Legal aspects of investments

LEGAL ASPECTS OF INVESTMENTan Investors view

BY

Dr Narayan KayarkatteMBA LLB,Ph.D

Significance

• Legal aspects are an indispensable part of a successful business environment in any country

• They reflect the policy framework and the mind set of the Governmental structure of that country.

• They ensure that every stakeholder is functioning as per the statutory framework of the country

Three Dimensions of Law

• The spirit behind the law

• The code and language [Letter]

• The precedents ( case laws)

Practice and Customs are sometimes deemed as law.

General and Specific Laws

• There is no single law for Investments.

• Most of the specific laws operate under general legal framework

General laws• The most important law which regulates all

aspects relating to a company is the Companies Act,1956. It contains provisions relating to formation ,running and even winding up of a company

• The Indian Contract Act,1872, is another legislation which regulates all the transactions. It lays down the general principles relating to contracts; enforceability and also contains provisions pertaining to breach of a contract

General laws

• The Consumer Protection Act, 1986 for effective safeguards to consumers against exploitations and unfair dealings, relying on mainly compensatory rather than a punitive or preventive approach

• FEMA

• Right to Information Act

• Money laundering act

General laws

• Sale of Goods Act

• Transfer of Property Act

• Succession Acts

• Taxation laws

• Limitation act

• Competition Act

Equity Shares and Mutual Funds

• SEBI Act and Rules

• BSE/NSE Rules

• AMFI Guidelines

An Investors code of Dos and Don’ts

Shares…

• Buy only listed shares

• Buy and sell through registered brokers.

• Deliver/ Pay in time.( Next day)

• Mention correct PAN no.[Having more than one PAN is an offence]

• Obtain contract notes.

Investors Rights and Obligations• Right to get best price

• Right to get proof of price/brokerage

• Right to get shares/payments in time

• Right to get statements of Accounts

• Obligation to deliver shares in the valid form

• Obligation to make payment on time

• Obligation to sign proper agreements

Investor always has a Right for redressal of grievances

Complaint to BSE/NSE

• Investors' Grievances against Listed Companies to BSE/ NSE

• The investors are advised to inform BSE if the complaints are not resolved within 30 days

• If the total number of pending complaints against a company exceeds 25 and remain unresolved by the company for more than 45 days, then steps are initiated by BSE to suspend trading in the securities of such company

Grievance handling

• Investor Protection cell

Registrar of companies E-Wing, Second Floor, Kendriya sadana, koramangala Bangalore-34

Ph: 080-25538531

Director, Ministry of Company affairs,,

Investor Protection Cell, A-Wing, Shastri Bhavan,New Delhi 110001 Ph: 23385285

www.watchoutinvestors.com• view the details of the entities/ individuals covered under each type of

regulatory charge/ regulatory action.)BANKS 29/03/200026/11/2007

• BOMBAY STOCK EXCHANGE 05/06/199520/09/2006 • CENTRAL Bureo OF INVESTIGATION 05/04/200101/12/2007 CENTRAL

DEPOSITORY SERVICES (INDIA) LTD. 01/10/2007 COMPANY LAW BOARD• DEBT RECOVERY TRIBUNALS 16/08/200014/11/2007 EMPLOYEES' PROVIDENT

FUND ORGANISATION 31/03/2005• INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA• INSURANCE REGULATORY & DEVELOPMENT AUTHORITY 16/08/200201/12/2007 • INTER-CONNECTED STOCK EXCHANGE 07/12/2006 • MINISTRY OF CORPORATE AFFAIRS - VANISHING COMPANIES 29/12/2005 • MINISTRY OF CORPORATE AFFAIRS, OFFICIAL LIQUIDATORS 08/04/2007

Alternate Remedies…

• Can complain to Consumer Forum

• Settle with an Arbitrator if provided under the rules

• Complain Dept .of Company affairs

• Recourse in a court of Law

BANKING/ INSURANCE

• RBI ACT

• Banking Regulation Act

• Negotiable Instruments Act

• FEMA 1997

• Co -operative Societies Act for Co op. banks

Banking

• Complain to the Branch/ Zonal Office/ Head Office

• Can file a complaint in consumer court

• Approach Banking Ombudsman

• Complain to RBI

• Legal Resorts through courts are open

Insurance

• Insurance Act

• IRDA Rules and Regulations.

• Principle of Utmost Good faith [Uberrimafide]

• Insured to have an insurable interest

Real Estates

• Legal opinion is a must

• Can go for a second opinion.

• Payments of due registration charges and stamp duties

• Legal remedy is only through civil courts.

Movables like Gold and Jewellery

• Look for BIS mark

• 958 Corresponding to 23 Carat

• 916 Corresponding to 22 Carat

• 875 Corresponding to 21 Carat

• 750 Corresponding to 18 Carat

• Bailment and Pledge

• Owners Rights

NOMINATION

• Practical Need for Nomination

[Claim procedure is simple]

• Nominees Position and Rights.

[Nominee receives the claim but he is accountable to

legal heirs]

• Succession Certificate

• Legal heirs.

A small story

A businessman came to a village and announced that he needed monkeys for export and he will pay Rs 100/- each for a monkey.

Many monkeys were caught and he kept them in big cages.

As days passed the number of monkeys available became less and the businessman increased the rate to Rs 200/- per monkey and collected more number of monkeys.

Monkey Export Co

Meanwhile, a foreigner came and announced that he will pay Rs 1000/- per monkey as there is good demand in his country. He said he will come again to buy after a week.

The whole village did not have monkeys except with the businessman.

Some villagers who had money approached him and started buying monkeys at Rs 500/-. Within hours all the monkeys were transferred form businessman to villagers.

The businessman went back with his money.

But he did not show up….

Evenafter a month……..no traces of him

There were monkeys and monkeys in the village..with the villagers not knowing what to do with them.

One week later the villagers awaited for the foreigner…