Cyber Law

Introduction
Cyber Law is a term first coined by Jonathan Rosenoer as the title for a service aimed at
explaining legal issues to computer users. It derives from the term, Cybernetics. Cyber Law (tm)
was first published on an AOL user group no later than early 1992, as a version of a series of
articles published in print, under the name "The Legal Side," by major US computer (primarily
Macintosh) users groups, such as BMUG, and on The WELL. Many of the CyberLaw articles
were published in a book titled, Cyber Law: The Law of the Internet (Springer Verlag 1996).
Cyber Law describes the legal issues related to use of inter-networked information technology. It
is less a distinct fielding of law in the way that property or contracts are, as it is a domain
covering many areas of law and regulation. Some leading topics include intellectual property,
privacy, freedom of expression, and jurisdiction. It is a Body of law bearing on the world of
computer networks, especially the Internet. As traffic on the Internet has increased, so have the
number and kind of legal issues surrounding the technology. Hotly debated issues include the
obscenity of some on-line sites, the right of privacy, freedom of speech, regulation of electronic
commerce, and the applicability of copyright laws.

Meaning and Definition

Cyber law is the area of law that deals with the internets relationship to technological and
electronic elements, including computers, software, hardware and information systems (IS)
Cyber laws prevent or reduce large scale damage from cybercriminal activities by protecting
information access, privacy, communications, intellectual property and freedom of speech related
to the use of internet, websites, emails, computers, cell phones, software and hardware such as
data storage devices
The increase in internet traffic has led to higher protection of legal issues world wide. Because
cyber law varies by jurisdiction and country, enforcement is challenging, and restrictions ranging
from fines to imprisonment.

Cyber Space and Cyber Law

What is Cyber Law?
There is no one exhaustive definition of the term "Cyber law". However, simply put, Cyber law
is a term which refers to all the legal and regulatory aspects of Internet and the World Wide Web.
Anything concerned with or related to, or emanating from, any legal aspects or issues concerning
any activity of netizens and others, in Cyberspace comes within the ambit of Cyber law.
In order to arrive at an acceptable definition of the term Cyber Law, we must first understand the
meaning of the term law. Simply put, law encompasses the rules of conduct:

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(1) That have been approved by the government, and

(2) Which are in force over a certain territory, and
(3) Which must be obeyed by all persons on that territory.
Violation of these rules will lead to government action such as imprisonment or fine or an order
to pay compensation.
The term cyber or cyberspace has today come to signify everything related to computers, the
Internet, websites, data, emails, networks, software, data storage devices (such as hard disks,
USB disks etc) and even electronic devices such as cell phones, ATM machines etc. Thus a
simplified definition of cyber law is that it is the law governing cyber space. Cyber law
encompasses laws relating to:
Cyber crime
Electronic commerce
Intellectual Property in as much as it applies to cyberspace
Data protection & privacy
Cyber crimes are unlawful acts where the computer is used either as a tool or a target or both.
The enormous growth in electronic commerce (e-commerce) and online share trading has led to a
phenomenal spurt in incidents of cyber crime.
Electronic signatures are used to authenticate electronic records. Digital signatures are one type
of electronic signature. Digital signatures satisfy three major legal requirements signer
authentication, message authentication and message integrity. The technology and efficiency of
digital signatures makes them more trustworthy than hand written signatures.
Intellectual property is refers to creations of the human mind e.g. a story, a song, a painting, a
design etc. The facets of intellectual property that relate to cyber space are covered by cyber
law. These include:
copyright law in relation to computer software, computer source code, websites, cell
phone content etc,
software and source code licenses
trademark law with relation to domain names, meta tags, mirroring, framing, linking etc
semiconductor law which relates to the protection of semiconductor integrated circuits
design and layouts,
Patent law in relation to computer hardware and software.
Data protection and privacy laws aim to achieve a fair balance between the privacy rights of
the individual and the interests of data controllers such as banks, hospitals, email service

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providers etc. These laws seek to address the challenges to privacy caused by collecting, storing
and transmitting data using new technologies.

Need for Cyber Law

There are various reasons why it is extremely difficult for conventional law to cope with
cyberspace. Some of these are discussed below.
Cyberspace is an intangible dimension that is impossible to govern and regulate using
conventional law.
Cyberspace has complete disrespect for jurisdictional boundaries. A person in India
could break into a banks electronic vault hosted on a computer in USA and transfer
millions of Rupees to another bank in Switzerland, all within minutes. All he would need
is a laptop computer and a cell phone.
Cyberspace handles gigantic traffic volumes every second. Billions of emails are
crisscrossing the globe even as we read this, millions of websites are being accessed
every minute and billions of dollars are electronically transferred around the world by
banks every day.
Cyberspace is absolutely open to participation by all. A ten year- old in Bhutan can
have a live chat session with an eight year- old in Bali without any regard for the distance
or the anonymity between them.
Cyberspace offers enormous potential for anonymity to its members. Readily available
encryption software and steganographic tools that seamlessly hide information within
image and sound files ensure the confidentiality of information exchanged between
cyber-citizens.
Cyberspace offers never-seen-before economic efficiency. Billions of dollars worth of
software can be traded over the Internet without the need for any government licenses,
shipping and handling charges and without paying any customs duty.
Electronic information has become the main object of cyber crime. It is characterized by
extreme mobility, which exceeds by far the mobility of persons, goods or other services.
International computer networks can transfer huge amounts of data around the globe in a
matter of seconds.
A software source code worth crores of rupees or a movie can be pirated across the
globe within hours of their release.
Theft of corporeal information (e.g. books, papers, CD ROMs, floppy disks) is easily
covered by traditional penal provisions. However, the problem begins when electronic
records are copied quickly, inconspicuously and often via telecommunication facilities.

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Here the original information, so to say, remains in the possession of the owner
and yet information gets stolen.

Cyber Crime
In Simple way we can say that cyber crime is unlawful acts wherein the computer is either a tool
or a target or both
Cyber crimes can involve criminal activities that are traditional in nature, such as theft, fraud,
forgery, defamation and mischief, all of which are subject to the Indian Penal Code. The abuse of
computers has also given birth to a gamut of new age crimes that are addressed by the
Information Technology Act, 2000. Cyber Crime regulated by Cyber Laws or Internet Laws.
We can categorize Cyber crimes in two ways

The Computer as a Target:-using a computer to attack other computers.

E.g. Hacking, Virus/Worm attacks, DOS attack etc.

The computer as a weapon:-using a computer to commit real world crimes.

E.g. Cyber Terrorism, IPR violations, Credit card frauds, EFT frauds,
Pornography etc.

