Corporate & Allied Laws

1rd M.F.
1.7- Corporate and Allied Laws

MANOJ KUMAR .K
Research Scholar
Department of Commerce
Mangalore University
Mob; 8147682619
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Bengaluru City University (BCU)

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MFA
Chapter 1
Companies
Act -2013
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Bengaluru City University (BCU) MFA
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MFA
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MFA
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Kinds of Companies
According to mode of incorporation
 Statutory Company
 Registered Company
According to number of members

 Private Company
 Public Company
 One person Company
According to liability of members

 Company limited by shares
 Company limited by guarantee
 Unlimited Company
Other kinds of Companies

 Companies not for profit
 Foreign Company
 Government Company
 Holding Company and Subsidiary Company
 Associate Company
 Small Company
 Dormant Company
 Producer company
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Statutory Company eg. LIC, RBI, UTI,

FCI etc.
 Incorporated by a Special Act passed by Central or State legislature

 Such Companies carry on some business of national importance
 Exempted from having MOA or using 'limited' word in their name.
 Their audit supervision and guidance by CAG and Annual reports are to be
placed before Central or State Legislature
 Governed by their Special Act but Companies Act is also applicable in so
far as its provisions are not inconsistent with the provisions of Special Act
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Registered Companies
 These are the companies which are registered under the Companies
Act 2013 or earlier Companies Acts.
 Most of the companies are formed this way
 If some Insurance, Banking or Electricity Supply companies are
incorporated under the Companies Act, then on operational matters
they will be governed by their Special Acts and on other matters by
the provisions of Companies Act.
 On the basis of no. of members, registered Companies can be #
private,# public or #one person Company
 On the basis of liability of members, registered Companies can be#
limited by shares, #limited by guarantee or #unlimited companies
TPDDL i.e. Tata Power Delhi Distribution Lmt.- it an electricity
supply company
Bhatti Axa Life Insurance Company Lmt.-it is an insurance company.
Both of them are registered companies and therefore end with word
limited. But on operational matters they are governed by the 11
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Electricity Act, 2003 or the Insurance Act, 1938 respectively 11

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Private Company ,Sec2(68)

 Restricts the right of members to transfer its shares
 Limits the number of members to 200
 Prohibits any invitation to public to subscribe it's securities
 These companies must add "Private" word with its name.
 These companies enjoy certain exemptions and privileges
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Public Company ,Sec.2(71)
 Shares are freely transferable

 Minimum membership required is 7 but maximum no
limit
 Can invite public for subscription of its securities
 Subsidiary of a public company will be deemed to be
public company (even when the subsidiary is a private
company and has those three restricting clauses in its
AOA)
 These companies are required to comply with lot of
formalities and procedures
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One Person Company, Sec.2(62)
 Has just one member who shall be a natural person but it is necessary to indicate
name of another person (nominee)who shall become the member incase the only
member dies or is incapacitated
 Necessary to mention the words 'One Person Company" in brackets below the
company's name wherever printed/engraved/affixed
 Always incorporated as a private company. It may be limited by shares, or limited by
guarantee or an unlimited company
 Such company enjoys certain additional exemptions like- no. of directors can range
from 1 - 15, no need of their rotational retirement, no compulsion to conduct board
meetings if there is just 1 director, no need to hold AGM/ EGM, the Financial
Statements may not include cash flow statement and may be signed by just 1
director, BOD report is not too detailed, Annual Return can be abridged ; financial
statements can be filed with ROC within 180 days of closure of financial year etc.
 This OPC status and concessions will be withdrawn if it's paid up share capital
exceeds 50 lakhs or average annual turnover during preceding three consecutive
financial years exceeds 2 crores. In such a case, the OPC is required to convert
itself,within next 6 months, into a private or a public Co and take necessary steps
such as - alteration of its AoA and MoA for making changes incidental to conversion,
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notice to ROC(within a period of 60 days of conversion) informing it of
14 cessation
of its OPC status and conversion into private or public company as the case may be.
Companies limited by shares
 In such companies liability of members is limited by the memorandum to
the amount remaining unpaid on shares held by them
 This liability can be enforced at any time during the existence of the
company or during the winding up of company
 Most of the companies in India belong to this category
 Such companies are also known as limited liability companies
 If shares are fully paid, the liability of members will be nil
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Companies Limited by guarantee
 In such companies, liability of members is limited by memorandum to the

amount guaranteed by them (such amount as they have respectively
undertaken to contribute to assets of the company to meet the
deficiency at the time of its winding up)
 This liability/ guarantee can be enforced(demanded) only at the time of
winding up and not before
 Non- trading companies formed for the promotion of art, science,
commerce, sports, culture etc. are incorporated as guarantee companies.
Eg. Chambers of Commerce, sports clubs, trade associations
 Memorandum of Association of such companies states what amount each
member has guaranteed and this amount may differ from member to
member
 Such companies may or may not have share capital. If it has share capital,
liability of members will be two fold .i.e. they are liable for amount
remaining unpaid on shares as well as amount payable under guarantee
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Unlimited Companies
 Such companies have no limit on the liability of its members i.e. their
liability may extend to their personal property to pay off the
liabilities of the company
 Memorandum of such companies must state that liability of its

members is unlimited
 Liability of members is enforceable only at the time of winding up
 Every member is liable to contribute in proportion of his interest in

the company
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 Such companies are very rare .Eg. Nova Scotia (Canada) Unlimited
Liability Company, Cyber Ventures
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Companies not for Profit/Licensed Companies (Sec.8) MFA
 These companies are meant for promoting science,art,commerce,sports,

religion, charity, social welfare, environmental protection or other useful
objects. Eg.FICCI,CII,ASSOCHAM , National Sports Club of India etc.
 Before registration under Company's Act, they have to apply to the
Central Govt. for a license which shall be granted on prescribed terms
and conditions (this licence can be revoked by CG anytime this company
contravenes any prescribed term\ condition)
 These companies are required to apply its income for promoting its
objects and are not allowed to pay any dividends to its members.Even on
winding up ,if any surplus assets are left after paying off all the debts
and liabilities, those surplus assets will either be transferred to another
Licensed company having similar objects or may be sold and proceeds
shall be credited to Insolvency and Bankruptcy Fund.
 These companies have limited liability but are exempted from using
words 'limited' or 'private 'limited' with their name
 These companies are subject to certain exemptions in form of tax
benefits, procuring land and immovable at concessional rates,18permission
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to receive donations etc. Further certain notified Sections of the 18

Foreign Companies MFA
 Foreign Company is a company incorporated outside India but which has a place of
business in India (either by itself/agent/physically/electronically) and conducts any
business activity in India in any manner. Such companies,if interested in raising funds
from India , can issue IDRs i.e. Indian Depository Receipts after complying with rules
made by CG in this regard.
 Obligations regarding filing of documents. Within 30 days of establishment of business
in India, such companies have to furnish to the Registrar the Charter, Memorandum and
Articles of the Company;address of the Registered office, particulars of directors and
secretary; address of principal place of business in India, particulars of persons in India
who will receive notices on behalf of the company etc.
 Obligation regarding Accounts - Every foreign company has to file every year with the
Registrar ,the copy of its Balance Sheet,Profit and Loss Account and other documents
as required under the Act .
 Obligation regarding Exhibition of the Name- A foreign company is required to exhibit
its name and country of its Incorporation outside its every office in India (in English
and regional language) and also on all its business letters,bills,advertisements, notices
and its all other official publications (in English language)
 In case of contravention of any of the above provisions, foreign company shall be
punishable with fine( ranging from 1 to 3 lakhs), additional fine( up to 50000 per day)
in case of continuing default in addition to its punishment of imprisonment and\or fine
of its officers in default. Further such defiant company is liable to be sued by others
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but it cannot file suit on others for counter claim or enforcement of its rights.
Holding and Subsidiary Company MFA
 Holding Company is one which exercises control over the other

company.This control may be by virtue of either controlling the
composition of BOD of other company or because of controlling
(either itself or together with its subsidiaries) more than half(50℅) of
the total voting power of the other company.
 A company which is subsidiary of a subsidiary company shall also be a
subsidiary of the holding company(This is called chain holding).
 A private company which is subsidiary of a public company will be
deemed to be a public company(* )
 A subsidiary company is prohibited from holding shares in the holding
company( Sec.19 of Companies Act,2013 prohibits cross holding)
 As per sec.129(3), every holding company is required to prepare, in
addition to its own financial statements, a consolidated financial
statement( of the holding company together with all its
subsidiaries )to present the picture of the group as a whole.
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Associate Company MFA
 This concept of associate company is new and has been

introduced by Companies Act 2013.
 An associate company is one in which that other company has
significant influence, but which is not a subsidiary company of
that other company.Significant influence means control of atleast
20% of total voting power or of business decisions under an
agreement
 A joint venture company will be an associate company
 Control of atleast 20% translates to actually 20% to 50% because
on exceeding 50%, the associate will actually become the
subsidiary company
 A parent company is not required to consolidate the associate
company's financial statements. Rather the parent company
records the associate company's value as an asset in its Balance
sheet
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Small Company
MFA
 A small company is new class of private limited company (introduced

for the first time in Companies Act 2013 via sec.2(85) ) whose paid up
share capital does not exceed 50 lakhs or turnover as per P&L account
of the preceding financial year, does not exceed 2 crores.
 However a Holding or a Subsidiary company, a licensed company or a
company governed by any Special Act will not be regarded as small
company even if its capital or turnover is ≤ prescribed limits
 These companies enjoy additional exemptions and privileges in
addition to those enjoyed by private companies.Eg. their financial
statements may not include cash flow statement, they may hold just 2
board meetings in a year compared to atleast 4 board meetings per
year for other companies,exemption from mandatory rotation of
auditors etc.
 The Central Govt is empowered to notify those sections of the
Companies Act which shall not apply to small companies or shall apply
with modifications,adaptations or exceptions
 The status of a company as 'small company' may change from year to
year depending upon changes in capital or turnover. Accordingly
benefits which are available in a particular year may stand withdrawn 22

Private Company Producer Compa
Defined in Sec.2(68) of Companies Act,2013 Defined in Sec 581A of Companies Act,1956
A company which by its AOA restricts the right to transfer its shares, limits A body corporate registered under Companies
membership to 200 and prohibits any invitation to public for subscription of objects specified in Sec.581B
its securities.
Name must end with words "pvt Lmt" eg. XYZ pvt Ltd. Name must end with words "Producer Compan
Coconut Producer Company Lmt.
Profit or gain Mutual assistance
Can carry out any object provided its not against provisions of Co. Act, Can carry only those objects as are specified in
public policy or any law
Min. 2 Min. 10 Individuals\ 2Prod. Inst.

Max 200 Max. No limit
p No such criteria Members must be primary producers
Min. 2 Max. as fixed by AOA Min.5 Max. 15
Voting rights of members are in proportion to the paid up capital held by If only producer institutions are members, the
them i.e. one share one vote depends on their participation rate in the busin
Company.In all other cases i.e.where only
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members or23 combination of individuals
Institutions then one member one vote.
Pvt company can be easily converted into public limited company. Producer Company can never become a
Conversion of private co. into public MFA
co.& vice versa (Delibrate conversion)

PRIVATE CO. CONVERSION INTO PUBLIC CO. CONVERSION INTO
PUBLIC CO. PRIVATE CO.
Passing of SR deleting from AOA the three Passing of SR incorporating into AOA the
compulsory restrictions u\s2(68) three compulsory restrictions u\s2(68) +
Obtaining sanction of CG on alteration of
articles
Filing with ROC the copy of SR and copy of Filing with ROC, the copy of SR within 15
altered AOA within 15 days of SR days of SR +copy of altered AOA and
approval letter of CG within 15 days of
approval
Company becomes public from date of passing Company becomes private from date of
SR altering AOA approval from CG
ROC will close the former registration and issue a ROC will close the former registration and
new Certificate of Incorporation issue a new Certificate of Incorporation.
Company will have to increase the number of Company will have to reduce members to
members to at least 7; increase directors to at least 200; and add the word 'Private' in its name
3; and delete word 'Private' from its name and
make other necessary alterations in MOA
Conversion of private co. into public MFA
co.& vice versa (Automatic conversion)

PRIVATE CO. CONVERSION INTO PUBLIC PUBLIC CO.
CO. CONVERSION INTO
PRIVATE CO.
Takes place by operation of law and such company is not required to
comply with any legal formalities as are prescribed for deliberate NOT ALLOWED
conversion.
Takes place when a private co. makes default in complying with the
restrictions specified in Sec.2(68) of the Act (i.e.if its membership
>200 or it allows free transfer of shares or invites public subscription
of its securities)
Such a company can no longer enjoy privileges and exemptions

conferred on a private co. & be regulated like a public company.
However, if Tribunal (NCLT) is convinced that the default took place

due to inadvertence or accident or some sufficient cause, it may
relieve the co.from being treated like a public company
Where automatic conversion takes place, the company may retain

characteristics of a private company i.e. can have restrictions
pertaining to membership, or transferability or public subscription,
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may continue to have 2 members or directors. Only the exemptions
and privileges are withdrawn. 25
Privileges/exemptions of a private co. MFA
 Only 2 persons may form themselves into a private co.

 May work with only 2 directors
 It can allot shares without receiving the minimum subscription
 It is not required to prepare and file prospectus with the Registrar
 Directors of a private company are not required to retire by rotation. All its
directors can be permanent.
 It is not required to appoint independent directors, woman directors, small
shareholders directors etc.
 It may by its AOA, provide special disqualifications for appointment of directors .
 No restriction on payment of remuneration to directors, managing directors etc.
 Exempted from constituting committees like Audit Committee, Nomination and
Remuneration Committee.
 Exempted from Secretarial Audit
 Not required to rotate auditor/ audit firm
 Unless AOA provide for a larger no., quorum for general meeting -2 members
personally present
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PRIVATE COMPANY PUBLIC COMPANY
Private Company vs Public Company MFA
Minimum no. of members – 2 Minimum no. of members -7
Maximum no. of members-200 Maximum no. of members- No limit
There must be restrictions on No restrictions on transfer of
transfer of shares of the company. shares.
Any invitation to public to subscribe A public company can invite public
for any securities of the company is for subscription of its securities.
prohibited.
It can issue securities only through It can issue securities to public
private placement, or by way of through prospectus, private
rights or bonus issue placement or by way of rights or
bonus issue
It can allot shares without receiving It cannot allot shares without
the minimum subscription receiving minimum subscription
A private company must have A public company must have atleast

atleast 2 directors 3 directors
Directors are not required to retire Atleast 2/3 directors of a public
by rotation. All its directors can be company shall be rotational
PRIVATE COMPANY PUBLIC COMPANY
Private Company vs Public Company MFA
It may by its AOA, provide special It cannot prescribe additional

disqualifications for appointment of disqualifications in its AOA for
directors . appointment of directors.
No restriction on payment of Overall maximum managerial
remuneration to directors, remuneration is fixed at 11% of
managing directors etc. annual net profits of a public
company.
Exempted from constituting Public companies (
committees like Audit Committee, listed/prescribed) are required to
Nomination and Remuneration constitute Audit Committee,
Committee. Nomination and Remuneration
Committee
Exempted from Secretarial Audit Public companies(
listed/prescribed) are required to
get Secretarial audit by a practicing
Company Secretary
Not required to rotate auditor/
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Public companies 28(
audit firm listed/prescribed) required to
Companies Act 2013 – timeline
29 Aug 2013 –
2004 – 8 Aug 2013 –
President’s
Concept paper Rajya Sabha
Assent
2004 – J J 12 Sep 2013 –

18 Dec 2012 –
Irani expert 98 sections
Lok Sabha
committee notified
2008 – 2012 -
Companies Bill Companies Bill What next?
2008 2012
2009 – 2011-
Companies Bill Companies Bill
2009 2011
Bengaluru City University (BCU) [email protected] MFA
Companies Act, 2013: A statistical snapshot

 Number of schedules : 7
 Number of chapters: 29
 Number of sections: 470
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 Definition of Company :-“Company” means a

company incorporated under this Act or under
any previous company law.
 Characteristics :
 Separate legal entity
 Limited liability
 Perpetual Succession
 Common Seal
 Transferability of shares
 Separate Property
 Capacity to sue
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TYPES OF COMPANY
 Public Limited Company

 Private Limited company
 One Person Company
 Small Company
 Dormant Company
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PRIVATE COMPANY
 Section2(68) “private company” means a company

having a minimum paid-up share capital of one lakh
rupees or such higher paid-up share capital as may be
prescribed, and which by it articles,—
 (i) restricts the right to transfer its shares;
 (ii) except in case of One Person Company, limits the
number of its members to two hundred;
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 Provided that where two or more persons hold one or
more shares in a company jointly, they shall, for the
purposes of this clause, be treated as a single member
 Provided further that—
(i) persons who are in the employment of the company;

and
(ii) persons who, having been formerly in the
employment of the company, were members of the
company while in that employment and have continued
to be members after the employment ceased, shall not
be included in the number of members; and
(iii) prohibits any invitation to the public to subscribe for
any securities of the company
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PUBLIC COMPANY
Section 2(71) “public company” means a
company which—
 (a) is not a private company;
 (b) has a minimum paid-up share capital of
five lakh rupees or such higher paid-up capital,

as may be prescribed:
 Provided that a company which is a subsidiary
of a company, not being a private company,

shall be deemed to be public company for the
purposes of this Act even where such
subsidiary company continues to be a private
company in its articles 35
ONE PERSON COMPANY
 Section2(62) “One Person Company” means a

company which has only one person as a member.
 Waives a number of compliance requirements.
 ‘Lives on’ even after the death/disability of the sole
member.
 OPC registered with one member.
 Appointment of another person as a nominee member
in the event of the subscriber’s death or his incapacity
 Only natural person who is an Indian citizen and
resident in India is eligible to incorporate OPC.
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SMALL COMPANY
2(85) ‘‘small company’’ means a company, other than a public
company,—
(i) paid-up share capital of which does not exceed fifty lakh
rupees or such higher amount as may be prescribed which
shall not be more than five crore rupees; or
(ii) turnover of which as per its last profit and loss account
does not exceed two crore rupees or such higher amount as
may be prescribed which shall not be more than twenty
crore rupees:
 Provided that nothing in this clause shall apply to—
(A) a holding company or a subsidiary company;

(B) a company registered under section 8; or
(C) a company or body corporate governed by any special Act
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DORMANT COMPANY
 Dormant company: The 2013 Act states that a

company can be classified as dormant when it
is formed and registered under this 2013 Act
for a future project or to hold an asset or
intellectual property and has no significant
accounting transaction. Such a company or an
inactive one may apply to the ROC in such
manner as may be prescribed for obtaining the
status of a dormant company.[Section 455 of
2013 Act]
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DORMANT COMPANY
 Who can attain status of a dormant company? – Companies;
 Formed for a future project, or to hold and asset /
intellectual property and has no significant accounting

transactions
 Not carrying out any significant business or operation, or
has not made any significant accounting transaction, or

has not filed financial statements / annual returns for 2
years
 Special resolution in AGM / confirmation from at least 3/4th
shareholders (by value) required to apply for being dormant
company
 Certain additional conditions prescribed for company to be
eligible to make application to be dormant company
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DORMANT COMPANY…
Concessions to dormant companies

 Dormant company not required to prepare cash flow
statement
 Dormant company to conduct at least 2 Board meetings in
a calendar year (with gap of 90 days between 2 meetings)

 Rotation of auditors not applicable
Limitations
 ROC to initiate process of striking off name of company
in case it remains dormant for consecutive 5 years

 Return to be filed within 30 days of end of financial year
of financial position duly audited by CA
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ONE PERSON COMPANY
 Simpler legal and governance regime for operation

and maintenance
 Waives a number of compliance requirements.
 ‘Lives on’ even after the death/disability of the sole
member
 OPC registered with one member
 Appointment of another person as a nominee member
in the event of the subscriber’s death or his incapacity
 Only natural person who is an Indian citizen and
resident in India is eligible to incorporate OPC.

