Drafting and Conveyancing Relating to Various Deeds and Agreements-IV – Drafting, Pleadings and Appearances Important Questions
Question 1.
Comment on the following; A debtor cannot claim or take advantage of non-payment of consideration for assignment.
Answer:
An assignment is a form of transfer of property and it is commonly used to refer the transfer of an actionable claim or a debt or any beneficial interest in movable property.
Transfer of actionable claim:
Section 130 of the Transfer of Property Act, 1882 states that a transfer of an actionable claim whether with or without consideration shall be effected only by the execution of an instrument in writing signed by the transferor or his duly authorised agent.
Completion of transfer of actionable claim:
It shall be complete and effectual upon the execution of such instruments and thereafter all the rights and remedies of the transferor shall vest in the transferee.
It is evident from the bare reading of above section that a debtor cannot claim or take advantage of non-payment of consideration for assignment as section 130 of TPA Act lays down that an assignment of an actionable claim may be with or without consideration. Passing of the property in the assigned property does not depend on the payment of consideration.
Question 2.
Write notes on the following; Mode of transfer of actionable claims.
OR
In light of the judicial pronouncements discuss the following; A transfer of an actionable claim is usually called an assignment.
Answer:
An assignment is a form of transfer of property and it is commonly used to refer the transfer of an actionable claim or a debt or any beneficial interest in movable property.
Section 3 of the Transfer of Property Act, 1882:
Actionable claim means a claim:-
a. To any debt, other than a debt secured by mortgage of immovable property or by hypothecation or pledge of movable property or
b. To any beneficial interest in movable property, whether such debt or beneficial interest be existent, accruing, conditional or contingent.
Section 130 in the Transfer of Property Act, 1882:
Transfer of actionable claim:
a. The transfer of an actionable claim whether with or without consideration shall be effected only by the execution of an instrument in writing signed by the transferor or his duly authorised agent.
b. Shall be complete and effectual upon the execution of such instruments.
c. Thereafter all the rights and remedies of the transferor shall vest in the transferee.
d. The transferee of an actionable claim upon execution of instrument, sue or institute proceedings for the same in his own name without obtaining the transferor’s consent.
Question 3.
Draft a specimen of deed of assignment of 1,000 equity shares of ₹ 100 each in Ultra Infotech Ltd., between assignor Rajan, S/o Mohan and assignee Yash, S/o Raja in consideration of ₹ 50,000 only.
OR
Draft the following as per the instructions; A specimen deed of assignment of shares in a company.
Answer:
THIS ASSIGNMENT is made on 3rd day of June 2013 between Rajan, S/o………… Mohan, R/o (hereinafter called “the Assignor”) of the one part,
And
Yash, S/o………. Raja, R/o………. (hereinafter called “the Assignee”) of the other part.
THE DEED WITNESSETH AS UNDER:
1. That in consideration of the sum of ₹ …………….. (Rupees…………..) paid by the assignee to the assignor, the receipt whereof the assignor hereby acknowledges, the said assignor hereby assigns, sells and transfers to the said assignee 1000 Equity Shares of ₹ 100 each, fully paid up, bearing consecutive Nos. 18 to 1018 (inclusive), which stand in the name of the assignor in the Register of Members of Ultra Infotech Co. Ltd.
2. TO HOLD the same to the assignee absolutely, subject nevertheless to the conditions on which the assignor held the same up to date.
3. The assignee hereby agrees to take the said Equity Shares subject to such conditions.
IN WITNESS WHEREOF the assignor and the assignee do hereto affix their respective signatures on the day, month and the year stated above:
Witness: Assignor
Witness: Assignee
Question 4.
Robin has availed a loan of ₹ 50000/- from Mohan against assignment of life insurance policy. Draft a deed of assignment of life insurance policy.
Answer:
THIS ASSIGNMENT OF LIFE INSURANCE POLICY made on 3rd day of July 2015 between Robin, S/o David, R/o (hereinafter known as the “assignor”) of the one part and Mohan son of Ghanshyam R/o (hereinafter known as the assignee) of the other part.
WHEREAS a policy of assurance being No ………….. for ₹ 50,000 (Rupees fifty thousand only) was issued by the Life Insurance Corporation of India on the life of the assignor on 3rd day of July 2000 to be paid to the assignor or to his executors, administrators or assigns after his death, subject to the annual premium of ₹ 2000/-.
AND WHEREAS the said assignor has agreed to transfer and assign to the said assignee the said policy of assurance of a sum of ₹ 50000/- (Rupees fifty thousand).