Types of Cyber Crimes

Unauthorized access & Hacking:
Access means gaining entry into, instructing or communicating with the logical, arithmetical, or
memory function resources of a computer, computer system or computer network. Unauthorized
access would therefore mean any kind of access without the permission of either the rightful
owner or the person in charge of a computer, computer system or computer network.
Every act committed towards breaking into a computer and/or network is hacking. Hackers write
or use ready-made computer programs to attack the target computer. They possess the desire to
destruct and they get the kick out of such destruction. Some hackers hack for personal monetary
gains, such as to stealing the credit card information, transferring money from various bank
accounts to their own account followed by withdrawal of money. By hacking web server taking
control on another persons website called as web hijacking
Trojan Attack:
The program that act like something useful but do the things that are quiet damping. The
programs of this kind are called as Trojans. The name Trojan Horse is popular. Trojans come in

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two parts, a Client part and a Server part. When the victim (unknowingly) runs the server on its
machine, the attacker will then use the Client to connect to the Server and start using the Trojan.
TCP/IP protocol is the usual protocol type used for communications, but some functions of the
Trojans use the UDP protocol as well.
Virus and Worm attack:
A program that has capability to infect other programs and make copies of it and spread into
other programs is called virus. Programs that multiply like viruses but spread from computer to
computer are called as worms.
E-mail related crimes:
1. Email spoofing
Email spoofing refers to email that appears to have been originated from one source when it was
actually sent from another source. Please Read
2. Email Spamming
Email "spamming" refers to sending email to thousands and thousands of users - similar to a
chain letter.
3 Sending malicious codes through email
E-mails are used to send viruses, Trojans etc through emails as an attachment or by sending a
link of website which on visiting downloads malicious code.
4. Email bombing
E-mail "bombing" is characterized by abusers repeatedly sending an identical email message to a
particular address.
5. Sending threatening emails
6. Defamatory emails
7. Email frauds
Pornography:
The literal mining of the term 'Pornography' is describing or showing sexual acts in order to
cause sexual excitement through books, films, etc. This would include pornographic websites;
pornographic material produced using computers and use of internet to download and transmit
pornographic videos, pictures, photos, writings etc. Adult entertainment is largest industry on

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internet. There are more than 420 million individual pornographic WebPages today. Research
shows that 50% of the web-sites containing potentially illegal contents relating to child abuse
were Pay-Per-View. This indicates that abusive images of children over Internet have been
highly commercialized.
Pornography delivered over mobile phones is now a burgeoning business, driven by the
increase in sophisticated services that deliver video clips and streaming video, in addition to text
and images.
Forgery:
Counterfeit currency notes, postage and revenue stamps, mark sheets etc can be forged using
sophisticated computers, printers and scanners. Also impersonate another person is considered
forgery.
IPR Violations:
These include software piracy, copyright infringement, trademarks violations, theft of computer
source code, patent violations. etc.
Cyber Squatting- Domain names are also trademarks and protected by ICANNs domain dispute
resolution policy and also under trademark laws. Cyber Squatters registers domain name
identical to popular service providers domain so as to attract their users and get benefit from it.
Cyber Terrorism:
Targeted attacks on military installations, power plants, air traffic control, banks, trail traffic
control, telecommunication networks are the most likely targets. Others like police, medical, fire
and rescue systems etc.
Cyber terrorism is an attractive option for modern terrorists for several reasons.
1. It is cheaper than traditional terrorist methods.
2. Cyberterrorism is more anonymous than traditional terrorist methods.
3. The variety and number of targets are enormous.
4. Cyberterrorism can be conducted remotely, a feature that isespecially appealing to terrorists.
5. Cyberterrorism has the potential to affect directly a larger number of people.
Banking/Credit card Related crimes:

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In the corporate world, Internet hackers are continually looking for opportunities to compromise
a companys security in order to gain access to confidential banking and financial information.
Use of stolen card information or fake credit/debit cards is common.
Bank employee can grab money using programs to deduce small amount of money from all
customer accounts and adding it to own account also called as salami.
E-commerce/ Investment Frauds:
Sales and Investment frauds. An offering that uses false or fraudulent claims to solicit
investments or loans, or that provides for the purchase, use, or trade of forged or counterfeit
securities. Merchandise or services that were purchased or contracted by individuals online are
never delivered.
The fraud attributable to the misrepresentation of a product advertised for sale through an
Internet auction site or the non-delivery of products purchased through an Internet auction site.
Investors are enticed to invest in this fraudulent scheme by the promises of abnormally high
profits.
Sale of illegal articles:
This would include trade of narcotics, weapons and wildlife etc., by posting information on
websites, auction websites, and bulletin boards or simply by using email communication.
Research shows that number of people employed in this criminal area. Daily peoples receiving
so many emails with offer of banned or illegal products for sale.
Online gambling:
There are millions of websites hosted on servers abroad that offer online gambling. In fact, it is
believed that many of these websites are actually fronts for money laundering.
Defamation:
Defamation can be understood as the intentional infringement of another person's right to his
good name. Cyber Defamation occurs when defamation takes place with the help of computers
and / or the Internet. E.g. someone publishes defamatory matter about someone on a website or
sends e-mails containing defamatory information to all of that person's friends. Information
posted to a bulletin board can be accessed by anyone. This means that anyone can place Cyber
defamation is also called as Cyber smearing.
Cyber Stacking:
Cyber stalking involves following a persons movements across the Internet by posting messages
(sometimes threatening) on the bulletin boards frequented by the victim, entering the chat-rooms
frequented by the victim, constantly bombarding the victim with emails etc. In general, the

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harasser intends to cause emotional distress and has no legitimate purpose to his
communications.
Also there are persons who intentionally prey upon children. Especially with a teen they will let
the teen know that fully understand the feelings towards adult and in particular teen parents.
They earn teens trust and gradually seduce them into sexual or indecent acts. Pedophiles lure the
children by distributing pornographic material, and then they try to meet them for sex or to take
their nude photographs including their engagement in sexual positions.
Identity Theft:
Identity theft is the fastest growing crime in countries like America. Identity theft occurs when
someone appropriates another's personal information without their knowledge to commit theft or
fraud. Identity theft is a vehicle for perpetrating other types of fraud schemes.
Data diddling:
Data diddling involves changing data prior or during input into a computer. In other words,
information is changed from the way it should be entered by a person typing in the data, a virus
that changes data, the programmer of the database or application, or anyone else involved in the
process of having information stored in a computer file. It also includes automatic changing the
financial information for some time before processing and then restoring original information.
Theft of Internet Hours:
Unauthorized use of Internet hours paid for by another person. By gaining access to an
organizations telephone switchboard (PBX) individuals or criminal organizations can obtain
access to dial-in/dial-out circuits and then make their own calls or sell call time to third parties.
Additional forms of service theft include capturing 'calling card' details and on-selling calls
charged to the calling card account, and counterfeiting or illicit reprogramming of stored value
telephone cards.
Theft of computer system (Hardware):
This type of offence involves the theft of a computer, some part(s) of a computer or a peripheral
attached to the computer.
Physically damaging a computer system:
Physically damaging a computer or its peripherals either by shock, fire or excess electric supply
etc.
Breach of Privacy and Confidentiality:
Privacy

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Privacy refers to the right of an individual/s to determine when, how and to what extent his or
her personal data will be shared with others.
Breach of privacy means unauthorized use or distribution or disclosure of personal information
like medical records, sexual preferences, financial status etc.
Confidentiality
It means non disclosure of information to unauthorized or unwanted persons. In addition to
Personal information some other type of information which useful for business and leakage of
such information to other persons may cause damage to business or person, such information
should be protected.
Generally for protecting secrecy of such information, parties while sharing information forms an
agreement about he procedure of handling of information and to not to disclose such information
to third parties or use it in such a way that it will be disclosed to third parties. Many times party
or their employees leak such valuable information for monitory gains and causes breach of
contract of confidentiality.
Special techniques such as Social Engineering are commonly used to obtain confidential
information.

