CU-SEM-III-BCOM-Legal Aspects of Business(Modified as per review report)

business, ought to be known to him. If the assured fails to make such disclosure, the insurer may avoid the contract. (2) Every circumstance is material which would influence the judgment of a prudent insurer in fixing the premium or determining whether he will take the risk. (3) In the absence of inquiry, the following circumstances need not be disclosed, namely: -- (a) any circumstance which diminishes the risk. (b) any circumstance which is known or presumed to be known to the insurer. The insurer is presumed to know matters of common notoriety or knowledge and matters which an insurer in the ordinary course of his business as such ought to know. (c) any circumstance as to which information is waived by the insurer. (d) any circumstance which it is superfluous to disclose by reason of any express or implied warranty. (4) Whether any particular circumstance, which is not disclosed, be material or not is, in each case, a question of fact. (5) The term \"circumstance\" includes any communication made to, or information received by, the assured. Section 21 talks about the disclosure by the agent effecting insurance, which reads as follows: - Section 21 - Disclosure by agent effecting insurance Subject to the provisions of the preceding section as to circumstances which need not be disclosed, where an insurance is effected for the assured by an agent, the agent must disclose to the insurer— (b) every material circumstance which is known to himself, and an agent to insure is deemed to know every circumstance which in the ordinary course of business ought to be known by, or to have been communicated to, him; and (c) every material circumstance which the assured is bound to disclose, unless it comes to his knowledge too late to communicate it to the agent. With respect to disclosure, the following points to be noted: - 201 CU IDOL SELF LEARNING MATERIAL (SLM)

(i) The duty to disclose extends only to material facts. Whether a fact is material or not is a question of fact. The test to see if a fact is material fact or not is to see if an insurer of prudent judgement would be influenced by the fact. LIC vs. Shakunthala Indigestion complaint of the assured does not amount to a material fact. The test is whether the fact in question would increase the risk to such an extent that the insurer could have even rejected the policy application. Rohini Nandan vs. Ocean Accident and Guarantee Corporation With respect to a fire and burglary insurance, an earlier burglary on the ground floor of the same building as the insured does not form a material fact as it has no bearing risk on the insurer. P.C. Chaco vs. LIC of India Non-disclosure of surgery undergone for adenoma thyroid amounts to non-disclosure of material facts. (ii) The duty extends only to those material facts known to him or ought to be known to him. Though ignorance of fact is an excuse, ignorance of materiality of fact is not an excuse. GouriSethi vs. The Divisional Manager of LIC Suppression of an illness not expected to reduce expectation of life does not amount to suppression of material fact. (iii) The duty to disclose extends to the authorized agents, to the extent of the facts within the knowledge of the principal, which should have been communicated in the normal course of business between the Principal and agent. (iv) Doctrine of utmost good faith applies to insurer also. Hanil Era Textiles Ltd. vs. Oriental Insurance Co. Ltd The insurance company which insured a spinning mill, and the blow room did not disclose some important technical requirements for the optimum strength and life of the machines. 202 CU IDOL SELF LEARNING MATERIAL (SLM)

However, the insurance company asked for increased premium on the ground that such technical requirements were not fulfilled. The assured is not entitled to any damages in this respect but is entitled to rescind the contract alone. (v) The rules as to disclosure apply only during the stage of negotiations. If a material fact comes to the knowledge of either of the parties after the execution of the contract of insurance, the parties are not bound to disclose the facts. Ratanlal vs. Metropolitan Insurance Co. After the execution of a contract of insurance, the insured went to the doctor with a complaint of general exhaustion. However, unexpectedly, the insured died in a few weeks. It was held that there was no non-disclosure. (vi) The duty of disclosure is deemed to be cast when the insured is asked a question by the insurer. All the questions mentioned in the policy application shall be considered material fact irrespective of their relevancy. (vii) Duty of disclosure does not extend to certain set of facts, listed out under section 23 of the Marine Insurance Act, which are as follows: (a) Facts he is not aware of. (b) any circumstance which diminishes the risk. (c) any circumstance which is known or presumed to be known to the insurer. The insurer is presumed to know matters of common notoriety or knowledge and matters which an insurer in the ordinary course of his business as such ought to know. (d) any circumstance as to which information is waived by the insurer. (e) any circumstance which it is superfluous to disclose by reason of any express or implied warranty. Effect of Non-disclosure: In case of non-disclosure of a material fact, the aggrieved party is entitled to rescind the contract. However, he is not entitled to any damages as this does not amount to fraud. Lambert vs. Cooperative Insurance Society 203 CU IDOL SELF LEARNING MATERIAL (SLM)

