POLITICAL - LEGAL
ENVIRONMENT
30/04/2024 Political-Legal Environment 1
Political - Legal Environment
Government, Business, and Society
Business and the Constitution
MRTP
Competition (Amendment) Act 2007
IDRA 1951
FEMA
SEBI Act
Consumer Protection Act
Changing dimensions of these laws
Impact on Business
30/04/2024 Political-Legal Environment 2
Business and Government
“The two most powerful institutions in
society today are business and
government; where they meet on
common ground – amicably or
otherwise – together they determine
public policy, both foreign and
domestic, for a nation” - Dimock
30/04/2024 Political-Legal Environment 3
Economic Policy and Political Environment
Socialist pattern
Growth of Public Sector Units
Global changes
USSR, China, Eastern Europe
Liberalization, Privatization and Globalization (LPG)
30/04/2024 Political-Legal Environment 4
Functions of the State
30/04/2024 Political-Legal Environment 5
Economic Roles of the Government
30/04/2024 Political-Legal Environment 6
Regulatory Role of the Government
Direct Controls:
o Discretionary in nature
Indirect Controls:
o Fiscal and Monetary incentives and penalties
Regulation – boon or bane?
30/04/2024 Political-Legal Environment 7
Promotional Role of the Government
Development of infrastructure
Providing fiscal, monetary and other incentives
Development of priority sectors
30/04/2024 Political-Legal Environment 8
Entrepreneurial Role of the Government
Establishing and operating business enterprises and
bearing the risks
State Owned Enterprises (SOEs)
Public Sector Units (PSUs)
30/04/2024 Political-Legal Environment 9
Planning Role of the Government
Crucial for the development of a nation
Optimum utilization of scarce resources
Five Year Plans of the Government of India
30/04/2024 Political-Legal Environment 10
The Three Economic Questions
What goods and services to produce?
How should the goods and services be produced?
For whom will the goods and services be produced?
How a country answers these questions determines
what type of economic system it has
30/04/2024 Political-Legal Environment 11
Economic Systems
30/04/2024 Political-Legal Environment 12
Objectives of Economic Legislation
To support economic policies of the Government
To control and regulate economic activities
To protect consumer interests and rights
To restrict the negative aspect of development
30/04/2024 Political-Legal Environment 13
Our Constitution
30/04/2024 14
Our Constitution
30/04/2024 Political-Legal Environment 15
B. R. Ambedkar (1891-1956)
Jurist, Economist, Politician, and Social Reformer
Educated at Columbia University and London School
of Economics
Independent India’s first Law Minister
Principal architect of the Constitution of India
Chairman of the Constitution Drafting Committee
30/04/2024 Political-Legal Environment 16
Our Constitution
Adopted by the National Constituent Assembly on
Nov 26, 1949
Came into force on Jan 26, 1950
The constitution provides for a parliamentary form of
government which is federal in structure, with certain
unitary features
12 schedules
448 articles
98 amendments
30/04/2024 Political-Legal Environment 17
The 12 Schedules
First schedule: lists the states and UTs of India
Second schedule: lists the salaries payable to the President,
Governor, CJI, Judges of the SC and HC, CAG, etc
Third schedule: forms of oaths and affirmations
Fourth schedule: allocation of seats for states in the Rajya
Sabha
Fifth schedule: provisions for administration and control of
scheduled areas and scheduled tribes
Sixth schedule: provisions for administration of tribal areas in
the states of Assam, Meghalaya, Tripura, Mizoram and
Arunachal Pradesh
Seventh schedule: Union list (97 subjects), State list (66
subjects) and Concurrent list (47 subjects)
Eight schedule: the official languages (26)
30/04/2024 Political-Legal Environment 18
The 12 Schedules
Ninth schedule: validation of certain acts and regulations
Tenth schedule: anti defection provisions for MPs and MLAs
Eleventh schedule: panchayat raj
Twelfth schedule: municipalities
30/04/2024 Political-Legal Environment 19
Our Constitution
