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Jaiswal
CS Praveen Choudhary
RBI Act 1934
Reserve Bank of India Act, 1934
Introduction
The RBI designs and implements the regulatory policy framework for banking and non banking
financial institutions with the aim of providing people access to the banking system, protecting
depositors’ interest, and maintaining the overall health of the financial system.
RBI play an active role in balancing the relationship between banks and customers; focusing on
financial inclusion; setting up administrative machinery to handle customer grievances; pursuing clean
note policy and ensuring development and oversight of secure and robust payment and settlement
systems.
Important aspects relating to objectives of the Reserve Bank of India (RBI) are as follows:
1. Primary objects: Preamble to the RBI Act, 1934 spells out the objectives of the RBI as:
(a) To regulate the issue of bank notes.
(b) To keep reserves with a view to securing monetary stability in India.
(c) To operate currency and credit system of the country to its advantage.
Prior to the establishment of the RBI, the Indian financial system was totally inadequate on account
of the inherent weakness of the dual control of currency by the Central Government and of credit by
the Imperial Bank of India. The Hilton-Young Commission, therefore, recommended division of
functions and responsibility for control of currency and credit and the divergent policies by setting-up
of a central bank called the RBI which would regulate the financial policy and develop banking facilities
throughout the country. Hence, the RBI was established with this primary object in view.
2. Remain free from political influence: Another objective of the RBI has been to remain free from
political influence and be in successful operation for maintaining financial stability and credit.
3. Fundamental objects: Fundamental object of the RBI is to discharge purely central banking
functions in the Indian money market i.e. to act as -
(a) Note-issuing authority
(b) Bankers' bank
(c) Banker to government
4. Promote the growth of the economy: RBI aims to promote the growth of the economy within the
framework of the general economic policy of the Government, consistent with the need of
maintenance of price stability.
5. Development of Indian Economy: A significant object of the RBI has also been to assist the
planned process of development of the Indian economy. Besides the tradition all central banking
functions, with the launching of the 5 year plans in the country, the RBI has been moving ahead in
performing a host of developmental and promotional functions, which are normally beyond the
purview of a traditional Central Bank.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
RBI Act 1934
ESTABLISHMENT & INCORPORATION OF RBI
Establishment & incorporation: A bank to be called the RBI shall be constituted for the purposes
of taking over the management of the currency from the Central Government an of carrying on
the business of banking in accordance with the provisions of the Act.
RBI shall be a body corporate: The RBI shall be a body corporate by the name of the RB having
perpetual succession and a common seal and shall by the said name sue and be sue
Capital: The capital of the RBI shall be 5 Crore.
Offices, branches & agencies: The RBI shall establish offices in Bombay, Calcutta, Delhi and
Madras and may establish branches or agencies in any other place in India with the previous
sanction of the Central Government.
If in the opinion of Central Government the Bank fails to carry out any of the obligations imposed on
it by or under the Act, by notification in the Gazette of India, declare the Central Board to be
superseded, and thereafter the general superintendence and direction of the affairs of the Bank shall
be entrusted to such agency at the Central Government may determine.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
RBI Act 1934
BUSINESS WHICH THE RBI MAY NOT TRANSACT
RBI cannot engage in trade. It cannot have a direct interest in any commercial, industrial, or other
undertaking except such interest as it may in any way acquire in the course of the satisfaction of any
of its claims. However, all such interests shall be disposed of at the earliest possible moment.
RBI cannot purchase the shares of any banking company or of any other company, or grant loans
upon the security of any such shares.
RBI cannot advance money on mortgage of immovable property or documents of title relating
thereto. The RBI cannot become the owner of immovable property, except so far as is necessary
for its own business premises and residences for its officers and servants.
RBI cannot make loans or advances.
RBI cannot draw or accept bills payable otherwise than on demand.
RBI cannot allow interest on deposits or current accounts.
FUNCTIONS OF RBI
a) Banking Functions
b) Issue bank notes
c) Monetary Policy Functions
d) Public Debt Functions
e) Foreign Exchange Management
f) Banking Regulation & Supervision
g) Regulation and Supervision of NBFCs
h) Regulation & Supervision of Co-operative banks
i) Regulation of Derivatives and Money Market Instruments
j) Payment and Settlement Functions
k) Consumer Protection Functions
l) Financial Inclusion and Development Functions
*Financial inclusion is the pursuit of making financial services accessible at affordable costs to all
individuals and businesses E.g. jan dhan yojana, basic services de-mat account
RBI acts as banker to all the State Governments in India, except Jammu & Kashmir and Sikkim. It has
limited agreements for the management of the public debt of these 2 State Governments
Combating Counterfeiting
The RBI, in consultation with the Government of India, periodically reviews and upgrades the security
features of the bank notes to deter counterfeiting. It also shares information with various law
enforcement agencies to address the issue of counterfeiting. It has also issued detailed guidelines to
banks and government treasury offices on how to detect and impound counterfeit notes.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
RBI Act 1934
RBI as Banker to Banks
The RBI to fulfill this function, opens current accounts of banks with itself, enabling these banks to
maintain cash reserves as well as to carry out inter-bank transactions through these accounts. Inter-
bank accounts can also be settled by transfer of money through electronic fund transfer system, such
as, the Real Time Gross Settlement System (RTGS).
In addition, the RBI has also introduced the Centralized Funds Management System (CFMS) to
facilitate centralized funds enquiry and transfer of funds across Deposit Accounts Department (DADs).
This helps banks in their fund management as they can access information on their balances
maintained across different DADs from a single location.
As Banker to Banks, the RBI provides short-term loans and advances to select banks, when necessary,
to facilitate lending to specific sectors and for specific purposes. These loans are provided against
promissory notes and other collateral given by the banks.
The RBI also acts as the ‘lender of last resort’. It can come to the rescue of a bank that is solvent but
faces temporary liquidity problems by supplying it with much needed liquidity when no one else is
willing to extend credit to that bank. The RBI extends this facility to protect the interest of the
depositors of the bank and to prevent possible failure of a bank, which in turn may also affect other
banks and institutions and can have an adverse impact on financial stability and thus on the economy.
Loans and Advances: In order to maintain the quality of their loans and advances, the RBI requires
banks to classify their loan assets as performing and non-performing assets (NPA), primarily based on
the record of recovery from the borrowers. Banks are also required to make appropriate provisions
against each category of NPAs and also required to have exposure limits in place to prevent credit
concentration risk and limit exposures to sensitive sectors, such as, capital markets and real estate.
Investments: The RBI requires banks to classify their investment portfolios into three categories for
the purpose of valuation: Held to Maturity (HTM), Available for Sale (AFS) and Held for Trading (HFT).
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
RBI Act 1934
Payment and Settlement Systems
The regulation and supervision of payment systems is being increasingly recognized as a core
responsibility of central banks. Safe and efficient functioning of these systems is an important pre-
requisite for proper functioning of financial system and the efficient transmission of monetary policy.
The Payment and Settlement Systems Act, 2007 provides for regulation and supervision of payment
systems in India and designates the RBI as the authority for the purpose. As per the Act, only payment
systems authorized by the RBI can be operated in the country.
The RBI has adopted a three-pronged strategy of consolidation, development and integration to
establish a modern and robust payment and settlement system which is also efficient and secure. The
consolidation revolves around expanding the reach of the existing products by introducing clearing
process in new locations.
MONETARY POLICY
Monetary policy refers to the policy of the central bank with regard to the use of monetary
instruments under its control to achieve the goals specified in the Act. The RBI is vested with the
responsibility of adopting and implementing monetary policy. This responsibility is explicitly mandated
under the RBI Act, 1934. The primary objective of monetary policy is to maintain price stability while
keeping in mind the objective of growth. Price stability is a necessary precondition to sustainable
growth.
Penalties
1. Any person who does wilful misstatement or false statement or omits any material information
shall be punishable with imprisonment for a term which may extend to 3 years and shall also be
liable to fine.
2. If any person fails to produce any book, account or other document or to furnish any statement,
information or particulars, he shall be punishable with fine which may extend to Rs. 2000 for each
offence and if he persists in such failure or refusal, with further fine which may extend to Rs. 100
for every day, after the first during which the offence continues.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
FEMA 1999
Foreign Exchange Management Act, 1999
INTRODUCTION
Foreign Exchange Management Act, 1999 has replaced Foreign Exchange Regulation Act 1973
and it came into effect from 1.6.2000.
Reserve Bank of India is overall controlling authority in respect of FEMA. In
addition to RBI, Directorate of Enforcement has also been formed for the implementation
of FEMA.
Section 46 of FEMA authorizes Central Govt. to make Rules and Section
47 authorizes RBI to make Regulations to carry out the provisions of the Act.
Accordingly, the Central Govt. has issued number of Rules and RBI has issued number
of Regulations for various purposes. The practical aspects are covered by
these Rules and Regulations.
OBJECTIVE OF FEMA
1. To facilitate external trade and payments
2. To promote the orderly development and maintenance of foreign markets in India.
FEMA provides –
Free Transactions on current account subject to reasonable restrictions that may be imposed.
Capital Account Transactions.
Realization of export proceeds
Dealings in Foreign Exchange through Authorized person
Adjudication of Offences – Appeal provisions includin Special Director (Appeals) and Appellate Tribunal
FEMA Structure
The legislations, rules and regulations, governing Foreign Exchange Management are as under:
1. FEMA contains 7 Chapters divided into 49 sections of which 12 sections cover operational part
and the rest deals with contravention, penalties, adjudication, appeals, enforcement directorate,
etc.
CHAPTER I – Preliminary (Section 1&2)
CHAPTER II- Regulation and Management of Foreign Exchange (Section 3 –9)
CHAPTER III – Authorised Person (Section 10 –12)
CHAPTER IV – Contravention and Penalties (Section 13-15)
CHAPTER V – Adjudication and Appeal (Section 16- 35)
CHAPTER VI – Directorate of Enforcement (Section 36-38)
CHAPTER VII- Miscellaneous (Section 39 – 49)
2. Rules made by Ministry of Finance under section 46 of FEMA (Subordinate or delegated
Legislations)
3. Regulations made by RBI under section 47 of FEMA (Subordinate or delegated Legislations)
4. Master Direction issued by RBI on every year
5. Foreign Direct Investment policy issued by Department of Industrial Policy and Promotion.
6. Notifications and Circulars issued by Reserve Bank of India.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
FEMA 1999
Rules under FEMA
1. FEM (Encashment of Draft, Cheque, Instrument and Payment of Interest) Rules, 2000
2. FEM (Authentication of Documents) Rules, 2000
3. FEM (Current Account Transaction) Rules, 2000
4. FEM (Adjudication Proceedings and Appeal) Rules, 2000
5. FEM (Compounding Proceedings) Rules, 2000
6. The Appellate Tribunal for Foreign Exchange (Recruitment, Salary and Allowances and Other
Conditions of Service of Chairperson and Members) Rules, 2000
DEFINITIONS
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
FEMA 1999
Person resident in India Person resident in India means:
[Sec 2(v)] 1. A person residing in India for more than 182
days during the course of preceding
financial year but does not include the following:
a) Person who has gone out of India or who
stays outside India for any of the
following purposes :
i. For taking up employment outside India;
ii. For carrying on a business or vocation outside India;
iii. For any other purpose in such
circumstances as would indicate his
intention to stay outside India for an
uncertain period.
b) Person who has come to India or who
stays in India for any purpose other than
the following purposes
i. For taking up employment in India;
ii. For carrying on a business or vocation in India;
iii. For any other purpose in such
circumstances as would indicate his
intention to stay in India for an uncertain period.
2. Any person or body corporate registered or
incorporated in India;
3. An office, branch or agency established in
India which is owned or controlled by a
person resident outside India;
4. An office, branch or agency established outside
India, which is owned or controlled by a
person resident in India.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
FEMA 1999
Rules and Regulations regarding Section 3 and Section 4
I. Possession and retention of foreign exchange or foreign coins
Foreign exchange can be possessed and retained subject to the following limits :
1. Authorized person can retain or possess foreign currency and coins within the scope
of his authority without any limit ;
2. Any person can possess foreign coins without limit;
3. A person resident in India can retain foreign exchange upto Us $2000 or its equivalent in
aggregate in the following cases:
a) Such foreign exchange have been acquired by him while on a visit to any place out of India
by way of payment for services or by way of honorarium or gift ;
b) Such foreign exchange have been acquired by him from any person resident outside India and who
is on a visit to India for services or by way of honorarium or gift or in settlement
of any lawful obligation ;
c) Such foreign exchange represents unspent amount of foreign exchange acquired by him
from an authorized person for travel abroad.
4. A person resident in India but not permanently resident in India may possess foreign exchange without
any limit if such foreign exchange was acquired, held or owned by him when he was resident outside
India and has been brought into India in accordance with the prescribed regulations.
Period for surrender of received/ realised/ unspent/ unused foreign exchange by Resident
individuals
A person being an individual resident in India shall surrender the received/realised/
unspent/unused foreign exchange whether in the form of currency notes, coins and travellers
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
FEMA 1999
cheques, etc. to an authorised person within a period of 180 days from the date of such
receipt/realisation/purchase/acquisition or date of his return to India, as the case may be
I. Prohibited Current Account Transactions: There is prohibition of certain remittances, even if they are current
account transactions. Such transactions are:
1. Transactions with Nepal /Bhutan
Drawl of foreign exchange for travel in Nepal/Bhutan is not permitted
Transactions with a person resident in Nepal/Bhutan cannot be made in foreign exchange,
unless permitted by RBI by a special or general order.
2. Commission on exports to Joint Venture/Wholly Owned Subsidiary abroad
Commission on exports made towards equity investments in Joint Venture/Wholly Owned
Subsidiary abroad of Indian companies is not permitted.
3. Call back Charges
Payment related to call back services of telephone. In call back system, the party which is
receiving the telephone call makes payment of telephone charges.
4. Lottery/ Races
Remittance out of lottery winnings ;
Remittance of income from racing/riding etc.;
iii Remittance for purchase of lottery tickets, banned magazine, etc.
5. Lottery tickets/Money circulation schemes
Some organizations advise individuals they should arrange to remit some amount in US dollars as
fees. It has been clarified that remittance for lottery like schemes functioning under different
names such as money circulation scheme, remittance for purpose of securing prize money,
awards is prohibited.
6. Rupee State Credit Route
Payment of commission on exports under Rupee State Credit Route, except commission
upto 10 % of invoice value of exports of tea and tobacco.
7. Interest on fund in Non Residents special rupee account
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
FEMA 1999
II. Central Government Approval:
In these cases, prior approval of concerned Ministry of Government of India will be required
for remittance, even if they are current account transactions. However, if the payment is made
out of Resident Foreign Currency Account, approval of government is not required. The relaxation
is also applicable if payment is made out of funds in EEFC A/C, in some cases
Liberalised Remittance Scheme of USD 250,000 for Resident Individuals Effective 1 June 2015, under
the Liberalised Remittance Scheme, (hereinafter referred to as the Scheme/LRS) resident
individuals are allowed to remit upto USD 250,000 per financial year (April-March) for any permitted
current or capital account transactions or a combination of both.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
FEMA 1999
If an individual has already remitted any amount under the LRS, then the applicable limit for such an
individual would be reduced from the present limit of USD 250,000 for the financial year by the
amount already remitted. The Scheme is available to all resident individuals including minors.
Under the Scheme, resident individuals are permitted purchase property abroad and/or make
investment abroad and/or in setting up wholly owned subsidiaries and Joint Ventures abroad.
To facilitate ease of transactions, all the facilities (including private/business visits) for release of
exchange/remittances for current account transactions available to resident individuals under Foreign
Exchange Management (Current Account Transactions) Rules, 2000, as amended from time to time,
shall now be subsumed under the overall limit of USD 250,000.
A resident individual is permitted to make a rupee gift/loan to a NRI/PIO who is a close relative of the
resident individual (close relative as defined in Section 6 of the Indian Companies Act, 1956). The
gift/loan amount should be within the overall limit of USD 250,000 per financial year as permitted
under the Liberalised Remittance Scheme (LRS) for a resident individual
The Scheme is not available for remittance to countries notified as non-cooperative countries and
territories by the Financial Action Task Force (FATF) from time to time
and communicated by the Reserve Bank of India to all concerned.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
FEMA 1999
2. Acquisition and transfer of property in India by a person of Indian origin (PIO) resident outside
India
A person of Indian origin resident outside India may acquire immovable property in India other than
agricultural property, plantation property or farm house by way of purchase. He can also acquire the
property by way of gift or inheritance. He can transfer any immovable property other than
agricultural property, plantation property or farm house, by way of gift or sale, to a person
resident in India who is a citizen of India. If asset is
sold, amount equivalent to foreign exchange brought in can be repatriated.
Note: Citizens of Bangladesh, Pakistan, Sri Lanka, Afghanistan, China, Nepal, Iran or Bhutan cannot acquire
immovable property in India without the prior permission of RBI. However, they can acquire immovable
property in India by way of lease for a period upto 5 years without the RBI's approval.
3. Establishment of a branch office or liaison office or project office or any other place of business in
India:
No person resident outside India shall without prior approval of the Reserve Bank open in India a
branch office or a liaison office or a project office or any other place of business by whatever name
called except as laid down in these Regulations. Provided that
a) A banking company resident outside India shall not require any approval under these
Regulations for establishing any office in India if such company has obtained necessary
approval under the provisions of the Banking Regulation Act, 1949
b) An insurance company resident outside India shall not require any approval under these
Regulations for establishing any office in India if such company has obtained approval from
the Insurance Regulatory and Development Authority established under section 3 of the
Insurance Regulatory and Development Authority Act, 1999.
c) A company resident outside India shall not require any approval under these Regulations to
establish a branch office in the Special Economic Zones (SEZs) to undertake manufacturing
and service activities, subject to the conditions that:
i. Such branch offices are functioning in those sectors where 100% FDI is permitted;
ii. such branch offices comply with Chapter XXII of the Companies Act, 2013;
iii. and such branch offices function on a stand-alone basis.
A body corporate outside India desirous of opening Branch/Liason/Project office in India has to obtain
permission of RBI under provisions of FEMA 1999. The following additional criteria are also considered by
the Reserve Bank while sanctioning Liaison/Branch Offices of foreign entities:
Track Record
For Branch Office – a profit making track record during the immediately preceding five financial
years in the home country.
For Liaison Office – a profit making track record during the immediately preceding three financial
years in the home country.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
FEMA 1999
Net Worth [total of paid-up capital and free reserves, less intangible assets as per the latest
Audited Balance Sheet or Account Statement certified by a Certified Public Accountant
or any Registered Accounts Practitioner by whatever name].
For Branch Office — not less than USD 100,000 or its equivalent.
For Liaison Office — not less than USD 50,000 or its equivalent.
Regulation 4(b) states that a person resident outside India permitted by the Reserve Bank under the
Regulations to establish a branch or liaison office in India may undertake or carry on any activity specified
in Schedule I or II, as the case may be, but shall not undertake or carry on any other activity unless
otherwise specifically permitted by the Reserve Bank.
A Liaison Office can undertake the following activities in India
i. Representing in India the parent company / group companies.
ii. Promoting export / import from / to India.
iii. Promoting technical/financial collaborations between parent/group companies and companies in
India.
iv. Acting as a communication channel between the parent company and Indian companies.
Companies incorporated outside India and engaged in manufacturing or trading activities are allowed to
set up Branch Offices in India with specific approval of the RBI. Such Branch Offices are permitted to
represent the parent / group companies and undertake the following activities in India:
i. Export / Import of goods.
ii. Rendering professional or consultancy services.
iii. Carrying out research work, in areas in which the parent company is engaged.
iv. Promoting technical or financial collaborations between Indian companies and parent or overseas
group company.
v. Representing the parent company in India and acting as buying / selling agent in India
vi. Rendering services in information technology and development of software in India.
vii. Rendering technical support to the products supplied by parent/group companies.
viii. Foreign airline / shipping company.
Normally, the Branch Office should be engaged in the activity in which the parent company is engaged.
Retail trading activities of any nature is not allowed for a Branch Office in India.
A Branch Office is not allowed to carry out manufacturing or processing activities in India, directly or
indirectly.
Profits earned by the Branch Offices are freely remittable from India, subject to payment of applicable
taxes.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
FETC
Foreign Exchange Transactions & Compliances
Dealings in Foreign Exchange etc. (Section 3)
Except as otherwise provided in the Act, Rules or Regulations or with the general or special permission
of the RBI, no person shall:
1. Deal in or transfer any foreign exchange or foreign security to any person not being an
authorized person;
2. Make any payment to or for the credit of any person resident outside India in any manner;
3. Receive otherwise through an authorized person any payment by order or on behalf of any person
resident outside India in any manner;
4. Enter into financial transaction in India as consideration for acquisition or transfer of any asset
outside India by any person.
Except as otherwise provided in the Act, rules or regulations, no person resident in India shall
acquire, hold, own, possess or transfer any foreign exchange, foreign security or any
immovable property situated outside India.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
FETC
On realisation of foreign exchange due, a person shall repatriate the same to India, namely bring
into, or receive in, India and –
a) sell it to an authorised person in India in exchange for rupees; or
b) retain or hold it in account with an authorised dealer in India to the extent
specified by the Reserve Bank; or
c) use it for discharge of a debt or liability denominated in foreign exchange to the
extent and in the manner specified by the Reserve Bank.
A person shall be deemed to have repatriated the realised foreign exchange to India when he
receives in India payment in rupees from the account of a bank or an exchange house situated in
any country outside India, maintained with an authorised dealer.
A person not being an individual resident in India shall sell the realised foreign exchange to an
authorised person within the period specified below: -
Foreign exchange due or accrued as remuneration for services rendered, whether in or outside
India, or in settlement of any lawful obligation, or an income on assets held outside India, or
as inheritance, settlement or gift, within seven days from the date of its receipt;
in all other cases within a period of ninety days from the date of its receipt
In case the foreign exchange acquired was for travel abroad the unspent amount must be surrendered
to an authorized person in the following manner:
Within 90 days from the date of return to India when the unspent foreign exchange is in
the form of currency notes and coins ;
Within 180 days from the date of return to India when the unspent foreign exchange
is in the form of traveller's cheque.
Period for surrender of received/ realised/ unspent/ unused foreign exchange by Resident
individuals
A person being an individual resident in India shall surrender the received/realised/
unspent/unused foreign exchange whether in the form of currency notes, coins and travellers
cheques, etc. to an authorised person within a period of 180 days from the date of such
receipt/realisation/purchase/acquisition or date of his return to India, as the case may be
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
FETC
Foreign Exchange Management (Permissible Account Transactions) Regulations, 2000
covered
Regulations regarding Capital Account Transactions
Already covered
Manner of Repatriation
On realisation of foreign exchange due, a person shall repatriate the same to India, namely bring into,
or receive in, India and -
a) sell it to an authorised person in India in exchange for rupees; or
b) retain or hold it in account with an authorised dealer in India to the extent specified by the Reserve
Bank; or
c) use it for discharge of a debt or liability denominated in foreign exchange to the extent and in the
manner specified by the Reserve Bank.
A person shall be deemed to have repatriated the realised foreign exchange to India when he receives
in India payment in rupees from the account of a bank or an exchange house situated in any country
outside India, maintained with an authorised dealer.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
FETC
Where the foreign exchange acquired or purchased by any person not being an individual
resident in India from an authorised person is for the purpose of foreign travel, then, the unspent
balance of such foreign exchange shall, save as otherwise provided in the regulations made under
the Act, be surrendered to an authorised person─
i. within 90 days from the date of return of the traveller to India, when the unspent foreign
exchange is in the form of currency notes and coins; and
ii. within 180 days from the date of return of the traveller to India, when the unspent foreign
exchange is in the form of travellers cheques.
Remittance of Assets
'Remittance of assets' means remittance outside India of funds in a deposit with a bank/ firm/
company, provident fund balance or superannuation benefits, amount of claim or maturity proceeds
of insurance policy, sale proceeds of shares, securities, immovable property or any other asset held in
India in accordance with the provisions of the Foreign Exchange Management Act, 1999 (FEMA) or
rules/ regulations made there under.
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CS Praveen Choudhary
FETC
of sale proceeds of such property would be guided by the extant instructions on remittance of
balance in the NRO account;
In case the remittance is made in more than one instalment, the remittance of all instalments should
be made through the same AD. Where the remittance is to be made from the balances held in the
NRO account, the Authorised Dealer should obtain an undertaking from the account holder stating
that the said remittance is sought to be made out of the remitter’s balances held in the account arising
from his/ her legitimate receivables in India and not by borrowing from any other person or a transfer
from any other NRO account and if such is found to be the case, the account holder will render himself/
herself liable for penal action under FEMA.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
FETC
b) Hardship will be caused to a person if remittance from India is not made to such a person.
Remittance of funds from the sale of assets in India held by a person, whether resident in or outside
India, not covered under the directions stipulated above will require approval of the Reserve Bank.
Regulation 4 deals with possession of foreign exchange by a person resident in India but not
permanently resident therein and provides that a person resident in India but not permanently
resident therein may possess without limit foreign currency in the form of currency notes, bank notes
and travellers cheques, if such foreign currency was acquired, held or owned by him when he was
resident outside India and, has been brought into India in accordance with the law for the time being
in force.
AUTHORISED PERSON
1. Under Section 10, any person who has made an application to the RBI may be authorised by it to
act as an authorised person to deal in foreign exchange or in foreign securities as an authorised
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CS Praveen Choudhary
FETC
dealer, money changer or offshore banking unit or in any other manner as the RBI deem fit. This
authorisation is in writing and subject to the conditions laid down by the RBI.
Reserve Bank of India has been empowered to revoke the authorisation granted to any person
at any time in the public interest. It may also revoke the authorisation after giving an
opportunity, if the authorised person failed to comply with the conditions subject to which
the authorisation was granted or contravened any of the provisions of the Act, rules,
notifications or directions
Any person, other than an authorised person who has acquired or purchased foreign exchange
for any purpose mentioned in the declaration made by him to the authorised person does not
use it for such purpose, or does not surrender it to authorised person within the specified
period, or uses the foreign exchange for any other purpose, which is not permitted under the
provisions of the Act, such person shall be deemed to have committed contravention of the
provisions of the Act.
2. Section 11 of the Act empowers the RBI to issue directions to the authorised person in regard to
making of payment or doing or desist from doing any act relating to foreign exchange or foreign
security.
Reserve Bank has also been empowered to issue directions to the authorised persons to
furnish such information in such manner as it deems fit.
If any authorised person contravenes any direction given by the RBI or fails to file the return
as directed by RBI, he may be liable to a fine not exceeding Rs. 10,000/- and in the case of
continuing contravention, with an additional penalty which may extend to Rs. 2,000 for every
day during which such contravention continues.
3. Section 12 of the Act empowers RBI to inspect the business of any authorised person for the
purpose of verifying the correctness of any statement/information or particulars furnished.
In case authorised person fails to furnish the information sought, the RBI can initiate
inspection of the authorised person for obtaining such information.
RBI may also inspect the business of an authorised person for securing compliance with the
provisions of the Foreign Exchange Management Act or any of the Rules, Regulations or
directions.
The Reserve Bank may make an order in writing authorising any of its officer for this purpose.
There are 3 levels of Adjudicating Authorities i.e. Deputy Director, Additional Director and Director
of Directorate of Enforcement in the ascending order of hierarchy. The Assistance Director of Directorate
of Enforcement normally makes a complaint before the
Adjudicating Authorities but sometimes he can also act as Adjudicating Authority.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
FETC
The appeal against the orders of Special Director (Appeals) shall lie before Appellate Tribunal
for Foreign Exchange.
Directorate of Enforcement
Section 36 of the Act empowers the Central Government to establish a Directorate of
Enforcement with a Director and other officers or class of Officers, for the purposes of the
enforcement of the Act.
The Central Government has also been empowered to authorise Director, Additional Director,
Special Director or Deputy Director to appoint officers of enforcement below the rank of Assistant
Director of Enforcement to exercise the powers and discharge the duties conferred or imposed
on him under the Act.
The Central Government, may, by order and with prescribed conditions and limitations, authorise
any officers of customs or Central Excise or any police officer or officers of Central or State
Government to exercise such powers and discharge such duties of the Director of Enforcement or
any other officer of the Enforcement as stated in the order.
Investigation
Section 37 of the Act empowers the Director of Enforcement and other officers below the rank of
an Assistant Director to take up for investigation the contravention referred to in Section 13 of
the Act.
In addition, the Central Government may also authorise any officer or class of officers in the
Central Government, State Government, Reserve Bank of India, not below the rank of Under
Secretary to Government of India, to investigate any contravention under Section 13 of the Act.
The officers so appointed shall exercise the like powers which are conferred on income tax
authorities under the Income Tax Act, 1961, subject to such conditions and limitations as laid
down under that Act.
Contravention by Companies
Section 42 of the Act provides that where the person committing the contravention of the Act or
Rules happened to be a company, every person who at the time the contravention was
committed, was in charge of and was responsible to the company for the conduct of the business
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
FETC
of the company shall be deemed to be guilty of the contravention and liable to be proceeded
against and punished accordingly.
However, no such persons shall be deemed to be guilty of committing any offence if he proves
that such contravention took place without his knowledge or that he exercised adequate steps to
prevent such contravention.
In case the contravention is committed by a company and it is proved that such contravention is
committed with the knowledge, consent and connivance or is attributed to the neglect on the part
of any director, manager or secretary or other officer of the company, they will also be deemed
to be guilty of contravention and liable to be proceeded against and punished accordingly.
COMPOUNDING OF OFFENCES
Compounding refers to the process of voluntarily admitting the contravention, pleading guilty
and seeking redressal.
The Reserve Bank is empowered to compound any contraventions as defined under section 13 of
FEMA, 1999 except the contravention under section 3(a), for a specified sum after offering an
opportunity of personal hearing to the contravener.
Willful, malafide and fraudulent transactions are, however, viewed seriously, which will not be
compounded by the Reserve Bank.
Any person who contravenes any provision of the FEMA, 1999 [except section 3(a)] or contravenes
any rule, regulation, notification, direction or order issued in exercise of the powers under this Act
or contravenes any condition subject to which an authorization is issued by the Reserve Bank, can
apply for compounding to the Reserve Bank.
Applications seeking compounding of contraventions under section 3(a) of FEMA, 1999 may be
submitted to the Directorate of Enforcement.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
FETC
Contraventions relating to any transaction where proper approvals or permission from the
Government or any statutory authority concerned, as the case may be, have not been obtained
such contraventions would not be compounded unless the required approvals are obtained from
the concerned authorities.
Cases of contravention such as those having a money laundering angle, national security concerns
and/or involving serious infringements of the regulatory framework or where the contravener fails
to pay the sum for which contravention was compounded within the specified period in terms of
the compounding order, shall be referred to the Directorate of Enforcement for further
investigation.
Whenever a contravention is identified by the Reserve Bank or brought to its notice by the entity
involved in contravention by way of a reference other than through the prescribed application for
compounding, the Bank will continue to decide
whether a contravention is technical and/or minor in nature and, as such, can be dealt with
by way of an administrative/ cautionary advice;
whether it is material and, hence, is required to be compounded for which the necessary
compounding procedure has to be followed or
whether the issues involved are sensitive / serious in nature and, therefore, need to be
referred to the Directorate of Enforcement (DOE).
However, once a compounding application is filed by the concerned entity suo moto, admitting
the contravention, the same will not be considered as ‘technical’ or ‘minor’ in nature and the
compounding process shall be initiated.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
FETC
The Compounding Order shall specify the provisions of the FEMA, 1999 or any rule, regulation,
notification, direction or order issued in exercise of the powers under FEMA, 1999 in respect of
which contravention has taken place along with details of the contravention.
One copy of the compounding order shall be supplied to the applicant (the contravener) and also
to the Adjudicating Authority, where the compounding of any contravention is made after making
of a complaint.
To ensure more transparency and greater disclosure, it has been decided to host the compounding
orders passed on the Reserve Bank’s website (www.rbi.org.in).
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
FCRA, 2010
FOREIGN CONTRIBUTION (REGULATION ACT), 2010
INTRODUCTION
The foreign contribution (Regulation) Act 1976 was enacted to regulate the acceptance and utilization
of foreign contribution or hospitality with a view to ensure that parliamentary institutions, political
associations, academic and other voluntary organisations as well as individuals working in important
areas of national life may function in a manner consistent with the values of sovereign democratic
republic. The act was amended in 1984.
However, in 2010, Foreign Contribution (Regulation) act 2010 was enacted and 1976 was repealed
w.e.f May 1, 2011. The MHA has issued necessary gazette notification dated 29th April 2011 in this
regard. The MHA also notified the foreign contribution (Regulation) Rules 2011 which came into force
simultaneously with FCRA 2010.
DEFINITIONS
Foreign Contribution “Foreign contribution” means the donation,
delivery or transfer made by any foreign source,-
i. Of any article, not being an article given to a person as a
gift for his personal use, if the market value, in India, of such
article, on the date of such gift, is not more than such sum as
may be specified from time to time, by the Govt. by the rules made
by it in this behalf;
ii. of any currency, whether Indian or foreign;
iii. of any security as defined in sec 2 (h) of the Securities
Contracts(Regulation) Act 1956
Foreign Hospitality means any offer, not being a purely casual one, made in cash or kind
[Section 2 (1) (i)] by a foreign source for providing a person with the costs of travel to any
foreign country or territory or with free boarding, lodging, transport or
medical treatment.
Foreign Source Includes -
[Section 2(1)(j)] i. Foreign Govt. or its agency.
ii. any international agency, except United Nations or any of its
specialised agencies, the World Bank, IMF or such other Govt.
notified agencies;
iii. a foreign company;
iv. other incorporated foreign corporations;
v. MNCs
vi. A company within the meaning of the Companies Act, 1956 or
2013 and more than 50% of the nominal value of its share capital is
held, either singly or in the aggregate, by one or more of the
following, namely:—
Foreign Govt.;
Foreign Citizen;
Foreign corporations;
Foreign trusts, societies or other associations of individuals
foreign company;
vii. Foreign Trade Union
viii. Foreign citizen
Person includes—
[Section 2(1)(m)]
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
FCRA, 2010
i. an individual;
ii. a HUF;
iii. an association;
iv. a company registered under section 25 of the Companies Act, 1956
OR Sec 8 of co. act 2013
Political party Means an association or body of individual citizens of India -
a) to be registered with the Election Commission of India as a political party
u/s 29A of the Representation of the People Act, 1951; OR
b) which has set up candidates for election to any Legislature, but is not so
registered or deemed to be registered under the Election Symbols
(Reservation and Allotment) Order, 1968;
Section 3(2)(a) provides that no person, resident in India, and no citizen of India resident outside
India, shall accept any foreign contribution, or acquire or agree to acquire any currency from a
foreign source, on behalf of any political party, or any person, prohibited
from accepting any foreign contribution.
Sub-section (2) (b) mandates that no person, resident in India, shall deliver any currency, whether
Indian or foreign, which has been accepted from any foreign source, to any person if he knows or
has reasonable cause to believe that such other person intends, or is likely, to deliver such currency
to any political party or any person, prohibited from accepting any foreign contribution.
Section 3(2)(c) provides that no citizen of India resident outside India shall deliver any currency,
whether Indian or foreign, which has been accepted from any foreign source, to
any political party or if he knows or has reasonable cause to believe that such other person intends,
or is likely, to deliver such currency to a political party or to any person specified in section 3(1), or both.
Section 3(3) provides that no person receiving any currency, whether Indian or foreign, from a foreign
source on behalf of any person or class of persons, referred to in section 9, shall
deliver such currency to any person other than a person for which it was received,
or to any other person, if he knows or has reasonable cause to believe that such other person intends,
or is likely, to deliver such currency to a person other than the person
for which such currency was received.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
FCRA, 2010
a) By way of salary, wages or other remuneration due to him or to any group of persons working
under him, from any foreign source or by way of payment in the ordinary course of
business transacted in India by such foreign source; or
b) By way of payment, in the course of international trade or commerce, or in the ordinary course
of business transacted by him outside India; or
c) As an agent of a foreign source in relation to any transaction made by such foreign source with
the CG or SG; or
d) By way of a gift or presentation made to him as a member of any Indian delegation, provided
that such gift or present was accepted in accordance with the rules made by the CG with
regard to the acceptance or retention of such gift or presentation; or
e) from his relative; or
f) by way of any scholarship, stipend or any payment of like nature:
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
FCRA, 2010
such contribution for the purposes for which the contribution has been received. And should
not use more than 50% of foreign contribution received in one financial year as administrative expenses.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
FCRA, 2010
d) in case the person being an individual, such individual has neither been convicted under any law for
the time being in force nor any prosecution for any offence pending against him;
e) in case the person being other than an individual, any of its directors or office bearers has neither
been convicted under any law for the time being in force nor any prosecution for any
offence is pending against him;
f) the acceptance of foreign contribution by the person, is not likely to affect prejudicially —
the sovereignty and integrity of India; or
the security, strategic, scientific or economic interest of the State; or
the public interest; or
freedom or fairness of election to any Legislature; or
friendly relation with any foreign State; or
harmony between religious, racial, social, linguistic, regional groups, castes or communities;
Suspension of certificate
Section 13 (1) provides that where the CG, for reasons to be recorded in writing, is satisfied
that pending consideration of the question of cancelling the, it is necessary so to do, it may, by
order in writing, suspend the certificate for such period not exceeding 180 days may be specified
in the order. Further every person whose certificate has been suspended shall not receive any
foreign contribution during the period of suspension of certificate.
Cancellation of certificate
Section 14 empowers the CG to cancel the certificate. Accordingly, the CG may, if it is satisfied after
making such inquiry as it may deem fit, by an order, cancel the certificate if —
a) The holder of the certificate has made a statement in, or in relation to, the application for the
grant of registration or renewal thereof, which is incorrect or false;or
b) The holder of the certificate has violated any of the terms and conditions of the certificate or
renewal thereof; or
c) In the opinion of the CG, it is necessary in the public interest to cancel the certificate; or
d) The holder of certificate has violated any of the provisions of this Act or rules or
order made thereunder; or
e) If the holder of the certificate has not been engaged in any reasonable activity in its chosen field for
the benefit of the society for 2 consecutive years or has become defunct.
Intimation
Section 18 requires every person who has been granted a certificate or given prior approval
to provide within such time and in such manner as may be prescribed, an intimation to the
Central Government, and such other authority as may be specified by the Central Government,
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
FCRA, 2010
as to the amount of each foreign contribution received by it, the source from which and the
manner in which such foreign contribution was received, and the purposes for which, and the
manner in which such foreign contribution was utilised by him.
Maintenance of accounts
Section 19 requires every person who has been granted a certificate or given prior approval to
maintain, in such form and manner as may be prescribed, an account of any foreign contribution
received by him; and a record as to the manner in which the contribution was received.
Section 22 provides that where any person who was permitted to accept foreign contribution under
this Act, ceases to exist or has become defunct, all the assets of such person shall be disposed of in
accordance with the provisions contained in any law for the time being in force under which
the person was registered or incorporated or as the CG may deem fit.
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Prof. Abhijeet C. Jaiswal
FDI
Any investment in any business entities in India from other country shall be known as Foreign Direct
Investment in India.
Definitions
Depository Receipt (DR) means a negotiable security issued outside India by a Depository bank, on
behalf of an Indian company, which represent the local Rupee denominated equity shares of the
company held as deposit by a Custodian bank in India.
‘Domestic Custodian’ means a custodian of securities registered with the SEBI in accordance with the
SEBI (Custodian of Securities) Regulations, 1996.
‘Domestic Depository’ means a custodian of securities registered with the SEBI and authorised by the
issuing entity to issue Indian depository receipts.
‘Erstwhile Overseas Corporate Body’(OCB) means a company, partnership firm, society and
other corporate body owned directly or indirectly to the extent of at least sixty percent by non-
resident Indians and includes overseas trust in which not less than sixty percent beneficial
interest is held by non-resident Indians directly or indirectly but irrevocably and which was in
existence on the date of commencement of the Foreign Exchange Management (Withdrawal of
General Permission to Overseas Corporate Bodies (OCBs) Regulations, 2003 and immediately
prior to such commencement was eligible to undertake transactions pursuant to the general
permission granted under the regulations under FEMA.
Foreign Currency Convertible Bond ‘Foreign Currency Convertible Bond’ (FCCB) means a bond issued
by an Indian company expressed in foreign currency, the principal and interest of which is payable in
foreign currency.
Foreign Venture Capital Investor ‘Foreign Venture Capital Investor’ (FVCI) means an investor
incorporated and established outside India, which is registered under the Securities and Exchange Board
of India (Foreign Venture Capital Investor) Regulations, 2000 {SEBI(FVCI) Regulations} and proposes to
make investment in accordance with these Regulations.
