corp law

Part IGovernment Control of Corporate ActivityCOMPETITION LAWGive intrduction to Competition Law?In the pursuit of globalisation, India responded to opening up its economy, removing controls and resorting to globalisation. The natural corollary of this motion is that the Indian market should be geared to face competition from within the country and outside. The Central Government for this purpose, constituted a High Level Committee on Competition Policy and Law. The Committee submitted its Report in 2000 to Central Government. On the basis of this Report made the competition law in the shape of the Competition Act of 2002 to ensure competition in India by prohibiting trade practices which cause appreciable adverse effect on competition in markets within India and as well provides for the establishment of a quasi-judicial body i.e., Competition Commission of India which came into operation in 2009, to undertake competition advocacy for creating awareness and imparting training on competition issues. This law also curbs negative aspects of competition through the Competition Commission of India (CCI) which has a principal Bench and also additional benches. The Competition Commission is empowered to pass orders for granting interim relief or any other compensation or any order imposing penalties.An appeal from orders of the Competition Commission lies to Supreme Court or to Competition Appellate Tribunal as prescribed in 2007. The Central Government has the power of supervision and control over the Competition Commission of India. The Director-General is the head of the too such Commission.Moreover, the Competition Law was made keeping in view of economic development of our country, preventing the practices having adverse effect on competition, promoting and sustaining competition in markets, protecting the interests of consumers and ensuring freedom of trade carried on by other participants in markets in India.Competition PolicyThe Competition Policy may be defined as government measures that directly affect the behaviour of enterprises and the structure of industries. The object of competition policy is to promote efficiency and maximise welfare. It is well-known that in the presence of competition, welfare maximisation is synonymous with allocative efficiency. The taxes are generally welfare-reducing.The competition policy has two objectives in general. The first involves putting in place a set of policies that enhance competition in local or national markets. It may include a liberalised trade policy, relaxed foreign investments, ownership requirements and economic deregulation.The second objective is legislation or law makings to prevent anti-competitive business practices and unnecessary governmental intervention. Hence an effective competition policy promotes the creation of business environment which improve static and dynamic efficiencies and leads to efficient resource allocations, and in which the abuse of market power is prevented mainly through competition. It also requires a creation of regulatory framework for achieving all around efficiency. The policy also prevents artificial entry barriers and facilitates market access and complements other competition promoting activities. The trade liberalisation alone is not sufficient to promote competition and there might be a need for a separate competition policy through the strong implementation of competition law.The economic consequences of the competition policy leads a positive approach to resource allocation and industrial growth, productivity and efficiency, competitiveness, inflexibility, minimum efficient scale, Industrial concentration capacity utilisation, technology and research and development within a specific market regime with the goal of consumer welfare.What are the Advantages of Competition? Stimulating innovation and efficiency. Providing Consumer with a variety of alternatives, enhancing product differentiation and better satisfaction of consumers. It includes competitive products in Competitive prices. in giant sectors. Bigger manufacturers tend to keep the market reserved for themselves and try to subvert free competition by wing methods like(a) Forcing a competing firm out of business by predation and other methods.(b) Buying out competing firms by takeover or merger.(c) Colluding with competing firms and fixing prices. In order to stop the unfair trade practices, a free competition, regulation is needed:1. To prevent practices having adverse effect on competition.2. To promote and sustain competition in markets.3. To protect the interests of consumers.4. To ensure freedom of trade carried for other participants in markets. The Competition Commission of India under the Competition Act, 2002 is to facilitate competition and to regulate a firm from abusing its market power.Name briefly the Competition Laws in other Countries?1. (a) Sherman Act, 1890U.S.A.(b) Clayton Act, 1914(c) Celler-Kefauver Act, 19502. Competition Law in European Union.Treaty of Rome, 1957.3. U.K. Competition Act, 1998.Define nature and scope of the Indian MRTP Act, 1969? The Indian Law was contained in the MRTP Act (now repealed by the Competition Act, 2002). Its genesis can be found in Article 38 and Article 39 of the Constitution of India embedded in the directive principles of State Policy. The Act originally was to curb monopolistic and restrictive trade practices only. 1984 Amendment to the Act brought unfair trade practices within purview of the Act. The Act was mainly directed towards:1. Prevention of Concentration of Economic Power.2. Control and restriction of monopolies.3. Control and restriction of monopolistic trade practices.4. Prohibition of restrictive trade practices.5. Prohibition of unfair trade practices. The 1991 Amendment to the Act deleted provisions relating to concentration of economic power in a few hands. The MRTP Act did not addressed Competition and anti-Competitive practices. It lacked provisions for implementing WTO Agreements and commitments and to deal with identifiable anti-competitive practices. In order to make a comprehensive policy on competition the Central Government appointed Raghavan Committee which submitted its Report in May, 2000.SACHAR COMMITTEE REPORT - 1977Under the Chairmanship of Justice Sh. Rajinder Sachar, former Judge of the High Court of Delhi.Appointed/constituted by Government in terms of the Ministry of Law, Justice & Company Affairs (Department of Company Affairs).To recommend changes (structural or form) in Companies Act, 1956 and Monopolistic & Restrictive Trade Practices Act, 1969.Topics on which recommendations sought are:(1) Formation of Board of Directors (BOD) in consonance with the interest of minority shareholders.(2) Exercise of managerial powers by the BOD to protect the interest of shareholders and creditors.(3) To increase participation of workers in share capital.(4) To make provisions of mismanagement more effective so as to protect public interest and companies interest.(5) More professional attitude of company and better remuneration.(6) Companies contribution to social causes.(7) Simplification of winding-up procedure.(8) Changes in foreign companies.(9) Changes in the MRTP Act.(10) Changes in the Companies Act, 1956 and the provision for exclusion or inclusion of Government or public company.RECOMMENDATIONS OF SACHAR COMMITTEEConcepts and Definition:(a) Combination of definition of alter and alteration and modify and modification into one.(b) Definition of member (Section 2(27) to be replaced by definition provided in Section 41 (member).(c) Changes in the definition of relative under Section 2(41) in line with the provisions of Section 6.(d) Definition of Company to indicate Company before the commencement of this Act(e) Definition of Court must include Registrar and Company Law Board (CLB).(f) New definition:(i) Accountant(ii) Auditor

(iii) Professional manager(iv) Recognised Shareholders Association.

