I

nvest
mentandCompet
it
ionLaw
Uni
t-
I:I
nvest
mentandSecur
it
iesLaws (
Lect
ures-
08)

a.Ev
olut
ionofSecur
it
iesandI
nvest
mentLawsi
nIndi
a

b.ConceptofSecur
it
iesandKi
ndsofSecur
it
ies

c.Regulat
oryFrameworkt
oGov er
nSecuri
ti
esinIndia:
TheSecuri
ti
esContract
s(Regul
ati
on)
Act,1956-Deli
sti
ngofSecur
it
ies;
RoleofStockExchangeunderI
t-PowersandFuncti
ons
underSEBIAct,1992;
TheDeposit
ori
esAct,1996-Demateri
ali
sat
ionofShares

Uni
t-
II
:BanksandSecur
it
ies (
Lect
ures-
08)

a.Rol
eofBankst
oIssueSecur
it
ies

b.Changi
ngFunct
ionsofBanksf
rom Di
rectLendi
ngt
oModer
nSy
stem ofI
nvest
mentBanki
ng.

c.Secur
it
izati
onandReconstr
uct
ionofFi
nanci
alAsset
sandEnforcementofSecur
it
yInter
est
Act
,2002:It
sBackground,I
mport
ance,TheDebtRecov
eryTr
ibunalsandI
mportantCaseLaw

Uni
t-
II
I:For
eignI
nvest
mentLaws (
Lect
ures-
12)

a.Rol
eoftheFor
eignExchangeManagementAct,
1999t oRegul
ateFor
eignTr
ade-Di
ff
erence
fr
om FERA,Admi
nist
rat
ionofExchangeCont
rol
,Adjudi
cator
yPowers

b.For
eignTr
ade(
Dev
elopment&Regul
ati
on)Act
,1992

c.Joi
ntvent
uresinI
ndiaandForei
gnCol
l
abor
ati
ons:
ConceptofTr
ansnat
ional
Cor
por
ati
ons
andMult
inat
ional
Corporat
ions–UNCTADmodel

d.For
eignDir
ectI
nvestment
,For
eignInst
it
uti
onal
Inv
est
ors:
ItsRegul
ator
yMechani
sm i
nIndi
a,
ConceptofSpeci
alEconomi
cZone(SEZ)

Uni
t-
IV:
TheCompet
it
ionLawi
nIndi
a (
Lect
ures-
12)

a.Ev
olut
ionofCompet
it
ionLawi
nIndi
a,Di
ff
erencef
rom t
heMRTPAct

b.Ant
i-
Compet
it
iveAgr
eement
s,Ver
ti
cal
andHor
izont
alAgr
eement
s,Pr
edat
oryPr
ici
ng

c.AbuseofDomi
nance

d.Combi
nat
ionsandi
tsRegul
ati
ons

e.Power
sandFuncti
onsofCompet
it
ionCommi
ssi
onofI
ndi
a,Appel
l
ateAut
hor
it
ies,
Competi
ti
onAdvocacy
.

f
.Br
iefconceptoft
heDev
elopmentofCompet
it
ionLawsi
nUSAandUK
Uni
t-
1Inv
est
mentandSecur
it
iesLaws
A)Ev
olut
ion
Ensuringeconomi cj usticehasbeent hemai npl ankoft hegov ernmentsi ncei ndependence.Wi ththe
sameobj ectiv
ei nmi nd,t heGov ernmentenact edMonopol iesandRest r
icti
veTr adePr acticesAct ,1969.
Butthi ssmal lpi
eceofl egi slationat tractedshar pcr i
ticism onaccountofi t
s"ineffecti
veness"i nachi evi
ng
theobj ectivesst atedi nt heAct .TheActwasper ceivedt ohav ef ai
ledi ncur bingconcent rati
onof
economi cpowerori nr egul atingt hedi versemonopol isti
c,restri
ctiveandunf airtradepr actices.Howev er,
witht heonsetofgl obal i
zat ion,i twasr eali
zedt hati twoul dbebet t
ert opr omot ecompet i
ti
onandnot
concent r
at i
on.Ahi ghlev elcommi t
teewasconst itutedi nOct ober1999undert hechai rmanshi pofSVS
Raghav ant ogoi ntot heaspect sofcompet iti
onpol icyandar elatedLaw.Thecommi tteesubmi tt
edi t
s
reporti nMay2000.I t
sr ecommendat ionsformedt hebasi sofadr aftBill
,whi chwaspr esentedi nthe
Parli
ament .TheBi l
lgotPr esident i
alassenti nJanuar y2003,af tert wo-and-ahalfy ears.Obj ectiveof
Compet iti
onAct ,2002ThePr eambl eoft heActdecl ar
est hei ntent i
onoft heGov ernmentt opr essin
servi
cet hepr ovisi
onsoft heActf ort heachi evementoft hef ollowingobj ecti
ves:i.Topr eventanti-
compet it
ionpr act i
ces;i i
.Topr omot eandsust aincompet i
tioni nmar kets;ii
i
.Topr otectthei nterestsof
consumer s;andi v.Toensur ef reedom oft radef oral lpar t
icipantsi nt hemar ketsi nIndia.Ont hewhol e,
thelegi sl
at i
onseekst ocl earal lthehur dlesinpr omot ingcompet it
ionamongbusi nessuni tsofdomest i
c
andf oreignor igi
n.I nt hisnewAct ,ther eisnoment ionof' concent r
at i
on' butwhet hersuch' concent rat
ion'
l
eadst oempl oyi
ngant i-compet it
ivepr acti
ces.

B)SECURI
TIESCONTRACTS(
REGULATI
ON)ACT,
1956
Thedefi
niti
onofsecur
it
iesundersect
ion2(81)oftheCompaniesAct
,2013r
efer
stot
hedef
ini
ti
onunder
sect
ion2(h)oft
heSecuri
ti
esContract
s(Regulat
ion)Act
,1956.

ThoughtheSecurit
iesCont
racts(Regulat
ion)Act
,1956onlyr
egul
atesthesharesofl
ist
edcompanies,
t
hedefi
nit
ionofsecuri
ti
espr
ovidedthereunderappl
iest
otheCompaniesAct
,2013bysuchref
erence.

Sect
ion(
h)“
secur
it
ies”i
ncl
ude—

(i
)shares,scr
ips,st
ocks,bonds,debent
ures,debent
urest
ockorot
hermar
ket
abl
esecur
it
iesofal
i
ke
natur
einorofanyincor
poratedcompanyorotherbodycor
porat
e

(
ia)
der
ivat
ive

(i
b)uni
tsoranyot
heri
nst
rumenti
ssuedbyanycol
l
ect
ivei
nvest
mentschemet
othei
nvest
orsi
nsuch
schemes

(i
c)secur
it
yr ecei
ptasdefi
nedinclause(zg)ofsecti
on2oft heSecur
it
isat
ionandReconst
ruct
ionof
Fi
nancialAssetsandEnf
orcementofSecur
it
yInt
erestAct
,2002

(
id)
uni
tsoranyot
hersuchi
nst
rumenti
ssuedt
othei
nvest
orsunderanymut
ual
fundscheme

(
ii
)Gov
ernmentsecur
it
ies;

(
ii
a)suchot
heri
nst
rument
sasmaybedecl
aredbyt
heCent
ral
Gov
ernmentt
obesecur
it
ies
(
ii
i)r
ight
sori
nter
esti
nsecur
it
ies

sharesr eferst otheowner shipcer ti

ficat
esofapar ti
cul
arcompany .Scr i
pi sknownasadocument
acknowledgi ngdebt.Compani esshor toncashof t
enpayscripdi v
idendsi nsteadofcashdi vi
dends.A
bond,alsoknownasaf i
xed- i
ncomesecur it
y,i
sadebti nstr
umentcr eatedf orthepurposeofr ai
si ng
capit
al.Theyar eessent i
all
yloanagr eement sbetweenthebondissuerandani nvest
or,i
nwhi chthebond
i
ssuerisobl igatedtopayaspeci fi
edamountofmoneyatspeci fiedfuturedat es.Stockisagener alterm
usedt odescr ibetheowner shipcerti
fi
catesofanycompany .Adebent ureist ypesofdebti nstrument
.Debentur esar ebackedonl ybyt hegener alcredi
twor
thi
nessandr eputati
onoft heissuer.Debent ure
stockholdersar eentit
ledt odi vi
dendpay ment satf i
xedint
ervals.Liker egulardebentures,debent ure
stocksar enormallynotbackedbyanycol l
ateral
. 

C)Secur
it
yCont
ractAct&SEBI

Li
sti
ngofSecur
it
ies
Compliancewit
hr equir
ementofl
i
sti
ng agr
eementi
sast
atut
oryobl
i
gat
ionoft
hecompanywher
e
secur
it
iesarel
i
sted.(Sec:
21)

o NonCompl
i
ance

 Del
i
sti
ng Penal
ty

 Reasonst
ober
ecor
dedi
nwr
it
ing

 Af
tergi
vi
ngoppor
tuni
tyofbei
nghear
d

Del
i
sti
ngofSecur
it
ies(
Sec:
21A)

Reasons:

 Fai
l
uret
ocompl
ywi
thl
i
sti
ngagr
eement
s

 Cont
inuousl
ossesf
or3y
ear
s

 Nof
requentt
radi
ngdur
ingpr
eceedi
ng3y
ear
s

 Company/Di
rect
orsconv
ict
edunderSEBI
/Deposi
tor
iesActandpuni
shed

Appeal

 Ref
usal
tol
i
st

 Del
i
sti
ng

 Appeal
ist
obef
il
edwi
thSAT

 Appeal
toSCwi
thi
n60day
s(22F)

PowerofCent
ral
Gov
ernment
/SEBI
/RSE
  PowerofCent
ral
Gov
ernmentt
ocal
lforper
iodi
cal
ret
urnsordi
recti
nqui
ri
est
obemade.

 Annual
repor
tst
obef
urni
shedt
oCent
ral
Gov
ernmentbyst
ockexchanges

 PowerofCent
ral
Gov
ernmentt
odi
rectr
ulest
obemadeort
omaker
ules

 PowerofSecur
it
iesandExchangeBoar
dofI
ndi
atomakeoramendby
elawsofr
ecogni
sedst
ock
exchanges

 PowerofCent
ral
Gov
ernmentt
osuper
sedegov
erni
ngbodyofar
ecogni
sedst
ockexchange

 Powert
osuspendbusi
nessofr
ecogni
sedst
ockexchanges.

 Powert
oissuedi
rect
ions(
SEBI
)(Sect
ion31)

 Powert
ogr
anti
mmuni
ty

 Powert
odel
rgat
e(SEBI
/RBI
)

 Powert
omaker
ules(
CG)

 Powerofr
ecogni
sedst
ockexchangest
omakeby
e-l
aws

Cl
ear
ingHouse

Ar ecogni
sedst
ockexchangemay ,wi
ththepri
orapprovaloft
heSecuri
ti
esandExchangeBoardofI
ndia,
t
ransfertheduti
esand funct
ionsofacl ear
ing houseto acl
earing cor
por
ati
on,being acompany
i
ncorporat
edundert
heCompani esAct
,1956.

(
a)t
heper
iodi
cal
set
tl
ementofcont
ract
s

(
b)t
hedel
i
ver
yof
,andpay
mentf
or,
secur
it
ies

(
c)anyot
hermat
teri
nci
dent
alt
o,orconnect
ed wi
th,
sucht
ransf
er.

(
d)makeby
e-l
awsandsubmi
tthesamet
otheSecur
it
iesandExchangeBoar
dofI
ndi
afori
tsappr
oval

(e)TheSecuri
ti
esandExchangeBoardofIndi
amay,onbeingsati
sfi
edthati
tisinthei
nter
estoft
hetrade
andalsoint hepublicinter
esttotr
ansf
ertheduti
esandf unct
ionsofacl eari
nghousetoacl eari
ng
corpor
ati
on,grantapprovalt
otheby
elawssubmi
tt
edtoit

Addi
ti
onal
Floor

Additi
onaltradingfl
oormeansat radi
ngr i
ngort radi
ngfaci
li
tyoff
eredbyar ecognisedstockexchange
outsi
dei t
sar eaofoperat
iontoenabletheinvest
or st
obuyandsellsecur
it
iesthroughsucht radi
ngfloor
undert heregulator
yframeworkoft hatstockexchange.A stockexchangemayest abl
ishaddit
ional
tr
adingf l
oorwiththepr
iorappr
ovaloftheSecurit
iesandExchangeBoardofIndi
a.

SEBI:
Mar
ketRegul
ator
Thecapi
talmar
ketofI
ndi
aunder
wentar
api
dgr
owt
hdur
ingt
he1980sandt
heev
er-
expandi
ngi
nvest
or
populationandmar ketcapital
izati
onwer efol
lowedbyal otofmal pract
icessuchaspr i
cerigging,
exagger atedpremium,non-adherenceofprovi
si
onset c.Therewer ecompani es,br
okersandinvestment
consultant swhower eengagedi nt hesemalpract
ices.SEBI( Securi
ti
esandExchangeBoar dofI ndia)
camei nt othepict
urei
nt hesameper iodtopr
ovidear eassurancet hati
tissafetotransacti
nthesecurity
market.I twasempower edadequat el
yandwasassignedt heresponsibi
li
tyto:

 Pr
omot
ethei
nter
est
sofi
nvest
orsi
nsecur
it
ies

 Pr
omot
ethedev
elopmentoft
hesecur
it
iesmar
ket

 Regul
atet
hesecur
it
iesmar
ket

 Al
lthemar
keti
nter
medi
ari
esar
eregi
ster
edandr
egul
atedbySEBI
.

Power
sofSEBI

1.Power
srel
ati
ngt
ost
ockexchanges&i
nter
medi
ari
es

SEBIhaswidepowersr
egar
dingt
hest ockexchangesandint
ermediari
esdeal
ingi
nsecur
it
ies.I
tcanask
i
nfor
mat i
onfrom t
hestockexchangesandi ntermedi
ari
esregardingthei
rbusi
nesstr
ansacti
onsfor
i
nspecti
onorscr
uti
nyandot
herpurpose.

2.Powert
oimposemonet
arypenal
ti
es

SEBIhasbeenempower
edtoimposemonet
arypenal
ti
esoncapit
almar
ketint
ermedi
ari
esandother
par
tici
pant
sforar
angeofv
iol
ati
ons.I
tcaneveni
mposesuspensi
onofthei
rregi
str
ati
onforashort
per
iod.

3.Powert
oini
ti
ateact
ionsi
nfunct
ionsassi
gned

SEBIhasapowertoi
nit
iat
eacti
onsinr
egardtofunct
ionsassi
gned.Forexampl
e,itcani
ssuegui
deli
nes
todi
ffer
enti
nter
medi
ari
esorcani
ntr
oducespeci
fi
crul
esfortheprot
ecti
onofint
erest
sofi
nvest
ors.

4.Powert
oregul
atei
nsi
dert
radi
ng

SEBIhaspowert
oregul
atei
nsi
dert
radi
ngorcanr
egul
atet
hef
unct
ionsofmer
chantbanker
s.

5.Power
sunderSecur
it
iesCont
ract
sAct

Foreff
ectiv
er egul
ati
onofstockexchange,
theMini
str
yofFinanceissuedaNot i
ficat
ionon13September,
1994delegati
ngsev eralofi
tspowersundertheSecuri
ti
esContracts(Regulat
ions)ActtoSEBI
.SEBIis
al
soempower edbyt heFinanceMinist
rytonominat
et hr
eemember sont heGov erni
ngBodyofev er
y
stockexchange.

6.Powert
oregul
atebusi
nessofst
ockexchanges

SEBIisalsoempoweredtoregulatet
hebusinessofstockexchanges,
inter
mediari
esassoci
atedwit
hthe
secur
iti
esmarketaswellasmut ualf
unds,f
raudulentandunfai
rtr
adepracti
cesrel
ati
ngtosecuri
ti
esand
regul
ati
onofacqui
sit
ionofsharesandtakeoversofcompanies

SEBIBOARD
TheBoar
dshal
lconsi
stoft
hef
oll
owi
ngmember
s,namel
y:
- (
appoi
ntedbyCent
ral
Gov
ernment)

(
a)aChai
rman

(b)twomember sfrom amongsttheof

ficial
softheMini
str
y oft
heCent
ralGov
ernmentdeal
i
ngwi
th
Financeandadmi
nistr
ati
onoftheCompaniesAct
,1956

(
c)onememberf
rom amongstt
heof
fi
ci
alsoft
heReser
veBank 

(
d)f
iveot
hermember
sofwhom atl
eastt
hreeshal
lbet
hewhol
e-t
imemember
s

Gr
oundsf
orDi
squal
i
ficat
ion

TheCent
ral
Gov
ernmentshal
lremov
eamemberf
rom of
fi
cei
f–

(
a)adj
udi
cat
edasi
nsol
vent

 
(b)i
sofunsoundmi
ndandst
andssodecl
aredbyacompet
entcour
t

 
(c)hasbeenconv
ict
edofanof
fencewhi
ch,i
ntheopi
nionoft
heCent
ralGov
ernment
,inv
olv
esamor
al
t
urpi
tude

(d)has,i
ntheopini
onoftheCent
ralGover
nment,soabusedhi
sposit
ionastor
enderhi
scont
inuat
ioni
n
offi
cedetr
iment
al t
othepubl
i
cint
erestr
easonabl
eopport
uni
tyofbei
nghear
dinthematt
er.

I
nqui
ry

Wher
etheBoar
dhasr
easonabl
egr
oundt
obel
i
evet
hat…….

i
)thetransact
ionsinsecur
it
iesar
ebei
ngdeal
twi
thi
namannerdet
ri
ment
alt
othei
nvest
orsort
he
secur
it
iesmar ket

i
i)
anyint
ermedi
aryoranyper
sonassoci
atedwi
tht
hesecur
it
iesmar
kethasv
iol
atedanyoft
hepr
ovi
sions
ofthi
sAct

TheInvesti
gati
ngAut hori
tymayrequireanyint ermediar
yoranyper sonassoci atedwi t
hsecur i
ti
esmarket
topreserveandtopr oducetotheI nvest
igatingAut hori
tyal
lthebooks,r egisters,otherdocumentsand
recor
dwhi char eint heircust
odyorpower . Whereint hecourseofi nvest i
gati
on,t heInvesti
gat
ing
Authori
tyhasr easonableground to beli
evet hatthebooks,r egist
ers,otherdocument sand record
destr
oyed,mutil
ated,alt
ered,
fal
sifi
edorsecr eted,theInvest
igat
ingAuthorit
ymaymakeanappl i
cat
ionto
theJudici
alMagistrateofthefi
rstclassorderf ortheseizur
eofsuchbooks,r egist
ers,otherdocuments
andrecord.

Aft
erconsi
deri
ngtheappli
cat
ionandhear
ingt
heI
nvest
igat
ingAut
hor
it
ytheMagi
str
atemayaut
hor
ize
t
heInv
esti
gati
ngAuthor
it
y……

(
a)t
oent
er,
thepl
aceorpl
aceswher
esuchbooks,
regi
ster
s,ot
herdocument
sandr
ecor
dar
ekept

(
b)t
osear
cht
hatpl
aceort
hosepl
acesi
nthemannerspeci
fi
edi
ntheor
der

(
c)t
osei
zebooks,r
egi
ster
s,ot
herdocument
sandr
ecor
d,i
fiti
snecessar
yfort
hepur
posesoft
he
i
nvest
igat
ion

Secur
it
iesAppel
l
ateTr
ibunal

SATisast at
utor
ybodyestabl
ishedundertheprovi
sionsofSect
ion15KoftheSecur
it
iesandExchange
BoardofIndiaAct,1992tohearandt odisposeappealsagai
nstorder
spassedbytheSecuri
ti
esand
ExchangeboardofIndi
aorbyanadjudi
cat
ingoffi
cerundert
heAct.

Composi
ti
onofSAT

APr
esi
dingOf
fi
cer& Twoot
hermember
s

Appoi
ntment

Pr
esi
dingOf
fi
cer

ThePresi
dingoff
icerofSATshallbeappoi
ntedbyt
heCent
ralGov
ernmenti
nconsul
tat
ionwi
tht
heChi
ef
Just
iceofI
ndiaorhisnominee.

Member
s

Thet
womember
sofSATshal
lbeappoi
ntedbyt
heCent
ral
Gov
ernment
.

Qual
i
ficat
ions

Pr
esi
dingOf
fi
cer

Asi
tt
ingorr
eti
redj
udgeoft
hesupr
emecour
tor

Asi
tt
ingorr
eti
redChi
efJust
iceoft
heHi
ghCour
tor

Asit
ti
ngorret
ir
edJudgeofaHi
ghcour
t,whohascompl
etedatl
east7y
ear
sofser
viceasaJudgei
na
Hi
ghCourt
.Members

Hei
saper
sonofabi
l
ity
,int
egr
it
yandst
andi
ngand

Hehasshowncapacityi
ndeal
i
ngwi t
hpr obl
emsr el
ati
ngt osecur
it
iesmarketandhasqual
i
ficat
ionand
exper
ienceofcor
por
atel
aw,
Secur
it
ieslaws,Fi
nance,economicsoraccount
ancy.

Tenur
e
Pr
esi
dingOf
fi
cer5y
ear
satat
imeorr
eappoi
ntmentor68y
ear
s

Member
s

5y
ear
satat
imeorr
eappoi
ntmentor62y
ear
s

Appeal
toSAT

Anyper
sonaggriev
edByanorderofSEBImade,undert
hisact,orByanordermadebyanadj
udi
cat
ing
of
fi
cerundert
hisact,
maypr
eferanappeal
toaSAThav i
ngjur
isdi
cti
oni
nthematter
.
Power
sofSAT
TheSATshal
lhave,
forthepurposeofdi
schar
gingt
heirf
unct
ionsundert
hisAct
,thesamepowersasare
vest
edinaci
vi
lcourtundert
hecodeofcivi
lpr
ocedur
e1908whi l
etr
yingasui
t,i
nrespectoft
hef
oll
owing
matter
snamel
y

 Summoni
ngandenf
orci
ngt
heat
tendanceofanyper
sonandexami
nehi
m onoat
h

 Requi
ri
ngt
hedi
scov
eryandpr
oduct
ionofdocument
s

 Recei
vi
ngev
idenceonaf
fi
dav
its

 I
ssui
ngcommi
ssi
onsf
ort
heexami
nat
ionofwi
tnessesordocument
s

 Rev
iewi
ngi
tsdeci
sions

 Di
smi
ssi
nganappl
i
cat
ionf
ordef
aul
tordeci
dingi
tex-
par
te

 Set
ti
ngasi
deanyor
derordi
smi
ssalofanyappl
i
cabl
efordef
aul
toranyor
derpassedbyi
tex-
par
te

 Anyot
hermat
terwhi
chmaybepr
escr
ibed

Pr
ocedur
e

Everyappealshal lbef i
l
edwi thin45day sf r
om thedateonwhi chacopyoft heor dermadebySEBIort he
adjudicati
ngof ficerisr eceiv
edbyhi m andaccompani edbysuchf orm andf eesasmaybepr escri
bed.
TheSATmayent ert
ainanappealaf tertheexpi
ryofthesai dperi
odof45day si fitissatisf
iedthatthere
wassuf fi
cientcausef ornotf i
l
ingi twithi
nthatper i
od.Theappealshal lbemadei n3copi es,with
additi
onalcopi esf oreachaddi ti
onalAppealshallbesignedbyt heaut hori
zedper son.Onr ecei
ptoft he
appeal ,
theSATmay ,aftergi
vingt heparti
estotheappealanoppor tuni
tyofbei nghear d,passsuchor der
thereonasi tthinksf i
t,confir
mi ng,modifyi
ngorsetti
ngasi detheorderappealedagai nstandsuchappeal
shallbedisposedwi thin6mont hsf r
om thedateofreceiptoft
heappeal .

Howt
oappearbef
oreSAT

Appearancebefor
eSAT maybeei therin person orthrough author
ized per
son bei
ng a Char
ter
ed
Accountant
,CompanySecr
etar
y,CostAccountantorLegalPract
it
ioner.

Appeal
agai
nstt
heor
derofSAT

Anypersonaggri
evedbyanydeci sionoror deroft
heSATcanf il
eanappealtot heSupremeCour t.The
appealcanbefil
edonlyonaquest i
onofl aw.Theappealshal
lbef i
l
edwithi
n60day sfrom t
hedat eof
recei
vi
ngacopyoft hedeci
sionoror derofSAT.Thesupremecourtmayal
lowaf ur
therperi
odof60day s
formakinganappeal,i
fiti
ssatisf
iedt hatt
heappli
cantwasprevent
edbysuffi
cientcausefrom f
il
ingthe
appealwit
hint
hefir
st60day s.