30/04/2024 Political-Legal Environment 20
Fundamental Rights
30/04/2024 Political-Legal Environment 21
Right to Education and Right to Information
30/04/2024 Political-Legal Environment 22
Fundamental Duties
30/04/2024 Political-Legal Environment 23
30/04/2024 Political-Legal Environment 24
Directive Principles of State Policy
Guidelines to Central/State Governments for framing
laws and policies
Contained in Part IV of the Constitution
Not enforceable in a court of law
Classified under the following categories:
o Gandhian
o Economic and Socialist
o Political and Administrative
o Justice and Legal
o Environmental
o Protection of Monuments
o Peace and Security
30/04/2024 Political-Legal Environment 25
Distinction between Directive Principles and
Fundamental Rights
Fundamental Rights Directive Principles
Injunctions to prohibit Affirmative instructions to
the Government from the Government to do
doing certain things certain things
Has legal sanction Has moral sanction
Justifiable and Not justifiable and
enforceable enforceable
30/04/2024 Political-Legal Environment 26
Political Institutions
India is a Union of States
The structure of the Government is federal in nature
30/04/2024 Political-Legal Environment 27
Political Institutions
30/04/2024 Political-Legal Environment 28
Legislative Organ - Parliament
30/04/2024 Political-Legal Environment 29
The President
Head of the state
Formal head of the Executive, Legislature and
Judiciary
Commander-in-chief of the Indian Armed Forces
Is elected by the members of the Lok Sabha, Rajya
Sabha and State Legislative Assemblies
Can make a wide variety of appointments, including:
o Chief Justice of India
o The Attorney General, the Comptroller and Auditor
General
o The Chief Election Commissioner
o Vice Chancellor of a Central University
o Ambassadors and High Commissioners
30/04/2024 Political-Legal Environment 30
The Lok Sabha
Composed of the elected representatives of the
people
Maximum strength of 552, 5 year term
530 members to be elected representatives
Up-to 20 members to represent the UTs
2 members to represent the Anglo Indian community
to be nominated by the President of India
30/04/2024 Political-Legal Environment 31
The Rajya Sabha
Council of States
Maximum strength of 250, 6 year term for MPs
238 members to be elected by state and territorial
legislatures
12 members to be nominated by the President of
India
Cannot be dissolved
One third of the members retire every two years
30/04/2024 Political-Legal Environment 32
Executive Organ – Council of Ministers
30/04/2024 Political-Legal Environment 33
Judicial Organ
30/04/2024 Political-Legal Environment 34
Judicial Organ
30/04/2024 Political-Legal Environment 35
MRTP Act, 1969
30/04/2024 Political-Legal Environment 36
MRTP Act, 1969
Based on the Directives of State Policy – “Ownership
and control of material resources should be widely
distributed and there should be no concentration of
wealth and means of production”
o To ensure that the operation of the economic system
does not result in concentration of economic power to
the common detriment
o To provide the control of monopolies
o To prohibit monopolistic and restrictive trade practices
Act amended in 1974, 1980, 1984, 1988, and in 1991
Restrictions on companies having assets of more than
Rs. 100 crores
Applicable to all states of India except J&K
30/04/2024 Political-Legal Environment 37
Scope of MRTP Act
The MRTP Act controls the following aspects of
economic activity:
o Restrictive trade practices
o Unfair trade practices
o Monopolistic trade practices
o Concentration of economic power
The amendment of 1991
30/04/2024 Political-Legal Environment 38
Restrictive Trade Practices
RTP is one which has, or may have, effect of
preventing, distorting or restricting competition in any
manner and in particular:
o Which tends to or obstructs flow of capital or
resources for production or
o Which tends to impose unjustified costs or restrictions
on consumer related goods or services, by
manipulation of prices, or conditions of delivery or to
affect supplies in the market
30/04/2024 Political-Legal Environment 39
