Ten Bounced Cheque Cases In Online Banking Era That Had Gone Way Too Far

Introduction To Negotiable Instrument

  

A negotiable instrument is a transferable signed document that promises to pay the bearer a sum of money at a future date or on demand. Negotiable Instrument is a general term, and as per section 13 of Negotiable Instruments Act, there are three kinds of negotiable tools, it includes a promissory note[1], bill of exchange[2] or cheque [3] payable moreover to order to bearer.

The Negotiable Instruments Act came into force in the year 1881. Before this legislation was brought into force, laws relating to negotiable instruments were governed by English laws. Later the Act operates on the subject provision of Section 31 and 32 of the Reserve Bank of India Act 1934.

A Cheque is said to be bounced or dishonored when the bank can not clear it for want of sufficient funds in the account or various other reasons, some of it can be overwritten on the cheque, payment stopped by the account holder, signature mismatch, etc.

Dishonor of a negotiable instrument can be broadly committed in two ways, Dishonour by non-acceptance[4] and non-payment[5]. As per Section 138 of the Act, the disgrace of a cheque is a crime and is disciplinary by custody up to two years or with financial forfeit or with both.

The recipient must show the sign to the drawer with 30 days from the date of in receipt of “Cheque Return Memo” from the bank. The notice must be positioning that the cheque sum must be rewarded to the recipient within 15 days from the date of receiving of the notice by the drawer. After in receipt of the notice, if the drawer doesn’t make the sum within 15 days from the day of in receipt of the notice, then he has committed a wrong under Section 138 of the Negotiable Instruments Act.

The grievance should be listed in a judge’s court within a month of the termination of the notice period. It is vital in this case to refer an attorney who is well experienced and accomplished in this area of practice to proceed additional in the stuff.

On 18^th of February 2019, in the case of Sri Santhosh J v. Sri V Narasimha Murthy, High Court of Karnataka at Bangalore; proposed to amend the said act to address the issue of delay in the final resolution of cheque dishonor cases to provide relief to payees of the dishonored cheque. In addition to this, it will also discourage frivolous and unnecessary litigations and save the time of the Court.

After this proposal, certain amendments which are to be brought in the legislature were drafted in the form of The Negotiable Instruments (Amendment) Bill, 2017. After being passed by the Lok Sabha, the said Act is a step closer to becoming a law. In the age of net banking, businesses across India use cheques, including post-dated ones, to make and receive payments from vendors, suppliers, and customers.

The Rajya Sabha passes proposed amendments to be brought after this bill-

1. It aims to bring the provision enforce, under which the drawer of the cheque that has been dishonored to pay interim compensation to the complainant.
2. The Interim compensation that is to be provided shall not exceed the 20% of the amount of the cheque that was dishonored.
3. The interim compensation is to be paid by the drawer of the dishonored cheque in a summary trial or a summons case. The same is applicable even if he pleads not guilty to the charge made in the complaint.
4. The drawer of the cheque has to pay interim compensation within 60 days of the date of order. However, it is at the discretion of the bench to give an extension of further 30 days but not beyond that.
5. In the case when the drawer of the cheque is acquitted in the case, the complainant has to repay the drawer the interim compensation with interest. The repayment has to made within 60 days from the date of the order of the court.
6. An additional 20 percent compensation will have to be paid if the drawer goes for an appeal. This amount would be over the Interim compensation amount paid during the initial period of the suit. This clause aims to deter appeals.

Cutting across the party line, members of opposition parties including Congress supported the bill but suggested that the punishment must be more stringent to curb cheque payments defaults. Another view in the opposition of bill was that there is a presupposition that drawee is wrong and the payee is right, which is right, which is not good. In some instances, the payee is also a culprit.

During the debate on the bill, the Congress Leader Madhusudan Mistry said the penalty proposed was not enough to curb the fraudulent practices. They said the government should come out with laws in parallel with France and UAE, wherein the person who has committed default in the payment of cheque shall be barred from issuing a cheque for five years. This has proved to be an effective deterrence strategy, for that of an experimental law like this.

