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Allied Law crux With Aseem Sir 8085351091
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ALLIED LAW
crux of
IMPORTTANT TOPIC
with
CA. ASEEM TRIVEDI
Allied Law crux With Aseem Sir 8085351091
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Interpretation of Statute, deeds and documents
“tatute : laws and regulations of every sort without considering from which source they originate.
Do u e t : any matter expressed or described upon any substance by means of letters, figures or
marks or by more than one of those means, intended to be used, or which may be
used, for the purpose of recording that matter.
I stru e t i stru e t includes every document by which any right or liability is or purports to be
created, transferred, extended, extinguished or recorded.
Deed : The Legal Glossary defines deed as an instrument in writing (or other legible
representation or words on parchment or paper) purporting to effect some legal
disposition.
Interpretation
Interpretation is the process of ascertaining the true meaning of the words used in a statute.
Difference between
Interpretation and
Construction
Interpretation Construction
It is process find out true
sense of any word on certain
principle
It is method by which
interpretation is done. To
o strue ea s to i terpret
Interpretation bring the true
meaning and purpose of the
legislation
Construction related to
drawing of conclusion in the
given situation before the
court.
Interpretation may be liberal
or strict
Liberal construction may
produce absurd and unjust
result.
Interpretation is process
referring to both spirit and
reason of law
The construction relates to
the meaning of the word
used in statue.
Literal Rule of
Construction
(Grammatical
interpretation rule)
The first approach should be to read the words as they are. The important features of this rule
are as under -
phrases and sentences of a statute are ordinarily to be understood in their natural,
ordinary or popular and grammatical meaning
Every word is important.
Nothing is to be added to or taken from a statute
General words shall be understood with reference to specific words with which those
have been used.
Reasonable
construction' while
interpreting the
statute
words of a statute must be construed so as to give a sensible meaning to them.
the words in question are ambiguous and are reasonably capable of more than one
meaning. But such interpretation shall not lead to a conclusion where the actual meaning of
the statute is lost.
Rule of "Harmonious Where there is a conflict between two or more provisions, harmonious
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Construction” in the
interpretation of
statutes
construction is to be adopted. The conflict must be real and not apparent.
This principal is applicable where more than one provisions of a statute are
applicable in a given situation.
Mischief Rule or
Heydon’s Rule of Interpretation or
Beneficial
construction
whenever any new law is made or any existing law is modified. For interpreting any
such law the following questions shall be answered --
What was the common law before the making/amendment of the Act;
What was the mischief and defect for which the common law did not provide;
What remedy the parliament had resolved and appointed to cure the mischief; and
The true reason of the remedy; and then the office of all the Judge is always to make
such construction as shall suppress the mischief
Rule Ejusdem Genris'
with regard to
interpretation of
statutes
Ejusdem Generis, literall ea s of the sa e ki d or spe ies . This rule states that where there
are general words following particular and specific words,.
External aids of
Interpretation
1. Parliamentary History
2. Reference to Reports of Committees
3. Reference to other Statutes
4. Dictionaries
5. Use of Foreign Decisions
PREVENTION OF MONEY-LAUNDERING ACT, 2002 Money launder ing
“Whosoever dire tly or i dire tly attempts to indulge or
knowingly assists or
knowingly is a party or
is actually involved
in any process or activity connected with the proceeds of
crime and
projecting it as untainted property shall be guilty of offence of
money laundering.
Objec t i ves To Prevent money-laundering;
To Combat channelizing money into illegal activities and economic crime;
To provide for confiscation of property derived from or involved in money-
laundering.
To punish those who commit the offence of money-laundering
MONEY-LAUNDERING
PROCESS: Placement Layering Integration
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Prov i s iona l A t tachm ent O f
Prop er t y
Property in money-laundering liable to be attached by director or any other
officer not below the rank of Deputy Director, if he has reason to believe that :
o Any person is in possession of any proceed of crime.
o Such person has been charged of having committed a scheduled
offence and such proceed of crime are likely to be concealed or
transferred.
Attachment should be by recording reason in writing.
Attachment in relation of schedule offence is not allowed unless report
with reference to schedule offence is forwarded to Magistrate.
Attachment to be provisional for period not exceeding 180 days by reason
in writing s- Copy or attachment order is forwarded to adjudicating
authority.
Attachment expiry from date of order by adjudicating authority
Director to file complaint within 30 days from attachment
Special court may order for confiscation of property.
Property vests in Central Government on order of confiscation by
special court.
Obl iga t ion o f Bank i ng
Companies , F inanc ia l
In s t i tu t ions And In ter -
mediar ies
Every banking Company, Financial Institution and intermediary of securities
market shall
o Maintain a record of all transactions, o Furnish Information of the above transactions to the Director within the
prescribed time.
o Verify and maintain the records of the Identity of all its clients, in the prescribed manner. (KYC Norms).
o Maintain all records for a period of 10 years
The Competition Act, 2002 anti-
competitive
Agreement
No enterprise or
association of enterprises or
person or
associa
tion of persons shall enter
into any agreement in
respect of
production,
supply,
distribution,
storage,
acquisition or
control of goods or
provision of services,
which causes or is likely to cause an appreciable adverse effect on competition within India.
following agreement entered into between
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enterprises or associations of enterprises or
persons or associations of persons or
between any person and enterprise or
practice carried on, or decision taken by, any association of enterprises or association of persons,
including cartels, engaged in identical or similar trade of goods or provision of services, shall be
presumed to have an appreciable adverse effect on competition: which—Directly or indirectly
determines purchase or sale prices;
(a) Limits or controls production, supply, markets, technical development, investment
or provision of services;
(b) Shares the market or source of production or provision of services by way of
allocation of geographical area of market, or
type of goods or services,
or number of customers in the market or
any other similar way;
(c) Directly or indirectly results in bid rigging or collusive bidding,
According to section 3(4) Any agreement amongst enterprises or persons at different stages or
levels of the production chain in different markets, in respect of production, supply, distribution,
storage, sale or price of, or trade in goods or provision of services, including—
(a) tie-in arrangement;
(b) exclusive supply agreement;
(c) exclusive distribution agreement;
(d) refusal to deal;
(e) resale price maintenance,
shall be an agreement in contravention of sub-section (1) if such agreement causes or is
likely to cause an appreciable adverse effect on competition in India.