Deemed RTPs
Restrictions on buying/selling
Tie in sales or full line forcing
Exclusive dealing agreement
Collective price fixation and tendering
Restriction by Association
Discriminatory pricing
Resale price maintenance
Restriction on output or supply
Restriction on manufacturing process
Price control agreement
Restriction on buying
Collective bidding
Agreement declared by Government to be restrictive
30/04/2024 Political-Legal Environment 40
Investigation into RTP
The MRTP Commission can investigate a RTP and give
the following directions:
o The practice shall be discontinued or shall not be
repeated
o Agreement relating to RTP shall be modified as may be
specified by the Commission
30/04/2024 Political-Legal Environment 41
Unfair Trade Practice
A trade practice, which for the purpose of promoting
sale, use or supply of any goods or provision of
services, adopts any unfair method or unfair or
deceptive practice
30/04/2024 Political-Legal Environment 42
Deemed Unfair Trade Practices
False representation
False offer or bargain price
Offering of gifts, prize, etc and conducting
promotional contests
Product safety standards
Hoarding or destruction of goods
30/04/2024 Political-Legal Environment 43
Remedial Measures in UTP
The MRTP Commission can:
o Ask to discontinue and not to repeat the practice
o Can declare any agreement in relation to the UTP as
void or declare that the term of agreement shall be
modified in the manner prescribed in the order
o Can order that any information, statement or
advertisement relating to the UTP shall be disclosed or
published as may be specified in the order
30/04/2024 Political-Legal Environment 44
Monopolistic Trade Practices
Limiting or controlling production, supply or distribution
of goods or services and thereby maintaining price of
goods or charge services at unreasonable prices
Unreasonably preventing or lessening competition
Limiting technical development of capital investment or
allowing quality of goods or services to deteriorate
Unreasonably increasing prices of goods or services
Unreasonably increasing cost of production or charges for
any service
Unreasonably increasing profits on production, supply or
distribution of goods or services
Adopting unfair or deceptive methods to reduce or
prevent competition in goods or services
30/04/2024 Political-Legal Environment 45
Remedial Measures in MTP
Based on the MRTP Commission’s recommendations,
the Government can:
o Regulate production, supply, storage or control of
goods or services and fix terms of sale, sale price, and
supply
o Fix quality standard for goods
o Declare agreements as unlawful
o Ask any party to cancel whole or part of any
agreement
o Regulate profits which may be derived from
production, storage, supply, distribution of goods or
services
o Regulate quality of goods or services
30/04/2024 Political-Legal Environment 46
Initiation of Inquiry
The Commission can inquire into any restrictive,
unfair or monopolistic trade practice:
o On receiving a complaint from any consumer or
consumer’s association
o On reference made by the Central or State
Government
o On application made by Director General of
Investigation and Registration (DGIR)
o On its own
30/04/2024 Political-Legal Environment 47
Governing Body
MRTP Commission, consisting of:
o Chairman
o 2-8 other members, 5 year tenure for members
o No more than 10 years or beyond reaching the age of
60 years
Director General of Investigation and Registration
(DGIR)
30/04/2024 Political-Legal Environment 48
Powers of the Commission
Powers of a Civil Court
Deemed judicial proceedings
Custody of documents
Summon witnesses
Authority to enter/search premises and seize
evidence
Order compensation and damage
30/04/2024 Political-Legal Environment 49
Restrictions on Powers of the Commission
Cannot restrict any right attached to a patent
No authority on 100% EOUs
No authority on Trade Unions and Government
Defense manufacturing units
Bound to follow decisions of the High Court
No power to impose penalty – only ‘cease and desist’
30/04/2024 Political-Legal Environment 50
MRTP Act – Boon or Bane?
