BUSINESS LAWS, ETHICS AND COMMUNICATION

Transcription

1 STUDY MATERIAL Intermediate (IPC) Course PAPER : 2 BUSINESS LAWS, ETHICS AND COMMUNICATION VOLUME I BOARD OF STUDIES THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

2 This study material has been prepared by the faculty of the Board of Studies. The objective of the study material is to provide teaching material to the students to enable them to obtain knowledge and skills in the subject. Students should also supplement their study by reference to the recommended text books. In case students need any clarifications or have any suggestions to make for further improvement of the material contained herein, they may write to the Director of Studies. All care has been taken to provide interpretations and discussions in a manner useful for the students. However, the study material has not been specifically discussed by the Council of the Institute or any of its Committees and the views expressed herein may not be taken to necessarily represent the views of the Council or any of its Committees. Permission of the Institute is essential for reproduction of any portion of this material. All rights reserved. No part of this book may be reproduced, stored in a retrieval system, or transmitted, in any form, or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior permission, in writing, from the publisher. Revised Edition : July, 2013 Website : bos@icai.in Committee/ : Board of Studies Department ISBN No. : Price : ` Published by : The Publication Department on behalf of The Institute of Chartered Accountants of India, ICAI Bhawan, Post Box No. 7100, Indraprastha Marg, New Delhi , India. Printed by : ii

3 A WORD ABOUT STUDY MATERIAL Business Laws, Ethics and Communication Laws and rules, in general, regulate the relationship between business and profession. In specific, an accounting student should have knowledge of the legal framework, which influences business transactions. This paper on Business Laws, Ethics and Communication intends to make the students aware of legal background relating to business and company law. Besides, in today s scenario, ethics forms a core part and principle of any profession and it is indeed imperative for the students of Chartered Accountancy to know the value of ethics in business. Further, a student needs to develop good business communication skills and a sound understanding of related legal deeds and documents. The syllabus is, therefore, comprehensive and has been segregated into three parts with Part I covering Business Laws and the Company Law, Part II covering Business Ethics and Part III covering Business Communication. This paper prescribes a working level knowledge of all the segments covered. Each chapter in the Study has its beginning with the learning objectives. The learning objectives would enable the students to understand the sequence of various aspects dealt within the chapter before going into the details so that one may know the direction of his studies. In each chapter, the topic has been covered in a step by step approach. The text has been explained, wherever appropriate, through illustrations and practical problems. All the students should go through the chapter carefully ensuring the understanding / clarity of the topic and then to tackle the exercises. Attention is invited to the Significant Additions/Modifications made in this edition of the study material which are given in the next page. Flow charts have been inserted in Chapters at appropriate places for quick reference of students. Please note that the changes over the previous edition have been indicated in bold and italics in the chapters. Feedback form is given at the end of this study material wherein students are encouraged to give their feedback/suggestions. Finally, we would welcome suggestions to make this book more helpful and student-friendly. In case of any doubt, students are welcome to write at nisha.gupta@icai.in, megha.goel@icai.in or shraddha.saxena@icai.in. iii

4 Significant Additions/Modifications in this Edition SL.NO. SUBJECT AMENDMENT CONTENT PAGE. NO. 1. The Companies Guidelines for The Ministry of Corporate Act, 1956 declaring a Affairs vide General 6.11 financial Circular No. 10/2012 institution as dated 21st May 2012 & Public 34/2011 dated 2nd June Financial 2011,framed certain Institution criteria for declaring a Financial Institution as Public Financial Institution under Section 4A of the 2. The Companies Act, The Companies Act, 1956 Delegation of power from Central Government to Registrar of Companies Delegation of power to the Regional Directors Companies Act, The Ministry of Corporate Affairs vide Notification No. S.O.1538(E) dated 10th of July, 2012, delegates the powers and functions vested in the Central Government to the Registrar of Companies under the Sections 21, 25, 31(1), 108(1D), 572 of the Companies Act,1956. The Ministry of Corporate Affairs vide Notification No. S.O.1539(E) dated 10th of July, 2012, delegates the powers and functions vested in the Central Government to the Regional Directors at Mumbai, Kolkata, Chennai, Noida, Ahmedabad & Hyderabad under the Sections 17,18,19, 22, 224, 188, A of the Companies Act, , 6.29, , 6.31, 6.33 iv