Uni
t-
2BankAndSecur
it
ies
A)Rol
eofBankst
oissueSecur
it
ies.

 
Issuingstocksandbondsi soneofthepri
mar ywaysforacompanyt oraisecapi
tal
.Butexecut
ing
these t
ransacti
ons requi
resspeci
alexpert
ise,f
rom pr
ici
ng fi
nanci
ali
nstr
ument s 
i
nawayt hatwil
l
maximi zerevenues tonavi
gati
ngregul
atoryrequi
rements.That’
swhereaninvestmentbankusual
ly
comesi ntothepicture.

Inessence,i
nvest
mentbanksareabridgebetweenlar
geent
erpri
sesandtheinv est
or.Thei
rmainrol
es
aretoadvisebusi
nessesandgover
nment sonhowtomeettheirf
inanci
alchal
lengesandt ohel
pthem
procur
e fi
nanci
ng,whetheri
tbef
rom stockoff
eri
ngs,bondi
ssuesor 
deri
vati
ve product
s.

Rol
easanadv isor
Deci
dinghowtor ai
secapi
tal
isamajordeci
sionforanycompanyorgover
nment .I
nmostcases,t
hey
l
eanonani nv
estmentbank–eitheral
arge 
WallStr
eet 
fi
rm ora“
bouti
que”banker–forgui
dance.

Takingintoaccountt hecurr
entinvest
ingcli
mate,thebankwillrecommendthebestwaytor
aisefunds.
Thiscoul dentai
lsell
inganowner shi
pstakeinthecompanyt hroughastockof
ferorbor
rowi
ngf r
om the
publi
ct hroughabondi ssue.Theinvestmentfi
rm canalsohelpdetermi
nehowtopricet
heseinst
ruments
byutil
izingsophist
icated 
fi
nanci
al models.

Inthecaseofast ockoff
ering,
its 
fi
nancialanal
ysts 
wil
ll
ookatavari
etyofdi
ffer
entfact
ors–such
as 
earni
ngspot enti
al 
andthestrengthofthemanagementteam –toestimat
ehowmuchashar eofthe
companyiswor th.Ift
hecli
entisofferi
ngbonds, t
hebankwil
ll
ookatprevai
li
ng i
nter
estrat
es 
forsi
mil
arl
y
rat
edbusinessest ofi
gureouthowmuchi twill
havetocompensat
ebor r
owers.

I
nvestmentbanksalsooff
eradvi
ceina mer
ger 
or 
acqui
sit
ion 
scenar
io.Forexample,
ifabusinessi
s
l
ookingtopurchaseacompeti
tor,
thebankcanadvi
seit
smanagementt eam onhowmucht hecompany
i
swor t
handhowt ost
ruct
urethedeal
inawaythat’
sfavor
abletothebuy er
.

Underwrit
ingStocksandBonds
Ifanenti
tydecidestorai
sefundsthroughanequit
yordebtoffer
ing,
oneormoreinvest
mentbankswi
l
l
alsounderwrit
ethe 
securi
ti
es.Thismeanstheinst
it
uti
onbuy sacert
ainnumberofshar
es–orbonds–at
apredeterminedpri
ceandre-sel
lsthem t
hroughan 
exchange.

SupposeAcmeWat erFilterCompanyhopest oobtain$1mi l

l
ioninan init
ialpubli
cofferi
ng.Basedona
vari
etyoffact
ors,includingthef i
rm’
sexpectedearningsoverthenextf ewyears,Federi
ci 
Invest
ment
Bankers 
deter
mi nest hatinvestor
swi l
lbewill
i
ngtopay$11eachf or100,000shar esofthecompany ’s
stock.Asthesole underwr i
ter 
oftheissue,
Feder
icibuysal
l t
heshar esat$10api ecefrom Acme.Ifit
managest osellal
l 100,000at$11, thebankmakesani ce$100,000pr ofi
t(100,000sharesx$1spr ead).

Howev er,dependingoni tsarrangementwi ththeissuer

,Federi
cimaybeont hehooki fthepublic’s
appeti
teisweakert hanexpect ed.I
fi thastolowert hepri
cetoanaverageof$9ashar e
to 
li
quidate i
ts hol
dings,i
t’
s lost 
$100, 000.Therefor
e,pri
ci
ngsecurit
iescanbet r
icky
.Investmentbanks
generall
yhav et ooutbidotherinsti
tutionswhoal sowantt ohandl
ethetransacti
ononbehal foft heissuer
.
Butifthei
rspr eadisn’tbi
genough, theywon’ tbeabletosqueezeahealthyretur
noutoft hesale. 

I
nreali
ty,
thetaskof
 underwrit
ing securi
ti
esoftenfal
lsonmor ethanonebank.Ifi
t’
sal ar
geroffer
ing,t
he
managingunderwr
it
erwi l
loft
enf orm a syndi
cate 
ofotherbanksthatsel
laport
ionoftheshares.This
way,t
hefirmscanmar ketthestocksandbondst oalargersegmentofthepubl
icandlowertheirri
sk.(L9)
Themanagermakespar tofthepr ofi
t,evenifanot
hersy ndi
catememberactual
lysel
lsthesecurit
y.

I
nvestmentbanksperf
orm al
essgl
amorousrol
einstockoff
eri
ngsaswel
l
.It
’st
heirj
obtocr
eatethe
documentat
ionthatmustgot
othe 
Secur
it
iesandExchangeCommissi
on 
bef
orethecompanycansell
 shares.Thi
smeanscompi
l
ing 
fi
nanci
alst
atements,i
nfor
mati
onaboutt
hecompany
’smanagementand
curr
entownershi
pandast
atementofhowthefi
rm pl
anstouset
heproceeds.

OtherAct
ivi
ti
es
Whileadv
isi
ngcompaniesandhelpingthem r
aisemoneyi sanimport
antpartofwhatWal
lStr
eetfi
rmsdo,
mostperfor
m anumberofotherfuncti
onsaswel l
.Infact
,mostmajorbanksarehighl
ydi
ver
sif
iedi
n
t
ermsoft heser
vicest
heyoff
er.Someoft hei
rother 
income sour
cesi
nclude:

 Resear ch. Largeri nvestmentbankshav elarget eamst hatgatherinformationaboutcompani esandof fer

recommendat ionsonwhet hert obuyorsel ltheirstock.Theymayuset heserepor tsinternall
ybutcan
alsogener aterev enuebysel l
ingt hem to hedgef unds andmut ual
 fundmanager s.
 Tr adingandSal es. Mostmaj orfirmshav eat radingdepar t
mentt hatcanexecut est ockandbond
transact ionsonbehal fofthei rcli
ent s.I
nt hepast ,
somebankshav ealsoengagedi n proprietarytrading,
wher etheyessent ial
lygambl et heirownmoneyonsecur i
ti
es;howev er,arecentr egulationknownas
the Vol ckerRul ehascl ampeddownont heseact i
vit
ies. 
 AssetManagement .
 Thelikesof  
J.P.Mor gan andGol dmanSachsmanagehugepor tfoli
osf or pension
funds, f
oundat i
onsandi nsur ancecompani est hrought heir
 assetmanagement  
depar tment .Thei rexperts
hel psel ectther ightmi xofst ocks,  
debti nstrument s,realestatetrustsandot herinv estmentv ehiclesto
achi evet heirclient s’uniquegoal s.
 Weal thManagement .
 Someoft hesamebankst hatper f
ormi nvestmentbanki ngf unct i
onsf or Fortune
500  busi nessesal socat ert o ret
ailinvestors.Thr oughat eam offinancialadvisors,theyhel pi ndivi
duals
andf ami li
essav ef orretir
ementandot herlong- term needs. 

 Securit
izedProduct
s. Theseday s,compani esoft
enpool 
fi
nanci
alasset
s –from mortgagesto 
credi
t
card r
eceivabl
es 
–andsel l
them of ftoinv
estorsas 
fi
xed-
incomeproducts.Aninvest
mentbankwi ll
recommendoppor t
unitiest
o“ securit
ize”i
ncomest r
eams,assembletheassetsandmar kett
hem
to i
nsti
tuti
onali
nvestors.

B)WhatI
saMer
chantBank?

Amer chantbankisacompanyt hatconductsunderwri

ti
ng,l
oanserv i
ces,f
inanci
aladvi
sing,
and
fundr
aisi
ngservicesforl
argecorpor
ati
onsandhi ghnetworthindi
vidual
s.Unli
keretai
lorcommercial
banks,merchantbanksdonotprov i
deservi
cestothegeneralpubl
ic.Theydonotpr ovi
deregul
arbanki
ng
servi
cesli
kecheckingaccountsanddonott akedeposi
ts.

Thesebanksareexper
tsi
nint
ernat
ional
trade,
whi
chmakest
hem speci
ali
stsi
ndeal
i
ngwi
thmul
ti
nat
ional
corpor
ati
ons.

Manyoft
hel
argest
 mer
chantbanks 
i
nthewor
ldi
ncl
udeJ.
P.Mor
gan,
Gol
dmanSachs,
andCi
ti
group.

Underst
andingMer chantBanks
Theterm merchantbankusedi ntheUnitedKingdom t
odescr
ibeinvest
mentbanks,buthasamore
narr
owf ocusintheUnitedStates.Theymayactl i
kei
nvest
mentbanksi nt
heU.S.buttendt
ofocuson
servi
cestai
lor
edt omultinat
ionalcorpor
ati
onsandhighnetwort
hi ndi
vi
dual
swhodobusi nessi
nmore
thanonecountry.

Mer chantbanksint heU.S.arefi

nanci
alinst
it
utionsthatdealwit
hi nt
ernational
financef
ormul ti
national
corporations.Merchantbankstradi
ti
onall
yperforminternat
ionalf
inancingandunder wri
ti
ngincludingreal
estate,t
radef i
nance,forei
gninvest
ment,andot heri
nternat
ional
transacti
ons.Theymaybei nvolvedin
i
ssui ngletter
sofcreditandinthetr
ansferoffunds.Theymayal soconsul tontradesandtradi
ng
technology .
 Mer
chantbankst
ypi
cal
l
year
nfeeschar
gedont
heser
vicest
heypr
ovi
de.

Let'
ssayCompanyABC–basedi ntheUnit
edSt at
es—wantst
obuyCompanyXYZi nGer
many
,itwoul
d
hir
eamer chantbanktof
aci
li
tatet
heprocess.Thatbankwoul
dadvi
seCompanyABConhowt ostr
uct
ure
thetr
ansacti
on.Itmayal
sohelpABCinthefinanci
ngandunder
wri
ti
ngprocess.

Mer
chantBank
HowMer chantBanksFacil
it
ateTrade
I
fa multi
nationalcorpor
ati
on oper
atesinmanydi
ff
erentcountri
es,amerchantbankcanfi
nancebusi
ness
operat
ionsinallthosecountr
iesandmanagethecurrencyexchangesasfundsaretr
ansf
erredand
prov
idethef undstomaket hepurchaseusi
ngalet
terofcredi
t(LOC).

Usingtheexampleabove,thesell
ersinGermanyreceiveanLOCissuedbythemerchantbankhi
redby
CompanyABCaspay mentf ort
hepur chase.Themerchantcanal
sohelptheCompanyABCwor kthr
ough
thelegal
andregulat
oryissuesrequi
redtodobusinessinGermany.

KeyTakeaway
s

 Mer chantbanksconductunder wr
iti
ng,loanservi
ces,fi
nanci
aladvi
sing,
andfundr
aisi
ngservi
cesforl
arge
corporati
onsandhighnetwor t hi
ndivi
duals.
 Theydonotpr ov
ideservi
cesf ort
hegener alpubl
icli
kechecki
ngaccounts.
 Exampl esoftheworld'
slargestmerchantbanksi ncl
udeJ.P.Morgan,GoldmanSachs,andCi
ti
group.

Mer
chantBanksv
s.I
nvest
mentBanks

Mer chantbanksusemor ecreat

iveformsoffi
nancing.Theyt
ypical
lyworkwit
hcompani esthatmaynot
belargeenought oraisef
undsfrom thepubl
i
ct hroughanini
ti
alpubli
coff
eri
ng(I
PO) .Merchantbanks
helpcorporati
onsissuesecuri
ti
esthroughpr
ivateplacement
,whichrequi
rel
essregulat
orydiscl
osureand
aresoldtosophisti
catedinv
estors.

Invest
mentbanks,ont heotherhand,underwrit
eandsellsecuri
ti
estothegeneral
publi
cthroughI
POs.
Thebank’scli
entsarelargecorporat
ionsthatarewill
i
ngtoinvesttheti
meandmoneynecessar yt
o
regist
ersecur
iti
esforsaletothepublic.I
nvestmentbanksalsoprovi
deadvisor
yserv
icestocompani
es
about merger
sandacqui si
ti
ons andpr ov
ideinvest
mentresearchtocl
ient
s.

Whilemer chantbanksarefee-based,
invest
mentbankshaveatwo-
fol
dincomestr
uct
ure.Theymay
col
lectfeesbasedont headv i
soryservi
cestheypr
ovi
de,butmayal
sobefund-
based,
meaningtheycan
ear
ni ncomef rom i
nter
estandot herl
eases.

Regardl
essofhowacompanysel l
ssecur i
ties,t
herearesomemi ni
mum di
sclosurerequir
ement st
o
i
nforminvestors.Bot
hIPOsandpriv at
eplacementsrequir
eacompanyauditbyanout sideCPAf ir
m,
whichprovi
desanopi ni
ononthe f
inancialstat
ements.Audit
edfi
nanci
alst
atement smustincludesev
eral
yearsoffi
nancialdat
aalongwit
hdi scl
osures.Potent
iali
nvest
orscanuset
hisinformationaboutther
isks
andpotenti
alrewardsofbuyi
ngthesecur i
ties

Thef
unct
ionsofmer
chantbanki
ngar
eli
stedasf
oll
ows:

RaisingFi nanceforCli
ents:MerchantBanki
nghel
psitscli
ent
storai
sef i
nancethroughissueofshares,
debentur es,bankloans,et
c.I
thelpsitscl
i
entst
orai
sef i
nancefr
om thedomesticandi nt
ernat
ional
mar ket.Thisfinanceisusedforstar
ti
nganewbusinessorproj
ectorformodernizati
onorexpansionof
thebusi ness.
BrokerinStockExchange:Merchantbankersactasbroker
sint hest
ockexchange.Theybuyandsel l
sharesonbehalfofthei
rcli
ent
s.Theyconductresearchonequityshares.Theyalsoadvi
sethei
rcl
ient
s
aboutwhichsharestobuy,whentobuy ,howmucht obuyandwhent osell
.Largebroker
s, 
Mutual
Funds,
Venture 
capit
al 
companiesand 
Invest
ment  
Banksoff
ermer chantbankingserv
ices.

Proj
ect 
Management  :
Mer chantbankershel pthei
rcl
ient
sinthemanyway s.Fore.
g.Advi
singabout
l
ocati
onofapr oject
,prepari
ngapr ojectreport
,conducti
ngfeasi
bil
i
tyst
udi
es, maki
ngaplanf orf
inanci
ng
theproj
ect
,fi
ndingoutsour cesoffinance,advi
singaboutconcessi
onsandincenti
vesf
rom the
gover
nment.

Advi
ceonExpansionandModer ni
zati
on: Merchantbankersgiv
eadv iceforexpansionandmoder nizat
ion
oft
hebusinessunit
s.Theygiv
eexpertadviceonmer gersandamal gamat i
ons,acquisit
ionandtakeovers,
di
ver
sif
icat
ionofbusiness,
for
eigncol
laborat
ionsandjoint
-ventur
es,technologyup-gradati
on,et
c.

Managi
ngPubli
cIssueofCompanies:
Mer
chantbankadv
iceandmanaget
hepubl
i
cissueofcompani
es.
Theypr
ovi
defol
lowingser
vices:

 Adv
iseont
het
imi
ngoft
hepubl
i
cissue.

 Adv
iseont
hesi
zeandpr
iceoft
hei
ssue.

 Act
ingasmanagert
othei
ssue,
andhel
pingi
naccept
ingappl
i
cat
ionsandal
l
otmentofsecur
it
ies.

 Hel
pinappoi
nti
ngunder
wri
ter
sandbr
oker
stot
hei
ssue.

 Li
sti
ngofshar
esont
hest
ockex
change,
etc.

HandlingGov ernmentConsentforIndustr
ial
Proj
ects:Abusinessmanhast ogetgover
nmentpermissi
on
forst
ar t
ingofthepr oj
ect
.Simi
larl
y,acompanyr equi
respermissionforexpansi
onormodernizat
ion
acti
vi
t i
es.Forthis,
manyf or
malit
ieshav etobecompleted.Merchantbanksdoallthi
sworkforthei
r
cli
ents.

Speci
alAssi
stancet
oSmall Compani
esandEntrepreneurs:Merchantbanksadvi
sesmal
lcompani
es
aboutbusi
nessopport
uni
ti
es,gover
nmentpoli
cies,
incentiv
esandconcessionsavai
l
abl
e.I
tal
sohelps
them t
otakeadvant
ageoftheseoppor
tuni
ti
es,concessions,et
c.

Servi
cestoPublicSectorUni
ts:Merchantbanksoff
ermanyservi
cestopubli
csectoruni
tsandpubl
i
c
uti
l
iti
es.Theyhelpinraisi
ngl
ong-
term capit
al,
marketi
ngofsecur
it
ies,
for
eigncol
labor
ati
onsand
arr
anginglong-
termfinancef
rom t
erm lendi
ng i
nst
it
uti
ons.

Revi
valofSickI
ndustr
ial
Unit
s: Merchantbankshelptor evi
ve(cure)si
ckindustr
ial
uni
ts.I
tnegoti
ates
wit
hdiff
erentagenci
esli
kebanks,t
erml endi
nginsti
tut
ions,andBI FR(BoardforI
ndust
ri
alandFinanci
al
Reconst
ructi
on).I
tal
soplansandexecutesthefull
revi
v alpackage.

Port
fol
ioManagement  
:Amerchantbankmanagestheport
fol
i
os(inv
estments)ofi
tscli
ent
s.Thismakes
i
nvestmentssaf
e, l
i
quidandpr
ofit
abl
ef ort
hecl
ient
.Itof
fer
sexper
tguidancetoi
tscl
ient
sfortaki
ng
i
nvestmentdeci
sions.

Cor
porat
eRestruct
uri
ng: I
tincl
udesmergersoracquisi
ti
onsofexist
ingbusi
nessuni
ts,
sal
eofexi
sti
ng
uni
tordi
sinv
estment.Thi
srequirespr
opernegoti
ati
ons,prepar
ati
onofdocumentsandcompl
eti
onof
l
egalf
ormali
ti
es.Merchantbankersof
feral
ltheseservi
cestothei
rcl
ient
s.
MoneyMarketOperati
on:Merchantbanker
sdeal
wit
handunder
wri
teshor
t-
ter
m money
market
 i
nst
ruments,suchas:

 Gov
ernmentBonds.

 Cer
ti
fi
cat
eofdeposi
tissuedbybanksandf
inanci
ali
nst
it
uti
ons.

 Commer
cial
paperi
ssuedbyl
argecor
por
atef
ir
ms.

 Tr
easur
ybi
l
lsi
ssuedbyt
heGov
ernment(
Her
einI
ndi
abyRBI
).

Leasi
ngServices: Merchantbanker
salsohelpi
nleasi
ngservi
ces.Leasei
sacontr
actbet
weenthelessor
andlessee,
wher ebythelessoral
lowstheuseofhisspeci
fi
cassetsuchasequi
pmentbythel
esseefora
cert
ainperi
od.Thel essorchar
gesaf eecal
l
edrental
s.

ManagementofInter
estandDiv
idend:
Merchantbanker
shelpthei
rcl
ient
sinthemanagementofint
erest
ondebentur
es/loans,anddi
vi
dendonshar
es.Theyalsoadv
isethei
rcli
entaboutt
heti
ming(i
nter
im/
year
ly)andr
ateofdivi
dend.

B)CHANGINGFUNCTI
ONSOFBANKSFROM DI
RECTLENDI
NGTOMODERNSYSTEM
OFINVESTMENT

Rol
eofBanks

 Deposi
ts

 I
nvest
ment

 Tr
ansf
erofFund

 Lendi
ng

 Locker

 Mobi
l
eBanki
ng

 I
nter
netBanki
ng

 ATM

 Car
ds(Cr
edi
t&Debi
t)Tr
adi
ngi
nshar
es

BANK

1Commer
cial
Banks(
Banki
ngser
vicest
ogener
alpubl
i
c)

2I
nvest
mentBanks(I
nvest
ment&adv
isor
yser
vicest
othecompani
es)

I
NVESTMENTBANKI
NG

I
nvest
mentBanksar
ethemi
ddl
emanbet
weent
hei
ssuerofsecur
it
ies&t
hei
nvest
ingpubl
i
candal
so
pr
ovi
desv
ari
ousf
inanci
alser
vicest
othecl
i
ent.

 SEBIAct,
1992

 RBI
Act,
1934

 Compani
esAct
,2013

FUNTI
ONS

 Rai
singcapi
tal

 Secur
it
yUnder
wri
ti
ng

 Mer
ger
s&Acqui
sit
ions

 Sal
es&Tr
adi
ng

 Resear
ch

 Rest
ruct
uri
ng&Reor
gani
sat
ion

I
NVESTMENTBANKSOFI
NDI
A

 BankofAmer
ica

 Bar
clay
sCapi
tal

 B.N.P.Par
ibas

 Ci
tiBank

 Deut
scheBank

 J.P.Mor
ganI
ndi
aPr
ivat
eLi
mit
ed

 Kot
akMahi
ndr
aBankLi
mit
ed

 TheHongkongandShanghai
Banki
ngCor
por
ati
onLi
mit
ed

 YesBankLi
mit
ed

C)Secur
it
isati
onandReconst
ruct
ionofFi
nanci
alAsset
sandEnf
orcementofSecur
it
ies
I
nter
estAct,2002 
The 
Secur it
isat
ionandReconstr
ucti
onofFi
nancialAsset sandEnforcementofSecur
iti
esI
nt er
estAct,
2002 (
alsoknownast he 
SARFAESIAct
)isanIndianl aw.Ital
l
owsbanksandot herfi
nanci
alinsti
tuti
onto
auct
ionr esi
dential
orcommer ci
alpr
oper
ti
es(of 
Def ault
er)torecov
er l
oansThef
ir
stassetreconstruct
ion
company( ARC)ofI ndi
a,ARCI
L,wassetupundert hisact.
Underthi
sact  
securedcredi
tors 
(banksorf
inanci
ali
nsti
tuti
ons)havemanyrightf
orenfor
cement
of 
securi
tyint
erest 
undersection13ofSARFAESIAct,2002.Ifborr
oweroffi
nanci
alassi
stancemakes
anydefaulti
nrepaymentofl oanoranyinst
all
mentandhi saccountiscl
assi
fi
edas Nonperfor
ming
Asset 
bysecuredcredit
or,.
Thelawdoesnotapplyto unsecur
edloans,l
oansbel
ow 100,000orwherer emai
ningdebti
sbelow20%of
theori
ginal
 
pri
nci
pal.Thislawall
owedthecreati
onof 
assetreconstr
ucti
oncompanies 
(ARC)andal
lowed
bankstosellt
hei
r 
non-perf
or mi
ngassets 
toARCs.Banksareallowedtotakepossessi
onofthecol
l
ater
al
proper
tyandsell
itwit
houtt heper
missi
onofacourt.

Amendment
s:
Theactwasamendedby" Enfor
cementofSecuri
tyInt
erestandRecover
yofDebtsLawsand
[
3]
Miscel
l
aneousPr
ovi
sions( Amendment)Bi
ll
,2016",
passedby  
LokSabha on2August2016.  
Actpassed
byRajy
aSabhabyvoi
cev oteonAugust10,2016.