History of Cyber Law

The first comprehensive international effort dealing with the criminal law problems of computer
crime was initiated by the Organization for Economic Co-operation and Development (OECD)
From 1983 to 1985, an ad hoc committee of OECD discussed the possibilities of an international
harmonization of criminal laws in order to fight computer-related economic crime. In September
1985, the committee recommended that member countries consider the extent to which
knowingly committed acts in the field of computer-related abuse should be criminalized and
covered by national penal legislation.
In 1986, based on a comparative analysis of substantive law, OECD suggested that the following
list of acts could constitute a common denominator for the different approaches being taken by
member countries:
1. The input, alteration, erasure and/or suppression of computer data and/or computer programs
made willfully with the intent to commit an illegal transfer of funds or of another thing of value;
2. The input, alteration, erasure and/or suppression of computer data and/or computer programs
made willfully with the intent to commit a forgery;
3. The input, alteration, erasure and/or suppression of computer data and/or computer programs,
or other interference with computer systems, made willfully with the intent to hinder the
functioning of a computer and/or telecommunication system;

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4. The infringement of the exclusive right of the owner of a protected computer program with the
intent to exploit commercially the program and put in on the market;
5. The access to or the interception of a computer and/or telecommunication system made
knowingly and without the authorization of the person responsible for the system, either (i) by
infringement of security measures or (ii) for other dishonest or harmful intentions."
From 1985 to 1989, the Select Committee of Experts on Computer-Related Crime of the Council
of Europe discussed the legal problems of computer crime. The Select Committee and the
European Committee on Crime Problems prepared Recommendation No. R(89)9, which was
adopted by the Council on 13 September 1989.
The minimum list of offences for which uniform criminal policy on legislation concerning
computer-related crime had been achieved enumerates the following offences:
1. Computer fraud. The input, alteration, erasure or suppression of computer data or computer
programs, or other interference with the course of data processing that influences the result of
data processing, thereby causing economic or possessory loss of property of another person with
the intent of procuring an unlawful economic gain for himself or for another person;
2. Computer forgery. The input, alteration, erasure or suppression of computer data or computer
programs, or other interference with the course of data processing in a manner or under such
conditions, as prescribed by national law, that it would constitute the offence of forgery if it had
been committed with respect to a traditional object of such an offence;
3. Damage to computer data or computer programs. The erasure, damaging, deterioration or
suppression of computer data or computer programs without right;
4. Computer sabotage. The input, alteration, erasure or suppression of computer data or computer
programs, or other interference with computer systems, with the intent to hinder the functioning
of a computer or a telecommunications system;
5. Unauthorized access. The access without right to a computer system or network by infringing
security measures;
6. Unauthorized interception. The interception, made without right and by technical means, of
communications to, from and within a computer system or network;
7. Unauthorized reproduction of a protected computer program. The reproduction, distribution or
communication to the public without right of a computer program which is protected by law;
8. Unauthorized reproduction of a topography. The reproduction without right of a topography
protected by law, of a semiconductor product, or the commercial exploitation or the importation
for that purpose, done without right, of a topography or of a semiconductor product
manufactured by using the topography.

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The optional list relates to the following:

1. Alteration of computer data or computer programs. The alteration of computer data or
computer programs without right;
2. Computer espionage. The acquisition by improper means or the disclosure, transfer or use of a
trade or commercial secret without right or any other legal justification, with intent either to
cause economic loss to the person entitled to the secret or to obtain an unlawful economic
advantage for oneself or a third person;
3. Unauthorized use of a computer. The use of a computer system or network without right, that
either: (i) is made with the acceptance of significant risk of loss being caused to the person
entitled to use the system or harm to the system or its functioning, or (ii) is made with the intent
to cause loss to the person entitled to use the system or harm to the system or its functioning, or
(iii) causes loss to the person entitled to use the system or harm to the system or its functioning;
4. Unauthorized use of a protected computer program. The use without right of a computer
program which is protected by law and which has been reproduced without right, with the intent,
either to procure an unlawful economic gain for himself or for another person or to cause harm to
the holder of the right.
In 1990, the legal aspects of computer crime were also discussed by the United Nations,
particularly at the Eighth United Nations Congress on the Prevention of Crime and the Treatment
of Offenders, at Havana, as well as at the accompanying symposium on computer crime
organized by the Foundation for Responsible Computing. The Eighth United Nations Congress
adopted a resolution on computer-related crime. In its resolution 45/121, the General Assembly
welcomed the instruments and resolutions adopted by the Eighth Congress and invited
Governments to be guided by them in the formulation of appropriate legislation and policy
directives in accordance with the economic, social, legal, cultural and political circumstances of
each country.
The United Nations Commission on International Trade Law (UNCITRAL) formulated the
UNCITRAL Model Law on Electronic Commerce in 1996. The Model Law is intended to
facilitate the use of modern means of communication and storage of information. It is based on
the establishment of a functional equivalent in electronic media for paper-based concepts such as
"writing", "signature" and "original".
The Convention on Cybercrime of the Council of Europe is currently the only binding
international instrument on the issue of cyber crime. The convention serves as a guideline for
countries developing a comprehensive national legislation against Cybercrime. It also serves as a
framework for international cooperation between State Parties to the treaty.

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Being at the forefront of computer technology, and being the country that developed what is
today referred to as the Internet, the USA has been the global leader in developing laws relating
to cyber crime.
In 1977, Senator Abraham Ribicoff introduced the first Federal Systems Protection Act Bill.
This evolved into House Bill 5616 in 1986, which resulted in the Computer Fraud and Abuse Act
of 1987 established as Article 1030, Chapter 47 of Title 18 of Criminal Code. The US states of
Florida, Michigan, Colorado, Rhode Island and Arizona were the first to have computer crime
laws based on the first Ribicoff bill.
Some of the earlier relevant federal legislations include the Communications Fraud and Abuse
Act of 1986, the Electronic Communications Privacy Act of 1986, the Credit Card Fraud Act of
1984, the Federal Copyright Act of 1976 and the Wire Fraud Act. Also relevant are provisions of
the Electronic Fund Transfer Act (Title XX of Financial Institutions Regulatory and Interest Rate
Control Act of 1978) and the Federal Privacy Act of 1974 (codified in 5 USC Sect. 552a).
Some of the more recent US legislations relevant to cyber law are the 'No Electronic Theft' Act
(1997), the Digital Millennium Copyright Act (1998), the Internet Tax Freedom Act (1998), the
Child Online Protection Act (1998), the U.S. Trademark Cyber piracy Prevention Act (1999), the
Uniform Electronic Transactions Act (UETA) (1999), the Uniform Computer Information
Transactions Act (UCITA) (2000), the Electronic Signatures in Global & National Commerce
Act (E-Sign) (2000), the Childrens Internet Protection Act (2001) and the USA Patriot Act
(2001).
In China, the relevant laws are the Computer Information Network and Internet Security,
Protection and Management Regulations (1997), the Regulations on Computer Software
Protection (2002) and the Criminal Law of the People's Republic of China (1979) as revised in
1997.
In Australia the relevant law for cyber crime is the Cybercrime Act (2001) and the revised
Criminal Code Act (1995). For electronic commerce, the relevant law is the Electronic
Transactions Act 1999. Also relevant is The Commonwealths Privacy Act (1988).
In Canada, the relevant law for cyber crime is the Criminal Code as amended to include
computer crimes. For electronic commerce, the relevant law is the Electronic Transactions Act
(2001).
In Malaysia, the relevant law for cyber crime is the Computer Crimes Act (1997). For electronic
commerce, the relevant law is the Digital Signatures Act (1997).
In Singapore the relevant law for cyber crime is the Computer Misuse Act. For electronic
commerce, the relevant law is the Electronic Transactions Act (1998).
In United Arab Emirates (UAE), the relevant law for cyber crime is the Federal Law No. 2 of
2006 Combating Information Technology Crimes. For electronic commerce, the relevant law is
the Law No. 2 of 2002 of the Emirate of Dubai Electronic Transactions and Commerce Law.