Abuse of
dominant
position
According to section 4 (1) No enterprise or group shall abuse its dominant position.
According to section 4(2) there shall be an abuse of dominant position under sub-section (1), if an
enterprise or a group
(a) directly or indirectly, imposes unfair or discriminatory—
(i) condition in purchase or sale of goods or service; or
(ii) price in purchase or sale (including predatory price) of goods or service.
(b) limits or restricts—
(i) production of goods or provision of services or market therefor; or
(ii) technical or scientific development relating to goods or services to the prejudice of
consumers; or
(c) indulges in practice or practices resulting in denial of market access in any manner; or
(d) makes conclusion of contracts subject to acceptance by other parties of
supplementary obligations which, by their nature or according to commercial usage,
have no connection with the subject of such contracts; or
(e) uses its dominant position in one relevant market to enter into, or protect, other relevant
market.
Combination
s
According to section 6 (1) No person or enterprise shall enter into a combination which causes or is
likely to cause an appreciable adverse effect on competition within the relevant market in India
and such a combination shall be void.
Step-1 Notice to commission:- Any person or enterprise, who or which proposes to enter into a
combination, shall give notice to the Commission, in the form as may be specified, and the fee
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which may be determined, by regulations, disclosing the details of the proposed combination,
within thirty days of—
(a) approval of the proposal relating to merger or amalgamation, referred to in clause (c) of
section 5, by the board of directors of the enterprises concerned with such merger or
amalgamation, as the case may be;
(b) execution of any agreement or other document for acquisition referred to in clause (a) of
section 5 or acquiring of control referred to in clause (b) of that section.
Special note:- No combination shall come into effect until two hundred and ten days have passed from
the day on which the notice has been given to the Commission under sub-section(2) or the
Commission has passed orders under section 31, which- ever is earlier.
Step-2 The Commission shall, after receipt of notice under sub-section (2), deal with such notice in
accordance with the provisions contained in sections 29, 30 and 31.
Various type of COMBINATION
Section 5 There are three categories of combinations under section 5, which
are as follows MEANING OF COMBINATION - I
Section 5(a) The acquisition of one or more enterprises by one or more persons or merger or amalgamation
of the enterprises shall be a „ ombinatio ‟ of such enterprises and persons or enterprises, if parties to the
acquisition or the group would have assets/turnover of more than the following values:
Location Parties to the acquisition Group to which the enterprise would
belong after acquisition
Assets Turnover Assets Turnover
In India More than Rs.
1,000/- crores
More than Rs.
3,000/- crores
More than
Rs.
4,000/- crores
More than Rs.
12,000/- crores
In India
India
/ outside More than 500
Million USD
(including
atleas
t 500 crores in India)
More than 1,500
Million USD
(including
atleas
t 1,500 crores in
India)
More than 2 Billion
USD (including
atleast 500 crores
in India)
More than 6 Billion
USD (including
atleast 1,500 crores
in India)
Location Parties to the acquiring of control Group to which the enterprise
would belong after acquiring of
control Assets Turnover Assets Turnover
In India More than Rs.
1,000/- crores
More than Rs.
3,000/- crores
More than
Rs.
4,000/- crores
More than Rs.
12,000/- crores
In India
India
/ outside More than 500
Million USD
(including
atleas
t 500 crores in India)
More than 1,500
Million USD
(including atleast
1,500 crores in India)
More than 2
Billion USD
(including atleast
500 crores in
India)
More than 6 Billion
USD (including
atleast 1,500 crores
in India)
Location Enterprise remaining after merger Group to which the enterprise would
belong after merger
Assets Turnover Assets Turnover
In India More than Rs.
1,000/- crores
More than Rs.
3,000/- crores
More than Rs.
4,000/- crores
More than Rs.
12,000/- crores
In India
India
/ outside More than 500
Million USD
(including
atleas
t 500 crores in India)
More than 1,500
Million USD
(including
atleas
t 1,500 crores in
More than 2 Billion
USD (including
atleast 500 crores
in India)
More than 6 Billion
USD (including
atleast 1,500 crores
in India)
Foreign Exchange Management Act, 1999
Objective Section 8 of this act provides broad objective of this act, it provides that
“Sa e as other ise pro ided i this act, here a y a ou t of foreig exchange is due or has accrued to any person resident in India such person
shall take all reasonable steps to realize and repatriate to India such foreign
exchange within such period and in such manner as may be specified by the
Reserve Bank
Person
Person 2(u): includes
an individual;
a HUF;
a company;
a firm;
an AOP or a BOI, whether incorporated or not;
every artificial judicial person, not falling with any of the preceding
sub-clauses; and
any agency, office of branch owned or controlled by such person.
person resident in India
i. a person residing in India for more than 182 days during the
course of the preceding financial year but does not include-
A. a person who has gone out of India or who stays outside India,
in either case-
for or on taking up employment outside India, or
for carrying on outside India a business or vocation outside
India, or
for any other purpose, in such circumstances as would
indicate its intention to stay outside India for an uncertain
period;
B. a person who has come to or stay in India, in either case,
otherwise than-
for or on taking up employment in India; or
for carrying on in India a business or vocation in India; or
for any other purpose, in such circumstances as would
indicate its intention to stay in India for an uncertain period;
ii. any person or body corporate registered or incorporated in India;
iii. an office, branch or agency in India owned or controlled by a person
resident outside India;
iv. an office, branch or agency outside India owned or controlled by a person
resident in India.
Capital Account Transaction
According to section 2(e), capital account transaction means a transaction which alters the assets or liabilities,
including contingent liabilities, outside India of persons resident in India or assets or liabilities in India of the
persons resident outside India and includes transactions covered under sub-section(3) of section 6.