[1] Section 4 NI Act

[2] Section 5 NI Act

[3] Section 6 NI Act

[4] Section 91 NI Act

[5] Section 92 NI Act

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Ten Clarifications On Non-Disclosure Agreement India And Its Sample Format

What is a non-disclosure agreement?

Known by various names such as confidentiality agreement (CA), confidentiality disclosure agreement (CDA), proprietary information agreement (PIA) and secrecy agreement (SA), a non disclosure agreement meaning is a legally binding contractual obligation between two or more parties containing information that the parties keep it confidential. A third party is not given access to the information present in a non-disclosure agreement. An NDA aims to create a confidential agreement whereby, both the parties mutually agree not to disclose information to a third party, which could also be a trade secret. NDAs play a major role in protecting private sensitive information as well as Intellectual Property rights by clearly outlining as to what information must be kept confidential and what must be made available to the world. An NDA is usually contracted between two entities, companies or individuals who consider doing business with each other and to understand the nature of the business carried out by each other. NDAs cannot be enforced if the contracted activities are felonies, just like all other contracts.

A few examples of a Non disclosure agreement are:-

1. Attorney-client privilege
2. Doctor-patient confidentiality
3. Priest-penitent privilege
4. Bank-client confidentiality

Types of Non Disclosure agreement

There are three kinds of non-disclosure agreements, namely unilateral, bilateral and multilateral.

1. Unilateral: In a unilateral non-disclosure agreement, there are two parties and one party anticipates the disclosure of certain information to the other party and protects that information from getting further disclosed. Example – Protection of a trade secret.
2. Bilateral: Unlike a unilateral non-disclosure agreement, bilateral non-disclosure agreement requires two parties to anticipate in disclosing information to each other that intends each to protect them from further disclosure. A bilateral NDA is also called mutual or two-way NDA.
3. Multilateral: As the name suggests, such an NDA requires three or more parties where at least one party anticipates disclosing some information to the other parties from further disclosure of the same. Hence, in such a kind of NDA, the parties usually have the scope of reviewing, deliberating and finally reaching a unanimous judgement.

The content of a Non-Disclosure Agreement

An NDA clearly defines who are the parties to the contract are. It is for the parties, (whether two, three or more) to decide what information must be kept confidential. In other words, the parties define the word ‘confidential.’ The way in which the recipient is ought to handle the confidential information, failing which will result in the breach of contract is also prescribed in an NDA. An NDA also mentions the disclosure period and the information not disclosed during the said period will not be deemed as confidential. Apart from these an NDA also defines the terms and conditions of the parties, the law and jurisdiction under which they are governed, no.of years the agreement is binding on them, if or not certain information can be disclosed to a third person with permission, etc.

 Non Disclosure Agreement in India

In India, a non-disclosure agreement is governed and protected by the legislation known as the Indian Contract Act,1872. It is mandatory for an NDA to be stamped to be legally enforceable in India. A penal action can also be initiated against an employee under Section 406 of the Indian Penal Code, 1860 for Criminal breach of trust if he/she engages in misusing and disclosing a secret information which was protected under an NDA. Further, civil proceedings are also maintainable under Section 63 of the copyright act, if the information protected under copyright act is stolen.

A Non Disclosure Agreement sample used in India

THIS NON-DISCLOSURE AGREEMENT (the “Agreement”) is entered into on this 29th day of June, 2016 by and between XYZ, having its registered office at A-7 Second floor, Connaught Place, New Delhi-110028  ( the “Receiving Party”), and …………………………………………………………….(operating under the trade name “A B C”), having its office at …………………………………………………………………………, (the “Disclosing Party”).

