Skip to content Skip to left sidebar Skip to right sidebar Skip to footer
Choose language:

Month: July 2023

Fair use under Copy Right

Introduction

            The legal concept of copyright gives authors, musicians, artists, and other creators protection over their creations. According to the Copyright Act, it is the solely reserved right to carry out or authorize others to carry out specified acts with respect to original literary, dramatic, musical, and artistic works, cinematography films, and sound recordings, including computer programs. For a specific period of time, it grants the holder some exclusive rights to manage the reproduction of works of authorship, including books, music, paintings, songs, and movies. The purpose of copyright is to shield the creator of a work from any unauthorized duplication or commercialization of their work. On one hand copyright grants exclusive rights to the authors and creators whereas on the other hand it sets out some limitations on the rights of the authors and creators.

           A fair dealing is a restriction on a copyrighted work owner’s rights made without the author’s consent. If a literary, dramatic, musical, or artistic work is fairly used for research, private study, criticism, or evaluation of that work or any other work, it does not violate the author’s rights. Fair dealing is the authorized copying of a work protected by copyright. The phrase “fair dealing” is not specified elsewhere in copyright law, although courts have frequently evaluated such works and tried to determine what exactly constitutes fair dealing.

Legal provisions for Fair dealing:

            Members shall limit limitations or exceptions to exclusive rights to certain special cases that do not conflict with a normal exploitation of the work and do not unreasonably prejudice the legitimate interests of the Right holder, according to Article 13 of the TRIPS (Trade Related Aspects of Intellectual Property Rights).

            According to Article 9(2) of the Berne Convention, legislation or exceptions to exclusive rights to specific extraordinary instances that do not conflict with a regular exploitation of the work and do not unreasonably impair the right holder’s legitimate interests are to be left up to the individual states.This idea has been codified in significant territorial copyright legislations, as all WTO members are required to abide by the TRIPS articles and the Berne Convention on Copyright. The exception of fair dealing is enacted and understood differently in all countries by their individual laws. In India, standard exceptions or defenses to copyright infringement are listed in Section 52 of Copyright Act, 1957.

Origin and Development of Fair Dealing:

            Copyright law is fundamentally based on the doctrine of fair dealing. The use of works protected by copyright is allowed without fear of violation. In its original form, the defense of “Fair Dealing” was a doctrine of equity that permitted the use of some copyright-eligible works in cases when it would otherwise have been illegal and would have amounted to copyright infringement. This ideology’s main goal is to prevent the development of the creativity and growth for which it was created, which is prohibited by the dogma. One of the most crucial elements of copyright law is the doctrine, which establishes a distinction between a work’s legal, bona fide fair uses and its malicious, flagrant copies.

Fair dealing was officially acknowledged in imperial copyright law for the first time in the UK Copyright Act of 1911. Three key restrictions on owner rights are provided by the fair dealing provisions: fair dealing for the purposes of non-commercial research or private study; fair dealing for the purposes of criticism or review; and fair dealing for the purposes of news reporting.

           The Indian Copyright Act, 1957, which heavily borrows from the UK Copyright law, deals with the notion of fair dealing under Section 52. The defense of fair dealing, which is elaborately incorporated in Section 52 but not elsewhere in the Act, is undefined. A fair use of a literary, dramatic, musical, or artistic work for research, private study, critique, or review, whether of that work or any other work, and for the purpose of reporting current events does not violate the author’s copyright. By adding the phrase “any work,” the Copyright Amendment Act of 2012 has expanded the range of works that can be utilized for private and individual purposes. This Amendment has expanded the application of the fair use rule to cinematography film and musical works.

Doctrine of Fair Dealing:

            The term fair dealing has not been defined in the Act. It is a legal doctrine, which allows a person to make limited use of copyrighted work without the permission of the owner.

            Whether a person’s use of copyrighted material is ‘fair’ would depend entirely upon the facts and circumstances of a given case. The line between “Fair dealing” and infringement is a thin one. In India, there are no set guidelines that define the number of words or passages that can be used without permission from the author. Only the Court applying basic common sense can decide this. It may however be said that the extracted portion should be such that it does not affect the substantial interest of the Author. Fair dealing is a significant limitation on the exclusive right of the copyright owner, it has been interpreted by the courts on a number of occasions by judging the economic right of the copyright owner. It has been interpreted by the courts on a number of occasions by judging the monetary impact it has on the copyright owner. Where the economic impact is not significant, the use may constitute fair dealing. Hubbard v Vosper, [1972] 2 Q.B. 84, is a leading English copyright law case on the defence of fair dealing. The Church of Scientology sued a former member, Cyril Vosper, for copyright infringement due to the publication of a book, The Mind Benders, criticizing Scientology. The Church of Scientology alleged that the books contained material copied from books and documents written by L. Ron Hubbard, as well as containing confidential information pertaining to Scientology courses. Vosper successfully defended the claim under the fair dealing doctrine, with the Court of Appeal deciding unanimously in his favour. The judgment given by Lord Denning clarified the scope and content of the fair dealing defence.

Doctrine of Fair Use:

            Fair use in the United States is incorporated from Justice Story’s 1841 Judgment in Folsom vs. Marsh  9. F.Cas. 342, which was based on the English fair dealing case law. Congress codified fair use in the Copyright Act of 1976. Section 107 provides that fair use for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use). Scholarship and research is not an infringement of copyright. Section 107 then lists four factors that are to be included in the determination of whether the use made of a work in any particular case is a fair use. In other words, Section 107 sets forth nonexclusive purposes and non-exclusive factors for fair use.

The Four Factors of determining Fair Use is as follows:

  1. The purpose and character of the use
  2. The nature of the copyrighted work
  3. The amount and substantiality of the portion used in relation to the copyrighted work as a whole and
  4. The effect of the use upon the potential market for or value of the copyrighted work.
  1. The purpose and character of use:

            According to the Fair Use legislation itself, nonprofit educational uses are typically preferred over commercial ones. Additionally, the statute expressly identifies a number of uses that are particularly eligible for fair use, including news reporting, criticism, commentary, teaching, scholarship, and research. But not all charitable educational purposes are appropriate. A fair use determination is based on the application of all four criteria, not just the intent. ‘Transformative’ uses or those that are not merely replicas are likewise valued by courts. When the copyrighted work is changed into something new or has a new purpose or significance, such as when quotations are used in papers or bits of a work are combined to create a multimedia product for your own instructional requirements, fair use is more likely to be recognized..

2. The nature of the copyrighted work:

This component centers on the work being used, and depending on the attributes or features of the work, the law permits a greater or lesser scope of fair use. For instance, the unpublished status of a piece of work, like a manuscript or private letter, can be used against it in a fair use determination. According to the courts, copyright holders should have the authority to choose the details around “first publication.” It is typically discouraged and improbable that a use of a work that is commercially available but intended just for the educational market will be regarded as fair. Additionally, since courts frequently give creative works more protection, fair use generally pertains to nonfiction rather than fiction. In general, courts are more protective of art, music, poetry, and literary works.

3. The amount or substantiality of the portion used:

Although the law does not specify a specific quantity cap, it is generally true that the more you consume, the less probable it is that you are making a fair use. Usually, the amount used is assessed in relation to the length of the full original and in light of the amount required to fulfill the intended purpose. The precise original, however, is not often immediately apparent. A book chapter may only make up a small percentage of the overall work, but if the same material were to be published elsewhere as an article or essay, it would be regarded as the full piece. Additionally, the quality of the work is gauged.

            Courts have ruled that even uses of small amounts may be excessive if they take the ‘Main content of the work’. For example, a short clip from a motion picture may usually be acceptable, but not if it showcases the most extraordinary or creative elements of the film. Similarly, it might be acceptable to quote a relatively small portion of a magazine article, but not if what you are quoting is the journalistic “Exclusive scoop”. On the other hand, in some contexts, such as critical comment or parody, copying an entire work may be acceptable, generally depending on how much is needed to achieve your purpose. On the other hand, a court has ruled that a ‘thumbnail’ or low-resolution version of an image is a lesser amount. Such a version of an image might adequately serve educational or research purposes.

4. The effect of use on the potential market for a value of the work:

            Perhaps more challenging than the other three aspects is the impact on the market. This factor essentially indicates that if you could have afforded to buy or obtain a license for the copyrighted material, that fact weighs against the determination of fair use. You might just need to conduct a quick market inquiry to see if the work is easily available for purchase or license in order to assess this element. If you are employing a sizable chunk of a book that is for sale at a standard market price, the work might be reasonably accessible. Market effect may be challenging to demonstrate if your goal is to conduct research or academic work. If your goal is commercial, it can be simpler to demonstrate a bad market effects. Occasional quotes or copies may not have a negative impact on the market, but copies of full software works and movies can directly affect the markets for those products.

Fair Dealing v Fair Use

Regarding the ideas of fair use and fair dealing, there is a small discrepancy in wording. While English and Indian law use the word “Fair Dealing,” US law uses the term “Fair Use.” The word “fair use,” which is used in the US but not defined by the US Copyright Act, is generally accepted to be open to interpretation by courts on a case-by-case basis. Due to the absence of a statutory definition, fair use is determined in the United States based on Justice Story’s four-factor test established in Folsom v. Marsh, where it was stated: “Look to the nature and objects of the selections made, the context in which they were made, and the context in which they are being used.

