LEGAL BUSINESS ENVIRONMENT

Module 1:MERCHANTILE LAW

1. Origin of Law
2. Function and Purpose
3. Legislation
4. Law of Contract
5. Sales of Goods Act

What is Business Law?

• Business/mercantile law is that branch of law which comprises laws concerning trade,
industry and commerce; it refers to those rules and regulations which govern the
formation and execution of business transactions made by various persons in society.
These provisions comprise the legal environment of business.

• Business law is intended to infuse the much needed ‘certainty’ in commercial

transactions.

• Business law includes laws relating to;

• Contracts

• Sale of goods

• Partnership

• Company

• Consumer

• Competition etc

Law are the rules made by authority for the proper regulation of a community or society or for
correct conduct in life and are enforceable by the authority

SOURCES OF LAW

➢ Constitution of India

➢ Legislation-Parliament, Legislative Assemblies

➢ Judicial Precedents(Landmark Judgments by Higher Courts such as High Courts and
Supreme Court)

➢ Customs ,Convention or usages

➢ English Common Law

Constitution:

➢ All laws flow from the Constitution and have to be in consonance with it, otherwise such
laws will be struck down by the Supreme Court.

➢ The Constitution clearly demarcates the areas in which the Central Govt can make laws
and the areas in which the State Govts can make laws

Legislation-Parliament, Legislative Assemblies

➢ These are laws that are enacted by the Parliament(Central Govt) or the various
Legislative Assemblies (State Govts)

JUDICIAL PRECEDENTS

• (Landmark Judgments by Higher Courts such as High Courts and Supreme Court)
• Such decision of higher courts are binding on lower courts.
• This is also called ‘Judge-made law’

CUSTOMS ,CONVENTION OR USAGES

• Customs or usages of a particular trade also guide the courts in deciding disputes arising
out of mercantile(business/trade) transactions
• Such customs usage must be
o Widely known
o Certain(not ambiguous)
o Reasonable
o Be in practice for a considerable period of time
• However, where specific legislation has been enacted such customs will cease to apply if
they are excluded in the Act.
ENGLISH COMMON LAW:
• It refers to a system of law based upon English customs, usages and traditions which
were developed over centuries by English Courts; it is unwritten and are found in the
reported decisions of the courts of law.
• Equity: it is based on the principles of ‘fairness’ and concepts of justice developed by
judges whose decisions became precedents
 LAW OF CONTRACT
THE INDIAN CONTRACT ACT, 1872

• Contract: Inseparable Part of One’s Life

You………….Buy groceries,Board a train,Hire a cab,Consult a doctor or solicitor

Give your any household gadget for repair

Ever realised!

In each of the above and numerous such situations you enter into a contractual obligation.

Contract Defined Under The Act

An agreement enforceable by law is a contract.

Section 2(h)

Contract = Agreement + Legal Obligation

Agreement: Every promise and every set of promises, forming the consideration for each other.

A proposal (offer) when accepted becomes a promise.

Thus, a promise implies an accepted…………………

Mutuality is the very base of an agreement.

Legal obligation: To become a contract , an agreement must be enforceable by law.

Forming a Contract: Essential Steps

1. A contract, essentially , is an agreement.

2. An agreement is a set of two promises, one flowing from the offeror and the other from
the offeror’s counterpart i.e. acceptor.

3. A promise is an accepted offer or proposal.

4. An offer is a promise of performance, which is, however, contingent upon a return

promise or an act of forbearance being received in exchange of it.

Offer→ Acceptance→ Promise→ Agreement →Contract

Contract Distinguished From Agreement

Elements. An agreement consists of an offer and its subsequent acceptance, whereas a contract
is composed of an agreement and its legal enforceability.

Essence of a legal relationship. An agreement may not create legal relationship. Parties entering
into a contract essentially have a common intention of entering into legal obligation.

Scope. All agreements may not be contracts but all contracts are primarily agreements.

Enforceability by law. A contract is legally enforceable, whereas an agreement is not necessarily

so.

Essential Elements of Establishing a Valid Contract

• Agreement
• Intention to create legal relations
• Legitimate consideration
• Capacity of parties
• Genuineness of consent
• Lawful object
• Certainty
• Possibility of performance
• Agreements not expressly declared void
 • TYPES OF CONTRACTS
Valid contracts, void contracts, and voidable contracts

Unenforceable contracts and illegal contacts

Executed contracts and executory contracts

Express contracts and implied contracts

Unilateral contracts and bilateral contracts

Quasi contracts

DIFFERENCE BETWEEN VOID AND VOIDABLE CONTRACTS

S. Point of Void contract Voidable contract

No. difference

1 Definition A contract, which ceases to be A voidable contract is an agreement which

enforceable by law, becomes void is enforceable by law at the option of the
when it ceases to be enforceable . affected/suffering party, but not at the
option of the other party .

2 Nature & A void contract is valid and binding
validity upon the parties when entered
into, but subsequent to its
formation, it becomes
unenforceable due to certain
reasons.
A voidable contract is repudiatble at the
option of the aggrieved party. It remains a
valid contract until it is set aside or
rescinded by the party entitled to do so.
 3. Factors A valid contract may become void
responsible due to supervening impossibility;
change of law; a contingent
contract due to emergence of an
uncertain event etc.
4 Enforceability It cannot be enforced by either
party.
5. Relationship A void contract under no
circumstances results in a voidable
contract.
6. Rights of third party A void contract confers no rights or
legal remedies to the third party.
7. Compensation In case of void contract question of
compensation or damages does not
arise on the non-performance of such
contract.
8. Effect of lapse of Lapse of reasonable time does not
time render a void contract enforceable. It
always remains void i.e.,
unenforceable.
OFFER AND ACCEPTANCE
A contract is an agreement which is reducible to an offer by one party and its valid acceptance
by the other.
Chapter Objectives
Coercion, undue influence, error, fraud,
misrepresentation are the main factors
responsible for rendering a contract
voidable.
It may be enforced or set aside at the
option of the aggrieved party.
When a voidable contract is rejected by the
aggrieved party it results in a void contract.
Rights acquired under voidable contract by an
innocent third party are not wiped out by such
subsequent to the voidance of the contract.
In case of voidable contract, the party
rescinding the contract can also claim
damages.
If a voidable contract is not rescinded by the
aggrieved party within reasonable time it may
become enforceable at the option of the other
party (i.e, who induced the contract).
 Defining an offer

Essentials of a valid offer

Offers classified

Revocation, termination of offer

Defining acceptance

Legal rules governing a valid acceptance

Communication of offer, acceptance, and their revocation

Contracts over phone

DEFINING AN OFFER
An offer is a medium through which a person expresses his intention to enter into a contractual
obligation against a promise or an act of forbearance.
When one person signifies to another person his willingness to do or to abstain from doing
anything, with a view to obtaining the assent of that other to such an act of abstinence, he is said to
have made a proposal. Section 2(a)
Three Properties of an Offer
1. Expression of readiness ‘to do’ or ‘not to do’ something. Thus, an offer may involve a
positive act or forbearance
2. Presence of second party. An offer by a person to himself will ne a nullity.
3. Intention of obtaining a response. It is made with the intention that the other person
accepts it. Mere expression of willingness will constitute no offer.
Characteristics of a Valid Offer

Must intend to create and be capable of creating legal obligations

Its terms must be certain

Must be made to obtain the assent of the other party

Must be communicated

May be conditional

Must be distinguished from a query

 Firm Offer Vs Invitation to Treat

Examples of Invitations to Treat

• Auction –Display of goods for sale in shelf-An invitation for tenders -Red herring
prospectus -General advertisement of goods

TERMINATION OF OFFER: MODES OF

Revocation/withdrawal/cancellation of offer before the offeree accepts
it

Failure to fulfil a condition precedent to acceptance

Death or insanity of either party

Refusal or counter-offer

Acceptance differs from the prescribed one

Subsequent illegality or destruction of subject matter

ACCEPTANCE
An acceptance is a manifestation of assent to the terms of the offer.
When the person to whom the proposal is made signifies his assent thereto, the proposal is said to
be accepted. A proposal, when accepted, becomes a promise. Section 2(b)
Acceptance to an offer is what a lighted match to is to a train of gunpowder.
Thus, an offer becomes irrevocable upon its acceptance.

LEGAL RULES GOVERNING A VALID ACCEPTANCE

• Must be made by the offeree
• Must be unconditional
• Must be communicated to the offeror
• May be in any form, oral or written
 • Must be in the mode prescribed by the offeror
• Must be given within a reasonable time, if no time limit is set
• Must be given while the offer is in force

WHAT IS BREACH OF CONTRACT?

A breach of contract is refusal by one party to abide by its terms, without lawful excuses such as,
impossibility of performance, defective or even late performance by the other party etc.
Many commercial agreements contain express provisions for remedies available to the
aggrieved party. For example, in a contract for the sale of goods, the buyer may be entitled to ask
the seller to make good or replace defective items. By incorporating such a clause, the contracting
parties, perhaps, intended to displace any rights and remedies provided by law, which are not
specified in the contract.
A breach of contract does not per se bring a contract to an end. The breach may give to the
aggrieved party the right to terminate the contract. However, it is for the aggrieved or the
distressed party to decide whether or not to exercise that right. If it elects to terminate the
contract, it needs not perform its part of the promise, and is also entitled to compensation for the
loss incurred by it.
A remedy is a relief provided to an aggrieved party should the other side commit a breach. Once a
party fails to perform or performs inadequately, the other (non-breaching) party can choose one
or more of several remedies.
The most common remedies available to an aggrieved party are: Rescission, Damages, Specific
performance, Injunction, and Quantum Meruit.
Rescission
Rescission is the revocation of a contract.
When a party to a contract has refused to perform, or disabled himself from performing in its
entirety, the promisee may put an end to the contract.
(Section 39)
In such a case, the other (aggrieved) party can refuse further performance and is absolved of all
of its obligations under the contract
Damages
A breach of contract entitles the non-breaching or injured party to sue for monetary damages
besides rescinding the contract. Damages are designed to compensate the aggrieved party for the
loss sustained in the bargain.
When a contract has been broken, the aggrieved party is entitled to receive, from the breaching
party such damages which
 • naturally arose in the usual course of things from such breach. This relates to ordinary
damages, and
• which the parties knew, when they made the contract, to be likely to result from the
breach of it. This relates to special damages.
(Section 73)
Types of Damages
Depending upon the nature of the awards in compensating the injured or aggrieved party,
damages have been classified as follows:
1. Compensatory damages
2. Nominal damages
3. Consequential damages
4. Punitive damages
5. Incidental damages
6. Liquidated damages and Penalty
Compensatory damages
Damages compensating the non-breaching party for the loss in the bargain are known as
compensatory damages. These are also called ordinary damages. Since these damages
compensate the aggrieved party for injuries actually sustained and proved to have arisen directly
from the loss in the bargain due to the breach, the measure of ordinary damages is the difference
between the contract price and the market price on the date of the breach. Accordingly, they
simply replace the loss caused by the wrong or injury. The aim of awarding compensatory
damages is thus to protect the claimant’s ‘expectation of interest’ or his ‘performance interest’.
Nominal damages
Nominal damages are awarded in cases where the aggrieved party has suffered no loss as a result
of the other's breach. When a seller fails to deliver the goods, but the buyer is able to purchase
elsewhere at no extra cost. An award of a small sum such as Rs 100 is granted to the non-
breaching party to reflect the view that any loss or damage is purely technical.

