INDEX

[Link]. Name of the Chapter Page No.

1 Choice of Business Organisation

2 Corporate Entities – Companies

3 Limited Liability Partnership

4 Startups and its Registration

5 Micro, Small & Medium Enterprises

6 Conversion of Business Entities

7 Non – Corporate Entities

8 Financial Services Organisation

9 Business Collaborations

10 Setting up of Branch Office / Liason Office/ Wholly Owned Subsidiary by

Foreign Company
11 Setting up of Business Outside India and Issue Relating Thereto

12 Identifying Laws Applicable to Various Industries and Their Initial

Compliances
13 Various Initial Registrations and Licenses

14 Constitution and Labour Laws

15 Evaluation of Labour Legislation and Need of Labour Code

16 Law of Welfare & Working Condition

17 Law of Industrial Relations

18 Law of Wages

19 Social Security Legislations

20 Sexual Harassment of Women at Workplace

CS SBI & LL
- By CS Kirti Chaturvedi Choice of Business Organisation

1 CHOICE OF BUSINESS ORGANISATION

Chapter

INTRODUCTION

• It refers to all those steps that need to be undertaken for establishing and
maintaining relationship between men, material, and machinery to carry on the
business efficiently for earning profits.
• All necessary arrangement required to conduct a business in optimized manner.
• The main types of business entities in India are:

✓Sole Proprietorship, Partnership, Hindu Undivided Family (HUF) Business, limited

liability partnership, LLP, Co-operative societies, branch office

✓Company which may be any kind of company including one person company (OPC),
private limited company, public limited company, guarantee company,
subsidiary company, statutory company, insurance company or unlimited
company.

✓Further, Company formed under section 8 of the Companies Act, 2013 or under
section 25 of the earlier Companies Act of 1956 is an on-profit business entity.

✓There can also be Association of Persons (AOP) and Body of Individuals (BOI),
Corporation, Co-operative society, Trust etc.

• The right choice of the form of the business is very crucial because it
determines the power, control, risk and responsibility of the entrepreneur as well as
the division of profits and losses.

• Form of business organisation influences the success and growth of a

business.

• Once a form of business organisation is chosen, it is very difficult to switch

over to another form because it needs the winding up, dissolution of the existing
organisation which ultimately results into the waste of time, effort and money.

FACTORS TO BE CONSIDERED

I. Nature of business activity

• In small trading businesses, professions, and rendering of personal services, sole-
proprietorship is predominant. E.g. small retail shops, medicine stores etc.
As an alternative, OPC can be formed if the owner wished to provide a legal

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entity status to his business

• The partnership is suitable in all those cases where sole proprietorship is not
suitable, provided the business is to be carried on a slightly bigger scale with
help of one or more partner (owner). E.g. Trading, consulting agencies, hotels,
small manufacturing etc.
As an alternative, LLP can be formed by the partners, where in the liability of
the partners would be limited and will also provide a legal entity status to the
business
• In case if the owner wishes to start a business with large capital, then it is always
advisable to have a business in the form of a limited company, as it will provide
a veil between the promoters and company’s business.

II. Scale of operations

• If the scale of operations of business activities is small, sole proprietorship or a one

person company (OPC) is suitable;
• If the scale of operations is modest — neither too small nor too large — partnership
or limited liability partnership (LLP) is preferable;
• In case of large scale of operations, the company form is advantageous.
• As per Ministry of Micro, Small and Medium Enterprises- w.e.f. 1st July, 2020 an
enterprise shall be classified asa micro, small or medium enterprise (MSME) on
the basis of the following criteria, namely:

ENTERPRISE INVESTMENT IN P&M TURNOVER

MICRO does not exceed Rs. 1 does not exceed Rs. 5 Crore
Crore
SMALL does not exceed Rs. 10 does not exceed Rs. 50 Crore
Crore
MEDIUM does not exceed Rs. 50 does not exceed Rs. 250
Crore Crore

• The scale of business operations depends upon the size of the market area
served, which, in turn, depends upon the size of demand for goods and
services.

• Market area is small, local - sole-proprietorship or OPC is opted.

• If the demand originates from a large area- partnership including LLP or Company
may be adopted.

III. Capital requirement

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- By CS Kirti Chaturvedi Choice of Business Organisation

• Enterprises requiring heavy investment (like iron and steel plants, large scale
infrastructure projects, etc.) Should be organized as companies. Depending on
the capital required, they can be setup as public companies and in some cases,
may be in the form of listed companies by raising money from the public and
being listed on the stock exchanges.

• Enterprises requiring small investment (like retail business stores,

personal service enterprises, etc.) Can be best organized as sole proprietorship
sorevenas partnerships. A part from the initial capital required to start a
business, the future capital requirements —to meet modernisation, expansion,
and diversification plans— also affect the choice of form of organisation.

• In sole proprietorship, the owner may raise additional capital by borrowing, by

purchasing on credit, and by investing additional amounts himself. Banks and
suppliers, however, will look closely at the proprietor’s individual financial
resources before sanctioning any loans or advances.

• Partnerships can often raise funds with greater ease, since the resources and credit
of all partners are combined in a single enterprise.

• Companies are usually best able to attract capital because investors are
assured that their liability will be limited, their operations are in public domain
in the transparent manner, easily accessible and the ownership can be
transferred to other investors.

IV. Managerial ability

• Sole proprietor didn’t have expertise in all functional areas of business and the size
of the business may not permit engagement of professional management.
• In other forms of organizations like partnership and company, there is
division of work among the partners which allows the partners to specialize in
specific areas, leading to better outputs and decision making. However, this
may sometimes lead to conflicts due to differences of opinion.
• Company form of organization is a better alternative if the operations are large,
complex in nature and require professional management at various levels.

V. Degree of control and management

• In Sole proprietor and OPC, the control is completely centralized with the
owner/sole member
• In Partnership/LLP, the management and control is distributed among
the members vide partnership/ LLP agreement
• In a company, the management and control lies with the directors, who
are appointed by the shareholders(owners) of the company.

VI. Degree of risk and liability

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- By CS Kirti Chaturvedi

• In sole proprietorship, the sole proprietor is solely liable for all acts and
liabilities of the business
• In partnership, partners are individually and jointly liable for all their
acts and liabilities
• In case of OPC /LLP/Company, the liability of owners is limited

VII. Stability of business

• Companies and LLP have the most stability due to its feature of
perpetual succession and separate legal entity. Members may come and go but
the business continues.
• Sole proprietorship is the least stable for mas it depends upon an
individual.

VIII. Flexibility of administration

• Means the ease with which internal organization can be formed or changed
• Sole Proprietor and Partnership firms are most flexible & have an
advantage of carrying out the business most administratively.
• Companies have rigid structure and thus are less flexible

IX. Division of profit

• One of the most important factor considered while setting up a business
• If this the criteria for forming an organization, then the most preferred way is
setting up sole proprietorship
• In Partnership, the profits are divisible among the partners in the ratio as agreed
between them in partners hip deed and thus is the preferred way of organization
where the owners want to distribute the profit
• In case of companies, the profit is distributed among the members and depends
upon the discretion of the board as well as the profitability of the company.

X. Costs, procedure and government regulations

• Sole proprietorship are the easiest and cheapest way of starting the business. there
is no government regulation and the owner need to acquire the basic approvals
like GST, license etc. for setting up the business.
• Partnerships are also simple as it requires an agreement (though even the written
agreements are not compulsory). Dissolution of partnership is also simple.
• Company is the most complicated and regulated form of doing any business.
The expenditure of incorporating a company is also quite high as compared to
other forms. Winding up is again a cumber some and costly process.

XI. Tax implication

• Plays an important role while setting up any business
• Sole proprietorship or Partnership: Tax Liability is dependent on extent of Profits.
• Company or LLP: Tax Liability higher & charged at flat rate.

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- By CS Kirti Chaturvedi Choice of Business Organisation

XII. Geographical mobility

• For dealing in local market/ a seasonal or perishable product/ to cater a specific city
or locality, then sole proprietorship or partnership form of business may be suitable.
• If it is proposed to market the product or service all over India (which may also entail
providing customer support services), a company form of organisation may be
preferred.

XIII. Transferability of ownership

• Sole Proprietorship: Single man doing the business and hence there is no scope for
transferability of ownership.
• Partnership: Ownership can be changed if the existing partner decided
to quit.
• Company: Shares are freely transferable from one person/ entity to
another person/entity.

XIV. Managerial needs

• If business caters to more areas, then there is definitely a need to look into various
aspects of the business, where in the Company is the best option. However, where
the concerns are small, a sole proprietorship will also serve the purpose.

XV. Secrecy
• In Sole proprietorship the secrecy is at its supreme level. However, as we move into
other forms or organization, the level started to come down.
• In case of company, the company’s details accessible on MCA website. Further, as per
various provisions of Companies Act, 2013 and SEBI, a Company needs to disclose its
various information and document to the authority (s), which would also be available
on the public domain.

XVI. Independence
• The company is subject to strict government regulations.
• Sole proprietorship or partnership : If the entrepreneur wants to have
a freedom in business with little governmental interference, he has to go for either

COMPANY AS A CHOICE OF BUSINESS ORGANISATION FOR STARTUPS

Start ups prefer company because:

• It allows outside funding
• Limits liabilities of shareholders
• Offer Employee stock options
• Have more credibility than LLP/Partnership

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 Corporation Entities-Companies
CS SBI & LL
- By CS Kirti Chaturvedi

2 CORPORATE ENTITIES-COMPANIES
Chapter

INTRODUCTION

Supreme Court of India has held in the case of State Trading Corporation of India vs.
CTO that a Company cannot have status of citizen under Constitution of India.

The Companies Act, 2013 provides for the companies that can be promoted and
registered under the Act. The types of companies which may be registered under the
Act are:

(a) Private Companies

(b) One Person Company(to be formed as private limited)
(c) Public Companies

Section 3 of the Companies Act 2013 read with the Companies (Incorporation) Rules,
2014, states that:

1) A company may be formed for any lawful purpose by–

(a) 7 or more persons, where the company to be formed is a public company;

(b) 2 or more persons, where the company to be formed is a private company; or
(c) 1 person, where the company to be formed is OPC that is to say, a private
company,

by subscribing their names or his name to a memorandum and complying with

the requirements of the Act in respect of registration.

2) A company formed under sub-section (1) may be either–

(a) A company limited by shares; or

(b) A company limited by guarantee; or
(c) An unlimited company.

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Classification on the
basis of Liability
Limited Companies
Unlimited Companies
Limited by guarantee Limited by shares
• The liability of members of • Section 2(21) of • Section 2(22) of
this type of company is the Companies Act, the Companies
unlimited. 2013 provides Act, 2013
• Section 2(92) of the that a company that provides that
Companies Act, 2013 has the liability of its “company limited by
provides that unlimited members limited to shares” means a
company means a company such amount as the company having the
not having any limit on the members may liability of its
undertake respectively, members limited by
liability of its members.
by the Memorandum of the memorandum to
• Such companies may or
Association, contribute the amount, if any,
may not have share capital.
to the assets of the unpaid on the shares
• They may be either a public respectively held by
company in the event
company or a private of its being wound-up. them.
company.

Classification on the
basis of Incorporation
Statutory Companies Registered Companies
• Statutory Companies are The companies which are
constituted by a special Act of incorporated under the Companies
Parliament or State Legislature. Act, 2013or under any previous
• The provisions of the Companies company law and registered with the
Act, 2013 do not apply to them. RoC fall under the category of
• Examples of these types of Registered Companies.
companies are RBI, LIC etc

Other Forms of Companies

Section 8 Any person or an association of persons proposed to be
Companies registered under this Act as a limited company and are
able to prove to the satisfaction of the CG that the
company –
i. has in its objects the promotion of commerce, art,
science, sports, education, research, social welfare,
religion, charity, protection of environment or any
such other object;
ii. intends to apply its profits, if any, or other income in
promoting its objects; and

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iii. Prohibits payment of any dividend to its members,

Foreign Companies Section 2(42) :the “foreign company” means any
company or body corporate incorporated outside India
which,-
i. has a place of business in India whether by itself or
through an agent, physically or through electronic
mode; and
ii. Conducts any business activity in India in any other
manner.
Producer Section 378A : Producer Company means a body
Companies corporate having objects or activities specified in
section 378B and registered as Producer Company
under this Act or under the Companies Act, 1956.
Nidhi A Nidhi is a type of company in the Indian non-banking
financial sector, recognized under section 406 of the
Companies Act, 2013. Their core business is borrowing
and lending money only among their members. They
are also known as Permanent Fund, Benefit Fund,
Mutual Benefit Fund and Mutual Benefit Society. These
companies are regulated under the Nidhi (Amendment)
Rules, 2022 issued by the Ministry of Corporate affairs.
Listed Company “Listed company” means a company which has any of
its securities listed on any recognized stock exchange.
Small company means a company, other than a public company,—
1. paid-up share capital of which does not exceed Rs. 4
Crore, or such higher amount as may be prescribed
which shall not be more than Rs. 10 Crore; and
2. turnover of which as per P&L account for the
immediately preceding FY does not exceed Rs. 40
Crore which shall not be more than Rs. 100 Crore
Provided that nothing in this clause shall apply to -
(a) a holding company or a subsidiary company;
(b) a company registered under section 8; or
(c) a company or body corporate governed by any special
Act.

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SECTION2 (68)-PRIVATE COMPANY

A private company means a company, which has a minimum paid-up capital as may be
prescribed, and by its articles:

(a) Restricts the right to transfer its shares

(b) Limits the number of its members to 200
- Excluding past and present employee
- Joint Shareholders to be counted as single member
(c) Prohibits any invitation to the public to subscribe for any securities

A private company may issue debentures to any number of persons. The only condition
being that an invitation to the public to subscribe for debentures is prohibited.

The words 'Private Ltd.' must be added at the end of its name by a private limited
company. Deposits: A private company can only accept deposit from its members and
not from public.

NO. OF MEMBERS [SECTION3(1)]

A private company may be formed for any lawful purpose by two or more persons, by
subscribing their names to a memorandum and complying with the requirements in
respect of registration.

NO. OF DIRECTORS [SECTION149(1)]

A private company shall have a minimum 2 directors. The only 2 members may also be
the 2 directors of the private company.

Examples of Private Companies:

1. Flipkart India Private Limited
2. Make my trip (India) Private Limited

FORMATION AND REGISTRATION OF PRIVATE COMPANY

• Features of SPICE+:
• Part A - for Name reservation

• Part B -

 Incorporation

 DIN

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- By CS Kirti Chaturvedi

 PAN

 TAN

 EPFO

 ESIC

 Profession Tax registration (Maharashtra, Karnataka and West Bengal)

 Opening of Bank Account

 GSTIN (if so applied for)

 Shops and Establishment Registration Number only for Delhi

User may choose Part-A for reserving a name first and thereafter submit Part B or file
Part A and B together at one go RUN service is applicable only for ‘change of name’ of
existing company

Declaration by all Subscribers and first Directors in INC-9 is auto-generated in

electronic except where:
(i) Total number of subscribers / directors greater than 20
(ii) subscribers/ directors has neither DIN nor PAN.

Step – I: Apply For Name Approval

A. Login on MCA Website

B. Details required to be mentioned in online form: New fields introduced in Part A of

SPICe+ are:
(i) Type of company
(ii) Class of company
(iii) Category of company
(iv) Sub-Category of company
(v) Main division of industrial activity of the company
(vi) Description of the main division.

C. Choose File:

To upload the PDF documents.

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D. Submission of Form on MCA Website:

After completion of above steps user shall submit the Form with MCA website.

E. Validity of Reserved Name:

Valid for 20 days from the date of approval whereas for change of name 60 days
from the date of approval.

Step – II: Preparation of Documents for Incorporation of Company

 INC-9 – Declaration by Subscriber(s) and director(s).

 DIR-2- Declaration from directors
 MBP-1-Disclosure of interest in other entities.
 NOC from owner of property
 Utility bills not older than two months.
 All Subscribers should have Digital Signature.

STEP – III: Fill the Information in Form

Once all the above mentioned documents/ information are available, applicant has to
fill the information in theform “Spice+ Part -B.

Features of SPICe+ (Inc-32) form:

 Maximum details of subscribers are (7). In case of more subscribers,

physically signed MOA & AOA shall be attached.
 Maximum details of directors (20).
 Maximum THREE (3) directors are allowed for filing DIN
 Applying for PAN / TAN compulsory

STEP – IV: Preparation of MOA & AOA (Electronic or Physical)

After proper filing of SPICE+ Pat B download the e-form INC-33 (e-MOA) and INC34
(e-AOA) form convert to pdf and affix the DSC.

STEP – V: Fill details of PAN & TAN

STEP – VI: Fill details of GST, IEC in AGILE-PRO

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- By CS Kirti Chaturvedi

STEP – VII: Submission of INC-32, 33, 34, AGILE-PRO-S on MCA

Where the Registrar finds such application defective or incomplete he shall mark the
application for resubmission. Only 2 (Two) resubmissions are allowed resubmission
has to be replied within 15 (fifteen) days.

STEP – VIII: Certificate of Incorporation

• Incorporation certificate shall be generated with CIN, PAN & TAN in Form INC-11.

Commencement of Business

— Section 10A, every company incorporated shall not commence any business
unless
(a) Declaration in form INC-20A is filed by a director within a period of one
hundred and eighty day of the date of incorporation
(b) Company has filed with the Registrar a verification of its registered
office in form INC-22

PUBLIC COMPANY [SECTION 2(71)]:

A public company means a company which:

(a) Is not a private company;

(b) Has a minimum paid- up capital as may be prescribed (no such capital has been
prescribed as per law).

However, a company which is a subsidiary of a company, not being a private company,

shall be deemed to be public company even where such subsidiary company continues
to be a private company in its articles.(This means, if private company is subsidiary of
public company then it will be treated as public company)

CHARACTERISTICS OF PUBLIC LIMITED COMPANY

• Minimum 7 members and no limiton maximum members

• Minimum 3 Directors, maximum 15 directors.
• The words ‘Limited’ must be added at the end of name (i.e. ABC Limited)
• Paid-up capital: There is no minimum capital requirement

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CS SBI & LL
- By CS Kirti Chaturvedi Corporation Entities-Companies

WESTERN MAHARASHTRA DEVELOPMENT CORPN. LTD. V. BAJAJ AUTO LTD. [2010]:

• It was held that the Companies Act makes a clear distinction in regard to the
transferability of shares relating to private and public companies.
• “Private company”: restricts the right to transfer its shares.
• “Public company”: shares or debentures and any interest therein, of a company,
shall be freely transferable.

EXAMPLES OF PUBLIC COMPANIES:

1. Snapdeal Limited
2. Godrej Capital Limited

PROCESS OF INCORPORATION OF A PUBLIC LIMITED COMPANY

 The Incorporation procedure for a public company is similar to the private

company.
 However, the minimum requirement of the members and directors in a public
company are as per the Act.
 The name shall be suffixed by the word “Limited”.

Requirement of minimum number of directors and shareholders:

 Minimum Shareholders: 7
 Minimum Directors: 3
 Shareholders of a public company can freely transfer their shares.
 Can invite the general public for subscribing to shares
 Shares can be listed on a recognized stock exchange

SECTION2(62)-ONE PERSON COMPANY

One Person Company means a company which has only one person as a member.

PROCESS OF INCORPORATION OF A ONE PERSON COMPANY (OPC)

Section 2(62) “One Person Company” as a company which has only one person as
member.

OPC is a type of Private Company.

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- By CS Kirti Chaturvedi

Rule 3(1) of the Companies (Incorporation) Rules 2014 only a natural person who is
an Indian citizen and resident in India or otherwise :-
(a) shall be eligible to incorporate One Person Company;
(b) Shall be a nominee

(1) “Resident in India” means a person who has stayed in India for a period of not less
than one hundred and twenty days during the immediately preceding financial
year.
(2) A natural person shall not be member of more than one One Person Company and
not be a nominee of more than one one Person Company. Becomes a member in
another such Company by virtue of his being a nominee in that One Person
Company, such person shall meet criteria within a period of 180 days.
 No minor shall become member or nominee or can hold beneficial
interest.
 Cannot be incorporated or converted into section 8
 Cannot carry out Non-Banking Financial Investment activities.
The name of the person nominated shall be mentioned in the memorandum of and also
in Form INC-32
(SPICe+)

Relaxation s/ Exemptions:
1. The financial statement, with respect to One Person Company, may not
include the cash flow statement.
2. The Memorandum of OPC shall indicate the name of the nominee, who shall,
in the event of the subscriber’s death or his incapacity to contract become the
member of the company and the written consent of such person shall also be filed
with the Registrar at the time of incorporation of the One Person Company along
with its memorandum and articles.
3. The words ‘‘One Person Company’’ shall be mentioned in brackets below the
name of such company.
4. The annual return shall be signed by the CS, or where there is no CS, by the
director of the company.
5. The resolution of general meeting is communicated by member to the
company and entered in the minutes-book.
6. If there is only 1 director on the Board of Directors, the resolution of board
meeting is entered in the minutes-book.
7. The financial statement, can be approved by only one director, for

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submission to the auditor for his report thereon.

8. Copy of financial statements to be filed duly adopted by its member within
180 days from the closure of the financial year.
9. OPC , small company and dormant company shall conduct at least one
meeting of BoD in each half of calendar year and gap between 2 meetings is not
less than 90 days.
(Provision not applicable if there is only 1 director.)

NIDHI COMPANY

The primary objective of Nidhi is to carry on the business of accepting deposits and
lending money to member borrowers only against jewels, etc., and mortgage of
property.

Nidhis are not permitted to engage themselves in the business of chit fund, hire -
purchase, insurance or in any other business including investments in shares or
debentures.

Nidhi means a company which has been incorporated as a Nidhi with the object of
cultivating the habit of thrift and saving amongst its members, receiving deposits from,
and lending to, its members only, for their mutual benefit, and which complies with the
rules made by the central Government for regulation of such class of companies.

CHARACTERISTICS OF NIDHI

• Every Nidhi shall be incorporated as a public company and shall have the last
words “Nidhi Limited”
• Minimum paid up share capital of ten lakh rupees

• Within a period of 120 days from the date of its incorporation

i) Two hundred members;
ii) Net Owned Funds of twenty lakh rupees or more.

Every Nidhi shall allot to each deposit holder at least a minimum of ten
equity shares or shares equivalent to one hundred rupees.

• Membership of Nidhi:
(a) Nidhi shall not admit a body corporate or trust as a member.
(b) Minor shall not be admitted as a member of Nidhi.

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(c) Deposits may be accepted in the name of a minor by legal guardian

(d) Member shall not transfer more than fifty percent of his shareholding
during the subsistence of such loan or deposit,

• Branches of Nidhi:
(a) Nidhi may open branches, only if it has earned net profits after
tax continuously during the preceding 3 financial years.
(b) Nidhi may open up to 3 branches
(c) If more than 3 branches or any branch outside the district, it
shall obtain the prior permission of the Regional Director
(d) Shall not open branches unless financial statement and annual return
(up to date) are filed
(e) Nidhi shall not close any branch unless –
i) Proposal along with the plan as to how the existing deposits have
been or shall be paid off is approved by the board
ii) Obtained the approval of the Regional Director at least sixty days prior to
such closure.
iii) Publishes an advertisement in a newspaper at least thirty days prior to
such closure
iv) Gives an intimation to the Registrar within thirty days of such closure

• Acceptance of deposits:
(a) Fixed deposits, minimum, 6 months, maximum, 60 months.
(b) Recurring deposits, minimum, 12 months, maximum, 60 months
(c) Maximum balance in a savings deposit account, not exceed one lakh
rupees, and the rate of interest shall not exceed 2% above the rate of interest
payable on savings bank account by nationalised banks.

• Un-encumbered term deposits by Nidhi:

Unencumbered term deposits, shall not be less than 10% of the deposits
outstanding

• Loans by Nidhi:
The loans given by a Nidhi to a member shall be subject to the following limits,

Total amount of deposit from Maximum Loan

members
Less than Rs. 2 crore Rs. 2 Lakh
Rs. 2 Crore - 20 Crore Rs. 7.5 Lakh
Rs. 20 Crore - 50 Crore Rs. 12 Lakh
More than Rs. 50 crore Rs. 15 Lakh

Nidhi has not made profits continuously in the three preceding financial years, it

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shall not make any fresh loans exceeding 50% of the maximum amounts of loans.

Member not be eligible for any further loan if he has borrowed any earlier loan
from the Nidhi and has defaulted in repayment of such loan.

• Rate of interest on any loan given by a Nidhi:

Shall not exceed seven and half per cent above the highest rate of interest offered
on deposits by Nidhi
• Directors in a Nidhi:
Director shall be a member, shall hold office for a term up to 10 consecutive years
• Dividend: A Nidhi shall not declare dividend exceeding 25% in a financial
year

PROCESS OF INCORPORATION OF NIDHI

(1) A Nidhi shall be a public company minimum paid up equity share capital lakh
rupees. Shall not issue preference shares, debentures. No object in Memorandum
other than object of cultivating the habit of thrift and savings amongst its
members, receiving deposits from, and lending to, its members only, for their
mutual benefit.
(2) Every “Nidhi” shall have the last words ‘Nidhi Limited”

Requirements for Minimum Number of Members and Net Owned Funds

• Nidhi (Amendment) Rules, 2022 deals with requirements for minimum number
of members, net- owned fund etc. It provides that:

Every Nidhi shall, within a period of 120 days from the date of its incorporation,
ensure that it has filed –

(a) E-form NDH-4

(b) Net Owned Funds of 20 lakh rupees or more;
(c) minimum of 200 persons as members;
(d) unencumbered term deposits of not less than ten per cent of the
outstanding deposits as specified in rule 14; and
(e) ratio of Net Owned Funds to deposits of not more than 1:20.

• “Net Owned Funds” means the aggregate of paid up equity share capital and
free reserves as reduced by accumulated losses and intangible assets

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Return of Statutory Compliances by Nidhi

Within 90 days from the close of the first financial year Nidhi shall file a return of
statutory compliances in Form NDH-1 with the Registrar duly certified by company
secretary or chartered accountant or cost accountant in practice.

General restrictions or prohibitions

Nidhi shall not –

 carry on the business of chit fund, hire purchase finance, leasing finance,
insurance.
 issue preference shares, debentures
 open current account with members;
 carry on any business other than the business of borrowing or lending in its own
name.
 accept deposits or lend to person, other than members;
 raise loans from banks or financial institutions for advancing loans to members

SECTION 8 COMPANY

Person or an association of persons proposed to be registered under this Act as a

limited company—

(a) Has in its objects the promotion of commerce, art, science, sports, education,
research, social welfare, religion, charity, protection of environment or any such
other object;
(b) Intends to apply its profits, if any, or other income in promoting its objects;
and
(c) Intends to prohibit the payment of any dividend to its members,

• Registered as a limited company under this section without the addition to

its name of the word “Limited”, or s “Private Limited”
• Firm may be a member of the company
• Shall not alter the provisions of its memorandum or articles except with the
previous approval of the Central Government.
• May convert itself into company of any other kind only after complying with
such conditions
• Central Government may, by order, revoke the licence.
• If the company contravenes any of the requirements of this section or the

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affairs are conducted fraudulently or in violative of the objects of the company or

prejudicial to public interest direct the company to convert its status and change
its name to add the word “Limited” or the words “Private Limited”,
• Direct that the company be wound up or amalgamated with another
company registered under this section.
• If on the winding up or dissolution there remains, any asset, they may be
transferred to another company registered under this section and having similar
objects
• Default in complying with this section, fine not less than ten lakh rupees
which may extend to one crore rupees directors and every officer of the company
who is in default fine not less than twenty-five thousand rupees but which may
extend to twenty-five lakh rupees.
• When it is proved that the affairs of the company were conducted
fraudulently, every officer in default shall be liable for action under section 447.

PROCESS OF INCORPORATION OF SECTION-8 COMPANY

The procedure for registration of a Section 8 Company involves two steps

(i) Obtaining of licence
(ii) Obtaining certificate of incorporation.

The following steps will be taken:

1. All the proposed directors should have valid DIN. Digital Signature
2. MOA of the Section 8 Company must be in form INC-13 (Rule 19) and AOA must
be in the form INC-31

Section 8 company shall have at least one director who has stayed in India for a total
period of not less than 182 days.

Application for Incorporation

 Incorporation procedure can be carried out through eForm SPICe+

 It is to be noted that e-MOA (INC-33) and e-AOA (INC-34) is not applicable to

Section 8 companies and physical copies of MOA and AOA are to be attached
with the form SPICe+.
 If e-Form is found complete, company would be registered and CIN would be
allocated.
 Maximum three Directors are allowed for using this integrated form for filing
application of allotment of DIN

In order to encourage the concept of ‘Ease of Doing Business’, the Form SPICe+ was
introduced where both licence and the Certificate of Incorporation can be obtained

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through single form attachments:

1. Memorandum
2. Article
3. Declaration by professional in Form INC 14
4. Declaration by each of the persons in the Form no. INC-15;
5. Declaration by First Directors and Subscribers;
6. Address Proof of subscribers;
7. Identity proof of subscribers;
8. Estimate of the future annual income and expenditure of the company for next
three years
9. Verification of the registered office shall be filed in Form No. INC. 22
 Consent to act as Directors in Form DIR- 2.
 Affidavit by the Directors for Not accepting Deposits
 Declaration by each Subscriber in Form INC-9.

If the Concerned Registrar of Companies is satisfied a Certificate of Incorporation is

issued in form INC-11

PRODUCER COMPANY

• Chapter XXIA (Section 378 A to 378 ZU) of Companies Act, 2013 deals with the
producer companies. A producer company is a body corporate having objects or
activities specified in Section 378B of Companies Act, 2013

OBJECTS OF PRODUCER COMPANIES

(a) Production, harvesting, procurement, grading, pooling, handling, marketing,

selling, export of primary produce of the Members or import of goods or services
for their benefit:
(b) Processing including preserving, drying, distilling, brewing, vinting, canning and
packaging of produce of its Members;
(c) Providing education on the mutual assistance principles to its Members and
others;
(d) Rendering technical services, consultancy services, training, research and
development and all other activities for the promotion of the interests of its
Members;
(e) Generation, transmission and distribution of power, revitalisation of land and
water resources, their use, conservation and communications relatable to
primary produce;
(f) Insurance of producers or their primary produce;
(g) Promoting techniques of mutuality and mutual assistance;
(h) Welfare measures or facilities for the benefit of Members as may be decided by

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the Board;
(i) Any other activity, ancillary or incidental to any of the activities referred to in
clauses (a) to (i) or other activities which may promote the principles of
mutuality and mutual assistance amongst the Members in any other manner;
(j) Financing of procurement, processing, marketing or other activities specified in
clauses (a) to (j) which include extending of credit facilities or any other financial
services to its Members.

FOREIGN COMPANY

As per section 2(42), “foreign company” means any company or body corporate
incorporated outside India which –

(a) has a place of business in India whether by itself or through an agent,

physically or through electronic mode ; and
(b) Conducts any business activity in India in any other manner

Every foreign company which establishes a place of business in India must, within 30
days of the establishment of such place of business, file with the Registrar of
Companies for registration:

(i) A certified copy of memorandum and articles,

(ii) Full address of registered office of the company;
(iii) List of the directors and secretary of the company
(iv) Names and addresses of one or more persons authorised on behalf of
the company
(v) Full address of the office of the company in India
(vi) Particulars of opening and closing of a place of business in India on
earlier occasion
(vii) Declaration that none of the directors in India has ever been convicted
or debarred from formation of companies in India or abroad;
(viii) Other information
• Name the country of incorporation, limited liability of members is exhibited in
the specified places or documents
• Where not less than 50% of the paid-up share capital, is held by one or more
citizens of India or bodies corporate incorporated in India, such company
shall comply with such of the provisions of this Act, as if it were a company
incorporated in India.
• Foreign Company to maintain books of Account and file a copy of balance sheet
and profit and loss account in prescribed form with ROC every calendar year.
• In Tovarishestvo Manufacture Liudvig Rabenek, Re [1944] it was held that where

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representatives of a company incorporated outside the country frequently

stayed in a hotel in England for looking after matter of business, it was held
that the company had a place of business in England.

MEMORANDUM OF ASSOCIATION

• The Memorandum of Association is a document which sets out the constitution of

a company. It defines the scope of the company’s activities and its relations with
the outside world.
• Memorandum is one of the most essential pre-requisites for incorporating any
form of company
• Section 3 states that a company may be formed for any lawful purpose by seven
or more persons, where the company to be formed is a public company; two or
more persons, where the company to be formed is a private company; or one
person, where the company to be formed is a One Person Company by
subscribing their names or his name to a memorandum
• Section 2(56) of the Act “memorandum” means the memorandum of association
of a company as originally framed and altered, from time to time, in pursuance of
any previous company law or this Act.
• It not only shows the objects of formation of the company but also determines the
scope of its operations beyond which its actions cannot go.

As per Section 4, the memorandum of a limited company must state the following:

(a) Name Clause : The name of the company with “Limited” as its last word in the
case of a public company; and “Private Limited” as its last words in the case of a
private company.
Except section 8 & Government Company.

(b) The name shall not be identical with or resemble too nearly to the name of an
existing company or use by the company- will constitute an offence or is
undesirable

Identical Names

Rule 8 of the Companies (incorporation) Rules, 2014

 Green Technology Ltd. is same as Greens Technology Ltd.
 ABC Ltd. is same as A.B.C. Ltd. and A B C Ltd
 Chemtech Ltd. is same as Cemtek Ltd., Kemtech Ltd.,

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Undesirable Names

Rule 8A of the Companies (incorporation) Rules, 2014

[Link] under the Provisions of Section 3 of Emblems and Names

(Prevention and Improper Use) Act, 1950.
[Link] name includes a trade mark registered under the Trade Marks Act, 1999
[Link] is identical with or too nearly resembles the name of a limited liability
partnership.
[Link] name includes any word or words which are offensive to a section of
people.
[Link] proposed name contains the words ‘British India’
[Link] proposed name includes the word “State”, in case the company is not a
Government company.
[Link] proposed name is containing only the name of a continent, country, State,
city such as Asia limited, Germany Limited, Haryana Limited or Mysore
Limited

Word or expression which can be used only after obtaining previous approval of
Central Government.

Rule 8B of the Companies (incorporation) Rules, 2014, provides that, the

following words and combinations thereof shall not be used in the name of a
company :

Board Authority Union Small Scale Industries

Commissio Khadi and Village Industries
Undertaking Central
n Corporation
Rashtrapat
National President Municipal
i
Federal Panchayat Republic Prime Minister or Chief Minister

If the proposed name contains the name a foreign country/city/town etc. then
applicant has to attach any proof of significance of business relations with such
foreign country like MOU with a company of such country.

In case proposed name includes name of India and a foreign country (e.g. India

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Japan or Japan India) in such cases name shall be allowed if, there is Government
to government participation or patronage and no company shall be incorporated
using the name of enemy country

Reservation of Name

— As per section 4(4) a person may make an application, in web-based

service SPICe+ (Simplified Proforma for Incorporating Company
Electronically Plus: INC-32) and for change of name by web service
RUN (Reserve Unique Name)form in prescribed manner and
accompanied by prescribed fee to the Registrar for the reservation of a
name set out in the application as –
(a) The name of the proposed company; or
(b) The name to which the company proposes to change its name.

Reservation of Name for 20 days

— Section 4(5) (i) lays down that upon receipt of an application under sub-section
(4), the Registrar may, on the basis of information and documents furnished
along with the application, reserve the name for a period of 20 days from the
date of approval.
— In case of an application for reservation of name or for change of its name by an
existing company, the Registrar may reserve the name for a period of sixty
days from the date of approval.

Common reasons for rejection of name:

• Not according to the activities described
• Not available in view of the existence of identical or resembling
• Words like International, Hindustan, India, Bharat, will not be allowed.

Section 4(5)(ii) if it is found that name was applied by furnishing wrong or

incorrect information, then:
 Reserved name shall be cancelled
 Liable to a penalty of 1lakh rupees.
 Registrar may, direct the company to change its name within period of 3
months
 Striking off the name of the company
 Petition for winding up

Situation Clause:

The name of the State in which the registered office of the company is to be

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situated must be given in the memorandum. But the exact address of the
registered office is not required to be stated therein. According to section 12 of
the Act within thirty (30) days of company’s incorporation, and at all times
thereafter, the company must have a registered office to which all
communications and notices may be sent.

Verification of registered office:

The Company must also furnish to the Registrar verification of its registered office
within a period of 30 days of its incorporation in such manner as may be
prescribed (e-form INC-22). However, it may be noted that e- Form INC 22 is not
required to be filed with SPICe+, if a company is registered with the same address
as the address for correspondence.

In case the registered address is different, INC-22 is required to be filed within 30

days of its incorporation, for intimating the registered office address.

Obligation of the company regarding the registered office:

According to Section 12(3) of the Act, every company is required to display its
name and address in legible letters in conspicuous position and in all its business
letters, bill heads, and letter papers. Accordingly, the company shall –

(a) paint or affix its name, and the address of its registered office, and keep the
same painted or affixed, on the outside of every office or place in which its
business is carried on, in a conspicuous position, in legible letters, and if the
characters employed therefor are not those of the language or of one of the
languages in general use in that locality, also in the characters of that
language or of one of those languages;

(b) have its name engraved in legible characters on its seal, if any

(c) get its name, address of its registered office and the Corporate Identity
Number along with telephone number, fax number, if any, e-mail and
website addresses, if any, printed in all its business letters, billheads, letter
papers and in all its notices and other official publications;

(d) have its name printed on negotiable instruments such as hundies,

promissory notes, bills of exchange and such other document as may be
prescribed;

(e) If it has a website for conducting online business or otherwise, shall

disclose/publish its name, address of its registered office, the Corporate

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Identity Number, Telephone number, fax number if any, email and the name
of the person who may be contacted in case of any queries or grievances on
the landing/home page of the said website.
— However, where a company has changed its name or names during the
last two years, it shall paint or affix or print, as the case may be, along
with its name, the former name or names so changed during the last
two years.

— Further, in case of One Person Company, the words ‘‘One Person

Company’’ shall be mentioned in brackets below the name of such
company, wherever its name is printed, affixed or engraved

The Ministry of Corporate Affairs (MCA) vide its notification dated August 18, 2022
has notified “The Companies (Incorporation) Third Amendment Rules, 2022” which has
came into force on the date of its publication in the Official Gazette. According to the
amendment, rule 25B is inserted in the Companies (Incorporation) Rules, 2014, stating
physical verification of registered office of the company by the Registrar in terms of
section 12(9) of the Companies Act, 2013 in presence of two witnesses of the locality.

The Registrar shall carry the documents as filed on MCA 21 in support of address of
the registered office of the company for the purposes of physical verification and take a
photograph of the registered office. Further a report of physical verification of the
registered office of the company is also required to be in the prescribed format.

(c) Object Clause:

All companies must state in their memorandum the objects for which the
company is proposed to be incorporated and any matter considered necessary in
furtherance thereof It states extent of powers of the company and nothing should
be done beyond that ambit.. The acts beyond this ambit are ultra vires and hence
void. Even the entire body of shareholders cannot ratify such acts.

(d) Liability Clause:

Company limited by shares, liability of its members is limited to the amount

unpaid, if any, on the shares held by them; Company limited by guarantee, amount
up to which each member undertakes to contribute in the event of its being
wound-up
1. Limited by Shares: liability of the members to the extend unpaid by the
members.
2. Limited by Guarantee: Member guarantees a certain amount that they will
pay in case the company moves for winding up.
3. Unlimited Liability: Every member of the company is liable to pay for an

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unlimited amount if the company moves for winding up and extends to

members’ personal property as well.

(e) Capital Clause:

This clause shall state the amount of the capital with which the company is
registered. The capital is variously described as “nominal”, “authorized” or
“registered”.

The usual way to state the capital in the memorandum is: “The share capital of the
company is 10,00,000 rupees divided into 1, 00,000 equity shares of 10 rupees each”.
This amount lays down the maximum limit beyond which the company cannot issue
shares without altering the memorandum as provided by Section 61 of the Companies
Act, 2013.

If there are both equity and preference shares, then the division of the capital is to
be shown under these two heads.

(f) Subscription Clause:

(i) the number of shares which the subscribers to the memorandum agree to
subscribe which shall not be less than one share; and
— the number of shares each subscriber to the memorandum intends to
take, indicated opposite his name In the case of a One Person Company,
the name of the person who, in the event of the death of the subscriber,
shall become the member of the company.

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The subscriber sheet to the Memorandum of Association is a vital document

that is required to be submitted along with the Memorandum of Association
during the company registration process. It provides the details of the first
members of the company.

The required details include:

The name of the subscribers
The details of the father or spouse of the subscribers
The complete address of the subscribers with a valid pin code.
The pan card number and occupation of the subscribers
Signatures of the subscribers.
The subscription sheet needs to mention the total number of
shares that have been subscribed to by each subscriber.
If a subscriber is a Company or corporate body, its director or
partner’s signature on behalf of the company.
The witness authenticates details of the subscriber sheet

Provision in the memorandum or articles is void

• According to section 4(7), any provision in the memorandum or articles, in

the case of a company limited by guarantee and not having a share capital,
purporting to give any person a right to participate in the divisible profits of
the company otherwise than as a member, shall be void.
• The above clauses are compulsory and are designated as “conditions”
prescribed by the Act, on the basis of which a company is incorporated.
• It is to be noted that the Companies Act, 2013 shall override the provisions
in the memorandum articles, agreement or resolution of a company, if the
latter contains anything contrary to the provisions in the Act (Section 6).

ARTICLES OF ASSOCIATION

• According to Section 2(5) of the Companies Act, 2013, ‘articles’ means the articles
of association of a company as originally framed or as altered from time to time or
applied in pursuance of any previous company law or of this Act. It also includes
the regulations contained in Table A in Schedule I of the Act, in so far as they
apply to the company. In case of a private company, the provisions of Table A may
be altered to suit the specific requirements of the company, provided that any
such alteration should not be contrary to the provisions of the Companies Act,

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2013
• The general functions of the articles have been aptly summed up by Lord Cairns,
L.C. in Ashbury Railway Carriage and Iron Co. Ltd. v. Riche, as follows:
• The articles is subsidiary to the memorandum of association.
• Thus, the memorandum lays down the scope and powers of the company, and can
be framed and altered by the members, But within the limits marked out by the
memorandum and the Companies Act.
• Any clause in the Articles going beyond the memorandum will be ultra vires.
articles that go beyond the company’s sphere of action are inoperative, and is void
and incapable of ratification.

Entrenchment provisions of Articles

• The articles may contain provisions for entrenchment to the effect that specified
provisions of the articles may be altered only if conditions or procedures that are
more restrictive than those applicable in the case of a special resolution, are met
or complied with. [Section 5 (3)]
• The provisions for entrenchment referred to in section 5(3) shall be made either
(a) on formation of a company, or
(b) by an amendment in the articles agreed to by all the members of the company
in the case of a private company and by a special resolution in the case of a
public company. [Section 5 (4)]

• Where the articles contain provisions for entrenchment, whether made on

formation or by amendment, the company shall give notice to the Registrar in
Spice+ form at the time of the incorporation of the Company or E-form MGT-14 in
case of existing Companies.
• The articles must be printed, divided into paragraphs, numbered consecutively,
stamped adequately, signed by each subscriber to the memorandum and duly
witnessed and not contain anything illegal or ultra vires the memorandum, nor
contrary to the provisions of the Companies Act 2013.