The Receiving Party hereto desires to participate in discussions regarding providing financial assistance in the form of various products from time to time to small and medium enterprises introduced to it by the Disclosing Party (the “Transaction”).  During these discussions, the Disclosing Party may share certain confidential and proprietary information with the Receiving Party.  Therefore, in consideration of the mutual promises and covenants contained in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

This includes —-

1. Definition of Confidential Information.
2. Disclosure of Confidential Information
3. Use of Confidential Information
4. Compelled Disclosure of Confidential Information.
5. Term.
6. Remedies.
7. Return of Confidential Information.
8. Notice of Breach.
9. No Binding Agreement for Transaction
10. Warranty.
11. Miscellaneous.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

DEF Ltd.,                                                                                    ABC.. Pvt. Ltd.                  

XYZ                                                     By                          _____

Vice President                                                           Name:

                                                                                Title: Director

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10 Doubts About Private Limited Company Need To Know About Companies Act 2013 You Should Clarify

Introduction To Companies Act 2013

The term ‘company’ implies an association of a number of persons for some common object or objects. In fact, the purposes for which people may wish to associate are multifarious. But companies act 2013 where the term ‘company’ normally refers to the associations for economic purpose i.e., to carry on a business.

In legal terminology, a company means a company incorporated or registered under ‘the Company Act, 2013’ or under any of the other Companies legislation.[i] In its legal form, the law creates an artificial entity i.e. a company. It has a separate identity independent of its members.
Hence, This artificial legal person like any other ordinary human being:

• has many rights and
• incurs many liabilities.

Basically, Companies are of various types such as:

• One Person Company (OPC)
• Private Limited Company
• Public Limited Company[ii]
• Company Without Share Capital (Charitable Company).[iii]

Aforesaid first three types of company are private in its nature. Means they are a private company while the ‘public limited company’ is not a private company.

A company is registered initially as a private company may be converted into a public company. Such conversion may be by choice, or by default or by operation of law.[iv]

However, the conversion of a company does not affect the legal identity of the company.

Meaning of Private Limited Company

As per Section 2(68) of the Companies Act, 2013, “private company” means a company having a minimum paid-up share capital of one lakh rupees or such higher paid-up share capital as may be prescribed and by its article

(a) restricts the right to transfer its share;

(b) limits the number of its members to two hundred; and

(c) prohibits any invitations to the public to subscribe for any shares in, or debentures of, the company.

However, After the 2015 amendment of Companies Act, the restriction of minimum capital requirement is waived off for all types of companies.

Let us now discuss the implications of each of these restrictions on the company i.e Private Limited Company.

Restriction on the right of members to transfer their shares

The articles of association(AoA) of a private company must specifically have a provision restricting the right of the members to transfer their shares. It means that the shares of a private company are not as freely transferable as those of the public companies. But it does not mean that the shares of a private company cannot be transferred at all. Further, the AoA generally provide that whenever a member of a private company desires to transfer his shares, he must offer them to the existing members at a price to be determined by the directors.

Restriction on the maximum number of members

A private limited company is also required to limit the maximum number of its members to two hundred. It means that the number of members in a private company can be between two and two hundred.

While counting the members, the following are not to be included:
i) persons who are in the employment of the company and by virtue of their employees happen to be members of the company, and
ii) persons, who, having been in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased.

Where two or more persons hold one or more shares of the company jointly, they shall be treated as a single member for the purpose of counting the number.

Prohibition on the invitation to the public

This restriction implies that a private limited company must not issue a prospectus or any other public invitation, directly or indirectly to the general public so as to invite them to invest in its shares or debentures.

The public may include any section of the public whether selected as members or the debenture holders of the company or as customers of the person issuing the prospectus, or in any other manner.

In simple words, it means that a private company cannot issue an invitation to the public. It has to make its own private arrangement to raise its capital.

[i] S. 2(20) of Companies Act, 2013.

[ii] S. 3 of Companies Act, 2013.

[iii] S. 8(1) & (2) of Companies Act, 2013.