Not
abl
ever
dict
:

Mar
diaChemi
cal
sLt
d.v
.ICI
CIBank

I
n MardiaChemi cal
sLtd.v.I
CICIBank,on8Apr il2004,
the 
SupremeCourtofIndia 
decl
aredtheSarf
aesi
Acttobeconst i
tuti
onal
lyval
id.TheCourtsaidthataborrowermayappealagainstt
helenderint
hedebt
recov
erytri
bunal,wit
houthavingtodeposit75%oft heamountofthedebt
.Ifthetri
bunaldoesnotstay
theorder
,thelendermayselltheassets.
Aft
erthi
slawpassed,on27November2002,  
ICI
CIBank 
tookpossessi
onofMar
diaChemicalpl
anti
n
[
5]
Vatv
a, 
Ahmedabaddistr
ict
, 
Guj
arat
.  
ICI
CIBankwasowed  300 
cror
e,i
nal
li
towed 
1,450cror
eto20
l
enders.
CentralRegi
str
yofSecur i
ti
sati
onAssetReconst
ruct
ionandSecurit
yInter
est (
CERSAI)i
sacentral
onl
ine secur
it
yint
erest
 regi
stryof
 I
ndi
a.Itwaspri
mar i
l
ycreatedtocheckfraudsi
nlendi
ngagainst
equit
ablemor t
gages,i
nwhi chpeopl
ewouldtakemultipl
eloansonthesameassetf r
om di
ff
erentbanks.
AGover
nmentcompanyl
i
censedundersect
ion8oft
heCompani
esAct
,2013hav
ingi
tsRegi
ster
edOf
fi
ce
atNewDel
hi.
Thecompanyi ncor
poratedwit
hmaj or
it
yshar
eholdingoft
heCentralGovernment ,Publ
icSect
orBanks
andNat i
onalHousi
ngBankf ort
hepurposeofoperati
ngaRegist
rati
onSy stem undertheprov
isi
onsof
ChapterIVoftheSecuri
ti
sat
ionandReconstr
uct
ionofFinanci
alAssetsandEnf orcementofSecuri
ty
Int
erestAct,
2002.(SARFAESIAct)
.

Ov
erv
iew
InI
ndia,beforethef ormati
onofCERSAI ,infor
mat ionont heencumbr anceonapr opertywasknownonl y
tot
hebor rowerandt hel
enderduet ofragment edr egistr
ati
onsy st
em.Asar esult,peoplecoul dobt ai
n
mult
ipleloansont hesamepr oper
ty.Somepeopl eusedt otakeonel oanfrom onebank, whichwoul d
hol
dthedeedpaper s.Thent heyusedtot akesev eralmor eloansfrom otherbanksusi ngat testedcopi es
oft
hedeed, byclai
mi ngthattheyhadlosttheor i
ginal s.Somepeopl ealsousedt oobt ainloansusi ng
[
1]
ent
ir
elyfaket it
ledeedsorbyusi ngcolourphotocopi esoft heorigi
nal t
it
ledeed.  
Proper t
ieswi thunpai d
l
oanswer eal sobeingsoldwi t
houtinf
or mingthebuy ersoftheexisti
ngl i
abil
i
tyont hepr operty.
Thedeci si
ontoform centralr
egist
ryofequit
ablemor t
gageswasr evealedi
nthe 2011budgetspeech  by
thenFinanceMinist
er PranabMukher j
ee.I
twasf or
medundert heChapt erI
V Securi
tisati
onand
Reconstructi
onofFinancialAssetsandEnforcementofSecurit
yI nter
estAct,2002 (
SARFAESIAct )
.Itwas
regi
steredasagov ernment -
li
censedcompany ,undertheSect
ion25oft he 
Compani esAct ,
1956.CERSAI
becomeoper ati
onalon31Mar ch2011.51%oft heequit
yisownedbyt hegovernment ,andtherestis
ownedequall
yby Nati
onalHousi
ngBank and10otherpubl
icsect
orbanks.ThethenChair
manofthe
Nati
onalHousi
ngbank, R.
V.Verma,ser
vedasthefi
rstacti
ngRegi
star
,Managingdirect
orandCEOof
CERSAI,
whileconti
nui
ngtoholdchargeattheNat
ionalHousi
ngBank.
MrA.K.Ral hanwasappointedasthefir
stful
l-t
imeRegistrar
,managi ngdirectorandChi
efExecut
ive
Offi
cerofCERSAIw. e.
f11Sept ember2015,andhehel dthischargeunt i
l31Mar ch2016whenher eached
themandat oryret
ir
ementage.TheUnionGov ernmenthasappoi ntedPraveenKumarShar maasthe
CentralRegist
rar(
CR),ManagingDir
ector(MD)andChi efExecut i
veOf f
icer(CEO)ofCent
ralRegi
stryof
Securit
isat
ionAssetReconstr
ucti
onandSecur ityI
nter
estofIndia( CERSAI)on8Nov ember2016for
3yeartenure.

Obj
ect
ivesandf
unct
ions:
CERSAI '
sini
ti
almandatewast omaint
ainacentralr
egist
ryofequit
ablemortgages,whereitcontai
ns
i
nf ormat
ionontheequitabl
emortgagetakenonapr oper
tyalongwithdet
ail
soft hefi
nanciali
nstit
uti
on
thathasextendedtheloanaswellasdetai
lsaboutt
hebor r
ower.CERSAIalsoall
owedl enderstoregi
ster
transact
ionsof 
secur
it
isati
on 
and 
assetreconst
ruct
ion.
TheCERSAIregi
str
yplatf
orm canbeaccessedonli
nebyfinanci
ali
nsti
tut
ionsandthegener
alpubl
i
cfora
fee.Howev
er,t
helatt
ercanonlyaccessi
nformat
ionrel
atedtoequit
ablemortgages.
Thisallowspr ospecti
v elenderstocheckt heregi
str
ytoensur ethatthepr opertyagainstwhi cht heyare
ext
endi ngal oant oabor rowerisnotencumber edbyapr e-exi
sti
ngsecur ityinter
estcr eatedbyanot her
l
ender .Evenifitis,withdet ai
l
softhepr evi
ousloanavail
abletot hem,theycanexami neifthev alueofthe
col
lateralissuffi
cientfort hem t
oextendanot herl
oan,gi
v entheexisti
ngl i
abi l
i
tyont hepr operty.Forthe
general publi
c,especiall
yf orhomebuy ers,i
tenabl
esthem t ocheckther egistry'
srecor dstoensur ethat
anypr opertytheyarepl anningtopurchase,isfr
eeofanyl oan/securi
tyinterestcreatedbyal ender.
CERSAI '
smandatewasext endedi
n2012t ostartr
egist
rat
ionofsecur
ityinterest
scr eatedthrough
[
4]
assi
gnmentof  
accountsrecei
vabl
es or 
factori
ng,t
hroughthepassageoft heFactoringAct ,2012.  
In
January2016,themandatewasext endedev enfur
thertoall
owtheCERSAIt ostartregi
st r
ati
onofsecuri
ty
i
nterestscr
eatedonmov ableandintangibl
eassetssuchasaccountsr eceivabl
es,bookdebt ,
and
hypothecat
ionaswellastostartr
egistr
at i
onofallot
hertypesofmortgagesusedi nIndia.
Accordi
ngt
othegover
nment'
sdir
ecti
ves,
financi
ali
nsti
tuti
onsmustr
egi
sterdet
ail
sofsecur
it
yint
erest
s
cr
eatedbyt
hem wi
thCERSAIwit
hin30daysofi t
screat
ion.

SARFAESIACT,
2002-Appl
i
cabi
l
ity
,Obj
ect
ives,
Process,
Document
ati
on
Thefinancialsect
orhasbeenoneoft hekeyhandl er
sinIndi
a’seffor
tstoachi
ev esuccessinrapi
dly
devel
opingi t
seconomy .Sinceourexisti
nglegalframeworkrelat
ingtocommer cialt
ransact
ionshasnot
keptpacewi ththechangingcommer cialpr
acticesandfi
nancialsectorr
efor
ms.Thi sensurestheslow
paceofr ecoveryofdef
aulti
ngloansandescal ati
nglevel
sofnonper f
ormingasset sofbanksandfinanci
al
i
nstit
uti
ons.
 
Narasimham Commi tt
eeIandI IandAndhy aruj
inaCommi t
teewasconst i
tut
edbytheCent r
alGover
nment
forthepurposeofexaminingbankingsectorreformshav econsideredtheneedf orchangesint
helegal
system i
nrespectoftheseareas.Amongstt heot hercommi t
tees,t
heseCommi t
teeshav emade
suggesti
onst ofor
m newlegisl
ationforsecurit
izati
onandempower ingbanksandf i
nanciali
nst
it
uti
onsto
gainpossessionofthesecuri
ti
esandt osellthem wi t
houtanyinter
v ent
ionofthecourthere.

Appl
i
cabi
l
ityOfSARFAESIAct
,2002

Theamendmentt othi
sActis“ anactt
oregulat
esecuri
ti
zationandreconst
ruct
ionoffinanci
alasset
sand
enforcementofsecuri
tyi
nterestandtoprov
ideforacentraldat
abaseofsecuri
tyint
erestscr
eatedon
propertyr
ight
s,andformattersconnect
edtherewi
thorincident
alt
hereto.
”
TheActdeal
swi
tht
hef
oll
owi
ng:

 Regi str ationandr egul at i

onofAssetReconst ruct i
onCompani es(ARCs)byt heReser veBankof
Indi a
 Faci litat ingsecur itizationoff i
nanci al assetsofbanksandf inanci al instit
utionswi thorwi thout
thebenef itofunder l
y i
ngsecur iti
es
 Pr omot ionofseaml esst ransf erabilityoff inanci alasset sbyt heARCt oacqui ref i
nanci alassets
ofbanksandf inanci alinst i
tutionst hrought hei ssuanceofdebent uresorbondsoranyot her
secur ityasadebent ure
 Ent rust ingt heAssetReconst ructionCompani est or aisef undsbyi ssueofsecur ity 
receiptst o
qual ifiedbuy er s
 Faci litat ingt her econst r
uct ionoff inanci alasset swhi char eacqui redwhi l
eexer cisingpower sof
enf or cementofsecur i
tiesorchangeofmanagementorot herpower swhi char eproposedt obe
conf er redont hebanksandf inanci al instit
ut i
ons
 Pr esent ationofanysecur it
izat i
oncompanyorassetr econst ructioncompanyr egisteredwi t
ht he
Reser veBankofI ndi aasapubl i
cf i
nanci al institution
 Def i
ni ng‘ secur it
yi nt erest ’t
obeanyt ypeofsecur ityi ncludi ngmor tgageandchangeon
i
mmov abl epr oper ti
esgi venf orduer epay mentofanyf inanci alassi stancegi venbyany  bankor
financi al institution
 Cl assi ficat ionoft hebor rower ’saccountasanon- per formi ngasseti naccor dancewi ththe
direct i
onsgi venorundergui del i
nesi ssuedbyt heReser veBankofI ndiaf rom t i
met otime
 Theof ficer saut hor izedwi llexer ciset her i
ghtsofasecur edcr editori n thi
sbehal finaccor dance
wi tht her ulesmadebyt heCent r
al Gov ernment
 Anappeal agai nstt heact i
onofanybankorf inanci al insti
t ut i
ont ot heconcer nedDebt sRecov er
y
Tr ibunal andasecondappeal totheAppel lateDebt sRecov er yTribunal
 TheCent ral Gov er nmentmaysetuporcauset obesetupaCent ral Regi stryfort hepur poseof
regi st rat i
onoft r
ansact i
onsr elatingt osecur i
tization, assetr econst ruct i
onandcr eationoft he
secur ityi nt erest
 Appl icat ionoft hepr oposedl egi slationi nit
iallyt obanksandf inancial instit
ut i
onsand
empower mentoft heCent r
al Gov er nmentt oext endt heappl icati
onoft hepr oposedl egisl
ationto
non- banki ngf i
nanci alcompani esandot herent it
ies
 Non- appl icationoft hepr oposedl egi sl at
iont osecur ityi nter est sinagr i
cultural l
ands, loansl ess
thanr upeesonel akhandcaseswher eei ght y
 percent ,oft hel oans, isr epaidbyt hebor rower

Obj
ect
ivesofSARFAESIAct
,2002

 Eff
icientorr
apidrecoveryofnon-perf
ormi
ngassets(NPAs)ofthebanksandFIs.
 All
owsbanksandf i
nanciali
nsti
tuti
onstoauct
ionproper
ti
es(say,commerci
al/
resi
dent
ial
)when
borrowerfai
ltorepaytheirl
oans.

For
mat
ionofSARFAESIAct
,2002
Secur
it
izat
ionandReconstr
ucti
onofFi
nanci
alAsset
sandEnf
orcementofSecur
it
yInt
erestAct
,
2002 
(SARFAESI)wascir
culat
ed–
i
.Tor
egul
atesecur
it
izat
ionandr
econst
ruct
ionoff
inanci
alasset
s
i
i
.Enf
orcementoft
hesecur
it
yint
erestf
or
i
i
i.Mat
ter
sconnect
edt
her
ewi
thori
nci
dent
alt
her
eto
I
text
endedt
othewhol
eofI
ndi
a.
Amendmenti
nthe(SARFAESI)Act,
2002vi
detheenf
orcementoftheSecur
it
yInt
erestandRecov
eryof
Debt
sLawsandMiscel
laneousProvi
si
ons(Amendment)Act
,2016.
TheEnf
orcementofSecuri
tyI
nterestandRecov
eryofDebtsLawsandMiscel
l
aneousPr
ovi
sional
i
nfor
mati
onintheOffi
cial
Gazette,s(Amendment)Act
,2016waspubli
shed
I
tisanActf
urt
hert
oamendf
ourl
aws:

1. Secur
iti
zati
onandReconstr
ucti
onofFinanci
alAssetsandEnforcementofSecuri
tyI
nter
estAct
,
2002(SARFAESI)
2. RecoveryofDebt
sduet oBanksandFinanci
alI
nsti
tuti
onsAct,1993(RDDBFI)
3. I
ndianStampAct,1899 
4. Deposit
ori
esAct,1996,
andformatter
sconnectedtherewi
thorinci
dental
theret
o.

BACKGROUND

Thepreviouslegi
slat
ionenactedforrecoveryoft
hedef aultl
oanswasRecov eryofDebtsduetoBanks
andFinanciali
nst
itut
ionsAct,1993.ThisActwaspassedaf tert
her ecommendat i
onsoftheNarsimham
Commi tt
ee–I ,wassubmi t
tedtothegov ernment.Thisacthadcr eatedthefor
umssuchasDebtRecov ery
Tri
bunalsandDebtRecov eryAppell
ateTribunal
sf orexpedit
iousadjudicat
ionofdisput
eswithregar
dto
everi
ncreasingnon-r
ecovereddues.

Howev er
,ther
ewer eseveral
loophol
esintheActandtheseloophol
esweremis-usedbythebor
rower
sas
wellasthelawyer
s.Thisledtothegover
nmentintr
ospecttheactandt
hisanothercommitt
eeunderMr.
Andhyaruj
inawasappointedtoexaminebankingsect
orrefor
msandconsiderati
ontochangesi
nthelegal
syst
em.

RI
GHTSOFBORROWERS

SARFAESIactwasabl et oprovi
det heef fecti
vemeasur estothesecuredcredi
torstorecov ert hei
rlong
standi
ngduesf r
om t heNon- perfor
mi ngasset s,yett
her i
ghtsoftheborrowerscouldnotbei gnored,and
havebeendulyincorpor atedinthelaw. Thebor r
owerscanatanyt i
mebef or
ethesalei sconcl uded,remit
theduesandav oidlosingt hesecurit
y;I
ncaseanyunheal thy/i
ll
egalacti
sdonebyt heAut hor i
sedOf fi
cer,
hewi l
lbeli
ableforpenal consequences; Thebor r
owerswi ll
beent i
tl
edtogetcompensat i
onf orsuch
acts;
Forredr
essingthegr i
evances,thebor rowerscanappr oachfir
stl
ytheDRTandt hereaftertheDRATi n
appeal.Theli
mitati
onper iodis45day sand30day srespectiv
ely.

TheDebtRecov
eryTr
ibunal
s
ATr
ibunal
shal
lconsi
stofoneper
sononl
ytobeappoi
ntedbyt
heCent
ral
Gov
ernment.

TheCentralGover
nmentmayauthori
zethePresi
dingOff
icerofoneTr
ibunal
todi
schar
geal
sot
he
funct
ionsofthePresi
dingOf
fi
cerofanot
herTri
bunal.

Apersonshal
lnotbequal
i
fiedf
orappoi
ntmentast
hePr
esi
dingOf
fi
cerofaTr
ibunal
unl
esshei
s,orhas
been,ori
squal
if
iedt
obe,aDist
ri
ctJudge.

Pr
ocedur
eofr
ecov
ery

Whereabankorafi
nancial
inst
it
uti
on,
whi
chhast
orecov
eri
tsdebtf
rom anyper
son,
hasf
il
edan
appl
i
cati
ontotheTr
ibunal

Tr
ibunal
wil
ldeci
de

I
ncaseofappeal:Whereanappeal
ispref
err
edbyanyper
sonfrom whom t
heamountofdebti
sduetoa
banksuchappeal
shall
notbeenter
tai
nedbytheAppel
l
ateTr
ibunalunl
esssuchper
sonhasdeposi
ted
 wi
tht
heAppell
ateTr
ibunal
sev
ent
y-f
ivepercentoft
heamountofdebtsoduef
rom hi
m asdet
ermi
nedby
t
heTr
ibunal
.

TheAppell
ateTri
bunalmay,f
orr
easonst
ober
ecor
dedi
nwr
it
ing,
wai
veorr
educet
heamountt
obe
deposi
tedundert
hissect
ion

Modesofr
ecov
eryofdebt
s

TheRecov
eryOff
icershall
onreceiptoft
hecopyoft
hecer
ti
fi
cat
epr
oceedt
orecov
ert
heamountofdebt
speci
fi
edi
nthecerti
fi
catebyf
ollowingmodes…..

(
a)at
tachmentandsal
eoft
hemov
abl
eori
mmov
abl
epr
oper
tyoft
hedef
endant

(
b) ar
restoft
hedef
endantandhi
sdet
ent
ioni
npr
ison

(
c)appoi
nti
ngar
ecei
verf
ort
hemanagementoft
hemov
abl
eori
mmov
abl
epr
oper
ti
esoft
hedef
endant
.

UNI
T3For
eignI
nvest
mentLaw
A)For
eignExchangeManagementAct1999
I
ntr
oduct
ionoft
heAct
TheForei
gnExchangeManagementAct
,1999(FEMA)hasbeeni
nfor
cef
rom 2000,
thusr
epl
aci
ngt
heol
d
For
eignExchangeRegul
ati
onAct(
FERA)1973.

Obj
ect
iveoft
heAct
Themai nobj ecti
veofFERAwasconser vati
onandpr operuti
lizati
onoft heforei
gnexchanger esourcesof
thecount r
y.Italsosoughttocontrolcertai
naspect softheconductofbusi nessout si
dethecount ryby
I
ndi ancompani esandi nIndi
abyf oreigncompani es.Whenabusi nessenterpri
seimpor t
sgoodsf r
om
othercountri
es, expor
tsit
sproduct
st ot hem ormakesi nvestment sabroad,itdeal
sinf or
eignexchange.
Foreignexchangemeans' for
eigncurrency'andi ncludesdeposi ts,credit
sandbal ancespay abl
ei nany
foreigncurr
encyandsecondl ydraf
ts,travel
ers,cheques,l et
tersofcr editorbil
lsofexchange,expressed
ordr awninIndiancurr
encybutpayableinanyf oreigncurrency .

Pur
poseoft
heAct
Thepr eambletoFEMAl aysdownt hepurposeoft heActistoconsoli
dateandamendt helawrelati
ngt o
forei
gnexchangewi ththeobject
iveoff aci
li
tati
ngexternaltr
adeandpay ment sandf orpromotingthe
orderl
y developmentand mai nt
enance off orei
gn exchange marketinI ndia.Rat i
onal
ef orst r
ict
regul
ationsunderFERA1973.Af t
erIndependenceI ndi
awasl eftwi
thli
tt
leforexr eser
vesanddur i
ngthe
oilCri
sisofsevent
iesbal
looni
ngoilimportbi
ll
sf urt
herdrai
nedforei
gnexchangereser v
es.

Broadly,t
heobj ect i
vesofFEMAar etof acil
it
ateexternaltradeandpay mentsandt opr omot et heorderl
y
developmentandmai nt
enanceoff orei
gnexchangemar ket.TheActhasassi gnedani mpor tantroleto
theReser v
eBankofI ndia( RBI)int headmi nist
rati
on ofFEMA.Ther ules,r egulationsand nor ms
pert
ainingt osev eralsecti
onsoft heActar elaiddownbyt heReser veBankofI ndia,inconsul tat
ionwith
theCent ralGov ernment .TheActr equir
est heCent ralGov ernmentt oappoi ntasmanyof ficersoft he
CentralGov er
nmentasAdj udicati
ngAut hori
tiesforholdingi nqui
ri
esper t
ainingt ocont raventionoft he
Act.Therei salsoapr ovi
sionf orappoi nti
ngoneormor eSpeci alDirect
ors( Appeal s)t ohearappeal s
againsttheor deroft heAdj udicat
ingaut horit
ies.TheCent ralGovernmental soest abl
ishesanAppel l
ate
Tri
bunalf orForeignExchanget ohearappeal sagainsttheor dersoftheAdj udicatingAut hor i
tiesandt he
SpecialDi r
ector( Appeals)
.TheFEMApr ovi
desf ortheest abli
shment,byt heCent ralGov ernment ,ofa
DirectorofEnforcementwithaDi r
ectorandsuchotheroff
icersorcl
assofof
fi
cer
sasi
tthi
nksf
itf
or
takingupforinvesti
gat
ionofthecontr
aventi
onsundert
hisAct.

Benef
it
soft
heAct
FERAwast ocont
rolevery
thi
ngthatwasspeci fi
ed,rel
ati
ngtof
orei
gnexchangewher easFEMAl aydown
that‘
everyt
hingot
herthanwhati sexpr
esslycov er
edisnotcontr
oll
ed'.Theover
ri
dingobject
iveofFERA
wast oregulat
eandmi ni
mizedeali
ngsinf orei
gnexchangeandf orei
gnsecuri
ti
eswhi l
eFEMAont he
otherhandaimstoaidincreat
ionofali
beralforei
gnexchangemarketinIndi
a.

Thisdi f
ferenceint erminologyr eflectsseriousnessofgov ernmentt owardsder egul
ati
on off or
eign
exchangeandpr omot i
onoff reeflow ofi nt
ernationaltr
ade.Tof aci
l
itat
eext er
naltradeisconcerned;
section5oft heActr emov esr estr
ictionsonwi thdrawalofforeignexchangef orthepurposeofcurrent
accounttransacti
ons.Asext er
naltradei .
e.impor t
s/expor tofgoods&ser vi
cesinvolvetr
ansacti
onson
currentaccount,ther
ei snoneedf orseeki ngRBIper mi
ssionsinconnect i
onwi thremitt
ancesinvol
ving
externalt
rade.

Thedi
ff
erencebet
weent
het
it
le,
FERAANDFEMAofl
egi
sl
ati
on
I
nv iew ofthi
schange,t heti
tl
eoft helegi
sl
ationhasr ight
lybeenchangedf r
om ‘Forei
gnExchange
Regulat
ionAct'to‘Forei
gnExchangeManagementAct '
.Themainchanget hathasbeenbr oughtisthat
FEMAi sacivi
llaw,wher east
heFERAwasacr i
mi nall
aw.Insimpleword,forcontrav
entionofprovi
sions
undertheFEMAar restandimpr i
sonmentwouldnotber esort
edwher easi twast henorm undert he
previ
ousact.Drasti
ct enorofFERAcanbegaugedf r
om thefactthatitprovidedforimprisonmentfor
vi
olati
onofevenv er
ymi norof
fenses.

FEMAi sappl
icabl
etoallpar
tsofIndi
a.Theacti sal
soappli
cabl
etoallbr
anches,officesandagencies
outsi
deIndi
aownedorcont rol
ledbyaper sonwhoi saresi
dentofIndi
a.TheFEMAhead- off
ice,al
so
knownasEnforcementDir
ect
oratei
ssit
uatedinNewDelhiandisheadedbyaDirector
.ForeignExchange
Actisveryi
mpor t
antf
orIndi
aforittobeapr opertr
adi
ngandkeepsahealthyrelati
onwi t
ht heoutsi
de
worldaswell
.