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Prof. Abhijeet C. Jaiswal
FDI
Indian Venture Capital Undertaking ‘Indian Venture Capital Undertaking’ (IVCU) means an Indian
company:
(i) Whose shares are not listed in a recognised stock exchange in India;
(ii) Which is engaged in the business of providing services, production or manufacture of articles or
things, but does not include such activities or sectors which are specified in the negative list by the SEBI,
with approval of Central Government, by notification in the Official Gazette in this behalf.
‘Investment on repatriable basis’ means investment, the sale or maturity proceeds of which, net of
taxes, are eligible to be repatriated out of India and the expression ‘investment on non-repatriable basis’
shall be construed accordingly.
ELIGIBLE INVESTORS
1. (a) A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities
which are prohibited.
However, an entity of a country, which shares land border with India or where the beneficial owner of
an investment into India is situated in or is a citizen of any such country, can invest only under the
Government route.
Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the
Government route, in sectors/activities other than defence, space, atomic energy and sectors/activities
prohibited for foreign investment.
(b) In the event of the transfer of ownership of any existing or future FDI in an entity in India, directly or
indirectly, resulting in the beneficial ownership falling within the restriction/purview of the para 1(a),
such subsequent change in beneficial ownership will also require Government approval.
2. NRIs resident in Nepal and Bhutan as well as citizens of Nepal and Bhutan are permitted to invest in
the capital of Indian companies on repatriation basis, subject to the condition that the amount of
consideration for such investment shall be paid only by way of inward remittance in free foreign
exchange through normal banking channels.
3. OCBs have been derecognized as a class of investors in India with effect from September 16, 2003.
Erstwhile OCBs which are incorporated outside India and are not under the adverse notice of RBI can
make fresh investments as incorporated non-resident entities in accordance with the FDI Policy and
Foreign Exchange Management (Non-Debt Instrument) Rules, 2019.
4. A company, trust and partnership firm incorporated outside India and owned and controlled by NRIs
can invest in India with the special dispensation as available to NRIs under the FDI Policy.
5. Foreign Portfolio Investors (FPI) may make investments in the manner and subject to the terms and
conditions specified in Schedule II of Foreign Exchange Management (Non-Debt Instruments) Rules,
2019.
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Prof. Abhijeet C. Jaiswal
FDI
6. Registered FPIs and NRIs can invest/trade through a registered broker in the capital of Indian
Companies on recognised Indian Stock Exchanges as per the applicable Schedule under the Foreign
Exchange Management (Non-Debt Instruments) Rules, 2019, as amended from time to time.
7. A Foreign Venture Capital Investor (FVCI) may make investments in the manner and subject to the
terms and conditions specified in Schedule VII of Foreign Exchange Management (Non-Debt
Instruments) Rules, 2019.
8. An NRI or an OCI may subscribe to National Pension System governed and administered by Pension
Fund Regulatory and Development Authority (PFRDA), provided such subscriptions are made through
normal banking channels and the person is eligible to invest as per the provisions of the PFRDA Act. The
annuity/ accumulated saving will be repatriable.
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Prof. Abhijeet C. Jaiswal
FDI
An Indian company or an LLP, having foreign investment, is also permitted to make downstream
investment in another company or LLP in sectors in which 100% FDI is allowed under the
automatic route and there are no FDI linked performance conditions.
Conversion of an LLP having foreign investment and operating in sectors/activities where 100%
FDI is allowed through the automatic route.
Similarly, A company can also be converted having foreign investment and operating in
sectors/activities where 100% FDI is allowed through the automatic route and there are no FDI
linked performance conditions.
Foreign Investment in LLP is subject to the compliance of the conditions of LLP Act, 2008.
5. Investment Vehicle
An entity being ‘investment vehicle’ registered and regulated under relevant regulations framed by
SEBI or any other authority designated for the purpose including
Real Estate Investment Trusts (REITs) governed by the SEBI (REITs) Regulations, 2014,
Infrastructure Investment Trusts (InvIts) governed by the SEBI (InvIts) Regulations, 2014,
Alternative Investment Funds (AIFs) governed by the SEBI (AIFs) Regulations, 2012
is permitted to receive foreign investment from a person resident outside India (other than an
individual who is citizen of or any other entity which is registered / incorporated in Pakistan or
Bangladesh)
6. Startup Companies
Start-ups can issue equity or equity linked instruments or debt instruments to FVCI against receipt
of foreign remittance, as per Foreign Exchange Management (Non-Debt Instruments) Rules, 2019.
In addition, start-ups can issue convertible notes to person resident outside India subject to the
following conditions
(i) A person resident outside India (other than an individual who is citizen of Pakistan or
Bangladesh or an entity which is registered/incorporated in Pakistan or Bangladesh), may
purchase convertible notes issued by an Indian startup company for an amount of
Rs. 25 lakhs or more in a single tranche, without any approval.
(ii) For the purpose of this Regulation, a ‘startup company’ means a private company
incorporated under the Companies Act, 2013 or Companies Act,1956 and recognised as
such by the DPIIT, Ministry of Commerce and Industry.
(iii) A startup company engaged in a sector where foreign investment requires Government
approval may issue convertible notes to a non-resident only with approval of the
Government.
(iv) The issue of shares against convertible notes shall be in accordance with the Foreign
Exchange Management (Non-Debt Instruments) Rules, 2019.
(v) A startup company issuing convertible notes to a person resident outside India shall receive
the amount of consideration by inward remittance through banking channels or by debit to
the NRE / FCNR (B) / Escrow account maintained by the person concerned in accordance
with the Foreign Exchange Management (Deposit) Regulations, 2016, as amended from
time to time.
Provided that an escrow account for the above purpose shall be closed immediately after
the requirements are completed or within a period of six months, whichever is earlier.
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Prof. Abhijeet C. Jaiswal
FDI
(vi) NRIs may acquire convertible notes on non-repatriation basis in accordance with Schedule
IV of the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019.
(vii) A person resident outside India may acquire or transfer, convertible notes, by way of sale,
from or to, a person resident in or outside India, provided the transfer takes place in
accordance applicable pricing guidelines under FEMA. Prior approval from the Government
shall be obtained for such acquisitions or transfers in case the startup company is engaged
in a sector which requires Government approval.
(viii) The startup company issuing convertible notes shall be required to furnish reports as
prescribed by the RBI.
Foreign investment in sectors/activities under government approval route will be subject to government
approval where:
(i) An Indian company is being established with foreign investment and is not owned by a
resident entity or
(ii) An Indian company is being established with foreign investment and is not controlled by a
resident entity or
(iii) The control of an existing Indian company, currently owned or controlled by resident Indian
citizens and Indian companies, which are owned or controlled by resident Indian citizens,
will be/is being transferred/ passed on to a non-resident entity as a consequence of transfer
of shares and/or fresh issue of shares to nonresident entities through amalgamation,
merger/demerger, acquisition etc. or ,
(iv) The ownership of an existing Indian company, currently owned or controlled by resident
Indian citizens and Indian companies, which are owned or controlled by resident Indian
citizens, will be/is being transferred/ passed on to a non-resident entity as a consequence of
transfer of shares and/or fresh issue of shares to nonresident entities through
amalgamation, merger/demerger, acquisition etc.
(v) It is clarified that foreign investment shall include all types of foreign investments, direct and
indirect, regardless of whether the said investments have been made under
Schedule I (FDI),
II (FPI),
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Prof. Abhijeet C. Jaiswal
FDI
III (NRI),
VI (LLPs),
VII (FVCI),
VIII(Investment Vehicles) and
IX (DRs) of Foreign Exchange Management (Non-Debt Instruments) Rules, 2019.
FCCBs and DRs having underlying of instruments which can be issued under Schedule IX,
being in the nature of debt, shall not be treated as foreign investment.
However, any equity holding by a person resident outside India resulting from conversion of
any debt instrument under any arrangement shall be reckoned as foreign investment.
(vi) Investment by NRIs under Schedule IV of Foreign Exchange Management (Non-Debt
Instruments) Rules, 2019 will be deemed to be domestic investment at par with the
investment made by residents.
(vii) A company, trust and partnership firm incorporated outside India and owned and controlled
by non-resident Indians will be eligible for investments under Schedule IV of Foreign
Exchange Management (Non-Debt Instruments) Rules, 2019 and such investment will also
be deemed domestic investment at par with the investment made by residents.
Downstream investment by an eligible Indian entity, which is not owned and/or controlled by
resident entity(ies), into another Indian company, would be in accordance/compliance with the
relevant sectoral conditions on entry route, conditionalities and caps, with regard to the sectors
in which the latter Indian company is operating
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Prof. Abhijeet C. Jaiswal
FDI
o Such an entity is required to notify its downstream investment to RBI in Form DI as well
as on Foreign Investment Facilitation Portal in the form available at www.fifp.gov.in
within 30 days of such investment, even if capital instruments have not been allotted
along with the modality of investment in new/existing ventures
o Downstream investment by way of induction of foreign investment in an existing Indian
Company to be duly supported by a resolution of the Board of Directors as also a share-
holders agreement, if any
o Issue/transfer/pricing/valuation of capital shall be in accordance with applicable
FEMA/SEBI guidelines
o the eligible Indian entities making the downstream investments would have to bring in
requisite funds from abroad and not leverage funds from the domestic market
POHIBITED SECTORS
a) Lottery Business including Government/private lottery, online lotteries, etc.
b) Gambling and Betting including casinos etc.
c) Chit funds
d) Nidhi company
e) Trading in Transferable Development Rights (TDRs)
f) Real Estate Business or Construction of Farm Houses
g) ‘Real estate business’ shall not include development of townships, construction of residential
/commercial premises, roads or bridges and Real Estate Investment Trusts (REITs) registered and
regulated under the SEBI (REITs) Regulations 2014.
h) Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes
Activities/ sectors not open to private sector investment e.g.(I) Atomic Energy and (II) Railway
operations (other than permitted activities).
Foreign technology collaboration in any form including licensing for franchise, trademark, brand name,
management contract is also prohibited for Lottery Business, Gambling and Betting activities.
PERMITTED SECTORS
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Prof. Abhijeet C. Jaiswal
FDI
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Prof. Abhijeet C. Jaiswal
FDI
(iii) Digital & electronic network will include network of computers, television channels and any other
internet application used in automated manner such as web pages, extranets, mobiles etc.
(iv) Marketplace e-commerce entity will be permitted to enter into transactions with sellers registered
on its platform on B2B basis.
(v) E-commerce marketplace may provide support services to sellers in respect of warehousing, logistics,
order fulfillment, call centre, payment collection and other services.
(vi) E-commerce entity providing a marketplace will not exercise ownership or control over the
inventory i.e. goods purported to be sold. Such an ownership or control over the inventory will render
the business into inventory-based model.
Inventory of a vendor will be deemed to be controlled by e-commerce marketplace entity if more than
25% of purchases of such vendor are from the marketplace entity or its group companies.
(vii) In marketplace model goods/services made available for sale electronically on website should
clearly provide name, address and other contact details of the seller. Post sales, delivery of goods to the
customers and customer satisfaction will be responsibility of the seller.
(viii) In marketplace model, payments for sale may be facilitated by the e-commerce entity in conformity
with the guidelines of the Reserve Bank of India.
(ix) In marketplace model, any warrantee/ guarantee of goods and services sold will be responsibility of
the seller
(x) E-commerce marketplace entity will not mandate any seller to sell any product exclusively on its
platform only
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Prof. Abhijeet C. Jaiswal
FDI
Optionality clauses are allowed in equity shares, debentures and preference shares under FDI scheme,
subject to the following conditions:
(a) There is a minimum lock-in period of one year which shall be effective from the date of allotment of
such capital instruments.
(b) After the lock-in period and subject to FDI Policy provisions, if any, the non-resident investor
exercising option/right shall be eligible to exit without any assured return, as per pricing/valuation
guidelines issued under FEMA from time to time
3. The inward remittance received by the Indian company vide issuance of DRs and FCCBs are treated as
FDI and counted towards FDI.
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Prof. Abhijeet C. Jaiswal
FDI
4. Acquisition of Warrants and Partly Paid Shares - An Indian Company may issue warrants and partly
paid shares to a person resident outside India subject to terms and conditions as stipulated by the
Reserve Bank of India in this behalf, from time to time
5. Issue of Foreign Currency Convertible Bonds (FCCBs) and Depository Receipts (DRs)
a) FCCBs/DRs may be issued in accordance with the Scheme for issue of Foreign Currency Convertible
Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and DR Scheme
2014 respectively, as per the guidelines issued by the Government of India there under from time to
time.
b) DRs are foreign currency denominated instruments issued by a foreign Depository in a permissible
jurisdiction against a pool of permissible securities issued or transferred to that foreign depository and
deposited with a domestic custodian.
c) In terms of Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 as amended from
time to time, a person will be eligible to issue or transfer eligible securities to a foreign depository, for
the purpose of converting the securities so purchased into depository receipts in terms of Depository
Receipts Scheme, 2014 and guidelines issued by the Government of India thereunder from time to time.
d) A person can issue DRs, if it is eligible to issue eligible instruments to person resident outside India
under relevant Schedules under Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, as
amended from time to time.
e) The aggregate of eligible securities which may be issued or transferred to foreign depositories, along
with eligible securities already held by persons resident outside India, shall not exceed the limit on
foreign holding of such eligible securities under the relevant regulations framed under FEMA, 1999.
f) The pricing of eligible securities to be issued or transferred to a foreign depository for the purpose of
issuing depository receipts should not be at a price less than the price applicable to a corresponding
mode of issue or transfer of such securities to domestic investors under the relevant regulations framed
under FEMA, 1999.
g) The issue of depository receipts as per DR Scheme 2014 shall be reported to the Reserve Bank by the
domestic custodian as per the reporting guidelines for DR Scheme 2014.
6. (i) Two-way Fungibility Scheme: A limited two-way Fungibility scheme has been put in place by the
Government of India for ADRs/GDRs. Under this Scheme, a stock broker in India, registered with SEBI,
can purchase shares of an Indian company from the market for conversion into ADRs/GDRs based on
instructions received from overseas investors. Re-issuance of ADRs/GDRs would be permitted to the
extent of ADRs/GDRs which have been redeemed into underlying shares and sold in the Indian market.
(ii) Sponsored ADR/GDR issue: An Indian Company can also sponsor an issue of ADR/GDR. Under this
mechanism, the company offers its resident shareholders a choice to submit their shares back to the
company so that on the basis of such shares, ADRs/GDRs can be issued abroad. The proceeds of the
ADR/GDR issue are remitted back to India and distributed among the resident investors who had offered
their Rupee denominated shares for conversion. These proceeds can be kept in Resident Foreign
Currency (Domestic) accounts in India by the resident shareholders who have tendered such shares for
conversion into ADRs/GDRs.
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Prof. Abhijeet C. Jaiswal
FDI
Shares should be issued within 60 days from the date of receipt of the inward remittance received
through normal banking channels including escrow account opened and maintained for the
purpose or by debit to the NRE/FCNR (B) account of the non-resident investor.
In case, the capital instruments are not issued within 60 days from the date of receipt of the inward
remittance, the amount of consideration so received should be refunded within fifteen days from
the date of completion of sixty days to the non-resident investor
Non-compliance with the above provision would be reckoned as a contravention under FEMA and
would attract penal provisions. In exceptional cases, delay in refund of the amount of consideration
may be considered by the RBI, on the merits of the case.
(c) Non-compliance
Non-compliance with the above provision would be reckoned as a contravention under FEMA and
would attract penal provisions. In exceptional cases, refund of the amount of consideration outstanding
beyond a period of 180 days from the date of receipt may be considered by the RBI, on the merits of the
case.
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Prof. Abhijeet C. Jaiswal
FDI
Note: When non-residents are make investments in an Indian company in compliance with the
provisions of the Companies Act, as applicable, by way of subscription to its MOA, such investments may
be made at face value subject to their eligibility under the FDI scheme.
Note: Government approval is not required for transfer of shares in the investee company from one non
resident to another non-resident in sectors which are under automatic route. In addition, approval of
Government will be required for transfer of stake from one nonresident to another non-resident in
sectors which are under Government approval route.
The sale consideration in respect of equity instruments purchased by a person resident outside India,
remitted into India through normal banking channels, shall be subjected to a Know Your Customer (KYC)
check.
AD Category-I banks have been given general permission to open Escrow account and Special account of
non-resident corporate for open offers/exit offers and delisting of shares. The facilities will be applicable
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Prof. Abhijeet C. Jaiswal
FDI
for both issue of fresh shares to the non- residents as well as transfer of shares from/to the non-
residents
In case of transfer of shares between a resident buyer and a non-resident seller or vice-versa, not more
than 25 per cent of the total consideration can be paid by the buyer on a deferred basis within a period
not exceeding eighteen months from the date of the transfer agreement.
For this purpose, if so agreed between the buyer and the seller, an escrow arrangement may be made
between the buyer and the seller for an amount not more than 25 per cent of the total consideration for
a period not exceeding eighteen months from the date of the transfer agreement or if the total
consideration is paid
Form FC-TRS: The Form FC-TRS should be submitted to the AD Category-I Bank, within 60 days from the
date of receipt of the amount of consideration. The onus of submission of the Form FC-TRS within the
given time-frame would be on the transferor/transferee resident in India.
However, in cases where the NR investor, including an NRI. acquires shares on the stock exchanges
under the FDI Scheme, the investee company would have to file form FC-TRS with the AD Category-I
bank.
(ii) Transfer of any capital instrument, by way of gift by a person resident in India to a person resident
outside India. While forwarding applications to Reserve Bank for approval for transfer of capital
instruments by way of gift, the documents mentioned in Section 2 below should be enclosed. Reserve
Bank considers the following factors while processing such applications:
(a) The proposed transferee (donee) is eligible to hold such capital instruments under the relevant
Schedules under Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, as amended from
time to time.
(b) The gift does not exceed 5 per cent of the paid-up capital of the Indian company/each series of
debentures/each mutual fund scheme.
(c) The applicable sectoral cap limit in the Indian company is not breached.
(d) The transferor (donor) and the proposed transferee (donee) are close relatives as defined in Section
2 (77) of Companies Act, 2013, as amended from time to time.
(e) The value of capital instruments to be transferred together with any capital instruments already
transferred by the transferor, as gift, to any person residing outside India does not exceed the rupee
equivalent of USD 50,000 during the financial year.
(f) Such other conditions as stipulated by Reserve Bank in public interest from time to time.
(iii) Transfer of shares from NRI to non-resident.
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Prof. Abhijeet C. Jaiswal
FDI
(a) the requisite approval of the Government has been obtained; and
(b) the transfer of shares adheres with the pricing guidelines and documentation requirements as
specified by the Reserve Bank of India from time to time.
(ii) where the transfer of shares attract SEBI (SAST) Regulations subject to the adherence with the
pricing guidelines and documentation requirements as specified by Reserve Bank of India from time to
time.
(iii) where the transfer of shares does not meet the pricing guidelines under the FEMA, 1999 provided
that:
(a) The resultant FDI is in compliance with the extant FDI policy and FEMA rules/regulations in terms of
sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting requirements,
documentation etc.;
(b) The pricing for the transaction is compliant with the specific/explicit, extant and relevant SEBI
regulations/guidelines (such as IPO, Book building, block deals, delisting, exit, open offer/ substantial
acquisition/SEBI SAST); and
(c) Chartered Accountants Certificate to the effect that compliance with the relevant SEBI regulations/
guidelines as indicated above is attached to the form FC-TRS to be filed with the AD bank.
(iv) where the investee company is in the financial sector provided that:
(a) Any ‘fit and proper/due diligence’ requirements as regards the non-resident investor as stipulated by
the respective financial sector regulator, from time to time, have been complied with; and
(b) The FDI policy and FEMA rules/regulations in terms of sectoral caps, conditionalities (such as
minimum capitalization, pricing, etc.), reporting requirements, documentation etc., are complied with.
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Prof. Abhijeet C. Jaiswal
FDI
Legal Compliances with respect to Conversion of Lump Sum Fee/Royalty into Equity
An Indian company can issue of shares/preference shares against lump sum technical know-how fee,
royalty due for payment, subject to entry route, sectoral cap and pricing guidelines and compliance with
applicable tax laws.
Further, issue of equity shares against any other funds payable by the investee company, remittance of
which does not require prior permission of the Government of India or RBI under FEMA. 1999 or any
rules regulations framed or directions issued thereunder, or has been permitted by the RBI. provided
that:
(a) The equity shares shall be issued in accordance with the extant FDI guidelines on sectoral caps,
pricing guidelines etc. as amended by RBI, from time to time;
(b) The issue of equity shares shall be subject to tax laws as applicable to the funds payable and the
conversion to equity should be net of applicable taxes.
(I) import of capital goods/ machinery/ equipment (excluding second-hand machinery), subject to
compliance with the following conditions:
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Prof. Abhijeet C. Jaiswal
FDI
(a) Any import of capital goods/machinery etc., made by a resident in India, has to be in accordance with
the Export/Import Policy issued by Government of India/as defined by DGFT/FEMA provisions relating to
imports.
(b) The application clearly indicating the beneficial ownership and identity of the Importer Company as
well as overseas entity.
(c) Applications complete in all respects, for conversions of import payables for capital goods into FDI
being made within 180 days from the date of shipment of goods.
General conditions
(a) All requests for conversion should be accompanied by a special resolution of the company.
(b) Government's approval would be subject to pricing guidelines of RBI and appropriate tax clearance.
5.17
Prof. Abhijeet C. Jaiswal
FDI
Pledge of Shares
The transfer of equity instruments of an Indian company or units of an investment vehicle by way of
pledge is subject to the following terms and conditions, namely :-
(i) any person being a promoter of a company registered in India (borrowing company), which has raised
external commercial borrowing in compliance with the Foreign Exchange Management (Borrowing and
Lending in Foreign Exchange) Regulations, 2000 may pledge the shares of the borrowing company or
that of its associate resident companies for the purpose of securing the external commercial borrowing
raised by the borrowing company subject to the following further conditions, namely :-
(a) the period of such pledge shall be co-terminus with the maturity of the underlying external
commercial borrowing;
(b) in case of invocation of pledge, transfer shall be made in accordance with these rules and
directions issued by the Reserve Bank;
(c) the statutory auditor has certified that the borrowing company shall utilise or has utilised the
proceeds of the external commercial borrowing for the permitted end-use only;
(d) no person shall pledge any such share unless a no-objection has been obtained from an
authorised dealer bank that the above conditions have been complied with;
(ii) any person resident outside India holding equity instruments in an Indian company or units of an
investment vehicle may pledge the equity instruments or units, as the case may be,-
(a) in favour of a bank in India to secure the credit facilities being extended to such Indian company for
bona fide purposes,
(b) in favour of an overseas bank to secure the credit facilities being extended to such person or a
person resident outside India who is the promoter of such Indian company or the overseas group
company of such Indian company,
(c) in favour of a non-banking financial company registered with the Reserve Bank to secure the credit
facilities being extended to such Indian company for bona fide purposes,
(d) subject to the authorised dealer bank satisfying itself of the compliance of the conditions stipulated
by the Reserve Bank in this regard;
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Prof. Abhijeet C. Jaiswal
FDI
(iii) in case of invocation of pledge, transfer of equity instruments of an Indian company or units shall be
in accordance with entry routes, sectoral caps or investment limits, pricing guidelines and other
attendant conditions at the time of creation of pledge
(i) Sale proceeds of shares and securities and their remittance is ‘remittance of asset’ governed
by The Foreign Exchange Management (Remittance of Assets) Regulations, 2000 under
FEMA.
(ii) AD Category-I bank can allow the remittance of sale proceeds of a security (net of applicable
taxes) to the seller of shares resident outside India, provided the security has been held on
repatriation basis, the sale of security has been made in accordance with the prescribed
guidelines and NOC/tax clearance certificate from the Income Tax Department has been
produced.
Repatriation of Dividend
Dividends are freely repatriable without any restrictions (net after Tax deduction at source or Dividend
Distribution Tax, if any, as the case may be). The repatriation is governed by the provisions of the
Foreign Exchange Management (Current Account Transactions) Rules, 2000, as amended from time to
time
Repatriation of Interest
Interest on fully, mandatorily & compulsorily convertible debentures is also freely repatriable without
any restrictions (net of applicable taxes). The repatriation is governed by the provisions of the Foreign
Exchange Management (Current Account Transactions) Rules, 2000, as amended from time to time.
Reporting of FDI
An Indian company receiving FDI for issuing shares/convertible debentures/ preference shares,
should report the details of the amount of consideration to the Regional Office concerned of the
RBI not later than 30 days from the date of receipt in the Advance Reporting Form.
Indian companies are required to report the details of the receipt of the amount of
consideration for issue of shares/convertible debentures, through an AD Category-I bank,
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Prof. Abhijeet C. Jaiswal
FDI
together with a copy of the Foreign Inward Remittance Certificate (FIRC) along with the KYC
report on the non-resident investor from the overseas bank remitting the amount.
The report would be acknowledged by the Regional Office of RBI, which will allot a Unique
Identification Number (UIN) for the amount reported.
Penalties
A reasonable opportunity has to be given to the person alleged to have committed contraventions
against whom a complaint has been made for being heard before imposing any penalty.
The Central Government may appoint as per the provisions contained in the Foreign Exchange
Management (Adjudication Proceedings and Appeal) Rules, 2000, an Appellate Authority/ Appellate
Tribunal to hear appeals against the orders of the adjudicating authority
ESTABLISHMENT OF BRANCH OFFICE (BO)/ LIAISON OFFICE (LO)/ PROJECT OFFICE (PO) IN INDIA
Branch Office
Branch office in relation to a company, means any establishment described as such by the company.
Permitted activities for a branch office in India of a person resident outside India Normally, the branch
office should be engaged in the activity in which the parent company is engaged.
(i) Export/import of goods.
(ii) Rendering professional or consultancy services.
(iii) Carrying out research work in which the parent company is engaged.
(iv) Promoting technical or financial collaborations between Indian companies and parent or overseas
group company.
(v) Representing the parent company in India and acting as buying/ selling agent in India.
(vi) Rendering services in Information Technology and development of software in India.
(vii) Rendering technical support to the products supplied by parent/group companies.
(viii) Representing a foreign airline/shipping company.
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Prof. Abhijeet C. Jaiswal
FDI
Liaison Office
Liaison Office means a place of business to act as a channel of communication between the principal
place of business or Head Office or by whatever name called and entities in India but which does not
undertake any commercial /trading/ industrial activity, directly or indirectly, and maintains itself out of
inward remittances received from abroad through normal banking channel.
Permitted activities for a liaison office in India of a person resident outside India
(i) Representing the parent company / group companies in India.
(ii) Promoting export / import from / to India.
(iii) Promoting technical/ financial collaborations between parent / group companies and companies in
India.
(iv) Acting as a communication channel between the parent company and Indian companies.
Project Office
Project office means a place of business in India to represent the interests of the foreign company
executing a project in India but excludes a Liaison Office.
Parameters of project office
A foreign company may open project office/s in India provided it has secured from an Indian company, a
contract to execute a project in India, and
(i) the project is funded directly by inward remittance from abroad; or
(ii) the project is funded by a bilateral or multilateral International Financing Agency; or
(iii) the project has been cleared by an appropriate authority; or
(iv) a company or entity in India awarding the contract has been granted term loan by a Public Financial
Institution or a bank in India for the Project.
5.21
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
ODI
Overseas Investment by Indian Entity
6. 1
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
ODI
v. Investment by Resident in Foreign shares, other than assets etc(Covered Under libralised remittance
scheme):
An individual person can remit an amount upto US $250000 per calendar year for acquiring share or
other assets outside India. For such transactions, RBI approval is not required.
However, in the following cases foreign exchange will not be given to the PRI :
a) Where current A/c transaction is prohibited /Restricted
b) Remittance directly/indirectly to Bhutan, Nepal, Mauritius, Pakistan
c) Remittance to specified non co-operative country /territory
d) Remittance to Individual /Entity identified as terrorist by RBI
Methods of Funding
Investment in an overseas JV/WOS may be funded out of one or more of the following sources
i. drawl of foreign exchange from an AD bank in india
ii. Capitalization of exports;
iii. Swap of shares;
iv. Utilization of proceeds of ECBs/FCCBs
v. In exchange of ADRs/GDRs ,FCCBs and Ordinary shares;
vi. Balance held in EEFC a/c of the Indian party ,and
vii. Utilization of proceeds of foreign currency funds raised through ADRs/GDRs issue;
Note: In respect of (vi) and (vii) above, the ceiling of 100% of net worth does not apply.
6. 2
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
ODI
Overseas Investment by trust or society
Registered Trusts and Societies engaged in manufacturing/educational sector are allowed make
investment in the same sector(s) in a Joint Venture or Wholly Owned Subsidiary outside India, with
the prior approval of the Reserve Bank.
Export includes the taking or sending out of India, goods by land, sea or air, on consignment by way
of sale, lease, hire purchase or under any arrangement by whatever name called. In the
case of software, export also includes transmission of any data through any electronic medium.
Export of goods or services may be made without furnishing the declaration in the following cases,
namely:
(i) trade samples of goods and publicity material supplied free of cost;
(ii) personal effects of travellers, whether accompanied or unaccompanied;
(iii) ships stores, trans-shipment cargo and goods supplied under the orders of Central Government
or of such officers as may be appointed by the Central Government in this behalf or of the
military, naval or air force authorities in India for military, naval or air force requirements;
(iv) goods or software accompanied by a declaration by the exporter that they are not more than
twenty five thousand rupees in value;
(v) by way of gift of goods accompanied by a declaration by the exporter that they are not more
than one lakh rupees in value;
6. 3
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
ODI
(vi) aircrafts or aircraft engines and spare parts for overhauling and/or repairs abroad subject to their
reimport into India after overhauling/repairs, within a period of six months from
the date of their export;
(vii) goods imported free of cost on re-export basis;
(viii) goods not exceeding US$ 1000 or its equivalent in value per transaction exported to Myanmar
under the Barter Trade Agreement between the Central Government and the
Government of Myanmar;
(ix) the goods which are permitted by the Development Commissioner of the Export Processing
Zones, EHTP, STP or Free Trade Zones to be re-exported.
(x) Replacement goods exported free of charge in accordance with the provisions of
Exim Policy in force, for the time being.
(xi) goods sent outside India for testing subject to re-import into India.
(xii) Defective goods sent outside India for repair and re-import provided the goods are
accompanied by a certificate from authorised dealer in India that the export is for repair and re-
import and that the export does not involve any transaction in foreign exchange.
(xiii) export permitted by RBI.
Project Exports
Following are collectively referred to as project exports :
Export of engineering goods on deferred payment terms;
Execution of turnkey projects; and
Civil construction contracts.
6. 4
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
ODI
These are generally high value contracts and thus, the exporter shall, before entering into
any such export arrangement, submit the proposal for prior approval of the approving
authority, which shall consider the proposal in accordance with the
guidelines issued by the Reserve bank from time to time.
There are 3 levels of Adjudicating Authorities i.e. Deputy Director, Additional Director and Director
of Directorate of Enforcement in the ascending order of hierarchy. The Assistance Director of Directorate
of Enforcement normally makes a complaint before the
Adjudicating Authorities but sometimes he can also act as Adjudicating Authority.
Authority Jurisdiction
Deputy Director Cases involving amount upto Rs.75 lakhs
Additional Director Cases involving amount more than Rs.75 lakh and upto Rs.1 crore
6. 5
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
ODI
Law and Procedure for holding of enquiry by the Adjudicating Authorities
1. On receipt of a complaint, the Adjudicating Authority shall issue a Show Cause Notice to
the person who is alleged to have committed the contravention indicating nature of
contravention.
2. The person to whom the show cause notice has been served shall be given a minimum time
of 10 days for the purpose of filing the reply to the Show Cause Notice.
3. On receipt of the reply to the SCN, the Adjudicating Authority will issue a notice fixing the
date of enquiry, if it is of the opinion that the enquiry, should be conducted.
4. The person alleged to have committed the offence can attend the enquiry proceeding either
personally or through some authorized representative.
5. He will be explained the charges and an opportunity to produce any document or
evidence will be provided to him.
6. Further Adjudicating Authorities can also summon and enforce attendance of persons acquainted
with the facts and circumstances of the case for the purpose of giving the evidence.
7. After hearing and examining the evidence produced, Adjudicating Authority can pass an order and
thereby can impose penalty if the person is found to have contravened the provisions of FEMA .
6. 6
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
ODI
The Enforcement Directorate (ED) today issued show causes notices for alleged foreign exchange
violations of Rs3,805 crore to telecom firms and other entities as part of its investigation into the 2G
spectrum allocation case.
The notices by the central probe agency have been issued against Loop Telecom Limited, New Delhi
for Rs549 crore, Ms Loop Mobile (India) Limited Mumbai for Rs26 crore, Ms DB Realty Limited
Mumbai for Rs2,831 crore and Ms ETA star property developers pvt ltd, Chennai for Rs399.50 crore
for a variety of alleged contraventions under the Foreign Exchange Management Act (FEMA), sources
said.
6. 7
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
LRS
Liberalized Remittance Scheme (LRS)
Introduction
The Liberalized Remittance Scheme was introduced on February 4, 2004 The RBI as part of its
liberalization measure to facilitate resident individuals to remit funds abroad for permitted current or
capital account transactions or combination of both issues LRS.
LRS permits the Authorised Dealers to freely allow remittances by resident individuals up to USD
2,50,000 per Financial Year (April-March) for any permitted current or capital account transaction or
a combination of both. The Scheme is available to all resident individuals including minors. In case of
remitter being a minor, the Form A2 must be countersigned by the minor’s natural guardian. The
Scheme is not available to corporates, partnership firms, HUF, Trusts etc. The LRS limit has been
revised in stages consistent with prevailing macro and micro economic conditions.
During the period from February 4, 2004 till date, the LRS limit has been revised as under:
Remittances under the Scheme can be consolidated in respect of family members subject to individual
family members complying with its terms and conditions. However, clubbing is not permitted by other
family members for capital account transactions such as opening a bank
account/investment/purchase of property, if they are not the co-owners/co-partners of the overseas
bank account/ investment/property.
Further, a resident cannot gift to another resident, in foreign currency, for the credit of the latter’s
foreign currency account held abroad under LRS.
All other transactions which are otherwise not permissible under FEMA and those in the nature of
remittance for margins or margin calls to overseas exchanges/ overseas counterparty are not allowed
under the Scheme.
7. 1
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
LRS
a. Private visits
For private visits abroad, other than visit to Nepal and Bhutan, resident individual can obtain foreign
exchange up to an aggregate amount of USD 2,50,000, from an Authorised Dealer, in any one financial
year, irrespective of the number of visits undertaken during the year.
Further, all tour related expenses including cost of rail/road/water transportation; cost of Euro Rail;
passes/tickets, etc. outside India; and overseas hotel/lodging expenses are to be subsumed under the
LRS limit. The tour operator can collect this amount either in Indian rupees or in foreign currency from
the resident traveller.
b. Gift/donation
Any resident individual may remit up-to USD 2,50,000 in one Financial Year as gift to a person residing
outside India or as donation to an organization outside India.
c. Going abroad on employment
A person going abroad for employment can draw foreign exchange up to USD 2,50,000 per Financial
Year from any Authorised Dealer in India.
d. Emigration
A person wanting to emigrate can draw foreign exchange from AD Category I bank and AD Category II
up to the amount prescribed by the country of emigration or USD 250,000. Remittance of any amount
of foreign exchange outside India in excess of this limit may be allowed only towards meeting
incidental expenses in the country of immigration and not for earning points or credits to become
eligible for immigration by way of overseas investments in government bonds; land; commercial
enterprise; etc.
e. Maintenance of close relatives abroad
A resident individual can remit up-to USD 2,50,000 per Financial Year towards maintenance of close
relatives.
f. Business trip
Visits by individuals in connection with attending of an international conference, seminar, specialised
training, apprentice training, etc., are treated as business visits. For business trips to foreign countries,
resident individuals can avail of foreign exchange up to USD 2,50,000 in a Financial Year irrespective
of the number of visits undertaken during the year.
However, if an employee is being deputed by an entity for any of the above and the expenses are
borne by the latter, such expenses are to be treated as residual current account transactions outside
LRS and may be permitted by the AD without any limit, subject to verifying the bonafide of the
transaction.
g. Medical treatment abroad
Authorised Dealers may release foreign exchange up to an amount of USD 2,50,000 or its equivalent
per Financial Year without insisting on any estimate from a hospital/doctor. For amount exceeding the
above limit, Authorised Dealers may release foreign exchange under general permission based on the
estimate from the doctor in India or hospital/ doctor abroad. A person who has fallen sick after
proceeding abroad may also be released foreign exchange by an Authorised Dealer (without seeking
prior approval of the Reserve
Bank of India) for medical treatment outside India. In addition to the above, an amount up to USD
250,000 per financial year is allowed to a person for accompanying as attendant to a patient going
abroad for medical treatment/check-up.
h. Facilities available to students for pursuing their studies abroad
AD Category I banks and AD Category II, may release foreign exchange up to USD 2,50,000 or its
equivalent to resident individuals for studies abroad without insisting on any estimate from the foreign
University. However, AD Category I bank and AD Category II may allow remittances (without seeking
prior approval of the Reserve Bank of India) exceeding USD 2,50,000 based on the estimate received
from the institution abroad.
Documentation by Remitter
7. 2
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
LRS
The resident individual is required to compulsorily designate a branch of an AD through which all the
remittances under the Scheme will be made.
The resident individual seeking to make the remittance should furnish Form A2 for purchase of foreign
exchange under LRS.
It is mandatory to have PAN card to make remittances under the Scheme for capital account
transactions. However, PAN card need not be insisted upon for remittances made towards permissible
current account transactions up to USD 25,000.
Investor, who has remitted funds under LRS can retain, reinvest the income earned on the
investments.
At present, the resident individual is not required to repatriate the funds or income generated out of
investments made under the Scheme. However, a resident individual who has made overseas direct
investment in the equity shares; compulsorily convertible preference shares of a JV/WoS outside India
or ESOPs, within the LRS limit, is required to comply with the terms and conditions prescribed by the
overseas investment guidelines under Foreign Exchange Management (Transfer or Issue of any
Foreign Security) (Amendment) Regulations, 2013.
Commission to agents abroad for sale of residential flats or commercial plots in India
Remittances by persons other than individuals is subject to prior approval of the Reserve Bank of India
if commission per transaction to agents abroad for sale of residential flats or commercial plots in India
exceeds USD 25,000 or five percent of the inward remittance whichever is more.
7. 3
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
LRS
Authorised Dealers may sell foreign exchange towards payment of fees to schools/educational
institutions under the administrative control of foreign embassies.
Drawal of foreign exchange for remittance for purchase of trademark or franchise in India
AD Category-I banks may permit drawal of foreign exchange by person for purchase of trademark or
franchise in India without approval of the Reserve Bank.
7. 4
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
LRS
_ In respect of consolidated tours arranged by travel agents in India for foreign tourists visiting India
and neighbouring countries like Nepal, Bangladesh, Sri Lanka etc., against advance payments/
reimbursement through an Authorised Dealer, part of the foreign exchange received in India against
such consolidated tour arrangement, may require to be remitted from India to these neighbouring
countries for services rendered by travel agents and hoteliers in these countries. Authorised Dealer
may allow such remittances after verifying that the amount being remitted to the neighbouring
countries (inclusive of remittances, if any, already made against the tour) does not exceed the amount
actually remitted to India and the country of residence of the beneficiary is not Pakistan.
Prohibited Transactions
1. Remittance out of lottery winnings
2. Remittance of income from racing/riding etc. or any other hobby.
3. Remittance for purchase of lottery tickets, banned/prescribed magazines, football pools,
sweepstakes etc.
4. Payment of commission on exports made towards equity investment in joint ventures/ wholly
owned subsidiaries abroad of Indian companies
5. Remittance of dividend by any company to which the requirement of dividend balancing is
applicable
6. Payment of commission on exports under Rupee State Credit Route, except commission up-to
10% of invoice value of exports of tea and tobacco
7. Payment related to ‘call back services’ of telephones
8. Remittance of interest income on funds held in Non-resident Special Rupee (Account) Scheme.
7. 5
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
ECB
EXTERNAL COMMERCIAL BORROWING
INTRODUCTION
ECBs are commercial loans raised by eligible resident entities from recognized non-
resident entities and should conform to parameters such as minimum maturity,
permitted and non-permitted end-uses, maximum all-in-cost ceiling, etc. These
parameters apply in totality and not on a standalone basis.
