UNIT 2
NEGOTIATBLE INSTRUMENT ACT
INTRODUCTION
The Negotiable Instruments Act was enacted, in India, in 1881. Prior to its enactment, the provision of the English Negotiable Instrument Act were applicable in India, and the present Act is also based on the English Act with certain modifications.
It extends to the whole of India except the State of Jammu and Kashmir. The Act operates subject to the provisions of Sections 31 and 32 of the Reserve Bank of India Act, 1934.
NEGOTIABLE INSTRUMENTS
What is negotiable?
- Negotiable means transferable.
- The negotiation that goes on refers to the transfer of the instrument between two people, or from one bank to another, or even from one country to another.
What is an instrument?
- In the broadest sense, almost any agreed-upon medium of exchange could be considered a negotiable instrument.
- In day-to-day banking, a negotiable instrument usually refers to checks, drafts, bills of exchange, and some types of promissory notes.
According to Section 13 (1) of the Negotiable Instruments Act, 1881
“A negotiable instrument means a promissory note, bill of exchange, or cheque payable either to order or to bearer”. “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 several payees” [Section 13(2)].
FORMS OF NEGOTIABLE INSTRUMENTS
- A negotiable instrument is a written, order promising to pay a sum of money.
- A document becomes negotiable when it contains an unconditional promise to pay money and is payable to a bearer or payable on demand.
FEATURES OF A NEGOTIABLE INSTRUMENT
- It is a written document by which certain rights are created and or/ transferred to a certain person.
- It must be signed by the maker or the drawer as the case may be.
- There must exist the unconditional order or promise to pay.
- There must be a time mentioned for such payment.
- In particular cases, the drawer’s name should be specifically mentioned.
TYPES OF NEGOTIABLE INSTRUMENT
- Promissory note
- Cheque
- Bills of exchange
1. PROMISSORY NOTES
Section 4 of the Act defines, “A promissory note is an instrument in writing (note being a bank-note or a currency note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money to or to the order of a certain person, or to the bearer of the instruments.”
The person who makes the promissory note and promises to pay is called the maker. The person to whom the payment is to be made is called the payee.
Examples:
A Signs instruments in the following terms
a) I promise to pay B or order Rs. 500."
b) I promise to pay B Rs. 500 which shall be due to him.
CHARACTERISTICS OF A PROMISSORY NOTE
- It is an Instrument in Writing
- It is a Promise to Pay
- Signed by the Maker
- Other Formalities
- Definite and Unconditional Promise
- Promise to Pay Money Only
- Maker must be a Certain Person
- Payee must be Certain
- Sum Payable must be Certain
- It may be Payable on Demand or After a Definite Period of Time
- It cannot be Made Payable to Bearer on Demand
PARTIES TO A PROMISSORY NOTE
- Maker:
Maker is the person who promises to pay the amount stated in the note.
- Payee:
Payee is the person to whom the amount of the note is payable.
- Holder:
He is either the payee or the person to whom the note may have been endorsed.
2. CHEQUE
According to Section 6 of the act, A cheque is “a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand”. A cheque is also, therefore, a bill of exchange with two additional qualifications:
- It is always drawn on a specified banker.
- It is always payable on demand.
Special Benefits of Bill of Exchange :
- A bill of exchange is a double secured instrument.
- In case of immediate requirement, a Bill may be discounted with a bank.
ESSENTIAL ELEMENTS OF A CHEQUE
- In writing
- Express Order to Pay
- Definite and Unconditional Order
- Signed by the Drawer
- Order to Pay Certain Sum
- Order to Pay Money Only
- Certain Three Parties
- Drawn upon a Specified Banker
- Payable on Demand
PARTIES TO A CHEQUE
- Drawer:
Drawer is the person who draws the cheque.
- Drawee/Banker:
Drawee is the drawer’s banker on whom the cheque has been drawn.
- Payee:
Payee is the person who is entitled to receive the payment of a cheque. 15
Crossing of Cheques
- It is a direction given by the customer to the banker that payment should not be made across the counter.
- Crossing is affected by drawing two parallel transverse lines with or without particular abbreviations.
- A cheque that is not crossed is an open cheque.
- It serves as a measure of safety against theft or loss of cheques in transit.
TYPES OF CROSSING
- Special
- General
General | Special |
1. Addition of two parallel transverse lines | 1. Drawing of two is not always necessary |
2.between the lines, the words “ Not Negotiable”, “A/c Payee” “& Co.” may or may not be face of Written | 2.addition of the specific name of Banker on the Cheque |
3. BILL OF EXCHANGE
According to Section 5 of the act, A bill of exchange is “an instrument in writing containing an unconditional order signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument”. It is also called a Draft.
SPECIAL BENEFITS OF BILL OF EXCHANGE:
- A bill of exchange is a double secured instrument.
- In case of immediate requirement, a Bill may be discounted with a bank.
ESSENTIAL ELEMENTS OF BILL OF EXCHANGE
- It must be in Writing
- Order to pay
- Drawee
- Signature of the Drawer
- Unconditional Order
- Parties
- Certainty of Amount
- Payment in Kind is not Valid
- Stamping
- Cannot be made Payable to Bearer on Demand
PARTIES TO A BILL OF EXCHANGE
- Drawer:
The maker of a bill of exchange is called the drawer.
- Drawee:
The person directed to pay the money by the drawer is called the drawee.
- Payee:
The person named in the instrument, to whom or to whose order the money are directed to be paid by the instruments are called the payee.
TYPES OF BILLS OF EXCHANGE
- Inland
- Foreign bills
1. Inland bill:
- It is drawn in India on a person residing in India, whether payable in or outside India, or
- It is drawn in India on person residing outside India but payable in India
.The following are the inland bills:
a) A bill is drawn by a merchant in Delhi on a merchant in Chennai. It is payable in Mumbai the bill is an inland bill.
b) A bill is drawn by a Delhi merchant on a person in London but is made payable in
2. Foreign bill
- A bill drawn outside India & made payable in India.
- A bill drawn outside India on any person residing outside India.
- A bill drawn in India on a person residing outside India and made payable outside India.
CLASSIFICATION OF BILL OF EXCHANGE
Inland and Foreign Bills
Inland Bill:
- It is drawn in India on a person residing in India whether payable in or outside India; or
- It is drawn in India on a person residing outside India but payable in India. ◦
Foreign Bill:
- A bill drawn in India on a person residing outside India and made payable outside India.
- Drawn upon a person who is the resident of a foreign country.
Time and Demand Bills:
Time Bill:
A bill payable after a fixed time is termed as a time bill. A bill payable “after date” is a time bill. ◦
Demand Bill:
A bill payable at sight or on demand is termed as a demand bill.
Trade and Accommodation Bills:
Trade Bill:
A bill drawn and accepted for a genuine trade transaction is termed as “trade bill”.
Accommodation Bill:
A bill drawn and accepted not for a genuine trade transaction but only to provide financial help to some party is termed as an “accommodation bill”.
BASIS OF DIFFERENCE BILLS OF EXCHANGE AND CHEQUES
Basis of difference | Bills of exchange | Cheque |
Person/firm | A bill of exchange usually drawn on some person or firm | A cheque is always drawn on bank |
Acceptance | It is essential that a bill of exchange must be accepted before its payment can be claimed | A cheque does not require any such acceptance |
Payable on demand | The B.O.E. May be drawn payable on demand | A cheque can only be drawer payable on demand |
Grace of days | Three days are allowed in case of B.O.E. | In case cheque no grace of days are allowed |
Notice of dishonor | It is necessary in B.O.E. | No. Such notice is required |
Crossing | No crossing of bills of exchange | A cheque may be crossed |
Stamp | It must be properly stamped | No stamp is required |
NEGOTIATION:
According to section 14 of the Act, ‘when a promissory note, bill of exchange or cheque is transferred to any person so as to constitute that person the holder thereof, the instrument is said to be negotiated.’ The main purpose and essence of negotiation is to make the transferee of a promissory note, a bill of exchange or a cheque the holder there of.
Negotiation thus requires two conditions to be fulfilled, namely:
- There must be a transfer of the instrument to another person.
- The transfer must be made in such a manner as to constitute the transferee the holder of the instrument.
