In this article, Jimsi Tassar who is currently pursuing Diploma in Entrepreneurship Administration and Business Law from NUJS, Kolkata, discusses how to get a loan to start a business from the government?

Definition of Loan

As per the Business Dictionary, a Loan is a temporary transfer of Cash, from its owner or any financial institution (lender) to the borrower who promises to return it as per the terms and conditions of the agreement, usually with an interest for its use, which is elaborately put down in a Loan Agreement, that becomes enforceable when the Loan amount is advanced to borrower, with a stipulated time period for the amount to be returned to the Lender, along with the interest rates that has been determined as per the Loan Agreement.

There are various kinds of Loan

Demand Loan, Instalment Loan, and Time Loan depending upon its nature. For instance, a Demand Loan is one which is repayable at the demand of the Lender for repayment.  If the Loan is repayable at equal monthly instalments, then it is an Instalment Loan, and if there is a time bound payment on the loan’s maturity, it is called a Time Loan. Such specifics of Loan needs to be mentioned in the Loan Agreement between the lender and the Borrower, and could be

The Banking regulations and practise has further classified their Loans into: Consumer, Commercial, Industrial, Construction, Mortgage Loans, and Secured and Unsecured Loans.

Consumer Loan

A type of Loan which is given to an individual in a non secured basis for personal, family, vehicles and home loans etc.  A loan which is in a non secured basis means, without any collateral for security to the bank. Consumer Loans are usually regulated by the Government Regulatory Agencies for their compliances with the consumer Protection Agencies, also known as Consumer lending or Consumer credit.

Commercial Loans

A type of Loan is usually advanced to a Business rather than a Consumer. Commercial Loans are usually for a short term period of 30 days and up to a year, which has been either secured with collateral or is unsecured, and are generally advanced for financing equipments, or could be a Loan for a Business to Business Transaction and in the form of Machinery, or in a kind of Inventory. The Banks usually requires the Commercial Borrowers to submit financial statements of the banks and to maintain some security by having insurance on the purchased item like machinery or heavy financial vehicle for commercial purposes.

Industrial Loans

A type of loan which is always forwarded towards financing a project and for commercial and industrial projects in the form of working capital or to finance major capital expenditures, and thus, an Industrial Loans are always forwarded against collateral for a short duration and is made on the basis of financing projects.

Construction Loans

A type of Loan which is usually short term for up to three years, and is always a secured loan, and it is a real estate financing, which is secured by a mortgage on the property that is being financed, for covering the cost of construction and land development and is usually advanced through pre- arranged methods and procedures, and are usually categorized as developmental Loans.

Mortgage Loans

A type of Loan which is usually advanced against Collateral, and the Mortgagor or the lender usually gives it to the Mortgagee (borrower) as a lien on the property, which expires when the Mortgage is paid off fully. The bank usually removes the lien on the property, when the Mortgage Loan is paid off in totality.

Secured Loan

A Secured loan is a type of Loan, which is usually guaranteed by the borrower giving Assets as security or collateral for security. The normal practise is to secure the land ownership documents or property ownership documents for the best interest of both parties.

Unsecured Loan

A type of Loan which is borrowed without collateral and only with the credit worthiness of a borrower. It is usually called a signature Loan or a personal Loan. The rate of interest can get very high in this regard due to unsecured loan category which puts the Lender in a higher risk category.

Apart from the Personal Loans between individuals, the Banking Sector in both Private and Public sector play the biggest role in advancing Loans to individuals and communities or corporate or organized sectors. Besides, the Non Banking Financial Institute and other Micro Financing institute for various determined sectors like Agriculture and farming is also being encouraged through subsidies and advancing loans with low rate of interests to support the rural economy.

NABARD

National Bank for Rural and Agricultural Development is an institutional Credit and loan providing body, which has been taken up by the Government in the year through NABARD legislation in the parliament through Act 61 of 1981. Thereafter, NABARD came into existence in the year 1982, with the Agriculture credit functions, and refinance facility of Agriculture Refinance and Development Corporation (ARDC) being transferred to NABARD.

Thus, NABARD is an Institutional subsidy advancing agency of the Government and also, A Micro finance unit that advances small loans for schemes and projects related to Agriculture.

Micro Finance

Micro- Finance is a type of Banking service that is provided to an unemployed or low income individuals or groups who otherwise has no access to financial services to start up a project or become stable financially and economically self reliant.

The Government of India, attuned to the governing principle of ‘Socialism’, as highlighted in its preamble in the constitution, has managed to bring out financial structures to reach out to masses that are from a certain financial background, and with no access to capital for initial investment. The Government of India to gives loans, the person (borrower) needs to be an Indian Citizen, and with no criminal turpitude, and with the submission of a Project Report and schedule of Payment, and submitting a solid project plan with profitable profits.

The Start Up India, is claimed to be a revolutionary scheme that has been initiated by Department of Industrial Policy and Promotion (DIPP) and launched by the Prime Minister of India to enable young entrepreneurs and Start up campaigns for making people self reliant.

Pradhan Mantri Mudra Yojana (PMMY)

Micro Units Development and Refinance Agency ( MUDRA) bank is a new institution being set up by the Government of India, for development and refinancing activities relating to Micro Units, with the main objective of providing funds to Non-corporate small Business sector, with the long term goal to youth for being job creators and not job seekers. As per the scheme, there are three loan structures:

1. Sishu-Loan upto 50,000/-
2. Kishore- Loan upto 50,000/- to 5,00,000/-
3. Tarun- Loan upto 5,00,000/- to upto 10 lakhs.

MUDRA Bank, or Micro Units Development and Refinancing Agency Bank, is a public sector financial Institution in India which has been launched on 2015. The MUDRA Bank provides loans at low rate of interests to Micro Finance Institute and Non Banking Financial Institutions, and which ultimately provides credit to the MSMES or the Micro, Small and Medium Enterprises, and it has been found that Artisans, fruit and vegetable vendors, shopkeepers, Small Manufacturing Units have been able to borrow from MUDRA Banks.

MUDRA Bank therefore, has been launched for benefitting small entrepreneurs, and act as a regulator for Micro Finance Institutions (MFI), besides laying down guidelines for Policy for Micro Finance Business and registration of MFI entities and their accreditation.

MUDRA bank objective is to provide last mile financers with money to reach out the small scale entrepreneurs and business holders who usually remain cut off from the banking system.  Thus, the main target group of MUDRA Yojana is the young, educated and skilled workers, entrepreneurs including women entrepreneurs. It was established as a subsidiary of the Small Industries Development Bank of India (SIDBI) with an initial corpus of Rs 5,000 crore to provide capital to all banks seeking refinancing of small business loans under PMMY.

SIDBI

Small Industries Development Bank of India is a financial Institution that was set up on April 2, 1990 through the Small Industries Development Bank of India Act,that aims to provide financial aid to the growth and development of micro, small and medium scale enterprises (MSME) in India. SIDBI is a subsidiary of Industrial Development Bank of India (IDBI), and is owned and controlled by 34 government Institution, and actually started off as a Refinancing Agency to banks and state level financial Institutions  for their credit to small industries. SIDBI has the main function of Promotion, Development and Financing of the MSME and related institutions.

Credit Guarantee Fund Trust for Micro and Small Enterprises popularly known as CGTMSE is widely being used by many PSU Banks and Private sector banks to fund MSME sector.

Stand up India Scheme

Start up India is a flagship initiative of the Government of India to build a sustainable eco system for growing and nurturing start ups in the country that will lead towards a sustainable growth to enable start ups to grow through innovation and design.

Start up is an entity incorporated or registered in India, not prior to five years, with annual turnover not exceeding INR 25crore in any preceding financial year, and which is working towards innovation, development, deployment, or commercialization of new products, processes or services driven by technology or intellectual property, and is eligible for tax benefits after it has registered with the inter ministerial Board for tax benefits.

For Scheduled Tribe or Scheduled Caste or a Women Entrepreneur for starting an entrepreneur skill, and it was launched to facilitate a loan amount of Rs 10 lakhs to 1 crores, to at least one scheduled Tribe or scheduled Caste citizen, and one women entrepreneur borrower per branch in a bank, and only for setting up a Greenfield Enterprise, which could be in manufacturing or services or Trading sector.

Also, if it is a Non Individual Enterprise, then at least 51% of the shareholding and controlling stake is required to be held by the member of ST/SC or Women Entrepreneur. Thus, the main objective of such scheme is to economically empower the women or members of ST and SC community with financial aid through lending such amount with very low rate of Interest. It is also to be noted that, such a Loan, under the scheme is not required to have a Guarantor as it is in the case of other Loans and schemes.

ELIGIBLITY:

The eligibility criteria for a Borrower have been put down as a guideline for being qualified for the Scheme.

1. The Scheme applies only to a Scheduled Tribe and scheduled caste person as defined in the Constitution of India under the Schedule VI and V.
2. The Scheme applies also to Women Entrepreneurs who are above 18 years of age.
3. Loan under the scheme is eligible only for Green Field Project, which signifies, a first project from the grass root, which consists of a first time venture of the beneficiary in the Manufacturing, Services or the Trading sector. Here Manufacturing would apply to a establishing any unit from the scratch, a project without any previous investment. Services could apply to establishing Service provider or unit centres to cater to other business houses. A Trading sector applies to any sort of trade which indicates all sorts of exchange and production of goods and products in exchange of the monetary units or currency.
4. The Loan under this scheme is also eligible for Non Individual enterprises, and business house, with 51% of the share holding, or the major stake is in control of woman, or a ST/ Sc entrepreneur. Thus, the enterprise eligible for loan has to be within these criteria.
5. The Loan Scheme would not be eligible for any person or enterprise that have been a defaulter or has not been able to make a repayment and the Asset had been declared as a Non Performing Asset (NPA), as per the SARFAESI Act. The Loan would also mean the amount taken by any other Non Banking Financial Institution.

Purpose or Objective of Loan is for economic empowerment of women entrepreneur or member of the Scheduled Tribe or Scheduled caste, which means that the Loan is nothing but an extension of a scheme of the Government of India to reach out to the start up or innovative or fresh ventures, and small to medium scale entrepreneurs in the field of Trading, manufacturing and Service sectors.

The Loan structure

The Loan is called a composite loan, which is 75% project cost of term Loan and the working capital for investing in the venture or the project instantaneously. The 75% scheme would not apply if the convergence cost covered by the borrower exceeds 25%, of the Project cost.

Rate of Interest of the Loan

The rate of Interest as per the scheme would be the lowest as compared to the categories available to any bank and their rate of interest. However, the rate of interest cannot exceed the base rate + Marginal Cost of Lending Rate+3%+ tenor premium.

The Security required is the basic primary security

The loan may be secured by collateral security or Guarantee of Credit Guarantee Fund Scheme for Stand Up India Loans, (CGFSIL) which is at the discretion of the lending bank to decide as per the terms.

Repayment terms and conditions

The loan amount is to be made repaid within seven years of repayment period, and with an extended maximum moratorium period of eighteen months.

Working capital and overdraft

The process of drawing an amount of Rs 10 lakhs the amount may be sanctioned by the way of an overdraft. A credit card is possible to be drawn for drawing the capital for the convenience of the Borrower The working capital limit above Rs. 10 lakhs that needs to be sanctioned by way of cash credit limit.

Margin Money

As per the scheme, the borrower is supposed to be investing 10% of the cost of the project as its own contribution towards the project. The Scheme highlights that about 25% of the margin money towards the project which can be converged against any other central or state schemes available.

The Guideline for availing Stand up India scheme is to be operated from the by all the scheduled commercial Banks of India. The loan can be availed directly from the Branch, or through a SIDBI’S Stand up India Portal. (standupmitra.in) or through the Lead District Manager of the scheduled bank. The portal would be quite a platform for availing information as well as feedback for preparation and for providing a feedback for hand holding of potential borrowers and projects that put forth as proposal.

Handholding

The information required for initial stage for the project to be facilitated by the interface portals are to create a portfolio of the borrower and the potential project in the form of understanding the proposal of the project and the background of the borrower in terms

The information required for initial stage for the project to be facilitated by the interface portals are to create a portfolio of the borrower and the potential project in the form of understanding the proposal of the project and the background of the borrower in terms of the character and handholding required for accumulating margin money or not, with any background experience of the borrower, thus allows the portal to make a distinction between a Trainee borrower and a ready Borrower.

Ready Borrower

A Borrower who does not require any handholding and the application process for Loan starts at the selected bank, and an application number is generated, and the information of the borrower is shared with the concerned bank, and the relevant linked office of the NABARD / SIDBI. Also, the LDM posted in each district, is informed of the concerned bank is informed of the same. The SIDBI/NABARD is made the Stand up Connect Centres, and the loan application is tracked through the concerned portal.

Trainee Borrower

When the portal and initial application of Loan requires handholding, then the application is forwarded to the LDM of the concerned District, and the relevant officer of SIDBI/NABARD. The application process would be electronic, and could be applied by a borrower, or through a bank branch officer dealing with MUDRA.

Grievance Redressal and District Level credit Committee: There will be portal for grievance addressing and also, a periodical meet to follow up the project accepted.

The stakeholders are the Borrowers, SIDBI, NABARD, DLCC, LDM, and the bank branches to monitor, facilitate, handholding, support, solve problem, monitor performance etc.

Conclusion

Loan by Government for Business is therefore not possible through any other institution but the banking sector and any other such Non-Banking Financial Institutions which advance loan or act as lending agency to potential borrowers.

 The definition of Government or State is wider than the institutions and constitutional bodies that are authorities for advancing loan amount to any borrowers. The Public Sector Banks and Private Sector banks, and Scheduled and Commercial banks are institutional bodies that provide loan to borrowers as per their own guidelines and through the governing principles of reserve Bank of India, like Credit Reserve Ratio, Statutory Liquidity Ratio, Repo Rate and Reverse Repo Rate.

However, The Government provides scheme that could facilitate the lending of Loan amount to the Borrowers through Public Sector units like SIDBI, IDBI, NABARD etc.

Therefore, the Government through legislation can promote schemes that enables the Borrower and the Lender to have a relationship that enables and promotes entrepreneurship, start ups, skill developments, and thus, enables the Government to achieve its long term goals through its action plan, as a roadmap towards achieving the principle of Justice- Economic, Political and Social, and dwell on the Socialist principle highlighted in the Preamble of the Indian Constitution.

The post How to get a loan to start a business from the government? appeared first on iPleaders.

In this article, Sachin Vats of RGNUL discusses steps to take when an employer fires an employee without giving due salary.

The Indian Constitution provides power to both the Central and State Government to make legislation regarding labour relations and employment matters as labour is a subject under the ‘Concurrent List’ of the Constitution. So, the primary source of the employment depends upon both the Central and respective State legislations.

Some of the major legislations regarding the labour and employment laws in India are,

• Industries Development Act, 1947
• Contract Labour (Regulation and Abolition) Act, 1970.
• Employees’ Compensation Act, 1923.
• Factories Act, 1948.
• Shops and Establishments Act for different states.

The concept of employment is determined by the following essential ingredients

• Employer – One who works or engages the services of others.
• Employee – One who works for the others after getting hired.
• Contract of Employment – The contract of service between employer and employee where the employee agrees to serve the employer subject to his control and supervision.

There are three main categories of employees according to the Indian Labour and Employment laws.

• Government Employees.
• Employees in Government controlled Corporate Bodies known as PSUs
• Private Sector Employees.

There is no any standard labour legislation in India for the protection of the workers who are employed in any establishment. The different legislations are made for different categories of employees depending upon the nature and the type of work performed by the employee.

Rights of an Employee

Many laws in India are made which has several provisions to safeguard the interests of employees. There is no any specific law which governs private employment in but an employee has many rights given under various laws.  

• Written Employment Agreement – The Written Employment Agreement is a legal document containing terms and conditions of the employment. It must be provided to an employee by the employer which lists all the rights and obligations of both. So, the written document provides security and protection to both the parties and should be provided at the starting of the job.

An Employee can take various types of leaves during the course of employment depending upon the situation such as casual leave for urgent and unseen matters, sick leave for medical related problems, privilege or earned leaves for plans in advance. So, these leaves are the right of an employee during the employment and they cannot be fired for such leaves.

The Employees get protection from sexual harassment at the workplace. It is a punishable offence under the Indian Penal Code and an aggrieved can seek remedy under Sexual harassment at workplace (prevention, prohibition, Redressal) Act, 2013. The Maternity Benefit Act, 1961 gives provision for the maternity leave for pregnant women during the course of employment. They cannot be fired on the basis of absence due to pregnancy. The female workers get the paid maternity leave for 26 weeks now in the private sector.  

Gratuity is a statutory benefit paid to the employees who have rendered continuous service for at least five years. A statutory right of employees cannot be denied by the employer on the ground that they are being provided with provident funds and pension benefits. Employment Provident Fund is a retirement benefit scheme available to all the salaried employees. It is managed by Employee Provident Fund Organisation of India and any company with over 20 employees is required by law to register with EPFO. Both the employer and the employee have to contribute 12% of their basic salary to the provident fund as per the law. If any employer is deducting the whole provident fund from an employee’s salary then it is against the act and he can apply against the same in Provident Fund Appellate Tribunal.  

What to do if an employee is fired without being paid the due salary

Many cases has been reported in India regarding firing of an Employee without giving due salary to them by the Employer. The allegations have also been made against the big and reputed companies regarding these issues. Many a time the employers do not like to pay for a notice period also.

Actually, it is “illegal” to not pay the due salary of an employee after being fired by the employer. The employer has to pay the due salary along with the payment of the notice period.

• An employee can file a suit against the employer because of the violation of the rights in accordance with the various prevailing laws. Normally, an employee should follow the given process if his or her rights regarding payment of due salary has been violated. :-
• First of all, the employee should send a legal notice to the employer regarding payment of the due salary which was not paid to him after being fired. The employer has to answer the notice being sent to him with valid, reasonable and competent legal reasons. The action taken by the employer against the legal notice decides the further course of action to be taken by the employee.
• If the due salary is not paid even after giving the legal notice. An employee after waiting for a reply for reasonable days, can file a police complaint regarding the cheating or breach of trust against the employer. The police will decide the further course of action depending upon the result of the investigation done by the police.
• If his complaint is not heard by the police or the competent authority the he can approach the District Magistrate with the copy of police complaint. The matter can also be taken before the Registrar of the companies to make him aware about the malpractices and cheating done against him by the employer of the company.
• Generally, the dispute gets resolved at this stage because the employer does not like to fight a long case for such amount of money. But, if it does not get resolved then an employee has further methods to get his due salary.  
• The employee can file a suit in Labour Court before the Magistrate against the employer for recovery of all pending dues. The employee is entitled to get the payment of even the notice period.

Notice Period

The employers are required to give notice of termination of their employment in accordance with the employment contract. Generally, various states have their specific legislations which provide for a minimum notice period of one month.

• The time period between the receipt of the letter of dismissal and the end of the last working days is known as Notice Period. The notice of the dismissal must be given to an employee by his or her employer before his employment ends. It also refers to the period between resignation date and last working day in the company when an employee resigns. The Notice Period as per the terms and conditions of the employment contract is applicable.
• In India, the notice period is generally 30 days for staffs who are still serving on probation and a period of 90 days for the confirmed employees.

When the Termination is Unlawful

An employer terminated by the employer have certain rights. In private industry there is employment ‘At Will’ in most of the cases where an employer can terminate an employee at any time and for any reason but the reason should not be illegal and contrary to any agreement.

• Termination may be unlawful if it done on the basis of following grounds :-
  • If there is an Implied Agreement and the Court considers that the employer has promised about continued agreement then the termination will not be taken as lawful.
  • There must not be violation of public policy by the employer in firing the employee as it is considered as unlawful. The termination done on the basis of discrimination between employees and job application based on race, religion, sex, ethnicity, background, etc. are considered as unlawful.
  • An employer cannot fire an employer only on the ground that certain unlawful activities have been reported against him or her. The termination cannot be done only on the basis of retaliation for a specific act.