The framework for raising loans through ECB comprises the following 2 options:
RECOGNISED LENDERS
The lender should be resident of Financial Action Task Force (FATF) or International
Organisation of Securities Commission's IOSCO compliant country, including on transfer
of ECB. However,
8.1
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
ECB
a. Multilateral and Regional Financial Institutions where India is a member country
will also be considered as recognised lenders;
b. Individuals as lenders can only be permitted if they are foreign equity holders or for
subscription to bonds/debentures listed abroad; and
c. Foreign branches / subsidiaries of Indian banks are permitted as recognised lenders
only for Foreign Currency ECB (except FCCBs and FCEBs).
d. Foreign branches / subsidiaries of Indian banks, subject to applicable prudential
norms, can participate as arrangers/underwriters/market-makers/traders for
Rupee denominated Bonds issued overseas.
However, underwriting by foreign branches/subsidiaries of Indian banks for
issuances by another Indian banks will not be allowed.
8.2
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
ECB
subsidiaries of Indian ECB raised for
banks repayment of Rupee
loans availed
domestically for
purposes other than
capital expenditure
On-lending by NBFCs for
the same purpose.
All-in-cost ceiling per annum is the Benchmark rate plus 450 BPS spread.
It may be noted that All-in-Cost includes rate of interest, other fees, expenses, charges,
guarantee fees, Export Credit Agency charges (ECA), whether paid in foreign currency
or INR but will not include commitment fees and withholding tax payable in INR.
In the case of fixed rate loans, the swap cost plus spread should not be more than the
floating rate plus the applicable spread.
Additionally, for FCCBs, the issue related expenses should not exceed 4 % of the issue
size and in case of private placement, these expenses should not exceed 2 % of the issue
size, etc.
Various components of all in- cost have to be paid by the borrower without taking
recourse to the drawdown of ECB/TC, i.e., ECB/TC proceeds cannot be used for
payment of interest/charges.
Further, Benchmark rate in case of Foreign Currency ECB refers to 6-months LIBOR
rate (London Inter Bank Offered Rate) of different currencies or any other 6-month
interbank interest rate applicable to the currency of borrowing, for eg. EURIBOR.
Benchmark rate in case of Rupee denominated ECB/TC will be prevailing yield of the
Government of India securities of corresponding maturity.
OTHER COSTS
Prepayment charge/ Penal interest, if any, for default or breach of covenants, should not
be more than 2 % over and above the contracted rate of interest on the outstanding
principal amount and will be outside the all-in-cost ceiling.
8.3
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
ECB
- On -lending by NBFC’s for working capital purposes or general corporate.
v. General corporate purposes,
Except in case of ECB raised from foreign equity holder for working capital
purposes, general corporate purposes or for repayment of Rupee loans and
Except ECB raised for
- working capital purposes or general corporate purposes
- on-lending by NBFCs for working capital purposes or general corporate
purposes.
vi. Repayment of Rupee loans,
except in case of ECB raised for
- repayment of Rupee loans availed domestically for capital expenditure
- on-lending by NBFCs for the same purpose and
except ECB raised for
- repayment of Rupee loans availed domestically for purposes other than
capital expenditure
- on-lending by NBFCs for the same purpose.
vii. On-lending to entities for the above activities,
except in case of ECB raised by NBFCs for
- working capital purposes or general corporate purposes
- on-lending by NBFCs for working capital purposes or general corporate
purposes and repayment of Rupee loans availed domestically for capital
expenditure
- on-lending by NBFCs for the same purpose and
except ECB raised for
- repayment of Rupee loans availed domestically for purposes other than
capital expenditure
- on-lending by NBFCs for the same purpose.
EXCHANGE RATE
Change of currency of Foreign Currency ECB into Indian Rupee ECB can be at the
exchange rate prevailing on the date of the agreement for such change between the
parties concerned OR at an exchange rate, which is less than the rate prevailing on the
date of the agreement, if consented to by the ECB lender.
For conversion to Rupee, the exchange rate shall be the rate prevailing on the date of
settlement.
HEDGING PROVISION
The entities raising ECB are required to follow the guidelines for hedging issued, if any,
by the concerned sectoral or prudential regulator in respect of foreign currency
exposure. Infrastructure space companies shall have a Board approved risk
management policy. Further, such companies are required to mandatorily hedge 70 %
8.4
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
ECB
of their ECB exposure in case the average maturity of the ECB is less than 5 years. The
designated AD Category-I bank shall verify that 70 % hedging requirement is complied
with during the currency of the ECB and report the position to RBI through Form ECB 2.
The following operational aspects with respect to hedging should be ensured:
However, this ratio will not be applicable if the outstanding amount of all ECB, including
the proposed one, is up to USD 5 million or its equivalent.
Further, the borrowing entities will also be governed by the guidelines on debt equity
ratio, issued, if any, by the sectoral or prudential regulator concerned.
8.5
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
ECB
Issuance of any type of guarantee by Indian banks, AIFI and NBFCs relating to ECB is not
permitted. Further, financial intermediaries (viz., Indian banks, AIFI, or NBFC) shall not
invest in FCCB/ FCEB in any manner whatsoever.
PARKING OF ECB PROCEEDS
Parking abroad Parking domestically
ECB proceeds meant only for foreign ECB proceeds meant for Rupee
currency expenditure can be parked expenditure should be repatriated
abroad pending utilisation. immediately for credit to their Rupee
Till utilisation, these funds can be accounts with AD Category-I banks in
invested in the following liquid assets- India.
a) deposits or Certificate of Deposit or ECB borrowers are also allowed to park
other products offered by banks ECB proceeds in term deposits with AD
rated not less than AA (-) by Category-I banks in India for maximum
Standard and Poor/Fitch IBCA or 12 months cumulatively. These term
Aa3 by Moody’s; deposits should be kept in
b) Treasury bills and other monetary unencumbered position.
instruments of one-year maturity
having minimum rating as indicated
above and
c) deposits with foreign
branches/subsidiaries of Indian
banks abroad.
8.6
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
ECB
Any lesser rate can be applied with a mutual agreement with the ECB lender.
Once the aforesaid stipulations are met, the AD Category-I bank may permit creation of
charge on immovable assets, movable assets, financial securities and issue of corporate
and/or personal guarantees, during the currency of the ECB with security co -
terminating with underlying ECB, subject to the following:
8.7
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
ECB
In case of invocation of pledge, transfer of financial securities shall be in accordance with
the extant FDI/FII policy including provisions relating to sectoral cap and pricing as
applicable read with the Foreign Exchange Management (Transfer or Issue of Security
by a Person Resident outside India) Regulations, 2017, as amended from time to time.
REPORTING REQUIREMENT
8.8
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
ECB
of month to which it relates. Changes, if any, in ECB parameters should also be
incorporated in Form ECB 2 Return.
6. Any borrower who has raised ECB will be treated as ‘untraceable entity’, if
entity/auditor(s)/director(s)/promoters of entity are not
reachable/responsive/reply in negative over email/letters/phone for a period of not
less than 2 quarters with documented communication/ reminders numbering 6 or
more and it fulfils both of the following conditions:
Entity not found to be operative at the registered office address as per records
available with the AD-Bank or not found to be operative during the visit by the
officials of the AD-Bank or any other agencies authorised by the AD-bank for the
purpose;
Entities have not submitted Statutory Auditor’s Certificate for last 2 years or more;
8.9
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
ECB
8.10
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
ECB
natural hedge or not, are exposed to currency risk due to exchange rate movements
and hence are advised to ensure that they have an appropriate risk management
policy to manage potential risk arising out of ECB.
Conversion rate: In case of borrowing in INR, the foreign currency - INR conversion
will be at the market rate as on the date of agreement.
Other Provisions: Other provisions like parking of ECB proceeds, reporting
arrangements, powers delegated to AD banks, borrowing by entities under
investigation, conversion of ECB into equity will be as included in the ECB framework.
All entities against which investigation / adjudication / appeal by the law enforcing
agencies for violation of any of the provisions of the Regulations under FEMA pending,
may raise ECB as per the applicable norms, if they are otherwise eligible.
The borrowing entity shall inform about pendency of investigation / adjudication /
appeal to the AD Category-I bank / RBI.
Eligible borrowers under the ECB framework, who are participating in the Corporate
Insolvency Resolution Process under Insolvency and Bankruptcy Code, 2016 as
resolution applicants, can raise ECB from all recognised lenders, except foreign
branches/subsidiaries of Indian banks, for repayment of Rupee term loans of the target
company.
8.11
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Foreign Trade Policy
9.1
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Foreign Trade Policy
Further, there are some items which are ‘free’ for import/export, but subject to
conditions stipulated in other Acts or in law for the time being in force.
Indian Trade Classification (Harmonised System) [ITC (HS)] of Exports
and Imports
ITC (HS) is a compilation of codes for all merchandise / goods for export/ import.
Goods are classified based on their group or sub-group at 2/4/6/8 digits.
ITC (HS) is aligned at 6 digit level with international Harmonized System goods
nomenclature maintained by World Customs Organization However, India maintains
national Harmonized System of goods at 8 digit level.
9.2
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Foreign Trade Policy
Nature of Rewards
Duty Credit Scrips shall be granted as rewards under MEIS and SEIS. The Duty Credit
Scrips and goods imported / domestically procured against them shall be freely
transferable.
The Duty Credit Scrips can be used for :
Payment of Customs Duties for import of inputs or good
Payment of excise duties on domestic procurement of inputs or goods, including
capital goods as per Department of Revenue (DoR) notification.
Payment of service tax on procurement of services as per DoR notification.
Payment of Customs Duty and fee as per Foreign Trade Policy.
9.3
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Foreign Trade Policy
9.4
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Foreign Trade Policy
Status Holder
a) Status Holders are business leaders who have excelled in international trade and
have successfully contributed to country’s foreign trade. Status Holders are expected
to not only contribute towards India’s exports but also provide guidance and
handholding to new entrepreneurs.
b) All exporters of goods, services and technology having an import-export code (IEC)
number shall be eligible for recognition as a status holder. Status recognition
depends upon export performance. An applicant shall be categorized as status
holder upon achieving export performance during current and previous two
financial years, as indicated in Forei Trade Policy. The export performance will be
counted on the basis of FOB value of export earnings in free foreign exchange.
c) For deemed export, FOB value of exports in Indian Rupees shall be converted in US$ at
the exchange rate notified by CBEC, as applicable on 1st April of each Financial Year.
d) For granting status, export performance is necessary in at least two out of three years.
9.5
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Foreign Trade Policy
Schemes
Export Obligation
i. Period for fulfilment of export obligation under Advance Authorisation shall be 18
months from the date of issue of Authorisation or as notified by DGFT.
ii. In cases of supplies to turnkey projects in India under deemed export category or
turnkey projects abroad, the Export Obligation period shall be co-terminus with
contracted duration of the project execution or 18 months whichever is more.
iii. Export Obligation for items falling in categories of defense, military store, aerospace
and nuclear energy shall be 24 months from the date of issue of authorization or co-
terminus with contracted duration of the export order whichever is more.
9.6
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Foreign Trade Policy
EPCG Scheme
a) EPCG Scheme allows import of capital goods for pre- production, production and
post- production at Zero customs duty. Alternatively, the Authorisation holder
may also procure Capital Goods from indigenous sources. Capital goods for the purpose
of the EPCG scheme shall include:
Capital Goods including in Completely Knocked down (CKD)/ Semi- Knocked
Down (SKD) condition thereof;
Computer software systems;
Spares, moulds, dies, jigs, fixtures, tools & refractories for initial lining and spare
refractories; and
Catalysts for initial charge plus one subsequent charge.
b) Import of capital goods for Project Imports notified by Central Board of Excise and
Customs is also permitted under EPCG Scheme.
c) Import under EPCG Scheme shall be subject to an export obligation equivalent to 6 times
of duty saved on capital goods, to be fulfilled in 6 years reckoned from date of issue.
9.7
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Foreign Trade Policy
Authorisation
Authorisation shall be valid for import for 18 months from the date of issue of Authorisation.
Objective
9.8
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Foreign Trade Policy
These schemes are to promote exports, enhance foreign exchange earnings, attract
investment for export production and employment generation.
9.9
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Foreign Trade Policy
Investment Criteria
Only projects having a minimum investment of Rs. 1 Crore in plant & machinery shall
be considered for establishment as EOUs. However, this shall not apply to existing units,
units in EHTP / STP / BTP, and EOUs in Handicrafts / Agriculture / Floriculture /
Aquaculture / Animal Husbandry / Information Technology, Services, Brass Hardware
and Handmade jewellery sectors. BOA may allow establishment of EOUs with a lower
investment criteria.
Other Entitlements
Other entitlements of EOU / EHTP / STP / BTP units are as under:
a) Exemption from industrial licensing for manufacture of items reserved for SSI sector.
b) Export proceeds will be realized within nine months.
c) Units will be allowed to retain 100% of its export earnings in the EEFC account.
9.10
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Foreign Trade Policy
d) Unit will not be required to furnish bank guarantee at the time of import or going for job
work in DTA, where:
i. the unit has turnover of Rs. 5 crore or above;
ii. the unit is in existence for at least three years; and
iii. the unit:
has achieved positive NFE / export obligation wherever applicable;
has not been issued a show cause notice or a confirmed demand, during
the preceding 3 years, on grounds other than procedural violations Customs
Act, the Central Excise Act, the Foreign Trade (Development & Regulation) Act,
the Foreign Exchange Management Act, the Finance Act, 1994 covering
Service Tax or any allied Acts or the rules made thereunder, on account of
fraud / collusion / wilful mis statement / suppression of facts or contravention
of any of the provisions thereof;
e) 100% FDI investment permitted through automatic route similar to SEZ units.
f) Units shall pay duty on the goods produced or manufactured and cleared into DTA on
monthly basis in the manner prescribed in the Central Excise Rules.
g) The Units Approval Committee may consider on a case-to-case basis request for sharing
of infrastructural facilities among
9.11
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Foreign Trade Policy
Monitoring of NFE
Performance of EOU / EHTP / STP / BTP units shall be monitored by Units Approval
Committee as per guidelines in HBP.
Export through Exhibitions / Export Promotion Tours / Showrooms Abroad / Duty Free
Shops
EOU / EHTP / STP / BTP are permitted to:
i. Export goods for holding / participating in Exhibitions abroad with permission of
Development Commissioner.
ii. Personal carriage of gold / silver / platinum jewellery, precious, semi-precious stones,
beads and articles.
iii. Export goods for display / sale in permitted shops set up abroad.
iv. Display / sell in permitted shops set up abroad, or in showrooms of their distributors /
agents.
9.12
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Foreign Trade Policy
Approval of BTP
Bio-Technology Parks (BTP) would be notified by DGFT on recommendations of
Department of Biotechnology. In case of units in BTP, necessary approval / permission
under relevant provisions of this chapter will be granted by designated officer of
Departmentof Biotechnology.
Warehousing Facilities
An EOU which intends to set up warehousing facilities outside the EOU premises and
outside the jurisdiction of Development Commissioner, at a place near to the port of
export, to reduce lead time for delivery of goods overseas and to address unpredictability
of supply orders, is permitted to do so subject to the provisions related to export
warehousing as per terms and conditions of Notifications issued by the Department of
Revenue.
9.13
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Foreign Trade Policy
a) Complaints received from foreign buyers in respect of poor quality of the products
supplied by exporters from India;
b) Complaints of importers against foreign suppliers in respect of quality of the products
supplied; and
c) Complaints of unethical commercial dealings categorized mainly as non-supply/ partial
supply of goods after confirmation of order; supplying goods other than the ones as
agreed upon; non-payment; non-adherence to delivery schedules, etc.
3. Functions of CQCTD
The Committee (CQCTD) will be responsible for enquiring and investigating into all
Quality related complaints and other trade related complaints falling under the
jurisdiction of the respective RAs. It will take prompt and effective steps to redress
and resolve the grievances of the importers, exporters and overseas buyers, preferably
within three months of receipt of the complaint
9.14
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
NBFCs
Non-Banking Financial Companies (NBFCs)
Introduction
The NBFC (Non-Banking Finance Company) sector has grown in size and complexity over
the years. The Reserve Bank of India is entrusted with the responsibility of regulating and
supervising the Non-Banking Financial Companies by virtue of powers vested in Chapter
III B of the Reserve Bank of India Act, 1934.
A Non-Banking Financial Company (NBFC) is a company registered under the Companies
Act, engaged in the business of loans and advances, acquisition of
shares/stocks/bonds/debentures/securities issued by Government or local authority or
other marketable securities of a like nature, leasing, hire-purchase, insurance business,
chit business but does not include any institution whose principal business is that of
agriculture activity, industrial activity, purchase or sale of any goods (other than
securities) or providing any services and sale/purchase/construction of
immovable property.
A non-banking institution which is a company and has principal business of receiving
deposits under any scheme or arrangement in one lump sum or in instalments by way of
contributions or in any other manner, is also a non-banking financial company
(Residuary non-banking company).
Objective
The regulatory and supervisory objective is to,
Ensure healthy growth of financial companies
Ensure that these companies function as a part of the financial system within the
policy framework, in such a manner that their existence and functioning do not lead
to systemic aberrations
10. 1
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
NBFCs
The quality of surveillance and supervision exercised by the Bank over the NBFC’s is
sustained by keeping pace with the developments that take place in this sector of the
financial system.
Registration with RBI
A company incorporated under the Companies Act and desirous of commencing business
of non-banking financial institution as defined under Section 45 I (a) of the RBI Act, 1934
should comply with the following:
i. it should be a company registered under the Companies Act, and
ii. It should have a minimum net owned fund. [Rs. 200 lakhs]
Types of NBFCs
An AFC is a company which is a financial institution carrying on as its principal
business the financing of physical assets supporting productive/economic activity,
such as automobiles, tractors, lathe machines, generator sets, earth moving and
material handling equipment, moving on own power and general purpose industrial
machines. Principal business for this purpose is defined as aggregate of financing
real/physical assets supporting economic activity and income arising therefrom is not
less than 60% of its total assets and total income respectively.
IC means any company which is a financial institution carrying on as its principal
business the acquisition of securities,
LC means any company which is a financial institution carrying on as its principal
business the providing of finance whether by making loans or advances or otherwise
for any activity other than its own but does not include an Asset Finance Company.
IFC is a non-banking finance company
a) which deploys at least 75 per cent of its total assets in infrastructure loans,
b) has a minimum Net Owned Funds of `300 crore,
c) has a minimum credit rating of ‘A ‘or equivalent,
d) a CRAR of 15%
CIC-ND-SI is a NBFC carrying on the business of acquisition of shares and securities
which satisfies the following conditions:-
a) it holds not less than 90% of its Total Assets in the form of investment in equity
shares, preference shares, debt or loans in group companies;
b) its investments in the equity shares (including instruments compulsorily
convertible into equity shares within a period not exceeding 10 years from the
date of issue) in group companies constitutes not less than 60% of its Total
Assets;
c) it does not trade in its investments in shares, debt or loans in group companies
except through block sale for the purpose of dilution or disinvestment;
d) it does not carry on any other financial activity referred to in Section 45I(c)
and 45I(f) of the RBI act, 1934 except investment in bank deposits, money
market instruments, government securities, loans to and investments in debt
issuances of group companies or guarantees issued on behalf of group
companies;
e) Its asset size is `100 crore or above, and
10. 2
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
NBFCs
f) It accepts public funds.
IDF-NBFC is a company registered as NBFC to facilitate the flow of long term debt into
infrastructure projects. IDF-NBFC raise resources through issue of Rupee or Dollar
denominated bonds of minimum 5 year maturity. Only Infrastructure Finance
Companies (IFC) can sponsor IDF-NBFCs.
NBFC-Factor is a non-deposit taking NBFC engaged in the principal business of
factoring. The financial assets in the factoring business should constitute at least 50
percent of its total assets and its income derived from factoring business should not
be less than 50 percent of its gross income.
MGC are financial institutions for which at least 90% of the business turnover is
mortgage guarantee business or at least 90% of the gross income is from mortgage
guarantee business and net owned fund is Rs. 100 crore.
10. 3
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
NBFCs
However, the NBFCs have to be transparent and the rate of interest and manner of
arriving at the rate of interest to different categories of borrowers should be disclosed to
the borrower or customer in the application form and communicated explicitly in the
sanction letter etc.
Capital Requirements
Adjusted Net Worth of a CIC-ND-SI should at no point of time be less than 30% of its
aggregate risk weighted assets on balance sheet and risk adjusted value of off-balance
sheet items as on the date of the last audited balance sheet as at the end of the financial
year prescribed under the Core Investment Companies (Reserve Bank) Directions, 2016.
Leverage Ratio
The outside liabilities of a CIC-ND-SI should at no point of time exceed 2.5 times of its
Adjusted Net Worth as on the date of the last audited balance sheet as at the end of the
financial year.
It may be noted that “adjusted net worth” means –
a) the aggregate, as appearing in the last audited balance sheet as at the end of the
financial year, of Owned Funds.
b) as increased by:-
50% of the unrealized appreciation in the book value of quoted investments as at
the date of the last audited balance sheet as at the end of the financial year (such
appreciation being calculated, as excess of aggregate market value of such
investments over the book value of such investments); and
the increase, if any, in the equity share capital since the date of last audited
balance sheet.
c) as reduced by:-
the amount of diminution in the aggregate book value of quoted investments (such
diminution being calculated as excess of the book value of such investments over
the aggregate market value of such investments); and
the reduction, if any, in the equity share capital since the date of last audited
balance sheet.
10. 4
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
NBFCs
NBFC – Systematically Important Non-deposit taking
company and deposit taking Company (Reserve Bank)
Directions, 2016
Applicability
The provisions of Non-Banking Financial Company - Systemically Important Non-Deposit
taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 shall
apply to the following:
i) Every Systemically Important Non-Deposit taking Non-Banking Financial
Company (NBFC-ND-SI) registered with the Bank under the provisions of RBI Act,
1934;
ii) Every Deposit taking Non-Banking Financial Company (NBFC-D) registered with
the Bank under the provisions of RBI Act, 1934;
iii) Every NBFC-Factor registered with the Bank under section 3 of the Factoring
Regulation Act, 2011 and having an asset size of Rs. 500 crore and above;
iv) Every Infrastructure Debt Fund – Non-Banking Finance Company (IDF-NBFC)
registered with the Bank under the provisions of RBI Act, 1934;
v) Every Non-Banking Finance Company – Micro Finance Institutions (NBFC-MFIs)
registered with the Bank under the provisions of RBI Act, 1934 and having an asset
size of Rs.500 crore and above;
vi) Every Non-Banking Finance Company - Infrastructure Finance Company (NBFC-
IFC) registered with the Bank under the provisions of RBI Act, 1934 and having an
asset size of `500 crore and above.
Registration
In exercise of the powers conferred under clause (b) of sub-section (1) of section 45 –IA
of the RBI Act, 1934 and all the powers enabling it in that behalf, the Reserve Bank,
specifies two hundred lakhs rupees as the Net Owned Fund (NOF) required for a non-
banking financial company to commence or carry on the business of non-banking
financial institution, except wherever otherwise a specific requirement as to NOF is
prescribed by the Bank.
Capital Requirements
Every applicable NBFC shall maintain a minimum capital ratio consisting of Tier-I and
Tier II capital which shall not be less than 15 percent of its aggregate risk weighted assets
on-balance sheet and of risk adjusted value of off-balance sheet items.
The Tier I capital in respect of applicable NBFCs (other than NBFC-MFI and IDFNBFC), at
any point of time, shall not be less than 8.5% by March 31, 2016 and10% by March 31,
2017.
Applicable NBFCs primarily engaged in lending against gold jewellery (such loans
comprising 50 percent or more of their financial assets) shall maintain a minimum Tier l
capital of 12 percent.
10. 5
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
NBFCs
Corporate Governance
Constitution of Committees of the Board
1. Audit Committee
i. All applicable NBFCs shall constitute an Audit Committee, consisting of not less
than three members of its Board of Directors.
ii. The Audit Committee must ensure that an Information System Audit of the
internal systems and processes is conducted at least once in two years to assess
operational risks faced by the applicable NBFCs.
2. Nomination Committee
All applicable NBFCs shall form a Nomination Committee to ensure 'fit and proper'
status of proposed/ existing directors.
3. Risk Management Committee
To manage the integrated risk, all applicable NBFCs shall form a Risk Management
Committee, besides the Asset Liability Management Committee.
Fit and Proper Criteria
All applicable NBFCs shall-
i. ensure that a policy is put in place with the approval of the Board of Directors for
ascertaining the fit and proper criteria of the directors at the time of appointment, and
on a continuing basis.
ii. obtain a declaration and undertaking from the directors giving additional information
on the directors.
iii. obtain a Deed of Covenant signed by the directors.
iv. furnish to the Bank a quarterly statement on change of directors, and a certificate
from the Managing Director of the applicable NBFC that fit and proper criteria in
selection of the directors has been followed. The statement must reach the Regional
Office of the Department of Non-Banking Supervision of the Bank where the company
is registered, within 15 days of the close of the respective quarter. The statement
submitted by applicable NBFC for the quarter ending March 31, shall be certified by
the auditors.
Provided that the Bank, if it deems fit and in public interest, reserves the right to examine
the fit and proper criteria of directors of any NBFC irrespective of the asset size of such
NBFC.
10. 6
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
NBFCs
sacrificing the spirit underlying the above guidelines and it shall be published on the
company's web-site, if any, for the information of various stakeholders.
Eligibility Criteria
No non-banking institution other than a company can undertake the business of Peer
to Peer Lending Platform.
No NBFC-P2P can commence or carry on the business of a Peer to Peer Lending
Platform without obtaining a Certificate of Registration (hereinafter referred to as
“CoR”) from the Bank. However, an entity carrying on the business of a Peer-to-Peer
Lending Platform as on the effective date of these directions, can continue to do so,
subject to the conditions laid down in this directions.
Every company seeking registration with the Bank as an NBFC-P2P is required to have
a net owned fund of not less than rupees twenty million or such higher amount as the
Bank may specify.
Prudential Norms
1. NBFC-P2P shall maintain a Leverage Ratio not exceeding 2.
2. The aggregate exposure of a lender to all borrowers at any point of time, across all
P2Ps, shall be subject to a cap of Rs. 10,00,000/-.
3. The aggregate loans taken by a borrower at any point of time, across all P2Ps, shall be
subject to a cap of Rs. 10,00,000/-.
4. The exposure of a single lender to the same borrower, across all P2Ps, shall not exceed
Rs. 50,000/-.
5. The maturity of the loans shall not exceed 36 months.
6. P2Ps shall obtain a certificate from the borrower or lender, as applicable, that the
limits prescribed above are being adhered to.
10. 7
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
NBFCs
Reporting Requirements
1. The Bank may, from time to time, prescribe return/s to be submitted by NBFC-P2P,
as it deems fit.
2. The following quarterly statements shall be submitted to the aforesaid Regional Office
within 15 days after the quarter to which these relate.
i. A statement, showing the number and amount in respect of loans;
disbursed during the quarter;
closed during the quarter; and
outstanding at the beginning and at the end of the quarter, including the
number of lenders and borrowers outstanding as at the end of the quarter
ii. The amount of funds held in the Escrow Account, bifurcated into funds received
from lenders and funds received from borrowers, with credit and debit
summations for the quarter.
iii. Number of complaints outstanding at beginning and at end of quarter, and
disposed of during the quarter, bifurcated as received from lenders and
borrowers.
iv. The Leverage Ratio, with details of its numerator and denominator.
10. 8
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Foreign Trade Policy
11.1
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Foreign Trade Policy
Maintenance of sovereignty and integrity of India, the security of the State and
friendly relations with foreign States.
11.2
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Foreign Trade Policy
d) The financial position of the developer is such that he is unable to discharge the duties
and obligation imposed on him by the letter of approval.
Before such suspension 3 months’ notice should be given by the board, in writing stating
the grounds on which it proposes to suspend the letter of approval, and should also consider
any cause shown by the developer within the period of that notice, against the
proposed suspension. Provided further that alternatively, the board may permit the licence
of approval to remain in force subject to further terms and conditions as it thinks fit.
Such terms and conditions will be binding on the developer.
Development commissioner
According to sec 12 Development Commissioner to be overall in charge of the SEZ and
can exercise administrative control and supervision over the officers and employees.
Further the development commissioner may call for information form a Developer or
Unit as maybe necessary to monitor the performance of the developer and the Unit.
11.3
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Foreign Trade Policy
11.4
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Foreign Trade Policy
Note: - Any person aggrieved by the order of the designated Court may file an appeal to High
Court within 60 days from the date of Communication of the order of the said court to him.
Further period may also be provided if high court has a reason to believe that the applicant
was prevented by sufficient cause from filling an appeal within the prescribed period.
Agency to Inspect
Section 20 empowers the Central Government to specify, by notification, any officer
or agency for carrying out surveys or inspections for securing the compliance with
the provisions of any Central Act by a Developer or an entrepreneur,
Section 21 empowers the Central Government to authorise any officer or agency to be
the enforcement officer or agency in respect of any notified offence committed in a
Special Economic Zone. Every officer or agency so authorised has been granted all the
corresponding powers of investigation, inspection, search or seizure as provided under
the relevant Central Act in respect of the notified offences
Section 22 empowers the agency or officer, with prior intimation to the Development
Commissioner concerned to carry out the investigation, inspection, search or seizure in
the Special Economic Zone or in a Unit if such agency or officer has reason to believe
(reasons to be recorded in writing) that a notified offence has been committed or is likely
to be committed in the Special Economic Zone.
SEZ Authority
Section 31 dealing with the Constitution of Authority empowers the Central Government
to constitute by notification in the Official Gazette, an Authority for every SEZ to exercise
powers conferred on and discharge the functions assigned to it
Section 34 casts upon the Authority a duty to undertake such measures as it thinks fit for
the development, operation and management of the respective Special Economic Zone.
Section 34(2) provides for following measures :
the development of infrastructure in the Special Economic Zone;
promoting exports from the Special Economic Zone;
reviewing the functioning and performance of the Special Economic Zone;
levy user or service charges or fees or rent for the use of properties belonging to the
Authority;
11.5
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Foreign Trade Policy
Digital India
With the launch of Digital India programme, the government is taking a big step forward
to transform the country into a digitally empowered knowledge economy.
It includes various schemes worth over Rs 1 lakh crore like Digital Locker, e-education,
e-health, e-sign and national scholarship portal. Bharat Net in 11 states and Next
Generation Network (NGN), are also a part of Digital India campaign.
The programme includes projects that aim to ensure that government services are
available to citizens electronically and people get benefit of the latest information and
communication technology.
The Ministry of Communications and IT is the nodal agency to implement the
programme.
Apps for Digital India Digital India Portal, MyGov Mobile App, Swachh Bharat Mission
App and Aadhaar Mobile Update App. Vision Of Digital India Digital Infrastructure as a
Utility to Every Citizen Governance & Services on Demand Digital Empowerment of
Citizens Pillars Of Digital India Broadband Highways Universal Access to Phones
Public Internet Access Programme e Governance – Reforming government through
Technology e-Kranti – Electronic delivery of services Information for All Electronics
Manufacturing – Target NET ZERO Imports IT for Jobs Early Harvest Programmes
11.6
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Foreign Trade Policy
Make in India
Make in India is an initiative of the Government of India to encourage multi-national, as
well as domestic, companies to manufacture their products in India. It was launched by
Prime Minister Narendra Modi on 25 September 2014 India would emerge, after
initiation of the programme in 2015, as the top destination globally for foreign
direct investment, surpassing China as well as the United States.
The major objective behind the initiative is to focus on job creation and skill enhancement
in 25 sectors of the economy. The initiative also aims at high quality standards and
minimizing the impact on the environment. The initiative hopes to attract capital and
technological investment in India.
Make in India focuses on the following 25 sectors of the economy:
Automobiles
Automobile Components
Aviation
Biotechnology
Chemicals
Construction
Defence manufacturing
Electrical Machinery
Ports and Shipping
Railways
Renewable Energy
Roads and Highways
Space
Textiles and Garments
Thermal Power
Tourism and Hospitality
Wellness
Electronic systems
Food Processing
Information Technology and business process management
Leather
Media and Entertainment
Mining
Oil and Gas
11.7
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Competition Act 2002
COMPETITION ACT, 2002
Introduction
With the globalization of the world economy, it became necessary to encourage competition to
foster economic development. MRTP Act, 1969 has become obsolete in certain areas in the
light of international economic developments relating to competition
laws. So the need was felt to shift the focus from curbing monopolies to promoting
competition. Hence, the Competition Act, 2002 was enacted, which aims at doing away from the
rigidly structured MRTP Act.
“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.”. -The
World Bank
Competition is a complex and technical subject which does not lend itself to easy summary or
concise clarification.
Competition can be defined as a process of economic rivalry between market players to attract
customers.
In the corporate world, the term is generally understood as a process whereby the economic
enterprises compete with each other to secure customers for their product. In the process, the
enterprises compete to outsmart their competitors, sometimes to eliminate their rivals.
Competition in the sense of economic rivalry is unstable and has a natural tendency to give way to
a monopoly. Thus, competition kills competition.
12.1
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Competition Act 2002
healthy market conditions and governments across the globe are increasingly trying to remove
market imperfections through appropriate regulations to promote competition.
Consumers get wide range of products and services at the competitive prices
Producers take steps for innovation which helps them in reducing costs and meeting consumer
demands.
Helps in imprving quality of goods and services
Competition prevents Monopolies in market.
It leads to Economic Growth of the country.
Definitions (Section 2)
Acquisition Acquisition means acquiring or agreeing to acquire -
[Section 2(a)] (i) Shares, voting rights or assets of any enterprise or
(ii) Control management or assets of any enterprise.
The terms 'acquiring' or 'acquisition' are relevant for "Regulation of
Combinations".
Agreement Agreement includes any arrangement or understanding or
[Section 2(b)] action in concert whether or not, such arrangement, understanding or concert
is in formal or in writing
or
intended to be enforceable by legal proceedings
Cartel Cartel includes an association of producers, sellers or
[Section 2(c)] distributors, traders to control the production, distribution,
sale or price of or ,trade in goods or provision of services. The
Act prohibits formation of certain cartels.
12.4
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Competition Act 2002
Relevant Geographic Relevant Geographic Market means a market comprising the area in which the
Market conditions of competition for supply of goods or provision of services
[Section 2(s)] or demand of goods or services are distinctly homogenous and can be
distinguished from conditions prevailing in neighboring areas.
Relevant Product Relevant Product Market means a market comprising of all those products or
Market services are regarded as interchangeable or substitutable by the consumer, by
[Section 2(t)] reasons of characteristics of products or services, their prices and intended use.
Meaning The geographic market describes the The product market describes the
locations of the producers or sellers of good or service.
the product service.
Criteria The relevant geographic market is The relevant product market is
determined by the Competition determined according to three criteria:
Authority having regard to - Demand-side substitution
all or any of the following factors: - Supply-side substitution
- Regulatory trade barriers - Potential competition.
- Local specification requirements
- National procurement policies
- Adequate distribution facilities
- Transport costs
- Language
- Consumer preferences
- Need for secure or regular supplies
or rapid after-sales services
Coverage The relevant geographic market The relevant product market
describes the geographic area over dimension entails all those products
which substitution takes place. that are sufficiently close substitutes of
the product under investigation.
Section Relevant geographic market is defined in Relevant product market is defined in
Section 2(s) of the Competition Act, Section 2(t) of the Competition Act,
2002. 2002.
12.5
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Competition Act 2002
Important Provisions
Anti-competitive Agreement
Section 3(1) of the Competition Act, 2002 provides that no enterprise or association of persons
shall enter into any agreement in respect of production ,supply, distribution, storage, acquisition or
control of goods or provision of services, which causes or is likely to cause an
appreciable adverse effect on competition .
Section 3(2) further provides that any anti-competitive agreement within the meaning of
Sec.3 (1) shall be void.
Section 3(3) : The agreements shall be presumed to have appreciable adverse effect on
competition and thereby they are consumed as deemed restrictive agreements.
Section 3(3) provides that following kinds of agreements entered into between
enterprises or association of enterprises or persons or associations or persons or
person or enterprise or practice carried on ,or decision taken by any association of
enterprises or association of persons, including ‘cartels’, engaged in identical or similar
goods or services which-
a) directly or indirectly determines purchase or sale price ;
b) limits or controls production , supply, markets , technical development , investment
or provision of services;
c) shares the market or source of production or provision of services, or allocation of
geographical area of market ,or type of goods or services ,or number of customers
in the market or any other similar way; and
d) directly or indirectly results in bid rigging or collusive bidding;
shall be presumed to have an appropriate adverse effect on the competition and onus
to prove otherwise lies on the defendant..
However, any agreement entered into by way of joint ventures will not be presumed to anti
competitive if such agreement increases efficiency in production, supply, distribution, storage,
acquisition or control of goods or provision of services
Bid Rigging
Bidding, as a practice, is intended to enable the procurement of goods or services on
the most favourable terms and conditions.
Invitation of bids is resorted to both by Government and private bodies But the objective of
securing the most favourable prices and conditions may be negated if the prospective bidders
collude or act in concert. Such collusive bidding or bid rigging contravenes the
very purpose of inviting tenders and is inherently anti- competitive.
12.6
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Competition Act 2002
Some of the most commonly adopted ways in which collusive bidding or bid rigging may occur are:
1. agreements to submit identical bids
2. agreements as to who shall submit the lowest bid, agreements for the submission of
cover bids (voluntarily inflated bids)
3. Agreements not to bid against each other,
4. Agreements on common norms to calculate prices or terms of bids
5. Agreements to squeeze out outside bidders
6. Agreements designating bid winners in advance on a rotational basis, or on a
geographical or customer allocation basis
Case Law
12 December 2015
The Competition Appellate Tribunal (COMPAT) on Friday set aside the Competition
Commission of India (CCI) decision imposing a cumulative penalty of Rs.6,316.59 crore
on 11 cement companies on charges of ‘cartelisation’.
Section 3(4) : The agreements shall be judged by rule of reason and the onus lies on the
prosecutor to prove its appreciable adverse effect on competition .
Section 3(4) provides that any agreement amongst enterprises or persons at different
stages or levels of the production chain in different markets, in respect of production,
supply, distribution ,storage ,sale or price of ,or trade in goods or provision of services, including-
a) tie-in agreements;
b) exclusive supply agreement;
c) exclusive distribution agreement;
d) refusal to deal;
e) resale price maintenance;
shall be an agreement in contravention of sub-section (1) if such agreement causes or
is likely to cause an appreciable adverse effect on competition in India.
12.7
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Competition Act 2002
“Exclusive supply agreement” includes any agreement restricting in any manner from
acquiring or otherwise dealing in any goods other than those of the seller or any other person.
Thus, where a manufacturer asks a dealer not to deal in similar products of its
competitor directly or indirectly and discontinues the supply on the ground that dealer
also deals in product of suppliers’ competitor’s goods is an illustration of exclusive
dealing agreement. [Bhartia Curtec Hammer Ltd. In-re (1997)
“Refusal to deal” includes any agreement, which restricts, or is likely to restrict, by any
method the persons or classes of persons to whom goods are sold or from whom goods are bought.
For eg. an agreement which provides that the franchisees will not deal in products or
goods of similar nature for a period of three years from the date of determination of
agreement within a radius of five kms from showroom amounts to exclusive dealing
agreement. DGIR v. Titan industries (2001)
“Resale price maintenance” includes any agreement to sell goods on condition that
the prices to be charged on resale by the purchaser shall be the prices stipulated by the
seller unless it is clearly stated that prices lower than those prices may be charged.
Case Law
In the first major order of 2014 against the auto sector, the Competition Commission of
India (CCI) slapped a penalty of Rs. 2,545 crore on 14 carmakers, including Maruti
Suzuki and Tata Motors, for violating trade norms in the spare parts market. For each
entity, the individual fine amounts to 2 per cent of their average turnover.
According to their agreements, the carmakers "imposed absolute restrictive covenants
and completely foreclosed the after-market for supply of spare parts and other diagnostic tools".
12.8
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Competition Act 2002
Prohibition of abuse of dominant position
Section 4 expressly prohibits any enterprise or group from abusing its dominant position, meaning
thereby a position of strengt , enjoyed by an enterprise or group, in the relevant market, in India,
which enables it to operate independently of competitive forces prevailing in the relevant market ;or
affect its competitors or consumers or the relevant market in its favour.