MODES OF NEGOTIATION
1. Negotiation by delivery (Sec. 47):
Where a promissory note or a bill of exchange or a cheque is payable to a bearer, it may be negotiated by delivery thereof. Example: A the holder of a negotiable instrument payable to bearer, delivers it to B’s agent to keep it for B. The instrument has been negotiated.
2. Negotiation by endorsement and delivery (Sec. 48):
A promissory note, a cheque or a bill of exchange payable to order can be negotiated only be endorsement and delivery. Unless the holder signs his endorsement on the instrument and delivers it, the transferee does not become a holder. If there are more payees than one, all must endorse it.
ENDORSEMENT [SECTION 15]
The word ‘endorsement’ in its literal sense means, writing on the back of an instrument. But under the Negotiable Instruments Act it means, the writing of one’s name on the back of the instrument or any paper attached to it with the intention of transferring the rights therein. Thus, endorsement is signing a negotiable instrument for the purpose of negotiation. The person who effects an endorsement is called an ‘endorser’, and the person to whom negotiable instrument is transferred by endorsement is called the ‘endorsee’.
WHO MAY ENDORSE / NEGOTIATE [SECTION 51]:
Every Sole maker, drawer, payee or endorsee, or all of several joint makers, drawers, payees or endorsees of a negotiable instrument may endorse and negotiate the same if the negotiability of such instrument has not been restricted or excluded as mentioned in Section 50.
ENDORSEMENT
Essentials of a Valid Endorsement:
- It must be on the back or face of instrument or on a slip of paper annexed thereto.
- It must be signed by the endorser.
- It must be completed by the delivery of the instrument
- It must be made by the holder of the instrument.
Kinds of Endorsement:
- Blank or General Endorsement
- Full or Special Endorsement
- Partial Endorsement
- Restrictive Endorsement
- Conditional Endorsement
HOLDER
According to sec. 8, Holder of a negotiable instrument is the person:
Who is entitled in his own name to the possession of the instrument?
Who has the right to receive, or recover the amount due thereon from the parties thereto?
In case the instrument (note, bill or cheque) is lost or destroyed, the person who has entitled in his own name to the possession of it or to receive or recover the amount due on it from the parties thereto is the holder of
Who can be a Holder?
- Payee:
The payee is usually the original holder of an instrument. He remains holder till he endorses the instrument.
- Endorsee :
The person to whom an instrument is endorsed becomes holder of in place of the endorser. An instrument, when endorsed and delivered, the endorsee becomes the holder.
- Bearer :
In the case of a bearer instrument, the person to whom the instrument is delivered becomes the holder. But every bearer of an instrument cannot become the holder.
Example: a thief or a finder of a bearer instrument or a servant possessing an instrument on behalf of his employer cannot become holder.
- Legal representative or heir- a legal representative or heir of a deceased person can become holder by operation of law even though he is not the payee or the bearer or the endorsee of the instrument.
HOLDER IN DUE COURSE:
Holder in due course is a person who came into possession of the instrument on payment of consideration and without knowledge of the fact that the erstwhile owner had a defective title.
The holder in due course has a better title than the holder. Therefore, according to sec. 9 of the Negotiable Instrument Act, holder in due course mans 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 endorsee thereof, if 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.[sec. 9].
PRIVILEGES OF A HOLDER IN DUE COURSE
- He can sue every prior party to the negotiable instrument if the instrument is not duly satisfied.
- When the holder endorses such instrument further, the new owner has a good title unless he is party to fraud.
- The burden of proving his title does not lie upon the holder in due course.
INSTRUMENTS OBTAIN BY UNLAWFUL
- Lost instruments:
- The holder of a lost instrument should give notice of the loss to all the parties through public advertisement.
- The finder of the lost instrument is not entitled to sue thereon in his own name.
- The true owner can recover the instrument from the finder if it is with him but he has parted with the instrument and has received payment thereon and cannot return the instrument to the owner, he must compensate the owner.
- An acceptor, maker or drawee who makes payment in due course of a lost instrument gets a valid discharge for it.
STOLEN INSTRUMENT
- The thief does not get any title to the instrument, but if the instrument is payable to the bearer and it is negotiated to a holder in due course; he will get a good title to it not only against the thief but also against any party prior to him.
- Good title : ownership of real property which is totally free of claims against it and therefore can be sold, transferred, or put up as security (placing a mortgage or deed of trust on the property).
INSTRUMENTS OBTAIN BY FRAUD
- Valid contracts must be brought about by the free consent of the parties competent to contract. Therefore, the person guilty of fraud not only gets no valid title to the thing obtained but also liable to damages.
- Forged instruments: Forged instruments in the eyes of law have no existence whatsoever. There is a complete absence of title from the very beginning and a forged signature is altogether inoperative.
DISHONOR & DISCHARGE OF NEGOTIABLE INSTRUMENT
Dishonor can be done by two ways:
- By non- acceptance
- By non- payment
- Notice of dishonor is mandatory
- Noting of dishonor is also necessary
INTRODUCTION
- The Insolvency and Bankruptcy Code, 2016 (IBC) is the bankruptcy law of India which seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy.
- The Insolvency and Bankruptcy Code, 2015 was introduced in Lok Sabha in December 2015. It was passed by Lok Sabha on 5 May 2016 and by Rajya Sabha on 11 May 2016.
- The Code received the assent of the President of India on 28 May 2016. Certain provisions of the Act have come into force from 5 August and 19 August 2016.
- The bankruptcy code is a one stop solution for resolving insolvencies which previously was a long process that did not offer an economically viable arrangement. The code aims to protect the interests of small investors and make the process of doing business less cumbersome.
- The IBC has 255 sections and 11 Schedules.
BASIC TERMINOLOGIES
- Insolvency
- Bankruptcy
- Winding up
- Liquidation
- Dissolution
DEFINITION
INSOLVENCY
The condition of a person who is insolvent; inability to pay one’s debts; lack of means to pay one’s debts. Such a relative condition of a man’s assets and liabilities that the former, if all made immediately available, would not be sufficient to discharge the latter or the condition of a person who is unable to pay his debts as they fall due, or in the usual course of trade and business.
BANKRUPTCY
The state or condition of one who is a bankrupt; amenability to the bankruptcy laws; the condition of one who has committed an act of bankruptcy, and is liable to be proceeded against by his creditors therefore, or of one whose circumstances are such that he is entitled, on his voluntary application, to take the benefit of the bankruptcy laws
LIQUIDATION
The process of winding up a company
VARIOUS LAWS OF FOR INSOLVENCY AND BANKRUPTCY
Corporates
- 1956 – Companies Act, 1956
- 1985 – Sick Industrial Companies (Special Provisions) Act – SICA
- 1993 – Recovery of Debts Due to Bank and Financial Institutions Act – RDDB
- 2002 – Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act – SARFAESI
- 2013 – Companies Act – Chapter XIX & XX
- 2016 –The Insolvency and Bankruptcy Code – IBC
Individuals
- 1909 – Presidency Towns Insolvency Act
- 1920 – Provincial Insolvency Act
- 1932 – Partnership Act Various laws for Insolvency and Bankruptcy
IBC Code requirements
- To ensure revival before liquidation
- Reduce the mounting NPAs’ on banks
- Need of a unified Code
- To provide an easy exit for corporates
- Improve ‘Ease of Doing Business’ ranking for India.
- Heightened focus on the resolution of the problem by the Reserve Bank of India (RBI) and the Supreme Court.
- There is a dire need of capital today – not just for stressed companies but for growth in general.