Concl
usi
on
FEMAper mitsonlyaut
horizedpersontodealinforei
gnexchangeorforei
gnsecuri
ty.Suchanauthorized
person,undert heAct,meansaut hori
zeddeal
er,moneychanger ,of
f-
shorebankingunitoranyot her
personf ortheti
mebei ngauthori
zedbyReser veBank.TheActthusprohibi
tsanypersonwhodeali nor
transferanyfor
eignexchangeorforeignsecuri
tytoanypersonnotbei
nganauthori
zedper son.Makeany
pay mentt oorf orthecreditofanyper sonresidentout
sideIndiai
nanymanner .Receiveotherwise
throughanaut hori
zedperson,anypay mentbyorderoronbehalfofanypersonresidentoutsi
deIndiain
anymanner .

Enterint
oanyf i
nancialtr
ansact
ioninIndiaasconsiderati
onfororinassoci
ati
onwi t
hacquisi
tionor
creat
ionortransferofarighttoacqui
re,anyassetoutsi
deIndi
abyanypersonisresi
denti
nIndiawhich
acquir
es,hold,own,possessortr
ansferanyfor
eignexchange,f
orei
gnsecur
it
yoranyimmovablepropert
y
si
tuatedoutsideIndi
a.

TheFor eignExchangeManagementAct ,
1999wasenact edtoconsoli
dateandamendt helawrel
ati
ngto
foreignexchangewi ththeobjecti
veoff aci
l
itati
ngext ernalt
radeandpay mentsandf orpromoti
ngthe
order l
ydev el
opmentandmai ntenanceoff oreignexchangemar ketinIndi
a. 
Infactitisthecentral
l
egi slat
iont hatdeal
swithinboundinvestment sintoIndiaandoutboundinvest
mentsfrom I
ndiaandtr
ade
andbusi nessbetweenIndi
aandt heot hercountries.

TheFEMApr
ovi
des:

● Fr
eetransact
ionsoncurr
entaccountsubj
ecttor
easonabl
erest
ri
cti
onst
hatmaybei
mposed
● RBIcontr
oloverCapi
tal
AccountTransact
ions
● Contr
oloverr
eali
zati
onofexportpr
oceeds
 ● Deal
ings in Foreign Exchange t
hrough Aut
hori
sed Person (
e.g Authori
sed Deal
er/Money
Changer/Off
-shoreBankingUnit)
● Adj
udicati
onofOf fences
● Appealprovi
sionsincludi
ngSpeci
alDirect
or(
Appeals)andAppel
l
ateTribunal
● Di
rector
ateofEnf orcement

HI
STORYOFFEMA,
1999

InthebackdropofacuteshortageofForei
gnExchangei nthecountry
,theForeignExchangeRegul at
ion
Actof1973( FERA)wasenacted.Thi
slegi
slati
onwaspassedbyt heIndianParl
iamentbyt hegovernment
ofIndir
aGandhibutitcameintofor
cewitheffectf
rom Januar
y1,1974.FERAhadacont rover
sial27year
sti
ntdur i
ngwhichmanybossesoft heIndianCorporateworl
df oundt hemselvesatthemer cyoft he
EnforcementDir
ector
ate.

FERA imposedst ri
ngentregulati
onsoncer tainki ndsofpay ment s.Itdealtinforeignexchangeand
securi
ti
esandt hetransact
ionswhi chhadani ndirectimpactont hef oreignexchangeandt hei mportand
exportofcurrency.Thepur poseoft heact ,interal i
a,wast o“r egulatecertai
npay ment s,deali
ngsin
for
eignexchangeandsecur i
ti
es,transactionsi ndirectl
yaf fect
ingf oreignexchangeandt heimpor tand
exportofcur
rency,fortheconservati
onoff orei
gnexchanger esour cesoft hecount
ry”.Itwasr epeal
edin
1999byt hegov er
nmentofAt alBihariVajpayeeandr eplacedbyt heFor ei
gnExchangeManagementAct ,
whichli
beral
i
zedf orei
gnexchangecont r
olsandr estri
ctionsonf oreigninv est
ment.

FEMAhadbecomet heneedoft hehoursi

nceFERAhadbecomei ncompat
iblewiththepr
o-l
iber
ali
sati
on
poli
cies ofthe Gov
ernmentofI ndi
a.Itbr oughta new managementr egi
me ofFor ei
gn Exchange
consist
entwitht
heemer gi
ngfr
amewor koftheWor l
dTradeOrgani
sati
on(WTO) .I
tisanot
hermattert
hat
theenactmentofFEMAal sobroughtwit
hitthePrevent
ionofMoneyLaunder i
ngAct2002,whichcame
i
ntoef f
ectfr
om 1July2005.

DI
FFERENCEBETWEENFEMAANDFERA

FEMA FERA

● Objectt
oconserveandpr
eventmi
suse ● Tofacil
i
tateext
ernal
tradeandpay
ments
● Viol
ati
on was Cri
minalOff
ence and was ● Viol
ati
on i s a civil off
ence and is
noncompoundable compoundable
● I
twasadr aconi
anpoli
cel
aw ● Iti
sacivil
law

   

GENERALOVERVI
EW OFTHEFEMAACT,
1999

FEMAcont ains7Chaptersdivi
dedint
o49sectionsofwhich12secti
onscoveroper
ati
onalpar
tandt
he
restcont
raventi
on,
penalt
ies,
adjudi
cat
ion,
appeals,
enf
orcementdi
rect
orat
e,et
c.

Asf arastransact i
onsonaccountoftradeingoodsandser v i
cesareconcerned,FEMAhasbyandl ar
ge
remov ed t
he r estr
icti
onsexceptfort he enabli
ng provi
sion forthe CentralGov er
nmentt oimpose
reasonablerest r
icti
onsinpublici
nterest.Thecapi talaccounttransact
ionswi llber egul
atedbyRBI
/CentralGovernmentf orwhi
chnecessarycircul
ars/noti
fi
cationswil
lhavetobei ssuedunderFEMA.
CHAPTERI–Pr
eli
minar
y(Sec1&2)

CHAPTERI
I-Regul
ati
onandManagementofFor
eignExchange(
Sec3–9)

CHAPTERI
II–Aut
hor
isedPer
son(
Sec10–12)

CHAPTERI
V–Cont
rav
ent
ionandPenal
ti
es(
Sec13-
15)

CHAPTERV–Adj
udi
cat
ionandAppeal
(Sec16-35)

CHAPTERVI–Di
rect
orat
eofEnf
orcement(
Sec36-
38)

CHAPTERVI
I-Mi
scel
l
aneous(
Sec39–49)

Besi
dest
heFEMA,
ther
ear
e5r
ulesand23r
egul
ati
onsundert
heActwhi
chhel
pini
mpl
ement
ati
onoft
he
Act.

AUTHORI
TIESANDENFORCEMENTMACHI
NERYUNDERFEMA

FEMAi nit
sel
fisnotanindependentandisol
atedlaw.Theprovi
sionsofFEMAarespreadatdif
fer
ent
placesandsoaret
hereregul
ator
ybodies.Reserv
eBankofIndia(RBI)makesr
egul
ati
onsforFEMAand
therul
esaremadebyCentral
Government.

ThoughRBIistheover
allcontrol
li
ngauthori
tyi
nrespectofFEMA,enforcementofFEMA hasbeen
ent
rust
edtoasepar
ate“
Direct
orateofEnf
orcement
”for
medf ort
hispur
pose.(
Secti
on36)

Aut
hor
it
iesgov
erni
ngt
heenf
orcementofFEMA:

● Forei
gnExchangeDepar tmentofReser veBankofIndi
a(RBI
)–  f
ema.rbi
.org.
in
● Dir
ectorate of Enf orcement , Depar t
ment of Rev enue, Mi nist
ry of Fi nance-
ht
  tp:
//directorat
eofenf orcement .gov
.in
● Capit
alMar kets Divi
si on,Depar tmentofEconomi c Affai
rs,Mi ni
stry ofFi ht
nance –  t
p://
fi
nmin.nic.i
n/ t
hemi ni
st ry/deptecoaffai
rs/
● Forei
gn Tr ade Div i
sion,Depar tment of Economic Aff
air
s,Mi nist
ry of Fi ht
nance –  t
p://
fi
nmin.nic.i
n/ t
heministry/deptecoaf f
airs/

Machi
ner
yresponsi
blef
orv
ari
ousaspect
sofFEMAi
s:

1. EnforcementDi rectorate–Toi nvesti

gat eprovisi
onsoft heAct,t heCentralGovernmenthave
establishedtheDi rectorat
eofEnf orcementwi thDirectorandot heroffi
cersasof f
icer
softhe
Enforcement .Itismai nlyconcernedwi t
ht heenf orcementoft heprovisionsoft heForei
gn
Exchange ManagementActt o preventl eakage off orei
gn exchange whi ch occursthr
ough
mal pr
act i
ces.Directorate has to det ectcases ofv i
olat
ion and also per f
orm substant
ial
adjudicatoryf
unctionst ocurbmalpractices.

TheEnforcementDir
ector
ateisanattachedoffi
ceoftheMi ni
str
yofFinance,Depart
mentofRevenue.
Pri
orto1stMay ,
1956,t
heresponsi
bil
i
tyforenfor
cementofexchangecont
rollawsunderFERA1947was
di
schargedbytheInv
esti
gati
onandEnforcementSect
ioni
ntheExchangeContr ol
Depar
tmentoft
heR.B.I
.

Thi
sDi r
ect
orat
eisundert headmini
str
ativ
econt roloftheDepartmentofRev
enueforoper at
ional
pur
poses;t
hepoli
cyaspectoftheActandi tsl
egislat
ionandit
samendmentsar
ehowev erwit
hinthe
pur
viewoft
heDepart
mentofEconomicAffai
rs.Thebackgroundofkeepi
ngt
hepol
i
cyaspectsr
elati
ngto
t
heActi
ntheDepar
tmentofEconomi
cAf
fai
rsi
sthat–

(
i)t
heDepart
mentofEconomicAf
fai
rsi
smorecloselyi
nvol
vedi
nthef
ormul
ati
onofpol
i
cyr
esponsesat
t
hemacrolev
elt
othechangi
ngeconomi
cscenar
io;and

(i
i)t
heDepar
tmentofEconomi
cAf
fai
rscoor
dinat
eswi
thRBIi
nrespectoft
radeandi
nvi
sibl
etr
ansact
ions
andbanki
ngaspect
softheAct
.

2. Adjudicat ing Aut horit

y– Theadj udicat i
ng aut hor i
tywi l
li ssueanot i
cet ot heper son who has
cont r
avened t he pr ov isions of t he For eign Exchange Management Act ,Rul es,Regul at
ions,
Not i
fi
cat i
onsoranydi rect i
onsi ssuedbyt heRBI .
3. SpecialDi rect or( Appeal s)–Anyper sonaggr iev edbyanor dermadebyt heAdj udicat i
ngAut hori
ty,
beinganAssi stantDi rect orofEnf or cementoraDeput yDirectorofEnf orcementcanpr ef eranappeal
totheSpeci al Director( Appeal s).
4. Appel l
ateTr ibunal–Anyper sonaggr ievedbyanor dermadebyt heAdj udicatingAut horit
y,orthe
Special Dir ect or(Appeal s)canpr eferanappeal t
ot heAppel l
ateTr i
bunal
5. ForeignExchangeDepar t
mentofRBI( Ear l
iertill31. 1.04,knownasExchangeCont r
olDepar tment)–
TheFor eignExchangeDepar t
mentoft heReser v eBankadmi nist
ersFor eignExchangeManagement
Act,1999,( FEMA)whi chhasr epl acedt heear lierAct,FERA,wi t
hef fectf r
om June1,2000.For
purchaseoff oreignexchangef ormostoft hecur rentaccountt ransact ion,wi thexcept i
onoft hose
l
istedi nSchedul eI I
It ot heGov er nmentofI ndiaNot i
ficati
onG. S.R.No381( E)dat edMay3,2000;no
permi ssionf rom t heReser veBanki sr equired.Ext ensi vepower sareav ail
abl etobanksaut hori
sedto
deali nf or eign exchange,known asaut horised deal ers.Asa r esul t
,f oreign exchangecan be
purchasedf orpr acticallyal ltr
ansact i
onswhi char eofcur rentaccountnat ure.
6. ForeignI nv est mentI mpl ement at i
onAut hority( FIIA)-Gov ernmentofI ndiahassetupt heFor ei
gn
InvestmentI mpl ement ationAut hor i
ty( FIIA)t ofaci l
itatequi ckt r
anslationofFor eignDi rectInvestment
(FDI)appr ov al sint oi mpl ement ation,t opr ov i
deapr o-activ
eonest opaf tercar eser vicet oforei
gn
i
nv estorsbyhel pingt hem obt ainnecessar yappr ov al
s,sor toutoper ationalpr oblemsandmeetwi t
h
variousGov er nmentagenci est of indsol uti
ont ot heirpr oblems.

REGULATI
ONANDMANAGEMENTOFFOREI
GNEXCHANGE

Forei
gnExchanger efer
stomoneydenomi nat
edint hecurr
encyofanothernati
onorgroupofnati
onsli
ke
Euro.For
eignexchangecanbecash,f undsav ai
lableoncredi
tcar
dsanddebi tcards,t
ravel
er’
schecks,
bankdeposits,orothershort
-t
erm cl
aims.Secti
on2( n)ofFEMAstatest hat“
for
eignexchange”means
for
eigncurr
encyandi ncl
udes,
-

(
i)deposi
ts,
credi
tsandbal
ancespay
abl
einanyf
orei
gncur
rency
,

(i
i
)draf
ts,t
ravel
erscheques,l
ett
ersofcr
edi
torbi
l
lsofexchange,expr
essedordr
awni
nIndi
ancur
rency
butpay
ableinanyfor
eigncurr
ency,

(i
i
i)draf
ts,t
ravel
erscheques,l
etter
sofcredi
torbi
l
lsofex
changedr
awnbybanks,
inst
it
uti
onsorper
sons
outsi
deIndi
a,butpayabl
einIndiancur
rency;

FEMApr
ohi
bit
s:

● Deali
ng in ortransferofForeign Exchange orForei
gn Secur
it
yt o anyperson othert
han
Authori
sedPerson
● Makeanypay mentot her
wisethroughanaut hori
zedpersont
oorf orthecr
editofanyperson
resi
dentoutsi
deIndiainanymanner
● recei
veotherwi
set hr
oughanaut hori
zedperson,anypay
mentbyorderoronbehalfofanyper
son
resi
dentoutsi
deIndiainanymanner .
 ● ent
erint
oanyfi
nanci
alt
ransacti
oni
nIndiaasconsiderati
onf
orori
nassoci
ati
onwi
thacqui
sit
ion
orcr
eati
onort
ransf
erofarightt
oacqui
re,anyassetoutsi
deI
ndi
abyanyperson

Mannerofr
ecei
pti
nFor
eignExchange

Pay
mentf
orExpor
tcanber
ecei
ved:

● i
nf orm ofDr af t
,cheque,f orei
gncur r
encynot es/ tr
av el
erschequeet c.providedt hef orei
gn
currencysor eceivedi ssurrenderedwithint hespecifiedt imeper i
od
● bydebi tto/ NREAccount
● Inrupeesf rom t hecr editcardservici
ngbanki nIndiawher epay mentismadev iacr editcard
● From ar upeeaccounthel dint henameofexchangehousewi thanaut horiseddeal erifthe
amountdoesnotexceedRs2l acs
● Inthef orm ofpr eciousmet al
s
● Paymentcanber eceivedincashf rom For eignTrav elersinIndiaifthesamef oreignexchangei s
dulysur r
ender ed
● RBIal soper mi tsof fsett
ingofexpor tpr oceedsagai nsti mportpay ablesetc.af terobt aini
ng
prescri
bedcer tif
icatef r
om CA/ CostAccount antinthisr egard
● Paymentshal lbemadei nacur rencyappr opriat
et ot hecount ryofshipmentofgoods
● DrawalofFor eignCur r
encymeansdr awalf rom anaut hori
sedpersonandi ncl udesopeni ngof
l
etterofcr edit,useofi nter
nationalcredi tcardet c.whi chhasanef f
ectofcr eatingf orei
gn
exchangel iabilit
y

Repat
ri
ati
onofFor
eignExchange

“
Repat
ri
atet
oIndi
a”meansbr
ingi
ngi
ntoI
ndi
ather
eal
i
zedf
orei
gnexchangeand-

● thesell
ingofsuchforei
gnexchanget
oanaut hor
izedper
soninIndi
ainexchangef orrupees,or
● theholdingofreal
izedamounti nanaccountwi t
hanauthori
zedpersoninI ndi
at ot heextent
noti
fi
edbyt heReserveBank,
● Iti
ncludesuseofther eal
i
zedamountfordischargeofadebtorli
abil
i
tydenomi natedinf or
eign
exchange

MannerofRepat
ri
ati
on 
-I
tcanbedonei
nthef
oll
owi
ngmanner
:

● Sel
li
ttoAuthorisedPer
soninIndi
ainexchangeforRupees
● Ret
aininanaccountwithanauthori
seddeal
er
● Useitf
ordischargeofadebtorli
abil
it
ydenominat
edinfor
eignexchangei
nthemannerspeci
fi
ed
byRBI

Sur
renderofFor
eignExchange

● AnyForei
gnExchangeear nedbyaper sonotherthanpersonresidentinIndi
anotusedf or
per
missi
blepur
posesshouldbesurrenderedwit
hin60daysofsuchacquisi
ti
on/purchase
● Howeveri
facqui
redforForei
gnTravelwithi
n90daysift
heexchangeisincurr
encyandcoinsand
180daysi
fiti
sintr
aveler
’schequeorifthesameisacqui
redbypersonresi
dentinI
ndia

Thesepr
ovi
sionsar
enotappl
i
cabl
etoFor
eignCur
renci
esofNepal
andBhut
an
TRANSACTI
ONSCOVEREDUNDERFEMA

Asstatedearli
eral
ltransact
ionsbet
weenaresi
dentandanon- r
esi
dentiscoveredi
nFEMA,t hese
tr
ansacti
oncanbebr oadlycl
assi
fi
edintwogr
oupscurr
entaccountt
ransact
ionsandcapi
talaccount
tr
ansacti
ons.

1. Cur
rentAccountTr
ansact
ions

Asper  Sec2( e)
 “
Capitalaccountt r
ansact
ion”meansat r
ansactionwhichal
terstheasset
sorl i
abi
li
ti
es,
i
ncludingcontingentli
abil
it
ies,outsi
deIndi
aofper sonsresidentinIndi
aorassetsorl
iabi
li
ti
esinIndi
aof
personsr esi
dentoutsi
deI ndia,andincl
udestransact
ionsreferr
edt oi Sec6(
n  3)
.Anypersonmaysel lor
draw foreignexchanget oorf rom anauthori
zedper sonifsuchsal eordrawalisacur rentaccount
tr
ansact i
on.

TheCent r
alGover
nmentmay,i
npubl i
cinter
estandinconsul
tat
ionwiththeReserveBank,i
mposesuch
reasonabl
erest
ri
cti
onsf
orcur
rentaccounttr
ansact
ionsasmayber equi
redfr
om ti
met oti
me.

Thedefini
ti
onisinclusi
veandanyexpendi
tur
ewhi
chi
snotacapi
talaccountt
ransact
ionwi
l
lbecur
rent
accounttr
ansact
ion.Iti
ncl
udes:

● paymentsdueinconnect i
onwi t
hf oreigntrade,ot
hercurr
entbusiness,ser
vices,andshor t
-t
erm
bankingandcr
editfaci
li
ti
esintheor dinar
ycour seofbusi
ness
● paymentsdueasinterestonloansandasneti ncomefrom i
nvestments
● remitt
ancesf
orli
vingexpensesofpar ents,spouseandchil
drenresi
dingabroad,and
● expensesinconnecti
onwi t
hf orei
gnt ravel
,educati
onandmedi calcareofpar ents,spouseand
chil
dren

Thef
oll
owi
ngt
ransact
ionsar
ether
efor
eregar
dedasCapi
tal
AccountTr
ansact
ion

(
a)Tr
ansf
erori
ssueofanyf
orei
gnsecur
it
ybyaper
sonr
esi
denti
nIndi
a;

(
b)Tr
ansf
erori
ssueofanysecur
it
ybyaper
sonr
esi
dentout
sideI
ndi
a;

(
c)Transf
erorissueofanysecur
it
yorf
orei
gnsecur
it
ybyanybr
anch,
off
iceoragencyi
nIndi
aofaper
son
r
esi
dentoutsi
deI ndi
a;

(
d)Anybor
rowi
ngorl
endi
ngi
nfor
eignexchangei
nwhat
everf
orm orbywhat
evernamecal
l
ed;

(
e)Anyborr
owingorl
endingi
nrupeesinwhat
everf
orm orbywhat
evernamecal
l
edbet
weenaper
son
r
esi
denti
nIndi
aandapersonr
esi
dentoutsi
deI
ndi
a;

(
f)Deposi
tsbet
weenper
sonsr
esi
denti
nIndi
aandper
sonsr
esi
dentout
sideI
ndi
a;

(
g)Expor
t,i
mpor
torhol
dingofcur
rencyorcur
rencynot
es;

(
h)Transf
erofimmov
abl
epr
oper
tyout
sideI
ndi
a,ot
hert
hanal
easenotexceedi
ngf
ivey
ear
s,byaper
son
r
esi
dentinIndi
a;

(i
)Acqui
sit
ionort
ransferofimmov
abl
epr
oper
tyi
nIndi
a,ot
hert
hanal
easenotexceedi
ngf
ivey
ear
s,bya
personr
esi
dentoutsi
deIndia;
(
j)Gi
vi
ngofaguar
ant
eeorsur
etyi
nrespectofanydebt
,obl
i
gat
ionorot
herl
i
abi
l
ityi
ncur
red,
-

(
i)Byaper
sonr
esi
denti
nIndi
aandowedt
oaper
sonr
esi
dentout
sideI
ndi
a;or

(
ii
)Byaper
sonr
esi
dentout
sideI
ndi
a.

Thought henormsofCapitalAccountTransacti
onshav
ebeenconsi der
abl
yr el
axed,asagener alrul
eall
capi
talaccountareprohi
bitedunlessspecif
ical
lyal
l
owed.Permissi
blecapit
alaccounttransacti
onsare
governedbytheForei
gnExchangeManagement( Permi
ssi
bleCapit
alAccountTransact
ions)Regulati
ons,
2000( Noti
fi
cat
ionFEMA1/ 2000-
RB) .

Rel
easeofExchangef
orTr
avel

 Thef
oll
owi
ngdonotr
equi
reanyappr
oval
from RBI
:

● UptoUSD10,
000orequivalenti
nonefinanci
alyearf
oroneormor epri
vat
ev i
sitsabr
oad(Nepal
andBhut
anbei
ngexempted)
● UptoUSD25,
000f
orbusinessv i
si
ts
● UptoUSD1,
00,
000forpersongoingtoabroadforempl
oyment
,educat
ion(year
ly)andformedi
cal
Treat
ment

Busi
nessandCommer
cial
Remi
tt
anceAbr
oad

● Forei
gnTechnologyAgreementsarepermi
tt
edexcepti
nHighPrior
it
yIndust
ri
es
● Paymentcanbemadeonl umpsum orRoy alt
ybasedonsalesorbyissueofEqui
tyShar
esaf
ter
deducti
ngTDS
● Therearenoli
mitat
ionsonroyalt
ypaymentandpaymentofTechni
calFees
● Nocollabor
ati
onpermitt
edinLotter
y,Gambli
ngetc.

