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 PREFACE
Setting up of Business, Industrial and Labour Laws (SBIL) forms an integral part of the Company Secretary
curriculum and professional practice. In today’s evolving regulatory and entrepreneurial landscape, a
Company Secretary is expected not only to understand business formation and legal structuring but also
to navigate industrial licensing, labour law compliance, MSME frameworks, and the procedural intricacies
of setting up enterprises across sectors.

This book has been prepared with the objective of providing CS Executive students with a comprehensive,
exam-oriented, and conceptual study resource for SBIL. The content has been carefully structured in line
with the syllabus prescribed by the Institute of Company Secretaries of India (ICSI). It covers a wide
spectrum of regulatory frameworks, including business incorporation, industrial licensing, labour codes,
MSME registration, and other procedural laws that govern the establishment and lawful operation of
enterprises in India.

Each chapter is written in a simple and lucid style, with important provisions explained through illustrations,
case laws, and practical examples. Key terms, highlights, and summaries have been included to make the
learning process effective and revision-friendly. Special emphasis has been placed on clarity, conceptual
understanding, and analytical skills so that students are able to apply legal principles confidently in both
examinations and real-life professional scenarios.

We are confident that this book will not only serve as a reliable study material for students preparing for
the CS Executive examination but will also act as a valuable reference guide for their future professional
journey.
 ABOUT THE AUTHOR
Ma’am, CS Mehandi Toshniwal is a highly qualified and experienced Company Secretary with a passion for
teaching. With a strong academic background in both CS and [Link], Mehandi Ma’am has excelled in her field
by securing All India Rank 21 in Cs Executive and clearing CS in first attempt at the age of 21. In addition to her
impressive qualifications, she also possesses more than 4 years of experience in teaching, having mentored over
40,000 students both online and offline.

Mehandi Ma’am is a firm believer in blended learning and adopts an understanding and learning approach to her
teaching. She easily connects with students and understands that every student is unique and has different learning
needs. Her class is full of real-life examples, memory techniques, colourful handwritten charts, lot of motivation
and innovative teaching methods which makes learning more enjoyable for her students.

Throughout her teaching career, Mehandi Ma’am has been committed to providing high-quality education in
subjects such as Setting Up of Business Industrial and Labour Laws (SBIL) and Company Law. Her expertise
in these areas has craned her a reputation as one of the best teachers in her field. She is not only an educator but
a friend and mentor to the students. Her teaching does not only focus upon the subject, but she believes in the
overall development of the student

Mehandi Ma’am is a passionate and dedicated educator whose success lies in her deep love for teaching, her
desire to learn and teach new things everyday with practical experiences, her teaching skills and techniques makes
her stand out from the crowd. With a firm belief that education is the foundation for unlocking the potential of
young minds, she strives to make learning both meaningful and enjoyable.

‘AB HOGA SBIL EASY WITH YOUR CS MEHANDI DIDI’

 ACKNOWLEDGEMENT
We extend our sincere gratitude to the subject experts, illustrators, and content development team whose dedication
and insight have shaped the quality and depth of this book. Their contributions have been instrumental in crafting
a resource that balances academic rigor with practical clarity. We also thank our proofreaders, reviewers, and
publishing professionals for their meticulous attention to detail, ensuring that the final work upholds the highest
standards of accuracy, coherence, and accessibility.

A special word of thanks to Sakshi Rawat for going above and beyond in contributing their subject expertise,
which has added immense value to this book.

This book is the result of a collaborative effort to empower learners and professionals in their pursuit of legal
and compliance excellence. It reflects our shared commitment to supporting aspirants as they navigate complex
statutory frameworks with confidence and clarity. May this guide serve as a meaningful step toward your success—
not only in examinations and practice, but in shaping a more informed and inclusive legal ecosystem
 CONTENTS
PART-A: SETTING UP OF BUSINESS
1. Selection of Business Organization................................................................................................................3

2. Corporate Entities-Companies......................................................................................................................11

3. Limited Liability Partnership........................................................................................................................32

4. Startups and its Registration.........................................................................................................................47

5. Micro, Small and Medium Enterprise...........................................................................................................65

6. Conversion of Business Entities...................................................................................................................76

7. Non-Corporate Companies...........................................................................................................................97

8. Financial Services Organisation.................................................................................................................114

9. Business Collaboration...............................................................................................................................141

10. Setting up of Branch Office/LIAISON Office/Wholly owned Subsidiary by Foreign Companies............151

11. Setting up of Business outside India and Related Issues............................................................................167

12. Identifying Laws Applicable to various Industries and their Initial Compliances......................................184

13. Various Initial Registrations and Licenses..................................................................................................207

PART-B: INDUSTRIAL AND LABOUR LAWS

14. Constitution and Labour Laws....................................................................................................................247

15. Evaluation of Labour Legislation and the Need for a Labour Code...........................................................260

16. Law of Welfare and Working Conditions...................................................................................................270

17. Law of Industrial Relations.........................................................................................................................301

18. Law of Wages..............................................................................................................................................327

19. Social Security Legislations........................................................................................................................355

20. Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) Act, 2013................400
 Part-A
Setting up of
Business
 CHAPTER SBIL

1 SELECTION OF BUSINESS
ORGANIZATION

1. INTRODUCTION
Business organization involves the systematic arrangements of resources men, material and machinery to conduct
business efficiency and profitably. It encompasses planning and organizing, which are essential aspects of business
management, ensuring smooth operations and optimal performance. A well structured business organization, or
undertaking, establishes clear relationships among various factors required at start and sustain business activities.
The choice of entity impacts legal compliance, taxation, risk exposure, and operational control, necessitating
careful evaluation to align with business goals. Each kind of business entities offers distinct advantages, balancing
liability, governance, and scalability to suit varied entrepreneurial needs.

2. TYPES OF BUSINESS ORGANIZATIONS

Sole Proprietorship

Partnership Firm

Hindu Undivided Family (HUF)

Limited Liability Partnership (LLP)

Types of Business Organizations Co-operative Society

Section 8 Company

One Person Company

Private Company

Public Company

2.1 SOLE PROPRIETORSHIP

) Sole proprietorship is a form of business, wherein one person owns all the assets of the business no legal
formalities are required to create a sole proprietorship.

Features of Sole Proprietorship

Single No Separate Unlimited Direct Quick Decision No Legal

Ownership Legal Entity Liability Control Making Formality
2.2 PARTNERSHIP FIRM
) When two or more people come together and pool funds to start a business, it is known as a partnership firm.
) Section 464 of the Companies Act, 2013 empowers the Central Government to prescribe maximum number
of partners in a firm but the number of partners so prescribed cannot be more than 100.
) The Central Government has prescribed maximum number of partners in a firm to be 50.

Features of Partnership Firm

Agreement Number of Mutual

Unlimited Mutual No Separate
Between Partners Trust and
Liability Agency Legal Entity
Partners (Min-2, Max-50) Confidence

2.3 HINDU UNDIVIDED FAMILY (HUF)

) A Hindu family can come together and form a HUF.

Features of Hindu Undivided Family (HUF)

Coparcenors Separate Legal

Common Karta-Head Membership Joint
and Entity for Tax
Ancestors of the Family by birth Ownership
Members Purposes

2.4 LIMITED LIABILITY PARTNERSHIP (LLP)

) Limited Liability Partnership is an alternate corporate business entity that provides the benefits of limited
liability of a company but allows its members the flexibility of organizing their internal management, as is
the case in a partnership firm.
Features of Limited Liability Partnership (LLP)

Limited No requirement Agreement-

Separate Perpetual Mandatory
Liability of of Minimum Based
Legal Entity Succession Registration
Partners Capital Structure

2.5 CO-OPERATIVE SOCIETY

) A Co-operative Society is an association of persons, usually of limited means, who have voluntarily joined
together to achieve a common economic end.
Features of Co-operative Society

Separate Limited Equal Rights Perpetual Open Democratic

Legal Entity Liability and Obligations Succession Membership Management

SETTING UP OF BUSINESS, INDUSTRIAL AND LABOUR LAWS (SBIL)

4
2.6 SECTION 8 COMPANY
) Section 8 company is a company established for promoting commerce, art, science, sports, education,
research, social welfare, religion, charity, protection of environment or any such other object provided the
profits, if any, or other income is applied for promoting only the objects of the company and no dividend is
paid to its members.

Features of Section 8 Company

License No Exemption
No Profit Limited Separate
from Central Dividend and Tax
Objective Liability Legal Entity
Government Distribution Benefits

2.7 ONE PERSON COMPANY

) Concept of One Person Company introduced by the Companies Act, 2013
) An OPC means a company with only 1 (one) person as a member.
) Easier access to funding and credibility.

Features of One Person Company

Single Nominee Appointment Private Easy Legal No Minimum

Member Mandatory Company Status Compliance Capital Requirement

2.8 PRIVATE COMPANY

) A private company is a type of business entity held by a small group of individuals or entities.
) It does not offer its shares to the general public and is not listed on any stock exchange.
) Private companies have restrictions on share transfers, limited number of shareholders up to 200.

Features of Private Company

Members Restriction Prohibition Commencement of Business

Lesser
(Min-2, on Transfer on Public (Only after Certificate of
Compliance
Max-200) of Shares Invitations Incorporation)

2.9 PUBLIC COMPANY

) A public company is a company which has the following characteristics:
) Shareholders right to transfer share is not restricted
) Minimum 7 members
) An invitation to the public to subscribe to any shares or debentures or any type of security is permitted.

Selection of Business Organization

5
 Features of Public Company

Members Transfer of Issue of Shares Statutory Separate

(Min-7, Max-Unlimited) Shares to Public Meetings Legal Entity

3. FACTORS GOVERNING THE DECISIONS FOR SUITABLE FORM OF ORGANIZATION

For a new or proposed business, the selection of a suitable form of a business organization is generally
governed by the following factors:
(i) Nature of Business Activity
(ii) Scale of Operations
(iii) Capital Requirements
(iv) Managerial Ability
(v) Degree of Control and Management
(vi) Degree of Risk and Liability
(vii) Stability of Business
(viii) Flexibility of Administration
(ix) Division of Profit
(x) Costs, Procedure and Government Regulation
(xi) Tax Implication
(xii) Geographical Mobility
(xiii) Transferability of Ownership
(xiv) Managerial Needs
(xv) Secrecy
(xvi) Independence

3.1 NATURE OF BUSINESS ACTIVITY

) In small trading businesses, professions, and rendering of personal services, sole-proprietorship is
predominant. Examples: Beauty parlors, repair shops, consulting agencies, small retail stores, medicine
stores, bakers, confectioners, tailoring shops.
) Service enterprises like hotels and lodging places; trading enterprises, such as wholesale trade, retail houses;
small scale manufacturing enterprises, small drug manufacturers, etc. can be undertaken in the form of
partnership.
) The business lines such as carrying on large chain stores, multiple shops, super-bazaars, engineering,
industrial activities with high capital are generally in the form of companies.

3.2 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; whereas, in case of large scale of operations, the company form
is advantageous.

SETTING UP OF BUSINESS, INDUSTRIAL AND LABOUR LAWS (SBIL)

6
 ) As per Ministry of Micro, Small and Medium Enterprises-
An enterprise shall be classified as a micro, small or medium enterprise on the basis of the following criteria,
namely:
Type of Enterprise Investment Limit Turnover Limit
Micro Enterprise Does not exceed ₹2.5 crore Does not exceed ₹10 crore
Small Enterprise Does not exceed ₹25 crore Does not exceed ₹100 crore
Medium Enterprise Does not exceed ₹125 crore Does not exceed ₹500 crore

3.3 CAPITAL REQUIREMENTS

) Capital is one of the most crucial factors affecting the choice of a particular form of ownership organization.
) Enterprises requiring heavy investment (like iron and steel plants, large scale infrastructure projects etc.)
should be organized as companies.
) Enterprises requiring small investment (like retail business stores, personal service enterprises, etc.) can be
best organized as sole proprietorships or even as Partnerships.

3.4 MANAGERIAL ABILITY

) It is difficult for a sole proprietor to have expertise in all functional areas of business.
) In 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.

3.5 DEGREE OF CONTROL & MANAGEMENT

) In sole proprietorship and OPC: Ownership, management, and control are completely fused, and therefore,
an entrepreneur has complete control over his business.
) In partnership: Management and control of business is jointly shared by the partners and their specific
rights, duties and responsibilities.
) In a company: The management and control of the company business is entrusted to the Board, who are
generally the elected representatives of shareholders.

3.6 DEGREE OF RISK AND LIABILITY

) A sole proprietary business carries small amount of risk with it as compared to partnership or company.
However, the sole proprietor is personally liable for all the debts of the business to the extent of his entire
property. In partnership, partners are individually and jointly responsible for the liabilities of the partnership
firm.
) Companies and LLPs have a real advantage, as far as the risk is concerned, over the other forms of business
organization. Creditors can force payment of their claims only to the limit of the company’s and LLPs assets.

3.7 STABILITY OF BUSINESS

) Stability of business is another factor that governs the choice of an ownership organization. A stable business
is preferred by the owners in so far as it helps him in attracting suppliers of capital who look for safety of
investment and regular return.
) Companies and LLPs have the most business stability due to its feature or perpetuity being an artificial
or legal person. Members/partners may come, members/partners may go, but the company/LLP goes on
forever unless and until it being wound up.

Selection of Business Organization

7
3.8 FLEXIBILITY OF ADMINISTRATION
) The internal functioning of a sole proprietary business, for instance, is very simple, and therefore, any change
in its administration can be affected with least inconvenience and loss. Same in a partnership business also.
) In case of company, administration is not that flexible because its activities are conducted on a large scale
and they are quite rigidly structured.

3.9 DIVISION OF PROFITS

) An entrepreneur desiring to pocket all the profits of business will naturally prefer sole proprietorship.
) If he is willing to share the profits, partnership form of organization would be preferred. In company form
of organization, however, the profits (whenever the Board of Directors decides) are distributed among
shareholders in proportion to their shareholding.

3.10 COSTS, PROCEDURE AND GOVERNMENT REGULATION

) Sole proprietorships are the easiest and cheapest to get started. There is no one specific government regulation.
) Partnerships are also quite simple to be initiated. Even a written document is not always necessarily
) Company form of business organization is more complicated to form. It can be created by law, dissolved by
law, and operate under the express provisions of the law.

3.11 TAX IMPLICATIONS

) In smaller entities, such as sole proprietorship or partnership, tax liability is dependent on the extent of
profits.
) In case of companies or LLPs the liability of shareholders is limited to the value of shares they have
purchased.

3.12 GEOGRAPHICAL MOBILITY

) If a concern deals with local market, a seasonal product or perishable goods, or is meant to cater to 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 organization may be preferred.

3.13 TRANSFERABILITY OF OWNERSHIP

) Sole proprietorship, being a one-person entity does not lend itself to transferability of ownership.
) If a partner exits, the partnership, may decide to induct a new partner with benefits of ownership and share
of profits or losses.
) In the company form of organization, transfer of ownership is possible by transfer of shareholding by any
person or group of persons in favor of another person or group of persons.

3.14 MARGINAL NEEDS

) When the concern is small and it caters to local needs only then one person will be enough to manage the
business. Sole– proprietorship form of organization will be suitable
) When a business is run on a large – scale basis, it will require the services of specialists to manage various
departments
) Company form of organization will be suitable for such concerns.

SETTING UP OF BUSINESS, INDUSTRIAL AND LABOUR LAWS (SBIL)

8
3.15 SECRECY
) The entrepreneur would select the sole proprietorship for that reason
) In case, he has partners, he will have to carefully weigh whether other partners will be able to maintain the
secrecy.
) In case of a company, secrecy may be restricted to the manufacturing process or the manner in which
business is conducted.

3.16 INDEPENDENCE
) The company is subject to strict government regulations.
) If the entrepreneur wants to have a freedom in business with little governmental interference, he has to go
for either sole proprietorship or partnership.

4. MEMORY TECHNIQUE
C - Capital Requirements
S - Scale of Operation
F - Flexibility
O - Transferability of Ownership
N - Nature of Business Activity
M - Managerial Ability
I - Independence
S - Secrecy
S - Stability
D - Degree of Control and Management
D - Degree of Risk and Liability
G - Geographical Mobility
M - Managerial Needs
C - Cost, Procedure
P - Division of Profits
T - Tax implications
CS FON MISSDDGM CPT

Note: These factors do not exist in isolation, but are interdependent, and all these factors are important in their
own right.

5. COMPANY AS A CHOICE OF BUSINESS ORGANIZATION FOR START-UPS

Start-ups prefer company as a business structure because it allows outside funding to be raised easily, limits
the liabilities of its shareholders and enables them to offer employee stock options to attract top talent. As these
entities must hold board meetings and file annual returns with the Ministry of Corporate Affairs (MCA), they tend
to be viewed with more credibility than an LLP or General Partnership.

Selection of Business Organization

9
 Previous Years Questions
1. ‘The degree of control and management that an entrepreneur desires to have over business affects the
choice of form of organization’. Explain. Dec.2024 (3 Marks)
Hints: The degree of control and management that an entrepreneur desires to have over business affects the
choice of form of organization.
' In sole proprietorship and OPC;
' In Partnership;
' In a Company:
2. “The degree of control and management that an entrepreneur desires to have over business affects the
choice of form of organization.” In light of above statement, explain how control and management factor
is basic factor to choose the suitable form of organization. June 2024 (3 Marks)
3. Sumit Bhasin has an expertise in the field of Modular Kitchen designing, he possesses adequate education
too in this field. Now in order to start his venture, he wants to consult a Company Secretary for getting
aware of various modes of organization and to select the best mode keeping in view their merits and
demerits. As a Company Secretary, make Sumit Bhasin acquainted with available modes of organization
while briefing the merits and demerits of each. Dec. 2022 (5 Marks)
Hints: Explain all 9 types of Entities with Features.
4. Mr. X is planning to start a mobile based and web based business. In selection of suitable form of a business
organization, ‘degree of control and management’ plays a significant role. Explain how this factor affects
the choice of form of organization. Dec.2021 (5 Marks)
5. Requirement of Capital affects the choice of suitable form of a business organization.
 June 2021 (5 Marks)
Hints: Capital is one of the most crucial factors affecting the choice of a particular form of ownership
organization.
' Small Investment
' Major investment
' Heavy Investment

SETTING UP OF BUSINESS, INDUSTRIAL AND LABOUR LAWS (SBIL)

10
 CHAPTER SBIL

2 CORPORATE ENTITIES-
COMPANIES

1. INTRODUCTION
A Company has a distinct legal identity, enabling it to own property, enter into contracts, sue, and be sued.
According to Halsbury’s Laws of England, a company is a unified body of individuals with perpetual succession
and legal capacity akin to that of an individual, operating under statutory provisions.
The term “Company” is derived from the Latin words ‘Cum’ (with or together) and ‘Panis’ (bread), originally
signifying a group dining together. Today, it refers to an association of persons united for a common purpose,
especially to conduct business.
Legal Status of Company

Corporate Perpetual Separate Transfer-ability Capacity to sue

Personality Succession Property of shares or be sued

2. CLASSIFICATION OF COMPANIES
Companies

Statutory Registered Unregistered

Company Company Company

Company Limited Company Limited Unlimited

by Shares by Guarantee Company

2.1 CLASSIFICATION ON THE BASIS OF INCORPORATION

(a) Statutory Companies: Statutory Companies are constituted by a special Act of Parliament or State
Legislature.
Examples of these types of companies are Reserve Bank of India, Life Insurance Corporation of India, etc.
(b) Registered Companies: The companies which are incorporated under the Companies Act, 2013 or under
any previous company law and registered with the Registrar of Companies
2.2 CLASSIFICATION ON THE BASIS OF LIABILITY
(a) Unlimited Companies: The liability of members of this type of company is unlimited.
(b) Companies limited by guarantee: The liability of its members limited to such amount as the members may
undertake respectively, by the Memorandum of Association, to contribute to the assets of the company in the
event of its being wound-up, is known as a company limited by guarantee.
(c) Companies limited by shares: The liability of its members is limited by the liability clause in the
Memorandum of Association to the amount, if any, unpaid on the shares respectively held by them.

Other Companies

Section 8 Foreign Producer Nidhi Listed Small

Companies Companies Companies Company Company Company

3. PRIVATE COMPANY
“Private Company” means a company, which by its articles–
(i) Restricts the right to transfer its shares;
(ii) Except in case of One Person Company, limits the number of its members to two hundred:
Provided that where two or more persons hold one or more shares in a company jointly, they shall, for
the purposes of this clause, be treated as a single member:
Provided further that—
 Persons who are in the employment of the company; and
 Persons who, having been formerly in the employment of the company, were members of the
company while in that employment and have continued to be members after the employment
ceased, shall not be included in the number of members
Examples:
1. Flipkart India Private Limited
2. Razor pay

4. PUBLIC COMPANY
) By virtue of Section 2(71), a public company means a company which is not a private company.
) Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed
to be public company for the purposes of this Act even where such subsidiary company continues to be a
private company in its articles.
) A public company may be formed for any lawful purpose by seven or more persons, by subscribing their
names to a memorandum of association.
Examples:
1. Infosys ltd
2. Godrej Industries ltd.

SETTING UP OF BUSINESS, INDUSTRIAL AND LABOUR LAWS (SBIL)

12
5. ONE PERSON COMPANY
OPC is a one member corporate entity, where legal and financial liability is limited to the company only.

5.1 CHARACTERISTICS OF ONE PERSON COMPANY

) The financial statement, with respect to One Person Company, may not include the cash flow statement.
) The Memorandum of One Person Company shall indicate the name of the other person, with his prior
written consent in the prescribed form, 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.
) The words ‘‘One Person Company’’ shall be mentioned in brackets below the name of such company
) The annual return shall be signed by the company secretary, or where there is no company secretary, by the
director of the company.
) Annual general meeting or other general meeting, it shall be sufficient if, in case of One Person Company,
the resolution is communicated by the member to the company and entered in the minutes-book required.
) File a copy of the financial statements duly adopted by its member, along with all the documents which are
required to be attached to such financial statements, within 180 days from the closure of the financial year.
) At least one meeting of the Board of Directors has been conducted in each half of a calendar year and the
gap between the two meetings is not less than 90 days.

6. FOREIGN COMPANY
As per 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.
Not less than 50% of the paid-up share capital, whether equity or preference or partly equity and partly
preference of a foreign company 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 shall comply with such of the
provisions of this Act, as may be prescribed by the Central Government with regard to the business carried
on by it in India, as if it were a company incorporated in India. In Tovarishestvo Manufacture Liudvig
Rabenek, Re [1944] 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.
Mere holding of property cannot amount to having a place of business

7. NIDHI COMPANY
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.

Corporate Entities-Companies
13
7.1 NIDHI COMPANY RULES, 2014

Nidhi Company Rules, 2014 are Applicable to:

Every company which had been declared as a Nidhi or Mutual Benefit Society.

Every company functioning on the lines of a Nidhi company or Mutual Benefit Society but has either
not applied for or has applied for and is awaiting notification to be a Nidhi Company or Mutual Benefit
Society.

Every company incorporated as a Nidhi Company pursuant to the provisions of Section 406 of the
Companies Act.

Every company declared as Nidhi Company or Mutual Benefit Society under sub-section (1) of
section 406 of the Companies Act, 2013.

7.2 CHARACTERISTICS OF NIDHI COMPANY

) Every Nidhi Company shall be incorporated as a public company and shall have the last words “Nidhi
Limited” as part of its name. It shall have a minimum paid up share capital of ten lakh rupees.
) Every Nidhi Company shall, within a period of 120 days from the date of its incorporation, file an application
in form NDH-4 ensure that it has–
(i) Not less than two hundred members;
(ii) Net Owned Funds of twenty lakh rupees or more

7.3 SHARE CAPITAL AND ALLOTMENT

) Every Nidhi Company shall issue fully paid up equity shares of the nominal value of not less than ten rupees
each.
) Every Nidhi Company shall allot to each deposit holder at least a minimum of ten equity shares or shares
equivalent to one hundred rupees.

7.4 PROCESS OF INCORPORATION OF NIDHI COMPANY

Under Nidhi (Amendment) Rules, 2022, the Central Government, on receipt of application (in Form NDH-4
along with fee thereon) of a public company for declaring it as Nidhi Company and on being satisfied that the
company meets the requirements under these rules, shall notify the company as a Nidhi Company in the official
Gazette. Thus, prior to this amendment, a public company could directly get incorporated as a Nidhi Company by
the Registrar. After this amendment, in addition to following the procedure for incorporating a public company,
the Central Government on receipt of NHD-4 will have to satisfy itself and notify the company as a Nidhi
Company in the Official Gazette.
7.5 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 Company shall, within a period of 120 days from the date of its incorporation, ensure that it has
filed

SETTING UP OF BUSINESS, INDUSTRIAL AND LABOUR LAWS (SBIL)

14
 (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.
It may be noted that “Net Owned Funds” means the aggregate of paid up equity share capital and free reserves
as reduced by accumulated losses and intangible assets appearing in the last audited balance sheet. Further, the
amount representing the proceeds of issue of preference shares shall not be included for calculating Net Owned
Funds.
A savings account holder and a recurring deposit account holder shall hold at least one equity share of
rupees ten.

Membership of Nidhi Company:

A Nidhi shall not admit a body corporate or trust as a member.
Every Nidhi Company shall ensure that its membership is not reduced to less than two hundred members at
any time.
A minor shall not be admitted as a member of Nidhi Company.
Deposits may be accepted in the name of a minor, if they are made by the natural or legal guardian who is a
member of Nidhi Company.
A member shall not transfer more than fifty percent of his shareholding during the subsistence of such loan or
deposit, as the case may be.

7.6 RETURN OF STATUTORY COMPLIANCES BY NIDHI COMPANY

Within 90 days from the close of the first financial year after its incorporation and where applicable, the second
financial year, Nidhi Company shall file a return of statutory compliances with the Registrar duly certified by a
company secretary in practice or a chartered accountant in practice or a cost accountant in practice. However, the
above mentioned compliance is not applicable for companies incorporated on after the commencement of Nidhi
(Amendment) Rules, 2022.
7.7 BRANCHES OF NIDHI COMPANY
) A Nidhi Company may open branches, only if it has earned net profits after tax continuously during the
preceding 3 financial years. A Nidhi Company may open up to 3 branches within the district.
) If a Nidhi Company proposes to open more than 3 branches within the district or any branch outside the
district, it shall obtain the prior permission of the Regional Director in Form NDH-2.
) Nidhi Company shall not open branches outside the State where its registered office is situated.
) Nidhi Company shall not open branches unless financial statement and annual return (up to date) are filed
with the Registrar.

7.8 CLOSURE OF BRANCHES AND DO INCORPORATE

) A Nidhi Company shall not close any branch unless –
The proposal to close the branch along with the plan as to how the existing deposits have been or shall
be paid off and how the existing loan shall be recovered.
Obtained the approval of the Regional Director in Form NDH-2.

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15
 ) After obtaining the approval of the Regional Director, publishes an advertisement in a newspaper in
vernacular language.
) Fixes a copy of such advertisement informing such closure of the branch at least 30 days from the date on
which advertisement was published.
) Intimation to the Registrar within thirty days of such closure.

7.9 ACCEPTANCE OF DEPOSITS

Fixed Deposits Recurring Deposits
Minimum period of 6 months and a maximum period Shall be accepted for a minimum period of 12 months
of 60 months. and a maximum period of 60 months.
A Nidhi Company may offer interest on fixed A Nidhi Company may offer interest on fixed and
and recurring deposits at a rate not exceeding the recurring deposits at a rate not exceeding the maximum
maximum rate of interest prescribed by the Reserve rate of interest prescribed by the Reserve Bank of India.
Bank of India.
The maximum balance in a savings deposit account at any given time qualifying for interest shall not exceed one
lakh rupees.
7.10 UN-ENCUMBERED TERM DEPOSITS BY NIDHI COMPANY
Every Nidhi shall invest and continue to keep invested, in unencumbered term deposits with a Scheduled
commercial bank or post office deposits in its own name an amount which shall not be less than 10% of the
deposits outstanding at the close of business on the last working day of the second preceding month.
Example:
Let’s say today is 15 September 2025.
) The second preceding month is July 2025.
) You must calculate the total outstanding deposits as on 31 July 2025 (last working day).
) Suppose the outstanding deposits on that date were ₹5 crore.
Then, the Nidhi must maintain at least:
10% of ₹5 crore = ₹50 lakh as unencumbered term deposits in its own name with a scheduled commercial bank
or post office.
Key Compliance Notes:
) These deposits must be free from any lien or pledge.
) They act as a liquidity buffer to protect depositors.

7.11 LOANS BY NIDHI COMPANY

A Nidhi Company shall provide loans only to its members. In the case of joint holders, loan shall be provided to
the member whose name appears first in the register of members.
Loans Deposits
2,00,000 rupees, Deposits less than 2 Cr. rupees;
7,50,000 rupees, Deposits more than 2 Cr. rupees but less than 20 Cr. rupees;
12,00,000 rupees, Deposits of more than 20 Cr. rupees but less than 50 Cr. rupees;
15,00,000 rupees, Deposits of more than 50 Cr. rupees.

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Where a Nidhi Company has not made profits continuously in the three preceding financial years, it shall not
make any fresh loans exceeding 50% of the maximum amounts of loans specified:
A member shall 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 Company:
Loan given by a Nidhi Company shall not exceed 7.5% above the highest rate of interest offered on deposits
by Nidhi Company.
Directors in a Nidhi Company:
The Director shall be a member of the Nidhi Company. The Director of a Nidhi Company shall hold office for
a term up to 10 consecutive years. The Director shall be eligible for re-appointment only after the expiration of
two years of ceasing to be a Director.
Dividend:
A Nidhi Company shall not declare dividend exceeding 25% in a financial year.

8. PRODUCER COMPANY
The membership of producer companies is open to such people who themselves are the primary producers.

8.1 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) Providing education on the mutual assistance principles to its Members and others
(e) Rendering technical services, consultancy services, training, research and development for the promotion
of the interests of its Members;
(f) Generation, transmission and distribution of power, revitalisation of land and water resources, relatable
to primary produce;
(g) Insurance of producers or their primary produce;
(h) Promoting techniques of mutuality and mutual assistance
(i) Any other activity, ancillary or incidental to any of the activities referred;
(j) Any other activity, ancillary or incidental to any of the activities referred;
(k) Financing of procurement, processing, marketing or other activities specified

9. SECTION 8 COMPANIES
A Section 8 company is a special category of company formed to promote commerce, art, science, sports,
education, research, social welfare, religion, charity, protection of the environment, or any similar public
purpose. These companies are not-for-profit entities, and their income must be applied solely towards the
advancement of their stated objects. No dividend is permitted to be distributed to members.

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9.1 KEY PROVISIONS OF SECTION 8
1. Licence from the Central Government: The Central Government may grant a licence to a person or
association of persons to register as a limited company under Section 8, provided:
The company’s objects promote public welfare (as listed above).
Profits or income are applied only to promote these objects.
The company prohibits payment of dividends to its members.
2. Name Exemption: Upon receiving the licence, the company may be registered without the words
“Limited” or “Private Limited” in its name.
3. Legal Status and Privileges: A Section 8 company enjoys all the privileges and obligations of a limited
company under the Act.
4. Firm as Member: A partnership firm may be admitted as a member of a Section 8 company.
5. Alteration of Memorandum and Articles: The company cannot alter its Memorandum or Articles of
Association without prior approval of the Central Government.
6. Conversion into Other Company Type: Conversion into another kind of company is permitted only after
fulfilling the prescribed conditions.
7. Conversion of Existing Company: A company already registered under the Act or previous company law
may be converted into a Section 8 company if it meets the required conditions and obtains a licence.

9.2 REVOCATION AND CONSEQUENCES

1. Revocation of Licence: The Central Government may revoke the licence if:
The company violates Section 8 provisions or licence conditions.
Its affairs are conducted fraudulently or against the public interest.
2. Upon revocation:
The company must change its name to include “Limited” or “Private Limited”.
The Registrar will re-register the company accordingly.
3. Winding Up or Amalgamation: If deemed necessary in the public interest, the government may:
Order winding up of the company.
Direct amalgamation with another Section 8 company having similar objects.
4. Asset Disposal on Dissolution: After satisfying liabilities, any remaining assets may be:
Transferred to another Section 8 company with similar objects.
Credited to the Insolvency and Bankruptcy Fund under Section 224 of the IBC, 2016.
5. Amalgamation Restriction: A Section 8 company can only amalgamate with another Section 8 company
having similar objects.

9.3 PENALTIES
1. Penalty for Non-Compliance
The company may be fined between ₹10 lakh to ₹1 crore.
Officers in default may be fined between ₹25,000 to ₹25 lakh.
If fraud is proven, officers are liable under Section 447 (punishment for fraud).

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9.4 CHARACTERISTICS OF A SECTION 8 COMPANY
Under the Companies Act, 2013, a Section 8 company is a not-for-profit entity formed to promote public welfare
objectives. Its defining features are:
1. Purpose-Driven Formation: It is incorporated for promoting commerce, art, science, sports, education,
research, social welfare, religion, charity, protection of the environment, or any similar object.
2. Application of Profits: Any profits or income earned must be applied solely to promote the company’s
stated objects.
3. Dividend Restriction: The company prohibits payment of dividends to its members.
4. Name Flexibility: It can be incorporated without using the words “Limited” or “Private Limited” in its
name.
5. No Minimum Capital Requirement: There is no statutory requirement for minimum paid-up capital.
6. Stamp Duty Exemption: Section 8 companies are exempt from stamp duty on registration.
7. Regulatory Privileges: These companies enjoy total or partial exemptions from various provisions of the
Companies Act, 2013, as per Notification No. F. No. 1/2/2014-CL.I dated June 5, 2015.
8. Restriction on OPC Conversion: A One Person Company (OPC) cannot be incorporated or converted
into a Section 8 company.
9. Independent Legal Identity: A Section 8 company has a distinct corporate legal entity, similar to a
private company, public company, or LLP, and enjoys credibility in the eyes of the public.

10. DRAFTING OF INCORPORATION DOCUMENTS

Incorporation Documents

Memorandum of Article of Incorporation contracts,

Association Association documents and forms

10.1 MEMORANDUM OF ASSOCIATION

The Memorandum of Association is a document which sets out the constitution of a company and is therefore
the foundation on which the structure of the company is built.

According to 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.

10.2 FORMS OF MEMORANDUM OF ASSOCIATION

Table A Companies limited by shares;
Table B Companies limited by guarantee not having a share capital;
Table C Companies limited by guarantee having a share capital;
Table D Unlimited companies not having a share capital;
Table E Unlimited companies having a share capital.

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10.3 CONTENTS OF MEMORANDUM OF ASSOCIATION

MOA

Situation Liability Capital Subscription

Name Clause Object Clause
Clause Clause Clause Clause

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.
The name stated in the memorandum shall not–
) Be identical with or resemble too nearly to the name of an existing company
) Be such that its use by the company–
) Will constitute an offence under any law for the time being in force; or
) Is undesirable in the opinion of the Central Government.

Examples;
) Green Technology Ltd. is same as Greens Technology Ltd.
) ABC Ltd. is same as A.B.C. Ltd. and A B C Ltd.
Undesirable Name: Rule 8A of Companies
Rule 8A of the Companies (Incorporation) Rules, 2014, provides that the Undesirable names are those names
which in the opinion of the Central Government are:
(i) Prohibited under the Provisions of Section 3 of Emblems and Names (Prevention and Improper Use) Act,
1950.
(ii) The name includes a trade mark registered under the Trade Marks Act, 1999.
(iii) Name is identical with or too nearly resembles the name of a limited liability partnership.
(iv) The name includes any word or words which are offensive to a section of people.
(v) The proposed name contains the words ‘British India’.
(vi) The proposed name includes the word “State”, in case the company is not a Government company.
(vii) The 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.
) Commission ) Federal
) Authority ) Prime Minister or Chief Minister
) National ) Minister
) Union ) Nation
) Central

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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 to the
Registrar.
Reservation of Name for 20 days: The Registrar may, on the basis of information and documents reserve the
name for a period of 20 days from the date of approval. 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.
(B) SITUATION CLAUSE
The name of the State in which the registered office of the company is to be situated must be given in the
memorandum. 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.
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).
Obligation of the Company Regarding the Registered Office
(a) Paint or affix its name, and the address of its registered office, on the outside of every office or place in
which its business is carried on, in a conspicuous position, in legible letters.
(b) Have its name engraved in legible characters on its seal.
(c) Get its name, address of its registered office and the Corporate Identity Number along with telephone
number, fax number, in all its business letters, billheads, letter papers.
(d) Have its name printed on negotiable instruments.
(e) If it has a website for conducting online business or otherwise, shall disclose/publish its name, address of its
registered office.

Note: Where a company has changed its name or names during the last two years, it shall paint or affix
or print, may be, along with its name, the former name or names so changed during the last two years.
The Ministry of Corporate Affairs notification 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.

(C) OBJECT CLAUSE

) Companies must state in their memorandum the objects for which the company is proposed to be incorporated.
) It states affirmatively the ambit and extent of powers of the company and, stated negatively, that 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

(a) In the case of a company limited by shares, that liability of its members is limited to the amount unpaid.
(b) In the case of a company limited by guarantee, the amount up to which each member undertakes to contribute–
to the assets of the company in the event of its being wound-up.
(c) In the case of an unlimited company, every member of the company is liable to pay for an unlimited amount
if the company moves for winding up.

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(E) CAPITAL CLAUSE
) This clause shall state the amount of the capital with which the company is registered.
) A company is not authorized to issue capital beyond its authorized/nominal/registered capital. If it receives
applications for shares beyond the shares covered by the authorized capital, the amount received on excess
number of shares should be returned.
) Out of the issued capital, the total amount actually subscribed or agreed to be subscribed is known as
subscribed capital, The amount actually paid by the shareholders is called the paid- up capital.

(F) SUBSCRIPTION CLAUSE

) 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.
) 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.
) It provides the details of the first members of the company.
Provision in the Memorandum or Articles is Void
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.
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

11. ARTICLE OF ASSOCIATION;

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.
The articles of a company are subordinate to and subject to the memorandum of association and the Act. The
articles are only internal regulations, over which the members of the company have full control and may alter
them according to what they think fit. Only care has to be taken to see that regulations provided for in the articles
do not exceed the powers of the company as laid down by its memorandum.
At the time of incorporation of a company the company shall file with the Registrar within whose jurisdiction
the registered office of a company is proposed to be situated, the memorandum and articles of the company duly
signed by all the subscribers. Every type of company must register their articles of association.
11.1 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.
) 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.

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 ) 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.
) The articles must not contain anything illegal or ultra vires the memorandum, nor should it be contrary to
the provisions of the Companies Act 2013.

11.2 CONTENTS OF ARTICLES

) Exclusion wholly or in part of Table F, G, H, I or J.
) Adoption of preliminary contracts.
) Share Capital and variation of rights, if any.
) Terms governing issue and redemption of preference shares.
) Allotment of shares.
) Calls on shares.
) Lien on shares.
) Transfer and transmission of shares.
) Nomination.
) Forfeiture of shares.
) Alteration of capital.
) Buy back.
) General meetings, proceedings at general meetings, adjournment of meeting.
) Share certificates.
) Dematerialization.
) Conversion of shares into stock.
) Voting rights and proxies.
) Meetings and rules regarding committees of the Board.
) Directors, their appointment and delegations of powers.
) Nominee directors.
) Issue of Debentures and stocks.
) Audit committee.
) Remuneration of directors
) Dividends and reserves.
) Accounts and audit.
) Winding up.
) Secrecy.

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11.3 DRAFTING OF ARTICLES OF ASSOCIATION
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.

11.4 FORMATION & REGISTRATION OF CORPORATE ENTITIES

11.4.1. Features of form SPICE+
Form SPICe+ is an integrated web form replacing the earlier version of the e-forms, the form is divided in to two
parts viz.:
Part A- for Name reservation for new company and
Part B- offering a bouquet of services viz.
Incorporation

DIN allotment

Mandatory issue of PAN

Mandatory issue of TAN

Mandatory issue of EPFO registration

Mandatory issue of ESIC registration

Mandatory issue of Profession Tax registration (Maharashtra, Karnataka and West Bengal)

Mandatory Opening of Bank Account for the Company and

Allotment of GSTIN (if so applied for)

Allotment of Shops and Establishment Registration Number (only for Delhi location).

) The user may either choose to submit Part-A for reserving a name first and thereafter submit Part
B for incorporation & other services or file Part A and B together at one go for incorporating a
new company.
) RUN service is applicable only for ‘change of name’ of existing company.

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 ) The approved name and related incorporation details as submitted in Part A, would be automatically pre-
filled in all linked Forms also viz., AGILE-PRO, eMoA, eAoA, URC1, INC-9
) All Check form and Pre-scrutiny validations (except DSC validation) happen on webform itself.

STEP – I: APPLY FOR NAME APPROVAL

A. Login on MCA Website

After Login, user has to click on the icon SPICe+ in MCA Service. An online form shall be opened.

B. Details required to be mentioned in online form

(i) Type of company

(ii) Class of company

(iii) Category of company

C. Choose File

D. Submission of Form on MCA Website

E. Validity of Reserved Name:

For 20 days from the date of approval of name, whereas for change of name of existing company, the
validity period of new name would be 60 days from the date of approval.

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STEP – II: PREPARATION OF DOCUMENTS FOR INCORPORATION OF COMPANY
After approval of name or for Incorporation of Company, applicant has to prepare the below mentioned
documents:
Form INC-9 – Declaration by Subscriber(s) and director(s).

Form DIR-2- Declaration from the proposed Directors

Form MBP-1-Disclosure of interest in other entities.

NOC from the owner of the property, where the registered office of the company will be located.

Proof of Office address

Copy of the utility bills

All the Subscribers should have Digital Signature.

Copy of PAN

STEP – III: FILL THE INFORMATION IN FORM

) Applicant has to fill the information in the-form “Spice + Part -B”.
STEP – IV: PREPARATION OF MOA & AOA (ELECTRONIC OR PHYSICAL)
) After proper filing of SPICE+ Part B form, applicant has to download the e-form INC-33 (e-MOA) and
INC34 (e-AOA) form the MCA site.
) Affix DSC of all the subscribers, witness and professional on subscriber sheet of the MOA & AOA.
STEP – V: FILL DETAILS OF PAN & TAN
) It is mandatory to mention the details of PAN & TAN in the SPICe+ Form INC-32.
STEP – VI: FILL DETAILS OF GST, IEC IN AGILE-PRO
) If Company wants to apply for GST ESIC, EPFO, Professional Tax registration, Opening Bank Account and
Shops Establishment Registration or Import Export Code (IEC), it has to select YES in the form and fill the
information in the form.

STEP – VII: SUBMISSION OF FORM INC-32, 33, 34, AGILE-PRO-S ON MCA

Once all the 4 forms are ready Where the Registrar on he shall give mark the application
with the applicant, upload all examining SPICe+ finds for resubmission. Only 2 (Two)
four document as Linked form that it is necessary to call for resubmissions are allowed for
on MCA website. further information. SPICe+ froms.

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STEP – VIII: CERTIFICATE OF INCORPORATION
Incorporation certificate shall be generated with CIN, PAN & TAN in Form INC-11.

12. COMMENCEMENT OF BUSINESS

) Every company incorporated having a share capital shall not commence any business or exercise any
borrowing powers 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 of the company in such form and verified by a Company Secretary or a Chartered
Accountant or a Cost Accountant in practice.
) The company has filed with the Registrar a verification of its registered office in form INC-22.

13. PRECAUTION TO BE TAKEN BY PROFESSIONALS

1. Obtain engagement letter from subscriber: That he has been engaged for the purpose of certification.
2. Verification of original records pertaining to registered office:
3. Ensure all attachments are clear enough to read:
4. Ensure registered office of the company is functioning for the business purposes of the company:

14. CERTIFICATE OF INCORPORATION

If the Concerned Registrar of Companies is satisfied that all the requirements of the Companies Act, 2013 have
been complied with, a Certificate of Incorporation is issued.

15. PROCESS OF INCORPORATION OF SECTION-8 COMPANY

Steps: 1
) Obtaining of licence under section 8(1) of the Companies Act, 2013; and
) Obtaining certificate of incorporation.
Steps: 2 Before formation of the company, the promoters must decide on the following:
) The proposed name to be applied;
) Objects to be carried by the Company;
) Proposed registered office address;
) Authorized capital;
) Number of promoters, number of directors, and number of shares to be subscribed by each promoter.
Steps: 3 In deciding the proposed name, the following rules have to be borne in mind:
) The name of the company should be in consonance with the principal objects of the company as set out in
the memorandum of association.
) The proposed name should not fall in the ambit of undesirable names.
) Name of Section 8 Company shall include the words Foundation, Forum, Association, Federation, Chambers,
Confederation, Council, Electoral trust and the like words.
) There is no requirement to add the word Limited or Private Limited to its name

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Steps: 4 After deciding on the name and the structure of the proposed company, the following steps will be taken:
) All the proposed directors should have valid DIN.
) Digital Signature for any one of the Directors is required to digitally sign the E-Forms.
) Memorandum of Association and Articles of Association have to be drafted.
Objects of Section 8 Company must be the promotion of commerce, art, science, sports, education,
research, social welfare, religion, charity, protection of environment or any such other object.
The proposed company should intend to apply its profits, if any or other income in promoting its objects.
It should intend to prohibit the payment of dividend to its members.

16. PROCESS OF INCORPORATION OF ONE PERSON COMPANY (OPC)

A One Person Company (OPC), as defined under Section 2(62) of the Companies Act, 2013, refers to a company
that has only one person as its member. Legally, it is treated as a private company under Section 2(68) and Section
3(1)(c) of the Act. OPCs offer the benefits of corporate structure while allowing sole ownership, making them
ideal for individual entrepreneurs seeking limited liability and formal business recognition.
As per Rule 3(1) of the Companies (Incorporation) Rules, 2014, only a natural person who is an Indian citizen
and resident in India is eligible to incorporate an OPC or act as its nominee. The term “resident in India” means a
person who has stayed in India for at least 120 days during the immediately preceding financial year. Importantly,
a natural person cannot be a member of more than one OPC at any given time and cannot be a nominee in more
than one OPC simultaneously. If someone becomes a member of another OPC by virtue of being a nominee, they
must regularise their eligibility within 180 days.
Minors are strictly prohibited from becoming members or nominees of an OPC, and they cannot hold shares with
beneficial interest. Additionally, OPCs are not permitted to be incorporated or converted into companies under
Section 8 of the Act, which pertains to not-for-profit entities. They are also barred from engaging in Non-Banking
Financial Investment activities, including investments in securities of other corporate bodies.
At the time of incorporation, the sole member of the OPC must nominate another person who will assume
membership in the event of the subscriber’s death or incapacity. This nomination must be made with the nominee’s
prior written consent, and the details must be included in the Memorandum of Association. The nomination and
consent are filed using Form INC-32 (SPICe+) along with the e-MoA and e-AoA, and the prescribed fee under
the Companies (Registration Offices and Fees) Rules, 2014. This ensures continuity of ownership and legal
compliance from the outset.

Previous Year Questions

1. What is the advice of M to X, Y and Z on their proposal regarding alteration of Articles of Association of
XYZ Appliances Pvt. Ltd. only with the approval of all the shareholders? Dec. 2024 (3 Marks)
2. BrightFuture Foundation wants to apply for section 8 company license while engaging in commercial
activities, such as offering paid online courses, to fund its charitable activities. How would these commercial
activities align with the eligibility criteria for a section 8 company, which focuses on promoting charitable
objectives over profit-making venture? Dec. 2024 (5 Marks)
Hints: BrightFuture Foundation can qualify as a Section 8 company while offering paid online courses,
as long as all profits are applied promoting its charitable objectives and not distributed as dividends to
members. The foundation should clearly outline this in its application to the Registrar of Companies to
demonstrate that its commercial activities support, rather than conflict with, its non-profit mission. This
compliance ensures the foundation maintains its Section 8 status and can effectively fund its charitable
initiatives.

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 3. What is meant by Joint Hindu Family Business? Dec. 2024 (3 Marks)
4. PNC Ltd. is a company limited by guarantee and not having a share capital. The Articles of Association
(AOA) of the company give any person a right to participate in the divisible profits of the company otherwise
than as member. Examine the validity of such provisions in the AOA of the company.
 June. 2024 (3 Marks)
Hints: Explain Section 4(7) and Section 6 of the Companies Act, 2013
5. Robinhood against Hunger is a registered society under Society Registration Act, 1908. Being a non-profit
organization, the society possesses the Tax Exemption Certificate under section 12 of Income Tax Act. The
Society is also recognized NGO under section 80G of the Income Tax Act. The Promoters have decided
to convert the society into Section 8 Company under Companies Act, 2013, so that food items can be
delivered free of cost to poor and needy peoples in State of Madhya Pradesh under mission of “Koi Nahi
Bhookha Soyega”. The Society is also planning to start its own manufacturing unit for making of various
types of food items. The automatic food processing unit(s) will be setup in capital of the State at primary
level.
Being a Company Secretary, suggest that what are benefits available to section 8 Company. Also highlight
that is there any additional requirement for license to ensure the Food Safety and Standardization of food
for health. June. 2024 (5 Marks)
Hints: Benefits available to Section-8 Company.
' Access to Tax benefits
' Zero Stamp Duty
' Minimal share capital
' Separate legal entity
' Privileges
6. Effective Green Energy Ltd. was incorporated on 22nd May, 2020. Due to the restrictions imposed to
combat COVID-19 pandemic and consequent slowdown in the economy, the company could not start
any business. The Registrar of Companies (RoC) removed the name of the company from the Register of
Companies without giving a prior notice to the company. The company desires to challenge the action of
the RoC. Referring to the provisions of the Companies Act, 2013, examine whether the action of the RoC
is tenable? Dec. 2023 (4 Marks)
Hints:
' Section 248(1) of the Companies Act, 2013 read with Rule 3 of the Companies (Removal of Names of
Companies from the Register of Companies) Rules, 2016.
' Section 455 of the Companies Act, 2013
' Section 12(9) of Companies Act.
7. Gupta Publishers Ltd. has been incorporated recently and the Articles of Association of the company contain
the provisions for entrenchment under section 5(3) of the Companies Act, 2013. Elucidate the provisions of
entrenchment under the Companies Act, 2013. Dec. 2023 (4 Marks)
Explain the Doctrine of Alter Ego. Dec. 2023 (4 Marks)
Hints: Doctrine of Alter Ego:
Lennards Carying Co. Ltd v Asiatic Petroleum Co. Ltd
International Aircraft Trading vs. Manufacturers Trust Co.

Corporate Entities-Companies
29
 8. What do you mean by an ‘Inactive Company’ Dec. 2023 (3 Marks)
Hints: Section 455 of the Companies Act, 2013.
9. SDM Pvt. Ltd. is having paid up share capital of `45 Lakh and annual turnover of `185 Lakh. It is a wholly
owned subsidiary of K Ltd. a listed company. Can SDM Pvt. Ltd. be called a Small Company as per the
provisions of the Companies Act, 2013. Dec. 2023 (4 Marks)
Hints: Section 2(85) of the Companies Act 2013.
10. Raman is an Indian Citizen, and his stay in India during the immediately preceding financial year is for 130
days. He appoints Sanjay, a foreign citizen, as his nominee, who has stayed in India for 125 days during
the immediately preceding financial year. Is Raman eligible to incorporate a One-Person Company (OPC)?
If yes, can he give the name of Sanjay in the Memorandum of Association as his nominee? Justify your
answers with relevant provisions of the Companies Act, 2013. Dec. 2023 (5 Marks)
Hints: As per Rule 3 of the Companies (Incorporation) Rules, 2014.
11. Wonkar Club was formed as a Limited Liability Company under Section 8 of the Companies Act, 2013
with the object of promoting Gilli Danda by arranging introductory courses at district level and friendly
matches. The club has been earning surplus. Of late, the affairs of the company are conducted fraudulently
and dividend was paid to its members. A member decided to make a complaint with Regulatory Authority
to curb the fraudulent activities by cancelling the licence given to the company.
(i) Is there any provision under the Companies Act, 2013 to revoke the license? If so, state the provisions.
(ii) Whether the Wonkar Club can be merged with Stick Private Limited, a company engaged in the
business of Networking? Dec. 2023 (5 Marks)
Hints: 1. According to Section 8(6) and Section-8 of the Companies Act, 2013.
2. Section 8(10) of the Companies Act, 2013.
12. Garg Builders Pvt. Ltd. has changed its name. There is no alteration in the constitution or legal status of the
company. The fact of alteration of name was not brought to the notice of the Tribunal. Has the company got
a right to execute a decree in its new name after change of name? Dec. 2023 (4 Marks)
Hints: Solvex Oils and Fertilizers v. Bhandari Cross-Fields (P) Ltd., (1978)
13. Hardev Lal, Director of JKL Limited acted bona fide to pursue one of the ‘objects’ of the Company not
falling within the ‘object clause’ of its Memorandum of Association. Subsequently, such fact was noticed
through the contents of the Boards’ Report wherein it was reported that such persuasion had resulted in a
loss to the Company to the extent of `25 lakh during the first year itself. The members of the Company
disapproved the transaction and required explanation from the Board of Directors. As a Company Secretary,
what do you advise the management in this matter and how to fix the responsibility of Hardev Lal. Support
your answer with the help of leading case law. Dec. 2023 (5 Marks)
Hints: Section 4(1)(c) of the Companies Act, 2013 and Section 181 of the Companies Act, 2013
Rajendra Nath Dutta v. Shilendra Nath Mukherjee, (1982)
In Jehangir R. Modi v. Shamji Ladha, [(1866-67)
Ashbury Railway Carriage and Iron Co. Ltd. v. Riche, (1878)
14. Matrix Limited is an unlisted company, having its registered office at Chennai. The Annual General Meeting
was held at Goa on 1st July, 2021 at 3.00 PM and concluded at 8.00 PM. Consent of all the members to
conduct AGM at Goa was received by 24th June, 2021 through Email. (i) Examine the validity of the
meeting as per the provisions of the Companies Act, 2013. (ii) State, the consequences if a resolution has
passed in such meeting, without sufficient disclosure regarding interest of a director.Dec. 2023 (5 Marks)
Hints: Section 96(2) of the Companies Act, 2013
Section 102 of the Companies Act, 2013

SETTING UP OF BUSINESS, INDUSTRIAL AND LABOUR LAWS (SBIL)

30
15. Examine the validity of the following statements in respect of Annual General Meeting (AGM) as per the
provisions of the Companies Act, 2013:  June. 2022
(i) The first AGM of a company shall be held within a period of six months from the date of closing of the
first financial year.
(ii) The Registrar may, for any special reason, extend the time limit within which first AGM shall be held.
(iii) Subsequent AGM should be held within 6 months from closing of the financial year.
(iv) The AGM can be held on Saturday, however, the Company runs business for 5 days in a week i.e.
Monday to Friday. June. 2022 (5 Marks)
16. The Articles of Association of X Private Limited contains provisions for entrenchment undesr Section 5 of
the Companies Act, 2013. What does entrenchment provisions mean in this context ? Also state the relevant
provisions of the said Act dealing with entrenchment provisions. June. 2022 (4 Marks)
17. ABC Producer Company Ltd. was incorporated on 11th July, 2013 as a producer company with objective of
production of wheat and related products. The CAGR since inception is around 12%, better as comparative
to other sector(s). However, during Covid 19 pandemic, there was tremendous upsurge in operating income,
up by 110% as compared to previous year. There is huge Surplus Fund in the Company, hence, the Director
(Finance) opined that fund may be invested in Stock Market related instruments including Equity, Bonds
and Mutual Funds. He also suggested for doing F&O related transactions out of the Surplus Fund. However,
the Company Secretary of the Company objected that the Fund can be invested in certain categories only.
Examine. June. 2022 (4 marks)

Corporate Entities-Companies
31
 CHAPTER SBIL

3 LIMITED LIABILITY
PARTNERSHIP

1. INTRODUCTION
A Limited Liability Partnership (LLP) is a partnership formed and registered under the Limited Liability
Partnership Act, 2008. It emerged as a hybrid business model combining the operational flexibility of a partnership
with the limited liability protection of a corporation. Traditional Partnership Firms expose partners to joint and
several liabilities, whereas LLPs restrict a partner’s liability to their agreed contribution, shielding them from the
unauthorised acts of other partners.
This structure offers an efficient and low-risk option for small and medium enterprises, venture capitalists, and
start-ups, making LLPs an attractive choice over private companies. As a result, LLPs have encouraged a shift
from unorganised to organised business formats.

2. SALIENT FEATURES OF “LIMITED LIABILITY PARTNERSHIP” OR “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 it with the Registrar, form an LLP.
) LLP is a suitable structure for medium-sized businesses and commercial activities such as manufacturing,
trading, export, consultancy, professional services, education, joint ventures, and similar endeavours, unless
specifically prohibited by notification.
) The incorporation procedure of an LLP is, to a certain extent, similar to that of a company.
) Minimum two partners, no limit on the maximum number of partners
) It is a separate legal entity and a simple form of a partnership firm which holds the property in its name.
) The rights and duties of the LLP and its partners are defined in the LLP agreement.
) Accounts are required to be maintained by the LLP.

3. IMPORTANT DEFINITIONS
3.1. LIMITED LIABILITY PARTNERSHIP [SEC. 2(N)]
Limited Liability Partnership” means a partnership formed and registered under the Limited Liability Partnership
Act, 2008.

3.2. LIMITED LIABILITY PARTNERSHIP AGREEMENT [SEC. 2(O)]

“Limited Liability Partnership Agreement “means any written agreement between the partners of the Limited
Liability Partnership or between the Limited Liability Partnership and its partners which determines the mutual
rights and duties of the partners and their rights and duties in relation to that Limited Liability Partnership.
3.3. PARTNER [SEC. 2(Q)]
Any individual or body corporate may be a partner in a limited liability partnership. An individual shall not be
capable of becoming a partner of a limited liability partnership if:
(a) He is of unsound mind by a Court of competent jurisdiction, and the finding is in force;
(b) He is an undischarged insolvent; or
(c) He has applied to be adjudicated as an insolvent, and his application is pending.

3.4. SMALL LIMITED LIABILITY PARTNERSHIP [SEC. 2(TA)]

Small limited liability partnership means a limited liability partnership—
(i) The contribution of which does not exceed twenty-five lakh rupees or such higher amount, not exceeding
five crore rupees, as may be prescribed; and
(ii) The turnover of which, as per the Statement of Accounts and Solvency for the immediately preceding
financial year, does not exceed forty lakh rupees or such higher amount, not exceeding fifty crore rupees,
as may be prescribed;
(iii) It may be noted that the provisions of the Indian Partnership Act, 1932, shall not apply to a limited liability
partnership.

3.5. LIMITED LIABILITY PARTNERSHIP AGREEMENT [SEC 2(1) (O)]

LLP agreement means any written agreement between the partners of the LLP or between the LLP and its partners
which determines the mutual rights and duties of the partners and their rights and duties in relation to that LLP.
3.6. FOREIGN LIMITED LIABILITY PARTNERSHIP [SEC 2(1)(M)]
Foreign limited liability partnership means a limited liability partnership formed, incorporated or registered
outside India which establishes a place of business within India.

4. PARTNERS IN AN LLP
4.1 MINIMUM NUMBER OF PARTNERS (SEC 6)
Every limited liability partnership shall have at least two partners. If at any time the number of partners of a
limited liability partnership is reduced below two and the limited liability partnership carries on business for
more than six months while the number is so reduced, the person, who is the only partner of the limited liability
partnership during the time that it so carries on business after those six months and has the knowledge of the fact
that it is carrying on business with him alone, shall be liable personally for the obligations of the limited liability
partnership incurred during that period.
4.2 DESIGNATED PARTNERS
) Every LLP shall have not less than 2 designated partners, out of which at least one shall be a resident
in India.
) In case of a limited liability partnership in which all the partners are bodies corporate or in which one or
more partners are individuals and bodies corporate, at least two individuals who are partners of such
limited liability partnership or nominees of such bodies corporate shall act as designated partners.
) A 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 financial year.

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33
 ) If the incorporation document:
Specifies who are to be designated partners, such persons shall be designated partners on incorporation;
or
) An individual shall not become a designated partner in any limited liability partnership unless he has given
his prior consent.
) File with the Registrar the particulars of every individual who has given his consent.
) Every designated partner of a limited liability partnership shall obtain a Designated Partners Identification
Number (DPIN) from the Central Government.

4.3 LIABILITIES OF DESIGNATED PARTNERS

A designated partner shall be
) Responsible for the doing of all acts, matters and things as are required to be done by the limited liability
partnership in respect of compliance with the provisions of this Act.
) Liable to all penalties imposed on the limited liability partnership for any contravention of those provisions.

4.4 CHANGES IN DESIGNATED PARTNERS

A limited liability partnership may appoint It may be noted that if no designated partner is appointed,
a designated partner within thirty days of a or if at any time there is only one designated partner, each
vacancy arising for any reason. partner shall be deemed to be a designated partner.

Punishment for Contravention of Sections 7 and 9

Provisions Max. Penalty Penalty in Case of Continuing Contravention
Who shall be
Section Contravened for one time
Liable Per Day Penalty Maximum Penalty
by LLP Contravention
10(1) the limited Sec 7(1) ten thousand with a further subject to a maximum
liability rupees and penalty of one of one lakh rupees for
partnership and hundred rupees for the limited liability
its every partner each day after the partnership and fifty
first during which thousand rupees
such contravention for every partner of
continues, such limited liability
partnership.
10(2) such limited Sec 7(4) five thousand with a further subject to a maximum
liability rupees and penalty of one of fifty thousand rupees
partnership hundred rupees for for the limited liability
and its every each day after the partnership and twenty-
designated first during which five thousand rupees
partner such contravention for its every designated
continues, partner.
10(3) such limited Sec 7(5)or 9 ten thousand further penalty of subject to a maximum
liability rupees, and one hundred rupees of one lakh rupees for
partnership and for each day after the the limited liability
its every partner first during which partnership and fifty
such contravention thousand rupees for its
continues, every partner

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5. INCORPORATION OF LIMITED LIABILITY PARTNERSHIP
5.1 INCORPORATION DOCUMENT
Section 11(1) of the Act states that for a limited liability partnership to be incorporated.
Two or more persons associated for carrying on a lawful business with a view to profit shall subscribe
(a)
their names to an incorporation document;

(b) The incorporation document shall be filed with the Registrar of the State;

Along with the incorporation document, a statement in the prescribed form, made by either an advocate, or a
Company Secretary or a Chartered Accountant or a Cost Accountant, who is engaged in the formation of the
(c)
limited liability partnership and by any one who subscribed his name to the incorporation document, that all
the requirements of this Act and the rules made thereunder have been complied with.

The incorporation document shall be:

(a) Filed in Form FiLLiP with the Registrar

) If an individual required to be appointed as designated partner does not have a DPIN or DIN, application
for allotment of DPIN shall be made in Form FiLLiP.
) Application for allotment of DPIN shall not bse made by more than five individuals in Form FiLLiP.
) Application for reservation of name may be made through Form FiLLiP.
) Where an applicant had applied for reservation of name under rule 18 in Form RUN-LLP and which has
been approved, he may fill the reserved name as the proposed name of limited liability partnership.
Further, the incorporation document shall:

Name of the limited liability partnership;

State the proposed business of the limited liability partnership;

State the address of the registered office of the limited liability partnership;

State the name and address of each of the persons who are to be partners of the
limited liability partnership on incorporation;

State the name and address of the persons who are to be designated partners of the
limited liability partnership on incorporation;

Contain such other information concerning the proposed LLP.

Limited Liability Partnership

35
 Where the Registrar, on examining Form FiLLiP, finds that it is necessary to call for further information or
finds such application or document to be defective or incomplete, he shall give intimation to the applicant re-
submit the e-form within fifteen days from the date of such intimation given by the Registrar.

After re-submission still the document is defective or incomplete in any respect, he shall give one more
opportunity of fifteen days time to remove such defects or deficiencies.

Total period for re-submission of documents shall not exceed thirty days.

The Certificate of Incorporation of limited liability partnership shall be issued by the Registrar in Form 16
and shall mention Permanent Account Number and Tax Deduction Account Number issued by the Income Tax
Department.

5.2 INCORPORATION BY REGISTRATION

He shall, within a period of fourteen days:

(a) Register the incorporation document; and

(b) Give a certificate that the limited liability partnership is incorporated by the name specified therein.

The certificate issued shall be signed by the Registrar.

The certificate shall be conclusive evidence that the limited liability partnership is incorporated.
5.3 REGISTERED OFFICE OF LIMITED LIABILITY PARTNERSHIP

Every limited liability partnership shall have a

registered office to which all communications and
notices may be addressed and where they shall be
received.

A document may be served on a limited liability

partnership or a partner or designated partner thereof
by sending it by post under a certificate of posting or
by registered post or by any other manner.

A limited liability partnership may change the

place of its registered office and file the notice
of such change with the Registrar.

If any default is made in complying with the requirements of this section, the limited liability partnership and its
every partner shall be liable to a penalty of five hundred rupees for each day during which the default continues,
subject to a maximum of fifty thousand rupees for the limited liability partnership and its every partner.

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According to LLP Rules, Rule 16 provides further requirements w.r.t. registered office of LLP and changes therein
as follows:
) A limited liability partnership shall give an address for service of documents within the jurisdiction of the
Registrar where its registered office is situated. Such an address shall include the postal code and e-mail
address.
) The limited liability partnership may, in addition to the registered office address, declare any other address
as its address for service of documents.
) The intimation of another address for service of documents to LLP shall be given to the Registrar in Form
12, within thirty days of complying with the requirements.
) The effective date for the service of documents to LLP at the other address declared by the LLP cannot be
before the date of filing of document.

5.4 EFFECT OF REGISTRATION

Section 14 of the Act provides that on registration, a limited liability partnership shall, by its name, be capable of

(a) Suing and being sued;

(b) Acquiring, owning, holding and developing or disposing of property, whether movable or immovable,
tangible or intangible;

(c) Having a common seal, if it decides to have one; and

(d) doing and suffering such other acts and things as bodies corporate may lawfully do and suffer.

5.5 NAME
Section 15 of the Act provides for the specifications for the name of LLP as follows:
1. Every limited liability partnership shall have either the words limited liability partnership or the acronym
LLP as the last words of its name. undesirable; or
2. No limited liability partnership shall be registered by a name which, in the opinion of the Central Government,
is
(a) Undesirable or
(b) Identical or too nearly resembles that of any other limited liability partnership or a company, or a
registered trade mark of any other person under the Trade Marks Act, 1999.

5.6 CHANGE OF NAME OF LLP

According to section 17 of the Act, I, through inadvertence or otherwise, a limited liability partnership, on its first
registration or on its registration by a new body corporate, is registered by a name which is identical with or too
nearly resembles—
(a) That of any other limited liability partnership or a company; or
(b) A registered trade mark of a proprietor under the Trade Marks Act, 1999, as is likely to be mistaken for it,
then on an application of such limited liability partnership or proprietor referred to in clauses (a) and (b)
respectively or a company, the Central Government may direct that such limited liability partnership to
change its name or new name within a period of three months from the date of issue of such direction.

Limited Liability Partnership

37
NOT: An application of the proprietor of the registered trade marks shall be maintainable within a period of three
years from the date of incorporation or registration or change of name of the limited liability partnership under
this Act.
NOTE: Where a limited liability partnership changes its name or obtains a new name, it shall within a period
of fifteen days from the date of such change, give notice of the change to Registrar along with the order of the
Central Government, who shall carry out necessary changes in the certificate of incorporation and within thirty
days of such change in the certificate of incorporation, such limited liability partnership shall change its name in
the limited liability partnership agreement.
5.7 CHANGE OF REGISTERED NAME
According to Rule 20 of the LLP Rules, 2009, the limited liability partnership may change its name by following
the procedure as laid down in the limited liability partnership agreement.
1. Where the limited liability partnership agreement does not provide such a procedure, consent of all partners
shall be required for changing the name of the limited liability partnership.
2. Notice of change of name shall be given to the Registrar in Form 5, within 30 days of complying with the
requirement of sub-rule (1), along with a fee as mentioned in Annexure ‘A’.
3. The Registrar, on being satisfied that the changed name is the one as reserved by him, shall issue a fresh
certificate of incorporation in the new name, and the changed name shall be effective from the date of such
certificate
5.8 PENALTY FOR IMPROPER USE OF WORDS LIMITED LIABILITY PARTNERSHIP
If any person or persons carry on business under any name or title of which the words Limited Liability Partnership
or LLP or any contraction or imitation thereof is or are the last word or words, that person or each of those persons
shall, unless duly incorporated as limited liability partnership, be punishable with fine which shall not be less than
fifty thousand rupees but which may extend to five lakh rupees.
5.9 PUBLICATION OF NAME AND LIMITED LIABILITY
According to section 21 of the Act:
1. Every limited liability partnership shall ensure that its invoices, official correspondence and publications
bear the following, namely:
(a) the name, address of its registered office and registration number of the limited liability partnership;
and
(b) a statement that it is registered with limited liability.
2. If the limited liability partnership contravenes the provisions of this section, the limited liability partnership
shall be liable to a penalty of ten thousand rupees

6. PARTNERS AND THEIR RELATIONS

6.1 ELIGIBILITY TO BE A PARTNERS
According to Section 22 of the Act, on the incorporation of a limited liability partnership, the persons who
subscribed their names to the incorporation document shall be its partners, and any other person may become a
partner of the limited liability partnership by and in accordance with the limited liability partnership agreement.
6.2 RELATIONSHIP OF PARTNERS
Section 23 provides that, save as otherwise provided by this Act, the mutual rights and duties of the partners of
a limited liability partnership, and the mutual rights and duties of a limited liability partnership and its partners,
shall be governed by the limited liability partnership agreement between the partners, or between the limited
liability partnership and its partners.

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6.3 LIMITED LIABILITY PARTNERSHIP AGREEMENT
It may be noted that Limited Liability Partnership Agreement means any written agreement between the partners
of the limited liability partnership or between the limited liability partnership and its partners which determines the
mutual rights and duties of the partners and their rights and duties in relation to that limited liability partnership.
{Section 2(1)(o)}
The limited liability partnership agreement and any changes, if any, made therein shall be filed with the Registrar
in the prescribed form, manner and accompanied by such prescribed fees.
An agreement in writing made before the incorporation of a limited liability partnership between the persons who
subscribe their names to the incorporation document may impose obligations on the limited liability partnership,
provided such agreement is ratified by all the partners after the incorporation of the limited liability partnership.
In the absence of agreement as to any matter, the mutual rights and duties of the partners and the mutual rights
and duties of the limited liability partnership and the partners shall be determined by the provisions relating to that
matter as are set out in the First Schedule.
6.3.1 First Schedule – Default Provisions
It may be noted that the First Schedule provides provisions regarding matters relating to mutual rights and duties
of partners and Limited Liability Partnership and its partners applicable in the absence of any agreement on such
matters. The matters are as under:
1. The mutual rights and duties of the partners and the mutual rights and duties of the limited liability partnership
and its partners shall be determined, subject to the terms of any limited liability partnership agreement or in
the absence of any such agreement on any matter, by the provisions in this First Schedule.
2. All the partners of a limited liability partnership are entitled to share equally in the capital, profits and losses
of the limited liability partnership.
3. The limited liability partnership shall indemnify each partner in respect of payments made and personal
liabilities incurred by him:
(a) in the ordinary and proper conduct of the business of the limited liability partnership; or
(b) in or about anything necessarily done for the preservation of the business or property of the limited
liability partnership.
4. Every partner shall indemnify the limited liability partnership for any loss caused to it by his fraud in the
conduct of the business of the limited liability partnership.
5. Every partner may take part in the management of the limited liability partnership.
6. No partner shall be entitled to remuneration for acting in the business or management of the limited liability
partnership.
7. No person may be introduced as a partner without the consent of all the existing partners.
8. Any matter or issue relating to the limited liability partnership shall be decided by a resolution passed
by a majority in number of the partners, and for this purpose, each partner shall have one vote. However,
no change may be made to the business of the limited liability partnership without the consent of all the
partners.
9. Every limited liability partnership shall ensure that decisions taken by it are recorded in the minutes within
thirty days of taking such decisions and are kept and maintained at the registered office of the limited
liability partnership.
10. Each partner shall render true accounts and full information of all things affecting the limited liability
partnership to any partner or his legal representatives.

Limited Liability Partnership

39
11. If a partner, without the consent of the limited liability partnership, carries on any business of the same
nature as and competing with the limited liability partnership, he must account for and pay over to the
limited liability partnership all profits made by him in that business.
12. Every partner shall account to the limited liability partnership for any benefit derived by him without the
consent of the limited liability partnership from any transaction concerning the limited liability partnership,
or from any use by him of the property, name or any business connection of the limited liability partnership.
13. No majority of the partners can expel any partner unless a power to do so has been conferred by express
agreement between the partners.
14. All disputes between the partners arising out of the limited liability partnership agreement which cannot be
resolved in terms of such agreement shall be referred for arbitration as per the provisions of the Arbitration
and Conciliation Act, 1996.

7. CESSATION OF PARTNERSHIP INTEREST

A person may cease to be a partner of a limited liability partnership by giving a notice in writing of not less than
thirty days to the other partners of his intention to resign as a partner.
A person shall cease to be a partner of a limited liability partnership:
) On his death or dissolution of the limited liability partnership, or
) If he is declared to be of unsound mind by a competent Court, or
) If he has applied to be adjudged as an insolvent or declared as an insolvent.

8. REGISTRATION OF CHANGES IN PARTNERS

Every partner shall inform the limited liability partnership of any change in his name or address within a period
of fifteen days of such change.
A limited liability partnership shall:
) Where a person becomes or ceases to be a partner, file a notice with the Registrar within thirty days from the
date he becomes or ceases to be a partner; and
) Where there is any change in the name or address of a partner, file a notice with the Registrar within thirty
days of such change.

9. PARTNER AS AGENT
Every partner of a limited liability partnership is, for the business of the limited liability partnership, the agent of
the limited liability partnership, but not of other partners.

10. EXTENT OF LIABILITY OF LIMITED LIABILITY PARTNERSHIP

A limited liability partnership is not bound by anything done by a
partner in dealing with a person if:

The partner in fact has no authority to act for the limited liability partnership in doing a particular act; and the
person knows that he has no authority or does not know or believe him to be a partner of the limited liability
partnership

The limited liability partnership is liable if a partner of a limited liability partnership wrongful act or omission
on his part in the course of the business of the limited liability partnership or with its authority.

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11. UNLIMITED LIABILITY IN CASE OF FRAUD
) An act carried out by a limited liability partnership, or any of its partners, with the intent to defraud creditors
of the limited liability partnership shall be unlimited for all or any of the debts or other liabilities of the
limited liability partnership.
) Where a limited liability partnership or any partner or designated partner has conducted the affairs of the
limited liability partnership fraudulently.
) The limited liability partnership and any such partner or designated partner or employee shall be liable to
pay compensation to any person who has suffered any loss or damage by reason of such conduct.
) It may be noted that such a limited liability partnership shall not be liable if any such partner or designated
partner, or employee has acted fraudulently without knowledge of the limited liability partnership.

12. WHISTLE BLOWING

The Court or Tribunal may reduce or waive any penalty leviable against any partner or employee of a limited
liability partnership, if it is satisfied that:
) Such partner or employee of a limited liability partnership has provided useful information during the
investigation of such limited liability partnership; or
) When any information given by any partner or employee (whether or not during an investigation) leads to a
limited liability partnership or any partner or employee of such limited liability partnership being convicted
under this Act or any other Act.
) Partner or employee of any limited liability partnership may not be discharged, demoted, suspended,
threatened, harassed or in any other manner discriminated against under the terms and conditions of his
limited liability partnership or employment merely because of his providing information.

13. CONTRIBUTIONS
13.1 FORM OF CONTRIBUTION
Section 32 of the Act provides that a contribution of a partner may consist of tangible, movable or immovable or
intangible property or other benefit to the limited liability partnership, including money, promissory notes, other
agreements to contribute cash or property, and contracts for services performed or to be performed.
The monetary value of the contribution of each partner shall be accounted for and disclosed in the accounts of the
limited liability partnership in the manner as may be prescribed.
13.2 OBLIGATION TO CONTRIBUTE
Section 33 of the Act provides that the obligation of a partner to contribute money or other property or other benefit
or to perform services for a limited liability partnership shall be as per the limited liability partnership agreement.
A creditor of a limited liability partnership, which extends credit or otherwise acts in reliance on an obligation
described in that agreement, without notice of any compromise between partners, may enforce the original
obligation against such partner.

14. FINANCIAL DISCLOSURES

14.1 MAINTENANCE OF BOOKS OF ACCOUNT, OTHER RECORDS AND AUDIT
The limited liability partnership shall maintain such proper books of account on cash basis or accrual basis and
according to double entry system of accounting and shall maintain the same at its registered office for such
period as may be prescribed.

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41
 Books of account shall contain-
) Particulars of all sums of money received and expended by the limited liability partnership;
) Record of the assets and liabilities of the limited liability partnership;
) Statements of cost of goods purchased, inventories, work-in-progress, finished goods; and
) Any other particulars which the partners may decide.
) Books of account that a limited liability partnership is required to keep shall be preserved for eight years.
14.2 STATEMENT OF ACCOUNTS AND SOLVENCY
) Statement of Account and Solvency shall be signed on behalf of the limited liability partnership by its
designated partners.
) Where the corporate insolvency resolution process has been initiated against the limited liability partnership
under the Insolvency and Bankruptcy Code, 2016 or the Limited Liability Partnership Act, 2008 has come
under liquidation under the said Code, 2016.
) Statement of Account and Solvency may be signed on behalf of a limited liability partnership by an interim
resolution professional, resolution professional, liquidator, or a limited.
) Every limited liability partnership shall file the Statement of Account and Solvency in Form 8 with the
Registrar, within a period of thirty days from the end of six months of the financial year to which the
Statement of Account and Solvency relates.
14.3 AUDIT OF ACCOUNTS
) The accounts of every limited liability partnership shall be audited in accordance with LLP Rules.
) A limited liability partnership whose turnover does not exceed, in any financial year, forty lakh rupees,
or whose contribution does not exceed twenty-five lakh rupees, shall not be required to get its accounts
audited.
) A person shall not be qualified for appointment as an auditor of a limited liability partnership unless he is a
Chartered Accountant in practice.
) An auditor or auditors of a limited liability partnership shall be appointed for each financial year of the LLP
for auditing its accounts.
14.4 AUDITORS
) Rule 24(11) of the LLP Rules provides that the designated partners may appoint an auditor or auditors-
At any time for the first financial year, but before the end of the first financial year,
At least 30 days before the end of each financial year (other than the first financial year),
To fill a casual vacancy in the office of auditor, including in the case when the turnover or contribution
of a limited liability partnership exceeds the limits specified for audit, or
To fill up the vacancy caused by the removal of an auditor.
) An auditor or auditors of an LLP shall hold office in accordance with the terms of his or their appointment
and shall continue to hold such office till the period-
The new auditors are appointed, or
They are re-appointed.
) Where no auditor has been appointed under sub-rule (11), any auditor in office shall be deemed to be
re-appointed, unless-
The limited liability partnership agreement requires actual re-appointment, or
The majority of partners have determined that he should not be re-appointed and have given notice.

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14.5 ANNUAL RETURN
) Every limited liability partnership shall file an annual return duly authenticated with the Registrar within
sixty days of closure of its financial year.
) The annual return shall be filed in Form 11 with the Registrar.
) Annual return of an LLP having turnover up to five crore rupees during the corresponding financial year
or contribution up to fifty lakh rupees shall be accompanied by a certificate from a designated Partner.
) The annual return shall be accompanied by a certificate from a Company Secretary in Practice.
) Where the corporate insolvency resolution process has been initiated against the limited liability partnership
under the Insolvency and Bankruptcy Code, 2016 or the Limited Liability Partnership Act, 2008 having
turnover upto five crore rupees during the corresponding financial year or contribution upto fifty lakh
rupees has come under liquidation, the said annual return may be signed on behalf of limited liability
Partnership by interim resolution professional or resolution professional, or liquidator or limited liability
partnership administrator and no certification by a designated partner shall be required.

15. COMPOUNDING OF OFFENCES

) The Regional Director or any other officer not below the rank of Regional Director authorised by the Central
Government may compound any offence under this Act which is punishable with fine only, by collecting
from a person reasonably suspected of having committed the offence, a sum 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.
) Nothing shall apply to an offence committed by a limited liability partnership or its partner or its designated
partner within a period of three years from the date on which a similar offence committed by it or him was
compounded under this section.
) Any second or subsequent offence committed after the expiry of the period of three years from the date on
which the offence was previously compounded shall be deemed to be the first offence.
) Every application for the compounding of an offence shall be made to the Registrar, who shall forward the
same, together with his comments thereon, to the Regional Director or any other officer not below the rank
of Regional Director authorised by the Central Government, as the case may be.
) Where any offence is compounded before the institution of any prosecution, no prosecution shall be instituted
in relation to such offence.

16. INSPECTION OF DOCUMENTS KEPT BY REGISTRAR

According to section 36 of the Act, the incorporation document, names of partners and changes, if any, made
therein, Statement of Account and Solvency, and annual return filed by each limited liability partnership with the
Registrar shall be available for inspection by any person in such manner and on payment of such fee as may be
prescribed.

17. DECLARATION IN RESPECT OF BENEFICIAL INTEREST IN ANY CONTRIBUTION

1. Registered Partner:-
Name mentioned in the register, but no beneficial interest in the contribution.
File Form 4B to LLP within 30 days specifying particulars of the person who is holding a beneficial
interest.

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43
 2. Beneficial Partner
BP will file Form 4C to LLP within 30 days with a declaration that it has a beneficial interest.
After receipt of FORM- 4B/4C
3. LLP shall intimate to the ROC in Form 4D within 30 days and also make a record in the register.

18. OBLIGATIONS ON THE REPORTING LLP

(I) IDENTIFICATION OF SBO
) Declaration by SBO (individual): Every reporting LLP shall take necessary steps to find out if there is any
individual who is a significant beneficial owner, in relation to that reporting limited liability partnership,
identify him, and that individual has to make a declaration in Form No. LLP BEN-I
) Declaration by SBO (non-individual partner): Every reporting LLP where its partner (other than an
individual) holds not less than ten per cent. Of its (a) contribution; or (b) voting rights; or (c) right to receive
or participate in the distributable profits or any other distribution payable in a financial year, give notice to
such partner in Form No. LLP BEN-4.

(II) REPORTING TO REGISTRAR OF COMPANIES

Upon receipt of a declaration from SBO, the reporting LLP is required to file a return in Form No. LLP BEN-2,
along with the prescribed fee, to the Registrar of Companies within a period of 30 days from the date of receipt
of the declaration.
(III) REGISTER OF SBO
Upon receiving declarations, reporting LLPs must maintain a register of significant beneficial owners in Form
No. LLP BEN-3. The register shall be open for inspection during business hours, at such reasonable time of not
less than two hours on every working day.

19. OBLIGATIONS ON THE SBO

) Every individual who is an SBO in a reporting LLP shall file a declaration in Form No. LLP BEN-I within
90 days from the date of commencement of these SBO Rules.
) Every individual who subsequently becomes an SBO owhosere his or her significant beneficial ownership
undergoes any change shall file a declaration in Form No. LLP BEN-I to the reporting LLP, within 30 days
of acquiring such significant beneficial ownership or any change therein.

20. APPLICATION TO THE TRIBUNAL

The reporting limited liability partnership shall apply to the Tribunal:
(i) where any person fails to give the information required by the notice in Form No. BEN-4, within the time
specified therein: or
(ii) where the information given is not satisfactory, the tribunal may apply restrictions as it may deem fit,
including-
(a) restrictions on the transfer of interest attached to the contribution in question
(b) suspension of the right to receive profits or any other distribution in relation to the contribution in
question
(c) suspension of voting rights in relation to the contribution in question
(d) any other restriction on all or any of the rights attached to the contribution in question

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21. EXCLUSIONS FROM APPLICABILITY OF SBO RULES
SBO Rules do not apply to the extent the contribution of the reporting LLP is held by –
) The Central Government, State Government or any local authority;
) A reporting LLP; a body corporate; or an entity controlled by the Central Government or by one or more
State Governments, or partly by the Central Government and partly by one or more State Governments;
) Investment vehicles registered with and regulated by the Securities and Exchange Board of India, such as
mutual funds, alternative investment funds, Real Estate Investment Trusts and Infrastructure Investment
Trusts;
) Investment vehicles regulated by the Reserve Bank of India or the Insurance Regulatory and Development
Authority, or the Pension Fund Regulatory and Development Authority.

Previous Year Questions

1. MNC LLP, a consulting firm, faced serious allegations of financial misconduct involving a senior partner,
Kumar, who was accused of falsifying financial reports. Employees felt unsafe reporting these concerns
internally until Priya, a junior consultant, decided to blow the whistle. She submitted a formal complaint
along with evidence to the Whistleblower Committee, citing Section 31(1) of the Limited Liability
Partnership Act, which protects whistleblowers from retaliation.
What are the protections provided to Priya for reporting misconduct under Section 31(1) of the LLP Act,
2008? Dec.2024 (4 marks)
Hints: Section 31(1) of the Limited Liability Partnership Act, 2008
Whistleblowing concept to be explained
2. Write down the benefits of Limited Liability Partnership (LLP) being considered by A and B while deciding
the legal structure for their business. June 2024 (23 marks)
Hints: Benefits;
' Dual benefits
' Cost-effective:
' Suitable for Non-Scalable Businesses
' Fewer Compliances:
' Number of Partners:
3. “Describe the documents that are required to be attached with the prescribed e-form FiLLiP for getting
registration of “Technical Solutions LLP”. June 2024 (3 marks)
Hints: Section 11(2) of the Limited Liability Partnership Act,2008
4. Divakar and Raina, two individuals, have established a Limited Liability Partnership (LLP) to conduct
business in computer hardware and peripherals at Nehru Place, New Delhi. They are now seeking guidance
on drafting the LLP agreement. Advise them on the contents that should be included in the LLP agreement.
Hints: After the incorporation, the designated partners must enter into an LLP agreement in the prescribed
format. It is not necessary to have the LLP Agreement signed at the time of incorporation, as the details
of the same need to be filed in e-form 3 within 30 days of incorporation along with the Certificate of
incorporation as LLP form ROC, but to avoid any dispute between the partners as to the terms & conditions
of the agreement, the same can be filed afterwards.
The contents of the limited liability partnership agreement have to be explained.

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45
 5. A, B and C are the partners in the partnership firm registered under the Partnership Act, 1932, in the
name of ABC Traders. Considering the benefits available to Limited Liability Partnership (LLP) under the
Limited Liability Partnership Act, 2008, the partnership firm is converted into an LLP with the name ABC
LLP and the same is registered. The Department of State Revenue issues a notice to the LLP to pay stamp
duty and registration charges for transferring the assets of the erstwhile partnership firm to the LLP. It is
contended by the Department that the LLP is a separate, distinct entity from that of its partners and hence
the conversion amounts to a change of legal rights. In light of the decided case law, examine the validity of
the contention of the Department of State Revenue. Dec.2023 (3 marks)
Hint: Focus on:
' Statutory vesting under the LLP Act, 2008
' Para 6(b) of the Second Schedule to the LLP Act
' Whether the conversion involves a transfer by instrument or a statutory transfer
' Reference to case law: Rama Sundari Ray v. Syamendra Lal Ray (ILR 1947 Cal 1)
' Principle: No stamp duty if no instrument of transfer exists
6. Explain the procedure for changing the name of a Limited Liability Partnership (LLP) under the Limited
Liability Partnership Act, 2008 June 2022 (3 marks)
Hints:
Focus on:
' Section 19 of the LLP Act, 2008
' Rule 20 of the LLP Rules, 2009
' Key forms: RUN-LLP, LLP Form 5, and LLP Form 3
' Whether the LLP Agreement has a clause for name change
' Requirement of partner consent, ROC approval, and supplementary agreement.
8. XYZ Trading LLP, registered under the LLP Act, 200,8, wants to change its name to PQR Solutions LLP.
Explain the procedure to be followed by XYZ Trading LLP for changing its name under the provisions of
the LLP Act, 2008. Dec.2021 (3 marks)
Hints:
' Section 19 of the LLP Act, 2008, Rule 20 of LLP Rules, 2009
' Key forms: RUN-LLP, Form LLP-5, Form LLP-3
' Whether the LLP Agreement has a clause for name change
' ROC approval and issuance of Form 16 (Certificate of Name Change)
9. What are the duties of a Designated Partner of an LLP? Dec.2020 (3 marks)
Hints: Section 23 of the LLP Act, 2008
10. Prabhat is proposing to start a new business and wants to know from you the mandatory annual compliances
for an LLP and a partnership firm. Dec.2019 (3 marks)
Hints: Annual Compliances;
Filing of Statement of Account & Solvency,
Audit of accounts,
Filing of Annual Return

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 CHAPTER SBIL

4 STARTUPS AND ITS

REGISTRATION

1. INTRODUCTION
A startup company (also known as a startup or start-up) is an entrepreneurial venture, typically an emerging,
fast-growing business, that aims to solve an unmet need by developing a viable business model around an
innovative product, service, process, or platform. A startup is generally designed to effectively develop and
validate a scalable business model. While startup companies have high rates of failure, the minority that succeed
can grow to become large and influential enterprises.
Startup companies can vary in form and size. One of the critical tasks for startup founders is to build a co-founding
team that possesses complementary skills, know-how, financial resources, and other elements necessary to build
the product for the target market.
Typically, a startup will begin by creating a minimum viable product (MVP) — a prototype used to validate,
assess, and develop new ideas or business concepts. Additionally, startup founders conduct research to deepen
their understanding of the ideas, technologies, or business concepts and their commercial potential.
Founders’ agreements are often established early on to confirm the commitment, ownership, and contributions
of the founders, as well as to deal with intellectual property and assets that may be generated by the startup. A
Shareholders’ Agreement (SHA) is entered into between the founders and investors to confirm investment
terms, investor rights, exit clauses, and other important terms of agreement.
Business models for startups are generally developed through a “bottom-up” or “top-down” approach. A startup
may cease to be considered a startup as it passes various milestones, such as becoming publicly traded through
an Initial Public Offering (IPO), or ceasing to exist as an independent entity through a merger or acquisition.
Additionally, startups may fail and cease operations altogether, which is a common outcome, as they often develop
disruptive innovations that may not function as expected or have sufficient market demand, even once the
product or service is developed.
Given that startups operate in high-risk sectors, attracting investors to support product/service development or
to find buyers can be a challenge. However, a number of organizations and organized activities exist to support
startup initiatives. Some key contributors include:
) Universities
) Advisory and mentoring organizations
) Startup incubators
) Startup accelerators
) Co-working spaces
) Service providers (Consulting, Accounting, Legal, etc.)
) Event organizers
) Startup competitions
) Startup business model evaluators
 ) Business Angel Networks
) Venture capital companies
) Equity crowdfunding portals
) Corporates (Telcos, Banking, Health, Food, etc.)
) Other funding providers (Loans, grants, etc.)
) Startup blogs and social networks
These investors and organizations are often linked through shared events, activities, locations, and interactions. The
startup ecosystem encompasses the network of interactions among people, organizations, and their environment.
A particular startup ecosystem is defined by its collection of specific cities or online communities.
In addition to connections between people and organizations, resources such as skills, time, and money are
essential components of a startup ecosystem. These resources are primarily obtained through interactions among
those actively participating in the ecosystem. These interactions play a vital role in creating new potential startups
and/or strengthening already existing ones.

2. STARTUP LANDSCAPE IN INDIA

2.1 DEFINITION OF START-UP

As per the Notification No. G.S.R. 127 (E), dated 19th February 2019, issued by the Department for
Promotion of Industry and Internal Trade (DPIIT), a startup entity is considered as a startup if it meets the
following criteria:
1. The entity is registered as:
A private limited company (under the Companies Act, 2013), or
A partnership firm (registered under Section 59 of the Partnership Act, 1932), or
A limited liability partnership (LLP) (under the Limited Liability Partnership Act, 2008) in
India.
The entity should be registered within ten years from the date of incorporation/registration.
2. The turnover of the entity for any of the financial years since incorporation/registration has not exceeded
Rs 100 crore.
3. The entity is working towards innovation, development, or improvement of products, processes, or
services, or it is a scalable business model with a high potential for employment generation or wealth
creation.
Note: An entity formed by the splitting up or reconstruction of an existing business shall not be considered
a ‘Startup’.

2.2 STARTUP INDIA INITIATIVE

The Startup India initiative was launched by the Government of India on 16th January 2016 to build a robust
ecosystem for nurturing innovation, supporting startups, and encouraging investments within the startup
ecosystem. To achieve these objectives, the Government unveiled an Action Plan for startups, comprising
various schemes and incentives aimed at fostering a vibrant startup environment in the country. The Action Plan
includes 19 action items across areas such as:
) Simplification and handholding
) Funding support and incentives
) Industry-academia partnership and incubation
The Government's sustained efforts have led to the recognition of 1,17,254 entities as startups as of 31st
December 2023.

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2.3 FLAGSHIP SCHEMES UNDER THE STARTUP INDIA INITIATIVE
The Government is implementing key flagship schemes under the Startup India initiative to support startups at
various stages of their business cycle. These schemes are designed to help startups graduate to a level where they
can raise investments or seek loans.

1. Startup The Startup India Seed Fund Scheme was approved for a period of 4 years starting
India Seed from 2021-22 with a corpus of Rs. 945 crore. The scheme aims to provide financial
Fund Scheme assistance to startups for activities such as:
(SISFS) ) Proof of concept
) Prototype development
) Product trials
) Market entry and commercialization
The scheme was operationalized from 1st April 2021. The Experts Advisory Committee
(EAC) oversees the execution and monitoring of the scheme. The EAC evaluates and
selects incubators for allocation of funds. The selected incubators then shortlist startups
based on the scheme's parameters.

2. Fund of The Fund of Funds for Startups scheme was approved in June 2016 with a corpus
Funds for of Rs. 10,000 crore. The fund is spread over the 14th and 15th Finance Commission
Startups cycles, based on progress. The scheme provides much-needed capital to the Indian startup
(FFS) ecosystem by enabling access to domestic capital.
The scheme is operationalized by the Small Industries Development Bank of India
(SIDBI). The FFS does not directly invest in startups but provides capital to SEBI-
registered Alternative Investment Funds (AIFs), known as daughter funds, which,
in turn, invest in startups through equity and equity-linked instruments. AIFs supported
under FFS are required to invest at least 2 times the amount committed under FFS in
startups.

3. Credit The Credit Guarantee Scheme for Startups (CGSS) was introduced to provide
Guarantee credit guarantees for loans extended to DPIIT-recognized startups by Scheduled
Scheme for Commercial Banks, Non-Banking Financial Companies (NBFCs), and Venture Debt
Startups Funds (VDFs) under SEBI-registered Alternative Investment Funds.
(CGSS) The scheme aims to offer credit guarantees up to a specified limit for loans extended by
Member Institutions (MIs) to finance eligible startups. The National Credit Guarantee
Trustee Company Limited (NCGTC) operationalizes the CGSS.

3. 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 the date of its incorporation or registration.

4. PROCESS OF RECOGNITION OF STARTUP

The process of recognition as a startup shall be through mobile app/portal of the Department for Promotion of
Industry and Internal Trade (DPIIT).

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49
Startups will be required to submit a simple application with any of following documents
A. A startup shall make an online application through the mobile app or portal established by the DPIIT.
B. The application shall be accompanied by–
A copy of Certificate of Incorporation or Registration.
A write-up about the nature of business highlighting how it is working towards innovation, development
or improvement of products or
C. The DPIIT may, after calling for such documents
Recognise the eligible entity as startup or
Reject the application by providing reasons.

Startups Recognition by DPIIT enables the companies to access a host of tax benefits, easier compliance
Intellectual Property Rights (IPR) fast tracking and more.

A complete online process has been Modification of definition of startups in Feb

institutionalised for recognition of startups 2019 and improvements incorporated in the
recognition process reduced the time taken
for grant of recognition certificate to 1-4 days.
The process of recognition as a ‘startup’
is through an online application mode The founders are required to upload
over the mobile app/portal set up by the incorporation/registration certificate and
Department for Promotion of Industry explain how their startup is working towards
and Internal Trade. The link to the online innovation, development or improvement
application is: [Link] of products or processes or services, or its
[Link]/content/sih/en/recognition- scalability in terms of employment generation
[Link] or wealth creation

5. BENEFITS TO STARTUPS
5.1 CERTIFICATION OF THE INTER-MINISTERIAL BOARD FOR AVAILING THE TAX BENEFIT UNDER
SECTION 80-IAC
A startup being a private limited company or limited liability partnership, which fulfils the conditions specified
in sub-clause (i) and sub-clause (ii) of the Explanation to section 80-IAC of the Income Tax Act, 1961 (Act) may,
for obtaining a certificate for the purposes of section 80-IAC of the Act, make an application the board may, as it
may deem fit,–grant the certificate referred to in sub-clause (c) of clause(ii) of the comment to section 80- IAC of
the Act; or reject the application by providing reasons.
5.2 ELIGIBILITY CRITERIA FOR APPLYING TO INCOME TAX EXEMPTION 80-IAC
The entity should be a recognized Startup:
) Only Private limited or a Limited Liability Partnership is eligible for Tax exemption under Section 80-IAC
) The startup should have been incorporated after 1st April, 2016.
) The Startups incorporated between 1 April 2016 and 1 April 2022 are eligible for getting 100% tax rebate
on profit for a period of three years. Startup India policy can now claim tax benefits in three out of the first
ten years under Section 80-IAC of the Income-tax Act, 1961. Also, the annual turnover must not exceed
Rs. 100 crores

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5.3 TAX EXEMPTION UNDER SECTION 56 OF THE INCOME TAX ACT (ANGEL TAX)
Post recognition, a Startup may apply for Angel Tax Exemption under Section 56 of the Income Tax Act,
provided it meets specific eligibility criteria.
Eligibility Criteria for Tax Exemption under Section 56 of the Income Tax Act
Approval for the purposes of clause (viib) of sub-section (2) of section 56 of the Act: A Startup shall be eligible
for notification under clause (ii) of the proviso to clause (viib) of sub-section (2) of section 56 of the Act and
consequent exemption from the provisions of that clause if it fulfils the following conditions:
1. It has been recognised by DPIIT under para 2(iii)(a) or as per any earlier notification on the subject.
2. The aggregate amount of paid-up share capital and share premium of the startup, after issue or proposed
issue of shares, if any, does not exceed Rs 25 crore.
Provided that in computing the aggregate amount of paid-up share capital, the amount of paid-up share
capital and share premium of Rs 25 crore in respect of shares issued to any of the following persons shall
not be included:
A non-resident;
A venture capital company or a venture capital fund;
3. Provided further that considerations received by such startup for shares issued or proposed to be issued to
a specified company shall also be exempt and shall not be included in computing the aggregate amount of
paid-up share capital and share premium of Rs 25 crore.
4. It has not invested in any of the following assets:
Building or land appurtenant thereto, being a residential house, other than that used by the Startup for
the purposes of renting or held by it as stock-in-trade, in the ordinary course of business;
Land or building, or both, not being a residential house, other than that occupied by the Startup for
its business or used by it for purposes of renting or held by it as stock-in-trade, in the ordinary course of
business;
Loans and advances, other than loans or advances extended in the ordinary course of business by the
Startup where the lending of money is a substantial part of its business;
Capital contribution made to any other entity;
Shares and securities;
A motor vehicle, aircraft, yacht or any other mode of transport, the actual cost of which exceeds Rs 10
lakh, other than that held by the Startup for the purpose of plying, hiring, leasing or as stock-in-trade,
in the ordinary course of business;
Jewellery other than that held by the Startup as stock-in-trade in the ordinary course of business;
Any other asset, whether in the nature of capital asset or otherwise, of the nature specified in sub-
clauses (iv) to (ix) of clause (d) of Explanation to clause (vii) of sub-section (2) of section 56 of the Act.
5. Provided the Startup shall not invest in any of the assets specified in sub-clauses (a) to (h) for the period
of seven years from the end of the latest financial year in which shares are issued at premium.
Explanation:
) “Specified company” means a company whose shares are frequently traded within the meaning of Securities
and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
and whose net worth on the last date of the financial year preceding the year in which shares are issued
exceeds Rs 100 crore or turnover for the financial year preceding the year in which shares are issued
exceeds Rs 250 crore.

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51
 ) The expressions “venture capital company” and “venture capital fund” shall have the same meanings as
respectively assigned to them in the explanation to clause (viib) of sub-section (2) of Section 56 of the Act.
A startup fulfilling conditions mentioned in para 4(i) and para 4(ii) shall file a duly signed declaration in Form
2 to DIPP that it fulfills the conditions mentioned in para 4. On receipt of such declaration, the DPIIT shall
forward the same to the CBDT.

6. EXEMPTIONS FOR STARTUPS

Government of India has launched a mobile app and a website for easy registration
1. Simple process
for startups.
The government also provides lists of facilitators of patents and trademarks. They
2. Reduction in cost
will enjoy 80% reduction in cost of filing patents.
A 10,000 crore rupees fund is set-up by government to provide funds to the
3. Easy access to Funds
startups as venture capital.
4. Tax holiday for 3 Startups will be exempted from income (Tax for 3 years provided they get a
Years certification from Inter-Ministerial Board (MB).

5. Apply for tenders Startups can apply for government tenders. They are exempted from the “prior
experience/turnover” criteria applicable for normal companies answering to
government tenders.
6. R&D facilities Seven new Research Parks will be set up.
7. No time-consuming) Startups shall be allowed to self-certify compliance (through the Startup mobile
compliances app) with 9 labour and 3 environment laws.
8. Tax saving for People investing their capital gains in the venture funds setup by government will
investors get exemption from capital gains.
The startups will have an option to choose between the VCs, giving them the
9. Choose your investor
liberty to choose their investors.
A startup can close its business within 90 days from the date of application of
10. Easy exit
winding up.
11. Meet other Government hub proposed to hold 2 startup fests annually both nationally and
entrepreneurs internationally.

Section Description
Acceptance of Deposits by Companies
“Deposit” does not include an amount of twenty five lakh rupees or more
Section 73– Prohibition on
received by a start-up company, by way of a convertible note (convertible into
acceptance of deposit from
equity shares or repayable within a period not exceeding ten years from the date
public
of issue) in a single tranche, from a person.
Section 73– Prohibition on The maximum limit in respect of deposits to be accepted from members shall
acceptance of deposit from not apply to a private company which is a start- up, for ten years from the date
public of its incorporation.
In relation to a private company, which is a start-up, the annual return shall be
Section 92– Annual Return signed by the company secretary, or where there is no company secretary, by the
director of the company.