In common law countries including Great Britain, Canada, Australia, India, and New Zealand, copyright regulations provide an exception for fair dealing from copyright infringement. According to the copyright laws in these countries, fair use of a copyrighted work does not constitute infringement if it is expressly permitted. If a work is copied for a purpose other than one that is permitted by law, it cannot be considered fair use, regardless of the copier’s original intent.

          The availability of regulatory advice on how to assess the fairness of a transaction or use is another area of disagreement. Due to the lack of statutory definitions or guidelines describing how fairness is to be assessed in fair dealing laws, it is up to the courts to find the best method for judging the fairness of real transactions with protected works.

Fair Dealing under Indian Copyright Law:

Each nation has its own rules that govern how the exception of fair dealing is applied and understood. In India, Section 52 of the Copyright Act, 1957 lists common exceptions or defenses to copyright infringement. The fair dealing clause stipulates that in order for a transaction to be considered “fair,” the purposes must fit under the legally recognized categories of private use, research, criticism, and review.

The doctrine of equity has its origins in the exception of fair dealing, which, to put it simply, authorizes unauthorized use of a copyrighted work based on the facts and circumstances of a particular case. Fair dealing is not defined in the Act. It distinguishes between a true, lawful fair use of a work and a malicious blatant replica of the work. The court explained the purpose of Section 52 in Wiley Eastern Ltd. v. IIM and noted that it is to defend the freedom of expression (through research, private study, criticism or review, or reporting of current events) guaranteed by Article 19 (1) of the Indian Constitution.

            Lord Denning, while attempting to form a definition in the case of Hubbard v. Vosper, CA 1971 [1972] 2 WLR 389 said: It is impossible to define what is ‘fair dealing’, It must be a question of degree. You must consider first the number and extent of the quotations and extracts. Are they altogether too many and too long to be fair? Then you must consider the use made of them, other considerations may come to mind also. But, after all is said and done, it must be a matter of impression.

India does not yet have a general guideline or a collection of rules that specify how much work can be appropriated without the creator’s consent and still fall within the exemption of fair dealing. However, there are several rules on which the court must base its decision, with the public interest being one of the most important factors. The decision in this case is primarily left to the Court’s discretion.

The Indian courts have endorsed several criteria that may be more or less important in fair dealing situations and which are not supplied by the Indian copyright statute as they have evaluated the doctrine of fair dealing, drawing mostly from UK and US methods. The following three elements have historically been stated and used by the courts while making decisions.

The Amount and substantiality of the portion used:

In Blackwood case, AIR 1959 Mad 410 which involved the reproduction of the work in the form of guides, the court rightfully held that the alleged infringer’s intention is an important but not a decisive factor in determining whether the work in question was copied so substantially that the copying would amount to negative ‘fairness’. The Court took a peculiar stand in SK Dutt v Law Book Co and Ors, AIR 1954 All 570 where the dispute was based on the use of certain quotations from a work. The Court interpreted the fact of acknowledgement by the authors of the plaintiff’s material to mean that if the authors had made any other use of the plaintiff’s book in compiling their own book, they would have acknowledged it; thus, the copying was held not to be a substantial taking.

Purpose and Character of the use:

The next consideration relates to the purpose and character of the use. Section 52 of the Indian Copyright Act also sets out an exhaustive list various purposes that fall under the domain of fair dealing. If the purpose of the reproduction is not one of those enumerated in the statute the question of fair dealing would not arise. The major purposes which the act enumerates are: private study, research, criticism and review. In V Ramaiah v K Lakshmaiah, wherein the question was, whether the Act of the respondent in writing the guide is an infringement of the copyright of the owner, the courts were cautioned to keep in mind that defendants pleading fair dealing should not have used the work without out making any independent contribution, in other words, the work must have been transformative.1989 (9) PTC 137.

The Court in Chancellor masters, which again concerned copying for the purpose of guide books, had laid down that while dealing with the issue of fair dealing, a Court should ask whether the purpose served by the subsequent work is substantially different (or is the same) from the purpose served by the prior work. To be called trans-formative, the subsequent work must be different in character, it must not be a mere substitute.

CONCLUSION:

It is clear from the foregoing that fair dealing is a crucial and significant component of the copyright law. It is also obvious that the idea of fair dealing is not well developed or advanced in India, but thanks to court rulings and other amendments, the doctrine has gained a firm footing in our country’s copyright laws, is developing further, and its application is broadening with each new ruling.

The Doctrine is required to achieve harmony or balance between the Author’s competing monopolistic interests and the general society’s creative objectives. The Doctrine of Fair Dealing encourages creativity in society, which has resulted in a vast range of innovative and amazing achievements that could not have been conceivable without its existence. Thus, in order to both promote and protect such creative works, the Doctrine is crucial and significant to both the development of creativity as well as the progress and globalization of copyright law.

Good Will

Meaning

Goodwill is an intangible asset associated with the purchase of one company by another. Specifically, goodwill is recorded in a situation in which the purchase price is higher than the sum of the fair value of all visible solid assets and intangible assets purchased in the acquisition and the liabilities assumed in the process. The value of a company’s brand name, solid customer base, good customer relations, good employee relations, and any patents or proprietary technology represent some examples of goodwill.

Good will Meaning in Accounting

Goodwill arises when a company acquires another entire business. The amount of goodwill is the cost to purchase the business minus the fair market value of the tangible assets, the intangible assets that can be identified, and the liabilities obtained in the purchase.

How to Calculate Goodwill

To calculate goodwill, we should take the purchase price of a company and subtract the fair market value of identifiable assets and liabilities.

Goodwill Formula: 

Goodwill = P−(A+L)

where,

P = Purchase price of the target company

A = Fair market value of assets

L = Fair market value of liabilities

Types of Goodwill

There are two distinct types:

  • Purchased: Purchased goodwill is the difference between the value paid for an enterprise as a going concern and the sum of its assets less the sum of its liabilities, each item of which has been separately identified and valued.
  • Inherent: It is the value of the business in excess of the fair value of its separable net assets. It is referred to as internally generated goodwill, and it arises over a period of time due to the good reputation of a business. It can also be called as self generated or non-purchased goodwill.

For example, suppose you are selling an outstanding product or providing excellent service consistently. In that case, there is a high chance of an increase in goodwill.

Goodwill Accounting Treatment

There are five types of accounting treatment of goodwill at the time of admission of a new partner:

  • When the amount of goodwill is brought in cash and not recorded in books.
  • When the new partner brings his share of goodwill in cash and is retained in business.
  • When the new partner does not bring his share of goodwill in cash.
  • When goodwill already exists in the books.
  • When goodwill is raised at its full value.

Goodwill Example

To put it in a simple term, a Company named ABC’s assets minus liabilities is ₹10 crores, and another company purchases the company ABC for ₹15 crores, the premium value following the acquisition is ₹5 crores. This ₹5 crores will be included on the acquirer’s balance sheet as goodwill. It is also recorded when the purchase price of the target company is higher than the debt that is assumed.

Factors Affecting Goodwill

The following factors have an impact on the goodwill, which are:

  1. Location of the business : A business which is located in a suitable location will have a more favourable chance of higher goodwill than a business located in a remote location.
  2. Quality of goods and services:  A business which is providing a higher quality of goods and services stands a great chance of earning more goodwill than competitors who provide inferior goods and services.
  3. Efficiency of management : An efficient management results in increase in profit of the business which enhances the goodwill of the business.
  4. Business Risk : A business having lesser risk has a better chance of creating goodwill than a high risk business.
  5. Nature of business: It means the type of products that business deals with, the level of competition in the market, demand for the products and the regulations impacting the business. A business having a favourable outcome in all these areas will have a greater goodwill.
  6. Favourable Contracts: A firm will enjoy a higher goodwill if it has access to favourable contracts for sale of products.
  7. Possession of trade mark and patents : Firms that have patents and trademarks will enjoy monopoly in the market, which will contribute to the increase in the goodwill of the firm.
  8. Capital : A firm with a higher return on investment along with lesser capital investment will be considered by buyers as more profitable and having more goodwill.

Need for Valuation of Goodwill

  • The difference in the profit-sharing ratio (PSR) amongst the existing partners
  • Admission of a new partner
  • Retirement of a partner
  • Death of a partner
  • Dissolution of an enterprise involving the sale of the business as a trading concern
  • Consolidation of partnership firms

Methods of Valuation of Goodwill

The significant methodologies of valuation are mentioned :

  • Average Profits Method
  • Super Profits Method
  • Capitalisation Method

How Is Goodwill Used in Investing?

Evaluating goodwill is a challenging but critical skill for many investors. After all, when reading a company’s balance sheet, it can be very difficult to tell whether the goodwill it claims to hold is in fact justified. For example, a company might claim that its goodwill is based on the brand recognition and customer loyalty of the company it acquired.

When analyzing a company’s balance sheet, investors will therefore scrutinize what is behind its stated goodwill in order to determine whether that goodwill may need to be written off in the future. In some cases, the opposite can also occur, with investors believing that the true value of a company’s goodwill is greater than that stated on its balance sheet.

How Is Goodwill Different From Other Assets?

Shown on the balance sheet, goodwill is an intangible asset that is created when one company acquires another company for a price greater than its net asset value. Unlike other assets that have a discernible useful life, goodwill is not amortized or depreciated but is instead periodically tested for goodwill impairment. If the goodwill is thought to be impaired, the value of goodwill must be written off, reducing the company’s earnings.

