Leverage-Financial Management

This would be useful for those who are pursuing their CS Professional Program.

Leverage: An advantage derived indirectly i.e using one thing to derive a benefit on another thing.

There are three kinds of leverages:

a) Operating Leverage.

b) Financial Leverage.

c) Combined Leverage.

Operating leverage can be computed using the following formula:

Contribution/Earning before interest and tax(EBIT)

Financial Leverage can be computed using the following formula:

Earning before interest and tax(EBIT)/ earning before tax(EBT)

Combined Leverage can be computed using the following formula:

Financial Leverage * Operating Leverage

From the following table we can understand how to compute contribution , EBIT and EBT.

Particulars                                                           Amount

Sales                                                                   

Less: Variable cost                                             

Contribution                                                       

Less: Fixed cost                                                   

EBIT                                                                    

Less : Interest on borrowed funds                        

EBT                                                                     

Less: Tax                                                             

Profit after tax                                                    

Less: Preference share dividend                          

Profit available for Equity shareholders              

My view on the case filed against Hindustan Pencils Ltd

http://www.thehindu.com/todays-paper/tp-national/law-student-sues-company-over-racist-crayon/article4793506.ece

Hindustan pencils have a crayon named skin color, and this has hurt the sentiments of an individual who's skin tone does not match the color used in that crayon. Everyone has a right to seek action against someone else's action which has offended them. But the question here is, whether it's worth getting offended here in this situation or not.

Some questions which came to my mind when I read the article are :

a) Does the company endorse the used skin color as a superior one?
b) Does the company say that the used skin color is the only ideal skin color?
c) Does the company say that the used skin color is the only skin color under the sun?
d) Does the company relate an individual's personal attributes to the color of the skin?
e) What skin are they talking about here? Human skin? Animal skin?
f) Which layer of the skin were they referring to?

May be the usage of the word skin can be challenged on a ground that it refers to a human organ(http://en.wikipedia.org/wiki/Human_skin) and such reference should not be used. It is like calling a black color car as hair color car. And this can be offensive to some people as they might feel sick using a product which refers to a human part.

The article speaks about how in the USA, flesh color was replaced with peach. Well black and white are two terminologies used to refer to Black skin and White skin humans, would you sue consumer goods manufacturers who have products colored Black and White saying that they are racists?

In India, so far, I have never come across someone distinguishing an other using Black, Brown etc. There is caste based discrimination, language based, region based, but I have never seen color based discrimination.

Why should well educated people waste their valuable time suing companies over this?

There are bad roads, bad drainage, bad governance for which we can sue.

And for the part in the article, which speaks about companies selling skin lightening products, yes if they put up advertisements, which show a person with a fair skin has a better chance to clear an interview or get into a college then yes they should be sued, as such ads are offensive and can affect the mindset and confidence of youngsters.

Right to information act,2005- continued

Following are the types of information exempted from the ambit of the RTI act, 2005:

a) Information regarding the national security, sovereignty and integrity of India, relations with foreign states and information which leads to incitement of an offence.
b) Information which has been expressly prohibited to be published by a court or a tribunal.
c) information disclosure of which would cause breach of privilege of parliament or the state legislature.
d) commercial confidence, trade secrets, intellectual property, disclosure of which would harm the position of the third party, unless competent authority is satisfied that larger public interest warrants so.
e) Information available to a person in a fiduciary relationship, unless larger public interst warrants so.
f) Info received in confidence from foreign government.
g) Information which would impede process of investigation or prosecution of offenders.
h) Information which would endanger life or safety of a person.
i) cabinet papers, including record of deliberations of the council of ministers, secretaries and other officers.
j) Information which would affect the privacy of another individual and there is no larger public interest which would warrant so.

provided that information which cannot be denied to the parliament or state legislature cannot be denied to any person.

Information regarding something which has occurred twenty years ago can be provided if such information does not violate points a) c) i) given above.

Doctrine of separability:

Where an information sought comes under any of the above categories, but a part of such information does not meet the requirements of non disclosure and such part can be completely severed from the other part, it can be provided to the person who has sought the information.

Third party information:

Third party information is that which provided by a third party, in this case the information commission has to notify the third party that such information is being sought by an applicant. The third party is then invited to make a submission as to whether such information should be submitted or not. Usually in larger public interest the concerns of the third party are not taken into account, unless it is some trade or commercial secret protected by law. The third party is entitled to an appeal.

Powers and functions of the information commission:

1)) To receive a complaint from a person who has not been able to :
a) Submit a request for information.
b) Receive the information within the stipulated time.
c) Who has been refused information.
d) Required to pay a higher fee than usual.