What are the powers of RBI to regulate capital account transactions ?
According to Section 6(1) any person may sell or draw foreign exchange to or from an authorized person for a
capital account transaction in accordance with the regulations framed by RBI in that regard.
According to section 6(2), the RBI may in consultation with the Central Government, specify –
(a) any class or classes of capital account transactions which are permissible,
(b) the limit up to which foreign exchange shall be admissible for such transaction.
Rule 3 of the Foreign Exchange Management (Permissible Capital Account Transaction) Regulations, 2000
provides that capital account transactions of a person may be classified under the following heads, namely :-
(A) Transactions, specified in Schedule I, of a person resident In India;
(B) Transactions, specified in Schedule II, of a person resident outside India.
Subject to the provisions of the Act or the rules or regulations or direction or orders made or issued thereunder,
any person may sell or draw foreign exchange to or from an authorised person for a capital account transaction
specified in the Schedules provided the transaction is within the limit , if any, specified in the regulations relevant
to the transaction.
Capital account transactions for Residents [Schedule I]
a) Investment in foreign securities
b) Foreign currency loans raised in India or abroad.
c) transfer of immovable property outside India
d) Guarantee in favour of a person resident outside India
e) export/import and holding of foreign currency notes
f) borrowings from a non-resident
g) maintenance of foreign currency account in India and abroad
h) Purchase of insurance policy from a company outside India
i) Lending to non-resident
j) remittance of capital assets outside India
k) sale and purchase of foreign exchange derivatives in India and abroad and commodity derivative abroad
Rule 4 of the Foreign Exchange Management (Permissible Capital Account Transaction) Regulations, 2000
provides as that
Save as otherwise provided in the Act, rules or regulations made thereunder,
a) no person shall undertake or sell or draw foreign exchange to or from an authorised person for any capital
account transaction,
Provided that-
(a) subject to the provisions of the Act or the rules or regulations or directions or orders made or issued
thereunder, a resident individual may, draw from an authorized person foreign exchange not exceeding USD
2,00,000 per financial year with effect from September 26, 2007, for a capital account transaction specified in
Schedule I.
Explanation: Drawl of foreign exchange by resident individuals towards remittances of gift or donations as per item
No. 3 and 4 of Schedule III to Foreign Exchange Management (Current Account Transactions) Rules, 2000 dated 3rd
May, 2000 as amended from time to time, shall be subsumed within the limit under proviso (a) above ;
(b) where the drawal of foreign exchange by a resident individual for any capital account transaction specified in
Schedule I exceeds USD 200,000, per financial year, the limit specified in the regulations relevant to the transaction
shall apply with respect to such drawal.
Provided further that no part of the foreign exchange of USD 200,000, as the case may be, drawn under proviso (a)
shall be used for remittance directly or indirectly to countries notified as non-co-operative countries and territories
by Financial Action Task Force (FATF) from time to time and communicated by the Reserve Bank of India to all
concerned.
Capital account transactions for non-residents [Schedule II]
1. Issue of security in India
2. Investment in securities if Indian companies or investment in firms and proprietorship concern or association
3. Acquisition and transfer of immovable property in India
4. Guarantee in favour of a resident
5. Import, export and holding of foreign currency notes
6. Deposits between a person resident and non-resident
7. Foreign currency accounts in India
1. Remittances outside India of capital assets in India
Rule 4 of the Foreign Exchange Management (Permissible Capital Account Transaction) Regulations, 2000
provides as that --
b) no person resident outside India shall make investment in India , in any form, in any company or partnership firm
or proprietary concern or any entity, whether incorporated or not, which is engaged or proposes to engage -
(i) in the business of chit fund, or
(ii) as Nidhi Company , or
(iii) in agricultural or plantation activities or
(iv) in real estate business, or construction of farm houses or
(v) in trading in Transferable Development Rights (TDRs).
Explanation:
For the purpose of this regulation, "real estate business" shall not include development of townships, construction
of residential/commercial premises, roads or bridges.
Rule 5 provides that the payment for investment shall be made by remittance from abroad through normal
banking channels or by debit to an account of the investor maintained with an authorised person in India in
accordance with the regulations made by the Reserve Bank under the Act.
Rule 6 requires that every person selling or drawing foreign exchange to or from an authorised person for a capital
account transaction shall furnish to the Reserve Bank , a declaration in the form and within the time specified in
the regulations relevant to the transaction.
Current account transactions
According to clause (j) of Section 2 current account transaction means a transaction other than a capital account
transaction and without prejudice to the generality of the foregoing such transaction includes,-
Payment due in connection with foreign trade, other current business, services, and short-term
banking and credit facilities in the ordinary course of business;
Payments due as interest on loans and as net income form investment;
Remittances for living expenses of parent, spouse and children resending abroad;
Expenses in connection with foreign travel, education and medical care of parents, spouse and
children.
Discuss the provisions related to Current account transactions?
According to Section 5 of FEMA Act, 1999 any person may sell or draw foreign exchange to or from an authorized
person if such sale or drawl is a current account transaction:
Provided that the Central Government may, in public interest and in consultation with the Reserve Bank, impose
such reasonable restrictions for current account transactions as may be prescribed.
dra al of foreig e ha ge ea s drawal foreign exchange form an authorised person and includes opening of
LOC or use of international credit-debit card or ATM card or anything by whatever name called which has the
effect of creating a foreign exchange liability
No restrictions
Foreign exchange is freely available for a current account transaction if the following
conditions are satisfied:
The transaction is not prohibited by the rules;
The transaction is within the ceiling, if any, prescribed by the rules, or the permission of the RBI or the
CG, as the case may be, is obtained.
Rules on current account transaction:-
Schedule Title of Schedule
I Transaction for which drawal of FE is prohibited
II Transaction for which FE cab be drawn subject to the prior approval of the CG
III Transaction for which FE cab be drawn subject to the prior approval of the RBI.
Schedule I Transaction for which drawl of foreign exchange is prohibited.