NOW THIS DEED WITNESSETH AS UNDER
1. That in consideration of the sum of ₹ 50,000/- (Rupees fifty thousand only) the receipt whereof the said assignor hereby acknowledges, the said assignor as beneficial owner, hereby transfers and assigns unto and to the use and for the benefit of assignee the policy and the sum of ₹ 50000 (Rupees fifty thousand) hereby assured and all the other moneys, benefits and advantages to be had, recovered or obtained under or by virtue of the said policy.
2. TO HOLD the same unto and to the use of the said assignee absolutely, subject to the conditions as to payment of future premiums and otherwise to be henceforth observed in receipt of the said policy.
3. The said assignor, shall not do, or knowingly suffer anything to be done, whereby the said policy may be rendered void or voidable or the said assignee or his heirs, executors, administrators or assigns may be prevented from receiving the said sum or any benefit thereunder.
IN WITNESS WHEREOF the assignor and the assignee do hereby affix their respective signatures on the day, month and the year stated above.
Witness: Assignor
Witness: Assignee
Question 5.
Explain and comment on the following; Patent refers to the right granted under the Patent’s Act, 1970 to the grantee providing exclusive privileges of making or selling his invention, innovation or process; so it has little value in pleadings.
Answer:
Patent is a right, granted by the government under the Patents Act, 1970 to the grantee, of exclusive privileges of making or selling a new invention or process protected under the patent.
The Act confers upon the patentee the right to safeguard his property in the patent and sue the person who infringes upon his patent right.
Value of patent in pleadings:
It will be incorrect to state that the patent has little value in pleadings. Law clearly states that an application for registration or an assignment of a patent will only be valid it is in writing, therefor, pleadings hold value in case of patents.
Question 6.
Comment on the following; Patents and their registration.
Answer:
Following are the key points on registration of patents:
Patent is a right, granted by the government under the Patents Act, 1970 to the grantee, of exclusive privileges of making or selling a new invention or process protected under the patent. The Act confers upon the patentee the right to safeguard his property in the patent and sue the person who infringes upon his patent right.
Seal of Patent:
After a complete specification in pursuance of an application for a patent has been accepted and on the request of the applicant, the Controller shall cause the patent to be sealed with the seal of the Patent j Office under Section 43 of the Patents Act, 1970.
Rights of patentee:
Where the subject matter of the patent is a product or a process: the j exclusive right to prevent third parties who do not have his consent from the act of making, using, offering for sale, selling or importing for those purposes in India.
Assignment:
Section 68 of the Patents Act provides that an assignment of a patent shall not be valid unless the same were in writing and an application for registration of such document is filed in the prescribed manner with the Controller within six months from the execution of the document or within such further period not exceeding six months in the aggregate as the Controller on application made in the prescribed manner allows.
Registration of assignments:
Section 69 of the Act provides that where any person becomes entitled g by assignment, he shall apply in writing in the prescribed manner to, the Controller for the registration of his title, or, as the case may be, [ of notice of his interest in the register.
Question 7.
Draft a specimen deed of Assignment of a patent. Assume data.
Answer:
THIS DEED OF ASSIGNMENT is made on 3rd day of July 2013 between AB, S/o…. R/o………… (hereinafter called the “assignor”) of the ONE PART.
AND
CD, S/o……… R/o………… (hereinafter called the “assignee”) of the OTHER PART.
(The term “Assignor” and “Assignee” which term shall include his heirs, executors and assigns)
WHEREAS the assignor has invented a process for the manufacture of …………… which was duly registered and entered in the Register of Patents bearing No……. dated……….. and duly sealed in the Patent Office.
NOW THIS DEED OF ASSIGNMENT WITNESSES:
1. That on payment of the sum of ₹………… (Rupees……………. ) the assign or, as beneficial and sole owner, hereby assigns unto the assignee his title to the said patent and the rights and privileges attached thereto to hold unto the assignee absolutely.
2. The assignor covenants with the assignee that:
- The assignor has not assigned or otherwise dealt with the said patent.
- Title to the said patent subsists and that he has done nothing to prejudice the rights of the assignee.
- The assignor shall join the assignee in applying to the Central Government or other authority at the expenses of the assignee, for extension of the said patent.
- The assignor further covenants with the assignee that if the assignor shall discover, invent or make any improvements in respect of the said invention, he will disclose the same to the assignee and explain the new method of discovery to the assignee.
- The assignor shall do all other acts and execute all such deeds as may be requisite therefor to vest in the assignee all rights, title and interest in such new invention or improvement for the use and benefit of the assignee.
IN WITNESS WHEREOF the parties aforesaid have set their respective hands in the presence of the witnesses hereunder.
Witness: Assignor
Witness: Assignee
Question 8.
Explain the following; Objectives of trade mark law. Whether an unregistered trade mark can be assigned?
Answer:
Object of trade mark law:
Following are the objectives of Trade Marks Act, 1999:
- To deal with the precise nature of the right which a person can acquire in respect of trade marks.