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TYPES OF OPC
 a company limited by shares; or

 a company limited by guarantee; or
 an unlimited company.

APPOINTMENT OF DIRECTORS
 Articles of a company may provide for the appointment of

the first directors
 If articles are silent then the subscriber to the
memorandum who is an individual shall be deemed to be
the first director of the company
 May have a single director
 Maximum-15 directors more than 15 after passing Special
Resolution
 Director must have stayed in India for a total period of not
less than 182 days in the previous calendar year
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MEETINGS OF BOARD
 At least one meeting of the Board of Directors to

conducted in each half of a calendar year
 Gap between the two meetings should not be less
than ninety days
 Exemption – if company has only one director.

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CONTRACT BY ONE PERSON COMPANY
 One Person Company limited by shares or by guarantee enters

into a contract with the sole member of the company who is also
the director of the company, the terms of contract or offer are in
writing or contained in a memorandum or recorded in the minutes
of the Board meeting held next after entering into the contact.
 Inform the Registrar about every contract entered into by the

company within a period of fifteen days of the date of approval by
the Board of Directors.
 Contracts in ordinary course of business not required to comply

with the above.
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FINANCIAL STATEMENT
 The financial statement, signed by one director, for

submission to the auditor for his report thereon.
 Board of Directors Report means a report containing
explanations or comments by the Board on every
qualification, reservation or adverse remark or disclaimer
made by the auditor in his report.
 Filed with ROC within 180 days from the closure of the
financial year
 Financial statement, may not include the cash flow
statement
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EXEMPTION
 Section 96. Option to dispense with the requirement of holding an AGM

 Section 98. Power of Tribunal to call meetings of members
 Section 100. Calling of extraordinary general meeting.
 Section 101. Notice of meeting.
 Section 102. Statement to be annexed to notice.
 Section 103. Quorum for meetings.
 Section 104. Chairman of meetings
 Section 105.Proxies
 Section 106. Restriction on voting rights
 Section 107. Voting by show of hands
 Section 108. Voting through electronic means
 Section 109. Demand for poll
 Section 110.Postal ballot
 Section 111. Circulation of members’ resolution
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RESTRICTIONS
 Such Company cannot be incorporated or converted into a

company under section 8 of the Act.
 Such Company cannot carry out Non-Banking Financial
Investment activities including investment in securities of
anybody corporates.
 No such company can convert voluntarily into any kind of
company until expiry of 2 years from the date of
incorporation, except in cases where capital or turnover
threshold limits are reached.
 No minor shall become member or nominee of the One
Person Company or hold share with beneficial interest.
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CONVERSION OF OPC
 Where the paid up share capital exceeds fifty lakh rupees

or its average annual turnover during the relevant period
exceeds two crore rupees
 OPC to convert itself, within 6 months of the date on

which its paid up share capital is increased beyond fifty
lakh rupees or the last day of the relevant period during
which its average annual turnover exceeds two crore
rupees, into either a private company with minimum of
two members and two directors or a public company
with at least of seven members and three directors in
accordance with the provisions of section 18 of the Act

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CONVERSION OF PRIVATE COMPANY INTO ONE PERSON COMPANY

MFA
 A private company other than a company

registered under section 8 of the Act may convert
itself into OPC by passing a special resolution in
the general meeting.
 AND after obtaining a NOC from all its members
and creditors.

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SMALL COMPANY
 The concept of “Small Company” has been
introduced for the first time by the Companies
Act, 2013.
 The Act identifies some companies as small
companies based on their capital and turnover for
the purpose of providing certain relief/exemptions
to these companies.
 Most of the exemptions provided to a small
company are same as that provided to a One
Person Company.
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SMALL COMPANY - SECTION 2 (85)

A company, other than a public company,—
1. paid-up share capital of which does not exceed Rs. 50
lakh or such higher amount as may be prescribed which
shall not be more than Rs. 5 crore; or
2. turnover of which as per its last P&L A/c does not exceed
Rs. 2crore or such higher amount as may be prescribed
which shall not be more than Rs. 20 crore
Provided that nothing in this clause shall apply to—
(A) a holding company or a subsidiary company;
(B) a company registered under section 8; or
(C) a company or body corporate governed by any
special Act;
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SALIENT FEATURES
 Only a private company can be classified as a small
company.
 Holding company, subsidiary company, charitable company
and company governed by any Special Act cannot be
classified as a small company.
 For a small company, either the paid up capital should not
exceed Rs. 50 lakhs or the turnover as per latest statement
of profit & loss should not exceed Rs. 5 crores.
 The status of a company as “Small Company” may change
from year to year. Thus the benefits which are available
during a particular year may stand withdrawn in the next
year and become available again in the subsequent year.
53
Special Provisions and Exemptions

• Privileges/exemptions available to a small company
are same as OPC.
• The annual return of a Small Company can be signed

by the company secretary alone, or where there is no
company secretary, by a single director of the
company.
• A small company may hold only two board meetings

in a year, i.e. one Board Meeting in each half of the
calendar year with a minimum gap of ninety days
between the two meetings.
54
SPECIAL PROVISIONS AND EXEMPTIONS

 A small company need not include Cash Flow
Statement as a part of its financial statements.
 Provision regarding mandatory rotation of auditor not
applicable to a small company.
 Holding and subsidiary companies are specifically
excluded from the concept of small company.
 In other words, a holding or a subsidiary company
can never enjoy the privileges of a small company
even though they may fulfill the capital or turnover
requirement of a small company.
55
 Whether a private Company having paid-
up share capital of rupees 45 lakhs and
turnover of Rs. 20 crores as per last audited
balance sheet will be treated as small
company?
56
MFA
Incorporation of Companies
57
STAGES IN COMPANY INCORPORATION
 Promotion
 Registration
 Floatation
 Commencement of Business
58
 A company comes into existence is generally by a process

referred to as incorporation. Once a company has been legally
incorporated, it becomes a distinct entity from those who
invest their capital and labour to run the company.
 Usually the first step to form a company is the process known
a‘promotion’ where a person persuades others to contribute
capital to a proposed company before it is incorporated . Such
a person is called the promoter of the company.
 Promoters also can enter into a contract on behalf of a
company before or after it has been granted a certificate of
incorporation, and arrange share issues in the name of the
company
59
 Definition :- [email protected] MFA
 Section 2 (69) of the Companies Act, 2013 defines the term
‘promoter’ as under:-
 “Promoter” means a person—
(a) who has been named as such in a prospectus or is identified

by
the company in the annual return referred to in section 92; or
(b) who has control over the affairs of the company, directly or
indirectly whether as a shareholder, director or otherwise; or
(c) in accordance with whose advice, directions or instructions the
Board of Directors of the company is accustomed to act.
 Provided that sub-clause (c) shall not apply to a person who is
acting merely in a professional capacity.(giving only

professional advice to the Board of directors, he shall not be
treated as a promoter.)
60
 Fiduciary Position of Promoter in company:-

1)Not to make any secret profit at the expense of the
company
2)To give benefit of negotiations to the company
3)To make full disclosure of interest or profit
4)Not to make unfair use of position.
 Position of promoters as regard pre-incorporation
contracts:-
1)Company not bind by pre-incorporation contract
2)Company cannot enforce pre-incorporation contract
3)Promoters personally liable.
61
CASE STUDIES
 Mr.Vikram is the promoter of Abascus Ltd.He entered into
an agreement with Real estate dealer to buy an land on the
behalf of the company on 15th july 2014.The Registrar of
companies issued him certificate of incorporation on 22nd
october 2014.After Incorporation company refuses to buy
the said plot of land.Has the real estate dealer has an remedy
against the promoter or against the company?
 Mr Sinha(Corporate Professional) prepares an AOA & MOA

on the instructions of the promoter of company.He also paid
the registration fees & got the company registered.Mr Sihna
filed a case against company for non-payment of his
professional fees. From whom he can recover this amount?
62
MFA
Incorporation of Company
63
MFA
STEPS TO BE FOLLOWED WHILE INCORPORATION
[email protected]
1) Obtain Digital Signatures: Nowadays various document

prescribed under the Companies Act, 2013, are required to be
filed with the digital signature of the Managing Director or
Director or Manager or Secretary of the Company, therefore, it
is compulsorily required to Obtain a Digital Signature
Certificate from authorized DSC issuing authority for at least
one director to sign the E-forms related to incorporate like
form INC.1 and other documents.
.

 Digital Signature Certificates (DSC) are the digital

equivalent (that is electronic format) of physical or paper
certificates. Examples of physical certificates are drivers'
licenses, passports or membership cards. Certificates serve
as proof of identity of an individual for a certain purpose;
for example, a driver's license identifies someone who can
legally drive in a particular country. Likewise, a digital
certificate can be presented electronically to prove your
identity, to access information or services on the Internet
or to sign certain documents digitally
65
2) Obtain Director Identification Number [Section 153]

 As per 153 of the Companies Act, 2013, every individual
intending to be appointed as director of a company shall

make an application for allotment of Director Identification
Number in form DIR.3 to the Central Government in such
form and manner and along with such fees as may be
prescribed.
 Therefore, before submission of e-Form INC.1 for
availability of name, all the directors of the proposed

company must ensure that they are having DIN and if they
are not having DIN, it should be first obtained
66
 What is the procedure of obtaining DIN?
 Any person intending to apply for DIN shall have to make an
application in eForm DIR-3 and should follow the following
procedure:
 1. eForm DIR-3 has to follow the online e-Filing process .
 2. Attach the photograph and scanned copy of supporting
documents i.e. proof of identity, and proof of residence as per
the guidelines. Physical documents are not required to submit
at DIN cell.
 3. Along with the supporting documents, Verification as per
Form DIR-4 shall also be attached. This shall contain the
Name, Father’s name, date of birth and text of declaration and
physical signature of the applicant.

 4. The eForm shall have to be digitally signed and shall be
uploaded on MCA21 portal.
 5. Upon upload, Pay the fees for eForm DIR-3. Only electronic
payment of the fees shall be allowed (I.e. Netbanking / Credit
Card). No challan payment will be accepted under revised
procedure of DIN allotment.
The applicant is required to get himself/herself registered on the
MCA21 Portal to obtain login id, which is necessary for payment
of the fees. After obtaining the login-id, Login to the MCA21
portal and click on 'eForm upload' link available under the
'eForms' tab for uploading the eForm DIR-3 . eForm DIR-3 will
be processed only after the DIN application fee is paid.
 6. Upon upload and successful payment,
 Form DIR-3 is mandatorily to be signed by an Applicant and a
practicing professional or secretary (who is a member of ICSI) in
whole time employment or the Director of the existing company
 7. Processing of e Form DIR-3

 In case, DIR-3 gets certified by the professional (i.e.
CA(in whole time practice)/ CS(in whole time practice)/
CWA (in whole time practice)/, the DIN will be
approved by the system immediately online (in case it is
not potential duplicate).
 8. Post-approval changes in particulars of Form DIR-3
 If there is any change in the particulars submitted in
eform DIR-3, applicant can submit e-form DIR-6
online. For instance in the event of change of address of
a director, he/ she is required to intimate this change by
submitting eform DIR-6 along with the required attested
documents
69
3. Name availability for proposed company
 As per section 4(4) read with Rule-9 of Companies
(Incorporation) Rules, 2014, application for the
reservation/availability of name shall be in Form no. INC.1
along with prescribed fee of Rs. 1,000/-. In selection of
Company name should be in accordance with name guidelines
given in Rule-8 of Companies (Incorporation) Rules, 2014.
 After approval of name ROC will issue a Name availability
letter w.r.t. approval for availability of name for a proposed
company.
 Validity of Name approved by ROC: As per section 4(5),
maximum time for which name will be available has been
prescribed in the law itself under section 4(5). The name will
be valid for a period of 60 Days from the date on which the
application for Reservation was made.
70
 4. Preparation of the Memorandum of Association
(MOA) and Articles of Association (AOA)
 Drafting of the MOA and AOA is generally a step subsequent
to the availability of name made by the Registrar. It should be
noted that the main objects should match with the objects
shown in e-Form INC.1. These two documents are basically
the charter and internal rules and regulations of the company.
Therefore, it must be drafted with utmost care and with the
advice of the experts and the other object clause should be
drafted in a very broader sense.
 As per section 4(6) the memorandum of a company shall be in
respective forms specified in Tables A, B, C, D and E in
Schedule I as may be applicable to such company.
 As per section 5(6) the articles of a company shall be in
respective forms specified in Tables F, G, H, I and J in
Schedule I as may be applicable to such company.
 5. Application for incorporation of a company
 application for incorporation of a private and Public company,
with the Registrar, within whose jurisdiction the registered
office of the company is proposed to be situated, shall be filed
in Form no. INC 7 [Rule 12 to 18] along with Form no. INC.22
for situation of registered office of the Company,
 · Declaration in Form No. INC-8 by Professionals. (As per
Rule-14 of Companies (Incorporation) Rules, 2014, A
declaration in the prescribed form by an advocate, a CA, CMA
or CS in practice who is engaged in the formation of the
company, and by a person named in the articles as a director,
manager or secretary of the company, that all the requirements
of this Act and the rules made there under in respect of
registration and matters precedent or incidental thereto have
been complied with;)
72
 Affidavit from each of the subscriber to the Memorandum in

Form No. INC-9 , (an affidavit from each of the subscribers to
the memorandum and from persons named as the first directors,
if any, in the articles that he is not convicted of any offence in
connection with the promotion, formation or management of
any company, or that he has not been found guilty of any fraud
or misfeasance or of any breach of duty to any company under
this Act or any previous company law during the preceding five
years and that all the documents filed with the Registrar for
registration of the company contain information that is correct
and complete and true to the best of his knowledge and belief;)
73
 Form no. INC 22:As per Rule 25 of verification of

registered office
 Section 12(2) of the Companies Act, 2013 states that
the Company shall furnish to the Registrar
verification of its registered office within a period of
thirty days of its incorporation in such manner as may
be prescribed.
 Section 12(4) of the Companies Act, 2013 states that
Notice of every change of the situation of the
registered office, verified in the manner prescribed,
after the date of incorporation of the company, shall
be given to the Registrar within fifteen days of the
change, who shall record the same.
74
INCORPORATION OF OPC
75
1) Application for DIN
2) Name Availability:After obtaining name availability, within
60 days its required to file incorporation documents with
ROC.
3)Filing Incorporation form:
 E-form – INC-2- Application for Incorporation
 E-form – INC-3 – Nominee consent form.
 E- Form - INC-22 – Situation of Registered office
 E-form – INC-9- Affidavit from subscriber of
memorandum.
 E-form – INC-10- form of verification of signature of
subscriber.
 DIR-12- Consent of Director
 MOA & AOA.
4)Certificate of Incorporation – The register office will

76
issue form No. INC- 11
Sr. Nature of E-Forms Form No. Due Date Of Filing
No.
1. Application for reservation of name INC.1 NA
2. Application for incorporation INC.2 60 days
3. Nominee – Consent Form INC.3 15 days

4. Change in Member/Nominee INC.4 30 days
5. Intimation of exceeding threshold – INC.5 60 days

i.e. ceased to be OPC
6. OPC – Application for conversion INC.6 NA
7. Filing of Special Resolution MGT.14 30 days
8. Application for DIN DIR 3 NA

9. Verification for DIN DIR 4 NA
77
MEMORANDUM & ARTICLES OF

ASSOCIATION
78
 The Memorandum of Association is the charter of a
company. It is a constitution document, which amongst
other things, defines the area within which the company
can operate.
 As per section 2(56) “memorandum” means the
memorandum of association of a company as originally
framed or as altered from time to time in pursuance of
any previous company law or of this Act.
 The company cannot depart from the provisions of the
memorandum. If it enters into a contract or engages in
any trade or business which is beyond the powers
conferred on it by the memorandum, such a contract or
the act will be ultra-vires (Beyond Powers) the company
and hence void.
79
[email protected]
MODEL FORMS OF MEMORANDUM

 Table A is applicable in the case of companies limited
by shares;
 Table B is applicable to companies limited by guarantee
not having a share capital;
 Table C is applicable to the companies limited by
guarantee having a share capital;
 Table D is applicable to unlimited companies not having
a share capital;
 Table E is applicable to unlimited companies having a
share capital.
80
NAME CLAUSE
 A company being a legal entity must have a name of its own to
establish its separate identity.