Limitations of Goodwill

Goodwill is difficult to price, and negative goodwill can occur when an acquirer purchases a company for less than its fair market value. This usually occurs when the target company cannot or will not negotiate a fair price for its acquisition.

Negative goodwill is usually seen in distressed sales and is recorded as income on the acquirer’s income statement.

There is also the risk that a previously successful company could face insolvency. When this happens, investors deduct goodwill from their determinations of residual equity.

The reason for this is that, at the point of insolvency, the goodwill the company previously enjoyed has no resale value.

Bills of Exchange

Meaning:

Bill of Exchange can be understood as a written negotiable instrument, that carries an unconditional order to pay a specified sum of money to a person or the holder of the instrument, as directed in the instrument by the maker. The bill of exchange is
either payable on demand, or after a specified term.

Definition:

A “bill of exchange” is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to or to the order of, a certain person or to the bearer of the instrument. (Section 5)

Parties to the Bill of exchange


a. Drawer: The maker of a bill of exchange.
b. Drawee: The person directed by the drawer to pay is called the ‘drawee’. He is the person on whom the bill is drawn. On acceptance of the bill he is called an acceptor and is liable for the payment of the bill. His liability is primary and unconditional.
c. Payee: The person named in the instrument, to whom or to whose order the money is, by the instrument, directed to be paid

Essential characteristics of bill of exchange


a) It must be in writing
b) Must contain an express order to pay
c) The order to pay must be definite and unconditional
d) The drawer must sign the instrument
e) Drawer, drawee and payee must be certain. All these three parties may not necessarily be three different persons. One can play the role of two. But there must be two distinct persons in any case. As per Section 31 of RBI Act, 1934, a bill of exchange cannot be made payable to bearer on demand.
f) The sum must be certain
g) The order must be to pay money only
h) It must be stamped.

Requirements of Bills of Exchange:

  1. There must be an order to pay. It is the essence of the bill that its drawer orders the drawee to pay money to the payee. Order in this section does not mean a command, but a direction for payment.
  2. This order must be unconditional, as the bill is payable at all events. Thus, it is absolutely necessary for the drawer’s order to the drawee to be unconditional. The order must not make the payment of the bill dependent on a contingent event. A conditional bill of exchange is invalid.
  3. Bill should not be made payable out of a particular fund, as thereby the payment is made dependent upon the existence or sufficiency of such fund. Where a bill contains an order to pay the amount specified therein out of a particular fund it will be conditional and therefore invalid.
  4. The drawer must sign the instrument. The instrument without the proper signature will be inchoate and hence ineffective. It is permissible to add the signature at any time after the issue of the bill. But if it is not so added, the instrument remains ineffectual.
  5. The drawer, the drawee (acceptor) and the payee are the necessary parties to a bill and are to be specified in the instrument with reasonable certainty. You should remember that all these three parties may not necessarily be three different persons. One can play the role of two. But there must be two distinct persons in any case.
  6. The sum must be certain.
  7. The medium of payment must be money and money only. The distinctive order to pay anything in kind will vitiate the bill. Thus, a bill must contain an order to pay in terms of money only and should be definite amount of money. The bill must be delivered to the payee, otherwise the bill be inchoate and hence ineffective.

Note:

Bills of exchange were originally used for payment of debts by traders residing in one country to another country
with a view to avoid transmission of coin. Now-a-days they are used more as trade bills both in connection with
domestic trade and foreign trade and are called inland bills and foreign bills respectively.

Kinds of Bills:

Inland Bills (Sections 11 and 12)

A bill of exchange is an inland instrument if it is (i) drawn or made and payable in India, or (ii) drawn in India upon any person who is a resident in India, even though it is made payable in a foreign country. But a promissory note to be an inland should be drawn and payable in India, as it has no drawee.
Two essential conditions to make an inland instrument are:
(i) the instrument must have been drawn or made in India; and
(ii) the instrument must be payable in India or the drawee must be in India.
Examples: A bill drawn in India, payable in USA, upon a person in India is an inland instrument. A bill drawn in India
and payable in India but drawn on a person in USA is also an inland instrument.

Foreign Bills

All bills which are not inland are deemed to be foreign bills. Normally foreign bills are drawn in sets of three copies.
Trade Bill
A bill drawn and accepted for a genuine trade transaction is termed as a trade bill. When a trader sells goods on credit, he may make use of a bill of exchange. Suppose A sells goods worth Rs. 1,000 to B and allows him 90 days time to pay the price, A will draw a bill of exchange on B, on the following terms: “Ninety days after date pay A or order, the sum of one thousand rupees only for value received”. A will sign the bill and then present it to B for acceptance. This is necessary because, until a bill is accepted by the drawee, nobody has either rights or obligations. If B agrees to obey the order of A, he will accept the bill by writing across its face the word “accepted” and signing his name underneath and then delivering the bill to the holder. B, the drawee, now becomes the acceptor of the bill and liable to its holders. Such a bill is a genuine trade bill.
Accommodation Bill
All bills are not genuine trade bills, as they are often drawn for accommodating a party. An accommodation bill is a bill in which a person lends or gives his name to oblige a friend or some person whom he knows or otherwise. In other words, a bill which is drawn, accepted or endorsed without consideration is called an accommodation bill. The party lending his name to oblige the other party is known as the accommodating or accommodation party, and the party so obliged is called the party accommodated. An accommodation party is not liable on the instrument to the party accommodated because as between them there was no consideration and the instrument was merely to help. But the accommodation party is liable to a holder for value, who takes the accommodation bill for value, though such holder may not be a holder in due course. Thus, A may be in need of money and approach his friends B and C who, instead of lending the money directly, propose to draw an “Accommodation Bill” in his favour.

Bills in Sets (Section 132 and 133)
Foreign bills are usually drawn in sets to avoid the danger of loss. They are drawn in sets of three, each of which is called “Via” and as soon as any one of them is paid, the others become inoperative. All these parts form one bill and the drawer must sign and deliver all of them to the payee. The stamp is affixed only on one part and one part is required to be accepted. But if the drawer mistakenly accepts all the parts of the same bill, he will be liable on each part accepted as if it were a separate bill.


Right to Duplicate Bill
The individual who held a bill of exchange may ask the drawer for another bill of the same tenor if it was lost before it became past due. A duplicate of a bill, promissory note, or check may only be requested by the holder.

Bank Draft:

Another term for a bill of exchange is a draft. When a bill of exchange is drawn by one bank on another bank or by the bank alone on its own branch and is a negotiable instrument, it is referred to as a bank draft. There are three similarities and three differences between it and the check. Only a bank, typically its own branch, is permitted to draw a bank draft on another bank. It cannot be overruled with such ease. It cannot be paid to the bearer.

Difference between Promissory Note and Bills of Exchange

  1. Number of parties: In a promissory note there are only two parties – the maker (debtor) and the payee (creditor). In a bill
    of exchange, there are three parties; drawer, drawee and payee; although any two out of the three may be filled by one
    and the same person,
  2. Payment to the maker: A promissory note cannot be made payable the maker himself, while in a bill of exchange to the
    drawer and payee or drawee and payee may be same person.
  3. Unconditional promise: A promissory note contains an unconditional promise by the maker to pay to the payee or
    his order, whereas in a bill of exchange, there is an unconditional order to the drawee to pay according to the direction of the drawer.
  4. Prior acceptance: A note is presented for payment without any prior acceptance by the maker. A bill of exchange is
    payable after sight must be accepted by the drawee or someone else on his behalf, before it can be presented for
    payment.
  5. Primary or absolute liability: The liability of the maker of a promissory note is primary and absolute, but the liability of
    the drawer of a bill of exchange is secondary and conditional.
  6. Relation: The maker of the promissory note stands in immediate relation with the payee, while the maker or
    drawer of an accepted bill stands in immediate relations with the acceptor and not the payee.
  7. Protest for dishonour: Foreign bill of exchange must be protested for dishonour when such protest is required to be
    made by the law of the country where they are drawn, but no such protest is needed in the case of a promissory note.
  8. Notice of dishonour: When a bill is dishonoured, due notice of dishonour is to be given by the holder to the drawer and the intermediate indorsers, but no such notice need be given in the case of a note.

Promissory Note

A written and signed commitment to pay back money in exchange for a loan or other funding is known as a promissory note. The principle debt amount, interest rate, maturity date, payment schedule, date and location of issuance, and the issuer’s signature are all commonly included in a promissory note.

Section 4 of the Act defines, “A promissory note is an instrument in writing (note being a bank-note or a currency note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money to or to the order of a certain person, or to the bearer of the instruments.”

What to include in a promissory note

The promissory note form should include

  • Name and address of borrower and lender
  • Maturity date
  • Sum borrowed
  • Payment schedule
  • Interest rate and how interest is calculated
  • Prepayments process
  • Overdue payment interest charged
  • Default
  • Waivers, amendments, and governing law for the promissory note

Parties of Promissory Note

All promissory notes constitute three primary parties. These include the drawee, drawer and payee.

  • Drawer: A drawer is a person who agrees to pay the drawee a certain amount of money on the maturity of the promissory note. He/she is also known as maker.
  • Drawee: She/He is an individual, in whose favour the note is prepared. In usual cases the drawee is also the payee until and unless the promissory note is transferred specifically in favour of the payee. For e.g. Ram is considered a drawer if he promises to pay Shyam Rs.5000 (Shyam is the drawee). However, if the same promissory note is transferred in favour of Rohan, then Rohan becomes the payee.
  • Payee: A payee is someone to whom the payment is made.