[iv] S. 14(1) of Companies Act, 2013.

[v] S. 4(1)(a) of Companies Act, 2013.

5 Things You Needs To Know About 2018 Amendment To The Companies Act, 2013 These Companies Act Is Effective From 7th May 2018

These companies amendment act is effective from 7^th May 2018.

1. Changes in section 2 (Definition) under Companies amendment Act

• Associate Company (S. 2(6)): “significant influence” shall now be mean control of at least 20 percent of the Total voting powers (earlier it was total share capital) or control of or participation in business decisions under an agreement. Joint Venture: Earlier joint venture was not defined. Now Joint venture is defined as a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement;
• Subsidiary Company (S. 2(87)): the exercise or control of more than one-half of the total voting power (earlier share capital).

2. Insertion of Section 3 in Companies amendment Act –A: If at any time the number of members in a company is reduced below the requisite level (7 for a public company and 2 for private company) and the company carries on business for more than six months, then after six months, each member shall be severally liable for the whole debt of the company contracted during that time.
3. Section 12 (Registered office of the Company) in the Companies Amendment Act: Earlier the time limit to have a registered office was before the fifteenth day of its incorporation. Now the time limit is within thirty days of its incorporation.
4. Prospectus (Section 26) in Companies amendment Act: SEBI in consultation with Central Government is empowered to prescribe the contents of the prospectus. Clause a, b, c is omitted (Name, Address of the registered office, opening and closing of the issues, capital structure and auditor’s report on profits/losses need not be provided)
5. Private Placement (Section 42) under Companies amendment Act:
6. A company can make a private placement of securities.
7. PP can be made only to a selected group of people who have been identified by the board, and such person shall not be more than 50.
8. Section 54 (Sweat Equity Shares) under the Companies Amendment Act: Now the companies are permitted to issue sweat equity shares within the period of one year from the commencement of business.
9. Section 77 and Section 78 (registration of charges): The amendment does not require registration of such charges as may be prescribed in consultation with the RBI.
10. Section 90 (Significant Beneficial owner of the company): the person who is the significant beneficial owner has to give a declaration to the company. The person alone or together, or through person or persons have a beneficial interest of not less than 25 % shall be considered of having a beneficial interest in the company. This provision will be applicable to all the companies and the company has to register them as a significant beneficial owner.
11. Section 92 (Annual Returns) under Companies amendment Act: The central Government is now empowered to prescribe a form of Annual Return. It is now mandatory for the company to provide for the entire annual report on the website of the company. Section 93 omitted so now the registrar need not be informed when the stake of promoter’s change.
12. Section 96 (Annual General Meeting): For unlisted Companies, the Annual General Meeting can be held anywhere in India with the consent of all members either in written or electronic mode in advance.
13. Section 100 (EGM): The wholly-owned subsidiary of a company incorporated outside India has been allowed to hold its extraordinary general meeting outside India. Such Companies or subsidiaries can hold EGM at any place where they want in the world.
14. Section 101: Now a meeting can be commenced with a shorter notice period if 95% of voting power consents to such notice.
15. Section 123 (Declaration of Dividend): The BoD may declare interim dividend during any financial year at any time during the period from closure of financial year till holding of any of annual general meeting out from surplus in profit & loss account or else out from profits of fiscal or the financial year for which such dividend (interim) is required to be stated or out from the profits generated in such financial year until quarter prior the date of declaration of the dividend.

Read Also: All About Companies Act 2013

Final Dividend:  Any time through the period from closing of financial year till the holding of next annual general meeting out from surplus in profit & loss account or out from profits of fiscal or financial year for which such dividend is required to be stated or out from profits made in such said financial year until the quarter prior the date of declaration of the dividend.

