EBCL - Adv Chirag Chotrani, YES Academy, Pune

CS Vikas Vohra CA CS Harish A.
Mathariya
CS Vikas Vohra CA CS Harish A. Mathariya

Founders
“Speak only that which will bring you honour”
In spite of all the variable factors like the canvass, paint and brush, the quality of the painting is the
responsibility of a painter. The quality of a sculpture is the responsibility of the sculptor. Similarly, the quality
of your life is your responsibility. Your life, your death, your success or failure is in your hands.
If I ask you to carry a 12 KG granite block, you will struggle with it. Instead, if I ask you to carry an adorable
child, who weighs 12 KG, you will happily do it. Anything in life that is perceived as KASHTAM KASHTAM
will only make you struggle. Anything in life that is perceived as ISHTAM ISHTAM will give you fulfillment.
The secret of living a life of fulfillment is to see responsibilities with ISHTAM ISHTAM attitude.
Responsibilities should cause happiness to you and in you. Take charge. Take control. Take ownership. Be
responsible. Remember, life or death or success or failure is your responsibility.
MY LOVE AND RESPECT TO….
To Vikas Vohra – You have never kept me like a faculty but like a small brother and always loved me
unconditionally, I’ll be your side till my last breath
To Harish Mathariya – for believing in my potentials like no one else can
To my Mummy – You are my inspiration, the way you believe in me is what makes me keep going
To my Papa – You taught me to stand up and never give up whatever the situation is
To Shraddha Desai – Thank You for making me what I am today
To Manisha Parmar – For strengthening the contents of this book and adding immense value to it
To every Student – Glad to have found so many teachers in you, my source of happiness, my strength
To my Competitors – Thank you for being so strong and amazing. You bring out the best in me
To Yes Academy for everything
Sandesh….
Dear Reader,
At the outset, let me first take this opportunity to thank you for spending some of your valuable time with my words.
I feel pleased to present to you, notes on Economic, Business and Commercial Laws (latest edition – after
amendments) for CS Executive.
While writing this book, I have taken every possible effort to cover each and every provision as may be applicable to
you and in the most lucid language, so this sums up the entire syllabus. Howsoever, there is always a scope for
improvement. I shall highly appreciate any changes, corrections, errors, interpretations suggested by you so that the
same can be incorporated in the subsequent editions. You may write to me at [email protected] or get in
touch directly on my cell at +91 8446427759.
Many a times, while speaking with students, I come across this question about the opportunities for a Company
Secretary and their scope in the times to come. I shall be wrong; if I simply quote that life would be simple post
completion of the Course. Perhaps, the times ahead poses a lot of challenges and like I always say the only thing, which
shall survive in the long run, shall be the Power of Knowledge and the ability to express the same and apply. Readers,
empower yourself so robustly that as and when a challenge arises, it turns its way and says: let’s catch hold of a weaker
one.
It’s said, “Fortune favors the brave”. You give your best shot and leave the rest upon god to decide. Realize your
strengths, work on your weaknesses, grab the best possible opportunity and overcome your threats. Different people
define success differently as it means different to different. Realize your “Being Successful” factors and start chasing
them every morning as you get up.
“Do everything no matter how unglamorous, to the best of your ability”
Because in the end, what shall matter would be quality of life you spent
and the smiles you lent to the people around you!!!!
With this, I wish you all a happy reading and I hope that you fall in love with this subject. I wish you all good luck and
that you achieve what all you work for. Keep working, keep reading, keep spreading love, happiness and smile. You
shall be a part of my prayers. I promise to serve you with the best. Someday, we shall once again meet AT THE TOP….
Try to
Reinvent
Yourself
CHIRAG CHOTRANI
Cell: 8446427759
YouTube - YES Academy for CS Index
INDEX
PART A: FOREIGN EXCHANGE MANAGEMENT & NBFCs (40 marks)
Chapter Particulars Page No.

No.
1. RBI Act, 1934 1.1 – 1.32
2. Foreign Exchange Management Act, 1999 2.1 - 2.5

3. Foreign Exchange Transactions & Compliances 3.1 – 3.24
4. Foreign Contribution (Regulations) Act, 2010 4.1 – 4.12
5. Foreign Direct Investments – Regulations & FDI Policies 5.1 – 5.43

6. Overseas Direct Investments 6.1 – 6.8
7. Liberalised Remittance Scheme 7.1 – 7.9
8. External Commercial Borrowings 8.1 – 8.18

9. Foreign Trade Policy & Procedure 9.1 – 9.37
10. Non Banking Finance Companies 10.1 – 10.13
11. Special Economic Zones Act, 2005 11.1 – 11.12
PART B: COMPETITION LAW (25 marks)
Chapter Particulars Page No.

No.
12. Competition Act, 2002 12.1 – 12.39
PART C: BUSINESS & COMMERCIAL LAWS (35 marks)

13. Consumer Protection Act, 1986/2019 13.1 – 13.70
14. Essential Commodities Act, 1955 14.1 – 14.10

15. Legal Metrology Act, 2009 15.1 – 15.9
16. Transfer of Property Act, 1882 16.1 – 16.36
17. Real Estate (Development & Regulation) Act, 2016 17.1 – 17.19
18. Benami Transactions Prohibiton Act 18.1 – 18.21
19. Prevention of Money Laundering Act, 2002 19.1 – 19.15
ADV CHIRAG CHOTRANI 84464 27759 | YES ACADEMY, PUNE 8888 235 235
YouTube - YES Academy for CS Index
20. Indian Contract Act, 1872 20.1 – 20.39
21. Specific Relief Act, 1963 21.1 – 21.14

22. Sales of Goods Act, 1930 22.1 – 22.40
23. Partnership Act, 1932 23.1 – 23.32
24. Negotiable Instruments Act, 1881 24.1 – 24.45
ADV CHIRAG CHOTRANI 84464 27759 | YES ACADEMY, PUNE 8888 235 235
CS- EXE Economic Business and Commercial Laws RBI
CHAPTER 1- RESERVE BANK OF INDIA ACT, 1934
INTRODUCTION
 The origin of the Reserve Bank of India can be traced back to 1926, when the Royal
Commission on Indian Currency and Finance - also known as the Hilton-Young Commission -
recommended the creation of a central bank for India to separate the control of currency and
credit from the Government and to enhance banking facilities throughout the country.
 The Reserve Bank of India Act, 1934 established the Reserve Bank and set in motion a series
of actions culminating in the start of operations in 1935. Since then, the Reserve Bank's role
and functions have undergone numerous changes, as the nature of India n economy and
financial sector changed.
 The Reserve Bank of India (RBI) was established on April 1, 1935 under the Reserve Bank of
India Act, 1934. It is central bank of the country. RBI is also known as banker's bank and
government's bank. The RBI controls monetary and banking policies of the Indian
government.
 The Reserve Bank designs and implements the regulatory policy framework for banking and
non-banking financial institutions with the aim of providing people access to the banking
system, protecting depositors' interest, and maintaining overall health of the financial system.
 The RBI Act, 1934 applies to whole of India.
Adv Chirag Chotrani (B.com, LLB, LLM, Diploma in corporate law) YES Academy, Pune 8888 235 235 1.1
ORIGIN
Origin of the Reserve Bank of India at a glance
1926: The Royal Commission on Indian Currency and Finance recommended creation of a
central bank for India.
1927: A bill to give effect to the above recommendation was introduced in the Legislative
Assembly, but was later withdrawn due to lack of agreement among various sections of
people
1933: The White Paper on Indian Constitutional Reforms recommended the creation of a
Reserve Bank. A fresh bill was introduced in the Legislative Assembly
1934: The Bill was passed and received the Governor General's assent
1935: The Reserve Bank commenced operations as India's central kink on April 1 as a private
shareholders' bank with a paid-up capital of rupees five crore (rupees fifty million)
1942: The Reserve Bank ceased to be the currency issuing authority of Burma (now
Myanmar)
1947: The Reserve Bank stopped acting as banker to the Government of Burma
1948: The Reserve Bank stopped rendering central banking services to Pakistan
1949: The Government of India nationalised the Reserve Bank under the Reserve Bank
(Transfer of Public Ownership) Act, 1948
ESTABLISHMENT AND INCORPORATION OF RESERVE BANK
 Section 3 of the RBI Act states that a bank to be called the Reserve Bank of India shall be
constituted for the purposes of taking over the management of the currency from the
Central Government and of carrying on the business of banking in accordance with the
provisions of the Act.
 Sub section (2) of this section provides that the Bank shall be a body corporate by the
name of Reserve Bank of India, having perpetual succession and a common seal, and shall by
the said name sue and be sued.
ORGANISATIONAL STRUCTURE & MANAGEMENT
The organizational structure of RBI can be classified under the following designations:
Central Board of Directors
Governor
Deputy Governors
Executive Directors
Principal Chief General Manager
Chief General Managers
General Managers
Deputy General Managers
Assistant General Managers
Managers
Assistant Managers
Support Staff
CENTRAL BOARD OF DIRECTORS
 The Central Board of Directors is at the top of the Reserve Bank's organisational structure.
Appointed by the Government under the provisions of Reserve Bank of India Act, 1934, the
Central Board has the primary authority and responsibility for the oversight of Reserve Bank.
The Governor is the Reserve Bank's chief executive.
 The Governor supervises and directs the affairs and business of RBI. The management team
also includes Deputy Governors and Executive Directors.
 The Central Government nominates fourteen Directors on the Central Board, including one
Director each from the four Local Boards (Mumbai, Calcutta, Chennai, New Delhi). The other
ten Directors represent different sectors of the economy, such as, agriculture, industry, trade,
and professions. All these appointments are made for a period of four years. The Government
also nominates one Government official as a Director representing the Government, who is
usually the Finance Secretary to the Government of India and remains on the Board during
the pleasure of the Central Government.
 The Deputy Governor and the Director nominated may attend any meeting of the Central
Board and take part in its deliberations but shall not be entitled to vote.
 However when the Governor is, for any reason, unable to attend any such meeting, a Deputy
Governor authorized by him in this behalf in writing may vote for him at that meeting.
[Section 8(3)]
 The Governor and a Deputy Governor hold the office for such term not exceeding five years
as the Central Government may fix when appointing them, and they are eligible for re-
appointment. A Director nominated holds the office for a period of four years and thereafter
until his successor is nominated. [Section 8(4)]
 No act or proceeding of the Board can be questioned on the ground merely of the existence
of any vacancy in, or any defect in the constitution, of the board. [Section 8(5)]
 A retiring director shall be eligible for re-nomination. [Section 8(7)]
LOCAL BOARDS
 The Reserve Bank Governor and a maximum of four Deputy Governors are also ex officio
Directors on the Central Board.
 The Reserve Bank also has four Local Boards, constituted by the Central Government under
the RBI Act, one each for the Western, Eastern, Northern and Southern areas of the country,
which are located in Mumbai, Kolkata, New Delhi and Chennai. Each of these Boards has five
members appointed by the Central Government for a term of four years and thereafter until
his successor is appointed.
 They are eligible for re-appointment. The members of the Local Board shall elect from
amongst themselves one person to be the Chairman of the Board.
 These Boards represent territorial and economic interests of their respective areas, and advise
the Central Board on matters, such as, issues relating to local cooperative and indigenous
banks.
 They also perform other functions that the Central Board may delegate to them.
FUNCTIONS OF THE RESERVE BANK
The purposes for which the Reserve Bank of India established as India's central bank have
been spelt out in the preamble to the RBI Act, which states as follows:
(i) to regulate the issue of banknotes and the keeping of reserves with a view to securing
monetary stability in India and generally to operate the currency and credit system of the
country to its advantage; and
(ii) that it is essential to have a modern monetary policy framework to meet the challenge of an
increasingly complex economy
The functions of the Reserve Bank of India can be summarized as under:

 Banking Functions
 Issue bank notes
 Monetary Policy Functions
 Public Debt Functions
 Foreign Exchange Management

 Banking Regulation & Supervision
 Regulation and Supervision of NBFCs
 Regulation & Supervision of Co-operative banks
 Regulation of Derivatives and Money Market Instruments
 Payment and Settlement Functions
 Consumer Protection Functions
 Financial Inclusion and Development Functions
BANKING FUNCTIONS
 The general superintendence and direction of the affairs and business of RBI is entrusted to
Central Board having nominees from the Central Government and Directors appointed under
Section 8 of the RBI Act. The Board of RBI is headed by the Governor and assisted by not
more than four Deputy Governors.
 The Board exercises all powers and does all acts and things which may be exercised by the
RBI. Section 17 of the RBI Act enables RBI to do banking business, It states that RBI may
transact various businesses such as acceptance of deposits without interest from Central
Government and State Governments, purchase, sale and rediscount of Bills of Exchange, short
term Loans and Advances to banks, annual Contributions to National Rural Credit Funds,
dealing in Derivatives, purchase and sale of Government Securities, purchase and sale of
shares of State Bank of India, National Housing Bank, Deposit Insurance and Credit
Guarantee Corporation, etc, making and issue of Banknotes, etc.
 Similarly, Section 18 facilitates the RBI to act as a 'Lender of Last Resort'; whereas Section
19 states the list of businesses which the RBI may not transact. This apart, the provisions of
RBI Act enable the RBI to act as banker to Central Government and State Governments.
Under Sections 20 and 21 the RBI shall have an obligation and right respectively to accept
monies for account of Central Government and to make payments up to the amount standing
to the credit of its account, and to carry out its exchange, remittance and other banking
operations, including the management of public debt of the Union.
ISSUE FUNCTIONS
 RBI has the sole right to issue currency notes/bank notes in India. The issue function of
bank notes is performed by the Issue Department, which is separated and kept wholly
distinct from Banking Department. RBI issue all the currency except one rupee notes and
coins which are issued by the Ministry of Finance. Currency notes issued by the Reserve
Bank are declared unlimited legal tender throughout the country.
Note: RBI has a separate dedicated department called ‘Department of Currency Management’
for this function.
 Recommendation of RBI to Government

RBI recommends Central Government the denomination of bank notes.
RBI recommends CG for design, form and material of bank notes.
 RBI also carries out the following functions:

It ensures an adequate supply of clean and genuine notes.
RBI along with the Government is responsible for designing, production & management of
currency of the country.
 Denomination of the Notes:

At present, notes in India are issued in the denomination of Rs. 5, Rs. 10, Rs. 20, Rs. 50, Rs.
100, Rs. 200, Rs. 500 and Rs. 2,000. The printing of Re. 1 and Rs. 2 denominations has been
discontinued (Notes in these denominations issued earlier are still valid and in circulation).
MONETARY POLICY FUNCTION
 The Central Government, in consultation with the RBI shall determine the inflation target in
terms of the Consumer Price Index, once in every five years, which needs to be notified in
the Official Gazette. Similarly, it is the Central Government that should constitute a
Monetary Policy Committee by notification in the Official Gazette.
 The Monetary Policy Committee consists of

- the Governor of the RBI;
- Deputy Governor of the RBI in charge of Monetary Policy;
- one officer of the RBI to be nominated by the Central Board; and
- three persons to be appointed by the Central Government.
 The Monetary Policy Committee has been entrusted with the statutory duty to determine the
Policy Rate required to achieve the inflation target. The decision of the Monetary Policy
Committee is binding on RBI and the RBI is required publish a document explaining the
steps to be taken to implement the decisions of the Monetary Policy Committee. The
meetings of the MPC are required to be held at least 4 times a year and its decisions to be
published after each meeting.
PUBLIC DEBT FUNCTIONS
 RBI manages the public debt functions and its procedures. For this the Parliament has
enacted the Government Securities Act, 2006 ('GS Act') with an objective to consolidate and
amend the law relating to Government securities and its management by the Reserve Bank
of India. This Act prescribes the procedure and modalities to be followed by RBI in the
management of public debt.
Note: RBI also has the power to determine the title to a Government security if there exists
any doubt in the opinion of RBI.
Special Note: GS Act provides that no order made by RBI under this Act shall be called in
question by any Court.
FOREIGN EXCHANGE MANAGEMENT
 The powers and responsibilities with respect to external trades and payments, development
and maintenance of foreign exchange market in India have been conferred on RBI under the
provisions of Foreign Exchange Management Act, 1999 ('FEMA').
 Section 10 of the FEMA empowers the RBI to authorize any person to be known as
authorized person to deal in foreign exchange or in foreign securities, as an authorized dealer,
money changer or off-shore banking unit or in any other manner as it deems fit.
 Similarly, FEMA empowers the RBI to revoke an authorization issued to an authorized dealer
in public interest, or if the authorized person has failed to comply with the conditions
subject to which the authorization was granted or has contravened any of th e provisions of
the FEMA or any rule, regulation, notification, direction or order issued by the RBI.
 However, the revocation of an authorization may be done by the RBI after following the
prescribed procedure in FEMA or the Regulations made thereunder.
 Section 13 of the FEMA details out the contraventions and penalties, and the RBI has been
empowered with the power to compound such contraventions under Section 15 of the FEMA.
BANKING REGULATION & SUPERVISION
 The power to regulate and supervise banks has been provided to RBI under the provisions of
Banking Regulation Act, 1949, which includes:
 Banking policy to be issued by RBI in the interest of banking system or in the interest of
monetary stability or sound economic growth.
 RBI has following powers with respect of Board of Banking Company:
 It may appoint Chairman or Managing Director of a banking company for the reasons stated
therein.
 It may appoint additional directors on the boards of banking companies.
 Power to remove the managerial persons as well.
 Power to supersede the board of banking companies.
 It has power to control advances by banking companies.
 RBI has the power to issue license and also to cancel licenses of banking companies.
 RBI has the power to issue directions to banking companies in following circumstance:
- In public interest, or
- In the interest of banking policy, or
- To prevent the affairs of any banking company being conducted in a manner detrimental to
the interests of the depositors or in a manner prejudicial to the interests of banking
company, or
- To secure the proper management of any banking company.
- RBI has power to inspect banking companies on its own or at the instance of Central
Government.
REGULATION AND SUPERVISION OF NBFCS
 RBI regulates the business of NBFC's in India and its powers includes the following:
 Register NBFC and issuing Certificate of Registration.
 RBI has power to regulate or prohibit issue of prospectus or advertisements soliciting deposits
of money by non-banking financial companies.
 RBI has power to call for information from NBFC.
 RBI may issue directions to NBFC.
 Lay down policy for NBFC.
 Issue Regulations for NBFC.
 Inspect, regulate, supervise and exercise surveillance over NBFCs.
 Penalize NBFCs for violating the provisions of the RBI Act or the directions or orders issued
by RBI.
 Cancelling the Certificate of Registration issued to the NBFC.
 Filing a winding-up petition for NBFC.
REGULATION & SUPERVISION OF CO-OPERATIVE BANKS
 RBI has been entrusted with the following powers with respect to Co-operatives Banks:
- Powers to issue licenses,
- Power to cancel licenses of co-operative banks,
- Power to supersede their boards,
- Power to inspect, and
- Power to issue directions to them in the public interest, interest of banking policy, control
over loans and advances, etc.
Jurisdiction of Union v. State on Co-operative Banks

 The entry relating to Cooperative Societies fall in State List whereas the entry relating to
banking falls in the Union List. This results in the duality of jurisdiction over cooperative
banks. Therefore, both by RBI (As per of Banking Regulation Act, 1949), and the Registrar
of Cooperative Societies (As per State Cooperative Societies Act) has jurisdiction over them.
This at times may lead to confusion, which was resolved in the following case law.
Case Law: Janata Sahakari Bank Ltd. v. State of Maharashtra

 Fact: There was a confusion regarding jurisdiction of RBI or Registrar of Cooperative Societies
due to the item of 'banking' being in Union List and 'societies' being in State List.
 Judgement: Bombay High Court has held that though the control over management of Co-
operative Society where it is Cooperative Banking Society or otherwise is vested in the
Registrar of Co-operative Societies, but insofar as banking is concerned, by virtue of the
Banking Regulation Act, 1949, it will be a subject matter of RBI.
- Regulation of Derivatives and Money Market Instruments
- RBI has power to regulate the transactions relating to derivatives, money market instruments,
securities, etc.
Note: Derivative means an instrument to be settled at a future date, whose value is derived
from an underlying asset.
PAYMENT AND SETTLEMENT FUNCTIONS
 The Parliament of India enacted the Payment and Settlement Systems Act, 2007 ('PSS Act,
2007') with an objective to provide for the regulation and supervision of payment systems in
India and to designate
 Reserve Bank of India as the authority for that purpose and for matters connected therewith
or incidental thereto. Under Section 4 of the PSS Act, 2007, no person shall commence or
operate a payment system except with an authorization issued by the RBI.
 Similarly, under Section 8 of the PSS Act, 2007, RBI has the powers to revoke the
authorization granted to any person if it contravenes any of the provisions of PSS Act or
does not comply with the regulations or fails to comply with the orders or directions issued
by the RBI or operates the payment system contrary to the conditions subject to which the
authorization was issued. The regulation and supervision of pa yment systems has been
conferred on the RBI by virtue of provisions of Chapter IV f PSS Act, 2007. The regulatory
and supervisory controls include the power to determine standards for the functioning of
payment systems, power to call for returns, documents or other information, power to enter
and inspect payment systems, power to carry out audit and inspections, power to issue
directions, etc.
CONSUMER PROTECTION FUNCTIONS
 In India, although the provisions of the BR Act, 1949, requires the RBI to bear in mind the
vital issue of protection of depositors' interests while granting a banking license or
cancellation thereof, giving directions on advances o on any banking matter, applying for
suspension, winding up, or amalgamation of banks, approving appointmen t of CEOs or
additional directors, removal of CEOs, etc., there is no specific provision under the BR Act,
1949, or any of the other statutes for forming a formal mechanism for redressal of
grievances of depositors. In the absence of a specific provision for the purpose, RBI has
resorted to its powers under Section 35-A of the BR Act, 1949, to formulate the Banking
Ombudsman Scheme for the redressal of grievances of depositors.
FINANCIAL INCLUSION AND DEVELOPMENT FUNCTIONS
 The mushrooming of unauthorized and unregulated money lenders in the financial system of
the country necessitated the RBI to do something more than what has been provided in the
Rule books.
 Financial literacy or financial inclusion, though, not explicitly expressed in the RBI Act, 1934,
or the BR Act, 1949, subsection (16) of Section 17 of the RBI Act, 1934, enables RBI to do
all such matters and things as may be incidental to or consequential to the exercise of its
powers or the discharge of its duties under the Act.
 Further, India being a country with significant illiteracy, there remains an obligation on the
part of the 'State' to educate the people and also to include them into the organised
financial system of the country to get the benefits of professional banking system of the
country.
 The amendment to the BR Act, 1949, inserting Section 26-A is a step towards achieving this
objective, which makes it amply clear that the statute casts a responsibility on the RBI to
focus towards achieving financial literacy in the country.
 Not only the BR Act, 1949, even the RBI Act, 1934 , mandates the RBI to maintain expert
staff to study various aspects of rural credit and development, which emphasizes the premier
role to be played by RBI in promoting financial literacy and financial inclusion among the
citizens living even in the remote areas of the country.
RIGHT TO ISSUE BANK NOTES
 Management of currency is one of the core central banking functions of the Reserve Bank
for which it derives the necessary statutory powers from Section 22 of the RBI Act, 1934.
Along with the Government of India, the Reserve Bank is responsible for the design,
production and overall management of the nation's currency, with the goal of ensuring an
adequate supply of clean and genuine notes. In consultation with the Government, the
Reserve Bank routinely addresses security issues and targets ways to enhance security
features to reduce the risk of counterfeiting or forgery of currency notes.
 The Paper Currency Act of 1861 conferred upon the Government of India the monopoly of
issuing note, thus ending the practice of private and presidency banks issuing currency.
Between 1861 and 1935, the Government of India managed the issue of paper currency. In
1935, when the Reserve Bank began operations, it took over the function of note issue from
the Office of the Controller of Currency, Government of India.
DENOMINATIONS OF NOTES
The Indian Currency is called the Indian Rupee (abbreviated as Re. in singular and Rs. in
plural), and its sub-denomination the Paisa (plural Paise). At present, notes in India are
issued in the denomination of Rs. 5, Rs. 10, Rs. 20, Rs. 50, Rs. 100, Rs. 200, Rs. 500 and Rs.
2,000. The printing of Rs. 1 and Rs. 2 denominations has been discontinued. However, notes
in these denominations issued earlier are still valid and in circulation. The Reserve Bank is
also authorised to issue notes in the denominations of five thousand rupees and ten thousand
rupees or any other denomination, but not exceeding ten thousand rupees that the Central
Government may specify. Thus, in terms of Section 24 of RBI Act 1934, notes in
denominations higher than ten thousand rupees cannot be issued. The Central Government
may, on the recommendation of the Central Board, direct the non-issue or the
discontinuance of issue of bank notes of such denominational values as it may specify in this
behalf. The Government of India announced the demonetisation of Rs. 500 and Rs. 1000 bank
notes with effect from midnight of November 8, 2016, making these notes invalid. A newly
redesigned series of Rs. 500 banknote, in addition to a new denomination of Rs. 2000
banknote is in circulation since 10 November 2016.
LEGAL TENDER CHARACTER OF NOTES
 Section 24 sub-section (1) of the Act states that subject to the provisions of sub-section
(2), every bank note shall be legal tender at any place in India in payment or on account for
the amount expressed therein, and shall be guaranteed by the Central Government.
 Sub-section 2 empowers the Central Government, on recommendation of the Central Board,
by notification in the Gazette of India to declare that, with effect from such date as may be
specified in the notification, any series of bank notes of any denomination to cease to be
legal tender save at such office or agency of the Bank and to such extent as may be
specified in the notification.
CURRENCY DISTRIBUTION
 The Government of India on the advice of the Reserve Bank decides on the various
denominations of the notes to be printed. The Reserve Bank coordinates with the
Government in designing the banknotes, including their security features.
 The printed notes received from Printing Press set up by Government and RBI are issued for
circulation both through remittances to banks as also the Reserve Bank counters.
COIN DISTRIBUTION
 The Indian Coinage Act, 1906 governs the minting of rupee coins, including small coins of the
value of less than one rupee.
 Coins are legal tender in India for unlimited amounts.
 Fifty paisa coins are legal tender for any sum not exceeding ten rupees and smaller coins
for any sum not exceeding one rupee.
 The Reserve Bank acts as an agent of the Central Government for distribution, issue and
handling of the coins and for withdrawing and remitting them back to Government as may
be necessary.
COMBATING COUNTERFEITING
 The Reserve Bank, in consultation with the Government of India, periodically reviews and
upgrades the security features of the bank notes to deter counterfeiting.
 It also shares information with various law enforcement agencies to address the issue of
counterfeiting.
 It has also issued detailed guidelines to banks and government treasury offices on how to
detect and impound counterfeit notes.
 Bank exempt from stamp duty on bank notes
 The Bank is not liable to the payment of any stamp duty under the Indian Stamp Act, 1899,
in respect of bank notes issued by it {section 29].
POWERS OF CENTRAL GOVERNMENT TO SUPERSEDE CENTRAL BOARD
 Section 30 Sub section (1) of the states that if in the opinion of Central Government the
Bank fails to carry out any of the obligations imposed on it by or under the Act, by
notification in the Gazette of India, declare the Central Board to be superseded, and
thereafter the general superintendence and direction of the affairs of the Bank shall be
entrusted to such agency at the Central Government may determine, and such agency may
exercise the powers and do all acts and things which may be exercised or done by the
Central Board under the Act.
 As per sub section 2 of this section when action is taken under this section the Central
Government shall cause a full report of the circumstances leading to such action and of the
action taken to be laid before Parliament at the earliest possible opportunity and in any case
within three months from the issue of the notification superseding the Board.
BANKER TO THE CENTRAL GOVERNMENT & STATE GOVERNMENTS
 Reserve Bank acts as banker to all the State Governments in India, except Jammu &
Kashmir and Sikkim. It has limited agreements for the management of the public debt of
these two State Governments. As a banker to the Government, the Reserve Bank receives
and pays money on behalf of the various Government departments.
 The Reserve Bank also undertakes to float loans and manage them on behalf of the
Governments. It also provides Ways and Means Advances - a short-term interest bearing
advance - to the Governments, to meet the temporary mismatches in their receipts and
payments. Besides, it arranges for investments of surplus cash balances of the Governments
as a portfolio manager. The Reserve Bank also acts as adviser to Government, whenever
called upon to do so, on monetary and banking related matters.
 The banking functions for the governments are carried out by the Public Accounts
Departments at the offices /branches of the Reserve Bank, while management of public debt
including floatation of new loans is done at Public Debt Office at offices/branches of the
Reserve Bank and by the Internal Debt Management Department at the Central Office.
MANAGEMENT OF PUBLIC DEBT
 The Reserve Bank manages the public debt and issues new loans on behalf of the Central
and State Governments. It involves issue and retirement of rupee loans, interest payment on
the loan and operational matters about debt certificates and their registration.
 The union budget decides the annual borrowing needs of the Central Government.
Parameters, such as, interest rate, timing and manner of raising of loans are influenced by
the state of liquidity and the expectations of the market. The Reserve Bank's debt
management policy aims at minimising the cost of borrowing, reducing the roll-over risk,
smoothening the maturity structure of debt, and improving depth and liquidity of Government
securities markets by developing an active secondary market.
RESERVE BANK AS BANKER TO BANKS
 RBI plays the role of bankers' bank in following manner:-

 RBI has current accounts of the banks and also holds a part of the cash reserves of
commercial banks (Commercial Banks are required to deposit cash reserve to the RBI, RBI
declares Cash Reserve ration in order to control credit in the economy).
 RBI lends funds to Commercial Banks.
- It re-discounts bills of exchange which are discounted by other Banks.
- RBI may periodically inspects banks and asks them for returns and necessary information.
 In addition, the Reserve Bank has also introduced the Centralised Funds Management System
(CFMS) to facilitate centralised funds enquiry and transfer of funds across Deposit Accounts
Department (DADs). This helps banks in their fund management as they can access
information on their balances maintained across different DADs from a single location.
 Lender of Last Resort: The commercial banks approach RBI in times of emergency &
financial difficulties. It is RBI who comes to their rescue when no one else is ready to
extend credit to them.
PRUDENTIAL NORMS FOR BANKS
 Capital Adequacy: The Reserve Bank has instructed banks to maintain adequate capital on a
continuous basis. The adequacy of capital is measured in terms of Capital to Risk - Weighted
Assets Ratio (CRAR).
 Loans and Advances: RBI requires banks to classify their loan assets as performing and
non-performing assets (NPA), based on the record of recovery from the borrowers.
Note: A non-performing asset (NPA) refers to a classification for loans or advances that are
in default of payment of interest or principal or both.
NPAs depending upon age of the NPAs are further categorised into:
- Sub-standard,
- Doubtful, and Loss Assets
Banks are also required to make appropriate provisions against each category of NPAs.
 Investments: The Reserve Bank requires banks to classify their investment portfolios into
three categories for the purpose of valuation:
Held to Maturity (HTM),
Available for Sale (AFS), and
Held for Trading (HFT).
The securities held under HFT and AFS categories have to be marked-to-market periodically
(means they are recorded at market price) and depreciation, if any, needs appropriate
provisions by banks. Securities under HTM category must be carried at acquisition/ amortised
cost, subject to certain conditions.
FOREIGN EXCHANGE RESERVES MANAGEMENT
 The Reserve Bank, as the custodian of the country's foreign exchange reserves, is vested with
the responsibility of managing their investment. The legal provisions governing management
of foreign exchange reserves are laid down in the Reserve Bank of India Act, 1934.
 The Reserve Bank's reserves management function has in recent years grown both in terms
of importance and sophistication for two main reasons. First, the share of foreign currency
assets in the balance sheet of the Reserve Bank has substantially increased. Second, with
the increased volatility in exchange and interest rates in the global market, the task of
preserving the value of reserves and obtaining a reasonable return on them has become
challenging. The basic parameters of the Reserve Bank's policies for foreign exchange reserves
management are safety, liquidity and returns.
 Within this framework, the Reserve Bank focuses on:
(a) Maintaining market's confidence in monetary and exchange rate policies.
(b) Enhancing the Reserve Bank's intervention capacity to stabilise foreign exchange markets.
(c) Limiting external vulnerability by maintaining foreign currency liquidity to absorb shocks
during times of crisis, including national disasters or emergencies.
(d) Providing confidence to the markets that external obligations can always be met, thus
reducing the costs at which foreign exchange resources are available to market participants.
(e) Adding to the comfort of market participants by demonstrating the backing of domestic
currency by external assets.
 While safety and liquidity continue to be the twin-pillars of reserves management, return
optimization has become an embedded strategy within this framework. The Reserve Bank has
framed policy guidelines stipulating stringent eligibility criteria for issuers, counterparties, and
investments to be made with them to enhance the safety and liquidity of reserves. The
Reserve Bank, in consultation with the Government, continuously reviews the reserves
management strategies.
MARKET OPERATIONS
 The Reserve Bank operationalises its monetary policy through its operations in government
securities, foreign exchange and money markets.
 Open Market Operations: Open Market Operations in the form of outright purchase/sale of
Government securities are an important tool of the Reserve Bank's monetary management.
The Bank carries out such operations in the secondary market on the electronic Negotiated
Dealing System - Order Matching (NDS- OM) platform by placing bids and/or taking the
offers for securities.
 Liquidity Adjustment Facility Auctions: The liquidity management operations are aimed at
modulating liquidity conditions such that the overnight rates in the money market remains
within the informal corridor set by the repo and reverse repo rates for the liquidity
adjustment facility (LAF) operations. In a repo transaction, the Reserve Bank infuses
liquidity into the system by taking securities as collateral, while in a reverse repo transaction
it absorbs liquidity from the system with the Reserve Bank providing securities to the
counter parties.
 Market Stabilisation Scheme: The Market Stabilisation Scheme (MSS) was introduced in
April 2004 under which Government of India dated securities/treasury bills could be issued to
absorb surplus structural/ durable liquidity created by the Reserve Bank's foreign exchange
operations. MSS operations are a sterilisation tool used for offsetting the liquidity impact
created by intervention in the foreign exchange markets.
PAYMENT AND SETTLEMENT SYSTEMS
Payment and Settlement Systems Act, 2007 ('PSS Act, 2007') was enacted with an objective
to provide for the regulation and supervision of payment systems in India. The Act
designated RBI as the authority for this purpose. Power of RBI under the Act includes the
following:
 RBI has power to give authority to a person to commence or operate a payment system.
 RBI has the powers to revoke the authorization granted to any person if it contravenes any
of the provisions of PSS Act; or
 does not comply with the regulations; or

 fails to comply with the orders or directions issued by the RBI; or
 operates the payment system contrary to the conditions subject to which the authorization
was issued.
MONETARY POLICY MANAGEMENT
One of the most important functions of central banks is formulation and execution of
monetary policy. In the Indian context, the basic functions of the Reserve Bank of India as
enunciated in the Preamble to the RBI Act, 1934 are: “to regulate the issue of Bank notes
and the keeping of reserves with a view to securing monetary stability in India and generally
to operate the currency and credit system of the country to its advantage.” Thus, the
Reserve Bank's mandate for monetary policy flows from its monetary stability objective.
Essentially, monetary policy deals with the use of various policy instruments for influencing
the cost and availability of money in the economy. As macroeconomic conditions change, a
central bank may change the choice of instruments in its monetary policy. The overall goal is
to promote economic growth and ensure price stability.
MONETARY POLICY
 Monetary policy refers to the policy of the central bank with regard to the use of monetary
instruments under its control to achieve the goals specified in the Act.
 The Reserve Bank of India (RBI) is vested with the responsibility of adopting and
implementing monetary policy.
 This responsibility is explicitly mandated under the Reserve Bank of India Act, 1934. The
primary objective of monetary policy is to maintain price stability while keeping in mind the
objective of growth.
 Price stability is a necessary precondition to sustainable growth.
MONETARY POLICY FRAMEWORK
 The RBI Act explicitly provides empowers the Reserve Bank to operate the monetary policy
framework of the country.
- The framework aims at setting the policy (repo) rate based on an assessment of the current
and evolving macroeconomic situation; and modulation of liquidity conditions to anchor money
market rates at or around the repo rate. Repo rate changes transmit through the money
market to the entire the financial system, which, in turn, influences aggregate demand - a
key determinant of inflation and growth.
- Once the repo rate is announced, the operating framework designed by the Reserve Bank
envisages liquidity management on a day-to-day basis through appropriate actions, which aim
at anchoring the operating target- the Weighted Average Call Rate (WACR) - around the
repo rate.
- The operating framework is fine-tuned and revised depending on the evolving financial market
and monetary conditions, while ensuring consistency with the monetary policy stance.
INSTRUMENTS OF MONETARY POLICY
There are several direct and indirect instruments that are used for implementing monetary
policy.
Instrument Meaning Impact
Repo Rate It is the rate at which RBI lends Lower Repo Rate
money to commercial banks If repo rates are low,
against securities in case commercial banks get more
commercial banks fall short of money therefore they will lend
funds. more money to people. When
people will have more money it
will lead to increase in
demand in economy. Thus
prices will increase.
Higher Repo Rate
If repo rates are high,
commercial banks get less
money therefore they will lend
less money to people. When
people will have less money it
will lead to decrease in
demand in economy. Thus
prices will decrease.
Reverse Repo Rate It is a rate at which RBI borrows If commercial banks will lend
money from commercial banks money to RBI, they will have
less money to offer to people.
When people will have less
money it will decrease demand
in economy. Thus prices will
decrease.
Cash Reserve Ratio CRR is the minimum percentage Increase in CRR-

(CRR) of deposits with commercial banks If CRR increases, commercial
that they need to deposit with banks need to deposit more
the central bank of RBI. money with RBI. This will
leave less money with

commercial banks to offer as
loans to people, which will
make loans expensive. When
people have less money to
spend there will be low
demand which in turn reduce
the prices.
Decrease in CRR-
If CRR decrease, commercial
banks need to deposit less
money with RBI. This will
leave more money with
commercial banks to offer as
loans to people, which will
make loans cheaper. When
people have more money to
spend there will be high
demand which in turn increase
the prices.
Statutory Liquidity SLR is the amount which the Increase in SLR

Ratio (SLR) commercial banks are required to If SLR increases, commercial
maintain in safe and liquid assets, banks need to keep more
such as, unencumbered liquid funds. This will leave
government securities, cash and less money with commercial
gold. It is the amount which the banks to offer as loans to
banks are not allowed to offer as people, which will make loans
loans. expensive. When people have
less money to spend there will
be low demand which in turn
reduce the prices.

Decrease in SLR
If SLR decrease, commercial
banks need to keep more
liquid funds. This will leave
more money with commercial
banks to offer as loans to
people, which will make loans
cheaper. When people have
more money to spend there
will be high demand which in
turn increase the prices.
Open Open market operations (OMO) Sale of Securities

Market refer to the buying and selling of When Government sells
operations government securities in the open securities, people pay money
market in order to expand or for it which flows money out
contract the amount of money in of the economy to the RBI
the banking system. hence ejecting money out of
the economy, leading to
decrease in growth.
Purchase of Securities
When Government purchase
back government securities,
Government will pay money to
the people and this will inject
money into the economy and
stimulate growth.
Marginal Through this, scheduled Lower MSF Rate

Standing commercial banks can get loans If MSF rates are low,
Funding from RBI for their emergency commercial banks get more
needs, overnight. Commercial money therefore they will lend

banks can take loan only upto 1% more money to people. When
of their liabilities and time people will have more money it
deposits. will lead to increase in
Special Note: Repo rate and MSF demand in economy. Thus
are not the same. Following are prices will increase.
the noticeable difference between Higher MSF Rate
the 2: If MSF rates are high,
Repo Rate is the rate at commercial banks get less
which the money is lent by RBI money therefore they will lend
to commercial bank on the other less money to people. When
hand MSF is a rate at which people will have less money it
money is lent by RBI to scheduled will lead to decrease in
commercial banks. demand in economy. Thus
Repo rate is applicable to loans prices will decrease.
which are of short term nature
MSF is meant for lending
overnight fund requirement.
Bank Rate It is the rate at which the This rate has been aligned to
Reserve Bank is ready to buy or the MSF rate and, therefore,
rediscount bills of exchange or changes automatically as and
other commercial papers. when the MSF rate changes.
Market Market Stabilization Scheme MSS is used to withdraw

Stabilization (MSS) is a monetary policy excess liquidity or money from
Scheme introduced by the RBI to withdraw the system by selling
(MSS) excess liquidity (or money supply) government bonds.
by selling government securities in
the economy. The MSS was
introduced in April 2004.
Liquidity LAF is used to aid banks in The LAF is aimed to inject

Adjustment adjusting the day to day liquidity into the system when
Facility mismatches in liquidity. LAF there occur liquidity shortages.
(LAF) consists of repo (repurchase Simultaneously, it absorbs
agreement) and reverse repo liquidity when there is excess
operations. liquidity. The mechanism is
Besides the usual repo and reverse same as of repo and reverse
repo, LAF includes auction-based repo.
repo and reverse repo (variable
rate) tools for managing liquidity.
CONSTITUTION OF MONETARY POLICY COMMITTEE
Section 45ZB of the Act states that:-

(1) The Central Government may, by notification in the Official Gazette, constitute a Committee
to be called the Monetary Policy Committee of the Bank.
(2) The Monetary Policy Committee shall consist of the following Members, namely:—
(a) the Governor of the Bank—Chairperson, ex officio;
(b) Deputy Governor of the Bank, in charge of Monetary Policy—Member, ex officio;
(c) one officer of the Bank to be nominated by the Central Board—Member, ex officio; and
(d) three persons to be appointed by the Central Government—Members.
(3) The Monetary Policy Committee shall determine the Policy Rate required to achieve the
inflation target.
(4) The decision of the Monetary Policy Committee shall be binding on the Bank.
MEETINGS OF MONETARY POLICY COMMITTEE
Section 45 of the Act states that:-

 The Bank shall organize at least four meetings of the Monetary Policy Committee in a year.
 The meeting schedule of the Monetary Policy Committee for a year shall be published by the
Bank at least one week before the first meeting in that year.
 The meeting schedule may be changed only—
- by way of a decision taken at a prior meeting of the Monetary Policy Committee; or
- if, in the opinion of the Governor, an additional meeting is required or a meeting is required
to be rescheduled due to administrative exigencies.
 Any change in meeting schedule shall be published by the Bank as soon as practicable.
 The quorum for a meeting of the Monetary Policy Committee shall be four Members, at least
one of whom shall be the Governor and, in his absence, the Deputy Governor who is the
Member of the Monetary Policy Committee.
 The meetings of the Monetary Policy Committee shall be presided over by the Governor, and
in his absence by the Deputy Governor who is a Member of the Monetary Policy Committee.
 Each Member of the Monetary Policy Committee shall have one vote.
 All questions which come up before any meeting of the Monetary Policy Committee shall be
decided by a majority of votes by the Members present and voting, and in the event of an
equality of votes, the Governor shall have a second or casting vote.
 The Central Government may, if it considers necessary, convey its views in writing to the
Monetary Policy Committee from time to time.
 The vote of each Member of the Monetary Policy Committee for a proposed resolution shall
be recorded against such Member.
 Each Member of the Monetary Policy Committee shall write a statement specifying th e
reasons for voting in favour of, or against the proposed resolution.
 The procedure, conduct, code of confidentiality and any other incidental matter for the
functioning of the Monetary Policy Committee shall be such as may be specified by the
regulations made by the Central Board.
 The proceeding of the Monetary Policy Committee shall be confidential.
PENALTIES
(1) Whoever in any application, declaration, return, statement, information or particulars made,
required or furnished by or under or for the purposes of any provisions of this Act, or any
order, regulation or direction made or given thereunder or in any prospectus or advertisement

issued for or in connection with the invitation by any person, of deposits of money from the
public wilfully makes a statement which is false in any material particular knowing it to be
false or wilfully omits to make a material statement shall be punishable with imprisonment
for a term which may extend to three years and shall also be liable to fine.
(2) If any person fails to produce any book, account or other document or to furnish any
statement, information or particulars which, under this Act or any order, regulation or
direction made or given thereunder, it is his duty to produce or furnish or to answer any
question put to him in pursuance of the provisions of this Act or of any order, regulation or
direction made or given thereunder, he shall be punishable with fine which may extend to
two thousand rupees in respect of each offence and if he persists in such failure or refu sal,
with further fine which may extend to one hundred rupees for every day, after the first
during which the offence continues.
(3) If any person contravenes the provisions of section 31, he shall be punishable with fine,
which may extend to the amount of the bill of exchange, hundi, promissory note or
engagement for payment of money in respect whereof the offence is committed.
(4) If any person discloses any credit information, the disclosure of which is prohibited under
section 45E, he shall be punishable with imprisonment for a term, which may extend to six
months, or with fine, which may extend to one thousand rupees, or with both.
(4A) If any person contravenes the provisions of sub-section (1) of section 45-IA, he shall be
punishable with imprisonment for a term which shall not be less than one year but which
may extend to five years and with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees.
(4AA) If any auditor fails to comply with any direction given or order made by the Bank under
section 45MA, he shall be punishable with fine, which may extend to five thousand rupees.
(4AAA) Whoever fails to comply with any order made by the Company Law Board under sub-section
(2) of section 45QA, shall be punishable with imprisonment for a term which may extend to
three years and shall also be liable to a fine of not less than rupees fifty for every day
during which such noncompliance continues.
(5) If any person, other than an auditor-

(a) receives any deposit in contravention of any direction given or order made under Chapter IIIB;
or
(aa) fails to comply with any direction given or order made by the Bank under a ny of the
provisions of Chapter IIIB; or
(b) issues any prospectus or advertisement otherwise than in accordance with section 45NA or
any order made under section 45J, as the case may be, he shall be punishable with
imprisonment for a term which may extend to three years and shall also be liable to fine
which may extend, -
(i) in the case of a contravention falling under clause (a), to twice the amount of the deposit
received; and
(ii) in the case of a contravention falling under clause (b), to twice the amount of the deposit
called for by the prospectus or advertisement.
(5A) If any person contravenes any provision of section 45S, he shall be punishable with
imprisonment for a term which may extend to two years, or with fine which may extend to
twice the amount of deposit received by such person in contravention of that section, or two
thousand rupees, whichever is more, or with both:
Provided that in the absence of special and adequate reasons to the contrary to be
mentioned in the judgement of the court, the imprisonment shall not be less than one year
and the fine shall not be less than one thousand rupees.
(5B) notwithstanding anything contained in section 29 of the Code of Criminal Procedure, 1973, it
shall be lawful for a Metropolitan Magistrate or a Judicial Magistrate of the first class to
impose a sentence of fine in excess of the limit specified in that section on any person
convicted under sub-section (5A).
(6) If any other provision of this Act is contravened or if any default is made in complying with
any other requirement of this Act or of any order, regulation or direction made or given or
condition imposed thereunder, any person guilty of such contravention or default shall be
punishable with fine which may extend to two thousand rupees and where a contravention or
default is a continuing one, with further fine which may extend to one hundred rupees for
every day after the first, during which the contravention or default continues. (Section 58B)
CS- EXE Economic Business and Commercial Laws FEMA
CHAPTER 2- FOREIGN EXCHANGE MANAGEMENT ACT, 1999
OVERVIEW OF FEMA
The Foreign Exchange Management Act, 1999 was enacted to consolidate and amend the law
relating to foreign exchange with the objective of facilitating external trade and payments
and for promoting the orderly development and maintenance of foreign exchange market in
India. In fact it is the central legislation that deals with inbound investments into India and
outbound investments from India and trade and business between India and the other
countries.
Free Transactions on current account

subject to reasonable restrictions that
may be imposed
Capital Account Transactions.

Realization of export proceeds
FEMA Provides
Dealings in Foreign Exchange through
Authorized Person (e.g. Authorized
Dealer/Money Changer/Off-shore
banking unit
Adjudication of Offences - Appeal

provisions including Special
Director (Appeals) and Appelate
Tribunal
APPLICABILITY
 Foreign Exchange Management Act, 1999 extends to the whole of India. The Act also applies
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.
 FEMA has considerably liberalised provisions in respect of foreign exchange. However, in
extraordinary situations may arise. The Central Government has been empowered to suspend
operation of any or all provisions of FEMA in public interest, by issuing a notification. The
Central Government has also been empowered to relax suspension by issuing a notification.
OVERALL SCHEME OF FEMA
 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 of 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. RBI has been empowered to issue directions to such
“Authorised Persons” under Section 11. FEMA also makes provisions for enforcement,
penalties, adjudication and appeal. The FEMA 1999 contains
 only basic legal framework. The practical aspects are covered in Rules made by Central
Government and Regulations made by RBI.
 FDI Policy announced by Department of Industrial Policy & Promotion, Ministry of Industries
and Commerce directly relevant to understanding the provisions of FEMA.
Instructions/Guidelines etc. of Ministry of Finance and Securities and Exchange Boa rd of
India (SEBI) become relevant when (ECB) /ADR/GDR and capital market is involved.
FEMA STRUCTURE
The legislations, rules and regulations, governing Foreign Exchange Management are as under:
 FEMA contains 7 Chapters divided into 49 sections of which 12 sections cover operational
part and the rest deals with contravention, penalties, adjudication, appeals, enforcement
directorate, etc. CHAPTER I - Preliminary (Section 1&2)
CHAPTER II- Regulation and Management of Foreign Exchange (Section 3 -9) CHAPTER III
- Authorised Person (Section 10 -12)
CHAPTER IV - Contravention and Penalties (Section 13-15) CHAPTER V - Adjudication and
Appeal (Section 16- 35) CHAPTER VI - Directorate of Enforcement (Section 36-38)
CHAPTER VII- Miscellaneous (Section 39 - 49)
 Rules made by Ministry of Finance under section 46 of FEMA (Subordinate or delegated
Legislations)
 Regulations made by RBI under section 47 of FEMA (Subordinate or delegated Legislations)
 Master Direction issued by RBI on every year
 Foreign Direct Investment policy issued by Department of Industrial Policy and Promotion.
Besides the FEMA, there are Set of Rules, Regulations and Master
Directions under the Act to ensure effective implementation of the
Act.
 Notifications and Circulars issued by Reserve Bank of India.

 Besides the FEMA, there are Set of Rules, Regulations and Master Directions under the Act to ensure
effective implementation of the Act
The Rules made under FEMA are as follows:

1. FEM (Encashment of Draft, Cheque, Instrument and Payment of Interest) Rules, 2000
2. FEM (Authentication of Documents) Rules, 2000
3. FEM (Current Account Transaction) Rules, 2000

4. FEM (Adjudication Proceedings and Appeal) Rules, 2000
5. FEM (Compounding Proceedings) Rules, 2000
6. The Appellate Tribunal for Foreign Exchange (Recruitment, Salary and Allowances and Other
Conditions of Service of Chairperson and Members) Rules, 2000.
The Regulations made under FEMA are as follows:

1. FEM (Acquisition and Transfer of Immovable Property Outside India) Regulations, 2015
2. FEM (Borrowing and Lending in Rupees) Regulations, 2000
3. FEM (Borrowing or Lending in Foreign Exchange) Regulations, 2000
4. FEM (Deposit) Regulations, 2016
5. FEM (Export and Import of Currency) Regulations, 2015
6. FEM (Guarantees) Regulations, 2000
7. FEM (Acquisition and Transfer of Immovable Property in India) Regulations, 2000
8. FEM (Establishment in India of Branch office or a Project office or any other Place of
Business) Regulations, 2016
9. FEM (Export of Goods and Services) Regulations, 2015
10. FEM (Foreign Currency Accounts by a Person Resident in India) Regulations, 2015
11. FEM (Insurance) Regulations, 2015
12. FEM (Investment in Firm or Proprietary Concern in India) Regulations, 2000
13. FEM (Manner of Receipt and Payment) Regulations, 2016
14. FEM (Permissible Capital Account Transactions) Regulations, 2000
15. FEM (Possession and Retention of Foreign Currency) Regulations, 2015
16. FEM (Realization, Repatriation and Surrender of Foreign Exchange) Regulations, 2015
17. FEM (Remittance of Assets) Regulations, 2016
18. FEM (Transfer or Issue of Security by a person Resident outside India) Regulations, 2017
19. FEM (Foreign Exchange Derivative Contracts) Regulations, 2000
20. FEM (Transfer or Issue of any Foreign Security) Regulations, 2004
21. FEM (Crystallization of inoperative Foreign Currency Deposits) Regulations, 2014
22. F.E.M (Transfer or Issue of any foreign Security) Regulations, 2004
23. FEM (International Financial Services Centre) Regulations, 2015
24. FEM (Regularization of Assets Held Abroad by a Person Resident in India) Reg, 2015
CS- EXE Economic Business and Commercial Laws FET&C
CHAPTER 3- FOREIGN EXCHANGE TRANSACTIONS AND COMPLIANCE
INTRODUCTION
The Foreign Exchange Management Act received the assent of the President on 9th
December, 1999 and brought into force with effect from 1st June, 2000. Foreign Exchange
Management Act, 1999 is an Act to facilitate external trade and payments and for promoting
the orderly development and maintenance of foreign exchange market in India.
IMPORTANT DEFINITION
ADJUDICATING OFFICER- ‘Adjudicating Authority’ means an officer authorized under Sub-

section of Section 16 for the purposes of adjudication in respect of penalties under Section
13. Section 16 empowers the Central Government, to appoint, by an order published in the
Official Gazette, as many officers as it may think fit as the adjudicating authorities for
holding an enquiry in the manner prescribed after giving the person alleged to have
committed any contravention, an opportunity of being heard.
AUTHORIZED PERSON - The term authorized person is defined to include an authorized

dealer, money changer, offshore banking unit or any other person for the time being
authorized to deal in foreign exchange or foreign securities.
CAPITAL ACCOUNT TRANSACTIONS - ‘Capital account transaction’ has been defined to

mean any transaction which alters the assets or liabilities including contingent liabilities,
outside India of persons resident in India or assets or liabilities in India of person resident
outside India.
CURRENCY NOTES - ‘Currency Notes’ means and includes cash in the form of coins and
bank notes. In fact, it means money and such bank notes or other paper money as are
authorized by law and circulate from hand to hand as a medium of exchange.
CURRENT ACCOUNT TRANSACTIONS - The term current account transaction has been
defined to mean a transaction other than a capital account transaction and includes
payments due in connection with foreign trade, other current business, services and short
term banking and credit facilities in the ordinary course of business; payments due as
interest on loan and as 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.
FOREIGN EXCHANGE - The term ‘foreign exchange has been defined to mean foreign
currency and includes deposits, credits, balance payable in foreign currency, drafts, travelers
cheques, letters of credit, bills of exchange expressed or drawn in Indian currency but payable
in any foreign currency.
FOREIGN SECURITY - The term Foreign Security has been defined to mean any security, in
the form of shares, stocks, bonds, debentures or any other instrument denominated or
expressed in foreign currency and includes securities expressed in foreign currency but where
redemption or any form of return such as interest or dividend is payable in Indian currency.
CURRENT ACCOUNT TRANSACTIONS
Section 5 of the Act allows any person to sell or draw foreign exchange to or from an
authorized person if such sale or drawl is a current account transaction as defined under
Section 2(j) of the Act. However, the Central Government may, in the public interest and in
consultation with the Reserve Bank impose reasonable restrictions for current account
transactions.
PROHIBITION ON DRAWAL OF FOREIGN EXCHANGE FOR CERTAIN TRANSACTION

Schedule I to the Rules enumerate the situations in which the drawal of foreign exchange is
prohibited. These are as follows:
PRIOR APPROVAL OF GOVERNMENT IN CERTAIN TRANSACTIONS

Rule 4 requires prior approval of the Government of India for the transactions as specified in
Schedule II. However, this does not apply to the cases where the payment is made out of
funds held in Resident Foreign Currency Account (RFC) of the remitter.
PRIOR APPROVAL OF RESERVE BANK IN CERTAIN TRANSACTIONS

Rule 5 of the Foreign Exchange Management (Current Account Transactions) Amendment
Rules, 2015, governs every drawal of foreign exchange for transactions included in Schedule
III. However, Rule 5 does not apply in those where the payment is made out of funds held in
Resident Foreign Currency (RFC) Account of the remitter.
TRANSACTIONS INCLUDED IN SCHEDULE III
1. Facility for Individual (i) Private visits to any country (except Nepal and
Individuals can avail of foreign exchange Bhutan)
facility for the following purposes(ii) Gift or donation.
within the limit of USD 2,50,000 only.(iii) Going abroad for employment
Any additional remittance in excess(iv) Emigration
thereof requires prior approval of the(v) Maintenance of close relatives abroad
Reserve Bank of India. Travel for business, or attending a conference
or specialised training or for meeting expenses
for meeting medical expenses, or check-up
abroad, or for accompanying as attendant to a
patient going abroad for medical treatment/
check-up.
(vi) Expenses in connection with medical treatment

abroad
(vii) Studies abroad
(viii) Any other current account transaction
 However, the purposes mentioned at item
numbers (iv), (vii) and (viii), the individual
may avail of exchange facility for an amount in
excess of the limit prescribed under the
Liberalised Remittance Scheme
 Further, if an individual remits any amount
under the said Liberalised Remittance Scheme
in a financial year, then the applicable limit for
such individual would be reduced from USD
250,000 (US Dollars Two Hundred and Fifty
Thousand Only) by the amount so remitted:
 Further more a person who is resident but not
permanently resident in India and
( a) is a citizen of a foreign State other than

Pakistan; or
( b) is a citizen of India, who is on deputation to
the office or branch of a foreign company or
subsidiary or joint venture in India of such
foreign company,
may make remittance up to his net salary
(after deduction of taxes, contribution to
provident fund and other deductions).
 It is to be noted that a person other than an
individual may also avail of foreign exchange
facility
2.Facility for person other than The following remittances by persons other
individual than individuals require prior approval of the
Reserve Bank of India.
(i) Donations exceeding one per cent. of their
foreign exchange earnings during the previous
three financial years or USD 5,000,000,
whichever is less, for-
( a) creation of Chairs in reputed educational
institutes,
( b) contribution to funds (not being an investment
fund) promoted by educational institutes; and
(c) contribution to a technical institution or body
or association in the field of activity of the
donor Company.
(ii) Commission, per transaction, to agents abroad
for sale of residential flats or commercial plots
in India exceeding USD 25,000 or five percent
of the inward remittance whichever is more.
(iii) Remittances exceeding USD 10,000,000 per

project for any consultancy services in respect
of infrastructure projects and USD 1,000,000 per
project, for other consultancy services procured
from outside India.
(iv) Remittances exceeding five per cent of
investment brought into India or USD 100,000
whichever is higher, by an entity in India by
way of reimbursement of pre-incorporation
expenses.”
CAPITAL ACCOUNT TRANSACTION
Reserve Bank of India under sub-section (6) has been empowered to regulate, prohibit,
restrict establishment in India of a branch, office or other place of business by a person
resident outside India for carrying on any activity relating to such branch, office or other
place of business.
PERMISSIBLE CAPITAL ACCOUNT TRANSACTIONS

Schedule I& II to Foreign Exchange Management (Permissible Capital Account Transactions)
Regulations, 2000 classifies the capital account transactions of a person under the following
two heads viz.
CLASSES OF CAPITAL ACCOUNT TRANSACTIONS
Classes of capital account

transactions of persons
resident in India
Classes of capital account

transactions of persons
resident outside India
CLASSES OF CAPITAL TRANSACTIONS BY PERSON RESIDENT IN INDIA
Investment by a person resident in i n India i n foreign s ecurities
Forei gn currency l oans raised in India and abroad by a person resident i n India
Tra ns fer of i mmovable property outside India by person resident in India
Gua ra ntees issued by a person resident i n India in favour of a person resident outside India
Export, i mport and holding of currency/currency notes
Loa ns a nd overdrafts by a person resident in India from a person resident outside India
Ma i ntenance of foreign currency a ccounts i n India and outside India by a person

res i dent i n India
Ta ki ng out of insurance policy by a person resident in India from an insurance

compa ny outside India
Loa ns a nd overdrafts by a person resident in India to a person resident outside India
Remi ttance outside India of capital assets of a person resident in India
Sa l e and purchase of foreign exchange derivatives in India a nd a broad and

commodity deriva tives a broad by a person resident i n India
CLASSES OF CAPITAL ACCOUNT TRANSACTIONS BY PERSON RESIDENT OUTSIDE INDIA
Investment in India by a person resident outside India, that is to say:

(a)issue of security by a body corporate or an entity in India and investment therein by
a person resident outside India; and
(b) investment by way of contribution by a person resident outside India to the capital
of a firm or a proprietorship concern or an association of persons in India.
Acquisition and transfer of immovable property in India by a person resident

outside India
Guarantee by a person resident outside India in favour of, or on behalf of a

person resident in India
Import and export of currency/currency notes into/from India by a person

resident outside India.
Deposits between a person resident in India and a person resident outside India
Foreign Currency accounts in India of a person resident outside India
Remittance outside India of capital assets in India of a person resident outside India.
Subject to the provisions of the Act, or rules, or regulations or directions or orders made or
issued thereunder, any person may sell or draw foreign exchange to or from an authorized
person for the above-mentioned capital account transactions provided the transactions are
within the limit, if any, specified in the Regulations relevant to the transaction.
• However, no person is allowed to undertake or sell or draw foreign exch ange to or from an
authorized person for any capital account transaction except as provided in the Act, Rules or
regulations made thereunder.
• Similarly, no person resident outside India is entitled to make investment in India, in any
form, in any company or partnership firm or proprietary concern or any entity whether
incorporated or not, which is engaged or proposed to engage in the business of chit funds, or
Nidhi company, or in agricultural or plantation activities, or real estate business, or
construction of farm houses, or trading in Transferable Development Rights (TDRs).
• The payment for investment is required to be made by remittance from abroad through
normal banking channels or by debit to an account of the investor maintained with an
authorized person in India in accordance with the regulation made by the Reserve Bank of
India.
• Every person selling or drawing foreign exchange to or from an authorized person for a capital
account transaction is required to furnish to Reserve Bank a declaration with in the time
specified in the regulations relevant to the transactions.
ACQUISITION AND TRANSFER OF IMMOVABLE PROPERTY OUTSIDE INDIA BY PERSON

RESIDENT IN INDIA
1. Modes of acquiring property outside India by a resident
1. A resident can acquire immovable property outside India by way of gift or inheritance from:
(a) a person referred to at 3.1 above; or
(b) a person resident in India who had acquired such property on or before July 8, 1947 and
continued to be held by him with the permission of the Reserve Bank.
(c) a person resident in India who has acquired such property in accordance with the foreign
exchange provisions in force at the time of such acquisition.
2. A resident can purchase immovable property outside India out of foreign exchange held in
his/ her Resident Foreign Currency (RFC) account.
3. A resident can acquire immovable property outside India jointly with a relative who is a
person resident outside India, provided there is no outflow of funds from India.
2. COMPANIES HAVING OVERSEAS OFFICE
REALIZATION, REPARTRIATION AND SURRENDER OF FOREIGN CURRENCY
Section 8 of the Act requires the person resident in India to make all reasonable efforts to
realise and repatriate the foreign exchange due or accrued as per the directions of the
Reserve Bank.
1. Duty of persons to realize foreign exchange due

A person resident in India to whom any amount of foreign exchange is due or has accrued
shall, with the general or special permission of the Reserve Bank, take all reasonable steps to
realise and repatriate to India such foreign exchange, and shall in no case do or refrain from
doing anything, or take or refrain from taking any action, which has the effect of securing -
(a) that the receipt by him of the whole or part of that foreign exchange is delayed; or
(b) that the foreign exchange ceases in whole or in part to be receivable by him.
It may be noted that 'Foreign exchange due' means the amount which a person has a
right to receive or claim in foreign exchange.
2. Manner of Repatriation
On realisation of foreign exchange due, a person shall repatriate the same to India, namely
bring into, or receive in, India and -
(a) sell it to an authorized person in India in exchange for rupees; or
(b) retain or hold it in account with an authorized dealer in India to the extent specified by the
Reserve Bank; or
(c) use it for discharge of a debt or liability denominated in foreign exchange to the extent and
in the manner specified by the Reserve Bank.
A person shall be deemed to have repatriated the realized foreign exchange to India when he
receives in India payment in rupees from the account of a bank or an exchange house
situated in any country outside India, maintained with an authorized dealer.
3. Period for surrender of realized foreign exchange

A person not being an individual resident in India shall sell the realized foreign exchange to
an authorized person, within the period specified below :-

(i) foreign exchange due or accrued as remuneration for services rendered, whether in or outside
India, or in settlement of any lawful obligation, or an income on assets held outside India, or
as inheritance, settlement or gift, within seven days from the date of its receipt;
(ii) in all other cases within a period of ninety days from the date of its receipt.
4. Period for surrender in certain cases

Where the foreign exchange acquired or purchased by any person not being an individual
resident in India from an authorized person is for the purpose of foreign travel, then, the
unspent balance of such foreign exchange shall, save as otherwise provided in the regulations
made under the Act, be surrendered to an authorized person─
(i) within ninety days from the date of return of the traveller to India, when the unspent
foreign exchange is in the form of currency notes and coins; and
(ii) within one hundred eighty days from the date of return of the traveller to India, when the
unspent foreign exchange is in the form of traveller schedules.
5. Period of surrender of realized foreign exchange by Resident Individual
A person being an individual resident in India shall surrender the received/ realised/ unspent/
unused foreign exchange whether in the form of currency notes, coins and travelers cheques,
etc. to an authorized person within a period of 180 days from the date of such receipt/
realisation/ purchase/ acquisition or date of his return to India, as the case may be.
REMMITTANCE OF ASSETS
1. Remittance by individual not being NRI/PIO

ADs may allow remittance of assets by a foreign national where:
(i) the person has retired from employment in India;

(ii) the person has inherited from a person referred to in section 6(5) of the Act;
(iii) The person is a non-resident widow/widower and has inherited assets from her/his deceased
spouse who was an Indian national resident in India.
(iv) The remittance should not exceed USD one million per financial year. This limit, however, will
not cover sale proceeds of assets held on repatriation basis. In case the remittance is made
in more than one instalment, the remittance of all instalments should be made through the
same AD on submission of documentary evidence.
(v) The remittance is in respect of balances held in a bank account by a foreign student who
has completed his/ her studies, provided such balance represents proceeds of remittances
received from abroad through normal banking channels or rupee proceeds of foreign exchange
brought by such person and sold to an authorized dealer or out of stipend/ scholarship
received from the Government or any organisation in India.
These facilities are not available for citizens of Nepal or Bhutan or a PIO.
2. Remittances by NRI/ PIO

ADs may allow NRIs/ PIOs, on submission of documentary evidence, to remit up to USD one
million, per financial year:
(i) out of balances in their non-resident (ordinary) (NRO) accounts/ sale proceeds of assets/
assets acquired in India by way of inheritance/ legacy;
(ii) in respect of assets acquired under a deed of settlement made by either of his/ her parents
or a relative as defined in Companies Act, 2013. The settlement should take effect on the
death of the settler;
(iii) in case settlement is done without retaining any life interest in the property i.e. during the
lifetime of the owner/ parent, it would tantamount to regular transfer by way of gift and the
remittance of sale proceeds of such property would be guided by the extant instructions on
remittance of balance in the NRO account;
— In case the remittance is made in more than one instalment, the remittance of all
instalments should be made through the same AD.
— Where the remittance is to be made from the balances held in the NRO account, the
Authorized Dealer should obtain an undertaking from the account holder stating that the said
remittance is sought to be made out of the remitter’s balances held in the account arising
from his/ her legitimate receivables in India and not by borrowing from any other person or a
transfer from any other NRO account and if such is found to be the case, the account holder
will render himself/ herself liable for penal action under FEMA.
3. Remittance by companies/entities
ADs may allow remittances by Indian companies under liquidation on directions issued by a
Court in India/ orders issued by official liquidator in case of voluntary winding up on
submission of:
(i) Auditor's certificate confirming that all liabilities in India have been either fully paid or
adequately provided for.
(ii) Auditor's certificate to the effect that the winding up is in accordance with the provisions of
the Companies Act, 1956.
(iii) In case of winding up otherwise than by a court, an auditor's certificate to the effect th at
there are no
(iv) legal proceedings pending in any court in India against the applicant or the company under
liquidation and there is no legal impediment in permitting the remittance.
ADs may also allow Indian entities to remit their contribution towards the provident fund/
superannuation/ pension fund in respect of their expatriate staff resident but “not
permanently resident” in India.
4. Remittance / winding up proceeds of branch/office

ADs may permit remittance of assets on closure or remittance of winding up proceeds of
branch office/ liaison office (other than project office) on submission of the following
documents:
(i) A copy of the Reserve Bank's permission for establishing the branch/ office in India.
(ii) Auditor’s certificate:
a. indicating the manner in which the remittable amount has been arrived and supported by a
statement of assets and liabilities of the applicant, and indicating the manner of disposal of
assets;
b. confirming that all liabilities in India including arrears of gratuity and other benefits to the
employees etc., of the branch/ office have been either fully met or adequately provided for;
c. confirming that no income accruing from sources outside India (including proceeds of
exports) has remained un-repatriated to India;

d. confirming that the branch/office has complied with all regulatory requirements stipulated by
the Reserve Bank of India from time to time regarding functioning of such offices in India;
(iii) a confirmation from the applicant that no legal proceedings are pending in any Court in In dia
and there is no legal impediment to the remittance; and
(iv) a report from the Registrar of Companies regarding compliance with the provisions of the
Companies Act, 2013, in case of winding up of the office in India.
5. Remittance of assets requiring RBI approval

Prior approval of the Reserve Bank is necessary for remittance of assets where:
(a) Remittance is in excess of USD 1,000,000 (US Dollar One million only) per financial year
(i) on account of legacy, bequest or inheritance to a citizen of foreign state, resident outside
India;
(ii) by NRIs/ PIOs out of the balances held in NRO accounts/ sale proceeds of assets/ the assets
acquired by way of inheritance/ legacy.
(b) Hardship will be caused to a person if remittance from India is not made to such a person.
Remittance of funds from the sale of assets in India held by a person, whether resident in
or outside India, not covered under the directions stipulated above will require approval of the
Reserve Bank.
6. Exemption from Realization or Repatriation

1. Accordingly, possession of foreign currency or coins by any person or class of persons, as the
Reserve Bank may specify is not prohibited. A person or class of persons may hold and
operate foreign currency account within the prescribed limits as may be specified by the
Reserve Bank.
2. Foreign exchange acquired or received before 8th July, 1947, or any income arising or
accruing thereon which is held outside India, in pursuance of a general or special permission
of RBI, is also exempted.
Provisions relating to holding of foreign exchange, realisation and repatriation of foreign
exchange are not applicable to person resident in India upto such limit as the Reserve Bank
may specify, if such foreign exchange was acquired by way of gift or inheritance from certain
persons mentioned above and any income arising there from.
POSSESSION AND RETENTION OF FOREIGN CURRENCY OR COINS
Under Regulation 3 the Reserve Bank has specified following limits for possession or retention
of foreign currency or foreign coins, namely:
(i) possession without limit of foreign currency and coins by an authorized person within the
scope of his authority;
(ii) possession without limit of foreign coins by any person;
(iii) retention by a person resident in India of foreign currency notes, bank notes and foreign
currency travelers cheques not exceeding US $ 2000 or its equivalent in aggregate, provided
that such foreign exchange in the form of currency notes, bank notes and travelers cheques
acquired during a visit to any place outside India by way of payment for services not arising
from any business in or anything done in India; or from any person not resident in India and
also who is on a visit to India, or as honorarium or gift or for services rendered or in
settlement of any lawful obligation; or as a honorarium or gift while on a visit to any place
outside India; or represents unspent amount of foreign exchange acquired from an authorized
person for travel abroad.
AUTHORIZED PERSON
 An Authorized Dealer is any person specifically authorized by the Reserve Bank under Section
10(1) of FEMA, 1999, to deal in foreign exchange or foreign securities.
 Under Section 10, any person who has made an application to the RBI may be authorized by
it to act as an authorized person to deal in foreign exchange or in foreign securities as an
authorized dealer, money changer or offshore banking unit or in any other manner as the RBI
deem fit. This authorisation is in writing and subject to the conditions laid down by the RBI.
 Normally, nationalized banks, leading non nationalized banks and foreign banks are appointed
as authorized persons.
 Authorized persons are required to comply with the directions of the Reserve Bank with
regard to his dealing in foreign exchange or foreign security receipt with the previous
permission of the Reserve Bank. However authorized person are required not to engage in any
transaction involving any foreign exchange or foreign security which is not in conformity with
the terms of his authorization.
 Reserve Bank of India has been empowered to revoke the authorization granted to any person
at any time in the public interest. It may also revoke the authorization after giving an
opportunity, if the authorized person failed to comply with the conditions subject to which
the authorization was granted or contravened any of the provisions of the Act, rules,
notifications or directions.
 An authorized person, before undertaking any transaction on behalf of any person shall,
require that person to make such declaration and give such information as will reasonably
satisfy the authorized person that the transaction will not involve or is not intended to
violate or contravene any provisions of the Act, rules, notification or directions.
 In case, the person refuses to comply with such requirements or makes only unsatisfactory
compliances, the authorized person is duty bound to refuse in writing to act on behalf of
such person in such transaction and report the matter to Reserve Bank.
 Any person, other than an authorized person who has acquired or purchased foreign exchange
for any purpose mentioned in the declaration made by him to the authorized person does not
use it for such purpose, or does not surrender it to authorized person within the specified
period, or uses the foreign exchange for any other purpose, which is not permitted under the
provisions of the Act, such person shall be deemed to have committed contravention of the
provisions of the Act.
Powers of RBI to issue directions to authorized person
 Section 11 of the Act empowers the RBI to issue directions to the authorized person in regard
to making of payment or doing or desist from doing any act relating to foreign exchange or
foreign security.
 Reserve Bank has also been empowered to issue directions to the authorized persons to
furnish such information in such manner as it deems fit.
 Section 12 of the Act empowers RBI to inspect the business of any authorized person for the
purpose of verifying the correctness of any statement/information or particulars furnished.
 In case authorized person fails to furnish the information sought, the RBI can initiate
inspection of the authorized person for obtaining such information.
 RBI may also inspect the business of an authorized person for securing compliance with the
provisions of the Foreign Exchange Management Act or any of the Rules, Regulations or
directions.
 The Reserve Bank may make an order in writing authorising any of its officer for this
purpose.
 When an inspection is initiated by the Reserve Bank, it shall be the duty of every authorized
person (where the authorized person is a company or firm, every director partner or officer of
such a company or firm), to produce before the inspecting officer, such books, accounts and
other documents in his custody and to furnish any statement or information relating to the
affairs of such authorized person within the time limit and the manner in which such
inspecting officer may direct.
DJUDICATION AND APPEALS
1. Appointment of adjudication Officers
 Section 16 empowers the Central Government to appoint Adjudicating Authorities.

 The Adjudicating Authority has been empowered to hold any enquiry on a complaint made in
writing by an officer authorized by a general or special order by the Central Government.
 In case, a complaint has been made in respect of a person alleged to have committed the
contravention, such person shall be given a reasonable opportunity of being heard before
imposing any penalty under Section 13.
 The Adjudicating Authority has discretion to demand from the persons against whom a
complaint is made a bond or guarantee for any such amount as he thinks fit, if he is of the
opinion that such persons likely to abscond or evade the payment of penalty, if imposed.
2. Appeal to Special Director
 An appeal to the Special Director (Appeals) may be made against the orders of the
Assistant Director or Deputy Director of enforcement, acting as Adjudicating Authority within
forty five days from the date of the receipt of the order by aggrieved person.
 The Special Director (Appeals) has however, been empowered to entertain appeal after the
expiry of the said period of forty five days.
3. Establishment of Appellant Tribunal
 The Central Government or any person aggrieved by the orders of Adjudicating Authority or
Special Director (Appeals) may prefer an appeal to the Appellate Tribunal under Section 19
of the Act.
 The jurisdiction of the Appellate Tribunal may be exercised by benches.
 A bench may be constituted by the Chairperson with one or more member as the
Chairperson deem fit.
 The Chairperson can also transfer member of one bench to another bench.
 The Appellate Tribunal shall sit ordinarily at New Delhi for hearing.
Qualification
 A person who is or has been or is qualified to be a judge of a High Court shall be eligible for
the appointment as chairperson of Appellate Tribunal.
 A person who is or has been or is eligible to be a district judge shall be eligible for
appointment as a member of Appellate Tribunal.
 A member of the Indian Legal Service and holding the post in Grade I of that Services or the
member of Indian Revenue Service and holding the post equivalent to a Joint Secretary to
the Government of India, shall be eligible to be appointed as Special Director (Appeals).
Term
The Chairperson and Members will hold office for a period of 5 years from the date of
assuming office. However, no chairperson or member shall hold office on attaining the age of
65 years and 62 years respectively.
4. Appeal to High Court

Appeal must be filed within 60 days from the date of communication of the decision or
order of the Tribunal. The appeal to the High Court can be made on any question of law
arising out of such order.
5. Directorate of Enforcement
The Central Government has also been empowered to authorise Director, Additional Director,
Special Director or Deputy Director to appoint officers of enforcement below the rank of
Assistant Director of Enforcement to exercise the powers and discharge the duties conferred
or imposed on him under the Act.
6. Compounding of contraventions
Power to compound by Reserve Bank
AMOUNT COMPOUNDING AUTHORITY
In case where the sum involved in such Assistant General Manager of the Reserve
contravention is ten lakhs rupees or below Bank of India
In case where the sum involved in such Deputy General Manager of Reserve Bank of
contravention is more than rupees ten lakhs India
but less than rupees forty lakhs,
In case where the sum involved in the General Manager of Reserve Bank of India
contravention is rupees forty lakhs or more
but less than rupees hundred lakhs
In case the sum involved in such Chief General Manager of the Reserve Bank of
contravention is rupees one hundred lakhs or India
more
Application for Compounding

 All applications for compounding may be submitted together with the prescribed fee of
Rs.5000/- by way of a demand draft drawn in favour of “Reserve Bank of India” and payable
at the concerned Regional Office and by way of a demand draft drawn in favor of “Reserve
Bank of India” and payable at Mumbai for cases submitted to the Compounding Authority,
[Cell for Effective implementation of FEMA (CEFA)], Foreign Exchange Department, Reserve
Bank of India, Central Office, Mumbai.
 Along with the application in the prescribed format, the applicant may also furnish the
details relating to Foreign Direct Investment, External Commercial Borrowings, Overseas
Direct Investment and Branch Office / Liaison Office, as applicable, a copy of the
Memorandum of Association and latest audited balance sheet along with an undertaking that
they are not under investigation of any agency such as DOE, CBI, etc. in order to complete
the compounding process within the time frame.
 In case the application has to be returned where required approvals are not obtained from
the authorities concerned or in case of incomplete application for any other reason, the
application fees of Rs.5000/- received along with the application will be returned by crediting
the same to the applicant’s account through NEFT as per the ECS mandate and details of
their bank account as furnished along with the application. The application will be treated
as incomplete without these details.
 The applicants are also advised to bring to the notice of the compounding authority change,
if any, in the address/ contact details of the applicant during the pendency of the
compounding application with Reserve Bank.
Prerequisites for Compounding Process

 In respect of a contravention committed by any person within a period of three years from
the date on which a similar contravention committed by him was compounded under the
Compounding Rules, such contraventions would not be compounded and relevant provisions of
the FEMA, 1999 shall apply. Any second or subsequent contravention committed after the
expiry of a period of three years from the date on which the contravention was previously
compounded shall be deemed to be a first contravention.
 Contraventions relating to any transaction where proper approvals or permission from the
Government or any statutory authority concerned, as the case may be, have not been
obtained such contraventions would not be compounded unless the required approvals are
obtained from the concerned authorities.
 Cases of contravention such as those having a money laundering angle, national security
concerns and/or involving serious infringements of the regulatory framework or where the
contravener fails to pay the sum for which contravention was compounded within the
specified period in terms of the compounding order, shall be referred to the Directorate of
Enforcement for further investigation and necessary action under FEMA, 1999 or to the
authority instituted for implementation of the Prevention of Money Laundering Act 2002, or
to any other agencies, for necessary action as deemed fit.
Issue of Compounding Order

 The Compounding Authority shall pass an order of compounding after affording an
opportunity of being heard to all the concerned as expeditiously as possible as and not later
than 180 days from the date of application on the basis of the averments made in the
application as well as other documents and submissions made in this context by the
contravener during the personal hearings.
 The time limit for this purpose would be reckoned from the date of receipt of the completed
application for compounding by the Reserve Bank.
 If the applicant opts for appearing for the personal hearing, the Reserve Bank would
encourage the applicant to appear directly for it rather than being represented / accompanied
by legal experts / consultants, as compounding is only for admitted contraventions. Appearing
for or opting out of personal hearing does not have any bearing whatsoever on the amount
imposed in the compounding order. If the authorized representative of the applicant is

unavailable for the personal hearing, the Compounding Authority may pass the order based on
available information/ documents.
 The Compounding Order shall specify the provisions of the FEMA, 1999 or any rule, regulation,
notification, direction or order issued in exercise of the powers under FEMA, 1999 in respect
of which contravention has taken place along with details of the contravention.
 One copy of the compounding order issued under sub rule (2) of Rule 8 of Foreign Exchange
(Compounding Proceedings) Rules, 2000 shall be supplied to the applicant (the contravener)
and also to the Adjudicating Authority, where the compounding of any contravention is made
after making of a complaint under sub-section (3) of section 16 of the FEMA, as the case
may be.
CS- EXE Economic Business and Commercial Laws FCRA
CHAPTER 4- FOREIGN CONTRIBUTION (REGULATIONS) ACT, 2010
INTRODUCTION
The Foreign Contribution (Regulation) Act, 1976 was enacted to regulate the acceptance and
utilization of foreign contribution or hospitality with a view to ensuring that the
Parliamentary institutions, political associations, academic and other voluntary organizations
as well as individuals working in important areas of national life may function in a manner
consistent with the values of sovereign democratic republic.
DEFINITION
1. “Foreign company” means any company or association or body of individuals incorporated

outside India and includes—
(i) a foreign company within the meaning of section 591 of the Companies Act, 1956
(ii) a company which is a subsidiary of a foreign company;
(iii) the registered office or principal place of business of a foreign company referred to in sub
clause (i) or company referred to in sub-clause (ii);
(iv) a multi-national corporation.
Explanation. — For the purposes of this sub-clause, a corporation incorporated in a foreign

country or territory shall be deemed to be a multi-national corporation if such corporation, —
(a) has a subsidiary or a branch or a place of business in two or more countries or territories; or
(b) carries on business, or otherwise operates, in two or more countries or territories;
2. “Foreign contribution” means the donation, delivery or transfer made by any foreign source,
(i) of any article, not being an article given to a person as a gift for his personal use, if the
market value, in India, of such article, on the date of such gift, is not more than such sum
as may be specified from time to time, by the Central Government by the rules made by it
in this behalf;
(ii) of any currency, whether Indian or foreign;
(iii) of any security as defined in clause (h) of section 2 of the Securities Contracts
(Regulation) Act, 1956 and includes any foreign security as defined in clause (o) of section
2 of` the Foreign Exchange Management Act, 1999.
3. “Foreign hospitality” means any offer, not being a purely casual one, made in cash or kind
by a foreign source for providing a person with the costs of travel to any foreign country or
territory or with free boarding, lodging, transport or medical treatment.
4. “Foreign source” includes, —
(i) the Government of any foreign country or territory and any agency of such Government;
(ii) any international agency, not being the United Nations or any of its specialized agencies, the
World Bank, International Monetary Fund or such other agency as the Central Government
may, by notification, specify in this behalf;
(iii) a foreign company;
(iv) a corporation, not being a foreign company, incorporated in a foreign country or territory;
(v) a multi-national corporation referred to in sub-clause (iv) of clause (g);
(vi) a company within the meaning of the Companies Act, 1956 and more than one-half of the
nominal value of its share capital is held, either singly or in the aggregate, by one or more of
the following, namely:—
(A) the Government of a foreign country or territory;
(B) the citizens of a foreign country or territory;
(C) corporations incorporated in a foreign country or territory;
(D) trusts, societies or other associations of individuals (whether incorporated or not), formed or
registered in a foreign country or territory;
(E) foreign company;
(vii) a trade union in any foreign country or territory, whether or not registered in such foreign
country or territory;
(viii) a foreign trust or a foreign foundation, by whatever name called, or such trust or foundation
mainly financed by a foreign country or territory;
(ix) a society, club or other association of individuals formed or registered outside India;
a citizen of a foreign country [Section 2]
REGULATION OF FOREIGN CONTRIBUTION AND FOREIGN HOSPITALITY
Prohibition to accept foreign contribution

1. Section 3(1) of the Act, imposes restriction on acceptance of foreign contribution by
candidate for
 election;
 correspondent,
 columnist,
 cartoonist,
 editor,
 owner,
 printer or publisher of a registered newspaper;
 Judge,
 Government servant or employee of any corporation or any other body controlled or owned by
the Government;
 member of any Legislature; political party or office-bearer thereof;
 organization of a political nature as may be specified by the Central Government;
 association or company engaged in the production or broadcast of audio news or audio visual
news or current affairs programs through any electronic mode, or any other electronic form.
A “corporation” for the above purpose means a corporation owned or controlled by the
Government and includes a Government company.
2. Sub-section (2)(a) of Section 3 provides that no person,

 resident in India, and
 no citizen of India resident outside India,
shall accept any foreign contribution, or acquire or agree to acquire any currency from a
foreign source, on behalf of any political party, or any person, prohibited from accepting any
foreign contribution.
3. Sub-section (2) (b) mandates that no person, resident in India, shall

 deliver any currency, whether Indian or foreign, to any person if he knows or has reasonable
cause to believe that such other person intends to deliver such currency to any political party
or any person, prohibited from accepting any foreign contribution.
4. Section 3(2)(c) provides that no citizen of India resident outside India shall
 deliver any currency, whether Indian or foreign, which has been accepted from any foreign
source, to any political party or any person specified in sub-section (1) of section 3 , or both
or any other person, if he knows or has reasonable cause to believe that such other person
intends, or is likely, to deliver such currency to a political party or to any person specified in
sub-section (1) of section 3, or both.
5. Section 3(3) provides that no person receiving any currency, whether Indian or foreign, from
a foreign source on behalf of any person or class of persons shall deliver such currency to
any person other than a person for which it was received.
Person to whom section 3 does not apply
Who accepts foreign contribution by way of-

(a) by way of salary, wages or other remuneration due to him or to any group of persons working
under him, from any foreign source or by way of payment in the ordinary course of business
transacted in India by such foreign source; or
(b) by way of payment, in the course of international trade or commerce, or in the ordinary
course of business transacted by him outside India; or
(c) as an agent of a foreign source in relation to any transaction made by such foreign source
with the Central Government or State Government; or
(d) by way of a gift or presentation made to him as a member of any Indian delegation,
provided that such gift or present was accepted in accordance with the rules made by the
Central Government with regard to the acceptance or retention of such gift or presentation;
or
(e) from his relative; or
(f) by way of remittance received, in the ordinary course of business through any official
channel, post office, or any authorized person in foreign exchange under the Foreign
Exchange Management Act, 1999; or
(g) by way of any scholarship, stipend or any payment of like nature:
Restriction on acceptance of foreign hospitality

Section 6 prohibits acceptance of foreign hospitality by certain persons except with the prior
permission of Central Government. It includes persons like –
a) member of a Legislature or
b) office-bearer of a political party or
c) Judge or
d) Government servant or
e) employee of any corporation or any other body owned or controlled by the Government .
Exceptions where permission is not required –

 for an emergent medical aid needed on account of sudden illness contracted during a visit
outside India,
but, where such foreign hospitality has been received, the person receiving such hospitality
shall give, within one month from the date of receipt of such hospitality an intimation to
the Central Government as to the receipt of such hospitality, and the source from which, and
the manner in which, such hospitality was received by him.
Prohibition to transfer foreign contribution to other person

The person who has obtained permission of Central government and has been granted
certificate for such transfer of foreign contribution cannot transfer such contribution to
person who is not registered and has not been granted certificate by Central govt.
The following are the persons prohibited from accepting foreign contribution:
(a) Candidate for election;
(b) Correspondent, columnist, cartoonist, editor, owner, printer or publisher of a registered
newspaper;
(c) Judge, government servant or employee of any entity controlled or owned by the Government;
(d) Member of any Legislature;
(e) Political party or office bearers thereof;
(f) Organizations of a political nature as may be specified;
(g) Associations or companies engaged in the production or broadcast of audio news or
audiovisual news or current affairs programs through any electronic mode or form or any
other mode of mass communication;
(h) Correspondent or columnist, cartoonist, editor, owner of the association or company referred
to in above.
Utilization of foreign contribution

 It should be used for purpose for which it is received and cannot be used for speculative
businesses.
 every person, who is registered and granted a certificate or given prior permission under this
Act and receives any foreign contribution, shall not defray as far as possible such sum, not
exceeding fifty per cent of such contribution, received in a financial year, to meet
administrative expenses. Further administrative expenses exceeding fifty per cent of such
contribution may be defrayed with prior approval of the Central Government.
Power of central government to restrict the receipt of foreign contribution

The Central Government has been empowered to -
(a) prohibit any person or organization not specified in section 3, from accepting any foreign
contribution;
(b) require any person or class of persons, to obtain prior permission of the Central Government
before accepting any foreign hospitality;
(c) require any person or class of persons to furnish intimation as to the amount of any foreign
contribution received by such person, and the source from which and the manner in which
such contribution was received and the purpose for which and the manner in which such
foreign contribution was utilized;
(d) require any person or class of persons specified to obtain prior permission of the Central
Government before accepting any foreign contribution;
(e) require any person or class of persons, to furnish intimation, within such time and in such
manner as may be prescribed, as to the receipt of any foreign hospitality, the source from
which and the manner in which such hospitality was received.
However, no such prohibition or requirement shall be made unless the Central Government is
satisfied that the acceptance of foreign contribution by such person or the acceptance of
foreign hospitality by such person, is likely to affect
 prejudicially the sovereignty and integrity of India; or
 public interest; or
 freedom or fairness of election to any Legislature; or
 friendly relations with any foreign State; or
 harmony between religious, racial, social, linguistic or regional groups, castes or communities.
Registration of certain persons with government

 person having a definite cultural, economic, educational, religious or social programme shall
accept foreign contribution if such person obtains a certificate of registration from the
Central Government.
 It may be noted that any association registered with the Central Government or granted prior
permission, as it stood immediately before the commencement of this Act, shall be deemed
to have been registered or granted prior permission and such registration shall be valid for a
period of five years from the date on which this section comes into force.
 every person not registered with the Central Government accept any foreign contribution only
after obtaining the prior permission of the Central Government and such prior permission
shall be valid for the specific purpose for which it is obtained and from the specific source.
Grant of certificate of registration

 Central government shall grant registration within 90 days or receipt of application for
registration and if Central government does not grant registration within 90 days it shall
communicate the reasons therefor to the applicant and that a person shall not be eligible for
grant of certificate .
Following conditions for granting certificate of registration :—

 the person making an application for registration or grant of prior permission under sub-
section (1),—
o is not fictitious or benami;
o has not been prosecuted or convicted for indulging in activities aimed at conversion through
inducement or force, either directly or indirectly, from one religious faith to another;
o has not been prosecuted or convicted for creating communal tension or disharmony in any
specified district or any other part of the country;
o has not been found guilty or diversion or mis-utilisation of its funds;
o is not engaged or likely to engage in propagation of sedition or advocate violent methods to
achieve its ends;
o is not likely to use the foreign contribution for personal gains or divert it for undesirable
purposes;
o has not contravened any of the provisions of this Act;
 has not been prohibited from accepting foreign contribution
 the person making an application for registration under sub-section (1) has undertaken
reasonable activity in its chosen filed for the benefit of the society for which the foreign
contribution is proposed to be utilised;
 the person making an application for giving prior permission under sub-section (1) has
prepared a reasonable project for the benefit of the society for which the foreign contribution
is proposed to be utilised;
 in case the person being an individual, such individual has neither been convicted under any
law for the time being in force nor any prosecution for any offence pending against him;
 in case the person being other than an individual, any of its directors or office bearers has
neither been convicted under any law for the time being in force nor any prosecution for any
offence is pending against him;
 the acceptance of foreign contribution by the person referred to in sub- section (1) is not
likely to affect prejudicially—
o the sovereignty and integrity of India; or
o the security, strategic, scientific or economic interest of the State; or
o the public interest; or
o freedom or fairness of election to any Legislature; or

o friendly relation with any foreign State; or
o harmony between religious, racial, social, linguistic, regional groups, castes or communities;
 the acceptance of foreign contribution referred to in sub-section (1),—
o shall not lead to incitement of an offence;
o shall not endanger the life or physical safety of any person.
Suspension of certificate
 Central government can suspend the certificate for period not exceeding 180 days.
 Further every person whose certificate has been suspended shall not receive any foreign
contribution during the period of suspension of certificate.
Cancellation of certificate
 Central Government may cancel the certificate if —
 Before passing an order of cancellation of certificate, the person concerned would be given a
reasonable opportunity of being heard.
 Any person, whose certificate has been cancelled, shall not be eligible for registration or
grant of prior permission for a period of three years from the date of cancellation of such
certificate.
Management of foreign contribution of persons whose certificate has been cancelled

 Foreign contribution and assets created out of the foreign contribution in the custody of
every person whose certificate has been cancelled shall vest in such authority as may be
prescribed.
 The authority may, if it considers necessary and in public interest, manage the activities of
the person for such period and in such manner, as the Central Government may direct.
 Such authority may utilise the foreign contribution or dispose of the assets created out of it
in case adequate funds are not available for running such activity.
 The authority shall return the foreign contribution and the assets vested upon it to the
person, if such person is subsequently registered under this Act.
Renewal of certificate
Certificate shall be renewed within 6 months before the expiry of registration of such
certificate.
Application for renewal

Central government shall renew certificate within 90 days of receipt of application for such
renewal.
ACCOUNTS, INTIMATION, AUDIT AND DISPOSAL OF ASSETS
Foreign contribution through scheduled bank

 person who has been granted a certificate or given prior permission shall receive foreign
contribution in a single account only through such one of the branches of a bank.
 However, such person may open one or more accounts in one or more banks for utilizing the
foreign contribution received by him.
 Further no funds other than foreign contribution shall be received or deposited in such
account or accounts.
Maintenance of accounts
Every person who has been granted registration shall maintain accounts.
Order for Audit of Accounts

Central government can order for audit of accounts if such person fails to furnish the
necessary information within time limit.
Intimation by candidate for election

The candidate shall intimate the central government within 180 days of receipt of foreign
contribution.
Disposal of assets
any person who was permitted to accept foreign contribution under this Act, ceases to exist
or has become defunct, all the assets of such person shall be disposed of in accordance with
the provisions contained in any law for the time being in force under which the person was
registered or incorporated.
INSPECTION, SEARCH AND SEIZURE
Central Government has any reason, to be recorded in writing, any ground to suspect that
any provision of this Act has been or is being, contravened by any political party; or any
person; or any organization; or any association, it may, by general or special order, authorise
such gazetted officer, holding a Group A post under the Central Government or such other
officer or authority or organization, as it may think fit, to inspect any account or record
maintained by such political party, person, organization or association, as the case may be,
and thereupon every such inspecting officer shall have the right to enter in or upon any
premises at any reasonable hour, before sunset and after sunrise, for the purpose of
inspecting the said account or record.
Seizure of accounts
Central government may authorize authority to seize accounts. However such authority shall
return seized accounts within 6 months if no proceeding are brought under court.
CS- EXE Economic Business and Commercial Laws FDI
CHAPTER
LESSON 5 –5- FOREIGN
FOREIGN DIRECT
DIRECT INVESTMENT
INVESTMENT – REGULATION
– REGULATION AND POLICY
AND POLICY
INTRODUCTION
To promote Foreign Direct Investment (FDI), the Government has put in place an investor-
friendly policy, wherein except for a small negative list, most sectors are open for 100% FDI
under the Automatic route. Further, the policy on FDI is reviewed on an ongoing basis, to
ensure that India remains attractive & investor friendly destination.
DEFINITIONS
1. ‘AD Category-I Bank’ - means a bank(Scheduled Commercial, State or Urban Cooperative)

which is authorized under Section 10(1) of FEMA to undertake all current and capital account
transactions according to the directions issued by the RBI from time to time.
2. ‘Control’ - shall include the right to appoint a majority of the directors or to control the
management or policy decisions including by virtue of their shareholding or management
rights or shareholders agreements or voting agreements. For the purposes of Limited Liability
Partnership, ‘control’ will mean right to appoint majority of the designated partners, where
such designated partners, with specific exclusion to others, have control over all the policies
of the LLP.
3. ‘Erstwhile Overseas Corporate Body’(OCB) means a company, partnership firm, society and
other corporate body owned directly or indirectly to the extent of at least sixty percent by
non-resident Indians and includes overseas trust in which not less than sixty percent
beneficial interest is held by non-resident Indians directly or indirectly but irrevocably and
which was in existence on the date of commencement of the Foreign Exchange Management
(Withdrawal of General Permission to Overseas Corporate Bodies (OCBs) ) Regulations, 2003
(the Regulations) and immediately prior to such commencement was eligible to undertake
transactions pursuant to the general permission granted under the Regulations.
4. ‘Foreign Currency Convertible Bond’ (FCCB) means a bond issued by an Indian company
expressed in foreign currency, the principal and interest of which is payable in foreign
currency. FCCBs are issued in accordance with the Foreign Currency Convertible Bonds and
ordinary shares (through depository receipt mechanism) Scheme, 1993 and subscribed by a
non-resident entity in foreign currency and convertible into Ordinary Shares of the issuing
company in any manner, either in whole, or in part.
5. ‘Transferable Development Rights’ (TDR) means certificates issued in respect of category

of land acquired for public purposes either by the Central or State Government in consideration
of surrender of land by the owner without monetary compensation, which are transferable in
part or whole.
ELIGIBLE INVESTORS UNDER FDI
 A non-resident entity can invest in India, subject to the FDI Policy except in those
sectors/activities which are prohibited.
 However, a citizen of Bangladesh or an entity incorporated in Bangladesh can invest only
under the Government route.
 Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the
Government route, in sectors/activities other than defence, space, atomic energy and
sectors/activities prohibited for foreign investment.
 NRIs resident in Nepal and Bhutan as well as citizens of Nepal and Bhutan are permitted to
invest in the capital of Indian companies on repatriation basis.
 Foreign Institutional Investor (FII) and Foreign Portfolio Investors (FPI) invest in the capital
of an Indian company under the Portfolio Investment Scheme which limits the individual
holding of an FII/FPI below 10% of the capital of the company and the aggregate limit for
FII/FPI investment to 24% of the capital of the company. This aggregate limit of 24% can
be increased to the sectoral cap/statutory ceiling.
ELIGIBLE INVESTEE ENTITIES
FDI in an Indian Company Indian companies can issue capital against

FDI.
FDI in Partnership Firm/ Proprietary

(i) A Non-Resident Indian (NRI) or a Person
Concern of Indian Origin (PIO) resident outside

India can invest in the capital of a firm or
a proprietary concern in India on non-
repatriation basis provided;
 Amount is invested by inward remittance
or out of NRE/FCNR(B)/NRO account
maintained with Authorized
Dealers/Authorized banks.
 The firm or proprietary concern is not
engaged in any agricultural/plantation or
real estate business
or print media sector.
 Amount invested shall not be eligible for
repatriation outside India.
FDI in Trust FDI is not permitted in Trusts other than

in Venture Capital Fund (VCF) registered
and regulated by SEBI and ‘Investment
vehicle’.
FDI in LLP
FDI in LLPs is permitted subject to the
following conditions:
(i) FDI is permitted under the automatic route
in Limited Liability Partnership (LLPs)
operating in sectors/ activities where 100%
FDI is allowed through the automatic route
and there are no FDI-linked performance
conditions.
(ii) An Indian company or an LLP having
foreign investment, is also permitted to
make downstream investment in another
company or LLP in sectors in which 100%
FDI is allowed under the automatic route
and there are no FDI-linked performance
conditions.
FDI in Investment Vehicle An entity being ‘investment vehicle’

registered permitted to receive foreign
investment from a person resident outside
India (other than an individual who is
citizen of or any other entity which is
registered / incorporated in Pakistan or
Bangladesh), including a Registered Foreign
Portfolio Investor (RFPI) or a non-resident
Indian (NRI).
FDI in Startup Companies 1. A person resident outside India (other than

an individual who is citizen of Pakistan or
Bangladesh or an entity which is
registered/incorporated in Pakistan or
Bangladesh), may purchase convertible
notes issued by an Indian startup company
for an amount of twenty five lakh rupees
or more in a single tranche.
2. A startup company engaged in a sector
where foreign investment requires
Government approval may issue convertible
notes to a non-resident only with approval
of the Government.
3. A startup company issuing convertible notes
to a person resident outside India shall
receive the amount of consideration by
inward remittance through banking
channels or by debit to the NRE / FCNR
(B)
/ Escrow account maintained by the person
concerned in accordance with the Foreign
Exchange
Management (Deposit) Regulations, 2016,
as amended from time to time.
4. NRIs may acquire convertible notes on
non-repatriation basis.
5 A person resident outside India may
acquire or transfer, by way of sale,
convertible notes, from or to, a person
resident in or outside India, provided the
transfer takes place in accordance with the

pricing guidelines as prescribed by RBI.
Prior approval from the Government shall
be obtained for such transfers in case the
startup company is engaged in a sector
which requires Government approval.
6 The startup company issuing convertible
notes shall be required to furnish reports
as prescribed by Reserve Bank of India.
ENTRY ROUTES FOR INVESTMENT
Foreign investment in sectors/activities

under government approval route will
be subject to government approval
where:
1. An Indian company is being
established with foreign investment
FDI is allowed under the automatic and is not owned by a resident entity
Automatic Route
route without prior approval either

• or
of the Government or the Reserve
Bank of India in all
(i) An Indian company is being
established with foreign investment
activities/sectors as specified in
Government Route
and is not controlled by a

the consolidated FDI Policy, issued
residententity
by the Government of India from
time to time. • The control of an existing Indian
company, currently owned or
controlled by resident Indian citizens
and Indian companies, which are
owned or controlled by resident
Indian citizens, will be/is being
transferred/ passed on to a non-
resident entity as a consequence of
transfer of shares and/or fresh issue
of shares to non-resident entities
through amalgamation,
merger/demerger, acquisition etc.
INSTRUMENT FOR INVESTMENT
ENTRY CONDITIONS ON INVESTMENT
Investments by non-residents can be permitted in the capital of a resident entity in certain

sectors/activity with entry conditions. Such conditions may include norms for:
OTHER CONDITIONS ON INVESTMENT BESIDES ENTRY CONDITIONS
PROHIBITED SECTORS
CONDITIONS OF FDI IN MAJOR SECTORS
FDI IN E COMMERCE ACTIVITY
 Subject to provisions of FDI Policy, e-commerce entities would engage only in Business to
Business (B2B) e-commerce and not in Business to Consumer (B2C) e-commerce.
 E-commerce means buying and selling of goods and services including digital products over
digital & electronic network.
 Inventory based model of e-commerce means an e-commerce activity where inventory of
goods and services is owned by e-commerce entity and is sold to the consumers directly.
 Marketplace based model of e-commerce means providing of an information technology
platform by an e-commerce entity on a digital & electronic network to act as a facilitator
between buyer and seller.
OTHER CONDITIONS OF INVESTMENT
 100% FDI under automatic route is permitted in marketplace model of e-commerce.