Rest
ri
cti
onsonCur
rentAccountTr
ansact
ions

Thef
oll
owi
ngr
equi
respr
iorappr
oval
ofRBI
:

● Gif
tsandDonat i
onsaboveUSD5000
● CorporateDonat i
onabov e1% ofFor ei
gnExchangeEar ni
ngdur
ing3previ
ousyearsorUSD5
mil
lion,whicheveri
sless
● Commi ssiont oAgentsabroadf orsaleofresi
denti
al/
commerci
alpl
otsinIndi
aabove5% of
I
nwar dRemi tt
anceorUSD25000, whi
cheveri
shigher
● ConsultancyChargespaidabroadformorethanUSD1mi l
li
on
● Rei
mbur sementofPre-i
ncor
porati
onexpensesabove5%ofFDIorUSD1lacwhicheveri
shi
gher

1. Capi
tal
AccountTr
ansact
ions

Sect
ion2( j
)ofFEMAdef i
nes“capit
alaccountt ransact
ion”asat r
ansact
ionwhichal
ter
stheassetsor
l
iabi
li
ti
es,
includi
ngconti
ngentli
abil
it
ies,out
sideIndiaofpersonsr
esidenti
nIndi
aorasset
sorl
iabi
li
ti
esin
I
ndiaofpersonsresi
dentoutsi
deIndia,andi
ncludest r
ansacti
onsl
ike:

● Changesi nAsset
s/Liabi
li
ti
es
● Transfer/i
ssueofsecuri
ty
● Borrowing/Lendi
ng
 ● Export
,importorhol
dingofcur
rencyorcur
rencynot
es
● Givi
ngguarantee

Aspert heprov
isi
onslaiddowni nSection5,aper sonmaysel lordraw for
eignexchangef reelyforhis
currentaccounttransact
ions,exceptinaf ew caseswher el i
mitshavebeenpr escri
bedTheCent ral
Gov ernmenthasthepowert oregulat
ecurrentaccounttr
ansacti
ons.Unlessthetransacti
onisr estr
icted,
Foreignexchangecanbedr awnf orthesame.Cur r
entAccounttransact
ionsaregov er
nedbyt heFor ei
gn
ExchangeManagement( CurrentAccountTransacti
ons)Rules,2000(Notifi
cati
onNo. GSR.381(E),dated
03/05/ 2000)
.

WhocanmakeFDI
?

● PersonResidentoutsi
deIndiaexceptf
orPakistan
● Enti
tyi
ncorporatedoutsi
deexceptPakistan&Bangladesh
● PersonResidentofBangl adesh&ent i
ti
esincorporat
edt her
ecanmakei
nvest
menti
nIndi
ain
for
m ofsharesandconv erti
bleDebent
ureswithpri
orapprovalofRBI

RBIhasgr ant edgener alper

mi ssionunderFor ei
gnExchangeManagementAct( FEMA)i nrespectof
proposalsappr ovedbyt heGov ernment.I
ndi ancompaniesget ti
ngf oreigninv estmentappr ov
alt hrough
FIPBroutedonotr equireanyfurthercl
earancef r
om RBIforthepur poseofr eceivinginwardremi t
tance
andissueofshar est othefor
eigni nv
est
ors.
Thecompani esar ehowev errequiredtonotifytheconcernedRegi onalof fi
ceoft heRBIaboutr eceiptof
i
nwar dremit
t anceswi t
hin30day sofsuchr eceiptandtofiletherequireddocument swi t
htheconcer ned
Regionalof
ficesoft heRBIwithin30day safterissueofsharestothef oreigninv estorsorNRIs.
[12]

I
ndust
ri
alPol
i
cyt
owar
dsFor
eignI
nvest
ment

 FDIi
nshar
esi
sper
mit
ted100%i
nal
li
ndust
ri
esexceptt
hef
oll
owi
ng:

● Proposal srequiringI ndustrial License

● Investmentexceedi ng24%i nnSSIr eservedi t
ems
● Investmenti nDef ensesect orupt o26%
● Foreigncol l
abor atorhav ingpr evioust i
eup
● Acqui sitioninshar esofexi stingCompany
● Prohibi tedSect ors–Pr ohibitedSect orsinclude
● RetailTr ading( exceptsi nglebr andr etai
li
ng)
● Atomi cEner gy
● LotteryBusi ness
● Gambl ingBet ti
nget c.
● Activi
t y/ sectornotopenedf orpr iv
at esectorinv
est
ment
● Agricult ureexceptf ewpr escr i
bed
● Plantat i
onexceptt eaplantat ion
● Real Est ateBusi nessexceptf ewpr escri
bed
● Manuf act ur
eofCi gars,cigar etteset c.

Activ
iti
esr equir
ingGover
nmentAppr oval
 –Acti
vi
ti
est hatr
equi
regovernmentapprovali
ncl
udePetrol
eum
Sector,Investi
ngCompaniesinI nfrast
ruct
ureandServ i
ceSect
or,Defense&St r
ategi
cIndust
ri
es,Atomi
c
Minerals,Pr i
ntMedia,Broadcasting,PostalServ
ices,Couri
erServi
ces, Est
abli
shment& operati
onof
Satel
li
te, DevelopmentofInt
egratedTownship.
The Reserve Bank ofI ndi
a( RBI
)has r ecently come outwi t
h notif
icat
ions undert he FEMA t o
oper
ati
onalisef orei
gndi rectinvestment( FDI)policyinmul ti
-brandretail
i
ng, 
telecom 
andot hers.Ithas
al
sowi denedt hedef ini
tionoft het er
m‘ cont
rol’undert heActwhi chwoul dhav er epercussionson
downstr
eam i nvestmentbyanent i
tycontroll
edbyf or
eigners.Thegov ernmenthadr el
axednor msf or51
percent multi-
brand retail
 t
rading and eased t he mandat ory30 percentl ocalsour ci
ng nor msf or
companies.
 Thecapi ntelecom wasi ncreasedt o100percentf rom 74percent .FDIofupt o49percent
cancomet hrought heaut omat i
croute.

CONCLUSI
ON

TheIndi
anforei
gnexchangemar kethasoperatedinaliberal
isedenvir
onmentformorethanadecade.A
cauti
ousandwell-
cal i
brat
edappr
oachwasf ollowedwhi l
el i
beral
i
singthefor
eignexchangemarketwit
h
anemphasisont heneedt osafeguar
dagai nstpotenti
alf i
nanciali
nst
abil
i
tythatcouldari
seduet o
excessi
vespecul
ation.

Besides, wit
htheIndianeconomymov ingt
owardsfurt
hercapi
talaccountl
iber
ali
sati
on,t
hedevel
opment
ofawel l-
int
egrat
edf or
eignexchangemarketalsobecomesimpor t
antasitisthroughthi
smarketthat
cross-borderfi
nanci
alinfl
owsandout f
lowsarechannel
ledt
oot hermarket
s.Replaci
ngofFERA,1973by
FEMA, 1999helpedremov i
ngthefl
awsandov er
comingthehur
dlesposedbyi t
.

B)For
eignTr
adeandDev
elopmentAct,
1992
I
mpor tsandexpor t
sar econsideredt obet woimportantcomponentsofforei
gntrade.For ei
gntrade
refer
stonot hi
ngbutt heexchangeoft hegoodsandser vi
cesbetweentwoormorecountri
es, acr
ossthei
r
respecti
veinternat
ionalbor
ders.Thef ormerimpli
esthephy si
calmovementofthegoodsi ntoacount r
y
from anothercountryfol
l
owingal egalmanner.Thelat
terisconcer
nedwitht
hephysi
calmov ementofthe
goodsandser v
icesoutofthecount ryinalegalmanner.Thus,bot
htheimpor
tandexporthav emadet he
wor l
dalocal market.
Thef orei
gnpol i
cyofI ndi
aisgov ernedandr egulat
edbytheFor eignTrade(Dev el
opmentandRegul ation)
Act,1992.Thi sActwasest abli
shedont he7th 
ofAugustinthey ear1992.TheActhasn’ tbeenorigi
nat ed
asasepar at
eactt oregul
atet hef orei
gnpolicy,butt
hesamecamei nt
oexistenceasar epl
acementt ot he
Impor tandExpor t
s( Cont
rol)Act ,1947.Thisacthaseliminat
edal ltheexi
sti
ngnuancesoft hepreviously
i
ntroducedactandhasgi vent heGov ernmentofI ndi
asomeoft hemostenor mouspower stocont rolit
.
Thisacti sconsideredtobeasupr emel egi
slat
ioninaccomplishmentoft heforei
gntradetakingplacei n
thecount r
y .
The Acthas been i
ncor
porated wi
th a majorint
enti
on to pr
ovide a pr
operf r
amework as t
othe
devel
opmentaswel lasstandardi
zati
onoft heforei
gntradebyt hewayoff aci
li
tat
ingi
mportsand
enhanci
ngtheexpor
tsint
hecountryandal
ltheothermatt
ersrel
atedtothesame.

Thef
oll
owi
ngar
econsi
der
edt
obet
hesal
i
entf
eat
uresoft
heact
:
Theacthasempower edt heCent
ralGovernmentt omakeprovi
sionsf ort
hedevel
opmentaswellas
regul
ati
onoffor
eignt
radebythewayoff aci
li
tat
ingimport
sint
oaswel lasaugment
ingexpor
tsf
rom t
he
countr
yandinal
ltheothermat
ter
srelat
edtoforeigntr
ade.
Thisactauthori
zesthegover
nmenttoformul
ateaswellasannouncet
heexpor
tandimpor
tpoli
cyandto
al
sokeepamendi ngthesameonat i
melybasi
s.Thegovernmenthasal
sobeengivenawidepowerto
prohi
bit
,restr
ictandregul
atetheexport
sandimportsingeneralaswel
lasspeci
fi
edcasesofforei
gn
tr
ade.
Theactpr
ovi
desforcert
ainappoint
mentsespeci
all
ythatoft
heDirect
or-
Gener
alt
oadv
iset
heCent
ral
Gover
nmenti
nfor
mulati
ngimportandexpor
tpoli
cyandtoimpl
ementthesame.
Theactcommandsev eryi
mport
eraswellasexport
ert
oobtai
nacodenumbercal
l
edt
he‘
I
mpor
ter
Expor
terCodeNumber(I
EC)
’fr
om t
heDi
rect
or-
Gener
alort
heaut
hori
zedof
fi
cer
.
Theactpr
ovidesthebal
anci
ngofallthebudget
aryt
arget
sint
ermsofi
mpor
tsandexpor
tssot
hatt
he
nat
ionr
eachesthever
ypeakofeconomicdevel
opment
.
Theprincipalobj
ect
ivesher
ei ncl
udethefaci
li
tat
ionofsust aingrowt
hast otheexpor tsofthecount
ry,t
he
di
stri
butionofquali
tygoodsandser vi
cestothedomest icconsumeratinternat i
onall
ycompet i
ti
vepr
ices,
sti
mulati
onofsust ainedeconomi cgrowthbypr ovidingaccesst oessent ialraw mat er
ial
saswel las
enhancementoft echnol
ogicalstr
engthandef f
ici
encyofI ndi
anagricul
ture,industryaswellasservi
ces
andimpr ovementofthei
rcompet i
ti
venesstomeetall kindsofrequi
rementoft heglobalmarkets

SEC-
5:For
eignTr
adePol
i
cy
Pr esent ly
, theFor eignTr adePol icyofourcount r
yi si nitssixthinst almentoft hef iv e-yearpol i
cyt hatwas
ear li
eri nt
r oducedi nt hey ear1992byt heGov er nmentofI ndia.Thenewf oreignt radepol i
cyoft hecount r
y
wasannouncedont he1st  ofApr il,2015byt heGov ernmentofI ndia, Mi nistryofCommer ceandI ndustry.
Thi scur r
entf oreignt radepol icyext endsf ort heper iod2015- 2020.Themaj orai m oft hecur rentf or
eign
tradepol icyintroducedi nt hecount r
yisnot hingbutt hedev elopmentofexpor tpot ential,impr ov ementof
expor tper formance,encour agementoff or eignt radeaswel last hecr eat i
onoff av orablebal anceoft he
posi tionoft hepay ment .Thi spol icy,alsoknownast heExpor tI mpor tPol icy( EXI M Pol icy)i supdat ed
ev eryy earont hel astdayofMar chandal lthenewi mpr ovement s,modi fi
cationsaswel lasschemesso
updat edbecomeef fect i
v ef rom t hef irstdayofApr ileachy ear .Thecur rentf or ei
gnt radepol i
cyso
i
nt roducedi nthecount r
yhasl aiddowncer tainai msandobj ecti
v esbef oreit.Themaj orobj ectivesthat
thecur rentf oreigntradepol i
cyofourcount ryhasl aiddownar estat edasunder :Thesi mpl ificationaswel l
asmer gerofal lki
ndsofr ewar dsschemesi ncl udingt heMer chandi seExpor t
sf rom I ndiaScheme( MEIS),
Ser viceExpor tsf r
om I ndi aScheme( SEIS) ,incent ivest obemadeav ailablei nt heseschemesf orallthe
Speci alEconomi cZones, dut ycr editslipst obef reel yt r
ansferableanduseabl ef ort hepay mentofv ar
ious
dut yandmanyot her s.Speci alboosthasbeengi vent o‘ Makei nI ndia’pol icyt hathasbeenl aunchedby
thegov ernmentt oencour agenat ionalaswel lasmul tinati
onalcompani est omanuf acturet hei rproducts
i
nI ndia.Thet r
adef aci l
itationandeasei nt ermsoft heper f
ormanceofl egalbusi nessofal ltheki nds.The
i
nt roduct ionofv ari
ousot heri nit
iat i
vesi nv olvingnewschemest hatcoul druni nt andem wi tht hegr owing
needsandwant soft hepeopl eatl ar geandt hei ncr easi nguseoft echnol ogyaswel lasdi gitali
zationinto
thesei nit
iativessoast or eacht hesummi toft echni cal advancement .
I
mpor
tanceofFor
eignTr
adePol
i
cy
Forei
gnTr adepol i
cyofanycountryisequal l
yimpor tantforthef r
eef l
ow ofeconomyandt heov eral
l
economicdev elopmentofthecountry
.Wi t
houtapr operf orei
gnt r
adepoli
cy,anycountr
ywoul dfailto
executeitsimpor taswellasexportbusinesssmoot hly.Ifthereexist
snopr operfor
eignpoli
cyi na
countr
y,theentireimpor
t-
expor
tandinter
nationalbusinessoft hecountrywi
llf
all
downmi ser
ablyandt he
samewi l
l sur
elymeetadeadend.Af orei
gntradepolicyofanycount r
yensur
esaf reef
lowofbusinessas
wellaseconomywhi l
etr
ansact
ingortr
adingonani nter nat
ionalscal
e.
Thesamepol i
cyhelpstomaintai
nt hef
reef
low ofeconomyoft
hecount
ry,t
her
ebyaccelerat
ingthe
fi
nanci
algrowt
h,faci
li
tat
ingafr
eet r
adeandl
iber
ali
zat
ionaswel
lasi
mprovi
ngtheover
allstandardof
l
ivi
ngofit
speople.
Sec6.Appoi
ntmentofDi
rect
orGener
alandhi
sfunct
ions
7.I
mpor
ter
-expor
terCodeNumber
8.Suspensi
onandcancel
l
ati
onofI
mpor
ter
-expor
terCodeNumber
.
9.I
ssue,
suspensi
onandcancel
l
ati
onofl
i
cence.
9A.PowerofCent
ral
Gov
ernmentt
oimposequant
it
ati
ver
est
ri
cti
ons
Ift
heCentralGovernment,afterconductingsuchenqui
ryasitdeemsf i
t,i
ssati
sfi
edthatanygoodsar
e
i
mportedintoIndiainsuchi ncreasedquantit
iesandundersuchconditi
onsast ocauseorthr
eatent
o
causeseri
ousi nj
urytodomest i
ci ndust
ry,i
tmay ,bynoti
fi
cat
ionintheOf f
ici
alGazett
e,i
mposesuch
quant
it
ati
verestri
cti
onsont heimpor tofsuchgoodsasitmaydeem fi
t:
13.Adj
udi
cat
ingAut
hor
it
y
Anypenal tymaybeimposedoranyconf
iscati
onmaybeadj udgedunderthi
sActbytheDir
ect
orGener
al
or,subjecttosuchl
imi
t sasmaybespecifi
ed,bysuchotheroffi
cerastheCent
ralGover
nmentmay,by
noti
ficati
onintheOf
fi
cialGazet
te,
aut
hor
iseinthi
sbehal
f.
14C.Cat
ch-
all
cont
rol
s
Noper sonshallexportanymat eri
al,equi
pmentort echnologyknowingsuchmat er
ial
,equipmentor
technologyi
sint
endedtobeusedi nthedesignormanuf actur
eofabiol
ogicalweapon,chemicalweapon,
nuclearweaponorothernucl
earexplosi
vedevi
ce,ori
nt heirmissi
l
edeli
ver
ysy st
ems.
14D.Suspensi
onorcancel
l
ati
onofal
i
cence
TheDi r
ectorGeneraloranof f
icerauthori
sedbyhim may ,
byor der,
suspendorcancelalicencetoimport
orexpor tofspecified goodsorser vi
cesortechnologywi thoutgivi
ng theholderoft heli
cencea
reasonableopport
unityofbeinghear dbutsuchpersonshallbegi venareasonabl
eoppor tuni
tyofbeing
heardwi t
hinsixmont hsofsuchor derandther
eupont heDirectorGeneralortheoff
icersoaut hori
sed
may ,i
fnecessary
,byor deri
nwr it
ing,conf
ir
m,modifyorrevokesuchor der
15.Appeal
1)Anypersonaggr
ievedbyanydecisionorordermadebyt heAdj
udi
cat
ingAut
hor
it
yunderthi
sActmay
pref
eranappeal
,—(a)wherethedecisionororderhasbeenmadebytheDir
ect
orGener
al,t
otheCent
ral
Government;
(b)wherethedecisi
onoror
derhasbeenmadebyanof f
icersubor
dinat
etotheDirect
orGener
al,t
othe
Dir
ectorGeneralort
oanyof
fi
cersuper
iort
otheAdj
udi
cat
ingAuthor
it
yauthor
isedbytheDi
rect
orGeneral
toheartheappeal,
wi
thi
naper
iodoff
ort
y-f
iveday
sfr
om t
hedat
eonwhi
cht
hedeci
sionoror
deri
sser
vedonsuchper
son:
17.Power
sofAdj
udi
cat
ingandot
herAut
hor
it
ies
Everyauthori
tymaki
nganyadj
udicat
ionorheari
nganyappealorexer
cisinganypowersunderthi
sAct
shal
lhaveallt
hepowersofaci
vi
lcourtundert
heCodeofCi
vilPr
ocedur
e, 1908(5of1908)
,whil
etry
inga
sui
t,i
nrespectoft
hefol
lowi
ngmatter
s,namely
:—
(
a)summoni
ngandenf
orci
ngt
heat
tendanceofwi
tnesses;
(
b)r
equi
ri
ngt
hedi
scov
eryandpr
oduct
ionofanydocument
;
(
c)r
equi
sit
ioni
nganypubl
i
crecor
dorcopyt
her
eoff
rom anycour
torof
fi
ce;
(
d)r
ecei
vi
ngev
idenceonaf
fi
dav
its;
and
(
e)i
ssui
ngcommi
ssi
onsf
ort
heexami
nat
ionofwi
tnessesordocument
s.
19.Powert
omaker
ules
TheCent
ral
Gov
ernmentmaker
ulesf
orcar
ryi
ngoutt
hepr
ovi
sionsoft
hisAct
.
(
a)t
hemanneri
nwhi
chandt
hecondi
ti
onssubj
ectt
owhi
chaspeci
all
i
cencemaybei
ssued
(
b)theexcept
ionssubj
ectt
owhi
chandt
heper
sonorcl
assofper
sonsi
nrespectofwhom f
eesmaybe
l
evi
ed
(
c)theclassorclassesofgoods(i
ncludi
ngthegoodsconnect
edwi t
hserviceort
echnol
ogy
)forwhi
cha
l
i
cence,cert
if
icat
e,scri
poranyinst
rumentbest
owingfi
nanci
alorf
iscalbenefi
tsmaybe.
d)thef
orminwhichandt
het
erms,condi
tionsandrestr
ict
ionssubj
ectt
owhi
ch(
li
cence,
cer
ti
fi
cat
e,scr
ip
oranyi
nst
rumentbest
owi
ngf
inanci
alorf
iscalbenef
it
s]maybegr ant
ed
(
e)t hecondi
ti
onssubj
ectt
owhi chali
cence,cer
ti
fi
cat
e,scr
iporanyi
nst
rumentbest
owi
ngf
inanci
alor
f
iscalbenef
it
smaybesuspendedorcancel
l
ed
TheFor
eignTr
adePol
i
cy(
FTP)2015-
20
TheFor
eignTr
adePol
i
cy(
FTP)2015-
20wasunv
eil
edbyMsNi
rmal
aSi
thar
aman,Mi
nist
erofSt
atef
or
Commer
ce&Indust
ry(
IndependentChar
ge)
,Gov
ernmentofI
ndi
aonApr
il1,2015.Fol
l
owi
ngar
ethe
hi
ghl
i
ght
soft
heFTP:
FTP2015-
20prov
idesaframewor
kfori
ncr
easi
ngexport
sofgoodsandser
vicesaswellasgener
ati
onof
empl
oymentandi
ncreasi
ngval
ueaddi
ti
oni
nthecount
ry,i
nli
newit
hthe‘
Makei nI
ndi
a’progr
amme.
ThePoli
cyaimstoenableIndiat
or espondtothechall
engesoft
heext
ernalenv
ironment,keepi
ngi
nst
ep
wit
har apidl
yevolv
inginternat
ionaltradi
ngarchi
tectur
eandmaket radeamaj orcontri
but
ortot
he
count
ry’
seconomicgrowthanddev el
opment .
FTP2015-20int
roducest
wonewschemes,namely‘
Merchandi
seExport
sfrom I
ndi
aScheme(
MEI
S)’f
or
exportofspeci
fi
edgoodst ospecif
iedmar
ket
sand‘Servi
cesExport
sf r
om Indi
aScheme(
SEI
S)’f
or
i
ncreasi
ngexport
sofnoti
fi
edser
vices.
Measur
eshav
ebeent
akent
ogi
veaboostt
oexpor
tsofdef
enseandhi
-t
echi
tems.
E- Commer ceexportsofhandloom products,books/periodi
cals,leatherf ootwear,toysandcust omi sed
fashiongarmentsthroughcour i
erorforeignpostofficewoul dal sobeabl et ogetbenef i
tofMEI S( f
or
valuesuptoINR25, 000)
.Manuf actur
ers,whoar eal
sost atusholder s,will
nowbeabl etosel f-cert
if
yt heir
manuf act
uredgoodsi nphases,asor i
ginat
ingfrom I ndiawi t
hav iew t o qual
ifyi
ngf orpr ef
erential
treatmentunderv ari
ousf ormsofbi l
ateralandr egionaltradeagr eement s.Thi s‘Approv edExpor t
er
Sy st
em’willhel
pmanuf actur
erexport
ersconsiderablyinget t
ingf astaccesst ointer
nationalmar kets.
Oneoft hemajorobjecti
veofnewFTPi stomov etowar dspaperlesswor ki
ngi n24x7env i
ronment .

C)JOI
NTVENTURE/FOREI
GNCOLLABORATI
ONSCERTAI
NISSUES
Withtheli
beral
izati
onofI ndianEconomy ,numberofJoi ntventuresandForeigncoll
abor
ations wer e
enter
edint
odur inglastfif
teenyears.LookingatthepotentialintheIndi
aEconomyandoppor t
uniti
es
avail
abl
etof or
ei gncompani esandI nvest
orstojoi
nhandswi t
hI ndi
ans,i
twoul dbeappr opriateto
underst
andthev ari
ousissuesinvol
vedin JV/FCagreement sfrom thepoi
ntofviewoftheprovisionsof
thecompani
esAct1956.Thi sart
icl
eisanattemptt
ocov ersomeoft hesal
i
entaspect
softhesubj ect.

AJoi ntVentureisanAssociati
onoftwoormor eindiv
idual
sorbusi
nessent
it
ieswhocombineandpool
thei
rr espect
iveexper
ti
se,r
esources,
ski
ll
s,exper
ience,cr
edent
ial
sandknowl
edgeint
hefur
theranceofa
part
icularproj
ectorunder
taking.

Joi
ntVent ur
e/For eignColl
abor
ati
onagreementscommonl yreferr
edtoas“ JVA”or“FCA”aret
ypicall
y
si
gnedeitherbyindivi
duals,
busi
nessenti
ti
es,
corporat
ionsorpartner
shi
ps.TheJointVent
uresar
eei t
her
i
nt heform offinancialJVsorTechni
calJVsoracombi nat
ionofboth.Int hi
sart
icl
eforthesakeof
si
mplici
tythejoi
ntVent ur
eandorForei
gnColl
aborat
ionbothhavebeenrefer
redtoasJV.

Part
iest
ot heJVacqui r
esuchrightsasmayber ecogni
zedunderthelawsoft hehostcount
ryaswellas
anycont
ract ualr
ight
sari
singoutofagreement
sbet weenthepart
ies.JVAgreementsisanagreementin
per
petui
ty.Itlast
ssolongasparti
estotheJVcontinuetobeinthebusiness.

