Consumer Law

7/29/2019 Consumer Law

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STUDY 1 FOREIGN EXCHANGE

MANAGEMENT ACT,1999

This Act was enacted by repealing the earlier Act called Foreign Exchange RegulationAct, 1973 (FERA). The new Act (called FEMA) was enacted to facilitate foreign tradeAnd foreign receipts/payments and to develop foreign exchange market in India.

Important Definitions

AUTHORIZED PERSON

SEC 2 (C)MEANS AN AUTHORIZED DEALER, MONEYCHANGER, OFFSHOREBANKING UNIT OR PERSON AUTHORIZED TODEAL IN FOREIGNEXCHANGE OR FOREIGN SECURITIES

Current Account

Transaction Sec 2(j)(Asked in jun 2007, jun 2012) Means transactionother than capital account transaction but includes

payment due in foreign trade, interest on loan,remittance for living expenses, foreignTravel expenses etc.

PASSED IN PARLIAMENT ON29-DEC-1999

APPLIES TO WHOLE OF INDIA ANDALSO OFFICES OUTSIDE INDIA IFOWNED BY INDIA RESIDENT

Contains total 49 Sections Controlling authority is RBO

AVERAGE 11-12 MARKS QUESTIONS ARE ASKED FROM THIS

CHAPTER


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CAPITAL

ACCOUNT

TRANSACTION

SEC 2 (E)

MEANS A TRANSACTION WHICH ALTERS THE ASSETSOR LIABILITIES, OUTSIDEINDIA OF PERSONS RESIDENT IN INDIA OR ASSETS RLIABILITIES IN INDIA OF PERSON RESIDENT OUTSIDEINDIA

Foreign Exchange

Sec 2 (n)Means foreign currency, and includes deposit, credit, draft, LC,BoE, or any draft/ LC/ BoE drawn by bank/person outside Indiabut payable in Indian currency

Foreign Security

Sec 2(o)

(Asked in jun 2007) Means any security, share, stock, bond,

debenture expressed I foreign currency, even thoughinterest/dividend is payableIn India currency

Person Resident of

India Sec 2(v)Who is residing in India for more than 182 days in precedingFinancial Year. However person gone outside India foremployment/business for uncertain period and person who comesto India (otherwise than for employment/business for uncertainperiod) are not person resident in India

Some Special Word/Terms used in this Chapter

LC LETTER OF CREDIT

FII Foreign Institutional Investors

ECB External Commercial Borrowing

ADR American Depository Receipt

RFC Resident (Foreign Currency) A/c

DGFT Director General of Foreign Trade

BoE Bill of ExchangeFCCB Foreign currency convertible Bond

GDR Global Depository Receipt

Swap Exchange

KYC Know Your Client/Customer

FDI Foreign Direct Investment


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Sectoral cap Maximum Ceiling of investment which can be made by FII orthrough FDI in a particular sector say telecom sector, cementsector etc.

SEBI (SAST)

Regulation

SEBI (Substantial Acquisition of share and Takeover)Regulation, 2011.

Merchant Banker An intermediary through Whom all the work relating to issueof share is made.

PIO Person of Indian Origin, who himself any time has held IndianPassport or whose either of parents or grandparents werecitizen of undivided India.

Offshore Banking Unit A bank which is located in special Economic Zone (SEZ) bypermission of RBI under Banking Regulation Act.

Chit Fund A fund in which many person given periodic contribution andafter completion of certain period, every contributor is entitledto a prize.

Nidhi Company A company which accepts deposit from its member or publicand doing business of lending money and registered an NBFC

Asset Reconstruction

Company

A company which is usually formed to takeover non-performing assets of any bank.

Benami Transaction Transaction entered by any person not in his own name, but inthe name of any fictitious person.

Concept of FEMA

Concisely the whole Act covers all transactions between only two types of person onlyviz., Person Resident in India and Person resident India. It is depicted in followingdiagram:

Sec 3 says that following tasks are not allowed to be performed by any person except bypermission of RBI

1. Dealing in foreign exchange (however authorized dealer can deal in foreignexchange)

2. Make/receive any payment to /from person resident outside India.


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3. Enter into any financial transaction regarding any assets outside India.

Current Account Transaction (Sec 5)

1) Any person can sell/draw foreign exchange to or from an authorized person as currentaccount transaction by complying with FEM(Current Account Transaction) Rules,2000.

2) Drawl of foreign for travel to Nepal/Bhutan, or for transaction with Nepal/Bhutan orfor transaction specified in Schedule-I are prohibited. Schedule-I contains transactionlike remittance on export etc.

3) Prior approval of Government is required for transaction specified in Schedule-II,which is given I point no 4 infra.

4) Prior approval of RBI is required for following purpose:

i. Release of exchange exceeding US$ 10,000 in one calendar year for privatevisit to any country except Nepal and Bhutan.

ii. Gift/Donation exceeding US$ 5000 per remitter/donor per annum.iii. Remittance for maintenance of close relative abroad exceeding net salary or

US$ 1 lakh.iv. Release of foreign exchange exceeding US$ 25,000 for business

travel/conference.v. Release of foreign exchange exceeding US$ 5000 for person going abroad for

employment for emigration.

vi. Release of foreign exchange exceeding for studies abroad or for pre-incorporation expenses.

Capital Account Transaction (Sec 6)

1) RIB may specify permissible capital account transactions. It may prohibit or restrict:

a. Transfer or issue of foreign security,

b. Borrowing or lending in foreign exchange,c. Acquisition or transfer of immovable property etc.

2) Person resident in India is allowed to hold, own or transfer foreign currency, foreignsecurity or immovable property outside India, ifsuch currency/security/property wasacquired by him when he was resident outside India or inherited from person residentoutside India.


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3) Similarly person resident outside India can hold, transfer India currency/security orimmovable property in India, ifacquired by him when he was residentin India orinherited from person in India

4) Following are permissible capital account transaction for person resident in India:

a. Investment in foreign security,b. Foreign currency loan,c. Transfer of immovable property outside India,d. Maintenance of foreign currency accounts,e. Sale/purchase of foreign currency derivatives.

However, he can draw foreign exchange from authorized person not exceeding US$25,000 per calendar year for above purpose.

1.Following are permissible capital account transaction for person resident outside India:

a. Investment in India in security of India company orcontribution to capital of Indian firm,

b. Acquisition and transfer of immovable property in Indiac. Foreign currency account in Indiad. Remittance outside India of capital assets in India

However, above transaction shall be within permissible limits. Further person residentoutside India cannot invest in India chit fund. Nidhi Company, agricultural or plantation,or real estate business.

Foreign Direct Investment (FDI) in India

FDI can be made either under automatic route or approval route.Following are basic Provision:

1. Prohibition: FDI is prohibited in company engaged in business of chit fund,Nidhi company, agricultural/plantation activities or real estate. However, Realestate here does now include development of township, road etc, henceinvestment in these sectors is allowed. Further FDI is also prohibited in retain

trading (except single brand retail), atomic energy, lottery and gambling.

2. Eligibility: A person resident outside India, other than Citizen of Pakistan andBangladesh can invest in India subject to FDI policy. Indian companies can freelyissue equity shares, convertible instruments subject to prescribed valuation norms.

3. Investment in Various Sectors: Investment in SSI is allowed if the unit is notengaged in prohibited list of business and subject to maximum limit of 24% of


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paid-up capital. If SSI issues more than 24% it has to give-up SSI status andthereupon, it cannot engaged itself in manufacturing of item reserved for SSI andit has to comply with prescribed sectoral cap. However, SSI unit which is EOU oroperating in FTZ/EPZ etc, can issue has exceeding 34% of paid-up capital. Personresident outside India, other than Foreign Institutional Investor (FII) can invest in

equity capital of Assets Reconstruction Company (ARC) up to 49% of paid-upcapital. FII can invest in Security Receipt issued by ARC. Foreign investment ispermitted in stock exchange, depository etc up to 49% of paid-up capital withprior approval of Foreign Investment Promotion Board (FIPB).

Investment from Nepal and Bhutan is permissible if it is made via inwardremittance in free foreign exchange through normal banking channel or Non Resident(External) Account (NRE)/ Foreign Currency (Non-Resident) Account (FCNR).

India companies can make right/bonus issue subject to sectoral cap andby following SEBI (ICDR) Guidelines at a price which is not lower than price of share

offered to residents.In cases of merger/amalgamation, shareholding of person resident outsideIndia shall not exceed sectoral cap, and new company should not be engaged I prohibitedlist.

Listed India companies can issue shares under EDOS/ESPS to personresident outside India subject to approval of SEBI and with condition that face value ofshare issued under ESOS/ESPS shall not exceed 5% of paid-up capital.

4. Reporting of FDI: India company receiving investment shall report to RBI thename of investor, name of authorized dealer, date of receipt and Governmentapproval within 30 days from date of receipt.

Company shall file prescribed form FC-GPR within 30 days from issueof share/convertible security. Part A of this form is signed by authorized dealer,along with certificate that all requirements of Companies Act conditions ofGovernment approval has been complied with and Company is eligible to issueshare. Part B is filled annually.