Section 4(2) states that there shall be abuse of dominant position, if an enterprise or group –
a) directly or indirectly imposes unfair or discriminatory :
condition in purchase or sale of goods or services; or
price in purchase or sale (including predatory price) of goods or service.
b) limits or restricts :
production of goods or provision of services or market therefore; or
technical or scientific development relating to goods or services to the prejudice of
consumers.
c) Indulges in practice or practices resulting in denial of market access in any other manner.
d) Makes conclusion of contracts subject to acceptance by other parties of supplementary obligations
which, by their nature or according to commercial usage, have no connection with the subject of such
contracts.
e) Uses its dominant position in one relevant market to enter into, or protect, other relevant market
12.9
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Competition Act 2002
(1) Dominant Position: Dominant position means a position of strength, enjoyed by an enterprise, in the
relevant market, in India, which enables it to -
• operate independently of competitive forces prevailing in the relevant market
or
• affect its competitors or consumers or the relevant market in its favour
(2) Predatory Price: Predatory price means the sale of goods or provision of services, at a price which is
below the cost with a view to reduce competition or eliminate the competitors.
Case law 1:
State-run Coal India has moved the Competition Appellate Tribunal against a CCI order
slapping Rs. 1,773 crore penalty on it for unfair trade practices. Competition Commission
of India (CCI) last month imposed the fine on Coal India, the first major penalty by the
regulator on a state-owned entity, for allegedly abusing its dominant position in fuel supplies.
Case law 2:
The Competition Commission of India (CCI) has imposed penalties upon 10 cement companies and
their trade association i.e. Cement Manufacturers Association (CMA) for cartelisation in the cement
industry.
The final order has been passed by CCI pursuant to the directions issued by Competition Appellate
Tribunal remanding the matter back while setting aside the original order of CCI.
The information in the present case was filed by Builders Association of India under Section 19(1)(a)
of the Competition Act, 2002 (the Act) against the cement companies and CMA alleging
contravention of section Section 3(1) read with Section 3(3)(b) of the Act. the provisions of the Act.
Accordingly, penalties of Rs. 1147.59 crores (ACC), Rs. 1163.91 crores (ACL), Rs. 167.32 crores
(Binani), Rs. 274.02 crores (Century), Rs. 187.48 crores (India Cements), Rs. 128.54 crores (J K
Cements), Rs. 490.01 crores (Lafarge), Rs. 258.63 crores (Ramco), Rs. 1175.49 crores (UltraTech) and
Rs. 1323.60 crores (Jaiprakash Associates Limited) have been imposed by CCI. In addition, a penalty
of Rs. 0.73 crore has also been imposed on CMA
NOTE: For the purpose of determining whether an enterprise enjoys dominant position or not under
Section 4, the Commission shall have due regard to all or any of the following factors, namely -
a) Market share of the enterprise;
b) size and resources of the enterprise;
c) size and importance of the competitors;
d) economic power of the enterprise including commercial advantages over competitor;
e) dependence of consumers on the enterprise;
f) market structure and size of market;
g) any other factor which the Commission may consider relevant for the inquiry.
For determining the “relevant geographic market”, the Commission shall have due regard to all or any
of the following factors, namely
a) Regulatory Trade barriers
b) Local specification Requirements
c) National procurement policies
d) Adequate Distribution facilities
e) Transport cost
f) Language
g) Consumer Preferences
Similarly, while determining ,”relevant product market” the Commission shall have due regard to all
or any of the following factors namely;
a) physical characteristics or end-use of goods;
b) Price of goods or service;
c) consumer preferences;
d) exclusion of in-house production;
e) existence of specialized producers;
f) Classification of industrial products
12.11
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Competition Act 2002
Regulation of Combination
Section 5 provides that acquisition of one or more enterprises by one or more persons
or merger or amalgamation of enterprises shall be a combination of such enterprises
and persons or enterprises which are above the certain prescribed size in terms of:
a) assets
or
b) turnover
12.12
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Competition Act 2002
Current Threshold
Section 6 Prohibits any person or enterprise from entering into a combination which
causes or is likely to cause as appreciable adverse effect on competition within the
relevant market in India and if such a combination is formed, it shall be void.
Section 6(2) envisages that any person or enterprise, who or which proposes to enter Into any
combination, shall give a notice to the Commission disclosing details of
theproposed combination, in the from prescribed and submit the form together with the
fee prescribed by regulations. Such intimation should be submitted within 30 days of:
a) approval of the proposal relating to merger or amalgamation for acquisition by the
Board of directors of the enterprise concerned with such merger or amalgamation, as
the case may be
b) execution of any agreement or other document for acquisition or acquiring of control
NOTE - The Commission shall have due regard to all or any of the factors for the
purposes of determining whether the combination would have the effect of or is likely
to have an appreciable adverse effect on competition in the relevant market, namely ;
a) extent of barriers to entry into the market;
b) level of combination in the market
c) likelihood that the combination would result in the parties to the combination being
able to significantly increase prices or profit margin.
d) extent to which substitutes are available or are likely to be available in the market
e) market share, in the relevant market, of the persons or enterprise in a combination,
individually and as a combination;
f) likelihood that the combination would result in the removal of a effective competitor
or competitors in the market;
g) nature and extent of vertical integration in the market;
Competition Commission of India
12.13
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Competition Act 2002
Composition [Section 8] The Commission shall consist of a Chairman and
other members, which shall not be less than 2
and more than 6.
The Chairman and all the members shall be
appointed by the Central Govt.
Following are the qualifications of Chairman and the members :
he shall be a person of ability, integrity and standing ;and
he has been or is qualified to be a Judge of a High
Court or he has special knowledge and
professional experience of not less than 15 years in
international trade, economics, business,
commerce, law, finance, accountancy, management, etc.
Term of Office [Section 10] The term of office of Chairman shall be 5 years or
upto the age of 67 years, whichever is earlier and
that of other members shall be 5 years or upto
the age of 65 years, whichever is earlier. However,
they shall be eligible for reappointment.
12.14
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Competition Act 2002
Validity of acts of CCI [Section 15] An act of CCI cannot be challenged on the ground only of
any defect in constituition of CCI or the existence of any
vacancy in the CCI. However, acts of CCI can be questioned
on other acts such as acting mala fide, acting on the basis of
untenable evidence, etc.
Section 36 empowers the Commission to call upon the experts from fields
of economics, commerce, accountancy, international trade or from any other discipline to assist
the Commission in the conduct of any inquiry before it.
Director General
Section 16 empowers the central Government to appoint a Director General an such number
of additional, joint, deputy or assistant Director Generals or other advisers, consultants
or offices .These persons shall be appointed from amongst the persons of integrity and
12.15
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Competition Act 2002
outstanding ability and who have experience in investigation and knowledge of accountancy,
management, business, public administration, international tirade, economics, law etc.
Director General is an important functionary under the Competition Acta.2002.He assists
the Commission by furnishing Investigation Report in respect of such matters as are referred to him
by the CCI .He also assists the commission in conducting proceedings of enquiries
which are initiated by the CCI suo moto.
Section 18 empowers the Commission to enter into any memorandum or arrangement, with the prior
approval of the Central Government, for the purpose of discharging the duties and functions under this
Act with any agency of any foreign country. This will enable the CCI to have extra territorial reach and
shall facilitate exchange of information and enforcement of its order.
Acts taking place outside India but having an effect on competition in India
Competition Commission of India will have jurisdiction even if both the parties to an
agreement are outside. Section 32 extends the jurisdiction of Competition Commission
of India to inquire and pass orders in accordance with the provisions of the Act into an
agreement or dominant position or combination, which is likely to have, an appreciable
adverse effect on competition in relevant market in India, notwithstanding that, an
agreement referred to in Section 3 has been entered into outside India; or any party to
such agreement is outside India; or
any enterprise abusing the dominant position is outside India; or
a combination has taken place outside India; or
any party to combination is outside India; or
any other matter or practice or action arising out of such agreement or
dominant position or
Combination is outside India.
12.16
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Competition Act 2002
iv. a legal practitioner that is an advocate, vakil or an attorney of any High
Court including a pleader in practice
Competition Advocacy
Section 49 of the Competition Act, 2002 provides that while formulating a policy on
competition including review of laws related to competition, the central Government may
make a referee to the ACCI for its opinion on the possible effects of such a policy on
competition.
The Commission shall within 60 days of receipt of such a reference, given its opinion on
it to the Central Government. Thereafter the central Government may formulate such
policy as it deems fit It may be noted that the rule of the Commission is advisory and
the opinion given by it shall not be binding on the Central Government.
The CCI had also been assigned the role to take prescribed suitable measures for
the following;
Promotion of competition advocacy;
Creating awareness about the competition; and
Imparting training about competition issues. Creating awareness about benefits of competition
and imparting training in competition issues is expected to generate conducive environment
to promote and foster competition, which is sine-qua non for accelerating economic growth.
Section 53D provides that the Chairperson of the Appellate Tribunal shall be a person, who is, or has
been a Judge of the Supreme Court or the Chief Justice of a High Court.
The Chairperson or a member of the Appellate Tribunal shall hold office as such for a term of five
years from the date on which he enters upon his office, and shall be eligible for re-appointment.
However, no Chairperson or other member of the Appellate Tribunal shall hold office as such
after he has attained,
in the case of the Chairperson, the age of sixty-eight years;
in the case of any other member of the Appellate Tribunal, the age of sixty-five years.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Competition Act 2002
Income-tax Act, 1961, it may make a reference to this effect to the concerned income-tax authority
under that Act for recovery of the penalty as tax due under the said Act.
Rectification of orders
The Commission may amend any order passed by it under the provisions of this Act with a view to
rectifying any mistake apparent from the record. Section 38(2) provides that subject to other
provisions of this Act, the Commission may make –
An explanation below the Section clarifies that while rectifying any mistake apparent from the
record, the Commission shall not amend substantive part of the order passed by it under the
provisions of this Act
Constitution of Fund
The Act provides for the constitution of a fund called the “Competition Fund” for meeting the
establishment and other expenses of the Competition Commission in connection with the discharge
of its functions and for the purposes of this Act. The following shall be credited to the “Competition
Fund”, -
The Fund shall be administered by a Committee of such Members of the Commission, as may be
determined by the Chairperson and the Committee so appointed, shall spend monies out of the
Fund only for the objects for which the Fund has been constituted.
Explanation to Section 52(2) clarifies that the orders passed by the Commission, being matters
appealable to the Supreme Court, shall not be subject to audit by the CAG. The expenses, if any,
incurred in connection with such audit shall be payable by the Commission to the CAG.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Competition Act 2002
Penalties
Contravention of orders of Commission [Section 42]
If any person fails to comply with the orders or directions of the Commission the Act, he shall be
punishable with fine which may extend to 7 1 Lakh for each day during which such non compliance
occurs subject to a maximum of 10 Crore.
If any person does not comply with the orders or directions or fails to pay the fine imposed then he
shall be punishable with imprisonment for a term which may extend to 3 years or with fine up to 25
Crore or with both as the Chief Metropolitan Magistrate may deem fit However, the Chief Metropolitan
Magistrate can take cognizance of any offence only on a complaint filed by the Commission or any of
its officers.
Penalty for failure to directions of Commission & Director General [Section 43]
If any person fails to comply with a direction given by the Commission or the Director General then
such person shall be punishable with fine which may extend to Rs 1 lakh for each day comply with
during which such failure continues subject to a maximum of 1 Crore
Where any rule, regulation, order made by the Commission or any direction issued thereunder is
contravened by a company, every person who, at the time the contravention was committed, was
in charge, and was responsible to the company for conducting business of the company, as well as
the company, shall be deemed to be guilty of the contravention and shall be liable to be proceeded
against and punished. However it will be a good defence by a person liable to any punishment if he
proves that the contravention was committed without his knowledge or that he has exercised all
due diligence to prevent the commission of an offence.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
COPRA 2019
CONSUMER PROTECTION ACT 2019
The Consumer Protection Bill, 2019 was passed by the Lok Sabha on 30th July, 2019 and
by Rajya Sabha on 06th August, 2019 respectively. The Consumer Protection Act, 2019
received the assent of the President on the 9th August, 2019. The Consumer Protection
Act, 2019 replaced the more than 3 decades old Consumer Protection Act, 1986.
Preamble of the Consumer Protection Act, 2019 provides for protection of the interests
of consumers and for the said purpose, to establish authorities for timely and effective
administration and settlement of consumers' disputes and for matters connected
therewith or incidental thereto.
Definitions
Advertisement (Sec 2(1))
Any audio or visual publicity, representation, endorsement or pronouncement made by
means of light, sound, smoke, gas, print, electronic media, internet or website and
includes any notice, circular, label, wrapper, invoice or such other documents.
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CS Praveen Choudhary
COPRA 2019
iii. The services hired or availed of or agreed to be hired or availed of by him suffer
from any deficiency;
iv. A trader or a service provider, as the case may be, has charged for the goods or for
the services mentioned in the complaint, a price in excess of the price—
a. fixed by or under any law for the time being in force; or
b. displayed on the goods or any package containing such goods; or
v. The services which are hazardous or likely to be hazardous to life and safety of the
public when used, are being offered by a person who provides any service and
who knows it to be injurious to life and safety;
vi. A claim for product liability action lies against the product manufacturer, product
seller or product service provider, as the case may be.
Here commercial purpose does not include = use by a person of goods bought and used by
him exclusively for the purpose of earning his livelihood, by means of self-employment;
Buys any goods" and "hires or avails any services" includes offline or online transactions
through electronic means or by teleshopping or direct selling or multi-level marketing.
A purchase of goods can be said to be for a ‘commercial purpose only if the goods have
been purchased for being used in some profit making activity on a large -scale, and
there is close and direct nexus between the purchase of goods and the profit-making
activity.
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CS Praveen Choudhary
COPRA 2019
another person exclusively to operate the machine, then such person would not be a
consumer.
The question as to whether the widow of the deceased policy holder was a ‘consumer’
under the Act was decided in the affirmative by the State Commission in Andhra Pradesh
in the case of A Narasamma v. LIC of India. The State Commission held that as the term
‘consumer’ includes any beneficiary of service other than the person who hires the
services for consideration, the widow being the beneficiary of services is a ‘consumer’
under the Act entitled to be compensated for the loss suffered by her due to negligence
of the LIC.
Goods, means goods as defined in the Sale of Goods Act,1930. As per Section 2(7) of the
Sale of Goods Act, 1930 Goods means every kind of movable property other than
actionable claims and money; and includes stock and shares, growing crops, grass and
things attached to or forming part of the land, which are agreed to be severed before sale
or under the contract of sale. Therefore, most consumer products come under the
purview of this definition.
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CS Praveen Choudhary
COPRA 2019
iii. The right to be assured, wherever possible, access to a variety of goods, products
or services at competitive prices;
iv. The right to be heard and to be assured that consumer's interests will receive due
consideration at appropriate forum;
v. The right to seek redressal against unfair trade practice or restrictive trade
practices or unscrupulous exploitation of consumers; and
vi. The right to consumer awareness.
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CS Praveen Choudhary
COPRA 2019
iii. depiction of the name or seal of any institution or organisation, which makes the
consumer to believe that it reflects the opinion, finding or experience of the person
making such endorsement.
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CS Praveen Choudhary
COPRA 2019
i. an individual;
ii. a firm whether registered or not;
iii. a Hindu undivided family;
iv. a co-operative society;
v. an association of persons;
vi. any corporation, company or a BOI whether incorporated or not;
vii. any artificial juridical person.
Product Seller
Product seller in relation to a product, means a person who, in the course of business,
imports, sells, distributes, leases, installs, prepares, packages, labels, markets, repairs,
maintains, or otherwise is involved in placing such product for commercial purpose and
includes—
i. A manufacturer who is also a product seller; or
ii. A service provider, but does not include—
a) A seller of immovable property, unless such person is engaged in the sale of
constructed house or in the construction of homes or flats;
b) A provider of professional services in any transaction in which, the sale or use of
a product is only incidental thereto, but furnishing of opinion, skill or services
being the essence of such transaction;
c) A person who—
I. acts only in a financial capacity with respect to the sale of the product;
II. is not a manufacturer, wholesaler, distributor, retailer, direct seller or an
electronic service provider;
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CS Praveen Choudhary
COPRA 2019
III. leases a product, without having a reasonable opportunity to inspect and
discover defects in the product, under a lease arrangement in which the
selection, possession, maintenance, and operation of the product are controlled
by a person other than the lessor.
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CS Praveen Choudhary
COPRA 2019
Unfair Contract (Sec 2(46))
Unfair contract means a contract between a manufacturer or trader or service provider
on one hand, and a consumer on the other, having such terms which cause significant
change in the rights of such consumer, including the following, namely:—
i. requiring manifestly excessive security deposits to be given by a consumer for the
performance of contractual obligations; or
ii. imposing any penalty on the consumer, for the breach of contract thereof which is
wholly disproportionate to the loss occurred due to such breach to the other party
to the contract; or
iii. refusing to accept early repayment of debts on payment of applicable penalty; or
iv. entitling a party to the contract to terminate such contract unilaterally, without
reasonable cause; or
v. permitting or has the effect of permitting one party to assign the contract to the
detriment of the other party who is a consumer, without his consent; or
vi. imposing on the consumer any unreasonable charge, obligation or condition
which puts such consumer to disadvantage;
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CS Praveen Choudhary
COPRA 2019
i) materially misleads the public concerning the price at which a product or like
products or goods or services, have been or are, ordinarily sold or provided, and, for
this purpose, a representation as to price shall be deemed to refer to the price at
which the product or goods or services has or have been sold by sellers or provided
by suppliers generally in the relevant market unless it is clearly specified to be the
price at which the product has been sold or services have been provided by the
person by whom or on whose behalf the representation is made;
j) gives false or misleading facts disparaging the goods, services or trade of another
person.
(iii) Permitting—
a) The offering of gifts, prizes or other items with the intention of not providing them
as offered or creating impression that something is being given or offered free of
charge when it is fully or partly covered by the amount charged, in the transaction
as a whole;
b) The conduct of any contest, lottery, game of chance or skill, for the purpose of
promoting, directly or indirectly, the sale, use or supply of any product or any
business interest, except such contest, lottery, game of chance or skill as may be
prescribed;
c) Withholding from the participants of any scheme offering gifts, prizes or other
items free of charge on its closure, the information about final results of the
scheme.
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CS Praveen Choudhary
COPRA 2019
Explanation.—For the purpose of this sub-clause, the participants of a scheme shall be
deemed to have been informed of the final results of the scheme where such results are
within a reasonable time published, prominently in the same newspaper in which the
scheme was originally advertised;
(iv) permitting the sale or supply of goods intended to be used, or are of a kind likely to
be used by consumers, knowing or having reason to believe that the goods do not comply
with the standards prescribed by the competent authority relating to performance,
composition, contents, design, constructions, finishing or packaging as are necessary to
prevent or reduce the risk of injury to the person using the goods;
(v) permitting the hoarding or destruction of goods, or refusal to sell the goods or to make
them available for sale or to provide any service, if such hoarding or destruction or refusal
raises or tends to raise or is intended to raise, the cost of those or other similar goods or
services;
(vi) manufacturing of spurious goods or offering such goods for sale or adopting
deceptive practices in the provision of services;
(vii) not issuing bill or cash memo or receipt for the goods sold or services rendered in
such manner as may be prescribed;
(viii) refusing, after selling goods or rendering services, to take back or withdraw
defective goods or to withdraw or discontinue deficient services and to refund the
consideration thereof, if paid, within the period stipulated in the bill or cash memo or
receipt or in the absence of such stipulation, within 30 days;
(ix) disclosing to other person any personal information given in confidence by the
consumer unless such disclosure is made in accordance with the provisions of any law
for the time being in force.
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CS Praveen Choudhary
COPRA 2019
representing Prescribed interests and such number of other official or non-official
members, not exceeding 10, as may be nominated by the CG.
Meeting: As and when necessary but at least 2 meetings shall be held every year.
Time & Place: As the Chairperson may think fit.
Objects: To render advice on promotion and protection of consumer rights within the
State.
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CS Praveen Choudhary
COPRA 2019
consumer policy, law, medicine, food safety, health, engineering, product safety,
commerce, economics, public affairs or administration, as it deems necessary to
assist it in the discharge of its functions under this Act.
Chief Commissioner may delegate such of his powers relating to administrative matters
of the Central Authority, as he may think fit, to any Commissioner (including
Commissioner of a regional office) or any other officer of the Central Authority.
Complaints to Authorities
A complaint relating to violation of consumer rights or unfair trade practices or false or
misleading advertisements which are prejudicial to the interests of consumers as a class,
may be forwarded either in writing or in electronic mode, to any one of the authorities,
namely, the District Collector or the Commissioner of regional office or the Central
Authority.
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CS Praveen Choudhary
COPRA 2019
Powers and functions of Central Authority (Sec 18)
1. Central Authority have following power and Functions -
a) protect, promote and enforce the rights of consumers as a class, and prevent violation
of consumers rights under this Act;
b) prevent unfair trade practices and ensure that no person engages himself in unfair
trade practices;
c) ensure that no false or misleading advertisement is made of any goods or services
which contravenes the provisions of this Act or the rules or regulations made
thereunder;
d) ensure that no person takes part in the publication of any advertisement which is false
or misleading.
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CS Praveen Choudhary
COPRA 2019
2. where, after preliminary inquiry, the Central Authority is of the opinion that the
matter is to be dealt with by a Regulator established under any other la w for the time
being in force, it may refer such matter to the concerned Regulator along with its
report.
3. For the purposes of investigation, the Central Authority, the Director General or the
District Collector may call upon a person referred to in Sec 19(1) and also direct him
to produce any document or record in his possession.
If the Central Authority is of the opinion that it is necessary to impose a penalty in respect
of such false or misleading advertisement, by a manufacturer or an endorser, it may, by
order, impose on manufacturer or endorser a penalty up-to Rs. 10 Lakh. The Central
Authority may, for every subsequent contravention by a manufacturer or endorser,
impose a penalty up-to Rs. 50 Lakh.
Where the Central Authority deems it necessary, it may, by order, prohibit the endorser
of a false or misleading advertisement from making endorsement of any product or
service for up-to 1 year. Central Authority may, for every subsequent contravention,
prohibit such endorser from making endorsement in respect of any product or service
for up-to 3 years.
Where the Central Authority is satisfied after investigation that any person is found to
publish, or is a party to the publication of, a misleading advertisement, it may impose on
such person a penalty up-to Rs. 10 lakh.
No endorser shall be liable to a penalty, if he has exercised due diligence to verify the
veracity of the claims made in the advertisement regarding the product or service being
endorsed by him.
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CS Praveen Choudhary
COPRA 2019
No person shall be liable to such penalty if he proves that he had publish ed or arranged
for the publication of such advertisement in the ordinary course of his business: Provided
that no such defence shall be available to such person if he had previous knowledge of
the order passed by the Central Authority for withdrawal or modification of such
advertisement.
While determining the penalty, regard shall be had to the following, namely:—
The Central Authority shall give the person an opportunity of being heard before an order
is passed.
The provisions of the Cr. P.C, 1973, relating to search and seizure shall apply.
Every document, record or article seized or produced shall be returned within 20 days
of the date of such seizure or production, after copies thereof or extracts therefrom
certified by that person, in such manner as may be prescribed, have been taken.
Where any article seized are subject to speedy or natural decay, the Director General or
such other officer may dispose of the article in such manner as may be prescribed.
In the case of articles other than the articles of speedy or natural decay, provisions
contained in section 38(2) (c) shall mutatis mutandis apply in relation to analysis or tests.
which provides that if the complaint alleges a defect in the goods which cannot be
determined without proper analysis or test of the goods, obtain a sample of the goods
from the complainant, seal it and authenticate it in the manner as may be prescribed and
refer the sample so sealed to the appropriate laboratory along with a direction that such
laboratory to make an analysis or test, whichever may be necessary, with a view to
finding out whether such goods suffer from any defect alleged in the complaint or from
any other defect and to report its findings thereon to the District Commission within 45
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CS Praveen Choudhary
COPRA 2019
days of the receipt of the reference or within such extended period as may be granted by
it.
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CS Praveen Choudhary
COPRA 2019
c. the cause of action, wholly or in part, arises; or
d. the complainant resides or personally works for gain.
The District Commission shall ordinarily function in the district headquarters and may
perform its functions at such other place in the district, as the State Government may, in
consultation with the State Commission, notify in the Official Gazette from time to time.
Note:
1. It may be noted that the complaint may be filed electronically.
2. Every complaint filed shall be accompanied with such fee and payable in such manner,
including electronic form, as may be prescribed.
It may be noted that that where a member, for any reason, is unable to conduct a
proceeding till it is completed, the President and the other member shall continue the
proceeding from the stage at which it was last heard by the previous member.
On receipt of a complaint, the District Commission may, by order, admit the complaint for
being proceeded with or reject the same.
A complaint shall not be rejected unless an opportunity of being heard has been given to
the complainant.
The admissibility of the complaint shall ordinarily be decided within 21 days from the
date on which the complaint was filed.
Where the District Commission does not decide the issue of admissibility of the complaint
within the period so specified, it shall be deemed to have been admitted.
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CS Praveen Choudhary
COPRA 2019
Reference to mediation (Sec 37)
At the first hearing of the complaint after its admission, or at any later stage, if it appears
to the District Commission that there exists elements of a settlement which may be
acceptable to the parties, except in such cases as may be prescribed, it may direct the
parties to give in writing, within 5 days, consent to have their dispute settled by
mediation in accordance with the provisions of Chapter V.
Where the parties agree for settlement by mediation and give their consent in writing,
the District Commission shall, within five days of receipt of such consent, refer the matter
for mediation, and in such case, the provisions of Chapter V, relating to mediation, shall
apply.
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CS Praveen Choudhary
COPRA 2019
g. give a reasonable opportunity to the complainant as well as the opposite party of
being heard as to the correctness or otherwise of the report made by the
appropriate laboratory and also as to the objection made in relation thereto and
issue an appropriate order.
(3) The District Commission shall, if the complaint admitted by it under section 36 relates
to goods in respect of which the procedure specified in sub-section (2) cannot be
followed, or if the complaint relates to any services,—
(a) refer a copy of such complaint to the opposite party directing him to give his version
of the case within a period of thirty days or such extended period not exceeding fifteen
days as may be granted by the District Commission;
(b) if the opposite party, on receipt of a copy of the complaint, referred to him under
clause (a) denies or disputes the allegations contained in the complaint, or omits or fails
to take any action to represent his case within the time given by the District Commission,
it shall proceed to settle the consumer dispute—
(i) on the basis of evidence brought to its notice by the complainant and the opposite
party, if the opposite party denies or disputes the allegations contained in the complaint,
or
(ii) ex parte on the basis of evidence brought to its notice by the complainant, where the
opposite party omits or fails to take any action to represent his case within the time given
by the Commission;
(c) decide the complaint on merits if the complainant fails to appear on the date of
hearing.
(4) For the purposes of sub-sections (2) and (3), the District Commission may, by order,
require an electronic service provider to provide such information, documents or
records, as may be specified in that order.
5) No proceedings complying with the procedure laid down in sub -sections (1) and (2)
shall be called in question in any court on the ground that the principles of natural justice
have not been complied with.
(6) Every complaint shall be heard by the District Commission on the basis of affidavit
and documentary evidence placed on record: Provided that where an application is made
for hearing or for examination of parties in person or through video conferencing, the
District Commission may, on sufficient cause being shown, and after recording its reasons
in writing, allow the same.
(7) Every complaint shall be disposed of as expeditiously as possible and endeavour shall
be made to decide the complaint within a period of three months from the date of receipt
of notice by opposite party where the complaint does not require analysis or testing of
commodities and within five months if it requires analysis or testing of commodities:
Provided that no adjournment shall ordinarily be granted by the District Commission
unless sufficient cause is shown and the reasons for grant of adjournment have been
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CS Praveen Choudhary
COPRA 2019
recorded in writing by the Commission: Provided further that the District Commission
shall make such orders as to the costs occasioned by the adjournment as may be specified
by regulations:
Provided also that in the event of a complaint being disposed of after the period so
specified, the District Commission shall record in writing, the reasons for the same at the
time of disposing of the said complaint.
(8) Where during the pendency of any proceeding before the District Commission, if it
appears necessary, it may pass such interim order as is just and proper in the facts and
circumstances of the case.
(9) For the purposes of this section, the District Commission shall have the same powers
as are vested in a civil court under the Code of Civil Procedure, 1908 while trying a suit
in respect of the following matters, namely:—
(a) the summoning and enforcing the attendance of any defendant or witness and
examining the witness on oath;
(b) requiring the discovery and production of any document or other material object as
evidence;
(d) the requisitioning of the report of the concerned analysis or test from the appropriate
laboratory or from any other relevant source;
(e) issuing of commissions for the examination of any witness, or document; and
(f) any other matter which may be prescribed by the Central Government.
(10) Every proceeding before the District Commission shall be deemed to be a judicial
proceeding within the meaning of sections 193 and 228 of the Indian Penal Code, and the
District Commission shall be deemed to be a criminal court for the purposes of section
195 and Chapter XXVI of the Code of Criminal Procedure, 1973.
(11) Where the complainant is a consumer referred to in sub-clause (v) of clause (5) of
section 2, the provisions of Order I Rule 8 of the First Schedule to the Code of Civil
Procedure, 1908 shall apply subject to the modification that every reference therein to a
suit or decree shall be construed as a reference to a complaint or the order of the District
Commission thereon.
(12) In the event of death of a complainant who is a consumer or of the opposite party
against whom the complaint has been filed, the provisions of Order XXII of the First
Schedule to the Code of Civil Procedure, 1908 shall apply subject to the modification that
every reference therein to the plaintiff and the defendant shall be construed as reference
to a complainant or the opposite party, as the case may be.
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CS Praveen Choudhary
COPRA 2019
1) Where the District Commission is satisfied that the goods complained against suffer
from any of the defects specified in the complaint or that any of the allegations contained
in the complaint about the services or any unfair trade practices, or claims for
compensation under product liability are proved, it shall issue an order to the opposite
party directing him to do one or more of the following, namely:—
a. to remove the defect pointed out by the appropriate laboratory from the goods in
question;
b. to replace the goods with new goods of similar description which shall be free from
any defect;
c. to return to the complainant the price, or, as the case may be, the charges paid by the
complainant along with such interest on such price or charges as may be decided;
d. to pay such amount as may be awarded by it as compensation to the consumer for any
loss or injury suffered by the consumer due to the negligence of the opposite party:
Provided that the District Commission shall have the power to grant punitive damages
in such circumstances as it deems fit;
e. to pay such amount as may be awarded by it as compensation in a product liability
action under Chapter VI;
f. to remove the defects in goods or deficiencies in the services in question;
g. to discontinue the unfair trade practice or restrictive trade practice and not to repeat
them;
h. not to offer the hazardous or unsafe goods for sale;
i. to withdraw the hazardous goods from being offered for sale;
j. to cease manufacture of hazardous goods and to desist from offering services which
are hazardous in nature;
k. to pay such sum as may be determined by it, if it is of the opinion that loss or injury
has been suffered by a large number of consumers who are not identifiable
conveniently.
it may be noted that the minimum amount of sum so payable shall not be less than
25% of the value of such defective goods sold or service provided, as the case may be,
to such consumers;
l. to issue corrective advertisement to neutralise the effect of misleading advertisement
at the cost of the opposite party responsible for issuing such misleading
advertisement;
m. to provide for adequate costs to parties; and
n. to cease and desist from issuing any misleading advertisement.
2) Any amount obtained shall be credited to such fund and utilised in such manner as
may be prescribed.
3) In any proceeding conducted by the President and a member and if they differ on any
point or points, they shall state the point or points on which they differ and refer the same
to another member for hearing on such point or points and the opinion of the majority
shall be the order of the District Commission. However, the other member shall give his
opinion on such point or points referred to him within 1 month from the date of such
reference.
4) Every order made by the District Commission shall be signed by the President and the
member who conducted the proceeding. Provided that where the order is made as per
majority opinion, such order shall also be signed by the other member.
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CS Praveen Choudhary
COPRA 2019
Review by District Commission in Certain Case (Sec 40)
The District Commission can review any of the order passed by it if there is an error
apparent on the face of the record, either of its own motion or on an application made by
any of the parties within thirty days of such order.
There are certain restriction on appeal, unless the person fulfil the following
conditions namely-
No appeal by a person, who is required to pay any amount in terms of an order of the
District Commission, shall be entertained by the State Commission unless the
appellant has deposited 50% of that amount in the manner as may be prescribed.
No appeal shall lie from any order passed u/s 81(1) by the District Commission
pursuant to a settlement by mediation u/s 80.
a. a President; and
b. not less than 4 or not more than prescribed number of members as decided in
consultation with the CG.
The CG may, by notification, make rules to provide for the qualification for appointment,
method of recruitment, procedure of appointment, term of office, resignation and
removal of the President and members of the State Commission.
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CS Praveen Choudhary
COPRA 2019
(b) to call for the records and pass appropriate orders in any consumer dispute which is
pending before or has been decided by any District Commission within the State, where
it appears to the State Commission that such District Commission has exercised a
jurisdiction not vested in it by law, or has failed to exercise a jurisdiction so vested or has
acted in exercise of its jurisdiction illegally or with material irregularity.
2) The jurisdiction, powers and authority of the State Commission may be exercised by
Benches thereof, and a Bench may be constituted by the President with 1 or more
members as the President may deem fit. It may be noted that the senior-most member
shall preside over the Bench.
3) Where the members of a Bench differ in opinion on any point, the points shall be
decided according to the opinion of the majority, if there is a majority, but if the members
are equally divided, they shall state the point or points on which they differ, and make a
reference to the President who shall either hear the point or points himself or refer the
case for hearing on such point or points by one or more of the other members and such
point or points shall be decided according to the opinion of the majority of the members
who have heard the case, including those who first heard it. The President or the other
members, as the case may be, shall give opinion on the point or points so referred within
a period of 1 month from the date of such reference.
The provisions relating to complaints shall, with such modifications as may be necessary,
be applicable to the disposal of complaints by the State Commission.
The State Commission may also declare any terms of contract, which is unfair to any
consumer, to be null and void.
Section 50 empowers the State Commission to review any of the order passed by it if
there is an error apparent on the face of the record, either of its own motion or on an
application made by any of the parties within thirty days of such order.
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CS Praveen Choudhary
COPRA 2019
1. Any person aggrieved by an order made by the State Commission may prefer an appeal
against such order to the National Commission within 30 days from the date of the order
in prescribed form and manner. National Commission shall not entertain the appeal after
the expiry of 30 days unless it is satisfied that there was sufficient cause for not filing it
within that period . Provided further that no appeal by a person, who is required to pay
any amount in terms of an order of the State Commission, shall be entertained by the
National Commission unless the appellant has deposited 50% of that amount in the
manner as may be prescribed.
2) Save as otherwise expressly provided under this Act or by any other law for the time
being in force, an appeal shall lie to the National Commission from any order passed in
appeal by any State Commission, if the National Commission is satisfied that the case
involves a substantial question of law.
Further, nothing in this sub-section shall be deemed to take away or abridge the power
of the National Commission to hear, for reasons to be recorded in writing, the appeal on
any other substantial question of law, if it is satisfied that the case involves such question
of law.
An appeal may lie to the National Commission from an order passed ex-parte by the State
Commission.
Adjournment shall not ordinarily be granted by the State Commission or the National
Commission, as the case may be, unless sufficient cause is shown and the reasons for
grant of adjournment have been recorded in writing by such Commission. State
Commission or the National Commission, as the case may be, shall make such orders as
to the costs occasioned by the adjournment, as may be specified by regulations .
In the event of an appeal being disposed of after the period so specified, the State
Commission or the National Commission, as the case may be, shall record in writing the
reasons for the same at the time of disposing of the said appeal.
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CS Praveen Choudhary
COPRA 2019
The CG may, by notification, make rules to provide for qualifications, appointment, term
of office, salaries and allowances, resignation, removal and other terms and conditions of
service of the President and members of the National Commission.
President and members of the National Commission shall hold office for such term as
specified in the rules made by the CG but not exceeding 5 years from the date on which
he enters upon his office and shall be eligible for reappointment.
It may be noted that no President or members shall hold office as such after he has
attained such age as specified in the rules made by the CG which shall not exceed, —
a. in the case of the President, the age of 70 years;
b. in the case of any other member, the age of 67 years.
(b) to call for the records and pass appropriate orders in any consumer dispute which is
pending before or has been decided by any State Commission where it appears to the
National Commission that such State Commission has exercised a jurisdiction not vested
in it by law, or has failed to exercise a jurisdiction so vested, or has acted in the exercise
of its jurisdiction illegally or with material irregularity.
2) The jurisdiction, powers and authority of the National Commission may be exercised
by Benches thereof and a Bench may be constituted by the President with one or more
members as he may deem fit. The senior-most member of the Bench shall preside over
the Bench.
3) Where the members of a Bench differ in opinion on any point, the points shall be
decided according to the opinion of the majority, if there is a majority, but if the members
are equally divided, they shall state the point or points on which they differ, and make a
reference to the President who shall either hear the point or points himself or refer the
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
COPRA 2019
case for hearing on such point or points by one or more of the other members and such
point or points shall be decided according to the opinion of the majority of the members
who have heard the case, including those who first heard it. The President or the other
member, as the case may be, shall give opinion on the point or points so referred within
2 months from the date of such reference.
The provisions relating to complaints u/s 35, 36, 37, 38 & 39 shall, with such
modifications as may be considered necessary, be applicable to the disposal of complaints
by the National Commission.
National Commission may also declare any terms of contract, which is unfair to any
consumer to be null and void.
The National Commission can review any of the order passed by it if there is an error
apparent on the face of the record, either of its own motion or on an application made by
any of the parties within 30 days of such order.
Where an order is passed by the National Commission ex parte, the aggrieved party may
make an application to the Commission for setting aside such order.
2) The notice may be served on an electronic service provider at the address provided by
it on the electronic platform from where it provides its services as such and for this
purpose, the electronic service provider shall designate a nodal officer to accept and
process such notices.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
COPRA 2019
Provided that where the notice was properly addressed, pre-paid and duly sent by
registered post acknowledgment due, a declaration referred to in this sub-section shall
be made notwithstanding the fact that the acknowledgment has been lost or misplaced,
or for any other reason, has not been received by the District Commission, the State
Commission or the National Commission, as the case may be, within 30 days from the
date of issue of notice.
Where the National Commission or the State Commission, as the case may be, on an
application by a complainant or otherwise, is of the opinion that it involves the larger
interest of consumers, it may direct any individual or organisation or expert to assist the
Commission.
Any person, aggrieved by an order made by the National Commission may prefer an
appeal against such order to the Supreme Court within 30 days from the date of the
order.
Provided that the Supreme Court may entertain an appeal after the expiry of 30 days if it
is satisfied that there was sufficient cause for not filing it within that period.
Provided further that no appeal by a person who is required to pay any amount in terms
of an order of the National Commission shall be entertained by the Supreme Court unless
that person has deposited 50% of that amount in the manner as may be prescribed.
Every order of a Commission shall, if no appeal has been preferred against such order, be
final.
The District Commission, the State Commission or the National Commission shall not
admit a complaint unless it is filed within 2 years from the date on which the cause of
action has arisen.
A complaint may be entertained after 2 years, if the complainant satisfies that he had
sufficient cause for not filing the complaint within such period:
A complaint shall not be entertained unless Commission records its reasons for
condoning such delay.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
COPRA 2019
Enforcement of Orders of District Commission, State Commission and National
Commission (Sec 71)
1) Whoever fails to comply with any order made by the District Commission or the State
Commission or the National Commission, as the case may be, shall be punishable with
imprisonment for a term which shall not be less than one month, but which may extend
to 3 years, or with fine, which shall not be less than Rs. 25,000, but which may extend to
Rs. 1 Lakh, or with both.
2) Notwithstanding anything contained in the Cr PC, 1973, the District Commission, the
State Commission or the National Commission, as the case may be, shall have the power
of a Judicial Magistrate of 1st Class for the trial of offences and on conferment of such
powers, the District Commission or the State Commission or the National Commission, as
the case may be, shall be deemed to be a JMFC for the purposes of the Cr PC, 1973.
3) Save as otherwise provided, the above offences shall be tried summarily by the District
Commission or the State Commission or the National Commission, as the case may be.
Notwithstanding anything contained in the Cr. PC, 1973, where an order is passed u/s 72
(1), an appeal shall lie, both on facts and on law from—
a. the order made by the District Commission to the State Commission;
b. the order made by the State Commission to the National Commission; and
c. the order made by the National Commission to the Supreme Court.
Every appeal shall be preferred within 30 days from the date of order of a District
Commission or a State Commission or the National Commission, as the case may be.
It may be noted that the State Commission or the National Commission or the Supreme
Court, as the case may be, may entertain an appeal after the expiry of 30 days, if it is
satisfied that the appellant had sufficient cause for not preferring the appeal within the
said period.
Appeal shall not lie before any court, from any order of a District Commission or a State
Commission or the National Commission, as the case may be.
MEDIATION
Establishment of Consumer Mediation Cell (Sec 74)
The State Government can establish a consumer mediation cell to be attached to each of
the District Commissions and the State Commissions of that State. Further the CG also
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
COPRA 2019
empowers to establish a consumer mediation cell to be attached to the National
Commission and each of the regional Benches.
