LAWS & ETHICS - ICMAI
6SYLLABUS-2016INTERMEDIATE : PAPER -LAWS & ETHICSSTUDY NOTESThe Institute of Cost Accountants of IndiaCMA Bhawan, 12, Sudder Street, Kolkata - 700 016INTERMEDIATE
First Edition : August 2016Revised Edition : January 2018Revised Edition : June 2018Revised Edition : October 2018Revised Edition : February 2019Edition: August 2019Published by :Directorate of StudiesThe Institute of Cost Accountants of India (ICAI)CMA Bhawan, 12, Sudder Street, Kolkata - 700 016www.icmai.inPrinted at :M/s. Sap Prints Solutions Pvt. Ltd.28A, Lakshmi Industrial Estate,S. N. Path, Lower Parel (W)Mumbai - 400 013, Maharashtra.Copyright of these Study Notes is reserved by the Institute of CostAccountants of India and prior permission from the Institute is necessaryfor reproduction of the whole or any part thereof.
Syllabus – 2016PAPER 6: LAWS & ETHICSSyllabus StructureABCDCommercial LawsIndustrial LawsCorporate LawEthics30%25%35%10%D10%A30%C35%B25%ASSESSMENT STRATEGYThere will be written examination paper of three hours.OBJECTIVESTo give an exposure to some of the important laws essential and relevant for a business entity. To demonstrate an overviewof laws related to Companies. To provide knowledge, comprehension and principles of Corporates. To construct theprinciples and ethical values of the business and professionals.Learning AimsThe syllabus aims to test the student’s ability to: Explain fundamental aspects of laws relevant for a business entity Understand the principles of corporate governance and ability to implement and report compliance Create awarness and understanding of the ethical valuesSkill sets requiredLevel B: Requiring the skill levels of knowledge and comprehension, application and analysis.Note: Subjects related to applicable statutes shall be read with amendments made from time to time.Section A : Commercial Laws30%1. Laws of Contracts (Advanced level)2. Laws relating to Sale of Goods (Advanced level)3. Negotiable Instruments Act,1881 (Advanced Level)4. Indian Partnership Act, 19325. Limited Liability Partnership Act, 2008Section B : Industrial Laws25%6. Factories Act, 19487. Payment of Gratuity Act, 19728. Employees Provident Fund and Miscellaneous Provisions Act, 19529. Employees State Insurance Act, 194810. Payment of Bonus Act, 196511. Minimum Wages Act, 194812. Payment of Wages Act, 193613. Pension Fund Regulatory and Development Authority Act, 2013Section C : Corporate Law35%14. Companies Act, 2013Section D : Ethics15. Business Ethics10%
SECTION A: COMMERCIAL LAWS [30 MARKS]1.2.3.4.5.Indian Contracts Act, 1872(a)Essential elements of a contract, offer and acceptance(b)Void and voidable agreements(c)Consideration(d)Legality of object(e)E-contracts(f)Constraints to enforce contractual obligations(g)Quasi-contracts, contingent contracts, termination or discharge of contracts(h)Special contracts: Indemnity and Guarantee; Bailment and Pledge; Laws of AgencySale of Goods Act, 1930(a)Definition(b)Transfer of ownership(c)Conditions and Warranties(d)Performance of the Contract of Sale(e)Rights of Unpaid Vendor(f)Auction SalesNegotiable Instruments Act, 1881(a)Definition and features of Negotiable Instrument(b)Crossing, Endorsement and Material Alteration(c)Acceptance, Assignment and Negotiation(d)Rights and liabilities of Parties(e)Dishonor of a Negotiable Instrument.Indian Partnership Act, 1932(a)Nature of Partnership(b)Rights and liabilities of Partners(c)Formation, Reconstitution and Dissolution of FirmsLimited Liability Partnership Act, 2008(a)Concept, formation, membership, functioning(b)DissolutionSECTION B: INDUSTRIAL LAWS: Objects, Scope and Applicability of the following Acts [25 MARKS]6.Factories Act, 19487.Payment of Gratuity Act, 19728.Employees Provident Fund Act, 19529.Employees State Insurance Act, 194810.Payment of Bonus Act, 196511.Minimum Wages Act, 194812.Payment of Wages Act, 193613.Pension Fund Regulatory and Development Authority Act, 2013
SECTION C : CORPORATE LAW [35 MARKS]14.Companies Act, 2013(a)Company types, promotion, formation and related procedures i.e, Sec 1 to Sec 122 of Companies Act,2013.(b)Director-Role, Responsibilities, Qualification, disqualification, appointment, retirement, resignation, removal,remuneration and powers, Director Identification Number.SECTION D : ETHICS [10 MARKS]15.Business Ethics:(a)Ethics-meaning, importance, nature and relevance to business(b)Values and attitudes of professional accountants.(c)S even principles of public life-selflessness, integrity, objectivity, accountability, openness, honesty andleadership.(d)Ethics in Business
