Business Law

Business Law

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Q1. Define a contract and explain the essential elements of a valid contract.

Ans. The word "contract" derives from Latin words meaning "to draw together."
Essentially, a contract does just that--it draws together the essential elements of an
oral or written agreement. Unlike a gratuitous promise or a non-binding agreement, a
valid contract is recognized at law and a party can be sued for not fulfilling the terms
of the contract. As a result, contracts can just as easily draw people together into the
courtroom.
The very fact that the word "contract" comes from Latin reflects that people have
been negotiating for a very long time. As a result, the study of contracts is quite
detailed. Law students often spend two years studying the principles of contracts.
Some lawyers devote their practices to the interpretation, enforcement, and
dissolution of contracts. Although a short article can hardly explore the intricacies of
contracts, some generalities about contracts can be outlined.
Essentials of Valid Contracts
In determining whether or not a valid contract exists, courts usually look to three
factors:
1. Was there an offer and an acceptance?
2. Was there consideration for the contract?
3. Are there any defenses to the contract?
Offer and Acceptance
An offer from a person reflects a willingness to enter into a contract on the basis of
the offered terms (such as, "I will sell you this book for $4.00"). The more definite and
certain a statement is, the more likely that a court will consider it an offer, rather
than just negotiations that may lead to an offer ("Can I buy this painting for $50"
versus "What's the lowest amount you will take for this painting?").
An acceptance is another party's agreement to the terms of the offer. Like an offer,
an acceptance should be definite and can be as simple as the word "yes." In addition,
the method of acceptance must usually be in the same manner of the offer or in an
agreed upon manner. For example, a person offering ties for sale on the street would
not expect an acceptance by telegram several days later.
Once a person receives notice that an offer is no longer valid, it is usually too late to
accept the offer. A common example is when an item for sale is sold out. However,
many lawsuits hinge on whether an offer was revoked timely and properly.
Consideration
Consideration simply means that each party to the contract is giving up something in
return for obtaining something else. For example, if a new car part costs $80, one
person is giving up $80 while gaining the car part and the other person is giving up
the car part to obtain $80. Consideration is often referred to as a "bargained-forexchange" and is essential to a valid contract.

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Consideration gives a court the terms by which to enforce the agreement as a

contract. When there is no consideration, a court may have to consider the
transaction a gratuitous gift, rather than a contract. Consider the situation in which
someone promises to give you a piece of jewelry. If the person changes her mind, a
court will not enforce the gift because there was no consideration. If, however, you
had contracted to buy the jewelry for cash (consideration), a court could enforce the
terms of the contract.
Defenses
Even is a court finds an offer, acceptance, and consideration in a transaction, no
contract exists if there are certain defenses. A defense simply means that there was
a defect regarding the transaction or the parties involved so that no contract was
created. For example, the fact that an item no longer exists is a mutual mistake that
prevents a contract from being formed. Similarly, an agreement that has an illegal
purpose, such as hiring someone to kill a person, will not be considered an
enforceable contract.

To Write or Not to Write

There's an old saying that "An oral contract isn't worth the paper it's written on."
Even so, an oral contract is valid in most instances. However, North Carolina has
required by statute that certain contracts must be in writing to be enforceable. If an
agreement falls under this "Statute of Frauds," a court will not require a party to fulfill
the contract unless there is some type of written document signed by the party to be
compelled.
The Statute of Frauds requires many documents to be in writing, including the
following:
A promise which by its very terms cannot be performed with one year.
A promise which creates an interest in land, such as for the sale of real
property.
A lease with a term of more than one year.

A mortgage.

A promise which limits a person's right to do business in the state, such as a

covenant not to compete signed by an employee.

Just because an agreement falls under the Statute of Frauds does not mean that a
lengthy and complicated contract is required in all situations. The statute only
requires that every "essential term" be in some written form. This language has
usually been interpreted to require at least the following information:
(1) The identity of the parties;
(2) The subject matter of the contract;
(3) The terms and conditions of the agreement;
(4) The consideration given and received;
(5) The signature of the parties.
As long as some document, note, or combination of papers contain this essential
information, a court will enforce the contract. A related rule states that if there is
a writing no oral agreement will be entertained to contradict the written
agreement.