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 A private company, which is a start-up, shall be deemed to have compiled with
Sections 173– Meetings of the provisions of section 173, if at least one meeting of the Board of Directors
Board has been conducted in each half of a calendar year and the gap between the two
meeting is not less than ninety days.
Section 2(40)– Definition of The financial statement in relation to a private company (if such private company
financial statement. is a start-up) may not include the cash flow statement.
Section 54– Issue of sweat A start- up company may issue sweat equity shares not exceeding 50% of its
equity shares. paid up capital upto ten years from the date of its incorporation or registration.

7. INDIAN STATES WITH STARTUP POLICIES

States have a vital role to play in promoting the Startup ecosystem. One of the core strengths of India lies in its
diversity, leading to enormous opportunities for cross-learning from each other. Only four State Governments
were actively supporting Startups before the launch of Startup India through a State Startup policy. The Startup
movement across the country was fragmented and there was a need for consolidating standalone efforts. Emphasis
was also required simultaneously to encourage more and more States to undertake new initiatives. The national
priority initiative has led to a wide spread movement across the country and presently 31 States have their own
Startup policies. Many other States and Union Territories (UTs) are in the process of drafting their policies and
operating guidelines. The core functioning of an enabling ecosystem in a State is a function of the policy framework
and effective implementation of the same. In the journey of developing a conducive Startup community, it is
important that States and UTs exchange and adopt good practices undertaken by each other.

8. EVOLUTION OF STARTUPS ACROSS THE YEARS

The states’ startup Ranking Framework is an ever-evolving tool with collaboration at its core. With learnings from
previous years and consultation with States and Union Territories, three new Reform Areas were introduced to
the framework:
1. Capacity Building of Enablers – This Reform Area focuses on holistic development through sensitization
programs and trainings conducted for key stakeholders of the State startup ecosystem.
2. Mentorship Support – This Reform Area focuses on creating a large and accessible mentorship network
within the State and the guidance provided by the State-supported mentors to the startups.
3. Fostering Innovation and Entrepreneurship – This Reform Area captures grassroots innovation, disruptive
policies for startups, and the entrepreneurial spirit of the students.

9. STATES’ STARTUP RANKING 2021 RESULTS

Best Performing States: The top 3 best performing states are:
) Gujarat ) Karnataka ) Meghalaya

10. LIFE CYCLE OF START-UP

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STAGE 1: IDEATION AND DEVELOPMENT
The first stage of the startup life cycle is ideation. It is categorized by the importance of testing feasibility of the
products/service offered.
Some overarching considerations of the ideation and development stage are:
) Target Market ) Business Models ) Team Skills Sets

STAGE 2: VALIDATION
Once on entrepreneur has evaluated feasibility of the idea. The process involves defining goals, developing a
value proposition and validating the same through customer feedback.
STAGE 3: EARLY TRACTION
It is at the Early Traction stage that a set of target customers may test efficacy of the product/service offered
validation of a product can portray definitive results to the outside world.
The customer retention rate confirms the early traction of the company and its product.
Pivoting
Pivoting in startup usually occur when a company shifts its business strategy to accommodate changes in its
industry, customer preferences, or any other factor that impacts its bottom line. Most successful companies go
through several pivots to find product-market fit.
MAJOR AREAS OF FOCUS DURING PIVOTING INCLUDE THE FOLLOWING

Turning one feature of a product into the product itself, resulting in a simpler, more streamlined offering

A product is turned into a feature of a larger suite of feature as part of another product

Focusing on a different set of customers by positioning a company into a new market or vertical

Changing a platform for example from an app to software or vice versa

Employing a new revenue model to increase monetisation. For example, a company might find that an
ad-based revenue model may be more profitable than freemium

Using innovative technology solutions to build a product, thereby reducing the cost of manufacturing
and creating a more reliable product

STAGE 4: GROWTH/EXIT
In the fourth stage of the startup lifecycle, the company has attained true economic health, has sufficient size and
product-market penetration to ensure economic success, and earns average or above-average profits.

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11. REGISTRATION STEPS

Incorporation Get Application Docu- Get the

Register with
of Business recognition for mentation for Recognition
Startup India
Entity form DPIIT Recognition Registration Number

11.1 INCORPORATION OF BUSINESS ENTITY

Before getting registered as startup one must need to incorporate his business either as a Private Limited Company
or a Partnership firm or a Limited Liability Partnership.
(i) Formation of a Company in India
(ii) Types of Companies in India
Private Company One Person Company
Public Company
(iii) Charter documents of a Company–
Memorandum of Association Articles of Association
11.1.1 Formalities for incorporation of a company
(i) Pre-incorporation formalities:
Digital Signature Certificates (‘DSC’) for the proposed directors (DIN) proposed to become a first director.
The next step is filing of online application through Simplified Proforma for Incorporating Company
electronically (SPICe + –INC-32), with eMoA (INC-33), eAOA (INC-34) and AGILEPRO-S.
(ii) Post incorporation formalities:
Once the certificate of incorporation has been issued by ROC, the company becomes a separate legal entity under
Indian law.
11.2 REGISTER WITH STARTUP INDIA
) Once the entity is incorporated, the business can be registered as a startup. The registration process is
completely online and simple for the users.
) To visit the startup India website and click on the ‘Register’ button. After that one needs to enter his/her
name, email id, mobile number, password and after that click on “Register” button. OTP will be sent.
) After entering these details, the Startup India profile will be created.

11.3 GET RECOGNITION FROM DPIIT

Avail the Recognition from the Department for Promotion of Industry and Internal Trade (DPIIT). The recognition
helps the startups to avail various benefits like access to high-quality intellectual property, tax exemption for
3 consecutive years and tax exemption on investment above fair market value.

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11.4 APPLICATION FOR RECOGNITION
On the ‘Startup Recognition Form’, the details have to be filled such as the entity details, full address (office),
authorized representative details, directors/partner details, information required, startup activities and self-
certification.
11.5 DOCUMENTATION REQUIRED FOR REGISTRATION
Following documents should be kept ready for getting the registration completed on the Startup India Portal:
) Incorporation/Registration Certificate of your startup
) PAN Number
) Proof of funding, if any
) An authorization letter from the authorized representative of the company, LLP or partnership firm
) Proof of concept like pitch deck/website link/video
) Patent and trademark details, if any
) List of awards or certificates of recognition, if any.

11.6 GETTING THE RECOGNITION NUMBER

Once the application is made a recognition number will be generated for the startup. The certificate of
recognition will be issued after the examination of all the documents which is usually done within 2 days after
submitting the details online.

Important Points for a Startup

) Choose the right legal structure for your startup: Choosing an appropriate legal structure is one of the
most crucial decisions for any startup. The decision should be taken based on individual circumstances
and a host of factors such as nature/sector of business operation, business trajectory, regulatory and tax
considerations, costs of formation and ongoing administration, external capital requirement and type of
funding. Preferred entity structures for startups in India are limited liability partnership and private limited
company.
) Registrations and business licenses: Business licenses are permits issued by government authority that
allow startups to start/continue to operate a particular business within its territorial jurisdiction lawfully.
Some examples are Food safety license, Health/Trade license, Shops & Establishment License etc.
) Intellectual Property Protection: Developing and protecting intellectual property with proper registration
can help startups gain competitive advantage. It is essential to obtain trademark registration for the business
name/trade name under the Trademarks Act. All Intellectual Property (including trademark, copyright,
design, trade secrets, inventions, patents, etc.) should be registered in the name of the entity and not in the
name of the promoters/founders of the startup.
) Founder Equity – Split and Vesting: Founder equity should be split amongst founders based on the nature
of role played by each founder along with their time, effort and capital contribution to the startup.
) Founder agreements: The founder’s agreement is the most valuable tool to establish the relationship
between the founders of a startup. Founder agreements should clearly mention the roles and responsibilities
of the founders and have clauses detailing the decision making and operating structure of the startup, founder
equity split with vesting (explained above), assignment of all intellectual property in favour of the startup,
termination of a promoter and exit process etc.

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 ) Employment contracts: Startups must ensure to enter into clear employment contracts detailing terms and
conditions of employment with their employees.
) Employee Stock Option Pool (ESOP): ESOP’s are incentives given to employees/directors of a company
to attract talent and retain employees by rewarding them.
) Third Party Agreements: Prior to entering into a third-party agreement and while negotiating the terms,
it is advisable to execute a non- disclosure agreement, Clauses related to breach, termination and dispute
resolution should be well negotiated and captured in all third-party agreements.
) Investment structuring: One of the most challenging and time consuming aspects of operating a startup is
to raise capital for working capital requirement and growth. In India, Investors (HNIs/Angels/Funds) invest
in early and growth stage companies in different structures and on varied terms.

12. COMPLIANCE MANAGEMENT

Compliance and its importance is often overlooked by many startups. There are multiple laws applicable to
specific entity structures under which separate event based and annual compliance is mandated. The consequences
of non- compliance can be levy of punitive fines on the startup.

13. FINANCING OPTIONS AVAILABLE FOR STARTUP COMPANIES

Different financing options are as under:
Characteristics
Equity Financing Debt Financing Grants
of Investment
There is no component of Invested Funds to be repaid There is no component of
Nature repayment of the invested within a stipulated time frame repayment of the invested
funds with interest funds
Risk factor for the Risk Factor for the investor There is no risk factor for
investor is higher as he is lower as he generally the startup as no collateral
Risk
has no guarantee against has collateral against his is involved
his investment investment
Less pressure for startups More pressure for startups to No pressure for repayment
to adhere to a repayment adhere to repayment timeline as grants are a form of
Pressure for
timeline but added and as a result more pressure monetary support provided
Repayment
pressure from investors to generate cash flows to meet for a specific purpose
to achieve growth targets interest repayments
Return to Capital growth for Interest payments No Return
Investor investors
Equity Fund Investors Debt Fund have very less No direct involvement in
Involvement in usually prefer to involve involvement in decision decision making
Decisions themselves in decision making
making process
Angel Investors, Banks, Non-Banking Central Government,
financing, Self-Family Financial Institutions, State Governments,
and Friends, Venture Government Loan Schemes Corporate Challenges,
Sources
Capitalists, Crowd (CGTMSE, Mudra Loan, Grant Programs of Private
Funding, Incubators/ Standup India) Entities
Accelerators

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14. SEED CAPITAL
) The funding done at the nascent stage is called seed funding and the capital is known as a seed capital.
Technically, seed capital is the initial capital used at the time of starting the business.
) This capital can come from the founders, families or friends. It is required for the market research, product
development, and other initial stage operations.
) Seed funding permits exploration of the business idea and converting it into a viable product or service that
further attracts venture capitalists.
) The paperwork involved in seed funding is relatively less and straightforward, compared to advanced rounds
of funding.

15. FINANCING IS GENERALLY OF TWO TYPES

15.1 EQUITY FINANCING

15.1.1 Venture Capitalist/Private Equity
Venture capital (“VC”)/Private Equity (“PE”) is often the first large investment a startup can expect to receive.
Convertible instruments are usually the preferred option.
The investor and startup will normally enter into a non-binding offer based on the preliminary valuation of the
startup usually followed with a financial, legal and technical due diligence on the startup as required by the
investors.
Funding Procedure
A. A Term Sheet/Letter of Intent/Memorandum of understanding is entered into, setting out the following:
Basic commercial understanding between the VC and the startup; and
Legal terms for the agreements to follow the due-diligence.
B. The contracting parties will enter into a Share Subscription Agreement/ Debenture Subscription Agreement.
Issuance of shares in the share capital or debentures at subscription amount determined.
Condition precedents to completion of transaction.
C. The contracting parties may enter into a Shareholders’ Agreement providing for the following:
Nomination/representation rights on the board of investee;
Information and reporting right and disclosure obligation of investee to the investors;
Redemption rights on debenture or preference shares;
Pre-emption rights, Right of First Refusal or Right of First Offer.
Exit options to investors after the lock-in-period; etc.
D. Issuance of Securities through Private Placement process;
E. Filing of necessary e-Forms with ROC for completing the process of issuance and allotment of securities;
F. Amendment of AOA as per Shareholders’ Agreement;
G. Completion of Conditions Subsequent.

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15.1.2 Angel Investors
Angel investors are usually individuals or a group of industry professionals who are willing to fund the venture
in return for an equity stake. SEBI has made the following restrictions applicable to angel funds investing in an
Indian company:
1. Angel funds shall invest in startups which:
Are not promoted or sponsored by or related to an industrial group whose group turnover exceeds
Rs. 300 crore; and
Are not companies with family connection with any of the angel investors who are investing in the
company.
2. Investment by an angel fund in any venture capital undertaking shall not be less than Rs. 25 Lakhs and
shall not exceed Rs. 10 Crores.
3. Investment by an angel fund in the venture capital undertaking shall be locked-in for a period of one year.
15.1.3 Bridge Round
(a) Bridge round is a sort of financing option that helps startups “bridge” the gap between larger funding
rounds.
(b) Bridge rounds can be termed as interim financing rounds raised between larger funding rounds.
(c) When a startup needs additional capital between two rounds of funding, they might raise a “bridge round”.
Example: M/s ABC & Ltd., is already approved for a term loan of INR 5,00,00,000/- from bank, but the loan
is broken into tranches, with the first tranche set to come in six months, the company may seek a bridge loan. It
can apply for a six-month short-term loan that gives it just enough money to survive until the first tranche hits the
company’s bank account.
15.1.4 Series Funding
After Seed Funding Round or Angel Funding Round and Bridge Funding Round, Series Funding Round will start
like Series A to Z. Series preferred stock is the first round of stock offered during the seed or early stage round by
a portfolio company to the venture capital investor. A typical series A round is in the range of USD-2 million to
USD-10 million, purchasing 10% to 30% of the company.
15.1.5 Structure
(a) Things to Know When Raising a ‘Series A Round’:
1. Be Series A Ready
If you are looking to raise a Series A, it might be a good idea to get familiar with what venture funds
looks for to ascertain if your company is Series A ready.
2. Start Early
Make sure you start the process at least 7-8 months prior to when you want to raise a Series A financing.
The deal process has two parts, pre-term sheet and post-term sheet.
3. Leverage Your Network
Series A fundraise will make it easier for you to get potential meetings with investors. Reach out to
your extended network.
4. Practice your “Pitch”
Meet the low priority investors on your list first- they will ask you relevant question and provide you
valuable feedback which you should incorporate in your pitch before meeting the top priority investors
on your list.

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 5. Create a Fundraise Momentum
Approaching multiple venture funds at the same time is a good idea to get a competitive dynamic into
the process.
6. Know the “standard market practice”
Keep yourself up to date with the commonly offered deal terms for a Series A.
7. Get the deal terms right
The Series A terms will play as a foundation for all future rounds – many of those same terms that you
have signed up for in your Series A are likely to carry through to future rounds.
8. Engage a Professional
A professional who has done multiple such deals understands the nuances involved in structuring
such rounds both from the perspective of which deal terms are important, what the “standard market
practice”.
9. Paperwork in place
Shorten your transaction closing time by having all paper work in place for due diligence. The
paperwork should be organized and ready for review by the Investor appointed legal counsel/diligence
team.
10. Raise 10-15% more than budgeted for
Raise 10-15% more than budgeted as the business initiatives/operations don’t always materialise as
planned.

15.2 DEBT FINANCING

(i) Loan from Banks & NBFCs
Loans from banks and NBFCs help finance the purchase of inventory and equipment, besides securing
operating capital and funds for expansion.
Application for loan sanction by borrowers;
Issue of sanction letter by the Bank;
Agreement of Loan;
Security/collateral documentation, such as
Deed of Mortgage;
Deed of Hypothecation;
Deed of guarantee;
Share pledge agreement;
Memorandum of Entry; etc.
(ii) External Commercial Borrowings: External Commercial Borrowings (ECB) in form of bank loans, buyers’
credit, suppliers’ credit, securitized instruments (e.g. non-convertible, optionally convertible or partially
convertible preference shares, floating rate notes and fixed rate bonds) can also be availed from non-resident
lenders to fund the business requirement of a company. ECB can be accessed under two routes, viz.,
Automatic Route; and
Approval Route
(iii) CGTMSE Loans: Under the Credit Guarantee Trust for Micro and Small Enterprises scheme launched by
Ministry of Micro, Small & Medium Enterprises (MSME), Government of India to encourage entrepreneurs,
one can get loans of up to 1 crore without collateral or surety.

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15.3 INITIAL PUBLIC OFFERING (IPO)
To Raise the Funds or Increase the Magnitude of the Business Operations
During the IPO, the Company raises funds by offering and issuing equity shares to the public.
15.4 UNCONVENTIONAL MODES OF FINANCING OPTIONS WHICH ARE NOW BECOMING POPULAR
IN INDIA
15.4.1 Crowd Funding
) This is recent phenomena being practiced for getting seed funding.
) The entrepreneur can get money for his venture by showcasing his idea before a large group of people and
trying to convince people of its utility and success.
) The entrepreneur needs to put up on a portal his profile and presentation, which should include the business
idea, its impact, and the rewards and returns for investors. It should be supported by suitable images and
videos of the project.
) SEBI in 2014, even rolled out a ‘Consultation Paper on Crowd funding in India’ proposing a framework in
the form of Crowd funding.
15.4.2 Incubators
These set-ups precede the seed funding stage and help the entrepreneur develop a business idea or make a prototype
by providing resources and services in exchange for an 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, technical institutes or private business
incubators run by industry veterans or companies.

16. ENTREPRENEURSHIP
Entrepreneurship is defined as the process of making money, earning profits and increasing the wealth while
posing characteristics such as risk taking, management, leadership and innovation.
Four Key Elements of Entrepreneurship:

Innovation Risk taking Vision Organising skills.

16.1 TRAITS OF AN ENTREPRENEUR

1. He is a person who develops and owns his own enterprise.
2. He is a moderate risk taker and works under uncertainty for achieving the goal.
3. He is innovative.
4. Reflects strong urge to be independent.
5. Persistently tries to do something better
6. Prepared to withstand the hard life.
7. Determined but patient.
8. Exhibits sense of leadership
9. Also exhibits sense of competitiveness
10. Oriented towards the future.
11. Convert a situation into opportunity.

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16.2 CHARACTERISTICS OF AN ENTREPRENEUR
(i) Mental Ability (iv) Human Relation
(ii) Business Secrecy (v) Communication Ability
(iii) Clear Objectives

16.3 HOW ENTREPRENEURSHIP IS DIFFERENT FROM A STARTUP?

The primary distinction between the startup and entrepreneurship is that an entrepreneur refers to all business
ventures, new or old. It includes small businesses, partnerships, firms, sole-proprietorship and corporations which
can be based on a new idea or on an existing idea.
On the other hand, a startup is a newly emerged business venture started by individual founders to meet a market
gap. Startups mostly mean new businesses that are solving market’s problems with unique ideas.

17. CASE STUDIES ON UNICORN

Unicorns Startups
A unicorn is a term used to indicate a privately held startup company with a valuation of over $1 billion. For a
unicorn, the journey starts from the growth stage, they are disruptors which start out in an incredibly unique way
to solve everybody problem.
Bengaluru is India’s unicorn capital with the largest number of unicorns headquarters followed by Delhi (NCR)
and Mumbai.
While every startup has its unique journey to becoming a unicorn, the minimum and maximum time taken by
a startup to become a unicorn are 6 months and 26 years, respectively. Mensa Brands took only 6 months to
become a unicorn in 2021, making it one of the fastest unicorns in Asia.
Next Stage: Going Beyond the Unicorn
The global startup ecosystem is witnessing a shift as the world is increasingly realising the potential carried by the
startups. We are gradually transitioning from the age of unicorns to the age of decacorns.
A decacorn is company that has attained a valuation of more than USD 10 Bn.
17.1 CASE STUDY ON ZOMATO – INDIA’S FIRST LISTED UNICORN
About the Company
Zomato was originally incorporated as “DC Foodiebay Online Services Private Limited” as a Private Limited
Company under the Companies Act, 1956 at New Delhi, on January 18, 2010. The Company’s name was changed
to “Zomato Media Private Limited” on May 25, 2012 and then to to “Zomato Private Limited” on April 22, 2020.
In 2021, the company converted into a public limited company and was named “Zomato Limited”
Growth of Business From Year to Year
Zomato has grown significantly since its inception in 2010, expanding from a single-service provider to a
multi-category service provider offering various services. The company has experienced rapid growth in all
aspects of its business, particularly food delivery. With the easing of COVID-19 lockdowns in India in May
2020, Zomato’s food delivery business began to recover, and in Q4 FY2021, it recorded its highest quarterly
gross order value (GOV).
Main Products of Zomato: Zomato is a technology platform that connects customers, restaurants, and
delivery partners. Customers can use the platform to search for and order food delivery, book tables, and
make payments.

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Restaurant partners can use Zomato’s marketing tools to engage and acquire customers. Zomato also offers
a procurement solution called Hyperpure, which supplies high-quality ingredients and kitchen products to
restaurants. It also provide its delivery partners with transparent and flexible earning opportunities. Zomato
became the nation’s first unicorn to make its stock-market debut and its IPO was oversubscribed by many
investors.
Zomato’s Role During COVID-19
Zomato introduced contactless payments and deliveries during COVID-19 to minimize face to-face interactions.
This was beneficial for both customers and delivery executives. Zomato trained their delivery partners in hygiene
practices, offered free medical consultations, and ensured their financial safety.
17.2 STUDY ON DELHIVERY – E-COMMERCE-FOCUSED LOGISTICS PLATFORM
About the Company
Delhivery is a logistics and delivery solutions company that was incorporated as “SSN Logistics Private Limited”
in 2011 and later changed its name to “Delhivery Private Limited” in 2015. In October 2021, it became a public
limited company and changed its name to “Delhivery Limited”.
Its main objects are to provide logistics and delivery solutions to consumers and businesses, as well as web
hosting & maintenance services.
Delhivery became a unicorn in 2019 with a valuation of USD 1.5 billion and was last valued at USD 4.77 billion
in May 2022. While the company has incurred restated losses in recent years, its revenue from contracts with
customers has been improving.
Main Offering of Delhivery
Delhivery is a leading supply chain services company in India that provides logistics courier services to businesses
and individuals at affordable rates, without any setup fees or subscription charges. The services offered by
Delhivery can be divided into 3 primary departments:
1. Warehousing
2. Transportation
3. E-Commerce
Its mission is to help customers build flexible, reliable, and efficient supply chains with low costs. Delhivery
serves over 29,200 active customers in various industries, such as e-commerce, retail, and manufacturing, through
its extensive logistics network, infrastructure, and automation investments.
Delhivery’s Role During COVID-19
During the period of April to June 2021, Delhivery partnered with Hunger Heroes to import 8419 oxygen
concentrators. It also partnered with “ACT Grants” and others to import 35875 oxygen concentrators, oxygen
plants, oxygen cylinders and medical supplies from around the world to distribute them in India.

Previous Year Questions

1. Explain the concept of Life Cycle of Startup. Dec. 2024 (3 Marks)

Hints: Stage 1: Ideation and Development
Stage 2: Validation
Stage 3: Early Traction
Stage 4: Growth/Exit

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 2. XYZ Solutions Pvt. Ltd. is a newly established technology company based in Bengaluru, India. The
company specializes in developing AI-powered software solutions for healthcare poviders. As part of
its growth trajectory, XYZ Solutions Pvt. Ltd. is exploring the benefits available to startups under the
startup India Program. Advise the company about the benefits given to entrepreneurs establishing startups.
 June. 2025 (5 Marks)
Hints: 1. Simplified Compliance: 2. Tax Exemption: 3. Self-Certification: 4. Faster Patent Examination:
5. Access to Funding: 6. Intellectual Property Rights Support: 7. Startup India Hub: 8. Government
Procurement: 9. Incubation Support: 10. Innovation and Research Support:
3. “While every startup has its unique journey to becoming a unicorn, the minimum and maximum time
taken by a startup to become a unicorn are 6 months and 26 years, respectively.” June. 2025 (3 Marks)
4. Radha Furnishing Private Ltd., a startup Company wants to issue sweat equity shares to its employees. Is
there any provision regarding it? Explain. Dec. 2022 (4 Marks)
5. Explain the unconventional modes of financing options for Startups which are becoming popular in India.
 Dec. 2021 (4 Marks)
Hints: Following are the unconventional modes of financing options for Startups which are becoming
popular in India:
(a) Crowd Funding.
(b) Incubators.

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 CHAPTER SBIL

5 MICRO, SMALL AND

MEDIUM ENTERPRISE

1. INTRODUCTION
The Micro, Small and Medium Enterprises (MSME) sector has emerged as a highly vibrant and dynamic sector
of the Indian economy over the last five decades. MSMEs are an important part of the Indian economy, providing
employment opportunities and promoting industrialization in rural and backward areas. The Government of India
has enacted the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 (came into force on
02nd October, 2006) defining the micro, small and medium enterprises and promoting their development and
competitiveness. It provides the first-ever legal framework for recognition of the concept of “enterprise” which
comprises both manufacturing and service entities.
A prime example is the textile sector, where MSMEs contribute significantly to both domestic and export markets.
In cities like Surat and Jaipur, small textile units employ thousands of workers and generate substantial revenue.
These businesses cater to both domestic demand and export needs, boosting India's position in the global textile
industry.

2. IMPORTANT DEFINITIONS
2.1 ADVISORY COMMITTEE (SECTION 2 (a))
Section 2 (a) states that Advisory Committee means the committee constituted by the Central Government under
sub-section (2) of section 7.
2.2 APPOINTED DAY (SECTION 2(b))
Section 2(b) of the Act defines the term appointed day as 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.
2.3 ENTERPRISE (SECTION 2(e))
Section 2(e) of the Act defines the term Enterprise as an industrial undertaking or a business concern or any other
establishment, by whatever name called, engaged in the manufacture or production of goods, in any manner,
pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act,
1951 (IDRA) or engaged in providing or rendering of any service or services.
2.4 MEDIUM ENTERPRISE (SECTION 2(g))
The term Medium Enterprise has been defined under Section 2(g) of the Act as to mean an enterprise classified as
such under sub-clause (iii) of clause (a) or sub-clause (iii) of clause (b) of Sub-section (1) of Section 7. Section 7
deals with the classification of enterprises.
2.5 MICRO ENTERPRISE (SECTION 2(h))
Micro Enterprise under Section 2(h) has been defined to mean an enterprise classified as such under subclause
(i) of clause (a) or sub-clause (i) of clause (b) of Sub-section (1) of Section 7.
2.6 SMALL ENTERPRISE (SECTION 2(m))
Small Enterprise under Section 2(m) of the Act means an enterprise classified as such under sub-clause (ii) of
clause (a) or sub-clause (ii) of clause (b) of Sub-section (1) of Section 7.
2.7 SUPPLIER (SECTION 2(n))
The term supplier defined under Section 2(n) of the Act means a micro or small enterprise, which has filed a
memorandum with the authority referred to in Sub-section (1) of Section 8, and includes—
(i) The National Small Industries Corporation, being a company, registered under the Companies Act, 1956;
(ii) The Small Industries Development Corporation of a State or a Union territory, by whatever name called,
being a company registered under the Companies Act, 1956;
(iii) Any company, co-operative society, trust or a body, by whatever name called, registered or constituted under
any law for the time being in force and engaged in selling goods produced by micro or small enterprises and
rendering services which are provided by such enterprises.

3. MEMORANDUM OF MSME
Any person who intends to establish a micro or small enterprise, may, at his discretion, or a medium enterprise
engaged in providing or rendering of services may, at his discretion; or a medium enterprise engaged in the
manufacture or production of goods pertaining to any industry specified in the First Schedule to the IDRA, is
required to file the memorandum of micro, small or, as the case may be, of medium enterprise with such authority
as may be specified by the State Government or the Central Government (Section 8).

4. ESTABLISHMENT OF NATIONAL BOARD FOR MICRO, SMALL AND MEDIUM

ENTERPRISES
Section 3 of MSMED Act, 2006 provides for establishment of a board by the Central Government, known as
National Board for Micro, Small and Medium Enterprises. Its head office shall be in New Delhi.
4.1 CONSTITUTION OF BOARD
The board shall consist of following members:
(a) The Minister in charge of the Ministry or Department of the Central Government having administrative
control of the micro, small and medium enterprises who shall be the ex officio Chairperson of the Board;
(b) The Minister of State or a Deputy Minister, if any, in the Ministry or Department of the Central Government
having administrative control of the micro, small and medium enterprises who shall be ex officio Vice
Chairperson of the Board, and where there is no such Minister of State or Deputy Minister, such person as
may be appointed by the Central Government to be the Vice-Chairperson of the Board;
(c) 6 Ministers of the State Governments having administrative control of the departments of small scale
industries or, as the case may be, micro, small and medium enterprises, to be appointed by the Central
Government to represent such regions of the country as may be notified by the Central Government in this
behalf, ex officio;
(d) 3 Members of Parliament of whom 2 shall be elected by the House of the People and one by the Council
of States;
(e) The Administrator of a Union territory to be appointed by the Central Government, ex officio;
(f) The Secretary to the Government of India in charge of the Ministry or Department of the Central
Government having administrative control of the micro, small and medium enterprises, ex officio;

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 (g) 4 Secretaries to the Government of India, to represent the Ministries of the Central Government dealing
with commerce and industry, finance, food processing industries, labour and planning to be appointed by the
Central Government, ex officio;
(h) The Chairman of the Board of Directors of the National Bank, ex officio;
(i) The Chairman and Managing Director of the Board of Directors of the Small Industries Bank, ex officio;
(j) The Chairman, Indian Banks Association, ex officio;
(k) 1 officer of the Reserve Bank, not below the rank of an Executive Director, to be appointed by the Central
Government to represent the Reserve Bank;
(l) 20 persons to represent the associations of micro, small and medium enterprises, including not less
than 3 persons representing associations of women’s enterprises and not less than 3 persons representing
associations of micro enterprises, to be appointed by the Central Government;
(m) 3 persons of eminence, one each from the fields of economics, industry and science and technology, not
less than 1 of whom shall be a woman, to be appointed by the Central Government;
(n) 2 representatives of Central Trade Union Organizations, to be appointed by the Central Government;
and
(o) 1 officer not below the rank of Joint Secretary to the Government of India in the Ministry or Department
of the Central Government having administrative control of the micro, small and medium enterprises to be
appointed by the Central Government, who shall be the Member-Secretary of the Board, ex officio.
(p) The Board shall meet at least once in every three months in a year.

4.2 FUNCTIONS OF THE BOARD

Section 5 of MSMED Act, 2006 states about the main functions of the board which are as follows:
(1) To examine the factors affecting the promotion and development of micro, small and medium enterprises
and review the policies and programmes of the Central Government for promotion and development and for
enhancing the competitiveness of such enterprises.
(2) To make recommendations on matters relating to promotion and development of micro, small and medium
enterprises or on any other matter referred to it by the Central Government which, in the opinion of that
Government, is necessary or expedient for facilitating the promotion and development and enhancing the
competitiveness of the MSMEs.
(3) To advise the Central Government on the use of the Fund or Funds constituted under section 12 of MSMED
Act, 2006.

5. CLASSIFICATION OF ENTERPRISES
The Government of India, through Notification No. S.O. 2119 dated 26th June 2020, has introduced a simplified
and unified classification system for Micro, Small, and Medium Enterprises (MSMEs) based on investment in
plant and machinery or equipment and the turnover of the enterprises. This system aims to streamline the Udyam
Registration process, making it fully online, digital, paperless, and based on self-declaration. No documents
or proofs are required to be uploaded when registering an enterprise as a Micro, Small, or Medium Enterprise.
However, the registration requires the enterprise's Aadhaar and PAN details. The PAN and GSTIN linked data
related to investment and turnover are automatically fetched from the relevant Government databases.
One important feature of this system is that the turnover from exports is excluded from the turnover limits for any
category of MSMEs. The new criteria, which came into effect on 1st July 2020, apply uniformly across all States
and Union Territories (UTs). While the promotion and development of enterprises are primarily a State subject,
the Central Government supports State and UT Governments through various schemes, programs, and policy
initiatives aimed at enhancing the competitiveness of MSMEs, including in Tier 2 and Tier 3 cities.

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In another important development, the Central Government, through Notification S.O. 1702(E) dated 1st June
2020, announced the criteria for the classification of MSMEs. Notably, there is no longer a distinction between
manufacturing and service-based MSMEs under this new classification.
The classification is as follows:
1. Micro Enterprise: An enterprise where the investment in plant and machinery or equipment does not
exceed one crore rupees and the turnover does not exceed five crore rupees.
2. Small Enterprise: An enterprise where the investment in plant and machinery or equipment does not exceed
ten crore rupees and the turnover does not exceed fifty crore rupees.
3. Medium Enterprise: An enterprise where the investment in plant and machinery or equipment does not
exceed fifty crore rupees and the turnover does not exceed two hundred and fifty crore rupees.
It is important to note that the MSME classification includes establishments engaged in manufacturing or providing
services but excludes those that are solely involved in trading activities.
MSME - Micro, Small and Medium Enterprises - Revised Classification applicable w.e.f. 1st July 2020

Composite Criteria: Investment in Plant & Machinery/Equipment and Annual Turnover

Manufacturing Enterprises and Enterprises rendering Services

Micro Enterprises Small Enterprises Medium Enterprises

Investment in P&M or Investment in P&M or Investment in P&M or

Equipment: Not more than Equipment: More than ` 1 Equipment: More than ` 10
` 1 crore Annual Turnover crore but not more than ` 10 crore but not more than ` 50
Not more than ` 5 crore crore Annual Turnover: More crore Annual Turnover: More
than ` 5 crore but not more than ` 50 crore but not more
than ` 50 crore than ` 250 crore

6. MEMORANDUM OF MSME
Any person intending to establish a micro or small enterprise, may, at their discretion, file a memorandum
for a micro, small, or medium enterprise with the authority specified by the State Government or the Central
Government. This applies to medium enterprises engaged in providing services or manufacturing/producing
goods specified in the First Schedule to the Industrial Development Regulation Act (IDRA). The filing of this
memorandum is mandatory as per Section 8 of the MSMED Act.

7. MEASURES FOR PROMOTION AND DEVELOPMENT

The Central Government is empowered to implement measures from time to time to facilitate the promotion,
development, and enhancement of the competitiveness of micro, small, and medium enterprises. These measures
primarily focus on micro and small enterprises and may include:
) Skill Development: Focused on improving the skills of employees, entrepreneurs, and management.
) Technological Upgradation: Encouraging the adoption of advanced technologies to increase productivity
and competitiveness.

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 ) Marketing Support: Helping MSMEs improve their marketing strategies, grow their customer base, and
enhance their market presence.
) Infrastructure Development: Establishing facilities like industrial parks and clusters to support MSME growth.
) Cluster Development: Aimed at fostering collaboration and strengthening both backward and forward
linkages in regional and industry-specific MSMEs.
The Central Government may notify specific programmes, guidelines, or instructions to implement these measures
effectively under Section 9 of the MSMED Act.

8. REGISTRATION PROCESS OF MSME

The form for registration must be filled out on the Udyam Registration
1. Registration Form: portal. This is the official online platform for the registration of micro,
small, and medium enterprises.
There will be no fee for filing the Udyam Registration, making it free of
2. No Fee for Registration:
cost for all enterprises.
The registration process mandates the Aadhaar number of the individual
registering the enterprise. The specifics are:
) For a proprietorship firm, the Aadhaar number of the proprietor is
3. Aadhaar Number required.
Requirement: ) For a partnership firm, the Aadhaar number of the managing partner
is required.
) For a Hindu Undivided Family (HUF), the Aadhaar number of the
karta (head of the family) is required.
According to Rule 5 of the Aadhaar Authentication for Good
Governance (Social Welfare, Innovation, Knowledge) Rules, 2020,
the Ministry of Micro, Small, and Medium Enterprises, authorized by the
4. Aadhaar Authentication:
Central Government, enables Aadhaar authentication on a voluntary basis
for informal micro enterprises. This process is designed to facilitate access
to priority sector lending.
For Companies, Limited Liability Partnerships (LLPs), Co-operative
Societies, Societies, or Trusts, the organization or its authorized signatory
5. For Other Enterprises: must provide the GSTIN (Goods and Services Tax Identification Number),
PAN (Permanent Account Number), and the Aadhaar number for
registration.
If an enterprise is registered with PAN, but there is missing information
from the previous years when it did not have PAN, the enterprise can fill in
6. Self-Declaration for Missing
the deficiency through self-declaration. This process allows the enterprise
Information:
to self-declare the missing data instead of submitting additional documents.

An enterprise can only file one Udyam Registration. However, an enterprise

7. One Udyam Registration Per can list multiple activities, including manufacturing and service, under a
Enterprise: single Udyam Registration. This allows flexibility for an enterprise that
operates in multiple sectors or offers both manufacturing and services.
Any enterprise that intentionally misrepresents or suppresses the facts and
8. Penalty for Misrepresentation: figures during the Udyam Registration or the updation process will be
subject to penalties as outlined under Section 27 of the MSMED Act.

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 Important Notes
) Udyam Registration: The process of registration is referred to as Udyam Registration. The enterprise
itself will be recognized as Udyam once registered.
) Permanent Registration Number:
Upon successful registration, a permanent registration number is issued to the enterprise, which is
used for future reference and dealings with government authorities.
) Certificate of Registration:
After completing the registration process, a certificate of registration will be issued online. The
certificate will feature a dynamic QR code, which allows easy access to the enterprise’s details on
the official portal.
) No Renewal Required:
The Udyam Registration is permanent, meaning there is no need for renewal. Once registered, the
enterprise does not have to go through any periodic renewal process, ensuring ease of long-term
validity.
) Multiple Activities in One Registration:
Enterprises can include multiple activities, such as both manufacturing and services, in their one
Udyam Registration. However, only one Udyam Registration is permitted per enterprise.

Provision Applicable for Udyam Assist Certificate Issued through Udyam Assist Platform (UAP)
The Ministry of MSME, in collaboration with SIDBI, has launched the Formalization Project to bring
Informal Micro Enterprises (IMEs) into the formal sector. Under this project, the Udyam Assist Platform
(UAP) will issue a certificate for IMEs.
) This Udyam Assist Certificate will be considered equivalent to the Udyam Registration Certificate and
will allow informal micro enterprises to avail the benefits of Priority Sector Lending (PSL), just like
formal MSMEs.

9. BENEFITS OF TAKING UDYAM REGISTRATION

1. Permanent Registration and Identification Number:
Udyam Registration provides a permanent registration and a basic identification number for the
enterprise, ensuring long-term recognition.
2. Paperless and Self-Declaration Based:
The registration process is completely paperless and based on self-declaration, making it easy and
efficient for enterprises to register.
3. No Need for Renewal:
Once registered, there is no need for renewal, providing lasting validity without the hassle of periodic
updates.
4. Multiple Activities Under One Registration:
Enterprises can specify and add any number of activities, including manufacturing, services, or both,
under a single Udyam Registration.
5. Eligibility for MSME Schemes:
Udyam Registration opens up access to various schemes of the Ministry of MSMEs, including:
 Credit Guarantee Scheme
 Public Procurement Policy

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  Additional advantages in Government Tenders
 Protection against delayed payments
6. Eligibility for Priority Sector Lending:
) Enterprises with Udyam Registration are eligible for priority sector lending from banks, ensuring better
access to credit and financial support.

10. NSIC REGISTRATION

The National Small Industries Corporation (NSIC) enlists Micro & Small Enterprises (MSEs) under its Single
Point Registration Scheme (SPRS), enabling their participation in government purchases. Units enlisted under
this scheme are eligible for various benefits under the Public Procurement Policy for Micro & Small Enterprises
(MSEs) Order, 2012, as notified by the Government of India, Ministry of Micro, Small & Medium Enterprises,
New Delhi. The order was further amended by S.O. 5670(E) dated 9th November 2018. The enlistment process
under SPRS is fully online.
Both manufacturing and service provider enterprises that have either MSME or Udyam registration are
eligible for NSIC registration. To obtain registration, these enterprises can apply online or submit an application
at one of the NSIC offices. Once the application is submitted, it is forwarded to the nearest zonal or sub-branch
office for a technical inspection. Upon receiving the inspection report, NSIC grants the registration to the MSME
unit.

11. BENEFITS EXTENDED TO MSES WITH VALID REGISTRATION

Benefit Explanation
Free Tender Sets Registered MSEs receive tender sets free of cost when participating in government
tenders.
Exemption from Earnest MSEs with NSIC registration are exempt from paying Earnest Money Deposit
Money Deposit (EMD) (EMD) in government tenders.
Special Price MSEs quoting within the L1 + 15% price band can supply up to 25% of the
Consideration requirement at the L1 price, if L1 is non-MSE.
Consortia Facility for NSIC provides a Consortia Facility for MSEs to collectively participate in tenders
Tender Marketing and market their products.
Annual Procurement Central Ministries, Departments, and PSUs must set a minimum 25% procurement
Target goal from MSEs annually.
Special Quotas for SC/ST 4% of the procurement from MSEs is reserved for units owned by SC/ST, and
& Women Entrepreneurs 3%for women entrepreneurs.

Integral Part of SPRS registered MSEs play a key role in fulfilling government procurement
Government Supply requirements, becoming an essential part of the supply chain.
Chain

12. GOVERNMENT PROCUREMENT FROM MSES

) Procurement Target: Every Central Ministry, Department, and PSU is required to set an annual target for
procurement from MSEs, with a minimum of 25% of total annual purchases being from MSEs.
) Special Quotas:
4% of the 25% procurement is reserved for units owned by Scheduled Castes (SC)/Scheduled Tribes
(ST).
3% is reserved for units owned by women entrepreneurs.

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13. ROLE OF SPRS REGISTERED UNITS
Units registered under the Single Point Registration Scheme (SPRS) are an integral part of the government’s
supply chain. They play a critical role in fulfilling the procurement goals set by government entities, ensuring that
MSEs have access to a significant portion of government purchases.
Recent Amendment
) The certificate issued on Udyam Assist Portal (UAP) to Informal Micro Enterprises (IMEs) shall be treated
at par with Udyam Registration Certificate for the purpose of availing Priority Sector Lending benefits.
) Specified companies which are having payments pending to any micro or small enterprises for more than 45
days from the date of acceptance or the date of deemed acceptance of the goods or services shall furnish the
information in MSME Form-I.
) An individual eligible for receiving the benefits shall be required to posses Aadhaar Number and if not
possesses Aadhar, it shall enrolled for Aadhaar.

14. MICRO AND SMALL ENTERPRISES FACILITATION COUNCIL

) Any party to a dispute may, with regard to any amount due to him make a reference to the Micro and Small
Enterprises Facilitation Council. Every reference the Council shall either itself conduct conciliation in the
matter or seek the assistance of any institution or centre providing alternate dispute resolution services by
making a reference to such an institution or centre, for conducting conciliation.
) Every reference made under this section shall be decided within a period of 90 days from the date of making
such a reference. Section 19 of the MSMED Act, 2006 states that no application for setting aside any decree,
award or other order made either by the Council itself or by any institution or centre providing alternate
dispute resolution services, shall be entertained by any court unless the appellant (not being a supplier) has
deposited with it 75% of the amount in terms of the decree, award or, as the case may be.
) While the application to set aside the decree, award, or order is pending, the court may order that a reasonable
percentage of the deposited amount be paid to the supplier, subject to such conditions as it deems necessary
to impose, until a final decision on the application is made.
) The has deposited deposited with it 75% of the amount in terms of the decree, award or, as the case may be.

14.1 COMPOSITION OF MICRO AND SMALL ENTERPRISES FACILITATION COUNCIL

The Council shall consist of at least 3 but up to 5 members, to be appointed from amongst the following categories,
namely:
(i) Director of Industries, by whatever name called, or any other officer not below the rank of such Director, in
the Department of the State Government having administrative control of the small scale industries or, as
the case may be, micro, small and medium enterprises; and
(ii) One or more office-bearers or representatives of associations of micro or small industry or enterprises in the
State; and
(iii) One or more representatives of banks and financial institutions lending to micro or small enterprises; or
(iv) One or more persons having special knowledge in the field of industry, finance, law, trade or commerce.

15. AMENDMENTS
1. The certificate issued on Udyam Assist Portal (UAP) to Informal Micro Enterprises (IMEs) shall be treated
at par with Udyam Registration Certificate for the purpose of availing Priority Sector Lending benefits.

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 2. Specified companies which are having payments pending to any micro or small enterprises for more than 45
days from the date of acceptance or the date of deemed acceptance of the goods or services shall furnish the
information in MSME Form-I.
3. Specified companies which are having payments pending to any micro or small enterprises for more than 45
days from the date of acceptance or the date of deemed acceptance of the goods or services shall furnish the
information in MSME Form-I.

16. MSME SCHEMES

16.1 PRIME MINISTER’S EMPLOYMENT GENERATION PROGRAMME (PMEGP)
) The scheme aims to provide financial assistance to set up self-employment ventures and generate sustainable
employment opportunities in rural as well as urban areas.
) The scheme is applicable to all individuals above the age of 18 years.
) In this scheme, own contribution of the beneficiary is 10% of the project cost in case of general category
and 5% of the project cost in case of special category (SC/ST/OBC/PH/Women/Ex Servicemen/ NER)
Beneficiaries.
) If the application for loan is approved, then the banks sanction and release the balance amount of 90% to
95% of the project cost for setting up of the business.
16.2 CREDIT GUARANTEE SCHEME FOR MICRO & SMALL ENTERPRISES (CGTMSE)
This scheme aims to encourage the first generation entrepreneurs to venture into self employment opportunities
by facilitating credit guarantee support for collateral free / third-party guarantee-free loans to the Micro and Small
enterprises (MSEs), especially without collateral.
The scheme is applicable to all the existing entrepreneurs and aspiring entrepreneurs.
16.3 MICRO & SMALL ENTERPRISES CLUSTER DEVELOPMENT PROGRAMME (MSE-CDP) SCHEME
This scheme is formulated to:
) Support the sustainability and growth of MSEs by addressing common issues such as improvement of
technology, skills, quality, market access, etc. and
) Create/upgrade infrastructural facilities in the new/existing Industrial Areas/Clusters of MSEs.
) Its main objective is:
To set up Common Facility Centers (for testing, training, raw material depot, effluent treatment,
complementing production processes, etc).
Promotion of green & sustainable manufacturing technology for the clusters.
16.4 SCHEME OF FUND FOR REGENERATION OF TRADITIONAL INDUSTRIES (SFURTI)
The main objective of SFURTI is:
) To organize traditional industries and artisans into collectives by increasing production and value addition
to make products competitive and
) To promote traditional sectors and increase income of artisans providing sustainable employment.
The scheme is applicable to existing artisans from traditional industries, such as Handicraft, Textile, Khadi,
Bamboo, Honey etc.
16.5 ENTREPRENEURSHIP AND SKILL DEVELOPMENT PROGRAMME (ESDP) SCHEME
) ESDP scheme aims at promoting new enterprises, capacity building of existing MSMEs and inculcating
entrepreneurial culture in the country.

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73
 ) It is applicable to all the aspiring and existing entrepreneurs.
) It facilitates entrepreneurship/self-employment awareness and motivation to different sections of the
society including SC/ST/Women, differently abled, Ex-servicemen and BPL persons as career options.
Entrepreneurship & Skill Training in Agro Based Products, Hosiery, Food & Fruit Processing Industries,
Carpet Weaving, Basic/Advance Welding/ Sheet metal work, Carpentry, Glass & Ceramics etc. is the main
target of the scheme.
) The scheme widens the base of entrepreneurship by development, achievement, motivation and entrepreneurial
skill to the different sections of the society.

16.6 NATIONAL SC-ST HUB SCHEME

The main objective of this scheme is to provide professional support to Scheduled Caste and Scheduled Tribe
Entrepreneurs to fulfill the obligations under the Central Government Public Procurement Policy for Micro and
Small Enterprises Order 2012, adopt applicable business practices and leverage the Stand-Up India initiatives.
The scheme is applicable to aspiring and Existing SC/ST Entrepreneurs.
16.7 SCHEME FOR PROMOTION OF INNOVATION, RURAL INDUSTRIES AND ENTREPRENEURSHIP
(ASPIRE)
This scheme aims to establish Livelihood Business Incubation (LBI) centers predominantly in rural and
underserved areas to promote entrepreneurship and skill development. These centers will help beneficiaries create
formal micro-enterprises and provide training for wage/self-employment opportunities in the agro rural sector.
The scheme is applicable to any agency/ institution of Government of India/ State government or existing training
centers under Ministries/Departments of Government of India/State Government, Industry Associations, Academic
Institutions and any not-for profit private institutions with experience in successfully executing incubation and/
or skill development programs.

Previous Year Questions

1. GreenTech Innovations is a micro enterprise founded in 2020 by Raj, an engineering graduate with a passion
for renewable energy. Based in a small town, the company specializes in manufacturing solar-powered
lamps aimed at rural areas that lack reliable access to electricity. Raj’s vision is to provide affordable,
sustainable lighting solutions that improve the quality of life in these communities. Explain the role of
Micro, Small, and Medium Enterprises (MSMEs) like GreenTech Innovations in economic development
and community empowerment. Dec.2024 (5 Marks)
2. Question “ESDP scheme aims at promoting new enterprises, capacity building of existing MSMEs and
inculcating entrepreneurial culture in the country.” Prepare a note on above statement.
 June 2024. (4 Marks)
3. MS Appliances, a small enterprise having investment in plant and machinery of ₹ 8.00 crores and turnover
of ₹ 45.00 crores approaches you to seek your advice on Micro & Small Enterprises Cluster Development
Programme (MSE-CDP) Scheme of the Government of India for MSMEs. Draft a brief note on MSE-CDP
Scheme. June 2023 (4 Marks)
Hints:
To,
M/s Appliances,
Note on Micro & Small Enterprises Cluster Development Programme (MSE-CDP) Scheme

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 This scheme is formulated to support the sustainability and growth of MSEs by addressing common issues
such as improvement of technology, skills & quality, market access, etc. and to create/upgrade infrastructural
facilities in the new/ existing Industrial Areas/Clusters of MSEs. Its main objectives are:
' To set up Common Facility Centers (for testing, training centre, raw material depot, effluent treatment,
complementing production processes, etc).
' Promotion of green & sustainable manufacturing technology for the clusters.
The scheme is applicable to the existing entrepreneurs (in form of a SPV). The key benefits of the scheme
are Creation of Common Facility Centers including Plug & Play Facilities and Support for Infrastructure
Development Projects including Flatted Factory Complexes.
(Name)
(Designation)
4. Bermuda Sports Manufacturing Unit, a Micro and Small Enterprise, seek registration under the Single
Point Registration Scheme of NSIC. State the various benefits/facilities available to the registered units.
 June 2019 (5 Marks)
5. Kumar is a proprietor of a small scale unit manufacturing cotton clothes. He wants to know the benefits of
registration with National Small Industries Corporation (NSIC). Advise Kumar. June 2019 (4 Marks)
6. Explain the benefits extended to Micro & Small Enterprises (MSEs) for having valid NSIC registration.
 June 2021 (3 Marks)
Hints:
NSIC Registration:
Benefits extended to MSEs having valid registration:
' Issue of the Tender Sets free of cost.
' Exemption from payment of Earnest Money Deposit (EMD).
' In tender participating MSEs quoting price within price band of L1 + 15 per cent shall also be allowed
to supply a portion up to 25% of requirement by bringing down their price to L1 Price, where LI is Non-
MSES.
' Consortia facility for Tender Marketing.
' Every Central Ministries/Departments/PSUs shall set an annual goal of mini-mum 25% of the total
annual purchases of the products or services produced or rendered by MSEs. Out of annual requirement
of 25% procurement from MSEs, 4% is earmarked for units owned by Schedule Caste/Schedule Tribes
and 3% is earmarked for the units owned by Women entrepreneurs.
' SPRS registered units are integral part of the supply chain to Government.
' In addition to the above, 358 items are also reserved for exclusive purchase from SSI Sector
7. UV Pvt. Ltd. wants to apply for Udyog Aadhaar. The Company seeks your advice on the criteria for making
application for Udyog Aadhaar under the Micro, Small & Medium Enterprises Development (MSMED)
Act, 2006. Advise UV Pvt. Ltd. Dec. 2021 (5 Marks)
8. XYZ Pvt. Ltd., is engaged in manufacture of engineering components. The Company has Investment of
75 Crore and Turnover of ? 25 Crore. The Company wants to know their category as per new definition of
MSME. Will your answer differ, If XYZ Pvt. Ltd. is in service sector with the aforesaid limits of Investment
and turnover? June 2021 (3 Marks)]

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 CHAPTER SBIL

6 CONVERSION OF
BUSINESS ENTITIES

1. INTRODUCTION
The Companies Act, 2013, and its corresponding rules, provide a
comprehensive framework for the conversion of various entities. This
legal mechanism allows companies to change their form from one class
to another, with some conversions being mandatory. The foundational
provision for this is Section 18 of the Act.
Section 18 enables a company to change its class by altering its
memorandum (Section 13) and articles (Section 14) of association.
The process requires the company to file an application with the
Registrar of Companies (RoC). The Registrar, upon being satisfied
that all legal provisions have been met, will close the company’s
previous registration and issue a new certificate of incorporation for
the converted entity. It is a crucial point that this conversion does not
affect any existing debts, liabilities, obligations, or contracts of
the company. These legal commitments remain enforceable as if the
conversion had not occurred.
The Act permits a wide range of conversions, including:
Conversion of a private company into a public company

Conversion of a public company into a private company.

Conversion of a One Person Company (OPC) into a private or public company.

Conversion of a private company into a One Person Company.

Conversion of a Section 8 company into any other kind of company.

Conversion of an unlimited liability company into a limited liability company (by shares or guarantee).

Conversion of a company limited by guarantee into a company limited by shares.

Conversion of a Limited Liability Partnership (LLP) into a company.

 Conversion from a private or unlisted public company into a Limited Liability Partnership.

Incorporation of Part XXI companies.

2. CONVERSION OF A PRIVATE COMPANY INTO A PUBLIC COMPANY

The conversion of a private company into a public company is governed by Section 18 and Section 14 of the
Companies Act, 2013, read with Rule 33 of the Companies (Incorporation) Rules, 2014. A key step in this process
is the alteration of the company’s Articles of Association (AoA). This alteration is carried out by passing a
special resolution at a general meeting.
To convert into a public company, a private company’s Articles of Association (AoA) must be altered to remove
specific restrictions and limitations applicable to private companies under the Act. These include restrictions on
the minimum and maximum number of members, the transferability of shares, and the number of directors. Once
these alterations are made and registered, the company will legally cease to be a private company, effective from
the date of alteration.
A private company must also meet the minimum requirements of a public company, which includes having at
least seven members and three directors. The process is designed to ensure the company complies with all the
regulations and requirements of a public entity.
2.1 BENEFITS OF CONVERSION OF PRIVATE TO PUBLIC COMPANY
The decision to convert a private company into a public one is often a strategic move aimed at facilitating business
expansion. One of the most significant advantages of this conversion is easier access to capital funds. Public
companies can raise money from a broader range of investors, both new and existing, through public offerings of
shares.
In addition to capital, becoming a public company offers
other benefits:
) Enhanced Liquidity: Shareholders of a public company Freely
enjoy greater liquidity, as the company’s shares are freely transferability
transferable. If the company is listed on a stock exchange, of shares
this liquidity is even higher, allowing investors to buy
and sell shares easily. Future Greater
) Increased Credibility: Public companies are generally Expansion Realiability
perceived as more credible because of stricter regulations
and higher transparency levels.
) Improved Growth Opportunities: The ability to Listing of Raising of
raise substantial capital and the greater public visibility shares at stock capital from
can enable a company to pursue significant growth exchange large group
opportunities, such as mergers and acquisitions, large-
scale projects, and global expansion

2.2 PROCEDURE FOR CONVERSION OF A PRIVATE COMPANY INTO A PUBLIC COMPANY

The following is the detailed, step-by-step procedure for a private limited company to convert into a public
limited company, adhering to the provisions of the Companies Act, 2013, and related rules.

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1. Holding a Board The process begins by issuing a notice of at least 7 days for a board meeting, in compliance
Meeting with Section 173 of the Companies Act and Secretarial Standards-I. The key agenda
items for this meeting are:
) Passing a board resolution to get in-principle approval for the conversion.
) Setting the date, time, and location for a general meeting to get shareholder approval
via a Special Resolution.
) Approving the notice of the general meeting, including the agenda and the
explanatory statement as required by Section 102(1). The notice must contain
the special resolution for the conversion and the necessary alterations to the
Memorandum of Association (MoA) and Articles of Association (AoA).
) Authorizing a Director or the Company Secretary to issue the notice for the general
meeting.
) Passing a board resolution to increase the number of directors to a minimum of
three, if the company currently has fewer.
) Authorizing the Company Secretary or a director to handle all necessary filings
with the Registrar of Companies (RoC).
) Approving the new draft of the MoA and AoA to comply with the requirements of
a public limited company.
2. Issue of Notice A notice for the general meeting must be issued to all members, directors, and auditors, as
of General per Section 101 of the Companies Act and Secretarial Standards-2. This notice must be
Meeting given at least 21 clear days before the meeting date. A shorter notice period is acceptable
only if shareholders holding at least 95% of the paid-up capital consent to it. The notice
must specify the day, date, time, and full address of the meeting venue.
3. Holding of The general meeting is held as scheduled to pass the Special Resolution. This resolution
General Meeting secures shareholder approval for the conversion and the consequential alterations to
the MoA and AoA under Section 14. These alterations include removing the restrictive
provisions applicable to a private company and amending the company’s name to exclude
the word “Private.”
4. Filing of e-form Since a Special Resolution is passed for the conversion, a copy of the resolution must
MGT-14 be filed with the concerned RoC. This is done by filing e-form MGT-14 within 30 days
of the general meeting, as per Section 117(3)(a). The following documents must be
attached:
) Notice of the general meeting with the explanatory statement.
) A certified true copy of the special resolution.
) The altered Memorandum of Association.
) The altered Articles of Association.
) A certified true copy of the board resolution (optional attachment).
5. Filing of e-form For the conversion to take effect, an application must be filed in e-form INC-27 with the
INC-27 required fee. This form is a specific application for the conversion of a private company
into a public company.
6. Scrutiny by As per Section 18, the RoC will scrutinize the submitted documents, including e-forms
ROC and MGT-14 and INC-27. Upon being satisfied that all provisions of the Companies Act,
Issuance of New 2013 have been complied with, the RoC will close the company’s previous registration
Certificate of and issue a fresh certificate of incorporation. This new certificate formally recognizes
Incorporation the company as a public limited company.

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2.3 POINTS TO PONDER
Glimpse of Procedure for Conversion of a Private Company into a Public Company

) The company must have at least seven

members. If it has fewer, appropriate steps
must be taken to increase the number. Holding of Board Meeting and issuance of
) The number of directors must be increased notice for General Meeting
to at least three if it is currently two.
) The company's name in the MoA needs Holding the General Meeting and obtain
to be amended to remove the word the shareholder's approval for conversion
"Private". of private company into public company
) The Articles of Association must be Filing of e-forms with the RoC:
amended to remove all restrictive
provisions applicable to a private company. - E-form MGT-14
) The company must not have defaulted - E-form INC-27
on filing its annual returns or financial
statements with the Registrar. Issuance of Fresh Certificate of
Incorporation after conversion
) The company must not have defaulted
on the payment or repayment of matured
deposits, debentures, or interest.

2.4 POST-CONVERSION REQUIREMENTS

After a private company has been officially converted into a public limited company and has received a fresh
certificate of incorporation from the Registrar of Companies (RoC), it must fulfill several post-conversion
requirements to ensure all records and operations reflect its new status.
Post-conversion, the company must update its details with various authorities and stakeholders. These include:

The company must apply for a new PAN card to reflect the change in its name
PAN Card:
and status.

All company bank accounts need to be updated with the new name. The bank
Bank Accounts: must be formally intimated and provided with the new certificate of incorpo-
ration.

The company must inform various government bodies about the conversion,
Tax and Regulatory including the GST department, Income Tax department, Regional Provident
Authorities: Fund department, and other relevant regulatory authorities.

Memorandum and Every copy of the company's MoA and AoA must be updated to reflect the
Articles of Association: alterations that were made during the conversion process.

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79
 A fresh rubber stamp with the company's new name is required. The new name,
along with the former name, must be painted or affixed on the outside of every
Company Name:
office or building where the company conducts business.

Stationery and The company's new name must be printed on all business letters, letterheads,
Publications: billheads, invoice forms, receipt forms, and other official publications.

3. CONVERSION OF A PUBLIC COMPANY INTO A PRIVATE LIMITED COMPANY

The conversion of a public company into a private limited company is governed by Sections 13, 14, 15, and 18 of
the Companies Act, 2013, and Rule 33(2) of the Companies (Incorporation) Rules, 2014. The conversion becomes
effective on the date the Registrar issues a new Certificate of Incorporation.
To convert from a public to a private company, the following are required:

Shareholders must approve the conversion by passing a special resolution in a general

Shareholder meeting. This is the first step toward altering the company's status.
Approval:

A key requirement is the alteration of the company's Articles of Association (AoA). This
Alteration of alteration must incorporate the restrictions and limitations that apply to a private company,
Articles of such as limiting the number of members to 200 and restricting the transfer of shares.
Association:

The alteration to the AoA is not valid unless it is approved by an order of the Regional Director.
Regional This step is crucial and adds a layer of regulatory oversight to the process.
Director
Approval:

A copy of the Regional Director's approval order, along with a printed copy of the altered
AoA, must be filed with the Registrar in Form No. INC-27 within 15 days of receiving the
Filing with order.
Registrar:

In addition to these steps, the company must also make several other alterations, including:
) Changing its name to include the word “Private.”
) Altering its Memorandum of Association (MoA) and AoA to reflect the new status.
) Applying for a new Certificate of Incorporation.
) Updating all letterheads, books, and papers with the new name.

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3.1 BENEFITS OF CONVERTING A PUBLIC LIMITED COMPANY INTO A PRIVATE LIMITED COMPANY
The key benefits of converting a public company into a private company are:
) Reduced Compliance: Private companies have
fewer regulatory requirements compared to Lesser
public companies, lowering administrative costs. Compliances
) Greater Control: With a smaller number of
shareholders, the management has more control
over the company’s decisions.
Few Better
) Simplified Decision-Making: The process of Control
making decisions, such as passing resolutions, is Members
often faster and less formal in a private company.
) Privacy: Private companies are not required Listing of
to disclose as much financial and operational shares at stock
information to the public as public companies, exchange
which can offer greater privacy.

3.2 DETAILED PROCEDURE FOR CONVERTING A PUBLIC COMPANY INTO A PRIVATE COMPANY
Issuing Notice Holding Publication
Holding a Filing of e form
for General a General of an
Board Meeting MGT-14
Meeting Meeting Advertisement

Filing an Approval of
Filing of Issuance of a
Application with Application Filing of
e-form Fresh Certificate
the Regional by Regional e-form INC-27
INC-28 of Incorporation
Director Director

1. Holding The initial step involves convening a Board Meeting of the company’s Directors. A
a Board notice for this meeting must be issued at least 7 days in advance, in accordance with
Meeting Section 173 of the Companies Act and Secretarial Standards-I. The main agenda items for
this meeting are:
) Passing a board resolution to approve the conversion in principle and recommend the
proposal to shareholders.
) Setting the date, time, and location for the General Meeting, where shareholders will
vote on the conversion.
) Approving the notice for the General Meeting, which must include the special
resolution and an explanatory statement as per Section 102(1).
) Authorizing a director or the Company Secretary to issue the notice for the General
Meeting.
) Passing a board resolution to approve the reduction of the total number of members
to a maximum of 200.
) Authorizing a director or the Company Secretary to sign and file the necessary forms
with the Registrar of Companies (RoC).
) Approving the draft of the new Memorandum of Association (MoA) and Articles of
Association (AoA) that comply with the requirements of a private limited company

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2. Issue of Notice A notice for the General Meeting must be sent to all members, directors, and the company's
of General auditors. This notice must be given at least 21 clear days before the meeting date, as
Meeting stipulated by Section 101 of the Companies Act. A shorter notice period can be used if 95%
of the shareholders consent. The notice must clearly specify the date, time, and venue of
the meeting and state the business to be transacted, which is the conversion.
3. Holding The General Meeting is held as scheduled. During this meeting, a Special Resolution must
a General be passed to get shareholder approval for the conversion. This resolution also approves the
Meeting required alterations to the MoA and AoA under Section 14. These alterations will include
the insertion of restrictive provisions applicable to a private company and the change of
the company's name to include the word "Private."
4. Filing of After the special resolution is passed, a copy of it must be filed with the concerned RoC
e-form MGT- through e-form MGT-14 within 30 days of the meeting. This is a mandatory filing as per
14 Section 117(3)(a) of the Companies Act. The following documents must be attached to
this form:
) A certified true copy of the altered MoA.
) A certified true copy of the altered AoA.
) The notice of the General Meeting, along with the explanatory statement.
) A certified true copy of the special resolution passed at the General Meeting.
5. Publication As per Rule 41(5) of the Companies (Incorporation) Rules, 2014, the company must
of an publicize its application for conversion at least 21 days before filing it with the Regional
Advertisement Director (RD). This advertisement, which should be in Form INC-25A, must be published
in both a vernacular newspaper and an English newspaper that are widely circulated in the
state where the company’s registered office is located.
Additionally, the company is required to serve individual notices to its creditors, debenture
holders, the RD, the Registrar of Companies (RoC), and any other relevant regulatory
bodies. These notices must be sent via registered post with an acknowledgment due.
6. Filing an The company must prepare and file an application with the RD in e-Form RD-1 within 60
Application days of passing the special resolution for conversion. This application, submitted along
with the with the prescribed fee, must include the following annexures:
Regional ) E-Memorandum of Association and E-Articles of Association with the proposed
Director alterations, including those mandated by Section 2(68).
) A certified copy of the minutes of the General Meeting.
) A certified copy of the Board Resolution, dated no more than 30 days before the
filing, which authorizes the application.
) A declaration from a Key Managerial Personnel (KMP) that the company has limited
its members to 200 and has not accepted any deposits in violation of the Act.
) A declaration from a KMP confirming that the company has not contravened Sections
73 to 76A, 177, 178, 185, 186, and 188 of the Act.
) A declaration from a KMP (or a director if no KMP exists) stating that no resolution
is pending to be filed under Section 179(3) and that, if the company was ever listed
on a stock exchange, all necessary delisting procedures were completed.
) A list of creditors and debenture holders, dated not more than 30 days before the
application filing. This list must include their names, addresses, the nature of their
claims, and the amount due.

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 ) An affidavit signed by the Company Secretary and at least two directors, affirming
that a full inquiry was conducted and that the list of creditors and the estimated
values of debts are correct to the best of their knowledge.
7. Approval of The RD will scrutinize the application and the public response to the advertisement.
Application ) Clear Approval: If no objections are received and the application is complete, the
by Regional RD will issue an order approving the application within 30 days of its receipt, in
Director accordance with Rule 41(6)(a).
) Objections or Hearing: If an objection is received or the RD has a specific concern,
a hearing will be held within 30 days. The RD may direct the company to file
an affidavit to record any consensus. The RD will then issue a final order, either
approving or rejecting the application, with reasons, within 30 days of the hearing.
) Incomplete Application: If the RD finds the application to be defective or incomplete,
they will notify the company within 30 days of receipt. The company must furnish
the requested information or rectify the defects within 15 days. Failure to do so
will result in the application being rejected by the RD. The RD may approve the
conversion even if a consensus is not reached at a hearing, provided they are satisfied
that the conversion is not against the public interest or a contravention of the Act
8. Filing of As per Rule 41(9) of the Companies (Incorporation) Rules, 2014, the company must file
e-form INC-28 the order of approval received from the Regional Director (RD) with the Registrar of
Companies (RoC) in Form INC-28. This filing must be completed within 15 days from the
date of receipt of the approval, and it must include the prescribed fee.
9. Filing of To finalize the conversion, the company must file Form INC-27 with the RoC. This form
e-form INC-27 requires the Service Request Number (SRN) of the RD-1 form, which contains the RD's
approval order. The filing must also be submitted with the altered e-Memorandum of
Association and e-Articles of Association within 15 days from the date of receiving the
RD's order.
10. Issuance Upon receiving and approving e-Form MGT-14 and e-Form INC-27, the RoC will verify
of a Fresh that the company has complied with all applicable provisions for the conversion. The RoC
Certificate of will then close the company's former registration, register the new documents, and issue a
Incorporation fresh certificate of incorporation in the same manner as the company's initial registration
Points to Ponder
) The Memorandum of Association must be amended to include the word "Private" in the company's name.
) The Articles of Association must be amended to incorporate the restrictive provisions applicable to a private
company.
) The company must not have any pending defaults in filing its annual returns or financial statements.
) The company must not have failed to repay any matured deposits, debentures, or the interest on them.
) The total number of members must be reduced to a maximum of 200.

3.3 POST-CONVERSION REQUIREMENTS TO BE ARRANGED BY THE COMPANY

After a company is officially converted into a private limited company and receives its new certificate of
incorporation, it must complete several mandatory post-conversion requirements to update all records and
operations to reflect its new status. These compliance measures are essential for legal and business continuity.

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83
 Arrange new rubber stamps with the new name, and all the stationary in the new name of the Company. The
company must update all its branding and stationery to reflect the new name. This includes ordering new
rubber stamps, letterheads, business cards, and other official materials.

Arrange printing of fresh copies of Altered Memorandum of Association and Articles of Association with
new Certificate of Incorporation. The company is required to print fresh copies of the altered Memorandum
of Association (MoA) and Articles of Association (AoA), which must be accompanied by the new Certificate
of Incorporation.

Paint the new name of the Company outside every office, building etc. along with former name so changed.
The company's new name must be displayed prominently on the exterior of all its offices and buildings. The
former name must also be shown alongside the new name for a specific period to ensure public awareness
of the change.

Get the new name printed on its business letters, letter heads, Bill heads, Invoice Forms, Receipt Forms
and all other official publications along with former name so changed. All official business documents,
including letters, invoices, receipts, and other publications, must be updated to show the new company
name. The former name should also be included for a specified duration.

Inform about the conversion of the Company to all concerned persons/ govt. authorities. The company must
formally notify all concerned individuals and government authorities about the conversion.

Intimate all the Banks where Company is operating Bank Accounts about its conversion and file necessary
applications and documents with regard to change in the name of Account holder. The company must inform
all banks where it holds accounts about the conversion. This involves filing the necessary applications and
documents to update the name of the account holder.

Make application to Income Tax Department for new Permanent Account Number (PAN) and Tax Deduction
and Collection Account Number (TAN). The company is required to apply to the Income Tax Department
for a new Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN)
to reflect its new legal status.

4. CONVERSION OF A SECTION 8 COMPANY INTO ANY OTHER COMPANY

Section 8(4)(ii) of the Companies Act, 2013 provides that a company registered under Section 8 may convert itself
into a company of any other kind only after complying with such conditions as may be prescribed.

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 Section 8 company cannot be
Well drafted converted to One Person Company.
business plan

NoC where
No part of income
company has
or property have been Pre-requisities for
attained any special
transferred by way of conversion of Section
status or exemption
dividend or bonus or 8 company
or grant from
otherwise
Government

Upto date filing or

financial statements
and Annual Returns

4.1 DETAILED PROCEDURE FOR CONVERSION OF A SECTION 8 COMPANY INTO ANY OTHER
COMPANY
This procedure outlines the steps required for a Section 8 company to convert into another type of company, as
per the provisions of the Companies Act, 2013, and its associated rules. This process involves multiple filings, a
special resolution, and approval from the Regional Director.
1. Holding a Board The process begins with convening a Board of Directors meeting. A notice and agenda
Meeting for this meeting must be issued at least 7 days before the meeting, as required by Section
173 of the Companies Act. The agenda for this meeting includes:
) Passing a resolution for in-principle approval for the conversion.
) Fixing the date, time, and place for a General Meeting to seek shareholder approval.
) Approving the notice for the General Meeting, which must include a special
resolution for the conversion and the necessary alterations to the Memorandum
of Association (MoA) and Articles of Association (AoA) under Section 102(1).
) Authorizing a director or the Company Secretary to issue the notice for the General
Meeting.
) Authorizing a director or the Company Secretary to file the required forms with
the Registrar of Companies (RoC).
) Approving the draft of the new MoA and AoA.
2. Issuing Notice A notice for the General Meeting must be issued to all shareholders, directors, and
for General auditors at least 14 clear days before the meeting, as required under Section 101. The
Meeting notice must specify the day, date, time, and full address of the venue and must contain a
statement on the business to be transacted.

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3. Holding a The General Meeting is held to pass a Special Resolution for shareholder approval of
General Meeting the conversion. This resolution also authorizes the necessary alterations to the company's
MoA and AoA under Section 14
4. Filing of e-form A copy of the special resolution must be filed with the RoC through e-form MGT-
MGT-14 14 within 30 days of the General Meeting, as per Section 117(3)(a). The following
documents must be attached:
) A certified true copy of the altered MoA.
) A certified true copy of the altered AoA.
) The notice of the General Meeting with an explanatory statement.
) A certified true copy of the special resolution.
5. Filing of e-form An application for conversion must be filed with the Regional Director (RD) in Form
INC-18 with INC-18. A copy of this application, along with all its annexures, will be simultaneously
the Regional sent to the RoC through the MCA system.
Director and
Registrar
6. Publication of an Within 7 days of applying for the Regional Director (RD), the company must publish
Advertisement a notice in Form INC-19. This notice must appear in a vernacular newspaper (in the
principal vernacular language of the district) with a wide circulation, and in an English
newspaper with a wide circulation in that same district. If the company has a website,
the notice must also be published there.
7. Order of Upon receiving and being satisfied with the application, the RD will pass an order of
Conversion conversion. This order may include specific conditions based on the circumstances of
by Regional the case. However, before imposing any conditions or rejecting the application, the RD
Director will provide the company with a reasonable opportunity to be heard.
8. Issuance of a Upon receiving the RD's order and fulfilling all conditions, the Registrar of Companies
Fresh Certificate (RoC) will issue a fresh Certificate of Incorporation. When the company's license as a
of Incorporation Section 8 company is revoked, it can then apply for a change of status and name with
the RoC in Form INC-20.
Points to Ponder:
) “The company must not have transferred any part of its income or property as a dividend, bonus, or any
other distribution
) The company has not defaulted in filing of Annual Returns or Financial Statements due for filing with the
Registrar.
) No objection certificate is required in cases where the Company has obtained any special status, privilege,
exemption, benefit, or grant(s) from any authority or from the Government.

4.2 EFFECT OF CONVERSION OF SECTION 8 COMPANY INTO A PRIVATE COMPANY

) The Company cannot claim the privileges and exemptions as enjoyed by a Section 8 Company after the
conversion.
) The newly converted company must pay the difference between the market price and the purchase price if
the company had acquired immovable property from the government at rates lower than the market price
before conversion.
) Where the Company is left with some unutilized income and accumulated profits which are brought forward
from the previous year, the same should be utilized for the settlement of outstanding dues or any amount due
to suppliers or creditors.

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 ) After settling all dues, any remaining amount will be transferred to the Investor Education and Protection
Fund within 30 days of conversion.

5. CONVERSION OF LLP INTO COMPANY

Businesses initially started as Limited Liability Partnerships (LLPs) in India may wish to convert into private
limited companies to facilitate business growth or raise equity capital. With the globalization of markets and the
rise of corporate culture and startup incentives, many entrepreneurs are now opting for corporatization. This
step can be initiated in two ways, as enumerated below:
1. Incorporation of a new corporate entity.
2. Conversion of an existing entity (e.g., LLP/Partnership Firm) into a Company.
The second option, conversion of LLP into a corporate entity, might be practical for the existing entities to
switch from one mode of business to another. The process of conversion is a step-by-step procedure, which is a
technical process but, if handled with expert knowledge, can be time and cost-saving as well.
There were no provisions under the Companies Act, 2013, regarding the conversion of a Limited Liability
Partnership (LLP) into a company. The Ministry of Corporate Affairs passed a notification on 31st May,
2016, allowing the conversion of an LLP into a company. These rules were called “The Companies (Authorized
to Register) Amendment Rules, 2016.”
However, there are various requirements that need to be satisfied for converting an LLP into a Private Limited
Company. For instance, an LLP must have at least 7 partners (however, as per the Companies Amendment
Act, 2017, an LLP with 2 partners can be converted into a company), approval from all the partners is required,
advertisement in newspapers (both local and national) is to be done, a No Objection Certificate (NOC) is
required from the Registrar of Companies (RoC) where such LLP is registered, and then all the incorporation
processes have to be undertaken.
5.1 PROCEDURE FOR CONVERSION OF LIMITED LIABILITY PARTNERSHIP INTO A COMPANY

Holding meeting and Approval for Name

Securing DIN & DSC if not available with any partner

Filing of form URC-1

Filing of SPICe + Form for incorporation of company

5.2 DETAILED PROCEDURE FOR CONVERSION OF LIMITED LIABILITY PARTNERSHIP INTO A

COMPANY

1. Approval of Name: The partners must hold a meeting to gain approval from the majority for registering
the LLP as a company under Section 366 of the Companies Act, 2013.
"This meeting will authorize one or more partners to take all necessary actions,
including executing papers, deeds, and documents for registering the LLP as a
company. One of the major advantages is that the business can continue to run under
the same name as that of the LLP, except that, in addition to the name of the LLP, the
words ‘Limited’ or ‘Private Limited’ have to be added.
Apply for name reservation through Form RUN on the V3 portal..

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87
2. Securing DSC and If any future directors do not have a Digital Signature Certificate (DSC) and Director
DIN: Identification Number (DIN), they must apply for them.
For obtaining the DIN, an application form must be filed on the MCA portal. The DIN
application is processed and approved by the central government via the office of the
regional director of the Ministry of Corporate Affairs. The form must be accompanied
by self-attested address proof and identity proof, along with 1 recent passport-size
colour photo of the applicant. All documents should be attested by a practicing cost
accountant, a practicing chartered accountant, or a practicing company secretary.
3. Filing Form No. After obtaining name approval from the Registrar of Companies (RoC), file Form
URC-1: URC-1 along with the following documents:
List of the members with various details such as names, addresses, shares held by
them, etc.
List of the first directors of the private company, with various details such as names,
addresses, DIN, passport numbers with expiry dates, etc.
An affidavit from every person proposed as a first director, stating that he is not
banned from being a director under Section 164 and that all documents filed with the
registrar for registration of the firm are complete, correct, and true to the best of their
belief and knowledge.
A list of names and addresses of partners of the LLP, and a copy of the LLP agreement
& certificate of registration, duly verified by two designated partners of the LLP.
A statement indicating:
The nominal share capital of the firm & the number of shares into which it is separated.
The number of shares taken and the amount paid for every share.
The name of the firm, with the addition of the word "Limited" or "Private Limited."
Awritten consent or No Objection Certificate (NOC) from all creditors.
Copy of the newspaper advertisement, and a statement of accounts of the company,
which must not be 6 days older than the date of the application, and must be duly
certified by the auditor.
A written consent from the majority of members agreeing to such registration, whether
present in person or by proxy at a general meeting.
An undertaking that the proposed directors will comply with the requirements of the
Indian Stamp Act, 1899, as applicable.
A copy of the latest income tax return of the Limited Liability Partnership or firm.
4. Filing of SPICe, Similar to the incorporation of a new company, the process is followed by filing the
SPICe MOA, and SPICe + form along with the required attachments for the converted entity.
SPICe AOA:

5.3 CONDITIONS TO FULFILL FOR CONVERSION:

) All partners must approve the conversion of the LLP.
) The LLP should have complied with all the required returns and compliances.
) Publication related to the conversion of LLP into a Private Company must be made in at least two newspapers:
one in English and another in a vernacular language newspaper of the place of registered office.

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 ) The Limited Liability Partnership must have at least two partners, which is required for the incorporation
of a Private Limited Company.
) There must be no outstanding charges against the company.
Points to Ponder:
) There is no capital gains tax on the conversion into a private limited company.
) The existing LLP has just been replaced by a Private Limited Company by adding the “Pvt. Ltd.” at the
end of its name.

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

COMPANY
One Person Company (OPC) refers to a form of company that has only one person as a member, unlike a private
company, where the minimum number of members is two, or a public company, where the minimum number of
members is seven. Section 18 of the Companies Act, 2013, read with Rule 6 of the Companies (Incorporation)
Rules, 2014, explicitly provides provisions for the voluntary conversion of a One Person Company (OPC) to
other forms of the company, as the case may be.
6.1 WHEN CONVERSION IS NECESSARY INTO A PRIVATE COMPANY OR PUBLIC COMPANY
1. The One Person Company (OPC) shall alter its memorandum and articles by passing a resolution in
accordance with Section 122(3) of the Act to give effect to the conversion and make necessary changes
incidental thereto.
2. A One Person Company (OPC) may be converted into a Private or Public Company, other than a company
registered under Section 8 of the Act, after increasing the minimum number of members and directors to
two or seven members and two or three directors, as the case may be, and maintaining the minimum paid-
up capital as per the requirements of the Act for such class of company and by making due compliance of
Section 18 of the Act for conversion.
3. The company shall apply e-Form No. INC-6 for its conversion into a Private or Public Company, other
than under Section 8 of the Act, along with fees as provided in the Companies (Registration Offices and
Fees) Rules, 2014, with altered e-MOA and e-AOA.
4. On being satisfied that the requirements have been complied with, the Registrar shall approve the form and
issue the certificate after examining the latest audited financial statement.

6.2 DETAILED PROCEDURE FOR CONVERSION OF OPC INTO COMPANY

1. Holding of Board Issue a notice (not less than 7 days) and agenda of the Board Meeting as per the
Meeting: provisions of Section 173 of the Companies Act and Secretarial Standards-I for
convening a Board Meeting to consider the proposal for converting a One Person
Company (OPC) into another company. The main agenda for this board meeting
would be:
) To pass a board resolution to get in-principal approval of the Directors for the
conversion of the One Person Company (OPC) into another company.
) To fix the date, time, and place for holding a general meeting to get approval
from shareholders, by way of a Special Resolution, for the conversion of a One
Person Company (OPC) into another company.
) To approve the notice of the general meeting along with the agenda and
explanatory statement to be annexed to the notice of the general meeting, as per
Section 102(1) of the Companies Act, 2013.

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 ) To authorize the Director or Company Secretary to issue notice of the general
meeting as approved by the board.
) To pass a Board resolution for an increase in the number of Directors as per the
type of company chosen for conversion.
) To authorize the Company Secretary, or if there is no Company Secretary, any
one director of the company, to sign, certify, and file the required forms with
the Registrar of Companies and to do all such acts and deeds necessary to give
effect to the proposed conversion.
To approve the draft new set of Memorandum of Association and the Articles of
Association, meeting the requirements of a Public Limited Company.
2. Issue of Notice of Issue notice of the general meeting to all Members, Directors, and the Auditors of
General Meeting: the company in accordance with the provisions of Section 101 of the Companies Act,
2013, and Secretarial Standards -2. Notice must be given at least 21 clear days before
the actual date of the general meeting. The notice must specify the day, date, time, and
full address of the venue of the General Meeting and must contain a statement on the
business to be transacted at such meeting.
3. Holding of General Hold the General meeting as scheduled and pass the necessary Special Resolution,
Meeting: to get shareholders’ approval for converting the One Person Company (OPC) into
another company along with alterations in the Memorandum of Association and
Articles of Association under Section 14 for such conversion.
4. Filing of e-Form In case of conversion of a One Person Company (OPC) into another company, a
MGT-14: special resolution is required to be passed under Section 14 of the Companies Act,
2013. Accordingly, as per Section 117(3)(a), a copy of the special resolution must be
filed with the concerned ROC through filing of E-form MGT-14 within 30 days of
passing the special resolution in the general meeting. The following documents are
required to be attached to e-form MGT-14:
) Notice of general meeting along with a copy of the explanatory statement under
Section 102.
) Certified true copy of the special resolution.
) Altered memorandum of association.
) Altered articles of association.
) Certified true copy of board resolution (may be attached as an optional
attachment).
5. Filing of e-Form The company shall apply e-Form No. INC-6 for its conversion into a Private or
INC-6: Public Company, other than under Section 8 of the Act, along with fees as provided
in the Companies (Registration Offices and Fees) Rules, 2014, with altered e-MOA
and e-AOA. On being satisfied that the requirements have been complied with, the
Registrar, after examining the latest audited financial statement, shall approve the
form and issue the certificate.
6. Issuance of New On approval of Form MGT-14 and Form INC-6, the Registrar will issue a fresh
Certificate of Certificate of Incorporation with the changed name to the applicant company in Form
Incorporation: INC-25.

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6.3 CONDITIONS TO FULFILL FOR CONVERSIONZ
) Alteration of Memorandum of Association and Articles of Association in accordance with Section 122(3)
of the Companies Act, 2013, to give effect to the conversion.
) Increase the minimum number of directors to two or three, as the case may be.
) Increase the minimum number of members to two or seven, as the case may be.
) Due compliance with the provisions of Section 18 of the Companies Act, 2013.
) Points to Ponder:
) A minor shall not become a member or nominee of the One Person Company (OPC).
) A minor can’t hold shares with beneficial interest in a One Person Company (OPC).
) A One Person Company (OPC) can’t be incorporated or converted into a Section 8 company.
) One Person Company (OPC) can’t carry out Non-Banking Financial Investment activities, including
investment in securities of any Body Corporate.

7. CONVERSION OF COMPANY INTO A ONE-PERSON COMPANY

The legal provisions for converting a Private Company into an OPC are governed by Section 18 of the Companies
Act, 2013, and Rule 7 of the Companies (Incorporation) Rules, 2014.
An OPC is easier to manage with fewer compliances than other company types. Converting a Private Company
into an OPC offers numerous benefits for those associated with the company.
7.1 DETAILED PROCEDURE FOR CONVERSION OF COMPANY INTO OPC
1. Holding of Board Issue a notice (at least 7 days in advance) and agenda for the Board Meeting, as
Meeting per Section 173 of the Companies Act and Secretarial Standards-I, to consider the
proposal for converting the company into an OPC. The main agenda for this board
meeting would be:
) To pass a board resolution to get in-principal approval of Directors for conversion
of the company into a One Person Company (OPC).
) To fix the date, time, and place for holding the general meeting to get approval
from shareholders, by way of a Special Resolution, for the conversion of the
company into a One Person Company (OPC).
) To approve the notice of the general meeting along with the agenda and
explanatory statement to be annexed to the notice of the general meeting as
per Section 102(1) of the Companies Act, 2013. The notice must contain the
special resolution for effecting the conversion and the required alteration in the
Memorandum of Association and Articles of Association of the company.
) o To authorize the Director to issue notice of the general meeting as approved
by the board.
) o To authorize the director of the company to sign, certify, and file the required
forms with the Registrar of Companies and to do all such acts and deeds
necessary to give effect to the proposed conversion.
) o To approve the draft new set of Memorandum of Association and the Articles
of Association meeting the requirements of One Person Company (OPC).

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2. Issue of Notice of Issue a Notice for the General Meeting to all members, directors, and auditors as per
General Meeting Section 101 of the Companies Act, 2013, and Secretarial Standards-2. The notice
must be given at least 21 clear days before the actual date of the general meeting.
The notice must specify the day, date, time, and full address of the venue of the
General Meeting and must contain a statement on the business to be transacted at
such meeting.
3. Holding of General Hold the General Meeting and pass the Special Resolution to obtain shareholders'
Meeting approval for the conversion of the company into an OPC, along with the necessary
amendments to the MoA and AoA under Section 14. Before passing the Special
Resolution in the General Meeting, the company should get a No Objection Certificate
(NOC) in writing from the existing shareholders and creditors.
4. Filing of e-form For the conversion of a company into an OPC, a special resolution must be passed
MGT-14 under Section 14 of the Companies Act, 2013. As per Section 117(3)(a), file a copy
of the special resolution with the ROC through e-form MGT-14 within 30 days of
passing the resolution. The following documents are required to be attached to e-form
MGT-14:
) Notice of General Meeting along with a copy of the explanatory statement under
Section 102.
) Certified true copy of the special resolution.
) Altered Memorandum of Association.
) Altered Articles of Association.
) Certified true copy of board resolution (optional attachment).
5. Filing of e-form The company must file e-form INC-6 for conversion into an OPC, along with the
INC-6 applicable fees, and attach the following documents:
) Altered e-MOA and e-AOA.
) Copy of NOC from every creditor with the application for conversion.
) Affidavit of directors confirming that all the members of the company have
given their consent for conversion
6. Issuance of New On approval of Form MGT-14 and Form INC-6, the Registrar will issue a fresh
Certificate of Certificate of Incorporation with the changed name to the applicant company or the
Incorporation conversion of the company into a One Person Company (OPC).
Points to Ponder
) A minor cannot be a member or nominee of an OPC.
) The Member shall not be a member of any other OPC.
) The Member of the new OPC should be a resident of India.
) The Member of the new OPC should have Indian nationality.

8. COMPANIES AUTHORISED TO REGISTER UNDER THE COMPANIES ACT, 2013

1. For Part XXI of the Companies Act, 2013, the word “company” includes any partnership firm, limited
liability partnership (LLP), cooperative society, society, or any other business entity formed under any
other law for the time being in force that applies for registration under this Part.

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 2. With the exceptions and subject to the provisions contained in this section, any company formed, whether
before or after the commencement of this Act, in pursuance of any Act of Parliament other than this Act
or any other law for the time being in force, or being otherwise duly constituted according to law, and
consisting of two or more members, may at any time register under this Act as:
An unlimited company, or
A company limited by shares, or
A company limited by guarantee, in such manner as may be prescribed.
The registration will not be invalid even if it is done with the intention of winding up the company.
Conditions:
i. A company registered under the Indian Companies Act, 1882, or under the Indian Companies Act,
1913, or the Companies Act, 1956, shall not register in pursuance of this section.
ii. A company having the liability of its members limited by any Act of Parliament other than this Act,
or by any other law for the time being in force, shall not register in pursuance of this section as an
unlimited company or as a company limited by guarantee.
iii. A company will be registered as a company limited by shares only if it has a fixed paid-up capital,
divided into shares of a fixed value, which may be held and transferred as stock, or partly as shares and
partly as stock. The company’s members will only be the holders of those shares or stock, and no other
persons.
iv. A company cannot register under this section without the approval of the majority of members present
in person or by proxy at a general meeting convened for the purpose.
v. Where a company not having the liability of its members limited by any Act of Parliament or any
other law for the time being in force is about to register as a limited company, the majority required
to assent as aforesaid shall consist of not less than three-fourths of the members present in person, or
where proxies are allowed, by proxy, at the meeting.
vi. If a company is registering as a company limited by guarantee, a resolution must be passed declaring
that each member undertakes to contribute to the company’s assets in the event of winding up. The
contribution would be for payment of the debts, liabilities, costs, charges, and expenses of winding up,
and for adjustment of contributory rights, up to a specified amount.
vii. A company with fewer than seven members may register as a private company, subject to its rules and
regulations.
3. In computing any majority required for sub-section (1), when a poll is demanded, regard shall be had to the
number of votes to which each member is entitled according to the regulations of the company.
Once the company has complied with the requirements of Chapter XXI and paid the prescribed fees under
Section 403, the Registrar will certify that the company is incorporated under this Act. If it is a limited
company, the certificate will state that it is limited.
As per Section 368 of the Act, all the properties, whether movable and immovable (including actionable
claims), belonging to or vested in a company at the date of its registration in pursuance of this Part, shall,
on such registration, pass to and vest in the company as incorporated under this Act. However, registration
under this Part will not affect the company’s rights or liabilities concerning any debts or contracts incurred
before registration.
Any pending suits or legal proceedings involving the company or its officers or members at the time of
registration may continue as if the registration had not occurred.

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 The provisions of this Act with respect to staying and restraining suits and other legal proceedings against a
company at any time after the presentation of a petition for winding up and before the making of a winding-
up order, shall, in the case of a company registered in pursuance of this Part, where the application to stay
or restrain is by a creditor, extend to suits and other legal proceedings against any contributory of the
company.

9. EFFECT OF REGISTRATION UNDER PART XXI OF THE ACT

The following are the effects of registration of companies under this Part of the Companies Act, 2013:
1. All provisions contained in any Act of Parliament or any other law for the time being in force constituting or
regulating the company, including, in the case of a company registered as a company limited by guarantee,
the resolution declaring the amount of the guarantee, shall be deemed to be conditions and regulations of
the company. These provisions shall be treated in the same manner as if the company had been formed under
this Act, and would have been required to be inserted in the memorandum and articles of association.
2. All the provisions of this Act shall apply to the company and its members, contributories, and creditors
in the same manner as if the company had been formed under this Act, subject to the following:
(a) Table F in Schedule I shall not apply unless it is adopted by special resolution.
(b) The provisions of this Act relating to the numbering of shares shall not apply to any company whose
shares are not numbered.
(c) In the event of the company being wound up, every person shall be a contributory, in respect of the
debts and liabilities of the company contracted before registration, who is liable to pay or contribute
to the payment of any debt or liability of the company contracted before registration.
(d) In the event of the company being wound up, every contributory shall be liable to contribute to the
assets of the company, in the course of the winding-up, all sums due from him in respect of any such
liability, and in the event of the death or insolvency of any contributory, the provisions of this Act with
respect to the legal representatives of deceased contributories, or with respect to the assignees of
insolvent contributories, shall apply.
3. The provisions of this Act with respect to the registration of an unlimited company as a limited company;
the powers of an unlimited company on registration as a limited company, to increase the nominal amount
of its share capital, and to provide that a portion of its share capital shall not be capable of being called-up
except in the event of winding up, and the power of a limited company to determine that a portion of its
share capital shall not be capable of being called-up except in the event of winding up, shall apply to these
companies notwithstanding anything in any Act of Parliament or any other law for the time being in force.

9.1 ESSENTIAL PRE-CONDITIONS OF COMPANIES FOR REGISTRATION UNDER PART XXI OF THE
ACT
(a) All the secured creditors of the company must have either consented to or given their no objection to the
company’s registration under this Part.
(b) The company must publish an advertisement in newspapers (one in English and one in a vernacular
language) giving notice about the registration under this Part, seeking objections, and addressing them
suitably.
(c) The company must file a duly notarized affidavit from all the members or partners confirming that, in the
event of registration under this Part, necessary documents or papers shall be submitted to the registering or
other authority with which the company was earlier registered, for its dissolution as a partnership firm,
limited liability partnership (LLP), cooperative society, society, or any other business entity, as the case
may be.

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 PREVIOUS YEAR QUESTIONS

1. What are the post-conversion requirements to be arranged by XYZ Appliances Ltd. after conversion from
a private limited company to a public limited company? Dec.2024 (3 Marks)
Hints: A fresh PAN.
' The bank account details need to be updated.
' Proper intimation needs to be given to the tax authorities and other regulatory authorities about the
conversion.
' Every alteration made in the memorandum or articles of a company shall be noted in every copy of the
memorandum or articles, as the case may be.
' A fresh rubber stamp is required to be arranged.
' Inform the GST department, the Regional Provident Fund department, the Income tax department, etc.
' Minimum of 7 members.
2. Describe the conditions required to be fulfilled for the conversion of LLP “Technical Solution LLP” into a
private limited company. “Technical Solutions Pvt. Ltd. June 2023 (3 marks)
Hints:
' All the partners should have approved the conversion of the LLP.
' The LLP should have complied with all the required returns and compliances.
' Publication in at least two newspapers, one in English and another in any vernacular language newspaper
of the place of registered office.
' The Limited Liability Partnership must have at least two partners, who are required for the incorporation
of a Private Limited company.
' There should be no open charges for or against the Company.
3. A, B, and C are the partners in the partnership firm registered under the Partnership Act, 193,2, in the
name of ABC Traders. Considering the benefits available to Limited Liability Partnership (LLP) under the
Limited Liability Partnership Act, 2008, the partnership firm is converted into an LLP with the name ABC
LLP, and the same is registered. The Department of State Revenue issues a notice to the LLP to pay stamp
duty and registration charges for transferring the assets of the erstwhile partnership firm to the LLP. It is
contended by the Department that the LLP is a separate, distinct entity from that of its partners and hence
the conversion amounts to a change of legal rights. In light of the decided case law, examine the validity of
the contention of the Department of State Revenue.  Dec.2023 (3 Marks)
Hints:
' Sozin Flora Pharma LLP vs. State of Himachal Pradesh & Another.
' Stamp duty and registration charges cannot be levied upon transferring the assets of the erstwhile
partnership firm to an LLP. Hence, the contention of the Department of State Revenue is not valid.
4. ABC Ltd. has been converted into a private limited company with the name ABC Pvt. Ltd. Brief the
company on the major compliances that need to be followed by it after conversion into a private limited
company.  (5 Marks)
5. Adam formed a One Person Company (OPC) on 16th April, 2021, for manufacturing electric cars. The
nephew of Adam was nominated, duly nominated by him. Due to an accident, Adam expired, and his
nephew Manu took over the charge of the Company. Earlier, he was working as a Doctor in a Private

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 Hospital. The turnover of the OPC for the financial year ended 31 March 2022 was about 2.25 crores. There
being no other Shareholder, Manu decided to sell the business; however, a corporate advisor advised him
to convert it voluntarily into a private limited company to induct his wife, who shall hold 51% equity and
shall be a whole-time managerial person.
Can it be done? Examine the legal provisions of the Companies Act, 2013.  June 2022 (5 Marks)
6. Designated Partners of Sara LLP want to convert the LLP into a Private Limited Company for further
growth of their organization. They have already got the name approved and have secured the DSC and
DIN. Now they seek your advice for further processes of conversion of their LLP into a Private Limited
Company. Advise. Dec.2021 (4 Marks)
7. EFG Pvt. Ltd. wants to convert the Private Company into a One Person Company (OPC). The Company
seeks your advice on the following matters: June 2021 (4 Marks)
(i) Provisions regarding notice of general meeting.
(ii) Whether the company is required to obtain a ‘No Objection Certificate’?
(iii) Types of e-forms required to be filed with the ROC for such conversion.
(iv) Penalty for contravention of provisions with respect to conversion.

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 CHAPTER SBIL

7 NON-CORPORATE
COMPANIES

1. INTRODUCTION
The initial determination confronting an entrepreneur pertains to selecting an appropriate legal structure for the
business entity. All enterprises must adopt a legally recognized framework that delineates the rights and liabilities
of participants concerning ownership, control, personal liability, duration of existence, and financial architecture.
This foundational decision carries enduring legal and operational consequences, necessitating the careful selection
of an ownership structure that aligns with the entrepreneur's objectives and circumstances.

2. PARTNERSHIP
As per Section 4 of the Indian Partnership Act, 1932, “Partnership” is the relation between persons who have
agreed to share the profits of a business carried on by all or any of them acting for all. A partnership requires a
minimum of 2 partners and a maximum of 50 partners.

2.1 FEATURES OF PARTNERSHIP

) Existence of an agreement: The terms and conditions of the partnership are laid down in the partnership
deed.
) Engagement in business: The partnership must involve a lawful business activity. Mere co-ownership or
sharing of property does not constitute a partnership.
) Sharing of profits and losses: Partners will share the profits and bear the losses.
) Agency relationship: The partnership business may be carried on by all or any of the partners acting for all.
Thus, each partner is a principal and can also act on behalf of other partners as their agent.
) Unlimited Liability: Partners have unlimited liability and are personally liable; their private property can
be taken for repayment.
) Common Management: It is not necessary for all partners to manage day-to-day activities.
) Restriction on transferability of shares: No partner can transfer their share in the partnership to any other
person. He may, however, do so with the consent of all other partners.
) Registration: Registration is not compulsory.
) Duration: The partnership firm continues at the pleasure of the partners. Legally, a partnership comes to an
end if any partner dies, retires, or becomes insolvent.
Is Partnership Firm a Body Corporate under Companies Act, 2013?
The definition of Body Corporate under Section 2 (11) of the Companies Act, 2013 specifically says that it
does not include a co-operative society registered under any law relating to co-operative societies and any other
body corporate (not being a company defined in the Act), which the Central Government may by notification
specify in this behalf.
 For an entity to be Legal/ Juristic person, it shall be recognized by law as a separate entity, have perpetual
succession, must be competent to enter into a contract, capable to sue or being sued in its own name and can
hold the property in its own name. A Partnership Firm does not possess all the attributes as:
) It is merely an association of individuals and the law does not recognize partnership to have a personality
or existence distinct from its partners.
) It does not have a perpetual succession as the firm collapses on change in the partners of the firm which
can be due to death or retirement of the partners.
) Since it is not regarded as a legal entity, therefore the firm cannot enter into any contract on its own. Any
Partner authorized by all the partners or all the Partners of the firm shall execute the contract.
) It can sue or be sued only if the Firm is a registered Partnership.
And hence, the concept of Limited Liability Partnership (LLP) which includes the benefits of both partnership
and body corporate was introduced. LLP is formed and incorporated under the Companies Act with perpetual
succession. It is a separate legal entity with no effect of change in partners on existence, rights or liabilities
of the LLP. The definition of 'body corporate' under the Limited Liability Partnership Act, 2008 ('LLP Act')
specifically includes LLP registered under the LLP Act.

2.2 TYPES OF PARTNERSHIP

(i) Partnership at will: Such a partnership exists on the will of the partners. That is, it can be brought to an end
whenever any partner gives notice of his intention to do so.
(ii) Particular partnership: A particular partnership is formed for undertaking a particular venture. It comes to
an end automatically with the completion of the venture.
(iii) Partnership for a fixed duration: A partnership is for a fixed duration of 2 years, 5 years, etc.

2.3 TYPES OF PARTNERS

(i) Active Partners: Partners who take an active part in the conduct of the day-to-day business of the firm are
called active partners. These partners carry on business on behalf of the other partners.
(ii) Sleeping or dormant partners: Partners who do not take an active part in the management of the business.
Such partners only contribute capital to the firm and are bound by the activities of other partners.
(iii) Others: Such partners may include the following
Nominal Partners: Nominal partners do not have an interest in the business but lend their name to the
firm. They do not make any capital contribution and are not entitled to take part in management.
Partners by holding out: If a 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.
Minor Partner: A minor cannot be a partner according to the Indian Contract Act. But he can be
admitted to get the benefits if all the partners give their consent. He will share the profit equally, but his
liability will be limited in case of loss.

2.4 ADVANTAGES OF PARTNERSHIP

(a) Ease in formation: A partnership is very easy to form. All that is required is an agreement among the
partners. Even the expenses to be incurred for registration are not much.
(b) Pooling of financial resources: A partnership commands more financial resources compared to a sole
proprietorship. This helps in expanding business and earning more profits. As and when a firm requires
more money, more partners can be admitted.