5 STUDY PLAN KEY TO EFFECTIVE LEARNING Study Tips Since the level of knowledge required for the subject is 'working knowledge' and the objective is to gain knowledge of those branches of laws relating to business transactions, certain corporate bodies and related matters and their application to practical commercial situations, students need to prepare on these lines. For this, they have to focus their study based on the major legal provisions, case laws, if any, and understand their practical implications. Besides, students should also give importance to the terms/definitions for proper conceptualisation of the answers. As stated earlier, students should also go through the Bare Acts to get a better understanding of the provisions contained in various statutes. A comprehensive study of the subject can be done by keeping the following points in the mind: Make a study plan covering the entire syllabus and then decide how much time you can allocate to the subject on daily/weekly basis. Maintain the time balance amongst various subjects such as purely descriptive type and numerical-based papers. First of all, have an overview of the chapter to understand the broad contents and sequence of various sub-topics. Do the introspection while going through the chapter and ask various questions to yourself. Read each chapter slowly to ensure that you understand and assimilate the main concept. If need be, read once again with concentration and then try to attempt exercise at the end of the chapter or given in the Practice Manual. Recapitulate the main concept after going through each chapter by way of brief notes. Always assess your preparation periodically, say, on monthly basis. If necessary, revise your plan and allocate more time for the subject in which you feel deficient. Read, understand and assimilate each chapter..always try to attempt the past year examination question paper/ Mock Test Papers under examination conditions. Revision of material should never be selective in any case. Because broad coverage of the syllabus is more important than preparing 2-3 chapters exhaustively. Examination Techniques Plan your time so that equal time is awarded for each mark. Keep sometime for revision as well. v

6 Always attempt to do all questions. Remember that six average answers fetch more marks than five best answers. Therefore, it is important that you must finish each question within allocated time. Read the question carefully more than once before starting the answer to understand very clearly as to what is required by the paper-setter. Always be concise and write to the point and do not try to fill pages unnecessarily. There must be logical expression of the answer. Answer the problem oriented questions by explaining the relevant /applicable provisions of the relevant enactments followed by answers thereof. In case a question is not clear, you may state your assumptions and then answer the question. While writing answers in respect of essay-type questions, try to make sub-readings so that it catches the examiner s eye. Revise your answers carefully underline important points before leaving the examination hall. Best Wishes and Happy Learning vi

7 SYLLABUS PAPER 2 : BUSINESS LAWS, ETHICS AND COMMUNICATION Level of Knowledge: Working knowledge Objective: (One paper Three hours 100 Marks) PART I BUSINESS LAWS ( 60 MARKS ) To test working knowledge of business laws and company law and their practical application in commercial situations. Contents Business Laws (30 Marks) 1. The Indian Contract Act, The Negotiable Instruments Act, The Payment of Bonus Act, The Employees Provident Fund and Miscellaneous Provisions Act, The Payment of Gratuity Act, Company Law (30 Marks) The Companies Act, 1956 Sections 1 to 197 (a) Preliminary (b) Board of Company Law Administration National Company Law Tribunal; Appellate Tribunal (c) Incorporation of Company and Matters Incidental thereto (d) Prospectus and Allotment, and other matters relating to use of Shares or Debentures (e) Share Capital and Debentures (f) Registration of Charges (g) Management and Administration General Provisions Registered office and name, Restrictions on commencement of business, Registers of members and debentures vii

8 (i) holders, Foreign registers of members or debenture holders, Annual returns, General provisions regarding registers and returns, Meetings and proceedings. Company Law in a computerized Environment E-filing. Note: If new legislations are enacted in place of the existing legislations, the syllabus would include the corresponding provisions of such new legislations with effect from a date notified by the Institute. Objective: Part II : ETHICS (20 Marks) To have an understanding of ethical issues in business. Contents: 1. Introduction to Business Ethics The nature, purpose of ethics and morals for organizational interests; Ethics and Conflicts of Interests; Ethical and Social Implications of business policies and decisions; Corporate Social Responsibility; Ethical issues in Corporate Governance. 2. Environment issues Protecting the Natural Environment Prevention of Pollution and Depletion of Natural Resources; Conservation of Natural Resources. 3. Ethics in Workplace Individual in the organisation, discrimination, harassment, gender equality. 4. Ethics in Marketing and Consumer Protection Healthy competition and protecting consumer s interest. 5. Ethics in Accounting and Finance Importance, issues and common problems. Part III COMMUNICATION (20 Marks) Objective: To nurture and develop the communication and behavioural skills relating to business Contents: 1. Elements of Communication (a) Forms of Communication: Formal and Informal, Interdepartmental, Verbal and nonverbal; Active listening and critical thinking viii