14. Section 129 (Financial Statement): The consolidated financial statement of the company, its subsidiaries and associates should be in accordance with the applicable accounting standards and be laid before the Annual General Meeting.
15. Section 130 (Re-opening of books of Accounts): Re-opening of books of accounts is limited to 8 financial years immediately preceding the current financial year. The order for reopening of accounts can be made up to eight years unless there is a specific direction under section 128(5) from the Central Government for a longer period.
16. Section 136 (Audited Financial Statement): Amendment to sub-section (1) of section 136 provides that the copies of audited financial statements and other documents may be sent even with a shorter notice period if the same is agreed upon by ninety-five percent of the members entitled to cast their votes.
17. Section 139 (Appointment of Auditors): An auditor appointed for a period of five years need not be ratified every year at the AGM. Non-Compliance of the auditor to the terms the fine is either 50,000 or the amount received by the auditor whichever is lower. (Section 140). Contravention to the provision of 139 by the company, is 25,000 and may increase to 5 lakh Rupees or four times the remuneration of an auditor, whichever is lower.
18. Section 149 (Board of Directors): For resident Director, the director needs to stay in the country for 182 days in the previous financial year (Earlier previous calendar year).

Read Also: Section 185 of Companies Act 2013

Independent Director: the pecuniary relationship is now substituted “pecuniary relationship, other than remuneration as such director or having transaction not exceeding ten percent of the persons’ total income in all or such sum as to be agreed upon,” shall be thus substituted;

19. Section 160 (Retiring directors and directorship) under Companies amendment Act: The necessity to deposit a number of rupees one (1) Lakh w.r.t. recommendation or nomination of the directors shall not be pertinent in the situation where the case is of appointing an independent director/directors or the directors that are nominated through the nomination and remuneration committee.
20. Section 164 (Disqualification of a director): In case the Company has defaulted on the grounds of non-filing of the financial statement or failure to repay the interest after the due dates, then the director newly appointed shall not incur any liability for a period of six months from the date of appointment.

Disqualified on the ground of conviction: If a person is disqualified for a conviction for any offense, even if an appeal is preferred against the order of conviction, it shall still serve as a ground for conviction.

21. Section 167 (vacation of Director): If a director is disqualified for not filing the financial Statements or failure in repayment of dues, the office of the director shall become vacant in all the companies, other than the company which is in default under that sub-section.

Vacation need not be carried out: If conviction is for less than 30 days or where an appeal or petition is preferred within thirty days as aforesaid against the conviction resulting in sentence or order, only until the expiration of the period of seven (7) days since the date when any such petition or appeal has been disposed of; or elsewhere any similar further petition or appeal is chosen in opposition to the sentence or order within a period of seven (7) days, awaiting such additional further appeal or petition is disposed of.”.

22. Section 168 (Resignation of Director): Earlier it was mandatory for the resigning director to file a form with a detailed reason of resignation within 30 days. Now, this provision is made optional.

Here's What Industry Insiders Say About Doctrine Of Indoor Management

Meaning of Doctrine of Indoor Management

The doctrine of Indoor Management also referred to as the Turquand’s Rule evolved 150 years back. This Doctrine came into play as an opposition to the Doctrine of Constructive Notice. On one hand, where Doctrine of Constructive Notice is devised to protect the company against outsiders, the Doctrine of Indoor Management was meant to protect the third party or rather the outsiders from the actions of the company. In other words, Doctrine of Indoor Management states that people dealing with the company need not enquire about the internal proceedings related to the contract if they are satisfied that the transaction follows the memorandum and Articles of Association.

Origin of the Doctrine

This Doctrine of Indoor Management was first recognized in the case of Royal British Bank v Turquand. [1]

Facts of the case: The directors of the Company borrowed a certain sum from the plaintiff. The Article of the Company provided for the borrowing of money on bonds with a condition attached to it which stated that a resolution should be passed in the general meeting.  But the shareholders claimed that such resolution was not passed in the general meeting and thus the company was not liable to pay the money.