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Written Contact Essentials:

Names of the parties

Subject matter

Terms and conditions

Consideration, or money, exchanged

Signatures of parties

Q3. What do you mean by discharge of contract? What are the various ways
in which a contract may be discharged?
Ans. A contract is deemed to be discharged, that is, completed and no longer
binding, in the following circumstances.
Performance. That is, all parties have satisfied the requirements of the
contract to the satisfaction of the other parties. The overwhelming majority of
contracts are discharged this way. However, it not always clear when a
contract has been performed, or what should happen in the event of part
performance of contract.
Agreement. If the contract is still wholly executory (in progress) then there is
no problem here, as neither party is set to lose out. However, if one party has
fulfilled his obligation and the other has not, then the agreement to discharge
must be supported by fresh consideration. For example, suppose I hire
someone to paint my house, with an agreement to pay on completion. The
painter does not turn up to do the job. If the painter and I agree to abandon
the work, then the contract is discharged. However, suppose I pay in advance,
and the painter does not turn up. I may decide that it is not worth my while to
compel the painter to work, or to take legal action, and agree to write off the
payment and discharge the contract. If I later decide to take legal action
against the painter, the agreement to discharge will not be binding, because
the painter offered no consideration
Legal reasons for discharge without performance. There are few of these; the
most common is frustration of contract; if a contract is frustrated (i.e.,
impossible to perform) then it may be considered discharged without legal
consequences.
Breach. A breach of contract is a refusal by one party to abide by its terms,
without legal excuse (e.g., frustration).
Contracts may be discharged by:
1. Payment.
2. Accord and satisfaction.
3. Release.
4. Set off.
5. The rescission of the contracts.
6. Extinguishment.
7. Confusion, where the duty to pay and the right to receive unite in the same
person.
8. Extinction, or the loss of the subject matter of the contract.
9. Defeasance.
10. The inability of one of the parties to fulfill his part.

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11. The death of the contractor, as where he undertook to teach an apprentice.

12. Bankruptcy.
12. By the act of limitations.
13. By lapse of time.
14. By neglecting to give notice to the, person charged.
15. By releasing one of two partners.
16. By neglecting to sue the principal at the request of the surety, the latter is
discharged.
17. By the discharge of a defendant, who has been arrested under a capias ad
satisfaciendum.
18. By a certificate and discharge under the bankrupt laws.

Q4. Classify and explain different types of agents.

Ans. A person who performs services for another person under an express or implied
agreement and who is subject to the other's control or right to control the manner
and means of performing the services. The other person is called a principal. One
may be an agent without receiving compensation for services.
There are various descriptions of agents, to whom different appellations are given
according to the nature of their employments; as brokers, factors, supercargoes,
attorneys, and the like; they are all included in this general term. The authority is
created either by deed, by simple writing, by parol, or by mere employment,
according to the capacity of the parties, or the nature of the act to be done. It is,
therefore, express or implied. Vide Authority.
It is said to be general or special with reference to its object, i.e., according as it is
confined to a single act or is extended to all acts connected with a particular
employment.
With reference to the manner of its execution, it is either limited or unlimited; i. e. the
agent is bound by precise instructions, or left to pursue his own discretion. It is the
duty of an agent, 1, to perform what he has undertaken in relation to his agency. 2, To
use all necessary care. 3, to render an account.
Agents are either joint or several. It is a general rule of the common law, that when
an authority is given to two or more persons to do an act, and there is no several
authority given, all the agents must concur in doing it, in order to bind the principal.

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Q5. Explain the rights, duties and responsibilities of an agent to his

principal.
Ans. An agent has rights, which he can enforce, and is, liable to obligations,
which he must perform.
The rights to which agents are entitled, arise from obligations due to them by their
principals, or by third persons.
Their rights against their principals are:
To receive a just compensation for their services, when faithfully performed, in
execution of a lawful agency, unless such services are entirely gratuitous, or the
agreement between the parties repels such a claim; this compensation, usually
called a commission, is regulated either by particular agreement or by the usage
of trade or the presumed intention of the parties;
To be reimbursed all their just advances, expenses and disbursements made in
the course of their agency, on account of, or for the benefit of their principal and
also to be paid interest upon such advances, whenever from the nature of the
business, or the usage of trade, or the particular agreement of the parties, it may
be fairly presumed to have been stipulated for, or due to the agent.