Contents of Articles

The articles set out the rules and regulations framed by the company for its own
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working. The articles should contain generally the following matters:

1. Share Capital
2. Allotment of shares.
3. Calls on shares.
4. Lien on shares.
5. Transfer and transmission of shares
6. Forfeiture of shares
7. Buy back.
8. General meetings
9. Share certificates
10. Voting rights and proxies
11. Directors, their appointment and power
12. Dividends and reserves.
13. Accounts and audit.
14. Winding up

Drafting of Articles of Association

Section 5 of the Act provides that the articles of association should be in any one of the
Forms as specified in Tables F, G, H, I or J of Schedule I to the Companies Act, 2013.

1. the form in Table F is applicable to company limited by shares

2. the form in Table G shall be applicable to company limited by guarantee and
having share capital
3. the form in Table H shall be applicable to company limited by guarantee
and not having share capital
4. the form in Table I shall be applicable to unlimited company and having
share capital
5. the form in Table J shall be applicable to unlimited company and not having
share capital

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3 LIMITED LIABILITY PARTNERSHIP

Chapter

LLP form of business organization was brought in to give the entrepreneur the advantages
of both partnership and company form of business organization.

Features of LLP

 The name of every LLP must bear the words “Limited Liability Partnership” or “LLP”.

 Any two or more persons associated with carrying on a lawful business with a view to
profit may by subscribing their names to an incorporation document and filing the same
with the Registrar.

 LLP is a suitable structure for medium-sized businesses such as manufacturing, trading,

export, consultancy, professional services, education, joint ventures etc.

 Minimum two partners, no limit on a maximum number of partners.

 A minimum of two partners should be designated as ‘Designated Partners’, out of which

one should be a resident of India. However, other partners are not normally liable
except in cases of fraud etc.

 The name shall not be the same as other LLP, company or partnership firm already
registered.

 It is a separate legal entity and holds the property in its name; thus, any type of debt of
the LLP shall be borne by itself, and partners are separated from such obligations.

 LLP itself decide the relationship between the partners through its agreement, however,
subject to the LLP Act and Rules made there under.

 LLP activities are controlled and managed by its partne. Designated partners have the
fiduciary responsibility to carry on the day-to-day activities of the LLP.

 The right and duties of the LLP and its partners are defined in the LLP agreement.

 There is no limit on the capital contribution quantum .

 In the absence of the LLP agreement the majority number of partners decide the specific
matter by having one vote one partner. Also, material matters like the change of name,
object or registered office of the LLP etc., cannot be made unless the consent of all the

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partners.

 As the LLP itself is liable for the debts to full extent of its assets, this means that partners
will be liable only for the limited contribution they have made, partners may also be
liable for their wrongful or fraudulent activity.

 LLP is also required to notify the Registrar if there is any change in name, registered
office, terms and conditions of the LLP agreement and submit the financials and annual
return to the Registrar.

 LLP must display its name, place, registration number, and registered office address on
all the conspicuous places of the business.

 LLP is capable of creating a charge over its movable and immovable property, thus
enabling financial institutes to obtain finance. Also, the partners can lend money to the
LLP in their personal capacity.

 Foreign direct investment is allowed in LLP, subject to the terms and conditions.

 Under the provisions of the LLP Act, a partnership firm, private company, or unlisted
public company can be converted into an LLP.

 LLP can also take actions like compromise, arrangements, reconstructions, mergers, and
amalgamations.

 Similarly, there are strike-off, winding up, dissolution, inspection and investigation
provisions.

 Accounts are required to be maintained by LLP.

IMPORTANT DEFINITIONS

1. Body Corporate [(Section 2(d)]:

 Company & LLP under this Act.

 Company & LLP incorporated outside India
but does not include—
 Corporation sole;
 Co-operative society

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 Other body corporate (Other than Company & LLP), notified by Central
Government in Official Gazette.

2. Designated Partner [Section 2(j)]: P artner designated as such pursuant to

section 7.

3. Financial Year [Section 2(l)]: “Financial year”, in relation to a LLP, means period
from 1st April to 31st March of the following year.
LLP incorporated after 30th day of September : Financial year may end on 31st
day of March of the year next following that year.
Example 1: If a LLP has been incorporated on 15th October, 2017, then its financial
year may be from 15th October, 2017 to 31st March, 2019.
(As per Income Tax : 1st April to 31st March each year)

4. Foreign LLP [section 2(m)]: LLP formed, incorporated or registered outside India
which establishes a place of business within India.

5. Partner [Section 2(q)]: Any person who becomes partner in LLP in accordance with
LLP agreement.

6. “Small limited liability partnership [Section 2(ta)]: It means a LLP having—

(i) Contribution: Not exceeding Rs. 25 lakh (or such higher amount, not exceeding Rs.
5 crore) ; AND
(ii) Turnover Not exceeding Rs. 40 lakh (or such higher amount, not exceeding Rs. 50
crore) as per the Statement of Accounts & Solvency for immediately preceding F.Y.,
(iii) Other requirements & terms and conditions as may be prescribed.

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Section 5
Any Individual / Body Corporate  Can be Partner in LLP.

Unsound Mind
X
Not capable of becoming
Undischarged Insolvent Partner of LLP
Pending Application for Insolvent

Section 6 : Minimum Number Of Section 7 : Designated partners

Partners
Atleast 2 Partners. At least 2 designated partners :
 Individuals
 At least One  Resident in India.
If no. of partners of LLP reduced If all partners:
below 2,  Bodies Corporate
 for more than 6 months  One or more partners are Individuals &
 person, who is only partner Bodies Corporate,
during that time At least 2 individuals / Nominees of Body
 has knowledge of the fact that Corporate shall act as Designated
carrying business alone Partners.
 shall be liable personally for
obligations incurred during * Resident in India: (For this section)
that period. Person who has stayed in India for a period
of not less than 120 days during the
Financial year.

2.
i. If Incorporation document specifies:
(a) Who are to be DP, than such person
shall be DP
(b) Each partner to be DP than every
partner
shall be DP
ii. Any partner may become/cease to be
DP, in accordance with LLP agreement
3. Individual can become DP after prior
consent in prescribed form.
4.
LLP ROC

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5. Every individual shall satisfy conditions

as prescribed.
6. Every DP shall obtain Designated
Partners
Identification Number (DPIN)

Section 8 :
A designated partner shall be-

(a) responsible for the doing of all acts required to be done by LLP in respect of
compliance of the provisions of this Act including filing of any document, return,
statement etc; and
(b) liable to all penalties imposed on the LLP for any contravention of those provisions.

Section 9 : Changes in Designated Partner

 LLP may appoint a DP within 30 days of a vacancy.

 If no designated partner is appointed, or if at any time there is only one designated
partner, than each partner shall be deemed to be a designated partner.

STEPS TO INCORPORATE LLP

For a LLP to be incorporated:

(a) 2 or more persons associated for carrying on a lawful business with a view to profit
shall subscribe their names to an incorporation document;
(b) the incorporation document shall be filed in prescribed manner and with
prescribed fees, with the Registrar of the State; and
(c) a statement made by CS/ CA/ CMA/ Advocate, who is engaged in the formation of
LLP, to be filed (that all the requirements of this Act are complied with)

The incorporation document shall be:

(a) filed in Form FiLLiP with the Registrar
 If an individual does not have a DPIN or DIN, application for allotment of DPIN shall
be made in Form FiLLiP.
 An Application for allotment of DPIN shall not be made by more than 5 individuals
in Form
FiLLiP.
 An Application for reservation of name may be made through Form FiLLiP.

1. Documents to be attached with e-form fillip:

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i. Consent of partners
ii. Subscribers’ sheet
iii. Details of LLPs/companies in which partner is a partner/director
iv. Identity and address proof of partner
v. Proof of address of registered office
vi. List of main objects
vii. NOC from trade mark where name is similar

If Registrar finds incomplete or defective, remove such defects and re-submit within 15
days of such intimation.

Registrar shall give one more opportunity of 15 days for re-submission total period for
re-submission of documents shall not exceed thirty days.

When the requirements have been complied with Registrar shall within period of 14
days register the LLP & issue COI in Form 16, which will be conclusive evidence of
incorporation.

PAN &TAN shall be allotted along with certificate of incorporation

(Section 13) REGISTERED OFFICE OF LLP & CHANGE THEREIN :

1) Every LLP shall have Registered Office  For Communications & Notices
2) Document may be served on LLP / Partner / Designated Partner by post at
Registered Office

Notice of change
3) LLP  Change place of Registered office ROC
in form & manner prescribed

(Section 14) EFFECT OF REGISTRATION :

LLP by its Name, capable of :

 Suing & being Sued
 Acquire / own/ hold/ develop / dispose  Property

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 May have Common Seal

 Doing & Suffering other acts  as Bodies Corporate may do & suffer.

PARTNERS AND THEIR RELATIONS

(Section 22) ELIGIBILITY TO BE PARTNERS :

Persons who subscribed their names to Incorporation Document

Partners Other person in accordance with LLP agreement

(Section 23) RELATIONSHIP OF PARTNERS :

1) Partners of LLP
Mutual Rights and Duties Governed by LLP Agreement
LLP & its Partners

2) LLP agreement & any changes Prescribed Form, ROC

Manner & Fees

3) Agreement made before Incorporation impose obligations on LLP

If ratified by all Partners after incorporation

4) In absence of agreement mutual rights & duties As per First

Schedule

First Schedule provides matters as under:

1. The mutual rights and duties of the partners shall be determined, subject to LLP
Agreement or in the absence of agreement by provisions in this First Schedule.
2. All partners entitled to share equally in the capital, profits and losses of the LLP.

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3. The LLP shall indemnify each partner in respect of liabilities incurred by him in
ordinary conduct of the business.
4. Every partner shall indemnify the LLP for any loss caused to it by his fraud
5. Every partner may take part in the management of the LLP
6. No person introduced as a partner without the consent of all partners.
7. Any matter or issue relating to the LLP shall be decided by a resolution passed by a
majority, However, no change in the nature of business without the consent of all
the partners.
8. If a partner, without the consent of LLP, carries business of same nature, he must
account for and pay over all profits made by him.
9. No majority of the partners can expel any partner unless a power to do so conferred
by agreement.
10. All disputes between the partners which cannot be resolved in terms of such
agreement shall be referred for arbitration.

(Section 24) CESSATION (समाप्ति ) OF PARTNERSHIP INTEREST :

1) Person cease to be Partner of LLP  In accordance with Agreement

(In absence of Agreement : Intention to Resign By giving atleast 30 Days Other Partners
written Notice

2) Death or Dissolution of LLP

Person Cease to be Partner
Unsound Mind
Insolvent (Applied / Declared)

3) Former Partner (ceased partner)  still be regarded as Partner, unless :

(a) Notice is given to person dealing with LLP

(b) Notice is delivered to Registrar

4) Cessation does not discharge from Obligation incurred while being Partner.

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5) In case of death or insolvency of the former partner,

Former Partner or any person entitled to receive :
(a) Amount equal to capital contribution actually made

(b) Right to share accumulated profits (Retained Earnings) of LLP (after deduction of
accumulated losses )

6) Former partner No Right to interfere in management of LLP.

Section 25: REGISTRATION OF CHANGES IN PARTNERS :

Change in Name or Address

1) Partner within 15 days of change
LLP

Notice of Cessation of Partner

2) LLP ROC
Within 30 Days

LLP Change in Name or Address of Partner ROC

Within 30 Days

3) Notice filed for u/s 25 (2) [Cessation / Changes] shall be :

(a) In Prescribed form & fees
(b) Signed & authenticated by Designated Partner
(c) If relates to Incoming partner Consent by him Signed & authenticated

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Notice of Cessation u/s 25 (3)

4) Person Himself If believe that LLP may not file ROC

Obtain Confirmation

No confirmation
ROC within 15 days LLP

Register the Notice

EXTENT & LIMITATION OF LIABILITY OF LLP & PARTNER

(Section 26) PARTNER AS AGENT :

Every partner Agent of LLP

Not of other Partners

(Section 27) EXTENT OF LIABILITY OF LLP :

dealing with
1) Partner Person

If Partner has No authority for If Person knows that he has no authority

doing a particular act does not know him to be Partner

LLP Not Bound by Acts of Partner

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2) LLP liable for acts of partner if it is within authority

Is in ordinary course of business

3) Obligation of LLP solely the obligation of

LLP

4) Liabilities of LLP met out of Property of

LLP

(Section 30) UNLIMITED LIABILITY IN CASE OF FRAUD :

1)

Act done Intention : Liability  Unlimited For all

by : debts & liabilities
LLP To defraud creditors / any LLP
other person
Partners For Fraudulent purpose Partners

 Act was without knowledge or authority of LLP

Only Partner’s Liable

2) Business carried as per Section 30 (1)

Imprisonment : Upto 5 Years Fine : Min – 50,000 ; Max – 5,00,000

3) LLP / Partner / Designated Partner / Employee

Conducted affairs in fraudulent manner

Criminal Proceedings + Liable to pay Compensation

 Act was without knowledge or authority of LLP

LLP not Liable

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(Section 31) WHISTLE BLOWING :

1) Court / Tribunal may reduce / waive penalty leviable

against Partner / Employee

If Partner / Employee has provided Information given by Partner / Employee (whether

useful information during Investigation or not during investigation)  leads to conviction of
LLP / partner / employee

2) No Partner / Employee may be  discharged, demoted, suspended, threatened,

harassed or discriminated  because of his providing information.

CONTRIBUTIONS

Sec 32 : Form of Contribution

Contribution of a partner may consist of :

 tangible, or intangible property
 movable or immovable property or
 other benefit, including money, promissory notes, agreements to contribute
cash or property.

The monetary value of contribution of each partner shall be accounted for and
disclosed in the accounts.

Sec 33 : Obligation to Contribute

Obligation of a partner to contribute money or property or other benefit or to perform

services shall be as per LLP agreement.

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A creditor of a LLP, which extends credit without notice of any compromise between
partners, may enforce the original obligation against such partner.

FINANCIAL DISCLOSURES

(Section 34) MAINTENANCE OF BOOKS OF ACCOUNT, OTHER RECORDS & AUDIT,

etc.:

1) Proper Books of account

Maintain For each year Cash basis / Double Entry Maintain at For period : as
as may be of its Accrual basis System of its Registered may be
prescribed existence Accounting Office prescribed

In prescribed Form ; signed by D.P.

2) LLP Statement of Account & Solvency
Prepare Within 6 months from end of ( as at last day of said F. Y. )
each F.Y.

3) The books of account shall contain-

(a) particulars of all sums of money received and expended by the LLP;
(b) a record of the assets and liabilities of the LLP;
(c) statements of cost of goods purchased, inventories, work-in-progress, finished goods
and cost of goods sold; and
(d) any other particulars which the partners may decide.

4) The books of account shall be preserved for 8 years from the date on which they are
made.
5) Statement of Account and Solvency shall be signed by its designated partners.
6) Where the CIRP has been initiated against the LLP under the IBC, 2016 or has come
under liquidation the said Statement of Account and Solvency may be signed by:
 Interim resolution professional or
 Resolution professional, or
 Liquidator or
 Limited liability partnership administrator

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7) Every LLP shall file the Statement of Account and Solvency in Form 8 with the
Registrar, within a period of 30 days from end of 6 months of F.Y.

8) Contravention of provisions of this section 

LLP : Min – Rs. 100 per day ; Max – 1,00,000
Designated Partner : Min – Rs. 100 per day ; Max – 50,000

9) LLP  Fails to comply provisions of this section :

LLP : Min – 25,000 ; Max – 5,00,000 ; D.P. : Min – 10,000 ; Max – 1,00,000

10) Accounts of LLP Audited (as per prescribed rules )

( CG may exempt class / classes of LLP by notification in the Official Gazette )

11) AUDIT

 LLPs whose annual:

 Turnover exceeds Rs. 40 lakh or
 Contribution exceeds Rs. 25 lakh
are required to get their accounts audited by a qualified Chartered Accountant
mandatorily.

 Person
shall not be qualified for appointment as an auditor of a LLP unless he is a CA in
practice.

 the
designated partners may appoint an auditor or auditors-

(a) at any time for the first F.Y. but before the end of the first F.Y.,
(b) at least 30 days prior to the end of each F.Y. r (other than the first F.Y.),
(c) to fill a casual vacancy in the office of auditor, including in the case when the
turnover or contribution of a LLP exceeds the limits, or
(d) to fill up the vacancy caused by removal of an auditor.

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 Auditor
of LLP shall continue to hold such office till the period-

(a) the new auditors are appointed, or

(b) they are re-appointed.
Where no auditor has been appointed auditor in office shall be deemed to be re-
appointed

 Remune
ration of an auditor may be fixed by D.P. or by following procedure laid down in the
LLP agreement.

 Removal
of Auditor:
 The
partners of a LLP may remove an auditor from office at any time as per LLP
agreement.
 Where
the LLP agreement does not provide for removal of an auditor, consent of all the
partners required.

 Resignat
ion of Auditor:
 An
auditor of an LLP may resign his office by depositing a notice in writing to that effect
at the LLP’s registered office.
 Where
an auditor is unwilling to be re-appointed, he shall give a notice in writing at LLP’s
registered office, not less than 14 days before end of time allowed for appointing
new auditor.
 Auditor’
s term comes to an end as on the date on which the notice is deposited

(Section 35) ANNUAL RETURN :

Annual Return within 60 Days of closure of F.Y.

 LLP ROC
Form 11, Prescribed Manner, Fees
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(* Filing of Annual Return in accordance with Companies Act, 2013)

 Annual returns are filed in Form 11 within 60 days of the closure of the Financial
year i.e. on or before 30th May every year by the LLP.

 In case, turnover exceeds Rs. 5 crore or contribution exceeds more than Rs. 50
Lakhs, Annual return shall be accompanied with Certificate from Practising
Company Secretary that he has verified the particulars & found them to be correct.

 Where the corporate insolvency resolution process has been initiated against LLP
under the Insolvency and Bankruptcy Code, 2016 having :
 turnover upto Rs. 5 crore or
 contribution upto Rs. fifty lakh rupees

has come under liquidation, the said annual return may be signed by:
 interim resolution professional or
 resolution professional, or
 liquidator
and no certification by a designated partner shall be required.

 Contravention of provisions of this section 

LLP : Min – Rs. 100 per day ; Max – 1,00,000

Designated Partner : Min – Rs. 100 per day ; Max – 50,000

COMPOUNDING OF OFFENCES

 Meaning: Parties concerned might reach a settlement when the proceedings are
going on, so that further proceedings in the court will be suspended.

 Every application for compounding shall be made to Registrar, who shall forward
it to Regional Director or any other officer not below the rank of Regional Director

 Regional Director or any other officer not below the rank of Regional Director
may compound any offence which is punishable with fine only, by collecting a sum

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which may extend to the amount of the maximum fine provided for the offence but
shall not be lower than the minimum amount provided for the offence.

 Compounding not allowed within 3 years from which similar offence was
committed and compounded.

 Where any offence is compounded before or after the institution of

prosecution, intimation shall be given to the Registrar within a period of seven days
from the date of ompounding.

 Where any offence is compounded before institution of prosecution, no

prosecution shall be instituted in relation to such offence.

 Where the compounding made after institution of prosecution, Registrar shall

bring to the notice of the court, in writing, in which prosecution is pending.

 If any partner/ DP/ employee of LLP fails to comply with order made by
Regional Director maximum amount of fine for the offence shall be twice the
amount provided in the section in which punishment for such offence is provided.

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4 STARTUPS AND ITS REGISTRATION

Chapter

Startup India is a flagship initiative of the Government of India, intended to build a strong
ecosystem for nurturing innovation and Startups in the country that will drive sustainable
economic growth and generate large scale employment opportunities.

Definition of Start-Up

An entity shall be considered as a Startup:

• Upto a period of ten years from the date of incorporation/ registration, if it is

incorporated as a private limited company or registered as a partnership firm or
limited liability partnership
• Turnover for any financial years not exceeded Rs 100 crore.
• Entity is working towards innovation, development or improvement of products or
services
• entity formed by splitting up or reconstruction of an existing business not considered
‘Startup’

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Funding Support & Incentives

1. FUND OF FUNDS
Government has created a Funds for Startups (FFS) at (SIDBI) with corpus of Rs 10,000
crore. FFS shall contribute to corpus of Alternative Investment Funds (AIFs) for
investing in equity and equity linked instruments

2. STARTUP INDIA SEED FUND

Worth INR 1000 crore to help startups and support ideas from aspiring entrepreneurs

3. CREDIT GUARANTEE FUND FOR STARTUPS

Corpus of Rs.500 crore per year, over next four years, to provide credit guarantee
cover to banks and lending institutions providing loans to Startups.

4. RELAXED NORMS IN PUBLIC PROCUREMENT FOR STARTUPS

Introduced procurement policy to relax norms pertaining to prior experience/
turnover for Micro and Small Enterprises.

5. TAX INCENTIVES
Income Tax Exemption on profits
DPIIT recognized Startup is eligible to apply to Inter-Ministerial Board for
deduction of 100% of the profits for 3 consecutive years out of 10 years

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6. LEGAL SUPPORT AND FAST-TRACKING PATENT EXAMINATION AT LOWER COSTS

Fee for filing patents reduced up to 80%. Facilitators to facilitate process of patent
filing and legal guidance.

7. SELF-CERTIFICATION BASED COMPLIANCE REGIME

Startups falling under the “White category” would be able to self-certify compliance in
respect of
• The Water (Prevention & Control of Pollution) Act, 1974;
• The Water (Prevention & Control of Pollution) Cess (Amendment) Act, 2003;
• The Water (Prevention & Control of Pollution) Act, 1981.

8. SETTING UP INCUBATORS
Organisations set-up with specific goal of launching their startups. Not only do
incubators offer a high number of value added services (office space, utilities, admin
& legal assistance, etc.) also make grants/ debt/ equity investments.

9. SETTING UP OF STARTUP CENTRES AND TECHNOLOGY BUSINESS INCUBATORS (TBIS)

• 14 Startup Centres and 15 Technology Business incubators are to be set up
collaboratively by Ministry of Human Resource Development (MHRD) and the
Department of Science and Technology
• 7 Research Parks will be set up as per the Startup India Action Plan

10. FASTER EXIT FOR STARTUPS

• Govt. has notified startup as 'fast track firm'.

• It enables wind up within 90 days.

11. STARTUP INDIA HUB

Govt. launched an online Platform for all stakeholders to connect and engage with each
other.

12. STARTUP INDIA SHOWCASE

 It is an online discovery platform for most promising Startup

 Startup showcased on platform has emerged as best in their fields

 These startups are solving critical problems & shown exceptional innovation.

13. NATIONAL STARTUP ADVISORY COUNCIL

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To advise govt on measures needed to build ecosystem for nurturing innovation of

generate employment.

14. NATIONAL STARTUP AWARDS (NSA)

Initiative to reward outstanding startup that are building innovative products or solutions
with high employment generation.

15. STATES' STARTUP RANKING FRAMEWORK (SRF)

 Initiative to create flourishing startup ecosystem.

 Major objective of ranking is to help states identity, learn, replace good practices

16. STARTUP CHAMPIONS ON DOORDARSHAN

 1 hour weekly program covering stories of award-winning/ nationally recognised

Startup.

 Telecasted in both Hindi & English.

17. STARTUP INDIA IMOVATION WEEK

 Govt organised this on 16th January.

 Primary goal is to bring together country's key startups, incubators, Banks, funding
entities to promote innovation.

18. STARTUP INDIA INVESTOR CONNECT PORTAL

Serves as an intermediary platform that links startups and investors

19. NATIONAL MENTORSHIP POSTAL (MAARG)

 To facilitate accessibility to mentorship for startups

 Mentorship Advisory, Assistance, Resilience, and Growth (MAARG) has been

developed & launched under startup India Initiative.

20. ASCEND

 Under (Accelerating startup Caliber & Entrepreneurship Drive) workshops on

startups were conducted for all 8 North east states.

 To capacitate knowledge on key aspects of entrepreneurship.

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21. STARTUP 20 ENGAGEMENT GROUP

 It's working towards harmonisation & cross collaboration amongst largest global
economies.

 Aims to support startup by enabling synergies between startups investors,

corporates etc.

Issue of sweat equity shares by Startup Companies

A startup company may issue sweat equity shares not exceeding 50% of its paid -up share
capital upto 10 (ten) years from date of incorporation (Earlier was upto 5 (five) years.
In other cases issuance of sweat equity shares shall not exceed 25% of paid up Equity
Capital at any time.

Recognition as Startups

Process of recognition as under:

a) Online application over mobile app or portal set up by DPIIT.

b) Application accompanied by –
• Certificate of Incorporation
• Write-up about nature of business innovation, development or improvement of
products or services.
c) DPIIT as it may deem fit,–
• Recognise entity as Startup;
• Reject by providing reasons

Certification of Inter-Ministerial Board for availing Tax Benefit

Startup being private limited company or limited liability partnership, make an application
in Form-1 to and Board as it may deem fit,

• grant certificate or
• reject application

Inter-Ministerial Board of Certification comprise of following

• Joint Secretary, Department of Promotion of Industry and Internal Trade, Convener;

• Representative of Department of Biotechnology, Member;
• Representative of Department of Science & Technology, Member.

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Eligibility Criteria for Income Tax exemption (80IAC)

• Private limited or a Limited Liability Partnership

• Incorporated after 1st April, 2016.
Eligible for getting 100% tax rebate on profit for a period of three years.

Tax Exemption under Section 56

Post getting recognition Startup may apply for Angel Tax Exemption, If it fulfils the
following

• Recognised by DPIIT
• Aggregate paid up share capital and share premium after issue of share,
does not exceed, twenty five crore rupees:
• Shares issued to any of the following not be included
• Non-resident;
• Venture capital fund;

Angel tax is levied if the share price of issued shares is seen in excess of
the fair market value of the company.

State Startup Ranking

 Initiative towards strengthening the support of States and UTs to holistically

build the Indian Startup Ecosystem.
 Best performing State:- Gujarat, Karnataka, Meghalaya.

 Compendium of best practices adopted by various states in various areas:-

i. Institutional support
ii. Innovation
iii. Access to market
iv. Funding
v. Mentorship
vi. Capacity building.

EXEMPTIONS FOR STARTUPS

— Simple process
Launched a mobile app and a website for easy registration for startups entire process
is online.
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— Reduction in cost
government will bear all facilitator fees and the startup will bear only the statutory
fees. enjoy 80% reduction in cost.

— Easy access to Funds

A10, 000 crore rupees fund is set-up by government to provide funds to startups as
venture capital.

— Tax holiday for 3 Years

Exempted from income tax for 3 years provided get certification from (IMB).

— Apply for tenders

Startups are exempted from “prior experience/turnover” criteria for government
tenders.

— No time-consuming compliances
Startups allowed to self-certify compliance

— Easy exit
Startup can close its business within 90 days from the date of application of winding
up

— Meet other entrepreneur

Government hold 2 startup fests annually both nationally and internationally to
provide networking opportunities.

Benefits / Exemptions to Start-ups under the Companies Act, 2013

• financial statement may not include cash flow statement

• May issue sweat equity shares not exceeding 50% of its paid up capital upto ten
years from date of incorporation
• “Deposit” does not include amount of twenty five lakh rupees or more received
by start-up by way of convertible note in single tranche
• Maximum limit of deposits to be accepted from members shall not apply
• annual return shall be signed by company secretary, or where no company
secretary, by director.
• at least one meeting of Directors in each half of calendar year and gap not less
than ninety days.
• If start-up fails to comply with Companies Act, 2013, company, its officer in
default shall be liable to penalty not more than one half of penalty specified subject to

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maximum Rs. 2 lakh in case of company and Rs. 1 lakh in case of officer in default

LIFE CYCLE OF START-UP

Stage 1: Ideation and Development

• first stage of the startup lifecycle testing feasibility of products/service offered.
Testing potential viability of business

Stage 2: Validation
• Process involves defining goals, and validating through customer feedback.

Stage 3: Early Traction

• set of target customers may test efficacy of the product/ service market for this
product is created and developed at this stage.
• customer retention rate confirms early traction

Pivoting
• When company changes its industry, or other factor that impacts its bottom
line. successful companies go through several pivots to find product-market fit.

Stage 4: Growth / Exit

• Company attained true economic health, sufficient size and product-market to
ensure economic success, company may choose to expand through mergers or (IPO).

REGISTRATION STEPS

(a) Incorporation of Business Entity: Incorporate Private Limited Company or Partnership

firm or (LLP)
(b) Register with Start-up India: Registration process is completely online visit Startup
India website and click on the ‘Register’ button. Enter name, email id, mobile number,
password and click on “Register” OTP will be sent Startup India profile will be created.
Startups can apply for acceleration, incubator/mentorship programmes with getting
access to Government Schemes,
(c) Get recognition from DPIIT: recognition helps startups to avail benefits like quality
intellectual property services relaxation in public procurement norms, self-
certification access to Fund of Funds, tax exemption for 3 years.

Click on the ‘DPIIT Recognition for Startups under ‘Schemes and Policies’ Click on ‘Get
Recognized click on ‘Click here for submitting your application for recognition as a
Startup’
(d) Application for Recognition: After entering all sections of ‘Startup Recognition Form’,
click on ‘Submit’

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(e) Documentation required for Registration:

• Incorporation Certificate
• PAN
• Proof of funding
• Authorization letter
• Proof of concept
• website link/video
• Patent and trademark details,
(f) Getting the Recognition Number: certificate of recognition issued after examination
of documents within 2 days.

Important Points for a Start-up

1. Choose the right legal structure for your startup:

Decision based on nature/ of business, tax, costs, capital requirement, funding

2. Registrations and business licenses:

Post incorporation some necessary registrations are required and mandated by law

3. Intellectual Property Protection:

Essential to obtain trademark, Patents.

4. Founder Equity – Split and Vesting:

should be split amongst founders based on founder effort and capital contribution to
the startup.

5. Founder Agreements:
Agreement should represent a clear understanding between the founders on all key
issues related to the startup

6. Employment contracts:
Agreements made with employees.
Set out terms and conditions related to employment.

7. Employee Stock Option Pool (ESOP):

ESOP’s are incentives given to employees/directors of a company to attract talent and
retain employees.
Option to buy shares and discounted price.
Create sense of ownership amongst employee.

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8. Third Party Agreements:

Clauses related to breach, termination and dispute resolution should be captured in
all third-party agreements.

9. Investment structuring
term sheet is executed followed by due diligence of the startup

10. Compliance management:

multiple laws applicable to specific entity The consequences of non- compliance can
be levy of punitive fines on the startup.

FINANCING OPTIONS AVAILABLE FOR STARTUP COMPANIES

Finance is the life blood of any business. different financing options are as under:

Characteristics of Equity Financing Debt Financing Grants

Investment
Nature There is no Invested Funds to There is no
component of be repaid within a component of
repayment of the stipulated time repayment of the
invested funds frame with interest invested funds
Risk Risk factor for the Risk Factor for the There is no risk
investor is higher as investor is lower as factor for the
he has no guarantee he generally has startup as no
against his collateral against collateral is
investment his involved
investment
Pressure for Less pressure for More pressure for No pressure for
Repayment startups to adhere to a startups to adhere repayment as
repayment timeline to repayment grants are a form of
but added pressure timeline and as a monetary support
from investors to result more provided for a
achieve growth pressure to specific purpose
targets generate cash
flows to meet
interest
repayments
Return to Investor Capital growth for Interest payments No Return
investors
Involvement in Equity Fund Investors Debt Fund have No direct

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Decisions usually prefer to very less involvement in

involve Themselves in involvement in decision making
decision making decision making
process
Sources Angel Investors, Self Banks, Non- Central
financing, Family and Banking Government, State
Friends, Venture Financial Governments,
Capitalists, Crowd Institutions, Corporate
Funding, Incubators/ Government Loan Challenges, Grant
Accelerators Schemes (CGTMSE, Programs of Private
Mudra Loan, Entities
Standup India)

SEED CAPITAL
• Funding done at initial stage is called seed funding.
• Obtaining seed funding may result in dilution of ownership of founder.
• Seed capital is the initial capital This capital come from founders, families or friends.
• paperwork involved in seed funding is relatively less compared to rounds of funding.
• Financing is generally of two types i.e. (a) equity financing; or (b) debt-financing.

A. Equity Financing

(i) Venture Capitalist/Private Equity

First large investment a startup can expect to receive most commonly used VC/PE
investment includes compulsory convertible preference shares and compulsory
convertible debentures.
Investor and startup enters into offer based on financial, technical, legal due diligence.

Funding Procedure

(a) Term Sheet Memorandum of understanding is entered into,

(b) enter into Share Subscription Debenture Subscription Agreement.
(c) contracting parties may enter into Shareholders’ Agreement
(d) Private Placement process;
(e) Filing of necessary eForms
(f) Amendment of AOA

(ii) Angel Investors

• individuals or group of industry professionals willing to fund venture in return for
equity stake.
Restrictions applicable to angel funds investing in Indian company:

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• Shall invest in startups

• not promoted by industrial group whose turnover exceeds Rs.300 crore;
• Investment shall not be less than Rs.25 Lakhs and not exceed Rs.10 Crores.
• Investment locked-in for period of one year.

(iii) Bridge Round

Bridge round helps “bridge” the gap between larger funding rounds. Its provide an
interim cash infusion to capitalize the rapid growth or prepare for an IPO of start-ups.
These are interim financing rounds raised between larger funding rounds.

(iv) Series Funding

Typical series A Series Funding Round will start like Series A to Z round is in range of
purchasing 10% to 30% of the company. Usually intended to capitalize company for 6
months to 2 years

A Structure
The first time that a startup raises capital is normally called a ‘seed round’ Some even
call it a pre-Series A round.

1. Be Series A Ready
 Revenue, proof of business product/market fit, customer acquisition are
taken into consideration to figure if you are ready for Series A.

2. Start Early
 start the process 7-8 months prior to when you want to raise a Series A
financing.

3. Leverage Your Network

 Leveraging your network and building genuine relationships before you start
your Series A fundraise will make easier to get potential investors.

4. Practice your “Pitch”

 Meet low priority investors on your list first - they will ask you relevant
question and provide feedback

5. Create a Fundraise Momentum

 Approaching multiple venture funds at the same time is a good idea

6. Know the “standard market practice”

 Keep up to date with commonly offered deal terms.
 Strongest defence for negotiating is that terms are not "standard market
price".

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7. Get the deal terms right

 Ensure deal terms for your Series A are right and consistent Series A terms
play as foundation for all future rounds

8. Engage a Professional
 Specialised in financing.
 Understands nuances involved in rounds of funding.
9. Paperwork in place
 Ensure legal documentation and compliance is up to date

10. Raise 10-15% more than budgeted for

 As the business initiatives/operations don’t always materialise as planned.

B. Debt Financing

i. Loan from Banks & NBFCs

• Unlike a VC or angels, which have an equity stake, banks do not seek ownership
in your venture. However, They require substantial collateral and a good track
record,
• Fulfillment of documentation (Application, sanction letter, loan agreement,
mortgage deed etc.)

ii. External Commercial Borrowings

• in form of bank loans, buyers’ credit, suppliers’ credit, from non-resident
lenders ECB can be accessed under two routes, viz.,
(i) Automatic Route; and
(ii) Approval Route
• Borrower needs to create certain charge on immovable assets, movable assets,
financial securities.
• ECB cannot be used for:
1. Investment in capital market.
2. Acquiring company in India.

iii. CGTMSE Loans

• Credit Guarantee Trust for Micro and Small Enterprises scheme launched by
Ministry of Micro, Small & Medium Enterprises (MSME), Government of India
get loans of up to Rs. 1 crore without collateral or surety.
• MSME can take loan under scheme from scheduled commercial bank.

C. Initial Public Offering (IPO)

• IPO allows to tap wide pool of stock market investors to provide it with large volumes

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of capital
• Companies also issue “ADRs” or “GDRs”.
• Companies raises funds by issuing equity shares to public.

D. Unconventional modes of financing options

i. Crowd Funding
• getting seed funding through small amounts collected from a large number of
people (crowd)
• can get money by showcasing his idea before a large group of people
• needs to put on portal his profile and presentation, and rewards and returns for
investors.
• SEBI ruled out "Consultation Paper on Crowd Funding in India" which defined crowd
funding as small amount from multiple investors through web based platform.

ii. Incubators
• Help entrepreneur develop a business idea in exchange for equity stake ranging
from 2-10%.
• Incubators offer office space, administrative support, legal compliances,
management training, mentoring and access to industry experts (These are
usually government-supported institutes like the IIMs or IITs)
• Incubation period can be 2-3 Years.

ENTREPRENEURSHIP

Four Key Elements of Entrepreneurship

• Innovation
• Risk taking
• Vision
• Organising skills.

Traits of an Entrepreneur
• Develops his own enterprise.
• moderate risk taker
• innovative.
• independent.
• Determined but patient.
• Leadership
• competitiveness.
• Convert a situation into opportunity.

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Characteristics of an Entrepreneur

1. Mental Ability: Creative thinking to analyse problems.

2. Business Secrecy: Guard business secrets from competitors

3. Clear Objectives: objective must be clear as to nature of goods/business.

4. Human Relation: maintain good relation with customer / employees.

5. Communication Ability: should have good communication skills.

Entrepreneurship is different from a Startup?

Entrepreneurship refers to all business new or old based on a new idea or on an existing
idea. startup is newly emerged business venture solving market’s problems with unique
ideas.

Unicorns Startups
• unicorn is a term used to indicate a privately held startup company with a
valuation of over $1 billion.
• reasons these startup become so successful is because all of their
solutions fill a specific need in a new and different way.
• These startups are not only developing innovative solutions and
technologies but are generating large-scale employment
• India is home to 107 unicorns with a total valuation of $ 340.79 Bn
• Minimum and maximum time taken by start up to become unicorn is 6 months
and 26 years respectively.

Indian Startups turned Unicorns

Zomato, Nykaa, PolicyBazaar, Paytm

DECACORN
• Company that has attend valuation of more than $ 10 Billion.
• India has five Decacorn Startup Flipkart, Nykaa, Swiggy, Phone pe, Byju's.

CASE STUDY ON ZOMATO – INDIA’S FIRST LISTED UNICORN

• originally incorporated as “DC Foodiebay Online Services Private Limited” as a Private

Limited Company Company’s name changed to “Zomato Media Private Limited” on

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May 25, 2012. name of the Company was changed to “Zomato Private Limited” on
April 22, 2020.
• upon conversion into a public limited company fresh certificate of incorporation
issued with name “Zomato Limited” on April 9, 2021.
• evolved from a single -service category provider to a multi-category service provider,
offering food delivery, diningout and Zomato Pro.
• Zomato connects customers, restaurant partners and delivery partners, serving their
multiple needs
• Zomato also operates a one-stop procurement solution, which supplies high quality
ingredients and kitchen products to restaurant partners
• Food-delivery app Zomato Ltd. became the nation’s first unicorn to make its stock-
market debut, raising $1.3 billion with backing from Morgan Stanley, Tiger Global and
Fidelity Investments IPO. was oversubscribed by over 38.25 times.
• Strong advertising channel, efficient personnel, the good rating system and social
media and experienced sources of funds are some of the main successive factor of
Zomato.

STUDY ON DELHIVERY – E-COMMERCE-FOCUSED LOGISTICS PLATFORM

• incorporated as “SSN Logistics Private Limited”, a private limited company name

changed to “Delhivery Private Limited”, with effect from December 8, 2015. On
conversion name was changed to “Delhivery Limited” on October 12, 2021.
• Delhivery became a unicorn in 2019 when it raised $413 million in a Series F round led
by SoftBank Vision Fund, Carlyle Group, and Fosun International.
• Delhivery has currently been hailed as India’s leading supply chain Services Company.
It is one of India’s largest B2B, B2C, and C2C Logistics Courier Service providers. best
known for economical shipping rates claims to have - No Setup Fees or Subscription
Charges. 3 primary departments:
1. Warehousing
2. Transportation
3. E-Commerce
• The company grew and evolved from following a small and local business model to
focusing just on the e- commerce sector.

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5 MICRO, SMALL & MEDIUM ENTERPRISES

Chapter

THE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006

The Micro, Small and Medium Enterprises Development Act, 2006 came into force on 02nd
October, 2006. The definitions are provided under section 2 of MSMED Act, 2006.

Important Definitions

Advisory Committee:
Section 2 (a) means the committee constituted by the Central Government under sub-
section (2) of section 7.

Appointed Day:
Section 2(b) to mean the day following immediately after the expiry of the period of fifteen
days from the day of acceptance or the day of deemed acceptance of any goods or any
services by a buyer from a supplier

Board:
Means the National Board for Micro, Small and Medium Enterprises established under
section 3.

Enterprise:
Section 2(e) as an industrial undertaking or a business concern or any other engaged in the
manufacture or production of goods pertaining to any industry specified in the First
Schedule to (IDRA)

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Supplier:
Section 2(n) means a micro or small enterprise, which has filed a memorandum, and
includes,—

• National Small Industries Corporation,

• Small Industries Development Corporation
• Any company, co-operative society, trust or a body registered under any law

ESTABLISHMENT OF NATIONAL BOARD FOR MICRO, SMALL AND MEDIUM ENTERPRISES

The Central Government shall establish a board known as National Board for Micro, Small
and Medium Enterprises.

Constitution of Board:

• Minister in charge of the Ministry or Department of the Central Government

• Minister of State or a Deputy Minister
• 6 Ministers of the State Governments
• 3 Members of Parliament
• Administrator appointed by the Central Government
• Secretary to the Government of India in charge of the Ministry or Department of the
Central Government
• 4 Secretaries to the Government of India,
• Chairman of the National Bank
• Chairman and Managing Director of Small Industries Bank,
• Chairman, Indian Banks Association,
• 1 officer of the Reserve Bank,
• 20 persons represent the associations of micro, small and medium enterprises
• Persons from the fields of economics, industry and science and technology, not less
than 1 of whom shall be a woman,
• 2 representatives of Central Trade Union Organizations
• 1 officer not below the rank of Joint Secretary to the Government of India

Functions of the Board:

• Examine the factors affecting the promotion and development of micro, small and
medium enterprises

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• Make recommendations on matters relating to promotion and development of micro,

small and medium enterprises
• Advise the Central Government on the use of the Fund

CLASSIFICATION OF ENTERPRISES

• Micro enterprise investment in plant and machinery does not exceed one crore
rupees turnover does not exceed five crore rupees;
• A Small enterprise, investment in plant and machinery or equipment does not exceed
ten crore rupees and turnover does not exceed fifty crore rupees;
• A Medium enterprise, investment in plant and machinery or equipment does not
exceed fifty crore rupees and turnover does not exceed two hundred and fifty crore
rupee.

MSME includes all establishment engaged either in manufacturing or rendering services

but it does not include those enterprise which are engaged only in trading activities.

MEMORANDUM OF MSME

Any person who intends to establish a micro or small enterprise or a medium enterprise is
required to file the memorandum of micro, small or, medium enterprise with such
authority as may be specified by the State Government or the Central Government

REGISTRATION PROCESS

• The form for registration as provided in the Udyam Registration portal.

• No fee for filing Udyam Registration.
• Aadhaar number required for Udyam Registration.
• Aadhaar number of proprietor in the case of a proprietorship firm, partner in the case
of a partnership firm and of karta in the case of (HUF).
• In case of a Company or Limited Liability Partnership a Co-operative Society or Trust,
provide its GSTIN & PAN
• No enterprise shall file more than one Udyam Registration:
• Misrepresents or suppress facts and figures in Udyam Registration shall be liable to
such penalty as specified
• After complete process of registration, a certificate will be issued online
• Certificate will have a dynamic QR Code from which details about enterprise can be
accessed.
• No need for renewal of Registration.

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BENEFITS OF TAKING UDYAM REGISTRATION

• Permanent registration for an enterprise.