2) Initiate inquiry regarding the above mentioned matters if there is any substance to it.

3) The commission shall have the same powers as that of a civil court while summoning and enforcing attendance of witnesses and compel them to give oral or written evidence on oath and to produce the documents or things, requiring discovery of documents, receiving evidence on affidavit, requiring any public record from court or office.

4) Commission can require any document to which this act applies and the same cannot be refused by any public authority which is in possession of such document.

Right to Information continued- part 1

Few points relating to obligations of public authorities:

1) All public authorities must create and maintain a database of all information available with them, all records must be duly indexed, cataloged and records which are to be computerised are done so. This is to facilitate access of information all over the country.

2)  Within 120 days of enactment of this act publish:
a)particulars of the organization
b) powers and duties of its officers,
c)procedure followed in decision making,
d) norms set by or discharging functions.
e) Salaries of its officers and employees
f) Annual budget allocated
g) How money  is spent by the public authority
h) appointments made in the offices.
i) Manner of execution of subsidy programs.
j) statement of the board, minutes of the meetings.
k) facilities available to citizens for obtaining information.
l) categories of documents held by it
m) rules and regulations used by it for disseminating information

It should be noted that all public authorities must provide information suo moto than to make the public seek information under this act.

The state information commission shall appoint a state chief information officers and state information officers, other officers and staff to assist them.

The central information commission shall appoint a Central Chief Information Officer and information officers, other officers and staff to assist them.

How to obtain information?

a) Applicant shall make a request in writing in english or hindi or in the official language of the area in which he's submitting the application.
b) Such application shall be made with the concerned fees.
c) If such application cannot be made in writing then , assistance shall be rendered to such person making the request orally to reduce it in writing.
d) Applicant shall not disclose any details about him other than those necessary for contacting him.
e) Where an applicaiton is made and such information is available with another public authority then such application shall be transferred to such other public authority and inform the applicant about such transfer.
f) Such transfer mention above shall not be made later than 5 days from the date of receipt of application.
g) Each application has to be disposed of in 30 days , and where the application is regarding the life and liberty of any person then such application shall be disposed of in 48 hours.
h) Any failure to give information shall be a deemed refusal.
i) Where further fees has to be paid , then the applicant shall be intimated along with how such fees is calculated.
j) Where authority failed to provide information within the time limit, the applicant shall be provided information free of cost.
k) If the application is rejected then such reason for rejection, period of appeal against such rejection, particulars of appellate authority shall be provided.

Next blog: Information exempted from RTI and Information commissions. 

The Right to Information Act, 2005

Some important definitions:

1) Appropriate government : with relation to a public authority receiving significant funds from the central government , the central government.

with relation to a public authority which receives significant funds from the state government, the state government.

2) Central information commission means the central information commission constituted under sub section 1 of section 12.

3) State information commission means the state information commission  constituted under sub section 1 of section 15.

4) Central public information officer includes the central public information f=officer and the assistant central public information officer.

5) Chief information commissioner and information commissioner means the chief information commissioner appointed under sub section 3 of 12.

6) Competent authority-
The speaker in case of the Lok Sabha
The chief Justice of the High Court in case of the High Court
The chief Justice of the Supreme Court in case of the Supreme court
The President of India and the state governor of the concerned state in case of an authority constituted under the constitution.

7) Record-
It means any 1) Manuscript, file, document.
                     2) Any microfilm microfiche, facsimile copy of a document
                    3) Any reproduction of image or images in such microfilm.
                     4) Any material produced by a computer device.

8) Right to information refers to the right to accessible information under this act and includes the right to- take notes, copies, extracts, samples, obtaining information in the form of diskettes, floppies, tapes and video cassettes.

9) State public information officer means the state public information officer and the assistant state public information officer appointed under sub section 2 of section 5.

10) Third party means any person other than a citizen seeking information , includes a public authority.

CRPC - F.I.R

First information report (F.I.R) Sections: 154-156.

A police officer who receives information of any cognizable offence being committed or been committed then he shall file a first information report F.I.R. Any person who has information about any cognizable offence committed then he can go to a police station and give the station in charge the information ,who shall file a F.I.R based on the information.

It has to be understood the F.I.R does not have any evidenciary value, it has can only be used to corroborate or contradict evidence produced under the Indian evidence act.

Delay in filing F.I.R is tolerated. For eg: A was attacked by 4 people and was grievously injured. A's relatives who were witness took him to the hospital immediately and filed the F.I.R only the next day, the police officer cannot refuse to file the F.I.R citing that it is delayed. The responsibility of A's relative was to save his life at that time and not give information to the police. Therefore its ok that the F.I.R was filed a day later. 