Besides the personal remedies that an agent has to enforce his claims against his
principal for his commissions and, advancements, he has a lien upon the property
of the principal in his hand.

The liabilities of agents to their principals - arise from a violation of their duties
and obligations to the principal, by exceeding their authority, by misconduct, or by
any negligence or omission, or act by which the principal sustains a loss. Agents may
become liable for damages and loss under a special contract, contrary to the general
usages of trade.

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Q 6) Explain the mutual rights and liabilities of partners in a partnership

firm.
Answer: - 1) Right to take part in a conduct or management of the partnership
business: - Subject to the contract between partnership, every partner has a right
to take part in the conduct of the business. As partnership business is common
business of all the partners, every partner of a firm must have the right to take part
in the management and conduct of the business.
2) Right to be consulted and right to take decision by majority: - Section 12 (c) lays
down that " subject to contract between the partners, any difference arising as to
ordinary matters connected with the business may be decided by a majority of the
partners shall have right to express his opinion before before the matter is decided.
Every partner has a right to be consulted and to express his opinion before
the matter is decided.
So far as ordinary matters connected with business are concerned, the
partners have the right to take decision by majority.
So far as important or fundamental matters concerning the partnership
business is concerned, no change is allow to be made without the consent to
all partners.
3) Right to have access to books of the firm: - Subject to contract between the
partners, every partner has a right to have access to and to inspect and copy any
of the books of the firm [section 12 (d)].
4) Right to have equal share in the profits: - Subject to any contract to the contrary
between the partners, the partners are entitle to share equally in the profits earned
and shall contribute equally to the losses sustained by the firm.
5) Right to receive interest on capital: - In the partnership deep provides that a
partner bringing in the business certain amount as a capital is entitled to receive an
interest on it at a certain rate, such interest, subject to the contract between the
partners, shall be payable only out of profits.
6) Right to receive interest on advances: - subject to contract between the partners
partners making for the purpose of the business any payment or advance beyond
the amount of capital.
7) Right to be indemnified: - A partner can perform all such acts for protecting his
form losses as would be performed by any person of ordinary prudence for acting
under similar circumstances and conditions and as consequences of such acts.
8) Right to apply property to the firm for the purpose of the business of the firm: Every Partner has a right to apply and use the property of the partnership firm
exclusively for the purpose of the business of the firm.
9) Other rights of the partners like: - Right to function as an agent of the firm, Right
to prevent introduction of a new partner, Right to retrieve, Right not to be expelled,
Right of an outgoing partner in certain cases to share subsequent profit.
Liabilities of a partner in a partnership firm
1)
General duties of partners: - Section 9 provides for the general
duties of partners. It states that " Partners are bound to carry on the business of
the firm to the greatest common advantage, to be just and faithful to each other."
a)
Duties to carry on the business to the common advantage: - It implies that
every partner use his skill, knowledge, and efficiency for the benefit of his firm.
b)
Duty to be just and faithful to other partners of his firm: - Partners are expected
to be just and faithful to each other because a partnership is always based on the
principal of mutual trust and confidence.
c)
Duty to render true accounts: - It implies that no partner should make a secret
profit at the expenses of the partnership firm.

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d)
Duty to provide full information: - It is the duty of every partner to provide full
information of various transactions, dealing etc.
2) Duty to indemnify for loss caused by fraud: - According to section 10, "Every
partner shall indemnify the firm any loss caused to it by his fraud in the conduct of
the business of the firm.
3) Duty to attend diligently to his duties: - Section 12(b) states that " subject to
contract between the partners, every partner is bound to attend diligently to his
duties in the conduct of the business.
4)
Duty to work without remuneration: - subject to contract between
the partners, a partners is not entitled to receive any remuneration for taking part
in the conduct and management of the partnership business .
5)
Duty to contribute to the losses: - According to the section 31(b), the partners
are entitled to share equally in the profits earned and shall contribute equally to the
losses sustained by the firm.
6) Duty not to complete with the business or the partnership firm: - subject to
contract between the partners not to carry on any business which is of similar
nature or which is likely to compete with the business of his partnership firm.
7) Duty of partner not to assign his rights: - It is the duty and the responsibility of a
partner not to assign his rights and interests in the firm to any outsider so as to
constitute such outsider the partner of the firm.

