Module 3

Political Environment

Defining the Political Environment

Inter-linkages occur in many ways, for example:

 Political decisions inevitably affect the economic environment.
 Political decisions also influence the social and cultural environment of a country.
 Politicians can influence the pace at which new technologies appear and are adopted.

The political environment is one of the less predictable elements in an organisation's business
environment. The fact that democratic governments have to seek re-election every few years has
contributed towards a cyclical political environment. The political environment in its widest sense
includes the effects of pressure groups who seek to change government policies.

Political Systems

There are different possible political systems. An open system of government is democratically
elected by the population of a country. Totalitarian systems of government occur where power
derives from a select group (e.g., communism) or based on the interests of sectional groups (often
military-based).

The idea that autocratic regimes have an advantage in economic development was once quite
fashionable. The plausibility of such a notion lies in the advantages such regimes were said to have
in forcing through development in the long term. An alternative view is that democracy is likely to
foster economic development.

Corruption remains a barrier to economic development in many countries. Some companies may
survive and prosper by bribing government officials, but the success and growth of such
companies is not necessarily based on the value they create for consumers.

The importance of monitoring the political environment

It is important for organisations to monitor their political environment, because change in this
environment can impact on business strategy and operations in a number of ways:
 The stability of the political system affects the attractiveness of a particular national market.
 Governments pass legislation that directly affects the relationship between the firm and its
customers, its suppliers and other firms.

1
 Governments see business organisations as an important vehicle for social reform.
 The government is additionally responsible for protecting the public interest at large.
 The economic environment is influenced by the actions of government.
 Government is itself a major consumer of goods and services.
 Government policies can influence the dominant social and cultural values of a country.

Organisations have to not only monitor the political environment – they also contribute to it.

Elements Of Political Environment Are:

1.Democracy: It refers to the political arragement in which the supreme power is vested in the
people .it maintains stable business environments through its laws protecting individual property
rights.
2.Totalitarianism: It is also called as authoritarianism; individual freedom is completely
subordinated to the power of the authority of state and concentrated in hands of one person or in
a small groups , which is not constitutionally accountable to the people. There are three types :
Theocratic, secular, tribal.
3.Ethical Issues: There are ethical issues involved in having business deals with military reasons
and also issues related to the payment of bribes to the government officials.
4.Political Risk: It is any government action or politically motivated event that could adversely
affective long term profitability or the value of the firm. It varies from nation to nation. There are
two types of risks:
Macro political risk:- It affects all international business.
Micro political risk:- It affects specific foreign business.

There are many external environmental factors that can affect your business. It is common for
managers to assess each of these factors closely. The aim is always to take better decisions for
the firm’s progress. Some common factors are political, economic, social and technological
(known as PEST analysis). Companies also study environmental, legal, ethical and
demographical factors.
The political factors affecting business are often given a lot of importance. Several aspects of
government policy can affect business. All firms must follow the law. Managers must find how
upcoming legislations can affect their activities.

The political environment can impact business organizations in many ways. It could add a risk
factor and lead to a major loss. You should understand that the political factors have the
power to change results. It can also affect government policies at local to federal level.
Companies should be ready to deal with the local and international outcomes of politics.
Changes in the government policy make up the political factors. The change can be economic,
legal or social. It could also be a mix of these factors.

2
Increase or decrease in tax could be an example of a political element. Your government might
increase taxes for some companies and lower it for others. The decision will have a direct effect
on your businesses. So, you must always stay up-to-date with such political factors. Government
interventions like shifts in interest rate can have an effect on the demand patterns of company.
Certain factors create Inter-linkages in many ways. Some examples are:

 Political decisions affect the economic environment.

 Political decisions influence the country’s socio-cultural environment.
 Politicians can influence the rate of emergence of new technologies.
 Politicians can influence acceptance of new technologies.
The political environment is perhaps among the least predictable elements in the business
environment. A cyclical political environment develops, as democratic governments have to
pursue re-election every few years. This external element of business includes the effects of
pressure groups. Pressure groups tend to change government policies.
As political systems in different areas vary, the political impact differs. The country’s population
democratically elects open government system. In totalitarian systems, government’s power
derives from a select group.
Corruption is a barrier to economic development for many countries. Some firms survive and
grow by offering bribes to government officials. The success and growth of these companies are
not based on the value they offer to consumers.

Below, is a list of political factors affecting business:

 Bureaucracy  Tax policy (tax rates and incentives)
 Corruption level  Government stability and related
 Freedom of the press changes
 Tariffs  Government involvement in trade
 Trade control unions and agreements
 Education Law  Import restrictions on quality and
 Anti-trust law quantity of product
 Employment law  Intellectual property law (Copyright,
 Discrimination law patents)
 Data protection law  Consumer protection and e-
 Environmental Law commerce
 Health and safety law  Laws that regulate environment
 Competition regulation pollution
 Regulation and deregulation
There are 4 main effects of these political factors on business organizations. They are:
 Impact on economy
 Changes in regulation
 Political stability
 Mitigation of risk

3
Impact on economy
The political situation of a country affects its economic setting. The economic environment
affects the business performance. For example, there are major differences in Democratic and
Republican policies in the US. This influences factors like taxes and government spending,
which ultimately affect the economy. A greater level of government spending often stimulates
the economy.

Changes in regulation
Governments could alter their rules and regulations. This could in turn have an effect on a
business. After the accounting scandals of the early 21st century, the US SEC became more
attentive on corporate compliance. The government introduced the Sarbanes-Oxley compliance
regulations of 2002. This was a reaction to the social environment. The social environment urged
a change to make public companies more liable.