• Paperless process based on self-declaration.
• No need for renewal of registration.
• Any number of activities may be added in one registration
• Help MSMES in availing the benefits of schemes of ministry of MSMES
• Becomes eligible for priority sector lending from banks.

NSIC REGISTRATION

NSIC enlists (MSEs) under Single Point Registration scheme (SPRS) for participation in
Government Purchases. E eligible to get benefits under Public Procurement Policy

Enterprises having MSME Udyog Aadhaar registration can apply online or at one of the
NSIC offices. NSIC forwards application to a zonal branch for technical inspection On
receiving inspection report, NSIC grants registration to the MSME unit.

Benefits
• Tender Sets free of cost.
• Exemption from payment of Earnest Money Deposit (EMD).
• Consortia facility for tender marketing (two or more companies combine to
deliver a tender)

• Central department and ministries shall set goal of 25% annual purchase of
product produced by MSE:-

(i) 4% from unit owned by SC / ST

(ii) 3% from unit owned by women

MSME SCHEMES

A. Prime minister’s employment generation programme (PMEGP)

Scheme aims to provide financial assistance to set up self-employment ventures and
generate sustainable employment opportunities in rural as well as urban areas. To
rural and unemployed youth the scheme is designed in such a way that contribution
of the beneficiary is 10% of the project cost in case of general category and 5% of the
project in case of (SC/ST/OBC/Physically Handicapped/Women)

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B. 2nd Loan for up-gradation of the existing PMEGP/mudra units

Scheme caters to the need of the entrepreneurs for bringing new technology/
automation so as to modernize the existing unit

C. Credit guarantee scheme for micro & small enterprises (CGTMSE)

Main objective of this scheme to encourage the first generation entrepreneurs to
venture into self employment opportunities

D. Micro & small enterprises cluster development programme (MSE-CDP) scheme

Scheme is formulated to support the sustainability and growth of MSEs by addressing
common issues such as improvement of technology, market access, etc.

E. Scheme of fund for regeneration of traditional industries (SFURTI)

Main objective of SFURTI is organize traditional industries and artisans into collectives
by increasing production and to promote traditional sectors and increase income of
artisans scheme is applicable to existing artisans from traditional industries, such as
handicraft, textile, agro-processing, etc.

F. Entrepreneurship and skill development programme (ESDP) scheme

Scheme aims at promoting new enterprises, capacity building of existing MSMES and
inculcating entrepreneurial culture in the country. Scheme widens the base of
entrepreneurship by development, achievement, motivation and entrepreneurial skill
to the different sections of the society.

G. Assistance to training institutions (ATI) scheme

Scheme aims in supporting the skill development programmes by training institutions
of the ministry of MSMES.

H. Coir vikas yojana - umbrella scheme (skill upgradation and mahila coir yojana)
Main objective of this scheme impart training in processing of coir and value addition
to potential workers, coir artisans/entrepreneurs through field training centers and
training institution of coir board.

I. Procurement and marketing support (PMS) scheme

Scheme aims to promote new market access initiatives like organizing / participation
in national / international trade fairs / exhibitions / MSME expo, etc. And to create
awareness and educate the MSMES about the importance / methods/ process of
packaging in marketing, technology, import-export policy and procedure relevant for
market access developments.

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J. International cooperation (IC) scheme

• Build MSME’S for entering export market (fairs or exhibition)
• Provide opportunities to meet challenges (change in demand/market/technology)

K. National SC-ST hub scheme

Main objective of this scheme provide professional support to scheduled caste and
scheduled tribe entrepreneurs to fulfill the obligations under the central government
public procurement policy

L. A scheme for promotion of innovation, rural industries and entrepreneurship

(ASPIRE)
Main objective of this scheme is to set up a network of livelihood business incubation
centers predominantly in the rural and underserved areas, to promote innovation and
accelerate entrepreneurship by empowering the beneficiaries in creation of formal
micro-enterprises and imparting skill development programs for creating wage/self-
employment opportunities in the agro rural sector.

M. Credit guarantee scheme for subordinate debt (CGSSD) for stressed MSMES
Main objective of this scheme is to provide subordinate debt. Subordinate debt will
provide a substantial help in sustaining and reviving the MSMEs which become NPA or
are on the brink of becoming NPA.

N. Self reliant india (SRI) fund

Scheme is yet to be launched. The fund structure is designed in a manner that it will
leverage the strength of the private sector in providing growth capital to viable
MSMEs having a definite growth plan.

O. MSME sambandh
Main objective is to monitor the implementation of the public procurement from
MSEs by central public sector enterprises.
Public Procurement Policy for MSME order, 2012 has mandated Central department
and ministries to set goal of 25% annual purchase of product produced by MSE:-

(i) 4% from unit owned by SC / ST

(ii) 3% from unit owned by women

COMPOSITION OF MICRO AND SMALL ENTERPRISES FACILITATION COUNCIL

• Director of Industries,
• One or more representatives of associations of micro or small industry

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• One or more representatives of banks and financial institutions

• One or more persons having special knowledge in field of industry, finance, law, trade
or commerce

REFERENCE TO MSE FACILITATION COUNCIL

1. Any party to dispute wrt. amount due, can make reference to MSE- FC

2. On receipt Of reference, council shall:-

a) itself conduct conciliation, or

b) Seek assistance of Centre providing Alternate Dispute Resolution Services.

3. If conciliation is not successful & terminated without settlement, council shall:-

a) itself take dispute for Arbitration , or

b)seek assistance of centre providing ADR services for Arbitration

4. FC or Centre providing ADR service have jurisdiction for dispute between:

a) Supplier (within jurisdiction) and
b) Buyer (anywhere in India).

5. Reference shall be decided will 90 days from making reference.

6. Sec 19 :- For an application to set aside award of FC, appellant to deposit 75% of amount
claimed.

7. During pendency of application to set aside award of FC, court shall order to pay the
supplier reasonable % of amount deposited.

CASE LAW:

In the case of M/s India Glycols Limited and Another vs. Micro and Small Enterprises
Facilitation Respondents Council, Medchal Malkajgiri and Others ,

The Apex Court observed that in terms of Section 19, an application for setting aside an
award of the Facilitation Council cannot be entertained by any court unless the appellant
has deposited seventy-five per cent of the amount in terms of the award.

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In view of the provisions of Section 18(4), where the Facilitation Council proceeds to
arbitrate upon a dispute, the provisions of the Act of 1996 are to apply to the dispute as if
it is in pursuance of an arbitration agreement under sub-section (1) of Section 7 of that
Act.

Hence, the remedy which is provided under Section 34 of the Act of 1996 would govern an
award of the Facilitation Council. However, there is a super added condition which is
imposed by Section 19 of MSMED Act 2006 to the effect that an application for setting
aside an award can be entertained only upon the appellant depositing with the Council
seventy-five per cent of the amount in terms of the award.

Section 19 has been introduced as a measure of security for enterprises for whom a special
provision is made in the MSMED Act by Parliament.

In view of the provisions of Section 18(4), the appellant had a remedy under Section 34 of
the Act of 1996 to challenge the award which it failed to pursue.

In the judgment of Supreme Court in Gujarat State Civil Supplies Corporation Limited vs
Mahakali Foods Private Limited, a two-Judge Bench of the Court has observed, in the
course of drawing its conclusions, that: "The proceedings before the Facilitation
Council/institute/centre acting as an arbitratorlArbitral Tribunal under Section 18(3) ofthe
MSMED Act 2006 would be governed by the Arbitration Act, 1996."

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6 CONVERSION OF BUSINESS ENTITIES

Chapter

CONVERSION OF A PRIVATE COMPANY INTO A PUBLIC COMPANY

Procedure for Conversion of a Private Company into a Public Company

1. Holding a Board Meeting: Main agenda for this board meeting would be:
• Pass a board resolution for conversion of private company into a public company.
• Fix date, time and place for general meeting
• Authorize the Director or Company Secretary to issue notice of general meeting
• Pass Board resolution to increase directors (if less than 3) and Members (if less than
7).
• Authorize Company Secretary director to sign, certify and file the required forms
with Registrar of Companies

2. Issue of Notice of General Meeting: Notice shall be given atleast 21 clear days
before General Meeting.

3. Holding of General Meeting:

• Pass the necessary Special Resolution, to get shareholders’ approval for
• Conversion and alteration in Memorandum of Association and Articles of
Association
• For removal of restrictive provisions
• Change of name of the company
4. Filing of e-form MGT-14: E-form MGT-14 within 30 days of passing special
resolution
5. Filing of e-form INC-27: E-Form INC-27 needs to be filed with the Registrar of
Companies within fifteen days of passing of Special Resolution
6. Registrar after satisfying himself issue a certificate of incorporation

CONVERSION OF A PUBLIC COMPANY INTO A PRIVATE LIMITED

Procedure for Conversion of a Public Limited Company into a Private Limited

1. Holding a Board Meeting: Main agenda for this board meeting would be:
• Pass a board resolution for approving conversion of Public Company into a Private
Company
• Fix date, time and place for holding general meeting

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• Authorize Director or Company Secretary to issue notice of the general meeting

• Reduction in the total number of members to maximum of 200 members.
2. Issue of Notice of General Meeting
• Notice shall be given atleast 21 clear days before
• General Meeting
3. Holding of General Meeting:
• Pass the necessary Special Resolution
• Approval for Conversion
• Alteration in Memorandum of Association and Articles of Association
• Change of name of the company
4. Filing of e-form MGT-14:
• E-form MGT-14 within 30 days of passing special resolution

5. Publication of an Advertisement: at least twenty-one days before the date of

filing of the application with Regional Director must advertise in Form INC-25A.
6. File an Application with Regional Director: within sixty days from the date of
passing of Special Resolution in e-Form RD-1
7. Approval of Application conversion by Regional Director: Where no objection
received Regional Director shall pass an order within 30 days from date of receipt of
the application.

Where an objection received shall hold a hearing/ within 30 days to record the
consensus shall pass order approving or rejecting within 30 days from date of hearing.

In case no consensus received, Regional Director may approve the conversion, if

satisfied
Regional Director finds such application to be defective or incomplete shall within 30
days direct company to rectify defects and re-submit within 15 days in e-Form RD-
GNL-5 (omitted as per recent amendment)

8. Filing of e-form INC-28: file with Registrar Form INC-28 within 15 days date of
approval
9. Filing of e-form INC-27: file with Registrar in Form INC -27 within 15 days from
the date of order.
10. Issuance of fresh Certificate of Incorporation

CONVERSION OF SECTION 8 COMPANY INTO OTHER KIND OF COMPANY

Section 8 Company cannot be converted to one person company. Procedure for

Conversion of a Section 8 Company into any other kind
1. Holding a Board Meeting: agenda for this board meeting
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• Conversion of section 8 company into any other company

• Fix date, time and for general meeting
• Authorize Director or Company Secretary to issue notice
2. Issue of Notice of General Meeting: Notice shall be given atleast 14 clear days’
before General Meeting.
3. Holding of General Meeting: pass the necessary Special Resolution
4. Filing of e-form MGT-14: E-form MGT-14 within 30 days of passing special
resolution
5. Filing of e-form INC-18 with the Regional Director: Application in Form
[Link].18 with Regional Director for conversion
6. Publication of an Advertisement: After submit application to Regional Director
e Company should publish a notice in FORM INC-19 in the newspaper in vernacular
and English newspaper
7. Order of Conversion by Regional Director:
8. Issuance of fresh Certificate of Incorporation: Company can apply for the
Conversion of its status and name with the Registrar of Companies in Form INC-20.

Effect of conversion of Section 8 Company into Private Company

• Cannot claim privileges and exemptions as enjoyed by Section 8 Company

• The newly converted Company to pay difference between market price and
purchase price, if bought from Government at lower rates
• Unutilized income should be utilized for settlement of outstanding dues
• After settlement , if amount is left, transferred to the Investor Education &
Protection Fund within 30 days of e Conversion.

CONVERSION OF COMPANY INTO LLP

Procedure for Conversion of Company into Limited Liability Company

1. Holding a Board Meeting:

• Pass a board resolution for conversion of Company into Limited Liability Partnership
• Fix date, time and place general meeting authorize the Director to issue notice
2. Holding of General Meeting: pass the necessary Special Resolution
3. Application for Name Availability on LLP Portal: apply for name reservation, by
web based form ‘RUN-LLP and obtain Name Approval Letter
4. Filing of incorporation documents in LLP Portal: LLP must file incorporation in
web based form FILLIP
5. Application for Conversion of company into LLP: For converting Form 18 must
be duly filled.

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6. Drafting of limited liability partnership agreement: filed in e-form 3 within 30

days of incorporation
7. Issuance of fresh Certificate of Incorporation: Registrar of LLP will issue a
Certificate of Registration in Form No. 19 as to conversion of the LLP.

Effect of Conversion from Company to LLP:

• Company gets dissolved

• Registrar will remove name from register of Companies
• Conversion doesn’t affect present liability and contracts.
• On conversion assets of the Company transferred to LLP.
• After conversion no requirement for holding minimum number of meetings

CONVERSION OF LLP INTO COMPANY

Procedure for Conversion of Limited Liability Company into Company

1) Approval of Name: Hold meeting of partners to take assent of majority of

members Apply for name reservation in form RUN in V3 portal.
2) Securing DSC and DIN: For obtaining the DIN, an application form must be filed
on MCA portal.
3) Filing form no. URC – 1: After approval of name file the form no. URC-1 in
addition to the following documents:
• List of the members
• List of the first directors
• Affidavit from first directors, that not banned to be a director
• Names & addresses of partners of LLP
• Nominal share capital of firm
• Name of the firm, with addition of word Limited or private limited
• No objection certificate from creditors

4) Filing of spice, spice MOA and spice AOA: Similar to incorporation of new
company, process to be followed by filing spice + form

CONVERSION OF ONE PERSON COMPANY INTO A PUBLIC COMPANY OR A PRIVATE

COMPANY

Procedure for Conversion of One Person Company into other Company

1. Holding of Board Meeting: The main agenda for this board meeting would be:

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• pass board resolution for conversion of One Person company into other
company
• fix date, time and place for holding general meeting
• authorize the Director or Company Secretary issue notice
• increase in number of Directors as per type of company

2. Issue of Notice of General Meeting: Notice shall be given atleast 21 clear days before
General Meeting
3. Holding of General Meeting: pass the necessary Special Resolution
4. Filing of e-form MGT-14: E-form MGT-14 within 30 days of passing special resolution
5. Filing of e-form INC-6: (OPC) shall file n Form No. INC 6 within 30 days of passing
resolution of conversion with following documents:
• Altered Memorandum of Association and Articles of Association
• Copy of Special Resolution
• List of proposed members/ directors
• List of creditors
6. Issuance of New Certificate of Incorporation: Registrar will issue fresh Certificate of
Incorporation in Form INC-25.

Conditions to fulfill for conversion:

• Alteration of Memorandum of Association and Articles of Association

• Increase minimum number to two or three
• Increase minimum number to two or seven

Points to ponder:

• Minor not become a member or nominee

• Can’t hold shares with beneficial interest
• One Person Company can’t be incorporated or converted into Section 8
• Can’t carry out Non-Banking Financial Investment activities

CONVERSION OF COMPANY INTO ONE PERSON COMPANY

1. Holding of Board Meeting: main agenda for this board meeting would be:
• Conversion
• fix date, time and place for holding general meeting
• authorize Director to issue notice
2. Issue of Notice of General Meeting: Notice shall be given atleast 21 clear days
before General Meeting.

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3. Holding of General Meeting: Pass Special Resolution

4. Filing of e-form MGT-14: MGT-14 within 30 days of passing special resolution
5. Filing of e-form INC-6: application for Conversion C should be filed to the RoC in
Form INC-6
6. Issuance of New Certificate of Incorporation: Registrar will issue a fresh
Certificate of Incorporation with the Changed name

COMPANIES AUTHORISED TO REGISTER UNDER THE COMPANIES ACT, 2013

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7 NON-CORPORATE ENTITIES
Chapter

PARTNERSHIP

“Partnership” is the relation between persons who have agreed to share the profits of a
business carried on by all or any one of them acting for all. persons who have agreed to
join are individually called “Partners” and collectively a ‘firm’.
A partnership firm can be formed with minimum of two partners and maximum of fifty
partners.

Is Partnership Firm a Body Corporate under Companies Act, 2013?

Concept of Limited Liability Partnership (LLP) which includes benefits of both partnership
and body corporate definition of ‘body corporate’ under the Limited Liability Partnership
Act, 2008 (‘LLP Act’) specifically includes LLP registered under the LLP Act.

Features of Partnership

(I) Agreement: The terms and conditions of partnership are laid down in Partnership
Deed.
(II) Business: partnership can be formed only on basis of business activity.
(III) Sharing of profits and losses: partners are entitled to share in the profits and bear the
losses,
(IV) Agency relationship: The partnership may be carried on by all or any of the partners
acting for all. Each partner is a principal and At the same time, act as their
agent.
(V) Unlimited Liability: Liability of partners is unlimited the private property of the
partners can be taken for payment of liabilities of firm.
(VI) Common Management: Not necessary for all partners to participate day-to-day
activities but they are entitled to participate.
(VII) Restriction on transferability of share: No partner can transfer his share however, do
so with the consent of all other partners
(VIII) Registration: Not compulsory to register it
(IX) Duration: Partnership comes to an end if any partner dies, retires or becomes
insolvent.

Types of Partnership

I. Partnership at-will: It can be brought to an end whenever any partner gives notice

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II. Particular partnership: Formed for undertaking a particular venture. It comes to end
with completion of venture
III. Partnership for a fixed duration: Partnership is for a fixed period say 2 years, 5 years
or any other duration.

Types of Partners

(I) Active Partners: Partners who take active part in day-to-day business of firm

(II) Sleeping or dormant partners:

 Do not take active part in management of the business.

 Only contribute capital and share in the profits and losses of the business.

(III) Others:
a. Nominal Partners:
 Partners who do not have interest in business but lend their name to the
firm.
 They do not make capital contribution, but are liable to third parties.
 Generally have share in the profits, However, in certain cases they may
not have.

[Link] by holding out: If person by his words or conduct holds out to another that
he is a partner, he will be prevented from denying that he is not a partner
person becomes liable to third parties.

c. Minor Partners: Minor cannot be a partner, But can be admitted to benefits if all
partners give consent.

Merits of Partnership

(I) Ease in formation: All that is required is an agreement among the partners.
(II) Pooling of financial resources: partnership commands more financial resources
compared to sole proprietorship.
(III) Pooling of managerial stalls: pooling of managerial skills leads to greater efficiency in
business operations.
(IV) Balanced business decisions: decisions are taken unanimously after considering all
the major aspects of a problem
(V) Sharing of risks: risks of partnership business are shared by partners on a

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predetermined basis
(VI) Privacy: not required for partnership firm to publish its accounts.
(VII) Division of work: firm’s work is divided among partners based on knowledge and
skills.

Limitations of Partnership

(I) Uncertainty of existence: retirement, death, bankruptcy or lunacy can put an end to
the partnership
(II) Unlimited Liability: each partner has unlimited liability. But liability may arise from
acts of co-partners
(III) Risks of disharmony: decisions are taken unanimously, some partners may adopt rigid
attitudes and make it impossible to arrive at decision.
(IV) Difficulty in withdrawal or Blocking of Capital:
(V) Lack of institutional confidence: does not enjoy much confidence of banks and
financial institutions.
Because nature of its activities is not disclosed at public
(VI) Lack of Public Trust: public has less confidence since annual reports and accounts are
not published.
(VII) Difficulties of expansion: Limited membership (restricted to 50 not permit large
amounts of capital to be raised by the partners

Partnership Deed

Partnership deed, also known as a partnership agreement, key ingredients of a Partnership

Deed

1- Definitions and vital information name of the business address name and address of
all partners and nature of business
2- Partnership duration must mention establishment date and the deal period.
3- Investment: amount of capital to be invested by each partner, Profit /Loss sharing,
salaries to be paid and the method of distributing the business income.
4- Accounting: accepted method of accounting for the cash flow, profit and loss, and
assets and liabilities of the business
5- Duties, powers and obligations of the partners: The duties, powers and obligations of
each partner may also be spelt out in the Partnership Deed.
6- Profit & loss ratio
Profit/Loss ratio to be accrued to and be borne by the Partners
7- Withdrawals
8- Admission/ Retirement of a partner 9- Expulsion
10- Banking and Partnership Funds

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11- Borrowings: written consent of all partners for taking loans from banks, financial
institutions,
12- Dissolution: methods by which partnership will be dissolved
13- Arbitration: partnership deed must provide for the means of arbitration of disputes.
to avoid expensive litigation

Benefits of Partnership Deed

• enables business owners to file a suit in court

• avoid any misunderstanding as all the terms and conditions decided in the Deed.
• details of the profit/loss ratio reduces chances of misunderstanding

Registration Procedure
following documents and prescribed fees are enclosed with the registration application:

• in the prescribed Form -1

• Duly filled Affidavit
• Certified copy of the Partnership deed
• Proof of ownership rental/lease agreement there of name of the partnership firm
should not contain any words which may express approval or patronage of the
government

Once the Registrar of Firms is satisfied he shall record an entry in the Register of Firms
and issue a Certificate of Registration.

Consequences of Non-Registration

• partner cannot file a suit against the firm for enforcement of right A right
arising from a contract cannot be enforced against any third party
• firm or any of its partners cannot claim a set off in a dispute with a third
party

HINDU UNDIVIDED FAMILY (HUF)

It does not have any separate and distinct legal entity The laws that govern HUFs are not
codified and are read along with the Hindu Succession Act and the Income tax Act.
Characteristics

1. Governed by Hindu Law:

There are two schools of Hindu law
(I) Dayabhaga: It prevails in West Bengal & Assam and allows both male & female
to be co-parceners
(II) Mitakshara: It allows only male members to be co-parceners.

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Vineeta Sharma v. Rakesh Sharma & Ors. (2020)

Right in coparcenary is accorded by birth. Birthdate of a daughter is immaterial,
Moreover father need not be alive on commencement of the 2005 Amendment Act.
Daughters will be given a share even if father died before 2005.

2. Management: All the affairs are controlledare controlled by ‘Karta’. Karta is the
senior most male member
3. Membership by Birth: membership of the family can be acquired only by birth.
4. Liability: Except the Karta liability of all other members is limited to their shares
in the business
5. Permanent Existence: death, lunacy or insolvency of any member of family
does not affect the existence of business
6. Implied Authority of Karta: only Karta has the implied authority to contract
debts and property of the HUF
7. Minor also a Partner: In a Joint Hindu Family firm minor is a partner.
8. Dissolution: can be dissolved only at the will of all the members

Benefits of HUF

1. Easy to Start: No legal formalities are required

2. Efficient Management & Control: Karta takes all decisions and gets them
implemented
3. Secrecy: all decisions taken by the ‘Karta’ and maintains perfect secrecy in all
matters.
4. Prompt Decision: Karta only person who exercises control This ensures prompt
or quick decisions
5. Economy: The Karta of family spends money with great caution and economy.
6. Expanded loyalty & cooperation: natural love and affection helps to run
business more efficiently smoothly.

Limitations of HUF

1. Limited Resources: experiences a financial shortage since mostly dependent on

ancestral property.
2. Unlimited Liability of Karta: Karta carries unlimited liability. His personal
belongings might be utilized to pay off business debts.
3. Dominance of Karta: control of are vested solely in the hands of Karta, which
may not be acceptable to other members,
4. Limited Managerial Skills: Karta cannot be an expert in all areas of
management failure to make good decisions may even lead to financial difficulties
5. Misuse of Power: Management centered hands of Karta This may lead to Karta

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misusing his position for personal benefits.

6. Limited Membership: membership restricted to family members exclusively

Hindu Undivided Family (HUF) – Formation

(I) Create a HUF Deed

• written formal document on a stamp paper
• Karta of HUF.
• name of members of HUF
• name of HUF
• capital with which the HUF has been initiated.
• rubber stamp of HUF
• recommended that the Deed should be notarized After one has allotted a PAN,
open a bank account in the name of the HUF. Hindus, Buddhists, Jains and Sikhs
can form HUFs.

SOLE PROPRIETORSHIP

Merits of Sole Proprietorship

(I) Easy formation: no legal formality involved in setting up

(II) Swift Decisions: all decisions are taken by one person, which makes
functioning of business simple and easy.
(III) Sole beneficiary of profits: sole proprietor only person whom profits belong
This motivates him to work hard
(IV) Inexpensive Management: The sole proprietor does not appoint specialists
for various functions.
(V) Confidentiality: sole proprietor can keep all business-related information to
themselves
(VI) Lesser paperwork: The paperwork in a sole proprietorship is much less.
business owners can spend their time planning the business strategies
(VII) Simple tax calculations: Sole proprietorships are not considered separate
legal entities. So, business income or losses are reported on the owner’s income tax.

Limitations of Sole Proprietorship

(I) Limitation of management skills: sole proprietor not likely to have

necessary skills regarding all aspects of the business.
(II) Limitation of Resources: it is difficult to finance business because banks

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mostly prefer to finance established businesses

(III) Unlimited liability: For payment of business debts, his personal property
can also be used if the business assets are insufficient.
(IV) Lack of continuity: continuity of business depends solely on the owner’s
well being. In case of death, insolvency, imprisonment, etc., it can shut down
(V) Risk in decision-making: nobody to assist in decision-making.

Procedure for Formation of Sole Proprietorship Firm

No deed or agreement is required registration may be required in the respective States of

the Central Government, such as

I. Shops and Commercial Establishments Act

II. Professional Tax
III. Micro, Small and Medium Enterprises Development Act, 2006.
IV. Small Scale Industry
V. GST registration
VI. Intellectual Property laws.

MULTI STATE CO-OPERATIVE SOCIETY

The Multi-State Cooperative Societies (MSCS) Act, enacted in 1984, the MSCS Act, 2002
replaced the earlier Act of 1984

Benefits of Multi State Co-Operative Society

• provides loans at reasonable rates to poor. They do not have to go financiers

who lend at high interest rates.
• function pan India
• MSCS have low compliance costs.
• Multi State Co-operative Credit Society belongs to its members
• This creates a sense of belonging and ownership

Formation of Multi State Co-Operative Society

application in Form -1 should be filed with the Central Registrar of Cooperative Societies
along with the following enclosures:

• scheme explaining prospects of becoming a viable unit

• Four copies of bye-laws
• Proposed area of operation shall initially permitted for two contagious states

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• List of at least 50 members from each state

• Certified copies of the resolutions passed by the proposed society

• If Central Registrar satisfied, the application shall be disposed within a period of

four months if application not disposed within four months or Central Registrar fails

to communicate order of refusal application shall be deemed to have been accepted

and Central Registrar shall issue registration certificate

TRUST

A relationship in which person holds valid title to certain property known as Trust property.
for the benefit of any one or more individuals who are known as the Beneficiaries
governed by the terms of the Written Trust agreement.

The statutory basis governing Trusts, in general, under Indian law is the Indian Trusts Act,
1882. there are two types of trusts in India: private trusts and public trusts. Private trusts
are regulated by the Indian Trusts Act, 1882, whereas Public trusts are classified as
Charitable and religious trusts.

Objectives of a Trust

trust may be created for any lawful purpose purpose of trust is lawful unless.
• Forbidden by law
• Defeat provisions of any law
• Fraudulent
• Involves injury to person or property
• Immoral or opposed to public policy

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Persons who can create a Trust

Persons who can be a Trustee

Person capable of holding property may be a trustee; except discretion of trust, he cannot
execute unless competent to contract

Difference between Public Trust and Private Trust

PUBLIC TRUST PRIVATE TRUST

1. Beneficiaries: Large & Substantial Beneficiaries: Narrow & Specific (Known)
2. Beneficiaries: Uncertain & Fluctuating Beneficiaries: Definite & Ascertained
3. Larger & Wider Domain Limited & Narrow domain

Trust for the benefit of employees of a company however numerous would not be
considered as public charitable. For example industrialist creates a trust for benefit of his
5,000 people, their spouses and children is considered private because beneficiaries are
known.

Exemptions available to Trusts

SECTION 10 OF THE SECTION 11 OF THE SECTION 12 OF THE INCOME

INCOME TAX ACT,1961 INCOME TAX ACT, 1961 TAX ACT, 1961
Total tax exemption is  If any income/ profit  Income made by way of

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available for certain earned by trust from voluntary contributions

types if both conditions property held by trust towards the corpus of trust.
are satisfied: shall not be included in  Charitable trust created for
 Belong to trusts for total income of trust. benefit of any of socially and
activities related to  Established wholly for economically backward
sports, science, purpose of Charitable or castes such as SC, ST or
education, scientific religious nature women or children.
research, promotion
of khadi or village
based industries,
hospitals etc
 Notified as Charitable
or religious
Institutions

Tax exemption for a Private Trust

IN CASE OF NON-DISCRETIONARY TRUSTS IN CASE OF DISCRETIONARY TRUSTS

All income is taxable in the hands of the Taxed in the hands of trust at the
beneficiaries maximum marginal rate
Note: If the beneficiaries are minors, the
income is to be Clubbed with that of the
parent with the higher income.

FORMATION OF TRUST

Trust can be created by person over 18 years and mentally sound

1. Creation of a Trust Deed

• name(s) of the author(s)/settlor(s) of the trust;
• name(s) of the trustee(s);
• name(s) if the beneficiary/ies
• name by trust shall be known;
• place where principal offices situated;
• property that shall devolve upon the trustee(s)
• object and purpose of the trust;
• rights and duties of the beneficiary/ies;
• Mode and method of determination of the trust.

2. Obtain the signatures of Settlor, Trustees and Witnesses at the appropriate

places

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3. Print the Trust Deed stamp paper of appropriate value

4. Register the Original deed in Sub-Registrar office
5. At the time of registration, settlor and witnesses must be personally present
6. Thereafter Trust can apply for a permanent account number and open a bank
account

PARTNERSHIP AGREEMENT & TRUST DEED

[Link]. PARTNERSHIP AGREEMENT TRUST

DEED
1 Partners, as mentioned in the Deed Trustees are generally appointed or
runs elected
the Partnership Firm
2 Maximum no. of partners in a Three parties:
partnership firm can be 50 partners.  Trustor / Author/ Settlor
 Trustee
 Beneficiary
3 Deed may mention a fixed term Trust deed can provide for
partnership or for a specific wound up within certain
undertaking, or dissolution by notice number of years
4 Deed states the rights and duties of Trust Deed states the rights and
the duties
Partners of Trustees as well as Beneficiaries.

SOCIETY

Societies are usually registered for promotion of charitable activities like education, art,
religion, culture, music, sports, etc., In India, The Societies Registration Act, 1860 lays down
the procedure for society registration

Advantages of Society

• formation and registration is simple

• Record-keeping requirements minimum
• Cost of compliance is low
• Least possibility of interference by the regulator
• Exemption from tax due to charitable nature

Disadvantages of Society

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• Tax exemption only department accepts activities as being charitable;

• Inappropriate form of a commercial venture
• Not attractive for commercial investors
• Commercial investors regard investments in such entities as risky
• No unincorporated bodies are allowed to accept deposits from the public

Formation of Society

• Any seven or more persons may subscribe their names to memorandum of

association file with Registrar form themselves into a society
• Documents to be filed with Registrar along with the fees, and suitable name (which
should not suggest relationship with the government)

Benefits of forming a Society

• Society can avail exemption from income tax , if obtains registration under Section
12A/12AA
• Donors to societies may claim a rebate for donations made to the Society
• Societies, being NGO’s receive various grants from government
• In view of the election process, there is scope for removing inefficient management .
• Society can be created by minimum of 7 or more persons.
• Documents required for the Society Registration
• PAN Card of members
• Residence Proof of members
• Memorandum of Association which will contain work and the objectives of the
society.
• Articles of Association which will contain:
• Rules and regulations of the society
• Covering letter mentioning objective or the purpose for which society formed
• proof of address where the registered office of the society located
• A list of all the members of governing body
• Declaration to be given by the president that competent to hold said post.
• Registrar will issue an Incorporation Certificate by allotting a registration number to it.

Consequences of Registration / Non-Registration of a Society

Registration gives legal status and is essential for:

• Obtaining registration and approvals under Income Tax Act;

• Lawful vesting of property in the societies;
• Provides authenticity

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• For opening bank accounts

1. If a society is not registered, it may exist in fact and theory, but not in the eyes of law
2. If benefits to be claimed the registration required.
3. Unregistered society cannot claim benefits under the Income-tax act.

Accounts and Audits

Every society should get its accounts audited once a year by duly qualified auditor and have
balance sheet prepared by him.

Litigation

A registered society can file a suit anywhere in India and in any State although it may not
be registered in that particular state.

MEGA FIRM

 Mega Firm or Multidisciplinary Firm (MDF) can be described as a Partnership firm

with more than twenty-five partners provides professional service of particular
profession along with ancillary service under one roof
 Shift from traditional approach of 10X10 offices to a global office.
 Clients have comfort in dealing with such firms. They are assured of timely and
quality service
 A member in practice may form multi disciplinary firm with member of other
professional bodies

Regulation 168 A - Other Professional bodies: person has to be member of

• Institute of Chartered Accountants of India

• Institute of Cost and Works Accountants of India
• Bar Council
• Indian Institute of Architects
• Institute of Actuaries

Pre-requisites

• All minds work together

• Say go to ego

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• Mutual faith
• Financial discipline
• Founder partners given equal status
• Income distributed at short regular intervals;
• Not put undue influence

Benefits

a) Team environment
b) Good Exposure: more than two partners having different experience n
different fields the apprentice and employee will have an exposure to
different works.
c) Cost effective: they have developed infrastructure, processes and tools which
can make life less stressful
d) Exceptional training provides opportunity to have a good training
facilities whether on job training or off job training
e) Continuous Learning: multi-dimensional experience by adapting to new trends
in the Profession.
f) Better Growth opportunities: MDF can experience professional
growth early compared to the other small firms may attract big
multinationals
g) Global scope and reach: MDF have international scope and reach and hence
become a Mega Firm.
h) Revenue sharing: PCS who may not have subject expertise get share from
assignments
i) Corporate or Industry perception:
j) Reputation: Credibility of the firm and brand gets established in long term.

Process of Constitution

• Like-minded professional should take this decision have expertise in

different disciplines. Series of meetings before MOU advisable to
work under MOU for one year. Mutual faith and understanding is sine qua
non.
• Partners must enter into a partnership agreement defining duties,
responsibilities, authorities, revenue sharing and exit route

Risks Involved
• Lack of understanding

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• More cost on infrastructure

• Dominance of senior partners
• Exit route is difficult.
• Communication gap between partners.

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8 FINANCIAL SERVICE ORGANISATION

Chapter

REGULATORY & SUPERVISORY FRAMEWORK

a) The framework of RBI provides for Registration of NBFC , regulation of various

categories of NBC , issue of directions on acceptance of deposits & surveillance.

b) Deposit talking NBFC's are subject to greater degree of regulation.

c) The focus of Regulation & supervision is threefold:

[Link] protection
[Link] protection
[Link] stability

d) RBI is empowered to:-

1. Take punitive actions

2. cancel certificate of registration
3. Issue prohibitory orders
4. filing criminal cases or winding up.

Nedumpilli Finance Co. V. State of Kerala

1. Supreme Court upheld the supremacy of RBI over the supervision & regulation of NBFC.

2. The legislatures of Kerala & Gujarat had sought to bring NBFC's under the ambit of
respective legislations:-
a)Kerala Money Lenders Act, 1958
b)Gujarat Money Lenders Act, 2011

to regulate interest water charged by lenders.

3. Supreme Court held that state enactments would have no application on NBFC'S
registered with RBI.

4. The Apex Court held that RBI Act, 1934 is a complete code itself and has provisions
which override other state Laws.

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NON BANKING FINANCIAL COMPANY

Includes Does not Includes

• Business of loans & advances • Agriculture industrial activity
• Acquisition of share/stock/ debenture etc. • Purchase/sale of goods
• Leasing • Sale/purchase of immovable property
• Hire purchase
• Insurance business
• Chit business

50:50 TEST
• financial assets constitute more than 50 per cent of the total assets and
• income from financial assets constitute more than 50 per cent of the gross income

Scale Based Regulatory Framework for NBFCs

Base Layer: non-deposit taking NBFCs below the asset size of Rs.1000 crore,

Middle Layer: deposit taking NBFCs, non-deposit taking NBFCs with asset size of Rs.1000
crore and above

Upper Layer: NBFCs which require enhanced regulatory supervision.

Top Layer: The Top Layer is empty opinion that substantial increase in risk from NBFCs in
Upper Layer. Such NBFCs move to Layer from the Upper Layer

TYPES/CATEGORIES OF NBFCS

1. Asset Finance Company (AFC)

• Financial institution carrying on as its principal business the financing of
assets such as automobiles, tractors, generator sets and general purpose
industrial machines.
• Principal business for this purpose is aggregate of financing real/physical
assets and income arising is not less than 60% of its total assets and total
income.

2. Investment Company (IC)

• Company which is a financial institution carrying on as its principal
business the acquisition of securities

3. Loan Company (LC)

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• Any company which is a financial institution carrying on as its principal

business the providing of finance by loans or advances or otherwise but does
not include Asset Finance Company

4. Infrastructure Finance Company (IFC)

Non-banking finance company –
• At least 75 per cent of its total assets in infrastructure loans;
• Minimum Net Owned Funds of Rs.300 crore
• Minimum credit rating of ‘A
• CRAR of 15% (Capital to risk asset ratio)

5. Systemically Important Core Investment Company (CIC-ND-SI)

• It holds atleast 90% of its Total Assets in the form of investment in
equity shares preference shares, debt in group companies;
• Investments in equity shares in group companies constitutes atleast 60%
of its Total Assets;
• Asset size is Rs. 100 crore or above

6. Infrastructure Debt Fund: Non- Banking Financial Company (IDF-NBFC)

• Company registered as NBFC to facilitate flow of long term debt into
infrastructure projects.
• IDF NBFC raise resources through issue of rupee or dollar denominated bonds (Min.
5 Yr maturity)
• On the IFC can sponsor IDF NBFC.
• IDF are investment vehicles which can be sponsored by commercial banks and NBFC
in which domestic/ offshore institutional investors can invest through bonds
issued by IDF's.
• IDF's take over loans extended to infrastructure project.
• Sach takeover of loans from banks would be covered by tripartite agreement
between:
a)IDF
b) Project Authority
c) Concessionaire (Holder of grant of use of Land)
• Agreement is made for ensuring compulsory buyout with termination payment in
the event of default in repayment by [Link] would essentially act
as vehicles for refinancing existing debt of infrastructure companies, thereby
creating banks to lend to fresh infrastructure projects

7. Non-Banking Financial Company - Micro Finance Institution (NBFC-MFI)

• (NBFC-MFI) means a non-deposit taking NBFC that fulfils the following

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conditions:

 Minimum N.O.F of ₹ 10 Crores.

RBI specifies Rs. 10 crores as NOF requirement for NBFC MFI with effect from October
01, 2022.

However existing NBFC having NOF of less than Rs. 10 crore, shall achieve NOF Rs. 10
crore as per following glide path:

1. ₹7 Crore by March 31, 2025

2. ₹10 crores by March 31, 2027

Not less than 85% of its net assets are in the nature of “qualifying assets” which
satisfy the following criteria

• Loan disbursed to borrower with annual income not exceeding Rs.

1,25,000 and Rs. 2,00,000 for rural and urban respectively;
• Loan does not exceed Rs. 75,000 in first cycle and Rs. 1,25,000 in
subsequent cycles;
• Total indebtedness does not exceed Rs. 1,25,000
• Minimum tenure of 24 months for loan exceeding Rs. 30,000;
• Repayment (weekly, fortnightly or monthly) at borrower’s choice.

8. Non-Banking Financial Company – Factors (NBFC-Factors)

• NBFC-Factor is a non-deposit taking NBFC engaged in the principal
business of factoring. assets in the factoring business should constitute at least
50 percent of total assets and income derived from factoring business not be
less than 50 percent of its gross income

9. Mortgage Guarantee Companies (MGC)

• Financial institutions for which at least 90% of the business is mortgage
guarantee business
• At least 90% of gross income from mortgage guarantee business and net
owned fund is Rs. 100 crore.

10. NBFC- Non-Operative Financial Holding Company (NOFHC) financial institution

through which promoter permitted to set up a new bank. It’s a wholly-owned
(NOFHC) which will hold bank as well as other financial services companies to the
extent permissible.

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11. Systemically important non-deposit taking non-banking financial company

 Means a NBFC not accepting deposits.
 Total Assets of Rs. 500 crore or more as per latest audited balancesheet

12. Systemically important NBFCs

NBFCs whose asset size is of Rs. 500 Crore or more are considered as systemically
important NBFCs.

BENEFITS OF INCORPORATING AN NBFC

1. Competitive Interest Rates

• Non-Banking Financial Sectors have brought down the interest rates to either equal
to bank lending rates or at times even lower to bank rates.

2. Quick Processing
• Quick Processing loans at competitive rate of interest.

3. Less Rules and Regulations

• This helps borrowers to get loans easily.

4. Caters Customer needs

• ground level understanding of their customer’s profile gives them an edge, to
customize their products according to client needs

5. Loan available for Individuals with Poor Credit Rating

• Individuals with poor credit rating generally will not get loans from banks. Unless
the credit score is above 600 -650, it is very difficult to get a loan sanctioned
from banks On the other hand, loans will be offered to individuals with low
credit score by NBFCs

DIFFERENCE BETWEEN BANKS & NBFCS

Sl. No. Particulars Banks NBFCs

1 Definition Acceptance of deposits financial Institution that is
withdraw able by cheque into Lending or Investment
or demand or collecting monies under
any scheme or arrangement
2 Regulations BR Act, 1949 and RBI Act, Governed by Companies
1934 Act, 2013 RBI Act, 1934
3 Registration and Licensing requirements Formation of NBFC is easy.

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Licensing are stringent

4 Loan Sanction Comparatively Stringent Easier and faster

Process
5 Overdraft Facility Available in some banks Not available
6 Maintenance of compulsory for banks to NBFC-Ds to maintain a
Reserve Ratios maintain reserve ratios certain ratio of deposits in
7 Priority sector Certain minimum Priority sector norms are
lending exposure to priority not
requirements sector required applicable to NBFCs

INCORPORATION OF NBFCS

Incorporate Company as per CA, 2013 through SPICE+

Registration Process with Reserve Bank of India

No non-banking financial company shall commence business without–

• obtaining a certificate of registration by Bank;

• having owned fund of 25 lakh rupees or such other amount, not exceeding 100
crore rupees

Registration Procedure
Before registration company should ensure following

• Minimum one director from NBFC background or senior Bankers

• Clean CIBIL records
• Understanding of NBFC business

Conditions:-

• position to pay present or future depositors

• affairs not likely conducted manner detrimental to interest of present or future
depositors;
• management not be prejudicial to public interest or interests of depositors;
• adequate capital structure
• grant of certificate of registration not be prejudicial financial sector and
economic growth
• any other condition

Bank may, after being satisfied grant certificate of registration

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Cancellation of certificate of registration

• ceases carry business of non-banking financial institution

• fails to fulfill any of the conditions
• fails–
- to comply with any direction issued by the Bank
- maintain accounts
- offer for inspection its books of account
• before making order of cancellation company shall be given a reasonable
opportunity of being heard.
• company aggrieved by rejection of application or cancellation of registration
may prefer an Appeal within thirty days of rejection or cancellation to Central
Government

Procedure for filing application with Reserve Bank of India:

HOUSING FINANCE COMPANIES

• Type of non-banking financial institution which is primarily engaged in the business of

providing home loans and other related products
• The amount of loan advanced depends upon the value of the collateral offered.
• Housing Finance Company (HFC) is a company registered under the Companies Act,
2013
• HFC also requires registration with National Housing Bank (NHB) for commencing
business of housing finance.