Part AState the Sachar Committee's Recommendations for the Companies Act, 1956?Classification of companies:1. Few structural changes within the existing classification of public and private companies.2. Existing companies fulfilling certain conditions to be compulsorily converted into limited companies.3. Guarantee companies allowed only as public limited companies as per Section 25.4. No public company, itself, converts into private company.5. Changes in Private Limited Structure.6. Apply provision of Private Limited Company, Public Limited Company.7. Boost to small scale industries, therefore, advent of new class of industries(a) Small private paid up capital Rs. 5 lakh(b) OthersManagement Structure and Professionalisation of Management:1. Professionalisation of management is an inevitable necessity for the well-being of the company itself. Thus, this needs to be carried forward.2. Representation of minority shareholders in Board and other measures for protecting their interests.3. For workers participation in management. The 2-tier Board is not recommended.4. Public Limited Companies Paid up capital of 50 lakh, one managing director or whole time director.5. No person to hold office of MD in more than one public limited company unless specified procedure and permission of CLB.6. Maximum directorship 10 to 207. Section 283 regarding the vaction of office was proposed to be amended.Director to file returns, mandatory, before registrar8. Board meeting at least once in every two months.9. Amendment to Section 203 no vacation of office after the commencement of winding-up.Managerial and Executive Recommendation:(1) Recommendations of the Bhoothalingam Committee on wages. Incomes and Prices Policy including top managerial salaries(a) Managerial remuneration should be regulated by the Company by special resolution at the Annual General Meeting and subject to the recommendation of this Committee.(b) Division of Companies according to effective capital and maximum/minimum salary payable. Any abridgement of laid guidelines needs prior approval of the Central Government.(2) Appointment/reappointment at Annual General Meeting special resolution.(3) Annual report of Board must enclose undertaking compliance of statutory guidelines. Any breach cognizable by CLB on a complaint.Shareholder Protection and Mismanagement:1. Recognition of shareholders Association maintain vigilance over earning companies.2. Proxy holders Right to vote by show of hands. Right to speak and express their opinion.3. The twin proof requires, in Section 397, justifying winding-up in onerous and even a single act of oppression is sufficient. Further Government under Section 408(i) can exercise its process after abiding by the principles of natural justice.4. Appointed Director under Section 408 by Central Government to report every three months.5. The power of Central Government under Section 409 to be transferred to CLB6. Under Section 409 interim order operative two months unless extended. CLB to pass final orders within six months.7. Appeal from CLB to a High Court. High Court to decide within six months.8. CLB should have power to investigate under Section 237(a).Accounts and Audit:1. Maintenance of account by companies on mercantile system obligatory.2. The Financial Year 18 months permitted by ITO and Registrar of Companies.3. Companies with paid-up capital of Rs. 25 lakhs or more to employ:(a) Chief Accountant or Financial Controller(b) A Cost Accountant and an Internal Auditor for companies engaged in manufacturing/specified activities.Social Responsibilities of Company:(1) Openness and disclosure of corporate affairs.(2) Public accountability, like adherence to environmental laws.Political Donations:1. Pressure increased during 1957 General Elections. Bombay and Calcutta High Courts condemned the Act.2. ParliamentSection 293A Companies (Amendment) Act, 1960.3. Santhanam Committee call for total ban under Section 293A.Part BState the Sachar Committee's Recommendation for MRTP Act, 1969?Concept and Definition: Title of Act should be changed to Monopolies and Trade Practices Act as it includes Unfair Trade Practices also. Commission should be read as MRTPC and therefore necessary changes should be made in the definition. The concept of calendar year and adoption of lowest figure for production should be changed instead use of the term average annual production for 3 years preceding the calendar year should be made (in which dispute arise). Amendment of definition of goods under Section 2(e) so as to bring it in conformity with Sale of Goods Act so as to include shares and stocks. No exemptions for Government/Government-controlled/owned under-takings from the purview of the Act. No exemption for newspapers also.Concentration of Economic Production: The role of MRTPC to be strengthened. Section 30 of MRTP Actamendment. In case of a merger/amalgamation approved by Central Government under Section 396 of Companies Act, in public interest then no approval be required of MRTPC under Section 20 or 23. In case of acquisition if the result is control of 33.3% or more of voting power or the cost of acquisition more than Rs. 3 crore matter compulsorily be referred to MRTPC for final disposal. The power to initiate action under Section 27 for division of an undertaking is with the Central Government, who rarely exercises it. However in case a reference is made to MRTPC, then MRTPC should hear the matter and pass final orders. Section 29 amendment MRTPC to pass final order after following natural justice. Proposal for diversification falls under Section 22 but if proposal is for manufacturing of new articles by utilising waste/by-product or within the licensed capacityexemption to be granted.Monopolistic, Restrictive and Unfair Trade Practices: Protection of the consumers against false/misleading advertisements and other UTP. The Committee proposes to specify certain UTP and prohibit them. Commission must be given more protection so as to see compliance of its orders under Section 31 and protection to pass order on any RTP which occurs while inquiring into any MTP under Section 37. Prohibition of collective agreement and RTP arising out of collective bidding, collective discrimination, re-sale price maintenance subject to exception of general defences. All prohibited practices MTP, RTP and UTP should be made actionable whether it is in the form of agreement or not. The requirement of compulsory registration of agreements relating to RTP should be abandoned. Section 41 to be amended and the MRTPC to be empowered to exempt any class of goods from RPN. Provision to be added to entitle a complainant to recover damages, amount of loss from the guilty party. All matters relating to recovery of loss or damage should be triable by the MRTPC and not by the Magistrate.Administrative Machinery: Chairman of the Commission should be a sitting Judge of a High Court and should enjoy all privileges of a High Court Chief Justice. All appeals from Commissions lie to the Supreme Court. If the office of the Chairman falls vacant the senior-most member should fill in until a new Chairman is appointed. The post of Registrar of Restrictive Trade Agreement and Director-General (DG) should be Director-General of Investigation (IDG) of Trade Practices (TP). Section 8 to be amendedappoint DG of T.P. and appoint the members/staff. The DGTP must be empowered:a. to search, seize and impound document.b. to initiate proceeding.c. to move for recovery of damages on behalf of Central or State Government. Section 12 to be amended to empower the commission with respect to:a. Production of books of account and other documents.b. Examination of same by an officer.c. Must be made a court of records.d. Punish for contempt.e. To issue injunction interim/final. Amendment to Section 13(3) to empower the MRTPC with respect to particular traders. Amendment to Section 18 of the Indian Evidence Act. To make the provision not applicable to the proceedings before MRTPC. Amendment of Sections 50 and 51 made into one Section 50 to punish persons contravening provisions of MTP, RTD and UTP by the commission. Appeals to lie before the Supreme Court if there is a substantial question of law involved.COMPETITION LAW ON THE RECOMMENDATIONS OF RAGHAVAN COMMITTEEWhat are the Objects of Competition Act, 2002?Most of the recommendations made by the Raghavan Committee were accepted and the Competition Act, 2002 was passed accordingly.Objects of the Act: To provide for the establishment of a Commission to prevent practices having adverse effect on Competition. To promote and sustain competition and freedom of trade in the markets. The main objective of the Act is to promote free Competition in India.Prohibition of Anti-Competitive Agreements:(a) Two types of agreements, horizontal and vertical which have the potential of retrociting competition.(b) Horizontal agreements refer to the agreements amongst competitors in the same stage of production and in the same market.(c) Vertical agreements in actual or potential relationship of buying or selling to each at different stages of production and at different markets.(d) Horizontal agreements are related to prices, quantities, bids (collusive tendering) and market sharing.(e) Vertical agreements: Tie-in-arrangements, exclusive supply/distribution agreements and refusal to deal.What are the anti-competitive agreements of the Act?The Act provides for the prohibition of entering into anti-competitive agreements is respect of production, supply, storage, distribution, acquisition or control of goods or provisions of services which causes or is likely to cause an adverse effect on competition within India. Such agreements entered between competitors are horizontal and; Between enterprises at different stages or levels of production in different markets are vertical.Prohibition of Abuse of Dominant Position: The Act does not prohibit dominance but abuse of dominance is prohibited. Dominance is the position of strength enjoyed by an enterprise or group* which can withstand any competitive pressure in the relevant market by its economic strength. The Act prohibits the abuse of such dominant position which includes direct, or indirect, unfair or discriminatory purchases or selling on condition including predatory prices of goods and services; Limiting production or restricting services; Practices which deny market access; Conclusion of contracts subject to acceptance by accepting supplementary obligations.Regulation of Combinations: Combination between enterprises is also prohibited under the Act, if it causes or is likely to cause adverse effect on competition within the relevant market in India. Such combinations can be achieved by acquisition of one or more enterprises or by one or more persons; Acquisition or control or merger or amalgamation of enterprises under certain circumstances.Establishment of Competition Commission of India: For implementing the competition Law the Act provides for the establishment of Competition Commission of India (CCI) with adequate powers for effective enforcement of the law and with appropriate machinery for the implementation of its decisions.Though the Competition Commission took a shape in 2002 by the Competition Act of 2002, it came to be operated from July 2009 though effective date pertains to 14 October, 2003.Structure of the Commission: A multi-member body consisting a Chairperson and not less than two or not more than 6 other members. Qualified persons of ability, integrity and standing from the fields of judiciary, economics, Law, international trade, Commerce and Industry. Independent functioning, with independent investigative, prosecution and adjudicative functions.Penalties for Non-compliance of Orders:Act contains provisions for punishing contravention of the orders of the Commission, failure to comply with the directions of Director-General, making false statements, or omissions to furnish material information.If any person without reasonable cause, fails to comply with the orders or directions of Commission, he shall have to be punished with fine which may extend to Rs. 1,00,000 for each day during which such non-compliance occurs, subject to a maximum of Rs. 10 crore.Further if any person does not comply with the orders or directions issued, or fails to pay the fine imposed, he shall without prejudice to any proceeding be punishable with imprisonment for a term which may extend to three years or with fine which may extend to Rs. 25 crore or with both.Competition Appellate Tribunal:The Competition (Amendment) Act of 2007 inserted the provision for constituting and functioning of Competition Appellate Tribunal. Thereby an appeal from the orders of the Competition Commission by the Central Government or State Government or a local authority or an enterprise or any aggrieved person, can lie either to Supreme Court or to the Competition Appellate Tribunal. Every appeal is to be filed within a period of 60 days from the date on which a copy of direction or decision or order made by the Commission is received by the Central Government or the State Government or a local authority or enterprise or any person aggrieved in the prescribed form along with the fee required thereof. The disposal of appeal is to be made by the Competition Appellate Tribunal within six months from the date of receipt of the appeal.Competition Advocacy:The Competition Commission has a positive role in making Competition policy in the country and advising the Government of India as and when required. The Commission also takes suitable measures for promotion of competition policy and advocacy, creating awareness and training.Competition Fund:The Act provides for constitution of a competition fund which will be for meeting salaries and allowances and other expenses of the Commission.RECOMMENDATIONS OF RAGHAVAN COMMITTEE The recommendation includes both policy and Law of Competition. Competition law should cover all consumers who purchase goods or services. The state monopolies, government procurement and foreign companies should be subject to Competitive Law. All agreements (include horizontal and vertical) should be covered by competition law if it is prejudicial to the competition. Horizontal agreements with regard to prices, quantities, bids