Political stability
Lack of political stability in a country effects business operations. This is especially true for the
companies which operate internationally. For example, an aggressive takeover could overthrow a
government. This could lead to riots, looting and general disorder in the environment. These
disrupt business operations. Sri Lanka was in a similar state during a civil war. Egypt and Syria
faced disturbances too.

Mitigation of risk
Buying political risk insurance is a way to manage political risk. Companies that have
international operations use such insurance to reduce their risk exposure. There are some indices
that give an idea of the risk exposure in certain countries. The index of economic freedom is a
good example. It ranks countries based on how politics impacts business decisions there.

THE IMPORTANCE OF OBSERVING THE POLITICAL ENVIRONMENT

Firms should track their political environment. Change in the political factors can affect business
strategy because of the following reasons:

 The stability of a political system can affect the appeal of a particular local market.
 Governments view business organizations as a critical vehicle for social reform.
 Governments pass legislation, which impacts the relationship between the firm and its
customers, suppliers, and other companies.
 The government is liable for protecting the public interest.
 Government actions influence the economic environment.
 Government is a major consumer of goods and services.

4
LEGAL ENVIRONMENT:
It refers to the legal systems obtaining in the country. It refers to the rules and laws that
regulate behavior of individuals & organization. There are four basic legal systems prevailing
around the world: Islamic law: It is derived from the interpretation of the Quran and practiced in
Muslim majority countries. Common law: It is prevalent in countries which are under British
influence. Civil or code law: It is derived from roman law, practiced in German, non Marxist
&non Islamic countries. Marxists law: It has takers in communists countries.

Legal environment of business means all factors relating to laws and legal orders which affect
business and its working. Business must be operated under the rules and regulation of different
laws of India. The following is the list of main laws which affect business.

1. Indian contract act 1872 12. Central excise act 1944

2. Indian sale of goods act 1930 13. Security exchange board of India act
3. Indian partnership act 1932 1992
4. Industrial dispute Act 1947 14. Banking regulation act 1949
5. Minimum wages act 1948 15. Chartered accountant act 1949
6. Indian companies act 1956 16. Information technology act 2000
7. Foreign exchange regulation act (FERA ) 17. competition act 2002
1973 18. right to information act 2005
8. Foreign exchange management act 1999 19. Micro, Small and Medium Enterprises
9. Monopolies and restrictive trade practice Development Act,2006
act 1969 20. Commissions for Protection of Child
10. Consumer protection act 1986 Rights Act,2005
11. Indian income tax act 961

Legal aspects are an indispensable part of a successful business environment in any

country. They reflect the policy framework and the mindset of the Governmental structure of that
country. They ensure that every company is functioning as per the statutory framework of the
country. Every enterprise must take into account this legal set up while framing the basic aims
and objectives of its company. This is because, it is necessary for efficient and healthy
functioning of the organisation and helps it to know about the rights, responsibilities as well as
the challenges that it may have to face.
In India, the most important law which regulates all aspects relating to a company is the
Companies Act,1956. It contains provisions relating to formation of a company, powers and
responsibilities of the directors and managers, raising of capital, holding company meetings,
maintenance and audit of company accounts, powers of inspection and investigation of company
affairs, reconstruction and amalgamation of a company and even winding up of a company.

5
 The other major legislations are:- the Industries (Development and Regulation) Act 1951;
Trade Unions Act; the Competition Act, 2002; the Arbitration and Conciliation Act, 1996; the
Foreign Exchange Management Act (FEMA),1999; laws relating to intellectual property rights;
as well as laws relating to labour welfare.

Industrial Acts and Legislations

In India there are several Acts and legislations enacted by the Government of India for
regulation of industries in the country. These enactments play a very important role in the
country’s overall progress and economic development. These legislations are amended from time
to time in accordance with the changing circumstances and environment. The most important Act
is the Companies Act,1956 which relates to setting up and operation of companies in India. It
empowers the Central Government to regulate the formation, financing, functioning and winding
up of companies. It contains the mechanism regarding organisational, financial, managerial and
all the relevant aspects of a company.
In order to provide the Central Government with the means to implement its industrial
policies, several legislations have been enacted. The most important being the Industries
(Development and Regulation) Act, 1951 (IDRA). The main objectives of the Act is to empower
the Government to take necessary steps for the development of industries; to regulate the pattern
and direction of industrial development; and to control the activities, performance and results of
industrial undertakings in the public interest.

The bulk of the transactions in trade, commerce and industry are based on contracts. In
India, the Indian Contract Act,1872 is the governing legislation for contracts, which lays down
the general principles relating to formation, performance and enforceability of contracts and the
rules relating to certain special types of contracts like Indemnity and Guarantee; Bailment and
Pledge; as well as Agency.