Eligibility Criteria

• Must be an NBFC:
• Net Owned Funds: at least Rs. 20 Crore

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• registered under the Companies Act 2013:

• Housing Finance Activities as Object Clause:

Regulatory power was transferred from National housing Bank to Reserve Bank of India on
22 October 2020, RBI issued revised regulatory framework

“Housing finance company” mean a company that fulfills the following conditions:

• NBFC whose financial assets, constitute at least 60% of its total assets
• Out of total assets not less than 50% by way of housing financing for individuals.

Housing Finance” mean

- Loans to individuals for construction/purchase of new/old dwelling units.

- Loans to individuals for purchase of plots for construction of residential dwell
- Loans to individuals for renovation
- Loans to corporate for employee housing
- Loans for slum improvement schemes
- Lending to builders for construction of residential dwelling units

HFCs whose NOF currently stands below Rupees twenty crore, to submit statutory auditor’s
certificate to Reserve Bank within a period of one month evidencing compliance with
prescribed levels HFCs failing shall not be eligible to hold the Certificate of Registration

Net Owned Fund

a) paid-up equity capital & free reserves after deducting

• loss;
• intangible assets;

b) further reduced by
(i) investments in shares of-
• subsidiaries;
• other housing finance institutions
(ii) book value of outstanding loans advances made to,
• subsidiaries
• Companies in same group to extent such amount exceeds ten per cent

ASSET RECONSTRUCTION COMPANY (ARC)

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When customer becomes defaulter, bank can reduce loss by giving such default companies
to (ARCs) problem of recovery from Non Performing Assets (NPAs) was recognized by
Government

ARC performs following functions:-

• Acquisition of financial assets

• Change or takeover of Management
• Rescheduling of Debt
• Enforcement of Security Interest
• Settlement of dues payable by the borrower

Asset Reconstructions companies are created to manage and recover Non Performing
Assets acquired from banking system and facilitate to concentrate in banking activities.

Benefits

• Relieving banks of the burden of NPAs will allow them to focus on core business
• Banks use it as method to hive off bad loans from their balance sheet.
• ARCs also helps building industry expertise in loan resolution

Registration Process

• Conditions
• Company registered under Companies Act, 2013.
• There should not be any losses in preceding three financial years
• ARC must be able to pay all the periodical returns.
• Directors have sufficient experience related to financial affairs
• No criminal convictions against the directors

Documents Required for Registration

• Directors are not disqualified

• Certificate of audit by the auditor
• Copy of the audited balance sheet
• Copy of the directors and auditor’s report
• Net Owned Funds
• Detailed Information on Related Party Transactions (RPT)
• ARC shall apply for registration in form specified and obtain certificate of
registration
• ARC can undertake both securitisation and asset reconstruction activities

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• ARC shall commence business within six months from the date of grant of
Certificate of Registration

MICRO FINANCE INSTITUTIONS (MFI)

Micro finance provides financial services to those whose income is small and unstable.

Concept of Self Help Group (SHGs) has helped empowerment of women Characteristics

• size of the loan is small.

• repayment period short.
• No collateral for loan
• purpose of end use of loan is flexible
• Transaction cost is low

Incorporation of MFI

• company to be incorporated
• after incorporation register with Reserve Bank of India list of documents to be
filed with RBI:-
a. Certificate of Incorporation.
b. copies of extract of only main object clause in the MOA
c. Board resolution
d. Copy of the certificate educational qualification of directors.
e. Copy of experience certificate in Financial Services Sector

NIDHI

Characteristics

• allowed to transact business only with its members

• no Nidhi shall issue preference shares
• allowed to open branches
• minimum paid up equity share capital Rs. 10,00,000.
• Loans provided only to its members and fully secured.
• director shall be a member and hold office for upto 10 consecutive years
• declare dividend not exceeding 25% higher amount be specifically approved by
Regional Director.

General restrictions

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No Nidhi shall –
• Carry on business of chit fund, hire purchase, leasing finance, insurance, issue
preference shares, open current account with members;
• Acquire another company by purchase of securities unless passed a special
resolution and obtained previous approval of Regional Director
• Accept deposits from person, other than members;
• Pledge assets lodged by members as security:
• Take deposits from or lend money to body corporate;

Benefits
• Repayment is guaranteed, as loans are secured
• Offer a higher rate of interest on deposits.
• Board of Directors normally consists of senior persons This lends credibility to
institution

Incorporation

• normal procedure for incorporating a public company to be complied

• Objects Clause should restrict itself to object of cultivating habit of thrift and
savings amongst its members
• name of the company should end with the words “Nidhi Limited”.
• Nidhi shall apply, in Form NDH-4, within one hundred twenty days, if it fulfills
following conditions,
(i) not less than 200 members;
(ii) Net Owned Funds 20 lakh rupees or more.

• Central Government, shall examine application filed in Form NDH-4 and convey
its decision within forty five days
• in case decision not taken within aforesaid period deemed as approved
• On being satisfied Central Government, shall notify in Official Gazette, as a
Nidhi Company.

PAYMENT BANKS

• New model of banks conceptualized by the Reserve Bank of India (RBI).

• These banks cannot grant loans or issue credit cards
• Main objective of payments bank is to widen the spread of
• Financial services to the remote areas
• List of Payment Banks in India
Airtel Payments Bank Ltd.

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Paytm Payments Bank Ltd

• Minimum capital requirement is Rupees 100 crore. For first five years stake of the
promoter at least 40%.
• Foreign shareholding allowed as per rules for FDI
• Majority of the bank’s board of directors should consist independent directors
• Deposits will be capped at Rs. 100,000 per customer.
• 25% of its branches must be in the unbanked rural area
• Bank must use the term “payments bank” in its name
• Banks will be licensed under Banking Regulation Act, 1949.
• Registered as public limited company

MUDRA BANKS

Micro Units Development and Refinance Agency Bank (or MUDRA Bank) is a public sector
financial institution in India.
It provides loans at low rates to micro-finance institutions and non-banking financial
institutions which then provide credit to MSMEs.

Bank classify its clients into three categories

Shishu: loans up to Rs.50,000

Kishore: loans up to Rs.5 lakh

Tarun: loans up to Rs.10 lakh

Those eligible to borrow from MUDRA bank are:

• Small manufacturing unit

• Shopkeepers
• Fruit and vegetable vendors
• Artisans.

basic criteria of age should be 18 years old

Procedure for loan

• select business to avail the loan (Shishu, Kishor or Tarun)

• contact nearest Public/ Private sector bank list of institutions partnering in the

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MUDRA initiative available on the MUDRA portal.

• repayment period is also extended to 5 years.
• MUDRA Bank is not a separate bank. It is a government financing scheme
• list of the activities covered under MUDRA loans:

1. Transport Vehicle
used only for commercial purposes are eligible

2. Community, Social & Personal Service Activities

Salons, beauty parlours, gymnasium repair shops, , etc.

3. Food Products Sector

papad making sweet shops, small service food stalls cold storages etc.

4. Textile Products Sector / Activity

Handloom khadi activity etc.

5. Business loans for Traders and Shopkeepers

6. Equipment Finance Scheme for Micro Units

machinery / equipments loan size of upto 10 lakh.

7. Activities allied to agriculture

MUDRA Card

MUDRA Card is a debit card issued against the MUDRA loan account MUDRA Card can
be operated across the country for withdrawal of cash from any ATM

Types of funding support from MUDRA

1. Micro Credit Scheme: It is offered mainly through Micro Finance Institutions

(MFIs), which deliver the credit up to Rs.1 lakh
2. Refinance scheme for Banks: Different banks are eligible to avail of refinance
support from MUDRA for financing micro enterprise activities. refinance is available
for term loan and working capital loans, up to an amount of 10 lakh per unit
3. Women Enterprise programme: To encourage women entrepreneurs banks /
MFIs may consider additional facilities, including interest reduction on their loan.
4. Securitization of loan portfolio: MUDRA also supports Banks / NBFCs / MFIs
for raising funds for financing micro enterprises by participating in securitization of
their loan assets against micro enterprise portfolio

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CHIT FUNDS

• Section 2(B) of Chit Fund Act 1982 defines it as a rotating savings and credit
association system, a popular practice in India
• It’s mostly popular in the areas where people have limited access to banking
facilities
• In a chit fund, specific number of investors invest their money with a promise
that their investment will be multiplied within a short span of time and guaranteed
return specific number of subscribers contribute payments in installment over a
defined period of time
• A chit fund comprises group of members, called subscribers. An organizer,
brings group together and administers the activities

Features

• They have a predetermined value and duration

• work like microfinance institutions
• cater financial needs of low income households
• Allow deposits to be turned into a lump sum by 3 mechanisms:

• Safe Deposits: A person can deposit the money in the present and enjoy the
lump sum in future
• Loans: A person can take a loan in the preset and continue to make payments
in the future
• Insurance: Allows the depositor to enjoy the lump sum in case of an
emergency.
• Offer loan at a lower interest rate
• Chit funds companies in India are governed by various State or Central laws
• The Reserve Bank of India (RBI) is the regulator of banks and other non-banking
financial companies, but it does not control the chit fund business
• Although, SEBI as the regulator and controller of the securities market regulates
collective investment schemes. But specifically precludes chit funds from their
definition of collective investment schemes.

 Chit Agreement : Agreement between foreman & subscriber

 Chit Amount : Sum total of payment to be made by subscriber in a chit (without

discount)

 Discount: sum of money which a prized subscriber required to forego to meet the
expenses of running the chit or for distribution among the subscribers or for both.

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 Foreman: person responsible for the conduct of the chit

Key points of the Act

• All registered chit funds should contain words “chit fund”, “chitty”, or “Kuri” as
part of their name.
• Not allowed to conduct business other than chit businesses.
• Foreman allowed to start or run several chits simultaneously. However, prior
approval of government required
• All Chit funds needs to have its accounts audited by a qualified Chartered
Accountant

Types of Chit Funds

Organized Chit Funds:

Common type of chit fund is where small paper chits with each member’s names are
gathered in a box. When all members gathering person in charge picks a chit from the box.
Member so selected gets to take home the day’s collection. Afterwards, that person’s chit
is removed from the box.

Special Purpose Funds:

Some chit funds are organized for a specific purpose. For example, Christmas gifts fund

Online Chit Funds:

• Online chit funds are conducted online contributors can make their monthly
contributions and receive prize online

Registered Chit Funds: funds which are registered with the state government

Unregistered Chit Funds: funds which are not registered with any state government.

REGISTRATION OF CHIT FUNDS

• Though chit fund companies type of a Non-Banking Financial Companies

(NBFC), they are exempted from being registered with the Reserve Bank of India.
• To start this business in India, should first incorporate a Private Limited
Company with the objective of operating a chit fund business.

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• company then applies with the appropriate Chit Fund Registrar of the State
• registration will not be given to:

1. individual or entity convicted of any offence

2. individual or entity who had defaulted in payment of the fees or the filing of any
statement under this Act or
3. Any individual or entity convicted of any offence that involves moral turpitude and
sentenced to imprisonment for offence unless a period of five years has elapsed
since his/her release.

Restrictions imposed by RBI on chit fund business

• Chit fund business can be conducted only by a registered company

• Chit companies must register with the Registrar of Chit Company in every state,
• maximum discount in a bid was restricted to 30% of the total chit amount
• Details of chit must be furnished to Reserve Bank of India
• It is mandatory to keep one month’s chit amount with the Reserve Bank of India
till the end of a particular chit

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9 BUSINESS COLLABORATIONS
Chapter

BUSINESS COLLABORATION

• when two or more entities work together to accomplish common goal is known as
Collaboration

Types of Business Collaboration

• Horizontal Collaboration: Businesses in same set of functional area agree to

collaborate to improve competencies For example: conducting research toward new
or improved products
• Vertical Collaboration: collaboration wherein the business collaborates with
companies in its supply chain either upward or downwards For example: Computers
shipping with pre-installed third-party software
• Intersectional Collaboration: Businesses from different functional areas agree to
share special knowledge For example: Manufacturing and Marketing collaborations.
• Joint Venture: Two or more businesses form a new company. new company is its own
legal entity, For example: One party provides technical support and another party
provides marketing arrangements.
• Equity: A company acquires a minor equity stake in another business in exchange for
a monetary investment .
For example: Funding to start-ups on equity basis,

FOREIGN COLLABORATION

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Examples of Foreign Collaboration

• ICICI Lombard GIC (General Insurance Company) Limited is a financial foreign

collaboration between ICICI Bank Ltd., India and Fairfax Financial Holdings Ltd.,
Canada.

Features of Foreign Collaboration

• Type of partnership: Foreign collaboration is a type of partnership between domestic

and foreign entity. Foreign entity provides support for finance, technology, etc. On
the other hand, a domestic entity provides cheap labour, high-quality raw materials
• Requires an Approval of the government: Before initiating must seek permission
from government of the domestic country
• Entities are from developed and developing country: one or more abroad entities
are generally from developed countries like U.S.A. Japan, etc. Whereas domestic
entity is from developing country India, Sri- Lanka,
• Benefits to developed country: helps developed country earn good returns on overall
investments & aids developed country earn a good reputation to developing country.
• Benefits to developing country:
- Helps developing country to get finance, technology, technical expertise,
etc.
- Assists developing country to achieve economic growth
• Establishes business relationships: removes economic gaps (hurdles) and brings
them closer to each other.
• Initiation of foreign collaboration: foreign collaboration is initiated at government

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and/or corporate level. Government of foreign country collaborates with government

of domestic country. Similarly, at corporate level foreign collaboration, a company
from some foreign country collaborates with company from a domestic country.
• Better utilization of resources: developed countries are good with finance,
technology, On the other hand, developing country has more availability of low-cost
labour and plenty of quality raw materials this leads to a better utilization of available
resources.
• Scope of foreign collaboration: scope is very wide. covers core business activities
such as: Finance, Technical consultancy, Marketing, etc

Miscellaneous features:

• reduces unemployment in developing country.

• improves infrastructure in developing country.
• increase revenue of governments in form of taxes
• aids to achieve economic growth

Objectives of Foreign Collaboration

• Improve financial growth

• Occupy major market share
• Reduce operating cost
• Make effective use of resources
• Generate employment

Types of Foreign Collaboration

Financial collaboration:

• The inflow of foreign investment takes place in domestic (host) country. Foreign
company lends finance by:
- Purchasing ownership shares:
- Giving long-term loans:
- Giving credit facility:
• Technical collaboration: The inflow of foreign technology takes place in the
domestic (host) country. Includes integration of foreign technology with domestic
technology. Foreign company provides technological know- how, professional services
and expertise, etc.
• Marketing collaboration: The inflow of foreign goods and services take place in
the domestic (host) country. Foreign company agrees to sell goods produced by the
domestic company in its own country or international market.

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• Management consultancy collaboration: The inflow of foreign management

consultancy takes place in the domestic (host) country. Foreign company provides
management skills to the domestic company. It teaches management skills for the
following:
- Production management
- Marketing management.
- Personnel management
- Financial management.

Foreign Collaboration in India

• In India there are basically two forms of foreign collaboration. (Financial or

technical) In case of financial collaboration approving authority Reserve Bank of India
and in the case of technical collaboration the approving authority is DPIIT
• Government has set up a Foreign Investment Promotion board (FIPB) to:
- speed up clearance of proposals
- to review the collaborations cleared
- ear-marking and ascertaining of contacts to invest in India

JOINT VENTURE

• Joint venture is an association of two or more individuals or business entities who

combine and pool their respective expertise, financial resources, skills, experience,
and knowledge in the furtherance of a particular project or undertaking.
• Joint Venture commonly referred to as a “JV”, are typically formed either by
individuals, business entities, corporations or partnerships. Contributions are either in
form of money services physical asset equipment intellectual property

Advantages of Forming Joint Venture

i) Risk Sharing: Risk sharing is biggest advantages where cost of product and
likelihood of failure of product is very high.

ii) Economies of Scale: JV with a larger company can provide economies of

scale necessary to compete locally or globally and achieve critical mass

iii) Market Access: companies that lack customers forming JV can provide
instant access to established, effective distribution channels and customer bases

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iv) Exploring the Global Market: Partnering with foreign company provide an
ease to foreign market Which can otherwise be difficult because of a lack of
experience

v) Easy acquisition of other entity or business: When a company wants to

acquire another, but cannot due to cost, size, or geographical restrictions or legal
barriers, teaming up with a JV Partner can be an attractive option.

vi) Cost Efficiency: For a small-scale company/ entity, sometimes it is difficult

to set up the infrastructure and the machinery required product development
another company lends a hand by way of resource sharing and cost sharing it

vii) Flexible nature: The joint venture enterprises provide flexibility, each
participant has the freedom to continue with their individual businesses

Disadvantages of Joint Venture

i) Restricted flexibility: some projects require full concentration and thus the
simultaneous work may become impossible.
ii) Lack of equal involvement: equal involvement from all the Joint Venture
partners may not be possible
iii) Cultural Differences: People with different beliefs, tastes, and preferences
can create hurdles
iv) Extensive Research and planning required: can result in a frustrating
experience if it lacks adequate planning and research.
v) Lack of clear communication: involves different companies from different
horizons there is often a severe lack of communication between partners.
vi) Unreliable partners: partner do not devote 100% and become unreliable.
vii) Creation of competitor: possibility of the creation of a competitor or a
potential competitor in the form of one’s own joint venture partner.

Strategies of entering into a Joint Venture

• Identification of prospective Joint Venture Partner(s): prospective partner should be

strong in terms of business, technology and resources. One partner must be able to
compliment the other partner
• Trustworthy: Joint Venture Partner should never be weak or untrustworthy partner,
as it would definitely lead to failure of the joint venture
• Development of Strong Joint Venture Relationship: Partners must strive to develop

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joint venture relationships that are rewarding, and long-lasting.

• Equal Contribution: All the partners have equal contribution in terms of skills,
intellectual resources, marketing resources, capital, and so on.
• Written Agreement: Agreement be written and must clearly define all terms,
rights and responsibilities of each partner
• Limiting the scope of Joint Venture: Limits and scope of the venture should be
defined in the beginning itself
• Well defined Business Model: . A well-defined business model provides a base
for the legal and financial framework.
• Establishment of Exit Routes: Must establish clear protocols for unwinding the
relation if it fails.

Formation of Joint Ventures

(1) Equity based Joint Venture

• An arrangement whereby a separate legal entity is created with the agreement of
two or more parties.
• Entity is generally established as a limited liability company and is distinct from
either of the parties
• Each of the parties in turn becomes the owner of the company having equity in the
company.
• Profits and losses distributed according to the ratio of the capital contributions

 an agreement to either create a new entity or to join into

ownership of an existing entity
 Shared Ownership
 Shared management
 Shared responsibilities

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 Shared profits and losses

(2) Contractual Joint Venture

• Establishment of a separate legal entity is not needed The two parties do not share
ownership but exercises some elements of control in the joint venture
• contractual joint venture can be entered where project involves narrow task or a
limited activity
• relationship between parties is set forth in the contract

Key characteristics are:

• Two or more parties have a common intention – of running a business

• Each party bring some inputs
• Each party exercises certain degree of control
• Relationship has relatively longer time duration

❖ Every equity based joint venture gives birth to a new entity. Government of India
permits certain type of entities.

(1) Company

(2) Limited Liability Partnership (LLP) Firm

(3) Venture Capital Fund: duly registered Foreign Venture Capital Investor is allowed to
contribute up to 100% in Indian Venture

(4) Trusts: foreign company not allowed to use Trust as a form of a joint venture in India.

(5) Other Entities: Foreign companies not allowed to use any structures other than those
mentioned above

Restrictions under FDI Policy of the Government of India

any non-resident entity can set up an equity based joint venture in India. However, some
restrictions are as follows:

1- Citizen or entity land border from India can invest only after approval of Government
of India defense, space, atomic energy prohibited for foreign investment.
2- NRI residents and citizens of Nepal and Bhutan can invest on repatriation basis
3- (FII) can invest only under the Portfolio Investment Scheme
4- Foreign Venture Capital Investor (FVCI) may contribute up to 100% under automatic
route

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Examples of Joint Venture (JV) Companies in India

• Tata Starbucks: 50:50 joint venture owned by Tata Consumer Products and Starbucks
Corporation
• AirAsia India: joint venture between Malaysia-based AirAsia Berhad and Tata Sons.

Documents for Joint Ventures

• The Indian companies preferred to have a Memorandum of Understanding (MOU) to

define the relationship at the initial stage
• contracts are generally of a fixed duration or are related to specific events

Essential Features of a Shareholders’ Agreement (SHA) /Joint Venture Agreement /

Partnership Agreement (PA)

• Business of new company/LLP;

• Manner and extent which resources will be brought in;
• allotment and transfer of shares;
• Constitution of Board of Directors
• decision making
• Dividend distribution policy;
• Dispute resolution mechanism.

Essential components of a Joint Venture Agreement

(a) Description (Nature of the Agreement)

(b) Parties (full description of the parties to the Agreement)
(c) Recitals convey the intention of the parties
(d) Operative Part (defines the rules for the future; rules relating to loans by either party,
activities to be undertaken and plan of action)
(e) Legal aspects:
(i) Amendments of the JV Agreement
(ii) Duration of the JV
(iii) Termination
(iv) Dispute resolution
(v) Confidentiality and Non-Disclosure Agreement
(vi) Non-compete clause
(vii) Indemnification

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SPECIAL PURPOSE VEHICLE (SPV)

• A Special Purpose Vehicle (SPV) or Special Purpose Entity (SPE) are generally formed
for a special purpose
• The operations of these entities are limited to the acquisition and financing of specific
assets. SPVs are generally a subsidiary company whose obligations are secured even if
the parent company goes bankrupt
• No SPV can be formed for an unlawful purpose,
• SPVs/SPEs may be formed through limited partnerships, trusts, corporations, limited
liability corporations or other entities

Benefits of Special Purpose Vehicle (SPV)

• Minimum Statutory Requirement –

• Tax benefits-
• Legal protection-
• Accounting Reasons – Debts raised through SPV are not reflected in the balance sheet
of the sponsor. It reflects a pleasant picture and enhances the debt raising ability of
the sponsor
• key advantage is that it helps in separating the risk and freeing up the capital. SPV and
the sponsoring company are protected against risks like insolvency,

Purpose of Special Purpose Vehicle

• main purpose is to allow the parent company to make highly leveraged or speculative
investments without endangering the entire company If SPV goes bankrupt it will not
affect parent company
• SPVs are also formed by banks and financial institution for Securitisation. total assets
of banks mainly comprise of loans By securitization through SPV the risk involved in
this activity is separated from the general business of the bank
• Indirect acquisition of assets - SPVs can be used for acquiring assets indirectly for the
purpose of tax saving , t he sponsor takes the assets on lease from its
SPV. Expenses incurred as rent, is allowed as a deduction to sponsor for income tax
purpose. On the other hand, the SPV acquires the asset through raising debt, the
interest on which is a deductible expense for tax purpose. This way the same asset
can be used to claim deduction by both,

Difference between a Special Purpose Vehicle (SPV) and a Company

• Technically, an SPV is a company Like a company, the SPV is an artificial person. The
SPV has an existence of its own in the eyes of law. It can sue and be sued in its name

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An SPV can also be a partnership firm

• The company, as distinguished from an SPV, may be called a general purpose vehicle.
company may do many things mentioned in memorandum or permitted by the
Companies Actor permitted by the Companies Act SPV may also do the same but
scope of operation limited The MoA is quite narrow in the case of an SPV.

How is an SPV established?

• a sponsoring corporation hives off assets from rest of the company assets or activities
are distanced from the parent company, hence performance of the new entity will not
be affected by the ups and downs of the originating entity.

LLP FIRM AS A SPECIAL PURPOSE VEHICLE

• Foreign companies are not permitted to invest in partnership firms.

• Till November 2015, foreign companies were not allowed to invest in any form except
a company. Foreign Investment in some LLP firms has been allowed now.
• Key advantages of using an LLP firm as an SPV as compared to a company are as
follows:
- Low cost of incorporation of an LLP;
- Flexibility of rules of management
- Partners can be companies while management is by Designated Partners who are
individuals
- Low annual maintenance cost;
- not be any necessity of getting the accounts audited
- An LLP firm does not have to pay Dividend Distribution Tax (DDT)
- Voluntary winding of an LLP firm which has no creditors is very easy
- Investment in LLP Firms is permitted only in sectors in which 100% FDI is permitted
through automatic route

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SETTING UP OF BRANCH OFFICE/LIASON

10 OFFICE/WHOLLY ONED SUBSIDIARY BY
Chapter
FOREIGN COMPANY

INTRODUCTION

There are mainly two types of entry strategy for foreign businesses in India,

• Incorporation of a private limited company: easiest and fastest Foreign direct

investment of upto 100% into a private limited company or limited company is under
the automatic route, wherein no Central Government permission is required.
• Registration of Branch Office, Liaison Office or Project Office: It requires RBI
and/or Government approval cost and time taken for registration e higher than the
cost and time associated with incorporation of a private limited company.
• Branch Office, Liaison Office or Project Office are unincorporated place of
business of foreign company and are regulated by the Companies Act as well under
FEMA

IMPORTANT TERMS

Section 2(42) “Foreign Company” means any company or body corporate incorporated
outside India which–

— Has a place of business in India whether by itself or through an agent, physically

or through electronic mode; and
— Conducts any business activity in India in any other manner.

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Section 2(87) Subsidiary Company in relation to any other company (that is to say the
holding company), means a company in which the holding company –

— Controls the composition of the Board of Directors; or

— Controls more than one-half of [total voting power] either at its own or
together with one or more of its subsidiary companies:

Provided that shall not have layers of subsidiaries beyond such numbers as may be
prescribed. For the purposes of this clause, –
— A company shall be deemed to be a subsidiary company of the holding
company even if the control is of another subsidiary company of the holding
company;
— Composition of a company’s Board of Directors shall be deemed to be
controlled by another company if company can appoint or remove all or a majority of
the directors;
— Company” includes any body corporate;
— “layer” in means its subsidiary or subsidiaries.

KEY PROVISIONS

• ‘Branch Office’ in relation to a company, means any establishment described as

such by the company.
• ‘Liaison Office’ means a place of business to act as a channel of communication
between the principal place of business or Head Office in India but which does not
undertake any commercial /trading/ industrial activity, directly or indirectly,
• ‘Project Office’ Place of business in India to represent interest of Foreign
Company (excludes Liaison office)

• Section 376

When a foreign company which has been carrying on business in India, ceases to
carry such business, it may be wound up as an unregistered company under
section 375 to 378, even though the company has been dissolved under the laws
of county in which it was incorporated.

Sec 71 (Debentures) :- apply mutatis mutandis to Foreign company

Sec 92 (Filing of Annual return) & Sec 135 (CSR):- Apply to Foreign company
subject to exceptions, modifications etc.

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Provisions of Chapters VI (Registration of Charges):- apply mutatis mutandis to

Foreign company.

Provisions relating to Inspection, Enquiry, Investigation:- apply mutatis mutandis

to Foreign company.

• Section 379: where not less than 50% of the paid-up share capital is held by
one or more citizens of India or by one or more bodies corporate incorporated in
India, whether singly or in the aggregate, such company will be treated as if
it were a company incorporated in India.

• Section 380: every foreign company which establishes a place of business in

India must within 30 days file with the Registrar of Companies for registration:
(a) Memorandum and articles
(b) Full address of registered or principal office
(c) List of the directors
(d) Name and address of persons resident in India authorized to accept notices or
other documents
(e) Full address of the office of the company in India
(f) Particulars of opening and closing of a place of business in India on earlier
occasion or occasions;
(g) Declaration that none of the directors of the company in India or abroad are
disqualified.
(h) Other information

Every foreign company to ensure that name of the company, country of incorporation, fact
of limited liability is exhibited in the specified places or documents as required

Section 381 of Foreign Company to maintain books of Account and file balance sheet and
profit and loss account prescribed form with ROC every calendar year.

In Tovarishestvo Manufacture Liudvig Rabenek, it was held that where representatives of

a company incorporated outside the country frequently stayed in a hotel in England for
looking after matter of business, it was held that the company had a place of business in
England.

In a certain case, it was held that mere holding of property cannot amount to having a
place of business.

PROVISIONS PERTAINING TO NAME

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• If foreign company is incorporating subsidiary company in India, then it may be

allowed with addition of word India or Indian State or city
• No company shall be incorporated using the name of an enemy country
• Rule 8 shall apply mutatis mutandis while determining whether the name is too
nearly resembling.

• The name shall be considered "undesirable" if:-

a) Proposed name implies association with foreign embassy

b) Proposed name includes name of any foreign country, same shall be allowed if
applicant produces proof of business relations with such county (Ex: MOU)

• Name combining the name of foreign country with the use of Japan (India Japan or
Japan India) shall be allowed if, there is govt participation.

ESTABLISHMENT OF BRANCH OFFICE (BO)/ LIAISON OFFICE (LO)/ PROJECT OFFICE (PO) IN
INDIA

BRANCH OFFICE

• Branch office serves as an extension of the head office and carries on same
business as that of its parent company.
• The profits from these are easily remittable from india, subject to the taxes
applicable.

ELIGIBILITY FOR SETTING UP A BRANCH OFFICE

• Body corporate incorporated outside India;

• Name of the Indian branch office same as the parent company
• Net worth of branch office not less than US $100,000;
• Parent company should have profit making record in preceding five financial years

PERMITTED ACTIVITIES

• Branch office cannot directly carry out manufacturing activities unless such
manufacturing activity is done in a special economic zone (SEZ) with the purpose of
exporting
• Following activities are permitted for a branch office in India
i) Export/import of goods.
ii) Rendering professional services

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iii) Carrying research work

iv) Promoting financial collaborations
v) Representing the parent company

vi) Rendering services in Information Technology

vii) Rendering technical support

REGISTRATION OF A BRANCH OFFICE IN INDIA

• Foreign company must apply for approval from Reserve Bank of India (RBI)
under (FEMA), 1999
• Foreign entities whose principal business falls under 100 per cent (FDI) is
permissible under automatic route
• Application must be forwarded by foreign entity through AD Category – I bank
• If foreign entity wishes to establish branch office in more than one location
must seek approval from RBI for each location
• Followings documents to be deposited by Foreign company for registration of Branch
Office:-

1) Form FNC
2) Information of Parent company & COI attested by Notary
3) Incorporation document of Branch Office
4) Proof of registered office
5) proposed activity
6) Latest audited Balancesheet of applicant entity
7) Board Resolution to open Branch Office.
8) KYC of Authorized Signatories
9) Information about local representatives of Parent company in Branch office.

FUNDING OF THE BO BY THE FOREIGN COMPANY

1. Equity Share Capital

2. Preferred Share Capital: convertible preference shares, compulsorily convertible

into equity shares are regarded as Foreign Direct Investment (FDI).

3. Debentures and Borrowings: These also, when convertible into equity shares, are
treated as FDI

LIAISON OFFICE

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• Liaison Office means a place of business to act as a channel of communication

between the principal place of business and entities in India but which does not
undertake any commercial /trading/ industrial activity, and maintains itself out of
inward remittances received from abroad through normal banking channel.

ELIGIBILITY FOR SETTING UP A LIAISON OFFICE

• Body corporate incorporated outside India;

• Name of Indian branch office same as parent company
• Net worth of liaison office not less than US $ 50,000;
• Parent company should have profit making record in preceding three financial years

PERMITTED ACTIVITIES

(i) Representing the parent company

(ii) Promoting export / import from / to India
(iii) Promoting technical/ financial collaborations in India.
(iv) Acting as a communication channel

Bar Council of India vs. A. K. Balaji & Ors., RBI not to grant any permission to any foreign
law firm, for opening of LO in India.

Hon’ble Supreme Court held that advocates alone are entitled to practice law in India and
foreign law firms cannot practice profession of law in India. As such, foreign law firms not
permitted to establish any branch office, or other place of business in India. AD Category – I
banks directed not to grant approval to any branch office /liaison office in India under
FEMA for practicing legal profession in India.

EXTENSION OF THE VALIDITY PERIOD FOR LIAISON OFFICE

• Person resident outside India may establish liaison office for three years
• Non-resident entity may apply to Authorised Dealer Category-I bank for extension and
Authorised Dealer Category-I bank may extend the validity period of approval, on
application AD Category Bank may extend validity of approval for 3 years subject to
directions issued by RBI.
• Entities engaged in construction sectors are permitted to open a Liaison Office for two
years only. No further extension for liaison offices of Non-Banking Finance Companies
and construction sectors

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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

• Foreign company may open project office/s in India provided

• Project is funded directly by inward remittance from abroad;
• Project is funded by a bilateral or multilateral International Financing Agency;
• Project is cleared by appropriate authority;
• Company awarding the contract has been granted term loan by a Public Financial
Institution

CASES IN WHICH RBI APPROVAL IS REQUIRED FOR SETTING UP BO, PO AND LO IN INDIA

Application from foreign for opening BO/LO/PO in India shall require prior approval of RBI
and shall be forwarded by AD Category Bank to General Manager RBI, New Delhi who shall
process application in consultation with Government of India in following cases:

• Applicant is citizen or registered/incorporated in Pakistan;

• Applicant is citizen or registered/incorporated in Bangladesh, Sri Lanka, Afghanistan,
Iran China, Hong Kong or Macau, and application is for opening BO/LO/PO in Jammu
and Kashmir North East region or Andaman and Nicobar Islands.
• Principal business of Defence, Telecom, Private Security and Information and
Broadcasting;
• Applicant is (NGO), Non-Profit Organisation, of a foreign government.

MASTER DIRECTION - ESTABLISHMENT OF BRANCH OFFICE (BO) / LIAISON OFFICE (LO) /

PROJECT OFFICE (PO) IN INDIA BY FOREIGN ENTITIES

 Applications to be made in form FNC under two routes

- Reserve Bank Route: If principal business of falls under sectors where 100% FDI is
permissible

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- The Government Route: If principal business of does not fall under sectors where
100% FDI is permissible RBI will also consider the following criteria while sanctioning
the Liaison office/ Branch office
 Track Record: in the immediately preceding five financial years

 Net Worth: net worth has to be equal to or more than USD 100,000.

 Application by foreign company to be made through designated AD Category-I bank

Some documents to be attached with the application.

1) English version of the Certificate of Incorporation/ or Memorandum & Articles of

Association attested by Indian Embassy
2) Latest Audited Balance Sheet of the applicant entity.”

 The BO hence, once approved by the RBI, will be allotted a Unique Identification
Number (UIN). BO must also obtain a Permanent Account Number (PAN) This
should be reported in the Annual Activity Certificate (AAC) that BO required to
present at end of each year show that the activities are undertaking in the
permitted categories only.

 Company has to ‘conspicuously’ exhibit outside office, the company’s name The
name must be in English and local language

PROCEDURE FOR ESTABLISHMENT OF BO/LO/PO

1. Submission of Form FNC: Application may be submitted in Form FNC to a designated

AD Category - I bank
Following are the prescribed documents:
- Certificate of Incorporation, Memorandum of Association and Articles of
Association
- Audited Balance sheet
- Power of Attorney in favor of signatory of Form FNC

2. Allotment of Unique Identification Number (UIN): before issuing approval letter AD

Category-I bank shall forward copy of the Form FNC for allotment of Unique
Identification Number (UIN) to each BO/ LO.
3. Issue of Approval letter: After receipt of UIN from Reserve Bank AD I bank shall issue
approval letter
4. Intimation to Designated AD Category I bank: applicant shall inform designated AD
Category I bank date on which the BO/LO/ PO has been set up
5. Extension for setting up office: in case BO/LO/ PO not opened within six months from

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the date of the approval letter the approval shall lapse. AD Category-I bank may
consider extension for six months. Any further extension of shall require prior
approval of Reserve Bank of India.
6. BO/LO by foreign banks and insurance companies: applications for establishing a
BO/LO in India by foreign banks and insurance companies will examined by
Department of Banking Regulation (DBR), Reserve Bank of India and Insurance
Regulatory and Development Authority (IRDA), respectively.

ANNUAL ACTIVITY CERTIFICATE (AAC)

1. AAC as at the end of March 31 each year needs to be submitted by following :-

a) In case of Sole BO/ LO / PO :- by the BO/ LO / PO concerned

b) In case of multiple BO / LO:- a combined AAC of all offices in India by the Nodal
office of BO / LO

2. The BO / LO needs to submit AAC to :

a) Designated Category I Bank
b) Director General of Income Tax, New Delhi.

3. The PO needs to submit AAC to AD Category I Bank.

4. AD Category I Bank shall scrutinize the AAC & ensure activities undertaken by BO/ LO are
being carried as per terms & Conditions of the Approval given.
5. In the event of adverse findings reported by auditor or noticed by AD Category I Bank,
should be immediately reported to General Manager, RBI, New Delhi alongwith Copy of
AAC & comments thereon.

REGISTRATION WITH POLICE AUTHORITIES

Applicants from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong, Macau or
Pakistan desirous of opening BO/ LO / PO in India shall register with state police
authorities.

Copy of approval letter for "person" from these countries shall be marked by AD category I
Bank to Ministry Of Home Affairs, Government of India for necessary action and record.

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OPENING OF BANK ACCOUNT BY BO/LO/PO

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Extension of validity period of the approval of LO and PO

I) Designated AD Category - I bank may extend validity period of LO/s for a period of 3
years if applicant complied with following conditions
(a) LO should have submitted Annual Activity Certificates
(b) Account of LO maintained with designated AD Category-I bank is being operated
in accordance with terms and conditions
II) Entities engaged in construction and Non- Banking Finance Companies are permitted
to open a liaison office for two years only. No further extension

APPLICATION FOR ADDITIONAL OFFICES AND ACTIVITIES

(a) If number of offices exceeds it shall require prior approval of RBI.

(b) Applicant may identify one of its offices as Nodal Office, which will coordinate
activities of all of its offices in India.
(c) Whenever existing BO/LO is shifting to another city in India, prior approval from the
AD Category-I bank is required.

REMITTANCES OF PROFITS/ SURPLUS

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CLOSURE OF BO/PO/LO

1. Submission of request for closure: application for winding up may be

submitted along with following documents:
- Copy of Reserve Bank’s/AD Category-I bank’s approval
- Auditor’s certificate
- no legal proceedings in any Court in India pending against BO / LO/ PO
- report from Registrar of Companies regarding compliance
- other document/s, specified by Reserve Bank of India / AD Category- I bank

2. Remittance of winding up proceeds: AD Category-I bank may allow remittance

of winding up proceeds in respect of offices of banks and insurance companies, after
obtaining copies of permission of closure

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11 SETTING UP OF BUSINESS OUTSIDE

Chapter
INDIA AND ISSUES RELATING THERETO

INTRODUCTION

• The year 1991 was the golden year for Indian economy foreign investment policies
opened gates for foreign investments to enter the Indian Territory.
• Till 1991, India’s economic integration with the rest of the world was very limited.
• The policy on Indian investments overseas was first liberalised in 1992. Under this
policy, an Automatic Route for overseas investments was introduced with restrictions
on the total value
• The introduction of Foreign Exchange Management Act in the year 1999 changed the
entire perspective on foreign exchange particularly those relating to investment
abroad
• “Overseas Direct Investment” or “ODI” means investment by way of acquisition of
unlisted equity capital of a foreign entity, or subscription as a part of the
memorandum of association of a foreign entity, or investment in ten per cent, or
more of the paid-up equity capital of a listed foreign entity or investment with control
where investment is less than ten per cent of the paid-up equity capital of a listed
foreign entity.

LAWS /AUTHORITY GOVERNING SETTING UP OF BUSINESS OUTSIDE INDIA

• Reserve Bank of India

• Overseas Investments are prohibited unless made in accordance with the FEMA Act,

FOREIGN EXCHANGE MANAGEMENT ACT, 1999

• RBI has also issued the compiled FEMA (Overseas Investment) Directions, 2022
grouping the requirements under three categories General provisions, Specific
provisions and Other operational instructions to the AD Banks.
• The changes brought about through the new rules and regulations are summarised
below:
• clarity with respect to various definitions;
• introduction of “strategic sector”;
• introduction of “Late Submission Fee (LSF)” for reporting delays.

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• “Strategic sector” energy and natural resources sectors such as Oil, Gas, Coal, Mineral
Ores, submarine cable, start-ups and any other sector as deemed fit by the Central
Government.

OI RULES V/S OI REGULATIONS

• OI Rules provides the regulatory framework for making of overseas investment While
the OI Rules have been framed by CG, however will be administered by the RBI
• OI Regulations: covers operational part, Financial commitment, modes of payment,
consequences of delay etc.

OVERSEAS INVESTMENT

• Under the erstwhile ODI regulations, effective till August 21, 2022, there was a
concept of direct investment outside India in JV and WOS that excluded portfolio
investment and FC.
• OI Rules define Financial Commitment and term Overseas Portfolio Investment (‘OPI’).
• “Financial commitment” means aggregate amount of investment by way of ODI,
other than Overseas Portfolio Investment (OPI) An Indian entity may lendin debt
instruments issued by a foreign entity including overseas Step down Subsidiaries
subject to the following conditions:
(a) Indian entity eligible to make ODI;
(b) Indian entity made ODI in the foreign entity;
(c) Indian entity acquired control in foreign entity
• “Overseas Investment” means financial commitment and Overseas Portfolio
Investment
• Overseas Investment can be made under two routes (i) Automatic Route and (ii)
Approval Route
• ELIGIBILITY (ENTITIES ARE REFERRED TO AS “INDIAN ENTITY”)
- Company under the Companies Act, 2013 or
- Body Corporate incorporated by any law or
- Limited Liability Partnership under the Limited Liability Partnership Act, 2008
- Partnership Firm registered under the Indian Partnership Act, 1932

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NON-APPLICABILITY

• Investments made by a financial institution in an IFSC (International Financial Service

Centre)
• Acquisition or transfer of investment outside India made out of Resident Foreign
Currency Account;
• Acquisition or transfer of any investment outside India made out of foreign currency
resources held outside India by person employed in India for specific duration not
exceeding 3 years.
• Where investment in Immovable property situated outside India was acquired when
person was resident outside India or inherited from person who was resident outside
India.

PROHIBITIONS

1. No person resident in India shall make ODI in foreign entity engaged in –

 real estate activity;
Buying or selling of Real Estate or Transferrable development Rights, but
doesn’t include construction of township, residential/ commercial
premises, roads, bridges for selling/ leasing.

 gambling
 dealing with financial products linked to the Indian rupee without specific approval
of the Reserve Bank.
2. Any ODI in start-ups shall be made by an Indian entity only from internal accruals and
in case of resident individuals, from own funds
3. No person resident in India shall make financial commitment in a foreign entity that
invested or invests into India resulting in a structure with more than two layers of
subsidiaries

Such restrictions shall not apply to following classes of Company:-

a) Banking company ( Banking Regulation Act,1949)
b) Systemically Important NBFC (RBI Act, 1934)
c) Insurance Company (IRDAI Act, 1999)
d) Government Company (Companies Act,2013)

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AUTOMATIC ROUTE

• subject to prescribed limits and conditions, any overseas investment by person

resident in India shall be made in foreign entity engaged in bona-fide business activity,
directly or through step-down subsidiary special-purpose vehicle
• Step-down subsidiary, in respect of a foreign entity, has been defined as an entity in
which the foreign entity has control
• ‘Bona-fide business activity’ defined as business activity permissible under any law in
India and the host country
• Financial Commitment not exceeding USD 1 Billion and within 400% of the net worth
as per the last audited balance sheet.
• But this brings confusion as activities are permitted in some States while not another
example gambling

• Earlier ODI was only allowed through one layer of SPV but new rules allowed multiple
layers of SPV/ step down subsidiary

• Control in entity is possible without infusion of capital and still qualifies as ODI:
• Example
a) In Delaware, company incorporation without capital contribution & resident has
control of such entity.