Restricted and controlled growth of the economy
Low production levels, high cost of production and
short supply of goods
Detrimental to protecting consumer’s interests
LPG initiative of 1991
Competition Bill of 2002
30/04/2024 Political-Legal Environment 51
Recent Cases of MRTP Violation
30/04/2024 Political-Legal Environment 52
Recent Cases of MRTP Violation
30/04/2024 Political-Legal Environment 53
Competition Act, 2002
30/04/2024 Political-Legal Environment 54
Competition Act, 2002
Sound business climate:
o Low entry and exit barriers
o Protection of consumer’s interest
o Acceptable quality of goods and services at affordable
prices
Competition Act, 2002 (14th January, 2003)
Seeks to repeal the MRTP Act and to dissolve the
MRTP Commission
Applicable to the whole of India, except J&K
Competition Commission of India (14th October, 2003)
Chairman, 2-6 members
Currently, only Competition Act is applicable
30/04/2024 Political-Legal Environment 55
Competition Act, 2002
Seeks to:
o Prohibit anti-competitive agreement
o Prohibit abuse of dominant position by an enterprise
o Regulate certain ‘Combinations’ between and amongst
enterprises
30/04/2024 Political-Legal Environment 56
Powers of the Commission
Direction to discontinue and not to re-enter such
agreement or discontinue abuse of dominance
Impose penalty
Direction to modify an agreement
Direction to abide by order including payment of costs
Pass other orders as it may deem fit
Has powers beyond Indian borders
Competition (Amendment) Act, 2007
30/04/2024 Political-Legal Environment 57
IDRA ACT, 1951
30/04/2024 Political-Legal Environment 58
IDRA ACT, 1951
Licensing and registration
Guided growth of the industry
Take over of industrial undertakings
Balanced growth of the country
Optimum use of resources and infrastructure of the
country
Regulation of the industry
Applicable to 38 scheduled industries
30/04/2024 Political-Legal Environment 59
Licensing and Registration
Compulsory License:
o Alcoholic drinks
o Cigars and cigarettes
o Electronic aerospace and defense equipment
o Industrial explosives
o Hazardous chemicals
o Drugs and pharmaceuticals
o Defense production
30/04/2024 Political-Legal Environment 60
Licensing and Registration
Licenses from other authorities:
o Director, Fruits and Vegetables Preservation
o Commissioner, Food and Drugs Administration
o ISI Certification
o Controller of Explosives
o Ministry of Environment and Forest
o Pollution Control Board
30/04/2024 Political-Legal Environment 61
Locational Restriction for Large Industries
All units except SSI has to be situated beyond 25Kms
from a large city having population of more than 10
Lakhs
Exemptions:
o Electronics
o Computer software
o Printing
o Other non-polluting industries
30/04/2024 Political-Legal Environment 62
Compulsory Registration
According to Section 10(1), registration is compulsory
for all industries
At present, no industry requires any registration
But, industries have to submit information in a
prescribed form called ‘Industrial Entrepreneurship
Memorandum (IEM)’
All industry, whether licensed or not licensed, have to
submit their production return to the concerned
authorities
30/04/2024 Political-Legal Environment 63
Control over Industries
Regulating supply and prices
Investigation of scheduled industries
Investigation of company in liquidation
Issuance of directions
Investigators of the Government have all the powers
of a Civil Court under the Code of Civil Procedures
30/04/2024 Political-Legal Environment 64
Direct Management or Control
Central Government can take control of an industrial
undertaking:
o After conducting investigation
o Without conducting investigation
Control of industrial undertaking owned by companies
in liquidation
Powers of authorized persons
Relief to industrial undertaking taken over
Liquidation and reconstruction of companies
30/04/2024 Political-Legal Environment 65
Central Advisory Council
To advise on the matters concerning the development
and regulation of scheduled industries
Chairman and other members, not exceeding 30 in
number
Should represent the interests of:
o Owners
o Employees
o Consumers
o Other class of affected persons
30/04/2024 Political-Legal Environment 66
Development Council
To increase the efficiency and productivity of
scheduled industries
