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount therein mentioned.

Apparent Tenor : Apparent Tenor means apparent direction given in the instrument. Thus, a Crossed. Cheque will not be paid in cash, or a Cheque which is dated after date of. Apparent tenor of cheques means: date of cheque, sum of cheque both word and figure, name of payee, drawer signatures.

Reference: specialties.bayt.com/en/specialties/q/236897/what-is-apparent-tenor/

NOTING

Section 99 : Noting.—When a promissory note or bill of exchange has been dishonoured by non-acceptance or non-payment, the holder may cause such dishonour to be noted by a notary public upon the instrument, or upon a paper attached thereto, or partly upon each. Such note must be made within a reasonable time after dishonour, and must specify the date of dishonour, the reason, if any, assigned for such dishonour, or, if the instrument has not been expressly dishonoured, the reason why the holder treats it as dishonoured, and the notary’s charges.

PROTEST

Section 100 : Protest.—When a promissory note or bill of exchange has been dishonoured by non-acceptance or non-payment, the holder may, within a reasonable time, cause such dishonour to be noted and certified by a notary public. Such certificate is called a protest.

Wednesday, 13 February 2019

LIMITED LIABILITY PARTNERSHIP Act 2008

LIMITED LIABILITY PARTNERSHIP ACT 2008

CONCEPT

Existing in other countries.

J. J Irani Committee – 2005

Introduced in Rajya Sabha – 24^th October 2008

Passed on – 12^th December 2008

Presidents assent – 27^th January 2009

Came into force on 31^st March 2009

Definition : Section 2(n)

“A partnership formed and registered under the Limited Liability Partnership Act 2008”

Section 3 – Nature of Limited Liability Partnership.

“A body corporate formed and incorporated under the Limited Liability Partnership Act 2008 and a legal entity saperate from its partners.

The term "body corporate" is defined in Section 2(11) of the Companies Act, 2013. This includes a private company, public company, one personal company, small company, Limited Liability Partnerships, foreign company etc.
“body corporate” or “corporation” also includes a company incorporated outside India.
However, body corporate does not include—
(i) a co-operative society registered under any law relating to co-operative societies; and
(ii) any other body corporate (not being a company as defined in the Companies Act 2013), which the Central Government may, by notification, specify in this behalf;

CHARACTERISTICS

NATURE AND SALIENT FEATURES

1. Body corporate.

2. Rights and duties – agreement.

3. Separate legal entity.

4. Two partners / Two partners – Designated partners.

5. Maintain Annual Account.

6. Central Government – Power to investigate.

7. A firm, private company or unlisted public company – LLP.

8. Winding up – voluntary / by tribunal.

9. Power – Government to apply provisions of Companies Act 2013.

10. Indian Partnership Act 1932

ADVANTAGES AND DISADVANTAGES

ADVANTAGES

1. Separate legal entity.

2. Easy to establish.

3. Procedural flexibility & requirements.

4. Perpetual existence.

5. Globally accepted form of business.

6. No requirement of minimum capital contribution.

7. No restriction as to maximum number of partners.

8. Partners are not liable for the negligent or fraudulent act of other partners.

9. LLP & its partners are separate from one another.

10. Personal partners are considered only in case of fraudulent acts of the partners.

11. Only books of accounts are required to be maintained. No other statutory requirement are imposed.

12. Less cost of formation of LLP.

DISADVANTAGES

1. Cannot raise from the public.

2. Any act of the partner without the other may bind the LLP.

3. No separation of management from the owners.

4. Under certain circumstances the liability may extend to the personal property of the designated partners.

PROCEDURE FOR INCORPORATION

INCORPORATION PROCESS OF LLP

1. PRE – REQUISITES :

a. Acquire DSC for Designated Partners.

b. Obtain DIN for Designated Partners.

2. Incorporation process

a. Name approval application.

b. Application for certificate of incorporation.

c. Registration of LLP agreement.

d. On approval of the same.

EXTENT OF LLP –

CONVERSION OF LLP

Process of Conversion of LLP into Company

♦ Publish newspaper notice in form URC-2 A notice seeking objections for conversion of LLP into company must be published in form URC-2 in atleast 2 newspapers one in local language wherein registered office is situated and another in english language newspaper.

♦ File RUN Name Approval has to be obtained from the ROC by submitting an application in RUN. Object clause of Company must be attached.

♦ Filing form No URC – 1 & SPICe & SPICe MOA and SPICe AOA After getting the approval of name from Registrar of Companies and after 21 days from the publication of newspaper advertisement, the applicant should file the form No URC-1 & SPICe along with the following documents.

