Legal Mod – D 61-67 Relations of Partners to Third Parties

Unit – 61 : Directors (Legal Mod D JAIIB)

The management of the company needs to be entrusted with a professional body, i.e., the

board of directors.

The ownership and management of the company is thus bifurcated.

The board of directors control the day-to-day working and management of the company as well

the long-term strategic planning of the company.

Every public company must have at least three directors.

A public company having ( Legal Mod D JAIIB )

(a) a paid-up capital of Rs. 5 crore or more;

(b) one thousand or more small shareholders can elect a director from small shareholders.

Unless the articles provide for the retirement of all directors at every annual general meeting,

at least two-thirds of the total number of directors of a public company, or of a private

company which is a subsidiary of a public company, have to be

(a) Persons whose period of office is liable to determination by retirement by rotation;

(b) Appointment by the company in general meeting.

A company can have a maximum number of twelve directors and to increase this number, the

approval of Central Government is required.

The board of directors can appoint directors by passing a resolution if such a power exists in the

articles. Such directors are known as additional directors and they hold office only up to the

date of the next annual general meeting of the company.

Every public company, or a private company which is a subsidiary of a public company, having a

paid-up share capital of Rupees five crore must have a Managing or Whole time Director or a


Vacation Of Office By Directors

The office of a Director becomes automatically vacant if

he fails to obtain qualification Shares

he is found to be unsound mind by the Court

he is adjudged an insolvent

he is convicted by Court

he fails to pay any call in respect of Shares

he is removed by shareholders by passing resolution.


Unit – 62 : Foreign Exchange Management Act, 1999

FERA: The main objective of the Foreign Exchange Regulation Act, 1973 (FERA) was to:

consolidate and amend the law,

regulate certain payments,

dealing in foreign exchange,

the import and export of currency, for the conservation of the foreign exchange

resources of the country,

and finally the proper utilization of this foreign exchange so as to promote economic

development of the Company.

FEMA: The object of enacting Foreign Exchange Management Act, 1999(FEMA) is to consolidate

and amend the law relating to foreign exchange with the objective of facilitating external trade

and payments and for promoting the orderly development and maintenance of foreign

exchange market in India.

Regulation and Management of Foreign Exchange ( Legal Mod D JAIIB )

1. Deal transfer any foreign exchange / foreign security to any person other than an authorised


2. makes any payment to any person resident outside India.

3. Receive any payment on behalf of any person resident outside India

4. Enter into any financial transaction in India in relation to a right to acquire any asset outside

India by any person.

Powers of RBI with Respect to Authorised                                                                                                            

New Regulation and Management of Foreign Exchange

1. Deal transfer any foreign exchange / foreign security to any person other than an authorisedperson

2. makes any payment to any person resident outside India.

3. Receive any payment on behalf of any person resident outside India

4. Enter into any financial transaction in India in relation to a right to acquire any asset outsideIndia by any person.

Powers of RBI with Respect to Authorised Persons

1. To appoint authorised person deals in foreign exchange.

2. RBI has the power to inspect the authorised persons so appointed to ensure that the said

person complies with all the rules

and regulations of RBI.Contravention, Penalties, Adjudication and Appeals(585)

1. An adjudicating Authority can enquire contravention under FEMA only if complaint is filed byCentral Government.

2. Adjudicating Authority has to endeavour to dispose off the complaints within one year fromthe date of receipt of the complaint.

Penalty can be levied up to thrice the sum involved in such contravention where such amountis quantifiable or upto Rs.2 Lakh. Where the amount is not quantifiable and where suchcontravention is a continuing one, further penalty of Rs.5 thousand per day


Unit – 63 : Transfer Of Property Act, 1882

Mortgage is a transfer of an interest in specific immoveable property as a security for the

repayment of a monetary liability.

The transferor is called Mortgagor. The transferee is called a Mortgagee

Types Of Mortgage

Simple Mortgage does not deliver possession of the mortgaged property

mortgagor himself personally to pay the mortgage money

in the event of his failing to pay, the mortgagee shall have right to

get themortgaged property sold and recover his dues

Mortgage By Conditional Sale

The mortgagor apparently sells the mortgaged property to the

mortgagee with the condition that on default of payment on a

certain date the sale becomes absolute, the sale shall becomes

void, the buyer(mortgagee) shall transfer the property to


Usufructuary Mortgage Gives possession

To retain such possession until payment of mortgage-money

To receive rents and profits arising from the property

Appropriate the same towards payment of interest or mortgage-money or both

English Mortgage The Mortgagor binds himself to repay the mortgage-money on a

certain date and transfers the mortgaged property absolutely to

the mortgagee Subject to the condition that he will re-transfer it to the mortgagor

upon payment of the mortgage-money

The power of sale without intervention of Court if money not paid

Mortgage by Deposit of Title

The Mortgagor delivers documents of title

Goods With intent to create a security thereon

The delivery of documents of title is done in a town specified by

state govt.