- Doing away with a fragmented framework
- Long time for resolution and recovery
- Improve the confidence of the International investor in the debt market
CONSOLIDATION OF VARIOUS LAWS – IBC Code
JOURNEY OF THE CODE
DATES | FORMATION OF CODE |
August 22, 2014 | BLRC formed under the chairmanship of T.K.Vishwanathan |
February 05, 2015 | BLRC submitted its interim report to ministry of finance |
February 10, 2015 | MoF invited public comments on interim report of BLRC |
November 04, 2015 | Volume I – Final report of BLRC, Volume II- draft code |
November 04, 2015 | MoF invited comments on Vol I and Vol II reports by BLRC |
December 21, 2015 | Code introduced in the parliament |
December 23, 2015 | Code introduced in the joint parliament committee |
January 22, 2016 | Joint committee invited comments on the code |
May 05, 2016 | Bankruptcy code passed by Lok Sabha |
May 11, 2016 | Bankruptcy code passed by Rajya Sabha |
May 28, 2016 | Received President’s Assent |
ARBITRATION AND CONCILLATION ORDINANCE ACT 1996, AS AMENDED 2015
INTRODUCTION
ARBITRATION:
- Form of Alternative Dispute Resolution
- Alternative to court room litigation
- Parties submit their disputes to a NEUTRAL third party called the Arbitrator (s) or Arbiter (s) for resolution
- Binding dispute resolution, equivalent to litigation in the courts
DEFINATION
Arbitration is “a legal technique for the resolution of disputes outside the courts, wherein the parties to a dispute refer it to one or more persons (the “arbitrators”, “arbiters” or “arbitral tribunal”), by whose decision (the “award”) they agree to be bound.”
In other words, arbitration is a form of dispute settlement, where parties can avoid resolving their dispute in the public litigation. It is used mainly in solving disputes arising out of commercial matters. Arbitration should not be confused with mediation. In the arbitration, the arbitrator obliged to determine the dispute by reference to certain rules, rather than to seek compromise which is mediator’s task.
WHY THIS AMENDENT NEEDED?
The Law Commission of India issued a report in 2014 (246thReport)which gave the comprehensive overview of the problem and also suggested the solution such as following-
- Encouraging institutional Arbitration
- Introducing a schedule of fees for arbitrators in ad-hoc arbitration
- Issuing guidance that hearings should be heard in continuous sittings, to avoid the "culture of frequent adjour e ts”
- Requiring that the courts refer disputes to arbitration as long as they are prima facie satisfied that there is a valid arbitration agreement;
- Restricting the use of "public policy" when challenging an award or resisting enforcement etc.
GENERAL OVERVIEW
- Government promulgated the Arbitration and Conciliation (Amendment) Ordinance, on 23rd October, 2015.
- The Arbitration and Conciliation (Amendment) Bill, 2015 (Amendment Bill) was introduced in both houses of Parliament in its recent session to replace the Arbitration and Conciliation (Amendment) Ordinance, 2015
- Passed by the Lok Sabha on 17th December, 2015.
- Passed by Rajya Sabha on 23rd December, 2015.
- Received the Preside t s assent on 31.12.2015
- Date of Enforcement : 23rd October, 2015
BENEFITS OF ARBITRATION
- Confidentiality
- Limited Discovery
- Speed
- Expert Neutrals
- Cost Savings
- Preservation of Business Relationships
DRAWBACKS OF ARBITRATION
- Arbitration agreements are sometimes misleading
- If arbitration is not mandatory parties waive their to access the courts.
TYPES OF ARBITRATION
- Ad-hoc Arbitration
- Institutional Arbitration
- Statutory Arbitration
- Domestic or International Arbitration
- Foreign Arbitration
SOURCES OF ARBITRATION
- State regulate arbitration through a variety of laws
- A number of national procedural laws may also contain provisions relating to arbitration
- Key international instrument – 1958 New York Convention on Recognition and Enforcement of Foeign Arbitral Awards
INTERNATIONAL INSTRUMENTS
- The Geneva Protocol of 1923
- The Geneva Convention of 1927
- The European Convention of 1961
- The Washington Convention of 1965 (governing settlement of international investment disputes)
- The UNCITRAL Model Law (providing a model for a national law of arbitration)
- The UNCITRAL Arbitration Rules (providing a set of rules for an ad hoc arbitration)
ARBITRAL DISPUTES
Some types of arbitral disputes are
- Property
- Insurance
- Contract (including employment contracts)
- Business / partnership disputes
- Family disputes (except divorce matters)
- Construction
- Commercial recoveries
NON ARBITRAL DISPUTES
The following cannot be resolved by arbitration
- Insolvency
- Matrimony
- Criminal matters
- Torts etc.
ARBITRATION AND CONCILIATION ACT, 1996
- It extends to the whole of India: Provided that Parts I, III and IV shall extend to the State of Jammu and Kashmir only in so far as they relate to international commercial arbitration or, as the case may be, international commercial conciliation.
- Explanation.—In this sub-section, the expression “international commercial conciliation” shall have the same meaning as the expression “international commercial arbitration” in clause (f) of sub-section (1) of section 2, subject to the modification that for the word “arbitration” occurring therein, the word “conciliation” shall be substituted.
- It shall come into force on such date1 as the Central Government may, by notification in the official Gazette, appoint.
ARBITRATION AGREEMENT
- In this Part, “arbitration agreement” means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.
- An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
- An arbitration agreement shall be in writing.
- An arbitration agreement is in writing if it is contained in
- a document signed by the parties;
- An exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or
- An exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.
- The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.
REFERENCE TO ARBITRATION
- A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, refer the parties to arbitration
- If the issue is pending before a judicial authority, arbitration may be commenced or continued and an arbitral award made
COMPOSITION OF ARBITRAL TRIBUNAL
Number of arbitrators.
- The parties are free to determine the number of arbitrators, provided that such number shall not be an even number.
- Failing the determination referred above the Arbitral Tribunal shall consist of a sole arbitrator.
APPOINTMENT OF ARBITRATORS
- A person of any nationality may be an arbitrator, unless otherwise agreed by the parties.
- The parties are free to agree on a procedure for appointing the arbitrator or arbitrators.
- An arbitration with three arbitrators, each party appoints one arbitrator, and the two appointed arbitrators appoints the third arbitrator who shall act as the presiding arbitrator.
- If the appointment procedure is not followed and the arbitrators not appointed then the appointment shall be made, upon request of a party, by the Chief Justice of the State High Court or any person or institution designated by him
- In the case of appointment of sole or third arbitrator in an international commercial arbitration, an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities may be appointed
- Where the dispute with regards to appointment of arbitrators arise in an international commercial arbitration the reference to “Chief Justice of High Court shall be construed as a reference to the Chief Justice of India.”
GROUNDS FOR CHALLENGE
- When a person is approached in connection with his possible appointment as an arbitrator, he shall of his own accord disclose any circumstances likely to give rise to justifiable doubts about his impartiality or independence. From the time of his appointment and throughout the arbitral proceedings, an arbitrator shall immediately disclose any new such circumstances to the parties.
- An arbitrator may only be challenged if there are circumstances that give rise to justifiable doubts about his impartiality or independence or if he does not possess the qualifications agreed on by the parties. A party may challenge an arbitrator in whose appointment he has participated only for reasons of which he became aware after the appointment was made.
TERMINATION OF MANDATE
The mandate of an arbitrator shall terminate if
He becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay; and he withdraws from his office or the parties agree to the termination of his mandate.
CHALLENGE PROCEDURE
- Unless the parties have agreed to a different procedure, a challenge of an arbitrator shall state the reasons for the challenge and shall be submitted in writing to the arbitral tribunal within fifteen days after the party became aware of the appointment of the arbitrator and the circumstances on which the challenge is based. Unless the challenged arbitrator withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge.
- If a challenge is unsuccessful and the parties have not agreed to a different procedure, the challenging party may bring the issue before the courts within one month after he received notice of the decision rejecting the challenge. The court shall determine the issue by way of interlocutory order. The interlocutory order shall not be subject to appeal. The challenge may not subsequently be invoked as grounds for invalidity or an objection to recognition and enforcement of the award. While such issue is pending before the courts, the arbitral tribunal, including the challenged arbitrator, may continue the arbitral proceedings and make an award.
Amended by Act 17 June 2005 No. 90 as amended by Act 26 January 2007 No. 3 (in force 1 January 2008)
FAILURE BY AN ARBITRATOR TO PERFORM HIS FUNCTIONS/ TERMINATION OF MANDATE
- If an arbitrator becomes de jure or de facto unable to perform his functions or if an arbitrator for other reasons fails to act without undue delay, his mandate shall terminate if he withdraws from his office or if the parties agree on the termination. Otherwise, any party may ask the courts to decide by way of interlocutory order whether the mandate shall terminate for one of the said reasons. The interlocutory order shall not be subject to appeal.