What are the benefits available if the termination is lawful or one has willfully resigned

• The employee gets some benefits after termination if the termination is lawful or the employee has himself or herself willfully resigned. These benefits include:
• • The “Final Paycheck” must be given by the employer to their employee. It s better understood as “collection of dues”. It generally depends upon the condition whether the employee quit or employer fired the employee.
  • The Severance Package is one type of contractual agreement between the employer and the employee. The employer will provide the terminated employee with a severance package but it is not compulsory by law.
  • The Health Insurance is provided to the terminated employees. They have right to health insurance coverage after their separation from the employer. It is only for the specific period of around 20 to 24 weeks.
  • In India, those who come under Employee’s State Insurance Scheme are applicable for “unemployment benefits”. These are provided to unemployed worker who are qualified but are in search of employment.
  • The employer also issues a “letter of reference” to the outgoing employee stating his or her duration of employment, position and quality of performance.

Conclusion

There are many laws in every sector either public or private for the protection and welfare of different kinds of workers whether they are permanent, contractual or part time but very less people know about the proper use of the existing laws to avoid any type of exploitation by the employer. There is a need to make workers aware of their rights and laws to avoid misuse of laws and do not enter into contract agreement or bond without reading and knowing the legal prospect and conditions.

The post What to do if employer fires an employee without giving due salary? appeared first on iPleaders.

In this article, Joseph V Gregory who is currently pursuing Diploma in Entrepreneurship Administration and Business Law from NUJS, Kolkata, discusses ten things you should know about foreign institutional investor.

India is the third largest economy in the world in PPP terms. According to a report by Bank of America Merrill Lynch, India is the most favourite equity market for global investors for the year 2015 at 43% followed by China at 26%. The commencement of inflow of foreign investment can be dated back to the policy in 1992-1993.

Of the different types of Foreign Investment, FII is an investor or investment fund registered in a country outside of the one in which it is investing. They are registered as FIIs in accordance with Section 2(f) of the SEBI (FII) Regulations, 1995.

As defined by the European Union (FII), it is an investment which are saved collectively on behalf of investors used to investment in a foreign market by specialised financial intermediaries, especially small investors, towards specific objectives in term of risk, return and maturity of claims.

FIIs net investments stood at Rs 18,106 crore (US$ 2.68 billion) in March 2016, out of which Rs 16,731 crore (US$ 2.48 billion) was invested in equities and Rs 1,375 crore (US$ 203.83 million) was invested in debt. Cumulative value of investments by FIIs during April 2000-December 2015 stood at US$ 179.32 billion. FIIs importance has grown in emerging countries like India on the backdrop of Brexit which accelerated the move to the fastest growing economies. It’s growth has been more rapid than international trade or world economic production generally and has impacted economies positively and negatively.

According to the Finance Minister, in the Union Budget 2013-14, accepted and differentiated between FDIs and FIIs, the most common form of investments as –

“Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII) is proposed to follow the international practice and lay down a broad principle that, where an investor has a stake of 10 percent or less in a company, it will be treated as FII and, where an investor has a stake of more than 10 percent, it will be treated as FDI.”

The foreign investments in India is regulated by the Reserve Bank of India by the provisions of Foreign Exchange Management Act, 1999 (relevant sections 6 & 47). FDIs and FIIs are defined in the Schedule 1 & 2 in FEMA (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000. SEBI acts as the nodal point in registration of FIIs. FIIs by individuals cannot exceed 10% of paid up capital of a company while foreign corporates or individuals registered as sub-accounts of FII cannot exceed 5% of paid-up capital.

A Foreign Institutional Investor may invest only in the following:-

1. Securities in the primary and secondary markets including shares, debentures and warrants of companies listed or to be listed on a recognised stock exchange in India; and
2. Units of schemes floated by domestic mutual funds including Unit Trust of India, whether listed on a recognised stock exchange or not
3. Units of scheme floated by a collective investment scheme
4. Dated Government Securities
5. Derivatives traded on a recognised stock exchange
6. Commercial papers of Indian companies
7. Rupee denominated credit enhanced bonds
8. Security receipts
9. Indian Depository Receipt
10. Listed and unlisted non-convertible debentures/bonds issued by an Indian company in the infrastructure sector, where ‘infrastructure’ is defined in terms of the extant External Commercial Borrowings (ECB) guidelines
11. Non-convertible debentures or bonds issued by Non-Banking Financial Companies categorized as ‘Infrastructure Finance Companies’(IFCs) by the Reserve Bank of India
12. Rupee denominated bonds or units issued by infrastructure debt funds
13. Indian depository receipts; and
14. Such other instruments specified by the Board from time to time.

Following foreign entities/funds are eligible to get registered as FII

1. Pension Funds
2. Mutual Funds
3. Investment Trusts
4. Banks
5. Insurance Companies / Reinsurance Company
6. Foreign Central Banks
7. Foreign Governmental Agencies
8. Sovereign Wealth Funds
9. International/ Multilateral organization/ agency
10. University Funds (Serving public interests)
11. Endowments (Serving public interests)
12. Foundations (Serving public interests)
13. Charitable Trusts / Charitable Societies (Serving public interests)

FIIs are the major source of liquidity in the Indian market. High volumes of FIIs indicate confidence in the Indian market and hints at the strong base of domestic stock market to domestic investors. Foreign institutional investment can supplement domestic savings and augment domestic investment without increasing the foreign debt of the country. Such investment constitutes non-debt creating financing instruments for the current account deficits in the external balance of payments

The advantages and disadvantages are mentioned below

Advantages

1. Enhanced Flow of Capital

It helps in growth rate of the investment whereby development projects – economical and social infrastructure is built and so does boosts production and employment and income of the host country.

2. Managing Uncertainty and Controlling Risks

It helps promote hedging instruments and improve the competition in financial market and also alignment of assets which help in stabilizing markets.

3. Improved Corporate Governance

The FIIs constitute professional bodies like financial analysts who through their contribution to better understanding improve firms’ operations and corporate governance and overcome problems of principal-agent.

Disadvantages

1. Potential Capital Outflow

Since FIIs are controlled by investors there can be sudden outflow from markets leading to shortage of funds.

2. Inflation

Huge inflow of FII funds creates high demand for rupee and whereby pumping huge amount of money by the RBI into the market. This creates excess liquidity creating inflation.

3. Adverse Impact on Exports

With FII inflows leading to appreciation of currency, exports become expensive which ultimately leads to lower demand and hence shortfall in the export of goods, reducing competitiveness.

Unfortunately, there are certain myths about FIIs :

1. FIIs only participate in stock and exchange and never in unlisted entities.
2. FIIs investing during initial allotment of shares are FDIs and cannot invest at time of allotment.
3. FIIs do not generally influence management of enterprise and are mostly interested in capital gains and monetary price differences, unlike FDIs who invest directly in technology & management.

According to section 15(1)(a) of SEBI FII Regulations, 1995, an FII could invest in the securities in the primary and secondary markets including shares, debentures and warrants of companies unlisted, listed or to be listed on a recognized stock exchange in India. Infact FIIs are active in the OTC markets and in IPO market in India. Recently FIIs also have started influencing decisions in companies where they hold shares.

The following Guidelines are laid-down to enable the Foreign Investment Promotion Board (FIPB) to consider the proposals for Foreign Investment and formulate its recommendations.

1. All applications should be put up before the FIPB by the SIA (Secretariat of Industrial Assistance) within 15 days and it should be ensured that comments of the administrative ministries are placed before the Board either prior to/or in the meeting of the Board.
2. Proposals should be considered by the Board keeping in view the time frame of 30 days for communicating Government decision (i.e. approval of C&IM/CCEA or rejection as the case may be).
3. In cases in which either the proposal is not cleared or further information is required, in order to obviate delays presentation by applicant in the meeting of the FIPB should be resorted to.
4. While considering cases and making recommendations, FIPB should keep in mind the sectoral requirements and the sectoral policies vis-a-vis the proposal(s).
5. FIPB would consider each proposal in totality (i.e. if it includes apart from foreign investment, technical collaboration/industrial licence) for composite approval or otherwise. However, the FIPB’s recommendation would relate only to the approval for foreign financial and technical collaboration and the foreign investor will need to take other prescribed clearances separately.
6. The Board should examine the following while considering proposals submitted to it for consideration:

• Whether the items of activity involve industrial licence or not and if so the considerations for grant of industrial licence must be gone into;
• Whether the proposal involves technical collaboration and if so:- the source and nature of technology sought to be transferred.
• Whether the proposal involves any mandatory requirement for exports and if so whether the applicant is prepared to undertake such obligation (this is for items reserved for small scale sector as also for dividend balancing, and for 100% EOUs/EPZ units);
• Whether the proposal involves any export projection and if so the items of export and the projected destinations;
• Whether the proposal has concurrent commitment under other schemes such as EPC Scheme etc.
• In the case of Export Oriented Units (EOUs) whether the prescribed minimum value addition norms and the minimum turn over of exports are met or not;
• Whether the proposal involves relaxation of locational restrictions stipulated in the industrial licensing policy;
• Whether the proposal has any strategic or defence related considerations, and
• Whether the proposal has any previous joint venture or technology transfer/trademark agreement in the same or allied field in India, the detailed circumstance in which it is considered necessary to set-up a new joint venture/enter into new technology transfer (including trade mark), and proof that the new proposal would not in any way jeopardize the interest of the existing joint venture or technology/trade mark partner or other stake holders.

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In this article, Mayank Garg who is currently pursuing Diploma in Entrepreneurship Administration and Business Law from NUJS, Kolkata, discusses How to find investors for a small business.

Introduction

There are various types of Industries in the economy, i.e. manufacturing or service industries etc. Each of them requires finance accordingly and the decision of financing the business varies from situation to situation. Small enterprises are defined in various legislations in India and each legislation has its specific objective to clear and give the meaning of small business. According to MSMED Act, 2006, Small Enterprises, where the investment in plant and machinery is more than twenty-five rupees but does not exceed five crores.[1]

Finding Investors is a major task for an entrepreneur for his business plan as not everyone is interested in investing in small business. Investors always require a blueprint for securing his investment that communicates ideas and information. In India, venture capital financing takes place in very rare situations. Only a very few high-growth plans with high-power management teams are venture opportunities.  By the regulations under the RBI, banks are not allowed or supposed to invest depositor’s money in new businesses. Furthermore, a business plan don’t sell investors but investor must be convinced on security and profitability point of view that their investment is worth something.

It must be planned that what is the financing ratios of the business and proper SWOT analysis must be done from the side of entrepreneur and the investor both. Investing at wrong place will be futile.

Methods of getting investment

Venture Capital

As it has already been established that venture capitalists are not willing to invest in small businesses, the business of Venture Capital must not be misunderstood. Many start-up companies or entrepreneurs feel bitter about venture capital companies for failing to invest in new ventures or risky ventures. The businesses of venture capitalist are to charge investment of general public’s money or some other’s money. It shouldn’t be thought of as a source of funding for new business small business but for exceptional business plans.

There must be extreme solid business plan to get investment of a venture capitalist. To gain the interest of venture capitalist it is important to assure them regarding their investment to be increased as soon as possible and management of the company.

On the side of Venture Capitalist, he must take care of the situation as a whole while investing in any business.

If any entrepreneur is keen to get investment in venture capital, he must assure possible venture capital opportunities. People in these businesses probably know the market situation in a systematic manner.

Starting from this, an entrepreneur must search the internet for venture capitalists. Examples of searching the venture capitalists are  given below:

• The Western Association of Venture Capitalists publishes an annual directory. This organization includes most of the California venture capitalists based in Menlo Park, CA, which is the headquarters of an amazing percentage of the nation’s venture capital companies.
• Pratt’s Guide to Venture Capital Sources is an annual directory available online or in print format.
• Angel Investors and Others

Small businesses only resort to get finance is not venture capitalists but other investors as well. If any business doesn’t get investment from venture capital; this does not means that his business plan is a failure. He can invest from other sources as well. Angel Investment are other sources for small business to get investment.

Angel Investment, these are typically sophisticated investors and are considered highly knowledgeable regarding the industry as a whole. These are individual Investors which are keen to invest in the market and especially small businesses.

In 2013, SEBI instituted a mechanism to regulate angel investors. The policy reason behind this is since small business investment is extremely risky,  it is in general interest made only by the investors who have high knowledge regarding the industry and aware of the consequences of their investment.

If the investment is made by an individual, it will be governed by SEBI (Investment Advisers) Regulations, 2013and specifically been made on the basis of investment advice. On the other hand, if the investment is made by the pooled investment, i.e. people come together and join their money and a pool of investments are created then the  SEBI (Alternative Investment Funds) Regulations, 2012 will be applicable.

Many Angel Investor networks are merely a group of angel investors coming together so that they can have access to small business and investment opportunities.

Commercial Lenders

Banks are less interested in start-up businesses and are also not supposed to grant loan to them but they are very much interested in investment in small businesses. By the provisions laid down under federal banking laws, these commercial lenders are not allowed to invest in businesses (small and start-ups) as it will be against public good, equity and good conscience. Government by virtue of RBI Act prevents these investments by banks because society, in general, does not want banks taking savings from depositors and investing in risky business ventures, as the money is not of

Government by virtue of RBI Act prevents these investments by banks because society, in general, does not want banks taking savings from depositors and investing in risky business ventures, as the money is not of bank, it is public. There is no person in the country who want their bank to make such risky investments and it goes completely against public interest.

Apart from this, federal regulation provisions want banks to keep public money safe, in very conservative loans with proper and valid securities. Why then it is said that bank investments are more likely source of financing companies? All this is so because small business owners borrow money for their business for meeting their day to day expenses and fixed investment from banks. After in coming into existence, company generates enough capital to be kept as security with the bank that the investment from banker’s side is safe. There are various ratios determined by Finance department and Accounting Standards so as to decide whether the investment in particular business must be made or not.

Initially, the personal security of the entrepreneur is the medium to get security for their loans and after that only loan is approved. Hence, personal equity could be termed as the greatest source of small business financing.

Small Business Administration

These are appropriate for investment in small as well as start-up businesses. SBA loans are often done through local banks. There is a requirement of at least one-third capital be invested by the business owner or entrepreneur for start-up businesses and rest of the amount could be guaranteed by personal collaterals. For small businesses, if they have enough security that they could put as collateral to the bank then there is no controversy as they can keep those with the bank and get their loan sanctioned.

Banks need to check the type of business activity and the Accounting Standards so s to decide the loan amount to the small business owners. Proper stock and a green slip is issued to the small businesses as the proof of the stable financial position of their businesses.

Apart from this, bank can also interfere in the administration of the business because they are the money lenders o creditors of the company and in the loan agreement only, it must b clearly mentioned the rights of the creditor and liabilities of the company. So as to secure their investment, bank can also make a time to time survey on the business governance. If any complaint is filed by any person in general interest regarding the investment by the banks, the bank may also look into the situation and grant a green chit that could be served as a valid proof of stable financial position of the business in courts

Other Lenders

Various other lenders such as account receivable specialists, family members, friends etc. could also finance in the small businesses which may or may not be against account receivables.

“The most common accounts receivable financing is used to support cash flow when working capital is hung up in accounts receivable. For example, if your business sells to distributors that take 60 days to pay, and the outstanding invoices waiting for payment (but not late) come to $100,000, your company can probably borrow more than $50,000. Interest rates and fees may be relatively high, but this is still often a good source of small business financing. In most cases, the lender doesn’t take the risk of payment—if your customer doesn’t pay you, you have to pay the money back anyhow. These lenders will often review your debtors, and choose to finance some or all of the invoices outstanding.” [2]

The situation of business need to be completely examined and the risk point along with return on investment also must be taken care of. It would be better not to invest in any business if he risk point is high. There is a say “More risk- more profit” but risk must be calculated and money could not betted as anyone cannot afford to lose. The reason why the U.S. government securities laws discourage getting business investments from people who aren’t wealthy, sophisticated investors. The situation and economy by them cannot be fully analyzed and risk could not be calculated by them properly. If any parents, siblings, good friends or any other relative get ready to invest in your business, they have paid you an enormous compliment. Although you don’t want to rule out starting your company with investments from friends and family, don’t ignore some of the disadvantages. Go into this relationship with your eyes wide open.

Analysis

Private placements, angels, family and friends must not be taken as a good source of investment just because it is easier to get money from them but its implication is that they can provide money only up to a limited extent and it would be difficult for the business to invest and also limits the scope of growth. India, as a developing economy seeks to grow at a pace and for this schemes like Make in India and other schemes launched on 31^st December, 2016 are launched just to support and encourage small businesses to develop in the country.

Some investors are also the good source of investment for small businesses and some are not. Entrepreneur must keep their eyes open while making investment in any businesses. It is immaterial that the investment is made by any family member or friends, business must be kept aside to personal relations. There is no family member in business deals. Legal compliance like due diligence, proper contract drafting and terms and conditions must be drafted in a proper manner so as avoid conflicts with nay of the investor. There is no point investing any one’s money without compliance of provisions or without first doing the legal work.

“Never spend money that has been promised but not delivered. Often companies get investment commitments and contract for expenses, and then the investment falls through. Avoid turning to friends and family for investment. The worst possible time to not have the support of friends and family is when your business is in trouble. You risk losing friends, family, and your business at the same time.”

Conclusion

Starting a business is a great opportunity and there must be various new start-ups that the country could grow and GDP rate of the country increases. The prospect of offering a new product or service to the world, designing one’s own future, and creating a legacy are why many people step into the world of business. Yet, there are many mundane facets that must be addressed. One of these is obtaining the requisite funding to begin the business or to facilitate growth.[3]

Reference

[1] Section 7(1)(a)(ii).

[2] Business Articles, https://www.business.com/articles/7-ways-to-finance-your-first-small-business.

[3] Getty, Staff Inc., http://www.inc.com/guides/2010/07/how-to-finance-your-business.html, 30/03/2017.

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In this article, Mayank Garg who is currently pursuing Diploma in Entrepreneurship Administration and Business Law from NUJS, Kolkata, discusses Five long-term sources of fund for a company.

Introduction

A company at its initial stage in its Memorandum of Association mentions the amount of authorised capital that is the maximum amount of capital which a company can raise. Once this limit is reached company can alter the amount as per the growth and requirement this is because growing business and increasing sales often requires purchase of assets such as new machinery and vehicles. As company requires a large amount of capital in order to furnish, it thus needs

As company requires a large amount of capital in order to furnish, it thus needs constant source of funding to its entity in order to bring out its efficient and effective production. Company thus uses the following ways in order to increase the fund of the company. It does it either through issuing equity and preference share or through loans and financial institutions or debentures or through retained earnings. These are thus 5 long term sources of fund for a company.

These are thus 5 long term sources of fund for a company. Company, when finds necessary, uses either of them in accordance to the need of capital. Herein below are the sources along with its advantages and disadvantages respectively.

Sources of fund

Sources of fund are classified into three distinct categories on the basis of time-period i.e. short term fund, medium term fund and a long term fund. Herein we are going to discuss the long term source of fund meaning capital requirement for a period of more than 5 yrs to 10, 15, 20 or more depending upon the factors. Expenditures in fixed assets like plant machinery, land, building etc are funded by long term fund. Therefore, long term source of funding can b in the form of Equity shares, Preference share, debentures, loans and financial institution and retained earnings.

5 long term sources of fund

Equity shares

Shares are share in a share capital of a company. It is basically smallest indivisible unit which is issued by the company in order to raise capital. Further equity share capital means all share capital excluding preference share ca voting rights capital. The shareholders of equity shares have voting rights proportionate to the paid up equity capital. A public limited company may raise funds from public or promoters as equity share capital by issuing ordinary equity shares. Ordinary shareholders are those who receive dividend and return of capital after the payment to preference shareholders.

Features

• It is one of the most important long-term sources of fund.
• There are no fixed charges attached to ordinary equity shares. If the there is sufficient profit earned by the company then only the equity shareholders get dividend but there is no legal obligation to pay dividends.
• Equity shares have no maturity date and thus there is no obligation to redeem.
• The firm with the longer equity base will have greater ability to raise debt finance on favourable terms. Thus issue of equity share increases the credit worthiness of the firm.
• The company can further issue share capital by making right issue and bonus issue.
• In India, returns from the sale of ordinary shares in the form of capital gains are subject to capital gains tax rather than corporate tax.
• Once the company earns profit it pays more dividends, thus bringing more investors and leads to appreciate the market value of equity shares of the company.

