D19 - BUSINESS ENVIRONMENT AND LAW (5 X 20 = 100 marks) (Total 9 Questions) MAY 2008 1.

How a business can be improved by the study of business environment? 2. Trace the growth and discuss the reasons for state intervention in the economy. 3. Describe the objectives of Indian Contract Act. 4. "Privatization can transform the industrial scenario of India" - Discuss. 5. Describe the functions of WTO. 6. Discuss the social responsibility of Today's business. 7. Describe the demographic environment related to business. 8. Discuss the interaction between socio-cultural elements and the business. 9. Write notes on any TWO: (a) Indian corporate culture (b) Mutual funds (c) Regional trade blocs. OCTOBER 2008 1. Discuss the historical background of Indian business and its present situation. 2. Explain the Indian political philosophy toward business enterprise since independence. 3. Discuss the micro and macro environmental factors affecting the survival of a business. 4. 'Stable Central Govt. and State Govts. are essential for industrial development in India1 -Elucidate this statement 5. When SEBI wan established? What steps have been taken by SEBI towards investor's protection? 6. Describe briefly the essentials of a valid contract 7. Discuss the Trade Burners and Non-Trade Barriers in International Trade. 8. What is meant by cultural adaptation by business firms? Explain its role in the Indian context 9. What is the need for technology up-gradation? Explain its role in the Electronics Industry in India. OCTOBER 2009 1. "Management education and professionalism of management have developed the quality of administration in India" Comment. 2. "Stable business policies and political stability assure consistent development of economy and its sustenance" substantiate the statement. 3. Explain the essential elements of a valid business contract, 4. Outline the labour laws which an administrator has to apply in his/her firm. 5. Narrate the relevant provisions of Environment Protection Act. 6. Highlight the role of LM.F. In Indian economic development, 7. Discuss the draft functions of WT.O. 8. How do R & D and laws regarding patents influence the technological environment in India? 9. Describe the impact of socio cultural environment on business.

FERA Foreign Exchange Regulation Act, 1973 on dealings in foreign exchange Some of the restrictions laid down by the Foreign Exchange Regulation Act, 1973 on dealings in foreign exchange are as follows 1. Only those persons can deal in foreign exchange who are authorized dealers by the Reserve Bank of India. 1

2. If any other person other than the authorized dealer is dealing in foreign exchange, he will have to take a special permission from the Reserve Bank of the country. 3. No person can make any payment to or for the credit of any person resident outside India except the authorized dealers or with a prior permission form the Reserve Bank. 4. The non-residents having assets in India cannot transfer, assign, pledge, charge or deal with in any manner whatsoever except with the special permission of the Reserve Bank. 5. Payments is respect of the exported goods will be made according to the notifications of the Central Government from time to time. 6. No person can hold immovable property outside India except in accordance with the rules or with the permission of the Reserve Bank. 7. Except with the prior permission of the Central Government, no person resident in India will associate himself with or participate in concerns outside India. Restrictions have also been put on the appointment of persons and companies as Agents or Technical or Management Advisers in India. Any such appointment is to be made according to the rules laid down by the Central Government from time to time. 8. Permission of the Reserve Bank is also required for establishing any place of business in India by foreign companies. 9. Prior permission of the Reserve Bank is needed for taking up any employment, etc., in India by citizens of other countries. 10. The business of booking passages outside India and foreign travels can be made only with proper licensing and rules in this regard. In short, Foreign exchange Regulation Act, 1973 which came into force from 1st January, 1974 aims at regulating the area and nature of foreign investment and provides the mechanism to ensure that private foreign investment falls in line with the priorities laid down by the Government. The provisions of the Act make it obligatory on the non-resident interests (which include Indian companies in which foreign equity is more than 40%) to seek permission of the Reserve Bank for (a) Carrying on any activity of a trading, commercial or industrial nature (b) Purchasing shares in India of any Indian company (c) Establishing a branch officer or a place of business in India (d) Acquiring wholly, or partly, any business undertaking in India (e) Acting or accepting appointment as technical or company in trading or commercial transactions (f) Acung or accepting appointment as technical or management adviser in India of any person or company (g) Permitting any trade mark to be used by any person or company for any direct or indirect consideration (h) Acquiring, holding, transferring or disposing of immovable properties (i) Borrowing moneys or accepting deposits. Keeping mind the provisions of the Foreign Exchange Regulation Act, Different Indian and foreign companies concerned with foreign exchange have to suitably adapt their policies and practices on their business plans. 2

-----What Are The Main Functions Of International Monetary Fund (IMF?) International Monetary Fund or IMF is a finance monitoring organization formed on December 1945.Primary purpose of IMF is to develop policies regarding money monitoring, uniform standards for currency exchange and stable payment systems that should be mutually accepted by all the member countries of IMF. At present number of registered countries with IMF are 182, operations in 110 countries with 2600 employees. Functions of IMF are to develop fair and monitor currency exchange rates among all the countries. IMF also provides short term loans to its member countries so they could bring their imbalanced payment system into balance. One more important function of IMF is to draw lending money model for borrower countries. In this way IMF also acts as Debtor. IMF also provides Training and Technical assistance in the areas of finance management system, Tax system, banking system development to its member countries through its Monetary and Exchange Affairs Department, the Fiscal Affairs Department, and the Bureau of Statistics. The Legal Department, the Bureau of Computing Services, and the area departments also coordinate. IMF also helps to draw a systematic system for foreign transactions to take place. It provides advice on microeconomic development. Every member of IMF provides a fixed quota of money to IMF. Size of amount is based on the ability of government to pay. Short Notes on IMF The IMF was the outcome of Bretton woods conference of 1944. The main purpose of IMF were to provide exchange stability, temporary assistance to countries falling short of foreign exchange and take international measure for curing the adverse balance of payment. IMF is a pool of central bank reserves and national currencies which are available to its members under certain conditions. Objectives of the Fund: a). To promote international monetary co-operation among the different countries. b). Adopt different measures to promote international trade. c). Adopt measures to reduce restrictions on international trade imposed by the different countries. d). To help the member countries in receipt and payment. e). Provide short term loans to correct the adverse balance of payment. f). To promote exchange stability and maintain orderly exchange arrangements and avoid exchange depreciation. In order to carry out these purposes, the IMF sells foreign exchange to its members so that they can meet the difficulties in the balance of payment. It advices the govt. on financial problems and recommends anti-inflationary measures in respect of investment, bank, credit govt. spending and taxation, the funds financial assistance takes the form of a foreign exchange transaction and each member of the fund is 3

assigned a quota which approximately determines its voting power and the amount that it may draw in foreign exchange from the fund. Social Audit - Concept discussion For the people, of the people, by the people Our country being a democratic nation and a Welfare State revolves around people. Government takes any decision keeping the common people in mind. Government formulates many programme/policies for the welfare of the State. Though planning is perfect with all valid assumptions considering the immediate need of the people, there were few Programs in which WE, the people, find a huge gap between expected outcome and actual outcome. It is evident that there is some sort of deviation from the proper course of implementation and follow up. So there needs to be a Check! Social responsibility and accountability are the need of the hour. Governments are facing an ever growing demand to be more accountable and socially responsible and the people are becoming more conscious about their rights to be informed and to influence Government decision making processes. Definition "Social Audit is a process in which people work with the Government to monitor the planning and implementation of the policies/programme which are intended for the beneficiaries (people)". It is also defined as an in-depth scrutiny and analysis of the working of any public utility vis--vis (in relation to) its social relevance. The underlying ideas of a Social Audit are directly linked to the concepts of democracy and participation. In Social Audit, it examines the impact of specific Governmental activities on certain sections of the society which are in contact with Government agencies. It is an important tool in the Management of National affairs. Objectives of Social Audit: Accurate identification of requirements Prioritization of developmental activities as per requirements Proper utilization of funds Conformity of the developmental activity with stated goals Quality of Service Need for Social Audit Is it true ? - India is a Democracy - People are Masters - Government exists to serve the people! If it is TRUE, 4