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b) gift of controlling shares of foreign entity from non resident to resident.

APPROVAL ROUTE

• overseas investment under the automatic route, shall not be made into a company
incorporated in Pakistan
• prior approval of RBI for any FC exceeding USD 1 billion or its equivalent in a financial
year even when the total FC of the Indian Party was within the eligible limit under
automatic route (i.e. within 400% of the net worth as per the last audited balance
sheet)
• The erstwhile regulations only mandated prior approval of RBI but new OI rules
provide for prior approval of RBI, Central Government, NOC from Lenders.

No Objection Certificate

• if any person resident in India who –

- Has non-performing asset (NPA);
- classified as willful defaulter
- is under investigation by investigative agencies shall obtain a No Objection
Certificate (NOC) from the concerned bank, regulator or investigative agency, for
making financial commitment
• if the bank, fails to furnish the NOC within 60 days an NOC may be presumed to
‘deemed consent’

METHOD OF FUNDING

• A person resident in India making Overseas Investment may make payment –

(i) by remittance made through banking channels;
(ii) funds held account maintained accordance with the provisions of the Act;
(iii) swap of securities;
(iv) using the proceeds of American Depository Receipts or Global Depositary
Receipts or external commercial borrowings
• It is further provided in the OI Directions that:
1. Overseas investment by way of cash is not permitted.
2. Indian entity can make remittances office/branch outside India only for normal
business operations
3. person resident in India shall not make any payment on behalf of foreign entity
other than by way of financial commitment
4. investment/financial commitment in Nepal and Bhutan shall be done in a manner as

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provided in Foreign Exchange Management (Manner of Receipt and Payment)

Regulations, 2016

FOREIGN DIRECT INVESTMENT POLICY

• The (DPIIT) is the nodal Department for formulation of the policy of Foreign Direct
Investment (FDI).
• DPIIT plays an active role in the liberalization and rationalization of the FDI policy

Reporting requirements

• Person resident in India who has made ODI or financial commitment in foreign entity
shall report following,
- financial commitment
- disinvestment within thirty days of receipt of disinvestment proceeds;
- restructuring within thirty days from the date of such restructuring
• Person resident in India other than resident individual making Overseas Portfolio
Investment (OPI) or shall report such investment or transfer of investment within sixty
days from end of the half-year. OPI by way of acquisition of shares , the reporting shall
be done by the office in India

• Annual Performance Report (APR): Person resident in India acquiring equity capital in
a foreign entity shall submit an APR to foreign entity every year by 31st December and
where accounting year ends on 31st December, APR shall be submitted by 31st Dec of
next year. No APR shall be required where-
a) A person resident in India holding less than 10% of equity capital without control
in foreign entity and there is no other financial commitment other than by way
of equity capital.
b) A foreign entity is under liquidation

An Indian entity which made ODI shall submit an Annual Return on Foreign Liabilities &
Assets to Department of Statistics & Information Memorandum, RBI.

ISSUES IN CHOOSING LOCATION OUTSIDE INDIA

Geographical Location of the business

• Infrastructure (ports, airports etc)

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• Access (transportation of goods, materials and personnel)

• Availability of talent pool for productions

Economic Aspects

• Ease of doing business: entering, establishing and closing the business

• Cost of doing business: return on investment
• Laws relating to labour and Quality of labour force
• Laws relating to taxation: repatriation of profits double-taxation avoidance
agreements
• Incentives: Local, regional state economic development incentives available to help
the company lower project costs

Political Aspects

• Friendly country, MFN status

• relations with nearing countries and neighbours
• Regulatory Environment: Impact of local, state regulations on business, Environmental
permits, waste disposal permits etc.

Social Aspects

• Trade bodies
• Expatriate friendliness of nation to relocate key employees.

Technological Aspects

• Intellectual property protection: create, maintain and extract IP

• Power, communication, telecom – availability, quality and cost issues like
infrastructure, geography, political considerations/conditions, culture, language.

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IDENTIFYING LAWS APPLICABLE TO

12
Chapter
VARIOUS INDUSTRIES AND THEIR INITIAL
COMPLIANCES

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SECTION 8 COMPANY

ADVANTAGES

1) Tax Benefits
Sec 8 company are charitable institutions, therefore various exemptions are available
under the Income Tax Act.

2)Zero Stamp Duty

Sec 8 company are not liable to pay stamp duty on MOA & AOA

3) Minimal Share Capital

Sec 8 company can be set up without requirement of having minimum PSC.

4) Exempted from suffixed Prefix of Name

Sec 8 company are not required to affix the term like "limited" or "private limited"

5) Increased credibility
The transparent framework allows greater credibility than other types of NGO's such as
society, trust etc.

Exemptions Granted to section 8 companies

• General Meetings at shorter notice period 14 days

• Recording of Minutes of the Meeting not required
• Audited Financial Statements sent before14 days to the members
• No maximum limit of 15 directors
• No Appointment of Independent Director
• One Board Meeting within six months

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• No appointment of Company Secretary

PARAMETERS FOR DECIDING BUSINESS STRUCTURE

The parameters for deciding the business structure are listed below:-
• Control & Management
• Capital Investments
• Liability Threshold & Personal Risk
• Tax Obligation
• Licenses, Permits, & Regulations
• Attracting Investors

FORMATION OF A COMPANY

(i) Apply for Director Identification Number (DIN)

(ii) Apply for Digital Signature Certificate (DSC)
(iii) Filing for New User Registration
It is important to get registered on the MCA portal.
(iv) Application for Company Name
(v) Filing for Charter Documents applicants are required to create charter
documents like (MOA) and (AOA).
(vi) Stamping of Company Documents
(vii) Certificate of Incorporation

Documents required for Company Registration

Documents of the Directors and Shareholders of the company/ Partners of the LLP

Proof of identification

- Pan card
- Aadhar card
- Driving license
- Passport

Proof of address

- Latest telephone bill (not older than 2 months)

- Latest electricity bill
- Bank account statement Documents of the Company/LLP Proof of registered office

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APPLYING FOR BUSINESS LICENSES

1. Employee’s State Insurance Registration

• Self-financing social security and health insurance scheme for Indian [Link]
offers an economic & medical assurance to workers and its dependents.
• ESI Registration is mandatory for employers having 10 or more employees. For all
employees earning Rs.25,000 or less per month as wages

2. EPF Registration: Social security legislation for the future benefit of employees &
their dependents, Every establishment which is a factory engaged in any industry in
which 20 or more person is employed.

3. GST Registration: GST Registration is mandatory for every business

4. Udya
m Registration: there are several advantages to registering, including government
credit programmes, subsidies, etc

5. FSSA
I Registration
• This
is the national authority for ensuring the safety and standardization of food
items in India.
• Licen
se or registration is divided into three categories namely:
a) FSSAI Central License
b) FSSAI State License
c) FSSAI State Registration

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6. Impo
rt Export Code: Export and import businesses require a special license known as the
Import Export Code, which the Directorate General of Foreign Trade (DGFT) issues

7. Trad
e License

A sole proprietorship can obtain a trading license in the same manner as a traditional
shop under the Shop and Establishments Act

8. Licen
ses needed for an Indian Factory: Under the Factories Act of 1948, registration is
required to operate a factory in India

Understanding Taxation and Accounting Laws

There are a broad variety of taxes, such as, GST state tax and even local taxes that may be
applicable for certain businesses.

ADHERING TO LABOUR LAWS

Objective of the Labour Laws

 Productive Work & Adequate Earning

 Proper Working Hours
 Security to the Employees
 Work-Life Balance
 Secure Working Environment
 Sickness and Accident benefits to the employees
 Social Security
 Labour Welfare
 Fair Treatment in the Workplace
 Prevention of Children at Work
 Forced Labour

Some major labour laws applicable are:

 The Industrial Disputes Act, 1947

 The Contract Labour (Regulation and Abolition) Act, 1970

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 The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952

 The Employees’ State Insurance Act, 1948
 The Factories Act, 1948.

Adherence to Laws relating to Intellectual Property

 The twenty-first century witnessed the emergence of “Intellectual Capital” as a key

wealth driver of international trade between countries, thanks to rapid
globalization and liberalization of economies the world over.
 The TRIPS agreement has made way for the harmonization of Indian laws connected
with Intellectual Property Rights
 For effective implementation of IP Laws, facilitator have been empanelled by the
Controller General of Patents, Trademark & Design.
 IP rights prevents others to infringe rights associated with IP.
 The office of Controller General Of Patents, Designs, Trademark controls all patents
in India.

WIPO (World Intellectual Property Organisation)

 WIPO is designated to promote worldwide protection of both Industrial property

and Copyright.
 WIPO was established by convention signed in Stockholm in 1967.
 In is headquartered in Geneva.
 WIPO cooperates with IP offices and stakeholders to develop IP tools, database etc.

 WIPO provide human Capacity building across full spectrum of IP rights:

 Patent
 Trademark
 Industrial design
 Geographical Indication
 Copyright.

Ensuring Effective Contract Management

 Contracts lie at the crux of running any business. As per the Indian Contract Act,
1872, all agreements are contracts if they are made by the free consent of parties
competent to contract, for a lawful consideration with a lawful object, and are not
expressly declared to be void.

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 Employee contracts one of the most crucial aspects while starting a venture.
 Contract management involves overseeing agreements made with suppliers,
customers, partners and employees.

LAWS RELATING TO INDUSTRIES SPECIFIC LAWS

Trading & Retail Industry

List of laws that are specifically applicable to trading and retail industries:-
 The Trade Marks Act, 1999;
 The Patents Act, 1970;
 The Indian Copyright Act, 1957;
 Shops and Establishment Act & Rule (State wise);
 The Food Safety & Standard Act, 2006;
 The Consumer Protection Act, 2019

Start-ups

List of laws that are specifically applicable to Startups:-

 Shop and Establishment Act, (State-wise);
 Environment and Protection Act, 1986;
 Competition Act, 2002;
 The Consumer Protection Act, 2019
 The Sexual Harassment of Women at Workplace (Prevention, Prohibition and
Redressal) Act, 2013.

Non-Banking Financial Company (NBFC)

List of laws that are specifically applicable to NBFCs:-

1- Reserve Bank of India Act, 1934

2- Prevention of Money Laundering Act, 2002;
3- The Competition Act, 2002;

Pharma Industry

List of laws that are specifically applicable to Pharma Industries:-

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 The Food Safety and Standards Act, 2006;

 The Narcotic Drugs and Psychotropic Substances Act, 1985;
 The Drugs and Cosmetics Act, 1940
 The Water (Prevention and Control of Pollution) Act, 1974;
 The Environment (Protection) Act,1986 and allied rules;
 The Rights of Persons with Disabilities Act, 2016;
 Trademarks Act, 1999;
 The Patents Act, 1970;

Banking Industry

List of laws that are specifically applicable to Banking industries:-

 Banking Companies (Acquisition and Transfer of Undertakings)
 Banking Regulation Act, 1949
 Transfer of Property Act, 1882;
 Negotiable Instruments Act, 1881;
 Sale of Goods Act, 1930;
 The Shops and Establishments Act, 1953;
 Indian Contract Act, 1872;

Insurance Industry

List of laws that are specifically applicable to Insurance industries:-

 Insurance Act, 1938
 Insurance Regulatory and Development Authority (IRDAI) Act, 1999;
 State Shop and Establishment Act;
 Prevention of Money Laundering Act, 2002;

Real Estate Companies

 Real Estates (Regulations & Development) Act, 1916

 Environment (Protection) Act, 1986;
 The Air (Prevention and Control of Pollution) Act, 1981;
 The Water (Prevention and Control of Pollution) Act, 1974;
 The Electricity Act, 2003;

Telecom Industry

List of laws that are specifically applicable to Telecom industries:-

 Telecom Regulatory Authority of India Act, 1997

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 Information Technology Act, 2000;

Information & Technology Industry

List of laws that are specifically applicable to Information & Technology industries:-

Media and Communication Industry

 The Right to Information Act, 2005;

 The Information Technology Act, 2000;
 The Telecom Regulatory Authority of India Act, 1997;
 Copyright Act, 1957;

Infra Industry

List of laws that are specifically applicable to Infra industries:-

 Building and other Construction Workers’ Welfare Cess Act, 1996;

 Contract Labour (Regulation and Abolition) Act, 1970 and the Rules thereunder;

Environment Laws

 Water (Prevention and Control of Pollution) Act, 1974

 Air (Prevention and Control of Pollution) Act, 1981;
 Environment (Protection) Act, 1986;
 The Public Liability Insurance Act, 1991;
 The National Green Tribunal Act, 2010;

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13 VARIOUS INITIAL REGISTRATIONS AND

Chapter
LICENSES
INTRODUCTION

A business entity is required to secure various registration and licenses in order to set up its
businesses in India.

Business Entity Registration

MANDATORY REGISTRATION

PAN

PAN is a Permanent Account Number and is a vital document for any taxpayer. 10-
character alphanumeric number

Utility of PAN:
 Helps identify the income tax payer.
 Serves as an identity proof

For whom it is mandatory to obtain PAN:

 Every person
 Charitable trust
 Person carrying business or profession whose turnover, exceed five lakh rupees in
any year
 All non-individual resident persons if the financial transaction during financial year
exceeds Rs. 2,50,000

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Significance of PAN for Setting up of Business

 It was made mandatory by the Government of India under the Income Tax Act,
1961.
 In the absence of the PAN Government will charge withholding tax at rate more
than 30% of total invoiced payment
 It serves as a reference number for Income Tax Department to track financial
transactions
 Even if not required to pay income tax it is mandatory for him to hold a PAN if
earning money

Application and Registration of PAN

 Application for PAN can be made both online and offline Indian citizens to submit
Form 49A Foreign citizens submit Form 49AA
 Online application made either through NSDL or UTITSL
 Charges for applying for Pan is Rs. 93 for Indian communication Rs. 864 for foreign

TAN

Tax Deduction Account Number or Tax Collection Account Number is a 10 -digit alpha-
numeric number

Persons liable to apply for TAN

Every person liable to deduct tax at source or collect tax at source

Procedure to Apply for TAN

There are two modes for applying for TAN:

 OFFLINE - in Form 49B and submitted to TIN-Facilitation Centre (TIN-FC) of

NSDL
 ONLINE from the website of NSDL TIN website.

Form 49B is freely downloadable from the website of Income-tax Department

Applicants may track the status of TAN application using 14-digit unique Acknowledgment
Number Fee for filing the TAN application + GST as applicable may change from time to
time.

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GST REGISTRATION

Mandates the Registration of every supplier of goods whose turnover exceeds INR 40 Lakhs
in a financial year.

For special category states such as north eastern states, Jammu and Kashmir, Himachal
Pradesh and Uttarakhand, the threshold limit is INR 10 lakhs threshold limit for service
providers is INR 20 Lakhs across India and in case of special category states is INR 10 lakhs

Persons not liable to register

 Persons not liable to tax;

 Persons engaged in business of supplying goods or services or wholly exempt from
tax;
 Agriculturist, to the extent of supply of produce from land cultivation;

Compulsory registration

 persons making any inter-State taxable supply;

 casual taxable persons;
 persons taxable under reverse charge;
 non-resident taxable persons;
 Suppliers who supply goods through electronic commerce operators;
 every electronic commerce operator

GSTIN

GST is based on Permanent Account Number and State specific.

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Procedure for Registration

1. Login to ([Link])

2. Applicant to submit form GST REG-01 on GSTN Portal

3. On completing OTP verification, a Temporary Reference Number (TRN) will be

generated

4. Form GST REG-03 will be issued, if additional information required Applicant shall
respond in Form GST REG-04 Within 7 working days

5. Registration certificate in Form GST REG-06 will be issued or else rejected in Form GST
REG-05

 Where person fails to undergo authentication Aadhaar number registration

shall be granted only after physical verification of principle place of business

 In case of deficiency concerned officer may issue a notice within a period of

three working days

 Where proper officer is satisfied with the clarification, may approve within
seven working days

If proper officer fails to take any action, -

(a) within a period of three working days from date of application; or

(b) within a period of seven working days from date of clarification, the registration
shall be deemed to have been approved.

Composition Scheme under GST

The composition levy is an alternative method of levy of tax designed for small taxpayers
whose turnover is up to Rs. 1.5 Crores. Under this scheme can pay tax at a prescribed
percentage of his turnover every quarter, instead of paying tax at normal rate.

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The objective of composition scheme is to bring simplicity and reduce compliance cost of
all tax payer.
Composition scheme is now made available to service providers whose annual turnover
does not exceed Rs 50 lakhs (32nd GST Council Meeting)

Persons not eligible for Composition Scheme

 supply of goods not liable to taxed

 inter-State outward supplies
 supplies through electronic commerce operators
 person registered as TDS Deductor/Tax Collector
 A casual dealer
 Non resident foreign taxpayer
 Person registered as Input Service Distributor (office of supplier of goods which
receives invoices for services used by branches)

The floor rate of tax for CGST and SGST are as

REGISTRATION UNDER THE ACT IN SPECIAL CASES:

NON-RESIDENT TAXABLE PERSONS

a. Person who occasionally undertakes supply of goods or services but who has no
fixed place of business or residence in India. someone who has a business
outside India, but comes to a different state for a business purpose temporarily.
b. For example, a person from Paris, comes to participate in an exhibition at
Mumbai he will be granted registration for a maximum period of 90 days.
c. Apply atleast 5 days before commencement of Business in Form GST REG 09.

d. In case of business incorporated outside India application shall be submitted

along:

1. Tax identification No, on basis of which identified by Government of that

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Country, or

2. its PAN, if available.

e. A person applying as NRTP shall be given Temporary Reference No. For making
advance deposit of tax and acknowledgement shall be issued electronically only
after the deposit in electronic cash ledger.

f. Application by NRTP shall be duly signed through electronic verification code by

Authorized signatory in India having valid PAN.

SUO MOTO REGISTRATION

Pursuant to any enquiry, inspection, proper officer finds a person liable to registration
has failed to apply for registration, may register on a temporary basis

CASUAL TAXABLE PERSON

a. Person who occasionally undertakes supply of goods or services in a State or a

Union territory where he has no fixed place of business. Thus, a casual taxable
person is someone who has a business in a different state, but comes to a
different state for a business purpose temporarily.
b. For example, a footwear dealer registered in Agra comes for an exhibition at
Mumbai he will be granted registration for a maximum period of 90 days.

PERSON LIABLE TO DEDUCT OR COLLECT TAX AT SOURCE

1. Any person required to deduct or collect tax at source shall electronically submit
an application in form GST REG 07.

2. If applicant is applying in State/ Union Territory where he does not have physical
presence, he shall mention name of state in Part A of form and mention name
of state in which principal place of business is located in Part B of form.

3. After due verification, proper officer may grant certificate in Form GST REG 06
within 3 working days of submission of Application.

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Important points:

1. In case there are several branches in a state, they can all operate under a single
registration.

(One place declared as principle place of business & remaining are Additional place of
business)

2. Any person having multiple place of business within a state requiring seperate
registration shall be granted seperate registration.

(Seperate Application in Form GST REG 01 to be submitted)

3. For Composition levy, all businesses under a single PAN are either registered under
composition levy or all of them under normal levy.

4. Furnishing of Bank Account Details- After certificate of registration has been made
available Goods and Services Tax has been assigned, furnish information with respect
to details of bank account. on the common portal

5. Display of registration certificate and GSTIN on the name board:

Every registered person shall display certificate of registration at his principal place of
business Every registered person shall display Goods and Services Tax Identification
Number on name board

REGISTRATION UNDER SHOPS & ESTABLISHMENTS ACT

Key Definitions:

“Shop” any premises where

(i) goods are sold, either by retail, wholesale

(ii) services rendered

“Commercial Establishment”: means

Premise where trade, business, is undertaken, may include society trust, contractors
educational institutes, banking, restaurants and eating houses, residential hotels, clubs,
theatres and other places of public amusement

However, factories are not covered by the shops & establishments Act and are regulated by
the Factories Act, 1948.

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Registration of Shops & Establishments

1- Submit application in the prescribed form within 30 days of starting any work in the
shop/establishment.
2- Upon receiving application and the fees, the Inspector shall verify the accuracy and
correctness

Registration certificate to be prominently displayed at the establishment.

ESI REGISTRATION

1. Employee State Insurance (ESI) is a social security scheme offered by the Government of
India as per the Employees’ State Insurance Act, 1948.
2. It is a self-financing scheme i.e contribution from both Employees and Employers for
protection of Employees against sickness, maternity, disablement and death due to
employment injury .
3. The ESI Scheme applies to factories and other establishment’s wherein 10 or more
persons are employed.

Applicability

 All non-seasonal factories employing 10 or more persons

 Shops, Hotel, Restaurants, Cinema Private Medical Institutions, Educational
Institutions employing 10 or more persons where State Government is appropriate
government.
 20 or more Persons where the Central Government is appropriate government.

Wage Limit for Registration

Employees drawing wages upto Rs.21,000/- per month, cover under the ESI Act. For
Disabled persons, Rs.25,000/- per month. Employee contribution: 0.75% of total salaries.
Employer Contribution: 3.25% of total wages.

ESI Registration Procedure for both Employer & Employee

ESI Registration Procedure for both Employer & Employers

Central Government has launched Unified Shram Suvidha Portal to facilitate reporting of

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Inspections, and submission of Returns. A common form for both ESIC and EPFO has been
introduced.
Registration of employers is fully online.

Registration of Employee

Employee has to register in ESIC Portal.

Once registered, registration can be transferred if the employee switches the organization
and takes up employment elsewhere

EMPLOYEE PROVIDENT FUND MEANING AND REGISTRATION PROCEDURE

To provide financial stability and security in the form of post-retirement benefits and
insurance to the employees when they are temporarily or no longer fit to work,

Compulsory Registration-

 Registration mandatory for an establishment

 Factory having 20 or more persons

Voluntary Registration

 Establishment with less than 20 employees

 Employer must obtain the registration within 1 month of touching mandatory
registration threshold
 Government of India launched “Shram Suvidha Portal ” to facilitate Establishments
to submit application for Registration/License
 Every employee is issued Universal Account number by EPFO towards the
contribution to EPF. UAN is a 12-digit number for lifetime irrespective of the
change in the organisation.

POLLUTION CONTROL

Entrepreneurs are required to obtain Statutory clearances relating to Pollution Control

and Environment for setting up an industrial project, from the Ministry of
Environment, Forest and Climate Change, industries like petrochemical complexes,
petroleum refineries, cement, thermal power plants, bulk drugs, fertilizers, dyes,

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paper etc.

State Pollution Control Board is the concerned authority to obtain a pollution license
permission is obtained in two stages:

(i) Consent to establish (CTE)

To be obtained before construction

(ii) Consent to operate (CTO)

To be obtained before starting production activity

The Central Pollution Control Board has specified list of industries as requiring a pollution
license
Industries which fall under white category are exempted from environment clearance

Procedure for obtaining NOC from Pollution Control Board:

 Application for (CTE) and (CTO) be made online onto concerned State’s
pollution control board’s website board need to reply within 4 months

 If an individual fails to obtain a CTE/CTO or Pollution license, they will be

subject to 6 months to 1 year of imprisonment,

The white Category industries if satisfies these conditions, they are eligible for pollution
license exemptions-

1. Industry established in locality demarcated for them

2. Investment in industry is not more than 1 crore in Plant & machinery.

3. There will be no discharge of trade effluent into stream or well or sewer or on to land and
will not discharge any air pollution.

4. They will not discharge any toxic/ hazardous waste and will not handle any hazardous
chemicals.

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COMPLIANCE UNDER ENVIRONMENT LAWS

1. Environment clearance
2. Forest clearance
3. Wildlife clearance
4. CTE
5. CTO
6. Hazardous substance management

OTHER REGISTRATION AS PER REQUIREMENT OF SECTOR/ ACTIVITIES

IMPORT EXPORT CODE

 (IE Code) is mandatory for exporting or importing goods. It is a 10-digit code issued
by Directorate General of Foreign Trade (DGFT
 IE code has lifetime validity. Importers are not allowed to proceed without this
code and exporters can’t take benefit of exports
 IE Code must be quoted by importers while clearing customs. For exporters, IE
Code must be quoted while sending shipments. And banks while receiving money
from abroad.

Application for IE Registration

 Apply on DGFT portal ([Link] User should have (PAN)

 Scanned Documents for Upload in the System
 Proof of Address
 Proof of Firm’s Bank Account
 Active DSC or Aadhaar

DRUG LICENSE

A Drug License is permission to start a pharmacy business. The Central Drugs Standard
Control Organization and State Drugs Standard Control Organization control the issue of
drug license Drug license is usually under purview of State Drugs Standard Control
Organization. two types of licenses
 Retail Drug License (RDL)
 Wholesale Drug License (WDL)

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Retail drug license only issued to persons who possess degree or diploma in pharmacy But
this condition is relaxed in case of Wholesale Drug license (WDL).

Prerequisites for obtaining Drug License

1. Area: The minimum area of 10 square meter In case, combines retail and wholesale, a
minimum of 15 square meter is required

2. Storage Facility: must have refrigerator & air conditioner drugs like vaccines, insulin
injections required to be stored in the refrigerator

3. Technical Staff:

(a) Wholesale – sale shall be made in presence of registered pharmacist or competent

person graduate with 1 year experience in dealing in drugs

(b) Retail – sale made in the presence of registered pharmacist throughout the working
hours.

Documents required for starting pharmacy business or obtaining drug license -

1. Application in prescribed format

2. Covering Letter with the intent of Application
3. Challan of fee deposited
4. Declaration Form
5. Key plan / Site plan (Blueprint) for the premises.
6. Basis of possession of premises.
7. Proof of ownership
8. Proof of constitution of business (COI, MOA, AoA, Partnership deed)
9. Appointment letter of Registered pharmacist (if employed)
10. Affidavit of non conviction of Proprietor / Partner/ Director under Drugs & Cosmetics
Act, 1940.

FSSAI (Food Safety and Standards Authority of India)

 FSSAI is an acronym for Food Safety and Standards Authority of India autonomous
body created regulate food- related issues in India.

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 The manufacturers, traders, restaurants who involved in food business must obtain
a 14-digit registration or a license number

FSSAI Registration

Registration is required for all petty food business operators. Petty food business operator
who:

(a) Sells food himself or a petty retailer, hawker, itinerant vendor or temporary stall
holder; or
(b) Distributes foods in religious or social gathering except a caterer; or
(c) Other food businesses with annual turnover not exceeding Rs. 12 lakhs and whose:

 Production capacity (other than milk and meat products) does not exceed 100
kg/ltr per day
 Procurement or handling of milk is up to 500 litres of milk per day
 Slaughtering capacity is 2 large animals or 10 small animals or 50 poultry birds
per day or less.

Petty food business operators are required to obtain a FSSAI registration

FSSAI License

(i) State FSSAI License-needed for small to medium sized Food Companies
which has an annual turnover of Rs. 12 Lakhs – Rs 20 Crores.
(ii) FSSAI Central License: mandated for all Food giants with annual turnover of
more than Rs. 20 Crores

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FSSAI license application made by applying online on FoSCoS portal.

FSSAI license is granted for 1 to 5 years as request by food business operator license can be
renewed no later than 30 days prior to the expiry date of the FSSAI license.

NON-BANK FINANCE COMPANY REGISTRATION

A Non-Banking Financial Company (NBFC) is a company registered under the Companies

Act,2013 engaged in the business of loans and advances, receiving deposits acquisition of
stocks or shares, leasing, hire-purchase, insurance business, chit business. NBFCs are doing
functions similar to Banks but they differ from Banks which are as follows:

Differences between banks and NBFCs:

a) NBFC cannot accept demand deposits,

b) NBFCs cannot issue cheques drawn on itself, and
c) NBFC depositors are not covered by the Deposit Insurance and Credit Guarantee
Corporation.

BANKING

Licensing of Banking Companies is governed by Banking Regulation Act, 1949. entity must
be a company registered under the Companies Act, 2013 or previous company or a foreign
company

Minimum paid-up voting equity capital for a bank shall be 500 Crore Rupees for universal
banks and 200 Crore Rupees for small finance banks.

No banking company is allowed to carry on its business unless it satisfies the following
conditions:

1. Subscribed capital not less than one-half of its authorized capital;

2. Paid-up capital not less than one-half of the subscribed capital;

3. Capital of the company consists of ordinary shares, equity shares and preference
shares:

4. No person shall have voting rights of above 10%

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5. Every company before commencing banking business shall apply in writing to the
Reserve Bank for a License

6. Before granting any license Reserve Bank may require to be satisfied that following
conditions are fulfilled,

(a) Company’s position to pay its present or future depositors in full

(b) affairs of the company not being conducted in manner detrimental interests of
its present or future depositors;
(c) proposed management will not be prejudicial to the public interest of its present
or future depositors;
(d) company has adequate capital structure
(e) any other condition

IRDA (INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY)

(1) The classes of business of insurance

(i) Life insurance business;

(ii) General insurance business;
(iii) Health insurance business exclusively;
(iv) Reinsurance business.

(2) Applicant means a public company or a statutory body established by Act of

Parliament
(3) Applicant shall make a requisition for Life or General or Health or Reinsurance
Business.
(4) Capital Requirement

(a) Minimum equity capital to set up General or Health Insurance Company INR 100
crore.
(b) In case of Reinsurance company, minimum of INR 200 crore.

Who cannot apply

a. Where application has been rejected by Authority

b. Where foreign investors have exit during preceding 2 financial years.

c. Application has been rejected during preceding 2 financial years.

d. Where Certificate of Registration cancelled by the Authority.

e. Name of the applicant does not contain the words ‘insurance’ or ‘assurance’.

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Procedure for Registration of Insurance Company

Grant of certificate of registration

 Authority grant the applicant certificate in Form IRDAI/R3.

 Commencement of Insurance Business: applicant granted the
Certificate of Registration shall commence insurance business within
12 months of grant of Certificate of Registration.
 No extension of time shall be granted by the Authority beyond 24 months
from the date of grant of Certificate of Registration.

INDUSTRY LICENSING POLICY

No person or authority shall establish any new industrial undertaking, except with a license
issued Section 11A of the Act makes it mandatory to obtain license for producing or
manufacturing new articles.
Since the liberalization most industries have been exempted from obtaining industrial
license to start manufacturing in India.

Industrial license is made compulsory only for the following:

 Alcoholics drinks
 Cigarettes and tobacco products

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 Electronic aerospace and defense equipment

 Explosives
 Hazardous chemicals

Locational restrictions
Industrial undertakings to be located within 25 kms of urban area and limit of 23 cities
having a population of 1 million.

To create a business and Investor friendly environment, DPIIT developed G2B Portal to file
Industrial Entrepreneurs Memorandum (IEM) as well as Industrial License

IEM (Industrial Entrepreneur Memorandum)

a. All industrial undertakings exempted from the requirements of industrial licensing,

and
b. Investment in plant and machinery of Rs 50 Crore, and
c. Turnover of Rs. 250 crore and above,
d. Including Existing Units, New undertaking (NU)

may file an IEM online.

On-line applications filed through the portal scrutinized for verification verified and found
correct; Department electronically issues IEM Ack. to the applicant.

Acknowledgement is prima facie evidence of not attracting provisions of licensing.

TELECOM LICENSE

Business entities which provide internet services or engaged in commercial

communications i.e., call center, BPO, Tele-education, Tele-banking, tele networking, e-
commerce and other IT enabled services who are catogerised as ‘Other Service
Providers’(OSP) must obtain a telecom license from Department of Telecommunication
(DoT) under Government of India, Ministry of Communications and Information
Technology,

OSP categorized into two types:

1. Domestic OSP providing services to clients within India

2. International OSP providing services to clients outside India

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PROCESS

Company registered under Companies Act, 2013 or previous law or LLP or Partnership Firm
eligible to obtain OSP license. OSP license is valid for a period of 20 years and can be
extended for further period of ten years.

DOCUMENTS REQUIRED TO OBTAIN OSP LICENCE

1) COI
2) MOA & AOA
3) Copy of LLP agreement
4) Board Resolution or Power of Attorney authorizing the Authorised signatory
5) Resolution passed by all Designated Partners as per LLP Act,2008.
6) A note on "nature of business" of proposed OSP
7) List off present directors of company or present DP of LLP.
8) Present shareholding pattern of company or LLP.

All documents must be certified with seal by CS or 1 Director or statutory Auditor (in case
of Company)

Certified with seal by DP or statutory auditor (in case of LLP)

STATE LEVEL APPROVAL FROM THE RESPECTIVE STATE INDUSTRIAL DEPARTMENT

Apart from the registration and licences listed above, one has to seek state level approval
(s) from the respective State Industries Department.

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PART B

LABOUR LAWS

40 MARKS

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14 CONSTITUTION AND LABOUR LAWS

Chapter

INTRODUCTION

The Constitution of a country is the fundamental law of the land. It is under this
fundamental law that all other laws are made and executed. Every organ of the state, be it
the executive or the legislative or the judiciary, derives its authority from the Constitution
and there is no authority, no department or branch of the State, which is above the
Constitution or has been vested with unfettered and unrestricted powers by the
Constitution.

The trinity of Indian Constitution, the Preamble, the Fundamental Rights and Directive
Principles of the State Policy embody the fundamental principles which provide guide to all
legislations including the labour legislations

CONSTITUTIONAL BEARING ON INDUSTRIAL LAWS AND INDUSTRIAL RELATIONS

Further, goals and values to be secured by labour legislation and workmen have been made
clear in Part IV, Directive Principles of the State Policy of the Constitution.

Constitution and Labour

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SOCIAL JUSTICE AND INDUSTRIAL LAWS

The Preamble of the Constitution highlights the concept of socio-economic justice, Article
38 of the Constitution provides the concept of social justice to promote the welfare of the
people

Social justice does not mean that all wealth should be shared equally provision of basic
minimum to all in response to life. “The State has constitutional responsibilities and the
citizens have moral responsibility to create an ideal society to live in”.

Industrial laws are socio-economic justice oriented

The laws particularly the industrial laws of the country revolve on this basic philosophy of
the Constitution.

The concept of social justice aims at assisting the removal of social economic disparities and
finding a just, fair and equitable solution to their human relation problem, peace, harmony
prevails among them which may further the growth of nations.

Constitutional Limitations

The fundamental rights are envisaged with the overall object of protecting individual liberty
and democratic principles based on equality of all members of society. Therefore, the State
cannot make laws inconsistent with the fundamental rights. Any law that contravenes
fundamental rights will be void to the extent of inconsistency.

CONSTITUTIONAL REMEDIES

Article 32 and 226 of the Constitution confers writ jurisdiction on Supreme Court and High
Courts respectively for enforcement and protection of fundamental rights of an individual.

The Supreme Court is with discretionary jurisdiction to entertain appeal under Article 136
from decree, sentence, or order passed by any court or tribunal in India. Person aggrieved
by an award of the High Court can appeal to the Supreme Court under Article 132.

Can a Trade Union move the High Court under Article 226 to redress the fundamental
rights of its members?

Jaipur Division Irrigation Employees Union v. State of Rajasthan large number of the
employees were declared surplus. Union challenged it in this writ petition. Single Bench
held that petition not maintainable holding that the fundamental rights of the individual are
not the rights of the union.

S.P. Gupta and Ors. v. President of India and Ors. the question of locus standi was
discussed and legal injury is caused to a person or class of persons by right and such person

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is by reason of poverty, helplessness or socially or economically disadvantageous position,

unable to approach the Court for relief, any member any member of the public can
maintain an application for an appropriate direction, order or writ in the High Court or in
the Supreme Court seeking judicial redress for the legal wrong.

FUNDAMENTAL RIGHTS AND INDUSTRIAL RELATIONS

Articles 12 to 35 of the Constitution pertain to Fundamental Rights of the people. The

Indian Constitution guarantees essential human rights in the form of Fundamental Rights
under Part III and also Directive Principles of State Policy in Part IV. The need for protecting
and safeguarding the interest of labour as human beings has been enshrined in Article 14,
16, 19, 21, 23 and 24.

Article 14: Equality before law

“The State shall not deny to any person equality before the law or the equal protection of
the laws within the territory of India.”

Article 14 bars discrimination and prohibits discriminatory laws. Also ‘equal protection of
the laws’.

Air India v. Nargesh Meerza Indian Airlines regulations was in question that an air Hostess
will retire from service upon age of 35 years or marriage within 4 years Service or on first
pregnancy, but managing director had the discretion extend age of retirement. It was held
that retirement on ground of pregnancy was unreasonable and it was in violation of Article
14.

Article 16: Equality of opportunity in matters of public employment

1. equality of opportunity relating to employment to any office under the State

2. No citizen on grounds only of religion, race, caste, sex, descent, place of birth,
residence discriminated against any employment or office under State.

3. Nothing in this article shall prevent Parliament from making law prescribing,
appointment to an office any requirement as to residence within that State prior to
such appointment.

4. Nothing shall prevent State from making provision for reservation of appointments
favor of backward class adequately represented in the services.

5. Nothing shall affect law which provides incumbent of an office in religious institution
hall be a person professing a particular religion.

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Mewa Ram Kanojia vs. All India Institute of Medical Sciences and Ors. “The doctrine of
‘Equal Pay for Equal Work’ is not an abstract one, it is open to the State to prescribe
different scales of pay for different posts ‘Equal Pay for Equal Work’ is applicable when
employees holding same rank perform similar functions are treated differently.

Article 19(1)(c) of the Constitution: Right to form Association & Union

State may by law impose reasonable restrictions on this right in the interest of public order
or morality and integrity of India. It thus includes Right to form companies, societies,
partnership, trade union and political parties. The freedom to form implies freedom to join
or not to join, an association

All India Bank Employees vs. National Industrial Tribunal the court held: Lack of bargaining
power in workmen as compared with employers is the reason for the existence of labour
organizations and there is consequently a fundamental right to form unions. Government is
empowered in event of industrial dispute which lead to a strike or lock-out to refer the
dispute to an impartial Tribunal for adjudication with a provision banning illegal strikes. The
provision of an alternative to a strike in the shape of industrial adjudication is a restriction
on the fundamental right to strike would be reasonable and valid if it were an effective
substitute.”

Damyanti Naranga v. The Union of India right to form association implies right to
voluntarily admit in the association. right can be effective only if include right to continue
association with its composition voluntarily agreed by persons forming association.

Article 21 of the Constitution: Right to Life

“No person shall be deprived of his life or personal liberty except according to a procedure
established by law.”
The term ‘personal liberty’ given covering variety of rights Its deprivation shall only be as
per in law.

Right to life includes aspects which make man’s life meaningful and worth living.

Regarded as the heart of Fundamental Rights —

1. Directive Principles become enforceable.

a)Right to livelihood
b) Right to live with human dignity
c) Right to medical care
d) Health of labour
e)Sexual harassment
f) Right to health

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● Olga Tellis & Ors v. Bombay Municipal Corporation the main argument is that if
they are evicted from slum dwellings, their eviction is deprivation of their life and is
unconstitutional. Question is whether the right to life includes the right to
livelihood. It does not mean merely imposition of the death sentence, but equally
important facet is night to livelihood because, no person can live without the
means of living.

● Right to work is the most precious liberty enables a man to live and the right to life is
a precious freedom.

● D.K. Yadav v. J.M.A. Industries Ltd the court held: “Article 21 clubs life with liberty,
dignity of person with means of livelihood without which dignity of person would
be reduced to animal existence. Therefore, before putting an end to the tenure of
employee that a reasonable opportunity to put forth his case is given complying
with principles of natural justice.

● Paschim Banga Khet Mazdoor Samity v. State of West Bengal mazdoor fell from a
running train and seriously injured. sent from one government hospital to another
finally admitted in a private hospital where incur expenditure of Rs. 17,000/- Court
ruled that: “the Constitution envisages establishment of a welfare state, and
primary duty of government to provide medical facilities. Art. 21 imposes an
obligation on State to safeguard right to life of every person.

● Vishakha & Ors. v. State of Rajasthan (1997) hereby a woman was assaulted
harassed at her workplace, Supreme Court observed: incident results in violation of
‘Right of Life and Liberty’. (Chapter 20)

Article 23 and Article 24: Right Against Explotion

● Traffic in human beings, begar, and other similar forms of forced labour are prohibited
and contravention of this provision shall be offence punishable in law.
● Term ‘begar’ means compulsory work without payment.
● Withholding pay of government employee as punishment held to invalid
● Expression ‘traffic in human beings, implies buying and selling of human beings and
such practice is abolished.
● The words ‘other similar forms of forced labour’ are to be interpreted ejusdem
generis.

Sanjit Roy v. State of Rajasthan, it was held that when person provides labour to another
for remuneration which is less than prescribed the labour so provided falls within ambit of
the words ‘forced labour’ such a person entitled to approach under writ jurisdiction for
enforcement of fundamental rights which include payment of minimum wages.

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Article 24 “no child below the age of fourteen years shall be employed in factory or mine or
hazardous employment”. This emphasizes the need to protect the health of workers, and
protect children against exploitation.

M.C. Mehta v. State of T.N.: employers of children below 14 years must comply with the
provisions of the Child Labour (Prohibition and Regulation) Act providing compensation,
employment of their parents / guardians

LABOUR LAWS AND REFERENCE TO DIRECTIVE PRINCIPLES OF STATE POLICY

These principles obligate state to take positive action in certain directions to promote the
welfare of the people and achieve economic democracy. These principles give directions to
legislatures and executive as regards manner in which they should exercise their power.

Courts however do not enforce directive principle in Part IV unlike rights enshrined in Part
III. Constitution declares that the Directive Principles, not enforceable by any Court, are
‘fundamental’ the ‘state’ under obligation to apply them in making laws. Articles 38, 39, 41,
42 and 43 have a special relevance in the field of industrial legislation they are the
substratum or rather ‘magna carta’ of industrial jurisprudence.

Social Order Based on Socio-Economic Justice

Article 38(1) directs state “to promote the welfare of the people by securing and protecting
as a social order in which justice, social, economic and political, shall inform all the
institutions of the national life.”

Article 38(2) directs state “to minimise the inequalities in income, Supreme Court has
concluded in Consumer Education & Research Centre v. Union of India that “right to
health, medical aid to protect the health and vigour of a worker while in service is a
Fundamental Right

Equal Pay For Equal Work

a) all citizens, irrespective of sex, equally have the right to an adequate means of
livelihood
b) ownership and control of the material resources subserve the common good;
c) economic system does not result in concentration of wealth
d) equal work for both men and women;
e) health and strength of workers, not abused
f) children given opportunities and facilities to develop in a healthy manner.

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● Randhir Singh v. Union of lndia Supreme Court held that doctrine of equal pay for
equal work is equally applicable to persons employed on a daily wage basis. However,
cannot be put in a strait jacket. Accordingly, it has been held that different scales of
pay in the same cadre of persons can be fixed if there is difference in the nature of
work done and as regards reliability and responsibility.

● Dhirendra Chamoli and Anr. v. State of U.P. Court stated: employees accepted
employment with full knowledge that they will not get same salary as other Class IV
employees. The employees who are in the service must get same salary as Class IV
employees. It makes no difference whether appointed in sanctioned posts or not. So
long as they are performing the same duties, they must receive the same salary

● Bandhua Mukti Morcha and Ors. vs. Union of India “Court has considered the
abolition of the child labour and the child below 14 years of age in industries. to
evolve such steps scheme laid down in M.C. Mehta’s case, to provide

(1) compulsory education to all children by the State Government to the children
employed in the factories, mine other industry,
(2) apart from education, periodical health check-up;
(3) nutrient food
(4) entrust the responsibilities for implementation of the principles.