Preference shares

Preference share means share which enjoys the preferences in the following two rights over equity i.e. right to dividend at a predetermined rate before payment of dividend to equity shareholders and right to receive payment of the capital in the event of winding up before repayment of equity shareholders.

Thus long term funds are raised through preference shares by public share. It does not require any security nor is ownership of a firm affected. It has some characteristics of debt capital and some of equity capital. It resembles equity as preference dividend, like equity dividend is not tax deductible payment. Preferential shares can be cumulative or non-cumulative, participating or non- participating and redeemable or irredeemable.

Features

• Company can issue long term fund by issuing preference shares.
• If the profit is earned, dividend is paid to the preference shareholders but if no profit is earned then the company is under no legal binding to pay preference dividend.
• There is maximum advantage as it has fixed charges.
• Preference share capital is generally regarded as part of net worth. Hence it increases the creditworthiness of the firm.
• Assets are not secured in favour of preference shareholders. The mortgageable assets of the company are freely available.

Debentures

Debenture is a document given by a company under its common seal as an evident of debt to the holder. It includes debenture stock, bonds and any other security of the company whether charge on assets of the company or not. Company can issue redeemable or irredeemable debentures. Redeemable providing specific date of redemption whereas irredeemable providing no undertaking to repay. It is an instrument for raising long-term debt. Debenture holders are the creditors of the company. They have no voting rights in the company. Debenture may be issued by mortgaging any asset or without mortgaging the asset, i.e., debentures may be secured or unsecured. Therefore, there are different types of debentures as follows,

Unsecured debentures: Such debentures are issued without creating charge on any assets of a company. Therefore, the holders of these debentures do not have any security as to repayment of principal or interest thereon.

Secured debentures: Such debentures are secured by the mortgage of the whole or part of the assets of the company.

Redeemable debentures: A debenture holder receives repayment of amount after the expiry of a certain period.

Perpetual debentures: No specific time is fixed for repayment of loan, thus will be made on the happening of an event. It the above event does not happen then the debenture will continue for the indefinite period.

Features

• Cost of debenture is much lower than the cost of equity or preference share since interest on debenture is a tax-deductible expense.
• Also interest on debentures is charge against profit. It is an admissible expense for the purpose of taxation so tax liability on company’s profit is reduced which results in debenture as a source of finance.
• Investors prefer debenture investment than equity or preference investment as the former provides a regular flow of permanent income. Thus bringing more number of investors to the company resulting as a source of finance.
• Investors prefer debenture investment than equity or preference investment as the debenture provides a regular flow of permanent income.

Loans and Financial Institutions

In India, long term financial assistance is provided to public and private firms through commercial financial institution. Generally, firms obtain long-term debt by raising term loans. Term loans refer to as term finance; represent a source of debt finance which is repayable in less than 10 years. Giving long term is not an easy task. Before giving a term loan to a company the financial institutions must be satisfied regarding the technical, economic, commercial, financial and managerial viability of project for which the loan is needed. Term loans are secured borrowings and a significant source of finance for investment in the form of fixed assets and also in the form of working capital needed for new project.

The following financial institutions provide long-term capital in India

1. All Nationalized Commercial Banks.
2. Development Banks which include.

• Industrial Development Bank of India
• Small Industries Development Bank of India
• Industrial Finance Corporation of India
• Industrial Credit and Investment Corporation of India
• Industrial Reconstruction Bank of India.

3. Government Financial Institutions which include.

• State Finance Corporation
• National Small Industries Corporation
• State Industrial Corporation
• State Small Industries Development Corporation.

4. Other investment institutes which include.

• Life Insurance Corporation of India
• General Insurance Corporation of India
• Unit Trust of India.

Retained earnings

Retained earnings is basically a part of undistributed profit which a company keeps as free reserves and thus is utilized for further expansion and diversification programs. Also known as Ploughing back of profits or retained earnings. It increases net worth of the business because it belongs to equity share holders.

Although it is essentially a means of long-term financing for expansion and development of a firm, and its availability depends upon a number of factors such as the rate of taxation, the dividend policy of the firm, Government policy on payment of dividends by the corporate sector, extent of profit earned and upon the firm’s appropriation policy etc.

Features

• Cheapest method of raising funds.
• Provides sufficient capital for expansion and development.
• Entity does not depend upon lenders or outsiders if retained earnings are readily available.
• It increases reputation of the business, hence promoting investors to influx capital.

Conclusion

Therefore, it can be concluded by an old saying that “you have to spend money to make money” meaning if company has to raise funds at some point to develop products and expand into new markets, it has to find some long term source. The company may sell its products more than its cost to produce which in turn provide fund to a company but such source is not sufficient to provide capital to a company, it has to look for an alternative. The above stated sources are some of those sources which provide long-term fund to a company along with venture funding, asset securitization, international financing etc.

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In this article, Neha Susan Rajan who is currently pursuing Diploma in Entrepreneurship Administration and Business Law from NUJS, Kolkata, discusses Six key issues that you should look for in a Non-Disclosure Agreement. 

What is Non-Disclosure Agreement?

Non-disclosure agreement, often referred as confidentiality agreement, entered between disclosing party and recipient during course of the business, enables the owner of confidential information to share information to recipient and obligates latter not to disclose the said information. There are primarily two parties to the contract. The one who discloses the information is called disclosing party. The party who receives the information is called confidential information recipient party.

Non-Disclosure Agreements (“NDA”) are of two types: a mutual agreement or a one-sided agreement. Mutual agreement is entered when both the parties to contract have confidential information to share while in one-sided agreement only one of the parties makes the disclosure.[1]

NDA can be entered in many circumstances. These include presenting an invention or new technology or intellectual property (specifically trade secret) to a potential partner, investor or licensee, sharing financial, marketing, and other information with a prospective buyer of your business, allowing access to some sensitive information by virtue of receiving services from a company or individual and mandating employee to keep confidential information (propriety interest and client information) of a business enterprise as a secret during course of job.[2]

Dual purposes

NDA executed between two parties serves two purposes. First, it secures the business interest of the Company. This helps the company to be in a very stable position. Second, any breach of NDA can be remedied by exemplary liquidated damages or injunctive order, thereby placing the disclosing party in a better position.

Essentials of a Non-Disclosure Agreement

Breach of contract of confidentiality largely results from the poor drafting of Non -disclosure agreements. Every NDA generally entails six essentials. They are:

1. Obligations within an NDA
2. Scope of Confidential information
3. Remedies on breach of agreement
4. Marking certain documents as confidential
5. Provision for exceptions
6. Mechanism for return of the document

Obligations within a Non-Disclosure Agreement

Non -Disclosure Agreement is one of the vital documents generally entered in many contracts to protect the interests of the disclosing party. It should give the names of disclosing party and confidential information recipient party. It gives an elaborate account of the confidential information to be handled by the recipient and entails the rights and obligations of the confidential information recipient.  Any default from the part of the recipient will result in breach of contract.

Confidential information recipient is duty bound to not to disclose the scope, nature, object and future benefits of the confidential information to any party, which includes any person or entity or third party, other than the contracting parties. The recipient can be held liable for breach of confidentiality agreement by the employees or agent of the recipient who have access to the information.[3]

It is to note that while drafting a confidentiality agreement for any party, time frame of the agreement must be mentioned; it need not be necessary that there should be certainty to the date of expiration of agreement at the time of entering into the agreement.  Generally, NDA exclude subject matter of third party in the contract.  In order to hold the third party accountable, NDA must discuss their obligations as well as liabilities. The NDA can be perfected by including clauses like Non-Solicitation clause[4] (to prevent recipient from soliciting with disclosing party’s employees or clients), jurisdiction clause (to decide the place of suit in case of breach), injunction clause (right of injunction for disclosing party to prevent the recipient from sharing information to others), warranty clause (parties do not make warranty to the authenticity of the information shared) and no obligation clause (to terminate from contract at any point).

Scope of Confidential Information

The most important part of drafting an NDA is to determine the scope of confidential information. It should be described in detail with precision without leaving any confusion in minds of the recipient or leave a room for negotiation in future. Every NDA includes a list of confidential information and certain exclusions from the purview of confidentiality agreement.

It is the duty of the disclosing party to ensure that the confidential information recipient is aware of the fact that disclosure of the information does not entitle them any right, title or license on the confidential information but they have access to the information for the purpose of advancement of the contract. Hence the disclosing party must keep in mind that while drafting NDA, the scope of the confidential information must be kept wide enough to ensure more protection to current or future trade secrets by enabling the disclosing party to sue for any kind of breach of contract.

Mark Certain Documents as Confidential

While determining the scope of confidential information, the disclosing party must ensure to mark certain documents as confidential in order to add clarity to the protection of confidentiality.  This would make the confidential information user to be aware of the intended use of the shared, confidential information.

Documents such as business plan, documents on share value for the purpose of trading and documents on Intellectual Property owned by company such as patents, software patents, designs of modern equipments, automobiles, weapons, and trade secret are marked confidential normally.[5]

Remedies for Breach of Disclosure

One of biggest advantages of entering into Non-Disclosure Agreement is that it remedies the aggrieved party (i.e. the disclosing party) by providing appropriate remedies. These remedies include equitable remedies and liquidated damages. Equitable remedies include injunction wherein the disclosing party can prevent further breach of damage. Further, the Court can impose penalty on recipient that will be commensurate with the damage caused to the disclosing party from the breach.[6]

The disclosing party has the right to terminate the contract on breach of the agreement. It should contain a clause of arbitration in case of breach to prevent lengthy litigation, and jurisdiction clause to determine the place of suit in case of any breach of contract.[7]

Provision of Standardised Exceptions

When the confidentiality agreement is drafted, the drafters must ensure to include certain standardised exceptions to the agreement. The common exceptions include information that is

• Already known to the recipient at the date of disclosure
• Already publicly known (as long as the recipient didn’t wrongfully release it to the public)
• Independently developed by the recipient without reference to or use of the confidential information of the disclosing party
• Disclosed to the recipient by some other party who has no duty of  confidentiality to the disclosing party
• Disclosed due to legal process (i.e, through court order)

When the confidential information recipient is compelled to disclose information by a court order, the party must inform the disclosing party about it.

Mechanism for Return of Document

Every Non-Disclosure Agreement must contain clause for return of the document. It should entail a detailed mechanism for return of the documents.  Return of documents marks the termination of the confidentiality agreement. When the contract expires, confidential information recipient must transfer all documents of confidential information or extinguish it. The agreement should determine when and how this should occur. The recipient and disclosing party must delete their hard drives, drop boxes, thumb drives, email storage, etc.  If it is impossible to delete the information, the agreement must stipulate a clause restraining the recipient party from using this information in all future transactions.

Conclusion

Perhaps one of the biggest uses for nondisclosure agreements is in the protection of trade secrets. Unlike patents, which must be part of the public domain, trade secrets are, by definition, secret. In addition, trade secrets are only afforded protection if the owner takes measures to keep the secret and the secret gives the owner an advantage in the marketplace. Because of the tenuous nature of trade secrets, nondisclosure agreements are often used to protect them from becoming part of the public domain.

Perhaps the real purpose of nondisclosure agreements is to create confidential relationships between the party that holds the trade secret and the party to whom the trade secret is disclosed. Parties that contract into such relationships have a legal duty to keep the confidential information in confidence.

Non-Disclosure agreements constitute an exception to Section 27 of the Indian Contract Act, 1872 which denotes agreement in restraint of trade as void. Any kind of restriction during the course of employment is considered valid, however it is those which are applicable after the employment that has become the bone of contention over the years.  But luckily the courts have upheld the validity of such Non-Disclosure agreements post-employment especially with regard to trade secrets through various cases in recent years.[8]

Although legal concepts like Garden Leave Clauses exist to control the damage that could arise because of the breach of NDA by the recipient party or any other pitfalls from the side of the Disclosing party, the only solid and sustainable solution to avoid vagueness and confusion in such agreements is to draft it with meticulous precision and a prophetic foresight.

References

[1] ‘Non-Disclosure agreements, Are they enforceable in India?’, (Indian National Bar Association) INBA View Point, http://inba.tv/non-disclosure-agreements-enforceable-india/

[2] American Express Bank Limited v. Ms. Priya Puri 2006 (110) FLR 1061

[3] Rohit Shrivastava, Non-Disclosure Agreement,http://businesslawinindia.blogspot.in/2009/09/non-disclosure-agreement-nda.html

[4] Desiccant Rotors International Pvt Ltd v Bappaditya Sarkar & Anr., Delhi HC, CS (OS) No. 337/2008 (decided on July 14, 2009)

[5] Mr. Durani Murugan P.v.k, Negative Covenants And Agreement In Restraint Of Trade-an Insight Into Indian Laws, http://www.manupatrafast.com/articles/PopOpenArticle.aspx?ID=264fdfb0-bb02-416b-9eed-4ca76ca1ee46&txtsearch=Subject:%20Contract

[6]https://www.extension.iastate.edu/agdm/wholefarm/html/c5-80.html Overview of Confidentiality Agreements

[7] Employment Contracts in India : Enforceability of Restrictive Covenants, Nishith Desai Associates August 2014. http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research%20Papers/Employment_Contracts_in_India.pdf

[8] Gujarat Bottling Company Limited (GBC) V. Coca Cola Company AIR 1995 SC 2372 ;

   Diljeet Titus, Advocate v. Mr. Alfred A. Adebare and Ors. (2006) DLT 330

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In this article, Nubee Naved who is currently pursuing Diploma in Entrepreneurship Administration and Business Law from NUJS, Kolkata, discusses Who is a foreign institutional investor?

Foreign Institutional Investor

Foreign Investments are imperative for the growth of any developing country. These are investments usually made by the resident of a country in the financial assets and production process of a different country. Such investments are considered highly imperative to boost the development of any economy i.e. infrastructure, labor etc. Another important aspect of foreign investment is that it allows a country to meet its trade deficits by building up its foreign exchange reserves.

It often creates a financial channel through which various important sectors of a country’s economy for e.g. I.T, agriculture etc. gain access to foreign capital and positively affects the factor productivity and balance of payments of the country in its entirety. Foreign investment is usually done through foreign direct investment (FDI) and through foreign institutional investment (FII).

FDI is a long-medium term investment and comprises of direct production activities whereas foreign institutional investment is usually a short term investment involves different markets like foreign exchange markets, money markets and stock markets. According to the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995, a “Foreign Institutional Investor” means an institution established or incorporated outside India which proposes to make investment in India in securities.

A Historical Background

Foreign Institutional Investments are pivotal for a developing economy like India as they contribute immensely to the inflow of capital funds due to insufficiency of funds multilateral financial institutions. It is to be noted that India’s development strategy focused primarily on import substitution and self-reliance until the 1980’s. Debt flows and official development assistance were two important resources which financed current account deficits. It would be logical to say that there was in fact a general inclination towards private commercial flows and foreign investment. India’s policy reforms had materially changed since the commencement of the whole economic reforms process in the early 1980’s and during the initiation of the liberalization era in the early 1990’s, India managed to draw a lot of attention from foreign investor which ultimately culminated in a rise of foreign institutional investments in India. FII was permitted in 1992 with reasonable restrictions as a result of the recommendation of the Narsimhan Committee Report on Financial System. The Committee did not extensively elaborate on the aims and objectives of the Financial Policy but emphasized on the need of opening up the domestic financial markets to foreign portfolio investments. Foreign Institutional Investors were permitted to invest in all the securities traded on the primary and secondary markets, which primarily consisted of debentures, shares and warrants issued by companies which were listed or were to be listed on the Stock Exchanges in India. The then Finance Minister of India, while presenting the budget for the financial year 1992-93 proposed a motion to allow various reputed investors to invest in the Indian Capital Market for e.g. Pension Funds etc.

Governing Foreign Institutional Investors

There are certain entities which are eligible to invest in the Indian capital markets under the FII route. These entities can invest in the markets as FII or as sub-accounts and are divided as follows:

1. Investment trust, mutual funds, asset management company, nominee company, overseas pension funds bank, institutional portfolio manager, university funds, endowments, charitable trusts, foundations, charitable societies, a trustee or power of attorney holder incorporated or established outside India intending to make proprietary investments are all examples of investments which can be termed as foreign institutional investments.
2. Sub Account: The sub-account is generally the underlying fund on whose behalf the FII invests. The entities which are eligible to be registered as sub-accounts, viz. private company, public company, partnership firms, pension fund, investment trust, and individuals.

A Foreign Institutional Investor is required to get itself registered and for this purpose it is required to obtain a certificate from SEBI for dealing in securities. The certificate is granted by SEBI after it has taken into account the following criteria[1]:

1. The track record of the applicant which includes the its track record, financial soundness, competence, experience, general reputation of integrity and fairness
2. Whether the applicant has been granted permission to make foreign investments in India as a Foreign Institutional Investor under the provision of the Foreign Exchange Regulation Act, 1973 by the Reserve Bank of India.
3. Whether the applicant is regulated by a foreign regulated authority
4. Whether the applicant is a fit and proper person
5. Whether the certificate granted to the applicant is in the interest of the growth of the securities market
6. Whether the applicant is:

• an International or Multilateral Organization or an agency thereof or a Foreign Governmental Agency or a Foreign Central Bank or;
• An institution incorporated or established outside India as a mutual fund, investment trust, pension fund, insurance company or reinsurance company or;
• An investment manager or asset management company or advisor, nominee company, bank or institutional portfolio manager, established or incorporated outside India and intending to make investments in India on behalf of broad based funds and its proprietary funds in if any or;
• University fund, endowments, foundations or charitable trusts or charitable societies.[2]

Conditions and Restrictions with regard to Investments

There are certain conditions and restrictions placed on the investments done by FII. Investors are allowed to invest only in the following:

1. Securities in both primary and secondary markets encompassing debentures, shares and warrants of companies, listed, unlisted or to be listed on a stock exchange recognized in India
2. Units of schemes floated by domestic mutual funds including Unit Trust of India, whether listed or not listed on a recognized stock exchange.
3. Security receipts
4. Commercial Paper
5. Securities dated by the Government
6. Derivatives traded on a recognized stock exchange.

While granting approval for the investments, SEBI may set certain conditions which may be necessary with respect to the maximum amount which can be invested in the debt securities by an FII on its own account or through its sub-accounts. A hundred percent investment through the debt route cannot be made by a foreign corporate or individual. Investments made in security receipts issued by asset reconstruction companies or securitization companies under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 by Foreign Institutional Investors shall also be deemed as ineligible. No foreign institutional investor is allowed to invest in security receipts on behalf of its sub-account.

Prohibitions on FII

An FII looking to invest in equity in equity issued by an Asset Reconstruction Company cannot do so as it is not permitted under the SEBI Rules, 1995. A FII is also to invest in any company which is engaged or proposes to engage in the following activities:

1. Agricultural activities
2. Nidhi Company
3. Business of chit fund
4. Trading in Transferable Development Rights
5. Construction of Business
6. Real Estate Business

Salient Features of FII

1. FIIs including mutual funds, pension funds, investment trust, banks, asset management companies, Nominee Company, incorporated/institutional portfolio manager or their power of attorney holder (providing discretionary and non-discretionary portfolio management services) would be welcomed to make investments under the new guidelines. Investment in all securities traded on the primary and secondary markets including the equity and other securities/instruments of companies which are listed/to be listed on the stock exchanges in India including the OTC exchange of India is permitted.[3]
2. A foreign institutional investor is required to obtain permission of initial registration with SEBI in order to enter the market nominee companies, An FII having any affiliated or subsidiary companies shall have to seek a separate registration with SEBI as such subsidiary companies are usually treated distinctly.
3. An FII shall have to seek various permissions under Foreign Exchange Regulation Act, 1973 from the Reserve Bank of India because of the existence of foreign exchange controls in force. The registration shall be done under the single window approach.
4. FIIs who wish to make an initial registration with SEBI are required to hold a registration from the requisite securities commission or any other regulatory authority for the stock market in their domicile or country of operation.
5. SEBI’s initial registration shall hold for five years along with the RBI’s general permission under FERA, 1973 which will also be valid for five years and both shall be renewable for similar five periods in the future.
6. The FIIs shall be able to sell, buy and realize capital gains on investments on investments made through the original corpus transferred to India under the FERA permission. It may also subscribe or renounce rights offering of shares, invest on all recognized stock exchanges through a designated bank branch and would be able to appoint a domestic custodian for the custody of the investment.[4]
7. There would be no limitations on the volume of investment be it maximum or minimum for the purpose of entry of FIIs in the primary or secondary markets and also on the lock in period outlined for the objective of such investments made by FIIs.