 FDI is not permitted in inventory based model of e-commerce.
 Digital & electronic network will include network of computers, television channels and any
other internet
application used in automated manner such as web pages, extranets, mobiles etc.
 Marketplace e-commerce entity will be permitted to enter into transactions with sellers
registered on its platform on B2B basis.
 E-commerce marketplace may provide support services to sellers in respect of warehousing,
logistics, order fulfilment, call Centre, payment collection and other services.
 An e-commerce entity will not permit more than 25% of the sales value on financial year
basis affected through its marketplace from one vendor or their group companies.
 In marketplace model goods/services made available for sale electronically on website shou ld
clearly provide name, address and other contact details of the seller. Post sales, delivery of
goods to the customers and customer satisfaction will be responsibility of the seller.
 In marketplace model, payments for sale may be facilitated by the e-commerce entity in
conformity with the guidelines of the Reserve Bank of India.
 In marketplace model, any warrantee/ guarantee of goods and services sold will be
responsibility of the seller.

 E-commerce entities providing marketplace will not directly or indirectly influence the sale
price of goods or services and shall maintain level playing field.
 Guidelines on cash and carry wholesale trading of FDI Policy will apply on B2B e-commerce.
 Subject to the conditions of FDI policy on services sector and applicable laws/regulations,
security and other conditionalities, sale of services through e-commerce will be under
automatic route.
FDI IN SINGLE BRAND PRODUCT RETAIL TRADING
In Single Brand product retail trading, 49% FDI is allowed under Automatic route and beyond
49% under Government route.
 FDI in Single Brand product retail trading would be subject to the following conditions:
 Products to be sold should be of a ‘Single Brand’ only.
 Products should be sold under the same brand internationally i.e. products should be sold
under the same brand in one or more countries other than India.
 ‘Single Brand’ product-retail trading would cover only products which are branded during
manufacturing.
 A non-resident entity or entities, whether owner of the brand or otherwise, shall be
permitted to undertake ‘single brand’ product retail trading in the country for the specific
brand, directly or through a legally tenable agreement with the brand owner for undertaking
single brand product retail trading.
FDI IN MULTI BRAND RETAIL TRADING
In Multi Brand Retail Trading,51% FDI allowed under Government route.

(1) FDI in multi brand retail trading, in all products, will be permitted, subject to the following
conditions:
 Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh poultry,
fishery and meat products, may be unbranded.
 Minimum amount to be brought in, as FDI, by the foreign investor, would be US $ 100
million.
 At least 50% of total FDI brought in the first tranche of US $ 100 million, shall be invested
in ‘back-end infrastructure’ within three years.
 At least 30% of the value of procurement of manufactured/processed products purchased
shall be sourced from Indian micro, small and medium industries, which have a total
investment in plant & machinery not exceeding US $ 2.00 million.
 Self-certification by the company, to ensure compliance of the conditions at serial nos. (ii),
(iii) and (iv) above, which could be cross-checked, as and when required. Accordingly, the
investors shall maintain accounts, duly certified by statutory auditors.
 Retail sales outlets may be set up only in cities with a population of more than 10 lakh as
per 2011 Census or any other cities as per the decision of the respective State Governments
 Government will have the first right to procurement of agricultural products.
 Retail trading, in any form, by means of e-commerce, would not be permissible, for
companies with FDI, engaged in the activity of multi-brand retail trading.
FDI IN ASSET RECONSTRUCTION COMPANY
Conditions –
 Persons resident outside India can invest in the capital of Asset Reconstruction Companies
(ARCs) registered with Reserve Bank of India, up to 100% on the automatic route.
 Investment limit of a sponsor in the shareholding of an ARC will be governed by the
provisions of Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002,
 The total shareholding of an individual FII/FPI shall be below 10% of the total paid-up
capital.
 FIIs/FPIs can invest in the Security Receipts (SRs) issued by ARCs. FIIs/FPIs may be
allowed to invest up to 100 per cent of each tranche in SRs issued by ARCs, subject to
directions/guidelines of Reserve Bank of India. Such investment should be within the relevant
regulatory cap as applicable.
FDI IN INSURANCE
49% FDI is allowed in (i) Insurance Company (ii) Insurance Brokers (iii) Third Party
Administrators (iv) Surveyors and Loss Assessors (v)Other Insurance Intermediaries appointed
under the provisions of Insurance Regulatory and Development authority Act, 1999 (41 of
1999) under Automatic route ..
Conditions –
(a) No Indian Insurance company shall allow the aggregate holdings by way of total foreign
investment in its equity shares by foreign investors, including portfolio investors, to exceed
forty-nine percent of the paid up equity capital of such Indian Insurance company.
(b) The foreign investment up to forty-nine percent of the total paid-up equity of the Indian
Insurance Company shall be allowed on the automatic route subject to approval/verification
by the Insurance Regulatory and Development Authority of India.
(c) Foreign investment in this sector shall be subject to compliance with the provisions of the
Insurance Act, 1938 and the condition that Companies receiving FDI shall obtain necessary
license /approval from the Insurance Regulatory & Development Authority of India for
undertaking insurance and related activities.
(d) An Indian Insurance company shall ensure that its ownership and control remains at all
times in the hands of resident Indian entities .
(e) Any increase in foreign investment in an Indian Insurance company shall be in accordance
with the pricing guidelines specified by Reserve Bank of India under the FEMA Regulations.
TYPES OF INSTRUMENTS THAT CAN BE USED UNDER FDI
equity shares, fully, compulsorily The inward remittance received by

and mandatorily convertible Preference shares/Debentures i.e. the Indian company vide issuance
debentures and fully, compulsorily non-convertible, optionally of DRs and FCCBs are treated as
and mandatorily convertible convertible or partially convertible FDI
preference shares and counted towards FDI.
1.Issue of Foreign Currency

Acquisition of Warrants and Partly Paid Shares Convertible Bonds (FCCBs) and
Depository Receipts (DRs)
1. Two-way Fungibility Scheme
2. Sponsored ADR/GDR issue
TRANSFER OF SHARES
 The capital instruments should be issued within 180 days from the date of receipt of the inward
remittance
 In case, the capital instruments are not issued within 180 days from the date of receipt of
the inward remittance, the amount of consideration so received should be refunded
immediately to the non-resident investor by outward remittance through normal banking .
ISSUE PRICE OF SHARES

Price of shares issued to persons resident outside India under the FDI Policy, shall not be
less than –
a. the price worked out in accordance with the SEBI guidelines, ,where the shares of the
company are listed on any recognised stock exchange in India;
b. the fair valuation of shares done by a SEBI registered Merchant Banker or a Chartered
Accountant as per any internationally accepted pricing methodology on arm’s length basis,
where the shares of the company are not listed on any recognised stock excha nge in India;
and
c. the price as applicable to transfer of shares from resident to non-resident as per the pricing
guidelines
laid down by the Reserve Bank from time to time, where the issue of shares is on
preferential allotment.
TRANSFER OF SHARES AND CONVERTIBLE DEBENTURES
General permission has been granted to non-residents/NRIs for acquisition of shares by way
of transfer subject to the following:
(a) A person resident outside India (other than NRI and erstwhile OCB) may transfer by way of
sale or gift, the shares or convertible debentures to any person resident outside India
(including NRIs). Government approval is not required for transfer of shares in the investee
company from one non-resident to another non-resident in sectors which are under automatic
route. In addition, approval of Government will be required for transfer of stake from one
non-resident to another non-resident in sectors which are under Government approval route.
(b) NRIs may transfer by way of sale or gift the shares or convertible debentures held by them
to another NRI.
(c) A person resident outside India can transfer any security to a person resident in India by way
of gift.
(d) A person resident outside India can sell the shares and convertible debentures of an Indian
company on a recognized Stock Exchange in India through a stock broker registered with
stock exchange or a merchant banker registered with SEBI.
(e) A person resident in India can transfer by way of sale, shares/ convertible debentures
(including transfer of subscriber’s shares), of an Indian company under private arrangement to a
person resident outside India, subject to the guidelines.
(f) General permission is also available for transfer of shares/convertible debentures, by way of
sale under private arrangement by a person resident outside India to a person resident in
India, subject to the guidelines.
(g) The Form FC-TRS should be submitted to the AD Category-I Bank, within 60 days from the
date of receipt of the amount of consideration.
(h) The sale consideration in respect of equity instruments purchased by a person resident
outside India, remitted into India through normal banking channels, shall be subjected to a
Know Your Customer (KYC) check by the remittance receiving AD Category-I bank at the
time of receipt of funds. Category-I bank carrying out the transaction along with the Form
FC-TRS.
(i) Escrow: AD Category-I banks have been given general permission to open escrow account and
special account of non-resident corporate for open offers/exit offers and delisting of shares.
(j) In case of transfer of shares between a resident buyer and a non-resident seller or vice-
versa, not more than twenty five per cent of the total consideration can be paid by the
buyer on a deferred basis within a period not exceeding eighteen months from the date of
the transfer agreement.
PRIOR PERMISSION OF RBI IN CERTAIN CASES OF TRANSFER
In the following cases, prior approval of RBI is required:
 Transfer of capital instruments from resident to non-residents by way of sale

 Transfer of any capital instrument by way of gift by a person resident in India to a person
resident outside India. While forwarding applications to Reserve bank for approval for transfer
of capital instruments by way of gift, the documents should be enclosed
 Transfer of shares from NRI to Non-resident
In the Following Cases, Approval of RBI Is Not Required
CONVERSION OF ECB INTO EQUITY
(I) Indian companies have been granted general permission for conversion of External Commercial
Borrowings (ECB) (excluding those deemed as ECB) in convertible foreign currency into
equity shares/fully compulsorily and mandatorily convertible preference shares, subject to the
following conditions and reporting requirements:
(a) The activity of the company is covered under the Automatic Route for FDI or the company has
obtained Government approval for foreign equity in the company;
(b) The foreign equity after conversion of ECB into equity is within the sectoral cap, if any;
(c) Pricing of shares is as per the issue price of shares;
(d) Compliance with the requirements prescribed under any other statute and regulation in force;
and
(e) The conversion facility is available for ECBs availed under the Automatic or Government
Route and is applicable to ECBs, due for payment or not, as well as secured/unsecured loans
availed from non- resident collaborators.
(II) Issue of equity shares against any other funds payable by the investee company, remittance
of which does not require prior permission of the Government of India or Reserve Bank of
India under FEMA, 1999 has been permitted by the Reserve Bank .
(III) A wholly owned subsidiary set up in India by a non-resident entity, operating in a sector
where 100 percent foreign investment is allowed in the automatic route and there are no FDI
linked conditionalities, may issue equity shares or preference shares or convertible debentures
or warrants to the said non-resident entity against pre-incorporation/ pre-operative expenses
incurred by the said non-resident entity up to a limit of five percent of its capital or USD
500,000 whichever is less, subject to the conditions laid down below:
a. Within thirty days from the date of issue of equity shares or preference shares or convertible
debentures or warrants but not later than one year from the date of incorporation or such
time as Reserve Bank of India or Government of India permits, the Indian company shall
report the transaction in the Form FC- GPR to the Reserve Bank.
b. The valuation of the equity shares or preference shares or convertible debentures or warrants
shall be subject to the provisions of Schedule 1 of the FEM (Transferor Issue of Security by
a person resident outside India) Regulations.
c. A certificate issued by the statutory auditor of the Indian company that the amount of pre-
incorporation/ pre-operative expenses against which equity shares or preference shares or
convertible debentures or warrants have been issued has been utilized for the purpose for
which it was received should be submitted with the FC-GPR form.
(IV) Issue of equity shares under the FDI policy is allowed under the Government route for the
following:
(i) import of capital goods/ machinery/ equipment (excluding second-hand machinery), subject
to compliance with the following conditions:
(a) Any import of capital goods/machinery etc., made by a resident in India, has to be in
accordance with the Export/Import Policy issued by Government of India.
(b) The application clearly indicating the beneficial ownership and identity of the Importer
Company as well as overseas entity.
(c) Applications complete in all respects, for conversions of import payables for capital goods into
FDI being made within 180 days from the date of shipment of goods.
(ii) Pre-operative/pre-incorporation expenses (including payments of rent etc.), subject to
compliance with the following conditions:
(a) Submission of FIRC for remittance of funds by the overseas promoters for the
expenditure incurred.
(b) Verification and certification of the pre-incorporation/pre-operative expenses by the
statutory auditor.
(c) Payments should be made by the foreign investor to the company directly or through the
bank account opened by the foreign investor as provided under FEMA Regulations.
(d) The applications, complete in all respects, for capitalization being made within the period of
180 days from the date of incorporation of the company.
General conditions:
(i) All requests for conversion should be accompanied by a special resolution of the company.
(ii) Government’s approval would be subject to pricing guidelines of RBI and appropriate tax
clearance.
PLEDGE OF SHARES
A person being a Non-residents holding Non-residents holding shares

promoter of a company shares of an Indian of an Indian company
registered in India company
(borrowing company)
The authorized dealer, shall
(i) in case of invocation of can pledge these shares in
issue the no objection for pledge, transfer of shares favour of an overseas bank to
such a pledge after having should be in accordance secure the credit facilities being
satisfied itself that the with the FDI policy in vogue extended to the non-resident
external commercial at the time of creation of investor/non-resident promoter
borrowing is in line with pledge; of the Indian company or its
the extant FEMA
(ii) submission of a declaration/ overseas group company, subject
regulations for ECBs and annual certificate from the to the following:
that: statutory auditor of the
(i) loan is availed of only from an
(i) the loan agreement has investee company that the overseas bank;
been signed by both the loan proceeds will be / have
(ii) loan is utilized for genuine
lender and the borrower, been utilized for the business purposes overseas and
(ii) there exists a security declared purpose; not for any investments either
clause in the Loan
(iii) the Indian company has to directly or indirectly in India;
Agreement requiring the follow the relevant SEBI

(iii) overseas investment should not
borrower to create charge disclosure norms; and result in any capital inflow into
on financial (iv) pledge of shares in favour of India;
securities, and the lender (bank) would be
(iv) in case of invocation of pledge,
(iii) the borrower has obtained subject to Section 19 of the transfer should be in accordance
Loan Registration Number Banking Regulation Act, with the FDI policy in vogue at
(LRN) from the Reserve 1949. the time of creation of pledge;
Bank; and the said and
pledge would be subject to (v) submission of a
the following conditions: declaration/annual certificate
(a) the period of such pledge from a Chartered Accountant/
shall be co-terminus with Certified Public Accountant of

the maturity of the the non-resident borrower that
underlying ECB; the loan proceeds will be / have
(b) in case of invocation of been utilized for the declared
pledge, transfer shall be in purpose.
accordance with the extant
FDI Policy and directions
issued by the Reserve
Bank;
(c) the Statutory Auditor has
certified that the
borrowing company will
utilized/has utilized the
proceeds of the ECB for
the permitted end use/s
only.
REMMITANCE AND REPATRIATION
MODES OF PAYMENT ALLOWED FOR RECEIVING FDI IN AN INDIAN COMPANY
An Indian company issuing shares/ convertible debentures to a person resident outside India
shall receive the amount of consideration by:
(a) inward remittance through normal banking channels;
(b) debit to NRE/ FCNR (B) account of a person concerned maintained with an AD Category I
bank;
(c) debit to non-interest bearing escrow account in Indian Rupees in India which is opened with
the approval from AD Category – I bank and is maintained with the AD Category I bank on
behalf of residents and non-residents towards payment of share purchase consideration;
(d) conversion of royalty/ lump sum/ technical know-how fee due for payment or conversion of
ECB;
(e) conversion of pre-incorporation/ pre-operative expenses incurred by the a non-resident entity
up to a limit of five percent of its capital or USD 500,000 whichever is less;
(f) conversion of import payables/ pre incorporation expenses/ can be treated as consideration for
issue of shares with the approval of FIPB;
(g) against any other funds payable to a person resident outside India, the remittance of which
does not require the prior approval of the Reserve Bank or the Government of India: and
(h) Swap of capital instruments, provided where the Indian investee company is engaged in a
Government route sector, prior Government approval shall be required.
If the shares or convertible debentures are not issued within 180 days from the date of
receipt of the inward remittance or date of debit to NRE/ FCNR (B)/ escrow account, the
amount shall be refunded.
REPORTING OF FDI WITHIN 30 DAYS
ESTABLISHMENT OF BRANCH OFFICE/ LIASON OFFICE/ PROJECT OFFICE
BRANCH OFFICE Normally, the branch office should be engaged

in the activity in which the parent company is
engaged.
(i) Export/import of goods.
(ii) Rendering professional or consultancy services.
(iii) Carrying out research work in which the parent
company is engaged.
(iv) Promoting technical or financial collaborations
between Indian companies and parent or
overseas
group company.
(v) Representing the parent company in India and
acting as buying/ selling agent in India.
(vi) Rendering services in Information Technology
and development of software in India.
(vii) Rendering technical support to the products
supplied by parent/group companies.
(viii) Representing a foreign airline/shipping company.
LIASON OFFICE Liaison Office means a place of business to act

as a channel of communication between the
principal place of business or Head Office or
entities in India but which does not undertake
any commercial /trading/ industrial activity,
directly or indirectly, and maintains itself out of
inward remittances received from abroad
through normal banking channel.
Permitted activities for a liaison office in
India of a person resident outside India
(i) Representing the parent company / group
companies in India.
(ii) Promoting export / import from / to India.
(iii) Promoting technical/ financial collaborations
between parent / group companies and
companies in
India.
(iv) Acting as a communication channel between the
parent company and Indian companies.
PROJECT OFFICE Project office means a place of business in India

to represent the interests of the foreign
company executing a project in India but
excludes a Liaison Office.
Parameters of project office
A foreign company may open project office/s in
India provided it has secured from an Indian
company, a
contract to execute a project in India, and
(i) the project is funded directly by inward
remittance from abroad; or

(ii) the project is funded by a bilateral or
multilateral International Financing Agency; or
(iii) the project has been cleared by an appropriate
authority; or
(iv) a company or entity in India awarding the
contract has been granted term loan by a Public
Financial Institution or a bank in India for the
Project.
In the case of the Bar Council of India vs A.K. Balaji & Ors., has directed RBI not to grant
any permission to any foreign law firm, on or after the date of the said interim order, for
opening of LO in India. Hence, no foreign law firm shall be permitted to open any LO in India
till further orders/notification in this regard. However, foreign law firms which have been
granted permission prior to the date of interim order for opening LOs in India may be allowed
to continue provided such permission is still in force. No fresh permissions/ renewal of
permission shall be granted by the Reserve Bank/AD Category-I banks respectively till the
policy is reviewed based on, among others, final disposal of the matter by the Hon’ble
Supreme Court.
GENERAL CRITERIA
i. Applications from foreign companies (a body corporate incorporated outside India, including a
firm or other association of individuals) for establishing BO/ LO/ PO in India shall be
considered by the AD Category-I bank
ii. An application from a person resident outside India for opening of a BO/LO/PO in India shall
require prior approval of Reserve Bank of India in the following cases:
iii. The non-resident entity applying for a BO/LO in India should have a financially sound track
record viz:
Branch Office A profit making track record during the immediately preceding five
financial years in the home country and net worth of not less than
USD 100,000 or its equivalent.
Liaison Office A profit making track record during the immediately preceding three
financial years in the home country and net worth of not less than
USD 50,000 or its equivalent.
An applicant that is not May submit a Letter of Comfort (LOC) from its parent/ group
financially sound and company, subject to the condition that the parent/ group company
is a subsidiary of satisfies the prescribed criteria for net worth and profit.
another company
PROCEDURE FOR ESTABLISHMENT
The application for establishing BO / LO/ PO in India may be submitted by the non-resident entity in Form FNC to
a designated AD Category - I bank
AD Category-I bank shall forward a copy of the Form FNC After receipt of the UIN from the Reserve Bank, the AD
along with the details of the approval proposed to be granted Category-I bank shall issue the approval letter to the non-
by it to the General Manager, Reserve Bank of India, resident entity for establishing BO/LO in India.
An applicant that has received permission for setting up of a BO/LO/PO shall inform the designated AD Category I
bank as to the date on which the BO/LO/PO has been set up. The AD Category I bank in turn shall inform Reserve
Bank accordingly
The approval granted by the AD Category I bank should include
The validity period of an LO is generally for three years, except in the case of a proviso to the effect that in case the BO/LO/PO for which
Non-Banking Finance companies approval has been granted is not opened within six months
from the date of the approval letter, the approval shall lapse.
All applications for establishing a BO/LO in India by foreign banks and insurance companies will be directly received
and examined by the Department of Banking Regulation (DBR
There is a general permission to non-resident companies for

(a) such BOs are functioning in those sectors where 100% FDI is permitted;
establishing BO in the Special Economic Zones (SEZs) to
(b) such BOs comply with Chapter XXII of the Companies Act, 2013; and
undertake manufacturing and service activities subject to the
(c) such BOs function on a stand-alone basis.
conditions
EXTENSION OF VALIDITY PERIOD
i. The designated AD Category - I bank may extend the validity period of LO/s for a period of
3 years from the date of expiry of the original approval / extension granted if the applicant
has complied with the following conditions and the application is otherwise in order:
(a) The LO should have submitted the Annual Activity Certificates for the previous years and
(b) The account of the LO maintained with the designated AD Category – I bank is being
operated in accordance with the terms and conditions stipulated in the approval letter.
APPLICATION FOR ADDITIONAL OFFICE
Requests for establishing additional BOs / LOs may be submitted to the AD Category-I bank
in a fresh FNC form. However, the documents mentioned in form FNC need not be
resubmitted, if there are no changes to the documents already submitted earlier.
(a) If the number of offices exceeds 4 (i.e. one BO / LO in each zone viz; East, West, North and
South), the applicant has to justify the need for additional office/s and it shall require prior
approval of RBI.
(b) The applicant may identify one of its offices in India as the Nodal Office, which will
coordinate the activities of all of its offices in India.
Whenever the existing BO/LO is shifting to another city in India, prior approval from the AD
Category-I bank is required.
REMMITANCE OF PROFITS/ SURPLUS
1. A certified copy of audited

1. Submits an Auditors/ Chartered Accountants’
balance sheet and profit and
Certificate to the effect that sufficient provisions
loss account for relevant year.
have been made to meet the liabilities in India
2. A Charted Accountants including Income Tax etc;
Certificate. 2. An undertaking from the PO that the remittance
will not, in any way, affect the completion of the
project in India and that any shortfall of funds for
meeting any liability in India will be met by inward
remittance from abroad
1.
2.
TRANSFER OF ASSETS OF LO/BO/PO
(i) Transfer of assets by way of sale to the JV/WoS be allowed by AD Category-I bank only when
the non- resident entity intends to close their BO/LO/PO operations in India.
(ii) A certificate is to be submitted from the Statutory Auditor furnishing details of assets to be
transferred indicating their date of acquisition, original price, depreciation till date, present
book value or written down value (WDV) and sale consideration to be obtained. Statutory
Auditor should also confirm that the assets were not re-valued after their initial acquisition.
The sale consideration should not be more than the book value in each case.
(iii) The assets should have been acquired by the BO/LO/PO from inward remittances and no
intangible assets such as good will, pre-operative expenses should be included. No revenue
expenses such as lease hold improvements incurred by the BO/LO can be capitalised and
transferred to JV/WOS.
(iv) AD Category-I bank must ensure payment of all applicable taxes while permitting transfer of
assets.
(v) Credits to the bank accounts of BO/LO/PO on account of such transfer of assets will be
treated as permissible credits.
(vi) Donation by BO/LO/PO of old furniture, vehicles, computers and other office items etc. to
NGOs or other not-for-profit organisations may be permitted by the AD category-I banks
after satisfying itself about the bonafide of the transaction.
FOREIGN EXCHANGE MANAGEMENT (NON-DEBT INSTRUMENTS) RULES, 2019
GENERAL CONDITIONS APPLICABLE TO ALL INVESTORS

1. no person resident outside India shall make any investment in India.
2. An Indian entity or an investment vehicle, or a venture capital fund or a firm or an
association of persons or a proprietary concern shall not receive any investment in India from
a person resident outside India or record such investment in its books.
3. any investment made by a person resident outside India shall be subject to the entry routes,
sectoral caps or the investment limits.
INVESTMENT BY PERSON RESIDENT OUTSIDE INDIA

 a person resident outside India may subscribe, purchase or sell equity instruments of an
Indian company in the manner and subject to the specified terms and conditions.
 A person who is a citizen of Bangladesh or Pakistan or is an entity incorporated in
Bangladesh or Pakistan cannot purchase equity instruments without the prior government
approval.
 A citizen of Pakistan or an entity incorporated in Pakistan cannot invest in defence, space,
atomic energy and sectors or activities prohibited for foreign investment even through the
government route.
 It may be noted that issue or transfer of “participating interest or right” in oil fields by
Indian companies to a person resident outside India would be treated as foreign investment
and shall comply with the specified conditions.
Sectors prohibited for FDI.-

1. Lottery business including Government or private lottery, online lotteries, etc.
2. Gambling and betting including casinos, etc.
3. Chit funds
4. Nidhi company
5. Trading in Transferable Development Rights
6. Real estate business or construction of farm houses
7. Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco
substitutes.
8. Activities or sectors not open to private sector investment e.g. (I) Atomic energy and (II)
Railway operations (other than permitted activities)
9. Foreign technology collaborations in any form including licensing for franchise, trademark,
brand name, management contract is also prohibited for lottery business and gambling and
betting activities.
INVESTMENT BY PERSON RESIDENT OUTSIDE INDIA IN LLP

(a) A person resident outside India (other than a citizen of Pakistan or Bangladesh) or an entity
incorporated outside India (other than an entity incorporated in Pakistan or Bangladesh), not
being a Foreign Portfolio Investor (FPI) or a Foreign Venture Capital Investor (FVCI), may
contribute to the capital of an LLP operating in sectors or activities where foreign investment
up to 100 per cent is permitted under automatic route and there are no FDI linked
performance conditions.
(b) Investment by way of “profit share” shall fall under the category of reinvestment of
earnings.
(c) Investment in a LLP is subject to the compliance of the conditions of Limited Liability
Partnership Act, 2008.
(d) A company having foreign investment, engaged in a sector where foreign investment up to 100
percent is permitted under the automatic route and there are no FDI linked performance
conditions, may be converted into a LLP under the automatic route.
(e) A LLP having foreign investment, engaged in a sector where foreign investment up to 100 per
cent is permitted under the automatic route and there are no FDI linked performance
conditions, may be converted into a company under the automatic route.

(f) Investment in a LLP either by way of capital contribution or by way of acquisition or
transfer of profit shares, should not be less than the fair price worked out as per any valuation
norm which is internationally accepted or adopted as per market practice (hereinafter referred
to as “fair price of capital contribution or profit share of a LLP”) and a valuation certificate
to that effect shall be issued by the Chartered Accountant or by a practising Cost
Accountant or by an approved valuer from the panel maintained by the Central Government.
(g) In case of transfer of capital contribution or profit share from a person resident in India to a
person resident outside India, the transfer shall be for a consideration not less than the fair
price of capital contribution or profit share of a LLP. Further, in case of transfer of capital
contribution or profit share from a person resident outside India to a person resident in India,
the transfer shall be for a consideration which is not more than the fair price of the capital
contribution or profit share of an LLP.
(h) The mode of payment and other attendant conditions for remittance of sale or maturity
proceeds shall be specified by the Reserve Bank.
INVESTMENT BY PERSON RESIDENT OUTSIDE INDIA IN INVESTMENT VEHICLE

(1) An Investment vehicle may issue its units to a person resident outside India against swap of
equity instruments of a Special Purpose Vehicle (SPV) proposed to be acquired by such
Investment Vehicle.
(2) Investment made by an Investment Vehicle into an Indian entity shall be reckoned as
indirect foreign investment for the investee Indian entity if the Sponsor or the Manager or
the Investment Manager (i) is not owned and not controlled by resident Indian citizens or
(ii) is owned or controlled by persons resident outside India.
(3) An Alternative Investment Fund Category III which has received any foreign investment shall
make portfolio investment in only those securities or instruments in which a FPI is allowed to
invest under the Act or rules or regulations made thereunder.
(4) The mode of payment and other attendant conditions for remittance of sale or maturity
proceeds shall be specified by the Reserve Bank.
ACQUISITION THROUGH RIGHT ISSUE
Indian company may make investment in equity instruments (other than share warrants)
issued by such company as a rights issue or a bonus issue, provided that,-
(a) the offer made by the Indian company is in compliance with the provisions of the Companies
Act, 2013;
(b) such issue shall not result in a breach of the sectoral cap applicable to the company;
(c) the shareholding on the basis of which the rights issue or the bonus issue has been made
must have been acquired and held as per the provisions of FEM(Non-debt Instruments)
Rules, 2019;
(d) in case of a listed Indian company, the rights issue to persons resident outside India shall be
at a price determined by the company;
(e) in case of an unlisted Indian company, the rights issue to persons resident outside India shall
not be at a price less than the price offered to persons resident in India;
(f) such investment made through rights issue or bonus issue shall be subject to the conditions
as are applicable at the time of such issue;
(g) the mode of payment and attendant conditions for such transactions shall be specified by
the Reserve Bank.
(h) an individual who is a person resident outside India exercising a right which was issued when
he or she was a person resident in India shall hold the equity instruments (other than share
warrants) so acquired on exercising the option on a non-repatriation basis.
INVESTMENT BY FPO
(a) Purchase and sale of equity instruments.-

A FPI may purchase or sell equity instruments of an Indian company listed or to be listed on
a recognised stock exchange in India subject to the following conditions, namely:-
1. The total holding by each FPI or an investor group, shall be less than 10 percent of the total
paid- up equity capital on a fully diluted basis.
2. The FPIs investing in breach of the prescribed limit shall have the option of divesting their
holdings within 5 trading days from the date of settlement of the trades causing the breach
3. The investment by foreign Government agencies shall be clubbed with the investment by the
foreign Government or its related entities for the purpose of calculation of 10 percent limit
for FPI investments
INVESTMENT BY NRI ON REPATRIATION BASIS
(1) Purchase or sale of equity instruments of a listed Indian company

A Non-resident Indian (NRI) or an Overseas Citizen of India (OCI) may purchase or sell
equity instruments of a listed Indian company on repatriation basis, on a recognized stock
exchange in India, subject to the following conditions, namely :-
(a) NRIs or OCIs may purchase and sell equity instruments through a branch designated by an
Authorized Dealer for the purpose;
(b) The total holding by any individual NRI or OCI shall not exceed 5 percent of the total paid-
up equity capital on a fully diluted basis.
(2) Purchase or sale of units of domestic mutual funds

A Non-resident Indian (NRI) or an Overseas Citizen of India (OCI) may without limit
purchase or sell units of domestic mutual funds which invest more than 50 percent in equity.
(3) Purchase or sale of shares in public sector enterprises

A Non-resident Indian (NRI) or an Overseas Citizen of India (OCI) may, without limit
purchase or sell shares in public sector enterprises being disinvested by the Central
Government, provided the purchase is in accordance with the terms and conditions stipulated
in the notice inviting bids.
A. Purchase or sale of equity instruments of an Indian company or units or contribution to

the capital of a LLP by Non-Resident Indian (NRI) or Overseas Citizen of India (OCI) on
Non-repatriation basis.
(1) Purchase or sale of equity instruments or convertible notes or units or contribution to
the capital of a LLP.

(a) A Non-resident Indian (NRI) or an Overseas Citizen of India (OCI), including a company, a
trust and a partnership firm incorporated outside India and owned and controlled by NRIs or
OCIs, may purchase or contribute, as the case may be, on non-repatriation basis the
following, namely:-
(i) a equity instrument issued by a company without any limit either on the stock exchange or
outside it;
(ii) units issued by an investment vehicle without any limit, either on the stock exchange or
outside it;
(iii) The capital of a Limited Liability Partnership without any limit;
(iv) convertible notes issued by a startup company in accordance with these rules.
(b) The investment detailed at sub-paragraph (a) of paragraph (1) above shall be deemed to be
domestic investment at par with the investment made by residents.
(2) Purchase or sale of units of domestic mutual funds

A Non-resident Indian (NRI) or an Overseas Citizen of India (OCI) may without limit
purchase or sell units of domestic mutual funds on non-repatriation basis which invest more
than 50% in equity.
(3) Prohibition on purchase of equity instruments of certain companies.
B. Investment in a firm or a proprietary concern.

(1) Contribution to capital of a firm or a proprietary concern.
A NRI or an OCI may invest on a non-repatriation basis, by way of contribution to the
capital of a firm or a proprietary concern in India provided such firm or proprietary concern
is not engaged in any agricultural or plantation activity or print media or real estate business.
(2) The mode of payment and attendant conditions for remittance of sale or maturity proceeds
shall be specified by the Reserve Bank.
Note: A NRI or an OCI may trade or invest in all exchange traded derivative contracts
approved by the Securities and Exchange Board of India.
TRANSFER BY NRI
A NRI or an OCI or an eligible investor holding equity instruments or units of an Indian

company on a non- repatriation basis may transfer the same to a person resident outside
India by way of gift with the prior approval of the Reserve Bank of India, in the manner
prescribed, and subject to the following conditions, namely:-
(i) the donee is eligible to hold such a security under relevant Schedules of these rules;
(ii) the gift does not exceed five percent of the paid up capital of the Indian company or each
mutual fund scheme;
(iii) the applicable sectoral cap in the Indian company is not breached;
(iv) the donor and the donee shall be “relatives” within the meaning in clause (77) of section 2
of the Companies Act, 2013;
(v) the value of security to be transferred by the donor together with any security transferred to
any person residing outside India as gift during the financial year does not exceed the rupee
equivalent of USD 50000;
(vi) such other conditions as may be considered necessary in public interest by the Central
Government.
INVESTMENT BY FOREIGN VENTURE CAPITAL INVESTORS
(1) Subject to the terms and conditions as may be laid down by the Central Government, a
Foreign Venture Capital Investor (FVCI) may purchase, -
(i) securities, issued by an Indian company engaged in any sector
(ii) units of a Venture Capital Fund (VCF) or of a Category I Alternative Investment Fund
(iii) equity or equity linked instrument or debt instrument issued by an Indian ‘start-up’
irrespective of the sector in which the start-up is engaged.
(2) A FVCI may purchase the securities or instruments mentioned above either from the issuer
of these securities/ instruments or from any person holding these securities or instruments. The
FVCI may invest in securities on a recognised stock exchange subject to the provisions of the
Securities and Exchange Board of India (FVCI) Regulations, 2000.
(3) The FVCI may acquire, by purchase or otherwise, from, or transfer, by sale or otherwise, to,
any person resident in or outside India, any security or instrument it is allowed to invest in,
at a price that is mutually acceptable to the buyer and the seller/ issuer. The FVCI may also
receive the proceeds of the liquidation of VCFs or of Cat-I AIFs or of schemes or funds set
up by the VCFs or Cat-I AIFs.
(4) The mode of payment and other attendant conditions for remittance of sale or maturity
proceeds shall be specified by the Reserve Bank of India
(5) List of sectors in which a Foreign Venture Capital Investor is allowed to invest is as follows:-
(a) biotechnology;
(b) IT related to hardware and software development;
(c) nanotechnology;
(d) seed research and development;
(e) research and development of new chemical entities in pharmaceutical sector.
(f) dairy industry;
(g) poultry industry;
(h) production of bio-fuels;
(i) hotel-cum-convention centres with seating capacity of more than three thousand;
Remittance of sale proceeds:

(a) No remittance of sale proceeds of an Indian security held by a person resident outside India
shall be made otherwise than in accordance with these rules, the conditions prescribed in the
relevant Schedule and as specified by the Reserve Bank.
(b) An authorised dealer may allow the remittance of sale proceeds of a security (net of
applicable taxes)
to the seller of shares resident outside India :
DOWNSTREEM INVESTMENT
Indian entity which has received indirect foreign investment shall comply with the entry
route, sectoral caps, pricing guidelines and other attendant conditions as applicable for foreign
investment.
(1) Guidelines for calculating total foreign investment in Indian companies are as follows,-
(a) any equity holding by a person resident outside India resulting from conversion of any debt
instrument under any arrangement shall be reckoned for total foreign investment;
(b) FCCBs and DRs having underlying of instruments in the nature of debt shall not be reckoned
for total foreign investment;
(c) the methodology for calculating total foreign investment shall apply at every stage of
investment in Indian companies and thus in each and every Indian company;
(d) indirect foreign investment received by a wholly owned subsidiary of an Indian company shall
be limited to the total foreign investment received by the company making the downstream
investment.
(2) Downstream investment that is treated as indirect foreign investment for the investee entity
shall be subject to the following conditions, namely:-
(a) downstream investment shall have the approval of the Board of Directors as also a
shareholders’ Agreement, if any;
(b) for the purpose of downstream investment, the Indian entity making the downstream
investment shall bring in requisite funds from abroad and not use funds borrowed in the
domestic markets and the downstream investments may be made through internal accruals
and for this purpose, internal accruals shall mean profits transferred to reserve account after
payment of taxes. Further raising of debt and its utilisation shall be in compliance with the
Act, rules or regulations made thereunder.
(3) Equity instrument of an Indian company held by another Indian company which has received
foreign investment and is not owned and not controlled by resident Indian citizens or is
owned or controlled by persons resident outside India may be transferred to-
(a) a person resident outside India, subject to the reporting requirements as specified by the
Reserve Bank.
(b) a person resident in India subject to adherence to pricing guidelines;
(c) an Indian company which has received foreign investment and is not owned and not
controlled by resident Indian citizens or owned or controlled by persons resident outside India.
ACQUISITION AND TRANSFER OF IMMOVABLE PROPERTY IN INDIA
Rule 24 of Foreign Exchange Management (Non-debt Instruments) Rules, 2019 provides that
a NRI or an OCI may -
(a) Acquire immovable property in India other than an agricultural land or farm house or plantation
property: Provided that the consideration, if any, for transfer, shall be made out of:
(i) funds received in India through banking channels by way of inward remittance from any
place outside India ; or
(ii) funds held in any non-resident account maintained in accordance with the provisions of the
Act, rules or regulations framed thereunder:
(b) Acquire any immovable property in India other than agricultural land or farm house or
plantation property by way of gift from a person resident in India or from an NRI or from an
OCI, who in any case is a relative as defined in clause (77) of section 2 of the Companies
Act, 2013;
(c) Acquire any immovable property in India by way of inheritance from a person resident outside
India who had acquired such property:-
(i) in accordance with the provisions of the foreign exchange law in force at the time of
acquisition by him or the provisions of these rules ;or
(ii) from a person resident in India;
(d) transfer any immovable property in India to a person resident in India;
(e) transfer any immovable property other than agricultural land or farm house or plantation
property to an NRI or an OCI.
N FOREIGN EXCHANGE MANAGEMENT (MODE OF PAYMENT AND REPORTING OF NON-

DEBT INSTRUMENTS) REGULATIONS, 2019
MODES OF PAYMENT AND REPARTRIATION OF SALE PROCEEDS
Mode of payment:
(1) The amount of consideration shall be paid as inward remittance from abroad through banking
channels or out of funds held in NRE/FCNR(B)/Escrow account maintained in accordance
with the Foreign Exchange Management (Deposit) Regulations, 2016.

Explanation: The amount of consideration shall include:
(i) Issue of equity shares by an Indian company against any funds payable by it to the investor
(ii) Swap of equity instruments.
(2) Equity instruments shall be issued to the person resident outside India making such
investment within sixty days from the date of receipt of the consideration.
(3) Where such equity instruments are not issued within sixty days from the date of receipt of
the consideration the same shall be refunded to the person concerned by outward remittance
through banking channels or by credit to his NRE/ FCNR (B) accounts, as the case may be
within fifteen days from the date of completion of sixty days.
(4) An Indian company issuing equity instruments under this Schedule may open a foreign currency
account with an Authorised Dealer in India in accordance with Foreign Exchange Management
(Foreign currency accounts by a person resident in India) Regulations, 2016.
Remittance of sale proceeds

The sale proceeds (net of taxes) of the equity instruments may be remitted outside India or
may be credited to the NRE/ FCNR (B) of the person concerned.
REPORTING REQUIREMENT
The reporting requirement for any Investment in India by a person resident outside India
shall be as follows:
(1) Form Foreign Currency-Gross Provisional Return (FC-GPR): An Indian Company issuing
equity instruments to a person resident outside India and where such issue is reckoned as
Foreign Direct Investment, defined under the rules, shall report such issue in Form FC-GPR,
not later than thirty days from the date of issue of equity instruments. Issue of ‘participating
interest/rights’ in oil fields shall be reported in Form FC-GPR.
(2) Annual Return on Foreign Liabilities and Assets (FLA): An Indian Company which has
received FDI or an LLP which has received investment by way of capital contribution in the
previous year including the current year, shall submit form FLA to the Reserve Bank on or
before the 15th day of July of each year.
(3) Form Foreign Currency-Transfer of Shares (FC-TRS):

(a) Form FCTRS shall be filed for transfer of equity instruments in accordance with the rules,
between:
i. a person resident outside India holding equity instruments in an Indian company on a
repatriable basis and person resident outside India holding equity instruments on a non-
repatriable basis; and
ii. a person resident outside India holding equity instruments in an Indian company on a
repatriable basis and a person resident in India,
The onus of reporting shall be on the resident transferor/transferee or the person resident
outside India holding equity instruments on a non-repatriable basis, as the case may be.
Note: Transfer of equity instruments in accordance with the rules by way of sale between a
person resident outside India holding equity instruments on a non-repatriable basis and
person resident in India is not required to be reported in Form FC-TRS.
(b) Transfer of equity instruments on a recognised stock exchange by a person resident outside
India shall be reported by such person in Form FC-TRS.
(c) Transfer of equity instruments prescribed in Rule 9(6) of the Rules, shall be reported in
Form FC-TRS on receipt of every tranche of payment. The onus of reporting shall be on the
resident transferor/ transferee.
(d) Transfer of ‘participating interest/rights’ in oil fields shall be reported Form FC-TRS.
The form FCTRS shall be filed within sixty days of transfer of equity instruments or
receipt/remittance of funds whichever is earlier.
(4) Form Employees’ Stock Option (ESOP): An Indian company issuing employees’ stock option
to persons resident outside India who are its employees/directors or employees/directors of its
holding company/joint venture / wholly owned overseas subsidiary/subsidia ries shall file Form-
ESOP, within 30 days from the date of issue of employees’ stock option.
(5) Form Depository Receipt Return (DRR): The Domestic Custodian shall report in Form DRR,
the issue / transfer of depository receipts issued in accordance with the Depository Receipt
Scheme, 2014 within 30 days of close of the issue.
(6) Form LLP (I): A Limited Liability Partnerships (LLP) receiving amount of consideration for
capital contribution and acquisition of profit shares shall file Form LLP (I), within 30 days
from the date of receipt of the amount of consideration.
(7) Form LLP (II): The disinvestment/transfer of capital contribution or profit share between a
resident and a non-resident (or vice versa) shall be filed in Form LLP(II) within 60 days
from the date of receipt of funds. The onus of reporting shall be on the resident
transferor/transferee.
(8) LEC(FII): The Authorised Dealer Category I banks shall report to the Reserve Bank in Form
LEC (FII) the purchase/transfer of equity instruments by FPIs on the stock exchanges in
India.
(9) LEC(NRI): The Authorised Dealer Category I banks shall report to the Reserve Bank in Form
LEC (NRI) the purchase/transfer of equity instruments by Non-Resident Indians or Overseas
Citizens of India on stock exchanges in India.
(10) Form InVI: An Investment vehicle which has issued its units to a person resident outside
India shall file Form InVI within 30 days from the date of issue of units.
(11) Downstream Investment

a. An Indian entity or an investment vehicle making downstream investment in another Indian
entity which is considered as indirect foreign investment for the investee Indian entity in
terms of the Rules, shall notify the Secretariat for Industrial Assistance, DPIIT within 30
days of such investment, even if equity instruments have not been allotted, along with the
modality of investment in new/existing ventures (with/without expansion programme).
b. Form DI: An Indian entity or an investment Vehicle making downstream investment in
another Indian entity which is considered as indirect foreign investment for the investee
Indian entity in terms of Rule 22 of the Rules shall file Form DI with the Reserve Bank
within 30 days from the date of allotment of equity instruments.
(12) Form Convertible Notes (CN):

a. The Indian Start-up Company issuing Convertible Notes to a person resident outside India
shall file Form CN within 30 days of such issue.
b. A person resident in India, who may be a transferor or transferee of Convertible Notes issued
by an Indian start-up company shall report such transfers to or from a person resident
outside India, as the case may be, in Form CN within 30 days of such transfer.
FOREIGN EXCHANGE MANAGEMENT (DEBT INSTRUMENTS) REGULATIONS, 2019
 No person resident outside India shall make any investment in India.

 Indian entity or a mutual fund, or a venture capital fund or a firm or an association of
persons or a proprietary concern shall not receive any investment in India from a person
resident outside India or record such investment in its books.
 any investment made by a person resident outside India shall be subject to the entry routes,
the investment limits and the attendant conditionalities for such investment as laid down.
PURCHASE AND SALE OF DEBT INSTRUMENT BY PERSON RESIDENT OUTSIDE INDIA
PERMISSION TO PERSON’S RESIDENT OUTSIDE INDIA
A. PERMISSION TO FOREIGN PORTFOLIO INVESTORS (FPIS)

An FPI may purchase the following debt instruments on repatriation basis subject to the
terms and conditions specified by the Securities and Exchange Board of India and the
Reserve Bank
a) dated Government securities/ treasury bills;
b) non-convertible debentures/ bonds issued by an Indian company;
c) commercial papers issued by an Indian company;
d) units of domestic mutual funds or Exchange-Traded Funds (ETFs) which invest less than or
equal to 50 percent in equity;
e) Security Receipts (SRs) issued by Asset Reconstruction Companies;

f) debt instruments issued by banks, eligible for inclusion in regulatory capital;
g) Credit enhanced bonds;
h) Listed non-convertible/ redeemable preference shares or debentures issued in terms of
Regulation 6 of these Regulations;
i) Securitised debt instruments, including (i) any certificate or instrument issued by a special
purpose vehicle (SPV) set up for securitisation of asset/s with banks, Financial Institutions or
NBFCs as originators;
j) Rupee denominated bonds/ units issued by Infrastructure Debt Funds;
k) Municipal Bonds
B. PERMISSION TO NON-RESIDENT INDIANS (NRIS) OR OVERSEAS CITIZENS OF INDIA

(OCIS) – REPATRIATION BASIS
A Non-resident Indian (NRI) or an Overseas Citizen of India (OCI) may, without limit,
purchase the following
instruments on repatriation basis,
a. Government dated securities (other than bearer securities) or treasury bills or units of
domestic mutual funds or Exchange-Traded Funds (ETFs) which invest less than or equal to
50 percent in equity;
b. Bonds issued by a Public Sector Undertaking (PSU) in India;
c. Bonds issued by Infrastructure Debt Funds;
d. Listed non-convertible/ redeemable preference shares or debentures issued in terms of
Regulation 6 of these Regulations;
C. PERMISSION TO NON-RESIDENT INDIANS (NRIS) OR OVERSEAS CITIZENS OF INDIA

(OCIS) – NON-REPATRIATION BASIS .
(1) An NRI or an OCI may, without limit, purchase on non-repatriation basis, listed non-
convertible/ redeemable preference shares or debentures issued in terms of Regulation 6 of these
Regulations.
(2) An NRI or an OCI may, without limit, on non-repatriation basis subscribe to the chit funds
authorised by the Registrar of Chits or an officer authorised by the State Government in this
behalf.
D. PERMISSION TO FOREIGN CENTRAL BANKS OR A MULTILATERAL DEVELOPMENT BANK

FOR PURCHASE OF GOVERNMENT SECURITIES
(1) Foreign Central Banks, Multilateral Development Banks or any other entity permitted by the
Reserve Bank, may purchase or sell dated Government Securities/treasury bills, as per terms
and conditions specified by the Reserve Bank.
Mode of Payment
(1) The amount of consideration for purchase of instruments by FPIs shall be paid out of inward
remittance from abroad through banking channels or out of funds held in a foreign currency
account and/ or Special Non- Resident Rupee (SNRR) account maintained in accordance with
the Foreign Exchange Management (Deposit) Regulations, 2016. The foreign currency account
and SNRR account shall be used only and exclusively for transactions under this Schedule.
REMIITANCE OF SALE / MATURITY PROCEEDS
(1) The sale/ maturity proceeds (net of taxes) of instruments held by Foreign Portfolio Investors
(FPIs) may be remitted outside India or may be credited to the foreign currency account or SNRR
account of the FPI.
(2) The net sale/ maturity proceeds (net of taxes) of instruments held by NRIs or OCIs, may be:
a) Credited to the NRO account person concerned where the instruments were held on non-
repatriation basis
b) Credited to the NRO account person concerned where the payment for the purchase of the
instruments sold was made out of funds held in NRO account, or
c) Remitted abroad or at the NRI/ OCI investor’s option, credited to his NRE/ FCNR (B)/ NRO
account, where the instruments were purchased on repatriation basis.
CS- EXE Economic Business and Commercial Laws ODI
CHAPTER 6- OVERSEAS DIRECT INVESTMENTS (ODI)
INTRODUCTION
Overseas investments (or financial commitment) in Joint Ventures (JV) and Wholly Owned
Subsidiaries (WOS) have been recognized as important avenues for promoting global reach of
Indian entrepreneurs
DEFINITION
1. "Financial Commitment" means the amount of direct investment by way of contribution to

equity, loan and 100 per cent of the amount of guarantees and 50 per cent of the
performance guarantees issued by an Indian Party to or on behalf of its overseas Joint
Venture Company or Wholly Owned Subsidiary.
2. Direct investment outside India means investments, either under the Automatic Route or the
Approval Route, by way of contribution to the capital or subscription to the Memorandum of
a foreign entity or by way of purchase of existing shares of a foreign entity either by market
purchase or private placement or through stock exchange, signifying a long-term interest in
the foreign entity
3. A foreign entity is termed as JV of the Indian Party when there are other foreign promoters
holding the stake along with the Indian Party. In case of WOS entire capital is held by the
one or more Indian Company.
4. "Joint Venture (JV)"/ "Wholly Owned Subsidiary (WOS)" means a foreign entity formed,
registered or incorporated in accordance with the laws and regulations of the host country in
which the Indian party makes a direct investment.
INVESTMENT IN JV/ WOS
An Indian Party has been permitted to make investment / undertake financial commitment
in overseas Joint Ventures (JV) / Wholly Owned Subsidiaries (WOS), as per the ceiling
prescribed by the Reserve Bank from time to time.
“Indian Party” means a company incorporated in India or a body created under an Act of
Parliament or a partnership firm registered under the Indian Partnership Act, 1932, or a
Limited Liability Partnership (LLP), registered under the Limited Liability Partnership Act,
2008, making investment in a Joint Venture or Wholly Owned Subsidiary abroad, and includes
any other entity in India as may be notified by the Reserve Bank. When more than one such
company, body or entity makes investment in the foreign JV / WOS, such combination will
also form an “Indian Party”.
The total financial commitment of the Indian Party in all the Joint Ventures / Wholly Owned
Subsidiaries shall comprise of the following:
a. 100% of the amount of equity shares and/ or Compulsorily Convertible Preference Shares
(CCPS);
b. 100% of the amount of other preference shares;
c. 100% of the amount of loan;
d. 100% of the amount of guarantee (other than performance guarantee) issued by the Indian
Party;
e. 100% of the amount of bank guarantee issued by a resident bank on behalf of JV or WOS of
the Indian Party provided the bank guarantee is backed by a counter guarantee / collateral by
the Indian Party.
f. 50% of the amount of performance guarantee issued by the Indian Party provided that if the
outflow on account of invocation of performance guarantee results in the breach of the limit
of the financial commitment in force, prior permission of the Reserve Bank is to be obtained
before executing remittance beyond the limit prescribed for the financial commitment.
PERMISSIBLE SOURCES FOR FUNDING OVERSEAS DIRECT INVESTMENT
i. Drawal of foreign exchange from an AD bank in India.

ii. Swap of shares (refers to the acquisition of the shares of an overseas JV / WOS by way of
exchange of the shares of the Indian party).
iii. Capitalization of exports and other dues and entitlements.
iv. Proceeds of External Commercial Borrowings / Foreign Currency Convertible Bonds.
v. In exchange of ADRs / GDRs issued in accordance with the Scheme for issue of Foreign
Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism)
Scheme, 1993 and the guidelines issued by Government of India in the matter.
vi. Balances held in Exchange Earners Foreign Currency account of the Indian Party maintained
with an Authorized Dealer.
vii. Proceeds of foreign currency funds raised through ADR / GDR issues.
Indian company making investment in a JV/WOS abroad in the financial services sector
Only an Indian company engaged in financial services sector activities can make investment
in a JV/WOS abroad in the financial services sector, provided it fulfills the following
additional conditions:
i. has earned net profit during the preceding three financial years from the financial services
activities;
ii. is registered with the appropriate regulatory authority in India for conducting financial
services activities;
iii. has obtained approval for undertaking such activities from the concerned regulatory
authorities both in India and abroad before venturing into such financial activity;
iv. has fulfilled the prudential norms relating to capital adequacy as prescribed by the concerned
regulatory authority in India;
OVERSEAS INVESTMENT BY PROPRIETORSHIP CONCERNS AND REGISTERED

TRUST/SOCIETY
PROPRIETORSHIP CONCERN
The proposal for overseas direct investment (or financial commitment), by a proprietorship
concern / unregistered partnership firm in India are to be considered by the Reserve Bank
under the approval route are subject to following terms and conditions:
(a) The proprietorship concern / unregistered partnership firm in India is classified as ‘Status
Holder’ as per the Foreign Trade Policy issued by the Ministry of Commerce and Industry,
Government of India from time to time;
(b) The proprietorship concern / unregistered partnership firm in India has a proven track record,
i.e., the export outstanding does not exceed 10% of the average export realisation of
preceding three years and a consistently high export performance;
(c) The Authorised Dealer bank is satisfied that the proprietorship concern / unregistered
partnership firm in India is KYC (Know Your Customer) compliant, engaged in the proposed
business and has turnover as indicated;
(d) The proprietorship concern / unregistered partnership firm in India has not come under the
adverse notice of any Government agency like the Directorate of Enforcement, Central Bureau
of Investigation, Income Tax Department, etc. and does not appear in the exporters' caution
list of the Reserve Bank or in the list of defaulters to the banking system in India; and
(e) The amount of proposed investment (or financial commitment) outside India does not exceed
10 per cent of the average of last three years’ export realisation or 200 per cent of the net
owned funds of the proprietorship concern/ unregistered partnership firm in India, whichever
is lower.
REGISTERED TRUST AND SOCIETIES
Registered Trusts and Societies engaged in manufacturing/ educational/ hospital sector are
allowed to make investment (or financial commitment) in the same sector(s) in a JV/WOS
outside India, with the prior approval of the Reserve Bank.
Eligibility Criteria for Trust
(i) The Trust should be registered under the Indian Trust Act, 1882;
(ii) The Trust deed permits the proposed investment overseas;
(iii) The proposed investment should be approved by the trustee/s;
(iv) The AD Category – I bank is satisfied that the Trust is KYC (Know Your Customer)
compliant and is engaged in a bonafide activity;
(v) The Trust has been in existence at least for a period of three years;
(vi) The Trust has not come under the adverse notice of any Regulatory / Enforcement agency
like the Directorate of Enforcement, Central Bureau of Investigation (CBI), etc.
Eligibility Criteria for Society

(i) The Society should be registered under the Societies Registration Act, 1860.
(ii) The Memorandum of Association and rules and regulations permit the Society to make the
proposed investment which should also be approved by the governing body/council or a
managing/executive committee.
(iii) The AD Category - I bank is satisfied that the Society is KYC (Know Your Customer)
compliant and is engaged in a bonafide activity;
(iv) The Society has been in existence at least for a period of three years;
(v) The Society has not come under the adverse notice of any Regulatory / Enforcement agency
like the Directorate of Enforcement, CBI etc.
• In addition to registration, the AD Category – I bank should ensure that the special license /
permission has been obtained by the applicant in case the activities require special license /
permission either from the Ministry of Home Affairs, Government of India or from the
relevant local authority, as the case may be.
• An application in form ODI may be made to the Chief General Manager, Reserve Bank of
India, Foreign Exchange Department, Overseas Investment Division, through the AD Category
- I bank.
• AD Category - I banks may forward the application to the Reserve Bank, after ensuring the
above terms and conditions along with their comments and recommendations, for
consideration.
ACQUISITION/SALE OF FOREIGN SECURITIES BY RESIDENT INDIVIDUAL IN INDIA
Resident individuals can acquire/sell foreign securities without prior approval in the following
cases: ─
i. As a gift from a person resident outside India;
ii. By way of ESOPs issued by a company incorporated outside India under Cashless Employees
Stock Option Scheme which does not involve any remittance from India;
iii. By way of ESOPs issued to an employee or a director of Indian office or branch of a foreign
company or of a subsidiary in India of a foreign company or of an Indian company
irrespective of the percentage of the direct or indirect equity stake in the Indian company;
iv. As inheritance from a person whether resident in or outside India;
v. By purchase of foreign securities out of funds held in the Resident Foreign Currency Account
maintained in accordance with the Foreign Exchange Management (Foreign Currency
Account) Regulations, 2000; and
vi. By way of bonus/rights shares on the foreign securities already held by them.
Reserve Bank has given general permission to a resident individual to acquire foreign
securities to the extent of the minimum number of qualification shares required to be held
for holding the post of Director.
INDIAN MUTUAL FUND FOR INVESTMENT ABROAD
Indian Mutual Funds registered with SEBI are permitted to invest within the overall cap of
USD 7 billion in:
a. ADRs / GDRs of the Indian and foreign companies;
b. Equity of overseas companies listed on recognized overseas stock exchanges; initial and follow
on public offerings for listing at recognized overseas stock exchanges;
c. Foreign debt securities- short term as well as long term with rating not below investment
grade - in the countries with fully convertible currencies;
d. Money market investments not below investment grade; repos where the counter party is not
below investment grade;
e. Government securities where countries are not rated below investment grade;
f. Derivatives traded on recognized stock exchanges overseas only for hedging and portfolio
balancing with underlying as securities;
g. Short term deposits with banks overseas where the issuer is rated not below investment
grade; and
h. Units / securities issued by overseas Mutual Funds or Unit Trusts registered with overseas
regulators.
Obligation of Indian party who has made direct Investment abroad

An Indian Party which has made direct investment outside India is required to comply with
the following: -
(i) Receive share certificates or any other documentary evidence of investment in the foreign JV
/ WOS as an evidence of investment and submit the same to the designated AD within 6
months;
(ii) Repatriate to India, all dues receivable from the foreign JV / WOS, like dividend, royalty,
technical fees etc.;
(iii) Submit to the Reserve Bank through the designated Authorized Dealer, every year, an Annual
Performance Report in Part III of Form ODI in respect of each JV or WOS outside India set
up or acquired by the Indian party.
(iv) Report the details of the decisions taken by a JV/WOS regarding diversification of its
activities /setting up of step-down subsidiaries/alteration in its share holding pattern within

30 days of the approval of those decisions by the competent authority concerned of such
JV/WOS in terms of the local laws of the host country. These are also to be included in the
relevant Annual Performance Report; and
(v) In case of disinvestment, sale proceeds of shares/securities are to be repatriated to India
immediately on receipt thereof and in any case not later than 90 days from the date of sale
of the shares /securities and documentary evidence to this effect is to be submitted to the
Reserve Bank through the designated Authorized Dealer.
(vi) Submit an Annual Performance Report (APR) in Form ODI Part III to the Reserve Bank by
30th of June every year in respect of each Joint Venture (JV) / Wholly Owned Subsidiary
(WOS) outside India set up or acquired by the Indian Party/Resident Individual.
CS- EXE Economic Business and Commercial Laws LRS
CHAPTER 7 – LIBERALIZED REMITTANCE SCHEME
INTRODUCTION
 Liberalized Remittance Scheme permits the Authorized Dealers to freely allow remittances by
resident individuals up to USD 2,50,000 per Financial Year (April-March) for any permitted
current or capital account transaction or a combination of both.
 The Scheme is available to all resident individuals including minors.
 In case of remitter being a minor, the Form A2 must be countersigned by the minor’s
natural guardian.
 The Scheme is not available to corporates, partnership firms, HUF, Trusts etc.
 The LRS limit has been revised in stages consistent with prevailing macro and micro
economic conditions.
 Clubbing is not permitted by other family members for capital account transactions such as
opening a bank account/investment/purchase of property, if they are not the co-owners/co-
partners of the overseas bank account/ investment/property.
 Further, a resident cannot gift to another resident, in foreign currency, for the credit of the
latter’s foreign currency account held abroad under LRS.
 All other transactions which are otherwise not permissible under FEMA and those in the
nature of remittance for margins or margin calls to overseas exchanges/ overseas
counterparty are not allowed under the Scheme.
PERMISSIBLE TRANSACTIONS BY AN INDIVIDUAL UNDER LRS
 CAPITAL ACCOUNT TRANSACTION

1. Opening a foreign currency bank account abroad
2. Transferring money to own foreign currency accounts abroad
3. Purchasing property abroad
4. Making investments abroad
5. Purchasing object of Art subject to provisions of extant Foreign Trade Policy
6. Loans and gifts in Indian Rupees to NRI/PIO close relatives
7. Repayment of a loan abroad availed while you were a non-resident
Points to be noted for LRS

Banks are not permitted to offer any kind of credit facilities to facilitate Capital
Account remittances under LRS.
 CURRENT ACCOUNT TRANSACTION

The limit of USD 2,50,000 per Financial Year (FY) under the Scheme also
includes/subsumes remittances for current account transactions such as:
1. Private Visits to any country (except Bhutan and Nepal)

2. Gifts or donation
3. Going abroad for employment
4. Emigration
5. Maintenance of close relatives abroad. Relative as per Section 6 of the Companies Act
6. Business Trip
7. Medical Treatment abroad
8. Education abroad
Any other permissible current account transaction as per FEMA.
It may be noted that release of foreign exchange in excess of USD 2, 50,000, requires prior
permission from the Reserve Bank of India.
a. Private visits
For private visits abroad, other than visit to Nepal and Bhutan, resident individual can obtain
foreign exchange up to an aggregate amount of USD 2,50,000, from an Authorised Dealer, in
any one financial year, irrespective of the number of visits undertaken during the year.
b. Gift/donation
Any resident individual may remit up-to USD 2,50,000 in one Financial Year as gift to a
person residing outside India or as donation to an organization outside India.
c. Going abroad on employment

A person going abroad for employment can draw foreign exchange up to USD 2,50,000 per
Financial Year from any Authorised Dealer in India.
d. Emigration
A person wanting to emigrate can draw foreign exchange from AD Category I bank and AD
Category II up to the amount prescribed by the country of emigration or USD 250,000.
Remittance of any amount of foreign exchange outside India in excess of this limit may be
allowed only towards meeting incidental expenses in the country of immigration and not for
earning points or credits to become eligible for immigration by way of overseas investments
in government bonds; land; commercial enterprise; etc.
e. Maintenance of close relatives abroad

A resident individual can remit up-to USD 2,50,000 per Financial Year towards maintenance
of close relatives.
f. Business trip
For business trips to foreign countries, resident individuals can avail of foreign exchange up to
USD 2,50,000 in a Financial Year irrespective of the number of visits undertaken during the
year.
g. Medical treatment abroad

 Authorised Dealers may release foreign exchange up to an amount of USD 2,50,000 or its
equivalent per Financial Year without insisting on any estimate from a hospital/doctor.
 For amount exceeding the above limit, Authorised Dealers may release foreign exchange
under general permission based on the estimate from the doctor in India or hospital/ doctor
abroad.
 A person who has fallen sick after proceeding abroad may also be released foreign exchange
by an Authorised Dealer (without seeking prior approval of the Reserve Bank of India) for
medical treatment outside India.
In addition to the above, an amount up to USD 250,000 per financial year is allowed to a
person for accompanying as attendant to a patient going abroad for medical
treatment/check-up.
h. Facilities available to students for pursuing their studies abroad

AD Category I banks and AD Category II, may release foreign exchange up to USD 2,50,000
or its equivalent to resident individuals for studies abroad without insisting on any estimate
from the foreign University.
DOCUMENTS BY REMITTER
The resident individual is required to compulsorily designate a branch of an AD through which

all the remittances under the Scheme will be made. The resident individual seeking to make
the remittance should furnish Form A2 for purchase of foreign exchange under LRS.
It is mandatory to have PAN card to make remittances under the Scheme for capital account
transactions. However, PAN card need not be insisted upon for remittances made towards
permissible current account transactions up to USD 25,000.
Investor, who has remitted funds under LRS can retain, reinvest the income earned on the
investments. At present, the resident individual is not required to repatriate the funds or
income generated out of investments made under the Scheme.
REMITTANCE FACILITY TO PERSON OTHER THAN INDIVIDUAL
RBI approval is required if limit is crossed

 Gift/ Donation
General permission has been granted to persons other than individuals to remit towards
donations up-to one per cent of their foreign exchange earnings during the previous three
financial years or USD 5,000,000, whichever is less, for creation of Chairs in reputed
educational institutes,
(a) contribution to funds (not being an investment fund)

promoted by educational institutes; and
(a) contribution to a technical institution or body or

association in the field of activity of the donor Company.
(a) Any additional remittance in excess of the same shall

require prior approval of the Reserve Bank of India.
PROCEDURE FOR REMITTANCE
Applications for remittances for purposes other than those specified above may be forwarded
to the Reserve Bank of India together with
a) details of b) brief c) purpose of

their foreign background of the donation.
exchange the company’s
earnings during activities,
the last 3
years,
 Commission to agents abroad for sale of residential flat or commercial plots in India
Remittances by persons other than individuals is subject to prior approval of the Reserve
Bank of India if commission per transaction to agents abroad for sale of residential flats or
commercial plots in India exceeds USD 25,000 or five percent of the inward remittance
whichever is more.
 Remittance towards consultancy services

Remittances by persons other than individuals is subject to prior approval of the Reserve
Bank of India, if remittance exceeds USD 10,000,000 per project for any consultancy services
in respect of infrastructure projects and USD 1,000,000 per project, for other consultancy
services procured from outside India.
 Remittance towards reimbursement of pre incorporation expenses

Remittances by persons other than individuals are subject to prior approval of the Reserve
Bank of India if remittance exceed five per cent of investment brought into India or USD
100,000 whichever is higher, by an entity in India by way of reimbursement of pre-
incorporation expenses.
 Payment of fees in foreign currency- Embassy affiliated by educational institutions

Authorized Dealers may sell foreign exchange towards payment of fees to schools/educational
institutions under the administrative control of foreign embassies.
 Remittance towards payment of collected subscription to overseas TV media company

Authorised dealers may allow cable operators or collection agents in India of overseas TV
media companies, to remit subscription collected from subscribers in India/advertisement
charges collected from the advertisers who are eligible to advertise on overseas TV channels
without any prior permission from the Reserve Bank.
 Bids in foreign currency for projects to be executed in India

Persons resident in India are permitted to incur liability in foreign exchange and to make or
to receive payments in foreign exchange, in respect of global bids where the Central
Government has authorised such projects to be executed in India.
In such cases, authorized dealers may sell foreign exchange to the concerned resident Indian
company which has been awarded the contract.
 Sale of overseas telephone cards

Authorized Dealers may allow agents in India of the overseas organizations issuing pre-paid
telephone cards to remit the sale proceeds of such cards, net of their commission, to the
issuers of the telephone cards.
 Liberalization of foreign technical collaboration agreement

AD Category-I banks may permit drawal of foreign exchange by persons for payment of
royalty and lump- sum payment under technical collaboration agreements without the
approval of Ministry of Commerce and Industry, Government of India.
 Drawal of foreign exchange for remittance for purchase of trademark or franchise in

India
AD Category-I banks may permit drawal of foreign exchange by person for purchase of
trademark or franchise in India without approval of the Reserve Bank.
 Remittance for making tour arrangements by agents

 Authorised Dealers may effect remittances at the request of agents in India who have tie-up
arrangements with hotels/ agents etc., abroad for providing hotel accommodation or making
other tour arrangements for travel from India, provided the Authorised Dealer is satisfied that
the remittance is being made out of the foreign exchange purchased by the traveller
concerned from an Authorised Person (including exchange drawn for private travel abroad) in
accordance with the Rules, Regulations and Direction in force.
 Authorised Dealer may open foreign currency accounts in the name of agents in India who
have tie up arrangements with hotels/ agents, etc., abroad for providing hotel accommodation
or making other tour arrangements for travellers from India provided: -
(i) the credits to the account are by way of depositing: -
(a) collections made in foreign exchange from travellers; and
(b) refunds received from outside India on account of cancellation of bookings/tour arrangements
etc., and
(ii) the debits in foreign exchange are for making payments towards hotel accommodation, tour
arrangements etc., outside India.
 Authorised Dealer may also allow tour operators to remit the cost of rail/ road/
water/transportation charges outside India without any prior approval from Reserve Bank, n et
of commission/ mark up due to the agent. The sale of passes/ ticket in India can be made
either against the payment in Indian Rupees or in foreign exchange released for visits abroad.
 In respect of consolidated tours arranged by travel agents in India for foreign tourists visiting
India and neighbouring countries like Nepal, Bangladesh, Sri Lanka etc., against advance
payments/ reimbursement through an Authorised Dealer, part of the foreign exchange
received in India against such consolidated tour arrangement, may require to be remitted
from India to these neighbouring countries for services rendered by travel agents and
hoteliers in these countries. Authorised Dealer may allow such remittances after verifying
that the amount being remitted to the neighbouring countries (inclusive of remittances, if
any, already made against the tour) does not exceed the amount actually remitted to India
and the country of residence of the beneficiary is not Pakistan.
PROHIBITED TRANSACTIONS
CS- EXE Economic Business and Commercial Laws ECB
CHAPTER 8- EXTERNAL COMMERCIAL BORROWING
INTRODUCTION
ECBs are commercial loans raised by eligible resident entities from recognized non-resident
entities and should conform to parameters such as minimum maturity, permitted and non-
permitted end-uses, maximum all-in-cost ceiling, etc. These parameters apply in totality and
not on a standalone basis.
The framework for raising loans through ECB comprises the following two options:
Parameters Foreign Currency denominated Indian Rupee denominated ECB

ECB
Currency of Any freely convertible Foreign Indian Rupee (INR)

Borrowing Currency
Forms of
 Loans including bank loans; floating/
 Loans including bank loans;
ECB fixed rate notes/ bonds/ debentures
 floating/ fixed rate
(other than fully and notes/bonds/ debentures/
 compulsorily convertible preference shares ;
instruments); Trade credits beyond 3 Trade credits beyond 3 years; and
years; Financial Lease.
 Foreign Currency Convertible Bonds;
 Also, plain vanilla Rupee
Foreign Currency Exchangeable Bonds denominated bonds issued
and Financial Lease. overseas, which can be either
placed privately or listed on
It may be noted that Foreign Currency exchanges as per
Convertible Bonds (FCCBs) refers to
foreign currency denominated
instruments which are issued in
accordance with the Issue of Foreign host country regulations.

Currency Convertible Bonds and
Ordinary Shares (Through
Depositary Receipt Mechanism)
Scheme, 1993, as amended from time
to time. Issuance of FCCBs shall also
conform to other applicable
regulations. Further, FCCBs should be
without any warrants attached.
Eligible All entities eligible to receive Foreign a) All entities eligible to raise
Borrowers Direct Investment (FDI). Further, the Foreign Currency ECB; and
following entities are also eligible to b) Registered entities engaged in
raise ECB: micro-finance activities, registered
i. Port Trusts; Not for Profit companies,
registered societies/trusts/
ii. Units in SEZ; cooperatives and Non-Government
Organisations.
iii. SIDBI; and
iv. EXIM Bank of India.
AVAILABLE ROUTE FOR RAISING ECB
Automatic • The cases are examined by the Authorised

Dealer Category-I (AD Category-I) banks.
Route
• The prospective borrowers are required to
Approval Route send their requests to the RBI through their

ADs for examination.
Recognised Lenders
The lender should be resident of Financial Action Task Force (FATF) or International
Organisation of Securities Commission's IOSCO compliant country, including on transfer of
ECB. However,
a. Multilateral and Regional Financial Institutions where India is a member country will also be
considered as recognised lenders;
b. Individuals as lenders can only be permitted if they are foreign equity holders or for
subscription to bonds/debentures listed abroad; and
c. Foreign branches / subsidiaries of Indian banks are permitted as recognised lenders only for
Foreign Currency ECB (except FCCBs and FCEBs).
d. Foreign branches / subsidiaries of Indian banks, subject to applicable prudential norms, can
participate as arrangers/underwriters/market-makers/traders for Rupee denominated Bonds
issued overseas.
e. However, underwriting by foreign branches/subsidiaries of Indian banks for issuances by
Indian banks will not be allowed.
WHO IS FATF COMPLIANT COUNTRY?
FATF Compliant Country means a country that is a member of the Financial Action Task
Force (FATF) or a member of a FATF-Style Regional Body; and should not be a country
identified in the public statement of the FATF as
(i) A jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of
Terrorism deficiencies to which counter measures apply; or
(j) A jurisdiction that has not made sufficient progress in addressing the deficiencies or has
not committed to an action plan developed with the Financial Action Task Force to address
the deficiencies.
WHO CAN BE IOSCO COMPLIANT COUNTRY?
IOSCO Compliant Country means a country whose securities market regulator is a signatory to
the International Organisation of Securities Commission's (IOSCO’s) Multilateral Memorandum
of Understanding or a signatory to bilateral Memorandum of Understanding with the SEBI for
information sharing arrangements.
MINIMUM AVERAGE MATURITY PERIOD
The minimum average maturities are set out as under:
Category Minimum
Average
Maturity
Period
(MAMP)
ECB raised by manufacturing companies up to USD 50 million or its equivalent per 1 year
financial year
ECB raised from foreign equity holder for working capital purposes, general 5 years
corporate purposes or for repayment of Rupee loans. It may be noted that:
ECB cannot be raised from foreign branches / subsidiaries of Indian banks the
prescribed MAMP will have to be strictly complied with under all circumstances.
ECB raised for Working capital purposes or general corporate purposes on-lending 10 years
by NBFCs for working capital purposes or general corporate purposes. It may be
noted that:
(i) ECB cannot be raised from foreign branches / subsidiaries of Indian banks the
ECB raised for repayment of Rupee loans availed domestically for capital 7 years
expenditure on-lending by NBFCs for the same purpose.
It may be noted that:
ECB raised for repayment of Rupee loans availed domestically for purposes other 10 years
than capital expenditure on-lending by NBFCs for the same purpose.
It may be noted that:
ALL-IN-COST CEILING PER ANNUM
All-in-cost ceiling per annum is the Benchmark rate plus 450 bps spread.
 It may be noted that All-in-Cost includes rate of interest, other fees, expenses, charges,
guarantee fees, ECA charges, whether paid in foreign currency or INR but will not include
commitment fees and withholding tax payable in INR.
 In the case of fixed rate loans, the swap cost plus spread should not be more than the
floating rate plus the applicable spread.
 Additionally, for FCCBs, the issue related expenses should not exceed 4 per cent of the issue
size and in case of private placement, these expenses should not exceed 2 per cent of the
issue size, etc. Under Trade Credit (TC) Framework, all-in-cost shall include rate of interest,
other fees, expenses, charges, guarantee fees whether paid in foreign currency or INR.
Withholding tax payable in INR shall not be a part of all-in-cost. Various components of all-
in-cost have to be paid by the borrower without taking recourse to the drawdown of ECB/TC,
i.e., ECB/TC proceeds cannot be used for payment of interest/charges.
 Further, Benchmark rate in case of Foreign Currency ECB refers to 6-months LIBOR rate of
different currencies or any other 6-month interbank interest rate applicable to the currency
of borrowing, for eg., EURIBOR.
 Benchmark rate in case of Rupee denominated ECB/TC will be prevailing yield of the
Government of India securities of corresponding maturity.
OTHER COSTS
 Prepayment charge/ Penal interest, if any, for default or breach of covenants, should not be
more than 2 per cent over and above the contracted rate of interest on the outstanding
principal amount and will be outside the all-in-cost ceiling.
LIMIT AND LEVERAGE

 All eligible borrowers can raise ECB up to USD 750 million or equivalent per financial year
under the automatic route. Further, in case of Foreign Currency denominated ECB raised from
direct foreign equity holder, ECB liability-equity ratio for ECB raised under the automatic
route cannot exceed 7:1.
 However, this ratio will not be applicable if the outstanding amount of all ECB, including the
proposed one, is up to USD 5 million or its equivalent. Further, the borrowing entities will
also be governed by the guidelines on debt equity ratio, issued, if any, by the sectoral or
prudential regulator concerned.
END-USES (NEGATIVE LIST)
The negative list, for which the ECB proceeds cannot be utilised, would include the following:
 Real estate activities.
 Investment in capital market.
 Equity investment.
(i) Working capital purposes, except ECB raised from foreign equity holder for working
capital purposes, general corporate purposes or for repayment of Rupee loans and except
ECB raised for working capital purposes or general corporate purposes on-lending by
Non-Banking Financial Companies (NBFCs) for working capital purposes or general
corporate purposes.
 General corporate purposes, except in case of ECB raised from foreign equity holder for
working capital purposes, general corporate purposes or for repayment of Rupee loans and
except ECB raised for working capital purposes or general corporate purposes on-lending
by NBFCs for working capital purposes or general corporate purposes.
(i) Repayment of Rupee loans, except in case of ECB raised for repayment of Rupee loans
availed domestically for capital expenditure on-lending by NBFCs for the same purpose
and except ECB raised for repayment of Rupee loans availed domestically for purposes
other than capital expenditure on-lending by NBFCs for the same purpose.
On-lending to entities for the above activities, except in case of ECB raised by NBFCs
for working capital purposes or general corporate purposes on-lending by NBFCs for
working capital purposes or general corporate purposes and repayment of Rupee loans
availed domestically for capital expenditure on-lending by NBFCs for the same purpose
and except ECB raised for repayment of Rupee loans availed domestically for purposes
other than capital expenditure on-lending by NBFCs for the same purpose.
EXCHANGE RATE
Change of currency of Foreign Currency ECB into Indian Rupee ECB can be at the exchange
rate prevailing on the date of the agreement for such change between the parties concerned
or at an exchange rate, which is less than the rate prevailing on the date of the agreement,
if consented to by the ECB lender.
For conversion to Rupee, the exchange rate shall be the rate prevailing on the date of
settlement.
HEDGING PROVISION
The entities raising ECB are required to follow the guidelines for hedging issued, if any, by
the concerned sectoral or prudential regulator in respect of foreign currency exposure.
Infrastructure space companies shall have a Board approved risk management policy. Further,
such companies are required to mandatorily hedge 70 per cent of their ECB exposure in case
the average maturity of the ECB is less than 5 years. The designated AD Category-I bank
shall verify that 70 per cent hedging requirement is complied with during the currency of the
ECB and report the position to RBI through Form ECB 2.
The following operational aspects with respect to hedging should be ensured:
Coverage Tenor and rollover Natural Hedge
The ECB borrower will be  A minimum tenor of one Natural hedge, in lieu of
required to cover the year for the financial financial hedge, will be
principal as well as the hedge would be required considered only to the
coupon through financial with periodic rollover, duly extent of offsetting
hedges. ensuring that the exposure projected cash flows /
 The financial hedge for on account of ECB is not revenues in matching
all exposures on account of unhedged at any point currency, net of all other
ECB should start from the during the currency of the projected outflows.
time of each such exposure ECB.  For this purpose, an ECB
(i.e. the day the liability is may be considered
created in the books of the naturally hedged if the
borrower). offsetting exposure has the
maturity/cash flow within
the sameaccounting year.
 Any other arrangements/
structures, where revenues
are indexed to foreign
currency will not be
considered as a natural
hedge
CHANGE OF CURRENCY OF BORROWING
 Change of currency of ECB from one freely convertible foreign currency to any other freely
convertible foreign currency as well as to Indian Rupee is freely permitted.
 Change of currency from Indian Rupee to any freely convertible foreign currency is not
permitted.
ISSUANCE OF GUARANTEE, ETC. BY INDIAN BANKS AND FINANCIAL INSTITUTIONS
Issuance of any type of guarantee by Indian banks, All India Financial Institutions and NBFCs
relating to ECB is not permitted. Further, financial intermediaries (viz., Indian banks, All
India Financial Institutions, or Non- Banking Financial Companies) shall not invest in Foreign
Currency Convertible Bonds/ Foreign Currency Exchangeable Bonds in any manner
whatsoever.
PARKING OF ECB PROCEEDS
ECB proceeds are permitted to be parked abroad as well as domestically in the manner given
below:
Parking of ECB Parking of ECB

ECB proceeds meant only
proceeds proceeds ECB proceeds meant for
for foreign currency
abroad domestically Rupee expenditure should
expenditure can be parked
abroad pending utilisation. be repatriated immediately
for credit to their Rupee
accounts with AD Category
Till utilisation, these funds
I banks in India.
can be invested in the
following liquid assets (a)
deposits or Certificate of
Deposit or other products ECB borrowers are also
offered by banks rated not allowed to park ECB
less than AA (-) by proceeds in term deposits
Standard and Poor/Fitch with AD Category I banks
IBCA or Aa3 by Moody’s; in India for a maximum
(b) Treasury bills and period of 12 months
other monetary instruments cumulatively. These term
of one-year maturity having deposits should be kept in
minimum rating as unencumbered position.
indicated above and (c)
deposits with foreign
branches/subsidiaries of
Indian banks abroad.
CONVERSION OF EQUITY INTO ECB
Conversion of ECBs, including those which are matured but unpaid, into equity is permitted
subject to the following conditions:
(i) The activity of the borrowing company is covered under the automatic route for Foreign
Direct Investment (FDI) or approval route wherever applicable, for foreign equity participation
which has been obtained as per the extant FDI policy;
(ii) The conversion, which should be with the lender’s consent and without any additional cost,
will not result in breach of applicable sector cap on the foreign equity holding;
(iii) Applicable pricing guidelines for shares are complied with;
(iv) Reporting requirements under ECB framework are complied with;
(v) If the borrower concerned has availed of other credit facilities from the Indian banking
system, including overseas branches/subsidiaries, the applicable prudential guidelines issued by
the Department of Banking Regulation of RBI, including guidelines on restructuring are
complied with; and
(vi) Consent of other lenders, if any, to the same borrower is available or at least information
regarding conversions is exchanged with other lenders of the borrower.
EXCHANGE RATE FOR CONVERSION OF ECB DUES INTO EQUITY
For conversion of ECB dues into equity,

 the exchange rate prevailing on the date of the agreement between the parties concerned for
such conversion or
 any lesser rate can be applied with a mutual agreement with the ECB lender.
SECURITY FOR RAISING ECB
AD Category I banks are permitted to allow creation/cancellation of charge on immovable

assets, movable assets, financial securities and issue of corporate and/or personal guarantees
in favour of overseas lender / security trustee, to secure the ECB to be raised/ raised by the
borrower, subject to satisfying themselves that:
 the underlying ECB is in compliance with the extant ECB guidelines,

 there exists a security clause in the Loan Agreement requiring the ECB borrower to
create/cancel charge, in favour of overseas lender/security trustee, on immovable
assets/movable assets/financial securities/issuance of corporate and/or personal guarantee,
and
 No objection certificate, as applicable, from the existing lenders in India has been obtained in
case of creation of charge.
Once the aforesaid stipulations are met, the AD Category I bank may permit creation of
charge on immovable assets, movable assets, financial securities and issue of corporate and/or
personal guarantees, during the currency of the ECB with security co -terminating with
underlying ECB, subject to the following:
Creation of Charge on Immovable Assets: The arrangement shall be subject to the

following:
 Such security shall be subject to provisions contained in the Foreign Exchange Management
(Acquisition and Transfer of Immovable Property in India) Regulation 2017.
 The permission should not be construed as a permission to acquire immovable asset
(property) in India, by the overseas lender/ security trustee.
 In the event of enforcement / invocation of the charge, the immovable asset/ property will
have to be sold only to a person resident in India and the sale proceeds shall be repatriated
to liquidate the outstanding ECB.
Creation of Charge on Movable Assets: In the event of enforcement/ invocation of the

charge, the claim of the lender, whether the lender takes over the movable asset or
otherwise, will be restricted to the outstanding claim against the ECB. Encumbered movable
assets may also be taken out of the country subject to getting ‘No Objection Certificate’
from domestic
Creation of Charge over Financial Securities: The arrangements may be permitted subject
to the following:
 Pledge of shares of the borrowing company held by the promoters as well as in domestic
associate companies of the borrower is permitted. Pledge on other financial securities, viz.
bonds and debentures, Government Securities, Government Savings Certificates, deposit
receipts of securities and units of the Unit Trust of India or of any mutual funds, standing in
the name of ECB borrower/promoter, is also permitted.
 In addition, security interest over all current and future loan assets and all current assets
including cash and cash equivalents, including Rupee accounts of the borrower with ADs in
India, standing in the name of the borrower/promoter, can be used as security for ECB. The
Rupee accounts of the borrower/promoter can also be in the form of escrow arrangement or
debt service reserve account.
 In case of invocation of pledge, transfer of financial securities shall be in accordance with
the extant FDI/FII policy including provisions relating to sectoral cap and pricing as applicable
read with the Foreign Exchange Management (Transfer or Issue of Security by a Person
Resident outside India) Regulations, 2017, as amended from time to time.
Issue of Corporate or Personal Guarantee:

The arrangement shall be subject to the following:
 A copy of Board Resolution for the issue of corporate guarantee for the company issuing
such guarantee, specifying name of the officials authorised to execute such guarantees on
behalf of the company or in individual capacity should be obtained.
 Specific requests from individuals to issue personal guarantee indicating details of the ECB
should be obtained.
 Such security shall be subject to provisions contained in the Foreign Exchange Management
(Guarantees) Regulations, 2000, as amended from time to time.
 ECB can be credit enhanced / guaranteed / insured by overseas party/ parties only if it/ they
fulfil/s the criteria of recognised lender under extant ECB guidelines.
PROCEDURE FOR RAISING ECB
The procedure for raising ECB under approval route requires the borrowers to
 approach the RBI with an application in prescribed format Form ECB for examination through
their AD Category I bank.
 Such cases are considered keeping in view the overall guidelines, macroeconomic situation and
merits of the specific proposals.
 ECB proposals received in the Reserve Bank above certain threshold limit (refixed from time
to time) are placed before the Empowered Committee set up by the Reserve Bank.
 The Reserve Bank takes a final decision taking into account recommendation of the
Empowered Committee.
Entities desirous to raise ECB under the automatic route may approach an AD Category I
bank with their proposal along with duly filled in Form 83.
REPORTING REQUIREMENT
Borrowings under ECB Framework are subject to following reporting requirements:

1. Loan Registration Number (LRN):
 Any draw-down in respect of an ECB as well as payment of any fees / charges for raising
an ECB should happen only after obtaining the LRN from RBI.
 Copies of loan agreement for raising ECB are not required to be submitted to the Reserve
Bank.
2. Changes in terms and conditions of ECB:
 Permitted changes in ECB parameters should be reported to the DSIM by submitting revised
Form 83 at the earliest, in any case not later than 7 days from the changes effected. While
submitting revised Form 83 the changes should be specifically mentioned in the
communication.
3. Monthly Reporting of actual transactions:
 The borrowers are required to report actual ECB transactions through Form ECB 2 Return
through the AD Category I bank on monthly basis so as to reach Department of Statistics
and Information Management within seven working days from the close of month to which it
relates. Changes, if any, in ECB parameters should also be incorporated in Form ECB 2
Return.
4. Late Submission Fee (LSF) for delay in reporting:

 Any borrower, who is otherwise in compliance of ECB guidelines, can regularise the delay in
reporting of drawdown of ECB proceeds before obtaining LRN or delay in submission of Form
ECB 2 returns, by payment of prescribed late submission fees.
5. Standard Operating Procedure (SOP) for Untraceable Entities:

 The following SOP has to be followed by designated AD Category-I banks in case of
untraceable entities who are found to be in contravention of reporting provisions for ECB by
failing to submit prescribed return(s) under the ECB framework, either physically or
electronically, for past eight quarters or more.
6. Any borrower who has raised ECB will be treated as ‘untraceable entity’, if
entity/auditor(s)/director(s)/ promoter(s) of entity are not reachable/responsive/reply in
negative over email/letters/phone for a period of not less than two quarters with documented
communication/ reminders numbering 6 or more and it fulfills both of the following
conditions:
 Entity not found to be operative at the registered office address as per records available with
the AD Bank or not found to be operative during the visit by the officials of the AD Bank or
any other agencies authorised by the AD bank for the purpose;
 Entities have not submitted Statutory Auditor’s Certificate for last two years or more;
The followings actions are to be undertaken in respect of ‘untraceable entities’:
 File Revised Form ECB, if required, and last Form ECB 2 Return without certification from
company with ‘UNTRACEABLE ENTITY’ written in bold on top. The outstanding amount will
be treated as written-off from external debt liability of the country but may be retained by
the lender in its books for recovery through judicial/ non-judicial means;
 No fresh ECB application by the entity should be examined/processed by the AD bank;
 Directorate of Enforcement should be informed whenever any entity is designated
‘UNTRACEABLE ENTITY’; and
 No inward remittance or debt servicing will be permitted under auto route.
ECB FACILITY FOR OIL MARKETING COMPANIES
 Public Sector Oil Marketing Companies (OMCs) can raise ECB for working capital purposes
with minimum average maturity period of 3 years from all recognised lenders under the
automatic route without mandatory hedging and individual limit requirements.
 The overall ceiling for such ECB shall be USD 10 billion or equivalent. However, OMCs should
have a Board approved forex mark to market procedure and prudent r isk management policy,
for such ECB. All other provisions under the ECB framework will be applicable to such ECB.
ECB FACILITY FOR STARTUPS
AD Category-I banks are permitted to allow Startups to raise ECB under the automatic route
as per the following framework:
 Eligibility: An entity recognised as a Startup by the Central Government as on date of raising

ECB.
 Maturity: Minimum average maturity period will be 3 years.
 Recognised lender: Lender / investor shall be a resident of a FATF compliant country.
However, foreign branches/subsidiaries of Indian banks and overseas entity in which Indian
entity has made overseas direct investment as per the extant Overseas Direct Investment
Policy will not be considered as recognised lenders under this framework.
 Forms: The borrowing can be in form of loans or non-convertible, optionally convertible or
partially convertible preference shares.
 Currency: The borrowing should be denominated in any freely convertible currency or in
Indian Rupees (INR) or a combination thereof. In case of borrowing in INR, the non-resident
lender, should mobilise INR through swaps/outright sale undertaken through an AD Category-I
bank in India.
 Amount: The borrowing per Startup will be limited to USD 3 million or equivalent per financial
year either in INR or any convertible foreign currency or a combination of both.
 All-in-cost: Shall be mutually agreed between the borrower and the lender.
 End uses: For any expenditure in connection with the business of the borrower.
 Conversion into equity: Conversion into equity is freely permitted subject to Regulations
applicable for foreign investment in Startups.
 Security: The choice of security to be provided to the lender is left to the borrowing entity.
Security can be in the nature of movable, immovable, intangible assets (including patents,
intellectual property rights), financial securities, etc. and shall comply with foreign direct
investment / foreign portfolio investment / or any other norms applicable for foreign lenders
/ entities holding such securities.
Further, issuance of corporate or personal guarantee is allowed.
Guarantee issued by a non- resident(s) is allowed only if such parties qualify as lender
under ECB for Startups. However, issuance of guarantee, standby letter of credit, letter of
undertaking or letter of comfort by Indian banks, all India Financial Institutions and NBFCs is
not permitted.
 Hedging: The overseas lender, in case of INR denominated ECB, will be eligible to hedge its
INR exposure through permitted derivative products with AD Category – I banks in India. The
lender can also access the domestic market through branches/ subsidiaries of Indian banks
abroad or branches of foreign bank with Indian presence on a back to back basis. Startups
raising ECB in foreign currency, whether having natural hedge or not, are exposed to
currency risk due to exchange rate movements and hence are advised to ensure that they
have an appropriate risk management policy to manage potential risk arising out of ECB.
 Conversion rate: In case of borrowing in INR, the foreign currency - INR conversion will be
at the market rate as on the date of agreement.
 Other Provisions: Other provisions like parking of ECB proceeds, reporting arrangements,
powers delegated to AD banks, borrowing by entities under investigation, conversion of ECB
into equity will be as included in the ECB framework.
BORROWING BY ENTITIES UNDER INVESTIGATION
 All entities against which investigation / adjudication / appeal by the law enforcing agencies
for violation of any of the provisions of the Regulations under FEMA pending, may raise ECB
as per the applicable norms, if they are otherwise eligible.
 The borrowing entity shall inform about pendency of investigation / adjudication / appeal to
the AD Category-I bank / RBI.
ECB BY ENTITIES UNDER RESTRUCTURING/ ECB FACILITY FOR REFINANCING STRESSED

ASSETS
 An entity which is under a restructuring scheme/ corporate insolvency resolution process can
raise ECB only if specifically permitted under the resolution plan.
 Eligible corporate borrowers who have availed Rupee loans domestically for capital expenditure
in manufacturing and infrastructure sector and which have been classified as SMA -2 or NPA
can avail ECB for repayment of these loans under any one time settlement with lenders.
 Lender banks are also permitted to sell, through assignment, such loans to eligible ECB
lenders, provided, the resultant external commercial borrowing complies with all-in-cost,
minimum average maturity period and other relevant norms of the ECB framework. Foreign
branches/ overseas subsidiaries of Indian banks are not eligible to lend for the above
purposes. The applicable MAMP will have to be strictly complied with under all circumstances.
Eligible borrowers under the ECB framework, who are participating in the Corporate
Insolvency Resolution Process under Insolvency and Bankruptcy Code, 2016 as resolution
applicants, can raise ECB from all recognised lenders, except foreign branches/subsidiaries of
Indian banks, for repayment of Rupee term loans of the target company.
CS- EXE Economic Business and Commercial Laws FTP
CHAPTER 9- FOREIGN TRADE POLICIES AND PROCEDURE
INTRODUCTION
The FTP for 2015-2020 seeks to achieve the following objectives:
To provi de a stable and sustainable policy envi ronment for foreign trade in merchandise a nd s ervices
To l i nk rules, procedures and incentives for exports a nd i mports with other initiatives such as “Ma ke i n India”,
“Di gi tal India” and “Skills India” to create a n “Export Promotion Mission” for India
To promote the diversification of India’s export basket by helping va rious s ectors of the Indian economy to ga in
gl obal competitiveness with a vi ew to promoting exports
To crea te an architecture for India’s gl obal trade engagement with a vi ew to expanding i ts markets and better
i ntegrating with major regions, thereby i ncreasing the demand for India’s products a nd contributing to the
government’s flagship “Ma ke i n India” initiative
To provi de a mechanism for regular appraisal in order to ra tionalize i mports and reduce the trade
i mbalance
Foreign Trade Policy envisages:-
DEFINITIONS
"Accessory" or "Attachment" means a part, sub-assembly or assembly that contributes to

efficiency or effectiveness of a piece of equipment without changing its basic functions.
“Actual User” is a person (either natural or legal) who is authorized to use imported goods in
his/its own premise which has a definitive postal address.
"Actual User (Industrial)" is a person (either natural & legal) who utilizes imported goods for
manufacturing in his own industrial unit or manufacturing for his own use in another unit
including a jobbing unit which has a definitive postal address.
"Actual User (Non-Industrial)" is a person (either natural & legal) who utilizes the imported
goods for his own use in:
any commercial establishment, carrying on any business, trade or profession, which has a
definitive postal address; or
any laboratory, Scientific or Research and Development (R&D) institution, university or other
educational institution or hospital which has a definitive postal address; or any service industry
which has a definitive postal address.
"Consumables" means any item, which participates in or is required for a manufacturing

process, but does not necessarily form part of end-product. Items, which are substantially or
totally consumed during a manufacturing process, will be deemed to be consumables.
"Counter Trade" means any arrangement under which exports/imports from /to India are
balanced either by direct imports/exports from importing/exporting country or through a third
country under a Trade Agreement or otherwise. Exports/ Imports under Counter Trade may be
carried out through Escrow Account, Buy Back arrangements, Barter trade or any similar
arrangement. Balancing of exports and imports could wholly or partly be in cash, goods and/or
services.
"Developer" means a person or body of persons, company, firm and such other private or
government undertaking, who develops, builds, designs, organizes, promotes, finances, operates,
maintains or manages a part or whole of infrastructure and other facilities in SEZ as approved
by Central Government and also includes a co- developer.
"Development Commissioner" means Development Commissioner of Special Economic Zone

(SEZ).
"Domestic Tariff Area (DTA)" means area within India which is outside SEZs and Export
Oriented Undertaking (EOU)/Electronic Hardware Technology Park (EHTP)/Software Technology
Park (STP) Biotechnology Park (BTP).
"Drawback on deemed export” in relation to any goods manufactured in India and supplied as
deemed exports, means the rebate of duty or tax, as the case may be, chargeable on any
imported materials or excisable materials used or taxable services used as input services in the
manufacture of such goods.
"EOU" means Export Oriented Unit for which a letter of permit has been issued by
Development Commissioner.
“Free” as appearing in context of import/export policy for items means goods which do not
need any ‘Authorization’/ License or permission for being imported into the country or exported
out.
"Jobbing" means processing or working upon of raw materials or semi-finished goods supplied
to job worker, so as to complete a part of process resulting in manufacture or finishing of an
article or any operation which is essential for aforesaid process.
"Managed Hotel" means hotels managed by a three star or above hotel/ hotel chain under an
operating management contract for a duration of at least three years between operating hotel/
hotel chain and hotel being managed. Management contract must necessarily cover the entire
gamut of operations/ management of managed hotel.
"Manufacture" means to make, produce, fabricate, assemble, process or bring into existence,
by hand or by machine, a new product having a distinctive name, character or use and shall
include processes such as refrigeration, re-packing, polishing, labelling, Re-conditioning repair,
remaking, refurbishing, testing, calibration, re-engineering.
Manufacture, for the purpose of FTP, shall also include agriculture, aquaculture, animal
husbandry, floriculture, horticulture, pisciculture, poultry, sericulture, viticulture and mining.
“NC” means the Norms Committee in the Directorate General of Foreign Trade for approval of
adhoc input – output norms in cases where SION does not exist and recommend SION to be
notified in DGFT.
"Part" means an element of a sub-assembly or assembly not normally useful by itself, and not
amenable to further disassembly for maintenance purposes. A part may be a component, spare
or an accessory.
“Quota” means the quantity of goods of a specific kind that is permitted to be imported
without restriction or imposition of additional Duties.
"Registration-Cum-Membership Certificate" (RCMC) means certificate of registration and

membership granted by an Export Promotion Council/Commodity Board/Development Authority
or other competent authority as prescribed in FTP or Handbook of Procedures.
“SCOMET” is the nomenclature for dual use items of Special Chemicals, Organisms, Materials,
Equipment and Technologies (SCOMET). Export of dual-use items and technologies under
India’s Foreign Trade Policy is regulated. It is either prohibited or is permitted under an
authorization.
"Services" include all tradable services covered under General Agreement on Trade in Services
(GATS) and earning free foreign exchange. "Service Provider" means a person providing:
Supply of a ‘service’ from India to any other country; (Mode1- Cross border trade)
Supply of a ‘service’ from India to service consumer(s) of any other country; (Mode 2-
Consumption abroad)
Supply of a ‘service’ from India through commercial presence in any other country. (Mode 3 –
Commercial Presence.)
Supply of a ‘service’ from India through the presence of natural persons in any other country
(Mode 4- Presence of natural persons.)
"Ships" mean all types of vessels used for sea borne trade or coastal trade, and shall include
second hand vessels.
"Spares” means a part or a sub-assembly or assembly for substitution that is ready to replace
an identical or similar part or sub- assembly or assembly. Spares include a component or an
accessory.
"Status holder" means an exporter recognized as One Star Export House/ Two Star Export
House/Three Star Export House/Four Star Export House/ Five Star Export House by DGFT/
Development Commissioner.
“Stores” means goods for use in a vessel or aircraft and includes fuel and spares and other
articles of equipment, whether or not for immediate fitting.
"Supporting Manufacturer" is one who manufactures goods/products or any

part/accessories/components of a good/product for a merchant exporter or a manufacturer
exporter under a specific authorization.
“Supporting Manufacturer” for the EPCG Scheme shall be one in whose premises/factory
Capital Goods imported/ procured under EPCG authorization is installed.
GENERAL PROVISIONS REGARDING IMPORT AND EXPORTS
Exports and Imports - Free

Exports and Imports shall be ‘Free’ except when regulated by way of ‘prohibition’,
‘restriction’ or ‘exclusive trading through State Trading Enterprises (STEs)’
Indian Trade Classification (Harmonized System) of Import and Export

 ITC (HS) is a compilation of codes for all merchandise/goods for export/ import. Goods are
classified based on their group or sub-group at 2/4/6/8 digits.
 ITC (HS) is aligned at 6 digit level with international Harmonized System goods
nomenclature maintained by World Customs Organization. However, India maintains national
Harmonized System of goods at 8 digit level.
 The import/export policies for all goods are indicated against each item in ITC (HS).
Schedule 1 of ITC (HS) lays down the Import Policy regime while Schedule 2 of ITC (HS)
details the Export Policy regime.
Compliance of Imports with Domestic Laws

 Domestic Laws/ Rules are applicable to domestically produced goods unless specifically
exempted.
 However, goods to be utilized/ consumed in manufacture of export products, as notified by
DGFT, may be exempted from domestic standards/quality specifications.
 Authority (DGFT) may specify Procedure to be followed by importer and exporter
IMPORT AND EXPORT CODE (IE CODE)
a. An IEC is a 10-digit number allotted to a person that is mandatory for undertaking any
export/import activities. Now the facility for IEC in electronic form or e-IEC has also been
operationalized.
b. Application for obtaining IEC can be filed manually and submitting the form in the office of
Regional Authority (RA) of DGFT.
c. Alternatively, Exporters/Importers shall file an application in ANF 2A format for grant of e-
IEC. Those who have digital signatures can sign and submit the application online along with
the requisite documents.
d. Deficiency in the application form has to be removed by re-loging onto “Online IEC
application” on DGFT website and filling the form again by paying the requisite application
processing charges.
e. When an e-IEC is approved by the competent authority, applicant is informed through e-mail
that a computer-generated e-IEC is available on the DGFT website.
f. In case the applicant has digital signature, the application can also be submitted online and
no physical application or document is required. In case the applicant does not possess digital
signature, a print out of the application filed online duly signed by the applicant has to be
submitted to the concerned jurisdictional RA, in person or by post.
NO IMPORT/ EXPORT WITHOUT IEC
a. No export or import shall be made by any person without obtaining an IEC number unless
specifically exempted.
b. The following categories of importers or exporters are exempted from obtaining IEC.
IEC Number Exempted Categories:

Sl. No. Categories Exempted from obtaining IEC
(i) Importers covered by clause 3(1) [except sub- clauses (e) and (l)] and
exporters covered by clause 3(2) [except sub-clauses (i) and (k)] of Foreign
Trade (Exemption from application of Rules in certain cases) Order, 1993.
(ii) Ministries /Departments of Central or State Government
(iii) Persons importing or exporting goods for personal use not connected with trade
or manufacture or agriculture.
(iv) Persons importing/exporting goods from/to Nepal, Myanmar through Indo-
Myanmar border areas and China (through Gunji, Namgaya Shipkila and
Nathula ports), provided CIF value of a single consignment does not exceed
Indian Rs.25,000. In case of Nathula port, the applicable value ceiling will be
Rs. 1,00,000/-
Only one IEC is permitted against on Permanent Account Number (PAN). If any PAN card
holder has more than one IEC, the extra IECs shall be disabled.
MANDATORY DOCUMENTS
Mandatory documents required for export of goods from India:
Commercial
Bill of lading/ Shipping Bill/
Invoice cum
Airway Bill Bill of exports
Packing List
Mandatory documents required for import of goods into India
Bill of Commercial
lading/ Invoice cum Bill of entry
Airway Bill Packing List
PRINCIPLES OF RESTRICTIONS
Protection of public morals
Protection of human, animal or plant life or health
Protection of patents, trademarks and copyrights, and the prevention of deceptive practices
Prevention of use of prison labour
Protection of national treasures of artistic, historic or archaeological value
Conservation of exhaustible natural resources
Protection of trade of fissionable material or material from which they are derived
Prevention of traffic in arms, ammunition and implements of war
EXPORTS FROM INDIA SCHEMES
The objective of the Export from India Schemes is to provide rewards to exporters to offset
infrastructural inefficiencies and associated costs involved and to provide exporters a level
playing field.
There shall be following two schemes for exports of Merchandise and Services respectively:
Mercha ndise Exports

from India Scheme Servi ce Exports from India
Scheme (SEIS)
Nature or Rewards
a. Duty Credit Scrips shall be granted as rewards under MEIS and SEIS. The Duty Credit Scrips
and goods imported/domestically procured against them shall be freely transferable.
b. The Duty Credit Scrips can be used for:
i. Payment of Customs Duties for import of inputs or goods, except items listed in Appendix 3A
of Appendices and Aayat Niryat Forms of FTP 2015-2020.
ii. Payment of excise duties on domestic procurement of inputs or goods, including capital goods
as per Department of Revenue (DoR) notification.
iii. Payment of service tax on procurement of services as per DoR notification.
iv. Payment of Customs Duty and fee as per Foreign Trade Policy.
MERCHANDISE EXPORTS FROM INDIA SCHEMES
The objective of Merchandise Exports from India Scheme (MEIS) is to offset infrastructural
inefficiencies and associated costs involved in export of goods/products, which are
produced/manufactured in India, especially those having high export intensity, employment
potential and thereby enhancing India’s export competitiveness.
Ineligible categories under MEIS

The following exports categories /sectors shall be ineligible for Duty Credit Scrip entitlement
under MEIS:
a. EOUs/EHTPs/BTPs/ STPs who are availing direct tax benefits/exemption.
b. Supplies made from DTA units to SEZ units
c. Export of imported goods covered;
d. Exports through trans-shipment, meaning thereby exports that are originating in third
country but trans-shipped through India;
e. Deemed Exports;
f. SEZ/EOU/EHTP/BPT/FTWZ products exported through DTA units;
g. Items, which are restricted or prohibited for export under Schedule-2 of Export Policy in ITC
(HS), unless specifically notified in Appendix 3B.
h. Service Export.
i. Red sanders and beach sand.
j. Export products which are subject to Minimum export price or export duty.
k. Diamond Gold, Silver, Platinum, other precious metal in any form including plain and studded
jewellery and other precious and semi-precious stones.
l. Ores and concentrates of all types and in all formations.
m. Cereals of all types.
n. Sugar of all types and all forms.
o. Crude/petroleum oil and crude/primary and base products of all types and all formulations.
p. Export of milk and milk products.
q. Export of Meat and Meat Products.
r. Products wherein precious metal/diamond are used or Articles which are studded with
precious stones.
s. Exports made by units in Free Trade and Warehousing Service zone.
EXPORTS FROM INDIA SCHEME (SEIS)
The objective of Service Exports from India Scheme (SEIS) is to encourage export of notified
Services from India.
Eligibility –
Following Services shall be eligible:
a. Supply of a ‘service’ from India to any other country; (Mode1- Cross border trade)
b. Supply of a ‘service’ from India to service consumer(s) of any other country; (Mode 2-
Consumption abroad).
c. Such service provider should have minimum net free foreign exchange earnings of US$15,000 in
preceding financial year to be eligible for Duty Credit Scrip. For Individual Service Providers and
sole proprietorship, such minimum net free foreign exchange earnings criteria would be US$10,000
in preceding financial year.
d. Payment in Indian Rupees for service charges earned on specified services, shall be treated as
receipt in deemed foreign exchange as per guidelines of Reserve Bank of India.
Net Foreign exchange earnings for the scheme are defined as under:
Net Foreign Exchange = Gross Earnings of Foreign Exchange minus Total expenses/payment/
remittances of Foreign Exchange by the IEC holder, relating to service sector in the Financial
year.
If the IEC holder is a manufacturer of goods as well as service provider, then the foreign
exchange earnings and Total expenses/payment/remittances shall be taken into account for
service sector only. In order to claim reward under the scheme, Service provider shall have to
have an active IEC at the time of rendering such services for which rewards are claimed.
Ineligible categories under SEIS –

Foreign exchange remittances other than those earned for rendering of notified services would
not be counted for entitlement. Thus, other sources of foreign exchange earnings such as
equity or debt participation, donations, receipts of repayment of loans etc. and any other
inflow of foreign exchange, unrelated to rendering of service, would be ineligible.
Following shall not be taken into account for calculation of entitlement under the scheme:
a. Foreign Exchange remittances:
b. Related to Financial Services Sector
c. Raising of all types of foreign currency Loans;
d. Export proceeds realization of clients;
e. Issuance of Foreign Equity through ADRs/GDRs or other similar instruments;
f. Issuance of foreign currency Bonds;
g. Sale of securities and other financial instruments;
h. Other receivables not connected with services rendered by financial institutions; and
i. Earned through contract/regular employment abroad (e.g. labour remittances);
j. Payments for services received from EEFC Account;
k. Foreign exchange turnover by Healthcare Institutions like equity participation, donations etc.
l. Foreign exchange turnover by Educational Institutions like equity participation, donations etc.
m. Export turnover relating to services of units operating under SEZ/EOU/EHTP/STPI/BTP
Schemes or supplies of services made to such units;
n. Clubbing of turnover of services rendered by SEZ/EOU /EHTP/STPI/BTP units with turnover
of DTA Service Providers;
o. Exports of Goods.
p. Foreign Exchange earnings for services provided by Airlines, Shipping lines service providers
plying from any foreign country X to any foreign country Y routes not touching India at all.
q. Service providers in Telecom Sector.
STATUS HOLDER
a. Status Holders are business leaders who have excelled in international trade and have
successfully contributed to country’s foreign trade. Status Holders are expected to not only
contribute towards India’s exports but also provide guidance and handholding to new
entrepreneurs.
b. All exporters of goods, services and technology having an import-export code (IEC) number
shall be eligible for recognition as a status holder. Status recognition depends upon export
performance. An applicant shall be categorized as status holder upon achieving export
performance during current and previous two financial years, as indicated in Foreign Trade
Policy. The export performance will be counted on the basis of FOB value of export earnings
in free foreign exchange.
c. For deemed export, FOR value of exports in Indian Rupees shall be converted in US$ at the
exchange rate notified by CBEC, as applicable on 1st April of each Financial Year.
For granting status, export performance is necessary in at least two out of three years.
Status Category
Status Category Export Performance

FOB/FOR (as converted) Value (in US $ million)
One Star Export House 3

Two Star Export House 25
Three Star Export House 100
Four Star Export House 500
Five Star Export House 2000
Grant of double weightage

a. The exports by IEC holders under the following categories shall be granted double weightage
for calculation of export performance for grant of status.
b. Micro, Small & Medium Enterprises (MSME) as defined in Micro, Small & Medium
Enterprises Development (MSMED) Act 2006.
c. Manufacturing units having International Organization for Standardization (ISO)/Bureau of
Indian Standards (BIS).
d. Units located in North Eastern States including Sikkim and Jammu & Kashmir.
e. Units located in Agri Export Zones.
f. Double Weightage shall be available for grant of One Star Export House Status category only.
Such benefit of double weightage shall not be admissible for grant of status recognition of
other categories namely Two Star Export House, Three Star Export House, Four Star export
House and Five Star Export House.
g. A shipment can get double weightage only once in any one of above categories.
Other conditions for grant of status
a. Export performance of one IEC holder shall not be permitted to be transferred to another
IEC holder. Hence, calculation of exports performance based on disclaimer shall not be
allowed.
b. Exports made on re-export basis shall not be counted for recognition.
c. Export of items under authorization, including SCOMET items, would be included for
calculation of export performance.
Privileges to status holder

A Status Holder shall be eligible for privileges as under:
a. Authorization and Customs Clearances for both imports and exports may be granted on self-
declaration basis;
b. Input-Output norms may be fixed on priority within 60 days by the Norms Committee;
c. Exemption from furnishing of Bank Guarantee for Schemes under FTP, unless specified
otherwise anywhere in FTP or Hand Book of Procedure (HBP);
d. Exemption from compulsory negotiation of documents through banks. Remittance/receipts,
however, would be received through banking channels;
e. Two star and above Export houses shall be permitted to establish Export Warehouses as per
Department of Revenue guidelines.
f. Three Star and above Export House shall be entitled to get benefit of Accredited Clients
Programme (ACP) as per the guidelines of CBEC (website: http://cbec.gov.in).
g. The status holders would be entitled to preferential treatment and priority in handling of
their consignments by the concerned agencies.
h. Manufacturers who are also status holders (Three Star/Four Star/Five Star) will be enabled
to self- certify their manufactured goods (as per their Industrial Entrepreneurial
Memorandum (IEM)/ Industrial Licensing (IL)/ Letter of Intent (LOI) as originating from
India with a view to qualify for preferential treatment under different preferential trading
agreements (PTA), Free Trade Agreements (FTAs), Comprehensive Economic Cooperation
Agreements (CECA) and Comprehensive Economic Partnership Agreements (CEPA).
Subsequently, the scheme may be extended to remaining Status Holders.
i. Manufacturer exporters who are also Status Holders shall be eligible to self-certify their
goods as originating from India as per Hand Book of Procedures.
j. Status holders shall be entitled to export freely exportable items on free of cost basis for
export promotion subject to an annual limit of Rs 10 lakh or 2% of average annual export
realization during preceding three licensing years whichever is higher.
DUTY EXEMPTION/ REMMISSION SCHEME
Duty Exemption/Remission Schemes enable duty free import of inputs for export production,
including replenishment of input or duty remission.
Schemes
ADVANCE AUTHORIZATION
a. Advance Authorization is issued to allow duty free import of input, which is physically
incorporated in export product (making normal allowance for wastage). In addition, fuel, oil,
catalyst which is consumed/utilized in the process of production of export product, may also
be allowed.
b. Advance Authorization is issued for inputs in relation to resultant product, on the following
basis:
i. As per Standard Input Output Norms (SION); OR
ii. On the basis of self-declaration as per Handbook of Procedures.
Advance authorization for Spices

Duty free import of spices shall be
permitted only for activities like
crushing/grinding/sterilization/manufacture
of oils or oleoresins. Authorization shall not
be available for simply cleaning, grading,
re-packing etc.
Eligible applicant/Export/supply Advance Authorization can be issued either

to a manufacturer exporter or merchant
exporter tied to supporting manufacturer.
Advance Authorization for pharmaceutical
products manufactured through Non-
Infringing (NI) process (as indicated in
Handbook of Procedures) shall be issued to
manufacturer exporter only.
Advance Authorization shall be issued for:
Physical export (including export to SEZ);
Intermediate supply; and/or
Supply of goods to the categories

mentioned in paragraph 7.02 (b), (c), (e),
(f), (g) and (h) of this FTP (Category of
Supply under Deemed Exports).
Supply of ‘stores’ on board of foreign going
vessel/aircraft, subject to condition that
there is specific Standard Input Output
Norms in respect of item supplied.
Advance Authorization for annual Advance Authorization for Annual

requirement Requirement shall only be issued for items
notified in Standard Input Output Norms
(SION), and it shall not be available in
case of adhoc norms under FTP.
Advance Authorization for Annual
Requirement shall also not be available in
respect of SION where any item of input
appears in Appendix 4-J of Appendices and
Aayat Niryat Forms of FTP 2015- 2020.
Eligibility Conditions Exporters having past export performance

(in at least preceding two financial years)
shall be entitled for Advance Authorization
for Annual requirement.
Entitlement in terms of CIF value of
imports shall be upto 300% of the FOB
value of physical export and/or FOR value
of deemed export in preceding financial
year or Rs 1 crore, whichever is higher.
Minimum value addition

a. Minimum value addition required to be achieved under Advance Authorization is 15%.
b. Export Products where value addition could be less than 15% are given in Appendix 4D of
Appendices and Aayat-Niryat Forms of FTP 2015-2020.
c. For physical exports for which payments are not received in freely convertible currency, value
addition shall be as specified in Appendix 4C of Appendices and Aayat Niryat Forms of FTP
2015- 2020.
d. Minimum value addition for Gems & Jewellery Sector is given in paragraph 4.61 of Handbook
of Procedures.
e. In case of Tea, minimum value addition shall be 50%.
Details of duties Exempted

Imports under Advance Authorization are exempted from payment of:
a. Basic Customs Duty,
b. Additional Customs Duty,
c. Education Cess,
d. Anti-dumping Duty,
e. Safeguard Duty and
f. Transition Product Specific Safeguard Duty, wherever applicable.
However, import against supplies covered under certain category of supply under Deemed
Exports of FTP will not be exempted from payment of applicable Anti-dumping Duty,
Safeguard Duty and Transition Product Specific Safeguard Duty, if any.
Actual User Condition for advance authorization

Advance Authorization and/or material imported under Advance Authorization shall be subject
to ‘Actual User’ condition. The same shall not be transferable even after completion of export
obligation. However, Authorization holder will have option to dispose of product manufactured
out of duty-free input once export obligation is completed.
In case where CENVAT credit facility on input has been availed for the exported goods, even
after completion of export obligation, the goods imported against such Advance Authorization
shall be utilized only in the manufacture of dutiable goods whether within the same factory
or outside (by a supporting manufacturer).
Waste/scrap arising out of manufacturing process, as allowed, can be disposed off on
payment of applicable duty even before fulfillment of export obligation.
Validity Period
Validity period for import of Advance Authorisation shall be 12 months from the date of issue
of Authorisation. Advance Authorisation for Deemed Export shall be co-terminus with
contracted duration of project execution or 12 months from the date of issue of
Authorization, whichever is more.
Importability/ Exportability of items that are prohibited

a. No export or import of an item shall be allowed under Advance Authorisation/DFIA if the
item is prohibited for exports or imports respectively. Export of a prohibited item may be
allowed under Advance Authorisation provided it is separately so notified, subject to the
conditions given therein.
b. Items reserved for imports by STEs cannot be imported against Advance Authorisation/DFIA.
c. Items reserved for export by STE can be exported under Advance Authorisation /Duty Free
Import Authorisation (DFIA) only after obtaining a ‘No Objection Certificate’ from the
concerned STE.
d. Import of restricted items shall be allowed under Advance Authorisation/ Duty Free Import
Authorisation (DFIA).
e. Export of restricted/Special Chemicals, Organisms, Materials, Equipment and Technology
(SCOMET) items however, shall be subject to all conditionalities or requirements of export
authorization or permission.
Domestic Sourcing of Inputs

a. Holder of an Advance Authorisation/Duty Free Import Authorisation can procure inputs from
indigenous supplier/ State Trading Enterprise in lieu of direct import. Such procurement can be
against Advance Release Order (ARO), Invalidation Letter, and Back-to-Back Inland Letter of
Credit.
b. When domestic supplier intends to obtain duty free material for inputs through Advance
c. Authorisation for supplying resultant product to another Advance Authorisation/Duty Free
Import Authorisation (DFIA)/Export Promotion Capital Goods (EPCG) Authorisation, Regional
Authority shall issue Invalidation Letter.
d. Regional Authority shall issue Advance Release Order if the domestic supplier intends to seek
refund of duty through Deemed Exports mechanism of FTP.
e. Regional Authority may issue Advance Release Order or Invalidation Letter at the time of
issue of Authorisation simultaneously or subsequently.
f. Advance Authorisation holder under Domestic Tariff Area (DTA) can procure inputs
from EOU/EHTP/BTP/STP/SEZ units without obtaining Advance Release Order or Invalidation
Letter.
g. Duty Free Import Authorisation holder shall also be eligible for Advance Release
Order/Invalidation Letter facility.
h. Validity of Advance Release Order/Invalidation Letter shall be co-terminous with validity of
Authorisation.
EXPORT OBLIGATION
DUTY FREE IMPORT AUTHORIZATION SCHEME
Eligibility of DFIA
Validity and Transferability

a. Applicant shall file online application to Regional Authority concerned before starting export
under DFIA.
b. Export shall be completed within 12 months from the date of online filing of application and
generation of file number.
c. While doing export/supply, applicant shall indicate file number on the export documents viz.
Shipping Bill/Airway Bill/ Bill of Export/ARE-1/ARE-3, Central Excise certified Invoice.
d. After completion of exports and realization of proceeds, request for issuance of transferable
Duty-Free Import Authorisation may be made to concerned Regional Authority within a period
of twelve months from the date of export or six months (or additional time allowed by RBI
for realization) from the date of realization of export proceeds, whichever is later.
e. Applicant shall be allowed to file application beyond 24 months from the date of generation
of file number as per paragraph 9.03 of Hand Book of Procedures.
f. Separate DFIA shall be issued for each SION and each port.
g. Exports under DFIA shall be made from a single port as mentioned in paragraph 4.37 of
Handbook of Procedures.
h. No Duty-Free Import Authorisation shall be issued for an export product where SION
prescribes ‘Actual User’ condition for any input.
i. Regional Authority shall issue transferable DFIA with a validity of 12 months from the date
of issue. No further revalidation shall be granted by Regional Authority.
SCHEMES FOR EXPORT OF GEMS AND JWELLERY
Exporters of gems and Jewellery can import/procure duty free input for manufacture of export
product.
Items of Export
Following items, if exported, would be eligible:
a. Gold jewellery, including partly processed jewellery and articles including medallions and coins
(excluding legal tender coins), whether plain or studded, containing gold of 8 carats and
above;
b. Silver jewellery including partly processed jewellery, silverware, silver strips and articles
including medallions and coins (excluding legal tender coins and any engineering goods)
containing more than 50% silver by weight;
c. Platinum jewellery including partly processed jewellery and articles including medallions and
coins (excluding legal tender coins and any engineering goods) containing more than 50%
platinum by weight.
Schemes
Value addition
Minimum Value Addition norms for gems and jewellery sector would be calculated as under:
VA= A - B x 100
B
Where,
A = FOB value of the export realized/FOR value of supply received.
B = Value of inputs (including domestically procured) such as gold/silver/platinum content in
export product plus admissible wastage along with value of other items such as gemstone
etc. Wherever gold has been obtained on loan basis, value shall also include interest paid in
free foreign exchange to foreign supplier.
Duty Free Import Authorisation scheme shall not be available for Gems and Jewellery sector.
EXPORT PROMOTION CAPITAL GOODS SCHEME (EPCG)
The objective of the Export Promotion Capital Goods (EPCG) Scheme is to facilitate import
of capital goods for producing quality goods and services to enhance India’s export
competitiveness.
Scheme
EPCG Scheme allows import of capital goods for pre-production, production and post-
production at Zero customs duty. Alternatively, the Authorisation holder may also procure
Capital Goods from indigenous sources. Capital goods for the purpose of the EPCG scheme
shall include:
a. Capital Goods including in Completely Knocked down (CKD)/ Semi- Knocked Down (SKD)
condition thereof;
b. Computer software systems;
c. Spares, moulds, dies, jigs, fixtures, tools & refractories for initial lining and spare refractories;
and
d. Catalysts for initial charge plus one subsequent charge.
e. Import of capital goods for Project Imports notified by Central Board of Excise and Customs
is also permitted under EPCG Scheme.
f. Import under EPCG Scheme shall be subject to an export obligation equivalent to 6 times of
duty saved on capital goods, to be fulfilled in 6 years reckoned from date of issue of
Authorisation.
g. Authorisation shall be valid for import for 18 months from the date of issue of Authorisation.
Revalidation of EPCG Authorisation shall not be permitted.
h. In case countervailing duty (CVD) is paid in cash on imports under EPCG, incidence of CVD
would not be taken for computation of net duty saved, provided CENVAT is not availed.
i. Second hand capital goods shall not be permitted to be imported under EPCG Scheme.
j. Authorisation under EPCG Scheme shall not be issued for import of any Capital Goods
(including Captive plants and Power Generator Sets of any kind) for
k. Export of electrical energy (power)
l. Supply of electrical energy (power) under deemed exports
m. Use of power (energy) in their own unit, and
n. Supply/export of electricity transmission services
o. Import of items which are restricted for import shall be permitted under EPCG Scheme only
after approval from Exim Facilitation Committee (EFC) at DGFT Headquarters.
p. If the goods proposed to be exported under EPCG authorisation are restricted for export, the
EPCG authorisation shall be issued only after approval for issuance of export authorisation
from Exim Facilitation Committee at DGFT Headquarters.
Actual User Condition

Import of capital goods shall be subject to Actual User condition till export obligation is
completed.
Export Obligation
Following conditions shall apply to the fulfilment of EO:
a. Export Obligation shall be fulfilled by the authorisation holder through export of goods which
are manufactured by him or his supporting manufacturer/services rendered by him, for which
the EPCG authorisation has been granted.
b. Export Obligation under the scheme shall be, over and above, the average level of exports
achieved by the applicant in the preceding three licensing years for the same and similar
products within the overall EO period including extended period.
c. In case of indigenous sourcing of Capital Goods, specific EO shall be 25% less than
the EO stipulated in EPCG scheme.
d. Shipments under Advance Authorisation, DFIA, Drawback scheme or reward schemes under
FTP; would also count for fulfilment of EO under EPCG Scheme.
e. Export shall be physical export. However, deemed exports as specified FTP shall also be
counted towards fulfilment of export obligation, along with usual benefits available under
Actual user condition of EPCG scheme.
f. Export Obligation can also be fulfilled by the supply of ITA-I items to DTA, provided
realization is in free foreign exchange.
g. Royalty payments received by the Authorisation holder in freely convertible currency and
foreign exchange received for R&D services shall also be counted for discharge under EPCG.
h. Payment received in rupee terms for such Services as notified in Appendix 3E of Appendices
and Aayat Niryat Forms of FTP 2015 shall also be counted towards discharge of export
obligation under the EPCG scheme.
EXPORT ORIENTED UNITS (EOU) ELECTRONIC HARDWARE TECHNOLOGY PARK,

SOFTWARE TECHNOLOGY PARKS AND BIO – TECHNOLOGY PARK
Objectives of these schemes are to promote exports, enhance foreign exchange earnings,
attract investment for export production and employment generation.
Export and Imports

a. An EOU/EHTP/STP/BTP unit may export all kinds of goods and services except items that are
prohibited in ITC (HS).
b. Export of Special Chemicals, Organisms, Materials, Equipment and Technologies (SCOMET)
shall be subject to fulfilment of the conditions indicated in ITC (HS). In respect of an EOU,
permission to export a prohibited item may be considered, by Board of Approval (BOA), on a
case to case basis, provided such raw materials are imported and there is no procurement of
such raw material from Domestic Tariff Area (DTA).
c. Procurement and supply of export promotion material like brochure/literature, pamphlets,
hoardings, catalogues, posters etc up to a maximum value limit of 1.5% of FOB value of
previous years exports shall also be allowed.
d. An EOU/EHTP/STP/BTP unit may import and/or procure, from Domestic Tariff Area or bonded
warehouses in Domestic Tariff Area/international exhibition held in India, without payment of
duty, all types of goods, including capital goods, required for its activities, provided they are
not prohibited items of import in the ITC (HS).
e. State Trading regime shall not apply to EOU manufacturing units. However, in respect of
Chrome Ore/Chrome concentrate, State Trading Regime as stipulated in export policy of these
items, will be applicable to EOUs.
f. EOU/EHTP/STP/BTP units may import/procure from Domestic Tariff Area, without payment
of duty, certain specified goods for creating a central facility. Software EOU/DTA units may
use such facility for export of software.
g. An EOU engaged in agriculture, animal husbandry, aquaculture, floriculture, horticulture,
pisciculture, viticulture, poultry or sericulture may be permitted to remove specified goods in
connection with its activities for use outside bonded area.
h. Gems and jewellery EOUs may source gold/silver/platinum through nominated agencies on
loan/outright purchase basis. Units obtaining gold/silver/platinum from nominated agencies,
either on loan basis or outright purchase basis shall export gold/silver/platinum within 90
days from date of release.
i. EOU/EHTP/STP/BTP units, other than service units, may export to Russian Federation in
Indian Rupees against repayment of State Credit/ Escrow Rupee Account of buyer subject to
RBI clearance, if any.
j. Procurement and export of spares/components, upto 5% of FOB value of exports, may be
allowed to same consignee/buyer of the export article, subject to the condition that it shall
not count for Net Foreign Exchange (NFE) and direct tax benefits.
Letter of Permission
a. On approval, a Letter of Permission (LoP)/Letter of Intent (LoI) shall be issued by
DC/designated officer to EOU/ EHTP/STP/BTP unit. LoP/LoI shall have an initial validity of 2
years to enable the Unit to construct the plant & install the machinery and by this time the
unit should have commenced production. In case the unit is not able to commence production
in initial validity of 2 years, an extension of one year may be given by the DC for valid
reasons to be recorded in writing. Subsequent extension of one year may be given by the
Unit Approval Committee subject to condition that two-thirds of activities including
construction, relating to the setting up of the Unit are complete and Chartered Engineer’s
certificate to this effect is submitted by the Unit. Further extension, if necessary, will be
granted by the Board of Approval. Once unit commences production, LoP/LoI issued shall be
valid for a period of 5 years for its activities. This period may be extended further by DC for
a period of 5 years at a time.
b. LoP/LoI issued to EOU/EHTP/STP/BTP units by concerned authority, subject to compliance of
provision pertaining to export and import of goods under EOU/EHTP/STP/BTP Scheme above,
would be construed as an Authorisation for all purposes.
c. Unit shall execute an LUT with DC concerned. Failure to ensure positive NFE or to abide by
any of the terms and conditions of LoP/LoI/IL/LUT shall render the unit liable to penal
action under provisions of the FT (D&R) Act, as amended, and Rules and Orders made
thereunder, without prejudice to action under any other law/rules and cancellation or
revocation of LoP/LoI/IL.
Investment Criteria
Only projects having a minimum investment of Rs. 1 Crore in plant & machinery shall be
considered for establishment as EOUs.
Applications and Approval

a. Applications for setting up of units under EOU scheme shall be approved or rejected by the
Units Approval Committee within 15 days as per criteria indicated in Handbook of Procedures
(HBP).
b. In other cases, approval may be granted by BOA set up for this purpose as indicated in HBP.
c. Proposals for setting up EOU requiring industrial license may be granted approval by DC after
clearance of proposal by BOA and Department of Industrial Policy & Promotion (DIPP)
within 45 days.
d. Applications for conversion into an EOU/EHTP/STP/BTP unit from existing DTA units, having
an investment of Rs. 50 crores and above in plant and machinery or exporting Rs. 50 crores
and above annually, shall be placed before BOA for a decision.
DTA SALE OF FINISHED GOODS/ WASTE/ REJECT/ BY PRODUCTS
Entire production of EOU/EHTP/STP/BTP units shall be exported subject to following:

a. Units, other than gems and jewellery units, may sell goods upto 50% of FOB value of
exports, subject to fulfilment of positive NFE, on payment of concessional duties.
b. For services, including software units, sale in DTA in any mode, including on line data
communication, shall also be permissible up to 50% of FOB value of exports and /or 50% of
foreign exchange earned, where payment of such services is received in foreign exchange.
c. Gems and jewellery units may sell upto 10% of FOB value of exports of the preceding year in
DTA, subject to fulfilment of positive NFE. In respect of sale of plain jewellery, recipient
shall pay concessional rate of duty as applicable to sale from nominated agencies. In respect
of studded jewellery, duty shall be payable as applicable.
d. Unless specifically prohibited in LoP, rejects within an overall limit of 50% may be sold in
DTA on payment of duties as applicable to sale under Sub - para 6.08 (a) on prior
intimation to Customs authorities. Such sales shall be counted against DTA sale entitlement.
Sale of rejects upto 5% of FOB value of exports shall not be subject to achievement of NFE.
e. Scrap/waste/remnants arising out of production process or in connection therewith may be
sold in DTA, as per SION notified under Duty Exemption Scheme, on payment of concessional
duties as applicable, within overall ceiling of 50% of FOB value of exports. Such sales of
scrap/waste/remnants shall not be subject to achievement of positive NFE. In respect of
items not covered by norms, DC may fix adhoc norms for a period of six months and
within this period, norms should be fixed by Norms Committee. Ad-hoc norms will continue
till such time norms are fixed by Norms Committee. Sale of waste/scrap/remnants by units
not entitled to DTA sale, or sales beyond DTA sale entitlement, shall be on payment of full
duties. Scrap/waste/remnants may also be exported.
f. There shall be no duties/taxes on scrap/waste/remnants, in case same are destroyed with
permission of Customs authorities.
g. By-products included in LoP may also be sold in DTA subject to achievement of positive
NFE, on payment of applicable duties, within the overall entitlement of Sub - para 6.08 (a).
Sale of by- products by units not entitled to DTA sales, or beyond entitlements of Sub-para
6.08 (a), shall also be permissible on payment of full duties.
h. EOU/EHTP/STP/BTP units may sell finished products, except pepper and pepper products and
marble, which are freely importable under FTP in DTA, under intimation to DC, against
payment of full duties, provided they have achieved positive NFE. An amount equal to Anti
Dumping duty under section 9A of the Customs Tariff Act, 1975 leviable at the time of
import, shall be payable on the goods used for the purpose of manufacture or processing of
the goods cleared into DTA from the unit.
i. In case of units manufacturing electronics hardware and software, NFE and DTA sale
entitlement shall be reckoned separately for hardware and software.
j. In case of DTA sale of goods manufactured by EOU/EHTP/STP/BTP, where basic duty and
CVD is nil, such goods may be considered as non-excisable for payment of duty.
k. In case of new EOUs, advance DTA sale will be allowed not exceeding 50% of its estimated
exports for first year, except pharmaceutical units where this will be based on its estima ted
exports for first two years.
l. Units in Textile and Granite sectors shall have an option to sell goods into DTA , on payment
of an amount equal to aggregate of duties of excise leviable under section 3 of the Central
Excise Act, 1944 or under any other law for the time being in force, on like goods produced
or manufactured in India other than in an EOU, subject to the condition that they have not
used duty paid imported inputs in excess of 3% of the FOB value of exports of the preceding
year and they have achieved positive NFE. Once this option is exercised, the unit will not be
allowed to import any duty-free inputs for any purpose.
INTER UNIT TRANSFER
a. Transfer of manufactured goods from one EOU/EHTP/STP/BTP unit to another

EOU/EHTP/STP/BTP unit is allowed with prior intimation to concerned Development
Commissioners of the transferor and transferee units as well as concerned Customs
authorities, following procedure of in-bond movement of goods. Transfer of manufactured
goods shall also be allowed from EOU/EHTP/STP/BTP unit to a SEZ developer or unit as per
procedure prescribed in SEZ Rules, 2006.
b. Capital goods may be transferred or given on loan to other EOU/EHTP/STP/BTP/SEZ units,
with prior intimation to concerned DC and Customs authorities.
c. Such transferred goods may also be returned by the second unit to the original unit in case
of rejection or for any reason without payment of duty.
d. Goods supplied by one unit of EOU/EHTP/STP/BTP to another unit shall be treated as
imported goods for second unit for payment of duty, on DTA sale by second unit.
e. In respect of a group of EOUs/EHTPs/STPs/BTP Units which source inputs centrally in order
to obtain bulk discount and/or reduce cost of transportation and other logistics cost and/or
to maintain effective supply chain, inter unit transfer of goods and services may be
permitted on a case-to-case basis by the Unit Approval Committee. In case inputs so sourced
are imported and then transferred to another unit, then value of the goods so transferred
shall be taken as inflow for the unit transferring these goods and as outflow for the unit
receiving these goods, for the purpose of calculation of NFE.
SUB CONTRACTING
a. EOU/EHTP/STP/BTP units, including gems and jewellery units, may on the basis of annual
permission from Customs authorities, sub - contract production processes to DTA through job
work which may also involve change of form or nature of goods, through job work by units in
DTA.
b. These units may sub - contract upto 50% of overall production of previous year in value
terms in DTA with permission of Customs authorities.
c. EOU may, with annual permission from Customs authorities, undertake job work for export,
on behalf of DTA exporter, provided that goods are exported directly from EOU and export
document shall jointly be in name of DTA/EOU. For such exports, DTA units will be entitled
for refund of duty paid on inputs by way of brand rate of duty drawback.
d. Duty free import of goods for execution of export order placed on EOU by foreign supplier on
job work basis, would be allowed subject to condition that no DTA clearance shall be allowed.
e. Sub - contracting of both production and production processes may also be undertaken
without any limit through other EOU/EHTP/STP/ BTP/SEZ units, on the basis of records
maintained in unit.
f. EOU/EHTP/STP/BTP units may sub - contract part of production process abroad and send
intermediate products abroad as mentioned in LoP. No permission would be required when
goods are sought to be exported from sub - contractor premises abroad. When goods are
sought to be brought back, prior intimation to concerned DC and Customs authorities shall
be given.
g. Scrap/waste/remnants generated through job work may either be cleared from job worker’s
premises on payment of applicable duty on transaction value or destroyed in presence of
Customs/Central Excise authorities or returned to unit. Destruction shall not apply to gold,
silver, platinum, diamond, precious and semi-precious stones.
h. Sub - contracting/exchange by gems and jewellery EOUs through other EOUs or SEZ units or
units in DTA, shall be as per procedure indicated in Hand Book of Procedure.
SALE OF UNUTILIZED GOODS
In case an EOU/EHTP/STP/BTP unit is unable to utilize goods and services, imported or

procured from DTA, it may be:
a. Transferred to another EOU/EHTP/STP/BTP/SEZ unit; or
b. Disposed of in DTA with approval of Customs authorities on payment of applicable duties and
submission of import authorization; or
c. Exported.
d. Such transfer from EOU/EHTP/STP/BTP unit to another such unit would be treated as import
for receiving unit.
EXIT FROM EOU SCHEME
a. With approval of Development Commissioner, an EOU may opt out of scheme. Such exit shall
be subject to payment of Excise and Customs duties and industrial policy in force.
b. If unit has not achieved obligations, it shall also be liable to penalty at the time of exit.
c. In the event of a gems and jewellery unit ceasing its operation, gold and other precious
metals, alloys, gems and other materials available for manufacture of jewellery, shall be
handed over to an agency nominated by Department of Commerce (DoC), at price to be
determined by that agency.
d. An EOU/EHTP/STP/BTP unit may also be permitted by Development Commissioner to exit
from the scheme at any time on payment of duty on capital goods under the prevailing
EPCG Scheme for DTA Units. This will be subject to fulfilment of positive NFE criteria under
EOU scheme, eligibility criteria under EPCG scheme and standard conditions indicated in
Hand Book of Procedure.
e. Unit proposing to exit out of EOU scheme shall intimate DC and Customs and Central Excise
authorities in writing. Unit shall assess duty liability arising out of de-bonding and submit
details of such assessment to Customs and Central Excise authorities. Customs and Central
Excise authorities shall confirm duty liabilities on priority basis, subject to the condition that
the unit has achieved positive NFE, taking into consideration the depreciation allowed. After
payment of duty and clearance of all dues, unit shall obtain “No Dues Certificate” from
Customs and Central Excise authorities.
f. An EOU/EHTP/STP/BTP unit may also be permitted by DC to exit under Advance
Authorization as one-time option. This will be subject to fulfilment of positive NFE criteria.
g. A simplified procedure may be provided to fast track the De-bonding/ Exit of the STP/EHTP
Unit which has not availed any duty benefit on procurement of raw material, capital goods
etc.
EXPORT THROUGH EXHIBITION
EOU/EHTP/STP/BTP are permitted to:
QUALITY COMPLAINTS AND TRADE DISPUTES
Exporters need to project a good image of the country abroad to promote exports.
Maintaining an enduring relationship with foreign buyers is of utmost importance, and
complaints or trade disputes, whenever they arise, need to be settled amicably as soon as
possible. Importers too may have grievances as well.
In an endeavour to resolve such complaints or trade disputes and to create confidence in the
business environment of the country, a mechanism is being laid down to address such
complaints and disputes in an amicable way.
The following type of complaints may be considered:
Complaints received from foreign buyers in respect of poor quality of

the products supplied by exporters from India
Complaints of importers against foreign suppliers in respect of

quality of the products supplied
Complaints of unethical commercial dealings categorized mainly as non-

supply/partial supply of goods after confirmation of order; supplying
goods other than the ones as agreed upon; non-payment; non-adherence
to delivery schedules, etc.
Obligation on part of Importer and Exporter

Rule 11 of the Foreign Trade (Regulation) Rules, 1993, requires that on the importation into,
or exportation out of, any customs ports of any goods, whether liable to duty or not, the
owner of such goods shall in the Bill of Entry or the Shipping Bill or a ny other documents
prescribed under the Customs Act, 1962 (52 of 1962), state the value, quality and
description of such goods to the best of his knowledge and belief and in case of exportation
of goods, certify that the quality and specification of the goods as stated in those
documents, are in accordance with the terms of the export contract entered into with the
buyer or consignee in pursuance of which the goods are being exported and shall subscribe a
declaration of the truth of such statement at the foot of such Bill of Entry or Shipping Bill
or any other documents. Violation of this provision renders the exporter liable for penal
action.
Certain export commodities have been notified for Compulsory Quality Control & Pre-
shipment Inspection prior to their export
Necessary actions against erring Importer/ Exporter

Action against erring exporters can be taken under the Foreign Trade (Development and
Regulation) Act, 1992, as amended and under Foreign Trade (Regulation) Rules, 1993, as
follows:-
a. Suspend or cancel the Importer Exporter Code Number

b. Refuse to grant or renew a license, certificate, scrip or any other instrument bestowing
financial or fiscal benefit granted under the Act.
c. Suspend or cancel any License, certificate, scrip or any instrument bestowing financial or
fiscal benefit granted under the Act.
d. Imposition of fiscal penalty in cases where a person makes or abets or attempts to

make any import or export in contravention of any provision of the Act
Mechanism for handling Complaints
CS- EXE Economic Business and Commercial Laws NBFC
CHAPTER 10- NON-BANKING FINANCIAL COMPANY
INTRODUCTION
• Non-Banking Finance Companies (NBFCs) have played an important role in the Indian
financial system by complementing and competing with banks, and by bringing in efficiency
and diversity into financial intermediation. NBFCs have evolved considerably in terms of
operations, heterogeneity, asset quality and profitability, and regulatory architecture. Going
forward, the growing systemic importance and interconnectedness of this sector calls for
regulatory vigil.
• In emerging economies, they often play an important role because of their ability to reach
out to inaccessible areas; and act as not just complements but also substitutes to banks
when the banks are confronted with stricter regulatory constraints. Customers tend to find
the non-banking entities convenient due to their quicker decision-making ability, prompt
provision of services and expertise in niche segments. Apart from widening the ambit of and
access to financial services, they also enhance the resilience of the financial system by
acting as backup institutions when banks come under stress.
DEFINITION
NBFC as per RBI Act:

“Non-Banking Financial Company” means—
(i) a financial institution which is a company;
(ii) a non-banking institution which is a company and which has as its principal business the
receiving of deposits, under any scheme or arrangement or in any other manner, or lending in
any manner;
(iii) such other non-banking institution or class of such institutions, as the Reserve Bank of India
may, with the previous approval of the Central Government and by notification in the Official
Gazette, specify.
“Financial Institution” means any non-banking institution which carries on as its business
or part of its business any of the following activities, namely:
(i) the financing, whether by way of making loans or advances or otherwise, of any activity
other than its own;
(ii) the acquisition of shares, stock, bonds, debentures or securities issued by a Government or
local authority or other marketable securities of a like nature;
(iii) letting or delivering of any goods to a hirer under a hire-purchase agreement as defined in
clause (c) of section 2 of the Hire-Purchase Act, 1972;
(iv) the carrying on of any class of insurance business;
(v) managing, conducting or supervising, as foreman, agent or in any other capacity, of chits as
defined in any law which is for the time being in force in any State, or any business, which
is similar thereto;
(vi) collecting, for any purpose or under any scheme or arrangement by whatever name called,
monies in lump sum or otherwise, by way of subscriptions or by sale of units, or other
instruments or in any other manner and awarding prizes or gifts, whether in cash or king, or
disbursing monies in any other way, to persons from whom monies are collected or to any
other person,
but does not include any institution, which carries on as its principal business:
a. Agricultural Operations
b. industrial activity; or
c. the purchase, or sale of any goods (other than securities) or the providing of any services; or
d. the purchase, construction or sale of immovable property, so, however, that no portion of the
income of the institution is derived from the financing of purchases, constructions or sales of
immovable property by other persons;
What is Deposit?
“Deposit” includes and shall be deemed always to have include any receipt of money by
way of deposit or loan or in any other form, but does not include:
(i) amounts raised by way of share capital;
(ii) amounts contributed as capital by partners of a firm;
(iii) amounts received from a scheduled bank or a co-operative bank or any other banking
company as defined in clause (c) of section 5 of a Banking Regulation Act, 1949;
(iv) any amount received from:
a. a State Financial Corporation,
b. any financial Institution as may be prescribed
(v) amounts received in the ordinary course of business, by way of—
(a) security deposit,
(b) dealership deposit,
(c) earnest money, or
(d) advance against orders for goods, properties or services;
(vi) any amount received from an individual or a firm or an association of individuals not being a
body corporate, registered under any enactment relating to money lending which is for the
time being in force in any State; and
(vii) any amount received by way of subscriptions in respect of a chit.
DIFFERENCE BETWEEN BANKS & NBFCS
NBFCs lend and make investments and hence their activities are akin to that of banks;
however, there are a few differences as given below:
i. NBFC cannot accept demand deposits;
ii. NBFCs do not form part of the payment and settlement system and cannot issue cheques
drawn on itself;
iii. deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not
available to depositors of NBFCs, unlike in case of banks.
REGISTRATION AND NET OWNED FUNDS
Section 45-IA of the Reserve Bank of India Act, 1934 deals with requirement of registration
and net owned Fund. Section 45-IA provides that notwithstanding anything contained in
Chapter IIIB of the RBI Act or in any other law for the time being in force, no non -banking
financial company shall commence or carry on the business of a non-banking financial
institution without—
(a) obtaining a certificate of registration issued under Chapter IIIB; and
(b) having the net owned fund of twenty-five lakh rupees or such other amount, not exceeding
hundred crore rupees, as the Bank may, by notification in the Official Gazette, specify:
Provided that the Reserve Bank of India may notify different amounts of net owned fund for
different categories of non-banking financial companies.
CANCELLATION OF CERTIFICATE OF REGISTRATION
The Reserve Bank of India may cancel a certificate of registration granted to a non-banking
financial company under Section 45-IA of the Reserve Bank of India Act, 1934, if such
company—
(i) ceases to carry on the business of a non-banking financial institution in India; or
(ii) has failed to comply with any condition subject to which the certificate of registration had
been issued to it; or

(iii) at any time fails to fulfil any of the conditions such as adequate capital structure and earning
prospects; public interest, monetary stability, and economic growth etc. or
(iv) fails to comply with any direction issued by the Reserve Bank of India
A company aggrieved with the order may appeal in 30 days to the Central Government and
the decision shall be binding and Final.
MAINTENANCE OF PERCENTAGE OF ASSETS
a. According to Section 45-IB of the Reserve Bank of India Act, 1934, every non-banking
financial company shall invest and continue to invest in India in unencumbered approved
securities, valued at a price not exceeding the current market price of such securities, an
amount which, at the close of business on any day, shall not be less than five per cent. or
such higher percentage not exceeding twenty-five per cent. as the Reserve Bank of India may,
from time to time and by notification in the Official Gazette.
b. If the amount invested by a non-banking financial company at the close of business on any
day falls below the specified rate, such company shall be liable to pay to the Reserve Bank of
India, in respect of such shortfall, a penal interest at a rate of three per cent. per annum
above the bank rate on such amount by which the amount actually invested falls short of
the specified percentage, and where the shortfall continues in the subsequent quarters, the
rate of penal interest shall be five per cent. per annum above the bank rate on such shortfall
for each subsequent quarter.
c. The penal interest payable by a non-banking financial company shall be payable within a period
of fourteen days from the date on which a notice issued by the Reserve Bank of India
demanding payment.
RESERVE FUND
a. Every non-banking financial company shall create a reserve fund the transfer therein a sum
not less than twenty per cent. of its net profit every year as disclosed in the profit and loss
account and before any dividend is declared.
b. Appropriation of any sum from the reserve fund shall not be made by the non-banking
financial company except for the purpose as may be specified by the Reserve Bank of India
from time to time and every such appropriation shall be reported to the Reserve Bank of India
within twenty-one days from the date of such withdrawal:
c. It may be noted that that the Reserve Bank of India may, in any particular case and for
sufficient cause being shown, extend the period of twenty-one days by such further period as
it thinks fit.
POWER OF BANK IN REGARDS TO NBFC
1. Supersession of Board of Directors of Non-Banking Financial Company

a. Reserve Bank is satisfied that in the public interest or to prevent the affairs of a non-
banking financial company being conducted in a manner detrimental to the interest of the
depositors or creditors, or of the non-banking financial company (other than Government
Company), or for securing the proper management of such company or for financial stability,
it is necessary so to do, the Reserve Bank may, for reasons to be recorded in writing, by order,
supersede the Board of Directors of such company for a period not exceeding five years.
b. The Reserve Bank may, on supersession of the Board of Directors of the non-banking
financial company, appoint a suitable person as the Administrator.
c. The Reserve Bank may issue such directions to the Administrator as it may deem appropriate
and the Administrator shall be bound to follow such directions.
d. Upon making the order of supersession of the Board of Directors of a non-banking financial
company, they should vacate the office and all their power and duties shall be performed by
the Administrator.
2. Reserve Bank has the power to Regulate or Prohibit Issue of Prospectus or Advertisement
Soliciting Deposits of Money
3. Power of Bank to Determine Policy and Issue Directions

Reserve Bank of India may give directions to non-banking financial companies generally or to
a class of non- banking financial companies or to any non-banking financial company in
particular as to—
(a) the purpose for which advances or other fund based or non-fund-based accommodation may
not be made; and
(b) the maximum amount of advances of other financial accommodation or investment in shares
and other securities which, having regard to the paid-up capital, reserves and deposits of the
nonbanking financial company and other relevant considerations, may be made by that non -
banking financial company to any person or a company or to a group of companies.
4. Power of Bank to Collect Information from Non-Banking Institutions as to Deposits and

to Give Directions
(a) The Reserve Bank may, if it considers necessary in the public interest so to do, give
directions to nonbanking institutions either generally or to any non-banking institution or
group of non-banking institutions in particular, in respect of any matters relating to or
connected with the receipt of deposits, including the rates of interest payable on su ch
deposits, and the periods for which deposits may be received.
(b) If any non-banking institution fails to comply with any direction given by the Reserve Bank,
the Reserve Bank may prohibit the acceptance of deposits by that non-banking institution.
5. Power of Bank to Call for Information from Financial Institutions and to Give Directions
Section 45L of the Reserve Bank of India Act, 1934 states that if the Reserve Bank is
satisfied for the purpose of enabling it to regulate the credit system of the country to its
advantage it is necessary so to do, it may—
(a) require financial institutions either generally or any group of financial institutions or financial
institution in particular, to furnish to the Reserve Bank in such form, at such intervals and
within such time, such statements, information or particulars relating to the business of such
financial institutions or institution, as may be specified by the Reserve Bank by general or

special order;
(b) give to such institutions either generally or to any such institution in particular, directions
relating to the conduct of business by them or by it as financial institutions or institution.
6. Power of Bank to Prohibit Acceptance of Deposit and Alienation of Assets

Section 45MAB of the Reserve Bank of India Act, 1934 provides that if any non-banking
financial company violates the provisions of any section or fails to comply with any direction
or order given by the Bank under any of the provisions of this Chapter IIIB, the Reserve
Bank may prohibit the non-banking financial company from accepting any deposit.
Notwithstanding anything to the contrary contained in any agreement or instruments or any
law for the time being in force, the Reserve Bank, on being satisfied that it is necessary so
to do in the public interest or in the interest of the depositors, may direct, the non-banking
financial company against which an order prohibiting from accepting deposit has been issued,
not to sell, transfer, create charge or mortgage or deal in any manner with its property and
assets without prior written permission of the Reserve Bank for such period not exceeding six
months from the date of the order.
7. Power of Reserve Bank to File Winding Up Petition

According to Section 45MC of the Reserve Bank of India Act, 1934, the Reserve Bank, on
being satisfied that a non-banking financial company:
(a) is unable to pay its debt; or
(b) has by virtue of the provisions of section 45-IA become disqualified to carry on the business
of a non- banking financial institution; or
(c) has been prohibited by the Reserve Bank from receiving deposit by an order and such order
has been in force for a period of not less than three months; or
(d) the continuance of the non-banking financial company is detrimental to the public interest
or to the interest of depositors of the company,
may file an application for winding up of such non-banking financial company under the
Companies Act.
A non-banking financial company shall be deemed to be unable to pay its debt if it has
refused or has failed to meet within five working days any lawful demand made at any to its
offices or branches and the Bank certifies in writing that such company is unable to pay its
debt.
A copy of every application made by the Reserve Bank shall be sent to the Registrar of
Companies. All the provisions of the Companies Act, relating to winding up of a company
shall apply to a winding up proceeding initiated on the application made by the Bank under
this provision.
8. Power of Reserve Bank to Exempt

Section 45NC of the Reserve Bank of India Act, 1934 states that the Reserve Bank, on being
satisfied that it is necessary so to do, may declare by notification in the Official Gazette
that any or all of the provisions of Chapter IIIB of the RBI Act shall not apply to a non -
banking institution or a class of non-banking institutions or a non-banking financial company
or to any class or non-banking financial companies either generally or for such period as may
be specified, subject to such conditions, limitations or restrictions as it may think fit to
impose.
CLASSIFICATION OF NBFCS BY ACTIVITY
NBFCs are classified on the basis of:

(a) their liability structures;
(b) the type of activities they undertake; and
(c) their systemic importance. In the first category, NBFCs are further subdivided into NBFCs-
D–which are authorized to accept and hold public deposits–and non-deposit taking NBFCs
(NBFCs-ND)– which do not accept public deposits but raise debt from market and banks.
NBFCs can also be categorised on the basis of activities undertaken as they typically focus
on niche segments and fulfil sector–specific requirements.
TYPE OF NBFC ACTIVITY

Asset Finance Company (AFC) Financing of physical assets including
(NBFC-Investment and Credit Companies) automobiles, tractors and generators.
Loan Company Provision of loan finance
(NBFC-Investment and Credit Companies)
Investment Company Acquisition of securities for purpose of
(NBFC-Investment and Credit Companies) selling
NBFC-Infrastructure Finance Company Provision of infrastructure loans
(NBFC- IFC)
NBFC-Systemically Important Core Makes investments and loans to group
Investment Company (CIC-ND-SI) companies
Infrastructure Debt Fund-NBFC (IDF-NBFC) Facilitation of flow of long-term debt into
infrastructure projects
NBFC-Micro Finance Institution (NBFC- Credit to economically dis-advantaged groups
MFI)
NBFC-Factor Acquisition of receivables of an assignor or
extending loans against the security interest
of the receivables at a discount
NBFC-Non-Operative Financial Holding Facilitation of promoters/ promoter groups in
Company (NOFHC) setting up new banks
Mortgage Guarantee Company (MGC) Undertaking of mortgage guarantee business
NBFC-Account Aggregator (NBFC-AA) Collecting and providing information about a
customer’s financial assets in a consolidated,
organised and retrievable manner to the
customer or others as specified by the
customer.
NBFC–Peer to Peer Lending Platform Providing an online platform to bring lenders
(NBFC- P2P) and
borrowers together to help mobilise funds
DEFINITIONS OF NBFCS UNDER VARIOUS DIRECTIONS ISSUED BY RESERVE BANK
a. “Systemically important non-deposit taking non-banking financial company” - means a

non-banking financial company not accepting / holding public deposits and having total
assets of ` 500 crore and above as shown in the last audited balance sheet;
b. “Infrastructure Finance Company” - means a non-deposit taking NBFC that fulfils the
following criteria:
(a) a minimum of 75 per cent of its total assets deployed in “infrastructure loans”;
(b) Net owned funds of ` 300 crore or above;
(c) minimum credit rating ‘A’ or equivalent of CRISIL, FITCH, CARE, ICRA, Brickwork Rating
India Pvt. Ltd. (Brickwork) or equivalent rating by any other credit rating agency accredited
by the Bank;
(d) CRAR of 15 percent (with a minimum Tier I capital of 10 percent).
c. “Investment and Credit Company - (NBFC-ICC)” - means any company which is a
Financial institution carrying on as its principal business - asset finance, the providing of
finance whether by making loans or advances or otherwise for any activity other than its
own and the acquisition of securities; and is not any other category of NBFC as defined by
the Bank in any of its Master Directions
d. “Non-Banking Financial Company - Factor (NBFC-Factor)” - means a nonbanking

financial company as defined in clause (f) of section 45-I of the RBI Act, 1934 which has
its principal business as defined in paragraph 40 of these directions and has been granted a
certificate of registration under sub-section (1) of section 3 of the Factoring Regulation Act,
2011.
e. “Non-Banking Financial Company – Micro Finance Institution (NBFC-MFI)” means a

non-deposit taking NBFC (other than a company formed and registered under section 25
of the Companies Act, 1956) that fulfils the following conditions:
(a) Minimum Net Owned Funds of 5 crore.
(b) Not less than 85% of its net assets are in the nature of “qualifying assets.”
(Only the assets originated on or after January 1, 2012 shall have to comply with the
Qualifying Assets criteria. As a special dispensation, the existing assets as on January 1,
2012 shall be reckoned towards meeting both the Qualifying Assets criteria as well as the
Total Net Assets criteria. These assets shall be allowed to run off on maturity and shall
not be renewed).
f. “Infrastructure Debt Fund-Non-Banking Financial Company” or “IDF-NBFC” means a

non-deposit taking NBFC that has Net Owned Fund of 300 crore or more and which invests
only in Public Private Partnerships (PPP) and post commencement operations date (COD)
infrastructure projects which have completed at least one year of satisfactory commercial
operation and becomes a party to a Tripartite Agreement.
g. Core Investment Company (CIC) - that is to say, a non-banking financial company carrying
on the business of acquisition of shares and securities and which satisfies the following
conditions as on the date of the last audited balance sheet:
a. it holds not less than 90% of its net assets in the form of investment in equity shares,
preference shares, bonds, debentures, debt or loans in group companies;
b. its investments in the equity shares (including instruments compulsorily convertible into
equity shares within a period not exceeding 10 years from the date of issue) in group
companies and units of Infrastructure Investment Trust only as sponsor constitute not less
than 60% of its net assets as mentioned in clause (i) above;
Provided; that the exposure of such CICs towards InvITs shall be limited to their holdings as
sponsors and shall not, at any point in time, exceed the minimum holding of units and tenor
prescribed in this regard by SEBI (Infrastructure Investment Trusts) Regulations, 2014, as
amended from time to time.
c. it does not trade in its investments in shares, bonds, debentures, debt or loans in group
companies except through block sale for the purpose of dilution or disinvestment;
d. it does not carry on any other financial activity referred to in Section 45I(c) and 45I (f) of
the Reserve Bank of India Act, 1934 except
i. investment in
1. bank deposits,
2. money market instruments, including money market mutual funds and liquid mutual funds
3. government securities, and
4. bonds or debentures issued by group companies,
ii. granting of loans to group companies and issuing guarantees on behalf of group companies
h. Residuary Non-Banking Company is a class of NBFC which is a company and has as its
principal business the receiving of deposits, under any scheme or arrangement or in any other
manner and not being Investment, Asset Financing, Loan Company. These companies are
required to maintain investments as per directions of RBI, in addition to liquid assets. The
functioning of these companies is different from those of NBFCs in terms of method of
mobilization of deposits and requirement of deployment of depositors’ funds as per
Directions. Besides, Prudential Norms Directions are applicable to these companies also.
CS- EXE Economic Business and Commercial Laws SEZ
CHAPTER 11- SPECIAL ECONOMIC ZONES, 2005
INTRODUCTION
While the policy relating to the Special Economic Zones is contained in the Foreign Trade
Policy, incentives and other facilities offered to the Special Economic Zone developer and
units are implemented through various notifications and circulars issued by the concerned
Ministries/Departments.
In order to give a long term and stable policy framework with minimum regulatory regime
and to provide expeditious and single window clearance mechanism, the Government enacted
Special Economic Zones Act, 2005.
DEFINITION
1. “Co-Developer” means a person who, or a State Government which, has been granted by
the Central Government a letter of approval.
2. “Export” means—
o taking goods, or providing services, out of India, from a Special Economic Zone, by land, sea
or air or by any other mode, whether physical or otherwise; or
o supplying goods, or providing services, from the Domestic Tariff Area to a Unit or Developer;
or
o supplying goods, or providing services, from one Unit to another Unit or Developer, in the
same or different Special Economic Zone.
3. “Import” means—
bringing goods or receiving services, in a Special Economic Zone, by a Unit or Developer from
a place outside India by land, sea or air or by any other mode, whether physical or otherwise;
or
receiving goods, or services by a Unit or Developer from another Unit or Developer of the
same Special Economic Zone or a different Special Economic Zone.
4. “Offshore Banking Unit”

means a branch of a bank located in a Special Economic Zone and which has obtained the
permission under clause (a) of sub-section (1) of Section 23 of the Banking Regulation Act,
1949.
5. “Services” means such tradable services which.—

 are covered under the General Agreement on Trade in Services annexed as IB to the
Agreement establishing the World Trade Organisation concluded at Marrakesh on the 15th day
of April, 1994;
 may be prescribed by the Central Government for the purposes of this Act; and
earn foreign exchange.
What is Special Economic Zone?
Special Economic Zone (SEZ) is a specifically delineated duty free enclave and shall be
deemed to be foreign territory for the purposes of trade operations and duties and tariffs.
ESTABLISHMENT OF SPECIAL ECONOMIC ZONE
 Any person who, intends to set up a Special Economic Zone, may, after identifying the area,
make a proposal to the State Government concerned for the purposes of setting up a Special
Economic Zone.
 It also allows a person, at his option to make a proposal directly to the Board for the purpose
of setting up Special Economic Zone.
 In cases where such proposal has been received directly from a person, the Board may grant
approval and after receipt of such approval, the person concerned, is required to obtain the
concurrence of the State Government within prescribed time.
 In case a State Government intends to set up the Special Economic Zone, it may after
identifying the area, forward the proposal directly to the Board of Approval for setting up of
Special Economic Zone.
GUIDELINES FOR NOTIFYING SEZ
Section 5 stipulates broader guidelines to be considered by the Central Government, while

notifying any area as a Special Economic Zone or an area to be included in the SEZ and in
discharging its functions under the Act. These include:
(a) generation of additional economic activity;

(b) promotion of exports of goods and services;
(c) promotion of investment from domestic and foreign sources;
(d) creation of employment opportunities;
(e) development of infrastructure facilities; and
(f) maintenance of sovereignty and integrity of India, the security of the State and friendly
relations with foreign States
THE PROCESSING AND NON PROCESSING AREA
Section 6 empowers the Central Government or any specified authority to demarcate the
areas falling within the Special Economic Zones as –
The processing area for setting up Units for activities, being the manufacture of
goods, or rendering of services
(a)
The area exclusively for trading or warehousing purposes

(b)
The non-processing areas for activities other than those specified under (a) or (b)
above
(c)
EXEMPTION FROM DUTIES AND TAXES
Section 7 exempts all goods or services exported out of, or imported into, or procured from
the Domestic Tariff Area, by a Unit or Developer in a Special Economic Zone from the
payment of taxes, duties or cess under all enactments.
CONSTITUTION OF BOARD OF APPROVAL
Section 8 empowers the Central Government to constitute, by notification, the Board of

Approval within fifteen days of the commencement of the Act.
DUTIES, POWERS AND FUNCTIONS OF BOARD OF APPROVAL
The powers and functions of the Board, inter alia, include:

(a) granting of approval or rejecting proposal or modifying such proposals for establishment of
the Special Economic Zones;
(b) granting of approval to the Developers or Units (other than the Developers or the Units
which are exempt from obtaining approval under any law or by the Central Government) for
foreign collaborations and foreign direct investments (including investments by a person

resident outside India) in the Special Economic Zone for its development, operation and
maintenance;
(c) granting of approval or rejecting proposal for providing infrastructure facilities in a Special
Economic Zone or modifying such proposals;
(d) granting, a licence to an industrial undertaking referred to in section 3(d) of IDR Act, if
such undertaking is established, as a whole or part thereof, or proposed to be established, in
a Special Economic Zone;
(e) suspension of the letter of approval granted to a Developer and appointment of an
Administrator under Section 10(1) of the Act;
(f) disposing of appeals preferred under Section 15(4) and Section 16(4) of the Act;
(g) performing such other functions as may be assigned to it by the Central Government.
SUSPENSION OF LETTER OF APPROVAL AND TRANSFER OF SPECIAL ECONOMIC ZONE IN

CERTAIN CASES
The suspension may be ordered by the Board, if in its opinion following circumstances exist:
The developer is unable to discharge the functions or

perform the duties imposed on him
The developer has persistently defaulted in complying

with the directions of the Board
The developer has violated the terms and conditions of

the letter
The financial position of the developer is such that he is

unable to fully and efficiently discharge the duties and
obligations imposed on him by the letter of approval
However, no letter of approval can be suspended unless the Board has given to the Developer
not less than three months’ notice, in writing, stating the grounds on which it proposes to
suspend the letter of approval, and has considered any cause shown by the Developer within
the period of that notice, against the proposed suspension.
FUNCTIONS OF DEVELOPMENT COMMISSIONER
The functions of the Development Commissioner include :

(a) guide the entrepreneurs for setting up of Units in the Special Economic Zone;
(b) ensure and take suitable steps for effective promotion of exports from the Special Economic
Zone;
(c) ensure proper coordination with the Central Government or State Government Departments
concerned or agencies with respect to, or for above purposes;
(d) monitor the performance of the Developer and the Units in SEZ;
(e) discharge such other functions as may be assigned to him by the Central Government under
this Act or any other law for the time being in force; and any other functions as may be
delegated to him by the Board of approval.
CONSTITUTION OF APPROVAL COMMITTEE
Approval Committee is required to be constituted within six months from the date of
commencement of the Act and in case of other Special Economic Zones established after
the commencement of the Act within six months from the date of establishment of such
Special Economic Zone.
POWERS AND FUNCTIONS OF APPROVAL COMMITTEE
a) approve, the import or procurement of goods from the Domestic Tariff Area, for carrying
on the authorised operations by a Developer in the Special Economic Zone;
b) approve providing of services by a service provider from outside India or from the
Domestic Tariff Area for carrying on the authorised operations by the Developer, in the
Special Economic Zone;
monitor the utilisation of goods or services or warehousing or trading in the Special

Economic Zone;
c) approve, modify or reject proposals for setting up Units for manufacturing or rendering of
services or warehousing or trading in SEZ in accordance with the provisions of Section
15(8) of the Act;
d) allow on receipt of approval foreign collaborations and foreign direct investments, including
investments by a person outside India for setting up a Unit;
e) monitor and supervise compliance of conditions subject to which the letter of approval or
permission, if any, is granted to the Developer or entrepreneur; and
f) perform any other functions as may be entrusted to it by the Central Government or the
State Government concerned, as the case may be.
SETTING OF UNIT
Any person, who intends to set up a Unit for carrying on the authorized operations in a
Special Economic Zone,
1. to submit a proposal to the Development Commissioner concerned.
2. The Development Commissioner in turn place the proposal before the Approval Committee for
its approval.
3. The Approval Committee may, approve the proposal with or without modification, and subject
to such terms and conditions as it may deem fit, or reject the same.
4. In case of modification or rejection of a proposal, the Approval Committee has been put
under obligation to afford a reasonable opportunity of being heard to the person concerned
and after recording the reasons therefor, either modify or reject the proposal.
5. Sub-section (4) entitles a person aggrieved by an order of the Approval Committee, to make
an appeal to the Board of Approvals, within the prescribed time and specified manner.
6. The Development Commissioner may, after the approval of the proposal, grant a letter of
approval to the person concerned to set up a Unit and undertake in the Unit such operations
which the Development Commissioner may authorise and every such operation so authorised
is mentioned in the letter of approval.
7. Section 16 empowers the Approval Committee to cancel the letter of approval of an
entrepreneur after reasonable opportunity of being heard has been afforded to the
entrepreneur.
Setting up of Offshore Banking Unit

 An application for setting up and operation of an Offshore Banking Unit in a Special
Economic Zone may be made to the Reserve Bank, in the prescribed form and manner.
 The Reserve Bank of India may, on being satisfied that the applicant fulfills all the sp ecified
conditions, grant permission to such applicant for setting up and operation of an Offshore
Banking Unit in a Special Economic Zone.
SINGLE APPLICATION FORM, RETURNS
Section 19 empowers the Central Government to prescribe single application form for
obtaining any licence, permission or registration or approval by a Developer or an entrepreneur
under one or more Central Acts.
AGENCY TO INSPECT
Section 20 empowers the Central Government to specify, by notification, any officer or

agency for carrying out surveys or inspections for securing the compliance.
INVESTIGATION, SEARCH AND SEZUIRE
Any agency or officer, with prior intimation to the Development Commissioner concerned can
carry out the investigation, inspection, search or seizure in the Special Economic Zone or in a
Unit if such agency or officer has reason to believe (reasons to be recorded in writing) that
a notified offence has been committed or is likely to be committed in the Special Economic
Zone.
APPEAL TO HIGH COURT
 any person aggrieved by any decision or order of the designated Court to file an appeal to
the High Court within sixty days from the date of communication of the decision or order of
the said court to him on any question of fact or law arising out of such orders.
EXEMPTIONS, DRWABACK AND CONCESSION TO EVERY DEVELOPER AND ENTREPRENEUR
 The developer or entrepreneur has also been entitled to drawback or such other benefits as
may be admissible from time to time on goods brought or services provided from DTA into
SEZ or unit or services provided in SEZ or unit by service providers located outside India to
carry on the authorised operations by the Developer or entrepreneur.
SPECIAL ECONOMIC ZONE AUTHORITY
 In the case of an existing SEZ established by the Central Government the Central
Government has been empowered to establish such authority within six months from the
date of commencement of the Act
 Section 31(2) provides that every authority shall be a body corporate by name as assigned,
having perpetual succession and a common seal, with power to acquire, hold and dispose of
property, both movable and immovable and to contract and shall sue and be sued.
 Section 31(9) stipulates that no act or proceedings of an authority shall be invalidated
merely by reason of:
(i) any vacancy in or any defect;
(ii) any defect in the appointment of a person as its member; or
(iii) any irregularity in the procedure of the authority not affecting the merits of the case.
FUNCTIONS OF AUTHORITY
Section 34(2) provides for following measures:

(a) the development of infrastructure in the Special Economic Zone;
(b) promoting exports from the Special Economic Zone;
(c) reviewing the functioning and performance of the Special Economic Zone;
(d) levy user or service charges or fees or rent for the use of properties belonging to the
Authority;
(e) performing such other functions as may be prescribed.
RETURN AND REPORTS BY AUTHORITY
 Section 39 casts upon every Authority of the Special Economic Zone a duty to furnish to the
Central Government returns and statements in regard to the promotion and development of
exports and the operation and maintenance of the Special Economic Zone and Units.
 This section further requires every authority to submit to the Central Government after the
end of each financial year a report in form and before specified date, giving a true and full
account of its activities, policy and programmes during the previous financial year.
 Section 39(3) requires a copy of every such report to be laid before each House of
Parliament, soon after its receipt
POWERS OF CENTRAL GOVERNMENT TO SUPERSEDE AUTHORITY
 Central Government can supersede an Authority for a maximum period of six months if at
any time, it is of the opinion that an Authority is unable to perform,
 or has persistently made default in the performance of the duty imposed on it
 or has exceeded or abused its powers,
 or has wilfully or without sufficient cause, failed to comply with any direction issued by it.
However, before superseding an authority, the Central Government is required to give
reasonable time to that Authority to make representation against the proposed suppression
and consider the representations, if any, of the Authority.
Section 40(2) dealing with the consequences of publication of the notification superseding
the Authority, provides that,
(a) the Chairperson and other Members of the Authority shall, notwithstanding that their term
of office has not expired as from the date of supersession, vacate their offices as such;
(b) all the powers, functions and duties which may, by or under the provisions of the Act, be
exercised or discharged by or on behalf of the Authority shall, during the period of
supersession, be exercised and performed by such person or persons as the Central
Government may direct;
(c) all property vested in the Authority shall, during the period of supersession, vest in the
Central Government.
Section 40(3) also provides that on the expiration of the period of supersession specified in
the notification, the Central Government may extend the period of supersession for such
further period not exceeding six months or reconstitute the Authority in the prescribed
manner.
REFERENCE OF DISPUTES AND LIMITATIONS
any dispute of civil nature arising among two or more entrepreneurs or Developers or between
the entrepreneur and Developer in the Special Economic Zone to be referred to arbitration
provided, the court or the courts to try suits in respect of such dispute had not been
designated.
IDENTITY CARD
Section 46 requires that every person whether employed or residing or required to be present
in a Special Economic Zone be provided an identity card by every Development Commissioner
CS- EXE Economic Business and Commercial Laws Competition Act
CHAPTER 12- THE COMPETITION ACT, 2002
INTRODUCTION
There are many things about the goods and services we purchase that we hardly give much
thought to. For instance, who decided what goods to produce? How much influence does the
consumer really have on the products firms decide to make? In this lesson we will take some
time to learn about the goods and services that have become such a big part of our lives. A
look at these questions and more will help us to better understand the concept of
competitive market.
A competitive market is one where there are numerous producers that compete with one
another in hopes to provide goods and services, as consumers, want and need. In other words,
not one single producer can dictate the market. Also, like producers, not one consumer can
dictate the market either. This concept is also true where price and quantity of goods are
concerned. One producer and one consumer can't decide the price of goods or decide the
quantity that will be produced.
A great example of competitive market is farming. There are thousands of farmers and not
one of them can influence the market or the price based on how much they grow. All the
farmer can do is grow the crop and accept whatever the current price is for that product.
They do not get to determine the price they want to sell the crop for.
The world’s economy was growing with globalization and it was necessary to encourage
competition and foster economy development. The MRTP Act, 1969 had become obsolete due
to growing economic changes. Hence there was a need felt to shift the focus from curbing
monopolies to promoting competition. Hence the Competition Act, 2002 was enacted which
aims at doing away the rigidly structured MRTP Act.
DEFINITION OF MRTP ACT
MRTP Act or otherwise known as Monopolistic and Restrictive Trade Practices Act, was the
first-time ever, competition law in India, that came into force in the year 1970. However, it
underwent amendment in different years. It aimed at:
 Controlling and regulating the centralization of economic power.
 Controlling monopolies, restrictive, unfair trade practices.
 Prohibit monopolistic activities
Further, the act makes a distinction between Monopolistic Trade Practices and Restrictive
Trade Practices, summarized as under:
1. Monopolistic Practices: The practices adopted by the undertaking, on account of their
dominance, which harm the public interest. It includes:
o Charging unreasonably high prices.
o Policy the lessens existing and potential competition.
o Restricting capital investment and technical development.
2. Restrictive Practices: Acts that prevent, distort or restrict competition comes under
restrictive practices. These are adopted by a few dominant firm with an agreement to hinder
the growth of competition, called as cartelization. It includes:
o Restricting the sale or purchase of goods to/from specified persons.
o Tie-in-sale, i.e. forcing the customer to purchase a particular product, so as to purchase
another product.
o Restricting areas of sale.
o Boycott
o Formation of cartels
o Predatory pricing
Subject Matter MRTP Act Competition Act

Meaning MRTP Act, is the first Competition Act, is
competition law made in implemented to promote and
India, which covers rules and keep up competition in the
regulations relating to unfair economy and ensure freedom
trade practices. of business.
Base It is based upon the pre- It is based upon the post
liberalisation scenario. liberalization scenario.
Focus It focuses on curbing It focuses on promoting
monopolies. competition.
Registration of agreement It provides for compulsory It does not provide for
registration of agreements registration of agreement.
relating to restrictive trade
practices.
Dominance Dominance was considered Dominance is not considered
bad. bad but abuse of dominance
is considered bad.
Combination There was no provision for There are provision for
combination. combination.
COMPETITION
Competition can also be defined as a process of economic rivalry between market players to
attract customers. These market players can be multinational or domestic companies,
wholesalers, retailers, or even the neighborhood shopkeeper. In their pursuit to out do rival
enterprises, market players either adopt fair means (producing quality goods, being cost
efficient, adopting appropriate technologies, etc.) or indulge in unfair measures (carrying out
restrictive business practices –such as predatory pricing, exclusive dealing, tied selling,
collusion, cartelization , abuse of dominant position, etc.). However, in the interest of
consumers, and the economy as a whole, it is necessary to promote an environment that
facilitates fair competitive outcomes in the market, curb anti-competitive behaviour and
discourage market players from adopting unfair measures.
What is competition in the market?

In common parlance, competition in the market means sellers striving independently for
buyers’ trust to maximize profit (or other business objectives).A buyer prefers to buy a
product at a price that maximizes his benefits whereas the seller prefers to sell the product
at a price that maximizes his profit.
Importance of competition in market

From the very formative years of our life we have been facing competition. From siblings
fight for attention of our parents to the competition we faced in school for grades and
further to competition at workplace, we have to face it all. So, competition is foundation of
our lives, rather it is said that 'No completion, No Progress'. Similarly, healthy competition
becomes an essential element for business these days. It serves the following purposes: -
 Consumers have the access to the widest range of products and services at the most
competitive prices.
 Producers will be benefited by innovation, reducing costs and meeting consumer demands.
 Competition does not lead to creation of Monopolies in market.
 It leads to Economic Growth of the country.
 Improved quality of goods leads to better living standards.
Purpose and objectives of The Competition Act

The Act was passed in December 2002 and assented on 13th January, 2003. It became
effective from 31st March, 2003.
Objectives of the Act

 To prevent practices which have adverse effect on competition.
 To Promote and Sustain Competition
 To establish competition commission in India
 To regulate combination
 To ensure freedom of trade

 To protect the interest of consumer.
DEFINITIONS (SECTION 2)
1) Acquisition
Acquisition means directly or indirectly, acquiring or agreeing to acquire:
(i) shares, voting rights or assets of any enterprise;
(ii) control over management or control over assets of any enterprise.
2) Agreement
The term includes any arrangement or understanding or action in concert
(i) whether or not, such arrangement, understanding or concert is in formal or in writing; or
(ii) whether or not such arrangement, understanding or concert is intended to be enforceable by
legal proceedings.
3) Cartel
Cartel includes an association of
1) producers,
2) sellers,
3) distributors
4) traders
5) service providers
Who by agreement amongst themselves, limit, control or attempt to control the

 production or
 distribution or
 sale or
 price of or
 trade in goods or provision of services.
Note:
1) The nature of a cartel is to raise price above competitive levels, resulting in injury to
consumers and to the economy.
2) Cartelization results in higher prices, poor quality and less or no choice for goods or/and
services for the consumers.
3) If there is effective competition in the market, cartels would find it difficult to be formed
and sustained.
International Cartel: When not all of the enterprises in a cartel are based in the same
country or when the cartel effects markets of more than one country then an international
cartel shall exist.
4) Consumer
Consumer means any person who:
 Buys any goods for a consideration which has been paid or promised or partly paid and partly
promised, or under any system of deferred payment and includes any user of such goods
other than the person who buys such goods for consideration paid or promised or under any
system of deferred payment when such use is made with the approval of such person,
whether such purchase of goods is for resale or for any commercial purpose or for personal
use.
 Hires or avails of any services for a consideration which has been paid or promised or partly
paid and partly promised, or under any system of deferred payment when such services are
availed of with the approval of the first-mentioned person whether such hiring or availing of
services is for any commercial purpose or for personal use.
In other words, a person shall be treated as consumer who:
(a) buys goods or avails any services
(b) has paid consideration or to be paid
Note:
 The goods can also be consumed by another person allowed by the buyer.
 The services can also be availed by another person allowed by the buyer.
Special Note:
1. A person will be treated as a consumer under this Act, even if he buys good or avail services
for re-sale or commercial purpose.
2. In Competition Act, consumer who consumes goods or services for commercial purpose is also
covered in the ambit of definition of consumer. Whereas in Consumer Protection Act
consumer who buys good or avail services for commercial purpose are excluded from the
definition of consumer.
5) Enterprise
Enterprise means:
 A person or Department of Government (carrying out Non-Sovereign Activity)
 Engaged in
1. production, control of goods or articles, or
2. provision of services, or
3. investment, or
4. business of acquiring, holding, underwriting or dealing with shares, debentures or other
securities.
Note: The location of division/subsidiary/unit of enterprise can be at the same place where
enterprise is located or at some other place.
Analysis whether Government Department be treated as Enterprise:
Government Department engaged in carrying out Sovereign Not treated as

functions Enterprise
Government Department carrying out Non-Sovereign functions Treated as Enterprise
Government Department engaged in atomic energy, currency, Not treated as

defence and space Enterprise
6) Goods
Goods means goods as defined in Sale of Goods Act, 1930 and includes
1. products manufactured, processed or mined;
2. debentures, shares and stocks after allotment;
3. in relation to ̳goods supplied, goods imported into India.
7) Service
Service means service of any description which is made available to potential users and
includes the provision of services in connection with business of any industrial or commercial
matters such as banking, communication, education, financing, insurance, chit funds, real
estate, transport, storage, material treatment, processing, supply of electrical or other energy,
boarding, lodging, entertainment, amusement, construction, repair, conveying of news or
information and advertising.
8) Relevant Market
Relevant market means the market, which may be determined by the Commission with
reference to 'relevant product market' or 'relevant geographic market' or with reference to
both the markets.
9) Relevant Product Market

“Relevant Product Market” means a market compromising all those products or services
which are regarded as interchangeable or substitutable by the consumer by reason of
characteristics of the products or services, their prices and intended use.
 A market which has interchangeable or substitutable goods or services is termed as relevant
product market. The substitution is with regards to:
1. Price, or
2. Characteristics, or
3. Intended use.
 Factors considered for relevant product market by CCI –
1. Physical characteristics or end – use of goods
2. Price of goods or services
3. Consumer preferences
4. Exclusion of in-house production
5. Existence of specialized producers
6. Classification of industrial products.
10) Relevant Geographic Market

‘Relevant Geographic’ means a market compromising the area in which the conditions of
competition for supply of goods or provision of services or demand of goods or services are
distinctly homogenous, can be distinguished from the conditions prevailing in neighboring
areas.
 Relevant Geographical Market is a market in which goods & services are of:
1. Distinctly homogenous nature, and
2. Can be distinguished from conditions prevailing in neighboring areas.
Note: These types of markets can be local, national or international.
Factors to consider for determining relevant market by CCI

The commission while determining the “Relevant Geographic Market” shall consider following
factors –
1. Regulatory trade barriers
2. Local specification requirements
3. National procurement policies
4. Adequate distribution facilities
5. Transport costs
6. Language
7. Consumer preferences
8. Need for secure or regular supplies or rapid after sale services.
Relevant Market
Means a market determined by CCI with

reference to
Relevant Product Market Relevant Geographic Market
Means a market compromising of

Market in which goods and
1) Interchangeable goods and services
services are of
2) Substitutable goods and services
With reference to
Distinctly Can be
homogenous distinguished from
nature conditions prevailing
Price Characteristic Intended use in neighboring areas
ssssss
ANTI-COMPETITIVE AGREEMENTS – SECTION 3
 Any agreement for controlling goods or services which has appreciable adverse effect on
competition in India is prohibited. These kinds of agreements are known as anti-competitive
agreements.
 “Appreciable adverse effect” means when some activity restricts the competition in the
market.
 Any agreement among enterprises at different stages of the production chain in different
markets in respect of production, supply, distribution, storage, acquisition or control of goods
or provision of services including the following shall be treated as anti-competitive agreement
if it has following arrangement:
1. Tie-in arrangement
2. Exclusive supply arrangement
3. Exclusive distribution agreement
4. Refusal to deal
5. Resale price maintenance
6. Allocate markets
7. To fix price
1) Tie-in arrangement
 Any agreement requiring a purchaser of goods, as a condition of such purchase, to purchase
some other goods.
 A good example of tie-in agreement is where a gas distributor requires a consumer to buy a
gas stove as a pre-condition to obtain connection of domestic cooking gas.
2) Exclusive supply arrangement

 Any agreement restricting in any manner the purchaser in course of his trade from acquiring
or otherwise dealing in any goods other than those of the seller or any other person.
 A good example of exclusive supply arrangement is where a manufacturer asks a dealer not to
deal in similar products of its competitor directly or indirectly and discontinues the supply on
the ground that dealer also deals in product of suppliers ‘competitor’s goods.
3) Exclusive distribution arrangement

 Any agreement to limit, restrict or withhold the output or supply of any goods or allocate any
area or market for the disposal or sale of the goods.
 A good example of exclusive distribution arrangement is requiring a distributor not to sell the
goods of the manufacturer beyond the prescribed territory.
4) Refusal to deal
 Any agreement, which restricts, or is likely to restrict, by any method the persons or classes
of persons to whom goods are sold or from whom goods are bought.
 A good example of refusal to deal is an agreement which provides that the franchisees will
not deal in products or goods of similar nature for a period of three years from the date of
determination of agreement within a radius of five kms from showroom amounts to exclusive
dealing agreement.
5) Resale price maintenance

 Any agreement to sell goods on condition that the prices to be charged on resale by the
purchaser shall be the prices stipulated by the seller unless it is clearly stated that prices
lower than those prices may be charged.
 A good example of resale price maintenance is if any stipulation that the cement dealer
should not sell below the stipulated price.
BID RIGGING OR COLLUSIVE BIDDING
 Bidding, as a practice, is intended to enable the procurement of goods or services on the

most favorable terms and conditions. Invitation of bids is resorted to both by Government
(and Government entities) and private bodies (companies, corporations, etc.). But the
objective of securing the most favorable prices and conditions may be negated if the
prospective bidders collude or act in concert.
 Bid rigging is an agreement between enterprises or persons engaged in similar production of
trading of goods or provision of service, which has effect of eliminating or reduce the
competition for bid.
Examples:
 Agreements to submit identical bids.
 Agreements as to who shall submit lowest bid and submission for another bid at higher price
to cover lower bid.
 Agreements not to bid against each other
 Agreements on common norms to calculate prices or terms of bid,
 Agreements to eliminate outside bidders
 Agreements designating bid winners in advance on a rotational basis, or on a geographical or
customer allocation basis.
TYPES OF ANTI – COMPETITIVE CONTRACTS
Anti-competitive agreement can be classified into following two categories:

1) Horizontal anti-competitive agreements
2) Vertical anti-competitive agreements
1) Horizontal anti-competitive agreements

Horizontal agreements are those agreements among competitors operating at the same level
in the economic process i.e. enterprises engaged in the same activity. Agreement takes place
between enterprises that are at the same stage of production chain and in the same ma rket.
Horizontal agreements and membership of cartels lead to unreasonable restriction on
competition and may be presumed to have an appreciable adverse effect on competition.
For e.g. Price fixation, Output control/Production control, Market sharing or Bid Rigging
Note - The agreements falling in shall be presumed to have appreciable adverse effect on
competition and thereby they are construed as deemed restrictive agreements.
2) Vertical anti-competitive agreements

Vertical agreements are those agreements which are entered into between two or more
enterprises operating at different levels of production. They are agreement between
enterprises that are at different stages or levels of the production change and therefore in
different markets. This includes Tie in arrangements, exclusive supply arrangements, exclusive
distribution agreements, refusal to deal and resale price maintenance.
For example: Agreement between manufactures of components, manufactures of products,
between producers and whole-sellers or between producers, whole sellers and retailers
Note - The agreements shall be judged by rule of reason and the onus lies on the prosecutor
to prove its appreciable adverse effect on competition. The definition of all restrictive
concepts covered here are inclusive.
EXEMPTIONS TO ANTI-COMPETITIVE AGREEMENT
The following agreements are not regarded as anti-competitive agreement:

1) Joint Venture agreement
An agreement entered through a joint venture which increases the efficiency in production,
supply, distribution, storage, acquisition or control of goods and services shall is not anti -
competitive agreement.
2) Any exclusive right granted (Intellectual Property)
Any exclusive right granted to person for production, supply, distribution or use under
(a) The Copyright Act, 1957;
(b) The Patents Act, 1970;
(c) The Trade and Merchandise Marks Act, 1958 or the Trade Marks Act, 1999;
(d) The Geographical Indications of Goods (Registration and Protection) Act, 1999;
(e) The Designs Act, 2000;
(f) The Semi-conductor Integrated Circuits Layout-Design Act, 2000.
EFFECT OF ANTI-COMPETITIVE AGREEMENT
Anti-competition agreement if entered shall be void.
FACTORS FOR DETERMINING ADVERSE EFFECT ON COMPETITION (SECTION 19(3))
While determining whether an agreement has an appreciable adverse effect on competition

under this section the commission shall consider the following factor:
 Creation of barriers to new entrants in the market
 Driving existing competition out of the market
 Foreclosure of competition by hindering entry into the market
 Accrual of benefits to consumers
 Improvement in production or distribution of goods or provide services.
 Promotion of technical, scientific and economic development by means of production or
distribution of goods or provision of services.
CONDITIONS CONDUCTIVE TO CARTELIZATION
 Few competitors
 High entry and exit barriers
 Dealing in similar products
 Similar production costs
 Excess capacity
 High dependence of consumers on the product
WHAT IS AN ANTI-COMPETITIVE AGREEMENT?