A lady fails to disclose the conviction of her husband while insuring the jewels partly owned by herself and her husband. Held, as both the husband and wife are owners, conviction of husband is material, though he is not the insured. March Cabarets Club vs. London Assoc Suppression of conviction of directors of an insurance company for handling stole property amounts to non-disclosure of material facts. (d) CONTRACT OF INDEMNITY ‘Indemnity’ refers to a promise to save another person from harm or from the loss caused as a result of a transaction entered into at the instance of the promisor. Indemnity is an important element in all non-life insurance contracts. The element of indemnity is made out by the contingency as it that is the risk insured against. However, not all insurance contracts are contracts of indemnity. Life insurance, personal accident insurance and medical insurance do not form contracts of indemnity. With respect to fire and marine insurance contracts, the principles of contribution and subrogation apply. Principle of subrogation is that when a person who has claimed damages from a third party for the loss suffered due to negligence and also makes a claim against the insurance company, the insurance company becomes entitled to the claim against the third party, after paying its claim. Principle of contribution is when the insured has taken a number of policies, all such insurance companies, one of the companies can call upon all the other companies to contribute to the claim according to their assurances. However, a contract of insurance cannot be strictly considered a contract of indemnity for the following reasons: - (a) There may be policies where the assured becomes entitled to claim more than the loss suffered. (b) Even if the amount recovered is slightly more than the loss suffered, the insurance contract is enforceable, as long as there is no gross over valuation. (c) In case a policy promises a ‘sum insured’, no matter what the loss is, the insured is entitled to only that sum, irrespective of whether it indemnifies his loss. Therefore, though a contract of insurance is not strictly a contract of indemnity, it consists of many elements of a contract of indemnity. 204 CU IDOL SELF LEARNING MATERIAL (SLM)

(e) CONTRACT OF WAGER A contract of insurance is not a contract of wager for the following reasons: - (a) The contract of insurance is based on the risk of loss or damage and not on the loss or damage itself. Since the risk exists irrespective of the insurance, insurance cannot be considered a wager. (b) In contracts of insurance there is insurable interest, while in wager, there is no interest. (c) In a contract of wager, one party must win, and the other party must lose. However, in an insurance contract, there is no chance of winning for the insurer. That is, the insurer does not get any reward or benefit when the contingent even does not happen. Tyrie vs. Fletcher Although risk is the essence of a contract of insurance, it cannot be considered a wagering contract, as the risk of loss is not created by the contract itself. In a pure wager, the risk, by itself is created by the wagering contract, while in a contract of insurance, it exists, irrespective of the contract of insurance. 11. 4 CLASSIFICATION OF CONTRACT OF INSURANCE Classification Based On Nature Of Interest Affected (i) PERSONAL INSURANCE Personal insurance is when a person’s life or health is being insured. The subject matter of the insurance would be the health, life and body of an individual. Therefore, they fall under the category of personal insurances. There is no pecuniary value to the subject matter of the insurance contracts under this category. (ii) PROPERTY INSURANCE When the subject matter of the contract is pecuniary in nature and aims at indemnifying the loss or damage to property, it is property insurance. (iii) LIABILITY INSURANCE Liability insurance is when the insured would become liable to a third party or parties on the happening of a contingent event and the insurance company would protect the insured from the said liability. 205 CU IDOL SELF LEARNING MATERIAL (SLM)

Classification Based On the Nature Of Event (i) LIFE INSURANCE The sum insured becomes payable on the death of the insured or on the attainment of a particular age. Life insurance falls under the category of personal insurance. (ii) FIRE INSURANCE In this class of contracts, the sum is payable on the accident of fire by which the insured property is destroyed or damaged. Here the loss is the loss caused by fire. Fire insurance can fall under the category of property insurance as only properties form the subject matter of insurance. (iii) MARINE INSURANCE Here the sum becomes payable on the happening of a perilous at sea. Marine insurance also fall under the category of property insurance. Sometimes, they might also form a personal insurance is the peril insured affects the life or health of the insured. (iv) MISCELLANEOUS INSURANCE This includes a variety of new insurances, which are Social insurances, Liability Insurances, Aviation and transport insurances, medical insurance, etc. Motor Vehicle insurance, transport and aviation insurance fall under the category of liability insurance. Medical insurances fall under the category of personal insurance. 11.5 SUMMARY  A Contract of Insurance is a contract either to indemnify a person against a loss which may arise on the happening of an event or to pay a sum of money on the happening of some or any event for an agreed consideration.  The person who undertakes to indemnify the loss owing to the specified event or events is the insurer or assurer.  The person getting indemnified for loss owing to the specified event or events is the insured or assured. The consideration paid for the indemnity as periodical payment is premium.  The Document containing the terms and conditions of the insurance is the Insurance Policy.  Elements Of Insurance 206 CU IDOL SELF LEARNING MATERIAL (SLM)