Terms,condi
ti
ons,mutualright
s,duties/obl
i
gati
onsand covenantsoftheunderst
andi
ng/associ
ati
on 
aredocumentedi nanagr eementcal l
edJoi
ntVentur
eAgr eement(JVA)orShar ehol
der
s’Agr
eement.
Mutualco-
operat
ion,t
rustandconfidencebet
weenthepart
nersisthefoundat
ionofaJV.

TheEqui tyJointVentureisanarrangement TheCont r

actualJointVent
uremi ghtbeusedwher e
wherebyasepar atelegalenti
tyi
screatedin theestabl
ishmentofasepar at
el egalenti
tyisnot
accordance withthe agreementoft wo or neededorthecr eat
ionofsuchasepar at
elegalent
it
y
morepar t
ies. i
snotfeasibl
e.

Thepar
ti
esunder
taket
o pr
ovi
demoneyor Thi
s agr
eementcan be ent
ered i
ntoi
n si
tuat
ions
otherresourcesast hei
rcont
ribut
iontothe wherethe proj
ecti
nvolv
es a tempor
aryt
ask ora
assetsorothercapi
taloft
hatl
egalent
it
y. l
imit
edact
ivit
yorisf
orli
mitedt
erm.

 
Part
ies t
o JV Agr
eementagree on var
ious t
erms and condi
ti
ons such as pr
opor
ti
on ofcapi
tal
cont
ri
buti
on,
managementoper
ati
on,dur
ati
onandt er
minat
ion.

Wher eoneormor elegalmet hodsar eusedint heest abli

shmentofthejoi
ntventurecompanyt ocarryout
i
tsoper ati
onsisbasedont henegot iati
onsbet weent hepar ti
es,t
heresult
sofwhi chr ef
lectinthej oi
nt
ventureagreementent eredi ntobet weent hepar ties.Thel i
censi
ngagreement ,know how agr eement ,
technicalservi
ces ort echni calassistance agreement ,royal
typayment,f ranchise agreementand
agreementcov eri
ngallot hercommer ci
almat ter
si ncludinguseofint
ell
ectualpropert
yr i
ghtsnor mally
 
form annexes oratt
achment st othemai nJVAgr eement .Theycanbesignedsimultaneouslyorafterthe
j
ointventureCompanyi sest ablished.

Tr
ansnat
ionalandMul
ti
nat
ional
Cor
por
ati
ons

ATr ans-Nati
onalCor
por ati
on(TNC)orMul ti
-Nat
ionalCor
porati
onMNCi sabusi nessthatisbasedor
regi
steredinonecountrybuthasoutl
ets/af
fil
i
atesordoesbusinessinothercount
ri
es.
Globali
sati
oni soneoft hemajorreasonsforthegrowthinTNCs.Anumberofbusi nessesi
norderto
growanddev el
ophavehadt ot
akeonagl obalorinter
nat
ionalperspect
ive.I
nadditi
on,TNCshavealso
causedf ur
thergl
obal
isation–atwowaypr ocess.

ManyTNCsar ebasedinmoreeconomical
l
ydev el
opedcount
ri
essuchastheUKandUSA,wit
hForei
gn
Dir
ectI
nvestmentcomingf
rom si
mil
arcountri
es.However
,anincr
easi
ngnumberofTNCsar
ebasedin
LDCs,f
orexampleIndi
a’
sTataorChi
na’
sAlibaba.

Ther
ear
eanumberofr
easonswhyaTNCmi
ghtwantt
osetupi
nacount
ry.

These i
ncl
ude:cheap labour,cheap r
aw mat eri
als,good t
ranspor
tati
on l
inks,a busi
ness f
ri
endl
y
gover
nment(oneswhichadoptpolici
eswhichencouragebusi
nessdevelopandgrowt
hsuchasl owrat
es
ofcor
porat
iontax)
,expl
oit
ableproper
tyr
ightsandsoon.

ThereareanumberofexamplesofTNCswhichinst
antlyrecogni
sable.McDonal
dshasapresencein
over119count
rieswit
happroxi
matel
y30,000rest
aurants.Li
kewiset her
eareover21,
000Star
bucks
outl
etswor
ldwi
de(2014fi
gur
es)oper
ati
ngi
nover60dif
ferentcount
ries.

Thet
abl
ebel
owshowt
het
op10TNCsasdef
inedbyt
hei
rgl
obal
,wor
ldwi
deasset
s(sour
ce:
UNCTAD)
.

Rank Cor
por
ati
on Count
ry I
ndust
ry Forei
gnAsset s Total Assets
(i
n Mi l
l
ions of (i
n Mi l
l
ionsof
doll
ars) doll
ars)

1 Gener
al El
ect
ri
c Uni
ted El
ectr
ical & el
ect
roni
c 331160 656560
Co St
ates equi
pment

2 RoyalDut
chShel
l Uni
ted Pet
rol
eum expl
./
ref
./di
str
. 301898 357512
pl
c. Ki
ngdom

3 Toy
ota Mot
or Japan Mot
orv
ehi
cles 274380 403088
Cor
por
ati
on

4 Exxon Mobi
l Uni
ted Pet
rol
eum expl
./
ref
./di
str
. 231033 346808
 Cor
por
ati
on St
ates

5 Tot
alSA Fr
ance Pet
rol
eum expl
./
ref
./di
str
. 226717 238870

6 BPpl
c Uni
ted Pet
rol
eum expl
./
ref
./di
str
. 202899 305690
Ki
ngdom

7 Vodaf
one Gr
oup Uni
ted Tel
ecommuni
cat
ions 182837 202763
Pl
c. Ki
ngdom

8 Volkswagen Ger
many Mot
orv
ehi
cles 176656 446555
Group

9 Chevron Uni
ted Pet
rol
eum expl
./
ref
./di
str
. 175736 253753
Corporat
ion St
ates

D)FDI
 
I
ntr
oduct
ion
Apar tf r
om bei ngacr it
icaldriv
erofeconomi cgr owth,f
orei
gndirectinvest
ment( FDI)isamaj orsourceof
non-debtf i
nanci alresour cefort heeconomicdev el
opmentofI ndia.Forei
gncompani esinvestinIndiat o
takeadv antageofr elati
velylowerwages, speciali
nvestmentpri
vil
egessuchast axexempt ions,etc.Fora
count rywher ef oreigni nvestment sarebeingmade,i talsomeansachi evingt echnicalknow-how and
gener atingempl oyment .
TheI ndiangov ernment ’sfavour abl
epolicyregimeandr obustbusinessenv ir
onmenthav eensur edt hat
foreigncapi talkeepsf lowingintot hecountr
y.Thegov ernmenthast akenmanyi ni
ti
ativesinrecenty ears
suchasr el
axingFDInor msacr osssectorssuchasdef ence,PSUoi lr
efi
neri
es,telecom, powerexchanges,
andst ockexchanges, amongot hers.
Mar ketsi ze
AccordingtoDepar tmentforPr omotionofI ndustr
yandI nternalTrade( DPIIT),thetotalFDIinvestments
i
nI ndiaApr i
l
-December2018st oodatUS$33. 49billi
on,indicati
ngt hatgov er
nment 'seffor
ttoi mprove
easeofdoi ngbusi nessandrelaxati
oni nFDInor msi syieldi
ngr esul
ts.
DataforApr i
l-
December2018i ndi
catesthatt heservicessect orattr
act edthehi ghestFDIequi t
yinfl
owof
US$6. 59bi l
li
on,f oll
owedbycomput ersoftwar eandhar dwar e–US$5. 00bi l
l
ion,tradi
ng–US$3. 04
bil
l
ionandt elecommuni cati
ons– US$2. 29bi l
li
on.Mostr ecentl
y,thet otalFDIequi tyi
nflowsf orthe
mont hofDecember2018t ouchedUS$4. 39bi l
l
ion.
DuringApril-
December2018,I ndiareceiv
edt hemaxi mum FDIequi tyinfl
owsf rom Singapore(US$12. 98
bil
l
ion),fol
l
owedbyMaur it
ius(US$6. 02bi l
l
ion),Netherlands( US$2.95bi ll
i
on) ,USA( US$2. 34bil
li
on),and
Japan( US$2.21bi lli
on)
.
Invest
ment s/dev elopments
I
ndiaemergedast hetopreci
pientofgreenf
iel
dFDIInf
lowsfrom t
heCommonweal
th,asperat
rade
rev
iewr
eleasedbyTheCommonweal thin2018.
Someoftherecentsi
gni
fi
cantFDIannouncementsar
easfoll
ows:

● In October2018,VMwar e,a leadi

ng soft
war einnovating ent
erpri
se ofUS has announced
i
nv estmentofUS$2bi l
li
oninIndiabet
weenby2023.
● InAugust2018, BhartiAir
telr
eceivedapprovaloftheGov ernmentofIndi
af orsal
eof20percent
stakeinitsDTHar mt oanAmer i
cabasedpr i
vateequityfirm,WarburgPincus,forar
ound$350
mi l
li
on.
● In June 2018,I dea’s appealf or 100 per cent FDIwas appr oved by Department of
Telecommuni cat
ion( DoT)foll
owedbyi t
sIndianmer gerwi thVodafonemaki ngVodafoneI
dea
 t
hel
argestt
elecom operat
orinI
ndi
a
● I
nMay2018,Wal martacqui
reda77percentst
akei
nFl
i
pkar
tforaconsi
der
ati
onofUS$16bi
l
li
on.
● InFebr uary2018, I
keaannouncedi t
spl anstoinvestupt oRs4, 000crore(US$612mi l
l
ion)int
he
stateofMahar asht
ratosetupmul ti
-formatstoresandexper iencecentr
es.
● Kat hmandubasedcongl omer at
e,CG Gr oupisl ookingt oinv estRs1,000crore(US$155.97
mi l
lion)inI ndi
aby2020i nit
sf oodandbev er
agebusi ness,st
at edMrVarunChoudhary,Execut
ive
Director ,CGCor pGlobal
.
● Internat i
onalFinanceCorporati
on( I
FC), t
heinvestmentar m oft heWorl
dBankGr oup,i
splanni
ng
toi nv estaboutUS$ 6 bi ll
ion through 2022 in sev eralsust ai
nabl
e and r
enewable energy
progr ammesi nIndia.

Gov
ernmentI
nit
iat
ives
AsofFebr uary2019,t heGov ernmentofI ndi aiswor kingonar oadmapt oachi evei tsgoalofUS$100
bill
i
onwor t hofFDIi nf l
ows.
In Febr uar y2019,t he Gov ernmentofI ndi ar eleased t he Dr af tNat i
onale- Commer ce Poli
cywhi ch
encour agesFDIi nthemar ket placemodelofe- commer ce.Fur ther,itst atest hatt heFDIpol i
cyf ore-
commer cesect orhasbeendev elopedt oensur eal evelplay i
ngf ieldforal lpart i
ci pant s.
Gov ernmentofI ndiai spl anni ngt oconsi der100percentFDIi nInsur ancei nter medi ar i
es 
inIndiat ogi vea
boostt ot hesect orandat tract ingmor ef unds.
InDecember2018, theGov er nmentofI ndiar evi
sedFDIr ulesr elatedt oe- commer ce.Aspert her ules100
percentFDIi sal l
owedi nt hemar ketplacebasedmodel ofe- commer ce.Al so, sal esofanyv endort hrough
ane- commer cemar ket placeent it
yori tsgr oupcompani eshav ebeenl i
mi t
edt o25percentoft het otal
salesofsuchv endor .
InSept ember2018,t heGov er nmentofI ndi ar eleasedt heNat ionalDi git
alCommuni cati
onsPol icy ,2018
whi chenv isagesi ncreasi ngFDIi nf l
owsi nt het el
ecommuni cat i
onssect ortoUS$100bi l
li
onby2022.
InJanuar y2018, Gov ernmentofI ndi
aal l
owedf oreignai rl
inest oi nvesti nAi rI ndi aupt o49percentwi th
gov ernmentappr oval .Thei nv est mentcannotexceed49percentdi rect l
yori ndi rect l
y .
Nogov er nmentappr ov alwi llber equiredf orFDIupt oanext entof100percenti nRealEst at
eBr oking
Serv i
ces.
InSept ember2017,t heGov ernmentofI ndi aaskedt hest at est of ocusonst rengt heningsi ngl
ewi ndow
clearancesy stem f orf ast-tracki ngappr ov alprocesses,i nor dert oi ncreaseJapanesei nvestment si n
India.
TheMi ni st r
yofCommer ceandI ndustry,Gov ernmentofI ndiahaseasedt heappr ovalmechani sm f or
foreigndi r ectinvestment( FDI )proposal sbydoi ngawaywi tht heappr ov alofDepar tmentofRev enueand
mandat i
ngcl earanceofal lpr oposal srequiringappr oval withi n10weeksaf tert her eceiptofappl i
cat ion.
TheGov er nmentofI ndi aisi nt alkswi thst akehol derst of ur thereasef oreigndi rectinvestment( FDI )i n
defenceundert heaut omat icr out eto51percentf rom thecur rent49percent ,inor dertogiv eaboostt o
theMakei nIndiainitiativeandt ogener ateempl oy ment .
InJanuar y2018,Gov er nmentofI ndiaallowed100percentFDIi nsi nglebr andr etailthroughaut omat ic
route.
Roadahead
Indi
ahasbecomet hemostat t
ract
iveemer gi
ngmar ketforglobalpar
tners(GP)i nvest
mentf orthe
coming12mont hs,asperarecentmar ketatt
ract
ivenesssurveyconduct
edbyEmer gingMarketPri
vate
Equit
yAssoci
ati
on( EMPEA).
AnnualFDIi
nfl
owsi nthecount
r yareexpectedtori
set oUS$75bi l
l
ionoverthenextfiveyear
s,aspera
repor
tbyUBS.
TheGovernmentofIndiai
saimingtoachieveUS$100bi l
li
onworthofFDIi
nflowsinthenexttwoy ear
s.

Whati
sFor
eignDi
rectI
nvest
ment(
FDI
)?

Forei
gn dir
ectinv
est
ment( FDI
)is an i
nvest
mentfrom a part
yin one count
ryint
o a busi
ness
or 
corpor
ati
on 
inanot
hercountr
ywit
htheintent
ionofest
abl
i
shingalasti
nginter
est
.Last
ingint
erest
dif
ferent
iatesFDIfrom f orei
gnportf
oli
oinvest
ment
s,wher
einv
estorspassi
vel
yholdsecuri
ti
esfrom a
for
eigncount r
y. 
Aforeigndi r
ecti
nvestmentcanbemadebyobt
aini
ngalasti
ngint
erestorbyexpandi
ng
one’sbusinessint
oaf oreigncount
ry.

 
Last
ingI
nter
estandt
heEl
ementofCont
rol

Ani
nvest
mentint
oafor
eignfi
rmisconsi
der
edanFDIifitest
abli
shesal
asti
ngint
erest
.Al
ast
ingi
nter
est
i
sest
abli
shedwhenani
nvest
orobtai
nsatl
east
 10%ofthevoti
ngpoweri
nthefi
rm.

Thekeytoforei
gndirectinvest
mentistheelementofcont
rol
.Cont
rolrepr
esent
st heintenttoact
ivel
y
manageandinfl
uenceafor ei
gnfi
rm’soper
ati
ons.Thi
sist
hemajordi
ff
erenti
ati
ngfactorbetweenFDIand
apassi
vefor
eignport
foli
oinvestment.

Forthi
sreason,a10%stakeinthef
orei
gncompany’
s v
otingstock 
i
snecessarytodefi
neFDI
.However,
ther
earecaseswherethi
scri
ter
ioni
snotal
waysappl
ied.Forexample,i
tispossi
blet
oexer
tcont
rolov
er
morewidel
ytradedfi
rmsdespi
teowni
ngasmall
erper
centageofv ot
ingst
ock.

 
Met
hodsofFor
eignDi
rectI
nvest
ment

Asment i
onedabove,ani
nvest
orcanmakeaf or
eigndi
recti
nvest
mentbyexpandi
ngt
hei
rbusi
nessina
for
eigncount
ry.Amazonopeni
nganewheadquar
tersi
nVancouver
,Canadawoul
dbeanexampl
eofthi
s.

Rei
nvest
ingprof
it
sf r
om over
seasoper
ati
onsaswel
lasi
ntr
acompanyl
oanst
oov
erseas 
subsi
diar
ies 
are
al
soconsider
edforei
gndir
ectinv
est
ments.

Fi
nal
ly
,ther
ear
emulti
plemethodsf
oradomest
ici
nvest
ort
oacqui
rev
oti
ngpoweri
naf
orei
gncompany
.
Bel
owaresomeexamples:

● Acquiri
ngv otingstocki naf
oreigncompany
● Mer gersandacquisi ti
ons
● Jointventures wi
thf orei
gncorporat
ions
● Starti
ngasubsi di
ar yofadomest i
cf i
rminaf
orei
gncount
ry

Lear
nmor
eaboutmer
ger
sandacqui
si
ti
onswi
thCFI
’
s mer
ger
s&acqui
sit
ions(
M&A)model
i
ngcour
se!

 
Benef
it
sof
 For
eignDi
rectI
nvest
ment

For
eigndir
ectinvest
mentoff
ersadvant
agestobot
ht hei
nvest
orandt
hef
orei
gnhostcount
ry.These
i
ncenti
vesencour
agebothpar
ti
estoengagei
nandall
owFDI.

Bel
owar
esomeoft
hebenef
it
sforbusi
nesses:

● Market 
diver
sif
icati
on
● Taxincenti
ves
● Lowerlaborcosts
● Pref
erenti
altar
iff
s
● Subsidi
es

Di
ver
sif
icat
ioni
sal
socov
eredi
nCFI
’
s cor
por
ate&busi
nessst
rat
egycour
se,
makesur
etochecki
tout
!

Thef
oll
owi
ngar
esomeoft
hebenef
it
sfort
hehostcount
ry:
 ● Economicsti
mul
ati
on
● Devel
opmentofhuman capi
tal
● I
ncreaseinempl
oyment
● Accesstomanagementexpert
ise,
ski
l
ls,
andt
echnol
ogy

Forbusinesses,mostoft
hesebenef
it
sar
ebasedoncostcut
ti
ngandl
ower
ingr
isk.Forhostcount
ri
es,
thebenefi
tsaremainl
yeconomi
c.

 
Disadv
ant
agesof
 For
eignDi
rectI
nvest
ment

Despi
temanybenef
it
s,t
her
ear
est
il
ltwomai
ndi
sadv
ant
agest
oFDIsuchas:

● Di
spl
acementoflocal
busi
nesses
● Pr
ofi
trepat
ri
ati
on

Theent
ryoflar
gef i
rmssuchasWal martmaydispl
acelocalbusi
nesses.Wal
mar
tisof
tencr
it
ici
zedf
or
dri
vi
ngoutl
ocalbusi
nessest
hatcannotcompet
ewi t
hit
slowerpr i
ces.

I
nt hecaseofprofi
trepatr
iat
ion,t
hepri
maryconcer
nisthatfi
rmswillnotr
einv
estpr
ofi
tsbacki
ntot
he
hostcount
ry.Thi
sleadstolar
gecapit
alout
fl
owsfrom t
hehostcount
ry.

Asar
esul
t,manycount
ri
eshav
eregul
ati
onsl
i
mit
ingf
orei
gndi
recti
nvest
ment
.

 
TypesandExampl
esofFor
eignDi
rectI
nvest
ment

Ty
pical
l
y,t
her
ear
etwomai
nty
pesofFDI
:hor
izont
alandv
ert
ical
FDI
.

Hori
zontal
:
 abusi
nessexpandsitsdomest i
coperat
ionstoaf or
eigncount
ry.Inthi
scase,thebusiness
conduct
sthesameact i
vit
iesbutinaf or
eigncount
ry.Forexample,McDonald’
sopeni
ngr est
aurantsin
Japanwouldbeconsi
deredhori
zontal
FDI.

Verti
cal:
 abusinessexpandsint
oaf orei
gncountrybymov i
ngt oadiff
erentlevelofthe suppl
ychai
n.In
otherwor ds,afir
m conduct
sdifferentacti
vi
tiesabr
oadbutt heseacti
vit
iesarestil
lrelatedtothemain
business.Usingthesameexampl e,McDonal d’
scouldpur
chaseal ar
ge-scal
ef arminCanadat oproduce
meatf orthei
rrestaur
ant
s.

Howev
er,
twoot
herf
ormsofFDIhav
eal
sobeenobser
ved:
congl
omer
ateandpl
atf
orm FDI
.

Congl omerat
e: 
abusi nessacqui
resanunrel
atedbusinessi naforei
gncount
ry.Thisi
suncommonasi t
requiresovercomingt wobarri
erstoentr
y:enter
ingaf orei
gncountryandenteri
nganew indust
ryor
mar ket.Anexampl eoft hi
swouldbeifVi
rgi
nGr oup,whi chisbasedintheUnit
edKingdom,acqui
reda
clot
hinglinei
nFr ance.

Platf
orm: 
abusinessexpandsinto aforei
gncount rybuttheout putfrom thef orei
gnoperati
onsis
exportedtoat hi
rdcount
ry.Thi
si salsor efer
redtoasexpor t
-pl
atfor
m FDI.Platform FDIcommonly
happensinl ow-
costl
ocati
onsinsi
def ree-
tradeareas.Forexample,ifFordpurchasedmanuf act
uri
ng
plant
si nI
rel
andwit
hthepri
marypurposeofexpor t
ingcar
stoothercountri
esintheEU.

speci
aleconomi
czone 
(SEZ
A 
speci
aleconomiczone 
(SEZ)isanar
eai
nwhichthebusi
nessandt
radel
awsaredi
ff
erentfr
om therest
ofthecountr
y.SEZsarelocatedwit
hinacount
ry'
snati
onalbor
der
s,andthei
rai
msincludeincreased
tr
ade balance,empl oyment,increased i
nvest
ment ,job creati
on and effect
ive administr
ati
on.To
encour
agebusi nessestosetupi nt hezone,fi
nancialpoli
ciesarei
ntroduced.Thesepol i
ciestypicall
y
encompassi nvesti
ng,
 t
axati
on,tr
ading,quot
as, 
customs and 
labourr
egulat
ions.Addit
ional
ly,compani es
maybeof fered t
axholi
days,whereuponestabli
shingthemsel v
esinazone,theyaregr ant
edaper iodof
l
owertaxation.
The creation ofspecialeconomi czonesbyt he hostcountr
ymaybe mot iv
ated byt he desi
reto
att
ract 
foreigndi
rectinvestment(
FDI)
. 
Thebenefi
tsacompanygainsbybei
nginaspecialeconomiczone
maymeant hatitcanpr oduceandtrade 
goodsatalowerpri
ce,ai
medatbeingglobal
lycompet i
ti
ve. 
In
somecount ri
es,thezoneshav ebeencrit
ici
zedforbeingli
tt
lemorethan 
l
aborcamps,wi t
hwor kers
deniedfundament al
 l
aborright
s.

UNI
T-I
VCompet
it
ionLawi
nIndi
a
A)EVOLUTI
ONOFCOMPETI
TIONLAW

Ev
olut
ionofMRTPasaCompet
it
ionLaw 

From 1969to2003Gov t
.pr
ovidedt heregulati
ontot hemonopoli
stict
radeforthefi
rstti
mebyv irt
ueof
theenactmentofthisMonopoliesandRest rict
iveTradePracti
cesAct(MPTPAct )whichinspi
redbyt he
mandateoft heDi
recti
vePri
nci
pl esofStatePolicyi
nt heConsti
tut
ionofIndi
a.ThePreambleoftheMRTP
Actpreachedasociali
sti
cphil
osophyi ntendedt oensurethatt
heoperationoftheeconomicsystem did
notl
edt otheconcentr
ati
onofeconomi cpowert othecommondet ri
ment.

TheGov ernmentofI ndiaappoint

ed‘TheMonopol iesInqui
ryCommi ssion( MIC)’inApr i
l,1964whichwas
chair
edbyMr .DasGupt a.TheCommi tteer
esearchedaboutt hemonopol ypr acti
cei ntheindustr
yandits
i
mpactont heIndi
aneconomy .TheCommi ssionreportedi
nOct ober1965t hatpr oductwi seandindustr
y
wise concent r
ati
on ofeconomi c powerexi st
ed int he system due t ol arge-scaler est
ri
cti
ve and
monopol i
sti
ct r
adepr acti
cesasaf ewbusinesshouseswer eoper ati
ngal argenumberofcompani es.As
aconsequenceofi tsf i
ndings,
theMonopoliesInquir
yCommi ssiondr aftedaBi ll
whi chwasamendedbya
Parl
iamentaryCommi tt
eeandbecamet he 
‘MonopoliesandRest ri
cti
v eTradePr acti
cesAct ,1969(MRTP
Act)’andwasenact edf r
om 1stJune,1970.