ContentsSECTION – A: COMMERCIAL LAWSStudy Note 1 : Indian Contract Act, 18721.1Essential Elements of a Contract, Offer and Acceptance11.2Void and voidable agreements41.3Consideration71.4Legality of object91.5E-contracts101.6Constraints to enforce contractual obligations101.7Quasi-contracts, contingent contracts, termination or discharge of contracts191.8Special contracts: Indemnity and Guarantee; Bailment and Pledge;Laws of Agency25Study Note 2 : Sale of Goods Act, 19302.1Definition492.2Transfer of ownership522.3Conditions and Warranties562.4Performance of the Contract of Sale592.5Rights of Unpaid Vendor622.6Auction Sales65Study Note 3 : Negotiable Instruments Act, 18813.1Definition and features of Negotiable Instrument693.2Crossing, Endorsement and Material Alteration763.3Acceptance, Assignment and Negotiation813.4Rights and liabilities of Parties893.5Dishonor of a Negotiable Instrument93Study Note 4 : Indian Partnership Act, 19324.1Nature of Partnership1034.2Rights and liabilities of Partners1084.3Formation, Reconstitution and Dissolution of Firms113
Study Note 5 : Limited Liability Partnership Act, 20085.1Concept, formation, membership, functioning1275.2Dissolution153SECTION – B : INDUSTRIAL LAWSStudy Note 6 : Factories Act, 19486.1Factories Act, 1948 – Objects, Scope and Applicability173Study Note 7 : Payment of Gratuity Act, 19727.1Payment of Gratuity Act, 1972 – Objects, Scope and Applicability191Study Note 8 : Employees Provident Fund and Miscellaneous Provisions Act, 19528.1Employees Provident Fund and Miscellaneous Provisions Act, 1952– Objects, Scope and Applicability207Study Note 9 : Employees State Insurance Act, 19489.1Employees State Insurance Act, 1948 – Objects, Scope and Applicability219Study Note 10 : Payment of Bonus Act, 196510.1Payment of Bonus Act, 1965 – Objects, Scope and Applicability235Study Note 11 : Minimum Wages Act, 194811.1Minimum Wages Act, 1948 – Objects, Scope and Applicability249Study Note 12 : Payment of Wages Act, 193612.1Payment of Wages Act, 1936 – Objects, Scope and Applicability267Study Note 13 : Pension Fund Regulatory and Development Authority Act, 201313.1Introduction28313.2National Pension System284
SECTION – C : CORPORATE LAWStudy Note 14 : Companies Act, 201314.1Company Types, Promotion, Formation and Related Procedures28714.2Directors397SECTION – D : ETHICSStudy Note 15 : Business Ethics15.1Ethics - Meaning, Importance, Nature and Relevance to Business41515.2Values and Attitudes of Professional Accountants41715.3Seven Principles of Public Life41915.4Ethics in Business420
Section ACommercial Laws(Syllabus - 2016)
Study Note - 1INDIAN CONTRACT ACT, 1872This Study Note includes1.11.21.31.41.51.61.71.8Essential Elements of a Contract, Offer and AcceptanceVoid and Voidable AgreementsConsiderationLegality of ObjectE-ContractsContraints to Enforce Contractual ObligationsQuasi-Contracts, Contingent Contracts, Termination or Discharge of ContractsSpecial Contracts: Indemnity and Guarantee; Bailment and Pledge; Laws of Agency1.1 ESSENTIAL ELEMENTS OF A CONTRACT, OFFER AND ACCEPTANCEIntroductionThe law relating to contracts in India is contained in INDIAN CONTRACT ACT, 1872. The Act was passedby British India and is based on the principles of English Common Law. It extends to the whole of Indiaexcept the State of Jammu and Kashmir. It determines the circumstances in which promises made bythe parties to a contract shall be legally binding on them. All of us enter into a number of contractseveryday knowingly or unknowingly. Each contract creates some rights and duties on the contractingparties. Hence this legislation, Indian Contract Act of 1872, being of skeletal nature, deals with theenforcement of these rights and duties on the parties in India.Commencement of ActThe Act came into effect from 1st September, 1872 and applies to all contracts in India.ProposalAccording to Section 2(a) of Act, when one person signifies to another his willingness to do or to abstainfrom doing anything, with a view to obtaining the assent of that other to such act or abstinence, he issaid to make a proposal.AcceptanceAs per Section 2(b), when the person to whom the proposal is made signifies his assent thereto, theproposal is said to be accepted. A proposal, when accepted, becomes a promise.Section 2(c) defines that the person making the proposal is called the “promisor”, and the personaccepting the proposal is called the “promisee”.AgreementAccording to Section 2(e), every promise and every set of promises, forming the consideration for eachother, is an agreement.As per Section 2(f) ,promises which form the consideration or part of the consideration for each otherare called reciprocal promises.Void AgreementAccording to Section 2(g) , an agreement not enforceable by law is said to be void.THE INSTITUTE OF COST ACCOUNTANTS OF INDIA1