9 (b) Presentation skills including conducting meeting, press conference (c) Planning and Composing Business messages (d) Communication channels (e) Communicating Corporate culture, change, innovative spirits (f) Communication breakdowns (g) Communication ethics (h) Groups dynamics; handling group conflicts, consensus building; influencing and persuasion skills; Negotiating and bargaining (i) Emotional intelligence - Emotional Quotient (j) Soft skills personality traits; Interpersonal skills ; leadership 2. Communication in Business Environment (a) Business Meetings Notice, Agenda, Minutes, Chairperson s speech (b) Press releases (c) Corporate announcements by stock exchanges (d) Reporting of proceedings of a meeting 3. Basic understanding of legal deeds and documents (a) Partnership deed (b) Power of Attorney (c) Lease deed (d) Affidavit (e) Indemnity bond (f) Gift deed (g) Memorandum and articles of association of a company (h) Annual Report of a company ix

10 BUSINESS LAWS, ETHICS AND COMMUNICATION CONTENTS PART I: LAW BUSINESS LAWS CHAPTER 1: THE INDIAN CONTRACT ACT, Unit 1: Background What is a Contract? Essentials of a Valid Contract Types of Contract Proposal/ Offer Acceptance Communication of Offer and Acceptance Communication of Performance Revocation of Offer and Acceptance Unit 2: Consideration What is Consideration? Legal Requirements regarding Consideration Suit by a third party to an Agreement Validity of an Agreement without Consideration Unit 3: Other Essential Elements of a Contract Free Consent General consequences of Coercion, Fraud, Misrepresentation etc Mistake Capacity to Contract Lawful Object and Consideration Unlawful Object Unlawful Consideration Agreement expressly declared as Void x

11 Unit 4: Performance of Contract By whom a Contract may be Performed Distinction between Succession and Assignment Effects of refusal to accept Offer of Performance Effect of a refusal of a party to Perform Promise Liability of Joint Promisor & Promisee Rights of Joint Promisees Time and Place for Performance of the Promise Performance of Reciprocal Promise Effects of Failure to Perform at a time fixed in a Contract in which Time is essential Impossibility of Performance Appropriation of Payments Contract, which need not be Performed Restoration of Benefit under a Voidable Contract Obligations of Person who has received advantage under Void Agreement or one becoming Void Discharge of a Contract Unit 5: Breach of Contract Anticipatory Breach of Contract Actual Breach of Contract Measurement of Damages Liability for Damages How to calculate the Damage Compensation for Breach of Contract where the Penalty is stipulated for Unit 6: Contingent and Special Contracts Contingent Contract Rules relating to Enforcement Quasi-Contracts Types of Quasi-Contract Unit 7 : Contract of Indemnity and Guarantee Contract of Indemnity xi

12 1.47 Contract of Guarantee Nature of Surety s Liability Continuing Guarantee Discharge of a Surety Rights of Surety against the Principal Debtor and Creditor Contribution as between Co-Sureties Distinction between a contract of Indemnity and a contract of Guarantee Unit 8: Bailment and Pledge What is Bailment? Bailor s Duties and Rights Care to be taken by Bailee Duties and Rights of a Bailee Rights and Duties of Finder of Goods General Lien and Particular Lien Pledge Pledge by Mercantile Agents Distinction between Bailment and Pledge Unit 9: Agency What is Agency? Modes of Creation of Agency Extent of Agent s Authority Duties and Obligations of an Agent Rights of an Agent Personal Liability of the Agent Undisclosed Principal Principal s Liability for Agent s act to third parties Termination of Agent s Authority Irrevocable Agency Sub-Agent Substituted Agent xii

13 CHAPTER 2: THE NEGOTIABLE INSTRUMENTS ACT, Introduction Meaning of Negotiable Instruments Characteristics of Negotiable Instrument Definitions Classification of Instruments Sight and Time Bills etc. (Sections 21 to 25) Negotiation, Negotiability, Assignability Negotiability vs. Assignability Different Provisions relating to Negotiation Rights and Obligations of Parties to an Instrument obtained illegally Notice of Dishonour Noting and Protesting Acceptance and Payment for Honour and Reference in Case of Need Presentment of Instruments Payment and Interest International Law regarding negotiable Instrument Different Types of Hundis Rules of Compensation CHAPTER 3: THE PAYMENT OF BONUS ACT, Introduction Applicability of the Act Act not to apply to certain classes of Employees (Section 32) Application of the Act to establishments in certain cases (Section 20) Definition Who is Entitled to Bonus? Establishments to Include Departments, Undertakings and Branches (section 3) Computation of gross profits under Section The First Schedule The Second Schedule xiii