Share should be issued within 180 days of receipt of inward remittance;otherwise whole amount has to be refunded.

Transfer of Share/Convertible Security

There is general permission to non-resident and NRI to acquire shares. Person outsideIndia other than NRI can transfer share to any person outside India. However, if thetransferee has previous venture or tie-up in India in the same field, he has to obtain priorpermission of SIA/FIPB.

Person resident outside India can gift any security to person resident in India. Heis also permitted to sell the securities on stock exchange in India.


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Person resident in India can transfer shares of Indian company (which is notengaged in finance sector) to person resident outside India. Similarly person residentoutside India can transfer to person resident in India any securities subject to guidelinesissued by RBI.

Prior permission of RBI: Person resident in India, making gift of securities to personoutside India has to obtain prior permission from RNI. Before granting permission, RNIconsiders sectoral cap, relationship of donor and donee, value of security. Such gift shallnot exceed US$ 25,000 or 5% of paid-up capital of the company whichever is higher.

Transfer of share, bond etc of Indian company engaged in financial sector andtransactions which attract SEBI (SAST) Regulation require RBI approval if such transferis from resident to non-resident. Further if the company is engaged in sector falling underApproval Route, or sectoral cap is breached, Governments approval is also required.

Conversion of ECB/Royalty into Equity: Indian Companies can convertECB/Royalties/lump sum payment of know-how etc into equity subject to condition that

activities of company is underautomatic route for FDI, sectoral is adhered, pricing andother requirements of SEBI is followed. Details of issue of shares shall be reported toRBI in prescribed format.

Issue of Shares by Indian Companies under

ADR/GDR

a) Indian companies can issue DR/GDR abroad in accordance with Scheme forissue FCCB and Ordinary Shares (Through Depository Receipt Mechanism)Scheme, 1993, provided it is eligible under FDI scheme.

b) Unlisted company has to get itself listed either prior to suck ADR/GDR issue orsimultaneously.

c) Issue proceed has to be kept abroad till actually required in India. Till that time,the company can invest the fund in rated deposits or treasury bills.

d) There is no end use restriction except that, investment in real estate or stockexchange is now allowed.

e) Pricing should be not less than high if (i) average of weekly high low price duringlast six months or (ii) average of weekly high low price during last two weeks.

Direct Investment Outside India


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Direct investment by resident in joint venture (JV) and Wholly Owned Subsidiary (WOS)is allowed subject to certain conditions;

a) There is prohibition on investment in foreign entity engaged in real estate orbanking business.

b) Acquisition and sale of share purchased out of funds in RFC account or as bonus

is permitted.c) Indian party can invest in foreign JV/WOS not exceeding 400% of its net worth ofIndian company. This ceiling is not applicable if investment is made out ofExchange Earners Foreign currency (EEFC) account or out of funds raised viaADR/GDR.

d) Indian party can give loan/guarantee only to such foreign entity in which it hasequity participation, and subject to cap of 400 percent subject to condition thatguarantee should not be open-ended.

e) Where investment exceeds US$ 5million, valuation shall be done by Category IMerchant Banker.

f) Indian party is also permitted to acquire shares of foreign entity in exchange of

ADR/GDR subject to condition that ADR/GDR are listed and backed byunderlying equity and it does not exceed sectoral cap.g) Investment in Nepal is permitted in Indian Rupee only.h) Indian party making investment abroad in entity engaged in financial sector will

be permitted if it is registered in India and has net profit in last three years andalso fulfilled prudential norms of RBI.

Method of Funding:

Investment in overseas JV/WOS can be funded from;

a) Drawl of foreign exchange from Authorized Dealer in India.b) Capitalization of export. However export proceeds beyond six months requires

RBI approval.c) Swap of shares.d) Utilization Proceeds of ECB/FCCB.e) In exchange of ADR/GDR.f) Balance on EEFC account.

Approval of RBI:

In all other cases of investment abroad, approval of RBI is required. Before grantingapproval, RBI considers viability of project of both parties, expertise and benefit to Indiaregarding export.


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Overseas Investment by Partnership/Proprietorship

Proprietor and unregistered partners can set-up their JV/WOS outside India with priorapproval of RBI, subject to condition that:

a) Firm is DGFT recognized star Export House of which export is Rs 20 crore ormore

b) AD bank satisfies the exporter as KYV compliant.c) Exporter has proven track record and not came under adverse notice of

Government.d) Maximum investment allowed is 10% of average of three years export realization

or 200% of its net owned fund whichever is less.

Investment in Partnership Firm Proprietorship inIndia

Person resident outside India is not allowed to invest in capital ofpartnership/proprietorship in India. However, NRI or person of Indian origin may makesuch investment subject to condition that amount invest is received by inward remittancethrough normal banking channel , firm is not engaged in agriculture/real estate or printmedia business and amount shall not be repatriable.

Disinvestment of Share of JV/WOS

Disinvestment is allowed without prior permission of RNI in following cases:

a) JV/WOS is listed abroad.b) Indian promoter is either unlisted, or if listed in India then shall have net worth of

at least 100 crore.c) Maximum investment is US$ 10 million.

General Permission for Purchase Foreign

Securities


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Following investments outside India are generally allowed:

a) Acquiring foreign securities as gift.b) Acquiring share under cashless ESOP.c) Acquiring share by way of inheritance.

d) Acquisition for qualification shares not exceeding 1% of paid-up capital subject toUS$ 20.000 p.a.e) Purchase of right sharef) Purchase of share of JV/WOS abroad by employee/director of Indian Promoter

Company which is engaged in software subject to US$ 10,000 in 5 years furthersubject to maximum 5% of paid-up capital of that JV/WOS.

Investment in Foreign Securities Other Than by

Direct Investment

Indian company can issue FCCB outside India not exceeding US$ 500 million subject tofollowing conditions:

a) Issue should confirm to FDI policy including sectoral cap etc.b) Maximum ceiling limit is US$ 500 million in one financial year.c) Issue shall be through reputed lead manager.d) Maturity period shall not be less than 5 years.e) Issue of FCCR with attached warrant is not permitted.f) Issue proceeds cannot be utilized for investment in stock market.g) Financial intermediaries in India like a bank or NBFC are not allowed to access to

FCCB, neither they shall provide guarantee for FCCB issue.h) Issue related expenses shall not exceed 4% of issue.i) In case issue exceeds US$ 500 million, permission of RBI is required.

Overseas Investment by trust/Society

Indian trust, which is registered under the Indian Trust Act, 1882 and society, which isregistered under Societies Registration Act, 1860 can invest outside India subject to

condition that trust deed or memorandum of society contains such authorization andcompliance of KYC. Further, such trust or society should be in existence for at least 3years.

Acquistion and Transfer of Immovable Property

Outside India


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There is general Prohibition on acquisition/transfer of immovable property outside Indiaby person resident in India without RBIs permission. However, person resident in Indiamay acquire immovable property outside India as gift or inheritance from a personresident outside India. Further, purchase out of foreign exchange held in RFC account ispermitted. Indian company, having overseas branch, can acquire immovable propertyoutside India for business purpose or for its staff.

Acquisition and Transfer of immovable Property

in India

An Indian citizen resident outside India may acquire immovable property (not beingagricultural/farm house) in India; transfer any property in India to person resident in Indiaor citizen/person of Indian origin resident outside India.

Similarly person ofIndian origin resident outside India may acquire antimmovable property (not being agricultural/farm house) in India. He can acquire propertyin India by way of inheritance. He can transfer such property to person resident in Indiaor to citizen/person of India origin resident outside India.

Person resident outside India, having business place in India can acquireimmovable property in India for its business.

Resident outside India cannot repatriate outside India sale proceeds of suchimmovable property in India, without permission of RBI.

Establishment of Branch or Office in India

Person resident outside India has to get approval of RBI for establishing branch office inIndia. Following are other provisions in this regard:

a) Permission of RBI is not necessary ifit has taken permission from IRDA or underBanking Regulation Act.

b) Permission of RBI is not necessary to establish office at SEZ, subject to conditionthat it is functioning in those sectors where 100% FDI is allowed and it complieswith Companies Act

c) It will do only specified activities like export/import, professional, consultancy,research etc.

d) He shall be allowed to remit profits of such business outside India.

Export of Goods/Services


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Every exporter has to furnish to RBI a declaration of full export value and otherparticulars as required. However, following exports are allowed without declaration:

a) Sample supplied free of costb) Personal effects of travelersc) Ship store

d) Goods/software not exceeding Rd 25,000/- in value.e) Gift not exceeding one lakh rupees in value.f) Aircraft and other goods for repair, subject to their re-import.g) Goods imported free of cost subject to re-import.h) Goods permitted by Development Commissioner of EPZ, EHTP, FTZ etc.

The authority, to which such declaration is made, may require other evidence insupport of declaration. The export value shall be paid through authorized dealer only.All the export value shall be realized within twelve months from date of export. Incase of delay in receipt of payment, RBI may give direction to exporter regarding

how to secure payment etc.Where exporter has received advance payment against export, he shall makeshipment within one year and rate of interest shall not exceed LIBOR + 100 basispoint.