and market shaving are anti-competitive. Vertical agreements like, tie-in arrangements, exclusive supply distribution agreements and refusal to deal are generally anti-competitive. Agreements that contribute to improvement of production, distribution and promote technical and economic progress should be dealt with leniently. Abuse of dominance rather than dominance should be the key for Competition Law. Abuse of dominance includes practices like restriction of quantities, markets and technical developments. Predatory pricing in the long run is prejudicial to Consumer interests and it is to be treated as abuse. Mergers need to be discouraged, if they reduce or harm Competition. If the suggested merger is more than the value of assets of entity of Rs. 500 crore or more and of the group to which the merged belongs at Rs. 2000 crore or more, it requires prior notifications. Recommended for constitution of a Competitive Commission of India (CCI).Basing on these recommendations the competition law was made in India by repealing the MRTP Act, for protecting the interest of consumers and preventing the practices having adverse effect on competition. It is to be noted that all the pending cases before the MRTP Commission on or before the commencement of the Competition Act, 2002 i.e., in the year 2003 were transferred to and adjudicated by Competition Commission is accordance with the MRTP Act, 1969.Further all the cases pertaining to unfair trade practices under the MRTP Act, 1969, pending before the commencent of the Competition Act, 2002 were transferred to and disposed of by the National Commission constituted under the Consumer Protection Act, 1986.KLM Royal Dutch Airlines v. Director-General of Investigation and Registration, MANU/SC/8162/2008 : (2009) 1 SCC 230Law Point:Ingredients necessary to constitute Unfair Trade Practice.Facts:The appellant was a worldwide airlines company. A consignment of three parcels was booked for carriage by the complainant, out of which two parcels went missing and could not be delivered to the addressee immediately. The said missing parcels where however traced out and were forwarded to the destination later on. The allegations were made that due to the missing of the aforesaid two parcels in the course of transmission, the complainant suffered a loss.By the impugned judgment and orders, MRTP Commission found the appellant guilty of adoption of and indulgence in unfair trade practices to the extent that there was deficiency in service. The Commission issued a direction to the appellant to cease the aforesaid trade practice and also file an affidavit stating that the appellant would desist from the same in future. Being aggrieved by the aforesaid order passed by the MRTP Commission, the appeals were made in Supreme Court.Issue:Whether any deficiency in service could be said to amount to an unfair trade practice as envisaged under the provisions of the MRTP Act, 1969.Decision:Before it can be said that the act amounts to an unfair trade practice the complainant is required to show that the trade practice was employed for the purpose of promoting the sale, use or supply of any goods or the provision of any services and also that the statement or advertisement is the false representation of the kind specified under Section 36A of the MRTP Act, 1969. It was also held that there could be no finding by the MRTP Commission that the appellant was guilty of unfair trade practice. Hence the order of Commission was set aside by the Supreme Court.THE FOREIGN EXCHANGE MANAGEMENT ACT, 1999INTRODUCTIONSeveral amendments were made in Foreign Exchange Regulation Act (FERA) as part of the ongoing process of economic liberalisation relating to foreign investments and foreign trade for closer interaction with the world economy. In 1993 FERA was reviewed in light of subsequent developments and economic and financial experience in relation to foreign trade and investments. Hence it was decided by the Central Government to enact a new law i.e., Foreign Exchange Management Act, 1999 (FEMA) in consultation with Reserve Bank of India. The main reason behind this law is the substantial development in our foreign exchange reserves, growth in foreign trade, rationalisation of tariffs, current account convertibility, liberalisation of Indian investments abroad, increased access to external commercial borrowings by Indian corporates and participation of foreign institutional investors in our stock markets.Moreover, FEMA is dynamic law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India. FEMA though was enacted in 1999 came into force from 1st June, 2000.IMPORTANT PROVISIONS IN FEMACapital Account Transaction:Capital Account Transaction (CAT) means a transaction which alters the assets and liabilities, including contingent liabilities, outside India of persons resident in India or assets or liabilities in India of persons resident outside India including permissible class of capital account transaction, and also admissible limit of capital account transaction.The RBI is empowered under FEMA to prohibit, restrict or regulate viz.(1) transfer or issue of any foreign security by a person resident in India(2) transfer or issue of any security or foreign security(3) borrowing or lending in foreign exchange(4) deposit between persons resident in India and persons resident outside India(5) export, import or holding of currency or currency notes(6) transfer of immovable property outside India(7) acquisition or transfer of immovable property in India(8) giving a guarantee or surety in respect of any debt, obligation or other liability by a person resident in India or owned to a person resident outside India or by a person resident outside India.Currency:Within the meaning of the provisions of FEMA Currency includes all currency notes, postal notes, postal orders, money orders, cheques, drafts, travellers cheques, letters of credit, bills of exchange and promissory notes and credit cards.Foreign Exchange:Under FEMA foreign exchange means foreign currency and includes, deposits, credits, balances payable in foreign currency, drafts, travellers chaques, letters of credit or bills of exchange drawn in Indian currency but payable in foreign currency and drafts, travellers chaques, letters of credit or bills of exchange drawn by banks, institution or person outside India but payable in Indian currency.Foreign Security:The foreign security means any security, in the form of shares, stocks bonds, debentures or any other instrument denominated or expressed in foreign currency and includes securities expressed in foreign currency, but where redemption or any form of return such an interest or individuals is payable in Indian currency.Security under FEMA:The security means shares, stocks, bonds and debentures, government securities, savings certificates, deposit receipts and any mutual fund but does not include bills of exchange or promissory notes other than government promissory notes.Regulation, Restrictions and Management of Foreign Exchange:Within the meaning of FEMA no person, without the general or special permission of RBI can deal in or transfer any foreign exchange or foreign security to any person not being an authorised person, no person can make any payment to or for the credit of any person resident outside India in any manner, no person can receive otherwise through an authorised person, any payment by order or on behalf of any person resident outside India in any manner, no person enter into any financial transaction in India as consideration for or in association with acquisition or creation or transfer of a right to acquire, any asset outside India by any person, no person resident in India shall acquire, hold, own, possess or transfer any foreign exchange, foreign security or any immovable property existing outside India.Export of Goods and Services:Every exporter of goods shall furnish to the Reserve Bank or to such other authority a declaration in such form and in such manner containing true and correct material particulars, including the amount representing the full export value or, if the full export value of the goods is not ascertainable at time of export, the value which the exporter, having regard to the prevailing market conditions, expects to receive on the sale of the goods in the market outside India.Further every exporter of goods is to furnish to RBI the required informations for purpose of ensuring the realisation of export proceedings by such exporter.Again, where any amount of foreign exchange is due or has accrued to any person resident in India, such person is to take all reasonable steps to realise and repatriate to India such foreign exchange within such period as prescribed by RBI.Penalties under FEMA:If any person contravenes any provision of FEMA or orders, directions and Regulations of RBI he is liable to:(a) Penalty upto 3 times the sum involved in such contravention, where such amount is quantifiable, or upto Rs. 2,00,000 where the amount is not quantified and where such contravention is a continuing one further penalty upto Rs. 5000 for every day after the first day during which the contravention continues.(b) An adjudicating authority adjudging any contravention under FEMA, may if he thinks fit in addition to any penalty which he may impose for such contravention direct that any currency, security or any other money or property in respect of which such contravention has taken place shall be confiscated to the Central Government and further direct that the foreign exchange holdings if any, of the person committing the contravention or any part thereof, shall be brought back into India or shall be retained outside India in accordance with the directions made thereof.RELEVANT PROVISIONS OF EXCHANGE CONTROL MANUAL FOR THE PURPOSE OF FEMAState the relevant procedure of Refund of Inward Remittances?Some of the relevant provisions of Exchange Control Manual under FEMA, which are still existing are:If a request is made from the overseas for cancellation of Inward Remittances, Authorised Dealers may do so without referring to Reserve Bank, if refunds are not to compensate for a loss.What is the application for remittances in foreign currency? A person, firm or bank may apply to an Authorised Dealer for remittances in any foreign currency to a beneficiary abroad. Application should be made in Form-A1, if the purpose of remittance is import of goods into India. For any other purpose in Form-A2. The Authorised Dealer may sell the Foreign Exchange applied for if he thinks fit provided it is within his powers, and the purpose of remittance is an approved one.What is the mode of payment of rupees against sale of Foreign Exchange?In case of sale of Foreign Exchange or remittance in Foreign Exchange amounting to Rs. 20,000 or more the payment received by the Authorised Dealer, from the applicant should be through a crossed cheque drawn on the applicant bank account or on the bank account of the Firm/Company. Payment can also be accepted in the form of a Bankers Cheque/Pay Order/Demand Draft.Receipt of Payment in cash in case of such sale of Foreign Exchange or remittance in Foreign Exchange is strictly prohibited.Exception:However where purpose of sale of foreign exchange is for travel abroad for business etc., cash may be received by the Authorised Dealer from Applicant upto Rs. 50,000.Where the rupee equivalent for drawing foreign exchange exceeds Rs. 50,000 either for any single instalment or for more than one instalment reckoned together for a single journey/visit it should be paid by the traveller by means of a cross cheque/demand draft/pay order as stated above.What is the status of Travell-ers Cheque neg-otiable only in India?Rupee Travellers Cheque cannot be encashed outside India, if they are issued solely for use within India. In such a case they cannot be taken or sent out of India.What is the mode of reim-bursement outside India?Reimbursements should be strictly refused where such travellers cheques have been encashed outside India.Rupee Travellers Cheque, which are issued by authorised dealers, encashable outside India, may be reimbursed by Authorised Dealers or by their selling Agent.How the Import of Foreign Curr-ency Notes takes place?When the stock of foreign currency notes with Authorised Dealer is not adequate for meeting their normal business requirement they can import foreign currency notes from their overseas branches or correspondents.Define mode of Reconversion of Indian Currency? Foreign currency may be sold against Indian Rupees held by persons who are not residents of India but are passing through or leaving India after a visit, at the time of their departure from India. For this purpose, a Bank or Encashment certificate issued by a Authorised Dealer, exchange bureau or Authorised Money changer in form BCI, ECF or ECR, is required to show that the rupee had been acquired by sale of Foreign Exchange to an Authorised Dealer or money changer in India. Such a certificate is valid for such reconversion, i.e., a period of three months should not be over from the date of sale of the foreign currency by the traveller.What is the Rates of Exchanges?Authorised dealers and their Exchange bureau may buy from and sell to public foreign currency notes and coins at rates of exchange determined by market conditions. Dealings in foreign currency notes and coins between authorised dealers themselves and between authorised dealers and money changers would also be at rates determined by market conditions.FERA AND FEMA - COMPARISION SIMILARITIES DIFFERENCES CHANGES/PROGRESSION FROM FERA TO FEMAA STEP AHEADWHAT are the similarities between FERA and FEMA?The similarities between FERA and FEMA are as follows: The Reserve Bank of India and Central Government would continue to be the regulatory bodies. Presumption of extra-territorial jurisdiction as envisaged in Section (1) of FERA has been retained. The Directorate of Enforcement continues to be the agency for enforcement of the provisions of the law such as conducting search and seizureDIFFERENCES BETWEEN FERA AND FEMASr. No.DIFFERENCESFERAFEMA

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1PROVISIONSFERA consisted of 81 sections, and was more complexFEMA is much more simpler and consists of only 49 sections.