- Social Audit of all Development programmes need be welcome Major decisions about these welfare programmes were made by the politicians. Peoples money should not be played into the hands of few corrupted politicians hence there is a need for the social audit to check any discrepancies relating to the project/welfare activities. Social Audit is community driven tool for transparency and accountability. It unearths misappropriations, corruptions and identifies the perpetrators of such deeds and exposes them and makes accountable in the Public forum. Scope of Audit Social audit is also conducted on Policies and Laws in addition to the schemes or programmes. The task of auditing is relevant right from the stage when an issue is identified through planning, implementation, monitoring and evaluation. Audits are done on not just of decisions taken or the actions done (or not done) but also of the processes followed. Social Audit compared with other audits: (a) Government Audit or Institutional audit: Comptroller and Auditor General (CAG) who is the head of the Supreme Audit Institution of India, conducts Government Audit and it is also responsible for ensuring an uniform accounting policy and audit in Government sector as a whole. Government Audit does not significantly involve the affected persons (ultimate beneficiaries). These audits concludes at assessing outputs rather than OUTCOMES and are also not able to assess whether the decision making processes had the inputs and support of all the critical stakeholders (Government Personal, affected peoples and other interested parties). (b) Public audit: Public audit do not have those problems which being discussed above since it is audited only by the affected persons/stated beneficiaries. However the findings of discrepancy by this public audit cannot be easily taken to the table of the Government since, as the implementing institutions and Government does not involve intrinsically in the process of audit. Social audit is a blend of two (Institutional audit and Public audit). It assesses the performance and unpacks decision. Social audit targets whether the spent amount for the Social activity has made a difference whereas Financial audit target whether the amount spent correctly for the specified activities. So Social Audit complements well with Financial Audit. Social audit is conducted in addition to Government/Institutional audits in some sample activities which involve distributing of disaggregated benefits at grass root level/activity which involves huge investment like; Public Distribution System (PDS), 5

National Rural Employment Guarantee Scheme (NREGS). The findings of such audit are publicly compared to those of the Government/Institutional audits and the corrective/rectifying measures would be initiated. When Social Audit conducted? Social audit can be conducted at any point of time of the Social activity. It might be of the grass root planning stage/implementing stage or after work being done. Example: It is broken down below taking NREGS (National Rural Employment Guarantee Scheme) specifically to give clarity as to what is being done in a Social Audit. Planning Stage: To ensure that the Gram Panchayat plan is need based covering productive/investments and drawn up in consultation with community serving the poor and the disadvantaged. Preparation Stage: To ensure that estimates are proper and are in tune with the approved quantum of work. Implementation Stage: To ensure that wages are paid rightly, properly and to right people After completion of work: To ensure that quality of work is in tune with quantity and estimated cost. Benefits of Social Audit: Curb on corruption Increased effectiveness of a Program / Project A sense of belonging (Personal touch with People, since people participate in the audit) Awareness to Common people their rights and entitlements Social Accounting and Reporting Promotes integrity and a sense of community among people. Good Local Governance Grievance redressal and follow up of corrective actions Different stages of Social Audit: Step I Preparatory Plan preparation Selection of Audit Committee Information gathering Verification Social Audit Public Meeting Step II Implementation Introduction Chart Display Discussion Public Meeting Step III Follow up 6

RTI and Social Audit: To conduct Social Audit it needs all relevant information and decision making processes that are totally transparent. Section 4(1) (b) of the RTI Acts (Right to Information) lists the information that Public authorities need to make public suo moto. It should publish all relevant facts while formulating important policies or announcing the decisions which affects the public. Thereby RTI Acts helps to conduct audit in a smooth manner. Control Over Social Audit No official/ political pressure should be brought on to social audit process All records pertaining to works that are to be audited must be available with the social audit team before Audit process begin The role and responsibilities of Government/Administration and the Social audit team should be clearly explained The purity of the Social audit must be maintained at all circumstances. It should not be politicized. A Social auditor shall not bring his/her personal or organizational s agenda into the social audit process All the aspects of the scheme must be closely examined during the social audit process There should not be any place for discrimination in Social audit process based on caste, race, religion or profession. A social auditor must be an impartial observer of facts Lok Pal Bill and Social Audit: Well, it is possible to relate social audit with newly proposed Jan LokPal Bill. If social audit, implemented with all stringent laws and punitive punishments given for the mishandling (or) by other means of scam, the planning and implementation will be smooth and it ensures good Governance. When Social audit ensures transparency and accountability giving no scope for fraud/corruption, it makes less corrupt cases to be investigated by initiating the proposed Lok Pal bill. Recent happenings: Of recent dated 24/04/2011 Environmentalist Mr. Baba Balbir Singh from Jalandhar has advocated Social Audit for the project relating to cleaning the rivers in Punjab. Two key reasons for conducting social audit for this project is to keep a hawk eyes on spending of the Central funds to prevent siphoning of funds by corrupt officials and to ensure the targets were achieved. Apart from that, Social audit was conducted under NREGA (National Rural Employment Guarantee Act, 2005) which aims at enhancing the livelihood security of people in rural areas by guaranteeing hundred days of wage employment in a financial year to a rural household adult member. Conclusion 7

Social Audit can be described as checking and verification of a programme/scheme implementation and it results by the community with the active involvement of the primary stakeholders. This concept brings a different dimension viewing People as Auditors who works with Government and assesses the performance of the Social activity. It measures the Social outcomes and makes a Social difference. SEBI Notes Before the establishment of he Securities ad Exchange Board of India (SEBI), the principal legislations governing the securities market in India were the capital Issues Control Act, 1956 (governing the primary market) and the Securities Contracts (Regulations) Act 1956 (governing the secondary market). The regulatory powers were vested with the Controller of capital Issue (for the primary market) and the Stock Exchange Division (for the secondary market) in the Ministry of Finance, Government of India. In 1989, SEBI was created by an administrative fiat of the Ministry of finance. Since then, SEBI has gradually been granted more and more powers. With the repeal of the Capital issues Control Act and the enactment of the SEBI Act in 1992, the regulations of the primary market has become the preserve of SEBI. Further, the Ministry of Finance, Government of India, has transferred most of the powers under the Securities Contracts (Regulations) Act, 1956 to SEBI. SEBIs principal tasks are to: 1. Regulate the business in stock exchanges and any other securities markets. 2. Register and regulate the working of capital market intermediaries (brokers, merchant bankers, portfolio managers and so on) 3. Register and regulate the working of mutual funds 4. Promote and regulate self regulatory organizations 5. Prohibit fraudulent and unfair trade practices in securities markets 6. Promote investors education and training of intermediaries of securities markets 7. Prohibit insider trading in securities 8. Regulate substantial acquisition of shares and takeovers of companies 9. Perform such other functions as may be prescribed. Initiatives: SEBI has taken a number of steps in the last few years to reform the India capital market. It has covered the entire gamut of capital market activities through nearly 30 legislations. The important initiatives are mentioned below. Freedom in Designing and Pricing Instruments: Companies now enjoy substantial freedom in designing the instruments of financing as long as they fully disclose the character of the same. More important, they enjoy considerable latitude in pricing the same. Introduction of Stock invests: To save investors from the loss of interest on the subscription money locked up with the company, SEBI has introduced the stock invest scheme as an additional facility to the investors. The financial irregularities of 1992 highlighted the deficiencies of the badla system permitted excessive leveraging. To rectify the defects in trading practices the badla system has been banned. Screen based Trading: Thanks to the competition posed by the National Stock Exchange and the insistence or prodding done by SEBI, all the exchanges have switched to screen based trading. 8

