CMA Inter Paper 5: Business Laws and Ethics flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Contract

Under Section 2(h) of the Indian Contract Act, 1872, a contract is an agreement enforceable by law, requiring offer, acceptance, lawful consideration, capacity, free consent and lawful object.

Free consent

Consent is free when not caused by coercion, undue influence, fraud, misrepresentation or mistake. Consent so caused makes the contract voidable at the aggrieved party's option, except bilateral mistake, which is void.

Quasi contract

Obligation created by law, not agreement, to prevent unjust enrichment. Sections 68 to 72 cover necessaries supplied, payment by mistake or coercion, non-gratuitous acts and money held by finder of goods.

Wagering agreement

Agreement where one party wins and the other loses on an uncertain event, with no interest except the stake. It is void under Section 30, but collateral transactions and horse-race wagers of a specified value are valid.

Doctrine of supervening impossibility

Under Section 56, a contract becomes void when performance becomes impossible or unlawful after formation due to an unforeseen event beyond the promisor's control. Initial impossibility of a known fact is void under Section 20.

Contract of guarantee

A contract to perform the promise or discharge the liability of a third person in case of his default. Three parties exist: surety, principal debtor and creditor; the surety's liability is secondary and co-extensive.

Particular lien

The bailee's right under Section 170 to retain goods on which he has bestowed labour or skill, until paid for services rendered concerning those specific goods. It is available to every bailee, unlike general lien.

Pledge

A bailment of goods as security for payment of a debt or performance of a promise under Section 172. The pawnee may retain goods and sell them after reasonable notice on default.

Agency by necessity

An agency arising in an emergency where the agent acts to protect the principal's property without prior authority, as where a carrier sells perishable goods. It arises from circumstances, not agreement.

Caveat emptor

Let the buyer beware: the buyer takes goods at his own risk as to quality. Exceptions under Section 16 include reliance on the seller's skill, merchantability and usage of trade.

Unpaid seller

A seller who has not been paid the full price, or whose cheque or bill has been dishonoured. Rights include lien, stoppage in transit and resale under Sections 45 to 54 of the Sale of Goods Act.

Holder in due course

Under Section 9 of the Negotiable Instruments Act, a holder who takes the instrument for consideration, before maturity, in good faith and without notice of any defect in the transferor's title.

Section 138 notice

On cheque dishonour for insufficient funds, the payee must send written demand within 30 days of receiving the dishonour memo; the drawer then has 15 days to pay before a complaint may be filed.

Mutual agency

The defining test of partnership under Section 4 of the Partnership Act: every partner is both principal and agent of the others, so acts of one bind the firm in the ordinary course of business.

Partner by holding out

Under Section 28, a person who by words or conduct represents himself as a partner is liable to third parties who lend money or supply goods on the faith of that representation, even without being a partner.

Designated partner

Under the LLP Act, 2008, every LLP must have at least two designated partners who are individuals, with at least one resident in India, identified in the incorporation document and responsible for compliance.

Deemed prospectus

Under Section 2(70) read with Section 25 of the Companies Act, 2013, where a company allots or agrees to allot securities with a view to offer for sale to the public, the document is deemed a prospectus.

Private placement

Under Section 42, an offer of securities to a selected group of not more than 200 persons in a financial year, without public advertisement, with funds kept in a separate bank account and allotment reported in PAS-3.

Sweat equity shares

Equity shares issued to directors or employees at a discount or for consideration other than cash, in recognition of intellectual property or value addition, subject to Section 54 and prescribed conditions.

Independent director

A non-executive director who has no material pecuniary relationship with the company. Section 149 requires such directors for listed and prescribed public companies, with a data bank registration.

Dividend declaration rule

Section 123 permits dividend only from current year profits or undistributed past profits, after providing depreciation and transferring to reserves; unpaid amounts go to a separate account and to IEPF after seven years.

Proxy under Section 105

A member may appoint another person as proxy to attend and vote at a meeting. The instrument in Form MGT-11 must be deposited 48 hours before the meeting; a proxy cannot speak or vote except on a poll.

Annual general meeting

Under Section 96, the first AGM is held within nine months of the first financial year end; later AGMs within six months of the year end, with no gap exceeding fifteen months between meetings.

Gratuity formula

Under the Payment of Gratuity Act, 1972, gratuity equals last drawn salary multiplied by 15, divided by 26, multiplied by completed years of service, payable after five years of continuous service.

Minimum bonus

Under the Payment of Bonus Act, 1965, eligible employees of establishments with twenty or more workers must receive at least 8.33 percent of salary or wages, with a maximum of 20 percent.

EPF contribution split

Under the EPF and MP Act, 1952, the employer contributes 12 percent of basic plus dearness allowance, of which 8.33 percent goes to the pension scheme and 3.67 percent to the provident fund.

Product liability

Under the Consumer Protection Act, 2019, a manufacturer, product seller or service provider is liable to compensate for harm caused by defective goods or deficient services, including under e-commerce transactions.

Abuse of dominance

Section 4 of the Competition Act, 2002 prohibits a dominant enterprise from practices such as predatory pricing, denial of market access or imposing unfair conditions that harm competition in the relevant market.

Capital account transaction

Under FEMA, 1999, a transaction altering assets or liabilities outside India, such as foreign investment or borrowing. Unlike current account transactions, it is regulated and generally requires RBI permission.

Corporate governance

The system of rules, practices and processes by which a company is directed and controlled, resting on the pillars of transparency, accountability, fairness and responsibility toward shareholders and stakeholders.

Whistle-blower mechanism

Under Section 177(9) of the Companies Act, 2013 and SEBI LODR, listed and prescribed companies must establish a vigil mechanism enabling employees to report genuine concerns without fear of retaliation.

CSR obligation

Section 135 requires companies meeting net worth, turnover or net profit thresholds to spend at least two percent of average net profit of the three preceding financial years on specified social activities.