Attachments to URC-1

1. List of the members with details viz. names, address, occupation, shares held by them appropriately, etc.

2. List of the first directors of the private company with details viz. names, address, the DIN etc.

3. An affidavit from every person proposed as first directors, that he is not banned to be a director under section-164

4. A list including the names & addresses of partners of LLP

5. A copy of LLP agreement & certificate of registration duly verified by two designated partners

6. A statement indicating the following specifications

a) the nominal share capital of firm & the number of shares into which it is separated

b) the number of shares taken & the amount paid for every share

c) the name of the firm, with the addition of word Limited or private limited is required.

7. A written consent of all partners of LLP

8. A written consent or No objection certificate from all creditors.

9. Copy of newspaper advertisement,

10. Statement of accounts of the company which must not be 30 days preceding the date of the application and it must be duly certified by the auditor.

11. A copy of latest income tax return

12. Undertaking by proposed first directors with regard to compliance with Stamp Act

Attachments to SPICe

1. Consent & Declaration by first Directors in form DIR-2; (On Plain Paper)

2. Self-Declaration by first directors and subscribers in form INC-9; (On Plain Paper)

3. ID Proof and Address Proof of Directors; (PAN card and Aadhar card)

4. Resolution of Partners for conversion of LLP into Company;

5. Proof of regd. Office like Rent Agreement/Sale deed

6. Latest Electricity bill (Not older than 2 Months)

7. NOC of Owner of Office, If Regd office is rented.

♦ Issue Share Certificates to the members.

Conclusion Recently, Government slashed the corporate tax rate of Companies from 30% to 22% while tax rate on LLPs are unchanged and continue to attract tax @ 30%. So, many existing LLPs are now planning to convert themselves into Companies for multiple reasons like Growth and Expansion, Infusing equity capital, reducing tax liabilities, receiving foreign investment, attracting VCs and HNIs etc.

Source : https://taxguru.in/company-law/process-conversion-llp-company.html

MUTUAL RIGHTS AND DUTIES OF PARTNERS

Chapter IV - Partners And their Relationships

Summary

The mutual rights and duties of the partners of a limited liability partnership, and the mutual rights and duties of a limited liability partnership and its partners, shall be governed by the limited liability partnership agreement.
In the absence of agreement as to any matter, the mutual rights and duties of the partners and the mutual rights and duties of the limited liability partnership and the partners shall be determined by the provisions relating to that matter as are set out in the First Schedule.
LLP Agreement can also be amended.
A partner can also cease to be partner of the firm
Cessations , not by itself discharge the partner from any obligation to the limited liability partnership or to the other partners or to any other person which he incurred while being a partner the obligation for acts.
Partner to notify change in address or name to the LLP , which in turn will notify the same to the Registrar
Consent is necessary to become a partner in LLP
Any person ceasing to be partner of the LLP, can himself file the intimation of his cessation to the Registrar of Companies

23. (1) Save as otherwise provided by this Act, the mutual rights and duties of the partners of a limited liability partnership, and the mutual rights and duties of a limited liability partnership and its partners, shall be governed by the limited liability partnership agreement between the partners, or between the limited liability partnership and its partners.

(2) The limited liability partnership agreement and any changes, if any, made therein shall be filed with the Registrar in such form, manner and accompanied by such fees as may be prescribed.

(3) An agreement in writing made before the incorporation of a limited liability partnership between the persons who subscribe their names to the incorporation document may impose obligations on the limited liability partnership, provided such agreement is ratified by all the partners after the incorporation of the limited liability partnership.

(4) In the absence of agreement as to any matter, the mutual rights and duties of the partners and the mutual rights and duties of the limited liability partnership and the partners shall be determined by the provisions relating to that matter as are set out in the First Schedule

http://www.llponline.in/llp_chapter4.php

WINDING UP OF LLP

1. Winding up and dissolution Voluntary or by tribunal.

2. Winding up voluntarily under three circumstances.

a. Expiry of period.

b. Happening of specified event.

c. LLP passes special resolution.

3. Winding up by the tribunal under six circumstances.

a. LLP decides.

b. Six months – below two.

c. Unable to pay debts.

d. Acted against the interest of the sovereignty and integrity of India.

e. Default in filing of accounts.

f. Just and equitable..

4. A petition to the tribunal for winding up by it.

a. LLP or any of its partners

b. Any creditor

c. The registrar of companies.

d. The central / State government.

Tribunal – 90 days

DISTINCTION BETWEEN LLP AND PARTNERSHIP

1. Governing Act.

2. Traditional or New.

3. No. Of Partners.

4. Separate Legal Entity.

5. Body Corporate.

6. Administrative Authority.

7. Designated Partners.

8. Liability for Statutory Provisions.

9. Property in whose name ?

10. Filing of Accounts Statement.

11. Mutual Agency.

12. Liability.

13. Giving of Loans.

14. Dissolution.