1. Remittance out of lottery winnings.
2. Remittance of income from racing/riding, etc. or any other hobby.
3. Remittance for purchase of lottery tickets, banned/ prescribed magazines, football pools, sweepstakes,
etc.
4. Payments of commission on exports made towards equity investment in joint ventures/wholly owned
subsidiaries abroad of Indian companies.
5. Remittance of dividend by any company to which the requirement of dividend balancing is applicable.
6. Payment of commission of exports under Rupee State Credit Route, except commission up to 10% of
invoice value of exports of tea and tobacco.
7. Payment related to "Call Back Services" of telephones.
8. Remittance of interest income on funds held in Non-Resident Special Rupee Scheme Account. [No account
under NRSR Account Scheme shall be opened on and from 1st April 2002, whether by renewal of existing
deposit or otherwise. Cir. No. 28/2002, Dt. 4/3/2002]
Schedule II Transaction permissible with approval of CG
Purpose of Remittance Ministry/Department of
Government of India whose
approval is required
1. Cultural Tours Ministry of Human Resource
Development (Department of
Education and Culture)
2. Advertisement in foreign print media for the purposes other than promotion
of tourism, foreign investments and international bidding (exceeding US$
10,000) by a State Government and its Public Sector Undertakings.
Ministry of Finance,
Department of Economic
Affairs.
Schedule III- Transaction which require RBI approval
PURPOSE OF REMIITANCE CEILLING LIMIT
one or more private visits to any country (except
Nepal and Bhutan)
exceeding US$ 10,000 or its equivalent in one financial
year
Gift remittance exceeding US$ 5,000 per financial year per remitter or
donor other than resident individual
Donation exceeding US$ 5,000 per financial year per remitter or
donor other than resident individual
Donations by corporate for,-
creation of Chairs in reputed educational institutes;
exceeding one per cent of their foreign exchange
earnings during the previous three financial years or
US$ 5,000,000, whichever is less
3. Remittance of Freight of vessel chartered by a PSU Ministry of Surface Transport
(Chartering Wing)
4. Payment of import through ocean transport by a Government Department
or a PSU on c.i.f. basis (i.e., other than f.o.b. and f.a.s. basis)
Ministry of Surface Transport
(Chartering Wing)
5. Multi-modal transport operators making remittance to their agents abroad Registration Certificate from
the Director General of
Shipping
6. Remittance of hiring charges of transponders by
(a) TV Channels Ministry of Information and
Broadcasting
(b) Internet service providers Ministry of Communication
and Information Technology";
7. Remittance of container detention charges exceeding the rate prescribed by
Director General of Shipping
Ministry of Surface Transport
(Director General of Shipping)
8. Omitted vide Foreign Exchange Management (Current Account
Transactions) (Amendment) Rules, 2010 w.e.f. 05/05/2010
[Remittances under technical collaboration agreements where payment of
royalty exceeds 5 per cent on local sales and 8 per cent on exports and lump-
sum payment exceeds US$ 2 million] [Explanatory Memorandum:-The
Government of India reviewed the extant policy with regard to liberalization
of foreign technology agreement and it was decided to permit, with
immediate effect, payments for royalty, lump sum fee for transfer of
technology and payments for use of trademark/brand name on the
automatic route. Accordingly, Government of India issued a Press Note on
16.12.2009. Hence, the rule shall be deemed to have come into force with
retrospective effect, i.e., from 16.12.2009.]
Omitted
9. Remittance of prize money/sponsorship of sports activity abroad by a person
other than International/National/State Level sports bodies, if the amount
involved exceeds US$ 1,00,000
Ministry of Human Resource
Development, (Department of
Youth Affairs and Sports)
10. Payment for securing Insurance for health from a company abroad. Omitted
11. Remittance for membership of P&I Club Ministry of Finance (Insurance
Division)
to funds (not being an investment fund) promoted by
educational institutes; and
to a technical institution or body or association in the
field of activity of the donor company
persons going abroad for employment exceeding US$ 100,000
Exchange facilities for emigration exceeding US$ 100,000 or amount prescribed by
country or emigration
Release of foreign exchange, to a person, irrespective
of period of stay, for business travel, or attending a
conference or specialized training or for maintenance
expenses of a patient going abroad for medical
treatment or check-up abroad, or for accompanying as
attendant to a patient going abroad for medical
treatment/check-up.
exceeding US$ 25,000
Release of exchange for meeting expenses for medical
treatment abroad
Exceeding US $ 1,00,000 OR the estimate from the
doctor in India or hospital/doctor abroad WHICHEVER
IS LESS
Release of exchange for studies abroad Exceeding the estimates from the institution abroad or
US$ 100,000 per academic year, whichever is higher.
Commission, per transaction, to agents abroad for sale
of residential flats or commercial plots in India
exceeding USD 25,000 or 5% of the inward remittance
whichever more
Any consultancy services procured from outside India.
Remittances exceeding US$ 10,000,000 per project
Remittance for maintenance of close relatives abroad,
exceeding net salary (after deduction of taxes,
contribution to provident fund and other deductions)
of a person who is resident but not permanently
resident in India and -
(a) is a citizen of a foreign State other THAN Pakistan; or
(b) is a citizen of India, who is on deputation to the office
or branch or subsidiary or joint venture in India of
such foreign company
Exceeding US$ 1,00,000 per year per recipient, in all
other cases.
Securities Contracts (Regulation) Act, 1956
objective of this Act
The objectives of the Act are as follow:
To provide for the regulation of stock exchanges
To provide for the regulation of transaction in securities
To prevent undesirable speculation in securities
To regulate the buying and selling of securities outside the limits of stock exchanges.
To provide for ancillary matters, e.g., promoting healthy stock market
Recognition of Stock Exchange
By virtue of Section 3 Any stock exchange, formed with the prior approval of the Central Government under
section 19, which is desirous of being recognized for the purpose of this Act shall make an application to SEBI (all
the powers of the Central Government under the Act have been delegated to SEBI vide Notification dated 13/9/94)
i For No. A of the Securities Contract (Regulation) Rules, 1957 along with four copies of the Bye laws and rules.