Another important aspect of legislations is the industrial relations, which involves various
aspects of interactions between the employer and the employees; among the employees as well
as between the employers. In such relations whenever there is a clash of interest, it may result in
dissatisfaction for either of the parties involved and hence lead to industrial disputes or conflicts.
The Industrial Disputes Act, 1947 is the main legislation for investigation and settlement of all
industrial disputes. The Act enumerates the contingencies when a strike or lock-out can be
lawfully resorted to, when they can be declared illegal or unlawful, conditions for laying off,
retrenching, discharging or dismissing a workman, circumstances under which an industrial unit
can be closed down and several other matters related to industrial employees and employers. 10.
Trade unions are also an important part of an industrial set up. The legislation regulating these
trade unions is the Indian Trade Unions Act, 1926 . The Act deals with the registration of trade
unions, their rights, their liabilities and responsibilities as well as ensures that their funds are

6
utilised properly. It gives legal and corporate status to the registered trade unions. It also seeks to
protect them from civil or criminal prosecution so that they could carry on their legitimate
activities for the benefit of the working class.
INDIAN COMPANIES ACT.1956
A Company is defined as a voluntary association of persons formed for the purpose of
doing business, having a distinct name and limited liability. Companies, whether public or
private, are an indispensable part of an economy. They are the modes through which a country
grows and expands worldwide. Their performance is an important parameter of a countries
economic position.
In India, the Companies Act, 1956, is the most important piece of legislation that
empowers the Central Government to regulate the formation, financing, functioning and winding
up of companies. The Act contains the mechanism regarding organisational, financial,
managerial and all the relevant aspects of a company. It provides for the powers and
responsibilities of the directors and managers, raising of capital, holding of company meetings,
maintenance and audit of company accounts, powers of inspection, etc. The Act applies to whole
of India and to all types of companies, whether registered under this Act or an earlier Act. But it
does not apply to universities, co-operative societies, unincorporated trading, scientific and other
societies
The Act empowers the Central Government to inspect the books of accounts of a
company, to direct special audit, to order investigation into the affairs of a company and to
launch prosecution for violation of the Act. These inspections are designed to find out whether
the companies conduct their affairs in accordance with the provisions of the Act, whether any
unfair practices prejudicial to the public interest are being resorted to by any company or a group
of companies and to examine whether there is any mismanagement which may adversely affect
any interest of the shareholders, creditors, employees and others. If an inspection discloses a
prima facie case of fraud or cheating, action is initiated under provisions of the Companies Actor
the same is referred to the Central Bureau of Investigation.
The Companies Act is administered by the Central Government through the Ministry of
Corporate Affairs and the Offices of Registrar of Companies, Official Liquidators, Public
Trustee, Company Law Board, Director of Inspection, etc. The Registrar of Companies (ROC)
controls the task of incorporation of new companies and the administration of running
companies.
The Ministry of Corporate Affairs, earlier known as Department of Corporate Affairs
under Ministry of Finance, is primarily concerned with administration of the Companies Act,
1956, other allied Acts and rules &regulations framed there-under mainly for regulating the
functioning of the corporate sector in accordance with law. The Ministry has a three-tier
organisational set-up:-The Headquarters at New Delhi, The Regional Directorates at Mumbai,
Kolkata, Chennai and Noida, and The Registrars of Companies (ROCs) in States and Union
Territories.

7
 The Official Liquidators who are attached to the various High Courts functioning in the
country are also under the overall administrative control of the Ministry. The set-up at the
Headquarters includes the Company Law Board, a quasi-judicial body, having the principal
Bench at New Delhi, an additional principal bench for Southern Region at Chennai and four
Regional Benches located at New Delhi, Mumbai, Kolkata and Chennai. The organisation at the
Headquarters also includes two Directors of Inspection and Investigation with a complement of
staff, an Economic Adviser for Research and Statistics and other Officials providing expertise on
legal, accounting, economic and statistical matters.
The four Regional Directors, who are in charge of the respective regions, comprising a
number of States and Union Territories, inter alia, supervise the working of the Offices of
Registrars of Companies and the Official Liquidators working in their regions. They also
maintain liaison with the respective State Governments and the Central Government in matters
relating to the administration of the Companies Act, 1956.Registrar of Companies (ROCs)
appointed under Section 609 of the Companies Act, covering various States and Union
Territories, are vested with the primary duty of registering companies floated in the respective
States and the Union Territories and ensuring that such companies comply with the statutory
requirements under the Act. Their offices function as registry of records relating to the
companies registered with them. The powers vested with the ROCs are:-
 Registration of memorandum and articles.
 Registration of prospectus.
 Registration of reduction of capital.
 Call information or explanation.
 Seizure of documents.
 Investigation into affairs of a company.
 Inspection of books of accounts, etc of companies.
 To strike off defunct companies from register.
 Enforcement of duty of company to make returns, etc to Registrar.
 Non-disclosure of information in certain cases.
 Winding up petition by the Registrar.
According to the Act, a company means "a company formed and registered under the
Act or an existing company i.e. a company formed or registered under any of the previous
company laws". The salient features of a company are:-
 Artificial legal person:- a company is an artificial person in the sense that it is
created by law and lacks the attributes possessed by natural persons. It is
invisible, intangible, immortal and exists only in the contemplation of law. Hence,
it has to operate through a board of directors consisting of individuals.
 Separate legal entity:- a company is a distinct legal entity, different from its
members or shareholders. This implies that:- the property of the company belongs
to it and not to the members or shareholders; no member can either individually or
jointly claim any ownership rights in the assets of the company; an individual

