IMPORTANT DOCUMENTS PREPARED WHILE FORMING A COMPANY There are three basic documents, which are prepared and

filed with the Registrar during the formation of a company. These are: (1) Memorandum of Association (MOA) (2) Articles of Association (AOA) (3) Prospectus 1. MEMORANDUM OF ASSOCIATION (MOA) The Memorandum of Association is the principal document in the formation of a company. It is called the charter of the company. It defines the limitations of the powers of the company. The purpose of memorandum is to enable the shareholders, creditors and those who deal with the company to know what its permitted range of activities or operations is. It defines the relationship of the company with the outside world. The Memorandum of Association usually contains the following six clauses: (a) Name Clause: It contains the name by which the company will be established. (b) Situation Clause: It contains the name of the state in which the registered office of the company is or will be situated. The exact address of the companys registered office may be communicated within 30 days of its incorporation. (c) Objects Clause: It contains detailed description of the objects and rights of the company, for which it is being established. (d) Liability Clause: It contains financial limit up to which the shareholders are liable to pay off to the outsiders on the event of the company being dissolved or closed down. (e) Capital Clause: It contains the proposed authorised capital of the company. A company is not allowed to raise more capital than the amount mentioned as its authorised capital. (f) Subscription Clause: It contains a declaration by persons who are desirous of being formed into and agree to subscribe to the number of shares mentioned against their names. 2. ARTICLES OF ASSOCIATION (AOA) The Articles of Association of a company contains the various rules and regulations for the day to day management of the company. These rules are also called the bye-laws. It covers various rights and powers of its members, duties of the management. It defines the relationship between the company and its members and also among the members themselves. Articles of Association of a company generally contain rules and regulations with regard to the following matters: (a) Preliminary contracts (b) Use and custody of common seal (c) Allotment, calls and lien on shares

(d) Transfer and transmission of shares (e) Forfeiture and re-issue of shares (f) Alteration of share capital (g) Issue of share certificates and share warrants (h) Procedure of holding and conducting company meetings (j) Voting rights and proxies of members (k) Qualification, appointment, remuneration and power of Directors (l) Borrowing powers and methods of raising loans (m) Payment of dividends and creation of reserves (n) Accounts and audit (o) Winding up.

3. PROSPECTUS After getting the Certificate of Incorporation or Registration a public limited company invites the public to subscribe to its shares. This is done by issuing a document called Prospectus. Under the Companies Act, a prospectus has been defined as any document described or issued as a prospectus and includes any notice, circular, advertisement or other document, inviting deposits from the public or inviting offers from the public for the subscription or purchase of shares or debentures of a company or body corporate. The main objectives of issue of a prospectus are: (a) To inform the public about the company; (b) To induce people to invest in the shares or debentures of the company; and (c) To provide an authentic information about the company and the terms and conditions of issue of shares and debentures.

The prospectus usually contains the following information: (a) General information regarding the name, office of the company, stock exchange where shares are to be listed, date of opening and closing of the issue, credit rating information, name of underwriters, brokers and bankers. (b) Capital structure of the company. (c) Terms of payment and application procedure. (d) Company management and details of the project and project report. (e) Other listed companies under the same management. The prospectus must be prepared with great care because on the basis of its details the public subscribes to the capital of the company. No facts should be withheld in this It should contain only truth, complete truth and nothing but the truth.

Distinguish between Memorandum and Articles of Association

Memorandum of Association Lays down the charter of the company 1. Purpose

Articles of Association Provides the rules and regulations for the internal administration of the company States the way to achieve the objectives stated in the Memorandum of Association It is the supplementary document or secondary document of the company It mainly guides the relationship between the company and its shareholders. A public limited company can opt for the 5. Compulsory model set of Articles given as Table A of the Companies Act. They need not have separate Articles of Association Acts done beyond the scope the Articles can Legal effect be ratified

States the objects and powers of the company

2.

Scope

It is the basic document of the company 3. It defines the relationship of the company 4. with outside world Memorandum of Association is compulsory document. Every company should have its Memorandum of Association Acts done beyond the scope of memorandum are void, or the company6. cannot ratify such acts Alteration of Memorandum is a lengthy process 7.