2FEATURESPresumption of negative intention (Mens Rea) and joining hands in offence existed in FERAThese presumptions of Mens Rea and abetment have been excluded in FEMA

3NEW TERMS IN FEMATerms like Capital Account Transaction, Current Account Transaction, person, service etc., were not defined in FERA.Terms like Capital Account Transaction, Current Account Transaction person, service etc.,have been defined in detail in FEMA

4DEFINITION OF AUTHORISED PERSONDefinition of Authorised Person in FERA was a narrow one [2(b)]The definition of Authorised person has been widened to include banks, money changes, off-shore banking Units etc. [2(c)]

5MEANING OF RESIDENT AS COMPARED WITH INCOME TAX ACT.There was a big difference in the definition of Resident, under FERA, and Income Tax ActThe provisions of FEMA, are in consistent with Income Tax Act, in respect of the definition of term Resident. Now the criteria of In India for 182 days to make a person resident has been brought under FEMA. Therefore a person who qualifies to be a non-resident under the Income Tax Act, 1961 will also be considered a non-resident for the purposes of application of FEMA, but a person who is considered to be non-resident under FEMA may not necessarily be a non-resident under the Income Tax Act. For instance a businessman going abroad and staying there for a period of 182 days or more in a financial year will become a non-resident under FEMA.

6PUNISHMENTAny offence under FERA, was a criminal offence, punishable with imprison-ment as per Code of Criminal Procedure, 1973Here, the offence is considered to be a civil offence only punishable with some amount of money as a penalty. Imprisonment is prescribed only when one fails to pay the penalty.

7QUANTUM OF PENALTYThe monetary penalty payable under FERA was nearly five times the amount involved.Under FEMA the quantum of penalty has been considerably decreased to three times the amount involved.

8APPEALAn appeal against the order of Adjudicating office, before Foreign Exchange Regulation Appellate Board went before High CourtThe appellate authority under FEMA is the Special Director Appeals. Appeal against the order of Adjudicating Autho-rities and special Director (Appeals) lies before Appellate Tribunal for Foreign Exchange. An appeal from an order of Appellate Tribunal would lie to the High Court. (Sections 17, 18, 35)

9RIGHT OF ASSISTANCE DURING LEGAL PROCEEDINGS.FERA did not contain any express provision on the right of an impleaded person to take legal assistanceFEMA expressly recognises the right of appellant to take assistance of legal practitioner or chartered accountant (Section 32)

10POWER OF SEARCH AND seizureFERA conferred wide powers on a police officer not below the rank of a Deputy Super-intendent of Police to make a searchThe scope and power of search and seizure has been curtailed to a great extent

What is the difference between FEMA and FERA?1. Object of the Acts. The main object of FERA was to conserve the foreign exchange resources and prevent the misuse thereof. However, the main, object of FEMA is to promote and develop the foreign exchange management of the country. In other words, FERA sought to control foreign exchange transactions while FEMA seeks to regulate and manage it.2. Meaning of person resident in India. Citizenship was the criterion to determine the residential status of a person under FERA. The definition of resident in India has been redefined in FEMA. A person residing for more than 183 days in India is a resident of India as per Fema.3. Structure of the Act Prohibition/relation. FERA prohibited almost all the foreign exchange transactions unless a general or special permission was issued. However, under FEMA, all the current account transactions are permissible except some transactions controlled by the rules.4. Nature of offences: The offences under FEMA shall be treated as civil wrongs whereas under FERA, offences were subject to criminal punishments. Therefore, FERA was held to be draconian, severe and harsh.5. Presumption of mens-rea. Under FERA there was a presumption of exis-tence of guilty mind, unless the accused proved otherwise. Under FEMA, however, the prosecution will have to prove that a person has committed an offence.6. Power to arrest. Section 35 of FERA empowered the Enforcement officers to arrest a person, if they had reason to believe that the person was guilty of FERA violations, FEMA provides such power of arrest only in the following cases:a. Where the accused person fails to pay the full payment of penalty within 90 days from service of notice on him.b. Where the accused person fails to furnish the security for his appearances before the Adjudicating Authority, the Adjudicating Authority may, in his discretion, order that the accused person be detained in the custody of an officer of the adjudicating authority.7. Compounding of offences. All the offences under FEMA are compoundable whereas compounding was not permissible under FERA.8. Appellate authorities. There was only one appellate authority under FERA whereas in FEMA, there exists two appellate authorities.9. Right of legal assistances. The accused has a right to take the assistance of a legal practitioner or a chartered accountant under FEMA and under FERA, even a friend or a relative of the person could represent the accused person before the Adjudicating Authority.10. Role of Reserve Bank of India has been portrayed as a facilitator under FEMA instead of a regulator of foreign exchange as it was under FERA.There is, however, one underlying similarity in both these legislations that FEMA, just like FERA, is also governed by the notification to be issued by the Central Government/Reserve Bank of India for granting general permissions.A STEP AHEAD FROM FERA TO FEMAEnactment of FEMA has brought in many changes in the dealings of Foreign Exchange, as compared to FERA. Some of them are restrictive, and some have widened the scope.How FERA made a progress in drawal of Foreign Exchange?However the relevant progress made, from FERA to FEMA, is as follows:Now, the restrictions on drawal of Foreign Exchange for the purpose of current Account Transactions, has been removed. However, the Central Government may, in public interest, in consultation with the Reserve Bank impose such reasonable restrictions for current account transactions as may be prescribed.FEMA has also, by and large, removed the restrictions on transactions in Foreign Exchange on account of trade in goods and services except for retaining certain enabling provisions for the Central Government to impose reasonable restrictions in public interest.How the omission of Criminal Proceedings takes place in FEMA?Under FERA, any contravention was a criminal offence and the proceedings were governed by the Code of Criminal Procedure. Moreover the Enforcement Directorate had powers to arrest any person, search any premise, seize documents, and initiate proceeding.Now all this has been done away with, and contravention of FEMA is no more a criminal offence, and only monetary penalty, i.e. civil proceedings are applicable. Civil imprisonment is provided, only in case of default to pay fine.Define Residential Status?The definition of Residential Status under FEMA has gone through considerable change. It has now been made compatible with the definition provided under Income Tax Act.The residential status is now based on the physical stay of the person in the country. The period of 182 days as provided, indicates that it is not necessary that there should be a continuous period of stay. The period of stay would be calculated by adding up all the days of stay of the individual in the country.An Indian resident becomes a non-resident when he goes abroad and takes up a job or engages in business.A major change in the definition of residential status of partnerships and firms is worth noticing. Earlier, under FERA, a branch was considered a resident of a place where it was situated. Now, under FEMA, an office, branch or agency outside India, owned or controlled by a person resident in India, will be considered a resident of India for the purposes of this Act.If a person residing in India whose Company or Firm has a branch in Mauritius, such branch will be considered to be a resident in India.What is the position of immovable property outside India under FERA and FEMA?Earlier, under FERA, there was no restriction placed on foreign citizens who were residents of India for acquiring immovable property outside India.Now FEMA prohibits a resident to acquire, own, possess, hold or transfer any immovable property situated outside India. This restriction applies irrespective of whether the resident is an Indian citizen or foreign citizen. With this provision being effective a foreign citizen who is a resident of India has to take approval of the Reserve Bank of India for selling or buying any immovable property situated outside India.How the transaction of immovable property in India takes place under FERA and FEMA?Earlier, under FERA, a foreign citizen could acquire or transfer immovable property in India only after seeking permission from the Reserve Bank.Now, under FEMA, the control of Reserve Bank is determined by the residential status of a person. Only a non-resident as defined within the meaning of FEMA would require permission of the Reserve Bank to acquire or transfer an immovable property in India. The distinction based on citizenship has been abolished and that based on residentship has been introduced.What are the provisions of Export of Services under FEMA?FERA had no provision for export of services. Now, FEMA has included payment received by an Exporter of Services in its ambit.Every Exporter, who receives payment from outside India for his services is obliged to furnish details of payment to the Reserve Bank.For example; a Doctor, or Engineer or Lawyer or Accountant or any other professional may give opinions or consultation to people outside India, via internet or e-mail, and his fees may be credited to his credit account. Then he is obliged to furnish details of such payment to Reserve Bank.Define the terms which are included in FEMA in progress to FERA.Some new terms like Capital Account Transactions, Current Account Transactions; have been included in FEMA. Reserve Bank has been conferred with powers (with consultation with the Central Government) to specify maximum permissible limit upto which exchange is admissible for such