- To provides for registration of trade marks applied for in the country.
- To provide for better protection of trade mark for goods and services.
- To prevent fraudulent use of the mark.
- The mode of acquisition of such rights.
- The method of transfer of those rights to others.
- The precise nature of infringement of such rights.
- The remedies available in respect thereof.
Assignment of unregistered trade mark:
- Section 39 of the Trade Marks Act, 1999 states that an unregistered trade mark may be assigned or transmitted with or without the goodwill of the business concerned.
Question 9.
Write notes on the following; Assignment of copyrights.
Answer:
Section 18 of the Copyright Act provides for assignment of copyrights.
It provides that:
- The owner of the copyright in an existing work or the prospective owner of the copyright in a future work may assign to any person the copyright either wholly or partially and either generally or subject to limitations and either for the whole term of the copyright or any part thereof.
- In the case of the assignment of copyright in any future work, the assignment shall take effect only when the work comes into existence.
- Where the assignee of a copyright becomes entitled to any right com-prised in the copyright, the assignee as respects the rights so assigned, and the assignor as respects the rights not assigned, shall be treated for the purposes of this Act as the owner of copyright and the provisions of this Act shall have effect accordingly.
- No assignment of the copyright in any work shall be valid unless it is in writing signed by the assignor or by his duly authorized agent.
Question 10.
In the light of judicial pronouncements, discuss the following; While drafting a deed of assignment of goodwill in the sale of business, goodwill ought to be specifically calculated in unassailable figures or arbitrarily fixed.
OR
In the light of judicial pronouncements, discuss the following; Goodwill of a business as an intangible asset.
OR
Explain the following; Concept of the Goodwill of the Company and the criteria from which goodwill arises.
Answer:
- Goodwill is
- An intangible asset. It represents the value to a business attaching to all the factors, internal and external, which enables it to earn a far better return of profit on the capital employed.
- A benefit of a good name, reputation and connections of a business, which is the one thing which distinguishes a well old-established business from a new business at its inception.
Goodwill arises mainly:
- By personal reputations of the owners
- By reputation of the goods dealt in
- By site monopoly or advantage
- By access to sources of supply for example large quotas
- For patent and trade mark protection
- Effectiveness of publicity
Khushall Khengar Shah v. Khorshedbanu AIR 1970 SC 1147, Supreme Court had opined
- “Goodwill of a business as an intangible asset being the whole advantage of the reputation and connections formed with the customers together with the circumstances which make the connections durable. It is that component of the total value of the undertaking which is attributable to the ability of the concern to earn profits over a course of years because of its reputation, location and other features.”
Sale and purchase of goodwill:
- Goodwill is intangible but not fictitious. However it is very difficult to measure or value and in practice a purchaser will be prepared to pay a sum representing a number of years’ purchase of recent annual average profits.
- The purchaser of goodwill acquires the trade marks, patents, copyrights etc. and all the benefits accruing from the location, reputation and other exceptional features of the business.
Question 11.
Draft a specimen deed of sale of a business and assignment of goodwill.
Answer:
THIS DEED made on 3rd day of 2010 between AB, S/o…….. R/o……… (hereinafter called as the “vendor”) of the ONE PART.
AND
CD, S/o……. R/o……. (hereinafter called as “purchaser”) of the OTHER PART.
WHEREAS the vendor has been carrying on the trade and business of _______ at premises _______ under the name and style of _________.
AND WHEREAS the vendor has contracted with the purchaser for the sale to him of all his stock-in-trade and other assets and goodwill of the said trade of his going concern business along with all debts, particulars whereof are contained in the books of the said business for a consideration of the sum of ₹_________ upon the terms hereinafter mentioned;
AND WHEREAS the vendor has delivered to the purchaser, books of account and other books relating to the said business containing full particulars of the debts, particulars of the contracts and engagements of the said business.
NOW THIS DEED OF SALE WITNESSETH AS UNDER:
1. That in pursuance of the said agreement and in consideration of the sum of Rupees……. paid by the purchaser to the vendor; hereunder grant, to the use of the purchaser all that the trade or business carried under the name and style of ……………….. at premises No ……………..
2. The vendor hereby convey, sell, transfer, assign and assure unto the purchaser all beneficial interest and goodwill of the vendor in the said trade and business.
3. That all the books and other debts now due and owing and all securities, all contracts and engagements, all the stock-in-trade goods, fixtures, articles and things, all the rights, title and interest which, at the date of this deed, belong to the vendor; TO HAVE AND TO HOLD the same to the purchaser absolutely.
4. The vendor does hereby covenant with seller that he, the vendor will not at any time hereafter, either by himself or in collaboration with any other person or persons, or as a partner or as a director of any limited company carry on the said trade and business of _________ within a radius of __________ miles of business.