8
 member cannot be held liable for the wrongful acts of the company even if he/she
holds virtually the entire share capital; the members of the company can enter into
contracts with the company.
 Perpetual succession:- a company enjoys continuous existence and its continuance
is not affected by the death, insolvency, mental or physical incapacity of its
members. It is created by law and law alone can dissolve it. Limited liability of
members:- the liability of its members is limited to the amount remaining unpaid
on the shares subscribed by them. Thus, in case of fully paid-up shares, the
members cannot be asked to contribute any further, if the company goes into
liquidation.
 Common seal:- a company has a common seal, which is the signature of that
company and signifies common consent of all the members. The company’s seal
is affixed on all the documents executed for and on its behalf.
 Transferability of shares:- the shares of a public company are freely transferable
without the permission of the company but in a manner provided in the Articles.
The shareholders may transfer their shares to another person and this does not
affect the funds of the company. But, a private company imposes restrictions on
transfer of its shares.
 Separate property:- all the property of the company vests in it. The company can
control, manage and hold the same in its own name. The members have no
ownership rights in the company’s property, either individually or collectively. A
shareholder does not even have an insurable right in the property of the company.
The creditors of the company can have a claim only against the property of the
company and not against the property of the individual members.
 Capacity to sue and being sued:- a company can enforce its rights through suits
and can also be sued for breach of its statutory rights.
An organization for its smooth and effective functioning, must ensure health and safety
of its employees. The major legislations relating to Occupational Health and Safety in India are:-
the Factories Act, 1948;the Mines Act, 1952 and the Dock Workers (Safety, Health &
Welfare)Act, 1986. The Directorate General of Mines Safety (DGMS) and the Directorate
General of Factory Advice Service and Labour Institutes(DGFASLI) are the two field
organisations of the Ministry of Labour and Employment in the area of occupational safety and
health in mines, factories and ports
Besides, the Government of India has taken steps like, announcing a competition policy,
enacting Competition Act,2002 and setting up of Competition Commission of India , in order to
ensure a healthy and fair competition in the market economy. These aim to prohibit the anti-
competitive business practices, abuse of dominance by an enterprise as well as regulate various
business combinations like mergers and acquisitions.
For regulation of the export and import of goods and services an entrepreneur has to
abide by the Foreign Trade(Development and Regulation) Act, 1992 and the EXIM policy

9
announced by the Government from time to time. The Ministry of Commerce and Industry is the
most important organ concerned with the promotion and regulation of the foreign trade in India.
The Ministry has an elaborate organizational set up to look after the various aspects of trade.
Within the Ministry, the Department of Commerce is responsible for formulating and
implementing the foreign trade policy.

The Foreign Exchange Management Act, 1999 (FEMA) is an Act of the Parliament of
India "to consolidate and amend the law relating to foreign exchange with the objective of
facilitating external trade and payments and for promoting the orderly development and
maintenance of foreign exchange market in India". It was passed in the winter session of
Parliament in 1999, replacing theForeign Exchange Regulation Act (FERA). This act makes
offences related to foreign exchange civil offenses. It extends to the whole of India., replacing
FERA, which had become incompatible with the pro-liberalisation policies of the Government of
India. It enabled a new foreign exchange management regime consistent with the emerging
framework of the World Trade Organisation (WTO). It also paved the way for the introduction
of the Prevention of Money Laundering Act 2002, which came into effect from 1 July 2005.
Unlike other laws where everything is permitted unless specifically prohibited, under this
act everything was prohibited unless specifically permitted. Hence the tenor and tone of the Act
was very drastic. It required imprisonment even for minor offences. Under FERA a person was
presumed guilty unless he proved himself innocent, whereas under other laws a person is
presumed innocent unless he is proven guilty.
FEMA is a regulatory mechanism that enables the Reserve Bank of India and the Central
Government to pass regulations and rules relating to foreign exchange in tune with the Foreign
Trade policy of India.
FERA, in place since 1974, did not succeed in restricting activities such as the expansion
of transnational corporations (TNCs). The concessions made to FERA in 1991-1993 showed that
FERA was on the verge of becoming redundant. After the amendment of FERA in 1993, it was
decided that the act would become the FEMA. This was done in order to relax the controls on
foreign exchange in India, as a result of economic liberalization. FEMA served to make
transactions for external trade (exports and imports) easier – transactions involving current
account for external trade no longer required RBI’s permission. The deals in Foreign Exchange
were to be ‘managed’ instead of ‘regulated’. The switch to FEMA shows the change on the part
of the government in terms of foreign capital.

Need for this management

The buying and selling of foreign currency and other debt instruments by businesses, individuals
and governments happens in the foreign exchange market. Apart from being very competitive,
this market is also the largest and most liquid market in the world as well as in India. It
constantly undergoes changes and innovations, which can either be beneficial to a country or
10
expose them to greater risks. The management of foreign exchange market becomes necessary in
order to mitigate and avoid the risks. Central banks would work towards an orderly functioning
of the transactions which can also develop their foreign exchange market.
Whether under FERA or FEMA’s control, the need for the management of foreign exchange is
important. It is necessary to keep adequate amount of foreign exchange from Import Substitution
to Export Promotion.

Main Features

 Activities such as payments made to any person outside India or receipts from them, along
with the deals in foreign exchange and foreign security is restricted. It is FEMA that gives
the central government the power to impose the restrictions.

 Restrictions are imposed on residents of India who carry out transactions in foreign
exchange, foreign security or who own or hold immovable property abroad.

 Without general or specific permission of the MA restricts the transactions involving foreign
exchange or foreign security and payments from outside the country to India – the
transactions should be made only through an authorised person.

 Deals in foreign exchange under the current account by an authorised person can be
restricted by the Central Government, based on public interest generally.

 Although selling or drawing of foreign exchange is done through an authorized person, the
RBI is empowered by this Act to subject the capital account transactions to a number of
restrictions.