 The name of the company is a symbol of its independent
corporate existence.
 The first clause in the memorandum of association of the
company states the name by which a company is to be known.

 The company may adopt any suitable name provided it is not
undesirable.
 It should be published & engraved in all documents along
with the CIN No.

 in case of One Person Company, the words ‘‘One Person
 Company’’ shall be mentioned in brackets below the name of
such company, wherever its name is printed, affixed or

engraved.
81
 Rectification of name of a company (Section

16):-
 Section 16 provides that if by inadvertence or
otherwise a name has been registered which is
identical to or too nearly resembles the name of an
existing company whether registered under this Act
or the previous company law, the Central
Government may direct thecompany to change its
name.
 The company shall change its name within a period
of 3 months from the issue of the above direction
after passing an ordinary resolution for the purpose.
82
SITUATION CLAUSE
 The name of the State in which the registered office of
the company is to be situated must be given in the
memorandum. But the exact address of the registered
office is not required to be stated therein. Within 15 days
of it incorporation, and at all times thereafter, the
company must have a registered office to which all
communications and notices may be sent
83
OBJECTS CLAUSE
 Under section 4(1)(c)of the Companies Act,
2013, all companies must state in their
memorandum the objects for which the company
is proposed to be incorporated and any matter
considered necessary in furtherance thereof.
84
LIABILITY CLAUSE
 The fourth compulsory clause must state that liability of the
members is limited, if it is intended that the company be limited
by shares or by guarantee. The effect of this clause is that, in a
company limited by shares, no member can be called upon to
pay more than what remains unpaid on the shares held by him.
 The fifth compulsory clause which must state the amount of the
capital with which the company is registered, unless the
company is an unlimited liability company. The shares into
which the capital is divided must be of fixed value, which is
commonly known as the nominal value of the share. The capital
is variously described as “nominal”, “authorised” or
“registered”
85
 Declaration for Subscription:- (INC-13)
The statutory requirements regarding
subscription of memorandum are that:
— each subscriber must take at least one share;
— each subscriber must write opposite his name
the number of shares which he agrees to take.
 Signing & Stamping of Memorandum
86
ARTICLES OF ASSOCIATION
 The articles of a company shall be in respective forms
specified in Tables, F, G, H, I and J in Schedule I as may
be applicable to such company.
 In terms of section 5(1), the articles of a company shall
contain the regulations for management of the company.
The articles of association of a company are its bye-laws
or rules and regulations that govern the management of
its internal affairs and the conduct of its business.
 They are subordinate to and are controlled by the
memorandum of association.
87
CONTENTS OF ARTICLES
Adoption of preliminary contracts.
3. Number and value of shares.
4. Issue of preference shares.
5. Allotment of shares.
6. Calls on shares.
7. Lien on shares.
8. Transfer and transmission of shares.
9. Nomination.
10. Forfeiture of shares.
11. Alteration of capital.
12. Buy back.
13. Share certificates.
14. Dematerialisation.
88
15. Conversion of shares into stock.
ALTERATION OF MOA
1) Alteration of Name Clause:-
 Special resolution to be filed by company Form No.
MGT-14(Special resolution)
 Approval from central government in writing
 Once approval granted within specific time period the
form no. INC-25(Certificate of incorporation pursuant

to name change) will be issued.
 Its not applicable to those company who default in filing
annual returns or deposit or debentures or interest

thereon.
89
2)Alteration of Registered Office Clause:-
Change within the local limits of same town-
 Board Resolution filed by company.
 Notice to ROC in form No. INC-22
Change from one city to another within the same State-
 Special Resolution filed by company(MGT-14)
Change within the same State from the jurisdiction of
one Registrar of Companies to the jurisdiction of
another Registrar of Companies-
 Confirmation by Regional Director.
 Special Resolution filed by company(MGT-14)
90
Change of Registered office from one State to

another-
 Application by Central Government.
 Special Resolution filed by company(MGT-
14)
91
Alteration of Objects Clause & Liability

Clause:-
 By passing an special resolution (Form
No.MGT-14)
Alteration of Capital Clause:-
 By passing an ordinary Resolution
92
ALTERATION OF AOA
 A company has a statutory right to alter its
articles of association.
 But the power to alter is subject to the provisions
of the Act and to the conditions contained in the
memorandum.
93
PROSPECTUS & ALLOTMENT OF

SECURITIES
94
 The act governs the issue of not only shares but all types of
securities.
 Companies may now issue Global Depository Receipt by

passing the special resolution and subject to such conditions as
may be prescribed.
 The content to be prescribed the Prospectus has now been

made more detailed.
95
PROSPECTUS
 Sec2(70) “prospectus” means any document
described or issued as a prospectus and includes
a red herring prospectus referred to in section 32
or shelf prospectus referred to in section 31 or
any notice, circular, advertisement or other
document inviting offers from the public for the
subscription or purchase of any securities of a
body corporate
 It is an invitation issued to the public to purchase
or subscribe shares or debentures of the
company.
96
CONTENTS OF THE PROSPECTUS

 General information
 Capital structure
 Terms of present issue
 Management and projects
 Management and perception of risk factor
It is compulsory to register the prospectus with
the Registrar
97
PROCESS OF FILING PROSPECTUS

 Draft Offer document – SEBI
 Offer document – ROC/Stock exchange.
 Red hearing prospectus. –ROC/Stock exchange.
98
Public
Private Companies
Companies
Public Private Right & Bonus Private Right & Bonus

Issue Placement Issue Placement Issue
99
KINDS OF SHARE CAPITAL

 The share capital of a company limited by
shares shall be of two kinds, namely:—
(a) Equity share capital—
 (i) with voting rights; or
 (ii) with differential rights as to dividend,
voting or otherwise in accordance with such

rules as may be prescribed; and
 (b) Preference share capital:
100
SAHARA CASE
 Use of term ‘securities’ instead of ‘shares’ -
Use of the term shares in the Companies Act,
1956 restricted regulations of issuances of
various other instruments by Company to raise
funds . Companies manipulated this loophole
by using other terminology or nomenclature
for instruments used to raise funds, thereby
easily escaping the regulatory oversight.
101
DEBENTURES
(1) A company may issue debentures with an option to convert

such debentures into shares, either wholly or partly at the time
of redemption:
 Provided that the issue of debentures with an option to convert
such debentures into shares, wholly or partly, shall be approved
by a special resolution passed at a general meeting.
(2) No company shall issue any debentures carrying any voting
rights.
(3) Secured debentures may be issued by a company subject to
such terms and conditions as may be prescribed.
(4) Where debentures are issued by a company under this section,
the company shall create a debenture redemption reserve
account out of the profits of the company available for payment
of dividend and the amount credited to such account shall not
be utilised by the company except for the redemption of 102
 The Central Government may prescribe the

procedure, for securing the issue of debentures,
the form of debenture trust deed, the procedure
for the debenture-holders to inspect the trust deed
and to obtain copies thereof, quantum of
debenture redemption reserve required to be
created and such other matters.
103
POWER TO NOMINATE
 (1) Every holder of securities of a company may, at any time,
nominate, in the prescribed manner, any person to whom his
securities shall vest in the event of his death.
 (2) Where the securities of a company are held by more than one
person jointly, the joint holders may together nominate, in the
prescribed manner, any person to whom all the rights in the
securities shall vest in the event of death of all the joint holders.
 (3) Where the nominee is a minor, it shall be lawful for the holder
of the securities, making the nomination to appoint, in the
prescribed manner, any person to become entitled to the securities
of the company, in the event of the death of the nominee during his
minority.
104
MFA
MFA
1
MFA
Defining “Corporate Social

Responsibility” (insert obj. 1)
 In general terms, CSR encompasses the responsibilities that
businesses have to the societies within which these businesses
operate.
 The European Commission defines CSR as “a concept
whereby companies decide voluntarily to contribute to a
better society and a cleaner environment.”
 Specifically, CSR suggests that a business identify its
stakeholder groups and incorporate their needs and values
within its strategic and operational decision-making process.
5-107
Bengaluru City University (BCU) [email protected] 1-107
MFA
Philosophical priorities in CSR
 Do good
Maximize economic, social
and environmental value
 Do no harm
Even in those cases
where one is not the cause
 Do no harm
Avoid economic, environmental and social harm
Bengaluru City University (BCU) 5-108
[email protected] 1-108
MFA
A Responsibility
to “Do Good?”
 Perhaps the most wide-ranging standard of CSR would hold

that business has a social responsibility to do good things and
to make society a better place.
 Many of the debates surrounding corporate social
responsibility involve the question of whether business really
has a responsibility to support such good causes.
 Some people argue that, like all cases of charity, this is something
that deserves praise and admiration, but it is not something that
every business ought to do.
5-109
MFA
A Responsibility
to “Do Good?”
 Philosophers sometimes distinguish between
obligations/duties and responsibilities to make exactly this
point.
 We may have a responsibility to be charitable, but it is not
obligatory nor is it a duty.
 Others argue that business does have an obligation to support good
causes and “give back” to the community.
 This sense of responsibility is more akin to a debt of gratitude
and thankfulness; something less binding than a legal or
contractual obligation perhaps, but more than a simply act of
charity.
5-110
Bengaluru City University (BCU) [email protected] 1-110
Hmmmm.
 Who is to decide what is “good” or “responsible?”

 Who decides where money should go, what it means to do
“good” for society, or what is “harm?”
Bengaluru City University (BCU) 5-111

MFA
1-112
MFA
[email protected]
MFA
MFA
Best Practices of CSR
• To set a feasible, Viable & measureable goal.

• Build a long lasting relationship with the
community.
• Retain the community core values.

• The impact of the CSR needs to be assessed.
• Reporting the impact.
• Create community awareness.
1-117
Need for Corporate Social
Responsibility
• To reduce the social cost.
• To enhance the performance of employees.
• It a type of investment.
• It leads to industrial peace.
• It improves the public image.
• Can generate more profit.
• To provide moral justification.
• It satisfies the stakeholders.
• Helps to avoid government regulations & control.
• Enhance the health by non polluting measures.
1-118
Arguments for the CSR

• Corporate should have some moral & social obligations to
undertake for the welfare of the society.
• Proper use of resources, capability & competence.

• The expenditure on CSR is a sort of investment.
• Company can avoid many legal complications.
• It create a better impression.
• Corporate should return a part of wealth.
1-119
MFA
Arguments against the CSR

 Fundamental principles of business gets violated.
 It vey expensive for business houses.
 CSR projects will not be successful.
 There are not the special areas of any business.
 CSR is to induce them to steal away the
shareholders money.

MFA
Opportunities
I. 67 years after independence, CSR the biggest opportunity to the

manpower in corporates, both public and private to contribute
directly to nation building efforts
II. Potential for not only using financial resources of corporates, but
also, leveraging their qualified human resource, infrastructure,
machinery, materials, networks, outreach and brand equity
III. CSR funds could compliment flagship programs of government like
Skilling India, Make in India, Swachh Bharat Abhiyan etc. New
guidelines required for monitoring of these focused CSR programs
via respective ministries
Corporate Social Responsibility
A. Deciding if CSR is Applicable

B. How much to spend?
C. Constitution of CSR Committee
D. Permitted Activities
E. How to spend?
F. Reporting Requirements
G. Penalties
MFA
A. DECIDING IF CSR IS APPLICABLE
A1. Companies Responsible for CSR
A2. Calculation of Net Worth
A3. Calculation of Turnover
A4. Calculation of Net Profit
MFA
A1. Companies Responsible for CSR
Every company (whether private or public) with:

• Net Worth of Rs. 500 Crores (Rs. Five Billion) or more OR
• Turnover of Rs. 1000 Crores (Rs. Ten Billion) or more OR
• Net Profit of Rs. 5 Crores (Rs. Fifty Million) or more
MFA
A2. Calculation of Net Worth
• Add paid up Share Capital

• Add Reserves created out of Profit and Securities Premium Account
• Subtract Accumulated Losses
• Subtract Deferred Expenditure
• Subtract Miscellaneous Expenditure not written off
• Reserves created out of Revaluation of Assets, write-back of
depreciation and amalgamation should not be included
All figures to be as per the Audited Balance Sheet
Example: A company was incorporated fifty years ago with a paid-up capital of Rs. Two Lakhs. The company bought
50 acres of urban land at Rs. 3000- per acre. The company did nothing else in the past fifty years. The land is valued
now at about Rs. 20 Crores per acre. The company has done revaluation of the land in its balance sheet. For CSR
purposes, the net worth of the company is about Rs. 1.5 Lakhs and not Rs. 1000 Crores.
MFA
A3. Calculation of Turnover
• Include realization from sale, supply or distribution of goods
• Include realization on account of services rendered
• Other income may not need to be included (Example - a manufacturing company

has an interest income of Rs. 10 Crores and rent income of Rs. 5 Crores. For the purpose of
calculating Turnover, rent income will be included while interest income will be excluded).
• To be calculated for a financial year
MFA
A4. Calculation of Net Profit
• Include subsidies received from Government – 198(2)
• Do not Include Profits of capital nature – 198(3)
• Deduct all normal business expenses – 198(4)
• Do not deduct income tax, voluntary damages or compensation,

loss of capital nature, change in carrying amount of asset or liability
– 198(5)
• This calculation is independent of Income Tax Act or any other

provision of Companies Act.
MFA
B. HOW MUCH TO SPEND?
B1. Amount to be Spent
MFA
B1. Amount to be Spent

• 2% (Two per cent) of Average Net Profit of the previous three
financial years
• Net Profit to be calculated as per sec. 198 (discussed earlier)
• If during the past two years before the current year, the company
has made losses, the company may still have to spend on CSR if
the average net profit is positive.
• So, advisable to set aside the CSR provision based on past profits
as well as current year profits
Example A – A company with net worth and turnover less than the prescribed limits has made profits of MORE
than Rs. Five Crores in the current year. However, its average net profit for the past three years are negative due to
past losses. The company will have to constitute a CSR committee and form a CSR Policy even though it will not
be required to spend any money.
Example B - A company with net worth and turnover less than the prescribed limits has made profits of LESS than
Rs. Five Crores in the current year. The company’s average net profit for past three years is more than Rs. Five
Crores. The company need not do anything as regards CSR in the current year.
MFA
C. CONSTITUTION OF CSR COMMITTEE
MFA
C1. Constitution of CSR Committee
• Three or more directors out of which at least one to be an

independent director
• A company without independent director can have a committee
without an independent director
• If a private company has only two directors, the committee can have
only two directors
MFA
D. PERMITTED ACTIVITIES
MFA
D1. Permitted Activities
1) Eradicating hunger, poverty and malnutrition

2) Promoting healthcare and sanitation; Safe drinking water
3) Promoting education
4) Various facilities and activities for women and elderly
5) Conservation of natural resources incl. soil, air, water, animals etc.
6) National heritage, art and culture
7) Armed forces veterans, war widows and dependants
8) Sports
9) Contribution to Prime Minister Relief Fund or any other Govt. fund
10) Contribution to technology incubators located in approved institutions
11) Rural development projects
12) Slum area development
Bengaluru City University (BCU) [email protected] 133
MFA
E. HOW TO SPEND?
E1. Restriction on Activities
E2. Mode of Carrying CSR Activities
MFA
E1. Restriction on Activities

• Should be as per the Company’s CSR Policy – Rule 4(1)
• Activities should not be normal course of business – Rule 4(1)
• Activities must be within India – Rule4(4)
• Activities benefitting only employees or families not allowed – Rule

4(5)
• Building CSR capabilities of employees allowed subject to 5% of
CSR expenditure – Rule 4(6)
• Contribution to political party not allowed – Rule 4(7)
MFA
E2. Mode of Carrying CSR Activities

• Can be done through a trust / society / section 8 company set up by
the company either singly or along with any other company – Rule
4(2)(a)
• Can be done through a trust / society / section 8 company set up by
the Central or state government– Rule 4(2)(b)
• If done through an independent entity, the entity should have three
years track record – Rule 4(2) proviso
• Mandate to concerned entity should specify modalities of utilizing
funds as well as monitoring and reporting mechanism – Rule 4(2)
proviso
• May also collaborate with other companies – Rule 4(3)
MFA
F. REPORTING REQUIREMENTS
MFA
F1. Reporting Requirements