TheMRTPActi nt
endedtoprot
ectconsumer
saswellastoav
oidconcent
rat
ionofweal
thandai
medt
o
prevent-
(a)Concentr
ati
onofeconomicpower
(b)Prohibi
ti
onofmonopoli
sti
c,unf
airorr
est
ri
cti
vet
rade
TheMRTPActbecamei
nef
fect
ivef
ordi
ff
erentr
easons:
………….
.

 
Thefrequentl
ychangi
ngi
ndust
ri
alpol
i
cyofI
ndi
anGov
ernment
.Maj
oramendment
stoMRTPActwas
under
takenin–

(
i)1984–maj
oraddi
ti
onwasr
elat
ingt
oUnf
airTr
adePr
act
ices

(i
i
)1991–del et
ionofchapt
err
elat
ingt
oMer
ger
sandAcqui
sit
ionsandAddi
ti
onr
elat
ingt
oAwar
dof
Compensat
ion

Themonopol
yoft
hepubl
i
csect
orwasabol
i
shedi
n1991.
 

Somedi
ff
icul
ti
esar
osewhi
l
epr
act
ici
ngandi
mpl
ement
ingMRTPActwer
easf
oll
ows–

Lackofcl
ari
tyonv ari
ousdefi
nit
ionsandint
erpr
etati
ons –theActneit
herdefi
nenorevenmentioncer
tai
n
tr
adepract
iceswhi charerest
ri
ctiv
eincharacter
.Suchas-abuseofdomi nance,car
tel
s,col
l
usionand
pri
cefi
xi
ng,bidr
igging,boy
cott
sandr ef
usaltodeal
,predat
orypri
cingetc.

Discri
mi nati
onbet weenpublicandpr i
vatesector 
–i nspi
teofbeingacompet i
ti
onlaw,theMRTPAct
couldnotbeef f
ectiveintheabsenceoftheelementofcompetit
ion.Uponreali
zati
onofthenecessi
tyf
or
revi
ewoft heMRTPAct ,t
hegovernmentappointedahigh-
poweredexpertcommi tt
eechai
redbyJusti
ce
Raji
nderSachar ,in June 1977 to consi
derand suggestsuitabl
e changes.The SacharCommi tt
ee
presentedar eporttotheGovernmentinAugust, 1977.

TheLPGPar adigm –af tertheeconomi cr eformsi n1991,t herehadbeenasubsequentchangei nthe

economi cscenar iowi tht heeffectsofl iber ali
zati
on,privat
izationandgl obali
zati
on,whi chimpel l
edthe
needf oranewcompet i
ti
onl aw.Asar esultofadopt i
ngl i
berali
zat i
on,I ndiaacceptedandagr eedt otwo
i
mpor tantagr eementsoft heWor l
dTr adeOr ganizati
onnamel y Gener alAgr eementonTar iff
sandTr ade
(GATT)andTr adeRel atedAspect sofI nt ell
ectualPropertyRi ght s( TRIPS). 
Itledtot hecapabili
tyof
multi
nationalcompani est oent ertheIndi anmar ketwhich madet heMRTPActl essimpor tantandless
eff
ectiveandMRTPCommi ssi
onundert heMRTPActr eali
zedt hatanew l egisl
ati
onwasneeded.The
Govt.ofIndiaconst i
tutedaHi ghLev elCommi tteeonCompet it
ionPol icyandCompet iti
onLaw, chai
redby
Mr.SVSRaghav an,ar etir
edseni orCent ralGov t
.off
icer(popul arl
yknownas‘ Raghav anCommi tt
ee’
)in
October1999 t o adv ise a new and ef f ective cont
empor arycompet i
tion l
aw t o cope up wi ththe
i
nternati
onaleconomi cdev elopment sandt or ecommendasui tablel egisl
ati
vef r
amewor k,whichmay
i
mpl yanewl awr el
atingt ocompet iti
onl awf ornecessaryamendment si nt heMRTPAct ,1969.

Themaj
orr
ecommendat
ionsandsuggest
ionssubmi
tt
edt
othegov
ernmentwer
e:

 Torepeal
theMRTPAct 
andtoenactanewCompeti
ti
onActf
ortheregul
ati
onofAnt
i-
compet
it
ive
agr
eementsandt
oprev
enttheabuseofdomi
nanceandcombi
nati
onsincl
udingmer
gers.

 Toeli
minat
er eser
vat
ionofpr
oduct
s i
naphasedmannerf
ort
heSmal
lScal
eIndust
ri
esandt
he
Handl
oom Sector.

 Todi
vestt
heshar
esandasset
s oft
hegov
ernmenti
nst
atemonopol
i
esandpr
ivat
izet
hem.

 Tobr
ingal
li
ndust
ri
esi
nthepr
ivat
e aswel
lpubl
i
csect
orwi
thi
nthepr
oposedl
egi
slat
ion.

Af
terconsi
der
ing t
he r
ecommendat
ions oft
he St
andi
ng Commi
tt
ee,
 
the Par
li
amentpassed t
he
‘
Compet
it
ionAct
,2002′i
nDecember,2002 
asthef
ir
stst
eptowar
dst
het
ransf
ormat
ionf
rom ol
dobsol
ete
l
awstot
heneo-l
i
beraleconomi
ccondi
ti
onsuit
edcompeti
ti
onl
aw.

TheCompet i
ti
onActrecei
v edtheassentofthePresi
dentandi
tcameint
oexist
enceonthe13t hJanuary
,
2003. Thi
sActwas intr
oducedasar epl
acementtotheMRTPActundertheprovisi
onin Secti
on55of
theCompetit
ionActwhichstatestherepealofMRTPActandforthet
ransf
erofcasesofrelat
edmat t
ers
totheCompet i
ti
onCommi ssi
onofI ndi
a(CCI).

B)ANTI-COMPETI
TIVEAGREEMENT

Whati
sanAnt
i-
compet
it
iveAgr
eement
?

TheActunderSect ion3(1)prevent
sanyent erpr
iseorassociati
onfrom ent
eri
ngint
oanyagr eement
whichcausesorisli
kelytocauseanappreciabl
eadverseeffectoncompeti
ti
on(AAEC)withi
nIndi
a.The
Actclear
lyenv
isagesthatanagreementwhichiscontr
avent
ionofSecti
on3(1)shal
lbevoi
d.

Howt
odet
ermi
neAAEC?

TheActpr
ovi
dest
hatanyagr
eement,
whi
ch-

Di
rect
lyori
ndi
rect
lydet
ermi
nespur
chaseorsal
epr
ices;

Li
mit
spr
oduct
ion,
suppl
y,t
echni
cal
dev
elopmentorpr
ovi
sionofser
vicesi
nmar
ket
;

Resul
tsi
nbi
dri
ggi
ngorcol
l
usi
vebi
ddi
ng

Shal
lbepr
esumedt
ohav
eanappr
eci
abl
eadv
erseef
fectoncompet
it
ioni
nIndi
a

Shr
iShamsherKat
ari
av.HondaSi
elCar
sIndi
aLt
d.&Or
s-

InthecaseofShr iShamsherKat ar
iav.HondaSielCar
sIndiaLtd.& Ors,t
heconceptofvert
ical
agr
eementsincl
udi
ngexclusi
vesupplyagr
eement
s,excl
usi
vedi
str
ibut
ionagr
eement
sandref
usalt
odeal
weredel
i
beratedbytheCommi ssi
on.

Facts–Thei nf
or manti
nt hecasehadal legedanti
-competi
ti
vepracti
cesonpar toftheOppositePar
ti
es
(OPs)wher ebyt hegenui
nespar epartsofautomobilesmanufact
uredbysomeoft heOPswer enotmade
freel
yav ai
l
ablei ntheopenmar ketand mostoft heOEMs( ori
ginalequipmentsuppli
ers)and t
he
authorizeddealershadclausesintheiragreement
sr equi
ri
ngtheauthorizeddeal
erstosour
cesparepart
s
onlyfrom theOEMsandt heiraut
horizedvendorsonly.

CCI’
sdeci
sion– TheCommi ssi
onhel
dt hatsuchagreement
swer eint
henatureofexcl
usi
vesupply
,
excl
usi
vedistr
ibut
ionagr
eementsandr efusalt
odealunderSecti
on3(4)oftheActandhencet he
Commissi
onhadt odet
erminewhet
hersuchagreementswoul
dhaveanAAECinI
ndia.

TheCommi ssi
onhel dtheimpugnedagreementswereincontravent
ionofSecti
on3oft heActand
remarkedthatt
henet workofsuchagr
eementsall
owedtheOEMst obecomemonopolist
icplay
ersint
he
aft
ermarketsfort hei
rmodelofcar s,creat
e ent
ry bar
ri
ers and for
ecl
ose competi
ti
on from t
he
i
ndependentservi
cepr ov
ider
s.

Ent
erpr
iseSol
uti
onsI
ndi
aPv
t.Lt
d.v
.Hy
undai
Mot
orI
ndi
aLi
mit
ed
 I
nt hecase,t heInfor
manthadal l
egedt hataccor di
ngt otheagr eementwithHy undai,dealer
swer e
mandat edt oprocureallautomobil
epar t
sandaccessor iesfr
om Hy undaiorthroughtheirvendorsonly.
Whilecol l
aborati
ngonal l
egedant i
-competit
ivepracti
cesofHy undai,t
heInfor
mantst atedthatHy undai
i
mposeda“ DiscountControlMechanism”,wher ebydeal
erswer eonlypermitt
edt oprovideamaxi mum
permissibl
edi scountanddeal erswereal sonotaut hori
zedtogi vediscountbeyondar ecommended
range,t
her ebyamountingto“ r
esal
epr i
cemai nt
enance”incontr
aventionofSecti
on3(4)(e)oftheAct.

TheCCIi nthecaseobser v
edthatHyundaithroughexclusi
veagr eementsandarr
angementscont ravened
provisionsofSection3(4)(
e)readwithSection3(1)oftheActt hrougharr
angementswhichr esul
tedi nto
Resal ePriceMaintenance.TheCCIwhi l
ei mposingpenaltyofI NR87Cr oreonHy undainotedt hatt he
i
nf r
inginganti-
competit
iveconductofHy undaii
nt hecaseincl
udedput t
inginpl
acear r
angement s,whi ch
resulted i
nto ResalePriceMai nt
enancebywayofmoni tor
ing maximum permissibl
edi scountl ev el
through aDi scountCont rolMechanism and also apenal t
ymechani sm fornon-complianceoft he
discountscheme.

HORI
ZONTALAGREEMENTS-

Horizont
alagr
eementsarear r
angement
sbetweenent
erpr
isesatthesamestageofpr oduct
ion.Secti
on
3(3)oftheActprovi
desthatsuchagreement
sincl
udescartel
s,engagedi
nident
icalorsimil
artradeof
goodsorprovi
sionofser
vices,whi
ch-

• Di
rect
lyori
ndi
rect
lydet
ermi
nespur
chaseorsal
epr
ices

• Li
mit
sorcont
rol
spr
oduct
ion,
suppl
y

• Shar
est
hemar
ketorsour
ceofpr
oduct
ion

• Di
rect
lyori
ndi
rect
lyr
esul
tsi
nbi
dri
ggi
ngorcol
l
usi
vebi
ddi
ng

(bidr
igging”as“
anyagreement,
betweenenter
pri
sesorper
sonsref
erredt
oinsub-secti
on(3)engagedin
i
denticalorsimil
arproduct
ionortradingofgoodsorprovi
sionofservi
ces,whichhast heeffectof
eli
minati
ngorr educi
ngcompet i
ti
onf orbi
dsoradv er
sel
yaffect
ingormani pul
ati
ngt heprocessfor
biddi
ng.)

Undert heActhor i
zontalagr
eement sarepl acedinaspecialcategoryandaresubjecttotheadverse
presumptionofbeinganti-
competit
ive.Thisisalsoknownas‘perse’rul
e.Thi
simpli
esthatift
hereexi
sts
ahor i
zontalagreementunderSecti
on3( 3)oft heAct,
theni
twil
lbepr esumedthatsuchanagreementis
anti
-compet i
ti
veandhasanappr eci
ableadv erseeff
ectoncompeti
tion.

Ver
ti
cal
Agr
eement
s

VERTICALAGREEMENTS-Verti
calagr
eementsarethoseagr eement
swhichareent
eredint
obetweentwo
ormor eenter
pri
sesoper
ati
ngatdi ff
erentl
evel
sofpr oducti
on.Fori
nstancebetweensuppli
ersand
deal
ers.Ot
herexampl
esofanti
-competi
ti
vever
ti
calagreement si
ncl
ude:

• Excl
usi
vesuppl
yagr
eement&r
efusal
todeal

• Resal
epr
icemai
ntenance

• Ti
e-i
n-ar
rangement
s
• Excl
usi
vedi
str
ibut
ionagr
eement

• The‘perse’rul
easappl
i
cabl
eforhor
izont
alagr
eement
sdoesnotappl
yforv
ert
icalagreements.Hence,
a
ver
ti
calagr snotperseant
eementi i-
competi
ti
veordoesnothaveanappreciabl
eadv er
seef f
ecton
competit
ion.

Ti
e-i
nar
rangement

AccordingtotheSt at
utei
tincludesanyagr
eementr
equi
ri
ngpur
chaserofgoods,asacondi
ti
onof
purchase,t
opurchasesomeothergoods.

Theremustbet woproductst
hatt
hesell
ercantietogether
.Fur
ther,t
heremustbeasaleoranagreement
toselloneproductorserv
iceonthecondit
ionthatthebuyerpurchasest
heot herpr
oductorservi
ce.I
n
otherwords,therequi
rementisthatpurchaseofacommodi tyiscondit
ionedupont hepurchaseof
anothercommodity.

Thesell
ermusthav esuff
ici
entmarketpowerwi t
hr especttothetyi
ngproductt
oappreci
abl
yrest
rainfr
ee
competi
ti
oni nthemarketfort
heti
edpr oduct.Thatis,t
hesellerhastohavesuchpowerint
hemar ketf
or
thet
yingproductthati
tcanforcet
hebuy ertopurchaset heti
edproduct
;and

• Exclusi
vesuppl
yagreement
-TheActdefinessuchagreementst
oi ncl
udeanyagr
eementr
est
ri
cti
ngin
anymannert hepur
chaseri
nthecourseofhistradef
rom acqui
ri
ngorotherwi
sedeal
i
nginanygoods
otherthant
hoseoft
hesell
eroranyot
herperson.

• Excl
usi
vedist
ri
buti
onagr
eement
-Thi
sincl
udesanyagreementtoli
mit
,rest
ri
ctorwi
thhol
dtheout
putor
suppl
yofanygoodsoral
l
ocat
eanyar
eaormarketfort
hedisposal
orsal
eofgoods.

• Ref
usalt
odeal-TheActstat
esthatt
hiscr
it
eri
aincl
udesagr
eementwhichrest
ri
ctsbyanymet
hodt
he
per
sonsorcl
assesofper
sonstowhom t
hegoodsaresol
dorfr
om whom goodsarebought
.

• Resalepri
cemai ntenance-Iti
ncludesanyagreementt osel
lgoodsoncondi
ti
ont hatthepr
icesbe
chargedonther esalebythepurchasershal
lbethepricesst
ipul
atedbyt
hesel
lerunlessi
tisclear
ly
stat
edthatpr
iceslowerthant
hosepr i
cesmaybecharged.

ANTI
-COMPETI
TIVEAGREEMENTSANDI
PREXEMPTI
ONUNDERSECTI
ON3(
5)OFTHEACT

Secti
on3( 5)oftheCompet it
ionActenvi
sagest hatnothingcont ainedi nSection3( prohi
bit
inganti
-
compet i
ti
veagreements)shal
lrest
ri
cttheri
ghtofanyper sont opr eventinf
ringementori mposingof
reasonablecondit
ionsthatmaybenecessar yf orprotecti
ng his/heri nt
ell
ectualpropertyri
ghtsi.
e.
copyri
ght,t
rademark,pat
ent
,desi
gnsandgeographical
indicat
ions.

I
nt heaforesaidcontext,CCIstatesthatany‘r
easonablecondit
ion’imposedf orprot
ect
ionofIPRwoul d
notattr
actSect i
on3,howev er
,impositi
onof‘unreasonabl
econdi ti
on’topr ot
ectIPRwouldcontr
av ene
Secti
on3oft heAct.TheCCIpr ovi
desani l
l
ustrat
ivel
istofpracti
ces/agreementswhichthoughentered
i
ntoforprotecti
onofI PRmaycont r
aveneSecti
on3oft heAct.Suchpr act
ices/agr
eementsare:

Pat
entpool
i
ng-
 maybear
est
ri
cti
vepr
act
icei
fpool
i
ngf
ir
msdeci
denott
ogr
antl
i
censet
othi
rdpar
ti
es;

Ti
e-i
nar
rangement
–Ifundert
het
yingar
rangement
,li
censeei
srequi
redt
oacqui
repar
ti
cul
argoodssol
ely
f
rom t
hepat
ent
eet
heni
tmaybear
est
ri
cti
vepr
act
ice;

Agr
eementt
ocont
inuepay
mentofr
oyal
tyev
enaf
tert
hepat
enthasexpi
red;

Li
censeemaybesubj
ect
edt
oacondi
ti
onnott
ochal
l
enget
hev
ali
dit
yofI
PRi
nquest
ion.

Li
censorf
ixest
hepr
iceatwhi
cht
hel
i
censeeshoul
dsel
l
.

Condi
ti
oni
mposi
ngqual
i
tycont
rol
ont
hel
i
censedpat
ent
edpr
oductbey
ondt
hosenecessar
y.

Rest
ri
cti
ngli
censee’
srighttosel
lthepr
oductoft
hel
i
censedknow-
how t
oper
sonsot
hert
hant
hose
desi
gnat
edbytheli
censor.

Unduer
est
ri
cti
ononl
i
censee’
sbusi
nesscoul
dbeant
icompet
it
ive.

Li
mit
ingthemaxi
mum amountofuset
hel
i
censeemaymakeoft
hepat
ent
edi
nvent
ionmayaf
fect
compet
it
ion.

Condi
ti
oni
mposedont
hel
i
censeet
oempl
oyorusest
affdesi
gnat
edbyt
hel
i
censor
.

Or
der
sbyCommi
ssi
onaf
teri
nqui
ryi
nto agr
eement
sorabuseofdomi
nantposi
ti
on–Sect
ion27.

Whereafteri
nqui
rytheCommi ssi
onfindsthatanyagreementref
err
edt
oi nsect
ion3oract
ion ofan
ent
erpr
iseinadominantposi
ti
on,i si
ncont r
avent
ionofsecti
on3orsect
ion4,asthecasemaybe,it
maypassalloranyofthef
oll
owingorders,
namely

a.di
rectanyenter
pri
seorassociat
ionofenter
pri
sesorpersonorassoci
ati
onofpersons,ast
he case
may be,i nv
olv
edinsuch agreement
,orabuseofdominantposi
ti
on,t
odiscont
inueandnottore-
ent
er
suchagreementordi
scont
inuesuchabuseofdominantposi
ti
on,asthecasemaybe;

b.i
mposesuchpenalty,asitmaydeem fitwhi
chshallbenotmor et
hantenpercentofthe average of
the tur
nover f
orthe l ast t
hreeprecedi
ngfinanci
alyear
s,uponeachofsuchper sonorenterpr
ises
whicharepar
ti
estosuchagreementsorabuse:
—

d.Dir
ectthattheagr
eementsshal
lst
andmodi
fi
edt
otheext
entandi
nthemannerasmaybespeci
fi
edi
n
theorderbytheCommissi
on;

e.di
rectt
he enterpr
isesconcernedto abi
de bysuch otherorder
sast
he Commi
ssi
onmaypass
andcomplywit
ht hedi r
ect
ions,
incl
udingpayment ofcost
s,i
fany;

g.passsuchot
herasi
tmaydeem f
it
.

C)AbuseofDomi
nance
ABUSEOFDOMI
NANTPOSI
TION(
Sect
ion4Compet
it
ionAct
,2002)

Domi nantposi
ti
onasbei ngcr eat
edwhenoneormor eundertakingsinapar t
icul
armarketusethei
r
posit
ion inthatmar ketto deter
mine economic parameters such as pr
ice,supply
,the amountof
producti
onanddi st
ri
buti
on,byact i
ngindependentl
yoft hei
rcompet it
orsandcustomers.Afir
mi si
na
dominantpositi
onifithastheabi l
it
ytobehav eindependent
lyofi tscompeti
tor
s,customer
s,suppl
i
ers
and,ul
ti
matel
y,t
hef i
nalconsumer.Adominantf
ir
m holdi
ngsuchmar ketpowerwoul
dhavetheabil
i
tyto
setpri
cesabovet hecompet i
ti
velevelt
osellproduct
sofani nfer
iorquali
tyortoreducetsrateof
i
nnovati
onbel
owt helevel
thatwouldexi
sti
nacompet i
ti
vemarket
.

Anent
erpr
isei
ndomi
nantposi
ti
onper
for
msanyoft
hef
oll
owi
ngact
s:

di
rect
lyori
ndi
rect
ly,
imposesunf
airordi
scr
imi
nat
orypr
act
ices

l
imit
sorrest
ri
ctsproduct
ionofgoodsorprovi
si
onofanyser
vicesi
nanyf
ormi
ndul
gesi
npr
act
iceor
pr
acti
cesr
esult
ingi
ndenialofmar
ketaccess

makesconcl
usi
onofcontractssubj
ecttoacceptancebyot
herpar
ti
esofsuppl
ement
aryobl
i
gat
ions
whi
chhavenoconnect
ionwit
hthesubj
ectofsuchcontr
act
s

usesi
tsdomi
nantposi
ti
oni
noner
elev
antmar
kett
oent
eri
nto,
orpr
otect
,ot
herr
elev
antmar
ket
.

NOTE:

Rel
evantMar
ket

Rel
evantGeogr
aphi
cal
Mar
ket

Rel
evantPr
oductMar
ket

PREDATORYPRI
CE

Thesaleofgoodsorprovisi
onofservi
ces,atapri
cewhi
chisbel owthecost,asmaybedeter
minedby
regul
ati
ons,ofpr
oducti
onoft hegoodsorpr ov
isi
onofser
vices,wit
hav iew tor
educecompeti
ti
onor
eli
minat
ethecompeti
tors.

Bhar
tiAi
rt
elLi
mit
edVRel
i
anceI
ndust
ri
esLi
mit
ed

Rel
i
anceJi
oInf
ocomm Li
mit
edCaseNo.3of2017,
CCI

Mer
uTr
avel
Sol
uti
onsPr
ivat
eLi
mit
ed(
MTSPL)VUberI
ndi
aSy
stemsPv
t.Lt
d.CaseNo.81of2015,
CCI

Sect
ion19-I
nqui
ryi
ntocer
tai
nagr
eement
sanddomi
nantposi
ti
onofent
erpr
ise.
-

1.TheCommi ssi
onmayinqui
reintoanyall
egedcont
rav
enti
onoft
heprov
isi
onscont
ainedi
nsub-
sect
ion
(1)ofsect
ion3orsub-
sect
ion(1)ofsect
ion4eit
heroni
tsownmoti
onoron-

a.
 r
ecei
ptofacompl aint,accompani
edbysuchf eeasmaybedet
ermi
nedbyr
egul
ati
ons,f
rom any
per
son,consumerort
heirassoci
ati
onort
radeassoci
ati
on;
or

b.
 r
efer
encemadet
oitbyt
heCent
ral
Gov
ernmentoraSt
ateGov
ernmentorast
atut
oryaut
hor
it
y.

2.
  
  Wi
thoutpr
ejudi
cetothepr
ovi
si
onscontai
nedinsub-sect
ion(
1),t
hepowersandfunct
ionsoft
he
Commissi
onshalli
ncl
udet
hepower
sandfuncti
onsspeci
fi
edinsub-
sect
ions(
3)t
o(7).

3.
  