- The withdrawal by an arbitrator from his office or an agreement between the parties to terminate the mandate pursuant to subsection 1 or section 15 subsection 1 shall not imply acceptance of the validity of any challenge pursuant to subsection 1 or section 14 subsection 2.
- Amended by Act 17 June 2005 No. 90 as amended by Act 26 January 2007 No. 3 (in force 1 January 2008).
APPOINTMENT OF SUBSTITUTE ARBITRATOR
- Where the mandate of an arbitrator terminates pursuant to sections 15 or 16 or because of his withdrawal from office for any other reason or because of the revocation of his mandate by agreement of the parties or in any other case of termination of his mandate, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator to be replaced.
- If a substitute arbitrator is appointed, all previous arbitral proceedings that form part of the basis for the ruling in the case shall be repeated.
- The parties may contract out of the provisions of this section.
ARBITRATION AND CONCILIATION AMNEDMENT 2015
A. Change in the definition of the term court defined in Section 2(1)(e)
Before Amendment
- Prior to the amendment the definition of the term court was ambiguous .
- It was ambiguous in the sense that it did not clearly demarcated the boundary between the jurisdiction of the district court and high court.
After Amendment
- After the amendment the word court to be referred as principal civil court of original jurisdiction in case of domestic arbitration and High court in case of international commercial Arbitration.
B. Application of some provisions of Part 1 of the act to International Commercial Arbitration, Section 2(2)
Before Amendment
- Prior the part 1 of the act i.e. domestic arbitration was only applicable to those arbitrations where the place of arbitration in India and it created a lot of confusions that when Part 1 shall be applicable to the international commercial arbitration and when it will not be applicable.
- Till the amendment the guiding principle was the decision of the Apex court in Bharat Aluminum Co. & Others v. Kaiser Aluminum Technical Services Inc., (2012) 9 SCC 552 wherein the constitutional bench of the Hon’ ble Supreme Court.
- Part I of the Arbitration & Conciliation Act is applicable only to arbitrations which takes place within the territory of India. Part I of Arbitration & Conciliation Act, 1996 would have no application to international commercial arbitration held outside India.
- Therefore, such awards would only be subject to the jurisdiction of the Indian courts when the same are sought to be enforced in India in accordance with the provisions contained in Part II of the Arbitration & Conciliation Act, 1996.
After Amendment
- After the 2015 amendment the position has been made clear.
- Sec 2(2) has been amended and now subject to an agreement to the contrary the provisions of section 9, 27 and clause (a) of sub section (1) and sub-section (3) of Section 37, this part shall also apply to international commercial arbitration i.e. where the place of arbitration is outside India.
C. Recognition of Communications through Electronic Means as an agreement in writing, Section 7 (4)(b)
- An agreement shall be considered in writing for the purpose of assuring the validity of arbitration agreement if the communication has been made or words have been exchanged between the parties through electronic means.
- Thus now if the parties have exchanged words through emails or even through messengers that can also be considered as agreement in writing.
D. Recognition of copy of arbitration agreement for referring the parties for arbitration in certain circumstances, Section 8
Before Amendment
- Party was required to produce original or duly certified copy of the Arbitration Agreement to the Court for referring the dispute to the Arbitral Tribunal.
- There used to be the situations frequently that one party used to be willing to refer the dispute for arbitration but the original or duly certified copy was retained with another party.
- That is why the court used to refuse the application on the ground of not producing original or duly certified copy.
After Amendment
- The amended section 8 of the act provides that the power of the judicial authority to refer the parties to arbitration notwithstanding any judgment, decree or order of the Supreme Court or any Court unless it finds that Prima facie no valid arbitration agreement exists.
- Further a proviso has been added to Sub section (2) which provides that if the original arbitration agreement or a certified copy thereof is not available with the party applying for reference to arbitration under sub sec (1),and the said agreement or certified copy is retained by the other party then the party so applying shall file such application along with a copy of the arbitration agreement and a petition praying the court to call upon the other party to produce the original arbitration agreement or its duly certified copy before the court.
- Thus most prevalent misuse of the earlier provision has been done away with amendment
E. Reduction in the Power of Court under Section 9
- The power of the court u/s 9 and arbitral tribunal u/s 17 has become almost equal by virtue of the amendment of 2015.
- Two sub sections (2 and 3) have been added to section 9 Sub Section (2) provides where before the commencement of the arbitral proceedings, a Court passes an order for any interim measures of protection under sub section (1), the arbitral proceedings shall be commenced within a period of 90 days from the date of such order or within such further time as the Court may determine.
- Further sub section (3) limits on the jurisdiction of the court from entertaining any application under sub section (1) where the arbitral tribunal has been constituted.
- Once the arbitration tribunal is constituted, the court shall not entertain any interim applications unless such circumstances exist which may render the remedy under section 17 of the Act not efficacious.
F. Amendments in the Procedure of Appointment of Arbitrators , Section 11
1. Appointment of arbitrator shall now be made by the Supreme Court or the High Court, as the case may be, instead of the Chief Justice of India or the Chief Justice of the High Court.
Before Amendment
- It provided for a default procedure i.e. appointment of arbitrator by the Chief Justice or any person or institution designated by him in case a party fails to appoint an arbitrator or the two appointed arbitrators fail to agree on the third arbitrator .
After Amendment
- It provides for a default procedure i.e. appointment of arbitrator by the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court in case a party fails to appoint an arbitrator or the two appointed arbitrators fail to agree on the third arbitrator.
2. Nature of the power excercised under section 11
Before Amendment
- There was a very big point of controversy that the appointment of arbitrator by the court will be considered as the exercise of judicial power or the administrative power .
- And if this is delegated to any person or institution designation by it, whether the exercise of such power by such person or institution will be considered as the judicial power or administrative power in nature.
- Till date the leading authority was the judgment of M/s. S.B.P v. M/s. Patel Engineering Ltd, in this case the seven judges bench of the Ho ble Supreme Court held the power under Sec 11 to be Judicial in nature. (2005)8 SCC 618
After Amendment
- The amendment act of 2015 has made the position crystal clear.
- Sub section 6(B) added by the amendment provides that the designation of any person or institution by the Supreme Court or, as the case may be, the High Court, for the purposes of this section shall not be regarded as a delegation of judicial power by the Supreme Court or the High Court.
- Thus if the power to appoint the arbitrator is exercised by the court itself it shall be considered as judicial power and when it is exercised by any designated person or institution , it shall be considered as the administrative power 2. Nature of the power exercised under section 11
3. Determination of the fees of the arbitrators
- Prior to the amendment, the fees of the arbitrators were determined by the parties to it and it was totally depended on the whims and fancy of the parties though subjected to the acceptance of the designated arbitrator.
- But now the High Court has been empowered to frame rules for the purpose of determination of fees of the arbitral tribunal and the manner of such payment and it shall take into account the rates of fee specified in the Fourth Schedule to the Act while framing such rules.
- The explanation added to Section 11(14) clarifies that it shall not apply to international commercial arbitration and in arbitrations (other than international commercial arbitration) in case where parties have agreed for determination of fees as per the rules of an arbitral institution.
- Section11A has been introduced which empowers the central Government to revise the fee in the 4th schedule by following the procedure prescribed therein.
CRITICISM :
- The model fees in the Fourth Schedule only vary according to the sum in dispute. Often, in practice, it can be very difficult to quantify the su in dispute . Further, even if the amounts claimed can be quantified, the question of whether the su in dispute relates only to the amount claimed by the Claimant or whether it will also include the amount counter-claimed by the Respondent is left open.
- The extent of the application of the Fourth Schedule is ambiguous. It is unclear whether the Fourth Schedule applies to (i) all arbitrations in India, (ii) all arbitrations initiated under Section 11, or (iii) all arbitrations initiated under Section 11 except fast-track arbitrations by a sole arbitrator under Section 29B.
- There is potential for the new Section 11(14) to be misused in ad hoc arbitrations. A party or parties to an arbitration agreement may intentionally fail to follow the relevant appointment procedure or to agree to on an arbitrator in order to take advantage of the Fourth Schedule fee structure, which may be significantly lower than the fee quotes by ad hoc arbitrators.
- The insertion of such provisions has been condemned by various judges of the High Courts. They are of the view that when the parties are willing to pay higher amount as fees, then why are the limitations has been imposed on the parties regarding fees.
