Company regulatory legislations in India

Company regulatory legislations in IndiaIntroduction :

India being a democratic country, so the main objective is to reduce the concentration of the wealth in the few hands. So to prevent these things Govt. has enacted special legislation within which a business should operate. It is essential for the business houses to understand the legal environment & work accordingly.

Legal environment refer to the rules & regulation framed by the govt. within which the business is to run. Govt. makes law for the smooth functioning of the business & to safeguard the interest of consumers, workers. These legislation effect the business form starting to the winding up of business Some important enactment to regulate the industry in India are:

The industrial development & Regulation Act, 1952.The companies Act, 1956.The Indian Patent Act, 1970.MRTP Act, 1969.The Foreign Exchange Regulation Act, 1973.The Consumer Protection act, 1986.The Security & Exchange Board Of India (SEBI), 1992.The industrial development & Regulation Act (IDRA), 1952 :

The IDRA act was passed in 1951, but came into force in 1952. the main objective of this act was to increase the control the govt. over the industry through Industrial licensing. The main point of the act are as follows :To ensure balanced economic growth & development.To regulate the direction of industrial development.To prevent the monopoly in the industry.To protect the small scale industry from big industry.To effectively implement the industrial policy of the country.To ensure the industrial growth, development & production according to the planned priorities. Main Provisions of this act :

Development Measures : The IDR act provide the establishment of Central advisor council, consisting of representatives of industrial undertaking, employees, consumer, public supplier etc for advising the Central govt. on matter related to industrial development. It also provide the establishment of Development Council consisting of members representing the interest of owners, employees, consumer etc & person having special knowledge of the matter of technical aspect ,for recommending measure for the improvement of the performance of industry.

Regulation of entry & growth : The IDR act empower the govt. to regulate the industrial growth by industrial licensing with some exemption as decided by the govt.

Supervision & Control : Govt. can make full investigate , if it of the opinion that a) if any schedule industry show fall in the volume of output or fall in the quality of output or unjustifiable rise in the price. b) if any schedule industry is managed in a manner highly detrimental to the industry. For the purpose of ascertaining the position of working of any industrial undertaking, any person authorized by central govt. can : Enter or inspect any premisesOrder the production of any document, book, register.Examine any person having the control or employed.

Take over of management : Under the IDRA govt. can take control over the management of the undertaking completely or partially which fail to work in the direction mention in the act.

Govt. can also take control over the management if govt. found that undertaking is working or managed in highly detrimental to the scheduled industry concerned to public interest.

Govt. can also take control over the management under liquidation, with the permission of High Court.5. Price Distribution : For securing the equitable distribution & fair prices of any article of scheduled industry, the central industry is empowered by the act to control supply, distribution & prices.

6. Exemption : The central govt. is empowered to exempt any industrial undertaking from any of the provision of this act in certain cases in the public interest.

The companies Act 1956 :

The company law is the main law effecting the management, organization & administration of business. The Companies act contain all the provisions from formation of the company till its closure. The act provide the formation, classification, registration, raising of funds etc.

Objectives :Full & fair disclosure of all the information related to company.Effective participation by shareholder & also the protection of their interest.Enforcement of proper duties by company management.Power of intervention & investigate into the affair of the companies.

The common objective of this act is to regulate all private investment for the welfare of the society & to protect the interest of the investors.

Classification of Company :

Section 3 (1) (i) of the company act says that a company means a company formed & registered under this act or an existing company

Company act deals with following type of companies:

Limited Companies Guarantee Companies Unlimited Companies Company Formation :

Company formation is a elaborate, time consuming & expensive affair. Company formation involve 3 stepsRegistrationCapital raisingCommencement of business

1. Registration : The registrar of the company is the official register of the company. Before registration, the registrar expect the promoter to submit the list of names of the proposed company, memorandum of association, article of association & list of directors.

2. Raising of Capital : Raising of capital raise the capital from shares or through other means. It involve following steps :Getting SEBI clearanceEntering into agreement with the underwriterInviting the public to subscribe to its share capitalAllotment of shares

Commencement of business : A private company can immediately commence its business after it is incorporated but public company can start the business only after getting the certificate for the purpose. To the certificate following statement has to be submitted :A declaration that minimum subscription has been receivedA declaration that director has taken the qualification share & paid for it.

