HP versus sale

IN WHAT ways does a `sale' differ from `hire-purchase'?

A `hire-purchase' agreement is one for hire with an option to purchase. The hirer, under this agreement, is required to pay every month a particular sum of money, and if he pays so for a fixed number of months, the hirer will become the owner of the goods on the payment of the last instalment.

The essence of a `sale', on the other hand, is that the property is transferred from the seller to the buyer for a price, whether paid at once or paid later in instalments. On the other hand, a hire-purchase agreement has two aspects. There is first an aspect of bailment of goods subject to the hire-purchase agreement, and there is next, an element of sale which fructifies when the option to purchase is exercised by the intended purchaser.

A `hire-purchase agreement' is distinct from `sale' in which price is payable by instalments. In case of sale, the property passes as soon as sale is made though price has not been fully paid.

A `hire-purchase agreement', on the other hand, does not result in passing of the property unless the option to purchase is exercised, usually by payment of all the instalments. Till such time, it is a bailment. Thus, hire-purchase agreement is a bailment plus an agreement to sell. In determining as to whether a particular contract belongs to one type or the other, regard shall be had to the fact whether the hirer has merely an option to purchase, or whether he has bought or agreed to buy the goods.

Partner's interest

STATE the modes by which a partner may transfer his interest in the firm in favour of another person under the Indian Partnership Act, 1932. What are the rights of such a transferee?

Section 29 of the Partnership Act provides that a partner may transfer his interest in the firm by sale, mortgage or charge. The transfer may be absolute or partial. It does not, however, entitle the transferee, during the continuance of the firm to: interfere in the conduct of the business of the firm; require accounts of the firm; or inspect the books of the firm.

On transfer of interest by a partner, the transferee only becomes entitled to receive a share in the profits of the transferring partner. But in this case also, the transferee has to accept the account of profits agreed to by the partners [Section 29(1)].

If the firm is dissolved or if the transferring partner ceases to be a partner, the transferee is entitled to receive the transferring partner's share in the assets of the firm. For the purpose of ascertaining that share, he is entitled to an account as from the date of the dissolution [Section 29(3)].

Bonus crunching

THE employer is a banking company. Point out so as to what items are required to be added to the `net profit' by the employer for calculating the `gross profit' in accordance with the First Schedule of the Payment of Bonus Act, 1965.

As per the First Schedule to the Act, the items to be added back to the net profit for calculating the gross profit of a banking company are:

a) provisions for bonus to employees; depreciation; development rebate reserve; and any other reserves;

b) the amount debited in respect of gratuity paid or payable to employees in excess of the aggregate of: i) the amount, if any, paid to or provided for payment to, an approved gratuity; and ii) the amount actually paid to employees on their retirement or on termination of their employment;

c) donations in excess of the amount admissible for income-tax;

d) capital expenditure (other than permissible capital expenditure on scientific research) and capital losses (other than losses on sale of capital assets on which depreciation has been allowed for income-tax);

e) any amount certified by the RBI in terms of Section 34-A(2) of the Banking Regulation Act. Section 34-A deals with production of documents of confidential nature;

f) losses of, or expenditure relating to, any business situated outside India; g) income, profits and gains (if any) credited directly to published or disclosed reserve, other than i) capital receipts and capital profits (including profits on the sale of capital assets on which depreciation has not been allowed for income-tax); ii) profits of, and receipts relating to, any business situated outside India; and iii) income of foreign banking companies from investments outside India.

Co-ops' profit

STATE the purposes for which net profits of a multi-State cooperative society may be utilised under the Multi-State Cooperative Societies Act, 2002.

As per Section 63 of the Multi-State Cooperative Societies Act, 2002, a multi-State co-operative society shall, out of its net profits in any year:

a) transfer an amount not less than 25 per cent to the reserve fund;

b) credit one per cent to the co-operative education fund maintained by the National Co-operative Union of India Ltd, New Delhi, in the manner as may be prescribed;

c) transfer an amount not less than 10 per cent to a reserve fund for meeting unforeseen losses.