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Q 7) What is the nature and extent of partner's authority to bind the firm by
his acts?
Ans.: - An act or instrument done or executed by a partner or other person on behalf
of the firm shall be done or executed in the firm name, or in any other manner
expressing or implying intention to bind the firm.
Important points from the above provision of section 19 (1) and 22.
a)
The authority of a partner to bind the firm conferred by section 19(1) is called
the implied authority of a partner.
b)
In other to bind the firm, an act done by a partner should be done in the name
of the firm or in any manner implying the intention to bind the firm.
c)
In order to bind the firm such acts should be done to carry on, in
the usual way, business of the kind carried as by the firm. The implied authority of
a partner cannot extend to his acts done beyond the scope of the partnership
business.
A partner has implied authority to bind his firm by all his acts performed by him in all
matters and transaction concerned with the business of a partnership and if such
acts are done in the usual way and in no way beyond the scope of partnership.
In absence of usage or custom of trade to the contrary, the implied authority of a
partner does not empower him to: a) Submit a dispute relating to the business of the firm to arbitration.
b) Open a banking account on behalf of the firm in his own name.
c) Compromise or relinquish any claim or portion of a claim by the
firm,
d) Withdraw a suit or proceeding filed on behalf of the firm.
e) Admit any liability in a suit or proceeding against the firm.
f) Acquire immovable property on behalf of the firm.
g) Transfer immovable property belonging to the firm,or
h) Enter into partnership on behalf of the firm.
All partners of a partnership firm, however can ratify an act or various acts of any of
the partners, which the partners has done in the excess of implied or express
authority provided such act or acts should be as could be legally done. Not with any
standing such restriction, any act done by a partners on behalf of the firm which
falls within his implied authority binds the firm unless the person with whom he is
dealing knows of the restriction or does not know or believe that partner to be a
partner.
Effect of admission by a partner: - An admission or representation made by a partner
concerning the affairs of the firm is evidence against the firm, if it is made in the
ordinary course of the business. Thus if a partner makes any admission concerning
the business of the firm in the ordinary course of business is considering as the
sufficient evidence against the firm and that binds the firm.
Effects of notice given to an acting partner by third parties: - Notices to a partner who
habitually acts in the business of the firm of any matter relating to the affairs of the
firm operates as notice to the firm except in the case of a fraud on the firm
committed by or with the consent of that partner.

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Q 8) Distinguish between a sale and an agreement to sell and explain fully

the essentials of a contract of sale of goods.
Ans.: - When under a contract of sale, the property in goods is transferred from the
seller to the buyer, the contract is called a sale; but where the transfer of the
property in the goods is to take place at a future time or subject to condition there
after to be fulfilled, the contract is called an agreement to sell [section4 (3)].
Essentials of a contract of sale: A) Two parties: - There should be two parties to a contract of a sale of goods
and obviously these two parties are a seller and a buyer. A buyer is a
person who buys or agrees to buy [section 2(1)] and a seller is a person
who sells or agrees to sell. These two terms are complimentary.
B) Goods - The subject matter of a contract: - The subject matter of a
contract of a sale must be movable property or goods. Transactions
involving purchase and sell of immovable property are out of the purview
of the sale of goods Act.
C) Transfer of property: - There must be a transfer of general property i.e.,
ownership and not special property in the goods from the seller to the
buyer. Suppose X owns certain types of goods, he has general property of
goods. If he pledges the goods with Y, Y has special property in the goods,
which he cannot sell.
D) Monetary consideration - price: - When goods are exchanged for goods
that amount to barter exchange and not a sale of goods. Again where
goods are transferred by one person to another without any consideration
that is a gift and not a sale. Therefore, the consideration for a contract of a
sale, called price, must be money.
E) Essential elements of a valid contract: - There must be consideration and
mutual assent between the parties of the contract, all parties to a contract
must be competent to enter into a contract, an object of a contract must
be lawful etc. of course it is necessary that a contract of a sale should
always be absolute. It may be absolute or conditional.
F) A contract of a sale includes sale as well as an agreement to sell: - A
contract of a sale may either be a sell or an agreement to sell.