Most of the times, the payee and drawee are the same people to whom the cash is paid. The party who has loaned the money keeps the promissory note, and when the due is cleared, the payee or drawee cancels the note and gives it to the drawer/payee.

Features of Promissory Note

  • Printed/Written Agreement – A promissory should be in writing, and an oral promise to pay money is not accepted.
  • Pay Defined Amount – It is a promise to pay the money on a particular time or when demanded. The mentioned amount can neither be added or subtracted.
  • Signed Documents – The document is duly signed and drawn by the drawer and stamped.
  • Unconditional Promise – The promise to pay a certain amount of money must be absolute in all cases. In such notes, a conditional guarantee is not accepted.
  • Legal Composition – All the payment should be made in the nation’s legal currency.
  • Detailed Information – The note has all the required information including the name of the drawer and payee, date of maturity, terms of repayment, issue date, name of the drawee, name, and signature of the drawer, principal amount, and the rate of interest, etc.

Types of Promissory Notes

Depending upon the kind of promissory loan, notes are of different types. Few are mentioned below.

  • Personal Promissory Notes – This is a particular loan taken from family or friends. Though people avoid legal writings when seeking a loan from close contact, the promissory note shows belief and trust in the interest of the borrower.
  • Commercial – Here, the note is made when dealing with commercial lenders such as banks. Most of the commercial promissory agreement is similar to personal notes.
  • Real Estate – This is similar to commercial notes in terms of nonpayment consequences. If the borrower becomes a defaulter, then the party has the right to keep the property until the debt is cleared. It is a little risky as all the essential details become public, which can hinder the borrower’s credit history in the future.
  • Investments – The promissory note is occasionally used to raise funds for the business. It is used as a security purpose and managed by securities laws. It includes terms and conditions related to returns of investment.

When is a promissory note invalid?

In general a promissory note is valid for 3 years starting from the date of execution. However there are other ways as well by which a promissory note becomes invalid. Let me answer what makes a promissory note invalid in India pointwise for your convenience. Here:

  • Incomplete or wrongly signed promissory note
  • Missing the date or amount in the note
  • Missing the interest rate
  • Missing the original copy
  • Clauses being unclear
  • Terms not clear enough
  • Changes made without drafting  new agreement
  • Passing the limited period of 3 years.

How Can You Prove Promissory Note Validity?

In the process of checking the validity of your note, the court will check the following things:

  • The Form of the Promissory Note

A written contract is required for a promissory note to be enforceable and valid; a verbal promise will not be considered a promissory note in court. As a result, lenders often employ standard forms as promissory notes that have been worded according to state law.

  • The Monetary Aspect

How long and under what circumstances is a promissory note valid? For as long as it takes to repay the borrowed amount. The sum should be expressed in a legitimate currency, according to the law. Apart from the principle of the loan, it should include:

  • a statement of the interest rate (if any)
  • the frequency with which scheduled payments will be made
  • the date on which the loan will mature (also known as the promissory note maximum duration)

If the note does not include this vital information relating to the loan’s repayment, it cannot be legally enforced.

  • The Signature

Even if a promissory note states the sum in the proper currency and has the most comprehensive of terms, if it’s not signed, that’s one of the cases when a promissory note is invalid.

After all, a promissory note is a kind of contract, therefore it will only be binding if the borrower signs the document. The signatures of both parties are important to indicate that they have accepted the terms of the agreement.

Sale Deed

A sale deed is a legal document that the buyer and seller sign in order to finalize the deal when buying a property. The title of ownership of the property has been transferred from the seller to the buyer in a selling deed. The buyer or transferee and the seller might be referred to as the parties. In most cases, the parties agree to the terms and conditions before signing the sale deed. The terms of the property and the parties’ rights and obligations are detailed in the sale deed, which serves as evidence of the transfer of ownership.

Parties Involved in the Sale Deed

In the sale deed, there are two Parties, who are called seller and buyer. The seller, also called transferor, transfers the ownership of the property and the buyer, also called transferee, gets the ownership of the property. Any competent person, person, or business is permitted by law to participate in the transfer of any property.

Definition:

Sale deed is defined under Section 54 of the Transfer of Property Act, 1882 as; “Sale” is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised

A deed is a signed legal document that transfers ownership of an asset to a new owner. Deeds are most commonly used to transfer ownership of property or vehicles between two parties. The purpose of a deed is to transfer a title, the legal ownership of a property or asset, from one person or company to another.

Objective of sale deed?

A sale deed is a written formal document that allows the owner of a property to transfer the whole of their rights in the property to another in exchange for a consideration. A sale deed is the final document that is required to transfer the right of ownership in a property.

Elements of a Sale Deed

When creating the sale deed draft, several essential components are included in the document. Following are the things that must be a part of the sale deed draft. 

  1. Details of Both the Parties: Details in terms of the name of both parties, contact numbers, and age are recorded in the sale deed draft. 
  2. Property Details: This section includes the property’s details, such as its complete address, area of the property, including the dimensions, details of construction. 
  3. Indemnity Clause: This particular clause is added to the property to ensure that the seller frees the buyers from all the previous taxes, loans, and charges related to the property. Also, the seller will pay up any mortgages and loans before finalizing the sale of the property. 
  4. Payment Details: The price at which the owner will sell the said property should be specified in the sale deed. Along with the sale price of the property, the information related to the advance payment made by the buyer must be stated clearly in the sale deed. Information on the amount paid in instalments, date of each instalment should also be mentioned in the document. 
  5. Mode of payment: The method of payment, i.e., how the amount will be made for the property purchase, must be recorded explicitly in the sale deed. The standard modes of payment, such as bank transfer, cheque, and cash, are clearly stated in the sale deed. 
  6. Possession of Property: The sale deed will record the date the buyer will get possession of the property. 
  7. Witnesses of the Property: The testimonium clause of the property includes that two witnesses are mandatory for attending the sale deed. At least one witness from both sides, i.e., buyer and seller, should sign the sale deed. The witness has to share their complete name, address, and age. 

In addition, the seller of the property must also make some mandatory disclosures to the buyer in the sale deed. These disclosures include defects in the property related to material, declaration of disputes, if any, execution of conveyance of property correctly, and clearance of taxes and other charges related to the property, among others. Considering that the sale deed includes all the rights and the obligations of both parties in detail, its implementation reduces the risk for both parties. 

Difference Between Sale Deed and Sale Agreement

Following are the significant differences between the sale agreement and the sale deed.

Sale DeedSale Agreement
A sale deed is a document that refers to the immediate and complete sale of the property. A sale agreement is a document that indicates the sale of the property sometime in the future.
Under the sale deed, any risk borne or associated with the property is the responsibility of the buyer. Until the sale of the property, the responsibility of bearing the risk is taken care of by the seller.
A sale deed is a contract that has been executed. A sale agreement is a contract that is yet to be executed in the future.
It is mandatory to register a sale deed. Also, during the registration process, the buyer is liable to pay the stamp duty. Based on the rules of state related to the sale agreement, it may or may not be registered.
Under the sale deed, the rights and claims of the property are handed over to the new owner.The sale agreement only gives the person the right to purchase a property in the future. 
The sale deed includes information related to both the parties involved, property and payment details, along with other information. The sale of the agreement only includes terms and conditions based on which the sale of the property will be executed.

Getting a Certified Copy of Sale Deed

The sale deed should be maintained by the property owner with the utmost care now that it has been established that it is of the utmost importance. However, if the owner of the property misplaces the sale deed at any moment, they must report it to the local police station.

After filing the complaint (FIR) at the police station, a non-traceable certificate is issued to the property owner. Post the issuance of the non-traceable certificate, publish an advertisement in the newspaper about the loss of sale deed. The ad must include essential details. As the next step, you need to file an affidavit and the application to the sub-registrar office to get a certified copy of the sale deed. 

A copy of the FIR, a certificate that cannot be traced, an advertisement, and information on the property must all be attached to the affidavit, which must also be notarized. Additionally, a signed undertaking confirming the veracity of the information supplied must be included to the affidavit. A specified fee must also be paid in order to get a certified copy of the sale deed. After the procedure is finished, a certified copy of the selling deed will be given out within two to four weeks.

What is the Sale Deed Number?

After the document is registered, the stamp duty is paid, and the registration fees are paid, the Sale Deed Number is generated. The payment slip contains the number for the sale document. On top right of every page of the full selling deed paperwork, it is also mentioned..

Format of the sale deed number: Document Number/Year/Sub Registrar Office initials

Sale Deed Documents Required for Property Registration

Here are a few major sale deed documents required for property registration.

  • Sale Agreement
  • Title Deed Draft
  • Extract
  • Sharing Agreement signed by the builder and property owner
  • Allotment Letter from the Housing Board
  • Power of Attorney, if any
  • No-Objection Certificate, in case of property resale
  • Blueprint of the authorised parties
  • Completion Certificate
  • Property Tax Receipts
  • Encumbrance Certificate
  • Stamp Duty Receipt
  • Identity proof of all the parties and witnesses involved
  • Possession Letter
  • Property Papers from the bank, in case a loan has been taken against the property
  • Occupancy Certificate
  • Passport-size photographs

Is It Possible to Cancel a Sale Deed?