A police officer cannot refuse to file an F.I.R , a complaint can be given about the concerned officer who refuses to file an F.I.R in a case. Once a F.I.R is filed the copy has to be given to the informant free of cost.

F.I.R does not make any person guilty or not guilty. It just records information about the alleged commission of a cognizable offence.

A police officer carries out the investigation based on the F.I.R. After the investigation is completed and the charges are definite against the accused then a charge sheet is filed against the accused by the public prosecutor in charge of the said case.

Juvenile Justice (Care and Protection of Children) Act,2000

The Juvenile justice act is the talk of the day after the Delhi Gang Rape incident, as one of the rapists, who was also the most brutal one among them is a juvenile and might escape harsh punishment.

Following are the features of the JJ Act for those who are interested and for those who are not interested but would have to read it anyway to get that 40 % to get your degrees :

1) The juvenile justice care and protection of children act replaced the erstwhile juvenile justice act 1986.

2) The JJA 1986 defined a boy who is 16 y.o.a and below as a juvenile and girl who is 18 y.o.a and below as a juvenile, The 2000 act repealed this and made a uniform 18 years of age for being a juvenile.

3) Certain definitions were replaced, such as a Juvenile delinquent was made into a juvenile in conflict with law.

4) Neglected juveniles are to be called as juvenile in need of care and protection.

5) The juvenile welfare boards and juvenile courts were made into child welfare committee and juvenile justice boards.

6) The 2000 act introduced the concept of adoption which was missing in the 1986 act.

For those who are wondering who a neglected juvenile/child in need of care and protection is, no its not a juvenile who didnt get access to an android phone, A neglected juvenile is :

1) One who is found begging.

2) Who is a destitute.

3) Parent or guardian is unfit or incapacitated to exercise control over the juvenile.

4) Lives in a brothel or with a prostitute or frequently goes to any place used for purpose of prostitution or is found to lead a life associated with a prostitute or a depraved life or with a drunkard.

Juvenile justice board :

Every district shall have a juvenile justice board for exercising powers relating to juvenile in conflict with law.
The board shall consist of a Metropolitan Magistrate, or a Judicial Magistrate of the first class, as the case may be.
No Magistrate can be appointed unless he has expert knowledge in child psychology.
No social worker shall be admitted to the board unless they have experience for atleast 7 years in health, education or welfare activities pertaining to children.

Powers conferred on the Board can be exercised by the high court or by the court of sessions in appeal, revision or otherwise.

When a magistrate who is not empowered to exercise the functions of the board is of the opinion that the person brought before him is a juvenile, he shall without any delay forward the person to the appropriate authority having jurisdiction over the proceedings.

Even if its discovered at a later stage of the case, or after disposal of the case that the person was a juvenile at the time of commission of the offence then the sentence passed shall have no effect and the person shall be forwarded to the board.


Orders which can be passed regarding the juvenile :

1) Allow juvenile to go home after advice and counseling .

2) Direct the juvenile to participate in group counseling or other activities.

3) Order Juvenile to perform community service.

4) Direct juvenile to be released for good conduct.

5) No case can a sentence exceeding 3 years can be passed.

6) Direct the juvenile to be sent to a special home for a period not exceeding 3 years.

A social investigation report shall be filed on the juvenile which is done on the findings of a probation officer or any other authorized person.

The juvenile shall be sent to an observation home while there is an inquiry pending against him

Such observation home shall be set up in every district by the government or by a voluntary organisation in collaboration with the government.

A special home shall be set up where the juvenile is sent once he/she is found guilty and is sentenced. In no case can a Juvenile be held in a special home exceeding 3 years.

The objective of the home is rehabilitate the juvenile in conflict with law or juvenile in need of care and protection.

Following are the various punishment given out regarding juveniles:

1) Punishment for cruelty to juvenile.

2) Punishment for employing child or juvenile for begging.

3) Penalty for giving intoxicating substances to a juvenile.

4) Punishment for exploitation of juvenile or child employee.

5) All the above offences are cognizable offences.


6) Alternative punishment.- Where an act or omission constitute an offence punishable under
this Act and also under any other Central or State Act, then, notwithstanding anything contained
in any law for the time being in force, the offender found guilty of such offences shall be liable to
punishment only under such Act as provides for punishment which is greater in degree.

Rehabilitation and social integration:

The objective of the special homes are to rehabilitate and socially integrate the juvenile delinquents. Alternatively the following can be used to rehabilitate and socially integrate juveniles.

1) Adoption:

Orphaned, surrendered and abandoned children can be given up for adoption by following the requisite provisions.