A mortgage other than a mortgage by deposit title deeds can be effected only in terms of a

mortgage deed duly signed by the mortgagor and attested by at least two witnesses.

The essentials of valid Equitable Mortgage is debt, deposit of title deeds and intention as


Leases of Immoveable Property

A lease is a transfer of a right to enjoy the property for a certain time on in perpetuity (that is forever), in consideration of a price paid or promised, to be given periodically to the transferor by the transferee.

A lease for Agriculture/manufacturing purpose is deemed to be a year to year lease. This lease can be terminated by the less or/lessee by giving 6 months notice to one another.

A lease for any other purpose is deemed to be a lease from month to month. It can be

terminated by giving 15 days notice to one another.


Unit – 64 : The Right to Information Act, 2005

The Right to Information Act, 2005 was enacted with intent to provide for setting out the

practical regime of right to information for citizens to secure access to information under the control of public authorities, in order to promote transparency and accountability in the

working of every public authority.

This Act extends to whole of India except the State of Jammu & Kashmir.

Central Government is the appropriate authority if the concerned public authority is

established, constituted, owned, controlled or substantially financed by funds provided directly or indirectly by that Government or the Union Territory Administration.

It is the State Government, if the concerned public authority is established, constituted, owned, controlled or substantially financed by funds provided directly or indirectly by that

Read More : – Relations of Partners to Third Parties (51-60)


‘Central Information Commission’ means the Central Information Commission constituted by the Central Government.

‘Central Public Information Officer’ means the Central Public Information Officer designated by the public authority and includes a Central Assistant Public Information Officer.

‘Information’ means any material in any form, including records, documents, memos, emails, opinions, advices, press releases, circulars, orders, logbooks, contracts, reports, papers, samples, models, data material held in any electronic form and information relating to any private body which can be accessed by a public authority under any law for the time being in force.

‘Public authority’ means any authority or body or institution of self Government established:

(a) by or under the Constitution;

(b) by any other law made by Parliament;

(c) by any other law made by the State Legislature;

(d) by notification issued or order made by the appropriate Government and includes any

(i) body owned, controlled or substantially financed;

(ii) non-Government organisation substantially financed, directly or indirectly by funds provided by the appropriate Government.

‘Right to information’ has been defined in an inclusive manner. It means the right to

information accessible under this Act which is held by or under the control of any public

authority and includes the right to:

(i) inspection of work, documents, records;

(ii) taking notes, extracts or certified copies of documents or records;

(iii) taking certified samples of material;

(iv) obtaining information in the form of diskettes, floppies, tapes, video cassettes or in any

other electronic mode or through printouts where such information is stored in computers or in other device.

‘State Information Commission’ means the State Information Commission constituted by the State Government under this Act.


Unit – 65 : Right to Information and Obligations of Public Authorities


PIOs (Public Information Officers) are officers designated by the public authorities in all

administrative units or offices under it to provide information to the citizens that request for

information under the Act. Any officer, whose assistance has been sought by the PIO for the

proper discharge of his or her duties, shall render all assistance, whenever demanded.


PIO shall deal with requests from persons seeking information and where the request can not be made in writing, to render reasonable assistance to the person to reduce the same in writing.

If the information requested for is held by or its subject matter is closely connected with the

function of another public authority, the PIO shall transfer, within five days, the request to that other public authority and inform the applicant immediately.

PIO may seek the assistance of any other officer for the proper discharge of his/her duties.

PIO, on receipt of a request, shall as expeditiously as possible, and in any case within thirty days of the receipt of the request, either provide the information on payment of such fee as may be prescribed or reject the request for any of the reasons specified in 8.8 or 8.9 of the Act.

Where the information requested for concerns the life or liberty of a person, the same shall be provided within forty-eight hours of the receipt of the request.


(a) If the PIO fails to give a decision on the request within the period specified, he shall be

deemed to have refused the request.

Where a request has been rejected, the PIO shall communicate to the requester –

(i) the reasons for such rejection,

(ii) the period within which an appeal against such rejection may be preferred,

(iii) the particulars of the appellate authority.