LAWS & ETHICSContractSection 2(h) defines the term ‘contract ‘ as an agreement enforceable by law.As per Section 2(j), a contract which ceases to be enforceable by law becomes void when it ceasesto be enforceable.Voidable ContractSection 2(i) defines a voidable contract as an agreement which is enforceable by law at the option ofone or more of the parties thereto, but not at the option of the other or others.Essentials of a valid contractSection 10 provides that all agreements are contracts if they are made by the free consent ofparties competent to contract, for a lawful consideration and with a lawful object, and are nototherwise expressly declared to be void.The following are the requirements for a valid contract There shall be an offer or proposal by one party and acceptance of the proposal by the other partywhich results in an agreement; There shall be an intention to create legal relations or an intent to legal consequences; The agreement shall be supported by lawful consideration; The parties to the contract shall be competent to contract; There shall be free consent between the parties to the contract; The object and consideration of the contract shall be legal and the same shall not be opposed topublic policy; The terms of the consent shall be certain; The agreement is capable of being performed i.e., it is not impossible of being performed.OFFER AND ACCEPTANCEOfferThe term ‘proposal’ is otherwise called as ‘offer’. An offer is a proposal by one person, whereby heexpresses his willingness to enter into a contractual obligation in return for promise, act or forbearance.Section 2(a) of the Act defines ‘proposal’ or offer as when one person signifies to another his willingnessto do or abstain from doing anything with a view to obtaining the assent of that other to such act orabstinence. The person making the proposal is called as ‘offeror’ or proposer’ and the person theproposal is made is called as ‘offeree’.The offer must be a valid one. The following points are to be taken into account for a valid offer The offer must be in clear, definite, complete and final in terms. It should not be vague in terms; The offer must be communicated to the offeree. The offer becomes effective only when it hasbeen communicated to the offeree so as to give him an opportunity to accept or reject the offer; The communication may be in writing or oral; The communication may be in expressed terms or in implied terms; The offer may be general or specific – if an offer is made to a specific person it is called specificoffer. Such offer can be accepted by such specific person; if an offer is made to the world atlarge, it is a general offer. It can be accepted by any member of the general public by fulfilling thecondition laid down in the offer;2THE INSTITUTE OF COST ACCOUNTANTS OF INDIA
Indian Contract Act, 1872 Communication of offer is complete when it comes to the knowledge of the person to whom it ismade. (Section 4)An offer which has been communicated properly continues as such until it lapses or revoked by theofferor or rejected or accepted by the offeree. An ideal offer should have all the essentials of a validcontract as once it is accepted by the offeree, it becomes a contract.Revocation of offerSection 5 provides that a proposal may be revoked at any time before the communication ofacceptance is complete as against the proposer but not afterwards.Example – A proposes, by a letter sent by post, to sell his house to B; B accepts the proposal by a lettersent by post. A may revoke his proposal at any time before or at the moment when B posts his letter ofacceptance, but not afterwards.Section 4 provides that the communication of a revocation is complete as against the person who makes it, when it is put into a course of transmission to the person towhom it is made, so as to be out of the power of the person who makes it; as against the person to whom it is made, when it comes to his knowledge.Example – A revokes his proposal by telegram. The revocation is complete as against A when thetelegram is dispatched. It is complete as against B when B receives it.As per Section 6, a proposal is revoked—(1) by the communication of notice of revocation by the proposer to the other party;(2) by the lapse of the time prescribed in such proposal for its acceptance, or, if no time is so prescribed,by the lapse of a reasonable time, without communication of the acceptance;(3) by the failure of the acceptor to fulfil a condition precedent to acceptance; or(4) by the death or insanity of the proposer, if the fact of his death or insanity comes to the knowledgeof the acceptor before acceptance.A proposal also stands revoked if – It is not accepted in the prescribed mode and if no mode is prescribed , in some usual andreasonable manner or The offered makes a counter offer.AcceptanceTo constitute a promise, the intention of the parties must be communicated. One cannot accept anoffer which had not been communicated to him. In general, uncommunicated offer cannot result ina promise.The term ‘acceptance’ means admitting and agreeing to something to accede to something or toaccept something. An offer to enter into legal relations, upon definite terms, to create legal relations,must be followed by an intention of the offeree to accept that offer.In ‘Thawardar Pherumal V. Union of India’ – AIR 1955 SC 468 the Supreme Court held that before anoffer can become a binding promise and result in an agreement it must be accepted, either by wordsor acts. A person cannot be bound by a one sided offer which is never accepted particularly whenthe parties intended that the contract should be reduced in writing. A promise cannot bind its makeunless the promise has assented to it.Section 4 provides that the communication of an acceptance is complete as against the proposer, when it is put in a course of transmission to him, so as to be out of the powerof the acceptor; as against the acceptor, when it comes to the knowledge of the proposer.THE INSTITUTE OF COST ACCOUNTANTS OF INDIA3