All documents of exports shall be submitted to authorized dealer within 21 days.

In case of export of goods on lease or hire, or export under special arrangementbetween Government of India and foreign Government shall be made only with priorapproval of RBI.

Realization, Repatriation and Holding of

Foreign Currency

a) Person resident in India, to whom any foreign exchange is due or has accrued,shall take steps to realize such money and repatriate to India.

b) Upon such repatriation, he shall either sell such exchange to authorizedperson, or retain upto permissible extent in an account with authorized dealer.

c) Foreign exchange due as remuneration or in settlement, or gift or inheritanceshall be sold to authorized person within 7 days of its receipt. In any othercase, within 90 days of receipt.

d) Any person may hold and operate foreign currency account within limitsprescribed by RBI.

e) As regards possession and retention of foreign currency, following limits areapplicable:

i. Authorized person can possess foreign currency without limit,ii. Any person can possess foreign coins without limit.


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iii. Any person can possess foreign currency notes not exceeding US$2000.

Authorized Person

Authorized person is a person who has got permission from RBI to deal in foreignexchange or foreign securities as authorized dealer, money changer or offshore bankingunit. He has to make an application to RBI and comply with directions. Even afterpermission, RBI can revoke the authorization in public interest after giving anopportunity of being heard.

Authorized person shall, before entering into ant transaction, satisfy himself thatthere is no contravention of any provision. In case of non-compliance of any of direction,he shall be punishable with fine of Rs 10,000/- and further fine of Rs 2000/- every day.RBI shall also have power to inspect business transaction of authorized person.

Contravention and Penalty

Sec 13 provides that any person contravening any provision shall be liable for penalty upto 3 times the contravened amount or Rs 2 lakh. For continuous contravention, penalty ofRs 5000/- per day is prescribed. In addition, the adjudicating authority can confiscatecurrency or security.

If any person fails to comply with order of adjudicating authority or fail to makepayment of penalty shall be liable to civil imprisonment. If defaulter is likely to abscondhimself, warrant of arrest can also be issued. Appeal against adjudicating officer can bepreferred to Appellate Tribunal within 45 days.

Directorate of Enforcement and RBI can compound the offence U/S 13 wihtin180 days. Compounding benefit is available once in a period of three years. Once theoffence has been compounded, no enquiry shall be held for such case (Asked in Dec2006).

In case the contravention has been compounded, compounded amount shall bedeposited within 15 days.

Adjudication and Appeal


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Government can appoint adjudicating authority to hold enquiry either upon complaint orupon its order. Appeal can be preferred to Special Director (Appeals) from orders of Asst.Director/ Dy Director(Appeals) within 45 days. Government has established AppellateTribunal to hear appeal against order of Special Director(Appeal). Appeal can be madeHigh Court against order of appellate tribunal within 60 days.

Government has established directorate of enforcement for investigatingcontravention under this Act.In case of contravention by company, every person in-charge or responsible to thecompany, as well as the company shall be deemed to be guilty and liable to be proceededand punished. Where such contravention is committed with consent or with negligenceon the part of director, manager or secretary, they shall also be deemed to be guilty.

RBI and Director of Enforcement have power to compound the offence under thisAct. For this purpose, the accused person has to make an application along withprescribed compounding fee and thereupon his offence can be compounded.

Summary of Some Important Transactions

Covered in this Chapter

PERSON RESIDENT IN INDIA CAN DO

FOLLOWING TRANSACTION

ALLOWED LIMIT

Release of foreign currency for visit toany country, other than Nepal Bhutan

US$ 10000

Receiving gift from outside India US$ 5000 per Donor/remitter

Release of foreign currency for BusinessTravel/conference abroad

US$ 25000

Release of foreign currency for medicaltreatment/studies abroad

US$ 1 lakh

Holding foreign currency, foreign security,immovable property outside India allof which acquired when he was resident

outside India

Allowed

Investment in foreign security, derivativeetc.

US$ 25000

Transfer of share in Indian company(other than finance company) to personoutside India

Allowed

Making gift of share Indian company Max US$ 25000


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Or 5% of capital ofCompany

Making investment outside India byIndian company

Upto 400% of itsNW

Indian partnership/proprietary firm can

invest outside India

Subject to

conditionsIndian trust or society can invest outsideIndia

Subject toconditions

Acquisition of immovable property bycitizen of India or person of India Origin

Allowed

Acquisition of immovable property byperson outside India except citizen ofIndia or person of Indian Origin

For businessPurpose only

Person Resident Outside India can do

following transaction

Allowed Limit

Holding Indian currency, Indian security,immovable property in India all ofwhich acquired when he was residentoutside India

Allowed

Invest in India Company, firm orpurchase of immovable property in Indiaetc.

Allowed up toprescribed limit

Invest in India by any person other thancitizen of Pakistan and Bangladesh andother than in Retail trading, agriculture,plantation activities, chit fund, nidhi

companies (FDI)

Allowed up toprescribed sectoralcap

FDI in SSI Up to 24% of SSI

Investment in Stock Exchange (i.e.direct holding share of BSE/NSE) by FII

Up to 49%

Transfer of share from one person to other(both are outside India)

Allowed

Sale or Gift of India security in India Allowed

List of Some important Sections of FEMA

SECTION PARTICULARS

3 Regulation of Dealing in foreign exchange, foreignSecurities or financial transaction involving foreign exchange.

4 Holding of foreign currency by person resident in India.

5 Current Account Transaction


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6 Capital Account Transaction

7 Export of Goods and Service

8 Realization and Repatriation of foreign exchange.

10 Authorized person/authorized dealer

11-12 Power of RBI to regulate authorized person

13 Penalties15 Compounding of Offence

16-35 Adjudication and appeals

FOREIGN CONTRIBUTION (REGULATION)

ACT 2010

PASSED IN PARLIAMENT ON 26-SEPT-

2010

APPLIES TO WHOLE OF INDIA ANDALSO

OFFICES OUTSIDE INDIA IF OWNEDBYINDIAN RESIDENT.

Contains total 54 Sections Controlling authority is RBI

The Foreign Contribution (Regulation) Act (FCRA) was originally framed in 1976, butdue to change in security scenario, increased information technology, rise in foreigncontribution receipts and growth in registered organization earlier Act was repealed bythe new Act of 2010. This FCRA 2010 was enacted to regulate acceptance and utilization

of foreign contribution and hospitality by certain individuals/associations/companieswhich can be detrimental to national interest and security

Definitions

CANDIDATE

FOR

ELECTION

SEC 2(D)

MEANS A PERSON NOMINATED AS A CANDIDATE FORELECTION TO ANY LEGISLATURE

ForeignContribution

Sec 3(h)

Means donation or transfer by foreign source of :- Any article, other than gift for personal use- Any currency, whether Indian or foreign- Any Security

Foreign

Hospitality

Sec 2(i)

Means any offer, either in cash or kind, by foreign source providingcost of travel to foreign country with free boarding, lodging,transport or medical facility.


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Foreign Source

Sec 2 (j)Includes:

- Foreign Government- - International Agency, other than UNO World

Bank- Foreign Company

- Corporation incorporated in foreign company- Company registered under the Companies Act,1956 of which more than 50% of capital is heldby foreign Government or foreign Citizen orForeign Company

- Foreign Trust, Foreign Society- Foreign Citizen

Political Party

Sec 2 (n)Means Association of citizens of India registered with ElectionCommission of India.

REGULATION OF FOREIGN CONTRIBUTION

AND FOREIGN HOSPITALITY

Prohibition to Accept Foreign Contribution (Sec 3)

1. There is restriction on accepting foreign contribution on followingperson/association etc.

a) Candidate for election.b) Columnist, cartoonist, editor, owner of printer of registered newspaper.

c) Association engaged in broadcasting of news.d) Judge, Government servant or employee of Government company.e) Member of Legislaturef) Political party, its office bearer or organization of political nature.

2. Further following two persons cannot accept foreign contribution from aforeign source on behalf ofpolitical party:

a) Any person resident in India andb) Any citizen of India resident outside India.

3. There is restriction on a person resident in India, or an Indian citizen resident

outside India to delivery and currency, which is received by him from foreignsource, to any such person, if that person can deliver this currency to politicalparty.

4. Every person receiving any currency from foreign source on behalf of personreferred in Sec 9 shall deliver this currency only to the person on whosebehalf he has received it and not to anyone else.


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SUPPOSE ABC IS POLITICAL PARTY OR ANY EDITOR OF NEWSPAPER OR

A JUDGE ETC. X IS PERSON RESIDENT IN INDIA, Y IS CITIZEN OF INDIA

RESIDENT OUTSIDE INDIA AND Z IS OTHER PERSON. NOW SEE:

First restriction says that ABC cant accept any foreign contribution from any

source at all.

Second restriction says that X or Y cant accept any foreign contribution on behalfof ABC

Third Restriction says that X or Y shall not delivery foreign contribution to Z if

they believe that Z will give such contribution to ABC.