 Residents of India will be permitted to carry out transactions in foreign exchange, foreign
security or to own or hold immovable property abroad if the currency, security or property
was owned or acquired when he/she was living outside India, or when it was inherited by
him/her from someone living outside India.

 Exporters are needed to furnish their export details to RBI. To ensure that the transactions
are carried out properly, RBI may ask the exporters to comply to its necessary requirements.

Regulations/Rules under FEMA

 Foreign Exchange Management (Current Account Transactions) Rules, 2000

 Foreign Exchange Management (Permissible Capital Account Transactions) Regulations,
2000
 Foreign Exchange Management (Transfer or Issue of any Foreign Security) regulations, 2004

11
 Foreign Exchange Management (Foreign currency accounts by a person resident in
India)Regulations, 2000
 Foreign Exchange Management (Acquisition and transfer of immovable property in India)
regulations, 2000
 Foreign Exchange Management (Establishment in India of branch or office or other place of
business) regulations, 2000
 Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2000
 Foreign Exchange Management (Export of Goods and Services) regulations, 2000
 Foreign Exchange Management (Realisation, repatriation and surrender of Foreign
Exchange)regulations, 2000
 Foreign Exchange Management (Possession and Retention of Foreign Currency)
Regulations, 2000
 Foreign Exchange (compounding proceedings) rules, 2000

The Securities and Exchange Board of India (SEBI) is the regulator for
the securities market in India. It was established in the year 1988 and given statutory powers on
12 April 1992 through the SEBI Act, 1992.

History
It was established by The Government of India on 12 April 1988 and given statutory powers in
1992 with SEBI Act 1992 being passed by the Indian Parliament. SEBI has its headquarters at
the business district of Bandra Kurla Complex in Mumbai, and has Northern, Eastern, Southern
and Western Regional Offices in New Delhi, Kolkata, Chennai and Ahmedabad respectively. It
has opened local offices at Jaipur and Bangalore and is planning to open offices at Guwahati,
Bhubaneshwar, Patna, Kochi and Chandigarh in Financial Year 2013 - 2014.
Controller of Capital Issues was the regulatory authority before SEBI came into existence; it
derived authority from the Capital Issues (Control) Act, 1947.
Initially SEBI was a non statutory body without any statutory power. However in 1995, the SEBI
was given additional statutory power by the Government of India through an amendment to
the Securities and Exchange Board of India Act, 1992. In April 1988 the SEBI was constituted as
the regulator of capital markets in India under a resolution of the Government of India.
The SEBI is managed by its members, which consists of following:

1. The chairman who is nominated by Union Government of India.

2. Two members, i.e., Officers from Union Finance Ministry.
3. One member from the Reserve Bank of India.
4. The remaining five members are nominated by Union Government of India, out of them
at least three shall be whole-time members.
12
Organisation structure
Upendra Kumar Sinha was appointed chairman on 18 February 2014 replacing C. B. Bhave.
The Board comprises

Name Designation V. K. Jairath

Member Appointed
magya

Upendra
Chairman
Kumar Sinha former Deputy
Anand Sinha Governor, Reserve Bank of
India
Nishant
Whole Time Member
Rathi
Naved Secretary, Ministry of
Masood Corporate Affairs
Rajeev
Kumar Whole Time Member
Agarwal Raje Kumar Part Time Member

S Raman Whole Time Member

Prakash Joint Secretary, Ministry of

Chandra Finance

Functions and responsibilities

The Preamble of the Securities and Exchange Board of India describes the basic functions of the
Securities and Exchange Board of India as "...to protect the interests of investors in securities and
to promote the development of, and to regulate the securities market and for matters connected
therewith or incidental thereto".
SEBI has to be responsive to the needs of three groups, which constitute the market:
 the issuers of securities
 the investors
 the market intermediaries.
SEBI has three functions rolled into one body: quasi-legislative, quasi-judicial and quasi-
executive. It drafts regulations in its legislative capacity, it conducts investigation and
enforcement action in its executive function and it passes rulings and orders in its judicial
capacity. Though this makes it very powerful, there is an appeal process to create accountability.

13
There is a Securities Appellate Tribunal which is a three-member tribunal and is headed by Mr.
Justice J P Devadhar, a former judge of the Bombay High Court. A second appeal lies directly to
the Supreme Court. SEBI has taken a very proactive role in streamlining disclosure requirements
to international standards.
Powers
For the discharge of its functions efficiently, SEBI has been vested with the following powers:

1. to approve by−laws of stock exchanges.sebi

2. to require the stock exchange to amend their by−laws.
3. inspect the books of accounts and call for periodical returns from recognised stock
exchanges.
4. inspect the books of accounts of a financial intermediaries.
5. compel certain companies to list their shares in one or more stock exchanges.
6. registration brokers.
There are two types of brokers:

1. circuit broker
2. merchant broker
SEBI committees

1. Technical Advisory Committee

2. Committee for review of structure of market infrastructure institutions
3. Advisory Committee for the SEBI Investor Protection and Education Fund
4. Takeover Regulations Advisory Committee
5. Primary Market Advisory Committee (PMAC)
6. Secondary Market Advisory Committee (SMAC)
7. Mutual Fund Advisory Committee
8. Corporate Bonds & Securitisation Advisory Committee

Major achievements
SEBI has enjoyed success as a regulator by pushing systematic reforms aggressively and
successively. SEBI is credited for quick movement towards making the markets electronic and
paperless by introducing T+5 rolling cycle from July 2001 and T+3 in April 2002 and further to
T+2 in April 2003. The rolling cycle of T+2 means, Settlement is done in 2 days after Trade
date. SEBI has been active in setting up the regulations as required under law. SEBI did away
with physical certificates that were prone to postal delays, theft and forgery, apart from making
the settlement process slow and cumbersome by passing Depositories Act, 1996.