PIO shall provide the information in the form in which it is sought unless it would

disproportionately divert the resources of the public authority or would be detrimental to the safety or preservation of the record in question. If allowing partial access, the PIO shall give a notice to the applicant, informing:

(a) that only part of the record requested, after severance of the record containing information which is exempt from disclosure, is being provided;

(b) the reasons for the decision, including any findings on any material question of fact,

referring to the material on which those findings were based;

(c) the name and designation of the person giving the decision;

(d) the details of the fees calculated by him or her and the amount of fee which the applicant is required to deposit; and

(e) his or her rights with respect to review of the decision regarding non-disclosure of part of

the information, the amount of fee charged or the form of access provided.

If information sought has been supplied by a third party or is treated as confidential by that

third party, the PIO shall give a written notice to the third party within five days from the

receipt of the request and take its representation into consideration.

Third party must be given a chance to make a representation before the PIO within ten days

from the date of receipt of such notice.

(b) Payment of fees

As per the Right to Information (Regulation of Fee and Cost) Rules, 2005, the application shall be accompanied by a fee of rupees ten. It may be paid in cash against proper receipt or by demand draft or a banker’s cheque or by Indian Postal Order. The instrument is payable to the accounts officer of the public authority.

(c) Disposal of the request

Where the application is received by another public authority or the information is more closely connected with the functions of another public authority, the application shall be transferred to that other public authority within five days from the date of the receipt of the application and in form the applicant about the transfer.

If the application relates to the public authority receiving it, the information shall be provided as expeditiously as possible but within thirty days.

If the information sought concerns the life or liberty of a person, the same shall be provided

within forty-eight hours of the receipt of the request.

The applicant is required to pay the charges for providing the information. The rules prescribe the charges for computing the cost. The charges are computed at the following rates:

(a) rupees two for each page in A-4 or A-3 size paper created or copied;

(b) actual charge or cost price of a copy in larger size paper;

(c) actual cost or price for samples or models; and

(d) for inspection of records, no fee for the first hour and a fee of rupees five for each fifteen

minutes or fraction thereof thereafter.

(d) Third Party information

Third party means a person other than the citizen making a request for information and

includes a public authority. Where a Central Public Information Officer intends to disclose any information or record or part thereof which relates to or has been supplied by a third party and has been treated as confidential by that third party, the Central Public Information Officer shall within five days from the date of receipt of the request give a written notice to such third party that he intends to disclose the information.

(e) Rejection of the request

The request for Information may be rejected where such a request for providing access would involve an infringement of copyright subsisting in a person other than the State.

Where a request has been rejected, the Central Public Information Officer shall communicate to the person making the request the reasons for such rejection, the particulars of the appellate authority and the period within which an appeal against such rejection may be preferred.

(f) Information exempt from disclosure

The Act lists certain categories of information that is exempt from disclosure. These include:

(a) information, the disclosure of which would prejudicially affect the sovereignty and integrity of India;

(b) disclosure of information expressly forbidden by law or may constitute contempt of court;

(c) disclosure of which would cause a breach of privilege of Parliament or of the State


(d) information relating to commercial confidence, trade secrets or intellectual property;

(e) information available to a person in his fiduciary relationship;

(f) information received in confidence from foreign government;

(g) information, the disclosure of which would endanger the life or physical safety of any


(h) information which would impede the process of investigation or apprehension or

prosecution of offenders;

(i) cabinet papers including records of deliberations of the Council of Ministers, Secretaries and other officers.


The Central Government has the powers to constitute a body known as the Central information commission.

The State Governments have the power to constitute for the State a body knownas the State Information Commission to administer the provisions of the Act where the State Government is the appropriate authority.

The Central Information Commission (also the State Information Commission wherever it has the jurisdiction) has been empowered to receive and inquire into a complaint from any person:

(a) who has been unable to Central Public Information Officer; or his application for information or appeal was refused to be received by the Central Assistant Public Information Officer;

(b) who has been refused access to any information requested under this Act;

(c) who has not been given a response to a request for information;

(d) who has been required to pay a fee which he considers unreasonable;

(e) who believes he has been given incomplete, misleading or false information;

(f) in respect of any other matter under this Act.

Any person who does not receive a decision within the time specified (normally thirty days) or is aggrieved by a decision of the Central Public Information Officer may within thirty days from the expiry of such period or from the receipt of such decision.


Unit – 66 : The Prevention of Money Laundering Act, 2002

Under the Prevention of Money Laundering Act (PMLA), 2002, Section 12 there are certain

obligations on banks to preserve and report customer account information, for which RBI has issued directives (during Jan 2006) u/s 35A of Banking Regulation Act 1949 & Rule 7 of

Prevention of Money laundering Rules as under:

Maintenance of records of transactions: cash transactions of above Rs.10 lac or its equivalent in foreign currency; series of cash transactions connected to each other, of- below Rs.10 lakh or its equivalent in foreign currency within a month and the aggregate value of such transactions exceeds rupees ten lakh; cash transactions in forged or counterfeit currency notes or banknotes and where any forgery of a valuable security has taken place; suspicious transactions in cash or otherwise.