No child can be given up for adoption:

unless two members of the committee declare that the child is legally free to be adopted. This is done in case of abandoned children.

2 months have to elapse since the parents agreed to surrender their children.

a child who is capable of understanding things, that child's consent too must be taken.

The court can give a child for adoption irrespective of marital status, irrespective of the sex of the person adopting, and also children can be given up for adoption to childless couples.

Foster care:

Foster care is a temporary set up. Which is done for temporary placement of children who are to be given up later for adoption.

The state government can make rules for foster care and adoption . 

A child placed in foster care can be visited by the original parents of the child. Depending on the situation the child can go back to his own home.

Sponsorship:

A sponsorship scheme can  be given to the adopted children and the families so that educational, medical and nutritional requirements of the child can be met. A individual sponsorship,group sponsorship or a community sponsorship can be arranged.

The state government makes the rules regarding the sponsorship.

After care organisation:

A child who leaves the special home can be sent to the after care organisation. Such organisation helps the Juvenile in achieving an industrious life and shall help him in not committing offences again.

No juvenile shall be made to stay in an after care organisation for more than three years.

A juvenile who is more than 17 but less than 18 can stay till he is 20.

Industrial employment standing orders act 1946

Features and applicability of the act :

1) Applies to the whole of india 

2) Applies to and industrial establishment employing 100 or more workmen. 

r has employed 100 or more workmen during the preceding 12 months.

3) The act enables the appropriate government to apply the act to any industrial employing less than 100 workmen provided 2 months notice has been given to that Industrial undertaking.

4) The act cannot take away better benefits given to employees under previous enactments.

Appellate authority :

There shall be an appellate authority constituted under the act with a specific jurisdiction to whom the appeals can  be filed. Such authority is appointed by the appropriate government by notification in the official gazette.

Certifying officer :

Any labour commissioner or regional labour commissioner can be appointed as a certifying offficer for the purpose of this act.

Draft standing orders :

1) any industry to which the act applies shall submit draft standing orders to the certifying officer withing 6 months .

2) 5 copies of such draft standing orders are to be submited to the certifying officer.

3) Shall contain details of the employees and details of trade unions if any.

4) A group of employers in a similar establishment can submit a joint standing order.

5) Such draft orders can be certified provided they are in conformity with the act, have provided for all the provisions of the act, its for the certifying officer to judge the fairness of the provisions.

6) The certifying officer shall make an entry in the register and file a copy of the same. Such copy can be obtained on payment of a fee.

Modification of standing orders :

The standing orders in order to be modified should not have been modified in the last 6 months. And it shall not be modified again except with the permission of the employer and employee.

Subsistence allowance:

A subsistence allowance is payable @ the rate of 75 % to an employee who is suspended while there is an inquiry pending against him regarding charges or complaints of misconduct.

Any dispute in this matter shall be referred to a labour court.

If the employee is entitled to a better allowance under any other act then he shall be eligible for the same.

Penalties :

1) For not providing for the act.

2) For contravening the provisions of the act.

3) Failure to submit draft standing orders.

4) For not adhering to the model standing orders.

5) No suit can be instituted without the support of the appropriate government.

Note :

The appropriate government can exempt any Industry from the provisions of this act.

The schedule of the model standing orders contains the following :

1) classification of workers .

2) Period and hours of work, holidays, pay days and wage rates.

3) Shift working.

4) Attendance.

5) Leave and holidays.

6) Closure or reopening of a section or unit.

7) Termination.

5) Suspension & dismissal for misconduct.

6) Requirement to enter premises.

7) Means of redress against unfair treatment.

8) Other matters as may be prescribed by the appropriate government.

Alteration of conditions of service :

             

If the conditions of service of a workman has to be altered then the employer must give prior notice.

There are two aspects to this namely notice and alterations which cannot be done when proceedings are pending.

Features of giving notice :

1)    Must be given in the prescribed  manner.

2)    Within 21 days of such notice, alteration cannot be done.

3)    Notice need not be given if alteration is done in pursuance of an award or settlement.

4)    And if the person who would be affected by such change belongs to a certain category of individuals to whom other rules such as civil services rules, railway est code applies etc then notice is not necessary.

let us see to what all conditions of services for which prior notice would be needed for alteration:

1)    Wages, period and payment of it.

2)    Contribution paid by employer.

3)    Compensatory and other allowances.

4)    Hours of work and intervals.

5)    leave with wages and holidays.

6)    Alteration/discontinuation of shift working.

7)    Grade classification.

8)    Concession.

9)    New rules of discipline.

10) Plant technique and control which can lead to retrenchment.