The cancellation of the selling deed is equivalent to the loss of the right to purchase a property. It can only be canceled in certain circumstances, though. One of the parties involved in a selling deed may cancel it if they are not happy with the terms of the agreement. The alleged party must consent to the complaint of discontent in a court of law. A valid reason must also exist for one of the parties’ desire to revoke the sale deed. Once the cause has been proven, the petitioner must obtain a civil court order and deliver it to the registrar in order to have the sale deed revoked. Sections 31 and 33 of the Special Relief Act of 1963 allow for the cancellation of the sale deed.

A sale deed can be cancelled for the following reasons: 

  • The deed was created under undue influence
  • The deed is void if a minor has executed it 
  • Fraudulent activity in the creation of the deed or transfer and transaction
  • Misinterpretation of facts to get a deed signed
  • If the execution of the sale deed can cause harm or injury to the petitioner. 

What to Keep in Mind When Executing a Sale Deed

Here are a few major things to remember when executing a sale deed.

  • The sale deed must include a clause that transfers ownership rights to the buyer once the purchase is complete.
  • The title of the property must be free of all encumbrances.
  • The registrar’s office must verify the encumbrance status.
  • All utility bills including water bills, electricity bills, property tax, etc. related to the property must be paid.
  • There must be no further dues such as maintenance charges, pending.
  • A sale deed must specify all terms and conditions under which the property has been sold.

Conclusion

An important document that proves property title is a sale deed. The sale document also contains information about the property, the buyer and seller, the price, and other items. Stamp duty for recording the sale deed is paid by the purchaser. The property owner is responsible for keeping the sale deed up to date. It takes time to obtain a certified copy of the sale deed from the sub-registrar office if the original sale deed is lost. If there is a disagreement, the registered sale deed may be contested because at least one representative from each party must sign it.

Sample format of Sale Deed

DEED OF ABSOLUTE SALE

This DEED OF ABSOLUTE SALE is made and executed on this _______ day of ______________, Two Thousand _______

BETWEEN

Sri ____________________, son/wife/daughter of Sri/Late _______________, aged about _______ years, holding PAN _____________, by Caste ________, by Nationality Indian, residing at _____________________________________________,                                                                                                     hereinafter called the “SELLER” (which expression shall mean and include his legal heirs, successors, successors-in-interest, executors, administrators, legal representatives and assigns) of the ONE PART.

AND

Sri __________________________________, son of  _______________________,                                aged about _______ years, by Caste __________, by Nationality Indian,  holding PAN _____________, residing at _____________________________________________,                                                                                                        hereinafter called the “PURCHASER” (which expression shall mean and include his legal heirs, successors, successors-in-interest, executors, administrators, legal representatives and assigns) of the  OTHER PART.

The  SELLER and the PURCHASER are hereinafter referred collectively as parties and individually as party.

WHEREAS the SELLER is the absolute owner, in possession and enjoyment of the piece and parcel of ______ land measuring about ____ decimal, lying and situated in R.S. Plot Number ____, corresponding L.R. Plot Number ____, Recorded in R.S. Khatian Number _____ and L.R. Khatian Number ____, at Mouza _____, J.L. Number _____, Touzi Number ______, under Police Station __________, Registration Sub-District _________, in the district of ________________, more fully and particularly described in the schedule here under written and hereafter referred to as the “SCHEDULE PROPERTY”.

ANDWHEREAS the SCHEDULE PROPERTY was the self acquired property of  __________, deceased father of the SELLER and he purchased the same from Sri __________________, son of _____________ of _________________________________, by virtue of a Sale Deed dated ________________, registered in the office of the _____________________________, in Book 1,  Volume No. ____, Pages ____ to _____, Being Number ___________ for the Year _____.

ANDWHEREAS the said _________ died in-estate on _________ leaving behind his only son namely, Sri _______________, the SELLER herein, as the only legal heir.

ANDWHEREAS the SELLER herein, as the only legal heirs of the deceased ____________, have become the absolute owner of the SCHEDULE PROPERTY since the death of his father _____________ on and he has been enjoying the same with absolute right, title and interest sice then and he has clear and marketable title to the SCHEDULE PROPERTY.

ANDWHEREAS the SELLER being in need of funds to meet his personal commitments and family expenses have decided to sell the SCHEDULE PROPERTY and the PURCHASER has agreed to purchase the same.

ANDWHEREAS the SELLER agreed to sell, convey and transfer the SCHEDULE PROPERTY to the PURCHASER for a total consideration of  Rs._________ (Rupees                        ___________________________) only and the PURCHASER herein agreed to purchase the same for the aforesaid consideration and to that effect the parties entered into an agreement on the _________________ .

NOW THIS DEED OF SALE WITNESSETH:

  1. THAT in pursuance of the aforesaid agreement and in consideration of a sum of Rs._________ (Rupees                        ___________________________) only received by the SELLER in cash/cheque/bankdraft and upon receipt of the said entire consideration of Rs._________ (Rupees                        ___________________________) only (the SELLERdoth hereby admit, acknowledge, acquit, release and discharge the PURCHASER from making further payment thereof) the SELLER doth hereby sells, conveys, transfers, and assigns unto and to the use of the PURCHASER the SCHEDULE PROPERTY together with the water ways, easements, advantages and appurtenances, and all estate, rights, title and interest of the SELLER to and upon the SCHEDULE PROPERTY TO HAVE AND TO HOLD the SCHEDULE PROPERTY hereby conveyed unto the PURCHASER absolutely and forever.
  2. THAT THE SELLER DOTH HEREBY COVENANT WITH THE PURCHASERAS FOLLOWS:
    1. That the SCHEDULE PROPERTY shall be quietly and peacefully entered into and held and enjoyed by the PURCHASER without any interference, interruption, or disturbance from the SELLERor any person claiming through or under him.
    1. That the SELLERhave absolute  right, title and full power to sell, convey and transfer unto the PURCHASER by way of absolute sale and that the SELLERhave not done anything or knowingly suffered anything whereby their right and power to sell and convey the SCHEDULE PROPERTY to the PURCHASER is diminished.
    1. That the property is not subjected to any encumbrances, mortgages, charges, lien, attachments, claim, demand, acquisition proceedings by Government or any kind whatsoever and should thereby and the SELLER shall discharge the same from and out of his own fund and keep the PURCHASER indemnified.
    1. That the SELLER hereby declares with the PURCHASER that the SELLER have paid all the taxes, rates and other outgoings due to local bodies, revenue, urban and other authorities in respect of the SCHEDULE PROPERTY up to the date of execution of this sale deed and the PURCHASER shall bear and pay the same hereafter.  If any arrears are found due for the earlier period, the same shall be discharged/borne by the SELLER.
    1. That the SELLERhave handed over the vacant possession of the SCHEDULE PROPERTY to the PURCHASER on  ___________ and delivered the connected original title document in respect of the SCHEDULE PROPERTY hereby conveyed on the date of execution of these presents.
    1. That theSELLERwill at all times and at the cost of the PURCHASERexecute, register or cause to be done, all such acts and deeds for perfecting the title to the PURCHASER in the property hereby sold and conveyed herein.
    1. That the SELLER do hereby covenants and assures that the PURCHASER is entitled to have mutation of his name in all public records, local body and also obtain all documents in the name of the PURCHASERand undertakes to execute any deed in this respect.

SCHEDULE  OF PROPERTY

All that piece and parcel of _____ land measuring about _____ decimal, lying and situated in R.S. Plot Number ____, corresponding L.R. plot Number ____, Recorded in R.S. Khatian Number ____ and L.R. Khatian Number ____, at Mouza _____, J.L. Number ____, Touzi Number _______, under Police Station ______, Registration Sub-District ______, in the district of ____________, butted and bounded by:

On the North   :

On the South   :

On the East     :

On the West    :

             IN WITNESS WHEREOF the SELLER and the PURCHASER have set their signatures on the day month and year first above written.

                                                            ______________________________           

                                                                                  SELLER

                                                            ______________________________

                                                                                PURCHASER

WITNESSES:

1.

2.

Partnership Deed

What is a Partnership Deed?

The smooth and successful running of a partnership firm requires a clear understanding among its partners regarding the various policies governing their partnership. The partnership deed serves this purpose. The partnership deed contains various terms such as profit/loss sharing, salary, interest on capital, drawings, admission of a new partner, etc. in order to bring clarity to the partners.

A deed of partnership also known as a partnership agreement is a legal document signed by two or more partners who come together and decide to run a business for profit. The partnership deed helps to resolve any disagreement or conflict which arises between the partners regarding the partnership norms. The purpose of a partnership deed is to give a clear understanding of the roles of all partners, ensuring the smooth running of the operations of the partnership firm.

Importance of a Partnership Deed

A partnership deed defines the position of the partners of the firm. Below is the importance of a partnership deed:

  • It helps partners to define the terms of their relationship.
  • It regulates the nature of business and liabilities, rights and duties of all partners.
  • It helps to avoid misunderstandings between the partners since all of the terms and conditions of the partnership are specified in the deed. 
  • In the case of a dispute amongst the partners, it will be settled as per the terms of the partnership deed.
  • There will be no confusion between the partners regarding the profit and loss sharing ratio amongst them.  
  • It mentions the role of each individual partner.
  • It contains the remuneration that is to be paid to partners, thereby avoiding any dispute or confusion. 
  • It ensure smooth functioning of the firm as the terms and liabilities between partners are in a written form.

What are the characteristics of partnership deed?