• Directors’ Report to include contents of CSR Policy – Sec. 135(4)(a)
• Directors’ Report to General Meeting to include a report about CSR

initiatives as per format in Rules – Sec. 134(3)(o) and Rule 8
• Company website to disclose company’s CSR Policy – Sec. 135(4)

(a) and Rule 9
• If there is a failure to spend CSR amount, Board shall in its report

specify the reasons – Sec. 135(5) Proviso
MFA
G. PENALTIES
G1. Failure in Reporting
G2. Failure in Spending
MFA
G1. Failure in Reporting

• Refers to non-compliance under section 134(3)(o) relating to
Directors’ Report
• More serious offence than not spending CSR money
• Minimum fine on company Rs. 50,000- Maximum fine Rs. 25,00,000
• Officer in default liable for imprisonment up to three (3) years and /

or Fine of Rs. 50,000- to Rs. 5,00,000
MFA
G2. Failure in Spending

• Less serious offence – only fine and no imprisonment
• No specific punishment provided. Covered under sec. 450 and 451,

which are residual provisions
• Fine of up to Rs. 10,000 and in case of continuing default Rs. 1000
per day
• In case of repeated default within three years double fine. No
imprisonment even for repeated offence
• Moral – Spending is less important than reporting.
C O R P O R AT MFA
ESOCIAL
RESPONSIBIL
ITY
TO
C O MP U L S O
RY S O C I A L
RESPONSIBI
LITY
MFA
FOOT PRINTS OF CSR 8
AMENDMENTS
18th
November, 2019
Company Law Committee Report.
17t
March, 2020
h
Companies Amendment Bill
2020 introduced in Lok Sabha.
19t
September,
h 2020
Companies Amendment Bill 2020
passed in Lok Sabha
.
22n
September,
d 2020
Companies Amendment Bill 2020
passed in Rajya Sabha.
MFA
9
28t
September,
2020
Companiesh Act Bill 2020 received the assent
of the President
.
21s
December,
2020
Certain tProvisions of Companies
Amendment Act, 2020 notified
22n
January,2021
Further d of Companies
enforcement Amendment Act, 2020.
Analysis of the Amendment of 1
0
the Act & Rules

MANDATORY IMPACT
SPENDING ASSESSMENT
REGISTRATION OF
CARRY FORWARD OF
IMPLEMENTING
EXCESS
AGENCIES
TRANSFER OF DISCLOSURES,
UNSPENT TO REPORTING,
FUND BOARD
RESPONSIBILITIES
TRANSFER IN
PENAL
CASE OF
CONSEQUENCES
ONGOING
PROJECT
MFA
AMENDMENTS AND ITS IMPACT 1
1
I) Provisions of sub-section (5) of section 135 of the Act.
Before Amendment After Amendment

The Board of every company The Board of every company
referred to in sub-section (1), referred to in sub-section (1),
shall ensure that the company shall ensure that the company
spends, in every financial year, at spends, in every financial year, at
least two per cent. of the least two per cent. of the
average net profits of the average net profits of the
company made during the three company made during the three
immediately preceding immediately preceding financial
financial years in pursuance of years or where the company
its CSR Policy has not completed the period
of three financial years since its
incorporation, during such
immediately preceding
financial years, in pursuance of
[email protected] its CSR Policy 146
MFA
1
2
Before Amendment After Amendment
Provided further that if the Provided further that if the

company fails to spend such company fails to spend such
amount, the Board shall, in its amount, the Board shall, in its
report made under clause (o) of report made under clause (o) of
sub-section sub-section
(3) of section 134, specify the (3) of section 134, specify the
reasons for on not spending the reasons for not
amount spending the amount unless the
unspent amount relates to any
ongoing project referred to in
sub-section (6), transfer such
unspent amount to a Fund
specified in Schedule VII within a
period of six months of the
expiry of the financial year].
147
[email protected]
AMENDMENTS TO CSR RULES 2014
COMPANIES (CORPORATE SOCIAL RESPONSIBILITY 1
8
POLICY) RULES 2021
DEFINITIONS EXPENDITURE
IMPLEM ENTATI REPORTING

ON
148
[email protected]
CSR IMPLEMENTATION : Rule 4 ( Previously CSR 2
3
Activities)
Rule 4 (1) Who can undertake CSR Activities :
Rule 4 (2) Obligation of an Entity which intends to undertake
CSR Activity Rule 4 (3) Engaging International Organization
Rule 4 (4) Collaboration with other companies on CSR
Activities Rule 4 (5) Boards Responsibility
Rule 4 (6) Monitoring on Ongoing Projects by Board
Bengaluru City University (BCU) [email protected] MFA 149

MFA
Who can undertake CSR Activities : 2
4
Who can apply for Registration as Implementation Agency : Following
entities can only apply for such registration:
1. A Company established under Section 8 or Registered Public

Trust or Registered Society registered under section 12A and
80G of the Income Tax Act, 1961 established by the company
either singly or along with other companies.
2. Established by the State Government/ Central Govt under

Section 8 or a registered trust or a registered society;
3. Established under an Act of Parliament or State Legislature –
any entity;
4. Company established under Section 8 or registered trust or

registered society registered under section 12A and 80G of
the Income Tax Act, 1961 AND having track record of atleast
three years in undertaking similar activities.
MFA
DISPLAY OF CSR ACTIVITIES ON ITS WEBSITE. 3
1
The Board of Directors of the Company shall mandatorily disclose

the composition of the CSR Committee, and CSR Policy and
Projects approved by the Board on their website, if any, for public
access.
Transfer of unspent CSR amount.
Until a fund is specified in Schedule VII for the purposes of

subsection (5) and(6) of section 135 of the Act, the unspent CSR
amount, if any, shall be transferred by the company to any fund
included in schedule VII.
1.Clean Ganga Fund

2. Prime minister's national relief fund
3.Prime Minister’s Citizen Assistance and Relief in Emergency 151
[email protected]
MFA
WHAT’S NEXT- BOARDS’ PERSPECTIVE 3
2
CSR POLICY
ANNUAL ACTION PLAN
ONGOING PROJECT
TRANSFER OF FUNDS
CAPITAL ASSET
MFA
Objectives Of CSR :-
1). To provide a neutral and credible platform to all

stakeholders engaged in CSR best practices for capturing
relevant issues to foster sustainable growth.
2). To provide research, training, practice, capacity

building, standard setting, rating, monitoring,
recognition and related support in the field of CSR
3). To facilitate exchange of experiences

and ideas between various stakeholders
for developing a framework for
strengthening of CSR indicatives

MFA
4). To collaborate and to support, directly or indirectly,

the initiative of any individual, group, organisation or
institution in promoting good practices in CSR
5). To create CSR fund with contribution of

Government PSUs and private sector companies and
channelize the CSR fund for optimum utilisation
through a sustainable mechanism
MFA
Scope of CSR
1. Environment :-
This area is mainly related to the protection of the
environment
2. Energy :-
With mass industrialization spreading extensively across the
country, there is a rising need for more energy. Businesses,
therefore, must make rational use of energy and avoid any
wastage
MFA
3. Fair business practices :-
CSR propagates fair business practices, which help protect

consumers from unethical practices that may be employed
by businesses
4. Human resources :
CSR supports the employment of the best talent.
MFA
5. Social service :-
Several industrial houses promote social service to

promote social welfare
Advantages of CSR
1. Satisfied employees 4. Costs reductions
2. Satisfied customers
5. More business opportunities
3. Positive PR 6. Long-term future for businesses
MFA
Functions of Corporate Social Responsibility (CSR)
1). Social License To Operate (Social Operating Permit)
2). Reducing Company Business Risk
3). Expanding Access to Market
4). Improve Relationship With Stakeholders
5). Increase Employee Productivity

MFA
Features of Companies Act 2013
1). The act has launched all-new class action suits that keep
the shareholders as well as the stakeholders more aware
and informed regarding their major rights.
2). It insists on appointing a minimum of 1 female director

on the company’s board
3). It also gives permission to international mergers, either way

i.e. a foreign organization merging into an Indian Company, and
vice versa. However, such mergers would take place only after
permission has been duly obtained by the RBI.

MFA
4). The Act lays down that a private ltd. company can
now have a maximum of 200 shareholders as
opposed to 50 that was permitted in the Companies
Act, 1956.
5). The Act has also introduced a new type of Pvt.

Company – One Person Company. Such a company
can have just 1 director as well as 1 shareholder. The
previous act required a minimum of 2 shareholders as
well as 2 directors for establishing a Pvt. Company
6). Each company must have a minimum of 1 director who

must have stayed in the country (India) for at least 182 days
and not less
MFA
7). The Act states that the companies must give a prior
7 days’ notice before calling a board meeting.

Companies may send the notice electronically to
every single director at his/her registered address.
8). The Act places a prohibition on auditors for the
performance of non-auditing services for the
organization where they have been appointed as
auditors for the purpose of ensuring accountability
and independence of auditors
Recent trends in the Companies Act, 2013
1). The Insolvency and Bankruptcy Code, 2016 (IBC)
2). National Company Law Tribunal (NCLT)
3). Serious Fraud Investigation Office (SFIO)
4). Secretarial Standards (SS)
5). The Finance Act, 2017
MFA
6). Constitution of National Financial Reporting Authority

(NFRA):
7). On-line Compliance Monitoring and e-adjudication

launched
8). Test for Independent Directors
9). Amendments in Schedule VII
10). Measures taken in the light of COVID-19
THANK
YOU…
Manoj kumar.K
Mob:8147682619
MFA
INDIAN
SECURITIES
MARKET

[email protected]
MFA
SEBI

[email protected]
Securities and Exchange Board of India (SEBI)

Three Key Mandates of
SEBI 
Major Work done by SEBI
Protection of Improvement in
interests of Market design
investors and regulation
Promote Increase in
Regulation Availability of market
development
of securities newer efficiency
of Securities products and
market
Market transparency
MFA 167
MFA
Overview of the SEBI
 he Securities and Exchange Board of India owned by the

Government of India was established on 12th April 1992
under the Securities and Exchange Board of India Act, 1992
to protect the interests of the investors in securities along with
promoting and regulating the securities market.
 Headquartered in Mumbai, the Securities and Exchange Board

of India (SEBI) has four regional offices located in
Ahmedabad, Chennai, Delhi and Kolkata. SEBI was initially
formed in the year 1988 as a non-statutory body for the
regulation of the securities market and later acquired
statutory status on 30th January 1992. To know more about
SEBI
168
What is SEBI MFA

SEBI stands for Securities and Exchange Board of
India.

It is a statutory regulatory body that was established
by the Government of India in 1992 for protecting
the interests of investors investing in securities along
with regulating the securities market.

SEBI also regulates how the stock market and mutual
funds function.
169
[email protected]
Formation of SEBI
Securities And Exchange Board of

SEBI full form
India
Year of formation 1988
Headquarters Mumbai, Maharashtra
SEBI Chairman Ajay Tyagi
Sector Securities Market
Bengaluru City University (BCU) MFA 170

[email protected]
MFA
Structural Organisation of SEBI

[email protected]
MFA
Indian Securities Market – Structure
SEBI - Regulator
Clearing
Stock Exchanges Depositories Companies
Corporations
Other
Depository Intermediaries
Brokers
Participants (DPs) (Merchant Bankers,
RTAs, etc.)
172
MFA
Objectives of SEBI
Following are some of the objectives of the SEBI:
1) Investor Protection: This is one of the most important objectives
of setting up SEBI. It involves protecting the interests of investors
by providing guidance and ensuring that the investment done is
safe.
2) Preventing the fraudulent practices and malpractices which are

related to trading and regulation of the activities of the stock
exchange
3) To develop a code of conduct for the financial intermediaries such

as underwriters, brokers, etc.
4) To maintain a balance between statutory regulations and self

regulation 173
MFA
Functions of SEBI
SEBI has the following functions
1) Protective Function
2) Regulatory Function
3) Development Function
1) Protective Function
 The protective function implies the role that SEBI plays in
protecting the investor interest and also that of other financial
participants. The protective function includes the following
activities.

[email protected]
MFA
1) Prohibits insider trading: Insider trading is the act of

buying or selling of the securities by the insiders of a
company, which includes the directors, employees and
promoters. To prevent such trading SEBI has barred the
companies to purchase their own shares from the secondary
market.
2) Check price rigging: Price rigging is the act of causing

unnatural fluctuations in the price of securities by either
increasing or decreasing the market price of the stocks that
leads to unexpected losses for the investors. SEBI
maintains strict watch in order to prevent such
malpractices.
175
[email protected]
MFA
3) Promoting fair practices: SEBI promotes fair trade

practice and works towards prohibiting fraudulent
activities related to trading of securities.
4) Financial education provider: SEBI educates the investors

by conducting online and offline sessions that provide
information related to market insights and also on money
management.
176
[email protected]
MFA
2) Regulatory Function
 Regulatory functions involve establishment of rules and

regulations for the financial intermediaries along with
corporates that helps in efficient management of the
market
177
[email protected]
MFA
The following are some of the regulatory functions.
1) SEBI has defined the rules and regulations and formed

guidelines and code of conduct that should be followed
by the corporates as well as the financial
intermediaries.
2) Regulating the process of taking over of a company.
3) Conducting inquiries and audit of stock exchanges.
4) Regulates the working of stock brokers, merchant

brokers.

[email protected]
MFA
3) Development Function
 Developmental function refers to the steps taken by SEBI in order
to provide the investors with a knowledge of the trading and market
function. The following activities are included as part of
developmental function.
1) Training of intermediaries who are a part of the security

market.
2) Introduction of trading through electronic means or

through the internet by the help of registered stock
brokers.
3) By making the underwriting an optional system in order

to reduce cost of issue. [email protected] 179
Pre-requisites for buying/ selling shares
in Securities market MFA
Savings Bank Account

- Savings Account can be in any bank
- Transfer/ receipt of funds from buying/ selling of securities
Accounts
needed to
trade in
securities
market
Trading Account Demat Account

- With a SEBI registered Depository
- With SEBI registered Stock Participant (DP)
Broker( Trading Member/ TM)
- To hold shares in Demat (electronic)
- To buy/ sell securities mode
180
Pre-requisite for buying/ selling shares in
Securities Market – Trading and Demat Account
Basic Requirements
Proof of Identity Proof of
Passport/ Driving License/ Voter
AddressPAN Bank account
Identity card/ Aadhar Card /
MGNREGA Job Card & Proof of
Identity/ any other govt. approved
Proof of Address
Opening of Accounts
Demat Account Trading Account
*AADHAR Card is not a compulsory document.

MFA
Primary Market v/s Secondary Market
Features Primary Market Secondary Market

Definition - Securities issued first time - Trading of already issued
to the public. and listed securities.
Also called as - New Issue Market. - Post Issue Market.
Price - By Issuer Company in - Supply and Demand Forces

Determination consultation with of Market.
Merchant Bankers.
Key - Merchant Bankers and - Stock Brokers and DPs.
Intermediaries RTAs
Purpose - Raise capital for - Trading of securities.

expansion, diversification, - Providing liquidity to
etc. investors.
- Raising further capital for
expansion.
[email protected]
MFA
Primary Market - Types of Public issues
Issues
Rights Bonus Private

Public Issues
Issues Issues Placements
Preferential Qualified
IPO FPO Issue Institutional
Placement
Fresh Issues Offer for sale Fresh Issues Offer for sale
183
MFA
Investing - Due Diligence
Why Due Diligence?

 Pro active approach enabling investors to know about prospective
investment.
 Better understanding about the past performance.
 Greater possibility of securing future growth of the investment.
What questions to ask before investing?

 Is the company’s revenue increasing?
 Is the company actually making a profit?
 Is the company able to repay its debts?
 Is the company in a position strong enough to compete with its peers?
184
MFA
Investing - Due Diligence
Why Due Diligence?

 Pro active approach enabling investors to know about prospective
investment.
 Better understanding about the past performance.
 Greater possibility of securing future growth of the investment.
What questions to ask before investing?

 Is the company’s revenue increasing?
 Is the company actually making a profit?
 Is the company able to repay its debts?
 Is the company in a position strong enough to compete with its peers?
185
MFA
Rights of a Shareholder
• Part-owner of the company.
• Right to receive corporate benefits like dividend, whenever

declared.
• Right to receive:
- Annual Reports
- Audited Financial Statements
- Notices of General Meetings and other notices
- Other information disseminated by company.
• Right to attend company meetings.
• Right to contribute in key corporate governance decisions

through postal ballot/ e-voting.