Change of conditions of service during pendency of proceedings :

1)    Pendency of proceedings before an industrial tribunal, national industrial tribunal, labour court, arbitrator, any matter which is the subject of such dispute which is in proceedings shall not be altered.

2)    Pendency of such dispute, the employer shall not alter, in accordance to the standing orders applicable or in accordance to any proviso applicable if the standing orders are not applicable, such as terms of contract express or implied ,alter any matter not connected with the dispute ,or discharge or dismiss such workman.

3)    The employers shall not alter the conditions of service of the workman in a manner which is in prejudice to the workman.

4)    An employer can apply for approval of his actions to the conciliation officer or the arbitrator and it has to be approved within 3 months.

5)    The minimum number of protected workmen must be 5 or 1% of total strength of workmen, subject to a ceiling limit of 100.

Recovery of money due from employer:

1)    If money is due from employer, which has to be paid under settlement or award, then an application can be made to the appropriate government who can direct the collector to recover it as a arrear of land revenue.

2)    If the workman has to receive any sum of money from the employer which can be computed in terms of money and there is a question as to the amount actually due, then such matter can be decided by the labour court .

3)    A commissioner can be appointed to calculate the amount of money due and he would submit a report which would be considered by the labour court.

4)    Decision of the labour court can be forwarded to the appropriate government.

5)    A single application can be made if there are a group of workmen who have to recover such amount due.

Labour laws

Labour laws continued: The Industrial Disputes Act

The definition of industry includes any trade, business, undertakings, manufacture carried on by an employer and includes any handicraft , industrial occupation or handicrafts or avocations of a workman.

The supreme court laid down the triple test for the definition of an industry in the B.W.S.S.B case :

Test 1:

1)    There must be systematic activity carried , such activity must be carried on by cooperation between employees and employer for the production of goods or service , and such goods or service satisfy human wants and wishes, which means they do not satisfy spiritual wants or wishes.

2)    The absence of profit motive doesn’t remove a sector from the definition of industry.

3)    The main focus must be on the functional relationship between the employer and the employees.

4)    A philanthropic activity does not stop the industry from being one.

Test 2:

1)    All features of an industry while compared to another might be dissimilar, what matters is the systematic cooperation between employers and employee.

2)    It does not even matter if the terms of employment are dissimilar.

Test 3:

Application of the above, must not fall short of logical application of mind.

Let us see if the following category of activities are industries or not :

1)    Sovereign function : if the industrial function is severable from the other function then yes, it can be called and industry. This was laid down in the b.w.w.s.b case. And if the predominance of industrial activity of a government department shall be the criterion for determining if it comes within the ambit of industry or not.

2)    Municipalities: The tax dept, public conveyance, fire brigade, lighting, water works, city engineers, enforcement,sewerage, health ,market, gardens, education, printing were held to be industry. Again the pre dominance of industrial activity  is applied here to judge if a department is an industry  or not.

3)    Hospital and charitable institutions: Depending on the relationship between employee and employer we can construe if the institution is an industry or not. Eg: a person working in a charitable institution out of sheer commitment and for the work satisfaction derived from it then such activity shall not be an industry.

4)    Clubs: a certain categories may be exempt from the definition of industry. But the larger ones if they do come within the ambit of the BWSSB case then they would be and industry.

5)    Professional firms would come under industry if they employ a large number of people .it has to be noted there must be minimum 10 members to form and industry.

When does an individual dispute become and industrial dispute? :

The following are the essential ingredients for and individual dispute to become an industrial dispute :

1)    Sponsorship i.e who has sponsored the dispute.

2)    Membership of trade union antecedent to the dispute.

3)    Community of interest( most important aspect)

4)    Proof of support.

Strike:

Strike is the weapon of the workers. Workers are in a position where they can be dominated or exploited by employrs, strike is a weapon which enables them to cease working , so that they can reach an understanding between themselves and the employers or they can sort out any dispute.

Strike can be defined as cessation of work by employees who are acting in a combination, or a concerted refusal to accept or take up any employment given by the employer.

Precautions:

1)    A strike cannot be decalared before issuing a 6 weeks notice.

2)    A strike cannot be called in when there are conciliation proceedings pending before a industrial tribunal, national industrial tribunal or a labour court and also during a period when an award or settlement is in operation.

3)    Strike cannot be entered into when there are proceeding pending before an arbitrator.

Types of strike:

1)    Pen down strike.

2)    Tool down strike.

3)    General strike.

4)    Hunger strike.

5)    Gherao.

6)    Slow down strike.

7)    Speed up strike.

Based on legality:

1)    Legal strike and illegal strike.

2)    Justified strike and unjustified strike.