 The Contract must be between an insurer and insured  The Contract must be for the purpose of indemnifying from a loss due to a specific event or series of events.  There must be a consideration, which is, premium.  An insurance contract must be in writing.  CLASSIFICATION BASED ON NATURE OF INTEREST AFFECTED  Personal Insurance  Property Insurance  Liability Insurance  CLASSIFICATION BASED ON THE NATURE OF EVENT  Life Insurance  Fire Insurance  Marine Insurance  Miscellaneous Insurance 11.6 KEYWORDS  Contract of Insurance: A Contract of Insurance is a contract either to indemnify a person against a loss which may arise on the happening of an event or to pay a sum of money on the happening of some or any event for an agreed consideration.  Insurer: The person who undertakes to indemnify the loss owing to the specified event or events is the insurer or assurer.  Insured: The person getting indemnified for loss owing to the specified event or events is the insured or assured.  Premium: The consideration paid for the indemnity as periodical payment is premium.  Insurance Policy: The Document containing the terms and conditions of the insurance is the Insurance Policy. 11.7 LEARNING ACTIVITY 1. Examine a contract of insurance and go through its contents and prepare notes on the contents of a contract of insurance 207 CU IDOL SELF LEARNING MATERIAL (SLM)

___________________________________________________________________________ ___________________________________________________________________________ 2. observe a case on any insurance claim and prepare a case study ___________________________________________________________________________ ___________________________________________________________________________ 11. 8 UNIT END QUESTIONS A. Descriptive Questions: Short Questions: 1. Define Insurance. 2. What is fire insurance? 3. Define Life Insurance. 4. What is risk? 5. What is fire insurance Long Questions: 1. What is the nature of insurance? 2. What are the three principles of insurance? 3. List the types of life insurance 4. What is meant by general insurance? 5. What is the nature of credit insurance? 18. What is meant by marine insurance? B. Multiple Choice Questions: 1. Choose the correct option. a. In an insurance contract, an insurer makes an offer, and the prospect accepts it. b. In an insurance contract, a prospect makes an offer, and an insurer accepts it. c. In an insurance contract, an offer and acceptance is not a requirement. d. In an insurance contract, no principles of contact are applicable. 2. Choose the correct options Statement - A: The minor can enter into an insurance contract. Statement - B: The person with an unsound mind cannot enter into an insurance contract. 208 CU IDOL SELF LEARNING MATERIAL (SLM)

a. Both statements are correct. 209 b. Both statements are wrong c. Statement A is correct d. Statement B is correct 3. Choose the correct options Statement A: Insurance is a lawful business. Statement B: Insurance is not gambling. a. Both statements are correct b. Both statements are wrong c. Statement A is correct d. Statement B is correct 4. Mediclaim Insurance was primarily introduced to cover charges. a. Insurance b. Hospitalization c. Nursing d. Accident 5. In policy, a fixed amount is paid as compensation irrespective of theloss. a. Valued b. Fixed c. Mandatory d. Legal Answers 1 (b) , 2 (d) , 3 (a) , 4 (b) , 5 (b) 11.9 REFERENCES CU IDOL SELF LEARNING MATERIAL (SLM)