A consumer mediation cell shall consist of such persons as may be prescribed.
Every consumer mediation cell shall submit a quarterly report to the District
Commission, State Commission or the National Commission to which it is attached, in the
manner specified by regulations.
1) For the purpose of mediation, the National Commission or the State Commission or the
District Commission, as the case may be, shall prepare a panel of the mediators to be
maintained by the consumer mediation cell attached to it, on the recommendation of a
selection committee consisting of the President and a member of that Commission.
The qualifications and experience required for empanelment as mediator, the procedure
for empanelment, the manner of training empanelled mediators, the fee payable to
empanelled mediator, the terms and conditions for empanelment, the code of conduct for
empanelled mediators, the grounds on which, and the manner in which, empanelled
mediators shall be removed or empanelment shall be cancelled and other matters
relating thereto, shall be such as may be specified by regulations.
The panel of mediators shall be valid for a period of five years, and the empanelled
mediators shall be eligible to be considered for re -empanelment for another term,
subject to such conditions as may be specified by regulations.
The District Commission, the State Commission or the National Commission shall, while
nominating any person from the panel of mediators referred to in section 75, consider
his suitability for resolving the consumer dispute involved.
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CS Praveen Choudhary
COPRA 2019
information received from any other person including parties to the complaint and after
hearing the mediator, it shall replace such mediator by another mediator.
The mediation shall be held in the consumer mediation cell attached to the District
Commission, the State Commission or the National Commission, as the case may be.
Where a consumer dispute is referred for mediation by the District Commission or the
State Commission or the National Commission, as the case may be, the mediator
nominated by such Commission shall have regard to the rights and obligations of the
parties, the usages of trade, if any, the circumstances giving rise to the consumer dispute
and such other relevant factors, as he may deem necessary and shall be guided by the
principles of natural justice while carrying out mediation.
The mediator so nominated shall conduct mediation within such time and in such manner
as may be specified by regulations.
2) The mediator shall prepare a settlement report of the settlement and forward the
signed agreement along with such report to the concerned Commission.
Where no agreement is reached between the parties within the specified time or the
mediator is of the opinion that settlement is not possible, he shall prepare his report
accordingly and submit the same to the concerned Commission.
1) The District Commission or the State Commission or the National Commission, as the
case may be, shall, within 7 days of the receipt of the settlement report, pass suitable
order recording such settlement of consumer dispute and dispose of the matter
accordingly.
2) Where the consumer dispute is settled only in part, the District Commission or the
State Commission or the National Commission, as the case may be, shall record
settlement of the issues which have been so settled and continue to hear other issues
involved in such consumer dispute.
Where the consumer dispute could not be settled by mediation, the District Commission
or the State Commission or the National Commission, as the case may be, shall continue
to hear all the issues involved in such consumer dispute.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
COPRA 2019
According to section 82 Chapter VI shall apply to every claim for compensation under a
product liability action by a complainant for any harm caused by a defective product
manufactured by a product manufacturer or serviced by a product service provider or
sold by a product seller.
A product manufacturer shall be liable in a product liability action even if he proves that
he was not negligent or fraudulent in making the express warranty of a product.
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CS Praveen Choudhary
COPRA 2019
e. he failed to exercise reasonable care in assembling, inspecting or maintaining such
product or he did not pass on the warnings or instructions of the product
manufacturer regarding the dangers involved or proper usage of the product while
selling such product and such failure was the proximate cause of the harm
A product manufacturer shall not be liable for failure to instruct or warn about a danger
which is obvious or commonly known to the user or consumer of such product or which,
such user or consumer, ought to have known, taking into account the characteristics of
such product.
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CS Praveen Choudhary
COPRA 2019
However, no compounding of such offence shall be made without the leave of the court
before which a complaint has been filed u/s 92.
Further, such sum shall not, in any case, exceed the maximum amount of the fine, which
may be imposed for the offence so compounded.
2) the Central Authority or any officer as may be specially authorised by him in this
behalf, may compound offences.
3) Nothing in sub-section (1) shall apply to person who commits the same or similar
offence, within a period of 3 years from the date on which the first offence, committed by
him, was compounded.
Any 2nd or subsequent offence committed after the expiry of a period of 3 years from the
date on which the offence was previously compounded, shall be deemed to be a 1st
offence.
5) The acceptance of the sum of money for compounding an offence by the Central
Authority or an officer of the Central Authority empowered in this behalf shall be deemed
to amount to an acquittal within the meaning of the Cr PC, 1973.
2) The offences under clauses (c) and (d) shall be cognizable and non-bailable.
The court may, in case of 1st conviction, suspend any licence issued to the person referred
to in that sub -section, under any law for the time being in force, for a period up to 2 years,
and in case of 2nd or subsequent conviction, cancel the licence.
Here
(a) "Adulterant" means any material including extraneous matter which is employed or
used for making a product unsafe;
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
COPRA 2019
(b) "Grievous hurt" shall have the same meaning as assigned to it in section 320 of the
IPC.
2) The offences under clauses (b) & (c) shall be cognizable and non-bailable.
The court may, in case of 1st conviction, suspend any licence issued to the concerned
person, under any law for the time being in force, for a period up to 2 years, and in case
of 2nd or subsequent conviction, cancel the licence.
Measures to Prevent Unfair Trade Practices in E-Commerce, Direct Selling (Sec 94)
The CG can take such measures in the prescribed manner for the purposes of preventing
unfair trade practices in e-commerce, direct selling and also to protect the interest and
rights of consumers.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
EC Act 1955
Essential Commodities Act, 1955
Introduction
The object of this Act is to control the production, supply and distribution of certain
commodities in the interest of the general public so as to secure equitable distribution of
essential commodities and their availability at fair prices.
Definitions
Collector 'Collector' includes an Additional Collector,
and such other officer not below the rank of sub-
divisional Officer as may be authorized
to perform the functions and exercise the
powers of the Collector under the Act.
Essential commodities [Sec.2A] 'Essential Commodities' means any of the
following commodities :
1. drugs;
2. fertilizers, whether inorganic, organic or mixed;
3. foodstuffs, including edible oilseeds and oils;
4. hank yarn made wholly from cotton;
5. petroleum and petroleum products;
6. raw jute and jute textiles;
7. seeds of food-crops and seeds of fruits and vegetables;
seeds of cattle fodder; and jute seeds
8. any other article within the scope of Entry 33 in List III
in the seventh Schedule to the constitution, which may
be notified by the Central Govt. to be an essential
commodity.
Sugar [Sec 2(e)] Sugar means –
i. Form of sugar containing more than 90% of sucrose,
including sugar candy
ii. Khandsari sugar or bura sugar or crushed sugar or any
sugar in crystalline powdered form or
iii. Sugar in process in vacuum pan sugar factory, or raw
sugar.
Case law: In S.Samuel, AID. Harrisons Malayava v. Union of India, Supreme Court
held that Tea is not foodstuff. Even in a wider sense, foodstuffs will not include tea as
tea either in the form of the leaves or in the form of beverage, does not go into the
preparation of food proper to make it more palatable and digestible. In common parlance,
anyone who has taken tea would not say that he has taken or eaten food.
14. 1
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
EC Act 1955
Powers of Central Government to Control Production, Supply
and Distribution etc., of Essential commodities [Section 3]
14. 2
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
EC Act 1955
k) For the seizure of any articles, premises, aircraft, vessels, vehicles or other
conveyances and animals by a person authorized to make such entry, search or
examination.
Case Law
In Ambika Prasad Rajwade v. State of Chhattisgarh, it was held that the
classification in the Chhattisgarh Public Distribution System (Control) Order, 2004
excluding private persons altogether from running fair price shops while allowing
other agencies specified therein to run the fair price shops, is not unreasonable and
does not attract Article14 of the Constitution.
Procurement Price for Food grains,Edible Oil and Oil Seeds [sec.3(3B)]
In relation to sale under Sec. 3(2)(f), where no notification has been issued u/s 3
(3A), or if issued, it has ceased to be in force, the procurement price as specified
by State Govt. with the prior approval of Central Govt. shall be paid having regard
to the following facts :
a) Controlled price;
b) General crop prospects;
c) Need for making availability at reasonable prices to the consumers;
d) Recommendations, if any, of the Agricultural; Price Commission.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
EC Act 1955
The Central Govt. may determine different prices for different areas from time to time
or for different factories or for different factories or for different kinds of sugar.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
EC Act 1955
accordance with the provisions of Sec.3(3B) or Sec.3(3C) or Sec 3(3), as the case
may be along with the reasonable interest calculated from the day of seizure.
Offence by Companies
Where an offence is committed by a company, if it is proved that the offence had been
committed with the consent or connivance of or is attributable to any neglect on the part of
any Director, Manager, Secretary or the officer of the company, such a person shall be
deemed to be guilty of that offence and is liable to be proceeded against and
punished accordingly.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
EC Act 1955
only where it is absolutely clear that the implementation of the object of the Statute would
otherwise be defeated. An accused cannot be found guilty of an offence against the
criminal law unless he has got a guilty mind. Therefore, mens rea is an essential ingredient
of an offence under Section 7 of the Act.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
LM Act 2009
Legal Metrology Act, 2009
Introduction
Legal metrology can be defined as that part of metrology which deals with units of
measurement, methods of measurement and measuring instruments in so far as
they concern statutory, technical and legal requirements which have the ultimate
object of assuring public guarantee from the point of view of security and of appropriate
accuracy of measurements.
Definitions
Dealer According to section 2(b) Dealer in relation to any weight or
measure, means a person who, carries on, directly or otherwise,
the business of buying, selling, supplying or distributing any such
weight or measure, whether for cash or for deferred payment or
for commission, remuneration or other valuable consideration
Manufacture As per section 2(i) "manufacturer" in relation to any weight or
measure, means a person who –
i. manufactures weight or measure,
ii. manufactures ,aquires or Assembles parts and claims the
end product to be a weight or measure manufactured by
himself
iii. puts, or causes to be put, his own mark on any complete
weight or measure made or manufactured by others.
Pre-packed Section 2 (l) define "pre-packaged commodity" as to mean a
commodity commodity which without the purchaser being present is placed
in a package of whatever nature, whether sealed or not, so that
the product contained therein has a pre-determined quantity
15. 1
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
LM Act 2009
Standard Weights and Measures
Section 4 of the Act provides that every unit of weight or measure shall be in
accordance with the metric system based on the international system of units.
Section 5 of the Act provides that the
a) Base unit of length shall be the metre;
b) mass shall be the kilogram; time shall be the second;
c) electric current shall be the ampere;
d) thermodynamic temperature shall be the kelvin;
e) luminous intensity shall be the candela;
f) and amount of substance shall be the mole.
Section 6 states that the base unit of numeration shall be the unit of the international
form of Indian numeral. Every numeration shall be made in accordance with the decimal
system.
Section 7 of the Act states
a) the base units of weights and measures specified in section 5 shall be the
standard units of weights and measures.
b) The base unit of numeration specified in section 6 shall be the standard unit of
numeration.
c) For the purpose of deriving the value of base, derived and other
units mentioned in section 5, the Central Government shall prepare or
cause to be prepared objects or equipments
d) The physical characteristics, configuration, constructional details, materials,
equipments, performance, tolerances, period of re-verification, methods or
procedures of tests shall be such as may be prescribed.
Section 8
a) No weight, measure or numeral, other than the standard weight, measure or
numeral, shall be used as a standard weight, measure or numeral.
b) No weight or measure, shall be manufactured or imported unless it conforms to the
standards of weight or measure specified under section 8.
Note: However, the aforesaid provisions shall not apply for manufacture done
exclusively for export or for the purpose of any scientific investigation or research.
Section 11
a) Provides that no person shall, in relation to any goods, things or service, quote, or
make announcement of, whether by word of mouth or otherwise, any price or charge,
or issue or exhibit any price list, invoice, cash memo or other document,
b) Or prepare or publish any advertisement, poster or other document, or indicate the
net quantity of a pre-packaged commodity, or express in relation to any transaction or
protection, any quantity or dimension, otherwise than in accordance with the
standard unit of weight, measure or numeration.
15. 2
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
LM Act 2009
Section 13 of the Act empowers the Central Government to appoint (by Notification)
a Director of legal metrology, Additional Director, Joint Director, Deputy Director,
Assistant Director
Section 14 of the Act, provides that the State Government may, by notification, appoint a
Controller of legal metrology, Additional Controller, Joint Controller, Deputy Controller,
Assistant Controller, Inspector
Section 15 of the Act confer powers of inspection on the Director, Controller or any legal
metrology officer may, if he has any reason to believe, that any weight or measure or
other goods in relation to which any trade and commerce has taken place or is
intended to take place and in respect of which an offence punishable under this Act
appears to have been, or is likely to be, committed are either kept or concealed in any
premises or are in the course of transportation.
Forfeiture
Every non-standard or unverified weight or measure, and every package used in the
course of, or in relation to, any trade and commerce and seized under section
15, shall be liable to be forfeited to the State Government. Unless the same is
verified and stamped within such time as may be prescribed.
15. 3
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
LM Act 2009
Section 23 no person shall manufacture, repair or sell, or offer, expose or possess for
repair or sale, any weight or measure unless he holds a licence issued by the Controller.
Section 24 Every person possessing using or intending to use any weight or measure,
shall, before putting such weight or measure into such use, have such weight or measure
verified.
15. 4
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
TOPA 1882
Transfer of Property Act, 1882
Introduction
Transfer of Property Act, 1882 is the general law relating to transfer of immovable
property. The principal objectives of the Act are:-
To lay down uniform rules for transfer of property; and
To complete the code of contract law so far as it relates to immovable property.
For Example – A machinery installed on a cement platform and held in position by being
attached to iron pillars fixed in the ground was held to be immoveable property as the
annexation was made by the person who owned the buildings as well as the machinery
(Mohamed Ibrahim v. Northern Circars Fibre Trading Company, A.I.R. 1944 Mad. 492).
16. 1
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
TOPA 1882
Transfer Of Property[Section 5]
Section 5 of the Transfer of Property Act, the term “transfer of property” means an act by
which a living person conveys property in present, or in future, to one or more other living
persons, or to himself, and one or more other living persons and "to transfer property"
is to perform such an act.
"Living person" includes a company or association or body of individuals whether
incorporated or not.
A transfer of property not in existence operates as a contract to be performed in future
which may be specially enforced as soon as the property comes into existence
(Jugalkishore v. Ram Cotton Company, (1955) I SCR 1369).
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
TOPA 1882
property validly. Although a minor is not competent to be a transferor yet a transfer to a
minor is valid.
EXCEPTION
If a person holds himself out is the owner with the consent of the owner i.e. doctrine of
holding out or if a person represents to be the owner i.e. doctrine of feeding the grant by
estoppel.
Formalities of Transfer
1. Attestation
Attestation, in relation to a document, implies the fact of authentication of the signature
of the executant of that document by the attestator by putting down his own signature
on the document in proof of the fact of its execution. All transfers do not require
attestation. For example, a sale or a lease does not require attestation. But a mortgage
or a gift requires that a mortgage deed or a gift deed must be attested by two or more
witnesses. Attestation is valid and complete when two witnesses sign the instrument.
2. Registration
Registration is an essential legal formality to effect a valid transfer in certain cases. The
advantage of registering a document is that any person who deals with the property
would be bound by the rights that are created in earlier registered document.
3. Notice
Notice, may be actual or constructive. If a person knows about a fact, he has an actual
notice. But, in certain circumstances law treats a man who ought to have known a fact
even though he did not in fact know it. This is called constructive notice. The equitable
doctrine of notice is recognised in various Sections of this Act. Where a transfer is made
of property out of which a person has a right to receive maintenance, the transferee
takes subject to that right if he had notice of it, but not otherwise. Similarly if A conveys
to C property, which he had by a previous contract agreed to sell to B, then B can
enforce the contract against C, if C had notice of it, but not otherwise. If C had notice of
the prior contract, he purchases with knowledge that it was unconscionable of A to sell
to him, and it is therefore, unconscionable of him to buy.
The words “wilful absentation” suggests want of bona fide in respect of particular
transaction (Joshua v. Alliance Bank). Thus, a person who refuses to receive a
registered letter is, deemed to have constructive notice of its contents.
Similarly, if a person proposes to sell his property to X who, at the same time knows that
rents due in respect of the property are paid by the tenants to a third person Y, X will be
fixed with notice of the rights of Y (Mernt v. Luck (1902) 1 Ch. 429).
In so far as gross negligence is concerned, it does not mean a mere carelessness but
means carelessness of such an aggravated nature as to indicate mental indifference
to obvious risks. For example, if A buys property from B and does not care to ask
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
TOPA 1882
whether any amount by way of municipal tax is due on that property and if the
municipal corporation asks him to pay the arrears of tax, then B is responsible, and
if does not pay, then the arrears of tax may be made a charge on the property.
2. Right of Re-Entry
This is a right which a lesser has against the leasee for breach of an express
condition of lease which provides that on its breach the leaser may re-enter the
land. The transferor reserves this right to himself after having parted with the
possession of the property. This right is for his personal benefit and cannot,
therefore, be transferred.
3. Transfer of Easement
Easement means an interest in land owned by another that entitles his holders to
a specific limited use or enjoyment.
As an easement confers no proprietary right on its owner, it cannot be
transferred apart from the land itself. For example, the right of certain villagers to
bath in another’s tank cannot be transferred.
4. Interest Restricted in its Enjoyment
The cases which fall under this head includes the following:
a) The right of “Pujari” in a temple to receive offerings.
b) The right of a “Widow” under Hindu law to residence and maintenance. The
rights given in these cases are purely of a personal nature and cannot,
therefore, be transferred. These rights are restricted to the person to whom
they belong.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
TOPA 1882
A right to future maintenance in whatsoever manner arising, can’t be transferred.
It is solely for the personal benefits of the person to whom it is granted.
However, the arrears of the past maintenance can be transferred.
6. Mere right to sue and actionable claim
The ‘right to sue’ is a personal right annexed to the ownership of property and cannot
be severed, from it. It is based on the principle of public policy to prevent multiplicity of
suits; the object is mainly to prevent the abuse resulting from trafficking in litigation.
Mere rights to sue can’t be transferred. The right refers to a right to damages arising
both out of contracts as well as torts. However, if it is incidental to transfer of another
right, it can be transferred.
For example, A commits an assault on B, B can file a suit to obtain damages; but
B cannot assign the right to C and allow him to obtain damages. In contract also, the rule
is the same. If A breaks a contract which he has entered into with B, B can bring action
for damages, but B cannot transfer this right to C to recover damages.
There is clear distinction between an actionable claim and a mere right to sue. An
actionable claim is property and the assignee has a right to sue to enforce the claim.
Conditional Transfer
When an interest is created on the transfer of property but is made to depend on the
fulfillment of a condition by the transferee, the transfer is known as a conditional
transfer. Such a transfer may be subject to a condition precedent or a condition
subsequent. If the interest is made to accrue on the fulfilment of a condition, the
condition is said to be condition precedent.
For Example, A agrees to sell his land to B if B marries C. This is a condition precedent.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
TOPA 1882
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
TOPA 1882
For example, A transfers property of which he is the owner to B in trust for A and
his intended wife successively for their lives, and after the death of the survivor,
for the eldest son of the intended marriage for life, and after his death for A’s
second son. The interest so created for the benefit of the eldest son does not take
effect, because it does not extend to the whole of A’s remaining interest in the
property.
As per Section 14, the perpetuity period consists of the life time of one or more
persons say A, B and C, all living at the date of transfer of property and the further
period of minority of a person, say the eldest son of C, (who shall be in existence
at the expiration of that period) to whom the interest is to belong. In simple words,
‘perpetuity period’ is the life or lives in being and the further period of minority of a
person.
Simply put, there can be any number of transfers between living major persons,
but if the ultimate, transferee is a minor, the ultimate transfer to him should
transfer all of the interest in the property to him. This is to ensure that the
property is not inalienable for an indefinite period after the death of the original
transferor.
The effect of this rule is that it prevents the property owner from transferring
and controlling his assets for an exceptionally long period after his death – a
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
TOPA 1882
concept generally known as ‘control by the dead hand’. Such a contract would be
inoperative to the extent it violates the rule; the rest it would be allowed to
operate normally.
The rules contained in Setion 14 as regards transfer to unborn persons may be summed up
as follows:
a) If before property is ultimately transferred to an unborn person, it is
transferred to different persons for their successive lives, they should all be living
at the date of the transfer.
b) The unborn person must come into existence on or before the expiration of
the existence life or lives named by the transferor.
c) He must be given the entire estate of the transferor and the transfer must be
absolute.
d) The vesting of the estate can’t be postponed to period longer than is
necessary for him to attain the majority.
For e.g. A transfers his property to B and his intended wife successively for their
lives and then to their eldest son for his life and then to C. The prior interest in
favour of the son of B, A fails u/s 13 & therefore the subsequent interst in favour
of C also fails.
When the prior interest fails not by reason of Sec. 13 & 14 but due to any reason,
the subsequent interest doesn’t always fail.
For e.g. A made a bequest to his wife for life and after her death to his death to
his younger son by her. The bequest to wife failed for want of registration but the
interest of the son will not fail, it will be valid.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
TOPA 1882
It may be noted that a vested interest is not defeated by the death of the
transferee. If the transferee dies before he takes possession of the property, it
passes on to his legal heirs. Further, vested interest can also be re-transferred by
the transferee before he obtains the possession of the property.
Contingent Interest [ Sec. 21]
It may be noted that a contingent interest is defeated by the death of the tranferee.
If the transferee dies before he takes possession of the property, the property doesn’t
pass on to his legal heirs. Similarly transferee can’t further re-transfer the property
before he acquires the possession of the property.
Absolute Interest
When a person owns property, he has an "absolute interest" in the property.
Ownership consists of a bundle of rights, the right to possession, right to enjoyment and
right to do anything such as selling, mortgaging or making gift of the property. If A is the
owner of a land, he has an absolute interest in the land.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
TOPA 1882
For example If A sells his land to B, then B becomes the owner and he acquires an
absolute interest in the land he has purchased from A. Likewise if A makes a gift of his
property to B, there again B gets an absolute interest in the property which is gifted to
him. These are instances where persons may have an absolute interest.
When the owner of the property grants a limited interest in favour of a person or
persons and gives the remaining to others, it is called a "remainder".
For instance, A the owner of a land transfers property to B for life and then to C
absolutely. Here the interest in favour of B is a limited interest, i.e., it is only for life. So
long as A is alive he enjoys the property. He has a limited right since he cannot sell away the
property. His right is only to enjoy the property. If he sells this interest it will be valid
so long as he is alive. So after B’s death the property will go to C, interest is called a
remainder. In the case of a "remainder", the property will not come back to the owner,
but it goes over to the other person.
Important Doctrines
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
TOPA 1882
transfer. If B accepts the transfer, he will get house but in that case he will also
have to transfer the shop to C.
Example 2 – A transfers his property to B’s son and by the same instrument transfer
B’s property to C. In this case B need not to elect and can keep his property. His son
can have his gift.
There is, however, an exception to the doctrine of election. That is, if the transferor
gives two benefits to a person and one particular benefit is in lieu of an item of property
belonging to that person which the transferor has asked to transfer to a third-party then
if the person elects to retain his property, he can retain the other benefit.
Example 3 – Under A’s marriage settlement, his wife is entitled, if she survives him
to the enjoyment of the estate of Sultanpur during her life. A by his will donates to his
wife an annuity of Rs. 200 p.m. during her life, in lieu of her interest in the
estate of Sultanpur, which estates he bequeaths to his son. A also gives his wife a
legacy of Rs. 1,000. After the death of A, his widow elects to take what she is entitled
to take under the marriage settlement (i.e., the enjoyment of estate of Sultanpur). In this
case, the wife has to forfeit the claim of Rs. 200 which her husband has given to her. But
she can claim other benefit i.e., Rs. 1,000.
It may be noted that the question of election arises only when a transfer is made by
the same document. If the transferor makes a gift of property by one deed and
asks the donee, by another deed, to part with his own property, there is no
question of election.
In case the person upon whom, a benefit is conferred rejects it, the property
which was attempted to be transferred to him will revert to the transferor and
it is the transferor who will compensate the disappointed transferee. If the transferor
dies, before the transferee makes the election, then the legal heirs of the
transferor will compensate the disappointed transferee out of the inherited
assets.
Doctrine of Holding Out ‘OR’ Transfer by Ostensible Owner
[Section 41]
Doctrine of Holding Out makes an exception to the rule that a person cannot
confer a better title than he himself has. An ostensible owner is one who has
all the indicia of ownership without being the real owner.
Where the true owner of property, expressly or impliedly, permits another person
to hold himself as the true owner of the property and a third party, in good
faith, deals with the person permitted, then such third party will acquire a good
title as against the true owner.
Following conditions are required to be complied with, so as to provide the
protection to the third party against the true owner:
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
TOPA 1882
it was an unconditional gift. Suresh seeks to recover possession from the defendant.
The defendant invoked protection under Section 41.
In the given example, the donor is not an ‘ostensible owner’ holding the property with
the consent of the real owner. The defendant cannot, therefore, invoke the protection of
Section 41.
Example 2 – The manager of a joint Hindu family consisting of some minor members
alienated the ancestral house to P without any necessity and the alienee transferred it
to the defendants. The minors challenged the alienation. The defendants sought
protection under Section 41. Here Section 41 has no application for “P was not the
ostensible owner of the ancestral family house with the consent, express or, implied, of
the persons interested in the said ancestral house in as much as the plaintiff, who had
an interest in the said house, did not and could not by reason of the disability of infancy
give their consent”.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
TOPA 1882
property the transferee will be bound by the result of the suit or proceeding,
whether or not he had notice of the suit or proceeding.
For example, there is a dispute between A and B with regard to ownership of
property X. A files a suit against B in a Court of law. A may either win or lose the
suit. If he wins, he gets the property. If he loses, B gets the property. Now suppose
during the pendency of the suit, A, professing to be the owner of the Property,
sells it to C. If the suit ends in A’s favour, no difficulty arises. If it ends in B’s
favour, C cannot retain the property. C is bound by the decree of the Court and
must return the property to B. He cannot even take the plea that he had no
notice of the pending litigation.
It may be noted that the doctrine of lis pendens applies only when the property
has been transferred by a party to the litigation and it does not apply when
property has been transferred by as stranger i.e., the person who is not a party
to the litigation.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
TOPA 1882
Under these circumstances, we can easily say that the debtor’s intention was to prevent
the creditor from taking the property by a suit in the Court and to realise his debt.
Example 2 -: A debtor has several creditors and he transfers his property to one of his
creditors in satisfaction of his whole debt to him. Is this also a fraudulent transfer?
The answer is No. For a mere preference of one creditor over the others is not
fraudulent under the Section, even if the whole property is so transferred and nothing
is left for the other creditors. But the other creditors may file a petition in the Court
within three months of the transfer praying that the debtor be declared insolvent. If the
debtor is adjudicated an insolvent, their interest will be protected and the transfer
will be declared as fraudulent preference. The transfer will be set aside and the
property will be distributed among all the creditors.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
TOPA 1882
a situation, doctrine of part performance operates and it provides that A cannot
evict B from the land as B will not be allowed to suffer simply because formality
of registration has not been complied with.
Exception : However, nothing in this section shall affect the rights of a
transferee for consideration, who has no notice of the contract or of part
performance. Thus, the doctrine of part performance shall not affect the rights
of a subsequent transferee for consideration without of the earlier contract and of
its being party performed.
ACCUMULATION OF INCOME
Section 17 does not allow accumulation of income from the land for an unlimited period
without the income being enjoyed by owner of the property. The law allows
accumulation of income for a certain period only. The period for which such
accumulation is valid is :
a) The life of the transferor, or
b) eighteen years from the date of transfer.
Any direction to accumulate the income beyond the period mentioned above is void
except where it is for:
the payment of the debts of the transferor or any other person taking any interest
under the transferor,
portions for children or any other person taking any interest in the property under
the transfer, and
for the preservation and maintenance of the property transferred.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
TOPA 1882
something which would, in the absence of such right, be unlawful, and such right does
not amount to an easement or an interest in the property, the right is called licence.
Thus, if a document gives only a right to another to come on the land or premises
and use that in some way or the other, while it remains in the possession and
control of the owner , it will be licence.
A licence is a personal right between the licensor and the licensee, and therefore,
a transferee from the licensor is not bound by the licence.
Lease Licence
In a lease there is a transfer of While in case of a licence, there
interest in land. is no such transfer, although the
Leases are generally heritable. licensee acquires a right to
Death of the lessor does not occupy the land.
terminate the lease. Licences are not heritable.
Generally the leases are not Death of the licensor terminates
revocable at the will of the lessor. the licence.
The transferee of the lessor is But bare licences can be revoked
bound by the lease . at the will of the licenser.
In the case of breach of lease deed, the the transferee of the licensor is
aggrieved party can claim for the specific not bound by the licence.
performance In case of breach of licence deed
the aggrieved party can onl
claim the compensation.
Types of Tenancies
Following are the various types of tenancies:
1. Tenancy from year to year: A tenancy from year to year may be made by a grant of
land from year to year. If the tenancy is for a year to start with but after the expiration
of one year the lessee continues to be in possession and pays the rent to the landlord,
the tenancy is regarded as a year to-year tenancy. If, in case of a tenancy for a period
more than a year the landlord wants to terminate or end the lease, he has to give a six-
month’s notice to the lessee to quit. In case of a tenancy from month to month, a fifteen
days notice to quit is necessary. The monthly tenancy may be created either by
contract or may be presumed from the nature of the tenancy to be one, from month to
month.
2. Tenancy-at-will: Tenancy-at-will is a tenancy recognised by law. This comes into
existence where a tenant holds over with the consent is let into occupation. We have
stated above that if the tenant continues to be in possession after the expiration
of tenancy and pays the rent to the landlord, the tenancy may be one from year to year
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
TOPA 1882
or from month to month. During a period when the tenant is in possession after expiry
of the period, if the tenant stays with the consent of the landlord till such time as
further period is fixed or a fresh contract is made, the tenant is called a tenant-at-will.
The landlord will decide for what further period shall the tenancy be given. ‘A
tenancy-at-will is implied when a person is in possession by the consent of the owner
and is not held in view of any tenancy for a certain time. The tenancy-at-will does not
mean that the landlord has to give a proper notice to quit. The tenant-at-will cannot
sublet during that period because no valid contract for further extension in his favour
has been made. The death of the landlord or tenant determines the tenancy, i.e., the
tenancy comes to an end.
3. A tenancy by sufferance: This is a tenancy which is created by fiction of law. If a
tenant continues to be in possession after the determination of the period of the lease
without the consent of the landlord, he becomes a tenant by sufferance. A tenant-at-
will is in possession with the consent of the landlord, whereas a tenant by sufferance is
in possession without his permission after the term of the lease comes to an end. This
type of tenant is not regarded as a trespasser because the tenant had in his favour a
valid lease to start with. No notice is necessary to such a tenant for eviction. This tenant
is not responsible for rent. He is liable to pay compensation for use and occupation of
the land.
Determination of leases:
Section 111 of the Transfer of Property Act spells out the various contingencies
in which a lease comes to an end.
A lease is determined, i.e., comes to an end in the following ways:
1. By efflux of time or lapse of time: A lease for a definite period, such as a lease for a
year, or for a term of years, expires on the last day of the term and the lessor or any
person entitled to get back the property may enter without notice or any other
formality. Since a lease is a transfer of interest in the property, if during the period for
which a lease is valid, the lessee dies, the heirs of the lessee can continue the lease till
the expiry of the period.
2. By the happening of a special event: When a lease is granted subject to the happening
of an event, it comes to an end when the event takes place. Thus, if B grants lease to A
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
TOPA 1882
for life, it comes to an end on the death of A. Similarly, if a lease is granted for the
duration of the war, it comes to an end when the war ends.
3. Merger: A lease comes to an end when the lessee buys the property of the lessor or
when the lessee takes the lessor’s interest by succession. Here the right of the lessee
merges in that of the lessor. Naturally, the lessee becomes the owner of the property
after he acquires it. So there will be no more a lease.
4. By surrender: A lease may come to an end by surrender. Surrender may be either
express or implied. Express surrender arises when the lessee yields up (gives up) his
interest under a lease by mutual consent.
Implied surrender occurs, as follows :- if during the subsistence of the lease, a new lease
is granted to the tenant to commence at once in substitution for the existing lease,
it operates as a surrender of the old lease. For example, a lessee, accepts to take
effect during the continuance of the existing lease. This is an implied surrender of the
former lease and such lease comes to an end. Mere non-payment of rent does not
amount to surrender.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
TOPA 1882
covenant for possession gives the lessee the right to obtain possession; the covenant for
quiet enjoyment gives the lessee a right to continue in such possession. If the lessee’s
possession is disturbed, he can sue for damages or, in case a part of the leased
property is taken possession of either by the lessor or by any third-party; the lessee can
hold a part of the leased property and pay a proportionate rent.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
TOPA 1882
e) If, due to no fault of his, the lease comes to an end (i.e., when the lease is of uncertain
duration), the lessee or his legal representatives are entitled to all the crops planted or
grown by the lessee. The lessee or his representatives have got a right to come and carry
away the crops, etc., which are growing on the land. If the lease is of a definite period,
such a right cannot be claimed, particularly, when lessee has committed a fault, e.g.,
where he has committed a breach of a condition entailing forfeiture.
f) The lessee may avoid the lease, if property is wholly or partly destroyed by tempest,
flood, or fire so as to make it impossible to continue the lease for the purpose for
which it was let.
g) The lessee has right to transfer absolutely or by way of mortgage or sub-lease, the
whole or any part of his interest in the property. We have also noticed that the
lessee’s rights are transferable.
Sale
Under Section 54 of the Transfer of Property Act, "sale" has been defined as a transfer of
ownership in exchange for a price paid or promised or part paid and part-promised.
Essentials
The seller must be a person competent to transfer. The buyer must be any person who
is not disqualified to be the transferee under Section 6(h)(3).
The subject matter is transferable property.
There is a transfer of ownership. This feature distinguishes a sale from mortgage, lease
etc., where there is no such transfer of ownership.
It must be an exchange for a price paid or promised or part paid and part promised.
There must be present a money consideration. If the consideration is not money but
some other valuable consideration it may be an exchange or barter but not a sale.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
TOPA 1882
Mortgage
In a mortgage, out of the bundle of rights which constitute ownership, some are
transferred to the mortgagee and other rights remain vested in the mortgagor.
The word ‘specific’ shows that the description of the immovable property
should not only be free from ambiguity and uncertainty, but that it should be specific
as distinguished from general. A proper description of the property is necessary
to create a mortgage and for its registration.
It may be noted that in order to constitute a mortgage, the transfer of interest in
immovable property must be for one of the aforesaid purposes. The word
‘engagement’ means a contract and the qualification “as may give rise to pecuniary
liability” means a contract the non-fulfilment of which may result in liability to
pay money.
Kinds of Mortgage
1. Simple Mortgage
The mortgagor undertakes personal liability for repayment.
The mortgaged property is not required to be delivered to the mortgagee,
On mortgagor’s default in making payment, mortgagee is entitled to cause
mortgaged property to be sold, after obtaining a decree from the court .
There is no foreclosure of the mortgaged property
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
TOPA 1882
4. Usufructuary Mortgage
The profit of the property is appropriated by the mortgagee towards
discharge of the advance.
There is delivery of possession of the mortgaged property to the mortgagee.
The property is returned when the amount due is personally paid or is
discharged by rents and profits rececived.
There is no remedy to the mortgagee either by way of sale or by way of
foreclosure.
6. Anomalous Mortgage
This mortgage is the combination of two or more other kinds of mortgages.
The remedy to the mortgagee may be by way of sale or by way of
foreclosure, depending the terms of the Deed.
Any provision or condition which prevents this right of redemption is called ‘clog
(obstruction) on redemption’ and is such void. For example, a stipulation in a
usufructuary mortgage that if the mortgage is not redeemed within a certain
period from the date of mortgage, the mortgagee would become the absolute
owner. This is a clog on right of redemption of the mortgagor and, hence, is
void.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
TOPA 1882
It may be noted that doctrine of marshalling is also dealt under Section 81 of
TOPA. Section 81 protects the rights of subsequent mortgagee in the same
manner as Section 56 protects the rights of subsequent purchaser.
Mortgage Charge
A mortgage is transfer of an interest in the
A charge is not the transfer of any interest
property made by the mortgagor as a in the property though it is security for the
security for the loan payment of an amount
A mortgage can only be created by act of A charge may be created by act of parties
parties. or by operation of law
A mortgage deed must be registered and Charge need not be made in writing, and if
attested by two witnesses reduced to writing, it need not be attested
or registered
In certain types of mortgage (viz., But in charge, the charge-holder cannot
mortgage by conditional sale and foreclose though he can get the property
anomalous mortgage) the mortgagor can sold as in a simple mortgage
foreclose the mortgaged property
In a mortgage, the transferee of mortgaged A charge as a general rule, cannot be
property from the mortgagor, can only enforced against a transferee for
acquire the remaining interest of the consideration without notice
mortgagor, and is therefore, only bound by
the mortgage
In a mortgage, there can be security as In a charge created by act of parties, the
well as personal liability specification of the particular fund or
property negatives a personal liability and
the remedy of the charge-holder is against
the property only
Important Terms
1. Charge
A charge is created when immovable property of one person is made security for
payment of money to another. No interest in the property is transferred. The
concept of charge is regulated by the provisions of Transfer of Property Act, 1882
which are applicable to a Simple Mortgage.
2. Exchange
The term ‘exchange’ has been defined in Section 118 of the Transfer of
Property Act, 1882. This section defines the term exchange in the following
words: “When two persons mutually transfer the ownership of one thing for
ownership of another, neither thing or both things being money only, the
transaction is called “exchange”.
Essentials –
The person making the exchange must be competent to contract.
There must be mutual consent.
There is a mutual transfer of ownership though things and interests may not be
identical.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
TOPA 1882
Neither party must have paid money only.
This Section applies to both moveable and immoveable property.
An exchange can be immovable property as well as movable property. An
exchange of immovable property is governed by the provisions of Transfer
of Property Act, 1882 whereas an exchange of movable property is called barter
and it is governed by the provisions of Indian Contract Act, 1872.
For example, exchange of car for two scooters or exchange of house for 10
hectares of land.
3. Gift
Section 122 of the Transfer of Property Act, 1882 defines the term ‘gift’. As
per this, ’gift’ is the transfer of certain existing movable or immovable
property made voluntarily or without consideration, by one person, called the
donor, to another called the donee, and accepted by or on behalf of the donee.
Thus, the essentials of a valid gift are:
Gift must be existing property and not of future property;
Gifts must be voluntarily i.e., it should not be induced by coercion, undue
influence, fraud, misrepresentation;
It should be without consideration i.e., it can be for natural love and affection
or for past consideration barred by law of limitation but it cannot be for
present or future consideration;
It must be accepted by the donee.
The declaration must be clear and the donee must accept the gift. A gift of immoveable
property, as said above, must be effected by registration. Where a gift in favour of
someone is registered but it is not accepted by the donee, the gift is incomplete.
Suppose, a document is executed by the donor who makes a gift of immoveable
property and the deeds are delivered to donee, and the donee accepts the gifts but the
document is not registered. Will the gift by valid? It has been held by the Courts that the gift
is valid. While registration is a necessary formality for the enforcement of a gift of
immoveable property, it does not suspend the gift until registration actually takes place.
The donee in such a case can ask the donor to complete the gift by registration. Thus, the
most essential thing for the validity of a gift is its acceptance. If the gift is accepted but
not registred it is a valid gift. The Privy Council in Kalyan Sundram v. Kumarappa,
decided that after acceptance of the deed of gift and before registration, the donor
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
TOPA 1882
cannot revoke the gift. The gift which is accepted by the donee, will take effect
from the date of the execution of the document by the donor, even though it is
registered at a later date.
For Example, A gives a field to B, reserving to himself, with B’s assent, the rights to take back
the field in case B and his descendants die before A, B dies without descendents during A’s
lifetime. A may take back the field.
Onerous gift: It may be that several things are transferred as a gift by single transaction.
Whereas some of them are really beneficial the others convey burdensome obligations. The
result is that the benefit which it confers is more than counter balanced by the burden it
places.
For instance, A makes a gift of shares in the companies X and Y. X is prosperous but
heavy calls are expected in respect of shares in Y company. The gift is onerous.