14 3.11 A Prior deduction from gross profits The Third Schedule Available Surplus Calculation of Direct Tax Payable By The Employer Payment of Minimum Bonus (Section 10) Payment of Maximum Bonus (Section 11) Calculation of Bonus with respect to certain Employees (Section 12) Procedure for Calculation of Working Days and Proportionate Reduction in Bonus Set on and Set Off of Allocable Surplus (Section 15) The Fourth Schedule Special Provision with respect to Certain Establishments (Section 16) Miscellaneous Special Provision with respect to Bonus Linked with Production or Productivity (Section 31A) Effect of laws and agreements in consistent Saving Power of Exemption (Section 36) Power to make Rules (Section 38) Application of Certain Laws not Barred (Section 39) CHAPTER 4: THE EMPLOYEES PROVIDENT FUNDS AND MISCELLANEOUS PROVISIONS ACT, Introduction Definition (Section 2) Employees Provident Fund Scheme (Section 5) Employees Pension Scheme 1995 (Section 6A) Employees Deposit-Linked Insurance Scheme Other Provisions CHAPTER 5: THE PAYMENT OF GRATUITY ACT, An Introduction Aims and Objects of the Act xiv

15 5.3 Extent & Applicability Important Definitions Payment of Gratuity Calculation of Gratuity Amount Payable Forfeiture of Gratuity Compulsory Insurance Power to Exempt Nominations for Gratuity Application for the Payment of Gratuity Employer s duty regarding the payment Mode of payment of Gratuity Disputes Procedure for Dealing with application for direction Appeals Appointment of Inspectors Recovery Exemption of Employer from Liability Cognizance of Offences Protection against action taken in Good Faith Protection of Gratuity Miscellaneous COMPANY LAW CHAPTER 6: THE COMPANIES ACT, 1956 UNIT 1 Preliminary What is a Company? Lifting of the "corporate veil" Classes of companies under the Act Miscellaneous provisions (Section 43-45) Conversion of public company into a private company Procedure for conversion of a private company into a public company xv

16 1.7 Privileges and exemptions When companies must be registered? Mode of registration/incorporation of company Memorandum of Association Alteration of the Memorandum Articles of Association Alteration of Articles Doctrine of Indoor Management Preliminary or Pre-Incorporation Contracts Provisional Contracts Promoters Board of Company Law Administration (Section 10E) National Company Law Tribunal UNIT 2 Prospectus Prospectus Meaning and Role Section 55A Powers of SEBI When Prospectus is not required to be Issued (Section 56) Requirements as to the Issue of Prospectus Abridged form of Prospectus Matters to be stated in the Prospectus (Section 56) Additional disclosures to be made in Prospectus Statement by Experts Shelf Prospectus [Section 60A Companies (Amendment) Act, 2000] Information Memorandum [Section 60B Companies (Amendment) Act, 2000] Mis-statement in Prospectus and its Consequences Offer for sale or Prospectus by implication or Deemed prospectus (Section 64) Acceptance of Deposits "Small Depositors" [Section 58AA] xvi

17 2.15 Non-refund of deposits to be cognizable [Section 58AAA] Companies (Acceptance of deposits) Rules, Allotment of Shares Minimum Subscription and Refund Restriction on use of Application Moneys Underwriting Purchase of own shares and financial assistance for purchase of own shares Whether a company can 'buy-back' its own shares? Membership Contracts Investment by Company (Section 49) Service of Documents UNIT 3 Shares and Share Capital Concept of capital Shares Variation of shareholders rights Voting rights of a member Further issue of capital (Right Share i.e., Right of pre-emption or Pre-emptive Right) Section 81 of the Companies Act, Steps to be taken by a company in respect of issue of further shares Conversion of shares into stock Alteration of share capital(section 94) Reduction of the share capital Reduction vs. diminution Issue of shares at a discount Issue of sweat equity Issue of securities at a premium Share certificate Share warrant xvii