Status

Relationship

Alteration

Alteration of Articles of Association is relatively easier

The Consumer Protection Act, 1986

We buy a variety of goods and services in our day-to-day life. Whatever we buy we pay for it and derive satisfaction from its consumption and use. But sometimes we do not feel satisfied with the product we buy. This may be on account of poor quality of the product, overcharging by the shopkeeper, lower quantity of contents, misleading advertisement, and so on. Should we allow these practices to continue? Obviously not; then is there any remedy for such malpractices? The answer lies in the concept and practice of consumer protection, the rights and responsibilities of consumers, legal provisions and mechanism for settlement of consumer grievances. A consumer is a person who consumes or uses any goods or services. Goods may be consumables like wheat flour, salt, sugar, fruit etc. or durable items like television, refrigerator, toaster, mixer, bicycle etc. Services refer to items like electricity, cooking gas, telephone, transportation, film show etc. Normally, it is the consumption or use of goods and services that makes the person to be called as consumer. But in the eyes of law, both the person who buys any goods or hires any service for consideration (price) and the one who uses such goods and services with the approval of the buyer are termed as consumers. For example, when your father buys apple for you and you consume them, your father as well as yourself are treated as consumers. However, a person who buys goods for resale (like wholesaler, retailer, etc.) or for any commercial purpose is not treated as consumer.

Under the Consumer Protection Act 1986, the word Consumer has been defined separately for the purpose of goods and services. For the purpose of goods, a consumer means (i) one who buys any goods for consideration; and any user of such goods other than the person who actually buys it, provided such use is made with the approval of the buyer. (The expression consumer does not include a person who obtains such goods for resale or for any commercial purpose.) For the purpose of services, a consumer means (i) one who hires any service or services for consideration; and (ii) any beneficiary of such service(s) provided the service is availed with the approval of such person. Concept of Consumer Protection Consumer protection means safeguarding the interest and rights of consumers. In other words, it refers to the measures adopted for the protection of consumers from unscrupulous and unethical malpractices

by the business and to provide them speedy redress of their grievances. The most common business malpractices leading to consumer exploitation are given below: (a) Sale of adulterated goods i.e., adding something inferior to the product being sold. (b) Sale of spurious goods i.e., selling something of little value instead of the real product. (c) Sale of sub-standard goods i.e., sale of goods which do not confirm to prescribed quality standards. (d) Sale of duplicate goods. (e) Use of false weights and measures leading to underweight. (f) Hoarding and black-marketing leading to scarcity and rise in price. (g) Charging more than the Maximum Retail Price (MRP) fixed for the product. (h) Supply of defective goods. (i) Misleading advertisements i.e., advertisements falsely claiming a product or service to be of superior quality, grade or standard. (j) Supply of inferior services i.e., quality of service lower than the quality agreed upon. The above instances show the exploitation of consumers in the context of goods and services. In a democratic nation like India, should we allow this to happen? So the measures adopted by the government or non-government organizations (NGOs) for safeguarding the interests of the consumers constitute consumer protection. Examples of Consumer Exploitation in India The after sales service provider of the television set charged Rs 200 as service charge though he repaired the set within the warranty period.

The tickets issued to different passengers on the same day for the same journey showed the same seat number.

Penalty of Rs. 50 was charged by SBI after issuing the cheque book to the customer showing that the balance available in the account was less than the minimum required balance for issue of cheque book.

The supply of cooking gas cylinder to the consumers is found to be underweight.

Rights of Consumers Right to safety It is the right of the consumers to be protected against goods and services which are hazardous to health or life. For example, defective vehicles could lead to serious accidents. The same is true of electrical appliances with sub-standard material. Only recently, there were mass protests and boycott of soft drinks due to presence of hazardous pesticides beyond permissible limits. Thus, right to safety is an important right available to the consumer which ensures that the manufacturers shall not produce and sell sub-standard and dangerous products.