Actionable Claim
The term ‘Actionable Claim’ has been defined in Section 3 of the Transfer of
Property Act, 1882. As per this section, actionable claim means a claim to any
debt, other than a debt secured by mortgage of immovable property or by
hypothecation or pledge of movable property, or to any beneficial interest in
movable property not in the possession, either actual or constructive, of the
claimant, which the Civil Courts recognize as affording grounds for relief, whether
such debt or beneficial interest be existing , accruing , conditional or contingent.
Simply stated, an actionable claim means a claim to any unsecured debt or a claim to
any beneficial interest in movable property, not in possession of the claimant. The
debt or beneficial interest may be existing , accruing, conditional or contingent.
For example, A borrows Rs. 5000/- from B at 12% per annum interest on 1st
April, 2006 and promises to pay back the amount with interest on 1st July, 2006. Till
1st July, 2006, the debt is an accruing debt and is an actionable claim.
It may be noted that a person can have a actionable claim, even without consideration.
Further, such person’s claim will not be affected by claim of subsequent transferee with
consideration.
Illustrations of actionable claims:
i. Arrears of rent accrual constitute a ‘debt’ so it is an actionable claim (Sheu Gobind
Singh v. Gauri Prasad, ).
ii. Provident Fund that is standing to the credit of a member of the Provident Fund.
iii. Money due under the Insurance Policy.
iv. A partner’s right to sue for accounts of dissolved partnership is an actionable claim
being a beneficial interest in moveable property not in possession (Thakardas v.
Vishindas).
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CS Praveen Choudhary
TOPA 1882
ii. Copy right though a beneficial interest in immoveable property is not an actionable claim
since the owner has actual or constructive possession of the same (Savitri Devi v. Dwarka
Bhatya).
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CS Praveen Choudhary
RERA 2016
Real Estate (Regulation and Development) Act,
2016
Introduction
Real estate sector plays a catalytic role in fulfilling the needs and demand for housing
and infrastructure in the country and is an important pillar of the economy. While this
sector has grown significantly in recent years, it has been largely unregulated, with
absence of professionalism and standardisation and lack of adequate consumer
protection. It has no sectoral regulator like there are for other specific sectors like
insurance, telecom, stock markets etc.
Parliament enacted the Real Estate (Regulation and Development) Act, 2016 which aims
at protecting the rights and interests of consumers and promotion of uniformity and
standardization of business practices and transactions in the real estate sector.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
RERA 2016
Advantages of RERA:
Important definitions:
1. "Occupancy certificate" means the occupancy certificate, or such other certificate
by whatever name called, issued by the competent authority permitting occupation
of any building, as provided under local laws, which has provision for civic
infrastructure such as water, sanitation and electricity;
2. "Person" includes,—
i. an individual;
ii. a HUF;
iii. a company;
iv. a partnership firm or LLP, as the case may be;
v. a competent authority;
vi. an AOP or a BOI whether incorporated or not;
vii. a co-operative society registered under co-operative societies’ law;
viii. other notified entity;
4. "Promoter" means,—
i. a person who constructs or causes to be constructed an independent building or
a building consisting of apartments, or converts an existing building or a part
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
RERA 2016
thereof into apartments, for the purpose of selling all or some of the apartments
to other persons and includes his assignees; or
ii. a person who develops land into a project, whether or not the person also
constructs structures on any of the plots, for the purpose of selling to other
persons all or some of the plots in the said project, whether with or without
structures thereon; or
iii. any development authority or any other public body in respect of
allottees of—
a) buildings or apartments, as the case may be, constructed by such authority or
body on lands owned by them or placed at their disposal by the Government;
or
b) plots owned by such authority or body or placed at their disposal by the
Government, for the purpose of selling all or some of the apartments or plots;
or
iv. an apex State level co-operative housing finance society and a primary co-
operative housing society which constructs apartments or buildings for its
members or in respect of the allottees of such apartments or buildings; or
v. any other person who acts himself as a builder, coloniser, contractor, developer,
estate developer or by any other name or claims to be acting as the holder of a
power of attorney from the owner of the land on which the building or
apartment is constructed or plot is developed for sale; or
vi. such other person who constructs any building or apartment for sale to the
general public.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
RERA 2016
Responsibilities of the appropriate Government
a) To notify Rules for the implementation of the Act, within 6 months of its
commencement.
b) To establish the Regulatory Authority within 1 year from its commencement i.e.
maximum by 30th April, 2017.
c) To designate an officer (preferably Housing Secretary) as interim Regulatory
Authority, until the establishment of a full time Regulatory Authority.
d) To establish the Appellate Tribunal within 1 year from its commencement i.e.
maximum by 30th April, 2017.
e) To designate an existing Appellate Tribunal (under any other law in force) to be the
Appellate Tribunal, until the establishment of a full time Appellate Tribunal.
f) The Chairperson and Members of the Regulatory Authority and the Members of the
Appellate Tribunal are required to be appointed based on recommendations of a
Selection Committee, thus the appropriate Government is required to constitute the
Selection Committee.
g) To appoint officers and other employees of Regulatory Authority and the Appellate
Tribunal.
h) To identify office space etc. and other infrastructure for its functioning.
i) To constitute a ‘Real Estate Regulatory Fund’.
j) The Central Government (i.e. the Ministry of HUPA) is required to establish the
Central Advisory Council.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
RERA 2016
If the Authority fails to grant the registration or reject the application, as the case may
be, the project shall be deemed to have been registered, and the Authority shall within
7 days of the expiry of the said period of 30 days specified.
The registration granted shall be valid for a period declared by the promoter for
completion of the project or phase thereof, as the case may be.
Extension of registration
Delay in handing over of projects by the developer within the stipulated time frame
has been a major woe (problem) of the buyers and hence has been a major trigger for
promulgation of this Act. Hence, at the time of registration, a developer has to
specify a time line during which he will complete and handover the project to the
buyer.
The timeline is very sacrosanct (important) because if he fails to do so within the stated
time, then there are rigorous provisions in the Act as prescribed in section 7 & 8
whereby his registration would be revoked and his project would be usurped by the
Regulator.
Though as per section 6, an extension of registration may be granted at the sole
discretion of the regulator due to Force Majeure conditions or if there are
reasonable circumstances which merit extension.
The registration granted may be extended by the Authority on an application made
by the promoter due to force majeure, in such form and on payment of such fee as
may be specified by regulations made by the Authority.
Force majeure" shall mean a case of war, flood, drought, fire, cyclone, earthquake or
any other calamity caused by nature affecting the regular development of the real estate
project.
Revocation of registration
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
RERA 2016
The Authority may, on receipt of a complaint or suo-moto in this behalf or on the
recommendation of the competent authority, revoke the registration granted, after
being satisfied that—
a) the promoter makes default in doing anything required by or under this Act or the
rules or the regulations made there under;
b) the promoter violates any of the terms or conditions of the approval given by the
competent authority;
c) the promoter is involved in any kind of unfair practice or irregularities.
The registration granted to the promoter shall not be revoked unless the Authority has
given to the promoter not less than 30 days’ notice, in writing, stating the grounds on
which it is proposed to revoke the registration, and has considered any cause shown by
the promoter within the period of that notice against the proposed revocation.
The Authority, upon the revocation of the registration-
Debar the promoter from accessing its website in relation to that project and specify
his name in the list of defaulters and display his photograph on its website and also
inform the other Real Estate Regulatory Authority in other States and Union
territories about such revocation or registration;
Facilitate the remaining development works to be carried out in accordance with
the provisions of section 8;
Direct the bank holding the project back account to freeze the account, and
thereafter take such further necessary actions, including consequent de-freezing of
the said account, towards facilitating the remaining development works in
accordance with the provisions of section 8;
To protect the interest of allottees or in the public interest, issue such directions as
it may deem necessary.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
RERA 2016
been covered under the ambit of RERA and registration requirement has been
mandatory for them u/s 9.
Without obtaining registration, real estate agent shall not facilitate the sale or purchase
of or act on behalf of any person to facilitate the sale or purchase of any plot, apartment
or building, as the case may be, in a real estate project or part of it, being the part of the
real estate project registered, being sold by the promoter in any planning area.
Every real estate agent shall make an application to the Authority for registration in
such form, manner, within such time and accompanied by such fee and documents as
may be prescribed.
The Authority shall, within such period, in such manner and upon satisfying itself of the
fulfilment of such conditions, as may be prescribed—
a) Grant a single registration to the real estate agent for the entire State or Union
territory, as the case may be;
b) Reject the application for reasons to be recorded in writing, if such application does
not conform to the provisions of the Act or the rules or regulations made there
under:
Application shall not be rejected unless the applicant has been given an opportunity of
being heard in the matter.
Where any real estate agent who has been granted registration under this Act commits
breach of any of the conditions thereof or any other terms and conditions specified
under this Act or any rules or regulations made there under, or where the Authority is
satisfied that such registration has been secured by the real estate agent through
misrepresentation or fraud, the Authority may, without prejudice to any other
provisions under this Act, revoke the registration or suspend the same for such period
as it thinks fit:
Provided that no such revocation or suspension shall be made by the Authority unless
an opportunity of being heard has been given to the real estate agent.
Structural Defect
In case any structural defect or any other defect in workmanship, quality or provision
of services or any other obligations of the promoter as per the agreement for sale
relating to such development is brought to the notice of the promoter within a period of
five years by the allottee from the date of handing over possession, it shall be the duty
of the promoter to rectify such defects without further charge, within 30 days, and in
the event of promoter's failure to rectify such defects within such time, the aggrieved
allottees shall be entitled to receive appropriate compensation in the manner as
provided under the Act.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
RERA 2016
Obligations of promoter in case of transfer of a real estate
project to a third party
The promoter shall not transfer or assign his majority rights and liabilities in respect of
a real estate project to a third party without obtaining prior written consent from two-
third allottees, except the promoter, and without the prior written approval of the
Authority:
However such transfer or assignment shall not affect the allotment or sale of the
apartments, plots or buildings as the case may be, in the real estate project made by the
erstwhile promoter.
The promoter shall be liable to pay the premium and charges in respect of the
insurance and shall pay the same before transferring the insurance to the association of
the allottees.
The insurance shall stand transferred to the benefit of the allottee or the association of
allottees, as the case may be, at the time of promoter entering into an agreement for
sale with the allottee. On formation of the association of the allottees, all documents
relating to the insurance shall be handed over to the association of the allottees.
Transfer of title
The promoter shall execute a registered conveyance deed in favour of the allottee along
with the undivided proportionate title in the common areas to the association of the
allottees or the competent authority, as the case may be, and hand over the physical
possession of the plot, apartment of building, as the case may be, to the allottees and
the common areas to the association of the allottees or the competent authority, as the
case may be, in a real estate project, and the other title documents pertaining thereto
within specified period as per sanctioned plans as provided under the local laws.
Provided that, in the absence of any local law, conveyance deed in favour of the allottee
or the association of the allottees or the competent authority, as the case may be, under
this section shall be carried out by the promoter within three months from date of issue
of occupancy certificate.
After obtaining the occupancy certificate and handing over physical possession to the
allottees, it shall be the responsibility of the promoter to handover the necessary
documents and plans, including common areas, to the association of the allottees or the
competent authority, as the case may be, as per the local laws.
Provided that, in the absence of any local law, the promoter shall handover the
necessary documents and plans, including common areas, the association of the
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
RERA 2016
allottees or the competent authority, as the case may be, within thirty days after
obtaining the occupancy certificate.
he shall be liable on demand to the allottees, in case the allottee wishes to withdraw
from the project, without prejudice to any other remedy available, to return the amount
received by him in respect of that apartment, plot, building, as the case may be, with
interest at such rate as may be prescribed in this behalf including compensation in the
manner as provided under this Act.
If the promoter fails to discharge any other obligations imposed on him under this Act
or the rules or regulations made thereunder or in accordance with the terms and
conditions of the agreement for sale, he shall be liable to pay such compensation to the
allottees, in the manner as provided under this Act.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
RERA 2016
Section 26 deals with Removal of Chairperson and Members from office in certain
circumstances.
Sub-section(1) states that the appropriate Government may, in accordance with the
procedure notified, remove from office the Chairperson or other Members, if the
Chairperson or such other Member, as the case may be,—
a) has been adjudged as an insolvent; or
b) has been convicted of an offence, involving moral turpitude; or
c) has become physically or mentally incapable of acting as a Member; or
d) has acquired such financial or other interest as is likely to affect prejudicially his
functions; or
e) has so abused his position as to render his continuance in office prejudicial to the
public interest.
(2) The Chairperson or Member shall not be removed from his office on the ground
specified under clause (d) or clause (e) of sub-section (1) except by an order made by
the appropriate Government after an inquiry made by a Judge of the High Court in
which such Chairperson or Member has been informed of the charges against him and
given a reasonable opportunity of being heard in respect of those charges.
Rectification of orders
The Authority may, at any time within a period of two years from the date of the order
made under the Act, with a view to rectifying any mistake apparent from the record,
amend any order passed by it, and shall make such amendment, if the mistake is
brought to its notice by the parties.
It may be noted that no such amendment shall be made in respect of any order against
which an appeal has been preferred under the Act:
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
RERA 2016
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
RERA 2016
satisfied with the REAT order they can file an appeal against the REAT order to the High
Court within 60 days.
It may be noted that where a promoter files an appeal with the Appellate Tribunal, it
shall not be entertained, without the promoter first having deposited with the Appellate
Tribunal atleast thirty per cent. of the penalty, or such higher percentage as may be
determined by the Appellate Tribunal, or the total amount to be paid to the allottee
including interest and compensation imposed on him, if any, or with both, as the case
may be, before the said appeal is heard.
The Appellate Tribunal shall consist of a Chairperson and not less than two
whole time Members of which one shall be a Judicial member and other shall be
a Technical or Administrative Member
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
RERA 2016
Qualifications for appointment of Chairperson and Members
A person shall not be qualified for appointment as the Chairperson or a Member of the
Appellate Tribunal unless he,—
a) in the case of Chairperson, is or has been a Judge of a High Court; and
b) in the case of a Judicial Member he has held a judicial office in the territory of India
for at least fifteen years or has been a member of the Indian Legal Service and has
held the post of Additional Secretary of that service or any equivalent post, or has
been an advocate for at least twenty years with experience in dealing with real
estate matters; and
c) in the case of a Technical or Administrative Member, he is a person who is well-
versed in the field of urban development, housing, real estate development,
infrastructure, economics, planning, law, commerce, accountancy, industry,
management, public affairs or administration and possesses experience of at least
twenty years in the field or who has held the post in the Central Government, or a
State Government equivalent to the post of Additional Secretary to the Government
of India or an equivalent post in the Central Government or an equivalent post in
the State Government.
Powers of Tribunal
1. The Appellate Tribunal shall not be bound by the procedure laid down by the Code
of Civil Procedure, 1908 but shall be guided by the principles of natural justice.
2. Subject to the provisions of this Act, the Appellate Tribunal shall have power to
regulate its own procedure.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
RERA 2016
3. The Appellate Tribunal shall also not be bound by the rules of evidence contained in
the Indian Evidence Act, 1872.
4. The Appellate Tribunal shall have, for the purpose of discharging its functions under
this Act, the same powers as are vested in a civil court under the Code of Civil
Procedure, 1908 in respect of the following matters, namely:—
a) summoning and enforcing the attendance of any person and examining him on
oath;
b) requiring the discovery and production of documents;
c) receiving evidence on affidavits;
d) issuing commissions for the examinations of witnesses or documents;
e) reviewing its decisions;
f) dismissing an application for default or directing it ex parte; and
g) any other matter which may be prescribed.
5. All proceedings before the Appellate Tribunal shall be deemed to be judicial
proceedings within the meaning of sections 193, 219 and 228 for the purposes of
section 196 of the Indian Penal Code, and the Appellate Tribunal shall be deemed to
be civil court for the purposes of section 195 and Chapter XXVI of the Code of
Criminal Procedure, 1973.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
RERA 2016
Almost every kind of organization whose affairs are conducted by boards, councils or
other corporate structures, be it a company, trust, association, federation, authority,
commission or the like find it useful to appoint a person who holds the qualification of
Company Secretaryship in key administrative position.
Practising Company Secretaries have been authorized to issue Certificate regarding
compliance of conditions of Corporate Governance. Practising Company Secretaries
have also been recognized to appear before various Tribunals such as NCLT, NCLAT,
Securities Appellate Tribunal, Competition Commission of India, Telecom Disputes
Settlement and Appellate Tribunal, Consumer Forums, Tax Tribunals etc. Reserve Bank
of India has also recognized the Practising Company Secretaries to undertake Diligence
Report for Banks.
The rapid Change in Indian Legislative has brought about a sea change in the role and
profile of a company secretary. They are now being seen as corporate development
planners. Besides embarking upon traditional areas of practice, Company Secretaries in
Practice are increasingly required to advise and guide on legal aspects of business
which intimately concern areas such as registration under RERA, production, drafting
of various documents.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
RERA 2016
Company Secretaries holding Certificate of Practice by becoming an expert in the act
can indulge in providing advice in respect of:
Financial Advisory Services
Various applicable provision particular on real estate project
Registration and extension procedure of real estate project with competent
authority
Various obligation, functions and duties of promoter in a real estate project
Penal Provisions under the Act
Funding Options for Real Estate Project
Taxation aspects for Real Estate Project
Legal & Regulatory Compliances
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Benami Transaction Act 1988
The Benami Transactions (Prohibition) Act, 1988
Introduction
The Benami Transactions (Prohibition) Act, 1988 provides that
a) all the properties held benami shall be subject to acquisition by such authority in
such manner and after following such procedure as may be prescribed;
b) no amount shall be payable for the acquisition of any property held benami;
c) the purchase of property by any person in the name of his wife or unmarried
daughter for their benefit would not be benami transaction;
d) the securities held by a depository as registered owner under the provisions of the
Depositories Act, 1996 or participant as an agent of a depository would not be
benami transactions.
The amended law empowers the specified authorities to provisionally attach benami
properties which can eventually be confiscated.
Important Definitions
1. Benami Property [Section 2(8)].
Benami Property means any property which is the subject matter of a benami
transaction and also includes the proceeds from such property.
2. Benami Transaction
As per Section 2 (9) of the benami transaction means-
A. a transaction or an arrangement—
a) where a property is transferred to, or is held by, a person, and the consideration
for such property has been provided, or paid by, another person; and
b) the property is held for the immediate or future benefit, direct or indirect, of the
person who has provided the consideration, except when the property is held
by—
i. a Karta, or a member of a Hindu undivided family, as the case may be, and the
property is held for his benefit or benefit of other members in the family and the
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Benami Transaction Act 1988
consideration for such property has been provided or paid out of the known
sources of the Hindu undivided family;
ii. a person standing in a fiduciary capacity for the benefit of another person
towards whom he stands in such capacity and includes a trustee, executor,
partner, director of a company, a depository or a participant as an agent of a
depository under the Depositories Act, 1996 and any other person as may be
notified by the Central Government for this purpose;
iii. any person being an individual in the name of his spouse or in the name of any
child of such individual and the consideration for such property has been
provided or paid out of the known sources of the individual;
iv. any person in the name of his brother or sister or lineal ascendant or descendant,
where the names of brother or sister or lineal ascendant or descendant and the
individual appear as joint owners in any document, and the consideration for
such property has been provided or paid out of the known sources of the
individual; or
B. a transaction or an arrangement in respect of a property carried out or made in a
fictitious name; or
C. a transaction or an arrangement in respect of a property where the owner of the
property is not aware of, or, denies knowledge of, such ownership;
D. a transaction or an arrangement in respect of a property where the person
providing the consideration is not traceable or is fictitious;
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CS Praveen Choudhary
Benami Transaction Act 1988
may extend to 7 years and shall also be liable to fine which may extend to 25% of the
fair market value of the property.
Further, Section 4(2) provides that no defense based on any right in respect of any
property held benami, whether against the person in whose name the property is held
or against any other person, shall be allowed in any suit, claim or action by or on behalf
of a person claiming to be the real owner of such property.
As per section 5 of the Act any property, which is subject matter of benami transaction,
shall be liable to be confiscated by the Central Government.
As per Section 7 of the Act, the Central Government shall, by notification, appoint one
or more Adjudicating Authorities to exercise jurisdiction, powers and authority conferred
by or under this Act. An Adjudicating Authority shall consist of a Chairperson and at least
two other Members.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Benami Transaction Act 1988
However, the Adjudicating Authority shall issue notice within a period of 30 days from
the date on which a reference has been received. Further, the notice shall provide a
period of time of not less than 30 days to the person to whom such notice is issued to
furnish the information sought.
Sub-section (2) of this section provides that where such property is held jointly by
more than one person, the Adjudicating Authority shall make endeavours to serve
notice to all persons holding such property. However, where the notice is served on
one of the aforesaid persons the service of notice shall not be invalid on the ground
that the said notice was not served to all the persons holding the property.
Sub-section (3) of this section provides that the Adjudicating Authority shall, after
considering the reply, if any, provide an opportunity of being heard to the person
specified as a benamidar therein, the Initiating Officer, and any other person who
claims to be the owner of such property. Thereafter, the Adjudicating Authority shall
pass an order holding the property not to be a benami property and revoking the
attachment order; or holding the property to be a benami property and confirming
the attachment order in all other cases.
Sub-section (4) of this section provides that where the Adjudicating Authority is
satisfied that some part of the properties in respect of which reference has been
made to him is benami property, but is not able to specifically identify such part, he
shall record a finding to the best of his judgment as to which part or properties is
held benami.
Sub-section (5) of this section provides that where in the course of proceedings
before it, the Adjudicating Authority has reason to believe that a property, other
than a property referred to him by the Initiating Officer is benami property, it shall
provisionally attach the property and the property shall be deemed to be a property
referred to it on the date of receipt of the reference under sub-section (5) of section
24.
Sub-section (6) of this section provides that the Adjudicating Authority may, at any
stage of the proceedings, either on the application of any party, or suo moto, strike
out the name of any party improperly joined or add the name of any person whose
presence before the Adjudicating Authority may be necessary to enable it to
adjudicate upon and settle all the questions involved in the reference.
Sub-section (7) of this section provides that no order under sub-section (3) shall be
passed after the expiry of one year from the end of the month in which the reference
under section 24 was received.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Benami Transaction Act 1988
However, where an appeal has been filed against the order of the Adjudicating
Authority, the confiscation of property shall be made subject to the order
passed by the Appellate Tribunal under section 46.
Above shall not apply to a property held or acquired by a person from the
benamidar for adequate consideration, prior to the issue of notice without his
having knowledge of the benami transaction. [sub-section 2]
Where an order of confiscation has been made, all the rights and title in such
property shall vest absolutely in the Central Government free of all
encumbrances and no compensation shall be payable in respect of such
confiscation. [sub-section 3]
Adjudication procedure
Order of confiscation by CG under. [Section 26(3)]
Appeal to the high court against the order of appellate tribunal. [Section 49]
Party aggrieved by any decision or order of the Appellate Tribunal may file an
appeal to the High Court within 60 days from the date of communication of the
decision or order of the Appellate Tribunal to him on any question of law arising out of
such order.
High Court may entertain any appeal after the said period of sixty days, if it is satisfied
that the appellant was prevented by sufficient cause from filing the appeal within
the period specified in sub-section (1).
Special Courts
Section 50 relates to Special Courts. Sub-section (1) of this section provides that the
Central Government, in consultation with the Chief Justice of the High Court, shall for
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Benami Transaction Act 1988
trial of an offence punishable under this Act, by notification, designate one or more
Courts of Session as Special Court or Special Courts for such area or areas or for such
case or class or group of cases as may be specified in the notification.
Offences by Companies
Section 62 relates to consequences in case of offences by companies.
Subsection (1) of this section provides that where a person committing a
contravention of any of the provisions of this Act or of any rule, direction or
order made thereunder is a company, every person who, at the time the
contravention was committed, was in charge of, and was responsible to, the
company, for the conduct of the business of the company as well as the
company, shall be deemed to be guilty of the contravention and shall be liable to be
proceeded against and punished accordingly.
Sub-section (2) of this section provides that nothing contained in subsection
(1) of this section shall render any person liable to punishment, if he proves that
the contravention took place without his knowledge.
Sub-section (3) of this section provides that notwithstanding anything
contained in sub-section (1), where a contravention of any of the provisions of this
Act or of any rule, direction or order made thereunder has been committed by a
company and it is proved that the contravention has taken place with the consent or
connivance of, or is attributable to any neglect on the part of any director,
manager, secretary or other officer of the company, such director, manager,
secretary or other officer shall also be deemed to be guilty of the
contravention and shall be proceeded against and punished.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Prevention of Money Laundering Act
19.1
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Prevention of Money Laundering Act
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Prevention of Money Laundering Act
Particularly serious crimes, such as, drug offences, arms dealing, terrorist
offences etc. and other offences which generate large profits.
Definitions
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Prevention of Money Laundering Act
Section 4 provides that any person who commits the offence of money laundering shall be
punishable with rigorous imprisonment for a term which shall not be less than three
years but which may extend to seven years and also liable to fine.
However, where the proceeds of crime involved in money laundering relates to any
offence specified under the Narcotic Drugs and Psychotropic Substances Act, the
punishment may extend to rigorous imprisonment for ten year.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Prevention of Money Laundering Act
monk. Himachal Pradesh Police had arrested the monk earlier, and incriminating
material were recovered and seized from his premises at Joginder Nagar in Mandi
district, they said.
Section 13 states that the Director may either on his own motion or on an
application made by any authority, officer, or person, call for records of all
transactions and make such inquiry or cause such inquiry to be made, as he thinks fit.
In the course of any inquiry, if the Director finds that a banking company, financial
institution or an intermediary or any of its officers has failed to maintain or
retain records in accordance with the provisions of the Act, he may, by order, levy
a fine on such banking company, financial institution or intermediary which shall not
be less than Rs.10, 000 but may extend to Rs.1,00, 000 for each failure.
19.5
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Prevention of Money Laundering Act
Section 18 of the Act deals with search of persons and provides that if an authority
authorized in this behalf by the Central Government by general or special order has
reason to believe that any person has secreted about his person or in anything
under his possession, ownership or control any record or proceeds of crime which may
be useful for or relevant to any proceedings under this Act, he may search that person and
seize such record or property which may be useful for or relevant to any proceedings
under this Act.
Retention of Property
Under Section 20 where any property has been seized under Section 17 or Section 18 and
the officer authorized by the director has reason to believe that such property is
required to be retained for the purpose of adjudication u/s. 8, such property may be
retained for a period of not exceeding three months from the end of the month in which
such property was seized and on expiry of the period of three months the property shall
be returned to the person from whom such property was seized unless the Adjudicating
Authority permits the retention of such property beyond the said period.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Prevention of Money Laundering Act
of information for the prevention of any offence under this Act or under the corresponding
law in force in that country or investigation of cases relating to any offence under the Act.
KYC Policy
Banks were advised to follow certain customer identification procedure for opening of
accounts and monitoring transactions of a suspicious nature for the purpose of
reporting it to appropriate authority. These ‘Know Your Customer’ guidelines have been
revisited in the context of the Recommendations made by the Financial Action Task
Force (FATF) on Anti Money Laundering (AML) standards and on Combating Financing
of Terrorism (CFT). Detailed guidelines based on the Recommendations of the Financial
Action Task Force and the paper issued on Customer Due Diligence (CDD) for banks by
the Basel Committee on Banking Supervision, with indicative suggestions wherever
considered necessary, have been issued. Banks have been advised to ensure that a
proper policy framework on ‘Know Your Customer’ and Anti Money Laundering
measures is formulated with the approval of their Board and put in place
Banks should keep in mind that the information collected from the customer for the
purpose of opening of account is to be treated as confidential and details thereof
are not to be divulged for cross selling or any other like purposes. Banks should,
therefore, ensure that information sought from the customer is relevant to the
perceived risk, is not intrusive, and is in conformity with the guidelines issued in
this regard.
Banks should ensure that any remittance of funds by way of demand draft,
mail/telegraphic transfer or any other mode and issue of travellers’ cheques for
value of Rupees fifty thousand and above is effected by debit to the customer’s
account or against cheques and not against cash payment
With effect from April 1, 2012, banks should not make payment of
cheques/drafts/pay orders/banker’s cheques bearing that date or any
subsequent date, if they are presented beyond the period of three months from the
date of such instrument.
Banks should ensure that the provisions of Foreign Contribution (Regulation) Act,
2010, wherever applicable, are strictly adhered to.
Banks should frame their KYC policies incorporating the following four key elements:
a) Customer Acceptance Policy;
b) Customer Identification Procedures;
c) Monitoring of Transactions; and
d) Risk Management
19.7
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Specific Relief Act 1963
Specific Relief Act, 1963
Introduction
The Specific Relief Act, 1963 was enacted to define and amend the law relating to
certain kinds of specific relief.
The expression ‘specific relief’ means a relief in specie. It is a remedy which aims at the
exact fulfilment of an obligation.
Under the Specific Relief Act, 1963, remedies have been divided as specific relief
(Sections 5-35) and preventive relief (Sections 36-42). These are:
Recovering possession of property (Sections 5-8);
Specific performance of contracts (Sections 9-25);
Rectification of Instruments (Section 26);
Rescission of contracts (Sections 27-30);
Cancellation of Instruments (Section 31-33);
Declaratory decrees (Sections 34-35); and
Injunctions (Sections 36-42)
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Specific Relief Act 1963
fa) when a LLP has entered into a contract and subsequently becomes amalgamated
with another limited liability partnership, the new LLP which arises out of the
amalgamation.”.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Specific Relief Act 1963
trust. But if a trustee enters into a contract in excess of his powers then such a contract
cannot be specifically enforced.
Illustrations
A contracts with B to paint a picture for B and B agrees to pay Rs. 1000 for the same.
The picture is painted. ‘B’ is entitled to have it delivered to him on payment or
tender of Rs. 1,000.
A is a trustee of land with power of lease it for 7 years. He enters into a contract with
B to grant a lease of the land for 7 years, with a covenant to renew the lease at the
expiry of the term. This contract cannot be specifically enforced.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Specific Relief Act 1963
For the purposes of this section, a party to the contract shall be deemed to be unable
to perform the whole of his part of it, if a portion of its subject matter existing at the
date of the contract has ceased to exist at the time of its performance.
Section 13 lays down the rights of a purchaser or lessee against the seller or lessor
with no title or imperfect title. It lays down that where a person contracts to sell or let
certain immovable property having no title or only an imperfect title, the purchaser or
lessee (subject to the other provisions of this Chapter) has the following rights, namely:
if the vendor or lessor has, subsequent to the contract, acquired any interest in the
property, the purchaser or lessee may compel him to make good the contract out
of such interest;
where the concurrence of other persons is necessary for validating the title, and they
are bound to convey at the request of the vendor or lessor, the purchaser or lessee
may compel him to procure such concurrence and when conveyance by other
person is necessary to validate the title and they are bound to convey at the request
of the vendor or lessor, the purchaser or lessee may compel him to procure such
conveyance;
where the vendor professes to sell unencumbered property but the property is,
mortgaged for an amount not exceeding the purchase money and the vendor has in
fact only a right to redeem it, the purchaser may compel him to redeem the
mortgage and to obtain a valid discharge, and, where necessary, also a
conveyance from the mortgagee;
where the vendor or lessor sues for specific performance of the contract and the suit
is dismissed on the ground of his want of title, or imperfect title, the defendant has a
right to a return of his deposit, interest and costs on the interest, if any, of the
vendor or lessor in the property which is the subject matter of the contract.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Specific Relief Act 1963
examine the expert personally in open court on any of the matters referred to him or
mentioned in his opinion or report, or as to his opinion or report, or as to the
manner in which he has made the inspection.
4) The expert shall be entitled to such fee, cost or expense as the court may fix, which
shall be payable by the parties in such proportion, and at such time, as the court may
direct.”.
Unless and until the contrary is proved, the Court shall, in respect of any article of
movable property claimed under clause (b) or (c) of this section presume that
i. compensation in money would not afford the plaintiff adequate relief for the loss
of the thing claimed or as the case may be, and
ii. it would be extremely difficult to ascertain the actual damage caused by its loss.
Thus under this part of the Act, if a person, who has been dispossessed, does not bring a
suit under Section 6 of the Specific Relief Act within 6 months, he may still bring a suit
for recovery alleging any title to the property. But in this case, the suit may be defeated
by the defendant by proving a better title.
Illustrations
A, proceeding to Europe, leaves his furniture in charge of B, as his agent during his
absence. B, without A’s authority, pledges the furniture to C, and C knowing that B
had no right to pledge the furniture, advertises it for sale. C may be compelled to
deliver the furniture to ‘A’ for he holds it as A’s trustee.
Z has got possession of an idol belonging to A’s family, and of which A is the proper
custodian. Z may be compelled to deliver the idol to A.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Specific Relief Act 1963
b) any person claiming under him, by a title arising subsequently to the contract except
a transferee for value who has paid his money in good faith and without notice of the
original contract,
c) any person claiming under a title which though prior to the contract, and known to
the plaintiff, might have been displaced by the defendant,
ca) when a LLP has entered into a contract and subsequently becomes amalgamated
with another LLP, the new LLP which arises out of the amalgamation”.
d) when a company has entered into a contract and subsequently becomes
amalgamated with another company — the new company which arises out of the
amalgamation,
e) when the promoters of a company have before its incorporation entered into a
contract, for the purpose of the company and such contract is warranted by the
terms of the incorporation of the company; provided that the company has accepted
the contract and communicated such acceptance to the other party to the contract.
Clauses (a) and (b) embody the principle that Court will enforce specific performance of
a contract not only against either party, thereto, but also against any person claiming
under either of the parties, a title arising subsequently to the contract, except a
transferee for value who has paid money in good faith and without notice of the original
contract.
The obligation imposed by Section 16 of the Act is upon the Court not to grant specific
performance to a plaintiff who has not met the requirements of clause (a), (b) and (c)
thereof.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Specific Relief Act 1963
Thus in a suit for specific performance the plaintiff should not only plead and prove the
terms of the agreement but should also plead and prove his readiness and willingness to
perform his obligations under the contract in terms of the contract.
To adjudge whether the plaintiff is ready and willing to perform his part of the contract,
the court must take into consideration the conduct of the plaintiff prior and subsequent
to the filing of the suit along with other attending circumstances. Right from the date of
the execution till the date of the decree he must prove that he is ready and has always
been willing to perform his part of the contract. (N.P. Thirgnanam v. Dr. R Jagan Mohan
Rao)
The continuous readiness and willingness on the part of the plaintiff is a condition
precedent to grant the relief of specific performance. The circumstance is material and
relevant and is required to be considered by the Court while granting or refusing to
grant the relief. If the plaintiff fails to either aver or prove the same he must fail.
A Court may not, therefore, grant to a plaintiff who has failed to to prove that he has
performed or has always been ready and willing to perform his part of the agreement,
the specific performance whereof he seeks (Ram Awadh v. Achhaibar Dubey)
Section 17 sets out two more cases where specific performance cannot be enforced
in favour of a vendor or lessor. It states that a contract to sell or let any immovable
property cannot be specifically enforced in favour of vendor or lessor
a) who knowing himself not to have any title to the property, has contracted to sell or
let the property;
b) who, though he entered into the contract believing that he had a good title to the
property, cannot at the time fixed by the parties or by the Court for the completion
of the sale or letting, give the purchaser or lessee a title free from reasonable doubt.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Specific Relief Act 1963
Illustration
A contracts in writing to let a house to B for a certain term, at the rent of Rs. 100/- per
month, putting it first into tenantable repair. The house turns out to be not worth
repairing. So with B’s consent, A pulls it down and erects a new house in its place. B
contracting orally to pay rent at Rs. 120/- per month. B then sues to enforce specific
performance of the contract in writing. He cannot enforce it except with the variations
made by the subsequent oral contract.
(2) But he need to give a written notice of 30 days to the party in breach calling
upon him to perform the contract within specified time, and on his refusal or
failure to do so, he may get the same performed by a 3rd party or by his own
agency:
Provided that the party who suffers such breach shall not be entitled to recover
the expenses and costs unless he has got the contract performed through a 3rd
party or by his own agency.
(3) Where the party suffering breach of contract has got the contract performed
through a 3rd party or by his own agency after giving notice, he shall not be
entitled to claim relief of specific performance against the party in breach.
(4) Nothing in this section shall prevent the party who has suffered breach of
contract from claiming compensation from the party in breach.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Specific Relief Act 1963
form or be of no effect, as the case may be; so, however, that any such
modification or annulment shall be without prejudice to the validity of anything
previously done under that notification.
Provided that the said period may be extended for a further period not exceeding
6 months in aggregate after recording reasons in writing for such extension by
the court.”.
The conditions according to which damages may be awarded by the Court in addition
to specific performance are:
i. the Court decides that specific performance ought to be granted but,
ii. the justice of the case requires that not only specific performance but also some
compensation for the breach of the contract should also be given to the plaintiff.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Specific Relief Act 1963
Section 22 gives power to the Court to grant relief for possession, partitions, refund
of earnest money. Under Section 22 any person, suing for the specific performance of a
contract for the transfer of immovable property may, in an appropriate case ask for
a) possession or partition and separate possession, of the property in addition to any
such performance; or
b) any other relief to which he may be entitled in case his claim for specific
performance is refused.
The power of the Court to grant relief under clause (b) shall be without prejudice to its
power to award compensation under Section 21.
Illustrations
A conveys land to B, who bequeaths it to C and dies. Thereupon D gets possession of the
land and produces a forged instrument stating that the conveyance was made to B in
trust for him. C may obtain the cancellation of the forged instrument.
Section 23 lays down that even if the parties have agreed for liquidated damages, in the
contract itself, specific performance of that contract may be decreed by the Court in
proper cases but in that case the payment of the sum named in the contract will not be
decreed.
Section 24 imposes a bar on suit for compensation for breach of a contract after
dismissal of the suit for specific performance.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Specific Relief Act 1963
There must have been a complete agreement prior to the instrument. It should be in
writing and there must be clear evidence of mutual mistake or of fraud.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Specific Relief Act 1963
Any person interested in a contract may sue to have it rescinded. Hence a suit may
be brought by a third party whose interests are affected by the contract.
In case of a rescission of a contract, the Court may, in its discretion, require the party
to whom such relief is granted to make any compensation to the other party. The
main object of this relief is to put both the parties in their original positions. If a
plaintiff fails to get specific performance of a contract in writing, he may get it
rescinded and delivered up to be cancelled.
Cancellation of Instruments
Section 31(1) provides that any person against whom a written instrument is void
or voidable, and who has reasonable apprehension that such instrument, if left
outstanding may cause him serious injury, may sue to have it adjudged void or
voidable, and the Court may in its discretion, so adjudge it and order it to be
delivered up and cancelled.
Section 31(2) lays down that if the instrument has been registered under the Indian
Registration Act, 1908, the Court shall also send a copy of its decree to the officer in
whose office the instrument has been so registered; and such officer shall note on
the copy of the instrument contained in his books the fact of its cancellation.
The relief of cancellation of instruments is founded upon the administration of
protective justice which is technically known as “Quia time”. It is based upon the
administration of protective justice for fear that the instrument may be vexatiously,
or injuriously used by the defendant against the plaintiff when the evidence to
impeach it may be lost or that it may throw a cloud of suspicion over the title or
interest (Jekadula v. Bai Jini).
Relief of cancellation under Section 31 would be available when
i. an instrument is void or voidable against the plaintiff;
ii. where the plaintiff may apprehend serious injury if the instrument is left
outstanding and
iii. where it is proper under the circumstances of the case to grant the relief.
Illustrations
A, the owner of a ship, by fraudulently representing her to be seaworthy, induces B, an
underwriter, to insure her. B may obtain the cancellation of the policy.
Section 32 lays down that where an instrument is evidence of different rights or
different obligations, the Court may, in proper case, cancel it in part and allow it to
stand for the residue. The Court is not bound to cancel the whole of the instrument
but may, in its discretion, when necessary, cancel it in part and allow rest of it to
stand.
For example, A executes a deed of mortgage in favour of B. A gets back the deed
from B by fraud and endorses on it a receipt for Rs. 1,200 purporting to be signed by
B. B’s signature is forged. B is entitled to have the endorsement cancelled, leaving
the deed to stand in other respects (Ram Chandar v. Ganga Saran).
Section 33(1) provides that on adjudging the cancellation of an instrument, the
Court may require the party to whom such relief is granted, to restore, so far as may
be, any benefit which he may have received from the other party and to make any
compensation to him which justice may require.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Specific Relief Act 1963
Declaratory Decrees
A declaratory decree is a decree whereby any right as to any property or the legal
character of a person is judicially ascertained.
The Supreme Court in State of Madhya Pradesh v. Mangilal Sharma, 1997 (7) SCALE 743,
held that a declaratory decree merely declares the right of the decreehoder vis-a-vis the
judgement debtor and does not in terms direct the judgement debtor to do or refrain
from doing any particular act or thing. It cannot be executed as it only declares the
rights of the decree-holder qua the judgement debtor and does not, in terms, direct him
to do or refrain from doing any particular act or thing.