LAWS & ETHICSExampleA proposes, by letter, to sell a house to B at a certain price. B accepts A’s proposal by a letter sent bypost. The communication of the acceptance is complete, as against A when the letter is posted andas against B, when the letter is received by A.The following points shall be taken into account in the case of acceptance Acceptance may be oral or in writing; It may be expressed or implied; If a particular method of acceptance is prescribed, the offer must be accepted in the prescribedmanner; It must be unqualified and absolute and must correspond with all terms of the offer; The conditional acceptance will amount to rejection of offer; A counter offer for acceptance will also amount to reject of offer but the counter offer may beaccepted or rejected by the other party; It must be communicated to the officer, since acceptance is completed the moment it iscommunication; Mere silence on the part of the offeree does not amount to acceptance; The acceptance should be given if there is a time limit is fixed or otherwise at a reasonable timeand before he offer lapses or is revoked.Revocation of acceptanceSection 5 provides that an acceptance may be revoked at any time before the communication ofacceptance is complete as against the acceptor but not afterwards.Example – A proposes, by a letter sent by post, to sell his house to B; B accepts the proposal by a lettersent by post; B may revoke his acceptance at any time before or at the moment when the lettercommunication it reaches A, but not afterwards.Section 4 provides that the communication of a revocation is complete as against the person whomakes it, when it is put into a course of transmission to the person to whom it is made, so as to be outof the power of the person who makes it and as against the person to whom it is made, when it comesto his knowledge.Example – B revokes his acceptance by telegram. B’s revocation is complete as against B when thetelegram is dispatched and as against A when it reaches him.1.2 VOID AGREEMENTSVoid agreementThe following agreements are considered to be void If considerations and objects are unlawful in part – Section – 24; Agreements without consideration – Section 25; Agreement in restraint of marriage – Section 26; Agreement in restraint of trade – Section 27; Agreements in restraint of legal proceedings – Section 28;4THE INSTITUTE OF COST ACCOUNTANTS OF INDIA
Indian Contract Act, 1872 Agreements void for uncertainty – Section 29; Agreements by way of wager – Section 30;Considerations and objects unlawful in partSection 24 provides that if any part of a single consideration for one or more objects or any one or anypart of any one of several considerations for a single object is unlawful, the agreement is void.Example – A promises to superintend, on behalf of B, a legal manufacture of indigo and an illegaltraffic in other articles, B promises to pay to A salary of 10,000/- a year. The agreement is void, theobject of A’s promise, and the consideration for B’s promise, being in part unlawful.This section has no application to a contract which is a single contract and has no contingent part.Agreement without considerationSection 25 provides that an agreement made without consideration is void unless(1) it is in writing and registered – It is expressed in writing and registered under the law for the timebeing in force for the registration of documents and is made on account of natural love andaffection between parties standing in a near relation to each other; or unless(2) if is a promise to compensate for something done – It is a promise to compensate, wholly or in part,a person who has already voluntarily done something for the promisor, or something which thepromisor was legally compellable to do; or unless(3) it is a promise to pay a debt, barred by limitation law – It is a promise, made in writing and signed bythe person to be charged herewith, or by his agent generally or specially authorized in that behalf,to pay wholly or in part a debt of which the creditor might have enforced payment but for the lawfor the limitation of suits.In any of these cases, such an agreement is a contract.Explanation 1 – to this Section provides that nothing in this section shall affect the validity, as betweenthe donor and done of any gift actually made.Explanation 2 – to this Section provides that an agreement to which the consent of the promisor isfreely given is not void merely because the consid
INTERMEDIATE : PAPER - 6 INTERMEDIATE STUDY NOTES LAWS & ETHICS The Institute of Cost Accountants of India CMA Bhawan, 12, Sudder Street, Kolkata - 700 016
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