The Rules shall relate to the following subjects –
a. Constitution of the governing body and its powers of management
b. Powers and duties of its office bearers of the stock exchange.
c. Admission, suspension and expulsion of members and conditions for those
d. Entry of partnership firm as a member of the stock exchange and appointment of their representatives
Any such application shall not be rejected unless a fair chance of representation being made has been given to the
applicant.
By Virtue of Section 4
If SEBI is satisfied that –
a) the grant of recognition to stock exchange is in favour of trade and investors, and
b) the rules and bye-laws of the stock exchange are sufficient to ensure fair transaction in securities,
it may grant such recognition subject to such terms and conditions as it deems fit. Whenever any such recognition
is granted, it shall be published in the Official Gazette and also in the Official Gazette of the State in which the
principal office of the stock exchange is situated.
The recognition shall be effective from the date of its publication in the Gazette of India.
Terms and conditions for grant of recognition
Normally terms attached with the grant of recognition are –
a) qualification and membership of the stock exchange
b) Manner in which contracts shall be entered into
c) Representation of the Central Government on the governing body of the stock exchange
d) Maintenance of record by the stock exchange and its members and audit thereof.
Corporatization and Demutualization Procedure
“u issio of s he e for “EBI s appro al
Section 4A further provides that if a stock exchange has not already been corporatized and demutualized before
the appointed date, then from the date appointed for the purpose, a stock exchange shall be corporatized and
demutualized in accordance with the provisions of section 4B.
However, if SEBI is satisfied that a stock exchange was prevented by sufficient cause from being corporatized and
demutualized on or after the appointed date, SEBI may specify another date and the stock exchange may continue
as such before the appointed date so fixed.
Rejection of scheme by SEBI
According to sub-section (5) if SEBI is of the opinion that it would not be in the interest of trade and public it may
reject the scheme and if it is so rejected, the rejection order shall be published in the official gazette. It is to be
noted that no rejection order shall be made unless SEBI has furnished an opportunity of being heard to the stock
exchange concerned.
Approval of scheme and its effect
Section 4B requires every recognized stock exchange that has not already been corporatized and demutualized
before the appointed date, to submit a scheme before SEBI for corporatization and demutualization of stock
exchange, within the specified time limit. The SEBI deems it fit in public interest, it may approve the scheme with
or without modifications after obtaining such information and making such inquiry as it deems fit. The scheme will
be approved only if it provides for –
(a) Issue of shares for lawful consideration; or
(b) Provision of trading rights in lieu of membership cards of the members; or
(c) Payment of dividend to members out of reserves or assets of the stock exchange.
While approving the scheme the SEBI may, in writing, restrict —
(a) the voting rights of the members who are also stock brokers of the stock exchange;
(b) the rights of a shareholder or a stock broker of the recognized stock exchange to appoint the
representative on the governing body of the stock exchange;
(c) the maximum number of representatives of the stock brokers of the recognized stock exchange not to
exceed one-fourth of the total strength of the governing body.
On approval of the scheme the SEBI shall publish the same in the official gazette and the stock exchange
concerned shall publish the scheme in two newspapers specified by SEBI and circulating in India.
On scheme being published as aforesaid, notwithstanding anything contained in this Act or any other law for the
time being in force or any agreement or award or judgment or decree or other instrument for the time being in
force, the scheme shall have effect and be binding on all persons and authorities including all members, creditors,
depositors and employees of the recognized stock exchange and on all other persons having any contract, right,
power, obligation or liability with, against, over, to or in connection with the recognized stock exchange or its
members. [Section 4B(4)]
Shareholding pattern after corporatization
Every stock exchange in respect of which a scheme for corporatization and demutualization has been approved by
SEBI shall ensure, within 12 months after the publication of the order in the official gazette, that not less than 51%
share capital of the stock exchange is held by the persons other than members having trading rights. However, on
reasonable cause being shown SEBI may extend this period of 12 months by another 12 months. [Section 4B[8)]
Clearing Corporation
According to section 8A, a recognized stock exchange may, with the prior approval of SEBI, transfer the duties and
functions of a clearing house to a clearing corporation, being a company incorporated under the Companies Act,
1956 for the purpose of —
(a) periodical settlement of contracts and differences thereunder;
(b) delivery of, and payment for securities; and
(c) any other matter incidental to, or connected with such transfer.
Every clearing corporation shall make by-laws and submit the same to SEBI for its approval. If SEBI is satisfied that
it is in public interest, it may approve transfer of duties and functions from clearing house to clearing corporation.
Provisions of section 4 to 12 shall as far as may be applicable to clearing corporation as they apply to any
recognized stock exchange.
Takeover of management of stock exchange
Order by Central Government
According to section 11 if the SEBI is of the opinion that governing body of the stock exchange shall be superseded
(e.g. where governing body adopts unethical practices), then after giving an opportunity of being heard to the
governing body of the stock exchange, it may make an order in that regard by way of a notification in the
official gazette.
Effects of order of Ce tral Gover e t
Publication of notification in the official gazette shall have following effects –
a. SEBI will appoint one or more persons to take charge of management of the stock exchange and
appointment of such persons shall be valid irrespective of anything contained in any other law for the
time being in force.
b. Members of the existing governing body shall cease to be the members of governing body
c. All the powers of existing governing body come to end and all the powers become exercisable by the
person(s) so appointed by SEBI
d. All the property of the stock exchange to the extent it is necessary to carry on business of the stock
exchange shall vest in the person so authorized.
e. The period for which such person(s) shall remain in-charge of stock exchange shall depend on the
notification. Such notification may be issued from time to time.
f. Before the end of the aforesaid period SEBI may require the person(s) so authorized to get a new
governing body reconstituted and on such reconstitution all the powers/property of the stock exchange
shall re-vest in the governing body.
Trading Floor
Every stock exchange is required to provide a fixed place, referred as trading floor, where its members can enter
into transactions relating to securities. If a stock exchange intends to provide such facility at any place other than
its principle place of business then it is called as additional trading floor.