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Q 9) Define the term 'Negotiable instrument ' and explain its types and
various parties of the types of negotiable instruments.
Ans.: - Negotiable instruments literally mean written documents, which creates a
right in favor of somebody and is freely transferable. Free negotiable is an
important characteristics of a negotiable instrument.
Types of negotiable instruments.
a)
Negotiable instruments recognized by state: - Bills of exchange,
cheques and promissory notes. The negotiable instruments Act 1881
mentions in section 13, these three kinds of negotiable instruments.
b)
Negotiable instruments recognized by usage or custom of trade: Banknotes, exchequer bills, share warrants, bearer debentures, divided
warrants, share certificates attached with them blank transfer deeds etc.
i) Bill of Exchange: - A bill of exchange is an instruments in writing
containing and unconditional order, signed by the makers, directing a
certain person to pay a certain sum of money only to, the bearer of
instrument [section 5].
Important essential characteristics of a bill of exchange.
1)
It must be in writing.
2)
It must contain an order to pay and not request.
3)
The order must be unconditional.
4)
The parties to the Bill of Exchange.
5)
Bill of exchange must be signed by the drawer and accepted by
the drawer.
6)
The sum payable must be certain.
7)
Bill of exchange must be containing an order to pay money only.
8)
Bill of exchange must be stamped properly.
9)
Bill of exchange originally drawn cannot be made payable to
bearer.
ii) Promissory notes: - A promissory note is an instrument in writing
containing
An unconditional undertaking, signed by the maker; to pay a certain sum of
Money only to or to the order of a certain person or the bearer of the instrument
[section 4].
Essential characteristics of a promissory note: 1)
Promissory note is a negotiable instrument.
2)
It must be in writing.
3)
It is a promise to pay money only.
4)
It must be definite. The promise to pay must definite.
5)
It must be signed by maker.
6)
It must be unconditional.
7)
The maker of the promissory note must be a certain person and the
payee must also be certain.
8)
Amount of the promissory note must be certain.
iii)
Cheque: - Section 6 of the negotiable instrument Act defines
that a Cheque as a bill of exchange drawn on a specified banker and not expressed
to be payable otherwise that on demand.
Essential characteristics: 1)
A Cheque is a negotiable instrument.
2)
It is a Bill of Exchange.

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3)
It is always drawn on specified bankers.
4)
It is always payable on demand.
5)
A Cheque can be bearer, order or crossed.
6)
A Cheque requires no acceptance in the ordinary course of
business as it is intended for immediate payment.
7)
In the case of a Cheque, a drawee is always a specified
bank.
iv)
Trade bill and Accommodation bill: - A bill when drawn and
accepted for a genuine trade transaction is termed as trade bill, while a bill drawn
and accepted not for a genuine trade transaction but only to provide financial help
or assistance to some party is termed as a accommodation bill.
v)
Fictitious bill: - when the name of the payee or drawer or both is
fictitious on a bill, such bill is called a fictitious bill.
vi)
Documentary or clean bills: - when documentary of a title to
goods and other necessary documents like invoice, insurance policy etc. such a bill
is called a documentary bills. But no documents relating the goods represented by
the bill are annexed to it. Such a bill is called as clean bill.
vii)
Inchoate instrument: - An inchoate instrument is an incomplete
instrument in some respect. For example; a bill is drawn payable to or order ". A
holder may write his name as a payee in the blank space and sue upon the
instrument. The principal behind an inchoate instrument is essentially one of
estoppel.
viii)
Ambiguous instruments: - where an instrument owing to its
faulty drafting may be interpreted either as a bill of exchange or a promissory note,
is called an ambiguous instrument.