Consequential damages
Consequential damages are also called special damages. These are awarded as monetary
compensation for loss suffered as a consequence of the other party's breach. Consequential
damage occurs because of some special or unusual circumstances of the particular contractual
relationship of the parties. However, an aggrieved party cannot recover special damages for loss
that he could have avoided by taking reasonable steps. This is sometimes expressed as the duty to
mitigate (or minimize) these damages. For an innocent party to obtain substantial damages, it
must show that it has suffered loss as a result of the breach
Punitive damages
Also known as exemplary or vindictive damages, punitive damages are available in a breach of
contract very rarely. These are imposed not with an idea to compensate the injured or aggrieved
party but to punish the wrongdoer so as to deter future such conduct. They reflect the court’s
strong disapproval of a defendant’s predominantly reprehensible behaviour. However, the mere
fact that the defendant has broken the contract with the claimant in order to pursue a more
profitable relationship with another party does not suffice to entitle the claimant to punitive
damages. Much more is required before a conclusion is drawn that a defendant has behaved in
an ‘outrageous’ manner. Oppressive, arbitrary, or unconstitutional action by the servants of the
insurance and healthcare undertakings are usually the most frequent targets to recover punitive
damages, followed by employers and bankers who are often subjected to punitive damages. In
case of wrongful dishonour of a cheque (due to the negligence or mistake on part of the banker),
the governing rule is – smaller the amount of the cheque, larger will be the amount of damages
awarded and vice versa.
INCIDENTAL DAMAGES
Incidental damages compensate for reasonable costs that the injured party incurs after the breach
in an effort to avoid further loss. For example, if an employer breaches an employment contract
with one of his employees, the latter could recover as incidental damages those reasonable
expenses he would incur in attempting to procure substitute employment, such as long-distance
telephone calls or the cost of printing new resumes, etc.
Liquidated and Penalty
It is common for the contracting parties to expressly state in the contract that a certain sum of
money will be paid to the injured party or that goods will be forfeited (the latter being known as
retention clause) should a breach of contract occur. Clauses covering these areas are known as
liquidated or agreed damages clauses. These are self-help remedies and generally appear in
commercial contracts, and, most commonly, in relation to late rather than defective performance,
particularly in the fields of construction and engineering, and supply or sale of goods. Such clauses
do not usually appear in contracts of employment.
• The purpose of such clauses is to make recovery of damages easier, avoiding the
problems of proving actual loss; to avoid arguments as to the remoteness of certain
types of consequential or indirect losses; and to assure the other party of their intention
to be bound by the contract.
On the other hand, a clause will be construed as a penalty clause if the sum specified is
extravagant and disproportionate to the damage likely to occur. Penalty clauses are generally not
enforceable, whereas liquidated damages clauses are.
SPECIFIC PERFORMANCE
Specific performance is a decree issued by the court, which orders the defendant (party accused of
breaching a contract ) to perform his obligations under the contract. Where damages represent
inadequate or unjust remedy (for example, where the subject matter of the contract is unique or
where there are no standards to ascertain the quantum of loss) the non-breaching party may
approach the court for the grant of an order for specific performance of the contract. The court
has broad discretion to award specific performance and in exercising this discretion it takes into
account factors such as:
• Whether the person seeking performance is prepared to perform his side of the
contract (Chappell vs Times Newspapers Ltd)
• Whether the person against whom the order is sought would suffer hardship in
performing it. (Patel vs Ali)).
• The difference between the benefits that the (court) order would give to one party and
the cost of performance to the other (Tito vs Waddell).
INJUNCTION
An injunction is a court order directing a person to do or refrain from doing some specified act,
which, of course, has been the subject matter of a contract. Like specific performance, an
injunction is an equitable remedy and therefore only granted at the discretion of the court. It is
awarded in circumstances where damages would not be an adequate remedy to compensate the
claimant.
• For example, A factory begins to allow noxious fumes to escape from its chimney,
affecting the health of people in the neighbourhood. Damages would be inadequate, as
the residents would want the emission of fumes to stop altogether. This can therefore
be remedied by an injunction order.
• Injunction orders are of two types: prohibitory and mandatory.
QUANTUM MERUIT
• Quantum Meruit is a Latin term meaning, 'as much as is merited' or 'as much as earned'.
In the context of contractlaw, it means something along the lines of ‘reasonable value of
services rendered’.
• The concept of quantum meruit applies to the following situations:
• When a person employs (impliedly or expressly) another person to do work for him,
without any agreement as to his compensation, the law implies a promise from the
employer to the workman that he will pay for the services, as much as the workman
may deserve or merit.

• When there is an express contract for a stipulated amount and mode of compensation
for services, the plaintiff cannot abandon the contract and resort to an action for a
 quantum meruit. However, if there is a total failure of consideration, the plaintiff has a
right to elect to repudiate the contract and then seek compensation on a quantum
meruit basis.

Sale of Goods Act

CONTRACT OF SALE DEFINED

A contract of sale is ‘a contract whereby the seller transfers or agrees to transfer the property in
goods to the buyer for a price.’
There can be a contract of sale between one part-owner and another. A contract of sale may be
absolute or conditional depending upon the desire of contracting parties.
Essentials of a Contract of Sale
A close examination of Sections 4-5 reveals that the following six features are essential elements
of any contract of sale of goods.
1. Two parties
2. Goods
3. Transfer of ownership
4. Price
5. All essentials of a valid contract
6. Includes both a ‘sale’ and ‘an agreement to sell’.
SALE AND AGREEMENT TO SELL DISTINGUISHED
A contract of sale includes both sale and an agreement to sell. These two, however, are legally
different. And the fact whether the transaction is a sale or an agreement to sell determines the
rights and obligations of the parties to a contract of sale. The distinction between the two is
therefore, of principal significance which can be discussed under the following heads:
1. Transfer of ownership
2. Nature of contract
3. Nature of rights of buyer
4. Consequence of breach by buyer
5. Risk of Loss
6. Insolvency of the seller
7. Insolvency of the buyer
 8. Consequences in case of resale
Transfer of Ownership
Transfer of ownership (property in goods) is the most significant point of distinction. All other
points of differentiation arise from this basic difference.
In the case of sale, the title (ownership) in the goods passes to the buyer immediately at the time
of making the contract but in the case of an agreement to sell, the title passes at a future time
subject to the conditions to be fulfilled thereafter.
Therefore, in a sale the buyer becomes the proprietor of the goods as soon as the contract is
made whereas in an agreement to sell, the seller continues to be the proprietor of the goods
agreed to be sold until it becomes a sale.
Nature of Contract
A ‘sale’ is an executed contract because through this all the formalities of the contract are said
to have been completed, and the ownership of the goods is said to have passed to the buyer.
An agreement to sell on the other hand is an executory contract, as all the formalities of the
contract are not completed but something vital remains to be done i.e., ownership shall pass on
some future date. An agreement to sell becomes a sale on the expiry of the stipulated time or on
the fulfillment of the conditions subject to which the property in goods is to be transferred.
Nature of Rights of Buyer
A ‘sale’ gives the right to the buyers to claim the goods as against anybody who disturbs their right
to use the goods including the seller.
An agreement to sell creates merely the right to either party (buyer or seller) against each other
for any default in fulfilling its part of agreement. This means that the buyer gets the rights against
the seller and vice-versa. In other words, an agreement to sell is a contract, pure and simple, but a
sale is a contract plus conveyance or a fulfilled contract
Consequence of Breach by Buyer
In case of a sale, if the buyer wrongly refuses to accept (the goods) and pay the price, the seller
may sue for the price, even though the goods are still in his/her possession and have never been
delivered to the buyer.
But in case of an agreement to sell if the buyer fails to accept the goods and pay for them, the only
remedy available to the seller is to sue for damages. He cannot sue for price, even though the
goods are in the possession of buyer.
Risk of Loss
In case of sale, if there is any loss or damage to the goods, it falls on the buyer even if the goods
are with the seller.
The general rule is that unless otherwise agreed, risk follows ownership, which implies whosoever
is the owner of the goods at the time of loss, will bear the loss.
But in an agreement to sell if the goods are lost or destroyed by accident, the loss falls on the
seller. This is because till delivery, the ownership of the goods remains with the seller.
Insolvency of the Seller
In a sale, if the seller becomes insolvent while the goods are with him/her, the buyer is entitled to
recover the goods from the Assignee or the Official Receiver, as the property in the goods has
already passed on to the buyer.
However in case of an agreement to sell, if the seller goes bankrupt, the buyer cannot claim the
goods even if s/he has paid the price. The buyer can only claim ratable dividend for the money
paid from the estate of the insolvent seller(through Court).
Insolvency of the Buyer
In case of a sale, if the buyer is adjudicated insolvent before paying the price, the seller must
deliver the goods to the Official Receiver or Assignee as the ownership has already passed on to
the buyer.
The seller (as an unsecured creditor) is entitled only to a ratable dividend for the unpaid price.
But in an agreement to sell, where the ownership in respect of goods continues to vest in the
seller, the seller may refuse to deliver the goods to the Official Receiver or Assignee unless he is
paid the full price of the goods.
Consequences in Case of Resale
In a sale, the seller, if he is in possession of goods after sale, cannot resell the goods for want of
ownership.
If that is done, the original buyer shall have a double remedy; a suit for damages against the
seller and the right to recover the goods from the subsequent purchaser.
In an agreement to sell, the seller (still being the owner) can dispose of the goods as s/he likes and
the buyer’s (original one) remedy against the seller’s breach of contract is only a suit for damages.

GOODS: MEANING
The subject matter of a contract of sale is essentially movable property i.e., goods.
‘Goods’ means every kind of moveable property other than actionable claims and money. It
includes:
1)stock and shares,
2)growing crops, grass, and things attached to, or forming part of the land, which are agreed to
be severed before sale
 Thus, Goods includes every kind of transportable property i.e., the things, which can be carried
from one place to another.
Excluded : But ‘money’ and ‘actionable claims’, although moveable, have been expressly excluded
from the scope of ‘goods.’ ‘Money’ means legal tender i.e., the currency which cannot legally be
refused in payment of a debt. Currency includes coins and bank notes as a medium of exchange.
GOODS: CLASSIFICATION
The various kinds of goods, relevant to the contract of sale may broadly be classified into the
following three categories:
1. Existing Goods
2. Future Goods, and
3. Contingent Goods
Existing Goods
These are the goods, which are physically in existence at the time of entering the contract of
sale. Existing goods are those goods, which are owned and/or possessed by the seller at the time
of the contract of sale.
The existing goods may be further sub-divided as:
 Specific goods
 Ascertained goods, and
Unascertained goods
 Specific Goods. These mean goods identified and agreed upon at the time of making
the contract of sale. It is worth noting that the goods are not considered to be specific
merely because they are identifiable; they must be actually identified. For example, if A
agrees to sell his car or watch to B, it shall be a sale of specific goods if A has only one
car, or one watch.
 Ascertained Goods. These are the goods, which have been ascertained or identified
subsequent to the formation of the contract of sale. Ascertainment basically involves
identification of the goods as the subject matter of a particular contract
 Unascertained Goods Contrary to ascertained goods these are the goods, which are not
specifically identified or ascertained at the time of entering the contract of sale. They
are identified or defined only by description.
Future Goods
‘Future goods’ refers to goods that have to be manufactured, produced, or acquired by the seller
after making of the contract of sale.
Accordingly, future goods are goods, which may be either not exist at the time of the contract or
they exist but have to be acquired by the seller at the time of the contract.
Example: A enters into a contract with B to buy all the apples that would be produced in B’s
orchard over the next year. This is a contract for the sale of future goods amounting to ‘an
agreement to sell’.
Thus, there cannot be a sale of future goods because ownership cannot be transferred before
the goods comes into existence. Since future goods are not in the possession of the seller at the
time of contract, they can become the subject matter of an agreement to sell and not the sale.
Contingent Goods
Contingent goods are those whose acquisition by the seller depends upon a contingency, which
may or may not happen.
The above definition indicates that contingent goods are a type of future goods with a minor
difference that the future goods are more certain to come into existence whereas contingent
goods are less certain to come into existence. Hence, a contract of sale of contingent goods also
operates as ‘an agreement to sell’ and not a sale, as regards transfer of ownership from the seller
to buyer. Such a contract is enforceable only at the occurrence of the contingency, otherwise the
contract becomes void.
A agrees to sell to B a vintage car only if C, its present owner, sells it to him. This is a contract
for the sale of contingent goods as the availability of the car to A, depends on its sale by C to A.
PRICE
‘Price’ means the money consideration for the sale of goods.
Price is a prerequisite to constitute a valid contract of sale. No sale of goods can take place
without a price. Thus, if there is no worthwhile consideration to support a voluntary surrender of
goods by the real owner to another person, the transaction is not a sale but a gift, and is not
governed by the Sale of Goods Act.
The price should be paid or promised to be paid in money, unless otherwise agreed. The money
here implies the legal tender i.e., the coins and bank notes in circulation (currency of the country).
Further the price may also be paid by means of a negotiable instrument e.g., cheque etc. for it is
not the mode of payment of a price which is prerequisite for a sale of goods but the money
consideration that constitutes the essence for a valid contract of sale.
 COMPANY LAW
1. Process of Company Foundation
2. Companies Act 1956
3. Share Capital
4. Loan Capital
5. Auditors –power and duties
6. Directors Appointment
7. COmpany Meeting and Share Holder Right

PROCESS OF COMPANY FOUNDATION

There are four broad stages involved in the formation of a company:
1. Promotion,
2. incorporation,
3. capital subscription and
4. commencement of business

Process Of Formation of a Company

The whole process of formation of a joint stock company (in India) can be divided into four broad
stages, namely:
1. Promotion
2. Incorporation
3. Raising/Floatation of Capital
4. Certificate of Commencement of Business

PROMOTION STAGE
Promotion refers to the entire backing process by which a company is brought into life. It begins with
the conceptualization of the birth of a company, and sets out the purpose for which it is to be formed.
The persons who conceive the idea to form a company and invest the initial funds are known as
promoters of the company. The promoters enter into preliminary contracts with vendors and make
arrangements for the preparation, advertisement and the circulation of the prospectus, and
arrangement of necessary capital.
Promoters occupy fiduciary position (a position based on trust and confidence) in the company.
Accordingly, they have some basic duties towards the company listed as follows:

• They should not make any profits secretly at the expense of the company, they promote.
Promoters may, however, make profits in their dealings with the company provided they
disclose them to the company.
 • They should make full disclosure to the independent Board of directors, or in the prospectus of
all material facts relating to the formation of the company including, of course, any profits
made by them in transaction with the company.