An anti-competitive agreement is an agreement having appreciable adverse effect on
competition. Anti-competitive agreements include, but are not limited to:-
 agreement to limit production and/or supply;
 agreement to allocate markets;
 agreement to fix price;
 bid rigging or collusive bidding;
 conditional purchase/ sale (tie-in arrangement);
 exclusive supply / distribution arrangement;
 resale price maintenance; and
 refusal to deal.
DOMINANT POSITION – SECTION 4
 According to Section 4,
“Dominant position” means –
A position of strength enjoyed by an enterprise or group in relevant market, in India which
enables it to:
1) Operate independently of competitive forces prevailing in the relevant market or
2) Affect its competitors or consumers of the relevant market in its favor.
An enterprise/group might have dominant position which is not bad under Competition Act,
2002. The abuse of such dominant position is considered bad.
Factors to determine Dominant Position

There are a few factors which the commission has to consider while determining whether an
enterprise enjoys a dominant position or not which are:
 Market share of the enterprise;
 Size and resources of the enterprise;
 Size and importance of the competitors;
 Economic power of the enterprise including commercial advantages over competitors;
 Vertical integration of the enterprises or sale or service network of such enterprises;
 Dependence of consumers on the enterprise;
 Monopoly or dominant position whether acquired as a result of any statute or by virtue of
being a Government company or a public sector undertaking or otherwise;
 Entry barriers including barriers such as regulatory barriers, financial risk, high capital cost of
entry, marketing entry barriers, technical entry barriers, economies of scale, high cost of
substitutable goods or service for consumers;
 Countervailing buying power;
 Market structure and size of market;
 Social obligations and social costs;

 Relative advantage, by way of the contribution to the economic development, by the
enterprise enjoying a dominant position having or likely to have an appreciable adverse effect
on competition;
 Any other factor which the Commission may consider relevant for the inquiry.
Meru Travel Solutions Pvt. Ltd Versus ANI technologies Pvt. Ltd (OLA)
The CCI while determining whether OLA held a dominant position in relevant market or not
remarked the abuse of dominant position under Section 4 would only be attracted when the
entity under the scrutiny holds a dominant position in the relevant market. CCI elaborated
the concept of dominant position. They kept in mind the market share of OLA, its
competitors in relevant market and the annual trips during the investigation period.
Abuse of Dominant Position

Any enterprise or group shall not abuse its dominant position. Any agreement by an
enterprise/group abusing its dominant position is prohibited. An enterprise or group is said to
have abused its dominant position if it directly or indirectly –
 Imposes unfair condition or price
 Predatory pricing
 Limits or restricts
a. Production of goods or provision of service or market
b. Technical or scientific development relating to goods or services.
 Creating barriers to entry
 Denying the market access
Abuse of dominant position shall also be present when one uses their dominant position in
one market to gain advantage in other market.
GROUP
“Group” means two or more enterprises directly or indirectly are in a position to:
 Exercise 26% or more of voting rights in other enterprise
 Appoint more than 50% members on board of directors in other enterprises
 Control the management or affairs of the other enterprise
PREDATORY PRICING
“Predatory pricing” means the sale of goods or provision of service at a price below the cost
of production to reduce competition or eliminate the competitors. The main purpose of such a
price is to reduce competition or eliminate the competitors.
COMPETITION COMMISSION OF INDIA’S INQUIRY INTO AGREEMENT AND DOMINANT

POSITION
The Competition Commission of India has been empowered under Section 19(4) of the Act to
enquire
 Adverse effects of an agreement on competition; and
 Whether an enterprise enjoys a dominant position.
The commission may inquire either on
 Its own motion or
 On a complaint received from any person, consumer or trade association; or
 On a reference made to it by the Central Government, state government or a statutory
authority.
The director General is not vested with a right to move an application for institution of an
enquiry relating to anti-competitive agreement or abuse of dominance.
COMBINATION
Combination under the Act means acquisition of control, shares, voting rights or assets,
acquisition of control by a person over an enterprise where such person has direct or indirect
control over another enterprise engaged in competing businesses, and mergers and
amalgamations between or amongst enterprises when the combining parties exceed the
thresholds set in the Act. The thresholds are specified in the Act in terms of assets or
turnover in India and outside India.
In simple words,
Combination is the acquisition of
 One of more enterprises or
 Merger or
 Amalgamation or
 Control over enterprises.
The acquisition by one or more persons, or merger or amalgamation shall be a combination if
it meets the prescribed monetary thresholds and involves:
 Any acquisition of control, shares, voting rights or assets of any enterprises.
 Any acquisition of control by a person over enterprises, where such a person already has
direct or indirect control over another enterprise in similar business.
 Any merger or amalgamation of enterprises.
“Control”
Control includes controlling the affairs or management by:
 One of more enterprises, either jointly or singly, over another enterprise or group.
 One or more groups either jointly or singly over another group or enterprise.
“Value of assets”
Value of assets means the book value of the assets as per last audited books of accounts of
the enterprise, in the financial year immediately preceding the financial year in which the
date of proposed merger falls as reduced by any depreciation.
What is base to determine combination?

The act provides assets or turnover as the basis of the parties to determine combination. It
can be created by a group of persons or by more than one enterprise or created as a result
of a merger or amalgamation.
The limit of assets or turnover is set below:
Particulars Assets Turnover
In India Enterprise Level INR 2000 Crore INR 6000 Crore
Group Level INR 8000 Crore INR 24000 Crore
Total In India Total In India
In India or Enterprise Level USD 1 Billion INR 1000 Crore USD 3 Billion INR 3000
Outside Crore
India
Group Level USD 4 Billion INR 1000 Crore USD 12 Billion INR 3000
Crore
Exemption from provision of Combination

The Central government has granted exemption from application of Section 5 or Section 6
 to the enterprises being party to any acquisition or where enterprises whose control, shares,
voting rights or assets are being acquired, having assets of the value of not more than 350
crores or turnover of not more than 1000 crore from the combination provision of the act for
5 years.
 To public interest all cases of reconstitution, transfer of undertaking or amalgamation of
banking companies as per Banking Acts for a period of 10 years.
 In public interest to the Regional Rural banks for a period of 5 years
 To Central Public Sector Enterprises (CPSEs) engaged in the Oil and Gas Sectors (OGS)
along with their wholly or partly owned subsidiaries operating in OGS for a period of 5 years.
Regulation of combination – Section 6

 Any person or enterprise that proposes to enter into combination shall give notice to the
Competition Commission in the method prescribed within 30 days to:
1. Approval of Board of Directors of proposal relating to merger or amalgamation.
2. Execution of any agreement relating to acquisition or acquiring control.
 A recent exemption dated June 29, 2017 reduces the burden on parties for adherence of the
30-day time-period for a period of 5 years from the date of notification, allowing them to
provide comprehensive and complete notifications to the CCI. Attention to be paid that this
exemption only give relaxation in term of time period and do not all together exempt the
parties from filing the notice.
 CCI will scrutinize the notice for defects or incompleteness. If found defective or incomplete
the parties are asked to remove the defects.
 CCI will form a prima facie opinion on the notice within 30 days of the receipt of notice. It
may ask for additional information as well.
 CCI asks the parties to publish the details of the combination to invite the public for
objections within 15 working days from the publishing.
 CCI on the basis of information decides whether the Combination will have any unfavorable
effects on the competition or not and take decision as follows: -
1. If CCI believes competition will not be adversely affected: CCI shall approve of the
transaction.
2. If CCI believes competition will be adversely affected: CCI shall hold the transaction null &
void.
Note: CCI can also ask parties to make modifications to eliminate the provisions which are
likely to affect competition adversely.
 Combination will not come into effect until 210 days elapse from the day on which notice
has been given to commission or order has been passed, whichever is earlier.
 This section shall not be applicable where shares are subscribed by FI, FII, Bank, Venture
Capital fund as per any loan agreement or investment agreement and details of such
investment is filled with commission within 7 days.
DIRECTOR GENERAL – SECTION 16
Appointment
 Director General is appointed by the Central Government by notification.
 He is appointed to assist the Commission in conducting inquiry into contravention of any of
the provisions of the Act and for performing such other functions provided under the Act.
 The Central Government is also empowered to appoint such number of additional, joint,
deputy or assistant Director Generals or other advisers, consultants or officers for the purpose
of assisting the Commission in conducting inquiry into the contravention of any provision of
the Act.
Qualification
The Director General and additional, joint, deputy and assistant director general or other
employees are appointed from experts and professionals of integrity and outstanding ability
and who have experience in investigation and knowledge of economics, law, business
management, business, public administration, international trade, or such other disciplines
related to competition and such other qualification as may be prescribed.
Salary & Allowance

The salary, allowances and other terms and conditions and service of Director General,
consultants, advisors or other officers assisting him shall be such as may be prescribed by
the Central Government.
Discharge function
Every Additional, joint, deputy and assistant Director Generals, other advisors, consultants
and officers shall exercise powers and discharge functions subject to the general control,
supervision and directions of the Director General.
Duty and power

 The director general has same power as available to Commission under Civil court under the
Code of Civil Procedure. Some of the powers are:
1. Summoning and enforcing the attendance of any person and examining him on oath.
2. Requiring the discovery and production of documents.
3. Receiving evidence on affidavits.
4. Issuing commissions for the examination of witnesses or documents.
 Director General also has the power to search and seizure of the record of any person of
which investigation has been directed by the Commission.
 Director General is bound to follow directions issued by the Commission.
 Director General has to assist Commission in investigation related to the provision of this
Act.
COMPETITION COMMISSION OF INDIA (CCI)
Establishment – Section 7
 CCI is established by the Central Government by notification in the official Gazette.
 CCI is a body corporate having perpetual succession and common seal.
 The Commission’s head office shall be at a place notified by CG from time to time and the
commission can also establish its office at other places too.
Commission – Section 8
 CCI consists of a Chairman and 2-6 Members.
 All of them shall be whole time members of the Commission.
 Chairperson and the members are to be appointed by the Central Government from a panel
of names recommended by a Selection Committee.
 Chairman and every other Member shall be person of ability, integrity and standing and who
has special knowledge of and such professional experience of not less than 15 years in
international trade, economics, business, commerce, law, finance, accountancy, management,
industry, public affairs or competition matters including competition law and policy which in
the opinion of the Central Government, may be useful to the Commission.
Selection Committee- Section 9

 Selection Committee consisting of
1. The Chief Justice of India or his nominee - as Chairperson.
2. The Secretary in the Ministry of Corporate Affairs- as Member.
3. the Secretary in the Ministry of Law and Justice - as Member
4. Two experts of repute who have special knowledge of, and professional experience in
international trade, economics, business, commerce, law, finance, accountancy, management,
industry, public affairs or competition matters including competition law and policy, as
member.
Reappointment and age or Retirement – Section 10

 Chairperson and other members shall hold office for a term of 5 years and shall be eligible
for reappointment.
 Chairperson and other members cannot hold office after he has attained the age of 65 years.
Vacancy
 Any vacancy that is caused by the resignation, removal or death or otherwise of the
Chairperson or members is filled by fresh appointment.
 The senior most members shall act as the Chairperson, until a new Chairperson is appointed
under the Act, in the event of vacancy in the office of chairman.
 When the Chairperson is unable to discharge his functions owing to absence, illness or any
other cause, the senior-most Member shall discharge the functions of the Chairperson until
the date on which the Chairperson resumes the charge of his functions.
Resignation – Section 11
 The Chairperson or any other Member may resign his office on the following conditions:
1. Resignation must be in writing.
2. Resignation should be addressed to the Central Government.
 Chairperson or member who has resigned his office is required to continue his office until:
1. He is permitted by the Central Government.
2. The expiry of 3 months from date of receipt of notice.
3. A person is duly appointed in his place.

4. The expiry of his term of office, whichever is earlier.
Removal of Chairperson and other members

 Central Government may by order remove the Chairperson or any Member from his office if
such Chairman or Member as the case may be -
a) Has been declared insolvent.
b) Has engaged at any time, during his term of office, in any paid employment.
c) Has been convicted of an offence which, in the opinion of the Central Government, involves
moral turpitude.
d) Has acquired such financial or other interest as it likely to affect prejudicially his functions
as a Member.
e) Has so abused his position as to render his continuance in office prejudicial to the public
interest.
f) Has become physically or mentally incapable of acting as a Member.
 Whenever Central Government makes an opinion that any member of the commission has
acquired financial interest in any enterprise or abused his position, it shall make such
reference to the Supreme Court.
 The Supreme Court shall then hold an enquiry and then report whether the Member in
question is to be removed from his office.
Restriction on employment – Section 12

 The Chairperson and other Member cease to hold office shall not accept any appointment in
or connected with the management or administration of, any enterprise which has been a
party to the proceeding before the Commission for a period of two years from the date on.
 This restriction shall not apply to any employment under
a) The Central Government or a
b) State Government
c) Local authority
d) Any corporation established by or under any Central, State or Provincial Act
e) Government company
Power of Chairperson – Section 13

 Chairperson has powers of general superintend, direction and control in respect of all
administrative matters of the Commission.
 Chairperson is also empowered to delegate his powers relating to administrative matters of
the Commission to any other Member or officer of the Commission.
Salary and allowance of Member – Section 14

 The Central Government may make rules regarding salary, travelling expenses, HRA and other
allowance of Chairperson and Member.
 Salary, allowance and terms and conditions of service of Chairperson and Member should not
be changed to his disadvantages after appointment.
Vacancy shall not invalidate function of CCI –Section 15

Any act of the commission shall not be invalidated merely on the ground of:
a) Any vacancy.
b) Any defect in the constitution of the Commission.
c) Any defect in the appointment of Chairperson or member
d) Any irregularity in the procedure of the Commission.
Function of CCI – Section 18

CCI has duty to:
a) Eliminate practices having adverse effect on competition.
b) Promote and sustain competition.
c) Protect the interests of consumers.
d) Ensure freedom of trade carried on by other participants in markets in India.
To achieve objectives the Commission may with the prior approval of the Central Government
enter into memorandum or arrangement with any agency of any foreign country. This will
enable the CCI to have extra territorial reach and shall facilitate exchange of information and
enforcement of its order.
Accounts of commission – Section 52

 Commission shall maintain proper accounts and other relevant records.
 It shall prepare an annual statement of accounts as per format prescribed by the Central
Government in consultation with the Comptroller & Auditor General of India.
 The accounts of the Commission shall be audited by the C & AG of India at such intervals
as may be specified by him.
 Expenses of audit is payable by the Commission to the C & AG.
 The accounts of the Commission as certified by the Comptroller and Auditor-General of India
or any other person appointed by him in this behalf together with the audit report thereon
shall be forwarded annually to the Central Government and that Government shall cause the
same to be laid before each House of Parliament.
Procedure for inquiry by CCI (Section 26)

 When the commission is of the opinion that there exists no prima facie case, it shall close
the matter and send a copy of the order to the concerned parties.
 But on reference or if the Commission is of the opinion that there exists a case then CCI
shall direct the DG to investigate into the matter.
 The DG shall investigate into the matter and submit a report of their findings within the
period prescribed by CCI.
 Commission shall forward a copy of the report to
1. The parties concerned or
2. The Central Government or
3. The State Government or
4. Statutory authority.
 If report of DG recommends that there is no contravention of the provisions of the Act the
commission shall invite objections or suggestions on the report from
1. The parties concerned or
2. The Central Government or
3. The State Government or
4. Statutory authority.
 If after consideration of the suggestions, Commission agrees with the recommendation of DG

it shall close the matter and pass necessary orders.
 The order shall be communicated to the concerned parties.
 If after the consideration of the objections, Commission is of the opinion that further
investigation is required then it may direct further investigation in the matter by the DG.
 If the report of the DG recommends that there is contravention of any provisions of this Act
and the committee is of the opinion that further inquiry is required it shall inquire into such
contravention in accordance with the provision of this Act.
Order of commission after inquiry (Section 27)

 After any inquiry if the Commission finds that any agreement or action of an enterprise in a
dominant position is in contravention of Section 3 or Section 4 then it may pass all or any
of the following orders:
1. Direct the party to discontinue and not re-enter into such agreement or discontinue such
abuse of dominant position.
2. Impose Penalty- Not more than 10% of the average of the turnover for the last 3 financial
years upon each of such person or enterprises which are parties to such agreements or abuse.
 In case of any carte the Commission may impose upon each producer, seller, distributor,
trader or service provider participating in that cartel,
Penalty-
1) up to 3 times of its profits for each year of the continuance of such agreement or
2) 10% of its turnover for each financial year of the continuance of such agreement whichever
is higher.
3. Direct that the agreements shall stand modified.
4. Direct the enterprises to abide by such orders including payment of costs, if any.
5. Pass such order or issue directions as it may deem fit.
Division of undertaking by order of CCI (Section 28)

The Commission by order in writing, direct division of an enterprise enjoying dominant
position to ensure that such enterprise or group does not abuse its dominant position. The
order of the Commission may provide for all or any of the following matters,
1) the transfer or vesting of property, rights, liabilities or obligations;
2) the adjustment of contracts either by discharge or reduction of any liability or obligation or
otherwise;
3) the creation, allotment, surrender or cancellation of any shares, stocks or securities;
4) the formation of new enterprise
5) winding up of an enterprise
6) The amendment of the memorandum of association or articles of association or any other
instruments regulating the business of any enterprise;
7) The extent to which, and the circumstances in which, provisions of the order affecting an
enterprise may be altered by the enterprise and the registration thereof;
8) Any other matter which may be necessary to give effect to the division of the enterprise or
group.
Regulation of CCI Proceeding

 Commission shall have the powers to regulate its own procedure.
 It shall be guided by the principles of natural justice and provisions of this act.
 Commission has same power as vested in Civil Court under the Code of Civil Procedure. Some
of the powers are:
1. Summoning and enforcing the attendance of any person and examining him on oath.
2. Requiring the discovery and production of documents.
3. Receiving evidence on affidavits.
4. Issuing commissions for the examination of witnesses or documents.
5. Requisitioning of any public record, document or copy of such record or document from any
office.
 Other important powers of CCI:
1. To inquire into anti –competitive and abuse of dominant position.
2. To determine whether an agreement has an appreciable adverse effect on competition
3. Enquire whether a combination has cause or likely to cause an appreciable adverse effect on
competition
4. To issue cease and desist order
5. To grant interim relief
6. To award compensation
7. To impose fine
8. To order for division of dominant undertaking
9. To order for demerger
10. To order cost for frivolous compliant.
 CCI can call upon experts from the field of economics, commerce, accountancy, international
trade or from other discipline as it deems necessary to assist Commission in the conduct of
any inquiry by it.
 Commission is empowered to direct any person or to produce before DG or an officer
authorized by it, such books or other documents or information relating to any trade, the
examination of which is required for purpose of this Act.
 Power in respect of Acts outside India
CCI can pass an order for agreement or abuse of dominant position or abuse of dominant
position or combination if it has appreciable adverse effect on competition in India and pass
necessary orders as per provisions of this act, notwithstanding that:
1. An agreement referred to in Section 3 has been entered into outside India;
2. Any party to such agreement is outside India;
3. Any enterprise abusing the dominant position is outside India; or(d)a combination has taken
place outside India;
4. Any party to combination is outside India;
5. Any other matter or practice or action arising out of such agreement or dominant position or
combination is outside India.
 Power to rectify its own order
CCI has the power to rectify its own order on
1. Its own motion
2. On application or party
APPELLATE TRIBUNAL
 The National Company Law Appellate Tribunal constituted under Companies Act, 2013 shall
be the Appellate Tribunal for the purpose of hearing, disposing and adjudicating any claim
arising from the finding of CCI.
 Appeal to NCLAT –
1. Any person aggrieved by the order of the Commission may appeal within 60 days.
2. AT may accept the petition after 60 days if it is satisfied that there is sufficient cause for
not filing the appeal in specified time.
3. AT may confirm or modify or set aside the decision of Commission after giving opportunity
to both parties.
4. A copy of appeal shall be sent to both parties.
5. AT shall dispose of the appeal within 6 months.
 The principals of natural justice and other provisions shall regulate the proceedings of AT.
 The Appellate Tribunal shall have, and exercise, the same jurisdiction, powers and authority in
respect of contempt of itself as a High Court.
 A person preferring an appeal to the Appellate Tribunal may either appear in person authorize
one or more
1. Chartered accountants or
2. Company secretaries or
3. Cost accountants or
4. Legal practitioners or
5. Or any of its officers to present his or its case before the Appellate Tribunal.
 The Central Government or a State Government or a local authority or any enterprise
preferring an appeal to the Appellate Tribunal may authorize
1. One or more chartered accountants or
5. Any of its officers to act as presenting officers and every person so authorized may p resent
the case with respect to any appeal before the Appellate Tribunal.
 The Commission may authorize one or more

1. Chartered accountants or
5. Any of its officers to act as presenting officers and every person so authorized may present
the case with respect to any appeal before the Appellate Tribunal.
 Any person aggrieved by the order of AT may file appeal to SC within 60 days.
 SC may condone delay on being shown sufficient reason.
PENALTIES UNDER COMPETITION ACT
1. Contravention of order of Commission (Section 42)

 If any person, without any reasonable cause, fails to comply with any order/condition of the
Commission, or
 If any person fails to pay the penalty imposed under the Act.
 Punishment –
1) Imprisonment- A term which may extend to three years or
2) Fine- which may extend to rupees twenty five crores or
3) Both
2. Compensation in case of contravention of order (Section 42A)

If a person suffers any loss or damage as a result of violation of order or direction of CCI by
an enterprise without any reasonable ground, then such person may make an application to
the Appellate Tribunal for an order for the recovery of compensation from such enterprise.
3. Failure to comply with directions of CCI or Director General (Section 43)

 If any person fails to comply, without reasonable cause, with a direction given by the
Commission under section.
i) 36(2) - states power of Civil Court vested in CCI.
ii) 36(4) - states power of production of books and seeking information by CCI.
iii) Director General while exercising powers under 41(2) - states power of Civil Court vested in
DG.
 Punishment - fine which may extend to Rs. 1 Lakh for each day during which such failure
continues subject to a maximum of Rs. 1 Crore.
4. Failure to furnish Notice of Combination under sections 5 & 6 (Section 43A)

 If any person or enterprise who fails to give notice to the Commission of any combination.
 Punishment- Liable to a penalty which may extend to 1% of the total turnover or the assets,
whichever is higher, of such a combination.
5. Penalty for making false statement or omission to furnish material information (Section
44)
 If any person, being a party to a combination,
i) Makes a statement which is false in any material particular, or knowing it to be false; or
ii) Omits to state any material particular knowing it to be material.
 Punishment - Penalty –At least Rs. 50 Lakhs but which may extend to Rs. 1 Crore
6. Penalty for the offences in relation to furnishing the information (Section 45)
If any person who is required to furnish an information under the Competition Act, 2002 in
form of any or documents or any other kind, makes a statement which he knows is false
and/ or omits some of the material information, or willfully alter them or try to suppress or
destroy any such document.
Punishment - Fine which may extend up to Rs. 1 Crore
7. Power to impose lesser penalty (Section 46)

 The CCI is empowered to impose lesser penalty to
i) The producers,
ii) Sellers,
iii) Distributors,
iv) Traders,
v) Service providers or
vi) Individuals
involved in a cartel in the event of alleged violations of section 3 (Anti- Competitive
Agreement).
 This leniency may be granted only if the concerned party has made a full and true disclosure
of the alleged violations and if the disclosure is vital.
Special Note: Such disclosure should have been made before the DG submits its investigation
report.
 When will leniency not be granted:
i) If before making disclosure the investigation report has already been received from the
director general.
ii) Where the member of the cartel doesn't co-operate with the CCI until the completion of
proceedings.
MISCELLANEOUS PROVISIONS
COMPETITION ADVOCACY-SECTION 49
 The Central Government / State government may obtain the opinion of CCI on the possible
effect of the policy of competition while formulating competition policy.
 On receiving such reference, Commission is required to give its opinion to Central Government
within 60 days.
 The role of Commission is only advisory hence any opinion given by the Commission is n ot
binding upon the government.
 The Commission has also been assigned the role to take following suitable measures for :
a) Promotion of competition advocacy.
b) Creating awareness about the competition.
c) Imparting training about competition issues.
COMPETITION FUND – SECTION 51
 The Central Government may make a fund to commission grants of sums of money as it
thinks fit for being utilized for the purpose of this Act and such fund shall be called
“competition fund”.
 Such grant is to be made after due appropriation made by the Parliament.
 “Competition Fund” shall be created by crediting following sums :
a) All government grants received by the commission
b) The fees under this Act
c) The interest accrued on the above amounts.
 This fund shall be applied for meeting:
a) The salaries and allowances payable to the Chairperson & other members and the
administrative expenses including the salaries, allowances and pension payable to the Director
General, additional, joint, deputy or assistant directors general, registrar & officers & other
employees of the Commission.
b) Any other expenses of the commission in connection with discharge of its functions.
 Fund is administered by a committee of such members as determined by the Chairperson.
 Committee shall spend money of the fund for carrying out objects of this Act.
POWER OF CENTRAL GOVERNMENT TO GRANT EXEMPTION – SECTION 54
The Central Government may grant exemption from the application of the Act or any
provision:
(a) Any class of enterprises in the interest of security of the State or public interest;
(b) Any practice or agreement arising with any treaty, agreement or convention with any other
country or countries;
(c) Any enterprise, which performs a sovereign function on behalf of the Central Government or
a State Government.
CS- EXE Economic Business and Commercial Laws COPRA
CHAPTER 13- CONSUMER PROTECTION ACT, 1986
INTRODUCTION
In the modern times, consumer is the ruler of the business who consumes the goods and
avails the services. Every economy runs because of the customers and even products are
being manufactured according to the taste and requirement of the customers. In true sense
now-a-days, consumer is a king of the Entire Economy. However, the reality is different from
what it should be.
Every Human needs clothes, milk, oil, soap, water and other daily needs items in his life.
When a person approaches the market as a consumer, he expect value for money, i.e., right
quality, right quantity, right prices, information about the mode of use, etc. but there are
instances where a consumer is harassed or cheated.
Considering these facts, the Consumer Protection Act, 1986 was enacted for protection of
the interest of ultimate consumers with respect to the sale of unsafe products, charging
excessive prices, sale of inferior quality goods, using wrong weights and measures, adulteration
and sub-standard quality of the goods, etc.
A new Consumer Protection Bill - 2018 have been already placed before Lok Shabha in 2018.
This new Bill will replace the old Consumer Protection Act, 1986 once it is passed by both
Houses of Parliament.
OBJECTS OF THE ACT
 Consumer Protection Act can be described as Common Man’s Civil Court. It is incorporated
with the following objectives:
1. To make available cheap and quick remedy to a small consumer.
2. To provide for better protection of interests of consumers.
3. To establish Consumer councils and other authorities for settling the consumer disputes.
 According to Section 4, provisions of this Act are in addition to any other remedy available to
person under any other Act.
RIGHTS OF A CONSUMER
a) Right of Protection
The right to be protected against marketing of goods and services which are hazardous to life
and property
b) Right to be informed
The right to be informed about the quality, quantity, potency, purity, standard and price of
goods, or services so as to protect the consumer against unfair trade practices
c) Right to have access to variety of goods and services

The right to be assured, wherever possible, access to variety of goods and services at
competitive prices
d) Right to be heard
The right to be heard and to be assured that consumers interests will receive due
consideration at appropriate forums
e) Right to seek redressal

The right to seek redressal against unfair trade practices or restrictive trade practices or
unscrupulous exploitation of consumer through various redressal mechanism.
f) Right to consumer education.

Consumer education refers to educating the consumers constantly with regard to their rights.
For example - The campaign of "Jago Grahak Jago" by Government of India for spreading
awareness about consumers' rights. In other words, consumers must be aware of the rights
they enjoy against the loss they suffer on account of goods and services purchased by them
DEFINITIONS
1. Appropriate Laboratory
 Appropriate Laboratory means a laboratory recognized by the Central Government of the
State Government.
 It also includes any such laboratory or organization established by or under any law for the
time being in force ,which is maintained, financed or aided by the Central Government or the
State Government for carrying out analysis or test of any goods with a view of determining
whether such goods suffer from any defect.
2. Goods
 Definition of “Goods” under Consumer Protection Act has same meaning as per definition of
goods under Sale of Goods Act.
 Section 2(7) of the Sale of Goods Act, 1930 defines “Goods” as every kind of movable
property other than actionable claims and money; and includes stock and shares, growing
crops, grass and things attached to or forming part of the land, which are agreed to be
severed before sale or under the contract of sale.
 Example – Patent, Copyright, trademark, water, gas, electricity etc.
 Hence the definition reveals that
1. Goods must be movable.
2. Things attached to or forming part of land which can be severed, satisfy the movability
criteria.
3. Actionable claims and money have been specifically excluded from definition of goods.
Morgan Stanley Mutual Fund vs Kartik Das

The Supreme Court held that an application for allotment of shares cannot constitute
goods. It is after allotment, rights may arise as per articles of association of the
company. At the stage of application there is no purchase of goods for consideration
and again the purchaser cannot be called the hirer of services for consideration.
3. Defect
 Defect means
 any fault,
 imperfection or
 shortcoming in the quality, quantity, potency, purity or standard
 which is required to be maintained
o by or under any law for the time being in force or
o under any contract, express or implied, or
o as is claimed by the trader in any manner.
 It is an exhaustive definition.
 Defect is only applicable to goods.
 Example –
1. In one case a pressure cooker burst and caused injury to the user. It was held to be a
manufacturing defect.
2. Failure to handover registration book along with car purchased by complainant is a defect.
3. Rape seed oil adulterated with toxic substances, which led to paralysis of limbs and other
disabilities, was considered as defective.
4. Gas cylinder with excessive gas is defective goods.
Abhaya Kumar Panda v. Bajaj Auto Ltd.

Facts: A motor vehicle was sold to the petitioner was found to have major manufacturing
defects which could not be removed despite several repairs.
Judgment: It was held that the motor vehicles sold with major defects to be treated as
defective and the vehicle was ordered to be replaced.
4. Consumer Dispute
“Consumer Dispute” means a dispute where the person against whom a complaint has been
made, denies or disputes the allegations contained in the complaint.
5. Complaint
Complaint means any allegation in writing made by a complainant that
(i) An unfair trade practice or a restrictive trade practice has been adopted by any trader or
service provider;
Example – Aman sold a six month car to Bharat representing it to a new one. Here Bharat
can make a complaint against Aman for following unfair trade practice.
(ii) The goods bought by him or agreed to be bought by him suffer from one or more defects.
Example – Aman brought a computer from Bharat. It is not working properly since day one.
Aman can make a complaint against Bharat for supplying him a defective computer.
(iii) The services hired or availed of or agreed to be hired or availed of by him suffer from
deficiency in any respect.
Example – Aman hired services of an advocate to defend himself against his landlord. The
advocates did not appear every time the case was scheduled. Aman can make a complaint
against the advocate.
(iv) A trader or the service provider has charged for the goods or for the services a price in
excess of the price
a) Fixed by or under any law for the time being in force
b) Displayed on the goods or any package containing such goods
c) Displayed on the price list exhibited by him by or under any law for the time being in force
d) Agreed between the parties.
Example – Aman brought a sack of cement from Bharat who charged him Rs. 100 over and
above the reserved price declared by the government. Here Aman can make a complaint
against Bharat.
(v) Goods which will be hazardous to life and safety when used are being offered for sale to the
public:
a) In contravention of any standards relating to safety of such goods as required to be complied
with, by or under any law for the time being in force
b) If the trader could have known with due diligence that the goods so offered are unsafe to
the public.
Example – Aman brought a tin of disinfectant powder. It had lid, which was to be opened in
a specific manner. The trader did not inform him about this. While opening the lid in the
ordinary way, some powder flew in the eyes of Aman, which affected his vision. Here Aman
can make a complaint against the trader.
(vi) services which are hazardous or likely to be hazardous to life and safety of the public when
used, are being offered by the service provider which such person could have known with due
diligence to be injurious to life and safety with a view of obtaining a relief provided by or
under this Act.
6. Complainant
Complainant means
(i) A consumer
(ii) Any voluntary consumer association registered under the Companies Act, 1956, or under any
other law for the time being in force
(iii) The Central Government or any State Government, who or which makes a complaint
(iv) One or more consumers where there are numerous consumers having the same interest
(v) in case of death of a consumer, his legal heir or representative who or which makes a
complaint
Complainant
A consumer Any voluntary The Central One or more Legal Heir /

consumer Government or consumers representative
association any State having the incase of
Government same interest death of
consumer
Who can file a complaint?

A complaint in relation to any goods sold or delivered or agreed to be sold or delivered or any
service provided or agreed to be provided may be filed with the District Forum by:
a) The consumer to whom such goods sold or delivered or agreed to be sold or delivered or any
service provided or agreed to be provided
b) Any recognized consumer association
c) One or more consumer having the same interest.
d) The Central or the State Government.
7. Consumer
Consumer means any person who-
(a) Buys any goods:
 for a consideration which has been paid or promised or partly paid and partly promised, or
under any system of deferred payment and includes
 any user of such goods other than the person who buys such goods for consideration paid or
promised or partly paid or partly promised, or under any system of deferred payment
 when such use is made with the approval of such person, but does not include a person who
obtains such goods for resale or for any commercial purpose; or
(b) Hires or avails of any services
 for a consideration which has been paid or promised or partly paid and partly promised, or
under any system of deferred payment and
 includes any beneficiary of such services other than the person who hires or avails of the
services for consideration paid or promised, or partly paid and partly promised, or under any
system of deferred payment
 When such service are availed of with the approval of the first mentioned person but does
not include a person who avails of such services for any commercial purpose.
Commercial purpose
Commercial purpose does not include use by a consumer of goods bought and used by him
exclusively for the purpose of earning his livelihood by means of self-employment.
Example – Purchase of car for running it as a taxi for commercial purpose.
Nature Whether Whether Example

considered as covered under
Consumer the ambit of
the Act
A person who consumes Considered as Protection Miss Shubhneet who runs a

for Final Consumption Consumer under beauty Salon purchased some
Consumer cosmetic for her own
Protection Act, personal use. She is a
1986 available consumer as she has
purchased the goods for her
own final consumption.
A person who consumes Not considered as No protection Miss Shubhneet who runs a
for Commercial Purpose Consumer under beauty Salon purchased some
Consumer cosmetic for selling at her
Protection Act, counter. She will not be
1986 treated as consumer as she
has purchased it for
commercial purpose.
A person who consumes This is not treated Protection Miss Shubhneet who runs a
goods/service & satisfies as a commercial under beauty Salon purchased some
all the following conditions purpose, hence the Consumer cosmetic and used those at
It is used by him person will be Protection Act, her salon. She will be treated
Exclusively for earning treated as 1986 available as consumer as she has used
livelihood Consumer those good exclusively for
By self-employment earning livelihood by self-
employment.
Definition of Consumer covers:

 One who buys goods for a consideration for personal use.
 One who uses such goods with permission of buyer of goods.
 One who obtains goods on hire purchase or lease.
 One who hires or avails of any service for a consideration
 One who uses the services with permission of person who has hired the services.
 One who obtains services on deferred payment basis – i.e hire purchase or lease.
 One who buys goods or avails services exclusively for purpose of earning his livelihood as self
– employment.
Who is not a consumer –?

 One who buys good or avails services for commercial purposes.
 One who has not brought the goods.
Person buying goods for self employment is consumer
 When goods are brought for commercial purposes and such purchase satisfy the following
criteria :
a) The goods are used by the buyer himself ;
b) Exclusively for the purpose of earning his livelihood.
c) By means of self employment.
d) Then such would not be termed for the use for commercial purposes under the Act and user
is recognized as a consumer.
 Examples –
a) A buys a truck for plying it as a public carried by himself. A is a consumer.
b) A buys a truck and hires a driver to ply it. A is not a consumer.
Bhupendra Jang Bahadur Guna v. Regional Manager and Others

Facts: Bhupendra had bought one Eicher Sona Tractor with trailer on 23rd April, 1986 for a
consideration of Rs. 1,04,510/- with a warranty for a period of one year. He alleged negligence and
utter failure of the Tractor Company in supplying the tractor which is defective and of sub-
standard quality. Accordingly, he caused him heavy monetary loss, unnecessary mental tension, loss
of work and other allied expenditure. Therefore, he claimed compensation of Rs. 2 lakhs. The
Tractor Company contended that Mr. Bhupendra had used the tractor for commercial reasons,
therefore he cannot claim any compensation under the Consumer Protection Act, 1986.
Judgement: In this case, the National Commission held that a tractor purchased primarily to till
land of the buyer of tractor and in idle time let out to till the lands of others will not amount to
commercial use.
Narasamma v. LIC of India
Facts: Mr. A Lingaiah, who had got insured his life with LIC of India for Rs. 1 lac. The yearly
premium of such LIC policy was Rs. 6,870.00 and was due, which was paid by Mr. Lingaiah after the
due date along with interest through cheque. The cheque was returned as dishonored by the Bank.
LIC intimated about the dishonor of the said cheque after his death via ordinary post. His wife filed
a claim on the basis of the LIC policy obtained by her husband. LIC rejected the said claim basis on
dishonor of the cheque and lapse insurance policy.
Judgement: In this case, It was held that the policy had in fact, lapsed long back as the grace
period of 30 days for the payment of yearly premium came to end and that's why interest was paid
along with premium which was accepted by LIC, and therefore Mr. A Lingaiah was treated as
Consumer of Services of LIC.
It was further held widow of a deceased would also be treated as a Consumer as beneficiary of
services.
Who is a consumer?
Following are some of the important decided cases in this regard:
1. Railway passengers travelling on payment of fare is consumer [GM, South Eastern Railways v
Railways v Anand Prasad Sinha]
2. Beneficiary of bank guarantee is a consumer. [Union Bank v Seppo Rally]
3. Parents who bring the child to hospital and the child both are consumers. [Spring Meadows
Hospital v Hharjot Ahluwalia]
4. Allottees of house by Housing Board are consumer [UP Avas Gram Vikas Parishad v Garima
shukla]
5. A person obtaining water from a government agency and paying water bills for the water supplied
is a consumer. [Nagrik Parishad v Garhwal Jal Sanathan]
6. The widow of a deceased policy holder is a consumer ,as the term 'Consumer' includes any
beneficiary of service other than the person who hires the service for
consideration. [A Narsamma v LIC of India]
Who is not a consumer?

Following are some of the important decided cases in this regard :
1. A charitable trust is not a consumer if it has purchased machinery for its diagnostic
center, when only 10% patients are provided free services and charges are levied on remaining
patients. Thus, the use is for ‘commercial purpose' and hence it is not a
‘consumer’. [Kalpvrukksha Charitable Trust v Toshniwala Brothers ]
2. Person buying goods for manufacture of another product is not consumer as the goods were
intends for commercial purpose. [Rajeev Metal Works v MMTC]
3. A tenant is not consumer when landlord has not agreed to render any service to tenant in lease
agreement. [Laxmiben Laxmichand Shah v Sakerben Kanji]
4. A hospital will not be liable, if the hospital happens to be a govt. hospital where no fee is
charged for consultation and treatment, but only a token registration fee is charged. [Indian
Medical Assoc. V.P. Shanta & others]
8. Service
‘Service’ means service of any description.
 which is made available to potential users and includes
 but not limited to the provision of facilities in connection with banking, financing, insurance,
transport, processing, supply of electrical or other energy, board or lodging or both, housing
construction, entertainment, amusement or the purveying of news or other information
 But does not include the rendering of any service free of charge or under a contract of
personal service.
It is clear from the above definition that service may be of any description and related to
any sector if it satisfies the following criteria:
 Service is made available to potential user’s i.e. service not only to the actual users but also
to those who are capable of using it.
 It shall not be free of charge.
 It shall not be under a contract of personal service.
Difference between contract for service and contract of service
Headings Contract for service Contract of service
Definition It implies a contract whereby one party It implies a contract whereby one party
undertakes to render sendees to other and is under obligation to obey the
he does not require any direction and orders/instruction of other.
control and uses his own knowledge and
discretion.
Example The service seeker can tell only what is to The service seeker can order or require
be done. what is to be done and how it should
Relationship of Practicing Company be done.
Secretary and his Client. Relationship of an Employer and an
In this relationship, the Practicing Employee.
Company Secretary is not under obligation In this relationship, an employee is
to obey the instructions of his client. under obligation to obey the
instructions of his employer.
Control and The service provider I not under Tire service provider is under direct
Supervision does supervision and direct of service supervision and control of service
control seeker. seeker.
What is Service?
1. Passengers travelling by trains on payment of the stipulated fare charged for the ticket
are 'consumers' and the facility of transportation by rail provided by the railway administration
is a 'service' rendered for consideration as defined in the Act. [GM, South Eastern Railways v
Anand Prasad Sinha]
2. Similarly telephone services availed for consideration is a service. [District Manager, Telephones
Patna v. Lalit Kr. Baija]
3. Service rendered to patient by a medical practitioner(except where the doctor renders service free
of charge to every patient ) by way of construction diagnosis and treatment, both medical and
surgical, would fall within the ambit of service[Indian Medical Association v V.P.Shanta &
others]
4. Accepting deposits from public agreeing to pay interest is service. If interest and principal is
not paid on due dates, it is deficiency of service and consumer forums can issue orders for
payment of outstanding dues.[Kalawati v United Vaish]
5. Education is an activity which comes within the ambit of 'service' because service means service of
any description which is made available to potential users under this Act.[The CBSE v Consumer
Disputes Redressal Forum]
What is not a service?

1. Conducting examination is not service as a candidate appearing for examination could
not be regarded as a person who has hired or availed the services of the University or
Board for consideration .Thus, the University or Board in conducting examination is not
performing any service. [Chairman, Board of Examination v Mohideen Abdul Kader]
2. Registration of documents by Govt. is not a service. A person presenting a document for
registration is not a consumer. There is no commercialization involved. Officers who are doing the
work of registration are doing the statutory duty. [S.P. V Collector of stamps]
3. Payment of taxes is not hiring of services. No complaint can be lodged against Municipal
Corporation for failure to carry out its statutory duty of proper maintenance of
drains, as payment of taxes is not hiring of services. [Sibnet Corporation v Commissioner, MCD,
New Delhi]
4. Promotional activities of State and its agencies are not services and complainants are not
consumers, as facilities are provided by State and its agencies without any specific consideration
[T.N.Sethuraman v Goa, Daman and Diu Industrial Development Corporation]
5. Even if a litigant pays court fees, he is not hiring services of Court. The Court is exercising
sovereign function of dispensation of justice. Thus, complaint against Court for delay in
judgement is not maintainable under Consumer Forums.
6. Free Services are not covered under CORPA. The employer (Govt. in this case) deducted insurance
premium from salary of employee, but failed to make payment to LIC. When the employee died.
LIC refused to pay as premium was not paid. It was held that the employer was giving free
service and hence he is not liable [State of Orissa v LIC]
7. It was held that if the premium is paid by a person to the agent of LIC but the agents did not
deposit the premium & during that period if the death of the person takes place then the
defendant cannot claim compensation on the ground that there was no
deficiency of service on the part of LIC, in view of the fact that the agent does not have either
expressed or implied authority to collect the premium. [Harshad J Shah v LIC of India]
9. Deficiency
Deficiency means any fault, imperfection, shortcoming or inadequacy
 in the quality, nature and manner of performance
 which is required to be maintained by or under any law for the time being in force or
 has been undertaken to be performed by a person in pursuance of a contract or otherwise in
relation to any service
Example – Insurance company is not settling valid claim and making unnecessary delay in
payment.
Case Law: Divisional Manager, LIC of India v. Bhavanam Srinivas Reddy

The National Commission observed that default or negligence in regard to settlement of an
insurance claim would constitute a deficiency in service on the part of the insurance company and
it will be perfectly open for aggrieved consumer to approach the Redressal Forums to seek
appropriate relief.
Case Law: Lucknow Development Authority vs. Roop Kishore Tandon

The failure of a housing board to give possession of the flat after receiving the price and after
registering it in favour of alottee was held to be "deficiency in service".
Case Law: Dainik Rail Yatri Sangh vs. The General Manager, Northern Railway
The cancellation of train services by the railways due to disturbance involving violence so as to
safeguard the passengers as well as its own property was held by National Commission as not
constituting "deficiency in service" on part of railways.
Case Law : Punjab National Bank vs K.B Shetty

Ornaments kept in the banks locker were found lost though the certificate recorded by the
custodian of the bank on the day the customer operated the locker stated that all lockers
operated during the day have been checked and found properly locked.The National Commission
upholding the decision of the State Commission held the bank guilty of negligence and therefore
liable to make good the loss.
CONSUMER PROTECTION COUNCILS
Introduction
The interest of consumers are sought to be promoted and protected under the act inter-alia
by establishment of Consumer Protection Councils at the Central, State and District levels.
Central Consumer Protection Council

 Section 4 provides that the Central Government shall, by notification, establish a Council to
be known as Central Protection Council, which shall consist of the following members:
 The Minister-in charge of Consumer affairs in the Central Government, who shall be its
Chairman; and
 Such number of other official members representing such interests as may be prescribed.
 The Central Council shall consist of 150 members and the term of council shall be 3 years.
 The Central Council shall meet as when necessary, but atleast one meeting shall be held
every year.
State Consumer Protection Council
 Section 7 provides that the State government shall ,by notification ,establish a Council to be
known as Consumer Protection Council for (name of the State), which shall consist of the
following members :
 The Minister-in -charge of consumer affairs in the State Government, who shall be its
Chairman:
 Such number of other official or non-official members representing such interests as may be
prescribed by the State Government; and
 Such number of other official members or non-official members, not exceeding 10, as may be
nominated by the Central Government.
 The State Council shall meet as and when necessary but not less than two meetings shall
be held every year. The procedure to be observed in regard to the transaction of its business
at such meetings shall be prescribed by the State Government.
District Consumer Protection Council
 Section 8 provides that the State Govt. shall establish for every district by notification, a
council to be known as the District Consumer Protection Council, which shall consist of the
following members:
 The Controller of the district (by whatever name called), who shall be its Chairman
 Such number of other official and non-official members representing such interests as may be
prescribed by the State Govt.
 The District Council shall meet as and when necessary but not less than two meetings shall
be held every year.
REDRESSAL AGENCIES OR REDRESSAL MECHANISM
Level of Redressal Agencies

 The Consumer Protection Act provides for three tier structure for redressal of complaints
under the Act.
 The Consumer Dispute Redressal Agency is established at District ,State and National Level.
They are :
o District Forum
o State Commission
o National Commission
Time limit for filing complaint

 A complaint should be filed within 2 years from date on which the cause of action arose.
 However , the District Forum,State Commission and the National Commission can entertain
complaint after the date on showing sufficient cause. Reasons for condoning the delay should
be recorded.
Power of Redressal Agencies

 The redressal agencies have all the powers of the Civil Court such as :
 Summoning and enforcing the attendance of witnesses and examination of witnesses on
oath.
 Discovery and production of any document or any material as evidence.
 Receiving evidence of affidavits.
 Requisitioning report of test or analysis from concerned laboratory.
 Issuing commission for examination of witnesses.

 Any other matter as may be prescribed by Central and State Government by the rules.
 The Consumer Disputes redressal Agencies have the power to require a person to produce
before them books of accounts, documents or commodities.
 They can also require a person to furnish to a specified information required under the Act.
They also authorize a person to seize books of account, document or commodities required for
the purpose of this Act, or when there is a reason to believe such books may be destroyed or
altered.
Frivolous or vexatious complaint

 If the complaint is found to be frivolous or vexatious, the Commission may order that the
complainant may pay to opposite party costs, which shall not exceed Rs. 10,000.
 This section basically discourages bogus complaints or complaints only with a view to harass
someone.
Order pass by commission or forum

After conducting proceedings, if the redressal agency is satisfied that the goods complained
suffer from defects or that allegations regarding deficiency in service are proved , it shall
issue an order to other party directing him to do any one or more of the following things :
(a) To remove the defects pointed out by the appropriate laboratory from the goods in question.
(b) To replace the goods with new goods of similar description which shall be free from any
defect.
(c) To return to the complainant the price or the charges paid by the complainant.
(d) To pay such amount as may be awarded by it as compensation to the consumer for any loss
or injury suffered by the consumer due to the negligence of the opposite party;
(e) To remove the defects in goods or deficiencies in the services in question;
(f) To discontinue the unfair trade practice or the restrictive trade practice or not to repeat
them;
(g) Not to offer the hazardous goods for sale;
(h) To withdraw the hazardous goods from being offered for sale;
(i) To cease manufacture of hazardous goods and to desist from offering services which are
hazardous in nature;
(j) To pay such sum as may be determined by it if it is of the opinion that loss or injury has
been suffered by a large number of consumers who are not identifiable conveniently.
(k) To issue corrective advertisement to neutralize the effect of misleading advertisement at the
cost of the opposite party responsible for issuing such misleading advertisement.
(l) To provide for adequate costs to parties.
Consumer Redressal Agencies have no power to issue any order other than that mentioned
above.
REDRESSAL AGENCIES
DISTRICT FORUM
Establishment
The State Government will establish a District Forum in each district by notification in the
official Gazette.
Composition
 The District Forum consists of a President and two Members.
 President of the District Forum will be a person who has been, or is qualified to be a district
judge. The appointment is made by State Government in recommendation of a Selection
Committee.
 More than one Forum can be formed in a district.
 The two members shall be persons of ability, integrity and standing and have knowledge or
experience of problems relating to economics, law, commerce, accountancy, industry, public
affairs or administration. One of the members must be woman.
 Every member shall hold office for 5 years or up to the age of 65 years whichever is earlier.
 Members should be graduate with minimum age of 35 years.
 Members shall be eligible for reappointment.
 The member can resign his office by addressing the letter to the State Government.
 The salary and other terms of the members are prescribed by the State Government.
 If the President is absent of his post is vacant or he is unable to perform his duties, senior
most member will discharge duties of President.
Jurisdiction
 The forum shall have jurisdiction to entertain complaints where the value of goods and
services and the compensation claimed is not more than Rs. 20 lakhs.
 The District Forum has jurisdiction in following cases :
1. When the opposite party actually resides or carries on business
2. Where cause of action arises.
Procedure –
Conducted by
 President plus atleast one member.
 If the Member is unable to complete the proceedings, the proceedings will continue with
another Member.
Form of Complaint
 The Act or rules do not prescribe any specific form for filing of complaint.
 Complaint should be in triplicate incase of District Forum and State Comimission and
quadruplicate incase of National Commission and additional copies equal to opposite parties.
 Complaint should clearly contain particulars of dispute and relief claimed.
 It should be accompanied by copies of relevant documents.
Admission
On receipt of complaint, the District Forum may by order allow the complaint or reject
complaint. Before rejecting a complaint , an opportunity of being heard has to be given to
the complainant.
Sending copy of opposite party

 Notice shall be issued to opposite parties giving him period of 30 days.
 Copy has to be send by registered post or courier.

 If the opposite party denies or disputes the allegation in complain or does not reply back
within the time, the District Forum shall proceed to settle the dispute.
Appearance
A person can appear before Consumer Forum either in person or through authorized person.
Hearing
 Presence of appellant is not a pre-condition for hearing appeal.
 Appeal may be decided on basis of records and hearing opposite party.
 Personal hearing is not mandatory.
Final Order
Final Order should be passed within 15 days after close arguments.
STATE COMMISSION
Establishment
State Commission is established in each state by State Government by notification in
Official Gazette.
Composition
President of the State Commission is appointed by State Government in consultation with
Chief Justice of High Court.
Jurisdiction
The State Commission has following jurisdiction:
1. Original jurisdiction – Entertain complaints where the value of goods and compensation
claimed exceeds Rs. 20 lakhs but not more than Rs 100 lakhs.
2. Appellate jurisdiction- Entertain appeal against the orders of the District Forum within the
state.
Procedure for filing appeal

 Appeal can be filed by appellant or his authorized agent in person or by registered post.
 Appeal should be triplicate.
 Appeal will first have to be admitted. However appeal will not be entertained unless required
amount is pre-deposited.
 Appeal should be decided by State Commission in 90 days.
 Any person aggrieved by the order of State Commission can appeal to National Commission
within 30 days
NATIONAL COMMISSION
Establishment
 Central Government has a National Commission by notification.
 National Commission shall consist of a President and not less than four ad not more than
nine Members.
 At least one them shall be a woman.
Jurisdiction
The National Commission has the following jurisdiction:
1. Original Jurisdiction – Entertain the complaints where the value of goods and compensation
claimed exceeds Rs. 100 lakhs .
2. Appellate Jurisdiction – Entertain appeal against the original order of the State
Commission.
Procedure for filing appeal

 Commission has original jurisdiction in cases where value of goods or services and
compensation claimed exceeds 100 lakhs.
 The procedure for disposal of complaints shall be similar as District Forum.
 Complaint will be filed in quadruplicate.

 Complaint can be filed by complainant or his authorized agent.
 In case of appeal against order of State Commission, National Commission shall not entertain
appeal unless appellant deposits Rs. 35000 or 50% of the amount whichever is less.
 There is no provision to waive this pre – deposit of amount.
COMPLAINTS TO BE REGISTERED
District Consumer Forum for a claim of compensation up to `20 lakhs
State Commission for a claim of compensation above `20 lakhs and

up to `1 crore
National Commission for a claim of compensation above Rs.1 crore
SUMMARY OF IMPORTANT CASES
The important rulings rendered by Supreme Court, National Commission and State
Commission are given below:
1. Failure to provide basic safeguards in the swimming pool –deficiency in service Sashikant
Krishnaji Dole v. Shitshan Prasarak Mandali
 The school owned a swimming pool and offered swimming facilities to the public on payment
of a fee.
 The school conducted winter and summer training camps to train boys in swimming and for
this purpose engaged a trainer/coach.
 The complainants had enrolled their son for learning swimming under the guidance of the
coach. It was alleged that due to the negligence of the coach the boy was drowned and met
with his death.
 The school denied that it had engaged the services of a coach and also denied any
responsibility on its part.
 The coach claimed that he was a person with considerable experience in coaching young boys
in swimming and that as in other cases he taught the deceased boy also the way in which
he should swim and take all precautions while swimming.
 When the deceased was found to have been drowned the coach immediately took him out of
the water and removed the water from his stomach and gave him artificial respiration and
thereafter took him to a doctor, where he died.
 The State Commission held the school and the coach deficient in rendering service to the
deceased, that the coach was not fully trained, did not exercise even the basic commonsense
needed to counter an accident in swimming. He was so casual in his behavior that he did
not attempt to take prompt action to save the life of the deceased and so far as the school
was concerned it did not even provide basic facilities nor did it provide any safeguards to
prevent accidents.
 The complainant was unhappy with the State Commission and appealed against them in the
National Commission.
 Dismissing the appeal the National Commission observed that the State Commission had
given cogent reasons for holding the school and the coach responsible for death of the
deceased. A detailed examination of the depositions of eye witnesses showed that the
Commission had correctly appreciated the evidence and come to the conclusion that the
coach was negligent and the school did not provide the necessary life saving mechanism to
save the lives of trainee students in cases of accidents. So far as the compensation was
concerned the State Commission had taken all relevant factors into account and fixed the
amount at Rs. 1.50 lakhs which was reasonable
2. Removal of ladder of an aircraft while disembarking by the passenger—deficiency in

service Station Manager, Indian Airlines v. Dr. Jiteswar Ahir
 When the complainant (passenger) occupied his seat in the aircraft, an announcement was
made that his luggage was lying on the ground unidentified and that he should disembark to
identify his luggage.
 According to the complainant he moved towards the rear door, and finding that the step
ladder was attached to the aircraft door, he stepped out on to the staircase but before he
could actually put his entire body weight on the staircase the ladder was suddenly removed
as a result of which he fell down on the ground and sustained bodily injuries which was
reported to be about 10 percent.
 As against the complainant’s claim of `10 lakhs the airlines was willing to pay `40,000 as
compensation which according to them was the maximum statutory liability of the
Corporation under the Carriage by Air Act, 1972.
 The State Commission, after examining witnesses and the medical boards report held that
there was dangerous deficiency in service and having regard to the expert opinion and other
medical reports, it ordered payment of compensation of `4 lakhs and `1 lakh for mental agony
and distress plus costs.
 In appeal by the Corporation, the National Commission, upholding the State Commissions
order, held that in terms of regulations relied upon by the appellant Corporation, if it was
proved that the accident caused to the complainant had resulted in a permanent
disablement, incapacitating him from engaging in or being occupied with his usual duties or
his business or occupation, the liability could not exceed Rs. 5 lakhs.
 This case related to the incapacity and permanent disability to the extent of 10 per cent
and, therefore, the compensation could not exceed Rs. 5 lakhs.
 The State Commissions assessment of compensation of Rs. 4 lakhs was justified, considering
the age of the complainant (37 years) at the time of accident and his having lost earning
capacity.
 The State Commission was also right in awarding compensation of rupees 1 lakh for the
complainants mental suffering and agony as well as feeling of inferiority in social relations.
 Deficiency in service cannot be alleged without attributing fault, imperfection, short coming
or in adequacy in the quality, nature and manner of performance which is required to be
performed by a person in pursuance of a contract or otherwise in relation to any service.
 The burden of proving deficiency in service is upon the person who alleged it. When the
complainant has not established any willful fault, imperfection, shortcoming or inadequacy in
the service of the respondent, there can be no deficiency in service.
3. Ravneet Singh Bagga v. KLM Royal Dutch Fintimes

 The complainant booked a ticked from Delhi to New York by a KLM plane.
 The airport authorities in New Delhi did not find any fault in his visa and other documents.
 However at Amsterdam, the airport authorities instituted proceedings of verification because

of which the appellant missed his flight to New York.
 After reaching New York, the airlines tendered apology to the appellant for the inconvenience
and paid as a goodwill gesture a sum of Rs. 2,500.
 The appellant made a complaint to the National Commission under the Consumer Protection
Act which was rejected.
 The Supreme Court held that the respondent could not be held to be guilty of deficiency in
service.
 The staff of the airline acted fairly and in a bona fide manner, keeping in mind security and
safety of passengers and the Aircraft. The photograph on visa documents was a photo copy
and not the original which was unusual. In the circumstances, the staff took some time to
ascertain the truth and helped the appellant to reach New York the same day.
4. A doctor qualified to practice homoeopathic system of medicines treating a patient with

allopathic medicines and patient dies -guilty of negligence Poonam Verma v. Ashwin
Patel
 The respondent was a qualified medical practitioner in homoeopathic system of medicine.
 The appellant was the widow of the person who was alleged to have died because of the
negligence of the respondent in administering allopathic medicines in which he was not
qualified to practice.
 It was alleged that the deceased was treated to begin with, for viral fever on allopathic
medicines and since his condition had not improved antibiotics were used without conducting
proper tests.
 When his condition further deteriorated he was removed to a nursing home and after four
days he was removed to a hospital in an unconscious state. Within a few hours thereafter he
died.
 Her complaint to the National Consumer Disputes Redressal Commission for damages for the
negligence and carelessness of respondent in treating her husband was dismissed.
 Allowing the appeal the Supreme Court held that the respondent who had practiced in
allopathy without being qualified in that system was guilty of negligence per se.
 A person is liable at law for the consequences of his negligence.
 Jurisdiction of the Commission: The Supreme Court observed that it is beyond doubt now
that disputes regarding applicability of the Act to persons engaged in medical profession
either as private practitioners or as Government doctors working in hospitals or Government
dispensaries comes within the purview of the Consumer Protection Act, 1986.
 It is also settled that a patient who is a consumer has to be awarded compensation for loss
or injury suffered by him due to negligence of the doctor by applying the same tests as are
applied in an action for damages for negligence.
5. Gopi Ram Goyal and others v. National Heart Institute and others
 The National Commission held that where the record and evidence shows that the conduct of
the opposite parties i.e. doctors was more than reasonable and the level of care was as could
be expected from professional in exercising reasonable degree of skill and knowledge.
 The complainant however failed to prove any case of negligence on the part of doctors,
therefore the doctor cannot be held liable for death of patient.
6. Fall from a running train while passing through vestibule passage –deficiency in service
Union of India v. Nathmal Hansaria
 The daughter of the respondent was travelling by a train and fell down from the running
train while she was passing through the inter-connecting passage between two compartments
and died as a result of crush injuries on her head.
 In the respondents petition for compensation, the Railways contended that the Consumer
Redressal agencies had no jurisdiction to consider a complaint of this nature in view of
Section 15 of the Railway Claims Tribunal Act read with Section 13 of that Act.
 The State Commission held that a railway passenger travelling in a train on payment of
consideration was a consumer within the meaning of the Consumer Protection Act, 1986.
 Section 82A of the Railways Act referred to in Section 13 of the Railway Claims Tribunal
Act, 1987 and the rules made there under provided compensation for railway accidents and
not for accidental death of this nature.
 Dismissing the appeal the National Commission held that the death of the passenger could
not be described as resulting from railway accident but an accidental death caused by the
absence of safety devices in the vestibule passage way.
 Although the railway administration had claimed that the coach was a new coach and that
all coaches had been thoroughly checked at the starting point of the train and that no
defect was reported, the railways had not contended that this particular coach was checked
at the time of commencement of the journey.
 The general statement of practice and procedure was not conclusive proof that this particular
coach was checked and no evidence had been produced in support of their contention.
 Thus, the State Commission was right in holding that the deceased passenger was a
consumer.
 On the basis of similar facts, the MRTP Commission has recently awarded a compensation of
Rs. 18 lakhs with 9% interest to the parents of deceased. The above compensation appears
to be the highest award in commission‟s history.
7. Repudiation of Insurance claim because the driver did not have a valid license
Jitendra Kumar v. Oriental Insurance Company Ltd. and another
The Supreme Court has held that where the fire has occurred due to mechanical failure and
not due to any act or omission of the driver, the insurance company cannot repudiate the
claim because of lack of valid driving license.
8. Premium paid to the agent of the LIC but the agent did not deposit the premium, death
of the insured -No deficiency of service on the part of the LIC Harshad J. Shah v. Life
Insurance Corporation of India
 The insured (since deceased) took out four life policies with double accident benefits,
premium payable half-yearly.
 When the third premium fell due, the general agent of the Corporation met the person and
took a bearer cheque towards the premium payable by him in respect of the policies.
 Although the cheque was encashed immediately thereafter, it was not deposited with the
Corporation for another three months.
 In the meantime, the insured met with a fatal accident and died.
 The Corporation rejected the widows claim for payment of the sum assured on the ground
that the policies had lapsed for non-payment of premium within the grace period.
 In the widows complaint to the State Commission under the Consumer Protection Act the
Corporation pleaded that the amount of premium allegedly collected by the general agent
could not be said to have been received by the Corporation, that the agent was not
authorised to collect the premium amount.
 The State Commission held that in order to collect more business, agents of the Corporation
collected premiums from policyholders either in cash or by cheque and then deposited the
money so collected with the Corporation and that this practice had been going on directly
within the knowledge of the Corporations administration, notwithstanding the departmental
instructions that the agent was not authorised to collect the premiums.
 When the practice of the agent collecting the premiums from policyholders was in existence
and the money was collected by the agent in his capacity and authority, the reasonable
inference was that the Corporation was negligent in its service towards the policyholder.
 The National Commission, in appeal, was of the view that the insurance agent in receiving a
bearer cheque from the insured towards payment of insurance premium was not acting as
agent of the Corporation nor could it be said that the Corporation had received the premium
on the date the bearer cheque was received by the agent, even though he deposited the sum
with the Corporation a day after the death of the insured.
 Dismissing the appeal the Supreme Court held that the agent had no express authority to
receive the premium on behalf of the Corporation. In his letter of appointment there was a
condition expressly prohibiting him from collecting the premium. Nor could it be said that he
had an implied authority to collect the premium, as regulation 8(4) expressly prohibited the
agents from collecting premiums. Therefore, no case had been set up by the complainant
before the State Commission that the Corporation by its conduct had induced the
policyholders, including the insured, to believe that the agents were authorised to receive
premiums on behalf of the Corporation. Nor was there any material on record that lent
support to this contention. In the facts of this case there was no room to invoke the
doctrine of apparent authority underlying Section 237 of the Indian Contract Act.
9. National Insurance Co. Ltd. v. Seema Malhotra [2001(2) SCALE 140] (Supreme Court)
A cheque was issued under a contract of insurance of motor car by the insured for payment
of premium to the policy.However, cheque was dishonoured for want of funds in the account.
Meanwhile, the car met with an accident and badly damaged, killing the insured owner. The
claim for insured amount was repudiated by the company.The Supreme Court held that
applying the principles envisaged under Section 51, 52 and 54 of Indian Contract Act, relating
to reciprocal promises, insurer need not to perform his part of promise when the other party
fails to perform his part and thus not liable to pay the insured amount.
10. Educational Institutions

Sreedharan Nair N. v. Registrar, University of Kerala
 The University refused to provide LL.B. degree certificate on completion of course on the
ground that the qualifying examination on the basis of which student was admitted in LL.B.
course in Kerala law college has not been recognised by it.
 The National Commission held that this is a clear case of deficiency on part of University. A
compensation of Rs. 50,000 was awarded to complainant.
Isabella Thoburn College v. Ms. Fatima Effendi

 The State Commission held that non-refund of admission fee is not a deficiency of service
on the part of the university because admission fee is consideration for admission and
respondent herself voluntarily withdrawing admission from one university to join another
institute cannot claim refund of admission fee.
11. Medical Negligence

Kusum Sharma & Others Versus Batra Hospital & Medical Research Centre & Others
Supreme Court held that while deciding whether the medical professional is guilty of medical
negligence following well known principles must be kept in view:-
I. Negligence is the breach of a duty exercised by omission to do something which a reasonable
man, guided by those considerations which ordinarily regulate the conduct of human affairs,
would do, or doing something which a prudent and reasonable man would not do.
II. Negligence is an essential ingredient of the offence. The negligence to be established by the
prosecution must be culpable or gross and not the negligence merely based upon an error of
judgment.
III. The medical professional is expected to bring a reasonable degree of skill and knowledge and
must exercise a reasonable degree of care. Neither the very highest nor a very low degree of
care and competence judged in the light of the particular circumstances of each case is what
the law requires.
IV. A medical practitioner would be liable only where his conduct fell below that of the
standards of a reasonably competent practitioner in his field.
V. In the realm of diagnosis and treatment there is scope for genuine difference of opinion and
one professional doctor is clearly not negligent merely because his conclusion differs from
that of other professional doctor.
VI. The medical professional is often called upon to adopt a procedure which involves higher
element of risk, but which he honestly believes as providing greater chances of success for
the patient rather than a procedure involving lesser risk but higher chances of failure. Just
because a professional looking to the gravity of illness has taken higher element of risk to
redeem the patient out of his/her suffering which did not yield the desired result may not
amount to negligence.
VII. Negligence cannot be attributed to a doctor so long as he performs his duties with
reasonable skill and competence. Merely because the doctor chooses one course of action in
preference to the other one available, he would not be liable if the course of action chosen
by him was acceptable to the medical profession.
VIII. It would not be conducive to the efficiency of the medical profession if no Doctor could
administer medicine without a halter round his neck.
IX. It is our bounden duty and obligation of the civil society to ensure that the medical
professionals are not unnecessary harassed or humiliated so that they can perform their
professional duties without fear and apprehension.
X. The medical practitioners at times also have to be saved from such a class of complainants
who use criminal process as a tool for pressurizing the medical professionals/hospitals
particularly private hospitals or clinics for extracting uncalled for compensation. Such
malicious proceedings deserve to be discarded against the medical practitioners.
XI. The medical professionals are entitled to get protection so long as they perform their duties
with reasonable skill and competence and in the interest of the patients. The interest and
welfare of the patient shave to be paramount for the medical professionals.
The aforementioned principles must be kept in view while deciding the cases of medical
negligence. We should not be understood to have held that doctors can never be prosecuted
for medical negligence. As long as the doctors have performed their duties and exercised an
ordinary degree of professional skill and competence, they cannot be held guilty of medical
negligence. It is imperative that the doctors must be able to perform their professional duties
with free mind.
CHAPTER 13- THE CONSUMER PROTECTION ACT, 2019
INTRODUCTION
Who is a Consumer?
i. A consumer is a user of goods and services; therefore, every producer is also a consumer.
Over the time, the doctrine of ‘Caveat Emptor’ or ‘let the buyer beware’ has been replaced
by the principle of ‘Consumer Sovereignty’ or ‘Consumer is the King’. But, with tremendous
increase in the world population, the growing markets were unable to meet the rising demand
which created a gap between the general ‘demand’ and ‘supply’ levels in the markets. This
to some extent watered down the concept of ‘Consumer Sovereignty’, what with consumers
being forced to accept whatever was offered to them. On the other hand, the expanding
markets necessitated the introduction of various intermediaries between the producer and the
ultimate consumer.
Why Consumer Protection Act, 2019?

i. ‘Advertising’, though ostensibly directed at informing potential consumers about the
availability and uses of a product began to be resorted to as a medium for exaggerating the
uses of ones products or disparaging others products so as to have an edge over competitors.
Unfair and deceptive practices such as selling of defective or sub-standard goods, charging
exorbitant prices, misrepresenting the efficacy or usefulness of goods, negligence as to safety
standards, etc. became rampant. It, therefore, became necessary to evolve statutory
measures, even in developed countries, to make producers/traders more accountable to
consumers.
ii. It also became inevitable for consumers to unite on a common platform to deal with issues
of common concern and having their grievances redressed satisfactorily.
iii. Consumer markets for goods and services have undergone drastic transformation since the
enactment of the Consumer Protection Act in 1986. The modern market place contains a
plethora of products and services. The emergence of global supply chains, rise in international
trade and the rapid development of e-commerce have led to new delivery systems for goods
and services and have provided new options and opportunities for consumers. Equally, this has
rendered the consumer vulnerable to new forms of unfair trade and unethical business
practices. Misleading advertisements, tele-marketing, multi-level marketing, direct selling and
e-commerce pose new challenges to consumer protection and will require appropriate and
swift executive interventions to prevent consumer detriment and to counter unfair trade
practices.
iv. Therefore, it has become inevitable to modernise the Consumer Protection Act in 1986 to
address the constantly emerging vulnerabilities of the consumer in the market economy
extant.
v. In this backdrop, the Consumer Protection Bill, 2019 was passed by the Lok Sabha on 30th
July, 2019 and by Rajya Sabha on 06th August, 2019 respectively. The Consumer Protection
Act, 2019 received the assent of the President on the 9th August, 2019. The Consumer
Protection Act, 2019 replaced the more than three decades old Consumer Protection Act,
1986.
vi. Preamble of the Consumer Protection Act, 2019 provides for protection of the interests of
consumers and for the said purpose, to establish authorities for timely and effective
administration and settlement of consumers’ disputes and for matters connected therewith
or incidental thereto.
vii. The importance of the Act lies in promoting welfare of the society by enabling the consumer
to participate directly in the market economy. It attempts to remove the helplessness of a
consumer which he faces against powerful business, described as, a network of rackets or a
society in which, producers have secured power to rob the rest and the might of public
bodies which are degenerating into storehouses of inaction where papers do not move from
one desk to another as a matter of duty and responsibility but for extraneous consideration
leaving the common man helpless, bewildered and shocked. The malady is becoming so
rampant, widespread and deep that the society instead of bothering, complaining and fighting
against it, is accepting it as part of life. The enactment in these unbelievable yet harsh
realities appears to be a silver lining, which may in course of time succeed in checking
the rot”.
IMPORTANT DEFINITIONS
Complaint
Complaint means any allegation in writing, made by a complainant for obtaining any relief
provided by or under this Act, that:
(i) an unfair contract or unfair trade practice or a restrictive trade practice has been adopted by
any trader or service provider;
(ii) the goods bought by him or agreed to be bought by him suffer from one or more defects;
(iii) the services hired or availed of or agreed to be hired or availed of by him suffer from any
deficiency;
(iv) a trader or a service provider, as the case may be, has charged for the goods or for the
services mentioned in the complaint, a price in excess of the price–
(a) fixed by or under any law for the time being in force; or
(b) displayed on the goods or any package containing such goods; or
(c) displayed on the price list exhibited by him by or under any law for the time being in force;
or
(d) agreed between the parties;
(v) the goods, which are hazardous to life and safety when used, are being offered for sale to
the public–
(a) in contravention of standards relating to safety of such goods as required to be complied
with, by or under any law for the time being in force;
(b) where the trader knows that the goods so offered are unsafe to the public;
(vi) the services which are hazardous or likely to be hazardous to life and safety of the public
when used, are being offered by a person who provides any service and who knows it to be
injurious to life and safety;
(vii) a claim for product liability action lies against the product manufacturer, product seller or
product service provider, as the case may be.
Complainant
Complainant means–
(i) a consumer; or
(ii) any voluntary consumer association registered under any law for the time being in force; or
(iii) the Central Government or any State Government; or
(iv) the Central Authority; or
(v) one or more consumers, where there are numerous consumers having the same interest; or
(vi) in case of death of a consumer, his legal heir or legal representative; or
(vii) in case of a consumer being a minor, his parent or legal guardian.
Consumer
Consumer means any person who–
i. buys any goods for a consideration which has been paid or promised or partly paid and partly
promised, or under any system of deferred payment and includes any user of such goods
other than the person who buys such goods for consideration paid or promised or partly paid
or partly promised, or under any system of deferred payment, when such use is made with
the approval of such person, but does not include a person who obtains such goods for
resale or for any commercial purpose; or
ii. hires or avails of any service for a consideration which has been paid or promised or partly
paid and partly promised, or under any system of deferred payment and includes any
beneficiary of such service other than the person who hires or avails of the services for
consideration paid or promised, or partly paid and partly promised, or under any system of
deferred payment, when such services are availed of with the approval of the first mentioned
person, but does not include a person who avails of such service for any commercial
purpose.
Note:
The expression “commercial purpose” does not include use by a person of goods bought and
used by him exclusively for the purpose of earning his livelihood, by means of self-
employment.
What is commercial purpose?

A purchase of goods can be said to be for a ‘commercial purpose only if the goods have been
purchased for being used in some profit making activity on a large-scale, and there is close
and direct nexus between the purchase of goods and the profit-making activity.
Case Laws
Laxmi Engineering Works v. P.S.G. Industrial Institute
The Supreme Court observed that whether the purpose for which a person has bought goods
is a ‘commercial purpose’ is always a question of facts and to be decided in the facts and
circumstances of each case. If the commercial use is by the purchaser himself for the
purpose of earning his livelihood by means of self-employment such purchaser of goods would
yet be a consumer. The Supreme Court further observed that if a person purchased a
machine to operate it himself for earning his livelihood, he would be a consumer. If such
person took the assistance of one or two persons to assist him in operating the machine, he
would still be a consumer. But if a person purchases a machine and appoint or engage
another person exclusively to operate the machine, then such person would not be a
consumer.
Important Judgements
a. The National Commission held that a tractor purchased primarily to till the land of the
purchaser and let out on hire during the idle time to till the lands of others would not
amount to commercial use.
b. the term ‘consumer’ includes any beneficiary of service other than the person who hires the
services for consideration, the widow being the beneficiary of services is a ‘consumer’ under
the Act entitled to be compensated for the loss suffered by her due to negligence.
c. Tenant will not be construes as consumer where there was no provision in the lease
agreement in respect of cleaning, repairing and maintaining the building, the rent paid by
tenant is not the consideration for availing these services and therefore, no question of
deficiency in service.
Goods
Same as defined under Sales of Goods Act,1930
Case Laws
Morgan Stanley Mutual Fund v. Kartik Das
The Supreme Court held that an application for allotment of shares cannot constitute goods.
It is after allotment; rights may arise as per the articles of association of the company. At
the stage of application there is no purchase of goods for consideration and again the
purchaser cannot be called the hirer of services for consideration.
Consumer Rights
Consumer rights include–
(i) the right to be protected against the marketing of goods, products or services which are
hazardous to life and property;
(ii) the right to be informed about the quality, quantity, potency, purity, standard and price of
goods, products or services,
(iii) the right to be assured, wherever possible, access to a variety of goods, products or services
at competitive prices;
(iv) the right to be heard and to be assured that consumer’s interests will receive due
consideration at appropriate forum;
(v) the right to seek redressal against unfair trade practice or restrictive trade practices or
unscrupulous exploitation of consumers; and
(vi) the right to consumer awareness
Defect
Defect means any fault, imperfection or shortcoming in the quality, quantity, potency, purity
or standard which is required to be maintained in relation to any goods or product.
Deficiency
Deficiency means any fault, imperfection, shortcoming or inadequacy in the quality, nature
and manner of performance which is required to be maintained by or under any law in
relation to any service and includes:
(i) any act of negligence or omission or commission by such person which causes loss or injury
to the consumer; and
(ii) deliberate withholding of relevant information by such person to the consumer.
Misleading Advertisement
Misleading Advertisement in relation to any product or service, means an advertisement,
which:
(i) falsely describes such product or service; or
(ii) gives a false guarantee to, or is likely to mislead the consumers as to the nature, substance,
quantity or quality of such product or service; or
(iii) conveys an express or implied representation which, if made by the manufacturer or seller or
service provider thereof, would constitute an unfair trade practice; or
(iv) deliberately conceals important information
Product liability
Product liability means the responsibility of a product manufacturer or product seller, of any
product or service, to compensate for any harm caused to a consumer by such defective
product manufactured or sold or by deficiency in services relating thereto.
Product Liability Action

Product liability action means a complaint filed by a person before a District Commission or
State Commission or National Commission, as the case may be, for claiming compensation
for the harm caused to him.
Product Manufacturer
Product manufacturer means a person who
(i) makes any product or parts thereof; or
(ii) assembles parts thereof made by others; or

(iii) puts or causes to be put his own mark on any products made by any other person; or
(iv) makes a product and sells, distributes, leases, installs, prepares, packages, labels, markets,
repairs, maintains such product or is otherwise involved in placing such product for
commercial purpose; or
(v) designs, produces, fabricates, constructs or re-manufactures any product before its sale; or
(vi) being a product seller of a product, is also a manufacturer of such product
Unfair Contract
Unfair contract means a contract between a manufacturer or trader or service provider on one
hand, and a consumer on the other, having such terms which cause significant change in the
rights of such consumer, including the following, namely:
(i) requiring excessive security deposits to be given by a consumer for the performance of
contractual obligations; or
(ii) imposing any penalty on the consumer, for the breach of contract thereof which is wholly
disproportionate to the loss occurred due to such breach to the other party to the contract;
or
(iii) refusing to accept early repayment of debts on payment of applicable penalty; or
(iv) entitling a party to the contract to terminate such contract unilaterally, without reasonable
cause; or
(v) permitting or has the effect of permitting one party to assign the contract to the detriment
of the other party who is a consumer, without his consent; or
(vi) imposing on the consumer any unreasonable charge, obligation or condition which puts such
consumer to disadvantage
Unfair Trade Practice

It means a trade practice which, for the purpose of promoting the sale, use or supply of any
goods or for the provision of any service, adopts any unfair method or unfair or deceptive
practice including any of the following practices, namely:
i. making any statement, whether orally or in writing or by visible representation including by
means of electronic record, which –
a. falsely represents that the goods are of a particular standard, quality, quantity, grade,
composition, style or model;
b. falsely represents that the services are of a particular standard, quality or grade;
c. falsely represents any re-built, second-hand, renovated, reconditioned or old goods as new
goods;
d. represents that the goods or services have characteristics, accessories, uses or benefits which
such goods or services do not have;
e. represents that the seller or the supplier has approval or affiliation which such seller or
supplier does not have;
f. makes a false or misleading representation concerning the need for, or the usefulness of, any
goods or services;
g. gives to the public any warranty or guarantee of the performance, efficacy or length of life
of a product or of any goods that is not based on an adequate or proper test thereof.
Provided that where a defence is raised to the effect that such warranty or guarantee
is based on adequate or proper test, the burden of proof of such defence shall lie on
the person raising such defence
h. makes to the public a representation in a form that purports to be:
(A) a warranty or guarantee of a product or of any goods or services; or
(B) a promise to replace, maintain or repair an article or any part thereof or to repeat or continue
a service until it has achieved a specified result, if such purported warranty or guarantee or
promise is materially misleading or if there is no reasonable prospect that such warranty,
guarantee or promise will be carried out;
i. materially misleads the public concerning the price at which a product or like products or
goods or services, have been or are, ordinarily sold or provided,
j. gives false or misleading facts disparaging the goods, services or trade of another person.
ii. Permitting the publication of any advertisement, whether in any newspaper or otherwise,
including by way of electronic record, for the sale or supply at a bargain price of goods or
services that are not intended to be offered for sale or supply at the bargain price.
Note:
“bargain price” means-
(A) a price that is stated in any advertisement to be a bargain price, by reference to an
ordinary price or otherwise; or
(B) a price that a person who reads, hears or sees the advertisement, would reasonably
understand to be a bargain price having regard to the prices at which the product advertised
or like products are ordinarily sold;
iii. Permitting–
a. the offering of gifts, prizes or other items with the intention of not providing them as
offered or creating impression that something is being given or offered free of charge when
it is fully or partly covered by the amount charged, in the transaction as a whole;
b. the conduct of any contest, lottery, game of chance or skill, for the purpose of promoting,
directly or indirectly, the sale, use or supply of any product or any business interest, except
such contest, lottery, game of chance or skill as may be prescribed;
c. withholding from the participants of any scheme offering gifts, prizes or other items free of
charge on its closure, the information about final results of the scheme.
Note : The participants of a scheme shall be deemed to have been informed of the final
results of the scheme where such results are within a reasonable time published, prominently
in the same newspaper in which the scheme was originally advertised;
iv. permitting the sale or supply of goods intended to be used, or are of a kind likely to be used
by consumers, knowing or having reason to believe that the goods do not comply with the
standards prescribed by the competent authority relating to performance, composition,
contents, design, constructions, finishing or packaging as are necessary to prevent or reduce
the risk of injury to the person using the goods;
v. permitting the hoarding or destruction of goods, or refusal to sell the goods or to make them
available for sale or to provide any service, if such hoarding or destruction or refusal raises or
tends to raise or is intended to raise, the cost of those or other similar goods or services
vi. manufacturing of spurious goods or offering such goods for sale or adopting deceptive
practices in the provision of services;
vii. not issuing bill or cash memo or receipt for the goods sold or services rendered in such
manner as may be prescribed;
viii. refusing, after selling goods or rendering services, to take back or withdraw defective goods or
to withdraw or discontinue deficient services and to refund the consideration thereof, if paid,
within the period stipulated in the bill or cash memo or receipt or in the absence of such
stipulation, within a period of thirty days;
ix. disclosing to other person any personal information given in confidence by the consumer
unless such disclosure is made in accordance with the provisions of any law for the time
being in force.
CONSUMER PROTECTION COUNCIL
CENTRAL CONSUMER PROTECTION COUNCIL

i. The Central Government empowers to establish the Central Consumer Protection Council to
be known as the Central Council.
ii. It shall work as an advisory council which shall consist of the Minister-in-charge of the
Department of Consumer Affairs in the Central Government, who shall be the
Chairperson; and such number of other official or non-official members representing such
interests as may be prescribed.
iii. It is required to hold at least 1 meeting every year and the day, date, time, place regarding
the same shall be decided by the chairperson.
iv. The objects of the Central Council shall be to render advice on promotion and protection of
the consumers’ rights under the Act.
STATE CONSUMER PROTECTION COUNCIL

i. The State Government empowers to establish the State Consumer Protection Council to be
known as the State Council.
ii. It shall work as an advisory council which shall consist of the Minister-in-charge of the
Department of Consumer Affairs in the State Government, who shall be the
Chairperson; and such number of other official or non-official members not exceeding 10,
representing such interests as may be prescribed.
iv. The objects of the State Council shall be to render advice on promotion and protection of the
consumers’ rights under the Act within the state.
DISTRICT CONSUMER PROTECTION COUNCIL

i. The State Government empowers to establish the District Consumer Protection Council to be
known as the District Council.
ii. It shall work as an advisory council which shall consist of the Collector of the district (by
whatever name called), who shall be the Chairperson; and such number of other official
or non-official members, representing such interests as may be prescribed.
iv. The objects of the District Council shall be to render advice on promotion and protection of
the consumers’ rights under the Act within the district.
CENTRAL CONSUMER PROTECTION AUTHORITY (CCPA)
Establishment of Central Consumer Protection Authority

i. Section 10 empowers the Central Government to establish a Central Consumer Protection
Authority to be known as the Central Authority to regulate matters relating to violation of
rights of consumers, unfair trade practices and false or misleading advertisements which are
prejudicial to the interests of public and consumers and to promote, protect and enforce the
rights of consumers as a class.
ii. The Central Authority shall consist of a Chief Commissioner and such number of other
Commissioners as may be prescribed, to be appointed by the Central Government to exercise
the powers and discharge the functions under the Act.
iii. The headquarters of the Central Authority shall be at such place in the National Capital
Region of Delhi, and it shall have regional and other offices in any other place in India as
the Central Government may decide.
iv. Central government will make rules and other terms and conditions of the service of the
Chief Commissioner and Commissioners of the Central Authority.
Note:
No act or proceeding of the Central Authority shall be invalid merely by reason of–
(a) any vacancy in, or any defect in the constitution of, the Central Authority; or
(b) any defect in the appointment of a person acting as the Chief Commissioner or as a
Commissioner; or
(c) any irregularity in the procedure of the Central Authority not affecting the merits of the
case.
Note:
Appointment of officers, experts, professionals and other employees of Central Authority and
their salary and other allowances shall be done by the Central Government.
Investigation Wing of Central Authority

1. The Central Authority shall have an Investigation Wing headed by a Director General for the
purpose of conducting inquiry or investigation.
2. The Central Government may appoint a Director General and such number of Additional
Director General, Director, Joint Director, Deputy Director and Assistant Director who shall
possess such qualification as may be prescribed under the Act.
3. Every Additional Director General, Director, Joint Director, Deputy Director and Assistant
Director shall exercise his powers, and discharge his functions, subject to the general control,
supervision and direction of the Director-General
4. The Director General may delegate all or any of his powers to the Additional Director General
or Director, Joint Director or Deputy Director or Assistant Director, as the case may be, while
conducting inquiries or investigations under this Act.
5. The inquiries or the investigations made by the Director General shall be submitted to the
Central Authority.
Power of District Collector

The District Collector (by whatever name called) may, on a complaint or on a reference
made to him by the Central Authority inquire into or investigate complaints regarding
violation of rights of consumers as a class, on matters relating to violations of consumer
rights, unfair trade practices and false or misleading advertisements, within his jurisdiction
and submit his report to the Central Authority
Powers and functions of Central Authority

The Central Authority empowers to:
a. protect, promote and enforce the rights of consumers as a class, and prevent violation of
consumers rights under this Act;
b. prevent unfair trade practices and ensure that no person engages himself in unfair trade
practices;
c. ensure that no false or misleading advertisement is made of any goods or services;
d. ensure that no person takes part in the publication of any advertisement which is false or
misleading.
Section 18(2) states that without prejudice to the generality of the provisions contained in
Section 18 (1), the Central Authority may, for any of the purposes aforesaid –
a. inquire or cause an inquiry or investigation to be made into violations of consumer rights or
unfair trade practices, either suo motu or on a complaint received or on the directions from
the Central Government;
b. file complaints before the District Commission, the State Commission or the National
Commission, as the case may be, under this Act;
c. intervene in any proceedings before the District Commission or State Commission or National
Commission, as the case may be, in respect of any allegation of violation of consumer rights
or unfair trade practices;
d. review the matters relating to, and the factors inhibiting enjoyment of, consumer rights,
including safeguards provided for the protection of consumers under any other law for the
time being in force and recommend appropriate remedial measures for their effective
implementation;
e. recommend adoption of international covenants and best international practices on consumer
rights to ensure effective enforcement of consumer rights;
f. undertake and promote research in the field of consumer rights;
g. spread and promote awareness on consumer rights;
h. encourage non-Governmental organisations and other institutions working in the field of
consumer rights to co-operate and work with consumer protection agencies;
i. mandate the use of unique and universal goods identifiers in such goods, as may be
necessary, to prevent unfair trade practices and to protect consumers’ interest;
j. issue safety notices to alert consumers against dangerous or hazardous or unsafe goods or
services;
k. advise the Ministries and Departments of the Central and State Governments on consumer
welfare measures;
l. issue necessary guidelines to prevent unfair trade practices and protect consumers’ interest.
Power of Central Authority to refer matter for investigation or to another Regulator

The Central Authority may, after receiving any information or complaint or directions from
the Central Government or of its own motion, conduct or cause to be conducted a
preliminary inquiry as to whether there exists a prima facie case of violation of consumer
rights or any unfair trade practice or any false or misleading advertisement, by any person,
which is prejudicial to the public interest or to the interests of consumers and if it is
satisfied that there exists a prima facie case, it shall cause investigation to be made by the
Director General or by the District Collector.
For the purposes of investigation, the Central Authority, the Director General or the District
Collector may call upon a person referred to in Section 19(1) and also direct him to produce
any document or record in his possession.
Power of Central Authority

If the Central Authority is satisfied on the basis of investigation that there is sufficient
evidence to show violation of consumer rights or unfair trade practice by a person, it may
pass such order as may be necessary, including:
a. recalling of goods or withdrawal of services which are dangerous, hazardous or unsafe;
b. reimbursement of the prices of goods or services so recalled to purchasers of such goods or
services; and
c. Discontinuation of practices which are unfair and prejudicial to consumers’ interest
Note
Provided that the Central Authority shall give the person an opportunity of being heard before
passing an order under this section.
Power of Central Authority to issue directions and penalties against false or misleading
advertisements
a. Section 21 provides that where the Central Authority is satisfied after investigation that any
advertisement is false or misleading and is prejudicial to the interest of any consumer or is
in contravention of consumer rights, it may, by order, issue directions to the concerned trader
or manufacturer or endorser or advertiser or publisher, as the case may be, to discontinue
such advertisement or to modify the same in such manner and within such time as may be
specified in that order.
b. It may, by order, impose on manufacturer or endorser a penalty which may extend to ten
lakh rupees.
c. For every subsequent contravention by a manufacturer or endorser, impose a penalty, which
may extend to fifty lakh rupees.
d. Where the Central Authority deems it necessary, it may, by order, prohibit the endorser of a
false or misleading advertisement from making endorsement of any product or service for a
period which may extend to one year.
e. Central Authority may, for every subsequent contravention, prohibit such endorser from
making endorsement in respect of any product or service for a period which may extend to
three years.
f. Where the Central Authority is satisfied after investigation that any person is found to
publish, or is a party to the publication of, a misleading advertisement, it may impose on
such person a penalty which may extend to ten lakh rupees.
g. No endorser shall be liable to a penalty, if he has exercised due diligence to verify the
veracity of the claims made in the advertisement regarding the product or service being
endorsed by him.
h. No person shall be liable to such penalty if he proves that he had published or arranged for
the publication of such advertisement in the ordinary course of his business
While determining the penalty, regard shall be had to the following, namely:
(a) the population and the area impacted or affected by such offence;
(b) the frequency and duration of such offence;
(c) the vulnerability of the class of persons likely to be adversely affected by such offence; and
(d) the gross revenue from the sales effected by virtue of such offence.
Search and seizure

The Director General or any other officer authorised by him in this behalf, or the District
Collector, as the case may be, may, if he has any reason to believe that any person has
violated any consumer rights or committed unfair trade practice or causes any false or
misleading advertisement to be made, shall,–
(a) enter at any reasonable time into any such premises and search for any document or record
or article or any other form of evidence and seize such document, record, article or such
evidence;
(b) make a note or an inventory of such record or article; or
(c) require any person to produce any record, register or other document or article.
Note: The provisions of the Code of Criminal Procedure, 1973, relating to search and seizure shall
apply, as far as may be, for search and seizure under this Act.
Every document, record or article seized or produced shall be returned to the person, from
whom they were seized or who produced the same, within a period of twenty days of the
date of such seizure or production, as the case may be, after copies thereof or extracts
therefrom certified by that person, in such manner as may be prescribed, have been taken.
What about goods which are subject to natural decay?