186
[email protected]
Rights of a Shareholder MFA
(subject to certain limitations/ restrictions)
• Right to:
- Ask questions to the board of directors.
- Place items on the agenda of general meetings.
- Propose resolutions, etc.
• Right to participate in matters needing shareholder approval like:

- To vote in company proceedings.
- To approve mergers & acquisitions, appointment of directors on
company board, changing auditors, etc.
• Right to Inspect company’s statutory books and records.
• Right to Transfer shares by applicable laws.
• To raise grievances, if any, against the company (using SCORES,

etc.).
187
MFA
SEBI’s recent Investor Protection measures
E-KYC Power of Attorney (PoA)

Pledge/ Re-pledge
framework
- Online KYC Process - Not a compulsory
document
- Aadhaar authentication
- Only required for - Acceptance of securities
- e-Sign signature availing internet trading by way of pledge by client
framework facility
Basic Services Demat

Account (BSDA) Mutual Funds
- Demat account at - Product labelling on

reduced costs basis of risk associated
with the scheme.
- For Retail Investors
188
MFA
What is a Mutual Fund?
189
MFA
Why Mutual Fund?
Diversification
Professional
Management Convenience
WHY?
Tax Return
Advantages Potential
Flexibility &
Liquidity
190
Major Development and Investor Protection
Measures of SEBI MFA

Mutual Funds
a) Classification of mutual funds into 5 schemes:


Equity Schemes

Debt Schemes

Hybrid Schemes

Solution Oriented Schemes

Other Schemes.
b) Product labelling of Mutual Funds as under:


Low - principal at low risk

Low to Moderate - principal at moderately low risk

Moderate - principal at moderate risk

Moderately High - principal at moderately high risk

High - principal at high risk

Very High- Principal at very high risk.
191
Do’s and Dont’s of buying/ selling shares in
MFA
securities market
 Make sure to receive funds/ securities in your account within one (1) day of
pay-out date.

 Please read and understand Power of Attorney (PoA) before executing it.
Please remember that PoA is not a mandatory document.
 Ensure to receive Contract Notes within 24 hours of your trades.
 Ensure to receive statement of account at least once a quarter from your

stock broker.
 Avoid keeping excess money in broking account.

[email protected]
securities market MFA
 Ensure that Stock Broker doesn’t pledge your securities to raise funds.
 Don’t keep signed delivery instruction slip with DP/ stock broker.
 Regularly verify balances of securities in your demat account.
 To receive Email / SMS Alerts : Please ensure that your email id and
mobile number are updated periodically with the stock broker/ DP.
 Don’t trust any hot investment tips promising unrealistic returns on

investments.
193
Bengaluru City University (BCU)securities market MFA
 Don't blindly imitate investment decisions of others who may have

profited from their investment decisions.
 Get clear about all brokerage, commissions, fees, other charges levied
by broker.
 Make payments by banking channel/cheque only

in favour of stock broker.
 Don’t share your internet trading account password with anyone.
 Don't blindly follow advertisements/ media reports about the financial

performance of companies, as they may be misleading. 194
[email protected]
MFA
Advice to Investors
 Be aware of your Rights and Responsibilities.
 Take informed decision and do proper due diligence while

investing.
 No impulsive buying or panic selling.
 Deal only with SEBI registered Intermediaries.
 Caution against unsolicited investment tips.
195
MFA
Investor Grievance Redressal - SCORES
▪ Complaints can be filed against entities like:

▪ Listed companies; Stock Brokers; Stock Exchanges; Depository / Depository
Participants; Registrars to an Issue / Share Transfer Agent; Mutual Funds /
Portfolio Managers; Bankers to an Issue; Collective Investment Schemes;
Credit Rating Agencies; Custodians of Securities; Debenture Trustees;
Merchant Bankers / Underwriters.
▪ www.scores.gov.in : SEBI COmplaints Redressal System (SCORES)

▪ launched on 08.06.2011.
▪ Investor friendly, Centralized Web based complaints redress system.
▪ Online filing of complaints and status can be viewed online.
▪ SCORES Mobile App: available on both iOS and Android platforms.
196
MFA
Information/ Help Desk of SEBI
• SEBI Investor Website: http://investor.sebi.gov.in
• SEBI Toll-Free Help Line No's: 1800 22 7575 & 1800

266 7575
(Monday to Friday - 9:30 a.m. to 5:30 p.m.).
• ASK SEBI: [email protected]

(email ID for Investor Assistance for general queries)
• Details of SEBI offices in various cities/ towns can be

found on the address: https://www.sebi.gov.in/. 197
MFA
How to Buy/ Sell Shares in

Securities Market?
198
[email protected]
MFA
Trading & Demat Account Opening Form
 Documents to open Trading and Demat account:
Proof of Identity (Any one) Proof of Address (Any one)

Permanent account number (PAN) Voter ID card
card (Mandatory)
Voter ID card Driving License
Driving License Passport
Passport Ration Card
Aadhaar Card Aadhaar Card
Any other valid identity card Bank account statement or bank
issued by the Central or State passbook
government
Utility bills e.g. electricity bill or gas
bill
Documents collected in terms of KYC (Know Your client) Requirements.
KYC is a one-time process and is valid across all the stock brokers and
DPs. 199
[email protected]
Documents in Account Opening Forms MFA
- Trading & Demat Account
 Account Opening Form has two type of documents :
MANDATORY DOCUMENTS VOLUNTARY DOCUMENTS**
 Rights & Obligations of Stock  Running Account Authorization.

Broker and Investor.
 Power of Attorney (PoA).
 Uniform Risk Disclosure
Documents.  Electronic Contract Note (ECN)
Declaration.
 Do’s and Don’ts for trading on
Exchanges.  Consent for electronic
communication and receiving
 Policies and Procedures of Stock alerts (Email/ SMS).
Broker.
 Tariff Sheet.
**(to be submitted only if investor is availing of additional services)

200
[email protected]
MFA
Modes of Placing Orders to trade
Visit to
Broker’s
Office
By using
Stock Trade via
Broker’s Modes Phone
Mobile
App
of Call
placing
orders to
Trade
By using Through
Stock an email
Broker’s to Stock
website Broker
 While placing order to trade you receive SMS/ Email alerts on your registered
mobile number and email account.
201
MFA
Contract Note
What is a Contract note?
• Record of any transaction.
• Confirmation of trade done.
• In case of discrepancy, contact your broker immediately.
What does a Contract Note contain?

• Details of transaction.
• Date, Time, Price, Quantity, Trade ID, various charges/ levies, etc.
How to receive a Contract Note?

• Within 24 hours from the date of trade execution.
• Electronic Contract Note sent to registered email ID.
• Can opt for Physical Contract Note.
• Quarterly statement of funds and securities.

[email protected]
MFA
How to settle buy and sell trade?
 Pay-in of funds and /securities:
• Pay-in of funds/ securities: Transfer of funds/ securities from broker’s account to exchange’s
account.
• Funds / Securities:
 Cash Segment - On or before T+2
 Derivatives Segment - On or Before T+1
• Only Cheque/ NEFT/ RTGS to the Stock broker only.
 Pay out of Funds and securities:

• Pay-Out of funds/ securities: Transfer of funds/ securities from broker’s account to client’s
account once trade of securities has been executed.
• Funds / Shares to be received in Investor’s Demat Account within 24 hours of pay-out day.
 Counter Party Guarantee:

• Given by Stock Exchange for settlement of every buy/ sell trade, through Settlement
Guarantee Fund (SGF).
 CASH DEALING IS STRICTLY PROHIBITED

[email protected]
MFA
Payment of Margins
 Margin to be placed with broker before placing orders.

 Money or Securities or both
 Check Margin requirement on the website of Stock

Exchange.
 Margin paid in securities form : By way pledge
 instead of transfer of shares in broker’s demat account .
 Margin payments – Authenticated by One Time Password

(OTP).
204
How to pay margin in Securities MFA
Margin Pledge
 Effective from September 01, 2020.
 Investors can pay margin in form of “Securities”, if :

- Securities are pledged in favour of Stock Broker.
 What’s New?:
o Stock Brokers can accept securities (viz. shares) as collateral only in form of
margin pledge created on the securities held in client’s demat account.
205
MFA
Margin Pledge
 What does the Investor need to do?:

o Give instruction to create margin pledge on securities.
o Instruction may be given in:

- Physical form
- Electronically through “SPEED-e” (for NSDL) and “Easi/Easiest” (for
CDSL).
 Pledged to whom?
o Created in favor of a “specially designated” demat account of the stock

broker/ clearing member.
o Name of the account :
TM – Client Securities Margin Pledge Account or TM / CM – Client

Securities Margin Pledge Account).
206
MFA
Early Pay-in
 Payment of funds/ delivery of shares (in case of buy/sell) to
the Exchange by pay-in time on settlement date.
 Early Pay-in: When Investor pays funds / delivers shares

before this designated time.
 Exemption:
 Upon early pay-in of Funds: No margin needs to be paid (subject

to bank confirmation)
 Upon early pay-in of securities: No margin needs to be paid.

Stock Brokers to provide early pay-in details to the Stock
Exchange in a specified format.
207
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Investor Grievance Redressal
 If investor has dispute with his Stock Broker:

i. Immediately question the Stock Broker about any transaction that
you do not understand or you did not authorize your trading
member.
ii. Investor should raise such complaint in writing to the trading

member and retain copies of all related correspondence done with
the trading member.
iii. In case your complaint has not been addressed/ redressed by the
trading member file complaint with Stock Exchange.
iv. In case you don’t receive any satisfactory response/ redressal of

your grievance from Stock Exchange as well, you may file your
complaint on SEBI SCORES.
208
MFA
 Complaints at Exchange can be filed by Investor via :
i. Online portal of the Exchange
ii. Email
iii. Physical letter at any Investor Service Centre
iv. Complaint can be filed by investor at the nearest Investor Service Centre
(ISC)
 In case aggrieved by the resolution given by Stock Exchange  Approach

Investor Grievance Resolution Panel (IGRP).
 In case aggrieved by the resolution given by IGRP  Take up the matter via
Arbitration, a quasi judicial mechanism.

[email protected]
MFA
DEPOSITORY SERVICES

[email protected]
MFA
Demat Account
 Depository Participant – Agent of Depository.

- Opens Demat Accounts for clients on behalf
of Depository.
Demat Account Number
CDSL NSDL
- Numeric Character - Numeric Code starting
with “IN”
- eg: 0123456789098765 - eg: “IN01234567890987”
**Demat Account Numbers are combinations of DP ID and Customer ID

and are unique for every customer.
211
MFA
Basic Services Demat Account (BSDA)
 Facility for retail investors

EQUITY SHARES DEBT SECURITIES
Holding AMC Holding AMC

Charges Charges
<Rs.50,000 NIL <Rs.1,00,000 NIL
Between Rs.100/- per year Between Rs.100/- per year

Rs.50,000 – Rs.1,00,000 –
Rs.2,00,000 Rs.2,00,000
>Rs.2,00,000 Charges as >Rs.2,00,000 Charges as

applicable to applicable to
regular (non- regular (non-
BSDA) accounts BSDA) accounts
212
MFA
Services offered by Depositories
 Dematerialization (Demat): converting physical

certificates to electronic form.
 Rematerialisation (Remat): Reverse of Demat, i.e.

converting electronic securities into physical certificates.
 Transfer of securities
 Change of beneficial ownership

[email protected]
MFA
Services offered by Depositories
 Settlement of trades done on exchange connected to the

Depository.
 Service can be availed through Depository Participant

(DP)
 Many Stock Brokers and Banks function as DPs and

investors can open a new demat account with them.
Demat securities in depositories - Safe and Secure.
214
MFA
Transmission of Securities
 Transfer of securities balances in a demat account due to:
• Death, bankruptcy, etc. of the account holder,
• To legal / another holder.
 Not a voluntary act of the account holder.
 Transfer brought about by operation of law i.e. a person

cannot ask for transmission of shares from his/her own
Demat account.
 Transmission process – Simple and Fast.

[email protected]
MFA
Transmission of Securities - Process
 Steps for Transmission:
• The surviving joint holder/s, nominee or legal heirs of

the deceased account holder need to approach the
Depository Participant (DP).
• For shares held in Physical Form: Approach each

Company and their respective RTAs.

[email protected]
MFA
What is a Pledge ?
 Pledge: Deposit of some personal property as collateral for a debt.
Investor wants to Borrow Funds to pay margin
He may pledge his owned securities (shares, bonds, etc.) to

borrow funds.
Pledged securities act as collateral for the loan. Pledgee/

Creditor only has possession of pledged securities and not
ownership/ title to the pledged securities.
If borrower of funds(pledger) defaults on repayment  lender of

funds (pledgee) can sell the securities and recover his money
Securities are provisionally moved from pledger’s/ debtor’s

securities account to pledgee’s/ creditor’s securities
account.
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MFA
Consolidated Account Statement
 Summary of Investments
 Holding Statement: EQUITY
Holding Statement DEBT
MUTUAL
FUNDS
 Statement of Transactions:
 Debit of securities
 Credit of securities
 Pledge of securities
 Margin Pledge / Re-pledge for trading
 Issued by Depository to account of Beneficial Owner (BO).

[email protected]
MFA
Online system :
CDSL : https://www.cdslindia.com/Footer/grievances.aspx
NSDL: https://nsdl.co.in/nsdlnews/investors.php
Via email :
CDSL : [email protected]
NSDL: [email protected]
Toll Free Numbers:

CDSL : 1800-22-5533
NSDL: 1800-22-2990
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220
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MFA

223
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224
Recent Trends or Measures taken by SEBI
 Securities Exchange Board of India [“SEBI”] acts as a

watchdog for the Indian Capital Market.
 The Board enacted by The Securities and Exchange Board of

India Act, 1992 (“the Act”) has been accorded with
comprehensive powers under the Act.
 The preamble of the Board describes its functions as

to “protect the interests of investors in securities and
to promote the development of, and to regulate, the
securities market and for matters connected
therewith or incidental thereto”. 225
[email protected]
MFA
Recent Trends taken by SEBI
1) Introduction of UPI and Application through online interface

for Public Issue of Debt Securities
SEBI, in its circular dated November 23, 2020 announced the

introduction of Unified Payments Interface [“UPI”] Mechanism
and application through online interface for public issue of debt
securities.
it is now less time consuming and more digitalized. Although the

initiative is bound to enlarge the responsibilities of the stock
exchange, intermediaries and the sponsor bank
226
MFA
It is mainly because until now, the debt instruments had usually

been subscribed by the high net investors and institutions, but such
a measure by SEBI might change up the things and intends to
encourage household investors to be a part of debt market as well.
2). Increased Efficiency of E-Voting mechanisms for Meetings
The Companies Act, 2013 mandates a company to provide e-

voting facility to the shareholders.
MFA
The entire proposed mechanism aims to ease out the

task of casting a vote for the shareholders. Elimination
of registration with E-voting service providers (ESP’s)
and authentication from the point of depository will
ensure security and legitimacy of the votes of
shareholders.
MFA
3). Reclassification rules of promoters as public shareholders

and disclosure of their shareholding pattern
SEBI after having acknowledged the shortcomings of the

existing process of promoter reclassification, has proposed
amendments which seeks to bring orderliness in the procedure
of promoter or promoter entity reclassification.
THANK
YOU…
Manoj kumar.K
Module 3:
Foreign Exchange
Management Act (FEMA)
1999
MFA
Contents
Introduction.
Objective and salient features.
Important sections of FEMA.
Mechanism under FEMA.
Current Account.
Capital Account.
L. R. S.
Penal Provisions.
Capital Account Convertibility - Approach
MFA
Introduction..
Exchange control was introduced as a temporary
measure in 1939.
Placed on statutory basis in 1947 (FERA 1947)
FERA 1947 replaced by FERA 1973.
FERA 1973 replaced by FEMA 1999.
Exchange control in existence – 72 years.
Can be phased as – -
5 decades of control;
- a decade of reforms;
- a decade of FEMA.
MFA
FEMA, 1999-Objectives..
FEMA, 1999 came into effect from 01.06.2000.
To consolidate 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.
It extends to whole of India. It shall also apply to all
branches, offices and agencies outside India owned or
controlled by a person resident in India and also to any
contravention thereunder committed outside India by any
person to whom this Act applies.
MFA
Points of Com p a rison FEMA - FERA -1973

2000
There are 49 sections out of There were 81 sections
which 12 section relate to out of which 32 sections
1.C o nte n t
operational part and rest with related to operational part
penal provisions and rest deals with penalty,
appeals etc.
2. Na ture Ba sic a lly it is a c ivil la w It was considered as a criminal

law
3. The Act applies to all The Act applied to all citizens of
Ap p lic a b ility branches , offices and India and to branches and
branches outside India owned agencies outsides India and to
or controlled by a person branches and agencies outside
resident in India India
Capital account transactions,

4. Ne w Te rm s
current account transactions, These terms were not
persons, services like new terms defined.
are introduced.
MFA
5.Pe n a lity Limited to three times the sum Five times of the sum
involved if it is quantifiable .If it is involved + imprisonment in
not quantifiable . most of the cases
6. O b je c t The object is to encourage The object was to control,

external trade. regulate and prohibits foreign
exchange transactions
There was no provision
7. Le g a l He lp The complainant has full right to take for legal assistance
legal help from a lawyer or a chartered
accountant
The power to the police officers has
restricts to great extent Extensive powers had
8.Power of Police
Authorities given to police officer
It has been extended to include banks,
money changes, off shore banking
9. De fin itio n o f units etc It was limited in case of
“ a u t h o r i z e d p e r s o n ” The term has defined in accordance FERA
with income tax
The term defined was not in
10.Definitio n of accordance with
“Re sid e nt” [email protected] 236
MFA
Salient features…
Shift in object.
Govt. / RBI – powers clearly demarcated.
FX transactions categorised – Current / Capital
Provisions dependant on residential status.
Residential status on the basis of stay as well as purpose.
Civil Law –
No arrest.
Prosecution to prove charges against accused.
Investigation and adjudication segregated.
A new concept - Compounding introduced.
Compounding in a definite time-frame (180 days.
Sun-set clause introduced.
MFA
Important sections..
There are 49 sections in FEMA.
Main sections are :
 Sec.2 : Definitions.
 Sec.3 : Dealing in FE.
 Sec.4 : Holding of FE.
 Sec.5 : Current Account.
 Sec.6 : Capital Account
 Sec.7 : Export of Goods and Services.
 Sec.8 : Realisation / repatriation of FE.
 Sec.9 : Exemption from Sec.8
 Sec.10(5): Declaration
 Sec.10(6): Freedom to utilize forex
 Sec.13 to 15 : Penal provisions
MFA
Mechanism under FEMA

Passed by the
Parliament –
the Legislature
Current Account by the

Act – FEMA Government
Rules –
Current A/C
AP Dir Circulars
Notifications to APs
Regulations-
Notified in the Capital A/C
Gazette – by the All aspect of Forex
Executive transactions
by the RBI
Capital Account by
the RBI
A. P. Catagorisation..
MFA
 AD Cat – I  All current & capital

- Com. Banks account transactions.
- State Co-op Banks
- Urban Co-op Banks
 AD Cat – II  Specified non-trade current
- Up Graded FFMCs account transactions.
- Co-op. Banks
- RRBs
- Others
 Select Financial and  Transactions incidental to
other Institutions their FE activities.
 FFMCS  Purchase of FC & sale of FE
for pvt/business visits.
MFA
Forex Transactions…
Types of transactions :-
Current A/c ; and
Capital A/c.
Rational :
Current A/c : The transactions which are
not prohibited are permitted.
[ Sec. 5 freedom to draw FE ]
Capital A/c : The transactions which are
not permitted are restricted.
[ Sec. 6 RB, may by regulation prohibit,
restrict or regulate.
Current A/c transactions..