Section 34 lays down that any person entitled to any legal character, or to any right
as to any property, may institute a suit against any person denying, or interested to
deny, his title to such character or right, and the Court may in its discretion make
therein a declaration that he is so entitled and the plaintiff need not in such suit ask
for any further relief provided that no Court shall make any such declaration where
the plaintiff, being able to seek further relief than a mere declaration of title, omits to
do so.
The object of declaratory decree is to remove doubt by having legal status of any
rights declared by the Court, and to perpetuate and strengthen testimony
regarding title of the plaintiff and protect it from adverse attacks.
In case of declaratory decree, neither specific performance nor any compensation is
awarded but only a declaration of the rights of the parties is made without any
consequential relief being granted.
The declaration does not confer any new rights upon the plaintiff but it merely
declares what he had before. It only clears the mist that has gathered round the
plaintiff’s title or status.
To maintain a suit under this Section following conditions must be fulfilled:
a) the plaintiff must be a person entitled to any legal character or to any right as to
any property;
b) the defendant must be a person denying or interested to deny the plaintiff’s title
to such legal character or, right;
c) The declaration issued for must be a declaration that the plaintiff is entitled to a
legal character or to a right to property; and
d) where the plaintiff is able to seek further relief than a mere declaration he must
seek such relief.
Effect of Declaration
Section 35 lays down that a declaration is binding only on the parties to the suit,
persons claiming through them respectively, and where any of the parties are trustees,
on the persons for whom, if in existence at the date of the declaration, such parties
would be trustees.
Such a declaration is not judgement in rem and as such it cannot bind strangers.
Illustration
A, a Hindu, in a suit to which B, his alleged wife is the defendant’s seeks a declaration
that his marriage was duly solemnised and prays for an order of restitution of conjugal
rights. The Court makes the declaration and order of restitution of conjugal rights. C, a
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Specific Relief Act 1963
third-party claiming that B is his wife, sues A for the recovery of B. The declaration
made in the former suit is not binding upon C.
Preventive Reliefs
Part III of the Specific Relief Act, 1963 grants specific relief called Preventive Relief
i.e., preventing a party from doing that which he is under an obligation not to do.
Preventive relief is granted at the discretion of the court by way of an injunction.
An injunction is a specific order of the Court forbidding the commission of a
wrong threatened or the continuance of a wrongful course of action already begun,
or in some cases (when it is called a ‘mandatory injunction’) commanding active
restitution of the former state of things.
The main difference between an injunction and specific performance is that the
remedy in case of an injunction is generally directed to prevent the violation of a
negative act and therefore deals not only with contracts but also with torts and
many other subjects of purely equitable one, whereas specific performance is
directed to compelling performance of an active duty.
It is known as a “judicial process by which one, who has invaded or is threatening to
invade the rights (legal or equitable) of another is restrained from continuing or
commencing such wrongful act. Injunction is the most ordinary form of preventive
relief. For the effective administration of justice, this power to prevent and to
restrain is absolutely necessary.
Characteristics of an injunction
An injunction has three characteristic features;
1. It is a judicial process.
2. The object of this judicial process is to restrain or to prevent.
3. The act restrained or prevented is a wrongful act. An injunction acts or operates
always in personam.
If the wrongful act has already taken place, the injunction prevents its repetition. If it is
merely threatened, the threat is prevented from being executed.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Specific Relief Act 1963
Sub-section (1) states that subject to the other provisions contained in or
referred to by this chapter, a perpetual injunction may be granted to the plaintiff
to prevent the breach of an obligation existing in his favour whether express or
by implication.
Sub-section (2) provides that when any such obligation arises from contract, the
Court shall be guided by the rules and provisions contained in Chapter II, i.e., the
chapter on specific performance of contracts.
Sub-section(3) lays down that when the defendant invades or threatens to
invade the plaintiff’s right to, or enjoyment of property, the Court may grant a
perpetual injunction in the following cases, namely:
a) where the defendant is a trustee of the property for the plaintiff;
b) where there exists no standard for ascertaining the actual damage caused, or
likely to be caused by the invasion;
c) where the invasion is such that compensation in money would not afford
adequate relief;
d) where the injunction is necessary to prevent a multiplicity of judicial
proceedings.
Mandatory injunction
Section 39 dealing with mandatory injunctions states that when to prevent the breach
of an obligation, it is necessary to compel the performance of certain acts which the
Court is capable of enforcing, the Court may in its discretion grant an injunction to
prevent the breach complained of, and also to compel performance of the requisite acts.
For example, A builds a house with eaves projecting over B’s land, B may sue for an
injunction to pull down so much of the eaves as so projecting over his land. According to
Section 40, the plaintiff in a suit for perpetual injunction under Section 38 or mandatory
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Specific Relief Act 1963
injunction under Section 39 may claim damages either in addition to, or in substitution
for such injunction and the Court, may, if it thinks fit, award such damages.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Specific Relief Act 1963
1. The contract should comprise of two agreements, one affirmative and another
negative.
2. Both the agreements must be divisible.
3. The negative agreement must relate to a specific act.
4. The Court should be unable to compel specific performance of the affirmative
agreement.
5. The plaintiff must not have failed to perform the contract, so far as it is binding
upon him.
A negative stipulation may be express or implied. The Section does not say that every
affirmative contract includes by necessary implication a negative agreement to refrain
from doing certain things. It is therefore a question of interpretation in each case to find
whether a particular contract can be said to have a negative stipulation, express or
implied, contained in it, e.g., the mere use of word “exclusively” does not imply a
negative stipulation to refrain from service of other people.
The provisions of this Section are based on the equitable principle that “he who seeks
equity must do equity”.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
SOGA 1930
Contract of Sale:
A contract of sale of goods is a contract
Whereby the seller
Transfers or Agrees
To Transfer the property / ownership
In Goods
To the Buyer
For a price
(2) Agreement to Sell: Where the transfer of the property in the goods is to take place at a future
time or subject to some conditions thereafter to be fulfilled, the contract is called an agreement
to sell.[Sec.4(3)]
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
SOGA 1930
2
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
SOGA 1930
Points SALE BAILMENT
Transfer of Ownership of goods is immediately There is only a transfer of possession
ownership transferred. of goods from a bailor to a bailee.
Return in the buyer does not return goods to the Bailee is bound to return the goods to
goods seller the bailor when purpose of bailment is
accomplished
Price A price is paid in money as may be without any consideration, i.e.
consideration. gratuitous bailment.
1. Sale and contract for work and labour. One party agrees to render service or exercise skill on the
material supplied by another party. Thus, the essence of the contract of work and labour is the
exercise of skill or rendering of services by a party on material supplied by another
2. Sale and barter or exchange. Sale means transfer of property from one person to another for a price
paid or to be paid in money. Barter or exchange is a contract where the consideration for the transfer
of the property from one person to another consists of goods.
3. Sale and gift. Sale mean transfer of property in goods from one person to another for a price paid or
to be paid in money. On the other hand, where one person transfers property in the goods to another
without any price or consideration, the transaction is called a gift.
4. Sale and mortgage or pledge. Sale means the transfer of general property in the goods from one
person to another for price paid or to be paid in money. Mortgage of goods means the transfer of an
interest in the goods from the mortgagor to the mortgagee in order to secure a debt. Mortgagee or
pledgee gets only special property in the goods.
GOODS
Definition
According to section 2(7) of this act, Goods means very kind of
Movable property
Other than actionable claim and money; and
Includes stock and shares,
Growing crops, grass and things
Attached to or forming part of the land
Which are agreed to be severed
Before sale or under the contract of sale
CLASSIFICATION OF GOODS.
Sale of Goods
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
SOGA 1930
1. Existing goods. Goods owned or possessed by the seller at time of contract or sale are
known as existing goods.[Sec.6(1)] Sale or actual sale may be affected only of existing goods.
The existing goods may be further classified into three types:
(i) Specific goods. Specific goods means the goods identified and agreed upon at the
time a contract of sale made.[Sec.2(14)]. In other words, the goods whose individuality
has been found out at the time of making the contract are called as specific goods.
Example: out of four cars in different colors displayed in a show room, A selects white car
and agrees to buy it. The white car is specific existing goods.
(ii) Unascertained or generic goods. The goods, which are not identified and agreed upon
at the time of making of contract of sale, are known as unascertained goods. Such
goods are indicated or defined by description at the time of contract of sale.
Example: A had ten horses. He agreed to sell one horse to B. in this case, the contract is
for sale of unascertained goods as the horse has not been identified at the time of contract
of sale.
(iii) Ascertained goods. Generally, the term specific goods and ascertained goods are used for
the same kind of goods. But, more specifically, the term ascertained goods is used to denote
the goods, which is ascertained after formation of contract of sale.
Example: A had 100 bales of cotton lying in his godown. He agreed to sell 50 bales of
cotton to B, who agreed to purchase the same. After making of the contract, the cotton
bales to be delivered to B was identified & kept separate by A, and B agreed to take
delivery of the same. In this case, the contract is for sale of ascertained goods, as the
cotton bales to be sold are identified & agreed after the formation of contract. It may be
noted that before ascertainment of the goods, the contract was or sale of unascertained
goods.
3. Contingent goods. Contingent goods are the goods, the acquisition of which depends upon
the happening or non-happening of a contingency i.e. contingent event.[Sec.6(2)]
Example: P contract to sell 50 pieces of particular article provided the ship which is
bringing them reaches the port safely. This is an agreement for the sale of contingent
goods.
1. Goods perishing before making contract. A contract of sale of goods is void if-
(i) The contract is for the sale of some specific goods,
(ii) The goods have perished, and
(iii) The seller was having no knowledge of the destruction of the goods at the time of contract
of sale. (Sec.7)
2.Goods perishing before sale but after agreement to sell. An agreement to sell goods becomes
void if
(i) The agreement to sell is for specific goods,
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
SOGA 1930
(ii) The goods perish subsequent to the agreement to sell the goods is made but before the risk
passes to the buyer, and
(iii) Goods perish without any fault on the part of the seller or buyer.(Sec.8)
It should also be noted that where the specific goods become so damaged as they are no longer to
answer their description in the contract, the agreement to sell also becomes void.(Sec.8.)
Exceptions: Section 7 and 8 do no apply in the following two cases;
(i) Where the seller has knowledge of the destruction of the goods.
(ii) Where the contract of sale is not for specific goods but for generic or unascertained goods.
Example: A agreed to sell to B 10 bales of Egyptian Cotton out of 100 bales lying in his
godown. The goods were already destroyed by fire before the contract of sale. But both A and
B did not know about the fire. In this case, the contract is not void as it was not for the sale of
specific goods, but for sale of unascertained goods. And thus, A is liable to supply 10 bales to
B, or pay him damages for the breach of contract.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
SOGA 1930
Conditions Warranties
As to time Essential to the main Collateral to the main
purpose of the contract purpose of the contract
2. Compulsory waiver of a condition: sec 13(2) Where a contract of sale is not severable (i.e.
indivisible) and the buyer has accepted the goods or a part thereof, he cannot repudiate the contract
but can only sue for damages. In such a case, the breach of condition can only be treated as a breach
of warranty, unless there is a contract to the contrary. -Sec.13 (2).
Exception. If the fulfillment of any condition of the contract of sale is excused by law by reason of
impossibility or otherwise, the condition cannot be treated as warranty.[Sec.13(3)].
IMPLIED CONDITIONS
1. Condition as to title. In a contract of sale, there is an implied condition on the part of the seller
that-
(i) In case of sale, he has a right to sell the goods, and
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
SOGA 1930
(ii) In case of agreement to sell, he will have a right to sell the goods at the time when the property
is to pass.{Sec.14(a)]
2. Condition as to description.
3. Condition as to sample. A contract of sale is a contract for sale by sample where there is a term
in the contract, express or implied, to that effect.[Sec.17((1)]: Following are the three implied
conditions in the case of a contract for sale by sample:
(a) The bulk shall correspond with the sample in quality.
(b) The buyer shall have a reasonable opportunity of comparing the bulk with the sample.
(c) The goods shall be free from any defect, which would not be apparent on reasonable
examination of the sample. If the defect is visible and can be discovered on inspection, the
seller cannot be held liable for the same.
4. Condition as to sample as well as description. Where the goods are sold by sample as well as
by description, the implied condition is that the goods must correspond with both
5. Condition as to merchantable quality. ‘Merchantable quality of goods’ means the goods fit in
terms of their quality and condition for the purpose for which they are bought by prudent persons,
or the goods which are marketable at their full value.
But the condition of fitness or quality does not apply in the following specific cases, even if the
buyer has made known to the seller the purpose for which he is buying:
(i) Where the goods sold is a specified article under its patent or other trade mark.(Proviso
to Sec.16(1)] This exception is applicable only when the buyer does not rely on the seller’s skill
and judgment.
(ii) Where the product is used only for a particular purpose but buyer fails to disclose his abnormal
circumstances.
(iii) Where the goods can be used for more than one purpose and buyer fails to make known to the
seller the purpose of his buying, the seller is not be liable.
IMPLIED WARRANTIES
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
SOGA 1930
TRANSFER OF PROPERTY
Transfer of property or ownership
Specific or Right of
Unascertained Sale on
Ascertained disposal is
or future goods Approval
goods reserved
Sec 24
following rules shall
intention appears
Unless different
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
SOGA 1930
Ascertainment of Goods: It is a process by which the goods to be delivered under the contract are
identified and set apart. It is unilateral act of the seller alone to identify and set apart the
goods.
Appropriation of Goods: It is a process by which the goods to be delivered under the contract are
identified and set apart with the mutual consent of the seller & buyer. It is a bilateral act
of the seller and the buyer to identify and set apart the goods. The appropriation may be done either
by the seller with the consent of the buyer or by the buyer with the consent of the seller.
Deemed appropriation of goods:. Where the seller delivers the goods to any of the following for
the purpose of transmission to the buyer without reserving the right of disposal he is deemed to have
unconditionally appropriated the goods to the contract:
1. to the buyer, 2. To a carrier or 3. to a Bailee.
Exceptions:
1. Sale by a person under the implied authority of the owner or transfer by estoppel. :causes the
buyer to believe that the seller of the goods has the authority to sell them.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
SOGA 1930
DELIVERY OF GOODS
• “Delivery” means voluntary transfer of possession of goods
• Actual delivery: manual transfer
• Symbolic delivery: seller does something, which has the effect of putting the goods in
possession of the buyer
• Constructive or fictitious delivery or delivery by attornment: when the seller does some
act which expresses his intention to transfer property in the goods sold to the buyer
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
SOGA 1930
I. Right of Lien
The right of lien of an unpaid seller is subject to the following rules:
a. The seller must be in possession of the goods sold.[Sec.47(1)]
b. The seller may have possession of the goods as an agent or bailee for the buyer.
c. The lien can be exercised only when the goods are not sold on credit.(Sec.47)
d. Where the goods have been sold on credit, the term of credit must have expired.(Sec.47)
e. Where the part delivery of goods does not imply that the seller has waived the lien, the seller
can exercise lien on remaining goods.(Sec.48)
f. The right of lien can be exercised only when the seller has not waived his right expressly or
impliedly.[Sec.49(1)]
g. The unpaid seller of goods, having a lien thereon, does not lose his lien by reason only that he has
obtained a decree for the price of the goods.[Sec.49(2)]
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
SOGA 1930
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
SOGA 1930
AUCTION SALE
• the sale is complete when the auctioneer announces its completion by the fall of the hammer
• Auction sale could be conditional or unconditional
• the property in the goods passes to the buyer by the fall of hammer
• A right to bid may be reserved expressly by or on behalf of the seller through ‘white
bonnet’, by bidder, or decoy duck or puffer
• sale by auction may be notified to be subject to a reserve price or upset price
• Pretended bidding: is voidable at the option of the buyer
• ‘Knock-out’ or agreement not to bid each other: Such combinations or knock-out is not illegal
• Damping is unlawful: ‘Damping’ is any act by which an intending bidder is dissuaded or
discouraged from bidding.
----***----
14
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Partnership act 1932
THE PARTNERSHIP ACT, 1932
Topic 1: INTRODUCTION
Introduction
Prior to the Partnership Act, 1932 the law of partnership was covered by the Indian
Contract Act, 1872
The law governing partnership in India is now embodied in the Indian Partnership
Act, 1932 which came into force (except Sec.69) on the 1st day of October 1932.
The Partnership is Act is not exhaustive. Where the Partnership Act is silent on any
point, the general principles of the law of contract apply(section3)
Essential of Partnership
An analysis of this definition reveals the following essential element of partnership.
1. At least two persons. There must be at least two persons to form a partnership. All of
them must be competent to contract. If at any time the numbers of partners in a firm
gets reduced to one (whether by death or insolvency) the firm is dissolved.
2. Maximum number or partners. The partnership Act does not prescribe the maximum
number of partners in a firm. However, Section 464 of the Companies Act, states
that the partners in a firm must not exceed 100 or such number as may be specified in
co. (Miscellaneous) Rules 2014.
3. Agreement. The relation of partnership arises from a valid agreement i.e. contract.
There must be an agreement between two or more persons to act as partners. It must be
voluntary. The agreement may either be expressed or implied from the conduct of
partners or from the circumstances of the case.
4. Business. A partnership can be formed for the purpose of carrying on business and
business alone. Where there is no business there exists no partnership. The term “
business” includes every trade, occupation and profession.
5. Sharing of profits. Sharing of profits of the partnership business among the partners
is a must but sharing of losses by all the partners is not essential. Thus, if any
partner does not get a share in the profits of the firm, he is not a partner. However, the
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Partnership act 1932
partners by an express agreement may agree that any one or more of them shall not be
liable for the losses.
TEST OF PARTNERSHIP
A group of persons is a partnership or not, can be determined by looking into its features or
characteristics. If the group possesses all essentials of a valid partnership as required by
Section 4, the group is said to be a partnership, otherwise not.
The essential features of a valid partnership are as under:
1. There must be an agreement between two or more persons.
2. There must be a business of partnership.
3. The partners must have agreed to share the profits of the business.
4. The business must be carried on by all or any one acting for all. In other words,
there must be ‘mutual agency’ between the partners.
Section 6 specifies the following cases where there is no real relation of partnership
between the group of persons:
1. Joint holders of property sharing profits. Where the joint holders of property share
the profits or gross returns arising from such property, they are not the partners in a
firm.[Explanation – 1 to Sec.6].
2. Sharing of profits. Sharing of profit of a business is a prima facie test of the partnership
but not a conclusive evidence of the existence of the partnership. The following are the
particular cases where the sharing of a profit does not constitute partnership.
(i) Money lender sharing profits. Where a money lender money to a firm and receives
a share of profits in lieu of interest, or in addition to an interest, lender does not
become a partner of the firm. [Explanation 2(a) to Sec.6]
(ii) Servant or agent receiving share in profits. A servant or an agent who receives a
share of profits as a part of his remuneration is not a partner [Explanation 2© to
Sec.6]
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Partnership act 1932
(iii) Widow or child of deceased partner. A widow or child of a deceased partner
receiving a share of profits as annuity is also not a partner of the firm[Explanation
2© Sec.6]
(iv) Seller of goodwill. If a previous owner(or part of the owner) of the business hares
profit of the firm as consideration for the sale of the goodwill of the business. Such
owner is not a partner of the firm. [Explanation 2(d) to Sec.6]
In addition to the above persons [Exceptions given in Sec.6(2) the following persons are not
treated as partners although they share the profits:
a) Members of Hindu undivided family. Members of a Hindu undivided family(HUF) who
carry on business and share profits among them are not partners.(Sec.5).
b) Business of Buddhists Couple. A Burmese Buddhists husband and wife carrying on a
business and sharing profits of it between them are not partners.(Sec.5)
FORMATION OF PARTNERSHIP
Partnership arises from contract and not from status.(Sec.5, para-1) Thus, a partnership
can be formed by a contract between the persons. The contract of partnership may be express
or implied. A valid contract of partnership has following essentials.
1. Agreement. There must be an agreement between the persons forming a partnership. The
agreement may be between two or more persons but not more than 10 04 20 persons, as
the case may be.
2. Contractual capacity. Since the partnership arises from contract, the partners must be
competent to contract. Therefore, persons incompetent to contract cannot form
partnership. However, a minor can be admitted to the benefits of partnership with the
consent of all the partners after the formation of partnership. For details refer to the topic ‘
who may be partners’ give later in this chapter.
3. Free consent. The competent persons must give their consent to become partners and that
too must be free.
4. No consideration. There need not be any consideration for a contract of partnership. This
is because partners are mutual agents and no consideration is required to create an
agency.(Sec.185, Indian Contract Act).
5. Lawful object. A partnership can be formed only for lawful object.
6. Legal formalities. Generally, no formalities are required to be complied with for the
formation of a partnership. But, if the partners wish, they can make a contract in writing,(i.e.
Partnership deed) They can also opt to get the firm registered with Registrar of Firms.
Partnership is product of a valid agreement and valid agreement can be made by persons
competent to contract. Therefore, all persons competent to contract can become partners in a
firm. According to Section 11 of the Indian Contract Act, every person except the
following is competent to contract.
1. Minor. A minor is not competent to contract. Therefore, he cannot become partner in a firm
but he may be admitted to the benefits of an existing firm with the consent of all the partners
of the firm.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Partnership act 1932
2. Persons of unsound mind. A person of unsound mind is not competent to contract.
Hence, he cannot become partner in a firm.
3. Persons disqualified by any law to which they are subject. For eg,. Alien enemy
4. Married woman. A married woman has independent identity in the eyes of law.
Therefore, every woman married or not can enter into any contract including a partnership.
She and her personal property (or stridhan) will be held liable for the liabilities of the firm.
Her husband and his property will not be liable for any liability arising out of any such
partnership. A married woman can even be a partner of her husband.
5. Artificial Persons. Artificial persons, e.g. companies, corporations etc. are also included
in the term ‘person’. Therefore, a company can become a partner in a firm provided its
memorandum of association authorizes it.
Other Points:
Two or more joint Hindu families represented by their Kartas can also enter
into a partnership if the number of adult members (male and female member
excluding minors) of all the joint families does not exceed 100 or as specified in Rules.
It should be noted that whenever a minor member of any of the joint families attains
majority, and consequently the number of members exceeds the statutory maximum
limit, the partnership will become illegal if carries on its business.
4
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Partnership act 1932
TOPIC 2: REGISTRATION OF FIRM
Registration of a firm means getting the partnership firm registered with the Registrar of Firms.
A partnership may be registered with the Registrar of Firms of the area in which any place of
business of the firm is situated or proposed to be situated. The State Government appoints
such registrar.
Important Sections:
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Partnership act 1932
Sec 70 . Penalty for Furnishing False Particulars
Any person who signs any statement, amending statement, notice or intimation any
particulars
which he knows to be false or
does not believe to be true, or
containing particulars which he knows to be incomplete or
does not believe to be complete,
shall, on conviction, be punished with imprisonment for a term which may extend to
one year, or with fine, or with both & fine shall not be less than one thousand
rupees.
Effects of Non-registration
Though the registration of firm is not compulsory but has become essential or desirable in view
of the several adverse effects arising from non-registration. In other words the unregistered firm
and its partners suffer from many disabilities. The effects of non-registration of firm are as
under:
1. No suit by a partner against the firm. A partner of an unregistered firm cannot file a suit
to enforce his rights arising from a contract or conferred by this Act against the firm.[69(1)].
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Partnership act 1932
2. No suit by a partner against any other partner. A partner of an unregistered firm cannot
file a suit to enforce his rights arising from a contract or conferred by this Act against any
other present or past partner in the firm.[Sec.69(1)].
Unregistered firm
uit
No s
Partner of
Unregistered firm
No s
uit
Past or present
Partner of
Unregistered firm
3. No suit by an unregistered partner against the firm and other partners. No partners of
the firm whose name has not been shown in the Registrar of Firms as a partner in the firm
can sue against the firm or other partners in the firm.[Sec.69(1)]
4. No suit by unregistered partner against third party. A partner of a registered firm whose
name has not been shown in the register of firm as partner in the firm cannot sue to enforce
his right arising from a contract against any third party.[Sec.69(2)]
Firm
uit
No s
Unregistered
No Siut Partner
partner
No s
uit
Third Party
5. No suit by the firm against third party. An unregistered firm cannot file a suit in any court
to enforce his any right arising from a contract against any third party.[Sec.69(2]
6. Third parties can sue against the firm and its partners. Third parties can sue on any
unregistered firm and its partners.[Sec.69(3)]
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Partnership act 1932
NO SUIT
Unregistered
Third Party
FIRM
CAN SUIT
7. No claim of set-off exceeding Rs.100. An unregistered firm or any partner thereof cannot
claim a set off of value exceeding Rs.100 in proceedings instituted against him by a third
party to enforce his right arising from a contract.[Sec.69(30 and (4)(b)]
Exceptions i.e. Non – registration not to affect the following Sec 69:
1. Right of third party to sue the firm or any partner
2. Right of partners to sue for –
a. Dissolution of firm
b. Settlement of accounts of a dissolved firm
c. Realizing the property of dissolved firm
3. Power of official assignee, receiver or court to realize the property of an insolvent partner
and to bring an action on behalf of insolvent partner.
4. Right of the firm to institute a suit or claim of set off not exceeding Rs. 100
The property of the firm or partnership property means and includes all the property,
rights, and interest and good will of the business of the firm to which the firm is (i.e. all
partners jointly) entitled. Partners are free to determine by agreement the property of the firm.
But in the absence of any contract between the partners, the property of the firm includes the
following.
1. All property, right and interest originally brought into the common stock of the firm.
2. All property, rights and interest acquired by purchase or otherwise, by or for the
firm for the purposes and in the course of the business of the firm.
3. Goodwill of the business of the firm.(Sec.14 para-1)
It should be noted that the Section states that the property of the firm ‘includes’. The word
‘includes’ implies that the list of property is not exhaustive.
Any property and right or interest brought into originally at the time of commencement of the firm
as well as the property and rights or interest acquired or purchased for the purposes and in the
course of business of the firm and goodwill of the business earned etc. are included in the
property in the firm. While determining the property of the firm, the real intention of the partners
will be considered. Therefore, a mere use of property of partner by the firm does not itself make
the property of firm unless it is intended to be treated as such.
Thus, the partners may by contract treat the personal property of partners as property of the
firm. Similarly, if partnership property is allotted to a partner, it becomes the property of that
partner. Moreover, where certain property is purchased with partnership money but in the name
and for the personal purposes of a partner, it becomes the personal property of the partner and
such partner will become a debtor of the firm for the purchase money.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Partnership act 1932
But section 14 clearly states that unless the contrary intention appears, property and rights and
interest in property acquired with money belonging to the firm are deemed to have been
acquired for the firm.(Sec.14, para-2)
Application of the property of the firm (sec. 15) : Subject to contract between partners, the
property of the firm shall be held and used by the partners exclusively for the purposes of the
business.
TYPES OF PARTNERS
There are many types of partner having varying degrees of rights, duties and responsibilities. A
few important types of partners are as under:
9
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Partnership act 1932
Who actively participates in the conduct of the business of the firm. An actual
partner is actually an agent of the other partners in the usual course of business of
the firm. He, therefore, binds himself and all his copartners by his acts done in the
usual course of business and in the name of the firm.
3. Nominal partner. A nominal partner is one who lends his name to the firm without
having any pecuniary interest in the business of the firm. Neither he invests money in
the firm nor he shares the profits of the business of the firm. H e even does not take
part in the conduct of the business of the firm. But, he is liable like an actual partner
of the firm to the third for all the debts of the firm. Such partner however, does not fulfill the
requirements of a valid partnership.
4. Partner in profits only. In a partnership, sharing of profits of the business of the firm is a
must but sharing of losses is not essential by all the partners. Therefore, a partner who
agrees to share in the profits of the firm only and does not agree to be liable for the losses of
the firm is a partner in profits only. However, he is liable to the third parties for all the
debts of the firm. It is so because as per the law every partner is liable severally and jointly
to the third parties do the entire debt of the firm.
5. Sub-partner. A sub-partner is not a partner in the firm but a partner in the firm. Thus, a sub-
partner is the person who gets a share in the profits derived by a partner from the
firm. A sub-partner is not directly connected with the firm and does not have mutual agency
with any partner of the firm. Therefore, he cannot bind the firm by his acts. He does
neither enjoy any right against the firm nor does he carry any duties for the
business of the firm.
6. Partner by estoppel or holding out. When a person who is not a partner in a firm but
held liable as a partner in the firm under certain circumstances, such a person is said to be
partner by estoppel or holding out. A person is held liable as a partner by holding out when-
1. He by spoken or written words or by conduct represents himself to be a partner in
a firm; or he knowingly permits himself to be represented as a partner in a firm, and
2. any other person having faith on such representation gives credit to the firm.
In this connection, it is immaterial whether the person representing himself or represented to
be a partner does or does not know that the representation has reached the person so
giving the credit.[Sec.28(1)]
A partner by holding out becomes liable jointly and severally only to the persons
who have given credit to the firm on the faith of his representation. But such a
partner is no way becomes a partner in the firm. Therefore, he is not entitled to any right
against the firm or partners in the firm. At the same time he is not liable to the partners in
the firm.
Exceptions
The principal of holding out is not applicable in the following two cases:
10
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Partnership act 1932
(i) Where after a partner’s death the business is continued by the firm with the old firm’s
name or remaining partners continue to use the name of the deceased partner, his legal
representative or his estate shall not be liable for any act of the firm after his death.
[Sec.28(2)]
(ii) Insolvency of a partner also terminates his liability forth with. His estate is no more
liable for any act of the firm done after the date of the order or adjudication.[Sec.34(2)].
Rights of Minor
When a minor is admitted to the benefits of partnership, his rights are as under before attaining
majority:
1. To share profits. A minor admitted to the benefits of partnership, has a right to receive
the agreed share of profits of the firm.[Sec.30(2)]
2. To share the property. Such a minor also has a right to receive the agreed share of the
property of the firm.(Sec.30(2)]
3. To inspect the books. A minor is also entitled to have copy of any of the accounts of
the firm.[Sec.30(2)[
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Partnership act 1932
4. To copy accounts A minor is also entitled to have a copy of any of the accounts of the
firm.(Sec.30(2)].
5. To sue partners. A minor when serving his connection with the firm, may sue the
partners for (I) an account, or(ii) payment of his share of the property of profits of the
firm.
6. To become or not to become a partner in the firm. Such a minor on attaining majority
will have an option either to become or not to become partner of the firm. He may use
this option at any time within six month of his attaining majority or of his obtaining
knowledge that he had been admitted to the benefits of partnership, whichever date is
later.[Sec.30 (5)].
Liabilities of Minor
When a minor is admitted to the benefits of partnership, his liabilities are as under before
attaining majority:
1. No personal liabilities. Such a minor has no personal liabilities for the acts of the
firm.[Sec.30(3)].
2. Minor’s share is liable. The liability of such a minor is limited to the extent of his share
in the property or profits of the firm.[Sec.30(3)].
3. Liability in case of insolvency. Such minor will not be liable even in case of insolvency
of the firm. But in such a case, his share in the property or profits of firm shall vest in the
official assignee/receiver.
4. To give public notice on attaining majority. Such minor is liable to give public notice
of his intention that he has elected not to become partner in the firm. He must give such
notice at any time within six moths o his attaining majority or of his obtaining knowledge
that he has been admitted to the benefits of partnership, whichever date is later If he
fails to give such notice, he shall be liable as full-fledged partner in the firm.[Sec.30(5)]
2. Right to be consulted. Subject to contract between the partners, every partner has a right
to be consulted on all-important matters connected with the business of the firm.
Sometimes difference of opinion among partners may arise. In such case, if difference
arises as to ordinary matters, it shall be decided by a majority of partners. Where the
difference arises as to change in the nature of business, it cannot be decided without the
consent of all the partners[Sec.12.©].
12
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Partnership act 1932
3. Right of access to books. Every partner has a right to have assess to and to inspect and
copy any of the books of the firm.[Sec.12(a)]. Minor admitted to partnership benefits can
have access to and to inspect and copy the accounts only but not the books.
5. Where a partner willfully neglects or refuses to perform his duties for the conduct
of business and burden of such duties falls on other partners, the other partners can claim
compensation for the labor and trouble imposed upon them.[Krishnama Chariar
v.Shanakara(1921)22 BLR 1343.]
6. Right to share profit. Subject to contract between the partners, every partner is entitled to
share equally in the profits earned, and is liable to contribute equally to the losses sustained
by the firm.(Sec.13(b)]
7. Right to interest on capital. If the partnership deed provide for payment of interest on
capital, the partners are entitled to the interest. However, the interest on capital shall be
payable only out of profits.[Sec.13©].
9. Right in emergency. A partner has authority, in an emergency, to do all such acts for the
purpose of protecting the firm from loss as would be done by a person of ordinary prudence,
in his own case, acting under similar circumstances. The firm will be bound by such
acts.(Sec.21).
10. Right to be indemnified. Every partner has a right to be indemnified by the firm in respect
of the payment made or liability incurred by him (i) in the ordinary and proper conduct of the
business, and (ii) in doing any act in emergency for the purpose of protection the firm from
loss.
11. Right as an agent of the firm. Subject to the provisions of this Act, a partner is the agent of
the firm for the purposes of the business of the firm.(Sec.18)
12. Right to prevent admission of a new partner. Every partner has a right to prevent the
admission of new partner in the firm without consent of all the partners, or where partnership
is at will, giving notice in writing to all the other partners.[Sec.32(1)].
13. Right to retire. A partner has a right to retire (a) with the consent of all the other partners, or
(b) in accordance with the agreement by the partners, or (c) where partnership is at will, by
giving notice in writing to all the other partners.[Sec.32(1)]
14. Right not to be expelled. Subject to contract to the contrary, every partner has a right not
to be expelled from the firm by any majority of the partners[Sec.33(1)]
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Partnership act 1932
15. Right of outgoing partner to carry on competing business. Subject to a contract to the
contrary, an outgoing partner may carry on a business competing with that of the firm and
he may advertise such business but without-
using the firm name
representing himself as carrying on the business of the firm, or
soliciting the custom of persons who were dealing with the firm before he ceased to be
partner.[Sec.36(1)]
16. Right of outgoing partner to share subsequent profits. Every outgoing partner or
representative of a deceased partner has a right to claim either a share in the subsequent
profits of the firm or interest at the rate of 6 percent per annum on the amount of his share in
the property of firm till the accounts are finally settled. This right is subject to a contract to
the contrary.(Sec.37)
17. Right to dissolve the firm. Where the partnership at will, any partner may dissolve the firm.
For this, the partner is required to give notice in writing to all the other partners of his
intention to dissolve the firm.[Sec.439(1)].
Duties of Partners
Partnership is the relation founded on the principal of good faith. It is primarily based on mutual
trust and confidence. Most of the duties of partners emerge from this fundamental principal.
Some of the duties of partners are as under:
1. To carry on business to the greatest common advantage. Every partner is bound to
carry on business of the firm to the greatest common advantage of all the partners (Sec.9)
Therefore, if a partner derives any profit for himself from any transaction of the firm or from
the use of the property or business connection of the firm of firm name, he is bound to pay
the firm.[Sec.16(a)]
2. To be just and faithful. Partnership is a relation founded upon good faith. Every partner,
therefore is bound to be just and faithful to each other.(Sec.9)
3. To render true accounts. Every partner is also bound to maintain and render true account
of partnership business and funds with him.(Sec.9)
4. To give full information. Partners are also under a duty to give full information of all things
affecting the firm to all the other partners or their legal representatives.(Sc.9) No partner
should conceal any information in his possession about the affairs of the firm from his co-
partners.
5. To indemnify for fraud. Every partner is under a duty to indemnify the firm for any loss
caused to it by his fraud in the conduct of business of the firm.(Sec.10)
6. To attend diligently. Subject to contract between the partners, every partner is bound to
attend diligently to his duties in the conduct of business.[Sec.12(b)] If the firm suffers any
loss by the willful neglect of a partner he shall be liable to indemnify the firm.
7. Not to claim remuneration. Subject to contract between the partners, a partner is not
entitled to receive remuneration for taking part in the conduct of its business.[Sec.13(a)]
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Partnership act 1932
8. Duty to share losses. In the absence of contract to the contrary, every partner is liable to
contribute equally to the losses sustained by the firm.(Sec.13(b)].
9. To use property for the business of the firm. Subject to contract between the partners,
every partner is under a duty to hold and use the property of the firm exclusively for the
purposes of the business. (Sec.15)
10. To account for private profits. A partner is bound to account for and pay to the firm the
profit derived for himself from any of the following.
(i) From any transaction of the firm.
(ii) From use of the property of the firm.
(iii) From use of business connection of the firm or firm name.[Sec.16(a)]
However, this duty is subject to a contract to the contrary.
11. To account for profits of a competing business. No partner can carry on any business
competing with that of the firm while he is a partner. If he carry on that, he is bound to
account for and pay to the firm all profits made by him in that business. [Sec.16(b)]
12. To act within authority. Every partner is bound to act within the scope of his implied and
express authority. In case he exceeds his authority, he is liable to compensate the firm for
the loss caused by such acts.
13. To be liable for the acts of the firm. Every partner is liable jointly with all the other partners
and also severally, for all acts of the firm done while he is a partner.(Sec.25).
Section 22 lays down that in order to bind a firm, an act or instrument done or executed by a
partner or other person on behalf of the firm shall be done or executed in the firm name, or in
any other manner expressing or implying an intention to bind the firm.
The scope of implied authority is subject to the following conditions:
1. The act must be done in the capacity as a partner. If he does some act in a capacity
other than as a partner, the firm is not liable.
2. The act must relate to the normal business of the firm. In other words, every
partner has an implied authority, to do an act similar to the kind of business carried on by
the firm. Sometimes, a partner does an act similar to the kind of business of the firm but
for his personal purposes. In such a case, if the third party knows this fact, the firm is not
liable for such on act.
3. Acts must be done in the usual way of carrying on the business of the firm. In other
words, any act incidental or consequential to the normal business of firm may
also be done by a partner.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Partnership act 1932
4. The act must be done in the name of the firm. For instance, if an instrument drawn
on behalf of the firm, the partner must sign it for and on behalf of the firm and not in his
individual capacity.
These statutory restrictions are effective against the whole world whether a particular
person contracting with the firm knows about them or not. Therefore, the firm will not be
liable to any third parties for any of the above acts of a partner. A partner can bind by
any of these acts only when he is expressly authorized to do that or the usage or custom
of trade allows him to do that act.
Restrictions by contract. Partners may by contract between all the partners restrict the implied
authority of any partner. Therefore, any restriction imposed on implied authority of a partner by a
contract between all the partners will be effective provided the third party with whom the partner
deals knows of such restriction.(Sec.20)
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Partnership act 1932
(ii) The partner must act as a prudent person would act under similar circumstances in his
own case.(Sec.21).
2. Liability for acts done in an emergency. When a partner does some act beyond his
authority in an emergency in firm is liable for such acts subject to the following conditions:
(i) The act must have been done to protect the firm from loss threatened by the
emergency.
(ii) The partner must act as a prudent person would act under similar circumstances in his
own case.(Sec.21).
3. Liability for acts done in the name of the firm. Any act done or instrument executed
by a partner or other person on behalf of and in the name of the firm with an express or
implied intention to bind the firm. The firms is liable for the same.(Sec.22).
5. Liability for the notice to a partner. Notice to a partner operates as notice to the
firm provided the following conditions are satisfied.
(i) When the notice is given to an active partner.
(ii) The notice must be of any matter relating to the affairs of the firm.
(iii) There must not be any fraud committed on the firm with the consent of that partner
(Sec.24).
6. Liability for wrongful acts of a partner. The firm is liable for the wrongful acts or
omission of a partner subject to the following conditions:
(i) when the wrongful acts are done while acting in the ordinary course of business of the
firm or with the authority of his co-partners.
(ii) Such acts cause loss or injury to any other party or any penalty is incurred.(Sec.26)
7. Liability for misapplication of money. The firm is liable to make good the loss caused
to a third party due to misapplication of his money or property by a partner in the following
cases:
(i) Where a partner acting within his apparent authority receives money or property from
third party and misapplies it.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Partnership act 1932
(ii) Where a firm in the course of its business receives money or property from a third party,
and the money or property is misapplied by any of the partners while it is in the
custody of the firm.(Sec.27).
Liability of retired partner: A retiring partner continues to be liable for the acts done or debts
incurred till the date of retirement unless he is discharged from his liability. He may be
discharged from his liability if the following two conditions are fulfilled.
