Mr. B. J. Ved

Guarantee & Indemnity (Sec 124 & 126 of Indian Contract Act)

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Indemnity Guarantee

1. Defined in Sec 124 of Indian Contract

Act.

1. Defined in Sec 126 of Indian Contract Act.

2. A contract by which one party

promises to save the other from loss

caused to him by the conduct of the

promisor himself or by the conduct of

any other person.

2. A contract to perform the promise or discharge the liability of a third person in case of his default.

3. Two Parties – Indemnifier &

Indemnified

3. Three Parties – the debtor, the creditor & Surety

Guarantee & Indemnity (Sec 126 & 124 of Indian Contract Act) Contd…

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Indemnity Guarantee

4. Contingent Risk 4. Subsisting Liability

5. Indemnifier’s liability is primary 5. Guarantor’s liability is secondary. Principal debtor is primary liable.

6. One contract – Between Indemnifier

& Indemnified

6. Two contracts – Between i) Debtor and Creditor ii) Creditor and Guarantor

7. No right of subrogation 7. Guarantor gets the right of subrogation – Guarantor steps into the shoes of creditor after payment to creditor.

Partnership Company1. Not a distinct legal person 1. Distinct legal person

2. Creation – by agreement 2. Creation – Elaborate legal formalities

3. Every partner is an agent of other partners

3. Shareholder is not agent of other shareholder

4. Partner cannot contract with his firm 4. Shareholder can contract with his company

5. Maximum no. of partners is 20 (& 10 in case of banking business)

5. No max. no. of shareholders for Public Ltd. Co. Min. is seven

Private Ltd. Co. Min. two, Max. fifty

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Differences Between Partnership & Company

Differences Between Partnership & Company (Contd…)

Partnership Company6. Partner cannot transfer his interest

without consent of other partners6. Shares of a company are freely transferable.

7. Partners’ liability for debts of firm is unlimited

7. Shareholder’s liability is limited

8. Property is common property of partners

8. Property belongs to company & not to his members (Shareholders)

9. Death or retirement of partner dissolves the firm

9. Death / Retirement of Shareholder does not dissolve company

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Differences Between Private Ltd. Co. & Public Ltd. Co.

Private Ltd. Co. Public Ltd. Co.

1. Min. no. of Shareholders – 2 1. Min. no. of Shareholders – 7

2. Max. no. of Shareholders – 50 2. No limit on max. no.

3. Must have at least two directors 3. Must have at least three directors

4. Shares are not freely transferable 4. Shares are freely transferable

5. Can commence business as soon as certificate of incorporation is obtained

5. Cannot start business on getting certificate of incorporation but can start business only after obtaining certificate of commencement of business

6. Cannot invite public to subscribe the shares or debentures

6. Approaches public for securing capital by issuing prospectus

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Differences Between Private Ltd. Co. & Public Ltd. Co. (Contd…)

Private Ltd. Co. Public Ltd. Co.7. Must have words Private Limited in its

name7. Must have the word Limited as the

last word in its name

8. Must restrict transferability of shares by Article

8. Cannot impose such restrictions transferability of shares by article

9. Need not hold statutory meeting 9. Must hold a statutory meeting

10. No restrictions on remuneration of directors

10. Legal restrictions on remuneration of directors

11. No restrictions on allotment of shares 11. Number of legal restrictions on allotment of shares

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Differences Between Cash Credit & Overdraft Facilities

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Cash Credit Overdraft1. Pre-existing current a/c is not

necessary1. The borrower must have a current a/c

in his name to have this facility

2. Bank opens a new a/c with debit limit decided (based) on projected sales & other factors

2. The current a/c is converted into overdraft a/c with debit limit based on security offered & margin requirements. The balance in a/c may be debit (up to limit)

3. Useful for trade, industry & commerce 3. Useful for an individual or non-trader also

Differences Between Cash Credit & Overdraft Facilities (Contd…)

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Cash Credit Overdraft4. Given generally against hypothecation

of goods and book-debt or pledge of goods

4. Given against security of FDR, UTI units, LIC policy, Govt. securities like NSC, IVP, KVP etc

5. Monitoring by way of obtaining stock/book debt statements every month from which drawing power under the limit is calculated every month. Borrower is allowed to withdraw funds as per limit or drawing power, whichever is less

5. No such monitoring is done except when shares are pledged wherein share prices are closely monitored by banker & in case of big decrease in share prices, limit is either reduced or additional security is asked for

Difference Between Legal Mortgage & Equitable Mortgage

Legal Mortgage Equitable Mortgage1. Created by execution of a document

called “Mortgage Deed”. Borrower binds himself to repay the advance in addition to transfer of interest in immovable property

1. Created by deposit with bank the title deeds of property with the intention of creating a security. A record by way of “Memorandum of Deposit” is maintained at bank branch

2. Requires compulsory registration with the Registrar of Assurances within -4- months of creation. If borrower is a company charge is required to be registered with Registrar of Companies within -30-days of creation

2. No registration required with Registrar of Assurances. However, when company is a borrower charge is required to be registered with Registrar of Companies within -30- days of creation

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Equitable Mortgage is also known as Mortgage by Deposit of Title Deeds

Difference Between Legal Mortgage & Equitable Mortgage (Contd…)

Legal Mortgage Equitable Mortgage3. Attracts ad-valorem (according to

value) stamp duty3. Stamp duty as per Stamp Act in the

state where mortgage is created. In some states, there is no stamp duty

4. Created at any place in India 4. Created only at “notified place” mentioned in the Official Gazette of State Govt. where an equitable mortgage can be created. Place of advance & location of property can be at a place other than the notified place.

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Difference between Negotiation & Assignment

Negotiation Assignment

1. Does not require written document . By delivery (bearer) or by endorsement & delivery (order)

1. Requires written document signed by transferor

2. Notice not necessary 2. Notice of assignment is a must

3. Consideration presumed 3. Consideration to be proved

4. Holder in due course obtains it free from all defects

4. Assignee obtains it subject to all previous defects

5. Defined in N.I. Act 1881 5. Defined in T.P. Act

6. Does not attract Stamp Duty 6. Attracts Stamps Duty

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Difference between Pledge & Mortgage

Pledge Mortgage

1. Defined in Indian Contract Act 1. Defined in Sec 56 of T.P. Act

2. Bailment of goods for securing an advance. Possession of goods given to pledgee.

2. Transfer of interest in immovable property . Property is not transferred

3. Goods can be sold after giving reasonable notice. No other process is to be followed

3. Prior to SARFAESI Act 2002 it could not be sold without order of court. After SARFAESI Act, it can be sold following due process of law

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