5. The amount and particulars of the debts due and owing to and from the vendor and the particulars of the contracts of business are correctly stated in the books of account delivered by the vendor to the purchaser.
6. Vendor will pay in excess of the amount which by the said books appear to be so due and owing.
7. The purchaser hereby agrees with the vendor that the purchaser shall perform all outstanding contracts and orders and keep indemnified the vendor and his estate against all losses, claims, demands, costs, charges and expenses etc.
8. That the vendor do hereby irrevocably nominate the purchaser as his attorney for him to perform all acts, deeds, and things as necessary to carry on the said business, as his successor.
9. That the names of the parties hereto shall, unless inconsistent with the context; include as well the heirs, administrators or assigns of the respective parties as the parties themselves.
IN WITNESS WHEREOF the parties have signed this deed on the date above mentioned in the presence of:
Witness 1 Vendor
Witness 2 Purchaser
Question 12.
Explain the following; Assignment of Policies of Insurance.
Answer:
Following are the key points on assignment of policies of insurance:-
Types of Policies of insurance
Contract of insurance are principally of two types:
- Insuring risk to life of a person: A sum of money is secured to be paid on the death of the person whose life is insured.
- Covering various risks relating to goods: An insurer undertakes to indemnify the assured/heirs and legal representatives against the loss or damages to goods insured. ,
Completion of contract of insurance:
- A contract of insurance is complete when the proposal of the – assured is accepted by the insurer, whether the policy of insurance is issued or not.
Insurable interest in the subject-matter insured is a pre-requisite of a contract of insurance and the assured must be interested in the subject-matter insured at the time of the loss.
Assignment:
- An insurance policy may be transferred by assignment unless it contains terms expressly prohibiting assignment.
- It must be assigned before death in the case of a life insurance policy and it may be assigned either before or after loss in the case of a marine or good policy.
- The assignee can sue/defend on the policy of insurance in its own name.
- An assured who has no insurable interesting the subject-matter insured cannot assign.
Question 13.
A partnership firm, a HUF and a Minor wants to be partner of another partnership firm. Decide the possibility of the same.
OR
Comment on the following with reference to ratio in leading cases, if any; HUF can become a partner in a firm.
Answer:
HUF as a partner of a partnership firm:
- As per Section 4 of the Indian Partnership Act, 1932 only natural and legal persons can become partners in a partnership firm.
- Duli Chand v. C/FAIR 1956 SC 354
Supreme Court held that such persons who are competent to contract can enter into partnership. - BhagatRam v. Comm, of Excess Profits Tax AIR 1956 SC 374
Supreme Court held that when the Karta of a Joint Hindu Family H enters into a partnership with strangers the other members of the family do not ipso facto become partners.
Since, Hindu Undivided Family is not a legal person, cannot enter z into partnership with any person.
Partnership firm as a partner of another partnership firm:
- Two partnership firms cannot enter into partnership as such but its partners can certainly form a new partnership.
Minor as a partner of a partnership firm:
- According to Section 30 of the Indian Partnership Act, 1932, a minor cannot be a partner in a firm but, with the consent of all the partners, he can be admitted to the benefits of partnership.
- He is entitled to share in the profits and his share is liable for the acts of the firm, but he is not personally liable.
- He cannot be made liable for the losses of the firm.
- Within six months of attaining majority or obtaining knowledge of his admission, whichever is later, the minor may elect to become or not to become a partner in the firm.
Question 14.
Distinguish between the following; Registration of partnership firm under the Income-tax Act, 1961 and Registration of partnership firm under the Indian Partnership Act, 1932. Answer:
Following are the differences between registration of partnership firm under the control the Income-tax Act, 1961 and Indian Partnership Act, 1932:
| Registration of partnership firm under the Indian Partnership Act, 1932 | Registration of partnership firm under the Income-tax Act, 1961 |
| Section 58 of the Indian Partnership Act, 1932: Registration of partnership firm has been made optional. | Rule 22 of Income-tax Rules, 1962: An application for registration of partnership firm should be accompanied with an instrument of partnership specifying the apportionment of shares of profit and losses of the business amongst the partners of the firm. This registration is required to be renewed every year under the orders of the concerned Income-tax Officer. |
| Section 69 of the Partnership Act, 1932: Consequences of non-registration of a partnership firm. An unregistered firm cannot enforce a right or claim arising out of a contract against any third party. However, if the firm obtains registration on the date of institution of the claim against third person, the said claim or right would be perfectly maintainable. Since the blow of the consequences of non-registration is very severe, it is advisable to get the partnership registered under the Partnership Act, 1932 immediately on its incorporation. |
Registration of partnership firm under the Indian Partnership Act, 1932 Registration of partnership firm under the Income-tax Act, 1961
Question 15.