- Thus this provision may become a barrier for the expert arbitrators from entering into this area and they will hesitate to be appointed as arbitrator for the matters for which earlier they have been paid higher amount.
4. Other Insertions
Section 11(7) provides that the decision regarding appointment of arbitrator through default procedure, of the Supreme Court or, as the case may be, the High Court or the person or institution designated by such Court is final and no appeal including Letters Patent Appeal shall lie against such decision.
Section 11(13) provides that an application for appointment of arbitrator shall be disposed of as expeditiously as possible and an endeavour shall be made to dispose of the matter within a period of sixty days from the date of service of notice on the opposite party.
G. New Measures introduced for ensuring impartiality and ability of Arbitrator, Section 12
- Now when a person is approached in connection with the possible appointment as arbitrator he is required : -
- To disclose in the writing the existence of any relationship or interest of any kind which is likely to give rise to justifiable doubts as to his neutrality
- To disclose any circumstances which are likely to affect his ability to devote sufficient time to the arbitration and complete the arbitration within the specified period.
- Schedule V and VI has been added to the act which provide for the circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator and the format of the disclosure by such person who has been approached to be appointed as arbitrator respectively.
- Section 12 (5) provides that a person having relationships as specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator; For example: The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party to the dispute; or the arbitrator is a manager, director or part of the management, or has a similar controlling influence over the parties to the dispute.
- But that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing.
- Thus section 12 does not prescribe any disqualification, it only provides the duty of the person to disclose such relation and it is on the option of the party to appoint him as arbitrator. If the parties instead of disclosure agree to appoint him as arbitrator, such appointment cannot be questioned.
H. Expansion of the powers of arbitral tribunal for granting interim measures etc., Section 17
- The arbitral tribunal shall have power to grant all kinds of interim measures which the Court is empowered to grant under section 9 of the Act.
- Such interim measures can be granted by the arbitral tribunal during the arbitral proceedings or at any time after making the arbitral award, but before it is enforced under section 36 of the Act.
- Further Section 17(2) of the section provides that any order issued by the arbitral tribunal for grant of interim measures shall be deemed to be an order of the Court for all purposes and shall be enforceable under the Code of Civil Procedure, 1908 in the same manner as if it were an order of the Court.
- Now there is a conflict and ambiguity between the starting point of section 17 and ending point of section 17.
I. Recognition of counter claims and set off, Section 23 (2A)
- Prior to this amendment the position regarding filing or counter claim or set–off was not clear but this amendment made this position clear.
- Inserted section 23 (2A) recognizes the counter claim and defense of set–off on the part of the respondent.
- It provides that the respondent, in support of his case, may also submit a counter claim or plead a set- off, which shall be adjudicated upon by the arbitral tribunal, if such counterclaim or set- off falls within the scope of the arbitration agreement.
J. Day- to- day oral hearings and prohibition on adjournments
- Newly added proviso to section 24 provides that the arbitral tribunal shall as far as possible, hold oral hearings for the presentation of evidence or for oral argument on day-to-day basis .
- It further provides that the arbitral tribunal shall not grant any adjournments unless sufficient cause is made out, and may impose costs including exemplary costs on the party seeking adjournment without any sufficient cause.
K. Time Limit for arbitral award, Section 29 A
- Section 29 A has been inserted in the act which provides for time limit for arbitral award.
- Arbitral tribunal shall pass the award within 12 months from the date on which the arbitration tribunal enters upon the reference.
- However the tribunal may extend the period by a maximum of 6 months with the consent of the parties to the arbitration agreement.
- But if still the award is not made then the court has the prerogative of extending the period beyond 18 months. The court will exercise this power on the application given by any of the parties and after being satisfied by the reasons mentioned in the application it may grant extension
- Such application shall be decided by the court within 60 days.
- If the court finds that the extension is because of the delay on the part of the arbitrator, the court may order reduction in the fee of the arbitrator by an amount not exceeding 5% for each months delay.
- The court has also been empowered to impose actual and exemplary costs on the party at default.
- Further an incentive has been offered by the amendment that in case the tribunal passes the award within 6 months instead of allowed 12 months, the arbitral tribunal shall be entitled to receive additional fees as determined by the parties
- It further provides that if the arbitral tribunal is reconstituted or all the members of the tribunal are substituted under this section, the arbitral tribunal thus reconstituted shall be deemed to be in continuation of the previously appointed arbitral tribunal.
- CRITICISM : Thus on analysising this section it appears that thought the legislators have made a beautiful attempt to make arbitration proceeding as expeditious as possible but by inserting the provisions for further extension by court for unlimited time, has made its attempt futile. It may be said that it has closed all the doors to prevent delay in arbitral proceedings but has left one window open.
L. Introduction of Fast Track Procedure, Section 29 B
- The fast track procedure is an attempt in the direction of making the arbitration as expeditious as possible.
- The parties to an arbitration agreement may either before or at the time of appointment of the arbitral tribunal, agree in writing to have their dispute resolved by the fast track procedure and in this process they may agree on an arbitral tribunal consisting of a sole arbitrator which shall be chosen by them
- Under the fast track procedure, the arbitral tribunal shall follow the following procedure: The arbitral tribunal shall decide the dispute on the basis of written pleadings , documents and submissions filed by the parties without any oral hearing ;
- The arbitral tribunal shall have power to call for any further information or clarification from the parties in addition to the pleadings and documents filed by them ;
- An oral hearing may be held only, if, all the parties make a request or if the arbitral tribunal considers it necessary to have oral hearing for clarifying certain issues;
- The arbitral tribunal may dispense with any technical formalities, if an oral hearing is held, and adopt such procedure as deemed appropriate for expeditious disposal of the case.
- It provides that the arbitral tribunal shall pass the award within 6 months from the date on which the arbitration tribunal enters upon the reference. But the conditions as prescribed under Sec 29 A (3) to Section 29 A (9) are also applicable to it.
M. Defined Public Policy, Section 34
Before Amendment
- What exactly the public policy means was not clear.
- Explanation of the section only provided that it would be considered as opposed to public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81.
- In the lack of elaborate provision ,there was major scope for judiciary for interpretation.
- In Renusagar Power Co v. General Electric co, (1994) Supp (1) SCC 644, the Apex Court determined the term public policy as anything contrary to- 1. Fundamental policy of Indian Law 2. The interest of India 3. Justice or morality
- In ONGC v. Saw Pipes Ltd (2003)5SCC705 The Apex Court added one more ground to the meaning of public policy. It held that the award can be set aside if it is patently illegal .
- Patently illegal means the illegality must go to the root of the matter.
After Amendment
- Arbitration and Conciliation (Amendment) Act, 2015 incorporated the ratio of these two decisions in the act itself.
- Now explanation which explains what are in conflict of public policy of India also includes these two: 1. It is in contravention with the fundamental policy of Indian Law, and 2.It is in conflict with the most basic notions of morality or justice.
- Further a new explanation has been added which provides that for the avoidance of doubt, the test whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.
- The decision of the ONGC s case has been incorporated in sub section 2A of the section 34.
- It provides that an arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the awards is vitiated by patent illegality appearing on the face of the award.
- A proviso has been added to it which provides that an award shall not be set aside merely on the ground of an erroneous application of the law or by re- appreciation of evidence.
N. Enforcement of Arbitral Award, Section 36
Before Amendment
- Where the time for making an application to set aside the arbitral award under section 34 has expired, or such application having been made, it has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 (5 of 1908) in the same manner as if it were a decree of the court.
- Thus the award could not be enforced if the application for setting aside the award has been moved to the court.
After Amendment
- Mere filing of application for setting aside an arbitral award would not render ipso facto that award unenforceable until and unless the court grants an order of stay on the operation of the said award on a separate application made for that purpose.
- Thus the if the application for setting aside the award has been moved to the court and the court does not give stay, the award may be enforced in the meanwhile and if the court wishes to grant stay , it will have to mention the reasons for granting such stay.
O. Amendment in the grounds of Appeal, Section 37
In section 37 which talks about appealable orders, the following additional ground has been added for appeal:
- Refusing to refer the parties to arbitration under section 8. The other two grounds are the same as contained in the act i.e.
