Legal aspects of business in india


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Legal aspects of business in india

  1. 1. by DrRajesh Patel,Director,NRV11/13/2011 3:37:38 AM 1 MBA,
  2. 2. Legal aspects are an indispensable part of a successful business environment in any country.They reflect the policy framework and the mind set of the Governmental structure of thatcountry. They ensure that every company is functioning as per the statutory framework of thecountry. Every enterprise must take into account this legal set up while framing the basic aimsand objectives of its company. This is because, it is necessary for efficient and healthyfunctioning of the organisation and helps it to know about the rights, responsibilities as well asthe challenges that it may have to face. by DrRajesh Patel,Director,NRV 11/13/2011 3:37:38 AM 2 MBA,
  3. 3. In India, the most important law which regulates all aspects relating to a company is theCompanies Act,1956. It contains provisions relating to formation of a company, powers andresponsibilities of the directors and managers, raising of capital, holding company meetings,maintenance and audit of company accounts, powers of inspection and investigation ofcompany affairs, reconstruction and amalgamation of a company and even winding up of acompany. by DrRajesh Patel,Director,NRV 11/13/2011 3:37:39 AM 3 MBA,
  4. 4. The other major legislations are:- the Industries (Development and Regulation) Act 1951; TradeUnions Act; the Competition Act, 2002; the Arbitration and Conciliation Act, 1996; the ForeignExchange Management Act (FEMA),1999; laws relating to intellectual property rights; as well aslaws relating to labour welfare. by DrRajesh Patel,Director,NRV 11/13/2011 3:37:39 AM 4 MBA,
  5. 5. Industrial Acts and Legislations by DrRajesh Patel,Director,NRV11/13/2011 3:37:39 AM 5 MBA,
  6. 6. In India there are several Acts and legislations enacted by the Government of India forregulation of industries in the country. These enactments play a very important role in thecountrys overall progress and economic development. These legislations are amended fromtime to time in accordance with the changing circumstances and environment. The mostimportant Act is the Companies Act,1956 which relates to setting up and operation ofcompanies in India. It empowers the Central Government to regulate the formation, financing,functioning and winding up of companies. It contains the mechanism regarding organisational,financial, managerial and all the relevant aspects of a company. by DrRajesh Patel,Director,NRV 11/13/2011 3:37:39 AM 6 MBA,
  7. 7. In order to provide the Central Government with the meansto implement its industrial policies, several legislations havebeen enacted. The most important being the Industries(Development and Regulation) Act, 1951 (IDRA). The mainobjectives of the Act is to empower the Government to takenecessary steps for the development of industries; toregulate the pattern and direction of industrialdevelopment; and to control the activities, performance andresults of industrial undertakings in the public interest. by DrRajesh Patel,Director,NRV 11/13/2011 3:37:39 AM 7 MBA,
  8. 8. The bulk of the transactions in trade, commerce and industry are based on contracts.In India, the Indian Contract Act,1872 is the governing legislation for contracts, whichlays down the general principles relating to formation, performance and enforceabilityof contracts and the rules relating to certain special types of contracts like Indemnityand Guarantee; Bailment and Pledge; as well as Agency. by DrRajesh Patel,Director,NRV 11/13/2011 3:37:39 AM 8 MBA,
  9. 9. Another important aspect of legislations is the industrial relations, which involvesvarious aspects of interactions between the employer and the employees; among theemployees as well as between the employers. In such relations whenever there is aclash of interest, it may result in dissatisfaction for either of the parties involved andhence lead to industrial disputes or conflicts. The Industrial Disputes Act, 1947 is themain legislation for investigation and settlement of all industrial disputes. The Actenumerates the contingencies when a strike or lock-out can be lawfully resorted to,when they can be declared illegal or unlawful, conditions for laying off, retrenching,discharging or dismissing a workman, circumstances under which an industrial unit canbe closed down and several other matters related to industrial employees and by DrRajesh Patel,Director,NRV 11/13/2011 3:37:39 AM 9employers. MBA,