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(c) Pooling of managerial skills: A partnership facilitates the pooling of the managerial skills of all its partners.
This leads to greater efficiency in business operations. For instance, in a big partnership firm, one partner
can handle production functions, another partner can look after all marketing activity, still another can
attend to legal and personnel problems, and so on.
(d) Balanced business decisions: In a partnership firm, decisions are taken unanimously after considering
all the major aspects of a problem. This ensures not only balanced business decisions but also removes
difficulties in the smooth implementation of those decisions.
(e) Sharing of risks: Unlike a sole proprietary organization, the risks of partnership business are shared by
partners on a predetermined basis. This encourages partners to undertake risky but profitable business
activities.
(f) Privacy: It is not required for a partnership firm to publish its accounts. As a result, the affairs taking place
in the business remain within the business. Also, the partners are the ones who carry out the significant
decisions of the business, and hence, there is no chance of leakage of trade secrets, and the privacy of the
firm is maintained.
(g) Division of work: In a partnership, all the firm’s work is divided among the partners based on their knowledge
and skills. Division of labour is possible in partnership. This division of work leads to efficient management,
which results in higher profits.

2.5 LIMITATIONS OF PARTNERSHIP

(a) Uncertainty of existence: The existence of a partnership firm is very uncertain. The retirement, death,
bankruptcy, or lunacy of any partner can put an end to the partnership. Further, the partnership business can
come to a close if any partner demands it.
(b) Unlimited Liability: It is true that, like the sole proprietor, each partner has unlimited liability. But his
liability may arise not only from his acts but also from the acts and mistakes of co-partners over whom he
has no control. This discourages many persons with money and ability from joining a partnership firm as a
partner.
(c) Risks of disharmony: In partnership, since decisions are taken unanimously, all partners must reconcile
their views for the common good of the organisation. But there may arise situations when some partners
may adopt rigid attitudes and make it impossible to arrive at a commonly agreed-upon decision. Lack of
harmony may paralyse the business and cause conflict and mutual bickering.
(d) Difficulty in withdrawal or Blocking of Capital: Investment in a partnership can be easily made, but
cannot be easily withdrawn. This is so because the withdrawal of a partner’s share requires the consent
of all other partners. If a partner wishes to withdraw their wealth from the firm, they cannot do so alone.
Withdrawal is possible only if the other partners agree to it.

2.6 PARTNERSHIP DEED

A partnership deed, also known as a partnership agreement, is a document that outlines in detail the rights and
responsibilities of all parties to a business operation. The key ingredients of a Partnership Deed are given below:
(i) Definitions and vital information
(ii) Investment
(iii) Accounting
(iv) Duties, powers, and obligations of the partners
(v) Withdrawals
(vi) Expulsion
(vii) Dissolution
(viii) Arbitration
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2.7 BENEFITS OF PARTNERSHIP DEED
) It enables business owners to file a suit in court in case of a dispute.
) It helps to avoid any misunderstanding or conflict among the business owners as all the terms and Conditions
have been decided and mentioned already in the Deed.
) It clearly outlines the duties of each partner.
) It provides details of the profit/loss ratio and the amount invested.
2.8 CONSEQUENCES OF NON-REGISTRATION
) A partner cannot file a suit in any court against the firm or other partners.
) A right arising from a contract cannot be enforced in any Court by or on behalf of your firm against any third party.
) The firm or any of its partners cannot claim a set-off or other proceedings in a dispute with a third party.
2.9 REGISTRATION PROCEDURE
) Apply with the Registrar of Firms of the area where the business is located with the following documents:
) The application shall be signed and verified by every partner

1. Duly filled Affidavit

2. A certified copy of the Partnership deed

3. Proof of ownership of the place of business or the rental/lease agreement thereof.

Once the Registrar of Firms is satisfied that the application procedure has been duly complied with, he shall
record an entry of the statement in the Register of Firms and issue a Certificate of Registration.

3. HINDU UNDIVIDED FAMILY (HUF)

) The Joint Hindu Family Business is a distinct form of organization peculiar to India.
) It does not have any separate and distinct legal entity from that of its members.
) The laws that govern HUFs are not codified and are read along with the Hindu Succession Act and the
Income Tax Act, controlled and managed by one person- ‘Karta’ or ‘Manager’.
3.1 CHARACTERISTICS OF A JOINT HINDU FAMILY BUSINESS
(a) Governed by Hindu Law
(b) Dayabhaga: It prevails in West Bengal & Assam and allows both the male and female members to be
co-parceners.
(c) Mitakshara: It allows only male members to be co-parceners.
(d) Management: All the affairs of a Joint Hindu Family are controlled and managed by one person who is
known as ‘Karta’ or ‘Manager’. The Karta is the senior-most male member of the family.
(e) Membership by Birth: The membership of the family can be acquired only by birth.
(f) Liability: Except for the Karta, the liability of all other members is limited to their shares in the business.
(g) Permanent Existence: The death, lunacy, or insolvency of any member of the family does not affect the
existence of the business of the Joint Hindu Family. The family goes on doing its business.
(h) Implied Authority of Karta: In a joint family firm, only Karta has the implied authority to contract debts
and pledge the credit and property of the firm for the ordinary purpose of the business of the firm.

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(i) Minor also a coparcener: In a partnership, a minor cannot become a co-partner, though he may be admitted
to the benefit of the partnership. In a Joint Hindu Family firm minor is a partner.
(j) Dissolution: The Joint Hindu Family Business can be dissolved only at the will of all the members of the
family. Any single member has no right to get the business dissolved.

3.2 BENEFITS OF HUF

) Easy to Start: No legal formalities are required.
) Efficient Management & Control: Karta makes all decisions and gets them implemented with the help of
another member.
) Secrecy: All the decisions are taken by the ‘Karta’ himself. He is in a position to keep all the affairs to
himself and maintains perfect secrecy in all matters.
) Prompt Decision: The Karta is the only person who exercises control.
) Economy: The Karta of the family spends money with great caution and economy.
) Credit Facilities: One reason for this is that the liability of the ‘Karta’ is unlimited. Karta is having personal
relations with others, which are also helpful in raising credit.
) Expanded loyalty & co-operation: It is the natural love and affection between the members that helps to
run the business more efficiently and smoothly.
) Freedom regarding selection of Business: The Karta is free to select any business of his choice. He does
not have to depend on others.

3.3 LIMITATIONS OF HUF

) Limited Resources: Mostly dependent on ancestral property.
) Mostly dependent on ancestral property.
) Dominance of Karta: Control vested solely in the hands of the karta, which may not be acceptable to other
members.
) Limited Managerial Skills: Karta cannot be an expert in all areas of management.
) Misuse of Power: Management of a Joint Hindu Family Business is centered in the hands of the family’s
Karta. Karta can use the power for his benefit.
) Limited Membership: The membership is with only family members only No one from outside the Joint
Hindu Family Business can join the business.

3.4 CASE LAWS

Note: The Hindu Succession (Amendment) Act, 2005 gave Hindu women the right to be co-parceners
or become legal heirs in the same way as male does. This was well established in the case of Vineeta
Sharma v. Rakesh Sharma & Ors. (2020)
Facts: The Supreme Court, in this case, stated that the right in coparcenary is accorded by birth. Thus, the
birthdate of a daughter is immaterial in this regard. Moreover, it stated that the father need not be alive as
on commencement of the 2005 Amendment Act. It was held that the Act will be effective retroactively.
That is, daughters will be given a share in the coparcenary property even if the father died before 2005.
The Supreme Court pointed to the object of the Act which was to remove gender discrimination regarding
rules of the coparcenary. Thus, the object could be fulfilled only if the Act was applied retroactively.

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3.5 HINDU UNDIVIDED FAMILY (HUF) FORMATION THROUGH DEED
Key issues to be noted are:
) A HUF deed is a written formal document on a stamp paper specifying the name of the Karta and Coparceners
of the HUF
) The eldest male member of HUF becomes the Karta of HUF.
) The name of members of HUF and the name of the HUF is also required to be stated in the HUF deed at the
time of creation of HUF.
) The name of HUF is usually the name of the Karta, followed by the word HUF, e.g., Ram Kumar HUF.
) HUF Deed also states the capital with which the HUF has been initiated
) A declaration is also provided by each member of the family, which states that –
(i) Karta has the authority of the accounts vested in his hands.
(ii) Karta holds the right to govern all the transactions of the HUF accounts on behalf of the members.
) It is recommended that the Deed should be notarised
(i) Register the Deed.
(ii) Once the declaration deed is made, the karta should apply for a permanent account number (PAN) for
the HUF.
(iii) Obtain PAN.
(iv) Open a bank account.
3.6 KEY POINTS IN THE CREATION OF HUF AND THE FORMAT OF THE DEED FOR THE CREATION
OF HUF
1. Under the Income Tax Act, an HUF is a separate entity for income tax returns.
2. The same tax slabs apply to HUF as to an individual assessee.
3. One cannot transfer your own assets/money into an HUF.
4. If one has ancestral property and is earning some income from this property, then it is better to transfer this
asset to an HUF and save tax up to the exemption limit applicable to individuals.
5. One can transfer the money received on the sale of ancestral property /assets into your HUF.
6. The income from the property of HUF can be further invested in instruments such as shares, mutual funds,
etc., and will be assessed under HUF.
7. The existence of property or multiple members is not a prerequisite for creating an HUF. A family that does
not own any property may still have the character of a Hindu joint family. This jointness is understood in
terms of faith and food. This is because a Hindu is born as a member of the joint family.
8. Any gifts received by the members of HUF (birthday, marriage, etc.) can be treated as assets of HUF.
Note: After one has allotted a PAN, open a bank account in the name of the HUF. The HUF is now functional.
3.7 ADVANTAGES OF HUF
) One person cannot form HUF. An HUF is formed by a family.
) An HUF is automatically created at the time of marriage.
) HUF consists of a common ancestor and all of his lineal descendants, including their wives and unmarried
daughters after 1-9-2005, daughter married or unmarried, is a coparcener like a son.
) Hindus, Buddhists, Jains and Sikhs can form HUFs.
) HUF usually has assets which come as a gift, a will, or ancestral property, of property acquired from the sale
of joint family property or property contributed to the common pool by members of HUF.
) Once an HUF is formed it must be formally registered in its name. An HUF should have a legal deed. The
deed shall contain details of HUF members and the business of the HUF. A PAN number and a bank account
should be opened in the name of the HUF.
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 ) Use a capital asset to establish the corpus of the HUF. This can be ancestral property, assets gifted by
relatives and friends, or received by the HUF through a will. If you give a personal asset to the HUF, the
income will be clubbed with your own. Gifts of over 50,000 a year received by HUF will be taxable. The
best way is for the HUF to receive assets as part of a will.

4. SOLE PROPRIETORSHIP
The sole proprietorship is a form of business that is owned, managed, and controlled by an individual.
4.1 MERITS OF SOLE PROPRIETORSHIP
) Easy formation: No legal formalities involved in setting up
) Swift Decisions: All decisions are taken by one person, which makes decision-making smooth & easy
) Sole beneficiary of profits
) Inexpensive Management: A sole proprietor does not appoint a specialist for various work
) Confidentiality: A sole proprietor can keep all business-related information to himself.
) Lesser paperwork.
) Simple tax calculations: Sole proprietors are not considered separate legal businesses. Income or losses are
reported on the owner's income tax return.
4.2 LIMITATIONS

Limitation of management skill: Single person is not likely to have all the managerial skills.

Limitation of Resources: It is difficult to finance business because banks mostly prefer established
business.

Unlimited liability.

Lack of continuity: Business depends solely on the owner's well being. In case of death,
insolvency, imprisonment it can shut down.

Selling the business is a challenge.

Risk in decision-making.

4.3 PROCEDURE FOR FORMATION OF SOLE PROPRIETORSHIP FIRM.

No deed or agreement is required to constitute a Sole Proprietorship. However, in actual registration may be required
under the following enactments as prevailing in the respective States or of the Central Government, such as
) Shops and Commercial Establishments Act (State-specific)
) Law relating to Professional Tax (State-specific)
) Registration under the Micro, Small and Medium Enterprises Development Act, 2006
) GST registration (with the launch of GST, only GSTIN will be used for the Import-Export Code Number)
) Intellectual Property laws

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 5. MULTI-STATE CO-OPERATIVE SOCIETY
Registered under the Multi-State Cooperative Societies Act of 2002. They aim to serve the interests of members
in more than one state for the social and economic betterment of their members, operating on principles of self-
help and mutual aid.
5.1 BENEFITS OF MULTI-STATE CO-OPERATIVE SOCIETY
) MSCS provides loans at reasonable rates of interest to the poor.
) MSCS can function pan-India as they can start branches in different districts and states
) MSCS has low compliance costs
) A Multi-State Co-operative Credit Society belongs to its members, who are at the same time the owners and
the customers of their Society
5.2 FORMATION OF MULTI-STATE CO-OPERATIVE SOCIETY
An application in Form-1 sealed with the Central Registrar of Cooperative Societies, New Delhi, along with the
following enclosures:
) A certificate from the bank stating the credit balance.
) A scheme explaining how the proposed multi-state co-operative society has reasonable prospects of
becoming a viable unit.
) Four copies of the bylaws in the original.
) The proposed area of operation for registration shall initially be permitted for two contiguous states only.
) List of at least 50 members from each state.
) Certified copies of the resolutions passed by the proposed society, along with the certified copy of the
resolution of the promoters.
) Contact number and e-mail address of the Chief Promoter or Society on the cover page.
For societies having objects related to thrift and credit, and for multi-purpose societies following additional
documents are required to be submitted along with the documents mentioned above.
) No Objection Certificate from the Registrar of Cooperative Societies of the States/U.T.
) A certificate to the effect that the credentials of the Chief Promoter/Promoters have been verified by the
Registrar of Co-operative Societies of the state where the head office is proposed to be located.
All documents to be submitted in original with the signatures of the Chief promoter/Promoters on each page.
5.3 REGISTRATION PROCEDURE

1. An application shall be made to the Central Registrar.

2. The application shall be signed:

Where all are individuals: By at least fifty persons from each of the state concerned;
Where the members are cooperative societies- by duly authorised representatives on behalf of at
least five such societies as are not registered in the same state; and
In the case of a multi-state cooperative society of which another multi-state cooperative society and
other cooperative societies are members: By duly authorised representatives of each of such societies.

3. The application shall be accompanied by four copies of the proposed bye-laws of the multi-state
cooperative society

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 4. If the Central Registrar is satisfied - The application for registration shall be disposed of by the
Central Registrar within a period of four months from the date of receipt thereof by him.

5. Where the Central Registrar refuses to register a multi-state cooperative society, he shall communicate,
within a period of four months from the date of receipt of the application for registration.

6. If no reply within 4 months – application deemed to be accepted.

MSCS

Members Co-operative Society

At least 5 co-operative society (from

At least 50 individuals from each state
their only authorizes representatives)

If no reply within 4 months = Deemed acceptance.

6. TRUST
) It is simply a transfer of property by one person (the settlor) to another (the “trustee”) who manages that
property for the benefit of someone else (the “beneficiary”).
) The settlor must legally transfer ownership of the assets to the trustee of the trust.
) The Trust shall be governed by the terms of the Written Trust agreement.
6.1 OBJECTIVES OF TRUST
A trust may be created for any lawful purpose. The purpose of trust is lawful unless it is:
(i) Forbidden by law
(ii) It defeats the provisions of law
(iii) Is fraudulent
(iv) Implies injury to the person or property of another
(v) The court regards it as immoral or opposed to public policy.
6.2 WHO CAN CREATE A TRUST

A Company

Women

Associations of person

Hindu Undivided Family (HUF)

Every person capable of forming Contract as per Section 11 of Indian Contract Act

Minor with the permission of Principal civil Judge

As per Section 10 of the Indian Trust Act, 1882, any person who is capable of holding property may be a trustee.

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6.3 FORMATION OF TRUST
A Trust can be created by any person over 18 years of age and mentally sound, and capable of understanding.
Before registration of a trust, the following aspects have to be decided:
) Name of the author, trustee, and trust
) Address of the trust
) Objects of the trust (charitable or Religious)
) One settler of the trust
) Two trustees of the trust
) Property of the trust-movable or immovable property (normally a small amount of cash/cheque is given to
be the initial property of the trust, to save on the stamp duty).
) Creation of a Trust Deed on stamp paper: A trust may be created by any language sufficient to show the
intention, and no technical words are necessary.
) Obtain the signatures of the Settlor, Trustees, and Witnesses at the appropriate place and furnish their
photographs and proof of identity.
) Print the Trust Deed on stamp paper of appropriate value.
) Register the Original deed in a Sub-Registrar office, paying the registration charge. A photocopy of the deed
is also required to be submitted.
) Settlor and witnesses must be personally present with their identity proof in original.
) The Sub-Registrar retains the photocopy and returns the original copy of the Trust Deed.
) Thereafter, the Trust can apply for a permanent account number for the trust and open a bank account for it
as it is a separate entity.

6.4 REGISTRATION OF TRUST: REQUIREMENTS

) Trust Deed on stamp paper
) Proof of Identity – of the Trustor and the Trustee.
) Address Proof of Registered Office
) No Objection Certificate (NOC) from the property owner
) Passport-sized photographs of the Trustor, the Trustees, and the witnesses present while signing the Deed.

6.5 DIFFERENCE BETWEEN PUBLIC TRUST AND PRIVATE TRUST

Feature Public Trust Private Trust
Nature of A substantial section of the general public A narrow, specific group (e.g., employees
Beneficiaries of a company)
Interest Vested in Uncertain and fluctuating body of Definite and ascertained individuals
beneficiaries
Scope or Domain Larger and wider—may cover diverse Limited and narrow—focused on specific
social causes individuals or groups
Legal Considered charitable if serving the public Not considered a public charity, even if the
Classification interest beneficiary group is large (e.g., employees)
Examples Educational trust for underprivileged Trust for family members, or company
children, healthcare trust for the rural poor employees, and their kin
A trust for the benefit of employees of a company, however numerous, would not be considered a public charitable
trust.

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6.6 EXEMPTIONS AVAILABLE TO TRUSTS
) Trusts which include those that are formed for any of the activities related to sports, education, scientific
research, professions, or promotion of khadi and village-based industries, hospitals, etc., and are notified as
charitable or religious institutions.
) Any income, profits, or gains obtained by a trust from a property held by the trust established wholly for a
religious or charitable purpose shall not be included in the total income of the trust. Since such income shall
not constitute a part of the trust’s income, therefore, it is not taxable.
6.7 EXEMPTIONS
A. Income earned from the property held under the trust of private religious nature and does not endure
benefit for the public.

B. The entire income of a charitable trust which is established for a particular religion, community or
caste, income of those charitable trust whose funds do not get invested in the modes specified under
section 11(5).

Tax exemption for a Private Trust

In the case of a non-discretionary trust, all income is taxable in the hands of the beneficiaries. But if the
beneficiaries are minors, the income is to be clubbed with that of the parent with the higher income.
In the case of a discretionary trust, in which the shares of the beneficiaries are unknown and indeterminate,
it is taxed in the hands of trust at the maximum marginal rate.

Income tax exemption

Public trust Private trust

Section 10 – Charitable/Religious Trusts Discretionary Trusts

) Entire income exempt if trust is notified as: ) Trustee has discretion over
Charitable distribution.
Religious ) Income taxed in the hands of trust
) Applies when trust is formed for: at maximum marginal rate.
) Promotion of sports, education, research, khadi industries,
hospitals, etc. Non-Discretionary Trusts
) Exception: No exemption if formed for promotion of a particular ) Fixed entitlement for beneficiaries.
religion, race, caste ) Income taxed in the hands of
beneficiaries.
Section 11 – Income from Property Held for Charitable/
) If beneficiary is a minor, income
Religious Use
is clubbed with parent’s income
) Income will not be included in total income. (higher earner).
Exceptions:
1. Property held primarily for future provision or reserves.
2. 85% of income is invested in non-permissible securities.

Section 12 – Income Held for Public at Large

Exemptions include:
) Income which is set aside (25%) for administrative expenses
) Income made by Voluntary contributions
) Trusts created for benefit of SC/ST, women & children

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6.8 PARTNERSHIP AGREEMENT AND TRUST DEED

S. No. Partnership Agreement Trust Deed

1. Partners, as mentioned in the Deed runs the Trustees are generally appointed or elected.
Partnership Firm. The procedure to admit a partner Procedure to elects/appoint the trustees is set out
in the film is mentioned in the Deed. in Deed.
2. A Partnership Deed can be between two or more Three parties must be involved with any deed of
persons. Maximum number of partners in a trust:
partnership firm can be 50 partners. Trustor: This party is the borrower. A trustor is
sometimes called an obligor.
Trustee: As a third party to a deed of trust, the
trustee holds the property’s legal little.
Beneficiary: This party is the lender.
3. The Deed may mention a fixed term of partnership Trust deed can provide for trust to be wound up
or for a specific undertaking, or may mention the within certain number of years.
condition of dissolution by notice of intention to
dissolve, if mutually agreed by the partners.
4. The Deed states the rights and duties of the The Trust Deed states the rights and duties of the
Partners. Partners owe a fiduciary duty to each Trustees as well as Beneficiaries. Trustees have
other, based on loyality, trust and confidence. fiduciary duties to beneficiaries.
5. Expections of Partner are more limited to financial Expectations of Trustees can be high-difficult
success of business ventures. More easily to satisfy beneficiaries with so many choices on
measured. where to spend income.

7. SOCIETY
A society is an association of persons united together by mutual consent to deliberate, determine, and act jointly
for some common purpose. The Societies Registration Act, 1860, governs the law relating to societies in India.

7.1 PURPOSES OF FORMATION

According to Section 20 of the Societies Registration Act, 1860, societies can be formed for the following
purposes:
Charitable societies

The military orphan funds or societies establishment.

For the promotion of science, literature, or the fine arts for instruction, the diffusion of useful knowledge

The diffusion of political education

The foundation or maintenance of libraries or reading-rooms etc.

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7.2 ADVANTAGES OF SOCIETY

Process of formation and registration is simple.

Record-keeping requirements are minimum and compliance with regulations is easy.

Cost of compliance is low.

Least possibility of interference by the regulator.

Exemption from tax due to charitable nature of operations.

7.3 DISADVANTAGES OF SOCIETY

) Tax exemption extended to societies may apply to public trusts only to the extent that the Income Tax
department accepts their activities as being charitable.
) An inappropriate form of a commercial venture
) The concept of equity investment or ownership is virtually absent
) Commercial investors regard the investments in such entities as risky mainly on account of their lack of
professionalism and managerial practices, and political leanings.

7.4 REGISTRATION OF SOCIETY (SUMMARISED FORM)

Application
Min 7 or more Registrar of Incorporation
+
members Society Certificate
Documents

1. Selection of name

2. PAN, Residence Proof

3. List of all members

Application 4. MoA
+
Documents 5. AoA

6. Proof of address-NOC

7. Declaration by President

8. Purpose for formation of society

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7.5 REGISTRATION OF A SOCIETY IN INDIA
1. A Society can be created by a minimum of 7 or more persons. Apart from persons from India, companies,
foreigners, as well as other registered societies, can also register for the Memorandum of the society.
2. Society registration is maintained by state governments.

Selection of a Name

Documents required for the Society Registration in India:

PAN Card of all the members along with the application.

The Residence Proof of all the members of the society also has to be submitted.

Memorandum of Association

Articles of Association

A covering letter mentioning the objective or the purpose for which the society is being formed.

A copy of the proof of address where the registered office of the society will be located along with a NOC
from the landlord if any has to be attached.

A list of all the members of the governing body

A declaration by the president of the proposed society

Submitted to the Registrar of Societies along with the requisite fees in two copies.

On proper vetting of the documents, the registrar will issue an Incorporation Certificate by allotting a
registration number to it.

7.5.1 Consequences of Registration of a Society

1. A society registered under the Act enjoys the status of a legal entity apart from the members constituting it.
2. It can acquire and hold property and can sue and be sued in its name.
3. Obtaining registration and approvals under the Income Tax Act.
4. Lawful vesting of property in the societies
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7.5.2 Consequences of Non-Registration of a Society

In the absence of registration, all the trustees in charge of the fund have alone a legal
status and the society has no legal status, and, therefore, it cannot sue and be sued.
If a society is not registered, it may exist in fact and theory, but not in the eyes of law.
If benefits are to be claimed, the registration of society under the Act us required. An
unregistered society cannot claim benefits under the Income-tax act.

8. MEGA FIRM

It is a Partnership firm with more than twenty-five Partners. MDF is a step towards mega firm. It
is paradigm shift from traditional approach of 10x10 offices to a global office. MDF will put the
professionals in general and company secretaries in particular on fast track. Large firms will still become
larger and one day the global business enterprise will call them a “Mega Firm”.

8.1 PRE-REQUISITES
) All minds should work together and in unison
) Say, go to ego
) Mutual faith and respect lay a strong foundation
) Unanimity shall be the rule on important policy decisions.
) Financial discipline is a must
) Founder partners shall be given equal status.
) The income of the firm shall be distributed at short, regular intervals
) One shall not put undue influence on the others or show that he is the kingpin of the association. Even the
small crack in the above-stated prerequisites ruins things.

8.2 BENEFITS
) Working in a team environment.
) Good Exposure.
) Cost-effective.
) Exceptional training and onboarding.
) Continuous Learning.
) Better Growth opportunities
) Global scope and reach.
) Revenue sharing.
) Structure & Processes.
) Corporate or Industry perception.
) Reputation & risk-adjusted value
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8.3 CONSTITUTION OF MDF
The formation of a Multi-Disciplinary Firm (MDF) must stem from a conscious, collaborative decision among
like-minded professionals with complementary expertise. Before formalizing the partnership, it is advisable
to operate under a Memorandum of Understanding (MoU) for at least one year, allowing partners to assess
compatibility, build mutual trust, and align working styles. Intellectual parity and equal footing among founding
members are essential, and any existing individual practices should be gradually integrated. When onboarding
new partners, a similar MoU-based trial period is recommended to ensure long-term cohesion.
A formal partnership agreement must clearly define decision-making processes, role allocation, revenue sharing,
delegation of authority, and exit protocols to ensure operational clarity and fairness.
8.4 RISKS INVOLVED
Despite its advantages, MDF formation carries risks such as misalignment in staff instructions, high infrastructure
and technology costs, dominance of senior partners over juniors, difficulty in defining exit routes, lack of
transparency, erosion of mutual trust, and communication gaps—all of which can destabilize the firm if not
proactively managed.

Previous Year Questions

1. The Green Future Trust operates transparently and focuses on charitable purposes, adhering to legal
requirements for trusts in India. According to the Indian Trust Act, 1882, what are the constituents of the
Green Future Trust? Dec.2024 (4 Marks)
Hints: Define Trust as per Section 3 of the Indian Trust Act, 1882.
2. ABC Group is a combination of dairy farmers operating in two States, Maharashtra and Gujarat. They
have been operating successfully under separate state cooperative societies for several years. However,
due to growing demand for their products and the need to streamline operations across state boundaries,
the group is considering the formation of a Multi-State Cooperative Society (MSCS) under the Multi-State
Cooperative Societies Act, 2002. What are the legal and procedural steps involved in registering a Multi-
State Cooperative Society under the Multi-State Cooperative Societies Act, 2002?
 Dec.2024 (5 Marks)
3. Differentiate between Partnership Agreement and Trust Deed.  Dec.2024 (3 Marks)
4. A and B are the civil contractors having their separate proprietorships. The State Government has issued
the tender for the construction of a 10 km road. As per the terms of the tender, the bid can be submitted
either by a partnership firm or a company. A and B wish to form a partnership firm to become eligible for
bidding in the aforesaid tender. Advise them on the key ingredients of a Partnership Agreement.
 June 2023 (4 Marks)
Hints: Definitions and vital information
Accounting
Investment
Duties, powers, and obligations of the partners:
5. Explain the difference between Public Trust and Private Trust. Dec. 2022 (4 Marks)
6. Mohan has completed an MBA in dairy farming and is keen on uniting farmers in Rajasthan by forming
a Multi-State Co-operative Society. Brief Mohan on the documentary requirements for the formation of a
Multi-State Co-operative Society and the Authority with whom the application needs to be filed.
June 2022 (4 Marks)

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 Hints: As per Rule 3(1) of the Multi-State Cooperative Societies Rules, 2002
Four copies of the bylaws in the original.
7. OP Ltd. wants to create a trust for the benefit of employees of the Company and their spouses and children.
Decide with reasons whether this trust will be a Public Trust or a Private Trust. Also, state the differences
between Public Trust and Private Trust. Dec.2021 (4 Marks)
Hints: Difference between Private and Public Trust.
8. Smt. He is the head of the family consisting of her husband (who is a physically challenged person) and
two sons. She heard that there about numerous benefits in terms of management, decision making, and
taxation, if she forms a Hindu Undivided Family (HUF), a form of organization which is peculiar to India.
As a professional, advise key points to Smt. H in the creation of HUF covering taxation aspects?
June 2021 (5 Marks)
Hints: Section 56(2) (vii) of the Income-tax Act, 1961.
Section 80C deduction up to 1.5 Lakhs.
9. Neeraj Walia is the head of a family consisting of his wife and two sons. Forefathers of Neeraj Walia have
accumulated huge wealth in the form of land and immovable properties. Now, with the ancestral wealth,
Neeraj Walia plans to carry on the real estate and resorts business by creating an HUF. He has approached
you to create a HUF Deed. Advise him on key points, including taxation aspects to be considered in the
creation of the HUF Deed. June 2021 (5 Marks)
10. U & P wants to create a Trust. Advise them in the following matters:
I. What are the various aspects to be decided before registration of a Trust?
II. Provision regarding signature and witnesses on the Trust deed.
III. Basis of chargeability of stamp duty at the time of Registration?
IV. Can a Trust open a Bank Account in its name? If yes, then other than the Trust deed, what other
documents are required to open the bank account?  June 2021 (4 Marks)
Hints:
1. Name of the trust
Address of the trust
Objects of the trust (Charitable or Religious)
One settler of the trust
Two trustees of the trust
2. Provision regarding signature and witnesses on the trust deed.
3. Provision regarding stamp duty
4. Bank Account.
11. B is the Sole Proprietor of BN Metals. The business of the Company is to manufacture the parts of the Boiler
used in Turnkey Power Projects. The previous year's turnover was 348 crores. B is now participating in a
big tender, having cost estimates of? 145 Crore. However, as per the tender specification, B is qualified to
submit the tender, but given the consultant appointed by him, the form of business should be a Company
or an LLP. Explain the limitations of the Sole Proprietorship form of business organization.
Dec. 2020 (4 Marks)
Hints: A sole proprietor generally suffers from the following limitations:
1. Limitations of management skills 2. Limitation of resources
3. Unlimited liability 4. Lack of continuity

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 CHAPTER SBIL

8 FINANCIAL SERVICES
ORGANISATION

INTRODUCTION
India’s financial sector is experiencing rapid expansion, with both existing firms and new entities entering the
market. The sector comprises commercial banks, insurance companies, non-banking financial companies, co-
operatives, pension funds, mutual funds and other smaller financial entities. The recent introduction of payments
banks has further diversified the sector. However, commercial banks still dominate the financial system, accounting
for over 64% of total assets.
The Government of India has introduced several reforms to liberalise, regulate and enhance this industry. The
Government and Reserve Bank of India (RBI) have taken various measures to facilitate easy access to finance.
Various types of Non Banking Financial Companies (NBFCS), Asset Reconstruction Companies (ARCs), and
Microfinance Institutions (MFIs) have been launched to support this growth.

Ministry of State National

Reserve
Corporate Registrar of Housing IRDA SEBI
Bank of India Affairs Chit Funds Bank

Housing Venture
Nidhi Insurance Merchant Broker/Sub-
NBFCs Chit Funds Finance capita Fund
Companies Companies Companies Banker broker Company

IC LC AFC IDF MFI

Factors CIC MGC NOFHC

) IC – Investment Company
) AFC – Asset Finance Company
) LC – Loan Company
) IFC – Infrastructure Finance Company
) CIC – Core Investment Company
) MGC – Mortgage Guarantee Company
) IDF – Infrastructure Debt Fund
) MFI – Micro Finance Institution
) NOFHC – Non-Operative Financial Holding Company.
1. NON BANKING FINANCIAL COMPANY
A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 2013 (or any
earlier enactments) engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/
securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-
purchase, insurance business, chit business but does not include any institution whose principal business is that
of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any
services and sale/purchase/construction of immovable property.
A non-banking institution which is a company and has principal business of receiving deposits under any scheme
or arrangement in one lump sum or in instalments by way of contributions or in any other manner, is also a non-
banking financial company (Residuary non-banking company).
50-50 TEST
A company is considered to be engaged in financial activity as its principal business when it meets the following
criteria:
1. Financial Assets: More than 50% of the company’s total assets must be financial assets.
2. Income from Financial Assets: More than 50% of the company’s gross income must be derived from
financial assets.
If a company satisfies both of these conditions, it will be classified as a Non-Banking Financial Company
(NBFC) by the Reserve Bank of India (RBI). This test is commonly referred to as the 50-50 test, and it is used
to determine whether or not a company is engaged in financial business.
Difference Between Banks & NBFCs
Particulars Banks NBFCs
1. Definition Banking is the acceptance of deposits NBFC is a financial institution
withdrawable by cheque or demand; involved in lending, investment, or
NBFCs cannot accept demand deposits. collecting money under any scheme or
arrangement.
2. Regulations Governed by the Banking Regulation Governed by the Companies Act,
(BR) Act, 1949, and the RBI Act, 2013, and the RBI Act, 1934.
1934, with stringent controls.
3. Scope The scope of business for banks is There is no bar on NBFCs carrying out
limited by Section 6(1) of the BR Act. activities other than financial activities.
4. Registration and Licensing requirements are stringent. Formation of NBFC is easier.
Licensing Transfer of shareholding is controlled Acquisition of NBFCs is procedurally
by the RBI. regulated and requires approval.
5. Loan Sanction Process Comparatively stringent. Easier and faster.
6. Restrictions on Banks cannot carry out non-banking NBFCs cannot provide cheque or
Business activities. demand deposit facilities.
7. Overdraft Facility Available in some banks. Not available.

8. Privileges Can exercise powers of recovery under Only 196 NBFCs, specified by the
SARFAESI and DRT law. Central Government, have powers
under SARFAESI or DRT law.

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 9. Foreign Investment Up to 74% foreign investment is Up to 100% foreign investment
allowed in private sector banks. allowed (for only 18 activities).

10. Maintenance of Banks are required to maintain NBFC-Ds (deposit-taking) must

Reserve Ratios statutory reserve ratios. maintain a certain ratio of deposits in
specified securities. Non-deposit-taking
NBFCs have no such requirement.
11. Priority Sector Banks must have a certain minimum Priority sector norms do not apply to
Lending Requirements exposure to priority sectors. NBFCs.

1.1 BENEFITS OF INCORPORATING AN NBFC

Non-Banking Financial Companies (NBFCs) have gained significant traction in the financial sector due to their
ability to outperform traditional banks in several areas. Research and studies have demonstrated that NBFCs are
consistently outperforming banks, contributing to a 15% increase in customer satisfaction when compared
to banking customers. The Reserve Bank of India (RBI) has acknowledged this growth in its recent Financial
Stability Report. Below are the key benefits of incorporating an NBFC:
Benefit Explanation
1. Competitive Interest NBFCs have focused on offering lower interest rates, sometimes even below bank
Rates rates. This has made loans more affordable, with lower EMIs, especially for
borrowers with good credit scores and repayment history.
2. Quick Processing NBFCs have more lenient eligibility criteria, allowing for faster loan approvals.
In contrast to banks, which may take longer, NBFCs cater to the urgent needs of
borrowers by offering quick loan processing at competitive rates.
3. Fewer Rules and Being incorporated under the Companies Act, NBFCs are less constrained by stringent
Regulations rules and regulations compared to banks. This facilitates easier loan approvals and
a simplified loan process, making it more attractive for borrowers. However, the
higher risk of default is accounted for by higher interest rates and lower loan amounts.
4. Last Resort of NBFCs serve as the last resort for borrowing, especially when banks are not an
Borrowing option. Their agility and speed in processing loans allow them to step in and offer
financial assistance when immediate funds are required.
5. Caters to Customer NBFCs have a strong understanding of customer profiles and can customize their
Needs products according to specific client needs. This personalized approach results in
high customer satisfaction, contributing to their growing popularity.
6. Loan Availability for Individuals with poor credit ratings often struggle to get loans from banks.
Poor Credit Ratings However, NBFCs are more willing to extend credit to individuals with low credit
scores, although the interest rates may be higher than market rates. This provides
a valuable option for borrowers who would otherwise be excluded from traditional
banking services.

1.2 TYPES OF NBFCS

Type of NBFC Description
Asset Finance An AFC primarily finances physical assets like automobiles, tractors, and industrial
Company (AFC) machinery. At least 60% of its total assets and income must come from financing
real/physical assets supporting economic activities.

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Investment Company ICs are involved in the acquisition of securities as their principal business.
(IC)
Loan Company (LC) An LC provides finance through loans or advances for activities other than its own.
It does not include Asset Finance Companies.
Infrastructure Finance IFCs deploy at least 75% of their total assets in infrastructure loans. They must have
Company (IFC) a minimum net owned funds of ₹300 crore, a credit rating of ‘A’ or equivalent, and a
Capital to Risk Asset Ratio (CRAR) of 15%.
Systemically Important A CIC-ND-SI acquires shares and securities of group companies. It holds at least
Core Investment 90% of its assets in equity, preference shares, debt, or loans in group companies. It
Company (CIC-ND-SI) must have an asset size of ₹100 crore or more and can accept public funds.
Infrastructure Debt IDF-NBFCs facilitate long-term debt flow into infrastructure projects. They issue
Fund: Non-Banking bonds and raise resources through Rupee or Dollar-denominated bonds. They take
Financial Company over loans from infrastructure projects that have completed one year of commercial
(IDF-NBFC) production under a tripartite agreement.
Non-Banking Financial NBFC-MFIs provide microloans to low-income households. They must have at
Company - Micro least ₹10 crore in net owned funds (NOF) by 2027. At least 85% of their net assets
Finance Institution should be in “qualifying assets”, and loans must be collateral-free and have flexible
(NBFC-MFI) repayment options.
Non-Banking Financial These NBFCs engage in factoring, with at least 50% of their total assets and income
Company – Factors derived from the factoring business.
(NBFC-Factors)
Mortgage Guarantee MGCs are focused on the mortgage guarantee business. At least 90% of their business
Companies (MGC) turnover or gross income must be from mortgage guarantee business, and they must
have net owned funds of ₹100 crore.
NBFC-Non-Operative NOFHCs are financial institutions that hold banks and other financial service
Financial Holding companies regulated by the RBI or other sector regulators. They serve as the promoter
Company (NOFHC) group for new bank establishments.
Systemically Important These NBFCs do not accept public deposits but have total assets of ₹500 crore or
Non-Deposit Taking more, as shown in the last audited balance sheet.
NBFC

2. INCORPORATION OF NBFCS
The enactment of the Companies Act, 2013, has impacted many sectors, including banks and Non-Banking
Financial Companies (NBFCs). However, there have been no significant changes in the process of incorporating
NBFCs under the new Act. NBFCs are established as companies under either the Companies Act, 201,3 or the
Companies Act, 1956.
2.1 PROCEDURE FOR INCORPORATING NBFCS
The procedure to incorporate an NBFC is similar to that of any other company, through the web form SPICE+.
The Memorandum of Association (MOA) must state that the principal business of the company includes lending
credit, making investments, leasing, hire-purchase, insurance business, chit business, and receiving deposits under
any scheme or arrangement.
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2.2 REGISTRATION PROCESS WITH RESERVE BANK OF INDIA (RBI)
Under Section 45-IA of the RBI Act, 1934, an NBFC must fulfill the following conditions to commence its
business:
1. Certificate of Registration: An NBFC must obtain a certificate of registration from the Reserve Bank of
India.
2. Net Owned Fund (NOF): The company must have a net owned fund of ₹25 lakh or more, or such other
amount (not exceeding ₹100 crore) as notified by the RBI.
Exemptions from Registration for Certain Categories of NBFCs
Certain categories of NBFCs, which are regulated by other regulators, are exempt from registering with the RBI.
These include:
) Venture Capital Funds, Merchant Banking companies, and Stock Broking companies registered with SEBI.
) Insurance Companies regulated with the IRDA.
) Nidhi Companies (as per Section 620A of the Companies Act, 1956 and Section 406 of the Companies
Act, 2013).
) Chit companies as defined under the Chit Funds Act, 1982.
) Housing Finance Companies regulated by the National Housing Bank.
) Stock Exchange or Mutual Benefit Companies.

2.3 REGISTRATION PROCEDURE

After the incorporation of the company, the NBFC must obtain the certificate of registration. Before applying for
registration, the company should ensure the following:
1. Director with NBFC Background: At least one director should have a background in NBFC or banking.
2. Clean CIBIL Records: The company must have a clean credit history.
3. Understanding of NBFC/Finance Business: The company should demonstrate its understanding of the
NBFC or finance business.
Once these conditions are met, the company must apply for registration with RBI. The RBI may conduct an
inspection of the company’s books to ensure the following conditions are fulfilled:
1. The company can pay its present or future depositors in full.
2. The company’s operations will not be harmful to the interests of depositors.
3. The company’s management is not detrimental to public or depositor interests.
4. The company has an adequate capital structure and earning prospects.
5. The public interest will be served by granting registration.
6. The grant of registration will not be harmful to monetary stability or economic growth.
Once the RBI is satisfied with the company’s fulfillment of these conditions, it may grant a certificate of registration.
2.4 CANCELLATION OF REGISTRATION
The RBI has the authority to cancel the registration of an NBFC under the following conditions:
1. The company ceases to carry out its business as a non-banking financial institution in India.
2. The company fails to comply with the conditions under which the registration was granted.
3. The company fails to maintain accounts as per RBI regulations or fails to comply with directives from RBI.
4. The company has been prohibited from accepting deposits by RBI, and this order has been in effect for at
least three months.

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Before canceling the registration, the company will be given an opportunity to comply with the regulations. If
the company disagrees with the cancellation or rejection of registration, it can appeal to the Central Government
within 30 days. The Central Government’s decision will be final.
2.5 PROCEDURE FOR FILING AN APPLICATION WITH THE RESERVE BANK OF INDIA
1. The applicant company is required to apply online and submit a physical copy of the application along with
the necessary documents to the Regional Office of the Reserve Bank of India.
2. The application can be submitted online by accessing the RBI’s secured website [Link]
At this stage, the applicant company will not need to log on to the COSMOS application, and hence user IDs
are not required.
3. The company can click on “CLICK” for Company Registration on the login page of the COSMOS
Application. A window showing the Excel application form available for download would be displayed.
The company can then download the suitable application form (i.e,. NBFC or SC/RC) from the website, key
in the data, and upload the application form.
4. The company must indicate the correct name of the Regional Office in the field “C-8” of the “Annex-
Identification Particulars” in the Excel application form. The company would then get a Company Application
Reference Number (CARN) for the CoR application filed online.
5. The company has to submit the hard copy of the application form (indicating the online Company Application
Reference Number) along with the supporting documents to the concerned Regional Office.
6. The company can then check the status of the application from the secure address, by keying in the
acknowledgement number.

2.6 DOCUMENTS REQUIRED FOR REGISTRATION AS TYPE I - NBFC-ND

1. Certified copies of Certificate of Incorporation and Certificate of Commencement of Business (for public
limited companies).
2. Certified copies of the extract of only the main object clause in the MOA related to the financial business.
3. Board resolution stating that:
The company is not carrying on any NBFC activity/stopped NBFC activity, and will not carry on/
commence the same before getting registration from RBI.
The UIBs in the group where the director holdsa substantial interest or otherwise has not accepted any
public deposit in the past/does not hold any public deposit as of the date and will not accept the same in
the future.
The company has formulated the “Fair Practices Code” as per RBI Guidelines.
The company has not accepted public funds in the past/does not hold any public funds as of the date, and
will not accept the same in the future without the approval of the RBI.
The company does not have any customer interface as of date and will not have any customer interface
in the future without the approval of RBI.
4. Copy of Fixed Deposit receipt & banker’s certificate of no lien indicating balances in support of NOF.
5. For companies already in existence, the Audited balance sheet and Profit & Loss account along with
directors’ and auditors’ report or for the entire period the company is in existence, or for the last three years,
whichever is less, should be submitted.
6. Banker’s report in respect of the applicant company, its group/subsidiary/associate/holding company/related
parties, directors of the applicant company having substantial interest in other companies. The Banker’s

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 report should be about the dealings of these entities with these bankers as a depositing entity or a borrowing
entity. The details of deposits and loans balances as on the date of application and the conduct of the account
should be specified.
For different forms of application as applicable to different categories of NBFC’s, please refer to the official
website of the Reserve Bank of India, [Link].

3. HOUSING FINANCE COMPANIES

Housing Finance Company (HFC) is a non-banking financial institution primarily engaged in providing home
loans and related products. Unlike other Non-Banking Financial Companies, which are regulated by the RBI,
HFCs are governed by the National Housing Bank (NHB).
Collateral securities for loans provided by HFCs typically include the property for which the loan is granted,
along with additional collateral if necessary. The amount of the loan is directly linked to the value of the collateral,
ensuring that the lender is protected from the risk of default. As property values are generally less volatile but
can fluctuate over time, HFCs conduct regular property valuations to track changes. This helps maintain an
appropriate Loan-to-Value (LTV) ratio, ensuring that the loan value stays aligned with the current market value
of the property.
HFCs must be registered under the Companies Act, 2013 (or previous enactments) and must operate with the
primary objective of providing housing finance. In addition to registration with the Companies Act, HFCs are
required to register with NHB to commence housing finance business. The National Housing Bank was set up
under the National Housing Bank Act of 1987, and HFCs are regulated by this Act, along with relevant guidelines
and directions from NHB.
3.1 ELIGIBILITY CRITERIA FOR OBTAINING HOUSING FINANCE COMPANY REGISTRATION
Must be an NBFC: The entity must be registered as a Non-Banking Financial Company (NBFC) with the
RBI.

Net Owned Funds: The HFC must have a minimum net owned fund of Rs 20 Crores to qualify for regis-
tration.

Registered under the Companies Act 2013: The company must satisfy the provisions for registration
under the Companies Act 2013 or the Companies Act 1956.

Housing Finance Activities as an Object Clause: The company’s object clause must include the provision
of housing finance and related services.

3.2 DEFINITION OF HOUSING FINANCE COMPANY

(a) It is an NBFC whose financial assets, constitute at least 60% of its total assets.
(b) Out of the total assets, not less than 50% should be by way of housing financing for individuals.

3.3 DEFINITION OF HOUSING FINANCE

“Housing Finance” refers to financing provided for the purchase, construction, reconstruction, renovation, or
repair of residential dwelling units. It includes the following categories:

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 ) Loans to individuals or group of individuals including co-operative societies for construction/ purchase of
new dwelling units.
) Loans to individuals for purchase of plots for construction of residential dwelling units.
) Loans to individuals or group of individuals for renovation/ reconstruction of existing dwelling units.
) Loans to corporates/ Government agencies for employee housing.
) Loans for construction of educational, health, social, cultural or other institutions/ centres, which are part of
housing projects and which are necessary for the development of settlements or township.
) Loans for construction meant for improving the conditions in slum areas.
) Lending to builders for construction of residential dwelling units.

3.4 TRANSITION TIME FOR EXISTING HFCs TO FULFIL THE ASSET BASED CRITERIA
The Revised Framework has allowed a transition time till 31st March 2024 to the existing registered HFCs to
fulfil the asset based criteria:
Timeline Minimum Percentage of Total Assets Minimum Percentage of Total Assets
Towards Housing Finance Towards Housing Finance for Individuals
March 31, 2022 50% 40%
March 31, 2023 55% 45%
March 31, 2024 60% 50%
HFCs unable to fulfil the above criteria as per the timeline shall be treated as NBFC – Investment and Credit
Companies (NBFC-ICC) and they will be required to approach the Reserve Bank for conversion of their Certificate
of Registration from HFC to NBFC-ICC.

3.5 BENEFITS OF INCORPORATING A HOUSING FINANCE COMPANY

) Housing finance creates employment, both directly and indirectly
) Industries such as cement, brick manufacturing, sanitary products, electrical fittings and glass industries
experience more demand due to house construction.
) Rural housing develops not only rural areas but prevents migration of labor to urban areas.
) Helps in creation of more houses which results in building up more infrastructure.

3.6 REGISTRATION PROCESS FOR HOUSING FINANCE COMPANIES

) Applicant has to download the application form for Housing Finance company registration from the website
[Link].
) All the documents must be attached. The demand draft in favour of the NHB also must be attached. This
must be submitted in the Head Office of the NHB.
) The NBH would check the authenticity of the application. If the documents provided are sufficient then the
NBH would go ahead and register the housing finance company.
) NHB after satisfying itself may grant a Certificate of Registration
HFC is or shall be in a position to pay its present or future depositors in full;
Affairs of the HFC are not being or are not likely to be conducted in a manner detrimental to the interest
of its present or future depositors;

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 Management or the proposed management of the HFC shall not be prejudicial to the public interest or
to the interests of its depositors;
HFC has adequate capital structure;
Public interest shall be served by the grant of certificate of registration;
Any other condition, fulfilment of which in the opinion of the Reserve Bank, shall be necessary.

3.7 NET OWNED FUND REQUIREMENT

) “Net Owned Fund” means net owned fund as defined under Section 29A of the National Housing Bank
Act, 1987 including paid up preference shares which are compulsorily convertible into equity
) The minimum net owned fund required for an HFC to operate is Rs 20 Crores.
) If an HFC’s net owned fund is below Rs 20 Crores, they must meet the following targets:
Rs 15 Crores by 31st March, 2022
Rs 20 Crores by 31st March, 2023
Failure to meet the prescribed NOF levels will lead to the cancellation of the HFC’s registration, and they will be
required to apply for conversion to an NBFC-ICC.
3.7.1 Paid-Up Equity Capital and Free Reserves After Deducting
) Loss; deferred revenue expenditure, and other intangible assets;
3.7.2 Further Reduced by
) Investments in share of- its subsidiaries;
) Companies in the same group;
) All other housing finance institutions which are companies; and
) Outstanding loans and advances with-subsidiaries of Companies in the same group.
3.8. CONDITIONS TO CANCELLATION OF THE HOUSING FINANCE COMPANY LICENSE
(i) Ceases to carry on the business of financing in India; or
(ii) HFC has not complied;
(iii) To comply with any direction issued by the National Housing Bank
(iv) To maintain accounts
(v) Mandatory to submit its books of accounts;
(vi) Has been prohibited from accepting deposit by an order made by the National Housing Bank and such order
has been in force for a period of not less than 3 months.

4. ASSET RECONSTRUCTION COMPANY (ARC)

4.1 ARC PERFORMS THE FOLLOWING FUNCTIONS
(i) Acquisition of financial assets (as defined u/s 2(L) of SRFAESI Act, 2002)
(ii) Change or takeover of Management/Sale or Lease of Business of the Borrower
(iii) Rescheduling of Debt
(iv) Enforcement of Security Interest
(v) Settlement of dues payable by the borrower

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4.2 ASSET RECONSTRUCTION
) When banks grant loans, advances or are involved in lending, the bank has some right or interest in that
transaction
) When the ARCs take the bad assets, all such rights or interests are also transferred.
) The asset reconstruction company can then realise all such rights and interests.
) The financial assistance that can be over by the asset reconstruction companies is loans, advances, bonds,
guarantees and other credit facilities.

4.3 BENEFITS OF INCORPORATING AN ASSET RECONSTRUCTION COMPANY (ARC)

) Relieving banks of the burden of NPAs will allow them to focus better on managing the core business
including providing new business opportunities for the ARC.
) The banks use it as a method to hive off the bad loans from their balance sheet.
) ARCs also helps building industry expertise in loan resolution.
4.4 ASSET RECONSTRUCTION COMPANY– THE REGISTRATION PROCESS
4.4.1 The Company Must be Registered as a Company Under the Companies Act, 2013
) There should not be any losses in the previous or preceding three financial years.
) The ARC must be able to pay all the periodical returns.
) Directors must have sufficient experience and exposure in matters related to financial affairs
) There must be no criminal convictions against the directors.
) All the key management executives should pass the requirements related to the fit and proper person test.
4.4.2 Documents Required for Registration of an Asset Reconstruction Company
) Certificate of Incorporation of the Company
) Memorandum of Association and Articles of Association of the Company.
) Resolutions stating that the company has not taken or accepted any form of deposits
) Information that the directors are not disqualified.
) Information and profiles related to the sponsors
) Copy of the audited balance sheet.
) Copy of the directors and auditor’s report
) Net Owned Funds of the Company

5. MICRO FINANCE INSTITUTIONS (MFI)

As the name suggests, microfinance institutions are organizations that provide a range of financial services to low-
income populations. These services include deposits, loans, payment solutions, money transfers, and insurance.
At their core, microfinance institutions (MFIs) aim to make financial tools accessible to those who are typically
excluded from the formal banking system.
A microfinance institution functions primarily as a lender and financial service provider to economically
underserved individuals and communities. While nearly all MFIs extend credit to their members, many also offer
additional services such as insurance and deposit facilities. Unlike large commercial banks that target middle- and
high-income segments, MFIs are oriented towards supporting those in the lower income brackets—though not
necessarily the extremely poor.

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Organizations operating on a larger scale, offering financial services and credit to a wide section of the low-
income population, are generally recognized as microfinance institutions. Their services target representatives
of the poor strata of the population, helping them address essential financial needs like starting a small business,
covering medical emergencies, or funding education.
In recent years, a growing number of MFIs have sought recognition as Non-Banking Financial Companies
(NBFCs) from the Reserve Bank of India (RBI). This status enables them to access a wider range of funding
sources, including financing from formal banking channels. The shift toward NBFC status reflects the evolving
and increasingly structured role of MFIs within the Indian financial ecosystem.
The National Bank for Agriculture and Rural Development (NABARD) defines microfinance as “the provision of
thrift, credit, and other financial services and products of very small amounts to the poor in rural, semi-urban, and
urban areas provided to customers to meet their financial needs; with only qualification that (1) the transaction
value is small and (2) the customers are poor.”
Traditional banking institutions in India have historically been reluctant to lend to the poor due to the perceived
risks and the high operational costs associated with such lending. The lack of collateral and formal income
documentation among low-income individuals made it difficult for them to access loans through regular banking
channels. This gap in financial inclusion led to the emergence and growth of microfinance institutions in the country,
which stepped in to provide financial solutions tailored to the needs and realities of underserved communities.
5.1 CHARACTERISTICS OF A MICRO FINANCE INSTITUTION

Microfinance provides financial services to those whose incomes are small, erratic, and often unstable. These
individuals may need credit for various reasons:
(a) Their financial needs are typically small and arise unexpectedly.
(b) They are often unable to provide the collateral demanded by formal financial institutions like banks.
(c) They frequently require funds on an urgent basis for consumption needs such as education, illness, funerals,
and weddings—expenses for which institutional finance is hard to secure.
(d) They may also need funds for investment in small, income-generating activities.
The concept of Self Help Groups (SHGs) has become one of the most transformative developments in Indian
microfinance. SHGs, often linked with banks, have significantly contributed to the empowerment of women and
the reduction of poverty among low-income communities. Through SHGs, microfinance offers a broader range of
options, enabling small loans not only through external lending but also via self-mobilization, savings, and asset
liquidation.
One of the most notable features of microfinance is the flexibility it offers, particularly the absence of physical
collateral, even when loans are extended by banks. The defining characteristics of MFIs can be summarised as
follows:
(i) The loan amounts offered are generally small.
(ii) The repayment periods are short, often weekly or monthly.
(iii) MFIs are able to mobilize resources from both internal (e.g., member savings) and external sources (e.g.,
banks, investors).
(iv) No physical collateral is required for availing of loans.
(v) There is flexibility in how the loans can be used, whether for consumption or investment.
(vi) Loans are often provided to groups, and from there trickle down to individuals within the group.
(vii) Due to the group-lending model, transaction costs are kept low.

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5.2 INCORPORATION OF MFI
To operate as a Micro Finance Institution in India, a company must first be incorporated under the Companies Act,
2013. The company may be established as either a private or public limited company. Following incorporation, the
company must register with the Reserve Bank of India (RBI), which regulates MFIs under the broader category
of Non-Banking Financial Companies (NBFCs).
The following documents must be submitted to the RBI for registration:
1. Certified copies of the Certificate of Incorporation.
2. Certified copies of the main object clause in the Memorandum of Association (MOA) relating to financial
business.
3. A Board resolution declaring:
The company is not currently engaged in any NBFC activity and will not do so without RBI registration.
The company has not accepted any public deposits in the past and will not accept them in the future
without RBI’s prior approval.
The group companies where directors hold substantial interest have not accepted public deposits and
will not do so.
The company has adopted the “Fair Practices Code” as per RBI guidelines.
4. A copy of the fixed deposit receipt and a banker’s certificate of no lien supporting the Net Owned Fund
(NOF) requirement.
5. Audited balance sheets, profit and loss accounts, directors’ and auditors’ reports for the last three years or
the duration of the company’s existence (whichever is less).
6. Copies of the highest educational and professional qualifications of all directors.
7. Copies of experience certificates in the financial services sector, if available, for all directors.
8. Bankers’ reports for the applicant company and its group/associated entities, including details of their
dealings with banks, deposit and loan balances as of the application date, and account conduct.
In addition to the above, for registration as a Non-Deposit Taking NBFC-MFI (Type II), the applicant must also
submit:
(i) A Board resolution stating that:
The company will become a member of all Credit Information Companies and at least one Self-
Regulatory Organisation (SRO).
It will comply with RBI regulations concerning credit pricing, fair lending practices, and non-coercive
recovery methods.
It has established internal exposure limits to avoid concentration risk in specific geographic locations.
The company is not licensed under Section 25 of the Companies Act, 1956 or Section 8 of the Companies
Act, 2013.
(ii) A detailed roadmap for achieving at least 85% qualifying assets.
Microfinance has evolved in response to a growing global awareness of the need to empower the poor and
promote inclusive development. In the context of development, it is now seen as a crucial policy tool to reach
target groups traditionally neglected by mainstream finance—especially women, rural populations, and the
economically deprived. In recent years, microfinance has proven to be one of the most effective methods of using
limited development funds to alleviate poverty and promote self-sufficiency.

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 6. NIDHI
Nidhi Companies, originating as “Mutual Benefit Funds”, have a long history in India, even before the enactment
of the Companies Act, 1956. These institutions are part of the non-banking financial sector and are formally
recognized under Section 406 of the Companies Act, 2013. The primary business of a Nidhi company is the
mutual borrowing and lending of money among its members. Due to their mutual benefit structure, Nidhis are
also referred to as Permanent Funds, Benefit Funds, or Mutual Benefit Companies.
Nidhis are registered under the Companies Act, 2013 (or earlier enactments) and are regulated by the Ministry
of Corporate Affairs (MCA), not the Reserve Bank of India. They are most commonly found in South India
and typically operate as highly localized, single-office institutions. Their operations are limited exclusively to
their members, and membership is restricted to individuals. The main source of funds for these companies is the
contribution from their members, and the loans extended are usually for personal needs such as house construction
or repair, generally against secure collateral. When compared to formal banks, the volume of deposits handled by
Nidhis is relatively small.
Nidhi Companies are governed by the Nidhi Rules, 2014. Since they are incorporated as public limited companies,
they must comply with the regulations applicable to public companies under the Companies Act, 2013, in addition
to the Nidhi Rules. However, RBI has exempted them from complying with its core NBFC provisions, including
registration, due to their limited and mutual membership structure. Further, certain provisions of the Companies
Act, 2013 are also relaxed for Nidhis, as detailed in a notification issued by the Ministry of Corporate Affairs
(Notification F. No. 2/11/2014-CL.V dated June 5, 2015).
On April 19, 2022, the Ministry of Corporate Affairs introduced tighter compliance norms for Nidhi Companies.
A public company established as a Nidhi with a share capital of ₹10 lakhs must now apply for recognition as a
Nidhi from the central government. This application must be filed within 120 days of incorporation, accompanied
by evidence of a minimum of 200 members (individuals only) and net owned funds of ₹20 lakhs.
Additionally, promoters and directors are required to meet the “fit and proper” criteria as specified in the rules. To
ensure timely processing, the rules now incorporate a deemed approval provision: if the central government does
not respond within 45 days of the application, approval will be considered as granted.
6.1 CHARACTERISTICS OF A NIDHI COMPANY
1. Nidhis are allowed to conduct business only with their members. Individuals who wish to deposit or borrow
must first become members by subscribing to at least 10 equity shares or shares worth a minimum of ₹100.
2. Nidhis are not permitted to issue preference shares but can issue equity shares as per regulations.
3. While they can open branches in accordance with Rule 10 of the Nidhi Rules, 2014, their operations are not
national in scope and are typically confined to localized areas.
4. They must be incorporated as public companies and have a minimum paid-up equity share capital of
₹10,00,000.
5. Loans may only be extended to members and must be fully secured.
6. A director of a Nidhi must be a member and can hold office for a maximum of 10 consecutive years on the
board.
7. Nidhis may declare dividends up to 25%. Any declaration above this limit requires specific approval from
the Regional Director.
8. They must follow prudential norms concerning revenue recognition and classification of assets, especially
in cases of mortgage or jewel loans, as specified in Rule 20 of the Nidhi Rules, 2014.

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6.2 GENERAL RESTRICTIONS OR PROHIBITIONS ON NIDHIS (RULE 6)
Nidhi Companies are subject to several prohibitions to ensure they maintain their mutual benefit character:
) They cannot engage in the business of chit funds, hire-purchase financing, leasing, insurance, or in acquiring
securities of other companies.
) They cannot issue preference shares, debentures, or any other form of debt instrument.
) They are not permitted to open current accounts for members.
) They cannot acquire other companies or alter the composition of the board of another company, unless
approved by a special resolution and the Regional Director.
) They must restrict their activities solely to borrowing and lending in their own name. However, locker
facilities may be provided on rent to members, subject to the condition that such income does not exceed
20% of the Nidhi’s gross income in a financial year.
) They are prohibited from accepting deposits from or lending to non-members.
) They cannot pledge assets received from members as security.
) They cannot accept deposits from or lend money to any corporate entity.
) They are not allowed to enter into partnership arrangements for borrowing or lending.
) They cannot advertise to solicit deposits.
) Private circulation of deposit schemes among members is allowed but must include the statement “for
private circulation to members only.”
) They are not allowed to pay any brokerage or incentive for mobilising deposits or for granting loans.

6.3 BENEFITS OF INCORPORATING A NIDHI COMPANY

1. Nidhis help mobilize small savings, particularly among the middle class, and provide easy access to loans for
urgent needs. The loan disbursement process is generally fast due to their localized structure and familiarity
with members.
2. Loan repayment is often guaranteed, not only because the loans are secured but also due to peer pressure
among the member community, which ensures timely repayment.
3. Nidhis offer attractive interest rates on deposits, which can be especially beneficial for senior citizens
seeking better returns on their savings.
4. The Board of Directors usually comprises experienced and socially respected individuals. Their presence
instills trust and enhances the credibility of the institution among both borrowers and depositors.

6.4 INCORPORATION OF A NIDHI COMPANY

To incorporate a Nidhi Company, the standard procedure for a public limited company must be followed, including
obtaining name availability, filing the Memorandum and Articles of Association, and submitting statutory
documents to the Registrar of Companies. Special attention must be given while drafting the Objects Clause
in the Memorandum of Association, which must specifically promote thrift and savings among members and
conduct activities permitted under relevant laws.
) The name of the company must end with “Nidhi Limited” to comply with regulatory norms.
) Following the commencement of the Nidhi (Amendment) Rules, 2022, any public company intending
to be recognized as a Nidhi must apply for official recognition within 120 days of incorporation by filing
Form NDH-4.

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 ) The company must have at least 200 members and ₹20 lakh in Net Owned Funds (NOF) to be eligible
for recognition as a Nidhi.
The application must include a declaration confirming that all promoters and directors satisfy the ‘fit and proper
person’ criteria. The assessment of whether a person is ‘fit and proper’ is based on their integrity, honesty,
ethical behaviour, reputation, fairness, and character, and the absence of the following disqualifications:
(i) A pending criminal complaint or First Information Report (FIR) filed under Section 154 of the Code of
Criminal Procedure, 1973, by a person authorised by the Central Government.
(ii) A pending charge sheet filed by an enforcement agency in relation to economic offences.
(iii) Any ongoing order of restraint, prohibition, or debarment issued by a regulatory authority or enforcement
agency concerning company law, securities laws, or financial markets.
(iv) A conviction by a court for any offence involving moral turpitude.
(v) Being declared insolvent and not yet discharged.
(vi) Being declared of unsound mind by a court of competent jurisdiction.
(vii) Being categorised as a wilful defaulter.
(viii) Being declared a fugitive economic offender.
(ix) Holding the position of director in five or more Nidhi companies, or acting as promoter of three or more
Nidhi companies.
Once the Form NDH-4 is submitted, the Central Government is required to examine the application and convey
its decision within 45 days. If no decision is communicated within that period, the application shall be deemed
approved.
Upon satisfaction that all requirements have been met, the Central Government shall notify the company in the
Official Gazette, declaring it as a Nidhi or Mutual Benefit Society, as applicable. The company is required to file
the Central Government’s approval with the Registrar of Companies. It is important to note that such a company
is not permitted to commence business until the approval is obtained and submitted, in accordance with Rule 12
of the Companies (Incorporation) Rules, 2014.
If a company fails to comply with the eligibility criteria mentioned above (such as not having 200 members or the
required net owned funds), it shall be restricted from filing:
) Form SH-7 (Notice to Registrar of any alteration of share capital)
) Form PAS-3 (Return of Allotment)
It is also clarified that the provisions introduced under the Nidhi (Amendment) Rules, 2022, apply only to public
companies incorporated after the commencement date of these Rules. Public companies incorporated before
that date are not bound by the amended requirements.

7. PAYMENT BANKS
) Payment banks is a new model of banks conceptualised by the Reserve Bank of India (RBI).
) These banks can accept a restricted deposit, which is currently limited to Rupees 1 lakh per customer.
) They can pay interest on these deposits just like savings bank account.
) Payments banks can issue services like ATM cards, debit cards, net-banking, third party transfers and
mobile-banking.
) These banks cannot grant loans or issue credit cards
) The main objective of payments bank is to widen the spread of payment and financial services to small
business, low-income households.

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7.1 CHARACTERSTICS OF PAYMENT BANK
) Capital Funds of Rs. 100 crores
) To be registered as a public limited company.
) Payment Banks cannot form subsidiaries.
) For the first five years, the promoters stake to remain at 40% at minimum.
) Foreign shareholding will be allowed.
) If there is any acquisition of more than 5% shares this will require prior RBI approval.
) Initially, the deposits will be capped at Rs. 1,00,000 per customer, but later it may be raised.
) No lending activity is permitted.
) A quarter of its branches should be in unbanked rural areas.
) The voting right of any shareholder is capped at 10%, which can be raised to 26% by Reserve Bank of India.
) The bank must use the term “payments bank” in its name.

8. MUDRA BANKS
The Micro Units Development and Refinance Agency Bank, commonly known as MUDRA Bank, is a public
sector financial institution established by the Government of India. It was formally launched by Prime Minister
Narendra Modi on 8th April 2015 with the aim of providing affordable financial assistance to micro and small
enterprises that are typically excluded from the formal banking system.
MUDRA operates by offering refinance support to banks and microfinance institutions (MFIs), which in
turn provide credit to micro and small enterprises, particularly those falling under the MSME sector (Micro,
Small, and Medium Enterprises). The maximum loan amount under this scheme is up to ₹10 lakh, and support is
extended through the Pradhan Mantri MUDRA Yojana (PMMY).
The bank was created to reach out to the vast number of small entrepreneurs who lack access to traditional financial
institutions. Based on the NSSO survey of 2013, approximately 5.77 crore (57.6 million) small businesses were
identified as target clients for MUDRA. However, only about 4% of these had access to finance from formal
banking channels. The rest depended on informal and often exploitative sources of credit.
MUDRA aims to bridge this gap by ensuring credit is extended responsibly and that borrowers do not fall into
cycles of indebtedness. One of the bank’s strategies to reach underserved segments is through “last mile agents”,
ensuring its services penetrate areas beyond the reach of regular banks. The focus is on young, educated, and
skilled individuals who wish to start or expand a business but lack access to collateral or formal credit history.
8.1 LOAN CATEGORIES UNDER MUDRA
MUDRA classifies borrowers into three categories, depending on the stage and scale of the business. This
categorization helps streamline loan amounts and ensures proper credit assessment:
1. Shishu – For businesses in the early or infant stage.
Loan amount: Up to ₹50,000
2. Kishore – For enterprises that are more established but still require assistance to grow.
Loan amount: From ₹50,001 to ₹5 lakh
3. Tarun – For businesses that are growing or need funds to scale operations.
Loan amount: From ₹5,00,001 to ₹10 lakh
4. Tarun plus – For enterprises that have repaid their earlier Tarun loan (₹5,00,000-10,00,000)
Loan Amount: From ₹10,00,001 to ₹20 lakh

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8.2 ELIGIBILITY CRITERIA
MUDRA loans are available to a wide range of micro-business operators, including:
) Small manufacturing units
) Shopkeepers and traders
) Fruit and vegetable vendors
) Artisans
The minimum age requirement to apply for a MUDRA loan is 18 years. The loan must strictly be used for
business or commercial purposes. It is not available for personal or non-commercial use. For instance, the
purchase of a vehicle is permitted only if it is used for commercial activities such as transport or delivery services.
Additionally, MUDRA loans are primarily intended for new or existing small business owners, aiming to
promote entrepreneurship, generate employment, and contribute to economic development at the grassroots level.
By enabling easier access to formal credit for small entrepreneurs, MUDRA plays a vital role in financial inclusion
and the upliftment of the informal business sector in India.

MUDRA Offerings

Technology Refinance for Micro Units Credit Guarantee Development and

Enabler to Commercial Banks/ for MUDRA Loan Promotional Support
NBFCs/RRBs/SFBs/MFIs (through NCGTC)

Sectoral
Shishu Kishor Tarun Development
[upto Rs. 50,000/-] [Rs. 50,000/- to Rs. 5 lakh] [Rs. 5 lakh to Rs. Financial Literacy
10 lakh] Institution
Development

Tarun Plus (Rs. 10

lakh to Rs. 20 lakh)

8.3 PROCEDURE FOR AVAILING A MUDRA LOAN

The process of securing a loan under the Pradhan Mantri MUDRA Yojana (PMMY) begins when a potential
borrower identifies a viable business idea and prepares a business plan. Once the plan is ready, the applicant must
determine under which of the three MUDRA categories—Shishu, Kishore, or Tarun—the business proposal
falls, based on the scale and funding requirements.
The applicant may then approach the nearest Public Sector Bank, Private Sector Bank, Microfinance Institution
(MFI), or Non-Banking Financial Company (NBFC) that is a participating institution under the MUDRA
scheme. The updated list of participating institutions is available on the official MUDRA portal.
Each partner institution will provide an application form specifically for MUDRA loans. This form must be duly
filled and submitted along with the necessary documentation for loan evaluation. The key documents required
include:
) Proof of Identity: Any government-issued photo ID such as Voter ID, Driving License, PAN Card, Aadhaar
Card, or Passport.

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 ) Proof of Residence: Recent utility bills (telephone, electricity, etc.), property tax receipt (not older than two
months), Aadhaar Card, Voter ID, Passport, domicile certificate, or certificate issued by a local authority.
) Recent Photograph: One passport-size photograph (not older than six months).
) Business Quotations: For machinery or other equipment to be purchased.
) Supplier Details: Name, specifications, and price of machinery or goods to be acquired.
) Business Identity Proof: Licenses or certificates confirming the existence and address of the business.
) Proof of Social Category: For applicants belonging to SC, ST, OBC, or Minority communities, as applicable.
While this list covers the standard documents, banks may request additional information or documents
depending on internal policies.
Importantly, no collateral security is required, and no processing fees are charged under the MUDRA scheme.
The repayment period for the loans may extend up to five years, providing flexibility for micro-entrepreneurs.
However, a key condition is that applicants must not be defaulters with any bank or financial institution.
It is essential to clarify that MUDRA is not a separate bank like the State Bank of India or the Bank of Baroda. It
operates as a refinancing agency, working through a network of banks, NBFCs, MFIs, and other intermediaries.
These institutions lend directly to eligible borrowers and in turn receive refinance support from MUDRA.
The rate of interest on MUDRA loans is determined by the lending institutions based on RBI guidelines and
varies depending on the borrower’s profile and the nature of the loan.
8.4 PURPOSE AND COVERAGE OF MUDRA LOANS
MUDRA loans are primarily extended to encourage income-generating and employment-creating activities in
the micro-enterprise segment. These loans may be utilized for a wide range of purposes, including:
) Business loans for vendors, traders, shopkeepers, and other service-based enterprises
) Working capital loans through MUDRA Cards
) Equipment finance for setting up micro units
) Transport vehicle loans for commercial use only
) Loans for non-farm income-generating activities allied to agriculture, such as pisciculture or poultry
farming
Some of the key sectors and activities covered under MUDRA loans are:
1. Transport Sector
Financing for the purchase of auto rickshaws, taxis, goods vehicles, e-rickshaws, and other commercial
transport vehicles. This also includes tractors, power tillers, and two-wheelers used exclusively for
commercial purposes.
2. Community, Social & Personal Service Activities
Businesses like salons, beauty parlours, tailoring shops, dry cleaning, repair services, gyms, medicine shops,
courier agencies, DTP and photocopy shops, etc.
3. Food Products Sector
Activities such as making pickles, jams, sweets, biscuits, and bread, as well as cold storage units, ice-
making, and food stalls or catering services.
4. Textile Sector
Involves traditional and modern textile activities like handloom and power loom work, khadi production,
embroidery, dyeing, knitting, and garment design. It also includes production of textile-based accessories
and decorative items.

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 5. Trading and Shopkeeping
Financing for small traders and shopkeepers engaged in retail or wholesale business, including trading and
service enterprises.
6. Equipment Finance
Loans for purchasing machinery or tools needed to start or expand a small business or enterprise.
7. Activities Allied to Agriculture
This includes pisciculture, bee keeping, poultry, livestock rearing, dairy, fishery, food processing, grading
and packaging of produce, and other agri-businesses. It is important to note that crop loans and land
improvement loans (like for irrigation or wells) are not eligible under this scheme.
Through its broad coverage and simplified procedures, the MUDRA scheme plays a critical role in promoting
financial inclusion, fostering entrepreneurship, and enabling livelihood generation among India’s micro and
small entrepreneurs.
8.5 MUDRA CARD AND TYPES OF FUNDING SUPPORT
A key feature of the Pradhan Mantri MUDRA Yojana (PMMY) is the MUDRA Card, which offers borrowers
a flexible and efficient way to manage the working capital portion of their MUDRA loan.
The MUDRA Card is essentially a RuPay debit card issued against the borrower’s MUDRA loan account. It
enables multiple drawals and repayments, helping the borrower access only as much as is required at any given
time. This reduces the interest burden, since interest is charged only on the amount actually utilized. It functions
like an overdraft facility, ensuring that the borrower does not have to take the entire loan upfront, but can draw
funds in phases according to business needs.
Moreover, the MUDRA Card supports the digitization of microfinance, allowing borrowers to transact
electronically. It also helps build a credit history, which is important for accessing formal credit in the future.
The card can be used nationwide at ATMs, micro ATMs, and Point of Sale (PoS) terminals to withdraw cash or
make payments.
8.6 TYPES OF FUNDING SUPPORT UNDER MUDRA
The Micro Units Development and Refinance Agency (MUDRA) provides funding support through the
following four key schemes:
1. Micro Credit Scheme (MCS)
This scheme caters to small-scale borrowers needing loans up to Rs. 1 lakh, and is implemented through
Micro Finance Institutions (MFIs). The loans are targeted at individuals engaged in income-generating
micro-enterprise activities, often delivered through collective lending models such as Self Help Groups
(SHGs) and Joint Liability Groups (JLGs).
While the loan is issued in a group setting, the end use is individual-specific, ensuring that each borrower
uses the credit for a defined enterprise or livelihood activity. MFIs must enroll with MUDRA and meet
specific eligibility conditions to avail of financial support under this scheme.
2. Refinance Scheme for Banks
MUDRA provides refinance assistance to Commercial Banks, Regional Rural Banks (RRBs), and
Scheduled Co-operative Banks that extend loans to micro and small enterprises.
Refinance is available for both term loans and working capital loans, for amounts up to Rs. 10 lakh per
borrowing unit. The refinance facility is extended for loans under all three categories—Shishu, Kishore,
and Tarun.
To access this support, banks must comply with MUDRA’s enrolment requirements.

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 3. Women Enterprise Programme
In an effort to foster women’s entrepreneurship, MUDRA encourages banks and MFIs to offer special
incentives and benefits to women borrowers.
These may include interest concessions, extended repayment terms, and relaxed eligibility criteria. MUDRA
itself offers a 25 basis point (0.25%) reduction in interest rates to MFIs and NBFCs that extend credit to
women entrepreneurs.
This programme supports the broader goal of financial inclusion and economic empowerment of women.
4. Securitization of Loan Portfolio
MUDRA also supports banks, NBFCs, and MFIs in raising capital by participating in the securitization of
their microloan assets.
Under this model, MUDRA offers:
Second loss default guarantees, which enhance creditworthiness and reduce risk for investors;
Investment in Pass Through Certificates (PTCs)—financial instruments representing a share in a pool
of securitized microloans.
 MUDRA may participate either as a senior or junior investor, depending on the structure of the
securitization deal.
Through this multi-pronged approach—direct lending, refinance support, interest incentives, and securitization
participation—MUDRA aims to build a sustainable ecosystem for micro-entrepreneurs and facilitate inclusive
economic growth across India.

9. CHIT FUND
) 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, a specific number of investors invest their money with a promise that their investment will be
multiplied within a short span of time with surety and guaranteed return.
) A chit fund works in such a manner which comprises a group of members, called subscribers. An organizer,
brings the group together and administers the activities of the group.

9.1 FEATURES OF CHIT FUNDS

1. They have a predetermined value and duration
2. They work like microfinance institutions
3. They cater to the financial needs of low income households
4. They allow the deposits made by the contributors to be turned into a lump sum. This is done by three
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.
5. Offer loan at a lower interest rate than moneylenders
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.

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Key Points of the Act
) The Act states that all registered chit funds should contain either of the words “chit fund”, “chitty”, or
“Kuri” as part of their name.
) Registered chit funds are not allowed to conduct any business other than chit businesses.
) The foreman is allowed to start or run several chits simultaneously
) It prohibits every kind of fund that does not have prior permission of the respective state government.
) All Chit funds registered under this Act needs to have its accounts audited by a qualified Chartered
Accountant.

9.2 TYPES OF CHIT FUNDS

Organized A common type of chit fund is where small paper chits with each member’s names are gathered
Chit in a box. When all the members come together for a monthly gathering, the person who is in
Funds charge in front of all the present members picks a chit from the box. The member so selected
gets to take home the day’s collection. Afterwards, that person’s chit is removed from the box.

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

Online Chit
Online chit funds are conducted online, and contributors can make their monthly contributions
Funds
and receive the prize through online transactions.

Registered
Registered chit funds are those funds which are registered with the state government under
Chit Funds
the Chit Funds Act, 1982.

Unregistered
Unregistered funds are those which are not registered with any state government. They are
Chit Funds
not regulated under any law.

9.3 REGISTRATION OF CHIT FUNDS

) Chit fund companies are the 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, first incorporate a Private Limited Company with the objective of operating
a chit fund business.
) The company then applies with the appropriate Chit Fund Registrar of the State to obtain the registration for
operating a Chit fund company.

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9.4 THE REGISTRATION WILL NOT BE GIVEN TO
1. Any individual or entity convicted of any offence under the Chit Fund Act.
2. Any individual or entity who had defaulted in payment of the fees or the filing of any statement.
3. Any individual or entity had been convicted of any offence that involves moral turpitude and had been
sentenced to imprisonment for any such offence unless a period of five years has elapsed since his/her
release.
9.5 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.
) The maximum discount that could be taken in a bid was restricted to 40% (in the case of a chit for Rs. 1 lakh,
not more than Rs. 40,000/- can be the bid amount).
) It is mandatory to keep one month’s chit amount of all the subscribers/members with the Reserve Bank of
India till the end of a particular chit.

Previous Year Questions

1. Resilience Asset Reconstruction Company (RARC) emerged in response to the growing crisis of non-
performing assets (NPAs) in the Indian banking sector by offering innovative solutions for asset recovery
and management. How does RARC contribute to improving the financial health of banks?
 Dec. 2024 (3 Marks)
2. Chitra Chit Fund Company, established in 2015, operates in a small town in India, providing a platform for
local residents to save and borrow money through a traditional chit fund system. With a growing customer
base, the company aims to expand its operations while ensuring compliance with regulatory requirements.
What are the restrictions imposed by the RBI on chit fund companies like Chitra Chit Fund Company.
Prepare a note on ‘Infrastructure Debt Fund: Non-Banking Financial Company (IDF-NBFC).
 Dec. 2024 (3 Marks)
Hints:
Only registered companies can run chit funds
Must register with state registrar
Max bid discount: 40%
Submit chit and subscriber details to RBI
Deposit one month’s chit amount with RBI
3. OTM Financial Services Limited got the license to operate the Payment Bank in India from RBI. As
per the terms of the license, where compliances including KYC verification are required to be complied
with strictly from time to time. OTM Financial Services Limited made various non-compliances and
accordingly lot of restrictions and penalties were imposed by RBI. Thereafter, RBI approved a Scheme by
which the payment bank may be transferred to any Public Sector Undertaking (PSU). A leading PSU in
financial sector is interested to acquire the business of OTM Financial Services Limited. Before making
any offer, the Management of the Bank requires the check points to be considered as other terms and
condition for running the business of payment bank. Prepare a note. June 2024 (5 Marks)
Hints:
Payment Banks cannot form subsidiaries.
For the first five years, the promoters stake to remain at 40% at minimum.

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 Foreign shareholding will be allowed in these banks as per extant FDI norms.
The voting rights will be regulated as per provisions of The Banking Regulation Act 1949. [Voting rights
are restricted at 10% for any one share holder. RBI has the discretion to raise this to 26% on merits.
4. A group of residents in a housing complex in Delhi who have recently taken possession of their homes
from the builder and are dissatisfied with the poor maintenance of the complex by the builder. They wish
to create a legal entity specifically for the maintenance of the housing complex. What kind of legal entity
would be best suited for them and what are the basic requirements for the creation of such an entity ?
 June 2024 (3 Marks)
Hints:
The residents of the housing complex can form a ‘Resident Welfare Association’ (RWA) or ‘Apartment
Owners Association’ (AOA), which are types of legal entities that are best suited for their needs. These
entities are designed to ensure proper maintenance and administration of the society.
The basic requirements for the formation of an RWA or AOA are as follows:
Membership: All the residents of the society can become members of the association.
Management Committee: A management committee needs to be formed which includes positions
like President, Secretary, and Treasurer.
Registration: The association needs to be registered under the Societies Registration Act, 1860 or
under the Delhi state’s Apartment Ownership Act or Housing Cooperative Society.
Bye-Laws: The association should have its own bye-laws which govern the functioning of the
association. These bye-laws should be in compliance with the Societies Registration Act, 1860 or the
Delhi State’s Apartment Ownership Act.
Meetings: Regular meetings of the members and the management committee should be held as per the
bye-laws of the association.
5. Enumerate the specific laws and regulations that are applicable to “Housing Finance Companies” in India.
 June 2024 (3 Marks)
Hints:
Housing Finance Companies (HFCs) in India are governed by a specific set of laws and regulations which
are as follows:
1. National Housing Bank Act, 1987;
2. The Housing Finance Companies (NHB) Directions, 2010;
3. Guidelines on Know your Customer and Anti-Money Laundering Measures;
4. Guidelines for Asset Liability Management System in Housing Finance Companies;
5. Housing Finance Companies- Issuance of Non-convertible Debentures on private placement basis
(NHB) Directions, 2014;
6. Housing Finance Companies - Corporate Governance (National Housing Bank) Directions, 2016;
7. Housing Finance Companies - Auditor’s Report (National Housing Bank) Directions, 2016;
8. Guidelines on Fair Practices Code for Housing Finance Companies;
9. Guidelines on Reporting art Monitoring of Frauds in Housing Finance Companies;
10. Information Technology Framework for HFCs - Guidelines;
11. Pension Fund Regulatory and Development Authority (Point of Presence) Regulations, 2018;
12. Pension Fund Regulatory and Development Authority (Redressal of Subscriber Grievance)
Regulations 2015;
13. Master Direction - Non-Banking Financial Company - Housing Finance Company (Reserve Bank
Directions,

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 6. Durgesh is working as a driver in a cab provider company. One day, a passenger advised him that he can
own a car by availing financial assistance under Pradhan Mantri Mudra Yojna (PMMY). He seeks your
advice regarding the procedure for availing the Transport Vehicle Loan for commercial use from MUDRA
Bank. Advise Durgesh. June 2023 (5 marks)
Hints:
Scheme Name: Pradhan Mantri Mudra Yojana (PMMY) Purpose: Financial support for income-
generating activities, including purchase of commercial transport vehicles
Loan Category: Kishore (₹50,001–₹5 lakh) or Tarun (₹5 lakh–₹10 lakh) depending on vehicle cost
Eligible Institutions: Public/Private Banks, RRBs, MFIs, NBFCs registered as Member Lending
Institutions (MLIs) under PMMY
Documents Required:
 Identity and address proof
 Driving license and transport permit (if applicable)
 Quotation for vehicle
 Income proof or bank statement
Loan Features:
 No collateral required
 Interest rates as per RBI norms
 Repayment tenure up to 5 years
 Credit guarantee under CGFMU
Outcome: Enables self-employment, improves financial independence, and supports formalization of
transport services
7. State the chvumstances under which the Reserve Bank of India may cancel the certificate of registration
granted to a Non-Banking Financial Company (NBFC). June 2023 (4 Marks)
Hints:
Ceased NBFC operations
Violated registration conditions
Inadequate capital or earnings
Disobeyed RBI directions
Faulty account maintenance
Denied inspection access
Deposit ban over 3 months
Hearing opportunity before cancellation
8. Explain the procedure for registration of Asset Reconstruction Company (ARC). June 2023 (4 Marks)
Hints: Incorporate under Companies Act
Register with RBI
Follow 2003 RBI Guidelines
Apply under SARFAESI Act
Submit documents to RBI
Get RBI registration certificate
Start business within 6 months

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 RBI may extend by 12 months
Can conduct securitization, reconstruction
RBI Act Sections 45-IA/IB/IC not applicable.
9. Differentiate between Asset Finance and Infrastructure Finance Company. June 2023 (3 Marks)
Asset Finance Company (AFC): An AFC is a company which is a financial institution carrying on as its
principal business the financing of physical assets which supports productive or economic activity of the
organization to be financed.
Such type of NBFC may finance large number of assets such as–
Automobiles
Tractors,
Lathe machines,
Generator sets.
Earth moving and material handling equipments,
Moving on own power and
General purpose industrial machines.
Principal business for this purpose is defined as aggregate of financing real or physical assets supporting
economic activity and income arising there from is not less than 60% of its total assets and total income
respectively.
Asset finance company can either be deposit-taking or non-deposit taking.
Infrastructure Finance Company: IFC is a non-banking finance company means non-deposit taking
NBFC that fulfils the following criteria:
(a) Which deploys at least 75% of its total assets in infrastructure loans
(b) Minimum Net Owned Funds of 300 Crore
(c) Minimum credit rating of ‘A’ or equivalent
(d) CRAR of 15% (with a minimum Tier-I capital of 10%). [CRAR means capital to risk weighted assets
ratio]
10. ARCs can maximize recovery value with minimum cost. Explain the benefits of incorporating an Asset
Reconstruction Company (ARC). Dec. 2022 (4 Marks)
Hints:
Asset Reconstruction Company (ARC)
Origin: Proposed by Narasimhan Committee (1997) to resolve NPAs via Asset Recovery Fund.
Legal Basis: Registered under Section 3 of SARFAESI Act, 2002; regulated by RBI as NBFC.
Purpose: Institutional mechanism to resolve NPAs by isolating bad loans and developing a market for
distressed assets.
Functions:
 Acquisition of financial assets from banks/FIs
 Management change or business takeover
 Debt rescheduling
 Enforcement of security interest
 Settlement of borrower dues

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 Benefits:
Frees banks from recovery burden
Improves financial health and investor confidence
Maximizes recovery at minimal cost
Builds expertise in resolution and restructuring
Catalyzes legal reform in bankruptcy and recovery
Supports capital market development via secondary asset instruments
11. Is the procedure for incorporation housing finance company is same as ay other Company? Elucidate.
 Dec. 2022 (4 Marks)
Hints:
Registration under the Companies Act, 2013: The procedure for incorporating Housing Finance
Company (HFC) is the same as any other company. While registering under the Companies Act, 2013,
principal business, to be stated in the MOA, shall be providing finance for housing and related matters.
Registration under the National Housing Bank Act, 1987: After registering a company under the
Companies Act, 2013 registration process under the National Housing Bank Act, 1987 will have to be
taken.
Objects & net owned fund:
(i) Housing Finance Company should primarily transacts or has as one of its principal objects of
transacting the business of providing finance for housing, whether directly or indirectly.
(ii) Housing Finance Company should have a minimum net owned fund of 20 Crore.
Conditions for registration: NHB after satisfying itself on the fulfilment of following conditions provided
under section 29A(4) of the National Housing Bank Act, 1987 may grant a Certificate of Registration:
HFC is or shall be in a position to pay its present or future depositors in full as and when their claims
accrue.
Affairs of the HFC are not being or are not likely to be conducted in a manner detrimental to the
interest of its present or future depositors.
General character of the management or the proposed management of the HFC shall not be prejudicial
to the public interest or to the interests of its depositors.
12. Define the term ‘Net Owned Fund’. Dec.2020 (4 Marks)
Hints:
Defined under Section 45-IA of the RBI Act, 1934 Used to assess financial strength of NBFCs, Nidhi
Companies, ARCs, etc.
Required for registration, licensing, and regulatory compliance
) Formula:
NOF = (Paid-up Equity Capital + Free Reserves) − (Accumulated Losses + Deferred Revenue
Expenditure + Intangible Assets) − Excess Investment in Group Entities
) Key Components:
Included:
 Paid-up equity share capital
 Free reserves (excluding revaluation reserves)

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139
 Excluded:
 Accumulated losses
 Deferred revenue expenditure
 Intangible assets (e.g., goodwill, trademarks)
Further deductions:
Investments in shares, debentures, loans, or advances to subsidiaries/group NBFCs
Only if such exposure exceeds 10% of NOF
) Minimum NOF Requirements:
NBFC-ICC/NBFC-MFI / NBFC-Factor: ₹10 crore
NBFC-P2P/NBFC-AA: ₹2 crore
NBFC-IFC/IDF-NBFC: ₹300 crore
Nidhi Company: ₹20 lakh (with 1:20 NOF-to-deposit ratio)

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 CHAPTER SBIL

9 BUSINESS COLLABORATION

1. INTRODUCTION
Collaboration occurs when two or more entities work together through the sharing of ideas and collective thinking
to achieve a common goal. Collaboration provides solutions, gives a strong sense of purpose, and also reinforces
the objectives of coming together.

2. TYPES OF BUSINESS COLLABORATION

When the businesses in the same set of functional area agree to collaborate in a way
Horizontal to improve their competencies is known as Horizontal Collaboration. For example:
Collaboration: conducting research toward new or improved products and services requires monetary
investment, time, and worker capacity.

Vertical Collaboration is a collaboration wherein a business collaborates with companies

in its supply chain, either upward (suppliers) or downward (distributors), to minimize
Vertical
risk and obtain lower prices in exchange for a long-term commitment. For example:
Collaboration:
Computers shipping with pre-installed third-party software, fast food chain collaborating
with a food packaging supplier, etc.

Businesses from different functional areas share their knowledge for advancement
Intersectional
of all partners in the collaboration. This can include Manufacturing and Marketing
Collaboration:
collaborations, referral rewards, and tie-ups.

Joint Venture (JV) is when two or more businesses form a new company with profits
Joint Venture: split according to a formal contract. For example: One party in the JV provides technical
support and another party provides manufacturing and marketing arrangements.

Company acquires a minor equity stake in another business in exchange for a monetary
Equity: investment. Such exchanges can accompany other types of collaboration and may involve
access to decision making. For example: Funding to start-ups on equity basis.

3. FOREIGN COLLABORATION (FC)

) The collaborating entities prepare a preliminary agreement that details the contributions of each entity,
including financial, technological, mechanical, management consultancy, labor, raw materials, and other
relevant resources.
 ) After obtaining the necessary permission, an individual representative of a resident or non-resident entity
signs this preliminary agreement. Thereafter, a contract is executed, and foreign collaboration is established.
A contract is a legally enforceable agreement.
) After establishing foreign collaboration, resident and non-resident entities start business together in the
domestic country.
) Profit-sharing ratio and tenure of the collaboration are specified in the written contract.
Examples: ICICI Lombard GIC (General Insurance Company) Limited is a financial FC between ICICI Bank
Ltd., India, and Fairfax Financial Holdings Ltd., Canada.
3.1 FEATURES OF FOREIGN COLLABORATION
1. Initiation of foreign collaboration: FC is initiated at the government and/or corporate level. At the
governmental level, foreign countries and domestic governments collaborate. Similarly, at the corporate
level, FC, private or public companies from foreign countries and domestic countries collaborate.
2. Type of partnership: FC is a type of partnership between a domestic entity and a foreign-based entity,
where the foreign entity generally provides support for finance, technology, engineering, management, etc.,
and the domestic entity provides cheap labour, high-quality raw materials, land, and so on.
3. Benefits to developing countries: The benefits of FC to developing countries include access to finance,
technology, and expertise, as well as accelerated economic growth.
4. Benefits to developed countries: The benefits of FC to a developed country include good returns on
investment and a good reputation for providing financial and technical assistance.
5. Requires Government Approval: Before initiating FC, the collaborating entities must obtain permission
from the government of the domestic country. The government approves only when the contract complies
with the industrial and foreign policies.
6. Miscellaneous features: Miscellaneous features of FC include reducing unemployment, improving
infrastructure, increasing government revenue, and aiding economic growth.

3.2 OBJECTIVES OF FOREIGN COLLABORATION

The main intention/ prime goal or objective of foreign collaboration is to:
) Improve the financial growth of the collaborating entities.
) Occupy a major market share for the collaborating entities.
) Reduce the higher operating cost of a non-resident entity.
) Make optimum and effective use of the resources available in the resident entity’s country.
) Generate employment in the resident entity’s country.

3.3 TYPES OF FOREIGN COLLABORATION

(a) Financial collaboration
(i) Purchasing ownership shares: In this scenario, foreign companies acquire ownership shares in a
domestic company, and in return, receive dividends on these shares.
(ii) Giving long-term loans: Here, foreign companies provide long-term loans to the domestic company
and, in return, get interest from these loans.
(iii) Giving credit facility: Here, foreign companies give credit facilities to the domestic (native) company.
The native company uses this credit facility to purchase raw materials, plant, and machinery.

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(b) Technical collaboration
In case of technical collaboration, the inflow of foreign technology takes place in the domestic (host) country.
(c) Marketing collaboration:
The inflow of foreign goods and services takes place in the domestic (host) country. The foreign company
sells these goods in its own country and/or in the international market.
(d) Management consultancy collaboration
In management consultancy collaboration, a foreign company provides management skills to the domestic
company and teaches it everything about management.

4. JOINT VENTURE
A joint venture can be defined as “an enterprise in which two or more investors share ownership and control over
property rights and operation.
Examples: Indian Oil Skytanking Ltd. (between Holders -Ruchi Soya and Indian Oil), Ratnagiri Gas & Power
Private Ltd. (between NTPC Ltd. and GAIL India Ltd..),
4.1 MNCS IN DIFFERENT FORMS, INCLUDING JOINT VENTURES

Subsidaries

Branches Joint Ventures

Turn-key
Franchising
Project

4.2 ADVANTAGES OF FORMING A JOINT VENTURE

) Risk Sharing: Risk sharing is one of the biggest advantages of forming a Joint Venture, particularly in those
industries where the cost of product development and the likelihood of failure of any particular product is
very high.
) Economies of Scale: A JV with a larger company can provide the economies of scale necessary to compete
locally or globally, and be an effective way by which two companies can pool resources and achieve critical
mass.
) Market Access: This is important to a company because creating new distribution channels and identifying
new customer bases can be extremely difficult, time-consuming, and expensive activities.
) Exploring the Global Market: The Formation of a JV can be advantageous to those companies that foresee
attractive opportunities in a foreign market.
) Easy acquisition of another 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.
) Cost Efficiency: For a small-scale company/ entity, sometimes it is difficult to set up the infrastructure
and the machinery required for product development. For example, if a company has a plan for the perfect

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 product, but due to financial shortage, there is not enough machinery or resources available. At such a time,
if another company, which is equipped, lends a hand in the form of a joint venture, by way of resource
sharing and cost sharing, it becomes easier to produce.
) Flexible nature: The joint ventures offer flexibility; each participant has the freedom to continue with their
businesses. The joint venture participants can only interfere with the participating project.

4.3 DISADVANTAGES OF JOINT VENTURE

) Lack of equal involvement: Equal involvement from all the joint venture partners may not be possible. It is
extremely unlikely for all the companies working together to share the same involvement and responsibilities.
) Cultural Differences: Different cultures and management styles may result in poor co-operation and
integration. People with different beliefs, tastes, and preferences can create hurdles.
) Extensive research and planning are required: A joint venture can result in a frustrating experience and
ultimately a failure if it lacks adequate planning and research.
) Lack of clear communication: A joint venture involves different companies from different backgrounds or
industries with different goals; there is often a severe lack of communication between partners.
) Unreliable partners: Because of the separate nature of a joint venture, it is possible that the partners do not
devote 100% of their attention to the project and become unreliable.
) Creation of a competitor: Another potential disadvantage of a JV is the possibility of the creation of a
competitor or a potential competitor in the form of one’s joint venture partner.

4.4 STRATEGIES OF ENTERING INTO A JOINT VENTURE

Identification of ) One partner must be able to compliment to other partner especially in those
Prospective Joint areas where it lacks. For example, one entity’s strength is economies of scale
Venture Partner(s): and another entity’s strength is strong marketing and their brand value.

) A JV with strong and trustworthy partner would generate enormous benefits for
Trustworthy:
both the partners and the Joint Venture entity.

Development
of Strong ) Partners must strive to develop joint venture relationships that are easy to
Joint Venture maintain, financially profitable, intellectually rewarding, and long-lasting.
Relationship:

) Joint Venture Partners must ensure that that all the partners have equal
Equal
contribution in the Joint Venture entity in terms of skills, intellectual resources,
Contribution:
making resources, capital, and so on.

) The agreement between two or more parties always be in writing and clearly
Written Agreement:
define all the terms related to right and responsibilities of each partner.

Limiting the scope ) It is essential that limits and scope of the venture should be defined in the
of Joint Venture: beginning itself.

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 ) The firms in a JV must clearly define the nature of the new venture including
Well defined the proposition to the customer, the channels and relationship management, the
Business Model: value chain, the structure and roles, investments, income, costs and payments,
success factors and the timetable for delivery.

) JV Partners in JV should try to be flexible and favour partners who demonstrate

Flexibility:
the same level of flexibility.

) JV Partners much establish clear protocols in the beginning itself for amending
Establishment of
or unwinding the relation if it fails to meet the expectations or in case there
Exit Routes:
arises any dispute.

4.5 FORMATION OF JOINT VENTURES

Joint Ventures

Equity Based Contractual

Strategic Alliances/Co-
Company LLP Partnership
operation Agreements

4.5.1 Equity-based Joint Venture

The equity joint venture is an arrangement whereby a separate legal entity is created by the agreement of two or
more parties.
The key characteristics of equity-based joint ventures are as follows:
(a) There is an agreement to either create a new entity or for one of the parties to join in the ownership of an
existing entity.
(b) Shared Ownership by the parties involved.
(c) Shared management of the jointly owned entity.
(d) Shared responsibilities regarding capital investment and other financing arrangements.
(e) Shared profits and losses according to the JV Agreement
4.5.2 Every Equity-Based Joint Venture Gives Birth to a New Entity
The Government of India permits certain types of entities.
(1) Company

(2) Limited Liability Partnership (LLP) Firm

(3) Venture Capital Fund– A duly registered Foreign Venture Capital Investor is allowed to contribute
up to 100% in Indian Venture Capital Undertakings /Venture Capital Funds / other companies.
(4) Trusts– A foreign company is not allowed to use Trust as a form of a joint venture entity in India.

(5) Other Entities– Foreign companies are not allowed to use any structures other than those mentioned
above for the purpose of equity based joint venture entities.

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4.5.3 Contractual Joint Venture
The contractual joint venture might be used where the establishment of a separate legal entity is not needed or the
creation of such a separate legal entity is not feasible in view of one or other reasons. The licensing agreement,
know-how agreement, technical services or technical assistance agreement, franchise agreement.
The key characteristics of such a relationship are:
(a) Two or more parties have a common intention of running a business venture
(b) Each party will bring some inputs in the form of money, technology, or materials
(c) Each party exercises a certain degree of control over the venture
(d) The relationship is not a transaction-to-transaction relationship but has a character of relatively longer
duration.
Examples Joint Venture: Tata Starbucks, Fratelli Wines.
4.5.4 Restriction under the FDI policy of the Government of India
) Entities from Land Border Countries (FDI 2020)
Investment only after Government approval
Applies to defense, space, atomic energy, and prohibited sectors NRI Residents / Citizens of Nepal &
Bhutan
Investment allowed on a repatriation basis
Must be in free foreign exchange (USD/EURO) via banking channels
) Foreign Institutional Investors (FIIs)
Investment only via Portfolio Investment Scheme
Subject to investment caps
) Foreign Venture Capital Investors (FVCIs)
May invest up to 100% under the automatic route
Must be SEBI registered
Subject to RBI rules & FDI policy
Can set up domestic asset management companies

4.6 DOCUMENTS FOR JOINT VENTURES

Finalization of a joint venture goes through many stages.

The first may be called the familiarisation stage when the two partners generally attempt to know each
other.

The second may be called the engagement phase when there is a level of commitment but still it is not
very firm or long-term.

The final stage is when broad understanding has been reached on the terms of the Joint Venture.

At each stage, the documentation is different. The Indian companies preferred to have a Memorandum of
Understanding (MOU) to define the relationship at the initial stage.

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 During the engagement phase, a contractual Joint Venture may be envisaged. The parties are putting in
relatively higher amount of resources at this state. Hence, it is customary to have well-drafted legally
binding contracts.

Hence, the Joint Venture Agreement or Shareholders’ Agreement or LLP Agreement must be prepared
carefully to avoid any confusion even many years down to line. Generally speaking, most equity Joint
Ventures in India are structured in the form of private or public limited liability companies.