A well-crafted partnership deed should also include provisions for profit sharing, decision-making processes, and dispute resolution. It’s crucial to carefully consider the features of partnership deed to ensure a smooth partnership. Here are some key aspects to consider when drafting a partnership deed:

  1. Profit Sharing: The partnership deed should clearly specify how profits and losses will be shared between partners. This could be based on a pre-agreed percentage or on the amount of capital each partner has invested in the business.
  2. Decision-Making Processes: The partnership deed should outline how decisions will be made in the business. This could include a simple majority vote or a more complex decision-making process that involves all partners.
  3. Dispute Resolution: Disputes are inevitable in any business partnership. A partnership deed should include provisions for how disputes will be resolved in a fair and efficient manner. This could involve mediation, arbitration, or even legal proceedings.
  4. Duration of Partnership: The partnership deed should specify the duration of the partnership. This could be an open-ended arrangement or a fixed-term partnership with a specific end date.
  5. Roles and Responsibilities: The partnership deed should outline the roles and responsibilities of each partner. This could include specific tasks or responsibilities that each partner has agreed to undertake.
  6. Termination of Partnership: The partnership deed should specify the circumstances under which the partnership can be terminated, and what will happen to the business assets and liabilities in the event of termination.

Types of Partnership Deeds 

  • General Partnership Deed: The general partnership deed contains the terms and conditions of a general partnership, where each partner shares equal responsibility for the management of the firm business and are jointly liable for debts or obligations.
  • Limited Partnership Deed: The limited partnership deed establishes a limited partnership, which includes general and limited partners. The general partners have unlimited liability for the debts of the partnership firm, while the limited partners have limited liability and do not participate actively in the management of the business.

Contents of a Partnership Deed

The partnership deed contains the following details:

1. Name of the firm and Its Address : The deed should contain of the firm and place of its business.

2. Name and Address of Partners : The deed should also contains the names and address of all partners.

3. Nature of Firm’s Business : The nature of business proposed to be carried and its limitation should be included in it.

4. Duration of Partnership : It the partnership is established for a fixed duration or for a fixed work, it should be stated in it.

5. Partners’ Capitals : The deed should contain the total amount of capital and contributions by each partner.

6. Interest on Capital : If the partners decide to change interest on their capitals, the rate should be mentioned in the deed.

7. Drawing and Interest on Them : The deed should contain the limit of drawings by every partner and the rate of interest to be charged.

8. Division of Profit : Profit and loss sharing ratio should be stated in the deed. If it is not mentioned partners are authorized to share equally according to Partnership Act.

9. Partners’ Salary and Commission : If the partners decide to pay salary and commission to the partners, the deed should contain the amount of salary or commission payable to any partner for the services rendered to the business.

10. Rights and Duties of Partners : If any partner has some special rights and duties regarding to conducts of business or if the liability of any partner is limited to the capital invested by him, these facts should also be mentioned in it.

11. Admission and Retirement of Partners : After the establishment of partnership some new partners may be admitted and some may retire from the business. If any definite procedure is to be adopted at the time of admission or retirement of partner, it should be stated in it.

12. Death of a Partner : The procedure of calculating the amount due to a deceased partner and the method of its payment to his successors, should also be decided and stated in the deed.

13. Valuation of Goodwill : The method of valuation of goodwill at the time of admission, retirement or death of a partner should be also be clearly stated in it.

14. Revaluation of Assets and Liabilities : The method of revaluation of assets and liabilities on admission, retirement or death of a partner should also be clearly stated in it.

15. Accounts and Audit : The procedure of keeping accounts and their audit should also be stated in it.

16. Dissolution of Partnership : The deed should contain the firm and the method of the final settlement of accounts.

17. Arbitration Clause : In case of disputes the method of appointing arbitrators and their rights should be clearly mentioned.

Note: The above contents/clauses are general clauses and there may be some other clauses that can be added to the partnership deed.

How to Draft a Partnership Deed?

The partnership deed can be oral or written. However, it is better when the partnership deed is written since it helps to avoid any future conflict and is also useful for tax purposes and registration of the partnership firm. The partnership deed can be drafted by all the partners after coming to a mutual agreement regarding the clauses of the deed. It can also be drafted by a  legal professional. 

Below are the points to be kept in mind while drafting the partnership deed:

  • The deed should contain the clauses as mentioned above.
  • It must be executed by at least two or more partners.
  • It should be drafted by mutual agreement between the partners.
  • Ambiguous clauses and sentences must be avoided. The clauses must clearly state the details/description.
  • It should be printed on an e-stamp paper of a value of Rs.200 or more.
  • It should be signed by all the partners on all pages of the deed.

Modifying a Partnership Deed

A Deed can be modified at any time given the affirmation of all the partners involved. A new Deed has to be drafted and signed by all the partners under the aegis of the Stamp Act and a fresh Deed must be drawn up. To Legally validate it further, the Deed must be registered with the Registrar of Firms.

Partnership Deed Registration

The partnership deed is registered under the Indian Registration Act, 1908. It must be printed on non-judicial stamp paper with a value of Rs.200 or more based on the capital of the partnership firm. It has to be signed by all the partners and each partner should have a copy of the partnership deed.

After the deed is signed by the partners, it must be registered with the Sub-Registrar/ Registrar Office of the jurisdiction where the partnership firm is located. The stamp duty for registering the partnership deed varies from state to state. The respective states’ Stamp Act prescribes the stamp duty to be paid to the Sub-Registrar at the time of registration. The notarization of the partnership deed is required along with its registration. The registration of the partnership deed makes it legally valid.

Documents Required for Partnership Deed Registration 

The documents required for registration of a partnership deed are as follows:

  • PAN card of all the partners.
  • Address proof of all the partners, such as voter ID, Aadhar card, driving licence, etc.
  • Address proof of the firm

Major Benefits of Partnership Deed

A proper Deed establishes Legal obligations amongst the firm’s partners. It is not, however, required to be registered. This means that you will also be able to operate an unregistered Partnership firm.

The following are some examples Partnership Deed: It specifies who is responsible for what as this means that the roles of each partner are outlined.Because all of the terms and conditions of the Partnership have been written out in advance in the Deed, it helps to avoid any misunderstanding between the partners.Any disagreement between the partners can be easily resolved by referring to the Partnership agreement.It establishes each partner’s rights, responsibilities, and obligations.A Partnership Deed might also include sections that define what partners should be paid in terms of pay (salary). Working partners are typically compensated. However, interest is paid to all partners who have contributed capital to the company.

What are the top considerations when starting a project on partnership deed

When embarking on a new business partnership, it’s essential to take the time to “project on partnership deed.” A well-thought-out partnership deed can help ensure the success of the partnership and minimize the risk of conflict. Here are the top considerations to keep in mind when “projecting on partnership deed” and starting a new business partnership:

  1. Define the Business Purpose: Clearly define the purpose of the partnership, including the products and services to be offered and the target market. This will help both partners understand their roles and responsibilities and ensure everyone is on the same page.
  2. Distribution of Profits and Losses: Decide how profits and losses will be distributed among the partners. This can include a profit-sharing agreement, a salary for each partner, or a combination of both.
  3. Decision-Making Authority: Determine who has the final say in important business decisions. This could be one partner, a majority vote among partners, or a specific decision-making process agreed upon by all partners.
  4. Duration of the Partnership: Specify the length of the partnership. This can be an indefinite partnership or a partnership with a set end date.
  5. Dispute Resolution: Establish a process for resolving disputes between partners. This can include mediation, arbitration, or legal action.
  6. Partnership Termination: Define the circumstances under which the partnership can be terminated, such as the death or resignation of a partner, or a disagreement between partners.
  7. Capital Contributions: Specify the amount of capital each partner will contribute to the partnership and the conditions under which additional capital can be contributed.
  8. Partner Responsibilities: Clearly outline the responsibilities of each partner, including the tasks they will be responsible for and the amount of time they will spend on the partnership.
  9. Record Keeping: Establish a system for keeping records of the partnership’s finances, including receipts, invoices, and bank statements.

Partnership and its kinds

“Partnership” is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Persons who have entered into a partnership with one another are called individually, “partners” and collectively “a firm”, and the name under which their business is carried on is called the “firm-name”

Illustrations

  • X and Y purchase 100 bales of cotton that they agree to sell on their shared account. For the sale of such cotton, X and Y are partners. X and Y purchase 100 bales of cotton and agree to share. X and Y are not partners.
  • X agrees with Y, a goldsmith, to purchase and furnish gold to Y, to be processed, sold, and to share the profit or losses that result. X and Y are partners.

ESSENTIAL ELEMENTS TO CONSTITUTE PARTNERSHIP FIRM

  • Atleast 2 parties. Persons must be competent to enter into a contract. Parties may be natural or
    Artificial.
     Agreement between the parties. Agreement may be oral or in writing. It may be express or implied.
     Agreement must be to share the profits of the business;
     Business must be carried on by all or any of them acting for all.

Kinds of Partners

(i) Actual, Active or Ostensible Partner:

These are the ordinary types of partners who invest money into the business of the firm, actively participate in the functioning and management of the business and share its profits or losses. Section 12(a) lays down that “Subject to contract between the partners, every partner is entitled to take part in the conduct of the business of the firm”.Any partner who actively contributes to the operation of the company binds himself and the other partners with all actions taken in the normal course of partnership activity. Such a partner must publicly announce his departure from the company in order to release himself from responsibility for the actions of the other partners after his departure.