SOCIAL SECURITY PROVISIONS

Article 41 requires the state, within the limits of its economic capacity and development, to
make effective provision for securing the right age, sickness and disablement.

Employees’ State Insurance Act, 1948 Employees’ Provident Funds and Miscellaneous
Provisions Act, 1952 Maternity Benefit Act, 1961 are also social security measures .

WORKING CONDITIONS

Article 42 requires the state for securing just and humane conditions of work and for
maternity relief.

LIVING WAGE

Article 43 requires the state to endeavor to secure, by suitable to all workers, agricultural,
industrial or otherwise, a living wage, conditions of work ensuring a decent standard of life
and social and cultural opportunities.

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‘Living wage’ enables male earner to provide for himself and his family not merely the bare
essentials of food, clothing and shelter, but includes education for children, protection
against ill-health, social needs, insurance. minimum wage’, is just sufficient to cover the
bare physical needs of worker and his family.

WORKERS PARTICIPATION IN MANAGEMENT

Article 43-A introduced by the 42nd Amendment in 1976, direct bearing on labour laws, in
State shall secure the participation of workers in the management of industrial
establishments.

CASE LAWS

Janapareddy Surya Narayana and Ors. vs. The Muncipal Administration and Urban
Development and Ors.

"When part time workers are regularized, they are entitled get minimum time scale of pay
for post for Limited office hours, whereas, petitioners discharging duties for eight hours
they are entitled to get equal pay otherwise, it amounts to discrimination, which is
prohibited under Article 14 . Therefore, court issue a direction to the respondents to
extend minimum time scale of pay.

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15 EVALUATION OF LABOUR LEGISLATION

Chapter AND NEED OF LABOUR CODE

INTRODUCTION

The law relating to labour and employment is primarily known “Industrial Law”. Reforms in
labour laws are an ongoing process to update legislative system with emerging economic
and industrial scenario. The Government has taken steps for implifying, amalgamating and
rationalizing the relevant provisions of the existing Central Labour Laws.

HISTORY OF LABOUR LAWS

International Labour Organisation (ILO) is one of the first organisations to deal with labour
issues. India is the founder member of ILO) and actively contributing to evolution of global
policy on labour welfare.

Even after 75 years of Independence, approximately 90% of workers work in the

unorganized sector that do not have access to all the social securities. The Central
Government has taken historical step of codifying 29 laws into 4 Codes, so that workers can
get security along with respect, health and other welfare measures with ease.

NEED TO BRING IN NEW LEGISLATIONS

Labour is covered under the Concurrent List of the Constitution. Therefore, rules governing
labour can be passed by both the Parliament and state legislatures.

The Second National Commission of Labour had submitted its report in 2002 that there was
multiplicity of Labour Laws therefore, multiple Labour Laws should be codified in 4 or 5
Labour Codes namely

(a) Industrial relations;

(b) Wages;
(c) Social security;
(d) Safety; and
(e) Welfare and working conditions.

During 2015 to 2019, the Ministry organized 9 tripartite discussions in which all the
Central Trade Unions, Employers’ Associations and representatives of State Governments
were invited to give opinions on Labour reforms.

In order to codify 29 central legislations, Ministry of Labour and Employment submitted

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four labour code bills in 2019. They broadly categorized labour codes into 4 different
category-
1. Code on Wages
2. Industrial Relations Code
3. Social Security Code
4. Occupational Safety, Health and Working Conditions Code

PURPOSE OF LABOUR LEGISLATION

Labour legislation modern world fulfils three crucial roles:

● Establishes legal system that facilitates productive economy;
● providing a framework within which employers, workers can interact work-related
issues,
● provides and guarantee fundamental principles and rights at work

CLASSIFICATION OF LABOUR LAWS IN INDIA

I. Laws related to Industrial Relations such as:
1. Trade Unions Act, 1926
2. Industrial Disputes Act, 1947

II. Laws related to Wages such as:

3. Payment of Wages Act, 1936
4. Minimum Wages Act, 1948
5. Payment of Bonus Act, 1965

III. Laws related to Working Hours, Conditions of Service and Employment such as:
6. Factories Act, 1948
7. Contract Labour (Regulation & Abolition) Act, 1970
8. Cine-Workers and Cinema Theatre Workers (Regulation of Employment) Act, 1981
9. Plantation Labour Act, 1951

IV. Laws related to Equality and Empowerment of Women such as:

10. Maternity Benefit Act, 1961
11. Equal Remuneration Act, 1976

V. Laws related to Deprived and Disadvantaged Sections of the Society such as:
12. Bonded Labour System (Abolition) Act, 1976
13. Child and Adolescent Labour (Prohibition & Regulation) Act, 1986

VI. Laws related to Social Security such as:

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14. Employees’ Compensation Act, 1923

15. Employees’ State Insurance Act, 1948
16. Employees’ Provident Fund & Miscellaneous Provisions Act, 1952.
17. Payment of Gratuity Act, 1972

OBJECTIVE OF NEW LABOUR CODES

The four Codes on wages, industrial relations, social security, and occupational safety were
introduced in Parliament as a result of National Commission on Labour’s recommendations.
Facilitating employment development while preserving employees’ rights is the main
problem of labour reforms.

FEATURES OF NEW LABOUR CODES

1. Most labour rules are applicable could ease the burden of compliance for
businesses.
2. One Registration one License, single return for all the Codes.
3. Government approval is required for establishments that employ 100 or more
employees to close, lay off, or retrench.
4. The Codes delegate rule-making authority over a number of significant issues,
5. The law forbids discrimination based on gender when it comes to hiring new
employees for similar or identical jobs and determining pay.
6. The advisory boards will be made up of the federal and state governments.
Employers, employees independent individuals, and government representatives and
Women will make up one-third of both the central and state boards’ overall
membership.
7. The Code outlines punishments for offences by employer maximum punishment is
three months in prison and a fine of one lakh rupees.

REFORMS PROPOSED BY NEW LABOUR CODES

Code on Social Security, 2020

● Benefit of pension scheme (EPFO)

● Through a small contribution, benefit of free treatment available under hospitals f
ESIC.
● Even if a single worker is engaged in hazardous work, he would be given ESIC benefit.

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● Institutions working in hazardous area to be compulsorily registered with ESIC.

● Provisions for maternity benefits crèche facility etc.
● In case of fixed term employees: Requirement of Minimum service removed for
payment of gratuity.

Occupational Safety, Health and Working Conditions Code, 2020

The salient features of the Occupational Safety, Health and Working Conditions Code,
2020 are as under:—

● To impart flexibility in adapting technological changes in matters relating to health,

safety, welfare and working conditions of workers.
● To apply the provisions of the Code for all establishments having ten or more
workers.
● Mandatory, free annual health check-up of the workers to be provided by the
employers.
● Under the “One Nation - One Ration Card” Inter-State Migrant Worker would get
ration facility in the State he is working and remaining members of his family would
be able to avail of the ration facility in the State where they reside.
● Emphasis on women empowerment through the Labour Codes.
● Women have been given the right to work at night with their consent and employer.
● To make provision of “common license” for factory, contract labour and beedi and
cigar establishments and to introduce contract labour.

Code on Wages, 2019

The salient features of the Code on Wages, 2019 are as follows:—

● To provide elements relating to wages, equal remuneration, its payment and bonus.
● Review of minimum wages in every 5 years.
● Guarantee of timely payment of wages to all workers.
● Equal remuneration to male and female workers.
● It provides that the wages to employees may also be paid by cheque or through
digital or electronic mode or by crediting it in the bank account of the employee.
● It enables the appropriate Government to establish appellate authority speedy,
cheaper redressal of grievances and settlement of claims.
● It provides for compounding of those offences which are not punishable with
imprisonment.
● The period of limitation for filing of claims by a worker has been enhanced to three

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years.
Industrial Relations Code, 2020

The salient features of the Industrial Relations Code, 2020 are as follows:–

● In case of job loss, a worker will get benefit under the Atal Bimit Vyakti Kalyan Yojna.
● Faster justice to the workers through the Tribunal.
● Workers disputes to be resolved within a year in the Tribunal.
● To set up Industrial Tribunals in the place of existing multiple adjudicating bodies
● To prohibit strikes and lock-outs in all industrial establishments without giving notice
of fourteen days.
● To empower the appropriate Government to exempt any industrial establishment
from any of the provisions of the Code in the public interest for the specified period.

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16 LAW OF WELFARE & WORKING CONDITION

Chapter UNIT 1 – Factories Act, 1948

REGULATORY FRAMEWORK

● Factories Act, 1948

Factories Act, 1948 is an Act to consolidate and amend the law regulating labour in factories.

Main objective to ensure adequate safety measures but also to promote health and
welfare of the workers employed in factories. This Act lay guidelines on working conditions
including leaves, working hours, holidays, etc.

History of the Legislation

The industrial unrest and economic discontent led to a number of strikes and labour
troubles. In Pre- Independence era, the workers were generally illiterate, poor and
unconscious of their rights. In the post-independence period, the national government paid
attention to the improvement in conditions of labour health in industry.

Factory Act is a central legislation which came into existence in 1881. It was extensively
amended in the year 1948.

The Factories Act, 1948 has been amended from time to time, especially after the Bhopal
gas disaster; the amendment demanded a shift away from dealing with disaster to
prevention of its occurrence.

Object of the Act

Enacted with the objective to provide adequate compensation to the affected persons. The
Act extends to the whole of India and persons employed in factories, mines, plantation,
construction, and in some hazardous occupations. The main object is to ensure adequate
safety measures and to promote the health and welfare of the workers employed in
factories.

Ravi Shankar Sharma v. State of Rajasthan, Court held that Factories Act is a social
legislation. In short, Act provides protection to workers from being exploited and also
provides improvement of working conditions.

Bhikusa Yamasa Kshatriya (P.) Ltd. v. UOI, court observed Act enacted primarily with
object of protecting workers. For that it impose upon owner certain obligations to protect

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the workers

J.K. Industries Limited, etc. v. The Chief Inspector of Factories, “The provisions of the 1934
Act regarding safety, health and welfare were found inadequate. In view of growing
industrial activity an overhauling of factories law became necessary.”

Applicability of the Act

● Extends to the whole of India w.e.f. the 1st day of April, 1949.
● applies to factories using power and employing 10 or more workers, and if not using
power, employing 20 or more workers on any day of the preceding 12 months does
not include mine, hotels, armed forces, railway.

Scheme of the Act

Definitions

Term Section Definition

“Adult” Section 2(a) person completed eighteenth year of age;
“Adolescent” Section 2(b) person completed fifteenth year of age but not
completed eighteenth year;
“Calendar Year” Section 2(bb) period of twelve months beginning with the first day
of January
“Child” Section 2(c) person not completed fifteenth year of age;
“Competent Section 2(ca) person or an institution recognized by Chief Inspector
Person” for purposes of carrying out examinations to be done
in a factory
“Hazardous Section 2(cb) process in relation to industry specified in First
Process” Schedule special care is taken, raw materials used or
wastes, or effluents thereof would-

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(i) cause impairment to health of persons engaged

(ii) result in pollution of environment.
“Young Person” Section 2(d) person either a child or an adolescent;
“Day” Section 2(e) a period of twenty-four hours beginning at midnight;
“Week” Section 2(f) period of seven days beginning at midnight on
Saturday night
“Power” Section 2(g) electrical energy, or other form of energy mechanically
transmitted
and not generated by human
“Prime mover” Section 2(h) engine, motor which generates or provides power;
“Transmission Section 2(i) any wheel drum, pulley, clutch, driving belt by which
Machinery” motion of a prime mover is transmitted to or received
by machinery
“Machinery” Section 2(j) includes prime movers, and all other appliances
whereby power is generated, transmitted

“Manufacturing Process” {Section 2(k)} means any process for —

(i) making, altering, repairing, packing, washing, cleaning, any article to use, sale,
transport
(ii) pumping oil, water, sewage or any other substance; or
(iii) generating, transforming or transmitting power; or
(iv) types for printing, by letter , lithography or other similar process
(v) constructing, reconstructing, repairing, ships or vessels; or
(vi) preserving article in cold storage;
An important necessity for any premises to be regarded as a ‘factory’ is, that a
“manufacturing process” should be conducted within the premises.

“Worker” {Section 2(I)}

person employed, directly or through agency whether for remuneration or not], in

manufacturing process, or premises used for a manufacturing process, but does not include
any member of the armed forces of the Union;

“Factory” {Section 2(m)} means any premises including the precincts thereof-

(i) ten or more workers working, on any day of preceding twelve months, in which
manufacturing process carried with the aid of power

(ii) twenty or more workers working, on any day of the preceding twelve months in
which a manufacturing process carried without the aid of power, definition excludes

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mine or mobile unit to armed forces of the Union, a railway running shed or hotel,
restaurant or eating place.

Explanation I: For computing number of workers all workers in a day shall be taken into
account;

Explanation II: Electronic Data Processing Unit is installed shall not be construed to make it
a factory if no manufacturing process carried on

“Occupier” {Section 2(n)} means the person who has ultimate control over the affairs of
the factory; Provided that —
(i) in case of a firm individual partners shall be deemed to occupier;
(ii) case of a company, any one of directors deemed to be occupier;
(iii) in case of a factory owned by Central or State Government, or local authority,
persons appointed to manage affairs shall be deemed to occupier.

In case of a ship —
1. owner of the dock deemed to be occupier.
2. owner of the ship agent or master or other office-in-charge of the ship shall be
deemed to be the occupier.

Exemption of occupier or manager from liability in certain cases

Section 101
(a) used due diligence
(b) offence in question was committed without his knowledge
In such a case occupier or manager of the factory is discharged from liability.

Group/Relay/Shift {Section 2(r)}

work of the same kind carried out by two or more sets of workers during different periods
of day, each sets is called “group” “relay” and each of such periods is called a “shift”.

Statutory Agencies and their powers for enforcement of the Act

(I) Reference to time of day (Section 3): empowers State Government to specify
area, define the local mean time and permit time to be observed in all or any of the
factories situated in the area.

(II) Power to declare different departments to be separate factories or two or more

factories to be a single factory (Section 4): State Government may on its own or on an
application direct, by order in writing that different departments of factory shall be
treated as separate factories or two or more factories shall be treated as single

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factory.

(III) Power to exempt during public emergency (Section 5): case of public emergency
State Government by notification in Official Gazette, exempt factory from all
provisions of this Act except section 67 for such period as it may think

(IV) Sec 67 : Child below 14 year of age not allowed to work.

“public emergency” means whereby security of India is threatened by war or external

or internal disturbance.

(V) Power of the State Government to make rules with reference to approval,
licensing and registration of factories:

State Government to make rules-

(a) requiring submission of plans to Chief Inspector or the State Government;
(b) requiring previous permission of State Government or Chief Inspector for construction
or extension of factory.
(c) for submission of plans and specifications;
(d) prescribing nature of such plans and specifications and by whom they shall be
certified;

Deemed Approval: If on application for permission no order communicated within three

months permission applied for shall be deemed to granted.

Appeal to the Central Government : Where State Government or Chief Inspector refuses to
grant permission to construction or registration and licensing of a factory, applicant within
thirty days refusal appeal to the Central Government.

(I) Inspectors

Appointment: Section 8 empowers State Government to appoint Inspectors,

Additional Inspectors and Chief Inspectors, To assist him, government may appoint
Additional, Joint or Deputy Chief Inspectors.

A Chief Inspector is appointed for the whole State. He shall exercise the powers of an

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inspector throughout the State.

Powers of Inspectors (Section 9)

(a) enter, any place which is used, as a factory;
(b) make examination of premises, plant, machinery,
(c) inquire accident or dangerous occurrence, resulting in bodily injury, disability
or not,
(d) require production register or any other document
(e) seize, or take copies of register, record or other document
(f) direct occupier that any premises shall be left undisturbed for so long as is
necessary
(g) take measurements and photographs necessary for examination
(h) in case of any article or substance found in any premises direct it to be
dismantled and take possession of such article and detain it for so long as is
necessary
(i) exercise such other powers as may be prescribed

(II) Certifying surgeons (section 10), State Government may appoint qualified medical
practitioners to be certifying surgeons . No person shall be appointed to be certifying
surgeon, occupier of a factory or is directly or indirectly interested

The certifying surgeon shall carry out

(a) examination of young persons

(b) examination of persons engaged in dangerous occupations

(c) exercising medical supervision where —

(i) cases of illness have occurred

(ii) by reason of any change in the manufacturing process there is a

likelihood of injury to the health of workers
(iii) young persons employed which is likely to cause injury to their health.

(III) Welfare Officer (Section 49) statutory obligation upon occupier of factory of the
appointment of Welfare Officer/s wherein 500 or more workers are ordinarily

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employed.

(IV) Safety Officer (Section 40-B) State Government directing occupier to employ Safety
Officers where more than 1,000 workers are employed or where manufacturing
process involves risk
Duties of Occupier / Manufacturer

(I) Notice by occupier (Section 7) written notice sent by occupier at least fifteen days
before begins to occupy factory, to the Chief Inspector. notice shall contain
(a) name and situation of factory;
(b) name and address of occupier;
(c) address to which communications may be sent;
(d) nature of the manufacturing process-
(e) name of the manager
(f) number of workers

Notice of appointment of new manager: to Chief inspector within seven days.

Manager, Deemed Occupier: any period for which no person designated manager
occupier himself, shall be deemed to be manager.

(II) General duties of the occupier (Section 7A)

(a) maintenance of plant and systems in the factory
(b) arrangements in the factory for ensuring safety
(c) provision of training and supervision to ensure health and safety of all workers
(d) maintenance of all places of work that is safe and without risks to health

(III) General duties of manufacturers, etc., as regards articles and substances for use in
factories (Section 7B) obligation on every person who designs, manufactures, any
article for use in any factory that he shall –
(a) article safe and without risks to the health of the workers
(b) carrying out tests and examination

where article manufactured outside India, obligatory on that article conforms same
standards manufactured in India

Measures to be taken by factories for health, safety and welfare of workers

HEALTH MEASURES
(Chapter III of the Act deals with the following aspects)

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Spittoons (Section 20)

Sufficient number of spittoons in convenient places shall be maintained in a clean and

hygienic condition. provision prominently displayed at suitable places that no person shall
spit within the premises of a factory except in Spittoons

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SAFETY MEASURES

Chapter IV of the Act contains provisions relating to safety.

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Provisions relating to Hazardous Processes

The Factories (Amendment) Act, 1987, has inserted this new chapter in the Act after
Chapter IV.

Constitution of Site Appraisal Committees (Section 41A)

State Government for factory involving a hazardous process appoint a Site Appraisal
Committee. Committee shall examine application for the establishment of a factory
involving hazardous process

Compulsory disclosure of Information by the Occupier (Section 41B)

Every occupier of a factory shall inform the Chief Inspector of the nature and details of the
process in such form and in such manner as may be prescribed if

(a) factory is engaged in a hazardous process within thirty days

(b) factory purposes to engage in a hazardous process within thirty days before
commencement of such process.

Specific responsibility of the occupier in relation to hazardous processes (Section 41C)

Every occupier shall maintain up-to-date health records of the workers exposed to any
chemical or other harmful substances. occupier shall appoint persons who possess
experience in handling hazardous substances

Power of Central Government to appoint Inquiry Committee (Section 41D)

Central Government in the event of extraordinary situation appoint an Inquiry Committee

to inquire standards of health and safety to finding out causes of any failure in adoption of
measures for health and safety of the workers

Emergency Standards (Section 41E)

Central Government is satisfied that no standards of safety have been prescribed it may

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direct Director-General of Factory Advice Service and Labour Institutes to lay down
emergency standards in respect of such hazardous processes.

Permissible limits of exposure of chemical and toxic substances (Section 41F)

maximum permissible threshold limits of exposure of chemical shall be indicated in the

Second Schedule.

Workers’ participation in safety management (Section 41G)

constitution of Safety Committee consisting of equal number of representatives of workers

and management. The functions of the Safety Committee are to promote co-operation
between the workers and the management in maintaining proper safety and health at work

Right of workers to warn about imminent danger (Section 41H)

Where workers employed have likelihood of imminent danger to their lives due to any
accident, they may, bring same notice of occupier, representatives in Safety Committee. It
shall be the duty of such occupier, to take immediate remedial action if satisfied about
existence of imminent danger.

If occupier not satisfied about the existence of any imminent danger he shall, refer matter
to nearest Inspector whose decision shall be final.

WELFARE MEASURES

● Washing Facilities (Section 42)

suitable facilities for washing shall be provided for use of the workers

● Facilities for storing and drying clothing (Section 43)

suitable place for keeping clothing not worn during working hours and for the drying
of wet clothing.

● Facilities for sitting (Section 44)

suitable arrangements for sitting in every factory obliged to work in a standing
position.

● First-aid appliances (Section 45)

readily accessible during all working hours’ first-aid boxes . At least one such box for
every one hundred and fifty workers an ambulance room in every factory wherein
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more than five hundred workers employed.

● Canteens (Section 46)

provide and maintain a canteen wherein more than two hundred and fifty workers
employed.

Shelters, rest-rooms and lunch-rooms (Section 47)

maintain adequate and suitable shelters or rest-rooms and a suitable lunch-room, with
provision for drinking water, where workers can eat meals brought by them in every factory
wherein more one hundred and fifty workers employed.

Creches (Section 48)

Compulsory to provide maintain a suitable room or rooms for the use of children under the
age of six years of women wherein more than thirty women workers employed. Shall be
maintained under the charge of women trained in the care of children and infants.

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LAW OF WELFARE & WORKING CONDITION

16 UNIT 2 – The Contract Labour
Chapter
(Regulation and Abolition) Act, 1970

History of the Legislation

Contract Labourers were considered as exploited section of the working class mainly due to
lack of organisation on their part.

The Government constituted various committees to study the socio-economic conditions of

contract labours. In the Second Five Year Plan, the Planning Commission stressed the need
of improvement in the working conditions of contract labour.

“The Contract Labour (Regulation and Abolition) Act, 1970” came into force from 10th
February, 1971.

Object and Scope of the Act

● The preamble of the Act states that to regulate the employment of contract labour in
certain establishments and to provide for its abolition in certain circumstances and for
matters connected therewith.

● Gammon India Ltd. vs. Union of India, Supreme Court observed that Act passed to
prevent exploitation of contract labour and introduce better conditions of work.

● To abolish contract labour, whenever possible and where cannot be abolished.

● Working conditions of the contract labour should be so regulated to ensure payment

of wages and provisions of essential amenities.

● Act extends to the whole of India. It applies —

(a) establishment in which twenty or more workmen, employed on any day of

preceding twelve months.
(b) every contractor who employs on any day of preceding twelve months twenty or
more workmen.

● Appropriate Government may, after giving not less than two months’ notice apply
provisions Act to establishment employing workmen less than twenty.

● Where dispute relates to service conditions, the dispute can be referred to industrial

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Tribunal for adjudication [Indian Explosives Ltd. v. State of U.P.,]

● Act is not applicable to establishments in which work of intermittent or casual nature

is performed.

● Explanation.- Work performed shall not be deemed to intermittent nature –

(i) if performed for more than one hundred and twenty days in the preceding
twelve months,
(ii) if it is of a seasonal character and is performed for more than sixty days in a year.

Definitions

1. ‘Appropriate Government’

(i) in relation to establishment in respect of Industrial Disputes Act, 1947, is the

Central Government;
(ii) in relation to any other establishment, Government of the State.

2. “Contract Labour”

A workman shall be deemed to be “contract labour” when he is hired by contractor,

with or without the knowledge of the principal employer.

3. “Contractor” - means- a person

● who undertakes supply of goods or articles of manufacture through contract labour;
or
● who supplies contract labour and includes a sub-contractor.

4. “Controlled Industry”
means industry the control of which by the Union has been declared by any Central
Act in the public interest.

5. “Establishment”
Means –
(i) office or department of Government or a local authority, or -
(ii) place where industries, trade, business, manufacture is carried on.
A ship or vessel in which repair work is carried on is a place and an “establishment”
Any object covering the surface and where industry, trade, business, manufacture is
carried on would be a place and an “establishment”.

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6. “Principal Employer”
means –

(i) in relation office or department of Government or local authority, head of that

office or department

(ii) in a factory, owner or occupier of the factory and person named as manager

(iii) in a mine, owner or agent of the mine

(iv) in any other establishment, person responsible for supervision and control.

7. “Occupier”

means the person who has ultimate control over the affairs of the factory.

8. “Wages”

Shall have the meaning assigned to it in clause (vi) of Section 2 of the Payment of
Wages Act, 1936.

9. “Workman”

means any person employed to do any skilled, semi-skilled or un-skilled manual,

supervisory, technical or clerical work for hire or reward, but does not include

(A) employed mainly in a managerial capacity; or

(B) employed in a supervisory capacity draws wages exceeding five hundred rupees
per mensem
(C) who is an out worker, that is a person to whom any articles and materials are
given out by or on behalf of’ the principal employer to be cleaned, washed,
altered, finished, repaired, for sale or trade or for business purpose.

The Advisory Boards

(1) Central Advisory Board.

● Constitution of Central Board: Central Government shall, constitute a board to be

called the Central Advisory Contract Labour Board.

● Function of the Central Board: Board shall perform function of advising the Central
Government on administration of this Act.

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● Composition of the Central Board:

(a) Chairman appointed by Central Government;

(b) Chief Labour Commissioner
(c) number of members, not exceeding seventeen but not less than eleven, as
Central Government may nominate to represent Government.

(2) State Advisory Board

● Constitution of the State Board: State Government to constitute a board to be

called the State Advisory Contract- Labour Board.

● Function of State Board: To advise State Government on administration of this Act.

● Composition of the State Board:

(a) Chairman appointed by State Government ;

(b) Labour Commissioner
(c) numbers, not exceeding eleven but not less than nine, as the State
Government may nominate to represent Government

(3) Power to constitute committees

Section 5, Central Board or State Board, may constitute committees as it may think fit.
Committee shall meet at such time and places in regard to transaction of business at
its meetings as may be prescribed. Members shall be paid fees for attending meetings.

No fees payable to member who is an officer of Government.

Registration of Establishments Employing Contract Labour

(1) Appointment of Registering Officers: Appropriate Government may

(a) appoint persons, being Gazetted Officers to be registering officers

(b) define the limits, within which registering officer shall exercise the powers

(2) Registration of certain establishment: Section 7 makes mandatory for every principal
employer to make application to registering office for registration of the
establishment. Appropriate Government may, fix time period for making such
application.

(3) Revocation of registration in certain cases: Section 8 provides if registering officer is

satisfied, that registration has been obtained by mis-representation or suppression of

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any material fact, the registering officer may revoke the registration. He can do so
only after giving an opportunity to the principal employer to be heard.

Circumstances in which application may be rejected. —

(1) Application not complete in all respects.

(2) On being required to amend application omits or fails to do so,

(4) Effect of non-registration: According to section 9, no principal employer shall employ

contract labour after expiry of the period under section 7.

Principal employer shall not employ contract labour after revocation of registration.

(5) Prohibition of employment of contract labour: According to section 10, appropriate

Government may, prohibit, employment of contract labour in any establishment.

Apart from registration of establishments Act contains provisions for licensing of

contractors.

(i) Appointment of licensing officers: According to section 11, appropriate

Government may appoint Gazetted Officers as licensing officers.

(ii) Licensing of contractors: According to section 12, no contractor to whom this

Act applies, shall undertake work through contract labour except accordance
with a licence issued in that behalf by the licensing officer.

Welfare and Health of Contract Labour

(i) Canteens.- According to section 16, one or more canteens shall be provided by
contractor in every establishment-

(a) to which this Act applies,

(b) wherein work likely to continue for period prescribed
(c) wherein contract labour numbering one hundred or more employed

(ii) Rest-rooms. According to section 17, mandatory for the contractor to provide rest-
rooms in every place wherein contract labour is required to halt at night in connection
with work.

Rest-rooms shall be sufficiently lighted and ventilated in a clean and comfortable

condition.

(iii) Other facilities.- According to section 18, every contractor, to provide and maintain-

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(a) sufficient supply of wholesome drinking water;

(b) sufficient number of latrines and urinals
(c) washing facilities.

(iv) First-aid facilities.-According to section 19, there shall be provided readily accessible
during all working hours a first aid box.

(v) Liability of principal employer in certain cases.- According to section 20, If any
amenity required to provided is not provided by contractor, such amenity shall be
provided by principal employer. All expenses incurred by principal employer in
providing the amenity may be recovered from the contractor.

(vi) Responsibility for payment of wages.- Section 21 makes a contractor statutorily

responsible for payment of wages to each worker employed as contract labour.

Penalties and Procedures

(i) Obstructions.- According to section 22, Whoever obstructs inspector in discharge of

duties shall be punishable with imprisonment which may extend to three months, or
fine which may extend to five hundred rupees, or both.

(ii) Contravention of provisions regarding employment contract labour.- Section 23

provides person shall be punishable imprisonment which may extend to three months,
or fine which extend to Rs. 1000, or with both.

In the case of a continuing contravention additional fine may extend to one hundred
rupees for every day.

(iii) Other offences.- According to section 24,If any person contravenes provisions for
which no penalty provided, he shall be punishable with imprisonment which may
extend to three months, or fine may extend to one thousand rupees, or with both.

(iv) Offences by companies.- Section 25 provides if person committing offence is a

company, company as well as every person in charge shall be deemed to be guilty of
offence and punished accordingly.

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However, where it is proved that offence committed with consent or connivance of

director, manager, or any other officer, such director, manager, or other officer shall
deemed to be guilty of that offence.

(v) Cognizance of offences.- According to section 26, no court shall take cognizance of
any offence except on a complaint made by, inspector and no court inferior to
Presidency Magistrate or magistrate of first class shall try any offence punishable
under this Act.

(vi) Limitation or prosecution.- According to section 27, no court shall take cognizance of
an offence unless complaint made within three months.

Inspecting Staff
According to section 28, appropriate Government may, appoint persons to be inspectors.
An inspector may -
(a) enter, at all reasonable hours, any premises where contract labour is employed, for
purpose of examining register or record;
(b) examine person whom he finds in premises who, he believe, is a workman employed;
(c) require person, to give information, is in his power;
(d) seize to take copies of such register, record of wages
(e) other powers as may be prescribed.

Registers and Other Records to be Maintained

According to section 29, every principal employer and every contractor shall maintain
registers and records giving particulars of contract labour employed, the nature of work
performed rates of wages paid and other particulars as may be prescribed.

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LAW OF WELFARE & WORKING CONDITION

16 UNIT 3 – The Child and Adolescent Labour
Chapter
(Prohibition and Regulation) Act, 1986

REGULATORY FRAMEWORK

● Child and Adolescent Labour (Prohibition and Regulation) Act, 1986

Introduction

The Child and Adolescent Labour (Prohibition & Regulation) Act, 1986 enacted to prohibit
the engagement of children in all occupations and to prohibit the engagement of
adolescents in hazardous occupations. It extends to whole of India.

Definition

1. Appropriate Government in relation establishment under control of Central

Government, the Central Government, and in all other cases, State Government.

2. Adolescent means person who completed fourteenth year of age but not completed
his eighteenth year. Child means a person not completed fourteenth year of age.
3. Day means period of twenty-four hours beginning at midnight.

4. Establishment includes a shop, commercial establishment, workshop, residential

hotel, restaurant, eating-house, theatre or other place of public amusement.

5. Occupier means person who has ultimate control over affairs of the establishment or
workshop.

6. Workshop means any premises wherein any industrial process is carried on, but does
not include premises to which Factories Act, 1948 apply.

Prohibition of Employment of Children in any Occupations and Processes

Section 3 no child shall be employed in any occupations or process except:-

(a) helps his family or family enterprise, other than any hazardous occupations
(b) works as an artist in audio-visual entertainment industry, including advertisement,
films, television serials except circus.

However no such work shall effect the school education of the child.

“family” means mother, father, brother, sister and father’s sister and brother and mother’s

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sister and brother;

Prohibition of Employment of adolescents in hazardous Occupations and Processes

Section 3A provides no adolescent shall be employed to work in hazardous occupations.

Hazardous occupations are as under:

(1) Mines.
(2) Inflammable substances or explosives.
(3) Hazardous process.

Hours and Period of Work

Section 7 provides to work

No adolescent shall work for more than three hours before interval for at least one hour.
This section also stipulates that:
— No adolescent shall be permitted to work between 7 p.m. and 8 a.m.

— No adolescent required or permitted to work overtime.

— No adolescent shall be required or permitted to work any establishment on any day

which he has already been working in another establishment.

Weekly Holidays

Section 8 every adolescent employed is entitled in each week, a holiday of one whole day.

Notice to inspector

Section 9 every occupier who employs, adolescent shall, within a period of thirty days, send
to Inspector written notice containing:
— Name and situation of the establishment;
— Name of person in actual management;
— Address to which communications be sent;
— Nature of the occupation carried on.

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Maintenance of Register

Every occupier maintained a register showing –

— name and date of birth every adolescent employed;
— hours and periods of work;
— nature of work of adolescent;
— other particulars

Display of Notice Containing Abstract of Sections 3A and 14

Every railway administration, port authority and occupier shall cause to be displayed at
every station or port or place of work, a notice in local and English language.

Penalties

● Whoever employs child or permits any child to work in contravention of section 3 shall
be punishable with imprisonment which shall not be less than six months but may
extend to two years, or fine which shall not be less than twenty thousand rupees but
may extend to fifty thousand rupees, or with both.

● Whoever employs any adolescent in contravention of provisions shall be punishable

with imprisonment which shall not be less than six months but may extend to two
years or fine which shall not be less than twenty thousand rupees but may extend to
fifty thousand rupees, or with both.

● Parents or guardians of any child or adolescent shall not be liable for punishment, in
case of the first offence.

● Parents or guardians commits a like offence afterward shall be punishable with fine
which may extend to ten thousand rupees.

District Magistrate to Implement the Provisions

Section 17A provides that appropriate Government may confer powers and impose duties
on a District Magistrate to ensure provisions of Act are properly carried out.

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17 LAW OF INDUSTRIAL RELATIONS

Chapter UNIT 1 – Industrial Dispute Act, 1947

REGULATORY FRAMEWORK

● Industrial Disputes Act, 1947

HISTORY OF THE LEGISLATION

The first enactment dealing with settlement of industrial disputes was the Employers’ and
Workmen’s Disputes Act, 1860. The main purpose of the Act, however, was to provide a
conciliation machinery to bring about peaceful settlement of industrial disputes.

Development of industrial law was caused by Second World War. Rule 81-A of the Defence
of India Rules intended to provide speedy remedies by prohibiting strikes or lock-outs
during pendency of conciliation proceedings and for two months thereafter. This rule also
put a blanket ban on strikes which did not arise out of genuine trade disputes.

The termination of the Second World War, Rule 81-A was about to lapse but kept alive by
Ordinance. Then followed the Industrial Disputes Act, 1947.

OBJECT AND SIGNIFICANCE OF THE ACT

The Industrial Disputes Act, 1947 makes provision for the investigation and settlement of
industrial disputes.
Workmen of Dimakuchi Tea Estate v. Dimakuchi Tea Estate, the Supreme Court laid down following
objectives of the Act:
Promotion of measures of securing good relations between employer and
workmen.
Investigation and settlement of industrial disputes between employers and
employers, employers and workmen, or workmen and workmen.
Prevention of illegal strikes and lock-outs.
Relief to workmen in lay-off and retrenchment.
● This Act extends
Promotion to wholebargaining.
collective of India.

● The Act applies to an existing and not to a dead industry ensure fair wage to prevent
disputes. It applies to all industries irrespective of religion or caste of parties. It
applies to the industries owned by Central and State Governments too [Hospital

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Employees Union [Link] Medical College, (1987) 4 SCC 691].

IMPORTANT DEFINITIONS

Industry

Means any business, trade, undertaking, manufacture and includes employment,

handicraft. [Section 2(j)]

● Tests for determination of’ “industry”

To determine whether an activity is covered by “industry” or not. It is also referred to
as the triple test.

I. Where there is

(a) systematic activity,

(ii) by co-operation between employer and employee,

(iii) for production of goods and services to satisfy human wants (not
spiritual or religious e.g., making, prasad or food).

(b) Absence of profit motive is irrelevant.

Supreme Court observed that professions, clubs, educational institutions. co-

operatives, research institutes, charitable projects if they fulfil triple tests cannot
be exempted from Section 2(j).

● Criteria for determining dominant nature of undertaking

Supreme Court, in Bangalore Water Supply case laid guidelines for deciding dominant
nature.

(a) Where a complex of activities, involves employees. Some of whom are not
“workmen”. The whole undertaking will be “industry” although who are not
“workmen” may not be benefit by the status.

(b) Sovereign functions alone qualify for exemption and not welfare activities
undertaken by Government statutory bodies.

(c) Even in departments discharging sovereign function, if units are industries and
are substantially severable can be considered within Section 2(j).

(d) Constitutional and legislative provisions may remove undertaking from scope of
the Act.

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Charitable or missionary institutions, hospital, educational other research

institutions, municipal corporations, firms of chartered accountants, solicitors’,
etc., which were not held to be “industry” earlier will now covered by definition
of “industry”.

● Section 2(j) shall stand amended by Amendment Act of 1982.

Section 2(j) under Amendment Act, 1982:

“Industry” means systematic activity carried on by co-operation between an

employer and his workmen to satisfy human wants (not being wants merely spiritual
or religious in nature), whether or not:

(i) any capital invested for the purpose of carrying on such activity; or

(ii) activity is carried on with a motive to make profit, But Does Not Include:

(1) agricultural operation;

(2) hospitals or dispensaries;
(3) educational, scientific, research to training institutions;
(4) charitable, social or philanthropic service;
(5) khadi or village industries;
(6) activity of the Government relatable to the sovereign functions defence
research atomic energy and space; or
(7) domestic service; or
(8) profession practised by individual, if number of persons employed is less
than ten;
(9) a co-operative society or a club, if number of persons employed is less than
ten.

Industrial Dispute
[Section 2(k)]

(i) Dispute or difference;

(ii) between:
(a) employer and employer;
(b) employer and workmen; or
(c) workmen and workmen.

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(iii) Connected with

(a) the employment
(b) terms of employment,
(c) the conditions of labour

Workman

Means any person employed in any industry to do manual, unskilled, skilled, clerical or
supervisory work for hire or reward, includes:

(a) person dismissed, discharged as a consequence of that dispute;

(b) person whose dismissal, discharge has led to that dispute, but does not include
person:

(i) subject to Army Act, 1950;

(ii) employed in the police service;

(iii) employed mainly in managerial capacity;

(iv) employed in a supervisory capacity drawing more than Rs. 1,600 per month;

Strike

Means a cessation of work by a body of persons in any industry acting in concerted refusal,
who are employed to continue to work or to accept employment. [Section 2(q)]

Strike is a weapon of collective bargaining of workers.

(i) Strike can take place only when cessation of work or refusal to work by workmen

(ii) A concerted refusal going on mass casual leave amounts to a strike. However, refusal
should be of normal lawful work. But refusal to do work which employer has no right
to ask for, such refusal does not constitute a strike (Northbrooke Jute Co. Ltd. v. Their
Workmen, AIR 1960 SC 879). If on sudden death of fellow-worker, workmen acting in
concert refuse to resume work, it amounts to a strike [National Textile Workers’
Union v. Shree Meenakshi Mills, (1951) II L.L.J. 516].

(iii) Even when workmen cease to work, relationship of employer and employee deemed
to continue. However, for illegal strike, employer can dismiss the striking workmen.

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TYPES OF STRIKE AND THEIR LEGALITY

(a) Stay-in, sit-down, pen-down or tool-down strike

Workmen after taking their seats, refuse to do work. When asked to leave the
premises, they refuse to do so. All such acts on the part of the workmen acting in
combination, amount to a strike. Since such strikes are directed against the employer,
they are also called primary strikes. In the case of Punjab National Bank Ltd. All lndia
Punjab National Bank Employees’ Federation, AIR 1960 SC 160, the Supreme Court
observed that on a plain and grammatical construction of this definition it would be
difficult to exclude a strike where workmen enter the premises of their employment
and refuse to take their tools in hand and start their usual work. Refusal under
common understanding not to work is a strike. If in pursuance of such common
understanding the employees enter the premises of the Bank and refuse to take their
pens in their hands that would no doubt be a strike under Section 2(q).

(b) Go-slow

Go-slow does not amount to strike, but it is a serious case of misconduct.

Bharat Sugar Mills Ltd. v. Jai Singh, the Supreme Court explained: “Go-
slow is deliberate delaying of production by workmen while delaying
production and reducing output, workmen claim to have remained
employed and entitled to full wages. During a go-slow machinery is kept
going on which is extremely damaging to machinery parts.
(c) Sympathetic strike

Cessation of work in support of demands of workmen belonging to other employer

Ramalingam v. Indian Metallurgical Corporation, Madras, it was held that cessation
of work not amount to strike since no intention to use strike against the management.

(d) Hunger strike

Workers resort to fast on or near place of work or residence of employer. If it is

peaceful, it will not constitute a strike. But if due to such act, those present for work,
could not be given work, it will amount to strike [Pepariach Sugar Mills Ltd. v. Their
Workmen).

(e) Work-to-rule
There is no cessation of work, it does not constitute a strike.

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LEGALITY OF STRIKE

Section 10(3), 10A(4A), 22 and 23 of the Act deals with strike.

The justification of strike as held in Matchwell Electricals of India v. Chief Commissioner, is

entirely unrelated to its legality or illegality.

Gujarat Steel Tubes Ltd. v. Gujarat Steel Tubes Majdoor Sabha, justifiability of a strike is
purely a question of fact. If strike by workers in peaceful manner, then strike will be
justified. Where by using violence, then strike will unjustified.

Charakulam Tea Estate v. Their Workmen, in case of strike legal and justified, workmen
will entitled to full wages.

Statesman Ltd. v. Their Workman, if strike is illegal, strikers will not entitled to the wages.

India Marine Service Pvt. Ltd. v. Their Workman, the Court evolved the doctrine of
“apportionment of blame” to solve the problem. When workmen and management equally
to be blamed, Court normally awards half of the wages.

Lock-out

Means the temporary closing of a place of employment, or suspension of work, or refusal

Just as “strike” is a weapon available to the employees for enforcing their

demands, a “lock out” is a weapon available to the employer to accept his
by employer to continue to employ any number of persons employed by him.
demands

Lay-off

● Means the failure, refusal or inability of an employer to give employment due to

following reasons:
(a) shortage of coal, power or raw materials, or
(b) break-down of machinery, or
(c) natural calamity, or
(d) other connected reason.

● Every workman who presents himself for work at the time appointed and is not given
employment within two hours shall be deemed been laid-off.

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● If instead of being given employment at commencement of shift asked to present

during second half and given employment, he shall be deemed to been laid-off only
for one-half of that day.

● If not given employment, he shall not be entitled to full basic wages and dearness
allowance.

● The lay-off should not be mala fide. Tribunal can adjudicate upon it and find out
whether the employer deliberately and maliciously brought situation where lay-off
becomes necessary.

● There cannot be lay-off in an industrial undertaking which has been closed down. Lay-
off and closure cannot stand together.

● MA Veirya v. CP Fernandez

It was observed that, it is not open to the employer under the cloak of "Lay-off" to
keep employees in state of mind whether the business would ultimately
continue would be permanently stopped.

● Tatanagar Foundry v. Their Workmen

i. Layoff should not be malafide.

ii. Tribunal can adjudicate, whether employers has deliberately brought situation of
Lay off.

iii. Tribunal can investigate whether a more prudent employer/management could

have avoided situation of Lay off.

● Workmen of Dewan Tea estate v. Their management

i. Right to Layoff cannot be claimed as inherent right employer.

ii. This right must be provided either by:-

a) contract employment, or

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b) by the statute.