A certificate issued by a director to the effect that all the condition has been fulfilled.

The registrar then issue a certificate to commence a business. It is said that as many as 21 clearance are required before starting the business.

Winding up of Companies : The winding up of a company may be either :By a national company law tribunalVoluntary

Circumstance in which company may be wounded by the tribunal : If the company has, by special resolution, revolved that company be wounded by the tribunalIf default is made in giving the report to the registrar or in holding the meetingIf the company does not commence its business within the year of its incorporation If the number of its member is reduced, in public company below 7 & in private company below 2If company is unable to pay its debitIf tribunal is of the opinion that it is just equitable that company should wound upIf a company made default in filling with the registrar its balance sheet

Circumstance in which company may be wounded by the voluntary :

When the period fixed for the duration of the company by the article has expired

If the company passes the special resolution that the company be wounded up voluntaryMRTP Act 1969 :

MRTP act stands for The Monopolies & Restrictive Trade Practices Act 1969. to protect the concentration of economic power in the form of capital, income & employment in the few hands govt. passed this law.

Objectives :Controlling monopolistic trade practicesRegulating restrictive trade practices

Scope of the act section 3 of the act says that unless the central govt. by notification in the official gazette direct the act shall not apply to: Undertaking owned & controlled by the govt.Trade union & other association of the workerFinancial institution

Main provision of the act :Conc. of the economic power to be prevented : the declare that following type of undertaking should be regulate to prevent the conc. of economic power :Has assets size of 20 crores or moreAn undertaking which control 1/3 or more of the total production or supply of any goods & has asset of Rs. 1 crore

Monopolistic trade practices section 2 of MRTP act define monopolistic trade practices as a trade practices which has or likely to have effect ofMaintaining prices of the goods at unreasonable low level for limiting, reducing the production or distribution.Unreasonable preventing competition in production & supply of the goodsLimiting technical development & capital investment to the common detrimentIncreasing unreasonable the cost of production of any goods or serviceIncreasing unreasonable price of the goods or asking for unreasonable profit Restrictive trade practice Section 2 of the act defines restrictive trade practices as a trade which has or have the effect of preventing or preventing competition in any mannerWhich tend to effect the free flow of resource or capital for the productionWhich tend to bring manipulation of prices or delivery or supply of goods in the market

Monopolies & Restrictive trade practices commission(MRTPC) The MRTP act has set up a permanent body known as MRTPC. It is headed by chairman & has 2 to 8 members all these are appointed by the central govt. MRTPC can intiate inquiry against MTP at the order of central govt. & to inquiry against RTP & UTP it has the power of civil court. 4. Unfair Trade Practice

False representation and misleading advertisement of goods and services.Falsely representing second-hand goods as new.False claims or representation regarding price of goods and services.Misleading representation regarding usefulness, need, quality, standard, style etc of goods and services.Giving false guarantee or warranty on goods and services without adequate tests.

Foreign exchange includes the transfer of credits to settle debts or accounts between residents of the home country and those of the foreign country These include Instruments, such as paper currency, notes, checks, foreign bills. These also include gold and IMF (international monetary fund) reserves. This foreign currency deposits and bonds held by central bank and monetary authorities.21What is foreign exchange??

The Foreign Exchange Regulation Act was enacted in 1973 and it came into force on January 1, 1974. The FERA had emerged as an important piece of legislation to exercise strict control over the working of multinational companies, foreign collaborations, joint venture arrangements, technology etc. Several amendments had been done in FERA and finally it became popular only after the amendment 1973.22Foreign Exchange Regulation Act, 1973To conservate foreign exchange resources.To regulate dealings in foreign exchange and securities.To regulate foreign investment.To regulate the appointment of foreign nationals.23Objectives of FERAThe FERA was formed to serve the needs of a closed economy having very limited and selective interaction with other countries of the world. After the liberalisation and globalisation of Indian Economy, the FERA was not fulfilling the needs of the newly emerged economic environment both within the country as well as at the international level. Consequently, the government of India decided to abolish the existing FERA provisions with a new legislation known as the Foreign Exchange Management Act.24Foreign Exchange Management Act, 1999FEMA bill was introduced in august 1998 & adopted in 1999. it is applicable to whole of India. The Foreign Exchange Management Act (FEMA) is a 1999 Indian Law to consolidate and amend the 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"