transactions.WHAT TYPE OF restrictions?What are the restrictions pertain to Foreign Exchange under FEMA?Although under FEMA, offences pertain to transactions in Foreign Exchange only. However relevant restrictions are as follows: Only a person Authorised by Reserve Bank can deal in Foreign Exchange. No one can make a payment to a person who is a non-resident, without permission of Reserve Bank. No one can receive any payment from a person who is a non-resident, without permission of Reserve Bank. A resident of India cannot deal in foreign exchange, foreign security or any immovable property situated outside India, without the permission of the Reserve Bank. (Section 4) Similarly, a person who is a non-resident cannot acquire immovable property in India without permission.What are the obligations of Exporter of Goods and Services?Every exporter of goods and services is under an obligation to give details to the Reserve Bank regarding the value of export, mode of payment, and amount of payment received etc.How the repatriation of Foreign Exchange takes place?Where any amount of foreign exchange has become due or accrued to any person who is a resident of India, he shall realise and repatriate (Bring Back) such amount within the time specified by the Reserve Bank.An Authorised Person under FEMA, is a person who is authorised by Reserve Bank to deal in Foreign Exchange.Who is the Authorised Person?For being registered as an Authorised Person, necessary application alongwith relevant documents has to be furnished to Reserve Bank.An Authorised Person is also, not given a free hand to deal in Foreign Exchange. He has to furnish details and information to the Reserve Bank from time to time as may be required by it.Explain the procedure of prosecution of offences committed?Before detailing the procedure for prosecution, it is important to mark out the Adjudicating Agencies. They are:Who is Adjudicating Authority?The inquiry of any contravention of FEMA is conducted by an Adjudicating Authority appointed by the Central Government.State the jurisdiction of Special Director (Appeals)?The Special Director (Appeals) is authorised to hear the appeals arising out of an order of the Adjudicating Authority.State the jurisdiction in appeal to the Appellate Tribunal.The Appellate Tribunal is entitled to hear appeals from an order made by Adjudicating Authority or special Director (Appeals).What are the powers of Director of Enforcement?The Director of Enforcement and other officers have the power to conduct investigation and search and seize any article.PROCEDURE UNDER FEMAHow the inquiry by Adjudicating Authority under (S. 14) takes place?The inquiry into any contravention of FEMA is conducted by an Adjudicating Authority. When, an inquiry is to be conducted against a person for any contravention, the Adjudicating Authority shall issue a notice to such person. The notice will also indicate the date on which the offender is required to appear before authority, and also the nature of the offence committed by him. Such person (offender) will have a right to give reasons or explanation, and then a date will be fixed for his appearance. He can appear either personally or through an Advocate or a chartered accountant. On the date of appearance, the Adjudicating Authority shall present its case, and explain the reason, type and implications of the offence committed by offender. Then in turn, such person will also be given an opportunity to put up his case, and to produce documents and evidence. Finally, if Adjudicating Authority is convinced, that the offender has committed an offence, it will impose such fine and penalty, as it thinks fit.How the appeal to Special Director (Appeals) (S. 17) preferred?Appeal from an order of Adjudicating Authority lies before Special Director (Appeal) The appeal shall be made in Form No. 1, along with three copies of the order appealed against and the requisite fees. The appeal should be filed within 45 days, from the date of receipt of the impugned order. On the date of hearing of the appeal the applicant may appoint a legal practitioner or a chartered accountant to appear, plead and act on his behalf before the Special Director (Appeal) The order of the Special Director (Appeals) made at the conclusion of the proceedings shall be in writing and shall state briefly the grounds for the decision.How the appeal to the Appellate Tribunal (S. 19) preferred?Appellate Tribunal is entitled to hear appeal arising out of an order from Adjudicating Authority and Special Director (Appeal). The appeal shall be made in Form No. 2, along with three copies of the impugned order and requisite fees. The appeal shall be made within 45 days, from the date on which copy of the impugned order is received. A copy of the order and appeal shall be sent to the opposite party, i.e. Director of Enforcement, and a date shall be fixed for hearing of the appeal. The appellant shall have the right to present his case/appeal through a legal practitioner or a chartered accountant. On the fixed date of hearing, the Appellate Tribunal shall pass its order in writing with the reasons.How the appeal to High Court (S. 35) preferred? An appeal from the decision of Appellate Tribunal lies before High Court. The appeal shall be filed 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 from the impugned order.What is the amount of penalty under FEMA?Any contravention, under FEMA, may invite following kinds of penalties: If the amount against the offence can be quantified, then penalty will be THRICE the sum involved in contravention. Where the amount cannot be quantified the penalty may be imposed upto two lakh rupees. If, the contravention is continuing everyday, then Rs. Five Thousand for every day after the first day during which the contravention continues.Further in addition to the penalty, any currency, security or other money or property involved in the contravention may also be confiscated.CASE LAWSUnion of India v. Venkateshan S., MANU/SC/0355/2002 : AIR 2002 SC 1890Facts:By order dated 8 February, 2000 the Joint Secretary, Ministry of Finance, Government of India made a detention order under Section 3(1) of the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act (COFEPOSA) directing that one B. Shankar be detained and kept in custody with a view to prevent him from acting in any manner prejudicial to the augmentation of foreign exchange. The said order was served upon detenue on 15-2-2000 along with grounds of detention and copies of the documents relied upon the Detaining authority the order was challenged by filing writ petition in High Court of Karnataka.The High Court quashed and set aside the detention order on the ground that what was considered to be criminal violation of the Foreign Exchange Regulation Act, 1973, has ceased to be on repeal of FERA which is replaced by the FEMA in 1999. This order was challenged. It was argued that in view of the fact that FERA had been repealed and in its place FEMA had been enacted by virtue of which violations of the provisions of the FEMA are now only civil wrongs, a person cannot be continued to be preventively detained under COFEPOSA Act for violations of FERA after its repeal.Issue:Whether a person who violates the provisions of the FEMA to large extent can be detained under COFEPOSA Act?Decision:The person dealing in foreign exchange in violation of provisions of FERA which is repealed by FEMA, can be detained under Section 3 of the COFEPOSA Act. Mere fact that such an activity ceases to be an offence under FEMA after repeal of FERA is immaterial. For preventively detaining a person under COFEPOSA it is not essential that that person must be involved in criminal offence. That apart, COFEPOSA Act and FEMA occupy different fields.FEMAMantosh Saha v. Special Director, Enforcement Directorate, (2008) 69 AIC (SC)Facts:A memorandum was issued by the Enforcement Directorate, Ministry of Finance. On the basis of certain statements recorded it was indicated therein that M/s. Godsons (India) and its proprietor, the present appellant had acquired foreign exchange contravening the provisions of Section 8(1) of the FERA, 1973 thereby rendering him liable to be proceeded under Section 50 of FERA.The memorandom was issued under Rule 3 of the Adjudication Proceedings and Appeal Rules, 1974. The reply to show cause notice was filed by the Appellant. The Special Director passed an order on 13 May, 2005 imposing penalty of Rs. 25 lakhs on the appellant.The appellant preferred an appeal before the Appellate Tribunal and filed an application for dispensing with the requirement of pre-deposit. By order dated 7-3-2006 the Tribunal passed an order directing deposit of 60 per cent. of the penalty amount for the purpose of entertaining the appeal. An appeal was filed under Section 35 of the Act. Section 35 of the Act which came to be dismissed by the High Court holding that no case for hardship was made out either before the Tribunal or before it and, therefore, there was no scope of interference with the order of the Tribunal. However the time permitting the deposit was extended.Issue:Whether the interim order of stay can be passed. And whether any reduction of the amounts to be deposited as directed by the Tribunal is called for.Decision:Undisputably the appellant had deposited the amount which was directed to be deposited. However for the balance amount demanded with a view to safeguard the realisation of penalty the appellant shall furnish such security as may be stipulated by the Tribunal. On that being done, the appeal shall be heard without requiring further deposit if the appeal is otherwise free from defect. The appeal was disposed of by Supreme Court accordingly.THE FOREIGN CONTRIBUTION (REGULATION) ACT, 1976Give introduction to FCRA, 1976?The FCRA,1976 came into existence at a time when some of the foreign countries had stalled funding and extending hospitality to individuals, associations, political parties, candidates, editors and owners of newspapers.This Act came into effect from 5th August, 1976 to regulate the acceptance and utilization of foreign contribution by certain individuals or associations with an objective of ensuring that Parliamentary institution!". Political associations, academic and other voluntary 4:1;.,anizations. haying an influence on national interest, :function in a manner consistent with values of a sovereign democratic republic.What are the applications of FCRA?The FCRA applies to