- Granting or refusing to grant any measure under sec tion.9;
- Setting aside or refusing to set aside an arbitral award under section 34.
- The party initiating conciliation shall send to the other party a written invitation to conciliate under this Part, briefly identifying the subject of the dispute.
- Conciliation proceedings shall commence when the other party accepts in writing the invitation to conciliate.
- If the other party rejects the invitation, there will be no conciliation proceedings.
If the party initiating conciliation does not receive a reply within thirty days from the date on which he sends the invitation, or within such other period of time as specified in the invitation, he may elect to treat this as a rejection of the invitation to conciliate and if he so elects, he shall inform in writing the other party
The Indian Partnership Act 1932 defines a partnership as a relation between two or more persons who agree to share the profits of a business run by them all or by one or more persons acting for them all. As we go through the Act we will come across five essential elements that every partnership must contain.
PARTNERSHIP
When we discuss about the forms a business organisation can take, one of the most prominent ones is a partnership. In India mainly it is a very popular entity to carry out business. Let us take a look at some important elements of a partnership and also some types of partners.
Concept Partnership
In India, we have a definite law that covers all factors and functioning of a partnership, The Indian Partnership Act 1932. The act also defines a partnership as “the relation between two or more persons who have agreed to share the profits from a business carried on by either all of them or any of them on behalf of/acting for all”
So in such a case two or more (maximum numbers will differ according to the business being carried) persons come together as a unit to achieve some common objective. And the profits earned in pursuit of this objective will be shared amongst themselves.
The entity is collectively called a “Partnership Firm” and all the person members are the “Partners”. So let us look at some important features.
CHARACTERISTICS OF A PARTNERSHIP
1] Formation/Contract
A partnership firm is now not a separate legal entity. But according to the act, a firm must be fashioned via a legal agreement between all the partners. So a contract must be entered into to form a partnership firm.
Its business activity must be lawful, and the motive has to be one of profit. So two people forming an alliance to carry out charity and/or social work will not constitute a partnership. Similarly, a partnership contract to lift out illegal work, such as smuggling, is void as well.
2] Unlimited Liability
In a unique feature, all partners have unlimited liability in the business. The partners are all individually and jointly liable for the firm and the payment of all debts. This means that even personal assets of a partner can be liquidated to meet the debts of the firm.
If the money is recovered from a single partner, he can, in turn, sue the other partners for their share of the debt as per the contract of the partnership.
3] Continuity
A partnership cannot carry out in perpetuity. The death or retirement or bankruptcy or insolvency or insanity of a partner will dissolve the partnership. The remaining partners may continue the partnership if they so choose, but a new contract must be drawn up. Also, the partnership of a father cannot be inherited by his son. If all the other partners agree, he can be added on as a new partner.
4] Number of Members
As we know that there should be a minimum of two individuals for a partnership. However, the maximum number will vary according to a few conditions. The Partnership Act itself is silent on this issue, but the Companies Act, 2013 provides clarity.
For a banking business, the number of partners must now not exceed ten. For a business of any other nature, the maximum number is twenty. If the number of partners increases it will become an illegal entity or association.
5] Mutual Agency
In a partnership, the business must be carried out by all the partners together. Or alternatively, it can be carried out by any of the partners (one or several) acting for all of them or on behalf of all of them. So this means every partner is an agent as properly as the principal of the partnership.
He represents the other partners in some cases so he is their agent. But in different circumstances, he is bound by the actions of any of the other partners aking him the principal as well.
Types of Partners
Active Partner: As the name suggests he takes active participation in the business of the firm. He contributes to the capital, has a share in the income and also participates in the daily activities of the firm. His liability in the company will be unlimited. And he often will act as an agent for the other partners.
Dormant Partner: Also known as a sleeping partner, he will not participate in the daily functioning of the business. But he will still have to make his share of contribution to the capital. In return, he will have a share in the profits. His liability will additionally be unlimited.
Secret Partner: Here the partner’s association with the firm is not public knowledge. He will not signify the firm to outside agents or parties. Other than this his participation with respect to capital, profits, management and liability will be the same as all the other partners.
Nominal Partner: This partner is solely a partner in name. He allows the firm to use the name of his firm, and the connected goodwill. But he in no way contributes to the capital and hence has no share in the profits. He does not involve himself in the firm’s business. But his liability too will be unlimited.
Partner by Estoppel: If a person makes it out to be, through their conduct or behaviour, that they are partners in a firm and he does not correct them, then he becomes a partner by estoppel. However, this partner too will have unlimited liability.
REGISTRATION OF A PARTNERSHIP FIRM:
According to the Indian Partnership Act, 1932, it is not necessary to get the firm registered for its formation. Registration of a partnership firm is not compulsory under any law or no any penalty for non-registration of partnership firm. But it is always useful to get the firm registered. In Maharashtra, registration of partnership firms is compulsory with effect from 1st April 1985.
Procedure for Registration: An officer is appointed for a registration of a partnership firm is called Registrar of firms. The steps involved in the registration of a firm are given below.
Obtain all prescribed forms from the office of the Registrar of firms of the area in which the place of business of the firm is situated. Then fill up the forms with the following information.
- The name of the firm.
- The principal place of the firm (Head Office).
- Name of the other places where the firm has business (Branches).
- The date when each partner joins the firm.
- The name in full and addresses of the partners.
- The duration of the firm (In case of partnership at will / for particular period)
Then get the statement fully signed by all partners and then this form along with prescribed fee has to be deposited in the office of Registrar. After proper scrutiny of the forms, if Registrar is satisfied, he enters the information in the register and sanctions it. Then Registrar issues a certificate which is called the Certificate of Registration.
Effects of Non-Registration: Under the Indian partnership Act, 1932, the registration of a firm is not compulsory. But an unregistered firm suffers the consequences. Following are the effects of non-registration of partnership firm.
- A partner of an unregistered firm cannot file a suit against the firm or any other partner of the firm.
- An unregistered firm cannot file a suit against a third party to enforce any right arising from contract, but third party can file a suit in the court of law against the partnership firm.
- Firm also cannot start proceeding against any partner.
Benefits of Registration: Registered firm gets the right of filing a suit against third party in the court. The partners of the firm can also file a suit against the firm or outside parties. Registered firm is useful for incoming partner for his rights. On the death or retirement of a partner registered firm is benefited.
PARTNERSHIP DEED: CONTENTS OF A PARTNERSHIP DEED
Partnership is an agreement between persons to carry on a business. The agreement entered into between partners may be either oral or written. But, it is always suitable to have a written agreement so as to avoid misunderstandings and unnecessary litigations in future. When the agreement is in written form, it is known as ‘Partnership Deed.’ It must be duly signed by the partners, stamped and registered. Any alteration in partnership deed can be made with the mutual consent of all the partners.
Although it is left to the choice of the partners of the firm to decide themselves as to what should be mentioned in their partnership deed, yet a partnership deed usually contains the following:
1. Name of the firm.
2. Nature of the business.
3. Names of partners.
4. Place of the business.
5. Amount of capital to be contributed by each partner
6. Profit sharing ratio between the partners.
7. Loans and advances from the partners and the price of interest thereon.
8. Drawings allowed to the partners and the rate of interest thereon.
9. Amount of salary and commission, if any, payable to the partners.
10. Duties, powers and obligations of partners.
11. Maintenance of accounts and arrangement for their audit.
12. Mode of valuation of goodwill in the event of admission, retirement and demise of a partner.
13. Settlement of accounts in the case of dissolution of the firm.
RIGHTS OF PARTNERS:
Broadly, the provisions of the Act regarding rights, responsibilities and powers of partners are as under:
(a) Every partner has a right to take part in the habits and management of business.
(b) Every partner has a right to be consulted and heard in all matters affecting the business of the partnership.
(c) Every partner has a right of free access to all records, books and accounts of the business, and additionally to examine and copy them.
(d) Every partner is entitled to share the profits equally.
(e) A partner who has contributed more than the agreed share of capital is entitled to interest at the rate of 6 per cent per annum. But no interest can be claimed on capital.
(f) A associate is entitled to be indemnified by the firm for all acts done by him in the direction of the partnership business, for all payments made by him in respect of partnership debts or liabilities and for expenses and disbursements made in an emergency for protecting the firm from loss provided he acted as a person of regular prudence would have acted in similar circumstances for his own personal business.