Main objectivesTo amend the restrictive law relating to foreign exchangeTo manage current account & capital account transaction To facilitate external trade by IndianTo ensure free flow of capitalTo develop & expand foreign exchange market in IndiaTo redress dispute related to foreign exchange transactionTo provide suitable economic environment for globalization

Main FeaturesActivities such as payments made to any person outside India or receipts from them, along with the deals in foreign exchange and foreign security is restricted. It is FEMA that gives the central government the power to impose the restrictions.- Restrictions are imposed on people living in India who carry out transactions in foreign exchange, foreign security or who own or hold immovable property abroad.- Without general or specific permission of the MA restricts the transactions involving foreign exchange or foreign security and payments from outside the country to India the transactions should be made only through an authorised person.- Deals in foreign exchange under the current account by an authorised person can be restricted by the Central Government, based on public interest.- Although selling or drawing of foreign exchange is done through an authorised person, the RBI is empowered by this Act to subject the capital account transactions to a number of restrictions.- Exporters are needed to furnish their export details to RBI. To ensure that the transactions are carried out properly, RBI may ask the exporters to comply to its necessary requirements.

Main terms in FEMAPerson : under section 2(u) person includean individuala company A firmAn association of persons or body of individuals 2. Resident : Resident means a person residing in India for more than 182 days in the preceding financial year. It not include the person who has gone out of the India for employment, business or with the intension of permanently setting outside the India. It also not include the person who has come to India for travel or visit.

3. Current account transaction : (Section 5) Such transaction include income from foreign investment interest on external loan remittance of living expense of spouse, children or parent residing outside expenses for foreign travel, education, medical care FEMA allows current account convertibility without the permission of RBI but in public interest govt. can impose some restrictions. 4. Capital account transaction : means a transaction which alters the assets or liabilities, including contingent liabilities, outside India of persons resident in India or assets or liabilities in India of persons resident outside India, and includes transactions referred to in sub-section (3) of section 6.Main provision of FEMA

Definition of Resident - Section 2(5) Residing in India for more than 182 days, Any person or body corporate registered in India, Any office in India owned by a person who is residing outside India, An office outside India owned by a person who is residing in India.

Provision relating to export of goods & services Section7(1) of the act says every exporter of the good has to :Furnish with RBI or with any other authority for the purpose, a declaration has to be given describing the full value of the goods to be exported. Furnish other information to the RBI which may be required for the purpose for ensuring the realization of export

Provision relating to current & capital account transactions : section 5 of the act says that person can sell or draw foreign exchange only through authorized person from the current account.

Section 6 (1) of the act says that person can sell or draw foreign exchange only through authorized person from the capital account transaction where govt. may specify :Any class of the account transaction which is permitted The limit upto which the foreign exchange be admissible

Section 6(3) of the act provide that RBI can impose strict regulations or prohibit any of the following transactions :Transfer or issue of foreign security by Indian residentTransfer or issue of foreign security by person resident outside IndiaAny borrowing or lending of foreign exchangeAny borrowing or lending in Indian currency between Indian & foreignerAny export, import or holding of currency

5) Repatriation person -"repatriate to India" means bringing into India the realized foreign exchange and (i) the selling of such foreign exchange to an authorized person in India in exchange for rupees, or (ii) the holding of realized amount in an account with an authorized person in India to the extent notified by the Reserve Bank, and includes use of the realized amount for discharge of a debt or liability denominated in foreign exchange;

6) Authorized person Section 10-RBI is empowered to appoint any person in writing as authorized person to deal in foreign exchange, foreign securities, money changer. Also it is empowered to give directions to its authorized persons regarding the mode of performing his duties and inspect the business of the authorized person as well.

Provision regarding Contravention & penalties Section 13 & Section 14Any person who contravene any of the provisions of the act shall be liable to pay penality up to thrice the sum involved in such contravention. If it is quantifiable, and up to Rs 2 lakh if the sum is not quantifiable.

Provision relating to adjudication & appeals Section 16

Appeal to special director Section 17

Appeal to appellate tribunal Section 18

Appeal to high court -Centre Government is empowered to appoint authorities for conducting enquiries under the act to impose penalties and prosecution. The authorities will give reasonable opportunity to the accused person of being heard before imposing any penalty and prosecution under the act.