Textbooks:  Elements of Mercantile Law by N.D. Kapoor  Mercantile Law by Garg Chawla  Modern Law of Insurance by K.V.S. Sharma Reference Books:  Legal Aspects of business by Pathak Akhileshwar  Legal Aspects of Business by P.K. Pandhi Websites:  Manupatra.Com 210 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 12: CORPORATE SOCIAL RESPONSIBILITY Structure 12.0 Learning objectives 12.1 Introduction 12.2 Coprorate social responsibilities under Companies Act, 2013 12.3 Summary 12. 4 Keywords 12.5 Learning Activity 12.6 Unit end questions 12.7 References 12.0 LEARNING OBJECTIVES After studying this unit, you should be able to:  Explain what Corporate Social Responsibility is.  Describe the legal significance of Corporate Social Responsibility. 12.1 INTRODUCTION A Company is a separate legal entity as per the Companies Act, 2013 and is recognised so by all other laws and legislations of the country. Therefore, like any normal citizen of a country, even a company has its own responsibilities towards the society and the country and its people. Even a company is duty bound to contribute to the society and help in the growth and development of a nation. The Companies Act, 2013 recognises this responsibility and defines the role of a company in the society as an artificial person and what its contribution should be to the society. 12.2 COPRORATE SOCIAL RESPONSIBILITIES UNDER COMPANIES ACT, 2013 Section 135 of the Companies Act talks about Corporate Social Responsibilities and reads as follows: 211 CU IDOL SELF LEARNING MATERIAL (SLM)

Section 135: Corporate Social Responisbility (1) Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during the immediately preceding financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director. Provided that where a company is not required to appoint an independent director under sub- section (4) of section 149, it shall have in its Corporate Social Responsibility Committee two or more directors. (2) The Board's report under sub-section (3) of section 134 shall disclose the composition of the Corporate Social Responsibility Committee. (3) The Corporate Social Responsibility Committee shall, -- (a) formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company in areas or subject, specified in Schedule VII. (b) recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and (c) monitor the Corporate Social Responsibility Policy of the company from time to time. (4) The Board of every company referred to in sub-section (1) shall, -- (a) after taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company's website, if any, in such manner as may be prescribed; and (b) ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company. (5) The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years 6[or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years], in pursuance of its Corporate Social Responsibility Policy: 212 CU IDOL SELF LEARNING MATERIAL (SLM)

Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities: Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount and, unless the unspent amount relates to any ongoing project referred to in sub- section (6), transfer such unspent amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year. Provided also that if the company spends an amount in excess of the requirements provided under this sub-section, such company may set off such excess amount against the requirement to spend under this sub-section for such number of succeeding financial years and in such manner, as may be prescribed. Explanation. -- For the purposes of this section \"net profit\" shall not include such sums as may be prescribed and shall be calculated in accordance with the provisions of section 198. (6) Any amount remaining unspent under sub-section (5), pursuant to any ongoing project, fulfilling such conditions as may be prescribed, undertaken by a company in pursuance of its Corporate Social Responsibility Policy, shall be transferred by the company within a period of thirty days from the end of the financial year to a special account to be opened by the company in that behalf for that financial year in any scheduled bank to be called the Unspent Corporate Social Responsibility Account, and such amount shall be spent by the company in pursuance of its obligation towards the Corporate Social Responsibility Policy within a period of three financial years from the date of such transfer, failing which, the company shall transfer the same to a Fund specified in Schedule VII, within a period of thirty days from the date of completion of the third financial year. (7) If a company is in default in complying with the provisions of sub-section (5) or sub- section (6), the company shall be liable to a penalty of twice the amount required to be transferred by the company to the Fund specified in Schedule VII or the Unspent Corporate Social Responsibility Account, as the case may be, or one crore rupees, whichever is less, and every officer of the company who is in default shall be liable to a penalty of one-tenth of the amount required to be transferred by the company to such 213 CU IDOL SELF LEARNING MATERIAL (SLM)

Fund specified in Schedule VII, or the Unspent Corporate Social Responsibility Account, as the case may be, or two lakh rupees, whichever is less. (8) The Central Government may give such general or special directions to a company or class of companies as it considers necessary to ensure compliance of provisions of this section and such company or class of companies shall comply with such directions. (9) Where the amount to be spent by a company under sub-section (5) does not exceed fifty lakh rupees, the requirement under sub-section (1) for constitution of the Corporate Social Responsibility Committee shall not be applicable and the functions of such Committee provided under this section shall, in such cases, be discharged by the Board of Directors of such company. Schedule VII of the Companies Act, 2013 lists out the activities which fall under the meaning of Corporate Social Responsibility. Schedule VII reads as follows: - SCHEDULE VII Activities which may be included by companies in their Corporate Social Responsibility Policies Activities relating to: -- (i) eradicating hunger, poverty and malnutrition, 7[promoting health care including preventive health] and sanitation 4[including contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation] and making available safe drinking water. (ii) promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly, and the differently abled and livelihood enhancement projects. (iii) promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups. 214 CU IDOL SELF LEARNING MATERIAL (SLM)