• Meaning: A transaction other than Capital account
transaction and includes……
- payment due in connection with foreign
trade, other current business, services…
- interest on loans and net income from
investments;
- remittances for living expenses of parents,
spouse and children residing abroad; and
- expenses in connection with foreign travel,
education and medical care of parents,
spouse and children.
Current A/c contd… MFA
Governed by: Sec. 5 read with Current Account

rules notified by Govt. and AP (Dir) circulars
issued by RBI.
Compliance:
Rule No. 3 - Sch. I - Prohibition.
[ Items - 8 ]
Rule No. 4 - Sch. II - Govt. approval.
[ Items - 10 ]
Rule No. 5 – Sch. III – RBI approval
[ Items – 13 ]
All other current a/c transactions freely permitted
Capital A/c transactions….
 Meaning: 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-sec.(3)of Sec. 6.
 Governed by : Sec. 6 read with Regulations notified by RBI & AP (Dir)

Cir. Issued by RBI.
 Regulations: Notf. No. FEMA. 1/2000 read with Nos. 2 to 25, 71 & 101.
 Notf. No. 1 : Sch I- classes of cap. a/c transactions of persons

resident in India;
Sch II – classes of cap a/c transactions of
persons resident out side India.
MFA
Important cap a/c transactions

Separate regulations for investments, borrowings,
lending, deposits, export and import of currency,
guarantees, surrender of foreign exchange, foreign
currency accounts, remittance of assets, immovable
property, derivative contracts, etc.
Most of the transactions could be undertaken under
the general permission.
MFA
Foreign Direct
Investment
MFA
Diagrammatic presentation
Foreign
Investments
Other Investment
Portfolio Venture Capital
FDI investments on non
Investments Investments
repartriable
basis
SEBI regd.
FVCIs
Automati Govt
FIIs NRI, PIO
c route Route
VCF, NRI, PIO
IVCUs
PROI
NRI,
FII
PIO
Perspective of the policy
• Government Policy : The entire FDI policy and
procedures, as notified by the Government from time to
time, are duly incorporated under FEMA Regulations.
• Transparent and liberal FDI.
- Positive list.
- The differential treatment is limited to a few entry
rules.
- A few banned sectors (like lotteries, gambling, betting,
etc.)
- Sectors with limits on foreign equity proportion.
• National treatment
- Subject to these foreign equity conditions a foreign
company can operate under the same laws, rules and
regulations as any Indian owned company.
MFA
FDI Policy Framework
• FDI by NRs in Res. Entities through transfer or issue of
security to PROI is a Cap. A/c transaction is regulated
under FEMA, 1999 & its regulations. The regulatory
framework consists of Acts, Regulations, Press Notes,
Press Releases, Clarifications, etc.
• Inbound investments are regulated by :
− Department of Industrial Policy & Promotion (FC
Section), Ministry of Commerce, Government of India
makes policy pronouncements on FDI through
PNs/PRs. DIPP has released Consolidated FDI Policy
vide Circular NO.1 of 2011 dated 1 April 2011 which is
effective from 1st April2011.
− RBI has the power to prohibit, restrict or regulate the
transfer or issue of any security by a person resident
outside India under section 6(3)(b) of the Foreign
Exchange Management Act, 1999 (“FEMA”)

Sector classification
 Prohibition – 9 items.
 Investment up to 100% under Automatic Route in
most sectors (like Floriculture, Horticulture,
Greenfield Airports projects);
 Investment in 17 sectors under Government Route
(such as Defence – 26%, Tea-100%, ARC-49%, CIC-49%,
Commodity Exchanges-49%, Sex-49%, Satelite-74%).
 13 sectors subject to sectoral caps (Pvt. banking-74%,
Insurance-26%, Air Port-74%, Telecom-49% to 74%,
Broadcasting-20% to 49%, Print media-26%)
MFA
FDI procedure
Governed by :[Govt. Policy 01-10-2011, FEMA
Notf. No 20 & Circulars issued by RBI ].
Eligible investment : [EQ/FMCPS/FMCD].
Routes : [Automatic & Approval].
Pricing : [ listed SEBI/unlisted DCF method].
Time limit : [within 180 days from the date receipt
of investment].
Reporting : [ Inflow, FC-GPR part A(RO)/B(DSIM),
FC-TRS ( transfer ), DR [ADRs/GDRs]
monthly/quarterly
MFA
External Commercial
Borrowings
MFA
ECB Policy
• India’s external debt includes external assistance, NRI
deposits, short-term credit and rupee debt. ECB’s are a
key component of external debt.
• The important aspect of ECB policy is to provide
flexibility in borrowings by Indian corporates, at the
same time maintaining prudent limits for total ECBs
(USD 30 bn. – 2011-12)
• The guiding principles for ECB policy are to keep
maturities long, costs low and encourage
infrastructure ( 9 areas ) and export sector financing .
Governed by Sec. 6(3)(d) of FEMA, Notf. No 3 /2000
and Cirs. issued by RBI.
MFA
Latest Developments
Redemption of FCCBs – Refinancing;
Utilisation of 25% of the fresh ECB towards
refinancing of rupee loans;
Bridge finance for infrastructure sector;
Enhancement of ECB limit (USD 500 mn. >750 mn.);
ECBs designated in INR;
ECB for IDC;
Structured Obligation for infrastructure sector;
ECB from foreign equity holders;
ECB in Renminbi (RMB) – Yuan.
MFA
Overseas
Investment
MFA
Introduction…
 Overseas Investment is an important avenue for promoting
global business by Indian entrepreneurs.
 Advantages :
- medium of economic co-op. between India and other countries;
- transfer of technology and skill;
- access to wider global market;
- share of result of R & D;
- promotion of brand image;
MFA
Introduction contd..
- generation of employment;
- utilisation of raw material available in
India;
- utilisation of raw material available in the
host country;
- increase in export of plant & machinery,
goods and services from India;
- source of foreign exchange earnings by way of dividend, royalty,
technical know-how fees and
other entitlements on such investments.
MFA
Governed by..
Section 6 ( 3 ) ( d ) of FEMA, 1999;
Notification No FEMA. 120/RB-2004
dated July 22, 2004;
Prohibition: No investment without prior
approval of RB in the following areas-
- Dealing in real estate;
- Trading in TDRs;
- Banking.
MFA
Obligation of Indian party..

Receiving share certificates/documentary evidence in
r/o investment and submission of it to the designated
AD;
Repatriation of all receivables due in r/o investments
made;
Compliance with the reporting requirement ( Form
ODI/APR);
Reporting of FCCB;
Repatriation of disinvestment proceeds.
MFA
LATEST LIBERALISATION..
Performance Guarantee issued by the Indian Party;
Restructuring of Balance Sheet of the overseas entity

involving write-off of capital and receivables;
Disinvestment by the Indian Parties of their stakes in

an overseas JV/WOS involving write-off;
Issue of guarantees by an Indian Party to step down

subsidiary of JV/WOS under general permission.
MFA
TRADE
IMPORT/EXPORT
MFA
Trade – Exports…
Export trade is regulated by DGFT as per FTP –
Sec.7 of FEMA. Applicable Rules / Regulations are
Current A/c. Rules (sch.II and III)
FEMA Notification No.8, 9, 14 and 23
RBI guidelines in respect of exports to erstwhile USSR
By RBI in respect of Romania.
Exemption from declarations are listed in
Regulation 4 of FEMA 23/2000.
Latest development : Online Payment Gateway
Service Provider. [ OPGSP ]. Value per transaction
enhanced from USD 500 to USD 3000.
MFA
OTHER CAPITAL
ACCOUNT
TRANSACTIONS
MFA
Foreign Currency Accounts..

Governed by Notf. No. 10/ 2000.
Types of Accounts permitted:
- EEFC
- RFC
- RFC(D)
- EFC
- OTHERS (Diplomats, non-diplomats, Ads,
shipping/ airline companies, LIC, GIC,
students, trading/non-trading offices, etc).
MFA
Penal provisions….
Governed by Chapter IV viz. Contravention and
penalties.
- Sec 13: Adjudication and penalties.
- Sec 14: Enforcement of the order of the
Adjudication authority.
- Sec 15: Compounding by RBI/DoE
[A.P(Dir Series Circular
No. 56/28.06.2010)].
- Sec 49: Sunset clause.
Scope –Overview of FEMA
• Introduction to FEMA
• A person resident in India under FEMA and its
importance.
• “Current Account transaction” and “Capital
Account Transaction”
[email protected]
266
Transition from FERA to FEMA

FERA FEMA
Regulation Management
Foreign Foreign Exchange-
Exchange- Earner’s asset
Government’s
asset
Considered as a Criminal Considered as a Civil
Act- Imprisonment Act- Monetary
Penalty
Enforcement Directorate RBI plays a larger role.
had major role to play.
267
[email protected]
Structure of FEMA
• FEMA has in all 49 sections of which 9 (section 1 to9) are

substantive and the rest are procedural /
administrative .
• Section 46 of the Act grants power to Central
Government to makes rules and section 47 of the Act
grants power to RBIto makeregulations to implements
its provisions and the rules made thereunder.
[email protected]
268
MFA
Regulating Authorities
The FEMA is administered by

a) The Central Government of India through “Rules” on
Current Account Transactions & other matters such as
compounding proceedings etc.
b) Reserve Bank of India through “Notifications” on Capital
Account Transactions in general and
c) Directions
d) FDI Policy
[email protected]
269
MFA
The Role of a Professional

• CS/CA can act as Presenters before the Compounding
Authorities (S. 32)
• Certification as to end use of funds when ECB returns are filed
with the RBI
• Valuation of shares of a company which attracts FDI
• Certification of the net-worth of the Indian entity investing
outside India.
[email protected]
270
Salient Features of FEMA
• Extraterritorial Jurisdiction: FEMA extends to the whole of

India. It also applies to the branches, offices and agencies
outside India owned or controlled by a person resident in India
and also to any contraventions there under committed outside
India by any person to whom the Act applies.
[email protected]
271
A person (Individual) resident in India

A person (being an individual) residing in India for more than one hundred and
eighty-two days during the course of the preceding financial year but does not
include:—
(A) A person who has gone out of India or who stays outside India, in either case
—
(a) for or on taking up employment outside India, or
(b) for carrying on outside India a business or vocation outside India, or
(c)for any other purpose, in such circumstances as would indicate his intention to stay
outside India for an uncertain period;
(B) A person who has come to or stays in India, in either case, otherwise than—
(a) for or on taking up employment in India, or
(b) for carrying on in India a business or vocation in India, or
(c)for any other purpose, in such circumstances as would indicate his intention to stay
in India for an uncertain period;
[email protected]
272
Two Conditions must-Resident
• He should be residing in India for at least 182 days during

the preceding financial year and
• He should have come to India or is staying in India either
for
– taking up employment or
– carrying on business or vocation in India or
– for any other purpose, that would indicate his intention to stay
in India for an uncertain period.
[email protected]
273
MFA
Not Permanently Resident
Means a person resident in India for the employment of

a specified duration (irrespective of length thereof) or
for a specific job or assignment, the duration of
which does not exceed three years.
[email protected]
274
MFA
Not Permanently Resident

(NPR)- Facilities enjoyed
• Remittance for maintenance of close
relatives abroad, exceeding net salary (after deduction of
taxes, contribution to provident fund and other deductions).
• Can acquire or sale any foreign security without any procedures or
formalities or permission out of his foreign currency resources
outside India
• He can possess without limit, foreign currency in the form of currency
notes, bank notes and traveller’s cheques, if such foreign currency
was acquired, held or owned by him when he was resident outside
India and has been brought into India in accordance with the
regulations made under the Act.
[email protected]
275
What do you mean by Capital

Account
transactions/Current
Account Transactions?
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MFA
Capital Account transactions (S.6)

 What is Capital Account Transaction?
“Capital account transaction means, a transaction which
”
(a)alters the assets or liabilities, including contingent liabilities,
outside India of persons resident in India or
(b)alters assets or liabilities in India of persons resident
outside India.
 Ca pital accou nt transactions are generally

regulated unless permitted.
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Capital A/c transactions by Non-Residents
• Import and export of currency/currency notes into/from India by

a person resident outside India. (Notification No. FEMA 6
/2000-RB)
• Deposits between a person resident in India and a person
resident outside India.
(Notification No. FEMA 5 /2000-RB)
• Foreign currency accounts in India of a person resident outside
India. (Notification No. FEMA 5 /2000-RB)
• Remittance of the assets in India held by a person resident
outside India. (Notification No. FEMA 13/2000-RB)
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278
Current Account Transactions

• Section 2(j) defines the term “current account transaction” as a transaction other than a capital account
transaction .Such transaction includes,
(i) Payments due in connection with
(a) foreign trade,
(b) other current business,
(c) services, and
(d) short-term banking and credit facilities in the ordinary course of business,
(ii) Payments due as
(e) interest on loans and
(f) net income from investments,
(iii) Remittances for living expenses of parents, spouse and children residing abroad,
(iv) and Expenses in connection with
(a) foreign travel,
(b) education and
(c) medical care of parents, spouse and
children;
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MFA
Current Account Transactions

• Current accou nt transactions are freely
permissible unless prohibited.
• FEM (Current Account Transaction) Rules, 2000.
 Totally prohibited
 Permitted, subject to the prior approval of concerned
Ministry, Central Government
 Permitted, subject to prior approval of the RBI
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Remittance Facilities
for Non Resident
Individual
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Penalties (S.13)
• Up to three times the amount involved in the
contravention if the amount is quantifiable
• Up to rupees two lakh, if the amount is not quantifiable
• In certain cases, even the assets involved in
the contravention or violation can also be
confiscated.
• Compounding
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MFA
Scope –Investment opportunities for NRIs
• Who is Non Resident Indian

• Investment in Corporate entities
• Investment in Non-corporate entities
• Borrowing in rupees by persons other than companies in
India
• Borrowings in foreign currencies
• Investment in Bank Deposits
• Investment in Immovable Properties
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MFA
Who is Non Resident

Indian under FEMA?
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MFA
Non Resident Indian
• 'Non-Resident Indian (NRI)' means a person

resident outside India who is a citizen of India
or is a person of Indian origin;
• ‘person resident outside India’ means a
person who is not resident in India;
• We shall understand who is "person resident
in India” ?
285
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MFA
Resident Individual-Two Conditions must
• He should be residing in India for at least 182days during

the preceding financial year and
• He should have come to India or is staying in India either for
– taking up employment or
– carrying on business or vocation in India or
– for any other purpose, that would indicate his intention to stay in
India for an uncertain period.
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MFA
Inbound Investment in India
[email protected]
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Foreign Direct Investment
• FDI policy is formulated by Government of India.