Electronic Transfer: The traditional method of transfer by endorsement on security and registration by issuer has been supplanted by electronic transfer in book entry form by depositories. Risk Management: A comprehensive risk management system that covers capital adequacy limits on exposure and turnover margins based on VAR (value at risk) client level gross margining and online monitoring of positions has been introduced. Rolling Settlement: The trading cycle, which was previously one week, has been reduced to one day and the system of rolling has been introduced. Corporate Governance Code: A new code of corporate governance has been defined. It has been made operational by inserting a new clause (clause 49) in the Listing Agreement the agreement that a listed company enters into with stock exchange where its securities are listed. Change in Management Structure: Stock exchanges earlier were broker dominated. SEBI now requires 50 percent non-broker directors. Further, it has mandated that a non-broker professional be appointed as the Executive Director. Registration and Regulation of Intermediaries: Capital market intermediaries such as merchant bankers, under writers, bankers to the issue, registrars to transfer arrangements, brokers and sub brokers are required to be registered with SEBI. Regulations for these intermediaries have been prescribed. KNOW SEBI The new market/activity was regulated by the Controller of capital Issues (CCIs) under the provisions of the Capital Issues (Control) Act. With the repeal of the Act and the consequent abolition of the office of the CCIs in 1992, the regulation/promotion of development of the market/activity is the responsibility of the SEBI. To tone up the operations of the new issues in the country, it has put in place rigorous measures. These cover both the major intermediaries as well as the procedures/activities. The SEBI framework regulating the intermediaries is comprehensively examined. They have to conform to the regulations prescribed by the SEBI. Lead mangers, underwriters, bankers, registrars and share transfer agents, debenture trustees and portfolio managers all have to abide by the regulations. While the fraudulent and unfair trade practices regulation is described. Securities and Exchange Board of India (SEBI): The SEBI was constituted in April 1988 under the overall administrative control of the Government of India (Ministry of finance) for the regulation and orderly functioning of the stock exchanges and the securities industry to fully protect the rights of the investors, to prevent trading malpractices and promote healthy growth of capital markets. It was given a statutory status in 1992 under the SEBI Act. Powers/ Duties and Functions: Under the SEBI Act the powers/duties of the SEBI are (1) to protect the interests of the investors in securities, (2) to promote the development of the securities market and, (3) to regulate the securities market. The Act also entrusts with the SEBI the following specific functions in order to exercise its power /discharge its duties: (a) Regulating the business in stock exchanges and any other securities markets; (b) Registering and regulating the working of stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers and such other intermediaries who may be associated with the securities markets in any manner: 9

Registering and regulating the working of the depositories, custodians of securities, foreign institutional investors, credit ratings agencies and such other intermediaries as the SEBI may notify in this behalf; (c) Registering and regulating the working of venture capital funds, collective investment schemes including mutual funds; (d) Promoting and regulating self regulatory organizations; (e) Prohibiting fraudulent and unfair trade practices relating to the securities markets; (f) Promoting investors education and training of intermediaries of the securities markets; (g) Prohibiting insider trading in securities. (h) Regulating substantial of shares and takeover of companies; (i) Calling for information, undertaking inspection, conducting inquires and adults of the stock exchanges, mutual funds, intermediaries and self regulatory organizations in the securities market. The SEBI has been given since 1995, the same powers as are vested in a civil court under the code of civil procedure, while trying a suit in respect of (1) the discovery and production of books of accounts and other documents at such place and time as may be specified by it (2) summoning and enforcing the attendance of persons and examining them on oath (3) inspection of books, registers/other document of any intermediary in the securities market. (j) Performing such functions and exercising such powers under the provision of the Securities Contracts (Regulation) Act, 1956 as may be delegated to it by the central government; (k) Levying fee/other charges for carrying out the functions/duties; (l) Conducting research for discharging its functions; Calling from, or furnishing to, any such agencies as may be specified by the SEBI such information as may be considered necessary by it for the efficient discharge of its functions; and (m) Performing such other functions as may be prescribed. In addition to the above powers/duties/ functions, the SEBI is empowered with effect from 1995, for the protection of investors to specify by regulations the matters relating to the issues of capital, transfer of securities am other related matter together with the manner in which such matters are to be disclosed by companies. If on the basis of an enquiry, it is satisfied that in the interests of investors/orderly development of the securities market or to prevent the affairs of the securities market intermediary being conducted in manner detrimental to the interests of investors/securities market, to ensure the proper management of any such intermediary, the SEBI, since its inception has powers to issue appropriate directions. Sick Industrial Companies Act (SICA) Sick industrial unit is defined as a unit or a company (having been in existence for not less than five years) which is found at the end of any financial year to have incurred accumulated losses equal to or exceeding its entire net worth. The net worth is calculated as sum total of paid up capital and free reserves of a company less the provisions and expenses, as may be prescribed. An industrial unit is also regarded as potentially sick or weak unit if at the end of any financial year, it has accumulated losses equal to or exceeding 50 per cent of its average net worth in the immediately preceding four financial years and has failed to repay debts to its creditor(s) in three consecutive quarters on demand made in writing for such repayment. The two basic factors which may result in sickness of an industrial unit are:Internal factors are those which arise within an organisation. They include:10

Mismanagement in various functional areas of a company like finance, production, marketing and personnel; Wrong location of a unit; Overestimation of demand and wrong dividend policy; Poor implementation of projects which may be due to improper planning or managerial inefficiency; Poor inventory management in respect of finished goods as well as inputs; Unwarranted expansion and diversion of resources such as personal extravagances,excessive overheads, acquisition of unproductive fixed assets,etc.; Failure to modernise the productive apparatus, change the product mix and other elements of marketing mix to suit the changing environment; Poor labour-management relationship and associated low workers' morale and low productivity,strikes,lockouts, etc. External factors are those which take place outside an organisation. They include:Energy crisis arising out of power cuts or shortage of coal or oil; Failure to achieve optimum capacity due to shortage of raw materials as a result of production set-backs in the supply industries, poor agricultural output because of natural reasons,changes in the import conditions,etc. Infrastructural problems like transport bottlenecks; Credit squeeze; Situations like market recession, changes in technology,etc; International pressures or circumstances, etc. Industrial sickness may be caused by a combination of all such factors. It has several adverse consequences on the economy as a whole. Some of which may be enumerated as follows:It leads to loss of substantial revenue to the Government and enhances its public expenditure; It locks up necessary resources and funds in the sick unit. This also increases the nonperforming assets (NPAs) of banks and financial institutions; It leads to loss of production and productivity in the economy; 11