Where any article seized are subject to speedy or natural decay, the Director General or such
other officer may dispose of the article in such manner as may be prescribed.
What about goods which are not subject to natural decay?

In the case of articles other than the articles of speedy or natural decay, provisions
contained in section 38(2) (c) shall mutatis mutandis apply in relation to analysis or tests.
Section 38(2)(c) provides that if the complaint alleges a defect in the goods which cannot
be determined without proper analysis or test of the goods, obtain a sample of the goods
from the complainant, seal it and authenticate it in the manner as may be prescribed and
refer the sample so sealed to the appropriate laboratory along with a direction that such
laboratory to make an analysis or test, whichever may be necessary, with a view to finding
out whether such goods suffer from any defect alleged in the complaint or from any other
defect and to report its findings thereon to the District Commission within a period of forty-
five days of the receipt of the reference or within such extended period as may be granted
by it.
Vexatious Search
The Director General or any other officer, exercising powers under section 22, who knows
that there are no reasonable grounds for so doing, and yet:
(a) searches, or causes to be searched any premises; or
(b) seizes any record, register or other document or article,
Shall, for every such offence, be punished with imprisonment for a term which may extend
to one year, or with fine which may extend to ten thousand rupees or with both.
Appeal
A person aggrieved by any order passed by the Central Authority under sections 20 and 21
may file an appeal to the National Commission within a period of thirty days from the date
of receipt of such order.
DISTRICT CONSUMER DISPUTES REDRESSAL COMMISSION
a. Section 28 of the Act, empowers the State Government to establish a District Consumer
Disputes Redressal Commission, to be known as the District Commission, in each district of
the State. State Government may also, if it deems fit, establish more than one District
Commission in a district.
b. Each District Commission shall consist of:
i. a President; and
ii. not less than two and not more than such number of members as may be prescribed, in
consultation with the Central Government.
Note
Qualifications of President and members of District Commission shall be decided by The
Central Government.
Jurisdiction of District Commission

a. District Commission shall have jurisdiction to entertain complaints where the value of the
goods or services paid as consideration does not exceed one crore rupees.
b. A complaint shall be instituted in a District Commission within the local limits of whose
jurisdiction:
i. the opposite party or each of the opposite parties, where there are more than one, at the
time of the institution of the complaint, ordinarily resides or carries on business or has a
branch office or personally works for gain; or
ii. any of the opposite parties, where there are more than one, voluntary resides or has a branch
office, provided that in such case the permission of the District Commission is taken; or
iii. the cause of action, wholly or in part, arises; or the complainant resides or personally works
for gain.
The District Commission shall ordinarily function in the district headquarters and may
perform its functions at such other place in the district, as the State Government may, in
consultation with the State Commission, notify in the Official Gazette from time to time.
Manner in which complaint shall be made

Section 35 provides that a complaint, in relation to any goods sold or delivered or agreed to
be sold or delivered or any service provided or agreed to be provided, may be filed with a
District Commission by:
a. The consumer:
I. to whom such goods are sold or delivered or agreed to be sold or delivered or such service is
provided or agreed to be provided; or
II. who alleges unfair trade practice in respect of such goods or service;
b. any recognised consumer association, whether the consumer to whom such goods are sold or
delivered or agreed to be sold or delivered or such service is provided or agreed to be provided,
or who alleges unfair trade practice in respect of such goods or service, is a member of such
association or not;
c. one or more consumers, where there are numerous consumers having the same interest, with
the permission of the District Commission, on behalf of, or for the benefit of, all consumers
so interested; or
d. The Central Government, the Central Authority or the State Government, as the case may
be. It may be noted that the complaint may be filed electronically in prescribed manner.
“Recognised Consumer Association” means any voluntary consumer association registered
under any law for the time being in force. (2) Every complaint filed shall be accompanied
with such fee and payable in such manner, including electronic form, as may be prescribed.
Proceedings before District Commission

a. On receipt of a complaint made under section 35, the District Commission may, by order,
admit the complaint for being proceeded with or reject the same.
b. A complaint shall not be rejected unless an opportunity of being heard has been given to the
complainant.
c. The admissibility of the complaint shall ordinarily be decided within twenty-one days from
the date on which the complaint was filed and if the commission fails to decide the issue of
admissibility, it shall be deemed to have been admitted.
d. Every Proceeding before The District Commission shall be conducted by the President of that
Commission and at least one member.
e. It may be noted that that where a member, for any reason, is unable to conduct a
proceeding till it is completed, the President and the other member shall continue the
proceeding from the stage at which it was last heard by the previous member.
Note:
If it appears to the district commission that the dispute can be settled through mediation then
it should give option to the parties to settle the dispute through mediation and the same
should be confirmed by the parties within 5 days and within 5 Days from the receipt of the
consent the same shall be referred for mediation.
Procedure on admission of complaint

Section 38 deals with procedure on admission of complaint by the District Commission.
Section 38 provides that:
1. The District Commission shall, on admission of a complaint, or in respect of cases referred
for mediation on failure of settlement by mediation, proceed with such complaint.
2. Where the complaint relates to any goods, the District Commission shall:
a. refer a copy of the admitted complaint, within twenty-one days from the date of its
admission to the opposite party mentioned in the complaint directing him to give his version
of the case within a period of thirty days or such extended period not exceeding fifteen days
as may be granted by it;
b. if the opposite party on receipt of a complaint referred to him under clause (a) denies or
disputes the allegations contained in the complaint, or omits or fails to take any action to
represent his case within the time given by the District Commission, proceed to settle the
consumer dispute in the manner specified in clauses (c) to (g);
c. if the complaint alleges a defect in the goods which cannot be determined without proper
analysis or test of the goods, obtain a sample of the goods from the complainant, seal it and
authenticate it in the manner as may be prescribed and refer the sample so sealed to the
appropriate laboratory along with a direction that such laboratory to make an analysis or test,
whichever may be necessary, with a view to finding out whether such goods suffer from any
defect alleged in the complaint or from any other defect and to report its findings thereon
to the District Commission within a period of forty-five days of the receipt of the reference
or within such extended period as may be granted by it;
d. before any sample of the goods is referred to any appropriate laboratory under clause (c),
require the complainant to deposit to the credit of the Commission such fees as may be
specified, for payment to the appropriate laboratory for carrying out the necessary analysis or
test in relation to the goods in question;
e. remit the amount deposited to its credit under clause (d) to the appropriate laboratory to
enable it to carry out the analysis or test mentioned in clause (c) and on receipt of the
report from the appropriate laboratory, it shall forward a copy of the report along with such
remarks as it may feel appropriate to the opposite party;
f. if any of the parties disputes the correctness of the findings of the appropriate laboratory, or
disputes the correctness of the methods of analysis or test adopted by the appropriate
laboratory, require the opposite party or the complainant to submit in writing his objections
with regard to the report made by the appropriate laboratory;
g. give a reasonable opportunity to the complainant as well as the opposite party of being heard
as to the correctness or otherwise of the report made by the appropriate laboratory and also
as to the objection made in relation thereto under clause (f) and issue an appropriate order
under section 39.
3. The District Commission shall, if the complaint admitted by it under section 36 relates to
goods in respect of which the procedure specified in sub-section (2) cannot be followed, or
if the complaint relates to any services:
a. refer a copy of such complaint to the opposite party directing him to give his version of the
case within a period of thirty days or such extended period not exceeding fifteen days as
may be granted by the District Commission;
b. if the opposite party, on receipt of a copy of the complaint, referred to him under clause (a)
denies or disputes the allegations contained in the complaint, or omits or fails to take any
action to represent his case within the time given by the District Commission, it shall
proceed to settle the consumer dispute:
(i) on the basis of evidence brought to its notice by the complainant and the opposite party, if
the opposite party denies or disputes the allegations contained in the complaint, or
(ii) ex parte on the basis of evidence brought to its notice by the complainant, where the
opposite party omits or fails to take any action to represent his case within the time given
by the Commission;
c. decide the complaint on merits if the complainant fails to appear on the date of hearing.
4. For the purposes of sub-sections (2) and (3), the District Commission may, by order,
require an electronic service provider to provide such information, documents or records, as
may be specified in that order.
5. No proceedings complying with the procedure laid down in sub-sections (1) and (2) shall be
called in question in any court on the ground that the principles of natural justice have not
been complied with.
6. Every complaint shall be heard by the District Commission on the basis of affidavit and
documentary evidence placed on record: Provided that where an application is made for
hearing or for examination of parties in person or through video conferencing, the District
Commission may, on sufficient cause being shown, and after recording its reasons in writing,
allow the same.
7. Every complaint shall be disposed of as expeditiously as possible and endeavour shall be made
to decide the complaint within a period of three months from the date of receipt of notice
by opposite party where the complaint does not require analysis or testing of commodities
and within five months if it requires analysis or testing of commodities: Provided that no
adjournment shall ordinarily be granted by the District Commission unless sufficient cause is
shown and the reasons for grant of adjournment have been recorded in writing by the
Commission: Provided further that the District Commission shall make such orders as to the
costs occasioned by the adjournment as may be specified by regulations: Provided also that
in the event of a complaint being disposed of after the period so specified, the District
Commission shall record in writing, the reasons for the same at the time of disposing of the
said complaint.
8. Where during the pendency of any proceeding before the District Commission, if it appears
necessary, it may pass such interim order as is just and proper in the facts and
circumstances of the case.
9. For the purposes of this section, the District Commission shall have the same powers as are
vested in a civil court under the Code of Civil Procedure, 1908 while trying a suit in respect
of the following matters, namely:
a. the summoning and enforcing the attendance of any defendant or witness and examining the
witness on oath;
b. requiring the discovery and production of any document or other material object as evidence;
c. receiving of evidence on affidavits;
d. the requisitioning of the report of the concerned analysis or test from the appropriate
laboratory or from any other relevant source;
e. issuing of commissions for the examination of any witness, or document; and
f. any other matter which may be prescribed by the Central Government.
10. Every proceeding before the District Commission shall be deemed to be a judicial proceeding
within the meaning of sections 193 and 228 of the Indian Penal Code, and the District
Commission shall be deemed to be a criminal court for the purposes of section 195 and
Chapter XXVI of the Code of Criminal Procedure, 1973.
11. Where the complainant is a consumer referred to in sub-clause (v) of clause (5) of section
2, the provisions of Order I Rule 8 of the First Schedule to the Code of Civil Procedure, 1908
shall apply subject to the modification that every reference therein to a suit or decree shall
be construed as a reference to a complaint or the order of the District Commission thereon.
12. In the event of death of a complainant who is a consumer or of the opposite party against
whom the complaint has been filed, the provisions of Order XXII of the First Schedule to the
Code of Civil Procedure, 1908 shall apply subject to the modification that every reference
therein to the plaintiff and the defendant shall be construed as reference to a complainant
or the opposite party, as the case may be.
Findings of District Commission

Where the District Commission is satisfied that the goods complained against suffer from
any of the defects specified in the complaint or that any of the allegations contained in the
complaint about the services or any unfair trade practices, or claims for compensation under
product liability are proved, it shall issue an order to the opposite party directing him to do
one or more of the following:
a. to remove the defect pointed out by the appropriate laboratory from the goods in question;
b. to replace the goods with new goods of similar description which shall be free from any
defect;
c. to return to the complainant the price, or, as the case may be, the charges paid by the
complainant along with such interest on such price or charges as may be decided;
d. to pay such amount as may be awarded by it as compensation to the consumer for any loss
or injury suffered by the consumer due to the negligence of the opposite party
e. to pay such amount as may be awarded by it as compensation in a product liability action
under Chapter VI;
f. to remove the defects in goods or deficiencies in the services in question;
g. to discontinue the unfair trade practice or restrictive trade practice and not to repeat them;
h. not to offer the hazardous or unsafe goods for sale;
i. to withdraw the hazardous goods from being offered for sale;
j. to cease manufacture of hazardous goods and to desist from offering services which are
hazardous in nature;
k. to pay such sum as may be determined by it, if it is of the opinion that loss or injury has
been suffered by a large number of consumers who are not identifiable conveniently.
It may be noted that the minimum amount of sum so payable shall not be less than
twenty-five per cent of the value of such defective goods sold or service provided, as the
case may be, to such consumers
l. to issue corrective advertisement to neutralise the effect of misleading advertisement at the
cost of the opposite party responsible for issuing such misleading advertisement;
m. to provide for adequate costs to parties; and
n. to cease and desist from issuing any misleading advertisement.
Important Note:
According to Section 39(3), in any proceeding conducted by the President and a member and
if they differ on any point or points, they shall state the point or points on which they differ
and refer the same to another member for hearing on such point or points and the opinion of
the majority shall be the order of the District Commission.
However, the other member shall give his opinion on such point or points referred to him within
a period of one month from the date of such reference.
Every order made by the District Commission shall be signed by the President and the member
who conducted the proceeding. Provided that where the order is made as per majority opinion
under sub-section (3), such order shall also be signed by the other member.
Review by District Commission and Appeal against District Commission

a. District commission can review its order if it appears an error on the face of it withing 30
days from the original order was passed.
b. any person aggrieved by an order made by the District Commission may prefer an appeal
against such order to the State Commission on the grounds of facts or law within a period
of forty-five days from the date of the order. (Extension may be granted if there appears
sufficient ground)
Note:
a. If the district commission has ordered any compensation to be paid, then the appellant
first should deposit 50% of the said amount.
b. There lies no appeal against any decision arrived through mediation.
STATE CONSUMER DISPUTES REDRESSAL COMMISSION
a. Section 42 of the Act, empowers the State Government to establish a state Consumer
Disputes Redressal Commission, to be known as the State Commission, in the State. State
Government may also, if it deems fit, establish more than one State Commission in a state
as it deems fit.
b. Each State Commission shall consist of:
i. a President; and
ii. not less than four or not more than such number of members as may be prescribed in
Note-
Qualifications of President and members of the Commission shall be decided by The Central
Government.
Jurisdiction of State Commission

State Commission shall have jurisdiction
To entertain:
a. complaints where the value of the goods or services paid as consideration, exceeds rupees
one crore, but does not exceed rupees ten crore:
b. complaints against unfair contracts, where the value of goods or services paid as
consideration does not exceed ten crore rupees;
c. appeals against the orders of any District Commission within the State; and
 To call for the records and pass appropriate orders in any consumer dispute which is pending
before or has been decided by any District Commission within the State, where it appears to
the State Commission that such District Commission has exercised a jurisdiction not vested
in it by law, or has failed to exercise a jurisdiction so vested or has acted in exercise of its
jurisdiction illegally or with material irregularity.
 Section 47(2) provides that the jurisdiction, powers and authority of the State Commission
may be exercised by Benches thereof, and a Bench may be constituted by the President
with one or more members as the President may deem fit. It may be noted that the senior-
most member shall preside over the Bench.
 Section 47(3) states that where the members of a Bench differ in opinion on any point, the
points shall be decided according to the opinion of the majority, if there is a majority, but if
the members are equally divided, they shall state the point or points on which they differ,
and make a reference to the President who shall either hear the point or points himself or
refer the case for hearing on such point or points by one or more of the other members and
such point or points shall be decided according to the opinion of the majority of the
members who have heard the case, including those who first heard it.
 The President or the other members, as the case may be, shall give opinion on the point or
points so referred within a period of one month from the date of such reference.
 According to Section 47(4), a complaint shall be instituted in a State Commission
(Same as District Commission)
Review by State Commission and Appeal against State Commission (Appeal to National
Commission)
a. State commission can review its order if it appears an error on the face of it withing 30
days from the original order was passed.
b. Any person aggrieved by an order made by the State Commission may prefer an appeal
against such order to the National Commission only on question law within a period of 30
days from the date of the order. (Extension may be granted if there appears sufficient
ground).
Note:
i. If the State commission has ordered any compensation to be paid, then the appellant first
should deposit 50% of the said amount.
ii. There lies no appeal if the question is not question of Law.
iii. An appeal may lie to the National Commission from an order passed ex parte by the State
Commission
Hearing of appeal by State Commission or National Commission

a. According to Section 52 of the Act, an appeal filed before the State Commission or the
National Commission, as the case may be, shall be heard as expeditiously as possible and
every endeavour shall be made to dispose of the appeal within a period of ninety days from
the date of its admission.
b. Any delay should be recorded in writing along with reason for the same and shall also make
such orders as to the costs occasioned by the adjournment, as may be specified by
regulations.
NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION
a. Section 42 of the Act, empowers the Central Government to establish a National Consumer
Disputes Redressal Commission, to be known as the National Commission, in the Country.
b. The National Commission shall ordinarily function at the National Capital Region and perform
its functions at such other places as the Central Government may in consultation with the
National Commission notify in the Official Gazette
c. National Government may also, if it deems fit, establish more benches as it deems fit.
d. Each National Commission shall consist of:
i. a President; and
ii. not less than four or not more than such number of members as may be prescribed in
Note-
a. Qualifications of President and members of the Commission shall be decided by The
Central Government.
b. It may be noted that no President or members shall hold office for more than 5
years or he has attained such age as specified in the rules made by the Central
Government which shall not exceed
(a) in the case of the President, the age of seventy years;
(b) in the case of any other member, the age of sixty-seven years, whichever is earlier.
Reappointment is permitted
Jurisdiction of National Commission

National Commission shall have jurisdiction to entertain:
a. Complaints where the value of the goods or services paid as consideration, exceeds rupees
ten crore:
b. complaints against unfair contracts, where the value of goods or services paid as
consideration exceeds ten crore rupees;
c. appeals against the orders of any state Commission;
d. Appeals against the orders of the Central Authority
 To call for the records and pass appropriate orders in any consumer dispute which is pending
before or has been decided by any State Commission, where it appears to the National
Commission that such State Commission has exercised a jurisdiction not vested in it by law,
or has failed to exercise a jurisdiction so vested or has acted in exercise of its jurisdiction
illegally or with material irregularity.
 Section 58(2) provides that the jurisdiction, powers and authority of the National
Commission may be exercised by Benches thereof, and a Bench may be constituted by the
President with one or more members as the President may deem fit. It may be noted that
the senior-most member shall preside over the Bench.
 Section 58(3) states that where the members of a Bench differ in opinion on any point, the
points shall be decided according to the opinion of the majority, if there is a majority, but if
the members are equally divided, they shall state the point or points on which they differ,
and make a reference to the President who shall either hear the point or points himself or
refer the case for hearing on such point or points by one or more of the other members and
such point or points shall be decided according to the opinion of the majority of the
members who have heard the case, including those who first heard it.
 The President or the other members, as the case may be, shall give opinion on the point
or points so referred within a period of 2 months from the date of such reference.
Note:
National Commission can review its order Suo moto or on any application within 30 days from
such order.
Procedures for Service of Notice

All notices to be served under this act can be served through:
a. Speed Post
b. Courier
c. may be served on an electronic service provider at the address provided by it on the
electronic platform.
Note:
If the notice is received back with an endorsement purporting by any person authorised by
the courier service to the effect that the opposite party or his agent or complainant had
refused to take delivery of the postal article containing the notice or had refused to accept
the notice by any other means specified in sub-section (1) when tendered or transmitted to
him, the District Commission or the State Commission or the National Commission, as the
case may be, shall declare that the notice has been duly served on the opposite party.
Appeal to Supreme Court

Any person aggrieved by an order made by the National Commission may prefer an appeal
against such order to the Supreme Court only on question law within a period of 30 days
from the date of the order. (Extension may be granted if there appears sufficient ground).
Note:
i. If the National commission has ordered any compensation to be paid, then the appellant first
should deposit 50% of the said amount.
ii. There lies no appeal if the question is not question of Law.
MEDIATION
Establishment of Consumer Mediation Cell

 Section 74 empowers the State Government to establish a consumer mediation cell to be
attached to each of the District Commissions and the State Commissions of that State.
 Further the Central Government also empowers to establish a consumer mediation cell to be
attached to the National Commission and each of the regional Benches.
 A consumer mediation cell shall consist of such persons as may be prescribed. Every
consumer mediation cell shall maintain:
a. a list of empanelled mediators;
b. a list of cases handled by the cell;
c. record of proceeding; and
d. any other information as may be specified by regulations.
Every consumer mediation cell shall submit a quarterly report to the District Commission,
State Commission or the National Commission to which it is attached, in the manner
specified by regulations.
Duty of Mediator to Disclose Certain Fact

According to the Section 77 of the Act, it shall be the duty of the mediator to disclose:
(a) any personal, professional or financial interest in the outcome of the consumer dispute;
(b) the circumstances which may give rise to a justifiable doubt as to his independence or
impartiality; and
(c) such other facts as may be specified by regulations.
Note:
The appropriate commission, as the case may be can replace the mediator if they receive a
complaint regarding the same.
Settlement through Mediation

Section 80(1) provides that pursuant to mediation, if an agreement is reached between the
parties with respect to all of the issues involved in the consumer dispute or with respect to
only some of the issues, the terms of such agreement shall be reduced to writing
accordingly, and signed by the parties to such dispute or their authorised representatives.
Section 80(2) states that the mediator shall prepare a settlement report of the settlement
and forward the signed agreement along with such report to the concerned Commission
Where no agreement is reached between the parties within the specified time or the
mediator is of the opinion that settlement is not possible, he shall prepare his report
accordingly and submit the same to the concerned Commission.
Recording Settlement and Passing of Order

The appropriate commission shall, within seven days of the receipt of the settlement report,
pass suitable order recording such settlement of consumer dispute and dispose of the matter
accordingly.
If some issues are still left after the mediation then those issues shall be heard in the
normal proceedings in front of the appropriate commissions.
PRODUCT LIABILITY
Product Liability Action

According to Section 83 of the Act, a product liability action may be brought by a
complainant against a product manufacturer or a product service provider or a product seller,
as the case may be, for any harm caused to him on account of a defective product.
Liability of Product Manufacturer

Section 84 states that a product manufacturer shall be liable in a product liability action, if:
(a) the product contains a manufacturing defect; or
(b) the product is defective in design; or
(c) there is a deviation from manufacturing specifications; or
(d) the product does not conform to the express warranty; or
(e) the product fails to contain adequate instructions of correct usage to prevent any harm or
any warning regarding improper or incorrect usage.
Liability of Product Service Provider

Section 85 provides that a product service provider shall be liable in a product liability action,
if:
(a) the service provided by him was faulty or imperfect or deficient or inadequate in quality,
nature or manner of performance which is required to be provided by or under any law for
the time being in force, or pursuant to any contract or otherwise; or
(b) there was an act of omission or commission or negligence or conscious withholding any
information which caused harm; or
(c) the service provider did not issue adequate instructions or warnings to prevent any harm; or
(d) the service did not conform to express warranty or the terms and conditions of the contract.
Liability of Product Sellers

Section 86 states that a product seller who is not a product manufacturer shall be liable in a
product liability action, if:
(e) he has exercised substantial control over the designing, testing, manufacturing, packaging or
labelling of a product that caused harm; or
(f) he has altered or modified the product and such alteration or modification was the
substantial factor in causing the harm; or
(g) he has made an express warranty of a product independent of any express warranty made by
a manufacturer and such product failed to conform to the express warranty made by the
product seller which caused the harm; or
(h) the product has been sold by him and the identity of product manufacturer of such product
is not known, or if known, the service of notice or process or warrant cannot be effected on
him or he is not subject to the law which is in force in India or the order, if any, passed or
to be passed cannot be enforced against him; or
(i) he failed to exercise reasonable care in assembling, inspecting or maintaining such product or
he did not pass on the warnings or instructions of the product manufacturer regarding the
dangers involved or proper usage of the product while selling such product and such failure
was the proximate cause of the harm.
Exceptions to Product Liability

Action According to Section 87 of the Act a product liability action cannot be brought
against the product seller if, at the time of harm, the product was misused, altered, or
modified. In any product liability action based on the failure to provide adequate warnings or
instructions, the product manufacturer shall not be liable, if:
(a) the product was purchased by an employer for use at the workplace and the product
manufacturer had provided warnings or instructions to such employer;
(b) the product was sold as a component or material to be used in another product and
necessary warnings or instructions were given by the product manufacturer to the purchaser
of such component or material, but the harm was caused to the complainant by use of the
end product in which such component or material was used;
(c) the product was one which was legally meant to be used or dispensed only by or under the
supervision of an expert or a class of experts and the product manufacturer had employed
reasonable means to give the warnings or instructions for usage of such product to such
expert or class of experts; or
(d) the complainant, while using such product, was under the influence of alcohol or any
prescription drug which had not been prescribed by a medical practitioner.
Note:
A product manufacturer shall not be liable for failure to instruct or warn about a danger
which is obvious or commonly known to the user or consumer of such product or which, such
user or consumer, ought to have known, taking into account the characteristics of such
product.
COMPOUNDING OF OFFENCES
a. It may be noted that no compounding of offence shall be made without the leave of the
court before which a complaint has been filed.
b. Further, such sum shall not, in any case, exceed the maximum amount of the fine, which
may be imposed under this Act for the offence so compounded.
c. Section 96(2) provides that the Central Authority or any officer as may be specially
authorised by him in this behalf, may compound offences under sub-section (1).
d. Section 96(3) states that nothing in sub-section (1) shall apply to person who commits
the same or similar offence, within a period of three years from the date on which the first
offence, committed by him, was compounded.
e. Any second or subsequent offence committed after the expiry of a period of three years from
the date on which the offence was previously compounded, shall be deemed to be a first
offence.
f. Section 96(4) provides that where an offence has been compounded under sub-section (1),
no proceeding or further proceeding, as the case may be, shall be taken against the offender
in respect of the offence so compounded.
g. Section 96(5) states that the acceptance of the sum of money for compounding an offence
in accordance with sub-section (1) by the Central Authority or an officer of the Central
Authority empowered in this behalf shall be deemed to amount to an acquittal within the
meaning of the Code of Criminal Procedure, 1973
OFFENCES AND PENALTIES
1. Failure to comply with the order of Central Authority – Imprisonment which may extend to
6 Months or with fine which may extend to 20 lakh or with both
2. Punishment for False or Misleading Advertisement – Imprisonment which may extend to 2
years and Fine which may extend to 10 lakhs, in case of subsequent offence Imprisonment
which may extend to 5 years and Fine which may extend to 50 lakh.
3. Punishment for Manufacturing for Sale or Storing, Selling or Distributing or Importing
Products Containing Adulterant
Section 90(1) provides that whoever, by himself or by any other person on his behalf,
manufactures for sale or stores or sells or distributes or imports any product containing an
adulterant shall be punished, if such act–
(a) does not result in any injury to the consumer, with imprisonment for a term which may
extend to six months and with fine which may extend to one lakh rupees;
(b) causing injury not amounting to grievous hurt to the consumer, with imprisonment for a term
which may extend to one year and with fine which may extend to three lakh rupees;
(c) causing injury resulting in grievous hurt to the consumer, with imprisonment for a term
which may extend to seven years and with fine which may extend to five lakh rupees; and
(d) results in the death of a consumer, with imprisonment for a term which shall not be less
than seven years, but which may extend to imprisonment for life and with fine which shall
not be less than ten lakh rupees.
4. Punishment for Manufacturing for Sale or for Storing or Selling or Distributing or Importing
Spurious Goods Section 91(1) provides that whoever, by himself or by any other person on his
behalf, manufactures for sale or stores or sells or distributes or imports any spurious goods
shall be punished, if such act–
(a) causing injury not amounting to grievous hurt to the consumer, with imprisonment for a term
which may extend to one year and with fine which may extend to three lakh rupees;
(b) causing injury resulting in grievous hurt to the consumer, with imprisonment for a term
which may extend to seven years and with fine which may extend to five lakh rupees;
(c) results in the death of a consumer, with imprisonment for a term which shall not be less
than seven years, but may extend to imprisonment for life and with fine which shall not be
less than ten lakh rupees.
Section 91(2) states that the offences under clauses (b) and (c) of sub-section (1) shall
be cognizable and non- bailable.
CS- EXE Economic Business and Commercial Laws Essential Commodities
CHAPTER 14- ESSENTIAL COMMODITIES ACT, 1955
INTRODUCTION
A commodity starts as any item that has a value. A more common understanding of a
commodity is a product that is generic and has the same basic value as all similar items. For
example, if you go to a petrol pump to purchase petrol, the petrol at your pump is the same
as the petrol at any of the other pumps. It's also relatively the same as the petrol at the
station across the street or across town.
There may be a very slight change in price, but the products essentially sell for the same
basic price and are the same regardless of where they are purchased. When a person
purchases natural gas to heat their home, they are charged a rate for the gas. It is not
posted on their bill as different amounts based on where the gas came from. There is a
stated fee for the commodity, and the bill is based on how much of the commodity was
used.
Because commodities have very little differentiation, they are easily sold and traded
throughout the world. For instance, if you purchase an apple, one cantaloupe is not
significantly different from another apple.
There are some efforts to try to create a difference in products based on where they were
grown, but ultimately those efforts yield little success. There are a few commodities that
have been effectively differentiated, such as Mahableshwar strawberries, Nashik Grapes,
Nagpur Oranges etc. Millions of rupees were spent in advertising to try to create consumer
loyalty towards commodities from specific areas. However, most attempts have proven to be
ineffective. A consumer in the grocery store will buy a Grapes from there just as quickly as a
grapes from Nashik without even noticing they were grown in different areas.
Last week, the Union food minister talked about considering imposing limits on retail prices
of certain essential commodities. While India is a market economy where prices are ostensibly
decided by demand and supply, certain laws empower the Centre to intervene in the market
to protect consumer interests. The Essential Commodities Act (ECA) is one such key law.
DEFINITION
1. Collector
“Collector” includes an Additional Collector, and such other officer not below the rank of
Sub-divisional officer as may be authorized to perform the functions and exercise the powers
of collector under this Act.
2. Essential Commodities – Section 2A

 Essential commodity means commodities specified in Schedule under this act.
 Schedule includes following commodities –
1. Drugs as per the Drugs and Cosmetics Act ,1940
2. Fertilizer, whether inorganic, organic or mixed.
3. Foodstuffs including edible oilseeds and oil.
4. Hank yank made wholly from cotton.
5. Petroleum and petroleum products
6. Raw jute and jute textiles.
7. Seeds of food crops and seeds of fruits and vegetables.
8. Seeds of cattle fodder and jute seeds.
 Central Government can amend Schedule and add commodities in public interest after
notification published in Official Gazette.
 Central Government can remove any commodities from schedule in consultation with State
Government.
3. Sugar – Section 2(e)

“Sugar “means:
1. Ant form of sugar containing more than 90% sucrose, including sugar candy.
2. Khandsari sugar or bura sugar or crushed sugar in crystalline or powdered form.
3. Sugar in process in vacuum pan sugar factory or raw sugar.
POWERS OF CENTRAL GOVERNMENT TO CONTROL PRODUCTION, SUPPLY AND

DISTRIBUTION OF ESSENTIAL COMMODITIES- SECTION 3
1. POWER TO ISSUE ORDER – SECTION 3 (1)

The Central Government can issue order for regulating or prohibiting the production, supply
and distribution of essential commodities and trade commerce in the following situations:
1. To maintain supply of essential commodities.
2. To increase supply of essential commodities.
3. To secure equitable distribution of essential commodities.
4. To make availability of essential commodities at fair price
5. To secure essential commodities for defense of India or military operation.
Content of order passed by Central Government – Section 3 (2)

Any order issued by the Central Government under Section 3 (1) provide for following
matters:
1. For regulating by licenses, permits or otherwise the production or manufacture of any
essential commodity;
2. For bringing under cultivation any waste or arable land for the growing of food crops.
3. For controlling the price at which any essential commodity may be bought or sold.
4. For regulating by licenses, permits or otherwise the storage, transport, distribution, disposal,
acquisition, use or consumption of any essential commodity;
5. For prohibiting the withholding from sale of any essential commodity ordinarily kept for sale;
6. For requiring any person holding in stock, or engaged in the production, or in the business of
buying or selling, of any essential commodity—
(a) To sell the whole or a specified part of the quantity held in stock or produced or received by
him, or
(b) To sell the whole or a specified part of such commodity when produced or received by him to
the Central Government or a State Government
7. For regulating or prohibiting any class of commercial or financial transactions relating to
foodstuffs which in the opinion of the authority making the order, are, or if unregulated, are
likely to be detrimental to the public interest;
8. For collecting any information or statistics with a view to regulating or prohibiting any of the
above matters;
9. For inspection of such books, accounts and records relating to business of persons who are
engaged in dealing of essential commodities.
10. For any matters relating to the entry, search or examination of premises, aircraft, vessels,
vehicles or other conveyances and animals used in transportation of essential commodity and
seizure thereof.
2. FIXING THE PRICE OF ESSENTIAL COMMODITIES –WHEN COMMODITY SOLD TO

GOVERNMENT – SECTION 3(3)
 Central Government is authorized to fix price of the essential commodities particularly when
the commodities are being sold to Central/State Government. In such a case, the price shall
be paid as provided hereunder:
(a) The agreed price, where the price can be agreed upon consistently with the controlled price
fixed under this section;
(b) Controlled price: where no such agreement can be reached, the price calculated with
reference to controlled price;
(c) The price calculated at the market rate prevailing in the locality on the date of sale,
where above clauses do not apply.
3. FIXING PRICE OF ESSENTIAL COMMODITIES DURING EMERGENCIES- SECTION 3 (3A)

 In case of an emergency the Central Government is empowered to direct the price at which
the foodstuffs in any locality will be sold to general public.
 This direction will be issued only when the Central Government is of the opinion that ta king
such step is necessary for controlling price rise or preventing the hoarding of any foodstuff in
any locality.
 The notification issued by the government shall be in force for maximum 3 months only.
 Further, for selling specified foodstuffs in the specified locality, the seller shall be paid price
as follows:
(a) The agreed price, when the price can be agreed upon consistently with the controlled price
fixed under this section; or
(b) The controlled price, when no such agreement can be reached at as stated above; or
(c) The market rate price as per the prevailing market rate in the locality at the date of sale
where above clauses are not applicable.
4. PROCUREMENT PRICE FOR FOOD GRAINS, EDIBLE OIL AND OIL SEEDS – SECTION 3(3B)
Where no notification is issued for sale or its notification has ceased to be in force,
procurement price shall be paid as specified by the State Government with prior approval of
Central Government after considering following factors:
(a) the controlled price
(b) the general crop prospects;
(c) the need for make available at reasonable prices to the consumers
(d) Any recommendations, if any, of the Agricultural Prices Commission.
5. FIX PRICE FOR SUGAR – SECTION 3 (3C)

 Where no notification is issued for sale of sugar or if notification has ceased to be in force,
producer of sugar shall be paid such price as determined by Central Government after
considering following factors:
(a) The minimum price, if any fixed for sugar cane by the Central Government
(b) The manufacturing cost of sugar;
(c) The duty or tax, if any, paid or payable.
(d) The securing of a reasonable return on the capital employed in the business of manufacturing
sugar.
 Central government may fix different prices for :
a) Different areas or
b) Different factories or
c) Different kind of sugar.
6. POWER TO ISSUE DIRECTION FOR DISPOSE OR REMOVE SUGAR – SECTION 3(3D)

 Central Government can issue direction to producer, importer or exporter to sell or otherwise
dispose of or deliver any kind of sugar or remove any kind of sugar from the bonded godowns
of the factory in which it is produced.
 However, this provision does not affect the pledging of such sugar by any producer or
importer in favour of any scheduled bank.
7. POWER TO APPOINT AUTHORIZED CONTROLLER

 The CG has the necessary powers to authorize any person (known as authorized controller)
when it is considered necessary for maintaining or increasing the production and supply of
essential commodities.
 The authorized controller shall exercise such functions of control as may be provided in the
order with respect to the whole or any part of any such undertaking enga ged in the
production and supply of the commodity.
 The authorized controller shall exercise his functions in accordance with any instructions
given to him by the Central Government.
 He shall not have any power to give any direction inconsistent with the provisions of any
enactment or any instrument determining the functions of the person in charge of the
management of the undertaking except in so far as may be specifically provided by the order.
 The undertaking shall be carried on in accordance with any directions, given by the
authorized controller under the provisions of the order. The person who is responsible to
function as a manager of the undertaking or part of it shall comply with such directions.
CONFISCATION OF ESSENTIAL COMMODITIES
SEIZURE AND CONFISCATION OF ESSENTIAL COMMODITIES – SECTION 6A

 The word ‘seize’ means to take possession contrary to the wishes of the owner of the
property i.e. the property will be taken forcibly from the owner.
 Confiscation means handing over the confiscated property to the public treasury.
 On seizure of essential commodities, report of seizure is prepared and sent to District
Collector.
 Collector may direct for production of seized commodity before him.

 If collector is satisfied that the contravention of provision of Act , he may pass order for
confiscation of essential commodities so seized along with packages in which such essential
commodity is found. Any animal, vehicle, vessel or other conveyance used in carrying such
essential commodities can also be seized.
 In case of seizure of food grains or edible oilseeds:
1. Collector can’t give order for confiscation.
2. Owner for any animal, vehicle, vessel or other conveyance should be given option to pay fine
not exceeding market price at the date of seizure instead of confiscation.
ISSUE OF SHOW CAUSE NOTICE – SECTION 6B

 Before passing an order for confiscation, owner of essential commodity package, animal,
vehicle, vessel or other conveyance is required to be given notice in writing.
 Notice should state ground for confiscation.
 Before the confiscation a reasonable opportunity of being heard should be given. Reasonable
time should be given.
 No order of confiscation can be made if the owner of the confiscated animal, vehicle, vessel
or other conveyance proves to the satisfaction of the Collector that the said modes of
transport owned by him were used in carrying the essential commodity without his
knowledge or connivance of himself or his agent, if any, and each of them had taken the
necessary precautions against such use.
APPEAL AGAINST CONFISCATION ORDER – SECTION 6C

 Any person aggrieved by order of confiscation may appeal to State Government.
 Appeal should be made within 1 month from date of order.
 State government has to give an opportunity of being heard before passing any order.
 If appeal is decided in favour of appellant, he is entitled to the possession of confiscated
property.
 If it is not possible to return the confiscated goods, he shall be paid price of the commodity
calculated as per the Act along with interest.
SALE OF SEIZED COMMODITY – SECTION 6A

 Collector may make an order for the sale of essential commodity :
1. On receipt of report of seizure or inspection of any essential commodity and it forms an
opinion that it is subject to natural and speedy decay.
2. It is necessary in public interest
 Collector may make an order for sale of essential commodity :
1. At controlled price or
2. By public auction or
3. At fair price shops at price fixed by Central Government or State Government for retail sale,
DISPOSAL OF SALE PROCEED OF CONFISCATED GOODS

 Sale proceeds of essential commodities sold shall be paid to the owner in following
conditions:
1. Where no order of confiscation is passed by collector.
2. Where in prosecution for the contravention of the order, the person concerned is acquitted.
 All expenses incurred in sale proceed shall be deducted from amount paid to the owner.
Matter Seizure Confiscation

Meaning It means taking possession of the It means selling of seized property
property against the wishes of owner and crediting sale proceeds to the
of property. Government accountant.
Stage Seizure is the first stage. Seizure Confiscation takes place after
may lead to confiscation. seizure. A commodity needs to be
seized to be confiscated.
OFFENCES AND PENALTY
NATURE OF OFFENCES
 Offences punishable under this Act shall be cognizable and non- bailable .
 A cognizable offence is one where under CPC or any other law in force, a police officer may
arrest any person without warrant.
 Court can take cognizance of any offence punishable under this act if following conditions
are fulfilled –
1. Report in writing is made by public servant.
2. Presence of mens rea ( i.e guilty mind)
MENS REA – SECTION 6A-7

 Mens rea means guilty mind.
 Mens rea is an essential ingredient of any criminal offence.
 The Supreme Court has held in case of Nathulal vs State of M.P that mens rea is an
essential ingredient of an offence punishable under Section 7 of Act.
 It means if a dealer of essential commodity believed bona-fide that he could sell it, without
infringement of any order under Section 3, he does not have a guilty mind.
OFFENCE BY COMPANY – SECTION 10

 Every person who was at the time of the contravention, was in charge of, and was
responsible to, the company for the conduct of the business of the company, shall be
deemed to be guilty of the contravention.
 However he shall not be liable if it is proved that offence had been proved that offence had
been committed without his consent or without his negligence.
 Court may require publishing in newspapers or in other manner at the expense of the
company, the name, place of business and the offence committed by it.
SPECIAL COURT – SECTION 12A

 Civil Court has no power to issue injunction order or any other relief for any offence under
this Act.
 State government may constitute a special court for different areas for speedy disposal of
matter under this Act.
 It is constituted by notification in official Gazette.
 Special court consists of single judge and is appointed by the High Court.
 Power of special court –
1. All offences under this Act shall be triable only be special court constituted by that area.
2. Special court has the same power as Magistrate has power under CPC.
3. Person accused or suspected of committed an offence can be released on bail by Special
Court or High Court and not under any other court.
ATTEMPT AND ABETMENT

Any person who attempts to contravene or abets a contravention of any order made under
Section 3 shall be deemed to have contravened that order.
FALSE STATEMENT
 A person shall be punishable with imprisonment for a term which may extend to five years
or with fine or with both for the following offences:
(i) When required to make any statement or furnish any information under Section 3 and makes
any statement or furnishes any information which is false in any manner and he knows or
has reasonable cause to believe to be false.
(ii) Makes any such statement as said in the first clause in any book, account, record,
declaration, return or other document which he is required by any such order to /maintain or
furnish.
CS- EXE Economic Business and Commercial Laws Legal Metrology
CHAPTER
Chapter 15- LEGAL
15 Legal METROLOGY,
Metrology, 2009 2009
INTRODUCTION
We measure things in the world around us all the time. For instance, you may want to
measure the distance from your city to a friend's city, measure how much milk you want to
put in a recipe, or measure how much you weigh. All of these examples involve mea surement.
Now, what if you were asked what units you want to use to measure each of these things?
A unit of measurement is the unit used to measure a given attribute. Your answer would
depend on what measuring system you normally use. If you normally use the US standard
measuring system, then most likely you would use miles to measure the distance between
cities, cups to measure your milk, and pounds for how much you weigh. If you normally use
the metric system, then you would probably use kilometers to measure the distance, liters for
the milk, and kilograms for your weight.
Regardless of which measuring system you are accustomed to using, these units of
measurement are examples of standard units of measurement within each system. What does
that mean? Well, when it comes to measurements, we have standard and nonstandard units.
Legal Metrology is the name by which the law relating to weights and measures. Legal
Metrology is very vital for scientific, technological and industrial progress of any country. T he
establishment of national standards of weights and measures and their proper
enforcement aim at ensuring accuracy of measurements and measuring instruments and thus
legal metrology strengthens the national economy in a broader sense besides being a
potential instrument of consumer protection.
DEFINITION
1. Dealer
Dealer in relation to any weight or measure, means a person who, carries on, directly or
otherwise, the business of buying, selling, supplying or distributing any such weight or
measure, whether for cash or for deferred payment or for commission, remuneration or other
valuable consideration.
2. Manufacture
As per section 2(i) "manufacturer" in relation to any weight or measure, means a person
who–
1. Manufactures weight or measure,
2. Manufactures, acquires or Assembles parts and claims the end product to be a weight or
measure manufactured by himself
3. Puts or causes to be put his own mark on any complete weight or measure made or
manufactured by others.
3. Legal Metrology
 Legal Metrology is the name by which the law relating to weights and measures is known in
international parlance.
 "Legal Metrology" is that part of metrology which deals with units of weighment and
measurement, methods of weighment and measurement and weighing and measuring
instruments, in relation to the mandatory technical and legal requirements which have the
object of ensuring public guarantee from the point of view of security and accuracy of the
weighment and measurements.
4. Pre- Packed Commodity

Section 2(l) define "pre-packaged commodity" as to means commodity which without the
purchaser being present is placed in a package of whatever nature, whether sealed or not, so
that the product contained therein has a pre-determined quantity.
Provisions relating to pre-packed commodity

 It is illegal to manufacture, pack, sell, import, distribute, deliver, offer, pose or possess for
sale any pre-packaged commodity unless the package is in such standard quantities or
numbers and bars thereon such declarations and particulars as prescribed in the Packaged
Commodities Rules.
 Any advertisement mentioning the retail sale price of a pre-packaged commodity shall also
contain a declaration regarding the net quantity or number contained in the package.
 All the pre-packaged commodities must conform to the declarations provided as per
requirements of this Act.
STANDARD WEIGHTS AND MEASURES
Weight and measures in accordance with metric system

Every unit of weight or measure shall be in accordance with the metric system based on the
international system of units.
Base unit
 Base unit of length shall be the meter.
 Base unit for mass shall be the kilogram.
 Base unit for time shall be the second.
 Base unit for electric current shall be the ampere.
 Base unit for temperature shall be the Kelvin.
 Base unit for luminous intensity shall be the candela.
 Base unit for an amount of substance shall be the mole.
 Base unit of numeration shall be the unit of the international form of Indian numeral. Every
numeration shall be made in accordance with the decimal system.
Standard weight
 No weight, measure or numeral, other than the standard weight, measure or numeral shall be
used as a standard weight, measure or numeral.
 No weight or measure shall be manufactured or imported unless it conforms to the standards
or weight or measure as specified.
 However, the above provision shall not apply for manufacture done exclusively for export or
for the purpose of any scientific investigation or research.
INTERNATIONAL ORGANIZATION OF LEGAL METROLOGY (OIML)
 The International Organization of Legal Metrology (OIML) i s an intergovernmental treaty

organization whose membership includes Member States, countries.
 It was established in 1955 in order to promote the global harmonization of legal metrology
procedures
 The OIML develops model regulations, International Recommendations, which provide Members
with an internationally agreed-upon basis for the establishment of national legislation on
various categories of measuring instruments.
 OIML grant certificate through its member state to manufacturer that given measuring
instrument comply with international standard.
OIML Certificate System for Measuring Instruments
 The OIML Certificate System for Measuring Instruments was introduced in 1991 to facilitate
administrative procedures
 The System provides the possibility for a manufacturer to obtain an OIML Certificate and a Test
Report indicating that a given instrument type (pattern) complies with the requirements of the
relevant OIML International Recommendations.
DIFFERENT CLASSIFICATION OF PACKAGES AND STATUTORY DECLARATION
CLASSIFICATION OF PACKAGES
 Legal Metrology Act prescribes following three different classes of packages :
1. Retail(Primary) Package
2. Wholesale (Secondary) Package
3. Packaging for industrial and institutional consumers.
 In addition to above the Act also provides about import package and export package.
Retail Package
 Package intended for retail sale to the ultimate consumer are called Retail Package and that
includes imported packages.
 Every retail package must be packed in standard quantities (where applicable) and must also
contain the statutory declarations.
 Retail packages must be packed in standard quantities.
Wholesale Package
 Packages intended for sale to an intermediary and not to a single consumer directly and
which contains several retail packages or bulk quantity for direct sale in smaller quantities is
called Wholesale Packages.
 A whole sale package may be packed in any quantity and require limited number of
declarations.
 Wholesale packages need not declare MRP, date of manufacture or address etc.
 However inner retail packages should bear all statutory declarations.
Packages for industrial and institutional consumers

Packages intended for the sale directly to an industry or an institution for their own
consumption and which are not ultimately sold to a consumer do not require any declaration
on them.
Export packages
 Exporter of Packages does not require registration.
 Packages meant for export exclusively do not require any statutory declaration.
 Such packages cannot be sold in India unless re-packed to confirm to the Packaged
Commodities Rules.
Imported Packages
 Importer of packages requires registration.
 Imported packages will have to follow all provisions of the Packaged Commodities Rules.
 If necessary, the packages must be re-packed to comply with the provisions.
STATUTORY DECLARATION ON EVERY PACKAGE

 Every package shall have the following declaration either on package or on a definite, plain
and clear label as to the following :
1. The name and address of manufacturer. Where the manufacturer is not packer, name and
address of packer.
2. The name of the commodity in the package.
3. The net quantity, in terms of the standard unit of weight or measure, of the commodity
contained in the package or where the commodity is packed or sold by number, the number
of the commodity contained in package.
4. The month and year in which the commodity is manufactured or pre-packed.
5. The unit sale price of the commodity contained in the package.
6. The sale price of the package.
7. Where the size of the commodity contained in the package is relevant, the dimensions of the
commodity.
8. Such other matter as may be prescribed.
APPOINTMENT AND POWER OF DIRECTOR, CONTROLLER AND LEGAL METR OLOGY

OFFICER
Appointment
 Central Government is authorized to appoint a Director of legal metrology, Additional Director,
Joint director, Deputy Director, Assistant Director and other employees.
 Appointment is made by notification.
Power and function

 All the director and officer mentioned above exercise and discharge functions imposed on
them under the Act.
 Legal Metrology officer exercise power and discharges duties under control and supervision of
director.
 Director, controller and legal metrology officer are public servant.
 No suit or prosecution lies against director, controller and legal metrology officer for any act
done in good faith while performing their duty.
Power of inspection and seizure

 Director, controller or any legal metrology officer has power of inspection, if he has any
reason to believe based on information available that any weight or measure or any other
goods in relation to which any trade and commerce has taken place or is intended to take
place and in respect of which offence punishable under this Act appears to have been, or is
likely to be, committed are either kept or concealed in any premises or are in the course of
transportation.
 This power includes power to enter into premises and search for any weight, measure or
other goods in relation to which trade and commerce has taken place or is intended to take
place.
 The power also include seizure of any weight, measure other goods and any record, register or
any other document or article which he has reason to believe may furnish evidence indicating
that an offence punishable under this Act has been, or is likely to be committed in the
course of or in relation to any trade and commerce.
 Where any goods seized are subjected to speedy or natural decay, the Director, Controller or
Legal Metrology officer may dispose of such goods as per the Act.
 Every search or seizure is carried out as per the provisions of Code of Criminal Procedure,
1973, relating to search and seizure.
Power of forfeiture
 Every non-standard or unverified weight or measure , and every package used in the course
of or in relation to any trade and commerce seized shall be liable to be forfeited by the
State Government.
 However such unverified weight or measure shall not be forfeited to the State Government if
the person from whom such weight or measure was seized gets the same verified and
stamped within such time as prescribed,
 Every weigh, measure or other goods seized but not forfeited shall be disposed of by such
authority.
Prohibition manufacture, repair or sale of weight or measure without license

 Manufacturer, repairer, seller cant repair or sale, any weight or measure unless he holds a
license issued by the Controller.
 However, no license to repair shall be required by a manufacturer for repair of his own weight
or measure in a state other than the state of manufacture of the same.
 Person having any weight or measure in his possession or custody should verify it as specified
by the Controller before it is used by him.
Records to be maintained
 The following category of persons are required to maintain records and registers as prescribed:
1. Manufacturer
2. Dealer
3. Repairer
 These records need to be produced to the registers at the time of inspection.
Approval of Model
 Person is required to be registered before manufacturing or importing any weight or measures
into India.
 However approval is not required for specified weight or measure used for textiles, timber, and
capacity measure not exceeding 20 liters in capacity which is ordinarily used in retail trade
for measuring kerosene, milk or portable liquors.
 If above weight or measure is approved in country outside India and confirms to standards of
Act can be used without any test.
Offences and Penalties
Penalty for use of non-standard Weight or measure may be Fine - 25000 and for the second
or subsequent offence, with imprisonment for a term which may extend to six months and
also with fine.
CS- EXE Economic business and Commercial laws TOPA
CHAPTER 16- TRANSFER OF PROPERTY ACT, 1882
INTRODUCTION
• Today, you're a real estate attorney! Sunny Leone and her three sisters are selling their
family home. It's been in their family for almost a century and changed hands within their
family many times. They've hired you to help them because this will be the first time it will
be owned by someone outside of the Leone family, and there's a lot involved to make sure
this conveyance, or property transfer, goes smoothly.
• The sale of real estate is one form of voluntary property transfer, or property conveyance.
Property is also voluntarily transferred when it's gifted or left through a will. Voluntary
transactions may seem straightforward, since they're transactions that are purposeful and
intended by both parties. But, the act of transferring real property can sometimes be
complicated.
• This is because there are several different legal steps that must be achieved before a
property is considered to be properly, and therefore legally, transferred. As the attorney, this
will be your job. You will determine which steps the family must take, and then help the
family take those steps in order to secure a legal transfer of the property. You'll oversee the
signing, sealing and delivery of this entire legal process for Sunny and her sisters. Let's take
a look at the process.
• The law relating to transfer of property is governed by the Transfer of Property Act, 1882.
Before this Act came into force there was practically no law as to real property in India.
Barring few points which were covered by certain Regulations and Acts, the Courts in India
in the absence of any statutory provisions, applied rules of English law as the rule of justice,
equity and good conscience.
• The Act was enacted with the object to amend the law relating to the transfer of property
by act of parties. The Act excludes from its purview the transfers by operation of law, i.e. by
sale in execution, forfeiture, insolvency or intestate succession. The scope of the Act is
limited, as it is confined to transfers inter vivos and excludes testamentary succession, i.e.
transfers by will.
DEFINITION
1. Instrument
"Instrument" means a non-testamentary instrument.
2. Attachment to earth
• Attach to the earth means:
a) Rooted in the earth (Example: trees and shrubs)
b) Imbedded in the earth (Example: walls or buildings)
c) Attached in such a way which gives permanent beneficial enjoyment.
3. Absolute Interest
• It means ownership which consists of a bundle of rights, the right to possession, right to
enjoyment and right to do anything such as selling, mortgaging or making gift of the
property.
• Example – If A is the owner of a land, he has an absolute interest in the land. If A sells his
land to B, then B becomes the owner and he acquires an absolute interest in the land he
has purchased from A. Likewise if A makes a gift of his property to B, there again B gets an
absolute interest in the property which is gifted to him. These are instances where persons
may have an absolute interest.
4. Reversion
• The residue of an original interest which is left after the grantor has granted the lessee a
small estate.
• Example- If a property has been given on lease for 5 years, after the period of 5 years, the
property which reverts back to him is called the reversion or revisionary interest.
5. Remainder
• When the owner of the property grants limited interest in favor of other person (1st
mentioned person) and gives remaining to other (2nd person) it is called remainder.
6. Attested
• Attested in relation to an instrument, means attested by two or more witnesses each of
whom has:
1. Seen the executants sign or affix his mark to the instruments
2. Seen some other person sign the instrument in the presence of and by the direction of
executants
3. Received from executants a person acknowledge of his signature or of the signature of such
other person
4. Signed the instrument in the presence of the executants
• It is not necessary that all the witnesses should be present at the same time. Also no
particular form of attestation is necessary.
VESTED AND CONTINGENT INTEREST
VESTED INTEREST – SECTION 19

• The word vested can be used in two references :
1. Vested in possession
2. Vested in Interest
• Vested in possession means the right to present possession of property.
• Vested in interest means present right to future possession of property.
• Vested interest means interest created in favour of person which is not subject to happening
of an event or if subject to the happening of an event then such event is bound to happen.
• Example – A property is given to A for life with a remainder to B, A’s right is vested in
possession; B’s right is vested in interest.
• Vested Interest is transferable and heritable.
• If transferee dies before taking possession of property then such property passes to his legal
heir.
CONTINGENT INTEREST – SECTION 21

• Contingent Interest means an interest created in favor of some person which takes effect on
happening of certain pre-condition.
• Example – A transfer’s property to B until B marries and after marriage of B to C.C has
contingent interest in the property.
• Contingent interest is not heritable but is transferable.
Vested Interest Contingent Interest

It does not depend on the fulfillment of It depends upon the fulfillment of condition.
any condition.
It present immediate rights but its Right of enjoyment accrues on happening of
enjoyment may be postponed to future an event which is uncertain.
date.
A vested interest cannot be defeated by A contingent interest may fail in case of
the death of the transferee before he the death of transferee before the
obtains possession. fulfillment of condition.
It is transferable and heritable. It is not transferable when the transferee
of contingent interest dies before obtaining
possession, the interest fails and does not
pass to the heir.
MOVABLE AND IMMOVABLE PROPERTY
MOVABLE PROPERTY
• The Transfer of Property Act, 1882 does not define movable property. It is defined with the
help of other statutes.
• As per General Clauses Act, 1897 movable property means “property of every description
except immovable property”.
• The Registration Act defines "moveable property" to include property of every description
excluding immovable property but including standing timber, growing crops and grass.
• Examples –
1. Machine fixed on land temporary.
2. Government Promissory note
3. Intellectual Property Right
4. Standing timber and trees
5. Right to recover maintenance allowance.
6. Royalty
7. Right to worship
8. Copyright
9. A decree for sale on a mortgage deed.
10. Standing timber ,growing crops and grass
IMMOVABLE PROPERTY
• The term “immovable property” is also not defined under the Act. However a negative
reference is given in the Act which says that immovable property does not include standing
timber, growing crop and grass.
• According to General Clauses Act ,1897 –
Immovable Property shall include land, benefits to arise out of land and things attached to
the earth, or permanently fastened to anything attached to the earth.
• The Indian Registration Act expressly includes under to immovable property the benefit to
arise out of land, hereditary allowance, right of way, light, ferries and fisheries.
• Examples –
1. Chattel embedded to earth
2. Easement
3. Right to ferry
4. Right to way
5. Right to enjoyment of property under lease
6. A right to fishery
7. A right to collect rent of immovable property
8. Interest in mortgage
9. Hereditary offices
10. Right to collect lac from trees
11. Reversion in property leased.
12. A factory
Movable Property Immovable Property

The movable property can be easily The immovable property cannot be easily
transported from one place to another. transported from one place to another.
Example – Books , Timber ,Vehicles etc. Example – House ,land, tree attached to the
ground
Mango tree if cut and sold for timber Mango tree if sold for nourishment of fruits,
purpose are deemed as movable property. they are deemed as immovable property.
It is optional to register movable property Whenever there is a transfer of any

under the Indian Registration Act, 1908. immovable property, it must be compulsorily
registered under the Indian Registration Act,
1908.
Mere delivery with intention to transfer the Mere delivery is not sufficient for a valid
movable property completes the transfer. transfer,
TRANSFER OF PROPERTY
MEANING OF TRANSFER OF PROPERTY – SECTION 5

• “Transfer of property” means an act by which a living person conveys property in present, or
in future, to one or more other living persons, or to himself, and one or more other living
persons.
• "Living person" includes a company or association or body of individuals whether incorporated
or not.
ESSENTIAL ELEMENTS OF VALID TRANSFER

• It is necessary to fulfill the following conditions to make a valid transfer of an immovable
property :
1. Property must be transferable.
2. Transferor and transferee must be competent.
3. Consideration and object of transfer must be lawful.
4. Transfer must take place as per method prescribed under the Act.
WHO CAN TRANSFER THE PROPERTY?

• Every person who is competent to contract and entitled to transferable property, or
authorized to dispose of property is competent to transfer such property.
• Hence, every person competent to contract and having ownership can transfer property.
• According to Indian Contract Act, a person is competent to contract when he is a major and
of sound mind and is not disqualified from contracting by any law to which he is subject.
PROPERTIES WHICH CAN BE TRANSFERRED

Every kind of property can be transferred. But this section has a few exceptions. They are –
1. Chance of an heir apparent.
2. Right of re-entry.
3. Transfer of easement.
4. Restricted interest.
5. Right to future maintenance.
6. Right to sue.
7. Transfer to public office salary and pension.
Properties which can’t be transferred
General Rule Exception Rule
Property of every kind Following Property cannot be

can be transferred. transferred:
1. Chance of an heir
apparent.
2. Right of re-entry.
3. Transfer of easement.
4. Restricted interest.
5. Right to future
maintenance.
6. Right to sue.
7. Transfer to public office
salary and pension.
1. Chance of an heir apparent

• This is also known as spes successionis.
• Heir apparent means the bare chance of person to get property on death of relative.
• This bare chance cannot be transferred.
• Example – Suppose A is the owner of the property and B is his son. B is the heir of A.
During the life time of his father A, B has only a hope expectancy that he will inherit the
property of his father. This type of property which B hopes to get after the death of the
father cannot be transferred, during the life time of A.
2. Right of re-entry
• The right which the lessor has against the lessee for breach of an express condition which
provides that on its breach the lessor may re-enter is called the right of re-entry.
• Right of re-entry is a personal benefit which can’t be transferred.
• Example- A leases his property to B and adds a condition that if B sub-lets the leased land,
A will have the right to re-enter, i.e., the lease will terminate if the lessee breaks the
condition by subletting to a third person. Thus, right of re-entry being a right for the
personal benefit of any party cannot exist for the benefit of a person who has no personal
interest in the land.
3. Transfer of easement
• An easement is a right enjoyed by the owner or the occupier of land over the land of
another for beneficial enjoyment of his land and such as right of way, right of light, right of
support etc.
• Easement requires the existence of a dominant heritage and servient heritage. Dominant
heritage means certain land and servient heritage means certain other land.
4. Restricted interest or personal interest

• There are certain rights which are reserved for certain person. These are known as restricted
interest.
• Restricted interest cannot be transferred to another person.
• ‘Religious office’ are also included in the restricted interest
• Example- The right of the priest to worship and right to receive offerings made at temple.
5. Right to future Maintenance

• Right to future maintenance is personal benefit to whom it is granted.
• Right to future maintenance cannot be transferred.
• However arrears of future maintenance can be transferred.
• Example- The right of Hindu widow to maintenance is a personal right which cannot be
transferred.
6. Right to sue
• A mere right to sue cannot be transferred.
• The right refers to a right to damages arising both out of contracts as well as torts.
• Example- A commits assault on B. B can file a suit to obtain damages but he cannot assign
the right to C and allow him to obtain damages.
7. Transfer of public officer

• It is against public policy to transfer public offices, salary and pension.
• Pension and salary are given on personal basis it can’t be transferred.
FORMALITIES OF TRANSFER
• Property can be transferred either orally or by writing. Moveable property can be transferred
by delivery of possession or by registration.
• Incase of immovable property of value of more than 100 ,then it can be transferred only by
registered instrument.
• There are 3 formailities that are required to complete a transfer and they are :
1. Attestation
2. Registration
3. Notice
RESTRAINT ON TRANSFER OR PROPERTY

1. Restrain on alienation
• If any property is transferred subject to a condition or limitation which absolutely restricts
the transferee from partying with or disposing of his interest in the property such as
condition or limitation and not the transfer itself is void.(The transfer takes effect and is
valid, and the condition not to alienate the property is void.)
• Restraint on alienation of property may be either absolute or partial.
• Absolute restrain is void but transfer is valid, while partial restraint as regard to time place
or person is valid.
• Example on absolute restraint :
If A transfers property to B and his heirs with a condition that if property is alienated it
should revert back to A. Such condition is void.
• Example on partial restrain :
A transfer's property to B with condition that he should not alienate it in favor of D who is
a trade competitor. It contains partial restrain and hence is valid.
• Exceptions to rule of restraint on alienation :
1. In the case of a lease, the lessor can impose a condition that the lessee shall not sublet the
property or sell his leasehold interest.
2. In case of a married woman, a condition that she shall not have power during her marriage
to transfer the property is valid.
2. Restrain on enjoyment
• When property is transferred absolutely, transferee has the right to enjoy property as he likes
it.
• When transferor place restriction on the enjoyment of property which is transferred, such
condition shall be void.
• Example –
1. A has properties X and Y. He sells property Y to B and puts a condition that B should not
construct on property Y more than one storey so that A‟s property X which he retains
should have good light and free air.
2. A sells his house to B with condition that he can reside in this house, his family members
cannot. This condition is invalid.
3. Condition as to insolvency
• If person transfer property to another person with condition that property will be revert to
transferor if transferee becomes insolvent then such condition shall be invalid.
• If lessor reserve right to get back property on declaration of lessee as insolvent, it is a valid
condition.
4. Illegal or impractical condition

• Interest created in the property under transfer, which depend on a condition the performance
of which is either illegal or impractical under law or harmful to the person or property of
another, is invalid.
TRANSFER FOR BENEFIT OF UNBORN CHILD- SECTION 13
• Property can be transferred to living person as on date of transfer.

• It means property cannot be transferred to unborn person.
• However property can be transferred to unborn person through medium of trust.
PROVISION
• Property can be transferred to unborn person if following conditions are satisfied :
1. Transfer cannot be made directly to unborn person.
2. Interest of the unborn person must be preceded by a prior interest.
3. When the prior interest comes to an end, the unborn person must be in existence and he
must have the interest at the latest, when he attains majority.
4. The unborn person must be exclusive owner of whole of property.
Example-
A transfers property of which he is the owner to B in trust for A and his intended wife
successively for their lives, and after the death of the survivor, for the eldest son of the
intended marriage for life, and after his death for A‟s second son. The interest so created
for the benefit of the eldest son does not take effect, because it does not extend to the
whole of A‟s remaining interest in the property.
RULE AGAINST PERPETUITY
• Perpetuity means continuing forever.

• According to this rule, property can be transferred to person for his one lifetime existing at
date of transfer and to the minority of some person who shall be in existence at the
expiration of that period, and to whom, the interest created is to belong if he attains the
age of majority.
• Elements of rule against perpetuity :
1. Property can be transferred to different living persons for their successive lives before
property is transferred to unborn person.
2. Transfer must be absolute.

• Example
A transfers a piece of land to his friend B for life, and afterwards to his friend C for life,
then to his friend D for life, and then to the son that may be born to B, for his son’s life,
then the son that may be born to C for his life, and then ultimately to the son that may be
born to D forever.
• In case of such disposition of the land, B cannot alienate the property, because he has only
a life interest therein. For the same reason neither C nor D, nor the sons of B and C can
alienate the property. When the property finally vested in D’s son, only he will be entitled to
alienate the property.
• This would certainly be a restraint on free alienation of the piece of land for a considerable
long period. This section lays down that one can tie up property and stop its free alienation
only for one generation, because all friends of A, now living must die within the same time.
• Exceptions :
1. When land is purchased or held by corporation.
2. When property is transferred by way of gift for benefit of public.
3. Personal agreement
4. Agreement for perpetual lease.
CONDITIONAL TRANSFER
• When transfer of property is subject to fulfillment of condition by the transferee the transfer
is known as conditional transfer.
• The condition can be either precedent of subsequent.
1. Condition precedent
• Where the terms of a transfer of property impose a condition which must be fulfilled before
a person can take an interest in the property, that condition is called condition precedent.
• Transferee’s interest in property is only contingent until the condition is fulfilled.
• Example –
A transfers 5000 to B on condition that he shall marry with the consent of C, D and E. But
E dies and B marries with the consent of C and D.B is deemed to have fulfilled the
condition. This is called a condition precedent.
• A condition precedent shall be allowed if :
1. The condition imposed must not be impossible to fulfil.
2. It is not forbidden by law.
3. It should not be of such nature that if permitted, it would defeat provision of law.
4. It should not be fraudulent.
5. Condition should not be immoral or opposed to public policy.
2. Condition subsequent
• When property is immediately vested but can be destroyed or divested because of non-
fulfilment of condition it is called as subsequent condition.
• Example
A transfers a farm to B for his life with a proviso that in case B cuts down a certain wood,
the transfer shall cease to have any effect. B cuts down the wood. He loses his life interest
in the farm.
Condition Precedent Condition Subsequent

A condition precedent should happen before A condition subsequent is one by the
the estate commence. happening of which an existing estate will
be defeated.
The condition comes before the interest. The interest is created before the condition.
Vesting on interest is postponed till the Vesting is immediately completed and not
condition is performed. postponed.
Once the interest is vested it can never be Though the interest is vested it is liable to
divested on the ground on non-fulfillment of be divested on the ground of non-
the condition. fulfillment
Acquisition of an estate is affected by the Retention of estate is affected in the
condition precedent. condition subsequent.
In case of condition precedent , the transfer In case of condition subsequent , the
is void if the condition is : transfer is valid if the condition is :

1. Impossible of performance 1. Impossible of performance
2. Immoral and 2. Immoral and
3. Opposed to public policy. 3. Opposed to public policy.
The condition precedent must be valid in The condition’s invalidity will be ignored.
the eyes of law.
The condition precedent may be The condition subsequent must be strictly
subsequently complied with. The doctrine of complied with. The doctrine of cy-press
Cy-press applies. does not apply.
DOCTRINES OF TRANSFER OR PROPERTY
Doctrines of TOPA
Doctrine Doctrine Doctrine of Doctrine of Doctrine of Doctrine

of of holding feeding the fraudulent part of lis
Election out grant be transfer performance pendes
estoppel
1. DOCTRINE OF ELECTION – SECTION 35
• This doctrine is based on the principle of equity.

• The principle of doctrine of election was explained in the leading case Cooper vs Cooper.
• Election here basically means “choice”
• The foundation of doctrine of election is that a person taking the benefit of an instrument
must also bear the burden, and he must not take under and against the same instrument. In
other words a person cant accept part of agreement which is beneficial and reject other part
which is burdensome to him. He can either accept or reject the agreement.
• Person taking the benefit of instrument must also bear the burden.
• Example –
1. A transfer to you his paddy field and in the same deed of transfer asks you to transfer your
house to C. Now, if you want to have the paddy field you must transfer your house to C,
because the transferor is transferring to you his paddy field on the condition that you give
your house to C. Thus, either you take the paddy field and part with your house or do not
take it at all. This is called the doctrine of election.
• Conditions necessary for the application of this doctrine :
1. The transferor must not be the owner of the property he transfers.
2. The transferor must transfer the property of other person to third person.
3. The transferor at the same time must grant some property of his own to the owner of the
property through the same instrument. If the transferor makes a gift of property by one
deed and by another asks the donee to part with his own property then there is no question
of election.
4. The two transfer i.e transfer of property of owner to transferee and transferee’s property to
third person must be in the same transaction. Doctrine of election won’t arise if there are
two separate transactions.
5. Election may be express or implied by conduct.
6. The doctrine of election is applicable if the benefit is given directly. A person taking no
benefit directly under a transaction but deriving a benefit under it indirectly need not elect.
2. DOCTRINE OF HOLDING OUT- SECTION 41
• This doctrine is also known as transfer by ostensible owner.

• Where owner of property permits (expressly or impliedly) another person who is not owner of
property to hold himself as the owner of the property and third party to deal in good faith
with person so permitted such third party acquire good title as against true owner.
• Ostensible owner is not the real owner but one who can represent himself as the real owner
to the third parties for such dealings. Ostensible ownership means apparent ownership which
is derived from conduct or words. Therefore, in this doctrine a transfer can be made by a
person even if he is not a real owner.
• This doctrine is an exception to the rule that a person cannot confer a better title than
what he has.
• Conditions to be fulfilled for application of this doctrine :

1. Transferor is the ostensible owner.
2. He is ostensible owner by way of express or implied consent of true owner of property.
3. Transfer is for condition.
4. The transferee has acted in good faith taking reasonable care to ascertain that the transferor
had power to transfer
• Example –
1. A made a gift of property to B but continued in possession of the gifted property. He
purported to exercise a power of revocation and then transferred the property to the
defendant. The gift, however, was not revocable as it was an unconditional gift. B seeks to
recover possession from the defendant. The defendant invoked protection under Section 41. In
the given example, the donor is not an “ostensible owner‟ holding the property with the
consent of the real owner. The defendant cannot, therefore, invoke the protection of Section
41.
2. The manager of a joint Hindu family consisting of some minor members alienated the
ancestral house to P without any necessity and the alienee transferred it to the defendants.
The minors challenged the alienation. The defendants sought protection under Section 41.
Here Section 41 has no application for “P was not the ostensible owner of the ancestral
family house with the consent, express or, implied, of the persons interested in the said
ancestral house in as much as the plaintiff, who had an interest in the said house, did not
and could not by reason of the disability of infancy give their consent”.
3. DOCTRINE OF FEEDING THE GRANT BY ESTOPPEL-SECTION 43
• Where, a person fraudulently or erroneously represents that he is authorized to transfer

certain immovable property and professes to transfer such property for consideration, such
transfer shall, at the option of the transferee, operate on any interest which the transferor
may acquire in such property at any time during which the contract of transfer subsists.
• In other words, where person who purports to grant interest in property, which he did not at
the time posses but subsequently acquires, benefit of subsequent acquisition goes
automatically to earlier grantee. It is known as feeds estoppel .
• Example –
A, a Hindu, who has separated from his father B, sells to C three fields, X, Y and Z,
representing that A is authorized to transfer the same. Of these fields, Z does not belong to
A, it having been retained by B on the partition, but on Bs dying, A as heir obtains Z. C,
not having rescinded the contract of sale may require A to deliver Z to him.
• Conditions to be fulfilled to apply this doctrine :
1. There was fraudulent or erroneous presentation of ownership of transferor.
2. The transferee must have acted on the fraudulent or erroneous representation of the
transferor.
3. The transferor should not have transferable title on the property transferred.
4. The transfer should be for consideration.
5. The transferor must subsequently acquire title upon property transferred on the basis of
fraudulent or erroneous representation of ownership.
6. The transferee has not cancelled contract.
7. The transferee acted in good faith for consideration and without notice of the rights under
the prior transfer.
• In the following cases the doctrine is not applicable :
1. If the transfer is not for consideration.
2. If the transfer is invalid for being forbidden by law or contrary to public policy.
3. If the contract comes to an end before acquisition of property by the transferor.
4. This section is not applicable to court sales.
5. This right is not available against bona-fide purchasers for value without notice.
4. DOCTRINE OF LIS PENDES-SECTION 52
• Lis means dispute, Lis pendens means a pending suit, action, petition before the court.
• During the pendency of suit or petition before any court, property which is subject matter of
litigation can’t be transferred by any person, except with consent of court.
• If any party has transferred property under litigation in suit, transferee is bound by judgment
of court.
• Conditions to be fulfilled :
1. There must be a suit or proceeding in a court of competent jurisdiction.

2. The suit or proceeding should not be collusive.
3. The litigation must be one in which immovable property is directly and specifically in
question.
4. There must be transfer of or otherwise dealing with the property in dispute by any party to
litigation.
5. Such transfer must affect the rights of the other party that may ultimately accrue under
order or decree.
• Example
A and B are litigating in a Court of law over property X and during the pendency of the suit
A transfers the property X to C. The suit ends in B‟s favor. Here C who obtained the
property during the time of litigation cannot claim the property. He is bound by the decree
of the Court wherein B has been given the property.
• Doctrine of lis pendes is not applicable when the property has been transferred by stranger
(i.e a person who is not party to litigation)
5. DOCTRINE OF FRAUDULENT TRANSFER – SECTION 53
• Where a person transfers his property so that his creditors shall not have anything out of
the property, the transfer is called a fraudulent transfer. A debtor in order to defeat or delay
the rights of a creditor may transfer his property to some person, who may be his relative or
a friend.
• When debtor transfers immovable property with intent to defeat or delay his creditors,
transfer of property shall be voidable at option of any creditor so defeated or delayed.
• This doctrine is basically made to discourage fraudulent transfer of property.
• This doctrine gives right to defraud creditor to challenge transfer of property in court and get
order from court that transfer is invalid.
• Conditions essential for this doctrine :
1. Creditor needs to prove fraudulent intention on part of debtor. If he cant prove fraudulent
intention, transfer of property will be valid.
2. Transfer of property is valid if it is not challenged by defeated creditor before court.
3. Preference of one creditor over another is not fraudulent as per provision of any act.
• Example –
Chirag takes loan from Vikas and fail to pay the loan. Vikas sues him court to get back his
debt. Aman knows that his property will be applied by court for repayment of his loan.
Meantime he transfers his property to his friend Harish who simply holds the property on
behalf of the transferor. Here the property is transferred with a fraudulent intention.
6. DOCTRINE OF PART PERFORMANCE – SECTION 53A
• Transferor cannot take back the property only on the ground of non-registration of
documents, if the transferee has performed his part of the contract and has also take
possession of the property or part of it.
• Doctrine basically prohibits transferor from taking back property.
• Conditions necessary to apply the doctrine :
1. There must be a contract to transfer immovable property.
2. It must be for consideration.
3. The contract should be in writing and signed by the transferor himself or on his behalf.
4. The terms necessary to constitute the transfer must be ascertainable with reasonable
certainty from the contract itself.
5. The transferee should have taken the possession of the property in part performance of the
contract. In case he is already in possession, he must have continued in possession in part
performance of the contract and must have done something in furtherance of the contract.
6. The transferee must have fulfilled or be ready to fulfill his part of the obligation under the
contract.
PROVISIONS RELATING TO SPECIFIC TRANSFER
Specific Transfer
Sale Exchange Gift Lease License Actionable Mortgage Charge

claim
SALE –SECTION 54
• Sale means the transfer of ownership in consideration of price. Price is paid or promised to
be paid.
ESSENTIALS
1. The subject matter is transferable property.
2. There must be two parties (i.e. seller and buyer )
3. The seller and the buyer must have capacity to enter into a contract.
4. There must be monetary consideration.
5. The property must be transferred absolutely.
6. Stamp duty and other compliances should be done.
MODE OF TRANSFER OF SALE

Sale of an immovable property can be effected,
(a) Where such property is tangible
(i) By a registered instrument if it is of the value of Rs. 100 and upwards, and
(ii) By a registered instrument or by delivery of property when it is less than Rs. 100 in value,
and
(b) Where the property is tangible or a reversion, only by a registered instrument.
EXCHANGE – SECTION 118 – 121
• When two persons mutually transfer the ownership of one thing for the ownership of
another, neither thing nor both things being money only, the transaction is called an
"exchange".
ESSENTIALS:
1. The person making the exchange must be competent to contract.
2. There must be mutual consent.
3. There is a mutual transfer of ownership though things and interests may not be identical.
4. Neither party must have paid money only.
MODE OF EXCHANGE
1. An exchange can be possible for movable as well as immovable property.
2. An exchange is governed by provision of Transfer of Property Act.
3. An exchange of movable property is called barter and it is governed by the provision of
Indian Contract Act.
GIFT – SECTION 122 – 128
• According to Section 122,

“Gift” is the transfer of certain existing moveable or immovable property made voluntarily
and without consideration, by one person, called the donor, to another, called the donee, and
accepted by or on behalf of the donee. Acceptance when to be made.—such acceptance must
be made during the lifetime of the donor and while he is still capable of giving. If the donee
dies before acceptance, the gift is void.
In simple words,
• Gift means the transfer of certain existing movable or immovable property made voluntarily
and without consideration, by one person to another.
• Person who transfers is known as donor.
• Person in whose favor property is transferred is known as donee.
ESSENTIALS
• There must be a transfer of ownership from donor to donee.
• The subject matter of gift must be a certain existing moveable or immovable property.
• The transfer must be made voluntarily and without consideration.
• There must be acceptance by or on behalf of the donee, and such acceptance must be made
during the lifetime of the donor and while he is capable of giving.
METHOD
A gift of immovable property must effect by:
• A registered instrument signed by or on behalf of the donor.
• And attested by at least two witnesses.
In the event of gift of movable property it may be effected by:
• Either by a registered instrument signed and attested as above or
• By delivery of the property, such delivery may be made in the same way as goods sold may
be delivered.
LEASE-SECTION 105
According to Section 105

A lease of immovable property is a transfer of a right to enjoy such property, made for a
certain time, express or implied, or in perpetuity, in consideration of a price paid or promised,
or of money, a share of crops, service or any other thing of value, to be rendered periodically
or on specified occasions to the transferor by the transferee, who accepts the transfer on
such terms. Lessor, lessee, premium and rent defined.—The transferor is called the lessor ,
the transferee is called the lessee, the price is called the premium, and the money, share,
service or other thing to be so rendered is called the rent.
In simple words,
• Transfer of a right to enjoy an immovable property.
• It is for a specified time or for perpetuity.
• It is made for consideration which is either premium or rent or both.
• Transfer must be accepted by transferee.
• The person who transfers right in property is known as lessor.

• The person in whose favor right in property is transferred is known as lessee.
DUTIES OF THE LESSOR

Following are some of the duties of the lessor:-
1. The lessor is bound to disclose to the lessee any material physical defect in the property.
2. The lessor is to put the lessee in possession of the property.
3. It is the duty of the lessor to let the lessee enjoy the property continuously till he pays the
rent.
DUTIES OF THE LESSEE:

The lessee has the following duties:-
1. The lessee is bound to disclose to the lessor nature or extent of the interest that lessee will
take.
2. The lessee is bound to pay the premium or rent to the lessor timely.
3. He should use the property as a person of ordinary prudence would make use of. But he shall
not permit another person to use the property for purposes other than that for which it was
leased.
4. He should not do any act which is destructive of or permanently injurious to the property.
5. The lessee must not, without the lessor's consent, erect on the property any permanent
structure except for agricultural purpose.
6. Before the termination of the lease, he can remove all the things attached to the earth.
7. If permanent fixtures are to be made, the lessee must obtain the consent of the landlord.
8. The lessee should hand over the property at the end of the lease.
RIGHTS OF THE LESSEE:

The lessee enjoys the following rights:-
1. The lessee has a right to enjoy the accretions of the leased property.
2. The lessee has right to deduct the expenses of repairs incurred by him on behalf of landlord
from the rent if the contract permits so.
3. The lessee has right to deduct municipal expenses and interest incurred by him on behalf of
landlord from the rent.

4. The lessee has a right to remove the fixtures he has erected during the term of the lease.
5. The lessee may avoid the lease, if property is wholly or partly destroyed by tempest, flood, or
fire.
6. The lessee has right to transfer absolutely or by way of mortgage or sub-lease, the whole or
any part of his interest in the property.
LICENSE
License means right granted in respect of immovable property to do or to come on land and
use it in some way or other while it remains in the possession and control of owner.
Subject Matter Lease License

Transfer Lease involves transfer of License does not transfer
interest. any interest in property.
Possession Lessee gets the exclusive License gets the right to use
possession of the property the property for specified
for specified period. period.
Assignment Lease can be assigned or License can’t be assigned or
transferred. transferred being personal
right.
ACTIONABLE CLAIMS – SECTION 130-137
• "Actionable claim" is defined in Section 3 of the Transfer of Property Act as follows:

A claim to any debt, other than a debt secured by mortgage of immovable property or by
hypothecation or pledge of moveable property, or to any beneficial interest in moveable
property not in the possession, either actual or constructive, of the claimant, which the Civil
courts recognize as affording grounds for relief, whether such debt or beneficial interest be
existent, accruing, conditional or contingent.
• In simple words,
Actionable claim means a claim to unsecured debt. Here debt not secured by mortgage of
immovable property or by pledge of immovable property.
• Examples of actionable claim
1. Arrears of rent
2. Provident fund amount standing to credit of member’s provident fund account
3. Money due from insurance policy
4. Claim for rent to fall due in future
• Examples of non-actionable claim
1 Secured debenture
2 A claim which is decreed.
3 Copy right though a beneficial interest in immovable property is not an actionable claim
since the owner has actual or constructive possession of the same
4 “Right to sue” though it is a right but not an actionable claim.
MORTGAGES- SECTION 58-104
MEANING
Mortgage is the transfer of an interest in a specific immovable property for the purpose of
securing payment of money advanced or be advanced by way of loan or performance of an
engagement which may give rise to pecuniary liability .
ESSENTIALS OF MORTGAGE
1. There must be transfer of interest in immovable property.
2. Property must be specified.
3. Transfer is for purpose of securing payment of loan or debt.
TYPES OF MORTGAGE
Types of Mortgages
Simple Mortgage by Usufructuary English Mortgage by Anomalmous Puisne

Mortgage conditional mortgage mortgage deposit of mortgage mortgage
sale title deed
1. Simple Mortgage
Where, without delivering possession of the mortgaged property, the mortgagor binds himself
personally to pay the mortgage-money, and agrees, expressly or impliedly, that, in the event
of his failing to pay according to his contract, the mortgagee shall have a right to cause the
mortgaged property to be sold and the proceeds of sale to be applied, so far as may be
necessary, in payment of the mortgage-money, the transaction is called a simple mortgage
and the mortgagee a simple mortgagee.
In simple words,
• The mortgagor takes personal liability for repayment.
• The mortgaged property is not required to be delivered to the mortgagee.
• On mortgagor’s default in making payment mortgagee is entitled to cause mortgaged property
to be sold after obtaining decree from the court.
• There is no foreclosure (the action of taking possession of a mortgaged property when the
mortgagor fails to keep up their mortgage payments.) of the property.
• There is no transfer of ownership.
2. Mortgage by conditional sale – Section 58 (c)

Where, the mortgagor ostensibly sells the mortgaged property— on condition that on default
of payment of the mortgage-money on a certain date the sale shall become absolute, or on
condition that on such payment being made the sale shall become void, or on condition that
on such payment being made the buyer shall transfer the property to the seller, the
transaction is called mortgage by conditional sale and the mortgagee a mortgagee by
conditional sale: [Provided that no such transaction shall be deemed to be a mortgage, unless
the condition is embodied in the document which effects or purports to effect the sale]
In simple words,
• The mortgagor ostensibly (apparently) sells the mortgaged property to the mortgagee.
• The sale becomes void if the loan is repaid.
• The sale becomes absolute and binding if the loan is not repaid at a specific time.
• The mortgaged property is re-transferred to the mortgagor if the loan or debt is paid within
the specified time.
• The possession of the property is transferred here.
• The remedy to the mortgagee here is by foreclosure and not by way of sale.
3. Usufructuary mortgage – Section 58 (d)

Where the mortgagor delivers possession 1[or expressly or by implication binds himself to
deliver possession] of the mortgaged property to the mortgagee, and authorizes him to retain
such possession until payment of the mortgage-money, and to receive the rents and profits
accruing from the property 2[or any part of such rents and profits and to appropriate the
same] in lieu of interest, or in payment of the mortgage-money, or partly in lieu of interest
3[or] partly in payment of the mortgage-money, the transaction is called an usufructuary
mortgage and the mortgagee an usufructuary mortgagee.
In simple words,
• Possession of property must be delivered to the mortgagee.
• There is no personal liability on the part of the mortgagor to pay.
• The mortgagee is entitled to rents and profits in lieu of interest or principal or both. (The
profit of the property is appropriated by the mortgagee towards discharge or principal or
interest.
• The mortgagee however is not entitled to foreclose the mortgagee or to sue for sale.
• It is also called mortgage with possession.
4. English Mortgage – Section 58(e)

Where the mortgagor binds himself to repay the mortgage-money on a certain date, and
transfers the mortgaged property absolutely to the mortgagee, but subject to a proviso that
he will re-transfer it to the mortgagor upon payment of the mortgage-money as agreed, the
transaction is called an English mortgage.
In simple words,
• The mortgaged property is transferred absolutely by the mortgagor to the mortgagee.
• There is a personal undertaking to pay the amount.
• There is an absolute transfer of property with a provision of retransfer of property in case of
amount due.
• The remedy to the mortgagee is by way of sale and not by way of foreclosure.
5. Mortgage by deposit of title deed – Section 58 (f)

Where a person in any of the following towns, namely, the towns of Calcutta, Madras and
Bombay and in any other town which the State Government concerned may, by notification
in the Official Gazette, specify in this behalf, delivers to a creditor or his agent documents
of title to immovable property, with intent to create a security thereon, the transaction is
called a mortgage by deposit of title-deeds.
In simple words,
• It is also called equitable mortgage.
• It is created in specific towns by deposit of title deeds even though the property is situated
outside those towns.
• It is affected by material title deeds.
• Delivery of possession of property does not take place.
• This mortgage is made to secure a debt or advances or to cover future advances.
• Registration is not necessary even if there is a writing recording deposit under Section 59.
• This mortgage prevails against a subsequent transferee who takes under a registered
instrument.
• This mortgage prevails against all who are not bona fide purchasers for value without notice.
6. Anomalous Mortgage – Section 58(g)

A mortgage which is not a simple mortgage, a mortgage by conditional sale, an usufructuary
mortgage, an English mortgage or a mortgage by deposit of title-deeds within the meaning
of this section is called an anomalous mortgage
In simple words,
• A mortgage which does not belong to any of above categories is known as anomalous
mortgage.
• It is a combination of two or more mortgages.
• Possession may or may not be delivered.
• The remedy may be by foreclosure or by sale depending on the term of agreement.
7. Puisne Mortgage
• Where the mortgagor, having mortgaged his property, mortgages it to another person to
secure another loan, the second mortgage is called a puisne mortgage.
• For example, where A mortgages his house worth `one lakh to B for `40,000 and mortgages
the same house to C for a further sum of `30,000, the mortgage to B is first mortgage and
that to C the second or puisne mortgage. C is the puisne mortgagee, and can recover the
debt subject to the right of B, the first mortgagee, to recover his debt of `40,000 plus
interest
8. Sub-Mortgage
• Where the mortgagee transfers by mortgage his interest in the mortgaged property, or
creates a mortgage of a mortgage the transaction is known as a sub-mortgage.
• For example, where A mortgages his house to B for Rs. 10,000 and B mortgage his mortgagee
right to C for Rs. 8,000. B creates a sub-mortgage.
RIGHTS RELATED TO MORTGAGED PROPERTY

1. Right of redemption
• Mortgagor has the right to redeem property provided as security.
• Redemption means to take back the mortgaged property by paying the mortgage money at
any time after stipulated date for repayment.
• According to Section 60 of Transfer of Property Act, any time after the principle amount
become due, the mortgagor has a right to redeem the property.
• Mortgagor can exercise this right :
(i) Before the right is extinguished by the Act of parties or by a decree of Court, or
(ii) Before it is barred by the Limitation Act

• According to Limitation Act, mortgagor can redeem the property within 60 years after the
money has become due.
• This right to redeem the property even after the time of payment has elapsed is called the
Right of Equity or Redemption. But the mortgagor is not entitled to redeem before the
mortgage money becomes due on the date fixed for repayment of the loan. His right to
redeem arises only when mortgage money becomes due and not before.
• Example –
Chirag borrows money on a mortgage and agree to pay back after 10 years. Chirag has
obtained gift of money from his relative at end of 5th year from date on which he borrowed
money. Now, Chirag wants to pay the loan and redeem his property. He can’t do so, because
the right to redeem arises only when the money has become due at the end of 10 years.
2. Doctrine on clog of equity redemption

• Mortgagor has right to redemption by virtue of mortgage deed.
• This right is considered to be inalienable and cannot be taken away from a mortgagor by any
means of any contract to its contrary.
• Redemption means the act of the vendor of property in buying it back again from the
purchaser at the same or an enhanced price.
• According to Section 60 of Transfer of Property Act, 1882 mortgagor can get his property
back from the mortgagee on the paying the amount borrowed from him.
• Clog on a right means the insertion of any clause or any provision under the mortgaged deed
which would alienate mortgagor of his property under certain circumstances.
• Any such provision would not be able to alienate the mortgagor of his ‘right to redemption’
and such provision is void-ab-initio.
• Right to redemption shall remain effective unless the property is sold off under any statutory
provision.
• Even if mortgagee has went to the court for the foreclosure of the property mortgaged,
mortgagor can redeem his property by paying off the full amount in the court.
3. Doctrine of marshalling
• If the owner of two or more properties mortgaged them to one person and then mortgages
one or more of the properties to another person, the subsequent mortgagee in absence of
contact to the contrary, entitled to have the prior mortgage-debt satisfied out of the
property or properties not mortgaged to him, so far as the same will extend, but not so as to
prejudice the right of the prior mortgage. This is doctrine of marshalling.
IMPLIED CONTRACT BY MORTGAGOR

• The parties are free to enter into any terms they like. Where, however, the contract does not
contain all the terms, Section 65 provides for implied terms as follows: In the absence of a
contract to the contrary, the mortgagor shall be deemed to have contracted with the
mortgagee that the:
(a) Mortgagor is entitled to transfer the interest (covenant for title);
(b) Mortgagor will assist the mortgagee to enjoy quiet possession;
(c) Mortgagor will pay public charges in respect of the mortgaged property;
(d) Mortgagor covenants as to payment of the rent due on lease where, the mortgaged property
is leased;
(e) Mortgagor covenants as to payment of interest and principal on prior encumbrances, where
the mortgage is a second or subsequent encumbrance on the property.
RIGHTS OF MORTGAGEE AND HIS REMEDIES:

• If the mortgagor does not pay the mortgage money, the mortgagee may proceed to recover
(i) From the mortgaged property, or
(ii) Sue for recovery from the mortgagor personally.
• Thus the mortgagor has two remedies: one against the property and the other against the
mortgagor personally.
CHARGE – SECTION 100
MEANING
• Where immovable property of one person is by the act of parties or by operation of law made
security for repayment of money of other and transaction is not mortgage it is called charge.
• All provisions that are applicable to simple mortgage shall be applicable to such charge.
CREATION OF CHARGE
• Charge by act of parties:
When in a transaction for value, both the parties (debtor and creditor) intend that the
property existing or future shall be made available as security for the payment of a debt and
that the creditor shall have a present right to have it made available, there is a charge.
• Charge by Operation of Law:

Charges created by law are those which arise on account of some statutory provisions. They
are not created by the voluntary action of parties but arise as a result of some legal
obligation.
TYPES OF CHARGE
(i) Fixed charge
• A fixed charge is a charge created on a specified property.
• Example – Charge created on office building situated in particular area.
• A fixed charge cannot be converted into floating charge.
(ii) Floating charge

• When charge not created on a specified property but a class of property it is known as
floating charge.
• It is charge on class of assets both present and future. The assets of the company are
constantly undergoing a change but the creditors will not normally interfere with the assets
of the company unless there is breach of some condition.
• Example – Charge created on the plant and machinery of the factory.
• Floating charge can be converted into fixed charge.
CRYSTALLIZATION OF CHARGE
• Conversion of floating charge into fixed charge is known as crystallization.
• Floating charge is converted into fixed charge in following situations :
1) When person ceases to carry on business.
2) When person or company is being wound up.
3) When any event in charge deed or agreement creating charge has taken place.
4) When charge is created in favour of debenture holders and they take some steps to enforce
their security.
Matter Charge Mortgage

Transfer It is not transfer of any interest It is transfer of interest in property.
in any property.
Creation Charge is created by act of Mortgage is created by act of
parties or operation of law. parties.
Registration Charge created by operation of Mortgage deed is required to be
law is not required to be registered and attested by two
registered. witnesses.
Right of Charge holder can’t foreclose. Mortgagor can foreclose mortgaged
foreclosure property in certain types of
mortgages.
Right in In charge, no right of rem is In mortgage, right in rem is created.
rem created.
Effect on Charge is good only against A mortgage is good against
subsequent subsequent transferee with notice subsequent transferees and may be
transfer enforced against a bona fide
purchaser for value with or without
notice.
Liability In a charge created by act of In a mortgage, there can be security
parties the specification of the as well as personal liability. In fact,
particular fund or property the absence of a personal liability is

negatives a personal liability and the principal test that distinguishes
the remedy of the charge-holder a charge from a simple mortgage.
is against the property only.
CS- EXE Economic Business and Commercial Laws Real Estate
CHAPTER 17- REAL ESTATE (REGULATION AND DEVELOPMENT) ACT, 2016
INTRODUCTION
The real estate sector has grown in the recent years but has largely been unregulated from
the perspective of consumer protection. This has affected the overall potential growth of the
sector due to absence of professionalism and standardization. It has no sectoral regulator like
there are for other specific sectors like insurance, telecom, stock markets etc. History is
witness to the fact that whenever sectoral regulators like SEBI, IRDAI, and TRAI etc. have
been formed, they have helped in deepening the market and made it more robust. To
regulate the real estate sector, the government has come up with the idea of Real Estate
(Regulation and Development) Act 2016.
RERA is meant to protect the interest of the homebuyer and ensure timely delivery of
projects. Although RERA is a central law, its implementation will depend on state
governments, as real estate is a state subject.
OBJECTS AND REASONS FOR WHICH THE ACT WAS FORMED
1. To ensure accountability towards allottees (buyers) and protect their interest.

