Mentoassociates.com – Legal Articles

The provincial Insolvency Act, 1920, deals with the matters pertaining to insolvency in areas outside the presidency towns. As per this Act, the District courts have jurisdiction in matters pertaining to insolvency.

A debtor is said to have committed an act of insolvency in the following cases:

a. If he makes a transfer of all or substantially all his property to a third person, for the benefit of his creditors generally;

b. If he makes a transfer of his property to defeat or delay his creditors.

c. If he makes any transfer of his property, which would be void as fraudulent if he were adjudged as an insolvent.

d. If he departs or remains out of India with an intent to defeat or delay his creditors.

e. If he departs from his dwelling house or usual place of business or otherwise absents himself with intent to defeat or delay his creditors.

f. If he secludes himself so as to deprive his creditors of the means of communicating with him with intent to defeat or delay his creditors.

g. If any of his property has been sold in execution of the decree of any court for the payment of money.

h. If he petitions to be adjudged as an insolvent.

i. If he gives notice to any of his creditors that he has suspended payment of his debts.

j. If he is imprisoned in execution of the decree of any court for the payment of money.

k) If a creditor who has obtained a decree or order against a debtor for the payment of money, has served on him a notice, and the debtor has not complied with that notice within the period specified therein.

If a debtor commits an act of insolvency, an insolvency petition may be presented either by the creditor or by the debtor and the court may adjudge the debtor to be an insolvent.

A debtor is entitled to present an insolvency petition only if he satisfies the following conditions:
a. He should be unable to pay his debts and
b. His debts amounts to minimum five hundred rupees or
c. He is under arrest or imprisonment in execution of the decree of any court for the payment of any money or
d. an order of attachment in execution of such a decree has been made and is subsisting against his property.

After filing and admission of an insolvency petition, the court will issue notice to the respondents. The court while admitting an insolvency petition has the power to appoint an interim receiver for the property of the debtor or any part thereof and the interim receiver may take immediate possession of the property or part of the same.
 
The Court has the power to make interim proceedings against a debtor at the time of admitting an insolvency petition. These include:-
1) Ordering the debtor to give security for this appearance.
2) Order attachment of property in possession or under control of debtor.
3) Order a warrant for the arrest of debtor.

     The debtor shall on the admission of petition produce all books of  accounts, inventories of his property, list of creditors and debtors as may be required by the court.

In case of an insolvency petition presented either by the Creditor or the debtor, the court may dismiss the petition, if it finds suitable grounds for the same.If the court does not dismiss the petition, it shall make an order of adjudication and also shall specify in such order, the period within which the debtor shall apply for his discharge.

On the making of order of adjudication, the insolvent shall help in the realization of his property & distribution of proceeds among his creditors. The whole of the property of insolvent shall become divisible among creditors. An order of adjudication will be effective from the date of presentation of petition on which it is made.

DISADVANTAGES OF INSOLVENCY:
a.Social stigma to an insolvent.
b.Cannot become partner of a firm or director of a company.
c.Cannot enter into legal contracts.
d.The insolvent may not get credit until he is discharged.
e.Cannot contest elections or hold public offices.

The procedure to be followed is as follows:
a. A Company by ordinary resolution in an Annual general meeting or an extra ordinary General meeting   can remove a director.
b. Special Notice about the resolution to remove a director shall be issued to the members.
c. A copy of the said notice to be send to the director to be removed also.
d. The director shall be given an opportunity of being heard in the meeting.
e. If the director gives any written representation to the notice, then the said representation shall be given to all members.
f. If the representation could not be given to all members, then the Director can request the said representation to be read out in the meeting.
g. The members can pass an ordinary resolution, by simple majority and remove the director.
h. The Company shall within 30 days from the removal of a director file Form No.32 and a copy of the resolution with the Registrar

The Limited Liability Act, 2008 brought to India a special form of business entity by name Limited Liability Partnership for the first time. Till then we had partnership and limited liability companies. This new form of business identity, combines several features of partnership and limited liability companies; yet it has its own unique features too.
 