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In the United Kingdom the relevant laws for cyber crime are the Forgery and Counterfeiting
Act (1981), Computer Misuse Act (1990), Data Protection Act (1998), Terrorism Act (2000),
Regulation of Investigatory Powers Act (2000), Anti-terrorism, Crime and Security Act (2001)
and Fraud Act (2006). For electronic commerce, the relevant laws are the Electronic
Communications Act (2000) and the Electronic Signatures Regulations (2002).
In Japan the relevant laws for cyber crime are the Unauthorized Computer Access Law (Law
No. 128 of 1999) and the Online Dating Site Regulating Act (June 2008).
In India, the primary legislation for cyber crimes as well as electronic commerce is the
Information Technology Act (2000) as amended by the Information Technology (Amendment)
Act, 2008. Also relevant for cyber crimes is the amended Indian Penal Code.

The Information Technology Act, 2000

The Information Technology Act, 2000, was thus passed as the Act No.21 of 2000, got President
assent on 9 June and was made effective from 17 October 2000.
The Act essentially deals with the following issues:.
Legal Recognition of Electronic Documents
Legal Recognition of Digital Signatures
Offenses and Contraventions
Justice Dispensation Systems for cyber crimes.

Amendment Act 2008

The need for an amendment a detailed one was felt for the I.T. Act almost from the year
2003- 04 itself. Major industry bodies were consulted and advisory groups were formed to go
into the perceived lacunae in the I.T. Act and comparing it with similar legislations in other
nations and to suggest recommendations. Such recommendations were analyzed and
subsequently taken up as a comprehensive Amendment Act and after considerable administrative
procedures, the consolidated amendment called the Information Technology Amendment Act
2008 was placed in the Parliament and passed without much debate, towards the end of 2008 (by
which time the Mumbai terrorist attack of 26 November 2008 had taken place). This Amendment
Act got the President assent on 5 Feb 2009 and was made effective from 27 October 2009.
Some of the notable features of the ITAA are as follows:
Focusing on data privacy
Focusing on Information Security
Defining cyber caf
Making digital signature technology neutral
Defining reasonable security practices to be followed by corporate
Redefining the role of intermediaries
Recognizing the role of Indian Computer Emergency Response Team
Inclusion of some additional cyber crimes like child pornography and cyber terrorism

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Authorizing an Inspector to investigate cyber offences (as against the DSP earlier)

Patent, Trademark & Copy Right

Introduction
Patents (A document granting an inventor sole rights to an invention) & Trademark (A distinctive
characteristic or attribute)
PATENTS - relate to inventions
TRADEMARKS - relate to product names or symbols

PATENT
A patent is a legally enforceable monopoly right, granted by a government, over a device,
substance, method or process that is new, inventive and useful.
A patent is a set of exclusive rights granted by a state (national government) to an inventor or
their assignee for a limited period of time in exchange for a public disclosure of an invention.
The exclusive right granted to a patentee in most countries is the right to prevent others from
making, using, selling, importing or distributing the patented invention without permission
through out the whole life of the patent.
The procedure for granting patents, the requirements placed on the patentee, and the extent
of the exclusive rights vary widely between countries according to national laws and
international agreements
Patents & Copyrights grant exclusive rights for a limited time after which the work or
invention enters the public domain.
Patent holders receive exclusive rights to make, use, or sell an invention, design, or
plant.
The patentee must file a detailed description of the invention which is published by
the government.
Public disclosure provides a source of technical information.
Some companies prefer to protect their inventions called Trade Secrets kept private to
maintain a companys competitive advantage.
TYPES OF PATENTS GRANTED TO INVENTORS

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Patent laws provide for granting of patents in three categories:

Utility Patents - new, useful, or improved processes, machines, articles of
manufacture, or compositions of matter
Design Patents - new, original, and ornamental designs for an article of manufacture
Plant Patents - inventions, discoveries, distinct and new varieties of plants; including
cultivated sports, newly found seedlings, and living organisms
LENGTH OF PATENTS
PATENTS ARE GRANTED TO THE TRUE INVENTOR FOR
UTILITY & PLANT PATENTS FOR 20 YEARS
DESIGN PATENTS FOR 14 YEARS

According to Law
A patent is not a right to practice or use the invention. Rather, a patent provides the right
to exclude others from making, using, selling, offering for sale, or importing the patented
invention for the term of the patent
Patents can generally only be enforced through civil lawsuits (for example, for a U.S.
patent, by an action for patent infringement in a United States federal court), although
some countries (such as France and Austria) have criminal penalties for wanton
infringement
PATENT APPLICATION
A patent is requested by filing a written application at the relevant patent office
The person or company filing the application is referred to as "the applicant". The
applicant may be the inventor or its assignee
The application contains a description of how to make and use the invention that must
provide sufficient detail for a person skilled in the art (i.e., the relevant area of
technology) to make and use the invention.
In some countries there are requirements for providing specific information such as the
usefulness of the invention, the best mode of performing the invention known to the
inventor, or the technical problem or problems solved by the invention.
Grant of Patent

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 Most patent offices examine the application for compliance with these requirements. If
the application does not comply, objections are communicated to the applicant or their
patent agent or attorney and respond to the objections to bring the application into
compliance are usually provided.
Once granted the patent is subject in most countries to renewal fees to keep the patent in
force. These fees are generally payable on a yearly basis, although the US is a notable
exception.
PARTS OF THE PATENT
Typical patent includes:
Drawings
Brief Abstract or Summary
Detailed Description of How to Make or Use the Invention
Claims - phrases that precisely define the invention and outline the boundaries of the
claimed invention (prevents infringement)
Cost & Criticism
The costs of preparing and filing a patent application vary from one jurisdiction to
another, and may also be dependent upon the type and complexity of the invention, and
on the type of patent.
In principle, patents have been criticized as a restraint of trade, for conferring a negative
right upon a patent owner, permitting them to exclude competitors from using or
exploiting the invention, even if the competitor subsequently develops the same invention
independently
Patents have been criticized as inconsistent with free trade
Pharmaceutical patents prevent generic alternatives to enter the market until the patent
expire, and thus maintains high prices for medication.
THE PATENTS ACT, 1970
A Patent is an intellectual property right relating to inventions and is the grant of exclusive
right, for limited period provided by the Government to the patentee in exchange of full
disclosure of his invention for excluding others, from making, using, selling, importing the
patented product or process producing that product for those purposes
A patent is a Monopoly Right granted

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 For an invention
By the government
To the inventor or his assignee
For a limited period
It is valid within the country of grant

INVENTION
Invention is a successful technical solution to a technical problem. To be granted a Patent, An
invention must be new, non obvious and capable of industrial application.
Different Ways of Dealing with an Invention
Make it public for free use by public (like publishing in the journal)
Work the invention in SECRECY without PATENTING it (like coco-cola composition)
Work the invention OPENLY without PATENTING it (directly put it in the market)
EXPLOIT the invention on the basis of a PATENT (like Rank Xerox)
What Does Patent System Do?
It encourages RESEARCH.
Induces an inventor to disclose his inventions instead of keeping them as secret.
Provides inducement for capital investment encouraging technological development.
It encourages establishment of new industries.
Advantages of a Patent to the Public
KNOWLEDGE OF INVENTION ADDS TO SCIENTIFIC BACKGROUND
FORMING BASE FOR FURTHER RESEACH
REASONABLE ASSURANCE FOR COMMERCIALIZATION
PATENT- OPEN TO PUBLIC FOR USE AFTER ITS TERM EXPIRES

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Benefits of a Patent to Patent Holder

With a patent covering the invention, you can better protect your market position.
The very existence of a patent may discourage others from copying your invention
add value to the invention
patent may also aid in the commercialization of a product
Governing laws
Nation forms a patent office
World Trade Organization (WTO) being particularly active in this area
Paris Convention for the Protection of Industrial Property, initially signed in 1883.