(g) Every partner is, as a rule, joint owner of the partnership property. He is entitled to have the partnership property used exclusively for the purposes of the partnership.
(h) A partner has power to act in an emergency for protecting the firm from loss, but he must act reasonably.
(i) Every partner is entitled to prevent the introduction of a new partner into the firm without his consent.
(J) Every partner has a right to retire according to the Deed or with the consent of the other partners. If the partnership is at will, he can retire by giving note to other partners.
(k) Every partner has a right to continue in the partnership.
(l) A retiring partner or the heirs of a deceased partner are entitled to have a share in the profits earned with the aid of the proportion of assets belonging to such outgoing partner or interest at six per cent per annum at the option of the outgoing partner (or his representative) until the accounts are finally settled.
DUTIES OF PARTNERS:
(a) Every partner is bound to diligently raise on the business of the firm to the greatest common advantage. Unless the agreement provides, there is no salary.
(b) Every partner must be just and faithful to the other partners.
(c) A partner is bound to keep and render true, proper, and correct accounts of the partnership and must permit other partners to check out and copy such accounts.
(d) Every partner is bound to indemnify the firm for any loss prompted by his willful neglect or fraud in the conduct of the business.
(e) A partner ought to not carry on competing business, nor use the property of the firm for his private purposes. In each cases, he must hand over to the firm any profit or gain made by him but he must himself suffer any loss that might have occurred.
(f) Every partner is bound to share the losses equally with the others.
(g) A partner is bound to act within the scope of his authority.
(h) No partner can assign or transfer his partnership interest to any other person so as to make him a partner in the business.
DISSOLUTION
When the partnership between all the partners of a firm is dissolved, then it is called dissolution of a firm. It is important to word that the relationship between all partners should be dissolved for the firm to be dissolved. Let us look at the legal provisions for the dissolution of a firm.
The dissolution of a firm means discontinuance of its activities. When the working of a firm is stopped and the assets are realised to pay a range of liabilities it amounts to dissolution of the firm. The dissolution of a firm should not be confused with the dissolution of partnership. When a partner agrees to continue the firm underneath the same name, even after the retirement or death of a partner, it amounts to dissolution of partnership and not of firm.
The remaining partners may purchase the share of the outgoing or deceased partner and proceed the business under the same name; it involves solely the dissolution of partnership. The dissolution of firm includes the dissolution of partnership too. The partners have a contractual relationship among themselves. When this relationship is terminated it is an end of the firm.
A firm may be dissolved under the following circumstances:
(a) Dissolution by Agreement (Section 40):
A partnership firm can be dissolved by an agreement among all the partners. Section 40 of Indian Partnership Act, 1932 approves the dissolution of a partnership firm if all the partners agree to dissolve it. Partnership concern is created by settlement and similarly it can be dissolved by agreement. This type of dissolution is known as voluntary dissolution.
(b) Dissolution by way of Notice (Section 43):
If a partnership is at will, it can be dissolved by any partner giving a notice to other partners. The notice for dissolution must be in writing. The dissolution will be effective from the date of the notice, in case no date is mentioned in the notice, and then it will be dissolved from the date of receipt of notice. A notice as soon as given cannot be withdrawn without the consent of all the partners.
(c) Compulsory Dissolution (Section 41):
A firm may be compulsorily dissolved beneath the following situations:
(i) Insolvency of Partners:
When all the partners of a firm are declared insolvent or all but one partner are insolvent, then the firm is compulsorily dissolved.
(ii) Illegal Business:
The activities of the firm may end up illegal under the changed circumstances. If government enforces prohibition policy, then all the firms dealing in liquor will have to close down their business because it will be an unlawful undertaking under the new law. Similarly, a firm may be trading with the businessmen of any other country. The trading will be lawful under present conditions.
After some time a war erupts between the two countries, it will become a trading with an alien enemy and further trading with the same events will be illegal. Under new circumstances the firm will have to be dissolved. In case a firm carries on more than one type of business, then illegality of one work will not amount to dissolution of the firm. The firm can continue with the activities which are lawful.
(d) Contingent Dissolution (Section 42):
In case there is no agreement among partners related to certain contingencies, partnership firm will be dissolved on the happening of any of the situations:
(i) Death of a Partner:
A partnership firm is dissolved on the demise of any of the partner.
(ii) Expiry of the Term:
A partnership firm may be for a fixed period. On the expiry of that period, the firm will be dissolved.
(iii) Completion of Work:
A partnership concern may be formed to carry out a specified work. On the completion of that work the company will be automatically dissolved. If a firm is formed to construct a road, then the second the road is completed the firm will be dissolved.
(iv) Resignation of Partner:
If a partner does not want to continue in the firm, his resignation from the concern will dissolve the partnership.
(e) Dissolution via Court (Section 44):
A partner can apply to the court for dissolution of the firm on any of these grounds:
(i) Insanity of a Partner:
If a partner goes insane, the partnership firm can be dissolved on the petition of different partners. The firm is not automatically dissolved on the insanity of a partner. The court will act only on the petition of a partner who himself is not insane.
(ii) Misconduct by the Partner:
When a partner is guilty of misconduct, the other partners can move the court for dissolution of the firm. The misconduct of a partner brings bad name to the firm and it adversely affects the reputation of the concern. The misconduct can be in business or otherwise. If a partner is jailed for committing a theft, it will also affect the good name of the firm though it has nothing to do with the business.
(iii) Incapacity of a Partner:
If a partner other than the suing partner becomes incapable of performing his duties, then partnership can be dissolved.
(iv) Breach of Agreement:
When a partner willfully commits breach of agreement relating to business, it will become a ground for getting the firm dissolved. Under such a situation it becomes hard to carry on the business smoothly.
(v) Transfer of Share:
If a partner sells his share to a third party or transfers his share to another person permanently, other partners can pass the court for dissolving the firm.
(vi) Regular Losses:
When the firm cannot be carried on profitably, then the firm can be dissolved. Though there may also be losses in every type of business but if the firm is incurring losses continuously and it is not possible to run it profitably, then the court can order the dissolution of the firm.
(vii) Disputes amongst Partners:
Partnership firm is based on mutual faith. If partners do not have faith each other, then it will not be possible to run the business. When the partners quarrel with every other, then the very basis of partnership is lost and it will be better to dissolve it.
Following are the ways in which dissolution of a partnership firm takes place:
1. Dissolution by Agreement
A firm may be dissolved if all the partners agree to the dissolution. Also, if there exists a contract between the partners regarding the dissolution, the dissolution may take place in accordance with it.
2. Compulsory Dissolution
In the following cases the dissolution of a company takes place compulsorily:
• Insolvency of all the partners or all but one partner as this makes them incompetent to enter into a contract.
• When the business of the firm becomes illegal due to some reason.
• When due to some event it turns into unlawful for the partnership firm to carry its business. For example, a partnership firm has a companion who is of another country and India declares war against that country, then he becomes an enemy. Thus, the business becomes unlawful.
3. When certain contingencies happen
The dissolution of the association takes place subject to a contract among the partners, if:
• The firm is formed for a fixed term, on the expiry of that term.
• The firm is formed to carry out specific venture, on the completion of that venture.
• A partner dies.
• A partner becomes insolvent.
4. Dissolution by Notice
When the partnership is at will, the dissolution of a firm may take place if any one of the partners gives a word in writing to the other partners stating his intention to dissolve the firm.
5. Dissolution by Court
When a partner files a suit in the court, the court may order the dissolution of the company on the basis of the following grounds:
• In the case where a partner becomes insane
• In the case the place a partner becomes permanently incapable of performing his duties.
• When a partner will become guilty of misconduct and it affects the firm’s business adversely.
• When a partner continually commits a breach of the partnership agreement.
• In a case where a partner transfers the whole of his interest in the partnership company to a third party.
• In a case where the business cannot be carried on barring at a loss
• When the court regards the dissolution of the firm to be just and equitable on any ground.
CONSUMER PROTECTION
Introduction to Consumer Protection
A consumer is the one who assumes to be treated like a King as they bring business to the seller. Previously “consumer was requested to beware” but these days fingers have been pointed to seller “let seller be beware” as due to policies introduced, authorities laws, consumer protection, NGO and the increased competition in the market.