all citizens of India, :n India or outside India. it also applies to associates, branches or subsidiaries outside India of companies registered or incorporated in India.What are the restrictions to FCRA?The FCRA puts a restriction on elected candidates, newspersons like correspondents, columnists, editors or even publishers, judges, government servants of corporations owned and controlled by the government, members of legislature, members and office bearers of any political party from taking any foreign contribution, whether direct or indirect. The Act also imposes a restriction on acceptance of foreign hospitality (e.g., cost of travelling, boarding, lodging , transport) by these people. A foreign contribution may be a donation, delivery or transfer by any foreign source in form of currency, foreign securities or articles It does not include articles worth less than Rs. 1000 in Indian markets given as gifts for personal use.What are the exceptions to FCRA?This restriction does not apply to contributions accepted by way of salary. wages, remuneration or other payments in the ordinary course of business; or as an agent of a foreign source. Acceptance of foreign contribution is also not barred when received by way of gift in his capacity as a member of any Indian delegation or from a relative when such contribution being above Rs. 8000 per annum has been received with previous permission of the Central GovernmentAny citizen receiving any scholarship, stipend or any such payment shall intim-ate the Central Government about the source, purpose and amount of such payment.How the modifications In FCRA takes place?If the Central Government is satisfied that the acceptance of a certain foreign contribution or hospitality is likely to affect the sovereignty and integrity of India, the public interest, freedom Or fairness of election, friendly relations with an$ foreign state or harmony between religious, racial, linguistic or regional groups, castes or communities, then it has the power to restrict foreign contribution to any person not mentioned in the Act.Further, if the Central Government is of the opinion that if it is necessary or desirable in the interest of the general public, it may exempt any association, organisation or individual from the operation of this Act or any part thereof_IMPORTANT PROVISIONS UNDER FCRAForeign Source:The foreign source under the FCRA includes (a) the government of any foreign country or territory and its agencies, (b) any international agency, not being the United Nations- or any of its specialised agencies, the World Bank, International Monetary Fund or such agency as the Central Government may decide, (c) a foreign company, (d) a corporation not being a foreign company incorporated in a foreign country or territory, (el a multinational corporation. (f) a trade unton, (g) a foreign trust, (h) a societyclub or other association of individuals formed or registered outside a citizen of a foreign country.Foreign Hospitability:The Foreign Hospitability (FH) under the FCRA means any offer, not being a purely casual one made by a foreign source for providing a person with a costs of travel to any foreign country or territory or with free boarding, lodging, transport or medical treatment;Regulations and Restrictions on Foreign Contribution and Foreign Hospitability:The restrictions are viz,:(a) the contribution cannot be accepted by a candidate for election,(b) the contribution cannot be accepted by any correspondent, columnist. cartoonist, editor, owner, printer or publisher of a registered newspaper,(c) the contribution cannot be accepted by any judge, government servant or employee of any corporation,.(d) the contribution cannot be accepted by member of any legislature,(e) the contribution cannot be accepted by any political party or its office bearer,Penalties for Offences under FCRAIf any person, on whom any prohibitory order has been served, pays, delivers, transfers or otherwise deals with any article or currency whether Indian currency or foreign currency.. he shall be punished with imprisonment upto three years or with fine or with both subject to additional fine by court equivalent to market value of the article the amount of currency.Further punishment for accepting or assisting any person, political party or organisation in accepting any foreign contribution or any currency from a foreign source, shall be punished with imprisonment upto five years or with fine or with both.Again whoever accepts any foreign hospitability in contravention of any provision under FCI&A shall be punished upto) three years or with fine or with both.State by CBI v. K. Milian, Chief Functionary of the Cress, (2001) 4 SCC 290Facts:The appeals by CBI were directed against the Judgment dated 7-9-1999 of a single Judge of Delhi High Court. By the impugned judgment, the High Court in exercise of power under Section 482 of Cr. P.C. held that a breach of undertaking given by an Association under Section 6(1)(b) of the Foreign Contribution (Regulation) Ad, 1976 would nut amount to contravention of the provisions of the Act within the meaning of Section 23 of the Act and as such the criminal prosecution had been launched, would not lie. The High Court quashed the criminal proceedings arising out of FIRS the CBI appealed in Supreme Court.issue:.--reaction 23 of the Foreign Contribution (Regulation) Act, 19Th, makes only the contravention of any provisions of the Act and Rules punishable and the information provided in Form FC-1 in Schedule of the Act and violation thereof whether constitutes a contravention of the provision of Act and Rules,Decision:If a society is registered under Section ti of the Foreign Contribution (Regulation) Act, 1976 for receiving foreign contribution only through a particular branch of a bank, but the society deposits the contribution received by it from a foreign organization in another bank without intimating Central Government about receipt of contribution, would amount to violation of Section 6(11(h) and attract the penal provisions under Section 23 of the Act.The sick Industrial Companies (Special Provisions) Act, 1985 *Introduction of sick Industrial Companies in India Discuss briefly the salient features of the Act relating to sick industries and its objectives? What is a sick industrial company? For industrial Companies becoming sick in India, the Government has formulated 'The Sick Industrial Companies (Special Provisions) Act, 1985' (SICA) which got amended in the year 1993 with a prime objective of:- To timely detect the sick and potentially sick industrial companies, To speedily take preventive, ameliorative, remedial & other measures, and To enforce the measures so determined.The 'sick industrial company' defined under the provisions of Section 3(1)(o) of SICA means an industrial company (being a company registered for not less than five years) having at the end of any financial year accumulated losses equal to or exceeding its entire net worth.Accordingly, sick industrial company means a company:-i. must be an industrial company which is as specified in the First Schedule to the Industries (Development and Regulation) Act, 1951 (IDRA) but does not include an ancillary industrial undertaking or a small scale industrial undertaking as defined under IDRA,ii. should be in existence for at least five years since the date of incorporation.iii. should have accumulated losses equal to or exceeding its networth at the end of any financial year.('Net Worth' means the sum total of paid-up capital and free reserves)'Potentially Sick Industrial Company' means an industrial company whose accumulated losses is more than fifty per cent. or more of its peak net worth during the immediately preceding four financial years.______________________* This Act was repealed by the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 (1 of 2004).The reasons for industrial sickness may differ from industry to industry and within the industry from unit to unit. These can be categorised as follows:-What are the reasons of becoming sick? What are the symptoms of becoming sick? 1. Internal Reasons 1. Internal Reasons-The reasons which can be controlled by the company itself. Some of them are as follows:-i. Mismanagementii. Underestimation of the cost of the projectiii. Delay in the implementation of projectiv. Increase in cost due to delay in implementation of projectv. Under Utilisation of Resourcesvi. Diversion of Fundsvii. Lack of Management depthviii. Bad Industrial Relationsix. Bureaucratic managementx. Inadequate working capitalxi. Heavy Expenditure in Advertisements.2. External Reasons 2. External Reasons-The reasons which cannot be controlled by the company and are external in nature. Some of them are as follows:- Adverse Government Rules & Regulations Adverse Price Control Policy Recession Trend/economic conditions Tough Competition Shortage of Manpower, Raw Materials etc. Changes in Technology Changes in Consumer Behaviour Shortage of Power Supply Delay in getting any financial assistance.3. Symptoms of Industrial Sickness Frequent Liquidity Problems, Fall in sale/profits, rapid increase in debtors, Reduced Working Capital, etc. Unfavourable Market Development High Managerial turnover Labour unrest Rise in staff and customers' complaints and failure to respond such complaints Declining morale of the employees Lack of planning and strategic thinking Strike, lockout.Comment on establishment of Board for Industrial and Financial Reconstruction (BIFR What are the obligations of such companies? Explain the role of BIFR? Under the provisions of SICA, the Central Government has established Board for Industrial and Financial Reconstruction (BIFR), (presently situated at New Delhi) consisting of experts for timely detection of sick and potentially sick companies, speedy determination of remedial and other measures with respect to such companies and for expeditious implementation of these measures.If the industrial company becomes sick as per the definition, it is the obligation of such company to make reference to BIFR within sixty days from the date of finalisation of duly audited accounts of the company for the financial year at the end of which the company has become sick. The date of finalisation of the duly audited accounts means the date on which the audited account of the company are adopted at the annual general meeting of the company.Even before finalisation of accounts for the relevant year, if the