‘X’ and ‘Y’ are partners. ‘Z’ a minor son of ‘Y’ was admitted to the ‘ benefits of the partnership. ‘Y’ dies and the business of the firm is carried j on. During this period ‘X’ incurs losses heavily. The creditors of the firm demand losses from ‘X’ and ‘Z’ The Lawyer has advised ‘Z’ that he is j liable upto ‘Z’s capital investment in such partnership firm. Advise ‘Z’
Answer:
According to Section 30 of the Indian Partnership Act, 1932 A minor cannot be a partner in a firm but, with the consent of all the partners, he can be admitted to the benefits of partnership.
Share in profit:
A minor is entitled to share in the profits and his share is liable for the acts of the firm, but he is not personally liable.
He cannot be made liable for the losses of the firm.
Judicial precedent:
Shri Ram v. Gaurishankar AIR 1961, Bombay 136
“Within six months of attaining majority or obtaining knowledge of his admission, whichever is later, the minor may elect to become or not to become a partner in the firm. ”
Conclusion:
Z will be liable only upto his capital investment in the firm is not a correct advice. Due to the death of Y the partnership between X and Y comes to an end. Z cannot be partner of X as he is minor and is not capable of entering into contract. The losses have arisen after the end of the partnership between X and Y. There is no liability upon Z and therefore he is not liable for the losses. The lawyer’s advice is incorrect.
Question 16.
What is the law relating to nomination of a successor to a partner of a firm in the event of death/retirement of the existing partner?
Answer:
Partners at the time of entering into partnership agreements insert a clause as to nomination of a successor who has the right to be declared and admitted as partner in the event of death or retirement of a partner.
In the case of Commissioner of Income Tax v. Govindram Sugar Mills AIR 1966 SC 24 Supreme Court held that:
“The nomination is not effective in case of partnership firm consisting of two partners only as it stands dissolved on the death of a partner; nevertheless, in view of the rights and obligations of a person to be nominated as under Section 31 of the Act, the same principle in case of agreement between two persons is applicable in case of partnership between two partners”.
Question 17.
Distinguish between ‘Partnership’ and ‘Limited Liability Partnership’.
Answer:
Following are the differences between partnership & Limited Liability Partnership:
| Basis | Partnership | Limited Liability Partnership (LLP) |
| 1. Registration under Act | Indian Partnership Act, 1932 | Limited Liability Partnership Act, 2008 |
| 2. Registered to | Registration of Firms | Ministry of Corporate Affairs |
| 3. Liability | The partner and the firm are not considered as a separate legal entity. For this reason, Partners are personally liable for the unlimited amount of liabilities of the partnership. | Liability of partners is limited to the amount invested in the company. |
| 4. Number of partners and other requirements | A Minimum of 2 and maximum of 20 partners can be a member of the partnership firm. Minors can be a partner. | A Minimum of 2 and no upper limit for the maximum number of partners in LLP. And No minor can be a partner. |
| 5. Rights and duties of partners | Partnership Deed governs the operation, management and decision making methodologies and other activities of the partnership. | LLP Agreement governs the operation, management and decision making methodologies and other activities of the LLP. |
| 6. Legal proceedings | Only registered partnerships can sue any partner or any other person. | An LLP is a legal entity that pan sue or be sued. |
Question 18.
Distinguish between the following; ‘Partner’ and ‘Designated Partners’.
Answer:
Partner:
- As per section 2(q) of the Limited Liability Partnership Act, 2008,
partner means any person who becomes a partner in LLP in accordance with LLP agreement. - As per section 5 of LLP Act, 2008, any individual or body corporate may be a partner in a LLP, except person of unsound mind, an undischarged insolvent or has applied for insolvency.
Designated partners:
- Designated partners means any partner designated as such pursuant to section 7 of the Limited Liability Partnership Act, 2008.
- Every limited liability partnership shall have at least two designated partners who are individuals and at least one of them shall be a resident in India:
- Responsibilities of Designated Partners
Designated Partners have specific responsibilities. They shall be responsible for the doing of all acts, matters and things as are required to be done by the limited liability partnership (LLP) in respect of compliance of the provisions of the LLP Act including filing of any Document, Return, Statement and the like Report pursuant to the provisions of Limited Liability Partnership Act, 2008.
The Designated Partners shall be responsible for the doing of all acts and deeds arising out of LLP Agreement.
Question 19.
Distinguish between the following; Agreement among partners of Partnership Firm and Agreement among the members of a Co-operative Society.
Answer:
Partnership:
- A partnership deed is a document that outlines in detail the rights and responsibilities of all parties to a business. It has the force of law and is designed to guide the partners in conducting the business.
This contract may be made:- Orally or
- Writing or
- May be inferred from the course of dealing between the partners.