Consumer Protection is a term given to a exercise wherein we need to protect the consumer from the unfair practice, teaching them about their rights and responsibilities and also redressing their grievances.
In today’s world, the protection of the consumer is regarded to be of utmost importance. All around the world, mechanisms have been pondered upon in order to uphold the satisfaction of the consumer.
The main objectives of the Consumer Protection Act are:
(a) Providing better and all round protection to consumer.
(b) Providing machinery for the speedy redressal of the grievances.
(c) Creating framework for customers to seek redressal.
(d) Providing rights to consumers.
(e) Safeguarding rights of Consumers.
To ensure fair, competitive and responsible markets that work well for consumers and promote ethical business practices.
To promote and protect economic interest of consumers.
To improve access to information that consumers require, to make knowledgeable choices according to their individual needs.
To protect buyer from hazards.
REASON FOR ENACTING CONSUMER PROTECTION ACT
The enactment of Consumer Protection Act succeeded in bringing pressure on business firms as well as government to correct business conduct which may additionally be unfair and against the interests of consumers at large. The enactment of COPRA has led to the setting up of separate departments of Consumer Affairs in central and state governments to spread information about legal process which people can use. This information is spread through posters and advertisements on tv channels.
The Consumers were the worst affected out of a trade cycle procedure as they could be effortlessly duped by the sellers or producers of products. Before the enactment of this act the consumers were easy targets as victims of the producers in the following ways-
1. Non-awareness regarding the market price of a particular product: A consumer who's no longer used to the duping techniques of sellers could be easily fooled by means of some clever sellers making easy money through demanding higher price for the same exact being sold at a much cheaper rate somewhere else. The price of a commodity in a perfectly competitive market is bound to be the same everywhere, sellers demanding higher fees will lose customers. But people who are not aware of the prevailing market price of the commodity they want to buy might be fooled.
2. Quality of the product- The quality of the good is a very important fact affecting the price of the commodity. If the quality is not equivalent to the price asked for the good then the buyer's interests will be toyed with towards which the government should be considerate towards.
3. Adulteration of goods: To protect the consumer's rights from being hampered severely stringent steps must be taken in order to protect the goods from being tampered with through adulteration. Adulteration might have an effect on health due to the harmful substances mixed to get the desired apparent appearance.
4. Forum for the redressal of the grievances of the consumers: The act also helped in establishing a permanent forum where the aggrieved consumers could lodge cases against sellers and goods sold.
CONSUMER PROTECTION ACT
Consumer Protection Act has been implemented(1986) or we can bring into existence to protect the rights of a consumer. It protects the consumer from exploitation that business practice to make profits which in turn harm the well being of the consumer and society.
This right help to educate the consumer on the right and responsibilities of being a consumer and how to seek help or justice when faced exploitation as a consumer. It teaches the consumer to make right choices and know what is right and what is wrong.
Who is a consumer according to the Consumer Protection Act, 1986? A consumer is one that buys good for consumption and not for the resale or commercial purpose. The consumer also hires service for consideration.
If any defect found the seller should remove the mentioned defects from the whole batch or the goods affected. For example, there have been cases where car manufacturing unit found a defect in parts of the vehicle usually they remove the defect from every unit or they call of the unit.
They should replace the defective product with a nondefective product and that product should be of similar configuration or should be the same as the product purchased.
Redressal: Three Tier System Under Consumer Act
District Forum: These fora are set by the district of the state concerned in each district wherein it consists of President and two members of which one should be a woman and is appointed by the State Government. In this, the complaining party should not make a complaint more than 20 Lacs and once the complaint is filed the goods are sent for testing and if they found defective the accused party should compensate and if the party is dissatisfied can make an appeal with state commission within 30 days.
State Commission: This is set up by each state It consists of President and two members. Complains should be at least 20 lacs and exceed not more than 1 crore. The goods are sent for testing and if found defective are asked for replacement or compensation. If not satisfied can make an appeal within 30 days in front of the National Commission.
National Commission: Consist of President and 4 members. The complaint must exceed an amount of 1 crore. The goods are sent for testing and if found defective are asked for replacement or compensation
MAIN FEATURES OF THE FOREIGN EXCHANGE MANAGEMENT ACT (FEMA)
The foreign exchange Management Act (FEMA) was an act passed within the winter session of Parliament in 1999, which replaced foreign exchange Regulation Act. This act seeks to form offences associated with foreign exchange civil offences. It extends to the entire of India.
The foreign exchange Regulation Act (FERA) of 1973 in India was replaced on June 2000 by the foreign exchange Management Act (FERA), which was passed in 1999. The FERA was passed in 1973 at a time when there was acute shortage of foreign exchange within the country.
It had a controversial 27 years stint during which many bosses of the Indian corporate world found themselves at the mercy of the Enforcement Directorate. Moreover, any offence under FERA was a criminal offence susceptible to imprisonment. But FEMA makes offences concerning foreign civil offences.
FEMA had become the necessity of the hour to support the pro- liberalisation policies of the govt of India. The objective of the Act is to consolidate and amend the law relating to foreign exchange with the target of facilitating external trade and payments for promoting the orderly development and maintenance of exchange market in India.
FEMA extends to the entire of India. It applies to all or any branches, offices and agencies outside India owned or controlled by an individual , who may be a resident of India and also to any contravention there under committed outside India by two people whom this Act applies.
The Main Features of the FEMA:
The following are a number of the important features of exchange Management Act:
i. It's consistent with full current account convertibility and contains provisions for progressive liberalisation of capital account transactions.
Ii. It's more transparent in its application because it lays down the areas requiring specific permissions of the Reserve Bank/Government of India on acquisition/holding of foreign exchange.
Iii. It classified the foreign exchange transactions in two categories, viz. Capital account and accounting transactions.
Iv. It provides power to the reserve bank for specifying, in , consultation with the central government, the classes of capital account transactions and limits to which exchange is admissible for such transactions.
v. It gives full freedom to an individual resident in India, who was earlier resident outside India, to hold/own/transfer any foreign security/immovable property situated outside India and purchased when s/he was resident.
Vi. This act may be a civil law and therefore the contraventions of the Act provide for arrest only in exceptional cases.
Vii. FEMA doesn't apply to Indian citizen’s resident outside India.
Difference between the FERA and FEMA:
FOREIGN EXCHANGE MANAGEMENT ACT (FEMA), 1999
The foreign exchange Management Bill (FEMA) was introduced by the govt of India in Parliament on August 4, 1998. The Bill aims "to consolidate and amend the law concerning foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of exchange market in India.
Among the varied objectives of the exchange Management Act (FEMA), an important one is to revise and unite all the laws that relate to exchange . Further FEMA targets to market foreign payments and trade the country. Another important motive of the exchange Management Act (FEMA) is to encourage the upkeep and improvement of the foreign exchange market in India.
Features of the FEMA
The following are a number of the important features of foreign exchange Management Act:
a. It's consistent with full current account convertibility and contains provisions for progressive liberalisation of capital account transactions.
b. It's more transparent in its application because it lays down the areas requiring specific permissions of the Reserve Bank/Government of India on acquisition/holding of foreign exchange.
c. It classified the foreign exchange transactions in two categories, viz. Capital account and current account transactions.
d. It provides power to the reserve bank for specifying, in , consultation with the central government, the classes of capital account transactions and limits to which exchange is admissible for such transactions.
e. It gives full freedom to an individual resident in India, who was earlier resident outside India, to hold/own/transfer any foreign security/immovable property situated outside India and purchased when s/he was resident.
f. This act may be a civil law and therefore the contraventions of the Act provide for arrest only in exceptional cases.
g. FEMA doesn't apply to Indian citizen’s resident outside India.
Difference between FERA and FEMA
FEMA: a major Departure from FERA
As is obvious from the name of the Act itself, the emphasis under FEMA is on 'exchange management' whereas under FERA the stress was on 'exchange regulation' or exchange control. Under FERA it had been necessary to get Reserve Bank's permission, either special or general, in respect of most of the regulations there under. FEMA has caused a sea change in this regard and except for Section 3 which relates to dealing in foreign exchange, etc., no other provisions of FEMA stipulate obtaining Reserve Bank's permission.