TRADEMARK
A trademark or trade mark is a distinctive sign or indicator used by an individual, business
organization, or other legal entity to identify the products or services, and to distinguish its
products or services from those of other entities
Symbols
(for an Unregistered trade mark, that is, a mark used to promote or brand goods)
(for an unregistered service mark, that is, a mark used to promote or brand services)
(for a registered trademark)
RIGHTS IN A MARK
Rights arise from either:
RIGHT TO USE - actual use of a mark in commerce
RIGHT TO REGISTER - The registration symbol is used when the mark is
registered and signifies ownership and all the commercial and legal benefits
that may derive by virtue of ownership.
The owner of a registered trademark may commence legal proceedings for trademark
infringement to prevent unauthorized use of that trademark
Dilution

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A trademark is diluted when the use of similar or identical trademarks in other noncompeting markets means that the trademark in and of itself will lose its capacity to signify a
single source.
In other words, unlike ordinary trademark law, dilution protection extends to trademark uses
that do not confuse consumers regarding who has made a product
Nomenclature, classification & codification:
Unique
Non Prohibited words
Non Registered words
Ambiguity in phonetics (Speech)
Length
Color
Background
Trademark font
Logo is the Name
Function of a Trademark
Identification of goods and services.
Guarantees of unchanged quality.
Advertise goods / services.
Creation of image for goods /services.
Method to distinguish the goods of a merchant from those of others
Features of Trademark Act, 1999
Trademark for services
Period for registration
Procedure are simplified

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Types of trademark
Product trademark
Service trademark
Certification trademark
Collective trademark
Different Types Available for Adoption
Any name (like APPLE).
An invented word
Letters or numerals
Devices or symbols
Combination of colors
Shape of goods

Intellectual Property Rights

Intellectual property is refers to creations of the human mind e.g. a story, a song, a painting, a
design etc. The facets of intellectual property that relate to cyber space are covered by cyber
law. These include:
copyright law in relation to computer software, computer source code, websites, cell
phone content etc,
software and source code licenses
trademark law with relation to domain names, meta tags, mirroring, framing, linking etc
semiconductor law which relates to the protection of semiconductor integrated circuits
design and layouts,
Patent law in relation to computer hardware and software.
According to the Center for Intellectual Property Rights in India, the major Indian
Intellectual properties typically fall into 4 major buckets; Copy Right, Patent, Trademark and
Design Protection.

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Indian Software Intellectual Properties Rights

World Intellectual Property Organization defines Intellectual Property as legal rights that
result from intellectual activity.
The intellectual activity may include any activity in the industrial, scientific, literary and
artistic fields.
According to the Center for Intellectual Property Rights in India, the major Indian
Intellectual properties typically fall into 4 major buckets; Copy Right, Patent,
Trademark and Design Protection.
In India, the Intellectual Property Rights (IPR) of computer software is covered under the
Copyright Law.
Accordingly, the copyright of computer software is protected under the provisions of
Indian Copyright Act 1957.
Major changes to Indian Copyright Law were introduced in 1994 and came into effect
from 10 May 1995. These changes or amendments made the Indian Copyright law one of
the toughest in the world.
The amendments to the Copyright Act introduced in June 1994 were, in themselves, a
landmark in the India's copyright arena. For the first time in India, the Copyright Law
clearly explained:
The rights of a copyright holder
Position on rentals of software
The rights of the user to make backup copies

Since most software is easy to duplicate, and the copy is usually as good as original, the
Copyright Act was needed. Some of the key aspects of the law are:
According to section 14 of this Act, it is illegal to make or distribute copies of
copyrighted software without proper or specific authorization.
The violator can be tried under both civil and criminal law.
A civil and criminal action may be instituted for injunction, actual damages (including
violator's profits) or statutory damages per infringement etc.
Heavy punishment and fines for infringement of software copyright.
Section 63 B stipulates a minimum jail term of 7 days, which can be extended up to 3
years.

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Company Act
Company Law 1956
What is a company?
A Company is a voluntary association of persons formed for the purpose of doing
business, having a distinct name and limited liability.
They can be incorporated under the Companies Act (it may be any type of company)

Corporations enacted under special enactments ( Even those which are incorporated
outside India)
Any other body corporate notified by the central government

Features of a company
A company is considered as a separate legal entity from its members, which can conduct
business with all powers to contract.
Independent corporate entity (Saloman V. Saloman) It is independent of its members and
shareholders
Limited Liability ( either by share or guarantee)
It can own property, separate from its members. The property is vested with the company,
as it is a body corporate.
The income of the members are different from the income of the company ( Income
received by the members as dividends cannot be same as that of the company)
Perpetual succession: Death of the members is not the death of the company until it is
wound up
As it is a legal entity or a juristic person or artificial person it can sue and be sued
The company enjoys rights and liabilities which are not as that of the members of the
company

Lifting of Corporate Veil

As the company is a separate legal entity, is has been provided with a veil, compared to
that of individuals who are managing the company.

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 But if the court feels that such veil has to been used for any wrongful purpose, the court
lifts the corporate veil and makes the individual liable for such acts which they should not
have done or doing in the name of the company

Circumstances to lift the corporate veil

The corporate veil can be lifted either under the
Statutory provisions or
Judicial interpretations
The statutory provisions are provided under the Companies Act, 1956. The other circumstances
are decided through judicial interpretations, which are based on facts of each case as per the
decisions of the court

Statutory circumstances for lifting the corporate veil

Reduction in membership- Less than seven in public company and less than two if it is a
private company
Failure to refund application money- After the issue of shares to the public, the company
has to pay back the initial payment to the unsuccessful applicants (SEBI Guidelines- 130
Days), if they fail to do so, the corporate veil can be lifted.
Mis-description of companys name- While signing a contract if the companys name is
not properly described, then the corporate veil can be lifted.
Misrepresentation in the prospectus- (Derry Vs Peek) In case of misrepresentation, the
promoters, directors and every other person responsible in this matter can be held liable.
Fraudulent Conduct- In case the company is carried on with intent to defraud the
creditors, and then the court may lift the corporate veil.
Holding and subsidiary companies- A subsidiary has a distinct legal entity from the
holding company other than in a few circumstances, so if otherwise shown, the court may
under the Act, lift the corporate veil of the subsidiary company.