• FEMA regulations prescribe the mode of investments
i.e. manner of receipt of funds, issue of
shares/convertible debentures and preference shares
and reporting of the investments to RBI.
[email protected]
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THANK
YOU…
Manoj kumar.K
MFA
FOREIGN EXCHANGE MANAGEMENT ACT, 1999
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MFA
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292

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FERA
• To further strengthen the control and regulate, the then congress
government enacted a new law Foreign Exchange Regulation Act
1973 with 81 section and it came into force from 1st Jan 1974
• FERA 1973 Act was introduced at a time when foreign exchange

(Forex) reserves of the country were low.
• The main objective of FERA was to regulate, control and to ensure

proper utilization of foreign exchange so as to promote the economic
development of the country.
• FERA was a draconian police law, where violation was a

criminal offence.
• There was a demand for substantial modification in FERA owing to

economic liberalization and improving foreign exchange reserve
positions, which lead to new act, Foreign Exchange Management
• Act, 1999.
FOREIGN EXCHANGE MANAGEMENT ACT,

1999 (FEMA)
• After liberalisation in 1992, various sectors opened
for FDI time to time which radically changed the foreign
exchange position. Instead of negative balance, there was
substanital foreign exchange reserve so it was felt necessary
to drop out the draconian law of FERA.
The object of FEMA 1999, (effective June1, 2000):
To consolidate and amend the law relating to foreign

exchange with the object to facilitating external trade
and payments and for promoting the foreign exchange
market in India.
FEMA V/s FERA

• Sections cut to 49 only (out of which 12 are operational
part, rest penal provisionals) – 81/32/rest pinal
• Civil Law (penalty) – against previous criminal law
(imprisonment)
• New Terms Capital Account Transactions and Current
Account Transactions
• Legal Help to Complainant allowed of a Legal counsel
or Chartered Accountant.
• The term `authorized person’ extended to banks,
money changes, offshore banking units etc.
• Definition of `Resident’ as per Income Tax
MFA
Similarities between FERA and FEMA
• The RBI 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 seizure.
MFA
OBJECTIVE OF THE FEMA
To facilitate the external trade and payment

To promote of an orderly maintenance of the foreign
exchange market In India.
Regulation of foreign capital in India and to remove
imbalance of payment.
Regulation of employment business and investment of
non-residents and to regulate foreign payments.
The new law is more transparent in its application. it has
laid down the areas where special permission of the
reserve bank/government of India is required.
MFA
STRUCTURE
The legislations, rules and regulations, regulating Foreign Exchange

Management can be divided into the following:
• FEMA Bare Act of 49 sections (Supreme Legislation)
• 5 Sets of Rules made by Ministry under section 46 of FEMA (Subordinate
or delegated Legislations)
• 23 sets of Regulations made by RBI under section 47 of FEMA
(Subordinate or delegated Legislations)
• Master circulars issued by RBI on 1st July of every year
• Foreign Direct Investment policy issued by Department of Industrial Policy
and Promotion
• Reserve Bank of India notifications and circulars
• Enforcement Directorate
OVERALL SCHEME
FEMA makes provisions for dealings in foreign exchange.
▪Broadly, all Current Account Transactions are free, however Central Government
can impose reasonable restrictions by issuing rules (section 3 FEMA)
▪Capital account transactions are permitted to the extent specified by RBI by issuing
Regulations (Section 6 FEMA)
FEMA envisages that RBI shall have a controlling role in management of foreign
exchange.
Since RBI cannot directly handle foreign exchange transactions, it authorizes
“Authorised Persons” to deal in foreign exchange as per directions issued by RBI.
(Section 10 FEMA)
▪RBI is empowered to issue directions to such “Authorised Persons” u/s 11.

These Directions are issued through AP(DIR) circulars. (AP stands for Authorised
Person and DIR stands for Directions)
[email protected]
▪The FEMA 1999 contains only basic legalm framework. The practical aspects are 299
covered in Rules made by Central Government and Regulations made by RBI.
OVERALL SCHEME
▪ Industrial Policy announced by Ministry of Industry, contains provisions in

respect of FDI, foreign technical collaboration, royalty payments, joint
ventures abroad, etc. which are directly relevant to understanding the
provisions of FEMA.
▪ Policy in respect of External Commercial Borrowings (ECB) and

FCCB/ADR/GDR is announced and controlled by Ministry of Finance.
▪ Instructions/Guidelines etc. of Securities and Exchange Board of India

(SEBI) become relevant when capital market is involved.
7 Chapters and 49 Sections

CHAPTER I – Preliminary (Sec 1&2)
CHAPTER II- Regulation and Management of Foreign

Exchange (Sec 3 –9)
CHAPTER III – Authorised Person (Sec 10 –12)
CHAPTER IV – Contravention and Penalties (Sec 13-
15) CHAPTER V – Adjudication and Appeal (Sec 16- 35)
CHAPTER VI – Directorate of Enforcement (Sec 36-38)
CHAPTER VII- Miscellaneous (Sec 39 – 49)
Besides the FEMA, there are 5 rules and 23 regulations

under the Act which help in implementation of the Act.
GO HEADER & FOOTER TO EDIT THIS TEXT 25-01-2016
MFA
Substantive Provisions
Section Description
1 Application and Commencement of FEMA
2 Definitions
3 to 9 Provisions relating to Regulations and Management of Foreign Exchange
10 to 12 Provisions relating to Authorized Person
13 to 15 Provisions relating to Contraventions and Penalties
16 to 38 Provisions relating to Adjudication, Appeal and Directorate of Enforcement
39 to 49 Miscellaneous Provisions
Extent, Application and Commencement
Section 1 of FEMA – Scope
▪ Extends to whole of India.

▪ Applies to all branches, offices and agencies
outside India, of person resident in India.
▪ Applies to contravention committed outside India
by any person to whom the Act applies.
Section 2(u) – Person
Includes
▪ An individual,
▪ HUF,
▪ Company,
▪ Firm,
▪ AOP or a BOI, whether incorporated or not,
▪ Every artificial juridical person, not falling within
any of the preceding sub- clauses, and
▪ Any agency, office or branch owned or
controlled by such persons
Important Definitions
Section 2(v) Person resident in India (PRI) means
▪ Person residing in India > 182 days during preceding financial year but does not include:
–
➢ Person who has gone out of India or who stays outside India, in either case
o For/on taking up employment outside India, or
o Carrying on outside India a business or vocation outside India, or
o For any purpose, indicating intention to stay outside India for an uncertain period.
➢ Person who has come to or stays in India, otherwise than

o For/on taking up employment in India, or
o Carrying on in India a business or vocation in India, or
o For any other purpose, indicating intention to stay in India for an uncertain period.
▪ Any Person or body corporate registered or incorporated in India.
▪ An office, branch or agency in India owned or controlled by a person resident outside

India.
▪ An office, branch or agency outside India owned or controlled by a person resident in

India.
Section 2(w) - Person resident outside India (PROI)

▪ Person resident outside India means a person who is not resident in India.
Important Definitions
Non Resident Indian (NRI)
▪ NRI has been defined under FEMA Regulation 2(vi) of the FEMA - 5 (Deposit) Regulations 2000 as
follows:
▪ “An NRI is a person resident outside India who is a citizen of India or is a Person of Indian Origin”
▪ It is possible that you may be an NRI under FEMA, yet you may be a resident under the Income tax
laws.
Person of Indian Origin (PIO)
▪ PIO is defined differently in:

➢ Regulation 2 of FEMA 5 (Deposit) Regulations, 2000
➢ Regulation 2(c) of FEMA- 21 (Acquisition and Transfer of Immovable Property in India) Regulations,
2000
➢ Regulation 2 of FEMA 24 ( Investment in a Firm or Proprietary concern in India)
➢ Most other notifications follow the FEMA 5 …. (Deposit) definition of PIO
THANK
YOU…
Manoj kumar.K
MFA
Module 4:
COMPETITION ACT- 2002
MFA
Competition? Can it been seen? What

are the benefits?
FAIR TRADE FOR A GREATER GOOD
COMPETITION FOR PROSPERITY
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Five Dimensions of the Act

 Anti-competitive Agreements [Sec. 3]
 Abuse of Dominance [Sec. 4]
 Combinations, include acquisition of shares,
voting rights, assets/control, mergers,
amalgamations and takeovers
 Advocacy - maximum impact with least
intervention
 Advisory- to tame anti competitive public
action .
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[email protected]
MFA
Latest developments
 Competition assessment of
legislations by CCI through experts;
 Dawn raid by DG;
 E-filing at the CCI;
 Power to review its own orders in
limited circumstances – Google –
Delhi High court
MFA
Risks of Infringement of Law
 Monetary penalties including

compensation claims
 Loss of reputation
 Delinquent Officer deemed guilty person
 Recurrence triggers criminal proceedings
 Potential loss of business
 Depletion of shareholder value
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MFA
Relevant Market - Foundation

 ‘Relevant Market’ includes relevant product market
and relevant geographic market.
Relevant Product Market – comprises all those

products or services which are regarded as
interchangeable or substitutable by the consumer. In
the case
United Brands v. Commission –The ECJ case where it was
held that the banana constitutes a separate market
Relevant Geographic Market – refers to market comprising

the area in which the conditions of competition are distinctly
homogenous.
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MFA
Horizontal and Vertical

Agreements
Raw Material Raw Material Raw Material
Supplier Supplier Supplier
Manufacturer Manufacturer Manufacturer
Wholesaler Wholesaler Wholesaler
Retailer Retailer Retailer
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MFA
Agreements amongst competitors

(Per se Approach)
 Agreements between enterprises or persons engaged
in similar trade of goods or provision of services.
 Agreements including cartels that:
(a) fix prices,
(b) limit or control production,
(c) allocates markets or customers, and
(d) rig bids/collusive bidding (explosive
manufacturers)
are presumed to have an appreciable adverse effect
on competition (AAEC)
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MFA
Horizontal Agreements (Contd.)

 Illustrative cases:
 Cartels- engaged in same or similar
products- Cement,
 Bid rigging/collusive bidding- LPG
Cylinders, Phosphorus, Explosive
suppliers
 Market Allocation
 Limiting of production, supplies
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The Leniency Provision
 The Act provides for imposition of lesser penalty by the

CCI where a person makes FULL, TRUE and VITAL
disclosure of a cartel to the CCI;
 The Leniency System is targeted at cartel participants
and seeks to induce participants to break rank and turn
approver against other cartel members.
 A first, second and third applicants can avail the benefit
of a reduction in penalty of up to 100% or 50% or 30%
respectively.
 Confidentiality is the bed rock of an effective leniency
regime.
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Information Exchange
 What is information exchange?
 What is competitive sensitive
information?
 Who is a competitor?
 When is information exchange between
competitors a concern?
 Why does law prohibit exchange of
competition sensitive information?
MFA
e.g. DISCUSS ABOUT PRICE INCREASE, TIMING OF PRICE

INCREASE WITH COMPETITORS
Retail price is too

cheap. Why don’t I agree. Let’s
we increase the implement the
wholesale price price increase
by 5%? next month.
Competitors Sales
ABC Sales Person
Person
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MFA
e.g. DISCUSS ABOUT CUSTOMERS AND

TERRITORY WITH COMPETITORS
Okay. East district is

West district of A
our territory.
city is our territory.
Promise to us that
Do not sell your
you will not sell
products in our
your products at our
territory.
territory.
ABC Sales Person Competitors Sales Person

[email protected]
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MFA
Contact with former boss

(Fictional Case)
Long time no see. I did not
know you were working to
get this business for Philips.
Why don’t we keep in
touch and exchange
information?
Ex ABC Sales sales person of

Person working at ABC
Competitor
What should you say? Think of a script.

[email protected]
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MFA
Answer
 " I agree. Give me your contact details so that we can
exchange information.”
 " It is really nice to see you again. Why don’t we go

out for dinner tonight. There are lots of things that we
should talk.”
 Leave the place after saying "It is nice meeting you

again. But we are competitors now, and competing
with each other for this deal. It is against our
company’s policy to interact with competitors. I am
afraid I will have to say “I have to go.”
[email protected]
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MFA
Trade Associations
 What is the role of a trade association?
 What are actions that may not be
carried out by a trade association?
 Why should a trade association not
facilitate the exchange of competitive
sensitive information.
 What are office bearers held liable for
infringement by a trade body?
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MFA
Vertical Agreements
(Rule of Reason)
 Agreements between enterprises at different stages
or levels of the production chain.
 Such agreements include
(a) tie-ins
(b) exclusive supply
(c) exclusive distribution
(d) refusal to deal
(e) resale price maintenance
 Less sensitive than the Horizontal Agreement.
MFA
Abuse of Dominant Position
 The Act does not prohibit dominant position – it only

frowns upon the ‘abuse’ thereof.
 Dominant Position refers to a position of strength

enjoyed by an enterprise or group in the relevant
market, in India, which enables it to -
 Operate independently of competitive forces

prevailing in the relevant market; or
 Affect its competitors or consumers or the relevant
market in its favor.
 ‘Group’ is open ended.
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MFA
Types of Abuses
 Exploitative Abuses– i.e., conduct which results in
exploitation of others in the value chain, for e.g.,
 imposition of unfair or discriminatory conditions
 imposition of unfair or discriminatory prices e.g.,
predatory pricing.
 Exclusionary Abuses – conduct which interferes with the
competitive process, for e.g.,
 Making conclusion of contract subject to acceptance of
supplementary obligations
 Denial of market access
 Limiting production of goods, provision of services; scientific
development;
 Using dominance in one relevant market to enter into or protect
other relevant market.
[email protected]
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MFA
How is an inquiry initiated

 The CCI may institute inquiry in the wake of:-
 Filing of Information by any person or consumer or association of

consumer/trade; or
 Suo motu takes cognizance; or
 Filing of a reference by State/Statutory authority
 CCI may pass an order
 directing the DG to investigate; or
 pass an order dismissing the matter

 Powers of the DG
 Requisition of information from the parties
 Requisition of information from ex-employees, distributors etc.
 The DG can summon and record evidence during investigation.
 DG can exercise the powers of ‘Search and Seizure’ (“Dawn Raids”).
 DG are vested with the powers of a Civil Court to aid Inquiry/Investigations
[email protected]
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MFA
A word of caution in
communication
 Email, SMS, FAX, Communication in any e-mode are
admissible evidence- irretrievable once clicked/sent.
 Skillful communication is imperative.
 Do not sound guilty .
 Do not use expression like “destroy after reading”.
 Avoid the exaggerated use of “power” words(e.g.
“we’ll destroy them”, “we will nail them to the
wall”)
 Avoid giving the false impression that a customer is
being given favored treatment( e.g. “None of our
other customers is getting this special
discount”).
[email protected]
327
MFA
A word of caution in
communication (Contd.)
 Do not use terms such as “control”, “power”
or “dominance” when referring to the
company’s present or future position;
 Do not use vivid words or images suggesting
combat (“crush”, “destroy”, “block access”,
“conquer”, “dominate”) to describe the
company’s marketing practices.
 Do not use the term “market” to refer to parts
of a nation. For cities, regions, and other
limited geographic areas, use terms such as
“area", "region” or the like.
[email protected]
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MFA
Why do we need a CCP

 Breach can lead to - substantial fines linked with
consolidated profits or turnover,
 Individuals involved can be subject to penal
sanctions;
 Detection possibilities heightened-DG vested with
power of Civil Court, power of search and seizures,
MoUs with overseas authorities Growing vigilance by
NGOs, whistle blowers, media, etc;
 Introduction of leniency programmes, growing cases
of breach/cheating by members of cartels.
[email protected]
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MFA
Why do we need a CCP (Cont.)

 No indemnification of fines imposed on
individuals in case violation of the law is
found to be “intentional and deliberate”;
 Investigation/inquiry are disruptive, costly
and seriously damage the reputation and
goodwill of the enterprise;
 Ever increasing emphasis on convergence
and harmonization of competition laws and
principles;
 Competition regimes are being increasingly
modernized.
MFA
Benefits of having a CCP

 Reduces the risk of contraventions and its consequences;
 CCP are generally inexpensive vis-à-vis penalties which
can be imposed;
 Helps in early detection of contraventions;
 Early detection reduces quantum of penalties as well as
compensation to third parties;
 Ensure compliance with the orders passed by the
Commission;
 Action can be taken against delinquent employees who
have contravened or have been party to contravention.
MFA
Benefits of having a CCP (cont.)

 Suggest appropriate action in case being
a victim of anti-competitive practice of
others;
 Combinations are strategic decisions-
disapproval causes loss to reputation-
CCP can draw up planned action;
 Facilitate in eliminating/taming anti-
competitive practice emanating from
public action;
 Ensure compliance with overseas
competition law in case export
business/overseas acquisition.
[email protected]
332
MFA
Benefits of having a CCP (cont.)