References

[1] Foreign Institutional Investors in India: An Overview, SHODHGANGA,  Available at http://shodhganga.inflibnet.ac.in/bitstream/10603/11266/10/10_chapter%202.pdf

[2] Ibid

[3] Supra, see note 1

[4]Supra, see note 1

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In this article, Osita Kirti Ranjan who is currently pursuing Diploma in Entrepreneurship Administration and Business Law from NUJS, Kolkata, discusses How did Bengaluru based online laundry startup, Laundry Anna raised 1 Cr?

Introduction

Now, these days’ startups have become a powerful tool for those who want to do something different in business field by applying creative and innovative ideas. Just a few years ago, we had to go to the laundry by oneself or a person came to us to pick our dirty garments. This scenario is changing slowly but steadily as there are some startups are being developed by new entrepreneurs. Pratik Rana is among those entrepreneurs who thought to bring something new in this laundry sector. He established Laundry Anna in Bengaluru in the year 2015. It has done a tremendous job in a short span of time since raising funds is the very herculean task for the new startup.

Laundry market in India

In 2015, the approximate size of the laundry market was Rs. 2,20,000 crore, with the unorganised market (which includes dhobis, maid servants, and mom-and-pop stores) valued at Rs. 5,000 crores. The sector is fragmented with 7,67,000 establishments, 98% of which are micro-sized laundries with fewer than 10 workers, says a report by Euromonitor International. Hence, we can say that there is the best chance to grow in this sector as it is the blue ocean.[1] Started in 2015 with a capacity of just 300 garments per day, LaundryAnna now processes over 3,000 garments every day.

Social commitment of Laundry Anna

Besides being a business model, it undoubtedly put emphasis on building a good relationship with its customers. It is just not a work to pick up dirty clothes and deliver to washed and ironed clothes at the doorstep. They are very committed to their job. A business can only flourish if it will have trust and goodwill among its people. Trust and goodwill are the key factors that not only attract customers but also investors too. More customers mean more profit and more investors mean more funds. Eventually, this motto helps in raising funds from the investors because it takes them in their hands and lowers the risk by developing safe commitments.

Service Quality and their plans

If we talk about the service being provided by the Laundry Anna is very convenient and user friendly, you are just a click away from the laundry services. All processes like picking up, delivery of the clothes or ironing are done within 48 hours. They are not only providing good services but also have demolished the bad tags on the washer man’s professions. By collecting them in a group and using their skill has provided a dignified life to them.

This startup works on a full stack show and claims finish inventory network from coordination to piece of clothing preparing. They have the arrangement to extend to different territories in the city with a blend of center point and talked display and physical stores. Attributable to the stringent concentrate on quality and turnaround time, they are not considering diversifying model. They will keep on having in-house preparing and overhaul the current foundation to adapt up to the extended operations.

Fund-raising strategy of Laundry Anna

On November 2016, Laundry Anna raised 1 Cr. Through seed funding from angel round after PickMyLaundry raised $200K in angel round.  Seed funding and investment through angel investors have become very important for fund-raising especially for startups. So, we should first know about seed funding and angel investors because without knowing these two things we cannot get success in raising funds. These are pivotal for standing and starting a new business.

What is seed funding?

When a startup raises fund for the first time is known as seed round. It is also considered as angel round or HNI round. Sometimes it is called as pre-Series-A round. It is an exercise for small interim fundraising. It often comes from owner’s assets, family and friends for meeting initial operating expenses. It is done to attract venture capitalist as they consider it as a risk holding investments. It encourages and convinces them to invest in the startups. It is the phase where the owner dilutes his or her equity. The amount which is being given is the function of the quantum which is needed to be raised, where the startup is in terms of traction and also where the business will be in future after this funding.

Prateek Rana, Founder of LaundryAnna, is a very experienced businessman as brought rich experience in the service industry with companies like ITC Sheraton, Kingfisher Airlines and Biocon and also served for a social enterprise HouseMaidForYou, working on upliftment of domestic workers with his spouse Rathi Rana. His till life span experience helped him a lot in raising 1 Cr. LaundryAnna operates as the exclusive partner for many apartments and hostels like Symbiosis Institute, Serenity Group of hostels, IIITB among a few. These all were added positive points in getting support and trust of the investors.

An investor considers following things in the management of the startup before putting his/her financial assets into it: a) business owner’s skills, b) business capabilities and track record, c) the product’s or service’s benefits.[2] He holds all these 3 key points which helped him in being successful laundry startup in South India.  The seed round that raises sector specific bets for which larger investors keen to make, get 20-25% of the equity.

Diluting 15% of the owner’s equity is an ideal scenario but it must be diluted as such limit that the business could be as such level in easily raising $2-5 million (the more the merrier) in the Series-A round. The typical quantum of the capital that an organization can hope to raise for this sort of weakening would be in the scope of $250-500k. Exemptions exist on either side of these reaches, yet they are case particular.

There are also many professional angel investors who want to put their money for new entrepreneurs. They play a vital role in fund-raising as they are very familiar with the initial problematic conditions of the startups and they are always ready to take risk in investing in new businesses by using their expertise. They either buy equity or give loans to the entrepreneurs. They provide a good platform for pooling resources and growing startups. For example Google is giving seed cash to the Center for Resource Solutions for setting up sustainable power source affirmation programs in Asia. The Center’s objective is helping organizations purchase control from clean sources. The program was set to start in Taiwan by setting up authentications for the sustainable power source.

When raising more than $1 million, professional angel investors normally use seed value. Seed value includes the financial specialists acquiring favoured stock with voting rights and getting to be co-proprietors of the startup. Seed value exchanges are more mind boggling and costly than those of seed advances, yet might be seen as more advantageous to financial specialists when more seed cash is required.

Founders of Laundry Anna are very smart and intelligent. They know which business model is appropriate for laundry startups. They suggest using a combo of B2B and B2C model. B2B (Business to Business) – means that you are selling a product or service to other businesses. For example:  Selling CRM Software “Customer relationship management” to organizations so they can keep track of their sales leads, manage their sales cycles and determine a cold-calling schedule.

Business to consumer (B2C) is business or transactions conducted directly between a company and consumers who are the end-users of its products or services.  For example: B2C referred to mall shopping, eating out at restaurants, pay-per-view and infomercials. However, the rise of the internet created a whole new B2C business channel in the form of e-commerce or selling goods and services over the internet.

Laundry sector requires both the model because, in the former section, you will have to gather professional washer-men who have the skill and working capacity and efficiency. It must be taken into the consideration that the consumer can get his/her washed outfits as promised time limit i.e. within 48 hours. But it does not mean that they are to be overloaded with the dirty garments. Everything should be scheduled and managed properly. On the other hand, the end service is given in the hands of consumers directly, so it must be kept in mind that consumers must be satisfied with the laundry’s service. They should not have any complaint of having staining or discoloring or burning due to iron of the clothes. Customer’s satisfaction must have the great concern.

Conclusion

Startup means new idea which is differing from other existing traditional ideas. We never even think about online laundry services but it has become reality now. There ares a few online laundry services and Laundry Anna is one of them. According to its founder, there are ample chances to grow in the laundry sector. This said laundry set an example by raising 1 Cr just after its establishment. It happens due strong managerial experience and proper planning and having good reputation among its customers

References

[1] https://yourstory.com/2015/12/online-laundry-startups/

[2] http://www.investopedia.com/terms/s/seedcapital.asp

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In this article, Nitin Sharma who is currently pursuing Diploma in Entrepreneurship Administration and Business Law from NUJS, Kolkata, discusses How do venture capital funds evaluate investment proposals?

This article will provide a simplified version of the investment evaluation process from a VC’s perspective. This article has broken the VC’s investment evaluation process into 4-steps. Entrepreneurs can use this to understand as to which step they are at vis-à-vis their fund-raising endeavours and how much work is left before they get a chance to see the money from the venture capital fund.

Step 1: Meeting with the promoters

If the venture capital investor likes the first teaser about the company, they set up a meeting with the promoters of the company. During this meeting, VC’s objective is to meet the core team, understand the team’s strengths and weaknesses, get a good understanding of business model, market potential, competitive landscape and exit options etc. This meeting is generally followed by a list of questions from the VCs and promoters answer to these questions with a lot of information.

Step 2: Validating the promoters “story”

After step 1, VCs do their own research to validate the promoters’ story. They mostly do it in-house but in rare cases, they hire an outside agency to verify the promoters’ claims about the business model, business potential, market size etc. They also talk to a few of company’s vendors, partners and/or customers to get some feedback on company’s background, market reputation of the promoters, product /service quality etc.

Step 3: Internal brainstorming and presentation to the investment committee

If the VC is satisfied with his findings in step 2, then the deal team inside the venture capital fund prepares the IM (Investment Memorandum) that captures investment rationale, valuation, exit scenarios, and key risk factors. VC presents this IM to his investment committee (IC).

Investment Committee is VCs internal group, which comprises of their limited and general partners and they provide their feedback on the investment opportunity. IC raises a number of issues about the investment and if after their discussion, venture capital fund is still positive about the investment then they call the promoters of the company for a presentation to some/all members of the investment committee.

The meeting with the partners is an important step in fund-raising process. The promoters should try to reach this step as quickly as possible by pushing their contact person in the VC fund. If the VC is being reluctant in setting up the meeting even after 10 weeks of first meeting, then promoters should realize that VC is not very interested in their proposal and it is most likely to result in a negative response.

Step 4: Detailed validation (due diligence) and shareholders’ agreement

If everything goes well during the IC meeting, VCs generally issue a term sheet mentioning their key terms and conditions of investment. Once there is an agreement on all the terms and conditions mentioned in the term sheet, VCs perform a detailed due diligence on the company. Since there is hardly any financial information to verify in case of a start-up company, the due-diligence process for start-ups is restricted to VCs trying to get into details of fund requirements, detailed usage of funds, month-by-month milestones etc.

Generally, VCs end up adding a lot of additional terms and conditions after the due diligence process under the section “conditions precedent” in the shareholders’ agreement. Once the promoters take care of all the issues identified during the due diligence process, VCs and promoters sign the shareholders’ agreement and money is transferred to the company’s account.

The venture capital investment activity is a sequential process involving five steps; Deal origination; Screening; Evaluation or due diligence; Deal structuring, and Post-investment activities and exit

Deal origination

A continuous flow of deals is essential for the venture capital business. Deals may originate in various ways. Referral system is an important source of deals. Deals may be referred to the VCs through their parent organizations, trade partners, industry associations, friends etc. The venture capital industry in India has become quite proactive in its approach to generating the deal flow by encouraging individuals to come up with their business plans. Consultancy firms like Mckinsey and Arthur Anderson have come up with business plan competitions on an all India basis through the popular press as well as direct interaction with premier educational and research institutions to source new and innovative ideas. The short listed plans are provided with necessary expertise through people who have experience in the industry.

Screening

VCFs carry out initial screening of all projects on the basis of some broad criteria. For example the screening process may limit projects to areas in which the venture capitalist is familiar in terms of technology, or product, or market scope. The size of investment, geographical location and stage of financing could also be used as the broad screening criteria.

Evaluation or due diligence

Once a proposal has passed through initial screening, it is subjected to a detailed evaluation or due diligence process. Most ventures are new and the entrepreneurs may lack operating experience. Hence a sophisticated, formal evaluation is neither possible nor desirable. The VCs thus rely on a subjective but comprehensive, evaluation. VCFs evaluate the quality of the entrepreneur before appraising the characteristics of the product, market or technology. Most venture capitalists ask for a business plan to make an assessment of the possible risk and expected return on the venture.

Deal structuring

Once the venture has been evaluated as viable, the venture capitalist and the investment company negotiate the terms of the deal, i.e., the amount, form and price of the investment. This process is termed as deal structuring. The agreement also includes the protective covenants and earn-out arrangements. Covenants include the venture capitalists right to control the investee company and to change its management if needed, buy back arrangements, acquisition, making initial public offerings (IPOs) etc., Earn out arrangements specify the entrepreneur’s equity share and the objectives to be achieved.

Venture capitalists generally negotiate deals to ensure protection of their interests. They would like a deal to provide for:

• A return commensurate with the risk
• Influence over the firm through board membership
• Minimizing taxes
• Assuring investment liquidity
• The right to replace management in case of consistent poor managerial performance.

The investee companies would like the deal to be structured in such a way that their interests are protected. They would like to earn reasonable return, minimize taxes, have enough liquidity to operate their business and remain in commanding position of their business.

Post-investment activities and exit

Once the deal has been structured and agreement finalized, the venture capitalist generally assumes the role of a partner and collaborator. He also gets involved in shaping of the direction of the venture. This may be done via a formal representation of the board of directors, or informal influence in improving the quality of marketing, finance and other managerial functions. The degree of the venture capitalists involvement depends on his policy. It may not, however, be desirable for a venture capitalist to get involved in the day-to-day operation of the venture. If a financial or managerial crisis occurs, the venture capitalist may intervene, and even install a new management team.

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In this article, Parth Jain who is currently pursuing Diploma in Entrepreneurship Administration and Business Law from NUJS, Kolkata, discusses What is a qualified placement investment?

Introduction

Timely and adequate access to capital is imperative for the growth of any business. The stock markets serve as an important nexus between investors with surplus funds and companies requiring capital. It has always been an aspiration for entrepreneurs, promoters and venture capital backed companies is to access the capital markets through an Initial Public Offer (“IPO”).

Apart from the distinct advantage of being able to tap large pools of capital from retail and institutional investors at the desired valuation, an IPO provides greater recognition to a company, unlocks greater value for its shareholders and employees holding stock options by providing much needed liquidity and require such company to adopt stringent corporate governance practices due to enhanced regulatory intervention.

Alternatives available to listed companies for raising capital

A publicly listed company may need to tap the capital markets more than once in order to meet its business objectives, after its initial capital raised through an IPO is dried up. The Companies Act, 2013 along with the rules framed there under (“Act”) and the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (“ICDR”) are the principal laws governing issue of capital by Indian companies. Under the Act and ICDR, the following options are available to a listed company for raising subsequent capital:

1. Issuance of securities to its existing shareholders by way of Rights Issue.
2. Making a Follow on Public Offer (“FPO”) (think of it as IPO 2.0).
3. Preferential Issue of securities to a select group of investors, including its promoters.
4. Making a Qualified Institutional Placement (“QIP”) to a select group of investors known as Qualified Institutional Buyers (“QIB”).

While an FPO or a Rights Issue may seem lucrative, the process for either of the alternatives is almost as time and effort consuming as it is in case of an IPO, requiring months of planning, stringent compliances, enhanced disclosures and incurrence of significant costs. Such stringent requirements primarily exist to prevent any wrongdoings by companies and promoters since public money is getting tapped. Thus, a Rights Issue or an FPO may not be a viable option for a company which is in immediate need of long term capital. In such a case a Preferential Issue to a select group of individual or institutional investors or a QIP to a QIB is the most viable option. Both the aforesaid options are cost and time effective and have proved to be a significant tool for companies wanting to attract private capital.

A Preferential Issue is an issue of specified securities by a listed company issuer to any select person or group of persons on a private placement basis, in terms of Chapter VII of the ICDR. In a Preferential Issue, securities are allotted only to a pre-defined set of investors or existing promoters of a company, subject to the applicable requirements as regards pricing, disclosures and lock-in. A QIP can be considered as a special case of a Preferential Issue where eligible securities are allotted only to QIBs. In contrast to a Preferential Issue, shares issued under a QIP are not subject to a lock-in, can be issued at an attractive price taking into consideration only the most recent price implications and involve comparatively less disclosures to be made.

What is a Qualified Institutional Placement?

The Securities and Exchange Board of India (“SEBI”) issued a circular on May 8, 2006 under the erstwhile SEBI (Disclosure and Investor Protection Guidelines) 2000, allowing listed companies to raise private capital domestically by way of QIPs. Prior to this juncture, Indian companies used to excessively depend on foreign capital by issuing securities such as American Depository Receipts and Global Depository Receipts, which led to an undesirable export of domestic equity capital markets, which was a major concern for SEBI.

A QIP issuance involves allotment of eligible securities being equity shares, non-convertible debt instruments along with warrants and convertible securities other than warrants by a listed company, to Qualified Institutional Buyers, on private placement basis. In addition to the provisions applicable to companies raising capital under the Act, QIP issuances by listed companies are governed by the provisions of Chapter VIII of ICDR. Unlike an IPO or an FPO, only QIBs can participate in a QIP issuance. The main premise behind a QIP issuance is that it’s relatively easy for a company to convince a clutch of big ticket investors for raising money than to convince the entire public at large in case of an IPO or an FPO, thus resulting in time, cost and process efficiencies.

Who is a Qualified Institutional Buyer?

The term QIB is defined under Regulation 2(1)(zd) of the ICDR which, inter alia, include mutual funds, Foreign Institutional Investors, insurance companies, scheduled commercial banks, multilateral and bilateral financial institutions, pension funds and provident funds with minimum corpus of Rs. 25 crore, public financial institutions and others. QIBs exclude promoters and persons belonging to the promoter group. Thus, it can be seen that QIBs are mainly large institutions who are well informed and sophisticated players in the stock markets, requiring relatively less protection from SEBI as compared to the average retail investor. Since these investors are capable to making well informed decisions and generally perform their own due-diligence, it seems logical to subject QIPs to less stringent regulations, making it a speedy process for issuer companies.

What are the conditions for a Qualified Institutional Placement?

Special Resolution by shareholder

A listed company is required to obtain prior approval of its shareholders by way of special resolution for making a QIP. The QIP has to be completed within a period of 12 months from the date of passing the aforesaid special resolution. An issuer cannot make a QIP until the next six months, once a QIP issuance is completed.

The class of securities for which QIP is proposed should be listed with a recognized stock exchange for a period of at least one year prior to sending the notice of the extra-ordinary general meeting where the approval of the shareholders is being sought. Further, the issuer should be in compliance with the requirement of minimum public shareholding stipulated by SEBI which is currently 25%. It may be pertinent to note that companies which had not met the minimum public shareholding criteria in the past were not allowed to increase their public shareholding by way of a QIP and had to opt for Preferential Allotment, until the introduction of Institutional Placement Programme by SEBI.

Appointment of a Merchant Banker

An issuer is further required to appoint a SEBI registered Merchant Banker to manage the issue and carry out due diligence. The Merchant Banker is responsible for seeking in-principle approval for listing of the eligible securities to be issued under QIP and furnishing a due diligence certificate to the stock exchanges stating that the QIP issuance confirms to the requirements stated under Chapter VII of the ICDR.

Filing a Placement Document

The issuer is required to make the QIP on the basis of a Placement Document which should contain all material disclosures stipulated under Schedule XVIII of the ICDR. A Placement Document is a relatively simple document, compared to a prospectus which is issued in case of IPO or an FPO, with limited disclosure requirements. Unlike a prospectus, the issuer can circulate the Placement Document only to a select group of investors. The Placement Document is required to be filed by the issuer with the stock exchange while seeking in principle approval for listing the securities offered under the QIP issuance.

Pricing

A floor price has been set by SEBI for issuers making a QIP. The issuer is required to make the QIP at a price not less than the average of the weekly high and low of the closing prices of the equity shares of the same class quoted on the stock exchange during the two weeks preceding the relevant date. The price arrived at may be discounted by a further 5%.

It may be pertinent to note that in case of a Preferential Allotment, the issue price is the higher of the average 52 weekly high and low or the two weekly high and low price. Thus, the final price computed for a Preferential Allotment may be disadvantageous for the issuer, if it’s share price has fallen significantly, immediately before the relevant date. Likewise, if the issue price may be unfavourable for the Preferential Issue investor, if the share price of the issuer has increased significantly prior to the Preferential Issue. Thus, the requirement of factoring in the most recent price fluctuations of the shares of the issuing company (being the two weekly high and low) ensures fair pricing for both the issuer and the QIB.