It aggravates the problem of unemployment in the economy; It vitiates the industrial atmosphere and leads to worker-management disputes,strikes,lock-outs,etc; It undermines the public confidence in the functioning of the organised sector in the country which in turn affects the overall investment climate of the economy. In the light of the above consequences of sickness and its growing incidence by size, region and industry followed by its far-reaching adverse socio-economic effects, the Government has been taking many steps and remedial measures in order to tackle this problem in India. The most significant measure has been the enactment of the Sick Industrial Companies (Special Provisions) Act,1985 (SICA). Sick Industrial Companies (Special Provisions) Act, 1985 The most important piece of legislation dealing with industrial sickness was the Sick Industrial Companies (Special Provisions) Act,1985 (SICA). It applies to industrial undertakings both in the public and private sectors. SICA pertains to the industries specified in the First Schedule to the Industries (Development and Regulation) Act, 1951, (IDR Act) subject to the exceptions specified in the Act. SICA, including any rules or schemes made thereunder, had overriding provisions over other laws except the provisions of the Foreign Exchange Regulation Act,1973 and the Urban Land (Ceiling and Regulation) Act, 1976. The basic rationale of enacting SICA was to determine sickness in the industrial units. It also aimed at expediting the revival of potentially viable units so as to make the investments in such units profitable. At the same time, to ensure the closure of unviable units so as to release the investments locked up in such units for productive use elsewhere. Thus, the broad objectives of SICA were:Timely detection of sick and potentially sick companies. Speedy determination by a body of experts of the preventive, ameliorative, remedial and other measures which need to be taken with respect to such companies. The expeditious enforcement of the measures so determined and for all matters connected therewith or incidental thereto. The important provisions of SICA were:It provided for the constitution of two quasi-judicial bodies, that is, Board for Industrial and Financial Reconstruction (BIFR) and Appellate Authority for Industrial and Financial Reconstruction (AAIFR). BIFR was set up as an apex board to tackle industrial sickness and was entrusted with the work of taking appropriate measures for revival and rehabilitation of potentially sick undertakings and for liquidation of non-viable companies. While, AAIFR was constituted for hearing the appeals against the orders of the BIFR. BIFR would make an inquiry as it may deem fit for determining whether any industrial company had become sick, under the following conditions:If the Board of Directors of a sick industrial company made a reference to the BIFR for determination of the remedial measures with respect to their company. Such reference was to be made within sixty days from the date of finalisation of the duly 12

audited accounts of the company for the financial year at the end of which the company had become sick. For filing the reference, the Board of Directors must have sufficient reasons to form the opinion that the company had become sick; or On receiving such information (reference) with respect to a sick company or upon its own knowledge as to the financial condition of a company. Such a reference to the board may be made by:- (i) The Central Government; (ii) The Reserve Bank of India; (iii) State Governments; (iv) Public financial institutions; (v) State level institutions; or (vi) Scheduled banks. However, such a reference shall not be made in respect of any industrial company by :- (i) the Government of any State, unless all or any of the industrial undertakings (belonging to such a company) were situated in that State; (ii) a public financial institution or a State level institution or a scheduled bank, unless it had, by reason of any financial assistance or obligation rendered by it or undertaken by it, interest in such a company. The Board may order any operating agency to enquire into the matter and complete the inquiry as expeditiously as possible. If the Board deems it fit to make an inquiry or to cause an inquiry to be made into any industrial company, it may appoint one or more persons as special director(s) of the company for safeguarding the financial and other interests of the company. The appointment of a special director shall be valid and effective notwithstanding anything to the contrary contained in the Companies Act, 1956 or in any other law for the time being in force or in the memorandum and articles of association or any other instrument relating to the industrial company. Any special director so appointed shall :- (i) hold office during the pleasure of the Board and may be removed or substituted by any person by order in writing by the Board; (ii) not incur any obligation or liability by reason only of his being a director or for anything done or omitted to be done in good faith in the discharge of his duties as a director or anything in relation thereto; (iii) not be liable to retirement by rotation and shall not be taken into account for computing the number of directors liable to such retirement; (iv) not be liable to be prosecuted under any law for anything, done or omitted to be done in good faith in the discharge of his duties in relation to the sick industrial company. If after making an inquiry, the Board is satisfied that the company has become sick, it shall, after considering all the relevant facts and circumstances of the case, may take either of the following decisions:If the Board decides that it is practicable, it shall, by order in writing and subject to such restrictions or conditions as may be specified in the order, give such time to the company as it may deem fit to make its net worth exceed the accumulated losses. If the Board decides that it is not practicable for the sick company to make its net worth exceed the accumulated losses within a reasonable time and that it is necessary or expedient in the public interest to adopt all or any of the measures in relation to the said company, it may, as soon as may be, by order in writing, direct any operating agency specified in the order to prepare a scheme providing for such measures in relation to that company. The measures may include:13

The financial reconstruction of the sick industrial company; The proper management of the sick industrial company by change in or take over of the management of the company; The amalgamation of the sick industrial company with any other company (transferee company), or any other company with the sick industrial company (transferee company); The sale or lease of a part or whole of the sick industrial company; Such other preventive, ameliorative and remedial measures as may be appropriate; Such incidental, consequential or supplemental measures as may be necessary or expedient in connection with or for the purposes of the measures specified above. If the Board is of the opinion that the sick industrial company is not likely to make its net worth exceed the accumulated losses within a reasonable time while meeting all its financial obligations and that the company as a result thereof is not likely to become viable in future and that it is just and equitable that the company should be wound up, it may record and forward its opinion to the concerned High Court. The High Court shall, on the basis of the opinion of the Board, order winding-up of the sick industrial company in accordance with the provisions of the Companies Act, 1956. Where in respect of an industrial company, an inquiry is pending, or any scheme referred is under preparation or consideration or a sanctioned scheme is under implementation, then no proceedings for the winding-up of the industrial company or for execution, distress or the like against any of the properties of the industrial company shall be made. Also, no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans, or advance granted to the industrial company shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority. Also with respect to the above conditions, the Board may by order declare with respect to the sick industrial company concerned that the operation of all or any of the contracts, assurances of property, agreements, settlements, awards, standing orders or other instruments in force, to which such sick industrial company is a party or which may be applicable to such sick industrial company immediately before the date of such order, shall remain suspended or that all or any of the rights, privileges, obligations and liabilities accruing or arising there under before the said date, shall remain suspended or shall be enforceable with such adaptations and in such manner as may be specified by the Board. However, such declaration shall not be made for a period exceeding two years, which may be extended by one year at a time so that the total period shall not exceed seven years in the aggregate. Under the Act, whosoever violates its provisions or any scheme or any order of the Board or of the Appellate Authority, shall be punishable with imprisonment for a term which may extend to three years and shall also be liable to a fine. No court shall take cognizance of any offence mentioned except on a complaint in writing of the 14

secretary or any such other officer of the Board or the Appellate Authority or any such officer of an operating agency as may be authorised in this behalf by the Board or the Appellate Authority. Sick Industrial Companies (Special Provisions) Act,1985 (SICA) was repealed and replaced by Sick Industrial Companies (Special Provisions) Repeal Act,2003. The new Act diluted some of the provisions of SICA and plugged certain loopholes. It aimed not only to combat industrial sickness but also to reduce the same by ensuring that companies do not view declaration of sickness as an escapist route from legal provisions after the failure of the project or similar other reasons and thereby gain access to various benefits or concessions from financial institutions. Under it, the Board for Industrial and Financial Reconstruction (BIFR) and Appellate Authority for Industrial and Financial Reconstruction (AAIFR) were dissolved and replaced by National Company Law Tribunal (NCLT) and National Law Appellate Tribunal (NCLAT) respectively. FDI IN INDIA WHAT IS FDI ? Foreign direct investment (FDI) in its classic form is defined as a company from one country making a physical investment into building a factory in another country. Include investments made to acquire lasting interest in enterprises operating outside of the economy of the investor. Generally speaking FDI refers to capital inflows from abroad that invest in the production capacity of the economy and are Usually preferred over other forms of external finance because they are Non-debt creating, non-volatile and their returns depend on the performance of the projects financed by the investors. FDI also facilitates international trade and transfer of knowledge, skills and technology. The FDI relationship consists of a parent enterprise and a foreign affiliate which together form a multinational corporation (MNC). In order to qualify as FDI the investment must afford the parent enterprise control over its foreign affiliate. The IMF defines control in this case as owning 10% or more of the ordinary shares or voting power of an incorporated firm or its equivalent for an unincorporated firm. Foreign Direct Investment (FDI) is permitted as under the following forms of investmentsThrough financial collaborations. Through joint ventures and technical collaborations. Through capital markets via Euro issues. Through private placements or preferential allotments. ENTRY STRATEGIES FOR FOREIGN INVESTOR Foreign Company has the following options to set up business operations in India : By incorporating a company under the Companies Act, 1956 A wholly owned subsidiary Joint venture company - existing company or new company with domestic partner As an unincorporated entity Liaison Office Project Office 15