2. To infuse transparency, ensure fair-play and reduce frauds and delays.
3. To introduce professionalism and pan India standardization.
4. To establish a symmetry of information between the promoter and allottee.
5. To impose certain responsibilities on both promoter and allottee.
6. To establish regulatory oversight mechanism to enforce contracts.
7. To establish fast-track dispute resolution mechanism.
8. To promote good governance in the sector and this in turn would create investor confidence.
SALIENT FEATURES OF THE REAL ESTATE (REGULATION AND DEVELOPMENT) ACT 2016
I. Establish the Real Estate Regulatory Authority for regulation and promotion of the real
estate sector.
II. Ensure sale of plot, apartment of building or sale of real estate project, in an efficient and
transparent manner.
III. Ensure protect the interest of consumers in the real estate sector
IV. Establish an adjudicating mechanism for speedy dispute redressal and also to establish the
Appellate Tribunal to hear appeals from the decisions, directions or orders of the RERA
V. Regulates transactions between buyers and promoters of residential real estate projects
VI. Establishes state level regulatory authorities called RERAs
VII. Residential real estate projects, with some exceptions, need to be registered with RERAs
VIII. Promoters cannot book or offer these projects for sale without registering them. Real estate
agents dealing in these projects also need to register with RERAs
IX. Registration, the promoter must upload details of the project on the website of the RERA.
These include the site and layout plan, and schedule for completion of the real estate project
X. Amount collected from buyers for a project must be maintained in a separate bank account
and must only be used for construction of that project. The state government can alter this
amount
XI. Right to Legal Representation on behalf of client by CS/CA/CMA or legal practitioners
XII. Imposes stringent (strict) penalty on promoter, real estate agent and also prescribes
imprisonment.
ADVANTAGES OF RERA
1. Increased FDI
2. Customer management
3. Timely completion of the project
4. Project planning
5. Transparency
6. Reduction in litigation
DEFINITIONS
1. Allottee
 "Allottee" means the person to whom a plot, apartment or building has been allotted, sold or
otherwise transferred by the promoter, and
 includes the person who subsequently acquires the said allotment through sale, transfer or
otherwise
 but does not include a person to whom such plot, apartment or building, is given on rent.
2. Apartment
"Apartment" whether called
 block, chamber, dwelling unit, flat, office, showroom, shop, godown, premises, suit, tenement,
unit or by any other name,
 means a separate and self-contained part of any immovable property,
 including one or more rooms or enclosed spaces, located on one or more floors or any part,
 in a building or on a plot of land, used or intended to be used for any residential or
commercial use such as residence, office, shop, showroom or godown or for carrying on any
business, occupation, profession or trade, or for any other type of use ancillary to the purpose
specified.
3. Building
"Building" includes any structure or erection or part of a structure or erection which is
intended to be used for residential, commercial or for the purpose of any business,
occupation, profession or trade, or for any other related purposes;
4. Carpet Area
"Carpet area" means the net usable floor area of an apartment, excluding the area covered by
the external walls, areas under services shafts, exclusive balcony or verandah area and
exclusive open terrace area, but includes the area covered by the internal partition walls of
the apartment.
Explanation: the expression "exclusive balcony or verandah area" means the area of the
balcony or verandah, as the case may be, which is appurtenant to the net usable floor area
of an apartment, meant for the exclusive use of the allottee; and "exclusive open terrace
area" means the area of open terrace which is appurtenant to the net usable floor area of an
apartment, meant for the exclusive use of the allottee;
5. "Real estate agent" means any person, who negotiates or acts on behalf of one
person in a transaction of transfer of his plot, apartment or building, as the case may be, in
a real estate project, by way of sale, with another person or transfer of plot, apa rtment or
building, as the case may be, of any other person to him and receives remuneration or fees
or any other charges for his services whether as commission or otherwise and includes a
person who introduces, through any medium, prospective buyers and sellers to each other for
negotiation for sale or purchase of plot, apartment or building, as the case may be, and
includes property dealers, brokers, middlemen by whatever name called.
6. ‘Appropriate Government’
“Appropriate Government” means
 For the Union territory without Legislature, the Central Government;
 For the Union territory of Puducherry, the Union territory Government;
 For the Union territory of Delhi, the Central Ministry of Urban Development;
 For the State, the State Government.
Responsibilities of the appropriate Government

a) To notify Rules for the implementation of the Act, within 6 months of its commencement.
b) To establish the Regulatory Authority within 1 year from its commencement i.e. maximum by
30th April, 2017.
c) To designate an officer (preferably Housing Secretary) as interim Regulatory Authority, until
the establishment of a full time Regulatory Authority.
d) To establish the Appellate Tribunal within 1 year from its commencement i.e. maximum by
30th April, 2017.
e) To designate an existing Appellate Tribunal (under any other law in force) to be the
Appellate Tribunal, until the establishment of a full time Appellate Tribunal.

f) The Chairperson and Members of the Regulatory Authority and the Members of the Appellate
Tribunal are required to be appointed based on recommendations of a Selection Committee,
thus the appropriate Government is required to constitute the Selection Committee.
g) To appoint officers and other employees of Regulatory Authority and the Appellate Tribunal.
h) To identify office space etc. and other infrastructure for its functioning.
i) To constitute a ‘Real Estate Regulatory Fund’.
The Central Government (i.e. the Ministry of HUPA) is required to establish the Central
Advisory Council.
PROJECTS EXEMPT FROM THE AMBIT OF THE ACT
The following projects do not require to be registered under the Act:

 Area of land does not exceed 500 Sq. Meters
 No. of apartments does not exceed 8
In case of Renovation/ Repair/ Re-development

a) where the area of land proposed to be developed does not exceed 500 square meters or the
number of apartments proposed to be developed does not exceed 8, inclusive of all phases;
b) where the promoter has received completion certificate for a real estate project prior to
commencement of this Act;
For the purpose of renovation or repair or re-development which does not involve marketing,
advertising selling or new allotment of any apartment, plot or building, as the case may be,
under the real estate project.
APPLICATION FOR REGISTRATION OF REAL ESTATE PROJECTS
Every promoter shall make an application to the Authority for registration of the real estate
project in such form, manner, within such time and accompanied by such fee as may be
specified by the regulations made by the Authority.
Step 1. Step 2. Step 3

Applicant has to file an Application for registration On successful registration
application for must be either approved or the promoter of the
registration with RERA in rejected by RERA within a project will be provided
prescribed form along period of 30 days from with a registration
with prescribed fees and date of application. number, login id and
documents. password.
GRANTING OF REGISTRATION BY THE AUTHORITY

On receipt of the application, the Authority shall within 30 days-
1. Grant registration subject to the provisions of the Act and the rules and regulations made
there under. A registration number, including a Login Id and password to the applicant for
accessing the website of the Authority and to create his web page and to fill therein the
details of the proposed project; or
2. Reject the application for reasons to be recorded in writing, if such application does not
conform to the provisions of this Act or the rules or regulations made there under.
Application shall not be rejected unless the applicant has been given an opportunity of being
heard in the matter.
If the Authority fails to grant the registration or reject the application, as the case may be,
the project shall be deemed to have been registered, and the Authority shall within 7 days of
the expiry of the said period of 30 days specified.
The registration granted shall be valid for a period declared by the promoter for completion
of the project or phase thereof, as the case may be.
EXTENSION OF REGISTRATION
 Delay in handing over of projects by the developer within the stipulated time frame has been
a major problem of the buyers and hence has been a major trigger for formation of this Act.
Hence, at the time of registration, a developer has to specify a time line during which he will
complete and handover the project to the buyer.
 The timeline is very important because if he fails to do so within the stated time, then there
are rigorous provisions in the Act as prescribed in section 7 & 8 whereby his registration
would be revoked and his project would be usurped by the Regulator.
 Though as per section 6, an extension of registration may be granted at the sole discretion
of the regulator due to Force Majeure conditions or if there are reasonable circumstances
which merit extension.
 The registration granted may be extended by the Authority on an application made by the
promoter due to force majeure, in such form and on payment of such fee as may be
specified by regulations made by the Authority.
 The application for extension shall not be rejected unless the applicant has been given an
opportunity of being heard in that matter.
 Force majeure" shall mean a case of war, flood, drought, fire, cyclone, earthquake or any
other calamity caused by nature affecting the regular development of the real estate project.
REVOCATION OF REGISTRATION
The Authority may, on receipt of a complaint or suo-moto in this behalf or on the

recommendation of the competent authority, revoke the registration granted, after being
satisfied that—
1. the promoter makes default in doing anything required by or under this Act or the rules or
the regulations made there under;
2. the promoter violates any of the terms or conditions of the approval given by the competent
authority;
3. the promoter is involved in any kind of unfair practice or irregularities.
The registration granted to the promoter shall not be revoked unless the Authority has given
to the promoter not less than 30 days’ notice, in writing, stating the grounds on which it is
proposed to revoke the registration, and has considered any cause shown by the promoter
within the period of that notice against the proposed revocation.
THE AUTHORITY, UPON THE REVOCATION OF THE REGISTRATION-
1. Debar the promoter from accessing its website in relation to that project and specify his
name in the list of defaulters and display his photograph on its website and also inform the
other Real Estate Regulatory Authority in other States and Union territories about such
revocation or registration;
2. Facilitate the remaining development works to be carried out in accordance with the
provisions of section 8;
3. Direct the bank holding the project back account to freeze the account, and thereafter take
such further necessary actions, including consequent de-freezing of the said account, towards
facilitating the remaining development works in accordance with the provisions of section 8;
4. To protect the interest of allottees or in the public interest, issue such directions as it may
deem necessary.
OBLIGATION OF AUTHORITY CONSEQUENT UPON LAPSE OF OR ON REVOCATION OF

REGISTRATION (SECTION 8)
 Upon lapse of the registration or on revocation of the registration under the Act, the
authority, may consult the appropriate Government to take such action as it may deem fit
including the carrying out of the remaining development works by competent authority or by
the association of allottees or in any other manner, as may be determined by the Authority.
 The direction, decision or order of the Authority shall not take effect until the expiry of the
period of appeal provided under the provisions of the Act:
 In case of revocation of registration of a project under the Act, the association of allottees
shall have the first right of refusal for carrying out of the remaining development works.
REGISTRATION OF REAL ESTATE AGENTS
 Real estate broking is one of the easiest businesses in India as there are no specific
qualification or experience requirements and also there is no code of practice which sets
accountability, transparency and professional benchmarks.
 Hence, there are thousands of non-professional agents/ brokers in every city operating
without any accountability.
 Hence, to bring in transparency and accountability, agents have also been covered under the
ambit of RERA and registration requirement has been mandatory for them u/s 9.
 Without obtaining registration, real estate agent shall not facilitate the sale or purchase of or
act on behalf of any person to facilitate the sale or purchase of any plot, apartment or
building, as the case may be, in a real estate project or part of it, being the part of the real
estate project registered, being sold by the promoter in any planning area.
 Every real estate agent shall make an application to the Authority for registration in such
form, manner, within such time and accompanied by such fee and documents as may be
prescribed.
 The Authority shall, within such period, in such manner and upon satisfying itself of the
fulfillment of such conditions, as may be prescribed—
1. Grant a single registration to the real estate agent for the entire State or Union territory, as
the case may be;
2. Reject the application for reasons to be recorded in writing, if such application does not
conform to the provisions of the Act or the rules or regulations made there under:
 Application shall not be rejected unless the applicant has been given an opportunity of being
heard in the matter.
 Where any real estate agent who has been granted registration under this Act commits
breach of any of the conditions or any other terms and conditions specified under this Act or
any rules or regulations made there under, or where the Authority is satisfied that such
registration has been secured by the real estate agent through misrepresentation or fraud,
the Authority may, without prejudice to any other provisions under this Act, revoke the
registration or suspend the same for such period as it thinks fit:
 No such revocation or suspension shall be made by the Authority unless an opportunity of
being heard has been given to the real estate agent.
FUNCTIONS OF REAL ESTATE AGENT
1. The real estate agent shall not continue the real estate assignments without registration.
2. Every real estate agent maintains and preserves such books of account, records and
documents as may be prescribed.
3. Every real estate agent shall facilitate the possession of all the information and documents,
as required by the allottee at the time of booking of any plot, apartment or building.
4. The real estate agent shall not enter into Unfair Trade Practices.
Note: Unfair Trade Practices means:
1. Making any oral or written statement which
 falsely represents that the services are of a particular standard or grade;
 represents that the promoter or himself has approval or affiliation which such promoter does
not have;
 makes a false or misleading representation concerning the services.
2. Permitting the publication of any advertisement whether in any newspaper or otherwise of
services that are not intended to be offered.
FUNCTIONS & DUTIES OF PROMOTERS
1. Registration
Every promoter shall make an application to the Authority for registration of the real estate
project in prescribed form and manner.
2. Creating webpage on the RERA Website

The promoter shall, upon receiving his Login Id and password should create his web page on
the website of the Authority and enter all details of the proposed project for public viewing,
including:
- Details of the registration granted by the Authority;
- Quarterly up-to-date list of number and types of apartments or plots booked;
- Quarterly up-to-date the list of number of garages booked;

- Quarterly up-to-date the list of approvals taken and the approvals which are pending
subsequent to commencement certificate;
- Quarterly up-to-date status of the project; and
- Other specified information and documents.
3. Advertisement
No promoter shall advertise, market, book, sell or offer for sale, or invite persons to purchase
in any manner any plot, apartment or building in any planning area, without registering the
real estate project with the Real Estate Regulatory Authority.
The advertisement or prospectus issued or published by the promoter shall mention
prominently the website address of the Authority.
4. Information to be furnished to allottee

The promoter at the time of the booking and issue of allotment letter shall provide following
information to the allottee:
- Sanctioned plans, layout plans, along with specifications, approved by the competent
authority, by display at the site or such other place as may be specified by the regulations
made by the Authority;
- Stage-wise time schedule of completion of the project, including the provisions for civic
infrastructure like water, sanitation and electricity.
5. Other Responsibilities & Obligation of promoter

• Promoter is responsible for all obligations, responsibilities under the Act till the conveyance
of all apartments, plots or buildings to the allottees.
• Promoter is responsible to obtain the completion certificate or the occupancy certificate, or
both, as applicable, from the relevant competent authority as per local laws.
• To obtain the lease certificate specifying the period of lease and certify that all dues in
regard to leasehold has been paid.
• Providing and maintaining the essential services, on reasonable charges, till the maintenance
of the project is taken over by the association of the allottees.
• Enable the formation of an association or society or co-operative society of the allottees, or

a federation of the same, under the laws applicable.
• Execute a registered conveyance deed of the apartment, plot or building in favor of the
allottee along with the undivided proportionate title in the common areas.
• Pay all outgoings including land cost, ground rent, municipal or other local taxes until he
transfers the physical possession of the real estate project to the allottee.
6. Accepting Deposits
A promoter shall enter into a written agreement with a person and get it registered under
any law in force to accept a sum of more than 10% of the cost of the apartment, plot or
building for advance payment or application fee from this person.
7. Removal of Structural Defects

In case any structural defect or any other defect in workmanship, quality or provision of
services or any other obligations of the promoter as per the agreement for sale relating to
such development is brought to the notice of the promoter within a period of 5 years by the
allottee from the date of handing over possession, it shall be the duty of the promoter to
rectify such defects without further charge, within 30 days, and in the event of promoter's
failure to rectify such defects within such time, the aggrieved allottee shall be entitled to
receive appropriate compensation in the manner as provided under the Act.
8. Transfer to third party

The promoter shall not transfer or assign his majority rights and liabilities in respect of a
real estate project to a third party without obtaining prior written consent from two-third
allottee, except the promoter, and without the prior written approval of the Authority.
9. Insurance
The promoter shall obtain all such insurances as may be notified by the appropriate
Government, including but not limited to insurance in respect of:
• Title of the land and building as a part of the real estate project; and
• Construction of the real estate project.
The promoter shall be liable to pay the premium and charges in respect of the insurance up
to the date of handing the apartments to allottee.
10. Transfer of title deeds to allottee

The promoter shall execute a registered conveyance deed in favour of the allottee along with
the undivided proportionate title in the common areas to the association of the allottee or
the competent authority.
He should also hand over the physical possession of the plot, apartment of building to the
allottee and the common areas to the association of the allottee or the competent authority,
within specified period as per sanctioned plans as provided under the local laws.
11. Return of amount and compensation

If the promoter fails to complete or is unable to give possession of apartment, building, plot
in accordance with the agreed terms or due to discontinuance of his business due to
revocation or suspension of the registration, he will be required to return the allotment
money if demanded by the allottee.
The promoter shall compensate the allottee in case of any loss caused to him due to
defective title of the land, on which the project is being developed or has been developed. If
the promoter fails to discharge any other obligations imposed on him under this Act or the
rules or regulations made there under or in accordance with the terms and conditions of the
agreement for sale, he shall be liable to pay such compensation to the a llottee, in the
manner as provided under this Act.
ESTABLISHMENT AND INCORPORATION OF REAL ESTATE REGULATORY AUTHORITY
 The appropriate Government shall establish an Authority to be known as the Real Estate
Regulatory Authority to exercise the powers conferred on it and to perform the functions
assigned to it under the Act.
 The appropriate Government of two or more States or Union territories may, if it deems fit,
establish one single Authority. Further, the appropriate Government may, if it deems fit,
establish more than one Authority in a State or Union territory, as the case may be.
 The Authority shall consist of a Chairperson and not less than two whole time Members to
be appointed by the appropriate Government.
Term of office of Chairperson and Members

1. The Chairperson and Members shall hold office for a term not exceeding five years from the
date on which they enter upon their office, or until they attain the age of sixty -five years,
whichever is earlier and shall not be eligible for re-appointment.
2. Before appointing any person as a Chairperson or Member, the appropriate Government shall
satisfy itself that the person does not have any such financial or other interest as is likely
to affect prejudicially his functions as such Member.
Removal of Chairperson and Members from office in certain circumstances

 The appropriate Government may, in accordance may remove from office the Chairperson or
other Members, if the Chairperson or such other Member—
a) has been adjudged as an insolvent; or
b) has been convicted of an offence, involving moral turpitude; or
c) has become physically or mentally incapable of acting as a Member; or
d) has acquired such financial or other interest as is likely to affect prejudicially his functions;
or
e) has so abused his position as to render his continuance in office prejudicial to the public
interest.
 The Chairperson or Member shall not be removed from his office on the ground specified
except by an order made by the appropriate Government after an inquiry made by a Judge of
the High Court in which such Chairperson or Member has been informed of the charges
against him and given a reasonable opportunity of being heard in respect of those charges.
Power to issue interim orders

Where during an inquiry, the Authority is satisfied that an act in contravention of the Act, or
the rules and regulations made there under, has been committed and continues to be
committed or that such act is about to be committed, the Authority may, by order, restrain
any promoter, allottee or real estate agent from carrying on such act until the conclusion of
such inquiry of until further orders, without giving notice to such party, where the Authority
deems it necessary.
Powers of Authority to issue directions

The Authority may, for the purpose of discharging its functions under the provisions of this
Act or rules or regulations made there under, issue such directions from time to time, to the
promoters or allottees or real estate agents, as the case may be, as it may consider
necessary and such directions shall be binding on all concerned.
Rectification of orders
The Authority may, at any time within a period of two years from the date of the order
made under the Act, with a view to rectifying any mistake apparent from the record, amend
any order passed by it, and shall make such amendment, if the mistake is brought to its
notice by the parties.
It may be noted that no such amendment shall be made in respect of any order against
which an appeal has been preferred under the Act:
Responsibilities of the ‘Regulatory Authority

1. Registration of the real estate project and the real estate agent.
2. Extension of Registration of the real estate project and its revocation.
3. Renewal of registration of the real estate agent and its revocation.
4. To maintain a website of records for public reviewing.
5. To appoint one or more adjudication office
6. Notify regulations.
7. Recommendation for the growth and promotion of a healthy transparent transaction.
ESTABLISHMENT OF CENTRAL ADVISORY COUNCIL

1. The Central Government may establish the Central Advisory Council by a notification.
2. The Minister to the Government of India in charge of the Ministry of the Central
Government dealing with Housing shall be the ex officio Chairperson of the Central Advisory
Council.
3. The Central Advisory Council shall consist of representatives of the Ministry of Finance,
Ministry of Industry and Commerce, Ministry of Urban Development, Ministry of Consumer
Affairs, Ministry of Corporate Affairs, Ministry of Law and Justice, NitiAayog, National
Housing Bank, Housing and Urban Development Corporation, five representatives of State
Governments to be selected by rotation, five representatives of the Real Estate Regulatory
Authorities to be selected by rotation, and any other Central Government department as
notified.
4. The Central Advisory Council shall also consist of not more than ten members to represent
the interests of real estate industry, consumers, real estate agents, construction laborers,
non-governmental organizations and academic and research bodies in the real estate sector.
THE REAL ESTATE APPELLATE TRIBUNAL
Real Estate Appellate Tribunal (REAT) is to be formed by appropriate government to ensure

faster resolution of disputes. Parties aggrieved by the RERA order can appeal before REAT
and REAT has to adjudicate such cases within 60 days. Civil Courts have been prevented
from exercising jurisdiction on such matters. If any of the parties is not satisfied with the
REAT order they can file an appeal against the REAT order to the High Court within 60
days.
Establishment of Real Estate Appellate Tribunal

1. The appropriate Government shall, establish an Appellate Tribunal to be known as the —
(name of the State/Union territory) Real Estate Appellate Tribunal.
2. The appropriate Government may establish more than one bench of the Appellate Tribunal if
it deems necessary.
3. Every bench of the Appellate Tribunal shall consist of at least one Judicial Member and one
Administrative or Technical Member.
4. The appropriate Government of two or more states or union territories may establish a single
Appellate Tribunal if it deems fit.
5. Any person aggrieved by any direction or decision or order made by the Authority or by an
adjudicating officer under the Act may prefer an appeal before the Appellate Tribunal having
jurisdiction over the matter.

It may be noted that where a promoter files an appeal with the Appellate Tribunal, it shall
not be entertained, without the promoter first having deposited with the Appellate Tribunal
at least 30% of the penalty, or such higher percentage as may be determined by the
Appellate Tribunal, or the total amount to be paid to the allottee including interest and
compensation imposed on him, if any, or with both, as the case may be, before the said
appeal is heard.
Application for settlement of disputes and appeals to Appellate Tribunal

 Appeals may be filed by appropriate Government or the competent authority or any person
aggrieved.
 Appeals may be filed within 60 days from date of order of Authority. Tribunal may entertain
appeals beyond this period if it is satisfied with the reason of delay.
 On receipt of an appeal Appellate Tribunal may after giving the parties an opportunity of
being heard, pass such orders, including interim orders, as it thinks fit.
 The Appellate Tribunal shall consist of a Chairperson and not less than two whole time
Members of which one shall be a Judicial member and other shall be a Technical or
Administrative Member
Qualifications for appointment of Chairperson and Members

A person shall not be qualified for appointment as the Chairperson or a Member of the
Appellate Tribunal unless he—
1. Chairperson- is or has been a Judge of a High Court; and
2. Judicial Member - he has held a judicial office in the territory of India for at least fifteen
years or has been a member of the Indian Legal Service and has held the post of Additional
Secretary of that service or any equivalent post, or has been an advocate for at least twenty
years with experience in dealing with real estate matters; and
3. Technical or Administrative Member - he is a person who is well- versed in the field of
urban development, housing, real estate development, infrastructure, economics, planning, law,
commerce, accountancy, industry, management, public affairs or administration and possesses
experience of at least twenty years in the field or who has held the post in the Central
Government, or a State Government equivalent to the post of Additional Secretary to the

Government of India or an equivalent post in the Central Government or an equivalent post in
the State Government.
The Chairperson of the Appellate Tribunal shall be appointed by the appropriate Government
in consultation with the Chief Justice of High Court or his nominee.
The judicial Members and Technical or Administrative Members of the Appellate Tribuna l
shall be appointed by the appropriate Government on the recommendations of a Selection
Committee consisting of the Chief Justice of the High Court or his nominee, the Secretary of
the Department handling Housing and the Law Secretary and in such manner a s may be
prescribed.
Term of office of Chairperson and Members

 The Chairperson or a Member of the Appellate Tribunal shall hold office for a period of 5
years. They are not eligible for reappointment.
 It may be noted that in case a person, who is or has been a Judge of a High Court, has
been appointed as Chairperson of the Tribunal, he shall not hold office after he has attained
the age of sixty-seven years.
 However, no Judicial Member or Technical or Administrative Member shall hold office after he
has attained the age of sixty-five years.
Powers of Tribunal
1. The Appellate Tribunal shall not be bound by the procedure laid down by the Code of Civil
Procedure, 1908 but shall be guided by the principles of natural justice.
2. The Appellate Tribunal shall have power to regulate its own procedure.
3. The Appellate Tribunal shall also not be bound by the rules of evidence contained in the
Indian Evidence Act, 1872.
4. The Appellate Tribunal shall have, for the purpose of discharging its functions under this Act,
the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 in
respect of the following matters, namely:—
a) summoning and enforcing the attendance of any person and examining him on oath;
b) requiring the discovery and production of documents;
c) receiving evidence on affidavits;

d) issuing commissions for the examinations of witnesses or documents;
e) reviewing its decisions;
f) dismissing an application for default or directing it ex parte; and
g) Any other matter which may be prescribed.
5. All proceedings before the Appellate Tribunal shall be deemed to be judicial proceedings.
Right to legal representation

The applicant or appellant may either appear in person or authorize one or more chartered
accountants or company secretaries or cost accountants or legal practitioners or any of its
officers to present his or its case before the Appellate Tribunal or the Regulatory Authority
or the adjudicating officer, as the case may be.
Orders passed by Appellate Tribunal to be executable as a decree

Every order made by the Appellate Tribunal under this Act shall be executable by the
Appellate Tribunal as a decree of civil court, and for this purpose, the Appellate Tribunal shall
have all the powers of a civil court.
Appeal to High Court

Any person aggrieved by any decision or order of the Appellate Tribunal may, file an appeal
to the High Court, within a period of sixty days from the date of communication of the
decision or order of the Appellate Tribunal to him.
The High Court may entertain the appeal after the expiry of the said period of sixty days, if
it is satisfied that the appellant was prevented by sufficient cause from preferring the appeal
in time.
CS- EXE Economic Business and Commercial Laws Benami Transactions
CHAPTER 18- BENAMI TRANSACTIONS (PROHIBITION) ACT, 1988
INTRODUCTION AND BACKGROUND
Introduction In the last few months we have seen a major crackdown on Benami
properties and their owners by the Government.
 Specialized Anti-Benami units have been set up by the Income Tax
department across the country and in almost every state and thousands of
properties already stand attached under the Prohibition of Benami Property
Transactions Act, 1988 [as amended in 2016] (hereinafter "Benami Act").
 The word "Benami" means anonymous or nameless and the term "Benami
Transaction" is used to describe a transaction where one person pays for
property but the property is transferred to or held by somebody else.
 The person who pays for the property is the real beneficiary, either at
present or at some point in the future, but is not recorded as the legal
owner of the property.
 This enables the payer to achieve undesirable purposes such as utilizing
black money, evading the payment of tax and avoiding making payments
to creditors.
Background The concept of benami transactions was not alien to India even though
Benami Transactions (Prohibition) Act, 1988 came into force on
19.05.1988.
 There are plenty of judgments wherein the Hon'ble Supreme Court and
various High Courts of India have dealt with the concept of benami
transaction, and hence benami transactions have been an integral part of
Indian psyche even prior to the advent of 1988 Act.
 The Hon'ble Supreme Court in the year 1980 while dealing with the case of
Thakur Bhim Singh v. Thakur Kan Singh [1980] 3 SCC 72 explained
Benami Transaction as "Where a person buys a property with his own
money but in the name of another person without any intention to benefit
such other person, the transaction is called benami. In that case the
transferee holds the property for the benefit of the person who has
contributed the purchase money, and he is the real owner."
 There was no specific law to deal with Benami transactions and hence
with an aim to prohibit benami transactions The Benami Transactions
(Prohibition) Act, 1988 was enacted to prohibit benami transactions and
the right to recover property held benami.
PURPOSE AND SALIENT FEATURES OF THE BENAMI TRANSACTIONS (PROHIBITION) ACT,

1988
Purpose  All the properties held benami shall be subject to acquisition by such
authority in such manner and after following such procedure as may be
prescribed.
 No amount shall be payable for the acquisition of any property held
benami
 The purchase of property by any person in the name of his wife or
unmarried daughter for their benefit would not be benami transaction.
 The securities held by a depository as registered owner under the
provisions of the Depositories Act, 1996 or participant as an agent of a
depository would not be benami transactions.
Salient  It defines a benami transaction and benami property and also provides for
features exclusions and transactions which shall not be construed benami
 It provides the consequences of entering into a prohibited benami
transactions
 It lays down the procedure for determination and related penal
consequences in the case of a prohibited benami transaction
 It also provides that the powers of civil court shall be available to
authorities under the said Act
 Miscellaneous Provisions have been provided for service of notice, protection
of action taken in good faith, etc.
 Central Government empowers to make rules for the implementation of
the provisions of the Act

 It enables the Central Government in consultation with the Chief Justice
of the High Court to designate one or more Courts of Session as Special
Court or Special Courts for the purpose of the Act
 It provides penalty for entering into benami transactions and for furnishing
any false documents in any proceeding under the Act
 It provides for transfer of any suit or proceeding in respect of a benami
transaction pending in any court (other than High Court) or Tribunal or
before any authority to the Appellate Tribunal .
Need for During the administration of the Benami Transactions (Prohibition) Act
amendment 1988 it was found that
 The Primary Act was not comprehensive enough and lacked to make a big
impact.
 The Primary Act had several loopholes like it does not
1. not contain any specific provision for vesting confiscated property with
Central Government.
2. Have any provision for an appellate mechanism against an action taken by
the authorities under the Act while barring the jurisdiction of a civil court
3. Confer power on civil court upon the authorities for its implementation and
4. Provide for adequate enabling rule making power.
DEFINITIONS
Attachment Attachment means the prohibition of transfer, conversion, disposition or

Section movement of property, by an order issued under the Act.
2(5)
Benami Benami Property means any property which is the subject matter of a
Property benami transaction and also includes the proceeds from such property.
Section
2(8)
Benami As per Section2(9)of the benami transaction means-

Transaction (A) a transaction or an arrangement—
Section 2 (a)where a property is transferred to, or is held by, a person, and the
(9) consideration for such property has been provided, or paid by, another
person; and
(b)the property is held for the immediate or future benefit, direct or
indirect, of the person who has provided the consideration, except when
the property is held by—
(i)a Karta, or a member of a Hindu undivided family, as the case may be,
and the property is held for his benefit or benefit of other members in
the family and the consideration for such property has been provided or
paid out of the known sources of the Hindu undivided family;
(ii)a person standing in a fiduciary capacity for the benefit of another
person towards whom he stands in such capacity and includes a trustee,
executor, partner, director of a company, a depository or a participant as
an agent of a depository under the Depositories Act, 1996 and any other
person as may be notified by the Central Government for this purpose;
(iii)any person being an individual in the name of his spouse or in the
name of any child of such individual and the consideration for such
property has been provided or paid out of the known sources of the
individual;
(iv)any person in the name of his brother or sister or lineal ascendant or
descendant, where the names of brother or sister or lineal ascendant or
descendant and the individual appear as joint-owners in any document,
and the consideration for such property has been provided or paid out
ofthe known sources of the individual; or
(B) a transaction or an arrangement in respect of a property carried out
or made in a fictitious name; or
(C) a transaction or an arrangement in respect of a property where the
owner of the property is not aware of, or, denies knowledge of, such
ownership;
(D) a transaction or an arrangement in respect of a property where the

person providing the consideration is not traceable or is fictitious;
Explanation.—For the removal of doubts, it is hereby declared that benami
transaction shall not include any transaction involving the allowing of
possession of any property to be taken or retained in part performance of
a contract referred to in section 53A of the Transfer of Property Act,
1882, if, under any law for the time being in force,—
(i)consideration for such property has been provided by the person to
whom possession of property has been allowed but the person who has
granted possession thereof continues to hold ownership of such property;
(ii)stamp duty on such transaction or arrangement has been paid; and
(iii)the contract has been registered.
Benamidar Benamidar means a person or a fictitious person, as the case may be, in
Section whose name the benami property is transferred or held and includes a
2(10) person who lends his name.
Beneficial "Beneficial Owner" means a person, whether his identity is known or not,
Owner for whose benefit the benami property is held by a benamidar.
Section
2(12)
Fair market “fair market value”, in relation to a property, means—
value (i) the price that the property would ordinarily fetch on sale in the open
Section market on the date of the transaction; and
2(16) (ii) where the price referred to in sub-clause (i) is not ascertainable, such
price as may be determined in accordance with such manner as maybe
prescribed;
Firm “firm”shall have the same meaning as assigned to it in section 4 of the
Section Indian Partnership Act, 1932(9 of 1932)and shall include a limited liability
2(17) partnership as defined in the Limited Liability Partnership Act, 2008(6 of
2009);
Partner “partner”shall have the same meaning as assigned to it in section 4 of
Section the Indian Partnership Act, 1932(9 of 1932), and shall include,—(a) any
2(22) person who, being a minor, has been admitted to the benefits of
partnership; and(b) apartner of a limited liability partnership formed and
registered under the Limited Liability Partnership Act, 2008(6 of 2009);
Partnership “partnership”shall have the same meaning as assigned to it in section 4
Section of the Indian Partnership Act, 1932(9 of 1932), and shall include a limited
2(23) liability partnership formed and registered under the Limited Liability
Partnership Act, 2008.
Person “person”shall include—
Section (i) an individual;
2(24) (ii) a Hindu undivided family;
(iii) a company;
(iv) a firm;
(v) an association of persons or a body of individuals, whether incorporated or
not;
(vi) every artificial juridical person, not falling under above sub-clause
Property "property" means assets of any kind, whether
Section 1.movable or immovable,
2(26) 2.tangible or intangible,
3.corporeal or incorporeal
and includes
1.any right or
2.interest or
3.legal documents or
4.instruments evidencing title to or
5.interest in the property
and where the property is capable of conversion into some other form,
then the property in the converted form and also includes the proceeds
from the property;
Transfer "transfer" includes sale, purchase or any other form of transfer ofright,
Section 2 title, possession or lien
(29)
Initiating Assistant commissioner or a deputy commissioner as defined under Income

officer Tax Act,1961
VARIOUS PROVISION RELATING TO BENAMI PROPERTY
Prohibition  No person shall enter into benami transaction.

of benami
 Rigourous imprisionment – Term not less than 1 year which may extend to
transaction 7 years.
– Section 3 AND
 Fine – may extend to 25% of Fair market value of the property
Prohibition  No suit, claim or action to enforce any right in respect of any property
of the right held benami against the person in whose name the property is held or
to recover against any other person shall lie by or on behalf of a person claiming to
property be the real owner of such property.
held  No defense based on any right in respect of any property held benami,
benami- whether against the person in whose name the property is held or against
Section 4 any other person, shall be allowed in any suit, claim or action by or on
behalf of a person claiming to be the real owner of such property.
Property  Any property which is subject matter of benami transaction shall be liable
held to be confiscated by the Central Government.
benami
liable to
confiscation
–
Section 5
Prohibition  A person being a benamidar shall not re-transfer the benami property held
on re- by him to beneficial owner or any other person acting on his behalf.
transfer of
 Incase the property is transferred in contravention of the above the
property by transaction of such property shall be deemed to be null and void.
benamidar
Section 6
NOTICE AND ATTACHMENT OF PROPERTY INVOLVED IN BENAMI TRANSACTION
Notice and
 Where the Initiating officer, on the basis of material in his possession, has
attachment reason to believe that any person is a benamidar in respect of a property
Section 24 He may after recording his reasons in writing issue a notice to the person to
show cause within the time specified in the notice as to why the property
should not be treated as benami property.
 A copy of this notice may also be served upon another person who is the
beneficial owner.
 If the Initiating Officer is of the opinion that the person in possession of the
property held benami may alienate the property during the period specified in
the notice then he may with the previous approval of the Approving
Authority by order in writing attach the property for a period not exceeding
90 days from date of notice.
 The Initiating Officer, after making such inquires and calling for such reports
or evidence as he deems fit and taking into account all relevant materials,
shall, within a period of 90 days from the date of issue of notice –
 Where the provisional attachment was made- pass an order continuing the
provisional attachment of the property with the prior approval of the
Approving Authority, till the passing of the order by the Adjudicating
Authority revoke the provisional attachment of the property with the prior
approval of the Approving Authority
 where provisional attachment has not been-pass an order provisionally
attaching the property with the prior approval of the Approving Authority,
till the passing of the order by the Adjudicating Authority; or decide not
to attach the property as specified in the notice, with the prior approval of
the Approving Authority.
 Where the Initiating Officer passes an order continuing the provisional
attachment of the property or passes an order provisionally attaching the
property , he shall, within 15 days from the date of the attachment, draw
up a statement of the case and refer it to the Adjudicating Authority.
Manner of
 A notice may be served on the person named therein either by post of as if
service of it were a summons issued by the Court under the Code of Civil
Notice Procedure,1908.
Section 24 The notice referred above may be addressed –
 in case of an individual, to such individual;
 in the case of a firm, to the managing partner or the manager of the
firm;
 in the case of a Hindu undivided family, to Karta or any member of such
family;
 in the case of a company, to the principal officer thereof;
 in the case of any other association or body of individuals, to the
principal officer or any member thereof;
 in the case of any other person (not being an individual), to the person
who manages or controls his affairs.
ADJUDICATION OF BENAMI PROPERTY – SECTION 26
 On receipt of a reference under of section 24, the Adjudicating Authority

shall issue notice, to furnish such documents, particulars or evidence as is
considered necessary on a date to be specified therein, on the following
persons, namely:—
(a) the person specified as a benamidar therein;
(b) any person referred to as the beneficial owner therein or identified as
such;
(c) any interested party, including a banking company;
(d)any person who has made a claim in respect of the property:
 The Adjudicating Authority shall issue notice within a period of 30 days
from the date on which a reference has been received.
 The notice shall provide a period of not less than 30 days to the person
to whom the notice is issued to furnish the information sought.
 Where the property is held jointly by more than one person, the
Adjudicating Authority shall make all endeavours to serve notice to all
persons holding the property
 Where the notice is served on anyone of the persons, the service of notice
shall not be invalid on the ground that the said notice was not served to
all the persons holding the property.
 The Adjudicating Authority shall, after—
(a) considering the reply, if any, to the notice issued
(b) making or causing to be made such inquiries and calling for such
reports or evidence as it deems fit; and
(c) taking into account all relevant materials, provide an opportunity of
being heard to the person specified as a benamidar therein, the Initiating
Officer, and any other person who claims to be the owner of the property,
and, thereafter, pass an order—
(i) holding the property not to be a benami property and revoking the
attachment order; or
(ii) holding the property to be a benami property and confirming the
attachment order, in all other cases.
 Where the Adjudicating Authority is satisfied that some part of the
properties in respect of which reference has been made to him is benami
property, but is not able to specifically identify such part, he shall record
a finding to the best of his judgment as to which part of the properties
is held benami.
 Where in the course of proceedings before it, the Adjudicating Authority
has reason to believe that a property, other than a property referred to it
by the Initiating Officer is benami property, it shall provisionally attach
the property and the property shall be deemed to be a property referred
to it on the date of receipt of the reference under section 24.
 The Adjudicating Authority may, at any stage of the proceedings, either
on the application of any party, or suo motu, strike out the name of any
party improperly joined or add the name of any person whose presence
before the Adjudicating Authority may be necessary to enable him to

adjudicate upon and settle all the questions involved in the reference.
 No order under shall be passed after the expiry of 1 year from the end of
the month in which the reference under section 24 was received.
 The benamidar or any other person who claims to be the owner of the
property may either appear in person or take the assistance of an
authorised representative of his choice to present his case.
 Authorised representative means a person authorised in writing, being—
(i) a person related to the benamidar or such other person in any
manner, or a person regularly employed by the benamidar or such other
person as the case may be; or
(ii) any officer of a scheduled bank with which the benamidar or such
other person maintains an account or has other regular dealings; or
(iii) any legal practitioner who is entitled to practice in any civil court in
India; or
(iv) any person who has passed any accountancy examination recognized
in this behalf by the Board; or
(v) any person who has acquired such educational qualifications as the
Board may prescribe for this purpose.
CONFISCATION AND VESTING OF BENAMI PROPERTY- SECTION 27
 Where an order is passed in respect of any property under section 26

holding such property to be a benami property, the Adjudicating Authority
shall, after giving an opportunity of being heard to the person concerned,
make an order confiscating the property held to be a benamiproperty.
 Provided that where an appeal has been filed against the order of the
Adjudicating Authority, the confiscation of property shall be made subject
to the order passed by the Appellate Tribunal under section 46:
 Provided further that the confiscation of the property shall be made in
accordance with such procedure as may be prescribed.
 Nothing in sub-section (1) shall apply to a property held or acquired by a

person from the benamidar for adequate consideration, prior to the issue
of notice under sub-section (1) of section 24 without his having
knowledge of the benami transaction.
 Where an order of confiscation has been made under sub-section (1), all
the rights and title in such property shall vest absolutely in the Central
Government free of all encumbrances and no compensation shall be
payable in respect of such confiscation.
 Any right of any third person created in such property with a view to
defeat the purposes of this Act shall be null and void.
 Where no order of confiscation is made upon the proceedings under this
Act attaining finality, no claim shall lie against the Government.
MANAGEMENT OF PROPERTIES CONFISCATED – SECTION 28
 The Administrator shall have the power to receive and manage the
property, in relation to which an order of confiscation under section 27
has been made, in such manner and subject to such conditions, as may
be prescribed.
 The Central Government may, by order published in the Official Gazette,
notify as many of its officers as it thinks fit, to perform the functions of
Administrators.
 The Administrator shall also take such measures, as the Central
Government may direct, to dispose of the property which is vested in the
Central Government.
POSSESSION OF THE PROPERTY – SECTION 29
 Where an order of confiscation in respect of a property under section 27,

has been made, the Administrator shall proceed to take the possession of
the property.
 The Administrator shall,—
(a) by notice in writing, order within seven days of the date of the
service of notice to any person, who may be in possession of the benami
property, to surrender or deliver possession thereof to the Administrator or
any other person duly authorised in writing by him in this behalf;
(b) in the event of non-compliance of the order referred to in clause (a),
or if in his opinion, taking over of immediate possession is warranted, for
the purpose of forcibly taking over possession, requisition the service of
any police officer to assist him and it shall be the duty of the officer to
comply with the requisition.
APPELLATE TRIBUNAL
Establishment
 The Central Government shall, by notification, establish an Appellate
Section 30 Tribunal to hear appeals against the orders of the Adjudicating Authority
under this Act.
Composition  The Appellate Tribunal shall consist of a Chairperson and at least two
Section 31 other Members of which one shall be a Judicial Member and other shall be
an Administrative Member.
Qualifications A person shall not be qualified for appointment as Chairperson of the
for Appellate Tribunal unless he is a sitting or retired Judge of a High Court,
appointment who has completed not less than five years’ of service.
of  A person shall not be qualified for appointment as a Member unless he—
Chairperson (a) in the case of a Judicial Member, has been a Member of the Indian
and Members Legal Service and has held the post of Additional Secretary or equivalent
of Appellate post in that Service;
Tribunal. (b) in the case of an Administrative Member, has been a Member of the
Section 32 Indian Revenue Service and has held the post of Chief Commissioner of
Income tax or equivalent post in that Service.
 No sitting Judge of a High Court shall be appointed under this section
except after consultation with the Chief Justice of the High Court.
 The Chairperson or a Member holding a post as such in any other Tribunal,
established under any law for the time being in force, in addition to his
being the Chairperson or a Member of that Tribunal, may be appointed as
the Chairperson or a Member, as the case may be, of the Appellate
Tribunal under this Act.
Terms and
 The salary and allowances payable to, and the other terms and conditions
conditions of of service of the Chairperson and other Members shall be such as may be
service prescribed and shall not be varied to their disadvantage during their
Section 33 tenure.
 Any vacancy caused to the office of the Chairperson or any other Member
shall be filled up within a period of three months from the date on which
such vacancy occurs.
Term  The Chairperson and Members of the Appellate Tribunal shall hold office
Section 34 for a term not exceeding five years from the date on which they enter
upon their office, or until they attain the age of sixty-five years,
whichever is earlier and shall not be eligible for reappointment.
Removal  The Central Government may, in consultation with the Chief Justice of
Section 35 High Court, remove from office of the Chairperson or any Member, who—
(a) has been adjudged as an insolvent; or
(b) has been convicted of an offence which, in the opinion of the Central
Government involves moral turpitude; or
(c) has become physically or mentally incapable; or
(d) has acquired such financial or other interest as is likely to affect
prejudicially his functions; or
(e) has so abused his position as to render his continuance in office
prejudicial to the public interest.
 The Chairperson or Judicial Member shall not be removed from his office
except by an order made by the Central Government after an inquiry made
by Chief Justice of the High Court in which the Chairperson or Judicial
Member has been informed of the charges against him and given a
reasonable opportunity of being heard in respect of those charges.
 The Central Government may suspend from office the Chairperson or
Judicial Member in respect of whom a reference of conducting an inquiry
has been made to the Chief Justice of the High Court under sub-section
(2), until the Central Government passes an order on receipt of the report
of inquiry made by Chief Justice of the High Court on the reference.
 The Central Government may regulate the procedure for inquiry referred to
in sub-section (2) in the manner as may be prescribed.
 The Administrative Member may be removed from his office by an order
of the Central Government on the grounds specified in sub-section (1) and
in accordance with the procedure notified by the Central Government:
Provided that the Administrative Member shall not be removed unless he
has been given an opportunity of being heard in the matter.
Vacancy not
 No act or proceeding of the Appellate Tribunal shall be invalid merely by
to invalidate reason of—
proceedings (a) any vacancy in, or any defect in the constitution of the Tribunal; or
Section 36 (b) any defect in the appointment of a person acting as a Member of the
Tribunal; or
(c) any irregularity in the procedure of the Tribunal not affecting the
merits of the case.
Procedure and
 The Appellate Tribunal shall not be bound by the procedure laid down by
power the Code of Civil Procedure,908, but shall be guided by the principles of
Section 40 natural justice and, subject to the other provisions of this Act, the
Appellate Tribunal shall have powers to regulate its own procedure.
 The Appellate Tribunal shall, for the purposes of discharging its functions
under this Act, have the same powers as are vested in a civil court under
the Code of Civil Procedure, 1908 while trying a suit, in respect of the
following matters, namely:—
(a) summoning and enforcing the attendance of any person and examining
him on oath;
(b) requiring the discovery and production of documents;
(c) receiving evidence on affidavits;
(d) Requisitioning any public record or document or copy of such record or
document from any office;
(e) issuing commissions for the examination of witnesses or documents;
(f) reviewing its decisions;
(g) dismissing a representation for default or deciding it ex parte;
(h) setting aside any order of dismissal of any representation for default
or any order passed by it ex parte; and
(i) any other matter, which may be, prescribed by the Central
Government.
 An order made by the Appellate Tribunal under this Act shall be
executable by it as a decree of civil court and, for this purpose, the
Appellate Tribunal shall have all the powers of a civil court.
 The Appellate Tribunal may transmit any order made by it to a civil court
having jurisdiction and the civil court shall execute the order as if it were
a decree made by that court.
 All proceedings before the Appellate Tribunal shall be deemed to be judicial
proceedings.
APPEAL TO HIGH COURT – SECTION 49
 Any party aggrieved by any decision or order of the Appellate Tribunal may
file an appeal to the High Court within a period of 60 days from the date
of communication of the decision or order of the Appellate Tribunal to him
on any question of law arising out of such order.
 The High Court may entertain any appeal after the said period of 60 days,
if it is satisfied that the appellant was prevented by sufficient cause from

filing the appeal within the period specified.
 Where the High Court is satisfied that a substantial question of law is
involved in any case, it shall formulate that question.
 The appeal shall be heard only on the question so formulated, a nd the
respondents shall, at the hearing of the appeal, be allowed to argue that
the case does not involve such question.
 Nothing in this sub-section shall be deemed to take away or abridge the
power of the court to hear, for reasons to be recorded, the appeal on any
other substantial question of law not formulated by it, if it is satisfied
that the case involves such question.
 The High Court shall decide the question of law so formulated and deliver
the judgment thereon containing the grounds on which any decision is
founded and may award any cost as it deems fit.
 The High Court may determine any issue which—
1) has not been determined by the Appellate Tribunal or
2) has been wrongly determined by the Appellate Tribunal, by reason of a
decision on such question of law as is referred to in sub-section (1).
 Save as otherwise provided in this Act, the provisions of the Code of Civil
Procedure, 1908 relating to appeals to the High Court shall, as far as may
be, apply in the case of appeals under this section.
SPECIAL COURT – SECTION 50
 Central government in consultation with Chief Justice of the High Court,

shall for trial of an offense under this Act , by notification, designate one
or more Courts of Session as Special Court or Special courts for such area if
areas or for such case or class or group of cases as may be specified in the
notification.
 A special court may also try an offense other than those specified in the
Act, with which the accused may, under the Code of Criminal Procedure,
1973, be charged the same trial.

 The special court shall not take cognizance of any offence punishable under
this Act except upon a complaint in writing made by –
i) The authority or
ii) Any officer of the Central Government or State government
Authorized in writing by that government by a general or special order
made in this behalf.
 Every trial under this section shall be conducted as expeditiously as possible
and an endeavor shall be made by the Special Court to conclude the trial
within 6 months from the date of filing of the complaint.
OFFENCES AND PROSECUTION – SECTION 53 AND SECTION 54
Penalty for
 Where any person enters into a benami transaction -
benami i) in order to defeat the provisions of any law or
transactionii) to avoid payment of statutory dues or
Section 53 to avoid payment to creditors, the beneficial owner, benamidar and any
other person who abets or
induces any person to enter into the benami transaction,
shall be guilty of the offence of benami transaction.
 Punishment
i) Rigorous imprisonment – Not less than 1 year which may extend to 7
years
And
ii) Fine – may extend to 25% of the Fair market value of the property
Penalty for
 Any person who is required to furnish information under this Act knowingly
false gives false information to any authority or furnishes any false document in
information any proceeding under this Act
Section 54 Punishment
i) Rigorous imprisonment -not be less than six months but which may
extend to five years and

j) Fine - may extend to 10% of the fair market value of the property.
OFFENCES BY COMPANIES – SECTION 62
 When the person contravening any provision of this Act is a company then
every person who, at the time the contravention was committed, was in
charge of and also responsible to, the company, for the conduct of the
business of the company as well as the company shall be deemed to be
guilty of the contravention and shall be liable to be prosecuted and
punished accordingly.
 A person who proves that the contravention took place without his
knowledge shall not be liable for punishment.
 Where a contravention of any of the provisions of this has been committed
by a company and it is proved that the contravention has taken place with
the consent or connivance of, or is attributable to any neglect on the part
of any director, manager, secretary or other officer of the company, the
director, manager, secretary or other officer shall also be deemed to be
guilty of the contravention and shall be liable to be proceeded against and
punished accordingly.
 For the purposes of this section,—
 (a) "company" means a body corporate, and includes—
(i) a firm; and
(ii) an association of persons or a body of individuals whether
incorporated or not; and
(b) "director", in relation to—
(iii) a firm, means a partner in the firm;
(iv) any association of persons or a body of individuals, means any
member controlling the affairs thereof
ATTACHMENT, ADJUDICATION & CONFISCATION UNDER BENAMI TRANSACTIONS

(PROHIBITION) AMENDMENT ACT, 2016
CS- EXE Economic Business and Commercial Laws Money Laundering
CHAPTER 19- PREVENTION OF MONEY LAUNDERING ACT, 2002
INTRODUCTION
Have you ever played the classic shell game with three cups and a ball where someone hides
the ball, and you have to guess where the ball is hiding? After the cups are shuffled around,
it is difficult to identify which cup has the ball underneath it. It can always be a surprise
when you realize you are wrong! Money laundering is a criminal scheme that can operate in a
similar way, but it involves the hiding of money rather than a ball.
Money laundering is a way to conceal illegally obtained funds. Money laundering works by
transferring money in vague and complicated financial transactions which mislead anyone
who may seek to trace and review the transactions. The objective is to make it difficult to
identify the original party to the transaction, known as the launderer. However, at the end
of the convoluted scheme, the funds ultimately return back to the launderer.
In other words money laundering is the processing of criminal proceeds to disguise its illega l
origin. Illegal origins maybe:
 Terrorism,
 Illegal arms sales,
 Financial crimes,
 Smuggling, and the
 Activities of organised crime, including drug trafficking and prostitution rings.
These activities generate huge profits. Embezzlement, insider trading, bribery and computer
fraud also produce large profits and create an incentive to legitimise the ill-gotten gains
through money laundering. When a criminal activity generates substantial profits, the
individual or group involved in such activities route the funds to safe heavens by disguising
the sources, changing the form, or moving the funds to a place where they are less likely to
attract attention.
OBJECTIVES OF THE ACT
The Act was passed with the following objectives :

 To prevent money laundering.
 To confiscate and seize the property obtained from the laundered money.
 To punish those who commit the offense of money laundering.
 To deal with any other matter related to money laundering.
PREVENTION OF MONEY LAUNDERING – FOREIGN INITIATIVES
1) The Vienna Convention

 The first major initiative in the prevention of money laundering was the United Nations
Convention popularly known as the Vienna Convention.
 This convention laid the groundwork for efforts to combat money laundering by obliging the
member states to criminalize the laundering of money from drug trafficking.
 It promotes international cooperation in investigations and makes extradition between
member states applicable to money laundering.
 The convention also establishes the principle that domestic bank secrecy provisions should
not interfere with international criminal investigations.
2) Council of Europe Convention

 The Council of Europe Convention on Laundering, Search, Seizure and Confiscation of
Proceeds of Crime, 1990 establishes a common policy on money laundering.
 It sets out a common definition of money laundering and common measures for dealing with
it.
 It lays down the principles for international cooperation among the member states, which
may also include states outside the Council of Europe.
 One of the purposes of the convention is to facilitate international cooperation in regards to
assistance in investigation, search, seizure and confiscation of the proceeds of all types of
criminal acts, particularly serious crimes, such as, drug offences, arms dealing, terrorist
offences and other offences which generate large profits.
3) European Union Money Laundering Directive

 In response to the new opportunities for money laundering opened up by the liberalization of
capital movements and cross-border financial services in the European Union, the Council of
the European Communities in June, 1991 issued a directive on the Prevention of Use of the
Financial System for the Purpose of Money Laundering.
 The directive requires member states to draft a law for prevention of money laundering.
 The member states have been put under obligation to require financial institutions to
establish and maintain internal systems to prevent laundering, to obtain the identification of
customers with whom they enter into transaction of more than a particular amount and to
keep proper records for at least five years.
 The financial institutions are also required to report suspicious transactions and ensure that
such reporting does not result in liability for the institution or its employees.
4) Basle Committee’s Statement of Principles

 In December 1988 the Basle Committee on Banking Regulation Supervisory Practices issued a
statement of principles to be complied by the international banks of member states.
 These principles include identifying customers, avoiding suspicious transactions, and
cooperating with law enforcement agencies.
 The statement aims at encouraging the banking sector to adopt common position in order to
ensure that banks are not used to hide or launder funds acquired through criminal activities.
5) Resolution of the International Organization of Securities Commissions

 The International Organization of Securities Commissions (IOSCO) adopted, in October 1992,
a resolution encouraging its members to take necessary steps to combat money laundering in
securities and futures markets.
6) United Nations Global Programme Against Money Laundering

 Office of the Drug Control and Crime Prevention implement this programme against Money
Laundering with a view to increase the effectiveness of international action against money
laundering through comprehensive technical cooperation services offered to Governments.
 The programme surrounds following three areas of activities, providing various means to
states and institutions in their efforts to effectively combat money laundering:
(i) Technical cooperation is the main task of the Programme. It encompasses activities of
creating awareness, institution building and training
(ii) The research and analysis aims at offering States Key Information to better understand the
phenomenon of money laundering and to enable the international community to devise more
efficient and effective countermeasure strategies.
(iii) The commitment to support the establishment of financial investigation services for raising
the overall effectiveness of law enforcement measures. The implementation of the Global
Programme against Money Laundering is carried out in the spirit of cooperation with other
international, regional and national organizations and institutions.
7) Financial Action Task Force (FAFT)

 Financial Action Task Force(FAFT) was established as an international body in 1998
 It promotes the measures taken up to counteract the whole wide impact of money
laundering.
 The FATF is therefore a “policy-making body” which works to generate the necessary
political will to bring about national legislative and regulatory reforms in these areas.
 The functions performed by FAFT :
1. Review the technique adopted for money laundering
2. Monitor initiatives made by the countries to counteract money laundering.
3. Spread awareness among non-member countries also.
 Recommendations by FAFT to counteract money laundering :
(a) Declare money laundering as criminal offence.
(b) Confiscation of proceeds of crime.
(c) Extradition of person involved in money laundering offence.
(d) International cooperation in preventing money laundering.
PREVENTION OF MONEY LAUNDERING – INDIAN INITIATIVES
 The Prevention of Money Laundering Act,2002 (PMLA) forms the code of the legal
framework put in place by India to combat money laundering.
 PMLA defines Money Laundering offence and provides for the freezing, seizure and
confiscation of the proceeds of the crime.
 RBI, SEBI and IRDA have been brought under PMLA and therefore provisions of this Act are
applicable to all financial institutions, banks, mutual funds, insurance companies and their
financial institutions.
 The agency monitoring the Anti-Money Laundering activities in India is the Financial
Intelligence Unit (FIU-IND).
 This unit is responsible for receiving. Processing, analyzing and disseminating information
relating to suspect financial transactions.
 FIU-IND is also responsible for coordinating and strengthening efforts of national and
international intelligence, investigation and enforcement agencies in pursuing in the global
efforts against money laundering and related crimes. FIU-IND is an independent body
reporting directly to the Economic Intelligence Council (EIC) headed by the Finance Minister.
 Banks are required to report information relating to cash and suspicious transactions and all
transactions involving receipts by non-profit organizations of value more than Rs. 10 lakh or
its equivalent in foreign currency to the Director, Financial Intelligence Unit-India (FIU-IND)
in respect of transactions.
DEFINITIONS
1. Money Laundering
 Section 3 of the Act states that whosoever directly or indirectly attempts to indulge or
knowingly assists or knowingly is a party or actually involved in any process or activity
connected with the proceeds of crime including its concealment, possession, acquisition or use
and projecting or claiming it is an untainted property shall be guilty of offence of money
laundering.
In other words,
Anyone who directly or indirectly assists or party involved in any process of activity
connected with the proceeds of crime and projecting it as untained property shall be guilty of
the offence of money laundering.
2. Property
Any property or asset whether
i) Corporeal or incorporeal
ii) Movable or immovable
iii) Tangible or intangible
Includes deeds and instruments evidencing title or interest in such property or asser wherever
located.
3. Proceeds of crime
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 or where such property is taken or held outside the country, then the property
equivalent in value held within the country or abroad.
4. Intermediary
The term intermediary has been defined as to mean a stock broker, sub-broker, share
transfer agent, banker to an issue, trustee to a trust deed, registrar to an issue, merchant
banker, underwriter, portfolio manager, investment advisor, and any other intermediary
associated with securities market and registered under Section 12 of the SEBI Act, 1992.
PROCESS OF MONEY LAUNDERING
1. Placement
 This stage refers to the initial entry of the dirty cash or proceeds of crime into the financial
system.
 This stage basically serves two purposes :
1. It helps the criminal by allowing him to not hold large amounts of bulky cash.
2. It places the money into the legitimate financial system.
 This is the riskiest stage of the laundering process because large amounts of cash are easily
noticeable and banks are required to report any high value transactions.
 Example – The launderer could deposit small amount of cash in banks to defeat the
threshold limit or cash could be packed in suitcase and smuggled into the country.
2. Layering
 After the step of placement comes the layering stage.
 It is the most complex part of the process which involves the international movement of
funds.
 The basic purpose of this step is to separate the dirty money from its sources.
 This is done by creating multiple layering of the financial transaction to change its form and
make it difficult to trace.
 Example – Several bank to bank transfers, wire transfer between different accounts in
different names in different countries, purchasing market instruments, making deposits,
withdrawals to continuously vary amount of money in the account and also change the
currency of the funds.
3. Integration
 This is the final stage of the process and is called the integration stage.
 In this stage the money is returned to the criminal from sources that seem like legitimate
sources.
 Here, the launderer integrates the money into financial system or economy by investment
into real estate, business or share market.
 After this stage criminals can use the money without getting caught. It is very difficult to
catch a launderer during the integration stage if there is no documentation during the
previous stage.
Placement Integration Integration
IMPACT OF MONEY LAUNDERING
On Economy
 Economic Distortion and instability. Economic growth can suffer because of this
 Increase corruption and crimes.
 Loss of control of Economy Policy as monetary and financial statistics gives misleading
information to policy makers and leads to misallocation of resources.
 Criminals acquire control over market and financial institutions by investment.
 The reputation of country and its financial institution can be damaged.
 It distorts capital and trade flows.
 It reduces the revenue in terms of tax.
 This also weakens the social and ethical standards prevailing in the society.
On society
 It increases criminal activities
 It leads to concentration of power in criminals.
 It undermines democracy
PUNISHMENT FOR MONEY LAUNDERING – SECTION 4
Imprisonment
 Any person who commits the offense of Money Laundering is punishable with rigorous
imprisonment for a term of 3 years.
 This term can be extended upto 7 years.
 If the proceeds of crime involved in money laundering relates to any offence specified under
the Narcotic Drugs and Psychotropic Substances Act then the rigorous imprisonment may
extend to 10 years.
Fine
Any person who commits the offense of Money Laundering shall also be liable to fine.
Confiscation of Property
 The Act provides that an authorized person can make provisional attachment and confiscation
of Property of any person for a period not exceeding 180 days.
 The authority can only do so when he has reason to believe that the offense of money
laundering has taken place.
 Every order of attachment shall cease to have effect after the expiry of ninety day s from
the date of the order or on the date of the order made by the Administrating Officer finding
the person interested is not prevented from the enjoyment of property attached.
 Person interested in relation to any immovable property includes all persons claiming or
entitled to claim any interest in the property.
 The Director or any other officer who provisionally attaches any property shall, within a
period of 30 days from such attachment file a complaint, stating the facts of such
attachment before the Adjudicating Authority.
OBLIGATION OF BANKS, FINANCIAL INSTITUTIONS AND INTERMEDIARIES-SECTION 12
Who are covered under this section?

 Every banking company, financial institution and intermediary of the security market.
 Financial institution includes chit fund companies, co-operative banks, housing financial
institutions and NBFC’s.
 Intermediaries include stockbroker, sub-broker, share transfer agent, banker to issue, trustee
of trust deed, merchant banker, underwriter, portfolio manager, investment advisor.
Maintain records
 Every banking company, financial institution and intermediary of the security market shall :
i) maintain a record of all transactions, the nature and value of which may be prescribed,
whether such transactions comprise of a single transaction or a series of transactions
ii) Verify and maintain the records of the identity of all its clients in the prescribed manner.
Furnish Information
 Every banking company, financial institution and intermediary of the security market shall
furnish information of the above transactions to the Director.
 The Director may call for the records of such transaction and can make an inquiry also, in
this behalf.
Period
 All the records that are specified above shall be maintained for 5 years from date of
completion of transaction.
Summon, Searches and Seizures

 Any officer under this Act, who has sufficient reasons to believe that an offence is
committed, has the power:
(a) To enter any place within the limits of the area assigned to him.
(b) To place marks of identification on the records inspected by him.
(c) To search that convicted person or seize such record or property which may be useful for or
relevant to any proceedings under the Act.
APPEAL MECHANISM OR TRIAL OF OFFENCE
Appellate Tribunal –Section 26

 Central Government may establish an Appellate Tribunal to hear appeals against the orders
of Adjudicating Authority and other Authorities under the Act.
 The director or any other person aggrieved by the order made by the Adjudicating Authority
may prefer an appeal to the Appellate tribunal within a period of 45 days.
 Tribunal may accept the appeal even after 45 days if it is satisfied about the delay after
giving an opportunity of being heard to the party.
Procedure and power

 Appellant may either appear in person or take assistance of authorized representative to
present before Appellant tribunal.
 On receipt of an appeal, Tribunal may pass such orders as it thinks fit after giving both
parties opportunity of being heard.
 Tribunal should dispose off the case within 6 months.
 Tribunal has the same power as vested in Code of Civil Procedure.
Appeal of order against order of Tribunal

 Any person aggrieved by order of Appellate Tribunal may file an appeal to the HC within 60
days. The HC may extend the period further by 60 days if it is satisfied.
SPECIAL COURT – SECTION 43
 Central Government in consultation with the Chief Justice of the HC designates one of more
court of session for trial of offense of money laundering.
 The schedule offense and the offense punishable under Section 4 shall be triable only by the
Special Court constituted for the area in which the offence has been committed.
 Civil court has no jurisdiction to entertain any suit for the matter which director,
adjudicating or appellate tribunal is empowered to.
OFFENCES TO BE COGNIZABLE & NON-BAILABLE
Cognizance
 Every offence punishable under the Act to be cognizable
 However the special court shall not take cognizance of any offence punishable under Section
4, except upon a complaint in writing made by
(i) the Director or
(ii) any officer of the Central Government or State Government authorized in writing in this
behalf by the Central Government by a general or special order made by that Government.
Bail
 Any person accused of an offense punishable with imprisonment of more than 3 years shall
not be released on bail or on his own bond unless :
i) The public prosecutor has been given an opportunity to oppose the application for such
release.
ii) The court is satisfied that there are reasonable grounds for believing that he is not guilty of
such offence and he is not likely to commit any offence while on bail.
iii) If person who is under the age of 16 years or in case of a woman or in case of a sick or
infirm person, the special court may direct the release of such person on bail.
iv) Police officer has no authority to investigate into offence under this Act unless authorized by
the Central Government.
KNOW YOUR CUSTOMER GUIDELINES
Meaning
It is a standard to know or understand customer and their financial dealing to avoid money
laundering. RBI has introduced KYC guidelines for all banks.
Objectives
KYC guidelines were introduced with various objectives which are:
i) Safeguards bank and financial institutions from acting as chain in money laundering process.
ii) Helps bank and financial institution to know about its clients.
iii) Helps to check on their financial dealing and transaction.
iv) To manage their risks efficiently.
Key elements
The key elements of the KYC Guidelines are:
i) Customer acceptance policy
ii) Customer identification procedure
iii) Monitoring transaction
iv) Management of risk
Customer
For the purpose of KYC policy, a customer is defined as:
 Person or entity that maintains an account with bank and has business relationship with
bank.
 Beneficial owner
 Beneficiaries of transactions conducted by professionals like CA, CS and CMA.
Introduction of New Technologies: Credit Cards/Debit Cards/Smart Cards/Gift Cards

 Banks should pay special attention and take measures to prevent any money laundering
threats that may arise from new or developing technologies including internet banking th at
might favor anonymity (condition of being anonymous).
 Many banks are engaged in the business of issuing a variety of Electronic Cards that are
used by customers for buying goods and services, drawing cash from ATMs, and can be used
for electronic transfer of funds.
 Banks are required to ensure full compliance with all KYC/AML/CFT guidelines issued from
time to time, in respect of add-on/supplementary card holders also.
 Further, marketing of credit cards is generally done through the services of agents. Banks
should ensure that appropriate KYC procedures are duly applied before issuing the cards to
the customers. It is also desirable that agents are also subjected to KYC measures
Information to be preserved
 Banks are required to maintain all necessary information in respect of transactions including
the following information :
i) The nature of transaction
ii) The amount of transaction and the currency in which it was denominated
iii) The date on which transaction was conducted
iv) The parties to the transaction
AGREEMENT WITH FOREIGN COUNTRY
Central government can enter into agreement with the government of any country for
enforcing the provision of this Act and also for exchange of information for prevention of an
offence under this Act.
CS- EXE Economic Business and Commercial Laws ICA
CHAPTER 20- INDIAN CONTRACT ACT, 1872
INTRODUCTION
 The Indian contract Act is the oldest legislation passed by the pre independence legislature
of India
 It is based on the principles of English common law.
 It applies to the whole of India except the state of Jammu & Kashmir. The intention behind
passing the Contract Act was to compel the parties for fulfilling their promise because the
most important element in the business is the commitment given by the parties.
 It is a private law and is applicable only on the parties who enter into a contract.
 The Act received the assent from the parliament on 25 th April 1872 and came into force
from 1st September 1872
PROCESS OF ENTERING INTO A CONTRACT
OFFER + ACCEPTANCE = PROMISE + CONSIDERATION = AGREEMENT +

SUPPORTED BY LAW = CONTRACT
IMPORTANT TERMINOLOGIES
 Offeror: the person who gives an offer

 Offeree: the person to whom offer is given
 Offer: it is expression of willingness by person with the intention of receiving consent of the
other party.
 Acceptance: when the person to whom the offer was given gives his consent to the offer, he
is said to have accepted the offer. (an accepted offer becomes a promise)
 Consideration: something in return

“Every Contract is an ‘Agreement’ But not all Agreements are Contract”
ESENTIALS OF A VALID CONTRACT
I. There must be two parties i.e. offeror and offeree

II. Proper offer and clear acceptance
III. The parties to the contract must be:
i. Major
ii. Of sound mind
iii. Should not be disqualified from entering into contract
IV. He must not be disqualified to enter into a contract
V. Lawful consideration
VI. Free consent
VII. Lawful purpose
When we say soundness of mind, we intent to say that soundness of mind must be at the
time of making of contract. This means that a person who is of unsound mind can also
enter into a contract during his lucid intervals and that contract will be valid.
The burden to prove that a contract is not valid will always be on the party who challenges
the validity of the contract.
PERSONS DISQUALIFIED FROM ENTERING INTO A CONTRACT
 Adjudged insolvent
 Convict
 Alien enemy (A person with whose country India has declared a War)
 Foreign ambassadors (they cannot be sued in the Indian courts and hence they cannot enter
into a contract)
TYPES OF CONTRACT
1. Void contract
Contracts which were valid at the time of creation but subsequently became unenforceable.
In other words void contract is a contract which when created was enforceable by law but
due to some change of law ceases to be enforceable.
2. Void Agreement
Agreements, which were not supported by law since the time of creation, are known as void
agreements. One special thing to be remembered is void agreements are always void-ab-initio.
KEY POINTS
1. These agreements does not create any obligation on the parties
2. These agreements are not punishable
3. These agreements are always void-ab-initio
4. Collateral agreements to void agreement can be valid EXAMPLE:
‘A’ bets on a horse race with ‘B’ and borrows 5000 from ‘C’ For this purpose. ‘C’ can always
recover the money lent whether he knew the purpose of loan or not because his loan
agreement was collateral of a void (wagering) agreement only.
3. Illegal Agreement
An act, which is punishable under the Indian penal court, creates an Illegal agreement. Every
illegal agreement is void-ab-initio.
Every illegal agreement is a void agreement but not all void agreements are illegal
agreements. Collateral agreement to an illegal agreement is also illegal.
Example
‘A’ enters into an agreement of smuggling with ‘B’ and borrows 100000 from ‘C’ , ‘C’ cannot
recover the money lent if he knew the illegal purpose.
4) Voidable contracts
The contracts, which can be cancelled by one party to the contract but not by the other
party to the contract, are known as voidable contract. The party who can cancel the contract
is the aggrieved party. So basically voidable contracts are valid and becomes void only on the
option of aggrieved party.
5) Express Contract
Contracts which are entered by usage of words (spoken or written) are known as express
contracts.
6) Implied Contracts
Contracts created by the acts of the parties and not with the words these contracts are
known as implied contracts.
OTHER KEY POINTS FOR A VALID CONTRACT
a) The object must not be unlawful

The contract should always be made for lawful purpose. If the purpose of creating contract is
unlawful then the contract becomes Void-ab-initio.
b) Consideration must not be unlawful

When one party gives something legal but receives in return something illegal such receipt
results into an unlawful consideration.
In the following cases the contract will become void-ab-initio due to unlawful object and
unlawful consideration
i. Contracts which are forbidden by law: such contracts are void-ab-initio , example can be a
contract to commit a crime.
ii. Defeats the provision of law: if the contract is valid as per Indian Contract Act but it
defeats the provisions of any other act then such a contract will become void-ab-initio . A
person agreeing to adopt a child against payment of annual bonus to the parents of adopted
child. This is valid as per the contract Act but void by Hindu Adoption Act.
iii. The contract which defeats any rule made by court or any other authority
iv. Contracts which are fraudulent:

Example: an agent of zamindar agrees to transfer the land of zamindar without taking
permission of zamindar to some other person for personal benefit.
v. Contracts which give injury to a person or property are Void-ab-initio:

Example:
1) zandu balm when this name was used in a song it gave an injury to manufacturers of zandu
balm.
2) ‘A’ gives loan to ‘B’ and in return ‘B’ agrees to work 22 hours a day to repay the interest
amount, here the injury is to ‘B’ and hence renders the contract void-ab-initio.
3) Immoral contracts: agreements which are not good for the society as well as against the
character of the people. Contracts related to prostitutions are Void-ab-initio.
AGREEMENT
An agreement gives birth to a contract. As per Section 2(e) of the Indian Contract Act
“every promise and every set of promises, forming the consideration for each other, is an
agreement. It is evident from the definition given above that an agreement is based on a
promise. What is a promise? According to Section 2(b) of the Indian Contract Act “when
the person to whom the proposal is made signifies his assent thereto, the proposal is said to
be accepted. A proposal, when accepted, becomes a promise. An agreement, therefore, comes
into existence when one party makes a proposal or offer to the other party and that other
party signifies his assent thereto. In nutshell, an agreement is the sum total of offer and
acceptance.”
OBLIGATION
An obligation is the legal duty to do or abstain from doing what one has promised to do or
abstain from doing. A contractual obligation arises from a bargain between the parties to the
agreement who are called the promisor and the promisee. Section 2(b) says that when the
person to whom the proposal is made signifies his assent thereto, the proposal is said to be
accepted; and a proposal when accepted becomes a promise. In broad sense, therefore, a
contract is an exchange of promises by two or more persons, resulting in an obligation to do
or abstain from doing a particular act, where such obligation is recognized and enforced by
law.
RIGHTS AND OBLIGATIONS
Where parties have made a binding contract, they have created rights and obligations
between themselves.
The contractual rights and obligations are correlative, e.g., A agrees with B to sell his car for
Rs. 10,00,000 to him. In this example, the following rights and obligations have been created:
(i) A is under an obligation to deliver the car to B. B has a corresponding right to receive the
car.
(ii) B is under an obligation to pay Rs. 10,00,000 to A. A has a correlative right to receive Rs.
10,00,000
AGREEMENTS WHICH ARE NOT CONTRACTS

Agreements in which the idea of bargain is absent and there is no intention to create legal
relations are not contracts. These are:
(a) Agreements relating to social matters: An agreement between two persons to go together to
the cinema, or for a walk, does not create a legal obligation on their part to abide by it.
Similarly, if I promise to buy you a dinner and break that promise, I do not expect to be
liable to legal penalties. There cannot be any offer and acceptance to hospitality.
(b) Domestic arrangements between husband and wife:
In Balfour v. Balfour (1919) 2 KB 571
Facts
A husband working in Ceylon, had agreed in writing to pay a housekeeping allowance to his
wife living in England.
On receiving information that she was unfaithful to him, he stopped the allowance.
Judgement
Held, he was entitled to do so. As this was a mere domestic arrangement with no intention
to create legally binding relations. Therefore, there was no contract.
Three consequences follow from the above discussion.
(i) To constitute a contract, the parties must intend to create legal relationship.
(ii) The law of contract is the law of those agreements which create obligations,
(iii)Agreement is the genus of which contract is the specie and, therefore, all contracts are
agreements but not all agreements are contracts.
WHAT IS AN OFFER OR A PROPOSAL?
A proposal is also termed as an offer. The word ‘proposal’ is synonymous with the English
word “offer”. An offer is a proposal by one person, whereby he expresses his willingness to
enter into a contractual obligation in return for a promise, act or forbea rance. Section 2(a)
of the Indian Contract Act defines proposal or offer as “when one person signifies to another
his willingness to do or abstain from doing anything with a view to obtaining the assent of
that other to such act or abstinence, he is said to make a proposal”.

A valid offer must comply with the following rules:
(a) An offer must be clear, definite, complete and final. It must not be vague. For example, a
promise to pay an increased price for a horse if it proves lucky to promisor, is too vague an d
is not binding.
(b) An offer must be communicated to the offeree. An offer becomes effective only when it has
been communicated to the offeree so as to give him an opportunity to accept or reject the
same.
(c) The communication of an offer may be made by express words-oral or written-or it may be
implied by conduct. A offers his car to B for Rs. 10,000. It is an express offer. A bus plying
on a definite route goes along the street. This is an implied offer on the part of the owners
of the bus to carry passengers at the scheduled fares for the various stages.
(d) The communication of the offer may be general or specific. Where an offer is made to a
specific person it is called specific offer and only that person can accept it. But when an
offer is addressed to an uncertain body of individuals i.e. the world at large, it is a general
offer and can be accepted by any member of the general public by fulfilling the condition
laid down in the offer.
The leading case on the subject is Carlill v. Carbolic Smoke Ball Co. The company offered
by advertisement, a reward of 100 to anyone who contacted influenza after using their smoke
ball in the specified manner. Mrs. Carlill did use smoke ball in the specified manner, but was
attacked by influenza. She claimed the reward and it was held that she could recover the
reward as general offer can be accepted by anybody.
AN OFFER MUST BE DISTINGUISHED FROM
a) An invitation to treat or an invitation to make an offer

b) A mere statement of intention: e.g., an announcement of a coming auction sale. Thus, a
person who attended the advertised place of auction could not sue for breach of contract if
the auction was cancelled
c) A mere communication of information in the course of negotiation
LAPSE OF OFFER
Section 6 deals with various modes of lapse of an offer. It states that an offer lapses if—
(a) it is not accepted within the specified time (if any) or after a reasonable time, if none is
specified.
(b) it is not accepted in the mode prescribed or if no mode is prescribed in some usual and
reasonable manner, e.g., by sending a letter by mail when early reply was requested;
(c) the offeree rejects it by distinct refusal to accept it;
(d) either the offeror or the offeree dies before acceptance;
(e) the acceptor fails to fulfill a condition precedent to an acceptance.
(f) the offeree makes a counter offer, it amounts to rejection of the offer and an offer by the
offeree may be accepted or rejected by the offeror
ACCEPTANCE
A contract emerges from the acceptance of an offer. Acceptance is the act of assenting by
the offeree to an offer.
So When the offeree gives his assent the proposal is said to be accepted and a proposal once
accepted becomes a promise.
Rules governing acceptance

(a) Acceptance may be express i.e. by words spoken or written or implied from the conduct of
the parties.
(b) If a particular method of acceptance is prescribed, the offer must be accepted in the
prescribed manner.
(c) Acceptance must be unqualified and absolute and must correspond with all the terms of the
offer.
(d) A counter offer or conditional acceptance operates as a rejection of the offer and causes it
to lapse, e.g., where a horse is offered for Rs. 1,000 and the offeree counter-offers Rs. 990,
the offer lapses by rejection.
(e) Acceptance must be communicated to the offeror, for acceptance is complete the moment it
is communicated. Where the offeree merely intended to accept but does not communicate his
intention to the offeror, there is no contract. Mere mental acceptance is not enough.
(f) Mere silence on the part of the offeree does not amount to acceptance.
In other words he cannot make frame the contract in such a way as to make the silence or
inaction as acceptance
(g) If the offer is one, which is to be accepted by being acted upon, no communication of
acceptance to the offeror is necessary, unless communication is stipulated for in the offer
itself.
Thus, if a reward is offered for finding a lost dog, the offer is accepted by finding the dog
after reading about the offer, and it is unnecessary before beginning to search for the dog to
give notice of acceptance to the offeror.
STANDING OFFERS
Where a person offers to another to supply specific goods, up to a stated quantity or in any
quantity, which may be required, at a certain rate, during a fixed period, he makes a standing
offer.
Each successive order given, while the offer remains in force, is an acceptance of the
standing offer as to the quantity ordered, and creates a separate contract. It does not bind
either party unless and until such orders are given.
Example
X tendered to supply goods to Y at a certain price and over a specified period. Y did not
order up to the amount expected and X sued for breach of contract. In this case every
contract made is a separate contract and X was bound to fulfill orders made but there was
no obligation on Y to order.
TICKETS
If a passenger on a railway train receives a ticket on the face of which is printed “this
ticket is issued subject to the notices, regulations and conditions contained in the current
time-tables of the railway”, the regulations and conditions referred to are deemed to be
communicated to him and he is bound by them whether or not he has read them. He is
bound even if he is illiterate and unable to read them.
CONTRACTS BY POST
Contracts by post are subject to the same rules as others and they are:
a) An offer by post may be accepted by post, unless the offeror indicates anything to the
contrary.
b) An offer is said to be communicated when it actually reaches the offeree and not at the
time of sending
c) An acceptance is said to be complete as soon as it is put in transits, to offeror’s correct address
(it binds the offeror and not the acceptor)
An acceptance binds the acceptor only when the letter containing the acceptance reaches
the offeror. The result is that the acceptor can revoke his acceptance before it reaches the
offeror.
d) An offer may be revoked before the letter containing the acceptance is posted. An acceptance
can be revoked before it reaches the offeror.
CONTRACTS OVER THE TELEPHONE
Contracts over the telephone are regarded the same in principle as those negotiated by the
parties in the actual presence of each other. In both cases an oral offer is made and an oral
acceptance is expected. It is important that the acceptance must be audible, heard and
understood by the offeror. If during the conversation the telephone lines go “dead” and the
offeror does not hear the offeree’s word of acceptance, there is no contract at the moment.
If the whole conversation is repeated and the offeror hears and understands the words of
acceptance, the contract is complete (Kanhaiyalal v. Dineshwarchandra (1959) AIR, M.P.
234).
CONSIDERATION
Consideration is one of the essential elements of a valid contract. The requirement of

consideration stems from the policy of extending the arm of the law to the enforcement of
mutual promises of parties. A mere promise is not enforceable at law. For example, if A
promises to make a gift of Rs. 500 to B, and subsequently changes his mind, B cannot
succeed against A for breach of promise, as B has not given anything in return. It is only
when a promise is made for something in return from the promisee, that such promise can
be enforced by law against the promisor. This something in return is the consideration for
the promise.
Important point:
Section 2 D of the act stated that consideration must move at the desire of the promisor
whereas as per English law consideration must move at the desire of promisee.
However, consideration may move from the promisee or any other person, so that a stranger
to the contract may maintain a suit.
In Chinnaya v. Ramaya, (1882) 4 mad. 137,

A lady by a deed of gift made over certain property to her daughter directing her to pay an
annuity to the donors brother as had been done by the donor herself before she gifted the
property. On the same day, her daughter executed in writing in favor of the donors brother
agreeing to pay the annuity. Afterwards the donee (the daughter) declined to fulfill her
promise to pay her uncle saying that no consideration had moved from him. The Court,
however, held that the uncle could sue even though no part of the consideration received by
his niece moved from him. The consideration from her mother was sufficient consideration.
KINDS OF CONSIDERATION
a) Executory
b) Executed
c) Past
According to English law, a consideration may be executor or executed but never past. The
English law is that past consideration is no consideration. The Indian law recognizes all the
above three kinds of consideration.
Rules governing consideration

(a) Every simple contract must be supported by valuable consideration otherwise it is formally
void subject to some exceptions.
(b) Consideration may be an act of abstinence or promise.
(c) There must be mutuality i.e., each party must do or agree to do something. A gratuitous
promise as in the case of subscription for charity is not enforceable.
Where A promises to subscribe Rs. 5,000 for the repair of a temple, and then refuses to pay,
no action can be taken against him.
(d) Consideration must be real, and not vague, indefinite, or illusory
(e) Although consideration must have some value, it need not be adequate i.e., a full return for
the promise.
(f) Consideration must be lawful
When consideration is not necessary

The general rule is that an agreement made without consideration is void. But Section 25 of
the Indian Contract Act lays down certain exceptions, which make a promise without
consideration valid and binding.
Thus, an agreement without consideration is valid:
1. If it is expressed in writing and registered and is made out of natural love and affection
between parties standing in a near relation to each other; or
2. If it is made to compensate a person who has already done something voluntarily for the
promisor,
3. If it is a promise in writing and signed by the person to be charged therewith, or by his
agent, to pay a debt barred by the law of limitation.
4. Besides, according to Section 185 of the Indian Contract Act, consideration is not required to
create an agency.
5. In the case of gift actually made, no consideration is necessary. There need not be nearness
of relation and even if it is, there need not be any natural love and affection between them.
FLAWS IN CONTRACT
a) Void agreement
b) Voidable contract
c) Illegal agreement
The chief flaws in contract are:

(i) Incapacity
(ii) Mistake
(iii) Misrepresentation
(iv) Fraud
(v) Undo Influence
(vi) Coercion
(vii) Illegality
(viii) Impossibility.
Flaw in capacity - capacity and persons

The general rule is that all natural persons have full capacity to make binding contracts. But
the Indian
Contract Act, 1872 admits an exception in the case of:
(i) Minors,
(ii) Lunatics, and
(iii)Persons disqualified from contracting by any law to which they are subject
MISTAKE (SECTIONS 20 AND 21)
The law believes that contracts are made to be performed. The whole structure of business
depends on this as the businessmen depend on the validity of contracts. Accordingly, the law
says that it will not aid any one to evade consequences on the plea that he was mistaken.
On the other hand, the law also realizes that mistakes do occur, and that these mistakes are
so fundamental that there may be no contract at all.
TYPES OF MISTAKE
1) Mistake of law
2) Mistake of fact
If there is a mistake of law of the land, the contract is binding because everyone is deemed
to have knowledge of law of the land and ignorance of law is no excuse (ignorantia juris
non- excusat).
But mistake of foreign law and mistake of private rights are treated as mistakes of fact and
are execusable.
MUTUAL OR UNILATERAL MISTAKE

Mistake must be mutual or bilateral, i.e., it must be on the part of both parties. A unilateral
mistake, i.e., mistake on the part of only one party is no exception.
MUTUAL OR COMMON MISTAKE AS TO SUBJECT-MATTER

(a) Mistake as to existence of the subject matter:.
(b) Mistake as to identity of the subject matter
(c) Mistake as to quantity of the subject matter
(d) Mistake as to quality of the subject-matter or promise
(e) Mistake as to price of the subject matter
UNILATERAL MISTAKE AS TO NATURE OF THE CONTRACT

The general rule is that a person who signs an instrument is bound by its terms even if he
has not read it. But a person who signs a document under a fundamental mistake as to its
nature (not merely as to its contents) may have it avoided provided the mistake was due to
either-
(a) the blindness, illiteracy (VOID)
(b) a trick or fraudulent misrepresentation as to the nature of the document. (VOIDABLE)
UNILATERAL MISTAKE AS TO THE IDENTITY OF THE PERSON CONTRACTED WITH

It is a rule of law that if a person intends to contract with A, B cannot give himself any
right under it. Hence, when a contract is made in which personalities of the contracting
parties are or may be of importance, no other person can interpose and adopt the contract.
For example, where M intends to contract only with A but enters into contract with B
believing him to be A, the contract is vitiated by mistake as there is no consensus ad idem.
MISREPRESENTATION (SECTION 18)
The term “misrepresentation” is ordinarily used to connote both “innocent misrepresentation”

and “dishonest misrepresentation”. Misrepresentation may, therefore, be either (i) Innocent
misrepresentation, or (ii) Willful misrepresentation with intent to deceive and is called fraud.
INNOCENT MISREPRESENTATION
If a person makes a representation believing what he says is true he commits innocent
misrepresentation.
Thus, any false representation, which is made with an honest belief in its truth is innocent.
The effect of innocent misrepresentation is that the party misled by it can avoid the
contract, but cannot sue for damages in the normal circumstances.
Damages for Innocent Misrepresentation

Generally, the injured party can only avoid the contract and cannot get damages for innocent
misrepresentation. But in the following cases, damages are obtainable:
(i) From a promoter or director who makes innocent misrepresentation in a company prospectus
inviting the public to subscribe for the shares in the company;
(ii) Against an agent who commits a breach of warranty of authority
(iii) From a person who (at the Courts discretion) is estopped from denying a statement he has
made where he made a positive statement intending that it should be relied upon and the
innocent party did rely upon it and thereby suffered damages;
(iv) Negligent representation made by one person to another between whom a confidential
relationship, like that of a solicitor and client exists.
WILLFUL MISREPRESENTATION OR FRAUD (SECTION 17)
Fraud is an untrue statement made knowingly or without belief in its truth or recklessly,
carelessly, whether it be true or false with the intent to deceive. The chief ingredients of a
fraud are:
(i) A false representation or assertion;
(ii) Of fact (and not a mere opinion),
(iii) made with the intention that it should be acted upon,
(iv) The representation must have actually induced the other party to enter into the contract and
so deceived him,
(v) the party deceived must thereby be damnified, for there is no fraud without damages, and
(vi) the statement must have been made with the knowledge that it was false
It is immaterial whether the representation takes effect by false statement or with
concealment. The party defrauded can avoid the contract and also claim damages.
Mere silence as to facts likely to affect the willingness of a person to enter into a contract
is not fraud, unless silence is in itself equivalent to speech, or where it is the duty of the
person keeping silent to speak as in the cases of contracts uberrimae fidei - (contracts
requiring utmost good faith).
CONTRACTS UBERRIMAE FIDEI
There are contracts in which the law imposes a special duty to act with the utmost good
faith i.e., to disclose all material information. Failure to disclose such information will render
the contract voidable at the option of the other party.
DIFFERENCE BETWEEN FRAUD AND INNOCENT MISREPRESENTATION
1. Fraud implies an intent to deceive, which is lacking if it is innocent misrepresentation.

2. In case of misrepresentation and fraudulent silence, the defendant can take a good plea that
the plaintiff had the means of discovering the truth with ordinary diligence. This argument is
not available if there is fraud (Section 19- exception).
3. In misrepresentation the plaintiff can avoid or rescind the contract. In fraud, the plaintiff
can claim damages as well.
4. If there is fraud, it may lead to prosecution for an offence of cheating under the Indian
Penal Code.
COERCION
Coercion as defined in Section 15 means “the committing or threatening to commit any act
forbidden by the Indian Penal Code, or unlawful detaining or threatening to detain, any
property to the prejudice of any person whatever with the intention of causing any person to
enter into an agreement”. Simply stated, the doing of any act forbidden by the Indian Penal
Code is coercion even though such an act is done in a place where the Indian Penal Code is
not in force. If A at the point of a pistol asks B to execute a promissory note in his favor
and B to save his life does so he can avoid this agreement as his consent was not free. Even
a threat to third-party, e.g., where A compels B to sign a document threatening to harm C,
in case B does not sign would also amount to coercion.
UNDUE INFLUENCE
Under Section 16 of the Indian Contract Act, 1872, a contract is said to be produced by
undue influence “where the relations subsisting between the parties are such that one of the
parties is in a position to dominate the will of the other and uses that position to obtain an
unfair advantage over the other”.
THE ELEMENTS OF UNDUE INFLUENCE ARE

(i) a dominant position, and
(ii) the use of it to obtain an unfair advantage.
Sub-section (2) of Section 16 provides that a person is deemed to be in a position to

dominate the will of another—
(a) Where he holds a real or apparent authority over the other or where he stands in a fiduciary
relation to the other, e.g., minor and guardian; trustee and beneficiary; solicitor and client.
There is, however, no presumption of undue influence in the relation of creditor and debtor,
husband and wife (unless the wife is a parda-nishin woman) and landlord and tenant. In
these cases the party has to prove that undue influence has been exercised on him, there
being no presumption as to existence of undue influence.
(b) Where he makes a contract with a person whose mental capacity is temporarily or
permanently affected by reason of age, illness or mental or bodily distress e.g., doctor and
patient.
LEGALITY OF OBJECT
One of the requisites of a valid contract is that the object should be lawful. Section 10 of
the Indian Contract Act, 1872, provides, “All agreements are contracts if they are made by
free consent of parties competent to contract for a lawful consideration and with a lawful
object...” Therefore, it follows that where the consideration or object for which an agreement
is made is unlawful, it is not a contract.
EXCEPTION TO GENERAL RULE OF NO RECOVERY OF MONEY OR PROPERTY
In the following cases, a party to an illegal agreement may sue to recover money paid or
property transferred:
(a) Where the one party is not in pari delicto (equally guilty) with the other party. For example,
where A is induced to enter into an illegal agreement by the fraud of B, A may recover the
money paid if he did not know that the contract was illegal.
(b) If the plaintiff can frame a cause of action entirely dependent of the contract.
(c) Where a substantial part of the illegal transaction has not been carried out and the plaintiff
is truly and genuinely repentant.
VOID AGREEMENTS
The following types of agreements are void under Indian Contract Act:
(a) Agreement by or with a minor or a person of unsound mind or a person disqualified to enter
into a contract - Section 11;
(b) Agreement made under a mistake of fact, material to the agreement on the part of the both
the parties - Section 20.
(c) An agreement of which the consideration or object is unlawful - Section 23.
(d) If any part of the consideration is unlawful the agreement will become void
(e) An agreement made without consideration subject to three exceptions provided to Section 25
(f) An agreement in restraint of marriage - Section 26.
(g) An agreement in restraint of trade - Section 27.
(h) An agreement in restraint of legal proceedings - Section 28.
(i) Agreements, the meaning of which is not certain, or capable of being made certain - Section
29.
(j) Agreement by way of wager- Section 30.
(k) An agreement to enter into an agreement in the future.
(l) An agreement to do an act impossible in itself
AGREEMENTS VOID AS BEING OPPOSED TO PUBLIC POLICY
It has been said by the House of Lords that public policy is always an unsafe and
treacherous ground for legal decisions. Even if it is possible for Courts to evolve a new head
of public policy, it should be done under extraordinary circumstances giving rise to
incontestable harm to the society.
The following agreements are void as being against public policy but they are not illegal:
(a) Agreement in restrain of parental rights: An agreement by which a party deprives himself
of the custody of his child is void.
(b) Agreement in restraint of marriage: An agreement not to marry at all or not to marry any
particular person or class of persons is void as it is in restraint of marriage.
(c) Marriage brokerage Agreements: An agreement to procure marriage for reward is void. Where
a priest was promised Rs. 200 in consideration of procuring a wife for the defendant, the
promise was held void as opposed to public policy, and the priest could not recover the
promised sum. Lender not to change his residence, or his employment or to part with any of his
property or to incur any obligation on credit without the consent of the money lender, it was held
that the agreement was void.
(e) Agreement in restraint of trade: An agreement in restraint of trade is one which seeks to
restrict a person from freely exercising his trade or profession.
AGREEMENTS IN RESTRAINT OF TRADE TO BE VOID
This Section is not happily worded and has been criticized by many authors. It appears from
the wording that every kind of restraint, whether total or partial falls within the prohibition
of this Section. In English law the Courts have held that if a restraint is reasonable, it will
be valid. Leading case on his point is Nordenfelt vs. Maxim Nordenfelt Guns Co., (1894)
A.C. 535. N was an inventor and a manufacturer of guns and ammunition. He sold his world-
wide business to M and promised not to manufacture guns anywhere in the world for 25
years. The House of Lords held that the restraint was reasonable, as it was no more than is
necessary for the protection of the company, the contract was binding.
But our courts are not consistent on the point whether reasonable restraints are permitted or
not.
Prima facie every restraint of trade is void, but certain exceptions to this general rule are
recognized.
(a) Sale of goodwill: Where the seller of the goodwill of a business undertakes not to compete
with the purchaser of the goodwill, the contract is enforceable provided the restraint appears
to be reasonable as to territorial limits and the length of time.
(b) Partners agreements: Section 11(2) of the Indian Partnership Act permits contracts between
partners to provide that a partner shall not carry on any business other than that of the
firm while he is a partner.
(c) Section 36(2) and Section 54 of the Indian Partnership Act provide that a partner may
make an agreement with his partners that on ceasing to be a partner he will not carry on
any business similar to that of the firm within specified period or within specified limits. The
agreement shall be binding if the restrictions are reasonable.