Allotment Restrictions

An issuer is not allowed to make allotment to its Promoters and persons belonging to the Promoter Group. In case of an issue of non-convertible debt with warrants, QIBs have the option of subscribing to either or both the securities. QIBs are prohibited from withdrawing their bids after the closure of the issue. The minimum number of allottees shall be two for issue sizes upto Rs. 250 crore and five for issue sizes exceeding Rs. 250 crore. Not more than 50% of the issue size can be allotted to a single allottee. Further, amounts raised by way of QIPs cannot exceed five times the net worth of an issuer as per its audited balance sheet of the previous financial year. Convertible securities having a conversion tenure of more than 60 days cannot be issued.

Restrictions on transfer

The securities allotted to a QIB under a QIP are not subject to lock-in. However, the securities acquired by a QIB under a QIP issuance cannot be sold privately for a period of one year from the date of allotment. The QIB is free to sell the securities on the stock exchange acquired anytime after allotment. It may be noted that shares issued under a Preferential Allotment are subject to a lock-in period of one year.

Conclusion

QIPs have been traditionally been used by issuers to pare their debt, when the time is ripe.QIPs are subject to less rigorous disclosures and regulations in comparison to IPOs and FPOs. Cost savings also accrue to the issuer in terms of less legal and advisor fees, no expenditure on advertising and road shows and deployment of few resources for managing the QIP. QIPs provide a competitive advantage to domestic companies with an easy access to large pools of capital. QIP is thus, a flexible mechanism for companies wanting to mobilize large capital from QIBs at a fraction of the cost of and within a short time. Its popularity with issuers stands testimony to its overall advantages.

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In this article, Ritika Sardar who is currently pursuing Diploma in Entrepreneurship Administration and Business Law from NUJS, Kolkata, discusses the restrictions on transferability of shares.

Abstract

The objective of this essay is to provide a thorough analysis of the restrictions and limitations imposed on the transfer of shares. The assignment begins with an introductory overview of the concept of restriction over free transfer of shares, delving into the rationale behind the same. The difference between the applicability of the concept in public and private companies is introduced in this section of the paper.

This is followed by a detailed analysis of the operation of the restrictions in private and public companies, along with relevant statutory provisions and case laws.  In the conclusion to the essay, I have provided my own views on the topic along with an overall evaluation of the same.

Restriction of share transfer and logic thereof

Restriction on transferability of shares is one of the flagship points of a private company; a company, in order to exist as a private company, has to provide for such restrictions as it deems fit by way of its Articles of Association (hereinafter referred to as “AoA”), which is one of the three constitutional documents of a company [the other two being the Memorandum of Association (hereinafter called “MoA”) and Certificate of Incorporation (hereinafter called “CoI”)]. The AoA is a document that specifies the regulations for a company’s operations, and they define the company’s purpose and lay out how tasks are to be accomplished within the organisation. This set of rules can be considered a user’s manual for the company because they outline the methodology for accomplishing the day-to-day tasks that must be completed.[1]

This has been statutorily codified in the definition of a private company as per Section 2(68)(i) of the Companies Act, 2013 (hereinafter referred to as the “2013 Act”) which provides that a private company is one which by way of its Articles, restricts the rights to transfer its shares.[2] The intention behind a private company is two-fold: Firstly, to facilitate the business and trade carried on by a small, close-knit group of members by allowing them to avail the benefits of corporate trading and corporate form of business. The structuring of a company affords many benefits as compared to a partnership and also reduces the liability of each member by providing for separation of business from the individual. Secondly, private companies are preferred to public companies because of the sheer volume of corporate filings to be made and requirements to be adhered to by a public company.[3]

The restrictions on transfer of shares in private companies flow from the Partnership Principle, which is the soul and basis of private companies. These restrictions, as stated above, are considered essential in a private company which is usually a group of trading persons bound together by close ties of kinship and/or friendship. These close associations cannot be established with anyone and everyone so easily and therefore, these members seek to keep the shares of such a company within the group. This motivates them to impose various restrictions to thwart the admission of members who may be unfavourable or hostile to the existing members and thereby to check the dilution of control over the company by the current members. These restrictions on transfer of shares help to keep the ‘soul and basis’ of the company intact. The rationale behind these restrictions in a private company has been endorsed by the Courts repeatedly and therefore they have acted as guardians of private companies, enabling them to retain a large degree of control over whom they admit as members.[4]

However, a completely different scenario plays out and prevails in public companies. One of the main reasons for investment in public companies is the free transferability of shares of such companies; there are no restrictions and anyone who follows the laws regulating share transfer can purchase shares of such a company. The shares of a public limited company are highly liquid and pose no impediments for a holder looking to sell them. This principle has been enshrined in Section 58(2) of the 2013 Act[5] which provides that shares and interests of a public company shall be freely transferable. This is one of the key identifying attributes of a public limited company in India.[6]

Thus, as can be seen from above, based on the motive behind the form of organisation and purpose to be fulfilled, the treatment of restrictions on share transferability differs; while it is sine qua non for a private company, the opposite (it is prohibited) is followed in a public company.

Restriction in transferability of shares vis-a-vis Private and Public Companies

Despite what is said above and at the risk of repetition, it is necessary to point out that the restrictions on transferability of shares of a company or lack thereof are almost entirely dependent on whether the company is a public or a private one. This having been said, various interpretations have been rendered by the Courts as to what is and isn’t permissible by way of a restriction and also whether in a public company, shareholders are absolutely prohibited from dealing with their own shares as they please. These facets of the concept have been elaborately dealt with below:

Share transferability restriction in Private Companies

As stated above, it is essential for a company seeking to be a private company to impose these restrictions; it is one of the defining features of a private company. Restriction on transfer of shares in private companies mainly takes two forms: right of pre-emption in favour of other members and powers of the Board of Directors (hereinafter referred to as “BoD”) to refuse to register the transfer of shares.[7]

1. Right of Pre-Emption

Pre-emption rights are usually such as ‘right of first offer’ and ‘right of first refusal’. The restriction basically embodies the principle that if a shareholder of a private company wishes to sell some shares, the existing shareholders have a right to be offered these shares first and on their refusal or failure to act within the given time, the shares can be sold to a third party. The motive behind this restriction is to prevent dilution of the promoter and other major shareholders’ stake in the company. This right of pre-emption is usually provided in shareholders’ agreements entered into between the various stakeholders in the company.

The procedure to be followed in such situations is as follows: the transferor gives a notice in writing to the company of his intention to sell his shares, which is forwarded to other members of the company along with the time limit for them to respond. The price of these shares is determined by the company’s directors or auditors. Normally, provisions for this are contained in the company’s AoA. On the failure of the other shareholders to respond within the stipulated time, the transferor is free to sell the shares to a third party.[8]

2. Powers of BoD to refuse to register transfer

The Articles of a private company commonly vest the BoD with discretion regarding the acceptance of a transfer of shares. This power vested in the Board is fiduciary in nature i.e., it must be employed in good faith and for the benefit of the company and not for some inappropriate purpose.[9] As per Section 58 of the 2013 Act, the BoD shall communicate the refusal within 30 days from the date on which the instrument of transfer, or the intimation of such transmission, as the case may be, was delivered to the company and shall assign reasons for such refusal. This refusal can be appealed against to the National Company Law Tribunal (hereinafter referred to as “NCLT”) which shall pass such orders as it deems fit. [10] Several judgements have been pronounced regarding the scope of the Company Law Board (the predecessor of the NCLT and hereinafter referred to as “CLB”) to hear appeals against refusal to register transfer under Section 111 of the Companies Act, 1956 (this Section corresponds to Section 58 under the 2013 Act).

For example, In Harinagar Sugar Mills v. Shyam Sunder Jhunjhunwala and Ors.[11] the Supreme Court stated that while exercising its appellate jurisdiction under Section 111, the CLB has to decide whether in exercising their power the directors are acting, oppressively, capriciously, or corruptly or in some way mala fide.[12] Another ground on which the NCLT can exercise its jurisdiction is when it finds that the BoD has exercised its power of refusal based on irrelevant considerations, grounds which are not specified in the Articles. Following the reasoning of Lord Greene MR in Re Smith and Fawcett Ltd.[13], the High Court of Calcutta in Master Silk Mills (P) Ltd v. D.H. Mehta[14], held that the BoD’s refusal to accept a transfer in favour of another company whereas the Articles empowered them to exclude only undesirable persons, was beyond their authority. The Court held that such a blanket ban on admission of other companies as a shareholder was beyond the authority vested in the board by the Articles.[15]

Case Laws Relating to Restriction in Private Companies

Because the 2013 Act (like the 1956 Act) is silent on the issue, several judgements have been rendered over the years in order to lay down the law regarding the type and extent of restrictions that can be placed in the AoA. The pivotal position of law is laid down in the case of V B Rangaraj v. V B Gopalakrishnan and Others.[16]. On the question of whether shareholders can, amongst themselves, enter into an agreement which is contrary to or inconsistent with the Articles of association of the company, the Supreme Court of India held, that only restrictions laid down in the Articles of the company are permissible. A restriction which is not specified in the Articles is therefore not binding either on the company or on the shareholders.[17]

It is interesting to note that the Principal Bench of theCLB has pronounced that even though a private company, being a subsidiary of a public company is defined as a public company in the 1956 Act, all the provisions in the Articles of association to maintain the basic characteristics of a private company in terms of Section 3(1)(iii) will continue to govern the affairs of such a company. One of the basic characteristics of a private company in terms of that section is the restriction on the right to transfer the shares and the same will apply even if a private company is a subsidiary of a public company.[18]

The restrictions on transferability, so essential to the character of a public company, are however not to be construed as a ban or a prohibition on the transfer of shares. The Courts have consistently held that the restriction upon transfer means any restriction that will give some control to the company over transferability of shares. It was held in Chiranji Lal Jasrasaria and Anr. v. Mahabir Dhelia and Ors.[19] that a restriction which amounts to a prohibition on transfer of shares or which precludes a shareholder altogether from transferring is invalid. Moreover, a prohibition on the transfer of shares will amount to violation of Section 82[20] (which corresponds to Section 44 of the 2013 Act) of the 1956 Act and Section 6[21] of the Transfer of Property Act, 1882.[22]

Based on the above observations made and decisions rendered by judicial authorities, the following principles may be discerned regarding restrictions on transfer of shares in private companies:

1. The right to transfer is subject to restriction contained in the Articles; in case of two possible interpretations of the restrictions, the one that is less restrictive should be adopted.
2. The power to refuse the transfer of shares cannot be exercised arbitrarily or for any other collateral purpose and can only be exercised for a bonafide reason in the interest of the company and the general interest of the shareholders.
3. While there may be restrictions on the transferability of the shares, there cannot be an absolute prohibition on the right to transfer of shares.[23]

Scenario prevalent in Public Companies

Though shares of a public company are widely accepted to be freely transferable, the question of whether this means that shareholders of such a company are absolutely prohibited from dealing with their movable property (as per Section 44 of the 2013 Act) as per their wishes, is frequently posed. The question of whether transfer restrictions imposed by agreement on shares of a listed company are enforceable has been a vexed one. Numerous decisions of the Supreme Court as well as High Courts had expressed somewhat different views on the nuances of the issue. However, some stability was brought about in 2010 by a decision of a division bench of the Bombay High Court in Messer Holdings v. Shyam Madanmohan Ruia and Ors[24]., which effectively ruled that restrictions expressed in an agreement between shareholders do not violate of the 1956 Act and that they can be enforced inter se among shareholders. In doing so, the Court diverged from the ruling of a single judge in Western Maharashtra Development Corpn. Ltd. v. Bajaj Auto Limited,[25] wherein a pre-emption clause in a shareholders’ agreement was held to be in violation of Section 111A[26] of the 1956 Act.[27]

The division bench held,

“The concept of free transferability of shares of a public company is not affected in any manner if the shareholder expresses his willingness to sell the shares held by him to another party with right of first purchase (preemption) at the prevailing market price at the relevant time. So long as the member agrees to pay such prevailing market price and abides by other stipulations in the Act, Rules and Articles of Association there can be no violation. The fact that shares of public company can be subscribed and there is no prohibition for invitation to the public to subscribe to shares, unlike in the case of private company, does not whittle down the right of the shareholder of a public company to arrive at consensual agreement which is otherwise in conformity with the extant regulations and the governing laws. That means that it is open to the shareholders to enter into consensual agreements which are not in conflict with the Articles of Association, the Act and the Rules, in relation to the specific shares held by them; and such agreement can be enforced like any other agreement. That does not impede the free transferability of shares at all.”[28]

This has now been codified and statutorily provided in the proviso to sub-Section (2) of Section 58 of the 2013 Act which provides that any contract or arrangement between two or more persons in respect of transfer of securities shall be enforceable as a contract.

Conclusion

Given the rationale behind the establishment of a private company, the restrictions imposed on the transfer of shares seem reasonable, especially considering that the proposed transferee has an option to move the Tribunal in case the BoD appears to have exercised its powers of refusal capriciously or in a mala fide manner. These restrictions help maintain the sanctity of the private company and help the founders/promoters retain majority control and thereby steer the company in the desired direction.

With respect to a public company, keeping in mind that the shares belonging to a person are his movable property and can be transferred in accordance with Section 6 of Transfer of Property Act, 1882, the Court has tried to strike a balance between the conflicting principles of this aforementioned ownership and the free transferability of shares that characterises a public company and provides liquidity to its stock. As a result of the effort, the Court correctly ruled that as long as the agreement to transfer complies with the AoA of the Company and relevant statutory provisions governing the transfer, shareholders of a public company are free to deal with their shares as they please and can enforce an agreement for such transfer.

In my humble opinion, the kinds of restrictions imposed and liberties granted for each kind of company are befitting to them and will enable them to achieve their respective goals.

REFERENCES

Table of Cases:

• Harinagar Sugar Mills v. Shyam Sunder Jhunjhunwala and Ors, 1962 SCR (2) 339
• Re Smith and Fawcett Ltd, [1942] Ch 304
• Master Silk Mills (P) Ltd v. D.H. Mehta, (1980) 50 Comp Cas 365 Guj
• V B Rangaraj v. V B Gopalakrishnan and Others, AIR 1992 SC 453
• Hillcrest Realty Sdn. Bhd. v. Hotel Queen Road Pvt. Ltd. and Ors, 2006 71 SCL 41 CLB
• Chiranji Lal Jasrasaria and Anr. v. Mahabir Dhelia and Ors, AIR 1966 Gau 48
• Messer Holdings v. Shyam Madanmohan Ruia and Ors., [2010 ]159CompCas 29 (Bom)
• Western Maharashtra Development Corpn. Ltd. v. Bajaj Auto Limited, [2010] 154 CompCas 593 (Bom).

Websites Referred:

• Articles of Association’; Available at http://www.investopedia.com/terms/a/articles-of-association.asp, Retrieved at 12:17 on 31^st March, 2017.
• Restriction on Transfer Of Shares’, Available at https://www.lawteacher.net/free-law-essays/finance-law/restriction-on-transfer-of-shares.php; Retrieved at 20:12 on 30^th March, 2017.
• Subashini, ‘India: Restrictions on Transferability of Shares’; Available at http://www.mondaq.com/india/x/102852/Directors+Officers/Restrictions+on+Transferability+of+Shares, Retrieved at 18:48 on 30^th March, 2017.
• Balram, ‘Share Transfer Restrictions in Shareholders’ Agreements-Whether to be incorporated in the Articles of Association of a Public Company?’; Available at http://corporatelawcorpus.blogspot.in/2014/06/share-transfer-restrictions-in.html, Retrieved at 21:35 on 31^st March, 2017.

List of Statutes

• Transfer of Property Act, 1882
• Companies Act, 1956
• Companies Act, 2013

Legal Databases

• Manupatra
• SCC Online

[1] ‘Articles of Association’; Available at http://www.investopedia.com/terms/a/articles-of-association.asp, Retrieved at 12:17 on 31^st March, 2017.

[2]Section 2 of the Companies Act, 2013- Definitions; Available at http://www.mca.gov.in/SearchableActs/Section2.htm, Retrieved at 12:22 on 31^st March, 2017.

[3]‘Restriction on Transfer Of Shares’, Available at https://www.lawteacher.net/free-law-essays/finance-law/restriction-on-transfer-of-shares.php; Retrieved at 20:12 on 30^th March, 2017.

[4] Ibid.

[5] Section 58 of the Companies Act, 2013- Refusal of registration and appeal against refusal; Available at http://www.mca.gov.in/SearchableActs/Section58.htm, Retrieved at 20:16 on 30^th March, 2017..

[6]R.Subashini, ‘India: Restrictions on Transferability of Shares’; Available at http://www.mondaq.com/india/x/102852/Directors+Officers/Restrictions+on+Transferability+of+Shares, Retrieved at 18:48 on 30^th March, 2017.

[7] Supra note 3.

[8] Ibid.

[9] Ibid.

[10] Supra note 5.

[11] 1962 SCR (2) 339.

[12] Ibid, para 10.

[13]  [1942] Ch 304.

[14] (1980) 50 Comp Cas 365 Guj.

[15] Supra note 3.

[16] AIR 1992 SC 453.

[17] Ibid, para 6.

[18] Hillcrest Realty Sdn. Bhd. v. Hotel Queen Road Pvt. Ltd. and Ors., 2006 71 SCL 41 CLB, para 36.

[19] AIR 1966 Gau 48.

[20]Section 82, Companies Act, 1956- Nature of shares; Available at

http://www.manupatrafast.in.elibrary.symlaw.ac.in:2048/ba/fulldisp.aspx?iactid=785&snos=150, Retrieved at 20:28 on 31^st March, 2017.

[21]Section 6, Transfer of Property Act, 1882- What may be transferred; Available at http://www.manupatrafast.in.elibrary.symlaw.ac.in:2048/ba/fulldisp.aspx?iactid=794, Retrieved at 20:28 on 31^st March, 2017.

[22] Supra note 19, para 4.

[23] Supra note 6.

[24] [2010 ]159CompCas 29 (Bom).

[25] [2010] 154 CompCas 593 ( Bom ).

[26] Section 111A of the Companies Act, 1956-Rectification of register of transfer; Available at http://www.manupatrafast.in.elibrary.symlaw.ac.in:2048/ba/fulldisp.aspx?iactid=785&snos=200, Retrieved at 21:27 on 31^st March, 2017.

[27] G. Balram, ‘Share Transfer Restrictions in Shareholders’ Agreements-Whether to be incorporated in the Articles of Association of a Public Company?’; Available at http://corporatelawcorpus.blogspot.in/2014/06/share-transfer-restrictions-in.html, Retrieved at 21:35 on 31^st March, 2017.

[28] Supra note 24, paras 51-52.

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In this article, Senjuti Chakrabarti who is currently pursuing Diploma in Entrepreneurship Administration and Business Law from NUJS, Kolkata, discusses the advantages of listing a company on an SME exchange?

Small and medium enterprises exchange

SME (Small and medium size enterprises) exchange is a platform made by the BSE (Bombay Stock Exchange) in 2012. It has been made by the initiative of the Indian Government along with SEBI. It is a phenomenal framework for the entrepreneurs.  It is a popular concept worldwide.

Problems faced by the small and medium enterprises.

There are various problems faced by the small and medium sized enterprises. These are the enterprise which brings in so much of employment all over the country. They add to the national income of our country to a large extent. After Agriculture in our country, SMEs have their place since they have less capital investment. They have a huge role in the export of our country. Also they are diverse in their nature as they are present and contribute to so many sectors of our country including technology, agriculture, clothes, food etc. In spite of so many achievements they have had, there are present a lot of problems due to which the concept of SME exchange has come into play. What are they?

1. One major problem is capital. There are two ways of raising capital. Either borrowing from bank or funds from promoter. Banking funds are the most common. But for a startup company to bear the cost of that is very risky. If and when the company is doing well, bearing that cost might become easy. But it is not the case initially.
2. Another big factor is the kind of technology . It is quite obvious that the SMEs would not get hold of the kind of technology that is modern and more efficient because there is always a dearth of capital.
3. Lack of fund also comes from the fact that large companies do not lend to the SMEs easily.

There are other several problems that have led to the concept of an exchange for these enterprises.