Branch Office LIAISON OFFICE Liaison office not permitted to undertake any commercial/trading/industrial activity The role of the liaison office is limited to Collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers Acting as a communication channel between the parent company and Indian Companies. It can promote export/import from/to India and also facilitate technical/financial collaboration between parent company/Group companies and companies in India Approval for establishing a liaison office in India is granted by RBI PROJECT OFFICE General permission to foreign entities to establish Project / Site Offices (temporary in nature) Such offices cannot undertake or carry on any activity other than the activity relating and incidental to execution of the project General permission also for remitting surplus funds after completion of project on production of the following documents: BRANCH OFFICE Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up Branch Offices in India for specified purposes Branch Offices are established with the approval of RBI Permitted to remit outside India profit of the branch FOREIGN INVESTMENTS THROUGH GDRs (Euro Issues) Foreign Investment through GDRs is treated as Foreign Direct Investment CLEARANCE FROM FIPB There is no restriction on the number of Euro-issue to be floated by a company or a group of companies in the financial year . A company engaged in the manufacture of items covered under Annex-III of the New Industrial Policy whose direct foreign investment after a proposed Euro issue is likely to exceed 51% or Which is implementing a project not contained in Annex-III, would need to obtain prior FIPB clearance before seeking final approval from Ministry of Finance. USE OF GDRs The proceeds of the GDRs can be used forFinancing capital goods imports, Capital expenditure including domestic purchase/installation of plant, Equipment and building and Investment in software development, Prepayment or scheduled repayment of earlier external borrowings, and Equity investment in JV/WOSs in India. 16

WHY FDI ? 1. Gain a foothold in a new geographic market. 2. Increase a firms global competitiveness and positioning. 3. Fill gaps in a companys product lines in a global industry. 4. Reduce costs in areas such as R&D, production, and distribution. FACTORS REQUIRED TO ATTRACT FDI Low cost BUT Qualified, Educated/Skilled Labor Pool. Long-term Market Potential OR Yields greater than can be achieved Domestically. Access to Natural Resources. Geography Stability of the economic and Political Environment. FORBIDDEN TERRITORIES FDI is not permitted in the following industrial sectors: Arms and ammunition. Atomic Energy. Railway Transport. Coal and lignite. Mining of iron, manganese, chrome, gypsum, sulphur, gold, diamonds, copper, zinc. Lottery Business Agricultural or plantation activities Housing and Real Estate Business (except development of townships, construction of residential/commercial premises, roads or bridges to the extent specified in Notification No. FEMA 136/2005-RB dated July 19, 2005). F D I - APPROVAL Foreign direct investments in India are approved through three routes: Automatic approval by RBI. The FIPB Route. CCFI Route AUTOMATIC ROUTE No need of Prior Approval From FIPB,RBI,GOI. BUT The investors are only required to notify the Regional Office concerned of the Reserve Bank of India within 30 days of receipt of inward remittances. AND File the required documents along with form FC-GPR with that Office within 30 days of issue of shares to the non-resident investors. The Reserve Bank of India accords automatic approval within a period of two weeks (provided certain parameters are met) to all proposals involving: foreign equity up to 50% in 3 categories relating to mining activities . foreign equity up to 51% in 48 specified industries. foreign equity up to 74% in 9 categories . THE FIPB ROUTE 17

FDI in activities not covered under the automatic route require prior government approval. Approvals of all such proposals including composite proposals involving foreign investment/foreign technical collaboration is granted on the recommendations of FIPB. Application for all FDI cases, except NRI investments and 100% EOUs, should be submitted to the FIPB Unit,DEA, Ministry of Finance. Application for NRI and 100% EOU cases should be presented to SIA in Department of Industrial Policy and Promotion (DIPP). Application can be made in Form FC-IL. Plain paper applications carrying all relevant details are also accepted. No fee is payable. CCFI ROUTE Investment proposals falling outside the automatic route. And Having a project cost of Rs. 6,000 million or more would require prior approval of Cabinet Committee of Foreign Investment (CCFI). Decision of CCFI usually conveyed in 8-10 weeks. Thereafter, filings have to be made by the Indian company with the RBI. MAJOR BODIES CONSTITUTED FOR FDI 1991- Foreign Investment Promotion Board FIPB 1996- Foreign Investment Promotion Council FIPC 1999- Foreign Investment Implementation Authority FIIA 2004- Investment Commission Secretariat for Industrial Assistance (SIA) ADVANTAGES OF FDI Increase in Domestic Employment/Drop in unemployment Investment in Needed Infrastructure. Positive Influence on the Balance of Payments. New Technology and Know How Transfer. Increased Capital Investment. Targeted Regional and Sectoral Development. DISADVANTAGES OF FDI Industrial Sector Dominance in the Domestic Market. Technological Dependence on Foreign Technology Sources. Disturbance of Domestic Economic Plans in Favor of FDI-Directed Activities. Cultural Change Created by Ethnocentric Staffing The Infusion of Foreign Culture , and Foreign Business Practices FDI SECTORAL GUIDELINES AIRPORTS Foreign Investment up to 100% is allowed in green field projects under automatic route Foreign Direct Investment is allowed in existing projects - up to 74% under automatic route 18

- beyond 74% and up to 100% subject to Government approval TELECOM FDI in basic and cellular, unified access services, national/ international long distance , V-Sat, public mobile radio trunk services , global mobile personal communications services - Automatic up to 49% - FIPB beyond 49% but up to 74% Manufacture of telecom equipments - Automatic up to 100%. DOMESTIC AIRLINES FDI up to 49% (40%) permitted under automatic route Automatic Route is not available However, a foreign airlines are not allowed to have any direct or indirect equity participation 100% investment by NRIs/OCBs DRUGS & PHARMA FDI up to 100% is permitted under the automatic route for manufacture of drugs and pharmaceuticals (The following is the current position) FDI up to 74% in the case of bulk drugs, their intermediates Pharmaceuticals and formulations would be covered under automatic route. FDI above 74% for manufacture of bulk drugs will be considered by the Government on case to case basis INSURANCE FDI up to 26% allowed on the automatic route However, license from the Insurance Regulatory & Development Authority (IRDA) has to be obtained There is a proposal to increase this limit to 49% MINING Coal & Lignite mining for captive consumption by power projects, and for iron & steel and cement production - Automatic up to 100% Mining covering exploration and mining of diamonds and precious stones, gold, silver and minerals - Automatic up to 100% PETROLEUM Petroleum and natural gas sector, other than refining and including market study and formulation; setting up infrastructure for marketing - Automatic up to 100% For petroleum refining activity 100% FDI is permitted in Indian Private Companies under automatic route and up to 26% FDI is permitted in Public Sector Undertakings with Government approval PRIVATE SECTOR BANKING Foreign Investment up to 74% is permitted from all sources under the automatic route subject to guidelines for setting up of branches/subsidiaries of foreign banks issued by RBI from time to time. TRADING Wholesale / cash & carry trading - Automatic upto 100% Trading for exports - Automatic upto 100% Trading of items sourced from small scale sector - 100% with Government approval Single Brand product retailing - 51% with Government approval PRINT MEDIA FDI upto 100% in publishing/printing scientific & technical magazines, periodicals & journals 19