● Difference between lay-off and lock-out

1)In lay-off, employer refuses to give employment, but in lock-out, deliberate closure

of business.

2) In lay-off, business continues, but in lock-out, business is closed down for time
being.

3) In a lock-out, no question of wages or compensation unless lock-out is held to be

unjustified.

4) Lay-off is the result of trade reason but lock-out is weapon of collective

bargaining.

5) Lock-out is subject to restrictions and penalties but not so in case of lay-off.

Retrenchment
“Retrenchment” means the termination by the employer of the service of a workman for
any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary
action, but does not include:
(a) voluntary retirement;
(b) retirement of workman or reaching the age of superannuation;
(c) termination of the service as a result of non-renewal of contract of employment.
(d) termination of the service on ground of continued ill-health.

Award

Means an interim or a final determination of industrial dispute by Labour Court, Industrial

Tribunal or National Industrial Tribunal & includes an arbitration award under Section 10-A.

Appropriate Government

Means:

(i) in relation to any industrial disputes concerning any industry under authority of the

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Central Government or railway or Dock Labour Board established under Section 5-A of
the Dock Workers or Industrial Finance Corporation 1956, or Employees’ State
Insurance Corporation or Employees’ Provident Funds and Miscellaneous Provisions
Act, 1952.

The Central Government, and

(ii) in relation to any other Industrial Dispute, the State Government.

Average Pay

Means the average of the wages payable to a workman:

(i) monthly paid workman, in the three complete calendar months;
(ii) weekly paid workman, in the four complete weeks;
(iii) daily paid workman, in the twelve full working days

Closure

Means permanent closing down of a place of employment

Controlled Industry

Means any industry control of which by Union has been declared by any Central Act in the
public interest.

Employer
Means:

(i) in relation to department of Central Government, the head of the department;

(ii) in relation to local authority, chief executive officer of that authority.
“Employer includes an agent of an employer, general manager, director, occupier of factory
etc.

Public Utility Service

Means:
a) Any Railway or transport service for carriage of passengers or goods by air.

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b) Service in connection with port or dock.

c) Postal, Telegraph or telephone service.

d) Industry which supplies power, light as

e) Sanitation services

f) Any industry (specified in schedule I ), if satisfied that public interest or emergency so

requires, can be declared as Public utility service by notification in official Gazette.

Public utility services may be carried out by private companies or business corporations

Settlement
Means settlement arrived in course of conciliation proceeding and includes written
agreement between employer and workmen otherwise than in conciliation proceeding.

Trade Union
Means a trade union registered under the Trade Unions Act, 1926.

Unfair Labour Practice

Means any of the practices specified in the Fifth Schedule.

Wages
Means all remuneration capable of being expressed in terms of money, and includes:
(i) allowance (including dearness allowance);
(ii) value of any house accommodation;
(iii) travelling concession, but does not include:
(a) bonus;
(b) contribution paid by employer to pension fund;
(c) gratuity payable on termination of his service;
(d) commission payable

AUTHORITIES UNDER THE ACT AND THEIR DUTIES

The Act provides for following Authorities for Investigation and settlement of industrial
disputes:

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(i) Works Committee

Section 3 of the Act provides appropriate Government may require employer to

constitute Works Committee, where 100 or more workmen employed on any working
day in preceding 12 months will be comprised of the representatives of employers and
workmen.

(ii) Conciliation Officers

● With the duty of promoting settlement of industrial disputes, appropriate

Government may, appoint such number of Conciliation Officers as it thinks fit.
Main objective of appointing Conciliation Officers is to create atmosphere where
workers and employers can reconcile on their disputes through mediation of the
Conciliation Officers.

(iii) Boards of Conciliation

● For promoting settlement of industrial dispute, appropriate Government may,

constitute Board of Conciliation. Board shall consist of a Chairman and two or
four other members as the appropriate Government thinks fit.

● Duty of Board to endeavour to bring settlement of the dispute, without delay,

investigate into the dispute and all matters affecting the merits and the right
settlement. The Board will also enlist reasons on account of which in its opinion
settlement could not be arrived at and its recommendations for determining the
disputes.

(iv) Courts of inquiry

● Section 6, appropriate Government may constitute a Court of Inquiry. A Court may

consist of one independent person and where a Court consists of two or more
members, one of them shall be appointed as the Chairman. The period within
which the report is to be submitted is not mandatory and report may be
submitted even beyond the period of six months without affecting the legality of
the inquiry.

(v) Labour Courts

● Section 7, appropriate Government empowered to constitute one or more Labour

Courts for adjudication of industrial disputes.

● A Labour Court shall consist of one person only to be appointed by the appropriate
Government.

● When industrial dispute referred to a Labour Court, it is the duty of the Labour Court
to

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(i) hold its proceedings expeditiously,

(ii) submit its award to appropriate Government.

(vi) Industrial Tribunals

(1) Appropriate Government may constitute one or more Industrial Tribunals for the
adjudication of industrial disputes.

(2) Tribunal shall consist of one person only.

(3) Person shall not be qualified for appointment as the presiding officer unless:

(a) he is, or has been, a Judge of High Court;

(b) he has, a period of not less than three years, been a District Judges.

(4) Appropriate Government, if it so thinks fit, appoint two persons as assessors to

advise the Tribunal.

(vii) National Tribunals

(1) Central Government alone has been empowered to constitute National Tribunals
for the adjudication of industrial disputes which (a) involve questions of national
importance (b) are of nature that industrial establishments situated in more than
one State are;

(2) A National Tribunal shall consist of one person only to be appointed by the
Central Government;

(3) Person shall not be qualified for appointment Presiding Officer unless: he is, or
has been, a Judge of a High Court;

(4) Central Government, if it so thinks fit, appoint two persons to advise the National
Tribunal.

REFERENCE OF DISPUTES

(A) Reference of disputes to various Authorities

(a) may refer dispute to a Conciliation Board for promoting the settlement of the

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dispute.

(b) may refer any matter to a Court of Inquiry. Purpose of making such a reference is
not conciliatory or adjudicatory but only investigatory.

(c) may refer the dispute, to a Labour Court for adjudication.

(d) may refer dispute to an Industrial Tribunal for adjudication.

● Where dispute relates to a public utility service and a notice of strike or lock-
out has been given, it is mandatory for appropriate Government to make
reference even when some proceedings under the Act are pending in
respect of the dispute.

● Where parties apply whether jointly or separately, for reference of the

dispute to a Board, Court (Labour Court, Tribunal or National Tribunal),
Government, if satisfied shall make the reference accordingly.

● Industrial Disputes Act provides for no appeal or revision as against the

awards so made though no doubt the Supreme Court in its discretion may
under Article 136 of the Constitution grant special leave to a party aggrieved
by award to appeal to Supreme Court against an award so made.

● Section 10(1) powers of appropriate Government to make a reference

summarised below:

i. Order making a reference is administrative act and it is not a judicial or

quasi-judicial act.

ii. The powers to make a reference is discretionary.

iii. Government cannot be compelled to make a reference. If Court

satisfied that Government can be compelled to reconsider its decision
by a writ of Mandamus (State of Bombay v. K.P. Krishnan)

iv. Western India Match Co. Ltd. v. Workmen, it is not mandatory for
appropriate Government to wait for the outcome of the conciliation
proceedings before making an order of reference.

v. Refusal of Government to refer the dispute for adjudication does not

debar it from making subsequent reference.

vi. The appropriate Government has no power either expressly or

impliedly to cancel, withdraw or supersede any matter referred for
adjudication.

vii. If reference to dispute is made in general terms and disputes are not
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particularised, the reference will not become bad provided the dispute
in question can be gathered by Tribunal from reference and
surrounding facts.

(B) Reference of dispute to National Tribunal involving question of importance, etc.

● Where Central Government is of opinion that industrial dispute exists and dispute
involves question of national importance or dispute should be adjudicated by a
National Tribunal, then, Central Government may, by order in writing, refer the
dispute to a National Tribunal.

(C) Reference on application of parties

● Where parties to industrial disputes apply in prescribed manner, whether for

reference of the dispute to a Board, Court, Labour Court, Tribunal or National
Tribunal, appropriate Government, if satisfied shall make reference to submit
award, such time limit may be extended if required.

(D) Time limit for submission of awards

● An order referring industrial dispute to Labour Court, Tribunal or National Tribunal
shall specify period within which award shall be submitted to appropriate
Government.
● Provided that where dispute connected with individual workman, no such period
shall exceed three months:
● Provided further that where parties apply for extension of such period Labour Court,
Tribunal or National Tribunal considers it necessary, he may for reasons extend
such period by such further period as he may think fit:

(E) Prohibition of strike or lock-out

● Where industrial dispute referred to a Board, Labour Court, Tribunal or National
Tribunal, the appropriate Government may by order prohibit continuance of any
strike or lock-out.

● It is necessary that Government makes order prohibiting strike or lock out. If no

order is made, continuance of strike or lock-out is not illegal.
(F) Powers of the Government to add parties

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● Where a dispute referred to a Labour Court, Tribunal or National Tribunal and

appropriate Government is of opinion, that dispute is of nature that other
establishment of similar nature is likely to be interested, or affected by, such
dispute, the appropriate Government may, at time of making reference but
before submission of the award, include in that reference such establishment.

VOLUNTARY REFERENCE OF DISPUTES TO ARBITRATION

Section 10-A:
i. Where any industrial dispute exists and not yet been referred to Labour Court,
Tribunal or National Tribunal, the employer and the workmen may refer the dispute,
by written agreement, to arbitration.
ii. Arbitration agreement shall be in form and manner as prescribed.
iii. Copy of the arbitration agreement shall be forwarded to appropriate Government and
Conciliation Officer and appropriate Government shall within one month from date of
the receipt copy, publish the same in the Official Gazette.
iv. Arbitrator shall investigate dispute and submit to appropriate Government the
arbitration award.
v. Where industrial dispute referred to arbitration and notification has been issued,
appropriate Government may, by order, prohibit the continuance of any strike or lock-
out.

STRIKES AND LOCK-OUTS

Two weapons in the hands of workers and employers respectively, which they can use
to press their viewpoints in collective bargaining.
(i) General prohibition of strikes and lock-outs
No workman employed shall go on strike and no employer:
(a) during pendency of conciliation proceedings and seven days the conclusion;

(b) during pendency of proceedings before Labour Court, Tribunal;

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(c) during pendency of arbitration proceedings and two months after the conclusion
of proceedings;
(d) during period in which settlement or award in operation.

(ii) Prohibition of strikes and lock-outs in public utility service

(1) No person employed in a public utility service shall go on strike.

(a) without giving employer notice of strike, within six weeks before striking;

(b) within 14 days of giving of such notice;

(c) before expiry of date of strike in such notice as aforesaid;

(d) during pendency of any conciliation proceedings and seven days after such
proceedings.

(2) No employer carrying public utility service shall lock-out:

(a) without giving notice of lock-out provided within six weeks before locking-

out; or

(b) within 14 days of giving such notice;

(c) before expiry of date of lock-out specified in notice;

(d) during pendency of any conciliation proceedings and 7 days after

proceedings.

(3) If employer receives such notices, he shall within five days report to the
appropriate Government the number of such notices received.

(iii) Illegal strikes and lock-outs

(1) A strike or lock-out shall be illegal if:

(i) commenced in contravention Section 22 or Section 23;

(ii) continued in contravention of Section 10(3) or Section 10A(4A).

(2) Where strike or lock-out has already commenced, the continuance strike or lock-
out shall not be deemed to be illegal, provided that strike or lock-out was not in
contravention of provisions of this Act or was not prohibited.

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(3) A lock-out declared in consequence of illegal strike shall not be deemed to be

illegal.

UNFAIR LABOUR PRACTICES

Section 25T lays that no employer or workman or a Trade Union shall commit any unfair
labour practice. Any person who commits shall be punishable with imprisonment which
may extend to six months or fine which may extend to one thousand rupees or with both.

PENALTIES

1. Penalty for illegal strikes

Any workman who commence strike which is illegal shall be punishable with
imprisonment which may extend to one month, or fine which may extend to fifty
rupees or with both.

2. Penalty for illegal lock-outs

Imprisonment which may extend to one month or fine which may extend to one
thousand rupees, or with both.

3. Penalty for instigation etc.

Person who instigates others to take part in, strike or lock-out which is illegal shall be
punishable with imprisonment which may extend to six months, or fine may extend to
one thousand rupees, or with both.

4. Penalty for giving financial aid to illegal strikes and lock-outs

shall be punishable with imprisonment which may extend to six months, or with fine
which may extend to one thousand rupees, or with both.

5. Penalty for breach of settlement or award

punishable with imprisonment which may extend to six months, or with fine or with
both, where breach is continuing further fine two hundred rupees for everyday.

6. Penalty for disclosing confidential information

Person who wilfully discloses information in contravention of provisions of that

section shall, on complaints made by or on behalf of the trade union or individual
business affected, 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.

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(Section 30)

7. Penalty for closure without notice

Employer who closes down undertaking without complying with provisions

punishable with imprisonment which may extend to six months or fine may extend
five thousand rupees, or with both.

8. Penalty for other offences

Employer shall be punishable with imprisonment which may extend to six months, or
with fine which may extend to one thousand rupees, or with both.

whoever contravenes provisions, if no penalty is elsewhere provided, be punishable

with fine which may extend to one hundred rupees.

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LAW OF INDUSTRIAL RELATIONS

17 UNIT 2 – The Industrial Employment
Chapter
(Standing Order) Act, 1946

REGULATORY FRAMEWORK

● Industrial Employment (Standing Orders) Act, 1946

OBJECT AND SCOPE OF THE ACT

To enforce uniformity in conditions of services in different industrial establishments with

the express or written conditions of employment, it is open for the prospective worker to
accept them and join the industrial establishment.

● Act extends to the whole of India and applies to every industrial establishment
wherein 100 or more workmen employed on any day during preceding twelve months.
Appropriate Government after giving 2 months notice extend provisions to industrial
establishment employing persons less than 100.
● Act does not apply to (1) industry to which provisions of Chapter VII of the Bombay
Industrial Relations Act, 1946, apply; (2) provisions of Madhya Pradesh Industrial
Employment (Standing Orders) Act, 1961 apply.

● Section 13-B specifically exempt certain industrial establishments industrial

establishment in workmen employed are persons to whom Fundamental and
Supplementary Rules, Civil Services (Classification, Control and Appeal) Rules, Civil
Service Regulations, Indian Railway Establishment Code apply.

Section 14 appropriate Government may by notification exempt any industrial

establishment from all or any provisions Act.

IMPORTANT DEFINITIONS

Appellate Authority

Authority appointed by the appropriate Government, to exercise functions of an appellate

authority under this Act.

Appropriate Government

Industrial establishments under control of Central Government or Railway administration or

port, mine or oilfield, and in all other cases the State Government:

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Certifying Officer

Labour Commissioner or a Regional Labour Commissioner, and includes officer appointed

by appropriate Government, to perform functions of a Certifying Officer.

Employer

means the owner of an industrial establishment to which this Act applies and includes:
(i) manager
(ii) head of the department.
(iii) person responsible to the owner for the supervision and control.

Industrial Establishment

It means
(i) industrial establishment Payment of Wages Act, 1936, or
(ii) a factory Factories Act, 1948, or
(iii) a railway Indian Railways Act, 1890, or
(iv) establishment for purpose of fulfilling contract with owner of industrial establishment.

Standing Orders

means rules relating to matters set out in Schedule to the Act.

Wages and Workmen

“Wages” and “Workmen” meanings respectively assigned to them in Industrial Disputes

Act, 1947.

CERTIFICATION OF DRAFT STANDING ORDERS

Submission of draft Standing Orders by employers to the certifying officer

● Section 3 within six months from date which Act becomes applicable employer shall
submit to Certifying Officer five copies draft Standing Orders proposed for adoption.

● Draft Standing Orders shall be in conformity with the Model Standing Orders.

● Draft Standing Orders accompanied by statement containing particulars of workmen

employed.

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● If industrial establishment of similar nature may submit joint draft of Standing Orders.

Submission of draft Standing Orders by employers to the certifying officer

Section 4, Standing Orders shall be certifiable if

(a) Provision made for every matter stated in the Schedule which is applicable to
industrial establishment; and

(b) Standing Orders in conformity with provisions of Act.

Fairness or reasonableness of Standing Orders

Section 4.

Duty on Certifying Officer, to consider reasonableness and fairness of Standing Orders

before certifying. The Certifying Officer is under a legal duty to consider that the Standing
Orders are in conformity with the Act. If Certifying Officer finds some provision not included
in the Schedule, or finds some provisions unreasonable he must refuse to certify. Where
matter not included in Schedule and appropriate Government not added item to Schedule,
neither employer has right to frame Standing Order nor Certifying Officer to certify the
same. Consent of employees to such standing orders would not make any difference (Air
Gases Mazdoor Sangh, Varanasi v. Indian Air Gases Ltd.,).

Certification of Standing Orders

● Procedure to be followed by the Certifying Officer : Section 5. On receipt of draft

Standing Order employer, forward copy to trade union or where no trade union, to
workmen in manner as prescribed, together with notice requiring objections.
Objections to be submitted within 15 days. On receipt of objections provide
opportunity of being heard and will make amendments, if any, required.

● Effect of certification: Act is special law matters enumerated in the Schedule.

● Register of Standing Orders: Section 8 empowers Certifying Officer to file a copy of all
Standing Orders in a register maintained. He shall furnish a copy of the same to any
person applying therefor on payment of the prescribed fee.

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APPEALS

Section 6, order of Certifying Officer can be challenged by employer, workman, trade union
who can file an appeal before appellate authority within 30 days from which copies sent to
employer workers representatives. Appellate authority decision shall be final.

DATE OF OPERATION OF STANDING ORDERS

Standing Orders come into operation on expiry of 30 days from date on which copies sent
to employer or where appeal preferred on the expiry of 7 days from date which copies sent
to employer and workers representatives. (Section 7)

POSTING OF STANDING ORDERS

Text of Standing Orders prominently posted by employer in English and language

understood by majority workmen on special boards at or near entrance and in all
departments where workmen employed. (Section 9)

DURATION AND MODIFICATION OF STANDING ORDERS

Section 10 prohibits employer to modify Standing Orders once they are certified except on
agreement between employer and workmen or a trade union modification not affected
until expiry of 6 months from date last modified empowers an employer or workmen or
trade union to apply to Certifying Officer to have Standing Orders modified & application
should be accompanied by 5 copies.

Section 10(2) does not contain any time limit for making modification application. It can be
made at any time. [Indian Express Employees Union v. Indian Express (Madurai) Ltd.
(1998) 1 Cur LR 1161 (Ker)]

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PAYMENT OF SUBSISTENCE ALLOWANCE

Section 10A:

Where any workman suspended by employer pending investigation or inquiry of

misconduct against him, employer shall pay workman subsistence allowance

(a) at rate of fifty per cent of wages entitled immediately preceding suspension, for first
ninety days of suspension and

(b) at rate of seventy five per cent wages for remaining period of suspension.

Any dispute may be referred by workman or employer, to Labour Court.

If provisions relating to payment of subsistence allowance under other law are more
beneficial, then provisions other law applicable.

INTERPRETATION OF STANDING ORDERS

Section 13-A provides that question relating to application of Standing Order certified under
this Act, can be referred to Labour Court constituted under Industrial Disputes Act, 1947.
The Labour Court to which question referred, shall decide after giving opportunity of being
heard. Decision shall be final and binding on the parties.

TEMPORARY APPLICATION OF MODEL STANDING ORDERS

Section 12-A period commencing on date which Act becomes applicable to industrial
establishment and ending with date on which Standing Orders certified, the
prescribed model Standing Orders shall be deemed to be adopted in that
establishment Sections 9, 13(2) and 13-A shall apply.

Matters to be provided in Standing Orders under this Act

1. Classification of workmen, e.g., permanent, temporary.

2. Periods and hours of work, holidays, pay-days and wage rates.

3. Shift working.

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4. Attendance and late coming.

5. Leave and holidays.

6. Requirement to enter premises by certain gates.

7. Closing and reopening of sections of industrial establishment, temporary

stoppage of work and rights and liabilities of employer and workmen arising
there from.

8. Termination of employment.

9. Suspension or dismissal for misconduct.

10. Means of redress against unfair treatment.

11. Other matter.

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18 LAW OF WAGES
Chapter UNIT 1 – Payment of Wages Act, 1936

REGULATORY FRAMEWORK

● Payment of Wages Act, 1936

OBJECT AND SCOPE

The main object of the Act to eliminate all malpractices by laying down time and mode of
payment as well as securing workers are paid at regular intervals, without any
unauthorised deductions.

Definitions

“Employed person” includes legal representative of deceased employed person.

“Employer” includes legal representative of deceased employer.

Responsibility for payment of wages

Section 3 provides every employer responsible for payment to persons employed.

However, in the case of factories person named as manager; in case of industrial or other
establishments person responsible for supervision and control in case of contractor, person
designated by contractor shall be responsible for such payment.

Fixation of wage period

Section 4 of every person responsible for payment of wages shall fix wage-periods. No
wage-period shall exceed one month.

Time payment of wages

● Section 5 specifies the time payment of wages. The wages of every person employed
upon or in any railway factory or industrial or other establishment upon or in which
less than one thousand persons are employed, shall be paid before the expiry of the
seventh day.

● The wages of person employed in other establishment shall be paid before the expiry
of the tenth day.

● Where employment terminated by or on behalf of the employer wages earned by him

shall be paid before expiry of the second working day from terminated.

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Wages to be paid in current coin or currency notes or by cheque or crediting in bank

account

Section 6, all wages shall be paid in current coin or currency notes or by cheque or by
crediting in the bank account.

Deductions from the wages of an employee

Section 7 allows deductions from the wages on account of the following:-

(i) fines;
(ii) absence;
(iii) damage to goods expressly entrusted to employee;
(iv) housing accommodation;
(v) recovery of advances;
(vi) recovery of loans advances from provident fund;
(viii) income-tax;
(Ix) deductions made with written authorisation of employee for payment of premium on
his life insurance policy.

Fines

Section 8 deals with fines. It provides that :

(1) No fine imposed on save in respect of such acts and omissions State Government may
have specified by notice.
(2) A notice specifying such acts and omissions exhibited on premises.
(3) No fine imposed until given opportunity of showing cause against the fine.
(4) Total amount of fine not exceed three per cent of wages payable.
(5) No fine imposed on person under age of fifteen years.
(6) AII fines and all realisations shall be recorded in a register to be kept by the person
responsible.

Maintenance of registers and records

Section 13A every employer shall maintain registers and records giving particulars of
persons employed, work performed, wages paid, deductions made.

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Claims arising out of deductions from wages or delay in payment of wages and penalty
for malicious or vexatious claims.

● Section 15 appropriate Government may appoint-

(a) Commissioner for Workmen’s Compensation; or

(b) officer of Central Government as,-
(i) Regional Labour Commissioner;
(ii) Assistant Labour Commissioner;
(c) any officer of State Government with at least two years’ experience;

● Where contrary to the provisions of the Act any deduction been made or payment of
wages delayed such person himself or legal practitioner or registered trade union may
apply authority for a direction.

● Every such application shall be presented within twelve months from deduction or
from date on which wages was due. application may be admitted after twelve months
when applicant satisfies that he had sufficient cause.

● Authority shall hear the applicant and the employer and, after enquiry, direct refund
to employed person of the amount deducted, or delayed wages, together with
compensation not exceeding ten times amount deducted in former case and not
exceeding three thousand rupees but not less than one thousand five hundred rupees
in the latter.

● A claim shall be disposed within period of three months period of three months may
be extended if both parties agree.

● No direction for payment of compensation if authority is satisfied that the delay was
due to-
(a) bona fide error
(b) occurrence of an emergency
(c) failure of employed person to apply for or accept payment.

● If authority is satisfied that application was either malicious or vexatious may direct
penalty not exceeding three hundred seventy five Rupees be paid to employer.

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18 LAW OF WAGES
Chapter UNIT 2 – Minimum Wages Act, 1948

REGULATORY FRAMEWORK

● Minimum Wages Act, 1948

OBJECT AND SCOPE OF THE LEGISLATION

Minimum Wages Act purports to prevent exploitation of labour and for empowers the
appropriate Government to prescribe minimum rates of wages in the scheduled industries.

The Act extends to whole of India.

IMPORTANT DEFINITIONS

Scheduled employment

● Means an employment specified in the Schedule forming part of such employment.

● Note: The schedule is divided into two parts namely, Part I and Part II.

FIXATION OF MINIMUM RATES OF WAGES

● Section 3 ‘appropriate Government’ shall fix the minimum rates of wages, payable to
employees. The rates to be fixed need not be uniform. Different rates can be fixed for
different zones or localities:

● “Appropriate Government” may not fix minimum rates of wages in employment in

which less than 1000 employees in whole State are engaged.

REVISION OF MINIMUM WAGES

‘Appropriate Government’ may review at such intervals not exceeding five years, and revise
minimum rate of wages.

MANNER OF FIXATION/REVISION OF MINIMUM WAGES

Section 3(2), ‘Appropriate Government’ may fix minimum rate of wages for:
(a) time work, Minimum Time Rate;
(b) piece work, Minimum Piece Rate;
(c) a “Guaranteed Time Rate”
(d) “Over Time Rate”

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Section 3(3) different minimum rates of wages may be fixed for —

(i) different scheduled employments;
(ii) different classes of work;
(iii) adults, adolescents, children and apprentices;
(iv) different localities

Further, minimum rates of wages may be fixed:

(i) by the hour,
(ii) by the day,
(iii) by the month

PROCEDURE FOR FIXING AND REVISING MINIMUM WAGES (SECTION 5)

Appropriate Government can follow either of the two methods described below.

First Method

● This method is known as the ‘Committee Method’. Appropriate Government may

appoint committees to advise in respect of fixation or revision. After consider advise
Government shall, by notification in Official Gazette fix or revise minimum rates of
wages.

● Committee shall consist of persons representing employers and employee who shall
be equal in number and independent person not exceeding 1/3rd of its total number
of member. One of such independent persons shall be appointed as Chairman of the
Committee.

Second Method

● The method is known as the ‘Notification Method’. Appropriate Government shall by

notification, in the Official Gazette publish proposals for persons likely to be affected.

● The representations received will be considered and thereafter fix or revise the
minimum rates of wages.

CENTRAL ADVISORY BOARD

Section 8 provides that Central Government shall appoint a Central Advisory Board for
advising Central Government and State Governments in the matters of fixation and revision
of minimum rates of wages shall consist of persons representing employers and employees
who shall be equal in number and independent person not exceeding 1/3’d of its total
number of members.

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MINIMUM WAGE — WHETHER TO BE PAID IN CASH OR KIND

Minimum wages payable shall be paid in cash. But where it has been custom to pay wages
wholly or partly in kind, appropriate Government, may authorize such payments.

PAYMENT OF MINIMUM WAGES IS OBLIGATORY ON EMPLOYER (SECTION 12)

Paymenjt of less than the minimum rates of wages is an offence. Employer shall pay every
employee wages at a rate not less than the minimum rate of wages.

FIXING HOURS FOR A NORMAL WORKING DAY (SECTION 13)

Appropriate Government may —

(a) fix number of work hours which shall constitute a normal working day;
(b) provide for a day of rest in every period of seven days
(c) provide for payment on a day of rest at rate not less than overtime rate.

PAYMENT OF OVERTIME (SECTION 14)

When employee, works on any day in excess of number of hours constituting normal
working day, employer shall pay in excess at the overtime rate fixed under Act.

WAGES OF A WORKER WHO WORKS LESS THAN NORMAL WORKING DAY (SECTION 15)

Employee works on any day on which he employed for a period less than the requisite
number of hours he shall be entitled to receive wages if he had worked for a full working
day.

Provided shall not receive wages for full normal working day —

(i) if his failure to is caused by his unwillingness to work and not by omission of employer.
(ii) other cases as may be prescribed.

MAINTENANCE OF REGISTERS AND RECORDS (SECTION 18)

Apart from payment of the minimum wages, employer is required to maintain registers and
records. Every employee is required to exhibit notices in the place of work.

AUTHORITY AND CLAIMS (SECTION 20-21)

● Appropriate Government, may appoint authority to hear and decide any claims arising
out of payment of less than minimum rate of wages.

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● Authority so appointed shall have jurisdiction to hear and decide claim or

remuneration for days of rest or payment of overtime.

OFFENCES AND PENALTIES

Employer who pays employee less than the minimum rates or contravenes any rule shall be
punishable with imprisonment which may extend to six months or fine which may extend
to five hundred rupees or with both.

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18 LAW OF WAGES
Chapter UNIT 3 – Payment of Bonus Act, 1965

REGULATORY FRAMEWORK

● Payment of Bonus Act, 1965

OBJECT AND SCOPE OF THE ACT

The object of the Act is to provide payment of bonus to persons employed in certain
establishments Jalan Trading Co. (Pvt.) Ltd. v. Mill Mazdor Sabha, “object of the Act to
maintain peace and harmony between labour and capital by allowing employees to share
prosperity of establishment and prescribing maximum and minimum rates of bonus.

Mumbai Kamgar Sabha v. Abdulbhai Faizullabhai, that “bonus” is a word of

many houses. There is profit based bonus which is one specific kind of claim.
There is customary or traditional bonus.
Conceptually, statutory bonus and customary bonus operate in two fields and do not clash
with each other.

APPLICATION OF THE ACT

Act extends to the whole of India, and Act shall apply to

(a) every factory;

(b) every other establishment in which twenty or more person employed

Appropriate Government may, after giving two months notice apply provisions of this Act
to any establishment including factory employing persons less than twenty however, shall
in no case be less than ten.

ACT NOT TO APPLY TO CERTAIN CLASSES OF EMPLOYEES

Act shall not apply to:

(i) employees employed by any insurer carrying general insurance business and Life
Insurance Corporation of India;
(ii) seamen of Merchant Shipping Act, 1958;
(iii) employees under the Dock Workers
(iv) employees of department of Central or a State Government or local authority;
(v) employees employed by the Reserve Bank of India;
(vi) employees employed by

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(a) Industrial Finance Corporation of India;

(b) Deposit Insurance Corporation;
(c) National Bank for Agriculture Rural Development;
(d) Unit Trust of India;

(e) Industrial Development Bank of India;

(f) Small Industries Development Bank of India (eb) National Housing Bank;

Apart from above, appropriate Government necessary powers to exempt establishment

from provisions of the Act.

IMPORTANT DEFINITIONS

Accounting Year

“Accounting Year” means

(i) in relation to corporation, year ending on day which books are to be closed;

(ii) in relation to company, period of which profit and loss account laid before annual
general meeting is made up, whether year or not;

(iii) in any other case

(a) year commence on 1st day of April

Allocable Surplus

It means —

(a) in relation to an employer, being a company (other than a banking company) sixty-
seven per cent of available surplus in accounting year;

(b) in any other case sixty per cent of available surplus.

Award

Means interim or a final determination of industrial dispute by Labour Court, Industrial

Tribunal or National Tribunal and includes an arbitration award.

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Corporation

Means body corporate established under Central, Provincial or State Act not include
company or a co-operative society.

Employee

Means any person employed on a salary not exceeding Rs. 21,000/- per mensem.

Employer

“Employer” includes:
(i) in relation to factory, owner or occupier of the factory,
(ii) in relation other establishment, person who, has ultimate control over affairs of
establishment

Establishment in Private Sector

Means any establishment other than establishment in public sector.

Establishment in Public Sector

Means an establishment owned, controlled managed by:

(a) Government company;
(b) Corporation in which not less than forty percent of capital is held by:
(i)Government; or
(ii) Reserve Bank of India;

Salary or Wage

Means all remuneration capable of being expressed in terms of money be payable to

employee in respect of work done and includes dearness allowance but does not include:
(i) other allowance;
(ii) value of house accommodation;
(iii) travelling concession;
(iv) bonus;
(v) contribution paid to any pension fund or provident fund;
(vi) commission payable

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Establishment

Word establishment shall include all departments, undertakings branches situated in same
place or different places for purpose of computation of bonus:

Where a separate balance-sheet and profit and loss account prepared in respect of any
department or branch then such department, or branches shall be treated as a separate
establishment for the purpose of computation of bonus.

CALCULATION OF AMOUNT PAYABLE AS BONUS

1. First of Gross Profit is calculated.

2. From this Gross Profit, sums deductible.

3. To this figure, add sum equal to difference between direct tax calculated on gross
profit for previous year and direct tax calculated on gross profit after deducting bonus
paid or payable.

4. Figure so arrived will be available surplus.

5. Of this surplus, 67% in case of company and 60% in other cases, shall be “allocable
surplus”.

Sec 12: Calculation of Bonus with respect to certain employees

For calculating the amount of min. or max. bonus, if the salary/ wages of employee
exceeds ₹ 7000 or min. wage prescribed (Whichever is higher),

The bonus payable to such employee shall be calculated as if his salary / wage were ₹
7000 or min. wage prescribed (Whichever is higher).

ELIGIBILITY FOR BONUS AND ITS PAYMENT

(i) Eligibility for bonus

Every employee entitled to be paid in accounting year, bonus, provided he has worked for
not less than thirty working days in that year.

(ii) Disqualification for bonus

If he is dismissed from service for:

(a) fraud;
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(b) violent behaviour on the premises;

(c) theft, misappropriation of property of establishment.

(iii) Payment of minimum bonus

Every employer bound to pay a minimum bonus which shall be 8.33 per cent of salary or
one hundred rupees whichever is higher, whether or not employer has allocable surplus in
accounting year:

Where employee not completed fifteen years of age words one hundred rupees the words
sixty rupees were substituted.

Even if the employer suffers losses during accounting year, bound to pay minimum bonus as
prescribed by Section 10 [State v. Sardar Singh Majithia].

(iv) Maximum bonus

(1) Where allocable surplus exceeds minimum bonus payable employer shall be bound to
pay bonus which shall be maximum of twenty per cent of such salary or wage.

(v) Proportionate reduction in bonus in certain cases

Where employee not worked for all working days minimum bonus of one hundred rupees
or, sixty rupees, if such bonus is higher than 8.33 per cent of salary shall be proportionately
reduced.

(vi) Computation of number of working days

Employee shall be deemed to worked also on the days on which:

(a) he has been laid off

(b) been on leave with salary or wage;

(c) been absent due to temporary disablement caused by accident arising out of
employment;

(d) employee on maternity leave.

(vii) Set on and set off of allocable surplus

(1) Where allocable surplus exceeds amount of maximum bonus payable then, the excess
shall, subject to twenty per cent of the total salary be carried forward for being set on
in succeeding accounting year

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(2) Where no available surplus or the allocable surplus amount of minimum bonus
payable to the employees and there is no amount or sufficient amount carried
forward for purpose of payment of minimum bonus, shall be carried forward in
succeeding accounting year.

(viii) Adjustment of customary or interim bonus

Where (a) employer paid any puja bonus or customary bonus (b) paid part of the bonus
payable before bonus becomes payable; then, employer shall entitled to deduct bonus so
paid from bonus payable.

(ix) Time limit for payment of bonus

Where employee is found guilty of misconduct causing financial loss it shall be lawful to
deduct amount of loss from bonus payable and employee shall be entitled to receive
balance, if any.

(b) Where there is dispute regarding payment of bonus pending before authority shall be
paid in cash within month from date from which award becomes enforceable.

(c) Bonus should be paid within a period of eight months from the close of the accounting
year.

(x) Recovery

Where money is due to employee by way of bonus from his employer under award or
agreement, the employee or heirs may, make application to appropriate Government for
recovery and Government shall issue a certificate for that amount to Collector who shall
proceed to recover.

Such application shall be made within one year from date on which money become due.

BONUS LINKED WITH PRODUCTION OR PRODUCTIVITY

Section 31A enables the employees and employers to operate a scheme of bonus payment
linked to production or productivity in lieu of bonus based on profits.

POWER OF EXEMPTION

Appropriate Government is of opinion that it will not be in public interest to apply

provisions of Act, it may, by notification exempt establishments from all or any of the
provisions of this Act.

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PENALTIES

If person contravenes provisions shall be punishable with imprisonment which may extend
to six months, or fine which may extend to one thousand rupees, or with both.

OFFENCES BY COMPANIES

If person committing offence is company, every person who was responsible for conduct of
business as well as company, deemed to be guilty of offence and shall be liable and
punished accordingly.

‘Company’ means body corporate and includes firm and ‘director’, in relation to a firm,
means a partner in the firm.

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18 LAW OF WAGES
Chapter UNIT 4 – Equal Remuneration Act, 1976

OBJECT AND SCOPE OF THE ACT

The Equal Remuneration Act, 1976 provides payment of equal remuneration to men and
women for same work or work of similar nature without any discrimination and prevents
discrimination against women employees while making recruitment, or in any condition of
service subsequent to recruitment. The Act extends to whole of India.

Definitions

● “Man” and “Woman” mean male and female human beings, respectively, of any age.

● “Remuneration” basic wage or salary, and additional emoluments payable, in cash or

in kind, to person employed, if the of contract of employment, were fulfilled.

● “Same work or Work of a similar nature” means work in respect of which the skill,
effort and responsibility required are the same, when performed under similar
working conditions, by a man or a woman.

Act to have overriding effect

Section 3 provisions of the Act shall have effect notwithstanding anything inconsistent
contained in any other law or contract of service, whether made before or after the
commencement of the Act.

Duty of employer to pay equal remuneration to men and women workers for same work
or work of a similar nature

Section 4 no employer shall pay to any worker, remuneration, in cash or in kind, at rates
less favourable than those at which remuneration is paid by him to the workers of the
opposite sex performing same work or work of a similar nature.

Discrimination not to be made while recruiting men and women

Section 5 employer while making recruitment for same work or work of a similar nature,
shall not make discrimination against women except where employment of women is
prohibited or restricted under any law.

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Above mentioned section shall not affect priority or reservation for Scheduled Castes or
Scheduled Tribes.

Authorities for hearing and deciding claims and complaints

Section 7 appropriate Government appoint such officers, not below the rank of a Labour
Officer, for hearing and deciding complaints with regard to contravention of provision of
the Act; claims arising out of non-payment of wage.

Maintenance of Registers

Section 8 duty of every employer, to maintain registers in relation to workers employed.

Penalty

If employer:-
(i) makes recruitment in contravention;
(ii) makes any payment of remuneration at unequal rates;
(iii) makes discrimination between men and women;
(iv) omits or fails to carry direction by appropriate Government, then he/ she shall be
punishable with fine or with imprisonment or with both.

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19 SOCIAL SECURITY LEGISLATIONS

Chapter UNIT 1 – Employees’ State Insurance Act, 1948

REGULATORY FRAMEWORK

● Employees’ State Insurance Act, 1948

INTRODUCTION

● The Employees’ State Insurance Act, 1948 provides for certain benefits to employees
in case of sickness, maternity and employment injury.

● The Act extends to the whole of India.

IMPORTANT DEFINITIONS

(i) Confinement
Means labour resulting in issue of a living child or labour after 26 weeks of pregnancy
resulting in issue of child whether alive or dead.

(ii) Contribution
Means the sum of money payable to Corporation by principal employer.

(iii) Dependent
Means any of the following relatives of a deceased insured person namely:
(i) a widow, a legitimate or adopted son not attained age of twenty-five year an
unmarried legitimate or adopted daughter,
(ii) a widowed mother,
(iii) if wholly dependent a legitimate or adopted son or daughter attained age of 25 years;
(iv) if wholly or in part dependent on the earnings of insured person at the time his death:
(a) parent other than widowed mother,
(b) minor illegitimate son, unmarried illegitimate daughter,
(c) minor brother or unmarried sister or widowed sister,
(d) widowed daughter-in-law,
(e) minor child of a pre-deceased son,
(f) minor child pre-deceased daughter,
(g) paternal grand parent if no parent of insured person is alive.

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(iv) Employment Injury

E.S.I. Corpn. Indore v. Babulal, the M.P. High Court held that injury arose out of
employment where workman attending duty in spite of threats for strike and was assaulted
while returning after duty. A worker was injured while knocking the belt of the moving
pulley, though injury caused was to his negligence, yet such an injury amounts to an
employment injury (Jayanthilal Dhanji Co. v. E.S.I.C.).

The word injury does not mean only visible injury in the form of some wound. Such a
narrow interpretation would be inconsistent with the purposes of the Act which provides
certain benefits in case of sickness, maternity and employment injury (Shyam Devi v.
E.S.I.C., AIR 1964 AII. 42).

(v) Exempted Employee

Means an employee who is not liable under this Act to pay the employees contribution.

(vi) Family

(i) spouse;
(ii) minor legitimate or adopted child;
(iii) child wholly dependent on earnings of insured person:
(iv) child infirm by physical or mental abnormality and is wholly dependent;
(v) dependent parents;
(vi) In case insured person unmarried and parents are not alive, a minor brother or sister
wholly dependant.

(vii) Factory

“Factory” means any prjemises including the precincts thereof whereon ten or more
persons are employed on any day of preceding twelve months, but does not including a
mine or railway running shed.

(viii) Insurable Employment

Means an employment in factory to which the Act applies.

(ix) Insured person

Means a person who is or was employee and who is by reason entitled to any of the
benefits.

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(x) Permanent Partial Disablement

Means such disablement, as reduced the earning capacity of an employee in every

employment:

(xi) Permanent Total Disablement

Means such disablement of a permanent nature as incapacitates employee for all work:

(xii) Seasonal Factory

Means a factory exclusively engaged in one or more following manufacturing processes

namely, cotton ginning, cotton or jute pressing, decortication of groundnuts, manufacture
of coffee, indigo, lac, rubber, sugar, tea and includes a factory engaged for period not
exceeding seven months in a year:

(xiii) Sickness

Means a condition which requires medical treatment.

(xiv) Temporary Disablement

Means a condition resulting from employment injury renders employee temporarily

incapable of doing work.

(xv) Wages

Means all remuneration paid or payable in cash to an employee and includes payment in
respect of period of authorised leave, lock-out, strike which is not illegal but does not
include:
(a) contribution paid to pension fund or provident fund;
(b) travelling allowance;
(c) gratuity payable.

REGISTRATION OF FACTORIES AND ESTABLISHMENTS UNDER THIS ACT

Every factory or establishment to which this Act applies shall registered in manner as may
be specified.

EMPLOYEES’ STATE INSURANCE

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Section 38 makes compulsory all the employees in factories shall be insured. Such insured
persons shall pay contributions towards Insurance Fund.

ADMINISTRATION OF EMPLOYEES’ STATE INSURANCE SCHEME

For administration of scheme Employees’ State Insurance Corporation Standing Committee
have been constituted. ESI Fund has been created which is administered by ESI Corporation.

EMPLOYEES’ STATE INSURANCE CORPORATION

Section provides for establishment of Employees’ State Insurance Corporation for

administration of Scheme.

Constitution

Central Government appoints chairman, vice-chairman and other members. Three

members of Parliament are its ex- officio members.

Powers and duties of the Corporation

Section 19 to promote measures for the improvement of the health and welfare of insured
persons.

Section 29:

Empowers corporation:-
1. to acquire & hold property both movable and immovable,

2. It can invest & reinvest moneys which are not immediately required for expenses.

3. It can raise loans & discharge such loans with previous sanction of Central
Government.

4. It may constitute for benefit of staff or any class of workers provident or other
benefit fund.

Appointment of Regional Boards, etc.

Corporation may appoint Regional Boards, Local Committees and delegate powers and
functions, as may be provided.

WINGS OF THE CORPORATION

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TWO WINGS
Standing Committee

The Act provides for constitution of a Standing Committee.

Power of the Standing Committee

To administer affairs of Corporation and perform functions of the Corporation.