4.6.1 Essential Features of a Shareholders’ Agreement (SHA)/JV Agreement/Partnership Agreement

(PA)
Some of the key issues that must be kept in mind while drafting the SHA/PA are summarised below:
(i) The business of the new company/LLP;
(ii) Manner and extent to which resources (financial, manpower, technology, etc) will be brought in;
(iii) Provisions relating to allotment and transfer of shares;
(iv) Constitution of the Board of Directors/Designated Partners;
(v) Manner in which decision making will take place (majority vote or consensus);
(vi) Decision regarding the Chairman and Managing Director of the entity; their rights, duties and responsibilities;
(vii) Persons responsible for managing finances, marketing, production, etc.;
(viii) Dividend distribution policy;
(ix) Term of office of the nominated directors, the manner of their appointment and changes among them;
(x) Valuation of the company at the time of separation;
(xi) Dispute resolution mechanism.

4.6.2 Essential Components of a Joint Venture Agreement

) Description (Nature of the Agreement).
) Parties (full description of the parties to the Agreement).
) Recitals (states the situation as it existed before the execution of this Agreement; It is also used to convey
the intention of the parties).
) Operative Part
) Legal aspects:
Amendments to the JV Agreement
Duration of the JV
Termination
Dispute resolution by amicable consultation and/or an Arbitration mechanism/an alternative form of
Dispute Resolution
Courts of a particular State
Confidentiality and Non-Disclosure Agreement
Non-compete clause
Indemnification
Procedure for execution
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 5. MEANING OF SPECIAL PURPOSE VEHICLE (SPV)
) A Special Purpose Vehicle (SPV) or Special Purpose Entity (SPE) is 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.
) An SPV can be formed for any lawful purpose. No SPV can be formed for an unlawful purpose, or for
undertaking activities which are contrary to the provisions of law or public policy.
) SPVs/SPEs may be formed through limited partnerships, trusts, corporations, limited liability corporations,
or other entities.
) An SPV/SPE may be designed for independent ownership, management, and funding of a company or as
protection of a project from operational or insolvency issues.
) We can conclude that an SPV is an entity that has a distinct identity from its promoters or sponsors or
constituents, or shareholders.
) For example, the implementation of the Mission (under the Smart Cities Mission Project of the Ministry of
Housing & Urban Affairs, Government of India) at the City level will be done by a Special Purpose Vehicle
(SPV) created for the purpose.

5.1 BENEFITS OF SPECIAL PURPOSE VEHICLE (SPV)

(a) Ownership of Assets – An SPV allows the ownership of a single asset, often by multiple parties, and allows
for ease of transfer between parties.
(b) Minimum Statutory Requirement – Depending on the choice of jurisdiction, it is relatively cheap and
easy to set up an SPV.
(c) Clarity of documentation – It is easy to limit certain activities or to prohibit unauthorised transactions
within the SPV documentation.
(d) Tax benefits – SPVs are often used to make a transaction tax-efficient by choosing the most favourable tax
residence for the vehicle. SPVs are methods of financial engineering schemes that have as their main goal
the avoidance of tax. Some countries have different tax rates for capital gains and gains from property sales.
(e) Legal protection – By structuring the SPV appropriately, the sponsor may limit legal liability if the
underlying project fails.
(f) 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. Losses incurred by SPV are
not shown in the balance sheet of the sponsor, so it helps to maintain a healthy picture of the sponsor in the
eyes of its stakeholders.
(g) The key advantage is that it helps in separating the risk and freeing up the capital. As a result, the SPV and
the sponsoring company are protected against risks like insolvency, which may arise during operation.

5.2 PURPOSE OF SPECIAL PURPOSE VEHICLE

) The main purpose of a Special Purpose Vehicle is to allow the parent company to make highly leveraged
or speculative investments without endangering the entire company. SPVs are mostly formed to raise funds
from the market or when Government Regulations specify the creation of a separate vehicle for carrying out
any specified activity.
) SPVs are created by a parent company to implement large-scale projects, and the operations of an SPV are
legally limited to specific assets.
) Indirect acquisition of assets- SPVs can be used for acquiring assets indirectly for tax savings.

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 ) The government also forms SPVs for special projects. The purpose behind the formation of SPV is to
get easy finance and various approvals from the State and Central Government at many levels, and on
completion of projects, it provides an easy exit route for the Government.

5.3 DIFFERENCE BETWEEN A SPECIAL PURPOSE VEHICLE (SPV) AND A COMPANY

The SPV has to adhere to all the regulations laid down in the Companies Act. Members of an SPV are mostly the com-
panies and individuals sponsoring the entity. An SPV can also be a partnership firm.
The company, as distinguished from an SPV, may be called a general purpose vehicle. A company may do
many things which are mentioned in the memorandum of association (MoA) or permitted by the Companies
Act. An SPV may also do the same, but its scope of operation is limited and focused. If it is not so, the SPV
had better be called a company. The MoA is quite narrow in the case of an SPV. This is primarily to provide
comfort to lenders who are concerned about their investment.

5.4 HOW IS AN SPV ESTABLISHED?

) Like a company, an SPV must have a promoter(s) or sponsor(s). Usually, a sponsoring corporation hives off
assets or activities from the rest of the company into an SPV.
) This isolation of assets is important for providing comfort to investors. The assets or activities are distanced
from the parent company; hence, the performance of the new entity will not be affected by the ups and
downs of the originating entity.
) The SPV will be subject to fewer risks and thus provide greater comfort to the lenders.

5.5 LLP FIRM AS A SPECIAL PURPOSE VEHICLE

A Limited Liability Partnership (LLP) Firm combines the simplicity of a partnership firm with the advantage
of limited liability as available in the case of a company. Key advantages of using an LLP firm as an SPV as
compared to a company are as follows:
(a) Low cost of incorporation of an LLP;
(b) Flexibility of rules of management and governance based on Agreement between the contracting
Partners;
(c) Partners can be companies while management is by Designated Partners who are individuals. By this,
there is divorce between ownership and management;
(d) Low annual maintenance cost;
(e) There may not be any necessity of getting the accounts audited before the project takes off;
(f) An LLP firm does not have to pay Dividend Distribution Tax (DDT) on share of profits transferred to
the Partners, which makes it tax efficient;
(g) Voluntary winding of an LLP firm which has no creditors is very easy and can be done without intervention
of any court or tribunal;
(h) Investment in LLP Firms is permitted only in sectors in which 100% FDI is permitted through automatic
route without any performance linked conditions.

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 Previous Year Questions
1. What are the objectives of the foreign collaboration as discussed by the directors of XYZ Appliances Pvt.
Ltd.?  (Dec.2024) (3 Marks)
2. Differentiate between an equity-based Joint Venture and a Contractual Joint Venture.
(Dec.2024) (3 Marks)
Hints:
1. Nature of the Entity
2. Ownership and Investment
3. Management and Control Equity
4. Duration and Scope
5. Regulatory Considerations
3. Renewable Power Ltd. (RPL) is a leading renewable energy developer with expertise in solar and wind
power generation. RPL has identified Wind Power Pvt. Ltd. (WPPL) as a potential partner to establish an
equity-based joint venture focused on developing large-scale renewable energy projects in the country.
RPL approaches you to seek your advice on the key characteristics of equity-based joint ventures. Advise
RPL. June 2024 (3 Marks)
Hints: The key characteristics of equity-based joint ventures are as follows:
(a) There is an agreement to either create a new entity or for one of the parties to join in the ownership
of an existing entity
(b) Shared Ownership by the parties involved
(c) Shared management of the jointly owned entity
(d) Shared responsibilities regarding capital investment and other financing arrangements.
(e) Shared profits and losses according to the Joint Venture Agreement.
Renewable Power Ltd is advised accordingly.

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 CHAPTER SBIL

10
SETTING UP OF BRANCH OFFICE/
LIAISON OFFICE/WHOLLY OWNED
SUBSIDIARY BY FOREIGN COMPANIES

1. INTRODUCTION
India, with its robust legal framework and dynamic economic environment, presents an attractive destination
for foreign companies aiming to establish a business presence. To navigate this complex yet opportunity-rich
landscape, international enterprises must adopt suitable entry strategy each governed by distinct regulatory
prerequisites, investment structure, operational flexibility, and strategic intent.
Broadly, these strategies can be classified into:
) Incorporation of a Wholly Owned Subsidiary (WOS) under the automatic route, which permits up to
100% Foreign Direct Investment (FDI) without requiring prior governmental approval. This mode offers
foreign investors full control and independence while operating as an Indian legal entity.
) Registration of Branch, Liaison, or Project Offices, which necessitates approvals from regulatory
authorities such as the Reserve Bank of India (RBI) and adherence to guidelines under FEMA and the
Companies Act, 2013. These offices allow foreign entities to carry out specific permissible activities while
maintaining stricter regulatory oversight and limited scope for commercial operations.
Unincorporated Places of Business of
Foreign Company In India LO/BO/PO

Companies Fema/RBI
Act 2013

Foreign Exchange
Provision of Companies Management {Establishment in
Chapter XXII {Registration of Foreign India BO/LO/PO or Any Other
Companies} Rule 2014 Place of Business, 2016}

2. IMPORTANT DEFINITIONS
(a) Foreign Companies
A foreign company, as defined under Section 2(42) of the Companies Act, 2013, refers to any company or
corporate body incorporated outside India that:
Has a place of business in India, either directly or through an agent, physically or via electronic means.
Conducts business activity within India in any manner.
These entities are required to comply with several Indian regulations once they establish a business presence,
such as:
Filing documents with the Registrar of Companies (ROC) within 30 days of setting up operations.
 Displaying legal details (name, country of origin, limited liability status) prominently at every place of
business in India.
Maintaining proper books of account and submitting annual financial statements.
Foreign companies often enter the Indian market through Branch Offices, Liaison Offices, or Project
Offices, each with specific permissions and limitations governed by FEMA and RBI.
(b) Subsidiary Companies
A subsidiary company is one where a holding company—which may be foreign or domestic—exerts
control, as per Section 2(87) of the Companies Act, 2013. A subsidiary is defined as:
The holding company controls the composition of its Board of Directors, or
Holding more than one-half total voting power, either alone or along with other subsidiaries.

3. KEY PROVISIONS
There are certain provisions regarding the Branch Office (BO), Liaison Office (LO), and Project Office (PO).
Branch Office, Liaison Office, and Project Office are distinct modes through which foreign companies establish
a presence in India, each serving specific operational roles and governed by regulatory norms under FEMA and
the Companies Act, 2013.
(a) Branch Office (BO)
A Branch Office is an establishment set up by a foreign company in India to carry out the same or substantially
similar business activities as its parent company. It acts as an extension of the foreign entity and is permitted
to engage in commercial operations.
(b) Project Office (PO)
A Project Office is a temporary business location established by a foreign company in India for the sole
purpose of executing a specific project. It exists only for the duration of the project and is limited to activities
directly related to that project.
A PO can be set up without the approval of the project is funded by an Indian entity or through inward
remittance from abroad, as per FEMA guidelines.
(c) Liaison Office (LO)
A Liaison Office serves as a communication channel between the foreign parent company and Indian
entities. It is not allowed to undertake any commercial, trading, or industrial activities and must operate
solely through inward remittances from abroad.
LO requires prior approval from the RBI, and its scope is limited to:
Representing the parent company.
Promoting export/import
Promoting technical/financial collaboration
Acting as a communication channel.
Section 379 of the Act provides that where not less than fifty percent of the paid-up share capital, whether
equity or preference or partly equity and partly preference of a foreign company 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 shall comply with such of the provisions of this Act, as may be prescribed by the Central Government
with regard to the business carried on by it in India, as if it were a company incorporated in India.

Section 380 of the Act lays down that 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:

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(a) A certified copy of the charter, statutes or memorandum and articles, of the company
(b) The full address of the registered or principal office of the company;
(c) A list of the directors and secretary of the company
(d) Name and address of one or more persons resident in India authorised to accept on behalf of the company
(e) Address of principal place of business in India;
(f)Declaration that none of the directors of the company or the authorised representative in India has ever been
convicted
(g) Any other information as may be prescribed

3.1 FOREIGN SUBSIDIARY NAMING PROVISIONS – RULE 8 (COMPANIES INCORPORATION RULES,

2014)
1. A foreign holding company’s name can be used with “India” or an Indian state/city suffix (if available)
2. Rule 8 applies when checking similarity with names of overseas companies or LLPs.
3. A name is undesirable if it suggests association with any foreign embassy, consulate, or diplomatic mission.
4. The name of a foreign country/city is allowed only with documentary proof of business ties.
5. Names like “India Japan” or “Japan India” are allowed only with Govt-to-Govt support.
6. Names referencing enemy countries are prohibited

4. ESTABLISHMENT OF A BRANCH OFFICE (BO), LIAISON OFFICE (LO), AND

PROJECT OFFICE (PO) IN INDIA
4.1 BRANCH OFFICE (BO)

The branch office serves as an extension of the head office business and carries on the
same business and activity as that of its parent company.

The profits from these are easily remittable from India, subject to the taxes applicable.

4.2 ELIGIBILITY FOR SETTING UP A BRANCH OFFICE

The applicant company must be a body corporate incorporated outside India

The name of the Indian branch office must be the same as the parent company unless otherwise
approved.

The net worth of the branch office must not be less than US $100,000 and

The parent company should have a profit making record in the immediately preceding five financial
years in the home country.

In cases where the applicant foreign entity does not meet the financial criteria, the parent company may issue a
Letter of Comfort (LoC), given that the company satisfies the prescribed criteria for net worth and profit

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4.3 PERMITTED ACTIVITIES OF THE BRANCH OFFICE
In India, a Branch office cannot directly carry out manufacturing activities unless such manufacturing activity is
done in a Special Economic Zone (SEZ) to export products out of India. It may also subcontract such activity to
an Indian manufacturer.
Furthermore, the following activities are permitted for a branch office in India of a person resident outside India:
Export/import of goods.

Rendering professional or consultancy services.

Carrying out research work in which the parent company is engaged.

Promoting technical or financial collaborations between Indian companies and parent or overseas group
company.

Representing the parent company in India and acting as buying/selling agent in India.

Rendering services in Information Technology and development of software in India.

Rendering technical support to the products supplied by parent/group companies.

Representing a foreign airline/shipping company.

4.4 REGISTRATION OF BRANCH OFFICES IN INDIA

A foreign company must apply for RBI approval under FEMA, 1999, through an AD Category-I bank using Form
FNC. If its principal business falls under sectors with 100% FDI under the automatic route, the application
goes directly to the RBI. For other sectors, it routes via the Ministry of Finance. Separate approvals are required
for multiple locations and activities that the Branch Office intends to undertake.
1. Foreign company must apply for approval from the Reserve Bank of India (RBI) under provisions of the
FEMA, to open a branch office in India.

2. Foreign entities whose principal business falls under sectors where 100 per cent Foreign Direct Investment
(FDI) is permissible under the automatic route

3. It must complete the form FNC and submit it to the RBI, along with the associated documents he
application for establishing branch office must be forwarded by the foreign entity through a designated
AD Category-1 Bank to the RBI.

4. If the foreign entity wishes to establish a branch office in more than one location in India, it must register
the branch, or seek approval from the RBI for each of the location separately.

Documents Required for Foreign Company Branch Registration in India

1. FNC Form
Application form signed by the Authorized Representative (AR)

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 2. Parent Company Information
Certificate of Incorporation (Notarized or Embassy attested)
Company profile & shareholding details (if applicable)
3. Branch Incorporation Documents
Governing documents for the Indian branch setup
4. Proof of Registered Office in India
Lease deed or rent agreement
Recent utility bill (electricity, water, etc.)
5. Activity Note
Description of proposed business operations in India
6. Audited Financials
Latest Audited Balance Sheet of the foreign entity
7. Board Resolution
Resolution approving the setup of the Indian branch office
8. KYC of Authorized Signatory
PAN, Aadhaar, passport
Address proof and identity documents
9. Local Representative Details
Name, designation, and contact info of Indian reps
Relationship with parent company (if any)

4.5 FUNDING OF THE BRANCH OFFICE BY THE FOREIGN COMPANY

The following are the funding options:

Equity Share Capital: In the usual way Indian companies are financed.

Preferred Share Capital: Such convertible preference shares, compulsorily convertible into equity
shares are regarded as Foreign Direct Investment (FDI).

Companies may issue redeemable, convertible, or non-convertible debentures, bonds, and other debt
securities—convertible instruments issued to non-residents are treated as FDI.

4.6 LIAISON OFFICE

A Liaison Office serves solely as a communication channel between a foreign company's head office
and Indian entities—it cannot conduct commercial, trading, or industrial activities and must operate on inward
remittances received through normal banking channels.

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4.7 ELIGIBILITY FOR SETTING UP A LIAISON OFFICE
The following are the points for eligibility for setting up of liaison office:
The applicant company must be a body corporate incorporated outside India;

The net worth of the liaison office must not be less than US $ 50,000; and

The parent company should have a profit making record in the immediately preceding three financial years in
the home country

The name of the Indian branch office must be the same as the parent company (if the branch office does not
have revenue from India operations, its expenses must be met by the head office)

4.8 PERMISSIBLE ACTIVITIES OF LIAISON OFFICE

Liaison Office can pursue the following permitted activities in India:

Representing the parent company/group companies in India.

Promoting Export/Import.

Promoting technical/financial collaborations between parent/group companies and companies in India.

Acting as a communication channel between the parent company and Indian companies.

CASE LAW
In Bar Council of India vs. A. K. Balaji & Ors., SC has directed RBI not to grant any permission to any foreign
law firm, on or after the date of the said interim order, for opening of LO in India.
The Hon’ble Supreme Court has held that advocates alone are entitled to practice law in India and that foreign
law firms/companies or foreign lawyers cannot practice profession of law in India.
As such, foreign law firms/companies or foreign lawyers or any other person resident outside India, are not
permitted to establish any branch office, project office, liaison office or other place of business in India for the
purpose of practicing legal profession.
AD Category-1 Bank are directed not to grant any approval to any branch office, project office, liaison office
or other place of business in India under FEMA for the purpose of practicing legal profession in India.

4.9 EXTENSION OF THE VALIDITY PERIOD FOR THE LIAISON OFFICE

The following points need to be undertaken for the extension of the validity period of the liaison office.
A person resident outside India may establish a liaison office for a period of three years.

The non-resident entity may apply to the AD Category-1 bank concerned for and AD category-1 bank concerned
may extend the validity period of approval for a period of three years

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 Entities engaged in construction and development sectors and which are Non-Banking Finance companies are
permitted to open a Liaison Office for two years only.

No further extension would be considered for liaison offices of entities which are Non-Banking Finance
Companies and those engaged in construction and development sectors (excluding infrastructure development
companies).
Upon expiry of the validity period, the offices shall have to either close down or be converted into A Joint
Venture/Wholly Owned Subsidiary in conformity with the extant Foreign Direct Investment policy.

Branch Office Liaison Office

Track Record A profit making track record during the immediately A profit making track record during the
Five Financial years in the home country immediately Three Financial years in the
home country
Net Worth Not less than USD 100,000 or its equivalent. Not less than USD 50,000 or its equivalent.
Permissible ) Export & Import of goods only on wholesale ) Representing in India the parent
Activities basis. company/group companies.
) Rendering professional or consultancy services. ) Promoting export/import from/to
) Carrying on research work, in areas in which India.
the parent company is engaged. ) Promoting technical/financial col-
) Promoting technical or financial laborations between parent/group
collaborations between Indian companies companies and companies in India
and parent or overseas group company. ) Acting as a communication channel
) Representing the parent company in India between the parent company and
and acting as buying/selling agent in India. Indian companies.
) Rendering services in information technology
and development of software in India.
) Rendering technical support to the products
supplied by parent/group companies.
) Foreign airline/shipping company.
4.10 PROJECT OFFICE (PO)

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

4.11 PARAMETERS OF THE PROJECT OFFICE

A foreign company may open project office/s in India provided it has secured from an Indian company a contract
to execute a project in India, and
(i) The project is funded directly by inward remittance from abroad, or
(ii) The project is funded by a bilateral or multilateral International Financing agency, or
(iii) The project has been cleared by an appropriate government authority; or
(iv) A company or entity in India awarding the contract has been granted a term loan by a Public Financial
Institution or a bank in India for the Project.

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NOTE: A person from any country other than Pakistan who has been awarded a contract for a project by a
Government authority/ Public Sector Undertaking may open a bank account with an Authorised Dealer Category-1
bank without any prior approval from the Reserve Bank.

5. CASES IN WHICH RBI APPROVAL IS REQUIRED FOR SETTING UP OF BO/PO/LO IN

INDIA
The following are the points that need to be undertaken while taking approval:

The applicant is a citizen of or is registered/incorporated in Pakistan.

The applicant is a citizen of or is registered/incorporated in Bangladesh, Sri Lanka, Afghanistan, Iran, china,
Hong Kong or Macau and the application is for opening a BO/LO/PO in Jammu and Kashmir, North East
region and Andaman and Nicobar Islands.

The principal business of the applicant falls in the four sectors namely Defence, Telecom, Private security and
Information and Broadcasting.

The applicant is a Non-Government Organisation (NGO), Non-Profit Organisation, Body/ Agency/ department
of a foreign government.

5.1 MASTER DIRECTION- ESTABLISHMENT OF BRANCH OFFICE (BO), LIAISON OFFICE (LO), AND
PROJECT OFFICE (PO)
A Branch Office can be established by a body incorporated outside India, including a firm or association of
persons, involved in manufacturing or trading activities. The process is governed under the provisions of the
Foreign Exchange Management Act (FEMA), 1999, and requires prior approval from the Reserve Bank of India
(RBI). RBI provides guidelines to be followed for establishing a BO; the former also reserves the right to reject
an application on the non-fulfilment of the same.
The Applications are to be made in the Form FNC and are considered by the RBI under two routes determined
by the degree of Foreign Direct Investment (FDI).
Aspect Details
If the foreign company’s principal business is in a sector with 100% FDI under
RBI route
the automatic route, the RBI processes the application directly.
For sectors not allowing 100% FDI automatically, or if the applicant is an
Government route NGO, NPO, Government Body/Department, RBI considers the case with
consultation from the Ministry of Finance.
Must have a profit-making track record for the last 5 financial years in the
Track record requirement
home country.
Net worth ≥ USD 100,000, calculated as Net Worth = Paid-up Capital +
Free Reserves – Intangible Assets - Accumulated losses - Deferred Revenue
Net worth requirement Expenditure
certified by a qualified auditor or certified public accountant in the home country.

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 Application for establishing Bo/Lo/Po and the key document requirement

Submission Route: Application must be made via a designated AD Category-I bank to the General Manager,
Foreign Exchange Department, RBI.
Mandatory Documents (as per RBI Master Circular 2016):
English version of Certificate of Incorporation/Registration or MoA & AoA, attested by Indian Embassy/
Notary in country of registration.
Latest Audited Balance Sheet of the applicant entity.

The BO hence, once approved by the RBI, will be

This should be reported in the Annual Activity
allotted a Unique Identification Number (UIN). Once
Certificate (AAC) that the BO is required to present
the offices have been set up, the BO must also obtain
at the end of each ear to show that the activities are
a Permanent Account Number (PAN) from the Income
undertaking in the permitted categories only.
Tax Authorities.

6. PROCEDURE FOR ESTABLISHMENT OF BO/LO/PO

A. Submission of form FNC: The application for establishing BO/LO/PO in India may be submitted by the
non-resident entity in form FNC to a designated AD category-1 bank, ie, an AD category one bank identified
by the applicant when they intend to pursue banking relations, along with the prescribed document and the
LOC wherever applicable.
1. Incorporation/Registration Documents:
The foreign entity shall submit its Certificate of Incorporation/Registration, along with its Memorandum
of Association (MOA) and Articles of Association (AOA).
These documents must be attested by a Notary Public in the home country.
If the documents are not in English, they must be translated into English and the translated copies
attested by the Indian Embassy/Consulate in the home country.
2. Financial Statements:
BO: Audited balance sheet for the last 5 years.
LO: Audited balance sheet for the last 3 years.
If an audit is not required by law, a net worth certificate from a CPA or a registered equivalent
accountant is required.
3. Banker’s Report: From the applicant’s banker in the home country, indicating the length of the
banking relationship.
4. Power of Attorney: If Form FNC is signed by anyone other than the head of the foreign entity.
B. UIN Allotment:
An AD Category-1 bank must send Form FNC and approval details to the RBI’s Central Office Cell
(New Delhi).
RBI allots a Unique Identification Number (UIN) before the approval letter is issued.

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 C. Issue of Approval Letter:
After receiving the UIN, the AD Category-1 bank issues the approval letter.
This helps the RBI maintain an up-to-date registry of foreign entities on its website.
D. Validity Period:
Liaison Office (LO): Generally valid for 3 years.
For NBFCs and construction/development sector entities: Validity is 2 years.
Project Office (PO): Valid for the tenure of the project.
E. Intimation Post Setup:
Applicants must inform the AD Category-1 bank of the date of office setup.
Banks must inform the RBI accordingly.
If approval lapses (no setup within 6 months) or is surrendered, the bank must also notify the RBI.
F. Extension Policy:
If the office isn’t opened within 6 months, approval lapses.
AD category-1 banks may grant one 6-month extension for valid reasons.
Further extensions require the RBI’s prior approval.
G. Special Cases:
) Applications from foreign banks/insurance companies handled by:
Department of Banking Regulation (DBR), RBI (for banks), and
Insurance Regulatory and Development Authority of India (IRDAI) for insurance
) No UIN required from the Foreign Exchange Department for these cases.

7. ANNUAL ACTIVITY CERTIFICATE BY BO/ PO/LO

The Annual Activity Certificate (AAC), mandated under FEMA 1999, is a compliance document submitted by a
Liaison Office (LO), Branch Office (BO), or Project Office (PO) of a foreign entity operating in India. Certified
by a Chartered Accountant (CA), it confirms that the office has undertaken only those activities permitted by the
Reserve Bank of India (RBI) and has complied with applicable FEMA regulations for the relevant financial year
(i) The Annual Activity Certificate (AAC) as on March 31 each year, along with the required documents, needs
to be submitted by the following:
(a) In case of a sole BO/ LO/PO, by the BO/LO/PO concerned;
(b) In case of multiple BOs / LOs, a combined AAC in respect of all the offices in India by the nodal office
of the BOs / LOs.
The LO/BO needs to submit the AAC to the designated AD Category-1 bank as well as the Director
General of Income Tax (International Taxation), New Delhi, whereas the PO needs to submit the AAC
only to the designated AD Category-1 bank.
The AD category-1 Bank shall scrutinize the AACs and ensure that the activities undertaken by the
BO/LO are being carried out by the terms and conditions of the approval given.
(ii) If any adverse findings are flagged by the auditor or noticed by the AD Category-1 bank, they must be
immediately reported to the General Manager, RBI, CO Cell, New Delhi, along with:
A copy of the Annual Activity Certificate (AAC)
Comments from the AD bank regarding the issue

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8. OPENING OF BANK ACCOUNT BY BO/ PO /LO
Upon receipt of approval from the AD Category-1 Bank the Branch Office (BO), Liaison Office (LO), or Project
Office (PO) may proceed to open a bank account in India for operational purposes, by the RBI’s guidelines.
Liaison Office Branch Office
To open that bank account, the Applicant is to AD category-1 Bank
Can maintain only one bank account - No prior RBI Approval
(To open more than one account, prior permission from the RBI needs to be procured.)
The permitted Credits and Debits to the account shall be:
Permitted debits (Dr.) and credits (Cr.)
LIAISON OFFICE BRANCH OFFICE
Permitted Dr. Permitted Cr. Permitted Dr. Permitted Cr.
Only for Funds from the head office for meeting Expenses incurred Funds from the head
meeting the office expenses by the branch office office to meet office
local office expenses
expenses of the Refund of the security deposit paid from the Remittance of profits Legitimate
office liaison office account or directly by the head and winding up receivables arising
office proceeds from business
Refund of taxes, duties, etc., paid from the operations
liaison office bank account.
Sale proceeds of the assets of the liaison office

Project Office
To open a bank account, approval from AD category-1 Bank is required
) If the project office is of an entity not from Pakistan, no prior approval from the RBI is required.
) If the project office is of an entity from Pakistan, Prior approval of the RBI is required.
) The project office can have two foreign currency accounts- one denominated in USD and the other in the
home currency of the awardees of the project- but with the same bank.

Permitted debits (Dr.) and Credits (Cr.)

Permitted Dr. Permitted Cr.
Payment for project-related Foreign exchange receipts from the project sanctioning authority
expenditure Foreign exchange receipts from the parent/group company abroad or bilateral/
multilateral international financing agencies
The foreign currency accounts must be closed upon completion of the Project.

9. EXTENSION OF VALIDITY PERIOD OF THE APPROVAL OF LO AND PO

The following points must be considered for the extension of the validity period of the approval of the PO
and LO:
) Request Submission: Before expiry, apply to the concerned AD Category-1 bank. Extension Period: Up
to 3 years if:
AACs for previous years are submitted.
The bank account is operated per the approval conditions.

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 ) Timeline: Extension to be granted within 1 month and reported to the RBI CO Cell, New Delhi (with
original reference number & UIN).
) RBI Website: Updated post-extension.
) Restrictions: No further extension for LOs of NBFCs and construction/development sector entities
(excluding infra development companies); initial validity is 2 years only.
LO Validity Extension Process

Request Timeline RBI Website

Submission Extension granted Update
Apply to the bank within 1 month Update website
before expiry Extension RBI Reporting Restrictions
post-extension
Period Report No further
Up to 3 years if extension to extension for
conditions met RBI certain sectors

10. 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 have to register with the state police authorities. Copy of approval letter for
‘persons’ from these countries shall be marked by the AD Category-1 bank to the Ministry of Home Affairs,
Internal Security Division-I, Government of India, New Delhi for necessary action and record.

11. APPLICATION FOR ADDITIONAL OFFICES AND ACTIVITIES

Application for additional offices and activities of Branch Office/Liaison Office

1. If the number of offices exceeds 4 it shall require prior approval of RBI.

2. The applicant may identify one of its offices in India as the Nodal Office, which will
coordinate the activities of all of its offices in India.

3. Whenever the existing BO/LO is shifting to another city in India, prior approval
from the AD Category-1 bank is required.

12. CLOSURE OF BO/PO/LO

1. Submission of request for closure:
Requests for closure of the BO/LO/PO and allowing the remittance of winding up proceeds of BO / LO/ PO
may be submitted to the AD category-1 bank by the BO/ LO/ PO or their nodal office, as the case may be.
The application for winding up may be submitted along with the following documents.

(a) Copy of the Reserve Bank’s/AD Category-I bank’s approval for establishing the BO/LO/PO.

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 (b) Auditor’s certificate:
Indicating the manner in which the amount has been arrived at and supported by a statement of assets and
liabilities of the applicant and indicating the manner of disposal of assets
Confirming that all liabilities in India including arrears of gratuity and other benefits to employees, etc. of the
office have been either fully met or adequately provided for and
Confirming that no income accruing from sources outside India (including proceeds of exports) has remained
to India.

(c) Confirmation from the applicant/parent company that no legal proceedings in any Court of India.

(d) A report from the Registrar of Companies regarding compliance.

(e) The designated AD Category – 1 banks has to ensure that the BO / LO/ PO had filed their respective
AACs.

(f) Any other document/s.

2. Remittance and winding up proceeds

A designated AD Category-1 bank may allow remittance of winding-up proceeds in respect of offices of
banks and insurance companies, after obtaining copies of permission for closure from the sectoral regulators,
along with the documents mentioned above.

13. REMITTANCES OF PROFITS/SURPLUS

Following are the points for the branch office and project office remittance of profit:
Branch Office Project Office
Permitted, net of taxes Intermittent remittances are permitted pending winding
up or completion of the project
The following documents are to be submitted with the The following documents are to be submitted with the
AD-1 Bank: AD-1 Bank:
(i) Certified copy of audited balance sheet and (i) Auditors/Chartered Accountant Certificate
profit and loss account for the relevant year. confirming that a sufficient provision has been
(ii) Chartered Accountant certificate certifying: made to meet the liabilities in India, including
income tax
The manner of arriving at remittable profits
that the remittable profit has been earned by (ii) Undertaking from the project office that
undertaking permitted activities remittance will not affect the completion of the
project in India, and that any shortfall of funds
(iii) That the profits do not include any profit on the
for meeting any liability in India will be met by
revaluation of assets of the branch
inward remittances from abroad.

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 Previous year questions

1. Moonlight Inc., a USA-incorporated company, has a branch office in Surat, India, and the company intends
to close it. Advise on the procedure for closing the branch office in India, including necessary legal and
regulatory steps. June 2025 (3 marks)
Hints:
Submit a closure request to the AD Category-1 bank. Attach:
Copy of RBI/AD bank approval
Auditor’s certificate on remittance, liabilities, and asset disposal
No legal proceedings confirmation
ROC compliance report (if winding up required)
Any other documents as specified during initial approval
2. How have the recent regulatory changes impacted the registration process for foreign companies establishing
a business in India? June 2025 (3 marks)
Hints:
AD Category-1I banks now handle approvals under the automatic FDI route.
Introduction of the Form FNC and UIN system by the RBI for BO/LO/PO tracking.
Streamlined process with faster digital approvals and enhanced KYC norms.
RBI is involved only in restricted sectors, NGOs, and NBFCs.
Clear validity and extension rules reduce uncertainty.
3. Global Tech Solutions, a prominent software development company headquartered in the United States,
has successfully established its initial branch office in Bengaluru. Following the success of this office, the
company has identified the need to establish an additional branch office in Hyderabad to further expand
its market presence and enhance service delivery. What are the critical steps and activities involved in
establishing an additional branch office in India for foreign entities like Global Tech Solutions?
 Dec.2024 (4marks)
Hints:
Track record and net worth conditions, Regulatory submissions (Form FNC, approval through an AD
Category-I bank)
Document checklist mandated by the RBI
Due diligence procedures
Operational compliances post-setup (bank account, AACs, FEMA rules)
4. Delta LLC is a Limited Liability Corporation registered in California (USA). The company has no place
of business in India by itself or through an agent, but it’s doing online business through an electronic mode
in India. Explain whether Delta LLC will be treated as a Foreign Company as per the provisions of the
Companies Act, 2013. Dec. 2022, June 2021 (4 Marks)
Hints:
Foreign Company – Sec 2(42), Companies Act, 2013
Any company incorporated outside India that:
Has a business presence in India (physical, agent, or electronic), and
Conducts business activity in India.

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 Electronic Mode Includes (Rule 2 of Relevant Rules):
1. Online transactions (B2B/B2C, supply chain)
2. Financial services, marketing, advisory
3. Deposits/subscriptions from Indian citizens
4. Tele-services: medicine, education, telecommuting
5. Data via email, mobile, cloud, and social media
Delta LLC
Conducts online business in India → Classified as a Foreign Company, Even without physical presence
or an agent.
5. Actavis Ireland Ltd., a pharmacy firm incorporated in Ireland:
(i) Has a share transfer office in Kanpur.
(ii) Directors of the company frequently stayed in a hotel in Noida and Mumbai to look after matters of
business,
The company does not have any physical office or property in India.
As a practicing Company Secretary, advise under the provisions of the Companies Act, 2013, whether the
company will be treated as having a place of business in India? June 2019 (5 Marks)
Hints:
Foreign Company – Sec 2(42), Companies Act, 2013
A company/body corporate incorporated outside India is considered a foreign company if it:
Has a place of business in India (directly, through an agent, or electronic mode), and
Conducts business activity in any manner in India.
Place of Business – Sec 386(c)
Includes:
Share transfer/registration office
Hotel stays for business purposes (as held in the Liudvig Rabenek case)
Mere property ownership does NOT qualify
Case Application
1. Share transfer office in Kanpur = Place of business → Foreign Company
2. Frequent hotel stays for business in Noida/Mumbai = Constitutes business presence → Foreign
Company
6. A Branch Office can be established by a body incorporated outside India, including a firm or association
of persons, involved in manufacturing or trading activities. The permission to set up a Branch Office has to
be obtained from the RBI under the FEMA, 1999 provisions. In light of the RBI Master Circular of 2016,
highlight the activities that are permitted by the RBI. Dec 2020 (5 Marks)
Hints:
Permitted Activities – Branch Office in India (Regulation 4, FEM 2016 & Schedule I)
A person resident outside India, with RBI approval, may undertake only the following:
Import/export of goods
Professional or consultancy services
Research in the parent company’s field

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 Promotion of technical/financial collaborations
Representation and agency functions
IT services and software development
Technical support for parent/group products
Representation of foreign airlines/shipping companies
Any other activity requires specific RBI permission.
Contractual Joint Venture – Key Use Case
Suitable when no separate legal entity is feasible or required
Enables collaboration through contractual terms without forming a company

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 SBIL
CHAPTER
SETTING UP OF BUSINESS
11 OUTSIDE INDIA AND RELATED
ISSUES

1. INTRODUCTION
The year 1991 marked a pivotal shift in India’s economic landscape with the launch of economic liberalisation
reforms that opened the doors to foreign investments and allowed opportunities for Indian entities to venture
abroad. Before this, India’s global business engagement was largely limited to exports, tightly controlled to
conserve precious foreign exchange.
Following liberalisation, Indian companies started targeting international markets not just for exports but also
for strategic investments, acquisitions, and the establishment of offshore operations. The evolution of policies,
including the introduction of the Automatic Route in 1992 and the Foreign Exchange Management Act (FEMA)
in 1999, reflected a transition from regulation to facilitation of foreign exchange transactions and overseas direct
investments (ODI).
Today, India stands not only as a preferred destination for FDI but also as a notable source of outbound investments,
with companies expanding globally through Free Trade Agreements (FTAs) and bilateral engagements. These efforts
enhance India’s competitiveness and economic integration in various sectors, including IT and pharmaceuticals.
According to the Reserve Bank of India, “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 percent of the paid-up equity capital
of a listed foreign entity. Where an investment by a person resident in India in the equity capital of a foreign
entity is classified as ODI, such investment shall continue to be treated as ODI even if the investment falls to a
level below ten per cent. of the paid-up equity capital or such person loses control in the foreign entity

2. EVOLUTION
India’s journey in overseas investments began in the early 1960s, with industrial giants like Tata, Birla, and
Kirloskar establishing production bases in regions like Sri Lanka and Africa. However, outbound investments
gained strategic importance only after the landmark economic reforms of 1991.
The liberalisation of trade, industry, and foreign exchange policies dismantled restrictive barriers, encouraging
Indian firms to seek global competitiveness. The shift from inward-looking protectionism to outward-oriented
expansion gave rise to a surge in overseas investments.
Following the 1991 reforms, Indian enterprises—both public and private—began to leverage international markets
for access to markets, technological collaboration, and strategic assets. These investments facilitated economic
integration, boosted foreign exchange inflows, and supported India’s export and employment goals.
Over time, India’s outbound investments evolved in scale, geographic spread, and sectoral diversity. Active
participation in mergers and acquisitions enabled Indian companies to tap into global consumer bases, advanced
technologies, and new growth avenues, positioning India as a credible player in the global investment landscape.
 Positive effect
FDI

Inflow
Employment effect
Quality of
Economy Output efficiency economic
(Country) growth
Technology spillover
Outflow

ODI
Inverse effect

3. FOREIGN EXCHANGE MANAGEMENT ACT 1999

The Foreign Exchange Management Act (FEMA), 1999, was enacted to replace the earlier Foreign Exchange
Regulation Act (FERA), 1973, marking a paradigm shift from strict regulation to facilitation of foreign exchange.
FEMA aims to:
) Manage rather than control foreign exchange
) Promote the orderly development and maintenance of the foreign exchange market in India
) Simplify procedures for cross-border transactions to foster trade and investment
) Applies to all foreign exchange dealings involving residents of India
) Empowers the Reserve Bank of India and the Central Government to frame regulations and issue
directions
) Covers transactions related to the Current Account (like trade) and the Capital Account (like investments
abroad)
This Act plays a vital role in liberalising India’s foreign exchange regime, enabling smoother international trade,
overseas investments, and financial cooperation.
RBI guidelines of FEMA Direction 2022:
1. RBI has also issued the compiled FEMA (Overseas Investment) Directions, 2022 (‘OI Directions’)
covering the OI Rules and OI Regulations grouping the requirements under three categories viz. General
provisions, Specific provisions and Other operational instructions to the AD Category-1 Bank.
2. The changes brought about through the new rules and regulations are summarised below:
(i) enhanced clarity with respect to various definitions
(ii) introduction of the concept of “strategic sector”
(iii) dispensing with the requirement of approval for:
(a) Deferred payment of consideration
(b) Investment/disinvestment by persons resident in India under investigation by any investigative
agency/ regulatory body
(c) issuance of corporate guarantees to or on behalf of second or subsequent level step down
subsidiary (SDS)
(d) write-off on account of disinvestment
(iv) introduction of “Late Submission Fee (LSF)” for reporting delays.

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4. OI RULES V/S OI REGULATION
OI Rules provide the regulatory framework for making of overseas investment While the OI Rules have been
framed by CG, however, the same will be administered by the RBI.
OI Regulations, on the other hand, provide only the operational part covering conditions for undertaking
Financial Commitment (‘FC’), mode of payment, obligations of Persons Resident in India (‘PRII’), reporting
requirements, consequence of delay in reporting and restrictions on further FC.

5. OVERSEAS INVESTMENT
Under the erstwhile ODI regulations, effective until August 21, 2022, there was a concept of direct investment
outside India in JVs and WOS that excluded portfolio investment and FC.
OI Rules combine the two to define Financial Commitment and separately define the term Overseas Portfolio
Investment (‘OPI’)
“Financial commitment” by a person resident in India means the aggregate amount of investment by way of ODI,
debt other than Overseas Portfolio Investment (OPI).
An Indian entity may lend or invest in any debt instruments issued by a foreign entity including overseas Step
down Subsidiaries of such Indian entity, subject to the following conditions :
1. The Indian entity is eligible to make ODI
2. The Indian entity has made ODI in the foreign entity
3. The Indian entity has acquired control in the foreign entity on or before the date of making such financial
commitment.
“Overseas Investment” or “OI” means Financial Commitment and Overseas Portfolio Investment by a
person resident in India; (OI = FC + OPI)
Overseas Investment (or financial commitment) can be made under two routes viz. (i) Automatic Route
and (ii) Approval Route.

ODI Definition

Control
Maintaining influence over Investments

Listed Securities > 10%

Shares traded on public exchanges

Unlisted Equity
Shares not publicly traded

Memorandum of Agreement
Formalizing equity transactions

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5.1 ELIGIBILITY (ELIGIBLE INVESTORS ARE REFERRED TO AS "INDIAN ENTITIES" UNDER OI RULES)
Under the Overseas Investment (OI) Rules, 2022, each investor is treated individually as an “Indian Entity.” The
term includes:
1. Company (as per Companies Act, 2013)
2. Body Corporate (incorporated under prevailing law)
3. LLP (under LLP Act, 2008)
4. Registered Partnership Firm (under the Partnership Act, 1932)
The terms Joint Venture (JV) and Wholly Owned Subsidiary (WOS) have been replaced by ‘Foreign Entity’,
defined as:
1. An entity formed, registered, or incorporated outside India (including IFSCs)
2. Must have limited liability (e.g., LLCs, LLPs).

5.2 NON-APPLICABILITY
Investments made by a financial institution in an IFSC. The OI Rules prescribe the conditions for investment in
IFSC vide Schedule V to the OI Rules;
1. Acquisition or transfer of any investment outside India made out of a Resident Foreign Currency Account;
2. Acquisition or transfer of any investment outside India made out of foreign currency resources held outside
India by a person who is employed in India for a specific duration, irrespective of the length thereof or for
a specific job or assignment, duration of which does not exceed three years;
3. Acquisition or transfer of any investment outside India made by Section 6(4) of the FEMA Act, i.e., where
the investment is in a foreign security or any immovable property situated outside India.

5.3 LAWS/AUTHORITIES GOVERNING THE SETTING UP OF BUSINESS OUTSIDE INDIA

Since January 2016, the Reserve Bank of India (RBI) has consolidated regulatory guidelines related to overseas
investments under Master Directions. These are topic-wise compilations issued across foreign exchange and
banking domains.
Key features of RBI Master Directions:
) Regularly updated with policy changes via circulars or press releases
) Accompanied by simplified FAQs for better clarity
) Published on the RBI website with timestamps for transparency
Aligned with the Foreign Exchange Management Act, 1999, the Central Government and the RBI continue to
streamline rules to foster liberalisation and enhance ease of doing business abroad.

Reserve Bank of India

Authorities

Foreign Exchange
Management Act 1999

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5.4 PROHIBITIONS

No person resident in India shall make ODI in a foreign entity engaged in–

(a) Real estate activity;

(b) Gambling in any form; and
(c) In dealing with financial products linked to the Indian Rupee without specific approval of the Reserve
Bank.

Any ODI in start-ups recognised under the laws of the host country or host jurisdiction as the case may
be, shall be made by an Indian entity only from the internal accruals and in case of resident individuals
owned funds.

No person resident in India shall make financial commitment in a foreign entity that has invested or
invests into India resulting in a structure with more than 2 layers of subsidiaries.

The restriction on the number of layers does not apply to the following classes of companies:
) Banking Companies (as per Banking Regulation Act, 1949)
) Systemically Important NBFCs (registered under the RBI Act, 1934)
) Insurance Companies (under Insurance Act, 1938 & IRDA Act, 1999)
) Government Companies (under Companies Act, 2013)

Approval from Central Government.

Approval from Reserve Bank

5.5 AUTOMATIC ROUTE

) ODI by a resident can be made into a foreign entity engaged in bona fide business activity,
1. Directly
2. Through a step-down subsidiary (SDS)
3. Through a special purpose vehicle (SPV)
) Step-Down Subsidiary:
Must be controlled by the foreign entity and have limited liability.
) Expansion of Permissibility:
Investment now allowed through multiple layers of SDS or SPV, provided the ultimate entity carries on
bona fide business.
) Bona Fide Business Activity:
Defined as any lawful activity in both India and the host country.

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5.6 APPROVAL ROUTE
(a) Central Government Approval is required when investing:
In Pakistan or any restricted country listed by the government
In strategic sectors (e.g., defense, atomic energy) or sensitive locations/geographies
Beyond certain prescribed thresholds
Applications in these cases must be:
Submitted to the Authorized Dealer-1 (AD-1) bank
The AD bank forwards the application to the RBI.
The RBI then routes the proposal to the Central Government for final approval.
(b) RBI Approval
Even under the automatic route, 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 requirement continues
under the current regime as well.
The procedure for seeking approval from the RBI has been provided in the OI Directions.

5.7 PERMISSION TO MAKE OI

FE formed, incorporated or registered in Pakistan or other
CG approval (for Ol or specified jurisdictions
transfer)
FC above the limits prescribed by persons engaged in
strategic sectors

Permission for In case FC exceeds the ceiling prescribed in consultation

RBI approval
Making Ol with CG

Has n account appearing as non-performing asset or

NoC from Lender classified as willful defaulter
Bank(s)/Regulatory Body/
Investigative Agency (If Is under investigation by a regulatory body
not issued within 60 days,
deemed consent)
Is under investigation by investigative agencies

5.8 NO-OBJECTION CERTIFICATE

Rule 10 of the OI Rules requires a person resident in India to obtain a No-Objection Certificate (NOC) from the
relevant authority before making any financial commitment or undertaking any divestment, if such person:
) Has an account classified as a Non-Performing Asset (NPA);
) Has been declared a wilful defaulter by any bank;
) Is under investigation by a financial sector regulator or investigative agencies in India, such as the Central
Bureau of Investigation (CBI), Directorate of Enforcement (ED), or Serious Fraud Investigation
Office (SFIO).
This requirement applies only to financial commitments, and not to Overseas Portfolio Investments (OPI).
If the concerned bank, regulator, or investigative agency fails to issue the NOC within 60 days of receipt of the
application, the NOC the line should be NOC, it shall be deemed to have been granted.

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5.9 METHOD OF FUNDING
The mode of payment by a person resident in India for making overseas investment shall be as per Regulation 8
of the OI Regulations. A person resident in India making an Overseas Investment may make a payment through:
1. Banking channel remittances
2. Funds from accounts maintained as per FEMA provisions
3. Swap of securities
4. Proceeds of ADRs/GDRs, stock swaps of such receipts
5. External Commercial Borrowings (ECBs) raised under permitted rules for financial commitment by way of
debt
Additional funding restrictions and clarifications as per the OI Directions:
Regulation/Aspect Restrictions/Clarifications
Cash Investments Cash-based overseas investment is prohibited
Remittance Limits Permitted only for normal operations of foreign branches, as per Regulation
5(b) of FEMA 10(R)
Third-party Payments Resident Indians cannot remit funds on behalf of foreign entities unless it is
an approved financial commitment
Nepal and Bhutan Investments Must comply with FEMA 14(R), 2016. Proceeds must be repatriated in
freely convertible currency

FOREIGN DIRECT INVESTMENT POLICY

The FDI policy is reviewed on an ongoing basis, with a view to making it more investor-friendly. With a view
to attracting higher levels of FDI, Government has put in place a liberal policy on FDI, under which FDI up to
100% is permitted under the automatic route in most sectors/activities.
The DPIIT plays an active role in the liberalization and rationalization of the FDI policy.

5.10 REPORTING REQUIREMENTS

A person resident in India who has made ODI or making financial commitment or undertaking disinvestment
in a foreign entity shall report the following, namely–

Financial commitment.
Disinvestment within thirty days of receipt of disinvestment proceeds.
Restructuring within thirty days from the date of such restructuring.

A person resident in India other than a resident individual making any Overseas Portfolio Investment
(OPI) or transferring such OPI by way of sale shall report such investment or transfer of investment within
sixty days from the end of the half-year in which such investment or transfer is made as of September or
March-end.

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5.11 ANNUAL PERFORMANCE REPORT

A person resident in India acquiring equity capital in a foreign entity which is reckoned as ODI, shall submit
an APR with respect to each foreign entity every year by 31st December.
No APR shall be required where–
(i) A person resident in India is holding less than 10 per cent. of the equity capital without control in the
foreign entity and there is no other financial commitment other than by way of equity capital or
(ii) A foreign entity is under liquidation.

6. ISSUES IN CHOOSING A LOCATION OUTSIDE INDIA

(a) Geographical location of the business

Infrastructure (port, airport, storage types)

Access (transportation of goods, materials and personnel)

Relevance to supply-chain

Availability of talent pool for production, services and management

(b) Economic aspect

Ease of doing business- entering, establishing, restructuring and closing of business

Cost of doing business

Laws relating to labour and Quality of labour force

Laws relating to taxation: subsidies, distribution of profits

Incentives

(c) Political aspect

Long-standing and
Friendly country, MFN Their relations with
established legislative
status nearing countries and
precedents with
neighbours and your
Regulatory environment. companies going through
country.
regulatory recourse.

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(d) Social aspect
Trade bodies, interaction between commercial Expatriate-friendliness of the nation for relocating
entities of both nations. key employee personnel.
(e) Technology aspect
Intellectual property protection: Create, maintain and extract IP at the location or provision thereof from
another location to the nation with free entry and egress.
Power, communication, telecom.

7. SETTING UP BUSINESS IN NEW ZEALAND

In New Zealand, the Companies Office is the official government agency responsible for company incorporation,
regulatory compliance, and record-keeping. Entrepreneurs begin by selecting a business name and structure, then
proceed to register online through the Companies Office website. The incorporation process allows simultaneous
registration for an IRD number (for tax purposes), GST (if eligible), and a New Zealand Business Number (NZBN),
which serves as a unique identifier for business transactions. This integrated approach streamlines regulatory and
tax setup, enabling operational readiness from day one. To access and complete the incorporation application,
applicants must have both a RealMe login—a secure identity credential for government services—and an Online
Services Account with the Companies Register.
The incorporation process starts with the following steps:
1. Create RealMe Login + Online Services Account
RealMe is a secure digital identity used to access government services in NZ
An Online Services Account with the Companies Register is mandatory to initiate incorporation procedures
2. File Online Application for Name Reservation
Reserve a unique company name via the Companies Office portal
This name must be approved before proceeding with incorporation
3. Post Name Approval: Apply for Incorporation within 20 Days
Once the name is approved, submit the incorporation application within 20 calendar days
This includes company details, structure, and key personnel
4. Submit Directors’ and Shareholders’ Consent Forms (Within 20 Working Days)
These consent forms confirm agreement to serve as company officers
They must be submitted no later than 20 working days after the incorporation application
5. Receive Certificate of Incorporation
Upon successful review and approval, the Companies Office issues the official Certificate of Incorporation.
This legally registers the business entity.

Create a Real me Login and an online service account with the Companies Register

File online application for name reservation

Post name approval, file application for incorporation within 20 days of name approval

File directors and shareholder's consent forms within 20 working days, thereafter

Avail Certificate of Incorporation

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 8. SETTING UP A BUSINESS IN SINGAPORE
In Singapore, company incorporation is overseen by ACRA through its online platform, BizFile+, which offers
over 300 services. This system lets entrepreneurs incorporate a business, register for GST, reserve domain names,
and set up bank accounts—all in one streamlined portal for efficient regulatory compliance and startup readiness.
The Incorporation process starts with the following steps:
1. Company Name Search & Reservation:
Apply via www [Link]
SGD 15 fee per name
Instant approval if available; may take 14 days to 2 months if referred
Name valid for 120 days
2. Filing Incorporation Application:
Can proceed immediately after name approval
Fee: SGD 300
Processing Time: ~15 minutes
Free Business Profile issued after successful registration
3. Confirmation & Certification:
Notice of Incorporation emailed to applicant (law firm/professional firm)
Includes company registration number
4. GST Registration via IRAS
Required when annual taxable turnover exceeds SGD 1 million
Can be completed using the same online BizFile+ forms during incorporation
Business Setup Process in Singapore
Identify Apply for Name Open Bank Sign Up for
Regulator Reservation Account Insurance
Recognize Submit a request Establish a Secure employee
ACRA as the to reserve a financial account compensation
governing body business name for the business insurance

Choose Business Set Up Company Obtain Registrations

Entity Establish the and Licenses
Select the appropriate company within Acquire necessary
business structure 120 days business permits

9. SETTING UP BUSINESS IN HONG KONG

Hong Kong’s reputation as a global financial center is reinforced by its efficient company registration system, low
tax regime, and minimal bureaucratic hurdles. The Companies Registry facilitates incorporation through digital
portals, with mandatory filings such as the NNC1 and IRBR1 forms. Its proximity to mainland China and robust
legal infrastructure make it a strategic choice for businesses seeking access to Asia-Pacific markets.

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The incorporation process starts with the following steps:
1. Company Name Search
Free search available via the Companies Registry or its mobile site
Ensures name availability before filing
2. Application via e-Registry
Submit the following documents:
 Form NNC1 (Company Incorporation Form)
 Articles of Association
 Form IRBR1 (Business Registration Form)
Instant name approval if the chosen name is unique
3. Incorporation Timeline
Incorporating a company in Hong Kong takes 1–2 business days if done electronically. Manual filings
or complex cases may take 7–15 working days.
4. Automatic Tax Registration
On incorporation, the company is automatically registered with the Inland Revenue Department
(IRD) for tax obligations
5. Employee Insurance & MPF Setup:
A. Employee’s Compensation Insurance (ECO)
 Mandatory for all employees (full-time or part-time)
 Covers workplace accidents under the Employees’ Compensation Ordinance
B. Mandatory Provident Fund (MPF)
Under the MPF Ordinance, employers must enroll eligible employees:
 Aged 18–65
 Employed for ≥ 60 days OR classified as casual workers in specified sectors
C. MPF Enrollment Options
 Online registration via banks or insurance portals
 Many businesses prefer advisory meetings for setup and guidance

Search for company name at the Companies Registry ([Link]) or at the mobile website
([Link])

Register your company with the Companies registry

Submit forms for company incorporation along with applicable fees

Open a bank account and get permits and licenses

Pension and Insurance Requirements.

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 10. SETTING UP A BUSINESS IN NEW YORK
New York, as one of the most prominent commercial jurisdictions in the United States, offers a well-defined legal
framework for setting up business entities such as LLCs and corporations. Its incorporation process is governed
by the New York Business Corporation Law and administered by the Department of State. With digital filing
options, streamlined tax registration, and sector-specific compliance pathways, New York remains a preferred
destination for outbound investment and strategic expansion.
The incorporation process starts with the following steps:
1. Reserve Company Name (Optional)
Apply online via the New York Department of State.
Fee: USD 20 (valid 60 days; extendable twice)
Must include “Limited Liability Company,” “LLC,” or “L.L.C.”
2. File Articles of Organization & Adopt Operating Agreement
Submit Form DOS-1336-f, Articles of Association
Processing time: 7 business days
Expedited fees: 2-hour (USD 150), Same-day (USD 75), 24-hour (USD 25)
The Operating Agreement must be signed within 90 days (not filed with the State)
3. Apply for EIN (Federal Tax ID)
File IRS Form SS-4
Apply via the IRS portal
Online/phone: Immediate
Fax: 4 days
Mail: 4 weeks
4. Register for State Sales Tax
Applicable for businesses selling taxable goods/services
File Form DTF-17 via NY Dept. of Taxation
Register at least 20 days before starting business
The Certificate of Authority must be displayed at the place of business
5. Register as an Employer for Unemployment Insurance
Submit Form NYS-100 via the NY Dept. of Labor
If liable, quarterly filings are required for wages and unemployment insurance
6. Workers’ Compensation & Disability Insurance
Required for all covered employers
Obtain coverage via an authorized insurer or NYSIF
Must post Form DB-120 at the workplace
“Covered employer”: ≥1 employee for ≥30 days in a calendar year
7. Publication Requirement
Within 120 days of formation, publish LLC notice in 2 newspapers (daily & weekly) for 6 weeks
Designated by the county clerk
Submit Certificate & affidavits of publication to the Department of State
Filing fee: USD 50

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 Reservation of Name and pay a fee of USD 20 by filing with the New York State Department of State
Division of Corporations.

File the company’s articles of organization with the department.

Enter into an operating agreement before, at the time of, or within 90 days after the filing of the articles of
organization.

Apply for federal identification number (EIN) for tax and employer purposes (IRS Form SS-4).

Register as a sales tax vendor and obtain a Certificate of Authority (DTF-17).

Avail Certificate of Authority and then register as an employer with the Unemployment Insurance Division at
the State Labor Department.

Arrange for workers’ compensation and disability insurance.

Arrange for publication and submit certificate and affidavits of publications.

11. SETTING UP BUSINESS IN THE UNITED KINGDOM

The United Kingdom offers a transparent and efficient framework for business incorporation, administered by
Companies House under the Companies Act 2006. With digital filing options, streamlined tax registration, and
clear post-incorporation compliance requirements, the UK remains a preferred jurisdiction for Indian entities
seeking access to European markets. Its regulatory clarity, especially around shareholding disclosures and director
duties, makes it particularly suitable for professional, financial, and advisory ventures.
The incorporation starts with the following steps:
1. Company Registration with Companies House
These are the following documents that are required
(a) Form IN01 must be filed with the required details:
 Company name and registered office jurisdiction
 Liability type (by shares or guarantee) and public/private status
 Capital structure and initial shareholdings
 First directors and (optional) company secretary
 Registered office address
 Compliance with Companies Act 2006
 Details of Persons with Significant Control (PSC)

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 (b) Filing Modes & Fees:
 Online: GBP 12
 Paper: GBP 40
 Same-day paper filing: GBP 100
 Through agent: GBP 10 (standard), GBP 30 (same-day) — may add extra fees
(c) Model Articles & Memoranda auto-generated for online filers
(d) Name conflicts are flagged instantly during online filing
(e) Custom articles require submission via professional software
2. Register for PAYE (HMRC)
Apply online for PAYE setup
Receive activation PIN within 5 days
Must activate PIN within 28 days
Real-time PAYE reporting has been mandatory since April 2013
3. Register for VAT (HMRC)
Mandatory if annual taxable turnover > GBP 85,000
Optional registration below the threshold
Apply online via HMRC Online Services or Government Gateway
Some cases require a paper application
4. Employer’s Liability Insurance
Mandatory under the Employers’ Liability (Compulsory Insurance) Act, 1969
Minimum cover: GBP 5 million
Failure to comply: GBP 2,500/day fine
Certificates must be posted or electronically displayed and accessible to employees.

Complete application in form IN01 and file for registration with Companies House.

Register for PAYE (pay as you earn tax) whivch deducts tax from employee wage or salary.

Register for VAT.

Sign up for employer's liability insurance.

12. SETTING UP A BUSINESS IN CANADA

Canada provides a transparent and investor-friendly environment for business incorporation, with options for both
federal and provincial registration. The process involves securing a Business Number (BN), registering for GST/
HST, and complying with employment and insurance regulations. Its bilingual legal system, stable economy, and
sectoral clarity—especially in finance, food, and infrastructure—make it a compelling jurisdiction for Indian
entities expanding abroad.

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The incorporation starts with the following steps:
Planning a business

Assessing readiness, choosing a business structure, market research and writing a business plan.

Choosing a business name

Selecting a good name, checking if a name is taken, registering and protecting business name.

Registering business with the government

Registering or incorporating business, plus how to apply for a business number or tax account.

Applying for business permits and licences

Permits and licences that may need for business from all three levels of government.

13. SETTING UP BUSINESS IN AUSTRALIA

Australia’s incorporation framework is anchored by the Australian Securities and Investments Commission
(ASIC) and supported by integrated digital services for ABN, GST, and business name registration. With clear
thresholds for tax registration and mandatory employment compliance, Australia offers a structured yet flexible
setup process. Its strategic location and regulatory transparency make it ideal for entities targeting Oceania and
Southeast Asia.
The incorporation starts with the following steps:
1. Apply for ABN (Australian Business Number)
Unique ID for tax and business identification — free to register
2. Register Business Name
Needed for customer recognition — must be distinct
3. Complete Tax Registrations
Depends on business type — may include GST, PAYG, etc.
4. Get Licences & Permits
Varies by industry and location — includes zoning, food license, etc.
5. Register as a Company
If choosing a corporate structure, you must register with ASIC
6. Trademark Registration
Protect the brand, name, and logo from being used by others.
Australian business An Australian business number (ABN) is unique to business. Customers, suppliers and
number (ABN): the Australian Taxation Office (ATO) use this number to help identify business.

Business name: A business name helps customers identify business from others.

Tax registrations for

Not all taxes will apply to business. It depends on the type of business a person starting.
business:

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 Licences and The licences and permits will vary. They often depend on the location of the business
permits: and the industry.

If a person has decided a company is the right business structure for the business, this
Company:
need to register.

Register the business as a trade mark to protect the business name and brand from
Trade mark:
being used by others.

Previous Year Questions

1. Micro India Ltd. is in the Mobile Manufacturing business, incorporated under the Companies Act. The
Company has an agreement with a Chinese Company for technology support as well as the supply of ma-
jor parts of the mobile, which are assembled in India. Under this treaty, there is a clause where the Indian
Company needs to set up a business in Hong Kong, China, to set up the production unit of Mobile Chipset
as well as the manufacturing of Display Panel. Describe the procedure for incorporation of a Company in
Hong Kong (China). Dec. 2024 (3 marks)
Hints :
1. Search for the company name at the Companies Registry
([Link]) or at the mobile website ([Link])
2. Register your company with the Companies Registry
3. Submit forms for company incorporation along with applicable fees
4. Open a bank account and get permits and licenses
5. Pension and Insurance Requirements
2. Technocom Ltd. is a company engaged in the business of communication and networking. The company
specializes in providing solutions for virtual meetings, e-offices, digitization of records, etc. After getting
a good response from potential clients outside India, the company intends to set up and expand its business
outside India. Describe the aspects that need to be considered by Technocom Ltd. in choosing locations for
its business outside India. June 2024 (3 marks)
Hints:
1. Geographical Location of the business 2. Economic aspect
3. Political aspect 4. Social aspect
5. Technology aspect
3. ABC Ltd. is considering expanding its operations into Singapore due to the country’s favourable business
environment. The company aims to establish a subsidiary in Singapore to tap into the region’s growing
market and to benefit from Singapore’s pro-business policies. ABC Ltd. seeks your advice on the process
and requirements for incorporating a company in Singapore. Advise ABC Ltd. June 2024 (3 marks)
Hints:
1. Decide on a business entity.
(sole proprietorship, partnership, company)
2. Apply for name reservation.
at the designated authority
3. Set up the company within 120 days.
from name approval

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 4. Open a bank account
(take registrations & licenses)
5. Register Employee Compensation Insurance
at an insurance agency
4. PQR Ltd. is a listed entity in the Textile Sector. Out of the total revenue, 40% revenue is generated from
export sales to New York City. The Company sells its items in New York through local distributors under a
tie-up. However, as per the agreement, the distributors have the right to use their logo on the item purchased
from PQR Ltd. The Company is planning to incorporate a subsidiary company in the City of New York for
better branding and direct customer sales. The Company is also planning to set up a manufacturing unit
near New York City under its subsidiary. As per the law prevailing in the USA, what are the requirements
for workers’ compensation and disability insurance? Dec 2024 (5 marks)
Hints :
New York employers must obtain workers’ compensation and disability insurance through NYSIF,
authorized private insurers, or by self-insuring. Must provide their EIN to insurance carriers for
coverage.
Workers’ compensation cost is based on risk classification, salary, and payroll.
Must post Form DB-120 (Notice of Compliance) at the business premises.
Any employer with ≥1 employee for ≥30 days in a year becomes a covered employer after 4 weeks and
must provide disability benefits.
5. Somit Kapoor is an Indian businessman dealing in the manufacturing of antique designer jewels. He has
retail shops across all major cities in India. He wants to diversify his business geographically and plans to
open retail outlets outside India. What are the aspects he should look into in choosing investment locations
outside India? June 2021(3 marks)
Hints:
1. Geographical Location of the business
2. Economic aspect
3. Political aspect
4. Social aspect
5. Technology aspect
6. MN Ltd., a Company registered in Japan, has established a place of business in India. Advise MN Ltd. on
the documents required to be filed by the Company with the concerned Registrar of Companies under the
provisions of The Companies Act, 2013.  Dec. 2021 (4 Marks)
Hints:
Documents to be Filed with ROC – Sec 380 (Companies Act, 2013)
Within 30 days of establishing a place of business in India, a foreign company must file:
1. Charter, MOA & AOA – Certified copy; translated if not in English
2. Registered Office Address – Full details of overseas principal office
3. List of Directors & Secretary
4. Authorized Indian Contact – Name/address of person accepting legal notices
5. Indian Business Address – Principal place of business in India
6. Past Establishments – History of office openings/closures in India
7. Conviction Declaration – No convictions or debarring of directors/AR
8. Other Prescribed Info – As specified by rules

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 SBIL
CHAPTER
IDENTIFYING LAWS APPLICABLE
12 TO VARIOUS INDUSTRIES AND
THEIR INITIAL COMPLIANCES

1. INTRODUCTION
1.1 INDIA: AN EMERGING ECONOMIC POWERHOUSE
Under the New India 2022 vision, India is rapidly transforming into one of the world’s fastest-growing economies,
with the potential to become the third-largest GDP globally within 30 years, trailing only the USA and China.
To align with global market trends and boost entrepreneurship, the Government of India has launched several
initiatives:
Government of India Initiatives

Make in India Ease of Doing Skill India Digital India Atmanirbhar

Encourages Business Enhances Empowers citizens Bharat
manufacturing and Simplifies workforce skills through technology Promotes self-
attracts foreign regulations to foster for the modem and improves digital reliance and
investment. a business-friendly economy. infrastructure. local industries.
environment.

These programs aim to attract domestic and foreign investors by simplifying regulatory hurdles and promoting
innovation.
) Ranked 63rd among 190 countries in the World Bank's Ease of Doing Business 2020
) 67th rank leap in just 3 years, placing India among the top 10 improvers for three consecutive years
) Over 25,000 compliances removed, making the business landscape more accessible
While the market offers immense opportunities, businesses must navigate India’s evolving legal frameworks for
a successful setup and operation.

2. FORMALIZING AND DECIDING THE BUSINESS STRUCTURE

The foremost requirement for setting up this business is to understand and decide what kind of business venture
it would be. Founders need to incorporate the company as a specific business type, such as sole proprietorship,
private limited, public limited, partnership, or limited liability partnership. It is essential to have this clarity from
the very beginning, as it will be integral to the business’s overall vision and goals, both short-term and long-term.
Here is a quick look at the legal implications for the major business types in India.

Business Types

Legal Details Limited Liability Public/ Private

One Persons
Proprietorship Partnership Partnership Limited
Company
(LLP) Company

Registration No formal Registration is Has to be Has to be Has to be

registration Optional registered with registered with registered with
the Ministry of the Ministry the Ministry
Corporate Affairs of Corporate of Corporate
under the LLP Act Affairs under the Affairs under the
2008 Companies Act Companies Act,
2013 2013

Legal Status Not recognised Not recognised not a separate It is a separate It is a separate
as a separate as a separate legal entity. legal entity. The legal entity. The
entity, and entity, The promoters of promoters of the promoter of the
the promoter promoters are the LLP are not company are not company is not
is personally personally personally liable personally liable personally liable
responsible for responsible for for the LLP to the company to the company
all liabilities. all liabilities
and are

Member Unlimited Unlimited Limited liability Limited Liability Limited Liability

Liability Liability Liability to the extent of to the extent of to the extent of
contribution to the share capital share capital
LLP or the amount or the amount
of guarantee of guarantee
undertaken, undertaken.
unless the Unless the
company is company is
unlimited unlimited

Number of Can only have Minimum of Minimum of two Minimum of One person is
Members one person Two people persons needed two persons needed to start
Required are required to to start an LLP needed to start a e one-person
start (Max: No limit) Private Limited company
Company (Max Appointment
a Partnership
200), and seven of a nominee is
(Max: 50) persons for a mandatory
public limited
company (No
Max limit)

Transferability Not transferable Not Ownership can be Ownership can Ownership can
transferable transferred be transferred be transferred by
using a share means of a share
transfer transfer.

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 Taxation Taxed as an Partnership LLP profits are Profits of both Profits of a One
Individual, based profits are taxed as per the Public and Person Company
on the total taxed as per slabs provided Private Limited are taxed as per
income of the the slabs under the Income Companies the provisions of
proprietor provided under Tax Act, 1961, are taxed as the Income Tax
the Income plus surcharge and per the slabs Act, 1961
Tax Act, 1961, cess as applicable. provided under
plus surcharge the Income
and cess as Tax Act, 1961,
applicable plus surcharge
and cess as
applicable

Annual/ No requirement No No requirement Board and Board Meetings

Statutory for annual/ requirement for annual/ General should be
Meetings statutory for annual/ statutory meetings Meetings should conducted twice
meetings statutory be conducted a year
meetings periodically, as
the case may be

Annual Filings No requirement No To file Annual To file Annual To file Annual

to file an annual requirement to Accounts & Accounts & Accounts &
report with the file an annual Returns & Returns and Returns and
Registrar of report with the Solvency, and Annual Return Annual Return
Companies. Registrar of Annual Return with the with the
Income tax Companies. with the Registrar Registrar every Registrar every
return to be Income tax every year. Tax year. Tax returns year. Tax returns
filed on the return to be returns must also must also be must also be
income of the filed for the be filed annually filed annually filed annually
proprietorship. partnership.

Legal Details Proprietorship Partnership Limited Liability Public/Private One Person

Partnership (LLP) Limited Company
Company

Existence or Proprietorship Partnership Existence is not Existence is Existence is

Survivability existence is existence is dependent on not dependent not dependent
dependent on the dependent on partners. Can on directors or on directors or
proprietor the partners. be dissolved shareholders. shareholders.
Can be voluntarily or Can be dissolved Can be dissolved
dissolved at by order of the voluntarily or voluntarily or
will or upon Company Law by Regulatory by Regulatory
the death of Board Authorities Authorities
partner(s)

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Foreign Foreigners are Foreigners are Foreigners are Foreigners Foreigners are
Ownership not allowed to be not allowed allowed to invest are allowed to not allowed to
sole proprietors to be part of a with/ without the invest without be part of the
partnership approval of the the approval OPC.
Reserve Bank of of the RBI and
India (RBI) and other applicable
other applicable permissions
permissions from the relevant
for the relevant Government of
Government of India authorities,
India authorities, depending on
depending on the category of
the category of business they
business they are interested in
are interested in investing.
investing in.

2.1 PARAMETERS FOR DECIDING BUSINESS STRUCTURE

Control & Management

Capital Investments

Liability Threshold & Personal Risk

Tax Obligation

Licenses, Permits, & Regulations

Attracting Investors

) Control & Management:

A single owner who intends to manage all operations and investments independently may opt for a One
Person Company (OPC).
However, if two or more promoters are planning to raise external investments or expand ownership, structures
like Limited Liability Partnership (LLP) or Private/Public Limited Company offer greater flexibility and
enhanced credibility.
) Capital Investments:
For raising funds from banks, investors, or venture capitalists, a Private Limited Company is often the most
suitable structure.
Unlike sole proprietors who rely on personal assets or partners, companies can raise capital by issuing
shares.
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 Though LLPs are independent legal entities, they may still face challenges in raising funds as they cannot
issue equity shares. However, they generally do not require owners to pledge personal assets, offering
limited liability.
) Liability Threshold & Personal Risk:
In high-risk scenarios, choosing the right structure is key. HUFs, Sole Proprietorships, and Partnerships face
unlimited liability, risking owners’ assets for business defaults. Structures like LLP, OPC, and Company
provide significant liability protection, shielding personal finances with few exceptions.
) Tax Obligation:
In Partnerships and LLPs, income is taxed as the personal income of partners, helping avoid double taxation.
In contrast, companies are taxed at the corporate level. Additionally, when profits are distributed to
shareholders as dividends or salaries, such income may attract personal income tax, resulting in a double
taxation scenario.
Furthermore, salaries drawn by directors may be subject to additional personal obligations such as
professional tax or TDS (Tax Deducted at Source).
) Licenses, Permits & Regulations:
Beyond registration, businesses may need specific licenses depending on activity and location (local/state/
federal). Regulatory prerequisites vary by model—there’s no universal checklist. Be mindful of rules around
liability, taxation, and industry compliance.
) Attracting Investors:
Business structures that lack formal registration—like sole proprietorships and unregistered partnerships—
often fail to gain investor confidence.
On the other hand, formally registered entities such as OPCs, LLPs, and Private/Public Limited Companies
are more attractive to institutional investors and venture capitalists, due to greater legal clarity, accountability,
and disclosure norms.

3. SECTION 8 COMPANY
A Section 8 Company can be incorporated under the Companies Act, 2013, with the primary objective of
promoting commerce, art, science, sports, education, research, social welfare, religion, charity, environmental
protection, or other similar objectives.
Such a company must:
) Apply its profits or income solely towards the promotion of its objectives, and
) Prohibit the payment of any dividend to its members.

3.1. ELIGIBILITY TO APPLY FOR SECTION 8 COMPANY LICENSE

An individual or group can register a Section 8 Company if:
) The objective is to promote: science, commerce, education, art, sports, research, religion, charity, social
welfare, environment, or similar causes
) Profits/income are solely used to advance these objectives
) No dividend is paid to members
) Must comply with norms set by the Central Government; failure may result in closure
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3.2. ADVANTAGES OF A COMPANY REGISTERED UNDER THE
Section 8

Access to Tax benefits

Zero Stamp Duty

Minimal share capital.

Exempted from suffix/prefix of name.

Separate legal entity.

Improved Credibility

3.3. EXEMPTIONS GRANTED TO SECTION 8 COMPANIES

General Meetings: Only notice period of 14 days required.

Minutes of the Meeting: The minutes of meetings may be recorded within 30 days of conclusion.

Audited Financial Statements: Copies of the audited financial statements and documents can be sent
14 days to the members instead of 21 days.

Directorship: The maximum limit of 15 directors, SR need not be passed.

Appointment of Independent Director: There is no requirement to appoint an independent director.

Holding of Board Meetings: The companies are required to hold one Board Meeting within six months.

No appointment of Company Secretary.

4. FORMATION OF A COMPANY
Registration of a company grants it a separate legal identity and recognition as an independent legal entity under
Indian law.
The company registration process in India is governed by the Ministry of Corporate Affairs (MCA) and is
detailed below:

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 (i) Apply for Director Identification Number (DIN).

(ii) Apply for Digital Signature Certificate (DSC)

(iii) Filing for New User Registration

(iv) Application for Company Name.

(v) Filing for Charter Documents.

(a) Charter Documents of a Company
(b) Memorandum of Association
(c) Articles of Association

(vi) Stamping of Company Documents

(vii) Certificate of Incorporation

(viii) Register Other Details.

1. Apply for Director Identification Number (DIN)

Under Section 153 of the Companies Act, every proposed director must obtain a DIN.
Requirements:
) Full name
) Father’s name
) Date of birth
) Identity proof and address proof
) PAN card copy
) Two passport-sized photographs
How to Apply:
1. For New Companies
) Apply DIN via the SPICe+ form during incorporation.
) Up to 3 DINs can be allotted in one go.
For Existing Companies
Use eForm DIR-3 on the MCA Portal
) Steps:
1. Register on the MCA portal and obtain a login ID
2. Fill eForm DIR-3 offline and attach required documents
3. Digitally sign the form using DSC

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 4. Upload the form and pay ₹500 fee online (Netbanking/Credit Card only)
5. If no duplicate is found, DIN is approved instantly; else, provisional DIN is issued and verified manually
2. Obtain a Digital Signature Certificate (DSC)
A DSC is required for authenticating documents during e-filing.
Details Required:
) Same as DIN: Full name, father’s name, DOB, PAN, address proof, ID proof, and photo
Validity:
) Typically valid for 1–2 years
) Renewal is managed by the Controller of Certifying Authorities (CCA)
3. Register as a New User on the MCA Portal
To access eForms and payment services:
) Visit [Link]
) Register under “New User Registration” (for business users or individuals)
4. Application for company name
The SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus) form is now the primary route
for reserving a company name during incorporation.
SPICe+ Part A – Name Reservation
1. Log in to MCA V3 Portal
2. Navigate to:
MCA Services → Company e-Filing → Incorporation Services → SPICe+
3. Open SPICe+ Part A
4. Enter:
Type of company (e.g., Private, Public)
Proposed name (up to 2 options allowed)
Business activity description
5. Submit Part A and pay ₹1,000 fee
6. Receive Approval or Rejection
If approved, the name is reserved for
 20 days (new company)
 60 days (existing company name changed
5. File Charter Documents: MOA & AOA
These foundational documents define your company’s structure and governance.
) MOA (Memorandum of Association):
Includes company name, registered office, objectives, and scope
Governs external relationships
) AOA (Articles of Association):
Defines internal management and operational rules
Must comply with company law provisions
Both documents can be modified after incorporation if needed.

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6. Stamping of MOA and AOA
Stamp duty must be paid before submission of the MOA and AOA to the Registrar of Companies (ROC).
Applies during:
) Company incorporation
) Alteration/adoption of new MOA/AOA
) Increase in authorized capital
Steps to Follow
) Prepare MOA & AOA
Draft as per Companies Act, 2013
Ensure proper signatures and dates by authorized signatories
) Calculate Stamp Duty
Based on authorized capital and state-specific rates
) Pay Stamp Duty
Use the eStamp facility or authorized stamp vendors
Some states allow online stamp duty payment via the MCA portal during SPICe+ filing
) Attach Stamped MOA & AOA
Scan and attach stamped copies in SPICe+ Part B or Form MGT-14 (for amendments)
) File with ROC
) Submit electronically via the MCA portal
) Include applicable forms and fees
) Stamp duty rates vary by state (e.g., Delhi, Maharashtra, Karnataka)
7. Obtain Certificate of Incorporation (COI)
Once documents are approved:
) ROC issues the COI, officially recognizing the company
) A Private Company can start operations immediately
) A Public Company must also obtain a Certificate of Commencement of Business
8. Post-Incorporation Compliances
After incorporation, complete the following:
) Notify MCA of:
Company details
Appointments (directors, secretary, manager)
) Register under the Shops and Establishment Act within 30 days of starting business.

4.1. DOCUMENTS REQUIRED FOR COMPANY REGISTRATION

A. Documents of the Directors and Shareholders of the company/ Partners of the LLP:
1. Proof of identification of all the company’s 2. Proof of address of all the directors and
directors and shareholders (partners in case of shareholders (partners in case of LLP).
LLP). Any one of the below documents can be
submitted as proof of identification: Pan card
Aadhar card, Driving license, Passport.

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Any one of the documents below can be submitted as address proof:

(a) Latest telephone bill (not older than 2 months)

(b) Latest electricity bill (not older than 2 months)

(c) Bank account statement having address

DIN (DPIN in case of LLP) and DSC of all the directors (partners in case of LLP
B. Documents of the company and LLP:
) Proof of Registered Office:
Submit address proof with one of the following:
Tenancy/rental agreement between landlord and company/LLP
NOC from the landlord permitting the use of the premises
Sale deed in the name of the company/LLP
) Memorandum of Association (MOA):
) Defines the company’s objectives and member liability.
) Articles of Association (AOA):
Specifies the company’s internal rules and operational guidelines.
C. Reservation of name or change of name
) Name Reservation & Incorporation:
Apply via SPICe+ (INC-32) on MCA Portal for integrated services—name reservation, incorporation, DIN,
PAN, TAN, EPFO, ESIC, Profession Tax (MH), bank account & optional GSTIN.
For a name change, use RUN (Reserve Unique Name).
Resubmissions are allowed within 15 days if defects are found.
An approved name is valid for 20 days from the date of approval (in case the name is being reserved for a new
company), or 60 days from the date of approval (in case of a change of name of an existing company)
1. Company Name Should Be:
) Unique
) Reflective of objectives (noun + activity word)
) Compliant with MCA guidelines
2. Company Name Should Not:
) Match or resemble existing company/LLP names (including phonetically)
) Conflict with registered or pending trademarks
) Be offensive, misleading, or undesirable to the government
) Imply false government affiliation without approval
) Suggest financial activities unrelated to the actual business
) Use overly descriptive or generic business terms

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D. Features of SPICE+ form
Part-A Part-B
Part A represents the section wherein all details with Part B represents the section wherein all remaining
respect to name reservation for a new with respect to details required for incorporation of a company has to
name reservation for a new compony has to be entered. be entered.
Part A can either be submitted individually ONLY for Part B of SPICe+ offers following services viz.
name reservation or can be submitted together with (i) Incorporation (ii) DIN allotment (iii) Mandatory issue
SPICe+ Part B for both name reservation as well as of PAN (iv) Mandatory issue of TAN (v) Mandatory
incorporation. In case SPICe+ Part A is submitted issue of EPFO registration (vi) Mandatory issue of ESIC
individually for name reservation, Part B and all other registration (vii) Mandatory issue of Profession Tax
linked forms shall be enabled only after the SRN of registration (Maharashtra) (viii) Mandatory Opening
SPICE+ Port A is ‘Approved’ i.e. the name is reserved. of Bank Account for the Company and (ix) Allotment
of GSTIN (if so applied for).
E. Simplified Proforma for Incorporating Company [Electronically Plus (SPICe+)]
) SPICe+ (INC-32) Application:
Used for incorporating a company along with e-MOA (INC-33) and e-AOA (INC-34). For Section 8
companies, INC-13 and INC-31 must be attached. Only one name can be proposed through SPICe+.
) Scope of SPICe+:
Includes DIN (for up to 3 directors), PAN, TAN, EPFO, ESIC, Profession Tax (Maharashtra), bank account,
and optional GSTIN via AGILE-PRO-S (INC-35).
) Fee & Exemptions:
A filing fee of ₹500 plus applicable registration charges is payable. The fee is exempt if the company’s
authorised capital is ₹15 lakhs or less, or the number of members is 20 or less.
) DIN Allotment:
Up to 3 directors without an existing DIN can apply through SPICe+.
) Digital Signature:
Subscribers must sign e-MOA/e-AOA digitally.
) Office Verification:
Registered office proof is submitted with SPICe+. INC-22 is not required if the address is validated.
) INC-9 Declaration:
The declaration in Form INC-9 is submitted electronically, unless there are more than 20 subscribers/
directors or any of them does not possess a valid DIN or PAN.
) Defects & Resubmission:
Registrar may allow resubmission within 15 days; the total limit is 30 days.
) Certificate of Incorporation:
Issued in INC-11 after approval.
) Mandatory Registrations via AGILE-PRO-S:
Through AGILE-PRO-S, the following registrations are mandatorily integrated with SPICe+:
EPFO
ESIC
Profession Tax (only for Maharashtra)
Bank Account
Shops & Establishment Act
GSTIN (optional)

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5. APPLYING FOR BUSINESS LICENSES
Obtaining appropriate licenses is essential for operating any business legally. Failure to acquire the necessary
licenses may result in legal penalties, fines, or litigation.
Business License: A legal document that authorizes a business to commence and carry out its operations in
compliance with applicable laws.
Business Registration: The formal process of recording a business entity with the relevant statutory authority,
along with essential details such as business name, type, address, and ownership.
5.1. EMPLOYEE’S STATE INSURANCE REGISTRATION
The Employees’ State Insurance (ESI) is a self-financing social security and health insurance scheme designed
for Indian workers.
It provides:
) Medical benefits to employees and their dependents,
) Cash benefits during sickness or maternity leave,
) Compensation in case of temporary or permanent disability due to employment injury, and
Support to dependents in the event of a worker’s death caused by occupational hazards.

ESI Registration is mandatory for employers having 10 or more employees.

All employees earning up to ₹21,000 per month in wages, and up to ₹25,000 in

the case of persons with disabilities, are eligible

Liability of treatment and medical expenses, which may be incurred if any acci-
dent is happened at the business premises or factory.

5.2. EMPLOYEE PROVIDENT FUND REGISTRATION

The Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, is a key social security legislation
aimed at ensuring the financial security of employees and their dependents, particularly during retirement,
disability, or in case of death.

Mandatory for establishments with 20 or more employees; must register

within 1 month of reaching threshold.

Delay attracts penalties.

Establishments with fewer employees can register voluntarily with the

Regional EPF Office to extend PF benefits.

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5.3. GST REGISTRATION
GST Registration is mandatory for every business or corporation involved in the buying and selling of goods or
services. Those with an annual turnover of more than 20 lakh rupees for supply of services and 40 lakh rupees in
case of supply of goods are the threshold limit (exemptions provided to special category states). If a business is
carried on without registering under GST, then it will be an offence under GST law.

Mandatory for businesses supplying goods/services.

Threshold: ₹20 lakh (services), ₹40 lakh (goods); lower limits for special category states.

Required for Casual Taxable Persons, NRTPs, e-commerce aggregators, agents, ISDs, etc.

Non-registration is a GST law offense. Registered entities receive a unique GSTIN.

Registered entities receive a unique GSTIN

Aggregate Annual
Category Region
Turnover (INR)
Services Special Category States—Assam, Arunachal Pradesh, Manipur, Meghalaya, 10 Lakhs
Mizoram, Nagaland, Sikkim, Tripura, Uttarakhand & Himachal Pradesh.
Services Rest of India 20 Lakhs
Goods Special Category States—Assam, Arunachal Pradesh, Manipur, Mizoram, 20 Lakhs
Meghalaya, Nagaland, Tripura, Sikkim, Uttarakhand & Himachal Pradesh
Goods Rest of India 40 Lakhs

5.4. UDYAM REGISTRATION

Udyam Registration is an online government portal introduced for the registration of Micro, Small, and Medium
Enterprises (MSMEs) in India. Registration provides various benefits, including access to government credit
schemes, subsidies, tax exemptions, and priority in government procurement.
The eligibility for Udyam registration is determined based on a composite criterion, which includes:
) Investment in plant and machinery or equipment, and
) Annual turnover.
MSME Classification Table (Effective April 1, 2025)
Enterprise Type Investment in Plant & Machinery / Equipment Annual Turnover
Micro Up to 2.5 crore Up to 10 crore
Small Up to 25 crore Up to 100 crore
Medium Up to 125 crore Up to 500 crore
These parameters are used to classify enterprises into Micro, Small, and Medium categories under the MSME
Development Act.
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5.5. FSSAI REGISTRATION OR LICENSE (IN CASE OF BUSINESS OF EDIBLES)
This is the national authority for ensuring the safety and standardization of food items in India. FSSAI stands for
Food Safety and Standards Authority of India. All retail establishments, trade outlets, kiosks, eateries, caterers,
and cloud kitchens must follow FSSAI regulations, get licenses, and periodically renew their registrations. Under
FSSAI, the license or registration is divided into three categories, namely:
1. FSSAI Central License
2. FSSAI State License
3. FSSAI Basic (state) Registration

6. COMPLIANCE WITH LABOUR LAWS IN INDIA

1. Labour Laws – Purpose
) Aim to protect employees and ensure accountability of employers
) Enforceable only in the workplace
) Promote safe, secure, and productive work environments
) Non-compliance leads to legal penalties
2. Applicability:
) Mandatory for all organizations, regardless of size, once employees are hired, but specific laws and
compliance requirements may vary based on the nature, type, and organization.
3. Key Compliance Areas:
) Minimum wages
) Gratuity
) Provident Fund (PF)
) Weekly Off & Working Hours
) Maternity benefits
) Prevention of sexual harassment
) Payment of bonus

6.1. 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

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 Social Security

Labour Welfare

Fair Treatment in the Workplace

6.2. RECENT DEVELOPMENTS IN LABOUR LAWS

The Occupational
The Code of Wages, The Industrial Relation Safety, Health and The Code on Social
2019. Code, 2020. Working Conditions Security, 2020
Code, 2020.

7. ADHERENCE TO LAWS RELATING TO INTELLECTUAL PROPERTY

IPR have become an irreplaceable element of India’s business fraternity, whether in terms of new statues
or judicial pronouncements.

India’s consent of the WTO agreement has paved the way or its compliance with TRIPS (Trade Related
Aspects of Intellectual Property Rights).
One has to ensure strict adherence to the Laws relating to Intellectual Property in India as well as of
International Application to which India is a signatory.
For the effective implementation If the IP Laws, facilitators have been empanelled the TRIPS agreement
has made way for the harmonization of Indian laws with IPR.

8. ENSURING EFFECTIVE CONTRACT MANAGEMENT

(a) Contract Management Essentials:
) Contracts ensure smooth operations and legal recourse.
) Under the Indian Contract Act, 1872, agreements must have free consent, a lawful object, a lawful
consideration, and be legally valid.
) Early employee contracts should define salary, role, and stock options clearly to reduce future risk.
) Effective management covers contracts with employees, suppliers, partners, and customers.
) Poor oversight can lead to financial loss and legal penalties.

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(b) Business Closure Protocols:
) Must notify all stakeholders (employees, vendors, investors, customers).
) A structured and well-communicated exit strategy must be planned and executed.
) The final step involves the liquidation of assets to settle outstanding debts and liabilities.

9. LAWS RELATING TO INDUSTRIES: SPECIFIC LAWS

Specific Laws and General Laws
Segregation of laws applicable on the Company into the Industry specific and general is essential for Secretarial
Audit. After considering the following factors the auditor should make the segregation of the same based on the
laws being applicable on the Company:
) Key financial parameters such as turnover, paid-up shore capitol, net worth, borrowings, etc.
) Geographic location of registered office, units/divisions/plants/branches, etc.
) Status of company such as listed/unlisted.
) Type/class of company such as Private, Public, Holding, Subsidiary, Foreign, Nidhi, Producer, Section 8,
etc.
) Registration with various authorities such as SEZ, Sectoral Regulators, etc.
) Segment such as manufacturing/trading/service/e-commerce and industry classification thereof.
) Agreements governing rights, obligations of shareholders such as Joint venture, shareholders’ agreements.
) Number, class and category of employees/workers such as women, contractual employees, etc.

10. TRADING & RETAIL INDUSTRY

Laws Applicable to Trading & Retail Industries
1. Trade Marks Act, 1999
2. Patents Act, 1970
3. Copyright Act, 1957
4. Legal Metrology Act, 2009
5. Shops and Establishments Act (State-wise)
6. Food Safety and Standards Act, 2006
7. Municipal Corporation Acts and By-laws
8. Retail-specific regulations
9. Consumer Protection Act, 2019
10. Environmental and Pollution Control Laws
11. Direct and Indirect Tax Laws (including GST)
12. Land Revenue Laws (State-wise)
13. Labour Welfare Laws (State-wise)
14. Store-specific local laws
15. Whistle Blowers Protection Act, 2014
16. Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

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 11. IFSC & BULLION EXCHANGE INDUSTRY
The following Acts and regulatory guidelines apply specifically to IFSC and bullion exchange entities:
1. Special Economic Zones (SEZ) Act, 2005
2. Securities and Exchange Board of India Act, 1992
3. Insurance Regulatory and Development Authority of India Act, 1999
4. International Financial Services Centres Authority Act, 2019
5. Foreign Exchange Management Act, 1999
6. Pension Fund Regulatory and Development Authority Act, 2013
7. Payment and Settlement Systems Act, 2007
8. Government Securities Act, 2006
9. Credit Information Companies (Regulation) Act, 2005
10. Depositories Act, 1996
11. General Insurance Business (Nationalisation) Act, 1972

12. STARTUPS
List of laws that are specifically applicable to startups
1. Shops and Establishments Act (State-wise)
2. Environment (Protection) Act, 1986
3. Competition Act, 2002
4. Trade Unions Act, 1926
5. Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979
6. Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996
7. Foreign Exchange Management Act (FEMA), 1999 – governs foreign investment, including those by
Foreign Venture Capital Investors (FVCIs)
8. Labour Law Exemptions – The government has allowed certain exemptions from labour inspections for
startups, provided they comply with all major labour laws in good faith.
9. Whistle Blowers Protection Act, 2014
10. Consumer Protection Act, 2019, and rules made thereunder
11. Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

13. PHARMA INDUSTRY

Key Laws Applicable to the Pharmaceutical Industry:
1. Food Safety and Standards Act, 2006
2. Narcotic Drugs and Psychotropic Substances Act, 1985
3. Drugs and Cosmetics Act, 1940, along with:
Drugs Rules, 1945, and
New Drugs and Clinical Trials Rules, 2019
4. Drugs and Magic Remedies (Objectionable Advertisements) Act, 1954
5. Essential Commodities Act, 1955 – including the Drug Price Control Order, 2013

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 6. Pharmacy Act, 1948
7. Drugs (Price Control) Order, 1995 (repeated – consider removing if merged with point 5)
8. Uniform Code for Pharmaceutical Marketing Practices, 2014
9. Bio-Medical Waste (Management and Handling) Rules, 1998
10. Air (Prevention and Control of Pollution) Act, 1981
11. Water (Prevention and Control of Pollution) Act, 1974

14. BANKING INDUSTRY

Key Laws Applicable to the Banking Industry:
1. Banking Regulation Act, 1949, along with RBI Master Circulars, Notifications, and Guidelines
2. Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
3. Recovery of Debts Due to Banks and Financial Institutions Act, 1993
4. Transfer of Property Act, 1882
5. Negotiable Instruments Act, 1881
6. Sale of Goods Act, 1930
7. Foreign Contribution (Regulation) Act, 2010
8. Prevention of Money Laundering Act, 2002
9. Credit Information Companies (Regulation) Act, 2005
10. Trade Unions Act, 1926
11. Micro, Small, and Medium Enterprises Development Act, 2006
12. Insurance Act, 1938, and Insurance Rules, 1939

15. INSURANCE INDUSTRY

Key Laws Applicable to the Insurance Industry:
1. Insurance Act, 1938, and Insurance Rules, 1939
2. Insurance Regulatory and Development Authority of India (IRDAI) Act, 1999
3. Anti-Money Laundering Regulations issued by IRDAI
4. State-wise Shops and Establishments Act
5. Indian Stamp Act, 1899, and relevant State Stamp Acts
6. Copyright Act, 1957
7. Prevention of Money Laundering Act, 2002
8. Trade Marks Act, 1999
9. Indian Contract Act, 1872
10. Negotiable Instruments Act, 1881
11. Registration Act, 1908
12. Limitation Act, 1963

16. HOUSING FINANCE COMPANY

Key Laws Applicable to Housing Finance Companies:
1. National Housing Bank Act, 1987
2. Housing Finance Companies (NHB) Directions, 2010

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 3. Guidelines on Know Your Customer (KYC) and Anti-Money Laundering Measures
4. Guidelines for Asset Liability Management System in Housing Finance Companies
5. Housing Finance Companies – Issuance of Non-Convertible Debentures on Private Placement Basis (NHB
Directions, 2014)
6. Housing Finance Companies – Corporate Governance (NHB Directions, 2016)
7. Housing Finance Companies – Auditor’s Report (NHB Directions, 2016)
8. Guidelines on Fair Practices Code for Housing Finance Companies
9. Guidelines on Reporting and Monitoring of Frauds in Housing Finance Companies
10. Information Technology Framework for HFCs – Guidelines
11. Pension Fund Regulatory and Development Authority (Point of Presence) Regulations, 2018
12. Pension Fund Regulatory and Development Authority (Redressal of Subscriber Grievance) Regulations,
2015

17. REAL ESTATE COMPANIES

List of laws specifically applicable to Real Estate Companies:
17.1. PRE-CONSTRUCTION STAGE
1. Real Estates (Regulations & Development) Act, 2016
2. Environment (Protection) Act, 1986
3. The Air (Prevention and Control of Pollution) Act, 1981
4. The Water (Prevention and Control of Pollution) Act, 1974
5. The Aircraft Act, 1934
6. The Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act,
1996
7. The Electricity Act, 2003
8. The Control of National Highways (Land and Tariff) Act, 2002
9. The Forest (Conservation) Act, 1980
10. The Mines and Minerals (Development and Regulation) Act, 1957
11. The Transfer of Property Act, 1882, and Registration Act, 1908
12. The Wildlife (Protection) Act 1972

17.2. DURING THE CONSTRUCTION STAGE

1. The Air (Prevention and Control of Pollution) Act, 1981
2. The Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act,
1996
3. The Electricity Act, 2003
4. The Environment (Protection) Act, 1986
5. The Water (Prevention and Control of Pollution) Act, 1974
6. Housing Board Act, 1965
7. The Forest (Conservation) Act, 1980
8. The Motor Vehicles Act, 1988

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 9. The State Municipal Corporation Act; The State Town & Country Planning Act; The State Building Bye
Laws; The Development Control Regulations
10. The Real Estate (Regulation and Development) Act, 2016, including rules & regulations made thereunder
11. The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979.
17.3. POST-CONSTRUCTION STAGE
1. The Air (Prevention and Control of Pollution) Act, 1981
2. The Electricity Act, 2003
3. The Emblems and Names (Prevention of Improper Use) Act, 1950
4. The Environment (Protection) Act, 1986
5. The Cigarettes and Other Tobacco Products (Prohibition of Advertisement and Regulation of Trade and
Commerce, Production, Supply and Distribution) Act, 2003
6. The Human Immunodeficiency Virus and Acquired Immune Deficiency Syndrome (Prevention and Control)
Act, 2017
7. The Indian Wireless Telegraphy Act, 1933
8. The Motor Vehicles Act, 1988
9. The Public Liability Insurance Act, 1991
10. The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

18. TELECOM INDUSTRY

List of laws that are specifically applicable to the Telecom industries:
1. The Indian Telegraph Act, 1885
2. The Telecom Regulatory Authority of India Act, 1997, and Rules and Regulations made thereunder
3. The Indian Wireless Telegraphy Act, 1933
4. The Information Technology Act, 2000
5. Guidelines on Corporate Governance by Department of Public Enterprises (DPE)
6. Department of Telecommunication guidelines and License Agreements.

19. INFORMATION AND TECHNOLOGY INDUSTRY

List of laws that are specifically applicable to Information & Technology industries:-
1. The Information Technology Act, 2000
2. The Special Economic Zones Act, 2005
3. Software Technology Parks of India rules and regulations
4. The Copyrights Act, 1957
5. The Patents Act, 1970
6. The Trade Marks Act, 1999
7. The Registration Act, 1908
8. Indian Stamp Act, 1899 and amendments thereto;
9. Limitation Act, 1963
10. Indian Contract Act, 1872
11. Negotiable Instruments Act, 1881 and amendments thereto;
12. Sale of Goods Act, 1930

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 20. MEDIA AND COMMUNICATION INDUSTRY
List of laws that are specifically applicable to the Media and Communication industries:
1. The Right to Information Act, 2005
2. The Information Technology Act, 2000
3. The Telecom Regulatory Authority of India Act, 1997
4. The Copyright Act, 1957
5. State Emblem of India (Prohibition of Improper Use) Act, 2005
6. The Sports Broadcasting Signals (Mandatory Sharing with Prasar Bharati) Act, 2007
7. The Cable Television Networks (Regulation) Act, 1995
8. The Delivery of Books and Newspapers (Public Libraries) Act, 1954
9. The Newspaper (Prices and Pages) Act, 1956
10. The Working Journalists and Other Newspaper Employees (Conditions of Service) and Miscellaneous
Provisions Act, 1955
11. The Working Journalists (Conditions of Service) and Miscellaneous Provisions Rules, 1957

21. INFRASTRUCTURE INDUSTRY

List of laws that are specifically applicable to Infra industries:
1. Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996
2. Building and Other Construction Workers’ Welfare Cess Act, 1996
3. Contract Labour (Regulation and Abolition) Act, 1970, and the Rules thereunder
4. Inter-State Migrant Workmen (Regulation of Employment & Conditions of Service) Act, 1979.

22. ENVIRONMENTAL LAWS

Legal Framework India has an elaborate legal framework with a number of laws relating to environmental
protection.
The key national laws include the following:
1. Water (Prevention and Control of Pollution) Act, 1974
2. Water (Prevention and Control of Pollution) Cess Act, 1977
3. Air (Prevention and Control of Pollution) Act, 1981
4. Environmental (Protection) Act, 1986
5. The Public Liability Insurance Act, 1991
6. The Biodiversity Act, 2002
7. The National Green Tribunal Act, 2010
8. Hazardous Wastes (Management, Handling and Transboundary Movement) Rules 2016
9. Plastic Waste Management Rules, 2016
10. Bio-Medical Waste Management Rules, 2016
11. Construction and Demolition Waste Management Rules 2016
12. E-waste Management Rules, 2016

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 Previous Year Questions

1. Enumerate the specific laws and regulations that apply to “Housing Finance Companies” in India.
June 2024 (3 Marks)
Hints:
HFCs operate under multi-layered compliance—NHB roots, RBI controls, and PFRDA touches.
NHB governs foundational regulations (1987 Act, Directions, Asset-Liability, Corporate Governance)
RBI steps in post-2021 with Master Directions under the NBFC-HFC category
KYC/AML and Fraud Monitoring ensure operational integrity
IT Framework + Auditor Guidelines safeguard transparency.
NCD issuance rules regulate debt instruments
PFRDA regulations add pension-linked compliance duty
2. A contract is required to ensure the smooth functioning of work and is a great mechanism to ensure re-
course in case of non-fulfilment of work. Elucidate. Dec 2024 (3 marks)
Hints:
Contracts = Backbone of Business Clarity & Protection
Contracts ensure structure, enforceability & recourse in business dealings.
Section 10, Indian Contract Act, 1872 → Free consent + competence + lawful consideration/object
Employee Contracts = Early-stage essentials: define salary, scope, stock options to avoid future disputes
Founders' circles need formalized terms despite informal trust.
Strong contract management = risk mitigation + legal shielding for startups
3. Hari wants to start a manufacturing business, but he is not able to decide the form of business (type of
legal implications and requirements for the various business forms in India on the basis of the following
parameters.
(i) Registration
(ii) Members' liability
(iii) No. of members required
(iv) Taxation
(v) Legal status June 2019 (5 Marks)
Hints:

Points Proprietorship Partnership LLP Pvt. Company

Registration Not required Optional Compulsorily required to Compulsorily required to

be registered under the be registered under the
LLP Act, 2008. Companies Act, 2013.