- The deed of partnership is executed by all the partners and is drafted as an agreement to carry on certain business in partnership on certain terms and conditions.
- While drafting partnership deed we should incorporate all terms and conditions that govern a particular partnership business.
Co-operative Society:
- A Co-operative Society comes into being when several like-minded persons come together to form an association for mutual benefit.
- Decision making in a Co-operative Society:
The number of members in a co-operative society is quite large making it impossible for each and every member to take active participation in the management of the affairs of the co-operative society. Therefore, decisions in a co-operative society are taken by following a democratic process. - Agreement among the members of a co-operative society:
The agreement provides for the eligibility criteria for becoming members of the co-operative society, payment of contribution, categories of membership of the co-operative society, their voting rights and the manner of exercising their votes. The agreement also provides for restrictions on transfer of shares and the transfer of interest on death of a member.
Question 20.
In the light of judicial pronouncements, discuss the following; HUF is not a legal person.
Answer:
In the case of Firm Bhagat Ram v. Comm, of Excess Profits Tax AIR 1956 SC 374 Supreme Court held:
“When the Karta of a HUF enters into a partnership with strangers the other members of the family do not ipso facto become partners. ”
Therefore, HUF cannot enter into partnership with any person. A firm or a Hindu Undivided Family is not a legal person and cannot therefore enter into agreements or sue in its own name.
Question 21.
In the light of judicial pronouncements, discuss the following; A firm is not a legal person.
Answer:
In the case of Malabar Fisheries Co. v. CIT [1979] 120 ITR 49 Supreme Court held:
“A partnership firm under the Indian Partnership Act, 1932, is not a distinct legal entity apart from the partners constituting it and equally in law the firm as such has no separate rights of its own in the partnership assets and when one talks of the firm s property or firm’s assets all that is meant is property or assets in which all partners have a joint or common interest’’
In light of the aforesaid case law it is evident that:
- A firm is not a legal person.
- The firm has no separate rights of its own in the partnership assets but it is the partners who own jointly or in common the assets of the partnership.
Question 22.
Anuradha and Sudha are partners running a fashion designing boutique. They now propose to induct Seema as another partner in their firm w.e.f. 1st September, 2015. Draft a deed of agreement of admission of Seema into the firm. Assume data.
OR
Draft a deed of Agreement of Admission of Sushma as a third partner w.e.f. 1st September, 2018, into the already established firm of Seema and Reshma running a sweet shop. Assume data.
Answer:
Deed of Agreement of Admission into Firm of a New Partner Sushma THIS DEED OF AGREEMENT is made on 3rd day of June 2018 between Seema, D/o ………… aged ………… R/o
AND
Reshma D/o …………. aged …………… R/o …………… partners in the firm Sweet & Co. of the one part,
AND
Sushma …………………. daughter of ……………………… aged ……………………. years resident of ……………………… of the other part.
WHEREAS the said Seema and Reshma are partners in the firm Sweet & Co. situated in ………………….. and are bound as such under a deed of partnership executed by them on the ……………….. day of …………… 2018 hereinafter referred to as the “partnership deed”.
AND WHEREAS the said Sushma is desirous of being admitted as a member in the aforesaid firm of SWEET & Co. and invest a sum of ₹ ……………… and the said Seema and Reshma are willing to admit her as an additional partner.
NOW THEREFORE THE DEED WITNESSETH AS UNDER that in pursuance of the said agreement and in consideration of the said Sushma bringing in and contributing the sum of ₹ …………… (Rupees ………………………………. only) as additional capital of the above partnership firm, it is mutually agreed as follows:
1. The parties hereto shall, as from the date hereof be and continue P partners for the unexpired residue of the terms mentioned in para ……………… of the partnership deed subject in all respects to the conditions, stipulations, and provisions of the aforesaid partner- % ship deed, so far as applicable, and except as varied by this deed of agreement.
2. The capital mentioned in the partnership deed shall-here after be changed to the sum of Rupees ……………………… only and the partners shall hereafter have the undernoted shares in the capital.
Seema shall have ₹ …………………… in the said capital
Reshma shall have ₹ ………………….. in the said capital
Sushma shall have ₹ ……………………. in the said capital
3. The profits and losses of the partnership shall continue to be borne by the partners hereto in proportion to their above named respective shares.
IN WITNESS WHEREOF the said Seema, Reshma and Sushma have hereto at ………………….. signed the day and the year first abovementioned.
WITNESSES:
1.
2.
Sd/- Seema
Sd/- Reshma
Sd/- Sushma
Question 23.
Draft a specimen notice to dissolve a partnership.