14
SEBI has also been instrumental in taking quick and effective steps in light of the global
meltdown and the Satyam fiasco. In October 2011, it increased the extent and quantity of
disclosures to be made by Indian corporate promoters.[11] In light of the global meltdown, it
liberalised the takeover code to facilitate investments by removing regulatory structures. In one
such move, SEBI has increased the application limit for retail investors to Rs 2 lakh, from Rs 1
lakh at present.

Controversies[edit]
Supreme Court of India heard a Public Interest Litigation (PIL) filed by India Rejuvenation
Initiative that had challenged the procedure for key appointments adopted by Govt of India. The
petition alleged that, "The constitution of the search-cum-selection committee for recommending
the name of chairman and every whole-time members of SEBI for appointment has been altered,
which directly impacted its balance and could compromise the role of the SEBI as a
watchdog." On 21 November 2011, the court allowed petitioners to withdraw the petition and
file a fresh petition pointing out constitutional issues regarding appointments of regulators and
their independence. The Chief Justice of India refused the finance ministry’s request to dismiss
the PIL and said that the court was well aware of what was going on in SEBI. Hearing a similar
petition filed by Bangaluru-based advocate Anil Kumar Agarwal, a two judge Supreme Court
bench of Justice SS Nijjar and Justice HL Gokhale issued a notice to the Govt of India, SEBI
chief UK Sinha and Omita Paul, Secretary to the President of India.
Further, it came into light that Dr KM Abraham (the then whole time member of SEBI Board)
had written to the Prime Minister about malaise in SEBI. He said, "The regulatory institution is
under duress and under severe attack from powerful corporate interests operating concertedly to
undermine SEBI". He specifically said that Finance Minister's office, and especially his advisor
Omita Paul, were trying to influence many cases before SEBI, including those relating to Sahara
Group, Reliance, Bank of Rajasthan and MCX.

Intellectual Property Rights

General
The importance of intellectual property in India is well established at all levels- statutory,
administrative and judicial. India ratified the agreement establishing the World Trade
Organisation (WTO). This Agreement, inter-alia, contains an Agreement on Trade Related
Aspects of Intellectual Property Rights (TRIPS) which came into force from 1st January 1995. It
lays down minimum standards for protection and enforcement of intellectual property rights in
member countries which are required to promote effective and adequate protection of intellectual
property rights with a view to reducing distortions and impediments to international trade. The
obligations under the TRIPS Agreement relate to provision of minimum standard of protection
within the member countries legal systems and practices.
The Agreement provides for norms and standards in respect of following areas of intellectual
property

15
 Patents
 Trade Marks
 Copyrights
 Geographical Indications
 Industrial Designs
 Patents
The basic obligation in the area of patents is that, invention in all branches of technology
whether products or processes shall be patentable if they meet the three tests of being new
involving an inventive step and being capable of industrial application. In addition to the general
security exemption which applied to the entire TRIPS Agreement, specific exclusions are
permissible from the scope of patentability of inventions, the prevention of whose commercial
exploitation is necessary to protect public order or morality, human, animal, plant life or health
or to avoid serious prejudice to the environment. Further, members may also exclude from
patentability of diagnostic, therapeutic and surgical methods of the treatment of human and
animals and plants and animal other than micro-organisms and essentially biological processes
for the production of plants and animals. more...
The TRIPS Agreement provides for a minimum term of protection of 20 years counted from the
date of filing.
India had already implemented its obligations under Articles 70.8 and 70.9 of TRIP Agreement.
To view Trade Related Aspects of Intellectual Property Rights (TRIP) Agreement Click here
Acts related to Patents
The Patents Act, 1970
The Patents (amendment) Act, 1999
The Patents (amendment) Act, 2002
The Patents (amendment) Act, 2005
Rules pertaining to Patents
The Patents Rules 2003
The Patents (Amendment) Rules 2005
The Patents (Amendment) Rules 2006
Trade Marks
Trade marks have been defined as any sign, or any combination of signs capable of
distinguishing the goods or services of one undertaking from those of other undertakings. Such
distinguishing marks constitute protectable subject matter under the provisions of the TRIPS
Agreement. The Agreement provides that initial registration and each renewal of registration
shall be for a term of not less than 7 years and the registration shall be renewable indefinitely.
Compulsory licensing of trade marks is not permitted.
Keeping in view the changes in trade and commercial practices, globalisation of trade, need for
simplification and harmonisation of trade marks registration systems etc., a comprehensive
review of the Trade and Merchandise Marks Act, 1958 was made and a Bill to repeal and replace
the 1958 Act has since been passed by Parliament and notified in the Gazette on 30.12.1999.