Following are Exceptions of Sec 3 as Specified

under Sec 4

Any person receiving foreign contribution shall be allowed to accept it:a) By way of salary, wages or other remuneration in ordinary course of business.b) By way of gift made to him as a member of Indian delegate which is received

under Rules made by Government.c) From his relatived) By way of scholarship or stipend etc.

Organization of Political Nature

Government may specify by publication in Official Gazette that certain organization willbe called organization of political nature by taking in consideration:

1. Their activities2. Their ideology3. Any other ground

Restriction on Foreign Hospitality (Sec 6)

(Asked in Dec 2006) Following person cannot accept foreign hospitality except withprior permission of Government;a) Member of Legislatureb) Office bearer of Political Partyc) Judge, Government servant of employee of Government company.


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However, for emergency medical treatment due to sudden or severe illness, onlyintimation (and not permission) is required to be given the Government within inone month from receipt of hospitality.

Prohibition on Transfer of Foreign Contribution

(Sec 7)

Where a person, who is registered under this Act or has taken prior approval ofGovernment, receives any foreign contribution, he shall not transfer such contribution toany other person.

Utilization of Foreign Contribution (Sec 8)

Every registered person, who has taken prior approval of Government, if he receives anyforeign contribution, shall utilize such contribution only for the purpose for which it wasreceived. Such contribution cannot be utilized for speculation purpose. Further suchperson cannot utilize foreign contribution to meet his administrative expenses exceeding50% without approval of Government.

Power of Government (Sec 9)

Government can:1. Prohibit any person/association, other than person specified u/s 3 accept foreign

contribution.2. Require any approval, other than person specified u/s 6 to obtain prior approval or

to intimate before accepting foreign contribution.3. Require any person, other than person mentioned u/s 11 to intimate particulars of

foreign contribution received by it.4. Require any person specified u/s 11 to take permission before accepting foreign

contribution

Further Sec 10 gives power to Government to prohibit or restrict anyperson, who has in his possession any article, currency or foreign security,in contravention of this Act, from dealing delivering or transferring it.

Registration on Certain Persons (Sec 11)


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Intimation: Every person receiving foreign contribution shall intimate the sameto prescribed authority the amount, purpose source and utilization of thecontribution. He shall also maintain proper accounts of all foreign contributionreceived and utilized.

Every candidate for election, if he receives any foreign contribution before180 days of his nomination, shall intimate such receipt to Government.

Audit: Government can direct audit of the person who received foreigncontribution if:

a) He has not furnished information as required by Government or by Act orRules.

b) After inspection, Government deem it necessary.

Inspection and Search: If Government has a suspicious that any person, political partyor association has violated any provisions of this Act or Rules, it may authorize ant

officer to inspect any account or records of such person, association or political party.

Seizure: Court of Session has power to adjudge seized article, currency or securitywithout any monetary limit. However an opportunity of being heard shall be given toperson from whom such article, currency or security is seized.

Appeal: Against the order of Court of Session, an appeal can be preferred to high Courtwithin one month.

Penalty: Where a person is prohibited by any order of Government violated theprohibition, he shall be punished with 3 years imprisonment or fine. Any person,association or political party, it is accepts foreign contribution in contravention of thisAct or Rules shall be punished with 5 years imprisonment of fine,

If offence is made by a company, then the company and its officer in-charge willbe deemed to be guilty and shall be punished accordingly.

Compounding of Offence: Any offence, which is not punishable by imprisonment only,can be compounded before prosecution, once in three years, by prescribed authority.

List of Some Important Sections of FCRA

SECTION PARTICULARS

3 Prohibition on acceptance of foreign contribution by specified person

5 Organization of Political Nature

7 Restriction on acceptance of foreign hospitality by specified person.

9 Power of Government to control foreign contribution, hospitality etc.


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33-41 Offences and Penalties

STUDY 2 FOREIGN POLICY

DECLARED FROM TIMETO TIME FORA PERIOD OF 5 YEARS

AVERAGE 3-5 MARKS QUESTIONS ARE

ASKED FROM THIS CHAPTER

Following are major objectives of Foreign Trade Policy (FTP) 2009-2014:

a) To reverse declining trend of export and to double Indias share in global trade byyear 2020

b) Improvement of infrastructure relating to export and lowering transaction cost.c) Recognition of exporters on the basis of their export performance and to permit

them to import capital goods free from duty

Some Special Word/Terms used in this Chapter

DGFT DIRECTOR GENERAL OF FOREIGN TRADE:DEPARTMENT, WHICH CONTROLS WHOLE FOREIGN TRADE

EPCG Export Promotion Capital Goods:Government allows import of Capital Goods which can be used toproduce such finished goods which can be exported later

Advance

Authorization

(Asked in Dec 2009) Usually import license is issued by Governmenton export upto some extent, but under Advance Authorization, we canimport first upon fulfillment of export obligation later.

Status Holder Person (or Company) which regularly export upto such amount asprescribed by Government and are granted star status, which means


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that they are regular exporter.

DFIE Duty Free Import Entitlement: Imports are allowed without payment ofduty subject to condition that importer will export pre-determinedamount of export

Export

Obligation

Minimum value of export, which must be made

Actual User

Condition

License can be used only by the person to whom it is granted

FOB Free on Board, its price which includes all cost till goods are loadedon ship, but does not include freight and insurance

CVD Countervailing Duty. This Duty is levied to counter balance the effectof excise or sales taxes which are not imposed on imported goods.

Special Focus Initiative

To increase Indias share in global trade, following special focus initiatives have beenidentifies:

1. Market Diversification: New market in Latin America, Africa and somecountries of Asia has been identified for export purpose 26 new countries havebeen identified under Focus Market Scheme.

2. Technological Up-gradation: Export Promotion Capital Goods (EPCG) Schemeis launched to import capital goods at zero rate of duty and AdvanceAuthorization is allowed on export of imported goods on 15% value addition, i.e.Advance Authorization is allowed if a person agrees export worth Rs 115/- onimport of Rs 100/-

3. Status Holder: Status holders have been allowed duty credit of 1% of FOB valueof past export.

4. Agriculture and Village Industry: Capital goods imported under EPCG schemeis permitted in Agri Export Zone, Advance Authorization is allowed on export ofagro product, town pf export excellence is notified and Vishesh Krishi and GramUdyog Yojna has been launched.

5. Handloom and Handicraft: Specific finds have been allocated under MarketAccess Initiative (MAI) and Market Development Assistance (MDA). Duty FreeImport Entitlement (DFIE) have been fixed at 5% of FOB value of export andnew towns for export excellence have been notified.

6. Gems and Jewellery: DFIE for jewellery and diamonds has been fixed at Rs

300,000 and for rejected jewellery it is fixed at 2% of FOB value of export.Personal carriage limit for jewellery for overseas exhibition has been increased toUS$ 5 million.

7. Leather and Footwear: DFIE have been fixed at 3% of FOB value of export andmachinery have been exempted from custom duty. Countervailing duty has alsobeen exempted in certain materials.


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8. Marine: Import under EPCG has been exempted from export obligation, DFIEhave been allowed at 1% of FOB value of export and marine products areconsidered under Vishesh Krishi and Gram Udyog Yojna.

9. Electronics and IT Hardware: Mai and MDA schemes have been initiated forexport promotion.

10. Sport Goods and Toys: These goods have been identified as 3% of FOB value ofexport and these products comes under fast track clearance under DGFT.

Board of Trade

BOT has been created by Ministry of Commerce and Industry to:a) Advise Government on policy matter regarding export [promotionb) Setting-up and reviewing export performancec) Examining issue, identifying barriers to export and strengthening competitiveness

of Indian goods

Exports and imports have been made free subject to regulation by ForeignTrade Policy. Item-wise policy has been specified in ITC(HS).DGFT hasbeen empowered to interpret and decide any question or doubt arising inrespect of any provision of the FTP.

General Provisions of Export-Import

DGFT specifies whole procedure and exports and imports including licensingrequirement and procedures. Further DGFT can exempt any person from any provision ofpolicy or procedure. DGFT can frame any rules to:

a) Protect human, animal or plant.b) Protect ant patent, trade mark, copyright or any other intellectual property.c) Protect national treasure, historic or archaeological value.d) Prevent traffic in arms and war etc.

Every license, certificate or authorization granted by DGFT usually includesquantity and value of goods, export obligation actual user condition and minimumexport/import price. Such license is valid only till specified time. If holder oflicense fails to fulfill export obligation, DGFT can impose penalty.

Government owned State Trading Enterprises (STE) have also beenincorporated to export/import certain good.

IEC Number


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Import-Export Code number has to be obtained by every person engaged in foreign trade.However IEC is not required for export/import of personal goods, export/import from/toNepal/Myanmar upto Rs 25,000 and export/import by Government.

Application for IEC shall be made in prescribed format to such Regional office ofDGFT in which head office of applicant is situated. In case IEC is not used after itsissuance, the same can be surrendered.

Export Promotion Measures

1. Assistance to State for Developing Export Infrastructure and Allied

Activities (ASIDE): Central Government which does following activities:

a) Development of infrastructure for export, like road, power, inlandcontainer depot, minor port, effluent treatment facility etc.b) Creation of new SEZ or export promotion parksc) Equity participation in SEZ.