Answer:
Letter head of Advocate
To,
Mr. B Date
Partner at AB Firm
S/o………
R/o………
NOTICE TO DISSOLVE PARTNERSHIP
Dear Sir,
1. Under instructions from my client, Mr. A, partner in firm AB, Thereby give you notice that in lieu of the disputes that have arisen between you the addressee and my client, my client does not wish to continue with the said partnership.
2. I hereby intimate you that in pursuance of the clause… of the partner ship deed dated….., my client hereby terminates the said partnership with effect from……..
3. I call upon you to reconcile accounts of partnership with my client within 15 days of the receipt of this notice, failing which necessary actions will be taken.
S/d
Advocate
details
Question 24.
A partnership firm was constituted by A, B and C partners for carrying on the business of steel manufacturing. Later on, a company Desire Ltd. proposed to purchase the business of the said partnership firm. The partners agreed to it and decided to dissolve the firm unanimously. Draw a partnership dissolution deed assuming data like date, place, etc. wherever necessary.
Answer:
THIS DEED OF DISSOLUTION OF PARTNERSHIP is made on 3<sup>rd</sup> July 2013 between Mr. A, S/o…………, R/o…………. (hereinafter known as “First Partner”)
AND
Mr. B, S/o…, R/o….(hereinafter known as “Second Partner”) AND Mr. C, S/o…, R/o….(hereinafter known as “Third Partner”)
WHEREAS the partners hereto under a deed of partnership dated………….. made between them formed themselves into a business firm and carried on business of steel manufacturing under the name and style of ………………..
AND WHEREAS a company named XYZ Ltd. wishes to purchase the business carried out by the first, second and third partner.
AND WHEREAS it has been mutually decided between the partners to sell off the said business to XYZ Ltd.
AND WHERAS the partners have agreed to dissolve their partnership and divide the proceeds of such sale among themselves in the ratio of the capital invested.
NOW THIS DEED WITNESSES that in pursuance of the said agreement it is hereby declared and agreed by and between the parties hereto as follows, that is to say:
1. The said partnership between the partners hereto under the deed, dated ……………. shall be determined and stand dissolved as from ……………. 2013.
2. The partners hereto singly or jointly shall not carry on the business of the said firm of steel manufacturing under the said name and style for a period of ………………. years hence.
3. The parties hereto shall on the aforesaid date of ……………………. sign notices of the dissolution and forthwith advertise in the local Official Gazette the fact of dissolution as required by Section 45 of the Indian Partnership g Act and shall also intimate the fact of dissolution to the Registrar of z Firms under the provision of Section 63 of die said Act.
4. Particular inventory and valuation of all the machinery, plants, tools, utensils, stock in hand, office equipment, materials and effects belonging to the firm shall be made by the partners collectively.
5. That all the assets whereof shall be sold to XYZ Ltd. at the agreed consideration.
6. Upon sale, the proceeds of sale shall be divided and apportioned in the proportion of the contribution of the partners towards the capital
7. That the cost of liquidation proceedings shall also be deemed to be a liability of the partnership and paid from the funds of the partnership.
IN WITNESS WHEREOF the parties aforesaid have signed this deed on the date above mentioned in the presence of:
Witness Mr. A
1 Mr. B
2 Mr. C
Question 25.
A group of fashion designers, Akshita, Haritha and Hemalalha proposes to form a Limited Liability Partnership(LLP). They seek your professional guidance on the drafting of the following clauses in the LLP Agreement:
i. Admission of new partner.
ii. Extent of Liability of the LLP.
iii. Arbitration
Answer:
The model Clauses in the LLP agreement are as follows:
Admission of new partner:
- No Person may be introduced as a new partner without the consent of all the existing partners. Such incoming partner shall give his prior consent to act as Partner of the LLP.
- Capital contribution of the new partner may be tangible, intangible, movable or immovable property and the incoming partner shall bring minimum Contribution of ₹ …………………. (Rupees ……………………… only).
- Profit Sharing Ratio (PSR) of the incoming partner will be in proportion to his capital contribution in the LLP
Extent of Liability of the LLP:
The LLP is not bound by anything done by a partner in dealing with a person if
- The partner has not been authorised to act for the LLP in doing a particular act.
- The person knows that he has no authority or does not know or believe him to be a partner of the LLP.
Arbitration:
All disputes between the partners or between the partners and the LLP arising out of the LLP Agreement which cannot be resolved in terms of this LLP Agreement shall be referred for arbitration as per the provisions of the Arbitration and Conciliation Act, 1996.
Question 26.
Explain the following: Author of the trust.
Answer:
According to Section 3 of the Indian Trusts Act, 1882, Trust is an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him for the benefit of another.
The person who reposes or declares the confidence is called the ‘author of the trust’. An author is also called as a ‘settler’.
Question 27.
Write note on the following; ‘Creation of trust’ in respect of immovable property.
Answer:
According to Section 3 of the Indian Trusts Act, 1882
“Trust” is an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him for the benefit of another.