FDI upto 26% in publishing news papers and periodicals dealing in news and current affairs. All investments are subject to the guidelines issued by the Ministry of Information and Broadcasting BROADCASTING FDI permitted for setting up hardware facilities such as up-linking, HUB, etc up to 49% under Government approval route FDI permitted in Cable Network up to 49% under Government approval route Foreign Investment (FDI/FII) up to 49% allowed under Government approval route in Direct to Home Service Providers. FDI limited to 20% FDI permitted in FM radio up to 20% under Government approval route INFRASTRUCTURE 100% FDI is permitted for the following activities: Electricity Generation (except Atomic energy) Electricity Transmission Electricity Distribution Mass Rapid Transport System Roads & Highways Toll Roads Vehicular Bridges Ports & Harbors Hotel & Tourism SPECIAL INVESTMENT AVENUES ELECTRONIC HARDWARE AND SOFTWARE TECHNOLOGY PARKS 100 percent foreign investment under automatic route is allowed in electronics and software industries set up exclusively for exports. Eligible to purchase, free of customs duty/ excise duty, their entire requirement of capital goods, raw materials and components, spares and consumables, office equipments etc. EXPORT ORIENTED UNITS 100% foreign equity (is permitted through Automatic Route similar to SEZ units) in Export Oriented Units (EOUs) even if it is manufacturing an item reserved for the small scale sector EOUs enjoy several privileges like duty exemption on import and domestic procurement and also Income tax exemption till 31.03. 2009 Project with minimum investment of Rs.10 million and above in building, plant and machinery qualify to be considered under EOU scheme Not applicable in case of certain industries like agriculture, floriculture, information technology, services, hand made jewellery, etc. Exemption of Industrial Licensing for manufacture of items reserved for SSI sectors. SPECIAL ECONOMIC ZONE Special Economic Zone (SEZ) is deemed to be foreign territory for the purposes of trade operations and duties and tariffs No cap on Foreign investment for manufacturing items reserved for SSI as well as exemption from industrial licensing An SEZ unit can be set up to undertake trading activities in addition to manufacturing of goods and rendering of services ILLUSTRATIVE LIST OF SECTORS UNDER AUTOMATIC ROUTE FOR FDI UP TP 100% 20

Most manufacturing activities Drugs and pharmaceuticals Food processing Electronic hardware Software development Film industry Advertising Hospitals Pollution control and management Management consultancy Computer related Services Research and Development Services Construction and related Engineering Services Pollution Control and Management Services Health related & Social Services Travel related services ADVANTAGES OF INDIA Stable democratic environment over 60 years of independence Large and growing market World class scientific, technical and managerial manpower Cost-effective and highly skilled labor Abundance of natural resources Well-established legal system with independent judiciary. Developed banking system and vibrant capital market . India among the top three investment hot spots and one of the fastest growing economies in the world. Large English speaking population
BUSINESS GOALS Profit - Making profit is the primary goal of any business enterprise. Growth - Business should grow in all directions over a period of time. Power - Business houses have vast resources at its command. These resources confer enormous economic and political power. Employee satisfaction and development - Business is people. Caring for employee satisfaction and providing for their development has been one of the objectives of enlightened business enterprises. Quality Products and Services - Persistent quality of products earns brand loyalty, a vital ingredient of success. Market Leadership - To earn a niche for oneself in the market, innovation is the key factor. Challenging - Business offers vast scope and poses formidable challenges. Joy of creation - It is through business strategies new ideas and innovations are given a shape and are converted into useful products and services. Service to society - Business is a part of society and has several obligations towards it. BUSINESS ENVIRONMENT Environment refers to all external forces, which have a bearing on the functioning of business. Environment factors are largely if not totally, external and beyond the control of individual industrial enterprises and their managements. The business environment poses threats to a firm or offers immense opportunities for potential market exploitation. TYPES OF ENVIRONMENT Environment includes such factors as socio-economic, technological, supplier, competitor and the government. There are two more factors, which exercise considerable influence on business. They are physical or natural environment and global environment. Technological Environment

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Technology is understood as the systematic application of scientific or other organized knowledge to practical tasks. Technology changes fast and to keep pace with it, businessmen should be ever alert to adopt changed technology in their businesses. Economic Environment There is close relationship between business and its economic environment. Business obtains all its needed inputs from the economic environment and it absorbs the output of business units. Political Environment It refers to the influence exerted by the three political institutions viz., legislature executive and the judiciary in shaping, directing, developing and controlling business activities. A stable and dynamic political environment is indispensable for business growth. Natural Environment Business, an economic pursuit of man, continues to be dictated by nature. To what extend business depends on nature and what is the relationship between the two constitutes an interesting study. Global or international Environment Thanks to liberalization, Indian companies are forces to view business issues from a global perspective. Business responses and managerial practices must be fine-tuned to survive in the global environment. Social and culture Environment It refers to peoples attitude to work and wealth; role of family, marriage, religion and education; ethical issues and social responsiveness of business. ENVIRONMENT BUSINESS RELATIONS Business is the product of the technological, political-legal, economic, social cultural, global and natural factors amidst which it functions. Three features are common to this web of relationship between business and its environment. There is symbolic relationship between business and its environment and among the environmental factors. In other words, business is influenced by its environment and in turn, to certain degree, it will influence the external forces. Similarly, political-legal environment influences economic environment and vice versa. The same relationship between other environment factors too. These environmental forces are dynamic. They keep on changing as years roll by, so does business. The third feature is that a particular business firm, by itself, may not be in a position to change its environment. But along with other firms, business will be in a position to mould the environment in its favor. IMPORTANCE OF ENVIRONMENTAL STUDY The benefits of environmental study are as follows; Development of broad strategies and long-term policies of the firm. Development of action plans to deal with technological advancements. To foresee the impact of socio-economic changes at the national and international levels on the firms stability. Analysis of competitors strategies and formulation of effective countermeasures. To keep oneself dynamic. ENVIRONMENTAL ANALYSIS PROCESS The analysis consists of four sequential steps: Scanning It involves general surveillance of all environmental factors and their interactions in order to: Identify early signals of possible environmental change Detect environmental change already underway Monitoring It involves tracking the environmental trends, sequences of events, or streams of activities. It frequently involves following signals or indicators unearthed during environmental scanning. Forecasting Strategic decision-making requires a future orientation. Naturally, forecasting is an essential element in environmental analysis. Forecasting is concerned with developing plausible projections of the direction, scope, and intensity of environmental change. Assessment In assessment, the frame of reference moves from understanding the environment- the focus of scanning, monitoring and forecasting to identify what the understanding means for the organization. Assessment, tries to answer