  TheCommissi
onshall,whi
ledet
ermi
ningwhet
heranagreementhasanappreciabl
eadver
seef
fect
oncompeti
ti
onundersect
ion3,haveduer
egardt
oalloranyoft
hefol
lowi
ngfact
ors,namely
:-
a.
  
  cr
eat
ionofbar
ri
erst
onewent
rant
sint
hemar
ket
;

b.
  
 dr
ivi
ngexi
sti
ngcompet
it
orsoutoft
hemar
ket
;

c.
  
  f
orecl
osur
eofcompet
it
ionbyhi
nder
ingent
ryi
ntot
hemar
ket
;

d.
  
 accr
ual
ofbenef
it
stoconsumer
s;

e.
  
  i
mpr
ovement
sinpr
oduct
ionordi
str
ibut
ionofgoodsorpr
ovi
sionofser
vices;

f.
  
  pr
omoti
onoftechni
cal
,scient
if
icandeconomi
cdev
elopmentbymeansofpr
oduct
ionordi
str
ibut
ion
ofgoodsorprov
isi
onofser
vices.

4. 
  
 TheCommissi
onshall
,whi
l
ei nqui
ri
ngwhetheranenterpri
seenjoysadomi
nantposi
ti
onornotunder
secti
on4,hav
edueregar
dtoalloranyofthef
oll
owingfactors,namely
:-

a.
  
  mar
ketshar
eoft
heent
erpr
ise;

b.
  
 si
zeandr
esour
cesoft
heent
erpr
ise;

c.
  
  si
zeandi
mpor
tanceoft
hecompet
it
ors;

d.
  
 economi
cpoweroft
heent
erpr
isei
ncl
udi
ngcommer
cial
adv
ant
agesov
ercompet
it
ors;

e.
  
  v
ert
ical
int
egr
ati
onoft
heent
erpr
isesorsal
eorser
vicenet
wor
kofsuchent
erpr
ises;

f
. 
  
 dependenceofconsumer
sont
heent
erpr
ise;

g.
  
 monopol
yordominantposi
ti
onwhetheracquir
edasaresul
tofanyst
atut
eorbyv
irt
ueofbei
nga
Gover
nmentcompanyorapubl
icsect
orunder
taki
ngorot
her
wise;

h. 
  
 ent
rybarri
ersi
ncludi
ngbarr
ier
ssuchasregulat
orybar
ri
ers,f
inanci
alr
isk,hi
ghcapit
alcostofent
ry,
marketi
ngentrybar
ri
ers,t
echni
calent
rybar
ri
ers,
economiesofscale,hi
ghcostofsubst
it
utabl
egoodsor
servi
ceforconsumers;

i
. 
  
  count
erv
ail
i
ngbuy
ingpower
;

j
. 
  
  mar
ketst
ruct
ureandsi
zeofmar
ket
;

k.
  
  soci
alobl
i
gat
ionsandsoci
alcost
s;

l
. 
  
  r
elat
iveadvantage,bywayoft hecont
ri
but
iontotheeconomi
cdevel
opment,bytheenterpr
ise
enj
oyi
ngadomi nantposit
ionhav
ingorl
i
kel
ytohaveanappr
eci
abl
eadver
seef
fectoncompet
it
ion;

m.
  anyot
herf
act
orwhi
cht
heCommi
ssi
onmayconsi
derr
elev
antf
ort
hei
nqui
ry.

• Sect
ion26:
Procedur
e

• UnderSect
ion19compl
aintmadeout

• I
nvest
igat
iondonebyt
hedi
rect
orgener
al
 • Submi
ssi
onofr
epor
ttocommi
ssi
onmadebyt
hedi
rect
orgener
al

• CCIst
atesaboutt
her
epor
ttopar
tyconcer
n

• I
fcont
rav
ent
ioni
sther
eint
her
epor
t

• CCIcal
lforf
urt
heri
nqui
rybyDi
rect
orGener
al

• Heari
ng al
lthecont
ent
ion(byDGaswel
lasbyt
hepar
ti
es)CCIpasst
heor
deraccor
dingt
o
sect
ion27

• I
fnocont
rav
ent
ioni
sther
e,CCIi
nvi
tespar
tyconcer
nforobj
ect
ions&suggest
ions

• Sect
ion27

Whereafteri
nqui
rytheCommi ssi
onfindsthatanyagreementref
err
edt
oi nsect
ion3oract
ion ofan
ent
erpr
iseinadominantposi
ti
on,i si
ncont r
avent
ionofsecti
on3orsect
ion4,asthecasemaybe,it
maypassalloranyofthef
oll
owingorders,
namely

a.di
rectanyenter
pri
seorassociat
ionofenter
pri
sesorpersonorassoci
ati
onofpersons,ast
he case
may be,i nv
olv
edinsuch agreement
,orabuseofdominantposi
ti
on,t
odiscont
inueandnottore-
ent
er
suchagreementordi
scont
inuesuchabuseofdominantposi
ti
on,asthecasemaybe;

b.i
mposesuchpenalty,asitmaydeem fitwhi
chshallbenotmor et
hantenpercentofthe average of
the tur
nover f
orthe l ast t
hreeprecedi
ngfinanci
alyear
s,uponeachofsuchper sonorenterpr
ises
whicharepar
ti
estosuchagreementsorabuse:
—

d.Dir
ectthattheagr
eementsshal
lst
andmodi
fi
edt
otheext
entandi
nthemannerasmaybespeci
fi
edi
n
theorderbytheCommissi
on;

e.di
rectt
he enterpr
isesconcernedto abi
de bysuch otherorder
sast
he Commi
ssi
onmaypass
andcomplywit
ht hedi r
ect
ions,
incl
udingpayment ofcost
s,i
fany;

g.passsuchot
herasi
tmaydeem f
it
.

D)SECTI
ON5-Combi
nat
ions
Combinat
ionwi t
hintheCompet i
ti
onLawi sthemergerbetweentwoormor eenterpr
isesorfi
rmsort he
busi
ness sectoracquisiti
ons (such as companies orf i
rms)by otherbusiness enter
pri
ses.The
Gover
nmentcont r
ols combi nat
ions ormer ger
s and acquisi
ti
ons wit
hinthe count r
yt o promote
competi
ti
onandt herebyseeingtot hatsmal
lscal
eestabl
ishmentsar
enotovershadowedandswal lowed
bymorereputedindustr
ies.

Ty
pesOfCombi
nat
ions

Hor
izont
alCombi
nat
ions

Hor i
zont
alCombi
nati
onsinvol
vethemer gi
ngofenterpr
isesorfi
rmswithidenti
call
evelofpr
oducti
on
pr
ocess,wit
hsubst
it
utegoodsandar ecompetit
ors.Thehor i
zont
alcombinati
onisprimari
lyafr
iendl
y
mergerbet
weencompanies,
alt
houghitcanbeatakeoutofonebytheother
.
Eg:
HP&Campaq

Non-
Hor
izont
alCombi
nat
ions

Thenon-
hor
izont
alcombi
nat
ionsar
eoft
wot
ypes:
Ver
ti
cal
andCongl
omer
atecombi
nat
ions.

Ver
ti
cal
Combi
nat
ions

Ver t
icalmergi
ngis“ combini
ngofbusi nessf
irmsengagedi
ndi
ff
erentphasesoft
hemanuf
act
ureand
di
str
ibutionofaproductint
oani nt
eract
ingwhole”.

Eg:
Tat
aMot
ors&Tr
il
ixSr
l

Congl
omer
ateCombi
nat
ions

Congl omerat
ecombi nat
ionsinv ol
vefi
rmsorenterpri
sesinunrel
atedbusi
nessfields.Suchcombi nati
on
happenswhent wocompani est hatprovi
dedif
ferentservi
cesandgoodsorar eintegratedint
ov aryi
ng
sectorsofbusi
nessmer getogether.Thissor
tofmer gerhappenswhenthecompani esachi ev
east r
onger
standinthemar ketbothi
npr oductsandservi
cesandpr ofi
tmanagementunlikewhent heyareindi
vidual
enterpr
ises.

eg:
proct
er&gambl
e

• SECTI
ON5:
Regul
ati
onf
orCombi
nat
ion(
Thr
eshol
dLi
mit)

• Sect
ion6:
Regul
ati
onf
orCombi
nat
ion

• Ent
erI
ntoCombi
nat
ion

• BodAppr
oval

• Wi
thi
n30Day
s

• SentThi
sAppr
oval
ToCCI

• CCI(
Inqui
ryI
ntoCombi
nat
ionByCommi
ssi
onU/
S20)

• Af
ter210Day
s

• Combi
nat
ionShal
lComeI
ntoEf
fect.

• Sect
ion20

• I
nqui
ryi
ntocombi
nat
ionbyCommi
ssi
on

(1) The Commi ssi

on may , upon its own knowl edge ori nfor mat
ionr el
ati
ngtoacquisi
ti
on
referr
edtoinclause(
a)ofsecti
on5oracquiri
ngofcontr
olr
ef er
redtoin cl ause (
b) of sect i
on 5 or
mer geroramal gamati
onrefer
red t oinclause(c)ofthat sect ion,inquir
e i ntowhethersuch a
combi nat
ionhascausedorisli
kelytocauseanappreci
abl
eadv erseeffectoncompet it
ioni
nIndia.

Sect
ion29:
Procedur
eforI
nvest
igat
ion
• Combi
nat
ion(
AAEC)

• CCIcal
ldi
rect
orgener
alf
ori
nvest
igat
ion

• I
fcont
rav
ent
iondone

• CCIor
dert
opubl
i
sht
hedet
ail
sofcombi
nat
ionwi
thi
n10day
s

• Publ
i
crai
set
heobj
ect
ionwi
thi
n15day
s

• Anyaddi
ti
onal
inf
owi
thi
n15day
s

• Wi
thi
n45day
sCCIr
eleaset
heor
der

• Sect
ion31:
Order
sofCommi
ssi
ononCombi
nat
ion

(1) OrdersofCommi ssi

ononcer t
aincombinati
ons31.(1)WheretheCommi ssi
oni
softheopini
on
thatanycombi nati
ondoesnot ,ori
snotl i
kel
yto,haveanappr eci
abl
eadver
seeffectoncompeti
ti
on,it
shall
,byor der,approvethatcombinationincl
udi
ng the combi
nati
on i
nrespectofwhichanot
icehas
beengivenundersub- secti
on(2)ofsecti
on6.

(2) Wher ethe Commissi

oni
soft
he opini
on that t
he combi
nat
ionhas,orisli
kelytohave,an
appreci
abl
eadv
erseeff
ectoncompet
it
ion,i
tshal
ldir
ectt hatt
hecombinat
ionshal
lnottakeef
fect
.

(3) Wherethe Commi ssi

onisofthe opi
nion t
hatthe combi
nationhas,orisli
kelytohave,an
appreciabl
eadverseeffect oncompet i
ti
on butsuchadverseeff
ectcanbeel i
minatedbysui t
able
modificati
ontosuchcombi nat
ion,i
tmay proposeappr
opri
atemodif
icati
ontothecombi nat
ion,t
ot he
part
iest osuchcombinati
on.

(4) Theparti
es,whoacceptt
hemodifi
cati
onproposedbytheCommissi
onundersubsect
ion(
3),
shal
lcar
ryoutsuchmodi
fi
cati
onwit
hint
heperi
odspeci
fi
edbytheCommissi
on.

5.I ft
heparti
estothecombi nat
ion,whohav eaccept
edthemodifi
cati
onundersubsecti
on(4),f
ailt
o
carr
youtthemodifi
cat
ionwi t
hintheper i
od speci
fi
edbyt heCommission,suchcombinat
ionshal
lbe
deemedtohaveanappr eciabl
eadv erseeffecton compet
iti
onand the Commi ssi
onshal
ldealwi t
h
suchcombinat
ioni
naccor dancewi t
ht heprovi
si
onsoft
hisAct.

6. I
ftheparti
est othecombinat
iondonotacceptt hemodifi
cat
ionpr
oposedbyt heCommi ssi
on
undersub-sect
ion(3),
suchpart
iesmay ,wi
thi
nthirt
yworkingdaysofthemodi
ficati
onproposedbyt he
Commi ssi
on,submi tamendmentt othemodi f
icati
onproposedbyt heCommi ssi
onundert hatsub-
sect
ion.

7.Ift
heCommissi
onagreeswit
htheamendmentsubmi
tt
edbyt
hepar
ti
esundersubsect
ion(
6),i
t
shall
,
byor
der
, approv
et hecombi
nati
on.

E)Compet
it
ionCommi
ssi
onofI
ndi
a
Compet
it
ionCommi
ssi
onofI
ndi
awasf
ormedunderSect
ion7oft
heActbyt
heCent
ral
Gov
ernment

Af
tert
hev
erdi
ctofSupr
emeCour
tint
hecaseofBr
ahmaDut
tvs.Uni
onofI
ndi
a[AI
R2005SC730]wher
e
theCour
thel
dthatforthepurposeofregulat
oryandadv i
sor
yfuncti
onsrel
ati
ngtocompeti
ti
oni
nmarket,
Competi
ti
on Commi ssi
on ofI ndi
a be establ
ished and f
ort he pur
pose ofadjudi
cat
oryf
unct
ions,
Competi
ti
onAppel
lateTri
bunalbeestabli
shed.

Const
it
uti
on

Secti
on8(1)oft heActpr ovidest hattheCommi ssionshallconsistofaChai r
personand3ot hermember s
tobeappoi nt
edbyt hesel ecti
oncommi t
tee(Sect i
on9)Themember swillbehandl i
ngtheadmi nist
ration
and Coordinati
on divi
sion,I nvestigati
on di vi
si
on,Economi cdi vi
sion,Combi nat i
on divi
sion,Ant i-
trust
Divi
sionandLegaldi vi
sion.Sect i
on8( 2)oft heActf urtherpr ovi
dest hatt heChai rpersonandot her
member sbeaper sonofi ntegri
t y
,abili
ty,andst andi
ngandwhohasbeenori sbeenqual i
fiest obea
JudgeofHi ghCour torhasspeci alknowl edgeandpr ofessionalexper i
enceofnotl essthanf ifteeny ears
i
ni nter
nat
ionaltrade,economi cs,law,busi ness,fi
nance,account ancy,industry,publi
caf fairs,ori nany
othermatterwhichisintheopi nionoft heCent r
alGovernment ,maybeusef ultothecommi ssion.

Ter
m ofOf
fi
ce

Sect
ion10(1)oftheActprov
idesthattheChai
rpersonandothermembersshallbewhole-
ti
memembers
andshallholdt
heoffi
ceforatimeperiodof5yearsandar eel
igi
blef
orr
e-appoint
ment.Nomembercan
hol
dt heoff
iceaf
terhehasatt
ainedtheageofsixt
y-fi
veyear
s.

Resi
gnat
ionandRemov
al

Secti
on11(1)oft
heActprov
idesthatt
heChair
personoranyotherMembermayresignfr
om hisof
fi
ce,by
giv
inganot i
cetoCentr
alGovernment.However
,theChair
personcannotrel
i
nquishhisof
ficeunti
lthe
expir
yofthreemonthsfr
om thedateofsaidnoti
ceorunti
lthepersonappoi
ntedashishersuccessor
enter
suponhi sof
fi
ce.Sect
ion11(2)oftheActprovi
desthattheCentr
alGovernmentmayr emovethe
Chair
per
sonoranyothermemberf r
om hi
soffi
cei
fhe–

 I
s,oratanyt
imehasbeenadj
udgedasani
nsol
vent
.

 Hasatanyt
imeengagedi
nanypai
dempl
oymentdur
inghi
ster
minof
fi
ce.

 Hasbeenconv
ict
edofanof
fencewhi
ch,i
ntheopi
nionofCent
ralGov
ernment
,inv
olv
esmor
al
t
urpi
tude.

 Hasacqui
redsuchf
inanci
alorot
heri
nter
estasi
sli
kel
ytoaf
fectpr
ejudi
cial
l
yhi
sfunct
ionsasa
Member.

 Hassoabusedhi
sposi
ti
onast
orenderhi
scont
inuancei
nof
fi
cepr
ejudi
cial
topubl
i
cint
erest
.

 Hasbecomephy
sical
l
yorment
all
yincapabl
eofact
ingasamember
.

Secti
on11(3)saysthatforthepur
poseofremov
alofChair
personoranyotherMemberduetoreasonsas
mentioned i
n clauses d and e,an i
nquir
ywillbe made byt he Supreme Cour
tand onlyon i t
s
recommendationthatheoughttoberemovedonsuchgroundorgrounds,t
heremovalwi
ll
takeplace.

Sel
ect
ionCommi
tt
eef
orChai
rper
sonandMember
sofCommi
ssi
on

(
1)The Chai
rper
son and ot
herMember
s oft
he Commi
ssi
on shal
lbe appoi
nted by t
he Cent
ral
Gov
ernmentf
rom apanelofnames r
ecommendedbyaSel
ect
ionCommi
tt
eeconsi
sti
ngof–

a)
TheChi
efJust
iceofI
ndi
aorhi
snomi
nee……….
Chai
rper
son

b)
theSecr
etar
yint
heMi
nist
ryofCor
por
ateAf
fai
rs…….
Member

c)
TheSecr
etar
yint
heMi
nist
ryofLawandJust
ice……….
Member

d)twoexper tsofreputewhohav e specialknowledgeof ,andprof

essi
onalexperi
enceininter
nat
ional
tr
ade,economics,
business,commerce,law,finance,accountancy
,management,indust
ry,publi
caf
fair
s
orcompetit
ionmatter
si ncl
udingcompetit
ionlawandpol icy….Member

Sect
ion18:
Power
sandFunct
ionsoft
heCommi
ssi
on

Toeli
minatepract
iceshav
ingadver
seef f
ectoncompeti
ti
on,pr
omot eandsust
aincompet
it
ion,pr
otect
i
nter
estsofconsumersandensur
efreedom oft
radebyot
herpar
ti
cipant
s

Inqui
reintocer
tai
nagreementsanddomi nantposi
ti
onofenter
pri
se–Itprov
idesthatt
heCommi ssi
on
mayeither 
suomoto 
oronreceiptofanyi
nformat
ionofal
l
egedcontr
avent
ionofSecti
on3(pr
ohi
bit
santi-
competiti
veagr
eements)mayinquir
eint
othesame.

Inquiryintocombi nations–Secti
on20oft heActent ruststheCommi ssi
onwi t
ht hepowert oinquir
einto
anyi nformationr elati
ngt oacqui
siti
onanddeterminewhet hersuchcombi nat
ionoracqui si
ti
onmayhav e
anappr eci
ableadv erseeffectoncompetiti
on( AAEC) .Referenceofani ssuebyast at
utoryauthori
tyto
theCommi ssion–Sect ion21oft heActenumer atest hatint hecour seofapr oceedi
ngifanyi ssueis
raisedt hatanydeci si
onofast atutor
yauthori
tywillbei nconf l
ictwit
ht heprovisionsoftheCompet i
ti
on
Act ,2002,thest atutoryauthor
it
yshallmakear efer
encei nthisr egar
dt otheCommi ssi
on.

ReferencebyCommi ssi
on–Secti
on21Aoft heActprovi
desthatifi
nthecourseofproceedi
nganissuei
s
rai
sedbyanypar tyt
hatanydecisi
ontakenbyt heCommissionisincontr
av ent
ionoftheprov
isi
onsof
Compet it
ionAct,whoseaut
hori
tyisentr
ustedtoastat
utor
yaut hor
it
ythentheCommi ssionmaymakea
ref
erencei nr
espectofthei
ssuetothestat
utor
yauthor
it
y.

Powertoi
ssuei nt
eri
m order
–Section33oft
heActempowerstheCommissi
ontoi
ssuei
nteri
m or
dersin
casesofanti
-competit
iveagreement
sandabuseofdominantposi
ti
on,t
herebyt
empor
aril
yrest
rai
ning
anypar
tyfr
om carryi
ngonsuchanact .

Competi
ti
onAdv ocacy–Secti
on49oft heActpr ovidesforcompet i
ti
onadv ocacyandenumeratesthat
theCent
ralortheSt at
eGovernmentmaywhi l
eformulati
nganypolicyonCompet it
ionoranyot
hermatter
maymaker eferencetotheCommi ssi
onf orit
sopini
ononpossi bleeffectofsuchpoli
cyonCompet i
ti
on.
However,t
heopi ni
ongivenbytheCommi ssionisnotbindingontheCent r
alGover
nment.

Powert
omaker
egul
ati
ons:
Sect
ion64

Sect
ion:
53A,
B,O,
T
APPELLATETRIBUNAL

Asperarecentamendment,
theCompeti
ti
onAppell
ateTri
bunal(COMPAT)hasceasedt
oexistef
fect
ive
26May2017.Theappel l
atefunct
ionundertheCompetit
ionAct,2002(Compet
iti
onAct
)wouldnow
conf
ertotheNat i
onalCompanyLaw Appell
ateTr
ibunal(NCLAT).Theseamendment
swer ebrought
aboutundertheprovi
sionsofPar tXI
VofChapt erVIoft
heFinanceAct,2017.Accor
dingl
y,Secti
ons2(
ba)
and53Aoft heCompet iti
onActandSect ion410oft heCompaniesAct ,2013(CA2013)hav ebeen
appropr
iat
elyamendedandv ari
ousotherpr ov
isi
onsoftheCompet i
ti
onActdeal i
ngwitht heCOMPAT
havebeenomi t
ted.Further,Secti
on417A hasbeeni ntr
oducedintheCA 2013anddeal swiththe
qual
ifi
cati
ons,t
ermsandcondi t
ionsofser
viceoftheChair
personandMember softheNCLAT.

Di
rect
orGener
al&Dut
ies

1.
TheCent ralgover
nmentappointaDirect
orGener alandasmanyAddi t
ional
,Joi
nt,Deput
yorAssist
ant
Di
rect
or sGeneralorsuchotheradv
iser
s,consultantsoroff
icer
s,assi
sti
ngtheCommi ssi
oninconduct
ing
i
nquir
yi nt
ocont r
aventi
onofanyoft hepr ovi
sionsoft hi
sActandf ortheconductofcasesbeforethe
Commi ssi
onandf orperf
ormingsuchotherfunctions.

2. 
Ever
yAdditi
onal,Joi
nt,Deput
yandAssist
antDi
rect
orsGener
alorsuchotheradv
isers,consult
ant
sand
off
icer
s,shal
lexerci
sehispowers,anddi
schar
gehisf
uncti
ons,
subj
ecttothegeneralcontr
ol,super
visi
on
anddir
ecti
onoft heDir
ectorGener
a.

3. 
Thesal
ary,
all
owancesandothertermsandcondi
ti
onsofser
viceoftheDir
ectorGener
alandAdditi
onal
,
Joint
,Deput
yandAssi stantDi
rect
orsGener
alorsuchotheradviser
s,consul
tant
sorof f
icer
s,shallbe
suchasmaybepr escr
ibed.

4. 
TheDi r
ectorGener alandAddi t
ional,Joint,DeputyandAssi st
antDirector
sGener alorsuchot her
advisers,consul
tantsorof f
icer
sshallbeappoi ntedf
rom amongstpersonsofi ntegri
tyandoutst
andi ng
abil
ityandwhohav eexperienceininvesti
gation,andknowledgeofaccountancy,management ,
business,
publicadmi ni
str
ation,int
ernati
onaltrade,law oreconomi csandsuchot herqualif
icati
onsasmaybe
prescri
bed.

Sect
ion49:Compet
it
ionadv
ocacy

1.I
nf or
mul at
ingapol
i
cyoncompet i
ti
on(incl
udingr eview oflawsr elatedtocompet iti
on)
,theCentral
Governmentmaymakear ef
erencet
otheCommi ssi
onf orit
sopi ni
ononpossi bl
eeffectofsuchpoli
cyon
competiti
onandonreceiptofsucharefer
ence,theCommi ssionshall,wi t
hinsi
xtyday sofmakingsuch
ref
erence,giveit
sopi
niontot heCent
ralGovernment ,whichmayt her eaft
erformulatethepoli
cyasi t
deemsf i
t.

2.
Theopini
ongivenbytheCommissi
onundersub-
sect
ion(
1)shal
lnotbebi
ndi
ngupont
heCent
ral
Gover
nmentinf
ormul
ati
ngsuchpol
i
cy.

3.TheCommissi
onshal
ltakesui
tabl
emeasur
es,asmaybepr escr
ibed,
f ort
hepromot
ionofcompet
it
ion
advocacy
,cr
eati
ngawar
enessandimpar
ti
ngtrai
ningaboutcompet
iti
onissues.