Board has sufficient reasons to form an opinion that the company has become sick, the Board of directors must within sixty days from the date of forming such opinion make a reference to the BIFR.In the case of potentially sick industrial company, the company shall within sixty days from the date of finalisation of the duly audited accounts of the company for the relevant financial year report to BIFR and shall hold a general meeting of the shareholders for considering such erosion.Such Companies have to comply with the BIFR Regulations, 1987 and application have to be made under Form A (in respect of an industrial company other than a Government Company) with BIFR and in Form AA in respect of a Government Company.The BIFR will make such enquiry as it may deem fit for determining whether the concerned company has become sick. Such enquiry can be made by BIFR upon the receipt of information from the Board of Directors of the concerned company or from other agencies like Central Government, RBI, etc. or upon its own knowledge as to the financial position of the company.The BIFR may if it deems necessary, appoint any Operating Agency (any Public Financial Institution, State Level institution, scheduled bank or any other person as may be specified by BIFR) to enquire into and make a report.BIFR or the operating agency, as the case may be, shall complete the inquiry within sixty days from the commencement of the inquiry.If the Board decides to institute inquiry then it may appoint one or more persons as special directors(s) of the company concerned with a view to safeguard the financial and other interests of the company or in public interest.Define the mode of execution of Order by BIFR How the winding-up takes place? What are the objectives of the Act? Notwithstanding anything contained in the Companies Act, 1956 or any other law or the memorandum and articles of the industrial company or any other instrument, such appointment of a special director shall be valid and such special director need not hold any qualification shares and cannot be removed except with BIFR's consent and that age limit and number of directors restrictions do not apply to such a director.If the Board is satisfied after the completion of inquiry that the company has become sick, the BIFR has to make an order in writing whether it is possible for the sick industrial company to make its networth exceed the accumulated losses within a reasonable time.If the Board is satisfied after the completion of inquiry that it is not practically possible to make its net worth exceed the accumulated losses within a reasonable time, it may direct the operating agency to prepare a scheme for such measures in relation to such company. The operating agency then shall, within a period of ninety days from the date of such order prepare a scheme which may provide any or more of the following measures: Financial Reconstruction Change in Management Amalgamation Sale or lease of a part or whole of any industrial undertaking of such company Rationalisation of managerial Personnel Such other Preventive, ameliorative and remedial measures as may be appropriateThe BIFR may on such recommendation sanction the scheme and will periodically monitor the sanctioned scheme.Considering all the relevant facts, if the BIFR is of the opinion that the sick industrial company is not likely to make its net worth exceed the accumulated losses within a reasonable time, it may, after offering opportunity of being heard to all concerned parties, form a opinion to wind up the company and forward its opinion to the concerned High Court.The High Court on the opinion of the Board may order winding-up of the sick industrial company in accordance with the provisions of the Companies Act, 1956.This Act is to make special provisions with a view to securing the timely detection of sick and potentially sick companies owning industrial undertakings. The speedy determination by a group of experts of the preventive, ameliorative, remedial and other measures which need to be taken with respect of companies. Expeditious enforcement of the minimum so determined and for matters connected therewith or incidental thereto.Explain the Industrial undertaking? Sec. 5. Discuss briefly Appellate Authority for Industrial and Financial Reconstruction Essentially the legislation is enacted to safeguard the economy of the nations and to protect viable sick units. Aimed at reviving and rehabilitating sick industries.Sec. 3 (1)(O):-A sick industrial company is an industrial company being a company registered for not less than five years, which has at the end of any financial year accumulated losses equal to or exceeding its entire net worth:- Loss of production; Loss of employment; Loss of revenue to Central as well as State Government; Locking up of funds of banks and financial institutions.Section 3(d) of the Industries (Development and Regulation) Act, 1951 defines Industrial undertaking as any undertaking pertaining to an industry in one or more factories by any person or authority including Government. This Act excludes ancillary industry and small scale industry from its purview. An ancillary undertaking is one in which the investment in fixed assets whether held on ownership or on lease or on hire purchase does not exceed Rs. 75 lakh and it also satisfies the following conditions:-(i) The manufacture or production of parts, components,sub-assemblies or intermediaries.(ii) Rendering of services and its supplies not more than 50% of its production. A sick unit means a company with erosion of net worth by 100% or more of its net worth. When the erosion of net worth is of the order of 50% the Board of Directors of the sick unit are required to bring this fast to the notice of the Board of Industrial and Financial Reconstruction and also to the shareholders within 60 days. The Board of Industrial and financial Re-construction was set up in 1987 for providing speedy mechanism for amalgamation, merger etc., in large and medium sector. The Board consists of a Chairman and not less than two and not more than 14 other members to be appointed by the Central Government. The Chairman and members shall be persons who are qualified to be High Court Judges, or persons of ability, integrity and those who have special knowledge and professional experience, of not less than 15 years in Science, technology, economics, banking industry, law, labour matters, etc.Consisting of Chairman and not more than three other members. The chairman shall be a person who is or has been a Judge of the Supreme Court or who has been a Judge of High Court for not less than five years. A member shall be a person who has been Judge of a High Court or an officer not below the rank of a Secretary to the Government of India.The Board or the Appellate Authority shall, for the purpose of inquiry have the powers as vested in the Civil Court in the case of:-(a) Summoning and enforcing the attendance of any witness;(b) Discovery and production of document or material object;(c) Reception of evidence on affidavit;(d) The requisition of any public record;(e) Issuing of any Commission.4. Discuss briefly the Board for Industrial and Financial Reconstruction 1. When the company has become a sick industrial company the Board of Directors of the Company shall, within 60 days from the date of audited accounts in the financial year, make a reference to the Board for determination of the measure which shall be adopted with respect to the company.2. If Central Government, RBI, or a State Government or a public financial institution or a State level institution has sufficient reason to believe that any company has become sick, it can make a reference to the Board.Provided:1. All or any of the industrial undertakings under such company is situated in such State.2. Such financial institutions have an interest in the company.Sec. 15. Discuss briefly reference to Board Section 15 makes it mandatory for the Board of Directors of a sick industrial company to make a reference to the Board. But it is not mandatory for any other agency as specified is Section 15(2) to make a reference to the Board. The BIFR may make such inquiries for determining whether a company has become a sick unit upon receipt of a reference under section 15 or upon information received with regard to such company or upon its own knowledge. The BIFR can appoint any operating agency such as public financial institutions, state level institution, scheduled Bank or any other person for such inquiry and report within 60 days from the commencement of the inquiry.Sec. 16. Explain briefly enquiry into working of the Industrial Company? Section 16(4) -The Board may appoint one or more persons to be special directors for safeguarding the financial and other interests of the company.Where a reference has been made to the Board for considering a company as sick industrial company under Section 3(1)(O) the creditors have the right to intervene in the inquiry stage where they dispute such claim and havematerial to show that industrial sickness is a devise to defeat claims as held in the case of Sponge from India Ltd. v. Neelima Steels Ltd., (1990) 68 Comp Cas 201.After the inquiry under section 16 the Board may make an order for the improvement and revamping of the company and may give such time for the purpose as it deems fit.After passing an order under Section 17 the operating agency specified shall prepare within a period of 90 days from the date of such order a scheme with regard to:-(a) Financial re-construction.(b) Any change in management.(c) Amalgamation or take over by any company.(d) The sale or lease of any part or whole of any industrial undertaking of the sick industrial company.