Circumstances to lift the corporate veil through judicial interpretations

When the court feels that there are no statutory provisions which can pierce the corporate
veil, and the identity of the company is not the one which has to exist, and the court has
to interfere in order to avoid the activities that are done in the name of the company by
persons managing them, it has been empowered to do so.
The circumstances are..
Protection of Revenue- Whenever a company uses its name for the purpose of tax evasion
or to circumvent tax obligations

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 Prevention of fraud or Improper conduct- The incorporation has been used for fraudulent
purpose, like defrauding the creditors, defeating the purpose of law etc..
Determination of the character of the company- Enemy Company or all the members
being the citizens of the enemy country. (Daimler Co. Ltd V. Continental Tyre & Rubber
Co. Ltd)

Types of Companies
Limited Company ( Limited by share or by guarantee)
Unlimited company
Government Company
Foreign Company
Private Company
Public Company
Limited Company
Limited by Shares- In such companies, the liability are only the amount which remains
unpaid on the shares.
Limited by Guarantee not having share capital-In this type of companies the
memorandum of Association limits the members liability. It will be based on the
undertaking that has been given in MOA for their contribution in case of a winding up.
Limited by guarantee having share capital- In such cases, the liability would be based on
the MOA towards the guaranteed amount and the remaining would be from the unpaid
sums of the shares held by the person concerned.
Unlimited Company
There is no limit on the liability of the members. The liability in such cases would extend
to the whole amount of the companys debts and liabilities.
Here the members cannot be directly sued by the creditors.
When the company is wound up, the official liquidator will call upon the members to
discharge the liability.
The details of the number of members with which the company is registered and the
amount of share capital has to be stated in the Articles of Association (AOA).
Government Company
When 51% of the paid up share capital is held by the government.

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 The share can be held by the central government or state government. Partly by central
and partly by two or more governments.
As the legal status of the company does not change by being a government company,
there are no special privileges given to them.
Foreign Company
A company incorporated outside India, but having a place of business in India.
If it does not have a place of business in India but only has agents in India it cannot be
considered to be foreign company.
Private Company
A company which has a minimum of two persons. They have to subscribe to the MOA
and AOA
It should be have a minimum paid up capital of 1 lakh or more as prescribed by the
article.
The maximum number of members to be fifty ( it does not include members who are
employed in the company, persons who were formerly employed)
The rights to transfer the shares are restricted in the Private companies
It prohibits acceptance of deposits from persons other than its members, directors or their
relatives.
If two or more are holding one or more shares in a company jointly, they shall for the
purpose of this definition, be treated as a single member.
As there is no public accountability like a public company, there is no rigorous
surveillance.
Exemption and Privileges of a Private company
It can have a minimum of two members.
It can commence business immediately after obtaining certificate of incorporation.
It need not issue prospectus or statement in lieu of prospectus.
It can have a minimum of 2 directors.
It need not hold statutory meeting.
Public Company

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 A Public company means a company which is not a private company and which has a

minimum paid-up capital of Rs 5 lakh or such higher paid-up capital, as may be

prescribed
No restrictions on the transfer of shares
Minimum number of members must be seven and maximum there is no limit.

Conversion of Company
The Act provides for conversion of public company into a private company and vice
versa
A private company is converted into a public company either by default or by choice in
compliance with the statutory requirements.
Once the action for conversion takes place then, a petition can be filed with the central
government with the necessary documents for its decision on the matter of conversion

Registration and Incorporation

Association of persons or partnership or more than 20 members ( 10 in case of banking)
can register to form a company under the Companies Act, 1956
If they do not register they can be considered to be illegal association. The contract
entered into by this illegal association is void and cannot be validated. Its illegality will
not affect its tax liability or its chargeability
The certification of incorporation is the conclusive evidence, that all the requirements for
the registration have been complied with the

Incorporation of a Company
The persons who conceive an idea of a company decide and do the necessary work for
formation of a company is called the promoters of the Company.
The Promoters are the persons who decide on the formation of the company.
The promoters of a company stand undoubtedly in a fiduciary position though they are
not the agent or a trustee of a company. They are the ones who create and mould the
company.
They may have to enter into pre-incorporation contracts, which can be validated after the
incorporation of the company for obtaining certificate of incorporation.

Promoters
They can be remunerated for their services, but they have to enter into a contract before
the incorporation of the company through a pre incorporation of the company

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 They will usually act as nominees or as the first directors of the company
They enter into contracts after the incorporation and before the commencement of
business.
But they need not compulsorily participate in the formation of the company.
Sometimes, a few persons may only act as professionals who help the promoters on
behalf of the company... Like the solicitor, chartered accountant etc.. and get paid for
their services.
The promoters in most of the cases decide as to What is the type of a company to be
formed?
In India promoters generally secure the management of the company that is formed and
have a controlling interest in the companys management
Legal Position of the Promoters
They cannot make profit at the expense of the company, which they have promoted
without the knowledge and consent of the company. In case they do so , they may be
compelled to account for it.
They cannot sell their property to the company at a profit unless all the material facts are
disclosed at the independent board of directors or the shareholders of the company.
If they do so, the company may repudiate the contract of sale or confirm the sale after
recovering the profit made by the promoter.
Promoters have the following liabilities under the Companies Act, 1956
They can be liable for non compliance of the provisions of the Act
Severe penalty may be imposed
The court may suspend the promoter from taking part
company

in the management of the

Liable for any untrue statement in the prospectus to the person who has subscribed for
any shares or debentures on the faith of the prospectus
The liabilities are .
a) To set aside the allotment of shares,
b) Sued for damages,
c) Sued for compensation
d) Criminal proceedings

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The requirements are as follows

Application for availability of name
Preparation of MOA and AOA
Selection and finalization of MOA and AOA- Its printing, stamping and signing
Preparation of other necessary documents
Filling of the required documents for Registration to obtain certificate of incorporation
and Certificate of commencement of business

Memorandum of Association
It is the charter of the company
It contains the fundamental conditions upon which the company can be incorporated
It contains the objects of the companys formation
The company has to act within objects specified in the MOA
It defines as well as confines the powers of the company
Anything done beyond the objects specified in the MOA will be ultra vires. Their
transactions will be null and void
The outsider have to transact looking into the MOA
Conditions of the MOA
It should be printed
Divided into paragraph and numbers consecutively
Signed by at least seven persons or two in case of public and private company
respectively.
The signature should be in the presence of a witness, who will have to attest the signature
Members have to take shares and write the number of shares taken with full address
The MOA of the Limited Company
The name of the company with limited as the last word
The name of the state where the registered office of the company is to be situated
The objects of the company stating the Main objects and the other objects

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 The declaration about the liability of the members is limited ( limited by shares or
guarantee)
The amount of the authorized share capital, divided into shares of fixed amounts.
The Compulsory Clauses in MOA
The Name Clause it decides on the name of the company based on the capital involved
The Registered Office Clause- where it has registered its head office and other branch
office ( The registered office can be changed with the permission of the ROC)
The Object Clause- Main object, ancillary object and the other objects of the company
are clearly specified (Ashbury Railway Carriage Co V. Riche). The applicable doctrine
here is the Doctrine of Ultra Vires beyond the powers of the company (opposed to
Intra Vires)
The Liability Clause- What is the liability of its members.. limited by shares or guarantee
or unlimited, there can be alteration in the liability clause
The Capital Clause - The amount of the nominal capital of the company, number of
shares in which it is to be divided alteration of the capital clause etc
The Association or Subscription clause- Where the subscribers to the MOA declare that
they respectively agree to take the number of the shares in the capital. It has to have the
following:
a) They have to sign in the presence of two witnesses, who attest the signatures,
b) The subscriber to take at least one share.
c) After the name the subscriber has to write the number of shares taken