2. Market Access Initiative (MAI): Where Export Promotion Council (EPC),Industry and Trade Associations (ITA), Agencies of State Government of otherspecified person does following activities, central Government provides MAI byway of financial assistance:

a. Market study/survey, publicity campaign, brand promotion.b. Setting up of showroom or warehouse.c. Display in International Departmental Stores.d. Assistance in anti-dumping litigation.

Government provides 25% to 100% financial assistance for above mentionedactivities.

3. Market Development Assistance (MDA): It is also a financial assistance to EPCetc for participating at trade fair abroad, export promotion seminars etc.

4. Towns of Export Excellence (TEE): Selected towns producing goods worth 750crore (150 crore for handloom/agriculture) or more have been identified as TEE.Projects in TEE are given priority for financial assistance under ASIDE.

5. Brand Promotion: Indian Brand Equity Foundation(IBEF) was set-up in 1996 topromote made in India label. Now it has been more strengthened by providing itwith more financial assistance. Government will upgrade and modernize its testcentres and Regional Sub-committee on Quality complaint (RSCQC) has beenestablished at every regional office of DGFE.


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Trade Disputes

If DGFT thinks that any export or import is made in such a manner which is prejudicialto trade relation of India with other country or prejudicial to the interest of other

exporters/importers, he may take such action against such exporter ot importer asspecified under the Act or Rules.

SPECIAL ECONOMIC ZONES ACT,2005

PASSED IN PARLIAMENT ON 23 RD JUN-2005

APPLIES TO WHOLE OF INDIA

Contains total 58 Sections

This Act provides for establishment, development and management of Special EconomicZone for promotion of export.

Important Definitions

DEVELOPERSEC2(G)

MEANS A PERSON WHO HAS BEEN GRANTED ALETTER OF APPROVAL TO DEVELOP SEZ

Domestic Tariff

Area Sec 2(i)

Means the Whole of India but does not include are of SEZ

Offshore Banking

Unit Sec 2(u)Means branch of a bank located at SEZ and which has obtainedpermission of RBI under Banking Regulation Act (asked in Jun2008)

Infrastructure

Facility

Means such infrastructure which are necessary for developmentso SEZ (e.g. transport, power, water etc)

SEZ It is an area notified by Government which, through in India, isdeemed to be place out of India for trade purpose (Asked in Dec2006 and Jun 2007)

Establishment of SEZ

Sec 3 provides that SEZ can be established either severally or jointly by CentralGovernment, State Government or any other person. The purpose of establishment of


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SEZ is to manufacture goods, providing services, act as free trade zone or forwarehousing purpose.

Any purpose who wants to establish SEZ, shall identify the area and shall apply tothe board of Approval (herein after called the board) and on receipt of approval; heshall also take concurrence of State Government. Central Government need not take

any approval of Board to establish SEZ. The Board shall have power to modify orreject the proposal.Any person, who wishes to provide infrastructure facility in SEX, shall

apply to the Board after making an agreement with the Developer of the SEZ. Onapproval of establishment of the SEZ, the Developer of the SEZ shall submit exactdetails of the identified area to the State Government and the State Government shall,thereupon declare that area to be SEZ. After such declaration, the Board shallauthorize Developer to start operation in SEZ.

Guidelines for Declaration of SEZ

Sec 5 provides that the Central Government shall consider following factor beforenotifying any area as SEZ:

a) Generation of Additional Economic Activitiesb) Export promotionc) Promotion of domestic and foreign investmentd) Generation of new employment opportunities etc.

Processing and Non-Processing Area

Sec 6 provides that Central Government may divide the whole area covered by SEZ in:

a) Processing area, for manufacturing of goods and providing service.b) Area to be used for trading or warehousing.c) Non-processing area to be used for any other purpose.

Board of Approval


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Central Government can appoint the Board of Approval under Sec 8 to perform followingfunctions:

a) Promote and develop SEZ.b) Granting approval with or without modification, rejecting approval.

c) Approving developer or units to enter into foreign collaboration.d) Approving proposal for providing infrastructure facilities in SEZ.e) Granting license to industrial undertakings.f) Hearing and disposing of appeals.g) Delegating powers to Development Commission

Where the Board is of opinion that a Developer is not able to perform his functions orhe violates directions given by the Board, it can suspend the approval granted to theDeveloper and shall appoint an Administrator for a period of one year to perform inplace of Developer. Board shall also have power to transfer the approval to any otherperson.

Before suspension, the Board shall give a notice of 3 months to the Developerstating the grounds of suspension.

Development Commissioner

The Central Government shall appoint Development Commissioner and other staff toperform following functions:

a) Guide entrepreneurs to establish units at SEZ.b) Take suitable step to promote exports from SEZ.

c) Coordinate with Government departments.d) Monitor performance of any unit of SEZ or its developer.e) To work as officer in-charge of the SEZ and to exercise administrative

control.f) To Call information from any unit to monitor its performance.

Single Window Clearance

Central Government shall constitute an Approval Committee for each SEZ for perform

following functions:a) Approve import of goods from Domestic Tariff Area.b) Approve services provided in SEZ from Domestic Tariff Area or from a place

outside India.c) Monitor utilization of goods/service in trade or warehoused) Approve, modify or reject proposal of setting-up of any unit at SEZ


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Any person, who intends to set-up a unit at SEZ, shall submit his proposal to theDevelopment Commissioner in prescribed form. The Development Commissioner shallforward the same to Approval Committee and the Committee shall approve, modify orreject the application. Person aggrieved by decision of the Approval Committee canprefer an appeal to the Board.

If the person to whom approval was granted to set-up unit at SEZcontravenes any terms and condition, the Approval Committee can cancel his approval.Application for setting-up of offshore banking unit can be made to the RBI.

Similarly, Central Government has power to approve establishment of InternationalFinancial Service centre in SEZ.

Sec 19 provides that the Central Government can prescribe a single form forobtaining any type of approval in SEZ and single form of furnishing of returns.

Investigation Etc

Central Government shall also have power to appoint enforcement agency to carry outinvestigation, search and seizure in SEZ or a unit at SEZ. State Government also haspower to establish designated court to try all civil suits under the SEZ. Any personaggrieved by decision of such designated court can prefer an appeal to High Court within60 days.

Offences

In case of offence is committed by Company, every person on charge of the Company, as

well as the Company shall be deemed to be liable. Where such contravention iscommitted with consent or with negligence on the part or director, manager or secretary,they shall also be deemed to be guilty.

Exemption for Tax and Other Concession

Sec 7 says that import/export of any goods from/to Domestic Tariff Area by any unit ofSEZ or a Developer shall be free from such tax as specified in First Schedule. The firstschedule contains less imposed by various Acts.

Sec 26 provides following exemptions to every Developer:a. Exemptions from Custom Dutyb. Exemptions from Excise Dutyc. Exemptions from Service Taxd. Duty Drawback benefit to units from which goods were brought to SEZe. Exemptions from Security Transaction Tax


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f. Exemptions from Central Sales Taxg. Exemptions and other benefits under Income Tax Act as specified in Second

Schedule (e.g. Sec 10A, 10AA, 80IA, 80IAB, 80LA, 71, 54GA, 115JB etc ofthe Income Tax Act)

Domestic Clearance

Where any goods are removed from SEZ to Domestic Tariff Ares, such goods shall beliable to duty of customs, anti-dumping duty, countervailing duty etc.

SEZ AuthorityCentral Government can constitute an authority for each SEZ for perform followingfunctions:

a. Development of infrastructure at SEZb. Promoting export from SEZc. Review functioning of SEZd. Establishing a fund for SEZ

Other Provisions

1. Where any court has not been designated and dispute arises, such dispute shall bereferred to Arbitration.

2. Every person, employee or resident at SEZ shall be provided with an identity cardby the Development Commissioner.

3. Central Government shall have power to make Rules under this Act.

List of Some Important Sections of SEZ Act

Section Particulars

2 (za) Special Economic Zone

3 Establishment of SEZ

4 Authorization to Developer of SEZ to operate SEZ

8-9 Board of Approval and its functions

11-12 Development Committee and its function


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13-14 Approval committee and its function

15 Setting up of unit at SEZ

26 Exemptions to developer and entrepreneur

FOREIGN TRADE POLICY: AT A GLANCE

DAIGRAM

SPECIAL ECONIMIC ZONES ACT, 2005:

AT A GLANCE

DIAGRAM..


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STUDY 3 THE COMPETITION ACT, 2002

PASSED IN PARLIAMENT ON13-JAN-2003

APPLIES TO WHOLE OF INDIA EXCEPTJAMMU & KASHMIR

Contains total 66 Sections Controlling authority is CCIAverage 18-20 marks question are asked from this chapter

Competition is a market situation in which seller wants to attract buyers patronage toachieve its business goals. It is a process of economic rivalry between sellers to attractconsumers. In a competitive market, every producer has to produce products of goodquality and variety so as to attract the consumer. Competition has been deemed to beessential for sustained economic development . Competition helps to minimize the costby reducing wastage and achieving efficiency in production. In competitive market, priceelasticity of demand is high which lead seller to achieve improved productivity andhence, to increase profit. In uncompetitive and less-matured market, anti-competitivepractices may take place which may prejudice interest of consumer.