CRITERIA

There are a few criteria for getting a company listed on an SME exchange. They are-

1. The net worth of the particular company wanting to get listed has to be of one crore minimum. Net worth is the calculation of asset minus liability.
2. The tangible assets of the particular company has to be one crore minimum. Intangible assets do not count when it comes to getting listed here.
3. The company in question has to be in operation for more than three years. A single day less than three years would make it unfit for listing.There has to be a profit history of the company for at least 2 years.
4. When it comes to profit history, no extraordinary income would be counted. The only income that had arisen from regular sources and only distributed profit would be counted.
5. The particular company at the time of listing should not have been involved in any pending suit.
6. There has to be compulsory market making for three years.
7. It has to be a full-time company.

Small and rapidly growing companies should get listed to an SME exchange. The major problem of SMEs being fund, listing is advantageous in several ways.

Firstly, Venture and Angel investment can invest in an SME if it is listed in the exchange.  When listing happens, it leads to raising funds automatically.

Secondly, It is very easy and a convenient way of listing. Very contrary to what people generally think that it would be very complex and cumbersome method to the listing and therefore they drop the idea. But surprisingly enough it takes only three months for the plan to get executed, the company to get listed.

Thirdly, In case of listing, a company’s shares gives rise to more shares and hence more money. How does this happen? When a company lists itself, its shares are also listed. And it can use its existing shares to borrow further shares. Also not always money is required. For example, When a company is listed, and the shares of the company goes up, the shares can be used to buy other companies too simply by giving off those shares. No money is required for this. It is like creating one’s own currency. Currency of shares and not the currency created by the government.

Fourthly,  Listing a particular company on an SME exchange basically opens up a huge market for that particular company which would not have happened if it had not been listed on the exchange. This happens in the manner that when a company is listed, it gets a lot of exposure . Channels start talking about them and their names comes up in front of people. They get noticed . Newspapers might also mention the name of the company since it is a part of the exchange and that way also popularity or acknowledgement is gained. This is profitable in a few ways. One is the company getting the mention or if it can be called as limelight inturn gets a lot of prestige and respect. This is a very important aspect for a small scale company which would have gone absolutely unnoticed and given no importance had it not been listed. But on being listed it gets respect that people thought only large companies with huge turnovers could have got only. But a small company getting the importance at an early stage brings about immense advantage to it.

Fifthly, continuing from the previous point, the free market that gets created for the company that has been listed leads to vendors and customers, etc coming to the company themselves for working with them. The company did not have to go about searching them everywhere trying to hire them. But they get to notice themselves and a gateway is opened where they come and approach the company themselves.

Sixthly, succession is a tricky affair and can bring about huge confusions and complications and might even at times lead to courts. For a company that has been already listed, it is not that difficult for inheritance, say when the owner dies or the property has to go through a devolution . The sharing of the company interms of succession can be simply done through giving off the shares of the company. It is that simple. There is no need for going through a tricky pathway as when we say the word succession it always makes us think that it might be something extremely confusing and cumbersome.

Seventhly, usually, there are people who are under the impression that when they have started a company of their own it is theirs and there is no good reason for giving it away to someone or something or any sort of platform. But this is not a very practical method of thinking. If a company wants capitals, wants to go far in terms of profits in the long run, wants to make the company larger and larger, then listing needs to be done. Since a small company cannot by magic gain a lot of money and makes its company huge overnight. Or not even in days and years for that matter. A small company has basically nothing apart from an idea, determination , creative thinking, skill etc.

For it to overcome all the odds and rise up especially in a time where there are so many large companies which have such huge turnovers and what not. It is very hard and extremely competitive for small companies since they need to have something to think of competing with the large ones. Forget about winning the competition, they are not even capable of competing. And that is because of very practical reasons.

To establish itself in such a competitive world they have to look for a platform, a base from where they can think of looking higher and farther. In case of listing themselves,  wealth can be created out of very little that these companies have. And listing in an exchange does not in any way mean that the particular company wanting to list itself in an exchange is giving away its company to somebody or to a certain place. 75% of the company’s shares is kept with the company itself and 25% goes to the board.

Eighthly, it is very difficult for a small company to find skilled people and hire them. Most times it can be seen that the entrepreneur himself, who has started with the idea does everything on his own. He takes the place of a partner, PR, directors, and is also the one working in every sphere and sector of the company. This is an impractical; way of dealing with a company if the owner actually has dreamt of making his company really big. What listing does is it gives a lot of advantage to the companies who are a part of the exchange. A company gets hold of people who are willing to be partners to the company or go for other posts in the company. This way the company gets a lot of people for its various fileds very easily only which would otherwise have been very difficult.

Ninethly, Another huge advantage of listing a company would certainly be the amount of tax benefits the company would get. So much of tax benefit with basically nothing in return but instead getting hold of a lot of capital and making the company grow to its potential.

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In this article, Shishira Prakash who is currently pursuing Diploma in Entrepreneurship Administration and Business Law from NUJS, Kolkata, discusses what is a qualified institutional buyer and how are qualified institutional buyers regulated?

Qualified Institutional Buyers (QIB)

Investment in today’ world is made in several different methods. People invest in real estate, gold bonds, debentures, providential funds, fixed deposits, investing in companies through shares and stock and much more. Investing in an Indian company or a foreign company is one of the most common ways used. These investments are made by many kinds of investors in India who are governed by specified sets of rules and regulations in the form of statues like Companies Act, 2013, Company Act rules, and the Securities and Exchange Board of India rules. Due to some difficulties, individuals tend to invest indirectly through investment institutions instead of investing by themselves.

These investing institutions are mainly a collective group of people in who come together and collect the investible amount from various investors and invest them in the investment market.

Even though individuals have limited control when they use these indirect methods to invest, they have an expert handling and recommending the investment which should be made in order to get high returns. These institutional purchasers of securities are deemed financially sophisticated and are legally recognised by exchange boards to need less protection from the issuing companies than most public investors who invest directly.

Definition of Qualified Institutional Buyer

These groups of investors who follow certain regulations and rules formulated by the SEBI are collectively qualified to be known as “Qualified Institutional Buyer” (QIB). SEBI has defined a Qualified Institutional Buyer as follows:

Qualified Institutional Buyers are those institutional investors who are generally perceived to possess expertise and the financial muscle to evaluate and invest in the capital markets. In terms of clause 2.2.2B (v) of DIP Guidelines, a ‘Qualified Institutional Buyer’ shall mean:

• Scheduled commercial banks;
• Mutual funds;
• Foreign institutional investor registered with SEBI;
• Multilateral and bilateral development financial institutions;
• Venture capital funds registered with SEBI.
• Foreign Venture capital investors registered with SEBI.
• State Industrial Development Corporations.
• Insurance Companies registered with the Insurance Regulatory and Development Authority (IRDA).
• Provident Funds with minimum corpus of Rs.25 crores
• Pension Funds with minimum corpus of Rs. 25 crores
• Public financial institution as defined in Companies Act, 2013;

Regulations

The institutions which fall under any of the above mentioned categories are qualified to be a QIB in India.

SEBI through Guidelines for “Qualified Institutions Placement”- Amendments to SEBI (Disclosure and Investor Protection) Guidelines, 2000 introduced additional mode for listed companies to raise funds from domestic markets in the form of Qualifies Institutions Placement.

The listed companies which are eligible to raise funds in domestic market by placing securities with QIBs are those whose equity shares are listed on a stock exchange nationwide and which are complying with the prescribed regulations of minimum public shareholding of the listed agreements. These guidelines are applicable to any kind of securities in the form of equity shares or any other form of securities other than warrants, which can be converted into or exchanged with equity shares at a later date at any time after allotment of security (but, within six months from the date of allotment). These kinds of shares are referred to as “specified securities” and are fully paid up when they are allotted.

The guidelines are also very specific regarding who can be the investors or allottees to these specified securities. It specifically mentions that they can be issued only to QIBs and such QIBs cannot be promoters or related to promoters of the issuer directly or indirectly. Each and every placement is done to the qualified institutional buyers will be on private placement basis.

The SEBI has also prescribed that the aggregate amount raised through QIBs by an issuers in a financial year cannot exceed five times of the net worth of the issuer at the end of its previous financial year. Regulating the pricing of the specified securities, the guidelines provide that the floor price of these securities shall be determined in a similar manner of that of the GDR/ FCCB issues and shall be subject to adjustment in cases of corporate actions such as bonus issue or the pre-emptive right given to the already existing shareholders of the issuer.

In every placement it is a mandate to allot 10% of the securities to Mutual Funds. It is also mandatory in each and every placement to have at least two allottees for an issue of size up to Rupees two fifty crores and at least five when it exceeds the above specified amount. Further, the issuer is also not allowed to allot more that 50 % of the issue size to a single allottee. Another important provision in favour of the issuer and against the investors is that the investors cannot and are not allowed to withdraw their bids or applications after closure of the issue.

All the Qualified Institutional Placements are taken care of and managed by the merchant brokers who are registered with SEBI. They shall exercise due diligence and furnish and submit a due diligence certificate to Stock Exchange Board informing them that the issue is with compliance with all the provisions and requirements given and mentioned by the SEBI.

Between each placement in case of multiple placements of these kinds of specified securities, there shall be a minimum gap of six months between them. In order to obtain in-principle approval and final permission from the Stock Exchange for the listing of these specified securities the Issuers and Merchant Broker shall submit reports, documents and undertakings, if any as prescribed in this regard in the listing agreement. But, on the other hand it is not mandatory to file any offer document or notice to the Exchange board in case of preferential allotment and QIP.  The issuing companies are further allowed to offer a discount of up to 5% on the prices of the QIPs, but this discount can be offered only subject to the shareholders’ approval.

Conclusion

The Securities and Exchange Board of India introduced the concept of Qualified Institutional Buyer at the time when Indian corporates were looking for chances to enter into foreign investments overseas to expand their operations, mainly due to two reasons; one, easy availability of funds in those jurisdictions and two, less stringent regulatory environment compared to India.

This concept has become a common route for raising capital due to a twofold reasoning. Firstly, it is advantageous for the issuing company as one, the amount of time taken to complete a QIP is much more less than through public shareholder as there is no long wait for document approvals by SEBI and the whole process can be completed in a span of 4 to 5 days and two, it is cost effective as there is no need to employ a large team of bankers, solicitors, advocates and auditors to obtain approvals. Secondly, the Qualified Institutional Buyers have the ability and opportunity to buy large stakes in company with the advantage of being able to exit and sell their stocks at any point of time post its listing on the exchange unlike waiting for a minimum period of one years when it is investing in an IPO.

Although due to the above mentioned reasons, companies prefer QIP, there are a few negative sides to it too. As QIPs give the Institutional Buyers an opportunity to hold a large stake in the company, it dilutes the existing stakes of the shareholders. Due to this, the companies with a huge amount of promoter holding prefer this method over the companies in which there are significant number of promoters with low stakes, as a further dilution of stakes could mean risking the management control of the company.

So it’s a kind of bootstrap where, while coming over from a particularly problematic situation company enters another possible problematic condition.

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In this article, Shreya Saraiya who is currently pursuing Diploma in Entrepreneurship Administration and Business Law from NUJS, Kolkata, discusses The legal framework governing foreign exchange transactions.

Foreign Exchange Regulations in India

The regulatory regime with respect to foreign exchange is majorly governed by the Foreign Exchange Management Act, 1999 and the regulations; power under this Act has been derived from various entries in the Union List. In the earlier scenario, the foreign exchange in India was governed by the Foreign Exchange Regulation Act, 1973 (FERA). However, with the objective to consolidate and amend the foreign exchange related law for the facilitation of external trade and payments and to promote systematic development and maintenance of Forex market in India, the FERA was repealed by the new Act namely Foreign Exchange Management Act,1999. Moreover, the changed circumstances in relation to the foreign exchange market compelled the Government of India to repeal the above Act (FERA) and formulate the new Act, suiting to the requirements of the prevailing environment. The major aim of the Act is the promotion of exports and imports and brings in ease in the transactions pertaining to the external trade.

Under the earlier Act (FERA), it was required to take the permission of Reserve Bank of India either special or general regarding the various regulations as laid under the Act. However, a change has been observed under the new Act (FEMA) for which no permission is required to be taken from the RBI, except under the section 3 of the instant Act. There has been observed a transition from the phase of permissions to the regulations. This changed scenario is depicted in the Preamble of FEMA,1999 which states that the Act aims for consolidation and amendment of the law relating to the foreign exchange, keeping under consideration the following objectives- facilitation of the external trade and payments and promotion of the orderly development and maintenance of the foreign exchange market.

It was noticed that the approach pertaining to the dealing with the foreign exchange transactions underwent a change from the conservation of foreign exchange to the facilitation of trade and payments as well as the development of orderly Forex market. The section 5 of the Act facilitates the external trade by removing the restrictions on drawal of foreign exchange for undergoing the current account transactions as it provided for no need of seeking the permission of the RBI in the cases of the remittances involving external trade. The removal of the restrictions on the current account transactions was important as the notice was given to the International Monetary Fund (IMF) regarding the attainment of Article VIII status. However, the Central Government was given the power to impose restriction in consultation with the Reserve Bank of India for the purpose of securing interests of the public at large. The control on the exports is retained through Section 7.

As already mentioned, FEMA was enacted leading to the replacement of FERA due to the major reason that the latter became obsolete due to the changed scenario with respect to the foreign exchange. The Indian economy was facing the crisis situation in which the foreign exchange became the part and parcel for the survival of the country. There are 49 sections, of which 12 sections are operative in nature while the rest of the sections are contraventions, penalties, appeals, enforcement etc. The new Act (FEMA) has led to the reduction in the restrictions on the foreign exchange transactions relating to the trade in goods and services, with the exception of the power which has been provided to the Central Government to impose restrictions in the interest of the public.

Objectives and Extent of FEMA

As above mentioned, the broad objective of the new Act is to bring out the ease in the Foreign Exchange transactions. The Act is applicable to whole of the India, to the branches, agencies and offices outside India which is owned or controlled by a person resident in India and also covers any contravention committed under this Act by the person outside India. Therefore, this Act is extra-territorial as it applies to person even outside India if he/she falls under the ambit of this Act. Let us highlight the situations in which general permission of RBI is required for undergoing the transactions –

• Dealing in or transferring any foreign exchange or security to any person not being an authorised person.
• For the purpose of making any payment or for the credit of any person who is residing outside India in any manner.
• Receiving from a person resident outside India any payment, not through an authorized person.
• The current account transactions can be reasonably restricted as per the prescribed restrictions. The foreign exchange can be sold or drawn by any person to or from an authorized person for a Capital Account transaction.

The Reserve Bank of India may, specify after consulting with the Central Government, lay down the specifications regarding –

• The permissible class or classes of Capital Account transactions.
• The admissible limit up to which the foreign exchange shall be allowed for such transactions.

However, the restrictions can be imposed by the Reserve Bank of India on the withdrawal of foreign exchange for paying for the sums which are due on the account of authorization of loan or for investments which are direct in nature being made in the ordinary course of business.

The regulations can be imposed by the RBI, through the necessary restrictions or prohibitions in on the following matters –

• The person to whom any transfer or issue of any foreign security is made who is a resident outside India.
• The person to whom any transfer or issue of any foreign security is made who is a resident in India.
• The transfer or issue of any foreign security by any branch, office or agency in India of a person resident outside India.
• The borrowing or lending of foreign exchange in any orm or with any name.
• The borrowing or lending in rupees between a person resident outside India and person resident inside India in whatever form or by whatever name called.
• Any form of the deposits between a person resident inside India and a person resident outside India.
• Currency or currency notes if they are exported, imported or are being held.
• If the person resident in India transfers any immovable property outside India, other than lease not exceeding five years.
• If the person resident outside India acquires or transfers any immovable property in India, other than the lease not exceeding five years.
• When any guarantee or surety is provided with respect to any debt or any other liability incurred by a person who is a resident of India and who owes to a person who is resident outside India or by a person resident outside India.

Any transfer of or investment in the foreign currency or security can be made by a person, resident in India who may hold or own the immovable property when such a property is situated outside India when he was residing outside India or he inherited the property from the person residing outside India. Any investment can be made in the Indian currency in immovable property or Indian currency or security which is held, owned or transferred by any person resident outside India in case when such currency, security or property was acquired, held or owed by such a person when he was a resident in India or is inherited from a person who was a resident in India.

Any regulation can be passed by the RBI for the purpose of prohibiting, or regulating the establishment in India of a branch, office or other place of business by a person resident outside India, for undergoing any activity relating to such a branch, office or other place of business. The person who exports goods or services must comply to the following requirements –

• He must provide a declaration as per the prescribed form to the RBI or any authority. Such a declaration must contain true and correct particulars, the amount representing the full export value must be included or if such a value cannot be ascertained, the value can be decided by the exporter who may decide considering the prevailing market conditions, who expects will receive the amount on the sale of goods in the market.
• He must also furnish any such information as may be required by the RBI for ensuring the realization of the export proceeds by such exporter.

The RBI may give the direction to any exporter to comply with the requirements as it deems with for the purpose of ensuring the full export value or the value as determined by RBI, according to the market conditions. The RBI may also lay down the specifications in the case when any foreign exchange is due or has accrued to any person resident in India where the person will have to take all the reasonable steps to realize and repatriate to India such foreign exchange with the period prescribed. The RBI plays a very important role in managing the transactions with respect to foreign exchange in India.

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In this article, Siddheswari Ranawat who is currently pursuing Diploma in Entrepreneurship Administration and Business Law from NUJS, Kolkata, discusses the reporting requirements for investors under FEMA. 

Introduction

FEMA regulates all the foreign exchange related matters. The 1999 Act was enacted with a purpose of amending and consolidating all the foreign exchange related laws. So it would facilitate the Foreign Trade and be beneficial to the Indian Economy the 1991 Liberalisation, Privatisation and Globalisation policy could be a motivating factor behind the Government’s step to facilitate foreign trade. The Act deals with regulation and management of foreign exchange by dealing and holding foreign exchange and with export-import of goods and services and so on. It also sheds light upon authorized persons and their roles and also if the provisions of the act are not complied with then it also discusses the contraventions and penalties. It specifically also conveys the jurisdiction of specific court for the matters relating to foreign exchange that does not come under the jurisdiction of civil courts as mentioned under Sec. 34. There are 49 sections in the act it also discusses about the directorate of enforcement and other miscellaneous matters relating to the foreign exchange. [1]

Introduction to reporting requirements

Necessary information required by a governmental body, organization, or employer and is often required within a certain period of time and within a specific format that is known as reporting requirements.[2] Reporting requirements in simpler terms mean a set of facts or information needed for completion of a task in a specified period of time or format. Reporting requirements are very particularly fixated over a theme or topic. There are no specific provisions in FEMA[3] regarding reporting requirements in particular. The FEMA provisions do not directly address the requirements in the Act. There are different reporting requirements for different foreign exchange related matters.

Master directions issued by the RBI

The issue started from January, 2016 on different regulatory matters. [4]: The Master Directions consolidate instructions on rules and regulations framed by the Reserve Bank under various Acts including banking issues and foreign exchange transactions. The process of issuing Master Directions involves issuing one Master Direction for each subject matter covering all instructions on that subject.[5] The medium of press release or circulars are used keep the directions updated with the new changes that take place from time to time.

The master direction has been totally amended and includes different subjects like the Part I talks about the Remittance Facilities, Part II about Liberalized Remittance Scheme, Part III discusses the LO/BO/PO[6] related matters, Part IV about Foreign Investment, Part V about ECB(External Commercial Borrowing), Part VI about Non-resident foreign accounts, Part VII about immovable property, Part VIII about Overseas Direct Investment, Part IX about Trade, Part X about Guarantees and Part XI about the cell effective implementation of FEMA (CEFA)- Compounding. The amendments were made in the direction in the year 2016.[7]

Reporting requirements are specific under the following heads

Indian companies are allowed to access funds from abroad through the below-mentioned methods, (i) External Commercial Borrowings (ECB) (ii) Foreign Currency Convertible Bonds (FCCBs) (iii) Preference shares (iv) Foreign Currency Exchangeable Bonds (FCEBs)

ECB can be accessed under two routes, viz., (i) Automatic Route and (ii) Approval Route.[8]

Borrowings under ECB Framework are subject to reporting requirements in respect of the following

Loan Registration Number (LRN): Any draw-down in respect of an ECB as well as payment of any fees / charges for raising an ECB should happen only after obtaining the LRN from RBI.