Additional Trading Floor [Section 13A]
According to section 13A of Securities Contracts (Regulation) Act, 1956, a stock exchange can establish additional
trading floor only with the prior approval of the Securities and Exchange Board of India (SEBI) in accordance with
the terms and conditions stipulated by SEBI.
Securities and Exchange Board of India Act, 1992 Object of the SEBI AcT
The SEBI Act aims to —
Protect the interests of investors in securities.
Promote orderly and healthy growth of the securities market.
Regulate the securities market and other incidental matters.
Promote the fair dealings by the issuer of securities and to ensure a market place where
securities can be issued at a low cost.
Regulating and developing a code of conduct and fair practices for market intermediaries
Monitoring the activities of stock exchanges, mutual funds and merchant bankers etc.
Power and function of SEBI under the SEBI Act
According to section 11(1) of the Act, the SEBI shall protect interests of investors in securities and to promote the
development of, and to regulate the securities market, by such measures as it thinks fit. Sub-section (2) authorises
SEBI to take any of the following measures for due performance of its duties under the Act —
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 securities markets in any
manner.
c. Registering and regulating the working of venture capital funds and collective investment schemes, including
mutual funds.
d. Registering and regulating the working of the depositories, participants custodians of securities, foreign
institutional investors, credit rating agencies and such other intermediaries as the SEBI may, by notification,
specify in this behalf.
e. Prohibiting fraudulent and unfair trade practices relating to securities markets.
f. Prohibiting insider trading in securities.
g. Promoting and regulating self-regulatory organisations.
h. Regulating substantial acquisition of shares and take-over of companies.
i. Promoting investors' education and training of intermediaries of securities markets.
j. Levying fees or other charges for carrying out the purposes of this section.
k. Calling for information and record from any bank or any other authority or board or corporation established
or constituted by or under any Central, State or Provincial Act in respect of any transaction in securities
which is under investigation or inquiry by the SEBI.
l. Calling for information from, undertaking inspection, conducting inquiries and audits of the stock exchanges,
mutual funds, other persons associated with the securities market, intermediaries and self-regulatory
organisations in the securities market.
m. 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.
n. Conducting research for the above purposes.
o. Performing such other functions as may be prescribed, i.e., in addition to the above measures, SEBI may take
such other measures as it thinks fit for protecting the interests of investors and to promote the development
of, and to regulate the securities market.
Power of SEBI to issue cease and desist order?
Section 11D empowers SEBI to pass an order requiring a person to cease and desist from committing or causing
the violation of the act or rules made thereunder. SEBI may pass a cease and desist order by complying with the
following two requirements:
(a) SEBI shall cause an inquiry to be made to determine whether any person has violated, or is likely to violate, any
provisions of this act or any rules or regulations made thereunder.
(b) SEBI shall not pass a cease and desist order against any listed company or a public company which intends to
get its securities listed on any recognized stock exchange, unless it has reasonable ground to believe that such
company has indulged in insider trading or market manipulation
Insider and price sensitive information?
Insider means any person who, is or was connected with the company or is deemed to have been connected with
the company, and who is reasonably expected to have access to unpublished price sensitive information in respect
of securities of company or who has received or has had access to such unpublished price sensitive information.
PRICE SENSITIVE INFORMATION means any information which relates directly or indirectly to a company and
which if published is likely to materially affect the price of securities of company. The following shall be deemed to
be price sensitive information:
a. periodical financial results
b. intended declaration of dividends
c. issue of securities or buy back of securities.
d. Any major expansion plans or execution of new projects
e. Amalgamation merger or takeovers
f. Disposal of the whole or substantial part of the undertaking
g. Any significant changes in policies plans or operations of the company.
BANKING REGULATION ACT, 1949
objectives of Banking Regulation Act
The Banking Regulation Act was passed with the following objectives:
To prevent bank failure.
To avoid cut-throat competition among the banks.
To provide balanced development of banking
To safe ground the interest of depositors
To provide for compulsory amalgamation of weaker bank with stronger bank.
To regulate bank credit and working of banks.
To restrict foreign banks to invest funds of Indian depositors outside India.
Small scale industrial concern?
According to Section 5(na) 'Small-scale industrial concern' means an industrial concern in which the
investment in plant and machinery is not in excess of Rs. 7.5 lakh or such higher amount, not exceeding Rs. 20, as the
Central Government may, by notification in the Official Gazette, specify in this behalf, having regard to the
trends in industrial development and other relevant factors.
Substantial Interest?
According to Se tio 5 e “Su sta tial i terest:—
in relation to a company, means the holding of a beneficial interest by an individual or his spouse or
minor child, whether singly or taken together in the shares thereof, the amount paid -upon which exceeds
five laths of rupees or ten per cent of the paid-up capital of the company, whichever is less;
in relation to a firm, means the beneficial interest held therein by an individual or his spouse or minor
child, whet her singly or taken together, which represents more than ten per cent of the total capital
subscribed by all the partners of the said firm'
Prohibition of Trading under banking regulation Act
According to Sec. 8 Notwithstanding anything contained in section 6 or in any contract, no banking
company shall directly or indirectly deal in the buying or selling or bartering of goods, except in connection
with the realisation of security given to or held by it, or engage in any trade, or buy, sell or barter goods.
Dispose of non-banking assets
According to Section 9
Banking company should not hold any immovable property acquired by any method for a period of
more than 7 years.
Such property should be disposed after 7 years or extended time. This provision is not applicable
where property is acquired by bark (or its own use.
RBI can extend period by further 5 years if it is in interest of depositors of bank.
Reserve fund
Every banking company must create a reserve fund and transfer a sum equal to not less than 25 % of its net profits.
Central Government can exempt from this requirement on the recommendation of RBI if
o It feel that its paid-up capital and reserves of bank are adequate to safeguard the interest of the
depositors.
o The amounts in the reserve fund and the security premium account are equal to the paid-up
capital of the banking company.