To improve or develop the service that such industries
To render such services more economically
Consists of members:
o Representing the interest of owners
o Having special knowledge
o Representing the interest of employees
o Representing the interests of consumers
30/04/2024 Political-Legal Environment 67
Cess on Industries
Central Government can levy and collect a cess on
goods manufactured or produced in any scheduled
industry:
o Cess should not be more than 0.125% of the wholesale
cash price
o The cess collected should be handed over to the
Development Council
o Council uses the cess collected for research, design,
training, etc
30/04/2024 Political-Legal Environment 68
Offences and Penalties
Punishable with imprisonment of up to six months or
with a fine of up to Rs.5000 or both
In case of continuing contravention, with an
additional fine of up to Rs.500 for every day of
contravention
In case of a company, every officer in charge of and
responsible for conduct of business of the company
shall be deemed to be guilty of the contravention, and
shall be liable to punishment, unless proven innocent
In case of false statement – imprisonment of up to
three months, or fine of up to Rs.2000, or both
30/04/2024 Political-Legal Environment 69
Concession/Protection to SSI
No intimation to Central Government, can register
with State Governments
Reservation of products
Less locational restriction
Incentive to acquire ISO 9000 certification
o Reimbursement of 75% of the expense, subject to a
ceiling of Rs.75000
Exemption of central excise duty up to a turnover of
Rs.50 Lakhs
Advances to SSI classified as priority sector advances
by banks
Small advances at concessionary rate of interest
30/04/2024 Political-Legal Environment 70
FOREIGN EXCHANGE MANAGEMENT ACT
30/04/2024 Political-Legal Environment 71
FEMA, 1999
Successor to Foreign Exchange Regulation Act (FERA),
1973
To consolidate and amend the law relating to foreign
exchange
To facilitate external trade and payment
Promotion of orderly development and maintenance
of foreign exchange market
30/04/2024 Political-Legal Environment 72
FERA and FEMA
FERA FEMA
Conserve foreign Facilitate external trade
exchange and payments
Prevent misuse of foreign Maintenance of foreign
exchange exchange market
Violation of FERA was a Violation of FEMA is a
criminal offence civil offence
Offences under FERA Offences under FEMA are
were not compoundable compoundable
Citizenship was a criteria Stay of more than 182
to determine residential days is the criteria to
status decide residential status
30/04/2024 Political-Legal Environment 73
Scope of FEMA
Free transactions on current account subject to
reasonable restrictions that may be imposed
Enabling RBI control over capital account transactions
Control over realization of export proceedings
Dealing in foreign exchange through authorized
dealers, money changers, off shore banking unit
Adjudication of offences
Appeal provision including Special Director (Appeals)
and Appellate Tribunal
Directorate of Enforcement
30/04/2024 Political-Legal Environment 74
Functions of RBI under FEMA
30/04/2024 Political-Legal Environment 75
Functions of RBI under FEMA
Control over dealing in foreign exchange
Cannot impose restriction on current account
transactions
Specify conditions for payment in respect of capital
account transactions
Regulate/prohibit/restrict:
o Transfer or issue of foreign securities to resident
Indians and Indian securities to non-resident Indians
o Borrowing and lending in foreign exchange to a
foreigner
o Export/import of currency or currency notes
o Transfer of immovable property outside India
o Giving guarantee or surety for foreign exchange
30/04/2024transactions Political-Legal Environment 76
Functions of RBI under FEMA
Specify period and manner in which foreign exchange
due from export of goods and services should be
received
Grant exemption from realization and repatriation of
foreign exchange
Grant authorization to deal in foreign exchange, give
direction to such agencies/persons and inspect such
agencies/persons
o Dealers, money changers, off-shore banking units,
nationalized banks, foreign banks
To make regulation
30/04/2024 Political-Legal Environment 77
Terminology Used in FEMA
Capital Account transaction
Current Account transaction
Convertible currency/Hard currency
Rupee trade
Currency