Changes in terms and conditions of ECB: All the permitted changes in ECB parameters should be revised with form available at the earliest possible opportunity and it should under no circumstances exceed 7 days from the date of the changes

Reporting of actual transactions: The requirements relating to the borrowers is  that they are required to report actual ECB transactions on monthly a basis within the time span of 7 days and the Part V of Master Directions – Reporting under Foreign Exchange Management Act discusses the format of it.

Reporting on account of conversion of ECB into equity: In a situation where partial or full conversion of ECB into equity is done, the reporting to the RBI will have different stipulations as given under the act.

Trade Credit transactions are subject to the following reporting requirements

Monthly reporting: As the name suggests the report is to be given to the authorities on the monthly basis. The Format of Form is available at Annex IV of Part V of Master Directions – Reporting under Foreign Exchange Management Act. Details like approvals, drawal, utilisation, and repayment of Trade Credit approved by all its branches, in a consolidated statement, during a month are required. Each trade credit may be given a unique identification number by the Authorized dealer bank.

Quarterly reporting: this report is to be submitted to the authorities on quarterly basis. Details like issuance of guarantees / Letters of Undertaking / Letter of Comfort by all its branches, in a consolidated statement, at quarterly intervals are required. It should reach to the authorized within the first ten days of the month. The format of this statement is available at Annex V of Part V of Master Directions – Reporting under Foreign Exchange Management Act.[9]

The establishment of BO (Branch Office)/LO (Liaison Office)/PO (Project Office) is subject to certain reporting requirements which are as follows:

The Annual Activity Certificate (AAC) (Annex I) as at the end of March 31 along with the audited financial statements including receipt and payment account are required to be submitted to the designated and authorized authorities before September 30 of every year. In case the annual accounts of the BO/LO are finalized with reference to a date other than March 31, the AAC along with the audited financial statements may be submitted within six months from the due date of the Balance Sheet to required authorities.

AD Category-I bank shall send a consolidated list of all the BOs/LOs/ POs opened and closed by them during a month (as per Annex II), by the fifth of the succeeding month.

Entities from Bangladesh, Sri Lanka, Afghanistan, Iran, China, Hong Kong, Macau or Pakistan which are setting up a BO/LO/PO in India should register with the state police authorities and are required to submit an annual report (as per Annex III) within five working days of the BO/LO/PO becoming functional to the Director General of Police (DGP) of the state concerned in which the BO/LO/PO has established its office; If there is more than one office of such a foreign entity, a separate annual report is required to be submitted to each of the DGP concerned of the state where the office has been established.

Limited liability partnership is subject to the following reporting requirements

Limited Liability Partnerships (LLPs) receiving amount of consideration for capital contribution and acquisition of profit shares is required to submit a report in Form Foreign Direct Investment-LLP through its Authorized Dealer Category – I bank, to the Regional Office of the Reserve Bank under whose jurisdiction the Registered Office of the Limited Liability Partnership making the declaration is situated, within 30 days from the date of receipt of the amount of consideration. The form should be accompanied by certain documents which would allot a Unique Identification Number (UIN). The LLPs should report disinvestment / transfer of capital contribution or profit share between a resident and a non-resident (or vice versa) under the time limit of 60 days from the date of receipt of funds in Form Foreign Direct Investment LLP. All LLPs in India which have received FDI and/or made FDI abroad in the previous year(s) as well as in the current year, should file the annual return on Foreign Liabilities by the 15 of July of every year. Since LLPs do not have 21- Digit CIN (Corporate Identity Number), they are advised to enter other set of digits. The RBI stipulates different formats and specifications which can be found on their official website.[10]

In conclusion we have these specifications as stipulated by the master directions given by the RBI with the FEMA’s authority involved in and they are to be followed by the investors and their non fulfillment may lead to fine or punishment both as stipulated by the act. Considering that our country had learned its lesson with the 200 year rule by the UK and was rather a little hesitant in allowing foreign trade but the circumstances have changed and now we have all the laws and regulations to keep the exchange and trade in control. Foreign investment in general terms a very long and hectic process considering the fulfillment of laws that are to be taken care of and the reporting requirements are just one of those laws or rather stipulation whose fulfillment is absolutely necessary for the smooth working and investing by the potential or current investors in our country.[11]

References

[1]http://lawmin.nic.in/ld/P-ACT/1999/The%20Foreign%20Exchange%20Management%20Act,%201999.pdf (Accessed on 30^th March, 2017 at 6:58 PM).

[2] http://www.businessdictionary.com/definition/reporting-requirements.html. (Accessed on 30th March at 7:14 PM).

[3] The Foreign Exchange Management Act, 1999.

[4] Reserve Bank of India.

[5] https://rbi.org.in/scripts/BS_ViewMasterDirections.aspx?id=10204 (Accessed on 30^th March, at 6:12 PM).

[6] Stands for Branch Office, Liaison Office and Project Office.

[7] The parts of the direction are the same as given under the official master direction issued by the RBI.

[8] https://rbidocs.rbi.org.in/rdocs/content/pdfs/13MDR291215.pdf (Accessed on 30th march, 2017 at 7:48 PM).

[9] https://rbi.org.in/scripts/BS_ViewMasterDirections.aspx?id=10204

[10] https://rbidocs.rbi.org.in/rdocs/content/pdfs/13MDR291215.pdf (Accessed on 30th March, 2017 at 8:28 PM).

[11] The provisions mentioned in the article are not with an intention of plagiarism but they are the straight provisions as given under the act and cannot be changed by the author.

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In this article, Ashwini Gehlot discusses the procedure for obtaining a Legal Heir Certificate.

Legal Heir Certificate

When the head of the family or a family member passes away then the next legal heir of that person can apply for the legal heir certificate.

This Certificate is generally required for the beneficiaries of a serving or retired employee, who passed away. If that retired person dies, family pension advantages will go to legitimate heirs. Generally, any levy to a man from government or nearby bodies will be paid to lawful heirs on the death of the individual. Such advantages to legitimate heirs might be a provident fund, pension, gratitude etc.

Legal Heir Certificate ordinarily specifies the names, ages, association with the deceased and conjugal status of all surviving family members. For getting Legal Heir Certificate, a death certificate indicating evidence of death is important. This death certificate is issued by the Major Panchayat/Municipality/Corporation/RO of Mandal where the death happened.

Importance of Legal Heir Certificate

This certificate can be used for insurance claims, retirement benefit claims, pension claims and can also be used for gratuity and PF claims. Although this certificate is not legitimate in the property transfer matters where a person dies without a valid will, court litigation and also in cases of transactions with a financial institution or we can say money related establishments and banks etc. Because in these cases succession certificate (issued by civil courts by making an application) is required.

The legal heir certificate mainly used for acquiring the inheritance of the property which is left behind by the dead person.

Procedure for obtaining a Legal Heir Certificate

Eligibility

Husband/wife or son/daughter or mother of the deceased person can apply for legal heir certificate.

Instructions

Obtaining a legal heir certificate is very easy and not much of a trouble, it is  issued by district tahsildar office for the person whose parent/husband/wife died intestate, it is issued  to build a relationship for claims related to pension, insurance, administrative/service advantages, retirement benefits of the state and central government offices, government works etc. and to get occupation like compassionate appointments.

The person who is applying for legal heir certificate has to approach the district tahsildar office with the death certificate of the deceased and have to produce a form and also  he/she have to  make an application and the person has to fill up an application form and make sure that all the information provided by the person is correct and complete and it is also required that the person lodging the application should have all the required information and necessary documents required in the process and it is also required to affix a court fee stamp (INR 2) on the application form and SC/ST are exempted from this fee.

What documents to attach along with the application

• Name of the deceased
• Death certificate original
• Service certificate issued by the head of the department/office in case of serving employee
• Ration card and Aadhar card
• Pensioner payment slip issued by the office of accountant general in case of pensioner
• Family members names and relationship
• Applicant’s signature
• Date of application
• Residential address
• An affidavit worth Rs 20 on a stamp paper

After filling the form and with all the necessary details and documents the form has to be submitted to Taluk’s Tahsildar. The person can obtain the legal heir from the Taluk/Tahsildar or district civil court of his/her area.

After the submission, an inquiry will take place for the verification by the local revenue officers as well as village administrative officials. Generally, a statement by the administrative/gov employee who is known to the dead person and his/her family will be registered in the application form. After the verification, the officials will submit their report in the prescribed form.

After the due inquiry, based on the report presented by the revenue officer and village administrative officials the certificate will be issued by the competent authority in which names of all the legal heirs will be mentioned.

Duration- the whole procedure from processing the information to the certificate issuance it will take around 15-30 days.

If the certificate is not issued within a reasonable period then the person concerned can remind the tahsildar and in a case of not getting any response the person can contact the concerned RDO/sub-collector.

Difference between Legal Heir Certificate and Succession Certificate

A lot of people get confused between succession certificate and legal heir certificate most of the times they consider them similar. But just to clarify this doubt here are some major differences mentioned below.

• As it is known from this article that legal heir certificate is issued by the Tahsildar from taluka, the succession certificate is issued by the civil court or sometimes high court.
• In legal heir certificate the person who can apply for the certificate is son/daughter, husband/wife or parents of the deceased but in the case of applying for succession certificate, only legal heir of deceased can apply.
• The time required for issuance of legal heir certificate is 15-30days whereas in the case of succession certificate it can take 6 or sometimes 7 months in toto.
• Fee for the issuance of legal heir certificate is Rs 2 for stamp and Rs 20 stamp paper for affidavit and sometimes additional fee like some officials can ask for money but it will be considered as unofficial and for succession certificate 3% or more or less percentage of the total value of property and as an additional fee attorney fee will be charged.
• No one is allowed to contest in case of legal heir certificate application and process but in the case of succession certificate, anybody can contest this application within the 45 days from the time of the application being submitted.
• Documents required for legal heir certificate is mentioned above and in the case of succession certificate, the important documents are death certificate of the deceased date, place and time of the death, names of all legal heir and their relation with deceased.
• As mentioned above the importance of legal heir certificate that it is used for pension, gratuity, insurance, and PF claims and for retirement benefit claims and the succession certificate is used for transfer of possession/of property, is also used for paying debts or security on behalf of deceased or collecting debts or security on behalf of deceased.

Judicial pronouncements on issuance of legal heir certificate

As we know nothing in this universe is perfect, everything has their flaws so is this, there are chances of arising disputes regarding the issuance of this certificate sometimes it can be because of corruption or delay or may be fraud etc. so here are some of the case laws of Indian judiciary regarding this particular issue as mentioned below.

Periyaswamy vs Inspector, Vigilance And … on 23 March 1999^[1]

In this case, the accused i.e. revenue officer asked for Rs. 300 as a bribe for sending the inquiry report which is used for the verification of issuance of legal heir certificate. So, in this case, the appellant has sentenced the imprisonment till the rising of the court and have to pay a fine of Rs 1000.

V. Selvarani vs The Chairman on 21 March 2011^[2]

Petitioner’s husband was a Lineman working under the control of the second respondent and he died in harness and intestate on 1.12.2003. Petitioner made many representations to the second respondent for compassionate appointment within 1 year from the death of deceased but her request was rejected on the ground that petitioner is the second wife as per the certificate dated 20.01.2004  and so she is not entitled to the same. Petitioner filed a suit and the court declared her as the legally wedded wife after the judgment the petitioner approached the competent authority to cancel that certificate and issue a fresh certificate after that she approached the fourth respondent for the compassionate appointment, and again her request was rejected on the ground of delay.

Since the first representation made by petitioner was within 3 years of the death of deceased and since then she was continuously pursuing her case so the next representation made by her cannot be treated as a belated application. So, the court held that the representation made by petitioner was well in time i.e. within 3 years.

Vandana Bhimrao Jadhav vs Inhabitant Of Mumbai on 22 October 2013^[3]

The respondent in this particular case had not disclosed the names of the other petitioner nos. 2 to 4 as the legal heirs of the deceased when he filed a petition for issuance of legal heirship certificate. So, the court in this matter held that the petitioners are entitled to include their names in the legal heirship certificate issued by this Court in Petition No. 91 of 2009 as legal heirs issued under section 2 of the Bombay Regulation VIII of 1827 in favor of the respondent.

References

^[1] Periyaswamy vs Inspector, Vigilance And … on 23 March, 1999 CriLJ 2944

^[2] V. Selvarani vs The Chairman on 21 March, 2011,WRIT PETITION NO.20949 OF 2009

^[3] Vandana Bhimrao Jadhav vs Inhabitant Of Mumbai on 22 October, 2013, MISC. PETITION NO. 110 OF 2011 IN MISC. PETITION NO. 91 OF 2009

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In this article, Aklovya Panwar discusses the highest paying legal jobs in India.

“All men dream: but not equally. Those who dream by night in the dusty recesses of their minds wake in the day to find that it was vanity: but the dreamers of the day are dangerous men, for they may act their dreams with open eyes, to make it possible.” ~ T.E. Lawrence

India as a country has a very complex social, political and economic system. Since Independence there has been various highs and lows in India’s growth and we have also gone through various reforms in our system for the final goal i.e., development. Development is a very broad term but it is generally related to the stability, happiness and satisfaction of an Individual.

In today’s world of modernisations an individual’s satisfaction and stability can be measured by the amount of money he earns. In the urge of this stability every individual tries to seek for best fields or jobs, one among them is the stream of law where a person can earn a hefty amount by the way of their skills and abilities. The Indian legal profession today consists of approximately 12 lakh registered advocates, around 950 law schools and approximately 4-5 lakh law students across the country. Every year, approximately 60,000 – 70,000 law graduates join the legal profession in India.So now the question arises what are the best option they can opt for?

Law Firms

In India, Law firms are characteristically set up as a partnership or sole proprietorship concerns. Most law firms engage lawyers on an exclusive retainership basis. The lawyer in this arrangement is not an employee of the firm but is an exclusive consultant to the firm.

Law firms provide hefty pay amount and are one of the most grossing jobs in this field.

Here is a sample report where the remuneration in the law firms has been shown:

Top law firms in India

Trial lawyers

Trial lawyers are among the highest paid legal professionals in the world. It is a field where the skills and experience of the lawyer matters a lot. It is an opportunity where you can earn good amount of money by way of your performance.

Cyber Law

The advancement of technology comes as a blessing for the human kind but with that, it also costs the epitome of nuances which includes most of the online injuries. In this cyber law act as a remedy. Cyber crimes can contain criminal activities that are traditional in nature, such as theft, fraud, forgery, defamation, and mischief, all of which are subject to the Indian Penal Code. The abuse of computers has also given birth to a gamut of new age crimes that are addressed by the Information Technology Act, 2000. Cyber lawyers are in high demand as India is still exploring its online database limits. One recent example was the famous case of Right to be forgotten.

It varies on the role. The biggest factor is the merit of the law student in question. If you’re hired by a company as an in-house cyber law counsel, the starting salary would be between Rs 50,000 and Rs 60,000 per month.

Intellectual Property

Intellectual Property Laws deal with copyright, trade, and patent. As like the field is unending so does the opportunities. IP lawyers are needed in present time due to spread of awareness regarding possession. So it is another top-notch job for good earning. The starting salary would be between Rs 50,000 and Rs 60,000 per month.

Human Rights lawyer

Human rights lawyers usually get absorbed in government organisations like National Human Rights Commission (NHRC) or State Human Rights Commission, NGOs, social welfare departments, and international organisations such as Amnesty International and Red Cross. The Human rights lawyer are frequently needed in the organisations working for Human Rights. They also helps in the formation of policies.

Starting Salary: Average INR 3,00,000 per annum.

Judges

This is the most hon’ble position in the nation as judges are the providers of justice and this position is earned only by prior dedication and obstinate determination. Judges enjoy high earnings as well as other special privileges, most judges enjoy health benefits, expense accounts and contributions to retirement plans made on their behalf, increasing the size of their compensation packages.

The highest-paid judgeships are those within the Supreme and High court system, while local judges and magistrates earn the least.

Members of Parliament

Member of Parliament is not explicitly, a field for law professionals but if a person have interest in policy making and wants to understand the core execution of our political system then they can contribute their legal knowledge in the same. As One-third of the Union Council of Ministers are law degree holders India paid Rs.176 crore to its 543 Lok Sabha members in salaries and expenses over the last year, or just over Rs. 2.7 lakh a month per Member of Parliament (MP), new official data show.

Professor of Law

Nowadays, this profession is in very high demand because law school professors not only teach they also contribute in the academics by their publications and scholarly articles. Securing a position as a law school professor is competitive, however, qualifications for top candidates include a law degree from a top law school, law review, high-class standing, judicial clerkship experience, law practice experience and publication credits in scholarly journals They have specialisation in their subject by which they help in the formation of various laws and policies by proposing their research, viewpoints and ideas.

Judicial Clerkship

A law clerk or a judicial clerk is a person generally an attorney who provides straight assistance and counsel to a judge in making legal decisions and in writing opinions by exploring issues before the court. It is a perfect opportunity for the freshers as well as the law students because it not only lobs good money but also brilliant exposure of the reality of the law.

Public Prosecutor

As per the revised scale, pay scale has been changed and there is a hike in the salaries of public prosecutors.

Conclusion

Law is a field of innumerable opportunities and the above-mentioned opportunities are a drop in the bucket. Law is the basis of all other institutions. Every now and then, law is evolving and with that new opportunities are also coming into existence. But lastly, there is only one question to ask, is it about money all the time? So, taking this into concern it is important to understand that every opportunity has its own worth. Money is “a thing” in the constituents of a happy life but it is not “the thing” when we talk of successful and satisfying life. So, just go for the opportunities and knock the door, keeping in mind that apart from money there are a lot of things that can be extracted out of that position.

References

^[1]Vision Statement 2011-13 « The Bar Council of India, The Bar Council of India, http://www.barcouncilofindia.org/about/about-the-bar-council-of-india/vision-statement-2011-13/ (last visited Jul 3, 2017).

^[2] India Lawyer Compensation,Report,https://www.vahura.com/docs/VahuraSampleCompensationReport.pdf

^[3] Id.

^[4]Rebecca Furtado, Top 10 Law Firms That Pay The Highest Salary In India iPleaders (2017), https://blog.ipleaders.in/top-10-law-firms-that-pay-the-highest-salary-in-india/ (last visited Jul 3, 2017).

^[5] PayScale – Salary Comparison, Salary Survey, Search Wages, PayScale – Salary Comparison, Salary Survey, Search Wages, http://www.payscale.com/ (last visited Jul 3, 2017).

^[6] Vivek Tripathi, Cyber Laws India Cyber Laws India, http://www.cyberlawsindia.net/ (last visited Jul 3, 2017).

^[7] IndiaToday.in, From human rights to cyber law, five top lawyers on the intricacies of studying law. India Today (2016),http://indiatoday.intoday.in/story/the-business-of-law-human-rights-cyber-law-criminal-law-litigation-law-intellectual-property/1/565469.html (last visited Jul 3, 2017).

^[8] Id.

^[9] Id.

^[10] High Court Judge, Supreme Court Judge, District / Civil Court Judge Grade Pay Pay Scale Salary Allowance Perks Under 7th Pay Commission, 7th PAY COMMISSION (Salary) (2016), http://www.7thpaycommissioninfo.in/high-supreme-district-civil-court-judge-grade-pay-scale-salary-allowance-perks/ (last visited Jul 3, 2017).

^[11] Press Trust of India, Lawyers dominate Narendra Modi’s cabinet,The Indian Express (2014), http://indianexpress.com/article/india/india-others/lawyers-dominate-narendra-modis-cabinet-2-doctors/ (last visited Jul 3, 2017).

^[12] Rukmini S., Government spends Rs. 2.7 lakh a month per MP, The Hindu (2016), http://www.thehindu.com/data/government-spends-rs-27-lakh-a-month-per-mp/article7699415.ece (last visited Jul 3, 2017).

^[13] Supra 5.

^[14] Supra 5.

^[15] Pns, ‘Higher pay scales to different categories of prosecutors‘ The Pioneer (2015), http://www.dailypioneer.com/city/higher-pay-scales-to-different-categories-of-prosecutors.html (last visited Jul 3, 2017).

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In this article, Arvind Singh discusses the provision of Capital Punishment with reference to Indian Legal System.