(i) when the partners of reconstituted firm agree to take over the liability of the retiring
partner.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Partnership act 1932
(ii) When the third parties agree to discharge the liability of retiring partner from his liability
ad agree to accept partners of the new firm as their new parties or debts. This is
known as novation of contract between partners and third parties. [Sec.32]
3. Expulsion of a Partner: A partner can be expelled from a firm only when the following
conditions are satisfied:
(i) When the contract between partners.(i.e. partnership deed) confers power on partners to
expel any partner.
(ii) The power to expel must be exercised by any majority of the partners.(Sec.33(1)]
(iii) The power to expel must be exercised in good faith.
Rights and liabilities of an expelled partner: The rights and liabilities of a properly expelled
partner are the same as those of a retired partner.[Sec.3392)]
5. Death of Partner A partner ceases to be partner in the firm on his death. Consequently,
a firm is also dissolved by the death of a partner in the absence of any contract to the
contrary.[42(c)]
Liability of the deceased partner. The liability of the deceased partner is as under:
i. Liability for acts done before death. The estate of the deceased partner will not be liable
for the acts done by the firm before his death. But the estate or representative of the
deceased partner will not be liable for the following.
a. For the money borrowed by surviving partners to pay for the goods ordered in the life
time of the deceased partner.[Sheshi Ammal v.Variavan Chettiar(1918) 35 MLJ 669]
b. For the goods ordered before but delivered after death of the partner. It is because
there is no liability or debt due before the death of the partner.
ii. Liability for acts done after death. In case the firm is not dissolved and carries on its
business, the estate of the deceased partner is not liable for the acts of the firm done after
his death.(Sec.35).
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Partnership act 1932
6. Transfer of Partner’s Interest: A partner in a firm cannot transfer his interest or share
in the firm like any other property because the partnership relation is based upon mutual
confidence and trust. However, the Act does not prohibit any partner from transferring his
interest in the firm. A partner may transfer his interest by sale, mortgage, or by creating a
charge on such interest in the firm.
Rights of Transferee. The transferee will have the following rights.
(a) Right to receive profits during continuation of the firm. A transferee will be entitled to
receive the share of profits of the transferring partner during the continuance of the firm,
But he will have to accept the account of profit agreed to by the partners [Sec.29(1)]
The Supreme Court of India has held, that the assignee would get the rights to receive the
share of the profits of the assignor and accept the account of profit agreed to by the
partners[Addanki v.Bhaskara, AIR(1966) Sc 1300]
But a transferee will not be entitled to the following rights during the continuation of the
firm.
(i) To interfere in conduct of the business of the firm.
(ii) To require accounts of the firm.
(iii) To inspect the books of the firm.
(iv) To challenge the accounts of profits agreed to by the partners.[Sec.29(2)]
(b) Rights on dissolution of the firm. On the dissolution of the firm, the transferring partner
ceases to be a partner of the firm. In such a case, the transferee is entitled to receive the
transferring partner’s share in the assets of the firm. For the purpose of ascertaining that
share, the transferee is entitled to receive an account as from the date of
dissolution.[Sec.29(2)]
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Partnership act 1932
MODES OF DISSOLUTION OF FIRM
Modes of dissolution of a firm may be classified into two heads:
I. Modes without the order of the court or voluntary modes, and
II. Mode by order of the court.
4. Dissolution by notice. Where the partnership is at will, the firm may be dissolved
by any partner giving notice in writing to all the other partners of his intention to dissolve the
firm.[Sec.43(1)]. The firm is dissolved as from the date mentioned in the notice as the date of
dissolution. If no such date is mentioned the dissolutions is effective as from the date of the
communication of the notice.[Sec.43(2)]
The notice must be served on all the partners. It must be clear and unambiguous and state
the intention of the partner giving notice to dissolve the firm.
It should be noted that a notice for dissolution once given cannot be withdrawn unless all other
partners agree to the same.
2. Permanent incapacity. When a partner has become in any way permanent by incapable of
performing his duties as partner, a suit may be filed before the Court for dissolution of the
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Partnership act 1932
firm. Such suit may be filed only by any other partner. The partner suffering from
incapacity cannot sue for dissolution.[Sec.44(b)]
Incapacity of a partner must be permanent. It may be physical or mental. For instance,
loss of eyes, hands, legs, hearing capacity etc. But incapacity of a dormant partner cannot
be ground for order of dissolution of the firm.
4. Persistent breach of agreement. The Court may also dissolve a firm when a suit is filed
against a partner for willful or persistent breach of agreement. However, the willful or
persistent breach agreement must be relating to any of the following.
(i) Management of the affairs of the firm.
(ii) The conduct of the business of the firm.
Moreover, it will also be deemed to be a willful or persistent breach of agreement if the
partner conducts himself in the matters relating to the business that it is not reasonably
practicable for the other partners to carry on in partnership with him.[Sec.44(d)]
5. Transfer of interest. The Court may order the dissolution of the firm when a partner has
transferred his interest in any of the following ways:
(i) When a partner has transferred whole of his interest in the firm to a third party.
(ii) When he has allowed his share to be charged under Civil Procedure Code.
(iii) When he has allowed it to be sold in the recovery of land revenue.
(iv) When he has allowed it to be sold in the recovery of any dues recoverable as
arrears of revenue of land due by the partner.[Sec.44(e)]
6. Perpetual losses. When the business of the firm cannot be carried on except at a loss the
court may dissolve the firm on an application by any partner.[Sec.44(f)]
7. Any other just and equitable ground. When any partner makes an application for
dissolution of the firm on any ground and the court thinks it just and equitable that the firm
should be dissolved. [Sec.44(g)]
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Partnership act 1932
2. Rights to have debts of the firm and personal debts paid-off. Where there are joint
debts due from the firm, and also separate debts due from any partner, the property of
the firm shall be applied in the first instance in payment of the debts of the firm, and, if there
is any surplus, then the share of each partner shall be applied in payment of his debts or
paid to him. Similarly, the private property of any partner shall be applied first in the payment
of his private debts, and the surplus(if any) in the payment of the debts of the firm, if
any.(Sec.49)
3. Right to use the name of the firm. Where any partner has bought the goodwill of the
firm after its dissolution, he shall have a right to use the name of the firm(Secs.50 and 53]
6. Right to restrain use of the firm name. On dissolution of the firm, every partner or his
representative may restrain any other partner or his representative from carrying on a similar
business in the firm name or from using any of the property of the firm for his own benefit,
until the affairs of the firm have been completely wound up. This right is, however, subject to
the following conditions.
(i) There is no contract between the partners contrary to it.
(ii) The partner carryon on a similar business has bought the goodwill of the firm.(Sec.53).
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Partnership act 1932
1. Liability for the acts done after dissolution. All the partners continue to be liable to the
third parties for any act done by any of them after dissolution of the firm but before public
notice of dissolution is given [Sec.45(1)]
However, if the dissolution is a consequence of (a) death of a partner,(b) adjudication of
insolvency of a partner, or(c) retirement of a dormant / sleeping partner, the estate of
such partner will not be liable for the acts done after the date on which he ceases to be
partner.[Proviso to Sc.45(1)]
2. Continuing authority of partners. After the dissolution of a firm, the authority of each
partner to bind the firm as well as mutual rights and obligations of the partners continue, so far
as may be necessary for the following two purposes only:
(i) For winding up of the affairs of the firm.
(ii) For completing the unfinished transactions at the time of dissolution.(Sec.47)
SETTLEMENT OF ACCOUNTS
Subject to agreement between the partners, following provisions will apply in the settlement of
accounts of a firm after dissolution:
1. Treatment of losses and deficiency of capital. Losses including deficiency of capital, shall
be paid in the following sequence:
(i) First, out of profits.
(ii) Next, out of capital.
(iii) Lastly, if necessary, by the partners individually in their profit sharing ratio.[Sec.48(a)]
2. Application of assets. The assets of the firm (including any sums contributed by the
partners to make up deficiencies of capital) shall be applied in the following manner and
order.
(i) In paying the debts of the firm to third parties.
(ii) In paying to each partner ratably what is due to him from the firm for advances as
distinguished from capital.
(iii) In paying to each partner ratably what is due to him on account of capital; and
(iv) The residue, if any, shall be divided among the partners in their profit sharing
ration.[Sec.48(b)]
3. Treatment of deficiency arising due to insolvency. There are also cases where a partner
becomes insolvent and nothing or a part of deficiency of his capital can be recovered from
his personal assets. In such a case, the solvent partners are bound to contribute to make-up
such deficiency. But the question is in what proportion the partners are bound to contribute
to make-up such deficiency. This question was settled by the decision given in the well
known case of Garner v.Murry. The principles laid down by this decision are as under:
(i) The solvent partners should contribute to the deficiency of capital in their
profit sharing ration.
(ii) The solvent partners should bear the loss of deficiency of capital of insolvent
partner in the ratio of their agreed capital.
4. Treatment of goodwill. In setting the accounts of a firm after dissolution, the goodwill shall,
subject to contract between the partners, be included in the assets, and it may be sold either
separately or along with other property of the firm.[Sec.55(1)]
24
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Negotiable Instrument Act 1881
Negotiable Instruments Act, 1881
Effect of Negotiability
The general principle of law relating to transfer of property is that no one can pass a
better title than he himself has (nemodat quad non-habet). The exceptions to this general
rule arise by virtue of statute or by a custom. A negotiable instrument is one such
exception which is originally a creation of mercantile custom.
Thus a bona fide transferee of negotiable instrument for consideration without notice of
any defect of title, acquires the instrument free of any defect, i.e., he acquires a better title
than that of the transferor.
24. 1
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Negotiable Instrument Act 1881
Important Characteristics of Negotiable Instruments
The instrument holder is presumed to be owner of the property contained in it.
They are freely transferable.
A holder in due course gets the instrument free from all defects of the title of any
previous holder.
The holder in due course is entitled to sue on the instrument in his own name.
The instrument is transferable till maturity and in case of cheques till it becomes stale
(on the expiry of 6 months from the date of issue)
Certain equal presumptions are applicable to all negotiable instruments unless the
contrary is proved.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Negotiable Instrument Act 1881
as a time instrument. The expression “after sight” in a promissory note means that the
payment cannot be demanded on it unless it has been shown to the maker. In the case
of bill of exchange, the expression “after sight” means after acceptance, or after noting
for non-acceptance or after protest for non-acceptance.
24. 3
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Negotiable Instrument Act 1881
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Negotiable Instrument Act 1881
2. Bills of Exchange
A “bill of exchange” is an instrument in writing containing an unconditional order,
signed by the maker, directing a certain person to pay a certain sum of money only to
or to the order of, a certain person or to the bearer of the instrument. (Section 5)
24. 5
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Negotiable Instrument Act 1881
Examples: A bill drawn in India, payable in USA, upon a person in India is an inland
instrument. A bill drawn in India and payable in India but drawn on a person in USA
is also an inland instrument.
The party lending his name to oblige the other party is known as the accommodating
or accommodation party, and the party so obliged is called the party accommodated.
An accommodation party is not liable on the instrument to the party accommodated
because as between them there was no consideration and the instrument was merely
to help. But the accommodation party is liable to a holder for value, who takes the
accommodation bill for value, though such holder may not be a holder in due course.
Bank Draft
A bill of exchange is also sometimes spoken of as a draft. It is called as a bank draft when
a bill of exchange drawn by one bank on another bank, or by itself on its own branch, and
is a negotiable instrument. It is very much like the cheque with three points of distinction
between the two. A bank draft can be drawn only by a bank on another bank, usually its
own branch. It cannot so easily be cancelled. It cannot be made payable to bearer.
24. 6
Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Negotiable Instrument Act 1881
3. Cheques
Section 6 of the Act provides that a ‘cheque’ is a bill of exchange drawn on a
specified banker and not expressed to be payable otherwise than on demand and it
includes the electronic image of a truncated cheque and a cheque in the electronic
form.
Simply stated, a cheque is a bill of exchange drawn on a bank payable always on
demand. Thus, a cheque is a bill of exchange with 2 additional qualifications,
namely:
a. it is always drawn on a banker, and
b. it is always payable on demand.
A cheque being a species of a bill of exchange, must satisfy all the requirements of a
bill; it does not, however, require acceptance.
Note: By virtue of Section 31 of the RBI Act, no bill of exchange or hundi can be made
payable to bearer on demand and no promissory note or a bank draft can be made
payable to bearer at all, whether on demand or after a specified time. Only a cheque can
be payable to bearer on demand.
Parties to a cheque
The following are the parties to a cheque:
a) The drawer: The person who draws the cheque.
b) The drawee: The banker of the drawer on whom the cheque is drawn.
c) (c), (d), (e) and (f) The payee, holder, endorser and endorsee: same as in the case
of a bill.
Essentials of a Cheque
i. It is always drawn on a banker.
ii. It is always payable on demand.
iii. It does not require acceptance.
iv. A cheque can be drawn on bank where the drawer has an account.
v. Cheques may be payable to the drawer himself. It may be made payable to bearer
on demand unlike a bill or a note.
vi. The banker is liable only to the drawer. A holder has no remedy against the banker
if a cheque is dishonoured.
vii. A cheque is usually valid for fix months. However, it is not invalid if it is post dated
or ante-dated.
viii. No Stamp is required to be affixed on cheques.
Banker
A banker is one who does banking business.
Section 5(b) of the Banking Regulation Act, 1949 defines banking as, “accepting for
the purpose of lending or investment, of deposits of money from the public, repayable
on demand or otherwise and withdrawable by cheque, draft or otherwise.”
Customer
The term “customer” is neither defined in Indian nor in English statutes. The general
opinion is that a customer is one who has an account with the bank or who utilises the
services of the bank. The special features of the legal relationship between the banker
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Negotiable Instrument Act 1881
and the customer may be termed as the obligations and rights of the banker. These
are:
Obligation to honour cheques of the customers.
Obligation to collect cheques and drafts on behalf of the customers.
Obligation to keep proper record of transactions with the customer.
Obligation to comply with the express standing instructions of the customer.
Obligation not to disclose the state of customer’s account to anyone else.
Obligation to give reasonable notice to the customer, if the banker wishes to close
the account.
Right of lien over any goods and securities bailed to him for a general balance of
account.
Right of set off and right of appropriation.
Right to claim incidental charges and interest as per rules and regulations of the
bank, as communicated to the customer at the time of opening the account.
Liability of a Banker
By opening a current account of a customer, the banker becomes liable to his debtor
to the extent of the amount so received in the said account and undertakes to honour
the cheques drawn by the customer so long as he holds sufficient funds to the
customer’s credit. If a banker, without justification, fails to honour his customer’s
cheques, he is liable to compensate the drawer for any loss or damage suffered by him.
But the payee or holder of the cheque has no cause of action against the banker as the
obligation to honour a cheque is only towards the drawer.
The banker must also maintain proper and accurate accounts of credits and debits.
He must honour a cheque presented in due course.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Negotiable Instrument Act 1881
g) When some persons have joint account and the cheque is not signed jointly by all or
by the survivors of them.
h) When the cheque has been allowed to become stale, i.e., it has not been presented
within six months of the date mentioned on it.
Collecting Banker
Collecting Banker is one who collects the proceeds of a cheque for a customer.
Although a banker collects the proceeds of a cheque for a customer purely as a matter
of service, yet the Negotiable Instruments Act, 1881 indirectly imposes statutory
obligation, statutory in nature. This is evident from Section 126 of the Act which
provides that a cheque bearing a “general crossing” shall not be paid to anyone other
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Negotiable Instrument Act 1881
than banker and a cheque which is “specially crossed” shall not be paid to a
person other than the banker to whom it is crossed. Thus, a paying banker must
pay a generally crossed cheque only to a banker thereby meaning that it should be
collected by another banker.
While so collecting the cheques for a customer, it is quite possible that the banker
collects for a customer, proceeds of a cheque to which the customer had no title in
fact. In such cases, the true owner may sue the collecting banker for “conversion”. At
the same time, it cannot be expected of a banker to know or to ensure that all the
signatures appearing in endorsements on the reverse of the cheque are genuine. The
banker is expected to be conversant only with the signatures of his customer.
A customer to whom a cheque has been endorsed, would request his banker to collect
a cheque. In the event of the endorser’s signature being proved to be forged at later
date, the banker who collected the proceeds should not be held liable for the simple
reason that he has merely collected the proceeds of a cheque.
Section 131 of the Negotiable Instruments Act affords statutory protection in such a
case where the customer’s title to the cheque which the banker has collected has been
questioned. It reads as follows: “A banker who has in good faith and without negligence
received payment for a customer of a cheque crossed generally or specially to himself
shall not, in case the title to the cheque proves defective, incur any liability to the true
owner of the cheque by reason of only having received such payment.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Negotiable Instrument Act 1881
drawer suffers any loss, as by the failure of the bank, the drawer is discharged from
liability to the holder to the extent of the damage.
Liability of Endorser
In order to charge an endorser, it is necessary to present the cheque for payment within
a reasonable time of its delivery by such endorser. ‘A’ endorses and delivers a cheque to
B, and B keeps it for an unreasonable length of time, and then endorses and delivers it to
C. C presents it for payment within a reasonable time after its receipt by him, and it is
dishonoured. C can enforce payment against B but not against A, as qua A, the cheque has
become stale.
Rights of Holder against Banker
A banker is liable to his customer for wrongful dishonour of his cheque but it is not liable
to the payee or holder of the cheque. The holder has no right to enforce payment from
the banker except in two cases, namely,
i. where the holder does not present the cheque within a reasonable time after
issue, and as a result the drawer suffers damage by the failure of the banker in
liquidation proceedings; and
ii. where a banker pays a crossed cheque by mistake over the counter, he is liable
to the owner for any loss occasioned by it.
Crossing of Cheques
A cheque is either “open” or “crossed”.
An open cheque can be presented by the payee to the paying banker and is paid over
the counter.
A crossed cheque cannot be paid across the counter but must be collected through a
banker.
A crossing is a direction to the paying banker to pay the money generally to a banker
or to a particular banker, and not to pay otherwise.
The object of crossing is to secure payment to a banker so that it could be traced to
the person receiving the amount of the cheque. To restrain negotiability, addition of
words “Not Negotiable” or “Account Payee Only” is necessary.
A crossed bearer cheque can be negotiated by delivery and crossed order cheque by
endorsement and delivery.
Crossing affords security and protection to the holder of the cheque.
It is general crossing where a cheque bears across its face an addition of two parallel
transverse lines and/or the addition of the words “and Co.” between them, or addition of
“not negotiable”. As stated earlier, where a cheque is crossed generally, the paying banker
will pay to any banker. Two transverse parallel lines are essential for a general crossing
(Sections 123-126).
In case of general crossing, the holder or payee cannot get the payment over the
counter of the bank but through a bank only. The addition of the words “and Co.” do not
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Negotiable Instrument Act 1881
have any significance but the addition of the words “not negotiable” restrict the
negotiability of the cheque and in case of transfer, the transferee will not give a better
title than that of a transferor.
Where a cheque bears across its face an addition of the name of a banker, either with or
without the words “not negotiable” that addition constitutes a crossing and the cheque is
crossed specially and to that banker.
Parallel transverse lines are not essential but the name of the banker is the insignia of a
special crossing.
In case of special crossing, the paying banker is to honour the cheque only when it is
prescribed through the bank mentioned in the crossing or it’s agent bank.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Negotiable Instrument Act 1881
Maturity
The date on which payment of an instrument falls due is called its maturity.
According to Section 22 of the Act, “the maturity of a promissory note or a bill of
exchange is the date at which it falls due”.
According to Section 21 a promissory note or bill of exchange payable “at sight” or
“on presentment” is payable on demand. It is due for payment as soon as it is issued.
The question of maturity, therefore, arises only in the case of a promissory note
or a bill of exchange payable “after date” or “after sight” or at a certain period after
the happening of an event which is certain to happen.
Every instrument payable at a specified period after date or after sight is entitled to
three days of grace. Such a bill or note matures or falls due on the last day of the
grace period, and must be presented for payment on that day and if dishonoured, suit
can be instituted on the next day after maturity.
If an instrument is payable by instalments, each instalment is entitled to three days of
grace. No days of grace are allowed for cheques, as they are payable on demand.
Illustration - A negotiable instrument dated 31st January, 2001, is made payable at
one months after date. The instrument is at maturity on the third day after the 28th
February, 2001, i.e. on 3rd March, 2001.
If the day of maturity falls on a public holiday, the instrument is payable on the
preceeding business day. Thus, if a bill is at maturity on a Sunday. It will be deemed
due on Saturday and not on Monday.
The ascertainment of the date of maturity becomes important because all these
instruments must be presented for payment on the last day of grace and their
payment cannot be demanded before that date.
Holder (Sec 8)
A person is a holder of a negotiable instrument who is entitled in his own name
i. to the possession of the instrument, and
ii. to recover or receive its amount from the parties thereto.
It is not every person in possession of the instrument who is called a holder.
To be a holder, the person must be named in the instrument as the payee, or the
endorsee, or he must be the bearer thereof.
A person who has obtained possession of an instrument by theft, or under a forged
endorsement, is not a holder, as he is not entitled to recover the instrument. The
holder implies de jure (holder in law) holder and not de facto (holder in fact) holder.
An agent holding an instrument for his principal is not a holder although he may
receive its payment.
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CS Praveen Choudhary
Negotiable Instrument Act 1881
In order to be a holder in due course, a person must satisfy the following
conditions:
He must be the holder of the instrument.
He should have obtained the instrument for value or consideration.
He must have obtained the negotiable instrument before maturity.
The instrument should be complete and regular on the face of it.
The holder should take the instrument in good faith.
A holder in due course can recover the amount of the instrument from all previous
parties, although, as a matter of fact, no consideration was paid by some of the previous
parties to the instrument or there was a defect of title in the party from whom he took it.
Once an instrument passes through the hands of a holder in due course, it is purged of all
defects. It is like current coin. Whoever takes it can recover the amount from all parties
previous to such holder.
Capacity of Parties
Capacity to incur liability as a party to a negotiable instrument is co-extensive with
capacity to contract.
According to Section 26, every person capable of contracting according to law to
which he is subject, may bind himself and be bound by making, drawing, acceptance,
endorsement, delivery and negotiation of a promissory note, bill of exchange or
cheque.
Negatively, minors, lunatics, idiots, drunken person and persons otherwise
disqualified by their personal law, do not incur any liability as parties to negotiable
instruments. But incapacity of one or more of the parties to a negotiable instrument
in no way, diminishes the abilities and the liabilities of the competent parties.
Where a minor is the endorser or payee of an instrument which has been endorsed
all the parties accepting the minor are liable in the event of its dishonour.
Liability of Parties
The provisions regarding the liability of parties to negotiable instruments are laid down
in Sections 30 to 32 and 35 to 42 of the Negotiable Instruments Act. These provisions are
as follows:
1. Liability of Drawer (Section 30)
The drawer of a bill of exchange or cheque is bound, in case of dishonour by the
drawee or acceptor thereof, to compensate the holder, provided due notice of
dishonour has been given to or received by the drawer.
The nature of drawer’s liability is that by drawing a bill, he undertakes that
i. on due presentation, it shall be accepted and paid according to its tenor, and
ii. in case of dishonour, he will compensate the holder or any endorser, provided
notice of dishonour has been duly given. However, in case of accommodation
bill no notice of dishonour to the drawer is required.
The liability of a drawer of a bill of exchange is secondary and arises only on default
of the drawee, who is primarily liable to make payment of the negotiable instrument.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Negotiable Instrument Act 1881
2. Liability of the Drawee of Cheque (Section 31)
The drawee of a cheque having sufficient funds of the drawer in his hands properly
applicable to the payment of such cheque must pay the cheque when duly required to
do so and, or in default of such payment, he shall compensate the drawer for any loss
or damage caused by such default.
As a cheque is a bill of exchange, drawn on a specified banker, the drawee of a cheque
must always be a banker.
The banker, therefore, is bound to pay the cheque of the drawer, i.e., customer, if the
following conditions are satisfied:
i. The banker has sufficient funds to the credit of customer’s account.
ii. The funds are properly applicable to the payment of such cheque, e.g., the funds
are not under any kind of lien etc.
iii. The cheque is duly required to be paid, during banking hours and on or after the
date on which it is made payable.
If the banker is unjustified in refusing to honour the cheque of its customer, it shall be
liable for damages.
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CS Praveen Choudhary
Negotiable Instrument Act 1881
6. Liability inter se
Various parties to a negotiable instrument who are liable thereon stand on a different
footing with respect to the nature of liability of each one of them.
Importance of Delivery
Negotiation is effected by mere delivery of a bearer instrument and by endorsement and
delivery of an order instrument. This shows that “delivery” is essential in negotiable
instruments. Section 46 expressly provides that making acceptance or endorsement
of negotiable instrument is not complete until delivery, actual or constructive, of the
instrument. Delivery made voluntarily with the intention of passing property in the
instrument to the person to whom it is given is essential.
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CS Praveen Choudhary
Negotiable Instrument Act 1881
i. Where it is made so payable, or
ii. Where it is originally made payable to order but the only or the last endorsement
is in blank.
iii. Where the payee is a fictitious or a non-existing person.
These instruments do not require signature of the transferor. The person who takes
them is a holder, and can sue in his own name on them.
Where a bearer negotiates an instrument by mere delivery, and does not put his
signature thereon, he is not liable to any party to the instrument in case the
instrument is dishonoured, as he has not lent his credit to it. His obligations are only
towards his immediate transferee and to no other holders.
A cheque, originally drawn payable to bearer remains bearer, even though it is
subsequently endorsed in full. The rule is once a bearer cheque always a bearer
cheque.
Classes of endorsement
An endorsement may be
a) Blank or General: An endorsement is to be blank or general where the endorser
merely writes his signature on the back of the instrument, and the instrument so
endorsed becomes payable to bearer, even though originally it was payable to order.
Thus, where bill is payable to “Mohan or order”, and he writes on its back “Mohan”, it
is an endorsement in blank by Mohan and the property in the bill can pass by mere
delivery, as long as the endorsement continues to be a blank. But a holder of an
instrument endorsed in blank may convert the endorsement in blank into an
endorsement in full, by writing above the endorser’s signature, a direction to pay the
instrument to another person or his order.
b) Special or Full: If the endorser signs his name and adds a direction to pay the
amount mentioned in the instrument to, or to the order of a specified person, the
endorsement is said to be special or in full. A bill made payable to Mohan or Mohan or
order, and endorsed “pay to the order of Sohan” would be specially endorsed and
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Negotiable Instrument Act 1881
Sohan endorses it further. A blank endorsement can be turned into a special one by
the addition of an order making the bill payable to the transferee.
c) Restrictive: An endorsement is restrictive which prohibits or restricts the further
negotiation of an instrument. Examples of restrictive endorsement: “Pay A only” or
“Pay A for my use” or “Pay A on account of B” or “Pay A or order for collection”.
d) Partial: An endorsement partial is one which purports to transfer to the endorsee a
part only of the amount payable on the instrument. A partial endorsement does not
operate as negotiation of the instrument. A holds a bill for Rs. 1,000 and endorses it
as “Pay B or order Rs. 500". The endorsement is partial and invalid.
e) Conditional or qualified: An endorsement is conditional or qualified which limits or
negatives the liability of the endorser. An endorser may limit his liability in any of the
following ways:
By sans recourse endorsement, i.e. by making it clear that he does not incur the
liability of an endorser to the endorsee or subsequent holders and they should not
look to him in case of dishonour of instrument. The endorser excludes his liability
by adding the words “sans recourse” or “without recourse”.
By making his liability depending upon happening of a specified event which may
never happen, e.g., the holder of a bill may endorse it thus: “Pay A or order on his
marrying B”. In such a case, the endorser will not be liable until A marries B.
It is pertinent to refer to Section 52 which reads “The endorser of a negotiable
instrument may, by express words in the endorsement exclude his own liability thereon,
or make such liability or the right of the endorsee to receive the amount due thereon
depend upon the happening of a specified event, although such event may never happen”.
Negotiation Back
Where an endorser negotiates an instrument and again becomes its holder, the
instrument is said to be negotiated back to that endorser and none of the intermediary
endorsees are then liable to him. The rule prevents a circuity of action.
Forged Endorsement
If an instrument is endorsed in full, it cannot be negotiated except by an endorsement
signed by the person to whom or to whose order the instrument is payable, for the
endorsee obtains title only through his endorsement.
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CS Praveen Choudhary
Negotiable Instrument Act 1881
Thus, if an instrument be negotiated by means of a forged endorsement, the endorsee
acquires no title even though he be a purchaser for value and in good faith, for the
endorsement is a nullity. Forgery conveys no title.
But where the instrument is a bearer instrument or has been endorsed in blank, it can
be negotiated by mere delivery, and the holder derives his title independent of the forged
endorsement and can claim the amount from any of the parties to the instrument.
For example, a bill is endorsed, “Pay A or order”. A endorses it in blank, and it comes into
the hands of B, who simply delivers it to C, C forges B’s endorsement and transfer it to D.
Here, D, as the holder does not derive his title through the forged endorsement of B, but
through the genuine endorsement of A and can claim payment from any of the parties to
the instrument in spite of the intervening forged endorsement.
Section 15 provides that the presentment for acceptance must be made to the drawee
or his duly authorised agent. If the drawee is dead, the bill should be presented to his legal
representative, or if he has been declared an insolvent, to the official receiver or assigner.
The following are the persons to whom a bill of exchange should be presented:
i. The drawee or his duly authorised agent.
ii. If there are many drawees, bill must be presented to all of them.
iii. The legal representatives of the drawee if drawee is dead.
iv. The official receiver or assignee of insolvent drawee.
v. To a drawee in case of need, if there is any. This is necessary when the original
drawee refuses to accept the bill.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Negotiable Instrument Act 1881
vi. The acceptor for honour. In case the bill is not accepted and is noted or protested for
non acceptance, the bill may be accepted by the acceptor for honour. He is a person
who comes forward to accept the bill when it is dishonoured by non-acceptance.
The presentment must be made before maturity, within a reasonable time after it is
drawn, or within the stipulated period, if any, on a business day within business hours
and at the place of business or residence of the drawee.
The presentment must be made by exhibiting the bill to the drawee; mere notice of its
existence in the possession of holder will not be sufficient.
When presentment is compulsory and the holder fails to present for acceptance, the
drawer and all the endorsers are discharged from liability to him.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Negotiable Instrument Act 1881
i) Where the drawer and the drawee are the same person.
j) Where the bill is dishonoured by non-acceptance.
k) Where presentment has become impossible, e.g., the declaration of war between the
countries of the holder and drawee.
l) Where though the presentment is irregular, acceptance has been refused on some
other grounds.
Dishonour by Non-Acceptance (Section 91)
A bill is said to be dishonoured by non-acceptance:
a) When the drawee does not accept it within 48 hours from the time of presentment for
acceptance.
b) When presentment for acceptance is excused and the bill remains unaccepted.
c) When the drawee is incompetent to contract.
d) When the drawee is a fictitious person or after reasonable search can not be found.
e) Where the acceptance is a qualified one.
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CS Praveen Choudhary
Negotiable Instrument Act 1881
e) When the omission to give notice is caused by unavoidable circumstances, e.g., death
or dangerous illness of the holder.
f) Where the acceptor is also a drawer, e.g., where a firm draws on its branch.
g) Where the promissory note is not negotiable. Such a note cannot be endorsed.
h) Where the party entitled to notice promises to pay unconditionally.
Noting and Protest (Sections 99-104 A)
Protest
The protest is the formal notarial certificate attesting the dishonour of the bill,
and based upon the noting which has been effected on the dishonour of the bill.
After the noting has been made, the formal protest is drawn up by the notary and
when it is drawn up it relates back to the date of noting.
Where the acceptor of a bill has become insolvent, or has suspended payment, or his
credit has been publicly impeached, before the maturity of the bill, the holder may
have the bill protested for better security.
The notary public demands better security and on its refusal makes a protest known
as “protest for better security”.
Where a bill is required by law to be protested, then instead of a notice of dishonour,
notice of protest must be given by the notary public.
A protest to be valid must contain on the instrument itself or a literal transcript
thereof, the names of the parties for and against whom protest is made, the fact and
reasons for dishonour together with the place and time of dishonour and the
signature of the notary public. Protest affords an authentic evidence of dishonour
to the drawer and the endorsee.
Discharge
The discharge in relation to negotiable instrument may be either
discharge of the instrument or
discharge of one or more parties to the instrument from liability.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Negotiable Instrument Act 1881
2. Discharge of a Party or Parties
When any particular party or parties are discharged, the instrument continues to be
negotiable and the undischarged parties remain liable on it. A party may be
discharged in the following ways :
i. By cancellation by the holder of the name of any party to it with the intention of
discharging him.
ii. By release, when the holder releases any party to the instrument
iii. Discharge of secondary parties, i.e., endorsers.
iv. By the operation of the law, i.e., by insolvency of the debtor.
v. By allowing drawee more than 48 hours to accept the bill, all previous parties are
discharged.
vi. By non-presentment of cheque promptly the drawer is discharged.
vii. By taking qualified acceptance, all the previous parties are discharged.
viii. By material alteration.
Material Alteration (Section 87)
Material Alteration (Section 87)
An alteration is material which in any way alters the operation of the instrument
and the liabilities of the parties thereto.
A material alteration renders the instrument void, but it affects only those persons
who have already become parties at the date of the alteration. Those who take the
altered instrument cannot complain.
Section 88 provides that an acceptor or endorser of a negotiable instrument is bound
by his acceptance or endorsement notwithstanding any previous alteration of the
instrument.
Examples of material alteration are :
Alteration
of the date of the instrument
of the sum payable,
in the time of payment,
of the place of payment,
of the rate of interest,
by addition of a new party,
tearing the instrument in a material part.
There is no material alteration and the instrument is not vitiated in the following
cases:
a) correction of a mistake,
b) to carry out the common intention of the parties,
c) an alteration made before the instrument is issued and made with the consent of
the parties,
d) crossing a cheque,
e) addition of the words “on demand” in an instrument where no time of payment is
stated.
Section 89 affords protection to a person who pays an altered note bill or cheque.
However, in order to be able to claim the protection, the following conditions must
be fulfilled:
i. the alteration should not be apparent;
ii. the payment must be made in due course; and
iii. the payment must be by a person or banker liable to pay.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Negotiable Instrument Act 1881
Section 89 has been amended so that it also provides that any bank or a clearing
house which receives a transmitted electronic image of a truncated cheque, shall
verify from the party who transmitted the image to it, that the image so transmitted
to it and received by it, is exactly the same. Where there is any difference in apparent
tenor of such electronic image and the truncated cheque, it shall be a material
alteration. In such a case, it shall be the duty of the bank or the clearing house, as the
case may be, to ensure the exactness of the apparent tenor of electronic image of the
truncated cheque while truncating and transmitting the image. If the bank fails to
discharge this duty, the payment made by it shall not be regarded as good and it
shall not be afforded protection.
Hundis
Hundis are negotiable instruments written in an oriental language.
They are not covered under the Negotiable Instruments Act, 1881.
Generally, they are governed by the customs and usages in the locality but if custom
is silent on the point in dispute before the Court, this Act applies to the hundis.
Generally understood, the term “hundi” includes all indigenous negotiable
instruments whether they are bills of exchange or promissory notes. An instrument
in order to be a hundi must be capable of being sued by the holder in his own name,
and must by the custom of trade be transferred like cash by delivery.
2. Jokhmi Hundi
A “jokhmi” hundi is always drawn on or against goods shipped on the vessel
mentioned in the hundi. It implies a condition that money will be paid only in the
event of arrival of the goods against which the hundi is drawn. It is in the nature of
policy of insurance. The difference, however, is that the money is paid before hand
and is to be recovered if the ship arrives safely.
3. Jawabee Hundi
According to Macpherson, “A person desirous of making a remittance writes to the
payee and delivers the letter to a banker, who either endorses it on to any of his
correspondents near the payee’s place of residence, or negotiates its transfer. On the
arrival, the letter is forwarded to the payee, who attends and gives his receipt in the
form of an answer to the letter which is forwarded by the same channel of the drawer
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CS Praveen Choudhary
Negotiable Instrument Act 1881
or the order.” Therefore, this is a form of hundi which is used for remitting money
from one place to another.
5. Darshani Hundi
This is a hundi payable at sight. It is freely negotiable and the price is regulated by
demand and supply. They are payable on demand and must be presented for payment
within a reasonable time after they are received by the holder.
6. Miadi Hundi
This is otherwise called muddati hundi, that is, a hundi payable after a specified period
of time. Usually money is advanced against these hundis by shroffs after deducting
the advance for the period in advance.
Presumptions of Law
A negotiable instrument is subject to certain presumptions. These have been recognised
by the Negotiable Instruments Act under Sections 118 and 119 with a view to facilitate
the business transactions. These are described below:
It shall be presumed that:
i. Every negotiable instrument was made or drawn for consideration irrespective
of the consideration mentioned in the instrument or not.
ii. Every negotiable instrument having a date was made on such date.
iii. Every accepted bill of exchange was accepted within a reasonable time before
its maturity.
iv. Every negotiable instrument was transferred before its maturity.
v. The instruments were endorsed in the order in which they appear on it.
vi. A lost or destroyed instrument was duly signed and stamped.
vii. The holder of the instrument is a holder in due course.
viii. In a suit upon an instrument which has been dishonoured, the Court shall presume
the fact of dishonour, or proof of the protest.
However these legal presumptions are rebuttable by evidence to the contrary. The
burden to prove to the contrary lies upon the defendant to the suit and not upon the
plaintiff.
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Prof. Abhijeet C. Jaiswal
CS Praveen Choudhary
Negotiable Instrument Act 1881
Penalties in case of dishonour of cheques
Chapter XVII of the Negotiable Instruments Act provides for penalties in case of
dishonour of certain cheques for insufficiencies of funds in the accounts.
Chapter XVII has been amended by the Negotiable Instruments (Amendment and
Miscellaneous Provisions) Act, 2002.
The provisions contained in this Chapter provide that where any cheque drawn by a
person for discharge of any liability is returned by the bank unpaid for the reason of
insufficiency of the amount of money standing to the credit of the account on which the
cheque was drawn or for the reason that it exceeds the arrangement made by the drawer
of the cheque with the banker for that account, the drawer of such cheque shall be
deemed to have committed an offence and shall be punishable with imprisonment
for a term which may extend to 2 years, or with fine which may extend to twice the
amount of the cheque, or with both.
In order to constitute the said offence
a) such cheque should have been presented to the bank within a period of 6 months from
the date on which it is drawn or within the period of its validity, whichever is earlier;
and
b) the payee or holder in due course of such cheque should have made a demand for the
payment of the said amount of money by giving notice, in writing, to the drawer of the
cheque within 30 days of the receipt of information by him from the bank regarding
the return of the cheque unpaid; and
c) the drawer of such cheque should have failed to make the payment of the said amount
of money to the payee or the holder in due course of the cheque within 15 days of the
receipt of the said notice.
It has also been provided that it shall be presumed, unless the contrary is proved, that
the holder of such cheque received the cheque in the discharge of a liability.
The Supreme Court in Modi Cements Ltd. v. K.K. Nandi, held that merely because the
drawer issued a notice to the drawee or to the Bank for ‘stop payment’, it would not
preclude an action u/s 138 by the drawee or holder in due course.
In order to ensure that genuine and honest bank customers are not harassed or put
to inconvenience, sufficient safeguards have also been provided in the new Chapter, as
under:
a) that no court shall take cognizance of such offence except on a complaint in writing,
made by the payee or the holder in due course of the cheque;
b) that such complaint is made within one month or the date on which the cause of action
arises;
c) that no court inferior to that of a Metropolitan Magistrate or a Judicial magistrate of
the first class shall try any such offence. (Section 142)
Moreover, the new Sections inserted by the Amendment Act, 2002 provide that all
offences under this Chapter shall be tried by a Judicial Magistrate of the first class
or by a Metropolitan Magistrate:
According to Section 142(2) of the Negotiable Instrument (Amendment) Act, 2015, the
offence under section 138 shall be inquired into and tried only by a court within whose
local jurisdiction, the branch of the bank where the payee or holder in due course, as the
case may be, maintains the account, is situated; or if the cheque is presented for payment
by the payee or holder in due course, otherwise through an account, the branch of the
drawee bank where the drawer maintains the account, is situated.
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CS Praveen Choudhary
Negotiable Instrument Act 1881
The court may, if it thinks fit, and shall, on the application of the prosecution or the
accused, summon and examine any person giving evidence on affidavit as to the facts
contained therein. (Section 145)
The court shall, in respect of every proceeding under this Chapter, on production of
bank’s slip or memo having thereon the official mark denoting that the cheque has been
dishonoured, presume the fact of dishonour of such cheque, unless and until such fact is
disproved. Every offence punishable under this Act shall be compoundable. (Sections
146 & 147)
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