(b) Right to be informed The right to be informed is an important component of consumer protection. The consumer must be provided with adequate and accurate information about quality, quantity, purity, standard and the price of the goods and services. Now-a-days the manufacturers provide detailed information about the contents of the product, its quantity, date of manufacturing, date of expiry, maximum retail price, precautions to be taken, etc. on the label and package of the product. Such information helps the consumers in their buying decision and use of the product.

(c) Right to Choose The right to choose provides that the consumer must be assured, whenever possible, access to a variety of goods and services at competitive prices. If the market has enough varieties of products at highly competitive prices, the buyers have an opportunity of wide selection. However, incase of monopolies like railways, postal service and electricity supply etc. it implies a right to be assured of satisfactory quality of service at a fair price. (d) Right to be heard The rights to safety, information and choice will be frivolous without the right to be heard. This right has three interpretations. Broadly speaking, this right means that consumers have a right to be consulted by Government and public bodies when decisions and policies are made affecting consumer interests. Also, consumers have a right to be heard by manufactures, dealers and advertisers about their opinion on production, marketing decisions and any grievances of the consumers. Now-a-days, most of the top manufacturers and firms have set up consumer service cells to attend to consumers complaints and take appropriate steps for their redressal. Thirdly, consumers have the right to be heard in legal proceedings in law courts dealing with consumer complaints. (e) Right to Seek Redressal

The consumers have been given the right of redressal of their grievances relating to the performance, grade, quality etc. of the goods and services. If required, the product must be repaired / replaced by the seller/ manufacturer. The Consumer Protection Act has duly provides for a fair settlement of genuine grievances of the consumers. It has also set up a proper mechanism for their redressal at district, state and national levels. (f) Right to Consumer Education It means the right to receive knowledge and skill to become informed consumer. In this direction the consumer associations, educational institutions and the policy makers can play an important part. They are expected to impart information and knowledge about (i) the relevant laws which are aimed at preventing unfair trade practices, (ii) the ways and means which dishonest traders and producers may adopt to deceive the consumers, (iii) insistence on a bill or receipt at the time of purchase, and (iv) the procedure to be followed by consumers while making complaints. Effective consumer education leads to an increased level of consumer awareness and help them to enforce their rights more effectively, and protect themselves against fraudulent, deceitful and grossly misleading advertisement, labeling, etc.

Responsibilities of Consumers Be quality conscious To put a stop to adulteration and corrupt practices of the manufacturers and traders, it is the duty of every consumer to be conscious of the quality of product they buy. They should look for the standard quality certification marks like ISI, Agmark, FPO, Woolmark, Eco-mark, Hallmark etc. while making the purchases. (b) Beware of misleading advertisements The advertisement often exaggerates the quality of products. Hence, the consumers should not rely on the advertisement and carefully check the product or ask the users before making a purchase. Incase there are discrepancies, the same should be brought to the notice of the sponsors and the appropriate authority, if need be. (c) Responsibility to inspect a variety of goods before making selection The consumer should inspect a variety of goods before buying the goods and service. For this purpose he/she should compare their quality, price, durability, after sales service etc. This would enable the consumers to make the best choice within the limit of their own resources. (d) Collect proof of transaction The consumer should insist on a valid documentary evidence (cash memo/invoice) relating to purchase of goods or availing of any services and preserve it carefully. Such proof of purchase is required for filing a complaint. In case of durable goods the manufactures generally provide the warrantee/guarantee card along with the product. It is the duty of consumers to obtain these documents and ensure that these are