Promoter’s Remuneration
A promoter besides being reimbursed for his preliminary expenses or registration fees may be
rewarded by the company for the efforts undertaken by him in forming the company in several
ways under a valid contract. The more common ones are:
1. The company may pay him a lump sum for the services rendered.

2. The promoter may make profits on transactions entered by him with the company after
making full disclosure to an independent Board of directors or to the intended members.

3. The promoter may sell his own property to the company for cash or against fully paid shares
in the company at an overvaluation after making full disclosures.

4. The promoter may be given an option to under right issue of the company and earn
commission thereon.

The articles of the company may provide for a fixed sum to be paid by the company to the
promoters. However, such a provision has no legal effect, and the promoters cannot sue to enforce
it
INCORPORATION
Incorporation is the foremost obligation to be fulfilled to form any type of company under the
Companies Act. For a company to be incorporated, it must be registered with the ‘Registrar of
Companies’ (ROC). Registration or incorporation of a company is a procedure which is filled with
documentary compliance formalities. The details to be stated in the said application are as follows:
1. Four alternative names for the proposed company. Justification for the name needs to be
specified along with the application

2. Names and addresses of the promoters (Minimum 7 for a public company while 2 for a
private company)

3. Authorized Capital of the proposed company

4. Main objects of the proposed company

5. Names of other group companies

MEMORANDUM OF ASSOCIATION
The Memorandum of Association is the most important document to be filed by any proposed
company. It sets out the constitution of the company and specifies its relationship with the outside
world. It also states the authorized share capital of the proposed company and the names of its
first/permanent directors. The substance of the Memorandum can be explained as follows:

• It defines the scope and limitations of the projected company.

• It is considered as an unalterable charter of the company. It is very difficult to change or
amend the Memorandum of the company because it defines certain powers, the company
cannot go beyond.
• The Memorandum becomes a public document as soon as the company gets registered.
• Memorandum forms the outer framework within which the company operates.

The Memorandum of a limited company can be divided into six distinct clauses:
1. The name clause. The name clause contains the name of the company which is of
considerable importance as it establishes a company’s identity. A public company limited by
shares or by guarantee must end with the word 'Limited' and a private limited company
must end with the words 'Private Limited'.

2. Registered office clause. The state in which the registered office of a company will be
situated is mentioned in this clause. The registered office of the company is the official
address of the company where the statutory books and records must normally be kept.

3. Objects clause. This is the most important clause of a company. It defines the activities
which a company can carry on and those, it cannot. This clause must state:
a. Main object(s) of the company to be pursued by the company upon its
incorporation.
b. Objects incidental or ancillary to the attainment of the main object(s).
c. Other objects of the company not included in (i) and (ii) above.
4. Liability clause. This contains the nature of the liability of the members. A declaration
that the liability of the members is limited, in case the company is limited by shares or
guarantee, must be given under this clause.
5. Capital clause. This clause states the amount of share capital with which the company is to
be registered is divided into different shares of a fixed amount. A company cannot issue
share capital greater than the maximum amount of share capital stated in this clause
without altering the memorandum.
Articles of Association
1. The ‘Articles of Association’ is the chief instrument which contains the rules and regulations
for the internal administration of the company. Articles govern the conduct of a company’s
business by specifying the rights and duties of its members and directors.
a. Contents. The items usually covered by the articles of association include:
2. Powers, duties, rights and liabilities of directors
 3. Powers, duties, rights and liabilities of members
4. Rules for meetings of the company;
5. Dividends and reserves;
6. Borrowing powers of the company;
7. Share warrants;
8. Alteration of capital;
9. Calls on shares;
10. Transfer & transmission of shares;
11. Forfeiture of shares ;
12. Surrender of shares;
13. Voting powers of members;
14. Accounts and audit;
15. Winding-up, etc.

Alteration of Articles. A company can alter or amend any of the provisions of its articles subject to
provisions of the Act and subject to the conditions contained in its Memorandum. A company by
special resolution can alter its articles provided the said resolution is passed bona fide for the
benefit of the company. An alteration of articles can be effected by a 3/4 th majority of the
shareholders.
Certificate of Incorporation
Once all the required documents have been filed along with the registration fee, filing fee, stamp
duty, as specified and they are found to be in order, the ROC will issue, under his seal and
signature, the Certificate of Incorporation of the company. The certificate of incorporation is the
conclusive evidence that the requirements of the Companies Act have been complied with and the
company bearing a specific name is duly registered.
This document is the birth certificate of the company and is the proof of the existence of the
company. Once this certificate is issued, the company cannot cease its existence unless it is
dissolved by order of the Court or otherwise.
On obtaining the incorporation certificate a private company or one without share capital is eligible
to carry out its business immediately. A public company, however, cannot transact business unless
it has complied with capital subscription requirement and thereafter obtained a certificate of
commencement of business.
RAISING/FLOTATION OF CAPITAL
Public companies generally wish to transact business by raising capital from the populace or say
general public. The process of raising capital from the public is carried out in this stage.
For the purpose of raising capital from the public, the company needs to prepare and issue
a document known as ‘Prospectus’. A prospectus is a legal document that contains all the material
information investors need about the company. A prospectus will notify the prospective
shareholders why the company is coming is out with a public issue, its financials and how the issue
will be priced. Advertisement of issue of the prospectus is usually carried out in local newspapers.
The aspirant investor needs to pay a nominal application fee to subscribe to the capital of the
company within a specified period.
CERTIFICATE OF COMMENCEMENT OF BUSINESS
Every proposed public company in addition to certificate of incorporation must obtain the
certificate of commencement of business to start its business. in order to obtain the certificate of
commencement of business, it must complete the following formalities.
1. If a company has share capital and has issued a prospectus, the company is
supposed to file a statement with the Registrar of Companies containing the following declarations:
a) That the shares payable in cash have been allotted up to the amount of minimum
subscription.

b) That every director has paid to the company application and allotment money on his shares
in the same ratio as others have.

c) That no money is liable to become refundable to the applicants for failure to apply for or to
obtain permission for shares and debentures to be dealt in any recognised stock exchange.

2. The ROC will examine all these documents and if satisfied, shall grant ‘Certificate of
Commencement of Business’ after which the company can begin its business and have access
to debts to finance its activities from the date of issue of the certificate. If a public company
fails to commence its business within a year of its incorporation, the courts may order the
winding up of the company.

COMPANIES ACT,2013
Private Limited Co.
• Minimum capital – INR One Lakh

• Maximum shareholders is limited to 200 (up from 50)

• But a Private Company which is a subsidiary of a Public limited Co. shall be deemed to be a
public company.

• However it is permitted to keep the same Articles of Association (AOA)

CONDITIONS :
• restricts the right to transfer its shares except in case of One Person Company,

• limits the number of its members to two hundred

• prohibits any invitation to the public to subscribe for any securities of the company –( for
any shares or debenture)

• Prohibits any invitation or acceptance of deposits from persons other than its members,
directors or their relatives

• Hence the deposit can be accepted only from the members or Directors (Rule 5.2.(1) (8) of
the Company

DIRECTORS
• Who is a DIRECTOR??

• “DIRECTOR” means a director appointed to the Board of a Company. (The Companies Act
does not define a Direcctor)

• “BOARD OF DIRECTORS” or “BOARD”, in relation to a company, means the collective body

of the Directors of a Company

• “MANAGING DIRECTOR” - Director by virtue of Articles/Agreement/Shareholders’

Resolution

• Entrusted with the Substantial powers of Management of the Company

• Includes a Director occupying the position of Managing Director, by whatever name

• “WHOLE TIME DIRECTOR” includes a Director in the whole-time employment of the

Company

Types of Directors
1. Alternate Director can only be appointed in case a Director leaves India for period of not
less than 3 months

2. Subject to Articles, Board can appoint Director nominated by any Institution in pursuance of
any law or agreement

3. Subject to the Articles, the Board may appoint any person, other than a person who fails to
get appointed as a director in a general meeting, as an Additional Director
4. Listed Public Company to have at least 1/3rd of the total number of Directors as
Independent Directors.

5. At least 1 Woman Director for prescribed class or classes of companies

Whole-time Director

• At least 1 director shall be a person who has stayed in India for at least 180 days in the
previous calendar year.

• The maximum limit of directors in the Company has been increased to 15 from 12. Beyond
15, the number can be increased by Special Resolution; approval of Central Government
has been dispensed with

• A person cannot become a Director in more than 20 companies. Out of this 20, he cannot
be a Director of more than 10 Public companies

• Listed Companies may have 1 Director elected by Small Shareholders

• The amount to be deposited along with notice of nomination of any person to the office of
director has been increased from Rs 500 to Rs 100,,000 or such higher amount as may be
prescribed

Independent Director
• For appointment of Independent Directors , Board shall give a declaration for satisfaction of
appointment conditions and criteria.

• Limited Liability of Independent Directors – Liability only for such Acts of omission or
commission by a company which had occurred with his knowledge, attributable through
Board processes, and with his consent or connivance or where he had not acted diligently

BOARD MEETINGS
• First Board Meeting should be held within 30 days of the Incorporation

• A notice of not less than seven days in writing is required to call a board meeting

• Notice of Board meeting shall be given to all Directors, whether they are in India or outside
India by hand delivery or by post or by electronic means

• A Director can participate in the Board meeting through video conferencing or other audio
visual mode as may be prescribed
 • At least 4 Board meetings should be held each year, with a gap of not more than 120 days
between two Board meetings

• Resolution by circulation shall be consented to by majority of Directors present in India

COMMITTEE MEETINGS
• Nomination and Remuneration Committee:

• For listed and other prescribed class of Companies 3 or more non-executive directors out of
which not less than one half shall be independent Directors

• Stakeholders Relationship Committee –

• For company which consists of more than one thousand shareholders, debenture-holders,
deposit-holders and any other security holders at any time during a financial year
Chairperson who shall be a non-executive director and such other members as may be
decided by the Board

• Audit Committee:

• For listed and other prescribed class of Companies Audit Committee shall consist of 3 or
more non-executive directors out of which not less than one half shall be independent
directors

• Corporate Social Responsibility Committee:

• For 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 any financial year

• Corporate Social Responsibility Committee shall consist of 3 or more Directors, out of which
at least one Director shall be an Independent Director.

MEETINGS OF MEMBERS
• These meetings are general meetings as they are attended by all the members.

• The management of the company is undertaken through meetings of the company’s

shareholders where major decisions are to be taken. The meetings are usually called by
Directors, but may also be called by the shareholders.

• The meetings of the shareholders are of three types:

 – 1. The Statutory Meeting

– 2. The Annual General Meeting

– 3. Extra Ordinary General Meeting

Statutory Meeting
• The statutory meeting is the first meeting of the members of the company after it
commences business. It is held once in the lifetime of the company.

• It is to be held within a period of 3 to6 months after the commencement of business.

• Twenty one days before the date on which the meeting is held, the Director shall forward
“the Statutory Report” to every member. The report is to be certified by the CEO and two
other Directors. After certification a copy is to be sent to the registrar and the auditors

• This section does not apply to a Private company

• The Statutory report includes the following:

• − List of Members − Shares allotted and the amount received from them

• − Particulars of the Directors, Managers and secretary

• − Particulars of contracts that have to be approved

• − The detail of company’s affairs along with fees and brokerage paid.

• The members present at the meeting are at liberty to disclose any matter relating to the
formation of the company.

Annual General Meeting (AGM)

• It is an annual meeting through which the shareholders control the affairs of the company.
They may raise questions about the affairs of the company including its accounts. It is,
therefore, The Annual General Meeting of the company that protects the interest of the
shareholders

Requirements of AGM
• i. It must be held every year.

• ii. The first AGM is to be held within eighteen months of incorporation.

• iii. Every subsequent(coming) AGM is to be held within four months of the closing of the
company’s annual financial year.

• iv. Notice of the date of the meeting is to be sent 21 days before the date of the AGM to
the shareholders and in the case of a listed company the notice is also required to be
published in the newspaper.

• v. In case of default in complying with any of these requirements all officers party to such
default shall be held liable.

• vi. The gap between two AGMs should not be more than 15 months.