The verdict of the Case: It was held that the Company would be liable to pay the amount. The Directors were entitled to borrow the amount only after a resolution was passed in the General Meeting, thus the plaintiff had the right to infer that the formalities were done and the resolution was passed. Turquand was thus entitled to sue the Company on the strength of the bond. Lord Hartherly in his judgment sated- “Outsiders are bound to know the external position of the company, but are not bound to know its indoor management.”

Section 290 of the Companies Act 1956 states that the Acts done by the Director would be valid irrespective of the fact that their appointment was invalid by reason of any defect or got terminated under any of the provisions laid down in the Act.

Establishment of the Doctrine

The Doctrine of Indoor Management as identified in the Turquand Case was not accepted until it was approved by the House of Lords in the case of Mahoney v East Holyford Mining Co.[2]

Facts of the Case: The Article of the Company stated that the cheque must be signed by 2 or 3 directors and the secretary. But the issue regarding this case was that the Director who signed the cheque was not properly appointed at the time of signing.

The verdict of the Court-The Court held that the Appointment of the Director came under the Internal Management of the Company thus even if the director was not properly appointed, the third party was entitled to receive or cash the cheques as he is entitled to presume that the Directors were properly appointed.

Exceptions to Doctrine of Indoor Management:

1.) Where the outsider had knowledge of irregularity– The Application of the doctrine stands repealed in cases where the outsider dealing with the company is aware of the lack of authority of the person acting on behalf of the company.

Case: In the case of Howard v Patent Ivory Co[3]., the Directors of the Company borrowed the sum of 3500 pounds from another director without the consent of the Annual General Meeting. The rule stated that no director was allowed to borrow more than 1000 pounds without the consent of the general meeting. Verdict: Since the plaintiff here was the Director and was well aware of the rules and internal irregularities, the Company would not be liable.

2.)  No knowledge of Memorandum and Articles– This doctrine shall not apply in cases where the plaintiff relies on the Company for not having knowledge of the Memorandum and Articles.

Case: Rama Corporation v Proved Tin & General Investment Co[4]. brought this exception into the limelight. As per the facts of the case, Director X of the company entered into a contract with Rama Corporation. The Articles of the Company stated that the directors may delegate their power but Rama Corporation without reading the Article and Memorandum entered the contract. It was later discovered that the Company did not delegate power to Director X.

Verdict: The Court held that the plaintiff could not take the remedy of Indoor Management for not knowing the Article or Memorandum.

3.) Forgery-The Company cannot be held liable for forgery committed by officers. Thus the Doctrine is not applicable to forged transactions which are void ab initio.

Case: In the case of Rouben v Great Fingal Consolidated,[5] the secretary of the Company forged the signatures of two directors of the Company and issued a certificate without authority.

Verdict: It was thus held that the holder of certificate could not take the remedy of Indoor Management.

4.) Negligence-The doctrine is not applicable in the case where an officer of a company does an act beyond his authority.

Case: In the case of B. Anand Behari v Dinshaw & Co (Bankers )Ltd.[6]., an accountant of the Company transferred the Company in favor of Anand Behari.

Verdict: The Court held that the Doctrine of Indoor Management won’t be applicable as the transfer would be void considering the fact that the transfer made by the accountant was beyond his authority.

5.) The doctrine would also remain inapplicable in cases where the question is with regards to the existence of an agency and not just regarding the power exercised by the agent.

The doctrine of Indoor Management in India:

The Court in the case of Lakshmi Ratan Cotton Mills Co. Ltd v J.K Jute Mills Co. Ltd[7]., declared that in any transaction of loan where the creditor entering into contract is not barred by any charter of the company or its articles and can enter into a contract on behalf of the Company, he/she is entitled to presume that all formalities required in connection have been completed.

[1] (1856) 6 E & B 327

[2]  (1875) LR 7 HL 893

[3] (1888) 38 Ch. D. 156

[4] (1952) 1All. ER 554

[5]  (1906) AC 439

[6]AIR 1942 Oudh 417

[7] AIR 1957 All 311