Directorate of enforcement Section 6(A)

FERAFEMAIt consists of 81 sections and was more complexTerms like capital and current account transactions were not definedDefinition of Authorized Person was a narrow oneThere was a big difference in the definition of Resident, under FERA, and Income Tax ActAny offence under FERA was a criminal offence, punishable with a imprisonmentAim of FERA is to prevent misuse of Foreign Trade.It did not contain any provision on the right of accused person to take legal assistance

It consists of 49 sections and is simple than FERATerms like capital and current account transactions have been definedDefinition of Authorized Person has been widened to include banks, money changes etc.The provisions of FEMA, are in consistent with Income Tax ActAny offence under FEMA is a civil offence and punishable with some amount of moneyThe aim of FEMA is facilitating Trade.It recognizes the right of accused person to take legal assistance

36The Competition Act, 2002

After the introduction of Globalization & liberalization in India, Indian industry start facing the competition from within & outside world. In the newly emerged condition MRTP act has become outdated in certain aspect, so in 1999, govt. appoint a committee on competition policy & law. This committee submit its report in 2000 & on the basis of this report The Competition act 2002 was passed. This act replaced MRTP act. Competition commission of India (CCI) has been set up which replaced MRTPC. All the pending cases of MRTPC are shifted to CCI This act is applicable to whole of India expect the state of J&K. ObjectiveTo prevent practices having adverse affect on competitionTo promote competition in marketTo protect the interest of consumerTo ensure freedom of trade in Indian market

Competition act is not applicable in following casesBanksForeign institutional investorPublic financial institutionsAgreement regarding intellectual property rights such as trade marks patent, copy right etcThe central govt. may exempt any class of enterprises from the provisionProhibition in this ActAnti Competitive agreements (section 3) All the agreement which has adverse effect on competition in India are declare void. Those agreement are Limits or control production, supply, technical development, investment etc.Restrict sharing of the market by allocation of geographically area or type goods or type of consumerManipulate the process of biddingTie-in-agreement i.e. agreement requiring a purchase of goods to purchase some other goods along with itExclusive supply agreementExclusive distribution agreementAbuse of dominant position (section 4) Dominant position means position of strength enjoyed by some person that affects its competitors or consumer, if any enterprise is enjoying such position then such position should be abuse. Such condition are :Impose unfair condition on purchase or sale of goods or serviceLimit or restrict production or technical development

Regulation of combination (section 5) Combination include acquisition, mergers. The following limits apply for determining whether a combination is subject to typeAny combination, merger which result in combined assets of more than Rs. 1000 cr. Or combined turnover more than Rs. 3000 cr in India

If business is carried outside India, then combination which result in combined assets of more than 500 million US dollars or combined turnover more than 1500 million US dollars If any merger is done in India by a group, if combined assets of group is more than Rs. 4000 cr or combined turnover more than Rs. 12000 cr If any merger is done by any enterprise or group which has business in India & abroad, has combined assets of more than 2 billion US dollars or combined turnover more than 6 billion Us dollars If any combination above type is to done then for that approval from CCI has to taken. Competition Commission of India (CCI) The competition act set up statutory body named CCI which take over MRTPC. Complaints lodged with MRTPC are handed over to CCI for settlement.

Structure & working of CCIMembers (section 7,8,9,10,11)

Appointment of Director General (section 16)

Duties of CCI (section 18)To eliminate practices having adverse effect on competitionTo promote competitionTo protect the interest of consumer

Powers & Function of CCIInquiry into anti competitive agreement & abuse of dominant position (section 19)Inquiry into combination which has adverse effect on the competition (section 20)Power to give interim relief(section 33)

Execution

Appeal

PenaltiesContravention to the order of the commission(section 42): Imprisonment up to 1 year & monetary penalty not exceeding 10 lakh Failure to comply with the direction of commission & director general (section 43) Rs. 1 lakh for each day for which failure continues

For making false statement (section 44) Not less than Rs. 50 lakh extending to to rs. 1 crore EXIM Policy