Matters taken up at the AGM

• The following matters are usually considered:

• Annual accounts of the company

• Declaration of dividend

• Retirement and appointment of Auditors

• Retirement and appointment of Directors

Extra Ordinary General Meeting

• All general meetings of a company , other than AGM and the statutory meeting, are called
Extra Ordinary General Meeting.

• Such meetings are called to deal with some urgent special business that cannot be
postponed till the AGM.

• These meetings are called by two ways:

– i. Calling of Extra Ordinary General Meeting by Directors.

– ii. Calling of Extra Ordinary General Meeting on the Requisition of Members.

• Calling of Extra Ordinary General Meeting by Directors:

– The directors may, at any time, call the Extra Ordinary General Meeting of the
company to consider any matter which requires the approval of the company in
general meeting.

• Calling of Extra Ordinary General Meeting on the Requisition of Members:

 – The Directors shall, on the requisition of members representing 1/10 th of the voting
power on the date of deposit of requisition, forthwith proceed to call an extra
ordinary general meeting.

• Requirements of Calling Extra Ordinary General Meeting on the Requisition of Members are
following:

– i. The requisition shall state the objects of the meeting.

– ii. It will be signed by the requisitionists.

– iii. The requisition will be deposited at the registered office of the company.

Extra Ordinary General Meeting

• If the Directors do not proceed within the 21 days from the date of the requisition being
deposited to call a meeting, the requisitionists may themselves call the meeting.
• The meeting so called shall be held within three months from the date of depositing such
requisition.
• The meeting will be called in the same manner as the meetings that are called by Directors.
• The notice of an Extra Ordinary General Meeting shall be sent to the members at least 21
days before the date of the meeting and in case of a listed company it shall also be
published in a newspaper.

DUTIES OF DIRECTORS
• A Director shall act in accordance with the articles of the company
• A Director shall act in good faith in order to promote the objects of the company for the
benefit of its members as a whole, and in the best interest of the company, its employees,
the shareholders, the community and for the protection of the environment.
• A Director shall exercise his duties with due and reasonable care, skill and diligence and
shall exercise independent judgment
• A Director shall not involve in a situation in which he may have a direct or indirect interest
that conflicts with the interest of the company
• A Director shall not achieve or attempt to achieve any undue gain or advantage either to
himself or to his relatives, partners, or associates
ROLE AND FUNCTIONS OF THE INDEPENDENT DIRECTORS
• The independent Directors shall:
 (i) Help in bringing an independent judgment to bear on the Board’s deliberations,
especially on issues of strategy, performance, risk management, resources, key
appointments and standards of conduct;
(ii) Bring an objective view in the evaluation of the performance of the Board and
management;
(iii) Scrutinize the performance of the Management in meeting agreed goals and
objectives and monitor the reporting of performance;
(v) Safeguard the interest of all stakeholders, particularly the minority shareholders;
(vi) Balance the conflicting interest of the stakeholders;
(vii)Determine appropriate levels of remuneration of executive directors, key
managerial personnel and senior management and have a prime role in appointing and
where necessary, recommend removal of executive directors, key managerial personnel
and senior management; and
(viii) Moderate and arbitrate in the interest of the company as a whole, in situations of conflict
between management and shareholder’s interest
RESTRICTIONS FOR DIRECTORS
• RESTRICTION ON NON-CASH TRANSACTIONS INVOLVING DIRECTORS

• Acquiring of assets only by cash: Any Director of a company or Director of the Holding
Company or any person connected with such person cannot acquire assets for
consideration other than cash from the company & vice versa without the approval of the
company in general meeting

• Cannot buy shares/debentures :No Director or KEY Managerial Personnel shall buy in the
Company, or in its holding, subsidiary or associate Company shares /debentures at a
specified price and within a specified time, of a specified number

• No person including the Director or Key Managerial Personnel shall indulge in “insider
trading”

• Cannot obtain loan from company :No company whether public or private can give any loan
or provide any security or guarantee in connection with a loan to a Director or any other
person in whom he is interested, except by way of passing a special resolution

Related party transactions

• Companies with the prescribed Capital require approval by Special resolution for entering
into defined related party transactions
• Appointment of any related party to any office or place of profit in the company or its
subsidiary company or associate company requires Board approval

Appointment of Managing Director, Whole Time Directors

• Appointment of Managing Director, Whole Time Director or Manager should be approved
by special resolution in a General Meeting

• If appointment is not in accordance with Schedule V of the Act, then approval of Central
Government is also required.

• Whole Time Director shall not be appointed for a period of more than 5 years

• Provisions to apply to Private Companies as well

• The appointment of Independent Director to be approved by the Company in general

meeting

Board may appoint Additional, Alternate

DISQUALIFICATIONS OF DIRECTORS
• A person who has been convicted for offence dealing with Related Party Transaction
anytime during the previous 5 years

• Person who has not obtained Director Identification Number

• Person who has been convicted for any offence and has been sentenced for an
imprisonment extending to 7 years or more

VACATION OF OFFICE OF DIRECTOR

• Director to vacate his office if he fails to attend all Board Meetings for a consecutive period
of 12 months. This is applicable even when the leave of absence has been granted.

• If all directors have vacated the office, the promoter shall appoint minimum number of
members

• If that is not possible, the Central Government may appoint Directors till the Company
makes appointment in a General Meeting

MERGER AND AMALGAMATION

• Considering proposal for Merger and Amalgamation by BOD’s of Companies

• Finalisation of Scheme of Amalgamation, Valuation and Fairness Opinion

• Recommendation on Scheme and Valuation report by the Audit committee

• Approval of the Scheme and Valuation Report by Board of Directors of the Companies

• Filing of Scheme, Valuation report and Fairness Opinion with the designated Stock
Exchanges for SEBI approval, if Co. is listed

• Filing of Application to NCLT (Disclosure through affidavit if reduction of share capital is

part of scheme)

• On direction of NCLT, Notice of meeting and copy of Valuation report has to be sent to
Shareholders, Creditors and CG, IT, SEBI, ROC, OL, respective stock exchange

• (* Notice shall also provide an option to vote through postal ballot)

• Prepare the Scheme of Amalgamation / Arrangement / Compromise

• File the Scheme with NCLT

• Copy of Scheme

• • Disclosure of Material Fact

• • Latest Financial Statements

• • Latest Audit Report

• • Declaration of Pendency of any investigation

• Hearing of the application at the Tribunal

• NCLT to direct for Class meeting of Members and Creditors

• Fix the Time & Place of meeting

• • Appoint Chairperson & Scrutinizer

• • Fix Quorum & Procedure to be followed

• NOTICE OF MEETING

• EXPLANATORY STATEMENT + COPY OF SCHEME + SUMMARY OF VALUATION

REPORT

• PUBLISH ADVERTISEMENT ( ATLEAST 30DAYS BEFORE THE DATE OF MEETING)

• Objections to be considered only if it is by

 • MEMBERS MORE THAN 10% SHARES

• CREDITORS MORE THAN 5 % TOTAL DEBT

• Convening of Shareholders and Creditors Meetings for approval of Scheme and discussion
on the representation given by regulatory authorities – decision reported to NCLT (If
creditors having at least 90% value agree and confirm by way of affidavit to the scheme,
then NCLT may dispense with creditors meeting.)

• Notice to Regional Director and Official Liquidator and submission of their NOC with NCLT

• Final Hearing by NCLT

• Obtaining NCLT Order and filing with Registrar of Companies(NCLT may provide exit
opportunity to the dissenting shareholders)

Post Merger compliances

AMALGAMATION
• Amalgamation, in relation to companies, means the merger of one or more companies with
another company or the merger of two or more companies to form one company in such a
manner that—

• all the property of the amalgamating company or companies immediately before the
amalgamation becomes the property of the amalgamated company by virtue of the
amalgamation ;

• all the liabilities of the amalgamating company or companies immediately before the
amalgamation become the liabilities of the amalgamated company by virtue of the
amalgamation

Small Company means Company other than Public CO. having Paid up Capital not more than Rs. 50
Lakh and TURNOVER not more than Rs. 2 Crores. (Govt. can raise the limits)
Central Government has the power to sanction the scheme, no requirement to approach NCLT

What Is winding up of a company?

• Winding up is the method of ending, or dissolving, a business.

• The winding up activity includes:

 – selling all assets,

– paying off creditors, and

– distributing remaining assets to the partners or shareholders

• There are two ways of winding of a company

– Voluntary

By court
Winding up by Tribunal
• National Company Law Tribunal can be initiated by an application by way of petition for
winding up order.

• It should be resorted to only when other means of healing an ailing company are of
absolutely no avail.

• Remedies are provided by the statute on matters concerning the management and running
of the company.

• It is primarily the NCLT which has jurisdiction to wind up companies under the Companies
Act, 2013.

• There must be strong reasons to order winding up as it is a last resort to be adopted.

Grounds on which a Company may be wound up by the Tribunal(NCLT

1. Company is unable to pay the debts;

2. If the company has, by special resolution, resolved that the company be wound up by the
Tribunal;

3. If the company has acted against the interests of sovereignty and integrity of India, the
security of the State, friendly relations with foreign States, public order;

4. If the Tribunal has ordered the winding up of the company ;

5. If the company has made default in filing with the Registrar its financial statements or
annual returns for immediately preceding five consecutive financial years;

6. If the tribunal is of the opinion that it is just and equitable that the company should be
wound up.
7. If the affairs of the company have been conducted in a fraudulent manner or the company
was formed for fraudulent and unlawful purposes or the persons concerned in the
formation or management of its affairs have been guilty of fraud or misconduct

Who may file petition for winding up

• A petition for winding up may be presented by any of the following:

– The company; or

– Any creditor or creditors, including any contingent or prospective creditor or

creditors; or

– Any contributory; or

– All or any of the above three specified parties; or

– The Registrar; or

– Any person authorised by Central Government in this behalf;

– By the Central Government or State Government in case of Company acting against

the interest of sovereignty and integrity of India

Voluntary Winding up
• If the company passes a special resolution for winding up of the Company.

• The company in general meeting passes a resolution requiring the company to be wound up
voluntarily as a result of the expiry of the period of its duration, if any, fixed by its articles of
association or on the occurrence of any event in respect of which the articles of association
provide that the company should be dissolved.

Procedure for Voluntary Winding up of a Company

• Step 1 - Conduct a board meeting with 2 Directors and thereby pass a resolution with a
declaration given by Directors that they are of the opinion that company has no debt or it
will be able to pay its debt after utilizing all the proceeds from sale of its assets.

• Step 2 - Issues notices in writing for calling of a General Meeting proposing the resolution
along with the explanatory statement.

• Step 3 - In General Meeting pass the ordinary resolution for the purpose of winding up by
ordinary majority or special resolution by 3/4th majority
 • Step 4 - Conduct a meeting of creditors after passing the resolution, if majority creditors are
of the opinion that winding up of the company is beneficial for all parties then company can
be wound up voluntarily.

• Step 5 - Within 10 days of passing the resolution, file a notice with the registrar for
appointment of liquidator.

• Step 6 - Within 14 days of passing such resolution, give a notice of the resolution in the
official gazette and also advertise in a newspaper.

• Step 7 - Within 30 days of General meeting, file certified copies of ordinary or special
resolution passed in general meeting.

• Step 8 - Wind up the affairs of the company and prepare the liquidators account and get
the same audited.

• Step 9 - Conduct a General Meeting of the company.

• Step 10 - In that General Meeting pass a special resolution for disposal of books and all
necessary documents of the company, when the affairs of the company are totally wound
up and it is about to dissolve.

• Step 11 - Within 15 days of final General Meeting of the company, submit a copy of
accounts and file an application to the tribunal for passing an order for dissolution.

• Step 12 - If the tribunal is of the opinion that the accounts are in order and all the necessary
compliances have been fulfilled, the tribunal shall pass an order for dissolving the company
within 60 days of receiving such application.

• Step 13 - The appointed liquidator would then file a copy of order with the registrar.

• Step 14 - After receiving the order passed by tribunal, the registrar then publishes a notice
in the official Gazette declaring that the company is dissolved.

COMPANIES ACT 2013,

Share Capital and Debt Capital
Types of Share Capital
• Authorized Capital

– • Issued Capital &

– Subscribed Capital (Undersubscribed / Over-subscribed)

 – • Called up Capital

– • Paid Up Capital

• Kinds Of Shares

• EQUITY SHARES

• PREFERENCE SHARES

Equity Shares
• Equity shares are those shares on which the dividend is paid after the dividend on fixed rate
has been paid on preference shares.

• Characteristics:

• No fixed rate of dividend.

• Dividend is paid after dividend is paid on preference shares.

• At the time of liquidation, equity shareholders are paid after preference shares have been
paid back in full.

• Non redeemable.

• Equity shareholders have voting rights & thus, control the working of the Company.

Equity shareholders are the virtual owners of the Company

Preference shares
• Preference shares are those shares which have preferential rights, i.e, preferential right as
to payment of fixed rate of dividend & as to repayment of capital at the time of winding up
of the Company.