Liability Unlimited Unlimited Limited liability of partners Limited liability of members

liability liability is to the extent of their is to the extent of the unpaid
contribution to the LLP amount on shares.

Minimum No. One person Two persons Two persons Two persons
of persons

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 Taxation Taxed as per Taxed at a rate Taxed at a rate of 30% Taxed at a rate 30% plus
slab rates. Canof 30% plus plus surcharge and cess. surcharge and cess. No basic
claim basic surcharge and No basic exemption. exemption.
exemption cess. No basic
exemption.
Legal Status Not recognized Not recognized Recognized as a separate Recognized as a separate
as a separate as a separate entity entity
entity entity
4. Adhering to labour laws is integral to every organization, small or big. Explain. June 2018 (4 marks)
Hints:
Adhering to labour laws is integral to every organization, small or big. When an organization is established
and it hires people to work, it is subject to several labour laws of the size of the organization. Laws with
regard to minimum wage laws, regardless of gratuity, PF payment, weekly holidays, maternity benefits,
sexual harassment, and payment of bonus, among others, will need to be complied with.
Some major labour laws applicable to most organizations are:
Industrial Disputes Act, 1947
Trade Union Act, 1926
Industrial Employment (Standing Orders) Act, 1946
Inter-State Migrant Workmen (Regulation of Employment & Conditions of Service) Act, 1979
Payment of Gratuity Act, 1972
Contract Labour (Regulation & Abolition) Act, 1970
Employees Provident Funds & Miscellaneous Provisions Act, 1952
Employees' State Insurance Act, 1948.
An attractive employee policy can be the key to attracting and retaining good talent. Employee policies can
also prove to be the starting point for boosting employee morale and increasing productivity.
5. Describe in brief the compliances under the Environmental Laws. Dec 2023 (3 marks)
Hints:
To protect the environment, a broad range of Laws, Rules, Regulations, and Standards is framed by the
Governments and Regulatory Bodies established by the Government.
The following environmental laws are required to be complied with:
Environment Clearances under Environmental Protection Act, 1986
Environmental Impact Assessment issued under the Environmental Protection Act, 1986
Air Prevention and Control of Pollution Act 1981
The Water (Prevention and Control) Act, 1974
The Water (Prevention and Control of Pollution) Cess Act, 1977
Hazardous Waste (Management, Handling and Transboundary Movement) Rules,
Plastic Waste Management Rules, 2016
Forest Clearance under Forest Act.

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 CHAPTER SBIL

13 VARIOUS INITIAL
REGISTRATIONS AND LICENSES

1. INTRODUCTION
A business entity must obtain various registrations and licenses to operate legally in India. These registrations
and licenses are necessary for ensuring compliance with government regulations and for the smooth functioning of
the business. This chapter outlines the mandatory registrations, licenses, and their procedures, including examples
like GST registration, FSSAI license, and shop establishment license.

2. BUSINESS ENTITY
To start a business, an entrepreneur must decide on the type of business entity through which they wish to operate.
The decision regarding the business entity is crucial, as it influences various aspects of the business, including
taxation, liability, and compliance. The common forms of business entities in India include:
[Link]. Form of Business Entity Law Under which Registration is Required
1. Proprietorship Not required
Not compulsory but can be registered under the
2. Partnership
Partnership Act, 1932
3. Private Company The Companies Act, 2013
4. Public Company The Companies Act, 2013
5. Limited Liability Partnership The Limited Liability Partnership Act, 2008
6. One person company The Companies Act, 2013
Each business entity has specific registration requirements and legal implications. Entrepreneurs should select the
one that best fits their business needs and goals.
Once a business entity is registered, it must open a Current Account with a bank before it can begin business
transactions. However, sole proprietors and partnership firms may open a current account even before
receiving the registration certificate. This allows them to start operations promptly, though full compliance with
other statutory requirements is still necessary before conducting business activities.

3. MANDATORY REGISTRATIONS
Initial & Mandatory Registrations

Goods & Employee State Employee Shops &

PAN & TAN MSME
Services Tax Insurance Provident Fund Establishment
3.1 PERMANENT ACCOUNT NUMBER (PAN)
Permanent Account Number (PAN) is a unique 10-character alphanumeric code consisting of five letters,
four digits, and one letter (e.g., AABPS1234C). It is issued by the Income Tax Department of India and is
essential for conducting financial transactions, filing tax returns, and serving as identification proof. PAN is
issued in the form of a laminated plastic card and is required for various activities, such as:
) Filing income tax returns
) Opening a bank account
) Conducting high-value financial transactions
) Receiving income
) Business-related activities like GST registration and tax filing
It serves both individuals and business entities (including companies, partnerships, and trusts) for identifying
their financial transactions and ensuring transparency in the tax system.
3.1.1 Utility of PAN

This number is unique to each cardholder and helps identify the income tax payer.
PAN enables the department to identify/ link all transactions of the PAN holder with the department. These
transactions include tax payments, TDS/TCS credits, returns of income, specified transactions, correspondence
etc. and so on.
It facilitates easy retrieval of information of PAN holder and matching of various investments, borrowings and
other business

3.1.2 For Whom it is Mandatory to Obtain PAN

The following entities/individuals must obtain a PAN:
1. Individuals earning income: Even if an individual is not required to pay income tax, it is mandatory to hold
a PAN if they are earning any form of income (including salary, business income, or capital gains).
2. Charitable trusts: Any charitable or religious trust that engages in financial activities must obtain a PAN.
3. Business or professional entities: Any person or entity carrying on business or profession whose total
sales, turnover, or gross receipts exceed or are likely to exceed `5 lakh in any financial year is required to
obtain PAN.
4. Specified financial transactions: PAN is mandatory for individuals or entities entering into specified
financial transactions, such as:
Opening a bank account
Investing in securities
Buying or selling property above a certain threshold
Receiving professional fees or commissions above prescribed limits.
5. Non-individual resident persons: All non-individuals (such as companies, partnerships, and other entities)
and persons associated with them (directors, partners, etc.) must obtain a PAN if their financial transactions
during the year exceed `2,50,000.
3.1.3 Significance of PAN for Setting up a Business
It was made mandatory by the Government of India under the Income Tax Act, 1961. The Act was subsequently
amended, and Section 206AA, as inserted in 2009 by the Finance Act, now mandates all foreign parties that
provide or generate payment to a counterpart in India to provide their PAN. This includes not only individuals but
also corporations, companies, limited companies, and any other form of entity.

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 In the absence of the PAN, the Government will charge withholding tax which can be at the rate
of more than 30% of the total invoiced payment.

It serves as a reference number of its holder for the Income Tax Department to track the financial
transaction.

Even if one is not required to pay income tax, it is mandatory for him to hold a PAN if he is
earning Money.

Companies, regardless of whether they are registered abroad or in India, are required to pay tax
for businesses carried out in India. Without the PAN, the government has the mandate to deduct
tax at the highest possible rate.

3.1.4 Application & Registration of PAN

The PAN (Permanent Account Number) card is an important document for conducting even the simplest of
financial transactions, like opening a savings bank account or applying for a debit/credit card.
Offline application for a PAN: An individual had to fill up physical forms specified by the income tax department
(i.e., form 49A for resident individual and Form 49AA for foreign citizens) and provide supporting documents
as proof of identity address and date of birth.

Online Application for PAN: Online application can be made either through the portal or the online portal of
UTITSL/NSDL.

Once the application and payment is accepted, the applicant is required to send the supporting documents
through courier/post to NSDL/UTITSL.

Payment of Application fee for applying for PAN. Payment of application fee can be made through Credit/debit
card, demand draft or net–banking.

Once the application and payment is accepted, the applicant is required to send the supporting documents
through courier/post to NSDL/UTITSL. Only per the receipt of the documents, PAN application would be
processed by NSDL/UTITSL.

3.1.5 Linking of PAN with Aadhar

2. If any person does not 3. In case of an applicant, being a

1. Every person who is possess the Aadhar company, which has not been
eligible to obtain Aadhar Number but he had registered under the Companies
is required to quote his applied for the Aadhar Act, 2013, the application for
Aadhar number in the card then he can quote allotment of a Permanent Account
PAN application form. Enrolment ID of Aadhar Number may be made in Spice +
application Form. for incorporation of a company.

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3.2 TAX DEDUCTION AND COLLECTION ACCOUNT NUMBER (TAN)

Tax Deduction Account Number or Tax Collection Account Number is a 10 -digit alpha-numeric
number issued by the Income-tax Department. TAN is to be obtained by all persons who are
responsible for deducting tax at source (TDS) or who are required to collect tax at source (TCS).

3.2.1 Persons liable to apply for TAN

1. Every person liable to deduct tax at source or collect tax at source is required to obtain a TAN.
2. Any individual or HUF is liable to deduct tax at the rate of 5% while making payment of rent of any land or
building or both to a resident person if the amount of rent exceeds ` 50,000 for a month or part of a month.
3. Deduction of tax, at the rate of 5%, from the sum paid or credited to a resident, in a year on account of
contractual work, commission, brokerage, or professional fees, by an individual or a HUF, if the aggregate
of such sum exceeds ` 50 lakhs in a year.
3.2.2 Relevance of TAN
Section 203A also makes it mandatory to quote TAN in the following documents:

TDS/ TCS statements i.e., return

Statement of financial transactions or reportable accounts

Challans for payment of TDS/TCS

TDS/TCS certificates

Other documents as may be prescribed

3.2.3 Procedure to Apply for TAN

OFFLINE – An application for allotment of TAN is to be filed in Form 49B in duplicate and submitted
to any TIN-Facilitation Centre (TIN-FC) of NSDL. Addresses of TIN FCs are available at NSDL TIN
website (https:// [Link]).

ONLINE — Online application for TAN can be made from the website of NSDL TIN website.

No separate TAN is required to be obtained for the purpose of TCS, if the person already holds TAN for
the purpose of TDS.

Communication
These applications are digitized by NSDL and forwarded to ITD. ITD will issue the TAN which will be
intimated to NSDL online. On the basis of this, NSDL will issue the TAN letter to the applicant.

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 Documents to be submitted along with TAN application
No documents are required to be submitted along with application for allotment of TAN.
For online application, the signed acknowledgment which is generated after filling up the form is to be
forwarded to NSDL.

Status track
The applicants may track the status of their TAN application using 14-digit unique Acknowledgment
Number after three days of application using the status track facility. Alternatively, applicant may call
TIN Call Centre on 020 – 2721 8080 to enquire about the status of their application. The status of the
TAN application can also be tracked by sending an SMS - NSDLTAN to 57575

3.2.4 Physical Application Form

Places from which to obtain Form 49B are:
1. Form 49B is freely downloadable from the website of Income-tax Department ([Link]
[Link])
2. It is also available at TIN-FCs.
3. Legible photocopies of Form 49B or forms legibly printed exactly as per the format prescribed by the
Income-tax Department are also allowed to be used. No separate TAN is required to be obtained for TCS if
the person already holds A TAN for TDS.
3.2.5 Fee
Fee for filing the TAN application + GST as applicable (the application fees may change from time to time).
3.3 GOODS AND SERVICES TAX
What is Goods and Services Tax (GST)?
Goods and Services Tax (GST) is an indirect tax levied on the supply of goods and services. It represents a
significant shift in India's tax structure, introduced to create a unified tax system under the slogan “One Nation,
One Tax.”
Launched on July 1st, 2017, GST replaced multiple indirect taxes such as excise duty, service tax, value-added
tax (VAT), central sales tax, purchase tax, entertainment tax, luxury tax, and octroi, which were previously levied
by both the central and state governments at different rates.
Under GST, only the value added at each stage of the supply chain is taxed, effectively eliminating the cascading
effect or “tax on tax.” This results in a streamlined and simplified tax structure, with consistent tax rates on the
same products across the country. Additionally, the process is fully digitalized, and businesses can manage their
tax compliance through a single registration.
3.3.1 GST in India is classified into Four Types

Type of GST Who levies It? Transactions on which SGST is levied

SGST (State Goods and Service State Government Intra-State goods and service
Tax) transactions
UGST (Union Territory Goods Union Government Intra-union territory goods and
and Service Tax)

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 CGST (Central Goods and Central Government Intra-State goods and service
Service Tax) transactions
IGST (Integrated Goods and Levied by Central Government Inter-State goods and service transaction
Service Tax) and revenue is shared both Import and Export
between Central Government and
State Government
3.3.2 GST Registration
Registration of any business entity under the GST Law implies obtaining a unique number from the tax authorities
to collect tax on behalf of the government and to avail Input tax credit for the taxes on its inward supplies.

Section 22 of Central Goods and Services Tax Act, 2017 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 for goods is INR 20 lakhs. The threshold limit for service providers is
INR 20 Lakhs across India and in case of special category states, the limit is INR 10 lakhs.

3.3.3 Persons not liable to register (Section 23)

The following persons are not liable to registration as per section 23 of the Central Goods and Services Tax Act,
2017:

1. Persons engaged exclusively in the 2. Persons engaged exclusively in the

business of supplying goods or services business of supplying goods or services
or both that are not liable to tax; or both wholly exempt from tax;

3. Agriculturist, to the extent of supply of 4. Specified categories as may be notified

produce from land cultivation; by the Government

3.3.4 Compulsory Registration (Section 24)

Section 24 of the Central Goods and Services Tax Act, 2017 provides for compulsory registration for a certain
category of persons irrespective of their turnover, that is to say, the threshold exemption of 40 lakh rupees or
20 lakh rupees, as the case may be, is not available to them.
Inter State Suppliers persons making any inter-State taxable supply;

Casual taxable persons;

Persons taxable under reverse charge;

Person who are required to pay tax under sub-section (5) of section 9;

Non-resident taxable persons;

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 Persons who are required to deduct tax under section 51, whether or not separately registered under this
Act;

Persons who make taxable supply of goods or services or both on behalf of other taxable persons;

Whether as an agent or otherwise;

Input Service Distributors;

Suppliers who supply goods through electronic commerce operators;

Every electronic commerce operator who is required to collect tax;

Every person supplying online information and database access or retrieval services from a place outside
India to a person in India, other than a registered person.

3.3.5 Aggregate Turnover for GST

It includes the aggregate value of all of the following supplies of a person having the same PAN.

Taxable supplies,

Exempt supplies,

Zero-rated supplies,

Interstate supplies

But doesn’t include the inward taxable supplies under the Reverse Charge Mechanism.
3.3.6 GSTIN

The registration in GST is based on Permanent Account Number and State specific. Supplier has to register in
each of such State or Union territory from where he effects supply. In GST registration, the supplier is allotted
a 15-digit GST identification number called “GSTIN” and a certificate of registration incorporating therein
this.

3.3.6(a) GSTIN Structure

The Goods and Services Tax Identification Number (GSTIN) is issued to the applicant through the GSTN
common portal. The structure of GSTIN is as follows:
) First Two Digits: Represent the State code as per the Indian Census.
) Next Ten Digits: Correspond to the PAN number of the taxpayer.
) Thirteenth Digit: Assigned based on the number of registrations within the State.
) Fourteenth Digit: Always Z by default.
) Last Digit: A check code for validation.

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 Goods and Services Tax Identification Number (GSTIN)

A unique 15 digit identification number assigned to every taxpayer (primarily

dealer or supplier or any business entity) registered the GST regime

First two digit Next 10 digit Next two digit Last digit

PAN number of Check sum

The State Code Entity Code
the taxpayer number

3.3.6(b) Procedure for Registration

The GST registration process will be online through a portal maintained by GSTN (Goods and Services Tax
Network).
Steps for GST registration are:

Login into GSTN (Goods and services tax network) Common Portal.

Applicant has to submit Part A of GST REG 01 ON GSTN Portal and his PAN, Mobile Number, E-mail.

On successful completion of OTP verification a temporary reference number (TRN) will be generated.

Applicant fill the part B of the form using TRN and shall authenticate the signature through DSC or
E-signature.

Form GST REG-03 will be issued if any additional information is required applicant shall respond in GST
REG-04 with the required information within 7 working days from the date of receipt of Form GST REG 03

Registration certificate in Form GST REG -06 for the principal place of the business as well as for every
additional place of business will be issued or else will be rejected in Form GST REG-05.

3.3.6(c) Registration Under the Act in a Special Case (Summarised)

1. Non-resident taxable persons

“Non-resident taxable person” as any person who occasionally undertakes transactions involving
supply of goods or services or both, whether as principal or agent or in any other capacity, but who
has no fixed place of business or residence in India.
For example, a person from Paris, comes to participate in an exhibition at Azad Maidan, Mumbai
for participating in the exhibition , he will be granted registration for a maximum period of 90 days.

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 2. Suo moto registration
Pursuant to any survey, enquiry, inspection, search or any other proceedings under the Act, the
proper officer finds that a person liable to registration under the Act has failed to apply for such
registration, then he may register on a temporary basis.

3. Casual Taxable Person

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.
For example, a footwear dealer registered in Agra comes for an exhibition at Azad Maidan, Mumbai
for participating in the exhibition, then such person would need to register as a casual taxable person
at Mumbai and he will be granted registration for a maximum period of 90 days.

DISPLAY
Every registered person shall display his certificate of registration in a prominent location at his
principal place of business and at every additional place or places of business.

1. Non-resident taxable persons:

) Definition [Sec 2(77)]:
A person who has no fixed place of business/residence in India, supplying goods/services occasionally.
Example: A Paris-based trader participating in a Mumbai exhibition.
) Application Requirements:
Apply in FORM GST REG-09 at least 5 days before business commencement.
Attach a self-attested passport copy.
If a foreign entity: submit Tax ID/Unique ID or PAN (if available).
) Advance Tax Deposit:
Temporary reference number issued for depositing advance tax.
Acknowledgement generated only after deposit in the electronic cash ledger.
) Authorised Signatory:
Must be a resident in India with a valid PAN.
Application must be signed/verified via EVC by this signatory.
) Validity:
Registration granted for a maximum of 90 days.
2. Suo moto registration
) Trigger:
If a person liable to register is found unregistered during a survey, enquiry, inspection, search, etc., the
officer may issue a temporary registration via FORM GST REG-12.
) Effective Date:
Registration is effective from the date of the REG-12 order.
) Mandatory Follow-up:
A person must apply for regular registration within 90 days of temporary registration.

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 ) Appeal Scenario:
If an appeal is filed and liability is upheld, regular registration must be applied for within 30 days of the
appellate order.
) GSTIN Validity:
GSTIN assigned after verification is effective from the date of the REG-12 order.
3. Furnishing of Bank Account Details.
After a certificate of registration in FORM GST REG-06 has been made available on the common portal and a
Goods and Services Tax Identification Number has been assigned, the registered person, except those who have
been granted registration under rule 12 or, as the case may be rule 16, shall as soon as may be, but not later than
forty five days from the date of grant of registration or the date on which the return required under section 39 is
due to be furnished, whichever is earlier, furnish information concerning details of bank account, or any other
information, as may be required on the common portal to comply with any other provision.
4. Display of registration certificate and GSTIN on the name board:
1. Every registered person shall display his certificate of registration in a prominent location at his principal
place of business and every additional place or places of business.
2. Every registered person shall display his Goods and Services Tax Identification Number on the name board
exhibited at the entry of his principal place of business, and every additional place or places of business
3.3.6(d) Important Topics

Where a person fails to undergo authentication of Aadhaar number, then the registration shall be granted
only after physical verification of the principle place of business.

In case of deficiency in application documents officer may issue a notice electronically in FORM GST
REG-03 within three working days from date of submission of application.

Where the proper officer is satisfied with the clarification he may approve the grant of registration to the
applicant within seven working days from date of receipt of clarification or information.

If the proper officer fails to take any action,-

(a) within 3 Working days/ 7 Working Days for grant of registration shall be deemed to have been approved.

3.3.7 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 (Rs. 75 lakhs in case of few States).
The objective of composition scheme is to bring simplicity and to reduce the compliance cost for the small
taxpayers. Moreover, it is optional and the eligible person opting to pay tax under this scheme can pay tax at a
prescribed percentage of his turnover every quarter, instead of paying tax at normal rate.
Composition Scheme is now made available to service providers (32nd GST Council meeting) whose aggregate
annual turnover does not exceed Rs. 50 lakhs. Both exclusive service providers and mixed service providers of
goods and services can opt for this scheme

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3.3.7(a) The floor rate of tax for CGST and SGST
Under this scheme, a taxpayer will pay tax as a percentage of his/her turnover during the financial year without
the benefit of Input Tax Credit. A taxpayer opting for the composition scheme will not collect any tax from his/her
customers and will show only a Bill of Supply instead of an invoice. The floor rate of tax for CGST and SGST is
as follows.

Manufacturers and Traders 1%

Restaurants not serving alcohol 5%
Other Service Providers 6%
When the eligible taxpayer is opting for the Composition Scheme under GST, the taxpayer has to file a quarterly
statement in Form CMP-08 and a return in Form GSTR-4 annually.
3.3.7(b) Persons not eligible for the Composition Scheme

Any supply of goods which are not liable to be taxed under this Act;

Inter-State outward supplies of goods;

Supplies through electronic commerce operators who are required to collect tax under section 52;

A manufacturer of notified goods;

A casual dealer;

A Non-Resident Foreign Taxpayer;

A person registered as Input Service Distributor (ISD);

A person registered as TDS Deductor/Tax Collection

Person required to deduct tax at source or collect tax at source:

Application Filing:
) Person liable under Section 51 (TDS) or Section 52 (TCS) must apply electronically in FORM GST
REG-07, verified via EVC.
State/UT Declaration:
) If no physical presence in the State/UT of registration:
Mention that State/UT in Part A of REG-07.
Mention principal place of business (in another State/UT) in Part B.
Certificate of Registration:
) Granted in FORM GST REG-06 within 3 working days of application submission, after due verification.

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 Person supplying online information and database access or retrieval services from a place outside India
to a non-taxable online recipient:
(i) Electronically submit an application for registration, duly signed or verified through an electronic
verification code, in FORM GST REG-10, at the common portal.
(ii) Registration is granted in FORM GST REG-06, subject to the requisite conditions and restriction

Casual Taxable Person

Definition [Sec 2(20)]:
) A person who occasionally supplies goods/services in a State/UT where they have no fixed place of
business, in the course of business.
Example:
) A footwear dealer from Agra participates in an exhibition at Mumbai → must register as a CTP in
Mumbai.
Registration Validity:
) Granted for a maximum of 90 days.

3.4 REGISTRATION UNDER SHOPS & ESTABLISHMENTS ACT

The Shops and Establishments Act is an essential regulation that governs businesses operating within commercial
establishments across India. Enacted by each state, this Act applies to various commercial entities such as
business centers, offices, warehouses, retail stores, hotels, eateries, amusement parks, and theatres, among others.
Compliance with this regulation is mandatory for most businesses and is crucial for operating legally within the
country.
3.4.1 Purpose of the Shop and Establishment Act
The Shop and Establishment Act in India is a key piece of labor legislation aimed at regulating the working
conditions and employment rights of individuals engaged in commercial establishments such as shops, offices,
hotels, restaurants, and other public-facing businesses. Its primary purpose is to ensure fair treatment of employees
by standardizing essential aspects like working hours, rest intervals, overtime pay, leave entitlements, and wage
payments. It also mandates the registration of establishments, thereby promoting legal recognition and operational
transparency. Importantly, the Act is promulgated and enforced by individual State Governments, which means
its provisions may vary slightly from state to state. Each state has its own version of the Act—such as the Delhi
Shops and Establishments Act or the Maharashtra Shops and Establishments Act—tailored to local conditions
and administrative frameworks. Nonetheless, all commercial establishments operating within a state are required
to comply with that state's respective legislation, ensuring a baseline of employee welfare and ethical workplace
practices across sectors.
3.4.2 Key Definitions

(A) Shop
Shop means any premises where
Goods are sold, either by retail, wholesale, or
Services are rendered to customers

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 It includes an office, a store-room, godown, warehouse, or workplace, whether on the same premises or
otherwise, used in connection with such trade/ business. A shop however does not include a factory or a
commercial establishment.

(B) Commercial Establishment:

Commercial establishment means

A premise where any trade, business, profession or any work is undertaken,

Which may include society, charitable or another trust, journalistic and printing establishments,
contractors and auditors establishments, educational institutes, premises.

3.4.3 License under the Shop and Establishment Act

Any shop or commercial establishment that commences operation must apply to the Chief Inspector for a Shop
and Establishment Act License within the prescribed time.

The application for a license in the prescribed form must contain:

(a) The name of the employer,

(b) Address of the establishment,

(c) Name of the establishment

(d) Category of the establishment,

(e) Number of employees, and

(f) Other relevant details as requested.

3.4.4 Procedure for Registering a Shop or Establishment

As the owner of a shop or establishment, you are legally required to register it under the Shops and Establishments
Act. Below is the process for registration:
1. Application Submission: Within 30 days of commencing operations at the shop or establishment, you
must submit an application to the Inspector of the area using the prescribed form. The application must be
accompanied by the required fee and contain the following details:
(a) Name of the employer and, if applicable, the name of the manager
(b) Postal address of the establishment
(c) Name of the establishment
(d) Other required particulars as may be prescribed.
2. Verification and Issuance of Registration Certificate: Upon receiving the application and fees, the
Inspector will verify the accuracy of the details. If satisfied, they will enter the establishment’s information
in the Register of Establishments and issue a registration certificate. The certificate is valid for five years
and must be renewed thereafter.

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The registration certificate must be prominently displayed at the establishment.
) State Authority: The registration process is managed by the Labour Department of each state. While many
states have fully digitized the registration procedure, some still follow a manual process.
) Renewal: The registration certificate must be renewed periodically, as stipulated by state regulations.

3.5 ESI REGISTRATION

Employee State Insurance (ESI) is a social security scheme offered by the Government of India as per the
employees’ State Insurance Act, 1948.
It is a self-financing scheme i.e. in the form of contribution from both employees and Employers for the
protection of Employees against the impact of incidences of sickness, maternity, disablement and death due
to employment injury.

3.5.1 Applicability

The ESI Act is applicable to all non-seasonal factories and has been extended to the factories and other
establishments here as under:

1. All non-seasonal factories employing 10 or more persons.

2. Where appropriate government is State Government - Shops, Hotel, Restaurants, Cinema

including preview theatres, Road-motor transport undertakings, Newspaper establishments,
Private Medical Institutions, Educational Institutions and to contract and casual employees of
Municipal Corporation/Municipal Bodies employing 10 or more persons.

3. Where appropriate government is Central Government- Shops, Hotel, Restaurants, Cinema

including preview theatres, Road-motor transport undertakings, Newspaper establishments,
Private Medical Institutions, Educational Institutions and to contract and casual employees of
Municipal Corporation/Municipal Bodies employing 20 or more persons.

3.5.2 Wage Limit for Registration

Employees drawing Employee contribution:

For Disabled persons, the
wages upto `21,000/- per 0.75% of total salaries.
wage Limit is `25,000/-
month, are covered under Employer Contribution:
per month.
the ESI Act. 3.25% of total wages.

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3.5.3 ESI Registration Procedure

Online registration of Employers

1. Central Government has launched Unified Shram Suvidha Portal to facilitate reporting of
Inspections, and submission of Returns.

2. Registration of employers under ESI and EPF Act is fully online, without requirement of
submission of any physical application document.

3. LIN is a unique 10-digit number issued by the Ministry of Labour and Employment.

3.5.4 Registration of Employee

) Upon joining the organization, the employer must register the employee on the ESIC Portal.
) Once signing up with the required details, the employee will receive an email at their registered email ID
confirming the user ID and password provided.
) The employee shall log in with their user ID and password and fill up the new registration form.
) The employee shall state details of the organisation and the employer.
) Once all the information is submitted, the form is to be submitted to complete the registration along with a
copy of the family photo, which the employer will submit at the ESI branch office.
) An employee is registered only after they make an advance payment for the next six months by clicking the
payment option.
) Once registered, the employee will receive the C-11 letter, which is the registered letter containing their
unique registration number of 17 digits generated by the ESIC system portal. Once registered, the registration
can be transferred if the employee switches organizations and takes up employment elsewhere.

3.6 EMPLOYEE PROVIDENT FUND

In order to provide financial

stability and security in the Employers and Employees
form of post-retirement manages these funds, and The employer must obtain the
benefits and insurance to employees are required to registration within 1 month of
the employees engaged in contribute a part of their salary touching mandatory registration
organized sector when they are to it every month during their threshold.
temporarily or no longer fit for employment tenure
work.

3.6.1 Compulsory Registration

A factory or establishment engaged in any industry having 20 or more persons.
3.6.2 Voluntary Registration
An establishment with fewer than 20 employees can voluntarily opt for PF registration to protect employees’
benefits:
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 1. The Government of India launched a unified portal labour and employment “Shram Suvidha Portal.

2. Every employee is issued Universal Account number by EPFO towards the contribution to EPF.

UAN is a 12-digit unique identification number for lifetime irrespective of the change in the
3.
organisation.

4. POLLUTION CONTROL
Entrepreneurs are required to obtain Statutory clearances relating to Pollution Control and Environment for
setting up an industrial project, for 39 types of projects as listed, environmental clearance needs to be obtained
from the Ministry of Environment, Forest and Climate Change, (MoEFCC) Government of India.

The permission is obtained in two stages:

Consent to Establish (CTE): To be obtained prior to commencement of construction or any similar
activities to start the business.
License valid for a period 1 to 7 years according to request made by Project Developers/ Designers/
Investors.
Consent to Operate (CTO): To be applied and obtained before starting production activity on the Unit.
CTO License valid for a period of 5 years, which may vary State to State.

The MoEFCC recategorized the industries based on the Range of Pollution Index and grouping of Industrial
Sectors based on the use of Raw Materials, manufacturing Process adopted, and pollutants likely to be generated
as follows:
Category Pollution Index Score (PSI) Number of Industries

Red Category Industrial Sectors having PSI of 60 and above 60

Orange Category Industrial Sectors having PSI of 41 to 59 83

Green Category Industrial Sectors having PSI of 21 to 40 63

White Category Industrial Sectors having PSI incl and upto 20 36

The White Category of industries has to, however, satisfy these conditions to be eligible for this pollution license
exemption:
1. The industry is being established in the locality demarcated for them.
2. Their investment in the industry is not more than Rs. One Crore on plant and machinery.
3. There will not be any discharge of trade effluent from the industry into the stream or well, or sewer, or onto
land, and/or the industry will not discharge any air pollution, including noise, into the atmosphere.
4. The industry will not discharge any toxic/hazardous wastes and will not handle any toxic/hazardous
chemicals.
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4.1 PROCEDURE FOR OBTAINING NOC FROM POLLUTION CONTROL BOARD

1. The application for consent to establish (CTE) and consent to operate (CTO) can now be made online
by logging in State Pollution Control Board SPCB website.

2. State pollution control board need to reply within 4 months.

3. NOC application is either accepted or rejected.

If application is accepted for NOC, then a certificate is issued to business. However, if application is
rejected by pollution control board, then applicant need to be intimate with reason for the same.

If an individual fails to obtain a CTE/CTO or Pollution license, they will be subject to 6 months to 1 year of
imprisonment, with chances of a 6-year extension and penalty charges.

5. COMPLIANCES UNDER ENVIRONMENT LAWS

Compliance under environment laws are:

EC (Environment Clearances)

FC (Forest Clearance)

WC (Wild Life Clearance)

CTE (Consent to Establish)

CTO (Consent to Operate)

Authorization (Waste Management & Hazardous and Other Wastes (Management and Transboundary
Movement) Rules

HSM (Hazardous Substance Management)

5.1 ENVIRONMENTAL LAWS AND APPLICABLE REGULATORY AUTHORITY

NOCI Permissions Regulatory Authority Applicable Acts
EC (Environmental Clearances) MoEF&CC, SEIAA Environmental Protection Act, 1986
FC (Forest Clearance), Tree felling MoEF&CC, Forest Department Forest Act
WC (Wildlife Clearance) MoEF&CC, Wildlife division Wildlife Act
CTE/CTO/Authorisotion/Bottry/ CPCB/SPCB Air, Water, Noise, MSW, Plastic,
Plastic/Noise/BMW Battery act

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 HSM MoEF&CC, DGFASLI MSIHC rules
Water Abstraction/dewatering CGWAICGWB/Ministry of water CGWA act
resources

6. OTHER REGISTRATION AS PER THE REQUIREMENT OF SECTORS/ACTIVITIES

Sector based registrations
Sector Registration/License Authority
Import and export for Goods and IE Code Director General for Foreign Trade
Services
Setting up of Pharmacy Business Drug License Central Drugs Standard Control Organization and
State Drugs Standard Control Organization
Regulating food Business FSSAI Food Safety and Standards Authority of Indio
For Non Bank Finance Activity Non-Bank Finance Reserve Bank of India
Company Registration
Banking Activities Banking Licence Reserve Bank of India
Insurance Activities IRDAI Registration Insurance Regulatory and Development Authority
of India
Industrial Activities Industrial Activities Department for Promotion of Industry and Internal
Trade
Telecom Services Telecom license Ministry of Communications and Information
Technology

6.1 IMPORT EXPORT CODE

The Import Export Code (IEC) is a 10-digit unique business identification number required for the import
or export of goods. It is issued by the Directorate General of Foreign Trade (DGFT), under the Ministry of
Commerce and Industry.
While the IEC is mandatory for importing and exporting goods, it is not required for services unless the service
provider is availing benefits under the Foreign Trade Policy. The IEC has lifetime validity.
Importers cannot proceed without an IEC, and exporters cannot avail benefits from the DGFT, customs, or the
Export Promotion Council without it.
For customs clearance, importers must quote their IEC. Exporters must provide their IEC while shipping goods,
and banks require it for processing payments received from abroad.
6.1.1 Application for IE Registration
Process to apply for the Importer Exporter Code (IEC) on the DGFT portal.
(a) Valid Login Credentials to DGFT Portal.

(b) User should have an active Firms PAN and its details like Name as per pan, Date of Birth or
Incorporation.

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 (c) Scanned Documents for Upload in the System
Proof of incorporation - Partnership, Registered Society, Trust, HUF or others.
Proof of Address can be any one of the following documents:
(i) Sale Deed, rent agreement, lease deed, electricity bill, telephone land line bill, mobile, postpaid
bill, MoU, Partnership deed; Other acceptable documents (for proprietorship only):Aadhar card,
passport, voter id;
(ii) Other acceptable documents (for proprietorship only):Aadhar card, passport, voter id;
(iii) In case the address proof is not in the name of the applicant firm, a no objection certificate (NOC)
by the firm premises owner in favor of the firm along with the address proof is to be submitted
as a single PDF document.
(iv) Proof of Firm’s Bank Account
(i) Cancelled Cheque (ii) Bank Certificate

(d) User should have an active DSC or Aadhaar of the firm’s member for submission and make online
payment.

6.2 DRUG LICENSE

A Drug License is required to legally start a pharmacy business. It covers the sale, distribution, and manufacturing
of drugs, including medications and medical instruments used for the diagnosis, treatment, and prevention of
diseases in both humans and animals.
The issuance of the drug license is governed by the Drugs and Cosmetics Act, 1940, and regulated by both
the Central Drugs Standard Control Organization (CDSCO) and the State Drugs Standard Control
Organization.
While the Central organization sets the overall guidelines, the application for a drug license typically falls under the
jurisdiction of the respective State Drugs Standard Control Organization. To obtain the license, the applicant
must visit the official website of the relevant state authority.
6.2.1 Types of Drug Licenses

2. The other is the Wholesale Drug License

1. One is the Retail Drug License (RDL)
(WDL) issued to persons or agencies
issued to run a general chemist shop.
engaged in drugs and Medicines.

In most states, a retail drug license is only granted to individuals who possess a degree or diploma in pharmacy
from a recognized institute or university, after depositing the requisite fee. However, this condition is generally
relaxed for those applying for a Wholesale Drug License (WDL), where the qualification requirements may be
more flexible.
6.2.2 Prerequisites for Obtaining a Drug License
(a) Area: A minimum area of 10 square meters is required to start a medical shop or pharmacy, or a wholesale
outlet. If the pharmacy business includes both retail and wholesale operations, a minimum area of
15 square meters is necessary.
(b) Storage Facility: The store must have a refrigerator & air conditioner on the premises for certain drugs, like
vaccines, sera, insulin injections, etc. are required to be stored in the refrigerator.

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 (c) Technical Staff:

Registered pharmacist or A competent person who shall be a graduate with 1 year experience
Wholesale in dealing in drugs or a person who has passed S.S.L.C with 4 years experience in dealing in
drugs.

Retail The sale made in the presence of registered pharmacist throughout the working hours.

6.2.3 Documents required for obtaining Drug License

The documents required for starting a pharmacy business vary from state to state. However, the following is an
indicative list of documents required for obtaining a drug license in India:

(a) Application form in the prescribed format

(b) Challan of fee deposited for obtaining drug license

(c) Declaration form in the format prescribed

(d) Key plan (Blue print) for the premises

(e) Site plan (Blue print) for the premises

(f) Proof of ownership of the premises, if rented

(g) Proof of constitution of the business (Incorporation Certificate / MOA / AOA / Partnership Deed)

(h) Affidavit of non-conviction of proprietor / partners/ directors under Drugs and Cosmetics Act, 1940

(i) Affidavit of registered pharmacist or competent person working full time

(j) Appointment letter of registered pharmacist/competent person, if employed person.

6.3 FSSAI
FSSAI stands for Food Safety and Standards Authority of India, an autonomous body established by the
Ministry of Health and Family Welfare under the Food Safety and Standards Act, 2006. The body was
created to regulate and oversee food safety and quality in India.
Founded in August 2011, the primary purpose of FSSAI is to ensure the safety and wholesomeness of food
products across the country. The authority is responsible for laying down scientifically backed standards to
regulate the manufacture, storage, distribution, sale, and import of food items. This effort is aimed at protecting
and promoting public health by setting guidelines that ensure food safety at every stage of the food supply chain.
According to Section 3(1) of the Food Safety and Standards Act, 2006, every food business operator in India
must be licensed under FSSAI. This applies to manufacturers, traders, restaurants, and other entities involved
in the food business. Each operator must obtain a 14-digit registration or license number, which should be
prominently displayed on food packaging.
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6.3.1 FSSAI Registration for Petty Food Business Operators

A petty food business operator is any person or entity who:

(a) Manufactures or sells any article of food himself or a petty retailer, hawker, itinerant vendor or
temporary stall holder; or

(b) Distributes foods including in any religious or social gathering except a caterer; or

(c) Other food businesses including small scale or cottage or such other industries relating to food
business or tiny food businesses with an annual turnover not exceeding Rs 12 lakhs and whose:

Production capacity of food (other than milk and milk products and meat and meat products) does
not exceed 100 kg/ltr per day or
Procurement or handling and collection 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.

Exemption:
A producer of milk who is a registered member of a dairy cooperative society (under the Cooperative Societies
Act) and sells or supplies all their milk to the society is exempt from FSSAI registration.
Application Process for Petty Food Business Operators:
) Petty food business operators must apply for FSSAI registration by submitting Form A or applying online
through the FoSCoS portal.
) After submitting the registration application, the relevant authority must provide either the registration or a
written rejection within 7 days from the date of receipt of the application.

6.3.2 FSSAI License

Any person or entity that is not classified as a petty food business operator is required to obtain a FSSAI license.
State FSSAI License: It is needed for small to medium sized Food Companies which has an annual turnover
of ` 12 Lakhs – ` 20 Crores.
FSSAI Central License: It is mandated for all Food giants with an annual turnover of more than Rs 20 Crores.

The fee and procedure for obtaining an FSSAI license are more extensive when compared to an FSSAI registration.
The FSSAI license application should be submitted in Form B by applying online on the FoSCoS portal, along with
the necessary self-attested declaration, affidavit, and annexures, as applicable. The fee for the State is dependent
on the respective state rules.
FSSAI license in ‘Form C’ is granted for a period of 1 to 5 years, as requested by the food business operator.
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227
 REGISTRATION Petty Food Business Annual trunover ≤ ` 12 Lakhs

State FSSAI Medium Food 12 Lakh ≤ Annaul

FSSAI
License Business turnover ≤ ` 20 cr

LICENSING Large Food Annual turnover >

Business ` 20 cr

Central FSSAI
Operating in two or more State
license

Importers and Exporters of

food products

6.4 NON-BANKING FINANCIAL COMPANY (NBFC) REGISTRATION

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 2013, or the
previous Companies Act, 1956, that is engaged in activities such as:
) Loans and advances
) Receiving deposits (applicable to some NBFCs only)
) Acquisition of stocks or shares
) Leasing
) Hire-purchase
) Insurance business
) Chit business
According to Section 45-IA of the RBI Act, 1934, an NBFC that conducts financial activities as its principal
business, including lending, acquisition of shares, stocks, bonds, financial leasing, hire purchase, or accepting
deposits, must obtain a certificate of registration from the Reserve Bank of India (RBI). Additionally, the
NBFC must have a Net Owned Fund (NOF) of at least INR 200 Lakhs to commence or carry on business as a
non-banking financial institution. [Detailed Discussion is covered under Chapter 8]
Differences Between Banks and NBFCs
) Demand Deposits:
Banks can accept demand deposits, allowing customers to withdraw money on demand. However,
NBFCs cannot accept demand deposits. This means NBFCs cannot offer services like checking accounts.
) Cheque Issuance:
Banks can issue cheques drawn on themselves, which allows customers to use them for payments or
withdrawals. In contrast, NBFCs cannot issue cheques drawn on themselves, limiting their capacity to
provide cheque-based payment services.
) Deposit Insurance:
Banks' depositors are covered by the Deposit Insurance and Credit Guarantee Corporation
(DICGC), which provides insurance coverage up to ₹5 lakh per depositor per bank in case of a bank
failure. However, NBFC depositors are not covered by DICGC, meaning their deposits are not insured
by the government in the event of an NBFC's failure.

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 Financial Activity as Principal Business – The 50-50 Test
A company is considered to be engaged in financial activity as its principal business if:
) Financial Assets Test:
More than 50% of its total assets are financial in nature (e.g., cash, cash equivalents, debtors, securities,
cash in bank, etc.).
) Income Test:
More than 50% of its gross income is derived from financial assets (such as income from loans, interest,
and investments).
A company that fulfills both of these criteria must apply for and obtain a Non-Banking Financial Company
(NBFC) registration from the Reserve Bank of India (RBI) under Section 45-IA of the RBI Act, 1934. This
test is commonly referred to as the 50-50 Test for NBFC licensing.

6.4.1 Financial Companies Exempt from NBFC License

Certain financial entities, although engaged in principal financial activities, are exempt from obtaining an NBFC
license from the Reserve Bank of India (RBI). These entities are regulated by their respective sector-specific
regulators instead. The exempt entities include:
) Housing Finance Companies – Regulated by the National Housing Bank (NHB)
) Insurance Companies – Regulated by the Insurance Regulatory and Development Authority of India
(IRDAI)
) Stock Broking Firms – Regulated by the Securities and Exchange Board of India (SEBI)
) Merchant Banking Companies – Regulated by the Securities and Exchange Board of India (SEBI)
) Venture Capital Companies – Regulated by the Securities and Exchange Board of India (SEBI)
) Companies Running Collective Investment Schemes – Regulated by the Securities and Exchange
Board of India (SEBI)
) Mutual Funds – Regulated by the Securities and Exchange Board of India (SEBI)
) Nidhi Companies – Regulated by the Ministry of Corporate Affairs (MCA)
) Chit Fund Companies – Regulated by the respective State Government authorities
These entities are not required to register as NBFCs under the RBI regulations, as their activities fall under the
purview of other financial regulators.
6.4.2 Requirement for Obtaining NBFC License
To apply for and obtain an NBFC license, the company must meet the following basic criteria:
1. The company must be registered in India as a Private Limited Company or Limited Company under the
Companies Act, 2013.
2. The company must maintain a minimum Net Owned Fund (NOF) of ₹200 lakhs as prescribed by the
Reserve Bank of India (RBI).
6.4.3 Calculation of Net Owned Fund as per RBI Definition

Net owned funds = Paid up equity capital + free reserves balance in share premium account +capital reserves
representing surplus arising out of sale proceeds of assets (not created by revaluation of assets)

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 (-) accumulated losses
(-) book value of intangible assets
(-) investments in shares of other NBFCs and in shares, debentures of subsidiaries and group companies in
excess of ten percent of the owned fund mentioned above

6.4.4 Applying for NBFC License

The application for NBFC License must be submitted online at the XBRL website [Link] and
offline with the necessary documents to the Regional Office of the Reserve Bank of India. The following are the
documents that need to be submitted for the NBFC License:
) Information about the management.
) Certified copies of the Certificate of Incorporation and Certificate of Commencement of Business in case
of public limited companies.
) Certified copies of up-to-date Memorandum and Articles of Association of the company. Details of clauses
in the memorandum relating to financial business.
) Copy of PAN/CIN allotted to the company.
) Directors’ profiles, separately filled up and signed by each director.
) Certificate from the respective NBFC/s where the Directors have gained NBFC experience.
) CIBIL Data about Directors of the company.
) Financial Statements of the last 2 years of unincorporated Bodies, if any, in the group where the directors
may be holding directorship with/without a substantial interest.
) Board Resolution specifically approving the submission of the application and its contents and authorizing
the signatory.
) Certified copy of the Board resolution for the formulation of “Fair Practices Code”.
) Statutory Auditors Certificate certifying that the company is/does not accept/or hold public deposits.
) Statutory Auditors Certificate certifying that the company is not carrying on any NBFC activity.
) Statutory Auditors Certificate certifying net owned fund as on the date of the application.
) Details of Authorized Share Capital and the latest shareholding pattern of the company, including the
percentages.
) Copy of Fixed Deposit receipt & bankers’ certificate of no lien indicating balances in support of Net Owned
Funds.
) Details of the bank balances/bank accounts/complete postal address of the branch/bank, loan/credit facility,
et c. availed.
) Last three years Audited balance sheet and Profit & Loss account along with directors'& report, or for such
shorter period as are available (for companies already in existence).
) Business plan of the company for the next three years, giving details of its (a) thrust of business, (b) market
segment,n, and (c) projected balance sheets, cash flow statement, and asset/income pattern statement without
any element of public deposits.
) The source of the startup capital of the company is substantiated with documentary evidence.
) Self-attested Bank Statement/IT returns, etc.
) In addition to the above documents, more documents may be required as per the requirements for the NBFC
License.

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6.5 BANKING
Licensing of Banking Companies is governed by the Banking Regulation Act, 1949. To be registered as a
banking company, the entity must be a company.
According to Section 12 of the Banking Regulation Act, 1949, no banking company is allowed to carry on its
business unless it satisfies the following conditions:

1. Its subscribed capital is not less than one-half of its authorized capital;

2. Its paid-up capital is not less than one-half of the subscribed capital;

3. The capital of the company consists of ordinary shares, equity shares and preference shares.

4. No person shall have voting rights of above 10%.

5. Every managing executive of the bank needs to disclose, to the RBI, the extent and the amount of
his Shareholding in the firm.

6. The 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.

6.5.1 Important Points

Section 22 of the Act details on licensing of Banking Companies, which states as below:
1. Every company before commencing banking business shall apply in writing to the Reserve Bank for
a license under this section.

2. Before granting any license the following conditions are fulfilled:

That the company is or will be in a position to pay its present or future depositors in full.
That the affairs of the company are not being, or are not likely to be, conducted in a manner
detrimental to the interests of its present or future depositors;
Proposed management of the company will not be prejudicial to the public interest of its present or
future depositors;
That the company has adequate capital structure and earning prospects;
That the public interest will be served by the grant of a license;
Any other condition.
Before granting any license under this section to a company incorporated outside India, the Reserve
Bank may require that it be satisfied by an inspection of the books of the company.

6.6 IRDA (INSURANCE REGULATORY & DEVELOPMENT AUTHORITY)

6.6.1 Introduction
Until 1999, the insurance sector in India was regulated by the Controller of Insurance under the Insurance
Act, 1938. However, after the formation of the Insurance Regulatory and Development Authority (IRDA),

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the Authority determined that many provisions of the Act were no longer relevant in the context of the country’s
evolving insurance market. In response, IRDA introduced various regulations aimed at modernizing and developing
the insurance sector.
The registration of insurance companies in India is governed by the Insurance Regulatory and Development
Authority (Registration of Indian Insurance Companies) Regulations, 2000.
6.6.2 Class of Insurance

1. The classes of business of insurance for which requisition for registration application may be made
are:
Life insurance business;
General insurance business;
Health insurance business exclusively;
Reinsurance business.

2. An applicant means a public company or a statutory body

3. An applicant shall make a requisition for registration application for insurance

4. Capital Requirement
The minimum equity capital for a Life, General or Health Insurance Company is INR 100 crore;
In case of a Reinsurance company, the requirement is a minimum of INR 200 crore.

6.6.3 Who cannot Apply for Registration under IRDAI

Who cannot apply for Registration under IRDA?

An applicant shall not be eligible to apply for requisition in following circumstances

1. Where the requisition for registration application has been rejected by the Authority or withdrawn;
or

2. Where the foreign investors or Indian Promoter have exit for any reason during proceeding 2 FY.

3. Application has been rejected during proceeding 2 FY.

4. Where Certificate of Registration has been cancelled by the Authority; or

5. Where the name of the applicant does not contain the words ‘insurance’ or ‘assurance’.

6.6.4 Procedure for Registration of an Insurance Company

1. Applying for NOC from IRDAI for using word “Insurance” in the name of the Company.

2. Register as a public Company with the registrar of the company.

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 3. Submit “certificate of Incorporation” to IRDAI and R1 Application from the website of the authority.

4. Submit R1 Application alongwith other documents to IRDAI.

5. On approval of R1 submit R2 application with prescribed documents to the IRDAI.

The registration procedure for insurance companies in India is governed by the Insurance Regulatory and
Development Authority (Registration of Indian Insurance Companies) Regulations, 2000 (as amended up to
8th June 2020). This process ensures that companies comply with the required standards before they are allowed
to operate in the insurance sector.
1. Application in FORM IRDAI/R1 (Regulation 3)
(a) An applicant desiring to carry on an insurance business must submit an application to the IRDAI for
the issuance of a requisition for registration using Form IRDAI/R1.
(b) The IRDAI may request the applicant to provide additional information or clarifications relevant to the
consideration of the application.
(c) The IRDAI has the right to reject the application for the issuance of a requisition for registration form
IRDAI/R1, provided they record the reasons for the rejection in writing.
(d) If the applicant is dissatisfied with the IRDAI's decision, they may appeal to the Securities Appellate
Tribunal within 30 days from the date of communication of the decision.
2. Documents to be attached with FORM IRDAI/R1
Every requisition for registration application must be accompanied by the following documents:
1. Memorandum and Articles of Association: A certified copy of the Memorandum of Association and
Articles of Association, if the applicant is a company incorporated under the Companies Act, 2013, or
a certified copy of the Act of Parliament setting up the statutory body to carry out insurance business.
2. Details of Directors: Name, address, and occupation of the directors.
3. Annual Report: A certified copy of the annual report for the last five years, as prepared by the Indian
promoters and foreign investors.
4. Shareholders’ Agreement: A certified copy of the shareholders' agreement between the Indian
promoters and foreign investors.
5. Projection of Business: A five-year business projection, duly approved by the company's Board of
Directors.
Regulation 3(2): The Authority may require the applicant to furnish such further information or clarification as it
may consider necessary for the disposal of the application.
3. IRDAI – Application in Form IRDAI/R2 (Registration)
Pre-condition:
The IRDAI must be satisfied that Form IRDAI/R1 is complete and that the applicant can manage all
insurance functions within India.
Filing of Form IRDAI/R2:
This form is filed after the acceptance of the requisition.
Mandatory Attachments with Form IRDAI/R2:
1. Paid-up Capital Proof:
 ₹100 crore or more for life/general/health insurance companies.
 ₹200 crore or more for reinsurance companies.
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 2. Affidavits:
 By promoters/foreign investors regarding capital adequacy post preliminary expenses.
 By the MD/CEO/WTD stating that foreign equity is ≤ 74%.
 By the designated partner of the LLP promoters.
3. Shareholding Details:
 Statement of distinctive share numbers issued to Indian promoters/investors.
4. FDI Approval:
 If foreign investment exceeds 26%, a copy of the Foreign Investment Promotion Board
(FIPB) approval as per the 2015 FDI Rules.
5. Prospectus and Policy Terms:
 Certified prospectus, standard forms, rates, terms, and an actuary certificate for life insurance.
6. Agreements:
 A memorandum of understanding (MoU), shareholder agreement, voting rights agreement, etc.
7. Registration Fee:
 A non-refundable ₹5 lakh via bank draft (payable at Hyderabad) or electronic transfer.
8. Professional Certificate:
 From a CA/CS confirming compliance with capital, fees, and legal requirements.
9. Additional Information:
 Any other details requested by the IRDAI during processing.
4. Grant of Certificate of Registration
Upon the IRDAI’s satisfaction, the applicant will be registered as an insurer for a suitable class of
business, and the IRDAI will issue Form IRDAI/R3.
Commencement Timeline:
 The insurer must commence business within 12 months of the date of registration.
Extension Request:
 If unable to commence operations within 12 months, the applicant can seek an extension by
submitting a written application before the expiry of the 12-month period. The IRDAI will either
accept or reject the request in writing.
No Extension Clause:
 If no extension is granted, the insurer cannot delay the commencement of operations beyond 12
months.
The Certificate of Registration is granted in Form IRDAI/R3.

1. Commence insurance business for 2. No extension of time shall be granted

which it has been authorised within 12 by the Authority beyond 24 months
months of the date grant of Certificate from the date of grant of Certificate of
of Registration. Registration.

Amendments in Foreign Investment Compliance for Insurance Companies

Section Outdated Clause Updated Position
FDI Approval If foreign investment > 26% FIPB has been abolished. Now governed under DPIIT and
Clause FIPB approval copy (as per FEMA (Non-Debt Instruments) Rules, 2019 (effective from
2015 Rules) (as per Rule 2015) 17 oct 2019). Approval must be routed via DPIIT portal.

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Foreign Equity MD/CEO/WTD: Foreign equity cap has been raised to 100% (subject to
Limit Affidavit foreign equity ≤ 74% safeguards). Affidavit must confirm compliance with revised
cap and control norms (IRDAI circular post-2021)
Shareholding Statement of distinctive share Now requires dematerialized shareholding confirmation
Details numbers issued to Indian and beneficial ownership disclosure under revised IRDAI
promoters/investor. norms. [IRDAI (Maintenance of information) Reg. 2025]
Professional From CA/CS confirming Must now include compliance with Ind-RBC framework
certificate compliance with capital, fee, and data governance norms under IRDAI (Maintenance of
and Act requirements” Information) Regulations, 2025.

6.7 INDUSTRY LICENSING

Section 11 of the Industries (Development and Regulation) Act, 1951, mandates the licensing of new industrial
undertakings in India. According to the Act, no person or authority, other than the Central Government,
can establish a new industrial undertaking without obtaining a license. The license is granted by the Central
Government and may contain specific conditions, including:
) The location of the undertaking
) Minimum size standards to be maintained by the undertaking
Currently, industrial licenses are mandatory for the following categories:
1. Industries Retained under Compulsory Licensing:
Alcoholic beverages
Cigarettes and tobacco products
Electronic, aerospace, and defense equipment
Explosives
Hazardous chemicals, including substances like hydrocyanic acid, phosgene, isocyanates, and hydrocarbons

2. Manufacturing Reserved for Small-Scale Industry (SSI):

Larger units seeking to manufacture items exclusively reserved for the small-scale sector (SSI) must
obtain an industrial license. These units must also commit to exporting at least 50% of the production
of such reserved items.
3. Location-Based Licensing Requirements:
Certain locations are subject to additional licensing requirements, especially near urban areas or industrial
zones.
6.7.1 Locational Restrictions
Industrial undertakings located within 25 km of the urban limits of 23 cities with a population of over 1 million
(as per the 1991 Census) require an industrial license. However, an industrial license is not required if:
) The unit is situated in an industrial area designated before 1991
) The unit is a non-polluting industry, such as electronics, computer software, printing, and other specified
industries
To create a business investor-friendly environment, DPIIT has developed the G2B Portal as a Single Window
System for receiving applications of Industrial Entrepreneurs to file an Industrial Entrepreneurs Memorandum
(IEM) as well as an Industrial License under the Industries (Development and Regulation) Act, 1951. Online
filing has been made mandatory with effect from 15th May 2014. The online portal has the required authentication
mechanisms for submitting IEM and IL applications.

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 ) Previously, the application for registration was made to the Secretariat of Industrial Assistance (SIA),
Department of Industrial Policy & Promotion (DIPP), along with a fee.
) Once the license is obtained, an industrial undertaking is eligible for the allotment of controlled commodities
and for the issuance of an import license for goods required for its construction and operation. The validity
of all Industrial licenses has been increased to three years, whether issued before or after 2nd July 2014. The
licensee has to apply for an extension of validity after three years, as applicable
6.7.2 Procedure to Apply for Industrial License

Procedure to apply for Industrial License

1. Applied online on G2B Portal in Form FC-IL/FORM FC-IL

2. Applications are scrutinized for their completeness

3. If the applications is complete, DPIIT circulates them to concerned administrative ministries for
their comments

4. After receipts of Comments from the concerned Ministries, files are processed and submitted to
the Licensing committee for consideration.

5. Licensing committee can recommend for grant of license/rejection of proposal/deferment of the

proposal, based on the comments and the approval of the Minister in charge of DPIIT is obtained.

The validity of all Industrial Licenses has been increased to three years, and the extension of validity after 3 years.
6.7.3 IEM (Industrial Entrepreneur Memorandum)
An Industrial Entrepreneur Memorandum (IEM) is a formal declaration filed by large industrial undertakings that
are exempt from licensing under the Industries (Development and Regulation) Act, 1951.
6.7.3(a) Requirements

1. All industrial undertakings exempted from the requirements of industrial licensing

2. Investment in plant and machinery of ` 50 Crore and above; and

3. Turnover of ` 250 crore and above

4. Including existing units , new undertaking

6.7.3(b) Process of Application of IEM

1. The application for the Industrial Entrepreneur Memorandum (IEM) can be submitted online through the
designated portal. Upon submission, it is scrutinized by the IEM Section, which verifies key documents and
details, including the Certificate of Incorporation, Memorandum and Articles of Association, Master Data,
PAN, and relevant codes about the National Industrial Classification (NIC) and the concerned Administrative
Ministry or Department.

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 2. Once the above is verified and found correct, the Department electronically issues the IEM Ack. to the
applicant.
3. All Industrial undertakings which had filed IEM are required to report commencement of commercial
production and this is also filed on-line on the same portal by way of filing information as per prescribed
form ‘Part B’ of the IEM after commencement of commercial production by the establishment; a copy of
the related IEM Ack. is required to be attached while filing this information on the portal.

6.8 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
Categorised as ‘Other Service Providers’(OSP).

It must obtain a telecom license from Department of Telecommunication (DoT).

6.8.1 Other Service Provider (OSP) License shall be Categorized into Two Types

1. Domestic OSP– OSP providing services to clients located within national boundaries of India.

2. International OSP– OSP providing services to clients outside India.

6.8.2 Process of Registration

A company registered under the Companies Act, 2013, or under any other previous law, i.e., the Companies
Act,195,6, or LLP registered under the Limited Liability Act,200,8, or Partnership Firm or organisations registered
under the Shops and Establishments Act are eligible to obtain OSP license.

To Obtain a OSP license, the Company or LLP shall file an Application in Form – 1 to the DoT through
online on DoT portal.

OSP license is a location specific and can have multiple registrations for each such site.

An entity shall inform the change, if any in the point of presence. Point of presence is a location where
OSP places equipment.

To act as an extension of its OSP centre for carrying and exchanging the telecom traffic related to its
services.

The OSP license is valid for 20 years and can be extended for a further period of ten years from the expiry of
twenty years.
State-level Approval from the respective State Industrial Department.

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6.8.3 Mandatory documents required for OSP License

Certificate of Incorporation issued by ROC;

Memorandum and Articles of Association;

Copy of LLP Agreement;

Board resolution Power of Attorney authorizing the Authorized signatory with attested signature;

Resolution passed by all designated partners or Partners as per provisions of LLP Act;

A Note on nature of business or activites of the proposed OSP;

List of present directors of the Company;

List of present designated partners of LLP;

Present Shareholding pattern of the Company;

Present Shareholding pattern of LLP.

Note: All the documents must be certified with a seal by the company secretary or one of the Directors or Statutory
Auditors, or a public notary in case of a Company.
All documents must be certified with a seal by either the designated partner or all partners, or statutory Auditors,
or a public notary in case of LLP.
6.8.4 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) wherever it applies
to one’s business from the respective State Industries Department.
Various State Governments have formulated Industrial Policy to create a conducive environment through an
enabling Policy and regulatory framework to drive sustainable industrial growth in the State. States are committed
to simplifying the processes and procedures and expediting project approvals and clearances. The Policy focuses
on providing quality industrial infrastructure, creation of a large land bank, financial assistance to the private
sector for the development of industrial infrastructure, and sustainable environmental protection.

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 Previous Year Questions

1. What is the importance of linking the Permanent Account Number (PAN) with Aadhaar?
June 2025 (3 marks)
Hints:
Linking your PAN with Aadhaar isn’t just a bureaucratic checkbox—it’s a cornerstone of India’s financial
and tax compliance framework. Here's why it matters:
Legal Mandate & Compliance
Mandatory under Section 139AA of the Income Tax Act, 1961: All PAN holders (except exempted
categories) must link their PAN with Aadhaar to keep it active.
Avoid penalties: Failure to link can result in a fine of up to ₹1,000 and render your PAN inoperative.
Practical Benefits
Simplified tax filing: Linking enables auto-population of personal details in ITR forms, making
e-filing smoother.
Prevents duplication: Helps eliminate multiple PANs issued to the same individual, reducing fraud.
Facilitates KYC: Streamlines Know Your Customer processes for banks, brokers, and other financial
institutions.
Enhanced Transparency & Security
Prevents tax evasion: Ensures every taxpayer has a unique, traceable identity, aiding in curbing black
money and shell entities.
Quick verification: Government agencies can instantly verify PAN details using Aadhaar’s biometric-
backed database.
Identity protection: Reduces the chances of identity theft and misuse of financial credentials.
Financial & Government Services Access
Smooth financial transactions: Required for opening bank accounts, investing, applying for loans,
and more.
Access to subsidies & welfare schemes: Aadhaar-linked PAN helps in availing direct benefit transfers
and other government services.
2. Ava runs a home-based business making cakes and pastries, and plans to open a shop with an expected
annual turnover of ₹20 lakh. Does she need to get a registration or license from the Food Safety and
Standards Authority of India (FSSAI) for her business? If yes, which type of FSSAI approval does she
need June 2025 (3 marks)
Hints:
Mandatory Requirement
All food businesses in India—including home-based and small-scale bakeries—must register or obtain a
license from FSSAI under the Food Safety and Standards Act, 2006. This ensures food safety, hygiene
compliance, and legal eligibility to operate and sell.
Type of FSSAI Approval Based on Turnover
Turnover Range Type of Approval Form Required Applicability
Up to ₹12 lakh Basic Registration Form A Petty food businesses
₹12 lakh to ₹20 crore State License Form B Mid-scale businesses like Ava’s
Above ₹20 crore Central License Form B Large-scale or multi-state operations

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 Since Ava’s projected turnover is ₹20 lakh, she must apply for the State FSSAI License by submitting
Form B through the FoSCoS portal.
Additional Notes
Ava must prominently display her FSSAI license number at her shop.
Without FSSAI approval, she cannot legally sell through online platforms or delivery apps.
The license is typically valid for 1 to 5 years, depending on the fee paid and duration selected.
3. State the procedure for obtaining an NOC from the Pollution Control Board. June 2025 (3 marks )
Hints:
1. The application for consent to establish (CTE) and consent to operate (CTO) can now be made online
by logging onto the concerned State’s pollution control board’s website.
2. The State pollution control board needs to reply within 4 months. Due diligence is carried out by the
pollution authority of the business premises and pollution.
3. The NOC application is either accepted or rejected. If the application is accepted for NOC, then a
certificate is issued to the business. However, if the application is rejected by the pollution control
board, then the applicant needs to be intimate the reason for the same.
If an individual fails to obtain a CTE/CTO or Pollution license, they will be subject to 6 months to 1 year
of imprisonment, with chances of a 6-year extension and penalty charges.
4. What is the process to apply for an Importer Exporter Code (IEC) on the DGFT portal, as advised by M
to the directors of XYZ Appliances Pvt. Ltd? Dec 2024 ( 3 marks)
Hints:
Process to apply for Importer Exporter Code (IEC) on the DGFT portal ([Link]
1. Valid Login Credentials to DGFT Portal (After Registering on DGFT Portal).
2. User should have an active Firm's Permanent Account Number (PAN) and its details like Name as
per PAN, Date of Birth or Incorporation. Note: These details will be validated with the Income Tax
Department site.
3. Scanned Documents for Upload in the System (PDF Only and Max file size of 5 MB).
(a) Proof of establishment/incorporation/registration.
(i) Partnership
(ii) Registered Society
(iii) Trust
(iv) HUF
(v) Others
(b) Proof of Address can be any one of the following documents:
(i) Sale Deed, rent agreement, lease deed, electricity bill, telephone land line bill, mobile, postpaid
bill, MoU, Partnership deed;
(ii) Other acceptable documents (for proprietorship only): Aadhar card, passport, voter ID
(iii) In case the address proof is not in the name of the applicant firm, a no-objection certificate
(NOC) by the firm premises owner in favor of the firm, along with the address proof, is to be
submitted as a single PDF document.
(c) Proof of Firm’s Bank Account
(i) Cancelled Cheque
(ii) Bank Certificate

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 (d) The user should have an active DSC or Aadhaar of the firm’s member for submission.
(e) Active Firm’s Bank account for entering its details in the Application and to make an online payment
of the application fee
5. A and B, close friends who graduated from a renowned college, want to start an ‘Other Service Providers’
(OSP) company for commercial purposes in Rewari, Haryana. What licenses and documents are needed
to obtain to operate as a licensed OSP, similar to other service providers  June 2024 ( 3 marks)
Hints:
OSP registration is compulsory for businesses offering IT-enabled services using telecom resources,
such as:
Call centers, BPOs, KPOs
Telemedicine, telebanking, tele-education
Network operation centers, e-commerce platforms
This is the main license that legally allows them to operate as an Other Service Provider.
Why it’s needed: Any company using telecom resources to offer IT-enabled services (like BPO, call
centers, telebanking, etc.) must register with DoT.
Types:
 Domestic OSP – serving Indian clients
 International OSP – serving foreign clients
 Combined OSP – if they serve both.
Mandatory documents required for OSP License
Certificate of Incorporation issued by the ROC;
Memorandum and Articles of Association;
Copy of LLP Agreement;
Board resolution, Power of Attorney authorizing the Authorized signatory with attested signature;
Resolution passed by all designated partners or Partners as per provisions of LLP Act;
A Note on the nature of business or activities of the proposed OSP;
List of present directors of the Company;
List of present designated partners of LLP;
Present Shareholding Pattern of the Company;
Present Shareholding Pattern of LLP.
All the documents must be certified with a seal by the company secretary or one of the Directors or
Statutory Auditors, or a public notary in case of a Company. All documents must be certified with a seal
by either the designated partner or all partners, or a statutory auditor, or a public notary in the case of LLP.
The OSP license is valid for 20 years and can be extended for a further period of ten years from the expiry
of twenty years. State-level Approval from the respective State Industrial Department.
6. MN Ltd. is a newly incorporated company that intends to carry on the business of international trade
activities in India. The company seeks your guidance on the requirement of obtaining an Import-Export
Code (IEC). Advise MN Ltd. on the requirements of IEC.  June 2024 (3 marks)

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 7. Briefly state the types of FSSAI License under the Food Safety and Standards Act, 2006.
Dec 2023 (3 marks)
Hints:
FSSAI License: Any person or entity that is not classified as a petty food business operator is required to
obtain an FSSAI license for operating a food business in India.
FSSAI license is of two types:
(i) FSSAI State License: FSSAI State License is needed for small to medium-sized Food Companies
which has an annual turnover of ` 12 Lakhs — `20 Crores. A State FSSAI license is required for
medium-sized food manufacturers, processors, and transporters.
(ii) FSSAI Central License: It is mandated for all Food giants with an annual turnover of more than `
20 Crores. Based on the size and nature of the business, the licensing authority would change. Large
food manufacturer processors/transporters, and importers of food products require a central FSSAI
license.
8. What do you mean by ‘Other Service Providers’ (OSP) under the New Telecom Policy, 1999?
Dec 2023 (3 marks)
Hints:
Other Service Providers (OSP) Business entities which provide internet services or engage in commercial
communications, i.e., call center, BPO, Tele-education, Tele-banking, Tele-networking, e-commerce, and
other IT-enabled services are categorised as ‘Other Service Providers’ (OSP) under New Telecom Policy,
1999.
They must obtain a telecom license from the Department of Telecommunications (DoT), Government of
India. The telecom license entitles the entities to provide telecommunication services in India.
OSP license shall be categorized into two types:
1. Domestic OSP - OSP providing services to clients located within the national boundaries of India
2. International OSP - OSP providing services to clients outside India.
9. Describe the types of entities involved in the principal business of financial activity that do not require a
Non-Banking Financial Company (NBFC) license from the Reserve Bank of India (RBI).
Dec 2023 (3 marks)
Hints: The following types of entities that are involved in the principal business of financial activity do
not require an NBFC License from RBI:
Housing Finance Companies — Regulated by the National Housing Bank
Insurance Companies - Regulated by Insurance Regulatory and Development Authority of India
(IRDA)
Stock Broking — Regulated by Securities and Exchange Board of India
Merchant Banking Companies — Regulated by the Securities and Exchange Board of India
Venture Capital Companies — Regulated by the Securities and Exchange Board of India
Companies that run Collective Investment Schemes — Regulated by the Securities and Exchange
Board of India
Mutual Funds — Regulated by the Securities and Exchange Board of India
Nidhi Companies — Regulated by the Ministry of Corporate Affairs (MCA)
Chit Fund Companies — Regulated by the respective State Governments.
The above types of companies have been exempted from NBFC registration requirements and NBFC
regulations of the RBI, as other financial institutions regulate them.

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10. What do you mean by ‘Casual Taxable Person’ under the Central Goods & Services Tax Act, 2017?
Dec 2023 (3 marks)
Hints;
Section 2(20) of the Central Goods & Services Tax Act, 2017 defines “casual taxable person” as a person
who occasionally undertakes transactions involving supply of goods or services or both in the course or
furtherance of business, whether as principal, agent or in any other capacity, 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.
For example, a footwear dealer registered in Agra comes for an exhibition at Azad Maidan, Mumbai,
to participate in the exhibition, then such a person would need to register as a casual taxable person at
Mumbai, and they will be granted registration for a maximum period of 90 days.
11. Ratan has started the business of handicraft items in Chandni Chowk, Delhi. One of his friends advised
him to obtain the license under the Shop and Establishment Act, 1948. He approaches you to seek your
advice on the contents of the application for a license under the Shop and Establishment Act, 1948. Advise
Ratan. Dec 2023 (3 marks)
Hints:
License under the Shop and Establishment Act. Any shop or commercial establishment that commences
operation must apply to the Chief Inspector for a Shop and Establishment Act for obtaining License within
the prescribed time. The application for a license in the prescribed form must contain:
the name of the employer,
address of the establishment,
name of the establishment,
category of the establishment,
number of employees, and
other relevant details as requested. On submission of the application and review by the Chief Inspector,
the shop or commercial establishment will be registered, and a registration certificate will be issued to
the occupier.
12. Write down the procedure to apply for an industrial License under the Industries (Development and
Regulation) Act, 1951. Dec 2023 (3 marks)
Hints:
Procedure to apply for Industrial License
1. All applications for Industrial License under the Industries (Development and Regulation) Act, 1951
can now be applied online on the G2B Portal in their respective forms.
2. The Applications are scrutinized for their completeness. Information in respect of incomplete
applications is sought from the applicants.
3. If the applications for the grant of a license are complete in all respects with the necessary documents,
the Department for Promotion of Industry and Internal Trade (DPIIT) circulates them to the concerned
administrative ministries, the Ministry of Home Affairs, the Concerned State Government, and other
concerned agencies for their comments.
4. After receipt of Comments from the concerned Ministries/Agencies, files are processed and submitted
to the Licensing committee for consideration.

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 5. The licensing committee can recommend the grant of a license/rejection of the proposal/deferment
of the proposal, based on the comments received and deliberations in the Committee. After the
recommendation, the approval of the Minister in charge of DPIIT is obtained for the grant of licenses
or otherwise.
13. Under what circumstances shall an applicant not be eligible to apply for registration under the IRDA
(Insurance Regulatory & Development Authority)? Dec 2023 (5 marks)
Hints:
An applicant shall not be eligible to apply for Registration under the IRDA (Insurance Regulatory &
Development Authority) in the following circumstances:
(i) Where the requisition for registration application has been rejected by the Authority or withdrawn; or
(ii) Where the foreign investors or Indian Promoter of the existing venture have exited for any reason
at any time during the preceding two financial years from the date of requisition for registration
application; or
(iii) Where an application for registration has been rejected by the Authority or withdrawn by the applicant
for any reason at any time during the preceding two financial years from the date of requisition for
registration application; or
(iv) Where Certificate of Registration has been cancelled by the Authority; or
(v) Where the name of the applicant does not contain the words ’insurance’ or ‘assurance’.
14. Why does K advise R to go for the “Composition Scheme” under the GST Act, 2017?
Dec 2023 (3 marks)
Hints:
Composition Scheme under the GST Act, 2017. The composition levy is an alternative method of levy
of tax designed for small taxpayers whose turnover is up to Rs. 1.5 Crores (Rs. 75 lakhs in case of a few
States). The objective of the composition scheme is to bring simplicity and to reduce the compliance
cost for the small taxpayers. Moreover, it is optional, and the eligible person opting to pay tax under this
scheme can pay tax at a prescribed percentage of their turnover every quarter, instead of paying tax at the
normal rate.
The Composition Scheme is now made available to service providers as well, whose aggregate annual
turnover does not exceed Rs. 50 lakhs. Both exclusive service providers and mixed service providers of
goods and services can opt for this scheme.
K advises R to opt for the composition scheme as R is a small businessman starting his company afresh,
and normal GST registration can be burdensome for him with major compliances, which will not be in case
with the GST Composition Scheme.

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 Part-B
Industrial and
Labour Laws
 CHAPTER SBIL

14 CONSTITUTION AND
LABOUR LAWS

1. INTRODUCTION
The Constitution of a country serves as the fundamental law of the land, under which all other laws are enacted
and enforced. Every organ of the State—be it the executive, the legislature, or the judiciary—derives its authority
from the Constitution. No authority, department, or branch of the State stands above it or possesses unfettered
and unrestricted powers. The three core components of the Indian Constitution—the Preamble, the Fundamental
Rights, and the Directive Principles of State Policy—form the guiding framework for all legislation, including
labour laws.

2. CONSTITUTIONAL BEARING ON INDUSTRIAL LAW AND INDUSTRIAL RELATIONS

Industrial relations in India are not merely a matter of workplace negotiation between labour and management;
they are deeply embedded in the nation’s socio-economic and constitutional fabric. The State plays a pivotal role
in regulating these relations, especially in a developing economy like India, where labour surplus, democratic
values, and welfare objectives converge.
Unlike developed economies such as the U.S. and U.K., which adopt minimal intervention and allow market
forces to resolve disputes, India’s industrial framework demands active State involvement to ensure equitable
growth and social justice.
The Constitution of India supports this approach through its federal structure. Labour-related matters are distributed
across all three legislative lists, with key areas, such as industrial disputes, trade unions, and social security, falling
under the Concurrent List. This allows both the Central and State Governments to enact laws on these subjects.
Important legislations, such as the Industrial Disputes Act, 1947, the Minimum Wages Act, 1948, and the
Employees’ State Insurance Act, 1948, empower both levels of government to tailor rules to local contexts. For
instance, Section 38 of the Industrial Disputes Act and Section 29 of the Minimum Wages Act delegate rule-
making powers to States, enabling local governance without requiring Presidential assent.
Further, the Directive Principles of State Policy (Part IV of the Constitution) guide labour legislation towards
broader social objectives—such as securing adequate means of livelihood, preventing concentration of wealth,
ensuring equal pay for equal work, and protecting workers’ dignity and health.
While several legislative instruments—like the Factories Act, ESI Act, and Payment of Bonus Act—have
operationalised these principles, many objectives, such as the implementation of living wages and equitable
wealth distribution, remain aspirational.
In essence, industrial relations in India are a reflection of its constitutional vision, economic priorities, and
democratic ethos. The State’s role is not just regulatory but transformative—aimed at harmonising industrial
growth with human dignity and social equity.
 Constitution of Labour
Rights

Directive Principles
Fundamental Rights
of State Policy

Article 14 Article 38
Equality before Law State shall strive to promote
the welfare of the people
Article 16
Equal Opportunity in
Public Employment Article 39
Equal pay for equal work
Article 19
Right to form
associations or union Article 41
Right to work
Article 21
Right to life Article 42
Provision for just and
humane conditions of work
Article 23
Prohibition of trafficking
and forced in labour Article 43
Right to a living wage
Article 24
Prohibition of child labour Article 43A
under the age of 14 years Participation of workers
in management

3. SOCIAL JUSTICE AND INDUSTRIAL LAW

The Preamble to the Indian Constitution underscores socio-economic justice as a key objective of the State.
ARTICLE 38 mandates the State to promote welfare by securing a social order rooted in justice—social, economic,
and political—while ARTICLE 39 guides law-making based on principles of social justice.
Renowned jurists have affirmed social and economic justice as a dynamic and revolutionary concept vital to the
rule of law and the spirit of a welfare state. It aims not at wealth redistribution in absolute terms, but at ensuring
necessities for all, uplifting the poor, and fostering human dignity. This responsibility lies with both the State
and citizens, working together to build an equitable society. Industrial laws in India reflect this philosophy by
seeking to redress socio-economic inequalities through fair regulation of labour relations. However, the social and
economic goals outlined in Part IV of the Constitution must align with Part III—Fundamental Rights—ensuring
that reforms respect individual liberty and democratic values. Any legislation that violates these rights shall be
void to the extent of such inconsistency.

4. CONSTITUTIONAL REMEDIES
The Indian Constitution provides robust remedies for the violation of fundamental rights through ARTICLES 32
and 226, which grant writ jurisdiction to the Supreme Court and High Courts respectively—ARTICLE 32 itself
being a fundamental right. The Supreme Court also holds discretionary appellate jurisdiction under ARTICLE 136,
allowing it to hear appeals from any court or tribunal.

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High Courts possess not only writ powers under ARTICLE 226 but also superintendence under ARTICLE 227,
and individuals can approach the Supreme Court under ARTICLE 132 or 133 depending on the nature of the issue.
Can the Trade Union move to the High Court?
Yes, It is decided in case-Jaipur division irrigation employees union Vs. State of Rajasthan.

In the case large number of employees of irrigation department were declared surplus and union challenged
it in writ petition.

The single bench held that fundamental rights of individual are not rights of trade union.

On appeal, the division bench reversed and sent back it to single bench for disposal of writ.

CASE LAW
In the famous case of S.P. Gupta and Ors. v. President of India and Ors. (AIR 1982 SC 149) the question of
locus standi was discussed and it was held that where a legal wrong or a legal injury is caused to a person or a
determinate class of persons because of violation of any constitutional or legal right or any burden is imposed
in contravention of any constitutional or legal provision or without authority of law or any such legal wrong
or legal injury or illegal burden is threatened and such person or determinate class of persons is because of
poverty, helplessness or disability or socially or economically disadvantageous position, unable to approach
the Court for relief, any member of the public can maintain an application for an appropriate direction, order
or writ in the High Court under Article 226 of the Constitution of India or in the Supreme Court under Article
32 of the Constitution of India seeking judicial redress for the legal wrong or injury caused to such person or
determinate class of persons.

5. FUNDAMENTAL RIGHTS AND INDUSTRIAL RELATIONS

The Indian Constitution guarantees Fundamental Rights (ARTICLE 12–35) to protect essential human
freedoms, especially in the context of labour. These include the right to equality (ARTICLE 14 & 16), liberty
(ARTICLE 19 & 21), and protection against exploitation (ARTICLE 23 & 24). These rights function alongside
the Directive Principles of State Policy and Fundamental Duties, ensuring that governance remains humane and
just. Judicial interpretations by the Supreme Court have expanded the scope of these rights to uphold human
dignity, protect the interests of workers, and ensure the accountability of the State.
5.1. ARTICLE 14- EQUALITY BEFORE LAW
ARTICLE 14 ensures that every person in India is treated equally before the law and receives equal protection
under it. It prohibits arbitrary discrimination by the State and allows reasonable classification, not class legislation.
This principle upholds fairness and justice in governance.
“Equality before law”

It is a negative term/concept

It is borrowed from English common law

There is absence of any special privilige in favour of any individual.

Law cannot Favour someone.

No man is above law.

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 “Equal protection of law”

It is positive concept.

It is borrowed from American law.

Equals should be equal.

Equals should be treated as equal.

Possession of higher qualification can be treated as valid base.

CASE LAWS
1. In the case of the Air India v. Nargesh Meerza (1981 AIR 1829) Regulation 46 and 47 of Indian Airlines
regulations was in question which provides that an air Hostess will retire from the service upon attaining
the age of 35 years or on marriage within 4 years of Service or on first pregnancy, whoever found earlier
but the managing director had the discretion that he may extend the age of retirement one year at a time
beyond the age of retirement up to the age of 45 years at his option if an air hostess was found medically
fit. It was held by the court that the clauses regarding retirement and pregnancy of the regulation as
unconstitutional and therefore struck down. The retirement of an air hostess on the grounds of pregnancy
was unreasonable and arbitrary, and it violated ARTICLE 14 of the Constitution of India.
2. In D.S Nakara v. Union of India, (1983 AIR 130) the supreme court held Rule 34 of the Central Services
(Pension) Rules, 1972 as unconstitutional and was struck down on the ground that the classification made
by it between pensioners retiring before a certain date and retiring after that date was not depend upon the
any rational principal and it is arbitrary and violates ARTICLE 14 of Indian constitution.

5.2. ARTICLE 16- EQUAL OPPORTUNITIES IN PUBLIC EMPLOYMENT

ARTICLE 16 ensures equal opportunity in public employment, banning discrimination based on religion, race,
caste, sex, descent, birthplace, or residence. It also allows reservations for underrepresented communities to
promote social justice.
There shall be equal opportunity for every person in matters of public employment.

No person shall be discriminated on ground of religion, race, caste, sex, place of birth or any of them, with
respect to public employment.

Parliament can make law with regard to a class or classes of employment or appointment to office under
government with state or union territory.

There is reservation of appointment or post for SC/ST or any backward class for employment.

There shall be person professing a particular religion or belonging to a particular denomination. It simply means
such laws can be made that only those persons can practice in any temple/mosque who belongs to that religion.

5.3. ARTICLE 19(1)(C)- RIGHT TO FORM ASSOCIATION AND UNION

ARTICLE 19(1)(c) of the Indian Constitution guarantees every citizen the fundamental right to form associations,
unions, or cooperative societies. This right is a cornerstone of democratic participation, allowing individuals to
collectively pursue political, social, economic, or cultural interests. It empowers citizens to organise into political

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parties, trade unions, professional bodies, or social groups, thereby fostering collective action and representation.
However, this right is not absolute. Under ARTICLE 19(4), the State may impose reasonable restrictions
in the interests of the sovereignty and integrity of India, public order, or morality. Such restrictions must be
legally sanctioned, proportionate, and subject to judicial review. The Supreme Court has consistently upheld the
importance of this right, recognising its role in enabling free association and democratic engagement, while also
affirming the legitimacy of restrictions that protect national interests and public welfare.

Every have into has right to become or not to become member of any association or union.

Reasonable restrictions can be imposed by the State on Ground of Restriction.

Sovereignty &
Public Order Morality
integrity of India

CASE LAW
All India Bank Employees v. National Industrial Tribunal (1962 SCR (3) 269)
The Supreme Court held that the right to strike is a natural extension of the fundamental right to form
unions under ARTICLE 19(1)(c). Strikes are essential for collective bargaining, especially given the economic
disadvantage of workers compared to employers. However, since strikes can cause serious economic disruption,
the Industrial Disputes Act, 1947 provides an alternative mechanism—compulsory industrial adjudication.
This allows the government to refer disputes to tribunals and prohibit strikes or lockouts during proceedings.
The Court ruled that such a restriction is reasonable and valid only if the adjudication process is an effective
substitute for the right to strike.

5.4. ARTICLE 21- RIGHT TO LIFE

ARTICLE 21 of the Indian Constitution guarantees
the Right to Life and Personal Liberty, stating that “No person shall be deprived of
no person shall be deprived of these rights except
according to a procedure established by law. Initially
interpreted narrowly, its scope has expanded through Right to life Personal liberty
landmark judgments to include rights such as privacy,
health, education, clean environment, and dignified living. It acts as a shield against arbitrary State action and
is considered one of the most progressive and vital provisions in India’s constitutional framework.
Except according to the procedure established by the law

Restriction

Deprivation shall be as per relavant procedure, but procedure must be fair, just & resonable.
Right to life & personal liberty means right to make your life meaningful, complete & worth living.

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Some directive principles for the worker:
Directive principles for workers

Right to live
Right to Right to Right to Health of Sexual Economic
with human
livelihood medical care health labour harrasment rights
dignity

CASE LAW
1. In the case of Olga Tellis & Ors v. Bombay Municipal Corporation, AIR 1986 SC 180, the Court held:
“As we have stated while summing up the petitioners’ case, the main plank of their argument is that the
right to life which is guaranteed by ARTICLE 21 includes the right to livelihood and since, they will be
deprived of their livelihood if they are evicted from their slum and pavement dwellings, their eviction is
tantamount to deprivation of their life and is hence unconstitutional.
2. In the case of D.K. Yadav v. J.M.A. Industries Ltd (1993) 3 SCR 930 the court held: “ARTICLE 21
of the Constitution clubs life with liberty, dignity of person with means of livelihood without which the
glorious content of dignity of person would be reduced to animal existence. The order of termination
of the service of an employee/workman visits with civil consequences of jeopardising not only his/ her
livelihood but also the career and livelihood of dependents. Therefore, before taking any action to put an
end to the tenure of an employee/workman, fair play requires that a reasonable opportunity to put forth
his case is given and a domestic enquiry conducted, complying with the principles of natural justice.”
3. In the case of Paschim Banga Khet Mazdoor Samity v. State of West Bengal (AIR 1996 SC 2426), a
mazdoor fell from a running train and was seriously injured. He was sent from one government hospital
to another, and finally, he had to be admitted to a private hospital, where he had to incur an expenditure
of Rs. 17,000/- on his treatment. Feeling aggrieved at the indifferent attitude shown by the various
government hospitals, he filed a writ petition in the Supreme Court under ARTICLE. 32. The Court has
ruled that: “the Constitution envisages the establishment of a welfare state, and in a welfare state, the
primary duty of the government is to provide adequate medical facilities for the people. The Government
discharges this obligation by running hospitals and health centres to provide medical care to those who
need it. ARTICLE 21 imposes an obligation on the State to safeguard the right to life of every person.
Preservation of human life is thus of paramount importance.”

5.5. ARTICLE 23 AND ARTICLE 24- RIGHT AGAINST EXPLOITATION

1. ARTICLE 23 of the Indian Constitution provides the Right Against Exploitation, prohibiting human
trafficking, begar (forced, unpaid labour), and other forms of forced labour.
Three unsocial practices

Begar Traffic in human beings Forced labour

Begar
) Begar means any labour/service where have to compulsory work without any payment.

Traffic in human beings

) It generally means slavery. The buying & selling of human being as if they are chattels is Constitutionally
illegal.

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 CASE LAW
In Sanjit Roy v. State of Rajasthan, 1983, SCR (2) 271 case, it was held that when a person provides labour or
service to another for remuneration which is less than the prescribed minimum wages, the labour so provided
falls within the ambit of the words ‘forced labour’ under ARTICLE 23.

2. ARTICLE 24 of the Indian Constitution prohibits the employment of children below the age of fourteen
years in factories, mines, or any other hazardous occupations. This constitutional safeguard is not merely
a legal provision but also a moral commitment to protect the physical and mental well-being of young
individuals, ensuring that they are not subjected to exploitative or dangerous work conditions.
This provision applies universally, not being limited by citizenship, thereby reflecting the inclusive spirit
of India's constitutional protections. Its implementation is supported by the Child and Adolescent
Labour (Prohibition and Regulation) Act, 1986, which specifies hazardous occupations and processes
where child labour is strictly prohibited, and ensures accountability of employers through penalties and
enforcement mechanisms.

6. LABOUR LAWS AND REFERENCES TO THE DIRECTIVE PRINCIPLE OF STATE

POLICY
The Directive Principles of State Policy, enshrined in Part IV of the Indian Constitution, aim to promote
economic democracy alongside political democracy. These principles guide the State in taking affirmative
measures for the socio-economic welfare of the people and reflect the philosophy of a welfare state.
Though non-justiciable—meaning they cannot be enforced in a court of law due to resource limitations and
administrative feasibility—the Directive Principles act as fundamental policy guidelines for law-making and
governance. They provide a constitutional foundation for shaping inclusive and equitable development policies.
Over time, Indian courts have adopted an integrative approach, interpreting Directive Principles and
Fundamental Rights together to expand the scope and depth of constitutional protections. This has enabled
the judiciary to elevate certain non-enforceable principles to the status of enforceable rights through progressive
interpretation.
ARTICLE 38, 39, 41, 42, and 43 are particularly significant for labour laws and industrial jurisprudence.
These provisions mandate the State to promote social justice, ensure fair wages, provide humane and safe
working conditions, and facilitate secure and dignified livelihoods for workers, thus forming the constitutional
bedrock for many labour welfare legislations in India.
Livelihood.
Distribution of resources.
Prevention of concentration of weath.
Directive principle
of state policy

Equal pay for equal work for both men & women.
Health & strength.
Women & child are not abused.
Participation of workers in management of industries.
Just & human conditions.
Youth & childhood protected against exploitation.

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 7. SOCIAL ORDER BASED ON SOCIO-ECONOMIC JUSTICE
ARTICLE 38 – Social Justice & Welfare
) Clause (1): The State must promote welfare by securing a social order based on social, economic, and
political justice.
) Clause (2): The State must strive to minimise income inequalities and eliminate disparities in status,
facilities, and opportunities among individuals and groups.
Read with ARTICLE 14: The principle of equality before law becomes meaningful only within a socially and
economically equal society. In Sri Srinivasa Theatre v. Government of Tamil Nadu, the Supreme Court affirmed
that Article 14 must be interpreted in the context of socio-economic realities to ensure substantive equality.
Judicial Interpretation:
) In Consumer Education and Research Centre v. Union of India, the Supreme Court held that the right to
health and medical aid is an integral part of the Right to Life under ARTICLE 21, especially for workers.
) Additionally, ARTICLES 21, 38, 42, 43, 46, and 48A, when read together, underscore the constitutional
commitment to dignified living conditions, equitable working standards, and the socio-economic
upliftment of all citizens, particularly the labour force.
SUMMARY
ARTICLE 38(1): State shall promote welfare of public by securing and protecting, social economical and
political justice

ARTICLE 38(2): Direct states to eliminate inequality in status and opportunity to minimise inequality in income
among individual and group of people living in different area.

8. EQUAL PAY FOR EQUAL WORK

“Equal Pay for Equal Work” is a foundational principle of workplace justice, asserting that individuals performing
the same duties under similar conditions deserve the same remuneration—regardless of gender, caste, or background.
(1) ARTICLE 39 require states to have–
1. To all citizen irrespective of sex equality of adequate means of livelihood.

2. There should be equal work for men & women.

3. Health & strength of men & women should be protected.

4. Children & youth must be protected against exploitation.

(2) ARTICLE 41 of the Indian Constitution is a Directive Principle of State Policy that emphasises the
State’s responsibility to support vulnerable citizens.
State to make effective provision for Securing right to work, education, public assistance in case of
unemployment, old age, sickness & disablement.

Social securities are guaranteed in our constitution many laws are made for social Securities such as–
Employee state Insurance Act, 1948
Maternity Benefit Act, 1961
Payment of gratuaity Act, 1972.
Employees providend funds be miscellaneous provisions Act, 1952.

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 Social justice means opportunities in greater major to the poor and needy. However it doesn't mean making
rich men poor in order to make poor men rich.

In industrial laws significant watages given to Socio economic justice. Which aims at having just &
equitable solution to employers & workers in order to maintain peace & harmony.

SUMMARY

ARTICLE 39 : It is duty of state to apply certain principle of social justice and making laws.

ARTICLE 41: Emphasises the State’s responsibility to support vulnerable citizens.

9. SOCIAL SECURITY PROVISIONS

“Social security is a foundational element of a welfare state, aimed at ensuring economic stability, dignity, and
protection for individuals against life’s uncertainties such as unemployment, illness, disability, and old age.”
To fulfil this, several social security legislations have been enacted:
) Employees’ State Insurance Act, 1948: Offers cash benefits and medical aid.
) Employees’ Provident Funds Act, 1952: Ensures financial security for industrial workers.
) Maternity Benefit Act, 1961: Provides paid maternity leave and job protection.
) Payment of Gratuity Act, 1972: Grants post-employment financial benefits.
Additional Measures for Employment and Education:
) Apprentices Act, 1961: Promotes skill development through industrial training.
) Employment Exchanges Act, 1969: Mandates vacancy notifications to employment exchanges.
) Workers’ Education Scheme (1958): Educates workers on trade union rights and civic responsibilities.

10. WORKING CONDITIONS

ARTICLE 42 of the Indian Constitution directs the State to ensure just and humane working conditions and provide
maternity relief. It forms the foundation of India’s labour welfare laws, such as the Maternity Benefit Act and Factories
Act. The Supreme Court has interpreted ARTICLE 21—when read with ARTICLE 42 and 43—to include the right to
live with human dignity, reinforcing the State’s duty to protect worker welfare and promote social justice.

11. LIVING WAGES

ARTICLE 43 of the Indian Constitution is part of the Directive Principles of State Policy (DPSPs) under Part
IV, which guide the State in formulating policies aimed at establishing a welfare state. Though not enforceable
by courts, these principles are fundamental in the governance of the country.
Key Provisions of ARTICLE 43:
) It directs the State to secure a living wage for all workers — whether agricultural, industrial, or otherwise.

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 ) The State must ensure conditions of work that provide:
A decent standard of living
Full enjoyment of leisure
Social and cultural opportunities
) A ‘living wage’ is such a wage as enables the 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, requirements of essential social needs, and a measure of insurance against the more important
misfortunes, including old age.
) A ‘minimum wage’, on the other hand, is just sufficient to cover the bare physical needs of a worker and his
family. Minimum wage is to be fixed in an industry irrespective of its capacity to pay. Fixation of minimum
wage is in the public interest and does not impose an unreasonable restriction on the right to carry on a trade
guaranteed by ARTICLE 19(1)(g).
Social Security Implications:
) The concept of a living wage goes beyond mere survival; it includes access to education, healthcare,
housing, and dignity.
) ARTICLE 43 lays the foundation for laws like the Minimum Wages Act, 1948, and influences judicial
decisions that uphold workers' rights.
Judicial Support:
) In Bijay Cotton Mills vs State of Ajmer (1955), the Supreme Court upheld the Minimum Wages Act as
aligned with Article 43.
) In Sanjit Roy vs State of Rajasthan (1983), the Court ruled that paying workers below minimum wage
violated their right to live with dignity, reinforcing the spirit of ARTICLE 43.
ARTICLE 43 serves as a moral and constitutional compass for the State to ensure economic justice and social
security for workers. By mandating a living wage and decent working conditions, it aims to uplift the working
class and promote inclusive development.

12. WORKER PARTICIPATION IN MANAGEMENT

ARTICLE 43-A, which was introduced by the 42nd Amendment in 1976, has a direct bearing on labour laws,
insofar as it provides that the State shall take steps by suitable legislation or any other means to 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. (16.04.2021-APHC} : Writ Petition No. 25434 of 2020
In this case, petition was filed questioning the proceedings RC. No. 16394/P.O. (Balyam) dated 19.06.2017 as
illegal, arbitrary and violative of ARTICLES 14, 16, 21 & 39(d) of the Constitution of Indio and consequently
set-aside the same and directed the respondents to regularise the services of the petitioners. Andhra Pradesh
High Court stated that–
“When part time workers or NMRs are regularized, they are entitled to get minimum time scale of pay prescribed
for the post they are discharging their duties for limited office hours, whereas, these petitioners are discharging
their duties for eight hours as per the proceedings impugned in the writ petition. When these petitioners are

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discharging their duties for eight hours, they are entitled to get equal pay in terms of ARTICLE 39(d) of the
Constitution of India, otherwise, it amounts to discrimination, which is prohibited under ARTICLE 14 of the
Constitution of India. When the act of the State is arbitrary and exploiting the situation of unemployment by
paying meagre amount as salary, engaging the services of these petitioners on outsourcing basis, such act can
be described as discriminatory and arbitrary. Therefore, court find that it is a fit case to issue a direction to the
respondents to extend minimum time scale of pay to the petitioners who are discharging their duties for eight
hours in a day on par with regular employees of the same cadre. Accordingly, the point is decided partly in
favour of the petitioners.”

Previous Year Questions

1. “Social Security is guaranteed in our Constitution.” In light of the above statement, how does Article 43
of the Constitution require the state to secure a living wage?  June 2024 (3 marks)
Hints:
Key Provisions of ARTICLE 43:
It directs the State to secure a living wage for all workers — whether agricultural, industrial, or
otherwise.
The State must ensure conditions of work that provide:
 A decent standard of living
 Full enjoyment of leisure
 Social and cultural opportunities
It also emphasises the promotion of cottage industries on an individual or cooperative basis, especially
in rural areas.
Social Security Implications:
The concept of a living wage goes beyond mere survival; it includes access to education, healthcare,
housing, and dignity.
ARTICLE 43 lays the foundation for laws like the Minimum Wages Act, 1948, and influences judicial
decisions that uphold workers' rights.
It reflects Gandhian principles, especially in its focus on rural development and economic self-
sufficiency.
Judicial Support:
In Bijay Cotton Mills vs State of Ajmer (1955), the Supreme Court upheld the Minimum Wages Act as
aligned with ARTICLE 43.
In Sanjit Roy vs State of Rajasthan (1983), the Court ruled that paying workers below minimum wage
violated their right to live with dignity, reinforcing the spirit of ARTICLE 43.
ARTICLE 43 serves as a moral and constitutional compass for the State to ensure economic justice and
social security for workers. By mandating a living wage and decent working conditions, it aims to uplift
the working class and promote inclusive development.

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 2. In the light of decided case law, examine whether PP Ltd. is violating the rule of Equal Pay for Equal
Work? Dec 2023 (3 marks)
Hints:
ARTICLE 39 requires the state, in particular, to direct its policy towards securing:
That all citizens, irrespective of sex, equally have the right to an adequate means of livelihood;
That the ownership and control of the material resources of the community are so distributed as best
to subserve the common good;
That the operation of the economic system does not result in the concentration of wealth and means of
production to the common detriment;\
That there is equal work for both men and women;
That the health and strength of workers, men and women, and the tender age of children are not abused
and that citizens are not forced by economic necessity to enter avocations unsuited to their age or
strength;
That children are given opportunities and facilities to develop in a healthy manner and conditions of
freedom and dignity, and that childhood and youth are protected against exploitation and moral and
material abandonment.
3. Define the term ‘Equal Pay for Equal Work’ in the light of Constitutional provisions.Dec 2024(5 marks)
Hints:
ARTICLE 39 requires the state, in particular, to direct its policy towards securing:
That all citizens, irrespective of sex, equally have the right to an adequate means of livelihood;
That the ownership and control of the material resources of the community are so distributed as best
to subserve the common good;
That the operation of the economic system does not result in the concentration of wealth and means of
production to the common detriment;
That there is equal work for both men and women;
That the health and strength of workers, men and women, and the tender age of children are not abused
and that citizens are not forced by economic necessity to enter avocations unsuited to their age or
strength;
That children are given opportunities and facilities to develop in a healthy manner and conditions of
freedom and dignity, and that childhood and youth are protected against exploitation and moral and
material abandonment.
4. Examine the constitutional meaning, scope and legal implications of the term ‘begar’ as prohibited under
Article 23 of the Constitution of India.  June 2025(5 marks)
Hints:
Constitutional Meaning
Begar = Forced, unpaid labour without consent
Rooted in feudal/colonial exploitation
Violates human dignity & autonomy

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Scope of Article 23
Applies to State + private individuals
Covers begar, bonded labour, trafficking, forced labour
Public service exception allowed if non-discriminatory
Ensures social justice & human rights
Legal Implications
Punishable offence under the law
Supported by:
Bonded Labour Abolition Act, 1976
Minimum Wages Act, 1948
Contract Labour Act, 1970
Immoral Traffic (Prevention) Act, 1956
Key Judgments

Case Principle
PUDR v. Union of India (1982) Low wages = forced labour under Art. 23
Sanjit Roy (1983) Relief work must pay wages
Bandhua Mukti Morcha (1983) Bonded labour = unconstitutional

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 SBIL
CHAPTER
EVALUATION OF LABOUR
15 LEGISLATION AND THE NEED
FOR A LABOUR CODE
1. INTRODUCTION
The law relating to labour and employment in India is broadly referred to as “Industrial Law”. Industrialisation
is regarded as a key driver of economic growth for any nation. A multitude of labour laws have been enacted to
ensure the health, safety, and welfare of workers; to protect them from exploitative employment terms, given their
weaker bargaining power; to facilitate worker engagement within organisations; to address industrial disputes;
and to implement social security and labour welfare schemes.
Reforms in labour laws are an ongoing process to update the legislative system to address the needs of the hour so
as to make them more effective, flexible and in sync with the emerging economic and industrial scenario.

2. HISTORY OF LABOUR LAWS

The need for better working conditions, the right to organise, and employer demands to limit employee rights
in numerous groups and keep labour costs down led to the development of labour law. When employees band
together to demand better pay, or when laws impose expensive requirements like equal opportunity or health and
safety standards, employers’ costs may rise.
Previously, labour legislation in India was scattered across multiple enactments. In a significant reform initiative,
the Central Government has consolidated 29 labour laws into four comprehensive Labour Codes. This codification
aims to simplify compliance, enhance transparency, and ensure that workers receive social security, health benefits,
and other welfare measures more effectively.