Doctrine of Ultra Vires

The powers exercisable by the company are to be confined to the objects specified in the
MOA.
So it is better to define and include the provisions regarding the acquiring of business,
sharing of profits, promoting company and other financial, gifts , political party funds etc
If the company acts beyond the powers or the objects of the company that is specified in
the MOA, the acts are considered to be of ultra vires. Even if it is ratified by the all the
members, the action is considered to be ineffective.
Even the charitable contributions have to be based on the object clause. ( A
Lakshmanaswami Mudaliar V. LIC of India)
The consequences of the ultra vires transactions are as follows:

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a) Injunction
b) Directors personal liability.
c) If a property has been purchased and it is an ultra vires act, the company can have a right
over that property.
d) The doctrine to be used exclusively for the companies interest.
e) But the others cannot use this doctrine as a tool to attack the company

Articles of Association
It is the companys bye- laws or rules to govern the management of the company for its
internal affairs and the conduct of its business.
AOA defines the powers of its officers and also establishes a contract between the
company and the members and between the members inter se
It can be originally framed and altered by the company under previous or existing
provisions of law.
AOA plays a subsidiary part to the MOA
Anything done beyond the AOA will be considered to be irregular and may be ratified by
the shareholders.
The content of the AOA may differ from company to company as the Act has not
specified any specific provisions
Flexibility is allowed to the persons who form the company to adopt the AOA within the
requirements of the company law
The AOA will have to be conversant with the MOA, as they are contemporaneous
documents to be read together.
Any ambiguity and uncertainty in one of them may be removed by reference to the other.
Contents of the AOA may be as follows:
Share capital
Lien on shares
Calls on shares
Transfer and transmission of shares
Forfeiture of the shares
Surrender of the shares

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 General meetings
Alteration of the capital
Directors Etc...
Dividends and reserves
Account and audit
Borrowing powers
Winding up
Adoption of the preliminary contracts etc.

Doctrine of Constructive notice and Indoor Management

Persons dealing with the company have to satisfy themselves. But need not know the
internal irregularity. Royal British Bank V. Turquand (Turquand Rule) Directors issuing a
bond.
The doctrine of Constructive notice can be invoked by the company to operate against the
persons dealing with the company.
The outsider cannot embark, but only can acquaint upon the MOA and AOA. (Official
Liquidator, Manasube &Co Pvt Lid V. Commissioner of Police)
Exceptions to the Doctrine of where the outsider cannot claim the relief on the grounds of
Indoor management
Knowledge of irregularity
No knowledge of articles
Negligence
Forgery
Non- Existent authority of the company

Raising of Capital from Public

The companies can raise money by offering securities for sale to the public.
They can invite the public to buy shares, which is known as public issue.
For this purpose the company may issue a prospectus, which may include a notice
circular, advertisement or other documents which are issued to invite public deposits.

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Prospectus
It is an invitation issued to the public to purchase or subscribe shares or debentures of the
company.
Every prospectus must be dated. The date of publication and the date of issue must be
specifically stated in the prospectus.
The golden rule of the prospectus is that every detail has to be given in strict and
scrupulous accuracy. The material facts given in the prospectus are presumed to be true.
( New Brunswick and Canada Railway. Land & Co. Vs. Muggerridge).

Various forms in which the prospectus can be issued.

Shelf Prospectus: Prospectus is normally issued by financial institution or bank for one or
more issues of the securities or class of securities mentioned in the prospectus.
There can be deemed prospectus also if it is issued by the issue house
Information Memorandum: It means a process, which is undertaken prior to the filing
of prospectus.
Even an Advertisement , that the shares are available is considered to be prospectus
Contents of the prospectus
General information
Capital structure
Terms of present issue
Management and projects
Management and perception of risk factor
It is compulsory to register the prospectus with the Registrar
Civil Liability for Misstatements In case of any untrue statement in the prospectus
The liability will be on the director of the company , whose name was written during the
time of issue
The persons who have authorized their names to be theirs in the prospectus to be named
as directors
Promoter

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 Every person including the person who is an expert and has authorized his name to be
issued with the prospectus
Remedies for misstatements in the prospectus
Relying on the prospectus if any person buys shares, the person may
Rescind the contract (only when there is misrepresentation relating to the material facts.
The rescission has to be done within a reasonable time
Claim damages- it can be claimed from the directors, promoters or other persons who has
authorized their name to be written during the issue of the prospectus

Share Capital
Share: Share is defined as an interest having a money value and made up of diverse
rights specified under the articles of association.
Share capital: Share capital means the capital raised by the company by issue of shares.
A share is a share in the share capital of the company including the stock.
Share gives a right to participate in the profits of the company, or a share in the assets
when the company is going to be wound up.
Other features of a share
A share is not a negotiable instrument, but it is a movable property.
It is also considered to be goods under the Sale of Goods Act, 1930.
The company has to issue the share certificate.
It is subject to stamp duty.
The Call on Shares is a demand made for payment of price of the shares allotted to the
members by the Board of Directors in accordance with the Articles of Association.
The call may be for full amount or part of it.
Share Certificate and Share Warrant
Share Certificate: The Share Certificate is a document issued by the company and is
prima facie evidence to show that the person named therein is the holder ( title) of the
specified number of shares stated therein.
Share certificate is issued by the company to the (share holder) allotted of shares.

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The company has to issue within 3 months from the date of allotment. In case of default
the allotted may approach the central government

Share Warrant: The share warrant is a bearer document issued by the company under its
common seal. As share warrant is a negotiable instrument, it is transferred by
endorsement and by mere delivery like any other negotiable instrument.
Kinds of shares
Preference shares- It can be further classified as
Participating preferential shares.
Cumulative preferential shares
Non Cumulative preferential shares
Redeemable Shares and Irredeemable Shares
Equity or ordinary shares
Shares at premium
Shares at discount
Bonus shares
Right shares
Transfer and Transmission of shares
AOA provides for the procedure of transfer of shares. It is a voluntary action of the
shareholder.
It can be made even by a blank transfer In such cases the transferor only signs the
transfer form without making any other entries.
In case it is a forged transfer, the transferors signature is forged on the share transfer
instrument.
Transmission of shares is by operation of law, e.g. by death, insolvency of the shareholder
etc.
Buy-Back of Securities
The company may purchase its securities back and it is popularly known as buy back of
shares
To do so, the company has to be authorized under the AOA.

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 The company has to comply with the provisions of the Company law to buy back its
securities.
The listed company has to seek permission from the SEBI (SERA 1998). Specifically for
the private company etc, the Buy Back Securities Rules1999 will be applicable.

Dividends
The sharing of profits in the going concerns and the distribution of the assets after the
winding up can be called as dividends
It will be distributed among the shares holders
The dividends can be declared and paid out of Current profits Reserves Monies provided

by the government and the depreciation as provided by the companies. It can be paid after
presenting the balance sheet and profit and loss account in the AGM
Other than the equity shareholders, even the preferential shareholders can get the
dividends. Rather they are the first ones to get the dividends.
Dividends are to be only in cash, if otherwise specified in the AOA.
In exceptional cases, even the central government may permit the payment of interest to
shareholders, even though there is no profit.