• Characteristics :

• Fixed rate of dividend.

• Priority as to payment of dividend.

• Preference as to repayment of capital during liquidation of the Company.

• Generally preference shareholders do not have voting rights.

• According to The Companies (Amendment) Act, 2013, the preference shares are
redeemable & the maximum period for which they can be issued is 10 years.

Loan Capital
 ➢ Debentures

➢ Bonds

➢ Fixed Deposits

POWER AND DUTIES OF AN AUDITOR

1. Every auditor has a right of access to the books of account and vouchers of the company at
all times, whether they are at the registered office of the company or at any other place.

2. The auditor of a holding company also has a right of access to the records of the subsidiary
company if they are necessary for the purposes of the consolidation.

3. An auditor also has a right to receive notice of any general meeting. He may attend it
himself or through his authorized representative who is also qualified to be an auditor. He
also has a right to be heard on any part of the business which concerns him.

4. The auditor also has a right to receive information and explanation regarding the matters
which are necessary for the performance of his duties. He needs to know whether:

5. The company makes loans and advances against proper security and the terms of these are
prejudicial to the interests of the company.

6. Transactions that merely represent a book entry are prejudicial to the interests of the
company.

7. In the case of a company which is not an investment or banking company, it sells the
assets. They are in the form of shares, debentures, and other securities at a price less than
their purchase price.

8. The company shows the loans and advances that it makes as deposits.

9. It charges the personal expenses to revenue account.

10. It states in the books and documents that where it has allotted the shares in cash, it has
received the cash or not. Also, whether the position in the books and Balance Sheet is
correct and not misleading.
These are the duties of an auditor.

Remuneration of the Auditors

The company fixes the remuneration of the auditor in the general meeting. However, where the
Board of Directors appoint the first auditors of the company they can fix his remuneration. The
remuneration is in addition to the fees payable to him. It includes any expenses incurred by the
auditor in relation to the audit and any facility given to him. However, this remuneration does not
include any amount paid to him for the rendering of any services other than audit.

Question: Explain the qualifications and the disqualifications of the auditor.

Ans.

Following are the Qualifications of the Auditor:

1. A person is eligible for the appointment as an auditor only if he is a Chartered Accountant.

2. A firm is eligible for the appointment as an auditor only when the majority of its partners
are Chartered Accountants practicing in India.

3. In the case where a limited liability partnership firm is appointed as auditor, only the
partners who are Chartered Accountants will be authorized to act and sign on behalf of the
firm.

Disqualifications of the Auditor are:

The following persons are not eligible to act as an auditor of a company:

1. A body corporate other than a partnership with limited liability.

2. An employee or officer of the company.

3. A person who is in employment or in partnership with an officer or employee of the

company.

4. A person who or his relative or partner, holds any security or interest in the company. It
includes its holding, subsidiary or associate company. Or any other subsidiary of such
holding company, not exceeding Rs. 1 lac.

5. A person who or his relative or partner, is indebted to the company or its holding, subsidiary
or associate company or another subsidiary of such holding company, not exceeding Rs. 5
lac.
6. A person who or his relative or partner, has given any guarantee or provided any security
regarding the indebtedness of any third party to the company or its holding, subsidiary or
associate company or another subsidiary of such holding company, not exceeding Rs. 1 lac.

7. A person or a firm who has a business relationship, directly or indirectly with the company
or its holding, subsidiary or associate company or another subsidiary of such holding
company.

8. An individual who is the relative of a director or key managerial personnel.

9. A person convicted by the court for an offence involving fraud and a period of 10 years has
not elapsed from the date of conviction.

10. A person in full-time employment elsewhere or a person or a partner of a firm holding an

appointment as an auditor, when such person or partner is holding an appointment as an
auditor for more than 20 companies at the date of appointment or re-appointment.

11. Any person whose subsidiary or associate company is engaged in consulting and specialized
services as mentioned in section 144, on the date of appointment.

Deemed Vacancy

When the auditor incurs any of the above disqualifications after his appointment, he needs to
vacate his office. Such vacancy will fall under the category of casual vacancy.
 MODULE 3

1. The Competition Act,

2. Intellectual Property Rights Acts,
3. Foreign Exchange Management Act,
4. Environment Protection Act,
5. Consumer Protection Act*
6. Information Technology Act.

COMPETITION ACT, 2002

 Competition Is “a situation in a market in which firms or sellers independently strive for
the buyers’ patronage in order to achieve a particular business objective for example,
profits, sales or market share” (World Bank, 1999)

 Benefits of Competition:

 Companies : Efficiency, cost-saving operations, better utilization of resources, etc.

 The Consumer : Wider choice of goods at competitive prices

 The Government : Generates revenue

 Entry barriers can be due to the market position of incumbent(existing) firms, legal
barriers or strategic barriers

 Incumbent firms may use their power as “first Movers” to block entry of new firms

 Legal barriers include licensing and other Government regulations

 Strategic barriers are generally erected by incumbent firms in the form of artificial and
sudden price reduction with a view towards preventing new entry

OBJECTIVES OF COMPETITION LAW OBJECTIVES OF COMPETITION LAW & POLICY

• ensuring fairness and equity in market place transactions

 Protecting the ‘public interest’ including in some cases considerations relating to

industrial competitiveness and employment competitiveness and employment
 Protecting opportunities for small and medium business

 Competition Law generally covers 3 areas:

 Anti - Competitive Agreements, e.g., cartels

 Abuse of Dominant Position by enterprises, e.g.,

➢ predatory pricing,

➢ barriers to entry and

 Regulation of Mergers and Acquisitions (M&As).

 The MRTP Act brought in a four-pronged thrust:

➢ Concentration of economic power

➢ Restrictive Trade Practices

➢ Monopolistic Trade Practices

➢ Unfair Trade Practices

 Under the Competition Act :

➢ No provision for Unfair Trade Practices

➢ Only Consumer Courts will have jurisdiction

➢ All Disparagement Cases(criticising competing products) will be transferred to

Competition Commission

ANTI-COMPETITIVE AGREEMENTS
 Commission has suo moto power(power to investigate on its own even when no one
files a case) to enquire whether an Anti-Competitive Agreement or Abuse of Dominant
Position causes or is likely to cause an appreciable adverse effect on competition

 This power must be exercised within one year from the date combination has taken
effect

 Vertical Agreements:
 ➢ Vertical Agreements are between parties at different stages of production, supply,
distribution, etc.
➢ These are not presumed illegal; are subject to rule of reason.

 Examples: tie-in arrangements, exclusive supply/distribution agreements, refusal to

deal.

AGREEMENTS PRESUMED TO HAVE ADVERSE EFFECT

 Directly or indirectly determines purchase or sales price

 Limits or controls production, supply, technical know-how

 Shares the market or sources of production

 Results in bid rigging or collusive bidding

CCI ORDERS AGAINST ANTI-COMPETITIVE CCI ORDERS AGAINST ANTI-

COMPETITIVE AGREEMENTS AGREEMENTS
 Penalty equal to 3 times the amount of profit made out of such agreement or 10% of
profit made out of such agreement or 10% of average turnover of the cartel for
preceding 3 years whichever is higher

 Modification directed to the agreement

 After the inquiry into the Agreement, Competition can:

• direct parties to discontinue the agreement

• prohibit parties from re-entering such agreement
• direct modification of the agreement
• impose penalty upto 10% of average turnover of the enterprise

ABUSE OF DOMINANCE
 “ “Dominant position” is defined as a position of strength which enables the enterprise

➢ • to operate independently of competitive forces in the market, or

➢ • to affect its competitors or consumers in its favor.

 No mathematical or statistical formula is adopted to “measure” dominance –

 Includes practices like:

 Unfair or discriminatory conditions or prices,

 Limiting or restricting production or technical/scientific development,

 Denial of market access, and

 Predatory pricing(pricing product at below the cost of manufacturing)

 After inquiry into abuse of dominant position, the Competition Commission can order:

➢ discontinuance of abuse of dominant position

➢ impose a penalty upto 10% of the average turnover of the enterprise

FACTORS TO BE CONSIDERED WHILE DETERMINING DOMINANCE

 Dominant position linked to a host of factors

➢ Market share of enterprise

➢ Size and resources of enterprise

➢ Size and importance of competitors

➢ Commercial advantage of enterprise over competitors

MERGERS AND ACQUISITIONS

 Commission is expected to regulate “Combinations”, i.e., large mergers, acquisitions,
etc. likely to have appreciable adverse effect on competition.

 Threshold: For single enterprise

 Assets > Rs.1000 crores

 Turnover > Rs.3000 crores

 Threshold: For group of enterprises

 Assets > Rs.4000 crores

 Turnover > Rs.12,000 crores

  Similarly, threshold is provided for overseas groups.

 Any merger below the threshold limit will not attract scrutiny of the CCI

POWERS OF COMMISSION
 Cease and desist order

 Impose penalty up to 10% of turnover.

 In case of cartel, penalty can be 10% of turnover or 3 times of profit illegally gained from
cartel activity, whichever is higher.

 Recommend to Government the division of dominant Enterprise

 Various penalties ranging from Rs.1 lac upto Rs.1 crore are also provided for failure to
comply with direction/order of Commission

INTELLECTUAL PROPERTY RIGHTS ACTS

Various laws relating to IPR in India
1. Copy Right Act,1957 as amended in 1999

2. The Trademarks Act,1999

3. The Geographical Indications of Goods Act,1999

4. The Designs Act,2000

5. The Patent Act,1970 as amended in 1999

6. The Protection of Plant varieties and Farmer’s Rights Act,2001

7. The Biological Diversity Act,2002

8. The Semiconductor Integrated Circuits Layout Design Act,2000

What is a Patent?
A Patent is a statutory right for an invention granted for a limited period of time to the
patentee by the Government, in exchange of full disclosure of his invention for excluding
others, from making, using, selling, importing the patented product or process for
producing that product for those purposes without his consent.
What can be patented?
An invention relating either to a product or process that is new, involving inventive step and
capable of industrial application can be patented. However, it must not fall into the
categories of inventions that are non- patentable under section 3 and 4 of the Act.
Who can apply for a patent?
A patent application can be filed either by true and first inventor or his assignee, either
alone or jointly with any other person. However, legal representative of any deceased
person can also make an application for patent.
 What are the criteria of patentability?

An invention to become patentable subject matter must meet the following criteria -
It should be novel.
It should have inventive step or it must be non-obvious
It should be capable of Industrial application.
It should not fall within the provisions of section 3 and 4 of the Patents Act 1970.
 How can one apply for a patent?

A patent application can be filed with Indian Patent Office either with complete
specification or with provisional specification along with fee as prescribed in schedule I.
In case the application is filed with provisional specification, then one has to file
complete specification within 12 months from the date of filing of the application. There
is no extension of time to file complete specification after expiry of said period.

DURATION OF IPR PROTECTION

1. Patent rights(process & product): 20 years

2. Copyright(literary work, dramatic, musical and artistic works): during lifetime of author
and 60 years after death

3. In the case of cinematograph films, sound recordings, photographs, posthumous

publications, anonymous and pseudonymous publications, works of government and
works of international organizations, the 60-year period is counted from the date of
publication.

4. Chip Layout Design : is for a period of 10 years counted from the date of filing an
application for registration or from the date of first commercial exploitation anywhere
 in India or in any convention country or country specified by Government of India
whichever is earlier

5. Trademark rights: for a period of 10 years which can be renewed for further 10-year
periods
6. Geographical indication: A GI is registered for an initial period of ten years, which may
be renewed from time to time(ike Darjeeling tea, Malabar Pepper, Bangalore Blue
Grapes, manufactured goods like Pochampalli Ikat, Kancheepuram Silk, solapuri
chadars Bagh Prints, Madhubani paintings etc
7. The duration of protection of registered varieties is different for different crops-

8. 18 years for trees and vines,

9. 15 years for other crops and extant varieties

FOREIGN EXCHANGE MANAGEMENT ACT,1999

Objectives
An Act to consolidate and amend the law relating to foreign exchange with the objective of :
a. facilitating external trade and payments and

b. for promoting the orderly development and

maintenance of foreign exchange market in India

Regulation & Management of FOREX

• Dealing in FOREX: Unless provided in the Act or without general or special permission of
the Reserve Bank :

a) no person shall deal in or transfer any foreign exchange or foreign security to any
person who is not an authorised person;

b) no person shall make any payment to or for the credit of any person resident outside
India in any manner;

c) no person shall receive otherwise through an authorised person, any payment or on

behalf of any person resident outside India in any manner;

d) no person shall enter into any financial transaction in India as consideration for
acquisition of any asset outside India by any person.