18 3.17 Calls on shares Transfer of shares Nomination facility in respect of shares How nomination facility shall operate in case of transmission of shares? Refusal to register transfer and appeal against refusal (Section 111) Transfer of securities of a public company Certification of transfer (Section 112) Blank transfers Forged transfers Transmission of shares Forfeiture and surrender of shares Capitalisation of profit Debentures Registration of a charge UNIT 4 Meetings Introduction Classification of Meetings Meeting of Shareholders Annual General Meeting Extraordinary General Meeting Powers of Company Law Board / Tribunal Class Meetings Procedure for Convening and conduct of General Meetings Notice of Meeting Special and Ordinary Business Quorum Voting and the right to demand a poll Proxies Resolution xviii

19 4.14 Passing of Resolution by Postal Ballot [Section 192A] Minutes Meeting of Debentureholders Company Law in a Computerised Environment PART II: ETHICS CHAPTER 7: PRINCIPLES OF BUSINESS ETHICS Introduction Ethics & Morals Nature of Ethics Need for Business Ethics Ethical Dilemmas Benefits of Business Ethics CHAPTER 8:CORPORATE GOVERNANCE AND CORPORATE SOCIAL RESPONSIBILITY Introduction Stakeholders Corporate Governance-Developments Abroad Corporate Governance Measures Benefits of Good Corporate Governance Corporate Social Responsibility Need for CSR Key Developments CSR Mechanisms External Standards & Other Developments Benefits of Corporate Social Responsibility CHAPTER 9: WORKPLACE ETHICS Introduction Factors Influencing Ethical Behaviour at Work Ethical Issues Discrimination xix

20 9.5 Harassment Importance of Ethical Behaviour at the Workplace Guidelines for Managing Ethics in the Workplace CHAPTER 10: ENVIRONMENT & ETHICS Introduction Sustainable Development Pollution and Resource Depletion Ecological Ethics Conservation of Natural Resources Developments in India Eco-Friendly Business Practices CHAPTER 11: ETHICS IN MARKETING AND CONSUMER PROTECTION Ethics and Marketing Ethical Guidelines Behaving ethically in marketing Healthy competition and protecting Consumer s interest Consumer Protection Councils in India CHAPTER 12: ETHICS IN ACCOUNTING AND FINANCE Introduction Ethics and Ethical Dilemma Potential Conflicts Creating an Ethical Environment Reasons for Unethical Behaviour Fundamental principles Relating to Ethics Threats Examples of circumstances creating above mentioned threats Safeguards Ethical conflict resolution xx

21 PART III: COMMUNICATION CHAPTER 13: ESSENTIALS OF COMMUNICATION Introduction The Process of Communication Formal Communication Informal Communication Grapevine Chains Interdepartmental Communication Communication Media Non-Verbal Communication Benefits of Effective Communication Barriers to Effective Communication Written Communication Parts of a Business Letter Layouts of Letters Planning Business Messages Checklist for Composing Business Messages CHAPTER 14 : INTERPERSONAL COMMUNICATION SKILLS Introduction Principles of Interpersonal Communication Functions of Interpersonal Communication Active Listening & Critical Thinking Emotional Intelligence Competencies Associated With Emotional Intelligence CHAPTER 15 : GROUP DYNAMICS What is a Group? Characteristics of Groups Group Dynamics Types of Groups in Organisations Team Roles xxi

22 15.6 Handling Group Conflicts Consensus Building Negotiation and Bargaining Basic Rules of Negotiation The Negotiation Process: Influencing and Persuasion Skills CHAPTER 16 : COMMUNICATION ETHICS Significance of Ethical Communication Factors Influencing Ethical Communication Organization Values and Communication Ethics Ethical Dilemmas in Communication Guidelines to handle Communication Ethics Dilemma NCA s Credo for Ethical Communication The Advantage of Ethical Communication CHAPTER 17 : COMMUNICATING CORPORATE CULTURE, CHANGE AND INNOVATIVE SPIRITS What is Corporate Culture? Elements of culture Change Resistance to Change Communication and Change Spurring the Innovative Spirits Building Innovation Enabled Organization CHAPTER 18: COMMUNICATION IN BUSINESS ENVIRONMENT Specimen of Notice Specimen of Minutes of Annual General Meeting Specimen of Chairman s Speech Press Releases Corporate Announcements by Stock Exchanges xxii

23 CHAPTER 19: BASIC UNDERSTANDING OF LEGAL DEEDS AND DOCUMENTS Partnership Deed Power of Attorney Lease Deed Affidavit Indemnity Bond Gift Deed Company Memorandum and Articles of Association Annual Report of a Company xxiii