A trust for immovable property can be declared only by non-testamentary instrument in writing signed by the author of trust or trustee and registered or by the Will of the author of the trust or of the trustee.
A trust for movable property can be declared as above or by the transfer of the ownership of the property to the trustee.
Question 27.
Discuss the contents of a trust deed.
Answer:
Following are the contents of a trust deed
The instrument by which the trust is declared is called the ‘instrument of trust’. Following are the contents of a trust deed:
- Person: The person who reposes or declares the confidence is called the ‘author of the trust’. The person who accepts the confidence is called the ‘beneficiary’.
- Subject Matter: The subject matter of the trust is called the ‘trust property’ or the ‘trust money’.
- Names of the trustees: The person or persons who manages the trust property is called the ‘trustee’ of the trust. The trust property vests in the trustee and he holds it for the benefit of the beneficiary and cannot use it for his own benefit.
- An intention to create a trust
- The purpose of the trust
- The beneficiaries
- Unless the author is himself a trustee, transfer of the legal ownership of the property to the trustee
- Duties, rights and liability of the settler, trustee and the beneficiary
- The deed may also provide for reimbursement of expenses incurred by the trustee.
Question 28.
Explain the following; Elements of Debenture Trust Deed.
Answer:
“Debenture” is an instrument of debt executed by the company acknowledging its obligation to repay the sum at a specified rate and also carrying an interest. It is one of the methods of raising the loan capital of the company.
Debenture trust deed:
An issue of debentures is usually secured by a trust deed, where under movable and immovable properties of the company are mortgaged in favour of the trustees for the benefit of the debenture holders.
Elements of debenture trust deed:
The elements of debenture trust deeds are as follows:
1. The trust deed usually gives a legal mortgage on block capital and a floating security on the other assets of the company in favour of the trustee on behalf of the debenture holders.
2. The trust deed gives in detail the conditions under which the loan is advanced.
3. The trust deed should specify in some detail the remuneration payable to the trustee, their duties and responsibilities in relation to the trust property.
4. It also gives in detail, rights of debenture holders to be exercised through the trustees in case of default by the company in payment – of interest and principal as agreed upon.
Question 29.
Distinguish between the following; ‘Public trust’ and ‘private trust’.
Answer:
Following are the differences between ‘Public trust’ & ‘Private trust’:
| Public Trust | Private Trust |
| 1. A Public Trust is created for the benefit of society at large. | Private trust is an effective and efficient mode of managing and passing of family assets. |
| 2. In a public trust the beneficiary is the general public or a specified section of it. | In a private trust the beneficiaries are defined and ascertained individuals. |
| 3. In a public trust the beneficial interest is vested in an uncertain and fluctuating body of persons. | Where a trust is created for the benefit of the members of the settlor’s family, it is a private trust and not a public trust. |
| 4. Every charitable trust is a public trust. | A religious trust may be a public or a private trust. |
Question 30.
Write notes on the following; Revocation and Extinction of trusts.
OR
Distinguish between the following; Revocation and extinction of trusts.
Answer:
Revocation of trust
A trust cannot be revoked unless:
- All the beneficiaries consent.
- A power of revocation has been reserved in the deed.
- In case of a trust for payment of debts, it has not been communicated to the creditors.
- If the trust property is to be applied for the author’s own benefit the trust can be revoked. A power of revocation may with advantage always be reserved in the deed.
Extinction of trusts
A trust is extinguished:
- When its purpose is completely fulfilled.
- When its purpose becomes unlawful.
- When the fulfilment of its purpose becomes impossible by destruction of the trust property or otherwise.
- When the trust, being revocable, is expressly revoked.
Question 31.
Comment on the following; ‘Wakfs are trusts’. Explain? Advise on applicability of Indian Trust Act on Wakfs.
Answer:
Wakf: Wakf properties are dedicated to God and the “Wakif” or dedicator, does not retain any title over the Wakf properties.
As far as Trusts are concerned, the properties are not vested in God. Some of the objects of such Trusts are for running charitable organisations such as hospitals, shelter homes, orphanages and charitable dispensaries, which acts, though recognized as pious, do not divest the author of the Trust from the title of the properties in the trust.
Difference between Muslim Wakfs and Trusts:
Difference between Muslim Wakfs and Trusts is that while Wakf properties vest in God Almighty, the Trust properties do not vest in God and the trustees in terms of Deed of Trust are entitled to deal with the same for the benefit of the Trust and its beneficiaries.
Applicability of Indian Trusts Act:
Though wakfs are trusts, the Indian Trusts Act does not apply to wakfs under the Muslim Law. However, it is open to a Muslim to create a secular trust of a public of religious character. Such a trust would be governed by the Indian Trusts Act, 1882.