Background to the Act

 • Foreign exchange transactions were regulated by Foreign exchange regulation act
(FERA). 1973 Following the liberalization in 1991 some amendments were made to
FERA in 1993 but there was demand to bring certain major changes in FERA in the light
of economic changes. Consequently a new act was formed to replace FERA, known as
Foreign exchange management act (FEMA), 1999

• Holding of FOREX: Unless otherwise provided in the Act, no person resident in India
shall acquire, hold, own, possess or transfer any foreign exchange, foreign security or
any immovable property situated outside India.

• Current A/c transactions: Any person may sell or draw foreign exchange to or from an
authorised person if such sale or drawal is a current account transaction:

Provided that the Central Government may, in public interest and in consultation with
the Reserve Bank, impose such reasonable restrictions for current account transactions as may
be prescribed.
The capital account transactions will be regulated by RBI / Central Government for which
necessary circulars / notifications will have to be issued under FEMA

CURRENT ACCOUNT & CAPITAL ACCOUNT

• “capital account transaction” means a transaction which alters the assets or liabilities,
outside India of persons who are resident in India or transaction which alters the assets
or liabilities in India of persons who are resident outside India

• “current account transaction” means a transaction other than a capital account

transaction such as,—

– ( i ) payments due in connection with foreign trade, other current business,

services, and short-term banking and credit facilities in the ordinary course of
business,

– ( ii) payments due as interest on loans and as net income from investments,

– ( iii) remittances for living expenses of parents, spouse and children residing
abroad, and

– ( iv) expenses in connection with foreign travel, education and medical care of
parents, spouse and children;

• Capital A/c transactions: Subject to the provisions of the act, any person may sell or
draw foreign exchange to or from an authorised person for a capital account
transaction.
 • The Reserve Bank may, in consultation with the Central Government, specify—

– any class or classes of capital account transactions which are permissible;

– the limit up to which foreign exchange shall be admissible for such transactions :

Provided that the Reserve Bank shall not impose any restriction on the drawal of foreign
exchange for payments due on account of amortization of loans or for depreciation of direct
investments in the ordinary course of business.
• the Reserve Bank may, by regulations, prohibit, restrict or regulate the following—

– transfer or issue of any foreign security by a person resident in India;

– transfer or issue of any security by a person resident outside India;

– transfer or issue of any security or foreign security by any branch, office or

agency in India of a person resident outside India;

– any borrowing or lending in foreign exchange in whatever form or by whatever

name called;

– any borrowing or lending in rupees in whatever form or by whatever name

called between a person resident in India and a person resident outside India;

– deposits between persons resident in India and persons resident outside India;

– export, import or holding of currency or currency notes;

– Acquisition or transfer of immovable property outside India, other than a lease

not exceeding five years, by a person resident in India;

• giving of a guarantee or surety in respect of any debt, obligation or other liability

incurred—

– by a person resident in India and owed to a person resident outside India; or

by a person resident outside India.

• A person resident in India may hold, own, transfer or invest in foreign currency, foreign
security or any immovable property situated outside India if such currency, security or
property was acquired, held or owned by such person when he was resident outside
India or inherited from a person who was resident outside India.
• A person resident outside India may hold, own, transfer or invest in Indian currency,
security or any immovable property situated in India if such currency, security or
property was acquired, held or owned by such person when he was resident in India or
inherited from a person who was resident in India.

• the Reserve Bank may, by regulation, prohibit, restrict, or regulate establishment in

India of a branch, office or other place of business by a person resident outside India, for
carrying on any activity relating to such branch, office or other place of business.

Export of goods & services:

• Every exporter of goods shall—

• furnish to the Reserve Bank or to such other authority a declaration in such form
and in such manner as may be specified, containing true and correct material
particulars, including the amount representing the full export value or, if the full
export value of the goods is not ascertainable at the time of export, the value
which the exporter expects to receive on the sale of the goods in a market
outside India;

• furnish to the Reserve Bank such other information as may be required by the
Reserve Bank for the purpose of ensuring the realisation of the export proceeds
by such exporter.

• The Reserve Bank may, for the purpose of ensuring that the full export value of the
goods or such reduced value of the goods as the Reserve Bank determines, is received
without any delay, direct any exporter to comply with such requirements as it deems fit.

• Every exporter of services shall furnish to the Reserve Bank or to such other authorities
a declaration in such form and in such manner as may be specified, containing the true
and correct material particulars in relation to payment for such services.

ENVIRONMENT PROTECTION ACT, 1986

 In the Indian Constitution, two articles related to Environmental Protection are:

 1. Article 38 A (Directive Principle of State Policy)

 “The state shall endeavour to protect and improve the environment and to safeguard
the forests & wildlife of the country”

 2. Article 51 A (g) (Fundamental duties of citizens)

 “It shall be the duty of citizens of India to protect & improve the natural environment
including forests, lakes, rivers and wildlife & to have compassion for living creatures”

VARIOUS ACTS THAT DEAL WITH ENVIRONMENT PROTECTION

 The Water (Prevention and Control of Pollution) Act, 1974/1988

 The Water (Prevention and Control of Pollution) Cess Act, 1977/ 1992/2003

 The Air (Prevention and Control of Pollution) Act, 1981/1987 n

 The Environment (Protection) Act, 1986/1991

 The Public Liability Insurance Act, 1991/1992

 The Bio - Medical Waste (Management, Handling and Transboundry Movement) Rules
2009

 The Municipal Solid Waste (Management and Handling) Rules 2000

 The Batteries (Management and Handling) Rules 2001

 The Noise Pollution (Regulation & Control) Rules, 2000

 The Forest (Conservation) Act, 1980 (amended upto 1992)

 Forest conservation Rules, 1981

 Environmental Statement Notification, 1993

 Environmental Impact Assessment Notification, 2006

 The Wildlife Protection Act (1980)

 The Wildlife (Protection) Amendment act (2002)

 Mines & Minerals (Regulation and Development Act, 1957

 Mineral Conservation and Development Rules, 1988

 Ancient Monuments & Archeological Sites and Remains Act, 1958

 The Hazardous Waste (Management and Handling) Rules, 1989

 Manufacture, Storage and Import of Hazardous Chemical Rules, 1989

 ENVIRONMENT ACT, 1986-OBJECTIVES
 An Act to provide for the protection and improvement of environment and for
connected matters.

 In wake of the Bhopal tragedy, the Government of India enacted the Environment
(Protection) Act

 To implement various International conventions on Environment

 Act to cover Protection and improvement of the human environment

 Prevention of hazards to human beings, other living creatures, plant and property.

ENVIRONMENT ACT
 Umbrella legislation designated to provide a framework for Central Government for co-
ordination of the activities of various Central and State authorities established under
Water, Air Act.

 Covering broad scope to include water, air and land and the inter-relationships with
other living creatures, plants, micro-organisms and property

 Defines broadly the scope of Environmental Pollution and Hazardous substances.

 Act empowers the Centre to take all such measures as deemed necessary for the
purpose of protecting and improving the quality of the environment.

 Authorises Central Government to set new National standards for

 Ambient Air Quality,

 Emissions,

 Effluent Discharge

 Regulate industrial locations

 Prescribe procedures for managing hazardous substances

 Establishing safeguards for preventing accidents

 To collect and disseminate information on environmental pollution

 GENERAL POWERS OF THE CENTRAL GOVERNMENT
 To make rules to regulate environmental pollution ;

 to notify standards and maximum limits of pollutants of air, water, and soil for various
areas and purposes;

 Prohibition and restriction on the handling of hazardous substances, and location of

industries

 It may constitute authority or authorities for the purpose of exercising or performing

such of the powers and functions;

 It may appoint a person for inspection;

 It may issue directions in writing to any officers or any authority to comply;

 It empowers the government to make rules to achieve the object of the Act.

 Persons carrying on industry ,operation etc. not to allow emission or discharge of

environmental pollutants in excess of the standards;

 Persons handling hazardous substances must comply with procedural safeguards

PREVENTION, CONTROL, AND ABATEMENT(REDUCTION) OF ENVIRONMENTAL

POLLUTION
 The Central Government has the power to take all measures as it deems necessary for
the purpose of protecting and improving the quality of environment and preventing,
controlling and abating (reducing)environment pollution such as:

 Co-ordination of actions by the State Government officers and other authorities under
this act or under any law.

 Planning and execution of nation-wide programmes for the prevention, control and
abatement of environmental pollution.

 Laying down standards for the quality of environment in the various aspects.

 Laying down standards for the emission or discharge of environmental pollutants.

 Restriction of areas in which any industry, operation or process shall be carried out.

 Laying down procedures and safeguards for handling of hazardous substances

  Carrying out and sponsoring investigations and research relating to problems of
environmental pollution.

 Establishment and recognition of environmental laboratories.

 Such other matters as the Central Government may deem necessary of the purposes of
securing effective implementation of this Act.

 the Central Government may constitute an “authority” or “authorities” to exercise

powers and perform functions as mentioned above.

OFFENCES AND PENALTIES

 EPA provides that any person who fails to comply or contravenes any of the provisions
of the Act, or the rules made or orders or directions issued under the act or rules, then
for such failure or contravention, he shall be punishable :

 a) With imprisonment for a term which may extend up-to 5 years,

 b) With fine which may extend up-to one lakh rupees,

 c) With both.

 In case the failure or contravention continues after the conviction for first failure or
contravention an additional fine which may extend to five thousand for everyday can be
imposed for a period during which failure or contravention continues.

If the failure or contravention continues beyond a period of one year after conviction, the
offender shall be punishable with imprisonment for a term which may extend to seven years

OFFENCES
 EPA incorporates the principal of “vicarious liability” of the person in-charge: Director,
Manager, Secretary or other officer, for the offence if committed by the company.

 When any offence is committed by the company then the company as well as the
person directly in-charge of and responsible for the conduct of business of the company
shall be deemed to be liable to punishment.

 However, the person in-charge of responsible for the conduct of the business of the
company is not held liable if he proves:

 a) That the offence was committed without his knowledge,

  b) That he exercised all due diligence/care to prevent the commission of such
offence.

WHO CAN MAKE THE COMPLAINT ?

 Complaint under this act can made by:

 The Central Government or any other authority by that Government or,

 Any person who has given notice of not less than 60 days of the alleged offence and of
his intention to make complaint to the Central Government or the authorized officer.

LEGAL PROTECTION TO CONSUMERS IN INDIA

THE CONSUMER PROTECTION ACT, 1986 (CPA)
➢ OBJECTIVE: To provide better protection of consumers’ interest.
➢ THROUGH:Speedy and in-expensive redressal of consumer grievances.
➢ BY: A 3-tier adjudicative machinery, set up at the District, State,
and National levels.
 CONSUMER PROTECTION COUNCILS
To deliberate and advise the Government for promoting and protecting the basic rights of
consumers.
CONSUMER RIGHTS
1. Right to protection against marketing of hazardous goods and services.

2. Right to information about the quality, quantity, potency, purity, standard, and price of
goods or services, so as to protect him against unfair trade practices.

3. Availability of a variety of goods and services at competitive prices.

4. Hearing at appropriate grievance-redressal forum.
5. Redressal against UTP, RTP exploitation.
6. Consumer education.
CONSUMERS’ DUTIES AND RESPONSIBILITIES
1. Duty to buy only safe and standard products.

2. Duty to gather product information.

3. Duty to obtain proof of purchase.

4. Duty to organise, speak, and participate.

5. Duty to lodge a complaint.

6. Duty not to lodge a frivolous or vexatious complaint.

7. Duty to take up class-action cases.

CONSUMER DISPUTES REDRESSAL AGENCIES

1. District Consumer Disputes Redressal Forum (‘District Forum’) --- up to Rs.20 lakhs

2. State Consumer Disputes Redressal Commission (‘State Commission’) > Rs.20 lakhs and
up to Rs.1 crore

3. National Consumer Disputes Redressal Commission (‘National Commission’) > Rs.1 crore

WHO CAN FILE A COMPLAINT?

➢ A Consumer
➢ Any Registered Consumers’ Association
➢ The Central Government or any State Government
 ➢ One or more consumers on behalf of numerous consumers (‘Class Action’)
➢ Legal heir or representative of the deceased consumer

CONSUMER
➢ One who buys (or uses) any goods for personal
➢ consumption and not for re-sale or commercial
➢ purpose.
➢ One who hires or avails of any service, irrespective of
➢ whether payment is actually made or deferred.
➢ NOTE: Buying or using the goods or availing services exclusively for earning
livelihood, by means of self-employment, is not a ‘commercial purpose’.