There are various reports, theories and books which advocates competition anddescribe benefits of competition. Competition Law is framed by Government to promotecompetition market and to prevent anti-competitive measure.

India has seen Government intervention in its economy till 1991. After that,Government introduced various economic reforms and allowed deregulation,liberalization and disinvestment. Monopolies and Restrictive Trade Practices (MRTP)Act was framed in 1969 to curb monopoly and to prevent restrictive and unfair tradepractices. Where an undertaking is able to production in such a manner to maximize itsprofit, it is said to have monopoly power.

Similarly where there is any agreement by which trade is distorted or flow ofcapital is restricted, it is called restrictive trade practice. These agreements may includehorizontal-vertical price-fixation, market allocation, boycott, exclusive dealing, tie-upsale etc. Erstwhile MRTP Act contained provisions to curb these restrictive tradepractices. MRTP also contained some provisions relating to Unfair Trade Practices whichwere used by certain traders by making distorting and misleading advertisements.

The Competition Act was enacted in year 2002 after repealing MRTP Act.

AGREEMENTSEC 2(B)

INCLUDES ANY ARRANGEMENT OR UNDERSTANDINGWHETHER IT IS FORMAL OR NOT, INTENDED TO BEENFORCEABLE OR NOT

Cartel Sec 2(c) Includes an association of producer, seller, distributors or serviceproviders who, by agreement among themselves, limit or controlproduction, distribution, sale or price of goods or services. It maybe international cartel, import cartel, export cartel etc.

Goods Sec 2(i) Means goods as defined under Sale of Goods Act and includesproduct manufactured, processed or mined and debentures/shares

Service Sec 2(u) Means service of any kind made available to potential user andincludes banking, communication, insurance, transport, supply of


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electricity, boarding, lodging, entertainment, repair, constructionetc.

Relevant MarketSec 2

It is determined by Competition Commission with reference tofollowing two basis:

Relevant

GeographicalMarket Sec 2(s)

A market comprising any area in which conditions of competition

for demand/supply of goods/services are homogeneous ascompared from conditions of any other area (Asked in Dec 2011)

Relevant Product

Market Sec 2(t)A market comprising of all those products which can be called asinterchangeable by a consumer having regard to its character, priceor use.

Basic Concept

(Asked in Jun 2007) The whole Competition Act comprises only three basic things,viz:

a) Anti-competitive agreementb) Dominant Positionc) Combination

The Act defines these three terms, makes provisions for control of these types ofagreement or position and imposes penalty for violation of provisions.

Anti-Competitive Agreement (Sec 3)

(Asked in Dec 2008, Jun 2009, Jun 2011) Anti-competitive agreement is such whichincludes restrictions relating to production, supply, storage, distribution etc of goodsor services which may have appreciable adverse effect on the competition. Sec 3prohibits entering into any such type of anti- competitive agreement and declares suchagreement as void. Here existence of appreciable adverse effect is a must to declaresuch agreements void.

(Asked in Jun 2007) Sec 3 further provides that following types of agreement,

including cartel, shall be deemed to have their appreciable adverse effect on thecompetitive, which:

a) Determines price of goods/services directly or indirectly.b) Limits or controls production, supply market or technological advancement.c) Results in bid rigging or collusive bidding.

Bid Rigging/Collusive Bidding(Asked in Dec 2011) means any process by which anybidding process is eliminated or which results in manipulation in bidding process. Where


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the bidder pre-determines the price of bidding by making a cartel or otherwise; it can becalled bid rigging or collusive bidding, Following are some method by which bidding ismanipulated:

a) Agreement to submit identical bid by each bidder.b) Agreement as to who will submit lowest or highest bid.

c) Agreement not to bid against each other.d) Agreement to get rid of outside bidder by manipulation.e) Agreement to declare bid winner on rotation basis etc.

Sec 3 further provides that following agreements shall also be deemed to be anti-competitive:

a) Tie-in Agreement: Agreement which require buyer to buy range of productsin place of single product. It may also include a condition to buy anotherproduct on purchase of one product.(Buy gas stove, if you buy gas cylinder)

b) Exclusive Supply Agreement: This agreement includes a condition to dealonly and only in the goods/services of a particular person and not of any other

person.c) Exclusive Distribution Agreement: Any agreement, which limit theproduction or supply of any goods/service or which allocate/distribute anymarket for sale of goods/service.

d) Refuse Price Maintenance: (Asked in Dec 2008, Jun 2009, Dec 2012) Anyagreement which pre-determines re-sale price by buyer of goods. Here,manufacturer, who sells goods to wholesale dealer, specifies the minimumprice at which he should sell to retain dealer.

It must be noted that all restrictions imposed by Sec 3 does not extend toany restriction imposed to protect any copyright, trade mark, patent,design or geographical indication. Further the Supreme Court, in TELCOv RRTA has specified following consideration before deciding whetherparticular agreement is restrictive or not:

a) Fact peculiar to business which is sought to be restricted.b) Condition before or after restriction.c) Nature of restriction and its probable effect.

Abuse of Dominant Position (Sec 4)

Sec 4 prohibits an enterprise from abusing its dominant position in market. An enterprises

may enjoy dominant position in relevant market in such a way so as to enable it tooperate independently of competitive forces or affects its competitors or market in itsfavour . We have already defined relevant market as relevant geographic market andrelevant product market. Further, dominant position is abused if any enterprises:

a) Imposes unfair condition in purchase or sale of goods/services or price, includingpredatory pricing, of such goods/service.

b) Imposes restriction on production of goods or services or their technicaladvancement.


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c) Indulge in such practice which result in denial of market access to any person.d) Terminates certain contract subject to such conditions which does not have nay

business relation.

(Asked in Jun 2008, Dec 2010, Jun 2012) Here predatory pricing means sellingof goods or services at a price lower than its cost so as to eliminate or reducecompetition. The Competition Commission of India (CCI) has power to decidewhether an enterprises enjoys dominant position or not.

Combination (Sec 5)

(Asked in Dec 2006, Dec 2009)Combination is either:a) Fresh Acquisition, orb) Such Acquisition where Acquirer already has control over production, distribution

of similar or identical (or substitute) goods/services, orc) Any merge or amalgamation

If any of above situation happens, it may be called combination if after abovementioned transaction, both parties jointly have:

1. In India, assets of Rs 1000 crore or more or turnover of Rs 3000 crore ormore or

2. In and outside India assets of US$ 300 million or more (including Rs 500crore in India) or turnover of US$ 1500 million or more ((including Rs1500 crore in India)

OR, if after transaction specified in points a to c supra, the enterprises belongs toa group then in place of point 1 and 2 supra, following limits will be applicable:

1. In India, assets of Rs 2000 crore or more or turnover of Rs 12000 crore ormore or

2. In and outside India assets of US$ 2 billion or more (including Rs 500crore in India) or turnover of US$ 6 billion or more (including Rs 1500crore in India)

(Asked in Dec 2007) Sec 6 prohibits any person from entering into combinationwhich can cause appreciable adverse effect on competition and suchcombination shall be void. Any person entering into any merger/amalgamation asreferred in point (c) supra or acquiring any control as referred in point (a) and (b)supra shall given a notice within 30 days to the CCI. Such merger/amalgamationor acquisition shall be effective only after permission from CCI, and if CCI does


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not reply within 210 days, it will be deemed to be permitted. CCI allows suchcombination if it does not have appreciable adverse effect on competition.

However, restrictions of Sec 6 do not apply if an share is subscribed orany finance is given by a public financial institution, foreign institutionalinvestors (FII), bank or venture capital.

Competition Commission of India

Sec 7 gives power to Central Government to establish Competition Commission of India(CCI), which shall be a body corporate having perpetual succession and common seal. Itshall have minimum 2 and maximum 6 members, including chairman, which areappointed by Central Government ob recommendation of a selection committee.Members are appointed for 5 years and can be re-appointed up to age of 65 years.

Following are disqualification of any member or chairman of CCI.a) Person adjudged as insolvent.b) Person engaged in any paid employment.c) Person convicted of an offence involving moral turpitude.d) Person who is physically or mentally incapable etc.

Duties, powers and functions of CCI are (Asked inJun 2008):

a) To eliminate trade practice having appreciable adverse effect on competitionb) To promote competition.c) To protect interest of consumers.

Director General:

Director General (DG) is appointed to assist CCI in conducting inquiry into violation of

any of provisions of this Act. Central Government has power to appoint DG.Assistant/Additional joint or Deputy DG.

DG has power of Civil Court like to summon and enforce attendance of a witness,discovery and production of documents, receiving evidence on affidavit etc. He also haspower to search and seize any records during investigation.


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Inquiry into Anti-Competitive Agreement

Dominant Position and Combination

As per Sec 19 in case of any allegation ofanti-competitive agreement and dominantposition; the CCI may investigate:a) Upon its own motion (suo motu)b) On receipt of information from consumer, consumer association or trade

association.c) On reference of Central or State Government.