If a banking company appropriates any sum from the reserve fund or share premium account, it must be
reported to RBI within 21 days explaining the reason for appropriation.
Appoint Additional Director in the Board
RBI can appoint additional Directors by order In the interest of the bank or that of depositors.
Such additional directors shall hold office for a period not exceeding 3 years.
His appointment can be extended by further period of 3 years at a time.
Prohibition of floating charge on assets
Notwithstanding anything contained in section 6, no banking company shall create a floating charge
on the undertaking or any property of the company or any part thereof, unless the creation of such
floating charge is certified in writing by the Reserve Bank as not being detrimental to the interests
of the depositors of such company
Any such charge created without obtaining the certificate of the Reserve Bank shall be invalid.
Restrictions as to payment of dividend?
No banking company shall pay any dividend on its shares until all its capitalized expenses (including
preliminary expenses, organization expenses, share selling commission, brokerage, amounts of losses
incurred and any other item of expenditure not represented by tangible assets) have been completely
written off.
The securities and Reconstruction of Finance Assets
and enforcement of Security Interest Act, 2002
Objective and Scope SARFAESI
An Act to regulate securitization and reconstruction of financial assets and enforcement of security interest
and for matters connected therewith or incidental thereto.
SARFAESI Act enables and empowers the secured creditors to take possession of their securities, to deal with
them without the intervention of the court and also alternatively to authorize any Securitization or
Reconstruction Company to acquire financial assets of any Bank or Financial Institution (FI).
The Act has been empowered with the overriding effect over the other legislation and it shall be in addition to
and not in derogation of certain legislation.
It extends to the whole of India.
Registration of Securitization Company (SC) or Reconstruction Company (RC)
Conditions for carrying on business by SC/RC-
After Obtaining a certificate of registration granted under this section; and
Having the owned fund of not less than
o Rs. 2 crore or
o such other amount not exceeding 15% of total financial assets acquired or to be acquired by the
SC or RC, as the reserve bank may, by notification, specify.
Form and manner:
In such form as specify by RBI
Time limit for making application is within 6 month if company already engage in such business
before commencement of said Act.
Grant of certificate: After satisfying above conditions
Rejection of application
The RB may reject the application if he believes than condition are not satisfied
Opportunity for being heard given
Prior approval of RB for certain changes
For substantial change in its management or
change in location or
Change in its name.
Rights or interest in financial assets
According to section 5
1. Acquisition of FA: notwithstanding anything contained in any law or agreement, any SC or RC may
acquire FA of any bank or FI-
By issuing a debenture bond or any other security in the nature of the debenture, for
consideration agreed upon between such company and the bank or FI, incorporating
therein such terms and conditions as may be agreed upon between them; or
By entering into an agreement with such bank or FI for the transfer of such FA to such
company on such terms and conditions as may be agreed upon between them.
2. Acquisition of rights
a. If the bank or FI is a lender in relation to any FA acquired under sub section (1) by the SC or
RC, such SC or RC shall, on such acquisition, be deemed to be the lender and all the rights of
such bank or FI shall vest in such company in relation to such FA.
3. Enforcement
After satisfying condition in an agreement or in any other manner after fulfil of condition
SC or RC can use or acted as upon as fully and effectually as if, in the place of said bank or
FI as the case may be.
4. Continuation of legal proceedings
On the name of SC or RC if pending at the time of acquisition.
INSURANCE ACT, 1938
Insurer
"insurer" means—
(a) an Indian Insurance Company, or
(b) a statutory body established by an Act of Parliament to carry on insurance business, or
(c) an insurance co-operative society, or
(d) a foreign company engaged in re-insurance business through a branch established in India.
Explanation.—For the purposes of this sub-clause, the expression "foreign company" shall mean a company or
body established or incorporated under a law of any country outside India and includes Lloyd's established under
the Lloyd's Act, 1871 (United Kingdom) or any of its Members;
'Life Insurance Business'
'Life Insurance Business' means the business of effecting contracts of insurance upon human life, including
any contract whereby the payment of money is assured on death (except death by accident only) and the
happening of any contingency dependent on human life, and any contract which is subject to payment of
premiums fora term dependent on human life and
shall be deemed to include:
the granting of disability and double or triple indemnity accident benefits, if so provided in the
contract of insurance;
the granting of annuities upon human life; and
The granting of superannuation allowances and annuities Benefits payable out of any fund
applicable solely to the relief and maintenance of persons engaged or who have been engaged in
any particular profession, trade or employment or of the dependents of such persons.
Insurance Co-operative Society
According to Section 2(8A) It means any insurer being a co-operative society,-
1. which is registered as a co-operative society under the Co- operative Societies Act, 1912 or under any
other law for the time being in force in any State relating to Co-operative Societies or under the
Multi-State Co-operative Societies Act, 1984;
2. having a minimum paid-up capital of ` 100 crore in case of life insurance business, general insurance
business and health insurance business;
3. in which no body corporate, whether incorporated or not, formed or registered outside India, either by
itself or through its subsidiaries or nominees, at any time, holds more than 26% of the capital of such
Co-operative Society
4. whose sole purpose is to carry on life insurance business or general insurance business or health
insurance business in India:
Section 2CB - Properties in India not to be insured with foreign insurers except with the permission of IRDA.
[Insertion of New Section]
1. No person shall take out or renew any policy of insurance in respect of any property in India or any ship or
other vessel or aircraft registered in India with an insurer whose principal place of business is outside India
save with the prior permission of the Authority.
2. If any person contravenes the provision of sub-section (1), he shall be liable to a penalty which may extend
to 5 crore rupees.
Procedure of Registration of Insurers
According to Section 3 Person should obtain certificate of registration for particular class of insurance business
from authority. At the time of making an application for registration.
Grant of certificate of registration
If, on receipt of an application for registration and after making such inquiry as he deems fit, the
Controller is satisfied that—
(a) the financial condition and the general character of management of the applicant are sound;
(b) the volume of business likely to be available to, and the capital structure and earning prospects of, the
applicant will be adequate;
(c) the interest of the general public will be served if the certificate of registration is granted to the
applicant in respect of the class or classes of insurance business specified in the application.