The Union Commerce Ministry, Government of India announces the integrated Foreign Trade Policy (FTP) in every five year. This is also called EXIM policy. This policy is updated every year with some modifications and new schemes. New schemes come into effect on the first day of financial year i.e. April 1, every year. The Foreign trade Policy which was announced on August 28, 2009 is an integrated policy for the period 2009-14.OBJECTIVES1. To reverse declining trend of exports is the main aim of the policy. This aim will be reviewed after two years.2. To Double Indias exports of goods and services by 2014.3. To double Indias share in global merchandise trade by 2020 as a long term aim of this policy. Indias share in Global merchandise exports was 1.45% in 2008.4. Simplification of the application procedure for availing various benefits5.To set in motion the strategies and policy measures which catalyze the growth of exports6. To encourage exports through a "mix of measures including fiscal incentives, institutional changes, procedural rationalization and efforts for enhance market access across the world and diversification of export markets.The policy aims at developing export potential, improving export performance, boosting foreign trade and earning valuable foreign exchange. FTP assumes great significance this year as Indias exports have been battered by the global recession. A fall in exports has led to the closure of several small- and medium-scale export-oriented units, resulting in large-scale unemployment.Target 1. Export Target : $ 200 Billion for 2010-12. Export Growth Target : 15 % for next two year and 25 % there after. EPCG schemes-:Obligation under EPCG scheme relaxed.2. To aid technological up gradation of export sector, EPCG Scheme at Zero Duty has been introduced. 26 new markets added in this scheme.Incentives under FMS raised from 2.5 % to 3 % Incentive available under Focus Product Scheme (FPS) raised from 1.25% to 2%.Extra products included in the scope of benefits under FPS Market Linked Focus Product Scheme (MLFPS) expanded by inclusion of products like pharmaceuticals, textile fabrics, rubber products, glass products , auto components, motor cars, bicycle and its parts.etc. (However , benefits to these products will be provided, if exports are made to 13 identified markets (Algeria, Egypt, Kenya, Nigeria , South Africa, Tanzania, Brazil, Mexico, Ukraine, Vietnam, Cambodia, Australia and New Zealand).Focus Product Scheme benefit extended for export of green products and some products from the North East. A common simplified application form has been introduced to apply for the benefits under FPS, FMS, MLFPS Towns of export excellence scheme for status holderExtension of income tax exemption to EOUExtension of ECGC Announcement for marine sector Announcement for gems and jewellery sectorAnnouncement for agro exportsAnnouncement for leather exportsAnnouncement for tea exports Announcement for pharma exportAnnouncement for handloom exports Scheme for export oriented unit Announcement for project exportsfuel included in DEPB schemeEasy import of samplesConvertibility of shipping billsThe Right to Information Act (RTI)2005The Right to Information Act (RTI) is an Act of the Parliament of India "to provide for setting out the practical regime of right to information for citizens" and replaces the erstwhile Freedom of information Act, 2002. The Act applies to all States and Union Territories of India except J&K. Under the provisions of the Act, any citizen may request information from a "public authority" (a body of Government or "instrumentality of State") which is required to reply expeditiously or within thirty days. The Act also requires every public authority to computerize their records for wide dissemination and to proactively certain categories of information so that the citizens need minimum recourse to request for information formally.RTI includes right toInspect work & records Take notes, certified copies of documents/ records Obtain information in the form of print outs, floppies, tapes, video cassettes, other electronic modes.OBJECTIVESTo setup the practical regimeto secure access to information under the control of public authoritiesTo promote transparency and accountability in the working of every public authority,The constitution of a Central Information Commission and State Information CommissionsMatters connected to Public Authority or incidental thereto

OBLIGATIONS OF PUBLIC AUTHORITIESMaintain records catalogued and indexed-> computerization, networking Publish certain particulars within 120 days Publish relevant facts while formulating policies/ Decisions affecting public Provide reasons for administrative/ quasi-judicial decisions to affected persons Form of dissemination- easily accessibleInfo should be free or at cost of medium onlyDISSEMINATIONNotice boards Newspapers Public announcements Media broadcasts Internet Inspection of offices Other meansPARTICULARS TO BE PUBLISHEDParticulars, functions and duties of the organization Powers, duties of officers & employeesProcedure followed in decision making including channels of supervision Norms set for discharge of functions Rules, regulations, instructions, manuals, records used Statement of categories of documents heldDetails of arrangement of consultation/ representation of public in policy formulation or implementation Statement of boards, councils, committees constituted as its part Directory of officers and employees Their monthly remuneration Budget, plans, proposed expenditure Particulars of concession recipients Facilities available for obtaining informationName, designation, particulars of PIO (to be updated annually)