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Q 10) Explain the object of the consumer protection act and state and
explain the following terms as used in the consumer protection act, 1986.
A consumer, b) A dispute c) Deficiency d) Restrictive trade practice and
unfair trade practice.
Ans.: - Many time consumers cheated and therefore they need some sort of legal
protection. For that purpose certain acts have been passed and the consumer
protection act of 1986 is one of them.
i) Consumer: - consumer is any person who buys and goods for a consideration
which has been paid or promised to pay or party paid and partly promised to
pay or under any system of deferred payment.
ii) A dispute: - A consumer dispute is very important from the view point of
consumer protection act. If there is any dispute between the consumer and
manufacturer or the trader as the case may be the consumer gets the right to
seek remedy or filling the complaint under the act.
iii) Restrictive trade practices [section 2(1) (nn)]: A consumer must be free to
purchase any kind of goods considering his needs so that he can get maximum
satisfaction from the consumption of the such goods. There should a trader to
buy impose no compulsion in any way on a consumer, hire or wail of any goods
as a condition precedent for buying, hiring or availing of other goods or
services.
iv) Unfair trade practice [section 2(1) ( r)]: "Unfair trade practice means a trade
practice which for the purpose of promoting the sale, use or supply of any goods
or the provision of any service, adopts any unfair method or unfair or deceptive
practice including any of the following practices, namely,
1)
The practice of making any statement, whether orally or in
writing or by visible representation.
2)
Permits the publication of any advertisement whether in any
newspaper or otherwise for the sale or supply at a bargaining price of goods or
services that are not intended to be offered for a sale or supply at the bargain price.
3)
Permits: - a) The offering of gifts, prices or other items with the
intention of not providing them as offered or creating impression that something is
being given or offered free of charge.
a)
The conduct of any contest, lottery, game of chance or skill, for the
purpose of promoting, directly or indirectly; the sale, use of supply of any product
or any business interest.
4)
Permits the sale or supply of goods intended to be used or are
of a kind likely to be used, by consumer, knowing or having reason to believe that
the goods do not comply with standard prescribed by competent authority relating
to performance, composition etc.
Deficiency [section 2(1) (g)]: So far as defects in goods are concerned, a
complainant has to established that the goods mentioned in his complaint suffer
from any or more of the defects which are mentioned in the definition. Under
section 2(1) (f) " Deficiency means any fault imperfection, short coming or in
adequacy in quality, nature and manner of performance which is required to be
maintained by or under any law for the time being in force or has been undertaken
to be performed by a person in pursuance of a contract or otherwise in relation to
any service."

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Q 11) how is a company formed under the companies Act of 1956? What are
the documents to be filled with the registrar of companies?
Ans.: - Registered companies are those companies, which are registered or
incorporated with the registrar of a company Act. In India, almost all companies are
registered under the companies Act 1956.
Documents to be filled with the registrar of companies: - 1) Mode of forming
incorporated company.
2) Registration of Memorandum and Articles.
3
i) Memorandum
4
ii) Articles of Association.
5
iii) A letter of Approval
6
iv) Declaration
7
v) List of Directors
8
vi) Sanction of the controller of capital issues.
9
vii) Challan
10
1) Mode of forming incorporated company: - Any seven or more person or where
the company to be formed will be a private company, any two or more persons
associated for any lawful purpose may, by subscribing their names to a
memorandum of association and otherwise complying with the requirements of
this Act in respect of registration, form an incorporated company, with or without
limited liability. Thus any seven person for forming a public company or any two
persons for forming a private company may come together and apply to the
registration by giving necessary information in the prescribed form.
2) Registration of Memorandum and Articles: - According to section 33(1) "there
shall be presented for registration, to the registered office of the state in which
the registered office of the company is stated by the memorandum to be situated.
i) The memorandum of the company.
11
ii) Its articles, if any, and
12
iii) The agreement; if any which the company proposes to enter into with
any
13
Individual for appointment as its managing or whole- time director or
manager.
14
a) Memorandum: - The memorandum of association of a company is very
important and fundamental document of the company. Memorandum contains the
following clauses.
15
i) The name
16
ii) The registered office clause
17
iii) The object clause
18
iv) The capital clause
19
v) The liability clause
20
vi) The association clause.
21
No Company can be registered unless the memorandum of association is
submitted to the registrar.
22
b) Articles of Association: - Articles of association contains the rules,
regulation bylaws etc. The following types of companies are required their own
articles.
23
i) Unlimited companies.