‘efusal to register
1. Where IRDA refuses registration; he shall record the reasons for such decision and shall furnish a
copy thereof to the applicant.
2. Any person aggrieved by the decision of IRDA refusing registration may, within 30 days from the date on
which a copy of the decision is received by him, appeal to the Securities Appellate Tribunal.
Effective date of Suspension or Cancellation
When the Authority suspends or cancels any registration under clause (a), clause (d), clause (e), clause (f), clause
(g) or clause (i) of sub-section (4), it shall give notice in writing to the insurer of its decision, and the decision shall
take effect on such date as it may specify in that behalf in the notice, such date not being less than one month not
more than two months from the date of the receipt of the notice in the ordinary course of transmission
When the Authority suspends or cancels any registration under clause (b), (c), (j) or (k) of sub-section (4), the
suspension or cancellation, as the case may be, shall take effect on the date on which notice of the order of
suspension or cancellation is served on the insurer.";
Requirement of Minimum paid up equity capital for carrying the Insurance Business
According to Insurance Law (Amendment) Act, 2015 Requirements as to Capital (Section 6)
Type of Insurance Business Minimum Paid-up equity capital required (with a
provision for further enhancement & Paid-up equity
excludes preliminary expenses incurred during
formation and registration)
Life insurance or general insurance ₹ 100 crore
Health insurance (exclusively) ₹ 100 crore
Re-insurer (exclusively) ₹ 200 crore
It should be noted that in determining the paid-up equity capital, any preliminary expenses
incurred in the formation and registration of any insurer as may be specified by the regulations
made under this Act, shall be excluded.
a foreign company engaged in re-insurance business through a branch established in India , shall
not be registered unless he has net owned funds of not less than Rs. 5000 crore.
Nomination of a Policy (Section 39)
(1) The holder of a policy of life insurance on his own life may, when effecting the policy or at any time
before the policy matures for payment, nominate the person or persons to whom the money secured by
the policy shall be paid in the event of his death:
Provided that, where any nominee is a minor, it shall be lawful for the policyholder to appoint any person in
the manner laid down by the insurer, to receive the money secured by the policy in the event of his death
during the minority of the nominee.
(2) Any such nomination in order to be effectual shall, unless it is incorporated in the text of the policy
itself, be made by an endorsement on the policy communicated to the insurer and registered by him in
the records relating to the policy.
(3) The insurer shall furnish to the policyholder a written acknowledgement of having registered a
nomination or a cancellation or change thereof, and may charge such fee as may be specified by
regulations for registering such cancellation or change.
(4) A transfer or assignment of a policy made in accordance with section 38 shall automatically cancel a
nomination:
Provided that the assignment of a policy to the insurer who bears the risk on the policy at the time of the
assignment, in consideration of a loan granted by that insurer on the security of the policy within its surrender
value, or its reassignment on repayment of the loan shall not cancel a nomination, but shall affect the rights of
the nominee only to the extent of the insurer's interest in the policy:
(5) Where the policy matures for payment during the lifetime of the person whose life is insured or
where the nominee or, if there are more nominees than one, all the nominees die before the policy
matures for payment, the amount secured by the policy shall be payable to the policyholder or his heirs
or legal representatives or the holder of a succession certificate, as the case may be.
(6) Where the nominee or if there are more nominees than one, a nominee or nominees survive the
person whose life is insured, the amount secured by the policy shall be payable to such survivor or
survivors.
Prohibition of business on dividing business
By Virtue of Section 52 No insurer shall commence any business upon the dividing principle, that is to say, on the
principle that the benefit secured by a policy is not fixed but depends either wholly or partly on the result of a
distribution of certain sums amongst policies becoming claims within certain time-limits, or on the principle that
the premiums payable by a policyholder depend wholly or partly on the number of policies becoming claims within
certain time-limits: This does not deemed to prevent an insurer from allocating bonuses to holders of policies of
life insurance as a result of a periodical actuarial valuation either as reversionary additions to the sums insured or
as immediate cash bonuses or otherwise.
Sufficiency of assets
According to Section 64V Every insurer and re-insurer shall at all times maintain an excess of value of assets over
the amount of liabilities of, not less than 50% of the amount of minimum capital as stated under section 6 and
arrived at in the manner specified by the regulations. An insurer or re-insurer, as the case may be, who does not
comply with shall be deemed to be insolvent and may be wound-up by the court on an application made by the
Authority. The Authority shall by way of regulation made for the purpose, specify a level of solvency margin known
as control level of solvency on the breach of which the Authority shall act in accordance with without prejudice to
taking of any other remedial measures as deemed fit.
No risk to e assu ed u less pre iu is re ei ed i ad a e “e tio 64VB
(1) No insurer shall assume any risk in India in respect of any insurance business unless and until the
premium payable is received by him or is guaranteed to be paid by such person in such manner and
within such time as may be prescribed or unless and until deposit of such amount as may be
prescribed, is made in advance in the prescribed manner.
(2) For the purposes of this section, in the case of risks for which premium can be ascertained in
advance, the risk may be assumed not earlier than the date on which the premium has been paid in cash
or by cheque to the insurer. Explanation. ~ Where the premium is tendered by postal money-order or
cheque sent by post, the risk may be assumed on the date on which the money-order is booked or the
cheque is posted, as the case may be.
(3) Any refund of premium which may become due to an insured on account of the cancellation of a
policy or alteration in its terms and conditions or otherwise shall be paid by the insurer directly to the
insured by a crossed or order cheque or by postal money-order and a proper receipt shall be
obtained by the insurer from the insured, and such refund shall in no case be credited to the account of
the agent.
(4) Where an insurance agent collects a premium on a policy of insurance on behalf of an insurer, he shall
deposit with, or despatch by post to, the insurer, the premium so collected in full without deduction
of his commission within 24 hours of the collections excluding bank and postal holidays.