(e) Any such, preventive, ameliorative and remedial measurers.Sec. 18. Explain briefly pre-paration of schemes All such schemes shall be laid before the General Body by its shareholders. The Scheme can induce transfer of controlling shares or substantial shareholder's interest as held in the case of Bennett Coleman & Co. Ltd. v. Appellate Authority for Industrial and Financial Reconstruction, 1995 (3) AD (Del) 432 (DB). The Terms, revival or rehabilitation would cover the selling off of assets and starting a fresh industrial undertaking at a different place as held in the case of Upper India Couper Paper Mills Co. Ltd. v. AAIFR, (1992) 75 Comp Cas 653 (Del).Sec. 19. Explain briefly rehabilitation by Financial Assistance? The rehabilitation package may contain the provision of additional financial assistance for either the modernization or expansion of the plant. Under Section 19(3A) the banks and financial institutions will adopt a consortium approach and designate a bank or financial institution for the disbursement of loans provided in the Scheme.Section 19A provides for interim relief for sick companies during the pendency of an enquiry under Section 16. The Board is empowered to make an order within 60 days from the receipt of an application.Sec. 20. Explain briefly winding-up of Sick Industrial Company? The Board is free to accept or reject an application. Where the Board after making an inquiry under Section 16 and considering all the facts and after hearing all the parties concerned is of the opinion that it is not feasible to revive or rehabilitate the sick industrial undertaking can recommend to the High Court thewinding-up of the Company as held in the case of Lakshmi Porcelains Ltd. v. Union of India, 1995 (35) DRJ 182.Sec. 21 The Board can direct any operating agency to prepare an inventory of all assets and liabilities.Sec. 23. Explain briefly proce-dure in the case of loss of 50% net work by Industrial Companies? Sec. 22 If any inquiry under Section 16 or implementation of scheme is pending under Section 17, then no proceeding for the winding-up of the industrial company or for execution or any proceedings against the properties of the industrial undertakings shall be suspended.Any land of legal proceedings is prohibited under this section as held in Punjab United Forge Ltd. v. Hindustan Hydraulics (P) Ltd., (1992) 75 Comp Cas 316 (PCA).Sec. 22A-The BIFR can order the sick industrial undertaking not to dispose of any asset without its consent under this section. If the accumulated losses of any company at the end of any financial year preceding four financial years (earlier) have resulted into erosion of 50% of its net worth. Within 60 days report the matter to the BIFR. Hold a general meeting of the company shareholders informing about the matter. Before 21 days of such meeting, the Director of the company should forward the report to every member of the company.Sec. 24. Explain briefly mis-feasance proceedings? In the course of inquiry or implementation of any scheme, if it appears to the Board that any officer or employee of the sick industrial company has misapplied or retained or misappropriated any money, the Board can direct to repay or restore the money or property and also report to the Central Government for any other action. Misfeasance is the improper performance of some act which a man may lawfully do or omission of an act which a person ought to do.Sec. 25. Explain briefly to Appeal? Any person aggrieved by the order of the Board can prefer an appeal with the Appellate Body within 45 days from the date of such order to him.-The order of the Board or Appellate Authority would not be appealable in Civil Courts.Sec. 33. Explain briefly to Penalties? Whoever violates the provisions of the act or any scheme made thereunder by the Board or an order of the Appellate Authority shall be punishable with simple imprisonment for a period upto three years and shall also be liable to fine.Sec. 34. Explain briefly to offences by Company? (1) Where any offence, punishable under this Act has been committed by a company, every person who, at the time the offence, was in charge of, and was responsible to the company for its conduct of its business, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.Provided that nothing contained in this sub-section shall render any such person liable to any punishment, if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence.(2) Notwithstanding anything contained in sub-section (1), where any offence punishable under this Act has been committed by a company and it is proved that the offence has been committed 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 that offence and liable to be proceeded against and punished accordingly.Explanation.-For the purposes of this section,-(a) "company" means any body corporate and includes a firm or other association of individuals; and(b) "director", in relation to a firm, means a partner in the firm.board for industrial and financial reconstruction (BIFR) How does the hearings in BIFR takes place? Normally, in case of competitive bids, the Operating Agency2 prepares comparative tables etc. and presents them before the BIFR. The BIFR considers the various competitive bids and depending upon the facts of the case, it may request the proposers to increase or improve their offers. Some of the important factors, which BlFR normally considers while approving an acquisition or change in the management of a sick company are: The capacity and standing of the acquirer. The financial commitments and the seriousness of the acquirer. The proposer may be required to deposit some money in a no-lien interest bearing bank account to demonstrate its commitment. Long-term viability of the unit/company. A fair treatment to the secured creditors, labourers and all other interested parties.What is the mode of Final BIFR Order/Scheme? After being satisfied about various aspects, the BIFR can order the publishing of the draft scheme for the rehabilitation of the sick company. After a period specified by the BIFR, the BIFR hears objections and suggestions, if any, from the various concerned parties on the draft scheme. After suitably modifying the draft scheme, a final scheme is ordered by the BIFR. If an appeal is made before the BIFR, then the fate of the scheme will depend on the outcome of the BIFR order.What are the advantages in BIFR scheme? How does the reduction of Share Capital takes place? Features of BIFR a. CAPITAL RESTRUCTURING After erosion of the net worth, the share capital appearing in thebalance-sheet is only notional and it may be worthwhile to bring the existing share capital of the company in line with reality. It is possible to reduce the share capital of the company without going to the court under Section 100 of___________1. BIFR stood dissolved by the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 (1 of 2004).2. Operating agency means any public financial institution state level institutions, Scheduled Bank or any other specified by BIFR.the Companies Act, 1956 by incorporating the capital restructuring features in the BIFR scheme itself. This is fair to the new promoter, as any furthershare capital that it will bring in will be in line with the actual worth of the shares.b. SETTLEMENT OF CREDITORS Discuss briefly Shares at Discount in one-time settlement to creditors? A One-Time Settlement (OTS) proposal may be made to the secured creditors (banks, financial institutions, etc.) involving concessions and sacrifices by repayment of the entire dues over a short period of two or three years. Alternatively, the scheme may provide for restructuring of the liabilities and repayments over the rehabilitation period.Reliefs and concessions within the RBI parametres are generally easily agreed upon, but relief beyond that may require some convincing and adequate justifications. Generally, banks and financial institutions are extremely hesitant to waive any portion of the principal amount of loans. However, the OTS and/or the restructuring of liabilities depends entirely upon the way the matter is presented and discussed/negotiated with the secured creditors.What is the Right to Re-compens-ation? Many times the banks/financial institutions insist that they shall have a right to re-compensation in respect of the amounts waived and sacrifices made by them, if the sick company is revived. This, in effect, means that if the sick company revives, then the amounts waived/sacrifices made by them shall be made good by the company. Though, there may be a justification for including such a term in an existing promoter's scheme of rehabilitation, there is no justification for including such a term in the new promoter's scheme. This issue should be considered while finalizing the OTS or restructuring of liabilities.What is the Leveraged Buy Out? Under a BIFR scheme if a suitable package is worked out with the secured creditors, then the acquirer can, in effect, acquire the sick company by way of a leveraged buy out wherein he gets an opportunity to pay a part of the total consideration, that is, dues of the secured creditors, over a period of time. In a non-BIFR situation the acquirer would not easily be able to achieve such a financing pattern.It is important to note that a scheme can be sanctioned by the BIFR only if consented to by the concerned Government, banks, public financial institutions, State level institutions or any institution or authority required by the scheme to provide financial assistance, reliefs, concessions or sacrifices. Therefore, for any scheme to go through, the consent of the above persons is a must. The consent of the other creditors is, strictly speaking, not necessary for the scheme to go through, even if the scheme involves extinguishments or reduction of their rights. However, the BIFR will normally hear all the parties concerned before sanctioning the scheme.c. ISSUE OF QUASI-EQUITY INSTRUMENTS One of the features, which can be gainfully incorporated in a BIFR scheme, is the issue of optionally convertible instruments to the secured creditors as a part of the OTS/restructuring of the liabilities. If the company does not revive during the conversion option period, then to that extent the secured creditors are not adversely affected as the nature of the instrument continues to be a debt.However, if the company revives and the stock prices of the company start looking up (if listed) then it works out to be a win-win situation. The company gains by way of conversion of loans into shares, which may be at a premium and the creditor gains by being able to recover its money faster through the sale of the shares as also a possible recovery of a higher amount by way of appreciation in the value of the shares.One can also consider offering the shares of one of acquirer group's healthy listed company at a fair price to the secured creditors as repayment of their dues.d. INCOME-TAX ISSUES The present position in law is that the consent of the CBDT (Central Board of Direct Taxes) is necessary before a scheme containing reliefs and concession under the Income-tax Act, 1961 is approved. Even then, it is better to include tax concession and litigious tax issues in the sc