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24
ii) Companies limited by guarantee.
25
iii) Private companies limited by ahares.
b)
A letter of Approval: - An application for availability of name under which the
company proposes to be incorporated is required to be submitted to the registrar of
the companies in prescribed form in the state where the registered office of the
company to be situated.
c)
Declaration: - A declaration as per the provision of section 33(2), making clear
that all the requirements of the companies Act of 1956 relating to the registration
have been complied with.
d)
List of Directors: - A list of person duly signed by them along with their consent
to act as directors. Such consent must be in writing and accompanied with the
signed agreement with every such director to take the number of shaves required
qualifying himself a director.
e)
Sanction of the controller of capital issues: - The sanction of the controller of
the capital issues is required if the capital exceeds RS one crore.
f)Challan: - A Challan showing that the registration fees filing fee have been duly paid
as per the provisions of the companies act of 1956.

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Q 12) Explain rights, duties and disqualification of directors of a company.

Ans.: - Rights and duties of directors: - The directors of the company enjoy following
important rights conferred on them by the companies Act 1956.
a)
Rights to participate in the affairs of the company: - the director is
entitled to attend the meetings and participate in the affairs of the company
so far direction, supervision, control etc.
b)
Rights to have remuneration: - Every director is entitled to remuneration
as fixed either under any contract or the articles of association of a company.
Even if the company does not earn profits, directors of the company are entitled
for their remuneration already fixed.
Rights of compensation: - i) if premature termination is due to either
reconsideration or amalgamation of a company.
ii) If his company wound up.
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iii) If the director has to vacate his office according to the provision of the
company Act of 1956.
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iv) If the director is found to be guilty of fraud or breach of trust.
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v) If the director is responsible for taking part in bringing about the
termination of his office.
Duties if the directors: - The important duties of a director of a company are as under:
- i) Duties of grates good faith of fiduciary duties.
ii) Duty of reasonable skill and diligence.
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iii) Duties to attend board meetings.
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iv) Duty to invest company's money.
31
v) Duty not to delegate functions.
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vi) Statutory duties.
i) Duty of greatest good faith of fiduciary duties: - The directors of a company are
fiduciary agents of their company. They must exercise their powers honestly and in
the best interest of their company.
ii) Duty of reasonable care skill and diligence: - Directors of a company are expected
to carry out their duties with such care, skill and diligence as can be reasonable
expected from persons of their status knowledge. If they do not perform their duties
with reasonable care, skill and diligence, they are guilty of negligence.
iii) Duty to attend boards meetings: - It is one of the important duties of directors to
attend the board meetings. Though it is not compulsory to attend all such meetings
he ought to attend them when reasonably able to do so.
iv) Duty to invest company's money: - The directors of a company
must always
Endeavor to invest their company's funds property and profitably as per the
provisions of articles of association.
v) Duty not to delegate functions: - Delegate non-protest delegares is the Latin
maximum which implies that the directors must attend personally to the business
of the company in which they are appointed as directors.

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vi) Statutory duties: - Directors are bound to perform certain duties as prescribed by
the companies Act of 1956.
Disqualification of directors: - According to section 274(1)," A person shall not be
capable of being appointed director of a company if
a)
He has been found to be of unsound mind by a court of competent
jurisdiction and the finding is in force.
b) He is an undischarge insolvent.
c)
He has applied to adjudicated as an insolvent and his application is
pending.
d) He has been convicted by a court of any offence involving moral turpitude
and sentenced in respect there of to imprison sentenced in respect there of to
imprisonment for not less than six months, and a period of five years has not
elapsed from the date of expiry of the sentence.
e)
He has not paid any call in respect of shares of the company held
by him, whether along or jointly with others.
f)An order disqualifying him for appointment as directors has been passed by a
court in pursuance of section 203 and is in force.
A private company which is not a subsidiary of a public company, may by its
articles, provide that a person shall be disqualified for appointment as a
directors or any grounds in addition to those specified in sub-section (1)
[section 274(3)].

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