Preservation of records : Banks should maintain, for at least 5 years from the date of cessation of transactions between the bank and the client, all necessary records of transactions, both domestic or international, which will permit reconstruction of individual transactions (including the amounts and types of currency involved if any) so as to provide, if necessary, evidence for prosecution of persons involved in criminal activity. As regards, the documents these are to be preserved for 10 years.

Reporting to Financial Intelligence Unit-India Banks are to report information relating to cash and suspicious transactions to the Director, Financial Intelligence Unit-India (FIU-IND), New Delhi (details of reports given above). KNOW YOUR CUSTOMER (KYC) KYC guidelines issued by RBI u/s 35(A) of B R Act (and Rule 7 of Prevention 1 Money Laundering Rules) keeping in view the recommendation of Financial Action Task Force.

Objective: Preventing use of banks by criminals for money laundering purposes. Accordingly

the banks are required to verify the identity and address of the customers and do proper



Banks to obtain introduction, identity of the customer and do proper verification before

opening the account.

Small depositors: Simplified criteria of identification and introduction to followed where

the balance shall not exceed Rs.50000 and transactions in a year does not exceed Rs.1

lac and withdrawal not more than Rs.10000 per month. In these cases the certification

of address and photograph by the introducer enough. However, if the amount of total

credit exceed Rs.80000 or balance exceeds Rs.40000, notice to be sent to the customer.

PERIODICAL UPDATION OF KYC SIMPLIFIED: The Reserve Bank has revised its earlier

instructions on periodical updation of ‘Know Your Customer’ (KYC) and has advised banks as


a) They should continue to carry out on-going due diligence with respect to the business

relationship with every client and closely examine the transactions in order to ensure that theyare consistent with their knowledge of the client, his business and risk profile and, wherevernecessary, the source of funds.

b) Full KYC exercise should be done at least every two years for high risk individuals and


c) Full KYC exercise should be done at least every ten years for low risk and at least every eight years for medium risk individuals and entities.

d) Positive confirmation (obtaining KYC related updates through email/letter/telephonic

conversation / forms / interviews / visits, etc.), should be completed at least every two years for medium risk and at least every three years for low risk individuals and entities.

e) Fresh photographs should be obtained from minor customers on their becoming major.

Risk review of customers: Risk review should be done periodically net less than once in 6

months ( 15th of May / Nov.

Banks to keep a record of cash transactions above Rs.10 lac.

Banks to send report of these transactions to Financial Intelligence Unit of India. Cash

transaction report: CTR (covering amount above Rs.10 lac of single transaction of total

of all transactions within a month) for each month to be sent by 15th of the next month.

Individual transactions below Rs.50000 not to be reported. Suspicious transaction report

(STR). to be submitted within 7 working days of occurrences.

Banks to maintain records of transactions for a period of min 10 years from date of

transaction. Record of documents to be kept for min 10 years from date of termination

of relationship.

Banks to issue TCs, DDs, MTs and TTs for Rs.50000 and above only by debit to

customers’ account.

Due diligence to be ensured for transactions of Rs.50000 and above in case non-

customer transactions.

Banks are to appoint a Sr. Mgmt. Officer, to be designated as Principal Office

responsible for monitoring and reporting.

Unique Customer Identification Code to be allotted to all new customers.

Features of Basic Saving Bank account (RBI Aug 10, 2012):

(1) it is subject to normal KYC compliance. Account opened as a small account, attracts

conditions applicable to small a/c

(2) it is normal banking service available to all.

(3) No min balance

(4) No max no. of deposits but max no. of withdrawals 4 in a month including ATM

(5) No other account is allowed to be opened along with such account. If already opened, it is tobe closed within 30 days.

Customer Identity Document: Passport, PAN card, Voter I-Card, driving license, Identity card to bank’s satisfaction, UIDAI letter, and letter of recognized public authority. (NAREGA job card for opening Small Accounts only)

Address Documents: Telephone bill, bank a/c statement, electricity bill (even in name of

relative with whom living), letter of recognized public authority, ration card, letter from

employer, UIDAI letter, rent agreement is registered with Govt. / Registration Authority

Imp: If identity document contains address, separate document not to be taken.