Subject to such conditions as may be prescribed, the balance of the net profits may be utilised for all or any of the following purposes, namely:

a) payment of dividend to the members on their paid-up share capital at a rate not exceeding the prescribed limit;

b) constitution of, or contribution to, such special funds including education funds, as may be specified in the bye-laws;

c) donation of amounts not exceeding 5 per cent of the net profits for any purpose connected with the development of co-operative movement or charitable purpose as defined in Section 2 of the Charitable Endowments Act, 1890;

d) payment of ex gratia amount to employees of the multi-State co-operative society to the extent and in the manner specified in the bye-laws.

PF inspector

WHAT are the powers of an "Inspector" under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952?

Section 13 empowers the appropriate Government to appoint Inspectors, by notification in the Official Gazette. The Inspectors are appointed for the purposes of this Act or of any scheme — the Family Pension or Insurance Schemes. Also, the appropriate Government may define jurisdiction of the Inspectors.

Powers of inspectors: For the aforementioned purposes, the inspectors have the following powers: i) He may require an employer or any contractor from whom any amount is recoverable under Section 8A to furnish such information as he may consider necessary;

ii) He may enter and search any establishment or any premises connected therewith at any reasonable time and with such assistance, if any, as he thinks fit. He may also require any one found in charge of such establishment or premises to produce before him for examination any account books, registers and other documents relating to the employment of persons or the payment of wages in the establishment;

iii) He may examine, with respect to any matter relevant to any of the purposes aforesaid, the employer or any contractor from whom any amount is recoverable under Section 8A, employer's agent or his servant or any other person found in charge of the establishment or any premises connected therewith or whom the Inspector has reason able cause to believe to be or to have been an employer in the establishment.

iv) He may make copies of, or take extracts from, any book, register or other document maintained in relation to the establishment. He may, where he has reason to believe that any offence under this Act has been committed by an employer, seize with such assistance as he may think fit, such book, register or other document or portions a thereof as he may consider relevant in respect of that offence.

v) He shall have such other powers as the scheme or the scheme may provide.

Further, Section 13 provides that the Code of Criminal Procedure shall, so far as may be, apply to any search or seizure made under the authority of a warrant issued under Section 98 of the said Code.

Contribution control

EXPLAIN the provisions regarding regulation of contribution made by the societies registered under the Cooperative Societies Act, 1912.

As per Section 34 of the Cooperative Societies Act, a registered cooperative society may contribute to any charitable purpose after fulfilling certain conditions. These conditions are: i) it must obtain sanction of the Registrar; ii) it must carry to Reserve Fund one-fourth of the net profits in any year; iii) it can contribute an amount not exceeding 10 per cent of the net profits remaining after transfer to a Reserve Fund as given in (ii) above; iv) it can contribute to any of the charitable purposes as defined in Section 2 of the Charitable Endowments Act, 1890.

According to it, a "charitable purpose includes a) relief of the poor, b) education, c) medical relief, and d) advancement of any other object of general utility. It does not include a purpose which relates exclusively to religious teaching or worship.

Car of no return

SUNIL delivered his car to Mahesh for repairs. Mahesh completed the work, but did not return the car to Sunil within reasonable time, though Sunil repeatedly reminded Mahesh for the return of car. In the meantime a big fire occurred in the neighbourhood and the car was destroyed.

Decide whether Mahesh can be held liable under the provisions of the Indian Contract Act, 1872. (6 marks)

Yes, Mahesh can be held liable for the loss. As per Section 161 of the Indian Contract Act, 1872 if the bailee fails to return the goods at the proper time, he is responsible to the bailor for any loss, destruction or deterioration of the goods from that time.

Section 160 requires the bailee to return, or deliver, according to the bailor's directions, the goods bailed, without demand, as soon as the time for which they were bailed has expired, or the purpose, for which they were bailed has been accomplished.

(Suggested answers to the November 2003 CA (PE-II) paper on business and corporate laws.)

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