duly signed, stamped and dated. The consumer must preserve them till the warrantee/ guarantee period is over. (e) Consumers must be aware of their rights The consumers must be aware of their rights as stated above and exercise them while buying goods and services. For example, it is the responsibility of a consumer to insist on getting all information about the quality of the product and ensure himself/ herself that it is free from any kind of defects. (f) Complaint for genuine grievances As a consumer if you are dissatisfied with the product/services, you can ask for redressal of your grievances. In this regard, you must file a proper claim with the company first. If the manufacturer/company does not respond, then you can approach the forums. But your claim must state actual loss and the compensation claim must be reasonable. At no cost fictitious complaints should be filed otherwise the forum may penalize you. (g) Proper use of product/services It is expected from the consumers that they use and handle the product/services properly. It has been noticed that during guarantee period, people tend to reckless use of the product, thinking that it will be replaced during the guarantee period. This practice should be avoided. Salient Features of Consumer Protection Act 1986 The salient features of Consumer Protection Act (CPA) 1986 are as follows: (a) It applies to all goods, services and unfair trade practices unless specifically exempted by the Central Government. (b) It covers all sectors whether private, public or co-operative. (c) It provides for establishment of consumer protection councils at the central, state and district levels to promote and protect the rights of consumers and three tier quasi judicial machinery to deal with consumer grievances and disputes. (d) It provides a statutory recognition to the six rights of consumers. Define & Explain the following terms Defect any fault, imperfection or shortcoming in the quality, quantity, potency, purity or standard which is required to maintained by or under any law for the time being in force or under any contract, express or implied, or as is claimed by the trader (which includes the manufacturer) in any manner whatsoever in relation to any goods. This is an exhaustive definition. It means that the Act recognizes only those defects which are covered by the definition. Any type of defect not mentioned here will not be entertained by Consumer Forums. Moreover the defect has to be in relation to goods only, i.e., if an item does not fall within the definition

of Goods, no defect can be complained therein. However, the coverage of this definition is very wide. Examples: 1.A Pressure Cooker burst and caused injury to the user. It was held to be a manufacturing defect - T.T. (P.) Ltd. v. Akhil Bhartiya Grahak Panchayat II [1996] CPJ 239 NC. 2.Failure to handover registration book along with jeep purchased by complainant is a defect. [Ramesh Chandra v. Commercial Tax Officer [1993] 3 CPR 182 (Ori.). 3.Where laboratory test report showed that soft drink was not fit for human consumption, it was held defective - Narayanan Vyankatkrishnan Iyengar v. Shakti Foods [1994] 2 CPJ 652 (Mah.). 4.Rape seed oil adulterated with toxic substances, which led to paralysis of limbs and other disabilities, has been considered as defective - Barsad Ali v. MD West Bengal Essential Commodities Supply Corporation Ltd. (1993) 1 CPR 217 WB. 5.Electric household appliances which are not in accordance with the standards prescribed by ISI, being unsafe are defective - Farooq Hazi Ismail Saya v. Gavabhai Bhesania (1991) 2 CPJ 452 (Guj.). 6.Gas Cylinder with excessive gas is defective goods - Dayanand A Avasare v. Bharat Petroleum Corporation Ltd. (1993) 1 CPR 278 (Mah.). 7.Development of cracks of half inch to three and a half inch in walls and mosaic floor in a flat after taking possession from a Housing Board - R. Shanmugasundaram v. Tamil Nadu Housing Board (1998) 8. A supplied white marble to B. Later on the color of the marble changed. B sued an alleging supply of defective marble. It was held that A should have expressly told B that the marble would not retain its colour when polished. In the absence of such assertion, it is deemed that A made B to understand that the marble would retain its white colour and when the colour changed, it comes within the scope of defect in goods under the Act - Chitranjan Sahu v. N.C. Jain II (1993) CPJ 1127 (Ori.). 9. A sold a stolen car to B. B wanted to sue A for defect in the title of the car. Here B cannot sue A under the Consumer Protection Act as the defect in title of goods would not constitute defective goods as defined under the Act.

Complaint An aggrieved consumer seeks redressal under the Act through the instrumentality of complaint. It does not mean that the consumer can complain against his each and every problem. The Act has provided certain grounds on which complaint can be made. Similarly, relief against these complaints can be granted within the set pattern. Complaint means any of the following allegations made in writing by a complainant i. any unfair trade practice or a restrictive trade practice has been adopted by a trader, ii. The goods hired or bought suffer from one or more defects