Trade Combinations: An agreement, the object of which is to regulate business and not to
restrain it is valid.
Thus, an agreement in the nature of a business combination between traders or
manufactures
e.g. not to sell their goods below a certain price, to pool profits or output and to divide the
same in an agreed proportion does not amount to a restraint of trade and is perfectly valid
(Fraster & Co. v. Laxmi Narain, (1931) 63 All 316).
Negative stipulations in service agreements: An agreement of service by which a person binds
himself during the term of the agreement not to take service with anyone else is not in
restraint of lawful profession and is valid.
RESTITUTION
When a contract becomes void, it is not to be performed by either party. But if any party
has received any benefit under such a contract from the other party he must restore it or
make compensation for it to the other party.
CONTINGENT CONTRACT (Section 31)
A contingent contract is a contract to do or not to do something, if some event collateral to

such contract, does or does not happen. For example, A contracts to sell B 10 bales of cotton
for Rs. 20,000, if the ship by which they are coming returns safely. This is a contingent
contract. Contract of insurance and contracts of indemnity and guarantee are popular
instances of contingent contracts.
QUASI-CONTRACTS
A quasi-contract rests on the equitable principle that a person shall not be allowed to enrich
himself unjustly at the expense of another. In truth, it is not a contract at all. It is an
obligation which the law creates, in the absence of any agreement, when any person is in
the possession of one persons money, or its equivalent, under such circumstances that in
equity and good conscience he ought not to retain it, and which in justice and fairness
belongs to another. It is the duty and not an agreement or intention which defines it. A very
simple illustration is money paid under mistake. Equity demands that such money must be
paid back.
The following types of quasi-contracts have been dealt within the Indian Contract Act—
(a) Necessaries
(b) Suit for money had and received
(c) Quantum Meruit
(d) Obligations of a finder of goods
(e) Obligation of person enjoying benefit of a non-gratuitous act
NECESSARIES
Contracts by minors and persons of unsound mind are void. However, Section 68 of the
Indian Contract Act provides that their estates are liable to reimburse the trader, who
supplies them with necessaries of life.
SUIT FOR MONEY HAD AND RECEIVED

The right to file a suit for the recovery of money may arise
(a) Where the plaintiff paid money to the defendant
(i) Under a mistake,
(ii) In pursuance of a contract the consideration for which has failed,
(iii)Under coercion, oppression, extortion or other such means.
(b) Payment to third-party of money, which another is bound to pay.
(c) Money obtained by defendant from third parties.
QUANTUM MERUIT
The expression “Quantum Meruit” literally means “as much as earned” or reasonable
remuneration. It is used where a person claims reasonable remuneration for the services
rendered by him when there was no express promise to pay the definite remuneration, Thus,
the law implies reasonable compensation for the services rendered by a party if there are
circumstances showing that these are to be paid for.
The general rule is that where a party to a contract has not fully performed what the
contract demands as a condition of payment, he cannot sue for payment for that which he
has done. The contract has to be indivisible and the payment can be demanded only on the
completion of the contract.
But where one party who has performed part of his contract is prevented by the other from
completing it, he may sue on a quantum meruit, for the value of what he has done.
OBLIGATIONS OF FINDER OF LOST GOODS

The liability of a finder of goods belonging to someone else is that of a bailee. This means
that he must take as much care of the goods as a man of ordinary prudence would take of
his own goods of the same kind. So far as the real owner of the goods is concerned, the
finder is only a bailee and must not appropriate the goods to his own use.
The finder can recover any expenses he may have incurred in protecting and preserving the
property.
OBLIGATION OF A PERSON ENJOYING BENEFIT OF NON-GRATUITOUS ACT

The Indian Contract Act provides that where a person lawfully does something for another
person or delivers anything to him without any intention of doing so gratuitously and the
other person accepts and enjoys the benefit thereof, the latter must compensate the former
or restore to him the thing so delivered.
DISCHARGE OR TERMINATION OF CONTRACTS
A contract is said to be discharged or terminated when the rights and obligations arising out
of a contract are extinguished.
Contracts may be discharged or terminated by any of the following modes:
(a) Performance, i.e., by fulfilment of the duties undertaken by parties or, by tender;
(b) Mutual consent or agreement.
(c) Lapse of time;
(d) Operation of law;
(e) Impossibility of performance; and
(f) Breach of contract.
(A) PERFORMANCE OF CONTRACTS (SECTION 37)

Section 37 of the Act provides that the parties to a contract must either perform or offer to
perform their respective promises, unless such performance is dispensed with or excused
under the provision of the Indian Contract Act, or any other law. In case of death of the
promisor before performance, the representatives of the promisor are bound to perform the
promise unless a contrary intention appears from the contract.
Who can demand performance?

Generally speaking, a stranger to contract cannot sue and the person who can demand
performance is the party to whom the promise is made. But an assignee of the rights and
benefits under a contract may demand performance by the promisor, in the same way as the
assignor, (i.e., the promisee) could have demanded.
(B) DISCHARGE BY MUTUAL AGREEMENT OR CONSENT (SECTIONS 62 AND 63)

A contract may be discharged by the agreement of all parties to the contract, or by waiver
or release by the party entitled to performance. The methods stipulated under Sections 62
and 63 of the Indian Contract Act for discharging a contract by mutual consent are:
Novation: when a new contract is substituted for existing contract either between the same
parties or between different parties, the consideration mutually being the discharge of the
old contract.
Alteration: change in one or more of the material terms of a contract.
Rescission: by agreement between the parties at any time before it is discharged by
performance or in some other way.
Remission: acceptance of a lesser sum than what was contracted for or a lesser fulfillment
of the promise made.
Waiver: deliberate abandonment or giving up of a right, which a party is entitled to under a
contract, where upon the other party to the contract, is released from his obligation.
(C) DISCHARGE BY LAPSE OF TIME

The Limitation Act, in certain circumstance, affords a good defence to suits for breach of
contract, and infact terminates the contract by depriving the party of his remedy to law.
(D) DISCHARGE BY OPERATION OF THE LAW

Discharge under this head may take place as follows:
(a) By merger: When the parties embody the inferior contract in a superior contract.
(b) By the unauthorized alteration of items of a written document
(c) By insolvency
(E) DISCHARGE BY IMPOSSIBILITY OR FRUSTRATION (SECTION 56)

A contract, which is entered into to perform something, that is clearly impossible is void. For
instance, A agrees with B to discover treasure by magic. The agreement is void by virtue of
Section 56 Para 1, which lays down the principle that an agreement to do an act impossible
in itself is void.
Sometimes subsequent impossibility (i.e. where the impossibility supervenes after the
contract has been made) renders the performance of a contract unlawful and stands
discharged; as for example, where a singer contracts to sing and becomes too ill to do so,
the contract becomes void. In this connection, Para 2 of Section 56 provides that a contract
to do an act, which after the contract is made, becomes impossible or by reason of some
event which the promisor could not prevent, unlawful, becomes void when the act becomes
impossible or unlawful.
If the impossibility is not obvious and the promisor alone knows of the impossibility or
illegally then existing or the promisor might have known as such after using reasonable
diligence, such promisor is bound to compensate the promisee for any loss he may suffer
through the non- performance of the promise inspite of the agreement being void ab-initio
(Section 56, Para 3).
(F) DISCHARGE BY SUPERVENING IMPOSSIBILITY

A contract will be discharged by subsequent or supervening impossibility in any of the
following ways:
(a) Where the subject matter of the contract is destroyed without the fault of the parties, the
contract is discharged.
(b) Where the personal qualifications of a party are the basis of the contract, the contract is
discharge by the death or physical disablement of that party.
Cases in which there is no supervening impossibility

In the following cases contracts are not discharged on the ground of supervening
impossibility:
(a) Difficulty of performance: The mere fact that performance is more difficult or expensive than
the parties anticipated does not discharge the duty to perform.
(b) Commercial impossibilities do not discharge the contract. A contract is not discharged merely
because expectation of higher profits is not realized.
(c) Strikes, lockouts and civil disturbance like riots do not terminate contracts unless there is a
clause in the contract providing for non-performance in such cases. Supervening impossibility
or illegality is known as frustration under English Law.
(G) DISCHARGE BY BREACH

Where the promisor neither performs his contract nor does he tender performance, or where
the performance is defective, there is a breach of contract. The breach of contract may be
1. Actual
2. Anticipatory
The actual breach may take place either at the time the performance is due, or when
actually performing the contract. Anticipatory breach means a breach before the time for the
performance has arrived.
REMEDIES FOR BREACH OF CONTRACT
When a party to a contract has broken the contract, the other party may treat the contract
as rescinded and he is absolved from all his obligations under the contract.
1) IN CASE OF BREACH OF CONTRACT, THE INJURED PARTY MAY:
(a) Rescind the contract and refuse further performance of the contract;
(b) Sue for damages;
(c) Sue for specific performance;
(d) Sue for an injunction to restrain the breach of a negative term; and
(e) Sue on quantum meruit
2) DAMAGES FOR BREACH OF CONTRACT

When a contract has been broken, a party who suffers by such breach is entitled to receive,
from the party who has broken the contract, compensation for any loss or damage, caused to
him thereby
Liquidated and Un liquidated damages: Where the contracting parties agree in advance the
amount payable in the event of breach, the sum payable is called liquidated damages.
Where the amount of compensation claimed for a breach of contract is left to be assessed
by the Court, damages claimed are called unliquidated damages.
3) SPECIFIC PERFORMANCE
It means the actual carrying out by the parties of their contract, and in proper cases the
Court will insist upon the parties carrying out this agreement. Where a party fails to perform
the contract, the Court may, at its discretion, order the defendant to carry out his
undertaking according to the terms of the contract. A decree for specific performance may
be granted in addition to or instead of damages.
Specific performance is usually granted in contracts connected with land, e.g., purchase of a
particular plot or house.
Specific performance will not be ordered:

(a) Where monetary compensation is an adequate remedy
(b) Where the Court cannot supervise the execution of the contract
(c) Where the contract is for personal service
(d) Where one of the parties is a minor.
4) INJUNCTION
An injunction is an order of a Court restraining a person from doing a particular act. It is a
mode of securing the specific performance of a negative term of the contract, (i.e., where he
is doing something which he promises not to do), the Court may in its discretion issue an
order to the defendant restraining him from doing what he promised not to do.
CONTRACT OF INDEMNITY AND GUARANTEE INDEMNITY DEFINITION
A contract is said to be a contract of indemnity if one party promises to save the other
from loss caused to him by the conduct of the promisor himself or by the conduct of any
person.
In other words:
a) To make good the loss incurred by another person
b) To compensate the party who has suffered some loss
c) To protect a party from incurring a loss
RIGHTS OF INDEMNITY HOLDER

1) Right to recover costs of suit: the indemnity holder has the right to recover all the costs
which he is compelled to pay in bringing or defending such suit.
2) Right to recover damages: the indemnity holder has the right to recover all the damages
which he is compelled to pay in any suit in respect of any matter covered by the contract of
indemnity
3) Right to recover all sums which he may have paid under the terms of any compromise of any
such suit, if the compromise was not contrary to the orders of the promisor
CONTRACT OF GUARANTEE
It is a contract to
a) Perform the promise or
b) Discharge the liability of a third person in case of default so, this means there are three
parties:
a) Principal debtor: the person in respect of whose default the guarantee is given
b) Creditor: the person to whom the guarantee is given
c) Surety: the person who gives the guarantee
RIGHTS OF SURETY
a) Surety’s rights against the creditor: Under Section 141 a surety is entitled to the benefit of
every security which the creditor has against the principal debtor at the time when the
contract of surety ship is entered into whether the surety knows of the existence of such
security or not, if the creditor without the consent of the surety parts with such security,
the surety is discharged to the extent of the value of the security.
b) Rights against the principal debtor: After discharging the debt, the surety steps into the
shoes of the creditor or is subrogated to all the rights of the creditor against the principal
debtor. He can then sue the principal debtor for the amount paid by him to the creditor on
the debtors default; he becomes a creditor of the principal debtor for what he has paid.
c) Surety’s rights gains co-sureties: When a surety has paid more than his share of debt to the
creditor, he has a right of contribution from the co-securities who are equally bound to pay
with him.
Example
A, B and C are sureties to D for the sum of Rs. 3,000 lent to E who makes default in
payment. A, B and C are liable, as between themselves to pay Rs. 1,000 each. If any one of
them has to pay more than Rs. 1,000 he can claim contribution from the other two to reduce
his payment to only Rs. 1,000. If one of them becomes insolvent, the other two shall have to
contribute the unpaid amount equally.
DISCHARGE OF SURETY
A surety may be discharged from liability under the following circumstances:
(a) By notice of revocation in case of a continuing guarantee
(b) Any variation in the terms of the contract between the creditor and the principal debtor,
without the consent of the surety, discharges the surety as regards all transactions taking
place after the variation
(c) A surety will be discharged if the creditor releases the principal debtor, or acts or makes an
omission which results in the discharge of the principal debtor
Note: where the creditor fails to sue the principal debtor within the limitation period, the
surety is not discharged.
(d) Where the creditor, without the consent of the surety, makes an arrangement with the
principal debtor for composition, or promises to give time or not to sue him, the surety will
be discharged
(e) If the creditor does any act which is against the rights of the surety, or omits to do an act
which his duty to the surety requires him to do, and the eventual remedy of the surety
himself against the principal debtor is thereby impaired, the surety is discharged
(f) If the creditor loses or parts with any security which at the time of the contract the debtor
had given in favor of the creditor, the surety is discharged to the extent of the value of the
security, unless the surety consented to the release of such security by creditor in favor of
the debtor.
(g) By death of surety
CONTRACT OF BAILMENT AND PLEDGE
A) BAILMENT
A bailment is the delivery of goods by one person to another for some purpose, upon a
contract that they shall, when the purpose is accomplished be returned or otherwise disposed
of according to the directions of the person delivering them.
ESSENTIALS OF A VALID CONTRACT OF BAILMENT

a) There must be a contract
b) It can be expressed or implied
c) Bailment can be made of goods only
d) There must be delivery of goods by one person to another person
e) The goods must be delivered for some purpose and the purpose may be implied or expressed
f) The delivery of goods must be conditional i.e. the condition should be that the goods must
be returned or disposed of according to the directions of bailor as and when the purpose is
accomplished
MODES OF DELIVERY
A) Actual delivery
Transfer of physical possession of goods from one person to another
B) Symbolic delivery
Physical possession is not actually transferred.
A person does some act resulting in transfer of possession to any other person Example:
a) Delivery of keys of a car to a friend
b) Delivery of a receipt
c) Constructive delivery
d) It means doing of any act which has the effect of putting the goods in the possession of a
person who agrees to hold them as a bailee for some other person although transfer of
possession of goods does not actually take place.
GRATUITOUS BAILMENT
A gratuitous bailment is one in which neither the bailor nor the bailee is entitled to any
remuneration. Such a bailment may be for the exclusive benefit of the bailor, e.g. when A
leaves his dog with a neighbor to be looked after in A’s absence on a holiday. e.g., where you
lend your book to a friend of yours for a week. In neither case any charge is made. A
gratuitous bailment terminates by the death of either the bailor or the bailee (Section 162).
Under Section 159 the lender of a thing for use may at any time require its return if the
loan was gratuitous, even though he lent it for a specified time or purpose.
DUTIES OF BAILEE
The bailee owes the following duties in respect of the goods bailed to him:
(a) The bailee must take as much care of the goods bailed to him as a man of ordinary
prudence would take under similar circumstances of his own goods
(b) The bailee is under a duty not to use the goods in an unauthorized manner or for
unauthorized purpose
(c) If the bailee without the consent of the bailor mixes, the goods of the bailor with his own
goods, in such a manner that it is impossible to separate the goods bailed from the other
goods and deliver them back, the bailor is entitled to be compensated by the bailee for the
loss of goods.
(d) He must not set up an adverse title to the goods.
(e) It is the duty of the bailee to return the goods without demand on the expiry of the time
fixed or when the purpose is accomplished
(f) It is the duty of the bailee to return the goods without demand on the expiry of the time
fixed or when the purpose is accomplished
PARTICULAR AND GENERAL LIEN

Lien is of two kinds: Particular lien and General lien. A particular lien is one, which is
available only against that property on which the skill and labor have been exercised. A
bailee’s lien is a particular lien.
A general lien is a right to detain any property belonging to the other and in the possession
of the person trying to exercise the lien in respect of any payment lawfully due to him. Thus,
a general lien is the right to retain the property of another for a general balance of accounts
but a particular lien is a right to retain only for a charge on account of labour employed or
expenses bestowed upon the identical property detained.
DUTIES OF BAILOR
a) Duty to disclose faults in the goods
b) Pay expenses in respect of the goods
c) Indemnify the bailee for defective title
d) Indemnify the bailee for pre mature termination
e) Receive back the goods
TERMINATION OF BAILMENT
a) Where the bailee wrongfully uses or dispose of the goods bailed, the bailor may determine
the bailment
b) As soon as the period of bailment expires or the object of the bailment has been achieved,
the bailment comes to an end, and the bailee must return the goods to the bailor
c) A gratuitous bailment can be terminated by the bailor at any time, even before the agreed
time, subject to the limitation that where termination before the agreed period causes loss in
excess of benefit, the bailor must compensate the bailee
Note: A gratuitous bailment terminates by the death of either the bailor or the bailee
PLEDGE
 Pledge or pawn is a contract whereby an article is deposited with a lender for money , which
in turn serves the purpose of security.
 Since it is a part of bailment the bailor here is known as pawnor and bailee is known as
pawnee.
 Any kind of goods, valuable and documents can be pledged.
Essential ingredients of a pledge:

(i) The property pledged should be delivered to the pawnee.
(ii) Delivery should be in pursuance of a contract.
(iii) Delivery should be for the purpose of security.

(iv) Delivery should be upon a condition to return.
PLEDGE BY NON-OWNERS
Ordinarily, the owner of the goods would pledge them to secure a loan but the law permits
under certain circumstances a pledge by a person who is not the owner but is in possession
of the goods. Thus, the following non-owners may create a valid pledge:
a) A mercantile agent
b) Pledge by seller or buyer in possession after sale
c) Pledge where pawnor having limited interest: When the pawnor is not the owner of the goods
but has a limited interest in the goods which he pawns, e.g., he is a mortgagee or he has a
lien with respect of these goods, the pledge will be valid to the extent of such interest.
d) Pledge by co-owner in possession
LAW OF AGENCY
An agent is a person employed to do any act for another or represents another in dealings
with third persons.
Two parties:
a) Principal – for whom an act Is done by the agent
b) Agent
TEST OF AGENCY
Where a person has the capacity to create contractual relation between the principal and a
third party and it binds the principal by his own acts, there exists a relationship of agency.
MODES OF CREATING AGENCY

a) Express agency: a person may employ other person as his agent by entering into an express
agreement with him , the agreement may be either written or oral
b) Implied agency
Implied agency may arise by conduct
i) Agency by Estoppel: where P allows third-parties to believe that A is acting as his

authorized agent, he will be estopped from denying the agency if such third-parties relying
on it make a contract with A even when A had no authority at all.
ii) Wife as agent: Where a husband and wife are living together, the wife is presumed to have
her husband’s authority to pledge his credit for the purchase of necessaries of life suitable to
their standard of living.
iii) Agency of Necessity: a person, who has been entrusted with another’s property, may have
to incur unauthorized expenses to protect or preserve it. Such an agency is called an agency
of necessity. For example, A sent a horse by railway and on its arrival at the destination
there was no one to receive it. The railway company, being bound to take reasonable steps to
keep the horse alive, was an agent of necessity of A.
iv) Agency by ratification: Where a person having no authority purports to act as agent, or a
duly appointed agent exceeds his authority; the principal is not bound by the contract
supposedly based on his behalf. But the principal may ratify the agent’s transaction and so
accept liability. In this way an agency by ratification arises. This is also known as ex post
facto agency—agency arising after the event.
CLASSES OF AGENTS
Agents may be special or general:
a) Special agent: A special agent is one who is appointed to do a specified act, or to perform a
specified function and the act of the agent beyond his authority will not bind the principal
b) General Agent: A general agent is appointed to do anything within the authority given to him
by the principal in all transactions, The third party may assume that such an agent has
power to do all that is usual for a general agent to do in the business involved
Sub-agent
 A person who is appointed by the agent and to whom the principal’s work is delegated to
known as sub-agent.
 As between themselves, the relation of sub-agent and original agent is that of agent and the
principal. A subagent is bound by all the duties of the original agent. The sub-agent is not
directly responsible to the principal except for fraud and willful wrong. The sub-agent is
responsible to the original agent. The original agent is responsible to the principal for the
acts of the sub-agent.
Mercantile agents
It means an agent having authority to :
a) Sell the goods
b) Consign the goods for the purpose of sale
c) Buy the goods
d) Raise money on the security of the goods
e) This definition covers factors, brokers, auctioneers, and commission agents.
Factor
A commercial agent employed by a principal to sell merchandise consigned to him for that
purpose for and in behalf of the principal, but usually in his own name being entrusted with
the possession and control of the goods and being remunerated by a commission, commonly
called as ‘Factorage’
Brokers
A broker is a mercantile agent whose ordinary course of business is to make contracts with
other parties for the sale and purchase of goods and securities of which he is not entrusted
with the possession for a commission called brokerage.
Del credere agent

 A del credere agent is a mercantile agent, who is consideration of an extra remuneration
guarantees to his principal that the purchasers who buy on credit will pay for the goods they
take. In the event of a third party failing to pay, the del credere agent is bound to pay his
principal the sum owned by third-party.
 An auctioneer is an agent who sells goods by auction, i.e., to the highest bidder in public
competition.
DUTIES OF THE AGENT

a) To conduct the business in accordance with the direction given by the principal
b) To work with reasonable diligence care and skill
c) To render proper accounts to the principal on demand
d) To communicate with his principal in case of difficulty and seek his instructions
e) Not to deal on his own account unless all the material facts have been disclosed to the
principal and consent of the principal has been obtained
IF THE AGENT WITHOUT THE KNOWLEDGE OF THE PRINCIPAL DEALS IN THE BUSINESS
OF AGENCY ON HIS OWN ACCOUNT, THE PRINCIPAL HAS THE FOLLOWING RIGHTS:
a) He may repudiate the contract
b) He may claim from the agent the benefits derived
c) Not to make any secret profit
d) To remit all the money received on behalf of the employer to the employer
e) Not to use information obtained in the course of agency.
RIGHTS OF AN AGENT (Sec 217 – 225)

• To retain money out of the sums received inn agency business for advances made or
expenses incurred and remuneration due to him,
• To receive the agreed remuneration if the remuneration is not fixed, then he has the right to
received such remuneration as is usual and customary in such business.
• Right of lien on principal’s goods, papers and other property until the remuneration
due to him is paid.
• Agent has the right to be indemnified by the principal against the consequences of all lawful
acts done in exercise of the authority conferred on him
• An agent has the right to be indemnified by the principal against consequences of acts done
in good faith that caused an injury to third person.
• To claim for compensation for injury caused because of principal’s negligence or want
of skill.
TERMINATION OF AGENCY
a) By the Act of Parties.
1. By Agreement: - The principal and the agent may mutually agree to terminate the agency at
any time.
2. By revocation: -
• When the agency is coupled with interest the principal cannot revoke the agency to the
prejudice of such interest.
• The principal can revoke the authority at any time before the authority has been exercised so
as to bind the principal.
• The principal cannot revoke the authority given to his agent after the authority has been
partly exercised.
• When Agency is for a fixed period, the principal must make compensation to the agent for
premature revocation of agency without sufficient cause.
• Revocation may be expressed or implied from the conduct of the principal.
3) By the Agent renouncing the business of agency.
• Renunciation may be express or implied from the conduct of the agent.
• When agency Is for fixed period the agent must make compensation to the principal for pre
mature renunciation of agency without sufficient cause.
b) By operation of law
• Completion of business of agency.
• Death or insanity of principal or agent.
• Where the principal or agent being a company, is dissolved
• Destruction of subject matter of agency,
• Principal becoming insolvent,
• Expiration of period of agency.
CS- EXE Economic Business and Commercial Laws Specific Relief
CHAPTER 21- SPECIFIC RELIEF ACT, 1963
INTRODUCTION
Let's say that Priyank is an art dealer. He acquires a rare, ancient Egyptian statue that is
thought to have belonged to Cleopatra. Divya collects Egyptian art and makes a sizable offer
to buy the piece. Priyank agrees, and the two make a valid legal contract. Priyank then
decides that he'd rather keep the piece for now. He breaches his contract with Divya. Divya
sues Priyank for breach of contract. The court decides that the piece is truly priceless, and
Divya can't acquire another comparable piece no matter how much money the court awards
her. Instead, the court decides that Priyank should comply with the terms of the contract,
and sell the piece to Divya for the price she already agreed to pay. This is specific
performance.
What if you move into a new house, and your new neighbors play loud music in the middle of
the night, every single day? What happens if a baseball stadium is built next to your house,
and lights shine in on you every night preventing you from sleeping? These are situations
where you may ask the offending party to stop doing something that is bothersome and a
nuisance to you. However, there are times when simply asking does not resolve the problem.
In such a case, you may seek to go to court to ask the judge to intervene in the situation
and force the offensive party from continuing to behave in the problematic manner. In order
to do so, you would file an injunction. An injunction is a legal remedy which is imposed by a
court.
In the first example we saw how the court shall grant specific performance of a contract
that is necessary. Second example shows how a person can approach a court for preventive
relief i.e. Injunction. The Specific Relief Act lays down various different provisions relating to
specific performance of a contract, various reliefs that are available to a person.
The Specific Relief Act, 1963 was enacted to define and amend the law relating to certain
kinds of specific relief. The expression ‘specific relief’ means a relief in specie. It is a remedy
which aims at the exact fulfillment of an obligation.
SCOPE OF THE ACT
Under the Specific Relief Act, 1963, remedies have been divided as specific relief (Sections 5-
35) and preventive relief (Sections 36-42). These are:
1. Recovering possession of property (Sections 5-8);
2. Specific performance of contracts (Sections 9-25);
3. Rectification of Instruments (Section 26);
4. Rescission of contracts (Sections 27-30);
5. Cancellation of Instruments (Section 31-33);
6. Declaratory decrees (Sections 34-35); and
7. Injunctions (Sections 36-42)
1. RECOVERY OF POSSESSION OF MOVABLE AND IMMOVABLE PROPERTY (SECTION 5-8)

1.1 Recovery of possession of specific immovable property based on Title (Section 5)
 A person entitle to possession of specific immovable property may recover the same in the
manner provided by the Code of Civil Procedure, 1908.
 The word person includes any company or association or body of individuals, whether
incorporated or not.
 Any suit under this Section arises when claim is on the basis ‘title’.
1.2 Recovery of possession of dispossessed immovable property based on Possession (Section

6)
 If any person is unlawfully dispossessed without his consent of immovable property he or his
representative may recover the possession. E.g. A tenant has right to possession of property,
although no title, through a valid notice and without force.
 Hence, this Section protects tenants, licensees etc against wrongful dispossession of
immoveable property.
 Courts may grant interim relief by restoring possession even though no decree is finalized.
The purpose of such interim relief is to avoid undue hardship on the aggrieved party.
 However no suit under section6 shall be brought—

1. After the expiry of six months from the date of dispossession; or
2. Against the Government.
1.3 Recovery of specific movable property (Section 7)

 A person entitled to the possession of specific movable property may recover it in the
manner provided by the Code of Civil Procedure, 1908.
 The right to have possession means the right to have immediate possession of such property
(except money).
 The person entitled to possession may not be the owner of the goods, but it may also be an
agent, a bailee, a pledge or a trustee who has lawful possession of the goods.
2. SPECIFIC PERFORMANCE OF CONTRACTS (SECTION 9 -25)

Specific performance of a contract means performing the contract as per the terms and
conditions agreed to between the parties to it, rather than payment of compensation for the
non- performance of a contract. Specific performance of a contract is a remedy granted for
breach of contract. However, the defendant may plead non-performance on grounds such as
illegality, impossible to perform, lack of free consent, incapacity to contract, vagueness of
meaning etc.
2.1 Contracts which can be specifically enforced (Section 10)

Section 10 provides the cases in which specific performance of contract is enforceable.
It says that the specific performance of any contact may, in the discretion of the Court be
enforced
a) When there exists no standard for ascertaining the actual damage caused by the non -
performance of the act agreed to be done, or
b) When the act agreed to be done is such that compensation in money for its non -
performance would not afford adequate relief.
In the following cases, the Court has justified specific performance
i. Where breach of a contract to transfer immovable property cannot be adequately relieved by
compensation in money,
ii. Where movable property is not an ordinary article of commerce

iii. Where movable property is of special value or interest to the plaintiff,
iv. Where consists of goods which are not easily obtainable in the market, and
v. Where the property is held by the defendant as the agent or trustee of the plaintiff.
2.2 Specific performance of part of a contract (Section 12)

 Basically the court shall not direct/instruct the specific performance of a part of a contract.
 However the court may order part performance and award compensation , if following
conditions are satisfied –
1. Defendant is unable to perform the whole contract , and
2. The incomplete part is a small proportion to the whole contract (in terms of value) and
3. The defendant agrees to pay compensation in money
 Also the court may grant specific performance where a party to a contract is unable to
perform the whole contract, and the part which is incomplete –
1. Forms considerable part of the whole, and defendant agrees to pay compensation in money;
or
2. Forms a considerable part of the whole, but the defendant does not agree any compensation
in money. Generally in this case the plaintiff is not entitled to obtain a decree for specific
performance. But the Court may grant specific performance if the plaintiff pays or has paid
the consideration for the whole of the contract without any reduction.
 For example –A contracts to sell B a piece of land consisting of 100 acres for Rs. 1,00,000.It
turns out that only 50 acres of land belong to A.50 acres are substantial part of the
contract. A cannot demand specific performance to get 50 acres of land from A by paying
the full consideration i.e. Rs 1, 00,000.
 Further where a part of a contract which taken by itself (i.e. individually, can and ought to
be specifically performed, stands on a separate and independently footing from another part
of the same contract which cannot or ought not be specifically performed, the Court may
direct specific performance of the former part .Example-contract to build a wall and paint
the same, are independent and can be separated.
2.3 Contracts which cannot be specifically enforced (Section 14)

The following contracts cannot be specifically enforced:
 Where a party to the contract has obtained substituted performance of contract.
 A contract, the performance of which involves the performance of a continuous duty which
the court cannot supervise.
 A contract which is so dependent on the personal qualifications of the parties that the court
cannot enforce specific performance of its material terms.
 A contract which is in its nature determinable.
2.4 Who may sue for (claim) specific performance (Section 15)
Section 15 lays down that specific performance of a contract may be obtained by
 Any party to the contract
 The representative of the party including assignee, or a legal representative or official
receiver.
 A beneficiary under the contract may obtain specific performance
 When a limited liability partnership has entered into a contract and subsequently becomes
amalgamated with another limited liability partnership, the new limited liability partnership
which arises out of the amalgamation.
 When a company has entered into a contract and subsequently becomes amalgamated with
another company, the new company which arises out of the amalgamation;
 When the promoters of a company have, before its incorporation, entered into a contract for
the purposes of the company, and such contract is warranted by the terms of the
incorporation, the company
2.5 Who cannot claim specific relief?

 Any party who would not be entitled to recover compensation for its breach i.e. defaulting
party.
 Any person who has who has obtained substituted performance of contract
 Third part that have no interest in the contract.
 Any person who violates the essential terms of the contract.
 Any person who acts in fraud.
2.6 Persons against whom specific performance available (Section 19)

 Any party to the contract.
 Representative of the party, including assignee, or a legal representative or official receiver.
 Any person claiming, by a title arising to the contract. However, it does not include a
transferee who received properly in good faith for value and paid money.
 When a limited liability partnership has entered into a contract and subsequently becomes
amalgamated with another limited liability partnership, the new limited liability partnership
which arises out of the amalgamation.
 When a company has entered into a contract and subsequently becomes amalgamated with
another company, the new company which arises out of the amalgamation;
 When the promoters of a company have, before its incorporation, entered into a contra ct for
the purposes of the company, and such contract is warranted by the terms of the
incorporation, the company
2.7 Substituted Performance of a Contract

 Section 20 lays down that, where a contract is broken due to non-performance of promise by
any part ,the party who suffers by such breach (plaintiff) shall have the option of
substituted performance through a third party or by his own agency, and , recover expenses
incurred by him , from the party committing such breach(defendant).
 No substituted performance of contract shall be undertaken unless the party who suffers
such breach has given a notice in writing, of not less than thirty days, to the party in
breach calling upon him to perform the contract within such time as specified in the notice,
and on his refusal or failure to do so, he may get the same performed by a third party or by
his own agency.
 Special Provisions for contract relating to infrastructure project.
No injunction shall be granted by a court in a suit under this Act involving a contract
relating to an infrastructure project specified in the Schedule, where granting injunction
would cause impediment or delay in the progress or completion of such infrastructure project.
2.8 Special Courts

Section 20B empowers the State Government, in consultation with the Chief Justice of the
High Court, shall designate, by notification published in the Official Gazette, one or more
Civil Courts as Special Courts, within the local limits of the area to exercise jurisdiction and
to try a suit under this Act in respect of contracts relating to infrastructure projects.
2.9 Expenditure Disposal of Suits

 Section 20C states that notwithstanding anything contained in the Code of Civil Procedure,
1908, a suit filed under the provisions of this Act shall be disposed of by the court within a
period of twelve months from the date of service of summons to the defendant.
 The above stated period may be extended for a further period not exceeding six months in
aggregate after recording reasons in writing for such extension by the court.
2.10 Power to claim compensation in a suit for specific performance

The plaintiff filing for specific performance of a contract may also claim compensation for
breach of contract. Such compensation may be claimed either in addition to specific
performance or in lieu. However no such compensation is payable unless the plaintiff claims
such compensation in his plaint.
2.11 Power to grant relief for possession or refund of Earnest Money

Any person suing for specific performance for transfer of immovable property may, in
appropriate cases ask for additional reliefs such as possession of immovable property. Apart
from claiming possession the person suing may also claim refund from earnest money paid by
him.
2.12 Dismissal of suit for specific performance debars another suit for compensation
The dismissal of a suit for specific performance of a contract shall bar the plaintiff’s right to
sue for compensation for the breach of such contract. However, it shall not bar his right to
sue for other relief to which he may be entitled by reason of such breach.
3. RECTIFICATION OF INSTRUMENT (SECTION 26)

 Rectification means correction of an error in an instrument in order to give effect to the real
intention of the parties.
 Where a written contract fails to express the real intention of the parties, the court will
rectify the instrument in accordance with their true intention.
 Existence of a written and valid contract between the parties is a pre-requisite.
 But either through fraud or mutual mistake the written is incorrect or imperfect there can be
claim to rectify the document so as to bring the true meaning and intention of parties.
 Rectification is necessary as one party suffers from its performance while both parties suffer
from its cancellation (rescission).
 Suit for rectification may be brought by either parties thereto or their legal representatives.
Thus there shall be no rectification unless claimed by the parties.
 The principle on which the courts act in correcting instruments is that the parties are to be
placed in the same position as that in which they would have stood if no error had been
committed.
 Relief for the rectification of an instrument shall not be granted to any party unless it has
been specifically claimed.
 However, the court has full discretion in granting rectification.
 It is clear that rectification would not be allowed so as to prejudice rights acquired by third
party in good faith and for value.
 Example-A intending to sell to B his house and one of three godowns adjacent to it,
executes a conveyance prepared by B in which through B’s fraud, all three godowns are
included. Of the two godowns which were fraudulently included, B gives one to C and let the
other to D for a rent, neither C nor D having any knowledge of the fraud. The conveyance
may, as against B and C, be rectified so as to exclude from it the go down given to C, but it
cannot be rectified so as to affect D’s lease
4. RESCISSION OF CONTRACTS (SECTIONS 27-30)

 “Rescission” means putting an end to a contract which is still operative.
 Recession of a contract makes it null and void-ab-initio. It does not apply to void contracts.
 Any person interested in a contract may sue to have it rescinded, and such rescission may
be adjudged by the court. The court shall rescind the contract in the following cases
1. Where the contract is voidable or terminable by the plaintiff;
2. Where the contract is unlawful for causes not apparent on its face and the defendant is
more to blame than the plaintiff.
 The court may refuse to rescind the contract—
1. where the plaintiff has expressly or impliedly ratified the contract; or
2. where, owing to the change of circumstances which has taken place since the making of the
contract (not being due to any act of the defendant himself), the parties cannot be
substantially restored to the position in which they stood when the contract was made; or
3. where third parties have, during the subsistence of the contract, acquired rights in good faith
without notice and for value; or
4. Where only a part of the contract is sought to be rescinded and such part is not severable
from the rest of the contract.
 Any person interested in a contract may sue to have it rescinded. Hence a suit may be
brought by a third party whose interests are affected by the contract.
 In case of a rescission of a contract, the Court may, in its discretion, require the party to
whom such relief is granted to make any compensation to the other party. The main object
of this relief is to put both the parties in their original positions. If a plaintiff fails to get
specific performance of a contract in writing, he may get it rescinded and delivered up to be
cancelled.
5. CANCELLATION OF INSTRUMENTS (SECTION 31-33)

 Court may at its discretion, adjudge it and order it to be delivered up and cancelled where
1. Any person against whom a written instrument is void or voidable (via fraud,
misrepresentation etc) and
2. Who has reasonably apprehension that such instrument is left outstanding may cause him
serious injury
3. He may sue to have it adjudicated void or voidable.
 If the instrument has been registered under the Indian Registration Act, 1908, the court shall
also send a copy of its decree to the officer in whose office the instrument has been so
registered; and such officer shall note on the copy of the instrument contained in his books
the fact of its cancellation.

 An instrument can be cancelled in part and valid in residue, provided the same is capable of
separation. If it cannot be separated then the whole instrument shall be cancelled.
 Where the instrument is cancelled, the court may order restoration of benefit received by
either parties and also award compensation in certain cases.
 However, if the minor has received any benefit and the money or asset is unspent and
identifiable then the minor is liable to return the same.
6. DECLARATORY DECREES (SECTION 34-35)

 A declaratory decree is a decree whereby any right as to any property or the legal character
of a person is judicially ascertained.
 The SC in State of Madhya Pradesh v. Mangilal Sharma held that a declaratory decree
merely declares the right of the decree holder against the judgement debtor and does not in
terms direct the judgement debtor to do or refrain from doing any particular act or thing.
 Declaratory Decree is that mode of relief where some rights of the plaintiff are declared in
his favour without any consequential relief.
 In simple words it merely declares the rights of the plaintiff but does not put any obligation
regarding payment or performance on the defendant. It does not confer any new rights to
the plaintiff; rather it merely declares what the plaintiff already had.
 To maintain a suit under this Section following conditions must be fulfilled:
a) the plaintiff must be a person entitled to any legal character or to any right as to any
property;
b) the defendant must be a person denying or interested to deny the plaintiff’s title to
such legal character or, right;
c) The declaration issued for must be a declaration that the plaintiff is entitled to a legal
character or to a right to property; and
d) Where the plaintiff is able to seek further relief than a mere declaration he must seek such
relief.
 Declaratory decree is at the discretion of the Court. Examples of legal rights or character
include divorce on ground of impotency, character by marriage, legitimacy or illegitimacy,
status of an adopted child etc.
 A declaration is binding only on the parties to the suit i.e. persons claiming through them
respectively.
 Such a judgment is not judgement in rem and as such it cannot bind strangers.
7. PREVENTIVE RELIEF (SECTION 36-44)

 Part III of the Specific Relief Act, 1963 grants specific relief called Preventive Relief i.e.,
preventing a party from doing that which he is under an obligation not to do.
 Preventive relief is granted at the discretion of the court by way of an injunction
 An injunction is a specific order of the Court forbidding the commission of a wrong
threatened or the continuance of a wrongful course of action already begun, or in some
cases (when it is called a “mandatory injunction‟) commanding active restitution of the
former state of things.
 In simple words it is way through which the court may refrain the party (ies) from doing a
particular act or thing. It is court's discretion whether to grant injunction or not. These are
acts in personam.
 The main difference between an injunction and specific performance is that the remedy
in case of an injunction is generally directed to prevent the violation of a negative act and
therefore deals not only with contracts but also with torts and many other subjects of purely
equitable one, whereas specific performance is directed to compelling performance of an
active duty.
 It is known as a “judicial process by which one, who has invaded or is threatening to invade
the rights (legal or equitable) of another, is restrained from continuing or commencing such
wrongful act. Injunction is the most ordinary form of preventive relief. For the effective
administration of justice, this power to prevent and to restrain is absolutely necessary.
 In a suit of injunction, the plaintiff may also claim damages, along with the injunction order.
CHARACTERISTICS OF INJUNCTION
An injunction has three characteristic features;
1. It is a judicial process.
2. The object of this judicial process is to restrain or to prevent.
3. The act restrained or prevented is a wrongful act. An injunction acts or operates always in
personam.
If the wrongful act has already taken place, the injunction prevents its repetition. If it is
merely threatened, the threat is prevented from being executed.
TYPES OF INJUNCTION
1. Temporary injunction
 Temporary injunctions, as the name suggests, are the injunctions that are given for a specific
period of time or until the court gives further order regarding the matter in concern.
 They can be obtained during any stage of the trial and are regulated by the Code of Civil
Procedure (CPC), 1908.
 The underlying object of granting temporary injunction is to maintain and preserve status
quo and to prevent any change till the suit is decided finally.
 Example: If Katappa is demolishing a building on which Bahubali also have possible claims.
Bahubali may ask the competent court to order Katappa to not demolish the buildin g until
the trial for the claim of the building is complete and judgement goes in Katappa's favour.
2. Perpetual Injunction
 A perpetual injunction can be made only after full trial or hearing and it is made upon the
merits of the case.
 Here, the defendant is perpetually (forever) stopped from asserting his rights or committing
the act.
 Example: A is a doctor who is treating B. A demands money for which B declines to pay. A
then threatens B to make his communication with B regarding his disease public. This is
against A's duty and ethics and B may sue for an injunction to restrain him from doing so.
3. Prohibitory Injunction
 This injunction prohibits or forbids the doing of some act.
 Such injunction may be granted to the plaintiff to the breach of an obligation existing in his
favour.
 Example – Prohibit a partner from selling firms’ assets etc. Obligation may arise from
contractual relation or fiduciary relation or statutory obligation.
4. Mandatory Injunction
 When, to prevent the breach of an obligation, it is necessary to compel the performance of
certain acts which the court is capable of enforcing, the court may grant an injunction to
prevent the breach complained of, and also to compel performance of the requisite acts.
 Example: A, by new buildings, obstructs lights to an existing building which B has acquired.
As a right B may obtain an injunction, not only to restrain A from going on with the
buildings, but also to bring it down so much so that it doesn't obstructs B's light.
INJUNCTION WHEN REFUSED

Section 41 gives a list of cases in which a perpetual injunction cannot be granted. It says
that an injunction cannot be granted —
1. Stay of pending judicial suit except to avoid multiple suits on same matter
2. Stay of proceedings in a court not subordinate i.e. injunction cannot be granted to stay
proceedings before the same court or higher court
3. to restrain any person from applying to any legislative body;
4. to restrain any person from instituting or prosecuting any proceeding in a criminal matter;
5. to prevent the breach of a contract
6. to prevent on the ground of nuisance, an act of which it is not reasonably clear that it will
be nuisance;
7. to prevent a continuing breach in which the plaintiff has acquiesced (consented to);
8. when equally effective relief can certainly be obtained by any other usual mode of proceeding
except in case of breach of trust;
9. when the conduct of the plaintiff or his agents has been such as to deprive him to the
assistance of the Court;
10. When the plaintiff has no interest in the matter.
It may be noted that this relief also is a discretionary remedy. It may be refused even if the
case is not covered by Section 41.
INJUNCTION TO PERFORM NEGATIVE AGREEMENT

 It may happen that in a given contract, there may be affirmative agreement to do certain
act, tied with a Negative Contract, express or implied, not to do a certain other act.
 Now if the court is unable to compel specific performance of the affirmative part does not
mean that it cannot grant an injunction in respect of the negative part.
 It is necessary in this case that the plaintiff has performed its part mentioned in the
contract.
 Essentials for this Injunction:
1. The contract should comprise of two agreements, one affirmative and another negative.
2. Both the agreements must be divisible.
3. The negative agreement must relate to a specific covenant which may be express or implied
4. The court should be unable to compel specific performance of the affirmative agreement.
5. The plaintiff must not have failed to perform the contract, so far as it is binding upon him.
If all the essentials are met then the court though was unable to grant specific relief for
affirmative part may grant injunction for negative part.
Case Law: Lumley v. Wagner

Facts: A’ a singer, agreed that she would sing for 12 months at B's theatre and that she
would not sing elsewhere in the public during that period. Here B cannot obtain specific
performance of the first part of the contract (i.e. to sing at his theatre), but he demands
injunction, restraining A from singing at other public places during that period.
Judgment: In this case though there is one contract but contain two parts one is positive
and other is negative. The two parts are independent contracts. In this case court cannot
debar itself to give injunction in case of negative covenant and can restrain A from singing
in public.
CS- EXE Economic Business and Commercial Laws SOGA
CHAPTER 22- SALE OF GOODS ACT, 1930
INTRODUCTION
The Contract of Sale is a special contract which initially was a part of Indian
Contract Act. Later Sections 76 to 123 of the Indian Contract Act, 1930 was repealed
and a separate Act named Sales of Goods Act, 1930 was enacted. Therefore, Sales of
Goods Act is complementary to the Indian Contract Act.
It governs transfer of property in goods. Goods over here means movable property
only. Immovable property is not covered under the ambit of Sales of Goods Act, 1930
as it is governed by Transfer of Property Act, 1882. It extends to whole of India
except the State of Jammu & Kashmir.
SCOPE
 Governs transfer of property in goods of Movable property.
 Does not govern transfer of Immovable property.
CONTRACT OF SALE [Section 4]

A contract of sale of goods is a contract whereby
• The seller,
• Transfers, or
• Agrees to transfer,
• The property (Ownership) in goods,
• To the buyer,
• For a money consideration called the price.
ESSENTIALS OF A VALID CONTRACT OF SALE
1. Two parties involved: A contract of sale is bilateral i.e. made between two parties.
They are known as 'buyer' and 'seller'.
2. Transfer of Property: It involves transfer of property (meaning ownership) in goods
from one person to another. Therefore, transfer of property here means transfer of
ownership of goods from seller to buyer.
3. Goods: The subject matter of sale is good. Goods means every kind of movable
property.
It includes:
• Stock and shares,
• Growing crops,
• Grass, and
• Things attached to or forming part of the land which are agreed to be severed
before sale or agreement to sell.
It does not include:
• Actionable claims, and
• Money.
Note:
1. Actionable claim is a claim enforceable by court of law.
2. Money means legal tender of money.
3. Old coins are not legal tender of money.
4. Price: Price means monetary consideration. Therefore, goods should be exchanged for
money. Exchange of goods for goods will be it would amount to barter and not sale.
Similarly, if no consideration is involved it amounts to gift and not sale.
5. All essential elements of a valid contract: The contract of sale should have all the
elements of a valid contract given under section 10 of the Indian Contract Act.
INCLUSIONS OF CONTRACT OF SALE
DISTINGUISH BETWEEN SALE AND AGREEMENT TO SELL
Basis Sale Agreement to Sell
Transfer of Transfer of ownership takes place Transfer of ownership

ownership immediately takes place at a future
date or on completion of
some conditions
Executed/Executory It is an Executed Contract It is an Executory
Contract
Nature It is absolute It may be conditional
Transfer of Risk Risk of loss of goods is immediatelyRisk of loss of goods is

transferred to the buyer not transferred to
buyer as the goods are
not yet transferred to
him
Rights of seller Seller can sue the buyer for the priceSeller can sue the buyer
against buyer even though the goods are in hisonly for damages
breach possession
Rights of Buyer Buyer can sue the seller forBuyer can sue the seller
against Seller damages as well as sue the thirdfor damages only
party who bought those goods i.e.
he can claim proprietary remedy as
well
DISTINCTION BETWEEN SALE AND BAILMENT
Basis Sale Bailment
Meaning Sale involves transfer of property A "bailment" is a transaction

in goods from seller to buyer for a under which goods are delivered
price by one person (the bailor) to
another (the bailee) for some
purpose, upon a contract that
they be returned or disposed of
as directed after the purpose is
accomplished.
Ownership Transfer of ownership is a must Does not involve transfer of
possession.
Possession Transfer of possession of goods Possession is transferred from

from seller to buyer is not bailor to bailee.
mandatory
Governed by Sales of Goods Act, 1930 Indian Contract Act, 1872 (Section
148).
DISTINGUISH BETWEEN HIRE PURCHASE AND SALE
A "hire purchase agreement" is an agreement to give goods on hire but in addition, it

gives the hirer an option to purchase the goods at the end of the hiring period on
payment of last installment. Therefore, the possession of goods transfers
immediately but the ownership in goods transfer only on the payment of last
installment.
The hirer has the option to terminate the contract any time before the ownership
transfer. Option to terminate the contract is also treated as true test of hire
purchase agreement.
Basis Sale Hire Purchase Agreement
Nature It is a contract of sale It is a contract of hiring and

an agreement to sell.
Possession of Possession of goods need not Possession transfers
goods necessarily be transferred immediately.
immediately
Termination Right The buyer has no right to The hirer has right to
terminate the contract of sale terminate the contract
before payment of last
instalment.
Right to re- Seller cannot re-possess goods if The hirer vendor has right to
possess goods onamount remains unpaid, he can sue re-possess the goods if the
default ofthe buyer hirer fails to pay an
payment installment.
Written Agreement Sale agreement may or may not Hire purchase agreement
be in writing must be in writing.
Ownership Transfer of ownership of goods from Ownership is transferred only

seller to buyer immediately is a on payment of last
must installment.
SALE AND CONTRACT FOR WORK AND LABOUR
In contract for work and labour rendering of services and application of skill is the
essence of contract, there may or may not be delivery of goods. Whereas, in case of
sale delivery of goods is the essence of contract.
GOODS - DEFINITION & TYPE
The subject matter of sale is goods.
DEFINITION [SECTION 2(7)]

Already covered above
TYPES OF GOODS
Types of Goods
Existing Goods Future Goods Contingent Goods
Specified Goods Ascertained Goods Unascertained Goods
Existing Goods
Existing goods are goods which are owned or possessed by the seller at the time of
making contract or sale. These can be:-
• Specific Goods
• Ascertained Goods
• Unascertained Goods
Specific Goods
Specific goods are goods which are identified and agreed upon at the time of the
contract of sale. In simple words these are goods whose individuality has been
found out at the time of making the contract of sale.
Example: If Michael agrees to buy 'Red Avon cycle' of Rosy and Rosy has only one
Red Avon cycle, then the goods are treated as specific goods.
Ascertained Goods
Goods which are extracted and identified or earmarked or kept aside for sale then
such goods are known as ascertained goods.
Example: If out of 10 coffee mugs, Mr. Addicted chooses one then the 1 mug he
chose becomes an ascertained goods coz it is identified now, and will become
specific goods once it is agreed upon after identification.
Unascertained Goods
Unascertained goods are goods which are not specifically identified but are indicated
by description at the time of sale.
Example: If a merchant agrees to supply a radio set from his stock of radio sets, it
is a contract of sale of unascertained goods because it is not known which set will
be delivered.
Future Goods
Future goods are goods to be manufactured or produced or acquired by the seller
after the making of the contract of sale. In case of future goods there can be
only an 'agreement to sell' and not 'sale' as the goods do not exist on the date of
contract.
Example: Ramlal agrees to sell Shyam Lai all the apples that will grow in his orchids
in the upcoming season. Flere apples are future goods as they do not exist and are
not in possession of the goods on the day of agreement to sell.
Contingent Goods
These are the goods which will be acquired by seller on the happening of some
contingency which may or may not happen.
Example: If Amar agrees to sell to Akbar all the apples of Anthony's orchid, only if
Anthony sells it to Akbar, these are Contingent goods for Akbar.
DESTRUCTION OF SPECIFIC GOODS
GOODS PERISHING BEFORE MAKING CONTRACT [SECTION 7]

A contract of sale is void if all the following 3 conditions are satisfied: -
• The contract is of specified goods.
• The goods are perished.
• The seller does not have any knowledge of the destruction of goods at the time of
contract of sale.
Exception:
• Where the seller has knowledge of the destruction of the goods.
• Where the contract of sale is not for specific goods but for generic or unascertained
goods.
GOODS PERISHING AFTER MAKING THE AGREEMENT [SECTION 8]

Where there is an agreement to sell specific goods, and subsequently the goods
without any fault of any party perish or damaged the agreement is thereby
avoided.
Special Note: The provision applies only to sale of specific goods. If the sale is of
unascertained goods, the perishing of the whole quantity of such goods in the
possession of the seller will not relieve him of his obligation to deliver.
Price is the money consideration for the sale of goods is the essence for a contract
of sale. There cannot be sale without a price. Price can be money actually paid or
promised to be paid.
MODES OF FIXING PRICE
• Fixed by contract
• Left to be fixed in an agreed manner
• Left to be fixed by a third party
• May be determined by the course of dealing between the parties
Consequences of not determining the price

If the price is not determined in accordance with the above, the buyer must pay a
reasonable price to the seller. What is a reasonable price is a question of fact
dependent upon the circumstances of each particular case. Generally, the market
price would be a reasonable price.
Consequences if price is not fixed by the third party

The agreement to sell becomes void if the agreement provides that the price is to be
determined by the third party, and the third party cannot or does not make such
valuation, then the agreement to sell will become void.
Note: If the third party is prevented from making the valuation by the fault of
seller or buyer, the innocent party can sue for damages.
CONDITIONS AND WARRANTIES
Condition
A condition is a stipulation essential to the main purpose of the contract, the
breach of which gives rise to a right to repudiate a contract. The non-fulfillment
of it defeats the very purpose for which I the contract was made.
Warranties
A warranty is a stipulation collateral to the main purpose of the contract, the
breach of which gives rise to a claim for damages but not a right to reject the
goods & treat the contract as repudiated. The person cannot reject the goods
on breach of warranties.
Example: If Ms. Jalpari, a national swimmer asks a shopkeeper to give her a water-
proof watch. Shopkeeper provides a watch to her claiming it to be water proof,
but the watch stopped working when she used it while swimming. This will be a
breach of condition, as providing a water proof watch was the precondition of the
contract.
But if in this case, the watch broke due to falling, then it will be treated as breach
of warranty, as unbreakable watch was not an essential condition but a collateral to

the main purpose of contract.
DIFFERENCE BETWEEN CONDITIONS & WARRANTIES
Basis Condition Warranties
Meaning/ A condition is stipulation that is Awarranty is a stipulation

Nature essential to the main purpose of the that is collateral to the main
contract. purpose of the contract.
Significance It is essential to the very purpose of the It is not treated as failure to
contract that it is non-performance may perform the contract.
be considered as failure to perform the
contract.
Consequence The aggrieved party may repudiate the The aggrieved party cannot
of Breach contract. repudiate the contract, can
only claim damages.
Treatment A breach of condition may be treated as A breach of warranty can
Vice versa breach of warranty. never be treated as breach of
Example: In the above example Ms. condition.
Jalpari can chose to keep the watch even Example:Ms. Jalpari in no case
after she get to know that the watch is can treat breach of warranty
not water-proof, by just getting the (unbreakable) as a breach
repairs done from the seller. In this way of condition.
she treated breach of condition as a
breach of warranty.
When will Condition be treated as warranty?

• Where the buyer waives a condition. Eg. If he accepts defective goods then it is
treated as condition.
• Where the buyer elects to treat breach of the condition as a breach of warranty.
And instead of repudiating the contract he only claims damages.
• Where the contract is indivisible and the buyer has accepted the goods or part
thereof, the breach of condition can only be treated as breach of warranty. The
buyer can only claim damages and cannot reject the goods or treat the contract as
repudiated.
Express & Implied Conditions & Warranties Express Conditions & Warranties
These are the conditions & warranties which are expressly provided in the contract.
Like in above example
water-proof watch was an express condition.
Implied Conditions & Warranties

These are the conditions & warranties that are implied by law in every contract of
sale. These are discussed as follows: -
Implied Conditions & Warranties
Implied Conditions Implied Warranties
• Condition as to Title Warranty as to quiet

• Condition as to Description possession
• Condition as to Sample Warranty of freedom from
Condition as to Sample & Description encumbrances
Condition as to Merchantable Quality Warranty to disclose
• Condition as to Wholesomeness dangerous nature of goods
• Condition as to Quality or Fitness Warranty as to quality or
fitness by usage of trade
IMPLIED CONDITIONS
Condition as to In a contract of sale, there is an implied condition on part of

Title the seller *
[Section 14(a)] In case of Sale - He has a right to sell
■ In case of Agreement to Sell - He will have a right to sell the
goods at the time when the property is to pass
In Rowland v. Divall, 'A'had bought a second hand motor car
from 'B' and paid for it. After he had used it for 6 months, he
was deprived of it because the seller had no title to it. It was
held that 'B' had broken the condition as to title and 'A' was
therefore, entitled to recover the purchase money from 'B'.
Condition as to When there is a sale of goods by description, there is an

Description implied condition that the goods shall correspond with
[Section 15] description.
Example:If Noddy placed an order for a red levis t-shirt of
Small size on an online website and received size Medium, then
it will be treated as breach of condition as to description as
the goods supplied do not meet the description.
Condition as to * The bulk shall correspond with the sample in quality.
Sample ■ The buyer shall have a reasonable opportunity of comparing
[Section 17] the bulk
with the sample.
Note: The goods given in bulk shall be free from defect which
would not be apparent on reasonable examination of the
sample. If the defect can be discovered on inspection, the
seller cannot be held liable for the same.
Example:Bob the builder purchased 10,000 pieces of bricks after
seeing the sample.
The bulk i.e. 10,000 pieces should correspond to the sample.
Condition as to If the sale is by sample as well as by description, the goods
sale by Sample must correspond with the both.
& Description Case Law: Nichol v. Godts
[Section 15] Facts: There was a sale of "foreign refined rape-oil having
warranty only equal to sample". The oil tendered was the same
as the sample, but it was not "foreign refined rape-oil" having a
mixture of it and other oil.
Judgement: It was held that the seller was liable, and the
buyer could refuse to accept.
Condition as to If the goods are bought by description from dealer of goods of
that description,
Merchantable then there is an implied condition that the goods shall be of
that merchantable
Quality quality.
[Section 16(2)] Merchantable quality means that the goods must be of such
quality and conditions that will be acceptable by a person
having common prudence. They should be free from defects.
Example: T' bought black yarn from 'D' and, when delivered,
found it damaged by the white ants. The condition of
merchantability was broken.
Case Law: Morelli v. Fitch Gibbons
Facts: A person brought a bottle of wine. While opening its
cork in the normal manner, the bottle broke and the buyer was
injured.
Judgement: The buyer can claim damages as the goods does
not meet the condition of merchantable quality. condition of
merchantable quality.
Condition as to ■ This applies only in the case of eatables.
Wholesomeness ■ The eatables and foodstuff should be wholesome i.e. it should
be fit for human consumption.

Case Law: Frost v. Aylesbury Dairy Co. Ltd.
Facts: 'F' bought milk from 'A' and the milk contained typhoid
germs. 'F's wife became infected and died.
Judgement: 'A' was liable for damages, as the goods were not
fit for consumption.
Condition as to General Rule:
Quality or Fitness The General Rule is that there is no implied condition as to

quality or fitness for any particular purpose of goods supplied.
Exception Rule:
There is an implied condition that the goods are reasonably fit
for the purpose for which they are required if:
■ The buyer expressly or by implication makes known to the
seller the particular purpose for which the goods are required.
■ The buyer relies on the seller's skill or judgement.
■ Seller deals in such goods in ordinary course.
Non-applicability of condition:
The condition of fitness or quality does not apply in the
following cases, even if the buyer has made known to the seller
the purpose of purchase:
The goods sold are specified article under its patent or
trademark.
Where the product is used only for a particular purpose but
the buyer uses it for some abnormal purpose without
disclosing.
Where the goods can be used for more than one purpose &
buyer fails to tell the seller for which purpose he is buying
it. The seller will not be liable.
IMPLIED WARRANTIES
Warranty as to There is an implied warranty that the buyer shall have and
quite possession enjoy quiet possession of the goods.
[Section 14(b)]
Warranty of There is an implied warranty that the goods are free from any
freedom from encumbrances or charge. The breach of such warranty gives the
encumbrances buyer a right to claim damages from the seller.
[Section 14(c)]
Warranty to If the goods are of dangerous nature, the seller must disclose it
disclose to the buyer. If the seller fails to disclose it he will be liable
dangerous nature for payment of damages.
of goods
Warranty as toAn implied warranty or condition as to quality or fitness for a
quality or fitness particular purpose may be annexed by the usage of trade.
by usage of trade
[Section 16(3)]
Q.1 Raman purchases a pastry from Standard Pastry Shop. It contained a piece of stone
which broke one of Raman’s teeth. What remedy has Raman against the shop-
keeper? Give reasons. (5 marks) (Dec. 2010)
A.1 Hint: Condition as to wholesomeness. Pastry shop was liable for damages, as
the goods were not fit for consumption.
Q.2 For the purpose of making uniform for the employees, Amit bought dark blue colored
cloth from Bhagat, but did not disclose to the seller the purpose of said purchase.
Wlten uniforms were prepared and used by the employees the cloth was found unfit.
However, there was evidence that the cloth was unfit for caps, boots and carriage
lining. Whether Amit is entitled to have any remedy under the Sales of Goods Act,
1930.
A.2 Hint: The General Rule is that there is no implied condition as to quality
or fitness for any particular purpose of goods supplied.
Exception Rule:
There is an implied condition that the goods are reasonably fit for the
purpose for which they are required if:
■ The buyer expressly or by implication makes known to the seller the
particular
purpose for which the goods are required.
■ The buyer relies on the seller's skill or judgement.
* Seller deals in such goods in ordinary course.
In this case since the purpose was not mentioned exception to the general
rule will not
apply. So, there is no condition as to quality or fitness for any particular
purpose of goods.
Amit has no remedy.
DOCTRINE OF CAVEAT EMPTOR [Section 16]
MEANING OF THE DOCTRINE

The term "caveat emptor" is a Latin word which means "let the buyer beware". This
principle states that it is the responsibility of the buyer to satisfy himself that the
goods which he is purchasing are of the quality which he requires.
He must satisfy himself that the goods are fit for the intended purpose. It is not
the seller's duty to give to the buyer the goods which are fit for a suitable purpose
of the buyer. If he makes a wrong selection, he cannot blame the seller if the goods
turn out to be defective or do not serve his purpose.
Case Law: Ward v. Hobbs
Facts: Certain pigs were sold by auction and no warranty was given by seller in
respect of any fault or error of description. The buyer paid the price for healthy pigs.
But they were ill and one died of typhoid fever. They also infected some of the
buyer's own pigs.
Judgement: It was held that there was no implied condition or warranty that the
pigs were of good health. It was the buyer's duty to satisfy himself regarding the
health of the pigs.
EXCEPTION TO CAVEAT EMPTOR

1. Where the seller makes a false representation and the buyer relies on it.
2. When the seller actively conceals a defect in the goods which is not visible on a
reasonable examination of the same.

3. When the buyer, relying upon the skill and judgement of the seller, has expressly or
impliedly communicated to him the purpose for which the goods are required.
4. Where goods are bought by description from a seller who deals in goods of that
description.
Q.3 Avdesh contracts to sell a piece of silk to Bupesh. Bupesh thinks it is Chinese silk.
Avdesh knows that Bnpesh thinks so, but Avdesh knows that it is English silk.
Avdesh does not correct Bupesh's impression. Subsequently, Bupesh discovers that it
is not Chinese silk. Can he repudiate the contract? Discuss.
(5 marks) (June 2009)
A.3 Hint: The sale was not by the description and therefore there cannot be an
implied condition as to description, since it is not a condition the contract
cannot be repudiated. Further on application of Caveat Emptor, it is the duty
of the buyer to be sure about what he is buying.
PASSING OF PROPERTY OR TRANSFER OF OWNERSHIP
The sole purpose of a sale is the transfer of ownership of goods from the seller to
the buyer. The general rule is that the risk follows the ownership, whether the
delivery has been made or not. Therefore, it becomes important to determine the
exact point of time when the ownership transfers from seller to buyer.
WHY DETERMINATION OF PRECISE TIME OF TRANSFER OF OWNERSHIP IS

ESSENTIAL?
 To decide who will bear the risk: The owner has to bear the risk and therefore
time of transfer of ownership is required to be determined.
 To take action against third party: Only an owner has right to take action
against the third party.
 Right of seller to sue for price: A seller can sue the buyer for price only if the
ownership is transferred, therefore it is essential to determine the date of transfer
of ownership.
 Insolvency of either the seller or the buyer: It is necessary to know whether the
goods can be taken over by the official assignee or the official receiver. It will
depend upon whether the property in the goods was with the party adjudged
insolvent.
TRANSFER OF OWNERSFIIP OF SPECIFIC GOODS OR ASCERTAINED GOODS
General Rule The ownership of specific or ascertained goods transfers to

[Section the buyer as and when the parties intended to pass.
19(1)] Note:The intention is determined from following:
- Terms of the contract,
- Conduct of the parties, and
- Circumstances of the case.
Specific goods in The ownershipExample: Ramukaka sells 1000 kg.
Deliverable State transfers when theof cotton to Shyamukaka on 1st
[Section 20] contract is made. February. The price of which will be
paid on 7th February and
Shyamukaka will take the
possession on 3rd February. Due to
heavy rainfall on 2nd February, the
cotton got destroyed. Ramukaka
cannot be held liable for loss
caused to Shyamukaka as the
ownership got transferred as and
when the contract was entered on
1st February
Specific goods to be The ownershipExample: Ramukaka sells 1000 kg.

put in Deliverable transfers when theof cotton to Shyamukaka on 1st
State following 2 conditionsFebruary to be packed in 100 bags
[Section 21] are satisfied:- of 10 kgs. each. Ramukaka is yet to
■ Goods are bought topack the bags as desired by
the Shyamukaka. Due to heavy rainfall
deliverable state AND on 2nd February, the cotton got
• Buyer has a notice ofdestroyed. Ramukaka will be liable
it. for loss as the ownership did not
got transferred yet. The ownership
gets transfer only if cotton is
packed in 100 bags of 10 kgs. each
and the same is communicated to
the buyer Shyamukaka.
Specified goods in a The ownershipExample: Ramukaka sells all the
deliverable state but transfers when thecotton he had to Shyamukaka @
the seller has to do following 2 conditionsRs. 125/- per kg. Ramukaka is yet
carry out some act to are satisfied to weigh the cotton. Before
determine the price, ■ The seller hasweighing due to heavy rainfall the
like weighing and carried out suchcotton got destroyed, Shyamukaka
measuring activity to determineis not liable as the ownership has
[Section 22] the price AND not yet transferred.
* Buyer has a notice of
it.
TRANSFER OF OWNERSHIP OF UNASCERTAINED GOODS OR FUTURE GOODS

[Sections 18-23]
Conditions The ownership of unascertained goods transfer to buyer
when the following conditions are satisfied: -
- The goods should be appropriated to the contract
either by the seller or by the buyer and agreed by
the other party.
- The appropriated goods must be of same
description as mentioned in the contract.
- The goods appropriated should be in a deliverable
state.
- The appropriation should be unconditional.
Note:
- Appropriation of goods: It is a process by which the
goods to be delivered under the contract are identified
and set apart with the mutual consent of the seller
& buyer. It is bilateral act of the seller & the buyer
to the identity & set apart the goods.
- Deemed appropriation of goods: Where the seller delivers
the goods-
 to Buyer
 to a Carrier
 to a Bailee
for the purpose of transmission to the buyer without
reserving the right of disposal he is deemed to have
appropriated the goods unconditionally.
TRANSFER OF OWNERSHIP OF GOODS SENT 'ON APPROVAL BASIS' OR 'SALE

RETURN BASIS' [Section 24]
Goods sent on Goods sent on approval basis are goods in respect of

approval basis which the buyer has option to return or retain.
Rules of transfer of The ownership transfer in case of goods sent on approval
ownership basis in any of the following circumstances: -
* When the buyer signifies his approval.

■ When the buyer adopts the goods by his acts.
■ Buyer retain the goods without signifying approval.

■ Buyer makes the return of the goods impossible.
RESERVATION OF RIGHT OF DISPOSAL
The property in goods, whether specific or unascertained, does not pass if the
seller reserves the right of disposal of the goods. Apart from an express
reservation of the right of disposal, the seller is deemed to reserve the right of
disposal in the following two cases:-
Where goods are shipped or delivered to a railway administration for carriage by
railway and by the bill of lading or railway receipt, the goods are deliverable to
the order of the seller or his agent.
When the seller sends the bill of exchange for the price of the goods to the
buyer for this acceptance, together with the bill of lading, the property in the
goods does not pass to the buyer unless he accepts the bill of exchange.
Q4 A agreed to purchase 100 bales of cotton from B from his large stock. A sent his
men to take delivery of cotton. On completion of packing of only 70 bales, there was
accidental fire and entire stock including packed 70 bales were destroyed. Who will
bear the loss. (2 marks) (June 2009)
A.4 Hint: Specific goods to be put in Deliverable State [Section 21] - The
ownership transfers when the following 2 conditions are satisfied: -
■ Goods are bought to the deliverable state, AND
• Buyer has a notice of it.
In this case 70 bales are put in deliverable state and A's men who was
present there had a notice of this, therefore transfer of property in goods is
complete for 70 bales, therefore A is liable for 70 bales and B is liable for
the balance.
Q.5 Amar delivers some cotton bales to Bharat on'sale or return basis'. Bharat, then
delivers the same goods to Chandan and Chandan further delivers it to Dhruv on the
same terms and conditions on which Amar delivers to Bharat. Before Dhruv could
give his acceptance, goods are suddenly destroyed by fire. Who is to bear the loss
under these circumstances ? Give reasons in support of your answer.
(5 marks) (June 2010)
A.5 Hint: The ownership transfer in case of goods sent on approval basis in any
of the following circumstances:-
■ When the buyer signifies his approval.
■ When the buyer adopts the goods by his acts.
■ Buyer retain the goods without signifying approval.
■ Buyer makes the return of the goods impossible.
In this case when Amar delivers the goods to Bharat, he acted as owner
and sold the goods to Chandan, as soon as Bharat transferred the goods
to Chandan he made it impossible to return the goods to Amar. Therefore,
ownership transfers from Amar to Bharat as soon as Bharat transferred
the goods to Chandan on approval basis. Similarly ownership transfers from
Bharat to Chandan as soon as Chandan delivers the goods to Dhruv on
approval basis. The goods were not accepted by Dhruv yet and were
destroyed by fire, the property in goods are still vested in Chandan and he
has to bear the loss.
Q.6 Mr. Bose settled the proce after selecting 2 chairs. He arranges to take delivery the
next day and agrees to pay next month. The next day said chairs were destroyed by
fire before delivery. Seller demanded
the price from Mr. Bose. State legal position. (2 marks) (Dec. 2010)
A.6 Hint: Mr. Bose is liable to pay. The soleof a sale is the transfer of
purpose ownership of
goods from the seller to the buyer. The general rule is that the risk follows
the ownership,
whether the delivery has been made or
not.
SALE BY NON-OWNER/ TRANSFER OF TITLE BY NON-OWNER
SALE BY NON-OWNER
General Rule Exception Rule
Non-Owner can sell goods in following cases: -

1. Sale by Mercantile Agent
Only the Owner can
2. Sale by Co-Owner/Joint Owner
sell the goods
3. Sale by Person in possession of goods under
voidable contract
4. Sale by Seller in possession after sales
5. Sale by Buyer in possession of goods before
the transfer of ownership
6. Sale by unpaid seller
7. Estopple
Sale by Pawnee on default of Pawnor to repay
loan
8. Sale by Official Assignee/R eceiver
9. Sale by Finder of goods
General Rule
The general rule is that nobody can give what he himself a seller cannot transfer a
better title than what he himself does not have. In context of a sale it means has.
Exception Rule
Sale by a mercantile A buyer will get a good title if he buys from a mercantile
agent agent if following conditions are satisfied:
Goods are purchased from mercantile agent who is in
possession of the goods or documents of title to the goods
with the consent of the owner.
The mercantile agent sells the goods in the ordinary course
of his business.
The buyer acted in good faith.
Sale by a co- A buyer will get a good title if he buys from a joint owner
owner/joint owner if following conditions are satisfied:
Goods are owned by joint owners.
Any one joint owner had the sole possession the buyer
acted in good faith.
Sale by a person in The sale by a person who possessed goods under a voidable
possession under a contract will be valid if following conditions are satisfied:
voidable contract Goods are possessed under a voidable contract. Contract
must not have rescinded at the time of sale. The buyer
acted in good faith.
Example: If A acquires goods from B by doing a fraud,

which is voidable, B has not yet rescinded the contract and
meanwhile A transferred it to C who acted in good faith.
Then C will get a good title.
Sale by seller in Sale by seller who is in possession of goods will give a good
possession after sale title to the new buyer if the following conditions are
satisfied:
Goods are sold by the seller to buyer but are still in
possession of the seller.
With the consent of buyer the seller again sells them by
himself or through his mercantile agent to a new buyer.
The new buyer acted in good faith.
Example: MS. Sona purchased a gold brick from a gold
dealer and instructed the gold dealer to keep the possession
with himself and sell it to some other party if he gets
higher prices. The goldsmith sold that brick to Ms. Mona,
who acted in good faith. Ms. Mona will get a good title.
Sale by buyer inSale by buyer who is in possession of goods will give a good
possession of goods title to the new buyer if the following conditions are
before the transfer ofsatisfied:
ownership Goods are in possession of the buyer.
The possession is with the consent of original seller.
The new buyer acted in good faith.
Example: If Baghira purchased furniture from Kak on sale
on approval basis. Before acceptance made to Kak, Baghira
sold the furniture to Ballu, who acted in good faith. Ballu
will get a good title.
Sale by an unpaid An unpaid seller can resell the goods to second buyer who
seller shall have a good title if following conditions are satisfied:
The unpaid seller has possession of the goods.
The unpaid seller has exercised his right of lien or stoppage
in transit.
Estopple If the true owner stands by and allows an innocent buyer
to pay over money to a third party, who professes to have
the right to sell an article, the true owner will be estopped
from denying the third- party's right to sell.
Sale by Pawnee on A pawnee, on default of the pawnor to repay, has a right to

* sell the goods, pawned and the buyer of the goods gets a
default of Pawnor to good title to the goods.
repay loan Example: Dhaniram gives loan to Fakir Chand on security of
gold pledged by Fakir Chand in favour of Dhaniram. Fakir
Chand defaults in repayment of loan and in consequence of
which Dhaniram sells the gold to Kuber. Kuber will have a
good title on gold even if the sale was done by non- owner.
Sale by Official The Official Assignee or Official Receiver, Liquidator,
Receiver/Assignee/ Officers of Court selling under a decree, Executors, and
Liquidator Administrators, all these persons are not owners, but they
can convey better title than they have.
Example: Divaalia Singh became insolvent and the court
appointed official assignee to sell the assets and settle the
liability. The official receiver will be able to deliver a good
title to the buyer even if he is not the owner of the goods.
Sale by Finder ofThe sale of goods by the finder of the goods will be
goods considered appropriate and the buyer of the goods will
get a good title in the following cases:
Owner could not be found with reasonable diligence.
Goods are of perishable nature.
The owner who is found refuses to pay the lawful charges
to the finder.
The lawful charges of the finder, in respect of goods found,
amount to 2/3rd of its value.
Q7 Binod finds a diamond ring of Anand and sells the same for ?50,000 to Chirag who
purchases the ring for value and in good faith. Can Anand, the real owner recover
the ring from Chirag ? Explain.
(5 marks) (Dec. 2012)
A.7 Hint: The sale of goods by the finder of the goods will be considered
appropriate and the buyer of the goods will get a good title onlyin the
following cases:
- Owner could not be found with reasonable diligence.
- Goods are of perishable nature.
- The owner who is found refuses to pay the lawful charges to the finder.
- The lawful charges of the finder, in respect of goods found, amount
to 2/ 3rd of its value.
Since the above case does not fall into any of the above category Chirag will
not have a good title and the real owner Anand has the right to recover the
ring. Though Chirag being innocent can claim damages from Binod.
RULES OF DELIVERY AND ACCEPTANCE
Delivery is the voluntary transfer of possession from one person to another. [Section
2(2)]
METHODS OF DELIVERY
Actual Delivery: When the goods are physically handed over to the buyer or his
authorised agent, it is termed as an actual delivery.
Example: If Banjo sells 500 chairs to Bingo which are kept at Jojo's warehouse.
Banjo actually physically get the chairs delivered to Bingo. It is actual delivery
Symbolic Delivery: When the goods are not physically handed over but some
symbol is handed over to the buyer or his authorised agent, it is termed as
symbolic delivery.
Example: If Banjo sells 500 chairs to Bingo which are kept at Jojo's warehouse. Banjo
hands over keys of the warehouse to Bingo. It is symbolic delivery
Constructive Delivery: When the person who possesses the goods acknowledge to
hold *it for the buyer, it is termed as a constructive delivery.
Example: If Banjo sells 500 chairs to Bingo which are kept at Jojo's warehouse. Jojo
agrees to hold the chairs on behalf of Bingo. It is constructive delivery.
Modes of Delivery Delivery should have the effect of putting the buyer in
(Section 33) possession. Delivery of goods may be made:
By doing anything to which the parties have agreed.
By doing anything which has the effect of putting buyer or
his authorised agent into possession of goods.
Payment & Delivery Unless otherwise agreed by the parties payment & delivery
to be Concurrent has to be concurrent. Means seller should be ready to give the
(Section 32) possession of goods & the buyer should be ready to pay for it.
Note:The parties may also agree otherwise.
Buyer should apply A seller of goods is not bound to deliver until the buyer
for delivery (Section applies for delivery.
35)
Part Delivery A part delivery of the goods with an intention of giving the
delivery of the whole, will amount to delivery of whole with
respect to ownership of the goods.
But if the part delivery is with an intention of separating or
severing it from the whole, it does not amount to whole
delivery.
Place of Delivery If the contract At the agreed place
[Section 36(1)] specifies the place of
delivery
If the contract doesIn case of Sale: At the place at which
not specify the place the goods are at the time of sale.
of delivery In case of agreement to sell:
If goods are At the place at which the
existing goods are at the time
of agreement to sell.
If goods are Place of manufacturing or
future goods production of goods.
Time of Delivery If the contract specifies the time of delivery At the agreed
[Section time
36(2)] If the contract does not specify the time ofWithin
delivery reasonable time
Delivery when goods Where the goods at the time of the sale are in the
are in possession of possession of a third person, there will be delivery only when
the 3rd party that person acknowledges to
the buyer that he holds the goods on his behalf.
[Section 36(3)]
When demand of The demand of delivery will be treated as ineffectual if done
delivery is treated at any time other than reasonable business hours. Reasonable
ineffectual business hours will be a question of fact.
[Section 36(4)]
Cost of Delivery In the absence of an agreement to the contrary, the expenses

[Section of and incidental to making delivery of the goods must be
36(5)] borne by the seller, the expenses of and incidental to
receiving delivery must be borne by the buyer.
Delivery of wrong Short delivery (When seller Buyer may accept goods which are
quantity delivers goods lesser than delivered, or
the quantity contracted) Buyer may reject the goods.
Excess Delivery (When Buyer may accept goods which are
seller delivers goods more delivered, or
than the quantity Buyer may reject the goods, or
contracted) Buyer may accept the contracted
quantity and reject the excessive
goods.
Mixed Delivery (When Buyer may reject the whole, or
seller delivers goods of Buyer may accept the goods
different description mixed contracted and reject the goods of
with the goodsother description.
contracted)
Note:
1. Buyer cannot reject the goods on negligible shortage or
excess of goods.
2. The mixing of goods with inferior quality of goods is
not treated as mixing of goods.
Delivery in The buyer of the goods will be bound to accept delivery in
installment installment only if it is specified in the contract.
The contract can state that the instalments are to be

separately paid for.
If the buyer or the seller commits a breach of contract, it

depends on the terms of the contract whether the breach
is a repudiation of the whole contract or a severable
breach merely giving right to claim for damages.
WHEN THE SELLER BECOMES UNPAID? [SECTION 45]
The seller of goods is deemed to be unpaid seller:

■ When the whole of the price has not been paid or tendered; or
■ When a conditional payment was made by a bill of exchange or other negotiable
instrument, and the instrument has been dishonored.
Example: Shakti sold a laptop to Bhakti for Rs. 50,000/-, Bhakti paid only Rs.
30,000/- to Shakti. Is Shakti an unpaid seller? Will the answer be different if Bhakti
paid Rs. 49,995/-?
Shakti will be treated as unpaid seller in both the cases as the contracted price was
Rs. 50,000/- and in both the cases he has not received the whole amount which is
contracted.
RIGHTS OF UNPAID SELLER

In addition to the rights given under Indian Contract Act related to sueing the
buyer, an unpaid seller has the following rights as well.
Rights of Unpaid Seller
Rights against the goods Rights against the buyer
■ Lien by Unpaid Seller ■ Suit for Price
■ Stoppage in Transit ■ Suit for damages for non-acceptance

■ Resale ■ Suit for repudiation of contract before due
date
■ Suit for interest
RIGHT OF LIEN
Right of lien means right to retain the possession of the goods until whole payment
with respect to goods is received.
When can right of Lien be used?

 When goods are sold without any stipulation as to credit.
 When goods are sold on credit but the credit period has expired.
 Where the buyer becomes insolvent.
Conditions:
1. Lien can be exercised when the goods are sold to the buyer but the possession of
goods is still with the seller.
2. If the seller has done part delivery of goods, he can use right of lien against the
remainder goods only if part delivery is not intended as delivery of the whole.
3. Buyer can use this right even if he has received the decree for payment of price of
goods.
Termination of Right of Lien:

The right of lien of the seller will come to an end in the following circumstances:
- Deemed appropriation of goods.
- When the buyer or his agent lawfully obtains the possession of goods.
- When the seller waives this right whether express or implied.
Stoppage in Transit
Right of stoppage in transit means right to regain the possession of the goods by
stopping the goods while they are in transit, and retain it until whole payment with
respect to goods is received.

• The possession of the goods is not with the seller.
• The possession of the goods is not with the purchaser or his authorised agent.
• The possession of the goods is with the middle men who can be carrier services,
courier services, etc.
Conditions to exercise stoppage in transit:
1. Seller is an unpaid seller.
2. Seller must have parted the possession of the goods. In simple words seller do not
have possession of the goods.
3. The goods have not yet reached the buyer or his authorised agent.
4. The goods are in transit
5. The buyer must have become insolvent.
Termination of Right of Stoppage in Transit:
Situation Right of Stoppagein Transit Example

terminate
If buyer takes delivery The stoppage in transit Goods are sent from
before the finalrights terminates or comesKanyakumari to Chandigarh
destination to an end at the station but the buyer collected it at
where the buyer takes the Delhi station itself, so the
delivery. stoppage in transit will end
at Delhi.
If the goods arrived theThe right of stoppage in Goods are sent from
final destination and thetransit will come to an end Kanyakumari to Chandigarh.
carrier acknowledges toat the destination station The goods reach Chandigarh
hold it for the buyer even if the buyer indicates station and the carrier
further destination for the service acknowledges to
goods to the carrier. buyer to hold it on buyer's
behalf. The buyer instructs
the carrier services to deliver
it further to Amritsar. The

stoppage in transit right will
come to an end at
Chandigarh.
Delivery to ship (which isWhen ship is chartered by Goods are to be delivered

chartered by the buyer) the buyer, the transit endsfrom Mumbai to Goa on a
as soon as the goods are ship which is chartered by
loaded on the ship. the buyer, the transit will
deem to end as soon as the
goods are loaded on ship in
Mumbai port.
Wrong denial to deliverThe transit will deemed to
goods by carrier services/come to an end on denial by
bailee carrier services.
Sub-sale by the buyerThe loss of right of stoppage
with the seller's consent in transit will come to an
end.
If the goods are rejectedThe transit is NOT deemed
by the buyer to be at an end
And
The carrier or bailee
continues the possession
of the goods
Distinction between Right of Lien & Right of Stoppage in Transit
Particulars Right of Lien Right of stoppage in transit
Possession Seller Carrier or Bailee.
Nature of the Seller via right of lien retain the Seller via right of stoppage in
right goods. transit Regain the goods.
Availability of When the buyer fails to pay. When the buyer becomes
the right insolvent.
Relation Right of lien ends when goods are Right of stoppage in transit
between two handed over to bailee/carrier. starts when goods are handed
over to bailee/carrier.
RIGHT TO RESALE
The seller has a right to resale the goods in the following circumstances:
 Perishable goods: If the goods are of perishable nature, the unpaid seller can resale
the goods without any notice to the buyer.
 No payment within reasonable time: If the seller has given a notice to the buyer
of his intention to resale the goods, he may resale it if the buyer does not pay the
price within that time.
 When seller reserves right of resale: When a seller expressly reserves the right to resale
goods in case of default, he may resale it.
Who will bear the profit/ loss in case of resale of goods?
Re-sale with or without notice Profit Loss
With the Notice Seller Buyer
Without the Notice Buyer Seller
Q.8 Sham orders some goods from Ram to deliver certain goods at Mumbai. The station
master of the Mumbai station informs Sham that the goods are held by him at
Sham’s risk. Thereafter Sham gets insolvent. Does Ram has any rights of unpaid seller
rights against goods. Discuss. (2 marks) (Dec. 2009)
A.8 Hint:No, Ram does not have any rights of unpaid seller rights against goods.
As the right to lien can be exercised when goods are still in possession of
seller. And right to stoppage of goods in transit will come to an end as soon
as station master confirms to Mr. Sham that he is holding goods on Sham’s
behalf. So Ram has no right of unpaid seller against goods though he still has
rights of unpaid seller against goods.
MISCELLANEOUS
AUCTION SALE [SECTION 64]

A sale by auction is a public sale where goods are offered to be taken by bidders. It
is a proceeding at which people are invited to complete for the purchase of property
by successive offer of advancing sums.
Where goods are put up for sale in lots, each, lot is prima facie deemed to be
the subject of a separate contract of sale. The sale is complete when the
auctioneer announces its completion by the fall of the hammer or in other
customary manner. Until such announcement is made, any bidder may retract his
bid.
A right to bid may be reserved expressly by or on behalf of the seller. Where such
right is expressly so reserved, the seller or any other person on his behalf may bid at
the auction. Where the sale is not notified to be subject to a right to bid on behalf
of the seller, it shall not be lawful for the seller to bid himself or to employ any
person to bid at such sale, or for the auctioneer knowingly to take any bid from the
seller or any such person.
Salient features of auction sales:

 Any sale in contravention of this rule may be treated as fraudulent by the buyer.
 The sale may be notified to be subject to a reserved price. Where there is such
notification, every bid is a conditional offer subject to its being up to the reserve
price.
 Where an auctioneer inadvertently knocks down to a bidder who has bid less
than the reserved price, there is no contract of sale.
 If the seller makes use of pretended bidding to raise the price, the sale is voidable
at the option of the buyer.
TERMINOLOGIES USED IN SHIP/RAIL TRANSIT
F.O.B. (Free on Board): Under an F.O.B. contract, it is the duty of the seller to put
the goods on board a ship at his own expenses. The property in goods passes to the
buyer only after the goods have been put on board the ship, and they are at buyer's
risk as soon as they are put on board the ship, usually named by the buyer. The
seller must notify the buyer immediately that the goods have been delivered on
board, so that the buyer may insure them. If he fails to do so the goods shall be
deemed to be at seller's risk during such sea transit.
F.O.R. (Free on Rail): Similar position prevails in these contracts as in the case of
F.O.B. contracts.
C.I.F. or C.F.I. (Cost Insurance and Freight): A CIF contract is a contract for the sale
of insured goods lost or not lost to be implemented by transfer of proper documents.
In such types of contracts, the seller not only bears all the expenses of putting the
goods on board the ship as in an F.O.B. contract, but also to bear the freight and
insurance charges. He will arrange for an insurance of the goods for the benefit of
the buyer. On the tender of documents, the buyer is required to pay and then take
delivery. He has a right to reject the goods if they are not according to the contract.
Ex-Ship: Here the seller is bound to arrange the shipment of the goods to the port
of destination, and to such further inland destination as the buyer may stipulate.
The buyer is not bound to pay until the goods are ready for unloading from the ship
and all freight charges paid. The goods travel at the seller's risk, but he is not bound
to insure them.
CS- EXE Economic Business and Commercial Laws Partnership Act
CHAPTER 23- INDIAN PARTNERSHIP ACT, 1932
INTRODUCTION
Meet Chirag and Vaibhav. Both are attorneys who decide to start a law firm together. They
decide to form a general partnership. A general partnership exists when two or more people
own a business. Chirag and Vaibhav write a partnership agreement that outlines such things
as:
a. The scope of the partnership's business
b. The percentage of the business each partner owns
c. How profits and losses will be allocated
d. How the partnership will be managed
e. Whether new partners can join
f. Selling or transfer of partnership ownership interest
g. Termination of the partnership
A general partnership gives the partners some important advantages. Chirag and Vaibhav have
a great deal of flexibility in the design of their partnership. They don't have to deal with a
bunch of complex laws and regulations that apply to other business organizations, like a
corporation. Partnerships are generally not subject to federal income taxation. Instead, all the
profits (or losses) are passed through the partnership to Chirag and Vaibhav, who will report
the income (or loss) on their personal tax returns.
The biggest disadvantage of a general partnership for Chirag and Vaibhav is personal liability.
Chirag and Vaibhav will be personally liable for the debts and obligations of their partnership.
Creditors can pursue Chirag and Vaibhav’s personal assets to collect on partnership debt. If
someone is injured by the partnership and wins a court judgment, the plaintiff can pursue
Chirag and Vaibhav’s personal assets to satisfy the judgment.
Partnership results from a contract and is governed by the Partnership Act 1932. The
partnership is also governed by the general provision of the Indian Contract Act on such
matters where the Partnership Act is silent. It is expressly mentioned that the provision of
India Contract Act which is not repealed will be applicable on Partnership until and unless
such provision is in contrary to any provision of Partnership Act, 1932. The rules of contract
regarding the capacity to contract, offer, acceptance etc will also be applicable to the
partnership. But the rules regarding the status of minor will be governed by the Partnership
Act, 1932 since Section 30 of the Act talks about the position of the minor.
PARTNERSHIP
MEANING
Partnership is the relation between persons who have agreed to share the profits of a
business carried on by all or any of them acting for all.
Hence according to the above definition partnership has 4 essentials –
1. There must be atleast 2 parties.
2. There must be a relationship arising out of an agreement between two or more persons to do
business.
3. The agreement must be to share profits of a business.
4. The business must be carried on by all or any of them acting for all.
Persons who have entered into partnership with one another are called individually “partners”
and collectively “a firm”, and the name under which their business is carried on is called the
“firm name”.
ESSENTIALS AND TRUE TEST OF PARTNERSHIP

A) Association of two or more person
There must be two or more persons who are competent to contract. They may all be natural
or artificial or some natural and other artificial. Thus a corporation or limited partnership may
itself be a partner in a general partnership. If at any time the number of partners reduces to
1 then the partnership firm shall be dissolved.
1. Maximum number of Partners

The act does not mention any maximum number of partners. However, Companies Act
mentions that the maximum number of partners should not exceed 100.
2. Agreement
The relation of partnership comes into existence through a valid agreement i.e. contract. An
agreement may be implied or expressed from the conduct of the parties. The agreement must
be valid agreement for a lawful purpose and between parties competent to contract.
3. Business
A partnership can be formed for the purpose of carrying on business and business alone.
Where there is no business there exists no partnership. The term business includes trade,
occupation and profession.
4. Sharing of profits
Sharing of profits among partners is a must but sharing of losses among all partners is not a
must. Thus, if any partner does not get a share in the profits of the firm, he is not a
partner. However, the partners of an express agreement may agree that one or more of them
shall not be liable for losses.
5. Mutual Agency
To continue with a partnership there must be a mutual agency between the partners.
Partnership Act states that partnership should be carried by all of them or any of them
acting for all. Therefore every partner can carry on business on behalf of all partners and
bind all partners by his actions.
6. Formation of Partnership
Partnership arises from contract and not from status. Thus, a partnership can be formed by
a contract between the persons. The contract of partnership may be express or implied. A
valid contract of partnership has following essentials.
B) Agreement
There must be an agreement between the persons forming a partnership. The agreement may
be between two or more persons.
C) Contractual capacity
Since the partnership arises from contract, the partners must be competent to contract.
Therefore, persons incompetent to contract cannot form partnership. However, a minor can be
admitted to the benefits of partnership with the consent of all the partners after the
formation of partnership.
D) Free consent
The competent persons must give their consent to become partners and that too must be
free.
E) No consideration
There need not be any consideration for a contract of partnership. This is because partners
are mutual agents and no consideration is required to create an agency.
F) Lawful object
A partnership can be formed only for lawful object.
G) Legal formalities
Generally, no formalities are required to be complied with for the formation of a partnership.
But, if the partners wish, they can make a contract in writing, (i.e. Partnership deed) they
can also opt to get the firm registered with Registrar of Firms.
WHO MAY BECOME A PARTNER IN A PARTNERSHIP FIRM?