A Limited Liability Partnership (LLP) is a body corporate and is a legal entity separate from that of its partners. It has perpetual succession. Any change in the partners will not affect the existence, rights or liabilities of the LLP.

An individual or body corporate may be a partner in an LLP. Every LLP shall have at least two partners. Every LLP shall have at least two designated partners who shall be individuals and at least one of them shall be a resident of India. Every designated partner of an LLP shall obtain a Designated Partner Identification Number (DPIN) from the central government.

A designated partner is responsible for all compliances and liable for all penalties under the LLP Act, 2008 on behalf of the LLP. Every LLP shall have a registered office to which all communications and notices may be addressed.

A registered LLP can sue and be sued. It can acquire, own, hold and dispose movable and immovable properties. It can have a common seal and can do and suffer lawful acts and things as body corporate.

Every Limited Liability Partnership shall have the words ‘Limited Liability Partnership’ or the acronym ‘LLP’ as the last word of its name. Every LLP shall ensure that its invoices, correspondences, and publications bear the name and address of the registered office and the registration number as well as a statement that it is having limited liability.

The mutual rights and duties of the partners of a limited liability firm as well as the rights and duties between the partners and the firm shall be governed by the provisions of the act as well as the terms in the partnership deed.  

A person may cease to be a partner of an LLP:- 
a) On his death or dissolution of LLP
b) If he is declared to be of unsound mind by a competent court,
c) If he has applied to be adjudged as an insolvent or declared as an   insolvent.
 
If there is any change in the name or address of the partner LLP shall file a notice with the registrar within 30 days of such a change.
Every partner of an LLP is for the purpose of business of LLP an agent of LLP but not of other partners. An LLP is not bound by anything done by a partner in dealing with a person if:
a) The partner in fact has no authority to act for LLP in doing a particular act.
b) The person knows that he has no authority or does not know or believe him to be a partner of LLP.

If an LLP or its partners carryout any act with an intention to defraud creditors or any other person or for any fraudulent purpose, liability of LLP and partners shall be unlimited.

A partner can contribute to an LLP in the form of tangible or intangible property. Tangible property may include movable or immovable property. Intangible property may include money, promissory notes, contract for services etc. The obligation of a partner to contribute money, property or other benefit shall be as per LLP agreement.

The Central Government enacted this important piece of legislation with the objective to prevent the commission of offences of atrocities against members of Schedule Castes and Schedule Tribes and to provide for special courts for the trial of such offences and for the relief and rehabilitation of the victims of such offences and for incidental matters.

The following are acts of atrocities, among others, against the SC/ ST members which are punishable under the act.

•Forcing a member of SC/ST to drink or eat any inedible or obnoxious substance.
•Dumping excreta, waste matter, carcasses or other obnoxious substance in the premises of an SC/ST member.
•Removing cloths, parading naked with painted face or body etc on a SC/ST person.
•Wrongfully occupying or cultivating any land belonging to SC/ST member.
•Wrongfully dispossessing a person of SC/ST from his land or premises.
•Compelling or enticing a member of SC/ST to do ‘begar’ or similar forms of forced or bonded labor.
•Forcing a member of SC/ST not to vote or to vote to a particular candidate.
•Instituting malicious, false, vexatious suit, criminal or other legal proceedings against a member of SC/ST.
•Giving false or frivolous information to a public servant resulting in injury or annoyance to a SC/ST person.
•Insulting or intimidating with intent to humiliate a SC/ST person in any place within public view.
•Assaulting or using force on any woman belonging to SC/ST with intent to outrage her modesty.
•Denying a member of SC/ST any customary right of passage to a place of public resort, which other members of the public have a right of use.

Whoever commits the above atrocities is liable to be punished with imprisonment for a term which shall not be less than 6 months but which may extend to 5 years and with fine.

If a public servant willfully neglects his duties required to be performed under this act, he shall be punishable with imprisonment for a term which shall not be less than 6 months, but which may extend to one year. Further the act provides for enhanced punishment for subsequent conviction. The court can even forfeit to the government, the property of an accused person which has been used in the commission of the offence proved. During the trial of the offence, the court has the power to attach the properties of the accused and later after the conclusion of the trial forfeit the same to the government.