It must be noted that DG can not apply for investigation for anti-competitiveagreement and dominant position.

If CCI is satisfied that a prima-facie case exists, it can direct to DG to investigate

into the matte and report within prescribed time. The report of DG is sent by CCI to allparties concerned, Government and any other statutory authority. CCI can also invite forcomments of Government if the case was referred by Government.

Sec 20 provides that CCI may inquire into combination having appreciableadverse effect on competition on:

a) Its own motion (suo motu)b) Receipt of notice under Sec 6 regarding acquisition or

merger/amalgamation.

If CCI is of opinion that the combination can have appreciable adverse effect onCompetition, then it will issue a show cause notice to concerned parties. On receipt ofreply, it will order DG to make a report. After this CCI can issue order to concernedparties to publish a public notice in prescribed manner inviting objections from public.After considering all objections, it can demand further information from concernedparties and finally either allow the combination or order that such combination shall nottake effect.

For determining whether an anti-competitive agreement is having appreciableadverse effect on competition or not, the CCI can consider following factors.

a) Is there barrier to new entry in market.b) Is existing competitors are leaving market.c) Is there is threat to competition in the market.d) What benefits may accrue to consumer by this agreement.e) What are chances of improvement in production/distribution of goods/services.f) What technical or scientific development are expected.

To determine dominant position of an enterprise, the CCI can consider followingfactor.

a) Size of enterprise and its share in market as compared to size and share of itscompetitors.


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b) Economic or commercial advantage of enterprise as compared to itscompetitors.

c) Vertical integration of enterprise, i.e. its sales/marketing network.d) Dependence of consumer on goods/services of enterprise.e) Restriction on entry for new competitors in market.

f) Advantages or looses to economy due to dominant position of enterprise etc.

In addition to above, CCI can consider following factors to determine relevantgeographical/product market.

RELEVANT GEOGRAPHICAL MARKET RELEVANT PRODUCT MARKET

Trade barriers

Local requirements

Government procurement policy

Transport cost

Language and consumers preference

Characteristics of goods service

Price of goods/service

Consumers preference

Existence of producers havingspecialization

For determining whether a combination is having appreciable adverse effect oncompetition or not, the CCI can consider following factors:

a) Actual and expected level of competition in market.b) Entry barriers and countervailing power in market.

c) Whether any substitute exists in market or not.d) Market share of enterprise after combination.e) Whether combination will result in increase in profit of the enterprise or not.f) Whether benefits of combination is more than its adverse effect.

Reference by Statutory Authority

Where any person claims before any statutory authority that there is violation ofprovisions of the Competition Act, then that statutory authority can refer the matter to theCCI and the CCI will give its opinion within 60 days to such statutory authority.


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Order of Competition Commission

CCI can, after proper investigation, order for following in case of anti-competitiveagreement and dominant position under Sec 27:

a) Direction to discontinue the agreement or abuse of dominant position, i.e. ceaseand desist order.

b) Direction to modify the agreement.c) Imposition of penalty which may extend to 10% of average turnover of last three

years.d) Order to compensate the cost or any other matter

CCI can also order for division of the undertaking enjoying dominant position by

which following can be provided:a) Transfer of property, rights or liabilities.b) Carry forward, transfer or adjustment of contracts.c) Issue, surrender etc of shares etc.

Under Sec 29 to 31, CCI may make following orders regarding combination:a) If combination can have appreciable adverse effect on competition, CCI

may direct that it shall not take effect.b) CCI can make combination effective by modifying terms of such

combination.c) If parties does not modify the terms of combination, it shall be deemed to

have adverse effect on competition.d) However, parties may themselves purpose modification in terms of

combination, which can be approved by CCI.e) Once CCI has rejected the combination, then any merger/amalgamation

shall not be approved by High Court under the provisions of theCompanies Act

Sec 32 empowers CCI to inquire and pass orders of any anti-competitiveagreement, dominant position or combination is having its appreciable adverseeffect on competition even though such agreement is entered outside India orhaving any party or enterprise outside India or the whole combination takes place

outside India.


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Appearance and Procedure Before

Commission

The complainant defendant to Director General can appear before the CCO eitherin person or through any CA, CS, CWA or Legal Practitioner practice.

CCI is not bound to follow procedures of Civil Procedure Code, but shallhave all powers of a Civil Court so as to summoning or enforcing attendance ofwitness, discovery and production of documents, receiving evidence on oath etc.

If a person fails to pay any monetary penalty imposed under this Act thenthe CCI can make reference to the Income Tax Authority ans penalty can berecovered like income tax.

Miscellaneous Provision

Penalties: any person who fails to comply any provisions of this Act or fail topay any penalty is liable to imprisonment upto 3 years or fine of Rs.25 crores.Any person who fails to comply with direction issued by DG is punishable withpenalty or Rs 1 lakh every day upto maximum Rs 1 crore. Penalty of Rs 50 lakhto 1crore is imposed on giving false information.

Where any contravention of this Act is done by a Company, then theCompany and its officer in-charge shall be deemed to be guilty and liable to bepunished accordingly.

Competition Advocacy: (Asked in Jun 2010) Government may ask for opinionof CCI to know possible effect of a proposed policy. The CCI shall give itsopinion to the Government within 60 days from such reference. Purpose ofGovernment or CCI is usually to promote competition , creating awareness ofcompetition and providing training for competition.

Competition Fund: The Competition Act has provided for creation of theCompetition Fund in which Government grant and fee received under this Actare deposited. Money of the fund is applies in the prescribed manner.

Competition Appellate Tribunal: Government can establish CompetitionAppellate Tribunal (CAT) to hear appeal against order passed by CCI. Everyappeal shall be made to CAT within 60 days of receipt of order from CCI. ThisCAT may consist of one chairman and two other member who may hold office for5years and can be re-appointed till age of 68 year (for chairman) or 65 year (formember).


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Cat is not bound to follow procedures of Civil Procedure Code, but shallhave all powers of the Civil Court so as to summoning or enforcing attendance ofwitness, discovery and production of documents, receiving evidence on oath,deciding ex-parts, setting aside any order etc.

Any person who contravenes provisions of CAT shall be liable toimprisonment of 3 years or fine Rs 1 crore. Any persons can appear before Cateither in person or through any CA,CS, CWA or Legal Practitioner in practice.

Appeal from order of CAT lies to Supreme Court within 60 days fromreceipt of order from CAT.

Powers of Government: Government can exempt any person from anyprovisions of this Act. Government also has power to issue any direction to anyperson, to supersede CCI, to make rules and regulation etc.

By Sec66 of the Act, the MRTP Act has been repealed, and all pendingproceedings under MRTP Act has been transferred to the CCI.

List of Some Important Sections of

Competition Act

Section Particulars

2(c) Caretl 2(e) Commission2(f) Consumer 3 Anti Competitive

Agreement

4 Abuse of DominantPosition

5 Combination

6 Regulation of Combination

18-39 Power and functionof commission

42-48 Penalties

CONSUMER PROTECTION ACT,1986

There are several Acts which seek to indirectly protect consumer like IndianContract Act. 1872, The Sales of Goods Act,1930, Dangerous Drugs Act, 1930,Drugs and Cosmetics Act, 1940, Prevention of Food Adulteration Act , 1954,LEGAL Metrology Act,2009 etc. But the Consumer Protect Act was first Actwhich directly aims to protect the consumer. Due to doctrine of caveat emptor and


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some other reason, this Act was framed . Following were basic objectives of thisAct:

a. Right of consumer to be protected against marketing of hazardousgoods/services.

b. Right to consumer to be informed about quality, quantity, purity, potency andprice of goods/services.

c. Right to get variety of goods/services at competitive price.

d. Right to be heard and get redressal in case of grievance.

e. Right to consumer education.

Definitions

Consumer means a person who buys any goods for consideration (whether paidor not) and includes user of such good if he use it with permission of buyer butdoes not include person who obtains goods for re-sale or commercial purpose; or

Person who avails any service for consideration (whether paid or not) andincludes user(or beneficiary) of such service if he avails it with permission ofbuyer but does not include person who obtains services for commercial purpose(Sec 2(1)(d)).

In Laxmi Engineering Works VPSG Institute, the Supreme Court held thatcommercial purpose is a question of fact and using goods or services for his ownlivelihood is not called commercial purpose. Similar decision was held inBhupendra Jung Bhadur Guna V Regional Manager. In ANarasimha V LIC itwas held that widow of deceased person is beneficiary and hence consumer.

Complainant (Asked in Dec 2010) means a consumer, more than oneconsumer having common interest, legal heir of consumer in case of his death,registered consumer association and Government.

Complaint any allegation made in writing so as to obtain a relief by

complainant that:

a. Unfair or restrictive trade practice has been adopted by trader or serviceprovider.

b. Goods bought or agreed to be bought by him suffers from defect(s).


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c. Services availed or agreed to be availed by him suffers from deficiency.

d. Trader or service provider has charged price in excess of price fixed by law ordisplayed on goods or agreed.