(ii) Sleeping or Dormant Partner

These partners contribute capital to the company’s operations and receive a cut of the earnings, but they are not involved in its operation or management. However, even then, they are still completely liable. The Act specifically states that every partner is responsible for any acts that the firm is bound by.
A sleeping partner may leave the company without disclosing their departure to the public. His responsibility for the firm’s actions is over shortly after retirement. Such a partner has no obligations, but he is allowed access to and a copy of the company’s books and financial records.

(iii) Nominal Partner

Some people simply lend their name to the company or business rather than making an investment or taking part in management. Though they are merely nominal partners, they are nevertheless responsible for all business decisions and actions. In contrast to a bed partner, they are perceived by outsiders as partners in the business even though they are not.

(iv) Partner in Profits Only

A partner who is entitled to a portion of a partnership firm’s earnings but is not required to contribute to its losses is referred to as a partner in profits only. Thus, the other partners may decide to admit someone to the partnership who has enough wealth but is unwilling to take risks. Despite his particular status, he is nonetheless accountable to third parties for all company actions, just like other parties.

(v) Sub-Partner

A subpartner is a third party with whom a partner has made a profit-sharing agreement in the business. Such a sub-partner is not liable for the firm’s debts and has no obligations or rights towards the business. He cannot use his actions to obligate the company or the other partners.

(vi) Partner by Estoppel or Holding Out

A person is prevented from later rejecting responsibility for the firm’s actions if their behavior leads others to believe they are partners in the business when they are not. Such a person is liable to all third parties and is referred to as a partner by estoppel.

Holding Out means “to represent”. Strangers, who hold themselves out or represent themselves to be partners in a firm, whereby they induce others to give credit to the partnership are called “Partners by Holding Out”.
In case of “Partnership by Estoppel”, the representation is made by partners about a stranger within his knowledge and hearing and he does not contradict it. He is then held liable as a partner.
Effects of Holding out
The Holding Out partner is now held individually and personally accountable for the firm’s actions. However, he does not join the company as a partner and has no claims or rights against it. He may be held accountable just like a partner in that firm if someone outside the company gave the impression that he was a partner. He could be held accountable for the full sum because the partners’ culpability is joint and several. However, he can collect the sum so paid from the firm’s partners, if they are solvent, under the subrogation doctrine as well as on the basis of a quasi-contract.

Difference Between Sub Agent and Substituted Agent

Meaning

When a person employs another person to do any act for himself or to represent him in dealing with third persons, it is called a ‘Contract of Agency’. The person who is so represented is called the ‘principal’ and the representative so employed is called the ‘agent (Sec. 182). The duty of the agent is to enter into legal relations on behalf of the principal with third parties. But, by doing so he himself does not become a party to the contract to the contract not does he incur any liability under that contract. Principal shall be responsible for all the acts of his agent provided they are not outside the scope of his authority.

Example: A of Calcutta has a shop in Delhi. B, the manager of the shop, has been ordering and purchasing goods from C for the purpose of the shop. The goods purchased were being regularly paid for but of the funds provided by A. B shall be considered to be an agent of A by his conduct.

Sub-Agent

A sub-agent is defined under Section 191 of the Indian Contract Act as an individual who is employed by and acts under the control of the original agent in the agency’s business. The original agent hires the sub-agent to work under their control and authority. The relationship between the original agent and the sub-agent is that of the principal and agent. The regulations governing the agency automatically apply to the relationship between the sub-agent and the agent. The sub-agent can create the same rights and liabilities for the original agent as the agent can create for the principal.

Substituted Agent

A substituted agent, as defined in Section 194 of the Indian Contract Act, 1872, refers to a person appointed by the original agent with the principal’s knowledge and consent to handle a specific part of the agency’s business. Two conditions must be met by the agent before appointing a substituted agent. 

Firstly, the principal must have given the original agent the authority, either explicitly or implicitly, to make such an appointment. Secondly, the original agent must have designated a person to act on behalf of the principal in that particular aspect of the agency’s business.

The appointment of a substituted agent by the original agent does not constitute a delegation of the principal’s duties by the original agent. Instead, it establishes a direct relationship between the principal and the person named by the original agent. In this case, privity is established between the principal and the person named by the original agent. 

Section 195 of the Indian Contract Act, 1872 addresses the agent’s duty in naming a substitute agent. This Section imposes a duty on the agent to exercise the same level of care that an ordinary reasonable person would exercise in a similar situation when selecting a substitute agent. If the agent exercises such care, they will not be held responsible to the principal for any negligence or actions of the substituted agent.

A instructs B, a merchant, to buy a ship for him. B employs a ship surveyor of good reputation to choose a ship for A. The surveyor makes the choice negligently and the ship turns out to be seaworthy and is lost. B is not, but the surveyor is, responsible to A. (a) A instructs B, a merchant, to buy a ship for him, B employs a ship –surveyor of good reputation to choose a ship for A. The surveyor makes the choice a negligently and the ship turns out to be seaworthy and is lost. B is not,
but the surveyor is, responsible to A.

DifferencesSub-AgentSubstituted Agent
Control & DirectionControlled by original agentControlled by principal directly
ResponsibilityResponsible to original agentResponsible directly to principal
Privity of ContractPrivity with original agentPrivity with principal
AppointmentAppointed by original agent based on business needs or trade customsAppointed by original agent with explicit or implied authority from principal
LiabilityLiable to original agent for acts or misconductControlled by the original agent
RemunerationPaid by original agentLiable to the principal for acts or breaches
Responsibility towards Third PartiesNo direct contractual relationship with principalDirect contractual relationship with principal

SEPARATION OF POWERS

The legislative, executive, and judicial branches of a democratic nation’s government are known as the trias politica model, and each branch has its own distinct independent powers and responsibilities. India is a democracy with power divided among these branches, which each oversee a different aspect of government.

It is generally accepted that there are three main categories of governmental functions – (i) the Legislative, (ii) the Executive, and (iii) the Judicial. At the same time, there are three main organs of the Government in State, i.e., legislature, executive and judiciary. According to the theory of separation of powers, these three powers and functions of the Government must, in a free democracy, always be kept separate and exercised by separate organs of the Government. Thus, the legislature cannot exercise executive or judicial power; the executive cannot exercise legislative or judicial power of the Government.

SIGNIFICANCE OF SEPARATION OF POWERS

Concentration of power in one centre/authority, can lead to maladministration, corruption, nepotism and abuse of power.

Separation of powers helps in-

  1. Preventing autocracy
  2. Create efficient administration
  3. Independency of power is maintained
  4. Prevents the legislature from enacting arbitrary or unconstitutional laws.

Separation of the judiciary and executive branches is covered in Article 50 of the Indian Constitution. It states that the State must take action to keep the executive and judicial branches apart in its public services.
According to Montesquieu, if the Executive and the Legislature are the same person or group of people, there is a risk that the Legislature will pass oppressive laws that the Executive will implement to further its own objectives. This creates the potential for arbitrary rule and turns the Judge into a legislator rather than a law interpreter.

If the legislative authority were added to the power of that person, it would be arbitrary power, which would amount to complete tyranny, if one person or group of people could use both the executive and judicial powers in the same case. The doctrine’s value comes from its attempt to protect human liberty by preventing the consolidation of power in the hands of one person or group of people. Therefore, it is important to avoid the various government institutions from intruding on one another’s jurisdiction. In India, the legislative branch also includes the executive. The President, who is in charge of the executive branch, follows recommendations of the Council of Ministers.

The three branches of government’s roles are sufficiently distinct, even though the Indian Constitution does not acknowledge the notion of absolute rigidity in the separation of powers.State of Punjab v. Ram Jawaya, AIR 1955 SC 549. None of the three government organs can assume the duties that have been delegated to them.State of Kerala v. Keshanand Bharti, AIR 1973 SC 1461; State of J&K v. Asif Hameed, AIR 1989 SC 1899. The Supreme Court ruled in State of Bihar v. Bihar Distillery Ltd. (AIR 1997 SC 1511) that the judiciary must acknowledge the fundamental character and significance of the legislative process and must show it the respect and consideration it deserves.

The judiciary is likewise supposed to get the respect and consideration it deserves from the Legislative and Executive. The Indian Constitution acknowledges and upholds the idea of equality among the three branches of the government. The plan already includes the idea of checks and balances.

Relationship between Legislature and Judiciary

Even though the functions of the executive and the judiciary are well-defined in the Constitution, the system of checks and balances ensures that each one can impose checks on the other.

  • The judiciary can strike down laws that it considers unconstitutional or arbitrary.
  • The legislature, on its part, has protested against judicial activism and tried to frame laws to circumvent certain judgments.
  • Judicial activism is said to be against the principle of separation of powers.
  • There have been instances where the courts have issued laws and policies through judgements. For example, the Vishakha Guidelines where the SC issued guidelines on sexual harassment.
  • In 2010, the SC directed the government to undertake the distribution of food grains.
  • If the judiciary oversteps its mandate and crosses over into the territory of the legislature or the executive, it is called judicial overreach.