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questions such as what are the key issues presented by the environment, and what are the implications of such issues for the organization. MULTINATIONAL CORPORATIONS The dynamics of the business environment fostered by the drastic political changes in the erstwhile communist and socialist countries and the economic liberalization across the world has enormously expanded the opportunities for the multinational corporations, also known by such names as international corporation, transnational corporation, global corporation (or firm, company or enterprise) etc. DEFINITION AND MEANING A corporation that controls production facilities in more than one country, such facilities having been acquired through the process of foreign direct investment. Firms that participate in international business, however large they may be, solely by exporting or by licensing technology are not multinational enterprises. TOTAL QUALITY MANAGEMENT Total Quality Management (TQM), a buzzword phrase of the 1980s, the concept and principles, though simple seem to be creeping back into existence by bits and pieces through the evolution of the ISO 9001 Management Quality System Standard. Companies who have implemented TQM include Ford Motor Company, Philips Semiconductor, SGL Carbon, Motorola and Toyota Motor Company. The latest changes coming up for the ISO 9001:2000 standards Process Model seem to complete the embodiment. TQM is the concept that quality can be managed and that it is a process. Total Quality Management (TQM) is a participative management style that stresses total staff commitment to customer satisfaction. It is a holistic approach to managing complex organizations and replaces top-down management with decentralized customer-driven decision-making. Total Quality Management is an integrated management system for creating and implementing a continuous improvement process eventually producing results that exceed customer expectations. It is based on the assumption that 90 % of problems are a result of process, not employees. TQM CONCEPT & OBJECTIVES TQM is a process and strategy that in certain situations can improve an organizations effectiveness and efficiency. TQM places responsibilities for quality problems with management rather than on the workers. A principal concept of TQM is the management of process variation which seeks to identify special and common needs. The objective of TQM is the continual improvement of processes, achieved through a shift in focus from outcomes (or products) to the processes that produce them. TQM achieves its objective through data collection and analysis, flow charts, cause and effect diagrams, and other tools, which are used to understand and improve processes. PRINCIPLES OF TQM The principles of TQM are as follows: Quality can and must be managed. Everyone has a customer and is a supplier. Processes, not people are the problem. Every employee is responsible for quality. Problems must be prevented, not just fixed. Quality must be measured. Quality improvements must be continuous. The quality standard is defect free. Goals are based on requirements, not negotiated. Life cycle costs, not front end costs. Management must be involved and lead. Plan and organize for Quality improvement. KEY ELEMENTS OF TQM The key elements of TQM are as follows: Pursue New strategic Thinking Know your customers Set True customer requirements Concentrate on prevention, not correction Reduce chronic Waste Pursue a continuous Improvement strategy

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 Use structured methodology for process improvement Reduce Variation Use a Balanced Approach Apply to all functions TQM PROCESS IMPROVEMENT AND PROBLEM SOLVING SEQUENCE This consists of five stages: I. PLAN (Plan a change) This stage consists of three parts: (A) Define the problem 1. Recognize that what you are doing is a PROCESS. 2. Identify the commodity being processed - Process inference. 3. Define some measurable characteristics of value to the commodity. 4. Describe the PROCESS. 5. Identify the BIG problem. (B) Identify possible causes 1. BRAINSTORM what is causing the problem. 2. Determine what past data shows. (C) Evaluate possible causes 1. Determine the relationship between cause and effect. 2. Determine what the process is doing now. II. IMPLEMENT (Implement the change) 1. Determine what change would help. 2. Then make the change. III. MONITOR (Observe the effects) 1. Test the change. 2. Determine what change worked (Confirmation) IV. ACTION (Take permanent action) 1. Ensure the fix is embedded in the process and that the resulting process is used. 2. Continue to monitor the process to ensure the problem is fixed for good and the process is good enough. V. FOLLOW UP (To ensure continuous improvement) 1. Return to step 5. New Economic Environment (Industrial Policy 1991) 3 aims of new economic policy: Liberalization do away with excessive regulatory framework; increase MRTP limit from Rs. 20 crores to 100 crores; abolish industrial licensing policy for all industries except 18 industries like coal, sugar, drugs etc. Petroleum and defence are the only 2 manufacturing industries reserved for the public sector in the new industrial policy. Globalization integrate Indian economy with the world economy; permit free flow of goods & services, capital, technology and labour across the national frontiers. Privatization process of involving private sector in the ownership of state-owned or public sector undertaking through: Ownership measures extent of ownership transferred from public enterprise to private sector Organisational measures change of organisational structure of public enterprises Operational measures infuse spirit of private enterprise in public sector Aims of LPG: To achieve high rate of growth of national and per capita income To achieve full employment To achieve self reliance To reduce inequality of income and wealth To reduce no. of people living below poverty line

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To develop a pattern of society based on equality Legal Environment Companies Act, 1956 is the principal statute that controls corporate business in India. A company can be i) Private - min 2 members, max 50 excluding present and past employees, cannot invite public to invest in its shares and debentures. It must have min 2 directors, max as specified in its Articles of Association ii) Public min 7, no maximum limit. Minimum 3 directors, max 12 but can increase with approval from Central Government

Monopolies & Restrictive Trade Practices Act: The MRTP Act was enacted in 1969 to prevent concentration of economic power, control of monopolies and prohibition of monopolistic, restrictive and unfair trade practices. But the Act proved to be inadequate for fostering competition in the market and trade and for reducing, if not eliminating, anticompetitive practices in the country. Further the Act had lost relevance keeping in view the liberalized policy post 1991. In October, 1999, the Government of India appointed a High Level Committee to suggest a legislative framework which may entail a new law or appropriate amendments to the MRTP Act o The Committee presented its report in May 2000 o The draft competition law was prepared and presented to the Government in November 2000. o The Parliament passed in December 2002 the new law, namely, the Competition Act, 2002 having essentially four compartments: o Anti - Competition Agreements o Abuse of Dominance o Combinations Regulation o Competition Advocacy Foreign Exchange Regulation Act, 1973 (FERA) has been replaced by Foreign Exchange Management Act, 1999 (FEMA). The latter act is simpler and less stringent. RBI in consultation with the Central Government administers FEMA. EXIM Policy 2002 07 announced by the Minister for Commerce and Industry Mr. Murasoli Maran with the objective to push Indias exports aggressively by taking several measures aimed at augmenting exports of farm products, small scale sector, textiles, gems and jewellery, electronic hardware etc. SEBI constituted as a statutory body in 1988. SEBI Act was passed in 1992. SEBI has been given the power to control and regulate the new issues market as well as the stock exchange. Steps taken by SEBI for improved practices and greater transparency in the capital market: 1. Inspecting stock exchanges to improve their functioning 2. Introduced measures to reform primary market and remove inadequacies in the issue procedure 3. Registration of brokers and sub-brokers on the basis of certain eligibility norms like capital adequacy and infrastructure 4. Merchant bankers to be authorized by SEBI

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5. Stock exchanges advised to collect 1% of issue amount from companies making public issues which could be forfeited in case of non-compliance of provisions of the listing agreement 6. Companies to furnish statement showing variation in financial projection in offer document and actual utilization for comparison by shareholder 7. Private mutual funds brought under regulatory framework of SEBI 8. SEBI has notified regulations on insider trading 9. SEBI issued a guidelines for development of financial institutions for disclosure and investment protection regarding their raising of funds 10. SEBI has made it mandatory for brokers to maintain separate accounts for their clients and themselves. They must have their books audited and audit reports filed with SEBI. They must disclose the transaction price and brokerage separately in the contract notes issued to their clients 11. To make the governing bodies of stock exchanges broad based 12. Govt. has allowed foreign institutional investors like pension funds, mutual funds, investment trusts to invest in the Indian capital market provided they are registered with SEBI