iii. The goods hired or availed of are deficient in any respect iv. A trader has charged price in excess of price fixed by law or displayed on the goods or any package containing goods v. Goods which will be hazardous to life and safety when used, are being offered for sale to the public in contravention of the provisions of any law requiring traders to display information in regard to the contents, manner and effect or use of such goods. Service The Act provides that service means service of any description which is made available to potential users and includes the provision of facilities in connection with banking, financing, insurance, transport, processing, supply of electrical or other energy, board or loading or both, housing construction, entertainment, amusement or the purveying of news or other information, but does not include the rendering of any service free of charge or under a contract of personal service. The expression contract of personal service is not defined under the Act. In common parlance, it means - a contract to render service in a private capacity to an individual. For example, where a servant enters into an agreement with a master for employment, or where a landlord agrees to supply water to his tenant, these are the contracts of personal service. The idea is that under a personal service relationship, a person can discontinue the service at any time according to his will; he need not approach Consumer Forum to complaint about deficiency in service. Unfair Trade Practice The Act says that, unfair trade practice means a trade practice which, for the purpose of promoting the sale, use or supply of any goods or for the provision of any service, adopts any unfair method or unfair or deceptive practice including any of the following practices, namely (1) The practice of making any statement, whether orally or in writing or by visible representation which (i) falsely represents that the goods are of particular standard, quality, quantity, grade, composition, style or model; (ii) falsely represents that the services are of a particular standard, quality or grade; (iii) falsely represents any re-built, second-hand, renovated, reconditioned or old goods as new goods; (iv) represents that the goods or services have sponsorship, approval performance, characteristics, accessories, uses or benefits which such goods or services do not have; (v) represents that the seller or the supplier has a sponsorship or approval or affiliation which such seller or supplier does not have; (vi) makes false or misleading statement concerning the need for, or the usefulness of, any goods or services;

(vii) gives to the public any warranty or guarantee of the performance, efficacy or length of life of a product or of any goods that is not based on an adequate or proper test thereof; (viii) makes to the public a representation in a form that purports to be a warranty or guarantee

of a product or of any goods or services; or a promise to replace, maintain or repair an article or any part thereof or to repeat or continue a service until it has achieved a specified result, if such purported warranty or guarantee or promise is materially misleading or if there is no reasonable prospect that such warranty, guarantee or promise will be carried out; (ix) materially misleads the public concerning the price at which a product or like products or goods or services, have been or are, ordinarily sold or provided, and, for this purpose, a representation as to price shall be deemed to refer to the price at which the product or goods or services has or have been sold by sellers or provided by suppliers generally in the relevant market unless it is clearly specified to be the price at which the product has been sold or services have been provided by the person by whom or on whose behalf other representation is made; (x) gives false or misleading facts disparaging the goods, services or trade of another person.

Restrictive Trade Practice The Act provides that, restrictive trade practice means any trade practice which requires a consumer to buy, hire or avail of any goods or, as the case may be, services as a condition precedent for buying, hiring or availing of other goods or services. An analysis of above definition reveals that where sale or purchase of a product or service is made conditional on the sale or purchase of one or more other products and services, it amounts to restrictive trade practice. Technically, this type of arrangement is called tie-up sales or tying arrangement. The effect of such an arrangement is that a purchaser is forced to buy some goods or services which he may not require along with the goods or services which he wants to buy. Thus where a buyer agrees to purchase product X upon a condition that he will also purchase product Y from the seller, the sale of product Y (tied product) is tied to the sale of product X (tying product). The buyer has to forego his free choice between competing products. This results in neutralizing healthy competition in the tied market. Example: A, a gas distributor instead his customers to buy gas stove as a condition to give gas connection. It was held that it was a restrictive trade practice. However, where there is no such precondition and the buyer is free to take either product, no tying arrangement could be alleged even though the seller may offer both the products as a single unit at a composite price. Example: A is a furniture dealer. He is selling Sofa at Rs. 20,000 and Bed at Rs. 15,000. He has an offer that whoever will buy Sofa and Bed both, he will charge Rs. 30,000 only. Here the choice is open

to the customer to buy the products single or composite. This is not a restrictive trade practice.

Consumer Dispute means a dispute where the person against whom a complaint has been made, denies or disputes the allegations contained in the complaint.

Deficiency means any fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance which is required to be maintained by or under any law for the time being in force or has been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any service

District Forum means a Consumer Disputes Redressal Forum established under clause (a) of section 9