Capital Punishment, the word ‘capital’ comes from a Latin term ‘capitalis’ means ‘of the head’. The crimes or offences with results in capital punishment are called as the ‘capital offences’ or ‘capital crimes’.

Capital Punishment is also known as the Death Penalty. There are many countries which has abolished the practice of capital punishment. India, is one of those countries which are in favour of giving capital punishment in certain cases. In present scenerio, when we talk about Human Rights the concept of Capital Punishment seems very contradictary. Different countries have adopted different ways of execution of capital punishment.

In India, the mode of execution is by ‘Hanging by neck till death’. But in the cases of The Army Act, The Navy Act and The Air Force Act Death by shooting is also an option. Section 34 of the Air Force Act, 1950 empowers the court martial to impose the death sentence for the offences mentioned in section 34(a) to (o) of The Air Force Act, 1950. Section 163 of the Act provides for the form of the sentence of death as:-

“In awarding a sentence of death, a court-martial shall, in its discretion, direct that the offender shall suffer death by being hanged by the neck until he be dead or shall suffer death by being shot to death.”

It Depends on the discretion of the Court Martial to either provide for the execution of the death sentence by hanging or by being shot to death. The Army Act, 1950, and The Navy Act, 1957 also provide for the similar provisions as in The Air Force Act, 1950. Even Lawyers in India and whole legal fraternity is divided when it comes to the Capital Punishment.

Capital Punishment is considered as a tool of deterrence which is used to create fear in the mind of the general public so that nobody dares to commit the crime again.

Indian law supports Capital Punishment but it is restricted only to certain crimes:

• 120B of IPC Being a party to a criminal conspiracy to commit a capital offence
• 121 of IPC Waging, or attempting to wage war, or abetting waging of war, against the Government of India
• 132 of IPC Abetting a mutiny in the armed forces (if a mutiny occurs as a result), engaging in mutiny
• 194 of IPC Giving or fabricating false evidence with intent to procure a conviction of a capital offence
• 302, 303 of IPC Murder
• 305 of IPC Abetting the suicide of a minor,
• Part II Section 4 of Prevention of Sati Act Aiding or abetting an act of Sati
• 364A of IPC Kidnapping, in the course of which the victim was held for ransom or other coercive purposes.
• 31A of the Narcotic Drugs and Psychotropic Substances Act Drug trafficking in cases of repeat offences
• 396 of IPC Banditry with murder – in cases where a group of five or more individuals commit banditry and one of them commits murder in the course of that crime, all members of the group are liable for the death penalty.
• 376A of IPC and Criminal Law (Amendment) Act, 2013 Rape if the perpetrator inflicts injuries that result in the victim’s death or incapacitation in a persistent vegetative state, or is a repeat offender.

Deterrence Theory of Punishment

The basic Idea of Capital Punishment is based on the Theory of deterrence. The object of this theory is to deter i.e. to create a sense of immense fear in the mind of people that they shall not commit same crime. It does not allow any criminal to be dealt with lineancy. In Todays world there is a lot of criticism of Deterrence Theory as it usually related to inhuman and barbaric punishment. At present times when we talk about Human Rights the concept of death penalty seems a bit contradictary.

Constitutional validity of Capital Punishment

The validity was first challenged in the case of Jagmohan Singh v. State of U.P where the SC rejected the argument that the death penalty is the violation of the “right to life” which is guaranteed under Article 21 of the Indian constitution.

Rajendra Prasad v. State of UP, Justice Krishna Iyer has empathetically stressed that death penalty is violative of Articles 14, 19 and 21.

The  landmark  case  of  Bachan Singh  v. State of  Punjab,  by  a  majority  of  4  to 1  (Bhagwati J.dissenting) the Supreme  Court overruled  its  earlier  decision  in  Rajendra  Prasad. The Supreme Court upheld that Provisions related to capital punishment are not violative of Art. 14 (Right to equality), Art. 19 (Freedon of speech and expression) and Art 21 (Right to Life and liberty) of the Constitution. It expressed the view that death penalty, as an alternative punishment for murder is not unreasonable, also  enunciated  the  principle  of  awarding  death penalty only in the ‘rarest of rare cases’.

The Supreme Court in Machhi Singh v State of Punjab laid down the broad outlines of the circumstances when death sentence should be imposed.

Concept of Rarest of Rare under Sec. 302 IPC

The theory was propounded by the S.C in the case of Bachchan Singh vs. State of Punjab. Earlier, there was only one punishment when an offence under sec. 302 was committed i.e Death penalty. It was a controversial form of punishment  because there was no criteria on basis of which capital punishment could be awarded.

A person who committed murder by direct attack was given same punishment as that of a person who has committed murder in a barbaric or heinious way. The Supreme Court settled this dispute in the case of Bachchan singh’s Case. The Apex Court gave the Theory of Rarest of the Rare cases. After these guidlines it was settled that Capital Punishment in Murder  cases will be given only when the case will fall under the theory of Rarest of the rare cases.

According to this theory Rarest of Rare case will be the one in which the crime has to be committed in the most heinous way or in extraordinary Circumstances which is beyond the imagination of general public. This has to be decided by the court on the basis of facts and circumstances of the case.

Now, The General Punishment for Murder is Life Imprisonment and for exceptional cases which are covered under rarest of rare than Death Penalty can be awarded.

Pardoning Power of President Under Art. 72 of the Constitution

The President under Art. 72 has following Powers regarding Capital Punishment awarded by The Supreme Court.

1. Pardon, Can give Complete Pardon to the accused of the Charges.
2. Reprieve, Temporarily suspend the sentence.
3. Respite, Awarding less sentence than the original sentence
4. Remission, Reducing the amount of original sentence.
5. Commutation, Changing one punishment to another.

Capital Punishment Executions in last 15 years

Out of Almost 1400 Death Sentence Awards, only 4 executions were seen in the Last 15 years.

1. Dhananjoy Chatterjee (14th Aug. 2004): was executed at Alipore Central Jail, Kolkata. He was charged for Murder and Rape of a 14-year-old girl named Hetal Parekh.
2. Mohammad Ajmal Amir Kasab (21st Nov. 2012): was executed at Yerwada Jail, Pune. He was charged for the infamous 26/11 Mumbai Attacks.
3. Afzal Guru (9th Feb. 2013): was executed at Tihar Jail, Delhi. He was held to be the Mastermind of the Attack on Parliament on 13 Dec. 2001.
4. Yakub Memon (30th July 2015): was executed at Central Jail, Nagpur. Held for sponsoring 13 serial blasts in Mumbai in 1993.

Capital Punishment For Rape under Sec. 376A by Criminal Law (Amendement) Act 2013

The demand for Capital Punishment in the cases of Rape was called for after the infamous Delhi gang Rape case in 2012 i.e Mukesh and others vs. State of NCT of Delhi. After which The Criminal Law (Amendment) Act 2013 was introduced and various sections were added and changes were made. These Changes include addition of Sec. 376A Punishment for causing death or resulting in persistent vegetative state of victim.

“Whoever, commits an offence punishable under sub-section (l) or sub¬section (2) of section 376 and in the course of such commission inflicts an injury which causes the death of the woman or causes the woman to be in a persistent vegetative state, shall be punished with rigorous imprisonment for a term which shall not be less than twenty years, but which may extend to imprisonment for life, which shall mean imprisonment for the remainder of that person’s natural life, or with death.”

Capital Punishment and Human Rights

Negative View

” As long as you have Capital Punishment there is no gurantee that innocent people wont be put to death” – Paul Simon

Does Capital Punishment means that a person who commits a capital offence has lost his right to live or that his fundamental right under Art. 21 of our constitution has lost its validity. The Crime rate in India have not decreased despite favouring capital punishment as tool for deterrence. Ninety-five countries of the world have abolished the practice of Capital Punishment and Fifty-eight (including India) countries are those which are still practicing it. The extraordinary offences like muder and rape are usually committed by a person in spur of a moment, anger or anxiety.

‘Legal Murder’, Term used for capital punishment by the Human Rights Activists. To them it is the worst form of punishment in a civilized society. Capital Punishment means that the system has failed to overcome the hurdles through civilized manner. What will this be called, failure of the System as System failed at every single level to restrict commission of crime or Again Failure of System To be unable to control the criminal activities.

Positive View

But, the counter question still remains the same that what is the probablity that if capital punishment is suspended or struck down, the crime rate will fall. Because at present there is at least a fear of death in the minds of persons committing offences. This is one of the biggest tool for those judicial stystems which follow the principle of Deterrence theory of punishment. Every convict knows what he has done and what are its consequences. Every person knows that if he commits murder he may be put to death but if he still commits it whose fault this is.

Capital punishment may seem barbaric, inhuman or montrous but in reality it is the only and last weapon in the hands of Judiciary to curb down criminal activities. As the system in India is so corrupt that a criminal mind behind bars can run his business from jail cannot be stopped from committing a crime again. If there is any extraordinary crime committed , and there is no altenate punishment left, it is better to capitalise the convict that to make the society suffer in the name of Human Rights.

As Bill Mayer said, ” Capital Punishment Works great, every killer you kill never kills again”.

But Power to give Capital Punishment must be used with great care and caution by the Judiciary keeping in mind the basic principles of the criminal law as no innocent shall be punished for the crime which he has not committed.

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In this article, Mansi Baithija of UPES Dehradun discusses what does it mean if my case is referred to Lok Adalat.

The goal of ADR is to check litigation explosion, make the equity framework more affordable and effortlessly available to the uneducated and financially unstable people.

The concentration is to maintain a strategic distance from fights and build up a congruous connection between the debating parties by settling the dispute through a procedure of arbitration, mediation, negotiation and the preferences.

The ADR framework can never be an entire alternative to the ordinary arrangement of dispute determination. For instance, settling of criminal disputes is not be possible through the ADR instrument. There is not a viable replacement for Court choices in criminal law. Additionally, it is vital for both the parties to be really keen on settling the dispute calmly.

The Courts of law are gone up against with four principle issues which are as per the following

1. The quantity of Courts and judges in all evaluations is extremely low.
2. The increase in the quantity of cases attributable to the different State and Central Acts.
3. The costs required in indicting or defending a case. The Court expense, the lawyer’s charge, and the additional charges add up to a significant substantial entirety.
4. The process is extremely awkward and tedious owing to the gigantic number of already pending cases.

There are certain methods of ADR in India

•    Tribunals
•    Lok Adalats
•    Arbitration
•    Conciliation
•    Fast track courts

Lok Adalat

Lok Adalat (individuals’ courts) settles the dispute through assuagement and compromise. Lok Adalat acknowledges the cases pending in the general courts inside their purview which could be settled by conciliation. Lok Adalat is an exceptional sort of individuals’ court in which disputes understood by coordinate talks between the parties.

The individuals from the legal profession, college students, social associations, beneficent and charitable establishments and other comparable associations might be related with Lok Adalat.

Striking components of this dispute resolution are interest, settlement, reasonableness, desires, willfulness, neighbourliness, straightforwardness and absence of antipathy. After they look into the case, Lok Adalats, attempt to fathom the basic contrasts which generally are probably going to leave for achieving outcomes through common comprehension and trade off.

Lok Adalats must consist of minimum two middlemen. One of them must be a lawyer or an expert in that particular area and another one must be a sitting or retired judge.

Vital legislations

• Article 39-A – right to free and speedy trial.
• Legal Services Authorities Act.
• Section 96(1) of the Code of Civil Procedure.

Types of Lok Adalat

Continuous Lok Adalat

This type of Lok Adalat is organized for a number of days continuously.

Daily Lok Adalat

As the name suggests, these are held every day.

Mobile Lok Adalat

These are the utility vans which are set up in different areas to resolve petty issues.

Mega Lok Adalat

This is held on a single day on the state level, in all the courts of the state.

National level Lok Adalats

These are held at regular intervals throughout the country. The pending cases are disposed of in huge numbers.  

Permanent Lok Adalats

The other type of Lok Adalat is the Permanent Lok Adalat, organized under Section 22-B of The Legal Services Authorities Act, 1987. Permanent Lok Adalats have been set up as permanent bodies with a Chairman and two members for providing the compulsory pre-litigation mechanism for conciliation and settlement of cases relating to Public Utility Services like transport, postal, telegraph etc.

When can a case be referred to Lok Adalat?

If any of the party involved in a dispute, prior to approaching the court, files a grievance to the legal service authority of the state, the case is taken by the Lok Adalats. This is the pre-litigation stage.

Approaching the Lok Adalat mechanism is a simple procedure and it is cost free too.  Cases already pending before any court can also be referred to the Lok Adalats if both the parties consent to it. ( section 20 of the legal service authority act).

One can file a grievance on the website of national legal services authority. If the court before which a case is pending, finds the case suitable for it, it can be referred to the Lok Adalat by the bench.

What should you expect if your case is referred to a Lok Adalat

• After referring the case, the Lok Adalat tries to communicate with the parties. They might invite you to for a meeting or communicate with you in writing or orally. In this stage, the factual information is discussed and if any one party desires to keep the information confidential from another party, it can be done.
• Suggestions are invited from both the parties to settle the case.
• When the Lok Adalat believes that there are elements of settlement of the dispute and that the terms might be acceptable by the parties, it is informed to the parties for observation and modifications and accordingly, the dispute is resolved.
• As per the supreme court of India, in the case of  PT Thomas v Thomas job, the award declared by a Lok Adalat is final and binding. Therefore no appeal lies in the cases resolved by the Lok Adalats.

“In our opinion, the award of the Lok Adalat is fictionally deemed to be decrees of Court and therefore the courts have all the powers in relation thereto as it has in relation to a decree passed by itself. This, in our opinion, includes the powers to extend the time in appropriate cases. In our opinion, the award passed by the Lok Adalat is the decision of the court itself though arrived at by the simpler method of conciliation instead of the process of arguments in court. The effect is the same. In this connection, the High Court has failed to note that by the award what is put an end to is the appeal in the District Court and thereby the litigations between brothers forever. The view was taken by the High Court, in our view, will totally defeat the object and purposes of the Legal Services Authorities Act and render the decision of the Lok Adalat meaningless.”

In this connection, the High Court has failed to note that by the award what is put an end to is the appeal in the District Court and thereby the litigations between brothers forever. The view was taken by the High Court, in our view, will totally defeat the object and purposes of the Legal Services Authorities Act and render the decision of the Lok Adalat meaningless.”

• If the case is referred via a court then the award granted by Lok Adalat mentions a clause regarding refund of court fee to the parties.
• The members of Lok Adalat ensure that the issue is settled by mutual consent and that there is no element of coercion or force.
• It is the duty of the members of the Lok Adalat to ensure that the parties affix their signatures only if they fully understand and agree to the terms of settlement.
• All the information regarding the case and proceedings are kept confidential.if any member of the Lok Adalat is found guilty of breaching the confidentiality clause, he shall be removed from the panel of members of the Lok Adalat.
• Your lawyer can appear before the Lok Adalat on your behalf but an effort must be made to present yourself.

Article 39A of our Constitution explicitly supports the statement “justice delayed is justice denied”. It is true that the backlog of cases in Indian cases has reached a point where it might take more than 300 years to clear them off. This is the major reason what makes our judicial system so slow and hard to manage and in turn, a lot of people lose faith in the legal system.

Only the wealthy class of the society is able to reach out to effective justice while the poor can’t afford to hire an established attorney, they are not able to solve their grievances.

It is also true that the legal system is facing litigation explosion but that doesn’t serve as an excuse to deny justice to any person. The establishment of Lok Adalats in India has helped to make the situation better. The first Lok Adalat was organized in 1982 in Junagarh, Maharashtra. The National Lok Adalat held on 08.04.2017 was able to dispose of 9,45,530 cases across the country.

References

2005 (3) RCR (Civil) 621.

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In this article, Alric Tirkey discusses the procedure to bring liquor legally from Goa to Mumbai.

Introduction

For decades Goa is a destination that signifies exotic holidays, spiritual awakening and freedom of travel but one of the main reason people visit Goa is that the price of liquor in Goa is much cheaper than other states especially Maharashtra.

What is liquor

Section 2(L) of the Goa Excise Duty Act and Rules, 1964, defines liquor as the following.

• Liquor include Beer, Feny, Spirit of Wine, methylated or denatured spirit, spirit, wine, toddy and include all liquid consisting of or containing alcohol, wash other medicinal preparation.
• Any intoxicated substance which is declared liquor by the way of notification.
• The legal age for alcohol consumption in Goa is 25.

Transport of liquor for personal consumption.

Carry two bottles for personal consumption (Rule 19B)

Rule 19B of the Goa Excise Duty and Rules,1964. According to the act any person who is going out of Goa carrying liquor, first, he/she should have to obtain a liquor permit granted by the Excise Commissioner from any licensed liquor premises for the retail sale of liquors in sealed bottles on payment of Rs 10/- per permit. The permit shall be issued in the prescribed form authorizing the person to carry the liquor with him duty paid I.M.F. Liquor or Imported foreign liquor in such quantities as is specified in the State or Union Territory where the import of such liquor is permitted, subject to such conditions as the Commissioner may impose.

Rule 88B of the Goa Excise Duty and Rules,1964. Transport of country liquor for personal consumption.

“Transport of country liquor for personal consumption The provisions of Rule 19B shall mutatis mutandis apply to permits issued for taking country liquor for personal consumption outside Goa.”^[1]

According to the local excise department, Goa received about million tourists per year. About five per cent purchase liquor permits and the state thus earns about Rs 2 million by way of excise duty on permits.

Document needed

A list which displays the kind of information which is required to complete the procedure.
e.g.
1. Date of Birth.
2. City or County of Birth.

Procedure

1. Fill up and submit the application addressed to the Excise Officer of Goa.
2. Also, submit along with the application form proof of age and residence.
3. Pay necessary fees.

Authority to approach

1. Office of the Commissioner of Excise.
2. Excise Inspector of Taluka.
3. Office in charge of Excise check posts.
4. Any retail Vendor in packed bottles.^[2]

Condition prescribed in the e-7 form

The transport of liquor is subject to the conditions cited below:-

1. According to the condition mention under the E-7 form of the Goa Excise Duty Act and Rules, 1964, the liquor shall not be consumed or in any manner used or allowed to be consumed or used during their transport through the State/Union Territory other than that of destination.
2. The seal on any container, receptacle or package containing the liquor shall not be broken and shall be kept intact during the transport.

Punishment for the breach of any condition prescribed in the permit

Section 31(b) Goa Excise Duty Act and Rules, 1964 which says that any person wilfully does or omit to do anything in breach of the any condition shall on conviction before a Magistrate, be punished for offence with fine which may extend to “ten thousand rupees” or with imprisonment which may extend to six month or with both.

Amount of alcohol you can carry out of Goa

What  action can be taken when the excise permit is not honoured by the other state officials

When the state excise is not honoured by the other state officials, a person can file a postal complaint in state excise and customs department.

The names of officers of the Directorate General of Vigilance along with their designations to whom such postal complaint are given below.  Sending the complaints to the concerned jurisdictional office would expedite the action.

^[1] http://www.cbec.gov.in/htdocs-cbec/grievance

Penalty for carrying liquor in amount more than the legal limit

Section 31(b)^[1] Goa Excise Duty Act and Rules, 1964 which says that any person wilfully does or omit to do anything in breach of the any condition shall on conviction before a Magistrate, be punished for offence with fine which may extend to “ten thousand rupees” or with imprisonment which may extend to six month or with both.

^[1] Goa Excise Duty Act and Rules, 1964

Form

                                           Department of Excise

                                                   FORM E-7

                                         (See Rules 19, 35, 39)

Permit for transport of duty paid Indian made foreign liquor/denatured spirit/rectified spirit/country liquor No. …

Shri/Sarvashri … is/are permitted to transport from … the undermentioned liquors to … by Road/Rail/Water. Name of the liquor No. of cases Bulk litres Proof litres This permit will be valid for … days from the date of issue and should always be carried alongwith the consignment.

Place ………………..

Date …………………                                                                                      Licensing Authority

Copy to:-

Excise Check-Post at …….

Excise Inspector at ………

^[1] file:///C:/Users/Hi/Downloads/Excise-Duty-Act-and-Rules%20(2).pdf

^[2] http://www.goastateexcise.goa.gov.in/citizencharter.php

^[3] http://goaliquorbazaar.com/index.php?route=information/information&information_id=7

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