A strike cannot be rendered illegal based on the fact that it was with a malicious intent or whether the reason for the strike was not justified. A strike is legal if it is declared legally following all precautions. A legal strike too can be malicious, a malicious intent exists in mind and is very difficult to prove.

A justified strike is where the cause of strike is for getting justice for an employee or the whole class of employees. Such a situation occurs when the employer does some act which causes damage to the employees and justice has to be done. Payment of wages during a period of strike depends on wether the strike was justified or unjustified.

Lock out:

When the employer prevents the employees from entering the premises, he’s said  to lockout.

A lockout is the anti-thesis to a strike. A lockout is the weapon of the employer.

By doing a lockout the employer stops providing any form of work to all employees and suspends work temporarily.

The same precautions that apply to a strike also apply to lockout. If these precautions are not followed then the lockout becomes illegal lockout.

Financial aid to illegal lockout is not allowed under the act.

Award :

1)    It is an interim or final determination .

2)    Determination shall be regards to a dispute.

3)    It shall be made by an industrial tribunal, national industrial tribunal or any labour court.

4)    It also includes an award made by an arbitrator.

An award shall be binding on all the employees and the employer.

Settlement:

A settlemet is “a settlement reached through conciliation proceedings between employer and employees in the presence of a conciliation officer. It also includes an agreement entered into between the employee and employer other than in conciliation proceedings”

A settlement represents a gentlemans agreements. It is not binding on all the employees, it binds only on employees who were present in the proceedings and agreed to the terms and conditions. It is like a contract, those who do not have consensus ad idem they would not be a part of the agreement.

There shall be  settlement deed, which shall be called the memorandum of settlement, this document shall be forwarded by the conciliation officer to the appropriate government, otherwise the settlement becomes invalid

Labour laws - Lay off and Retrenchment

Lay off

Important features : 

1) An employee in an industry is said to be laid off  if he/she reports to work on the given time and is not provided with any work by the employer within two hours of reporting.

2) Lay off is temporary in nature. Unlike retrenchment which is permanent.

3) Lay off can be done due to various reasons such as natural calamity, accident, shortage of raw materials, shortage of working capital etc.

4) Lay off can be done either for the full day or for a particular half of the working day. Eg : an employee can be laid off for the morning work session but can be employed for the afternoon session and vice versa.

5) It has been held in decided cases that an employee is not entitled for compensation if he/she does not accept alternative employment which is given within the 5 km radius of the existing workplace.

6) If shortage is caused by strike happening in another department of the industry then again the employees are not entitled for a compensation for the period laid off and also if an employee does not report to work within the alloted period he shall not be entitled for compensation.

7) An employee is entitled to 50% of pay as compensation during the period laid off.

8) A casual worker cannot be laid off.

9) For worked to be entitled for compensation he/she must have name entered in the muster rolls and also must have continuous service in the industry.

Retrenchment

1) An employee who is terminated from his/her employment for any reason other than termination as a form of punishment by the employer is said to be retrenched. 

2) Every retrenched employee is entitled for compensation.

3) Following does not amount to retrenchment:

a) Voluntary retirement.

b) Super annuation. 

c) Retirement due to illness. 

d) Result of non renewal of contract of employment between employer and employee. 

4) Following are conditions precedent to retrenchment:

a) Notice to employee. 

b) Compensation. 

c) Permission of appropriate authority. 

d) Continuous service. 

5) Usuall in retrenchment a policy of first comes first goes is used. That is an employee who joins the industry first is retrenched first and only the others are retrenched based on seniority. 

Articles of association

The memorandum of association is the most important document , the articles of association comes second in terms of importance. It contains all rules regulations regarding internal control of the company. A private company that is limited by shares, a company limited by guarantee and an unlimited company have to adopt articles of association. 

Schedule 1 of the companies act sets out model forms of articles for various companies , which can be adopted by such companies. This is called as Table A. A company limited by shares has to adopt table A. It can also prepare its own articles.. But Table A would be applicable to the extent it is excluded. We can say that the Table is like a ready made articles of association which can be easily adopted. Since such Table is provided by the act, it legal beyond any doubt. 

The articles of association have to be signed by every subscriber. 

Relationship of the articles to the memorandum:

Memorandum of association is  the supreme document when compared to articles. It explains the very purpose as to why the company exists. The articles are related only to internal control of the company. An alteration of the memorandum would need the sanction of central government and the company law board, there is no such requisite for the articles. Where the memorandum and articles of association clash, it is the memorandum that prevails, except in matter relating to reduction of share capital.