Foreign exchange
Overseas corporate bodies
30/04/2024 Political-Legal Environment 78
Enforcement and Penalties
Directorate of Enforcement
Penalties
Departmental Adjudication
30/04/2024 Political-Legal Environment 79
Recent Violations of FEMA ACT
30/04/2024 Political-Legal Environment 80
SEBI ACT, 1992
30/04/2024 Political-Legal Environment 81
SEBI
Securities and Exchange Board of India
Protection of Investor’s interests
Promotion, development and regulation of the
securities market
Chairman + 5 members
o 2 from the Central Government ministries of Finance
and Law
o 2 Professional members who are experts
o 1 from RBI
30/04/2024 Political-Legal Environment 82
Functions of SEBI
Regulating the business in stock exchanges and any
other securities markets
Registering and regulating the working of stock
brokers, sub-brokers, share transfer agents, bankers to
an issue, merchant bankers, underwriters, portfolio
managers, investment advisers, and other such
intermediaries
Registering and regulating the working of collective
investment schemes, including mutual funds
Promoting and regulating self-regulatory organizations
Prohibiting fraudulent and unfair trade practices
Promoting investors’ education and training of
intermediaries
30/04/2024 Political-Legal Environment 83
Functions of SEBI
Prohibiting insider trading
Regulating substantial acquisition of shares, takeovers
and mergers of companies
Calling for information from, undertaking inspection,
conducting inquiries and audits of the stock exchange,
intermediaries, and self regulatory organizations in
the securities market
Levying fees or other charges for carrying out the
above
30/04/2024 Political-Legal Environment 84
SEBI – Organizational Structure
Primary market policy, intermediaries, self-regulatory
organizations, investor grievances, and guidance
department
Issue management and intermediaries department
Secondary market policy, operation and exchange
administration, new investment products, and insider
trading department
Secondary market exchange administration, inspection
and non-member intermediaries department
Institutional investment, M&As, research & publication,
international relations and IOSCO department
Legal department
Investigation department
Head Office at Mumbai and regional offices at Kolkata,
Chennai and Delhi
30/04/2024 Political-Legal Environment 85
Powers and Scope of SEBI
SEBI can issue guidelines in respect of the following:
o Information disclosure, operational transparency, and
investor protection
o Development of financial institutions
o Pricing of issues
o Bonus issues
o Preferential issues
o Financial instruments
o Allotment and transfer of shares among promoters
30/04/2024 Political-Legal Environment 86
Guidelines and Reforms Introduced by SEBI
Primary Securities Market
Secondary Market and various Intermediaries
Investment protection
Classification of complaints
Insider trading
Underwriting
30/04/2024 Political-Legal Environment 87
Recent Violations of SEBI ACT
30/04/2024 Political-Legal Environment 88
Recent Violations of SEBI ACT
30/04/2024 Political-Legal Environment 89
The Satyam Scam
30/04/2024 Political-Legal Environment 90
The Satyam Scam
30/04/2024 Political-Legal Environment 91
The Satyam Scam
30/04/2024 Political-Legal Environment 92
30/04/2024 Political-Legal Environment 93
30/04/2024 Political-Legal Environment 94
30/04/2024 Political-Legal Environment 95
30/04/2024 Political-Legal Environment 96
Consumer Protection Act, 1986
“An Act to provide for better protection of the
interests of consumers and for that purpose, to
make provision for the establishment of
consumer councils, and other authorities for
the settlement of consumer’s disputes and for
matters connected therewith”
30/04/2024 Political-Legal Environment 97
Rights of Consumers
Right to safety
Right to be informed
Right to choose
Right to be heard
Right to seek redressal
Right to consumer education
30/04/2024 Political-Legal Environment 98
Redressal of Consumer Grievances
Three tier quasi-judicial machinery:
o National Consumer Disputes Redressal Commission
o State Consumer Disputes Redressal Commission
o District Consumer Disputes Redressal Commission
30/04/2024 Political-Legal Environment 99
Consumer Protection Act 2019
30/04/2024 Political-Legal Environment 100
30/04/2024 Political-Legal Environment 101