16
This Act not only makes Trade Marks Law, TRIPS compatibility but also harmonises it with
international systems and practices. Work is underway to bring the law into force. more...
Trade Marks Acts
Trade Marks Act, 1999
New Elements in the Trade Marks Act, 1999
Copyrights
India’s copyright law, laid down in the Indian Copyright Act, 1957 as amended by Copyright
(Amendment) Act, 1999, fully reflects the Berne Convention on Copyrights, to which India is a
party. Additionally, India is party to the Geneva Convention for the Protection of rights of
Producers of Phonograms and to the Universal Copyright Convention. India is also an active
member of the World Intellectual Property Organisation (WIPO), Geneva and UNESCO.
The copyright law has been amended periodically to keep pace with changing requirements. The
recent amendment to the copyright law, which came into force in May 1995, has ushered in
comprehensive changes and brought the copyright law in line with the developments in satellite
broadcasting, computer software and digital technology. The amended law has made provisions
for the first time, to protect performer’s rights as envisaged in the Rome Convention
Several measures have been adopted to strengthen and streamline the enforcement of copyrights.
These include the setting up of a Copyright Enforcement Advisory Council, training programs
for enforcement officers and setting up special policy cells to deal with cases relating to
infringement of copyrights. more....
Rules and Acts related to Copyrights
The Copyright (Amendment) Act, 2012
Copyright, Act 1957
Copyright Rules, 1958
Copyright Handbook
International Copyright Order, 1999
Copyright Piracy in India
Amendments in the Act
Geographical Indications
The agreement contains a general obligation that parties shall provide the legal means for
interested parties to prevent the use of any means in the designation or presentation of a good
that indicates or suggests that the good in question originates in a geographical area other than
the true place of origin in a manner which misleads the public as to the geographical origin of the
goo. There is no obligation under the Agreement to protect geographical indications which are
not protected in their country or origin or which have fall en into disuse in that country.
A new law for the protection of geographical indications, viz. the Geographical Indications of
Goods (Registration and the Protection) Act, 1999 has also been passed by the Parliament and
notified on 30.12.1999 and the rules made there under notified on 8-3-2002.more...
Industrial Designs

17
Industrial designs refer to creative activity which result in the ornamental or formal appearance
of a product and design right refers to a novel or original design that is accorded to the proprietor
of a validly registered design. Industrial designs are an element of intellectual property. Under
the TRIPS Agreement, minimum standards of protection of industrial designs have been
provided for. As a developing country, India has already amended its national legislation to
provide for these minimal standards.
The essential purpose of design law it to promote and protect the design element of industrial
production. It is also intended to promote innovative activity in the field of industries. The
existing legislation on industrial designs in India is contained in the New Designs Act, 2000 and
this Act will serve its purpose well in the rapid changes in technology and international
developments. India has also achieved a mature status in the field of industrial designs and in
view of globalization of the economy, the present legislation is aligned with the changed
technical and commercial scenario and made to conform to international trends in design
administration.
This replacement Act is also aimed to inact a more detailed classification of design to conform to
the international system and to take care of the proliferation of design related activities in various
fields.
Obligations envisaged in respect of industrial designs are that independently created designs that
are new or original shall be protected. Individual governments have been given the option to
exclude from protection, designs dictated by technical or functional considerations, as against
aesthetic consideration which constitutes the coverage of industrial designs. The right accruing to
the right holder is the right to prevent third parties not having his consent from making, selling or
importing articles being or embodying a design, which is a copy or substantially a copy of the
protected design when such acts are undertaken for commercial purposes. The duration of
protection is to be not less than 10 years.

Technology Transfer

Technology Transfer (also called Transfer of Technology (TOT) and Technology

Commercialization)1 are the processes by which the information or knowledge related to the
technological aspects travel within the group or between the organizations or entity. Taking this
to the broader scenario, give rise to International technology transfer in which the knowledge
travels in between the countries, which is not only limited to the Knowledge and information,
rather includes skill transferring, methods of manufacturing, physical assets, know-how, and
other technical aspects, and henceforth helps in further development of the technology and
innovation, by effectively utilizing the technology transferred and finally incorporating it.

Technology transfer has been used in the movements of technology from the laboratory to
industry or from one application to another domain application or taking developing countries
into consideration technology transfer helps in growing access to technologies which are related

18
to other developed countries and henceforth helps in approaching towards the newer
technologies and inventions i.e. from Developed to developing countries.

On the other hand licensing is allowance granted by the patent owner to another person or
organization for using the patented invention on agreed terms and conditions, while the patent
owner continues maintaining his ownership to the patent and hereafter becomes the source of
income by receiving the predetermined royalties or as per the condition.

So by combining the concept of the technology transfer with the licensing one can help in taking
the benefit of the technology research that has been done previously, as licensing creates the
permissible structure for the transfer of the technology to a larger assembly of researchers and
engineers, which will help in saving the expenses of conducting the research and the costs of
maintaining development activities or facilities and hence will help in the further development of
the technology which has already been done.

As now a days in the era of the advancement in the technologies there are many technologies
which with the combination with the other technologies is giving birth to the other new advent
technologies. so here the licensing do play the important role in providing the legal platform to
utilize the combination of the technologies made or discovered by the other persons or the
organization which has been created earlier, and hereafter prevents from wastage of the time and
the research cost incurred in developing the earlier inventions.

FORMS OF TECHNOLOGY TRANSFER:

Technology transfer can be classified into vertical and horizontal technology transfer2

Vertical transfer refers to transfer of technology where transmission of new technologies is done
from the generation of new technology during the research and development programs into the
science and technology organizations, for instance, to the application related to the industrial and
agricultural sectors, or we can say that vertical transfer is the technology transfer commencing
from basic research to applied research, from applied research to development followed by
development to production.

While the horizontal technology transfer is the movement of a well-known technology from one
equipped environment to another (from one company to another) or say refers to the transfer and
use of technology used in one place or organization to another place or organization.