3. NEED TO BRING IN NEW REGULATIONS

The need to introduce new rules and legislation in India’s labour code arises from the urgent necessity to modernise
a highly fragmented and outdated regulatory framework. For decades, labour laws in India were governed by
29 separate statutes, many of which were enacted during the colonial era and failed to reflect the realities of a
rapidly evolving workforce. These laws often had overlapping provisions, inconsistent definitions, and complex
compliance requirements that created confusion for both employers and workers. The emergence of new work
models—such as gig and platform-based employment—further exposed the limitations of the old system, which
offered little protection to informal and contract workers. To address these challenges, the government consolidated
the existing laws into four comprehensive labour codes: the Code on Wages, the Industrial Relations Code, the
Social Security Code, and the Occupational Safety, Health and Working Conditions Code. These reforms aim to
simplify compliance, ensure uniformity in definitions and procedures, and extend legal protections to previously
excluded categories of workers. By streamlining registration, enabling digital inspections, and promoting
transparency, the new codes also enhance ease of doing business while safeguarding workers’ rights. Ultimately,
the overhaul reflects a shift toward a more inclusive, flexible, and future-ready labour ecosystem that balances
economic growth with social justice.
Summary
Labour is covered under the Concurrent List of the Constitution. Therefore, rules governing labour can be
passed by both the Parliament and state legislatures.

Labour Reforms also remained untouched during the economic reforms carried out in 1991.

Report in 2002 which said that there was multiplicity of Labour Laws in India and therefore, recommended
in 4 or 5 Labour Codes namely:
Industrial relations;
Wages;
Social security;
Safety; and
Welfare and working conditions.
While discussions were held on it, however, no serious initiative was taken in this direction during the
time period from 2004 to 2014.

The brainstorming on Labour Codes were fast-tracked when the GST, as One Nation One Tax, was made
applicable in the Country and aligned with motto “Sabka Sath Sabka Vikas aur Sabka Vishwas”.

By taking forward this progressive thinking, the reforms in Labour Laws were also sped up.

The Government enacted new ones. They broadly categorized labour codes into 4 different category:
Code on Wages
Industrial Relations Code
Social Security Code
Occupational Safety, Health and Working Conditions Code

Code on
wages

Labour
Occupational Code–
Safety, Health Consolidated Industrial
and Working 29 Labour Relations Code
Conditions Legislations
Code

Social
Security
Code

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 4. PURPOSE OF LABOUR LEGISLATION

Establishing a legal system that facilitates productive individual and collective employment relationships

Providing a framework within which employers, workers and their representatives can interact with regard
to work-related issues

Provides a clear and constant reminder and guarantee of fundamental principles and rights at work and
establishes the processes through which these principles and rights can be implemented and enforced.

5. CLASSIFICATION OF LABOUR LAWS IN INDIA

I. Laws Related to Industrial Relations
1. Trade Unions Act, 1926
2. Industrial Employment (Standing Orders) Act, 1946
3. Industrial Disputes Act, 1947
II. Laws Related to Wages
4. Payment of Wages Act, 1936
5. Minimum Wages Act, 1948
6. Payment of Bonus Act, 1965
7. Working Journalists (Fixation of Rates of Wages) Act, 1958
III. Laws Related to Working Hours, Conditions of Service and Employment
8. Factories Act, 1948
9. Plantation Labour Act, 1951
10. Mines Act, 1952
11. Working Journalists and Other Newspaper Employees (Conditions of Service and Misc. Provisions)
Act, 1955
12. Merchant Shipping Act, 1958
13. Motor Transport Workers Act, 1961
14. Beedi & Cigar Workers (Conditions of Employment) Act, 1966
15. Contract Labour (Regulation & Abolition) Act, 1970
16. Sales Promotion Employees Act, 1976
17. Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979
18. Dock Workers (Safety, Health & Welfare) Act, 1986
19. Building & Other Construction Workers (Regulation of Employment & Conditions of Service) Act, 1996
20. Building and Other Construction Workers Welfare Cess Act, 1996
21. Cine-Workers and Cinema Theatre Workers (Regulation of Employment) Act, 1981
22. Dangerous Machines (Regulation) Act, 1983
23. Dock Workers (Regulation of Employment) Act, 1948
24. Dock Workers (Regulation of Employment) (Inapplicability to Major Ports) Act, 1997

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25. Employment of Manual Scavengers and Construction of Dry Latrines (Prohibition) Act, 1993
26. Industrial Employment (Standing Orders) Act, 1946
27. Private Security Agencies (Regulation) Act, 2005
IV. Laws Related to Equality and Empowerment of Women
28. Maternity Benefit Act, 1961
29. Equal Remuneration Act, 1976
V. Laws Related to Deprived and Disadvantaged Sections of Society
30. Bonded Labour System (Abolition) Act, 1976
31. Child and Adolescent Labour (Prohibition & Regulation) Act, 1986
32. Children (Pledging of Labour) Act, 1933
VI. Laws Related to Social Security
33. Employees’ Compensation Act, 1923
34. Employees’ State Insurance Act, 1948
35. Employees’ Provident Fund & Miscellaneous Provisions Act, 1952
36. Payment of Gratuity Act, 1972
37. Employers’ Liability Act, 1938
38. Beedi Workers Welfare Cess Act, 1976
39. Beedi Workers Welfare Fund Act, 1976
40. Cine Workers Welfare Cess Act, 1981
41. Cine Workers Welfare Fund Act, 1981
42. Fatal Accidents Act, 1855
43. Iron Ore Mines, Manganese Ore Mines and Chrome Ore Mines Labour Welfare Cess Act, 1976
44. Iron Ore Mines, Manganese Ore Mines and Chrome Ore Mines Labour Welfare Fund Act, 1976
45. Limestone and Dolomite Mines Labour Welfare Fund Act, 1972
46. Mica Mines Labour Welfare Fund Act, 1946
47. Personal Injuries (Compensation Insurance) Act, 1963
48. Personal Injuries (Emergency Provisions) Act, 1962
49. Unorganised Workers’ Social Security Act, 2008

6. OBJECTIVES OF THE NEW LABOUR CODE

To ensure clarity, consistency, and standardisation, the Second National Commission on Labour (NCL) stressed the
need to streamline and unify India’s fragmented labour laws. Consolidation was seen as a way to expand coverage
across diverse employment categories and thresholds. Acting on these recommendations, Parliament introduced
four comprehensive Labour Codes—on Wages, Industrial Relations, Social Security, and Occupational Safety.
While these Codes successfully merge and simplify existing laws, certain inconsistencies remain. For example, the
Social Security and Occupational Safety Codes retain specific provisions from older statutes, such as additional
leave entitlements for sales promotion employees. Definitions, though largely rationalised, are not uniformly
applied—for instance, the term “contractor” is defined differently in the Industrial Relations Code compared to
the others. Moreover, only 29 central laws have been replaced, leaving room for further consolidation.
The core challenge of labour reform lies in balancing employment generation with the protection of workers’
rights. Key issues include coverage of small enterprises, thresholds for layoff approvals, enforcement mechanisms,

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flexible work arrangements, and collective bargaining. As the nature of work evolves—especially with the rise
of gig and platform-based employment—labour laws must be continuously updated to remain inclusive and
adaptive.

7. FEATURES OF NEW LABOUR CODES

1. Size based Applicability and then continue with most provision
Most provisions under the Labour Codes are applicable only to establishments employing ten or more
workers, unless otherwise specified. This threshold is embedded across key statutes, including the OSH
Code, Social Security Code, and IR Code, thereby excluding micro-enterprises from several compliance
mandates.
However, this size-based exemption continues to raise concerns, as it denies basic labour protections—such
as minimum wages, social security, and workplace safety—to workers in smaller establishments. Despite
codification, universal coverage remains limited.
2. Simplified Compliance System
The new framework promotes “One Registration, One License, One Return” across all Codes, making
processes more streamlined and accountable.
3. Layoff & Closure Thresholds
Previously, companies with 100+ employees needed government approval to lay off, retrench, or close. The
Industrial Relations Code raises this threshold to 300 employees, with flexibility for further increase via
notification—aimed at improving business agility.
4. Compliance Burden vs. Weak Enforcement
India’s complex labour laws have led to excessive compliance burdens for businesses, while enforcement
has remained weak due to limited penalties and ineffective oversight. New Labour Codes seek to resolve
these issues by simplifying regulations and improving enforcement efficiency.
5. Contract Labour & Fixed-Term Employment
Contract labour has grown due to cost and compliance pressures, but basic rights like guaranteed wages
are often denied. While the Codes don’t fully resolve this, they introduce Fixed-Term Employment as a
regulated short-term work option.
6. Trade Union Recognition
Despite many registered unions, there was no formal system to recognise bargaining unions. The Industrial
Relations Code now provides a framework for union recognition.
7. Gig & Platform Workers
The Social Security Code includes provisions for gig and platform workers, but definitions remain vague,
limiting effective coverage.
8. Delegated Rule-Making
Several key decisions—like social security eligibility and safety norms—are delegated to the executive,
raising concerns about whether such matters should be decided by the legislature instead.
9. Gender Equality in Employment
The Codes prohibit gender-based discrimination in hiring and pay. “Work of similar nature” is defined by
skill, effort, responsibility, and experience.
10. Advisory Boards for Inclusive Governance
Central and State Advisory Boards will include employers, workers, independent experts, and government
representatives. One-third of members must be women, and the Boards will advise on minimum wages and
women’s workforce participation.
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11. Penalties for Violations
Employers violating Code provisions—such as underpaying wages—may face up to three months
imprisonment and fines up to ₹1 lakh, with penalties varying by offence.

8. ACTS SUBSUMED BY THE FOUR LABOUR CODES

Labour Codes Acts Being Subsumed
Code on ) Payment of Wages Act, 1936
Wages, 2019 ) Minimum Wages Act, 1948
) Payment of Bonus Act, 1965, and
) Equal Remuneration Act, 1976
Occupational ) Factories Act, 1948
Safety, Health ) Mines Act, 1952
and Working
) Dock Workers (Safety, Health and Welfare) Act, 1986
Conditions
Code, 2019 ) Building and Other Construction Workers (Regulation of Employment and Conditions
of Service) Act, 1996
) Plantations Labour Act, 1951
) Contract Labour (Regulation and Abolition) Act, 1970
) Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service)
Act, 1979
) Working Journalist and Other Newspaper Employees (Conditions of Service and
Miscellaneous Provisions) Act, 1955
) Working Journalists (Fixation of Rates of Wages) Act, 1958
) Motor Transport Workers Act, 1961
) Sales Promotion Employees (Conditions of Service) Act, 1976
) Beedi and Cigar Workers (Conditions of Employment) Act, 1966
) Cine-Workers and Cinema Theatre Workers (Regulation of Employment) Act, 1981
Industrial ) Trade Unions Act, 1926
Relations ) Industrial Employment (Standing Orders) Act, 1946, and
Code, 2019
) Industrial Disputes Act, 1947
Code on Social ) Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
Security, 2019 ) Employees’ State Insurance Act, 1948
) Employees’ Compensation Act, 1923
) Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959
) Maternity Benefit Act, 1961
) Payment of Gratuity Act, 1972
) Cine-Workers Welfare Fund Act, 1981
) Building and Other Construction Workers’ Welfare Cess Act, 1996
) Unorganised Workers’ Social Security Act, 2008

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 9. REFORMS PROPOSED BY THE NEW LABOUR CODES
1. Code on Social Security, 2020:
This Code seeks to amend and consolidate existing laws relating to social security with the objective of
extending coverage to all employees and workers—whether in the organised, unorganised, or any other
sector—and to address matters connected or incidental thereto.
The salient features of the Code on Social Security, 2020, inter alia, are

Benefit of pension scheme (EPFO) to all workers of organized, unorganized and self-employed sectors.

Creation of social security fund for providing comprehensive social security to the unorganized sector.

Through a small contribution, benefit of free treatment is available under hospitals and dispensaries of ESIC.

The doors of ESIC will now be opened for the workers of all sectors along with the workers of
the unorganized sector.

Expansion of ESIC hospitals, dispensaries and branches upto district level.

Even if a single worker is engaged in hazardous work, he would be given ESIC benefit.

Institutions working in hazardous area to be compulsorily registered with ESIC.

Provisions for maternity benefits such as prohibition from work during certain periods, provision of nursing
breaks, creche facility, claim for maternity benefits, etc.

Employees engaged on fixed term to get same social security benefit as permanent employees.

Creating a national database of workers of unorganized sector through registration on Portal.

A Universal Account Number (UAN) for ESIC, EPFO and Unorganised Sector Workers. Along with Aadhaar
based Universal Account Number (UAN) to ensure seamless portability.

2. Occupational Safety, Health & Working Conditions Code, 2020:

This Code aims to consolidate and amend existing laws regulating occupational safety, health, and working
conditions of workers employed in various establishments. It ensures protection of the interests of workers
engaged in factories, mines, plantations, motor transport undertakings, bidi and cigar industries, and those
working as contract or migrant labourers.
The salient features of the Occupational Safety, Health and Working Conditions Code, 2020, inter alia, are
as under:

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 To impart flexibility in adapting technological changes and dynamic factors, in the 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, other than the
establishments relating to mines and docks; more employees.

Various provisions in the OSHWC Code will ease the lives of the Inter-State Migrant Workers.

A provision has been made for employers to provide travelling allowance annually to an Inter-State
Migrant Worker for undertaking a to-and-fro journey to his native place.

Providing of appointment letters to the workers has been made mandatory.

Mandatory, free annual health check-up of the workers to be provided by the employers.

Under the “One Nation - One Ration Card”, an Inter-State Migrant Worker would get ration facility in
the State he is working and the remaining members of his family would be able to avail of the ration
facility in the State where they reside.

National database to be created for the Inter State Migrant Workers.

Instead of 240 days, now if a worker has worked 180 days, he shall be entitled to one-day leave for
every 20 days of work done.

Emphasis on women empowerment through the Labour Codes.

Women worker shall have the right to work. In all types of establishments.

Maternity Benefit Act paid Maternity leave for women workers to 26 weeks and ensure mandatory
creche facility in all establishments having 50 or more workers.

3. Code on Wages, 2019:

A Code to amend and consolidate the laws relating to wages and bonuses and matters connected therewith
or incidental thereto. Due to this, for the first time, all the workers have the Right to a Minimum wage.
The salient features of the Code on Wages, 2019, inter alia, are as follows:

To provide for all essential elements relating to wages, equal remuneration, its payment and bonus.

To provide wage security, social security and health security to workers, covering organized and unorganized
sectors.

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 The guarantee of minimum wages is available to workers of organized and unorganized sectors.

Review of minimum wages in every 5 years.

Guarantee of timely payment of wages to all workers.

Equal remuneration to male and female workers.

For the first time workers of unorganized sector in the country have got this right.

To remove regional disparity in minimum wages the provision of floor wage has been introduced.

It provides for compounding of those offences which are not punishable with imprisonment.

4. Industrial Relations Code, 2020:

This Code consolidates and amends the laws relating to Trade Unions, conditions of employment in
industrial establishments, and the investigation and resolution of industrial disputes. It seeks to promote
harmonious employer-employee relations by streamlining the process for dispute resolution, establishing
clear guidelines for strikes and lockouts, and strengthening the framework for collective bargaining and
standing orders.
The salient features of the Industrial Relations Code, 2020, inter alia, are as follows:

To bring concerted casual leave within the ambit of the definition of strike.

In case of job loss, a worker will get benefit under the Atal Bimit Vyakti Kalyan Yojna.

To provide for appeal against non-registration or cancellation of registration of Trade Union before the
Industrial Tribunal.

Faster justice to the workers through the Tribunal.

Workers disputes to be resolved within a year in the Tribunal.

To prohibit strikes and lock-outs in all industrial establishments without giving notice of fourteen days.

Trade unions have been conferred with a new right, enabling them to get statutory recognition.

To provide for penalties for different types of violations to rationalise with such offences and commensurate
with the gravity of the violations.

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 Previous Year Questions

1. What are the nine Labour Laws that have been subsumed by the Social Security Code by the Central
Government?  Dec 2023 ( 5 marks)
Hints:
1. Employees’ Provident Funds and Miscellaneous Provisions Act, 1952;
2. Employees’ State Insurance Act, 1948;
3. Employees’ Compensation Act, 1923;
4. Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959;
5. Maternity Benefit Act, 1961;
6. Payment of Gratuity Act, 1972;
7. Cine-workers Welfare Fund Act, 1981;
8. Building and Other Construction Workers’ Welfare Cess Act, 1996;
9. Unorganised Workers Social Security Act, 2008

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 CHAPTER SBIL

16 LAW OF WELFARE AND

WORKING CONDITIONS

UNIT I: Factories Act, 1948

Law of Welfare and Working Condition

UNIT- III
UNIT- II
UNIT-I THE CHILD AND
THE CONTRACT
ADOLESCENT
FACTORIES ACT, 1948 LABOUR (Regulation and
LABOUR (Prohibition and
Abolition) ACT, 1970
Regulation) ACT, 1986

1. INTRODUCTION
The Factories Act, 1948, was enacted to consolidate and amend laws regulating labour in factories, with the
primary goal of safeguarding workers' health, safety, and welfare while supporting industrial growth. It sets
comprehensive standards on working conditions, including working hours, leave, holidays, and employment
conditions. The Act also mandates medical examinations and fitness certificates for young workers, particularly
those under 15 years of age or engaged in hazardous occupations.
Key provisions address health measures, including cleanliness, ventilation, lighting, and sanitation; safety
measures, such as fencing machinery, handling hazardous substances, and protecting young workers; and
welfare measures, including washing facilities, seating arrangements, first aid, and crèches.
The Act also regulates hazardous processes by mandating the disclosure of chemical usage. Overall, the Act
remains a cornerstone for labour rights protection and the maintenance of humane working conditions in
factories across India.

2. HISTORY OF THE LEGISLATION

There has been a persistent struggle between labour and capital, with capital often exploiting labour to its
maximum benefit due to its superior economic position and the power to dictate terms. The resulting industrial
unrest and economic discontent led to strikes and other labour-related troubles.
The Factories Act, 1948, has been amended from time to time, especially after the Bhopal gas disaster, which
could have been prevented. The amendment called for a shift away from responding to disasters (or diseases)
to preventing their occurrence. A special chapter on occupational health and safety was added to safeguard
workers employed in hazardous industries. In this chapter, pre-employment and periodic medical examinations
and monitoring of the work environment are mandatory for industries defined as hazardous under the Act. A
maximum permissible limit has been laid down for several chemicals.
 Case Law
In the case of Ravi Shankar Sharma v. State of Rajasthan, AIR 1993 Raj. 117, the Court held that the Factories
Act is a social legislation and it provides for the health, safety, welfare, and other aspects of the workers in
the factories. In short, the Act is meant to provide protection to the workers from being exploited by greedy
business establishments, and it also provides for the improvement of working conditions within the factory
premises.
In Bhikusa Yamasa Kshatriya (P.) Ltd. v. UOI, the court observed that the Act has been enacted primarily with
the object of protecting workers employed in factories against industrial and occupational hazards. For that
purpose, it seeks to impose upon the owner or the occupier certain obligations to protect the workers and to
secure for them employment in conditions conducive to their health and safety.

3. APPLICABILITY OF THE ACT

The Factories Act, 1948, extends to the whole of India, with effect from the 1st day of April, 1949.
The Act applies to factories as defined under Section 2(m) of the Act. It applies to all factories that use power
and employ 10 or more workers, or if they do not use power, employ 20 or more workers on any day of the
preceding 12 months.
However, the Act does not apply to:
) A mine subject to the provisions of the Mines Act, 1952.
) A mobile unit operated by the armed forces of the Union
) A railway running shed
) A hotel, restaurant, or eating place.

4. SCHEME OF THE ACT

The Act consists of 120 Sections and 3 Schedules

Schedule 1- Schedule 2-
Schedule 3-
contains list of industries is about permissible level of
consists of list of notification
involving hazardous certain chemical substances
diseases.
processes in work environment.

4.1 IMPORTANT DEFINITIONS

Section 2 provides for the definition of certain words used in the Act as follows: In this Act, unless there is
anything repugnant in the subject or context.
Term Section Definition
“Adult” Section 2(a) Adult means a person who has completed his eighteenth year of age;
“Adolescent” Section 2(b) Adolescent means a person who has completed his fifteenth year of
age but has not completed his eighteenth year
“Calendar Section 2(bb) Calendar Year means the period of twelve months beginning with
Year” the first day of January in any year

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 “Child” Section 2(c) Child means a person who has not completed his fifteenth year of
age:
“Competent Section 2(ca) Competent Person, in relation to any provision of this Act, means a
Person” person or an institution recognized as such by the Chief Inspector
for the purposes of carrying out tests, examinations and inspections
required to be done in a factory under the provisions of this Act
having regard to-
(i) the qualifications and experience of the person and facilities
available at his disposal; or
(ii) the qualifications and experience of the persons employed in
such institution and facilities available therein,
with regard to the conduct of such tests, examinations and inspections,
and more than one person or institution can be recognized as a
competent person in relation to a factory
“Hazardous Section 2(cb) Hazardous process means any process or activity in relation to an
Process” industry specified in the First Schedule where, unless special care
is taken, raw materials used therein or the intermediate or finished
products, bye-products, wastes, or effluents thereof would-
(i) cause material impairment to the health of the persons engaged
in or connected therewith, or
(ii) result in the pollution of the general environment:
Provided that the State Government may, by notification in the
Official Gazette, amend the First Schedule by way of addition,
omission or variation of any industry, specified in the said Schedule
“Young Person” Section 2(d) Young person means a person who is either a child or an adolescent
“Day” Section 2(e) Day means a period of twenty-four hours beginning at midnight
“Week” Section 2(f) Week means a period of seven days beginning at midnight on Week
means a period of seven days beginning at midnight on Saturday
night or such other night as may be approved in writing for a
particular area by the Chief Inspector of Factories
“Power” Section 2(g) Power means electrical energy, or any other form of energy which is
mechanically transmitted and is not generated by human or animal
agency
“Prime mover” Section 2(h) Prime mover means any engine, motor or other appliance which
generates or otherwise provides power
“Transmission Section 2(i) Transmission Machinery means any shaft, wheel drum, pulley,
Machinery” system of pulleys, coupling, clutch, driving belt or other appliance
or device by which the motion of a prime mover is transmitted to or
received by any machinery or appliance
“Machinery” Section 2(j) Machinery includes prime movers, transmission machinery and
all other appliances whereby power is generated, transformed,
transmitted or applied

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4.2 MANUFACTURING PROCESS

Manufacturing Process relates to

Oil, Water,
Any Article Power Printing, Ship or
Sewage or Other Cold Storage
or Substance (Electricity) Book Binding Vessel
Substance

4.3 WORKER

Worker means a person employed, directly or by or through any agency (including a contractor) with or without
the knowledge of the principal employer, whether for remuneration or not, in any manufacturing process, or in
cleaning any part of the machinery or premises used for a manufacturing process, or in any other kind of work
incidental with, the manufacturing process, but does not include any member of the armed forces of the Union.

4.4 FACTORY

(1) There must be a premises(including precincts).

(2) There must be a manufacturing process which is being carried

on or carrying on.
Essential
elements of a (3) There must be ten or more workers who are/were working
Factory in such a premises on any day of the last 12 months where
the said manufacturing process is carried on with the aid of
power.
But where the manufacturing process is carried on without the
aid of power, the required number of workers working should
Factory be twenty or more.
The
followings are (i) Railway running sheds
not covered by (ii) Mines
the definition (iii) Armed forces
of factory (iv) Hostels, eating places or restaurants.

4.5 OCCUPIER

Occupier of a factory means the person who has ultimate control over the
affairs of the factory.

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Under the Factories Act, the term occupier varies by entity type:
Occupier Determination

Section 101 provides a crucial exemption from liability for occupiers or managers if they can prove due diligence
and lack of knowledge, consent, or connivance in the offence. If the actual offender is identified and convicted, the
occupier or manager is discharged, making this a rare exception to strict liability, contingent on full compliance
and court satisfaction.

5. STATUTORY AGENCIES AND THEIR POWERS FOR THE ENFORCEMENT OF THE

ACT
The State Governments assume the main responsibility for administration of the Act and its various
provisions by utilizing the powers vested in them.

1. Reference to time of day - These rules may specify the area, define the local mean time ordinarily
observed therein, and permit such time to be observed in all or any of the factories situated in the area

2. Power to declare different departments to be separate factories or two or more factories a single
factories.

3. Power to exempt any factory from the provisions of this act during public emergency.

4. Power of the State Government to make rules with reference to approval, licensing and registration
of factories:
Submission of plans of factories to the Chief Inspector or the State Government;
Requiring the previous permission in writing of the State Government or the Chief Inspector to for the site
on which the factory is to be situated and for the construction
Prescribing the nature of such plans and specifications and by whom they shall be certified;
Requiring the registration and licensing of factories.

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5.1. DEEMED APPROVAL

If on an application(b) point for permission sent to the State Government or Chief Inspectors by
registered post, no order is communicated to the applicant within three months from the date on which
it is so sent, the permission applied for in the said application shall be deemed to have been granted.

5.2 APPEAL TO THE CENTRAL GOVERNMENT

The applicant may within 30 days of the date of such refusal for construction, extension of a
factory may make an appeal to the Central Government.

5.3 AGENCIES OF THE STATE GOVERNMENT

Agencies of the State Government to

carry out administration of the Act

(i) Inspecting Staff (ii) Certifying (iii) Welfare Officers (iv) Safety Officers
(Section 8-9) Surgeons (Section 10) (Section 49) (Section 49B)

5.3.1 Inspectors
Appointment: Section 8 empowers the State Government to appoint Inspectors, Additional Inspectors, and Chief
Inspectors, such persons who possess prescribed qualifications. Every District Magistrate shall be an Inspector for
his district. A Chief Inspector is appointed for the whole State.
Powers of Inspectors

(a) Enter, with such assistants, being persons in the service of the government,

(b) Make examination of the premises, plant, machinery, article or substance;

(c) Inquire into any accident or dangerous occurrence, whether resulting in bodily injury, disability
or not

(d) Require the production of any prescribed

(e) Seize, or take copies of, any register, record or other document

(f) Take measurements and photographs and make such recordings as he considers necessary for the
purpose of any examination.

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5.3.2 Certifying surgeons
The State Government may appoint qualified medical practitioners to be certifying surgeons. The certifying
surgeon shall carry out such duties as may be prescribed in connection with-

(a) the examination and certification of young persons under this Act

(b) the examination of persons engaged in factories in such dangerous occupations

(c) the exercising of such medical supervision where—

Cases of illness have occurred

By reason of the adoption of any new manufacturing process or of any new substance for use in a
manufacturing process, there is a likelihood of injury to the health of workers
Young persons are, or are about to be, employed in any work which is likely to cause injury to their
health.

5.3.3 Welfare Officer

A Welfare Officer is designated in factories to safeguard the well-being of workers by implementing welfare
schemes, addressing grievances, and ensuring compliance with statutory welfare provisions.

The appointment of Welfare Officer/s wherein 500 or more workers are ordinarily employed.

5.3.4 Safety Officer

A Safety Officer is appointed in factories to oversee and enforce safety protocols, ensuring compliance with
statutory norms and promoting a culture of occupational health and hazard prevention among workers.
Where more than 1,000 workers are employed or where manufacturing process involves risk of bodily
injury, poisoning or disease or any other hazard to health of the persons employed therein.

5.4 DUTIES OF OCCUPIER / MANUFACTURER

1. Notice by occupier (Section 7): A written notice shall be sent by the occupier at least fifteen days before
he begins to occupy or use any premises as a factory, to the Chief Inspector. The notice shall contain the
following details:-

(a) The name and situation of the factory

(b) The name and address of the occupier

(c) The address to which communications relating to the factory may be sent

(d) The nature of the manufacturing process

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 (e) The total rated horse power installed

(f) The name of the manager of the factory for the purposes of this Act

(g) The number of workers likely to be employed in the factory

(h) Such other particulars as may be prescribed.

NOTICE OF APPOINTMENT OF NEW MANAGER- to the Chief Inspector a copy thereof within seven
days from the date on which such person takes over charge.

Manager-deemed occupier- Any person found acting as a manager, or if no such person is found, the occupier
himself, shall be deemed to be the manager of the factory for the purposes of this Act.

2. (a) General duties of the Occupier (Section 7A)

The provision and maintenance of plant and systems of work in the factory.

The provision of such information, instruction, training and supervision.

The maintenance of all places of work in the factory in a condition that is safe.

The maintenance of such working environment in the factory for the workers that is safe and without risk.
(b) General duties of manufacturers, etc., as regards articles & substances for use in factories
(Section 7B)
(a) ensure, that the article is safe and without risks to the health of the workers when properly used.

(b) take such steps as may be necessary to ensure that adequate information will be available.
It is provided that where an article is designed or manufactured outside India, it shall be obligatory on the
part of the importer to see –
(a) that the article conforms to the same standards if such an article is manufactured in India, or
(b) If the standards adopted in the country outside for the manufacture of such an article are above the
standards adopted in India, then the article conforms to such standards.
6. MEASURES TO BE TAKEN BY FACTORIES FOR THE HEALTH, SAFETY, AND
WELFARE OF WORKERS
Factories are legally required to implement comprehensive measures to ensure the health, safety, and welfare of
workers, thereby fostering a secure and humane working environment through statutory provisions.
6.1 HEALTH MEASURES

(i) Cleanliness (Section 11)

Every factory should be clean and safe. There should be daily sweeping of floors & benches of
workrooms. The floor must be cleaned, atleast once in every week.

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 (ii) Disposal of waste (Section 12)
The occupier shall make effective arrangements for the disposal of wastes due to manufacturing
process carried on factory.

(iii) Ventilation & temperature (Section 13)

The factory should make effective measures for securing & maintaining the ventilation and
temperature in factory / workplace.

(iv) Dust and fume (Section 14)

If factory is engaged in manufacturing process which generates dust and fume or any other impurities
which is injuries to health of workers, then effective measures should be taken to prevent in halation
of dust, if it is necessary then exhaust appliances should be fitted, in internal combustion engine
exhaust should be connected to open air.

(v) Artificial humidification (Section 15)

Humidity means presence of moisture in air. Increase or decrease of humidity affects health of the
workers State government may make rules-
Prescribing standards of humidification;
Regulates the method for increase in humidity
Directs prescribed test for determining humidity.
Prescribing methods to be adopted for securing cooling of air in workrooms.

(vi) Lighting (Section 17)

In every factory it is mandatory to provide lightening, artificial or natural in every part of factory where
workers are working. In every factors there should be windows and skylights used for lightening.

(vii) Drinking Water (Section 18)

Every factory should have of effective arrangements to provide drinking water. The water place.
shall be marked as “drinking water” in a language which is understood by majority for workers.

(viii) Latrines & urinals (Section 19)

It is compulsory in every factory that-
Sufficient latrines & urinals accommodation shall be provided and situated to workers all the time
while they are working.
Separate closed accommodation shall be provided for both men & women.
All accommodation shall be maintained in clean sanitary condition for all the times.
Such accommodation shall be lighted & ventilated.

Inside walls/partitions/ceilings/passages and

Cleanliness (Section 11)
staircases
Sweeping/ Floor Wet Floor due to Doors/ Varnish Washable Water Smooth Any
Dusting Wash Manufacturing Windows Paint Impervious other
Surfaces case

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 Daily Every Proper Damage Paint in 5 Once in 5 Wash in 6 months Clean Once
Week Years Years + paint in 3 years once in 14 in 14
(1 coat) Months Months

Dust and Artificial

Disposal of Wastes Fume
Ventilation and Temperature (Section 13) Humidification
(Section 12)
(Section 14) (Section 15)
Effective ) Adequate ventilation exhaust in as per standards
arrangements for the ) Temperature reasonable the open air
treatment of wastes
) Measures to reduce excessive/y or high tempera-
and effluents
ture
) Walls and roofs of such material that reduce the
temperature
) In excessively high temperatures, adequate mea-
sures

Overcrowding Lighting Drinking Water Latrines and Urinals

(Section 16) (Section 17) (Section 18) (Section 19)
) 14.2 cubic meters of ) Sufficient ) Convenient ) 6 meters away from
space per worker and suitable points drinking water
) Spaces more than 4.2 lighting, natural ) Legibly ) 1 seat for 20 workers
meters above the level of or artificial marked ) Separate male and female
the floor will not be taken ) Windows kept workers
into consideration clean
) Washed once in 7 days
with detergents

6.2 SAFETY MEASURES

Fencing of Fencing of machinery in use or Pits, sumps, The source of danger shall
machinery motion is obligatory to safeguard openings in be either securely covered or
(Section 21) floors, etc. securely fenced.
(Section 33)
Work on or near No woman or young person shall Excessive weights No person shall lift, carry, or
machinery in be allowed to clean, lubricate, or (Section 34) make any load as to be likely to
motion (Section adjust any part of the prime mover cause him injury.
22) if risky for them.
Carried out only by a specially
trained adult male worker wearing
tight-fitting clothing
Employment of A young person is only allowed to Protection of eyes effective screens or suitable
young persons work on a dangerous machine if (Section 35) goggles for the protection
on dangerous received sufficient training under
machines the supervision of a person having
(Section 23) thorough knowledge

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 Striking gear Suitable striking gears shall be Precautions Special measures have been
and devices provided and maintained, and used against dangerous taken under the Factories Act.
for cutting off to move driving belts to and from fumes, gases, etc.
power fast and loose pulleys. (Section 36)
(Section 24)
Self-acting No traversing part of a self-acting Precautions prohibits the use of portable
machines machine in any factory is allowed regarding the electric light or any other
(Section 25) to run on its outward or inward use of portable electric appliance of voltage
traverse within a distance of forty- electric light exceeding 24 volts.
five centimetres from any fixed (Section 36A)
structure that is not part of the
machine.
Casing of new all machinery driven by power and Explosive or measures to prevent any such
machinery installed in any factory, screw, bolt, inflammable dust, explosion
(Section 26) encased, or otherwise effectively gas, etc.
guarded to prevent danger (Section 37)
Prohibition of No woman or child shall be Precautions to provide and maintain
employment employed in any part of a factory in case of fire (a) safe means of escape
of women and for pressing cotton in which a (Section 38) the event of fire, and (b) the
children near cotton opener is at work. necessary equipment and
cotton-openers facilities for extinguishing fire
(Section 27)
Hoists and lifts Good mechanical construction, Power to require If the Inspector feels that any
(Section 28) adequate strength, properly specifications of building, machinery, or plant
maintained, examined once in defective parts or in a factory is in a condition
6 months tests of stability dangerous to human life or
(Section 39) safety, the inspector serves
an order on the occupier or
manager, or both of the factory,
to furnish such drawings and
conduct tests.
Lifting The lifting machine shall be of Safety of If the Inspector feels that any
machines, good construction, adequate buildings and building, machinery, or plant
chains, strength, and free from defects. machinery in a factory is in a condition
ropes, and Properly maintained and (Section 40) dangerous to human life or
lifting tackles thoroughly examined. safety. The inspector serves
(Section 29) an order on the occupier or
manager, or both of the factory,
specifying the measure that
thaturich in his opinion should
be adopted.
Revolving Affixing a notice in every factory Maintenance of If the Inspector feels that
machinery in which the process of grinding is buildings any building is in a state of
(Section 30) carried on (Section 40A) disrepair, he may serve on
the occupier or manager, or
both of the factory, an order of
maintenance.

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 Pressure plant Taking effective measures to ensure Safety Officers Wherein 1000 or more workers
(Section 31) The safe working pressure of any (Section 40B) are employed
plant and machinery used in the
manufacturing process, operated at a
pressure above atmospheric pressure
does not exceed the limit
Floors, stairs, Sound construction and properly Power to The State Government has the
and means of maintained, and shall be kept free make rules to authority to make rules
access from obstruction supplement this
(Section 32) Chapter
(Section 41)

6.3. WELFARE MEASURES

Washing Facilities: In every factory, there shall be provided:

Adequate and suitable facilities for washing for use of the workers therein;
Separate and adequately screened facilities shall be provided for the use of male and female workers;
Such facilities shall be conveniently accessible and shall be kept clean.

Facilities for storing and drying clothing:

Suitable place for keeping clothing not worn during working hours and for the drying of wet clothing.

Facilities for sitting:

Suitable arrangements for sitting in every factory and they shall be maintained for all workers obliged
to work in a standing position.

First-aid appliances:
In every factory, readily accessible during all working hours’ first-aid boxes or cupboards equipped
with the prescribed contents. At least one such box or cupboard shall be provided for every 150 workers
ordinarily employed at any one time in the factory.

Canteens:
The occupier shall provide canteen wherein more than 250 workers are ordinarily employed.

Shelters, rest-rooms and lunch-rooms:

In every factory wherein more than 150 workers are employed.
It is mandatory to provide and maintain suitable shelters or rest-rooms and a suitable lunch-room, with
provision for drinking water, where workers can eat meals brought by them

Creches:
for the use of children under the age of six years of women in every factory wherein more than 30
women workers are ordinarily employed.

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 7. PROVISIONS RELATING TO HAZARDOUS PROCESS
The Factories (Amendment) Act, 1987, has inserted this new chapter in the Act after Chapter IV. The new Chapter
lays down provisions relating to hazardous processes in Sections 41A to 41H.
7.1 CONSTITUTION OF SITE APPRAISAL COMMITTEES (SECTION 41A)

Committee shall have power to

The State Government may The Committee shall examine call for any information from the
appoint site appraisal committee an application and make its person making an application for
for grant of permission for of a recommendation to the State the establishment or expansion of
factory involving a hazardous. Government within 90 days a factory involving a hazardous
process.

7.2 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 such factory is engaged in a hazardous process on the commencement of the Factories
(Amendment) Act, 1987 within a period of 30 days of such commencement; and if such factory purposes to engage in a
hazardous process at any time after such commencement, within a period of 30 days before the commencement of such process.
License will be cancelled if this provision is not complied.

7.3 SPECIFIC RESPONSIBILITY OF THE OCCUPIER REGARDING HAZARDOUS PROCESSES

(SECTION 41C)
Such occupier shall provide for medical examination of every worker while continuing in such job, and after he
has ceased to work in such job, at intervals not exceeding twelve months in such manner as may be prescribed.
Such occupier shall appoint persons who possess qualifications and experience in handling hazardous
substances and are competent to supervise

7.4 POWER OF CENTRAL GOVERNMENT TO APPOINT INQUIRY COMMITTEE (SECTION 41D)

The Central Government may, in the event of the occurrence of an extraordinary situation involving a
factory engaged in a hazardous process, appoint an Inquiry Committee to inquire into the standards of
health and safety observed in the factory.
The Committee so appointed shall consist of a Chairman and two other members and the terms of
reference of the Committee.

The recommendations of the Committee shall be advisory in nature.

7.5 EMERGENCY STANDARDS (SECTION 41E)

Where the Central Government is satisfied that no standards of safety have been prescribed in respect of a
hazardous process or class of hazardous processes, or where the standards so prescribed are inadequate, it may
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direct the Director-General of Factory Advice Service and Labour Institutes or any Institution specialised in
matters relating to standards of safety in hazardous processes, to lay down emergency standards for enforcement
of suitable standards in respect of such hazardous processes. The emergency standards laid down shall, until they
are incorporated in the rules made under this Act, be enforceable and have the same effect as if they had been
incorporated in the rules made under this Act.
7.6 PERMISSIBLE LIMITS OF EXPOSURE TO CHEMICAL AND TOXIC SUBSTANCES (SECTION 41F)
The maximum permissible threshold limits of exposure to chemical and toxic substances in manufacturing
processes (whether hazardous or otherwise) in any factory shall be of the value indicated in the Second Schedule.
The Central Government may, at any time, give effect to any scientific proof obtained from specialised institutions
or experts in the field, by notification in the Official Gazette, and make suitable changes in the said Schedule.
7.7 WORKERS’ PARTICIPATION IN SAFETY MANAGEMENT (SECTION 41G)
The section provides for the constitution of the Safety Committee, consisting of an equal number of representatives
of workers and management. Such a Safety Committee shall be set up by the occupier in every factory where a
hazardous process takes place, or where hazardous substances are used or handled. 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 and to review periodically the measures taken in that regard. It is provided that the State
Government may, by order in writing and for reasons to be recorded, exempt the occupier of any factory or class
of factories from setting up such Committee. The composition of the Safety Committee, the tenure of office of its
members, and their rights and duties shall be such as may be prescribed.
Summary

Emergency Standards
Where the Central Government is satisfied that no standards of safety have been prescribed or are
inadequate, it may direct to lay down emergency standards.

Permissible limits of exposure of chemical and toxic substances-

The maximum permissible limit of exposure of chemicals and toxic substances in manufacturing
process in any factory shall be of the value indicated in the Second Schedule and it may change.

Workers’ participation in safety management

Safety Committee consisting of equal number of representatives of workers and management.
Safety Committee shall be set up by the occupier in every factory.
Function is to promote co-operation between the workers and the management in maintaining proper
safety and health at work.

7.8 RIGHT OF WORKERS TO WARN ABOUT IMMINENT DANGER (SECTION 41H)

Where the workers employed in any factory engaged in a hazardous process have reasonable apprehension
that there is a likelihood of imminent danger to their lives or health due to any accident, they may, bring the
same to the notice of the occupier, agent, manager or any other person who is in-charge of the factory.

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 Unit-II: The Contract Labour
(Regulation and Abolition) Act, 1970
1. INTRODUCTION
Contract labour in India has roots tracing back to ancient times, but its significant expansion occurred post-
independence, driven by large-scale construction and industrial growth. Early industrialisation faced challenges
in labour recruitment due to social taboos, language barriers, and the low status of workers. This led to the reliance
on middlemen or contractors, who, while necessary, often exploited workers who lacked organization and legal
protection. The Whitley Commission (1860) implicitly recommended abolition, and the Workman’s Breach of
Contract Act, 1859, penalised contract workers further. Committees like the Bombay Textile Labour Enquiry
(1938) and the Rega Committee (1946) emphasized the need for reform, eventually leading to the inclusion of
contract labour in key labour laws. The Second Five-Year Plan focused on improving the conditions of contract
workers, and consensus grew to either abolish contract labour where feasible or regulate it. This resulted in the
enactment of the Contract Labour (Regulation and Abolition) Act, 1970, effective from 10th February 1971, along
with the Central Rules, 1971, marking a pivotal step in safeguarding contract workers' rights.

2. OBJECTIVE AND SCOPE OF THE ACT

To regulate the employment of contract labour in certain establishments and to provide for its abolition in certain circumstances
and for matters connected therewith.

The Act applies to the Whole of India. It applies to

The appropriate Government

To every establishment in may, after giving not less than
To every contractor who employs
which 20 or more workmen, two months’ by notification in
on any day of the preceding
are employed on any day of the the Official Gazette, apply the
twelve months twenty or more
preceding 12 months as contract provisions of this Act to any
workmen.
labour; establishment where workmen
less than twenty are employed.

3. DEFINITIONS
According to section 2(1) — In this Act, unless the context otherwise requires,
1. Appropriate Government - Section 2(1)(a)
In relation to an establishment in respect of which the appropriate Government under the Industrial Disputes
Act, 1947, is the Central Government

In relation to any other establishment, the Government of the State in which that other establishment is situated.
[Section 2(1)(a)

2. Contract Labour - Section 2(1)(b)

A workman shall be deemed to be employed as “contract labour” in when he is hired in or through a contractor,
with or without the knowledge of the principal employer.

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3. Contractor - Section 2(1)(c)
Contractor means-

1. A person who undertakes supply of goods or articles of manufacture to

such establishment, through contract labour or

2. Who supplies contract labour and includes a sub-contractor

4. Establishment- Section 2(1)(e)

Establishment means ​
) Any office or department of the Government or a local authority, or​
) Any place where any industries, trade, business, manufacture, or occupation is carried on.
5. Principal Employer- Section 2(1)(g)
Principal Employer means:
In relation to any office or department of the Government or a local authority, the head of that office or
department or such other officer as “’the Government or the local authority, as the case may be, may specify
in this behalf

In a factory, the owner or occupier of the factory and where a person has been named as the manager of the
factory under the Factories Act, 1948, the person so named.

In a mine, the owner or agent of the mine and where a person has been named as the manager of the mine,
the person so named

In any other establishment, any person responsible for the supervision and control of the establishment.
[Section 2(1)(g)]

6. Wages- Section 2(1)(h)

Wages shall have the meaning assigned to them in clause (vi) of Section 2 of the Payment of Wages Act, 1936.
7. Workman - Section 2(1)(i)
Workman means any person employed in or in connection with the work of any establishment to do any skilled,
semi-skilled, or unskilled manual, supervisory, technical, or clerical work for hire or reward, whether the terms of
employment are express or implied, but does not include any such person.
Who is employed mainly in a managerial or administrative capacity or

Who, being employed in a supervisory capacity draws wages exceeding five hundred rupees per mensem
or exercises, either by the nature of the duties attached to the office or by reason of the powers vested in
him functions mainly of a managerial nature or

Who is an out worker, that is to say, a person to whom any articles and materials are given out by or
on behalf of’ the principal employer to be made up, cleaned, washed, altered, ornamented, finished,
repaired, adapted or otherwise processed for sale for the purposes of the trade or business of the principal
employer and the process is to be carried out either in the home of the out-worker or in some other
premises, not being premises under the control and management of the principal employer

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 4. THE ADVISORY BOARDS
1. Central Advisory Board (Section 3)
Constitution of Central Board: As per the provisions of Section 3, the Central Government is required to constitute
a board known as the Central Advisory Contract Labour Board (hereinafter referred to as the Central Board).

Function of the Central Board:

Advising the Central Government on matters arising out of administration of this Act.

Composition of the Central Board: The Central Board shall consist of-
) A Chairman to be appointed by the Central Government
) The Chief Labour Commissioner (Central), ex officio
) Minimum 11 and maximum 17 members as the Central Government may nominate to represent
that Government, the Railways, the coal industry, the mining industry, the contractors, the
workmen an any other interests which, in the opinion of the Central Government ought to be
represented on the Central Board.
2. State Advisory Board (Section 4)
) Section 4 of the Act empowers the State Government to constitute a board known as the State Advisory
Contract Labour Board (hereinafter referred to as the State Board).
Note: The Central Government must constitute the Central Board u/s 3 of the Act, while it is discretionary
for the State Government to constitute the State Board u/s 4 of the Act.
) Function of the State Board: The primary function of the State Board is to advise the State Government on
matters arising from the administration of this Act.
) Composition of the Board:

The state board shall consist of:

Chairman to be appointed by the state government

The Labour commissioner, ex officio

Minimum 9, Maximum 11 as the state government may nominate to represent that

government, the industry, the contractor, the workmen and any others interest, which in
the opinion of the state government ought to be represented on the state board.

The number of members to be appointed from each specified category, the term of office, and other conditions
of service shall be prescribed. The procedure for discharging their functions and the manner of filling vacancies
among the members of the State Board shall also be prescribed. However, it is required that the number of
members representing the workers shall not be fewer than the number representing the principal employers and
contractors.
3. Power to Constitute Committees (Section 5)
According to Section 5, the Central Board or the State Board, as the case may be, may constitute such committees
and for such purpose or purposes as it may think fit. The committee shall meet at such time and places and shall
observe such rules of procedure in regard to the transaction of business at its meetings as may be prescribed. The

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members of a committee shall be paid such fees and allowances for attending its meetings as may be prescribed.
Provided that no fees shall be payable to a member who is an officer of the Government or of any corporation
established by any law for the time being in force.

5. THE REGISTRATION OF ESTABLISHMENTS EMPLOYING CONTRACT LABOUR

Appointment of Registering Officers (Sec 6): The appropriate government may appoint registering officer.

Registration of certain establishment (Sec 7): It is mandatory for every establishment to make an application
for registration

Revocation of registration in certain cases (Sec 8): The registration has been obtained by mis-representation or
suppression of any material fact, it requires to be revoked.

Prohibition of employment of contract labour (Sec 9): The appropriate Government may prohibit employment
of contract labour in any process, operation or other work in any establishment, by notification in the Official
Gazette.

Act contains provisions for licensing of contractors (Sec 10).

5.1. APPOINTMENT OF LICENSING OFFICERS (SECTION 11)

Section 11 empowers the appropriate Government to appoint Gazetted Officers as licensing officers and to define
the limits of their jurisdiction. Orders regarding such appointments and the defined limits of their jurisdiction
must be published in the Official Gazette.
Appropriate Government may, by an order notified in the Official Gazette
(a) Appoint such persons, to be appointed as licensing officer.
(b) Define the limits, which a licensing officer shall exercise the powers.

5.2. LICENSING OF CONTRACTORS (SECTION 12)

No contractor to whom this Act applies, shall undertake or execute any work through contract labour
except under and accordance with a licence issued in that behalf by the licensing officer.

6. WELFARE & HEALTH OF CONTRACT LABOUR

1. Canteens (Section 16)
The appropriate government may provide rules for :
) The date by which the canteens shall be provided
) The number of canteens that shall be provided
) The foodstuffs which may be served
) Contract labour numbering 100 or more is employed

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 2. Rest-rooms (Section 17)
) It is mandatory for the contractor to provide and maintain rest rooms
) When contract labour is required to halt at night
) Sufficiently lighted and ventilated
) Clean and comfortable condition.

3. Other facilities
A sufficient supply of wholesome drinking water at convenient places;
(Section 18)

A sufficient number of latrines and urinals of the prescribed types.

(Section 18)

First-aid facility: A first aid box during all working hours.

(Section 19)
Liability of principal employer in certain cases: All expenses incurred by the principal
(Section 20) employer in providing the amenity may be recovered from the contractor either by deduction.
Responsibility for payment of wages: Contractor is statutorily responsible for payment of
(Section 21) wages to each worker employed by him as contract labour.

7. PENALTIES
1. Section 22– Obstruction of the Inspector
Anyone who obstructs an inspector, refuses to produce documents, or prevents examination of persons shall
be punished with:
Imprisonment up to 3 months, or
Fine up to ₹500, or
Both.
2. Section 23 – Contravention of Contract Labour Provisions
If a person violates any rule or licence condition regulating contract labour:
Punishment: Imprisonment up to 3 months, or fine up to ₹1,000, or both.
Continuing offence: Additional fine up to ₹100 per day after the first conviction.
3. Section 24 – Other Offences
For any other contravention not specifically penalised elsewhere:
Punishment: Imprisonment up to 3 months, or fine up to ₹1,000, or both.
4. Section 25 – Offences by Companies
If a company commits an offence:
Both the company and the responsible individuals are deemed guilty.
Exemption applies if the person proves a lack of knowledge or due diligence.
If the offence is due to consent, connivance, or neglect of any officer (e.g., director, manager), they are
personally liable.
5. Section 26 – Cognisance of Offences
No court shall take cognisance unless a complaint is made by or with the prior written sanction of the
inspector.
Only a Presidency Magistrate or Magistrate of First Class can try such offences. Section 277– Limitation
for Prosecution

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 A complaint must be filed within 3 months of the date the inspector became aware of the offence.
If the offence involves disobedience of a written order, the complaint can be filed within 6 months of
the offence.

Penalty Chart

Obstructs Contravention Offence by Cognizance of

Other offences Limitations
Inspector of Provision Company offence
regarding
3 months or ₹ employment Company Upon Complaint
contract labour 3 months or
500 or Both + Person in complaint by ↓
₹ 1000 or Both
charge inspector w/i
3 months or Magistrate of
₹ 1000 or Both Guilty of 1st Class try 3 months
offence offence (trial)
₹ 100/day (Doshi)
Continued
contravention

8. INSPECTING STAFF (SECTION 28)

An inspector may, within the local limits for which he is appointed–

Enter, at all reasonable hours, with such assistance.

Examine any person whom he finds in any such premises or place and who, he has reasonable cause
to believe, is a workman employed therein.

Require any person giving out work and any workman, to give any information.

Seize to take copies of such register, record of wages or notices or portions, thereof as he may
consider.

Exercise such other powers as may be prescribed.

9. REGISTERS & OTHER RECORDS TO BE MAINTAINED (SECTION 29)

Every principal employer and every contractor shall maintain such registers and records giving such:
) Particulars of contract labour employed,
) The nature of work performed by the contract labour
) The rates of wages paid to the contract labour
) Such other particulars.

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 UNIT III: Child and Adolescent Labour
(Prohibition and Regulation) Act, 1986
1. INTRODUCTION
The Child and Adolescent Labour (Prohibition and Regulation) Act, 1986, was enacted to protect the welfare
of children and adolescents by prohibiting their engagement in unsuitable forms of labor. Applicable throughout
India, the Act bans the employment of children (below 14 years) in all occupations and processes, ensuring their
right to education under the Right of Children to Free and Compulsory Education Act, 2009. It also prohibits the
employment of adolescents (aged 14 to 18 years) in hazardous occupations and processes, while regulating their
working conditions under international standards laid down by ILO Conventions 138 and 182. The legislation
reflects India’s commitment to safeguarding child workers and ensuring safe, age-appropriate employment
practices.

2. DEFINITIONS (SECTION 2)
The Act defines various terms used in the Act; some of the definitions are given hereunder:
) Appropriate government means, with an establishment under the control of the Central Government or
a railway administration or a major port or a mine or an oilfield, the Central Government, and in all other
cases, the State Government.
) Adolescent means a person who has completed his fourteenth year of age but has not completed his
eighteenth year.
) Child means a person who has not completed his fourteenth year of age or such age as may be specified
in the Right of Children to Free and Compulsory Education Act, 2009, whichever is more. A day means
twenty-four hours beginning at midnight. Establishment includes a shop, commercial establishment,
workshop, farm, residential hotel, restaurant, eating house, theatre, or other place of public amusement or
entertainment. An occupier with an establishment or a workshop means the person who has the ultimate
control over the affairs of the establishment or workshop.
) Workshop means any premises (including the precincts thereof) wherein any industrial process is carried
on, but does not include any premises to which the provisions of Section 67 of the Factories Act, 1948 (63
of 1948), for the time being, apply.

3. PROHIBITION OF EMPLOYMENT OF CHILDREN IN ANY OCCUPATIONS AND

PROCESSES

Section 3 of the act provides that no child shall be employed in any occupations or process except:-
Helps his family or family enterprise, (not hazardous)
Works as an artist in an audio-visual entertainment industry, including advertisement, films, television
serials or any such other entertainment or sports activities except the circus.

However, no such work shall affect the school education of the child.
It may be noted that the expression:
(a) “family” to a child means his mother, father, brother, sister, and father’s sister and brother, and mother’s
sister and brother
(b) “family enterprise” means any work, profession, manufacture, or business which is performed by the
members of the family with the engagement of other persons

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(c) “artist” means a child who performs or practices any work as a hobby or profession directly involving him
as an actor, singer, sports person, or in such other activity as may be prescribed relating to the entertainment
or sports activities falling under clause (b) of sub-section (2).

4. PROHIBITION OF EMPLOYMENT OF ADOLESCENTS IN HAZARDOUS

OCCUPATIONS & PROCESSES (SECTION 3A)
The hazardous occupations or processes are
as under:
No adolescent shall be employed in any of ) Mines.
the hazardous occupation.
) Inflammable substances or explosives.
) Hazardous process

5. HOURS AND PERIOD OF WORK

Section 7 provides that no adolescent shall be required or permitted to work in any establishment over such
number of hours as may be prescribed for such establishment or class of establishments:

The period of work on each day shall not exceed three hours and no adolescent shall work for more than
3 hours before he has had an interval for rest for at least one hour
The period of work of a child shall be so arranged that inclusive of his interval for rest, it shall not be
spread over more than six hours, including the time spent in waiting for work on any day.

No adolescent shall be permitted work between 7 p.m. to 8 a.m.

No adolescent shall do overtime.

No adolescent shall work in any establishment on any day on which he has already been working in
another establishment.

6. WEEKLY HOLIDAYS
As per Section 8, every adolescent employed in an establishment is entitled to one whole day of holiday each
week, which day shall be specified by the occupier in a notice permanently exhibited in a conspicuous place in
the establishment, and the day so specified shall not be altered by the occupier more than once in three months.

Every adolescent employed in an establishment is entitled in each week, a holiday of one

whole day.

7. NOTICE TO INSPECTOR
Section 9 provides that every occupier where any adolescent works shall, within 30 days from employment, send
a written notice to the Inspector containing:

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 The name and situation of the establishment

The name of the person in actual management of the establishment

The address to which communications relating to the establishment should be sent and

The nature of the occupation or process carried on in the establishment.

8. MAINTENANCE OF REGISTER
Maintain a register to be available for inspection by an Inspector at all times during working hours:

The name and date

Hours and periods
of birth of every Such other particulars
of work of and the The nature of work
adolescent so employed as may be prescribed
intervals of rest;
or permitted to work;

9. DISPLAY OF NOTICE CONTAINING ABSTRACT OF [(SECTION 3A) AND

(SECTION 14)]

Every railway administration, every port authority and every occupier shall cause to be displayed in a
conspicuous and accessible place at every station on its railway or within the limits of a port or at the place of
work, as the case may be, a notice in the local language and in the English language.
District Magistrate to Implement the Provisions.

10. PENALTIES (SECTION 3AA)

1. Any person who employs or permits any child to work in contravention of the provisions of Section 3,
shall be punishable with imprisonment for a term of not less than six months but which may extend up to
two years., or with fine which shall not be less than twenty thousand rupees but which may extend to fifty
thousand rupees, or with both.
2. Any person who employs or permits any adolescent to work in contravention of Section 3A shall be
punishable with imprisonment for a term of not less than six months, which may extend up to two years,
or with a fine. Which shall not be less than twenty thousand rupees, but which may extend to fifty thousand
rupees, or with both.
3. Parents or guardians of any child or adolescent shall not be liable for punishment in the case of the first
offence committed by their child or adolescent.
4. A person convicted under Section 3 or Section 3A, who commits the same offence afterward, shall be
punishable with imprisonment for a term of not less than one year, which may extend up to three years.
5. If the parents or guardians, having been convicted of an offence under Section 3 or Section 3A, commit a
like offence afterward, they shall be punishable with a fine of up to ₹10,000.

11. DISTRICT MAGISTRATE TO IMPLEMENT THE PROVISIONS (SECTION 17A)

Section 17A of the Act provides that the appropriate Government may confer specific powers and duties on a District
Magistrate to ensure the effective implementation, monitoring, and compliance of the provisions of this Act.

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 Previous Year Questions

1. What principles govern the regularization of contract labour, and under what conditions can contract
workers seek regular employment under the provisions of the Contract Labour (Regulation & Abolition)
Act, 1970? June 2025 (5 marks)
Hint:
Core Legal Principles
Principle Key Insight
Sham Contract Doctrine If the contract is a façade, courts may treat workers as direct employees.
Perennial Nature of Work Regular, ongoing work strengthens the case for regularization.
Supervision & Control Test If the principal employer controls work directly, the contract may be
invalid.
Industrial Dispute Route Workers can raise disputes under the ID Act for regularization.
Constitutional Mandate Arbitrary denial of regularization may violate Articles 14 & 16.
Conditions for Seeking Regular Employment
Work is perennial and integral to the establishment.
The worker has served long duration (e.g., multiple years).
Contractor violates statutory obligations (wages, welfare).
Government notification under Section 10 prohibits contract labour.
No automatic regularization — 240-day rule applies to retrenchment, not permanency.
2. No adolescent shall be employed or permitted to work in any of the hazardous occupations or processes.
What are such occupations or processes? Dec 2024 (3 marks)
Hazardous Occupations (Any 3)
1. Automobile workshops and garages
Involves exposure to toxic fumes, heavy machinery, and welding risks.
2. Mines and collieries (underground or underwater)
High risk of physical injury, toxic exposure, and structural collapse.
3. Handling of toxic or inflammable substances or explosives
Includes work in firecracker shops, chemical units, and fuel handling.
Hazardous Processes
1. Beedi-making and cigarette rolling
Involves inhalation of tobacco dust and repetitive strain injuries.
2. Manufacture of matches, explosives, and fireworks
High fire hazard and exposure to volatile chemicals.
3. Tanning and leather processing
Uses toxic chemicals like chromium, posing skin and respiratory risks.
These occupations and processes are listed in the Schedule to the Act and are strictly prohibited for
adolescents aged 14 to 18 years.
3. Discuss the prohibition of the employment of contract Labour.  Dec 2024 (3 marks)
Hints: Section 10 – Prohibition of Contract Labour
Govt. notification in the Official Gazette
Must consult the Central/State Board

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 Consider:
 Incidental/necessary work
 Perennial nature
 Done by regular workmen
 Needs many full-time workers
Govt.’s decision on perennial nature = final
Section 11 – Licensing Officers
Gazetted Officers appointed
Jurisdiction is defined by the Government notification
Section 12 – Licensing of Contractors
Licence mandatory for contract work
Issued by the licensing officer
Includes conditions: wages, hours, amenities
Requires fee + security deposit
4. Describe the powers of the Inspector under section 28 of the Contract Labour (Regulation and Abolition)
Act, 1970. Dec 2024 (5 marks)
Hints: Appointment & Jurisdiction
The Appropriate Government appoints inspectors
Notification in the Official Gazette
Local limits are defined for their powers
Powers of Inspectors
(a) Enter premises at reasonable hours
(b) Examine registers, records, notices
(c) Question persons believed to be workmen
(d) Seek info on work allocation & payments
(e) Seize/copy documents relevant to offences
(f) Exercise other prescribed powers
Legal Backing
Bound to comply under IPC Sections 175 & 176
CrPC applies to search/seizure under a warrant (Section 98)
5. Every factory shall provide measures for the health, safety, and welfare of workers under the provisions
of the Factories Act, 1948, which inter alia includes Spittoons, Latrines, and urinals. Explain.
Dec 2024 ( 3 marks)
Hints: Factories Act, 1948: Health, Safety & Welfare Measures
Section 19: Latrines and Urinals
Mandatory Provision: Every factory must provide sufficient latrine and urinal accommodation of
prescribed types.
Accessibility: Facilities must be conveniently located and accessible to workers during working hours.

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 Gender Segregation: Separate enclosed accommodation for male and female workers is compulsory.
Hygiene Standards:
 Must be well-lit and ventilated.
 Cannot directly connect to workrooms unless via a ventilated passage.
 It must be maintained in a clean and sanitary condition at all times.
Cleaning Staff: Sweepers must be employed to maintain cleanliness.
Section 20: Spittoons
Provision Requirement: Every factory must provide a sufficient number of spittoons in convenient
locations.
Maintenance: Spittoons must be cleaned and disinfected regularly to prevent health hazards.
Worker Conduct: Workers are prohibited from spitting in any location other than designated spittoons.
Violation may attract penalties.
6. S is the occupier of a factory manufacturing two-wheeler locks and auto parts in Aligarh (U.P.). During
the inspection of the factory, the Chief Inspector found that there was accumulated dirt and refuse on the
floors, staircases, and passages in the factory. The Inspector directed S to ensure cleanliness in the factory.
Describe the cleanliness measures to be taken by S under the Factories Act, 1948. June 2023 (5 marks)
Hints:
Section 11: Cleanliness Measures under the Factories Act, 1948
Obligations of the Occupier (S)
S must ensure the following mandatory cleanliness standards:
1. Daily Removal of Dirt and Refuse
 All floors, staircases, and passages must be cleaned daily.
 Accumulated dust, dirt, and refuse must be removed promptly.
2. Weekly Washing and Disinfection
 Floors must be washed with disinfectant at least once a week.
 This includes areas where workers are regularly present.
3. Whitewashing and Painting
 Walls, ceilings, and partitions must be:
 Whitewashed or colour-washed every 14 months.
 Painted or varnished every 5 years, if applicable.
4. Record Maintenance
 A register must be maintained showing:
 Dates of cleaning, whitewashing, painting, etc.
 This register must be available for inspection.
5. Special Attention to Workrooms
 Workrooms must be kept free from effluvia arising from any drain, privy, or other nuisance.
 Adequate ventilation and lighting must be ensured to maintain hygiene.
Consequences of Non-Compliance
The Chief Inspector has the authority to issue directions under Section 9.
Failure to comply may lead to penalties under Section 92, including fines or prosecution.

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 7. Write down provisions concerning the Contract Labour (Regulation and Abolition) Act, 1970. What are
the penalties in case of contravention of the provisions by the Company? June 2024 (5 marks)
Hints:
Contract Labour (Regulation and Abolition) Act, 1970 — Key Provisions
Applicability
Applies to:
 Establishments employing 20 or more contract workers on any day of the preceding 12
months.
 Contractors employing 20 or more workers.
Excludes work of an intermittent or casual nature.
Major Provisions
Chapter Provision Description
III Registration of The principal employer must register the establishment with
Establishments the registering officer.
IV Licensing of Contractors Contractors must obtain a license; failure to do so is a violation.
V Welfare & Health Includes canteens (≥100 workers), restrooms, drinking water,
first-aid, and latrines.
V Payment of Wages The principal employer is liable if the contractor fails to pay
wages.
VI Prohibition of Contract The government may prohibit contract labour in specific
Labour operations via notification under Section 10.
VII Record Maintenance Employers and contractors must maintain registers,
employment cards, and display abstracts of the Act.
Penalties for Contravention by the Company
Section 23: Contravention of Provisions
Penalty:
Imprisonment up to 3 months, or
Fine up to ₹1,000, or
Both
Section 24: Other Offences
Covers violations not specifically mentioned in Section 23.
Similar penalties apply.
Section 25: Offences by Companies
If a company commits an offence:
Every person in charge (e.g., directors, managers) is deemed guilty.
Unless they prove a lack of knowledge or due diligence.
Section 26: Cognizance of Offences
No court shall take cognizance without prior sanction of the Inspector.

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8. Describe three welfare measures to be taken for the welfare of the workers under the Factories Act, 1948.
 Dec 2023 ( 3 marks)
Hints:
The following provisions under Chapter (V) of the Factories Act, 1948, relate to the measures to be taken
for the welfare of workers.
(i) Washing facilities Section 42 provides that every factory should provide and maintain adequate and
suitable washing facilities for its workers. For the use of males and females, such facilities should be
separate and adequately screened. Such facilities should be conveniently accessible for all workers
and be kept in a state of cleanliness. The State Government is empowered to make rules prescribing
standards of adequate and suitable washing facilities.
(ii) Facilities for storing and drying clothing. Section 43 empowers the State Government in respect of
any factory or class or description of factories to make rules requiring the provision, therein, of
1. suitable places for keeping clothing not worn during working hours, and
2. for drying of wet clothing.
(iii) Facilities for sitting. Certain operations can be performed by the workers only in a standing position.
This not only affects the health of a worker but also his efficiency. According to Section 44(1), every
factory shall provide and maintain suitable facilities for sitting, for those who work in a standing
position, so that they may make use of them as and when any opportunity comes in the course of
their work. If, in the opinion of the Chief Inspector, any work can be efficiently performed in a sitting
position, he may direct, in writing, the occupier of the factory to provide before a specified date such
seating arrangements as may be practicable for all workers so engaged. The State Government may,
by a notification in the Official Gazette, declare that the above provisions shall not apply to any
specified factory or any manufacturing process.
(iv) First aid appliances. As per Section 45, the following arrangements should be made in every factory
in respect of first-aid facilities.
1. Provision of at least one first-aid box or cupboard, subject to the following conditions, for every
150 workers ordinarily employed at any one time in the factory.
2. It should be equipped with prescribed contents, and nothing else should be stored in it.
3. It should be properly maintained and readily accessible during all working hours.
4. A responsible person who holds a certificate in first-aid treatment, recognised by the State
Government, should be made the in- charge of such first-aid box or cupboard. Such a person
should be readily available during the working hours of the factory. Where there are different
shifts in the factory, a separate person may be appointed for each shiftprovided he is a responsible
person and trained in first-aid treatment.
5. Where more than 500 workers are ordinarily employed in a factory, an ambulance room should
be provided and maintained by every such factory. Such a room should be of prescribed size,
containing prescribed equipment, and be in charge of such medical and nursing staff as may be
prescribed.
(v) Canteens The State Government may make rules requiring that in any specified factory wherein
more than 250 workers are ordinarily employed, a canteen shall be provided and maintained by the
occupier for the use of workers.
(vi) Shelters, restrooms, and lunchrooms. The provision of some sort of shelter is a must, where
the workers can take their meals brought by them during the rest interval. In every factory where
more than 150 workers are ordinarily employed, the occupier should make adequate and suitable
arrangements for shelters or restrooms and a lunchroom with provision of drinking water where the
workers can take rest or eat meals brought by them.

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 (vii) Creches Following provisions have been made in respect of creches in the factories: - In every
factory wherein more than 30 women workers are ordinarily employed, the facility of a suitable
room or rooms should be provided and maintained for the use of children under the age of six years
of such women. - There should be adequate accommodation in such rooms. - These places should be
sufficiently lighted and ventilated and kept in clean and sanitary conditions. - Women trained in the
case of children and infants should be made in charge of such rooms.
(viii) Welfare offices. According to Section 49(1), in every factory wherein 500 or more workers are
ordinarily employed, the occupier should employ such welfare officers as may be prescribed.
9. Define the term ‘Adolescent’ under the Child and Adolescent Labour (Prohibition and Regulation)
Act, 1986. Also, explain the provisions regarding hours and period of work of an adolescent in any
establishment under the Act. Dec 2023 (5 marks)
Hints:
As per the Child and Adolescent Labour (Prohibition and Regulation) Act, 1986, an Adolescent means a
person who has completed his fourteenth year of age but has not completed his eighteenth year.
Hours and Period of Work
Section 7 of the Child and Adolescent Labour (Prohibition and Regulation) Act, 1986, provides that no
adolescent shall be required or permitted to work in any establishment over such number of hours as may
be prescribed for such establishment or class of establishments.
The period of work on each day shall be so fixed that no period shall exceed three hours and that no
adolescent shall work for more than three hours before he has had an interval for rest for at least one hour.
The period of work of a child shall be so arranged that, inclusive of his interval for rest, it shall not be
spread over more than six hours, including the time spent in waiting for work on any day.
This section also stipulates that:
No adolescent shall be permitted or required to work between 7 p.m. and 8 a.m.
No adolescent shall be required or permitted to work overtime.
No adolescent shall be required or permitted to work in any establishment on any day on which he has
already been working in another establishment.
10. Describe in brief the specific responsibility of the occupier regarding hazardous processes under the
Factories Act, 1948. Dec 2023 ( 5 marks)
Hints:
Every occupier of a factory involving any hazardous process shall maintain accurate and up-to-date health
records or, as the case may be, medical records, of the workers in the factory who are exposed to any
chemical, toxic or any other harmful substances which are manufactured, stored, handled or transported
and such records shall be accessible to the workers subject to such conditions as may be prescribed.
Such occupier shall appoint persons who possess qualifications and experience in handling hazardous
substances and are competent to supervise such handling within the factory and to provide at the working
place all the necessary facilities for protecting the workers in the manner prescribed. It is provided that
where any question arises as to the qualifications and experience of a person so appointed, the decision of
the Chief Inspector shall be final.
Such occupier shall provide for the medical examination of every worker
(i) Before such worker is assigned to a job involving the handling of, or working with, a hazardous
substance, and
(ii) While continuing in such job, and after he has ceased to work in such job, at intervals not exceeding
twelve months in such manner as may be prescribed,

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11. Global Mines Limited established a coke factory in Sindhudurg, Goa. The factory is about to be operational
from next month. In the meantime, the management wants to appoint one of its Directors, Ashok Sinha,
as an occupier. Mention the information to be sent by an occupier to the Chief Inspector before the
commencement of the factory.  Dec 2023 (3 marks)
Hints:
Notice by Occupier
Section 7 of the Factories Act, 1948, provides that the occupier shall, at least fifteen days before he begins
to occupy or use any premises as a factory, send to the Chief Inspector a written notice containing—
(a) The name and situation of the factory;
(b) The name and address of the occupier;
(c) The name and address of the owner of the premises or building (including the precincts thereof);
(d) The address to which communications relating to the factory may be sent;
(e) The nature of the manufacturing process—
(i) Carried on in the factory during the last twelve months in the case of factories in existence on the
date of the commencement of this Act; and
(ii) To be carried on in the factory during the next twelve months in the case of all factories;
(f) The total rated horsepower installed or to be installed in the factory, which shall not include the rated
horsepower of any separate stand-by plant;
(g) The name of the manager of the factory for this Act;
(h) The number of workers likely to be employed in the factory;
(i) The average number of workers per day employed during the last twelve months in the case of a
factory in existence on the date of the commencement of this Act;
(j) Such other particulars as may be prescribed.
12. M Ltd. has a textile plant situated in Bhiwandi, Maharashtra. Mudit is the head of the plant, who possesses
a Master's Degree in Mechanical Engineering from a reputed Institute. Mudit is appointed as the occupier
of the plant under the Factories Act, 1948. What are the measures Mudit has to adopt for the health of
workers employed in the manufacturing process that generates dust, fume, and other impurities?
June 2023 (3 marks)
Hints:
Mudit has to adopt the following measures in the manufacturing process that generates a lot of dust, fume,
and other impurities to ensure the health and safety of the workers:
1. Effective measures should be taken to prevent the inhalation and accumulation of dust, fumes, etc. in
the workrooms.
2. Wherever necessary, an exhaust appliance should be fitted, as far as possible, to the point of origin of
dust, fumes, or other impurities. Such a point shall also be enclosed as far as possible.
3. In case a stationary internal combustion engine is operated in a factory, the exhaust should be
connected to the open air.
4. In cases of other internal combustion engines are operated in a factory, effective measures should be
taken to prevent the accumulation of fumes therefrom.
5. Precautions against dangerous fumes, gases, etc. should be taken, and they must ensure that:
(a) Person shall not be allowed to enter any chamber, tank, vat, pit, pipe, flue or other confined
space in any factory in which any gas, fume vapour or dust is likely to be present to such an
extent as to involve risk to persons being overcome thereby, unless it is provided with a manhole
of adequate size or other effective means of egress.

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 (b) Person shall not be allowed to enter any confined space, until all practicable measures have been
taken to remove any gas, fume, vapour or dust, which may be present to bring its level within
the permissible limits and to prevent any ingress of such gas, fume, vapour or dust, and unless--
 A certificate in writing has been given by a competent person, based on a test carried out
by himself that the space is reasonably free from dangerous gas, fume, vapou,r or dustOror
such person is wearing suitable breathing apparatus and a belt securely attached to a rope
the free end of which is held by a person outside the confined space.
13. Daadi ke Achaar Pvt. Ltd. is producing pickles of all varieties. A few of the workers in the company are in
the age group of 15 to 18. The company seeks your advice on the provisions regarding working hours and
period of work under the Child and Adolescent Labour (Prohibition and Regulation) Act, 1986. Advise
the company.  June 2023 ( 3 marks)
Hints:
Section 7 of the Child and Adolescent Labour (Prohibition and Regulation) Act, 1986, provides that no
adolescent shall be required or permitted to work in any establishment over such number of hours as may
be prescribed for such establishment or class of establishments. The period of work on each day shall be so
fixed that no period shall exceed three hours and that no adolescent shall work for more than three hours
before he has had an interval for rest for at least one hour. The period of work of an adolescent shall be so
arranged that, inclusive of his interval for rest, it shall not be spread over more than six hours, including
the time spent in waiting for work on any day.
This section also stipulates that:
No adolescent shall be permitted or required to work between 7 p.m. and 8 a.m.
No adolescent shall be required or permitted to work overtime.
No adolescent shall be required or permitted to work in any establishment on any day on which he
has already been working in another establishment. Accordingly, the Company is advised to consider
the above-mentioned provisions regarding working hours and period of work under the Child and
Adolescent Labour (Prohibition and Regulation) Act, 1986.

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 CHAPTER SBIL

17 LAW OF INDUSTRIAL
RELATIONS

Unit– I: Industrial Disputes Act, 1947

Law of Industrial Relation

UNIT- I UNIT-II
Industrial Dispute Act 1947 Industrial Employment Standing Order Act 1946

1. INTRODUCTION
The first legislation addressing the settlement of industrial disputes was the Employers’ and Workmen’s Disputes
Act, 1860. This Act was heavily biased against workers and was therefore replaced by the Trade Disputes Act,
1929. The 1929 Act introduced specific provisions regarding strikes in public utility services and general strikes
affecting the community as a whole. The primary objective of the Act, however, was to establish a conciliation
machinery to facilitate the peaceful settlement of industrial disputes.

2. OBJECTIVE
The Industrial Disputes Act, 1947, provides for the investigation, adjudication, and settlement of industrial
disputes and outlines mechanisms such as conciliation, arbitration, and adjudication. It aims to ensure the progress
of industries by fostering harmonious and cordial relationships between employers and employees.
In the case of Workmen of Dimakuchi Tea Estate v. Dimakuchi Sea Estate, AIR 1958 SC 353, the Supreme
Court laid down the following objectives of the Act:

Promotion of measures of securing and

Relief to workmen in the matter of lay-
preserving amity and good relations
off and retrenchment.
between the employer and workmen

Prevention of illegal strikes

Promotion of collective bargaining.
and lock-outs.

3. IMPORTANT DEFINITIONS
3.1 INDUSTRY [SECTION 2(J)]
It means any systematic activity carried on by co-operation between an employer and his workmen (Whether
such workmen are employed by such employer directly or by or through any agency, including a contractor) for
the production, supply or distribution of goods or services with a view to satisfy human wants or wishes (not
being wants or wishes which are merely spiritual or religious in nature), whether or not:
 (i) Any capital has been invested for the purpose of carrying on such activity; or

(ii) Such activity is carried on with a motive to make any gain or profit, and includes:
Any activity of the Dock Labour Board
Any activity relating to the promotion of sales or business or both carried on by an establishment.
But does not include the following:
(1) Any agricultural operation except where such agricultural operation is carried on in an integrated
manner with any other activity (being any such activity as is referred to in the foregoing provisions of
this clause) and such other activity is the predominant one;
(2) Hospitals or dispensaries.
(3) Educational, scientific, research.
(4) Institutions owned or managed by organisations wholly or substantially engaged in any charitable, social
or philanthropic service.
(5) Khadi or village industries.
(6) Any activity of the Government relatable to the sovereign functions of the Government.
(7) Any domestic service.
(8) Any activity, being a profession practised by an individual or body of individuals.
(9) Any activity, being an activity carried on by a co-operative society or a club or any other like body of
individuals.

3.2. INDUSTRIAL DISPUTE [SECTION 2(k)]

Any dispute or difference between

) Employers and employers, or
) Between employers and workmen, or
) Between workmen and workmen,
) Is connected with the employment or non-employment or the terms of employment or
with the conditions of labour, of any person.

3.3. WORKMAN [SECTION 2(S)]

“Workman” means any person (including an apprentice) employed in any industry to do any manual, unskilled,
skilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment
are expressed or implied and for any proceeding under this Act about an industrial dispute, includes:
(a) any such person who has been dismissed, discharged or retrenched in connection with, or as a consequence
of that dispute or
(b) any person whose dismissal, discharge or retrenchment has led to that dispute, but does not include any such
person
Who is subject to the Army Act, 1950, or the Air Force Act, 1950 or the Navy Act, 1957 or
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 Who is employed in the police service or as an officer or other employee of a prison or
Who is employed mainly in a managerial or administrative capacity or
Who is employed in a supervisory capacity drawing more than Rs. 1,600 per month as wages or
Who is exercising either by the nature of the duties attached to the office or because of the powers vested
in him, functions mainly of a managerial nature. [Section 2(s)]

3.4. STRIKES [SECTION 2(Q)]

Strike means cessation of work by body of person employed in an industry or refusal under common
understanding by person employed to continue to work or to accept employment.

Mere stoppage of work does not come under meaning of strike, unless there is a industrial demand.

Strike is weapon of collective bargaining of workers.

Following points to be noted-

Strike can take place when there is cessation of work or refusal of work by workmen acting in
combination. Time or duration of strike is immaterial.
Going on mass casual leave under common understanding amounts to strike.
Refusal to do work which employer has no right to ask for does not constitute strike.
If on a sudden death of fellow worker, workmen refuse to resume work, it amounts to strike.
Striking worker must be employed in industry which has not been closed down.
Even when workers cease to work, relationship of employer and employee is deemed to be continue.

NOTE : A Presence in Striking Crowd would not amount to strike unless it is shown that there was
cessation of work.

3.4.1 Types of Strike

1. Stay/in, sit down, pen down or tool down strike:-

In these cases workmen after taking their seats refuse to do work even when ask to leave they refuse
to do so.
In Punjab National bank Ltd Vs All India Punjab National bank Employees federation, supreme court
observed that, when employees enter premises of bank & refuse to take their pens in their hand that
would no doubt be a Strike.

2. Go slow:-
Go slow does not amount to strike but it is a serious case of misconduct.
In “Bharat Sugar Mills Vs. Jay Singh”, Supreme court explained the legality of go slow
Go slow is delaying of production by workmen they pretend to be engaged in factory
It reduces the output
It is much more harmful than total cessation of work.
During go slow machinery is kept at a reduced speed which can damage the machinery part.

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 3. Sympathetic strike:-
Cessation of work in support of demand of workmen belonging to other employer is called Sympathetic
Strike.
In Ramlingom Vs. Indian metallurgical Corporation Madrass, it was held that a such cessation of work
will not amount to strike as there is no intention to use strike against management.

4. Hunger strike:-
Some work of work may resort to fast on or near place or work or residence of employer. If it is
peaceful & does not result in cessation of work, it will not constitute a strike. But if due to such an
act, even those present for work, could not be given work, it will amount to strike.

5. Work to rule:-
Since there is not cessation of work it does not constitute strike.

3.4.2 Legality of Strike

The justifiability of a strike is distinct from its legality. Justifiability refers to whether the strike is reasonable
and fair in the context of the workers' demands, while legality concerns whether the strike adheres to the legal
requirements and conditions set forth under industrial law.
The Punjab & Haryana High Court, in Matchwell Electricals of India v. Chief Commissioner (1962) 2 LU
289, clarified that the justifiability of a strike is independent of its legality. The court emphasised that the
justification of a strike should be assessed based on the fairness and reasonableness of the demands made by the
workers, not solely on whether they have exhausted all other available legal means to resolve their grievances.
The Supreme Court in Gujarat Steel Tubes Ltd. v. Gujarat Steel Tubes Majdoor Sabha (AIR 1980 SC
1896) held that the justifiability of a strike is a question of fact. A strike will be justified if the workers resort to
it in support of reasonable, fair, and bona fide demands, and if it is conducted peacefully. However, if the strike
involves violence, sabotage, or is carried out for any ulterior motive, it will be considered unjustified.
Regarding wages during a strike, the Supreme Court in Charakulam Tea Estate v. Their Workmen (AIR
1969 SC 998) ruled that if the strike is legal and justified, the workers are entitled to full wages for the duration
of the strike.
In Statesman Ltd. v. Their Workmen (AIR 1976 SC 758), the Supreme Court stated that if a strike is illegal
or unjustified, workers will not be entitled to wages for the strike period, unless exceptional circumstances
justify a different course of action.
The Supreme Court also examined situations where a strike is followed by a lockout, and vice versa, as in India
Marine Service Pvt. Ltd. v. Their Workmen (AIR 1963 SC 528). In cases where both actions are unjustified,
the Court applied the doctrine of “apportionment of blame”, awarding workers half wages when both the
management and the workers are equally at fault.
SUMMARY
In Matchwell Electricals of India Vs. Chief Commissioner, Punjab and Haryana high court held that justification
of strike has to be viewed from point of Fairness & reasonableness at demand.

In Gujrat Steel Tubes Ltd Vs. Gujrat Steel Tube Majdoor Sabha, justificability of strike is a question of fact
held supreme court so if, strike is in support of fair demand and in a peaceful manner then strike is justified.

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 In “Charakulmam Tea State Vs. Their workmen”, Supreme Court held that it strike is legal and justitied
workmen will be entitled to fall wages for the strike period.

In “Indian Marine Service Pvt. Ltd Vs. Their workmen,” Court evolved doctrine of apportionment of blame
to solve the problem.

According to this rule when workmen and management are equally to be blamed court normally awards half
of the wages.

3.5. LOCK-OUT [SECTION 2(L)]

“Lock-out” means the temporary closing of a place of employment, or the suspension of work, or the
refusal by an employer to continue to employ any number of persons employed by him.

A lock-out occurs when the employer refuses to continue employing a workman, even when the unit is not intended
to be permanently closed. The essence of a lock-out lies in the employer’s refusal to provide employment, not
just a temporary suspension of work. However, a suspension of work will not qualify as a lock-out unless it is
accompanied by a retaliatory intention from the employer.
Locking out workmen does not contemplate the severance of the relationship between the employer and the
workmen. In the case Lord Krishna Sugar Mills Ltd. v. State of U.P., (1964) II LU 76 (AII), a closure of a place
of business for a short duration of 30 days in retaliation for certain acts of workmen (i.e. to teach them a lesson)
was held to be a lockout. But closure is not a lockout.
3.6. LAY-OFF [SECTION 2(KKK)]
“Lay-off’ means the failure, refusal, or inability of an employer to give employment due to the following reasons,
to a workman whose name appears on the muster-rolls of his industrial establishment and who has not been
retrenched:

(a) shortage of coal, power or raw materials.

(b) accumulation of stocks.
(c) break-down of machinery.
(d) natural calamity
(e) for any other connected reason.

Explanation: Every workman whose name is borne on the muster rolls of the industrial establishment and who
presents himself for work at the establishment at the time appointed for the purpose during normal working hours
on any day and is not given employment by the employer within two hours of his so presenting himself shall be
deemed to have been laid-off for that day within the meaning of this clause.
NOTE: The right to lay off cannot be claimed as an inherent right of the employer. This right must be specifically
provided for either by the contract of employment or by the statute (Workmen of Dewan Tea Estate v. Their
Management). In fact 'lay-off' is a statutory obligation on the part of the employer, i.e., in case of temporary
stoppage of work, not to discharge the workmen but to lay off the workmen till the situation improves. Power
to lay off must be found out from the terms of the contract of service or the standing orders governing the
establishment (Workmen v. Firestone Tyre and Rubber Co., 1976 3 SCC 819).

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Difference between lay-off & lock-out
1. In lay-off, the employer refuses to give employment due to certain specified reasons, but in lock-out, there
is deliberate closure of the business and employer locks out the workers not due to any such reasons.

2. In lay-off, the business continues, but in lock-out, the place of business is closed down for the time being.

3. In a lock-out, there is no question of any wages or compensation being paid unless the lock-out is held to
be unjustified.

4. Lay-off is the result of trade reasons but lock-out is a weapon of collective bargaining.

5. Lock-out is subject to certain restrictions and penalties but it is not so in case of lay-off.
However, both are temporary, and in both cases, the contract of employment is not terminated but remains in
suspended animation.
3.7. RETRENCHMENT [SECTION 2(OO)]
“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 of the workman; or

(b) retirement of the workman or reaching the age of superannuation

(c) termination of the service of the workman as a result of the non-renewal of the contract of
employment

(d) termination of the service of workman on the ground of continued ill-health.

3.8. AWARD [SECTION 2(B)]

An award refers to the final or interim determination of an industrial dispute by a Labour Court, Industrial
Tribunal, or National Industrial Tribunal. It includes arbitration awards under Section 10-A of the Act. An award
is legally binding, and non-compliance can lead to penalties or further legal action.
3.9. PUBLIC UTILITY SERVICE [SECTION 2(N)]
“Public Utility Service” means:

(i) any railway service

(ii) any major port or dock service

(iii) any postal, telegraph or telephone service

(iv) any industry which supplies power, light or water to the public

(v) sanitation

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Public utility services may be carried out by private companies or business corporations [D.N. Banerji v. P.R.
Mukharjee (Budge Budge Municipality), AIR 1953 SC 58].

3.10. AVERAGE PAY [SECTION 2(AAA)]

Average pay refers to the average amount of wages a worker receives over a specific period, typically used for
determining compensation during disputes.

Monthly Paid Weekly Paid Daily Paid

in 12 full working days

preceding date on which
average pay becomes
in 3 complete
in 4 complete weeks payable. Average pay
calendar months
should be calculated as
average of wages payable
during period he worked.

3.11. WAGES [SECTION 2(RR)]

Wages mean all remuneration expressed in terms of money payable to a workman in exchange for work done,
including basic pay, allowances, overtime, bonuses, and any other form of compensation agreed upon by the
employer and worker.

It includes It doesn't includes

such allowance which is workmen is Any bonus.

entitled (e.g. dearness allowance).

Any contribution paid in P.F. or

value of house accommodation pension fund
or supply of light, water, medical
attendance and other amenity.
Any gratuity payable

any travelling concession. Any commission payable on

promotion of sales & business.

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 4. AUTHORITIES UNDER THE ACT & THEIR DUTIES [SECTION 3]
The Act provides the following authorities for the investigation & Settlement of industrial disputes–

1. Works committee
) Constitution of Works Committee
The appropriate Government may, by general or special order, direct the employer to
constitute a Works Committee.
Applicable to industrial establishments where:
100 or more workmen are employed, or
Have been employed on any working day in the preceding 12 months.
The Committee must be constituted in the prescribed manner.
) Composition
The Works Committee shall consist of:
Representatives of the employer, and
Representatives of the workmen engaged in the establishment.
) Duties of the Works Committee [Section 3(2)]
To promote measures for securing and preserving amity and good relations between employer
and workmen.
To comment upon matters of common interest or concern.
To endeavour to resolve any material differences of opinion on such matters.

2. Conciliation officers
) Appropriate Govt. may appoint “Conciliation officers” to mediate in & promoting, Settlement of
industrial dispute by notification in official gazette Conciliation officer can be appointed for specified
area or industry or for can be one & more Specified industries. Officer can be appointed either
permanently or for limited period.
) Duties
To create pleasant atmosphere in establishment where workers & employers can reconcile on theirs
disputes.
Officers should help in promoting settlement of disputes.

3. Board of conciliation
) Constitution of the Board
The appropriate Government may constitute a Board of Conciliation by notification in the
Official Gazette.
The Board shall consist of:
) One Chairman, and
) Two or Four other members, as deemed fit by the Government.
) Duties of the Board

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 Primary duty: To endeavour to bring about a settlement of the industrial dispute.
For this purpose, the Board shall:
) Investigate into the dispute without delay.
) Examine all matters affecting the merits and the right settlement of the dispute.
Take any steps it considers fit to induce parties to reach a fair and amicable settlement.
) Reporting Obligations
If settlement is achieved:
) The Board shall send a report to the appropriate Government.
) The report must include a memorandum of settlement signed by all parties to the dispute.
If no settlement is reached:
The Board shall forward a detailed report to the appropriate Government, including:
) Steps taken to ascertain facts and circumstances.
) Efforts made to bring about a settlement.
) Reasons why settlement could not be achieved.
) Recommendations for determining the dispute.

4. Court of Inquiry
Section 6
Appropriate Govt may constitute a ‘Court of Inquiry’ by notification in official gazette.
Court shall be consists of number of independent persons. It should be consists of 2 or more members
& one of them shall be appointed as chairman.
It is duty of court to inquire into matters referred to it & submit its report to Govt within 6 months from
starting of inquiry. The period of submitting report is not mandatory.

5. Labour Court
Section 7
Appropriate Govt is empowered to constitute one or more labour courts for resolving the industrial
disputes related to any manner specified in 2nd schedule.
Labour Court shall be consists of persons appointed by appropriate Govt only.
A person shall not be qualified as preceding officer of Labour Court unless,
) he is / has been judge of high Court
) he has been a district Judge or Additional District Judge for minimum period of 3 years.
) he has held judicial office in India for minimum 7 years.
) he has been preceding officer of Labour Court for not less than 5 years.

6. Industrial Tribunals
) Appropriate Govt. may constitute one or more 'Industrial Tribunals’ for adjudicating the industrial
disputes related to any manner specified in 2nd & 3rd schedule

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 ) Tribunal shall be consists of Person only to be appointed by appropriate Govt.
) Person shall not be qualified as preceding officer of Tribunal unless
he is / has been Judge of high Court.
) he has been District Judge or Additional District Judge for a period not less than 3 years.
The appropriate government may appoint two persons as assessors to advise Tribunal.

7. National Tribunal
) Central Govt. has empowered to constitute one or more national courts for adjudication of
industrial disputes which involves question of national importance or are of such nature that
industrial establishments situated in more than one state likely to be interested by such disputes.
) National Tribunal shall be consists of only those persons appointed by Central Govt.
) A Person shall not be qualified for appointment preceding officer unless
he is / has been Judge of H.C
) Central Govt may appoint two persons as assessors to advise National Tribunal.
) Preceding officer should be independent person & shall not have attained age of 65 years.

5. REFERENCE OF DISPUTES [SECTION 10]

5.1. REFERENCE OF DISPUTES TO VARIOUS AUTHORITIES

(A) It may refer the dispute to a Conciliation Board for promoting the settlement of the dispute.

It may refer any matter appearing to be connected with or relevant to the dispute to a Court of Inquiry-
(B)
Matters related to investigation.
It may refer the dispute related to any matter specified in the Second Schedule, to a Labour Court for
(C)
adjudication.
(D) If matter is specified in the Second or Third Schedule, to an Industrial Tribunal for adjudication.

POINTS TO BE NOTED
1. The Industrial Disputes Act provides for no appeal or revision as against the awards so made nor
any such remedy is specifically provided for by any other statute.
2. Supreme Court in its discretion may under Article 136 of the Constitution of India, grant special
leave to a party aggrieved by such an award to appeal to the Supreme Court against an award so
made.
3. The appropriate Government has no power either expressly or impliedly to cancel, withdraw or
supersede any matter referred for adjudication.
4. Ordinarily the Government cannot be compelled to make a reference. But in such a situation the
Government must give reasons under Section 12(5) of the Act. If the Court is satisfied that the
reasons given by the Government for refusing to the issue, the Government can be compelled to
reconsider its decision by a writ of Mandamus.

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5.2. REFERENCE OF DISPUTE TO NATIONAL TRIBUNAL [SECTION 10(1-A)]
Section 10(1-A) empowers the Central Government to refer an industrial dispute to a National Tribunal if it
believes the dispute involves a question of national importance or affects industrial establishments in more
than one State, regardless of whether it is the appropriate government for that dispute. Once such a reference is
made, any ongoing proceedings before a Labour Court or Tribunal on the same matter are automatically quashed
under clause (a).
Further, as per Section 10(5), during the pendency of proceedings before the National Tribunal, the appropriate
government cannot refer the same matter to any other Labour Court or Tribunal.
SUMMARY

Where the Central Government is of opinion that any industrial dispute exists and it involves any question
of national importance or is of such a nature that industrial establishments situated in more than one State
are likely to be interested in, or affected by such dispute and that the dispute should be adjudicated by a
National Tribunal.

5.3. REFERENCE ON APPLICATION OF THE PARTIES [SECTION 10(2)]

Where the parties to an industrial disputes apply for a reference of the dispute to a Board, Court, Labour Court,
Tribunal or National Tribunal.
The appropriate Government, if satisfied, shall make the reference and specify the time limit (not exceeding
three months) to submit the award, such time limit may be extended if required.
Thus, it is mandatory for the Government to make a reference if:
) application to this effect has been made by the parties to the dispute, and
) the applicants represent the majority of each party to the satisfaction of the appropriate Government.

5.4. REFERENCE TO THE TIME LIMIT FOR SUBMISSION OF THE AWARD

[Section 10(2A)]
Section 10(2A) – Key Provisions
) Mandatory Time Specification:
When an industrial dispute is referred to a Labour Court, Tribunal, or National Tribunal, the referral order
must specify the period for submitting the award to the appropriate government.
) Purpose:
Ensures timely adjudication and resolution of industrial disputes.
) Individual Workman Cases:
In disputes involving an individual workman, the specified period cannot exceed 3 months.
) Extension of Time:
Either or both parties may apply for an extension.
The presiding officer may grant an extension.
Reasons must be recorded in writing for such an extension.

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 ) Exclusion of Stayed Period:
Any period during which proceedings were stayed by a Civil Court is excluded from the computation of the
award period.
) No Lapse of Proceedings:
Proceedings do not lapse merely because the specified time has expired without completion.
) Balance of Efficiency and Flexibility:
The provision promotes efficiency in dispute resolution while allowing flexibility in exceptional
circumstances.
SUMMARY
“An order referring an industrial dispute to a Labour Court, Tribunal or National Tribunal under this Section
shall specify the period within which such Labour Court, Tribunal or National Tribunal shall submit its
award on such dispute to the appropriate Government.
Provided that where such dispute is connected with an individual workman, no such period shall exceed
three months.

5.5. REFERENCES TO THE PROHIBITION OF STRIKE AND LOCKOUT [SECTION 10(3)]

When an industrial dispute is referred to a Board, Labour Court, Tribunal, or National Tribunal under Section 10,
the appropriate Government has the authority to prohibit the continuation of any strike or lockout related to that
dispute, provided it is ongoing at the time of reference.
However, this prohibition is not automatic—it requires a specific order from the Government. If no such order is
issued, the ongoing strike or lockout is not deemed illegal. Moreover, even if the strike pertains to issues outside
the scope of the reference, it can still be prohibited once the order is made, as held in Keventers Karamchari
Sangh v. Lt. Governor Delhi.
As per Section 10(1), the Government’s decision to refer a dispute is an administrative function, not a judicial or
quasi-judicial one. The only prerequisite is that there must be some material suggesting that a dispute exists or is
apprehended. If the Government initially declines to refer, it does not resolve the dispute, nor does it constitute a
review of any judicial decision. The Government retains the right to refer the dispute later if it deems necessary
for industrial peace and harmony, regardless of any previous refusal.
SUMMARY

Where an industrial dispute has been referred to a Board, Labour Court, Tribunal or National Tribunal under
this Section, the appropriate Government may by order prohibit the continuance of any strike or lock-out in
connection with such dispute which may be in existence on the date of the reference.
It is necessary that the Government makes an order prohibiting strike or lock-out. If no order is made,
continuance of strike or lock-out is not illegal.

5.6. REFERENCES TO SUBJECT-MATTER OF ADJUDICATION [SECTION 10(4)]

When an industrial dispute is referred to a Labour Court, Tribunal, or National Tribunal under this Section (or
in any subsequent order), and the appropriate Government specifies the points of dispute for adjudication, the
Labour Court, Tribunal, or National Tribunal is required to focus solely on those specified points. Additionally,
the Tribunal must address any matters that are directly related or incidental to the dispute, as specified under
Section 10(4).

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5.7. POWERS OF THE GOVERNMENT TO ADD PARTIES [SECTION 10(5)]
If a dispute involving an establishment (or group of establishments) has been, or is to be, referred to a Labour
Court, Tribunal, or National Tribunal under this Section, and the appropriate Government believes that other
similar establishments might be affected by the dispute, it can include them in the reference. This can happen
either at the time of the original reference or at any point before the award is submitted, even if no dispute
currently exists or is expected in those additional establishments.

6. VOLUNTARY REFERENCES OF DISPUTE TO ARBITRATION

[Section 10-A]
Section 10-A provides for the settlement of industrial disputes by voluntary reference of such disputes to arbitrators.
To achieve this purpose, Section 10-A makes the following provisions:

(i) Where any industrial dispute exists and the same has not yet been referred for adjudication to a Labour
Court, Tribunal or National Tribunal, the employer and the workmen may refer the dispute, by a
written agreement, to arbitration specifying the arbitrator or arbitrators.

(ii) A copy of the arbitration agreement shall be forwarded to appropriate Government and the Conciliation
Officer and the appropriate Government shall within 1 month from the date of the receipt of such
copy, publish the same in the Official Gazette.

(iii) The arbitrator or arbitrators shall investigate the dispute and submit to the appropriate government.

(iv) Where an industrial dispute has been referred to arbitration and a notification has been issued, the
appropriate Government may, by order, prohibit the continuance of any strike or lock-out in connection
with such dispute.

7. STRIKES AND LOCKOUTS [(SECTION 22) & (SECTION 23)]

Strikes and lockouts are the primary tools available to workers and employers, respectively, to press their demands
during collective bargaining. The Industrial Disputes Act, 1947, does not grant an unrestricted right to strike or
lock out.
Under Sections 10(3) and 10A(4A), the Government is empowered to issue orders to prohibit the continuation
of a strike or lock-out. Sections 22 and 23 provide further provisions to restrict the commencement of strikes and
lock-outs.
(i) General prohibition of strikes and lock-outs [Section 23]
No workman employed in any industrial establishment shall go on strike in breach of contract, nor shall any
employer declare a lock-out.
(a) during the pendency of conciliation proceedings before a Board and seven days the conclusion of
such proceedings;

(b) during the pendency of proceedings before a Labour Court, Tribunal or National Tribunal; during the
pendency of arbitration proceedings before an arbitrator and two months after the conclusion of such
proceedings, or

(c) during any period in which a settlement or award is in operation.

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 (ii) Prohibition of strikes and lockouts in public utility service [Section 22]
The above-mentioned restrictions on strikes and lock-outs apply to both public utility services and non-
utility services
(1) No person employed in a public utility service shall go on strike in breach of contract.
) without giving to the employer notice of strike within six weeks before striking
) within 14 days of giving of such notice or
) before the expiry of the date of strike specified in any such notice as aforesaid.
) during the pendency of any conciliation proceedings before a conciliation officer and seven
days after the conciliation of such proceedings.

(2) No employer carrying on any public utility service shall lock-out any of his workmen:
) without giving them notice of lock-out as hereinafter provided within six weeks before locking-
out; or
) within 14 days of giving such notice; or
) before the expiry of the date of lock-out specified in any such notice as aforesaid; or
) during the pendency of any conciliation proceedings before a Conciliation Officer and 7 days
after the conciliation of such proceedings.
) The employer shall send intimation of such lock-out or strike on the day on which it is declared.

(3) The notice of a lock-out or strike under this section shall not be required if a strike or lock-out already
exists in the public utility service. However, the employer must send an intimation of such strike or lock-
out to the designated authority on the day it is declared, as specified by the appropriate Government,
either generally or for a specific area or class of public utility services
(4) The notice of strike referred to in Section 22(1) shall be given by such number of persons to such
person or persons and in such manner as may be prescribed.
(5) The notice of lock-out referred to in Section 22(2) shall be given in such manner as may be prescribed.
(6) If on any day an employer receives from any persons employed by him any such notices as are referred
to in sub-section (1) or gives to any persons employed by him any such notices as are referred to in sub
section (2), he shall within five days thereof report to the appropriate Government or to such authority
as that Government may prescribe the number of such notices received or given on that day.
(iii) Illegal strikes and lockouts [Section 25]
(1) A strike or lock-out shall be illegal if:
(a) it is commenced or declared in contravention of Section 22 or Section 23; or
(b) it continues in contravention of an order made under Section 10(3) or Section
10A(4A).

(2) Where a strike or lock-out in pursuance of an industrial dispute has already commenced
and is in existence at the time of reference of the dispute to a Board, an arbitrator, a Labour
Court, Tribunal or National Tribunal, the continuance of such strike or lock-out shall not
be deemed to be illegal, provided that it was not in contravention of provisions of this act.