  10. 10. Trade unions are also an important part of an industrial set up. The legislation regulating thesetrade unions is the Indian Trade Unions Act, 1926 . The Act deals with the registration of tradeunions, their rights, their liabilities and responsibilities as well as ensures that their funds areutilised properly. It gives legal and corporate status to the registered trade unions. It also seeksto protect them from civil or criminal prosecution so that they could carry on their legitimateactivities for the benefit of the working class. by DrRajesh Patel,Director,NRV 11/13/2011 3:37:39 AM 10 MBA,
  11. 11. INDIAN Companies Act.1956 by DrRajesh Patel,Director,NRV11/13/2011 3:37:39 AM 11 MBA,
  12. 12. A Company is defined as a voluntary association of persons formed forthe purpose of doing business, having a distinct name and limitedliability. Companies, whether public or private, are an indispensable partof an economy. They are the modes through which a country grows andexpands world wide. Their performance is an important parameter of acountries economic DrRajesh Patel,Director,NRV 11/13/2011 3:37:39 AM 12 MBA,
  13. 13. In India, the Companies Act, 1956, is the most important piece of legislation that empowers theCentral Government to regulate the formation, financing, functioning and winding up ofcompanies. The Act contains the mechanism regarding organisational, financial, managerial andall the relevant aspects of a company. It provides for the powers and responsibilities of thedirectors and managers, raising of capital, holding of company meetings, maintenance and auditof company accounts, powers of inspection, etc. The Act applies to whole of India and to alltypes of companies, whether registered under this Act or an earlier Act. But it does not apply touniversities, co-operative societies, unincorporated trading, scientific and other societies. by DrRajesh Patel,Director,NRV 11/13/2011 3:37:39 AM 13 MBA,
  14. 14. The Act empowers the Central Government to inspect the books of accounts of a company, todirect special audit, to order investigation into the affairs of a company and to launchprosecution for violation of the Act. These inspections are designed to find out whether thecompanies conduct their affairs in accordance with the provisions of the Act, whether any unfairpractices prejudicial to the public interest are being resorted to by any company or a group ofcompanies and to examine whether there is any mismanagement which may adversely affectany interest of the shareholders, creditors, employees and others. If an inspection discloses aprima facie case of fraud or cheating, action is initiated under provisions of the Companies Actor the same is referred to the Central Bureau of Investigation. by DrRajesh Patel,Director,NRV 11/13/2011 3:37:39 AM 14 MBA,
  15. 15. The Companies Act is administered by the Central Government throughthe Ministry of Corporate Affairs and the Offices of Registrar ofCompanies, Official Liquidators, Public Trustee, Company Law Board,Director of Inspection, etc. The Registrar of Companies (ROC) controlsthe task of incorporation of new companies and the administration ofrunning companies. by DrRajesh Patel,Director,NRV 11/13/2011 3:37:39 AM 15 MBA,
  16. 16. The Ministry of Corporate Affairs, earlier known as Department ofCorporate Affairs under Ministry of Finance, is primarily concerned withadministration of the Companies Act, 1956, other allied Acts and rules &regulations framed there-under mainly for regulating the functioning ofthe corporate sector in accordance with law. The Ministry has a three-tier organisational set-up:-The Headquarters at New Delhi,The Regional Directorates at Mumbai, Kolkata, Chennai and Noida, andThe Registrars of Companies (ROCs) in States and Union Territories. by DrRajesh Patel,Director,NRV 11/13/2011 3:37:39 AM 16 MBA,
  17. 17. The Official Liquidators who are attached to the various High Courts functioning in the countryare also under the overall administrative control of the Ministry. The set-up at the Headquartersincludes the Company Law Board, a quasi-judicial body, having the principal Bench at New Delhi,an additional principal bench for Southern Region at Chennai and four Regional Benches locatedat New Delhi, Mumbai, Kolkata and Chennai. The organisation at the Headquarters also includestwo Directors of Inspection and Investigation with a complement of staff, an Economic Adviserfor Research and Statistics and other Officials providing expertise on legal, accounting, economicand statistical matters. by DrRajesh Patel,Director,NRV 11/13/2011 3:37:39 AM 17 MBA,