Goods mean goods as defined under Sale of Goods Act, 1930. Sec 2(7)of the sale of Goods Act says that goods includes movable property including stock,shares, growing crop and money. InMorgan Stanley Mutual Fund V Kartik Das it washeld that application for allotment of share is not goods.

Service (Asked in Jun 2008) means service of every description includingbanking, insurance, transport, electricity, boarding, lodging, construction, amusement etc,but does not include service provided free of charge or contract of service.

In Consumer Unity And Trust Society V State of Rajasthan it was held that patientof Government hospital cannot be called to have received service as it was free of cost. In

Indian Merchant Association VVP Santha Supreme Courtsaid that there can be two typesof services, one, contract forservices, in which one person serves other without beingunder control of person served, like a professional. Secondly there may be contract ofservice in which service provider is under full control and supervision of person served,like an employee. Hence contract for services is included in service but contract ofservice is excluded.

If a person says that he has paid taxes to the Government regularly, hence serviceprovided in Government hospital should not be counted free of cost, is wrong. Howeverin State of Hariyana V Santra, the Supreme Court held Government responsible fordeficiency in family planning treatment by medical officer. It must be noted that takingmediclaim insurance is notcalled free of cost. InAlex Rebello V Banglore University itwas held that university is not service provider if it takes exams.

Restrictive Trade Practice (Asked in Dec 2006) means a trade practice which canmanipulate price or supply of goods or services and has impact of imposing unjustifiedcost on consumers, and includes:

a. Delay in supply of goods which can result in rise in price.

b. Any trade practice which force consumer to buy a goods as a pre-condition tobuy another goods.

Defect(Asked in Jun 2011) means any fault, imperfection or shortcoming inquality, quantity, potency, purity or standard which required to be maintained as perprovisions of any law or which is claimed by trader in relation to any goods (Sec2(1)(f)).

Deficiency (Asked in Dec 2008, Jun 2009, Jun 2012) means any fault,imperfection or shortcoming or inadequacy in quality, nature and manner of performanceof service which is required to maintained as per provisions of any law or which isclaimed by service provider in relation to any service (Sec2(1)(g)).


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InLIC V Bhavanam Srinivas Reddy, negligence in settlement of insurance claimwas held to be deficiency. In Punjab National Bank B KB Shetty, bank was declaredresponsible for loss of ornaments form locker. Similarly inN Prabhakaran V SouthernRailway, Railway was held responsible for not providing cushion seat in first classcompartment. Railway was also held responsible to wrongly penalize a passenger who sat

on train with permission of TTE (Bhaskar Chowdhary V Dr. Pramod Kumar Agarwal)

However inPradeep Kumar Jain V Citi Bank, the bank was not held responsiblefor non-renewal of insurance policy even though post dated cheques were given.Similarly cancellation of train due to riots was also not held to be deficiency inDainikRail Yatri Sangh V Northern Railway.

Consumer Protection Councils

Central Consumer Protection Council (Sec 4): Central Council shall be established byCentral Government of which chairman shall be Minister of Consumer Affairs.

State Consumer Protection Council (Sec 7): State Council shall be established by anyState Government of which chairman shall be Minister of Consumer Affairs of that state.

District Consumer Protection Council (Sec 8A): District Council shall be established byState Government in every district in the state.

Redressal Agencies

Every complaint under this Act must be made within 2 years from the date on whichcause of action arises.

District Forum is established under Sec 9 in every district of a State by StateGovernment in which a person, who is qualified to be a District Judge, is appointed aspresident and two other person prescribed qualification are appoint as members. Personconvicted of any offense, insolvent, of unsound mind etc are disqualified to be members.Every member of District Forum can be appointed for 5 years and can also bereappointed till age of 65.

Jurisdiction of District Forum is to entertain complaint where value of values of

goods or services does not exceed Rs 20 lakhs. Further, it will accept complaint only ifwithin the local limit of the District, the defendant resides or has office or cause of actionarises. InDynavox Electronics P Ltd V BJS Rampuria College where goods weredelivered and installed at different place, it was held that cause of action arise partly atboth places.


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State Commission is established under Sec 16 in every State by State Governmentin which a person, who is qualified to be judge of High Court, is appointed as presidentand two Person convicted of any offence, insolvent, of unsound mind etc are disqualifiedto be a members. Every member of District Forum can be appointed for 5 years and canalso be reappointed till age of 67.

State Commission entertains complaint where value of goods or services exceedsRs 20 Lakhs but does not exceed Rs 1 crore. Further it has jurisdiction to hear appealagainst the order of District Forum within the State. However, before filing appeal, theappellant has to deposit Rs 25,000 or 50% of amount appealed against. State Commissionalso have revisionary jurisdiction.State Commission can, either on its own motion, or on application of complainant

transfer any case from one District Forum to another.

National Commission is established under Sec 9 by Central Government in whicha person, who is qualified to be judge of Supreme Court, is appointed as president and

two other person of prescribed qualification are appointed as members. Person convictedof any offence, insolvent, of unsound mind etc are disqualified to be members. Everymember of District Forum can be appointed for 5 years and can also be reappointed tillage of 70.

National Commission entertains complaint where value of goods or servicesexceeds Rs 1 crore. Further it has jurisdiction to hear appeal against the order of StateCommission. However, before filing appeal, the appellant has to deposit Rs 35,000 or50% of amount appealed against.

Procedure for Filing Complaint

Complaint shall be filed by complainant as defined earlier, and must be accompanied byprescribed fee. This complaint is admissible or not, is usually decided within 21 days byDistrict Forum/State Commission. If complaint is admissible, its copy is sent to file hisreply within 30 days. This period of 30 days can be extended by more 15 days. Ifopposite party admits, case is decided on the basis of material record, but if oppositeparty denies then alleged fault in goods is determined by sending goods to prescribedlaboratory for test. Where goods are not available; or testing is not possible, case isdecided on the basis of evidence shown by both parties.

Power of Redressal Agencies

All the redressal agencies shall have all powers of a Civil Court so as to summoning orenforcing attendance of witness, discovery and production of documents, receivingevidence on oath, etc. They also have power to issue written order for entry and search ofany place or seize any books, account or any other thing.


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Where the complaint has made frivolous claims, he can be held liable to pay Rs10,000 towards penalty.

District Forum, State Commission o National Commission can pass followingorders if goods are found defective or services are found deficient (Asked in Dec 2008):

To remove the defect or to replace the goods.

To remove deficiency in service.

To return the price paid by consumer along with compensation for loss or

injury.

To discontinue restrictive and unfair trade practices.

To withdraw hazardous goods from sale and not to offer such goods for

sale in future.

To cease manufacturing of hazardous goods and not to provide hazardous

services in future.

To issue corrective advertisement to counterbalance negative impact

created by misleading advertisement etc.

Appeal

Any person aggrieved by order of District Forum can prefer appeal to State Commissionwithin 30 days. Similarly appeal against State Commission can be filed before NationalCommission within 30 days. As we have seen earlier that before filing of appeal, theappellant has to deposit 50% of amount of Rs 25,000/35,000 with appellate authority.

Some Important Cases

Consumer Court has jurisdiction to entertain complaint even though agreement

contained arbitration clause (N K Modi V Fair Air Engineering P Ltd)

Failure to provide basic facilities in swimming pool training conducted by a

school, which charges fee from participants for such raining was held asdeficiency in service in Shashikant Krishnaji Dole V Shikshan Prasarak mandali

In Indian Airlines V Dr Jitesh Ahir, a compensation of Rs 40,000 was awarded to

a air passenger, who injured while strepping down from a ladder, which wassuddenly removed by airlines

In Ravneet Singh Bagga V KLM Royal Dutch Fintimes, airlines was not held

guilt because it acted in good faith and also offered compensation to its passengeras passenger missed his flight due to some mistake in visa.

A homeopathic doctor was held liable for practicing allopathic medicines

(Poonam Verma V ashwin Patel).

In Gopi Ram Goyal V National Heart Institute, doctors were not held responsible

for death of a patient because they exercise proper care and diligence.


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Where the passenger fell down from a running trail while passing through

vestibule passage (i.e. passage between two connecting coaches), it was held thatit was not rail accident, rather it was due to lack of safety by Railway, hencecompensation was awarded. (Union of India V Nathmal Hansatria)

In Harshad J Shah V LIC, the insured person paid his insurance premium to LIC

agent, but agent failed to deposit the same with LIC. Hence, it was not fault ofLIC, because agent does not have power to receive premium on behalf of LIC.

In National Insurance Co V Seema Malhotra, where cheque of insurance premium

was dishonoured and meanwhile insurance claim arose due to accident of car.Insurance company was not held liable because fault was on the part of insuredperson.

Where University did not provided degree of LLB to a student due to non-

recognition of college was held responsible and was liable to pay compensation tostudent. (Sreedharan Nair N V University of kerala)

List of Some Important Sections of Consumer

Protection Act

Section Particulars Section Particulars

2(1)(B) Complaint 2(1)(d) Consumer

2(1)(f) Defect 2(1)(g) Deficiency

4 Central Consumer Protection Council

7 State Consumer ProtectionCounci

Consumer Law

Documents

Transcript of Consumer Law