FEMA & FERA A Comparison Points of FEMA -2000 Comparison 1.Content There are 49 sections out of which 12 section relate to operational part and rest with penal provisions Basically it is a civil law The Act applies to all branches , offices and branches outside India owned or controlled by a person resident in India FERA -1973 There were 81 sections out of which 32 sections related to operational part and rest deals with penalty, appeals etc. It was considered as a criminal law The Act applied to all citizens of India and to branches and agencies outsides India and to branches and agencies outside India

2. Nature 3. Applicability

4. New Terms

Capital account transactions, These terms were not defined. current account transactions, persons, services like new terms are introduced. Limited to three times the sum Five times of the sum involved + involved if it is quantifiable .If it is imprisonment in most of the not quantifiable . cases The object is to encourage external trade. The object was to control, regulate and prohibits foreign exchange transactions

5.Penality

6. Object

7. Legal Help The complainant has full right to There was no provision for legal take legal help from a lawyer or a assistance 26

chartered accountant

8.Power of Police Authorities 9. Definition of authorized person 10.Definition of Resident

The power to the police officers has restricts to great extent

Extensive powers had given to police officer

It has been extended to include It was limited in case of FERA banks, money changes, off shore banking units etc The term has defined in accordance with income tax act The term defined was not in accordance with income tax act

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MUTUAL FUNDS Introduction The orgin of the mutual funds can be traced in Britian in the late 19th century and early 20th century. Unit trust was the first mutual fund in India which was set up in 1964. Mutual funds are those who represent pooled savings of investors in divesified portfolio to obtain maximum return on investment with the minimum risk. In recent years, mutual funds have become most important among the newer capital market inistituions. Like unit trust of india, many public sector banks and financial institutions have setup mutual funds on tax saving schemes. Objectivies of Mutual Funds To provide investment opportunity to the small investors to participate in the fast growing corporate securities market through indirect way. To provide a higher return than the banks without having much risk. To mobailize savings from the small investors and channalise than for productive purposes. To provide multiplicity of investment options like current return, capital appriciation, tax benefit or a combination of all these. To strengthen the capital market by assuring better flow of funds. Contents Meaning of mutual funds Objectives of mutual funds Registration and Trustee Advantages of mutual funds SEBIs regulations Some Major Private Mutual Funds ICICI Ltd. Mutual Fund, IDBI Mutual Fund, Kothari Pioneer Mutual Fund, 20th Century Mutual Fund, Alliance 1995, GIC Mutual Fund, Birla Mutual Fund, JM Mutual Fund and ITC Mutual Fund etc. Government allowed the entry of mutual fund in 1992 and SEBI has cleared a number of private mutual funds. Above mentioned are a few among them. Registration and Trustee: Mutual funds are required by law to obtain a certificate of registration from the SEBI. They have to apply in form A and deposit a fee of Rs. 25000/-. A mutual fund will be constituted as a trust under a registered trust deed and managed by a trustee or by a board of trustees. Advantages of Mutual Funds Safety and stable return. Convenience in investment. Investors need not worry where to invest. Since it is invested in different portfolios, risk factor is reduced tremendously. Broad basing of capital and the benefit of professional and skilled fund management. It helps speedy formation of capital in the country. Even small and pawn sophisticated investors are benefited by the mutual fund. Freedom of selection from wide range of schemes having excellent liquidity. SEBIS Regulation SEBI is empowered to lay guidelines and supervise and regulate the functioning of mutual funds. The guidelines will include advertisements, disclosures and reporting requirements. Mutual funds are under obligation to inform the investors regarding the status of their investment in equities, debentures and government securities. SEBI has introduced uniform regulations for the mutual funds in the country, known as SEBI(Mutual Funds) Registration, 1993 which comprises of the following guidelines. Mutual funds has to be established as a trust and should be managed by a separate asset management company(AMC). Mutual funds should be supervised by board of trustee. The AMC must have a minimum net worth of Rs.6 crores of which the sponsors must contribute at least 40 percent. Approval of SEBI must be obtained for the offer documents of scheme of mutual funds. The norms of advertisement and truthful discloser by the mutual funds in advertisements and publicity materials. (Incomplete sentence.) SEBI prescribe the minimum amount should be raised by each scheme.

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SEBI and Capital Market Reforms SEBI (the Securities and Exchange Board of India) was set up in 1988 as a non statutory body to regulate the functioning of the capital market which was suffering from the weakness like- long delays, lack of transparency and vulnerability to price rigging and insider trading. It was made a statutory body in 1992. SEBI was authorized to regulate all merchant banks on issue activity, regulate and supervise the working of the mutual funds and also to over see the functioning of the stock Exchanges in India. In constitutions with the government, SEBI has introduced a number of steps to improve the functioning of the Stock-Exchange in India. On the recommendation of the Narasimham committee, the government of India abolished the post of Control of Capital Issues (CCI) and instead, SEBI was given the power to control and regulate the new issue market as well as the old issue market. Primary Market Reforms SEBI has issued various guidelines for the issue of capital. Companies now have to disclose material facts and risks factors with their projects. And the basis of fixing premium. Not only that, SEBI has also introduced a code of advertisement for public issues for the purpose of fair and truthful disclosures. For reducing cost of issue, understanding of issue has been made optional subject to certain conditions. It has raised the minimum application size, regulated acquisition and takeover etc. Merchant banking gas been statutorily brought under the regularity frame work of the SEBI. Since 1992, the government of India allowed Indian companies to access international capital markets through Euro equity shares. Secondary Market Reforms Under the provision of Securities and Stock Exchange Board Act, 1992, SEBI has started registering the intermediaries like stock brokers and sub-brokers. While registering SEBI will adequacy, infrastructure etc. It has also notified regulation an insider trading. It has amended the organization of the governing body also and by now the governing body must have 5 elect members, not more than government nominated as public representatives. The government has allowed Foreign Institutional Investors (FIIs) to invest in the Indian capital market provide they are registered with the SEBI. Till January 1995, as many as 286 FIIs have been registered with the SEBI. To prevent excessive speculation and volatility in the stock market, SEBI has introduced rolling settlement from July 2002, under which settlements has to be made every day. Reforms in the Insurance Sector After a wide range of reforms in the capital market it was felt necessary to bring reforms in the insurance sector also. Accordingly in the year 1999-2000 the Insurance Regulation and Development Authority Act was passed despite stiff opposition from trade unions and left parties. The IRDA Act brought an end to the monopoly of the government in the insurance sector because it aims to promote private sector including foreign companies, in the insurance sector. It provides priority for the utilization of the policy holders funds in infrastructure development. So far the government has given the licenses to a number of private sector companies to participate in this business. Wide ranging powers to SEBI for better functioning of the Capital Market In the due course the government of India felt that SEBI should be strengthened more specially after experiencing Security Scam (Popularly known as Harsad Mehta Scam) in early 90s.Accordingly in January 1995, the Government of India promulgated an ordinance to amend SEBI Act 1992 so as to empower SEBI with additional powers for ensuring the orderly development of the capital market and to enhance its ability to protect the interests of the investors. Important clauses of this ordinance are: To enable SEBI to respond quickly to market conditions and to reinforce its authority, it can go to the courts without prior approval of the government matters related to any dispute. SEBI is now provided with the regulatory powers over companies in the issuance of capital, the transfer of securities and other related matters. SEBI can now impose monetary fine on capital market intermediaries and other participants for a listed range of violations. SEBI can now summon the attendance of and call for documents from all categories of market intermediaries, including persons from the securities market.

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