(iv) ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water 4[including contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga. (v) protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional arts and handicrafts. (vi) measures for the benefit of armed forces veterans, war widows and their dependents Central Armed Police Forces (CAPF) and Central Para Military Forces (CPMF) veterans, and their dependents including widows. (vii) training to promote rural sports, nationally recognised sports, Paralympic sports and Olympic sports. (viii) contribution to the Prime Minister's National Relief Fund 8[or Prime Minister's Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund)] or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities, and women. (ix) (a)Contribution to incubators or research and development projects in the field of science, technology, engineering and medicine, funded by the Central Government or State Government or Public Sector Undertaking or any agency of the Central Government or State Government; and (b) Contributions to public funded Universities; Indian Institute of Technology (IITs); National Laboratories and autonomous bodies established under Department of Atomic Energy (DAE); Department of Biotechnology (DBT); Department of Science and Technology (DST); Department of Pharmaceuticals; Ministry of Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homoeopathy (AYUSH); Ministry of Electronics and Information Technology and other bodies, namely Defense Research and Development Organisation (DRDO); Indian Council of Agricultural Research (ICAR); Indian Council of Medical Research (ICMR) and Council of Scientific and Industrial Research (CSIR), engaged in conducting 215 CU IDOL SELF LEARNING MATERIAL (SLM)

research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs). (x) rural development projects (xi) slum area development. Explanation. -For the purposes of this item, the term 'slum area' shall mean any area declared as such by the Central Government or any State Government or any other competent authority under any law for the time being in force. (xii) disaster management, including relief, rehabilitation, and reconstruction activities. 12.3 SUMMARY  A Company is a separate legal entity as per the Companies Act, 2013 and is recognised so by all other laws and legislations of the country.  Like any normal citizen of a country, even a company has its own responsibilities towards the society and the country and its people.  Even a company is duty bound to contribute to the society and help in the growth and development of a nation.  The Companies Act, 2013 recognises this responsibility and defines the role of a company in the society as an artificial person and what its contribution should be to the society. 12. 4 KEYWORDS  Corporate Social Responsibility: A company’s responsibility and contribution to the society and for the development of the nation 12.5 LEARNING ACTIVITY 1. Visit a company and learn about its Corporate Social Responsibility Policies ___________________________________________________________________________ ___________________________________________________________________________ 2. Prepare a Research paper on legal significance of the provisions of CSR. ___________________________________________________________________________ ___________________________________________________________________________ 216 CU IDOL SELF LEARNING MATERIAL (SLM)

12. 6 UNIT END QUESTIONS A. Descriptive Questions: Short Questions: 1. Explain how the funding for corporate social responsibility is used. 2. Explain CSR activities with respect to medicine 3. Explain CSR activities with respect to education Long Questions: 1. Describe the composition of the Corporate Social Responsibility Committee. 2. Describe the various activities relating to Corporate Social Responsibility 3. Describe the functions of the Corporate Social Responsibility Committee. B. Multiple Choice Questions: 1. Companies having a net worth of Rs. ............................ or more shall constitute a Corporate Social Responsibility Committee: a. 200 Crores b. 300 Crores c. 400 Crores d. 500 Crores 2. Which is not a characteristic of corporate social responsibility? a. Product safety b. Consumer rights c. Environmental policies d. Price-fixing 3. What is not a characteristic of a corporate social responsibility framework? a. Retaining the status quo b. Understanding society c. Harnessing diversity d. Building capacity 4. ___________, the greater will be its social prestige. 217 CU IDOL SELF LEARNING MATERIAL (SLM)

a. The more advertisement business unit will do b. The more luxury items a business unit will produce c. The more effectively a business unit caters to the needs of society d. The more profit a business unit will earn 5. CSR is applicable to: a. Private sector b. Public sector c. NGO d. Private and public sector both Answers 1 (d), 2 (d) , 3 (a) , 4 (c) , 5 (d) 12.7 REFERENCES Textbooks:  Elements of Mercantile Law by N.D. Kapoor  Mercantile Law by Garg Chawla Reference Books:  Legal Aspects of business by Pathak Akhileshwar  Legal Aspects of Business by P.K. Pandhi  Lectures on Company Law by K.S. Anantharaman Websites:  Manupatra.com 218 CU IDOL SELF LEARNING MATERIAL (SLM)