GROUNDS OF COMPLAINTS
• Defect in goods
• Deficiency in service
• Excess price charged
• Unfair trade practice
• Restrictive trade practice
• Offering of hazardous or unsafe goods
• Offering of hazardous services

RELEVANT CONCEPTS
• GOODS
• Defect in Goods
• SERVICE
• Deficiency in Service
• Medical service also included (provided it is not completely free)
• Case: Indian Medical Association vs. V.P.
• Santha, (1995) 6 SCC 651
• UNFAIR TRADE PRACTICE
• Adopted by any trader or service-provider
• RESTRICTIVE TRADE PRACTICE
• Adopted by any trader or service-provider

UNFAIR TRADE PRACTICE

Adopting any unfair method or deceptive practice for promoting sale of goods or provision of
service, including –
1. Misleading advertisements or false claims.

2. Advertisements falsely offering goods or services at bargain price.

3. Offering pseudo-gifts and conducting sales contests.

4. Supply of unsafe or hazardous goods.

5. Hoarding or destruction of goods or refusal to sale.

6. Withholding of information from participants of sale promotion scheme.

7. Manufacturing or offering of spurious goods/deceptive practice in providing service.

Restrictive Trade Practice

A trade practice, which tends to –
• Bring about manipulation of prices, or conditions of delivery, or

• Affect flow of supplies in the market in a manner as to impose on consumers

unjustified costs or restrictions.

It includes:
• Delay in supply of goods or services, leading to price rise.

• Tie-up sale

WHERE TO FILE A COMPLAINT?

1. District Forum, having territorial jurisdiction, if the claim is upto Rs. 20 lakhs.

2. State Commission, having territorial jurisdiction, if the claim exceeds Rs. 20 lakhs, but
not Rs. 1 crore.

3. National Commission, if the claim exceeds Rs. 1 crore.

Territorial Jurisdiction:
1. OP/OPs resides/carries on business/has a branch office/works for gain;
 2. Any of the OPs resides/carries on business/has a branch office/works for gain, and
otherwise acquiesce in such institution, or DF/SC/NC has permitted; or

3. Cause of action arises.

‘Claim’ includes the value of goods/services and compensation

PROCEDURE FOR FILING A COMPLAINT
1. Simple Procedure
- Written complaint
- To be filed by complainant or his authorised agent
- Either in person or by registered post
- Full facts and cause of complaint
- Supporting documents (cash memo, warranty card, etc.)
- Relief sought
- No advocate necessary
2. Prescribed fee to be paid
3. Complaint can be admitted or rejected by DF, ordinarily within 21 days
4. Hearing to be given before rejection
RELIEF AVAILABLE/NATURE OF ORDER TO BE PASSED
❑ Removal of defect in goods or deficiency in service

❑ Replacement of defective goods with new ones

❑ Refund of price/service charges

❑ Compensation for loss or injury suffered

❑ Also, punitive damages*

❑ Cease-and-desist order against RTP/UTP

❑ Cease-and-desist order against supply of spurious goods/hazardous services*

❑ Withdrawal of hazardous goods from sale

❑ Compensation for unidentifiable consumers*

❑ Corrective Advertisement*
 ❑ Costs (to either party)

APPEAL
• By whom? – Any aggrieved person

• To which authority? – State Commission, National Commission, and Supreme Court

• Time limit: 30 days from the date of order; delay to be condoned for sufficient cause

• If the appellant is required by DF to pay any amount, he has to deposit 50% of that
amount or Rs. 25,000, whichever is less

• In the case of appeal before NC, or supreme Court:

50% of the amount or Rs. 35,000

50% of the amount or Rs. 50,000, whichever is less

FRIVOLOUS OR VEXATIOUS COMPALINT

- Dismissal, by DF, State Commission or NC

- Reasons to be recorded

- Cost upto Rs. 10,000/-, to be paid to the opposite party

PENALTIES
Non-compliance of any order a punishable offence
- Imprisonment (1 month to 3 years)

- Fine (Rs. 2000 to Rs. 10,000)

- Or both

IT Act, 2000
• Objectives of the IT Act

1. To provide legal recognition for transactions carried out by means of electronic

data interchange, and other means of electronic communication, commonly
referred to as "electronic commerce“
 2. To facilitate electronic filing of documents with Government agencies and E-
Payments

3. To amend the Indian Penal Code, Indian Evidence Act, the Banker’s Books
Evidence Act ,Reserve Bank of India Act ,

EXTENT OF APPLICATION
• Extends to whole of India and also applies to any offence or contravention committed
outside India by any person

• Act applies to offence or contravention committed outside India by any person

irrespective of his nationality, if such act involves a computer, computer system or
network located in India

ELECTRONIC WORLD
• What is an Electronic document? Electronic document produced by a computer, Stored
in digital form, and cannot be perceived without using a computer

• It can be deleted, modified and rewritten without leaving a mark

• Integrity of an electronic document is “genetically” impossible to verify

• A copy is indistinguishable from the original

• It can’t be sealed in the traditional way, where the author affixes his signature

• The functions of identification, declaration, proof of electronic documents carried out

using a digital signature based on cryptography.

VERIFICATION OF AUTHENTICITY OF COMPUTER DOCUMENTS

• Digital signatures created and verified using cryptography

• Public key System based on Asymmetric keys

• An algorithm generates two different and related key

• Public key & Private Key

• Private key used to digitally sign.

• Public key used to verify.

SECURE DIGITAL SIGNATURE

 • If by application of a security procedure agreed to by the parties concerned, it can be
verified that a digital signature, at the time it was affixed, was:

– (a) unique to the subscriber affixing it;

– (b) capable of identifying such subscriber;

– (c) created in a manner or using a means under the exclusive control of the
subscriber and is linked to the electronic record to which it relates in such a
manner that if the electronic record was altered the digital signature would be
invalidated, then such digital signature shall be deemed to be a secure digital
signature

CIVIL WRONGS UNDER IT ACT THAT ARE PUNISHABLE

1. Whoever without permission of owner of the computer:

2. Secures access not necessarily through a network

3. Downloads, copies, extracts any data
4. Introduces any viruses or contaminant
5. Damages or causes to be damaged any computer resource
6. Destroy, alter, delete, add, modify or rearrange
7. Change the format of a file
8. Disrupts or causes disruption of any computer resource
9. Preventing normal continuance of computer
10. . Denies or causes denial of access by any means
11. Assists any person to do any thing above
12. 11.Rogue Websites, Search Engines, Insiders providing vulnerabilities
13. Charges the services availed by a person to the account of another person by tampering
or manipulating any computer resource
14. Credit card frauds, Internet time thefts
15. Liable to pay damages not exceeding Rs. One crore to the affected party
DATA DIDDLING
14. Changing data prior or during input into a computer covers the offence of data diddling n
Penalty: Not exceeding Rs. 1 crore
Case in point : NDMC Electricity Billing Fraud Case: A private contractor who was to deal with
receipt and accounting of electricity bills by the NDMC, Delhi. Collection of money,
computerized accounting, record maintenance and remittance in his bank who
misappropriated huge amount of funds by manipulating data files to show less receipt and bank
remittance.
 TYPES OF CYBER CRIMES
1. Cyber terrorism
2. Cyber pornography
3. Defamation
4. Cyber stalking (section 509 IPC)
5. Sale of illegal articles-narcotics, weapons, wildlife
6. Online gambling
7. Intellectual Property crimes- software piracy, copyright infringement,
trademarks violations, theft of computer source code
8. Email spoofing
9. Forgery
10. Phising
11. Credit card frauds

Source Code
• nMost important asset of software companies n “Computer Source Code" means the
listing of programmes, computer commands, design and layout

• Concealment, destruction, alteration of computer source code

• Punishment : imprisonment up to three years and / or fine up to Rs. 2 lakh

Hacking
• Punishment – imprisonment up to three years, and / or – fine up to Rs. 2 lakh

• Cognizable, Non Bailable;

• covers data theft as well as data alteration

Pornography
• Publishing or transmitting or causing to be published in the electronic form Obscene
material

• Punishment :

• On first conviction

– imprisonment up to five years and fine up to Rs. 1 lakh

– On subsequent conviction
– imprisonment up to ten years and fine up to Rs. 2 lakh

– Section covers Internet Service Providers, Search engines, Pornographic

websites

– Cognizable, Non-Bailable,
 MODULE 4
1. Overview of business environment; and Society;
2. Industrial Policies and Regulations;
3. Laws and Taxation; the Financial System;
4. Labour Environment;
5. Economic Planning and Development;
6. Global Environment.

OVERVIEW OF BUSINESS ENVIRONMENT; AND SOCIETY

• Meaning
• Nature & Scope
• Objectives

Business refers to the organized efforts of the enterprises to produce & supply the goods and
services to earn profit
It is constituted by numerous activities involved in organizing production and delivering the end
product to the ultimate users.
All business activities are motivated by profit
NATURE OF BUSINESS
• Modern business is Business in Transition

• Pressure of Competition

• Immense Opportunities

CHARACTERISTICS OF BUSINESS

• Large Size
• Oligopolistic
• Diversification
• Global Reach
• Technology orientation
• Change
• Govt. control
 SCOPE
• Vast scope

• Purpose of business goes beyond profit earning

• Business is people…centered around people

• Activities in addition to production & distribution as transportation, communication,

finance & banking, packaging, etc.

OBJECTIVES

• Profit Maximization
• Growth
• Power
• Employee Satisfaction & Development
• Quality product & services
• Sales maximization
• Market Leadership
• Challenging
• Joy of creation
• Service to society
• Good Corporate Citizenship
• Survival
Environment refers to the external factors affecting the individual or orgn.
Business Environment refers to all those factors that have direct or indirect bearing on the
business of an orgn.

Internal Environment: Factors influencing the business from within the Orgn.
It includes….
▪ Value system

▪ Goals/objectives

▪ Management Structure

▪ Internal Power Relationships

▪ Physical Resources & Technology

Human Resources
External Environment : Factors influencing the business from outside the Orgn.
Micro Environment: Immediate
Ext.environment.
Factors that have immediate / Direct impact on the business of the Orgn. Also known as task
environment and operating environment
It includes…
• Suppliers of inputs

• Employees’ unions

• Customers

• Mkt. intermediaries

• Competitors:

➢ Brand Competition

➢ Product-form Competition

➢ Desire Competition

➢ Non-price Competition/Product Variation/Advertisement

• Public: Kotler, “Public is any group that has an impact on actual/potential interest in a
Co’s ability to achieve its goals.”

➢ Media

➢ Consumer Protectionist Environmentalist

Economic Environment: National
➢ Business Orgn. itself is an economic institution.
➢ All the economic factors influencing the business of an Orgn.
➢ Economic Factors affecting the business:
➢ Economic System
o Capitalism
o Socialism
o Communism
➢ Rate of Growth
➢ Rate of Saving & Investment
➢ Inflation
➢ Fiscal Imbalance
➢ BoP Deficit

➢ Trade fluctuations

o Prosperity
o Recession
o Depression
o Stagflation

➢ Financial System

o Money Mkt.
o Capital Mkt.

➢ Economic Policies

o Industrial Policy
o Trade Policy
o Monetary Policy

Fiscal Policy
➢ New Economic Policy(NEP)

o Liberalization
o Privatization
o Globalization

INDUSTRIAL POLICY
Industrial policy is an important document which lays a wide canvas & sets the tone for
implementing promotional & regulatory role of the Government.
The term Industrial policy refers to the government’s policy towards industries – their
establishment, functioning, growth & management.
Industrial policy is probably the most important document which indicates the relationship
between government & business. The document is helpful to planners & administrators in the
government, in as much as it give clear guidelines for promoting & regulating industries. It is
equally helpful to industrialists & others for deciding areas & priorities of their investments
NEED OF INDUSTRIAL POLICY
• Correct the imbalance in the development of industries & help bring about a desirable
balance & diversification in them.
• Direct flow of scare resources in the most desirable areas of investment in accordance
with national priorities
• Prevent the wasteful use of scare resources & ensure their conservation & judicious
utilization
• Differentiate areas among the public, private & joint sector of the economy, as well as
large, medium & small scale industries
• Give guidelines for importing foreign capital & the conditions on which such capital
should be permitted to operate

INDUSTRIAL POLICY RESOLUTION 1948

The first important Industrial policy resolution was issued by the Government of India on April
6, 1948. Following were the main features of the 1948 Industrial policy:
• Acceptance of the importance of both private & public sectors
• Division of the Industrial Sectors: The resolution divides industries into 4 categories & they
are as follows:
• Industries where state had a monopoly: In this category 3 fields of activity were specified –
Arms & Ammunitions, atomic energy, and rail transport
• Mixed sector: In this sector 6 fields were specified – coal, iron & steel, aircraft manufacture,
ship building, manufacture of telephone, wireless apparatus and mineral oils
• The field of Government: The Government regulated & directed these industries because
they were important for national development. It includes automobiles, heavy machinery,
machine tools, fertilizers, electrical engineering, sugar, paper, cotton & woolen textile
• The field of private sectors: All other industries were left open to the private sector,
however the government approval & permission was required.
• Role of small & cottage industries: These industries were given special support from
government because they were utilizing local resources & generating employment
opportunities.
• Other important features of the Industrial policy:
• Role of foreign capital in Industrial development
• Labor policy & employee welfare policy