Introduction: It is not to be insisted upon (RBI – Dec 10, 2012)


Unit – 67 : Information Technology Act, 2000

Cyber Law in India is based on Information Technology Act 2000 which extends to whole of

India. The Act has been drawn on the lines of Model Law on Electronic Commerce adopted in1996 by UN Commission on International Trade Law (UNCITRAL). The Act has been amendedwef Oct 27, 2009.

The major provisions of the Act are:

Electronic records or contracts – The law of evidence is traditionally based on paper based

records and oral testimony. The Act provides legal treatment to users of electronic

communication similar to other paper based or oral testimony means. In other words, the Act has legalised the electronic contracts to make them legally enforceable. Records can be kept in an electronic form.

Electronic form means information generated, sent, received or stored in media, magnetic,

optical, computer memory, micro film etc. In the eyes of law, written records also mean

electronic records.

Digital signature -Digital signature is defined as `authentication of an electronic record by a

subscriber, by means of an electronic method or procedure, in accordance with the provisions of the Act’. The Act has provided legal recognition to digital signatures. Where any information or any other matter is required to be authenticated by affixing signature, such requirement shall be deemed to be satisfied if the information is authenticated by Digital signatures.

(The term Digital Signatures has been substituted by Electronic Signatures)

Submission of information in electronic form: Customers can now furnish information to banks through electronic means for opening of accounts or for other transactions. Such applications or information, if authenticated by way of digital signatures, shall be deemed to have been properly submitted.

Receipt or payment of charges through electronic means : Banks can make payment or receive payments or other charges by way of electronic means.

Publication of rules in electronic form: Rules, regulations, orders, bye-laws or notifications can now be issued or published in electronic form or in paper form. The date of publication of such documents shall be deemed to be the date of first publication of such matter.

Keys for digital signature – For the purpose of creating a digital signature and also for the

purpose of verification of the digital signature by the Certifying Authority, there is a pair of keys called private key and public key respectively, under a system known as Asymmetric Cryptosystem.

Authentication of electronic records – A person (called subscriber) can authenticate an

electronic record by affixing his digital signature with the help of a ‘private key’.

Issue of digital certificate: Where a person wants a digital certificate, it may make an

application to a Certifying authority (CA) for issue of the certificate. The CA shall issue the

certificate after satisfying itself that

(a) the applicant holds the private key corresponding to the public key to be listed in the digital signature certificate

(b) applicant holds the private key capable of generating a digital signature and

(c) the public key to be listed in the certificate can be used to verify a digital signature affixed by the private key held by the applicant.

Retention of electronic records – The requirement of any law prescribing retention of records for a particular period, shall be considered to have been met, when the records are kept in electronic form.

Computer crimes or Cyber crimes: A person is deemed to have committed a cyber crime

where: he secures access to a computer system

(a) where he downloads or copies data base or information from a computer system where he introduces computer virus into a computer system

(b) where he damages a computer system where he disrupts a computer system (l) where he causes denial to a computer system to any authorized person ) where a person intentionally conceals, destroys or alter any computer source document for a computer program or source.

Computer virus – means any instruction, information, data or program that destroys, damages,degrades or spoils the performance of a computer system.

Confiscation – Where. any computer system, floppies, CDs, tape drives etc. causes

contravention of any provisions of the Act, these are liable to be confiscated.

Penalties – The Act provides for penalties for violation of the provisions of the Act as under:

Sec 43: (a) Unauthorised access –damages by way of compensation to the person so affected.

(b) Introduction of virus and malicious code damages by way of compensation to the person so affected.

(c) Denial of access – damages by way of compensation to the person so affected.

Data theft – Fine up to Rs.2 lac and/or imprisonment up to 3 years (Sec 65).

Section 66 – If any person, dishonestly or fraudulently, does any act referred to in section 43, he shall be punishable with imprisonment for a term which may extend to 3 years or with fine which may extend to Rs.5 lack or with both.

Section – 66A. Any person who sends, by means of a computer resource or a communication


(a) any information that is grossly offensive or has menacing character; or

(b) any information which he knows to be false, but for the purpose of causing annoyance,

inconvenience, danger, obstruction, insult, injury, criminal intimidation, enmity, hatred or ill

will, persistently by making use of such computer resource or a communication device,

(c) any electronic mail or electronic mail message for the purpose of causing annoyance or

inconvenience or to deceive or to mislead the addressee or recipient about the origin of such messages, shall be punishable with imprisonment_ for a term which may extend to 3 years and with fine.

Hacking – Hacking is an offence and one will have to pay a fine of up to Rs.2 lac or undergo

imprisonment up to three years for hacking.

Hacking means knowingly or intentionally concealing, destroying or altering or causing another, to destroy or alter any computer code used for a computer programmer or computer system or computer network.

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