  18. 18. The four Regional Directors, who are in charge of the respective regions, comprising a numberof States and Union Territories, interalia, supervise the working of the Offices of Registrars ofCompanies and the Official Liquidators working in their regions. They also maintain liaison withthe respective State Governments and the Central Government in matters relating to theadministration of the Companies Act, 1956.Registrar of Companies (ROCs) appointed under Section 609 of the Companies Act, coveringvarious States and Union Territories, are vested with the primary duty of registering companiesfloated in the respective States and the Union Territories and ensuring that such companiescomply with the statutory requirements under the Act. Their offices function as registry ofrecords relating to the companies registered with them. The powers vested with the ROCs are:- by DrRajesh Patel,Director,NRV 11/13/2011 3:37:39 AM 18 MBA,
  19. 19. Registration of memorandum and articles.Registration of prospectus.Registration of reduction of capital.Call information or explanation.Seizure of documents.Investigation into affairs of a company.Inspection of books of accounts, etc of companies.To strike off defunct companies from register.Enforcement of duty of company to make returns, etc to Registrar.Non-disclosure of information in certain cases.Winding up petition by the Registrar. Patel,Director,NRV by DrRajesh11/13/2011 3:37:39 AM 19 MBA,
  20. 20. According to the Act, a company means "a company formed and registered under the Act or an existing companyi.e. a company formed or registered under any of the previous company laws". The salient features of a companyare:-Artificial legal person:- a company is an artificial person in the sense that it is created by law and lacks theattributes possessed by natural persons. It is invisible, intangible, immortal and exists only in the contemplation oflaw. Hence, it has to operate through a board of directors consisting of individuals.Separate legal entity:- a company is a distinct legal entity, different from its members or shareholders. Thisimplies that:- the property of the company belongs to it and not to the members or shareholders; no member caneither individually or jointly claim any ownership rights in the assets of the company; an individual member cannotbe held liable for the wrongful acts of the company even if he/she holds virtually the entire share capital; themembers of the company can enter into contracts with the company.Perpetual succession:- a company enjoys continuous existence and its continuance is not affected by the death,insolvency, mental or physical incapacity of its members. It is created by law and law alone can dissolve it.Limited liability of members:- the liability of its members is limited to the amount remaining unpaid on the sharessubscribed by them. Thus, in case of fully paid-up shares, the members cannot be asked to contribute any further,if the company goes into liquidation.Common seal:- a company has a common seal, which is the signature of that company and signifies commonconsent of all the members. The companys seal is affixed on all the documents executed for and on its behalf.Transferability of shares:- the shares of a public company are freely transferable without the permission of thecompany but in a manner provided in the Articles. The shareholders may transfer their shares to another personand this does not affect the funds of the company. But, a private company imposes restrictions on transfer of itsshares.Separate property:- all the property of the company vests in it. The company can control, manage and hold thesame in its own name. The members have no ownership rights in the companys property, either individually orcollectively. A shareholder does not even have an insurable right in the property of the company. The creditors ofthe company can have a claim only against the property of the company and not against the property of theindividual members.Capacity to sue and being sued:- a company can enforce its rights through suits and can also be sued forbreach of its statutory rights. by DrRajesh Patel,Director,NRV 11/13/2011 3:37:39 AM 20 MBA,
  21. 21. Laws relating ToIntellectual Property Rights (IPRs) by DrRajesh Patel,Director,NRV11/13/2011 3:37:39 AM 21 MBA,