Directors
The Legal Status of the director
The director occupies the position of a:
As a Trustee- In relation to the company
As Agents- When they act o n behalf of the company
As Managing Partner-As they are entrusted with the responsibility of the company
Qualification Shares
In case there is requirement as per the
AOA for the director is bound to buy qualification
shares. If acts are done by the director prior to he or she being disqualified, the acts are
considered to be valid.
Disqualifications
As per the company law, the following persons are disqualified from been appointed as a
director:
Unsound mind
An undercharged insolvent

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 A person who is convicted by the court

Who has applied for being adjudged insolvent
Not paid for the call on shares
Persons who are already directors in maximum number of companies as per the
provisions of the Act or
Any other person who has been disqualified by the court for any other reason

Appointment of Directors
The appointment can sometimes be by based on the proportional representation like
minority shareholders.
There can be alternate directors, additional directors, casual directors.
The third parties can appoint the directors
Other than the shareholders and the first directors ,the central government and
NCLT may also appoint directors.
Duties and Liabilities of the Directors
Fiduciary Duties
To act honestly and with good faith
Not to use confidential information of the company for their own purpose
Duty of Care and to act reasonably while acting for the company
Statutory Duties
Not to contract with company, where he/she or his relative has an interest in the
contract
where he/she has a interest, they need to inform the board or seek prior approval
while entering into contract, otherwise the contract is voidable
Duty to attend and convene meetings
Duty not to delegate
The directors liabilities
The liability of the directors can be either civil or criminal.

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 If provided in the MOA, the liability may be unlimited, for a limited company, otherwise
it may be altered.
Liability may be for breach of fiduciary duties
The directors are personally liable for the following:
a) Ultra vires acts
b) Malafide acts
c) Negligent acts
d) Liability for the acts of third parties
Criminal Liability
Liability of the director for any untrue statement in the prospectus
Inviting any deposits in contravention of the law
Liability for false advertisement
Failure to repay the application money, which was excess
Concealing the names of the creditors
Failure to lay the balance sheet.
Failure to provide information to the auditor etc

Company Meetings
A meeting may be convened by the director, requisitions, or the NCLT
Notice to be given by the secretary after the time and place have been fixed by the
directors
Even the shareholders can call a meeting as an extraordinary general meeting (EGM)
The NCLT can call an Annual General Meeting (AGM)
Classification of Meetings
Shareholders meetings
a) Statutory meetings ( which happens only once in the lifetime of the company)
b) EGM- Convened to transact some special or important decision to be taken
c) Class meetings- This is the meeting of the shareholders- which is convened by the class
of shareholders based on the kind of shares they hold.

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 AGM-it can be conducted based on the provisions given in the Articles or by passing a
resolution in one AGM for the subsequent AGMs
Board Meetings- This is conducted for the smooth running of the company and for
collectively taking the decisions. The meetings may be conducted to call on shares, issue
debentures, borrow money, to make loans, To invest the funds etc
How to conduct meeting?
Written notice to be given
Notice to be issued under the authority of the company
In case of failure to give a notice, the persons concerned may be punished with fine and
the proceedings of the meeting will be rendered invalid.

Resolution
A motion when passed is called a resolution.
The resolution in the General body meetings can be an ordinary resolution (Simple

majority) and special resolution.

Special resolution- (notice of 21 days to be given) the notice has to specify the purpose.
The number of votes to be cast in favor of the resolution is to be three times the number
vote cast against.

Quorum and proxy

The minimum members to be present must be according to the provisions of the law.
Public company ( minimum Five) and private company (minimum of 2)
The quorum must be those members who are eligible to vote in respect of the agenda of
the meeting.
If the quorum is not present within half an hour from the appointed time, either the
meeting stands dissolved or may be adjourned in the same day next week or any other as
may be determined by the directors
A person in case of being incapable to attend a meeting and who is eligible to vote may
appoint a proxy in writing to attend the meeting of the member and vote on his or her
behalf. The proxy can only vote and cannot participate in the discussions.

Compromise, Reconstruction and Arrangement

Reconstruction includes reorganization, arrangement and amalgamation.
Arrangement includes all forms of reconstructing.

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 It has been broadly defined as all forms of capital reorganizations either by consolidation
of shares or division of shares or both
Reorganization and arrangement are done when there is only one company is involved
Reconstruction can be effectively done through a compromise or arrangement.
To do so the meeting or the members or the separate class of the shareholders has to be
conducted or in case of winding up the meeting to be called by the liquidator
Even a banking company (sick bank) may be reconstructed or amalgamated by the
central government on the basis of the Reserve Banks application for a fixed period of
time.
The reconstruction or amalgamation can be done with any other banking institution.

Scheme to be approved
Any kind of scheme to be accepted, it has to get approval from the members or the
members may reject the scheme.
After the scheme is approved by voting, the court has to sanction the scheme or reject, if
it is against the public interest or if it feels that the scheme is not beneficial.
The legal provisions vary based the mode of scheme adopted by the company.

Modes of Reconstruction or Amalgamation

By sale of undertaking- it can be the whole or part of sale ( the court will decide)
By sale of shares (Maximum number of companies adopts this scheme- In such schemes
the shares are sold and registered in the name of the purchasing company or on its behalf.
The shareholders selling the shares are compensated either by cash or with the shares of
the acquiring company.
Amalgamation can take place even for the sake of Public interest by the central
government. In such cases, it will be notified in the official gazette.

Mergers, Acquisitions and Takeover of companies

Merger connotes union of two or more commercial interests, corporations, undertakings,
bodies or any other entities.
Fusion of two or more corporations by the transfer of all property to a single corporation.
It is used as a synonym for amalgamation. Even the Act makes no distinction between
merger and amalgamation.
The changing of legal entity after mergers and acquisitions

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 In a merger- one of the companies loses its corporate existence and the survivor company
acquires the assets as well as the liabilities of the merger company.
In acquisition, it is acquiring the ownership in the property is the purchase of a
controlling interest in the share capital of another existing company. It is an act of
acquiring asset and management of the company.

Winding up
It is the process whereby the life of the company is ended and its property is administered
for the benefit of its creditors and members.
During this process a liquidator is appointed to take control of the company. The
liquidator will be responsible for the assets, debts and final distribution of the surplus to
the members.
It is the process for discharge of liabilities and returning the surplus to those who are
entitled for it.
But even a company which is making profit can be wound up is the special feature of
winding up, which is different from that of the process of insolvency.

How can be company be wound up?

By passing a special resolution
If there is a default in holding the statutory meeting
Failure to commence the business
If there is reduction in the membership of the minimum number of members as per the
statutory requirement
If it not able to pay its debts
Modes of winding up
Compulsory winding up under the supervision of the court
(Reasons as stated in the previous slide)
Compulsory winding up may happen for

just and equitable reasons also.

The just and equitable grounds can be like loss of substratum, where there is dead lock in the
management, etc

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 Voluntary winding up ( Members voluntary winding up and creditors voluntary winding

up)
Voluntary winding up subject to the supervision of the court.
Winding up procedure
A petition for winding up has to be filed by the concerned person to the prescribed
authority
Liquidator to be appointed to safeguard the property of the company
Then the court will hear the matter and pass necessary orders. It can dismiss the petition
or pass an order of winding up
Dissolution of the company
When the company ceases to exist as a corporate entity for all practical purposes it is said
to have been dissolved.
Dissolution has to be declared by the court.
It will not be extinct and will be kept under suspension for 2 Years.
The order has to be forwarded by the liquidator to the Registrar of the Companies within
30 days from the date of the order of dissolution.

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