Judicial Supremacy and Parliamentary Sovereignty

To strike a balance between the judiciary and the legislature, the Indian constitution uses the following principles:

  • The doctrine of Parliamentary Sovereignty has been adapted from the British Constitution.
  • The doctrine of Judicial Supremacy has been adapted from the American Constitution.
  • The power of judicial review of the Supreme Court of India is narrower in scope than the Supreme Court of the USA.
  • The Constitution of India guarantees ‘established procedure by law’ in Article 21 instead of the ‘due process of law’ provided in the American Constitution.
  • The Indian Constitution has opted for an amalgamation of Britain’s principle of parliamentary sovereignty and the judicial supremacy of the USA.
  • The Supreme Court, on the one hand, can declare the parliamentary enactments as unconstitutional using the power of judicial review.
  • The Parliament, on the other hand, can amend a large chunk of the Constitution using its constituent power.

Relationship between Legislature and Executive

The Constitution states that the executive branch of the State (Council of Ministers) shall be collectively responsible to the Legislature (Lok Sabha). This implies that the Parliament should supervise the work of the government and hold it accountable for its actions.

  • In a parliamentary form of government, the executive is not separated from the legislature in that the members of the council of ministers are members of the legislature.
  • The executive loses power when it loses the confidence of the legislature. The executive/council of ministers is dismissed if it loses the legislature’s confidence before its tenure is over. So, the legislature controls the executive through a vote of no-confidence.
  • The head of government and head of state are different. The head of the government is the Prime Minister while the head of state is the President.
  • The parliament makes laws in general broad terms and delegates the powers to the executive to formulate detailed policy and implement them.
  • In a presidential form of government, the executive is not accountable to the legislature. One person is the heads of both the State as well as the government. A minister need not be from the legislature.

Relationship between Executive and Judiciary

There are several provisions in the Constitution that make the judiciary independent. This is because, it is believed that for a democracy to remain efficient and effective, the judiciary must be independent. The judiciary is said to be the guardian of the constitution. If the executive also assumes judicial powers, that sort of a government tends to become oppressive.

However, there are some judicial functions which are performed by the executive as well. They are:

  1. The appointments of the judges are made by the executive.
  2. The President and the Governors also enjoy the power to pardon, reprieve, etc. These are direct judicial functions.
  3. Under the system of administrative adjudication, the executive agencies have the power to hear and decide cases involving particular fields of administrative activity.

The judiciary also performs some executive functions. It can review the actions of the executive and declare them void if found unconstitutional.

Rent Control Act

Introduction

The legislature enacted a national Rent Control Act in 1948. It controls the guidelines for renting out a property and makes sure neither the rights of the landlords nor the tenants are violated by the other. It should be noted that each state currently has its own Rent Control Act, and while they are generally similar to one another, they do have a few small variations.

The 1948 Act’s strict requirements and pro-tenant stance have made it impossible for the real estate sector in some regions to expand. Despite inflation and rising property values, some properties that have been rented out since 1948 continue to pay the same amount of rent.

In an effort to prevent the property’s value from declining, the Central Government attempted to change the Act in 1992 through a proposed model. The sitting tenants unfortunately resisted the adjustments, therefore they did not go into effect.

Rental Agreement

In India, renting or letting out of any property for residential or commercial purposes is subjected to various rules and regulations, such as: – Under the law, it is a must to have a written agreement between the two parties enumerating all the terms and conditions of tenancy.

An agreement reached without being expressly put in writing will not be a valid contract in the following cases:

  • Any changes regardless of the type of rectification must also be put in writing.
  • The agreement must be dated and signed by both parties, i.e. the landlord and the tenant.
  • The agreement must be stamped and registered.
  • Without a valid rental agreement, the rights and duties of the landlord and the tenant cannot be enforced or protected by law.

Therefore, it is always prudent to enlist the help of a legal practitioner in the making of such an agreement as many complexities entail, especially for commercial leasing.

Rights of a Tenant

The Rent Control Act is established not only to protect the landlord and their property but also to protect the tenant. Under the Act, the few important rights that are given to the tenant are:

  1. Right Against Unfair Eviction: The Act prohibits the landlord from evicting a tenant without good cause. Each state has a slightly different set of eviction laws. In some places, the landlord must go before the court and request a court order before they can evict a tenant. If the renter is ready to accept any adjustments to the rent, he or she cannot be evicted in several states.
  2. Fair Rent: When renting out a home, the landlord cannot demand exorbitant rent fees. A rental property’s appraisal must take its value into consideration. The tenant may go to court to seek relief if they believe the amount of rent being requested is excessive given the worth of the property. Typically, the rent should range from 8% to 10% of the total value of the property, which includes all costs associated with building and property improvements.
  3. Essential Services: It is the basic right of the tenant to enjoy essential services such as water supply, electricity etc. A landlord doesn’t have the right to withdraw these services even if the tenant has failed to pay rent with regards to the same property or a different one.

Rights of a Landlord

The point of interest in a rental agreement is always the property, and the property has to be protected from unfair exploitation. The Rent Control Act entitles the landlord with the following rights:

  1. Right to Evict: The ability to evict a tenant varies from state to state as well. Meaning that in some places, a landlord has the right to remove a tenant for legitimate, personal reasons such as wishing to move in. In Karnataka, such a justification is not a valid ground for eviction. In most situations, the landlord must file a court petition to evict the tenant. Additionally, before going to court, the landlord is required by law to give the tenant adequate notice.
  2. Charge Rent: The landlord has the authority to collect rent from the renter because they are the property owners. Since there is no legal law establishing a cap on rent, the landlord is free to keep raising the rent fees as he sees fit. Therefore, it is wise to include the amount of the increase and the conditions of the increase in the rental agreement itself in such circumstances. The rent often goes up by 5% to 8% on a yearly basis.
  3. Temporary Repossession of Property: The landlord has the right to take temporary possession of the property in order to make repairs, modifications, or improvements. However, such alterations to the property must not do the tenant any harm or seriously interfere with his tenure.

Non-Applicability of the Rent Control Act

There are certain cases where the Rent Control Act is not applicable when the property has been let out. They are:

  • Property let out to private limited or public limited companies with a paid-up share capital of Rs 1 crore or above.
  • Property let out or sub-let to public sector undertakings, banks or any corporation established under any state or central Act.
  • Property let out to foreign companies, international missions or international agencies.

6 Steps for Renting Commercial Property in India

The real estate industry in India faces cut-throat competition from within, and hence rent agreements have to be worked upon smartly. You need to know the right questions to ask and all the laws that are best suited for your business.

1. Title Ownership Validation

Always make sure you have full knowledge of who owns the property, therefore having access to the title deed is necessary to verify the rent. Before entering into a contract with the landlord, conduct more research to make sure there is no sub-rent or other type of rent connected with the property.

2. Sanctioned Plans and Power Of Attorney (PoA)

Verifying the title deed and commencement certificate given by the appropriate authorities is always advised if the property you are renting is a structure that is still being constructed. Make sure to verify the occupation certificate before renting out commercial space in a built-up property. In the case of indirect rent, it’s also crucial to verify whether any kind of power of attorney is in play.

3. Appropriate Renting Agreement

Make sure the renting agreement is adequate based on operations before engaging into any type of mutual commitment with the landlord. Whether it is a rental leasing agreement or an agreement for co-working office space, be precise about the type of rent.

4. Income Tax & Mortgage Verification

In the event of a business agreement, it is usually advisable to investigate the landlord’s income tax history to see whether there are any unresolved issues or illegal activities. This will also confirm to you whether the aforementioned property is classified under the Development Control Regulations of the Income Tax Act of 1961 as “commercial” or “residential.” If there is any doubt regarding this classification, you might later be assessed a TDS.

5. Background Check of the Property Agent

In the event of a business agreement, it is usually advisable to investigate the landlord’s income tax history to see whether there are any unresolved issues or illegal activities. This will also confirm to you whether the aforementioned property is classified under the Development Control Regulations of the Income Tax Act of 1961 as “commercial” or “residential.” If there is any doubt regarding this classification, you might later be assessed a TDS.

6. Validity of Rent Agreement

In addition to other clauses, a business leasing agreement must have the following fundamental information:

  • Commencement and termination date
  • Location of property
  • The whole rental amount as well as the deposit information.
  • Payment Intervals
  • Terms of lease renewal
  • All of the parties involve d’s names, as well as their signatures.

What are the Documents Mandatory for a Commercial Rental Agreement?

  • Aadhar card or the receipt received, Any government-issued ID proof
  • Submit the original passport, if not Indian
  • Power of Attorney should be presented if ID is demonstrating another person for the registration
  • Evidence and Nature of Business establishment
  • Original copy of proof of ownership (landlord’s property)
  • Government Approvals, if any
  • Two in recent times taken passport size photographs.
  • Get the Commercial rental agreement printed on the stamp paper of the recommended value.
  • Memorandum of association ∓ Articles of Association, If any
  • Association of person’s understanding, if any
  • Bonds and Dealership Proofs, if any
  • Shareholder & Listing agreements, if any

What is the Procedure to Use the Commercial Rental Agreement?

The completed document must be provided to all parties, which may also include the guarantor. Each party should be given the opportunity and may need some time to read the agreement to fix this given the length of the document.

1. The Commercial Rental Agreement would require to be printed on ‘non-judicial stamp paper’ or ‘e-stamp paper,’ which is accessible in each state. The value of the stamp paper would be contingent on the state in which it is implemented and the ‘duration’ of the Rent.

2. Both parties should sign the Rental Agreement after printing the document on stamp paper or e-stamp paper, as applicable. Moreover, each party should hold a copy of the Commercial Rental Agreement.

3. If the rental period is more than 11 months, then the Commercial Rental agreement would require to be registered. Both the lessor and lessee must go to the sub-registrar’s office for the objectives of registration.