The special courts under the act can even order the removal of a person, who is likely to commit an offence against the SC/ST people, from any scheduled area or a tribal area. If the person ordered fails to removes himself from the area, the special court can cause him to be arrested and removed in police custody from such area.

The provisions of anticipatory bail are not applicable for offences under this act.

In recent years many financial establishments not covered by the RBI Act 1934, have cropped up in various parts of India and especially Karnataka. Many of them received deposits from the public on the promise of high rates of interest and easy gains. Most of them have defaulted to return the deposits on maturity and thus cheated the public. Against this background the state of Karnataka enacted this piece of legislation.As per this act the government or the district Magistrate are empowered to attach properties of financial establishments on default of return of deposits. The district magistrate suo moto or on receipt of any complaint may cause investigation on fraudulent transaction done by a financial establishment.

The government may attach money or property acquired by a financial establishment or personnel assets of the promoters, partners, directors, managers etc of the said financial establishment if the government is satisfied that
a. the financial establishment has failed to return the deposit after maturity or on demand by depositors or
b.to pay interest or other assured benefits or
c. if the government is satisfied that such financial establishment is not likely to return deposits or to pay interest to the depositors.

After the attachment, such properties shall vest in the competent authority appointed by the government, who shall be an officer not below the rank of an assistant commissioner, pending further order from the special court. The competent authority shall within 30 days from the date of receipt of order apply to the special court for further order of attachment to make it absolute. The competent authority has vast powers in dealing with the assets under its custody.The Competent authority can even sell the movable and immovable properties of the Financial Establishment by Public auction or with the prior approval of the Special Court by private arrangements. Within 30 days from the date of its appointment, the Competent Authority shall assess the deposit liabilities and assets of the Financial Establishment and submit a report thereof to the special Court. It shall also issue notice to secured creditors and depositors to submit their claims with proper proof. The secured creditors and depositors shall submit their claim before the Competent Authority within 30 days from the date of notice. The Competent Authority shall thereafter make an application to the Special Court seeking permission to make payments to the depositors from out of the money realized.

If any Financial establishment fraudulently defaults any repayment of deposit on maturity along with any benefit, or fails to render service assured, every person responsible for the management of the business of such Financial establishment, shall on conviction be punished with imprisonment for a term which may extend to 6 years and with fine which may extend to one lakh of rupees and such Financial Establishment is also liable for a fine.For the purposes of this Act, the government may constitute one or more special courts. The Special court has vast powers regarding realization of assets and payment to the depositors. The acts of the competent authority are supervised and guided by the Special court. The special court has the powers to attach property malafidely transferred by the Financial Establishment.Any person, including the competent authority, if aggrieved by an order of the Special court may appeal to the high court within 30 days form the date of the order.

1.Company is an artificial legal person. Partnership is not a legal person.

2.Company has perpetual succession. Partnership firm does not have perpetual succession.

3.Company is created by registration under Companies Act. For a partnership firm registration is not compulsory. It is guided by Indian Contract Act and Partnership Act.

4.Private Limited Company shall have at least 2 members and maximum 50 members. Partnership firm shall have at least 2 members and maximum 20 members and for banking business, maximum 10 members.

5.In a private limited company, liability of the members can be limited by shares or by guarantee. Liability of members is unlimited in a partnership firm.
   
6.A member is not an agent of company or of other members. Partner is an agent of firm and other partners.

7.Member cannot bind company by his act.  Partner can bind firm by his act. 
                                                       
8.Ordinary members cannot take part in management of a company. Only director members can take part in management.  Partners can take part in   management of a firm.

9.Private limited company shall have a minimum paid up capital of   Rupees 1,00,000/-(Rupees One Lakh Only) and public limited  company of Rs. 5,00,000/- (Rupees Five Lakh Only). There is no minimum paid up capital for a partnership firm.

10.Shares of a private limited company can be transferred with ease. Partner can transfer his share but the assignee does not become a partner. He is only entitled to share of Profits.