As discussed above generally developed countries follow the route:-

Research -> Development -> Design -> Production

While less advanced and developing countries follow the route:-

19
Production -> Design -> Development -> Research

Generally there are the reverse trends in the developing countries because the path to be followed
depends upon the transfer, absorption, and adaptation of existing technology

(Habibie (1990), often referred to as the architect of the Indonesian aircraft industry, states
that, "technology receivers must be prepared to implement manufacturing plans on a step-by step
basis, with the ultimate objective of eventually matching the added-value percentage obtained by
the technology transferring firm." He refers to such an approach as "progressive
manufacturing" and popularized the slogan, "begin at the end and end at the
beginning" implying that a transferee firm should start with production and move backwards to
research.)

Today in the era of advent in technology one could choose any of the routes of the technology
transfer which depends upon how the technology advancement chains of the transferor and
transferee are associated.

ADVANTAGES RELATED TO TECHNOLOGY TRANSFER:

The advantages related to technology transfer comprises of the essential gain to the public who
benefits from the manufactured goods that get to the market and ultimately the availability of the
jobs which results from the improvement and sale of the products so formed. And hence it
encourages use of technology developed and the benefiting to the society development which
comes from the revenue of the tax payers. And escalating visibility to researchers and allows
researcher to generate and earn royalty income and henceforth attaining financial profits for the
government and the employees from royalty payments for those technology transfers that involve
patent licenses.

Moreover resulting in commercialization of the researches and the discoveries made, which was
the course of the investment done for the development and being protected by the patent.
Hereafter all the Investments done in the course of the development in intellectual property are
returned to the public through products made for the public, opportunity of more employment,
and revenue in the form of taxes.

Technology transfer strengthens industry by identifying new business opportunities which

contributes to enhancing the know-how and competitiveness of the technology providers, which
ultimately results in broadening the business area and re-focusing to the technologies and
systems to serve several different fields. In addition, technology transfer promotes the wider use
and awareness of technology and systems.

20
Technology transfer brings economic benefits by increasing revenues for both technology donors
and receiver's benefits with new and better products, processes, and services that lead to
increased efficiency and effectiveness, greater market share and increased profits.

Moreover technology transfer helps in earning rewards which is above and beyond the regular
salary which is received through patents, licenses, and other technology transfer awards which
help in benefiting intellectually and professionally through working collaboratively with their
peers in the industrial sector.

DISADVANTAGES RELATED TO TECHNOLOGY TRANSFER

As technology transfer is keen or meant for the business oriented activity, hence forth there can
be the chances to have financial or commercial risk, as we are well aware that Licences can
generate the income, but patent application which are not licensed will only cost money.

Even when the transfer programme related to the technology transfer is successful or in
particular after technology transfer institutional tensions may arise within the organization which
may be in between the recipient of licensing income and those who know they will never make
utilizable inventions. For the sake of remedy in those circumstances Institutional policies can be
made aiming to have partial rearrangement of income received by license between all research
groups but, using this strategy may not eradicate the problem rather in most of the cases
discoverer will be frustrated or disappointed because the income that they have earned is given to
other groups. Technology transfer activities may put researchers in conflict of interest situations,
especially when the transfer involves the creation of the spin- off company, hence Institutions
should be aware of these possible dangers.

Moreover problem can be because of non performance of licensee. And may be the licensee has
limited chances beyond the license scope unless future enhancements to patent included in initial
agreement and Unrealistic expectations and demands from licensor.

INDIAN SCENARIO REGARDING THE LICENSING AND TECHNOLOGY

TRANSFER

Technology in India is growing exponentially and has played an important role in all round
development and growth of economy in the country, India has opted for a wise mix of original
and imported technology. Henceforth "Technology transfer" plays a very important role and is
generally covered by a technology transfer agreement.

Developing countries like India generally not follow the usual path for development with regard
to technologies but use their advantage in the cutting edge technology options which is now
available and put the tools to use this modern technology.

21
Technology transfer is assumed to get benefits from R&D which is shared with the developing
and underdeveloped countries , so taking this to the point of consideration National research
laboratories is been constructed by the Indian government for the purpose of R&D which is yet
to be commenced by the private sectors.

India generally comprises of Small and medium enterprises and is growing since liberalization,
which has resulted in growth of The multinational enterprises, which in turn is competing with
the international companies which has enhanced the confidence of India. Not only confined to
the pharmaceuticals but is broadly categorized in other areas too such as agriculture, dairy and
other technologies.

Government of India is in the verge to open Technology Transfer Offices, Universities,

institutions which will be funded by central government and will acts as mechanism for
transferring or exporting the research conducted and its outcome to the desired place.

Though some of the Indian Institutes have been already commercializing their research and are
successful in technology transfer in which they have been licensed as technologies to industry.
Moreover, numerous cases of technology transfer are seen in India by various well-known
institutions.

CONCLUSION

Technology transfer and its licensing have played a crucial role in all round development and the
advent of the technology which in results help in the development of the economy of the country.
Hence forth helps in creating the wealth to the country.

India as a developing country need to work on the technology development and technology
transfer and needs to make a building strategy comprising of the construction of new offices
related to technology transfer and to make youngsters aware to the benefits related to the
technology transfer, by establishing the specified universities and henceforth increasing the pace
of the technology transfer and technical research and development in technical perspective.

Finally as discussed we can conclude that there is the possible advantage and disadvantage of the
technology transfer. But we have to see this in the broader aspect so that our country as well as
the citizen of our country should be benefited.

22