Medical Benefit Council

Section 10 Central Government to constitute a Medical Benefit Council. The Council shall:
(a) advise Corporation and Standing Committee on matters relating to medical benefit;
(b) have powers and duties of investigation against medical practitioners;
(c) perform such other.

EMPLOYEES’ STATE INSURANCE FUND

Creation of Fund

Section 26 Act provides all contributions paid and moneys received shall be paid into Fund
called the Employees’ State Insurance Fund. Corporation may accept grants, gifts,
donations from Central or State Governments. A Bank account in name of Employees’ State
Insurance Fund shall be opened with Reserve Bank of India.

Purposes for which the Fund may be expended

Fund shall be expended only for the following purposes:

(i) payment of benefits to insured persons and to their families;
(ii) payment of fees to members of Corporation, Standing Committee and Medical
Benefit Council;
(iii) payment of salaries, leave, travelling and compensatory allowances to servants of the
Corporation;
(iv) establishment and maintenance of hospital;
(v) payment of contribution to State Government, local authority towards cost of medical
treatment;
(vi) payment of sums under any decree, order or award, against the Corporation or

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servants.
(vii) Defraying the cost :
a. Of instituting or defending civil or criminal proceedings.
b. Of auditing accounts of corporation
c. Of employees Insurance courts
d. On measure for improvement of health / welfare of insured person & rehabilitation
of insured person.

CONTRIBUTIONS

Contributions to be paid at rates prescribed by Central Government.

Principal employer to pay contributions in the first instance

Section 40 it is incumbent upon principal employer to pay both the employers

contributions and the employees contribution. However, he can recover from employee
the employees contribution by deduction from wages.

If contribution payable not paid, he shall be liable to pay interest at the rate 12 per cent per
annum or higher rate as may be specified.

Recovery of contribution from immediate employer

Section 41, principal employer who has paid contribution is entitled to recover amount of
contribution from immediate employer either by deduction from any amount payable to
him by principal employer.

Method of payment of contribution

Section 43 provides for payment and collection of contribution payable:

1) Manner and time for payment of contribution as provided under regulations.

2) Payment of contribution by means of adhesive stamp affixed to books or cards.
3) Date by which contribution been paid is received by corporation as stated under

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regulation.
4) Entry in books or cards and particulars of contribution paid and benefits distributed.
5) Issue, sale, custody, inspection & delivery of books which have been lost, destroyed or
defaced.

BENEFITS
Section 46 insured persons, their dependants are entitled to the following benefits on
prescribed scale:
(a) periodical payments in case sickness;
(b) periodical payments to insured workman in case of confinement miscarriage or
sickness out of pregnancy,;
(c) periodical payment to an insured person suffering from disablement;
(d) payment to dependants of insured person;
(e) medical treatment;
(f) payment of funeral expenses.

General provisions relating to Benefits

Right to receive benefits not transferable or assignable. When receives benefits under this
Act not entitled to receive benefits under other enactment.

EMPLOYEES’ INSURANCE COURT (E.I. COURT)

Constitution
Section 74 Act provides State Government shall constitute Employees’ Insurance Court.
Person who is or has been judicial officer of 5 years standing shall be qualified to be judge.

Matters to be decided by E.I. Court

(i) Adjudication of disputes

Employees’ Insurance Court has jurisdiction to adjudicate disputes.

(ii) Adjudication of claims

El Court has jurisdiction to decide claims for recovery of contribution from principal
employer action for failure or negligence to pay contribution.

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No Civil Court has power to decide matters within the purview of E.I. Court.

EXEMPTIONS
Appropriate Government may exempt any factory/establishment from the purview of this
Act. Such exemption initially given for one year and extended from time to time.

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Chapter UNIT 2 – Employees’ Provident Funds and
Miscellaneous Provisions Act, 1952

REGULATORY FRAMEWORK
● Employees’ Provident Funds and Miscellaneous Provisions Act, 1952

INTRODUCTION
Provident Fund schemes for the benefit of the employees.
The following three schemes been framed under Act by the Central Government:

(a) Employees’ Provident Fund Schemes, 1952;

(b) Employees’ Pension Scheme, 1995; and

(c) Employees’ Deposit-Linked Insurance Scheme; 1976.

APPLICATION OF THE ACT

The Act applies:

(a) to factory in which twenty or more persons employed; and

(b) to other establishment employing twenty or more persons:

Provided that Central Government may, after giving two months notice apply provisions to
establishment employing number of persons less than twenty.

Non-applicability of the Act to certain establishments

Act shall not apply to (a) establishments registered under Co-operative Societies Act, 1912;
(b) other establishment under control of Central or State Government whose employees
entitled to provident fund or old age pension; (c) other establishment set up under Central,
Provincial or State Act whose employees entitled to provident fund or old age pension.

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IMPORTANT DEFINITIONS

(i) Basic Wages

Means all emoluments earned by employee:

(i) cash value;

(ii) dearness allowance;
(iii) presents made by the employer.
(ii) Contribution
Means a contribution payable in respect of a member under a Scheme.

(iii) Controlled Industry

Any industry control of which by the Union has been declared by the Central Act.

(iv) Employee

Means any person employed for wages in connection with work and gets wages includes
any person
(i) employed by contractor;
(ii) engaged as apprentice.

Sons being paid wages are employees (Goverdhanlal v. REPC).

“Employee”, includes part-time employee, sweeper working twice or thrice night watchman
gardener working for ten days in month, etc. (Railway Employees Co-operative Banking
Society Ltd. v. The Union of lndia).

(v) Exemption Establishment

Means an establishment of which exemption granted from operation of all or any

provisions of Scheme.

(vi) Factory
Any premises including precincts thereof, in any part of which a manufacturing process
carried on whether with the aid of power or without the aid of power.

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(vii) Fund

Means Provident Fund.

(viii) Industry

Means any industry specified in Schedule I.

(ix) Insurance Fund

Means the Deposit-Linked Insurance Fund.

(x) Insurance Scheme

Means the Employees Deposit-Linked Insurance Scheme.

(xi) Manufacture or Manufacturing Process

Means any process for making, altering, finishing, packing, washing, cleaning with a view to
its use, sale, transport, delivery or disposal.
(xii) Member

“Member” means a member of the Fund.

(xiii) Occupier of a Factory

Means the person, who has ultimate control over the affairs of the factory.

(xiv) Pension Fund

Means the Employees Pension Fund.

(xv) Pension Scheme

Means the Employees Pension Scheme.

(xvi) Scheme
Employees’ Provident Fund Scheme.

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(xvii) Superannuation
In relation to an employee, who is member of the Pension Scheme, means attainment of
the age of fifty-eight years.

SCHEMES UNDER THE ACT

(A) Employees Provident Fund Scheme

● Administration of the Fund
(a) Central Government may constitute Board of Trustees.
(b) Scheme also lays down manner in which the Board shall administer the funds.
● Class of employees entitled and required to join Provident Fund
Every employee in factory or other establishment to which scheme applies entitled
and required to become member of the fund.
‘Excluded employee’ means:
(i) employee having been member withdraw full amount his accumulations in Fund;
(ii) employee whose pay exceeds fifteen thousand rupees per month.
(iii) An apprentice.
● Contributions
Contribution paid by employer to Fund shall be 10%, of basic wages, dearness
allowance and retaining allowance. Each contribution calculated to nearest rupee, fifty
paisa or more to be counted as next higher rupee.
Dearness allowance include cash value food concession. Retaining allowance payable
to employee for retaining his services, when establishment is not working.

● Investment: Members of the Provident Fund get interest on money standing to their
credit in their Provident Fund Accounts.
● Advances/Withdrawals: Advances from the Provident Fund can be taken for following
purposes:
(1) Payment towards Life Insurance;
(2) Purchasing a dwelling house or flat or for construction of a dwelling house;
(3) Non-refundable advance to members due to temporary closure of factory;

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(4) (i) Non-refundable in case of:

(a) hospitalisation lasting one month or more,
(b) surgical operation,
(c) suffering from T.B., Leprosy, Paralysis, Cancer;

(ii) Non-refundable advance for the treatment of a member of his family,

requires hospitalisation, for one month or more:

(a) for surgical operation;

(b) for treatment of T.B., Leprosy, Paralysis, Cancer;

(5) Advance for daughter/sons marriage, self-marriage, marriage of sister/brother;

(6) advance to members affected by cut in the supply of electricity;

(7) advance in case property is damaged by a calamity;

(8) Withdrawals for repayment of loans in special cases;

(9) Advance to physically handicapped members for purchasing equipment.

● Final withdrawal: Full accumulations with interest are refunded in event of death,
permanent disability, superannuation, retrenchment or migration from India.

(B) Employees’ Pension Scheme

● Government has introduced a new pension scheme styled Employees’ Pension
Scheme, 1995 in place of Family Pension Scheme, 1971.
● Compulsory for persons who become members of the Provident Fund.

● Minimum 10 years contributory service is required for entitlement to pension. Normal

superannuation pension payable on attaining age of 58 years. Pension on discounted
rate payable on attaining age of 50 years.

● Scheme provides for payment of monthly pension in following contingencies (a)

Superannuation age of 58 years; (b) Retirement; (c) Permanent total disablement; (d)
Death during service; (e) Death after retirement; (f) Children Pension; (g) Orphan
pension.

(C) Employees’ Deposit-Linked Insurance Scheme

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Employees’ Deposit-Linked Insurance Scheme for the purpose of providing life

insurance benefit to the employees of any establishment.

1. Application of the Scheme: Applicable to all factories/establishments to which

Provident Funds applies.

2. Contributions to the Insurance Fund: Employees not required to contribute to

Insurance Fund. Employers required to pay contributions at the rate of 1% total
emoluments.

3. Administrative expenses: Employers of all covered establishments required to pay

charge Insurance Fund.

4. Payment of assurance benefit: In case of death of a member, amount equal average

balance in account of deceased during preceding 12 months period of membership,
whichever is less shall be paid to persons eligible.

5. Exemption from the Scheme: Factories/establishments, which Insurance Scheme

conferring more benefits than those provided under statutory Scheme.

DETERMINATION OF MONEYS DUE FROM EMPLOYERS

(i) Determination of Moneys Due

Section 7A vests the powers of determining the amount due from any employer and
deciding dispute in the Central Provident Fund Commissioner.

Central Government already constituted Employees Provident Fund Appellate

Tribunal. Any person aggrieved by order may prefer an appeal.

(ii) Mode of recovery of moneys due from employee

Section 8 mode of recovery of moneys due from employers as may be

authorised in the same manner as an arrear of land revenue.

(iii) Recovery of moneys by employers and contractors

Section 8A lays down employer’s contribution as well as employee’s contribution from

contractor either by deduction from amount payable to contractor or debt payable by
contractor.

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(iv) Measures for recovery of amount due from employer

Authorised officer shall issue a certificate for recovery of amount due from employer.
Recovery Officer got powers to attach/sell property of employer for effecting
recovery. Authorised officer can grant time to make payment of dues.

(v) Priority of payment of contributions over other debts

Section 11 provides that contribution towards Provident Fund shall rank prior to other
payments in the event of employer being adjudicated insolvent.

EMPLOYER NOT TO REDUCE WAGES

Section 12 prohibits employer not to reduce wages of employee by reason of his liability for
the payment of contribution to Fund.

TRANSFER OF ACCOUNTS

Section 17A(1) of Act provides where employee to which this Act applies leaves
employment and obtain re- employment in another establishment to which Act does not
apply, the amount of accumulations shall be transferred to the credit of his account in the
Provident Fund of establishment in which he is re-employed.

PROTECTION AGAINST ATTACHMENT

Statutory protection provided to amount of contribution to Provident Fund from

attachment to any Court decree. Amount standing to credit of any member in the Fund
shall not be liable to attachment under any decree or order in respect of any liability
incurred by member.

Amount standing to the credit at the time of his death and payable to his nominee.

POWER TO EXEMPT

Section 17 appropriate Government to grant exemptions to certain establishments from all

or any of the provisions of the Scheme.

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Chapter UNIT 3 – Maternity Benefit Act, 1961

REGULATORY FRAMEWORK

● Maternity Benefit Act, 1961

INTRODUCTION

Maternity Benefits are aimed to protect dignity of motherhood by providing full and
healthy maintenance of women and her child when she is not working.

1. “Commissioning Mother” means a biological mother who uses egg to create an

embryo implanted in any other woman.

2. “Establishment” means —
(i) a factory;
(ii) a mine;
(iii) plantation;

3. “Wages” means all remuneration paid or to a woman if the terms of the contract of
employment were fulfilled and includes -

(1) cash allowances

(2) incentive bonus

(3) money value of concessional supply of food grains but does not include —

(i) bonus;

(ii) over-time earnings;

(iii) contribution paid to pension fund or provident fund;

(iv) gratuity payable;

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Employment of or work by women prohibited during certain periods

Section 4 provides that no employer shall knowingly employ a woman also no women shall
work during the six weeks immediately following delivery, miscarriage of pregnancy.

If pregnant women makes request to her employer, she shall not be given during one
month immediately preceding expected delivery work which involves:-

a. long hours of standing.

b. Work of arduous nature (tiring)

c. Work likely to interfere with pregnancy or normal development of fetus.

d. Work likely to cause her miscarriage.

Right to payment of maternity benefits

Right to payment of maternity Benefit

1) Every woman shall be entitled & employer shall be liable for payment of maternity
benefit at rate of average daily wage for the period of her absence.

2) Average daily wage :- It means average of woman's wages payable to her for days on
which she has worked during the 3 calender months immediately preceding the date from
which she absents, the minimum rate of wages fixed or ₹10 , whichever is highest

3) A woman shall be entitled to maternity benefit if she has worked period not less than
80 days in 12 months immediately preceding the expected date of delivery.

4) The maximum period for which woman shall be entitled to maternity benefit shall be 26
weeks of which not more than 8 weeks shall precede date of expected delivery.

The maximum period in case of woman having 2 or more child shall be 12 weeks of
which not more than 6 weeks shall precede date of expected delivery.

If woman dies during this period, maternity benefit shall be payable only for days upto
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her death.

However, if a woman dies, leaving behind the child than employer shall be liable for
maternity benefit for entire period.

If child also dies then for days upto date of death of child.

5) Woman who legally adopts a child below the age of 3 months, shall be entitled to
maternity benefit of 12 weeks.

6) In case the work assigned to woman can be done from home, she may work from home
& employer may allow her to do so after availing maternity benefit.

Notice of claim for maternity benefit

Section 6 any woman entitled to maternity benefit may give notice to her employer, stating
that maternity benefit and any other amount may be paid to her and that she will not work
during period for which receives maternity benefit.

The failure to give notice shall not disentitle woman to maternity benefit, if she is otherwise
entitled to such benefit.

On an application made to inspector by woman, the inspector may order the payment of
such amount or benefit.

Nursing breaks

Every woman who returns to duty after delivery shall, in addition interval for rest be
allowed for nursing child until child attains age of fifteen months.

Creche Facility

Every establishment having fifty or more employees shall have facility of creche. Employer
shall allow four visits to the creche which shall include interval for rest.

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Abstract of Act and Rules there under to be exhibited

Abstract of the provisions of this Act shall be exhibited in a conspicuous place of the
establishment.

Regsiters

Every employer shall prepare and maintain such registers, records and muster-rolls and in
prescribed manner under section 20 of the Act.

Penalty for contravention of Act by employer

Section 21 provides if employer fails to pay maternity benefit to woman, he shall be
punishable with imprisonment not less than three months but may extend to one year and
fine not less than two thousand rupees but may extend to five thousand rupees.

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Chapter UNIT 4 – Payment of Gratuity Act, 1972

INTRODUCTION

Gratuity is a lump sum payment made by employer as a mark of recognition of the service
rendered by employee when he retires or leaves service.

APPLICATION OF THE ACT

The Act applies to:

(a) factory, mine, oilfield, plantation, port and railway company;

(b) shop or establishment in which ten or more person employed on any day of preceding
twelve months;

(c) other establishments in which ten or more employees are employed on any day

preceding twelve months. A shop or establishment to which Act applicable once,

continues even if number of persons.

WHO IS AN EMPLOYEE?

Definition of “employee” amended by Payment of Gratuity (Amendment) Act, 2009 to

cover teachers in educational institution retrospectively with effect from 3 rd April, 1997.

OTHER IMPORTANT DEFINITIONS

Continuous Service

For the purposes of this Act:

(1) An employee shall be said to be in ‘continuous service’ if he has, been in

uninterrupted service, including service interrupted on account of sickness, accident,
layoff, strike or work not due to fault of employee;

(2) Where employee not in continuous service for period of one year or six months, he
shall be deemed to be in continuous service under the employer:

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(a) for the said period of one year, if employee worked for not less than:

(i) one hundred and ninety days in case employed below ground in mine which
works for less than six days in a week;

(ii) two hundred and forty, days in other case;

(b) for the said period of six months, if employee during period of six calendar
months worked under employer for not less than:

(i) ninety five days, in case employee employed below ground in a mine which
works for less than six days in a week; and

(ii) one hundred and twenty days any other case;

(3) Where employee, employed in a seasonal establishment not in continues service, he

shall be deemed to be in continuous service if he worked for not less than seventy-five
per cent of number of days establishment was in operation.

Family

In relation to an employee, shall be deemed to consist of:

(i) in case of a male employee, himself, his wife, his children dependent parents and
dependent parents of his wife and widow of predeceased son,

(ii) in the case of a female employee, herself, husband, children, dependent parents and
dependent parents of her husband and widow of her predeceased son.

Retirement

Means termination of the service of an employee otherwise than on superannuation.

Superannuation

Relation to an employee, means attainment by employee of age as is fixed in the contract.

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Wages

Means all emoluments earned by an employee while on duty or on leave paid or are
payable to him in cash and includes dearness allowance but does not include bonus,
commission, house rent allowance, overtime wages.

WHEN IS GRATUITY PAYABLE?

Gratuity shall be payable to employee on termination of his employment after he has

rendered continuous service for not less than five years:

Note: Completion of continuous service of five years not necessary where termination of
employee is due to death or disablement.

TO WHOM IS GRATUITY PAYABLE?

Payable normally to employee himself. In case of death of the employee shall be paid to his
nominee.
Where such nominee is minor, the share of such minor shall be deposited with the
controlling authority, who shall invest the same for benefit of minor in Bank/ Financial
institution until minor attains majority.
Amount of Gratuity Payable

Calculated on the basis of continuous for every completed year of service or part in excess
of six months, at the rate of fifteen days wages last drawn. Maximum amount of gratuity
allowed is Rs. 20 lakh.

Forfeiture of Gratuity

Act deals with this issue in two parts gratuity of employee have been terminated for willful
omission or negligence. Gratuity shall be forfeited to the extent of damage or loss caused.
In absence of proof forfeiture is not available.

EXEMPTIONS

Appropriate Government may exempt factory if gratuity or pensionary benefits for

employees are not less favourable than conferred under the Act.

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The Controlling Authority and the Appellate Authority

Controlling authority and the Appellate Authority are two important functionaries.

RIGHTS AND OBLIGATIONS OF EMPLOYEES

Application for Payment of Gratuity

Section 7(1) person who is eligible for payment of gratuity shall send a written application
to the employer where date of superannuation or retirement is known, employee may
apply to employer before 30 days of the date of superannuation.

Although the forms have been laid down, an application on plain paper is also accepted.

RIGHTS AND OBLIGATIONS OF THE EMPLOYER

Employers Duty to Determine and Pay Gratuity

● As soon as gratuity becomes payable employer shall, whether application been made
or not, determine amount of gratuity and give notice to person to whom gratuity is
payable.

● Employer shall arrange to pay amount of gratuity within thirty days from becoming
payable.

● If amount of gratuity not paid within period specified employer shall pay simple
interest at the rate of 10 per cent per annum.

Dispute as the Amount of Gratuity or Admissibility of the Claim

If claim for gratuity not found admissible, employer shall issue notice to employee,
specifying reasons why claim for gratuity not considered admissible.

Recovery of Gratuity

Section 8 provides that if gratuity payable not paid by employer Controlling Authority shall
on application made by aggrieved person, issue certificate to Collector, who shall recover
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same together with compound interest.

Before issuing certificate give the employer reasonable opportunity of showing. Interest
payable shall, in no case, exceed amount of gratuity payable.

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19 SOCIAL SECURITY LEGISLATIONS

Chapter UNIT 5 – Apprentices Act, 1961

INTRODUCTION

The Apprentices Act, 1961 enacted with objective of regulating programme of training of
apprentices in industry for imparting on-the-job training.

Definitions

1. Apprentice means person who is undergoing apprenticeship.

2. Apprenticeship training means course of training in any industry establishment in
pursuance of a contract of apprenticeship.
3. Employer means person who employs one or more other persons to do work.
4. Establishment includes place where any industry is carried on.
5. Graduate or technician apprentice means apprentice who holds degree or diploma in
engineering or non- engineering or technology or equivalent qualification.
6. Industry means any industry in which any trade or occupation carried on.
7. Portal-site means a website of the Central Government for exchange of information.
8. Technician (vocational) apprentice means apprentice who holds certificate in
vocational course involving two years of study after completion of the secondary stage
of school education.
9. Trade Apprentice means an apprentice undergoes apprenticeship training in any
designated trade.

Qualifications for being engaged as an apprentice

(a) is not less than fourteen years of age, and in case of designated trades related to
hazardous industries, not less than eighteen years of age;

(b) satisfies such standards of education and physical fitness as prescribed:

Contract of apprenticeship

Section 4 states that -

1) No person shall be engaged as Apprentice unless such person entered into contract of
Apprentice with employer

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2) Apprenticeship training shall be deemed to commence on date which contract has been
entered into

3) Contract of Apprentice may contain terms & condition as agreed by parties to contract
(but not inconsistent with Act)

4) Employer must send contract of Apprenticeship within 30 Days to

Apprenticeship Adviser until postal site not developed.

- In case of objection Apprenticeship Advisor to convey objections within 15 Days to

Employer.

5) Apprenticeship Adviser shall register contract within 30 Days from receipt.

Novation of contracts of apprenticeship

Section 5

Where employer with whom contract entered into:

1. for any reason unable to fulfill his obligations

2. With the approval of apprenticeship advisor it is agreed between employer and apprentice
that:-

a) Apprentice shall be engaged as apprentice with other employer for unexpired portion

b) shall be deemed to be contract of Apprentice between apprentice & other employer

c) from date of such registration, contract with first employer shall terminate & no
obligation shall be enforceable.

Engagement of apprentices from other States

Employer may engage apprentices from other States for purpose of providing
apprenticeship training.

Period of apprenticeship training

Section 6 of period of apprenticeship training shall be as follows —

(a) In the case of trade apprentice; who undergone institutional training in school or
institution recognised by National Council or State Council.
(b) case of other trade apprentices period of apprenticeship;

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(c) the case of graduate or technician apprentice, period of apprenticeship training shall
be such as may be prescribed.

Number of apprentices for a designated trade and optional trade

Section 8 empowers the Central Government to prescribe number of apprentices to be

engaged by employer.

Practical and basic training of apprentices

Section 9 deals practical and basic training of apprentices.

1) Every employer shall make suitable arrangements in workplace for imparting training.

2) Central / State Apprenticeship Adviser or person not below rank of Assistant

Apprenticeship Adviser shall be given all reasonable facilities for each apprentice to
test his work

3) Trade Apprentice who have not undergone institutional training in school or institution
recognised by National/ State Council shall before admission in workplace for
practical training, undergo basic training in institute having adequate facilities.

4) In case of Apprentice other than graduate or technician or technician (vocational)

Apprentice, the syllabus & equipment to be utilised for practical training shall be such
as approved by Central Government.

5) In case of graduate or technician or technician (vocational) Apprentice, facilities required

for training must be as approved by Central Government.

6) Recurring cost (including cost of stipend) incurred by Employer in relation to apprentice

other than those referred in point 3, shall be borne:-

(i) If Employer employs 250 or more workers - by Employer.

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(ii) If Employer employs less than 250 workers - by Employer & Government in equal share
upto limit specified (Beyond limit - by Employer alone)

7) Recurring cost (excluding cost of stipend) incurred by Employer in relation to graduate or

technician or technician (vocational) Apprentice, shall be borne by Employer &
Government in equal share upto limit specified (Beyond limit - by Employer alone)

Obligations of employers

Every employer shall have the following obligations: –

– provide apprentice;
– if employer is not himself qualified to ensure that a person prescribed is placed in
charge of the training of the apprentice;
– provide adequate instructional staff;
– carry out his obligations under the contract of apprenticeship.

Obligations of apprentice

Every trade apprentice shall have following obligations, namely :-

– learn his trade diligently;
– attend practical and instructional classes regularly;
– carry out all lawful orders of employer;
– carry out obligations under contract.

Hours of work, overtime, leave and holidays

Section:
(1) Weekly and daily hours shall be as determined by the employer.
(2) No apprentice required or allowed to work overtime except with approval of
Apprenticeship Adviser.
(3) Apprentice shall be entitled to leave and holidays which he is undergoing training.

Apprentices are trainees and not workers

Every apprentice shall be a trainee and not a worker.

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Records and returns

Section 19 of provides that every employer shall maintain records in such form as may be
prescribed.

Settlement of disputes

As per section any disagreement or dispute between employer shall be referred to the
Apprenticeship Adviser. Person aggrieved may within thirty days prefer an appeal against
decision to Apprenticeship Council.

Holding of test and grant of certificate and conclusion of training

Every trade apprentice who has completed period of training may appear for test to be
conducted by National Council to determine his proficiency in the designated trade.

Every trade apprentice who passes test shall be granted certificate of proficiency.

Offer and acceptance of employment

Every employer shall formulate own policy for recruiting apprentice. Apprentice shall after

completion of the apprenticeship training, serve employer as per the employment offered

& remuneration fixed in contract.

Authorities under the Act

In addition to the Government namely : –

(a) National Council,

(b) Central Apprenticeship Council,

(c) State Council,

(d) State Apprenticeship Council,

(e) All India Council,

Offence and penalties

Section 30 provides that-

(1) If employer contravenes provisions, he shall be given 1 month’s notice for explaining
reasons for contravention. (1A) In case employer fails to reply after giving opportunity

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of being heard, he shall be punishable fine of five hundred rupees for first three
months and thereafter one thousand rupees per month.
(2) If any employer or any other person –

(a) required to furnish information - refuses or neglects to furnish, refuses to

answer, false answer to any question.
(b) requires apprentice to work overtime
(c) employs apprentice on work not connected with training
(d) makes payment to apprentice on basis of piece-work,

(c) shall be punishable with fine of one thousand rupees.

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SOCIAL SECURITY LEGISLATIONS

19 UNIT 6 – Labour Laws (Simplification of Procedure
Chapter for Furnishing Return and Maintaining Registers by
Certain Establishments) Act, 1988

INTRODUCTION

The Labour Laws (Exemption from Furnishing Returns and Maintaining Registers by certain
Establishments) Amendment Act provides for simplification of procedure for furnishing
returns and maintaining registers in relation to establishments employing a small number of
persons.

Employer

Means the person who is required to furnish returns or maintain registers.

Establishment

Establishment has the meaning assigned to it in a Scheduled Act, and includes — (i)
“industrial or other establishment”; (ii) a “factory”; (iii) a factory, workshop or place to
which minimum wages Act, 1948 , applies. (iv) “plantation” (v) “newspaper establishment”.

Form

Means a Form specified in the Second Schedule. They are as under:

– Form I -Annual Return

– Form II -Register of persons employed-cum-employment card
– Form III- Muster roll-cum-wage register

Scheduled Act

Means an Act specified in the first Schedule. Following are Acts specified in the first

schedule.

1. Payment of Wages Act, 1936

2. Minimum Wages Act, 1948

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3. Factories Act, 1948

4. Plantations Labour Act, 1951
5. Motor Transport Workers Act, 1961
6. Payment of Bonus Act, 1965
7. Contract Labour (Regulation and Abolition) Act, 1970
8. Equal Remuneration Act, 1976
9. Child Labour (Prohibition and Regulation) Act, 1986

Small establishment

Means an establishment in which not less than ten and not more than forty persons
employed on any day of preceding twelve months.

Very small establishment

Means an establishment in which not more than nine persons employed on any day of
preceding twelve months.

Exemption from furnishing or maintaining of returns and registers required under certain
labour laws
Section 4

Acts provides that nothwithstanding anything contained in scheduled Act, it shall not be
necessary for employer in relation to small establishment or very small establishment to
furnish returns or maintain registers required to be furnished or maintained under the
Scheduled Act.

It may be noted that such employer: -

a) furnishes Annual return in Form I (in lieu of such returns)

b) maintains in lieu of such registers:-

- Register in Form II & Form III (in case of small establishment)

- Register in Form III (in case of very small establishment)

However employer shall continue :-

- to issue wage slips in form prescribed under Minimum Wages Act,1948.

- Issue slips relating to measurement amount of work done by piece rated worker
as required under Payment of wages Act, 1936.

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- File returns relating to accidents under Factories Act, 1948.

Furnishing or maintaining of returns and registers in electronic form

The annual return in Form I and the registers in Forms II and III and wage slips may be
maintained by employer in physical form or computer, other electronic media.

Penalty

Section 6 employer who fails to comply with provisions punishable, in case of the first
conviction, with fine extend to rupees five thousand; and in second conviction, with
imprisonment not less than one month but may extend to six months or fine not be less
than rupees ten thousand but may extend to rupees twenty-five thousand, or with both.

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SEXUAL HARASSMENT OF WOMEN AT

20 WORKPLACE (PREVENTION,
Chapter
PROHIBITION & REDRESSAL) ACT, 2013

REGULATORY FRAMEWORK

HISTORY OF THE LEGISLATION

● Sexual harassment of a woman in workplace is of serious concern. The victims of

sexual harassment face psychological and health effects like stress, depression,
anxiety, and so on.

● Sexual harassment results in violation of rights to equality under Articles 14, 15 and
right to life and to live with dignity under Article 21 of the Constitution and right to
practice profession, trade or business which includes a right to a safe environment
free from sexual harassment.

● Principle of gender equality enshrined Constitution, in its Preamble, fundamental

rights, fundamental duties and Directive Principles in landmark judgment of Vishaka v.
State of Rajasthan, Supreme Court framed directions to the Union of India for
combating workplace sexual harassment. Absence of a specific law in India, Supreme
Court, laid down certain guidelines making it mandatory for employer to provide a
mechanism to redress grievances pertaining to workplace sexual harassment.

● In 1992, Bhanwari Devi, dalit woman employed with rural development programme of
Government of Rajasthan, was brutally gang raped on account of efforts to curb
practice of child marriage. Women’s rights activists filed a public interest litigation
under the banner of Vishaka. Supreme Court, for the first time, acknowledged
workplace sexual harassment as a human rights violation.

● As per Vishaka judgment,

● ‘Sexual Harassment’ includes unwelcome sexually determined behavior as:

a. Physical contact and advances;
b.A demand or request for sexual favours;
c. Sexually coloured remarks;
[Link] pornography;
e. other unwelcome physical, verbal or nonverbal conduct of sexual nature.

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● First case after Vishaka was case of Apparel Export Promotion Council v. A.K Chopra,
(1999). Supreme Court upheld dismissal of superior officer of Delhi based Apparel
Export Promotion Council who was found guilty of sexually harassing subordinate
female at the workplace. In this judgment, the Supreme Court enlarged definition of
sexual harassment by ruling physical contact not essential for act of sexual
harassment.

● In 2007 Protection of Women against Sexual Harassment at Workplace Bill, 2007, was
introduced. However, Bill never saw the light of the day. On December 7, 2010, was
introduced in Lok Sabha.

● Subsequent changes were made to the Original Bill, including title of the Bill, changed
to Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal)
Bill, 2013

Medha Kotwal Lele vs. Union of India, stated that Vishaka Guidelines had to be
implemented in form, substance and spirit by ensuring women can work with dignity, and
due respect.

Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act,

2013 (“POSH Act”) was enacted after 16 years of case of Vishaka.

OBJECT OF THE ACT

The Preamble reads as under:

“An Act to provide protection against sexual harassment of women at workplace and
redressal of complaints of sexual harassment.

WHEREAS sexual harassment results in violation of fundamental rights of a woman.

AND WHEREAS protection against sexual harassment and the right to work with dignity are
universally recognised human rights.

AND WHEREAS expedient to make provisions for protection of women against sexual
harassment at workplace.”

What is Workplace Sexual Harassment?

It is the impact and not intent that matters. Workplace sexual harassment apart from
interfering with performance at work, it also affects social and economic growth and puts
them through physical and emotional suffering.

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FORMS OF WORKPLACE SEXUAL HARASSMENT

● Quid Pro Quo (literally ‘this for that’) - promise of preferential/detrimental treatment
threat about her present or future employment status.

● Hostile Work Environment - Creating offensive work environment likely to affect her
health or safety.

APPLICABILITY

The Act applies to organized and unorganized sectors government bodies, private and
public sector organizations, entertainment, financial activities, hospitals educational
institutes, sports and also applies to a dwelling place or a house.

DEFINITIONS (SECTION 2)

1. “Aggrieved woman” means—

i. woman, of any age who alleges to been subjected to act of sexual harassment;

[Link] relation to dwelling place or house, woman of any age employed in dwelling place.

2. “Domestic worker” means

● woman employed to do the household work for remuneration cash or kind, directly
or through agency temporary, permanent, part time basis;

● but does not include member of family of the employer.

3. “Respondent” person against whom the aggrieved woman has made a complaint

4. “Sexual harassment” includes

i. physical contact and advances;

ii. a demand or request for sexual favours; or
iii. making sexually coloured remarks; or
iv. showing pornography; or

Definition is very wide, as it provides for direct or implied sexual conduct. Hence, a
mere statement in a case where the plaintiff requested defendant No. 1 to instruct to
switch off the A. C. Machine, but in reply defendant No. 1 said “... come close to me,
you will start feeling hot”, can also be construed to be sexual harassment [Albert Davit
Limited vs. Anuradha Chowdhury and Ors.

5. “workplace” includes –

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a. department, establishment, enterprise, office, branch owned, controlled by

appropriate Government or local authority or Government company;
b. any private sector organisation;

c. hospitals or nursing homes;

d. any sports institute,

e. any place visited by employee during course of employment including transportation

provided by employer;

f. a dwelling place or a house;

Saurabh Kumar Mallick v. Comptroller & Auditor General of lndia, respondent was facing
departmental inquiry for allegedly indulging in sexual harassment of his senior woman
officer contended that he could not be accused as alleged misconduct took place not at
workplace but at official mess where woman officer was residing. It was also argued that
complainant was senior to respondent and therefore no ‘favour’ could be extracted. Delhi
Court held as ‘clearly misconceived’. In defining term ‘workplace’ It is imperative to take
into consideration recent trend emerged with advancement of information technology. A
person can do business by way of videoconferencing. It has also become a trend office is
being by CEOs from their residence. In a case like this, officer indulges in act of sexual
harassment. It would not be open for him to say that not committed at ‘workplace’ but at
his ‘residence’

Delhi High Court held that official mess definitely falls under ‘workplace’.

“Unorganised sector” means an enterprise owned by individuals number of such workers is

less than ten.

COMPLAINTS COMMITTEE

Act provides for two kinds of complaints mechanisms:

(i) Internal Complaints Committee (ICC);

(ii) Local Complaints Committee (LCC).

Constitution Internal Complaints Committee

Section 4 requires employer to set up (“ICC”) at organization employing 10 or more

employees, to hear and redress grievances pertaining to sexual harassment.

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1. Composition of the ICC:

a. Presiding Officer: who shall be a woman at senior level at workplace, in case senior
level woman not available shall be nominated from other offices;
b. Members: not less than two Members from amongst employees;
c. External member: one member from amongst non-governmental organisations; At

least one-half of the total Members shall be women.

2. Tenure of office:
Presiding Officer and every Member shall hold office for period, not exceeding three years.

Constitution of Local Complaints Committee

At the district level, Government required to set up a ‘Local Complaints Committee’ (“LCC”)
to investigate and redress complaints from establishments where ICC not constituted on
account of having less than 10 employees.

(i) Composition, tenure and other terms and conditions of Local Committee

Section 7, Local Committee shall consist of the following members :- —

a. Chairperson amongst eminent women in the field of social work;

b. one Member nominated from amongst the women working in taluka or tehsil;

c. two Members, of whom at least one shall be a woman, nominated from amongst
non-governmental organisations:

At least one of the nominees shall be woman belonging to the Scheduled Castes or the
Scheduled Tribes or the Other Backward Classes;

Chairperson and every Member shall hold office, not exceeding three years.

COMPLAINT

Complaint of Sexual harassment

1. Any aggrieved woman may make, in writing, complaint of sexual harassment at work
place to Internal Committee if so constituted, or Local Committee, in case not
constituted, within three months from date of incident:

Internal Committee or, Local Committee may extend the time limit not exceeding
three months, if satisfied circumstances prevented woman from filing complaint

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2. Where aggrieved woman unable to make complaint on account of physical or mental

incapacity or death, her legal heir or other person may make complaint.

In Manjeet Singh vs. lndraprastha Gas Limited Delhi High Court observed that anonymous
complaints are bound to be rejected.

CONCILIATION

Section 10, Internal Committee or, Local Committee, at the request of aggrieved woman,
take steps to settle matter through conciliation. No monetary settlement shall be made as a
basis of conciliation.

Where settlement arrived, Internal Committee or Local Committee, shall record settlement
and forward same to District Officer to take action.

Inquiry into Complaint

Section 11 states procedure for conducting inquiry Internal Committee or Local Committee
shall proceed to make inquiry into complaint and if prima facie case exist, forward
complaint to police, within seven days
Where aggrieved woman informs Internal Committee or Local Committee, that any term or
condition of settlement arrived not complied by respondent shall proceed to make inquiry
into complaint or forward complaint to the police.

POSH Act stipulates that ICC and LCC shall, while inquiring have same powers as vested in a
civil court in respect of:-

a. summoning attendance of person and examining him on oath;

b. rediscovery and production of documents;
c. other matter.

Inquiry shall be completed within ninety days.

Action during pendency of inquiry.

Section 12 provides for relief that can be given by IC to aggrieved woman during pendency
of inquiry. During the pendency may recommend to the employer to —

a. transfer aggrieved woman or to other workplace;

b. grant leave up to period of three months;

c. grant other relief as may be prescribed.

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Inquiry Report

● Section 13 provides for action report to be submitted by IC or LC after conducting

inquiry. On completion of inquiry shall provide report of its findings to employer, or
District Officer within ten days from completion of inquiry.

● Where arrives at conclusion that allegation against respondent has not been proved, it
shall recommend that no action required.

● Where arrives at conclusion that allegation against respondent has been proved, shall
recommend employer District Officer –

i. to take action as misconduct in accordance with service rules;

ii. to deduct from salary or wages of the respondent to be paid to the aggrieved
woman.

● In case employer unable to make deduction from salary due to being absent from duty
it may direct respondent to pay such sum to the aggrieved woman. In case respondent
fails to pay, Internal Committee or, Local Committee may forward order for recovery
of sum as an arrear of land revenue

Punishment for false or malicious complaint and false evidence

● Strict provisions under section 14 for false or malicious complaint and false evidence.
Where the Internal Committee or Local Committee, arrives at conclusion that
allegation is malicious. it may recommend to employer or District Officer, to take
action against woman or person who made complaint in accordance with provisions of
service rules or where no service rules exist, in manner prescribed.

● Malicious intent on part of complainant shall be established after inquiry.

● Where witness given false evidence recommend to employer of witness to take action
in accordance with service rules.

Determining of Compensation

Section 15 for determining sums to be paid to aggrieved woman Committee shall have
regard to (a ) the mental trauma, caused to aggrieved woman; (b) loss in career
opportunity; (c) medical expenses for physical or psychiatric treatment; (d) income and
financial status.

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Prohibition of publication or making known contents of complaint and inquiry

proceedings

Section 16, Notwithstanding anything contained in the Right to Information Act, 2005,
contents of complaint and action taken by employer shall not be published, communicated
or made known to the public, in any manner.

Information may disseminated regarding the justice secured to any victim of sexual
harassment without disclosing the name, address, identity.

Penalty for publication or making known contents of complaint and inquiry proceedings

Section 17, where person entrusted to handle complaint, contravenes provisions section 16,
shall be liable for penalty in manner prescribed.

APPEAL

Section 18 appeal by aggrieved person. Any person aggrieved from recommendations made
may prefer appeal to court or tribunal as may be prescribed. Appeal shall be preferred
within ninety days of recommendations.

DUTIES OF EMPLOYER

Every employer shall —

a. provide safe working environment;

b. display at conspicuous place penal consequences of sexual harassments;
c. organise workshops and awareness programmes;
d. provide facilities to Internal Committee or the Local Committee, for dealing with
complaint;
e. assist in securing attendance of witnesses;
f. make available information to Committee as it may require;
g. provide assistance to woman if she so chooses to file a complaint;
h. treat sexual harassment as a misconduct under service rules;
i. monitor timely submission of reports by Internal Committee.

Duties and Powers of Districts Officer

Section 20 following mandatory duties on the District Officer who shall, —

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a. monitor timely submission of reports by Local Committee;

b. take measures for engaging non-governmental organisations for awareness on sexual
harassment.

MISCELLANEOUS

Committee to submit annual report

Section 21, Internal Committee or the Local Committee shall prepare an annual report
submit the same to employer and the District Officer.

Employer to include information in annual report

Section 22, employer shall include in its report number of cases filed, if any, and their
disposal in annual report.

Appropriate Government to take measures to publicise the Act

Section 24, appropriate Government may, (a) develop relevant information, education,
communication and training materials to advance understanding of the public of provisions
of this Act (b) formulate orientation training programmes for the members of the Local
Committee.

Power to call for information and inspection of records

Section 25 —
a. call upon District Officer to furnish information relating to sexual harassment;
b. authorise any officer to make inspection of the records.

Penalty for non-compliance with provisions of Act

Section 26 provides for a penalty with a fine up to rupees fifty thousand where employer
fails to
a. constitute Internal Committee;
b. take action under sections 13, 14 and 22; and
c. contravenes provisions of this Act.
In addition to above shall be liable for cancellation, of his licence or withdrawal, or non-
renewal, or approval, cancellation of the registration.

Setting Up Of Business, Industrial

& Labour Laws
CS SBI & LL
- By CS Kirti Chaturvedi
Sexual Harassment Of Women At Workplace
(Prevention, Prohibition & Redressal) Act, 2013

Cognizance of offence by courts

Section 27, every offence are non-cognizable which means one cannot be arrested without
a warrant. No court inferior to Metropolitan Magistrate or a Judicial Magistrate of the first
class shall try offence punishable under this Act.

Act not in derogation of any other law

Section 28 purpose of the Act to provide additional safeguard to women at work. In

addition to any other law time being in force.

Power of appropriate Government to make rules

Section 29 Central Government may make rules carrying out provisions of this Act. Such
rules may provide for following matters, namely:-
a. fees or allowances paid to the Members;
b. nomination of members;
c. fees or allowances to be paid to the Chairperson;
d. person who may make complaint;
e. manner of inquiry;
f. manner of action to be taken;

CASE LAWS
Binoy Jacob vs. State of Kerala and Ors.
Provisions of Act shall be in addition to and not in derogation of any other law. Two fold
actions are permissible for the sexual harassment. Hence, both actions are independent
and permissible under law.
Rayala Satyanarayana vs. SBI Funds Management Pvt. Ltd. and Ors.
Andhra Pradesh High Court decided termination of services is, a major punishment, which
cannot be imposed without conducting enquiry or opportunity of hearing.
Conclusions arrived by Committee shall not be treated as disciplinary action, but shall be
treated as a finding in an enquiry.

Setting Up Of Business, Industrial

& Labour Laws