CCP – A Mitigating Factor:
 In US – a penalty can be reduced by more than
80%;
 In Australia – a relevant factor in assessing
pecuniary penalty;
 In Netherlands – a relevant factor provided no
senior executive is involved in the violation;
 In Canada – a mitigating conduct for sentencing
purposes provided contravention has been
terminated soon after it became known; and
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333
MFA
And…
The price of antitrust liability continues to increase;
cost of compliance is miniscule qua penalties
prudence suggests launching of effective and
comprehensive CCP.
You can maximise the chances of your company staying

on the right side of the law without having to rely on
advice from Specialist Anti-Trust Lawyers every day.
[email protected]
334
MFA
Role of Company Secretary in

modernised competition regime
 Compliance officer
 Can represent before the CCI, DG and CAT
 Authorized to do merger filings
 Can facilitate in creating right opinion in

taming the rigor of anti competitive law or
policy
CASE-STUDY-I
2. ALLEGED VIOLATION OF
1. FACTORY PURCHASED IN THE YEAR 2005
ENVIORNMENT PROTECTION ACT AND
WATER POLLUTION ACT IN THE YEAR
2009
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336
[email protected]
THANK
YOU…
Manoj kumar.K
Mob: 8147682619
Module 5:
PREVENTION OF MONEY
LAUNDERING ACT , 2002
338
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TOPICS
1. History and Objectives
2. Money Laundering- Meaning, Process and Punishment
3. Definitions
4. Authorities
5. Powers of the Investigating Officers
6. Attachment, adjudication and confiscation
7. Adjudicating Authority
8. Special Court
9. Obligation of reporting entities
10. Miscellaneous
339
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HISTORY AND OBJECTS

 The Act implements the Political Declaration adopted by the
Special Session of the UN General Assembly, 1999 which called
upon the Member-States to adopt money-laundering legislation
and programmes. The Act came into force w.e.f. 1 July 2005.
 Objects and reasons for the Act:

- to prevent and control money laundering,
- to provide of confiscation of property derived or obtained
from money laundering, and
- matters connected therewith.
340
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MFA
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[email protected]
MFA
342
[email protected] Bengaluru City University (BCU)
Money Laundering…..
 Process by which illegal funds and

assets are converted into legitimate
funds and assets.
343
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THE OFFENCE OF MONEY
LAUNDERING
 The offence of money laundering: “Whosoever directly or
indirectly attempts to indulge or knowingly assists or
knowingly is a party or is actually involved in any process or
activity connected with the proceeds of crime including its
concealment, possession, acquisition or use and projecting it
or claiming it as untainted property shall be guilty of offence
of money-laundering.”
 Proceeds of crime: means any property derived or obtained,
directly or indirectly, by any person as a result of criminal
activity relating to a scheduled offence or the value of any
such property.
PROCESS OF MONEY LAUNDERING

The International Federation of Accountants (IFAC) classifies
money laundering activities in three stages;
 Placement
 Layering
 Integration
345
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‘PLACEMENT’
Refers to the process of transferring the proceeds from illegal
activities into financial system in a manner not detectable by
governmental authorities.
Involves
 placing of money in the financial system/retail economy, or
 smuggling out of the country.
amounts to
Removal of funds
from
location of acquisition
346
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‘LAYERING’
Refers to a process of disassociating the illegal money from the

source of the crime by creating a complex web of financial
transactions for concealing its source, trail and ownership.
Involves creation of complex layers of financial transactions for
concealing or disguising the source of the ownership of the
funds.
amounts to
Disassociation of funds
from source and ownership
‘INTEGRATION’
Refers to the process of integrating the now ‘clean’ money into

the regular economy.
Involves assimilation of layered money into the legitimate
economic and financial system.
amounts to
change in
character of income
as legitimately earned
OFFENCE AND PUNISHMENT

 Any person who commits the offence of money laundering shall
be punishable with rigorous imprisonment (between 3 to 7 years),
and also liable to fine. [10 years where the proceeds of crime
relate to an offence under the Narcotic Drugs and Psychotropic
Substances Act.]
 Scheduled Offences:
• Part A - offence under several statutes including the IPC (eg.
criminal conspiracy, cheating etc.), SEBI Act (eg. insider
trading), Customs Act, etc.
• Part C - offences of cross border implications
• No monetary threshold
349
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DEFINITIONS
1. Attachment
2. Banking company
3. Beneficial Owner
4. Client
5. Contracting State
6. Cross Border Offence
7. Financial Institution
8. Intermediary
9. Investigation
10. Person carrying on designated business
11. Reporting entity
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AUTHORITIES UNDER THE ACT
Director /
Additional Director / Joint Director
Deputy Director
Assistant Director
Officers
Section 48, 49 (Appointed by the Central Government)
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[email protected]
DIRECTORATE OF ENFORCEMENT
• Responsible for investigating cases of money laundering, initiate
proceedings for attachment of property and to launch
prosecution in the Special Court.
• Powers and functions include:
• survey, search, seizure, arrest, attachment, prosecution against
offender;
• providing and seeking mutual legal assistance to/from
contracting states in respect of attachment/confiscation of
proceeds of crime and transfer of accused persons;
• rendering cooperation to foreign countries in matters related to
money laundering and restitution of assets.
352
[email protected]
FINANCIAL INTELLIGENCE UNIT-INDIA

(FIU)
• FIU is the central national agency responsible for receiving,
processing, analyzing and disseminating information
relating to suspected financial transactions.
• Powers and functions include:
• receiving information and reports from Reporting Entities
• processing, analysing and disseminating information to any
authority in law in relation to suspected financial transactions.
ADJUDICATING AUTHORITY
[SECTION 6]
The adjudicating authority consists of a chairperson and 2
members. It functions within Department of Revenue,
Ministry of Finance.
The Adjudicating Authority is not bound by the procedure laid
down in the CPC but “shall be guided by the principles of
natural justice” and shall be entitled to regulate its own
procedure.
The role of adjudicating authority is to consider attachments
made by authorities and grant of refuse permission for
retention and confiscation of seized property.
354
[email protected]
APPELLATE TRIBUNAL AND SPECIAL
COURT
Appellate Tribunal: is empowered to hear appeals against the
decision of Adjudicating Authority and other authorities
under this Act. It consists of a Chairperson and two other
members.
Special Court: is set up by the Central Government for trial of
offences of money laundering.
Jurisdiction of civil courts is barred. The offence of money
laundering is tradable only by a special court constituted
for the area in which the offence has been committed.
355
[email protected]
POWERS OF INVESTIGATING
OFFICERS
1. Power of Survey [S. 16]
2. Power to Search, Seize and Freeze [S. 17]
3. Power to Search Persons [S. 18]
4. Power to Arrest [S. 19]
5. Power to summon, production of documents and give evidence [S. 50]
6. Power of retention of property and records [Ss. 20 & 21]
7. Power to Attach property [Section 5]
After exercise of the above powers, the authority shall forward the
“reasons so recorded” or “order”, “alongwith material in his
possession”, to the Adjudicating Authority.
The authority seizing any record or property shall file an application
for retention thereof before the Adjudicating Authority within 30
days.
356
[email protected]
POWER OF SURVEY [SECTION 16]

 Where an authority “on the basis of material in his possession, has reason to
believe (the reasons for such belief to be recorded in writing)”, that an offence
of money laundering has been committed,
 He may enter any place and :
 inspect records,
 check or verify the proceeds of crime or any transaction relating to the proceeds
of crime which may be found therein,
 furnish such information as is required.
 The Authority may:
 place marks of identification on the records inspected and make copies thereof,
 make an inventory of the property inspected,
 record the statement of any person present in the place which may be useful to
any proceeding under the Act.
357
[email protected]
POWER TO SEARCH, SEIZE AND FREEZE

[SECTION 17]
Where a Director “on the basis of material in his possession, has reason to believe (the
reason for such belief to be recorded in writing)”, that any person has:
 committed any act which constitutes money laundering, or
 is in the possession of any proceeds of crime involved in money laundering, or
 is in possession of any records relating to money laundering,
 is in possession of any property related to crime,
Then he may authorize any officer subordinate to him to enter into and search any
building, place, etc. where he has reason to suspect that such records or proceeds
of crime are kept, and
 break open the lock of any door, box etc. if the keys are not available
 seize any record or property found as a result of such search
 place marks of identification on the records inspected and make copies of the same
358
[email protected]
POWER TO SEARCH PERSONS

[SECTION 18]
If an authority “on the basis of material in his possession, has reason to
believe (the reason for such belief to be recorded in writing)”, that any
person has:
 secreted about his person or in anything under his possession, ownership or
control,
 any record or proceeds of crime which may be relevant for proceedings
under the Act,
he may search that person and seize such record or property.
359
[email protected]
POWER TO ARREST [SECTION 19]

If the director / officer authorised, has “on the basis of material in
his possession, has reason to believe (the reason for such belief
to be recorded in writing)”, that any person has been guilty of an
offence punishable under the Act, he may arrest such person
and shall, as soon as may be, inform him of the grounds for
such arrest.
Every such person arrested shall be taken to a judicial magistrate
or a metropolitan magistrate, who has jurisdiction in the matter)
within 24 hours of such arrest.
360
[email protected]
POWER TO SUMMON, PRODUCTION OF

DOCUMENTS AND GIVE EVIDENCE [SECTIONS 11
AND 50]
• The adjudicating authority and the director have the same powers
as are vested in a civil court while trying a suit in respect of the
following matters, namely:
• discovery and inspection
• enforcing the attendance of any person, including any officer of a
banking company or a financial institution or a company, and
examining him on oath
• receiving evidence on affidavits
• All such proceedings are deemed to be “judicial proceedings”.
POWER OF RETENTION OF PROPERTY
AND RECORDS [SECTION 20 & 21]
• Where any property or records have been seized and the officer
concerned “has reason to believe” that
• the property is required to be retained for adjudication,
• the property may be retained for a period of 3 months from the end of
the month in which the property was seized.
• On expiry of the period above, the property shall be returned to the
person from whom it was seized, unless, the adjudicating authority
permits retention of such property beyond the said period.
MFA
POWER TO ATTACH PROPERTY
[SECTION 5]
• The Director (or any person authorized him), has the power to provisionally
attach any property suspected to be derived from the proceeds of crime.
• If the Director “has reason to believe (the reason for such belief to be recorded
in writing), on the basis of material in his possession”, that:
• any person is in possession of proceeds or crime, and
• such proceeds of crime are likely to be concealed, transferred or dealt with in
any manner which may result in frustrating any proceedings relating to
confiscation of such proceeds of crime,
• He may, after filing a report with the Magistrate, by order in writing, to
provisionally attach the property for a period upto 180 days.
• Notwithstanding the above, the property may be provisionally attached if the
Director has reason to believe that non-attachment shall frustrate the
proceedings.
363
[email protected]
PROCEDURE FOLLOWING ATTACHMENT OF

PROPERTY BY THE DIRECTOR (CONFIRMATION AND
ADJUDICATION)
• The director shall, immediately after attachment:

• forward a copy of the order of attachment along with
supporting material to the adjudicating authority, and
• within 30 days of the attachment, file a complaint before the
adjudicating authority, stating the facts of such attachment.
364
[email protected]
APPELLATE TRIBUNAL
 Established by Central Government and consists of Chairperson and two
other members to hear appeals against the decision of Adjudicating
Authority and other authorities under the Act
 Appeals to the Tribunal can be made by the Director, or any person
aggrieved by an order of the Adjudicating Authority, or any banking
institution or allied institution within 45 days from the date on which the
order is received.
 Further appeal can be made against the order of the Tribunal to High Court
within 60 days.
 Appellate Tribunal vested with powers of a civil court. Can also review its
decisions and decide cases ex parte.
SPECIAL COURT
 The Special court can take cognizance of any offence of money upon a
complaint is made by an authority, without the accused being committed
to it for trial.
 The provisions of the CrPC shall apply to the proceedings before a Special
Court.
 Applications for bail should be made before the High Court having
jurisdiction.
 No person accused of an offence for a period of more than 3 years under
Part A shall be released without the public prosecutor being given a
chance to oppose the release and there are grounds for believing he is not
guilty except a person under the age of 16 years or a woman or a sick and
infirm person
366
[email protected]
MFA
OBLIGATION OF REPORTING
ENTITIES
 Reporting Entity” means a banking company, financial
institution, intermediary or a person carrying on a designated
business or profession.
 Every Reporting entity to maintain record of all ‘transactions’ to
enable it to reconstruct individual transactions, furnish to FIU
information on such transactions, maintain records evidencing
identity of clients.
 Such record to be maintained for a period of 5 years after the
business relationship with the reporting entity has ended or
closed, whichever is later
367
[email protected]
PREVENTION OF MONEY LAUNDERING
(MAINTENANCE OF RECORDS) RULES,
2005
 Every reporting entity to have a Designated Director who has to
ensure overall compliance with the obligations imposed under
the Act and Rules.
 Rule 3 requires to maintain records and report:
 cash transactions of over Rs. 10 lakhs (whether in INR or foreign
currency),
368
[email protected]
OFFENCES BY COMPANIES
Where a person committing a contravention of any of the provisions of the Act
or of any rule, direction or order made there under is a company:
1) Every person responsible for the conduct of business, and the company
itself, shall be deemed to be guilty and proceeded against,
2) Provided that no person will be held liable if he proves that the
contravention took place without his knowledge or he exercised all due
diligence to prevent it.
3) If it is proved that contravention is attributable to any consent, connivance
or even neglect on the part of any director, manager, secretary or other
officer, then such person shall also be deemed to be guilty.
369
[email protected]
Interplay of various Laws Dealing With

MFA
Economic Offences.
● Implication under
Income-tax Act on
1
benamidar and
● Whether Persons beneficial owner vis-à-
acting in concert Income-tax Act, vis the unexplained
are subject to 1961
investments and credits
Benami law?
● Impact on holding
company structures for
denial of beneficial
ownership criteria
4 SEBI Regulations
Benami Companies Act, 2013 2
law
Prohibition of
● Property outside India – Money Laundering
Act, 2003 and ● Significant Beneficial
whether covered under theBlack Money law Owners Reporting
Benami law or under Black
● Dematerialization of
Money law?
3 shares in Unlisted Public
● PMLA invoked, Benami Company – step to curb
law applicable benami dealing ?
370
[email protected]
Trade Based Money Laundering

There are three main methods by which criminal organisations and
terrorist financiers move money for the purpose of disguising its
origins and integrating it into the formal economy.
• use of the financial system;

• physical movement of money (e.g. through the use of cash
couriers);
• through the physical movement of goods through the trade
system..
371
[email protected]
Trade based money laundering

•Trade-based money laundering is defined as the process of disguising the proceeds of crime and moving
value through the use of trade transactions in an attempt to legitimise their illicit origins.
•In practice, this can be achieved through the misrepresentation of the price, quantity or quality of imports
or exports. Moreover, trade-based money laundering techniques vary in complexity and are frequently used
in combination with other money laundering techniques to further obscure the money trail.
372
[email protected]
Examples of Trade-Based
Money Laundering
• over- and under-invoicing of goods and services;
• multiple invoicing of goods and services;
• falsely described goods and services.
373
[email protected]
Indicators and Trends

Trade-Based Money Laundering
• Cash for high-value orders
Items priced well over or under market value
Mismatch between customer and items ordered
Business transfers made for no apparent reason
Third-party financing
Packaging inconsistent with contents
Routing is circuitous or economically illogical.
Size or weight of goods is inconsistent with contents
374
[email protected]
Under voicing of Goods
Exporter Ships 1 million widgets @ $1 each

whereas actual price is $2 each
Company I
Company E
1$ Million is moved from exporter to

importer
Home Country Foreign Country
Importer remits payment for 1 million widgets @ $1 each
Company I can sell extra widgets and can distribute 1 million as per
direction of company E
375
[email protected]
MFA
Mechanics of a Black Market Peso Exchange Agreement
Colombian
Drug Cartel
Importer
US
Goods
Dollars
Drugs
Pesos Pesos
376
[email protected]
Use of Gold Bullion
Cartel smuggles drugs into the US from Colombia
Proceeds from
drug sales used
to purchase gold US The “hardware” is
bullion Gold is recast
into hardware
exported to Colombia Colombia
Cartel re-exports gold bullion into the US from Colombia
377
[email protected]
CASE-STUDY-II
4. FACTORY ACQUIRED IN 2005
3. POC ILLEGALLY CALCULATED
HAVING NO NEXUS WITH POC
FROM THE YEAR 2017-18 TILL 2020-21 ATTACHED
378
[email protected]
CASE-STUDY -III
379
[email protected]
CASE-STUDY -IV
FDR created in the bank in the
Bitcoin scheme floated in the year
year 2018 out of funds having no
2015 which ended in the year 2017
nexus with the scheme
FDR attached by ED without identifying any

transaction linking POC with the attached property
380
[email protected]
MISCELLANEOUS
• Burden of Proof
• Punishment for giving false information
• Bar of suits in civil courts
• Act to have overriding effect
• Disclosure of information
• Recovery of fines
THANK
YOU…
Manoj kumar.K
Mob: 8147682619

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1rd M.F.

1.7- Corporate and Allied Laws

Bengaluru City University (BCU)

Bengaluru City University (BCU)

According to number of members

According to liability of members

Other kinds of Companies

Statutory Company eg. LIC, RBI, UTI,

 Incorporated by a Special Act passed by Central or State legislature

Electricity Act, 2003 or the Insurance Act, 1938 respectively 11

Private Company ,Sec2(68)

Public Company ,Sec.2(71)

 Shares are freely transferable

One Person Company, Sec.2(62)

 Most of the companies in India belong to this category

 Such companies are also known as limited liability companies

 If shares are fully paid, the liability of members will be nil

Companies Limited by guarantee

 In such companies, liability of members is limited by memorandum to the

 Memorandum of such companies must state that liability of its

 Liability of members is enforceable only at the time of winding up

 Every member is liable to contribute in proportion of his interest in

 These companies are meant for promoting science,art,commerce,sports,

to receive donations etc. Further certain notified Sections of the 18

 Holding Company is one which exercises control over the other

Bengaluru City University (BCU) 20

 This concept of associate company is new and has been

Bengaluru City University (BCU) 21

 A small company is new class of private limited company (introduced

benefits which are available in a particular year may stand withdrawn 22

Profit or gain Mutual assistance

Min. 2 Min. 10 Individuals\ 2Prod. Inst.

p No such criteria Members must be primary producers

Min. 2 Max. as fixed by AOA Min.5 Max. 15

co.& vice versa (Delibrate conversion)

co.& vice versa (Automatic conversion)

Such a company can no longer enjoy privileges and exemptions

However, if Tribunal (NCLT) is convinced that the default took place

Where automatic conversion takes place, the company may retain

 Only 2 persons may form themselves into a private co.

A private company must have A public company must have atleast

It may by its AOA, provide special It cannot prescribe additional

2004 – J J 12 Sep 2013 –

Companies Act, 2013: A statistical snapshot

 Definition of Company :-“Company” means a

 Public Limited Company

 Section2(68) “private company” means a company

(i) persons who are in the employment of the company;

 (b) has a minimum paid-up share capital of

five lakh rupees or such higher paid-up capital,

of a company, not being a private company,

 Section2(62) “One Person Company” means a

(A) a holding company or a subsidiary company;

 Dormant company: The 2013 Act states that a

intellectual property and has no significant accounting

has not made any significant accounting transaction, or

Concessions to dormant companies

a calendar year (with gap of 90 days between 2 meetings)

in case it remains dormant for consecutive 5 years