  22. 22. Intellectual property(IP) is the creation of human intellect. It refers tothe ideas, knowledge, invention, innovation, creativity, research etc, allbeing the product of human mind and is similar to any property,whether movable or immovable, wherein the proprietor or the ownermay exclusively use his property at will and has the right to preventothers from using it, without his permission. The rights relating tointellectual property are known as Intellectual Property Rights. by DrRajesh Patel,Director,NRV 11/13/2011 3:37:39 AM 22 MBA,
  23. 23. Intellectual Property Rights, by providing exclusive rights tothe inventor or creator, encourages more and more people toinvest time, efforts and money in such innovations andcreations. Intellectual property rights are customarily dividedinto two main areas:- by DrRajesh Patel,Director,NRV 11/13/2011 3:37:39 AM 23 MBA,
  24. 24. •Copyright and rights related to copyright:- the rights of authors ofliterary and artistic works (such as books and other writings,musical compositions, paintings, sculpture, computer programsand films) are protected by copyright. Also, protection is granted torelated or neighbouring rights like the rights of performers(e.g. actors, singers and musicians), producers of phonograms(sound recordings) and broadcasting organizations. by DrRajesh Patel,Director,NRV 11/13/2011 3:37:39 AM 24 MBA,
  25. 25. INTELLECTUAL property, which is divided into two main areas:-One area can be characterized as the protection of distinctive signs, in particulartrademarks (which distinguish the goods or services of one undertaking from thoseof other undertakings) and geographical indications (which identify a good asoriginating in a place where a given characteristic of the good is essentiallyattributable to its geographical origin).Other types of INTELLECTUAL property are protected primarily to stimulateinnovation, design and the creation of technology. This category includes inventions(protected by patents), industrial designs and trade secrets. by DrRajesh Patel,Director,NRV 11/13/2011 3:37:39 AM 25 MBA,
  26. 26. Key RegulationsAn entrepreneur has to take into account the basicregulatory requirements of the country in order to ensuresustainability of the profits and productivity of his/herbusiness. The most important regulation relates to theenvironment. The environmental regulatory requirementsenvisage a wide legislative framework covering every aspectof environment protection. Broadly, it includes the emissionstandards for air, noise, water, etc. Separate set of laws foremission of hazardous wastes have also been enacted. Everyindustry has to abide by these guidelines and parameters forenvironmental protection. by DrRajesh Patel,Director,NRV 11/13/2011 3:37:39 AM 26 MBA,
  27. 27. An organization for its smooth and effective functioning, must ensurehealth and safety of its employees. The major legislations relating toOccupational Health and Safety in India are:- the Factories Act, 1948;the Mines Act, 1952 and the Dock Workers (Safety, Health & Welfare)Act, 1986. The Directorate General of Mines Safety (DGMS) and theDirectorate General of Factory Advice Service and Labour Institutes(DGFASLI) are the two field organisations of the Ministry of Labour andEmployment in the area of occupational safety and health in mines,factories and ports. by DrRajesh Patel,Director,NRV 11/13/2011 3:37:39 AM 27 MBA,
  28. 28. Besides, the Government of India has taken steps like,announcing a competition policy, enacting Competition Act,2002 and setting up of Competition Commission of India , inorder to ensure a healthy and fair competition in the marketeconomy. These aim to prohibit the anti-competitive businesspractices, abuse of dominance by an enterprise as well asregulate various business combinations like mergers andacquisitions. by DrRajesh Patel,Director,NRV 11/13/2011 3:37:39 AM 28 MBA,
  29. 29. For regulation of the export and import of goods andservices an entrepreneur has to abide by the Foreign Trade(Development and Regulation) Act, 1992 and the EXIMpolicy announced by the Government from time to time.The Ministry of Commerce and Industry is the mostimportant organ concerned with the promotion andregulation of the foreign trade in India. The Ministry has anelaborate organizational set up to look after the variousaspects of trade. Within the Ministry, the Department ofCommerce is responsible for formulating and implementingthe foreign trade policy. by DrRajesh Patel,Director,NRV 11/13/2011 3:37:39 AM 29 MBA,
  30. 30. by DrRajesh Patel,Director,NRV11/13/2011 3:37:39 AM 30 MBA,
  31. 31. by DrRajesh Patel,Director,NRV11/13/2011 3:37:39 AM 31 MBA,