(3) A lock-out declared in consequence of an illegal strike or strike declared in consequence

of an illegal lock-out shall not be deemed to be illegal.

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8. UNFAIR LABOUR PRACTICES [SECTION 25T]
A new Chapter VC, relating to unfair labour practices, has been inserted. Section 25T of this Chapter lays down
that no employer, workman, or Trade Union, whether registered under the Trade Unions Act, 1926, or not, shall
commit any unfair labour practice. Section 25U provides that any person committing an unfair labour practice
shall be punishable with imprisonment for a term that may extend to six months, a fine that may extend to one
thousand rupees, or both.

9. PENALTIES [SECTION 26]

1. Penalty for illegal strikes [Section 26(1)]
Any workman who commences, continues, or otherwise acts in furtherance of a strike that is illegal under this Act
shall be punishable with imprisonment for up to one month, a fine of up to fifty rupees, or both. [Section 26(1)].
In the case of Vijay Kumar Oil Mills v. Their Workmen, it was held that the act of a workman participating in
an illegal strike gives the employer certain rights against the workman, which are based on policy and not the
creation of the Statute. The employer has the right to waive such rights. In a dispute before the Tribunal, waiver
can be a valid defence by the workman.
However, waiver by the employer cannot be a defence against prosecution under Section 26, and something
illegal by Statute cannot be made legal by waiver (Punjab National Bank v. Their Workmen).
2. Penalty for illegal lock-outs [Section 26(A)]
Any employer who commences, continues, or otherwise acts in furtherance of a lock-out which is illegal under
this Act shall be punishable with imprisonment for a term which may extend to one month, or with a fine which
may extend to one thousand rupees, or with both.
3. Penalty for instigation, etc. (Section 27)
Any person who instigates or incites others to take part in, or otherwise acts in furtherance of, a strike or lock-out
which is illegal under this Act, shall be punishable with imprisonment for a term which may extend to six months,
or with a fine which may extend to one thousand rupees, or with both.
4. Penalty for giving financial aid to illegal strikes and lockouts (Section 28)
Any person who knowingly expends or applies any money in direct furtherance or support of any illegal strike or
lock-out shall be punishable with imprisonment for a term which may extend to six months, or with a fine which
may extend to one thousand rupees, or with both.
5. Penalty for breach of settlement or award (Section 29)
Any person who commits a breach of any term of any settlement or award which is binding on him under this
Act, should be punishable with imprisonment for a term which may extend to six months, or with fine or with
both, and where the breach is a continuing one with a further fine which may extend to two hundred rupees for
everyday during which the breach continues after the conviction for the first, and the Court trying the offence, if
it fines the offender, may direct that the whole or any part of the fine realized from him shall be paid, by way of
compensation to any person who, in its opinion has been injured by such breach.
6. Penalty for disclosing confidential information (Section 30)
Any person who wilfully discloses any such information as is referred to in Section 21 in contravention of the
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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7. Penalty for closure without notice (Section 30A)
Any employer who closes down any undertaking without complying with the provisions of (Section 25 FFA) shall
be punishable with imprisonment for a term which may extend to six months or with a fine which may extend to
five thousand rupees, or with both. (Section 30-A)
8. Penalty for other offences (Section 31)
Any employer who contravenes the provisions of (Section 33) shall be punishable with imprisonment for a term
which may extend to six months, or with a fine which may extend to one thousand rupees, or with both. Further,
whoever contravenes any of the provisions of this Act or any rules made thereunder shall, if no other penalty is
elsewhere provided by or under this Act for such contravention, be punishable with a fine which may extend to
one hundred rupees.
9. Offence by companies, etc. (Section 32)
Where a person committing an offence under this Act is a company, or other body corporate, or an association
of persons (whether incorporated or not) every director, manager, secretary, agent or other officer or person
concerned with management thereof shall, unless he proves that the offence was committed without his knowledge
or consent, be deemed to be guilty of such offence.
Penalty

Illegal Illegal Investiga- Financial Breach of Disclosing Closure Other

Strike Lock out tion aid to Award confidential w/o Notice offences
Illegal info.
1m / ₹50 / 1m / 6m / Strike /
Both ₹1000 / ₹1000 / Lock out 6m / Fine / 6m / ₹5000 6m / ₹1000
Both Both 6m / ₹1000 / Both / Both
Both
6m / / Both
₹1000 /
Both
Continuing offence ⇒ ₹ 200/day
If no penalty provided ⇒ ₹ 100

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 Unit-II: The Industrial Employment
(Standing Orders) Act, 1946
1. INTRODUCTION

The Industrial Employment (Standing Orders) Act, 1946 requires employers in industrial establishments to
define the conditions of employment
The Act extends to the whole of India and applies to every industrial establishment wherein 100 or more
workmen are employed or were employed on any day during the preceding twelve months.

2. OBJECT AND SCOPE OF THE ACT

The Industrial Employment (Standing Orders) Act, 1946, was enacted to bring clarity, uniformity, and fairness to
the terms and conditions of employment in industrial establishments. Its primary objective is to define employment
conditions with precision—covering aspects such as classification of workmen, attendance, leave, shift work,
termination, disciplinary procedures, and grievance redressal—thereby reducing ambiguity and minimising
industrial disputes.
The Act mandates employers of establishments with 100 or more workmen (a threshold that may be reduced
by government notification) to draft and certify Standing Orders through a designated Certifying Officer. Once
certified, these Standing Orders become binding on both employers and employees, overriding any inconsistent
terms in individual contracts. It extends to the whole of India, with certain state-specific exclusions (e.g.,
establishments governed by BIRA or MPIESOA).
By subjecting employment rules to quasi-judicial scrutiny, the Act ensures transparency, protects workers from
arbitrary practices, and fosters industrial harmony.

3. IMPORTANT DEFINITIONS
3.1. APPELLATE AUTHORITY [SECTION 2(A)]
It means an authority appointed by the appropriate Government by notification in the Official Gazette, to exercise
in such area, as may be specified in the notification, the functions of an appellate authority under this Act.
3.2. APPROPRIATE GOVERNMENT [SECTION 2(B)]
“Appropriate Government” means, in respect of industrial establishments under the control of the Central
Government or a Railway administration or a major port, mine or oilfield, the Central Government, and all other
cases, the State Government.
Provided that where any question arises as to whether any industrial establishment is under the control of the
Central Government, that Government may, either on a reference made to it by the employer or the workman
or a trade union or other representative body of the workmen or on its motion and after giving the parties an
opportunity of being heard, decide the question and such decision shall be final and binding on the parties.
3.3. CERTIFYING OFFICERS [SECTION 2(C)]
“Certifying Officer” means a Labour Commissioner or a Regional Labour Commissioner, and includes any other
officer appointed by the appropriate Government by notification in the Official Gazette, to perform all or any of
the functions of a Certifying Officer under this Act.
3.4. EMPLOYER [SECTION 2(D)]
“Employer” means the owner of an industrial establishment to which this Act applies and also includes the
following persons:

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 (i) A manager so named under Section 7(1)(f) of the Factories Act, 1948.
(ii) The head of the department or any authority appointed by the Government in any industrial establishment
under its control.
(iii) Any person responsible to the owner for the supervision and control of any other industrial establishment
which is not under the control of the Government.
3.5. INDUSTRIAL ESTABLISHMENT [SECTION 2(E)]
It means
(i) an industrial establishment defined by [Sec 2(ii)] of the Payment of Wages Act, 1936,
(ii) or a factory as defined by [Sec 2(m)] of the Factories Act, 1948,
(iii) or a railway as defined by [Sec 2(4)] of the Indian Railways Act, 1890,
(iv) or the establishment of a person who, to fulfil a contract with the owner of any industrial establishment,
employs workmen.
3.6. STANDING ORDERS [SECTION 2(G)]
“Standing Orders” means rules relating to matters set out in the Schedule to the Act.
3.7. WAGES AND WORKMEN [SECTION 2(I)]
The terms “Wages” and “Workmen” have the meanings respectively assigned to them in clauses (rr) and (s) of
Section 2 of the Industrial Disputes Act, 1947.

4. CERTIFICATION OF DRAFT STANDING ORDERS [SECTION 3]

Submission of draft Standing Orders by employers to the certifying officer

) Section 3 provides that within six months from the date on which this Act becomes applicable
to an industrial establishment,
) the employer of that establishment shall submit to the Certifying Officer five copies of the draft
Standing Orders proposed by him for adoption in that establishment.
) The draft Standing Orders shall be accompanied by a statement containing prescribed particulars
of the workmen employed in the industrial establishment.

4.1. CONDITION FOR CERTIFICATION OF STANDING ORDERS

According to Section 4 of the Act, Standing Orders shall be certifiable if

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4.2. FAIRNESS AND REASONABLENESS OF STANDING ORDER (SECTION 4)
Section 4 of the Industrial Employment (Standing Orders) Act imposes a mandatory duty on the Certifying Officer
to ensure that the Standing Orders proposed by an employer are both fair and reasonable, and strictly conform to
the matters listed in the Schedule.
Acting in a quasi-judicial capacity, the Certifying Officer must refuse certification if any provision falls outside
the Schedule or is deemed unreasonable, regardless of employee consent. Certification beyond this scope is
considered without jurisdiction, as affirmed in Air Gases Mazdoor Sangh, Varanasi v. Indian Air Gases Ltd., 1977
Lab. I.C. 575.
4.3. CERTIFICATION OF STANDING ORDERS [SECTION 5]
Procedure to be followed by the Certifying Officer:
Employer shall submit to certifying officer five copies draft standing order proposed with a statement containing
particulars of workmen employed.
On receipt of the draft Standing Order from the employer, the Certifying Officer shall forward a copy thereof
to the trade union, if no trade union then to workmen.
Submit Objections within 15 days from the receipt of the notice and opportunity of being heard will be given
and will make amendments if any.

4.4. EFFECT OF CERTIFICATION [SECTION 5]

These are of no effect unless such regulations are notified by the Government or certified by the Certifying
Officer under Section 5 of the Act.

5. APPEALS [SECTION 6]

The order of the Certifying Officer can be challenged by any employer, workman, trade union or any
other prescribed representatives of the workmen, who can file an appeal before the appellate authority
within 30 days from the date on which copies are sent to employer and the workers representatives.

6. DATE OF OPERATION OF STANDING ORDERS [SECTION 7]

Standing Orders shall come into operation on the expiry of 30 days from the date on which copies are
sent to employer and workers representatives.

In case of appeal it will become effective on the expiry of 7 days from the date on which copies of the
order of the appellate authority are sent to employer and workers representatives.

7. REGISTER OF STANDING ORDERS (SECTION 8)

Section 8 empowers the Certifying Officer to file a copy of all the Standing Orders as certified by him in a register
maintained for the purpose in the prescribed form. He shall furnish a copy of the same to any person applying
therefor on payment of the prescribed fee.

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7.1. POSTING OF STANDING ORDERS (SECTION 9)
The text of the Standing Orders as finally certified under this Act shall be prominently posted by the employer in
English and in the language understood by the majority of his workmen on special boards to be maintained for the
purpose at or near the entrance through which the majority of the workmen enter the industrial establishment and
in all departments thereof where the workmen are employed.

8. DURATION & MODIFICATION OF STANDING ORDERS [SECTION 10]

Section 10 prohibits an employer to modify the Standing Orders once they are certified under this Act
except on agreement between the employer and the workmen or a trade union or other representative
body of the workmen.

Such modification will not be affected until the expiry of 6 months from the date on which the Standing
Orders were last modified or certified as the case may be.

9. PAYMENT OF SUBSISTENCE ALLOWANCES [SECTION 10 A]

Where any workman suspended by employer pending investigation or inquiry of misconduct against him,
employer shall pay workman subsistence allowance
) at rate of fifty per cent of wages entitled immediately preceding suspension, for first ninety days of
suspension and
) 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.

10. INTERPRETATION OF STANDING ORDER (SECTION 13-A)

Section 13-A of the Act provides that the question relating to the application or interpretation of a Standing Order
certified under this Act can be referred to any Labour Court constituted under the Industrial Disputes Act, 1947,
by any employer or workman, a trade union or other representative body of the workmen. The Labour Court to
which the question is so referred shall decide it after giving the parties an opportunity of being heard. Such a
decision shall be final and binding on the parties.

11. TEMPORARY APPLICATION OF MODEL STANDING ORDER [(SECTION 12),

(SECTION 13)]
Section 12-A provides that for the period commencing on the date on which this Act becomes applicable to an
industrial establishment and ending with the date on which the Standing Orders as finally certified under this Act
come into operation in that establishment, the prescribed model Standing Orders shall be deemed to be adopted
in that establishment and the provisions of Sections 9, 13(2) and 13-A shall apply.

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11.1. MATTERS TO BE PROVIDED IN STANDING ORDERS UNDER THIS ACT
1. Classification of workmen, e.g., whether permanent, temporary, apprentices, probationers or baldish.

2. Manner of intimating to workmen periods and hours of work, holidays, pay-days and wage rates.

3. Shift working.

4. Attendance and late coming.

5. Conditions of, procedure in applying for, and the authority which may grant leave and holidays.

6. Requirement to enter premises by certain gates, and liability to search.

7. Closing and reopening of sections of the industrial establishment, and temporary stoppage of work and
the rights and liabilities of the employer and workmen arising therefrom.

8. Termination of employment, and the notice thereof to be given by employer and workmen.

9. Suspension or dismissal for misconduct, and acts or omissions which constitute misconduct.

10. Means of redress for workmen against unfair treatment.

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 Previous Year Questions

1. Rajesh and other contractual workers decided to go on strike. However, the company is in the public utility
service. Describe the prohibition of strikes and lockouts in public utility service. Dec. 2024 (3 Marks)
Hints:
As per Section 22 of the Industrial Disputes Act, 1947 following are the prohibitions of strikes and lockouts
in public utility service:
(1) No person employed in a public utility service shall go on strike in breach of contract–
(a) without giving the employer notice of strike, as hereinafter provided, within six weeks before
striking; or
(b) within fourteen days of giving such notice; or
(c) before the expiry of the date of strike specified in any such notice as aforesaid; or
(d) during the pendency of any conciliation proceedings before a conciliation officer and seven days
after the conclusion of such proceedings.
(2) No employer carrying on any public utility service shall lock out any of his workmen–
(a) without giving them notice of lock-out as hereinafter provided, within six weeks before locking
out; or
(b) within fourteen days of giving such notice; or
(c) before the expiry of the date of lock-out specified in any such notice as aforesaid; or
(d) during the pendency of any conciliation proceedings before a conciliation officer and seven days
after the conclusion of such proceedings.
2. In 2023, due to a severe economic recession, PR Software Solutions Pvt. Ltd., a mid-sized IT firm in
India, decided to lay off a significant portion of its workforce. Among those affected was Y, a project
manager who had been with the company for over seven years. Y was given a month’s notice before his
termination. He believes that his termination was unjust and wants to challenge it under the Industrial
Disputes Act, 1947.
(i) Under the Industrial Disputes Act, 1947, can Y challenge his termination due to the economic
recession?
(ii) What is the role of the government in such disputes under the Industrial Disputes Act, 1947?
(iii) What remedies are available to Y if his claim is upheld? Jun. 2024 (5 Marks)
Sol.
1. As per the provisions of the Industrial Disputes Act, 1947, even in the case of an economic recession,
the company must follow due process for layoffs as per the Act. If Mr. Y believes that the company
did not follow the proper procedure or that his termination was discriminatory, he can challenge it.
2. The government plays a crucial role in such disputes. If the dispute cannot be resolved at the company
level, it can be referred to the appropriate government authority. The government can then refer the
dispute to a conciliation officer, Board, Labour Court, or Tribunal as per the Act. The Government
also ensures that the rights of the workers are protected during this process. The adjudication of
industrial disputes by the Conciliation Board, Labour Court, Court of Inquiry, Industrial Tribunal or
National Tribunal can take place when a reference to this effect has been made by the appropriate
Government under Section 10 of the Industrial Disputes Act, 1947.
3. If Y’s claim is upheld, the remedies available to him can include reinstatement to his previous position
or compensation. The exact remedy would depend on the specifics of the case and the decision of the
Labour court or tribunal. The decision of the Labour Court or Tribunal is binding on both Mr. Y and
the company.

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3. TM Power Ltd. is supplying power to the public. The workmen and management are planning for a strike
and lockout, respectively. Examine the meaning of Public Utility Services, and describe the prohibition of
strikes and lock-outs in a Public Utility Service under the Industrial Disputes Act, 1947.
Dec., Jun 2023 (5 Marks)
Sol. In terms of the Industrial Disputes Act, 1947, the public utility service means
(i) Any railway service or any transport service for the carriage of passengers or goods by air;
(ii) Any service in, or in connection with the working of, any major port or dock;
(iii) Any section of an industrial establishment, on the working of which the safety of the establishment
or the workmen employed therein depends;
(iv) Any postal, telegraph or telephone service;
(v) Any industry which supplies power, light or water to the public;
(vi) Any system of public conservancy or sanitation;
(vii) Any industry specified in the First Schedule which the appropriate Government may, if satisfied that
a public emergency or public interest so requires, by notification in the Official Gazette, declare to be
a public utility service for this Act, for such period as may be specified in the notification. Provided
that the period so specified shall not, in the first instance, exceed six months but may, by a like
notification, be extended from time to time, by any period not exceeding six months, at any one time,
if in the opinion of the appropriate Government, public emergency or public interest requires such
extension.
Prohibition of strikes and lock-outs. According to Section 22 of the Industrial Disputes Act, 1947:
(1) No person employed in a public utility service shall go on strike in breach of contract–
(a) without giving the employer notice of strike, as hereinafter provided, within six weeks before
striking; or
(b) within fourteen days of giving such notice; or
(c) before the expiry of the date of strike specified in any such notice as aforesaid; or
(d) during the pendency of any conciliation proceedings before a conciliation officer and seven days
after the conclusion of such proceedings.
(2) No employer carrying on any public utility service shall lock out any of his workmen-
(a) without giving them notice of lock-out as hereinafter provided, within six weeks before locking
out; or
(b) within fourteen days of giving such notice; or
(c) before the expiry of the date of lock-out specified in any such notice as aforesaid; or
(d) during the pendency of any conciliation proceedings before a conciliation officer and seven days
after the conclusion of such proceedings.
(3) The notice of lock-out or strike under this section shall not be necessary where there is already in
existence a strike or, as the case may be, lock-out in the public utility service, but the employer shall
send intimation of such lock-out or strike on the day on which it is declared, to such authority as may
be specified by the appropriate Government either generally or for a particular area or a particular
class of public utility services.
(4) The notice of strike shall be given by such number of persons to such person or persons and in such
manner as may be prescribed.
(5) The notice of lock-out shall be given in such manner as may be prescribed.
(6) If on any day an employer receives from any person employed by him any such notices or gives
to any persons employed by him any such notices, he shall, within five days thereo,f report to the
appropriate Government or to such authority as that Government may prescribe, the number of such
notices received or given on that day.

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 4. Briefly discuss the prime objectives of different labour legislations with their types of interventions/ areas
dealt with therein. Dec. 2022 (5 Marks)
Sol. The Trade Unions Act, 1926 – The objective of this Act is to enable Workers of several small units
to form and register trade unions, who can bargain wages and other conditions of work and also to define
the law relating to registered trade unions. Trade unions are an important part of an industrial setup. The
legislation regulating these trade unions is the Indian Trade Unions Act, 1926. The Act deals with the
registration of trade unions, their rights, their liabilities and responsibilities, as well as ensuring that their
funds are utilised properly. It gives legal and corporate status to the registered trade unions. It also seeks
to protect them from civil or criminal prosecution so that they can carry on their legitimate activities for
the benefit of the working class.
The Industrial Disputes Act, 1947 – The objective of this Act is to enable the investigation and settlement
of industrial disputes on wages and the conciliation machinery to intervene. The Industrial Disputes
Act, 1947, is the main legislation for the investigation and settlement of all industrial disputes. The Act
enumerates the contingencies when a strike or lock-out can be lawfully resorted to, when they can be
declared illegal or unlawful, conditions for laying off, retrenching, discharging or dismissing a workman,
circumstances under which an industrial unit can be closed down, and several other matters related to
industrial employees and employers. The Equal Remuneration Act, 1976 - The objective of this Act is to
ensure equal wages to women for the same or similar work and the prevention of discrimination against
women in employment.
The Payment of Wages Act, 1936 – The objective of this Act is to regulate the manner of payment of
wages to certain classes of persons and their realisation in case of non-payment. The Payment of Wages
Act, 1936, was enacted to regulate the payment of wages to workers employed in industries and to ensure
a speedy and effective remedy to them against illegal deductions and/or unjustified delay caused in paying
wages in current coin, currency notes or by cheque or by crediting in the bank account of the workers.
The Contract Labour (Regulation & Abolition) Act, 1970 – The contractor is required to pay wages, and
in case of failure on the part of the contractor to pay wages either in part or in full, the Principal Employer
is liable to pay the same. This Act is enacted to regulate the employment of contract labour to place it at par
with labour employed directly, with regard to the working conditions and certain other benefits. Contract
labour refers to “the workers engaged by a contractor for the user enterprises”. These workers are generally
engaged in agricultural operations, plantation, construction industry, ports & docks, oil fields, factories,
railways, shipping, airlines, road transport, etc.
Minimum Wages Act, 1948– The objective of this Act is to ensure payment of minimum wages to all
types of workers, including unskilled, semi-skilled and skilled.
5. What is the difference between a strike and a lockout under the Industrial Dispute Act, 1947?
 June 2022 (3 Marks)
Sol.
Strike Lock-out
Initiated by workers/employees. Initiated by the employer.
Workers refuse to work as a protest against the The employer prevents workers from entering the
employer’s policies, demanding better wages, workplace to pressure them into accepting certain
working conditions, or other rights. conditions, such as lower wages or revised policies.
It is a collective action taken by employees to Used as a countermeasure against strikes or union
pressure the employer into negotiations. demands.
It can be legal or illegal, depending on the labour It can also be legal or illegal, depending on the
laws and procedures followed. situation and labour laws.

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 6. Write a short note on: Arbitral Award for industrial dispute. June. 2019 (3 Marks)
Sol. Voluntary reference of disputes to arbitration: Section 10A provides for the settlement of industrial
disputes by voluntary reference of such disputes to arbitrators. To achieve this purpose, Section 10A makes
the following provisions:
(1) Where any industrial dispute exists or is apprehended, the employer and the workmen may refer the
dispute by a written agreement to arbitration. The presiding officer can be named an arbitrator by the
parties. Where an arbitration agreement provides for a reference of the dispute to an even number of
arbitrators, the agreement shall provide for the appointment of another person as tampered who shall
enter upon the reference, if the arbitrators are equally divided in their opinion, and the award of the
umpire shall prevail and shall be deemed to be the arbitration award.
(2) An arbitration agreement shall be in the prescribed form and shall be signed by the parties in the
prescribed manner.
(3) A copy of the arbitration agreement shall be forwarded to the Appropriate Government and the
Conciliation Officer.
(4) The Appropriate Government shall, within 1 month from the date of the receipt of such copy, publish
the same in the Official Gazette.
(5) The arbitrator shall investigate the dispute and submit the arbitration award signed by him to the
Appropriate Government.
(6) Where an industrial dispute has been referred to arbitration, the Appropriate Government may, by
order, prohibit the continuance of any strike or lock-out in connection with such dispute which may
be in existence on the date of the reference.
(7) Nothing in the Arbitration Act, 1940, shall apply to arbitrations Section 10A.
7. Explain the duties of the conciliation officer under the Industrial Disputes Act, 1947.
 June 2021 (3 Marks)
Sol. As per Section 12 of the Industrial Disputes Act, 1947, the duties of Conciliation Officers under the
Industrial Disputes Act, 1947 are as follows:
To hold conciliation proceedings: The Conciliation Officer must hold conciliation proceedings relating
to Strikes and lockouts, and procedural matters of public utility services.
To investigate disputes: Conciliation officers shall investigate the matters of the disputes and all matters
affecting the merits and the right settlement.
To induce parties for settlement: Conciliation officers shall induce the parties to come to a fair and
amicable settlement of the dispute.
To send the report to the Appropriate Government, the Conciliation Officer has to send the report of
the settlement of the dispute and the memorandum of the settlement signed by the parties to the dispute
to the Appropriate Government.
To send a report for failure of settlement: In case of failure of settlement of a dispute between parties,
the Conciliation Officer has to send to the Appropriate Government a report of facts and circumstances
relating to the disputes and, in his opinion, a settlement could not be arrived at.
Time limit for submission of report: The conciliation officer shall submit a report within 14 days of
the commencement of the conciliation proceedings or such shorter period as may be fixed by the
Appropriate Government.

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 8. The State Government has decided to sell the loss-making Undertaking in the sector of water supply
sector. The workers employed in this sector announced a strike to protest the said decision. In such a
situation, what are the circumstances under which the said strike shall be treated as a breach of contract?
Dec. 2018, 2020 (3 Marks)
Sol. As per Section 22 of the Industrial Dispute Act, 1947, employees in a public utility service shall not
go on strike in breach of contract:
(a) Without giving the employer notice of strike, within 6 weeks before striking, or
(b) Within 14 days of giving such notice, or
(c) Before the expiry of the date of strike specified in any such notice or
(d) During the pendency of any conciliation proceedings before a conciliation officer, and for 7 days after
the conciliation proceedings
Thus, in the case of public utility service, employees have to give at least 14 days' notice for a strike. The
notice is valid only if the strike commences within 6 weeks; otherwise, a fresh notice is required.
According to Section 23, workmen employed in an industrial establishment shall not go on strike in breach
of contract during the pendency of a matter before the Board or the Labour Court or the Tribunal or during
the pendency of arbitration proceedings and for 2 months after the conclusion of such proceedings.
According to Section 24, a strike or lock-out shall be illegal if it is commenced or declared in contravention
of Section 22 or 23.
Considering the above provision, the strike commenced by the workmen of Bharat Railways Catering is
illegal.
9. Enumerate the matters that need to be provided in Standing Orders under the Industrial Employment
(Standing Orders) Act,1946. Dec. 2020 (3 Marks)
Sol. The following are the matters to be provided in Standing Orders as per the schedule under the Industrial
Employment (Standing Orders) Act, 1946
1. Classification of workmen, e.g., whether permanent, on overall temporary, apprentices, probationers
or badlis.
2. Manner of intimating to workmen periods and hours of work, holidays, paydays and wage rates.
3. Shift working.
4. Attendance and late coming.
5. Conditions of, procedure in applying for, and the authority which may grant leave and holidays.
6. Requirement to enter premises by certain gates, and liability to search.
7. Closing and reopening of sections of the industrial establishment, and temporary stoppage of work
and the rights and liabilities of the employer and workmen arising therefrom.
8. Termination of employment, and the notice thereof to be given by the employer and workmen.
9. Suspension or dismissal for misconduct, and acts or omissions which constitute misconduct.

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 CHAPTER SBIL

18 LAW OF WAGES

Unit–I: The Payment of Wages Act 1936

Law of Wages

UNIT- I UNIT-II UNIT-III UNIT-IV

Payment of Wages Act, Minimum Wage Act, Payment of Bonus Act, Equal Remuneration
1936 1948 1965 Act, 1976

1. INTRODUCTION
The Payment of Wages Act, 1936, was enacted to ensure that employees receive their wages on time and
without unauthorised deductions. It applies to workers earning up to a specified monthly threshold and mandates
employers to fix regular wage periods, pay wages promptly, and make only legally permitted deductions. The
Act empowers authorities to address grievances and penalize non-compliance, thereby safeguarding workers’
financial rights.

2. OBJECTIVE AND SCOPE

The primary objective of the Payment of Wages Act, 1936, is to prevent malpractices by defining timely
payment and permissible modes of wage payments. It also ensures that workers are paid their wages at regular
intervals, without any unauthorized deductions. To enhance its scope and improve enforcement, the Act grants
the government the authority to increase the applicability threshold via future notifications. This Act applies
nationwide across India.

3. IMPORTANT DEFINITIONS

3.1 “EMPLOYED PERSON” [SECTION 2(IA)]

Includes the legal representative of a deceased employed person.

3.2 “EMPLOYER” [SECTION 2(IB)]

Includes the legal representative of a deceased employer.

3.3 “FACTORY”[SECTION 2(IC)]

Means a factory as defined in clause (m) of [Section 2] of the Factories Act 1948 and includes any place to which
the provisions of that Act have been applied under sub-Section (1) of Section 85 thereof.
3.4. “INDUSTRIAL OR OTHER ESTABLISHMENT” [SECTION 2 (II)]

Means any:

3.5. WAGES [SECTION 2(VI)]

It means all remuneration (whether by way of salary allowances or otherwise) expressed in terms of money or
capable of being so expressed, which would, if the terms of employment express or implied were fulfilled, be
payable to a person employed in respect of his employment or of work done in such employment, and includes–
(a) Any remuneration payable under any award or settlement between the parties or order of a court

(b) Any remuneration in respect of overtime work or holidays or any leave period

(c) Any additional remuneration by way of bonus

(d) Any sum which by reason of the termination of employment of the person employed

(e) Any sum to which the person employed is entitled under any scheme framed under any law for the
time being in force, but does not include–
The value of any house-accommodation or of the supply of light water medical attendance or other
amenity;
Any contribution paid by the employer to any pension or provident fund
Any travelling allowance or the value of any travelling concession;
Any sum paid to the employed person to defray special expenses;
Any gratuity payable on the termination of employment.

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3.5.1 Responsibility for Payment of Wages

Every employer shall be responsible for the payment to persons employed by him of all wages
required to be paid. It may be noted that as per section 2(ia) “employer” includes the legal
representative of a deceased employer.

Who is responsible for paying the wages?

Persons employed in factories – Manager.

Persons employed in industrial or other establishments- Person Employed for supervision.

Persons employed upon railways- Railway Administration.

Persons employed in the work of contractor- person designated by such contractor who is directly
under his charge.

3.5.2 Fixation of Wage Period [Section 4]

Every person responsible for the payment of wages shall fix wage-periods. No wage-period
shall exceed one month.

3.5.3 Time Payment of Wages [Section 5]

Person employed upon or in any railway, Where a person is

factory, industrial, other establishment upon or terminated by or on
in which less than 1000 persons are employed behalf of employer - before All payments of wages
shall be paid before the expiry of the seventh the expiry of the second shall be made on a
day. working day from the day working day.
If more than 1000 persons are employed- on which his employment is
before expiry of 10th day terminated.

NOTE: Wages to be paid in current coin or currency notes or by cheque or by crediting the wages in a bank
account. [Section 6]
3.5.4 Deductions from the Wages of an Employee [Section 7]
Deductions from the wages of an employee on account of the following:
(i) Fines
(ii) Absence from duty
(iii) Damage to or loss of good entrusted to the employee

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 (iv) Housing accommodation and amenities provided by the employer
(v) Recovery of advances or adjustment of over-payments of wages
(vi) Recovery of loans made from any fund constituted for the welfare of labour
(vii) Subscriptions to and for repayment of advances from any provident fund
(viii) Income-tax
(ix) Payments to co-operative
(x) Deductions made with authorisation of the employee for payment of any premium on his life insurance
policy or purchase of securities.

4. FINES [SECTION 8]

SG in notice will mention - No fine shall be imposed on any employed person in specified matters

A notice specifying such acts and omissions shall be exhibited in the prescribed manner on the premises.

No fine shall be imposed on any employed person until he has been given an opportunity of showing cause
to employee.

The total amount of fine shall not exceed 3% of the wages payable to him.

No fine shall be imposed on any employed person who is under the age of 15 years.

No fine imposed on any employed person shall be recovered from him by installment or after the expiry of
90 days from when it was imposed

All fines and all realisations thereof shall be recorded in a register to be kept by the person responsible for
the payment of wages.

It may be noted that when the persons employed upon or in any railway, factory or industrial or other establishment
are part only of a staff employed under the same management all such realisations may be credited to a common
fund maintained for the staff as a whole provided that the fund shall be applied only to such purposes as are
approved by the prescribed authority.

5. MAINTENANCE OF REGISTERS AND RECORDS [SECTION 13]

Maintain such registers and records giving such particulars of persons employed by him, the work
performed by them, the wages paid to them, the deductions made from their wages, the receipts given
by them.

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6. CLAIMS ARISING OUT OF DEDUCTIONS FROM WAGES OR DELAY IN PAYMENT OF
WAGES & PENALTY FOR MALICIOUS OR VEXATIOUS CLAIMS (SECTION 14)
It provides that the appropriate Government may, by notification in the Official Gazette, appoint-
(a) Any Commissioner for Workmen’s Compensation; or

(b) Any officer of the Central Government exercising functions as,-

Regional Labour Commissioner.
Assistant Labour Commissioner with at least two years’ experience.

(c) Any officer of the State Government not below the rank of Assistant Labour Commissioner with at
least two years’ experience; or

(d) A presiding officer of any Labour Court or Industrial Tribunal, constituted under the Industrial
Disputes Act, 1947 or under any corresponding law relating to the investigation and settlement of
industrial disputes in force in the State.

(e) Any other officer with experience as a Judge of a Civil Court or a Judicial Magistrate, as the authority
Law of Wages.

Claim Process:
) If an employee’s wages have been improperly deducted or delayed, they—or a legal representative
(including a trade union official, Inspector, or anyone authorised)—may apply to the designated authority.
This application must be made within 12 months from the deduction date or from when the wages were due.
) If the applicant cannot meet the deadline, they must provide a valid reason to justify the delay.
Action by Authority:
) After receiving the application, the authority will hear both the employee and employer and may conduct
further investigations. Following this, the authority can direct:
Refund of deductions or payment of delayed wages, along with compensation.
Compensation can be as follows:
 Up to 10 times the amount deducted.
 `1,500 to `3,000 for delayed wages.
If the deducted amount or delayed wages are paid before resolution, the authority can still order
compensation, up to `2,000.
Timeframe for Disposal:
) Claims should be resolved within 3 months of registration. Extensions may be granted if both parties agree
and provide valid reasons.
Exceptions for Delay in Payment:
) No compensation will be granted for delays due to:
Bona fide errors or disputes regarding the amount.
Emergencies or exceptional circumstances where the employer couldn’t pay despite reasonable
diligence.
The employee’s failure to apply for or accept the payment.

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 Unit–II: The Minimum Wages Act, 1948

1. INTRODUCTION
The Minimum Wages Act, 1948, was enacted to protect workers from exploitation by ensuring that they receive
a basic minimum wage for their labor. It applies to skilled and unskilled workers in various sectors, and
empowers both the Central and State Governments to fix and revise wage rates for scheduled employments
(such as agriculture, manufacturing, and construction).
The Act aims to promote economic justice, ensure a decent standard of living, and guarantee equal pay for
men and women. Additionally, it provides mechanisms for enforcement, grievance redressal, and periodic
wage revisions to adapt to changing economic conditions.

2. OBJECT AND SCOPE OF THE LEGISLATION

To provide for fixing minimum rates of wages in certain employments. the employments are those which are
included in the schedule and are referred to as ’Scheduled Employments’.

The Minimum Wages Act, 1948, extends to the entire territory of India and applies to a wide range of scheduled
employments in both the organized and unorganized sectors. Its primary objective is to ensure that workers—
whether skilled, semi-skilled, or unskilled—receive wages that meet basic subsistence and dignity standards. The
Act empowers both the Central and State Governments to fix, revise, and enforce minimum wage rates for
specific industries and occupations listed in the schedule. These wage rates may vary based on region, nature of
work, and cost of living. The Act mandates that wages be reviewed at least once every five years and provides for
legal enforcement through labour inspectors and judicial mechanisms. By establishing a statutory wage floor, the
Act plays a crucial role in promoting social justice and protecting vulnerable workers from exploitation.

3. IMPORTANT DEFINITIONS
3.1 APPROPRIATE GOVERNMENT [SECTION 2(B)] MEANS—

3.2 EMPLOYEE [SECTION 2(I)]

“Employee” means any person who is employed for hire or reward to do any work, skilled or unskilled, manual
or clerical in a scheduled employment in respect of which minimum rates of wages have been fixed; and includes
an outworker to whom any articles or materials are given out by another person to be made up, cleaned, washed,

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altered, ornamented, finished, repaired, adapted or otherwise processed for sale purpose of the trade or business
of that other person where the process is to be carried out either in the home of the out- worker or in some other
premises, not being premises under the control and management of that person; and also includes an employee
declared to be an employee by the appropriate Government; but does not include any member of Armed Forces
of the Union.
3.3 EMPLOYER [SECTION 2(E)]
“Employer” means any person who employs, whether directly or through another person, or whether on behalf of
himself or any other person, one or more employees in any scheduled employment in respect of which minimum
rates of wages have been fixed under this Act, and includes, except in sub-Section (3) of Section 26 —

3.4 SCHEDULED EMPLOYMENT [SECTION 2(G)]

“Scheduled employment” means an employment specified in the Schedule or any process or branch of work
forming part of such employment.
Note: The schedule is divided into two parts, namely, Part I and Part II.
When originally enacted, Part I of the Schedule had 12 entries. Part II relates to employment in agriculture. It was
realised that it would be necessary to fix minimum wages in many more employment sectors to be identified over
time.
Accordingly, powers were given to the appropriate Government to add employment to the Schedule by following
the procedure laid down in Section 21 of the Act. As a result, the State Government and Central Government have
made several additions to the Schedule, and it differs from State to State.

3.5 WAGES [SECTION 2(I)]

“Wages” means all remunerations capable of being expressed in terms of money, which would, if the terms
of the contract of employment, express or implied, were fulfilled, be payable to a person employed in respect
of his employment or of work done in such employment, and includes house rent allowance, but does not
include:

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 4. FIXATION OF MINIMUM RATES OF WAGES [SECTION 3(1)(A)]

Appropriate Government shall fix the minimum rates of wages, payable to employees in an employment.
The ‘appropriate Government’ may review at such intervals as it may think fit such intervals not exceeding five
years, and revise the minimum rate of wages, if necessary.

5. REVISION OF MINIMUM WAGES [SECTION 3(1)(B)]

According to Section 3(1)(b), the ‘appropriate Government’ may review at such intervals as it may think fit, such
intervals not exceeding five years, and revise the minimum rate of wages, if necessary. This means that minimum
wages can be revised earlier than five years.

6. MANNER OF FIXATION/REVISION OF MINIMUM WAGES [SECTION 3(2)]

The Appropriate Government [Section 3(2)] may fix a minimum rate of wages for:

(a) Time work, known as a Minimum Time Rate;

(b) Piece work, known as a Minimum Piece Rate;

(c) Guaranteed Time Rate;

(d) Over Time Rate.

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Minimum rates of wages [Section 3(3)] may be fixed for–
(i) Different scheduled employments

(ii) Different classes of work in the same scheduled employments

(iii) Adults, adolescents, children and apprentices

(iv) Different localities.

Further, minimum rates of wages may be fixed by any one or more of the following wage periods, namely:

(i) By the hour, (ii) By the day,

(iv) By such other large wage periods as may

(iii) By the month, or
be prescribed.

7. MINIMUM RATE OF WAGES (SECTION 4)

Minimum rate of wages fixed or revised by the appropriate Government may consist of–
A basic rate of wages and a special allowance at a rate to be adjusted, at such intervals.
A basic rate of wages or without the cost of living allowance and the cash value of the concession in
respect of supplies of essential commodities or
An all inclusive rate allowing for the basic rate, the cost of living allowance and the cash value of the
Concessions.

8. PROCEDURE FOR FIXING AND REVISING MINIMUM WAGES (SECTION 5)

The appropriate Government can follow either of the two methods:
First method [Section 5(1)(a)] Committee Method
1. Appointment of Committees: The appropriate Government may appoint as many committees and sub-
committees as it deems necessary to hold inquiries and advise it regarding the fixation or revision of
minimum wages.
2. Fixation/Revision of Minimum Wages: After considering the advice of the committee or committees, the
appropriate Government shall fix or revise the minimum rates of wages by notification in the Official
Gazette.
3. Effective Date: The wage rates shall come into force from a date specified in the notification. If no date is
specified, the rates shall come into effect three months from the date of the notification.
4. Judicial Precedent: Edward Mills Co. v. State of Ajmer: The committee appointed under Section 5 is
advisory in nature. The Government is not bound to accept its recommendations.
5. Composition of the Committee:
The committee will consist of persons representing employers and employees in the scheduled
employment, nominated by the appropriate Government. These representatives must be equal in
number.

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 The committee will also include independent persons, not exceeding 1/3rd of the total membership.
One independent member will be appointed as the Chairman of the Committee.
Second method [ Section 5(1)(b)] Notification Method
1. Government Notification: The appropriate Government shall, by notification in the Official Gazette,
publish its proposals for fixing minimum wages, specifying a date not less than two months from the date
of notification when the proposals will be considered.
2. Consideration of Representations: The representations received from stakeholders will be considered by
the appropriate Government. The Government will also consult the Advisory Board and then fix or revise
the minimum wages.
3. Effective Date: The new wage rates shall come into force from the date specified in the notification.
4. Default Effective Date: If no date is specified, the notification will become effective three months from
the date of its issuance.
5. Retrospective Effect: The minimum wage rates can be revised with retrospective effect ( if specifically
stated in the notification and upheld by judicial precedent)

9. ADVISORY BOARD (SECTION 7)

The Advisory Board is constituted by the appropriate Government to oversee the work of committees and sub-
committees appointed under Section 5 of the Act. The Board’s role is to advise the Government on fixing and
revising minimum wage rates. According to Section 9, the Advisory Board consists of:
) Equal representation of employers and employees in the scheduled employment, with members nominated
by the appropriate Government.
) Independent members, not exceeding 1/3rd of the total number of members.
) Chairman: One independent person will be appointed as the Chairman of the Board by the appropriate
Government.

9.1 CENTRAL ADVISORY BOARD (SECTION 8)

It is appointed for the purpose of advising the Central Government and State Governments in the matters
of fixation and revision of minimum rates of wages.
The Central Advisory Board shall consist of persons to be nominated by the Central Government
representing employers and employees in the scheduled employment who shall be equal in number
and independent persons not exceeding 1/3rd of its total number of members, one of such independent
persons shall be appointed as the Chairman of the Board by Central Government.

10. MINIMUM WAGES - WHETHER TO BE PAID IN KIND OR CASH (SECTION 11)

Minimum Wage–Whether to be Paid in Cash or Kind

Minimum wages payable under the Act shall be paid in cash. But where it has been the custom to pay
wages wholly or partly in kind, the appropriate Government, on being satisfied, may approve and
authorize such payments.

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11. PAYMENT OF MINIMUM WAGES IS OBLIGATORY ON EMPLOYERS (SECTION 12)
Offense for Non-compliance: Paying less than the minimum rates of wages notified by the appropriate
Government is considered an offense under the Act.
Employer's Obligation: Section 12 mandates that the employer shall pay to every employee engaged in a
scheduled employment wages that are not less than the minimum rates of wages fixed by the appropriate
Government under Section 5 for that specific class of employment.
Authorised Deductions: The wages should be paid without deductions, except for those that are legally
authorized. The payment must be made within the time frame and under the conditions as prescribed by the
appropriate authority.

12. FIXING HOURS FOR A NORMAL WORKING DAY (SECTION 13)

Fixing of minimum rates of wages without reference to working hours may not achieve the purpose for which
wages are fixed.

Appropriate Government may–

Fix the number of work which shall constitute a normal working day.
Provide for a day of rest in every period of seven days.
Provide for payment of work on a day of rest at a rate not less than the overtime rate.

The above-stated provision shall apply to the following classes of employees only to such extent and subject to
such conditions as may be prescribed:

Employees engaged on urgent work, or in any emergency

Employees engaged in work in the nature of preparatory work which carried on outside the limits laid
down for the general working in the employment concerned

Employees whose employment is essentially intermittent

Employees engaged in any work which for technical reasons

Employees engaged in any work which could not be carried on except at times dependent on the
irregular action of natural forces.

Standard Working Hours: There is a correlation between the minimum rates of wages and hours of work.
Wages are to be fixed based on standard normal working hours, which are generally defined as 48 hours per
week.
Relevant Case Law: Benode Bihari Shah v. State of West Bengal: This case reinforces the relationship between
minimum wages and standard working hours.

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 13. PAYMENT OF OVERTIME (SECTION 14)

The employer shall pay him for every hour or part of an hour so worked in excess at the overtime rate fixed.

14. WAGES OF A WORKER WHO WORKS LESS THAN A NORMAL WORKING DAY
(SECTION 15)

If an employee works on any day on which he employed for a period less than the requisite number of
hours constituting a normal working day, he shall be entitled to receive wages for that day as if he had
worked for a full working day.

Provided that he shall not receive wages for full normal working day–
If his failure to work is caused by his unwillingness to work and not by omission of the employer to
provide him with work, and
such other cases and circumstances as may be prescribed.

15. MINIMUM TIME – RATE WAGES FOR PIECE WORK (SECTION 17)
Where an employee is engaged in work on piecework for which a minimum time rate and not a minimum piece
rate has been fixed, wages shall be paid in terms of Section 17 of the Act at the minimum time rate.

16. MAINTENANCE OF REGISTERS & RECORDS (SECTION 18)

The employer is required to maintain registers and records giving such particulars of employees under his
employment, the work performed by them, the receipts given by them and such other particulars as may be
prescribed.

17. AUTHORITY AND CLAIMS (SECTION 20- 21)

Under Section 20(1) of the Act, the appropriate Government, may appoint any of the following as an authority to
hear and decide for any specified area any claims arising out of payment of less than the minimum rate of wages
or in respect of the payment of remuneration for the days of rest or of wages at the rate of overtime work:
The authority so appointed shall have jurisdiction to hear and decide claims arising out of payment of less than the
minimum rates of wages or in respect of the payment of remuneration for days of rest or work done on such days
or for payment of overtime. The provisions of Section 20(1) are attracted only if there exists a dispute between
the employer and the employee as to the rates of wages. Where no such dispute exists between the employer and
employees and the only question is whether a particular payment at the agreed rate in respect of minimum wages,
overtime, or work on off days is due to an employee or not, the appropriate remedy is provided by the Payment
of Wages Act, 1936.

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18. OFFENCES & PENALTIES UNDER THIS ACT [SECTION 22]
Non-Compliance with Minimum Wages: Section 22 of the Act specifies that any employer who pays less than
the minimum wages fixed for an employee’s class of work or less than the amount due under the provisions of
this Act, or contravenes any rule or order made under Section 13, shall face the following penalties:
) Imprisonment: The employer may be imprisoned for a term that may extend to six months.
) Fine: Alternatively, the employer may be fined an amount up to five hundred rupees, or both imprisonment
and a fine.
Consideration of Previous Compensation: When imposing a fine for an offense under this section, the court must
take into account any compensation that has already been awarded against the employer in any proceedings
under Section 20.
Additional Penalty Provisions (Section 22A): Section 22A provides that any employer who contravenes any
provision of this Act or any rule or order made under it (where no other penalty is provided by the Act) shall
face a fine of up to five hundred rupees.

CONTRAVENTION – Imprisonment upto 6 months or ` 500 or Both.

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 Unit–III: Payment of Bonus Act, 1965

1. INTRODUCTION
The Payment of Bonus Act, 1965, was enacted to establish a statutory framework for providing bonuses to
employees in certain establishments based on profits, production, or productivity. The concept of a bonus
originated during World War I, when textile mills in India began offering a 10% wage bonus. Over time, the
demand for bonus payments became widespread in industrial disputes. In response, the Government of India set
up a Tripartite Commission in 1960 to examine the issue, and based on its recommendations, the Payment of
Bonus Act was passed and came into force on 25th September 1965.
The Act applies nationwide and mandates that bonuses be paid to employees earning below a specified wage
threshold, ensuring that employees share in the profits of the enterprise and earn beyond the minimum wage.

2. OBJECTIVE AND SCOPE

The main objective of the Act is to ensure the payment of bonuses to employees in certain establishments and to
regulate the related matters. The Supreme Court in the case of Jalan Trading Co. (Pvt.) Ltd. v. Mill Mazdor
Sabha, AIR 1967 S.C. 691 emphasized that the Act's primary aim is to maintain peace and harmony between
labor and capital by allowing employees to share the prosperity of the establishment. The Act prescribes both
minimum and maximum bonus rates, along with a scheme for “set-off” and “set-on”, which ensures a fair
distribution of profits. This framework ensures that employees share in the profits of the establishment and
promotes fairness in labor-capital relations.
In Mumbai Kamgar Sabha v. Abdulbhai Faizullabhai (1976), the Supreme Court clarified that the Act
focuses exclusively on profit-based bonuses, forming a comprehensive code on that subject. However, the
Court clarified that the Act does not override or eliminate other forms of bonuses, such as customary bonuses,
attendance bonuses, or those arising from conditions of service. The judgment reaffirmed that customary
bonuses, rooted in long-standing practices and employee expectations, remain enforceable even though they are
outside the statutory scope of the Act.

3. APPLICATION OF THE ACT

This Act extends to the whole of India.

It shall apply to:

Every factory.
Every other establishment in which twenty or more persons are employed on any day during an
accounting year.

The appropriate Government, by issuing a notification in the Official Gazette and providing at least two
months’ prior notice, can extend the provisions of the Act to any establishment, including factories as defined
under Section 2(m)(ii) of the Factories Act, 1948. This is applicable even if the establishment employs fewer
than twenty persons. However, the minimum number of employees specified in the notification cannot be
less than ten, ensuring that the Act applies only to establishments of a certain size while maintaining regulatory
flexibility.

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Unless explicitly stated otherwise in the Act, its provisions apply to all factories or establishments covered by
the Act starting from the accounting year of 1964. These provisions will remain in force for every subsequent
accounting year.
Regarding the State of Jammu and Kashmir, the reference to the accounting year commencing in 1964 is
modified. In Jammu and Kashmir, the reference shall be to the accounting year beginning in 1968, with all
subsequent accounting years applying accordingly.

4. ACT NOT TO APPLY TO CERTAIN CLASSES OF EMPLOYEE (SECTION 32)

Section 32 of this Act provides that the Act shall not apply to the following classes of employees:

1. Any insurer carrying on general insurance business and the employees employed by LIC;

2. Seamen of Merchant Shipping Act, 1958;

3. Employee - Dock Workers;

4. Employee - department of Central Government or a State Government or a local authority.

5. Employees employed by

The Indian Red Cross Society

Universities and other educational institutions;
Institutions (including hospitals, chambers of commerce and social welfare institutions) established
not for the purpose of profit.

6. Employees employed by RBI.

7. Employees employed by

The Industrial Finance Corporation of India;

Any Financial Corporation
The Deposit Insurance Corporation;
The National Bank for Agriculture and Rural Development;
The Unit Trust of India;
The Industrial Development Bank of India;
The National Housing Bank.

The appropriate Government has the necessary powers to exempt any establishment or class of establishments
from all or any of the provisions of the Act.

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 5. IMPORTANT DEFINITIONS
5.1 ACCOUNTING YEAR [SECTION 2(1)]
Accounting years mean:

1. In relation to a corporation, the year ending on the day on which the books and accounts of the corporation
are to be closed and balanced;

2. In relation to a company, the period in respect of which any profit and loss account of the company laid
before it in annual general meeting is made up, whether that period is a year or not;

3. In any other case

(a) The year commencing on the 1st day of April

(b) If the accounts of an establishment maintained by the employer thereof are closed and balanced
on any day other than the 31st day of March, then, at the option of the employer, the year ending
on the day on which its accounts are so closed and balanced.

5.2 ALLOCABLE SURPLUS [SECTION 2(4)] AND EMPLOYEE [SECTION 2(14)]

A. Allocable Surplus B. “Employee”

1. Company – 67 % of available Means any person (other than an

surplus apprentice) employed on a salary or
wages not exceeding ` 21,000/- per
mensem in any industry to do any skilled
2. Other cases – 60% of available or unskilled, manual, supervisory,
surplus managerial, administrative, technical
or clerical work of hire or reward.

5.3 AVAILABLE SURPLUS [SECTION 2(6)]

It means the available surplus under Section 2(6).
5.4 AWARD [SECTION 2(7)]
“Award” means an interim or a final determination of any industrial dispute or any question relating thereto by any
Labour Court, Industrial Tribunal or National Tribunal Constituted under the Industrial Disputes Act, 1947 or by
any other authority constituted under any corresponding law relating to investigation and settlement of industrial
disputes in force in a State and includes an arbitration award made under Section 10A of that Act or under that law.
5.5 CORPORATION [SECTION 2(11)]
“Corporation” means any body corporate established by or under any Central, Provincial, or State Act, but does
not include a company or a co-operative society.

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5.6 EMPLOYER [SECTION 2(14)]

Employer

(i) In relation to an establishment which is a factory, the owner or occupier of the factory, including
the agent of such owner or occupier, the legal representative of a deceased owner or occupier, and
where a person has been named as a manager of the factory under Clause (f) of Sub-section 7(1)
of the Factories Act, 1948, the person so named; and

(ii) In relation to any other establishment, the person who, or the authority which, has the ultimate
control over the affairs of the establishment and where the said affairs are entrusted to a manager,
managing director or managing agent, such manager, managing director or managing agent.

5.7 ESTABLISHMENT IN PRIVATE SECTOR [SECTION 2(15)]

It means any establishment other than an establishment in the public sector.
5.8 ESTABLISHMENT IN PUBLIC SECTOR [SECTION 2(16)]
It means an establishment owned, controlled, or managed by:
Establishment in Public Sector

(a) A Government company as defined in Section 617 of the Companies Act, 1956;

(b) A corporation in which not less than forty percent of its capital is held (whether singly or taken
together) by: (i) the Government; or the Reserve Bank of India; or (ii) a corporation owned by the
Government or (iii) the Reserve Bank of India. [Section 2(16)]

5.9 SALARY OR WAGE [SECTION 2(21)]

The “salary or wage” means all remuneration (other than remuneration in respect of over-time work) capable of
being expressed in terms of money, which would, if the terms of employment, express or implied, were fulfilled,
be payable to an employee in respect of his employment or of work done in such employment and includes
dearness allowance (that is to say, all cash payments, by whatever name called, paid to an employee on account
of a rise in the cost of living) but does not include:
Any other allowance which the employee is for the time being entitled to;

The value of any house accommodation or of supply of light, water, medical attendance or other amenity or of
any service or of any concession supply of foodgrains or other articles;

Any travelling concession

Any bonus (including incentive, production and attendance bonus)

Any contribution paid or payable by the employer to any pension fund or provident fund or for the benefit of
the employee under any law for the time being in force;

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The definition is wide enough to cover the payment of retaining allowance and also dearness allowance paid to the
workmen. It is nothing but remuneration (Chalthan Vibhag Sahakari Khand Udyog v. Government Labour Officer,
AIR 1981 SC 905). Subsistence allowance given during suspension is not wages. However, lay-off compensation
is wages.
5.10 ESTABLISHMENT (SECTION 3)
Section 3 of the Act provides that the word establishment shall include all its departments, undertakings, and
branches wherever it has so situated in the same place or different places, and the same shall be treated as parts of
the same establishment for the computation of bonus under this Act:
Provided that where for any accounting year, a separate balance-sheet and profit and loss account are prepared
and maintained in respect of any such department or undertaking or branch then such department, undertaking or
branches shall be treated as a separate establishment for computation of bonus under this Act for that year, unless
such department, or undertaking or branch was, immediately before the commencement of that accounting year
treated as part of establishment for computation of bonus.

6. CALCULATION OF AMOUNT PAYABLE AS BONUS

) The Payment of Bonus Act outlines a structured process for calculating the bonus payable to employees.
) It begins with computing Gross Profit as per the First or Second Schedule.
) From this, deductions under Section 6—such as depreciation and direct taxes—are subtracted.
) To the net figure, the difference between the direct tax on gross profit (before and after bonus payment) is
added, resulting in the available surplus.
) Of this, 67% in the case of companies (excluding banking companies) and 60% in other cases is treated as
allocable surplus, which forms the basis for bonus distribution to employees.
(1) Computation of gross profits.
(2) Deductions from gross profits.
(3) Calculation direct tax payable by the employer.
(4) Computation of available surplus.

6.1 COMPUTATION OF GROSS PROFITS

As per Section 4, the gross profits derived by an employer from an establishment in respect of any accounting
year shall:
(a) In the case of a banking company, be made in the manner specified in the First Schedule.
(b) In any other case, be calculated in the manner specified in the Second Schedule.

6.2 DEDUCTIONS FROM GROSS PROFITS

According to Section 6, the sums deductible from gross profits include:
(a) Any amount by way of depreciation admissible by the provisions of Section 32(1) of the Income-tax Act, or
by the provisions of the Agricultural Income-tax Law, as the case may be:
(b) Any amount by way of development rebate, investment allowance, or development allowance which the
employer is entitled to deduct from his income under the Income Tax Act.
(c) Subject to the provisions of Section 7, any direct tax which the employer is liable to pay for the accounting
year in respect of his income, profits, and gains during the year.
(d) Such further sums as are specified in respect of the employer in the Third Schedule.

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6.3 CALCULATION OF DIRECT TAX PAYABLE BY THE EMPLOYER
Under Section 7, any direct tax payable by the employer for any accounting year shall, subject to the following
provisions, be calculated at the rates applicable to the income of the employer for that year, namely:
(a) In calculating such tax, no account shall be taken of
(i) Any loss incurred by the employer in respect of any previous accounting year and carried forward
under any law for the time being in force relating to direct taxes;
(ii) Any arrears of depreciation which the employer is entitled to add to the amount of the allowance for
depreciation
(b) Where the employer is a religious or a charitable institution to which the provisions of Section 32 do not
apply and the whole or any part of its income is exempt from tax under the Income-tax Act, then, concerning
the income so exempted, such institution shall be treated as if it were a company in which the public are
substantially interested within the meaning of that Act.
(c) Where the employer is an individual or a Hindu undivided family, the tax payable by such employer under
the Income-tax Act shall be calculated on the basis that the income derived by him from the establishment
is his only income.
6.4 COMPUTATION OF AVAILABLE SURPLUS (SECTION 5)
The available surplus in respect of any accounting year shall be the gross profits for that year after deducting therefrom
the sums referred to in Section 6. Provided that the available surplus in respect of the accounting year commencing
on any day in the year 1968 and concerning every subsequent accounting year shall be the aggregate of —
(a) The gross profits for that accounting year after deducting therefrom the sums referred to in Section 6; and
(b) An amount equal to the difference between
(i) The direct tax, calculated under the provisions of Section 7, in respect of an amount equal to the gross
profits of the employer for the immediately preceding accounting year; and
(ii) The direct tax calculated under the provisions of Section 7 in respect of an amount equal to the gross
profits of the employer for such preceding accounting year after deducting therefrom the amount of
bonus which the employer has paid or is liable to pay to his employees by the provisions of this Act for
that year.

7. ELIGIBILITY FOR BONUS & ITS PAYMENT

(i) Eligibility for bonus (Section 8)
Every employee shall be entitled for bonus, if he has worked in the establishment for atleast 30
working days in that year.

(ii) Disqualification for bonus (Section 9)

If he is dismissed from service for:
fraud; or
violent behaviour while on the premises or the establishment; or
theft, misappropriation or sabotage of any property of the establishment.

(iii) Payment of minimum bonus (Section 10)

Every employer shall be bound to pay a minimum bonus which shall be 8.33 per cent of the salary
or wage or 100 ` whichever is higher. If employee has not completed 15 years or age - 60 ` in place
of 100 `

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 (iv) Maximum bonus (Section 11)
Bonus which shall be subject to a maximum of twenty per cent of such salary or wage.

(v) Calculation of bonus with respect to certain employees (Section 12)

Where the salary or wages of an employee exceeds seven thousand rupees or the minimum wage
for the scheduled employment.
Bonus shall be calculated as if his salary or wages were seven thousand rupees or the minimum
wage for the scheduled employment, as fixed by the appropriate Government. whichever is higher.

(vi) Proportionate reduction in bonus in certain cases (Section 13)

Where an employee has not worked for all the working days in an accounting year, the minimum
bonus of one hundred rupees or, as the case may be, of sixty rupees, if such bonus is higher than
8.33 per cent of his salary or wage for the days he had worked in that accounting year, shall be
proportionately reduced.

(vii) Computation of number of working days: an employee shall be deemed to have worked in an
establishment in any accounting year also on the days on which (Section 14)
He has been laid off;
He has been on leave with salary or wage;
He has been absent due to temporary disablement caused by accident arising out of and in the course
of his employment; and
The employee has been on maternity leave with salary or wage, during the accounting year.

(viii) Set on and set off of allocable surplus (Section 15)

(ix) Adjustment of customary or interim bonus (Section 16)

Where in any accounting year any puja bonus or other customary bonus has been paid to an
employee; or an employer has paid a part of the bonus payable under this Act to an employee before
the date on which such bonus becomes payable;
Then, the employer shall be entitled to deduct at the amount of bonus.
(x) Deductions of certain amounts from bonus (Section 17)
The employer shall be entitled to deduct puja or customary bonus from the amount of bonus payable
by him to the employee.

(xi) Time limit for payment of bonus: If an employee is found guilty of misconduct causing financial
loss to the employer, then, it shall be lawful for the employer to deduct the amount of loss from the
amount of bonus payable by him to the employee (Section 18)

Where there is a dispute regarding payment of bonus pending before any authority- all amounts
payable to an employee by way of bonus shall be paid in cash by his employer, within a month
from the date from which the award becomes enforceable or the settlement comes into operation,
in respect of such dispute;
In any other case, the bonus should be paid within a period of eight months from the close of the
accounting year.

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 (xii) Recovery Set on and set off of allocable surplus (Section 21)
Where any money is due to an employee by way of bonus from his employer under a settlement
or an award or agreement. every such application shall be made within one year from the date on
which the money become due to the employee from the employee.

Set-On:
If allocable surplus exceeds the maximum bonus (Section 11), excess (up to 20% of total wages) is carried
forward for up to 4 years to pay future bonuses.
Set-Off:
If allocable surplus is less than the minimum bonus (Section 10), the shortfall is carried forward for up to
4 years to adjust future surpluses.
General Rule:
Set-on and set-off principles apply to all other cases as per the Fourth Schedule.
Priority Rule:
While calculating bonus, earliest carried forward amount (set-on or set-off) is used first.

8. BONUS LINKED TO PRODUCTION AND PRODUCTIVITY (SECTION 31A)

Section 31A of the Payment of Bonus Act allows employers and employees to implement a productivity-linked
bonus scheme in place of the profit-based formula under the Act. However, such schemes must still adhere to the
statutory limits—a minimum bonus of 8.33% and a maximum of 20% of wages remains mandatory.

9. POWER OF EXEMPTION (SECTION 36)

Under Section 36 of the Payment of Bonus Act, the appropriate Government may exempt an establishment
or class of establishments from the Act’s provisions if, considering the financial position and other relevant
factors, it deems such exemption to be in the public interest. As held in J.K. Chemicals v. Maharashtra (1996),
the Government must also assess whether employees contributed to the financial loss before granting such an
exemption.

10. PENALTIES (SECTION 28)

He shall be punishable with imprisonment for a term which may extend to six months, or with fine which may
extend to one thousand rupees, or with both.

11. OFFENCES BY COMPANIES (SECTION 29)

Section 29 of the Payment of Bonus Act holds both the company and the individuals in charge—such as directors,
managers, or partners—liable for offences committed under the Act. If the offence occurs with their consent,
connivance, or due to their neglect, they are deemed guilty and can be prosecuted. For this purpose, ‘company’
includes firms and associations, and ‘director’ includes a partner in a firm.

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 Unit–IV: The Equal Remuneration Act, 1976

1. INTRODUCTION
The Equal Remuneration Act, 1976, was enacted to uphold the constitutional mandate of gender equality in
the workplace. It ensures that men and women receive equal pay for the same or similar work and prohibits
discrimination in recruitment, training, promotions, and transfers based on gender. By mandating fair treatment
across public and private sectors, the Act aims to eliminate wage disparities and foster equitable employment
practices throughout India.

2. OBJECT AND SCOPE

OBJECT
There is equal pay for equal work for both men and women. To give effect to this constitutional
provision, the Parliament enacted the Equal Remuneration Act, 1976.

“Same work or Work of a similar nature”

It 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.

3. IMPORTANT DEFINITIONS [SECTION 2]

3.1 “APPROPRIATE GOVERNMENT”
“Appropriate government” means —
(i) About any employment carried on by or under the authority of the Central Government or a railway
administration, or
(ii) About a banking company, a mine, an oilfield, land, or a major port, or any corporation established by or
under a Central Act, the Central Government, and about any other employment, the State Government.
{Section 2(a)}

3.2 “MAN” AND “WOMAN”

“Man” and “Woman” mean male and female human beings, respectively, of any age. {Section 2(d)}
3.3 REMUNERATION
“Remuneration” means the basic wage or salary, and any additional emoluments whatsoever payable, either in
cash or in kind, to a person employed in respect of employment or work done in such employment, if the terms of
the contract of employment, express or implied, were fulfilled. {Section 2(g)}
3.4 “SAME WORK” OR “WORK”
“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 and the differences,
if any, between the skill, effort and responsibility required of a man and those required of a woman are not of
practical importance about the terms and conditions of employment. [Section 2(h)]

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4. ACT TO HAVE AN OVERRIDING EFFECT (SECTION 3)

The provisions of the Act shall have effect notwithstanding anything inconsistent therewith contained in any
other law or in the terms of any award, agreement or contract of service.

5. DUTY OF THE EMPLOYER TO PAY EQUAL REMUNERATION TO MEN AND WOMEN

WORKERS FOR THE SAME WORK OR WORK OF A SIMILAR NATURE. (SECTION 4)
No employer shall pay to any worker, employed by him in an establishment remuneration, whether payable 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 in such establishment for performing the same work or work of a similar nature.

6. DISCRIMINATION IS NOT TO BE MADE WHILE RECRUITING MEN AND WOMEN

(SECTION 5)

While making recruitment for the same work or work of a similar nature, or in any condition of service
subsequent to recruitment such as promotions, training or transfer, shall not make any discrimination against
women except restricted under any law.

However, above mentioned section shall not affect any priority or reservation for Scheduled Castes or Scheduled
Tribes, ex-servicemen, retrenched employees or any other class or category of persons.

7. AUTHORITIES FOR HEARING AND DECIDING CLAIMS AND COMPLAINTS

(SECTION 7)

Appropriate government may appoint officer not below the rank of a labour officer - Claims arising out of non-
payment of wages at equal rates to men and women workers for the same work or work of a similar nature.

8. MAINTENANCE OF REGISTER (SECTION 8)

It is the duty of every employer, to maintain registers and other documents in relation to the
workers employed by him in the prescribed manner.

9. PENALTIES (SECTION 9)
If any employer:-
(i) Makes any recruitment in contravention of the provisions of this Act; or
(ii) Makes any payment of remuneration at unequal rates to men and women workers for the same work or work
of a similar nature; or

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(iii) Makes any discrimination between men and women workers in contravention of the provisions of this Act;
or
(iv) Omits or fails to carry out any direction made by the appropriate Government,
Then he/ she shall be punishable with a fine or with imprisonment, or with both.

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 Previous Years Questions

1. Bright Futures Ltd. is imparting education to the students. It has been facing financial difficulties and has
delayed salary payments and other dues to its employees for the past three months. Several employees
have resigned due to the non-payment of wages, while those remaining are increasingly concerned about
their financial stability. The affected employees have approached the company management several times,
but no concrete measures have been taken to resolve the issue. Consequently, the employees have decided
to take legal action to recover the amounts due to them under the Payment of Wages Act, 1936. Explain
the measures to be taken by the employees for the recovery of the amount due from the employer.
 Dec 2024 (5 Marks)
Hints:
Section 15 of the Payment of Wages Act, 1936, provides that the appropriate Government may, by
notification in the Official Gazette, appoint–
(a) Any Commissioner for Workmen’s Compensation; or
(b) Any officer of the Central Government exercising functions as,
(i) Regional Labour Commissioner; or
(ii) Assistant Labour Commissioner with at least two years’ experience; or
(c) Any officer of the State Government not below the rank of Assistant Labour Commissioner with at
least two years’ experience; or
(d) A presiding officer of any Labour Court or Industrial Tribunal, constituted under the Industrial
Disputes Act, 1947, or under any corresponding law relating to the investigation and settlement of
industrial disputes in force in the State; or
(e) Any other officer with experience as a Judge of a Civil Court or a Judicial Magistrate, as the authority
to hear and decide for any specified area all claims arising out of deductions from the wages, or delay
in payment of the wages, of persons employed or paid in that area, including all matters incidental to
such claims.
2. What are the stipulations regarding the payment of minimum bonus and maximum bonus under the
Payment of Bonus Act, 1965? Dec 2024 (3 marks)
Hints:
Payment of Minimum Bonus Section 10 of the Payment of Bonus Act, 1965, states that subject to the other
provisions of this Act, every employer shall be bound to pay to every employee in respect of any accounting
year a minimum bonus which shall be 8.33 per cent of the salary or wage earned by the employee during
the accounting year or one hundred rupees whichever is higher, whether or not the employer has any
allocable surplus in the accounting year: Provided that where an employee has not completed fifteen years
of age at the beginning of the accounting year, the provisions of this Section shall have effect about such
employee as if for the words one hundred rupees the words sixty rupees were substituted.
Section 10 of the Act is not violative of Articles 19 and 301 of the Constitution. Even if the employer
suffers losses during the accounting year, he is bound to pay minimum bonus as prescribed by Section 10
[State v. Sardar Singh Maiithia (1979) Lab. 1.C].
Payment of Maximum bonus:
1. Where in respect of any accounting year referred to in Section 10, the allocable surplus exceeds the
amount of minimum bonus payable to the employees under that Section, the employer shall, instead
of such minimum bonus, be bound to pay to every employee in respect of that accounting year bonus
which shall be an amount in proportion to the salary or wage earned by the employee during the
accounting year subject to a maximum of twenty per cent of such salary or wage.

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 2. In computing the allocable surplus under this Section, the amount set on or the amount set off under
the provisions of Section 15 shall be taken into account by the provisions of that Section. (Section 11).
3. Write down the procedure for fixing and revising minimum wages under the Minimum Wages Act, 1948.
 Jun 2024 (3 Marks)
Hints:
Section 5 of the Minimum Wages Act, 1948, deals with the procedure for fixing and revising minimum
wages. In fixing minimum rates of wages in respect of any scheduled employment for the first time or
in revising minimum rates of wages, the appropriate Government can follow either of the two methods
described below.
First Method [Section 5(1)(a)] This method is known as the ‘Committee Method’. The appropriate
Government may appoint as many committees and sub-committees as it considers necessary to hold
enquiries and advise it in respect of such fixation or revision as the case may be. After considering the
advice of the committee or committees, the appropriate Government shall, by notification in the Official
Gazette, fix or revise the minimum rates of wages. The wage rates shall come into force from such date as
may be specified in the notification. If no date is specified, wage rates shall come into force on the expiry
of three months from the date of the issue of the notification. Note: It was held in Edward Mills Co. v. State
of Ajmer (1955) [Link]. SC, that the Committee appointed under Section 5 is only an advisory body and
that the Government is not bound to accept its recommendations.
Second Method [Section 5(1)(b)] The method is known as the ‘Notification Method’. When fixing
minimum wages under Section 5(1) (b), the appropriate Government shall, by notification, in the Official
Gazett,e publish its proposals for the information of persons likely to be affected thereby and specify
a date not less than 2 months from the date of notification, on which the proposals will be taken into
consideration. The representations received will be considered by the appropriate Government. It will also
consult the Advisory Board constituted under Section 7 and thereafter fix or revise the minimum rates of
wages by notification in the Official Gazette. The new wage rates shall come into force from such date as
may be specified in the notification. However, if no date is specified, the notification shall come into force
on expiry of three months from the date of its issue. Minimum wage rates can be revised with retrospective
effect.
4. ABC Ltd. is a medium-sized manufacturing company that produces automotive parts. The company has
a workforce of 150 employees, including both production line workers and administrative staff. ABC
Ltd. typically awards annual bonuses to its employees based on performance and company profits. Upon
conducting internal investigations and reviewing surveillance footage, the management discovered
evidence of theft by a few employees at the stores. Citing the relevant provisions of the Payment of Bonus
Act, 1965, examine the eligibility for bonus to those employees involved in theft.
 June 2024(5 Marks)
Hints:
Section 9 of the Payment of Bonus Act, 1965, deals with Disqualification for Bonus. According to Section
9 of the act, an employee shall be disqualified from receiving a bonus under the Payment of Bonus Act,
1965, if he is dismissed from service for:
Fraud, or Riotous or violent behavior while on the premises of the establishment; or
Theft, misappropriation, or sabotage of any property of the establishment.

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 This provision is based on the recommendation of the Bonus Commission, which stated that: After all,
bonuses can only be shared by those workers who promote the stability and well-being of the industry, not
by those who positively exhibit disruptive tendencies. Bonuses, without a doubt, impose a duty of good
behaviour. In Gammon India Ltd Vs Niranjan Das 6, the Court held that an employee who is dismissed
from service for fraud, riotous or aggressive behaviour on the premises of the company, or who is guilty of
theft, misappropriation, or sabotage of any establishment’s property is disqualified from receiving bonus
for the accounting year under Section 9 of the Payment of Bonus Act, 1965. A dismissed employee who
has been reinstated with back pay has not committed the above crimes and has not been fired. As a result,
he is entitled to a bonus. Given the above, those employees of ABC Limited who are guilty of theft are not
entitled to payment of a bonus.
5. A factory has 400 employees and is covered under the Payment of Wages Act, 1936. It wants to fix the
wage period as one and a half months and make the payment of wages within 10 days after the last day of
the wage period. Is it permitted under the Payment of Wages Act, 1936? Dec. 2023(3 Marks)
Hints:
As per Section 4 of the Payment of Wages Act, 1936, every person responsible for the payment of wages
shall fix wage periods in respect of which such wages shall be payable. No wage period shall exceed one
month. Further, Section 5 specifies the time of 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 after the last day of the wage period
in respect of which the wages are payable. As per above mentioned provisions, the factory cannot fix the
wage period as one and a half months, as it cannot exceed one month, and cannot pay the wages within
10 days after the last day of the wage period.
4. In drafting examination question papers, Rights are vested in the paper setter where no contract to
the contrary exists. The paper setter in such a case is the author and owner and not the authority for
whom the question papers are set.
5. In a book written by a teacher who is an employee in a college: the Teacher is the author and owner
of the copyright and not the college because the teacher is employed to teach and not to write books.
6. Explain the deductions that can be made from the wages of an employee under the Payment of Wages Act,
1936. Dec. 2022 (3 Marks)
Hints:
The Payment of Wages Act, 1936:
(i) Fines;
(ii) Absence from Duty;
(iii) Damage to or loss of goods expressly entrusted to the Employee;
(iv) Housing Accommodation and Amenities provided by the Employer;
(v) Recovery of Advances or Adjustment of overpayments of Wages;
(vi) Recovery of loans made from any Fund constituted for the welfare of labour by the rules approved by
the State Government, and the interest due in respect thereof;
(vii) Subscriptions to and for repayment of advances from any provident fund;
(viii) Income-Tax.
(ix) Payments to Co-operative Societies approved by the Appropriate Government or any officer specified
by it in this behalf, or to a scheme of insurance maintained by the Indian Post Office;
(x) Deductions made with the written authorisation of the Employee for payment of any premium on his
Life Insurance Policy or purchase of Securities.

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 7. State the conditions stipulated for the award of back wages under the Payment of Wages Act, 1936.
 Jun. 2025 (5 marks)
Hints:
Key Legal Basis for Awarding Back Wages
Section 15: Empowers employees to file claims for delayed or deducted wages before the prescribed
authority.
Section 15(3): Allows the authority to award compensation along with back wages, unless the employer
proves bona fide error or dispute.
Section 17A: Enables the conditional attachment of the employer’s property to the Security payment.
Section 16: Permits group claims for unpaid wages.
Section 23: Prohibits contracting out of statutory rights under the Act.
These provisions are designed to ensure timely and lawful payment of wages and provide remedies when
violations occur. The award of back wages is not automatic—it depends on the authority’s finding that the
delay or deduction was unjustified.
8. What is meant by ‘set on and set off’ of allocable surplus under the Payment of Bonus Act, 1965?
 Jun. 2025 (5 marks)
Hints:
Where any money is due to an employee by way of bonus from his employer under a settlement or an
award or agreement, the employee himself or any other person authorised by him in writing in this behalf,
or in the case of the death of the employee, his assignee or heirs may, without prejudice to any other mode
of recovery, make an application to the appropriate Government for the recovery of the money due to him,
and if the appropriate Government or such authority as the appropriate Government may specify in this
behalf is satisfied that any money is so due, it shall issue a certificate for that amount to the Collector who
shall proceed to recover the same in the same manner as an arrear of land revenue: If may be noted that
every such application shall be made within one year from the date on which the money become due to the
employee from the employer. Any such application may be entertained after the expiry of the said period
of one year, if the appropriate Governments are satisfied that the applicant had sufficient cause for not
making the application within the said period. Explanation: In this Section and Sections 22, 23, 24, and 25,
employee includes a person who is entitled to the payment of bonus under this Act but who is no longer
in employment. (Section 21)The mode of recovery prescribed in Section 21 would be available only if the
bonus sought to be recovered is under settlement or an award, or an agreement. Bonus payable under the
Bonus Act is not covered by Section 21.

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 CHAPTER SBIL

19 SOCIAL SECURITY LEGISLATIONS

UNIT-I: Employee State Insurance Act 1948

Social Security Legislations

UNIT-I UNIT-II UNIT-III UNIT-IV

Employee State Employee Provident Fund Maternity Benefit Payment of
Insurance Act, 1948 and MIscellaneous Act, 1952 Act, 1961 Gratuity Act, 1972

UNIT-V UNIT-VI
Apprentice Act, 1961 Labour Laws Act, 1988

1. INTRODUCTION
The Employees’ State Insurance Act, 1948 provides benefits to employees in case of sickness, maternity, and
employment injury, and includes provisions for other related matters. The Act was amended by the Employees’
State Insurance (Amendment) Act, 2010, to enhance social security coverage, streamline the procedure for
assessing dues, and improve the services provided to beneficiaries.
The Act extends to the whole of India. The Central Government is empowered to enforce the provisions of the Act
by notification in the Official Gazette, to enforce different provisions of the Act on different dates and for different
States or different parts thereof.
Initially, the Act applies to all factories (including those belonging to the government) except seasonal factories.
However, the appropriate Government has the power to extend provisions of the Act to any other establishment or
class of establishments, including industrial, commercial, or agricultural establishments, by issuing a one-month
notice in the Official Gazette.
Under these enacting provisions, the Act has been extended by many State Governments to shops, hotels,
restaurants, cinemas, including preview theatres, newspaper establishments, road transport undertakings, etc.,
employing 20 or more persons.
It is important to note that the 20 employees must be those receiving wages as prescribed under the Act, not just
the total number of people employed in the establishment.

2. OBJECTIVE
To provide an integrated need based social insurance scheme that would protect the interest of workers in
contingencies such as sickness, maternity, temporary or permanent physical disablement, death due to
employment injury resulting in loss of wages or earning capacity.

It also guarantees reasonably good medical care to workers and their immediate dependents.
 3. IMPORTANT DEFINITIONS
3.1 APPROPRIATE GOVERNMENT [SECTION 2(1)]
“Appropriate Government” means, in respect of establishments under the control of the Central Government or a
railway administration or a major port or a mine or oil-field, the Central Government, and in all other cases, the
State Government.

3.2 CONFINEMENT [SECTION 2(3)]

“Confinement” means labour resulting in the issue of a living child or labour after 26 weeks of pregnancy resulting
in the issue of a child, whether alive or dead.

3.3 CONTRIBUTION [SECTION 2(4)]

“Contribution” means the sum of money payable to the Corporation by the principal employer in respect of an
employee and includes any amount payable by or on behalf of the employee following the provisions of this Act.

3.4 DEPENDENT [SECTION 2(6A)]

It means any of the following relatives of a deceased insured person namely

A widow, a legitimate or adopted son who has not attained the age of twenty-five years„ an unmarried
legitimate or adopted daughter and a widowed mother

If wholly dependent on the earnings of the insured person at the time of his death, a legitimate or adopted
son or daughter who has attained the age of 25 years and is infirm

If wholly or in part dependent on the earnings of the insured person at the time his death.
(i) Parent other than a widowed mother,
(ii) Minor illegitimate son, an unmarried illegitimate daughter or a daughter legitimate or adopted or
illegitimate if married and minor or if widowed and a minor,
(iii) Minor brother or an unmarried sister or a widowed sister if a minor,
(iv) A widowed daughter-in-law
(v) Minor child of a pre-deceased son,
(vi) Minor child of a pre-deceased daughter where no parent of the child is alive or,
(vii) Paternal grand parent if no parent of the insured person is alive.

3.5 EMPLOYMENT INJURY [SECTION 2(8)]

It means a personal injury to an employee caused by accident or an occupational disease arising

out of and in the course of his employment, being an insurable employment, whether the accident
occurs or the occupational disease is contracted within or outside the territorial limits of India.

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CASE LAWS

1.
2.
In E.S.I. Corpn. Indore v. Babulal, 1982 3.
A worker was injured while
Lab. I.C. 468, the M.P. High Court held The word injury does
knocking the belt of the moving
that injury arose out of employment not mean only visible
pulley, though the injury caused
where a workman attending duty in spite injury in the form of
was to his negligence, yet
of threats by persons giving call for some wound. (Shyam
such an injury amounts to an
strike and was assaulted by them while Devi v. E.S.I.C.)
employment injury.
returning after his duty was over.

3.6 EMPLOYEE [SECTION 2(9)]

“Employee,” according to Section 2(9) as amended by the Employees’ State Insurance (Amendment) Act, 2010,
means any person employed for wages in connection with the work of a factory or establishment to which this
Act applies and who is
1. Directly appointed

2. Appointed through immediate employer

3. Whose services are temporarily lent

4. Apprentice–
but does not include - Navy, military or air force or any person whose wages exceed the limit
aprescribed by CG

3.7 EXEMPTED EMPLOYEE [SECTION 2(10)]

“Exempted Employee” means an employee who is not liable under this Act to pay the employee's contribution.
3.8 PRINCIPAL EMPLOYER [SECTION 2(17)]
“Principal Employer” means the following:
(i) In a factory, owner or occupier of the factory, and includes the managing agent of such owner or occupier,
the legal representative of a deceased owner or occupier, and where a person has been named as the manager
of the factory under the Factories Act, 1948, the person so named
(ii) In any establishment under the control of any department of any Government in India, the authority appointed
by such Government in this behalf, or where no authority is so appointed, the head of the Department
(iii) In any other establishment, any person responsible for the supervision and control of the establishment.

3.9 FAMILY [SECTION 2(11)]

Family a spouse; “Family” under Section 2(11) as amended by the Employees’ State Insurance (Amendment) Act,
2010 means all or any of the following relatives of an insured person, namely:
(i) A spouse
(ii) A minor legitimate or adopted child dependent upon the insured person;

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(iii) A child who is wholly dependent on the earnings of the insured person and who is:
(a) Receiving education, till he or she attains the age of twenty-one years;
(b) An unmarried daughter;
(iv) A child who is infirm because of any physical or mental abnormality or injury and is wholly dependent on
the earnings of the insured person, so long as the infirmity continues;
(v) Dependent parents whose income from all sources does not exceed such income as may be prescribed by the
Central Government;
(vi) In case the insured person is unmarried and his or her parents are not alive, a minor brother or sister wholly
dependent upon the earnings of the insured person.

3.10 FACTORY [SECTION 2(12)]

“Factory” means any premises including the precincts thereof whereon ten or more persons are employed or were
employed on any day of the preceding twelve months, and in any part of which a manufacturing process is being
carried on or is ordinarily so carried on, but does not including a mine Subject to the operation of the Mines Act,
1952 or a railway running shed. It may be noted that the terms manufacturing process, occupier, and power shall
have the meaning assigned to them in the Factories Act, 1948.
3.11 IMMEDIATE EMPLOYER [SECTION 2(13A)]
“Immediate Employer” means a person, to employees employed by or through him, who has undertaken the
execution on the premises of a factory or an establishment to which this Act applies or under the supervision of

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principal employer or his agent, of the whole or any part of any work which is ordinarily part of the work of the
factory or establishment of the principal employer or is preliminary to the work carried on, in or incidental to the
purpose of any such factory or establishment, and includes a person by whom the services of an employee who
has entered into a contract of service with him are temporarily lent or let on hire to the principal employer and
includes a contractor.

3.12 INSURABLE EMPLOYMENT [SECTION 2(13A)]

It means employment in a factory or establishment to which the Act applies.

3.13 INSURED PERSON [SECTION 2(14)]

It means a person who is or was an employee in respect of whom contributions are, or were payable under the Act
and who is by reason thereof entitled to any of the benefits provided under the Act.

3.14 DISABILITY
Under the Employees’ State Insurance Act, 1948, the concept of disability is addressed through the term
“disablement”, which refers to a condition resulting from an employment injury that affects an employee’s
earning capacity. While the Act does not define "disability" in a general sense, it provides a structured framework
for disability, which is categorized as follows:

Permanent Partial Disablement [Section 2(15A)]

It means such disablement of a permanent nature, as reduced the earning capacity of an employee
in every employment which he was capable of undertaking at the time of the accident resulting in
the disablement.

Permanent Total Disablement [Section 2(15B)]

It means such disablement of a permanent nature as incapacitates an employee for all work which
he was capable of performing at the time of the accident resulting in such disablement.

Temporary Disablement [Section 2(21)]

It means a condition resulting from an employment injury which requires medical treatment and
renders an employee as a result of such injury, temporarily incapable of doing the work which he
was doing prior to or at the time of injury.

3.15 SEASONAL FACTORY [SECTION 2(19A)]

It means a factory which is exclusively engaged in one or more of the following manufacturing processes namely,
cotton ginning, cotton or jute pressing, decortication of groundnuts, the manufacture of coffee, indigo, lac, rubber,
sugar (including gur) or tea or any manufacturing process which is incidental to or connected with any of the
aforesaid processes and includes a factory which is engaged for a period not exceeding seven months in a year:
(a) In any process of blending, packing, or repacking of tea or coffee; or
(b) In such other manufacturing process as the Central Government may, by notification in the Official Gazette,
specify.
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3.16 SICKNESS [SECTION 2(20)]
It means a condition that requires medical treatment and attendance and necessitates abstention from work on
medical grounds.
3.17 WAGES [SECTION 2(22)]

“Wages” means all remuneration paid or payable in cash to an employee if the terms of the contract of
employment, express or implied, were fulfilled and includes any payment to an employee in respect of any
period of authorised leave, lock-out, strike which is not illegal or lay-off and other additional remuneration
if any, paid at intervals not exceeding two months but does not include:
(a) Any contribution paid by the employer to any pension fund or provident fund, or under this Act
(b) Any travelling allowance or the value of any travelling concession
(c) Any sum paid to the person employed to defray special expenses entailed on him by the nature of
his employment, or
(d) Any gratuity payable on discharge.

3.17.1 Wage Limit

The Central Government has since prescribed the wage limit for coverage of an employee under Section 2(9) of
the Act as ` 21,000 per month. Further, it is provided that an employee whose wages (excluding remuneration for
overtime work) exceed ` 21,000 a month at any time after and not before the beginning of the contribution period,
shall continue to be an employee until the end of the period.

4. REGISTRATION OF FACTORIES AND ESTABLISHMENTS UNDER THIS ACT

(SECTION 2A)
Section 2A of the Act lays down that every factory or establishment to which this Act applies shall be registered
within such time and in such manner as may be specified in the regulations made in this behalf.

5. EMPLOYEE’S STATE INSURANCE (SECTION 38)

Section 38 of the Act mandates that, subject to the provisions of the Act, all employees in factories or establishments
to which the Act applies must be insured in the manner provided by the Act. These insured employees must
contribute to the Insurance Fund through their employers, who will also contribute. The insured employees are
entitled to receive benefits from the Insurance Fund, which will be administered by the Corporation. Any disputes
related to contributions or benefits will be settled by the Employees’ Insurance Court.

6. ADMINISTRATION OF EMPLOYEES’ STATE INSURANCE SCHEME

Employees’ State Insurance Corporation Standing Committee and Medical Benefit Council have
been constituted for administration.

ESI Fund has been created which is held and administered by ESI Corporation through its executive
committee called Standing Committee with the assistance, advice and expertise of Medical Council,
etc. and Regional and Local Boards and Committees.

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7. EMPLOYEES’ STATE INSURANCE CORPORATION(SECTION 3)
These Corporation shall be body
It is established by Central Government
corporate having perpetual succession
for administration of the Employees’ State
and a common seal and shall sue and be
Insurance Scheme.
sued by the said name.

7.1 CONSTITUTION (SECTION 4)

The Central Government appoints a chairman, a vice-chairman, and other members representing the interests of
employers, employees, state governments/union territories, and the medical profession. Three members of the
Parliament and the Director General of the Corporation are its ex officio members.
7.2 POWERS AND DUTIES OF THE CORPORATION (SECTION 19)
Section 19 empowers the Corporation, to promote (in addition to the scheme of benefits specified in the Act),
measures for the improvement of the health and welfare of insured persons and for the rehabilitation and
re‑employment of insured persons who have been disabled or injured and incur in respect of such measures
expenditure from the funds of the Corporation within such limits as may be prescribed by the Central Government.
Section 29 empowers the Corporation

(a) To acquire and hold property both movable and immovable, sell or otherwise transfer the said property;

(b) It can invest and reinvest any moneys which are not immediately required for expenses and or realise
such investments;

(c) It can raise loans and discharge such loans with the previous sanction of Central Government;

(d) It may constitute for the benefit of its staff or any class of them such provident or other benefit fund
as it may think fit

7.3 APPOINTMENT OF REGIONAL BOARDS (SECTION 25)

The Corporation may appoint Regional Boards, Local Committees, and Regional and Local Medical Benefit
Councils in such areas and such manner, and delegate to them such powers and functions, as may be provided by
the regulations.

8. WINGS OF THE CORPORATION

The Corporation, to discharge its functions efficiently, has been provided with two wings.
8.1 STANDING COMMITTEE
The Act provides for the constitution of a Standing Committee under Section 8 from amongst its members.

Powers: The Standing Committee has to administer affairs of the Corporation and may exercise
any of the powers and perform any of the functions of the Corporation subject to the general
superintendence and control of the Corporation.

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8.2 MEDICAL BENEFIT COUNCIL
Section 10 empowers the Central Government to constitute a Medical Benefit Council. Section 22 determines the
duties of the Medical Benefit Council, stating that the Council shall:
Duties:-

Advise the Corporation and the Standing Committees on matters relating to

administration of medical benefit.

To investigate in relation to complaints against medical practitioners in connection with

medical treatment and attendance.

Perform such other duties as specified in the regulations.

9. EMPLOYEES’ STATE INSURANCE FUND

The Employees’ State Insurance Fund is a government-mandated fund established under Section 26 of the
Employees’ State Insurance Act, 1948. It serves as the central funding source for the ESI Scheme, which provides
social security to workers in India. Contributions made by both employers and employees, along with other
receipts, are deposited into this fund. Administered by the Employees’ State Insurance Corporation (ESIC), the
fund is used exclusively for providing medical care, cash benefits (such as sickness, maternity, and disablement),
and other welfare measures to insured employees and their dependents.

9.1 CREATION OF FUND (SECTION 26)

All contributions paid and all other moneys received on behalf of the Corporation shall be paid into a Fund
called the Employees’ State Insurance Fund. The Corporation may accept grants, Gifts, donations from the
Central or State Governments, local authority, or any individual or body whether incorporated or not.

9.2 PURPOSES FOR WHICH THE FUND MAY BE EXPENDED (SECTION 28)

Fund shall be expended only for the following purposes:

Payment of benefits and provisions of medical treatment and attendance to insured persons.

Payment of fees and allowances to members of the Corporation.

Payment of salaries, leave and joining time allowances, travelling and compensatory allowances,
Gratuities and compassionate allowances, pensions, contributions to provident or other benefit fund.

Establishment and maintenance of hospitals, dispensaries and other institutions.

Payment of contribution to any State Government, local authority or any private body or individual.

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 Defraying the cost (including all expenses) of auditing the accounts of the Corporation and of the
valuation of the assets and liabilities;

Defraying the cost (including all expenses) of Employees Insurance Courts.

Payment of any sums under any contract entered into for the purposes of this Act by the Corporation
or the Standing Committee or by any officer duly authorised by the Corporation or the Standing
committee.

10. CONTRIBUTIONS
Contributions must be paid at rates prescribed by the Central Government. The wage period, which is the time
interval for which an employee receives wages, is the basis for determining the contribution amount. Contributions
for each wage period are typically due on the last day of that period. If an employee works part-time during a wage
period or works for multiple employers during the same period, the contributions will be due on dates specified
in the regulations.
10.1 PRINCIPAL EMPLOYER TO PAY CONTRIBUTIONS IN THE FIRST INSTANCE (SECTION 40)

If contribution payable is not

Principal employer to pay However he can recover from
paid by principal employer then
contributions in the first instance employee by deduction from his
he shall be liable to pay simple
in respect of every employee wages
interest @12% p.a.

10.2 RECOVERY OF CONTRIBUTION FROM THE IMMEDIATE EMPLOYER

According to Section 41, principal employer who has contributed in respect of an employee employed by or
through an immediate employer is entitled to recover the amount of contribution so paid (both employers and
employees contribution) from the immediate employer either by deduction from any amount payable to him
by the principal employer under any contract or as a debt payable by the immediate employer. However, the
immediate employer is entitled to recover the employee's contribution from the employee employed by or through
him by deduction from wages and not otherwise.
10.3 METHOD OF PAYMENT OF CONTRIBUTION (SECTION 43)
Section 43 allows the Corporation to make regulations regarding the payment and collection of contributions
under this Act. These regulations may specify:
) The manner and timing of contribution payments
) The use of adhesive stamps or other means to validate payment
) The timeline by which proof of payment must be submitted to the Corporation
) The method of recording contributions and benefits for insured persons, including maintaining books or
cards
) The management of the issuance, sale, and replacement of books or cards, including those that are lost,
destroyed, or damaged.

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 11. BENEFIT
Under Section 46 of the Act, the insured persons, their dependants are entitled to the following benefits on
a prescribed scale:

Periodical payments in case of sickness certified by medical practitioner;

Periodical payments to an insured workman in case of confinement or miscarriage or sickness arising

out of pregnancy, confinement;
Periodical payment to an insured person suffering from disablement as a result of employment
injury;

Periodical payment to dependants of insured person;

Medical treatment and attendance on insured person;

Payment of funeral expenses on the death of insured person at the prescribed rate.

11.1 GENERAL PROVISIONS RELATING TO BENEFITS

1. The right to receive benefits is not transferable or assignable. When a person receives benefits under this
Act, he is not entitled to receive benefits under any other enactment.
2. An insured person is not entitled to receive for the same period more than one benefit, e.g. benefit of
sickness cannot be combined with the benefit of maternity or disablement, etc.

12. EMPLOYEES’ INSURANCE COURT (E.I. COURT) CONSTITUTION (SECTION 74)

State Government shall by notification in the Official Gazette constitute an Employees’ Insurance Court for
such local area as may be specified in the notification.

12.1 MATTERS TO BE DECIDED BY E.I. COURT

(i) Adjudication of disputes
The Employees’ Insurance Court has jurisdiction to adjudicate disputes.

(ii) Adjudication of claims

The EI Court also has jurisdiction to decide claims for recovery of contribution from principal employer or
immediate employer, action for failure or negligence to pay contribution.

No Civil Court has the power to decide matters falling within the purview/ jurisdiction of the E.I. Court.
13. EXEMPTIONS
The appropriate Government may exempt any factory or establishment from the provisions of this Act, as well as
certain individuals or groups employed within such establishments, provided that the employees receive benefits
superior to those offered under the Act. This exemption is initially granted for one year and may be extended
thereafter. The applicant must submit a detailed application justifying the need for exemption and satisfy the
relevant government authority.

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 Unit-II: Employees’ Provident Funds and
Miscellaneous Provisions Act, 1952

1. INTRODUCTION
Before the enactment of the Employees' Provident Funds Act, 1952, some organisations voluntarily introduced
Provident Fund schemes for their employees. However, these schemes were rare and typically covered only
specific groups of workers. The 1952 Act was enacted to establish a Provident Fund system for workers in six
specified industries, with provisions for gradually extending its coverage to other industries and establishments.

The following three schemes have been framed under the Act by the Central Government:

(a) The Employees’ Provident Fund Schemes, 1952;

(b) The Employees’ Pension Scheme, 1995; and

(c) The Employees’ Deposit-Linked Insurance Scheme; 1976.

2. APPLICATION OF THE ACT

1. As per Section 1(3), the Act applies:
To any establishment that is a factory engaged in an industry specified in Schedule I and employs 20 or
more persons.
To any other establishment employing 20 or more persons or a class of establishments specified by the
Central Government in the Official Gazette.
2. The Central Government may, with at least two months' notice, apply the Act to establishments employing
fewer than 20 persons, as specified in the notification.
3. The Government may extend the provisions of the Act to other establishments, regardless of the Act’s
applicability, through a notification in the Official Gazette.
4. If both the employer and the majority of employees in an establishment agree, the Act can be made applicable
to that establishment.
5. Once an establishment falls under the Act, it will remain governed by it even if the number of employees
drops below 20.

3. NON-APPLICABILITY OF THE ACT TO CERTAIN ESTABLISHMENTS

The provisions of this Act do not apply to the following establishments:
1. Establishments registered under the Co-operative Societies Act, 1912, employing fewer than 50 persons and
working without the aid of power.
2. Establishments under the control of the Central or State Government, where employees are already covered
by a contributory provident fund or old-age pension scheme framed by the respective Government.
3. Any establishment created under a Central, Provincial, or State Act, where employees are entitled to benefits
under a provident fund or pension scheme established under that Act.

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 4. IMPORTANT DEFINITIONS
To understand the meaning of different Sections and provisions thereof, it is necessary to know the meaning of
important expressions used therein. Section 2 of the Act explains such expressions, which are given below:
4.1 APPROPRIATE GOVERNMENT [SECTION 2(A)]
“Appropriate Government” means:
(i) With those establishments belonging to or under the control of the Central Government or concerning
an establishment connected with a railway company, a major port, a mine or an oil field, or a controlled
industry, or concerning an establishment having departments or branches in more than one State, the Central
Government, and
(ii) About any other establishment, the State Government.

4.2 BASIC WAGES [SECTION 2(B)]

“Basic Wages” means all emoluments which are earned by an employee while on duty or leave, under the terms
of the contract of employment and which are paid or payable in cash to him, but do not include:
A. The cash value of any food concession,
B. Any dearness allowance and any presents made by the employer.

4.3 EMPLOYER [SECTION 2(E)]

“Employer” means
(i) About an establishment which is a factory, the owner or occupier of the factory, including the agent of such
owner or occupier, the legal representative of a deceased owner or occupier and where a person has been
named as a manager of the factory under clause (f) of Sub-Section (1) of Section 7 of the Factories Act,
1948, the person so named;
(ii) And concerning any other establishment, the person who or the authority which has the ultimate control over
the affairs of the establishment, and where the said affairs are entrusted to a manager, managing director, or
managing agent, such manager, managing director, or managing agent.
4.4 EMPLOYEE [SECTION 2(F)]
“Employee” means any person who is employed for wages in any kind of work, manual or otherwise, in or in
connection with the work of an establishment, and who gets his wages directly or indirectly from the employer,3
and includes any person.
(i) Employed by or through a contractor in or in connection with the work of the establishment
(ii) Engaged as an apprentice, not being an apprentice engaged under the Apprentices Act, 1961, or under the
standing orders of the establishment.

4.5 EXEMPTION EMPLOYEE [SECTION 2(FF)]

It means an employee to whom a Scheme or the Insurance Scheme, as the case may be, would, but for the
exemption granted under Section 17, have applied.
4.6 EXEMPTION ESTABLISHMENT [SECTION 2(FFF)]
It means an establishment in respect of which an exemption has been granted under Section 17 from the operation
of all or any of the provisions of any Scheme or the Insurance Scheme, as the case may be, whether such exemption
has been granted to the establishment as such or to any person or class of persons employed therein.

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4.7 FACTORY [SECTION 2(G)]
It means any premises, including the precincts thereof, in any part of which a manufacturing process is being
carried on or ordinarily so carried on, whether with the aid of power or without the aid of power.

4.8 FUND [SECTION 2(H)]

It means the Provident Fund established under the Scheme.

4.9 INDUSTRY [SECTION 2(I)]

It means any industry specified in Schedule I, and includes any other industry added to the Schedule by notification
under Section 4.

4.10 INSURANCE FUND [SECTION 2(I-A)]

It means the Deposit-Linked Insurance Fund established under Sub-Section (2) of Section 6-C.

4.11 INSURANCE SCHEME [SECTION 2(I-B)]

It means the Employees Deposit-Linked Insurance Scheme framed under Sub-Section (1) of Section 6-C.

4.12 MANUFACTURE OR MANUFACTURING PROCESS SOCIAL SECURITY

LEGISLATION [SECTION 2(I-C)]
It means any process for making, altering, repairing, ornamenting, finishing, packing, oiling, washing, cleaning,
breaking up, demolishing, or otherwise treating or adapting any article or Substance with a view to its use, sale,
transport, delivery, or disposal.

4.13 MEMBER [SECTION 2(J)]

“Member” means a member of the Fund.

4.14 OCCUPIER OF A FACTORY [SECTION 2(K)]

It means the person who has ultimate control over the affairs of the factory, and where the said affairs are entrusted
to a managing agent, such agent shall be deemed to be the occupier of the factory.

4.15 PENSION FUND [SECTION 2(KA)]

“Pension Fund” means the Employees' Pension Fund established under Sub-Section (2) of Section 6A.

4.16 PENSION SCHEME [SECTION 2(KB)]

“Pension Scheme” means the Employees' Pension Scheme framed under Sub-Section (1) of Section 6A.

4.17 SCHEME [SECTION 2(I)]

It means the Employees’ Provident Fund Scheme framed under [Section 2(I)].

4.18 SUPERANNUATION [SECTION 2(II)]

“Superannuation”, concerning an employee who is a member of the Pension Scheme, means the attainment, by
the said employee, of the age of fifty-eight years.