11.A company is an entity distinct from its members. It may own property, make contracts, sue and be sued in its own name.  The property of a firm is   owned by the partners. It can also sue and be sued in the firm’s name and   partners can also be sued individually.

12.A single member cannot wind up a company.  A partnership may be dissolved by any partner at any time.
                                                                  

Organizations which have charity as their main motto and which work for the welfare of the society at large, without the motive of profit are known as Non Profit  organizations (NPO). In India people have a tendency to call them as NGO (Non Government Organizations), which terminology is not correct in the strict sense, because every non government organization may not be a non profit organization.
Trusts, societies and section 25 companies are the most common forms of NPOs in India. NPOs are entitled for various benefits under the Income Tax Act. Even without registering as an NPO, people can engage in charitable activities, but they register as NPOs to gain the IT benefits. Tax benefits are available to the organization as well as to those who donate to the organization. For this special permission need to be obtain from the Income Tax authorities after the registration of NPO. To obtain tax benefits, it is a condition precedent that the benefits of the NPO shall not be restricted to any particular cast, class or creed but open to all.
Trusts are registered under the Registration Act, Societies under the respective Societies Registration Acts of various states and Section 25 companies under the Companies Act, 1956.For each of these registrations, a deed need to be drafted explaining the main objectives and mode of working of the organization.
There is an increasing trend among the general public to establish NPOs and indulge in profit generating activities, at the same time deriving IT benefits. However, sooner or later the long arms of law will reach them.

Against the backdrop of the United Nations Conference on the Human Environment held at Stockholm in June 1972, in which India was a participant, the Central Government enacted a legislation, ‘The Environment (Protection) Act, 1986’, with an objective for protection and improvement of the environment and for matters connected therewith.

The Central Government takes into consideration various factors while prohibiting or restricting the location of industries and carrying on of processes and operations in different areas. Every person carrying on an industry, operation or process requiring consent under the water (prevention and control of pollution) Act, 1974 or under The Air (Prevention and Control of Pollution) Act, 1981 or both or authorization under the Hazardous Waters (Management and Handling) Rules, 1989 shall submit an environmental statement for the financial year ending on the 31st March in Form V to the concerned State Pollution Control Board on or before the  Thirteenth day of September every year, beginning 1993.

1. The memorandum of every company shall state:
· The name of the company with Limited (for a Public limited company) and with Private Limited (for a Private Limited company) as the last word   .
· The state in which the registered office of the company is to be situated.
· The main objects of the company and the incidental or ancillary objects.
· Other objects of the company.
· In the case of companies, with objects not confined to one state, the state to whose territories the objects extend.
· The memorandum of a company limited by shares or by guarantee shall also state that the liability of its members is limited.
· The memorandum shall also state the amount of share capital with which the company is to be registered and the division there of into shares of a fixed amount.  No subscriber of the memorandum shall take less than one share and each subscriber of the memorandum shall write opposite to his name the number of shares he takes.

4. For a company to change the place of its registered office from one place to another within a state, such change has to be confirmed by Regional Director. Once the change is confirmed by the Regional Director, the company shall file a certified copy of the confirmation given by the Regional Director together with a printed copy of altered memorandum before the registrar of the company. Thereafter the registrar of company shall register the said change.    

The Karnataka Industrial Establishments (National & Festivals Holidays) Act, 1963 and the rules there under provide for holidays for shops, commercial establishments, factories, plantations etc in Karnataka.

As per this Act, every employee shall be given a holiday on 26th January, 15th August and 2nd October. Apart from this, the employees are entitled for seven other holidays for other festivals, a list of which are mentioned in the Schedule attached to the Act. In addition all the establishments shall give holidays to their employees on 1st May and 1st November.
However this rule is not applicable to undertakings owned or controlled by the Government of India.  In addition to this every employee whose name is included in the electoral roll of the constituency, where an election to the Legislative Assembly is held, shall be allowed a day’s paid holiday to enable him to exercise his franchise.
Every employer shall display a list of national and festival holidays entitled to his employees in the form of a statement in a conspicuous place in the establishment.  In addition to this every establishment shall remain closed for one day of the week which is available to the employee as a weekly holiday.