INDUSTRIAL POLICY 1991

On 24th July 1991, the government headed by Mr. P. V. Narasimha Rao announced a new
Industrial policy which sought to drastically alter the industrial scenario in our country. These
are several fundamental departures in the new policy. The most important imitative are with
respect to the virtual scrapping of industrial licensing & registration policy, an end to the
monopoly law & a more welcome approach to foreign investments apart from redefining the
role of the public sector
OBJECTIVES
1. Self reliance to build on the many sided gains already made
2. Encouragement to Indian entrepreneurship, promotion of productivity & employment
generation
3. Development of indigenous technology through greater investment in R&D and bringing
in new technology to help Indian manufacturing units attain world standards
4. Removing the regulatory systems & other weaknesses
5. Increasing the competitiveness of industries for the benefit of the common man
6. Incentives for indoctrination of backward areas
7. Enhanced support to SSI
8. Ensure running of public sector undertakings [PSU’s] on business lines & cut their losses
9. Protect the interest of workers
10. Abolish the monopoly of any sector in any field of manufacturing except on strategic or
security grounds
11. To link Indian economy to the global market so that we acquire the ability to pay for
imports & to make us less dependent on aid

Policy initiatives
• Industrial licensing policy
• Foreign investment
• Foreign technology agreements
• Public sector policy
• MRTP Act
 INDIAN TAXATION SYSTEM
Types of Taxes
1. Direct Taxes

1. Income Tax

2. Wealth tax

2. Indirect Taxes

1. GST

INCOME TAX
• Tax that is charged by the Central govt on the income earned by individuals residing and
working in India

• The lower the income, the lower is the tax rate and the higher the income, the higher is the
tax rate

• This differential tax system ensures that low earning individuals have a lower tax burden since
they have less disposable income whereas high income earning individuals can be taxed at a
higher rate since the burden of tax is easier to be borne by high earning individuals.

Income Tax Slab Individuals below the age of 60

years

Up to `2,50,000 Nil

2,50,001 to 5,00,000 5%

12,500 + 20% of
5,00,001 to 10,00,000
total income exceeding 5,00,000
 1,12,500 + 30% of
Above 10,00,000 total income exceeding
10,00,000

EXEMPTIONS FROM TAX

o Exemptions from income tax are provided for certain purposes to ensure greater savings
in certain areas such as
o Interest on loans for higher education
o Interest on housing loans plus repayment of principal amount restricted to 1.5
lakhs
o Deductions for donations to approved charities
o Payment of medical insurance premium(upto 25,000)
o Contribution to PF
o Life Insurance premium
o Tuition fess for children
o Savings, such as :
▪ Investment in infrastructure bonds
▪ Equity-linked savings scheme(ELSS)
▪ NSC (National Saving Certificate)
▪ Fixed Deposit (Tax Savings)
▪ Post office time deposits
o National Pension Scheme

WEALTH TAX
• Wealth tax is imposed on the richer section of the society. The intention of doing so was
to bring parity amongst the taxpayers
• It is charged on assets that do not earn any revenue(e.g. gold )
• Who is Liable to pay wealth tax?
• Wealth Tax is applicable to individuals, HUF’s and companies. The deciding factor for
applicability of wealth tax is the residential status. The thumb rule is the resident Indians
are subject to wealth tax on their global assets. However, NRI’s fall under the ambit if
wealth tax for the assets held in India.
• If the total net wealth of an individual, HUF or company exceeds Rs. 30 lakhs, on the
valuation date, tax @1% will be leviable on the amount in excess of Rs. 30 lakhs. Every
person whose net wealth exceeds such limit shall furnish a return of net wealth. The due
date is same as that of Income tax return.
• What is an Asset?
 • An asset is a resource which is held and has future economic benefit
• However, wealth tax was abolished in the budget of 2015 (effective FY 2015-16). As an
alternative to the wealth tax, the finance minister hiked the surcharge from 2% to 12% for
the super rich section. Individuals with an income of above Rs. 1 Crore . and companies
with an income of over Rs. 10 Crores. fall under the ambit of the super-rich segment.

GOODS & SERVICES TAX(GST)

• Goods and Services Tax (GST) is an indirect tax (or consumption tax) imposed on the
supply of goods and services.
• It is a comprehensive, multistage, destination based tax.
o Comprehensive because it has subsumed almost all the indirect taxes except few
(central excise duty, services tax, additional customs duty, surcharges, state-
level value added tax and Octroi).
o Multi-Staged as it is imposed at every step in the production process, but is
meant to be refunded to all parties in the various stages of production other
than the final consumer.
o And destination based tax, as it is collected from point of consumption and not
point of origin unlike previous taxes.
• Goods and services are divided into five different tax slabs for collection of tax –
o 0%, 5%, 12%, 18% and 28%.
• However, petroleum products, alcoholic drinks, and electricity are not taxed under GST
and instead are taxed separately by the individual state governments, as per the
previous tax regime]
• Pre-GST, the statutory tax rate for most goods was about 26.5%, Post-GST, most goods
are expected to be in the 18% tax range.
• Higher tax rates are applied on luxury goods as they are bought by high income
individuals/organizations
• Revenue is shared equally between the Central govt and State govt where the tax was
collected

ECONOMIC PLANNING IN INDIA

PLANNING COMMISSION
➢ In March 1950, the Planning Commission (PC) was set up by the government by a
Cabinet Resolution.
➢ An extra-constitutional (i.e., non-constitutional) and non-statutory body.
➢ An advisory body to the Government of India on an array of issues of economic
development.
 ➢ A ‘think tank’ on economic development with the Prime Minister as its ex-officio
Chairman and with the provision or a Deputy Chairman.
➢ Linked with the Union Cabinet

WAY TO DECENTRALISED PLANNING

➢ Economic planning was basically an element of the centralized kind of political system
(i.e., the socialist and the communist). When India decided in favor of a planned
economy it was to face double challenges:
➢ The first challenge was to realize the objectives of planning in a time bound frame, and
➢ Making economic planning a suitable instrument of development in the democratic set
up—to democratize and decentralize the process of planning itself

NITI AAYOG
▪ The new development ‘think tank’—NITI Aayog—has a completely new orientation
towards decentralized planning.

▪ The body has to design the development policies keeping in mind the needs of nation,
states and the PRIs. This will be one of its kind—a fully ‘integrated’ planning process.

▪ It has to use the ‘bottom-up’ approach unlike the one-size-fits-all (‘Top down’) approach
of the past.

▪ To the extent the finalization of plans and required funds are concerned, all
stakeholders will be having their says (through the Governing Council which is
composed of the CMs of states and the Chiefs of UTs).

▪ Promoting the idea of ‘Team India’ which will be working on a common ‘National
Agenda’.

▪ It has to promote the idea of co-operative federalism, which is in itself a highly

decentralized style of promoting development planning.

▪ By early 2015, we saw a change in the Central government’s outlook towards the fund
requirements by the states, viz.,

▪ (i) States now get 42 per cent share in the pool of taxes of the Centre (recommendation
of the Fourteenth Finance Commission accepted).

▪ (ii) States are getting liberal funding (loan plus grants) from the Centre to implement the
State Plans.
▪ (iii) One of the aims behind implementing the proposed GST is to the enhance the
internal financial capacity of the states as the new tax will increase the gross tax
collections of the states.

▪ (iv) States are now free to go for higher market borrowings without any permission from
the Centre (but such a move has to come from the Centre). The UDAY (Ujwal Discom
Assurance Yojana), launched in 2015–16 is one of such approvals of the Central
government under which states are allowed to issue ‘UDAY Bonds’ up to 75 per cent of
the dues of the electricity distribution companies (Discom) of the states (by mid-2016,
the total discom debt in the country amounted to Rs. 4.3 lakh crore).

NITI (National Institution for Transforming India) Aayog

▪ The National Institution for Transforming India, also called NITI Aayog, was formed via a
resolution of the Union Cabinet on January 1, 2015. NITI Aayog is the premier policy
‘Think Tank’ of the Government of India, providing both directional and policy inputs.
While designing strategic and long term policies and programmes for the Government of
India, NITI Aayog also provides relevant technical advice to the Centre and States.

▪ PMO advised to prepare a Fifteen Year Vision, Seven Year Strategy, and Three Year
action agenda documents.

▪ The action agenda for the years 2017-18 to 2019-20 is ready and the other documents
are under preparation.

▪ The Government of India, in keeping with its reform agenda, constituted the NITI Aayog
to replace the Planning Commission instituted in 1950. This was done in order to better
serve the needs and aspirations of the people of India. An important evolutionary
change from the past, NITI Aayog acts as the quintessential platform of the Government
of India to bring States to act together in national interest, and thereby fosters
Cooperative Federalism.

▪ At the core of NITI Aayog’s creation are two hubs – Team India Hub and the Knowledge
and Innovation Hub. The Team India Hub leads the engagement of states with the
Central government, while the Knowledge and Innovation Hub builds NITI’s think-tank
capabilities. These hubs reflect the two key tasks of the Aayog.

FUNCTIONS OF NITI AAYOG

▪ i) To evolve a shared vision of national development priorities sectors and strategies
with the active involvement of States in the light of national objectives
▪ To foster cooperative federalism through structured support initiatives and mechanisms
with the States on a continuous basis, recognizing that strong States make a strong
nation

▪ To develop mechanisms to formulate credible plans at the village level and aggregate
these progressively at higher levels of government

▪ To ensure, on areas that are specifically referred to it, that the interests of national
security are incorporated in economic strategy and policy

To pay special attention to the sections of our society that may be at risk of not benefiting
adequately from economic progress.
▪ NITI Aayog is mandated to monitor, coordinate and ensure implementation of the
Sustainable Development Goals. NITI Aayog undertook the extensive exercise of
measuring India and its States’ progress towards the SDGs for 2030, culminating in the
development of the first SDG India Index -

▪ https://sdgindiaindex.socialcops.com/YuJbcq9d44/state-ut-
ranking/basic#3/23.00/81.26

GLOBAL ENVIRONMENT
Global Environment
Global Environment refers to the globalization related factors influencing business.
Globalization: it refers to the process of integration of the world into one huge market or
economy.
Global environment refers to set of forces and conditions in the world outside the
organization's boundaries that affect the way it operates and shapes its behavior with
opportunities and threats.
The global Co. views the world as one market & extends its business all over the world.
Globalization can be viewed as a four-dimensional construct :
 Globalization of corporate mindset

 Globalization of market presence

 Globalization of capital

 Globalization of supply chain

 Globalization means globalizing the market, production Investment, technology and other
activities.
Components of Globalization:
 Globalization of markets

Globalization of markets refers to the process of integration and merging of the distinct
world markets into an single market.
 Globalization of Production

Globalization of production is locating the manufacturing facilities in a number of locations

around the globe.
 Globalization of Investment

Globalization of Investment refers to investment of capital by a global company in any part

of the world.
 Globalization of Technology

The latest developments in information technology have enabled the global company to
develop into a virtual global company.
Methods of Globalization
1. Exporting directly
2. Exporting indirectly
3. Licensing/ Franchising
4. Contract Manufacturing
5. Establishing full Marketing facilities
6. Establishing Manufacturing Facilities
7. Joint ventures
8. Mergers
9. Strategic Alliance

Essential conditions for Globalization

1. Liberalizing the rules and regulations of control.

2. Removal of Quotas and Tariffs.

3. Providing freedom to the business and industry.

4. Providing infrastructural facilities.

 5. Removal of bureaucratic hurdles.

6.Encouraging research and development

7. Encouraging competitiveness based on quality, price, delivery, customer service etc.
8. Providing autonomy to the public sector to compete with private sector companies.
9. Providing administrative and governmental support.
10. Developing money and capital markets.
Drivers of Globalization
 Huge markets of rapidly developing economies

 Location of MNCs & their subsidiaries in low wage & low cost countries

 Changing demographics

 Regional trading blocks

 Declining trade & investment barriers

 Technology

 WTO

 The Economic Crisis in 1990s….the context of huge fiscal deficits, crisis in the balance of
payment situations towards the exchange reserves and conditions imposed by IMF led
to the announcement of the New Economic Policy by the government of India In June
1991.

 The new economic policy resulted in radical change in the structure and direction of
India economy. The direction tends towards the market economy and globalization of
the county.

Effects of Globalization on Business

 Globalization & Management

 Globalization & Jobs

 Globalization & Wages

 Globalization & Child labour

 Globalization & Women

  Globalization & Inequalities

 Globalization & Developing countries

Global Recession & Global Recovery also affect the business a greater extent.