Binding for of memorandum and articles of association:

1) Members bound to the company:

The members cannot contravene the provisions of the article of association or the memorandum of association. Once they have subscribed to such documents they are completely bound by it and cannot later say they were not aware of such provisions, hence their subscription is essential.

2) Company to the members:

A company has to follow all provisions of the memorandum and articles. It cannot contravene it as such provisions have been subscribed to and agreed by the share holders. The company would be answerable to the shareholders on an event of such contravention. 

3) Members inter se:

The members are bound among themselves due to the provisions of the articles of association. But they can enforce their right only in the capacity of being a member and not an individual . And such rights can only be enforced through the company. 

4) Not bound to outsiders:

Neither the company nor the members are bound to the outsiders by the provisions of the articles. In the case of Browne vs Trinidad, The plaintiff was agreed to be made director and not removable till a certain date, it was so provided by the articles. But such provision could not be enforced as the plaintiff was an outsider. Even a members becomes an outsider, when he acts outside the capacity of a member.

Alteration of the articles of association:

The articles can be ordered by passing a special resolution and filing a copy of such altered articles with the registrar of companies. 

Following points should be noted regarding alteration:

1) The alteration can be regarding the constitution of the company. Eg a company can issue a certain class of shares about which the memorandum is silent.

2) A company can cause a breach of contract by alteration of the articles. A company would not be liable for damages, if such contract is wholly dependent on the articles, but it would be liable for damages for breach of contract if such contract is wholly independent of the articles. 

3) Alteration cannot increase the liability of any members by asking him to subscribe to more shares. 

4) The alteration cannot constitute a fraud upon the minority share holders.

Memorandum of Association

The Memorandum of association is the constitution of the company. Everything that the company does must be in conformity with this document. Exceeding what this document provides for would amount to an ultra vires act. Every shareholder is advised to read this important document while investing in the company.

Let us see as to what the contents of the memorandum of association are :

1) Name clause:
Every company needs a name. Such name must not be one that is undesirable by the government or one that infringes trade mark of another company. The Trade Mark Act 1999 governs this procedure of granting a name to the company. The company can use the name permanently once it acquires central government approval. The name should be one that gives correct information about the company, incorrect usage of the world international,intercontinental etc for companies that have only a local operation are not allowed. A private company must affix the word private limited after its name and a public limited company must affix the word limited after its name. A company can alter its name if its wishes too, but it would need central government approval.

2) Registered office clause:
Every company must have a registered office in any Indian state. A company can have only one registered office. A registered office is the place where the company keeps all its books of accounts and the shareholders register along with other statutory documents. Any shareholder can access a registered office to inspect the books of accounts of the company and other documents. Failure to maintain such statutory books in the registered office would attract a fine or a penalty to the officer who's duty it was to do so. A registered office can be shifted from one state to another state only if its beneficial to the share holders and if it would improve the locale of the company. Prior permission of the company law board would be needed to this along with special resolution passed by the share holders.

3) Liability clause:

The liability clause would specify the kinds of liability the shareholders and the members would have. Liability can be limited or unlimited. Under limited liability the shareholder is expected to pay up only the amount of the share he has invested in . Under unlimited liability the share holder can be held liable much more than the value of the share he has invested in ,moreover unlimited liability can lead to personal liability too.

4) Capital clause:


This clause specifies the authorized capital of the business.  . A private company needs a minimum capital of one lac rupees and a public limited company needs a minimum capital of five lac rupees. The capital of the company cannot go below the minimum level but it can exceed it depending on whats provided in the articles of association.

The memorandum of association must be subscribed by at least 7 persons in case of public limited and 2 persons in case of private limited companies.

5) Objects clause:


 This clause contains the objects of the company. That is the purpose for which such company is formed. The object clause shows to us the kinds of business the company is entitled to carry on. The company can carry on business that are ancillary to the ones mentioned in the objects clause but it cannot carry on one which is not germane to the original objects.The objects clause helps the creditors to know as to what their money is being used for and gives a better sense of security. The objects can be altered by passing a special resolution, the conformity of the company law board is not a necessity here.

Doctrine of ultra vires:

Any business which is not mentioned in the objects clause is carried on is ultra vires. All acts of the company must be in conformity with the objects clause. It was held so in a famous case  Ashbury railway carriage case: In which the company was in the business of manufacturing railway carriages and it also undertook general contracts. The plaintiff entered into a contract with the company for laying railway lines. Later the company refused to comply. The plaintiff contended in a court of law that the term general contracts included laying railway lines. The court held that the term general contracts must be read in connection with manufacturing carriages and not otherwise. If not then any company can undertake general contracts, the term is too vague, hence it must be read in connection to its original business that is manufacturing railway carriages.The plaintiff could not avail any remedy and the defendant companies act was held correct. 