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 5. SCHEMES UNDER THE ACT
In exercise of the powers conferred under the Act, the Central Government has framed the following three schemes:
5.1 EMPLOYEES PROVIDENT FUND SCHEME
The Employees Provident Fund Scheme is framed by the Central Government and is administered by the Central
Board, constituted under Section 5A.
(i) Administration of the Fund - Board of Trustees or Central Board (Section 5A)
The Central Government may, by notification in the Official Gazette, constitute a Board of Trustees to
administer the Fund in the territories to which the Act applies. The date of constitution of this Board shall
be specified in the notification.
(ii) Class of Employees Entitled and Required to Join the Provident Fund
Every employee, except an “excluded employee”, is required to join the Provident Fund.
An “excluded employee” is defined as:
1. An employee who has withdrawn the full amount of his provident fund accumulations after being a member.
2. An employee whose monthly pay exceeds ₹15,000, even if they are otherwise eligible for membership.
3. An apprentice.
(iii) Contributions (Section 6)
The employer’s contribution to the Fund shall be 10% of the basic wages, dearness allowance, and
retaining allowance, if any. The employee's contribution shall be equal to that of the employer.
Employees may choose to contribute more than the prescribed rate, but the employer is not obligated to
contribute beyond the prescribed rate.
(iv) Investment
The contributions received in the Provident Fund are invested by the Board of Trustees in accordance with
the investment pattern approved by the Government of India.
(v) Advances/Withdrawals
Advances from the Provident Fund may be taken for the following specific 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 for more than 15 days;

(4)
Non-refundable in case of:
hospitalisation lasting one month or more,
surgical operation,
suffering from T.B., Leprosy, Paralysis, Cancer;
Non-refundable advance for the treatment of a member of his family, require hospitalisation, for
one month or more:
for surgical operation;
for treatment of T.B., Leprosy, Paralysis, Cancer;

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 (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.

(vi) Final withdrawal:

The full balance, along with interest, is refunded in cases of death, permanent disability, superannuation,
retrenchment, migration abroad for permanent settlement or employment, voluntary retirement, or certain
discharges under the Industrial Disputes Act, 1947, or transfer to an establishment not covered under the Act.
Note: In other cases, a member may withdraw the full amount upon ceasing employment, provided they have
not been employed in any establishment covered by the Act for at least two consecutive months. This two-month
waiting period does not apply if the female member resigns to get married.
5.2 EMPLOYEE PENSION SCHEME (SECTION 6A)
) The Employees’ Pension Scheme is compulsory for all persons who were members of the Family Pension
Scheme, 1971.
) Minimum 10 years of contributory service is required for entitlement to a pension. A normal superannuation
pension is payable on attaining the age of 58 years. Pension on a discounted rate is also payable on attaining
the age of 50 years.
) Where pensionable service is less than 10 years, the member has an option to remain covered for pensionary
benefits till 58 years of age or claim return of contribution/ withdrawal benefits.
) The Scheme provides for payment of a monthly pension in the following contingencies.

(a) Superannuation on attaining the age of 58 years. Pension on discount rate payable on attaining age
of 50 years.

(b) Retirement

(c) Permanent total disablement

(d) Death during service

(e) Death

(f) Children Pension

(g) Orphan pension

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5.3 EMPLOYEES’ DEPOSIT-LINKED INSURANCE SCHEME

The Employees’ Deposit-Linked Insurance (EDLI) Scheme is a life insurance scheme managed by the
Employees’ Provident Fund Organisation (EPFO) that provides financial security to private sector employees
and their families in case of the employee’s death.

APPLICABILITY:
Applicable to all factories where Provident fund act applies.

Contributions to the Insurance Fund:

The employees are not required to contribute to the Insurance Fund. The employers are required to
pay contributions to the Insurance Fund at the rate of 1% of the total emoluments, i.e., basic wages,
dearness allowance.

Administrative expenses:
The employers of all covered establishments are required to pay charges to the Insurance Fund.

Payment of assurance benefit:

In case of death of a member, an amount equal to the average balance in the account of the deceased
during the preceding 12 months or period of membership, whichever is less shall be paid to the
persons eligible to receive the amount or the Provident Fund accumulations..

Exemption from the Scheme

Factories/establishments, which have an Insurance Scheme conferring more benefits than those
provided under the statutory Scheme, may be granted exemption, subject to certain conditions, if
majority of the employees are in favour of such exemption.

6. DETERMINATION OF MONEY DUE FROM EMPLOYERS

6.1 DETERMINATION OF MONEY DUE (SECTION 7A)
Section 7A vests the powers of determining the amount due from any employer under the provisions of this Act
and deciding the dispute regarding the applicability of this Act in the Central Provident Fund Commissioner.

Additional Provident Fund Commissioner, Deputy Provident Fund Commissioner, or Regional Provident Fund
Commissioner. For this purpose he may conduct such inquiry as he may deem necessary.

6.2 MODE OF RECOVERY OF MONEY DUE FROM THE EMPLOYEE (SECTION 8)

In the same manner as an arrear of land revenue.

6.3 RECOVERY OF MONEY BY EMPLOYERS AND CONTRACTORS (SECTION 8A)

Section 8A lays down that the amount of contribution that is to say the employer’s contribution as well as the
employee’s contribution and any charges for meeting the cost of administering the Fund paid or payable by an

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employer in respect of an employee employed by or through a contractor, may be recovered by such employer
from the contractor either by deduction from any amount payable to the contractor under any contract or as a debt
payable by the contractor.
A contractor from whom the amounts mentioned above may be recovered in respect of any employee employed
by or through him may recover from such employee, the employee’s contribution under any scheme by deduction
from the basic wages, dearness allowance, and retaining allowance, if any, payable to such employee. However,
notwithstanding any contract to the contrary, no contractor shall be entitled to deduct the employer’s contribution
or the charges referred to above from the basic wages, dearness allowance, and retaining allowance payable to an
employee employed by or through him or otherwise to recover such contribution or charges from such employee.
6.4 MEASURES FOR RECOVERY OF THE AMOUNT DUE FROM THE EMPLOYER
(SECTION 8B TO 8G)

The authorised officer shall issue a certificate for recovery of amount due from employer to the recovery
Officer.

The Recovery Officer has got the powers to attach/sell the property of employer, call for arrest and detention
of employer, etc. for effecting recovery.

6.5 PRIORITY OF PAYMENT OF CONTRIBUTIONS OVER OTHER DEBTS (SECTION 11)

Section 11 of the Act provides that the contribution towards Provident Fund shall rank prior to
other payments in the event of employer being adjudicated insolvent or where it is a company
on which order of winding up has been made.

7. EMPLOYER NOT TO REDUCE WAGES (SECTION 12)

An employer not to reduce directly or indirectly the wages of any employee to whom the Scheme or the
Insurance Scheme applies or the total quantum of benefits in the nature of old age pension, gratuity or
provident fund or life insurance to which the employee is entitled under the terms of employment.

8. TRANSFER OF ACCOUNTS (SECTION 17A)

Where an employee employed in an establishment to which this Act applies leaves his employment and
obtain re-employment in another establishment the amount of Provident Fund of the establishment in which
he is re-employed.

It further provides that where an employee employed in an establishment to which this Act does not apply,
leaves his employment and obtain re-employment in another establishment to which this Act applies, the
amount of accumulations to the credit of such employee in the Provident Fund of the establishment left by
him, may, if the employee so desires and also rules concerning such Provident Fund permit, be transferred
to the credit of his account in the Fund or as the case may be, in the Provident Fund of the establishment in
which he is re-employed.

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 9. PROTECTION AGAINST ATTACHMENT (SECTION 10)

Statutory protection is provided to the amount of contribution to Provident Fund from attachment to any Court
decree.

PF contributions are protected from attachment under any court decree or insolvency proceedings.
) Sub-Section (1): Amounts in the Fund cannot be assigned, charged, or claimed by creditors, official
assignees, or receivers.
) Sub-Section (2): On death, the amount vests absolutely in the nominee—free from any debt or liability of
the deceased or nominee.
) This protection extends to the Employees’ Pension Scheme and Insurance Scheme payouts.
POWER TO EXEMPT:
Section 17 authorises the appropriate Government to grant exemptions to certain establishments or persons from
the operation of all or any of the provisions of the Scheme. Such exemption shall be granted by notification in the
Official Gazette, Subject to such conditions as may be specified therein.

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 Unit–III: Maternity Benefit Act, 1961

1. INTRODUCTION
Maternity benefits are designed to protect the dignity of motherhood by ensuring the full well-being of the woman
and her child during her absence from work. The Maternity Benefit Act, 1961, applies to mines, factories, the
circus industry, plantations, shops, and establishments that employ ten or more persons. The Act can be extended
to other establishments through notifications by the State Governments.
This Act regulates the employment of women in certain establishments during specific periods before and after
childbirth and provides for maternity benefits, along with other related provisions. It applies throughout India.

2. OBJECTIVE AND SCOPE

To regulates employment of women in certain establishments for a certain period before and after childbirth
and provides for maternity and other benefits.

To protect the dignity of motherhood by providing for the full and healthy maintenance of women and her child
when she is not working.

2.1 APPLICABILITY
Applicability to all establishments where 10 or more persons are working.

3. IMPORTANT DEFINITIONS
3.1 “APPROPRIATE GOVERNMENT” [ SECTION 3(B)]
Appropriate government [Section 3(b)] means, about an establishment being a mine or an establishment wherein
persons are employed for the exhibition of equestrian acrobatic and other performances, the Central Government,
and about any other establishment, the State Government. {Section 3(a)} “Child” includes a stillborn child.
3.2 “COMMISSIONING MOTHER” [SECTION 3(BA)]
Commissioning Mother means a biological mother who uses her egg to create an embryo implanted in any other
woman.
Commissioning Mother

Intended Parent

Future Legal Surrogate

Parent of a Child Mother
Born Through
Not Genetically
Surrogacy
Related to The Child
Enters Into a
Surrogacy Agreement

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3.3 “ESTABLISHMENT” [SECTION 3(C)]

3.4 EMPLOYERS [SECTION 3(D)]

Employer [Section 3(d)]

“Employer” means —
(i) In relation to an establishment which is under the control of the government a person or authority
appointed by the government for the supervision and control of employees or where no person or
authority is so appointed the head of the department
(ii) In relation to an establishment under any local authority the person appointed by such authority for the
supervision and control of employees or where no person is so appointed the chief executive officer of
the local authority
(iii) In any other case the person who or the authority which has the ultimate control over the affairs of the
establishment and where the said affairs and entrusted to any other person whether called a manager
managing director managing agent or by any other name such person

3.5 “MATERNITY BENEFIT” [SECTION 3(H)]

Maternity Benefit means the payment referred to in Sub-Section (1) of Section 5.
3.6 “WAGES” [SECTION 3(N)]
Wages mean all remuneration paid or payable in cash to a woman if the terms of the contract of employment,
express or implied, were fulfilled, and includes
1. Such cash allowances (including dearness allowance and house rent allowances) as a woman is for the time
being entitled to
2. An incentive bonus and
3. The money value of the concessional supply of food grains and other articles, but does not include
(i) Any bonus other than an incentive bonus.
(ii) Overtime earnings and any deduction or payment made on account of fines.

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 (iii) Any contribution paid or payable by the employer to any pension fund or provident fund or for the
benefit of the woman under any law for the time being in force.
(iv) And any gratuity payable on the termination of service.

4. EMPLOYMENT OF OR WORK BY WOMEN IS PROHIBITED DURING CERTAIN

PERIODS [SECTION 4]
1. Section 4 of the Act prohibits employers from employing a woman in any establishment during the six
weeks immediately following her delivery, miscarriage, or medical termination of pregnancy.
2. This provision also applies to the woman herself, who is prohibited from working during the six-week
period following her delivery, miscarriage, or medical termination of pregnancy.
3. If a pregnant woman requests, the employer shall not assign her any arduous tasks or tasks that involve
long hours of standing during the one month immediately preceding the six weeks before her expected
delivery. Additionally, she should not be assigned any work that could interfere with her pregnancy, affect
the normal development of the fetus, or cause miscarriage or harm to her health.

5. RIGHT TO PAYMENT OF MATERNITY BENEFITS

If a pregnant-women makes request to her employer, she shall not be given to do during the period
of one month immediately preceding the period of six weeks, before the date of her expected
delivery.

A woman is entitled to maternity benefits if she has worked for at least 80 days in the twelve months immediately
prior to her expected delivery date in an establishment of the employer.
1. Every woman shall be entitled to maternity benefit at the rate of the average daily wage for the period of
her actual absence.

2. A woman who legally adopts a child below the age of three months or a commissioning mother shall be
entitled to maternity benefit for a period of twelve weeks from the date child is handed over.

3. Maximum period for which any woman shall be entitled to maternity benefit shall be twenty-six weeks.

4. The maximum period for which any woman shall be entitled to maternity benefit shall be 26 weeks of
which not more than eight weeks shall precede the date of her expected delivery.

5. In case of woman having two or more than two surviving children shall be 12weeks of which not more
than six weeks shall precede the date of her expected delivery.

6. If a woman dies during this period, the maternity benefit shall be payable only for the days up to and
including the day of her death.

7. Where a woman, having been delivered of a child, dies during her delivery or during the period
immediately following the date of her delivery for which she is entitled for the maternity benefit, leaving
behind in either case the child, the employer shall be liable for the maternity benefit for that entire period.

8. If the child also dies during the said period, then, for the days up to and including the date of the death of
the child.

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NOTE: The average daily wage means the average of the woman’s wages payable to her for the days
on which she has worked during three calendar months immediately preceding the date from which she
absents herself on account of maternity.

6. NOTICE OF CLAIM FOR MATERNITY BENEFIT (SECTION 6)

A woman employed in an establishment and entitled to maternity benefit may give notice in writing
to employer and that she will not work in any other establishment during the period for which she
receives maternity benefits.
The notice shall state the date from which she will be absent. Any women who have not given notice
may give notice after delivery.

On receipt of the notice, the employer shall permit such woman to absent herself from the
establishments.

The amount of maternity benefit for the period preceding the date of her expected delivery shall be paid in
advance by the employer to the woman on production of such proof, that the woman is pregnant, and the amount
due for the Subsequent period shall be paid by the employer to the woman within forty-eight hours of production
of such proof as may be prescribed that the woman has been delivered of a child.

7. NURSING BREAKS

Every woman delivered of a child who returns to duty after such delivery shall be allowed in the course of her
daily work two breaks of the prescribed duration for nursing the child until the child attains the age of
fifteen months.

8. CRECHE FACILITY

Every establishment having fifty or more employees shall have the facility of creche either separately or
along with common facilities.

9. ABSTRACT OF THE ACT AND RULES THEREUNDER TO BE EXHIBITED

As per section 19 an abstract of the provisions of this Act and the rules made there under in the language
or languages of the locality shall be exhibited in a conspicuous place by the employer in every part of the
establishment in which women are employed.

10. REGISTERS

Every employer shall prepare and maintain such registers, records and muster-rolls and in prescribed manner.

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11. PENALTY
Penalty for Contravention of the Act by Employer
(a) If any employer fails to pay any amount of maternity benefit to a woman entitled under this Act or discharges
or dismisses such woman during or on account of her absence from work by the provisions of the Act, he
shall be punishable with:
Imprisonment which shall not be less than three months, but which may extend to one year and
With fine which shall not be less than two thousand rupees but which may extend to five thousand
rupees.
(b) If any employer contravenes the provisions of the Act or the rules made thereunder, he shall, if no other
penalty is elsewhere provided by or under the Act for such contravention, be punishable with:
Imprisonment which may extend to one year, or
With a fine which may extend to five thousand rupees,
Or with both.

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 Unit-IV: The Payment of Gratuity Act, 1972

1. INTRODUCTION
Gratuity is a lump sum payment made by the employer as a mark of recognition for the services rendered by
the employee when he retires, leaves service, or in the event of his death. The Payment of Gratuity Act, 1972,
provides for the payment of gratuity to employees engaged in factories, mines, oilfields, plantations, ports, railway
companies, shops, or other establishments. The Act has been amended to increase the ceiling on the amount of
gratuity from ` 10 lakh to ` 20 lakh.

2. APPLICATION OF THE ACT [SECTION 1(3)]

The Act applies to:

(a) Every factory, mine, oilfield, plantation, port and railway company;

(b) Every shop or establishment, in which ten or more persons are employed, or were employed, on
any day of the preceding twelve months.

(c) Other establishments or class of establishments in which ten or more employees are employed, or
were employed, on any day of the preceding twelve months.
In exercise of the powers conferred by clause (c), the Central Government has specified Motor transport undertakings,
Clubs, Chambers of Commerce and Industry, Inland Water Transport establishments, Solicitors offices, Local bodies,
Educational Institutions, Societies, Trusts and Circus industry, in which 10 or more persons are employed or were
employed on any day of the preceding 12 months, as classes of establishments to which the Act shall apply.
A shop or establishment to which the Act has become applicable once continues to be governed by it, even if the
number of persons employed therein at any time after it has become so applicable falls below ten. (Section 3A).

3. WHO IS AN EMPLOYEE [SECTION 2(E)]

The definition of “employee” under Section 2 (e) of the Act has been amended by the Payment of Gratuity
(Amendment) Act, 2009, to cover the teachers in educational institutions retrospectively with effect from 3rd
April, 1997. The amendment to the definition of “employee” has been introduced in pursuance of the judgment of
the Supreme Court in Ahmedabad Private Primary Teachers’ Association v. Administrative Officer.

4. OTHER DEFINITIONS
4.1 “APPROPRIATE GOVERNMENT” MEANS
(i) About an establishment:
(a) Belonging to, or under the control of, the Central Government,
(b) Having branches in more than one State,
(c) Of a factory belonging to, or under the control of, the Central Government.
(d) Of a major port, mine, oilfield, or railway company, the Central Government, or in any other case, the
State Government.
It may be noted that many large establishments have branches in more than one State. In such cases, the ‘appropriate
Government’ is the Central Government, and any dispute connected with the payment or non-payment of gratuity
falls within the jurisdiction of the ‘Controlling Authority’ and the ‘Appellate Authority’ appointed by the Central
Government under Sections 3 and 7.
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A Company Secretary should know whether the ‘appropriate Government’ for his establishment is the Central
Government or the State Government. He should also find out who has been notified as the ‘Controlling Authority’
and who is the ‘Appellate Authority’. It may be noted that any request for exemption under Section 5 of the Act is
also to be addressed to the ‘appropriate Government’. It is, therefore, necessary to be clear on this point.
4.2 CONTINUOUS SERVICE (SECTION 2A)
According to Section 2A, for this Act:
1. An employee shall be said to be in ‘continuous service’ for a period if he has, for that period been in
un- interrupted service, including service which may be interrupted on account of sickness, accident, leave,
absence from duty without leave (not being absence in respect of which an order treating the absence as
break in service has been passed by the standing orders, rules or regulations governing the employees of the
establishment), layoff, strike or a lock-out or cessation of work not due to any fault of the employee, whether
such uninterrupted or interrupted service was rendered before or after the commencement of this Act
2. Where an employee (not being an employee employed in a seasonal establishment) is not in continuous
service within the meaning of clause (1) for any period of one year or six months, he shall be deemed to be
in continuous service under the employer:
(a) For the said period of one year, if the employee during the twelve calendar months preceding the date
concerning which the calculation is to be made, has worked under the employer for not less than:
(i) One hundred and ninety days in the case of an employee employed below the ground in a
mine or in an establishment which works for less than six days a week; and
(ii) Two hundred and forty days in any other case.
(b) For the said period of six months, if the employee during the six calendar months preceding the date
concerning which the calculation is to be made, has worked under the employer for not less than:
(i) Ninety-five days, in the case of an employee employed below the ground in a mine or in an
establishment which works for less than six days a week; and
(ii) One hundred and twenty days in any other case
Explanation: For clause (2), the number of days on which an employee has worked under an
employer shall include the days on which:
(i) He has been laid off under an agreement or as permitted by standing orders made under the
Industrial Employment (Standing Orders) Act, 1946, or under the Industrial Disputes Act,
1947, or under any other law applicable to the establishment;
(ii) He has been on leave with full wages, earned in the previous year;
(iii) He has been absent due to temporary disablement caused by an accident arising out of and in
the course of his employment; and
(iv) In the case of a female, she has been on maternity leave; however, the total period of such
maternity leave does not exceed Melve weeks.
3. Where an employee, employed in a seasonal establishment, is not in continuous service within the meaning
of clause (1) for any period of one year or six months, he shall be deemed to be in continuous service under
the employer for such period if he has worked for not less than seventy-five per cent, of the number of
days on which the establishment was in operation during such period.
NOTE: Service is not continuous, in case of legal termination of service and Subsequent re-employment. Gratuity
cannot be claimed obased oncontinuous service on being taken back in service after break in service of one and a
half year on account of termination of service for taking part in an illegal strike, where the employee had accepted
gratuity for previous service and later withdrawn from the industrial dispute (Baluram v. Phoenix Mills Ltd., 1999
CLA Born. 19).

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Summary
1. An employee shall be said to be in ‘continuous service’ for a period if he has, for that period been in
un-interrupted service, including service which may be interrupted on account of sickness, accident,
leave, absence from duty without leave not due to the fault of employee.

2. Where an employee (not being an employee employed in a seasonal establishment) is not in

continuous service for any period of one year or six months, he shall be deemed to be in continuous
service under the employer:
MINE: atleast 190 days
Others: atleast 240 days
MINE: atleast 95 days
Others: atleast 120 days

3. In case of seasonal establishment: If he has actually worked for not less than seventy-five per cent,
of the number of days on which the establishment was in operation during such period.

4.3 FAMILY [SECTION 2(H)]

Family, about an employee, shall be deemed to consist of:
(i) In case of a male employee, himself, his wife, his children, whether married or unmarried, his dependent
parents and the dependent parents of his wife, and the widow and children of his predeceased son, if any,
(ii) In the case of a female employee, herself, her husband, her children, whether married or unmarried, her
dependent parents and the dependent parents of her husband, and the widow and children of her predeceased
son, if any.
Explanation: Where the personal law of an employee permits the adoption by him of a child, any child lawfully
adopted by him shall be deemed to be included in his family, and where a child of an employee has been adopted
by another person and such adoption is, under the personal law of the person making such adoption lawful, such
child shall be deemed to be excluded from the family of the employee.
4.4 “RETIREMENT”[SECTION 2(Q)]
Means termination of the service of an employee otherwise than on superannuation.
4.5 SUPERANNUATION [SECTION 2(R)]
“Superannuation” about an employee means the attainment by the employee of such age as is fixed in the contract
or conditions of service as the age on the attainment of which the employee shall vacate the employment.
4.6 WAGES [SECTION 2(S)]
“Wages” means all emoluments which are earned by an employee while on duty or leave by the terms and
conditions of his employment and which are paid or are payable to him in cash, and includes dearness allowance,
but does not include any bonus, commission, house rent allowance, overtime wages, or any other allowance.

5. GRATUITY
Gratuity is a statutory benefit provided to employees as a token of appreciation for long-term service, governed
by the Payment of Gratuity Act, 1972, and integrated into the Code on Social Security, 2020. It becomes payable
upon retirement, resignation, death, or disablement, provided the employee has completed at least five years of

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continuous service—though this condition is waived in cases of death or disability. The amount is calculated
based on the last drawn salary and years of service, with prescribed limits (currently ` 20 lakh) and exemptions.
Gratuity reflects the employer’s legal and moral obligation to recognize sustained contributions and ensure
financial security at the end of employment.
5.1 WHEN IS GRATUITY PAYABLE?

Gratuity shall be payable to an employee on the termination of his employment after he has rendered
continuous service for not less than five years:
On his superannuation.
On his retirement or resignation.
On his death or disablement due to accident or disease.

Note: Period of continuous service is to be reckoned from the date of employment and not from the date of
commencement of this Act.
5.2 TO WHOM IS GRATUITY PAYABLE

Normally to the employee himself.

However, in the case of death of the employee, to his nominee and if no nomination legal heirs and nominees
or heirs is a minor, the share of such minor, shall be deposited with the controlling authority who shall invest
the same for the benefit of such minor.

5.3 AMOUNT OF GRATUITY PAYABLE

Gratuity is calculated on the basis of continuous service for every completed year of service or part in
excess of six months, at the rate of fifteen days wages last drawn.

Amount of Gratuity Payable – 20 lakhs maximum.

5.4 NOMINATION
An employee covered by the Act is required to make a nomination under the Rules under the Act for payment of
gratuity in the event of his death. The rules also provide for a change in nomination.
5.5 FORFEITURE OF GRATUITY

Any act of willful omission or negligence causing any damage or loss to, or destruction of, property
belonging to the employer, gratuity shall be forfeited to the extent of the damage or loss or caused.

Case where the services of an employee have been terminated:

For riotous and disorderly conduct or any other act of violence on his part.
For any act which constitutes an offence involving moral turpitude provided that such offence is
committed by him in the course of his employment.

In such cases the gratuity payable to the employee may be wholly or partially forfeited.

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5.6 EXEMPTIONS
The appropriate Government may exempt any factory or establishment covered by the Act or any employee or
class of employees if the gratuity or pensionary benefits for the employees are not less favourable than those
conferred under the Act.6
5.7 THE CONTROLLING AUTHORITY AND THE APPELLATE AUTHORITY (SECTION 3)

Appropriate Government may by notification appoint any officer to be a controlling

Authority who shall be responsible for the administration of the Act.

Section 7(7) provides for an appeal being preferred against an order of the Controlling Authority to the appropriate
Government or such other authority as may be specified by the appropriate Government in this behalf.
5.8 RIGHTS AND OBLIGATIONS OF EMPLOYEES [SECTION 7(1)]
Application for Payment of Gratuity [ Section 7(1)]
A person who is eligible for payment of gratuity or any person authorised, in writing, shall send a written
application to the employer. An application on plain paper is also accepted.

Application shall be made ordinarily within 30 days from the date gratuity becomes payable

Where the date of superannuation or retirement of an employee is known, the employee may apply
to the employer before 30 days of the date of superannuation or retirement.
An application for payment of gratuity filed after the period of 30 days mentioned above shall also
be entertained by the employer if the application adduces sufficient cause for the delay in preferring
him claim.
Any dispute in this regard shall be referred to the Controlling Authority for his decision.

5.9 RIGHTS AND OBLIGATIONS OF THE EMPLOYER [SECTION 7(2)]

Employers' Duty to Determine and Pay Gratuity
As soon as gratuity becomes payable the employer shall, whether the If the amount of gratuity payable is
application has been made or not, determine the amount of gratuity not paid by the employer within the
and give notice in writing to the person to whom the gratuity is period specified the employer shall
payable and also to the Controlling Authority, specifying the amount pay, simple interest at the rate of 10
of gratuity so determined. per cent per annum.

5.10 DISPUTE AS TO THE AMOUNT OF GRATUITY OR ADMISSIBILITY OF THE CLAIM

[SECTION 7(4)(E)]

If the claim for gratuity is not found admissible, the employer shall issue a notice in the
prescribed form to the applicant employee, specifying reasons why the claim for gratuity is
not considered admissible.
A copy of the notice shall be endorsed to the Controlling Authority.

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5.11 RECOVERY OF GRATUITY [SECTION 8]

If the gratuity payable under the Act is not paid by the employer within the prescribed time.

The Controlling Authority shall, on an application made to it in this behalf by the aggrieved person, issue a
certificate for that amount to the Collector, who shall recover the same together with the compound interest.

5.12 PROTECTION OF GRATUITY

Gratuity has been exempted from attachment in execution of any decree or order of any Civil, Revenue, or
Criminal Court. This relief is aimed at providing payment of gratuity to the person or persons entitled thereto
without being affected by any order of attachment by decree of any Court.

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 Unit–V: The Apprentices Act, 1961

1. INTRODUCTION
The Apprentices Act, 1961, was enacted to regulate theapprenticeship program in industries, utilising the available
facilities for imparting on-the-job training. The Act has undergone several amendments:
) 1973 Amendment: Expanded the scope to include the training of graduates.
) 1986 Amendment: Included technicians and vocational technicians apprentices.
) 1997 and 2007 Amendments: Focused on refining definitions (e.g., “establishment”, “worker”), the
number of apprentices required for designated trades, and reservation policies for Other Backward Classes
(OBCs).

2. IMPORTANT DEFINITIONS
2.1 APPRENTICE [SECTION 2 (AA)]

It means a person who is undergoing apprenticeship training in pursuance of a contract of apprenticeship.

2.2 APPRENTICESHIP TRAINING [SECTION 2 (AAA)]

It means a course of training in any industry or establishment undergone in pursuance of a contract of
apprenticeship and under prescribed terms and conditions which may be different for different categories
of apprentices.

Technician (vocational)[Section 2(pp)] apprentice means an apprentice who holds or is undergoing training so
that he may hold a certificate in a vocational course involving two years of study after the completion of the
Secondary stage of school education recognised by the All-India Council and undergoes apprenticeship training
in a designated trade.
Trade Apprentice [Section 2(q)] means an apprentice who undergoes apprenticeship training in any designated
trade.

3. QUALIFICATIONS FOR BEING ENGAGED AS AN APPRENTICE

Qualifications for being engaged as an apprentice.

A person shall not be qualified for being engaged as an apprentice, unless he–
Is not less than fourteen years of age, and for designated trades related to hazardous industries, not
less than eighteen years of age; and
Satisfies such standards of education and physical fitness as may be prescribed.

4. CONTRACT OF APPRENTICESHIP (SECTION 4)

1. No person shall be engaged as an apprentice in a designated trade unless they, or their guardian (in the case
of a minor), have entered into a contract of apprenticeship with the employer.
2. The apprenticeship training shall be considered to have commenced on the date the apprenticeship contract
is signed.

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 3. Every contract of apprenticeship entered into must be submitted by the employer to the Apprenticeship
Adviser within thirty days. Until the Central Government develops a dedicated portal, the employer must
send the contract details to the Apprenticeship Adviser. Once the portal is in place, the details should be
entered within seven days for verification and registration.
Objections: If there are any objections regarding the apprenticeship contract, the Apprenticeship Adviser
must inform the employer within fifteen days of receiving the contract.
Registration: The Apprenticeship Adviser shall complete the registration of the apprenticeship contract
within thirty days from receipt.

5. NOVATION OF CONTRACT OF APPRENTICESHIP (SECTION 5)

Where an employer with whom a contract of apprenticeship has been entered into, is for any reason unable to fulfil
his obligations under the contract and with the approval of the Apprenticeship Adviser it is agreed between the
employer, the apprentice or his guardian and any other employer that the apprentice shall be engaged as apprentice
under the other employer for the un-expired portion, the agreement, on registration with the Apprenticeship
Adviser, shall be deemed to be the contract of apprenticeship between the apprentice or his guardian and other
employer, and on and from the date of such registration, the contract of apprenticeship with the first employer
shall terminate.

6. REGULATION OF OPTIONAL TRADE (SECTION 5A)

The qualification, period of apprenticeship training, holding of test, grant of Certificate

and other conditions relating to the apprentices in optional trade shall be such as may be
prescribed.

7. ENGAGEMENT OF APPRENTICES FROM OTHER STATES (SECTION 5B)

Under Section 5B, employers have the option to engage apprentices from other states for apprenticeship training,
as long as the training complies with the relevant provisions of the Act and the regulations framed by the Central
Government.

8. PERIOD OF APPRENTICESHIP TRAINING (SECTION 6)

As per Section 6 of the Act, the period of apprenticeship training, which must be specified in the apprenticeship
contract, will be determined as follows:
) Trade Apprentices: For apprentices who have undergone institutional training in schools or institutions
recognized by the National Council and passed the trade tests conducted by the Council or recognized
institutions, the apprenticeship period will be determined by prescribed regulations.
) Apprentices with Other Institutional Training: For apprentices who have completed training in institutions
affiliated with the Board or State Council of Technical Education (or any other authority approved by the
Central Government), and have passed the relevant trade tests, the prescribed period for apprenticeship
training will be determined by regulations.
) Other Trade Apprentices: For apprentices who do not fall into the above categories, the period of training
will also be as prescribed by regulations.
) Graduate, Technician, and Vocational Apprentices: The apprenticeship period for graduate, technician,
and vocational apprentices will similarly be prescribed by the relevant regulations.

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 9. NUMBER OF APPRENTICES FOR A DESIGNATED TRADE AND OPTIONAL TRADE
(SECTION 8)
Section 8 empowers the Central Government to prescribe the number of apprentices to be engaged by the employer
for the designated trade and the optional trade. Several employers may join together either themselves or through
an agency approved by the Apprenticeship Adviser, according to the guidelines issued from time to time by the
Central Government on this behalf, for the purpose of providing apprenticeship training to the apprentices under
them.

10. PRACTICAL & BASIC TRAINING OF APPRENTICES (SECTION 9)

3.
1. 2.
Trade apprentices who have not
Every employer shall make The Central Apprenticeship undergone institutional training
suitable arrangements in his Adviser shall be given all in a school or other institution
workplace for imparting a course reasonable facilities to ensure shall, before admission in the
of practical training to every that the practical training is being workplace for practical training,
apprentice engaged by him. imparted in accordance with the undergo a course of basic
approved programme. training.

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 6.
Recurring costs (including the cost
of stipends) incurred by an em-
5. ployer in connection with basic
In the case of graduate or tech- training, imparted to trade appren-
4. nician apprentices or technician tices shall be borne:
The syllabus of and the equipment (vocational) apprentices, the pro- (i) If such employer employs two
to be utilised for, practical training gramme of apprenticeship training hundred and fifty workers or
shall be such as may be approved and the facilities required for such more, by the employer,
by the Central Government in training in any designated trade
(ii) If such employer employs less
consultation with the Central shall be such as may be approved
than two hundred and fifty
Apprenticeship Council. by the Central Government in con-
workers, by the employer and
sultation with the Central Appren-
the Government in equal shares
ticeship Council.
up to such limit as may be laid
down by the Central Govern-
ment and beyond that limit, by
the employer alone.

11. OBLIGATION OF EMPLOYER

Every employer shall have the following obligations regarding an apprentice, namely:
To provide the apprentice with the training in accordance with the provisions of the Act and the rules.

If the employer is not himself qualified in the trade, to ensure that a person who possesses the prescribed
qualifications is placed in charge of the training of the apprentice.

To provide adequate instructional staff

To carry out his obligations under the contract of apprenticeship.

12. OBLIGATIONS OF APPRENTICE

To learn his trade diligently and endeavor before the expiry of the period of training.

To attend practical and instructional classes regularly.

To carry out all lawful orders of his employer and superiors in the establishment.

To carry out his obligations under the contract of apprenticeship.

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 13. APPRENTICES ARE TRAINEES & NOT WORKERS

The provisions of any law with respect to labour shall not apply to or in relation to such apprentice.

14. HOURS OF WORK, OVERTIME, LEAVE, AND HOLIDAYS (SECTION 15)

1. The weekly and daily hours of work of an apprentice shall as may be determined by employer.

2. No apprentice shall be required or allowed to work overtime except with the approval of the Apprenticeship
Adviser.

3. An apprentice shall be entitled to such leave and holidays.

15. RECORDS AND RETURNS (SECTION 19)

Every employer shall maintain records of the progress of training of each apprentice undergoing
apprenticeship training in his establishment in such form as may be prescribed.

16. SETTLEMENT OF DISPUTES (SECTION 20)

) Any disagreement or dispute between an employer and an apprentice arising from the contract of
apprenticeship shall be referred to the Apprenticeship Adviser for resolution.
) If any party is aggrieved by the decision of the Apprenticeship Adviser, they may appeal the decision to the
Apprenticeship Council within thirty days from the date they are notified of the decision. The appeal will
be heard by a designated Committee appointed by the Apprenticeship Council specifically for this purpose.
) The decision of the Committee shall be final, and subject to this, the decision of the Apprenticeship Adviser
will also be final.

17. HOLDING OF TEST AND GRANT OF CERTIFICATE AND CONCLUSION OF

TRAINING (SECTION 21)
Every trade apprentice who has completed the period of training may appear for a test to be conducted by the
National Council or any other agency authorised by the Central Government to determine his proficiency in the
designated trade in which he has undergone apprenticeship training. Every trade apprentice who passes the test
shall be granted a certificate of proficiency in the trade by the National Council.

18. OFFER AND ACCEPTANCE OF EMPLOYMENT [SECTION 22(1)]

Every employer shall formulate its own policy for recruiting any apprentice and shall serve employment
if there was a condition in agreement.

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19. AUTHORITIES UNDER THE ACT
The National Council

The Central Apprenticeship Council

The State Council

The State Apprenticeship Council

The All India Council

The Regional Boards

The Boards or State Councils of Technical Education

The Central Apprenticeship Adviser

The State Apprenticeship Adviser

20. OFFENCES AND PENALTIES (SECTION 30)

If any employer or any other person–
(a) Required to furnish any information or return-

Refuses or neglects to furnish such information or Return.

(b) Requires an apprentice to work overtime without the approval of the Apprenticeship Adviser.

(c) Employs an apprentice on any work which is not connected with his training.

(d) Makes payment to an apprentice on the basis of piece-work, or

(e) Requires an apprentice to take part in any output bonus or incentive scheme.

(f) Engages as an apprentice a person who is not qualified for being so engaged.

(g) Fails to carry out the terms and conditions of a contract of apprenticeship he shall be punishable with fine
of 1000 rupees for every occurrence.

The provisions of this Section shall not apply to any establishment or industry which is under the Board for
Industrial and Financial Reconstruction established under the Sick Industrial Companies (Special Provisions)
Act, 1985.

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 Unit-VI: The Labour Laws (Simplification of Procedure for
Furnishing Returns and Maintaining Registers by Certain
Establishments) Act, 1988

1. INTRODUCTION
The Labour Laws (Simplification of Procedure for Furnishing Returns and Maintaining Registers by Certain
Establishments) Act, 1988, was amended by the Labour Laws (Exemption from Furnishing Returns and Maintaining
Registers by Certain Establishments) Amendment Act, 2014. The amendment provides for the simplification of
the procedure for furnishing returns and maintaining registers for establishments employing a small number of
persons under certain labour laws.

2. IMPORTANT DEFINITIONS
Section 2 of the Act defines various terms used in the Act; the definitions are given hereunder:

2.1 EMPLOYER [SECTION 2(A)]

About a Scheduled Act, and any other Scheduled Act, means the person who is required to furnish returns or
maintain registers under that Act {Section 2 (a)}.
2.2 ESTABLISHMENT [SECTION 2(B)]
Establishment has the meaning assigned to it in a Scheduled Act, and includes —
(i) An “industrial or other establishment” as defined in Section 2 of the Payment of Wages Act, 1936
(ii) A “factory” as defined in Section. of the Factories Act, 1948
(iii) A factory, workshop, or place where employees are employed or work is given out to workers, in any
scheduled employment to which the Minimum Wages Act, 1948, applies.
(iv) A “plantation” as defined in Section 2 of the Plantations Labour Act, 1951, and
(v) A “newspaper establishment” as defined in Section 2 of the Working Journalists and other Newspaper
Employees (Conditions of Service) and Miscellaneous Provisions Act, 1955.
2.3 FORM [SECTION 2(C)]
Form means a Form specified in the Second Schedule. They are as under-

1. Form I -Annual Return

2. Form II -Register of persons employed-cum-employment card

3. Form III- Muster roll-cum-wage register.

2.4 SCHEDULED ACT [SECTION 2(D)]

Scheduled Act means an Act specified in the first Schedule and is in force on commencement of this Act in the
territories to which such Act extends generally, and includes the rules made thereunder{Section 2 (d)}.
The following are the sixteen Acts specified in the first schedule. They are as under:
1. The Payment of Wages Act, 1936
2. The Weekly Holidays Act, 1942
3. The Minimum Wages Act, 1948

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 4. The Factories Act, 1948
5. The Plantations Labour Act, 1951
6. The Working Journalists and other Newspaper Employees (Conditions of Service) and Miscellaneous
Provisions Act, 1955
7. The Motor Transport Workers Act, 1961
8. The Payment of Bonus Act, 1965
9. The Beedi and Cigar Workers (Conditions of Employment) Act, 1966
10. The Contract Labour (Regulation and Abolition) Act, 1970
11. The Sales Promotion Employees (Conditions of Service) Act, 1976
12. The Equal Remuneration Act, 1976
13. The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979
14. The Dock Workers (Safety, Health and Welfare) Act, 1986
15. The Child Labour (Prohibition and Regulation) Act, 1986 16. The Building and Other Construction Workers
(Regulation of Employment and Conditions of Service) Act, 1996.
2.5 SMALL ESTABLISHMENT [SECTION 2(E)]

Small establishment means an establishment in which not less than ten and not more than forty persons are
employed or were employed on any day of the preceding twelve month.

2.6 VERY SMALL ESTABLISHMENT [SECTION 2(F)]

Very small establishment means an establishment in which less than nine persons are employed or
were employed on any day of the preceding twelve months.

3. EXEMPTION FROM FURNISHING OR MAINTAINING OF RETURNS & REGISTERS

REQUIRED UNDER CERTAIN LABOUR LAWS [SECTION 4(1)]
It shall not be necessary for an employer in relation to any small establishments or very small establishment
to furnish the returns or to maintain the registers required to be furnished or maintained.
It may be noted that such an employer:
1. Furnishes, instead of such returns, an annual return in Form I, and
2. Maintains at the work spot, instead of such registers:
(i) Registers in Form II and Form III, in the case of small establishments, and
(ii) A register in Form III, in the case of very small establishments.
3.1 FURNISHING OR MAINTAINING OF RETURNS & REGISTERS IN ELECTRONIC FORM
[SECTION 4(2)]

The annual return, wage books and other records, may be maintained by an employer either in
physical form or on a computer, computer floppy, diskette or other electronic media.

3.2 PENALTY (SECTION 6)

Section 6 of the Labour Laws (Exemption from Furnishing Returns and Maintaining Registers by Certain
Establishments) Act, 1988 prescribes penalties for employers who fail to comply with the provisions of the Act,

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particularly those related to furnishing the simplified annual return and maintaining prescribed registers. On first
conviction, the employer is liable to a fine which may extend to ₹5,000. However, if the offence is repeated,
the law imposes a more stringent penalty—imprisonment for a term not less than three months but which may
extend to six months, or a fine ranging from ₹10,000 to ₹25,000, or both. This graded penal framework reflects
the legislature’s intent to ensure compliance even within a relaxed regulatory regime, reinforcing that exemption
from detailed reporting does not equate to exemption from accountability.
First Conviction Second Conviction
Fine: Up to ` 5,000 Imprisonment: 1 month – 6 months
Or
Fine: ` 10,000 – ` 25,000
Or
Both

Previous Years Questions

1. Techno Soft Solutions, a software development company, has been in operation for over a decade and has
a workforce of 150 employees. Recently, one of the senior software engineers, Rajesh, decided to resign
after completing 5 years of service with the company. He is inquiring about his entitlement to gratuity
under the Payment of Gratuity Act, 1972. Under what circumstances and to whom is the gratuity payable
under the Payment of Gratuity Act, 1972? Dec. 2024 (3 Marks)
Hints: According to Section 4(1) of the Payment of Gratuity Act,1972, gratuity shall be payable to an
employee on the termination of his employment after he has rendered continuous service for not less than
five years:
(a) On his superannuation, or
(b) On his retirement or resignation, or
(c) On his death or disablement due to accident or disease.
The completion of continuous service of five years is not necessary where the termination of the employment
of any employee is due to death or disablement. Further, the period of continuous service is to be reckoned
from the date of employment and not from the date of commencement of this Act. Mere absence from duty
without leave cannot be said to result in breach of continuity of service under this Act. [Kothari Industrial
Corporation v. Appellate Authority, 1998 Lab IC, 1149 (AP)] It is payable normally to the employee
himself. However, in the case of death of the employee, it shall be paid to his nominee and if no nomination
has been made, to his heirs and where any such nominees or heirs is a minor, the share of such minor, shall
be deposited with the controlling authority who shall invest the same for the benefit of such minor in such
bank or other financial institution, as may be prescribed, until such minor attains majority.
2. Explain the provisions for novation of contracts of apprenticeship under Section 5 of the Apprenticeship
Act, 1961. Dec 2024 (3 marks)
Hints: Section 5 of the Apprentices Act, 1961 provides that where an employer with whom a contract of
apprenticeship has been entered into, is for any reason unable to fulfil his obligations under the contract
and with the approval of the Apprenticeship Adviser it is agreed between the employer, the apprentice
or his guardian and any other employer that the apprentice shall be engaged as apprentice under the
other employer for the un-expired portion of the period of apprenticeship training, the agreement, on
registration with the Apprenticeship Adviser, shall be deemed to be the contract of apprenticeship between
the apprentice or his guardian and other employer, and on and from the date of such registration, the
contract of apprenticeship with the first employer shall terminate and no obligation under the contract shall
be enforceable at the instance of any party to the contract against the other party thereto.

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3. Write down the duties of XYZ Manufacturing Pvt. Ltd. to provide basic and practical training to apprentices
under the Apprentices Act, 1961. Jun 2024 (5 Marks)
Hints: Section 9 of the Apprentices Act, 1961 the deals with practical and basic training of apprentices. The
following are the duties of XYZ Manufacturing Pvt Ltd regarding providing basic and practical training to
apprentices: Every employer shall make suitable arrangements in their workplace for imparting a course of
practical training to every apprentice engaged by them. The Central Apprenticeship Adviser or any other
person not below the rank of an Assistant Apprenticeship Adviser authorised by the State Apprenticeship
Adviser in writing on this behalf shall be given all reasonable facilities for access to each such apprentice
witoest his work and to ensure that the practical training is being imparted by the approved programme:
Provided that the State Apprenticeship Adviser or any other person not below the rank of an Apprenticeship
Adviser authorised by the State Apprenticeship Adviser in writing in this behalf shall also be given such
facilities in respect of apprentices undergoing training in establishments about which the appropriate
Government is the State Government. Such of the trade apprentices who have not undergone institutional
training in a school or other institution recognised by the National Council or any other institution
affiliated to or recognised by a Board or State Council of Technical Education or any other authority which
the Central Government may, by notification in the Official Gazette, specify in this behalf, shall, before
admission in the workplace for practical training, undergo a course of basic training and the course of
basic training shall be given to the trade apprentices in any institute having adequate facilities. In the case
of an apprentice other than a graduate or technician apprentice or technician (vocational) apprentice, the
syllabus and the equipment to be utilised for practical training, including basic training in any designated
trade, shall be such as may be approved by the Central Government in consultation with the Central
Apprenticeship Council. In the case of graduate or technician apprentices or technician (vocational)
apprentices, the programme of apprenticeship training and the facilities required for such training in any
designated trade shall be such as may be approved by the Central Government in consultation with the
Central Apprenticeship Council. Recurring costs (including the cost of stipends) incurred by an employer
in connection with basic training, imparted to trade apprentices other than those referred to in clauses (a)
and (aa) of Section 6, shall be borne:
(i) If such an employer employs two hundred and fifty workers or more, the employer;
(ii) If such employer employs less than two hundred and fifty workers, by the employer and the
Government in equal shares up to such limit as may be laid down by the Central Government and
beyond that limit, by the employer alone; Recurring costs (including the cost of stipends), if any,
incurred by an employer in connection with practical training, including basic training, imparted to
trade apprentices referred to in clauses (a) and (aa) of Section 6 shall, in every case, be borne by the
employer. Recurring costs (excluding the cost of stipends) incurred by an employer in connection
with the practical training imparted to graduate or technician apprentices technician (vocational)
apprentices shall be borne by the employer and the cost of stipends shall be borne by the Central
Government and the employer in equal shares up to such limit as may be laid down by the Central
Government and beyond that limit, by the employer alone except apprentices who holds degree or
diploma in non-engineering. In addition to the above, XYZ Manufacturing Pvt Ltd is required to
comply with the requirements of Section 11 of the Apprentices Act, 1961.
4. Shailja, a female employee working in a multinational company, informed the manager of the company
about her pregnancy. She sought guidance on maternity leave entitlements and benefits under the Maternity
Benefit Act, 1961. As the manager of the company, advise Shailja on the maternity leave entitlements and
benefits available to her under the Maternity Benefit Act, 1961. Jun 2024 (5 Marks)

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 Hints: Under the Maternity Benefit Act, 1961, maternity leave entitlement and benefits are provided
to eligible female employees to ensure their health, well-being, and job security during pregnancy and
childbirth. Here are the key provisions regarding maternity leave entitlement and benefits under the Act:
1. Duration of Maternity Leave: The Maternity Benefit Act entitles eligible female employees to a
minimum of 26 weeks of maternity leave. However, for women who have already had two or more
children, the duration of maternity leave is reduced to 12 weeks.
2. Commencement of Maternity Leave: Maternity leave can commence up to eight weeks before
the expected date of delivery (pre-natal leave). If the woman works in a factory, and her delivery
occurs during the pre-natal leave period, the maternity leave will automatically extend for six weeks
following the delivery.
3. Wages During Maternity Leave: During the period of maternity leave, the woman is entitled to
receive maternity benefits, which are payable at the rate of her average daily wage for the period of
her absence. The average daily wage is calculated based on the average wage earned by the woman
during the three months immediately preceding the date of her maternity leave.
4. Medical Bonus: In addition to maternity benefits, eligible women are entitled to receive a medical
bonus if they do not receive free medical care from their employer during pregnancy and childbirth.
5. Leave for Miscarriage or Medical Termination of Pregnancy: In case of miscarriage or medical
termination of pregnancy, a woman is entitled to six weeks of maternity leave immediately following
the day of her miscarriage or termination.
6. Notice of claim for Maternity Leave: A woman intending to take maternity leave is required to give
her employer written notice of her pregnancy and her intention to avail maternity leave, at least six
weeks before the date of her expected delivery.
7. Protection Against Dismissal or Discharge: The Maternity Benefit Act prohibits the dismissal or
discharge of a woman during her absence on maternity leave. It also prohibits the employer from
changing her conditions of service to her disadvantage during this period.
8. Nursing breaks: Every woman delivered of a child who returns to duty after such delivery shall, in
addition to the interval for rest allowed to her, be allowed in the course of her daily work two breaks
of the prescribed duration for nursing the child until the child attains the age of fifteen months.
9. Creche Facility: Every establishment having fifty or more employees shall have the facility of a
creche within such distance as may be prescribed, either separately or along with common facilities.
The employer shall allow four visits a day to the creche by the woman, which shall also include the
interval for rest allowed to her.
10. Employer’s Obligations: Employers are required to display an abstract of the Maternity Benefit Act
at the workplace and provide information about maternity benefits to eligible female employees.
Employers must also ensure compliance with the provisions of the Act regarding maternity leave, benefits,
and protections for female employees. These provisions of the Maternity Benefit Act aim to support women
during pregnancy and childbirth, promote their health and well-being, and ensure their job security and
economic independence. Employers need to be aware of and comply with these provisions to protect the
rights of female employees. Thus, Shailja is advised accordingly on the maternity leave entitlement and
benefits available to her under the Maternity Benefit Act, 1961.
5. Santhi has been employed in a factory since 2008, when the total employees in the factory was. She
resigned from that employment on 31st March, 2023, after 15 years of continuous service. The factory
owner refused to pay the amount of gratuity to Santhi, stating that on the date of her retirement, the number
of employees in the factory had come down to 8, hence the provisions of the Gratuity Act, 1972 would not
be applicable. Referring to the provisions of the Gratuity Act, 1972, advise whether Santhi will succeed in
her claim? June 2023 (3 Marks)

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 Hints: The Payment of Gratuity Act, 1972 provides for a scheme of compulsory payment of gratuity to
employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or other
establishments on the termination of his employment after he has rendered continuous service for not less
than five years on his superannuation or his retirement or resignation or his death or disablement due to
accident or disease. The Payment of Gratuity Act, 1972, shall apply to:-
Every factory, mine, oil field, plantation, port, and railway company;
Every shop or establishment within the meaning of any law for the time being in force about shops and
establishments in a State, in which ten or more persons are employed or were employed on any day of
the preceding twelve months;
Such other establishments or class of establishments in which ten or more employees are employed or were
employed on any day of the preceding twelve months, as the Central government may, by notification,
specify for this purpose. A shop or establishment once covered shall continue to be governed by the Act,
notwithstanding that the number of persons employed therein at any time after it has become so applicable
falls below ten. In light of the above-mentioned provisions, Santhi will succeed in her claim irrespective
of the fact whether the number of required employees/workers falls below ten.
6. Highlight the Cash Benefits, which are provided to women under the Maternity Benefit (Amendment) Act,
2017. Jun. 2022 (3 Marks)
Hints: Cash Benefits provided to Women under the Maternity Benefit Act are as under:
26 Weeks of paid maternity leave
For more than two children and for adopting/commissioning mothersthere is a minimum of 12 weeks
of paid maternity leave.
One month maternity leave to a woman worker suffering from illness arising out of pregnancy, delivery,
premature birth of child (miscarriage, medical termination of pregnancy, or tubectomy operation).
Medical Bonus of ` 3500/- if no prenatal confinement and post-natal care is provided by the employer
free of charge.
No deduction of wages of a woman entitled to maternity benefit.
7. Karan wants to open a garment shop in a shopping mall. Is he required to get his shop registered under the
Shops and Establishments Act, 1948? If so, advise him of the procedure. Dec 2024(3 Marks)
Hints: Any shop or commercial establishment that commences operation must apply to the Chief Inspector
for a Shop and Establishment Act License within the prescribed time. The application for a license in
the prescribed form must contain the name of the employer, address of the establishment, name of the
establishment, category of the establishment, number of employees, and other relevant details as requested.
On Submission of the application and review by the Chief Inspector, the shop or commercial establishment
will be registered, and a registration certificate will be issued to the occupier. The registration certificate
must be prominently displayed at the shop or commercial establishment and renewed periodically, as per
the act. The application is to be submitted along with the prescribed fees and should contain the following
information: a. Name of the employer and the name of a manager, if any: b. The postal address of the
establishment; c. The name of the establishment; d. Such other particulars as may be prescribed. Upon
receiving the application for registration and the fees, the Inspector shall verify the accuracy and correctness
of the application. Once suitably satisfied, he shall enter the details in the Register of Establishments and
issue a registration certificate for the establishment. This certificate will be valid for 5 years and has to be
renewed thereafter. The registration certificate must be prominently displayed at the establishment.

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 8. Ram is working in a factory employing 30 people. The gross salary of Ram is 20,000 per month. He has
worked for 60 days in the year 2019-2020. In light of the provisions of the Payment of Bonus Act, 1965,
examine whether Ram is eligible for payment of bonus for the year 2019-2020. Dec. 2021 (3 Marks)
Hints: Employee [Section 2(13)]: Employee means any person (other than an apprentice) employed on
a salary or wage not exceeding 21,000 per month in any industry to do any skilled or unskilled manual,
supervisory, managerial, administrative, technical or clerical work for hire or reward, whether the terms of
employment be express or implied.
Who is entitled to a bonus [Section 8]: Every employee shall be entitled to a bonus provided he has
worked in the establishment for not less than 30 working days in that year.
Given the above, Ram is eligible for payment of bonus for the year 2019-2020 under the provisions of the
Payment of Bonus Act, 1965.
9. ABC Healthcare is a well-established hospital with a workforce of 100 female employees. One of the
nurses, Priya, is expecting her first child and is preparing to take maternity leave. Priya is not aware of her
right to payment of maternity benefits,, ts and she is unsure about the procedure for claiming these benefits
and the necessary notice she needs to provide to her employer. Advise Priya on her right to payment of
maternity benefits and the requirements for the notice of claim for maternity benefits under Section 6 of
the Maternity Benefit Act, 1961. Dec. 2024 (5 Marks)
Hints: Section 5 of the Maternity Benefit Act, 1961 provides that every woman shall be entitled to, and
her employer shall be liable for, the payment of maternity benefit at the rate of the average daily wage for
the period of her actual absence, that is to say, the period immediately preceding the day of her delivery,
the actual day of her delivery and any period immediately following that day. The average daily wage
means the average of the woman’s wages payable to her for the days on which she has worked during three
calendar months immediately preceding the date from which she absents herself on account of maternity,
the minimum rate of wage fixed or revised under the Minimum Wages Act, 1948 or ten rupees, whichever
is the highest. A woman shall be entitled to maternity benefit if she has worked in an establishment of the
employer from whom she claims maternity benefit, for not less than eighty days in the twelve months
immediately preceding the date of her expected delivery.
The maximum period for which any woman shall be entitled to maternity benefit shall be twenty-six
weeks, of which not more than eight weeks shall precede the date of her expected delivery. However, the
maximum period entitled to maternity benefit by a woman having two or more surviving children shall
be twelve weeks,s off which not more than six weeks shall precede the date of her expected delivery. If a
woman dies during this period, the maternity benefit shall be payable only for the days up to and including
the day of her death. Where a woman, having been delivered of a child, dies during her delivery or during
the period immediately following the date of her delivery for which she is entitled to the maternity benefit,
leaving behind in either case the child, the entire period. If the child also dies during the said period, then,
for the days up to and including the date of the death of the child. A woman who legally adopts a child
below the age of three months or a commissioning mother shall be entitled to maternity benefit for twelve
weeks from the date the child is handed over to the adopting mother or the commissioning mother, as
the case may be. In case the nature of work assigned to a woman is such that she may work from home,
the employer may allow her to do so after availing of the maternity benefit for such period and on such
conditions as the employer and the woman may mutually agree.
Section 6 of the Maternity Benefit Act, 196, provides for notice of claim for maternity benefit and payment
thereof. As per the Section any woman employed in an establishment and entitled to maternity benefit
under the provisions of this Act may give notice in writing in prescribed form, to her employer, stating that
her maternity benefit and any other amount to which she may be entitled under this Act may be paid to her
or to such person as she may nominate in the notice and that she will not work in any establishment during
the period for which she receives maternity benefit.

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 In the case of a woman who is pregnant, such notice shall state the date from which she will be absent from
work, not being a date earlier than six weeks from the date of her expected delivery. Any woman who has
not given the notice when she was pregnant may give such notice as soon as possible after the delivery.
On receipt of the notice, the employer shall permit such woman to absent herself from the establishment
during the period for which she receives the maternity benefit.
The amount of maternity benefit for the period preceding the date of her expected delivery shall be paid in
advance by the employer to the woman on production of such proof, that the woman is pregnant, and the
amount due for the Subsequent period shall be paid by the employer to the woman within forty-eight hours
of production of such proof as may be prescribed that the woman has been delivered of a child.
10. Write down the benefits available to the insured persons or their dependents under the Employees’ State
Insurance Act, 1948. June 2024 ( 3 marks)
Hints: Under Section 46 of the State Insurance Act, 194, the insured persons or their dependents are
entitled to the following benefits on a prescribed scale:
(a) Periodical payments in case of sickness certified by a medical practitioner;
(b) Periodical payments to an insured workman in case of confinement or miscarriage, or sickness arising
out of pregnancy, confinement;
(c) Periodical payment to an insured person suffering from disablement as a result of employment injury;
(d) Periodical payment to dependents of the insured person;
(e) Medical treatment and attendance on the insured person;
(f) Payment of funeral expenses on the death of the insured person at the prescribed rate.
11. Dinesh is running a small handicraft unit with 3 workers. He is planning for expansion, and it may require
the addition of 10-15 employees. He is planning to register his business under the Employees' State
Insurance (ESI) and extend the benefit to all his employees. He is keen to know from you the benefits
available to him as an employer in extending the ESI facilities to his employees. Advise Dinesh.
 June 2024 (3 marks)
Hints: The following are the benefits available to the employer in extending the ESI facilities to their
employees:
Employers are absolved of all their liabilities of providing medical benefits to their employees and
their family members or dependents in kind or the form of a fixed cash allowance, reimbursement or
actual expenses, lump sum grant, or opting for any other medical insurance policy of limited scope,
unless it is a contractual obligation of the employer.
Employers are granted the applicability of the Maternity Benefit Act, 1961, the Employee Compensation
Act, 1923, etc. In respect of employees covered under the ESIC Scheme.
This results in employers possessing a productive and well-structured workforce at their disposal,
which is an essential ingredient for better productivity of an organisation. Their employees or workers,
such as employment injury, sickness, or physical disability, thereby resulting in loss of wages, since
the responsibility of paying cash benefits shifts from the employer to the ESIC in respect of the insured
employee.
Any amount or sum paid by way of contribution under the Employees' State Insurance Act, 1948, is
deducted in computing "Income" under the Income Tax Act, 1961.
12. PT Pvt. Ltd. is engaged in the business of textile-related products and employs 20 employees. Out of which,
11 employees draw a monthly salary of more than 25,000 each, and 9 employees draw a monthly salary of
less than 20,000 each. Because of this, the Management of the Company is of the view that the Company is
not covered under the Employees’ State Insurance (ESI) Act, 1948. Referring to relevant provisions, clarify
whether the contentions of the Management of PT Pvt. Ltd. are correct. Dec 2023 (3 marks)

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 Hints:
1. Registration of Employer: Any employer having more than 10 employees is mandatorily required
to register under ESI. Employees earning 21,000 INR per month or less shall contribute to the ESI
scheme. Employees with higher wages are exempt.
2. Registration depends on the number of employees and not on the earnings of the Employees. Though
employees drawing more than ` 21,000 per month are exempt from ESI contribution.
3. Registration limit is mandatory; if a Company has more than 10 employees, accordingly PT Pvt. Ltd.
has to obtain registration, even if the number of employees who are contributing is less than 10.
13. Define the term ‘E.I. Court’. Which types of matters are decided by the E.I. Court? Dec 2023 (3 marks)
Hints: Section 74 of the Employees’ State Insurance Act, 1948, provides that the State Government shall,
by notification in the Official Gazette, constitute an Employees’ Insurance Court(E.I.) for such local area
as may be specified in the notification.
The Court shall consist of such several judges as the State. Any person who is or has been a judicial officer
or is a legal practitioner of 5 years standing shall be qualified to be a judge of E.I Court.
The State Government may appoint the same Court for two or more local areas or more Courts for the
same local area, and may regulate the distribution of business between them.
If any question or dispute arises as to
(a) Whether any person is an employee within the meaning of this Act or whether he is liable to pay the
employee’s contribution, or
(b) The rate of wages or average daily wages of an employee for this Act,
(c) The rate of contribution payable by a principal employer in respect of any employee,
(d) The person who is or was the principal employer in respect of any employee, or
(e) The right of any person to any benefit and as to the amount and duration thereof, or
(f) Any direction issued by the Corporation under Section 55A on a review of any payment of dependent’s
benefits, or
(g) Any other matter which is in dispute between a principal employer and the Corporation.
14. M/s Ariyakudi Private Limited, an appellant Company, fails to deposit the PF contribution, upon financial
crises in the business, and the Assistant Provident Commissioner levied damages for the delay in contribution.
Now, M/s Ariyakudi Private Limited has challenged the said matter with the higher jurisdiction. Whether
the levy of damages tenable? Discuss. Dec 2023(3 marks)
Hints:
1. The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 is a welfare legislation
which aims at providing social Sectionurity and timely monetary assistance to Industrial employees
and their families when they are in distress and/or unable to meet family and social obligations and to
protect them in old age, disablement, early death of the bread winner and in some other contingencies.
2. EPF or Employee Provident Fund is a retirement benefit under which both employer and employee
contribute equally to the EPF account. The Act imposes a statutory obligation on employers covered
under the Act to pay their contribution along with the employee’s contribution within fifteen days of
the close of every month to the Fund by separate Bank drafts or cheques on account of contributions
and administrative charges.

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3. The issue in the given question is “Whether financial crisis could be a tenable ground to be considered
justifiable for failure to deposit PF contribution by the employer and consequently challenge the levy
of damages for delay in contribution?” In M/S Hindustan Times Limited vs. Union of India & Others
on 7 January, 1998, Supreme Court held that the following principles can be summarised w.r.t. of
the Employees Provident Fund & Miscellaneous Provisions Act, 1952: The Authority under Section
14-B has to apply his mind to the facts of the case and the reply to the show cause notice and pass
a reasoned order after following principles of natural justice and giving a reasonable opportunity of
being heard; the Regional Provident Fund Commissioner usually takes into consideration the number
of defaults, the period of delay, the frequency of default and the amounts involved; default on the part
of the employer.
4. Therefore, going by the above judgment of the Supreme Court, the levy of damages in the case of M/s
Ariyakudi Private Limited, for failure to deposit PF contribution, will be upheld, and the financial
crisis as a justification for the delay in depositing the same cannot be accepted

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 CHAPTER SBIL

20
SEXUAL HARASSMENT OF
WOMEN AT WORKPLACE (PREVENTION,
PROHIBITION & REDRESSAL) ACT, 2013

1. HISTORY OF THE LEGISLATION

Sexual harassment of women at the workplace is a significant issue that has long been overlooked and
underreported. The growing awareness of this issue led to the creation of laws aimed at providing women with
the right to a safe and dignified workplace.
Sexual harassment cannot be confined to a narrow definition—it includes not just sexual advances but also verbal
or physical harassment of a sexual nature.
“...it is time for women to feel liberated from oppressive conditions, where they can make autonomous choices
for their freedom and dignity, ensuring sexual autonomy at every level.”

2. INTRODUCTION
The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, is a
pivotal legislation aimed at safeguarding women’s right to a safe and dignified working environment. Rooted
in Article 21 of the Constitution and shaped by the Vishaka Guidelines (1997), the Act establishes proactive
mechanisms against unwelcome sexual conduct in the workplace.
This statute applies to all sectors, including the organized and unorganized sectors, and covers various categories
of workers, such as contractual, temporary, and visiting employees. It recognizes sexual harassment as a barrier
to gender equality, fair opportunity, and personal dignity. The Act’s provisions balance procedural compliance
with victim-sensitive responses and impose liability on employers who fail to implement preventive or corrective
measures.

Writ P
etition
 The Vishaka Judgment
In 1992, Bhanwari Devi, a Dalit woman employed with the rural development programme of the Government
of Rajasthan, was brutally gang-raped as a result of her efforts to prevent the prevalent practice of child marriage.
This horrific incident highlighted the daily risks faced by working women and underscored the urgent need for
legal safeguards against sexual harassment in the workplace.
In response, women’s rights activists and lawyers filed a Public Interest Litigation (PIL) in the Supreme
Court of India, under the banner of Vishaka. This case marked a historic moment in Indian jurisprudence, as
the Supreme Court, for the first time, recognized workplace sexual harassment as a violation of human rights
and a serious issue that needed legal redress.
In framing the Vishaka Guidelines, the Court drew upon international standards, particularly the Convention
on the Elimination of All Forms of Discrimination Against Women (CEDAW), adopted by the United
Nations General Assembly in 1979, which India had signed and ratified. The guidelines laid the groundwork
for a structured legal framework to prevent and address sexual harassment in the workplace.

As per the Vishaka judgment: Definition of ‘Sexual Harassment’:

It includes unwelcomed sexually determined behaviour

Physical contact & advances

Demand or request for sexual favors

Sexually coloured remarks

Showing pornography

Any other unwelcome physical, verbal or non-verbal conduct of sexual nature

Where any of these acts are committed in circumstances under which the victim of such conduct has a reasonable
apprehension about the victim’s employment or work, such conduct can be humiliating and may constitute a health
and safety problem, and it amounts to sexual harassment in the workplace. It is discriminatory, for instance, when
the woman has reasonable grounds to believe that her objection would disadvantage her in connection with her
employment or work (including recruiting and promotion), or when it creates a hostile working environment. Adverse
consequences might result if the victim does not consent to the conduct in question or raises any objection thereto.’
The Vishaka judgment initiated a nationwide discourse on workplace sexual harassment and threw out wide open
an issue that was swept under the carpet for the longest time. The first case before the Supreme Court after Vishaka
in this respect was the case of Apparel Export Promotion Council v. A.K Chopra, The Supreme Court explained
that “sexual harassment is a form of sex discrimination projected through unwelcome sexual advances,
request for sexual favours and other verbal or physical conduct with sexual overtones, whether directly or

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by implication, particularly when submission to or rejection of such conduct by the female employee was
capable of being used for affecting the employment of the female employee and unreasonably interfering
with her work performance and had the effect of creating an intimidating or hostile work environment for
her.”

CASE LAW

Apparel Export Promotion Council v. A.K Chopra, (1999) 1 SCC 759. In this case, the Supreme Court
reiterated the law laid down in the Vishaka Judgment and upheld the dismissal of a superior officer of the Delhi
based Apparel Export Promotion Council who was found guilty of sexually harassing a subordinate female
employee at the workplace. In this judgment, the Supreme Court enlarged the definition of sexual harassment
by ruling that physical contact was not essential for it to amount to an act of sexual harassment.
The definition also provides that harassment may be a verbal or non-verbal conduct. Hence, a mere
statement in a case where the plaintiff requested defendant No. 1 to instruct the attendants 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.,
(2004) 2 CALLT 421 (HC)].

India’s first legislation addressing workplace sexual harassment, the Sexual Harassment of Women at
Workplace (Prevention, Prohibition & Redressal) Act, 2013 (“POSH Act”), was enacted 16 years after the
Vishaka & Ors. vs. State of Rajasthan (1997) case, which set the legal precedent for preventing workplace
sexual harassment. The POSH Act came into force on 9th December 2013. Along with the Act, the government
also notified the POSH Rules (2013), which outline the procedural steps for addressing and preventing sexual
harassment in workplaces.
Additionally, the Criminal Law (Amendment) Act, 2013, criminalised offences like sexual harassment, stalking,
and voyeurism, marking another critical step in strengthening legal protections for women.

3. OBJECTIVE OF THE ACT

1. To prevent and protect women against workplace sexual harassment.

2. Sexual harassment results in violation of women rights under Articles 14 and 15 and Article 21 of
the Constitution of India.

What is Workplace Sexual Harassment?

Workplace sexual harassment is sexual, unwelcome, and the experience is subjective. It is the impact and not
intent that matters, and it almost always occurs in a matrix of power. The impact of sexual harassment at the
workplace is far-reaching and is an injury to the equal rights of women. Workplace sexual harassment not only
creates an insecure and hostile working environment for women but also impedes their ability to deliver in
today’s competitive world. Apart from interfering with their performance at work, it also adversely affects their
social and economic growth and puts them through physical and emotional suffering.

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4. MOST COMMON FORMS OF INAPPROPRIATE BEHAVIOUR
Most Common Forms of Inappropriate Behaviour

5. APPLICABILITY OF THE POSH ACT 2013 ( PREVENTION OF SEXUAL HARASSMENT)

It is applicable to both organized and unorganized sectors (self-employed or having less than 10 workers).

It applies to government bodies, private & public sector organizations, non-governmental organizations,
hospitals and nursing homes, educational institutes, sport institution and also applies to dwelling place or house.

6. IMPORTANT DEFINITIONS
6.1 “AGGRIEVED WOMAN” [SECTION 2(A)] Means:
) About a workplace, a woman, of any age, whether employed
or not, who alleges to have been subjected to any act of sexual
harassment by the respondent,
) About a dwelling place or house, a woman of any age who is
employed in such a dwelling place or house.
It includes all women, whether engaged directly or through an
agent, including a contractor, with or without the knowledge of
the principal employer. They may be working for remuneration,

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voluntarily, or otherwise. Their terms of employment can be expressed or implied. Further, she could be a co-
worker, a contract worker, a probationer, a trainee, an apprentice, or called by any other such name. The Act also
covers a woman who is working in a dwelling place or house.
6.2 “APPROPRIATE GOVERNMENT” [SECTION 2(B)] Means
) About a workplace which is established, owned, controlled, or wholly or substantially financed by funds
provided directly or indirectly —
(a) By the Central Government or the Union territory administration, the Central Government;
(b) By the State Government, the State Government
) About any workplace not covered under sub-clause (i) and falling within its territory, the State Government,
i.e., for the private sector, the appropriate Government is the concerned State Government.

6.3 “DOMESTIC WORKER” [SECTION 2(E)] Means

) A woman who is employed to do the household work in any household for remuneration, whether in cash
or kind, either directly or through any agency, on a temporary, permanent, part-time time or full-time basis,
) But does not include any member of the family of the employer.

6.4 “EMPLOYEE” [SECTION 2(F)] Means

) A person employed at a workplace for any work on regular, temporary, ad hoc or daily wage basis, either
directly or through an agent, including a contractor, with or, without the knowledge of the principal employer,
whether for remuneration or not, or working voluntarily or otherwise, whether the terms of employment are
express or implied and
) Includes a co-worker, a contract worker, a probationer, a trainee, an apprentice, or called by any other such
name.

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6.5 “EMPLOYER” [SECTION 2(G)] Means
1. About any department, organisation, undertaking, establishment, enterprise, institution, office, branch
or unit of the appropriate Government or a local authority, the head of that department, organisation,
undertaking, establishment, enterprise, institution, office, branch or unit or such other officer as the
appropriate Government or the local authority, as the case may be, may by an order specify in this behalf;

2. In any workplace not covered under sub-clause (i), any person responsible for the management,
supervision, and control of the workplace. Explanation. — For this sub-clause, “management” includes
the person or board, or committee responsible for the formulation and administration of policies for such
organisation;

3. About the workplace covered under sub-clauses (i) and (ii), the person discharging contractual obligations
concerning his or her employees;

4. About a dwelling place or house, a person or a household that employs or benefits from the employment
of a domestic worker, irrespective of the number, period, or type of such worker employed, or the nature
of the employment or activities performed by the domestic worker.

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6.6 “RESPONDENT” [SECTION 2(M)] Means
A person against whom the aggrieved woman has made a complaint under section 9.
6.7 “SEXUAL HARASSMENT” [SECTION 2(N)] Means
It includes any one or more of the following unwelcome acts or behaviour (whether directly or by implication),
namely:
1. Physical contact and advances; or
2. A demand or request for sexual favours; or
3. Making sexually coloured remarks; or
4. Showing pornography; or
5. Any other unwelcome physical, verbal, or non-verbal conduct of a sexual nature

The POSH Act defines ‘sexual harassment by providing that any of the following circumstances, related
to sexual harassment, may also amount to Sexual Harassment:
1. Implied or explicit promise of preferential treatment in the victim’s employment,
2. Implied or explicit threat of detrimental treatment in the victim’s employment,
3. Implied or explicit threat about the victim’s present or future employment status,
4. Interferes with the victim’s work or creates an intimidating or offensive, or hostile work
environment for her and
5. Humiliating treatment likely to affect the victim’s health or safety.

6.8 ‘’WORKPLACE” [SECTION 2(O)] Means

1. Any department, organisation, undertaking, establishment, enterprise, institution, office, branch or unit
owned by the appropriate Government or the local authority or a Government company or a corporation
or a co-operative society;

2. Any private sector organisation

3. Hospitals or nursing homes;

4. Any sports institute, stadium, sports complex or competition or games venue

5. Any place visited by the employee arising out of or during the course of employment

6. A dwelling place or a house

CASE LAW
Saurabh Kumar Mallick v. Comptroller & Auditor General of lndia, the respondent who was facing departmental
inquiry for allegedly indulging in sexual harassment of his senior woman officer contended that he could not be
accused of sexual harassment at workplace as the alleged misconduct took place not at the workplace but at an
official mess where the woman officer was residing. It was also argued that the complainant was even senior to
the respondent and therefore no ‘favour’ could be extracted by the respondent from the complainant and thus
the alleged act would not constitute ‘sexual harassment’. The Delhi Court while considering this matter held
this as ‘clearly misconceived’

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 It has also become a trend that the office is being run by CEOs from their residence. In a case like this, if such
an officer indulges in an act of sexual harassment with an employee, say, his private secretary, it would not be
open for him to say that he had not committed the act at ‘workplace’ but at his ‘residence’ and get away with
the same.

In conclusion, the Delhi High Court held that the official mess where the employee was alleged to have
been sexually harassed definitely falls under ‘workplace’.
The High Court observed that the following factors would have bearing on determining whether the act has
occurred in the ‘workplace’:
Proximity from the place of work,
Control of the management over such a place/residence where the working woman is residing, and
Such a residence has to be an extension or contiguous part of the working place.

6.9 “UNORGANISED SECTOR” [SECTION 2(P)] Means

About a workplace means an enterprise owned by individuals or self-employed workers and engaged in the
production or sale of goods or providing service of any kind whatsoever, and where the enterprise employs
workers, the number of such workers is less than ten.

7. COMPLAINT COMMITTEE
The Act provides for two kinds of complaint mechanisms:
1. Internal Complaints Committee (ICC), and
2. Local Complaints Committee (LCC).

7.1 INTERNAL COMPLAINT COMMITTEE (ICC)

The Act mandates the establishment of an Internal Complaints Committee (ICC) in workplaces where 10 or
more employees are employed. The ICC is tasked with addressing and redressing grievances related to sexual
harassment. Below are the provisions governing the ICC:
1. Mandatory constitution of the Internal Complaints Committee by order in writing:
Requirement: Every employer where 10 or more employees are working must form an Internal Complaints
Committee to handle complaints of sexual harassment.
Written Order: The employer must issue a written order to form the committee.
Multiple Offices: If the workplace operates from multiple offices or administrative units, an Internal
Complaints Committee must be formed at each location.
2. Composition of the ICC:
The Internal Complaints Committee must be constituted as follows:
Presiding Officer:
 The Presiding Officer must be a woman employee at a senior level within the organization.
 If there is no senior-level woman employee in a particular office or unit, the Presiding Officer
may be nominated from other offices or units within the same workplace.
 In case no senior-level woman employee is available across any units, the Presiding Officer can
be nominated from another workplace of the employer or a different department or organization.
Members:
 The committee must consist of at least two employees (members), who are preferably women.

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 External Member:
 The committee must also include one external member who is from an NGO or an association
focused on women’s issues or someone with expertise on sexual harassment.
Women’s Representation: At least half of the total members of the committee should be women.
3. Tenure of office: The Presiding Officer and every Member of the Internal Committee shall hold office
for such period, not exceeding three years, from the date of their nomination as may be specified by the
employer.
4. Casual Vacancy in the Committee:
A casual vacancy arises when the Presiding Officer or a member of the committee:
Contravenes the provisions of the Act,
Has been convicted of any criminal offence,
Has been found guilty in any disciplinary proceedings, or if such proceedings are pending against them,
Abuses their position in a manner that makes their continuation in office prejudicial to the interests of
the committee or public interest.
In such cases:
The person will be removed from the committee.
The vacancy should be filled by a fresh nomination in accordance with the provisions mentioned.

7.2 LOCAL COMPLAINT COMMITTEE (LCC)

CONSTITUTION OF LOCAL COMPLAINTS COMMITTEE – [Section 7(1)]
1. Notification of District Officer
Responsibility: The Appropriate Government is responsible for notifying a District Officer (such as the
District Magistrate, Additional District Magistrate, Collector, or Deputy Collector) to oversee the functions
and powers under this Act at the district level.
Role: The District Officer is responsible for exercising powers and discharging functions as per the Act.
2. Constitution and Jurisdiction of Local Committee
Formation of LCC: In each district, the District Officer must constitute a Local Committee to address
complaints of sexual harassment from establishments where an Internal Complaints Committee (ICC)
has not been set up.
Purpose: The Local Committee’s primary function is to receive complaints of sexual harassment from
workplaces that do not have an ICC in place.

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 3. Composition, Tenure, and Other Terms and Conditions of the Local Committee:
The Local Complaints Committee (LCC) must consist of the following members, who are to be nominated
by the District Officer:
Chairperson:
 The Chairperson must be a woman.
One Member from the Local Community:
 One member must be a woman working in the block, taluka, tehsil, ward, or municipality within
the district.
Two Members from NGOs/Associations:
 At least one member must be a woman.
 These members should come from non-governmental organizations or associations that are
committed to the cause of women’s welfare.
 At least one of the members should ideally have a background in law or legal knowledge.
Scheduled Caste/Scheduled Tribe/OBC Representation:
 One of the members must be a woman belonging to a Scheduled Caste (SC), Scheduled Tribe
(ST), or Other Backward Classes (OBC).
Ex officio Member:
 The officer responsible for social welfare or women and child development in the district will be
a member ex officio (i.e., by virtue of their office).

The Chairperson and every Member of the Local Committee shall hold office for such period, not exceeding
three years, from the date of their appointment as may be specified by the District Officer.
Removal of the Chairperson or any Committee Member found to have engaged in inappropriate conduct.
He shall be removed from the Committee, and the vacancy so created or any casual vacancy shall be filled by
fresh nomination by the provisions of this section:
) Contravenes the provisions of section 16, or
) Has been convicted of an offence
) Has been found guilty in any disciplinary proceedings,
) Has so abused his position as to render his continuance in office prejudicial to the public interest.

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Summary

Sexual harassment of domestic

Government is required to set It is constituted where
workers or complaint is against
up Local complaint committee establishment having less than 10
the employer or the third party
to investigate sexual harassment employees or complaint is against
who is not employee LCC has
cases in unorganized sector. employer.
special relevance.

8. GRANT AND AUDIT (SECTION 8)

The Central Government may, after due appropriation made by Parliament by law in this behalf, make to the State
Government grants of such sums of money as the Central Government may think fit. The State Government may
set up an agency and transfer the grants so made to that agency. The agency shall pay to the District Officer such
sums as may be required for the payment of fees.

9. COMPLAINT (SECTION 9)
9.1 COMPLAINT OF SEXUAL HARASSMENT

An aggrieved woman can file written complaint to Internal Complaint Committee (ICC) or Local Complaint
Committee (LCC) within 3 months from date of incident and in case of series of incidents 3 months from the
date of last incident.
The LCC or ICC may extend the time limit not exceeding 3 months if satisfied circumstances prevented woman
from filing complaint.

If an aggrieved woman is unable to file complaint because of her physical or mental incapability or death, then
her legal heirs or other persons to LCC or ICC on behalf of her.

The written complaint should contain a description of each incident(s).

It should include relevant dates, timings, and locations; names of the respondent(s); and the working relationship
between the parties.
NOTE: In Manjeet Singh vs. Indraprastha Gas Limited 236 (2017) DLT 396, the Delhi High Court observed that
anonymous complaints under the Act are bound to be rejected.

10. CONCILIATION (SECTION 10)

1. The Internal Committee or the Local Committee may, at the request of the aggrieved woman, take steps
to settle the matter between her and the respondent through conciliation. It is provided that no monetary
settlement shall be made as a basis of conciliation.
2. Where a settlement has been so arrived, the Internal Committee or the Local Committee, as the case may be,
shall record the settlement so arrived and forward the same to the employer or the District Officer to take
action as specified in the recommendation.

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11. INQUIRY
Under the POSH Act, an inquiry into a sexual harassment complaint is a time-bound, fact-finding process
led by the Internal Complaints Committee (ICC). The inquiry aims to ensure fairness, confidentiality, and
natural justice for both the complainant and the respondent. The ICC will:
) Examine evidence
) Hear both sides of the complaint
) Recommend interim relief, if necessary
) Complete the process within 90 days from the date of the complaint
) Submit a report to the employer within 10 days of completing the inquiry.
The inquiry is not a trial; rather, it is a structured mechanism to uphold workplace dignity and safety. The
process culminates in the ICC's findings and may result in action or compensation depending on the outcome.

11.1 INQUIRY INTO COMPLAINT (SECTION 11)

) Procedure: As per Section 11 of the POSH Act, the inquiry process must be conducted by the Internal
Complaints Committee (ICC) or Local Complaints Committee (LCC), depending on the circumstances.
The procedure should follow the service rules if the respondent is an employee, or a prescribed procedure
if no such rules exist.
) Cases Involving Domestic Workers: In cases where domestic workers are involved, and a prima facie
case of harassment is found, the Local Committee must forward the complaint to the police within seven
days for action under Section 509 of the IPC or other applicable provisions.

Section 11– Internal Complaint Committee or Local Complaint Committee shall make inquiry into the
complaint and in case of domestic worker ICC or LCC shall forward complaint to the police within 7 days
for registering the case

ICC and LCC shall have powers while inquiring into complaint of sexual harassment-
Summoning and enforcing the attendance of a person and examining him on oath,
can require the discovery and documents of production, and
any other matter which may be prescribed.

Such inquiry should be completed within 90 days.

Where the aggrieved woman informs the Internal Committee or the Local Committee, as the case
may be, that any term or condition of the settlement arrived has not been complied with by the
respondent, the Internal Committee or the Local Committee shall proceed to make an inquiry
into the complaint or, forward the complaint to the police.
It is provided further that where both the parties are employees, the parties shall, during the course
of inquiry, be given an opportunity of being heard.

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11.2 ACTION DURING PENDENCY OF INQUIRY (SECTION 12)
The relief that can be given by IC to the aggrieved woman during the pendency of the inquiry.
During the pendency of an inquiry, on a written request made by the aggrieved woman, the Internal Committee
or the Local Committee, as the case may be, may recommend to the employer to–

(a) Transfer the aggrieved woman or the respondent to any other workplace; or

(b) Grant leave to the aggrieved woman up to a period of three months; or

(c) Grant such other relief to the aggrieved woman as may be prescribed.

The leave granted to the aggrieved woman under this section shall be in addition to the leave she would be
otherwise entitled to.
11.3 INQUIRY REPORT (SECTION 13)
Section 13 of the Act provides for the action report to be submitted by IC or LC after conducting an inquiry under
the Act.

1. The action report to be submitted by IC or LC after conducting inquiry under the Act and have to
submit within 10 days to employer and district officer.

2. Where the ICC/ LCC - arrives at the conclusion that the allegation has not been proved, it shall
recommend to the employer and the District Officer that no action is required to be taken in the
matter.

3. Where the ICC/LCC arrives at the conclusion that the allegation has been proved, it shall recommend
to the employer or the District Officer.
To take action for sexual harassment as a misconduct.
To deduct, from the salary or wages of the respondent such sum as it may consider appropriate to be
paid to the aggrieved woman or to her legal heirs.

11.4 PUNISHMENT FOR FALSE OR MALICIOUS COMPLAINTS AND FALSE EVIDENCE (SECTION 14)
There are strict provisions for false or malicious complaints and false evidence under the Act.
1. 2.
Take action against the woman or the It is provided that a mere inability to 3.
person who has made the complaint substantiate a complaint or provide Malicious intent on part
as perv service rules, where no such adequate proof need not attract of complainant shall be
service rules exist, in such manner as action against the complainant under established.
may be prescribed. this section.

Where the Internal Committee or the Local Committee, as the case may be, concludes that during the inquiry
any witness has given false evidence or produced any forged or misleading document, it may recommend to the
employer of the witness or the District Officer, to take action in accordance with the provisions of the service rules
applicable to the said witness or where no such service rules exist, in such manner as may be prescribed.

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11.5 DETERMINING COMPENSATION (SECTION 15)
Purpose of Compensation: As per Section 15, the ICC or LCC is tasked with determining appropriate
compensation for the aggrieved woman based on the inquiry's findings.
Factors Considered: When determining compensation, the Committee will consider:

(a) The mental trauma, pain, suffering and emotional distress caused to the aggrieved woman

(b) The loss in the career opportunity due to the incident of sexual harassment

(c) Medical expenses incurred by the victim for physical or psychiatric treatment

(d) The income and financial status of the respondent

(e) Feasibility of such payment in lump sum or in installments.

11.6 PROHIBITION OF PUBLICATION OR DISCLOSURE OF COMPLAINT AND INQUIRY

PROCEEDINGS (SECTION 16)

1. The contents of the complaint

2. The identity and addresses of the aggrieved woman, respondent and witnesses,

3. Any information relating to conciliation and inquiry proceedings

4. Action taken by the employer shall not be published, communicated or made known to the public, press
and media in any manner

It is provided that information may be disseminated regarding the justice secured to any victim of sexual
harassment under this Act.

According to section 16, Notwithstanding anything contained in the Right to Information Act,

11.7 PENALTY FOR VIOLATION OF CONFIDENTIALITY (SECTION 17)

) Penalty: Section 17 imposes penalties on any individual entrusted with the responsibility of handling the
complaint, inquiry, or recommendations if they violate the confidentiality provisions under Section 16.
) Penalties: Those found violating the confidentiality will be subject to penalties as specified by the employer's
service rules, or if no such rules exist, penalties as prescribed by relevant authorities.

12. APPEAL (SECTION 18)

Right to Appeal: Any person who is aggrieved by the recommendations or non-implementation of those
recommendations made by the Internal Complaints Committee (ICC) or Local Complaints Committee
(LCC) may file an appeal.

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Where to Appeal: The appeal should be filed with the court or tribunal in accordance with the service rules
applicable to the person. If no service rules exist, the aggrieved party may file the appeal in a manner prescribed
by law, without prejudice to any other relevant laws in force at the time.
Time Frame: The appeal must be filed within 90 days from the date of the recommendations.

13. DUTIES OF EMPLOYER (SECTION 19)

Under Section 19, the Act outlines the duties of the employer to ensure the creation and maintenance of a safe
and dignified workplace. These duties are both proactive and reactive and extend across various phases, including:
(i)
It is duty of employer to provide safe working environment for every working women in organization.

(ii)
Display at any conspicuous place and consequences of Sexual harassment in the workplace.

(iii) To organise workshops and awareness programme at regalar intervals to inform the employees with the
provisions of this act.
(iv)
It is duty of employer to provide necessary facilities to Internal committee or Local Committee.

(v)
Assist in attendance of respondent before ICC or LCC.

(vi)
Employer should made available all required information to LCC or ICC.

(vii) Providing assistance to women if she chooses to file complaint of offense under Indian Penal Code,
1860.
(viii)
To take initiate actions under Indian Penal code 1860 or any other law against perpetrator.

(ix)
It is duty of employer to treat sexual harassment as misconduct and take appropriate actions against it.

14. DUTIES OF DISTRICT OFFICER (SECTION 20)

Section 20 casts upon the following mandatory duties on the District Officer who shall —

District officer shall make necessary

District officer shall monitor the timely
measures to promote awareness about
submission of reports furnished by LCC.
women rights and sexual harassment.

15. MISCELLANEOUS
15.1 COMMITTEE TO SUBMIT ANNUAL REPORT (SECTION 21)
As per Section 21, both the Internal Committee (IC) and the Local Committee (LC) must prepare and submit an
annual report each calendar year.

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Format & Timing: The report should be submitted in a prescribed form and within the timeline set by the
regulations.
Submission: The report must be sent to both the employer and the District Officer.
Further Reporting: The District Officer will then forward a summary of the reports to the State Government.
15.2 EMPLOYER TO INCLUDE INFORMATION IN ANNUAL REPORT (SECTION 22)
Employer's Responsibility: According to Section 22, the employer must include specific information in their
annual report:
) The number of cases of sexual harassment filed within the workplace.
) The disposal status of these cases under the Act.
Reporting to District Officer: If no formal annual report is required, the employer must inform the District
Officer about the number of cases filed and their current status.
Monitoring: The Appropriate Government is responsible for monitoring the implementation of this Act and for
maintaining data on the number of cases filed and disposed of, ensuring consistent reporting.
15.3 APPROPRIATE GOVERNMENT TO TAKE MEASURES TO PUBLICISE THE ACT (SECTION 24)
Public Awareness and Training: Under Section 24, the Appropriate Government may:
) Develop educational materials (e.g., brochures, videos) and organize awareness programs to inform the
public about the provisions of the Act.
) Conduct orientation and training sessions for members of the Local Committee to ensure effective
handling of complaints.
Resource Allocation: These initiatives will be carried out subject to the availability of financial resources and
other factors.
Summary

Internal committee or Local committee should report all cases in year and forward reports to District officer
and employer.

Employer to include information annual report.- number of cases filed, if any and their disposal.

15.4 POWER TO CALL FOR INFORMATION AND INSPECTION OF RECORDS (SECTION 25)
The appropriate Government, on being satisfied that it is necessary in the public interest or in the interest of
women employees at a workplace to do so, by order in writing, —

(a) Call upon any employer or District Officer to furnish in writing such information relating to sexual
harassment as it may require;

(b) Authorise any officer to make inspection of the records and workplace in relation to sexual harassment,
who shall submit a report of such inspection to it within such period as may be specified in the order.

Every employer and District Officer shall produce on demand before the officer making the inspection all
information, records, and other documents in his custody having a bearing on the subject matter of such inspection.

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15.5 PENALTY FOR NON-COMPLIANCE WITH PROVISIONS OF THE ACT (SECTION 26)
Section 26 provides for a penalty with a fine of up to rupees fifty thousand where the employer fails to

(a) Constitute an Internal Committee under sub-section (1) of section 4;

(b) Take action under sections 13, 14 and 22; and

(c) Contravenes or attempts to contravene or abets contravention of other provisions of this Act or any
rules made there under.

If any employer, after having been previously convicted of an offence punishable under this Act, subsequently
commits and is convicted of the same offence, he shall be liable to twice the punishment, which might have been
imposed on a first conviction, subject to the punishment being the maximum provided for the same offence.
Provided that, in case a higher punishment is prescribed under any other law for the time being in force, for the
offence for which the accused is being prosecuted, the court shall take due cognizance of the same while awarding
the punishment.
15.6 COGNIZANCE OF OFFENCE BY COURTS (SECTION 27)
Every offence under this Act is non-cognizable, which means one cannot be arrested without a warrant. No court
shall take cognizance of any offence punishable under this Act or any rules made thereunder, save on a complaint
made by the aggrieved woman or any person authorised by the Internal Committee or Local Committee in this
behalf. No court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any
offence punishable under this Act.
15.7 ACT NOT IN DEROGATION OF ANY OTHER LAW (SECTION 28)
It states that the purpose of the Act is to provide additional safeguards to women at work. According to the section,
the provisions of this Act shall be in addition to and not in derogation of the provisions of any other law for the
time being in force.
15.8 POWER OF THE APPROPRIATE GOVERNMENT TO MAKE RULES (SECTION 29)
Central Government may make rules for carrying out provisions of this Act. Such rules 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

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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.

Previous Years Questions

1. Discuss the implications of Section 14 of the Sexual Harassment of Women at Workplace (Prevention,
Prohibition and Redressal) Act, 2013, regarding punishment for false or malicious complaints.
 [Dec. 2024 (3 Marks)]
Sol. Section 14 of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act,
2013) provides strict provisions for Punishment for false or malicious complaint and false evidence Where
the Internal Committee or the Local Committee, as the case may be, concludes that the allegation against
the respondent is malicious or the aggrieved woman or any other person making the complaint has made
the complaint knowing it to be false or the aggrieved woman or any other person making the complaint has
produced any forged or misleading document, it may recommend to the employer or the District Officer, as
the case may be, to take action against the woman or the person who has made the complaint under section
9, as the case may be, by the provisions of the service rules applicable to her or him or where no such
service rules exist, in such manner as may be prescribed. It is provided that a mere inability to substantiate
a complaint or provide adequate proof need not attract action against the complainant under this section.
It is provided further that the malicious intent on the part of the complainant shall be established after an
inquiry by the procedure prescribed, before any action is recommended. Where the Internal Committee
or the Local Committee, as the case may be, concludes that during the inquiry any witness has given
false evidence or produced any forged or misleading document, it may recommend to the employer of the
witness or the District Officer, to take action by the provisions of the service rules applicable to the said
witness or where no such service rules exist, in such manner as may be prescribed.
2. X was facing a departmental enquiry for allegedly indulging in sexual harassment of his senior woman
officer. He contended that, as the alleged misconduct took place not at the workplace but in the guesthouse
of the company where the woman officer was residing, he could not be accused of sexual harassment at
the workplace. In light of decided case law, examine the validity of the contention of A.
[Jun. 2024 (5 Marks)]
Hints: In the case of Saurabh Kumar Mallick v. Comptroller & Auditor General of India, WP (C)
No.8649/2007, the respondent who was facing departmental inquiry for allegedly indulging in sexual
harassment of his senior woman officer contended that he could not be accused of sexual harassment at
workplace as the alleged misconduct took place not at the workplace but at an official mess where the
woman officer was residing. It was also argued that the complainant was even senior to the respondent and
therefore no ‘favour’ could be extracted by the respondent from the complainant, and thus the alleged act
would not constitute ‘sexual harassment’.

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 The Delhi High Court, while considering this matter, held it this as ‘misconceived’. The Delhi High Court
observed that the aim and objective of formulating the Vishakha Guidelines was obvious to ensure that
sexual harassment of working women is prevented and any person guilty of such an act is dealt with
sternly. Keeping in view the objective behind the judgment, a narrow and pedantic approach cannot be
taken in defining the term ‘workplace’ by confining the meaning to the commonly understood expression
“office”. It is imperative to take into consideration the recent trend that has emerged with the advent of
computer and internet technology and the advancement of information technology. A person can interact
or do business with another person while sitting in some other country by way of videoconferencing. It
has also become a trend that the office is being run by CEOs from their residence. In a case like this, if
such an officer indulges in an act of sexual harassment with an employee, say, his private secretary, it
would not be open for him to say that he had not committed the act at the ‘workplace’ but at his Residence
and get away with the same. Noting the above, the High Court observed that the following factors would
have bearing on determining whether the act has occurred in the ‘workplace’: l Proximity from the place
of work l Control of the management over such a place/residence where the workingwoman is residing l
Such a residence has to be an extension or contiguous part of the working place. In conclusion, the Delhi
High Court held that the official mess where the employee was alleged to have been sexually harassed falls
under ‘workplace’. Given the above provisions and case law, the contention of A is invalid.
3. Write down the duties of the employer under the Sexual Harassment of Women at Workplace (Prevention,
Prohibition and Redressal) Act, 2013. Dec. 2023 (3 Marks)
Hints: Duties of the employer under the Sexual Harassment of Women at Workplace (Prevention,
Prohibition and Redressal) Act, 2013. Every employer shall-
(a) Provide a safe working environment at the workplace, which shall include safety from persons coming into
contact at the workplace;
(b) Display at any conspicuous place in the workplace, the penal consequences of sexual harassment; and the order
constituting the Internal Committee;
(c) Organise workshops and awareness programmes at regular intervals for sensitising the employees with the
provisions of the Act and orientation programmes for the members of the Internal Committee in the manner as
may be prescribed;
(d) Provide necessary facilities to the Internal Committee or the Local Committee, as the case may be, for dealing
with the complaint and conducting an inquiry;
(e) Assist in securing the attendance of the respondent and witnesses before the Internal Committee or the Local
Committee, as the case may be;
(f) Make available such information to the Internal Committee or the Local Committee, as the case may be, as it
may require, having regard to the complaint made;
(g) Assist the woman if she so chooses to file a complaint about the offence under the Indian Penal Code or any
other law for the time being in force;
(h) Cause to initiate action, under the Indian Penal Code or any other law for the time being in force, against the
perpetrator, or if the aggrieved woman so desires, where the perpetrator is not an employee, in the workplace at
which the incident of sexual harassment took place;
(i) Treat sexual harassment as misconduct under the service rules and initiate action for such misconduct;
(j) Monitor the timely submission of reports by the internal Committee.
4. Reshma is working as a computer operator in M Ltd. on a contractual basis. As per the manpower agreement,
all contractual employees are provided through outsourcing by H Ltd. only. One day, she was working
long after office hours to take on an extra workload. David, General Manager (Finance), M Ltd., made
unfair touch with her. She wants to file a written complaint against him under the Prevention of Sexual
Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. Advise her to file
the Complaint, and what is the Complaint Procedure? Jun. 2022 (5 Marks)

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 Hints: As per the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act,
2013, “Employee” means a person employed at a workplace for any EP–SBEC–June 2022 50 work on
regular, temporary, ad hoc or daily wage basis, either directly or through an agent, including a contractor,
with or, without the knowledge of the principal employer, whether for remuneration or not, or working
voluntarily or otherwise, whether the terms of employment are express or implied and includes a co-
worker, a contract worker, probationer, trainee, apprentice or called by any other such name. Further, the
Act stipulates that aggrieved woman can make written complaint of sexual harassment at workplace to the
Internal Complaints Committee (ICC) or the Local Complaints Committee (LCC), in case a complaint is
against the employer, within three months from the date of incident and in case of a series of incidents,
within three months from the date of last incident. Provided that where such a complaint cannot be made
in writing, the Presiding Officer or any Member of the Internal Committee or the Chairperson or any
Member of the Local Committee, as the case may be, shall render all reasonable assistance to the woman
for making the complaint in writing. Provided further that the Internal Committee or, as the case may be,
the Local Committee may, for the reasons to be recorded in writing, extend the time limit not exceeding
three months, if it is satisfied that the circumstances were such that they prevented the woman from
filing a complaint within the said period. Where the aggrieved woman is unable to make a complaint on
account of her physical or mental incapacity or death or otherwise, her legal heir or such other person
as may be prescribed may make a complaint under this section. Given the above mentioned provisions,
Reshma, working as computer operator in M Ltd. on contractual basis, can make written complaint of
sexual harassment by General Manager of M Ltd. at workplace to the Internal Complaints Committee
(ICC) or the Local Complaints Committee (LCC) within three months from the date of incident and in case
of a series of incidents, within three months from the date of last incident in writing.
5. The Managing Committee of Goa Tourism Ltd. wants to constitute an Internal Complaint Committee
(ICC) under the Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) Act,
2013. Advise them in the light of the provisions of the Act on the constitution of such a committee.
 Dec. 2018, June 2021 (3 Marks)
Hints: Internal Complaints Committee: The Sexual Harassment of Women at Workplace (Prevention,
Prohibition & Redressal) Act, 2013 makes it mandatory for every employer to constitute an Internal
Complaints Committee (ICC) which entertains the complaints made by any aggrieved women.
The members of the ICC are to be nominated by the employer, and the ICC should consist of –
(a) A Presiding Officer who shall be a woman employed at a senior level at the workplace from amongst
the employees.
(b) Not less than 2 members from amongst employees, preferably committed to the cause or women, or
who have had experience in social work or have legal knowledge.
(c) One member from amongst non-governmental organizations or associations committed to the cause
of women or a person familiar with the issues relating to sexual harassment.
In order to ensure participation of women employees in the ICC proceedings, the Act requires that at least
one-half of the members of the ICC nominated by the employer are women.
Local Complaints Committee: Provisions have been made under the Act to form a Local Complaints
Committee (LCC) for every district for receiving complaints of sexual harassment from establishments
where the ICC has not been formed due to having fewer than 10 workers or if the complaint is against the
employer himself.

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 6. Ramesh Kumar Gupta, a Director of ‘Flavors of Delhi Private Ltd.,’ a prominent restaurant business
located in Connaught Place, Delhi, employs 20 male staff members. He has approached you, a practicing
Company Secretary, for your opinion on the following :
(i) Whether Flavors of Delhi Private Ltd. is required to establish an Internal Complaints Committee (ICC)
under the provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition, and
Redressal) Act, 2013. June 2025(2 marks)
(ii) What should be the composition of the ICC, given that there are no female employees in the
organization?  June 2025(3 marks)
Hints:
(i) Requirement to Establish ICC –
Yes, Flavors of Delhi Private Ltd. is mandatorily required to constitute an Internal Complaints
Committee (ICC) under Section 4 of the POSH Act, 2013, since the establishment employs
20 persons, exceeding the statutory threshold of 10 or more employees, irrespective of gender
composition. The Act applies to all workplaces and mandates ICC formation to address complaints
of sexual harassment.
(ii) Composition of ICC in Absence of Female Employees –
As per Section 4(2) of the POSH Act, the ICC must comprise:
 Presiding Officer: A senior female employee. In the absence of a female employee, the
employer must nominate a senior woman employee from another unit or office of the same
organization.
 Two Employee Members: Preferably with experience in social work, legal knowledge, or
commitment to women’s welfare.
 One External Member: From an NGO or association committed to women’s rights or familiar
with sexual harassment issues.
Additionally, at least 50% of the ICC members must be women. Hence, external nominations are
essential to meet both gender and statutory composition requirements.

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