Partnership is formed by a valid agreement and valid agreement can be made by persons
competent to contract. Therefore, all persons competent to contract can become partners in
a firm. According to Section 11 of the Indian Contract Act, every person except the following
is competent to contract.
A. Minor
A minor is not competent to contract. Therefore, he cannot become partner in a firm but he
may be admitted to the benefits of an existing firm with the consent of all the partners of
the firm.
B. Persons of unsound mind.

A person of unsound mind is not competent to contract. Hence, he cannot become partner in
a firm.
C. Persons disqualified by any law to which they are subject.
Married woman.
A married woman has independent identity in the eyes of law. Therefore, every woman
married or not can enter into any contract including a partnership. She and her personal
property (or stridhan) will be held liable for the liabilities of the firm. Her husband and his
property will not be liable for any liability arising out of any such partnership. A married
woman can even be a partner of her husband.
ArtificialPersons.
Artificial persons, e.g., companies, corporations etc. are also included in the term “person ‟.
Therefore, a company can become a partner in a firm provided its memorandum of

association authorizes it.
PARTNERSHIP DEED
a. The agreement of partnership may be oral but to avoid future disputes it is always advisable
to have it in writing.
b. The mutual rights and obligations of partners must be discussed in detail and should be put
into writing in the shape of a “Partnership Deed‟, before the partnership is actually started.
c. The written document which contains the mutual rights and obligations of partners is known
as partnership deed.
d. The deed must be property drafted and stamped according to the provisions of the Indian
Stamp Act. Each partner should be given a copy of the deed and if the firm is to be
registered, a copy of the deed should be filed with the Registrar of Firms at the time of
such legislation. The partnership deed is not a public document and therefore binds only third
parties so far as they have notice of it.
Contents of partnership deed

a. The firm name and business to be carried on under that name.
b. Names and addresses of partners.
c. Nature and scope of business and address(s) of business place(s).
d. Commencement and duration of partnership.
e. The capital and the contribution made by each partner.
f. Provision for further capital and loans by partners to the firm.
g. Partner’s drawings.
h. Interest on capital, loans, drawings and current account.
i. Salaries, commission and remuneration to partners,
j. Profit (or loss) sharing ratio of partners.
k. The keeping of proper books of accounts, inspection and audit, Bank Accounts and their
operation.
l. The accounting period and the date on which that accounts are to be prepared.
m. Rights, powers and duties of the partners.
n. Whether and in what circumstances, notice of retirement or dissolution can be given by a

partner.
o. Provision that death or retirement of a partner will not bring about dissolution of partnership,
p. Valuation of goodwill on retirement, death, dissolution etc.
q. The method of valuation of assets (and liabilities) on retirement or death of any partner.
r. Provision for expulsion of a partner.
s. Provision regarding the allocation of business activities to be performed by individual partners.
t. The arbitration clause for the settlement of disputes.
PARTNERSHIP PROPERTY
a. The property of the firm or partnership property means and includes all the property, rights,
and interest and good will of the business of the firm to which the firm is (i.e., all partners
jointly) entitled. Partners are free to determine by agreement the property of the firm. But
in the absence of any contract between the partners, the property of the firm includes the
following.
b. All property, right and interest originally brought into the common stock of the firm.
c. All property, rights and interest acquired by purchase or otherwise, by or for the firm for the
purposes and in the course of the business of the firm.
GOODWILL OF THE BUSINESS OF THE FIRM (SEC.14 PARA-1)

a. It should be noted that the Section states that the property of the firm “includes‟. The
word “includes‟ implies that the list of property is not exhaustive.
b. Any property and right or interest brought into originally at the time of commencement of
the firm as well as the property and rights or interest acquired or purchased for the purposes
and in the course of business of the firm and goodwill of the business earned etc. are
included in the property in the firm. While determining the property of the firm, the real
intention of the partners will be considered. Therefore, a mere use of property of partner by
the firm does not itself make the property of firm unless it is intended to be treated as
such.
c. Thus, the partners may by contract treat the personal property of partners as property of the
firm. Similarly, if partnership property is allotted to a partner, it becomes the property of
that partner. Moreover, where certain property is purchased with partnership money but in
the name and for the personal purposes of a partner, it becomes the personal property of the
partner and such partner will become a debtor of the firm for the purchase money.
d. But section 14 clearly states that unless the contrary intention appears, property and rights
and interest in property acquired with money belonging to the firm are deemed to have been
acquired for the firm.
REGISTRATION OF PARTNERSHIP
a. Registration of a firm means getting the partnership firm registered with the Registrar of
Firms. A partnership may be registered with the Registrar of Firms of the area in which any
place of business of the firm is situated or proposed to be situated. The State Government
appoints such registrar.
b. The registration of a firm is not compulsory. Under the partnership Act, it is optional for the
partners. Thus, an existing firm may be registered at any time even after the partners have
agreed to dissolve the firm. But a firm must be registered firm on the date of institution of
a suit. (Sec.69(1)].
c. It should also be noted that any change in the facts registered in the Registrar of Firms
must also be registered. If such changes are not registered, the firm will be treated as
unregistered firm for the purpose of instituting a suit.
Procedure for registration

Procedure for registration of firm comprises the following steps
Preparing statement in the prescribed form.
The partners must prepare a statement in the prescribed form.
The statement contains the following information:
a. The firm name.
b. The place or principal place of business of the firm.
c. The names of any other places where the firm carries on business,
d. The date when each partner jointed the firm.
e. The names in full and permanent addresses of the partners.
f. The duration of the firm.
g. Signing the statement.

h. Verifying the statement.
i. Submitting the statement with fee.
When the above-required formalities have been complied with, the partners must submit the
statement along with the prescribed fee for registration. The statement is to be submitted
to the Registrar of the area in which any place of business of the firm is situated or
proposed to be situated.
Registration
When the Registrar is satisfied that the above provisions have been duly complied with, he
shall record an entry of the statement in the Register of firms, and shall file the statement.
Issue of certificate of registration

Registrar after registration of the firm issues under his hand a “Certificate of Registration‟.
Effective date of registration

When the registrar files the statement & makes entries in the register of firms and not from
the date of presentation of statement to him.
Effects of non-registration
Though the registration of firm is not compulsory but has become essential or desirable in
view of the several adverse effects arising from non-registration. In other words, the
unregistered firm and its partners suffer from many disabilities. The effects of non -
registration of firm are as under:
No suit by a partner against the firm. A partner of an unregistered firm cannot file a suit to
enforce his rights arising from a contract or conferred by this Act against the firm.
No suit by a partner against any other partner. A partner of an unregistered firm cannot file
a suit to enforce his rights arising from a contract or conferred by this Act against any
other present or past partner in the firm.
No suit by an unregistered partner against the firm and other partners. No partners of the
firm whose name has not been shown in the Registrar of Firms as a partner in the firm can
sue against the firm or other partners in the firm.
No suit by unregistered partner against third party. A partner of a registered firm whose
name has not been shown in the register of firm as partner in the firm cannot sue to
enforce his right arising from a contract against any third party.
No suit by the firm against third party. An unregistered firm cannot file a suit in any court
to enforce his any right arising from a contract against any third party.
Third parties can sue against the firm and its partners. Third parties can sue on any
unregistered firm and its partners.
No claim of set-off exceeding Rs.100. An unregistered firm or any partner thereof cannot
claim a set off of value exceeding Rs.100 in proceedings instituted against him by a third
party to enforce his right arising from a contract.
Exceptions i.e non-registration to not affect

a. Right of third party to sue the firm or any partner
b. Right of partners to sue for –
i. Dissolution of firm
ii. Settlement of accounts of a dissolved firm
iii. Realizing the property of dissolved firm
c. Power of official assignee, receiver or court to realize the property of an insolvent partner and
to bring an action on behalf of insolvent partner.
d. Right of the firm to institute a suit or claim of set off not exceeding Rs. 100
TYPES OF PARTNERSHIP
Partnership may be for a fixed term or without any duration, i.e. partnership at will.
1. Partnership for a fixed term

When the partners fix the duration of partnership by an agreement, it is said to be
partnership for a fixed term or period. Such partnership comes to an end on the expiry of
that term. If the firm continues to carry on the business after expiry of that term the
partnership becomes partners at will. However, the mutual rights and duties of the partners
remain the same as they were before the expiry of the term.
2. Partnership at will
a. Where no provision is made by contract between the partners for the duration of their
partnership or for determination of their partnership, the partnership is partnership at will.
b. It is partnership for which no duration has been fixed.
c. Its existence depends on the will of partners.
d. Where partnership is at will, a partner may retire by giving a notice in writing to all the
other partners of his intention to retire.
e. Where the partnership is at a will, the firm may be dissolved by any partner by giving notice
in writing of his intention to dissolve the firm to all the other partners.
3. Particular partnership
When a person becomes a partner with another person in a particular adventure or
undertaking, it is called a particular partnership. For instance, A and B enter into partnership
to produce a film. It is a particular partnership. Where a particular partnership continues even
after the completion of the adventure, the partnership becomes the partnership at will. But
in such a case, mutual rights and duties of the partners in respect of the other adventure
remain the same as they were in respect of the original adventure.
TYPES OF PARTNERS
1. Actual or ostensible or active partner
Actual partner is one who becomes a partner in the firm by an agreement; and who actively
participates in the conduct of the business of the firm. An actual partner is actually an
agent of the other partners in the usual course of business of the firm. He, therefore, binds
himself and all his copartners by his acts done in the usual course of business and in the
name of the firm.
2. Sleeping or dormant partner
a. A sleeping or dormant partner means a partner whose existence, as a partner is not known to
the public.
b. These partners invest money in the firm’s business and take their share of profits. He
becomes a partner in the firm by agreement but never takes active part in the conduct of
the business of the firm. Therefore, he cannot bind all other partners by his acts.
c. But, as long as he remains a partner, his liability for the acts of the firm is the same as
that of an actual partner.
d. A sleeping partner can retire from the firm without giving any public notice to this effect.
e. His liability for the acts of the firm ceases soon after retirement.
f. Such partner has no duties to perform but is entitled to have access to books and accounts
of the firm and he can have a copy of them
3. Nominal partner
a. A nominal partner is one who lends his name to the firm without having any pecuniary
interest in the business of the firm.
b. Neither he invests money in the firm nor he shares the profits of the business of the firm.
c. He even does not take part in the conduct of the business of the firm.
d. But, he is liable like an actual partner of the firm to the third for all the debts of the firm.
Such partner however, does not fulfill the requirements of a valid partnership.
4. Partner in profits only

In a partnership, sharing of profits of the business of the firm is a must but sharing of
losses is not essential by all the partners. Therefore, a partner who agrees to share in the
profits of the firm only and does not agree to be liable for the losses of the firm is a
partner in profits only.
However, he is liable to the third parties for all the debts of the firm. It is so because as per
the law every partner is liable severally and jointly to the third parties do the entire debt of
the firm.
5. Sub-partner
a. A sub-partner is not a partner in the firm but a partner in the firm.
b. A sub- partner is the person who gets a share in the profits derived by a partner from the
firm.
c. A sub-partner is not directly connected with the firm and does not have mutual agency with
any partner of the firm.
d. Therefore, he cannot bind the firm by his acts. He does neither enjoy any right against the
firm nor does he carry any duties for the business of the firm.
6. Partner by estoppel or holding out

a. When a person who is not a partner in a firm but held liable as a partner in the firm under
certain circumstances, such a person is said to be partner by estoppel or holding out. A
person is held liable as a partner by holding out when-
b. He by spoken or written words or by conduct represents himself to be a partner in a firm; or
he knowingly permits himself to be represented as a partner in a firm, and any other person
having faith on such representation gives credit to the firm.
c. In this connection, it is immaterial whether the person representing himself or represented to
be a partner does or does not know that the representation has reached the person so giving
the credit.
d. A partner by holding out becomes liable jointly and severally only to the persons w ho have
given credit to the firm on the faith of his representation. But such a partner is no way
becomes a partner in the firm. Therefore, he is not entitled to any right against the firm or
partners in the firm. At the same time, he is not liable to the partners in the firm.
Exceptions
The principal of holding out is not applicable in the following cases:
a. Where after a partner’s death the business is continued by the firm with the old firm’s
name or remaining partners continue to use the name of the deceased partner, his legal
representative or his estate shall not be liable for any act of the firm after his death.
b. Insolvency of a partner also terminates his liability forth with. His estate is no more liable
for any act of the firm done after the date of the order or adjudication.
c. It does not apply to cases of torts committed by partners. A person, therefore, cannot be
held liable for the torts of another simply because that other person held himself to be his
partner.
Type Profit Sharing Loss Sharing Management Liability towards 3 rd

Party
Actual or ostensibleYes Yes Yes Yes
or active partner
Sleeping or dormantYes Yes No Yes
partner
Nominal partner No No No Yes
Partner in profitsYes No Yes / No Yes
only
Sub-partner No No No No
Partner by estoppel Yes, only for the 3rd
or holding out No No No party who relied on his
representation
MINOR AS PARTNERS IN BENEFITS
The relationship of partnership arises from contract. A minor is incompetent to contact and
hence cannot be a partner in partnership firm. A partnership firm cannot be formed even if
there is one major and one minor. The Act states that with the consent of all the partners
in a partnership firm a minor can be admitted into a partnership firm only for the benefits.
A partnership firm cannot be formed with only minors as partners. There must be at least
two major partners before a minor is admitted into the benefits of partnership
RIGHTS OF MINOR
When a minor is admitted to the benefits of partnership, his rights are as under before
attaining majority:
1. To share profits
A minor admitted to the benefits of partnership, has a right to receive the agreed share of
profits of the firm.
2. To share the property

Such a minor also has a right to receive the agreed share of the property of the firm.
3. To inspect the books

A minor is also entitled to have copy of any of the accounts of the firm.
4. To copy accounts
A minor is also entitled to have a copy of any of the accounts of the firm.
5. To sue partners
A minor when serving his connection with the firm, may sue the partners for (I) an account,
or (ii) payment of his share of the property of profits of the firm.
6. To become or not to become a partner in the firm

Such a minor on attaining majority will have an option either to become or not to become
partner of the firm. He may use this option at any time within six month of his attaining
majority or of his obtaining knowledge that he had been admitted to the benefits of
partnership, whichever date is later.
LIABILITIES OF MINOR
When a minor is admitted to the benefits of partnership, his liabilities are as under before
attaining majority:
1. No personal liabilities
Such a minor has no personal liabilities for the acts of the firm.
2. Minor’s share is liable

The liability of such a minor is limited to the extent of his share in the property or profits
of the firm.
3. Liability in case of insolvency

Such minor will not be liable even in case of insolvency of the firm. But in such a case, his
share in the property or profits of firm shall vest in the official assignee/receiver.
4. To give public notice on attaining majority

Such minor is liable to give public notice of his intention that he has elected not to become
partner in the firm. He must give such notice at any time within six months his attaining
majority or of his obtaining knowledge that he has been admitted to the benefits of
partnership, whichever date is later If he fails to give such notice, he shall be liable as full -
fledged partner in the firm.
RELATION OF PARTNERS TO ONE ANOTHER
The relation of partnership arises through an agreement between the parties and such an
agreement normally provides for mutual rights and obligations, or duties of the partners. In
case the partnership arises out of any implication or if the partnership deed is silent, then
the rights and duties are governed by the Act.
RIGHTS OF PARTNERS
1. Right to take part in business

Subject to contract between the partners every partner has a right to take part in the
conduct of the business.
2. Right to be consulted
Subject to contract between the partners, every partner has a right to be consulted on all-
important matters connected with the business of the firm. Sometimes difference of opinion
among partners may arise. In such case, if difference arises as to ordinary matters, it shall
be decided by a majority of partners. Where the difference arises as to change in the nature
of business, it cannot be decided without the consent of all the partners.
3. Right of access to books

Every partner has a right to have access to and to inspect and copy any of the books of the
firm. Minor admitted to partnership benefits can have access to and to inspect and copy the
accounts only but not the books.
4. Right to remuneration
Generally, a partner is not entitled to receive remuneration for taking part in the conduct of
the business. However, if authorized by an express contract, he can claim remuneration.
5. Right to share profit

Subject to contract between the partners, every partner is entitled to share equally in th e
profits earned, and is liable to contribute equally to the losses sustained by the firm.
6. Right to interest on capital

If the partnership deed provides for payment of interest on capital, the partners are entitled
to the interest. However, the interest on capital shall be payable only out of profits.
7. Right to interest on advances

Sometimes, a partner makes an advance to the firm beyond the amount of capital. In such a
case, the partner is entitled to interest thereon at the rate of six percent per annum.
8. Right in emergency
A partner has authority, in an emergency, to do all such acts for the purpose of protecting
the firm from loss as would be done by a person of ordinary prudence, in his own case,
acting under similar circumstances. The firm will be bound by such acts.
9. Right to be indemnified
Every partner has a right to be indemnified by the firm in respect of the payment made or
liability incurred by him (i) in the ordinary and proper conduct of the business, and (ii) in
doing any act in emergency for the purpose of protection the firm from loss.
10. Right as an agent of the firm

Subject to the provisions of this Act, a partner is the agent of the firm for the purposes of
the business of the firm.
11. Right to prevent admission of a new partner

Every partner has a right to prevent the admission of new partner in the firm without
consent of all the partners, or where partnership is at will, giving notice in writing to all the
other partners.
12. Right to retire

A partner has a right to retire
(a) with the consent of all the other partners, or
(b) in accordance with the agreement by the partners, or
(c) where partnership is at will, by giving notice in writing to all the other partners.
13. Right not to be expelled

Subject to contract to the contrary, every partner has a right not to be expelled from the
firm by any majority of the partners.
14. Right of outgoing partner to carry on competing business

Subject to a contract to the contrary, an outgoing partner may carry on a business
competing with that of the firm and he may advertise such business but without-
a. using the firm name
b. representing himself as carrying on the business of the firm, or
c. soliciting the custom of persons who were dealing with the firm before he ceased to be
partner.
15. Right of outgoing partner to share subsequent profits

Every outgoing partner or representative of a deceased partner has a right to claim either a
share in the subsequent profits of the firm or interest at the rate of 6 percent per annum
on the amount of his share in the property of firm till the accounts are finally settled. This
right is subject to a contract to the contrary.
16. Right to dissolve the firm

Where the partnership at will, any partner may dissolve the firm. For this, the partner is
required to give notice in writing to all the other partners of his intention to dissolve the
firm.
DUTIES OF PARTNER
1. To carry on business to the greatest common advantage

Every partner is bound to carry on business of the firm to the greatest common advantage
of all the partners. Therefore, if a partner derives any profit for himself from any transaction
of the firm or from the use of the property or business connection of the firm of firm name,
he is bound to pay the firm.
2. To be just and faithful

Partnership is a relation founded upon good faith. Every partner, therefore is bound to be just
and faithful to each other.
3. To render true accounts

Every partner is also bound to maintain and render true account of partnership business and
funds with him.
4. To give full information

Partners are also under a duty to give full information of all things affecting the firm to all
the other partners or their legal representatives. No partner should conceal any information in
his possession about the affairs of the firm from his copartners.
5. To indemnify for fraud

Every partner is under a duty to indemnify the firm for any loss caused to it by his fraud in
the conduct of business of the firm.
6. To attend diligently
In the absence of contract to the contrary, every partner is bound to attend diligently to his
duties in the conduct of business. If the firm suffers any loss by the willful neglect of a
partner, he shall be liable to indemnify the firm.
7. Not to claim remuneration

In the absence of contract to the contrary, a partner is not entitled to receive remuneration
for taking part in the conduct of its business.
8. Duty to share losses

In the absence of contract to the contrary, every partner is liable to contribute equally to the
losses sustained by the firm.
9. To use property for the business of the firm

In the absence of contract to the contrary, every partner is under a duty to hold and use the
property of the firm exclusively for the purposes of the business.
10. To account for private profits

A partner is bound to account for and pay to the firm the profit derived for himself from
any of the following:
a. From any transaction of the firm.
b. From use of the property of the firm.
c. From use of business connection of the firm or firm name.
d. However, this duty is subject to a contract to the contrary.
11. To account for profits of a competing business

No partner can carry on any business competing with that of the firm while he is a partner.
If he carry on that, he is bound to account for and pay to the firm all profits made by him
in that business.
12. To act within authority

Every partner is bound to act within the scope of his implied and express authority. In case
he exceeds his authority, he is liable to compensate the firm for the loss caused by such
acts.
13. To be liable for the acts of the firm

Every partner is liable jointly with all the other partners and also severally, for all acts of the
firm done while he is a partner.
RELATIONS OF PARTNERS WITH THIRD PARTIES
1. Partners as Agent
A partnership business may be carried on by all the partners or by any one on their behalf.
Thus, every partner is an agent of all the other partners in the firm for the purposes of the
business of the firm, subject to a contract to the contrary. The acts of every partner who
does any act for carrying on in the usual way the business of the kind carried on by the
firm bind the firm and his partners unless:
i. The partner so acting has no authority to act for the firm in that matter; and
ii. The person with whom he is dealing knows that he has no authority; or
iii. Does not know or believe him to be a partner.
2. Authority of a Partner
The authority of a partner means the capacity of a partner to bind the firm by his act.
This authority may be express or implied.
3. Express Authority:
Authority is said to be express when it is given by words, spoken or written. The firm is
bound by all acts of a partner done within the scope of his express authority even if the
acts are not within the scope of the partnership business.
4. Implied Authority:
The implied authority of a partner is also known as ostensible or apparent authority. The
implied authority is subject to the following conditions:
(1) The act done must relate to the “normal business” of the firm;
(2) The act must be done in the usual way;
(3) The act must be done in the name of the firm.
Acts within implied authority Acts outside implied authority

To buy goods of the kind dealt/used in the To submit a dispute relating to the business
business of the firm. of the firm or arbitration.
To sell the goods of the firm. To open a bank account on behalf of the firm
To buy things necessary (incidentally orin his own name.
consequently) for carrying on the business ofTo compromise or relinquish any claim or
the firm. portion of a claim by the firm.
To accept payments of the debts due to theTo withdraw a suit or proceeding filed on
firm and issue receipts for the same. behalf of the firm.
To employ servants for the business of the To admit any liability in a suit or proceeding
firm. against the firm.
To acknowledge a subsisting debt. To acquire immovable property
To borrow money on credit of the firm. belonging to the firm.
To pledge goods or borrowing money To enter into partnership on behalf of the
on behalf of the firm. firm.
To issue negotiable instruments (Cheque, bills
etc.) for and on behalf of the firm.
To settle accounts with persons dealing with
the firm.
To render accounts to the creditors of the
firm.
To defend an action brought against the firm
and to engage a lawyer for the purpose.
5. Restrictions by contract
Partners may by contract between all the partners restrict the implied authority of any
partner. Therefore, any restriction imposed on implied authority of a partner by a contract
between all the partners will be effective provided the third party with whom the partner
deals knows of such restriction.
6. Partner’s Authority in an emergency

A partner has authority to do all the necessary acts in an emergency subject to the following
conditions:
a. The acts must be done for the purpose of protecting the firm from loss threatened by the
emergency.
b. The partner must act as a prudent person would act under similar circumstances in his own
case.
LIABILITY OF A FIRM
1. Liability for extension and restriction of partner’s implied authority

The partners in a firm may, by a contract between them, extend or restrict the implied
authority of any partner. Any restriction imposed on the implied authority of any partner will
have no effect against third party unless the party with whom the partner is dealing has
notice of such restriction or the party does now know to believe that he is dealing with a
partner in a firm.
2. Liability for acts done in an emergency

When a partner does some act beyond his authority in an emergency in firm is liable for
such acts subject to the following conditions:
I. The act must have been done to protect the firm from loss threatened by the emergency.
II. The partner must act as a prudent person would act under similar circumstances in his own
case.
3. Liability for acts done in the name of the firm

Any act done or instrument executed by a partner or other person on behalf of and in the
name of the firm with an express or implied intention to bind the firm. The firms is liable
for the same.
4. Liability for admission by a partner

An admission (i.e. acknowledgement) or representation made by a partner concerning the
affairs of the firm is evidence against the firm if it is made in the ordinary course of
business. The firm is liable and bound by such admission or representation by any partner.
But admission or representation made by a partner beyond the scope of his implied authority
will not bind the firm.
5. Liability for the notice to a partner

Notice to a partner operates as notice to the firm provided the following conditions are
satisfied:
I. When the notice is given to an active partner.
II. The notice must be of any matter relating to the affairs of the firm.
III. There must not be any fraud committed on the firm with the consent of that partner.
6. Liability for wrongful acts of a partner

The firm is liable for the wrongful acts or omission of a partner subject to the following
conditions:
I. When the wrongful acts are done while acting in the ordinary course of business of the firm
or with the authority of his co-partners.
II. Such acts cause loss or injury to any other party or any penalty is incurred.
7. Liability for misapplication of money

The firm is liable to make good the loss caused to a third party due to misapplication of his
money or property by a partner in the following cases:
I. Where a partner acting within his apparent authority receives money or property from third
party and misapplies it.
II. Where a firm in the course of its business receives money or property from a third party, and
the money or property is misapplied by any of the partners while it is in the custody of the
firm.
DISSOLUTION
Basis of distinction Dissolution of partnership Dissolution of firm

1. Relation between In case of In case of dissolution of firm, the jural
partners dissolution of relation between all the partners
partnership, the comes to an end.
relation
between partners of the firm
change.
2.Change in partners There may or may not be changeAll the partners cease to be in a
in the partners. New position of partners. They are no
partners may be introduced. more mutual agents.
3. Continuation ofThe business is continued in The business is discontinued in the
business the same firm’s name. firm’s name.
4. Revaluation ofIn this case, the firm’s assets are In this case, the firm‟s assets are
realization of assets revalued in order to determine realized to pay off debts
the share of the each partner at and distribute surplus.
the time of reconstitution.
5. Reconstitution Dissolution of partnership results Dissolution of firm results winding
and winding up. in reconstitution of the firm. up of the firm.
MODES OF DISSOLUTION
Dissolution of a partnership can happen by two modes that are :
a. Modes without the order of the court or voluntary modes, and
b. Mode by order of the court.
A) Modes without the order of court or voluntary modes

1. Dissolution by agreement.
A firm may be dissolved by agreement in the following ways:
a. With the consent of all the partners, i.e. by unanimous decision of the partners. Such
decision may be taken by all the partners at any time, or
b. In accordance with a contract between partners, i.e. according to the provisions of the
partnership agreement. If contract provides, the firm may also be dissolved by a decision of
majority of partners or on notice by any partner.
2. Compulsory dissolution.
A firm is compulsory dissolved in the following circumstances:
I. By insolvency of all partners or all but one. A firm is dissolved when all the partners or all
the partners except one are adjudicated as insolvent.
II. By business becoming unlawful. A firm is also dissolved (a) when the business of the firm
becomes unlawful; or (b) when it becomes un-lawful for the partners to carry on the
business in partnership
3. Dissolution by happening of contingencies

Subject to contract between the partners, a firm is dissolved by happening of any of the
following contingencies:
a. Expiry of the term.
b. Completion of adventure.
c. Death of a partner.
d. Insolvency of a partner
4. Dissolution by notice
a. Where the partnership is at will, the firm may be dissolved by any partner giving notice in
writing to all the other partners of his intention to dissolve the firm. The firm is dissolved as
from the date mentioned in the notice as the date of dissolution. If no such date is
mentioned the dissolutions is effective as from the date of the communication of the notice.
b. The notice must be served on all the partners. It must be clear and unambiguous and state
the intention of the partner giving notice to dissolve the firm.
c. It should be noted that a notice for dissolution once given cannot be withdrawn u nless all
other partners agree to the same.
B) Modes of dissolution by order or court

1. Insanity
When a partner has become of unsound mind, a suit may be filed for dissolution of the firm.
Such a suit can be filed by any other partner or by the next friend of the partner of
unsound mind.
2. Permanent incapacity
When a partner has become in any way permanent by incapable of performing his duties as
partner, a suit may be filed before the Court for dissolution of the firm. Such suit may be
filed only by any other partner. The partner suffering from incapacity cannot sue for
dissolution.
Incapacity of a partner must be permanent. It may be physical or mental. For instance, loss
of eyes, hands, legs, hearing capacity etc. But incapacity of a dormant partner cannot be
ground for order of dissolution of the firm.
3. Misconduct
a. When a partner is guilty of conduct or misconduct (which is likely to affect prejudicially the
carrying of the business, regard being had to the nature of business), the Court may dissolve
the firm. Such suit may be filed by a partner other than the guilty partner.
b. Misconduct need not be directly connected with the business of the firm. It may be of any
kind, which may affect prejudicially the business of the firm. Following acts have been held
to be misconduct of a partner:
c. The adultery by a partner with another partners wife
4. Guilty for breach of trust by a partner

Persistent breach of agreement the Court may also dissolve a firm when a suit is filed
against a partner for willful or persistent breach of agreement. However, the willful or
persistent breach agreement must be relating to any of the following:
a. Management of the affairs of the firm.
b. The conduct of the business of the firm.
Moreover, it will also be deemed to be a willful or persistent breach of agreement if the
partner conducts himself in the matters relating to the business that it is not reasonably
practicable for the other partners to carry on in partnership with him.
5. Transfer of interest
The Court may order the dissolution of the firm when a partner has transferred his interest
in any of the following ways:
a. When a partner has transferred whole of his interest in the firm to a third party.
b. When he has allowed his share to be charged under Civil Procedure Code.
c. When he has allowed it to be sold in the recovery of land revenue.
d. When he has allowed it to be sold in the recovery of any dues recoverable as arrears of
revenue of land due by the partner.
6. Perpetual losses
When the business of the firm cannot be carried on except at a loss the court may dissolve
the firm on an application by any partner.
7. Any other just and equitable ground

When any partner makes an application for dissolution of the firm on any ground and the
court thinks it just and equitable that the firm should be dissolved.
RIGHTS OF PARTNERS ON DISSOLUTION

1. Right to enforce winding up
On dissolution of a firm, every partner or his representative is entitled to the following rights
of general lien against all the other partners or their representatives:
a. To have the property of the firm applied in payment of the debts and liabilities of the firm.
b. To have the surplus distributed among the partners of their representative according to their
rights.
c. Rights to have debts of the firm and personal debts paid-off. Where there are joint debts
due from the firm, and also separate debts due from any partner, the property of the firm
shall be applied in the first instance in payment of the debts of the firm, and, if there is
any surplus, then the share of each partner shall be applied in payment of his debts or paid
to him. Similarly, the private property of any partner shall be applied first in the payment of
his private debts, and the surplus (if any) in the payment of the debts of the firm, if any.
2. Right to use the name of the firm

Where any partner has bought the goodwill of the firm after its dissolution, he shall have a
right to use the name of the firm
3. Right to claim return of premium (goodwill) on premature dissolution

Where a partner has paid a premium (goodwill) on entering into partnership for a fixed term
and the firm is dissolved before the expiration of that term, he shall be entitled to
repayment of the premium or of such part thereof as may be reasonable.
The amount of refund of premium will depend upon two things:
a. The terms upon which he became partner in the firm.
b. The length of time during which he was a partner in the firm.
But in the following cases no refund of premium is allowed on premature dissolution of the
firm:
a. When premature dissolution is due to the death of any partner.
b. The dissolution is mainly due to the misconduct of the partner claiming the return of the
premium.
c. The dissolution is in pursuance of an agreement containing no provision for the return of the
premium or any part thereof.
4. Right in case of fraud or misrepresentation

Where a contract of partnership is rescinded on the ground of fraud or misrepresentation of
any of the partners, the aggrieved partner is entitled to the following rights in addition to
his usual rights: (Sec.52)
a. Right of lien on surplus assets. He is entitled to a lien on, or a right of retention of, the
surplus or the assets of the firm remaining after the debts of the firm have been paid, for
any sum paid by him for the purchase of a share in the firm and for any capital contributed
by him.
b. Right to subrogation. He is also entitled to subrogate to the rights of a creditor of the firm
in respect of any payment made by him towards the debts of the firm.
c. Right to be indemnified. He is also entitled to be indemnified by the partner or partners
guilty of the fraud or misrepresentation against all the debts of the firm.
5. Right to restrain use of the firm name

On dissolution of the firm, every partner or his representative may restrain any other partner
or his representative from carrying on a similar business in the firm name or from using any
of the property of the firm for his own benefit, until the affairs of the firm have been
completely wound up. This right is, however, subject to the following conditions:
a. There is no contract between the partners contrary to it.
b. The partner carryon on a similar business has bought the goodwill of the firm.
LIABILITIES OF A PARTNER ON DISSOLUTION

1. Liability for the acts done after dissolution
All the partners continue to be liable to the third parties for any act done by any of them
after dissolution of the firm but before public notice of dissolution is given
However, if the dissolution is a consequence of
(a) death of a partner,
(b) adjudication of insolvency of a partner, or
(c) retirement of a dormant / sleeping partner, the estate of such partner will not be liable for
the acts done after the date on which he ceases to be partner.
2. Continuing authority of partners

After the dissolution of a firm, the authority of each partner to bind the firm as well as
mutual rights and obligations of the partners continue, so far as may be necessary for the
following two purposes only:
a. For winding up of the affairs of the firm.
b. For completing the unfinished transactions at the time of dissolution.
3. Settlement of Accounts
Subject to agreement between the partners, following provisions will apply in the settlement
of accounts of a firm after dissolution:
4. Treatment of losses and deficiency of capital

Losses including deficiency of capital, shall be paid in the following sequence:
a. First, out of profits.
b. Next, out of capital.
Lastly, if necessary, by the partners individually in their profit-sharing ratio.
5. Application of assets
The assets of the firm (including any sums contributed by the partners to make up
deficiencies of capital) shall be applied in the following manner and order:
a. In paying the debts of the firm to third parties.
b. In paying to each partner ratably what is due to him from the firm for advances as
distinguished from capital.
c. In paying to each partner ratably what is due to him on account of capital; and
d. The residue, if any, shall be divided among the partners in their profit sharing ration.
6. Treatment of deficiency arising due to insolvency

There are also cases where a partner becomes insolvent and nothing or a part of deficiency
of his capital can be recovered from his personal assets. In such a case, the solvent partners
are bound to contribute to make-up such deficiency. But the question is in what proportion
the partners are bound to contribute to make-up such deficiency. This question was settled
by the decision given in the well-known case of Garner v. Murry. The principles laid down by
this decision are as under:
The solvent partners should contribute to the deficiency of capital in their profit-sharing
ration.
The solvent partners should bear the loss of deficiency of capital of insolvent partner in the
ratio of their agreed capital.
7. Treatment of goodwill
In setting the accounts of a firm after dissolution, the goodwill shall, in the absence of
contact to the contrary, be included in the assets, and it may be sold either separately or
along with other property of the firm.
CS- EXE Economic Business and Commercial Laws Negotiable Instrument Act
CHAPTER
870 24- NEGOTIABLE INSTRUMENTS ACT, 1881
5751 4600
INTRODUCTION
Picture yourself buying your dream car. You have wanted this car for years. With such a high
price tag, though, you aren't going to just walk into the car dealership with that much cash.
That's just asking for trouble. Instead, you sign documents from the car dealer that say you
will pay off the car in five years by making monthly payments.
What have you done? You have just used a negotiable instrument to pay for your car. A
negotiable instrument is a document promising payment of a specific amount to a specific
person. The document contains both the payee name as well as the amount to be paid to
the payee.
Before negotiable instrument After negotiable instrument
DEFINITION
 Normal Meaning
It is an instrument which is transferable (by customs of trade) by delivery, like cash, and is
also capable of being sued upon by the person holding it for the time being. The property in
such an instrument passes to a bona fide transferee for value.
 Definition under the Act

Section 13 of the Negotiable Instruments Act, 1881 does not define a “negotiable
instrument” although it mentions only three kinds of negotiable instruments namely, bills,
notes and cheques. But it does not necessarily state that there can be no other negotiable
instruments that those mentioned in the Act.
 Reference of other act

Section 17 of the Transfer of Property Act, 1882 speaks of “instruments which are for the
time being, by law of custom, negotiable”, implying thereby that the Courts in India may
follow the practice of English courts in extending the character of Negotiable instruments
Act. Thus in India, Government promissory notes, Hundi, delivery orders and railway receipts
for goods have been held to be negotiable by usage or custom of trade.
Negotiable Instrument Meaning
Normal Meaning Definition under Act Reference to other Act

Instrument Act defines 3 types of Instruments which are
transferable by mere negotiable instrument-bills, negotiable like notes,
delivery notes and cheque. Hundis.
EFFECT OF NEGOTIABILITY
 The general principle of law relating to transfer of property is that no one can pass a better
title than he himself has (nemodat quad non-habet).
 The exceptions to this general rule arise by virtue of statute or by a custom.
 A negotiable instrument is one such exception which is originally a creation of mercantile
custom.
 Thus a bona fide transferee of negotiable instrument for consideration without notice of any
defect of title, acquires the instrument free of any defect, i.e., he acquires a better title than
that of the transferor.
IMPORTANT CHARACTERISTICS OF NEGOTIABLE INSTRUMENTS
 Easily Transferable: A negotiable instrument is easily and freely transferable. There are no
formalities or much paperwork involved in such a transfer. The ownership of an instrument
can transfer simply by delivery or by a valid endorsement.
 Must be Written: All negotiable instruments must be in writing. This includes handwritten
notes, printed, engraved, typed, etc.
 Time of Payment must be Certain: If the order is to pay when convenient then such an
order is not a negotiable instrument. Here the time period has to be certain even if it is not
a specific date. For example, it is acceptable if the time of payment is linked with the death
of a specific individual. As death is a certain event.
 Payee also must be certain: The person to whom the payment is to be made must be a
specific person or persons. Also, there can be more than one payee for a negotiable
instrument. And “person” includes artificial persons as well, like body corporate, trade unions,
chairman, secretary etc.
 Presumptions: Certain equal presumptions including consideration, date, time of acceptance

and transfer, endorsement, are applicable to all negotiable instruments unless the contrary is
proved.
 Right to Recovery/ Sue: The transferee has a right to recovery and he can also sue on the
instrument in his own name to enforce his rights. Moreover, he need not give any notice of
transfer to the party liable on the instrument.
CLASSIFICATION OF NEGOTIABLE INSTRUMENT
Classification
Bearer Inland Demand Ambiguous

instruments instrument instrument instrument
Order Foreign Time Incomplete

instrument instrument instrument instrument
1. Bearer instrument
 A negotiable instrument is expressed to be payable to bearer.
 The last endorsement on the instrument is blank.
 A person who is a holder of a bearer instrument can obtain the payment of the instrument.
2. Order instrument
A negotiable instrument is payable to particular person or to his order.
3. Inland instrument
A negotiable instrument drawn or made in India, and made payable, or drawn upon any
person, resident in India shall be deemed to be an inland instrument.
4. Foreign instrument
An instrument which is not an inland instrument is deemed to be a foreign instrument.
The essentials of a foreign instrument include that:
(i) it must be drawn outside India and made payable outside or inside India; or
(ii) it must be drawn in India and made payable outside India and drawn on a person resident
outside India.
5. Demand instrument
A negotiable instrument in which no time for payment is specified is an instrument payable
on demand.
6. Time Instruments
 A Negotiable instrument on which time for payment is specified.
 A Negotiable instrument is called time instrument when it may be payable
1. after a fixed period, or
2. after sight, or
3. on specified day, or
4. on the happening of an event which is certain to happen.
7. Ambiguous instrument
 An instrument, which in form is such that it may either be treated by the holder as a bill or
as a note, is an ambiguous instrument.
 In other words, a bill of exchange drawn to or to the order of the drawee or by an agent on
his principal, or by one branch of a bank on another or by the direction of a company or
their cashier are also ambiguous instruments.
 An instrument, which in form is such that it may either be treated by the holder as a bill of
exchange or as a promissory note, is an ambiguous instrument. In other words, a bill of
exchange drawn to or to the order of the drawee or by an agent on his principal, or by one
branch of a bank on another or by the direction of a company or their cashier are also
ambiguous instruments.
 Example: Ram issued a negotiable instrument and payable to Shyam and such instrument is
having features of bill of exchange and a promissory note. Shyam may choose such
negotiable instrument either it as promissory instrument or bill of exchange.
7. Incomplete instrument
An instrument which is incomplete in certain respect. In other words, when one person signs
a negotiable instrument and delivers to another a paper stamped in accordance with the law,
and either wholly blank or having written thereon an incomplete negotiable instrument.
Note: The maker gives prima facie authority to the holder to complete a negotiable
instrument, for any amount specified therein, and not exceeding the amount, covered by
the stamp.
Example I: A person signed a blank acceptance with the maximum limit of Rs.50,000/- and
given it to Mr. Ram.
Example II: A person signed a blank acceptance and kept it in his drawer and some person
stole it and filled it up for Rs.2,000 and negotiated it to an innocent person for value, it was
held that the signer to the blank acceptance was not liable to the holder in due course
because he never delivered the instrument intending it to be used as a negotiable instrument.
Note: The authority to fill up a blank or incomplete instrument may be exercised by any
holder and not only the first holder to whom the instrument was delivered. The person
signing and delivering the paper is liable both to a holder and a holder in due course. A
holder can recover only what the person signing and delivering the paper agreed to pay
under the instrument, while a holder in due course can recover the whole amount made
payable by the instrument provided that it is covered by the stamp, even though the
amount authorised was smaller.
KINDS OF NEGOTIABLE INSTRUMENT
1. PROMISSORY NOTE – SECTION 4
 Definition
A promissory note is:
1. an instrument (not being a bank note or a currency note in writing)
2. containing an unconditional undertaking;
3. signed by the maker;
4. to pay a certain sum of money to, or to the order of, a certain person, or only to bearer of
the instrument.
 Parties to promissory note

1. The maker: The person who makes or executes the note promising to pay the amount stated
therein.
2. The payee: One to whom the note is payable.
3. The holder: is either the payee or some other person to whom he may have endorsed the
note.
4. The endorser.
5. The endorsee.
Buyer Purchased Goods Sellers
Promisor Promisee
Payer Payee
Issued Note
 Essentials of a promissory note

1. It must be in writing.
2. The promise or undertaking to pay must be unconditional. But a promise to pay after a
specific time or on the happening of an event which must happen is not conditional.
3. The maker must sign the promissory note in token of an undertaking to pay to the payee or
his order.
4. The maker must be a certain person, i.e., the note must show clearly who the person is
engaging himself to pay.
5. The payee must be certain. The promissory note must contain a promise to pay to some
person or persons ascertained by name or designation or to their order.
6. It must contain an express promise or clear undertaking to pay. A mere acknowledgement of
debt is not sufficient.
7. The sum payable must be certain and the amount must not be capable of contingent
additions or subtractions. If A promises to pay Rs. 100 and all other sums which shall
become due to him, the instrument is not a promissory note.
8. Payment must be in legal money of the country. Thus, a promise to pay Rs. 500 and deliver
10 quintals of rice is not a promissory note.
9. It must be properly stamped in accordance with the provisions of the Indian Stamp Act.
Each stamp must be duly cancelled by maker‘s signature or initials.
10. It must contain the name of place, number and the date on which it is made. However, their
omission will not render the instrument invalid, e.g. if it is undated, it is deemed to be dated
on the date of delivery.
Note: A promissory note cannot be made payable or issued to bearer, no matter whether it is
payable on demand or after a certain time.
Requirements of Promissory Note
It must be in It must be The amount It should be signed Promise must

writing unconditional. must be certain. by its maker. be certain.
2. BILLS OF EXCHANGE
 A bill of exchange is
1. an instrument in writing
2. containing an unconditional order,
3. signed by the maker,
4. directing a certain person to pay a certain sum of money
5. only to or to the order of, a certain person or to the bearer of the instrument.
 The definition of a bill of exchange is very similar to that of a promissory note and for most
of the cases the rules which apply to promissory notes are in general applicable to bills.
There are however, certain important points of distinction between the two.
Parties to bills of exchange

1. The Drawer: The person who draws the bill.
2. The Drawee: The person on whom the bill is drawn.
3. The Acceptor: One who accepts the bill. Generally, the drawee is the acceptor but a stranger
may accept it on behalf of the drawee.
4. The payee: One to whom the sum stated in the bill is payable, either the drawer or any
other person may be the payee.
5. The holder: Is either the original payee or any other person to whom, the payee has endorsed
the bill. In case of a bearer bill, the bearer is the holder.
6. The endorser: when the holder endorses the bill to anyone else he becomes the endorser.
7. The endorsee: is the person to whom the bill is endorsed.
8. Drawee in case of need: Besides the above parties, another person called the ―drawee in
case of need may be introduced at the option of the drawer. The name of such a person may
be inserted either by the drawer or by any endorser in order that resort may be had to him
in case of need, i.e., when the bill is dishonored by either non-acceptance or non-payment.
9. Acceptor for honor: Further, any person may voluntarily become a party to a bill as acceptor.
A person, who on the refusal by the original drawee to accept the bill or to furnish better
security, when demanded by the notary, accept the bill supra protest in order to safeguard
the honor of the drawer or any endorser, is called the acceptor for honor.
Essentials of bill of exchange

1. It must be in writing.
2. It must be an order to pay.
3. The order to pay must be unconditional.
4. The amount ordered must be certain and a definite sum of money.
5. It must be signed by the drawer.
6. The parties must be certain.
7. The sum payable must also be certain.
8. It must comply with other formalities e.g. stamps, date, etc.
Requirements of Promissory Note
It must It must It must be The Signed Parties

Sum
be in be order unconditional amount by must be
payable
writing to pay must be drawer certain
must be
money certain.
certain
DISTINCTION BETWEEN PROMISSORY NOTE AND BILL OF EXCHANGE
Basis Bill of Exchange Promissory Note
Nature of It contains an order to pay. It contains a promise to pay.

Payment
Parties Three parties involved i.e. drawer, drawee & Two parties involved i.e. maker &
payee whereas drawer and payee may be payee.
the same party. The drawer is the maker
who orders the drawee to pay the bill to a
person called the payee or to his order.
When the drawee accepts the bill he is
called the acceptor.
Liabilities The liability of the drawer of a bill is The liability of the maker of a note
secondary and conditional. He would be is primary and absolute.
liable if the drawee, after accepting the bill
fails to pay.
Drawn on In bill, the drawer may order the payment It cannot be made payable to the
self to be made to him also. Accordingly, the maker himself, that is the maker and
drawer, payee or the drawer and the the payee cannot be the same
drawee may be the same person. person.
Payment An unconditional order to the drawee to An unconditional promise by the

conditions pay according to the directions of the maker to pay to the payee or his
drawer. order.
Acceptanc A bill payable after sight must be accepted A note is presented for payment
e by the drawee or someone else on his without any prior acceptance by the
behalf before it can be presented for maker.
payment.
Notice of A notice is requirement to be given in case No notice is requirement to be given

dishonor of dishonor of bill. in case of dishonor of Note.
Payable to Bill can be payable to a bearer provided it Note cannot be issued which is
bearer is not payable on demand. payable to bearer except by
RBI/Central Government.
Forms of bill of exchange

1. Inland bill
 A bill of exchange drawn or made in India, and made payable, or drawn upon any person,
resident in India shall be deemed to be an inland instrument.
 But a promissory note to be an inland should be drawn and payable in India, as it has no
drawee.
 Two essential conditions to make an inland instrument are:
(1) the instrument must have been drawn or made in India; and
(2) the instrument must be payable in India or the drawee must be in India.
 Examples: A bill drawn in India, payable in USA, upon a person in India is an inland
instrument. A bill drawn in India and payable in India but drawn on a person in USA is also
an inland instrument.
2. Foreign Bill
All bills which are not inland are deemed to be foreign bills. Normally foreign bills are drawn
in sets of three copies.
3. Trade Bill
A bill drawn and accepted for a genuine trade transaction is termed as a trade bill. When a
trader sells goods on credit, he may make use of a bill of exchange.
4. Accommodation Bill
 All bills are not genuine trade bills, as they are often drawn for accommodating a party.
 An accommodation bill is a bill in which a person lends or gives his name to oblige a friend
or some person whom he knows or otherwise.
 In other words, a bill which is drawn, accepted or endorsed without consideration is called an
accommodation bill.
 The party lending his name to oblige the other party is known as the accommodating or
accommodation party, and the party so obliged is called the party accommodated.
 An accommodation party is not liable on the instrument to the party accommodated because
as between them there was no consideration and the instrument was merely to help.
5. Bills in sets
 Foreign bills are usually drawn in sets to avoid the danger of loss.
 They are drawn in sets of three, each of which is called “Via” and as soon as any one of
them is paid, the others become inoperative.
 All these parts form one bill and the drawer must sign and deliver all of them to the payee.
The stamp is affixed only on one part and one part is required to be accepted.
 But if the drawer mistakenly accepts all the parts of the same bill, he will be liable on each
part accepted as if it were a separate bill.
6. Bank draft
 A bill of exchange is also sometimes spoken of as a draft.
 It is called as a bank draft when a bill of exchange drawn by one bank on another bank or
by itself on its own branch, and is a negotiable instrument.
 It is very much like the cheque with three points of distinction between the two.
1. A bank draft can be drawn only by a bank on another bank, usually its own branch.
2. It cannot so easily be counter-manded.
3. It cannot be made payable to bearer.
3. CHEQUE
Definition
A “cheque” is:
1. A bill of exchange
2. Drawn on a specified banker and
3. Not expressed to be payable otherwise than on demand and
4. It includes the electronic image of a truncated cheque and a cheque in the electronic form.
Parties to a cheque
1. The drawer: The person who draws the cheque.
2. The drawee: The banker of the drawer on whom the cheque is drawn.
3. The payee, holder, endorser and endorsee: same as in the case of a bill
Essentials of a cheque
1. It is always drawn on a banker.
2. It is always payable on demand.
3. It does not require acceptance. There is, however, a custom among banks to mark cheques as
good for purposes of clearance.
4. A cheque can be drawn on bank where the drawer has an account.

5. Cheques may be payable to the drawer himself. It may be made payable to bearer on
demand unlike a bill or a note.
6. The banker is liable only to the drawer. A holder has no remedy against the banker if a
cheque is dishonored.
7. A cheque is usually valid for fix months. However, it is not invalid if it is post dated or ante-
dated.
8. No Stamp is required to be affixed on cheques.
Basis Cheque Bill of exchange
Drawing A cheque is a bill of exchange A bill may be drawn on any one,
and always drawn on a banker. including banker.
Payable A cheque can only be drawn A bill may be drawn payable on demand
payable on demand. or on the expiry of a specified period
after sight or date.
Acceptance A cheque does not require any A bill is required to be accepted.
acceptance.
Days of No days of grace is given for 3 days of grace is allowed in the case of
Grace payment. time bills.
Discharge The drawer of a cheque is The drawer of a bill is discharged, if it is
of Liability discharged only if he suffers any not presented for payment.
damage by delay in presentment
for payment.
Dishonor No notice of dishonor is required. Notice of the dishonor of a bill is
of Cheque necessary.
Revocation The cheque being a revocable A bill can be revoked in case of
mandate, the authority may be customer's death or insolvency.
revoked by counter-manding
payment.
Crossing A cheque may be crossed. No crossing concept is in a bill.
Banker
 A banker is one who does banking business.
 Section 5(b) of the Banking Regulation Act, 1949 defines banking as, ―accepting for the
purpose of lending or investment, of deposits of money from the public, repayable on demand
or otherwise and with draw able by cheque, draft or otherwise.
 This definition emphasizes two points:
(1) That the primary function of a banker consists of accepting of deposits for the purpose of
lending or investing the same;
(2) That the amount deposited is repayable to the depositor on demand or according to the
agreement.
Customer
 The term customer is neither defined in Indian nor in English statutes.
 The general opinion is that a customer is one who has an account with the bank or who
utilizes the services of the bank.
 The special features of the legal relationship between the banker and the customer may be
termed as the obligations and rights of the banker. These are:
1. Obligation to honor cheques of the customers.
2. Obligation to collect cheques and drafts on behalf of the customers.
3. Obligation to keep proper record of transactions with the customer.
4. Obligation to comply with the express standing instructions of the customer.
5. Obligation not to disclose the state of customer‘s account to anyone else.
6. Obligation to give reasonable notice to the customer, if the banker wishes to close the
account.
7. Right of lien over any goods and securities bailed to him for a general balance of account.
8. Right of set off and right of appropriation.
9. Right to claim incidental charges and interest as per rules and regulations of the bank, as
communicated to the customer at the time of opening the account.
Liability of a banker
 The banker becomes liable to his customer by opening his current account only to the extent
of the amount received in the account.
 The banker undertakes the obligation to honor the cheques drawn by the customer in the
account as long as the customer holds sufficient balance in that account.
 If the banker without proper justification fails to honor the cheques, he shall be liable to
compensate the drawer for any loss of damage suffered by him.
 The banker must also maintain proper and accurate accounts of credits and debits.
When banker must refuse payment

 In the following cases the authority of the banker to honor customer‘s cheque comes to an
end, he must refuse to honor cheques issued by the customer:
1. When a customer revoke payment i.e., where or when a customer, after issuing a cheque
issues instructions not to honor it, the banker must not pay it.
2. When the banker receives notice of customer‘s death.
3. When customer has been adjudged an insolvent.
4. When the banker receives notice of customer‘s insanity.
5. When an order (e.g., Garnishee Order) of the Court, prohibits payment.
6. When the customer has given notice of assignment of the credit balance of his account.
7. When the holder‘s title is defective and the banker comes to know of it.
8. When the customer has given notice for closing his account
When banker may refuse payment

(a) When the cheque issued is post-dated.
(b) When the banker has no sufficient funds of the drawer with him and there is no
communication between the bank and the customer to honor the cheque.
(c) When the cheque is of doubtful legality.
(d) When the cheque is not duly presented, e.g., it is presented after banking hours.
(e) When the cheque on the face of it is irregular, ambiguous or otherwise materially altered.
(f) When the cheque is presented at a branch where the customer has no account.
(g) When some persons have joint account and the cheque is not signed jointly by all or by the
survivors of them.
(h) When the cheque has been allowed to become stale, i.e., it has not been presented within six
months of the date mentioned on it.
Protection of Paying Banker

 Protect in respect of uncrossed cheque
1. When a cheque payable to order purports(claim) to be endorsed by or on behalf of the payee
and the banker on whom it is drawn pays the cheque in due course , he is authorized to
debit the account of the customer with the amount so paid ,even though the endorsement of
the payee subsequently turns out to be forgery or through endorsement may have been made
by payee agent without his authority.
2. In other words, the banker release for the failure to direct either the genuineness of the
validity of the endorsement on the cheque purporting to be that of the payee or his
authorized agent.
3. This protection is granted because a banker cannot be expected to know the signatures of all
the persons in the world. He is only bound to know the signatures of his own customers.
4. Therefore, the forgery of drawer‘s signature will not ordinarily protect the banker but even in
this case, the banker may debit the account of the customer, if it can show that the forgery
was intimately connected with the negligence of the customer and was the proximate cause
of loss.
 Protection in respect to crossed cheque

1. When a banker pays a cheque (drawn by the customer),if crossed generally then to any
banker and if crossed specially then to banker ,to whom it is crossed or his agent for
collection, then he can debit the account of drawer even if the amount of the cheque does
not reach true owner .
2. The protection can be availed if payment is made in due course i.e in good faith and without
negligence to the person without any suspicion that he is not entitled to receive the
payment.
Payment in due Course (Section 10)

 The payment should be in accordance with the apparent tenor (i.e according to what appears
on the face of the instrument) of the instrument.
 The person to whom it payment is made should be in possession of the instrument.
 The payment should be in good faith.
 The payment should be made without negligence.
 The payment should be in money only.
Collecting Bank
 Collecting Banker is one who collects the proceeds of a cheque for a customer.
 Although a banker collects the proceeds of a cheque for a customer purely as a matter of
service, yet the Negotiable Instruments Act, 1881 indirectly imposes statutory obligation,
statutory in nature.
Overdue, stale or Out of date cheque

 A cheque is overdue or becomes statute-barred after 3 years from its due date of issue.
 A holder cannot sue on the cheque after that time.
 In India, a cheque, which has been in circulation for more than 6 months, is regarded by
bankers as stale.
 If, as a result of any delay in presenting a cheque, the drawer suffers any loss, as by the
failure of the bank, the drawer is discharged from liability to the holder to the extent of the
damage
Rights of Holder against Banker

 A banker is liable to his customer for wrongful dishonor of his cheque but it is not liable to
the payee or holder of the cheque.
 The holder has no right to enforce payment from the banker except in two cases, namely,
1) Where the holder does not present the cheque within a reasonable time after issue, and as a
result the drawer suffers damage by the failure of the banker in liquidation proceedings; and
2) Where a banker pays a crossed cheque by mistake over the counter, he is liable to the owner
for any loss occasioned by it.
Crossing of cheque
 A cheque is either “open” or “crossed”.
 An open cheque can be presented by the payee to the paying banker and is paid over the
counter.
 A crossed cheque cannot be paid across the counter but must be collected through a banker.
 A crossing is a direction to the paying banker to pay the money generally to a banker or to a
particular banker, and not to pay otherwise.
 The object of crossing is to secure payment to a banker so that it could be traced to the
person receiving the amount of the cheque.
Modes of crossing
There are two types of crossing which may be used on cheque, namely:
(i) General, and
(ii) Special.
The usage of crossing cheques

General crossing
 Cheques are usually crossed as a measure of safety.
 Crossing is made by drawing two parallel transverse lines across the face of the cheque with
or without the addition of certain words. This is known as general crossing.
 The usage of crossing distinguishes cheques from other bills of exchange.
 The object of general crossing is to direct the drawee banker to pay the amount of cheque
only to a banker, to prevent the payment of the cheque being made to the wrong person.
Special crossing
 Where a cheque bears across its face an entry of the name of a banker either with or
without words “non-negotiable”, the cheque is considered to have been specially crossed to
that banker.
 In the case of special crossing the addition of two parallel transverse lines is not essential
though generally the name of the bank to which the cheque is crossed specially is written
between two parallel transverse lines.
Restrictive crossing
 In today's commercial and banking world, the "Account Payee" (A/c Payee) cheque crossing is
most popular form of crossing which we can define it as restrictive crossing.
Payment of cheque, crossed generally or specially

 If a cheque is crossed generally then the banker on whom it is drawn shall not pay it
otherwise than to a banker. Again where a cheque is crossed specially, the banker on whom
it is drawn shall not pay it otherwise than to the banker to whom it is crossed or his agent
for collection.
Payment in due course of crossed cheque

 When the banker on whom a crossed cheque is drawn, pays in due course, it is to be
presumed that he made the payment to the true owner.
 In other words, banker making payment in due course is protected, whether the money is or
is not ,in fact, received by the true owner of the cheque.
Payment out of due course

 Any banker paying a crossed cheque otherwise than the provisions shall be liable to the true
owner of the cheque for any loss he may have sustained.
 Thus if bank pays out of due course and the money does not reach the real owner then he
can claim payment over again from the banker.
Cheque marked “not negotiable”

 A person taking a cheque crossed generally or specially bearing in either case the words ‘not
negotiable’ shall not have or shall not be able to give a better title to the cheque than that
title from whom he took it.
 In consequence if the title of the transferor is defective, the title of the transferee would be
spoiled by the defect. But in the case the bill is negotiated in the ordinary way, the title of
the holder in the due course will not be affected by the defect in the title of the transferor.
 Cheque crossed ‘not negotiable’ does not affect the transferability of the negotiable
instrument in anyway.
Maturity
 Cheques are always payable on demand but other instruments like bills, notes, etc. may be
made payable on a specified date or after the specified period of time. The date on which
payment of an instrument falls due is called its maturity.
 Every instrument payable at a specified period after date or after sight is entitled to 3 days
of grace.
 Such a bill or note matures or falls due on the last day of the grace period, and must be
presented for payment on that day and if dishonored, suit can be instituted on the next day
after maturity.
 No days of grace are allowed for cheques, as they are payable on demand.
 If the day of maturity falls on a public holiday, the instrument is payable on the preceding
business day.
 Thus, if a bill is at maturity on a Sunday. It will be deemed due on Saturday and not on
Monday.
 Illustrations
(i) A negotiable instrument dated 31st January, 2001, is made payable at one months after date.
The instrument is at maturity on the third day after the 28th February, 2001, i.e. on 3rd
March, 2001.
(ii) A negotiable instrument dated 30th August, 2001, is made payable three months after date.
The instrument is at maturity on 3rd December, 2001.
(iii)A negotiable instrument dated the 31st August, 2001, is made payable three months after
date. The instrument is at maturity on 3rdDecember, 2001.
3. HOLDER
 A holder of a negotiable instrument who is entitled in his own name

(i) to the possession of the instrument, and
(ii) to recover or receive its amount from the parties thereto.
 It is not every person in possession of the instrument who is called a holder. To be a holder,
the person must be named in the instrument as the payee, or the endorsee or he must be
the bearer.
 A person, who has obtained possession of an instrument by theft, or under a forged
endorsement, is not a holder, as he is not entitled to recover the instrument.
 The holder implies de jure (holder in law) holder and not de facto (holder in fact) holder.
 An agent holding an instrument for his principal is not a holder although he may receive its
payment.
4. HOLDER IN DUE COURSE
 A holder in due course is

(i) a person who for consideration, obtains possession of a negotiable instrument if payable to
bearer, or
(ii) the payee or endorsee thereof, if payable to order, before its maturity and without having
sufficient cause to believe that any defect existed in the title of the person from whom he
derived his title.
 In order to be a holder in due course, a person must satisfy the following conditions:
1. He must be the holder of the instrument.
2. He should have obtained the instrument for value or consideration.
3. He must have obtained the negotiable instrument before maturity.
4. The instrument should be complete and regular on the face of it.
5. The holder should take the instrument in good faith.
 A holder in due course is in a privileged position. He is not only himself protected against all
defects of the persons from whom he received the instrument as current coin, but also
serves as a channel to protect all subsequent holders.
 A holder in due course can recover the amount of the instrument from all previous parties,
although, as a matter of fact, no consideration was paid by some of the previous parties to
the instrument or there was a defect of title in the party from whom he took it.
 Once an instrument passes through the hands of a holder in due course, it is purged of all
defects. It is like current coin. Whoever takes it can recover the amount from all parties
previous to such holder.
Heading Holder Holder in Due Course

Meaning A holder is a person who legally A holder in due course is a person
obtains the negotiable who acquires the negotiable
instrument, with his name instrument bona-fide for some
entitled on it, to receive consideration, whose payment is still
payment from parties liable. due.
Consideration Not necessary. Necessary

Right to sue A holder cannot sue all prior A holder in due course can sue all
parties. prior parties.
Good faith The instrument may or may not The instrument must be obtained in
be obtained in good faith. good faith.
Privileges Comparatively less Comparatively more.
Maturity A person can become holder, A person can become holder in due
before or after the maturity of course, only before the maturity of
negotiable instrument. negotiable instrument.
CAPACITY OF PARTIES
 Capacity to incur liability as a party to a negotiable instrument is co-extensive with capacity

to contract.
 Every person capable of contracting according to law to which he is subject, may bind
himself and be bound by making, drawing, acceptance, endorsement, delivery and negotiation
of a promissory note, bill of exchange or cheque.
 Negatively, minors, lunatics, idiots, drunken person and persons otherwise disqualified by their
personal law, do not incur any liability as parties to negotiable instruments.
 But incapacity of one or more of the parties to a negotiable instrument in no way diminishes
the abilities and the liabilities of the competent parties.
 Where a minor is the endorser or payee of an instrument which has been endorsed all the
parties accepting the minor are liable in the event of its dishonor.
LIABILITIES OF PARTIES
1. Liability of Drawer
 The drawer of bill of exchange or cheque is bound incase of dishonor by the drawee to
compensate the holder if a due notice of dishonor has been given.
 However, in case of accommodation bill no notice of dishonor to the drawer is required.
 The liability of a drawer of a bill of exchange is secondary and arises only on default of the
drawee, which is primarily liable to make payment of the negotiable instrument.
2. Liability of the Drawee (banker) of Cheque

 The banker is bound to pay the cheque of the drawer, i.e., customer, if the following
conditions are satisfied:
i. The banker has sufficient funds to the credit of customer‘s account.
ii. The funds are properly applicable to the payment of such cheque, e.g., the funds are not
under any kind of lien etc.
iii. The cheque is duly required to be paid, during banking hours and on or after the date on
which it is made payable.
 If the banker is unjustified in refusing to honor the cheque of its customer, it shall be liable
for damages.
3. Liability of “Maker” of Note and “Acceptor” of Bill

 In the absence of a contract to the contrary, the maker of a promissory note and the
acceptor before maturity of a bill of exchange are bound to pay the amount at maturity,
according to the apparent tenor of the note or acceptance respectively.
 The acceptor of a bill of exchange at or after maturity is bound to pay the amount thereof
to the holder on demand.
 It follows that the liability of the acceptor of a bill corresponds to that of the maker of a
note and is absolute and unconditional but the liability under this Section is subject to a
contract to the contrary (e.g., as in the case of accommodation bills) and may be excluded
or modified by a collateral agreement.
 Further, the payment must be made to the party named in the instrument and not to any -
one else, and it must be made at maturity and not before.
4. Liability of endorser (Section 35)

 Every endorser incurs liability to the parties that are subsequent to him.
 Any person who endorses and delivers a negotiable instrument before maturity is bound to
every subsequent holder in case of dishonor of the instrument by the drawee, acceptor or
maker to compensate such holder of any loss caused to him by such dishonor provided :
(i) There is no contract to the contrary;
(ii) He (endorser) has not expressly excluded, limited or made conditional his own liability; and
(iii) Due notice of dishonor has been given to, or received by, such endorser.
 Every endorser after dishonor, is liable upon the instrument as if it is payable on demand.
 He is bound by his endorsement notwithstanding any previous alteration of the instrument.
5. Liability of Prior Parties (Section 36)

 Every prior party to a negotiable instrument is liable to a holder in due course until the
instrument is duly satisfied.
 Prior parties may include the maker or drawer, the acceptor and all the intervening endorsers
to a negotiable instrument.
 The liability of the prior parties to a holder in due course is joint and several.
 The holder in due course may hold any or all prior parties liable for the amount of the
dishonored instrument.
6. Liability inter se
Various parties to a negotiable instrument who are liable thereon stand on a different footing
with respect to the nature of liability of each one of them.
7. Liability of Acceptor of Forged Endorsement (Section 41)

An acceptor of a bill of exchange already endorsed is not relieved from liability by reason
that such endorsement is forged, if he knew or had reason to believe the endorsement to be
forged when he accepted the bill.
8. Acceptor’s Liability on a Bill drawn in a Fictitious Name

An acceptor of a bill of exchange drawn in fictitious name and payable to the drawer’s order
is not relieved from liability to any holder in due course claiming under an endorsement by
the same hand as the drawer‘s signature, and claiming to be made by the drawer only by
the reason that the name is fictitious.
5. NEGOTIATION
 A negotiable instrument may be transferred by negotiation or assignment.

 Negotiation is the transfer of an instrument (a note, bill or cheque) for one person to
another in such a manner as to convey title and to constitute the transferee the holder.
 When a negotiable instrument is transferred by negotiation, the rights of the transferee may
rise higher than those of the transferor, depending upon the circumstances attending the
negotiation.
 When the transfer is made by assignment, the assignee has only those rights which the
assignor possessed. In case of assignment, there is a transfer of ownership by means of a
written and registered document.
Headings Negotiability Assignability

Rights of Transferee acquires all the rights The assignee does not acquire the
transferee of holder in due course i.e rights right of holder in due course but has
from equities. only the right, title and interest of
assignor.
Notice of Notice of transfer is not necessary. Notice of assignment must be served
transfer by the assignee on his debtor.
Consideration In the case of transfer of In the case of transfer by
negotiable instrument, assignment, consideration must be
consideration is presumed. proved.
Delivery of Negotiation requires mere delivery Assignment requires a written
instrument of a bearer instrument and document signed by the transferor.
endorsement and delivery of an
order instrument to effectuate a

transfer.
Stamp duty Endorsement does not require It requires payment of stamp duty.
payment of stamp duty.
DELIVERY OF NEGOTIABLE INSTRUMENT
Importance of delivery
 Delivery is an incident of utmost importance in the case of an instrument.
 Negotiation is effected by mere delivery of a bearer instrument and by endorsement and
delivery of an order instrument.
 This shows that ―delivery is essential in negotiable instruments.
 Section 46 expressly provides that making acceptance or endorsement of negotiable
instrument is not complete until delivery, actual or constructive, of the instrument. Delivery
made voluntarily with the intention of passing property in the instrument to the person to
whom it is given is essential.
How to deliver?
 A promissory note must be handed over to the payee by himself or by someone authorized
by him in this behalf.
 Similarly a bill of exchange must be delivered to the transferee by the maker, acceptor or
endorser.
Conditional and unconditional Delivery

 A bill may be delivered conditionally or only for a special purpose of transferring the property
in the instrument. A bill delivered conditionally is called an ‘escrow’.
 Although a conditional delivery is valid, the condition attaches exclusively to the delivery and
not to the making or drawing of an instrument.
 A bill must be drawn and a note made unconditionally.
 When an instrument is delivered conditional or for special purpose, the property in the
instrument does not pass on to the transferee until the condition is fulfilled.
Negotiation by delivery
 An instrument payable to bearer is negotiable by delivery.
 But when such instrument is delivered on condition that it is not to take effect in certain
event, it is not negotiable (except in the hands of a holder of value without notice of a
condition) unless such event happens.
 The distinction between ‘delivery’ and ‘negotiation’ should be noticed.
 An instrument is said to be negotiated, when it is transferred from one person to another in
such a manner as to constitute transferee.
NEGOTIATION BY ENDORSEMENT
 In order to negotiate, that is to transfer title to an instrument payable to order, it is first to

be endorsed and then delivered by holder.
 The endorsement consists of the signature of the holder made on the back of the negotiable
instrument with the object of transferring the instrument.
 If there is no space on the instrument then endorsement may be made on a slip of paper
attached to it.
Endorsement
 Where the maker or holder of a negotiable instrument signs the same otherwise than as such
maker for the purpose of negotiation, on the back or face thereof or on a slip of paper
annexed thereto (called Allonge), or so, signs for the same purpose, a stamped paper
intended to be completed as a negotiable instrument, he is said to endorse the same
(Section 15), the person to whom the instrument is endorsed is called the endorsee.
 In other words, endorsement means and involves the writing of something on the back of an
instrument for the purpose of transferring the right, title and interest therein to some other
person.
 In other words ,
Endorsement means
Signing – On the face of back of negotiable instrument
On the slip of paper annexed to the negotiable instrument.
By - The holder of negotiable instrument.

For the purpose of – Negotiating such negotiable instrument.
Types of Endorsement
1. Blank or general
No endorsee is specified in an endorsement in blank, it contains only the base signature of
the endorser. A bill so endorsed becomes payable to bearer.
2. Special or full
In such endorsement, in addition to the signature of the endorser the person to whom or to
whose order the instrument is payable is specified.
3. Restrictive
Such an endorsement has the effect of restricting further negotiation and transfer of the
instrument.
4. Conditional or qualified endorsement

Such an endorsement combines an order to pay with condition.
5. Sans Recourse
By adding these words after the endorsement, the endorser declines to accept any liability
on the instrument of any subsequent party.
6. Sans Frais
These words when added at the end of the endorsement indicate that no expenses should be
incurred on account of the bill.
7. Faculative
When it is desired to waive certain right, the appropriate words are added to indicate the
fact, e.g “notice of dishonor dispensed with”.
NEGOTIATION BACK
 An instrument is said to have been negotiated back to him and he is said to have taken
back the negotiated instrument when a person who has been a party to the negotiable
instrument takes it again.
 For example, A, the holder of a bill endorses it to B, B endorses to C, and C to D, and
endorses it again to A. A, being a holder in due course of the bill by second endorsement by
D, can recover the amount thereof from B, C, or D and himself being a prior party is liable
to all of them. Therefore, A having been relegated by the second endorsement to his original
position, cannot sue B, C and D.
NEGOTIATION OF LOST INSTRUMENT OR THAT OBTAINED BY UNLAWFUL MEANS
When a negotiable instrument has been lost or has been obtained from any maker, acceptor
or holder by means of an offence or fraud, or for an unlawful consideration, no possessor or
endorsee, who claims through the person who found or obtained the instrument is entitled to
receive the amount due from such maker, acceptor, or holder from any party prior to such
holder unless such possessor or endorsee is, or some person through whom he claims was, a
holder in due course
FORGED ENDORSEMENT
 If an instrument is endorsed in full, it cannot be negotiated except by an endorsement

signed by the person to whom or to whose order the instrument is payable, for the endorsee
obtains title only through his endorsement.
 Thus, if an instrument be negotiated by means of a forged endorsement, the endorsee
acquires no title even though he be a purchaser for value and in good faith, for the
endorsement is a nullity. Forgery conveys no title.
ACCEPTANCE OF BILL OF EXCHANGE
 The drawee of a bill of exchange has no liability on any bill addressed to him for acceptance
or payment.
 A refusal to accept or to pay such bill gives the holder no rights against him.
 The drawee becomes liable only after he accepts the bill.
 The acceptor has to write the word ̳accepted on the bill and sign his name below it. Thus, it
is the acceptor who is primarily liable on a bill. The acceptance of a bill is the indication by
the drawee of his assent to the order of the drawer.
 An acceptance may be either general or qualified.
 A general acceptance is absolute and as a rule, an acceptance has to be general.
 Where an acceptance is made subject to some condition or qualification, thereby varying the
effect of the bill, it is a qualified acceptance.
 The holder of the bill may either refuse to take a qualified acceptance or non-acquiescence in
it. Where he refuses to take it, he can treat the bill as dishonored by non -acceptance, and
sue the drawer accordingly
ACCEPTANCE FOR HONOUR
 When a bill has been noted or protested for non-acceptance or for better security, any
person not being a party already liable thereon may, with the consent of the holder, by
writing on the bill, accept the same for the honour of any party thereto.
 The stranger so accepting, will declare under his hand that he accepts the protested bill for
the honour of the drawer or any particular endorser whom he names.
 The acceptor for honour is liable to pay only when the bill has been duly presented at
maturity to the drawee for payment and the drawee has refused to pay and the bill has
been noted and protested for non-payment.
 Where a bill has been protested for non-payment after having been duly accepted, any
person may intervene and pay it supra protest for the honour of any party liable on the bill.
When a bill is paid supra protest, it ceases to be negotiable. The stranger, on paying for
honour, acquires all the right of holder for whom he pays.
PRESENTATION FOR ACCEPTANCE
 It is only bills of exchange that require presentment for acceptance and even these of
certain kinds only. Bills payable on demand or on a fixed date need not be presented. Thus,
a bill payable 60 days after due date on the happening of a certain event may or may not
be presented for acceptance.
 But the following bills must be presented for acceptance otherwise, the parties to the bill
will not be liable on it:
(a) A bill payable after sight. Presentment is necessary in order to fix maturity of the bills;
(b) A bill in which there is an express stipulation that it shall be presented for acceptance
before it is presented for payment.
 The presentment must be made before maturity, within a reasonable time after it is drawn,
or within the stipulated period, if any, on a business day within business hours and at the
place of business or residence of the drawee.
 The presentment must be made by exhibiting the bill to the drawee; mere notice of its
existence in the possession of holder will not be sufficient.
 When presentment is compulsory and the holder fails to present for acceptance, the drawer
and all the endorsers are discharged from liability to him.
PRESENTMENT FOR ACCEPTANCE WHEN EXCUSED
 Compulsory presentment for acceptance is excused and the bill may be treated as dishonored
in the following cases:
(a) Where the drawee cannot be found after reasonable search.
(b) Where drawee is a fictitious person or one incapable of contracting.
(c) Where although the presentment is irregular, acceptance has been refused on some other
ground.
PRESENTMENT FOR PAYMENT
It says all notes, bills and cheques must be presented for payment thereof respectively by or
on behalf of the holder during the usual hours of business and of the maker or acceptor, and
if at banker‘s within banking hours.
PRESENTMENT FOR PAYMENT WHEN EXCUSED
No presentment is necessary and the instrument may be treated as dishonored in the

following cases:
(a) Where the maker, drawer or acceptor actively does something so as to intentionally obstruct
the presentment of the instrument, e.g., deprives the holder of the instrument and keeps it
after maturity.
(b) Where his business place is closed on the due date.
(c) Where no person is present to make payment at the place specified for payment.
(d) Where he cannot, after due search be found.
(e) Where there is a promise to pay notwithstanding non-presentment.
(f) Where the presentment is express or impliedly waived by the party entitled to presentment.
(g) Where the drawer could not possibly have suffered any damage by non-presentment.
(h) Where the drawer is a fictitious person, or one incompetent to contract.
(i) Where the drawer and the drawee are the same person.
(j) Where the bill is dishonored by non-acceptance.
(k) Where presentment has become impossible, e.g., the declaration of war between the countries
of the holder and drawee.
(l) Where though the presentment is irregular, acceptance has been refused on some other
grounds.
DISHONOR BY NON-ACCEPTANCE
A bill is said to be dishonored by non-acceptance:

(a) When the drawee does not accept it within 48 hours from the time of presentment for
acceptance.
(b) When presentment for acceptance is excused and the bill remains unaccepted.
(c) When the drawee is incompetent to contract.
(d) When the drawee is a fictitious person or after reasonable search cannot be found.
(e) Where the acceptance is a qualified one
DISHONOR BY NON-PAYMENT
A negotiable instrument is said to be dishonored by non-payment when the maker of the

note, acceptor of the bill or drawee of the cheque makes default in payment upon being duly
required to pay the same. Also, a negotiable instrument is dishonored by non -payment when
presentment for payment is excused and the instrument when overdue remains unpaid. If the
bill is dishonored either by non-acceptance or by non-payment, the drawer and all the
endorsers of the bill are liable to the holder, provided he gives notice of such dishonor. The
drawee is liable only when there is dishonor by non-payment.
NOTICE OF DISHONOR
 When a negotiable instrument is dishonored either by non-acceptance or by non-payment,

the holder or some party liable thereon must give notice of dishonor to all other parties
whom he seeks to make liable.
 Each party receiving notice of dishonor must in order to render any prior party liable to
himself, give notice of dishonor to such party within a reasonable time after he has received
it.
 The object of giving notice is not to demand payment but to whom the party notified of his
liability and in case of drawer to enable him to protect himself as against the drawee or
acceptor who has dishonored the instrument issued by him.
 Notice of dishonor is so necessary that an omission to give it discharges all parties other
than the maker or acceptor. These parties are discharged not only on the bill or note, but
also in respect of the original consideration.
 Notice may be oral or in writing, but it must be actual formal notice. It must be given
within a reasonable time of dishonor.
NOTICE OF DISHONOR UNNECESSARY
No notice of dishonor is necessary:

(a) When it is dispensed with or waived by the party entitled to
(b) When the drawer has countermanded payment.
(c) When the party charged would not suffer damage for want of notice.
(d) When the party entitled to notice cannot after due search be found.
(e) When the omission to give notice is caused by unavoidable circumstances, e.g., death or
dangerous illness of the holder.
(f) Where the acceptor is also a drawer, e.g., where a firm draws on its branch.
(g) Where the promissory note is not negotiable. Such a note cannot be endorsed.
(h) Where the party entitled to notice promises to pay unconditionally.
NOTING AND PROTEST
NOTING
 Where a note or bill is dishonored, the holder is entitled after giving due notice of dishonor,
to sue the drawer and the endorsers.
 A convenient method of authenticating the fact of dishonor by means of “Noting”. Where a
bill or note is dishonored, the holder may, if he so desires cause such dishonor to be noted
by a notary public on the instrument, or on a paper attached thereto or partly on each.
 The noting or minute must be recorded by the notary public within a reasonable time after
dishonor and must contain the fact of dishonor, the date of dishonor, the reason, if any,
assigned for such dishonor if the instrument has not been expressly dishonored the reasons
why the holder treats it dishonored and notary‘s charges.
PROTEST
 The protest is the formal notarial certificate attesting the dishonor of the bill, and based
upon the noting which has been effected on the dishonor of the bill. After the noting has
been made, the formal protest is drawn up by the notary and when it is drawn up it relates
back to the date of noting.
 Protest affords an authentic evidence of dishonor to the drawer and the endorsee.
DISCHARGE
The discharge in relation to negotiable instrument may be either

(i) discharge of the instrument or
(ii) Discharge of one or more parties to the instrument from liability.
Discharge of the Instrument

A negotiable instrument is discharged:
a) by payment in due course;
b) when the principal debtor becomes the holder;
c) by an act that would discharge simple contract;
d) by renunciation; and
e) by cancellation.
Discharge of a Party or Parties

 When any particular party or parties are discharged, the instrument continues to be
negotiable and the undischarged parties remain liable on it.
 For example, the non-presentment of a bill on the due date discharges the endorsers from
their liability, but the acceptor remains liable on it.
 A party may be discharged in the following ways :
a) By cancellation by the holder of the name of any party to it with the intention of
discharging him.
b) By release, when the holder releases any party to the instrument
c) Discharge of secondary parties, i.e., endorsers.
d) By the operation of the law, i.e., by insolvency of the debtor.

e) By allowing drawee more than 48 hours to accept the bill, all previous parties are discharged.
f) By non-presentment of cheque promptly the drawer is discharged
g) By taking qualified acceptance, all the previous parties are discharged.
h) By material alteration.
MATERIAL ALTERATIONS
 An alteration is material which in any way alters the operation of the instrument and the
liabilities of the parties.
 Therefore, any change in an instrument which causes it to speak a different language in legal
effect from that which it originally spoke, or which changes legal character of the
instrument is a material alteration.
 A material alteration renders the instrument void, but it affects only those persons who have
already become parties at the date of the alteration.
 Examples of material alteration are :Alteration
(i) of the date of the instrument
(ii) of the sum payable,
(iii) in the time of payment,
(iv) of the place of payment,
(v) of the rate of interest,
(vi) by addition of a new party,
(vii) tearing the instrument in a material part.
 There is no material alteration and the instrument is not vitiated in the following cases:
(i) correction of a mistake,
(ii) to carry out the common intention of the parties,
(iii) an alteration made before the instrument is issued and made with the consent of the
parties,
(iv) crossing a cheque,
(v) addition of the words “on demand” in an instrument where no time of payment is stated.
HUNDIS
 Hundis are negotiable instruments written in an oriental language.

 They are sometimes bills of exchange and sometimes promissory notes, and are not covered
under the Negotiable Instruments Act, 1881.
 Generally, they are governed by the customs and usages in the locality but if custom is
silent on the point in dispute before the Court, this Act applies to the hundis.
 The hundis were in circulation in India even before the present Negotiable Instrument Act,
1881 came into operation.
 The usages attached to these hundis varied with the locality in which they were in
circulation.
 An instrument in order to be a hundi must be capable of being sued by the holder in his
own name, and must by the custom of trade be transferred like cash by delivery.
 The following types of hundis are worth mentioning :
1. Shah Jog Hundi―
“Shah” means a respectable and responsible person or a man of worth in the bazaar. Shah
Jog Hundi means a hundi which is payable only to a respectable holder, as opposed to a
hundi payable to bearer. In other words the drawee before paying the same has to satisfy
him that the payee is a ‘SHAH’.
2. Jokhmi Hundi ―
‘Jokhmi’ hundi is always drawn on or against goods shipped on the vessel mentioned in the
hundi. It implies a condition that money will be paid only in the event of arrival of the goods
against which the hundi is drawn. It is in the nature of policy of insurance. The difference,
however, is that the money is paid before hand and is to be recovered if the ship arrives
safely.
3. Jawabee Hundi
According to Macpherson, “A person desirous of making a remittance writes to the payee and
delivers the letter to a banker, who either endorses it on to any of his correspondents near
the payee‘s place of residence, or negotiates its transfer. On the arrival, the letter is
forwarded to the payee, who attends and gives his receipt in the form of an answer to the
letter which is forwarded by the same channel of the drawer or the order.” Therefore, this is
a form of hundi which is used for remitting money from one place to another.
4. Nam jog Hundi

It is a hundi payable to the party named in the bill or his order. The name of th e payee is
specifically inserted in the hundi. It can also be negotiated like a bill of exchange. Its
alteration into a Shah Jog hundi is a material alteration and renders it void.
5. Darshani Hundi
This is a hundi payable at sight. It is freely negotiable and the price is regulated by demand
and supply. They are payable on demand and must be presented for payment within a
reasonable time after they are received by the holder.
6. Miadi Hundi
This is otherwise called muddati hundi, that is, a hundi payable after a specified period of
time. Usually money is advanced against these hundis by shroffs after deducting the advance
for the period in advance.
There are other forms of hundis also like.
Dhani Jog Hundi- A hundi which is payable to “dhani” i.e. the owner.
Jog Hundi-which is payable to order if can be negotiated by endorsement and delivery
DISHONOR OF CHEQUE
 Drawer's Liability: A person issuing a cheque will be punishable with imprisonment for a
term upto 2 years or with fine twice of the amount of cheque or both, if cheque is
dishonored due to insufficiency of funds.
 Conditions for Section 138:
1. Cheque should have been issued for discharge of the liabilities (it does not include gift
cheques).
2. Cheque should be presented before banker within period of validity or 6 months, whichever is
earlier.
3. Cheque should have been deposited and intimation of dishonor received stating insufficiency
of funds as reason for dishonor.
4. The holder or payee in due course should give notice demanding payment within 30 days of
receiving notice of intimation of dishonor.
5. If the drawer fails to make payment within 15 days of receipt of notice, then a person could
proceed for prosecution.
6. Prosecution/Complaint to be made only by payee/holder in due course within 1 month in
writing.
Presumption in favor of holder (Section 139):

It shall be presumed, unless contrary is proved, that the holder of a cheque received the
cheque for discharge, in whole or in part, of any debt or other liability.
No defense allowed (Section 140): It shall not be a defense in a prosecution for that the
drawer had no reason to believe that when he issued the cheque that the cheque may be
dishonored, for the reason of insufficiency of funds.
OFFENCE BY COMPANIES
 If a person committing an offence is a company, every person who, at the time the offence
was committed, was in charge of, and was responsible, to the company for the conduct of
the business of the company as well as the company, shall be deemed to be guilty of
offence and shall be liable to be proceeded against and punished accordingly.
 Directors, managers, secretary, or other officers of the company shall be deemed to be guilty
under this section and shall be liable to be proceeded against and punished accordingly in
case the offence has been committed with his consent or connivance, or is attributable to
any neglect on his part in this regard. However, a person will not be liable:
1. Where such person proves that the offence was committed without his knowledge, or
2. Where he had exercised all due diligence to prevent the commission of such offence.
 Nominee Directors holding any office or employment in Government or financial institution

owned by Government shall not be liable.
COGNIZANCE OF OFFENCES
 No court shall take cognizance of any offence punishable under Section 138 except upon a
complaint, in writing, made by the payee or, as the case may be, the holder in due course of
the cheque;
 Such complaint is made within 1 month of the date on which the cause of action arises.
 Court of Metropolitan Magistrate or a judicial Magistrate of the First Class shall try the
offence.
POWER OF COURT TO TRY CASE SUMMARILY
Power to grant interim relief

 The Court trying an offence under section 138 of the Negotiable Instrument Act,1881
(Dishonor of cheque for insufficiency, etc., of funds in the account) may order the drawer of
the cheque to pay interim compensation to the complainant—
(a) in a summary trial or a summons case, where he pleads not guilty to the accusation made in
the complaint; and
(b) in any other case, upon framing of charge.
 Interim compensation shall not exceed 20% of the amount of the cheque.
 The interim compensation shall be paid within 60 days from the date of the order or within
such further period not exceeding 30 days as maybe directed by the Court on sufficient
cause being shown by the drawer of the cheque.
 If the drawer of the cheque is acquitted, the Court shall direct the complainant to repay to
the drawer the amount of interim compensation, with interest at the bank rate as published
by the Reserve Bank of India, prevalent at the beginning of the relevant financial year,
within 60 days from the date of the order, or within such further period not exceeding 30
days as may be directed by the Court on sufficient cause being shown by the complainant.
 The interim compensation payable may be recovered as if it were a fine under the Code of
Criminal Procedure, 1973.
 The amount of fine imposed under section 138 or the amount of compensation awarded
under section 357 of the Code of Criminal Procedure, 1973, shall be reduced by the amount
paid or recovered as interim compensation under this section
Mode of Service of Summons

A Magistrate issuing a summons to an accused or a witness may direct a copy of summons
to be served at the place where such accused or witness
1. Ordinarily resides or
2. carries on business or
3. personally works for gain,
by speed post or by such courier services as are approved by a Court of Session.
4. Where an acknowledgment purporting to be signed by the accused or the witness or an
endorsement purported to be made by any person authorized by the postal department or the
courier services that the accused or the witness refused to take delivery of summons has
been received, the Court issuing the summons may declare that the summons has been duly
served.
Evidence on Affidavit
1. The evidence of the complainant may be given by him on affidavit and may, subject to all
just exceptions be read in evidence in any enquiry, trial or other proceeding under the Code
of Criminal Procedure, 1973.
2. The Court may, if it thinks fit, and shall, on the application of the prosecution or the
accused, summon and examine any person giving evidence on affidavit as to the facts
contained therein.
Bank’s Slip Prima Facie Evidence of Certain Facts

 The Court shall presume the dishonor of a cheque on production of bank’s slip having the
official mark denoting the cheque has been dishonored unless the contrary is proved.
Offences to be compoundable
All the offences under Negotiable Instruments Act shall be compoundable.
POWER OF APPELLATE COURT TO ORDER PAYMENT PENDING APPEAL AGAINST

CONVICTION
 In an appeal by the drawer against conviction for dishonor of cheque for insufficiency, etc.,
of funds in the account the Appellate Court may order the appellant to deposit a minimum
of 25% of the fine or compensation awarded by the trial Court.
 The amount payable shall be in addition to any interim compensation paid by the appellant
under section 143A.
 The amount shall be deposited within 60 days from the date of the order, or within such
further period not exceeding 30 days as may be directed by the Court on sufficient cause
being shown by the appellant.
 The Appellate Court may direct the release of the amount deposited by the appellant to the
complainant at any time during the pendency of the appeal.
 If the appellant is acquitted, the Court shall direct the complainant to repay to the appellant
the amount so released, with interest at the bank rate as published by the Reserve Bank of
India, prevalent at the beginning of the relevant financial year, within 60 days from the date
of the order, or within such further period not exceeding 30 days as may be directed by the
Court on sufficient cause being shown by the complainant.
NATIONAL ELECTRONIC FUNDS TRANSFER (NEFT) AND REAL TIME GROSS SETTLEMENT
(RTGS)
1. National Electronic Funds Transfer (NEFT) is a nation-wide payment system facilitating

one-to-one funds transfer. Under this Scheme, individuals, firms and corporate can
electronically transfer funds from any bank branch to any individual, firm or corporate having
an account with any other bank branch in the country participating in the Scheme.
2. NEFT is an electronic fund transfer system that operates on a Deferred Net Settlement
(DNS) basis which settles transactions in batches. In DNS, the settlement takes place with
all transactions received till the particular cut-off time.
3. These transactions are netted (payable and receivables) in NEFT whereas in RTGS the
transactions are settled individually.
4. For example, currently, NEFT operates in hourly batches. Any transaction initiated after a
designated settlement time would have to wait till the next designated settlement time
Contrary to this, in the RTGS transactions are processed continuously throughout the RTGS
business hours.
5. The acronym ̳ RTGS‘stands for Real Time Gross Settlement, which can be defined as the
continuous (real-time) settlement of funds transfers individually on an order by order basis
(without netting).
6. Real Time means the processing of instructions at the time they are received rather than at
some later time; Gross Settlement means the settlement of funds transfer instructions
occurs individually (on an instruction by instruction basis).
7. Considering that the funds settlement takes place in the books of the Reserve Bank of India,
the payments are final and irrevocable.
Corporate & Management
05.00pm - 06.30pm CA CS Harish Mathariya
Accounting
Website: www.yesacademy.co.in

EBCL - Adv Chirag Chotrani, YES Academy, Pune

Uploaded by

Copyright:

Available Formats

EBCL - Adv Chirag Chotrani, YES Academy, Pune

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

EBCL - Adv Chirag Chotrani, YES Academy, Pune

Uploaded by

Copyright:

Available Formats

CS Vikas Vohra CA CS Harish A.

CS Vikas Vohra CA CS Harish A. Mathariya

“Do everything no matter how unglamorous, to the best of your ability”

Chapter Particulars Page No.

2. Foreign Exchange Management Act, 1999 2.1 - 2.5

5. Foreign Direct Investments – Regulations & FDI Policies 5.1 – 5.43

8. External Commercial Borrowings 8.1 – 8.18

11. Special Economic Zones Act, 2005 11.1 – 11.12

PART B: COMPETITION LAW (25 marks)

Chapter Particulars Page No.

PART C: BUSINESS & COMMERCIAL LAWS (35 marks)

14. Essential Commodities Act, 1955 14.1 – 14.10

20. Indian Contract Act, 1872 20.1 – 20.39

21. Specific Relief Act, 1963 21.1 – 21.14

24. Negotiable Instruments Act, 1881 24.1 – 24.45

CHAPTER 1- RESERVE BANK OF INDIA ACT, 1934

Origin of the Reserve Bank of India at a glance

ESTABLISHMENT AND INCORPORATION OF RESERVE BANK

ORGANISATIONAL STRUCTURE & MANAGEMENT

Principal Chief General Manager

Chief General Managers

Deputy General Managers

Assistant General Managers

CENTRAL BOARD OF DIRECTORS

FUNCTIONS OF THE RESERVE BANK

The functions of the Reserve Bank of India can be summarized as under:

 Foreign Exchange Management

 Recommendation of RBI to Government

 RBI also carries out the following functions:

 Denomination of the Notes:

MONETARY POLICY FUNCTION

 The Monetary Policy Committee consists of

PUBLIC DEBT FUNCTIONS

FOREIGN EXCHANGE MANAGEMENT

BANKING REGULATION & SUPERVISION

REGULATION AND SUPERVISION OF NBFCS

REGULATION & SUPERVISION OF CO-OPERATIVE BANKS

Jurisdiction of Union v. State on Co-operative Banks

Case Law: Janata Sahakari Bank Ltd. v. State of Maharashtra

PAYMENT AND SETTLEMENT FUNCTIONS

CONSUMER PROTECTION FUNCTIONS

FINANCIAL INCLUSION AND DEVELOPMENT FUNCTIONS

RIGHT TO ISSUE BANK NOTES

LEGAL TENDER CHARACTER OF NOTES

POWERS OF CENTRAL GOVERNMENT TO SUPERSEDE CENTRAL BOARD

BANKER TO THE CENTRAL GOVERNMENT & STATE GOVERNMENTS

MANAGEMENT OF PUBLIC DEBT

RESERVE BANK AS BANKER TO BANKS

 RBI plays the role of bankers' bank in following manner:-

PRUDENTIAL NORMS FOR BANKS

FOREIGN EXCHANGE RESERVES MANAGEMENT

PAYMENT AND SETTLEMENT SYSTEMS

 does not comply with the regulations; or

MONETARY POLICY MANAGEMENT

MONETARY POLICY FRAMEWORK

INSTRUMENTS OF MONETARY POLICY

Instrument Meaning Impact

Cash Reserve Ratio CRR is the minimum percentage Increase in CRR-

leave less money with

Statutory Liquidity SLR is the amount which the Increase in SLR