The ultra vires agreements neither make the company or the other party liable, though they might have committed to the contract to a great extent. 

However directors can be held personally liable for ultra vires agreements entered into by the company. 

It has to be noted the law sometimes gives exceptions to this doctrine in certain cases such as purchase of immovable property, that is even if the contract is ultra vires but if its relating to immovable property then it can make the company and the other party liable. In case of torts commited by the employees of the company in course of business , the company is made liable. Ultra vires loans taken to repay intra vires loans is also an exception.

You could test your understanding of the topic with the help of the following multiple choice questions:

1) The minimum capital that a private limited company needs to commence business is:
a) 5 lacs.
b) 4 lacs.
c) 1 lac.
d) 10 lacs.

2) The act of contravening the object clause is called as:
a) Intra vires act.
b) Ultra vires act.
c) void act.
d) actus reus.

3) How many registered offices can a company have ?
a) Two.
b) Three.
c) one office in each state.
d) One office totally.

4) Which act regulates the name of the company?
a) Essential commodities act.
b) Indian contract act.
c) Trade marks act.
d) Companies act.

5) What is the minimum number of persons who must subscribe to the memorandum of association?
a) 2 in case of public co and 7 in case of private.
b) 2 in case of private co and 7 in case of public ltd.
c) 1 in case of both private and public ltd.
d) 7 in case of both public ltd and in case of private.

Answer key:
1) C)
2) B)
3) D)
4) C)
5) B)

Certificate of Incorporation and Pre-Incorporation contracts

Certificate of incorporation:

A company in order to commence business must obtain a certificate of incorporation. Such certificate is issued by the registrar of companies on submission of mandatory documents such as the copy of the memorandum of association duly attested, statement of the willingness of the directors to act as directors and that they have paid up all the money on shares held by them.

A private company would need a certificate of incorporation to commence business, whereas a public limited company would need a certificate of incorporation as well as a certificate of commencement of business to start the business. It is a must to obtain such certificate. Following are the particulars needed to obtain certificate of commencement of business:

1) Shares payable in cash must have been allotted up to the amount of minimum subscription.

2) Directors must have paid in cash the application and allotment money on the shares taken by them.

3) No money should have become refundable for failure to obtain permission for shares to be dealt in a stock exchange.

A certificate of incorporation is conclusive evidence that the company is incorporated. Any mistake in the facts presented shall not make the certificate of incorporation invalid. A certificate of incorporation once issued is always issued. In this particular case the memorandum was signed by an adult and he had also forged the signatures of other members who were minors. The registrar had not noticed this and had issued the certificate of incorporation. Later such certificate cannot be revoked as it is conclusive evidence and once it’s given it’s given.

A company must obtain a fresh certificate each time it commences business that’s not mentioned in its object clause or commences a business that’s not germane to its current business. In this case it is a must that the share holders must pass a special resolution and in case only ordinary resolution has been passed the central government must approve it.

Pre incorporation contracts

Any contact which is entered into by the company before incorporation is called pre incorporation contracts. Such contracts do not bind the company or the outsiders who have entered into such contracts with the company. Only the promoters who have entered into such contracts before incorporation can be held liable for it and not the company. A company can enforce a pre incorporation contract on a later date if such contract is within its objects mentioned in the object clause in the memorandum of association.

Eg: The promoters of a hotel business purchased wine from a dealer before the company was incorporated. But such company went into liquidation before incorporation. It was held that the dealer need not suffer for the fact that the company was not incorporated as the promoters are personally liable for pre incorporation contracts.

You could test your understanding by answering the following multiple choice questions:

1) Is the company bound by contracts entered into before obtaining certificate of incorporation?
a) Yes
b) No

2) There is no requirement to submit a copy of the memorandum of association for obtaining the certificate of incorp.
a) True.
b) False.

3) Statement of directors , that they are willing to act as directors has to be submitted to the registrar of companies to obtain the certificate of incorporation.

a) True.
B) False.


4) A private company needs certificate of commencement of business.
a) True.
b) False.

5) Obtaining certificate of incorporation is optional.
a) True.
b) False.

6) A company can enforce pre incorporation contracts later.
a) True.
b) False.

7) What document has to be obtained every time a company commences a new business or a business that is not germane to its objects in the object clause.
a) Memorandum of association.
b) Articles of association.
c) Non polluting certificate.
d) Certificate of incorporation.

Answer key
1) b
2) b
3) a
4) b
5) b
6) a
7) d


Reading through the above given notes would explain as to why a particular choice is the right answer.